MHM.L Regulatory News (MHM)

2 Aug 2005 12:27

Marsh & McLennan Co Inc02 August 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 SECOND QUARTER RESULTS NEW YORK, NEW YORK, August 2, 2005-Marsh & McLennan Companies, Inc. (MMC) todayreported financial results for the second quarter and six months ended June 30,2005. Consolidated revenues for the quarter increased 2 percent to $3.1 billion.Net income was $166 million, or $.31 per share, compared with $389 million, or$.73 per share, in last year's second quarter. For the six months of 2005,consolidated revenues rose 1 percent to $6.3 billion. Net income was $300million, or $.56 per share, compared with $835 million, or $1.56 per share, lastyear. Current year results include charges for restructuring, employeeretention, and incremental regulatory and compliance expenses. Excludingnoteworthy items, earnings per share would have been $.43 and $.95,respectively, for the second quarter and six months of 2005, compared with $.73and $1.69, respectively, for the same periods of 2004. Michael G. Cherkasky, president and chief executive officer of MMC, said:"Although much of our focus has been on the restructuring and turnaround atMarsh, we have made significant strides across all of MMC's businesses toposition the company for long-term profitable growth. A number of our businesseshad very strong results this quarter, such as Kroll, Mercer ManagementConsulting, and Mercer Oliver Wyman. Within Mercer Human Resource Consulting,there is increased demand for bundled solutions in retirement and benefitsoutsourcing, and the early response by U.S. clients to the launch of MercerGlobal Investments products has been excellent. At Putnam, investmentperformance continues to improve, mutual fund redemptions are stable, and salesinitiatives in both retail and institutional channels are showing promise. AtMarsh, we are proud of the tremendous job our colleagues are doing in a verycomplex operating environment. We are working on all fronts to bring our costsin line with revenues and implement business reforms that we believe are settingthe new standard in the industry for transparency and compliance as we continueto deliver world-class risk management advice and services to clients." Risk and Insurance Services Risk and insurance services revenues declined 11 percent in the second quarterto $1.5 billion. Underlying revenues, which exclude acquisitions, dispositions,and foreign exchange, declined 13 percent. During the quarter, the insurancemarketplace saw continued reductions in commercial premium rates. Theseconditions are expected to continue through the end of this year. Marsh's risk management and insurance broking revenues of $1 billion in thesecond quarter were 18 percent lower compared with last year. Excluding theeffect of market services revenues, underlying revenues declined 8 percent, animprovement of 3 percentage points from the first quarter of 2005. Guy Carpenter's revenues declined 9 percent in the second quarter to $192million, or 11 percent on an underlying basis. The effects of higher riskretention by clients and lower premium rates in the reinsurance marketplace wereoffset partially by new business. These conditions are likely to continuethrough the remainder of the year. Related insurance services revenues rose 23 percent in the second quarter to$303 million, an increase of 17 percent on an underlying basis. Performance wasexcellent in all businesses for both the quarter and the first half of the year,with particularly strong growth reported by claims management, which increasedrevenues 30 percent in the quarter. Risk Consulting and Technology Kroll reported revenues of $267 million in the second quarter, with double-digitrevenue growth over prior-year pre-acquisition levels. The technology servicesgroup achieved strong performance in legal technologies, background screening,and mortgage-related service offerings. The corporate advisory and restructuringpractice, which is part of Kroll's consulting services group, also recordeddouble-digit revenue