Final Results
Marsh & McLennan Co Inc
14 February 2006
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, New York 10036-2774
212 345 5000 Fax 212 345 4838
www.mmc.com
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
NEW YORK, NEW YORK, February 14, 2006-Marsh & McLennan Companies, Inc. (MMC)
today reported financial results for the quarter and year ended December 31,
2005. Marsh's U.S. wholesale broking operations and Sedgwick Claims Management
Services, sold in October 2005 and January 2006, respectively, are shown in
MMC's financial results as discontinued operations.
In the fourth quarter, consolidated revenues were $2.8 billion, a 2 percent
decline from the fourth quarter of 2004. Net income was $35 million, or $.06 per
share, compared with a net loss of $680 million, or $1.29 per share, in the
fourth quarter of 2004. Income from continuing operations was $17 million, or
$.03 per share, compared with a net loss of $683 million, or $1.29 per share, in
the fourth quarter of 2004. Excluding noteworthy items and stock option expense
described in the attached supplemental schedules, earnings per share from net
income in the fourth quarter of 2005 was $.28, compared with $.26 in the same
period of 2004.
Full-year consolidated revenues were $11.7 billion, compared with $11.8 billion
in 2004. Net income for the full year was $404 million, or $.74 per share,
compared with $176 million, or $.33 per share, in 2004. Income from continuing
operations was $369 million, or $.67 per share, compared with $154 million, or
$.29 per share, in 2004. Excluding noteworthy items and stock option expense,
earnings per share for the full year from net income was $1.57, compared with
$2.38 in 2004. The accompanying supplemental schedules give effect to
discontinued operations and segment reclassifications. Quarterly trends are
shown on pages 13, 15, and 16.
Michael G. Cherkasky, president and chief executive officer of MMC, said: 'Two
thousand five was a challenging year for MMC. We did what we critically needed
to do. We stabilized MMC; we preserved our great brands-Marsh, Mercer, Putnam,
Kroll, and Guy Carpenter; and we overwhelmingly retained our clients and
employees. MMC is a much stronger company today than it was a year ago. Marsh
had better client and staff retention and better profitability in the fourth
quarter than in the previous quarters of 2005. We expect those trends to
continue in 2006. Mercer Human Resource Consulting, Mercer Specialty Consulting,
and Kroll grew revenues and are positioned for increased profitability in 2006,
as is Guy Carpenter. Putnam continues to reduce its net outflows as it slowly
but steadily completes its turnaround. MMC is headed in the right direction.'
Risk and Insurance Services
The improved business tone at Marsh is apparent in fourth quarter results. Both
worldwide and North American client retention rates improved meaningfully from
what has been reported throughout the year. Underlying revenues, excluding
market services revenues, declined 2 percent, also a marked improvement from
previous quarters. These results were achieved despite continued premium rate
declines in the commercial insurance marketplace, particularly in Europe.
Guy Carpenter's revenues in the fourth quarter were $155 million, unchanged from
the same period of 2004. While not reflected in 2005 results, January 2006
renewals showed premium rate increases in property catastrophe coverage.
Revenues from Marsh & McLennan Risk Capital Holdings were $27 million,
reflecting lower sales of equity investments. This was a marked decline not only
from the $58 million of revenues in the fourth quarter of 2004 but also from the
first three quarters of 2005.
Total risk and insurance services revenues declined 7 percent to $1.3 billion in
the fourth quarter. The decline was primarily due to the year-over-year effect
of market services revenues, the reduced sales of equity investments, and
foreign currency translation. These results exclude strong revenue growth by
Sedgwick Claims Management Services, which previously had been included in
related insurance services but is now reflected in discontinued operations.
Risk Consulting and Technology
Kroll continued to produce strong revenue growth in the fourth quarter. Revenues
increased 14 percent to $230 million from $201 million, or 18 percent on an
underlying basis, led by strong growth in corporate advisory and restructuring,
background screening, and technology services. In Kroll's first full year of
operations as part of MMC, revenues were $946 million, and operating income was
$124 million.
Consulting
Mercer's total revenues increased 6 percent in the fourth quarter to $966
million. Specialty consulting produced excellent results, with revenues
increasing 16 percent to $248 million, compared with the fourth quarter of 2004.
Mercer Oliver Wyman and Mercer's strategy and operations consulting businesses
fueled this performance, continuing a pattern of strong growth throughout 2005.
Mercer Human Resource Consulting reported a 2 percent increase in quarterly
revenues to $664 million. Underlying growth of 3 percent reflected solid results
in retirement and human capital consulting and overall strength in international
operations.
Investment Management
Putnam's revenues in the fourth quarter declined 12 percent to $360 million, in
line with the year-over-year decline in average assets under management, which
were $188 billion, compared with $211 billion in the fourth quarter of 2004. Net
redemptions in the quarter were $6.4 billion. Total assets under management on
December 31, 2005 were $189 billion, comprising $126 billion of mutual fund
assets and $63 billion of institutional assets.
Other Items
The 2005 restructuring program resulted in savings of $160 million in the year,
with the remaining $215 million of the total annualized savings of $375 million
to occur in 2006, all in risk and insurance services. Restructuring-related
costs totaled $320 million in 2005, and the remaining $50 million is anticipated
in the first half of 2006.
Fourth quarter results also include expenses of $40 million in connection with
certain litigation and related matters.
MMC's net debt (total debt less cash and cash equivalents) was $3.5 billion at
year-end, reflecting a decline of approximately $250 million in the fourth
quarter and $430 million for the full year, driven primarily by strong operating
cash flows. In addition, the company made discretionary cash contributions of
$235 million to its U.K. pension plans, bringing aggregate discretionary pension
contributions in the United States and the United Kingdom to $440 million for
the full year.
