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, 1995
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 28, 1995, there were outstanding 72,870,078
shares of common stock, par value $1.00 per share, of the
registrant.
<PAGE>
PART I, FINANCIAL INFORMATION
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share figures)
(Unaudited)
Three Months Ended
March 31,
1995 1994*
Revenue $955.2 $910.2
Expense 741.6 681.8
Operating Income 213.6 228.4
Interest Income 4.1 2.9
Interest Expense (14.7) (11.6)
Income Before Income Taxes and
Cumulative Effect of Accounting Change 203.0 219.7
Income Taxes 78.2 89.0
Income Before Cumulative Effect
of Accounting Change 124.8 130.7
Cumulative Effect of Accounting Change,
Net of Income Tax Benefit - (10.5)
Net Income $124.8 $120.2
Per Share Data:
Income Before Cumulative Effect
of Accounting Change $1.71 $1.77
Cumulative Effect of Accounting Change - (.14)
Net Income $1.71 $1.63
Average Number of Shares Outstanding 73.1 73.9
Dividends Declared $.725 $.675
* Reflects the adoption, effective January 1, 1994, of SFAS
No. 112, "Employers' Accounting for Postemployment Benefits."
<PAGE>
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
March 31, December 31,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents
(including interest-bearing amounts
of $275.8 at March 31, 1995 and
$265.6 at December 31, 1994) $ 285.1 $ 294.9
Receivables-
Commissions and fees 752.7 692.3
Advanced premiums and claims 81.5 78.0
Consumer finance and other 216.3 229.6
1,050.5 999.9
Less-allowance for doubtful accounts (47.5) (44.9)
Net receivables 1,003.0 955.0
Other current assets 210.9 196.1
Total current assets 1,499.0 1,446.0
Consumer finance receivables, net 157.1 150.4
Long-term securities 296.0 282.8
Fixed assets, net 749.9 740.3
(net of accumulated depreciation and
amortization of $605.8 at March 31, 1995
and $574.5 at December 31, 1994)
Intangible assets 744.1 701.0
Other assets 518.1 510.1
$3,964.2 $3,830.6
<PAGE>
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
March 31, December 31,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 473.1 $ 403.0
Accrued compensation and employee benefits 128.7 220.8
Accounts payable and accrued liabilities 485.7 496.7
Accrued income taxes 276.8 218.7
Dividends payable 52.9 53.1
Total current liabilities 1,417.2 1,392.3
Fiduciary liabilities 1,819.8 1,652.1
Less - cash and investments held in
a fiduciary capacity (1,819.8) (1,652.1)
- -
Long-term debt 409.3 409.4
Other liabilities 575.1 568.3
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, 1995 and
December 31, 1994 76.8 76.8
Additional paid-in capital 165.9 166.1
Retained earnings 1,579.7 1,507.7
Unrealized securities holding gains,
net of income taxes 102.2 91.6
Cumulative translation adjustments (64.8) (105.4)
1,859.8 1,736.8
Less - treasury shares, at cost,
3,842,502 shares at March 31, 1995 and
3,594,342 shares at December 31, 1994 (297.2) (276.2)
Total stockholders' equity 1,562.6 1,460.6
$3,964.2 $3,830.6
<PAGE>
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
Three Months Ended
March 31,
1995 1994
Operating cash flows:
Net income $124.8 $120.2
Depreciation and amortization 32.2 28.9
Deferred income taxes 7.9 19.3
Other liabilities (2.7) 4.6
Cumulative effect of accounting change - 10.5
Prepaid dealer commissions (9.2) (63.8)
Other, net (10.8) (.5)
Net changes in operating working capital
other than cash and cash equivalents -
Receivables (40.6) (108.7)
Other current assets (7.1) (13.2)
Accrued compensation and employee benefits (93.1) (64.3)
Accounts payable and accrued liabilities (15.2) 121.1
Accrued income taxes 50.0 (4.5)
Effect of exchange rate changes (8.2) (1.5)
Net cash generated from operations 28.0 48.1
Financing cash flows:
Net change in debt 73.4 83.9
Purchase of treasury shares (34.4) (32.2)
Issuance of common stock 12.8 12.7
Dividends paid (53.1) (49.9)
Other, net (4.6) (4.7)
Net cash provided by (used for)
financing activities (5.9) 9.8
Investing cash flows:
Additions to fixed assets (33.5) (24.1)
Acquisitions (6.6) (1.2)
Other, net 2.3 3.1
Net cash used for investing activities (37.8) (22.2)
Effect of exchange rate changes on cash
and cash equivalents 5.9 -
Increase (decrease) in cash & cash equivalents (9.8) 35.7
Cash & cash equivalents at beginning of period 294.9 332.0
Cash & cash equivalents at end of period $285.1 $367.7
<PAGE>
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, 1995
and 1994.
