MMC Reports Second Quarter 2008 Results
Strong Performance Led by Marsh
Marsh & McLennan
Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the
second quarter ended June 30, 2008.
In the quarter, consolidated revenue was $3 billion, up 9 percent from the
second quarter of 2007. Revenue growth was 4 percent on an underlying basis,
which measures the change in revenue before the impact of acquisitions and
dispositions, using consistent currency exchange rates. For the six months ended
June 30, consolidated revenue was $6.1 billion, an increase of 10 percent, or 4
percent on an underlying basis, from the comparable period in 2007.
In connection with the second step of the goodwill impairment assessment for the
Risk Consulting and Technology segment, MMC recorded a non-cash charge of $115
million, or $.22 per share, in the second quarter of 2008. The total impairment
charge reflected in the first six months of 2008 aggregates $540 million, or
$1.04 per share. There is no tax benefit related to the impairment charge, nor
any impact on MMC's cash flows, tangible equity, or debt covenants.
In the second quarter of 2008, income from continuing operations, net of tax,
was $55 million, or $.11 per share, compared with $140 million, or $.25 per
share, last year. Income from discontinued operations was $10 million, or $.02
per share, compared with $37 million, or $.06 per share, last year. Net income
was $65 million, or $.13 per share, compared with $177 million, or $.31 per
share, last year. Earnings per share on a non-GAAP basis, as presented in the
attached supplemental schedules, increased 17 percent to $.41, compared with
$.35 in the second quarter of last year.
For the six months ended June 30, 2008, MMC's net loss was $145 million, or $.28
per share, reflecting the goodwill impairment charge of $540 million, compared
with net income of $445 million, or $.79 per share, last year.
Brian Duperreault, president and chief executive officer of MMC, said: 'MMC's
second quarter results were driven by marked improvement in Marsh's operating
performance and strong revenue growth at Mercer and Kroll. The ongoing recovery
at Marsh is reflected in its revenue growth, expense reduction, and significant
increase in profitability. Guy Carpenter's previously announced restructuring
program is aligning expenses with revenue levels. Mercer's continued strong
revenue growth was evident across all of its businesses, while Oliver Wyman's
growth slowed due to economic business conditions. Kroll reported impressive
revenue growth in the quarter, led by litigation support and data recovery.
Overall, I am pleased with our solid performance in the first half of the year
and believe that MMC's performance will continue to improve as additional
organizational and business improvements are implemented.'
Commencing in the second quarter of 2008, investment gains and losses derived
from investments strategically linked to MMC's operating companies,
predominantly related to Risk Capital Holdings, are no longer included in
operating revenue. These amounts are now reflected as 'Investment income (loss)'
in MMC's consolidated statements of income. The impact of this change is shown
in the attached supplemental schedules.
Risk and Insurance Services
MMC's Risk and Insurance Services segment revenue in the second quarter of 2008
was $1.4 billion, an increase of 5 percent from the second quarter of 2007, or 1
percent on an underlying basis. Operating income increased to $150 million from
$93 million in the second quarter of 2007. For the first six months of 2008,
segment revenue was $2.9 billion, an increase of 5 percent from the prior year
period, or flat on an underlying basis.
In the second quarter, Marsh's revenue was $1.2 billion, an increase of 8
percent from last year. Underlying revenue grew 3 percent, with the strongest
results in international operations, including 5 percent growth in EMEA and 8
percent growth in Asia Pacific. Marsh's client revenue retention improved, and
new business increased for the ninth consecutive quarter. These results were
achieved in an environment of continued price competition in the global
commercial property and casualty insurance marketplace.
Reinsurance premium rates continued to decline across most coverages globally,
with clients' risk retention levels remaining high. Guy Carpenter's second
quarter revenue was $204 million, a decline of 6 percent from the prior year's
quarter, or 9 percent on an underlying basis.
Consulting
MMC's Consulting segment revenue grew 13 percent to $1.4 billion in the second
quarter, or 7 percent on an underlying basis. Operating income was $165 million,
an increase of 4 percent from $159 million in the second quarter of 2007. For
the first six months of 2008, segment revenue grew 14 percent to $2.7 billion,
or 7 percent on an underlying basis.
Mercer increased revenue 14 percent to $959 million in the second quarter, with
strong revenue growth achieved throughout its operations. On an underlying
basis, Mercer's revenue increased 9 percent in the quarter. Mercer's consulting
operations, with revenue of $692 million, increased 8 percent; outsourcing, with
revenue of $182 million, grew 6 percent; and investment consulting and
management, with revenue of $85 million, increased 22 percent.