In the fourth quarter of 2005, MMC entered into a new five-year revolving credit
agreement in the amount of $1.2 billion. MMC also repatriated $585 million of
accumulated international earnings at a favorable tax rate pursuant to the
American Jobs Creation Act of 2004. To fund the repatriation, certain MMC
international subsidiaries incurred borrowings under the new credit facility,
which increased both cash and debt levels at the end of 2005.
The combined annualized revenues from Marsh's U.S. wholesale broking operations,
Crump Group, and Sedgwick Claims Management Services were approximately $470
million in 2005 and $400 million in 2004. The results of these operations,
including the after-tax net gain on the sale of Crump, have been reflected as
discontinued operations. The gain on the sale of Sedgwick Claims Management
Services will be reflected in the first quarter of 2006.
Conference Call
A conference call to discuss fourth quarter and year-end 2005 results will be
held today at 10:00 a.m. Eastern Standard Time. To participate in the
teleconference, please dial (888) 208-1812 or (719) 457-2654 (international).
The access code for both numbers is 4446190. The audio webcast (which will be
listen-only) may be accessed at www.mmc.com. A replay of the webcast will be
available beginning approximately two hours after the event at the same web
address.
MMC is a global professional services firm with annual revenues of approximately
$12 billion. It is the parent company of Marsh, the world's leading risk and
insurance services firm; Guy Carpenter, the world's leading risk and reinsurance
specialist; Kroll, the world's leading risk consulting company; Mercer, a major
global provider of human resource and specialty consulting services; and Putnam
Investments, one of the largest investment management companies in the United
States. Approximately 55,000 employees provide analysis, advice, and
transactional capabilities to clients in over 100 countries. Its stock (ticker
symbol: MMC) is listed on the New York, Chicago, Pacific, and London stock
exchanges. MMC's website address is www.mmc.com.
This press release contains 'forward-looking statements,' as defined in the
Private Securities Litigation Reform Act of 1995. These statements, which use
words like 'anticipate,' 'believe,' 'estimate,' 'expect,' 'intend,' 'plan,'
'project' and similar terms, express management's current views concerning
future events or results. For example, we may use forward-looking statements
when addressing topics such as: future actions by our management or regulators;
the outcome of contingencies; changes in our business strategy; changes in our
business practices and methods of generating revenue; the development and
performance of our services and products; market and industry conditions,
including competitive and pricing trends; changes in the composition or level of
MMC's revenues; our cost structure; the impact of acquisitions and dispositions;
and MMC's cash flow and liquidity.
Forward-looking statements are subject to inherent risks and uncertainties.
Factors that could cause actual results to differ materially from those
expressed or implied in our forward-looking statements include:
• the economic and reputational impact of: litigation and regulatory
proceedings brought by federal and state regulators and law enforcement
authorities concerning our insurance and reinsurance brokerage operations
and our investment management operations (including the complaint filed in
October 2004 by the New York Attorney General's office relating to market
service agreements and other matters, and proceedings relating to
market-timing matters at Putnam); and class actions, derivative actions and
individual suits filed by policyholders and shareholders in connection with
the foregoing;
• the extent to which we are able to replace the revenues we previously
derived from contingent commissions, which we eliminated in late 2004;
• our ability to retain existing clients and attract new business,
particularly in our risk and insurance services segment, and our ability to
continue employment of key revenue producers and managers;
• period-to-period revenue fluctuations relating to the net effect of new
and lost business production and the timing of policy inception dates;
• the impact on our commission revenues of changes in the availability of,
and the premiums insurance carriers charge for, insurance products;
• the actual and relative investment performance of Putnam's mutual funds
and institutional and other advisory accounts, and the extent to which
Putnam reverses its recent net redemption experience, increases assets under
management and maintains management and administrative fees at historical
levels;
• our ability to implement our restructuring initiatives and otherwise
reduce expenses;
• our ability to execute our strategy of operating as 'one company,' which
includes employing technology-based business processes across our
organization, creating proprietary processes based on enterprise-wide
intellectual capital, and cross-selling to clients throughout MMC's
businesses;
• the impact of competition, including with respect to pricing and the
emergence of new competitors;
• the impact of increasing focus by regulators, clients and others on
potential conflicts of interest;
• changes in the value of MMC's investments in individual companies and
investment funds;
• our ability to make strategic acquisitions and to integrate, and realize
expected synergies, savings or strategic benefits from, acquired businesses;
• 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;
• the impact on our operating results of foreign exchange fluctuations;
and
• changes in the tax or accounting treatment of our operations, and the
impact of other legislation and regulation in the jurisdictions in which we
operate.
Forward-looking statements speak only as of the date on which they are made, and
MMC undertakes no obligation to update any such statement to reflect events or
circumstances after the date on which it is made. Further information concerning
MMC and its businesses, including information about factors that could
materially affect our results of operations and financial position, is contained
in MMC's filings with the Securities and Exchange Commission.
