MHM.L Regulatory News (MHM)

8 May 2007 11:31

Marsh & McLennan Co Inc08 May 2007 News Release Media Contact: Investor Contact:Christine Walton Rich Myers Mike BischoffMMC Edelman for MMC MMC212 345 0675 212 819 4807 212 345 5470 MMC REPORTS FIRST QUARTER 2007 RESULTS Consolidated Revenues Increased 5 Percent to $2.8 Billion Income from Continuing Operations Rose 14 Percent $500 Million Share Repurchase Program Is Announced NEW YORK, NEW YORK, May 8, 2007-Marsh & McLennan Companies, Inc. (MMC) todayreported financial results for the first quarter ended March 31, 2007.Consolidated revenues in the first quarter were $2.8 billion, an increase of 5percent from the first quarter of 2006, or 1 percent on an underlying basis.Income from continuing operations rose 14 percent to $228 million, or $.41 pershare, from $200 million, or $.36 per share last year. • Earnings per share was $.47 in the first quarter of 2007, including discontinued operations representing Putnam's results. • Noteworthy items, described in the attached supplemental schedules, reduced earnings per share by $.05 in the first quarter of 2007. "The first quarter demonstrated the strength of MMC as a diversified company,"said Michael G. Cherkasky, president and chief executive officer of MMC. "We metour overall corporate performance expectations while we continued to positionMarsh for success in the future. The consulting segment continued to performvery well, growing revenues 13 percent and operating income 22 percent on abusiness with annual revenues approaching $4.5 billion. Kroll performed asexpected, with strong growth in its largest operation, technology-enabledsolutions. Guy Carpenter produced solid results, driven by continued strong newbusiness. Marsh made significant strides in executing the realignment of itsoperations, repositioning the business for long-term growth. Change always has ashort-term cost, but we are confident we are making the right trade-offs inMarsh. Also in the first quarter, we announced that Great-West Lifeco, asubsidiary of Power Financial Corporation, agreed to purchase Putnam for $3.9billion in cash. This transaction is expected to close in the second quarter. Inrecognition of MMC's improving operating performance and greatly strengthenedfinancial position, MMC's Board of Directors has approved a $500 million sharerepurchase program, which we expect to execute promptly." Risk and Insurance Services Risk and insurance services revenues in the first quarter were $1.5 billion, anincrease of 1 percent from the first quarter of 2006, or a 2 percent decline onan underlying basis. Marsh's revenues were $1.1 billion, unchanged from the first quarter of 2006.Geographically, Marsh revenues included $540 million in the Americas, a declineof 5 percent from the prior year's quarter; $524 million in EMEA, an increase of3 percent; and $78 million in Asia Pacific, an increase of 12 percent. Newbusiness increased 7 percent in the first quarter, reflecting growth of 5percent in the Americas, 8 percent in EMEA, and 17 percent in Asia Pacific.Premium rate declines in the commercial insurance marketplace continued throughthe first quarter. Underlying revenues declined 3 percent in the quarter,primarily due to lower retention rates in the United States. Guy Carpenter's revenues increased 4 percent in the first quarter to $292million, driven by 11 percent growth in new business. These results wereachieved despite the decline in U.S. property catastrophe rates from the peaklevels seen in the mid-year 2006 renewal season and higher risk retention byclients. Underlying revenues increased 2 percent in the quarter. Risk Capital Holdings recognized revenues of $49 million in the first quarter,compared with $46 million in the same period of 2006. Revenues in the quarterwere derived from MMC's private equity fund investments. Risk Consulting and Technology Kroll's revenues increased 1 percent in the first quarter to $235 million andwere flat on an underlying basis. The technology-enabled solutions businessincreased revenues 14 percent to $132 