Second Quarter Results
Marsh & McLennan Co Inc
02 August 2005
News Release
Media Contacts: Jim Fingeroth Investor Contact:
Barbara Perlmutter Kekst and Company Mike Bischoff
MMC (212) 521-4819 MMC
(212) 345-5585 (212) 345-5470
MMC REPORTS SECOND QUARTER RESULTS
NEW YORK, NEW YORK, August 2, 2005-Marsh & McLennan Companies, Inc. (MMC) today
reported financial results for the second quarter and six months ended June 30,
2005. Consolidated revenues for the quarter increased 2 percent to $3.1 billion.
Net income was $166 million, or $.31 per share, compared with $389 million, or
$.73 per share, in last year's second quarter. For the six months of 2005,
consolidated revenues rose 1 percent to $6.3 billion. Net income was $300
million, or $.56 per share, compared with $835 million, or $1.56 per share, last
year. Current year results include charges for restructuring, employee
retention, and incremental regulatory and compliance expenses. Excluding
noteworthy items, earnings per share would have been $.43 and $.95,
respectively, for the second quarter and six months of 2005, compared with $.73
and $1.69, respectively, for the same periods of 2004.
Michael G. Cherkasky, president and chief executive officer of MMC, said:
'Although much of our focus has been on the restructuring and turnaround at
Marsh, we have made significant strides across all of MMC's businesses to
position the company for long-term profitable growth. A number of our businesses
had very strong results this quarter, such as Kroll, Mercer Management
Consulting, and Mercer Oliver Wyman. Within Mercer Human Resource Consulting,
there is increased demand for bundled solutions in retirement and benefits
outsourcing, and the early response by U.S. clients to the launch of Mercer
Global Investments products has been excellent. At Putnam, investment
performance continues to improve, mutual fund redemptions are stable, and sales
initiatives in both retail and institutional channels are showing promise. At
Marsh, we are proud of the tremendous job our colleagues are doing in a very
complex operating environment. We are working on all fronts to bring our costs
in line with revenues and implement business reforms that we believe are setting
the new standard in the industry for transparency and compliance as we continue
to deliver world-class risk management advice and services to clients.'
Risk and Insurance Services
Risk and insurance services revenues declined 11 percent in the second quarter
to $1.5 billion. Underlying revenues, which exclude acquisitions, dispositions,
and foreign exchange, declined 13 percent. During the quarter, the insurance
marketplace saw continued reductions in commercial premium rates. These
conditions are expected to continue through the end of this year.
Marsh's risk management and insurance broking revenues of $1 billion in the
second quarter were 18 percent lower compared with last year. Excluding the
effect of market services revenues, underlying revenues declined 8 percent, an
improvement of 3 percentage points from the first quarter of 2005.
Guy Carpenter's revenues declined 9 percent in the second quarter to $192
million, or 11 percent on an underlying basis. The effects of higher risk
retention by clients and lower premium rates in the reinsurance marketplace were
offset partially by new business. These conditions are likely to continue
through the remainder of the year.
Related insurance services revenues rose 23 percent in the second quarter to
$303 million, an increase of 17 percent on an underlying basis. Performance was
excellent in all businesses for both the quarter and the first half of the year,
with particularly strong growth reported by claims management, which increased
revenues 30 percent in the quarter.
Risk Consulting and Technology
Kroll reported revenues of $267 million in the second quarter, with double-digit
revenue growth over prior-year pre-acquisition levels. The technology services
group achieved strong performance in legal technologies, background screening,
and mortgage-related service offerings. The corporate advisory and restructuring
practice, which is part of Kroll's consulting services group, also recorded
double-digit revenue growth.
Consulting
Consulting revenues increased 6 percent in the second quarter to $963 million,
or 3 percent on an underlying basis.
