MHM.L Regulatory News (MHM)

1 Mar 2005 12:21

Marsh & McLennan Co Inc01 March 2005 News Release Media Contacts: Jim Fingeroth Investor Contact:Barbara Perlmutter Kekst and Company Mike BischoffMMC (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) todayreported financial results for the quarter and year ended December 31, 2004. Inthe fourth quarter, consolidated revenues declined 1 percent to $3 billion.After restructuring, regulatory settlements, and related expenses, the companyreported a net loss of $676 million in the fourth quarter, or a loss of $1.28per share. Full-year consolidated revenues were $12.2 billion, up 5 percent overthe prior year. Net income for the full year was $180 million, or earnings pershare of $.34. MMC's Board of Directors has declared a first quarter 2005dividend 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 inus and to rebuild shareholder value. "We do not underestimate the task ahead. Achieving our objectives willnot be quick or easy. Our employees are our greatest asset; theyare resilient and determined to set the industry standards toallow MMC to live up to its history of dedicated client service.We have already introduced new leadership, instituted newcompliance procedures, and initiated new ways of interacting withclients that will enable us to remain the leader in thebusinesses in which we participate. "Marsh has begun to implement significant business reforms to ensure completetransparency in its dealings with clients. It is restructuring its operations,improving efficiencies, eliminating unprofitable accounts, and simplifying itsmanagement structure while maintaining its commitment to being a full-serviceleader in insurance broking. We believe that in 2006, Marsh will be a stronger,more streamlined company, delivering profitable growth with an operating marginin 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 pershare. Fourth quarter expenses were affected significantly by regulatory issuesand the restructuring of MMC's operations (see attached supplemental informationschedules). Underlying expenses, adjusted for these items, were down 1 percentcompared with the prior year fourth quarter. The effect of foreign exchange onconsolidated operating income was not material. For the year, consolidated revenues rose 5 percent to $12.2 billion. Operatingincome declined to $652 million, reflecting costs of regulatory settlements atMarsh and Putnam and costs related to restructuring MMC's businesses. Results inrisk and insurance services include the $850 million charge related to thesettlement agreement reached with the New York State Attorney General and theSuperintendent of Insurance as well as the impact of a $304 million decrease inmarket service revenues. Results at Putnam reflect $220 million of expensesassociated with settlements with the Securities and Exchange Commission and theCommonwealth of Massachusetts. Additional legal and audit costs for Marsh andPutnam totaled $60 million. Net income for the full year declined to $180million, 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 ratedecreases 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 andinsurance broking declined 6 percent. Due to the pricing environment, retentionand new business activity were down slightly year-over-year, compared with astrong 2003 fourth quarter. Reinsurance broking and services grew 2 percent on areported basis and 1 percent on an underlying basis. Kroll reported excellentresults in the quarter, with particularly strong demand continuing fortechnology services, such as electronic discovery, data recovery, and backgroundscreening. For the year, risk and insurance services revenues rose to $7.4 billion, anincrease of 8 percent. Marsh's risk management and insurance broking operationsreported solid revenue growth in Europe, Asia Pacific, and Latin America. GuyCarpenter's revenue growth was due to new business development as demand foranalytical and placement services remained high. Related insurance servicesresults reflect growth in claims management and at MMC Capital. Consulting Mercer performed well in 2004. Revenues increased 13 percent to $3.1 billionfrom $2.7 billion. Underlying revenues grew 3 percent for the quarter and theyear. Mercer has made a number of leadership and organizational changes that reflectthe strategic direction and execution of its businesses around key revenuegrowth areas. Mercer is now being managed as two broad businesses, each underseparate leadership-Mercer Human Resource Consulting and Mercer's specialtyconsulting operations. Mercer Human Resource Consulting delivers solutions to its global client base,encompassing retirement and benefits consulting and administration, the fullarray of human capital advice, and investment solutions, such as funds ofmanagers products. Retirement consulting revenues were flat overall in 2004 asdeclines in the large markets of the