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 June 30, 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 July 29, 1994, there were outstanding 73,422,637
shares of common stock, par value $1.00 per share, of the
registrant.
PART I, FINANCIAL INFORMATION
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share figures)
(Unaudited)
Three Months Six Months Ended
Ended June 30, June 30,
1994 1993 1994* 1993
Revenue $840.5 $783.3 $1,750.7 $1,617.2
Expense 676.7 630.8 1,358.5 1,277.5
Operating Income 163.8 152.5 392.2 339.7
Interest Income 3.0 3.1 5.9 6.2
Interest Expense (12.3) (11.8) (23.9) (23.1)
Income Before Income Taxes
and Cumulative Effect of
Accounting Change 154.5 143.8 374.2 322.8
Income Taxes 58.8 57.5 147.8 129.1
Income Before Cumulative
Effect of Accounting
Change 95.7 86.3 226.4 193.7
Cumulative Effect of
Accounting Change, Net of
Income Tax Benefit - - (10.5) -
Net Income $ 95.7 $ 86.3 $ 215.9 $ 193.7
Per Share Data:
Income Before Cumulative
Effect of Accounting
Change $1.30 $1.18 $3.07 $2.64
Cumulative Effect of
Accounting Change - - (.14) -
Net Income $1.30 $1.18 $2.93 $2.64
Average Number of
Shares Outstanding 73.7 73.3 73.8 73.3
Dividends Declared $.725 $.675 $1.40 $1.35
* Reflects the adoption, effective January 1, 1994, of SFAS No.
112, "Employers' Accounting for Postemployment Benefits."
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
June 30, December 31,
1994 1993
ASSETS
Current assets:
Cash and cash equivalents
(including interest-bearing amounts
of $343.6 at June 30, 1994 and
$315.7 at December 31, 1993) $ 351.3 $ 332.0
Receivables-
Commissions and fees 698.2 617.0
Advanced premiums and claims 73.3 80.7
Consumer finance and other 196.0 198.2
967.5 895.9
Less-allowance for doubtful accounts (44.2) (42.9)
Net receivables 923.3 853.0
Other current assets 166.6 127.4
Total current assets 1,441.2 1,312.4
Consumer finance receivables, net 140.6 130.8
Long-term securities 289.7 363.6
Fixed assets, net 695.2 688.1
Intangible assets 675.1 660.1
Other assets 470.9 391.6
$3,712.7 $3,546.6
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
June 30, December 31,
1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 378.0 $ 273.8
Accrued compensation and employee benefits 163.6 173.5
Accounts payable and accrued liabilities 398.5 375.6
Accrued income taxes 233.7 237.1
Dividends payable 53.2 49.9
Total current liabilities 1,227.0 1,109.9
Fiduciary liabilities 1,944.2 1,623.6
Less - cash and investments
held in a fiduciary capacity (1,944.2) (1,623.6)
- -
Long-term debt 408.8 409.8
Other liabilities 651.5 661.6
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 June 30, 1994 and
December 31, 1993 76.8 76.8
Additional paid-in capital 173.5 173.5
Retained earnings 1,458.5 1,345.7
Unrealized securities holding gains,
net of income taxes 92.3 138.6
Cumulative translation adjustments (121.5) (157.5)
1,679.6 1,577.1
Less - treasury shares, at cost,
3,327,839 shares at June 30, 1994 and
2,862,926 shares at December 31, 1993 (254.2) (211.8)
Total stockholders' equity 1,425.4 1,365.3
$3,712.7 $3,546.6
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
Six Months Ended
June 30,
1994 1993
Operating cash flows:
Net income $215.9 $193.7
Depreciation and amortization 59.4 59.6
Deferred income taxes 26.1 40.1
Other liabilities (5.8) 11.3
Cumulative effect of accounting change 10.5 -
Prepaid dealer commissions (93.7) (112.5)
Other, net (13.6) (1.0)
Net changes in operating working capital
other than cash and cash equivalents -
Receivables (54.7) (51.4)
Other current assets (18.2) 7.3
Accrued compensation and employee benefits (9.9) (9.6)
Accounts payable and accrued liabilities 22.8 (51.0)
Accrued income taxes (4.9) 26.5
Effect of exchange rate changes 7.8 1.3
Net cash generated from operations 141.7 114.3
Financing cash flows:
Net change in debt 97.0 87.2
Purchase of treasury shares (63.7) (29.2)
Issuance of common stock 19.5 24.2
Dividends paid (99.7) (98.9)
Net cash used for financing activities (46.9) (16.7)
Investing cash flows:
Additions to fixed assets (53.3) (47.5)
Acquisitions (3.8) -
Other, net (23.7) (38.3)
Net cash used for investing activities (80.8) (85.8)
Effect of exchange rate changes on cash
and cash equivalents 5.3 (7.1)
Increase in cash & cash equivalents 19.3 4.7
Cash & cash equivalents at beginning of period 332.0 371.1
Cash & cash equivalents at end of period $351.3 $375.8
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 and six month periods ended
June 30, 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 $35.2 million and $41.9
million for the six months ended June 30, 1994 and 1993,
respectively.