Mercer is now managing the combined operations of Marsh's U.S. employee benefits
business and Mercer's health and benefits business. Segment financial
information for the first quarter of this year and each quarter of 2004 has been
adjusted to reflect the combined results, as shown in the attached supplemental
schedule on page 14.
Mercer Human Resource Consulting's revenues increased slightly in the quarter to
$687 million. Revenue trends for Mercer's retirement, HR services, and human
capital businesses improved in the second quarter of 2005 compared with the
first quarter.
Mercer's specialty consulting businesses reported continued strong performance.
Revenues increased 22 percent to $229 million, or 19 percent on an underlying
basis, reflecting particularly strong growth at Mercer Management Consulting,
Mercer Oliver Wyman, and NERA Economic Consulting.
Investment Management
Putnam's revenues in the second quarter declined 13 percent to $377 million.
Average assets under management during the second quarter were $196 billion,
compared with $216 billion in the second quarter of 2004. Mutual fund net
redemptions in the second quarter tracked this year's first quarter.
Institutional net redemptions were significantly lower in the second quarter-the
best results in two years. Total assets under management on June 30, 2005 were
$195 billion, comprising $132 billion of mutual fund assets and $63 billion of
institutional assets.
Other Items
The restructuring announced at the end of 2004 has been completed, with
annualized cost savings totaling $400 million. About two-thirds of the savings
relate to risk and insurance services. As previously disclosed, the anticipated
cost to implement the 2005 restructuring is $370 million. This restructuring,
which affects primarily risk and insurance services, should be completed by
early next year and is expected to yield $375 million in annual savings, of
which $30 million was realized in the second quarter.
MMC shareholders approved in May the offering to permit employees to exchange
certain deeply underwater stock options for new options covering fewer shares.
Effective July 1, employees exchanged 42 million stock options, or over 90
percent of eligible grants, for 16 million new stock options in a
value-for-value exchange, thereby retiring almost 26 million stock options.
MMC's consolidated effective tax rate of 30.7 percent in the second quarter
reflects the favorable resolution of audit issues and the impact of charges for
restructuring, employee retention, and incremental regulatory and compliance
expenses deducted at higher rates than the ongoing effective rate of 35 percent.
Conference Call
A conference call to discuss second quarter 2005 results will be held today at
10:00 a.m. Eastern Daylight Time. To participate in the live teleconference,
please dial (800) 818-5264 or (913) 981-4910 (international). The access code
for both numbers is 4774218. The live 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. A continuous telephone replay
will be available beginning at 1:00 p.m. Eastern Daylight Time, August 2 and
continuing until midnight Eastern Daylight Time, August 8. To listen to the
replay, please dial (888) 203-1112 or (719) 457-0820 (international). The access
code for both numbers is 4774218.
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; Putnam
Investments, one of the largest investment management companies in the United
States; and Mercer, a major global provider of consulting services.
Approximately 60,000 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 statements relating to future results, which are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such statements may include, without limitation,
discussions concerning the matters raised in the complaint filed by the New York
Attorney General's Office stating a claim for, among other things, fraud and
violations of New York State antitrust and securities laws, the complaint filed
by the Connecticut Attorney General and numerous other investigations being
conducted by other state attorneys general and state superintendents or
commissioners of insurance, elimination of market services agreements ('MSA'),
the new business model of Marsh Inc., the adverse consequences arising from
market-timing issues at Putnam, including fines and restitution, revenues,
expenses, earnings and cash flow, capital structure, existing credit facilities,
and access to public capital markets including commercial paper markets, pension
funding, market and industry conditions, premium rates, financial markets,
interest rates, foreign exchange rates, claims, lawsuits and other
contingencies, and matters relating to MMC's operations and income taxes.