growth. Consulting Consulting revenues increased 6 percent in the second quarter to $963 million,or 3 percent on an underlying basis. Mercer is now managing the combined operations of Marsh's U.S. employee benefitsbusiness and Mercer's health and benefits business. Segment financialinformation for the first quarter of this year and each quarter of 2004 has beenadjusted to reflect the combined results, as shown in the attached supplementalschedule on page 14. Mercer Human Resource Consulting's revenues increased slightly in the quarter to$687 million. Revenue trends for Mercer's retirement, HR services, and humancapital businesses improved in the second quarter of 2005 compared with thefirst quarter. Mercer's specialty consulting businesses reported continued strong performance.Revenues increased 22 percent to $229 million, or 19 percent on an underlyingbasis, reflecting particularly strong growth at Mercer Management Consulting,Mercer Oliver Wyman, and NERA Economic Consulting. Investment Management Putnam's revenues in the second quarter declined 13 percent to $377 million.Average assets under management during the second quarter were $196 billion,compared with $216 billion in the second quarter of 2004. Mutual fund netredemptions in the second quarter tracked this year's first quarter.Institutional net redemptions were significantly lower in the second quarter-thebest results in two years. Total assets under management on June 30, 2005 were$195 billion, comprising $132 billion of mutual fund assets and $63 billion ofinstitutional assets. Other Items The restructuring announced at the end of 2004 has been completed, withannualized cost savings totaling $400 million. About two-thirds of the savingsrelate to risk and insurance services. As previously disclosed, the anticipatedcost to implement the 2005 restructuring is $370 million. This restructuring,which affects primarily risk and insurance services, should be completed byearly next year and is expected to yield $375 million in annual savings, ofwhich $30 million was realized in the second quarter. MMC shareholders approved in May the offering to permit employees to exchangecertain deeply underwater stock options for new options covering fewer shares.Effective July 1, employees exchanged 42 million stock options, or over 90percent of eligible grants, for 16 million new stock options in avalue-for-value exchange, thereby retiring almost 26 million stock options. MMC's consolidated effective tax rate of 30.7 percent in the second quarterreflects the favorable resolution of audit issues and the impact of charges forrestructuring, employee retention, and incremental regulatory and complianceexpenses deducted at higher rates than the ongoing effective rate of 35 percent. Conference Call A conference call to discuss second quarter 2005 results will be held today at10:00 a.m. Eastern Daylight Time. To participate in the live teleconference,please dial (800) 818-5264 or (913) 981-4910 (international). The access codefor both numbers is 4774218. The live audio webcast (which will be listen-only)may be accessed at www.mmc.com. A replay of the webcast will be availablebeginning approximately two hours after the event. A continuous telephone replaywill be available beginning at 1:00 p.m. Eastern Daylight Time, August 2 andcontinuing until midnight Eastern Daylight Time, August 8. To listen to thereplay, please dial (888) 203-1112 or (719) 457-0820 (international). The accesscode for both numbers is 4774218. 