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 September 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 October 31, 1994, there were outstanding 73,729,590
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 Ended Nine Months Ended
September 30, September 30,
1994 1993 1994* 1993
Revenue $826.9 $766.4 $2,577.6 $2,383.6
Expense 678.3 626.7 2,036.8 1,904.2
Operating Income 148.6 139.7 540.8 479.4
Interest Income 2.4 2.6 8.3 8.8
Interest Expense (13.1) (11.6) (37.0) (34.7)
Income Before Income Taxes
and Cumulative Effect of
Accounting Change 137.9 130.7 512.1 453.5
Income Taxes 54.5 54.6 202.3 183.7
Income Before Cumulative
Effect of Accounting
Change 83.4 76.1 309.8 269.8
Cumulative Effect of
Accounting Change, Net of
Income Tax Benefit - - (10.5) -
Net Income $ 83.4 $ 76.1 $ 299.3 $ 269.8
Per Share Data:
Income Before Cumulative
Effect of Accounting
Change $1.14 $1.04 $4.21 $3.68
Cumulative Effect of
Accounting Change - - (.14) -
Net Income $1.14 $1.04 $4.07 $3.68
Average Number of
Shares Outstanding 73.3 73.4 73.6 73.4
Dividends Declared $.725 $.675 $2.125 $2.025
* 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)
September 30, December 31,
1994 1993
ASSETS
Current assets:
Cash and cash equivalents
(including interest-bearing amounts
of $327.7 at September 30, 1994 and
$315.7 at December 31, 1993) $ 338.9 $ 332.0
Receivables-
Commissions and fees 682.5 617.0
Advanced premiums and claims 76.0 80.7
Consumer finance and other 202.5 198.2
961.0 895.9
Less - allowance for doubtful accounts (46.1) (42.9)
Net receivables 914.9 853.0
Other current assets 179.7 127.4
Total current assets 1,433.5 1,312.4
Consumer finance receivables, net 152.8 130.8
Long-term securities 290.5 363.6
Fixed assets
(net of accumulated depreciation and
amortization of $586.9 at September 30,
1994 and $538.8 at December 31, 1993) 703.5 688.1
Intangible assets 691.8 660.1
Other assets 501.3 391.6
$3,773.4 $3,546.6
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
September 30, December 31,
1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 379.7 $ 273.8
Accrued compensation and employee benefits 173.1 173.5
Accounts payable and accrued liabilities 438.6 444.4
Accrued income taxes 257.0 237.1
Dividends payable 53.5 49.9
Total current liabilities 1,301.9 1,178.7
Fiduciary liabilities 1,673.6 1,623.6
Less - cash and investments
held in a fiduciary capacity (1,673.6) (1,623.6)
- -
Long-term debt 408.1 409.8
Other liabilities 568.5 592.8
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 September 30, 1994 and
December 31, 1993 76.8 76.8
Additional paid-in capital 166.4 173.5
Retained earnings 1,488.5 1,345.7
Unrealized securities holding gains,
net of income taxes 90.3 138.6
Cumulative translation adjustments (95.7) (157.5)
1,726.3 1,577.1
Less - treasury shares, at cost,
2,996,003 shares at September 30, 1994
and 2,862,926 shares at December 31, 1993 (231.4) (211.8)
Total stockholders' equity 1,494.9 1,365.3
$3,773.4 $3,546.6
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
Nine Months Ended
September 30,
1994 1993
Operating cash flows:
Net income $299.3 $269.8
Depreciation and amortization 90.8 88.2
Deferred income taxes 36.1 66.4
Other liabilities (5.0) 19.8
Cumulative effect of accounting change 10.5 -
Prepaid dealer commissions (109.7) (188.0)
Other, net (13.6) (2.4)
Net changes in operating working capital
other than cash and cash equivalents -
Receivables (40.4) (54.9)
Other current assets (24.1) 7.1
Accrued compensation and employee benefits (.4) (5.3)
Accounts payable and accrued liabilities (3.5) (42.3)
Accrued income taxes 3.5 16.3
Effect of exchange rate changes 14.8 (.8)
Net cash generated from operations 258.3 173.9
Financing cash flows:
Net change in debt 96.0 88.5
Purchase of treasury shares (94.6) (33.1)
Issuance of common stock 65.1 73.8
Dividends paid (152.9) (148.4)
Other, net (22.4) 1.1
Net cash used for financing activities (108.8) (18.1)
Investing cash flows:
Additions to fixed assets (87.9) (74.3)
Acquisitions (10.3) (3.6)
Other, net (53.2) (54.6)
Net cash used for investing activities (151.4) (132.5)
Effect of exchange rate changes on cash
and cash equivalents 8.8 (7.5)
Increase in cash & cash equivalents 6.9 15.8
Cash & cash equivalents at beginning of period 332.0 371.1
Cash & cash equivalents at end of period $338.9 $386.9
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 nine month periods ended
September 30, 1994 and 1993.
