SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarter ended March 31, 1994
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, New York 10036
(212) 345-5000
Commission file number 1-5998
State of Incorporation: Delaware
I.R.S. Employer Identification No. 36-2668272
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__. NO _____.
As of April 29, 1994, there were outstanding 73,718,006
shares of common stock, par value $1.00 per share, of the
registrant.
<TABLE>
PART I, FINANCIAL INFORMATION
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share figures)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994* 1993
<S> <C> <C>
Revenue $910.2 $833.9
Expense 681.8 646.7
Operating Income 228.4 187.2
Interest Income 2.9 3.1
Interest Expense (11.6) (11.3)
Income Before Income Taxes and
Cumulative Effect of Accounting Change 219.7 179.0
Income Taxes 89.0 71.6
Income Before Cumulative Effect
of Accounting Change 130.7 107.4
Cumulative Effect of Accounting Change,
Net of Income Tax Benefit (10.5) -
Net Income $120.2 $107.4
Per Share Data:
Income Before Cumulative Effect
of Accounting Change $1.77 $1.46
Cumulative Effect of Accounting Change (.14) -
Net Income $1.63 $1.46
Average Number of Shares Outstanding 73.9 73.3
Dividends Declared $.675 $.675
<FN>
* Reflects the adoption, effective January 1, 1994, of SFAS
No. 112, "Employers' Accounting for Postemployment Benefits."
</TABLE>
<TABLE>
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents
(including interest-bearing amounts
of $305.2 at March 31, 1994 and
$315.7 at December 31, 1993) $ 367.7 $ 332.0
Receivables-
Commissions and fees 664.9 617.0
Advanced premiums and claims 84.4 80.7
Consumer finance and other 258.8 198.2
1,008.1 895.9
Less-allowance for doubtful accounts (42.9) (42.9)
Net receivables 965.2 853.0
Other current assets 153.6 127.4
Total current assets 1,486.5 1,312.4
Consumer finance receivables, net 133.4 130.8
Long-term securities 295.0 363.6
Fixed assets, net 685.4 688.1
Intangible assets 655.5 660.1
Other assets 446.3 391.6
$3,702.1 $3,546.6
</TABLE>
<TABLE>
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 359.7 $ 273.8
Accrued compensation and employee benefits 109.2 173.5
Accounts payable and accrued liabilities 496.6 375.6
Accrued income taxes 229.2 237.1
Dividends payable 49.8 49.9
Total current liabilities 1,244.5 1,109.9
Fiduciary liabilities 1,748.8 1,623.6
Less - cash and cash equivalents held in
a fiduciary capacity (1,748.8) (1,623.6)
- -
Long-term debt 408.8 409.8
Other liabilities 673.2 661.6
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1 par value, authorized
6,000,000 shares, none issued - -
Common stock, $1 par value, authorized
200,000,000 shares, issued 76,794,531
shares at March 31, 1994 and
December 31, 1993 76.8 76.8
Additional paid-in capital 172.5 173.5
Retained earnings 1,416.1 1,345.7
Unrealized securities holding gains,
net of income taxes 99.9 138.6
Cumulative translation adjustments (159.6) (157.5)
1,605.7 1,577.1
Less - treasury shares, at cost,
3,066,946 shares at March 31, 1994 and
2,862,926 shares at December 31, 1993 (230.1) (211.8)
Total stockholders' equity 1,375.6 1,365.3
$3,702.1 $3,546.6
</TABLE>
<TABLE>
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Operating cash flows:
Net income $120.2 $107.4
Depreciation and amortization 28.9 29.9
Deferred income taxes 19.3 14.7
Other liabilities 4.6 2.2
Cumulative effect of accounting change 10.5 -
Prepaid dealer commissions (63.8) (48.5)
Other, net (5.2) (4.8)
Net changes in operating working capital
other than cash and cash equivalents -
Receivables (108.7) (25.8)
Other current assets (13.2) 3.6
Accrued compensation and employee benefits (64.3) (51.7)
Accounts payable and accrued liabilities 121.1 (37.1)
Accrued income taxes (4.5) 28.0
Effect of exchange rate changes (1.5) (.8)
Net cash generated from operations 43.4 17.1
Financing cash flows:
Net change in debt 83.9 110.7
Purchase of treasury shares (32.2) (12.4)
Issuance of common stock 12.7 16.1
Dividends paid (49.9) (49.5)
Net cash provided by financing activities 14.5 64.9
Investing cash flows:
Additions to fixed assets (24.1) (21.2)
Acquisitions (1.2) -
Other, net 3.1 (33.9)
Net cash used for investing activities (22.2) (55.1)
Effect of exchange rate changes on cash
and cash equivalents - (3.1)
Increase in cash & cash equivalents 35.7 23.8
Cash & cash equivalents at beginning of period 332.0 371.1
Cash & cash equivalents at end of period $367.7 $394.9
</TABLE>
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. These consolidated
financial statements should be read in conjunction with the
financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K.