United States and United Kingdom wereoffset by good growth throughout the rest of the world. Health care and groupbenefits and human capital consulting showed modest growth. Putnam's defined contribution business was combined with the newly formedMercer HR Services to create a unified, full-service global leader in humanresources outsourcing. In addition, Mercer's health care and group benefits andMarsh's employee benefits practices were brought together to leverage thedistribution capability and intellectual capital of both businesses. Mercer's specialty consulting businesses, which include management,organizational change, and economic consulting, produced excellent results forboth periods and continued to report strong new business in early 2005. For thefull year, underlying revenues for management and organizational changeconsulting grew 13 percent, and economic consulting rose 9 percent. Investment Management Putnam's revenues in the fourth quarter declined to $421 million. Averageassets under management in the fourth quarter of 2004 were $211 billion,compared with $209 billion in the third quarter. Assets under management at theend of 2004 were $213 billion, compared with $209 billion at the end of thethird quarter. Mutual fund assets were $143 billion and institutional assetswere $70 billion at year end, compared with $140 billion and $69 billion,respectively, at the end of the third quarter. Mutual fund and institutionalsales improved in the quarter. Net redemptions were higher due to decisionsmade earlier in the year by defined contribution plan sponsors. For the twelvemonths ended January 31, 2005, ten out of twelve of Putnam's flagship mutualfunds, including six equity and four fixed income funds, were above median forinvestment performance in their respective Lipper categories. Other MMC generated $2.1 billion of cash from operations in 2004, compared with $1.9billion in 2003. These amounts reflect net income earned by MMC during thoseperiods adjusted for non-cash charges and changes in working capital. Althoughnet income declined significantly from the prior year, a number of chargesrecorded in 2004 have not yet been paid by MMC, such as costs for restructuringand regulatory settlements. In the fourth quarter, MMC completed $3 billion inmedium-term bank financing, including a new $1.3 billion term loan and theamendment of $1.7 billion of existing revolving credit facilities. After makingtotal pension contributions of $286 million, including discretionary paymentsof $115 million, net debt (total debt less cash and cash equivalents) was $3.9billion at year-end 2004, compared with $2.7 billion at year-end 2003. Theincrease in net debt is due primarily to the $1.9 billion acquisition of Krollin July 2004. MMC's effective tax rate in the fourth quarter was 28.5 percent and 57 percentfor the full year 2004, primarily reflecting the impact of regulatorysettlements and a shift in the geographic mix of profits. The effective taxrate for ongoing operations is 35 percent. Conference Call A conference call to discuss fourth quarter and year-end 2004 results, thecurrent business environment, the outlook, and Marsh's new business model, willbe held today at 10:00 a.m. Eastern Standard Time. To participate in the liveteleconference, please dial (800) 967-7135 (U.S.) or (719) 457-2626(international). The live 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. A continuous telephone replay will beavailable beginning at 1:00 p.m. Eastern Standard Time, March 1 and continuinguntil midnight Eastern Standard Time, March 8. To listen to the replay, pleasedial (888) 203-1112 (U.S.) or (719) 457-0820 (international). The access codefor both numbers is 1284838. 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 andreinsurance specialist; Kroll, the world's leading risk consulting company;Putnam Investments, one of the largest investment management companies in theUnited States; and Mercer, a major global provider of consulting services. Morethan 60,000 employees provide analysis, advice, and transactional capabilitiesto clients in over 100 countries. Its stock (ticker symbol: MMC) is listed onthe New York, Chicago, Pacific, and London stock exchanges. MMC's websiteaddress is www.mmc.com. Marsh & McLennan Companies, Inc. and its subsidiaries ("MMC") and theirrepresentatives may from time to time make oral or written statements(including certain statements contained in this press release and other MMCfilings with the Securities and Exchange Commission and in our reports tostockholders) relating to future results, which are forward-looking statementsas that term is defined in the Private Securities Litigation Reform Act of1995. Such statements may include, without limitation, discussions concerningthe matters raised in the complaint filed by the New York Attorney General'sOffice stating a claim for, among other things, fraud and violations