Net uncollected premiums and claims and the related payables
amounting to $3.1 billion at June 30, 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 and six month periods ended June 30, 1994 and
1993.
(in millions of shares)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Primary .8 1.2 .8 1.1
Fully Diluted .8 1.2 .8 1.2
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.
Six Months Ended
June 30,
(In millions of dollars) 1994 1993
Net change in debt with maturities
of three months or less $333.1 ($ 71.7)
Borrowings with maturities
over three months 47.6 274.8
Repayments of debt with maturities
over three months (283.7) (115.9)
Net increase in debt $ 97.0 $ 87.2
Interest paid during the six months ended June 30, 1994 and
1993 was $22.3 million and $20.5 million, respectively.
Income taxes paid during the six months ended June 30, 1994
and 1993 were $128.9 million and $52.0 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
several defendants in 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. 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 Change
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
Second Quarter and Six Months Ended June 30, 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:
Second Quarter Six Months
(In millions of dollars) 1994 1993 1994 1993
Revenue:
Insurance Services $459.9 $444.7 $ 993.0 $ 949.0
Consulting 230.5 215.8 452.9 431.1
Investment Management 150.1 122.8 304.8 237.1
840.5 783.3 1,750.7 1,617.2
Expense:
Compensation and Benefits 424.5 404.5 857.1 819.8
Other Operating Expenses 252.2 226.3 501.4 457.7
676.7 630.8 1,358.5 1,277.5
Operating Income $163.8 $152.5 $ 392.2 $ 339.7
Operating Income Margin 19.5% 19.5% 22.4% 21.0%
Revenue, derived mainly from commissions and fees, increased 7%
from the second quarter of 1993, and grew by 8% for the six
months, primarily reflecting strong growth by the Company's
investment management segment. The six month results include
incremental income of approximately $25 million realized by Marsh
& McLennan Risk Capital on a portion of its holdings in insurance
entities that the Company was instrumental in originating.
Operating expenses increased 7% from the second quarter of 1993,
and 6% for the six months, largely due to additional costs in the
investment management segment commensurate with the higher volume
of business and system automation initiatives in the insurance
services operation.
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.
Insurance Services
Second Quarter Six Months
(In millions of dollars) 1994 1993 1994 1993
Revenue:
Insurance Broking $306.7 $291.6 $648.2 $618.4
Reinsurance Broking 59.7 61.6 164.2 152.3
Insurance Program
Management 75.2 71.2 145.4 136.4
Interest Income on
Fiduciary Funds 18.3 20.3 35.2 41.9
459.9 444.7 993.0 949.0
Expense 362.3 347.8 729.0 707.9
Operating Income $ 97.6 $ 96.9 $264.0 $241.1
Operating Income Margin 21.2% 21.8% 26.6% 25.4%
Insurance Broking Revenue
Insurance broking revenue, which is received from a predominantly
corporate clientele, increased 5% for both the second quarter and
for the six months as compared with the same periods last year.
The second quarter results reflect higher revenue from North
American and U. K. risk management operations, primarily
resulting from new business. Premium rates for property coverage
in coastal regions remain firm, while the casualty market
continues to be competitive with renewal rates flat to slightly
down on a year-over-year basis.