Oliver Wyman's revenue increased 10 percent to $415 million in the second
quarter, or 2 percent on an underlying basis.
Risk Consulting and Technology
MMC's Risk Consulting and Technology segment revenue grew 13 percent to $281
million in the second quarter, or 6 percent on an underlying basis. The segment
had a $86 million operating loss, which included the $115 million goodwill
impairment charge. For the first six months of 2008, segment revenue grew 12
percent to $538 million, or 5 percent on an underlying basis.
Kroll's revenue was $240 million in the second quarter, an increase of 20
percent from the year-ago quarter, or 11 percent on an underlying basis. This
growth was driven by a 21 percent increase in litigation support and data
recovery and a 20 percent increase in risk mitigation and response.
Revenue for MMC's corporate advisory and restructuring business was $41 million
in the second quarter, a decline of 13 percent from the prior year.
Other Items
Investment losses in the second quarter of 2008 were $16 million, due to
mark-to-market declines on Risk Capital Holdings' private equity investments,
compared with investment gains of $34 million last year. The $50 million
differential from last year's second quarter negatively impacted earnings per
share by $.06.
MMC's tax rate on ongoing operations, excluding noteworthy items and minority
interest, was 30.5 percent for the first six months of 2008.
MMC's net debt, which is total debt less cash and cash equivalents, was $2.4
billion at the end of the second quarter of 2008, compared with $3.8 billion at
the end of the year-ago quarter.
Conference Call
A conference call to discuss second quarter 2008 results will be held today at
8:30 a.m. Eastern Time. To participate in the teleconference, please dial 877
852 6583. Callers from outside the United States should dial 719 325 4824. The
access code for both numbers is 4956552. The live audio webcast may be accessed
at www.mmc.com. A replay of the webcast will be available approximately two
hours after the event at the same web address.
MMC is a global professional services firm providing advice and solutions in the
areas of risk, strategy and human capital. It is the parent company of a number
of the world's leading risk experts and specialty consultants, including Marsh,
the insurance broker and risk advisor; Guy Carpenter, the risk and reinsurance
specialist; Mercer, the provider of HR and related financial advice and
services; Oliver Wyman, the management consultancy; and Kroll, the risk
consulting firm. With more than 55,000 employees worldwide and annual revenue
exceeding $11 billion, MMC provides analysis, advice and transactional
capabilities to clients in more than 100 countries. Its stock (ticker symbol:
MMC) is listed on the New York, Chicago 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
express management's current views concerning future events or results, use
words like 'anticipate,' 'assume,' 'believe,' 'continue,' 'estimate,' 'expect,'
'intend,' 'plan,' 'project' and similar terms, and future or conditional tense
verbs like 'could,' 'may,' 'might,' 'should,' 'will' and 'would.' For example,
we may use forward-looking statements when addressing topics such as: changes in
our business strategies 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 and the outcome of cost-saving or
restructuring initiatives; dividend policy and share repurchase programs; the
expected impact of acquisitions and dispositions; pension obligations; cash flow
and liquidity; future actions by regulators; the outcome of contingencies; the
impact of changes in accounting rules; and changes in senior management.
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 challenges we face in achieving profitable revenue growth and
improving operating margins at Marsh;
-- the extent to which we retain existing clients and attract new business,
and our ability to incentivize and retain key employees;
-- the impact on risk and insurance services commission revenues of changes
in the availability of, and the premiums insurance carriers charge for,
insurance and reinsurance products, including the impact on premium
rates and market capacity attributable to catastrophic events like
hurricanes;
-- the impact on renewals in our risk and insurance services segment of
pricing trends in particular insurance markets, fluctuations in the
general level of economic activity and decisions by insureds with
respect to the level of risk they will self-insure;
-- revenue fluctuations in risk and insurance services relating to the
effect of new and lost business production and the timing of policy
inception dates;
-- the impact on our consulting segment of pricing trends, utilization
rates, the general economic environment and legislative changes
affecting client demand;
-- the impact of competition, including with respect to pricing, the
emergence of new competitors, and the fact that many of Marsh's
competitors are not constrained in their ability to receive 'market
service' compensation;
-- the ultimate economic impact on MMC of contingencies described in the
notes to our financial statements, including the risk of a significant
adverse outcome in the shareholder lawsuit against MMC concerning the
late 2004 decline in MMC's share price;
-- our exposure to potential liabilities arising from errors and omissions
claims against us, including claims of professional negligence in
providing actuarial services, such as those alleged by the Alaska
Retirement Management Board against Mercer;
-- our ability to meet our financing needs by generating cash from
operations and accessing external financing sources, including the
potential impact of rating agency actions on our cost of financing or
ability to borrow;
-- our ability to make strategic acquisitions and dispositions and to
integrate, and realize expected synergies, savings or strategic benefits
from, the businesses we acquire;
-- the impact on net income of foreign exchange and/or interest rate
fluctuations;
-- changes in applicable tax or accounting requirements;
-- potential income statement effects from the application of FIN 48
('Accounting for Uncertainty in Income Taxes') and SFAS 142 ('Goodwill
and Other Intangible Assets'), including the effect of any subsequent
adjustments to the estimates MMC uses in applying these accounting
standards; and
-- the impact of, and potential challenges in complying with, legislation
and regulation in the jurisdictions in which we operate, particularly
given the global scope of our businesses and the possibility of
conflicting regulatory requirements across the jurisdictions in which we
do business.
