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MMC Reports Fourth Quarter and Year-End 2006 Results

02/13/07

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NEW YORK, NEW YORK, February 13, 2007 — Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the fourth quarter and year ended December 31, 2006. Consolidated revenues in the fourth quarter were $3.1 billion, an increase of 9 percent from 2005. Consolidated net income was $226 million, an increase of over 500 percent from the fourth quarter of 2005, and earnings per share grew to $.40 from $.06. Earnings per share from continuing operations rose to $.39 in the fourth quarter from $.03 last year.

Full-year consolidated revenues were $11.9 billion, an increase of 3 percent from $11.6 billion in 2005. Consolidated net income was $990 million, or $1.76 per share, compared with $404 million, or $.74 per share, in 2005. Results from discontinued operations, net of tax, were $172 million, or $.31 per share, resulting primarily from MMC's sale of its investment in Sedgwick Claims Management in early 2006. Results from discontinued operations in 2005 were $37 million, or $.07 per share. Income from continuing operations was $818 million, or $1.45 per share, compared with $367 million, or $.67 per share, in 2005. Stock option expense in 2006 was $116 million. Stock option expense in 2005 was $64 million, and related only to the last two quarters of 2005 since MMC adopted SFAS No. 123(R), "Share-Based Payment," on July 1, 2005.

A number of noteworthy items affected financial results, including restructuring costs and credits; legal and regulatory costs primarily related to market service agreements; and other items indicated in the attached supplemental information. In the fourth quarter of 2006, noteworthy items were a credit of $5 million, including the realized gain of $74 million on the sale of five floors in MMC's corporate headquarters, while noteworthy items in 2005 reduced earnings per share from continuing operations by $.18. For the full year, noteworthy items reduced earnings per share by $.19 in 2006, compared with $.76 in 2005.

"MMC had another good quarter, reporting its strongest revenue growth in three years," said Michael G. Cherkasky, president and chief executive officer of MMC. "The progress we saw at Marsh in the first nine months of 2006 continued in the fourth quarter, including improved revenue trends and increased profitability. Revenues from new business at Marsh were the highest they have been since the first half of 2004. In light of this, we are encouraged about Marsh's prospects in 2007. Throughout the year, Guy Carpenter rose to the challenges of a complex reinsurance marketplace, producing increased revenues driven by double-digit growth in new business. Kroll's increased revenues in the quarter were driven by solid results in its technology business. In the quarter, Mercer Human Resource Consulting improved margins and produced strong revenue growth, and Mercer Specialty Consulting continued its exceptional performance, reporting double-digit revenue growth. Putnam's net flows were neutral in the quarter, achieving a long-standing goal.

"The announced sale of Putnam will enhance our financial flexibility and allow us to concentrate on our market-leading risk and human capital businesses. We have reignited MMC's engines of growth, and we look forward to the future with confidence," Mr. Cherkasky concluded.

Risk and Insurance Services
Risk and insurance services revenues in the fourth quarter increased 4 percent to $1.4 billion, or 5 percent on an underlying basis. Operating income more than doubled to $127 million, compared with $62 million in the fourth quarter of 2005, reflecting gains from private equity investments, operating efficiencies, cost discipline, and restructuring efforts.

Marsh's underlying revenues grew 3 percent, excluding the impact of market service revenues, the second consecutive quarter of revenue growth by this measure and the largest in over two years. Strong new business growth across all geographies drove Marsh's performance. For the full year, new business increased a robust 10 percent, with accelerating growth as the year progressed, including 9 percent growth in the Americas. As reported, Marsh's revenues declined 1 percent to $1.1 billion in the fourth quarter.

Guy Carpenter's revenues increased 9 percent in the fourth quarter to $171 million, or 8 percent on an underlying basis, driven by 13 percent growth in new business. These results were achieved despite a reinsurance marketplace where increases in U.S. property catastrophe rates were mitigated by reduced reinsurance capacity and higher client risk retentions, and where rates in most other lines of business were stable to down globally.

Risk Capital Holdings generated revenues of $74 million in the fourth quarter, compared with $27 million in the same period of 2005. This increase was entirely due to mark-to-market gains in private equity investments. Full-year revenues were $193 million, compared with $189 million in 2005.

Risk Consulting and Technology
Kroll's revenues increased 12 percent in the fourth quarter to $241 million, or 4 percent on an underlying basis. Kroll's technology enabled solutions business produced 17 percent growth in revenues, including double-digit growth in background screening and technology services. Kroll's profitability in the quarter increased significantly, due to revenue growth, expense control, and the early termination of a licensing agreement. Results reflect the sale of Kroll's international security business, which has been included in MMC's discontinued operations.

Consulting
Revenues for consulting increased 15 percent to $1.1 billion in the fourth quarter, or 10 percent on an underlying basis. Operating income grew 24 percent. Full-year revenues increased 11 percent to $4.2 billion, or 9 percent on an underlying basis.

Mercer Human Resource Consulting increased revenues 12 percent to $769 million in the fourth quarter, or 8 percent on an underlying basis. This strong growth was driven by the retirement and investment business and the talent business. Full-year revenues increased 8 percent to $3 billion, or 7 percent on an underlying basis.

Mercer Specialty Consulting's revenues grew 23 percent to $341 million in the fourth quarter, or 15 percent on an underlying basis. Full-year revenues increased 19 percent to $1.2 billion, or 16 percent on an underlying basis. Each of the Mercer Specialty companies contributed to this exceptional performance, led by Mercer Oliver Wyman, which increased underlying revenues 22 percent.

Investment Management
Putnam's revenues of $359 million were flat, compared with the fourth quarter last year. Ending assets on December 31, 2006 were $192 billion, comprising $124 billion in mutual fund assets and $68 billion in institutional assets. Average assets under management were $189 billion, compared with $188 billion in the fourth quarter of 2005. Operating income increased on a year-over-year basis, due to lower expenses. With the announced sale of Putnam on February 1, Putnam will be classified as a discontinued operation in 2007.

Other Items
MMC's net debt position, which is total debt less cash and cash equivalents, was $2.9 billion at year-end 2006, a decrease of $520 million in the fourth quarter and $640 million in the year, driven by strong operating cash flows. The company increased its quarterly dividend by 12 percent, from $.17 to $.19, payable in the first quarter of 2007.

During the fourth quarter, MMC made a discretionary contribution of its investment position in Trident III of $182 million to its U.K. defined benefits plans.

Conference Call
A conference call to discuss fourth quarter and year-end 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 2424845. The audio webcast may be accessed at www.mmc.com. A replay of the webcast will be available 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, 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 express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "should," "will" and "would." For example, we may use forward-looking statements when addressing topics such as: the impact of acquisitions and dispositions; 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 and the outcome of restructuring and other cost-saving initiatives; 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 concerning our insurance and reinsurance brokerage and investment management operations;

  • 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; and

  • changes in the tax or accounting treatment of our operations and the impact of other legislation and regulation, including as to licensing matters, in the jurisdictions in which we operate, particularly given the global scope of our businesses.

The factors identified above are not exhaustive. MMC and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, 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.