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; PutnamInvestments, one of the largest investment management companies in the UnitedStates; and Mercer, a major global provider of consulting services.Approximately 60,000 employees provide analysis, advice, and transactionalcapabilities to clients in over 100 countries. Its stock (ticker symbol: MMC) islisted on the New York, Chicago, Pacific, and London stock exchanges. MMC'swebsite address is www.mmc.com. This press release contains statements relating to future results, which areforward-looking statements as that term is defined in the Private SecuritiesLitigation Reform Act of 1995. Such statements may include, without limitation,discussions concerning the matters raised in the complaint filed by the New YorkAttorney General's Office stating a claim for, among other things, fraud andviolations of New York State antitrust and securities laws, the complaint filedby the Connecticut Attorney General and numerous other investigations beingconducted by other state attorneys general and state superintendents orcommissioners of insurance, elimination of market services agreements ("MSA"),the new business model of Marsh Inc., the adverse consequences arising frommarket-timing issues at Putnam, including fines and restitution, revenues,expenses, earnings and cash flow, capital structure, existing credit facilities,and access to public capital markets including commercial paper markets, pensionfunding, market and industry conditions, premium rates, financial markets,interest rates, foreign exchange rates, claims, lawsuits and othercontingencies, and matters relating to MMC's operations and income taxes. Such forward-looking statements are based on management's expectationsconcerning current and future events impacting MMC. Forward-looking statementsby their very nature involve risks and uncertainties. Factors that may causeactual results to differ materially from those contemplated by forward-lookingstatements that we make include: • the 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 insurance and reinsurance brokerage operations; • 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, RICO, unfair business practices and other common law or statutory claims; • loss of producers or key managers; • inability to negotiate satisfactory compensation arrangements 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; • 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 regulatory 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; • Putnam's ability to maintain investment management and administrative fees at current levels; • 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; • changes in the value of investments made in individual companies and investment funds; • fluctuations in foreign currencies; • actions of regulators and law enforcement authorities; • changes in interest rates or the inability to access financial markets; • adverse 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 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 forward-looking statement to reflectevents or circumstances after the date on which it is made or to reflect theoccurrence 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 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 Six Months Ended June 30, June 30, -------------- -------------- 2005 2004 2005 2004 ------- ------- ------- -------Revenue:Service Revenue $3,045 $2,956 $6,170 $6,119Investment Income (Loss) 51 72 108 105 ------- ------- ------- -------Total Revenue 3,096 3,028 6,278 6,224 ------- ------- ------- ------- Expense:Compensation and Benefits 1,837 1,596 3,769 3,231Other Operating Expenses 953 800 1,931 1,593Regulatory and OtherSettlements - - - (5) ------- ------- ------- -------Total Expense 2,790 2,396 5,700 4,819 ------- ------- ------- ------- Operating Income 306 632 578 1,405 Interest Income 11 4 20 9 Interest Expense (73) (48) (142) (98) ------- ------- ------- ------- Income Before Income Taxesand Minority Interest Expense 244 588 456 1,316 Income Taxes 75 194 149 475 Minority Interest Expense,Net of Tax 3 5 7 6 ------- ------- ------- ------- Net Income $ 166 $ 389 $ 300 $ 835 ======= ======= ======= ======= Basic Net Income Per Share $ 0.31 $ 0.75 $ 0.56 $ 1.60 ======= ======= ======= ======= Diluted Net Income Per Share $ 0.31 $ 0.73 $ 0.56 $ 1.56 ======= ======= ======= ======= Average Number ofShares Outstanding - Basic 535 522 533 523 ======= ======= ======= ======= Average Number ofShares Outstanding - Diluted 538 534 537 537 ======= ======= ======= ======= Marsh & McLennan Companies, Inc. Supplemental Information - Revenue Analysis Second Quarter (Millions) (Unaudited) Three Months Ended Components of Revenue Change ------------------ % Change Acquisitions/ Underlying Revenue June 30, GAAP Currency Dispositions Underlying excluding ------------- MSA Impact 2005 2004 Revenue Impact Impact Revenue ------- ------ ------- ------- -------- ------- --------- Risk and InsuranceServicesRisk Managementand Insurance $1,025 $1,242 (18)% 2% - (20)% (8)%Broking ReinsuranceBroking and Services 192 211 (9)% 2% - (11)%Related InsuranceServices 303 247 23% - 6% 17% 14% ------- ------Total Risk andInsurance Services 1,520 1,700 (11)% 1% 1% (13)% (4)% ------- ------Risk Consulting &Technology 267 26 927% - 958% (31)% ------- ------Consulting HumanResource 687 684 - 2% - (2)% (1)%Consulting SpecialtyConsulting 229 187 22% 3% - 19% ------- ------ 916 871 5% 3% - 2% 3% Reimbursed Expenses 47 40 ------- ------Total Consulting 963 911 6% 3% - 3% 4% ------- ------Investment Management 377 434 (13)% - - (13)% ------- ------Total OperatingSegments 3,127 3,071 2% 2% 9% (9)% (4)% Corporate Eliminations (31) (43) ------- ------Total Revenue $3,096 $3,028 2% 2% 9% (9)% (4)% ======= ====== Segment Reclassification MMC has reclassified prior period amounts to reflect organizational changes thataffected MMC's reportable segments. The following changes are reflected in thesegment data presented above: Risk Consulting and Technology, a new reportable segment effective January 1,2005, includes Kroll, Inc., which was acquired by MMC in July 2004 and theportions of the risk consulting business previously managed by Marsh. Putnam's defined contribution administration business was transferred fromInvestment Management to Human Resource Consulting. Approximately 75% of therevenues earned by Mercer HR from this transferred business is paid by Putnam.Putnam receives fees for investment management and administrative services,which is recorded as revenue. A fee related to administrative services isrecorded as an expense by Putnam and as revenue by Mercer HR. The inter-companyrevenue and expense are eliminated in consolidation. Management of Marsh's U.S. employee benefits business was transferred from RiskManagement and Insurance Broking to Human Resource Consulting. 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 20% inthe second quarter, including a 12% decline related to market servicesagreements; and for the risk and insurance services segment underlying revenuedecreased 13% in the second quarter including a 9% decline related to marketservices agreements. Effective October 1, 2004 MMC agreed to eliminate contingent compensationagreements with insurers. 2005 results include market services revenue of $39million 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 $36 million and $30 million forthe three months ended June 30, 2005 and 2004, respectively. Marsh & McLennan Companies, Inc. Supplemental Information - Revenue Analysis Six Months (Millions) (Unaudited) Six Months Ended Components of Revenue Change ------------------ % Change Acquisitions/ Underlying Revenue June 30, GAAP Currency Dispositions Underlying excluding ------------- MSA Impact 2005 2004 Revenue Impact Impact Revenue ------- ------ ------- ------- -------- ------- ---------Risk and InsuranceServicesRisk Management andInsurance $2,116 $2,604 (19)% 2% - (21)% (9)%Broking ReinsuranceBroking and Services 474 494 (4)% 2% - (6)%Related InsuranceServices 597 480 24% - 7% 17% 16% ------- ------Total Risk andInsurance Services 3,187 3,578 (11)% 2% 1% (14)% (5)% ------- ------Risk Consulting &Technology 531 52 930% - 947% (17)% ------- ------Consulting HumanResource 1,354 1,362 (1)% 2% - (3)% (2)%Consulting SpecialtyConsulting 439 367 20% 3% 1% 16% ------- ------ 1,793 1,729 4% 2% - 2% 2% Reimbursed Expenses 85 75 ------- ------Total Consulting 1,878 1,804 4% 2% - 2% 2% ------- ------Investment Management 775 884 (12)% - - (12)% ------- ------Total OperatingSegments 6,371 6,318 1% 2% 8% (9)% (4)% Corporte Eliminations (93) (94) ------- ------ Total Revenue $6,278 $6,224 1% 2% 