million, due to continued strongperformance in background screening and growth in the electronic discoverybusiness. Kroll's consulting business saw revenues decline 12 percent to $103million, reflecting the expected level of activity in corporate advisory andrestructuring. Consulting Consulting revenues increased 13 percent to $1.1 billion in the first quarter,with 7 percent growth on an underlying basis. Mercer Human Resource Consulting increased revenues 8 percent to $800 million inthe first quarter, with a 4 percent increase on an underlying basis. This growthwas achieved throughout Mercer HR's operations: retirement and investmentproduced $319 million in revenues, an increase of 11 percent; health andbenefits, $183 million, the same level as last year; outsourcing, $176 million,an increase of 13 percent; and talent, $99 million, an increase of 6 percent. Mercer Specialty Consulting's revenues grew 25 percent to $329 million in thefirst quarter, with a 15 percent increase on an underlying basis, continuing thestrong growth this group has achieved over the last four years. Each of theMercer Specialty companies contributed to this exceptional performance. Discontinued Operations Due to the agreement to sell Putnam, announced on February 1, 2007, Putnam'sresults for both years are now reflected in discontinued operations. Resultsfrom discontinued operations, net of tax, were $40 million, or $.06 per share,in the first quarter of 2007, reflecting Putnam's results for the quarter,compared with $.39 per share last year, primarily due to a $.32 gain from thesale of Sedgwick Claims Management Services. In the first quarter, Putnam had revenues of $356 million, an increase of 3percent from the first quarter of 2006. Putnam's assets under management onMarch 31, 2007 were $188 billion, comprising $119 billion in mutual fund assetsand $69 billion in institutional assets. Average assets under management were$189 billion, compared with $190 billion for the first quarter of 2006. MMC Share Repurchase The MMC Board of Directors has approved a $500 million share repurchase program. Other Items MMC's net debt position, which is total debt less cash and cash equivalents, was$3.5 billion at the end of the first quarter, compared with $3.8 billion at theend of the 2006 first quarter. In the first quarter, MMC increased its quarterlydividend by 12 percent, from $.17 to $.19. Conference Call A conference call to discuss first quarter 2007 results will be held today at 8:30 a.m. Eastern Time. To participate in the teleconference, please dial 800390 5311 or 719 457 2086 (international). The access code for both numbers is4680329. The audio webcast may be accessed at www.mmc.com. A replay of thewebcast will be available approximately two hours after the event at the sameweb address. MMC is a global professional services firm. It is the parent company of Marsh,the world's leading risk and insurance services firm; Guy Carpenter, the world'sleading risk and reinsurance specialist; Kroll, the world's leading riskconsulting company; Mercer, a major global provider of human resource andspecialty consulting services; and Putnam Investments, one of the largestinvestment management companies in the United States. More than 55,000 employeesprovide analysis, advice, and transactional capabilities to clients in over 100countries. Its stock (ticker symbol: MMC) is listed on the New York, Chicago,and London stock exchanges. MMC's website address is www.mmc.com. This press release contains "forward-looking statements," as defined in thePrivate Securities Litigation Reform Act of 1995. These statements, whichexpress management's current views concerning future events or results, usewords like "anticipate," "assume," "believe," "continue," "estimate," "expect,""intend," "plan," "project" and similar terms, and future or conditional tenseverbs like "could," "should," "will" and "would." For example, we may useforward-looking statements when addressing topics such as: the timing andexpected impact of acquisitions and dispositions; future actions