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, 1997
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 31, 1997, there were outstanding 168,493,036 shares
of common stock, par value $1.00 per share, of the registrant.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements. Such
statements may include, without limitation, discussions concerning
revenue and expense growth, market and industry conditions,
interest rates, foreign exchange rates, contingencies and matters
relating to the operations and income taxes of Marsh & McLennan
Companies, Inc. and subsidiaries (the "Company"). Such forward-
looking statements are based on available current market and
industry materials, experts' reports and opinions, as well as
management's expectations concerning future events impacting the
Company. Forward-looking statements by their very nature involve
risks and uncertainties. Factors that may cause actual results to
differ materially from those contemplated by any forward-looking
statements contained herein include the impact of changes in
insurance markets and natural catastrophes in the case of the
Company's insurance services business, changes in worldwide and
national securities and fixed income markets in the case of the
Company's investment management business and, with respect to all
of the Company's activities, changes in worldwide and national
economies, fluctuations in foreign currencies, changes in interest
rates and the impact of tax and other legislation and regulation in
the jurisdictions in which the Company operates.
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,
1997 1996 1997 1996
Revenue $1,449.8 $1,036.8 $2,658.5 $2,107.5
Expense 1,188.2 843.5 2,119.6 1,671.7
Operating Income 261.6 193.3 538.9 435.8
Interest Income 7.8 3.5 11.0 7.0
Interest Expense (31.4) (15.9) (48.9) (31.1)
Income Before Income Taxes 238.0 180.9 501.0 411.7
Income Taxes 93.0 65.7 191.6 153.4
Net Income $ 145.0 $ 115.2 $ 309.4 $ 258.3
Net Income Per Share (A) (B) $.87 $.79 $1.97 $1.77
Average Number of
Shares Outstanding (A) 167.0 146.0 156.7 145.8
Dividends Declared $.50 $.40 $.95 $.80
(A) Restated to reflect the two-for-one stock split in the form of
a 100% stock distribution issued on June 27, 1997.
(B) Net income per share is computed independently for each of the
periods presented. Accordingly, the sum of the quarterly net
income per share amounts may not equal the total for the year.
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
June 30, December 31,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents
(including interest-bearing amounts
of $440.7 at June 30, 1997 and
$261.1 at December 31, 1996) $ 500.4 $ 299.6
Receivables-
Commissions and fees 1,247.1 937.6
Advanced premiums and claims 102.0 88.5
Other receivables 110.4 103.0
1,459.5 1,129.1
Less-allowance for doubtful accounts (44.3) (43.3)
Net receivables 1,415.2 1,085.8
Other current assets 460.1 363.2
Total current assets 2,375.7 1,748.6
Long-term securities 642.1 573.3
Fixed assets, net 969.1 770.1
(net of accumulated depreciation and
amortization of $742.6 at June 30, 1997
and $695.7 at December 31, 1996)
Intangible assets 2,194.1 545.3
Other assets 1,275.8 907.9
$7,456.8 $4,545.2
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
June 30, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 609.2 $ 392.4
Accrued compensation and employee benefits 389.4 391.7
Accounts payable and accrued liabilities 767.2 447.5
Accrued income taxes 284.7 259.6
Dividends payable 83.7 65.1
Total current liabilities 2,134.2 1,556.3
Fiduciary liabilities 2,584.3 1,685.9
Less - cash and investments held in
a fiduciary capacity (2,584.3) (1,685.9)
- -
Long-term debt 1,110.5 458.2
Other liabilities 1,029.3 642.1
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1 par value, authorized
6,000,000 shares, none issued - -
Common stock, $1 par value, authorized
400,000,000 shares, issued 173,281,370
shares at June 30, 1997 and 153,589,062
at December 31, 1996 * 173.2 76.8
Additional paid-in capital 1,027.3 148.1
Retained earnings 2,055.2 1,901.6
Unrealized securities holding gains,
net of income taxes 265.7 221.2
Cumulative translation adjustments (120.4) (75.7)
3,401.0 2,272.0
Less - treasury shares, at cost,
5,000,263 shares at June 30, 1997 and
8,951,142 shares at December 31, 1996 * (218.2) (383.4)
Total stockholders' equity 3,182.8 1,888.6
$7,456.8 $4,545.2
* Restated to reflect the two-for-one stock split in the form of
a 100% stock distribution issued on June 27, 1997.