MMC and its operating companies use their websites to convey meaningful
information about their businesses, including the anticipated release of
quarterly financial results and the posting of updates of assets under
management at Putnam. Monthly updates of total assets under management at Putnam
will be posted to the MMC website the first business day following the end of
each month. Putnam posts mutual fund and performance data to its website
regularly. Assets for most Putnam retail mutual funds are posted approximately
two weeks after each month-end. Mutual fund net asset value (NAV) is posted
daily. Historical performance and Lipper rankings are also provided. Investors
can link to MMC and its operating company websites through www.mmc.com.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
-------------- ---------------
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------- ---------------
2005 2004 2005 2004
------- -------- -------- --------
Revenue:
Service Revenue $2,799 $2,823 $11,469 $11,561
Investment Income (Loss) 27 57 183 200
------- -------- -------- --------
Total Revenue 2,826 2,880 11,652 11,761
------- -------- -------- --------
Expense:
Compensation and Benefits 1,597 1,692 6,945 6,456
Other Operating Expenses 1,074 1,378 3,811 3,736
Regulatory and Other
Settlements 40 702 40 969
------- -------- -------- --------
Total Expense 2,711 3,772 10,796 11,161
------- -------- -------- --------
Operating Income (Loss) 115 (892) 856 600
Interest Income 14 6 47 21
Interest Expense (79) (66) (332) (219)
------- -------- -------- --------
Income (Loss) Before Income
Taxes and Minority Interest
Expense 50 (952) 571 402
Income Taxes 29 (271) 192 240
Minority Interest Expense,
Net of Tax 4 2 10 8
------- -------- -------- --------
Income (Loss) From
Continuing Operations 17 (683) 369 154
Discontinued Operations,
Net of Tax 18 3 35 22
------- -------- -------- --------
Net Income (Loss) $ 35 $ (680) $ 404 $ 176
======= ======== ======== ========
Basic Income Per Share -
Continuing Operations $ 0.03 $ (1.29) $ 0.69 $ 0.29
======= ======== ======== ========
Net Income (Loss) $ 0.06 $ (1.29) $ 0.75 $ 0.33
======= ======== ======== ========
Diluted Income Per Share
- Continuing Operations $ 0.03 $ (1.29) $ 0.67 $ 0.29
======= ======== ======== ========
Net Income (Loss) $ 0.06 $ (1.29) $ 0.74 $ 0.33
======= ======== ======== ========
Average Number of Shares
Outstanding - Basic 546 529 538 526
======= ======== ======== ========
Diluted 555 529 543 535
======= ======== ======== ========
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Three Months Ended
(Millions) (Unaudited)
Segment Reclassifications and Discontinued Operations
During the fourth quarter of 2005, MMC implemented several organizational
changes that affected MMC's reportable segments. The data presented below
reflects the transfer of Marsh's employee benefit business in the United Kingdom
from Insurance Services to Human Resource Consulting. The business continuity
management, mass tort and complex liability management, and data services for
the management of insurance, claims and legal data businesses of Risk Consulting
& Technology were transferred to Insurance Services.
MMC's U.S. wholesale broking operations and its claims management business were
classified as discontinued operations and are not reflected in the revenue
information presented below. Prior year information has been reclassified
accordingly.
Three Months Ended Components of Revenue Change
% Change Acquisitions/ Underlying Revenue excluding
MSA Impact
December 31, GAAP Currency Dispositions Underlying ---------
2005 2004 Revenue Impact Impact Revenue
------- ------ ------- ------- -------- -------
Risk and
Insurance
Services
Insurance
Services $ 1,135 $ 1,196 (5)% (1)% 1% (5)% (2)%
Reinsurance
Services 155 156 - - - -
Risk Capital
Holdings 27 58 (53)% - (6)% (47)%
------- ------
Total Risk
and
Insurance 1,317 1,410 (7)% (1)% - (6)% (3)%
Services ------- ------
Risk
Consulting 230 201 14% (2)% (2)% 18%
& Technology ------- ------
Consulting
Human
Resource 664 648 2% (2)% 1% 3% 3%
Consulting
Specialty
Consulting 248 215 16% (2)% - 18%
------- ------
912 863 6% (2)% 1% 7% 7%
Reimbursed
Expenses 54 45
------- ------
Total 966 908 6% (2)% 1% 7% 7%
Consulting ------- ------
Investment
Management 360 411 (12)% - - (12)%
------- ------
Total
Operating 2,873 2,930 (2)% (1)% - (1)% -
Segments
Corporate
Eliminations (47) (50)
------- ------
Total $2,826 $2,880 (2)% (1)% - (1)% -
Revenue ======= ======
Notes
Underlying revenue measures the change in revenue, before the impact of
acquisitions and dispositions, using consistent currency exchange rates.
Underlying revenue for Insurance Services decreased 5% in the fourth quarter,
including a 3% decline related to market services agreements; and for the Risk
and Insurance Services segment underlying revenue decreased 6% in the fourth
quarter, including a 3% decline related to market services agreements.
Effective October 1, 2004 MMC agreed to eliminate contingent compensation
agreements with insurers. Results for the fourth quarter of 2005 include market
services revenue of $30 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 $37 million and $36 million for
the three months ended December 31, 2005 and 2004, respectively.
Revenue includes investment income (loss) of $29 million and $49 million for
Risk and Insurance Services and $(2) million and $8 million for Investment
Management for the three months ended December 31, 2005 and 2004, respectively.
Risk Capital Holdings owns MMC's investments in insurance and financial services
firms such as Ace Ltd., XL Capital Ltd. and Axis Capital Holdings Ltd. as well
as the Trident Funds.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Twelve Months Ended
(Millions) (Unaudited)
Segment Reclassifications and Discontinued Operations
During the fourth quarter of 2005, MMC implemented several organizational
changes that affected MMC's reportable segments. The data presented below
reflects the transfer of Marsh's employee benefit business in the United Kingdom
from Insurance Services to Human Resource Consulting. The business continuity
management, mass tort and complex liability management, and data services for
the management of insurance, claims and legal data businesses of Risk Consulting
& Technology were transferred to Insurance Services.
