MHM.L Regulatory News (MHM)

1 Nov 2005 13:36

Marsh & McLennan Co Inc01 November 2005 News Release Media Contacts: Investor Contact: Barbara Perlmutter Jim Fingeroth Mike BischoffMMC Kekst and Company MMC(212) 345-5585 (212) 521-4819 (212) 345-5470 MMC REPORTS THIRD QUARTER RESULTS NEW YORK, NEW YORK, November 1, 2005-Marsh & McLennan Companies, Inc. (MMC)today reported financial results for the third quarter and nine months endedSeptember 30, 2005. Consolidated revenues for the quarter decreased 2 percent to$2.9 billion. Net income was $65 million, or $.12 per share, an increase from$21 million, or $.04 per share, in the third quarter of 2004. For the ninemonths of 2005, consolidated revenues were unchanged at $9.2 billion. Net incomewas $365 million, or $.67 per share, compared with $856 million, or $1.60 pershare, in the 2004 period. Excluding noteworthy items described in the attachedsupplemental schedules, earnings per share in the third quarter of 2005 was$.35, a decline of 17 percent from $.42 in the same period of 2004. Excludingthe same items, earnings per share for the nine months of 2005 was $1.30,compared with $2.11 in 2004. In the third quarter, MMC adopted FASB Statement No. 123(R) entitled"Share-Based Payment." Incremental compensation expense of $37 million,primarily related to stock options, and an increase in fully diluted shares of2.3 million in the third quarter reduced earnings per share by slightly lessthan $.05. Michael G. Cherkasky, president and chief executive officer of MMC, said: "MMCcontinued in the quarter to make progress and take the steps which will make ita better and more profitable company next year. Cost savings from therestructuring programs are being realized as anticipated, and we expect to seeimproved earnings performance beginning next year. Marsh continues successfully,but slowly, to restore its business from the effects of the events of last fall.Marsh launched its pricing initiative, and we are optimistic about its impactfor 2006. Both Kroll and Mercer's specialty consulting businesses continue toproduce impressive revenue growth, and Mercer Human Resource Consulting isinvesting to enhance its position as a global leader for human resource advice,services, and solutions. Putnam is improving its investment performance andcontrolling costs diligently." Risk and Insurance ServicesRisk and insurance services revenues declined 6 percent to $1.4 billion in thethird quarter. The percentage decline is an improvement from the first half ofthe year, primarily due to market services revenues having less of an effect ona year-over-year basis. Third quarter revenues were affected by decliningcommercial insurance premium rates, a trend that has continued throughout theyear. Although it is too early to assess the total effect of recent hurricaneson insurance marketplace conditions, insurance premium rates in U.S. propertycatastrophe and certain specialty lines appear to be strengthening. Marsh's risk management and insurance broking revenues declined 11 percent inthe third quarter to $885 million. The percentage decline in revenues andoperating income in North American operations improved, compared with the firsttwo quarters of 2005. Weaker revenues in Europe in the third quarter reflectedthe sale of a small affinity business in France and delays due to restructuringefforts and the implementation of compliance protocols. Strong new businessgains in Latin America and Asia Pacific led to growth in client revenues inthose regions. Guy Carpenter's revenues in the third quarter were $207 million, compared with$209 million last year, as new business nearly offset premium rate declines inthe reinsurance markets and higher risk retentions by clients. These marketplaceconditions have been evident throughout the year. Related insurance services revenues rose 8 percent in the third quarter to $285million, driven by particular strength in the claims management business. Risk Consulting and TechnologyKroll produced strong revenue growth in the third quarter. Revenues increased 