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, 1996
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 30, 1996, there were outstanding 73,032,889 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
March 31,
1996 1995
Revenue $1,070.7 $955.2
Expense 828.2 741.6
Operating Income 242.5 213.6
Interest Income 3.5 4.1
Interest Expense (15.2) (14.7)
Income Before Income Taxes 230.8 203.0
Income Taxes 87.7 78.2
Net Income $ 143.1 $124.8
Net Income Per Share $1.96 $1.71
Average Number of Shares Outstanding 72.9 73.1
Dividends Declared $.80 $.725
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents
(including interest-bearing amounts
of $316.7 at March 31, 1996 and
$290.4 at December 31, 1995) $ 338.7 $ 328.1
Receivables-
Commissions and fees 867.1 830.5
Advanced premiums and claims 82.9 78.8
Consumer finance and other 208.4 271.5
1,158.4 1,180.8
Less-allowance for doubtful accounts (46.8) (48.3)
Net receivables 1,111.6 1,132.5
Other current assets 228.5 218.5
Total current assets 1,678.8 1,679.1
Consumer finance receivables, net 153.2 151.3
Long-term securities 449.8 411.8
Fixed assets, net 755.6 757.5
(net of accumulated depreciation and
amortization of $660.1 at March 31, 1996
and $638.5 at December 31, 1995)
Intangible assets 715.4 729.7
Other assets 685.7 600.1
$4,438.5 $4,329.5
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions of dollars)
(Unaudited)
March 31, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 655.7 $ 571.1
Accrued compensation and employee benefits 163.2 257.4
Accounts payable and accrued liabilities 453.5 485.4
Accrued income taxes 207.8 197.4
Dividends payable 58.4 58.2
Total current liabilities 1,538.6 1,569.5
Fiduciary liabilities 1,893.0 1,672.6
Less - cash and investments held in
a fiduciary capacity (1,893.0) (1,672.6)
- -
Long-term debt 409.7 410.6
Other liabilities 714.6 683.9
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, 1996 and
December 31, 1995 76.8 76.8
Additional paid-in capital 155.4 155.5
Retained earnings 1,773.1 1,688.4
Unrealized securities holding gains,
net of income taxes 166.4 149.2
Cumulative translation adjustments (98.4) (86.7)
2,073.3 1,983.2
Less - treasury shares, at cost,
3,735,439 shares at March 31, 1996 and
4,020,742 shares at December 31, 1995 (297.7) (317.7)
Total stockholders' equity 1,775.6 1,665.5
$4,438.5 $4,329.5
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of dollars)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Operating cash flows:
Net income $143.1 $124.8
Depreciation and amortization 34.9 32.2
Deferred income taxes 15.7 7.9
Other liabilities 3.2 (2.7)
Prepaid dealer commissions (83.9) (9.2)
Other, net (2.8) (10.8)
Net changes in working capital
other than cash and cash equivalents -
Receivables 17.5 (40.6)
Other current assets 10.2 (7.1)
Accrued compensation and employee benefits (94.2) (93.1)
Accounts payable and accrued liabilities (28.1) (15.2)
Accrued income taxes 12.2 50.0
Effect of exchange rate changes 2.9 (8.2)
Net cash generated from operations 30.7 28.0
Financing cash flows:
Net change in debt 86.6 73.4
Purchase of treasury shares (14.9) (34.4)
Issuance of common stock 30.6 12.8
Dividends paid (58.1) (53.1)
Other, net .6 (4.6)
Net cash provided by (used for)
financing activities 44.8 (5.9)
Investing cash flows:
Additions to fixed assets (31.5) (33.5)
Acquisitions (1.1) (6.6)
Other, net (30.8) 2.3
Net cash used for investing activities (63.4) (37.8)
Effect of exchange rate changes on cash
and cash equivalents (1.5) 5.9
Increase (decrease) in cash & cash equivalents 10.6 (9.8)
Cash & cash equivalents at beginning of period 328.1 294.9
Cash & cash equivalents at end of period $338.7 $285.1
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, 1996 and 1995.
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 $23.5 million and $24.8 million for the three
months ended March 31, 1996 and 1995, respectively.
Net uncollected premiums and claims and the related payables
amounting to $3.4 billion at March 31, 1996 and $3.1 billion
at December 31, 1995, 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, 1996 and 1995.