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
Six Months Ended
June 30,
1997 1996
Operating cash flows:
Net income $309.4 $258.3
Gain on sale of business (10.0) (33.2)
Unusual charges - 33.4
Depreciation and amortization 89.6 69.2
Deferred income taxes (34.8) 29.4
Other liabilities 9.6 23.3
Prepaid dealer commissions (96.4) (193.5)
Other, net (3.8) (4.1)
Net changes in operating working capital
other than cash and cash equivalents -
Receivables (71.3) (86.5)
Other current assets (7.1) 6.6
Accrued compensation and employee benefits (14.4) 5.1
Accounts payable and accrued liabilities (51.6) (15.3)
Accrued income taxes 10.0 11.1
Effect of exchange rate changes 2.9 1.9
Net cash generated from operations 132.1 105.7
Financing cash flows:
Net increase (decrease) in commercial paper 213.3 (33.7)
Other borrowings 1,080.2 1.5
Other repayments (570.0) (72.5)
Purchase of treasury shares - (50.8)
Issuance of common stock 113.5 38.0
Dividends paid (137.2) (116.5)
Other, net - 2.4
Net cash provided by (used for)
financing activities 699.8 (231.6)
Investing cash flows:
Additions to fixed assets (116.7) (60.3)
Proceeds from sale of business,
net of cash sold 29.4 241.8
Acquisitions (550.2) (1.1)
Other, net 15.8 (41.0)
Net cash provided by (used for)
investing activities (621.7) 139.4
Effect of exchange rate changes on cash
and cash equivalents (9.4) (2.8)
Increase in cash & cash equivalents 200.8 10.7
Cash & cash equivalents at beginning of period 299.6 328.1
Cash & cash equivalents at end of period $500.4 $338.8
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, 1997 and 1996.
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 $52.2 million and $45.8 million for the six months
ended June 30, 1997 and 1996, respectively.
Net uncollected premiums and claims and the related payables
amounting to $5.2 billion at June 30, 1997 and $3.2 billion at
December 31, 1996, 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, 1997 and 1996.
(In millions of shares)
Three Months Six Months Ended
Ended June 30, June 30,
1997 1996 1997 1996
Primary 3.8 2.4 3.5 2.2
Fully Diluted 4.8 2.6 4.7 2.6
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share", which is effective for annual and interim periods
ending after December 15, 1997. In accordance with this
statement, the Company will include the required basic and
diluted earnings per share figures on the face of the income
statement in the 1997 Annual Report. The adoption of this
accounting standard would not have had a material impact on
the reported earnings per share figures.
4. Supplemental Disclosure to the Consolidated Statements
of Cash Flows
The following schedule provides additional information
concerning acquisitions:
Six Months Ended
June 30,
(In millions of dollars) 1997 1996
Purchase acquisitions:
Assets acquired, excluding cash $2,658.7 $1.1
Liabilities assumed (1,102.7) -
Shares issued (l,005.4) -
Net cash outflow for acquisitions 550.6 1.1
Cash acquired in pooling of
interests acquisition (.4) -
$ 550.2 $1.1
Interest paid during the six months ended June 30, 1997 and
1996 was $44.8 million and $31.3 million, respectively.
Income taxes paid during the six months ended June 30, 1997
and 1996 were $193.6 million and $111.5 million, respectively.
5. Income Taxes
The Company has become aware that the Internal Revenue Service
(IRS) is considering a change to its longstanding position
regarding the investment management industry's tax treatment
related to 12b-1 fees. The Company believes its tax treatment
of these fees is consistent with current industry practice and
applicable requirements of the Internal Revenue Code as
further supported by a 1993 IRS Technical Advice memorandum.
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. Acquisitions
On March 27, 1997, the Company consummated a strategic
business combination with Johnson & Higgins ("J&H"), a
privately-held insurance broking and employee benefit
consulting firm. The Company agreed to pay total
consideration of approximately $1.8 billion consisting of
approximately $600 million in cash and approximately 9.8
million shares of the Company's common stock. Approximately
$1.3 billion has been paid and approximately $500 million will
be paid in equal annual installments on each of the next three
or four anniversaries of the closing date. The business
combination is being accounted for using the purchase method
of accounting. Accordingly, the goodwill of approximately
$1.5 billion which results from the preliminary purchase price
allocation will be amortized over 40 years.
Subject to certain limited exceptions, an agreed number of
shares issued in connection with this transaction may not be
sold during the first and second years following the closing.
