MMC Q4 and Year End Results
Marsh & McLennan Co Inc
01 March 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 FOURTH QUARTER AND YEAR-END RESULTS
Board of Directors Announces First Quarter Dividend
NEW YORK, NEW YORK, March 1, 2005-Marsh & McLennan Companies, Inc. (MMC) today
reported financial results for the quarter and year ended December 31, 2004. In
the fourth quarter, consolidated revenues declined 1 percent to $3 billion.
After restructuring, regulatory settlements, and related expenses, the company
reported a net loss of $676 million in the fourth quarter, or a loss of $1.28
per share. Full-year consolidated revenues were $12.2 billion, up 5 percent over
the prior year. Net income for the full year was $180 million, or earnings per
share of $.34. MMC's Board of Directors has declared a first quarter 2005
dividend of $.17, a 50 percent decline. The dividend will be paid on March 30,
2005 to shareholders of record on March 15, 2005.
Significant Items
• Marsh Inc. continues to restructure its operations, improve
efficiencies, and eliminate unprofitable accounts. This could affect
approximately 2,500 people throughout its global operations and, when fully
implemented, should lead to annual expense savings exceeding $375 million.
This is in addition to MMC's fourth quarter restructuring expenses totaling
$337 million, with anticipated annual savings of $400 million.
• Market service revenues in risk and insurance services declined $220
million in the fourth quarter and $304 million for 2004.
• Through its new standardized commission structure, Marsh expects
to recover a meaningful portion of its lost revenues within the next
year.
• The $850 million settlement with New York regulators for
restitution comprises a $618 million pretax charge in the fourth
quarter and $232 million provided in the third quarter.
• Putnam incurred a charge of $80 million for restitution
relative to prior regulatory settlements.
• Marsh changed its estimated cost for future claims
handling and certain administrative services in
connection with guidance issued by The Institute of
Chartered Accountants in the U.K. This resulted in a $65
million charge with no incremental cash outflow.
Michael G. Cherkasky, president and chief executive officer
of MMC, said: 'Clearly, 2004 was the most difficult year in
MMC's financial history. We confronted major regulatory
issues at both Marsh and Putnam. The settlements we have
announced are important steps forward for the company. As a
result, we are ready to put these matters behind us and move
ahead in 2005 to restore the trust our clients have placed in
us and to rebuild shareholder value.
'We do not underestimate the task ahead. Achieving our objectives will
not be quick or easy. Our employees are our greatest asset; they
are resilient and determined to set the industry standards to
allow MMC to live up to its history of dedicated client service.
We have already introduced new leadership, instituted new
compliance procedures, and initiated new ways of interacting with
clients that will enable us to remain the leader in the
businesses in which we participate.
'Marsh has begun to implement significant business reforms to ensure complete
transparency in its dealings with clients. It is restructuring its operations,
improving efficiencies, eliminating unprofitable accounts, and simplifying its
management structure while maintaining its commitment to being a full-service
leader in insurance broking. We believe that in 2006, Marsh will be a stronger,
more streamlined company, delivering profitable growth with an operating margin
in the upper-teens, and with the opportunity for further margin expansion.'
Financial Results
MMC's consolidated revenues of $3 billion for the quarter ended December 31,
2004 declined 1 percent. MMC incurred a loss in the fourth quarter of $1.28 per
share. Fourth quarter expenses were affected significantly by regulatory issues
and the restructuring of MMC's operations (see attached supplemental information
schedules). Underlying expenses, adjusted for these items, were down 1 percent
compared with the prior year fourth quarter. The effect of foreign exchange on
consolidated operating income was not material.
For the year, consolidated revenues rose 5 percent to $12.2 billion. Operating
income declined to $652 million, reflecting costs of regulatory settlements at
Marsh and Putnam and costs related to restructuring MMC's businesses. Results in
risk and insurance services include the $850 million charge related to the
settlement agreement reached with the New York State Attorney General and the
Superintendent of Insurance as well as the impact of a $304 million decrease in
market service revenues. Results at Putnam reflect $220 million of expenses
associated with settlements with the Securities and Exchange Commission and the
Commonwealth of Massachusetts. Additional legal and audit costs for Marsh and
Putnam totaled $60 million. Net income for the full year declined to $180
million, and earnings per share decreased to $.34 from $2.81.