by regulators;the outcome of contingencies; changes in our business strategy; changes in ourbusiness practices and methods of generating revenue; the development andperformance of our services and products; market and industry conditions,including competitive and pricing trends; changes in the composition or level ofMMC's revenues; our cost structure and the outcome of restructuring and othercost-saving initiatives; share repurchase programs; and MMC's cash flow andliquidity. Forward-looking statements are subject to inherent risks and uncertainties.Factors that could cause actual results to differ materially from thoseexpressed or implied in our forward-looking statements include: • the economic and reputational impact of litigation and regulatory proceedings described in the notes to our financial statements; • the fact that MMC's agreement to sell Putnam, announced on February 1, 2007, is subject to a number of closing conditions, some of which are outside of MMC's control, and we cannot be certain that the transaction will close as planned or that the announced sale price will not be adjusted pursuant to the terms of the sale agreement; • Putnam's performance between now and the closing of the announced sale later in 2007, including the actual and relative investment performance of Putnam's mutual funds and institutional and other advisory accounts, Putnam's net fund flows and the level of Putnam's assets under management; • our ability to effectively deploy MMC's proceeds from the sale of Putnam, and the timing of our use of those proceeds; • the fact that our estimate of the dilutive impact of the sale of Putnam on MMC's future earnings per share is necessarily based on a set of current management assumptions, including assumptions about MMC's use of sale proceeds and the operating results of Putnam and MMC's other subsidiaries; • our ability to achieve profitable revenue growth in our risk and insurance services segment by providing both traditional insurance brokerage services and additional risk advisory services; • our ability to retain existing clients and attract new business, and our ability to retain key employees; • revenue fluctuations in risk and insurance services relating to the net effect of new and lost business production and the timing of policy inception dates; • the impact on risk and insurance services commission revenues of changes in the availability of, and the premiums insurance carriers charge for, insurance and reinsurance products, including the impact on premium rates and market capacity attributable to catastrophic events such as hurricanes; • the impact on renewals in our risk and insurance services segment of pricing trends in particular insurance markets, fluctuations in the general level of economic activity and decisions by insureds with respect to the level of risk they will self-insure; • the impact on our consulting segment of pricing trends, utilization rates, legislative changes affecting client demand, and the general economic environment; • our ability to implement our restructuring initiatives and otherwise reduce or control expenses and achieve operating efficiencies, including our ability to generate anticipated savings and operational improvements from the actions we announced in September 2006; • the impact of competition, including with respect to pricing and the emergence of new competitors; • fluctuations in the value of Risk Capital Holdings' investments; • our ability to make strategic acquisitions and dispositions and to integrate, and realize expected synergies, savings or strategic benefits from, the businesses we acquire; • 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; • changes in applicable tax or accounting requirements, including any potential income statement effects from the application of FIN 48 ("Accounting for Uncertainty in Income Taxes") and SFAS 142 ("Goodwill and Other Intangible Assets"); and • the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which we operate, particularly given the global scope of our businesses