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 $24.8 million and $16.9
million for the three months ended March 31, 1995 and 1994,
respectively.
Net uncollected premiums and claims and the related payables
amounting to $3.1 billion at March 31, 1995 and $2.8 billion
at December 31, 1994, 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, 1995 and 1994.
(In millions of shares)
1995 1994
Primary .7 .7
Fully Diluted .7 .7
4. Supplemental Disclosure to the Consolidated Statements
of Cash Flows
The following schedule provides additional information
concerning acquisitions:
Three Months Ended
March 31,
(In millions of dollars) 1995 1994
Purchase acquisitions:
Assets acquired, excluding cash $21.0 $1.2
Liabilities assumed (7.9) -
Issuance of debt and other
obligations (6.5) -
Net cash outflow for acquisitions $ 6.6 $1.2
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.
Three Months Ended
March 31,
(In millions of dollars) 1995 1994
Net change in debt with maturities
of three months or less $(131.2) $138.2
Borrowings with maturities
over three months 206.1 46.6
Repayments of debt with maturities
over three months (1.5) (100.9)
Net increase in debt $ 73.4 $ 83.9
Interest paid during the three months ended March 31, 1995
and 1994 was $22.5 million and $12.0 million, respectively.
Income taxes paid during the three months ended March 31,
1995 and 1994 were $28.6 million and $74.0 million,
respectively.<PAGE>
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 reinsurers assumed some or all
remaining liability for claims against Lloyd's syndicates or
other London insurers on policies, typically written in the
past over a period of many years and sometimes without
aggregate limits. The initial disputes, primarily between
reinsurers and cedants, concerned these contracts, and 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, in some
cases, subsidiaries of the Company. The syndicate members
have experienced significant and continuing losses on
policies, some of which were the subject of run-off
reinsurance contracts that have been voided or compromised.
The Company believes that its subsidiaries performed their
reinsurance broking services in conformity with accepted and
customary practices in the London market.
Subsidiaries of the Company in the course of their
consulting and insurance activities advised certain clients
in connection with their purchase of guaranteed investment
contracts and annuities issued by Executive Life Insurance
Company, which is currently being rehabilitated under the
supervision of the California Insurance Department. Some of
those clients as well as the Company's subsidiaries have
been or may be subject to claims or lawsuits relating to
losses in connection with those investments. In some
instances, the subsidiaries have entered into agreements
extending the time in which possible claims may be asserted
against them, or have engaged in negotiating the deferral or
resolution of claims and litigation. The Company believes
that its subsidiaries acted in a proper and professional
manner in connection with these matters.
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.
<PAGE>
Marsh & McLennan Companies, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
First Quarter Ended March 31, 1995
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:
(In millions of dollars) 1995 1994
Revenue:
Insurance Services $541.4 $533.1
Consulting 249.6 222.4
Investment Management 164.2 154.7
955.2 910.2
Expense:
Compensation and Benefits 474.7 432.6
Other Operating Expenses 266.9 249.2
741.6 681.8
Operating Income $213.6 $228.4
Operating Income Margin 22.4% 25.1%
Revenue, derived mainly from commissions and fees, rose 5% from
the first quarter of 1994 driven principally by strong demand for
the Company's consulting services and an increase in revenue in
the investment management segment attributable to higher assets
under management. In the first quarter of 1994, Marsh & McLennan
Risk Capital ("MMRC") contributed $35 million of revenue
primarily from the realization of a portion of the Company's
holdings in insurance entities that it was instrumental in
originating. A significant reduction in revenue realized from
MMRC activities in the first quarter of 1995 was offset by the
effect of a generally weaker U.S. dollar and the impact of
several small acquisitions.
Operating expenses rose 9% in the first quarter of 1995 due, in
part, to the effect of currency exchange rate fluctuations and
the impact of acquisitions. The remaining increases in operating
expenses largely were due to ongoing systems automation
initiatives in the insurance services and consulting operations
and the impact of staff growth in the investment management and
consulting segments 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 these fluctuations on the
Company's results of operations has not been material.