The factors identified above are not exhaustive. MMC and its subsidiaries
operate in a dynamic business environment in which new risks may emerge
frequently. Accordingly, MMC cautions readers not to place undue reliance on its
forward-looking statements, which speak only as of the dates on which they are
made. MMC undertakes no obligation to update or revise any forward-looking
statement to reflect events or circumstances arising 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 condition, is contained in MMC's filings with the Securities and
Exchange Commission, including the 'Risk Factors' section of MMC's most recently
filed Annual Report on Form 10-K.
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Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
--------------- ---------------
2008 2007 2008 2007
------- ------- ------- -------
Revenue $3,048 $2,785 $6,087 $5,546
------- ------- ------- -------
Expense:
Compensation and Benefits 1,885 1,679 3,713 3,331
Other Operating Expenses 866 867 1,740 1,640
Goodwill Impairment Charge 115 - 540 -
------- ------- ------- -------
Total Expense 2,866 2,546 5,993 4,971
------- ------- ------- -------
Operating Income 182 239 94 575
Interest Income 12 15 30 34
Interest Expense (55) (75) (111) (146)
Investment Income (Loss) (16) 34 (8) 85
------- ------- ------- -------
Income Before Income Taxes and
Minority Interest Expense 123 213 5 548
Income Taxes 66 70 160 176
Minority Interest Expense, Net of Tax 2 3 5 4
------- ------- ------- -------
Income (Loss) from Continuing
Operations 55 140 (160) 368
Discontinued Operations, Net of Tax 10 37 15 77
------- ------- ------- -------
Net Income (Loss) $ 65 $ 177 $ (145) $ 445
======= ======= ======= =======
Basic Net Income (Loss) Per Share
- Continuing Operations $ 0.11 $ 0.26 $(0.31) $ 0.67
======= ======= ======= =======
- Net Income (Loss) $ 0.13 $ 0.32 $(0.28) $ 0.81
======= ======= ======= =======
Diluted Net Income (Loss) Per Share
- Continuing Operations $ 0.11 $ 0.25 $(0.31) $ 0.66
======= ======= ======= =======
- Net Income (Loss) $ 0.13 $ 0.31 $(0.28) $ 0.79
======= ======= ======= =======
Average Number of Shares Outstanding
- Basic 512 548 515 551
======= ======= ======= =======
- Diluted 518 558 515 560
======= ======= ======= =======
Shares Outstanding at 6/30 512 542 512 542
======= ======= ======= =======
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Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Three Months Ended
(Millions) (Unaudited)
Three Months Ended % Change
June 30, GAAP
------------------
2008 2007 Revenue
---------- ------- --------
Risk and Insurance Services
Marsh $1,211 $1,124 8%
Guy Carpenter 204 217 (6)%
---------- -------
Total Risk and Insurance Services 1,415 1,341 5%
---------- -------
Consulting
Mercer 959 842 14%
Oliver Wyman Group 415 376 10%
---------- -------
Total Consulting 1,374 1,218 13%
---------- -------
Risk Consulting & Technology
Kroll 240 201 20%
Corporate Advisory and Restructuring 41 48 (13)%
---------- -------
Total Risk Consulting & Technology 281 249 13%
---------- -------
Total Operating Segments 3,070 2,808 9%
Corporate Eliminations (22) (23)
---------- -------
Total Revenue $3,048 $2,785 9%
========== =======
Components of Revenue Change
---------------------------------
Acquisitions/
Currency Dispositions Underlying
Impact Impact Revenue
---------------------------------
Risk and Insurance Services
Marsh 5% - 3%
Guy Carpenter 3% - (9)%
Total Risk and Insurance Services 4% - 1%
Consulting
Mercer 4% 1% 9%
Oliver Wyman Group 5% 3% 2%
Total Consulting 4% 2% 7%
Risk Consulting & Technology
Kroll 2% 7% 11%
Corporate Advisory and Restructuring - - (13)%
Total Risk Consulting &
Technology 1% 6% 6%
Total Operating Segments 4% 1% 4%
Corporate Eliminations
Total Revenue 4% 1% 4%
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Revenue Details
The following table provides more detailed revenue information for
certain of the components presented above:
Three Months Ended % Change
June 30, GAAP
------------------
2008 2007 Revenue
----------- ------ --------
Marsh:
EMEA $ 444 $ 392 13%
Asia Pacific 124 105 18%
Latin America 59 54 10%
----------- ------
Total International 627 551 14%
U.S. and Canada 584 573 2%
----------- ------
Total Marsh $1,211 $1,124 8%
=========== ======
Mercer:
Retirement $ 310 $ 269 15%
Health and Benefits 242 216 12%
Other Consulting Lines 140 125 13%
----------- ------