MMC's U.S. wholesale broking operations and its claims management business were
classified as discontinued operations and are not reflected in the revenue
information presented below. Prior year information has been reclassified
accordingly.
Twelve Months Ended Components of Revenue Change
% Change Acquisitions/ Underlying Revenue excluding
MSA Impact
December 31, GAAP Currency Dispositions Underlying ---------
2005 2004 Revenue Impact Impact Revenue
------- ------ ------- ------- -------- -------
Risk and
Insurance
Services
Insurance
Services $4,567 $5,166 (12)% 1% - (13)% (6)%
Reinsurance
Services 836 859 (3)% 1% - (4)%
Risk Capital
Holdings 189 180 5% - (8)% 13%
------- ------
Total Risk
and
Insurance 5,592 6,205 (10)% 1% - (11)% (5)%
Services ------- ------
Risk
Consulting &
Technology 946 405 133% (1)% 113% 21%
------- ------
Consulting
Human
Resource 2,708 2,704 - 1% - (1)% (1)%
Consulting
Specialty
Consulting 909 774 17% - 1% 16%
------- ------
3,617 3,478 4% 1% - 3% 3%
Reimbursed
Expenses 185 159
------- ------
Total
Consulting 3,802 3,637 4% 1% - 3% 3%
------- ------
Investment
Management 1,506 1,710 (12)% - - (12)%
------- ------
Total
Operating
Segments 11,846 11,957 (1)% 1% 4% (6)% (3)%
Corporate
Eliminations (194) (196)
------- ------
Total $11,652 $11,761 (1)% 1% 4% (6)% (3)%
Revenue ======= ======
Notes
Underlying revenue measures the change in revenue, before the impact of
acquisitions and dispositions, using consistent currency exchange rates.
Underlying revenue for Insurance Services decreased 13% for the twelve months,
including a 7% decline related to market services agreements; and for the Risk
and Insurance Services segment underlying revenue decreased 11% for the twelve
months, including a 6% decline related to market services agreements.
Effective October 1, 2004 MMC agreed to eliminate contingent compensation
agreements with insurers. Results for 2005 include market services revenue of
$124 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 $151 million and $130 million for
the twelve months ended December 31, 2005 and 2004, respectively.
Revenue includes investment income (loss) of $180 million and $149 million for
Risk and Insurance Services and $3 million and $51 million for Investment
Management for the twelve months ended December 31, 2005 and 2004, respectively.
Risk Capital Holdings owns MMC's investments in insurance and financial services
firms such as Ace Ltd., XL Capital Ltd. and Axis Capital Holdings Ltd. as well
as the Trident Funds.
Marsh & McLennan Companies, Inc.
Supplemental Information - Continuing Operations
(Millions) (Unaudited)
-------------- --------------
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------- --------------
2005 2004 2005 2004
------- -------- ------- -------
Operating Income (Loss):
Risk and Insurance Services $ 62 $ (871) $ 305 $ 84
Risk Consulting & Technology 15 22 124 48
Consulting 94 30 451 409
Investment Management 59 (31) 263 98
Corporate (a) (115) (42) (287) (39)
------- -------- ------- -------
$115 $(892) $ 856 $600
======= ======== ======= =======
Segment Operating Margins:
Risk and Insurance Services 4.7% (61.8)% 5.5% 1.4%
Risk Consulting & Technology 6.5% 10.9% 13.1% 11.9%
Consulting 9.7% 3.3% 11.9% 11.2%
Investment Management 16.4% (7.5)% 17.5% 5.7%
Consolidated Operating Margin 4.1% (31.0)% 7.3% 5.1%
Pretax Margin 1.8% (33.1)% 4.9% 3.4%
Effective Tax Rate (b) 58.0% 28.5% 33.7% 59.7%
Shares Outstanding at End of
Period 546 527
Potential Minority Interest
Associated with the Putnam
Equity Partnership Plan Net of
Dividend Equivalent
Expense Related to MMC Common
Stock Equivalents $ 3 $ - $ 4 $ (2)
(a) Effective July 1, 2005, MMC adopted SFAS 123(R), Share-Based Payment, using
the modified prospective method of adoption. Incremental expenses of $33 million
and $64 million, respectively, primarily related to stock options, are included
in Corporate expenses for the three months and twelve months ended December 31,
2005.
(b) The effective tax rate for the three months ended December 31, 2005 reflects
lower tax benefits on restructuring costs, employee retention costs, settlement
costs and stock option expense, and the impact of increasing the full year
effective tax rate on ongoing operations to 34.2%. The effective tax rate for
the three months ended December 31, 2004 reflects non-deductible settlement
charges at Putnam.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Three and Twelve Months Ended December 31, 2005
(Millions) (Unaudited)
NON-GAAP MEASURES: The amounts shown below in Operating Income As Adjusted and
Operating Income Margin As Adjusted are non-GAAP financial measures within the
meaning of Regulation G promulgated by the Securities and Exchange Commission.
Because a number of noteworthy items impacted operating income and interest
expense in 2005, MMC believes that the supplemental non-GAAP financial measures
presented below may help investors and other users of MMC's financial
information to understand aspects of MMC's operating income and net income that
may not be apparent from MMC's reported GAAP results. Certain industry peers
provide similar supplemental information, although they may not use the same or
comparable terminology and may not make identical adjustments. The non-GAAP
financial measures presented below are not a substitute for MMC's reported GAAP
information.