In addition, approximately 800,000 shares of common stock were
placed in escrow for a period of up to two years in order to
secure certain indemnification obligations with respect to
certain representations and warranties.
The following unaudited pro forma summary presents the
consolidated results of operations of the Company as if the
business combination had occurred on January 1, 1997 and 1996,
respectively.
(In millions of dollars, except per share figures)
Year-to-Date Ended June 30,
1997 1996
Revenue $2,963.5 $2,642.6
Net Income 320.2 269.3
Earnings per share 1.92 1.63
The pro forma information is based on certain estimates and
assumptions which the Company believes are reasonable. The
pro forma results are shown for illustrative purposes only and
do not purport to be indicative of the results which would
have been reported if the business combination had occurred on
the dates indicated or which may occur in the future.
In January 1997, the Company purchased Compagnie Europeenne De
Courtage d'Assurances et de Reassurances ("CECAR"), an
insurance broker in France, for approximately $200 million.
The 1996 pro forma information presented above does not
include the operating results of CECAR since the impact is not
material.
7. Claims, Lawsuits and Other Contingencies
The Company and its subsidiaries are subject to various claims
and lawsuits, consisting principally of alleged errors and
omissions in connection with the placement of insurance or
reinsurance and in rendering investment and consulting
services that arise in the ordinary course of business. 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. 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. Over several
years, disputes concerning these contracts and involving
cedants, reinsurers, members of syndicates, their underwriting
and members' names agencies and, in some instances,
subsidiaries of the Company have been negotiated, litigated or
deferred. As part of the Lloyd's Reconstruction and Renewal
("R&R") Plan, most of this group of claims have been
extinguished or assigned to the reinsurance entity created to
effectuate the R&R Plan. 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
in rehabilitation under the supervision of the California
Insurance Department. Some of those clients as well as the
Company's subsidiaries have been or may be involved in 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.
8. Unusual Items
In June of 1996, the Company completed the sale of The
Frizzell Group Ltd. for approximately $290 million. Second
quarter results include a $33.2 million pretax gain on the
sale which was offset by non-recurring charges totaling
$33.4 million, representing a $15.5 million provision related
to the London market, a $10 million goodwill write-off
primarily attributable to a U.K. reinsurance operation and a
$7.9 million provision for various real estate matters. These
amounts are included in Expense in the Consolidated Statements
of Income.
9. Common Stock
On May 21, 1997, the Company's Board of Directors authorized
a 100% stock distribution of $1 par value common stock, which
was issued on June 27, 1997 to shareholders of record on
June 6, 1997. Upon issuance of the shares, paid-in capital
was reduced and the common stock account increased by
$86.6 million, the par value of the additional common shares
issued. All references to per share amounts have been
restated for this stock distribution.
10. 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, 1997
General
Marsh & McLennan Companies, Inc. and Subsidiaries (the "Company")
is a professional services firm providing risk and insurance
services, investment management and consulting. More than 36,000
employees worldwide provide analysis, advice and transactional
capabilities to clients in over 100 countries.
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) 1997 1996 1997 1996
Revenue:
Risk and Insurance
Services $ 747.7 $ 478.1 $1,310.4 $1,033.6
Investment Management 355.2 265.4 695.8 503.7
Consulting 346.9 293.3 652.3 570.2
1,449.8 1,036.8 2,658.5 2,107.5
Expense:
Compensation and Benefits 797.5 549.5 1,424.8 1,088.8
Other Operating Expenses 390.7 293.8 694.8 582.7
Unusual Charge, net - .2 - .2
1,188.2 843.5 2,119.6 1,671.7
Operating Income $ 261.6 $ 193.3 $ 538.9 $ 435.8
Operating Income Margin 18.0% 18.6% 20.3% 20.7%
The Company has reflected its business combination with Johnson &
Higgins (J&H), completed on March 27, 1997, in its results of
operations beginning with the second quarter.
Revenue, derived mainly from commissions and fees, rose 40% from
the second quarter of 1996 and grew by 26% for the six months
reflecting the impact of the combination with J&H and the
acquisition of Compagnie Europeenne De Courtage d'Assurances et de
Reassurances (CECAR) in January 1997. Excluding acquisitions and
dispositions, revenue grew 13% for both the second quarter of 1997
and for the six months driven principally by increased revenue in
the investment management segment, which was largely attributable
to higher assets under management. Also, there was strong demand
for the Company's retirement, global compensation and economic
consulting services.
