NEW YORK, NEW YORK, November 1, 2006 — Marsh & McLennan Companies, Inc. (MMC) today reported financial results for the third quarter and nine months ended September 30, 2006. Consolidated revenues for the 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, and related only to the third quarter, since MMC adopted SFAS No. 123(R), "Share-Based Payment," on July 1, 2005.
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," Mr. Cherkasky concluded.
Risk and Insurance Services
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
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.
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 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 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: 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 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.
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.