8% (9)% (4)% ======= ====== Segment Reclassification MMC has reclassified prior period amounts to reflect organizational changes thataffected MMC's reportable segments. The following changes are reflected in thesegment data presented above: Risk Consulting and Technology, a new reportable segment effective January 1,2005, includes Kroll, Inc., which was acquired by MMC in July 2004 and theportions of the risk consulting business previously managed by Marsh. Putnam's defined contribution administration business was transferred fromInvestment Management to Human Resources Consulting. Approximately 75% of therevenues earned by Mercer HR from this transferred business are paid by Putnam.Putnam receives fees for investment management and administrative services,which is recorded as revenue. A fee related to administrative services isrecorded as an expense by Putnam and as revenue by Mercer HR. The inter-companyrevenue and expense are eliminated in consolidation. Management of Marsh's U.S. employee benefits business was transferred from RiskManagement and Insurance Broking to Human Resource Consulting. 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 21% inthe first six months, including a 12% decline related to market servicesagreements; and for the risk and insurance services segment underlying revenuedecreased 14% in the first six months including a 9% decline related to marketservices agreements. Effective October 1, 2004 MMC agreed to eliminate contingent compensationagreements with insurers. 2005 results include market services revenue of $71million 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 $71 million and $59 million forthe six months ended June 30, 2005 and 2004, respectively. Marsh & McLennan Companies, Inc. Supplemental Information (Millions) (Unaudited) ------------- -------------- Three Months Ended Six Months Ended June 30, June 30, ------------- -------------- 2005 2004 2005 2004 ------- ------- ------- -------Operating Income (Loss) IncludingMinority Interest Expense:Risk and Insurance Services $ 102 $ 423 $248 $1,028Risk Consulting & Technology 33 5 70 9Consulting 128 137 237 252Investment Management 70 98 119 74Corporate (30) (36) (103) 36 ------- ------- ------- ------- 303 627 571 1,399 ------- ------- ------- ------- Minority Interest Expense, Net of Tax,Included Above:Risk and Insurance Services 2 4 5 7Investment Management 1 1 2 (1) ------- ------- ------- ------- 3 5 7 6 ------- ------- ------- ------- Operating Income $ 306 $ 632 $578 $1,405 ======= ======= ======= ======= Segment Operating Margins:Risk and Insurance Services 6.7% 24.9% 7.8% 28.7%Risk Consulting & Technology 12.4% 19.2% 13.2% 17.3%Consulting 13.3% 15.0% 12.6% 14.0%Investment Management 18.6% 22.6% 15.4% 8.4% Consolidated Operating Margin 9.9% 20.9% 9.2% 22.6%Pretax Margin 7.9% 19.4% 7.3% 21.1%Effective Tax Rate 30.7% 33.0% 32.7% 36.1% Shares Outstanding at End ofPeriod 534 521 Potential Minority Interest Associatedwith the PutnamEquity Partnership Plan Net ofDividend EquivalentExpense Related to MMC CommonStock Equivalents $ - $ - $ - $ (1) Marsh & McLennan Companies, Inc. Supplemental Information - Putnam Assets Under Management (Billions) (Unaudited) June 30, March 31, Dec. 31, Sept. 30, June 30, 2005 2005 2004 2004 2004 -------- -------- -------- -------- --------Mutual Funds:Growth Equity $ 33 $ 34 $ 38 $ 37 $ 41Value Equity 39 40 41 39 41Blend Equity 26 26 28 27 28Fixed Income 34 35 36 37 38 -------- -------- -------- -------- --------Total MutualFund Assets 132 135 143 140 148 -------- -------- -------- -------- -------- Institutional:Equity 33 35 40 40 39Fixed Income 30 29 30 29 26 -------- -------- -------- -------- --------TotalInstitutionalAssets 63 64 70 69 65 -------- -------- -------- -------- --------Total EndingAssets $195 $199 $213 $209 $213 ======== ======== ======== ======== ======== Assets fromNon-USInvestors $ 34 $ 35 $ 38 $ 36 $ 36 ======== ======== ======== ======== ======== Average AssetsUnder Management: Quarter-to-Date $196 $204 $211 $209 $216 ======== ======== ======== ======== ========Year-to-Date $200 $204 $217 $220 $225 ======== ======== ======== ======== ======== Net RedemptionsincludingDividendsReinvested: (a)Quarter-to-Date $ (7.1) $ (9.7) $ (10.7) $ (10.5) $ (12.2) ======== ======== ======== ======== ======== Year-to-Date $ (16.8) $ (9.7) $ (51.0) $ (40.3) $ (29.8) ======== ======== ======== ======== ======== Impact of Market/Performance onEnding Assets UnderManagement $ 3.1 $ (4.3) $ 15.4 $ (2.1) $ (1.4) ======== ======== ======== ======== ======== 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. Excludes the impact of the acquisition of PanAgora in July 2004, which increasedreported assets under management by $8.2 billion. Marsh & McLennan Companies, Inc. Reconciliation of Non-GAAP Measures Quarter and Six Months Ended June 30, 2005 (Millions) (Unaudited) NON-GAAP MEASURES: MMC believes that investors' understanding of the results andoperations is enhanced by the disclosure of additional non-GAAP financialinformation. A number of noteworthy items impacted operating income in 2005. MMCbelieves this schedule provides a concise analysis of the effects of theseitems. The amounts shown in the captions Operating Income As Adjusted andOperating Income Margin As Adjusted are non-GAAP measures. Risk & Risk Insurance Consulting & Investment Corporate & Services(a) Technology Consulting (a) Management Eliminations Total ------- -------- -------- -------- -------- ------- Quarter Ended-------------Operating Income As Reported $ 102 $ 33 $ 128 $ 70 $ (30) $ 303 ------- -------- -------- -------- -------- ------- Restructuring Charges 48 - - - 5 53 ------- -------- -------- -------- -------- ------- OtherIncremental Regulatory and 10 - - - (2) 8Compliance (c)Estimated Mutual Fund - - - 4 - 4Reimbursement (d)Employee Retention Awards 23 - 10 - - 33Other (e) 7 - - - - 7 ------- -------- -------- -------- -------- ------- 40 - 10 4 (2) 52 ------- -------- -------- -------- -------- -------Operating Income Adjustments 88 - 10 4 3 105 ------- -------- -------- -------- -------- ------- Operating Income As Adjusted $ 190 $ 33 $ 138 $ 74 $ (27) $ 408 ======= ======== ======== ======== ======== =======Operating Income Margin 12.5% 12.4% 14.3% 19.6% N/A 13.2%As Adjusted ======= ======== ======== ======== ======== ======= Six Months Ended----------------Operating Income As Reported $ 248 $ 70 $ 237 $ 119 $ (103) $ 571 ------- -------- -------- -------- -------- ------- Restructuring Charges (b) 144 - - - 54 198 ------- -------- -------- -------- -------- ------- Other Incremental Regulatory and 53 - - - (19) 34Compliance (c)Estimated Mutual Fund - - - 34 - 34Reimbursement (d)Employee Retention Awards 38 - 20 - - 58Other (e) 10 - - - (3) 7Minority Interest - - - (1) - (1) ------- -------- -------- -------- -------- ------- 101 - 20 33 (22) 132 ------- -------- -------- -------- -------- -------Operating Income Adjustments 245 - 20 33 32 330 ------- -------- -------- -------- -------- ------- Operating Income As Adjusted $ 493 $ 70 $ 257 $ 152 $ (71) $ 901 ======= ======== ======== ======== ======== =======Operating Income Margin 15.5% 13.2% 13.7% 19.6% N/A 14.4%As Adjusted ======= ======== ======== ======== ======== ======= Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share Quarter Ended Six Months Ended ------------- ----------------Net Income, As Reported $166 $300Operating Income Adjustments $105 $330Tax Effect 40 119 ------- ------- 65 211 ------- -------Net Income, As Adjusted $ 231 $ 511Average Diluted Shares Outstanding 538 537 ------- -------Earnings Per Share, As Adjusted $0.43 $0.95 ======= ======= (a) For the three months and six months ended June 30, 2005, market services revenue of $37 million and $68 million, respectively for Risk and Insurance Services, and $2 million and $3 million, respectively for the employee benefits business transferred to Mercer, is included in Operating Income As Reported and Operating Income As Adjusted.