1st Quarter Results
Marsh & McLennan Co Inc
03 May 2006
News Release
Media Contacts: Investor Contact:
Robin Liebowitz Jim Fingeroth Mike Bischoff
MMC Kekst & Company MMC
212-345-3963 212-521-4819 212-345-5470
MMC REPORTS FIRST QUARTER 2006 RESULTS
NEW YORK, NEW YORK, May 3, 2006-Marsh & McLennan Companies, Inc. (MMC) today
reported financial results for the quarter ended March 31, 2006. Consolidated
revenues were $3 billion, a decline of 1 percent from the 2005 first quarter.
Net income was $416 million, or $.75 per share, compared with $134 million, or
$.25 per share, in 2005. Results from discontinued operations, net of tax, were
$178 million, or $.32 per share, primarily from MMC's sale of its investment in
Sedgwick Claims Management Services in January 2006. Income from continuing
operations was $238 million, or $.43 per share, compared with $129 million, or
$.24 per share, in the first quarter of 2005.
A number of noteworthy items affected first quarter results in both 2006 and
2005, as described in the attached supplemental schedules. First quarter 2006
noteworthy items include restructuring, legal and regulatory costs related to
market service agreements, and other expenses totaling $63 million. Stock option
expense, which is now included in the operating results of each segment, was $40
million. These noteworthy items and stock option expense reduced first quarter
2006 earnings per share from continuing operations by $.11. In the first quarter
of 2005, similar noteworthy items reduced earnings per share from continuing
operations by $.27.
Michael G. Cherkasky, president and chief executive officer of MMC, said: 'For
the last 18 months, questions in the marketplace have been whether and when
Marsh would recover. We began to see positive signs of recovery in Marsh in the
fourth quarter of 2005. In the first quarter, with increasing momentum, we saw
revenue improvement with a significant increase in operating income. We are also
seeing an increase in our new business opportunities, a high win rate in
competitive situations, a return of previously lost business, and an increase in
retained business. All of this points to better performance for Marsh in the
future. Guy Carpenter, our reinsurance broking business, reported an increase in
underlying revenues. Mercer's revenue growth accelerated in the first quarter,
as we continued to make investments for the future. Kroll's results were mixed
as revenue growth slowed and margins weakened, but I remain confident of a good
year. Putnam continues to execute its strategy, as it was helped by strong
market performance. Overall, MMC's bottom-line performance continues to
improve.'
Risk and Insurance Services
Risk and insurance services operating income increased markedly in the quarter
as savings from the 2005 restructuring program were realized. Revenues declined
7 percent to $1.5 billion, or 2 percent on an underlying basis, in the first
quarter.
Marsh's revenues declined to $1.1 billion, or 2 percent on an underlying basis,
largely due to resigning from unprofitable accounts. Client retention improved
substantially, as was also seen in the fourth quarter of 2005. In the United
States, new business increased to its highest level since the beginning of last
year. Marsh achieved these results in an insurance marketplace that had
continued declines in commercial insurance pricing, particularly in Europe.
Guy Carpenter's first quarter revenues were $281 million, an increase of 2
percent on an underlying basis. Carpenter achieved double-digit growth in new
business compared with last year. Higher risk retention by clients offset the
effect of the meaningful increase in U.S. property catastrophe premium rates in
the first quarter.
Risk Capital Holdings' revenues of $46 million reflected unrealized
mark-to-market gains on private equity investments. In the first quarter of
2005, revenues were $63 million.
Risk Consulting and Technology
Kroll increased revenues 4 percent to $243 million in the first quarter, or 6
percent on an underlying basis. Significant pricing pressures in the marketplace
adversely affected Kroll's electronic discovery business, reducing both its
revenues and profitability. Kroll's corporate advisory and restructuring
business produced double-digit revenue growth, with particularly good
performance in Europe. Background screening also reported double-digit revenue
growth, with continued favorable domestic trends benefiting from higher unit
volume.