2. Fiduciary Assets 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 $56.8 million and $62.1
million for the nine months ended September 30, 1994 and
1993, respectively.
Net uncollected premiums and claims and the related payables
amounting to $2.8 billion at September 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 nine month periods ended September 30,
1994 and 1993.
(In millions of shares)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Primary .8 1.1 .8 1.1
Fully Diluted .8 1.1 .8 1.1
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.
Nine Months Ended
September 30,
(In millions of dollars) 1994 1993
Net change in debt with maturities
of three months or less $331.9 ($ 37.5)
Borrowings with maturities
over three months 47.9 435.7
Repayments of debt with maturities
over three months (283.8) (309.7)
Net increase in debt $ 96.0 $ 88.5
Interest paid during the nine months ended September 30,
1994 and 1993 was $36.7 million and $34.0 million,
respectively.
Income taxes paid during the nine months ended September 30,
1994 and 1993 were $164.5 million and $85.4 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.
Subsidiaries of the Company in the course of their
consulting and insurance activities advised certain clients
in connection with their investments in 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 subject to claims or lawsuits
relating to losses that may be realized 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 otherwise
negotiated the deferral 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 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
Third Quarter and Nine Months Ended September 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.
Third Quarter Nine Months
(In millions of dollars) 1994 1993 1994 1993
Revenue:
Insurance Services $435.5 $419.0 ,$1,428.5 $1,368.0
Consulting 237.9 213.1 690.8 644.2
Investment Management 153.5 134.3 458.3 371.4
826.9 766.4 2,577.6 2,383.6
Expense:
Compensation and Benefits 426.7 402.5 1,283.8 1,222.3
Other Operating Expenses 251.6 224.2 753.0 681.9
678.3 626.7 2,036.8 1,904.2
Operating Income $148.6 $139.7 $ 540.8 $ 479.4
Operating Income Margin 18.0% 18.2% 21.0% 20.1%
Revenue, derived mainly from commissions and fees, increased 8%
from the third quarter of 1993, and grew by 8% for the nine
months, primarily reflecting strong growth by the Company's
investment management segment. The nine month results include
incremental income of approximately $29 million realized by Marsh
& McLennan Risk Capital on a portion of its holdings in insurance
and reinsurance entities that the Company was instrumental in
originating.
Operating expenses increased 8% from the third quarter of 1993,
and 7% for the nine months, largely due to ongoing system
automation initiatives in the insurance services operation and to
additional costs in the investment management segment
commensurate with the higher volume of business.
Insurance Services
Third Quarter Nine Months
(In millions of dollars) 1994 1993 1994 1993
Revenue:
Insurance Broking $265.3 $255.8 $913.5 $ 874.2
Reinsurance Broking 71.1 70.6 235.3 222.9
Insurance Program
Management 77.5 72.4 222.9 208.8
Interest Income on
Fiduciary Funds 21.6 20.2 56.8 62.1
435.5 419.0 1,428.5 1,368.0
Expense 360.3 342.7 1,089.3 1,050.6
Operating Income $ 75.2 $ 76.3 $ 339.2 $ 317.4
Operating Income Margin 17.3% 18.2% 23.7% 23.2%
Insurance Broking Revenue
Insurance broking revenue, received from a predominantly
corporate clientele, increased 4% for both the third quarter and
for the nine months as compared with the same periods last year.
The third quarter results reflect higher client revenue from
operations in Continental Europe, primarily resulting from new
business. In the United States, 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 third quarter of 1994 was
essentially the same as a year ago reflecting lower demand in the
London market. Premium rates for property catastrophe
reinsurance have begun to react to the growth of worldwide market
capacity and have declined somewhat. Revenue for the nine months
increased 6% from the comparable period of 1993. Approximately
$12 million of this increase resulted from the realization of a
portion of a holding in a reinsurer in the first quarter of 1994.
Insurance Program Management Revenue
Insurance program management revenue increased 7% for both the
third quarter of 1994 and the nine months. Within North America,
third quarter revenue increased 8% 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 6% over the third quarter of
1993.