(b) Corporate expenses in 2005 primarily included restructuring charges of $49 million related to the consolidation of office space in London. Because the office space consolidation was driven by MMC to its benefit London operations as a whole, rather than any particular operating company, the related charge was recorded in corporate expenses.(c) Regulatory and compliance costs in the risk and insurance services segment include professional services provided by other MMC companies. The inter-company amounts are eliminated in corporate.(d) 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.(e) Other primarily reflects accelerated leasehold amortization, partly offset by a gain on the sale of the corporate jet. Marsh & McLennan Companies, Inc. Reconciliation of Non-GAAP Measures Quarter and Six Months Ended June 30, 2004 (Millions) (Unaudited) NON-GAAP MEASURES: MMC believes that investors' understanding of the results andoperations is enhanced by the disclosure of additional non-GAAP financialinformation. A number of noteworthy items impacted operating income in 2004. MMCbelieves this schedule provides a concise analysis of the effects of theseitems. The amounts shown in the captions Operating Income As Adjusted andOperating Income Margin As Adjusted are non-GAAP measures. Risk & Risk Insurance Consulting & Investment Corporate & Services(a) Technology Consulting (a) Management Eliminations Total ------- -------- -------- -------- -------- -------Quarter Ended-------------Operating Income As Reported $ 423 $ 5 $ 137 $ 98 $ (36) $ 627 ------- -------- -------- -------- -------- ------- OtherSeverance 9 - - 26 - 35Incremental Regulatory and - - - 15 - 15ComplianceExecutive Comp Credit - - - (25) - (25)Gain on Sale of Italian Venture - - - (38) - (38)Communications - - - 9 - 9Other - - - 9 - 9Minority Interest - - - (1) - (1) ------- -------- -------- -------- -------- -------Operating Income Adjustments 9 - - (5) - 4 ------- -------- -------- -------- -------- ------- Operating Income As Adjusted $ 432 $ 5 $ 137 $ 93 $ (36) $ 631 ======= ======== ======== ======== ======== =======Operating Income Margin As 25.4% 19.2% 15.0% 23.5% N/A 21.1%Adjusted Six Months Ended----------------Operating Income As Reported $1,028 $ 9 $252 $ 74 $ 36 $1,399 ------- -------- -------- -------- -------- ------- Settlements (b) - - - 100 (105) (5) OtherSeverance 16 - 11 51 - 78Incremental Regulatory and - - - 29 - 29ComplianceExecutive Comp Credit - - - (25) - (25)Gain on Sale of Italian Venture - - - (38) - (38)Communications - - - 15 - 15Other - - - 4 - 4Minority Interest - - - (6) - (6) ------- -------- -------- -------- -------- ------- 16 - 11 30 - 57 ------- -------- -------- -------- -------- ------- Operating Income Adjustments 16 - 11 130 (105) 52 ------- -------- -------- -------- -------- ------- Operating Income As Adjusted $1,044 $ 9 $263 $204 $ (69) $1,451 ======= ======== ======== ======== ======== ======= Operating Income Margin As 29.2% 17.3% 14.6% 24.1% N/A 23.5%Adjusted ======= ======== ======== ======== ======== ======= Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings PerShare Quarter Ended Six Months Ended ------------- ----------------Net Income, As Reported $389 $835Operating Income Adjustments $ 4 $ 52Tax Effect (Credit) (c) 2 (23) ------- ------- 2 75 ------- -------Net Income, As Adjusted $ 391 $ 910Average Diluted Shares Outstanding 534 537 ------- -------Earnings Per Share, As Adjusted $0.73 $1.69 ======= ======= (a) For the three months and six months ended June 30, 2004, market services revenue of $202 million and $408 million, respectively for Risk and Insurance Services, and $9 million and $14 million, respectively for the employee benefits business transferred to Mercer, is included in Operating Income As Reported and Operating Income As Adjusted.(b) Settlements include Putnam's Settlements with the SEC and State of Massachusetts and the final insurance settlement related to WTC in Corporate.