Consulting
Mercer's total revenues increased 8 percent to $1 billion in the first quarter,
or 10 percent on an underlying basis. Mercer Human Resource Consulting reported
$739 million in revenues in the quarter, an increase of 6 percent, or 8 percent
on an underlying basis, with double-digit growth in retirement, its largest
business, and human capital. Specialty consulting continued to produce excellent
results, with revenues increasing 14 percent to $262 million, or 17 percent on
an underlying basis. This performance reflects strong revenue growth in Mercer
Management Consulting's strategy and operations business and Mercer Oliver
Wyman's financial services and risk management consulting business.
Investment Management
Putnam's revenues declined 13 percent to $345 million in the first quarter.
Average assets under management were $190 billion, compared with $204 billion in
the first quarter of 2005. Ending assets on March 31, 2006 were $189 billion,
unchanged from year-end 2005, comprising $126 billion of mutual fund assets and
$63 billion of institutional assets. Putnam reduced expenses in the quarter.
Other Items
Since the first quarter of 2005, MMC's financial position has improved
substantially, as net debt has been reduced by over $500 million and the
company's overall liquidity has strengthened. MMC's net debt position (total
debt less cash and cash equivalents) was $3.84 billion at the end of the 2006
first quarter, compared with $4.36 billion at the end of the 2005 first quarter.
MMC's effective tax rate for the quarter was lower than the 35 percent effective
tax rate on ongoing operations due to the favorable resolution of tax issues in
certain jurisdictions. In addition, a benefit in excess of 35 percent was
recognized for restructuring and other charges recorded in the period.
Conference Call
A conference call to discuss first quarter 2006 results will be held today at
10:00 a.m. Eastern Time. To participate in the teleconference, please dial (866)
564-7444 or (719) 234-0008 (international). The access code for both numbers is
3141019. The audio webcast (which will be listen-only) may be accessed at
www.mmc.com. A replay of the webcast will be available beginning approximately
two hours after the event at the same web address.
MMC is a global professional services firm with annual revenues of approximately
$12 billion. It is the parent company of Marsh, the world's leading risk and
insurance services firm; Guy Carpenter, the world's leading risk and reinsurance
specialist; Kroll, the world's leading risk consulting company; Mercer, a major
global provider of human resource and specialty consulting services; and Putnam
Investments, one of the largest investment management companies in the United
States. Approximately 55,000 employees provide analysis, advice, and
transactional capabilities to clients in over 100 countries. Its stock (ticker
symbol: MMC) is listed on the New York, Chicago, Pacific, and London stock
exchanges. MMC's website address is www.mmc.com.
This press release contains 'forward-looking statements,' as defined in the
Private Securities Litigation Reform Act of 1995. These statements, which use
words like 'anticipate,' 'believe,' 'estimate,' 'expect,' 'intend,' 'plan,'
'project,' 'should' and similar terms, express management's current views
concerning future events or results. For example, we may use forward-looking
statements when addressing topics such as: future actions by our management or
regulators; the outcome of contingencies; changes in our business strategy;
changes in our business practices and methods of generating revenue; the
development and performance of our services and products; market and industry
conditions, including competitive and pricing trends; changes in the composition
or level of MMC's revenues; our cost structure; the impact of acquisitions and
dispositions; and MMC's cash flow and liquidity.
Forward-looking statements are subject to inherent risks and uncertainties.