Such forward-looking statements are based on management's expectations
concerning current and future events impacting MMC. Forward-looking statements
by their very nature involve risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated by forward-looking
statements that we make include:
• the 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 insurance and reinsurance brokerage operations;
• the impact of class actions, derivative actions and individual suits
brought by policyholders and shareholders (including MMC employees)
asserting various claims, including claims under U.S. securities laws,
ERISA, RICO, unfair business practices and other common law or statutory
claims;
• loss of producers or key managers;
• inability to negotiate satisfactory compensation arrangements with
insurance carriers or clients;
• inability to reduce expenses to the extent necessary to achieve desired
levels of profitability;
• inability to collect previously accrued MSA revenue;
• changes in competitive conditions;
• changes in the availability of and the market conditions and the
premiums insurance carriers charge for insurance products;
• mergers between client organizations;
• insurance or reinsurance company insolvencies;
• the impact of litigation and other regulatory matters stemming from
market-timing issues at Putnam;
• changes in worldwide and national equity and fixed income markets;
• actual and relative investment performance of the Putnam mutual funds;
• the level of sales and redemptions of Putnam mutual fund shares;
• Putnam's ability to maintain investment management and administrative
fees at current levels;
• the ability of MMC to successfully access the public capital markets to
meet long term financing needs;
• the continued strength of MMC's relationships with its employees and
clients;
• the ability to successfully integrate acquired businesses and realize
expected synergies;
• changes in general worldwide and national economic conditions;
• the impact of terrorist attacks;
• changes in the value of investments made in individual companies and
investment funds;
• fluctuations in foreign currencies;
• actions of regulators and law enforcement authorities;
• changes in interest rates or the inability to access financial markets;
• adverse developments relating to claims, lawsuits and contingencies;
• prospective and retrospective 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 forward-looking statement to reflect
events or circumstances after the date on which it is made or to reflect the
occurrence of unanticipated events.
MMC is committed to providing timely and materially accurate information to the
investing public, consistent with our legal and regulatory obligations. To that
end, 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 Six Months Ended
June 30, June 30,
-------------- --------------
2005 2004 2005 2004
------- ------- ------- -------
Revenue:
Service Revenue $3,045 $2,956 $6,170 $6,119
Investment Income (Loss) 51 72 108 105
------- ------- ------- -------
Total Revenue 3,096 3,028 6,278 6,224
------- ------- ------- -------
Expense:
Compensation and Benefits 1,837 1,596 3,769 3,231
Other Operating Expenses 953 800 1,931 1,593
Regulatory and Other
Settlements - - - (5)
------- ------- ------- -------
Total Expense 2,790 2,396 5,700 4,819
------- ------- ------- -------
Operating Income 306 632 578 1,405
Interest Income 11 4 20 9
Interest Expense (73) (48) (142) (98)
------- ------- ------- -------
Income Before Income Taxes
and Minority Interest Expense 244 588 456 1,316
Income Taxes 75 194 149 475
Minority Interest Expense,
Net of Tax 3 5 7 6
------- ------- ------- -------
Net Income $ 166 $ 389 $ 300 $ 835
======= ======= ======= =======
Basic Net Income Per Share $ 0.31 $ 0.75 $ 0.56 $ 1.60
======= ======= ======= =======
Diluted Net Income Per Share $ 0.31 $ 0.73 $ 0.56 $ 1.56
======= ======= ======= =======
Average Number of
Shares Outstanding - Basic 535 522 533 523
======= ======= ======= =======
Average Number of
Shares Outstanding - Diluted 538 534 537 537
======= ======= ======= =======
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Second Quarter
(Millions) (Unaudited)
Three Months Ended Components of Revenue Change
------------------
% Change Acquisitions/ Underlying Revenue
June 30, GAAP Currency Dispositions Underlying excluding