Insurance Services
(In millions of dollars) 1995 1994
Revenue:
Insurance Broking $347.5 $341.5
Reinsurance Broking 95.4 104.5
Insurance Program Management 73.7 70.2
Interest Income on Fiduciary Funds 24.8 16.9
541.4 533.1
Expense 387.9 366.7
Operating Income $153.5 $166.4
Operating Income Margin 28.4% 31.2%
Insurance Broking Revenue
Insurance broking revenue, which is received from a predominantly
corporate clientele, increased 2% from the first quarter of 1994.
Excluding the impact of the generally weaker U.S. dollar and the
significant reduction in revenue realized from MMRC activities,
first quarter 1995 insurance broking revenue increased
approximately 3% from the same period of 1994. Client revenue
growth was concentrated in Continental Europe and Canada
reflecting increased renewals and new business. In the United
States, client revenue was essentially the same as the first
quarter of 1994 as property premium rates were generally stable
with the exception of coastal and catastrophe prone regions where
rates increased, while the casualty market continued to
experience renewal rates that were flat to down on a year-over-
year basis. The Company does not expect market conditions to
change significantly in the near term.
Reinsurance Broking Revenue
Reinsurance broking revenue decreased 9% in the first quarter of
1995. This decrease primarily was due to the significant
reduction in revenue realized from MMRC activities offset, in
part, by the impact of the generally weaker U.S. dollar.
Excluding the impact of these items, revenue declined slightly
reflecting a decrease in the United States largely due to lower
premium rates for property catastrophe and liability reinsurance.
The Company expects these market conditions to remain the same
for the near term.
Insurance Program Management Revenue
Insurance program management revenue increased 5% from the first
quarter of 1994. Revenue for Seabury & Smith, which operates
primarily in North America, increased 9% from 1994. This
increase was primarily the result of increased services provided
to corporations and institutions and their employees, increased
insurance placed on behalf of small businesses, and the
acquisition of a U.K.-based company which specializes in
providing professional liability insurance products. In the
United Kingdom, revenue for Frizzell Group Limited increased 1%
in the first quarter of 1995. Excluding the impact of the weaker
U.S. dollar, Frizzell's revenue decreased 5% as the market for
motor and household insurance services remains extremely
competitive.
Interest Income on Fiduciary Funds
Interest income on fiduciary funds increased 47% in the first
quarter of 1995 due to higher average short-term interest rates,
particularly in North America and the United Kingdom.
Expense
Insurance services expenses increased 6% from the first quarter
of 1994. Excluding the impact of the generally weaker dollar and
acquisitions, expenses increased 2% primarily reflecting ongoing
spending on technology and systems automation initiatives. The
Company is in the process of developing several major systems
aimed at providing advanced information and service to clients.
The Company expects to continue its commitment to enhance and
develop further its information systems.
Consulting
(In millions of dollars) 1995 1994
Revenue $249.6 $222.4
Expense 228.4 201.5
Operating Income $ 21.2 $ 20.9
Operating Income Margin 8.5% 9.4%
Revenue
Consulting services revenue increased 12% in 1995. After
adjusting for the impact of several small acquisitions and the
generally weaker U.S. dollar, revenue grew 9% as demand for
services in all major practices increased. Revenue increased 21%
in general management consulting and 15% in the global
compensation and communication practice in the first quarter of
1995. Retirement consulting revenue, which represented 45% of
the consulting segment, grew 4% in the first quarter reflecting
higher demand in the United States, Continental Europe and Latin
America. Health care consulting, representing 17% of the
segment, grew 8% in the quarter.
Expense
Consulting services expenses increased 13% in the first quarter
of 1995 partly due to the impact of acquisitions and the
generally weaker U.S. dollar. Excluding the effect of these
items, expenses grew approximately 10% reflecting higher staff
levels consistent with increased demand for worldwide consulting
services and escalating systems-related expenses associated with
initiatives to expand and increase the efficiency of
administrative services provided in the United States. Costs
relating to these initiatives are expected to continue for the
remainder of the year.
Investment Management
(In millions of dollars) 1995 1994
Revenue $164.2 $154.7
Expense 115.2 101.7
Operating Income $ 49.0 $ 53.0
Operating Income Margin 29.9% 34.2%
Revenue
Putnam's revenue increased 6% from the first quarter of 1994
reflecting continued growth in the level of assets under
management on which management fees are earned. The higher asset
level reflects the impact of institutional and mutual fund sales
and higher equity market valuations.