of NewYork State antitrust and securities laws, the complaint filed by theConnecticut Attorney General and numerous other investigations being conductedby other state attorneys general and state superintendents or commissioners ofinsurance, elimination of market services agreements ("MSA"), the new businessmodel of MMC or Marsh Inc., expected synergies from business combinations, costsavings from reductions in staff levels, the adverse consequences arising frommarket-timing issues at Putnam, including fines and restitution, revenues,expenses, earnings and cash flow, capital structure, existing creditfacilities, and access to public capital markets including commercial papermarkets, pension funding, market and industry conditions, premium rates,financial markets, interest rates, foreign exchange rates, claims, lawsuits andother contingencies, and matters relating to MMC's operations and income taxes. Such forward-looking statements are based on available current market andindustry materials, experts' reports and opinions, and long-term trends, aswell as management's expectations concerning current and future eventsimpacting MMC. Forward-looking statements by their very nature involve risksand uncertainties. Factors that may cause actual results to differ materiallyfrom 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 theinvesting public, consistent with our legal and regulatory obligations. To thatend, 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 atPutnam will be posted to the MMC website the first business day following theend of each 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 Twelve Months Ended December 31, December 31, -------------- --------------- 2004 2003 2004 2003 -------- ------- -------- -------- Revenue:Service Revenue $2,928 $2,987 $11,959 $11,444Investment 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 5,926Other Operating Expenses 1,401 839 3,828 3,112Regulatory 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 IncomeTaxes and Minority InterestExpense (941) 544 454 2,335 Income Taxes (268) 161 259 770 Minority Interest Expense, Netof Tax 3 8 15 25 -------- ------- -------- -------- Net Income (Loss) $(676) $ 375 $ 180 $1,540 ======== ======= ======== ======== Basic Net Income (Loss) PerShare $(1.28) $0.71 $0.34 $2.89 ======== ======= ======== ======== Diluted Net Income (Loss) PerShare $(1.28) $0.69 $0.34 $2.81 ======== ======= ======== ======== Average Number ofShares Outstanding - Basic 529 529 526 533 ======== ======= ======== ======== Average Number ofShares 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 andInsuranceServicesRiskManagement andInsuranceBroking $1,080 $1,298 (17)% 2% 2% (21)% (6)%ReinsuranceBroking andServices 154 151 2% 1% - 1%RiskConsulting &Technology 289 87 235% - 227% 8%RelatedInsuranceServices 283 239 19% 1% 6% 12% 15% ------- ------Total Risk andInsuranceServices 1,806 1,775 2% 2% 13% (13)% (1)% ------- ------ InvestmentManagement 421 554 (24)% - - (24)% ------- ------ ConsultingRetirementServices 334 297 13% 8% 5% -Management andOrganizationalChange 165 134 23% 4% 2% 17%Health Care &Group Benefits 87 88 (1)% 1% - (2)%Human 102 103 (2)% 1% - (3)%CapitalEconomic 43 41 9% 2% - 7% ------- ------ 731 663 10% 5% 2% 3%ReimbursedExpenses 45 42 ------- ------TotalConsulting 776 705 10% 5% 2% 3% ------- ------ --- ---TotalOperatingSegments 3,003 3,034 (1)% 2% 8% (11)% (4)% ------- ------ CorporateEliminations (18) (11) ------- ------ Total $2,985 $3,023Revenue ======= ====== NotesMarket services revenue ("MSA"): 2004 2003 ------- -------First Quarter $ 211 $ 173Second Quarter 211 202Third Quarter 46 177Fourth Quarter 73 293 ------- ------- Total $ 541 $ 845 ======= ======= Effective October 1, 2004 Marsh agreed to eliminate contingent compensationagreements with insurers. Underlying 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 21% inthe fourth quarter, including a 15% decline related to market servicesagreements; and for the risk and insurance services segment underlying revenuedecreased 13% in the fourth quarter including a 12% decline related to marketservices agreements. Interest income on fiduciary funds amounted to $36 million and $23 million forthe 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 andInsuranceServicesRiskManagement andInsuranceBroking $4,805 $4,881 (2)% 3% 1% (6)% 0%ReinsuranceBroking andServices 842 797 6% 3% - 3%RiskConsulting &Technology 716 300 139% - 130% 9%RelatedInsuranceServices 1,028 890 16% 1% 3% 12% 13% ------- ------Total Risk andInsuranceServices 7,391 6,868 8% 3% 7% (2)% 3% ------- ------ InvestmentManagement 1,757 2,001 (12)% - - (12)% ------- ------ ConsultingRetirementServices 1,356 1,203 13% 8% 5% -Management andOrganizationalChange 585 449 30% 5% 12% 13%Health Care &Group Benefits 397 388 2% 1% - 1%Human 407 384 6% 5% - 1%CapitalEconomic 166 150 11% 2% - 9% ------- ------ 2,911 2,574 13% 6% 4% 3%ReimbursedExpenses 159 145 ------- ------TotalConsulting 3,070 2,719 13% 6% 4% 3% ------- ------ TotalOperatingSegments 12,218 11,588 5% 3% 5% (3)% 0% ------- ------ CorporateEliminations (59) (44) ------- ------ Total $12,159 $11,544Revenue ======= ====== Notes Underlying 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 6% forthe 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 servicesagreements. 