------------- MSA Impact
2005 2004 Revenue Impact Impact Revenue
------- ------ ------- ------- -------- ------- ---------
Risk and Insurance
Services
Risk Management
and Insurance $1,025 $1,242 (18)% 2% - (20)% (8)%
Broking Reinsurance
Broking and Services 192 211 (9)% 2% - (11)%
Related Insurance
Services 303 247 23% - 6% 17% 14%
------- ------
Total Risk and
Insurance Services 1,520 1,700 (11)% 1% 1% (13)% (4)%
------- ------
Risk Consulting &
Technology 267 26 927% - 958% (31)%
------- ------
Consulting Human
Resource 687 684 - 2% - (2)% (1)%
Consulting Specialty
Consulting 229 187 22% 3% - 19%
------- ------
916 871 5% 3% - 2% 3%
Reimbursed Expenses 47 40
------- ------
Total Consulting 963 911 6% 3% - 3% 4%
------- ------
Investment Management 377 434 (13)% - - (13)%
------- ------
Total Operating
Segments 3,127 3,071 2% 2% 9% (9)% (4)%
Corporate Eliminations (31) (43)
------- ------
Total Revenue $3,096 $3,028 2% 2% 9% (9)% (4)%
======= ======
Segment Reclassification
MMC has reclassified prior period amounts to reflect organizational changes that
affected MMC's reportable segments. The following changes are reflected in the
segment data presented above:
Risk Consulting and Technology, a new reportable segment effective January 1,
2005, includes Kroll, Inc., which was acquired by MMC in July 2004 and the
portions of the risk consulting business previously managed by Marsh.
Putnam's defined contribution administration business was transferred from
Investment Management to Human Resource Consulting. Approximately 75% of the
revenues earned by Mercer HR from this transferred business is paid by Putnam.
Putnam receives fees for investment management and administrative services,
which is recorded as revenue. A fee related to administrative services is
recorded as an expense by Putnam and as revenue by Mercer HR. The inter-company
revenue and expense are eliminated in consolidation.
Management of Marsh's U.S. employee benefits business was transferred from Risk
Management and Insurance Broking to Human Resource Consulting.
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 20% in
the second quarter, including a 12% decline related to market services
agreements; and for the risk and insurance services segment underlying revenue
decreased 13% in the second quarter including a 9% decline related to market
services agreements.
Effective October 1, 2004 MMC agreed to eliminate contingent compensation
agreements with insurers. 2005 results include market services revenue of $39
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 $36 million and $30 million for
the three months ended June 30, 2005 and 2004, respectively.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Six Months
(Millions) (Unaudited)
Six Months Ended Components of Revenue Change
------------------
% Change Acquisitions/ Underlying Revenue
June 30, GAAP Currency Dispositions Underlying excluding
------------- MSA Impact
2005 2004 Revenue Impact Impact Revenue
------- ------ ------- ------- -------- ------- ---------
Risk and Insurance
Services
Risk Management and
Insurance $2,116 $2,604 (19)% 2% - (21)% (9)%
Broking Reinsurance
Broking and Services 474 494 (4)% 2% - (6)%
Related Insurance
Services 597 480 24% - 7% 17% 16%
------- ------
Total Risk and
Insurance Services 3,187 3,578 (11)% 2% 1% (14)% (5)%
------- ------
Risk Consulting &
Technology 531 52 930% - 947% (17)%
------- ------
Consulting Human
Resource 1,354 1,362 (1)% 2% - (3)% (2)%
Consulting Specialty
Consulting 439 367 20% 3% 1% 16%
------- ------
1,793 1,729 4% 2% - 2% 2%
Reimbursed Expenses 85 75
------- ------
Total Consulting 1,878 1,804 4% 2% - 2% 2%
------- ------
Investment Management 775 884 (12)% - - (12)%
------- ------
Total Operating
Segments 6,371 6,318 1% 2% 8% (9)% (4)%
Corporte Eliminations (93) (94)
------- ------
Total Revenue $6,278 $6,224 1% 2% 8% (9)% (4)%
======= ======
Segment Reclassification
MMC has reclassified prior period amounts to reflect organizational changes that
affected MMC's reportable segments. The following changes are reflected in the
segment data presented above:
Risk Consulting and Technology, a new reportable segment effective January 1,
2005, includes Kroll, Inc., which was acquired by MMC in July 2004 and the
portions of the risk consulting business previously managed by Marsh.
