10-QPeriod: Q1 FY2005

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q1 Ended Mar 31, 2005

Filed May 6, 2005For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MMC) reported net income of $134 million, or $0.25 per diluted share, for the first quarter ended March 31, 2005. This represents a significant decrease compared to the $446 million, or $0.83 per diluted share, reported in the same period of the prior year. The decline in profitability was primarily driven by substantial restructuring charges of $141 million related to staff reductions and facility consolidations, impacting the risk and insurance services segment. Additionally, the company experienced a notable decrease in market services revenue and ongoing costs associated with regulatory investigations and compliance. Consolidated revenues remained flat at $3.2 billion, with growth in the Risk Consulting & Technology and Consulting segments (partially due to the Kroll acquisition) offsetting declines in Risk & Insurance Services and Investment Management. The company continues to navigate the fallout from regulatory actions, particularly related to market services agreements, which have led to significant settlements and a shift in compensation structures. Despite these challenges, MMC is implementing cost-saving measures through its restructuring plan, aiming for annualized savings of approximately $375 million.

Key Highlights

  • 1Net income decreased significantly to $134 million ($0.25/share) from $446 million ($0.83/share) in the prior year's quarter.
  • 2Consolidated revenue was flat at $3.2 billion, with mixed performance across segments.
  • 3The company incurred $141 million in restructuring charges in Q1 2005, primarily for staff reductions and facility consolidation, with further charges expected.
  • 4Market services revenue saw a substantial decline, falling from $211 million to $32 million, reflecting the elimination of contingent compensation agreements.
  • 5The Risk & Insurance Services segment experienced an 11% revenue decrease and a significant drop in operating income margin from 32.2% to 9.8%.
  • 6Assets under management at Putnam Investments decreased by 13% year-over-year to $199 billion.
  • 7The company is actively engaged in numerous legal and regulatory proceedings, including settlements related to market services agreements and Putnam's market-timing issues.

Frequently Asked Questions

The significant decrease in net income was primarily due to $141 million in restructuring charges incurred in the first quarter of 2005 related to staff reductions and facility consolidations. Additionally, a substantial decline in market services revenue and ongoing costs associated with regulatory investigations and compliance also contributed to the lower profitability.

Consolidated revenue was flat at $3.2 billion. The Risk Consulting & Technology segment saw significant growth due to the Kroll acquisition, and the Consulting segment experienced moderate growth. However, the Risk & Insurance Services segment and the Investment Management segment (Putnam) both reported lower revenues compared to the prior year.

The company is addressing significant regulatory issues, including a $850 million settlement fund for policyholder clients related to market service agreements. This has led to the elimination of market services revenue and associated compensation structures. Putnam also faced charges related to market-timing issues. These events and the associated legal and compliance costs have impacted revenue, expenses, and profitability.

MMC announced a 2005 restructuring plan involving staff reductions of approximately 1,700 positions and facility consolidations, particularly in the risk and insurance services segment. The company incurred $141 million in charges in Q1 2005 related to this plan and expects to incur an additional $205 million. The plan is anticipated to yield annualized savings of approximately $375 million once fully implemented.