and the possibility of conflicting regulatory requirements across the jurisdictions in which we do business. The factors identified above are not exhaustive. MMC and its subsidiariesoperate in a dynamic business environment in which new risks may emergefrequently. Accordingly, MMC cautions readers not to place undue reliance onits forward-looking statements, which speak only as of the dates on which theyare made. MMC undertakes no obligation to update or revise any forward-looking statementto reflect events or circumstances arising after the date on which it is made.Further information concerning MMC and its businesses, including informationabout factors that could materially affect our results of operations andfinancial condition, is contained in MMC's filings with the Securities andExchange Commission. Marsh & McLennan Companies, Inc. Consolidated Statements of Income (In millions, except per share figures) (Unaudited) Three Months Ended March 31, 2007 2006Revenue:Service Revenue $2,763 $2,623Investment Income (Loss) 49 51 Total Revenue 2,812 2,674 Expense:Compensation and Benefits 1,677 1,586Other Operating Expenses 748 751 Total Expenses 2,425 2,337 Operating Income 387 337 Interest Income 19 15 Interest Expense (71) (78) Income Before Income Taxes and Minority Interest Expense 335 274 Income Taxes 106 73 Minority Interest Expense, Net of Tax 1 1 Income from Continuing Operations 228 200 Discontinued Operations, Net of Tax 40 216 Net Income $268 $416 Basic Net Income Per Share - Continuing Operations $0.41 $0.37 - Net Income $0.49 $0.76 Diluted Net Income Per Share - Continuing Operations $0.41 $0.36 - Net Income $0.47 $0.75 Average Number of Shares Outstanding - Basic 553 547 - Diluted 562 555Shares Outstanding at 3/31 555 549 Marsh & McLennan Companies, Inc. Supplemental Information - Revenue Analysis Three Months Ended (Millions) (Unaudited) Components of Revenue Change Three Months Ended % Change Acquisitions/ March 31, GAAP Currency Dispositions Underlying 2007 2006 Revenue Impact Impact Revenue Risk and Insurance ServicesInsurance Services $1,142 $ 1,146 - 3% - (3)%Reinsurance Services 292 281 4% 2% - 2%Risk Capital Holdings 49 46 9% - - 9% Total Risk and Insurance Services 1,483 1,473 1% 3% - (2)% Risk Consulting & Technology 235 234 1% 3% (2)% - ConsultingHuman Resource Consulting 800 739 8% 4% - 4%Specialty Consulting 329 262 25% 5% 5% 15% Total Consulting 1,129 1,001 13% 4% 2% 7% Total Operating Segments 2,847 2,708 5% 3% 1% 1% Corporate Eliminations (35) (34) Total Revenue $2,812 $2,674 5% 3% 1% 1% Revenue Details The following table provides more detailed revenue information forcertain of the components presented above and the remaining quarters of 2006. Three Months Ended % Change 2006 March 31, GAAP Three Months Ended Twelve 2007 2006 Revenue June 30 Sept.30 Dec.31 Months Insurance Services:Americas $ 540 $ 568 (5)% $ 634 $ 594 $ 641 $2,437EMEA 524 508 3% 378 329 390 1,605Asia Pacific 78 70 12% 94 86 98 348 Total Insurance Services $1,142 $1,146 - $1,106 $1,009 $1,129 $4,390 Risk Consulting & Technology: Technology $132 $116 14% $ 132 $ 129 $ 127 $ 504 Consulting 103 118 (12)% 133 110 114 475 Total Risk Consulting & Technology $235 $234 1% $ 265 $ 239 $ 241 $ 979 Human Resource Consulting: Retirement and Investment $319 $288 11% $ 282 $ 271 $ 292 $1,133Health and Benefits 183 183 - 183 189 171 726Outsourcing 176 156 13% 159 165 169 649Talent 99 93 6% 107 115 111 426Reimbursed Expenses 23 19 N/A 20 22 26 87 Total Human Resource Consulting $800 $739 8% $ 751 $ 762 $769 $3,021 Notes Underlying revenue measures the change in revenue, before the impact ofacquisitions and dispositions, using consistent currency exchange rates. Interest income on fiduciary funds amounted to $48 million and $41 million forthe three months ended March 31, 2007 and 2006, respectively. Revenue includes net investment income (loss) of $49 million and $50 million forRisk and Insurance Services and $0 million and $1 million for Consulting for thethree months ended March 31, 2007 and 2006, respectively. Risk Capital