Putnam's defined contribution administration business was transferred from
Investment Management to Human Resources Consulting. Approximately 75% of the
revenues earned by Mercer HR from this transferred business are paid by Putnam.
Putnam receives fees for investment management and administrative services,
which is recorded as revenue. A fee related to administrative services is
recorded as an expense by Putnam and as revenue by Mercer HR. The inter-company
revenue and expense are eliminated in consolidation.
Management of Marsh's U.S. employee benefits business was transferred from Risk
Management and Insurance Broking to Human Resource Consulting.
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 21% in
the first six months, including a 12% decline related to market services
agreements; and for the risk and insurance services segment underlying revenue
decreased 14% in the first six months including a 9% decline related to market
services agreements.
Effective October 1, 2004 MMC agreed to eliminate contingent compensation
agreements with insurers. 2005 results include market services revenue of $71
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 $71 million and $59 million for
the six months ended June 30, 2005 and 2004, respectively.
Marsh & McLennan Companies, Inc.
Supplemental Information
(Millions) (Unaudited)
------------- --------------
Three Months Ended Six Months Ended
June 30, June 30,
------------- --------------
2005 2004 2005 2004
------- ------- ------- -------
Operating Income (Loss) Including
Minority Interest Expense:
Risk and Insurance Services $ 102 $ 423 $248 $1,028
Risk Consulting & Technology 33 5 70 9
Consulting 128 137 237 252
Investment Management 70 98 119 74
Corporate (30) (36) (103) 36
------- ------- ------- -------
303 627 571 1,399
------- ------- ------- -------
Minority Interest Expense, Net of Tax,
Included Above:
Risk and Insurance Services 2 4 5 7
Investment Management 1 1 2 (1)
------- ------- ------- -------
3 5 7 6
------- ------- ------- -------
Operating Income $ 306 $ 632 $578 $1,405
======= ======= ======= =======
Segment Operating Margins:
Risk and Insurance Services 6.7% 24.9% 7.8% 28.7%
Risk Consulting & Technology 12.4% 19.2% 13.2% 17.3%
Consulting 13.3% 15.0% 12.6% 14.0%
Investment Management 18.6% 22.6% 15.4% 8.4%
Consolidated Operating Margin 9.9% 20.9% 9.2% 22.6%
Pretax Margin 7.9% 19.4% 7.3% 21.1%
Effective Tax Rate 30.7% 33.0% 32.7% 36.1%
Shares Outstanding at End of
Period 534 521
Potential Minority Interest Associated
with the Putnam
Equity Partnership Plan Net of
Dividend Equivalent
Expense Related to MMC Common
Stock Equivalents $ - $ - $ - $ (1)
Marsh & McLennan Companies, Inc.
Supplemental Information - Putnam Assets Under Management
(Billions) (Unaudited)
June 30, March 31, Dec. 31, Sept. 30, June 30,
2005 2005 2004 2004 2004
-------- -------- -------- -------- --------
Mutual Funds:
Growth Equity $ 33 $ 34 $ 38 $ 37 $ 41
Value Equity 39 40 41 39 41
Blend Equity 26 26 28 27 28
Fixed Income 34 35 36 37 38
-------- -------- -------- -------- --------
Total Mutual
Fund Assets 132 135 143 140 148
-------- -------- -------- -------- --------
Institutional:
Equity 33 35 40 40 39
Fixed Income 30 29 30 29 26
-------- -------- -------- -------- --------
Total
Institutional
Assets 63 64 70 69 65
-------- -------- -------- -------- --------
Total Ending
Assets $195 $199 $213 $209 $213
======== ======== ======== ======== ========
Assets from
Non-US
Investors $ 34 $ 35 $ 38 $ 36 $ 36
======== ======== ======== ======== ========
Average Assets
Under Management:
Quarter-to-Date $196 $204 $211 $209 $216
======== ======== ======== ======== ========
Year-to-Date $200 $204 $217 $220 $225
======== ======== ======== ======== ========
Net Redemptions
including
Dividends
Reinvested: (a)
Quarter-to-Date $ (7.1) $ (9.7) $ (10.7) $ (10.5) $ (12.2)
======== ======== ======== ======== ========
Year-to-Date $ (16.8) $ (9.7) $ (51.0) $ (40.3) $ (29.8)
======== ======== ======== ======== ========
Impact of Market/
Performance on
Ending Assets Under
Management $ 3.1 $ (4.3) $ 15.4 $ (2.1) $ (1.4)
======== ======== ======== ======== ========
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.