Risk & Risk Consulting Investment Corporate & Total
Insurance (a) Eliminations
Services Consulting Management
(a) &
Technology
Three Months Ended
Operating Income As $ 62 $ 15 $ 94 $ 59 $ (115) $115
Reported
Settlement and Other Costs - - - 10 30 40
(b)
Restructuring Charges 62 - 1 - 4 67
Incremental Regulatory and 19 - - - (2) 17
Compliance (c)
Employee Retention Awards (10) - 7 - - (3)
Other (d) 1 - - - 11 12
Stock Option Expense - - - - 33 33
Adjustments 72 - 8 10 76 166
Operating Income As $134 $ 15 $102 $ 69 $ (39) $281
Adjusted
Operating Income Margin As 10.3% 6.5% 10.6% 19.2% N/A 10.0%
Adjusted
Twelve Months Ended
Operating Income As $305 $124 $451 $263 $(287) $856
Reported
Settlement and Other Costs - - - 10 30 40
Restructuring Charges (e) 257 - 1 - 59 317
Incremental Regulatory and 88 - - (12) (26) 50
Compliance (c)
Estimated Mutual Fund - - - 35 - 35
Reimbursement (f)
Employee Retention Awards 78 - 37 - - 115
Other (d) 12 - - 4 9 25
Stock Option Expense - - - - 64 64
Adjustments 435 - 38 37 136 646
Operating Income As $ 740 $124 $489 $300 $(151) $1,502
Adjusted
Operating Income Margin As 13.3% 13.1% 12.9% 19.9% N/A 12.9%
Adjusted
Reconciliation of the Impact of Non-GAAP Measures on Net Income and Diluted
Earnings Per Share
Three Months Ended Twelve Months
Ended
Income From Continuing Operations, As $ 17 $ 369
Reported
Adjustments $ 166 $ 646
Interest Expense Adjustment (g) 7 41
Tax Effect (54) (237)
119 450
Income From Continuing Operations, As $ 136 $ 819
Adjusted
Discontinued Operations, Net of Tax 18 35
Net Income, As Adjusted $ 154 $ 854
Diluted Earnings Per Share From $ 0.25 $ 1.51
Continuing Operations, As Adjusted
Diluted Earnings Per Share From Net $ 0.28 $ 1.57
Income, As Adjusted
Please see Notes to the Reconciliation of Non-GAAP Measures on Page 14.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
-------------------------------------
Three and Twelve Months Ended December 31, 2004
(Millions) (Unaudited)
NON-GAAP MEASURES: The amounts shown below in Operating Income As Adjusted and
Operating Income Margin As Adjusted are non-GAAP financial measures within the
meaning of Regulation G promulgated by the Securities and Exchange Commission.
Because a number of noteworthy items impacted operating income in 2004, MMC
believes that the supplemental non-GAAP financial measures presented below may
help investors and other users of MMC's financial information to understand
aspects of MMC's operating income and net income that may not be apparent from
MMC's reported GAAP results. Certain industry peers provide similar supplemental
information, although they may not use the same or comparable terminology and
may not make identical adjustments. The non-GAAP financial measures presented
below are not a substitute for MMC's reported GAAP information.
Risk & Risk Consulting Investment Corporate & Total
Insurance (h) Eliminations
Services Consulting Management
(h) &
Technology
Three Months Ended
Operating Income As $ (871) $ 22 $ 30 $ (31) $ (42) $ (892)
Reported
Settlement and Other Costs 634 - - 84 - 718
(i)
Restructuring Charges 231 - 62 26 18 337
Servicing Obligation (j) 65 - - - - 65
Severance - - - - - -
Incremental Regulatory and 15 - - 7 - 22
Compliance
Communications - - - 1 1 2
Other 15 - 11 1 3 30
Adjustments 960 - 73 119 22 1,174
Operating Income As $ 89 $ 22 $ 103 $ 88 $ (20) $ 282
Adjusted
Operating Income Margin As 6.3% 10.9% 11.3% 21.4% N/A 9.8%
Adjusted
Twelve Months Ended
Operating Income As Reported $ 84 $ 48 $ 409 $ 98 $ (39) $ 600
Settlement and Other Costs 866 - - 224 (105) 985
(i)
Restructuring Charges 231 - 62 26 18 337
Servicing Obligation (j) 65 - - - - 65
Severance 40 - 11 57 - 108
Incremental Regulatory and 15 - - 45 - 60
Compliance
Executive Comp Credit - - - (25) - (25)
Gain on Sale of Italian - - - (38) - (38)
Venture
Communications - - - 16 1 17
Other 15 - 11 (3) 3 26
Adjustments 1,232 - 84 302 (83) 1,535
Operating Income As Adjusted $ 1,316 $ 48 $ 493 $ 400 $ (122) $ 2,135
Operating Income Margin As 21.2% 11.9% 13.6% 23.9% N/A 18.2%
Adjusted
Reconciliation of the Impact of Non-GAAP Measures on Net Income and Diluted
Earnings Per Share
Three Months Ended Twelve Months
Ended
Income From Continuing Operations, As $ (683) $ 154
Reported
Adjustments $ 1,174 $ 1,535
Tax Effect (k) (355) (438)
819 1,097
Income From Continuing Operations, As $ 136 $ 1,251
Adjusted
Discontinued Operations, Net of Tax 3 22
Net Income, As Adjusted $ 139 $ 1,273
Diluted Earnings Per Share From $ 0.26 $ 2.34
Continuing Operations, As Adjusted
Diluted Earnings Per Share From Net $ 0.26 $ 2.38
Income, As Adjusted
Please see Notes to the Reconciliation of Non-GAAP Measures on Page 14.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Segment Reclassifications
-----------------------------------------------------------------
For the Three Months Ended March 31, June 30 and September 30, 2005
(Millions) (Unaudited)
NON-GAAP MEASURES: The amounts shown below in Operating Income As Adjusted and
Operating Income Margin As Adjusted are non-GAAP financial measures within the
meaning of Regulation G promulgated by the Securities and Exchange Commission.
