MHM.L Regulatory News (MHM)

3 May 2006 12:13

Marsh & McLennan Co Inc03 May 2006 News Release Media Contacts: Investor Contact:Robin Liebowitz Jim Fingeroth Mike BischoffMMC Kekst & Company MMC212-345-3963 212-521-4819 212-345-5470 MMC REPORTS FIRST QUARTER 2006 RESULTS NEW YORK, NEW YORK, May 3, 2006-Marsh & McLennan Companies, Inc. (MMC) todayreported financial results for the quarter ended March 31, 2006. Consolidatedrevenues 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 inSedgwick Claims Management Services in January 2006. Income from continuingoperations 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 and2005, as described in the attached supplemental schedules. First quarter 2006noteworthy items include restructuring, legal and regulatory costs related tomarket service agreements, and other expenses totaling $63 million. Stock optionexpense, which is now included in the operating results of each segment, was $40million. These noteworthy items and stock option expense reduced first quarter2006 earnings per share from continuing operations by $.11. In the first quarterof 2005, similar noteworthy items reduced earnings per share from continuingoperations by $.27. Michael G. Cherkasky, president and chief executive officer of MMC, said: "Forthe last 18 months, questions in the marketplace have been whether and whenMarsh would recover. We began to see positive signs of recovery in Marsh in thefourth quarter of 2005. In the first quarter, with increasing momentum, we sawrevenue improvement with a significant increase in operating income. We are alsoseeing an increase in our new business opportunities, a high win rate incompetitive situations, a return of previously lost business, and an increase inretained business. All of this points to better performance for Marsh in thefuture. Guy Carpenter, our reinsurance broking business, reported an increase inunderlying revenues. Mercer's revenue growth accelerated in the first quarter,as we continued to make investments for the future. Kroll's results were mixedas revenue growth slowed and margins weakened, but I remain confident of a goodyear. Putnam continues to execute its strategy, as it was helped by strongmarket performance. Overall, MMC's bottom-line performance continues toimprove." Risk and Insurance Services Risk and insurance services operating income increased markedly in the quarteras savings from the 2005 restructuring program were realized. Revenues declined7 percent to $1.5 billion, or 2 percent on an underlying basis, in the firstquarter. Marsh's revenues declined to $1.1 billion, or 2 percent on an underlying basis,largely due to resigning from unprofitable accounts. Client retention improvedsubstantially, as was also seen in the fourth quarter of 2005. In the UnitedStates, new business increased to its highest level since the beginning of lastyear. Marsh achieved these results in an insurance marketplace that hadcontinued declines in commercial insurance pricing, particularly in Europe. Guy Carpenter's first quarter revenues were $281 million, an increase of 2percent on an underlying basis. Carpenter achieved double-digit growth in newbusiness compared with last year. Higher risk retention by clients offset theeffect of the meaningful increase in U.S. property catastrophe premium rates inthe first quarter. Risk Capital Holdings' revenues of $46 million reflected unrealizedmark-to-market gains on private equity investments. In the first quarter of2005, revenues were $63 million. Risk Consulting and Technology Kroll increased revenues 4 percent to $243 million in the first quarter, or 6percent on an underlying basis. Significant pricing pressures in the marketplaceadversely affected Kroll's electronic discovery business, reducing both itsrevenues and profitability. Kroll's corporate advisory and restructuringbusiness produced double-digit revenue growth, with particularly goodperformance in Europe. Background screening also reported double-digit revenuegrowth, with continued favorable domestic trends benefiting from higher unitvolume. 