Excludes the impact of the acquisition of PanAgora in July 2004, which increased
reported assets under management by $8.2 billion.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Quarter and Six Months Ended June 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 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-GAAP measures.
Risk & Risk
Insurance Consulting & Investment Corporate &
Services(a) Technology Consulting (a) Management Eliminations Total
------- -------- -------- -------- -------- -------
Quarter Ended
-------------
Operating Income As Reported $ 102 $ 33 $ 128 $ 70 $ (30) $ 303
------- -------- -------- -------- -------- -------
Restructuring Charges 48 - - - 5 53
------- -------- -------- -------- -------- -------
Other
Incremental Regulatory and 10 - - - (2) 8
Compliance (c)
Estimated Mutual Fund - - - 4 - 4
Reimbursement (d)
Employee Retention Awards 23 - 10 - - 33
Other (e) 7 - - - - 7
------- -------- -------- -------- -------- -------
40 - 10 4 (2) 52
------- -------- -------- -------- -------- -------
Operating Income Adjustments 88 - 10 4 3 105
------- -------- -------- -------- -------- -------
Operating Income As Adjusted $ 190 $ 33 $ 138 $ 74 $ (27) $ 408
======= ======== ======== ======== ======== =======
Operating Income Margin 12.5% 12.4% 14.3% 19.6% N/A 13.2%
As Adjusted
======= ======== ======== ======== ======== =======
Six Months Ended
----------------
Operating Income As Reported $ 248 $ 70 $ 237 $ 119 $ (103) $ 571
------- -------- -------- -------- -------- -------
Restructuring Charges (b) 144 - - - 54 198
------- -------- -------- -------- -------- -------
Other
Incremental Regulatory and 53 - - - (19) 34
Compliance (c)
Estimated Mutual Fund - - - 34 - 34
Reimbursement (d)
Employee Retention Awards 38 - 20 - - 58
Other (e) 10 - - - (3) 7
Minority Interest - - - (1) - (1)
------- -------- -------- -------- -------- -------
101 - 20 33 (22) 132
------- -------- -------- -------- -------- -------
Operating Income Adjustments 245 - 20 33 32 330
------- -------- -------- -------- -------- -------
Operating Income As Adjusted $ 493 $ 70 $ 257 $ 152 $ (71) $ 901
======= ======== ======== ======== ======== =======
Operating Income Margin 15.5% 13.2% 13.7% 19.6% N/A 14.4%
As Adjusted
======= ======== ======== ======== ======== =======
Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share
Quarter Ended Six Months Ended
------------- ----------------
Net Income, As Reported $166 $300
Operating Income Adjustments $105 $330
Tax Effect 40 119
------- -------
65 211
------- -------
Net Income, As Adjusted $ 231 $ 511
Average Diluted Shares Outstanding 538 537
------- -------
Earnings Per Share, As Adjusted $0.43 $0.95
======= =======
(a) For the three months and six months ended June 30, 2005, market services
revenue of $37 million and $68 million, respectively for Risk and Insurance
Services, and $2 million and $3 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 its benefit 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.