Operating expenses rose 41% in the second quarter of 1997 and 27%
for the six months primarily due to the combination with J&H and
the CECAR acquisition. Excluding acquisitions and dispositions,
expenses grew 11% in the second quarter and 12% for the six months
primarily due to costs associated with staff growth as well as
higher incentive compensation levels in the investment management
segment commensurate with strong operating performance. Service
related costs for investment management also increased resulting
from the higher level of business activity.
The translated values of revenue and expense from the Company's
international insurance services and consulting operations are
affected by fluctuations in currency exchange rates. However, the
net impact of these fluctuations on the Company's results of
operations has not been material.
Risk and Insurance Services
Second Quarter Six Months
(In millions of dollars) 1997 1996 1997 1996
Revenue:
Insurance Broking $571.1 $329.8 $ 993.6 $ 700.9
Reinsurance Broking 68.7 54.3 144.5 141.9
Insurance Program
Management 78.8 71.7 120.1 145.0
Interest Income on
Fiduciary Funds 29.1 22.3 52.2 45.8
747.7 478.1 1,310.4 1,033.6
Expense 617.2 390.2 1,022.4 789.2
Operating Income $130.5 $ 87.9 $ 288.0 $ 244.4
Operating Income Margin 17.5% 18.4% 22.0% 23.6%
Insurance Broking Revenue
Insurance broking revenue, received from a predominantly corporate
clientele, increased 73% from the second quarter of 1996 and 42%
for the six months primarily due to the J&H and CECAR transactions.
Excluding acquisitions, revenue increased 4% for both the second
quarter of 1997 and for the six months. Client revenue rose
primarily due to new business partially offset by declines in
commercial property and casualty premium rates.
Reinsurance Broking Revenue
Reinsurance broking revenue increased 27% in the second quarter of
1997 primarily due to the combination with J&H. Excluding J&H,
client revenue fell 7% compared with the prior year. Revenue
levels continue to decline reflecting reduced demand for
reinsurance resulting from the consolidation among various U.S. and
U.K. insurance companies as well as higher risk retentions by
ceding insurance companies and the impact of lower property
catastrophe premium rates. For the first six months of 1997 client
revenue, excluding J&H, decreased 8% compared with the same period
of 1996.
Insurance Program Management Revenue
Insurance program management revenue increased 10% from the second
quarter of 1996 primarily due to the J&H combination and the
acquisition of Albert H. Wohlers & Co. Also, a $10 million gain on
the disposition of Trust Consultants Inc. (TCI) in May 1997 is
offset, in large part, by the sale of Frizzell in the prior year.
Adjusting for the impact of acquisitions and the sale of TCI,
revenue for Seabury & Smith, which represents the whole of program
management subsequent to the sale of Frizzell, increased 2% from
the second quarter of 1996 and 3% for the six months.
Interest Income on Fiduciary Funds
Interest income on fiduciary funds increased 30% in the second
quarter of 1997 and 14% for the six months due to the combination
with J&H and the CECAR acquisition. Excluding acquisitions,
interest income on fiduciary funds was essentially the same as the
second quarter of 1996 and decreased 1% for the six months due to
generally lower average short-term interest rates outside the
United States.
Expense
Risk and insurance services expenses increased 58% from the second
quarter of 1996 and 30% for the six months primarily due to the
impact of acquisitions offset in part by the sale of Frizzell. On
a comparable basis expenses increased 1% for both the second
quarter of 1997 and for the six months.
Unusual Charge, net
In June of 1996, the Company completed the sale of Frizzell for
approximately $290 million. Second quarter results for 1996
include a $33.2 million pretax gain on the sale which was offset by
non-recurring charges totaling $33.4 million, representing a
$15.5 million provision related to the London market, a $10 million
goodwill write-off largely attributable to a U.K. reinsurance
operation and a $7.9 million provision for various real estate
matters.
Investment Management
Second Quarter Six Months
(In millions of dollars) 1997 1996 1997 1996
Revenue $355.2 $265.4 $695.8 $503.7
Expense 243.3 185.9 480.0 350.7
Operating Income $111.9 $ 79.5 $215.8 $153.0
Operating Income Margin 31.5% 30.0% 31.0% 30.4%
Revenue
Putnam's revenue increased 34% compared with the second quarter of
1996 and 38% for the six months reflecting exceptional growth in
the level of assets under management on which management fees are
earned. The higher asset level reflects strong mutual fund sales,
and significantly higher equity market valuations compared with the
second quarter of 1996.