22percent to $268 million, or 15 percent on an underlying basis, led by thecorporate advisory and restructuring businesses. Technology services had solidgrowth, reflecting higher demand for mortgage-related and background screening,as well as electronic discovery services. ConsultingMercer's revenues increased 4 percent in the third quarter to $936 million, areflection of continued excellent performance in specialty consulting. The 16percent increase in specialty consulting revenues to $222 million was driven bystrong growth in Mercer Oliver Wyman, a leader in financial services strategyand risk management consulting, and solid results in strategy and operationsconsulting. Mercer Human Resource Consulting reported revenues of $668 millionin the quarter, compared with $666 million last year. Retirement consultingrevenues were essentially unchanged, while revenue growth in human capitalconsulting was offset by declines in health and benefits consulting and HRservices. Investment ManagementPutnam's revenues in the third quarter declined 11 percent to $371 million,consistent with the percentage declines in the prior two quarters. Averageassets under management during the third quarter were $195 billion, comparedwith $209 billion in the third quarter of 2004. Net redemptions in the quarterwere $8.5 billion. Total assets under management on September 30, 2005 were $192billion, comprising $129 billion of mutual fund assets and $63 billion ofinstitutional assets. Other ItemsAs discussed in this year's second quarter earnings release, the 2004restructuring program has been fully implemented, resulting in annualized costsavings totaling $400 million, of which $300 million has been realized throughthe third quarter. The 2005 restructuring program should be completed in early2006 and result in $375 million of annualized savings in risk and insuranceservices, $30 million of which was realized in the second quarter and $60million in the third quarter of this year. MMC's net debt position declined by over $400 million in the third quarter to$3.8 billion from $4.2 billion as the company generated strong cash flow in thequarter. MMC took financing actions in the quarter to enhance liquidity bysignificantly extending debt maturities and to secure favorable long-term fixedinterest rates. In September, MMC made a discretionary tax-deductible contribution to its U.S.defined benefit retirement plan with company stock valued at $205 million. Thevalue of plan assets now exceeds current estimates of both accumulated andprojected plan benefit obligations. MMC's consolidated tax rate of 27.8 percent for the third quarter primarilyreflects favorable adjustments resulting from the filing of its 2004 U.S. taxreturn. MMC expects the effective tax rate on ongoing operations to be 35percent for the fourth quarter of this year.As previously reported, Marsh sold Crump Group, Inc., its U.S.-based wholesalebroking operation, in October. The gain on the sale will be reflected in thefourth quarter. The MMC Victims Relief Fund came to the aid of colleagues who lived in the areasdevastated by Hurricane Katrina and who are in need of financial assistance tomeet emergency needs. To date, contributions to the fund total $1.2 million,including the company's donation and match of employee contributions, as well asadditional money raised by employees in fundraisers held by many MMC officesaround the world. Conference CallA conference call to discuss third quarter 2005 results will be held today at10:00 a.m. Eastern Standard Time. To participate in the teleconference, pleasedial (800) 811-8824 or (913) 981-4903 (international). The access code for bothnumbers is 1057498. The audio webcast (which will be listen-only) may beaccessed at www.mmc.com. A replay of the webcast will be available beginningapproximately two hours after the event at the same web address. MMC is a global professional services firm with annual revenues exceeding $12billion. It is the parent company of Marsh, the world's leading risk andinsurance services firm; Guy