(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, partly offset
by a gain on the sale of the corporate jet.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Quarter and Six Months Ended June 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 & Risk
Insurance Consulting & Investment Corporate &
Services(a) Technology Consulting (a) Management Eliminations Total
------- -------- -------- -------- -------- -------
Quarter Ended
-------------
Operating Income As Reported $ 423 $ 5 $ 137 $ 98 $ (36) $ 627
------- -------- -------- -------- -------- -------
Other
Severance 9 - - 26 - 35
Incremental Regulatory and - - - 15 - 15
Compliance
Executive Comp Credit - - - (25) - (25)
Gain on Sale of Italian Venture - - - (38) - (38)
Communications - - - 9 - 9
Other - - - 9 - 9
Minority Interest - - - (1) - (1)
------- -------- -------- -------- -------- -------
Operating Income Adjustments 9 - - (5) - 4
------- -------- -------- -------- -------- -------
Operating Income As Adjusted $ 432 $ 5 $ 137 $ 93 $ (36) $ 631
======= ======== ======== ======== ======== =======
Operating Income Margin As 25.4% 19.2% 15.0% 23.5% N/A 21.1%
Adjusted
Six Months Ended
----------------
Operating Income As Reported $1,028 $ 9 $252 $ 74 $ 36 $1,399
------- -------- -------- -------- -------- -------
Settlements (b) - - - 100 (105) (5)
Other
Severance 16 - 11 51 - 78
Incremental Regulatory and - - - 29 - 29
Compliance
Executive Comp Credit - - - (25) - (25)
Gain on Sale of Italian Venture - - - (38) - (38)
Communications - - - 15 - 15
Other - - - 4 - 4
Minority Interest - - - (6) - (6)
------- -------- -------- -------- -------- -------
16 - 11 30 - 57
------- -------- -------- -------- -------- -------
Operating Income Adjustments 16 - 11 130 (105) 52
------- -------- -------- -------- -------- -------
Operating Income As Adjusted $1,044 $ 9 $263 $204 $ (69) $1,451
======= ======== ======== ======== ======== =======
Operating Income Margin As 29.2% 17.3% 14.6% 24.1% N/A 23.5%
Adjusted
======= ======== ======== ======== ======== =======
Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per
Share
Quarter Ended Six Months Ended
------------- ----------------
Net Income, As Reported $389 $835
Operating Income Adjustments $ 4 $ 52
Tax Effect (Credit) (c) 2 (23)
------- -------
2 75
------- -------
Net Income, As Adjusted $ 391 $ 910
Average Diluted Shares Outstanding 534 537
------- -------
Earnings Per Share, As Adjusted $0.73 $1.69
======= =======
(a) For the three months and six months ended June 30, 2004, market services
revenue of $202 million and $408 million, respectively for Risk and
Insurance Services, and $9 million and $14 million, respectively for the
employee benefits business transferred to Mercer, is included in Operating
Income As Reported and Operating Income As Adjusted.
(b) Settlements include Putnam's Settlements with the SEC and State of
Massachusetts and the final insurance settlement related to WTC in
Corporate.
(c) Reflects non-deductible Putnam settlement, credit related to insurance
settlement at 40% tax rate and other charges and credit at 33% tax rate.
Marsh & McLennan Companies, Inc.
Supplemental Information - Segment Reclassifications
(Millions) (Unaudited)
Segment Reclassification
MMC has reclassified prior period amounts to reflect the transfer of Marsh's
U.S. employee benefits business from Risk Management and Insurance Broking to
Human Resource Consulting. This change is reflected in the segment data below.
Amounts included under the 'As Previously Reported' caption include segment
reclassifications previously disclosed with MMC's first quarter earnings release
and in MMC's Form 8-K, dated June 28, 2005.
Revenue: The table below reflects the impact on previously reported segment
revenue resulting from changes in business segments.