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 percenton an underlying basis, with double-digit growth in retirement, its largestbusiness, and human capital. Specialty consulting continued to produce excellentresults, with revenues increasing 14 percent to $262 million, or 17 percent onan underlying basis. This performance reflects strong revenue growth in MercerManagement Consulting's strategy and operations business and Mercer OliverWyman'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 inthe 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 improvedsubstantially, as net debt has been reduced by over $500 million and thecompany's overall liquidity has strengthened. MMC's net debt position (totaldebt less cash and cash equivalents) was $3.84 billion at the end of the 2006first 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 effectivetax rate on ongoing operations due to the favorable resolution of tax issues incertain jurisdictions. In addition, a benefit in excess of 35 percent wasrecognized for restructuring and other charges recorded in the period. Conference Call A conference call to discuss first quarter 2006 results will be held today at10:00 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 is3141019. The audio webcast (which will be listen-only) may be accessed atwww.mmc.com. A replay of the webcast will be available beginning approximatelytwo 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 andinsurance services firm; Guy Carpenter, the world's leading risk and reinsurancespecialist; Kroll, the world's leading risk consulting company; Mercer, a majorglobal provider of human resource and specialty consulting services; and PutnamInvestments, one of the largest investment management companies in the UnitedStates. Approximately 55,000 employees provide analysis, advice, andtransactional capabilities to clients in over 100 countries. Its stock (tickersymbol: MMC) is listed on the New York, Chicago, Pacific, and London stockexchanges. 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, which usewords like "anticipate," "believe," "estimate," "expect," "intend," "plan,""project," "should" and similar terms, express management's current viewsconcerning future events or results. For example, we may use forward-lookingstatements when addressing topics such as: future actions by our management orregulators; the outcome of contingencies; changes in our business strategy;changes in our business practices and methods of generating revenue; thedevelopment and performance of our services and products; market and industryconditions, including competitive and pricing trends; changes in the compositionor level of MMC's revenues; our cost structure; the impact of acquisitions anddispositions; 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 thoseexpressed 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-lookingstatements, which speak only as of the dates on which they are made. MMCundertakes no obligation to update or revise any forward-looking statement toreflect 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. 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.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% |+-----------------------+-------+--+------+--+--------+-++--------++-----------++--------+-++-----------------------+-------+--+------+--+--------+-++--------++-----------++--------+-+ NotesUnderlying revenue measures the change in revenue, before the impact of acquisitions anddispositions, using consistent currency exchange rates. Interest income on fiduciary funds amounted to $41 and $35 million for the three months endedMarch 31, 2006 and 2005, respectively. Revenue includes investment income (loss) of $50 and $56 million for Risk and InsuranceServices and $1 and $0 million for Consulting, and $5 and $1 million for InvestmentManagement for the three months ended March 31, 2006 and 2005, respectively. Risk Capital Holdings owns MMC's investments in insurance and financial services firms suchas 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 & TechnologyThree Months Ended March31, 2006 Revenue $ 1,473 $ 243 $ 1,001 $ 345 $ (37) $ 3,025Operating Income (Loss) 268 21 113 64 (68) 398Operating Margin 18.2% 8.6% 11.3% 18.6% - 13.2%Pretax Margin 11.1%Effective Tax Rate 28.6%Shares Outstanding at End 549of PeriodPotential Minority $ 2Interest Three Months Ended March31, 2005 Revenue $ 1,577 $ 233 $ 924 $ 398 $ (62) $ 3,070Operating Income (Loss) 137 37 110 50 (73) 261Operating Margin 8.7% 15.9% 11.9% 12.6% - 8.5%Pretax Margin 6.5%Effective Tax Rate 34.8%Shares Outstanding at End 530of PeriodPotential Minority $ -Interest Significant Items Impacting the Comparability of Financial Results:The schedules below identify, for the three months ended March 31, 2006 and 