Carpenter, the world's leading risk and reinsurancespecialist; Kroll, the world's leading risk consulting company; Mercer, a majorglobal provider of human resource and specialty consulting services; and PutnamInvestments, one of the largest investment management companies in the UnitedStates. Approximately 59,000 employees provide analysis, advice, andtransactional capabilities to clients in over 100 countries. Its stock (tickersymbol: MMC) is listed on the New York, Chicago, Pacific, and London stockexchanges. MMC's website address is www.mmc.com. This press release contains "forward-looking statements," as defined in thePrivate Securities Litigation Reform Act of 1995. These statements, which usewords like "anticipate," "believe," "estimate," "expect," "intend," "plan,""project" and similar terms, express management's current views concerningfuture events or results. For example, we may use forward-looking statementswhen addressing topics such as future actions by our management or regulators;the outcome of contingencies; changes in our business strategy; changes in ourbusiness practices and methods of generating revenue; the development andperformance of our services and products; market and industry conditions,including competitive and pricing trends; changes in the composition or level ofMMC'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 thoseexpressed or implied in our forward-looking statements include: • the economic and reputational impact of litigation and regulatory proceedings brought by the New York Attorney General's Office, the Connecticut Attorney General's Office and other federal and state regulators and law enforcement authorities concerning our insurance and reinsurance brokerage operations; • the economic and reputational impact of class actions, derivative actions and individual suits brought against us by policyholders and shareholders asserting various claims under federal and state laws; • the impact on our investment management revenues of litigation and regulatory proceedings relating to market-timing and other issues at Putnam; • other developments relating to claims, lawsuits and other contingencies; • the extent to which we are able to negotiate compensation arrangements with clients or insurance carriers to replace the revenue stream historically associated with contingent commissions, which we have eliminated under Marsh's new business model; • the continued strength of our client relationships and our ability to retain key producers and managers; • our success in implementing restructuring initiatives and otherwise reducing expenses; • the impact of competition, including with respect to pricing and the emergence of new competitors; • changes in the availability of, and the premiums insurance carriers charge for, insurance products; • the actual and relative investment performance of the Putnam mutual funds, including the impact of changes in U.S. and global equity and fixed income markets; • the extent to which Putnam succeeds in reversing its recent net redemption experience, increasing assets under management, and maintaining management and administrative fees at historical levels; • the impact of increasing focus by regulators, clients and others on potential conflicts of interest; • changes in the value of MMC's investments in individual companies and investment funds; • our ability to integrate acquired businesses and realize expected synergies, savings or strategic benefits; • MMC's ability to meet its substantial financing needs by generating cash from operations and accessing the capital markets, including the potential impact of rating agency actions on our cost of financing or ability to borrow; and • changes in the tax or accounting treatment of MMC's operations, and the impact of other legislation and regulation in the jurisdictions in which MMC operates. Forward-looking statements speak only as of the date on which they are made, andMMC undertakes no obligation to update any such statement to reflect events orcircumstances after the date on