Marsh Revenue, Profit Up in 3d Quarter; Expenses Down

Marsh & McLennan Companies, Inc. reported consolidated revenues for the third quarter were $2.9 billion, an increase of 4 percent from the 2005 third quarter. Consolidated net income more than doubled to $176 million from $69 million last year, and earnings per share grew to $.31 from $.12. Earnings per share from continuing operations increased to $.32 in the third quarter from $.11 last year.

For the first nine months of 2006, consolidated revenues were $8.9 billion, compared with $8.8 billion for the same period of 2005. Consolidated net income was $764 million, or $1.36 per share, compared with $369 million, or $.68 per share, in 2005. Results from discontinued operations, net of tax, were $173 million, or $.31 per share, resulting primarily from MMC’s sale of its investment in Sedgwick Claims Management in January 2006. Results from discontinued operations in 2005 were $17 million, or $.03 per share. Income from continuing operations was $591 million, or $1.05 per share, compared with $352 million, or $.65 per share, in 2005. Stock option expense in the first nine months of 2006 was $93 million. Stock option expense in the first nine months of 2005 was $31 million.

A number of noteworthy items affected financial results, including restructuring and related costs; legal and regulatory costs primarily related to market service agreements; and other items indicated in the attached supplemental schedules.

In the third quarter and first nine months of 2006, noteworthy items totaled $57 million, or $.06 per share, and $166 million, or $.19 per share, respectively. In the third quarter and first nine months of 2005, noteworthy items reduced earnings per share from continuing operations by $.19 and $.58, respectively.

“MMC had a good third quarter,” said Michael G. Cherkasky, president and chief executive officer of MMC. “Consolidated revenue growth was the highest we have achieved in two years. Our efforts to become more efficient across MMC produced substantially improved year-over-year profitability and margin, a continuation of the positive trends begun earlier this year.

“Marsh continued its recovery. Improvement in new business was even stronger this quarter, following growth in the second quarter. Client retention rates in the quarter increased over the prior year. European operating performance improved, with increased new business and higher client retention levels and profitability. These revenue trends allowed Marsh to report flat quarterly underlying revenues for the first time in two years, as well as substantially improved profitability. Guy Carpenter, despite a challenging market environment, exhibited revenue growth as a result of continued new business development. Kroll continued the successful implementation of its business strategy, resulting in growth in key businesses. Mercer Human Resource Consulting reported underlying revenue growth in all of its businesses, and Mercer Specialty Consulting continued its double-digit revenue growth. Putnam performed as expected, with positive institutional flows contributing to improved net flows. We are optimistic about our future prospects,” Cherkasky concluded.

Risk and Insurance Services
Risk and insurance services revenues of $1.3 billion in the third quarter were similar to last year’s third quarter, and flat on an underlying basis. Operating income increased markedly in the quarter to $143 million, compared with $20 million last year, reflecting restructuring efforts, improved efficiencies, and cost discipline. The operating margin for the first nine months of 2006 improved to 13.5 percent from 5.7 percent last year. Adjusting for the impact of noteworthy items and stock option expense, segment operating margin was 17.3 percent in the first nine months of 2006, compared with 14.2 percent in the same period of 2005. Please see the attached supplemental schedules for a reconciliation of these non-GAAP financial measures to reported GAAP results.

Marsh revenues were $1 billion in the third quarter, a decline of 2 percent, and flat on an underlying basis. Growth in new business continued, increasing 11 percent globally. Guy Carpenter also experienced double-digit growth in new business, resulting in revenues increasing 3 percent in the third quarter to $214 million. Although U.S. property catastrophe rates increased, rates on most other lines of business were flat to down, and the market environment for property catastrophe reinsurance continued to be affected by limited reinsurer capacity and higher risk retention by clients.

Risk Capital Holdings revenues of $45 million in the third quarter were unchanged from the 2005 third quarter. More than half of the quarter’s revenues were unrealized mark-to-market gains. Revenues of $119 million through the first nine months of 2006 declined from $162 million for the same period of 2005.

Risk Consulting and Technology
Kroll revenues increased 4 percent to $251 million, and operating income rose to $37 million in the third quarter. The technology services group, Kroll’s largest business unit, sustained its solid performance, led by the background screening business, which reported double-digit growth. The unit’s electronic discovery business responded successfully to market conditions and continued its improvement from the first quarter of this year. Consulting services reported double-digit underlying revenue growth. Corporate advisory and restructuring performed well, but its results were affected by the anticipated absence of success fees from major restructuring assignments such as those recorded in the second quarter of the year. Results for the security group reflected the orderly exit from high-risk international assignments that had limited profitability and no longer fit Kroll’s business strategy.

Consulting
Consulting revenues increased 13 percent to $1.1 billion in the third quarter, or 10 percent on an underlying basis. Year-to-date revenues increased 10 percent to $3.1 billion, or 9 percent on an underlying basis. Mercer Human Resource Consulting increased revenues 10 percent to $762 million in the third quarter, or 7 percent on an underlying basis. Year-to-date revenues increased 7 percent to $2.3 billion. All of the Mercer HR businesses exhibited underlying revenue growth, driven by Europe and Asia. The health and benefits business increased underlying revenues by 5 percent, a notable improvement over previous quarters.

Mercer Specialty Consulting revenues grew 22 percent to $304 million in the third quarter, or 16 percent on an underlying basis. This exceptional performance was led by Mercer Oliver Wyman and the strategy and operations business, which increased underlying revenues 21 percent and 19 percent, respectively. Year-to-date revenues increased 18 percent to $863 million, or 17 percent on an underlying basis.

Investment Management
Putnam revenues declined 8 percent to $342 million in the quarter. Ending assets on September 30, 2006 were $182 billion, comprising $118 billion in mutual fund assets and $64 billion in institutional assets. Average assets under management were $179 billion, compared with $195 billion in the third quarter of 2005. Institutional flows were positive for the first time since the third quarter of 2003. Net outflows were approximately $3 billion in the quarter.

Other Items
MMC’s net debt position, which is total debt less cash and cash equivalents, was $3.4 billion at the end of the 2006 third quarter, a decrease of over $450 million from the end of the second quarter.

MMC is a global professional services firm with annual revenues of approximately $12 billion. It is the parent company of Marsh, the risk and insurance services firm; Guy Carpenter, a risk and reinsurance specialist; Kroll, a risk consulting company; Mercer, a provider of human resource and specialty consulting services; and Putnam Investments, an investment management company.

Source: Marsh & McLennan
www.mmc.com.