Reinsurance Broking Revenue
Reinsurance broking revenue in the second quarter of 1994
decreased 3% from the second quarter of 1993 primarily due to
consolidation in the London and European markets resulting in a
reduced volume of business from these areas. Premium rates for
property catastrophe reinsurance have begun to react to the
growth of the worldwide market and have declined somewhat.
Revenue for the six months increased 8% from the comparable
period of 1993.
Insurance Program Management Revenue
In the second quarter of 1994, insurance program management
revenue increased 5% compared with the second quarter of 1993.
Within North America, second quarter revenue increased 10% from
last year reflecting revenue growth from increased services
provided to corporations and institutions and insurance placed on
behalf of small businesses, as well as growth in professional
liability programs. In the United Kingdom, revenue grew 1% over
1993 reflecting increased levels of competition. For the six
months, revenue grew by 7% over 1993.
Interest Income on Fiduciary Funds
Interest income on fiduciary funds decreased 10% in the second
quarter of 1994 and 16% for the six months. The impact of
significantly lower yields on funds held outside the United
States was partially offset by increased interest rates on funds
held in U.S. dollars. If the current level of short-term
interest rates in the United States is maintained, fiduciary
interest income could exceed 1993 amounts in the second half of
the year.
Expense
Expenses for insurance services rose 4% in the second quarter of
1994 reflecting the impact of discretionary spending on
technology and systems automation initiatives. Expenses for the
six months increased 3% as compared to the same period last year
primarily due to these initiatives and provisions for excess
office space on certain of the companies' operating leases
recorded in the first quarter.
Consulting
Second Quarter Six Months
(In millions of dollars) 1994 1993 1994 1993
Revenue $230.5 $215.8 $452.9 $431.1
Expense 204.1 192.5 405.6 388.2
Operating Income $ 26.4 $ 23.3 $ 47.3 $ 42.9
Operating Income Margin 11.4% 10.8% 10.4% 10.0%
Revenue
Revenue for consulting services increased 7% in 1994 compared
with the second quarter of 1993. For the six months revenue grew
by 5%. Retirement consulting and services revenue, which
represented approximately 47% of the consulting segment,
increased 3% in a very price-competitive environment. Health
care consulting, primarily U.S. based, grew 5%. Strong demand in
the global practices of general management and compensation
consulting resulted in increases of 14% and 13%, respectively.
Expense
Expenses for the consulting segment increased 6% in the second
quarter of 1994, while expenses for the six months increased 4%.
This growth reflects higher staff levels consistent with
increased demand in general management consulting as well as
systems-related expenses to expand and increase efficiency in
service delivery.
Investment Management
Second Quarter Six Months
(In millions of dollars) 1994 1993 1994 1993
Revenue $150.1 $122.8 $304.8 $237.1
Expense 100.7 80.9 202.4 157.4
Operating Income $ 49.4 $ 41.9 $102.4 $ 79.7
Operating Income Margin 32.9% 34.1% 33.6% 33.6%
Assets managed by Putnam, which consist of approximately two-
thirds fixed income and one-third equity securities, are
presented below:
Second Quarter
(In billions of dollars) 1994 1993
Quarter-end Assets:
Mutual Funds $65.4 $55.1
Institutional Accounts 26.7 22.1
$92.1 $77.2
Average Assets $91.3 $73.3
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
Revenue for Putnam increased 22% compared with the second quarter
1993 and 29% for the six months, 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 decline in securities market valuations that began in the first
quarter and continued through the second quarter. Putnam's year-
over-year revenue growth could moderate in the second half of
1994 due to the record growth in asset levels experienced in the
last half of 1993.
Expense
Expenses for Putnam increased 25% in the second quarter of 1994
and 29% for the six months. Compensation and benefits expense
increased due to growth in staff necessary to meet the demands of
new business, higher incentive compensation levels commensurate
with strong operating performance and normal salary progressions.
Other operating expenses rose in the first half of 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 of $3.0 million in the
second quarter of 1994 was essentially the same as the comparable
period of 1993 and decreased slightly for the six months.
Interest expense increased 4% in the second quarter of 1994 from
1993, due to an increase in commercial paper borrowings and
higher interest rates. For the six months interest expense
increased to $23.9 million from $23.1 million in 1993.