which it is made. Further information concerningMMC and its businesses, including information about factors that couldmaterially affect our results of operations and financial position, is containedin MMC's filings with the Securities and Exchange Commission. MMC and its operating companies use their websites to convey meaningfulinformation about their businesses, including the anticipated release ofquarterly financial results and the posting of updates of assets undermanagement at Putnam. Monthly updates of total assets under management at Putnamwill be posted to the MMC website the first business day following the end ofeach month. Putnam posts mutual fund and performance data to its websiteregularly. Assets for most Putnam retail mutual funds are posted approximatelytwo weeks after each month-end. Mutual fund net asset value (NAV) is posteddaily. Historical performance and Lipper rankings are also provided. Investorscan link to MMC and its operating company websites through www.mmc.com. Marsh & McLennan Companies, Inc. Consolidated Statements of Income (In millions, except per share figures) (Unaudited) --------------- -------------- Three Months Ended Nine Months Ended September 30, September 30, --------------- -------------- 2005 2004 2005 2004 --------- -------- -------- --------Revenue:Service Revenue $2,850 $2,912 $9,020 $9,031Investment Income (Loss) 48 38 156 143 --------- -------- -------- --------Total Revenue 2,898 2,950 9,176 9,174 --------- -------- -------- -------- Expense:Compensation and Benefits 1,816 1,716 5,585 4,947Other Operating Expenses 887 834 2,818 2,427Regulatory and Other Settlements - 272 - 267 --------- -------- -------- --------Total Expense 2,703 2,822 8,403 7,641 --------- -------- -------- -------- Operating Income 195 128 773 1,533 Interest Income 13 6 33 15 Interest Expense (111) (55) (253) (153) --------- -------- -------- -------- Income Before Income Taxes andMinority Interest Expense 97 79 553 1,395 Income Taxes 27 52 176 527 Minority Interest Expense, Net of Tax 5 6 12 12 --------- -------- -------- -------- Net Income $ 65 $ 21 $ 365 $ 856 ========= ======== ======== ======== Basic Net Income Per Share $ 0.12 $ 0.04 $ 0.68 $ 1.64 ========= ======== ======== ======== Diluted Net Income Per Share $ 0.12 $ 0.04 $ 0.67 $ 1.60 ========= ======== ======== ======== Average Number ofShares Outstanding - Basic 539 521 535 522 ========= ======== ======== ======== Average Number ofShares Outstanding - Diluted 544 533 539 536 ========= ======== ======== ======== Marsh & McLennan Companies, Inc. Supplemental Information - Revenue Analysis Third Quarter (Millions) (Unaudited) Components of Revenue Change Three Months Ended % Change Underlying Acquisitions/ Revenue September 30, GAAP Currency Dispositions Underlying excluding 2005 2004 Revenue Impact Impact Revenue MSA Impact ------- ------ -------- ------- --------- ------- --------Risk andInsuranceServicesRiskManagement andInsuranceBroking $885 $ 998 (11)% 1% - (12)% (10)%ReinsuranceBroking andServices 207 209 (1)% 1% - (2)%RelatedInsuranceServices 285 265 8% - - 8% 8% ------- ------Total Risk andInsuranceServices 1,377 1,472 (6)% 1% - (7)% (5)% ------- ------RiskConsulting &Technology 268 218 22% - 7% 15% ------- ------ConsultingHuman ResourceConsulting 668 666 - 1% - (1)% (1)%SpecialtyConsulting 222 192 16% - - 16% ------- ------ 890 858 4% 1% - 3% 3%ReimbursedExpenses 46 39 ------- ------TotalConsulting 936 897 4% 1% - 3% 3% ------- ------ InvestmentManagement 371 415 (11)% - - (11)% ------- ------ TotalOperatingSegments 2,952 3,002 (2)% - 1% (3)% (2)% CorporateEliminations (54) (52) ------- ------ Total Revenue $2,898 $2,950 (2)% - 1% (3)% (2)% ======= ====== NotesUnderlying revenue measures the change in revenue, before the impact ofacquisitions and dispositions, using consistent currency exchange rates.Underlying revenue for risk management and insurance broking decreased 12% inthe third quarter, including a 2% decline related to market services agreements;and for the risk and insurance services segment underlying revenue decreased 7%in the third quarter including a 2% decline related to market servicesagreements. Related insurance services includes U.S. affinity, wholesale broking,underwriting management, claims management and Marsh & McLennan Risk CapitalHoldings, which holds MMC investments in insurance and financial servicescompanies and the Trident funds. Effective October 1, 2004 MMC agreed to eliminate contingent compensationagreements with insurers. 