(c) Reflects non-deductible Putnam settlement, credit related to insurance settlement at 40% tax rate and other charges and credit at 33% tax rate. Marsh & McLennan Companies, Inc. Supplemental Information - Segment Reclassifications (Millions) (Unaudited) Segment Reclassification MMC has reclassified prior period amounts to reflect the transfer of Marsh'sU.S. employee benefits business from Risk Management and Insurance Broking toHuman Resource Consulting. This change is reflected in the segment data below. Amounts included under the "As Previously Reported" caption include segmentreclassifications previously disclosed with MMC's first quarter earnings releaseand in MMC's Form 8-K, dated June 28, 2005. Revenue: The table below reflects the impact on previously reported segmentrevenue resulting from changes in business segments. Three Months Ended Year Ended -------------------------------- -------- March 31, 2005 March 31, 2004 June 30, 2004 Sept. 30, 2004 Dec. 31, 2004 Dec. 31, 2004 -------- ------- ------- ------- ------ --------Risk and InsuranceServices As Previously $1,748 $1,967 $1,789 $1,555 $1,570 $6,881ReportedEmployee BenefitsBusiness (a) (81) (89) (89) (83) (81) (342) -------- ------- ------- ------- ------ -------- $1,667 $1,878 $1,700 $1,472 $1,489 $6,539 ======== ======= ======= ======= ====== ========ConsultingHuman ResourceConsulting, As $ 586 $ 589 $ 595 $ 583 $ 559 $2,326Previously ReportedEmployee BenefitsBusiness (a) 81 89 89 83 81 342 -------- ------- ------- ------- ------ -------- 667 678 684 666 640 2,668 Specialty Consulting,As Previously 210 180 187 192 215 774Reported -------- ------- ------- ------- ------ -------- 877 858 871 858 855 3,442ReimbursedExpenses 38 35 40 39 45 159 -------- ------- ------- ------- ------ -------- $ 915 $ 893 $ 911 $ 897 $ 900 $ 3,601 ======== ======= ======= ======= ====== ======== (a) The Employee Benefits revenue includes the following amounts of market services revenue: $ 1 $ 5 $ 9 $ 3 $ 3 $ 20 ======== ======= ======= ======= ====== ======== Operating Income: The table below reflects the impact on previously reportedsegment operating income resulting from changes in business segments. Three Months Ended Year Ended -------------------------------- -------- March 31, 2005 March 31, 2004 June 30, 2004 Sept. 30, 2004 Dec. 31, 2004 Dec. 31, 2004 -------- ------- ------- ------- ------ --------Risk and InsuranceServicesAs Previously $ 171 $ 633 $ 450 $ (36) $ (860) $ 187ReportedEmployee BenefitBusiness (25) (28) (27) (25) (22) (102) -------- ------- ------- ------- ------ -------- $ 146 $ 605 $ 423 $ (61) $ (882) $ 85 ======== ======= ======= ======= ====== ========ConsultingAs Previously $ 84 $ 87 $ 110 $ 106 $ 19 $ 322ReportedEmployee BenefitBusiness 25 28 27 25 22 102 -------- ------- ------- ------- ------ -------- $ 109 $ 115 $ 137 $ 131 $ 41 $ 424 ======== ======= ======= ======= ====== ======== Marsh & McLennan Companies, Inc. Consolidated Balance Sheets (Millions) (Unaudited) June 30, December 31, 2005 2004 ---------- ----------ASSETSCurrent assets :Cash and cash equivalents $ 856 $ 1,396Net receivables 2,910 2,890Other current assets 260 601 ---------- ---------- Total current assets 4,026 4,887 Goodwill and intangible assets 8,069 8,139 Fixed assets, net 1,268 1,387Long-term investments 331 558Prepaid pension 1,358 1,394Other assets 2,080 1,972 ---------- ----------TOTAL ASSETS $17,132 $18,337 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Short-term debt $ 364 $ 636Accounts payable and accrued liabilities 1,798 1,834Regulatory settlements - current portion 311 394Accrued compensation and employee benefits 1,161 1,591Accrued income taxes 179 280Dividends payable 92 - ---------- ----------Total current liabilities 3,905 4,735 ========== ========== Fiduciary liabilities 4,283 4,136Less - cash and investments held ina fiduciary capacity (4,283) (4,136) ---------- ---------- Long-term debt 4,689 4,691Regulatory settlements 340 595Pension, postretirement and postemployment benefits 1,361 1,333Other liabilities 1,829 1,927 Total stockholders' equity 5,008 5,056 ---------- ----------Total liabilities and stockholders' equity $17,132 $18,337 ========== ========== This information is provided by RNS The company news service from the London Stock Exchange