The financial information contained herein reflects all
adjustments which are, in the opinion of management,
necessary for a fair presentation of the results of
operations for the three month periods ended March 31, 1994
and 1993.
2. Fiduciary Cash and Liabilities
In its capacity as an insurance broker or agent, the Company
collects premiums from insureds and, after deducting its
commissions, remits the premiums to the respective insurance
underwriters; the Company also collects claims or refunds
from underwriters on behalf of insureds. Unremitted
insurance premiums and claims are held in a fiduciary
capacity. Interest income on these fiduciary funds,
included in revenue, amounted to $16.9 million and $21.6
million for the three months ended March 31, 1994 and 1993,
respectively.
Net uncollected premiums and claims and the related payables
amounting to $3.0 billion at March 31, 1994 and $2.7 billion
at December 31, 1993, are not included in the accompanying
Consolidated Balance Sheets.
3. Net Income Per Share
Net income per share is computed by dividing net income by
the average number of shares of common stock outstanding.
Common stock equivalents (relating principally to stock
options), which have been excluded from the calculation
because their dilutive effect is immaterial, are shown below
for the three month periods ended March 31, 1994 and 1993.
<TABLE>
<CAPTION>
(in millions of shares)
1994 1993
<S> <C> <C>
Primary .7 1.1
Fully Diluted .7 1.2
</TABLE>
4. Supplemental Disclosure to the Consolidated Statements
of Cash Flows
The following schedule provides details of changes in the
Company's short-term and long-term debt. Although a portion
of the Company's commercial paper borrowings is classified
as long-term debt in the Consolidated Balance Sheets,
borrowings and repayments of commercial paper are shown
below based on original maturities.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In millions of dollars) 1994 1993
<S> <C> <C>
Net change in debt with maturities
of three months or less $138.2 ($ 70.3)
Borrowings with maturities
over three months 46.6 222.7
Repayments of debt with maturities
over three months (100.9) (41.7)
Net increase in debt $ 83.9 $110.7
</TABLE>
Interest paid during the three months ended March 31, 1994
and 1993 was $12.0 million and $12.6 million, respectively.
Income taxes paid during the three months ended March 31,
1994 and 1993 were $74.0 million and $22.1 million,
respectively.
5. Income Taxes
Taxing authorities periodically challenge positions taken by
the Company on its tax returns. On the basis of present
information and advice received from counsel, it is the
opinion of the Company's management that any assessments
resulting from current tax audits will not have a material
adverse effect on the Company's consolidated results of
operations or its consolidated financial position.
6. Claims, Lawsuits and Other Contingencies
The Company and its subsidiaries are subject to claims and
lawsuits that arise in the ordinary course of business,
consisting principally of alleged errors and omissions in
connection with the placement of insurance or reinsurance
and in rendering consulting and investment services. Some
of these claims and lawsuits seek damages, including
punitive damages, in amounts which could, if assessed, be
significant.