Total Mercer Consulting 692 610 14%
Outsourcing 182 167 10%
Investment Consulting & Management 85 65 29%
----------- ------
Total Mercer $ 959 $ 842 14%
=========== ======
Kroll:
Litigation Support and Data Recovery $ 96 $ 67 44%
Background Screening 70 74 (5)%
Risk Mitigation and Response 74 60 23%
----------- ------
Total Kroll $ 240 $ 201 20%
=========== ======
Components of Revenue Change
---------------------------------
Acquisitions/
Currency Dispositions Underlying
Impact Impact Revenue
---------------------------------
Marsh:
EMEA 8% - 5%
Asia Pacific 10% - 8%
Latin America 13% (4)% 1%
Total International 9% - 5%
U.S. and Canada 1% - 1%
Total Marsh 5% - 3%
Mercer:
Retirement 5% 3% 7%
Health and Benefits 3% - 9%
Other Consulting Lines 5% - 8%
Total Mercer Consulting 5% 1% 8%
Outsourcing 4% - 6%
Investment Consulting & Management 6% 1% 22%
Total Mercer 4% 1% 9%
Kroll:
Litigation Support and Data Recovery 2% 21% 21%
Background Screening - - (5)%
Risk Mitigation and Response 3% - 20%
Total Kroll 2% 7% 11%
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Notes
Underlying revenue measures the change in revenue, before the impact
of acquisitions and dispositions, using consistent currency exchange
rates.
Interest income on fiduciary funds included in revenue amounted to $39
million and $49 million for the three months ended June 30, 2008 and
2007, respectively.
As described on page 13, certain changes in presentation have been
made to segment revenue for the prior year and for the first quarter
of 2008.
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Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Six Months Ended
(Millions) (Unaudited)
Six Months Ended % Change
June 30, GAAP
----------------
2008 2007 Revenue
-------- ------- --------
Risk and Insurance Services
Marsh $2,438 $2,266 8%
Guy Carpenter 477 509 (6)%
-------- -------
Total Risk and Insurance Services 2,915 2,775 5%
-------- -------
Consulting
Mercer 1,884 1,642 15%
Oliver Wyman Group 785 705 11%
-------- -------
Total Consulting 2,669 2,347 14%
-------- -------
Risk Consulting & Technology
Kroll 460 394 17%
Corporate Advisory and Restructuring 78 88 (11)%
-------- -------
Total Risk Consulting & Technology 538 482 12%
-------- -------
Total Operating Segments 6,122 5,604 9%
Corporate Eliminations (35) (58)
-------- -------
Total Revenue $6,087 $5,546 10%
======== =======
Components of Revenue Change
---------------------------------
Acquisitions/
Currency Dispositions Underlying
Impact Impact Revenue
---------------------------------
Risk and Insurance Services
Marsh 6% - 2%
Guy Carpenter 3% - (9)%
Total Risk and Insurance Services 5% - -
Consulting
Mercer 5% 1% 9%
Oliver Wyman Group 5% 2% 4%
Total Consulting 5% 2% 7%
Risk Consulting & Technology
Kroll 2% 7% 8%
Corporate Advisory and Restructuring 1% - (12)%
Total Risk Consulting &
Technology 1% 6% 5%
Total Operating Segments 5% 1% 3%
Corporate Eliminations
Total Revenue 5% 1% 4%
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Revenue Details
The following table provides more detailed revenue information for
certain of the components presented above:
Six Months Ended % Change
June 30, GAAP
----------------
2008 2007 Revenue
--------- ------ --------
Marsh:
EMEA $1,032 $ 916 13%
Asia Pacific 218 183 19%
Latin America 108 98 11%
--------- ------
Total International 1,358 1,197 13%
U.S. and Canada 1,080 1,069 1%
--------- ------
Total Marsh $2,438 $2,266 8%
========= ======
Mercer:
Retirement $ 623 $ 545 14%
Health and Benefits 462 413 12%
Other Consulting Lines 266 231 15%
--------- ------
Total Mercer Consulting 1,351 1,189 14%
Outsourcing 370 328 13%
Investment Consulting & Management 163 125 30%
--------- ------
Total Mercer $1,884 $1,642 15%
========= ======
Kroll:
Litigation Support and Data Recovery $ 175 $ 127 38%
Background Screening 141 146 (4)%
Risk Mitigation and Response 144 121 18%
--------- ------
Total Kroll $ 460 $ 394 17%
========= ======
Components of Revenue Change
-----------------------------------
Acquisitions/
Currency Dispositions Underlying
Impact Impact Revenue
-----------------------------------
Marsh:
EMEA 9% - 4%
Asia Pacific 11% - 8%
Latin America 14% (5)% 2%
Total International 9% - 4%
U.S. and Canada 1% - -
Total Marsh 6% - 2%
Mercer:
Retirement 6% 3% 5%
Health and Benefits 4% - 8%
Other Consulting Lines 5% - 10%
Total Mercer Consulting 5% 2% 7%
Outsourcing 4% - 9%