(In millions of shares)
1996 1995
Primary 1.1 .7
Fully Diluted 1.1 .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) 1996 1995
Purchase acquisitions:
Assets acquired, excluding cash $1.1 $21.0
Liabilities assumed - (7.9)
Issuance of debt and other
obligations - (6.5)
Net cash outflow for acquisitions $1.1 $ 6.6
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) 1996 1995
Net change in debt with maturities
of three months or less $ 7.8 $(131.2)
Borrowings with maturities
over three months 165.6 206.1
Repayments of debt with maturities
over three months (86.8) (1.5)
Net increase in debt $ 86.6 $ 73.4
Interest paid during the three months ended March 31, 1996 and
1995 was $17.0 million and $22.5 million, respectively.
Income taxes paid during the three months ended March 31, 1996
and 1995 were $59.2 million and $28.6 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. 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,
including litigation, have arisen or been deferred by agreement
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
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.
7. New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which
is effective for fiscal years beginning after December 15, 1995.
In accordance with the statement, the Company will provide new
footnote disclosures in its 1996 annual report presenting pro
forma net income and earnings per share amounts as if employee
stock options had been expensed based on their estimated fair
value on the grant date, determined by using certain option
pricing models.
Marsh & McLennan Companies, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
First Quarter Ended March 31, 1996
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) 1996 1995
Revenue:
Insurance Services $ 555.5 $541.4
Consulting 276.9 249.6
Investment Management 238.3 164.2
1,070.7 955.2
Expense:
Compensation and Benefits 539.3 474.7
Other Operating Expenses 288.9 266.9
828.2 741.6
Operating Income $ 242.5 $213.6
Operating Income Margin 22.6% 22.4%
Revenue, derived mainly from commissions and fees, rose 12% from
the first quarter of 1995 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 consulting services.
Operating expenses rose 12% in the first quarter of 1996 primarily
due to costs associated with staff growth as well as higher
incentive compensation levels in the investment management and
consulting segments 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.
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation," which is
effective for fiscal years beginning after December 15, 1995. In
accordance with the statement, the Company will provide new
footnote disclosures in its 1996 annual report presenting pro forma
net income and earnings per share amounts as if employee stock
options had been expensed based on their estimated fair value on
the grant date, determined by using certain option pricing models.
Insurance Services
(In millions of dollars) 1996 1995
Revenue:
Insurance Broking $371.1 $347.5
Reinsurance Broking 87.6 95.4
Insurance Program Management 73.3 73.7
Interest Income on Fiduciary Funds 23.5 24.8
555.5 541.4
Expense 399.0 387.9
Operating Income $156.5 $153.5
Operating Income Margin 28.2% 28.4%
Insurance Broking Revenue
Insurance broking revenue, received from a predominantly corporate
clientele, increased 7% from the first quarter of 1995. Client
revenue rose primarily due to an increase in certain global
specialty operations including aviation and marine coverages along
with new business growth in Continental Europe. In the United
States, property premium rates declined with the exception of
catastrophe coverages such as coastal windstorm exposures where
rates have stabilized, while the casualty market experienced
renewal rates which were generally 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 8% in the first quarter of
1996. The consolidation of various U.S. and U.K. insurance entity
clients had the effect of reducing their global reinsurance
demands. This reduction along with the impact of lower property
catastrophe premium rates resulted in a 12% decline in related
revenue, which was offset, in part, by an increase in revenue from
Marsh & McLennan Risk Capital related activities. The Company
expects these market conditions to continue for the remainder of
the year.
Insurance Program Management Revenue
Insurance program management revenue decreased 1% from the first
quarter of 1995. Revenue for Seabury & Smith, which operates
primarily in North America, increased 5% from 1995. This growth
was largely the result of increased services provided to
corporations and institutions and their employees, increased
insurance placed on behalf of small businesses, and higher revenue
from professional liability products in the United States. Revenue
for the Frizzell Group, which operates in the United Kingdom,
decreased 6% in the first quarter of 1996. Excluding the impact
of a stronger U.S. dollar, Frizzell's revenue decreased 3%
reflecting the continued competitive marketplace for motor and
household insurance services.
On February 7, 1996, the Company signed an agreement that is
expected to lead to the sale of the Frizzell Group for
approximately $289 million. The transaction, which is subject to
various regulatory and other approvals, is expected to be completed
by the end of the second quarter of 1996.