Income Taxes
The Company's consolidated domestic and foreign tax rates were
38.1% and 39.5% of income before income taxes for the second
quarter and six months of 1994 compared with 40% for the
comparable periods last year. The reduction in the consolidated
tax rate reflects savings attributable to tax planning strategies
implemented throughout the world. 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 $351.3 million
on June 30, 1994, as compared with $332.0 million on December 31,
1993. In the six months ended June 30, 1994, the Company
generated $141.7 million of cash from operations compared with
$114.3 million in 1993. These amounts reflect the net income
earned by the Company adjusted for noncash charges and working
capital changes.
Cash flow from operations includes the net cash requirements of
Putnam's prepaid dealer commissions, which amounted to $93.7
million in the first half of 1994 compared with $112.5 million
during the same period 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 the second half of 1994.
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, which totaled $10.5 million or $.14 per share,
was recorded in the first quarter of 1994.
The Company's capital expenditures, which amounted to $53.3
million in the first six months of 1994 and $47.5 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.
PART II, OTHER INFORMATION
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
INFORMATION REQUIRED FOR FORM 10-Q QUARTERLY REPORT
JUNE 30, 1994
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Registrant
was held on May 17, 1994. An Annual Meeting Report was
published in connection with this meeting and the
information contained on pages 6 through 8 of such
report is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
22. Annual Meeting Report.
(b) Reports on Form 8-K.
None.
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
12th day of August, 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
Front Cover:
1994
ANNUAL MEETING REPORT
MAY 17
MARSH & McLENNAN COMPANIES
Inside Front Cover:
MARSH & McLENNAN COMPANIES, INC. IS A PROFESSIONAL SERVICES FIRM
WITH INSURANCE AND REINSURANCE BROKING, CONSULTING AND INVESTMENT
MANAGEMENT BUSINESSES. MORE THAN 25,000 EMPLOYEES WORLDWIDE
PROVIDE ANALYSIS, ADVICE AND TRANSACTIONAL CAPABILITIES TO
CLIENTS IN OVER 80 COUNTRIES.
The annual meeting of Marsh & McLennan Companies, Inc. was held
at 1221 Avenue of the Americas in New York City at 10:00 a.m. on
Tuesday, May 17, 1994. The Chairman's remarks begin on page 1
and are followed by a summary of the Official Business.
REMARKS TO SHAREHOLDERS
A.J.C. Smith
I would like to begin by reporting on Marsh & McLennan Companies'
1993 financial results, which reached $4.52 per share, a 7
percent improvement. Revenue increased by 8 percent to $3.2
billion. There was again some disparity in the performance by
business sector within the company.
At Putnam Investments, where performance was exceptional, assets
under management had grown to more than $90 billion by the end
of 1993.
Guy Carpenter's reinsurance broking revenue increased as a result
of new business efforts and some expansion of the property
catastrophe reinsurance market.
At Marsh & McLennan, Incorporated, insurance broking revenue grew
modestly in a world where insurance markets were still very
competitive.
We had excellent results in the insurance program management
business of Seabury & Smith and Frizzell. Frizzell, in the
United Kingdom, had a particularly successful year.
Mercer Consulting Group's results were mixed. Aggregate revenue,
adjusted for acquisitions and dispositions, and the effect of
foreign exchange, was essentially unchanged. While human
resource consulting revenue in North America declined, management
consulting revenue increased.
Our first quarter results continued this improved earnings trend.
Revenue increased by 9 percent to $910 million, and net income
was $120 million, a 12 percent increase over the same period in
1993. Earnings per share also increased by 12 percent to $1.63.
I am pleased to announce that I will recommend to our Board of
Directors that they vote this morning to increase our quarterly
dividend by $.05 to $.725. This increase will continue our
record of raising the total annual dividends paid to shareholders
in every year since the company went public in 1962. My
recommendation reflects our improved earnings in 1993 and in the
first quarter of 1994 and my confidence in our future.
PROFESSIONAL EXCELLENCE
Last year I talked about Marsh & McLennan Companies' efforts to
be in the forefront of change in all of our businesses while
maintaining our commitment to professional excellence. We have
always believed that excellence is the only guarantee of long-
term success at a professional service firm. But I am sure that
the need to achieve a standard of excellence, to completely
reject mediocrity, is greater today than it has ever been.