Investment Consulting & Management 7% - 23%
Total Mercer 5% 1% 9%
Kroll:
Litigation Support and Data
Recovery 2% 22% 14%
Background Screening - - (4)%
Risk Mitigation and Response 3% - 15%
Total Kroll 2% 7% 8%
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Notes
Underlying revenue measures the change in revenue, before the impact
of acquisitions and dispositions, using consistent currency exchange
rates.
Interest income on fiduciary funds included in revenue amounted to $83
million and $96 million for the six months ended June 30, 2008 and
2007, respectively.
As described on page 13, certain changes in presentation have been
made to segment revenue for the prior year and for the first quarter
of 2008.
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Marsh & McLennan Companies, Inc.
Non-GAAP Measures
Three Months Ended June 30
(Millions) (Unaudited)
MMC presents below certain additional financial measures that are
'non-GAAP measures,' within the meaning of Regulation G under the
Securities Exchange Act of 1934. These measures are: adjusted
operating income; adjusted operating margin; adjusted income, net of
tax; and net income, excluding goodwill impairment charge.
MMC presents these non-GAAP measures to provide investors with
additional information to analyze the company's performance from
period to period. Management also uses these measures to assess
performance for incentive compensation purposes and to allocate
resources in managing MMC's businesses. However, investors should not
consider these non-GAAP measures in isolation from, or as a
substitute for, the financial information that MMC reports in
accordance with GAAP. MMC's non-GAAP measures reflect subjective
determinations by management, and may differ from similarly titled
non-GAAP measures presented by other companies.
As described on page 13, certain changes in presentation have been
made to segment revenue and segment operating income for the prior
year and for the first quarter of 2008.
Adjusted Operating Income and Adjusted Operating Margin
Adjusted operating income is calculated by excluding the impact of
certain noteworthy items from MMC's GAAP operating income. The
following table identifies these noteworthy items and reconciles
adjusted operating income to GAAP operating income, on a consolidated
and segment basis, for the three months ended June 30, 2008 and 2007.
The following tables also present adjusted operating margin, which is
calculated by dividing adjusted operating income by consolidated or
segment GAAP revenue.
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Risk & Risk
Insurance Consulting &
Services Consulting Technology Corporate Total
---------- ---------- ------------ --------- ------
Three Months Ended
June 30, 2008
------------------
Operating income $ 150 $ 165 $ (86) $(47) $ 182
---------- ---------- ------------ --------- ------
Add (deduct)
impact of
noteworthy items:
Restructuring
Charges (a) 47 - 4 2 53
Settlement,
Legal and
Regulatory (b) 10 - - - 10
Goodwill
Impairment
Charge - - 115 - 115
---------- ---------- ------------ --------- ------
Operating
income
adjustments 57 - 119 2 178
---------- ---------- ------------ --------- ------
Adjusted operating
income $ 207 $ 165 $ 33 $(45) $ 360
========== ========== ============ ========= ======
Operating margin 10.6% 12.0% N/A N/A 6.0%
========== ========== ============ ========= ======
Adjusted operating
margin 14.6% 12.0% 11.7% N/A 11.8%
========== ========== ============ ========= ======
Three Months Ended
June 30, 2007
------------------
Operating income $ 93 $ 159 $ 30 $(43) $ 239
---------- ---------- ------------ --------- ------
Add (deduct)
impact of
noteworthy items:
Restructuring
Charges (a) 4 1 - 5 10
Settlement,
Legal and
Regulatory (b) 15 - - - 15
Accelerated
Amortization 3 2 - - 5
---------- ---------- ------------ --------- ------
Operating
income
adjustments 22 3 - 5 30
---------- ---------- ------------ --------- ------
Adjusted operating
income $ 115 $ 162 $ 30 $(38) $ 269
========== ========== ============ ========= ======
Operating margin 6.9% 13.1% 12.0% N/A 8.6%
========== ========== ============ ========= ======
Adjusted operating
margin 8.6% 13.3% 12.0% N/A 9.7%
========== ========== ============ ========= ======
(a) Primarily includes severance from restructuring activities and
related charges, costs for future rent and other real estate costs,
and fees related to cost reduction initiatives.