Risk and Insurance Services
Risk and insurance services revenues grew 2 percent in the fourth quarter,
reflecting the acquisition of Kroll and the decline of market service revenues.
Insurance marketplace conditions were more competitive in the quarter, with rate
decreases across most lines of commercial property and casualty insurance.
Underlying revenues, excluding the effect of market service revenues,
acquisitions, and foreign exchange, declined 1 percent. Risk management and
insurance broking declined 6 percent. Due to the pricing environment, retention
and new business activity were down slightly year-over-year, compared with a
strong 2003 fourth quarter. Reinsurance broking and services grew 2 percent on a
reported basis and 1 percent on an underlying basis. Kroll reported excellent
results in the quarter, with particularly strong demand continuing for
technology services, such as electronic discovery, data recovery, and background
screening.
For the year, risk and insurance services revenues rose to $7.4 billion, an
increase of 8 percent. Marsh's risk management and insurance broking operations
reported solid revenue growth in Europe, Asia Pacific, and Latin America. Guy
Carpenter's revenue growth was due to new business development as demand for
analytical and placement services remained high. Related insurance services
results reflect growth in claims management and at MMC Capital.
Consulting
Mercer performed well in 2004. Revenues increased 13 percent to $3.1 billion
from $2.7 billion. Underlying revenues grew 3 percent for the quarter and the
year.
Mercer has made a number of leadership and organizational changes that reflect
the strategic direction and execution of its businesses around key revenue
growth areas. Mercer is now being managed as two broad businesses, each under
separate leadership-Mercer Human Resource Consulting and Mercer's specialty
consulting operations.
Mercer Human Resource Consulting delivers solutions to its global client base,
encompassing retirement and benefits consulting and administration, the full
array of human capital advice, and investment solutions, such as funds of
managers products. Retirement consulting revenues were flat overall in 2004 as
declines in the large markets of the United States and United Kingdom were
offset by good growth throughout the rest of the world. Health care and group
benefits and human capital consulting showed modest growth.
Putnam's defined contribution business was combined with the newly formed
Mercer HR Services to create a unified, full-service global leader in human
resources outsourcing. In addition, Mercer's health care and group benefits and
Marsh's employee benefits practices were brought together to leverage the
distribution capability and intellectual capital of both businesses.
Mercer's specialty consulting businesses, which include management,
organizational change, and economic consulting, produced excellent results for
both periods and continued to report strong new business in early 2005. For the
full year, underlying revenues for management and organizational change
consulting grew 13 percent, and economic consulting rose 9 percent.
Investment Management
Putnam's revenues in the fourth quarter declined to $421 million. Average
assets under management in the fourth quarter of 2004 were $211 billion,
compared with $209 billion in the third quarter. Assets under management at the
end of 2004 were $213 billion, compared with $209 billion at the end of the
third quarter. Mutual fund assets were $143 billion and institutional assets
were $70 billion at year end, compared with $140 billion and $69 billion,
respectively, at the end of the third quarter. Mutual fund and institutional
sales improved in the quarter. Net redemptions were higher due to decisions
made earlier in the year by defined contribution plan sponsors. For the twelve
months ended January 31, 2005, ten out of twelve of Putnam's flagship mutual
funds, including six equity and four fixed income funds, were above median for
investment performance in their respective Lipper categories.
Other
MMC generated $2.1 billion of cash from operations in 2004, compared with $1.9
billion in 2003. These amounts reflect net income earned by MMC during those
periods adjusted for non-cash charges and changes in working capital. Although
net income declined significantly from the prior year, a number of charges
recorded in 2004 have not yet been paid by MMC, such as costs for restructuring
and regulatory settlements. In the fourth quarter, MMC completed $3 billion in
medium-term bank financing, including a new $1.3 billion term loan and the
amendment of $1.7 billion of existing revolving credit facilities. After making
total pension contributions of $286 million, including discretionary payments
of $115 million, net debt (total debt less cash and cash equivalents) was $3.9
billion at year-end 2004, compared with $2.7 billion at year-end 2003. The
increase in net debt is due primarily to the $1.9 billion acquisition of Kroll
in July 2004.
