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MMC Reports First Quarter 2006 Results



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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.

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.com