Holdings owns investments in private equity funds and insurance andfinancial services firms. Insurance Services revenue includes market service revenue of $2 million and $6million for the three months ended March 31, 2007 and 2006, respectively. Marsh & McLennan Companies, Inc. Supplemental Information (Millions) (Unaudited) Three Months Ended March 31, 2007 2006 Revenue:Risk and Insurance Services $1,483 $1,473Risk Consulting & Technology 235 234Consulting 1,129 1,001 2,847 2,708Corporate Eliminations (35) (34) $2,812 $2,674Operating Income (Loss):Risk and Insurance Services $ 259 $ 268Risk Consulting & Technology 26 24Consulting 138 113Corporate (36) (68) $ 387 $ 337 Segment Operating Margins:Risk and Insurance Services 17.5% 18.2%Risk Consulting & Technology 11.1% 10.3%Consulting 12.2% 11.3% Consolidated Operating Margin 13.8% 12.6%Pretax Margin 11.9% 10.2%Effective Tax Rate 31.6% 26.6% Potential Minority Interest Associated with the Putnam Equity Partnership Plan $ 2 $ 2 Marsh & McLennan Companies, Inc. Supplemental Information- Continuing Operations (Millions) (Unaudited) Significant Items Impacting the Comparability of Financial Results: The year-over-year comparability of MMC's first quarter financial results isaffected by a number of noteworthy items. The following table identifies theimpact of noteworthy items on segment and consolidated operating income for theperiods indicated. Risk & Risk Insurance Consulting & Corporate & Services Technology Consulting Eliminations TotalThree Months Ended March 31, 2007 Restructuring Charges (a) $ 24 $ - $ - $ 6 $ 30Accelerated Amortization/Depreciation 5 - 3 3 11Settlement, Legal and Regulatory (b) 11 - - - 11Other (c) - - - (14) (14) Total Impact in 2007 $ 40 $ - $ 3 $ (5) $ 38 Three Months Ended March 31, 2006 Restructuring Charges (a) $ 19 $ - $ - $ 26 $ 45Accelerated Amortization/Depreciation 5 - - - 5Settlement, Legal and Regulatory (b) 10 - - - 10 Total Impact in 2006 $ 34 $ - $ - $ 26 $ 60 Notes: (a) Primarily includes severance and related charges, costs for future rent andother real estate costs, and consulting costs related to previously announcedcost reduction initiatives (see Form 8-K dated September 20, 2006 for moreinformation). (b) Reflects legal fees arising out of the civil complaint relating to marketservice agreements and other issues filed against MMC and Marsh by the New YorkState Attorney General in October 2004 and settled in January 2005, andindemnification of former employees for legal fees they have incurred inconnection with the events of October 2004. (c) Represents an accrual adjustment related to the separation of former MMCsenior executives. Marsh & McLennan Companies, Inc. Consolidated Balance Sheets (Millions) (Unaudited) March 31, December 31, 2007 2006 ASSETS Current assets:Cash and cash equivalents $ 1,203 $ 2,015Net receivables 2,904 2,718Assets of discontinued operations 1,579 1,921Other current assets 318 322 Total current assets 6,004 6,976 Goodwill and intangible assets 7,593 7,595Fixed assets, net 979 990Long-term investments 144 124Pension related asset 647 613Other assets 1,861 1,839 TOTAL ASSETS $17,228 $18,137 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:Short-term debt $ 1,045 $ 1,111Accounts payable and accrued liabilities 2,483 2,476Regulatory settlements-current portion 178 178Accrued compensation and employee benefits 663 1,230Liabilities of discontinued operations 393 792Accrued income taxes 20 131Dividends payable 106 - Total current liabilities 4,888 5,918 Fiduciary liabilities 4,126 3,587Less - cash and investments held in a fiduciary capacity (4,126) (3,587) - -Long-term debt 3,609 3,860Regulatory settlements 174 173Pension, postretirement and postemployment benefits 1,082 1,085Liabilities for errors and omissions 636 624Other liabilities 891 658 Total stockholders' equity 5,948 5,819 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,228 $18,137 Marsh & McLennan Companies, Inc. Supplemental Information - Discontinued Operations (Millions) (Unaudited) On January 31, 2007, MMC entered into