All of our businesses strive to pursue professional excellence in
time-honored ways. We concentrate on
- - - recruiting from all sources to build our capacity;
- - - having effective training and development programs;
- - - maintaining stimulating work environments;
- - - supporting talented professionals with technological
innovation;
- - - evaluating performance rigorously and
- - - rewarding achievement.
But excellence must also be pursued continuously and
incrementally
- - - by reorganization to facilitate delivery of service to
clients and improve the quality of our work,
- - - by redeployment of our professional staff to ensure that
clients have access to the specialists who can best meet
their needs, and
- - - by the careful mobilization of technology to improve the
quality of information and speed its delivery to our
clients.
This morning I would like to review for you some of the recent
steps we have been taking to produce better results for our
clients--to reduce cost,
to increase value, to facilitate access to markets and to improve
information.
REORGANIZATION
Marsh & McLennan has thrived on reorganization. We have a
history of developing businesses, nurturing their growth and then
converting them into separate operating companies under the Marsh
& McLennan Companies umbrella. They function more effectively as
autonomous operations with distinct identities. And they are
better able to pursue their professional specialties. From
insurance broking, our core business, we have created the
consulting business that is now Mercer and the insurance program
management business that is now Seabury & Smith and Frizzell.
More recently, we formed Marsh & McLennan Risk Capital Corp. to
concentrate on our insurance and reinsurance market making
activities. As a separate subsidiary, we believe that Marsh &
McLennan Risk Capital can most effectively develop its
capabilities while continuing to be an important part of Marsh &
McLennan Companies' business and client service strategy. We
have always tried to use our professional skills to contribute to
the development of insurance and reinsurance markets. In recent
years we believe our efforts have had a significant effect on
changes taking place in the industry. Bob Clements has been the
inspiration behind these activities. And I am pleased that he
has assumed the responsibility of chairman and chief executive
officer of Marsh & McLennan Risk Capital.
Earlier this month the Trident Partnership, organized by Marsh &
McLennan Risk Capital and J. P. Morgan, accepted its first
subscriptions of capital totaling $645 million. Trident will
invest globally in insurance and reinsurance businesses, in
property casualty start-up ventures and other opportunities that
will arise from restructurings already under way in the insurance
industry.
REDEPLOYMENT
Significant redeployment of professional staff in the Mercer
Consulting Group and at Marsh & McLennan, Incorporated has taken
place during the last 12 months. This reflects our effort to
concentrate on delivering services on the basis of industry
specialization. Increasingly we find that thorough knowledge of
a client's industry is as important as a grasp of insurance
broking and management consulting techniques.
A recent example of this redeployment is the way our consulting
group has combined to serve the health care industry. More than
a year ago, we realized that health care reform--however it plays
out--will call for dramatic changes in the delivery and cost of
health care services. We have drawn together our diverse health
care industry skills:
- - - the strategic and operating expertise of our general
management consultants,
- - - the health care benefit expertise of human resource
consultants, and
- - - the economic research skills of National Economic Research
Associates.
We are now deploying those skills to advise a rapidly growing
client base of health care providers--hospitals, physician
groups, managed care networks, health insurers and other industry
participants.
In a related development, Marsh & McLennan, Incorporated has
created an injury management group to reduce the incidence of
workplace injuries and manage their treatment effectively. The
approach draws on the talents of Marsh & McLennan's specialists
in workplace safety and workers' compensation claims procedures
and of Mercer's consultants in cost containment in health care
delivery. The effort has helped clients reduce their workers'
compensation costs by up to 50 percent.
TECHNOLOGY
Technology is important for all of our companies. Major
investment in systems at Putnam starting in the late 1980s
enabled us in 1993 to manage the enormous increase in
transactions we have experienced. Putnam Investor Services
handled a 54 percent increase in transactions and telephone calls
with only an 8 percent increase in cost. And Putnam was able to
win its fourth successive Dalbar Award for best service in the
industry.
A more current example of our mobilizing technology is at
Frizzell, in our insurance program management business.
