stock option expense under SFAS 123(R) (“Share-Based Payment”), which MMC adopted effective July 1, 2005. MMC’s 2006 results include stock option expense in each segment for the full year. The 2005 results reflect a charge for six months (from the date of adoption on July 1, 2005) recorded in corporate expenses;
the sale of Kroll Security International (“KSI”), Kroll’s international high-risk asset and personal protection division in the fourth quarter of 2006, the gain from which, net of current year operating loss, is included in discontinued operations; and
Consolidated revenue for the year ended December 31, 2006 was $11.9 billion, a 3% increase over the prior year. Higher revenue in the consulting and risk consulting & technology segments was partly offset by lower revenue in the risk and insurance services and investment management segments. Consolidated revenue increased 3% on an underlying basis, which includes the impact of a $71 million reduction in market services revenue.
In December 2006, Kroll completed the sale of KSI, its international security operation that provided high-risk asset and personal protection services. The financial results of KSI are included in discontinued operations.
Investment management revenues depend largely on the total value and composition of Putnam’s assets under management. Assets under management are particularly affected by fluctuations in domestic and international stock and bond market prices, and the net level of investments and withdrawals by current and new mutual fund shareholders and institutional clients. Items affecting revenue also include, but are not limited to, actual and relative investment performance, service to clients, the development and marketing of new investment products, the relative attractiveness of Putnam’s investment styles under prevailing market conditions, changes in the investment patterns of fund shareholders and institutional clients and Putnam’s ability to maintain investment management and administrative fees at current levels.
Putnam receives service fees from the Putnam mutual funds for transfer agent, custody, and other administrative services, as contracted by the Trustees of the Putnam mutual funds. Effective January 2005, the transfer agent service fee agreement was converted to a fixed rate per retail shareholder account and a fixed rate service fee based on average assets under management for mutual fund assets in defined contribution plans. For the first six months of 2004, the transfer agent service fee agreement was based on the reimbursement of the cost of service. For the third and fourth quarters
MMC establishes allowances for potential liabilities that may arise out of tax audits and litigation to the extent that such liabilities are probable and can be estimated in accordance with SFAS No. 5. Once established, allowances are evaluated based on the facts and circumstances that exist at each reporting period. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue for which an allowance had previously been recorded. Such adjustments could have a material impact on MMC’s effective tax rate, net income, and cash flows in a particular future period.
Approximately $37 million was invested in 2006 related to all of the commitments discussed above (including investments in Trident III prior to its contribution to MMC’s U.K. pension plan).
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires that MMC
Cash and Cash Equivalents: Cash and cash equivalents primarily consist of certificates of deposit and time deposits, generally with original maturities of three months or less.
The SFAS 158 implementation adjustment excludes a $101 million credit to the minimum pension liability.
The assets and liabilities of the U.K. defined benefit pension plan were re-measured at March 31, 2005 to reflect a plan curtailment as defined by SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.” Restructuring activities led to a reduction in force which resulted in the elimination of the accrual for defined benefits for a significant number of employees.
The weighted-average grant-date fair value of MMC’s option awards granted during the years ended December 31, 2006, 2005 and 2004 was $8.55, $6.51 and $7.51, respectively. The total intrinsic value of options exercised during the same periods was $31 million, $36 million and $46 million, respectively.
In September 2005, the National Association of Insurance Commissioners (the “NAIC”) issued a press release indicating that over 30 state insurance regulators (including several referred to in the preceding paragraph) working collaboratively through the NAIC had reached a multi-state regulatory settlement with MMC and Marsh. The NAIC settlement agreement reaffirms MMC’s commitment, under the Settlement Agreement with NYAG and the NYSID, to establish a no-fault compensation fund for policyholder clients across the United States, and provides for state-by-state enforcement of the business reforms agreed to be implemented pursuant to the Settlement Agreement. The NAIC settlement agreement has been executed by MMC and Marsh, and the NAIC has advised that the agreement has been adopted by insurance commissioners in 33 states, the District of Columbia and Guam.
Putnam has agreed to indemnify the Putnam Funds for any liabilities arising from market-timing activities, including those that could arise in the above securities litigations, and MMC has agreed to guarantee Putnam’s obligations in that regard.
the five funds at issue, and seeks relief for a period after the filing of the original complaint. In February 2007, the Court denied defendants’ motion to stay the new complaint and granted plaintiffs’ motion to consolidate the two cases. The parties are engaged in fact discovery.
Includes inter-segment revenue ($108 million in 2006, $154 million in 2005 and $173 million in 2004).