MMC's effective tax rate in the fourth quarter was 28.5 percent and 57 percent
for the full year 2004, primarily reflecting the impact of regulatory
settlements and a shift in the geographic mix of profits. The effective tax
rate for ongoing operations is 35 percent.
Conference Call
A conference call to discuss fourth quarter and year-end 2004 results, the
current business environment, the outlook, and Marsh's new business model, will
be held today at 10:00 a.m. Eastern Standard Time. To participate in the live
teleconference, please dial (800) 967-7135 (U.S.) or (719) 457-2626
(international). 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 Standard Time, March 1 and continuing
until midnight Eastern Standard Time, March 8. To listen to the replay, please
dial (888) 203-1112 (U.S.) or (719) 457-0820 (international). The access code
for both numbers is 1284838.
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. More
than 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.
Marsh & McLennan Companies, Inc. and its subsidiaries ('MMC') and their
representatives may from time to time make oral or written statements
(including certain statements contained in this press release and other MMC
filings with the Securities and Exchange Commission and in our reports to
stockholders) 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 MMC or Marsh Inc., expected synergies from business combinations, cost
savings from reductions in staff levels, 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 available current market and
industry materials, experts' reports and opinions, and long-term trends, as
well as 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, other state attorneys general and state insurance
regulators,
• 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, unfair business
practices and other common law or statutory claims,
• loss of clients,
• loss of producers or key managers,
• inability to negotiate satisfactory new arrangements for Marsh's compensation
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,
• movements in premium rate levels,
• 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 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,
• the ability to maintain investment management and administrative fees at
current levels at Putnam,
• 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,
• natural catastrophes,
• changes in the value of investments made in individual companies and
investment funds,
• fluctuations in foreign currencies,
• actions of regulators,
• changes in interest rates,
• 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 tax and 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 Twelve Months Ended
December 31, December 31,
-------------- ---------------
2004 2003 2004 2003
-------- ------- -------- --------
Revenue:
Service Revenue $2,928 $2,987 $11,959 $11,444
Investment Income (Loss) 57 36 200 100
-------- ------- -------- --------
Total Revenue 2,985 3,023 12,159 11,544
-------- ------- -------- --------
Expense:
Compensation and Benefits 1,767 1,587 6,714 5,926
Other Operating Expenses 1,401 839 3,828 3,112
Regulatory and Other Settlements 698 10 965 10
-------- ------- -------- --------
Total Expense 3,866 2,436 11,507 9,048
-------- ------- -------- --------
Operating Income (Loss) (881) 587 652 2,496
Interest Income 6 5 21 24
Interest Expense (66) (48) (219) (185)
-------- ------- -------- --------
Income (Loss) Before Income
Taxes and Minority Interest
Expense (941) 544 454 2,335
Income Taxes (268) 161 259 770
Minority Interest Expense, Net
of Tax 3 8 15 25
-------- ------- -------- --------
Net Income (Loss) $(676) $ 375 $ 180 $1,540
======== ======= ======== ========
Basic Net Income (Loss) Per
Share $(1.28) $0.71 $0.34 $2.89
======== ======= ======== ========
Diluted Net Income (Loss) Per
Share $(1.28) $0.69 $0.34 $2.81
======== ======= ======== ========
Average Number of
Shares Outstanding - Basic 529 529 526 533