Factors that could cause actual results to differ materially from those
expressed or implied in our forward-looking statements include:
• the economic and reputational impact of: litigation and regulatory
proceedings brought by federal and state regulators and law enforcement
authorities concerning our insurance and reinsurance brokerage and
investment management operations (including the complaints relating to
market service agreements and other matters filed by, respectively, the New
York Attorney General's office in October 2004, the Connecticut Attorney
General's office in January 2005 and the Florida Attorney General's office
and Department of Financial Services in March 2006, and proceedings relating
to market-timing matters at Putnam); and class actions, derivative actions
and individual suits filed by policyholders and shareholders in connection
with the foregoing;
• the extent to which we are able to replace the revenues we previously
derived from contingent commissions, which we eliminated in late 2004;
• our ability to retain existing clients and attract new business,
particularly in our risk and insurance services segment, and our ability to
continue employment of key revenue producers and managers;
• period-to-period revenue fluctuations relating to the net effect of new
and lost business production and the timing of policy inception dates;
• the impact on our commission revenues of changes in the availability of,
and the premiums insurance carriers charge for, insurance products,
including the degree and timing of the impact of 2005 hurricanes on
reinsurance premium rates;
• the actual and relative investment performance of Putnam's mutual funds
and institutional and other advisory accounts, and the extent to which
Putnam reverses its recent net redemption experience, increases assets under
management and maintains management and administrative fees at historical
levels;
• our ability to implement our restructuring initiatives and otherwise
reduce expenses;
• the impact of competition, including with respect to pricing and the
emergence of new competitors;
• the impact of increasing focus by regulators, clients and others on
potential conflicts of interest, particularly in connection with the
provision of consulting and investment advisory services;
• changes in the value of MMC's investments in individual companies and
investment funds;
• our ability to make strategic acquisitions and to integrate, and realize
expected synergies, savings or strategic benefits from, acquired businesses;
• our exposure to potential liabilities arising from errors and omissions
claims against us;
• our ability to meet our financing needs by generating cash from
operations and accessing external financing sources, including the potential
impact of rating agency actions on our cost of financing or ability to
borrow;
• the impact on our operating results of foreign exchange fluctuations;
and
• changes in the tax or accounting treatment of our operations, and the
impact of other legislation and regulation in the jurisdictions in which we
operate.
MMC cautions readers not to place undue reliance on its forward-looking
statements, which speak only as of the dates on which they are made. MMC
undertakes no obligation to update or revise any forward-looking statement to
reflect events or circumstances arising after the date on which it is made.
Further information concerning MMC and its businesses, including information
about factors that could materially affect our results of operations and
financial condition, is contained in MMC's filings with the Securities and
Exchange Commission.
MMC and its operating companies use their websites to convey meaningful
information about their businesses, including the anticipated release of
quarterly financial results and the posting of updates of assets under
management at Putnam. Monthly updates of total assets under management at Putnam
will be posted to the MMC website the first business day following the end of
each month. Putnam posts mutual fund and performance data to its website
regularly. Assets for most Putnam retail mutual funds are posted approximately
two weeks after each month-end. Mutual fund net asset value (NAV) is posted
daily. Historical performance and Lipper rankings are also provided. Investors
can link to MMC and its operating company websites through www.mmc.comMarsh &
McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
Three Months Ended
March 31,
2006 2005
Revenue:
Service Revenue $2,969 $3,013
Investment Income 56 57
Total Revenue 3,025 3,070
Expense:
Compensation and Benefits 1,749 1,857
Other Operating Expenses 878 952
Total Expense 2,627 2,809
Operating Income 398 261
Interest Income 16 9
Interest Expense (78) (69)
Income Before Income Taxes and Minority 336 201
Interest Expense
Income Taxes 96 70
Minority Interest Expense, Net of Tax 2 2
Income From Continuing Operations 238 129
Discontinued Operations, Net of Tax 178 5
Net Income $ 416 $ 134
Basic Income Per Share - Continuing $ 0.44 $ 0.24
Operations
Net Income $ 0.76 $ 0.25
Diluted Income Per Share - Continuing $ 0.43 $ 0.24
Operations
Net Income $ 0.75 $ 0.25
Average Number of Shares Outstanding - Basic 547 531
Diluted 555 536
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Three Months Ended
(Millions) (Unaudited)
+-----------------------+-----------------+--------------+-------------------------------+-+
| | | | Components of Revenue Change | |