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 forthe twelve months ended December 31, 2004 and 2003, respectively. Investment income (loss) includes realized and unrealized gains and losses frominvestments recognized in the income statement, as well as other than temporarydeclines in the value of "available for sale" securities. MMC's investments mayinclude seed shares for mutual funds, direct investments, and investments inprivate equity funds. Costs related to the management of MMC's investments,including incentive compensation partially derived from investment income andloss, 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 arereflected on the Balance Sheet until realized. Trident II's investments arecarried at fair value, in accordance with investment company accounting. MMC'sproportionate share of the change in value of its investment in Trident II isrecorded as part of investment income (loss) in the Consolidated Statements ofIncome. Certain reclassifications have been made to prior year amounts to conform withcurrent 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) IncludingMinority Interest Expense:Risk and Insurance Services $ (834) $ 400 $ 252 $1,751 Investment Management (30) 133 94 497Consulting 22 85 330 363Corporate (42) (39) (39) (140) -------- ------- ------- ------- (884) 579 637 2,471 -------- ------- ------- -------Minority Interest Expense, Net ofTax, Included Above:Risk and Insurance Services 3 4 15 13Investment 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 OperatingMargin (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 ofPeriod 527 527 Potential Minority InterestAssociated with the PutnamEquity Partnership Plan Net ofDividend EquivalentExpense Related to MMCCommon Stock Equivalents $0 $(1) $(2) $(1) (a) In the third quarter of 2004, Putnam's contract for transfer agency serviceswas converted from an expense reimbursement basis to a fixed fee for theremainder of 2004. The change in the service fee calculation resulted in anincrease in service fee revenue and expense incurred under the contract of $21million and $41 million for the three months and twelve months ended December31, 2004. The change in the service fee contract had an immaterial impact onoperating income, but reduces the ongoing operating margin by approximately 100basis 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 $ 46Value Equity 41 39 41 42 43Blend Equity 28 27 28 30 32Fixed Income 36 37 38 40 42 -------- -------- -------- -------- --------Total MutualFund Assets 143 140 148 157 163 -------- -------- -------- -------- -------- Institutional:Equity 40 40 39 44 51Fixed Income 30 29 26 26 26 -------- -------- -------- -------- --------TotalInstitutionalAssets 70 69 65 70 77 -------- -------- -------- -------- --------Total EndingAssets $213 $209 $213 $227 $240 ======== ======== ======== ======== ======== Assets fromNon-USInvestors $ 38 $ 36 $ 36 $ 38 $ 39 ======== ======== ======== ======== ======== Average AssetsUnder Management:Quarter-to-Date $211 $209 $216 $234 $259 ======== ======== ======== ======== ========Year-to-Date $217 $220 $225 $234 $258 ======== ======== ======== ======== ======== Net New Sales/(Redemptions)includingDividendsReinvested: (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 onEndingAssets UnderManagement $ 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 31ASSETS 2004 2003 ---------- ---------Current assetsCash and cash equivalents $ 1,396 $ 665Net receivables 2,890 2,703Other current assets 601 480 ---------- --------- Total current assets 4,887 3,848 Goodwill and intangible assets 8,139 5,797 Fixed assets, net 1,387 1,389Long term investments 558 648Prepaid pension 1,394 1,199Other assets 1,972 2,172 ---------- ---------TOTAL ASSETS $18,337 $15,053 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilitiesShort-term debt $ 636 $ 447Accounts payable and accrued liabilities 1,834 1,501Regulatory settlements - current portion 390 10Accrued compensation and employee benefits 1,591 1,263Accrued income taxes 280 272Dividends payable - 166 ---------- ---------Total current liabilities 4,731 3,659 Fiduciary liabilities 4,136 4,228Less - cash and investments held ina fiduciary capacity (4,136) (4,228) ---------- --------- - -Long-term debt 4,691 2,910Regulatory settlements 595 -Pension, postretirement and postemploymentbenefits 1,333 997Other 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 -------- --------- -------- -------- ------- OperatingIncome (Loss)As Reported(a) $ (834) $ (30) $ 22 $ (42) $ (884) -------- --------- -------- -------- ------- Settlements(b)Settlements 618 80 - - 698AdministrationCosts 16 - - - 16 -------- --------- -------- -------- ------- 634 80 - - 714 -------- --------- -------- -------- ------- RestructuringCharges (c) 231 26 62 18 337 -------- --------- -------- -------- ------- ServicingObligation(d) 65 - - - 65 -------- --------- -------- -------- ------- OtherLegal andAudit 15 7 - - 22Communications - 1 - 1 2Other (e) 15 1 11 3 30MinorityInterest - (2) - - (2) -------- --------- -------- -------- ------- 30 7 11 4 52 -------- --------- -------- -------- ------- NetAdjustments 960 113 73 22 1,168 -------- --------- -------- -------- ------- OperatingIncome AsAdjusted $ 126 $ 83 $ 95 $ (20) $ 284 ======== ========= ======== ======== ======= OperatingIncome MarginAs Adjusted 7.0% 19.7% 12.2% N/A 9.5% ======== ========= ======== ======== ======= (a) Market services revenue of $73 million is included in Operating Income AsReported and Operating Income As Adjusted. Effective October 1, 2004, Marshagreed 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 lightof evolving business conditions, which could result in restructuring charges inthe future. (d) In connection with accounting guidance issued by the Institute of CharteredAccountants in the U.K., MMC reassessed its obligation to provide future claimshandling and certain administrative services for brokerage clients in theEuropean marketplace. MMC has determined that under certain circumstances it isobligated to provide such services based on its current business practices. MMCrecorded a pretax charge to reflect the change in estimated cost to providethese services. This change does not result in any incremental cash outflow forthe Company. (e) Other primarily reflects employee retention, accelerated leaseholdamortization and software writeoffs and the bonus impact on certain noteworthyitems. NON-GAAP MEASURES: A number of noteworthy items have impacted operating incomein 2004. MMC believes this schedule provides a concise analysis of the effectsof these items. Nonetheless, it is pertinent to note that the amounts shown inthe captions Operating Income As Adjusted and Operating Income Margin AsAdjusted 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 -------- --------- -------- -------- ------- OperatingIncome AsReported (a) $ 252 $ 94 $ 330 $ (39) $ 637 -------- --------- -------- -------- ------- Settlements(b)Settlements 850 220 - (105) 965AdministrativeCosts 16 - - - 16 -------- --------- -------- -------- ------- 866 220 - (105) 981 -------- --------- -------- -------- ------- RestructuringCharges (c) 231 26 62 18 337 -------- --------- -------- -------- ------- ServicingObligation (d) 65 - - - 65 -------- --------- -------- -------- ------- OtherLegal andAudit 15 45 - - 60Severance -First ThreeQuarters 40 57 11 - 108Communications - 16 - 1 17ExecutiveCompensationCredit - (25) - - (25)Gain on Saleof ItalianJoint Venture - (38) - - (38)Other (e) 15 (3) 11 3 26MinorityInterest - (8) - - (8) -------- --------- -------- -------- ------- 70 44 22 4 140 -------- --------- -------- -------- ------- NetAdjustments 1,232 290 84 (83) 1,523 -------- --------- -------- -------- ------- OperatingIncome AsAdjusted (a) $ 1,484 $ 384 $ 414 $ (122) $2,160 ======== ========= ======== ======== ======= OperatingIncome MarginAs Adjusted(a) 20.1% 22.3% 13.5% N/A 17.9% ======== ========= ======== ======== ======= (a) Market services revenue of $541 million is included in Operating Income AsReported and Operating Income As Adjusted. Effective October 1, 2004, Marshagreed 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 lightof evolving business conditions, which could result in restructuring charges inthe future. (d) In connection with accounting guidance issued by the Institute of CharteredAccountants in the U.K., MMC reassessed its obligation to provide future claimshandling and certain administrative services for brokerage clients in theEuropean marketplace. MMC has determined that under certain circumstances it isobligated to provide such services based on its current business practices. MMCrecorded a pretax charge to reflect the change in estimated cost to provide theseservices. This change does not result in any incremental cash outflow for theCompany. (e) Other primarily reflects employee retention, accelerated leaseholdamortization, software writeoffs and the bonus impact on certain noteworthyitems. NON-GAAP MEASURES: A number of noteworthy items have impacted operating income in2004. MMC believes this schedule provides a concise analysis of the effects ofthese items. Nonetheless, it is pertinent to note that the amounts shown in thecaptions Operating Income As Adjusted and Operating Income Margin As Adjusted arenon-GAAP measures. Page 8 of 8 This information is provided by RNS The company news service from the London Stock Exchange