======== ======= ======== ========
Average Number of
Shares Outstanding - Diluted 529 543 535 548
======== ======= ======== ========
Page 1 of 8
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Fourth Quarter
(Millions) (Unaudited)
Three Months Ended Components of Revenue Change
------------------
% Change Acquisitions/ Underlying
Revenue
December 31, GAAP Currency Dispositions Underlying excluding
-------------
--- ------
2004 2003 Revenue Impact Impact Revenue MSA Impact
------- ------ --- ------- --- ------- -------- ------- ---------
-----
Risk and
Insurance
Services
Risk
Management and
Insurance
Broking $1,080 $1,298 (17)% 2% 2% (21)% (6)%
Reinsurance
Broking and
Services 154 151 2% 1% - 1%
Risk
Consulting &
Technology 289 87 235% - 227% 8%
Related
Insurance
Services 283 239 19% 1% 6% 12% 15%
------- ------
Total Risk and
Insurance
Services 1,806 1,775 2% 2% 13% (13)% (1)%
------- ------
Investment
Management 421 554 (24)% - - (24)%
------- ------
Consulting
Retirement
Services 334 297 13% 8% 5% -
Management and
Organizational
Change 165 134 23% 4% 2% 17%
Health Care &
Group Benefits 87 88 (1)% 1% - (2)%
Human 102 103 (2)% 1% - (3)%
Capital
Economic 43 41 9% 2% - 7%
------- ------
731 663 10% 5% 2% 3%
Reimbursed
Expenses 45 42
------- ------
Total
Consulting 776 705 10% 5% 2% 3%
------- ------
--- ---
Total
Operating
Segments 3,003 3,034 (1)% 2% 8% (11)% (4)%
------- ------
Corporate
Eliminations (18) (11)
------- ------
Total $2,985 $3,023
Revenue ======= ======
Notes
Market services revenue ('MSA'):
2004 2003
------- -------
First Quarter $ 211 $ 173
Second Quarter 211 202
Third Quarter 46 177
Fourth Quarter 73 293
------- -------
Total $ 541 $ 845
======= =======
Effective October 1, 2004 Marsh agreed to eliminate contingent compensation
agreements with insurers.
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 fourth quarter, including a 15% decline related to market services
agreements; and for the risk and insurance services segment underlying revenue
decreased 13% in the fourth quarter including a 12% decline related to market
services agreements.
Interest income on fiduciary funds amounted to $36 million and $23 million for
the three months ended December 31, 2004 and 2003, respectively.
Certain reclassifications have been made to prior year amounts to conform
with current presentation.
Page 2 of 8
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
(Millions) (Unaudited)
Twelve Months Ended Components of Revenue Change
------------------
% Change Acquisitions/ Underlying
Revenue
December 31, GAAP Currency Dispositions Underlying excluding
------------
--- ------
2004 2003 Revenue Impact Impact Revenue MSA Impact
------- ------ --- ------- --- ------- -------- ------- ---------
Risk and
Insurance
Services
Risk
Management and
Insurance
Broking $4,805 $4,881 (2)% 3% 1% (6)% 0%
Reinsurance
Broking and
Services 842 797 6% 3% - 3%
Risk
Consulting &
Technology 716 300 139% - 130% 9%
Related
Insurance
Services 1,028 890 16% 1% 3% 12% 13%
------- ------
Total Risk and
Insurance
Services 7,391 6,868 8% 3% 7% (2)% 3%
------- ------
Investment
Management 1,757 2,001 (12)% - - (12)%
------- ------
Consulting
Retirement
Services 1,356 1,203 13% 8% 5% -
Management and
Organizational
Change 585 449 30% 5% 12% 13%
Health Care &
Group Benefits 397 388 2% 1% - 1%
Human 407 384 6% 5% - 1%
Capital
Economic 166 150 11% 2% - 9%
------- ------
2,911 2,574 13% 6% 4% 3%
Reimbursed
Expenses 159 145
------- ------
Total
Consulting 3,070 2,719 13% 6% 4% 3%
------- ------
Total
Operating
Segments 12,218 11,588 5% 3% 5% (3)% 0%
------- ------
Corporate
Eliminations (59) (44)
------- ------
Total $12,159 $11,544
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 6% for
the twelve months, including a 6% decline related to market services agreements;
and for the risk and insurance services segment underlying revenue decreased 2%
for the twelve months including a 5% decline related to market services
agreements.