Because a number of noteworthy items impacted operating income and interest
expense in 2005, MMC believes that the supplemental non-GAAP financial measures
presented below may help investors and other users of MMC's financial
information to understand aspects of MMC's operating income and net income that
may not be apparent from MMC's reported GAAP results. Certain industry peers
provide similar supplemental information, although they may not use the same or
comparable terminology and may not make identical adjustments. The non-GAAP
financial measures presented below are not a substitute for MMC's reported GAAP
information.
MMC has reclassified prior period amounts to reflect organizational changes that
affected MMC's reportable segments. The changes, noted on Page 9, are reflected
in the tables below.
Risk & Risk Consulting Investment Corporate & Total
Insurance Eliminations
Services Consulting Management
&
Technology
March 31, 2005
Operating Income As $ 137 $ 37 $ 110 $ 50 $ (73) $ 261
Reported
Restructuring Charges 96 - - - 49 145
Incremental Regulatory and 43 - - - (17) 26
Compliance
Estimated Mutual Fund - - - 30 - 30
Reimbursement
Employee Retention Awards 15 - 10 - - 25
Other 3 - - - (3) -
Adjustments 157 - 10 30 29 226
Operating Income As $ 294 $ 37 $ 120 $ 80 $ (44) $ 487
Adjusted
Operating Income Margin As 18.6% 15.9% 13.0% 20.1% N/A 15.9%
Adjusted
June 30, 2005
Operating Income As Reported $ 86 $ 36 $ 130 $ 71 $ (30) $ 293
Restructuring Charges 48 - - - 5 53
Incremental Regulatory and 10 - - - (2) 8
Compliance
Estimated Mutual Fund - - - 4 - 4
Reimbursement
Employee Retention Awards 23 - 10 - - 33
Other 7 - - - - 7
Adjustments 88 - 10 4 3 105
Operating Income As Adjusted $ 174 $ 36 $ 140 $ 75 $ (27) $ 398
Operating Income Margin As 12.3% 14.9% 14.4% 19.9% N/A 13.4%
Adjusted
September 30, 2005
Operating Income As Reported $ 20 $ 36 $ 117 $ 83 $ (69) $ 187
Restructuring Charges 51 - - - 1 52
Incremental Regulatory and 16 - - (12) (5) (1)
Compliance
Estimated Mutual Fund - - - 1 - 1
Reimbursement
Employee Retention Awards 50 - 10 - - 60
Other 1 - - 4 1 6
Stock Option Expense - - - - 31 31
Adjustments 118 - 10 (7) 28 149
Operating Income As Adjusted $ 138 $ 36 $ 127 $ 76 $ (41) $ 336
Operating Income Margin As 10.9% 14.9% 13.5% 20.5% N/A 12.1%
Adjusted
Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share
First Quarter Second Quarter Third Quarter
Income From Continuing Operations $ 129 $ 160 $ 63
Net Adjustments $ 226 $ 105 $ 149
Interest Expense Adjustment - - 34
Tax Effect (80) (41) (62)
146 64 121
Income From Continuing Operations, As $ 275 $ 224 $ 184
Adjusted
Discontinued Operation, Net of Tax 5 7 5
Net Income, As Adjusted $ 280 $ 231 $ 189
Diluted Earnings Per Share From $ 0.51 $ 0.42 $ 0.34
Continuing Operations, As Adjusted
Diluted Earnings Per Share From Net $ 0.52 $ 0.43 $ 0.35
Income, As Adjusted
Please see Notes to the Reconciliation of Non-GAAP Measures on Page 14.
Marsh & McLennan Companies, Inc.
Notes to the Reconciliation of Non-GAAP Measures
--------------------------------------------------
Three and Twelve Months Ended December 31, 2005
(a) For the three months and twelve months ended December 31, 2005, market
services revenue of $29 million and $119 million, respectively, for Risk and
Insurance Services, and $1 million and $5 million, respectively, for the
employee benefits business transferred to Mercer, is included in Operating
Income As Reported and Operating Income As Adjusted.
(b) Settlement and Other Costs represent expenses incurred in connection with
certain litigation and related matters.
(c) Incremental regulatory and compliance costs in the risk and insurance
services segment include professional services provided by other MMC companies
and the inter-company amounts are eliminated in Corporate. The credit in
Investment Management relates to insurance recoveries of amounts previously
presented as Incremental Regulatory and Compliance costs.
(d) Other primarily reflects costs related to a claim against a letter of credit
posted by MMC on behalf of an insurance company previously owned by MMC,
accelerated leasehold amortization and the bonus impact on the insurance credit
received, partly offset by a gain on the sale of the corporate jet.
(e) Corporate expenses in 2005 include restructuring charges of $49 million
related to the consolidation of office space in London, which was recorded in
the first quarter of 2005. Because the office space consolidation was driven by
MMC to benefit its London operations as a whole, the related charge was recorded
in corporate expenses.
(f) 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.
(g) In addition to the noteworthy items that impacted operating income, interest
expense included a write-off of $7 million of unamortized costs related to the
refinancing of the 2004 revolving credit agreement and a $34 million mortgage
prepayment charge.