Three Months Ended Year Ended
-------------------------------- --------
March 31, 2005 March 31, 2004 June 30, 2004 Sept. 30, 2004 Dec. 31, 2004 Dec. 31, 2004
-------- ------- ------- ------- ------ --------
Risk and Insurance
Services
As Previously $1,748 $1,967 $1,789 $1,555 $1,570 $6,881
Reported
Employee Benefits
Business (a) (81) (89) (89) (83) (81) (342)
-------- ------- ------- ------- ------ --------
$1,667 $1,878 $1,700 $1,472 $1,489 $6,539
======== ======= ======= ======= ====== ========
Consulting
Human Resource
Consulting, As $ 586 $ 589 $ 595 $ 583 $ 559 $2,326
Previously Reported
Employee Benefits
Business (a) 81 89 89 83 81 342
-------- ------- ------- ------- ------ --------
667 678 684 666 640 2,668
Specialty Consulting,
As Previously 210 180 187 192 215 774
Reported -------- ------- ------- ------- ------ --------
877 858 871 858 855 3,442
Reimbursed
Expenses 38 35 40 39 45 159
-------- ------- ------- ------- ------ --------
$ 915 $ 893 $ 911 $ 897 $ 900 $ 3,601
======== ======= ======= ======= ====== ========
(a) The Employee Benefits revenue includes the following amounts of market
services revenue:
$ 1 $ 5 $ 9 $ 3 $ 3 $ 20
======== ======= ======= ======= ====== ========
Operating Income: The table below reflects the impact on previously reported
segment operating income resulting from changes in business segments.
Three Months Ended Year Ended
-------------------------------- --------
March 31, 2005 March 31, 2004 June 30, 2004 Sept. 30, 2004 Dec. 31, 2004 Dec. 31, 2004
-------- ------- ------- ------- ------ --------
Risk and Insurance
Services
As Previously $ 171 $ 633 $ 450 $ (36) $ (860) $ 187
Reported
Employee Benefit
Business (25) (28) (27) (25) (22) (102)
-------- ------- ------- ------- ------ --------
$ 146 $ 605 $ 423 $ (61) $ (882) $ 85
======== ======= ======= ======= ====== ========
Consulting
As Previously $ 84 $ 87 $ 110 $ 106 $ 19 $ 322
Reported
Employee Benefit
Business 25 28 27 25 22 102
-------- ------- ------- ------- ------ --------
$ 109 $ 115 $ 137 $ 131 $ 41 $ 424
======== ======= ======= ======= ====== ========
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions) (Unaudited)
June 30, December 31,
2005 2004
---------- ----------
ASSETS
Current assets :
Cash and cash equivalents $ 856 $ 1,396
Net receivables 2,910 2,890
Other current assets 260 601
---------- ----------
Total current assets 4,026 4,887
Goodwill and intangible assets 8,069 8,139
Fixed assets, net 1,268 1,387
Long-term investments 331 558
Prepaid pension 1,358 1,394
Other assets 2,080 1,972
---------- ----------
TOTAL ASSETS $17,132 $18,337
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 364 $ 636
Accounts payable and accrued liabilities 1,798 1,834
Regulatory settlements - current portion 311 394
Accrued compensation and employee benefits 1,161 1,591
Accrued income taxes 179 280
Dividends payable 92 -
---------- ----------
Total current liabilities 3,905 4,735
========== ==========
Fiduciary liabilities 4,283 4,136
Less - cash and investments held in
a fiduciary capacity (4,283) (4,136)
---------- ----------
Long-term debt 4,689 4,691
Regulatory settlements 340 595
Pension, postretirement and postemployment benefits 1,361 1,333
Other liabilities 1,829 1,927
Total stockholders' equity 5,008 5,056
---------- ----------
Total liabilities and stockholders' equity $17,132 $18,337
========== ==========
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The company news service from the London Stock Exchange
Monday, 13th May 2024
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