Expense
Putnam's expenses rose 13% in the first quarter of 1995
reflecting staff growth consistent with a higher volume of
business, normal salary progressions and increased service-
related costs including a new client service center that became
operational in the second half of 1994.
Quarter-end and average assets under management are presented
below:
(In billions of dollars) 1995 1994
Mutual Funds:
Domestic Equity $ 30.1 $21.5
Taxable Bond 23.4 24.8
Tax-Free Income 16.0 16.1
International Equity 2.8 2.1
72.3 64.5
Institutional Accounts:
Fixed Income 19.1 19.3
Domestic Equity 7.3 5.8
International Equity 2.6 1.6
29.0 26.7
Quarter-end Assets $101.3 $91.2
Average Assets $98.0 $92.9
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 levels are sensitive to all of the factors
above, but in particular, to significant changes in bond and
stock market valuations.
Assets held in fixed income products declined by 3% from the
first quarter of 1994 primarily due to lower bond valuations.
This decrease was more than offset by a 38% increase in assets
held in equity securities as investors were attracted to the
potential for higher returns generated in the equity market and
less toward fixed income instruments.
Interest
Interest income earned on corporate funds was $4.1 million in the
first quarter of 1995 compared with $2.9 million in 1994.
Interest rate increases in North America and the U.K. were offset
slightly by lower interest rates in Continental Europe. Interest
expense increased to $14.7 million in the first quarter of 1995
from $11.6 million in 1994 due to an increase in commercial paper
borrowings and higher average interest rates on those borrowings.
The higher level of commercial paper borrowings reflected, in
part, the Company's share repurchase program.
Income Taxes
The Company's consolidated domestic and foreign tax rates were
38.5% of income before income taxes in the first quarter of 1995
and 40.5% for the same period of 1994. The reduction in the 1995
tax rate reflects worldwide savings attributable to tax planning
strategies. 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 $285.1 million
on March 31, 1995, as compared with $294.9 million on December
31, 1994. In the three months ended March 31, 1995, the Company
generated $28.0 million of cash from operations compared with
$48.1 million in 1994. The cash requirements for working capital
increased in the first quarter of 1995 reflecting the higher
volume of business primarily in the consulting and investment
management segments.
On April 19, 1995, the Company entered into a new credit
agreement with several banks, to replace an existing agreement,
primarily to support its commercial paper borrowings. Under this
agreement, the Company may borrow up to $500 million at varying
market rates of interest.
Cash flow from operations includes the net cash requirements of
Putnam's prepaid dealer commissions, which amounted to $9.2
million for the three months ended, compared with $63.8 million
during the same period of 1994. The long-term portion of these
prepaid dealer commissions is included in other assets in the
Consolidated Balance Sheets.
The Company's capital expenditures, which amounted to $33.5
million in the first three months of 1995 and $24.1 million in
1994, were primarily related to computer equipment purchases and
the refurbishing and modernizing of office facilities.
The other liabilities in the Consolidated Balance Sheet, which
totaled $575.1 million on March 31, 1995 and $568.3 million at
December 31, 1994, include the Company's long-term pension
liability, reserves related to the Company's professional
liability insurance program, and the postretirement liability for
certain health care and life insurance benefits.
PART II, OTHER INFORMATION
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
INFORMATION REQUIRED FOR FORM 10-Q QUARTERLY REPORT
MARCH 31, 1995
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(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 May, 1995 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated Marsh & McLennan Companies, Inc. and subsidiaries March 31, 1995
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 285,100,000
<SECURITIES> 0
<RECEIVABLES> 1,050,500,000
<ALLOWANCES> 47,500,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,499,000,000
<PP&E> 1,355,700,000
<DEPRECIATION> 605,800,000
<TOTAL-ASSETS> 3,964,200,000
<CURRENT-LIABILITIES> 1,417,200,000
<BONDS> 409,300,000
<COMMON> 76,800,000
0
0
<OTHER-SE> 1,485,800,000
<TOTAL-LIABILITY-AND-EQUITY> 3,964,200,000
<SALES> 0
<TOTAL-REVENUES> 955,200,000
<CGS> 0
<TOTAL-COSTS> 741,600,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,700,000
<INCOME-PRETAX> 203,000,000
<INCOME-TAX> 78,200,000
<INCOME-CONTINUING> 124,800,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,800,000
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