Interest Income on Fiduciary Funds
Interest income on fiduciary funds decreased 5% in the first
quarter of 1996 due to generally lower average short-term interest
rates particularly in North America and Continental Europe.
Expense
Insurance services expenses increased 3% from the first quarter of
1995 primarily reflecting normal salary progressions. Expenses
associated with technology and systems automation initiatives
continued at approximately the prior year level.
Consulting
(In millions of dollars) 1996 1995
Revenue $276.9 $249.6
Expense 252.6 228.4
Operating Income $ 24.3 $ 21.2
Operating Income Margin 8.8% 8.5%
Revenue
Consulting services revenue increased 11% in 1996 as demand for
services in all major practices increased. Retirement consulting
revenue, which represented 45% of the consulting segment, grew 10%
in the first quarter reflecting higher demand in North America,
Continental Europe and Latin America. Revenue rose 15% in the
global compensation practice, 13% in general management consulting
and 3% in health care consulting during the first quarter of 1996.
Expense
Consulting services expenses increased 11% in the first quarter of
1996. The increase reflects the impact of staff growth to support
new business, higher incentive compensation and normal salary
progressions.
Investment Management
(In millions of dollars) 1996 1995
Revenue $238.3 $164.2
Expense 164.8 115.2
Operating Income $ 73.5 $ 49.0
Operating Income Margin 30.8% 29.9%
Revenue
Putnam's revenue increased 45% compared with the first quarter of
1995 reflecting exceptional growth in the level of assets under
management on which management fees are earned. The higher asset
level reflects a record level of mutual fund sales, higher equity
market valuations and new 401(k) business.
Expense
Putnam's expenses rose 43% in the first quarter of 1996 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 resulting from the
higher level of business activity.
Quarter-end and average assets under management for the first
quarter are presented below:
(In billions of dollars) 1996 1995
Mutual Funds:
Domestic Equity $ 54.9 $ 30.1
Taxable Bond 26.6 23.4
Tax-Free Income 16.2 16.0
International Equity 4.6 2.8
102.3 72.3
Institutional Accounts:
Fixed Income 18.5 19.1
Domestic Equity 10.4 7.3
International Equity 4.7 2.6
33.6 29.0
Quarter-end Assets $135.9 $101.3
Average Assets $131.2 $98.0
Assets under management are affected by fluctuations in domestic
and international bond and stock market prices, by the level of
investments and withdrawals for current and new fund shareholders
and clients, by the development and marketing 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.
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. At the end of the
first quarter, assets held in equity securities represented 55% of
assets under management, compared with 42% in 1995, while
investments in fixed income products represented 45%, compared with
58% last year.
Interest
Interest income earned on corporate funds declined to $3.5 million
in the first quarter of 1996 compared with $4.1 million in 1995
primarily due to generally lower yields worldwide. Interest
expense increased to $15.2 million in the first quarter of 1996
from $14.7 million in 1995 due to an increase in commercial paper
borrowings. The higher level of commercial paper borrowings
primarily reflected the funding of Putnam's prepaid dealer
commissions which has continued to increase due to a record level
of funds sold with a deferred sales charge.
Income Taxes
The Company's consolidated tax rates were 38.0% of income before
income taxes in the first quarter compared with 38.5%, respectively
for the comparable period of 1995. 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 $338.7 million
on March 31, 1996, compared with $328.1 million on December 31,
1995. In the three months ended March 31, 1996, the Company
generated $30.7 million of cash from operations compared with $28.0
million in 1995.
Cash flow from operations includes the net cash requirements of
Putnam's prepaid dealer commissions, which amounted to $83.9
million for the three months compared with $9.2 million during the
same period of 1995. 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 $31.5 million
in the first three months of 1996 and $33.5 million in the first
quarter of 1995, were primarily related to computer equipment
purchases and the refurbishing and modernizing of office
facilities.
As previously mentioned, the Company has signed an agreement that
is expected to lead to the sale of the Frizzell Group for
approximately $289 million. Completion of the transaction is
expected by the end of the second quarter of 1996.
The other liabilities in the Consolidated Balance Sheets, which
totaled $714.6 million on March 31, 1996 and $683.9 million on
December 31, 1995, 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, 1996
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
13th day of May, 1996 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