Expense
Putnam's expenses rose 31% in the second quarter of 1997 and 37%
for the six months reflecting the effect of staff growth to support
new business and incentive compensation levels commensurate with
strong operating performance along with increased service-related
costs, including a new service center, resulting from the higher
level of business activity.
Quarter-end and average assets under management for the second
quarter are presented below:
(In billions of dollars) 1997 1996
Mutual Funds:
Domestic Equity $101.1 $ 64.8
Taxable Bond 31.8 26.8
Tax-Free Income 16.1 16.2
International Equity 11.0 5.7
160.0 113.5
Institutional Accounts:
Fixed Income 19.9 18.7
Domestic Equity 17.8 11.5
International Equity 9.2 5.1
46.9 35.3
Quarter-end Assets $206.9 $148.8
Average Assets $192.9 $143.7
Assets under management are affected by fluctuations in domestic
and international bond and stock market prices and by the level of
investments and withdrawals for current and new fund shareholders
and clients. They are also affected by investment performance,
service to clients, the development and marketing of new investment
products, the relative attractiveness of the investment style under
prevailing market conditions and changes in the investment patterns
of clients. Revenue levels are sensitive to all of the factors
above, but in particular, to significant changes in bond and stock
market valuations.
Putnam provides individual and institutional investors with a broad
range of equity and fixed income investment products and services
designed to meet varying investment objectives and which affords
its clients the opportunity to allocate their investment resources
among various alternative investment products as changing worldwide
economic and market conditions warrant. At the end of the second
quarter, assets held in equity securities represented 67% of assets
under management, compared with 58% in 1996, while investments in
fixed income products represented 33%, compared with 42% last year.
Consulting
Second Quarter Six Months
(In millions of dollars) 1997 1996 1997 1996
Revenue $346.9 $293.3 $652.3 $570.2
Expense 306.2 259.0 583.2 511.6
Operating Income $ 40.7 $ 34.3 $ 69.1 $ 58.6
Operating Income Margin 11.7% 11.7% 10.6% 10.3%
Revenue
Consulting services revenue increased 18% in 1997 compared with the
second quarter of 1996 and grew 14% for the six months reflecting
the J&H acquisition and increased demand for services. Adjusting
for the J&H combination, revenue increased 10% in both the second
quarter of 1997 and for the six months. Retirement consulting
revenue, which represented 44% of the consulting segment, grew 14%
in the second quarter reflecting higher worldwide demand. Revenue
rose 17% in the global compensation practice, 9% in economic
consulting and 4% in both general management consulting and health
care consulting during the second quarter of 1997.
Expense
Consulting services expenses increased 18% for the second quarter
of 1997 and 14% for the six months. Excluding the J&H acquisition,
expenses increased 9% for both the second quarter and the six
months reflecting normal salary progressions and the impact of
staff growth to support new business.
Interest
Interest income earned on corporate funds increased to $7.8 million
in the second quarter of 1997 compared with $3.5 million in 1996
and increased 57% for the six months primarily due to the J&H
acquisition.
Interest expense increased to $31.4 million in the second quarter
of 1997 from $15.9 million in 1996. This increase was primarily
due to the J&H and CECAR acquisitions, including the impact of
increased bank borrowings used to finance those transactions. For
the six months, interest expense increased to $48.9 million from
$31.1 million in 1996.
Income Taxes
The Company's consolidated tax rates were 39.1% and 38.25% of
income before income taxes in the second quarter and six months of
1997 compared with 36.3% and 37.25%, respectively, for the
comparable periods of 1996. The increase in the 1997 tax rate is
largely attributable to the J&H acquisition. 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
As previously mentioned, the Company completed its business
combination with Johnson & Higgins, a leading insurance broker, on
March 27, 1997 for total consideration of approximately $1.8
billion. Approximately one-third of the total consideration was
payable in cash and two-thirds in the Company's common stock. The
Company also purchased CECAR for approximately $200 million during
January 1997. The cash portion of these transactions are being
financed with bank borrowings and commercial paper.
The Company's cash and cash equivalents aggregated $500.4 million
on June 30, 1997, compared with $299.6 million on December 31,
1996. The increase primarily reflects the consolidation of cash
associated with the J&H and CECAR acquisitions. In the six months
ended June 30, 1997, the Company generated $132.1 million of cash
from operations compared with $105.7 million in 1996.