Related Insurance Services includes U.S. affinity, wholesale broking,
underwriting management, claims management and MMC Capital businesses.
Interest income on fiduciary funds amounted to $130 million and $114 million for
the twelve months ended December 31, 2004 and 2003, respectively.
Investment income (loss) includes realized and unrealized gains and losses from
investments recognized in the income statement, as well as other than temporary
declines in the value of 'available for sale' securities. MMC's investments may
include seed shares for mutual funds, direct investments, and investments in
private equity funds. Costs related to the management of MMC's investments,
including incentive compensation partially derived from investment income and
loss, are recorded in operating expenses.
MMC's direct investment in AXIS is classified as an available for sale security.
As restrictions on the sale of AXIS shares expire, changes in fair value are
reflected on the Balance Sheet until realized. Trident II's investments are
carried at fair value, in accordance with investment company accounting. MMC's
proportionate share of the change in value of its investment in Trident II is
recorded as part of investment income (loss) in the Consolidated Statements of
Income.
Certain reclassifications have been made to prior year amounts to conform with
current presentation.
Page 3 of 8
Marsh & McLennan Companies, Inc.
Supplemental Information
(Millions) (Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------- --------------
2004 2003 2004 2003
-------- ------- ------- -------
Operating Income (Loss) Including
Minority Interest Expense:
Risk and Insurance Services $ (834) $ 400 $ 252 $1,751
Investment Management (30) 133 94 497
Consulting 22 85 330 363
Corporate (42) (39) (39) (140)
-------- ------- ------- -------
(884) 579 637 2,471
-------- ------- ------- -------
Minority Interest Expense, Net of
Tax, Included Above:
Risk and Insurance Services 3 4 15 13
Investment Management - 4 - 12
-------- ------- ------- -------
3 8 15 25
-------- ------- ------- -------
Operating Income (Loss) $ (881) $ 587 $ 652 $2,496
======= ======= =======
========
Segment Operating Margins:
Risk and Insurance Services (46.2)% 22.5% 3.4% 25.5%
Investment Management (a) (7.1)% 24.0% 5.4% 24.8%
Consulting 2.8% 12.1% 10.7% 13.4%
Consolidated Operating
Margin (29.5)% 19.4% 5.4% 21.6%
Pretax Margin (31.5)% 17.9% 3.7% 20.2%
Effective Tax Rate 28.5% 29.6% 57.0% 33.0%
Shares Outstanding at End of
Period 527 527
Potential Minority Interest
Associated with the Putnam
Equity Partnership Plan Net of
Dividend Equivalent
Expense Related to MMC
Common Stock Equivalents $0 $(1) $(2) $(1)
(a) In the third quarter of 2004, Putnam's contract for transfer agency services
was converted from an expense reimbursement basis to a fixed fee for the
remainder of 2004. The change in the service fee calculation resulted in an
increase in service fee revenue and expense incurred under the contract of $21
million and $41 million for the three months and twelve months ended December
31, 2004. The change in the service fee contract had an immaterial impact on
operating income, but reduces the ongoing operating margin by approximately 100
basis points.
Page 4 of 8
Marsh & McLennan Companies, Inc.