2005 results include market services revenue of $23million related to collections of amounts earned on placements made prior toOctober 1, 2004, which had not previously been accrued. Interest income on fiduciary funds amounted to $43 million and $35 million forthe three months ended September 30, 2005 and 2004, respectively. Revenue includes the following investment gains and losses for the three monthsended September 30, 2005 and 2004:Risk and Insurance Services - $45 million and $37 million, respectively.Investment Management - $3 million and $1 million, respectively. Marsh & McLennan Companies, Inc. Supplemental Information - Revenue Analysis Nine Months (Millions) (Unaudited) Components of Revenue Change Underlying Nine Months Ended % Change Acquisitions/ Revenue September 30, GAAP Currency Dispositions Underlying excluding 2005 2004 Revenue Impact Impact Revenue MSA Impact ------- ------- --------- ------- --------- --------- ---------Risk andInsuranceServicesRiskManagementandInsurance $3,001 $3,602 (17)% 2% - (19)% (10)%BrokingReinsuranceBroking andServices 681 703 (3)% 1% - (4)%RelatedInsuranceServices 882 745 18% - 4% 14% 13% ------- -------Total RiskandInsurance 4,564 5,050 (10)% 1% 1% (12)% (5)%Services ------- ------- RiskConsulting &Technology 799 270 196% - 189% 7% ------- ------- ConsultingHumanResource 2,022 2,028 - 2% - (2)% (2)%ConsultingSpecialtyConsulting 661 559 18% 2% - 16% ------- ------- 2,683 2,587 4% 2% - 2% 2%ReimbursedExpenses 131 114 ------- -------TotalConsulting 2,814 2,701 4% 2% - 2% 2% ------- ------- InvestmentManagement 1,146 1,299 (12)% - - (12)% ------- ------- TotalOperatingSegments 9,323 9,320 - 1% 6% (7)% (3)% CorporateEliminations (147) (146) ------- ------- Total $9,176 $9,174 - 1% 6% (7)% (3)%Revenue ======= ======= NotesUnderlying revenue measures the change in revenue, before the impact ofacquisitions and dispositions, using consistent currency exchange rates.Underlying revenue for risk management and insurance broking decreased 19% inthe first nine months, including a 9% decline related to market servicesagreements; and for the risk and insurance services segment underlying revenuedecreased 12% in the first nine months including a 7% decline related to marketservices agreements. Related insurance services includes U.S. affinity, wholesale broking,underwriting management, claims management and Marsh & McLennan Risk CapitalHoldings, which holds MMC investments in insurance and financial servicescompanies and the Trident funds. Effective October 1, 2004 MMC agreed to eliminate contingent compensationagreements with insurers. 2005 results include market services revenue of $94million related to collections of amounts earned on placements made prior toOctober 1, 2004, which had not previously been accrued. Interest income on fiduciary funds amounted to $114 million and $94 million forthe nine months ended September 30, 2005 and 2004, respectively. Revenue includes the following investment gains and losses for the nine monthsended September 30, 2005 and 2004:Risk and Insurance Services - $151 million and $100 million, respectively.Investment Management - $5 million and $43 million, respectively. Marsh & McLennan Companies, Inc. Supplemental Information (Millions) (Unaudited) -------------- -------------- Three Months Ended Nine Months Ended September 30, September 30, -------------- -------------- 2005 2004 2005 2004 ------- -------- ------- ------- Operating Income (Loss) IncludingMinority Interest Expense:Risk and Insurance Services $32 $ (61) $280 $967Risk Consulting & Technology 33 30 103 39Consulting 