Interest Income on Fiduciary Funds
Interest income on fiduciary funds increased 7% in the third
quarter of 1994. For the nine months, fiduciary interest
decreased 9%. U.S. and Canadian yields have risen steadily
during the year and throughout the third quarter. However, these
increases have been partially offset by lower interest rates in
the United Kingdom and Continental Europe. If the current level
of short-term interest rates in the United States is maintained,
fiduciary interest income should exceed 1993 amounts for the
fourth quarter.
Expense
Expenses for insurance services rose 5% in the third quarter of
1994 reflecting the impact of ongoing spending on technology and
systems automation initiatives. Expenses for the nine months
increased 4% as compared with the same period last year primarily
due to these initiatives and provisions for excess office space
on certain leases.
Consulting
Third Quarter Nine Months
(In millions of dollars) 1994 1993 1994 1993
Revenue $237.9 $213.1 $690.8 $644.2
Expense 210.3 188.3 615.9 576.5
Operating Income $ 27.6 $ 24.8 $ 74.9 $ 67.7
Operating Income Margin 11.6% 11.6% 10.8% 10.5%
Revenue
Revenue for consulting services increased 12% in 1994 compared
with the third quarter of 1993. After adjusting for the net
impact of several small acquisitions, revenue for consulting grew
10% during the quarter. Retirement consulting and related 401(k)
recordkeeping services revenue, which represented approximately
46% of the consulting segment, increased 3% in a very price-
competitive environment. Health care consulting, primarily U.S.
based, grew 4%. Strong demand in the global practices of general
management and compensation consulting resulted in growth of 18%
and 14%, respectively. For the nine months revenue grew by 7%
over 1993 levels.
Expense
Expenses for the consulting segment increased 12% in the third
quarter of 1994 partially due to the impact of acquisitions,
while expenses for the nine months increased 7%. The remaining
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
Third Quarter Nine Months
(In millions of dollars) 1994 1993 1994 1993
Revenue $153.5 $134.3 $458.3 $371.4
Expense 100.0 88.9 302.4 246.3
Operating Income $ 53.5 $ 45.4 $155.9 $125.1
Operating Income Margin 34.8% 33.8% 34.0% 33.7%
Assets managed by Putnam, which consist of approximately 60%
fixed income and 40% equity securities, are presented below:
Third Quarter
(In billions of dollars) 1994 1993
Quarter-end Assets:
Mutual Funds $68.2 $60.3
Institutional Accounts 27.9 24.1
$96.1 $84.4
Average Assets $94.9 $81.0
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 14% compared with the third quarter
1993 and 23% for the nine months, reflecting 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, particularly in the first half of the year.
Expense
Expenses for Putnam increased 12% in the third quarter of 1994
and 23% for the nine 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 for the nine months rose 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 $2.4 million in the
third quarter of 1994 was essentially the same as the comparable
period of 1993 and decreased slightly for the nine months.
Interest expense increased 13% in the third quarter of 1994 from
1993, due to an increase in commercial paper borrowings and
higher interest rates. For the nine months interest expense
increased to $37.0 million from $34.7 million in 1993.
Income Taxes
The Company's consolidated domestic and foreign tax rates were
39.5% of income before income taxes for the third quarter and
nine months of 1994 compared with 41.8% and 40.5% for the
comparable periods last year. The reduction in the consolidated
tax rate reflects savings attributable to tax planning strategies
implemented throughout the world.
Liquidity and Capital Resources
The Company's cash and cash equivalents aggregated $338.9 million
on September 30, 1994, as compared with $332.0 million on
December 31, 1993. In the nine months ended September 30, 1994,
the Company generated $258.3 million of cash from operations
compared with $173.9 million in 1993.
Cash flow from operations includes the net cash requirements of
Putnam's prepaid dealer commissions, which amounted to $109.7
million for the nine months ended September 30, 1994, compared
with $188.0 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.
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 $87.9
million in the first nine months of 1994 and $74.3 million in
1993, have primarily related to computer equipment purchases and
the refurbishing and modernizing of office facilities.
The other liabilities in the Consolidated Balance Sheets, which
totaled $568.5 million on September 30, 1994 and $592.8 million
at December 31, 1993, include the Company's long-term pension
liability; reserves related to the Company's professional
liability insurance coverage; 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
SEPTEMBER 30, 1994
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
14th day of November, 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