Among these is a group of claims relating to reinsurance
contracts placed by reinsurance broking subsidiaries of the
Company that were called into question by certain
reinsurers. In general, these contracts concern so-called
run-off exposures under which some or all remaining
liability for claims against Lloyd's syndicates or other
London insurers on policies written during a specified
period of time were assumed by the reinsurers. The initial
disputes concerning these contracts, primarily between
reinsurers and cedants, have largely been resolved by
negotiation, arbitration or litigation. More recently,
related disputes have arisen, including litigation, between
the members of syndicates, their underwriting and members'
names agencies and, to a lesser extent, subsidiaries of the
Company. The Company believes that its subsidiaries
performed their reinsurance broking services in conformity
with accepted and customary practices in the London market.
A subsidiary of the Company, Balis & Co., Inc., is one of
many defendants in several lawsuits pending in the United
States District Court for the Eastern District of
Pennsylvania which emanated from a fire that occurred at One
Meridian Plaza Center in Philadelphia, Pennsylvania, on
February 23 and 24, 1991. It is alleged that the fire
started on a floor occupied by Balis, that Balis violated an
alleged duty to segregate, store and safekeep flammable and
combustible liquids, and that Balis negligently failed to
properly supervise a contractor who it is alleged used and
improperly stored such materials. Defendants in various
actions, including Balis, have asserted or will assert
cross-claims against each other, and Balis is responding to
the claims asserted against it.
On the basis of present information, available insurance
coverage and advice received from counsel, it is the opinion
of the Company's management that the disposition or ultimate
determination of these claims and lawsuits will not have a
material adverse effect on the Company's consolidated
results of operations or its consolidated financial
position.
7. Cumulative Effect of Accounting Changes
Effective January 1, 1994, the Company adopted SFAS No. 112
"Employers' Accounting for Postemployment Benefits," which
requires the Company to accrue for the cost of certain
benefits provided to former or inactive employees after
employment but before retirement. The cumulative effect of
adopting this standard resulted in a noncash charge, net of
income taxes, of $10.5 million or $.14 per share.
8. Reclassification
Certain reclassifications have been made to the prior year
financial statements to conform with the current year
presentation.
Marsh & McLennan Companies, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
First Quarter Ended March 31, 1994
General
Marsh & McLennan Companies, Inc. and Subsidiaries (the "Company")
is a professional services firm with insurance services, consulting
and investment management businesses. More than 25,000 employees
provide analysis, advice and transactional capabilities to clients
worldwide.
This management's discussion and analysis of financial condition
and results of operations should be read in conjunction with the
Company's latest annual report on Form 10-K.
The consolidated results of operations follow:
<TABLE>
<CAPTION>
(In millions, except
per share figures) 1994 1993
<S> <C> <C>
Revenue:
Insurance Services $533.1 $504.3
Consulting 222.4 215.3
Investment Management 154.7 114.3
910.2 833.9
Expense:
Compensation and Benefits 432.6 415.3
Other Operating Expenses 249.2 231.4
681.8 646.7
Operating Income $228.4 $187.2
Operating Income Margin 25.1% 22.4%
</TABLE>
Revenue, which is derived mainly from commissions and fees,
increased 9% from the first quarter of 1993 primarily reflecting
strong growth by the Company's investment management segment and
the activities of Marsh & McLennan Risk Capital.
Operating expenses increased 5% from the first quarter of 1993
largely due to additional costs in the investment management
segment commensurate with the higher volume of business.
The translated values of revenue and expense from the Company's
international insurance services and consulting operations are
subject to fluctuations due to changes in currency exchange rates.
However, the net impact of currency exchange rate fluctuations on
the Company's results of operations has not been material.
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Postemployment Benefits." A noncash charge
reflecting the cumulative effect of this accounting change, net of
income taxes, totaled $10.5 million or $.14 per share.