117 131 354 383Investment Management 83 55 202 129Corporate (a) (75) (33) (178) 3 ------- -------- ------- ------- 190 122 761 1,521 ------- -------- ------- ------- Minority Interest Expense, Net ofTax, Included Above:Risk and Insurance Services 5 5 10 12Investment Management - 1 2 - ------- -------- ------- ------- 5 6 12 12 ------- -------- ------- ------- Operating Income $195 $ 128 $773 $1,533 ======= ======== ======= ======= Segment Operating Margins:Risk and Insurance Services 2.3% (4.1)% 6.1% 19.1%Risk Consulting & Technology 12.3% 13.8% 12.9% 14.4%Consulting 12.5% 14.6% 12.6% 14.2%Investment Management 22.4% 13.3% 17.6% 9.9% Consolidated Operating Margin 6.7% 4.3% 8.4% 16.7%Pretax Margin 3.3% 2.7% 6.0% 15.2%Effective Tax Rate (b) 27.8% 65.8% 31.8% 37.8% Shares Outstanding at End ofPeriod 544 526 Potential Minority InterestAssociated with the PutnamEquity Partnership Plan Net ofDividend EquivalentExpense Related to MMC CommonStock Equivalents $ 1 $ - $ 2 $ (2) (a) Effective July 1, 2005, MMC adopted SFAS 123(R), Share-Based Payment, usingthe modified prospective method of adoption. Incremental expenses of $37million, primarily related to stock options, are included in Corporate expensesfor the three months and nine months ended September 30, 2005. (b) The effective tax rate for the three months ended September 30, 2005primarily reflects favorable adjustments resulting from the filing of the 2004U.S. tax return. The effective tax rate for the three months ended September 30,2004 reflects non-deductible settlement charges at Putnam. Marsh & McLennan Companies, Inc. Supplemental Information - Putnam Assets Under Management (Billions) (Unaudited) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2005 2005 2005 2004 2004 -------- -------- -------- -------- --------Mutual Funds:Growth Equity $ 32 $ 33 $ 34 $ 38 $ 37Value Equity 38 39 40 41 39Blend Equity 26 26 26 28 27Fixed Income 33 34 35 36 37 -------- -------- -------- -------- --------Total MutualFund Assets 129 132 135 143 140 -------- -------- -------- -------- -------- Institutional:Equity 33 33 35 40 40Fixed Income 30 30 29 30 29 -------- -------- -------- -------- --------TotalInstitutionalAssets 63 63 64 70 69 -------- -------- -------- -------- --------Total EndingAssets $192 $195 $199 $213 $209 ======== ======== ======== ======== ======== Assets fromNon-USInvestors $ 33 $ 34 $ 35 $ 38 $ 36 ======== ======== ======== ======== ======== Average AssetsUnder Management: Quarter-to-Date $195 $196 $204 $211 $209 ======== ======== ======== ======== ======== Year-to-Date $198 $200 $204 $217 $220 ======== ======== ======== ======== ======== Net RedemptionsincludingDividendsReinvested:Quarter-to-Date $ (8.5) $ (7.1) $ (9.7) $ (10.7) $ (10.5) ======== ======== ======== ======== ========Year-to-Date $(25.3) $(16.8) $ (9.7) $ (51.0) $ (40.3) ======== ======== ======== ======== ======== Impact of Market/Performance onEndingAssets UnderManagement $ 5.6 $ 3.1 $ (4.3) $ 15.4 $ (2.1) ======== ======== ======== ======== ======== Categories of mutual fund assets reflect style designations aligned withPutnam's various prospectuses. All quarter-end assets conform with the currentinvestment mandate for each product. Marsh & McLennan Companies, Inc. Reconciliation of Non-GAAP Measures Quarter and Nine Months Ended September 30, 2005 (Millions) (Unaudited) NON-GAAP MEASURES: MMC believes that investors' understanding of the results and operations is enhanced by the disclosure of additional non-GAAP financialinformation. A number of noteworthy items impacted operating income and interest expense in 2005. MMC believes this schedule provides a concise analysis of the effects of these items. The amounts shown in the captions Operating Income As Adjusted and Operating Income Margin As Adjusted are non-GAAPmeasures. Risk & Risk Consulting Investment Corporate & Total Insurance Consulting & (a) Management Eliminations Services (a) Technology Quarter Ended Operating Income $ 32 $ 33 $117 $ 83 $ (75) $190 As Reported Restructuring 51 - - - 1 52 Charges Other