Cash flow from operations includes the net cash requirements of
Putnam's prepaid dealer commissions, which amounted to
$96.4 million for the six months compared with $193.5 million
during the same period of 1996. 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
$116.7 million in the first six months of 1997 and $60.3 million in
1996, were primarily related to computer equipment purchases and
the refurbishing and modernizing of office facilities.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", which is effective for annual and interim periods ending
after December 15, 1997. In accordance with this statement, the
company will include the required basic and diluted earnings per
share figures on the face of the income statement in the 1997
Annual Report.
The other liabilities in the Consolidated Balance Sheets, which
totaled $1.0 billion on June 30, 1997 and $.6 billion on
December 31, 1996, 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
JUNE 30, 1997
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Registrant was
held on May 21, 1997. Represented at the Meeting, at
which stockholders took the following actions, were
64,018,152 shares or 88.2 percent of the Registrant's
72,560,257 shares of common stock outstanding and
entitled to vote:
1. Each of the five nominees for election as directors
received at least 62,672,929 or 97.9 percent of the
shares represented at the meeting. They are Peter
Coster, Lawrence J. Lasser, Richard M. Morrow, John
T. Sinnott and Frank J. Tasco. The remaining
directors continuing in office are: A.J.C. Smith,
Lewis W. Bernard, Richard H. Blum, Frank J.
Borelli, Robert Clements, Robert F. Erburu, Jeffrey
W. Greenberg, Ray J. Groves, Richard S. Hickok,
David D. Holbrook, George Putnam and Adele Smith
Simmons.
David A. Olsen, Richard A. Nielsen and Norman
Barham were named members of the board of directors
of Marsh & McLennan Companies, Inc. The three new
directors were previously directors and members of
senior management of Johnson & Higgins, which
combined with Marsh & McLennan Companies in March
1997.
Mr. Olsen, who was also elected vice chairman of
Marsh & McLennan Companies, was chairman and chief
executive officer of Johnson & Higgins. Mr.
Nielsen, vice chairman of J&H Marsh & McLennan,
Inc. was vice chairman and chief operating officer
of Johnson & Higgins. Mr. Barham, vice chairman of
J&H Marsh & McLennan, Inc. was president of Johnson
& Higgins. J&H Marsh & McLennan, Inc. is the newly
formed risk and insurance services subsidiary of
Marsh & McLennan Companies.
R. J. Ventres retired from the board of Marsh &
McLennan Companies, having served as a director for
nine years.
2. Shareholders adopted an amendment to the
Registant's Restated Certificate of Incorporation,
increasing the number of authorized shares of
common stock, with a vote of 55,181,359 or 86
percent of the shares represented, which constitute
76 percent of the shares outstanding, (8,402,125
opposing and 434,666 abstaining).
3. Shareholders approved the Marsh & McLennan
Companies 1997 Senior Executive Incentive and Stock
Award Plan with a vote of 43,678,244 or 68.2
percent of the shares represented (19,619,977
opposing and 719,930 abstaining).
4. Deloitte & Touche LLP was ratified as the
Registrant's independent public accountants for the
year ending December 31, 1997, by a vote of
63,562,705 or 99.3 percent of the shares
represented (180,889 opposing and 274,556
abstaining).
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K dated April 7, 1997 was
filed by the registrant in connection with the
Johnson & Higgins business combination.
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 14th day of August, 1997 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 June 30, 1997
financial statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 500,400,000
<SECURITIES> 0
<RECEIVABLES> 1,459,500,000
<ALLOWANCES> 44,300,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,375,700,000
<PP&E> 1,711,700,000
<DEPRECIATION> 742,600,000
<TOTAL-ASSETS> 7,456,800,000
<CURRENT-LIABILITIES> 2,134,200,000
<BONDS> 1,110,500,000
<COMMON> 173,200,000
0
0
<OTHER-SE> 3,009,600,000
<TOTAL-LIABILITY-AND-EQUITY> 7,456,800,000
<SALES> 0
<TOTAL-REVENUES> 2,658,500,000
<CGS> 0
<TOTAL-COSTS> 2,119,600,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,900,000
<INCOME-PRETAX> 501,000,000
<INCOME-TAX> 191,600,000
<INCOME-CONTINUING> 309,400,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 309,400,000
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
</TABLE>