Insurance Services
The results of operations for the Company's insurance services
segment are presented below:
<TABLE>
<CAPTION>
(In millions of dollars) 1994 1993
<S> <C> <C>
Revenue:
Insurance Broking $341.5 $326.8
Reinsurance Broking 104.5 90.7
Insurance Program Management 70.2 65.2
Interest Income on Fiduciary Funds 16.9 21.6
533.1 504.3
Expense 366.7 360.1
Operating Income $166.4 $144.2
Operating Income Margin 31.2% 28.6%
</TABLE>
Insurance Broking Revenue
Insurance broking revenue, which is received from a predominantly
corporate clientele, increased 4% from the first quarter of 1993.
These results include incremental income of approximately $13
million realized on a portion of Marsh & McLennan Risk Capital's
holdings in an insurer that the Company was instrumental in
originating. Excluding the impact of this transaction, first
quarter 1994 insurance broking revenue was essentially unchanged
from the same period of 1993. On a year-over-year basis, primary
and excess casualty premium rates were flat to slightly down in
North America, while property rates for complex risks and
catastrophe coverage were higher worldwide.
Reinsurance Broking Revenue
Reinsurance broking revenue in the first quarter of 1994 increased
15% from the first quarter of 1993. Marsh & McLennan Risk Capital
contributed approximately $12 million to the increase resulting
from the realization of a portion of its holdings in a reinsurer.
Excluding this transaction, revenue increased approximately 2% in
the first quarter of 1994 compared with 1993 reflecting, in part,
the impact of increased capacity for property catastrophe
reinsurance and new business.
Insurance Program Management Revenue
In the first quarter of 1994, insurance program management revenue
increased 8% compared with the first quarter of 1993. These
results reflect increased insurance placed on behalf of
associations and their members and small businesses and from
services provided to corporations and institutions.
Interest Income on Fiduciary Funds
Interest income on fiduciary funds decreased 21% in the first
quarter of 1994 primarily due to lower average short-term interest
rates on funds held outside the United States.
Expense
Expenses for insurance services rose 2% in the first quarter of
1994 reflecting the impact of cost containment measures. The
increase over the first quarter of 1993 primarily reflects
provisions for excess office space on certain of the Company's
operating leases.
Consulting
The results of operations for the Company's consulting segment are
presented below:
<TABLE>
<CAPTION>
(In millions of dollars) 1994 1993
<S> <C> <C>
Revenue $222.4 $215.3
Expense 201.5 195.7
Operating Income $ 20.9 $ 19.6
Operating Income Margin 9.4% 9.1%
</TABLE>
Revenue
Revenue for consulting services increased 3% in 1994 compared with
the first quarter of 1993. Excluding the net impact of the
disposition of Clayton Environmental Consultants during the second
quarter of 1993 and several acquisitions, consulting revenue
increased approximately 5% in the first quarter of 1994 compared
with the first quarter of 1993. Retirement consulting activity,
which represented approximately 48% of the consulting segment, had
modest worldwide growth of approximately 3%. Health care
consulting, primarily U.S. based, reflected increased demand as
revenue grew 4%, while strong revenue growth of 10% and 12% was
experienced in the global practices of general management and
compensation consulting, respectively.
Expense
Expenses for the consulting segment increased 3% in the first
quarter of 1994. Excluding the net impact of acquisitions and
dispositions, 1994 expenses increased approximately 5%. Reflecting
higher demand for its services, staff levels increased in general
management consulting.
Investment Management
The results of operations for the Company's investment management
segment are presented below:
<TABLE>
<CAPTION>
(In millions of dollars) 1994 1993
<S> <C> <C>
Revenue $154.7 $114.3
Expense 101.7 76.5
Operating Income $ 53.0 $ 37.8
Operating Income Margin 34.2% 33.1%
</TABLE>
Assets managed by Putnam, which consist of approximately two-thirds
fixed income and one-third equity securities, are presented below:
<TABLE>
<CAPTION>
(In billions of dollars) 1994 1993
<S> <C> <C>
Quarter-end Assets
Mutual Funds $64.5 $50.2
Institutional Accounts 26.7 20.2
$91.2 $70.4
Average Assets $92.9 $67.7
</TABLE>
Assets under management are affected by fluctuations in bond and
stock market prices, by investments and withdrawals for current and
new fund shareholders and clients, by the development of new
investment products and by investment performance and service to
clients.