Frizzell's success has been based on its ability to select risks
on behalf of insurers, as well as the high quality of our
service. But recently this competitive advantage has been offset
by premium reductions from new competitors, made possible by
reduced administration costs.
Frizzell responded to this by initiating a three-year
multimillion-dollar reengineering project for all of its client
service processes. The project, which is almost complete, relies
on proprietary technology that will streamline our entire client
service apparatus and eliminate all duplication of functions. We
believe that the expected 25 percent gains in productivity will
more than restore our competitive advantage and enable customer
service representatives to respond fully to 95 percent of our
three million annual telephone inquiries, on the first call.
I am confident in the prospects for all our businesses. They are
leaders in their fields because of their commitment to
professional excellence. Continuous, careful scrutiny of our
business strategy, organization and application of professional
resources is producing better results for our clients. And at
Marsh & McLennan Companies, shareholder value depends on the
quality of our service to clients.
OFFICIAL BUSINESS
Represented at the annual meeting of Marsh & McLennan Companies,
Inc. on May 17, 1994, were 62,569,918 shares or 84.9 percent of
the Company's 73,670,277 shares of common stock outstanding and
entitled to vote.
Shareholders took the following actions:
Election of the Board of Directors*
Each of the seven nominees for election received at least
61,365,541 or 98.1 percent of the shares represented at the
meeting.
Class III Directors Elected (terms expiring in 1997)
Peter Coster
President
Mercer Consulting Group, Inc.
Lawrence J. Lasser
President
Putnam Investments, Inc.
Richard M. Morrow
Former Chairman
Amoco Corporation
John T. Sinnott
President and
Co-Chief Executive Officer
Marsh & McLennan, Incorporated
Frank J. Tasco
Former Chairman
Marsh & McLennan Companies, Inc.
R.J. Ventres
Former Chairman
Borden, Inc.
Class I Director Elected (term expiring in 1995)
Ray J. Groves
Chairman and Chief Executive Officer
Ernst & Young
They will serve with the following:
Continuing Class I Directors (terms expiring in 1995)
Lewis W. Bernard
Chairman, Classroom, Inc.
Former Chief Administrative and Financial Officer
Morgan Stanley & Co.
Richard H. Blum
Chairman
Guy Carpenter & Company, Inc.
Frank J. Borelli
Senior Vice President
Chief Financial Officer
Marsh & McLennan Companies, Inc.
<PAGE>
Richard E. Heckert
Former Chairman
E.I. du Pont de Nemours and Company
Robert M.G. Husson
Chairman
Faugere & Jutheau S.A.
George Putnam
Chairman
The Putnam Funds
Continuing Class II Directors (terms expiring in 1996)
Robert Clements
Chairman
Marsh & McLennan Risk Capital Corp.
Richard S. Hickok
Chairman Emeritus
KMG Main Hurdman
David D. Holbrook
President and
Co-Chief Executive Officer
Marsh & McLennan, Incorporated
Adele Smith Simmons
President
John D. and Catherine T.
MacArthur Foundation
A.J.C. Smith
Chairman
Marsh & McLennan Companies, Inc.
Philip L. Wroughton
Chairman
Marsh & McLennan, Incorporated
* The Board of Directors is divided into three classes with
staggered three-year terms.
<PAGE>
Board Changes
Dean R. McKay, former senior vice president of IBM Corporation,
retired from the board; he will serve as an advisory director.
Approval of Senior Management Incentive Compensation Plan
Shareholders approved the Senior Management Incentive
Compensation Plan with a vote of 57,455,243 or 91.8 percent of
the shares represented (4,520,121 opposing and 594,522
abstaining).
Approval of 1994 Employee Stock Purchase Plan
The 1994 Employee Stock Purchase Plan was approved by a vote of
56,811,763 or 96.2 percent of the shares represented (1,967,380
opposing, 287,237 abstaining and 3,503,538 broker non-votes).
Appointment of Independent Public Accountants
Deloitte & Touche was ratified as the Company's independent
public accountants for the year ending December 31, 1994, by a
vote of 62,061,340 or 99.2 percent of the shares represented
(337,887 opposing and 170,689 abstaining).
Back Cover:
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, NY 10036
(212) 345-5000