(b) Reflects legal fees arising out of the civil complaint relating to
market service agreements and other issues filed against MMC and
Marsh by the New York State Attorney General in October 2004 and
settled in January 2005, and indemnification of former employees for
legal fees incurred in connection with the events of October 2004.
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Marsh & McLennan Companies, Inc.
Non-GAAP Measures
Six Months Ended June 30
(Millions) (Unaudited)
MMC presents below certain additional financial measures that are
'non-GAAP measures,' within the meaning of Regulation G under the
Securities Exchange Act of 1934. These measures are: adjusted
operating income; adjusted operating margin; adjusted income, net of
tax; and net income, excluding goodwill impairment charge.
MMC presents these non-GAAP measures to provide investors with
additional information to analyze the company's performance from
period to period. Management also uses these measures to assess
performance for incentive compensation purposes and to allocate
resources in managing MMC's businesses. However, investors should not
consider these non-GAAP measures in isolation from, or as a
substitute for, the financial information that MMC reports in
accordance with GAAP. MMC's non-GAAP measures reflect subjective
determinations by management, and may differ from similarly titled
non-GAAP measures presented by other companies.
As described on page 13, certain changes in presentation have been
made to segment revenue and segment operating income for the prior
year and for the first quarter of 2008.
Adjusted Operating Income and Adjusted Operating Margin
Adjusted operating income is calculated by excluding the impact of
certain noteworthy items from MMC's GAAP operating income. The
following table identifies these noteworthy items and reconciles
adjusted operating income to GAAP operating income, on a consolidated
and segment basis, for the six months ended June 30, 2008 and 2007.
The following tables also present adjusted operating margin, which is
calculated by dividing adjusted operating income by consolidated or
segment GAAP revenue.
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Risk & Risk
Insurance Consulting &
Services Consulting Technology Corporate Total
---------- ---------- ------------ --------- ------
Six Months Ended
June 30, 2008
------------------
Operating income $ 384 $ 316 $(498) $(108) $ 94
---------- ---------- ------------ --------- ------
Add impact of
noteworthy items:
Restructuring
Charges (a) 61 - 7 18 86
Settlement,
Legal and
Regulatory (b) 23 - - - 23
Goodwill
Impairment
Charge - - 540 - 540
Other 3 - - - 3
---------- ---------- ------------ --------- ------
Operating
income
adjustments 87 - 547 18 652
---------- ---------- ------------ --------- ------
Adjusted operating
income $ 471 $ 316 $ 49 $ (90) $ 746
========== ========== ============ ========= ======
Operating margin 13.2% 11.8% N/A N/A 1.5%
========== ========== ============ ========= ======
Adjusted operating
margin 16.2% 11.8% 9.1% N/A 12.3%
========== ========== ============ ========= ======
Six Months Ended
June 30, 2007
------------------
Operating income $ 303 $ 297 $ 54 $ (79) $ 575
---------- ---------- ------------ --------- ------
Add (deduct)
impact of
noteworthy items:
Restructuring
Charges (a) 28 1 - 11 40
Settlement,
Legal and
Regulatory (b) 26 - - - 26
Accelerated
Amortization 8 5 - 3 16
Other (c) - - - (14) (14)
---------- ---------- ------------ --------- ------
Operating
income
adjustments 62 6 - - 68
---------- ---------- ------------ --------- ------
Adjusted operating
income $ 365 $ 303 $ 54 $ (79) $ 643
========== ========== ============ ========= ======
Operating margin 10.9% 12.7% 11.2% N/A 10.4%
========== ========== ============ ========= ======
Adjusted operating
margin 13.2% 12.9% 11.2% N/A 11.6%
========== ========== ============ ========= ======
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(a) Primarily includes severance from restructuring activities and
related charges, costs for future rent and other real estate costs,
and fees related to cost reduction initiatives.