Three and Twelve Months Ended December 31, 2004
(h) For the three months and twelve months ended December 31, 2004, market
services revenue of $70 million and $521 million, respectively, for Risk and
Insurance Services, and $3 million and $20 million, respectively, for the
employee benefits business transferred to Mercer, is included in Operating
Income As Reported and Operating Income As Adjusted.
(i) Settlement and Other Costs include charges related to the investigation of
Marsh by New York regulators and Putnam's settlements with the SEC and State of
Massachusetts and a credit for the final insurance settlement related to WTC in
Corporate.
(j) 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
MMC.
(k) The tax effect for the twelve months ended December 31, 2004 reflects
non-deductible Putnam settlement, reserve for possible Marsh settlement at 34%
tax rate, credit related to insurance settlement at 40% tax rate, service
obligation estimated at 30% tax rate and other charges and credit at 35% tax
rate.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis Segment Reclassifications
(Millions) (Unaudited)
Segment Reclassifications and Discontinued Operations
MMC has reclassified prior period reported amounts to reflect organizational
changes that affected MMC's reportable segments. The following changes are
reflected in the segment data presented below.
• The transfer of Marsh's U.K. employee benefits business from Insurance
Services to Human Resource Consulting.
• The transfer of several consulting businesses, which included business
continuity management, mass tort and complex liability mitigation, and data
services for the management of insurance, claims and legal data, from Risk
Consulting & Technology to Insurance Services.
• The discontinued operations classifications for the U.S. wholesale
broking and claims management businesses, which were previously part of
Related Insurance Services.
Three Months Ended Twelve Months Ended
2005 March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
-------- -------- -------- -------- ---------
Risk and
Insurance
Services
Insurance
Services $ 1,232 $ 1,172 $ 1,028 $ 1,135 $ 4,567
Reinsurance
Services 282 192 207 155 836
Risk Capital
Holdings 63 54 45 27 189
-------- -------- -------- -------- ---------
Total Risk
and
Insurance 1,577 1,418 1,280 1,317 5,592
Services -------- -------- -------- -------- ---------
Risk
Consulting &
Technology 233 241 242 230 946
-------- -------- -------- -------- ---------
Consulting
Human
Resource 676 696 672 664 2,708
Consulting
Specialty
Consulting 210 229 222 248 909
-------- -------- -------- -------- ---------
886 925 894 912 3,617
Reimbursed
Expenses 38 47 46 54 185
-------- -------- -------- -------- ---------
Total
Consulting 924 972 940 966 3,802
-------- -------- -------- -------- ---------
Investment
Management 398 377 371 360 1,506
-------- -------- -------- -------- ---------
Total
Operating
Segments 3,132 3,008 2,833 2,873 11,846
Corporate
Eliminations (62) (31) (54) (47) (194)
-------- -------- -------- -------- ---------
Total $ 3,070 $ 2,977 $ 2,779 $ 2,826 $ 11,652
Revenue ======== ======== ======== ======== =========
Three Months Ended Twelve Months Ended
2004 March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
-------- -------- -------- -------- ---------
Risk and
Insurance
Services
Insurance
Services $ 1,478 $ 1,365 $ 1,127 $ 1,196 $ 5,166
Reinsurance
Services 283 211 209 156 859
Risk Capital
Holdings 37 40 45 58 180
-------- -------- -------- -------- ---------
Total Risk
and
Insurance 1,798 1,616 1,381 1,410 6,205
Services -------- -------- -------- -------- ---------
Risk
Consulting &
Technology 4 4 196 201 405
-------- -------- -------- -------- ---------
Consulting
Human
Resource 688 694 674 648 2,704
Consulting
Specialty
Consulting 180 187 192 215 774
-------- -------- -------- -------- ---------
868 881 866 863 3,478
Reimbursed
Expenses 35 40 39 45 159
-------- -------- -------- -------- ---------
Total
Consulting 903 921 905 908 3,637
-------- -------- -------- -------- ---------
Investment
Management 450 434 415 411 1,710
-------- -------- -------- -------- ---------
Total
Operating
Segments 3,155 2,975 2,897 2,930 11,957
Corporate
Eliminations (51) (43) (52) (50) (196)
-------- -------- -------- -------- ---------
Total $ 3,104 $ 2,932 $ 2,845 $ 2,880 $ 11,761
Revenue ======== ======== ======== ======== =========
Marsh & McLennan Companies, Inc.
Supplemental Information - Consolidated Statements of Income Segment
Reclassifications
(Millions) (Unaudited)
Segment Reclassifications and Discontinued Operations
MMC has reclassified prior period reported amounts to reflect organizational
changes that affected MMC's reportable segments. The following changes are
reflected in the segment data presented below:
• The transfer of Marsh's U.K. employee benefits business from Insurance
Services to Human Resource Consulting.
• The transfer of several consulting businesses, which included business
continuity management, mass tort and complex liability mitigation, and data
services for the management of insurance, claims and legal data, from Risk
Consulting & Technology to Insurance Services.
• The discontinued operations classifications for the U.S. wholesale
broking and claims management businesses, which were previously part of
Related Insurance Services.