Supplemental Information - Putnam Assets Under Management
(Billions) (Unaudited)
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
2004 2004 2004 2004 2003
-------- -------- -------- -------- --------
Mutual Funds:
Growth Equity $ 38 $ 37 $ 41 $ 45 $ 46
Value Equity 41 39 41 42 43
Blend Equity 28 27 28 30 32
Fixed Income 36 37 38 40 42
-------- -------- -------- -------- --------
Total Mutual
Fund Assets 143 140 148 157 163
-------- -------- -------- -------- --------
Institutional:
Equity 40 40 39 44 51
Fixed Income 30 29 26 26 26
-------- -------- -------- -------- --------
Total
Institutional
Assets 70 69 65 70 77
-------- -------- -------- -------- --------
Total Ending
Assets $213 $209 $213 $227 $240
======== ======== ======== ======== ========
Assets from
Non-US
Investors $ 38 $ 36 $ 36 $ 38 $ 39
======== ======== ======== ======== ========
Average Assets
Under Management:
Quarter-to-Date
$211 $209 $216 $234 $259
======== ======== ======== ======== ========
Year-to-Date $217 $220 $225 $234 $258
======== ======== ======== ======== ========
Net New Sales/
(Redemptions)
including
Dividends
Reinvested: (a)
Quarter-to-Date
$ (10.7) $ (10.5) $ (12.2) $ (17.6) $ (53.7)
======== ======== ======== ======== ========
Year-to-Date $ (51.0) $ (40.3) $ (29.8) $ (17.6) $ (60.7)
======== ======== ======== ======== ========
Impact of Market/
Performance on
Ending
Assets Under
Management $ 15.4 $ (2.1) $ (1.4) $ 4.5 $ 21.9
======== ======== ======== ======== ========
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.
(a) Excludes the impact of the acquisition of PanAgora in July 2004, which
increased reported assets under management by $8.2 billion.
Page 5 of 8
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions) (Unaudited)
December 31, December 31
ASSETS 2004 2003
---------- ---------
Current assets
Cash and cash equivalents $ 1,396 $ 665
Net receivables 2,890 2,703
Other current assets 601 480
---------- ---------
Total current assets 4,887 3,848
Goodwill and intangible assets 8,139 5,797
Fixed assets, net 1,387 1,389
Long term investments 558 648
Prepaid pension 1,394 1,199
Other assets 1,972 2,172
---------- ---------
TOTAL ASSETS $18,337 $15,053
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt $ 636 $ 447
Accounts payable and accrued liabilities 1,834 1,501
Regulatory settlements - current portion 390 10
Accrued compensation and employee benefits 1,591 1,263
Accrued income taxes 280 272
Dividends payable - 166
---------- ---------
Total current liabilities 4,731 3,659
Fiduciary liabilities 4,136 4,228
Less - cash and investments held in
a fiduciary capacity (4,136) (4,228)
---------- ---------
- -
Long-term debt 4,691 2,910
Regulatory settlements 595 -
Pension, postretirement and postemployment
benefits 1,333 997
Other liabilities 1,927 2,036
Total stockholders' equity 5,060 5,451
---------- ---------
$18,337 $15,053
========== =========
Page 6 of 8
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Three Months Ended December 31, 2004
(Millions) (Unaudited)
Risk &
Insurance Investment
Services Management Consulting Corporate Total
-------- --------- -------- -------- -------
Operating
Income (Loss)
As Reported
(a) $ (834) $ (30) $ 22 $ (42) $ (884)
-------- --------- -------- --------
-------
Settlements
(b)
Settlements 618 80 - - 698
Administration
Costs 16 - - - 16
-------- --------- -------- -------- -------
634 80 - - 714
-------- --------- -------- -------- -------
Restructuring
Charges (c) 231 26 62 18 337
-------- --------- -------- -------- -------
Servicing
Obligation
(d) 65 - - - 65
-------- --------- -------- -------- -------
Other
Legal and
Audit 15 7 - - 22
Communications - 1 - 1 2
Other (e) 15 1 11 3 30
Minority
Interest - (2) - - (2)
-------- --------- -------- -------- -------
30 7 11 4 52
-------- --------- -------- -------- -------
Net
Adjustments 960 113 73 22 1,168
-------- --------- -------- -------- -------
Operating
Income As
Adjusted $ 126 $ 83 $ 95 $ (20) $ 284
======== ========= ======== ======== =======
Operating
Income Margin
As Adjusted 7.0% 19.7% 12.2% N/A 9.5%
======== ========= ======== ======== =======
(a) Market services revenue of $73 million is included in Operating Income As
Reported and Operating Income As Adjusted. Effective October 1, 2004, Marsh
agreed to eliminate contingent compensation agreements with insurers.