2005, stockoption expense and expenses attributable to certain noteworthy items. Stock Option Expense. The year-over-year comparability of MMC's first quarter financialresults is impacted by MMC's adoption, effective July 1, 2005, of SFAS 123 (R) ("Share BasedPayment"). Beginning in the third quarter of 2005, MMC has recognized costs, primarilyrelated to stock options, which it did not recognize in prior periods. Noteworthy Items. The year-over-year comparability of MMC's first quarter financial resultsis impacted by a number of noteworthy items, which relate primarily to the effect of legaland regulatory proceedings involving MMC and certain of its subsidiaries. Noteworthy itemsinclude settlement and legal costs attributable to these proceedings, which include the civilcomplaint filed against MMC and Marsh by the New York State Attorney General in October 2004and settled in January 2005, proceedings arising from market-timing and other issues atPutnam, and associated shareholder and policyholder litigation. In response to the changed business environment experienced since late 2004, MMC has madesignificant changes to its business model, including the restructuring of certain operations.Noteworthy items include the costs associated with this restructuring and, in 2005, employeeretention awards. Corporate expenses in 2006 include a restructuring charge related to futurerent on non-cancellable leases in MMC's headquarters building in New York and in 2005 includerestructuring charges related to the consolidation of office space in London. In 2005,regulatory costs in Risk and Insurance Services include professional services provided byother 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 certainamounts paid by the Putnam mutual funds in previous years. Risk & Risk Consulting Investment Corporate & Total Insurance Consulting Management Eliminations Services & TechnologyThree Months Ended March31, 2006 Stock Option Expense $ 18 $ 1 $ 13 $ 5 $ 3 $ 40Restructuring Charges 19 - - - 26 45Settlement, Legal and 10 - - 3 - 13RegulatoryAccelerated Leasehold 5 - - - - 5AmortizationTotal Impact in 2006 52 1 13 8 29 103 Three Months Ended March31, 2005 Restructuring Charges $ 96 $ - $ - $ - $ 49 $ 145Settlement, Legal and 43 - - - (17) 26RegulatoryEstimated Mutual Fund - - - 30 - 30ReimbursementEmployee Retention Awards 15 - 10 - - 25Other 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 2005Mutual Funds:Growth Equity $ 31 $ 31 $ 32 $ 33 $ 34Value Equity 37 37 38 39 40Blend Equity 27 26 26 26 26Fixed Income 31 32 33 34 35Total Mutual Fund Assets 126 126 129 132 135 Institutional:Equity 34 34 33 33 35Fixed Income 29 29 30 30 29Total Institutional Assets 63 63 63 63 64Total 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 $204Year-to-Date $190 $196 $198 $200 $204 Net Redemptions includingDividends 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 onEndingAssets Under Management $ 7.0 $ 2.8 $ 5.6 $ 3.1 $ (4.3) Categories of mutual fund assets reflect style designations aligned with Putnam's variousprospectuses. All quarter-end assets conform with the current investment mandate for eachproduct. Marsh & McLennan Companies, Inc. Consolidated Balance Sheets (Millions) (Unaudited) March 31, December 31, 2006 2005 ASSETS Current assets: Cash and cash equivalents $ 1,575 $ 2,020Net receivables 2,841 2,730Assets of discontinued operations 118 153Other current assets 349 359 Total current assets 4,883 5,262 Goodwill and intangible assets 7,767 7,773 Fixed assets, net 1,151 1,178Long-term investments 290 277Prepaid pension 1,597 1,596Other assets 1,834 1,806TOTAL ASSETS $17,522 $17,892 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:Short-term debt $ 879 $ 498Accounts payable and accrued liabilities 1,600 1,733Regulatory settlements - current portion 323 333Accrued compensation and employee benefits 766 1,413Liabilities of discontinued operations 171 89Accrued income taxes 177 192Dividends payable 94 93Total current liabilities 4,010 4,351 Fiduciary liabilities 4,070 3,795Less - cash and investments held ina fiduciary capacity (4,070) (3,795) - - Long-term debt 4,534 5,044Regulatory settlements 348 348Pension, postretirement and postemployment benefits 1,208 1,180Other liabilities 1,683 1,609 Total stockholders' equity 5,739 5,360Total liabilities and stockholders' equity $17,522 $17,892 This information is provided by RNS The company news service from the London Stock Exchange