Three Months Ended Twelve Months Ended
2005 March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
------ -------- -------- -------- -------- ---------
Operating
Income
(Loss):
Risk and
Insurance
Services $ 137 $ 86 $ 20 $ 62 $ 305
Risk
Consulting &
Technology 37 36 36 15 124
Consulting 110 130 117 94 451
Investment
Management 50 71 83 59 263
Corporate (73) (30) (69) (115) (287)
-------- -------- -------- -------- ---------
261 293 187 115 856
-------- -------- -------- -------- ---------
Interest 9 11 13 14 47
Income
Interest
Expense (69) (73) (111) (79) (332)
-------- -------- -------- -------- ---------
Income
Before
Income Taxes
and
Minority
Interest,
Net 201 231 89 50 571
of Tax
Income Taxes 70 69 24 29 192
Minority
Interest
Expense, Net
of Tax 2 2 2 4 10
-------- -------- -------- -------- ---------
Income From
Continuing
Operations 129 160 63 17 369
Discontinued
Operations,
Net of Tax 5 7 5 18 35
-------- -------- -------- -------- ---------
Net Income $ 134 $ 167 $ 68 $ 35 $ 404
======== ======== ======== ======== =========
Basic Income
Per Share -
Continuing
Operations $ 0.24 $ 0.30 $ 0.12 $ 0.03 $ 0.69
======== ======== ======== ======== =========
Diluted
Income
Per Share -
Continuing $ 0.24 $ 0.30 $ 0.11 $ 0.03 $ 0.67
Operations ======== ======== ======== ======== =========
Three Months Ended Twelve Months Ended
2004 March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
------ -------- -------- -------- -------- ---------
Operating
Income
(Loss):
Risk and
Insurance
Services $ 600 $ 418 $ (63) $ (871) $ 84
Risk
Consulting &
Technology - - 26 22 48
Consulting 116 138 125 30 409
Investment
Management (26) 99 56 (31) 98
Corporate 72 (36) (33) (42) (39)
-------- -------- -------- -------- ---------
762 619 111 (892) 600
-------- -------- -------- -------- ---------
Interest 5 4 6 6 21
Income
Interest
Expense (50) (48) (55) (66) (219)
-------- -------- -------- -------- ---------
Income
(Loss)
Before
Income Taxes
and
Minority
Interest,
Net 717 575 62 (952) 402
of Tax
Income Taxes 278 188 45 (271) 240
Minority
Interest
Expense, Net
of Tax - 3 3 2 8
-------- -------- -------- -------- ---------
Income
(Loss)
From
Continuing 439 384 14 (683) 154
Operations
Discontinued
Operations,
Net of Tax 7 5 7 3 22
-------- -------- -------- -------- ---------
Net Income
(Loss) $ 446 $ 389 $ 21 $ (680) $ 176
======== ======== ======== ======== =========
Basic Income
(Loss) Per
Share -
Continuing
Operations $ 0.84 $ 0.74 $ 0.03 $ (1.29) $ 0.29
======== ======== ======== ======== =========
Diluted
Income
(Loss) Per
Share -
Continuing $ 0.82 $ 0.72 $ 0.03 $ (1.29) $ 0.29
Operations ======== ======== ======== ======== =========
Marsh & McLennan Companies, Inc.
Supplemental Information - Putnam Assets Under Management
(Billions) (Unaudited)
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
2005 2005 2005 2005 2004
-------- -------- -------- -------- --------
Mutual Funds:
Growth Equity $ 31 $ 32 $ 33 $ 34 $ 38
Value Equity 37 38 39 40 41
Blend Equity 26 26 26 26 28
Fixed Income 32 33 34 35 36
-------- -------- -------- -------- --------
Total Mutual
Fund Assets 126 129 132 135 143
-------- -------- -------- -------- --------
Institutional:
Equity 34 33 33 35 40
Fixed Income 29 30 30 29 30
-------- -------- -------- -------- --------
Total
Institutional
Assets 63 63 63 64 70
-------- -------- -------- -------- --------
Total Ending
Assets $189 $192 $195 $199 $213
======== ======== ======== ======== ========
Assets from
Non-US
Investors $ 32 $ 33 $ 34 $ 35 $ 38
======== ======== ======== ======== ========
Average Assets
Under Management:
Quarter-to-Date $188 $195 $196 $204 $211
======== ======== ======== ======== ========
Year-to-Date $196 $198 $200 $204 $217
======== ======== ======== ======== ========
Net Redemptions
including
Dividends
Reinvested:
Quarter-to-Date $ (6.4) $ (8.5) $ (7.1) $ (9.7) $ (10.7)
======== ======== ======== ======== ========
Year-to-Date $(31.7) $(25.3) $(16.8) $ (9.7) $ (51.0)
======== ======== ======== ======== ========
Impact of Market/
Performance on
Ending
Assets Under
Management $ 2.8 $ 5.6 $ 3.1 $ (4.3) $ 15.4
======== ======== ======== ======== ========
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.
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions) (Unaudited)
December 31, December 31,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $ 2,020 $ 1,370
Net receivables 2,730 2,859
Assets of discontinued operations 153 173
Other current assets 205 597
Total current assets 5,108 4,999
Goodwill and intangible assets 7,773 8,055
Fixed assets, net 1,178 1,363
Long-term investments 277 558
Prepaid pension 1,596 1,394
Other assets 1,899 1,968
TOTAL ASSETS $17,831 $18,337
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 498 $ 636
Accounts payable and accrued liabilities 1,831 1,818
Regulatory settlements - current portion 333 394
Accrued compensation and employee benefits 1,413 1,568
Liabilities of discontinued operations 89 46
Accrued income taxes 196 281
Dividends payable 93 -
Total current liabilities 4,453 4,743
Fiduciary liabilities 3,795 4,111
Less - cash and investments held in
a fiduciary capacity (3,795) (4,111)
- -
Long-term debt 5,044 4,691
Regulatory settlements 348 595
Pension, postretirement and postemployment benefits 1,180 1,326
Other liabilities 1,446 1,926
Total stockholders' equity 5,360 5,056
Total liabilities and stockholders' equity $17,831 $18,337
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