Incremental 16 - - (12) (5) (1) Regulatory and Compliance (c) Estimated Mutual - - - 1 - 1 Fund Reimbursement (d) Employee 50 - 10 - - 60 Retention Awards Stock Option - - - - 37 37 Expense Other (e) 1 - - 4 1 6 67 - 10 (7) 33 103 Operating Income 118 - 10 (7) 34 155 Adjustments Operating Income $150 $ 33 $127 $ 76 $ (41) $345 As Adjusted Operating Income 11.0% 12.3% 13.6% 20.5% N/A 11.9% Margin As Adjusted Nine Months Ended Operating Income $280 $103 $354 $202 $(178) $761 As Reported Restructuring 195 - - - 55 250 Charges (b) Other Incremental 69 - - (12) (24) 33 Regulatory and Compliance (c) Estimated Mutual - - - 35 - 35 Fund Reimbursement (d) Employee 88 - 30 - - 118 Retention Awards Stock Option - - - - 37 37 Expense Other (e) 11 - - 4 (2) 13 Minority - - - (1) - (1) Interest 168 - 30 26 11 235 Operating Income 363 - 30 26 66 485 Adjustments Operating Income $ 643 $103 $384 $228 $(112) $1,246 As Adjusted Operating Income 14.1% 12.9% 13.6% 19.9% N/A 13.6% Margin As Adjusted Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share Quarter Ended Nine Months --------------- Ended -------------------Net Income, As Reported $ 65 $ 365Operating Income Adjustments $ 155 $485Interest Expense Adjustment (f) 34 34Tax Effect (65) (184) -------- ------------ 124 335 ------ -------Net Income, As Adjusted $ 189 $ 700Average Diluted Shares Outstanding (g) 544 539 ------ -------Earnings Per Share, As Adjusted $ 0.35 $ 1.30 ====== ======= Please see Notes to the Reconciliation of Non-GAAP Measures on Page 14. Marsh & McLennan Companies, Inc. Reconciliation of Non-GAAP Measures Quarter and Nine Months Ended September 30, 2004 (Millions) (Unaudited) NON-GAAP MEASURES: MMC believes that investors' understanding of the results and operations is enhanced by thedisclosure of additional non-GAAP financial information. A number of noteworthy items impacted operating income in2004. MMC believes this schedule provides a concise analysis of the effects of these items. The amounts shown in thecaptions Operating Income As Adjusted and Operating Income Margin As Adjusted are non-GAAP measures.--------------------------------------------------------------------------------------------------------------------- Risk & Insurance Risk Consulting (h) Investment Corporate & Services (h) Consulting Management Eliminations Total & Technology Quarter Ended---------------OperatingIncome AsReported $ (61) $ 30 $ 131 $ 55 $ (33) $ 122 Settlements(i) 232 - - 40 - 272 OtherSeverance 24 - - 6 - 30IncrementalRegulatory andCompliance - - - 9 - 9Other - - - (8) - (8) 24 - - 7 - 31 OperatingIncomeAdjustments 256 - - 47 - 303 OperatingIncome AsAdjusted $ 195 $ 30 $ 131 $ 102 $ (33) $ 425 OperatingIncome MarginAs Adjusted 13.2% 13.8% 14.6% 24.6% N/A 14.4% Nine Months Ended-------------------OperatingIncome AsReported $ 967 $ 39 $ 383 $ 129 $ 3 $ 1,521 Settlements(i) 232 - - 140 (105) 267 OtherSeverance 40 - 11 57 - 108IncrementalRegulatory andCompliance - - - 38 - 38Executive CompCredit - - - (25) - (25)Gain on Saleof ItalianVenture - - - (38) - (38)Communications - - - 15 - 15Other - - - (4) - (4)MinorityInterest - - - (6) - (6) 40 - 11 37 - 88 OperatingIncomeAdjustments 272 - 11 177 (105) 355 OperatingIncome AsAdjusted $ 1,239 $ 39 $ 394 $ 306 $ (102) $ 1,876 OperatingIncome MarginAs Adjusted 24.5% 14.4% 14.6% 24.3% N/A 20.5% Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share Quarter Ended Nine Months Ended --------------- -------------------Net Income, As Reported $ 21 $ 856Operating Income Adjustments $ 303 $ 355Tax Effect (j) (99) (78) ------- ------ 204 277 ------- ------Net Income, As Adjusted $ 225 $1,133Average Diluted Shares Outstanding 533 536 ------- ------Earnings Per Share, As Adjusted $0.42 $ 2.11 ======= ====== Please see Notes to the Reconciliation of Non-GAAP Measures on Page 14. Marsh & McLennan Companies, Inc. Notes to the Reconciliation of Non-GAAP Measures -------------------------------------------------- Quarter and Nine Months Ended September 30, 2005 (a) For the three months and nine months ended September 