a stock purchase agreement with Great-WestLifeco ("GWL"), a majority-owned subsidiary of Power Financial Corporation,pursuant to which GWL agreed to purchase Putnam Investments Trust. MMC expectsthe sale of Putnam to close in the second quarter of 2007. Putnam's results ofoperations for the three-month periods ended March 31, 2007 and 2006 weresegregated and reported as discontinued operations in the accompanyingconsolidated statements of income. In 2006, MMC sold its majority interest in Sedgwick Claims Management, aprovider of claims management and associated productivity services; PriceForbes, its U.K.-based insurance wholesale operation; and Kroll SecurityInternational, its international high-risk asset and personal protectionbusiness. The gains or losses on these disposals, as well as their results ofoperations, are reported as discontinued operations in the accompanyingconsolidated statements of income. Summarized Statements of Income data for discontinued operations is as follows: Three Months Ended March 31, 2007 2006Putnam: Revenue $356 $345 Expense 281 281 Net Operating Income 75 64Minority interest and other discontinued operations (1) -Provision for income tax 34 24Income from discontinued operations, net of tax 40 40 Gain on disposal of discontinued operations - 306Provision for income tax - 130Gain on disposal of discontinued operations, net of tax - 176Discontinued operations, net of tax $40 $216 Marsh & McLennan Companies, Inc. Reclassification of Discontinued Operations (Millions) (Unaudited) The following table provides reclassified prior period reported amounts toreflect discontinued operations classification for Investment Management: Three Months Ended2006 March 31, June 30, Sept. 30, Dec. 31, Full Year Segment Revenue as Reported $ 3,053 $ 3,000 $ 2,915 $ 3,084 $12,052Less: Putnam (345) (339) (342) (359) (1,385)Corporate Eliminations (34) (27) (41) (18) (120) Total Revenue $ 2,674 $ 2,634 $ 2,532 $ 2,707 $10,547 2006Operating Income (Loss):Risk and Insurance Services $ 268 $ 139 $ 143 $ 127 $ 677Risk Consulting & Technology 24 42 38 45 149Consulting 113 124 112 117 466Corporate (68) (42) (49) 22 (137) 337 263 244 311 1,155 Interest Income 15 12 15 18 60 Interest Expense (78) (78) (75) (72) (303) Income Before Income Taxes and Minority Interest, Net of Tax 274 197 184 257 912 Income Taxes 73 64 48 87 272 Minority Interest Expense, Net of Tax 1 2 3 2 8 Income from Continuing Operations 200 131 133 168 632 Discontinued Operations, Net of Tax 216 41 43 58 358 Net Income $ 416 $ 172 $ 176 $ 226 $ 990 Basic Income Per Share - Continuing Operations $ 0.37 $ 0.24 $ 0.24 $ 0.31 $ 1.15 Diluted Income Per Share - Continuing Operations $ 0.36 $ 0.24 $ 0.24 $ 0.30 $ 1.14 Marsh & McLennan Companies, Inc. Supplemental Information - Putnam Assets Under Management (Billions) (Unaudited) March 31, Dec. 31, Sept.30, June 30, March 31, 2007 2006 2006 2006 2006Mutual Funds:Growth Equity $ 24 $ 26 $ 26 $ 27 $ 31Value Equity 36 37 36 36 37Blend Equity 29 28 26 26 27Fixed Income 30 33 30 30 31 Total Mutual Fund Assets 119 124 118 119 126 Institutional:Equity 36 36 34 32 34Fixed Income 33 32 30 29 29 Total Institutional Assets 69 68 64 61 63Total Ending Assets $188 $192 $182 $180 $189 The asset information above includes the following:Assets from Non-US Investors $ 38 $ 36 $ 34 $ 31 $ 32Assets in Prime Money Market Funds $ 1.6 $ 4.3 $ 0.5 $ 0.6 $ 0.2 Average Assets Under Management: Quarter $189 $189 $179 $185 $190 Year-to-Date $189 $186 $185 $188 $190 Net Flows including Dividends Reinvested: Quarter $(6.0) $ (0.1) $ (3.1) $ (6.0)* $ (6.6) Year-to-Date $(6.0) $ (15.8) $(15.7) $(12.6) $ (6.6) Impact of Market/Performance on Ending Assets Under Management $ 1.8 $ 9.9 $ 5.5 $ (3.5) $ 7.0 * Net redemptions in the quarter ended June 30, 2006 includes $2.8 billion ofredemptions in institutional equity resulting from ending Putnam's alliance withan Australian partner. 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. This information is provided by RNS The company news service from the London Stock Exchange