(b) Reflects legal fees arising out of the civil complaint relating to
market service agreements and other issues filed against MMC and
Marsh by the New York State Attorney General in October 2004 and
settled in January 2005, and indemnification of former employees for
legal fees incurred in connection with the events of October 2004.
(c) Represents an accrual adjustment related to the separation of
former MMC senior executives.
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Marsh & McLennan Companies, Inc.
Non-GAAP Measures
Three and Six Months Ended June 30
(Millions) (Unaudited)
Adjusted Income, net of tax
Adjusted income, net of tax is calculated as: (i) MMC's GAAP income
(loss) from continuing operations, adjusted (a) to reflect the after-
tax impact of the operating income adjustments set forth in the
preceding table and (b) to include the operating income, net of tax,
of MMC's former subsidiary, Putnam (included in discontinued
operations through August 2, 2007); divided by (ii) MMC's average
number of shares outstanding--diluted for the period.
Adjusted income, net of tax does not include gains or losses from the
sales of operations included in discontinued operations, but, as
noted above, does include the operating income of Putnam in 2007.
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Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings
Per Share - Three Months Ended
Three Months Diluted Three Months Diluted
Ended 2008 EPS Ended 2007 EPS
------------ ------- ------------ -------
Income from continuing
operations $ 55 $ 0.11 $140 $0.25
Add impact of operating
income adjustments $178 $ 30
Deduct impact of income tax
expense (22) (9)
------ --------
156 0.30 21 0.04
------ ------- ---- -------
Income from continuing
operations, as adjusted 211 0.41 161 0.29
Add Putnam operating income,
net of tax - - 37 0.06
------ ------- ---- -------
Adjusted income, net of
tax $ 211 $ 0.41 $198 $0.35
====== ======= ==== =======
Net Income Excluding Goodwill Impairment Charge
Three Months Diluted Three Months Diluted
Ended 2008 EPS Ended 2007 EPS
------------ ------- ------------ -------
Net income $ 65 $ 0.13 $177 $0.31
Add impact of goodwill
impairment charge 115 0.22 - -
------ ------- ---- -------
Net income, excluding
goodwill impairment charge $ 180 $ 0.35 $177 $0.31
------ ------- ---- -------
Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings
Per Share - Six Months Ended
Six Months Diluted Six Months Diluted
Ended 2008 EPS Ended 2007 EPS
------------ ------- ------------ -------
(Loss) income from continuing
operations $(160) $(0.31) $368 $0.66
Add impact of operating
income adjustments $652 $ 68
Deduct impact of income tax
expense (40) (22)
------ --------
612 1.18 46 0.08
------ ------- ---- -------
Income from continuing
operations, as adjusted 452 0.87 414 0.74
Add Putnam operating income,
net of tax - - 77 0.14
------ ------- ---- -------
Adjusted income, net of
tax $ 452 $ 0.87 $491 $0.88
====== ======= ==== =======
Net Income Excluding Goodwill Impairment Charge
Six Months Diluted Six Months Diluted
Ended 2008 EPS Ended 2007 EPS
------------ ------- ------------ -------
Net (loss) income $(145) $(0.28) $445 $0.79
Add impact of goodwill
impairment charge 540 1.04 - -
------ ------- ---- -------
Net income, excluding
goodwill impairment charge $ 395 $ 0.76 $445 $0.79
------ ------- ---- -------
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Marsh & McLennan Companies, Inc.
Supplemental Information - Quarterly Revenue and Operating Income
Analysis
(Millions) (Unaudited)
Consolidated Statements of Income- Change in Presentation
In the second quarter of 2008, performance measures for segment
revenue and segment operating income, used by MMC's chief operating
decision maker to evaluate performance and for the allocation of
resources, were changed so that investment gains and losses derived
from investments strategically linked to MMC's operating companies
are no longer included. The presentation of segment revenue and
operating income was conformed accordingly.