| | | | | |
| | +-------------++--------+------------+---------+-+
| | | % Change | |Acquisitions| | |
| | Three Months | | |/ | | |
| | Ended | | | | | |
+-----------------------+-----------------+-------------++--------++-----------++--------+-+
| | March 31, | GAAP |Currency |Dispositions|Underlying|
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
| |2006 | |2005 | |Revenue | | Impact | Impact | Revenue |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Risk and Insurance | | | | | | | | | |
|Services | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Insurance Services |$ 1,146| |$ | |(7)% | |(3)% |(2)% |(2)% |
| | | |1,232 | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Reinsurance Services |281 | |282 | |- | |(2)% |- |2% |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Risk Capital Holdings |46 | |63 | |(27)% | |- |(9)% |(18)% |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Total Risk and |1,473 | |1,577 | |(7)% | |(3)% |(2)% |(2)% |
|Insurance Services | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
| | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Risk Consulting & |243 | |233 | |4% | |(2)% |- |6% |
|Technology | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
| | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Consulting | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Human Resource |739 | |695 | |6% | |(3)% |1% |8% |
|Consulting | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Specialty Consulting |262 | |229 | |14% | |(3)% |- |17% |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Total Consulting |1,001 | |924 | |8% | |(3)% |1% |10% |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
| | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Investment Management |345 | |398 | |(13)% | |- |- |(13)% |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
| | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Total Operating |3,062 | |3,132 | |(2)% | |(2)% |(1)% |1% |
|Segments | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
| | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Corporate Eliminations |(37) | |(62) | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
| | | | | | | | | | |
+-----------------------+-------+--+------+--+--------+--+---------+------------+----------+
|Total Revenue |$3,025 | |$3,070| |(1)% | |(2)% |(1)% |2% |
+-----------------------+-------+--+------+--+--------+-++--------++-----------++--------+-+
+-----------------------+-------+--+------+--+--------+-++--------++-----------++--------+-+
Notes
Underlying revenue measures the change in revenue, before the impact of acquisitions and
dispositions, using consistent currency exchange rates.
Interest income on fiduciary funds amounted to $41 and $35 million for the three months ended
March 31, 2006 and 2005, respectively.
Revenue includes investment income (loss) of $50 and $56 million for Risk and Insurance
Services and $1 and $0 million for Consulting, and $5 and $1 million for Investment
Management for the three months ended March 31, 2006 and 2005, respectively.
Risk Capital Holdings owns MMC's investments in insurance and financial services firms such
as Ace Ltd., XL Capital Ltd. and Axis Capital Holdings Ltd. as well as the Trident Funds.
Marsh & McLennan Companies, Inc.
Supplemental Information- Continuing Operations
(Millions) (Unaudited)
Risk & Risk Consulting Investment Corporate & Total
Insurance Consulting Management Eliminations
Services &
Technology
Three Months Ended March
31, 2006
Revenue $ 1,473 $ 243 $ 1,001 $ 345 $ (37) $ 3,025
Operating Income (Loss) 268 21 113 64 (68) 398
Operating Margin 18.2% 8.6% 11.3% 18.6% - 13.2%
Pretax Margin 11.1%
Effective Tax Rate 28.6%
Shares Outstanding at End 549
of Period
Potential Minority $ 2
Interest
Three Months Ended March
31, 2005
Revenue $ 1,577 $ 233 $ 924 $ 398 $ (62) $ 3,070
Operating Income (Loss) 137 37 110 50 (73) 261
Operating Margin 8.7% 15.9% 11.9% 12.6% - 8.5%
Pretax Margin 6.5%
Effective Tax Rate 34.8%
Shares Outstanding at End 530
of Period
Potential Minority $ -
Interest
Significant Items Impacting the Comparability of Financial Results:
The schedules below identify, for the three months ended March 31, 2006 and 2005, stock
option expense and expenses attributable to certain noteworthy items.
Stock Option Expense. The year-over-year comparability of MMC's first quarter financial
results is impacted by MMC's adoption, effective July 1, 2005, of SFAS 123 (R) ('Share Based
Payment'). Beginning in the third quarter of 2005, MMC has recognized costs, primarily
related to stock options, which it did not recognize in prior periods.
Noteworthy Items. The year-over-year comparability of MMC's first quarter financial results
is impacted by a number of noteworthy items, which relate primarily to the effect of legal
and regulatory proceedings involving MMC and certain of its subsidiaries. Noteworthy items
include settlement and legal costs attributable to these proceedings, which include the civil
complaint filed against MMC and Marsh by the New York State Attorney General in October 2004
and settled in January 2005, proceedings arising from market-timing and other issues at
Putnam, and associated shareholder and policyholder litigation.
In response to the changed business environment experienced since late 2004, MMC has made
significant changes to its business model, including the restructuring of certain operations.