30, 2005, marketservices revenue of $22 million and $90 million, respectively, for Risk andInsurance Services, and $1 million and $4 million, respectively, for theemployee benefits business transferred to Mercer, is included in OperatingIncome As Reported and Operating Income As Adjusted. (b) Corporate expenses in 2005 primarily included restructuring charges of $49million related to the consolidation of office space in London. Because theoffice space consolidation was driven by MMC to benefit its London operations asa whole, rather than any particular operating company, the related charge wasrecorded in corporate expenses. (c) Regulatory and compliance costs in the risk and insurance services segmentinclude professional services provided by other MMC companies. The inter-companyamounts are eliminated in corporate. The credit in Investment Management relatesto insurance recoveries of amounts previously presented as IncrementalRegulatory and Compliance costs. (d) Represents estimated costs that Putnam believes will be necessary to addressissues relating to the calculation of certain amounts paid by the Putnam mutualfunds in previous years. The previous payments were cost reimbursements by thePutnam mutual funds to Putnam for transfer agency services related to definedcontribution operations. (e) Other primarily reflects accelerated leasehold amortization and the bonusimpact on the insurance credit received, partly offset by a gain on the sale ofthe corporate jet which was recorded in the first quarter. (f) In addition to the noteworthy items that impacted operating income, interestexpense included a $34 million mortgage prepayment charge. (g) For the three months and nine months ended September 30, 2005, theimplementation of SFAS 123(R) increased incremental shares by 2.3 million and .7million, respectively. Quarter and Nine Months Ended September 30, 2004(h) For the three months and nine months ended September 30, 2004, marketservices revenue of $43 million and $451 million, respectively, for Risk andInsurance Services, and $3 million and $17 million, respectively, for theemployee benefits business transferred to Mercer, is included in OperatingIncome As Reported and Operating Income As Adjusted. (i) Settlements include charges related to the investigation of Marsh by NewYork regulators, Putnam's settlements with the SEC and State of Massachusettsand the final insurance settlement related to WTC in Corporate. (j) The tax effect for the nine months ended September 30, 2004 reflectsnon-deductible Putnam settlement, reserve for possible Marsh settlement at 38%tax rate, credit related to insurance settlements at 40% tax rate and othercharges and credit at 34.5% tax rate. Marsh & McLennan Companies, Inc. Consolidated Balance Sheets (Millions) (Unaudited) September 30, December 31, 2005 2004 ------ ------ ASSETSCurrent assets :Cash and cash equivalents $ 1,237 $ 1,396Net receivables 2,981 2,890Other current assets 263 601 ---------- Total current assets 4,481 4,887 Goodwill and intangible assets 8,015 8,139 Fixed assets, net 1,235 1,387Long-term investments 318 558Prepaid pension 1,565 1,394Other assets 1,894 1,972 ------------ -------TOTAL ASSETS $17,508 $18,337 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Short-term debt $ 77 $ 636Accounts payable and accrued liabilities 1,875 1,834Regulatory settlements - current portion 311 394Accrued compensation and employee benefits 1,347 1,591Accrued income taxes 316 280Dividends payable 93 - ----------- ----------Total current liabilities 4,019 4,735 Fiduciary liabilities 4,210 4,136Less - cash and investments held ina fiduciary capacity (4,210) (4,136) ------------ --------- - -Long-term debt 4,929 4,691Regulatory settlements 340 595Pension, postretirement and postemploymentbenefits 1,369 1,333Other liabilities 1,492 1,927 Total stockholders' equity 5,359 5,056 ---------- -------Total liabilities and stockholders' equity $17,508 $18,337 ========= ========= This information is provided by RNS The company news service from the London Stock Exchange