Revenue
First quarter revenue for Putnam increased 35% in 1994 compared
with the first quarter 1993 reflecting continued strong growth in
the level of assets under management on which management fees are
earned. The higher asset level primarily reflects institutional
and mutual fund sales offset, in part, by a recent decline in
securities market valuations.
Expense
Expenses for Putnam increased 33% in the first quarter of 1994.
Compensation and benefits expense increased due to growth in staff
necessary to meet the demands of new business, incentive
compensation levels commensurate with strong operating performance
and normal salary progressions. Other operating expenses rose in
1994 due to the increased volume of business and higher client
service-related expenses, such as communications and information
system costs.
Interest Income and Expense
Interest income earned on corporate funds decreased to $2.9
million in the first quarter of 1994 from $3.1 million in 1993.
Interest expense increased to $11.6 million in the first quarter of
1994 from $11.3 million in 1993 primarily due to an increase in
commercial paper borrowings, partially offset by lower interest
rates on those borrowings.
Income Taxes
The Company's consolidated domestic and foreign tax rates for the
first quarter were 40.5% of income before income taxes in 1994 and
40% in 1993. The overall tax rates are higher than the U.S.
statutory rates primarily because of the impact of state and local
income taxes.
Liquidity and Capital Resources
The Company's cash and cash equivalents aggregated $367.7 million
at the end of the first quarter of 1994, as compared with $332.0
million at the end of 1993. In the first quarter of 1994, the
Company generated $43.4 million of cash from operations compared
with $17.1 million in 1993. These amounts reflect the net income
earned by the Company adjusted for noncash charges and working
capital changes. Receivables and accounts payable and accrued
liabilities increased in the first quarter of 1994 primarily due to
the higher volume of business in investment management.
Cash flow from operations includes the net cash requirements of
Putnam's prepaid dealer commissions, which amounted to $63.8
million in the first quarter of 1994 compared with $48.5 million in
the first quarter of 1993. The long-term portion of these prepaid
dealer commissions is included in other assets in the Consolidated
Balance Sheets. The cash requirement for prepaid dealer
commissions is expected to continue, although at a diminished
level, in 1994.
The Company's capital expenditures, which amounted to $24.1 million
in the first quarter of 1994 and $21.2 million in 1993, have
primarily related to computer equipment purchases and the
refurbishing and modernizing of office facilities.
The insurance coverage for potential liability resulting from
alleged errors and omissions in the professional services provided
by the Company includes elements of both risk retention and risk
transfer. The Company believes it has adequately reserved for the
self-insurance contingencies. Payments related to the respective
self-insured layers are made as claims are resolved and generally
extend over a considerable number of years. The long-term portion
of this liability is included in other liabilities in the
Consolidated Balance Sheets.
The Company's policy for funding its qualified U.S. defined benefit
retirement plan is to contribute amounts at least sufficient to
meet the funding requirements set forth in U.S. employee benefit
and tax laws. The plan is currently well funded; consequently, the
Company has not been able to make a tax deductible contribution
since 1986. Because this situation is expected to continue, a 1994
cash contribution is currently not anticipated. The related long-
term pension liability is included in other liabilities in the
Consolidated Balance Sheets.
The Company subsidizes certain health care and life insurance
benefits provided to its retired employees. The cost of these
postretirement benefits for employees in the United States is
accrued during the period up to the date employees are eligible to
retire but is funded by the Company as incurred. This
postretirement liability is included in other liabilities in the
Consolidated Balance Sheets.
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed this
13th day of May, 1994 on its behalf by the undersigned, thereunto
duly authorized and in the capacity indicated.
MARSH & McLENNAN COMPANIES, INC.
By:/s/FRANK J. BORELLI
Senior Vice President and
Chief Financial Officer