Noteworthy items include the costs associated with this restructuring and, in 2005, employee
retention awards. Corporate expenses in 2006 include a restructuring charge related to future
rent on non-cancellable leases in MMC's headquarters building in New York and in 2005 include
restructuring charges related to the consolidation of office space in London. In 2005,
regulatory costs in Risk and Insurance Services include professional services provided by
other MMC companies and the inter-company amounts are eliminated in Corporate. In addition,
2005 expenses include Putnam's estimate of costs to address the calculation of certain
amounts paid by the Putnam mutual funds in previous years.
Risk & Risk Consulting Investment Corporate & Total
Insurance Consulting Management Eliminations
Services &
Technology
Three Months Ended March
31, 2006
Stock Option Expense $ 18 $ 1 $ 13 $ 5 $ 3 $ 40
Restructuring Charges 19 - - - 26 45
Settlement, Legal and 10 - - 3 - 13
Regulatory
Accelerated Leasehold 5 - - - - 5
Amortization
Total Impact in 2006 52 1 13 8 29 103
Three Months Ended March
31, 2005
Restructuring Charges $ 96 $ - $ - $ - $ 49 $ 145
Settlement, Legal and 43 - - - (17) 26
Regulatory
Estimated Mutual Fund - - - 30 - 30
Reimbursement
Employee Retention Awards 15 - 10 - - 25
Other 3 - - - (3) -
Total Impact in 2005 157 - 10 30 29 226
Marsh & McLennan Companies, Inc.
Supplemental Information - Putnam Assets Under Management
(Billions) (Unaudited)
March 31, Dec. 31, Sept. 30, June 30, March 31,
2006 2005 2005 2005 2005
Mutual Funds:
Growth Equity $ 31 $ 31 $ 32 $ 33 $ 34
Value Equity 37 37 38 39 40
Blend Equity 27 26 26 26 26
Fixed Income 31 32 33 34 35
Total Mutual Fund Assets 126 126 129 132 135
Institutional:
Equity 34 34 33 33 35
Fixed Income 29 29 30 30 29
Total Institutional Assets 63 63 63 63 64
Total Ending Assets $189 $189 $192 $195 $199
Assets from Non-US Investors $ 32 $ 32 $ 33 $ 34 $ 35
Average Assets Under Management:
Quarter $190 $188 $195 $196 $204
Year-to-Date $190 $196 $198 $200 $204
Net Redemptions including
Dividends Reinvested:
Quarter $ (6.6) $ (6.4) $ (8.5) $ (7.1) $ (9.7)
Year-to-Date $ (6.6) $(31.7) $(25.3) $(16.8) $ (9.7)
Impact of Market/Performance on
Ending
Assets Under Management $ 7.0 $ 2.8 $ 5.6 $ 3.1 $ (4.3)
Categories of mutual fund assets reflect style designations aligned with Putnam's various
prospectuses. All quarter-end assets conform with the current investment mandate for each
product.
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions) (Unaudited)
March 31, December 31,
2006 2005
ASSETS
Current assets:
Cash and cash equivalents $ 1,575 $ 2,020
Net receivables 2,841 2,730
Assets of discontinued operations 118 153
Other current assets 349 359
Total current assets 4,883 5,262
Goodwill and intangible assets 7,767 7,773
Fixed assets, net 1,151 1,178
Long-term investments 290 277
Prepaid pension 1,597 1,596
Other assets 1,834 1,806
TOTAL ASSETS $17,522 $17,892
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 879 $ 498
Accounts payable and accrued liabilities 1,600 1,733
Regulatory settlements - current portion 323 333
Accrued compensation and employee benefits 766 1,413
Liabilities of discontinued operations 171 89
Accrued income taxes 177 192
Dividends payable 94 93
Total current liabilities 4,010 4,351
Fiduciary liabilities 4,070 3,795
Less - cash and investments held in
a fiduciary capacity (4,070) (3,795)
- -
Long-term debt 4,534 5,044
Regulatory settlements 348 348
Pension, postretirement and postemployment benefits 1,208 1,180
Other liabilities 1,683 1,609
Total stockholders' equity 5,739 5,360
Total liabilities and stockholders' equity $17,522 $17,892
This information is provided by RNS
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