(b) Settlements Include:
Marsh's Settlement with New York regulators
Putnam's Settlements with the SEC and State of Massachusetts
(c) MMC will continue to review its staffing levels and cost structure in light
of evolving business conditions, which could result in restructuring charges in
the future.
(d) In connection with accounting guidance issued by the Institute of Chartered
Accountants in the U.K., MMC reassessed its obligation to provide future claims
handling and certain administrative services for brokerage clients in the
European marketplace. MMC has determined that under certain circumstances it is
obligated to provide such services based on its current business practices. MMC
recorded a pretax charge to reflect the change in estimated cost to provide
these services. This change does not result in any incremental cash outflow for
the Company.
(e) Other primarily reflects employee retention, accelerated leasehold
amortization and software writeoffs and the bonus impact on certain noteworthy
items.
NON-GAAP MEASURES: A number of noteworthy items have impacted operating income
in 2004. MMC believes this schedule provides a concise analysis of the effects
of these items. Nonetheless, it is pertinent to note that the amounts shown in
the captions Operating Income As Adjusted and Operating Income Margin As
Adjusted are non-GAAP measures.
Page 7 of 8
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Twelve Months Ended December 31, 2004
(Millions) (Unaudited)
Risk &
Insurance Investment
--------
Services Management Consulting Corporate Total
-------- --------- -------- -------- -------
Operating
Income As
Reported (a) $ 252 $ 94 $ 330 $ (39) $ 637
-------- --------- -------- -------- -------
Settlements
(b)
Settlements 850 220 - (105) 965
Administrative
Costs 16 - - - 16
-------- --------- -------- -------- -------
866 220 - (105) 981
-------- --------- -------- -------- -------
Restructuring
Charges (c) 231 26 62 18 337
-------- --------- -------- -------- -------
Servicing
Obligation (d) 65 - - - 65
-------- --------- -------- -------- -------
Other
Legal and
Audit 15 45 - - 60
Severance -
First Three
Quarters 40 57 11 - 108
Communications - 16 - 1 17
Executive
Compensation
Credit - (25) - - (25)
Gain on Sale
of Italian
Joint Venture - (38) - - (38)
Other (e) 15 (3) 11 3 26
Minority
Interest - (8) - - (8)
-------- --------- -------- -------- -------
70 44 22 4 140
-------- --------- -------- -------- -------
Net
Adjustments 1,232 290 84 (83) 1,523
-------- --------- -------- -------- -------
Operating
Income As
Adjusted (a) $ 1,484 $ 384 $ 414 $ (122) $2,160
======== ========= ======== ======== =======
Operating
Income Margin
As Adjusted
(a) 20.1% 22.3% 13.5% N/A 17.9%
======== ========= ======== ======== =======
(a) Market services revenue of $541 million is included in Operating Income As
Reported and Operating Income As Adjusted. Effective October 1, 2004, Marsh
agreed to eliminate contingent compensation agreements with insurers.
(b) Settlements Include:
Marsh's Settlement with New York regulators
Putnam's Settlements with the SEC and State of Massachusetts
Corporate- Final Insurance Settlement related to WTC
(c) MMC will continue to review its staffing levels and cost structure in light
of evolving business conditions, which could result in restructuring charges in
the future.
(d) In connection with accounting guidance issued by the Institute of Chartered
Accountants in the U.K., MMC reassessed its obligation to provide future claims
handling and certain administrative services for brokerage clients in the
European marketplace. MMC has determined that under certain circumstances it is
obligated to provide such services based on its current business practices. MMC
recorded a pretax charge to reflect the change in estimated cost to provide these
services. This change does not result in any incremental cash outflow for the
Company.
(e) Other primarily reflects employee retention, accelerated leasehold
amortization, software writeoffs and the bonus impact on certain noteworthy
items.
NON-GAAP MEASURES: A number of noteworthy items have impacted operating income in
2004. MMC believes this schedule provides a concise analysis of the effects of
these items. Nonetheless, it is pertinent to note that the amounts shown in the
captions Operating Income As Adjusted and Operating Income Margin As Adjusted are
non-GAAP measures.
Page 8 of 8
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