The following tables reflect the results for segment revenue and
operating income after the change in presentation of investment
income (loss):
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First Second Third Fourth
Quarter Quarter Quarter Quarter
2007 2007 2007 2007
------- ------- ------- --------
Risk and Insurance Services
Marsh $1,142 $1,124 $1,037 $1,195
Guy Carpenter 292 217 226 167
------- ------- ------- --------
Total Risk and Insurance Services 1,434 1,341 1,263 1,362
------- ------- ------- --------
Consulting
Mercer 800 842 844 882
Oliver Wyman Group 329 376 374 437
------- ------- ------- --------
Total Consulting 1,129 1,218 1,218 1,319
------- ------- ------- --------
Risk Consulting & Technology
Kroll 193 201 210 211
Corporate Advisory and Restructuring 40 48 48 36
------- ------- ------- --------
Total Risk Consulting & Technology 233 249 258 247
------- ------- ------- --------
Total Operating Segments 2,796 2,808 2,739 2,928
Corporate Eliminations (35) (23) (23) (13)
------- ------- ------- --------
Total Revenue $2,761 $2,785 $2,716 $2,915
======= ======= ======= ========
First Second Third Fourth
Quarter Quarter Quarter Quarter
2007 2007 2007 2007
------- ------- ------- --------
Operating Income
Risk and Insurance Services $210 $ 93 $ (11) $ 50
Consulting 138 159 148 161
Risk Consulting & Technology 24 30 29 15
Corporate (36) (43) (50) (71)
------- ------- ------- --------
Total Operating Income (Loss) 336 239 116 155
Interest Income 19 15 30 31
Interest Expense (71) (75) (65) (56)
Investment Income (Loss) 51 34 78 10
------- ------- ------- --------
Income Before Income Taxes and
Minority Interest Expense $335 $ 213 $ 159 $ 140
======= ======= ======= ========
Segment Operating Margin
Risk and Insurance Services 14.6% 6.9% N/A 3.7%
Consulting 12.2% 13.1% 12.2% 12.2%
Risk Consulting & Technology 10.3% 12.0% 11.2% 6.1%
Consolidated Operating Margin 12.2% 8.6% 4.3% 5.3%
Full First Second
Year Quarter Quarter
2007 2008 2008
-------- ------- -------
Risk and Insurance Services
Marsh $ 4,498 $1,227 $1,211
Guy Carpenter 902 273 204
-------- ------- -------
Total Risk and Insurance Services 5,400 1,500 1,415
-------- ------- -------
Consulting
Mercer 3,368 925 959
Oliver Wyman Group 1,516 370 415
-------- ------- -------
Total Consulting 4,884 1,295 1,374
-------- ------- -------
Risk Consulting & Technology
Kroll 815 220 240
Corporate Advisory and Restructuring 172 37 41
-------- ------- -------
Total Risk Consulting & Technology 987 257 281
-------- ------- -------
Total Operating Segments 11,271 3,052 3,070
Corporate Eliminations (94) (13) (22)
-------- ------- -------
Total Revenue $11,177 $3,039 $3,048
======== ======= =======
Full First Second
Year Quarter Quarter
2007 2008 2008
-------- ------- -------
Operating Income
Risk and Insurance Services $ 342 $ 234 $ 150
Consulting 606 151 165
Risk Consulting & Technology 98 (412) (86)
Corporate (200) (61) (47)
-------- ------- -------
Total Operating Income (Loss) 846 (88) 182
Interest Income 95 18 12
Interest Expense (267) (56) (55)
Investment Income (Loss) 173 8 (16)
-------- ------- -------
Income Before Income Taxes and Minority
Interest Expense $ 847 $ (118) $ 123
======== ======= =======
Segment Operating Margin
Risk and Insurance Services 6.3% 15.6% 10.6%
Consulting 12.4% 11.7% 12.0%
Risk Consulting & Technology 9.9% N/A N/A
Consolidated Operating Margin 7.6% N/A 6.0%
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Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions) (Unaudited)
June 30, December 31,
2008 2007
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,165 $ 2,133
Net receivables 3,143 2,874
Other current assets 453 447
-------- ------------
Total current assets 4,761 5,454
Goodwill and intangible assets 7,376 7,759
Fixed assets, net 1,049 992
Pension related asset 1,579 1,411
Other assets 1,667 1,743
-------- ------------
TOTAL ASSETS $16,432 $17,359
======== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 408 $ 260
Accounts payable and accrued liabilities 1,787 1,670
Regulatory settlements-current portion - 177
Accrued compensation and employee benefits 930 1,290
Accrued income taxes 13 96
Dividends payable 103 -
-------- ------------
Total current liabilities 3,241 3,493
Fiduciary liabilities 3,706 3,612
Less - cash and investments held in a fiduciary
capacity (3,706) (3,612)
-------- ------------
- -
Long-term debt 3,199 3,604
Pension, postretirement and postemployment
benefits 788 709
Liabilities for errors and omissions 562 596
Other liabilities 1,110 1,135
Total stockholders' equity 7,532 7,822
-------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,432 $17,359
======== ============
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MMC
Media
Christine Walton, 212-345-0675
christine.walton@mmc.com
or
Investors
Mike Bischoff, 212-345-5470
jmichael.bischoff@mmc.com
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