FINANCIAL HIGHLIGHTS
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For the Three Years Ended December 31, 1994
(IN MILLIONS, EXCEPT PER SHARE FIGURES) 1994 1993 1992
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REVENUE $3,435.0 $3,163.4 $2,937.0
OPERATING INCOME $ 670.3 $ 592.8 $ 541.0
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ 631.5 $ 558.6 $ 519.3
NET INCOME $ 371.5 $ 332.4 $ 263.7
STOCKHOLDERS' EQUITY $1,460.6 $1,365.3 $1,102.9
INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES $5.19 $4.52 $4.21
NET INCOME PER SHARE $5.05 $4.52 $3.65
DIVIDENDS PAID PER SHARE $2.80 $2.70 $2.65
RETURN ON AVERAGE STOCKHOLDERS' EQUITY 26% 27% 25%
YEAR-END STOCK PRICE $79 1/4 $81 1/4 $91 3/8
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MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
The consolidated results of operations follow:
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(IN MILLIONS, EXCEPT
PER SHARE FIGURES) 1994 1993 1992
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REVENUE:
Insurance Services $1,886.5 $1,790.5 $1,632.8
Consulting 933.1 854.8 908.2
Investment Management 615.4 518.1 396.0
-------- -------- --------
3,435.0 3,163.4 2,937.0
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EXPENSE:
Compensation and Benefits 1,740.2 1,635.7 1,557.8
Other Operating Expenses 1,024.5 934.9 838.2
-------- -------- --------
2,764.7 2,570.6 2,396.0
-------- -------- --------
OPERATING INCOME $ 670.3 $ 592.8 $ 541.0
-------- -------- --------
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES $382.0 $332.4 $303.8
------ ------ ------
------ ------ ------
NET INCOME $371.5 $332.4 $263.7
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PER SHARE DATA:
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES $5.19 $4.52 $4.21
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NET INCOME $5.05 $4.52 $3.65
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AVERAGE NUMBER OF SHARES OUTSTANDING 73.6 73.5 72.2
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Revenue, which is derived mainly from commissions and fees, increased 9% in 1994
reflecting growth in each of the Company's business segments. Insurance
services revenue rose 5% in 1994 as compared with 1993. Marsh & McLennan Risk
Capital ("MMRC") contributed approximately $27 million to the increase in
insurance services resulting from the realization of a portion of its holdings
in insurance entities that the Company was instrumental in originating. The
investment management segment achieved revenue growth of 19% over 1993 due to a
higher volume of business. Revenue for the consulting segment increased 9%
reflecting increased demand for its services worldwide.
In 1993, total revenue increased 8% over 1992 primarily reflecting a
significantly higher volume of business in the Company's investment management
segment and the impact of acquisitions.
Operating expenses increased 8% in 1994 largely due to ongoing systems
automation initiatives in the insurance services and consulting operations and
additional costs in the investment management and consulting segments
commensurate with the higher volume of business. Operating expenses increased
7% in 1993 compared with 1992 largely due to additional client service costs in
the investment management segment and the effect of acquisitions.
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.
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, totaled $10.5 million or $.14 per share.
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109,
"Accounting for Income Taxes." The cumulative effect of adopting these
standards reduced 1992 net income by $40.1 million or $.56 per share.
INSURANCE SERVICES
Revenue attributable to the insurance services segment consists primarily of
commissions and fees paid by insurance and reinsurance underwriters; fees paid
directly by clients; and interest income on premiums and claims collected and
not yet remitted to insurers, reinsurers or insureds, such funds being held in a
fiduciary capacity. The insurance services segment is affected by premium rate
levels in the property and casualty insurance industry and available insurance
capacity, as compensation is frequently related to the premiums paid by
insureds. Revenue is also affected by fluctuations in retained limits, insured
values and interest rates, the development of new products, markets and
services, and the volume of business from new and existing clients.
The Company has been instrumental in the formation of several substantial
insurance and reinsurance entities, including ACE Insurance Company Ltd., XL
Insurance Company Ltd., Centre Reinsurance Holdings Ltd. and Mid Ocean
Reinsurance Company Ltd., to alleviate, in part, capacity shortages in critical
segments of the insurance and reinsurance business. Through MMRC, the Company
has recognized compensation in various forms including fees, royalties and
dividends, as well as realized appreciation in the value of the Company's
capital deployed in insurance entities it assisted in organizing. These amounts
are reflected within the insurance services segment in the applicable line of
business to which they apply.
The results of operations for the Company's insurance services segment are
presented below:
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(IN MILLIONS OF DOLLARS) 1994 1993 1992
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REVENUE:
Insurance Broking $1,209.3 $1,147.0 $1,133.3
Reinsurance Broking 298.5 283.6 267.1
Insurance Program Management 300.0 280.3 138.0
Interest Income on Fiduciary Funds 78.7 79.6 94.4
-------- -------- --------
1,886.5 1,790.5 1,632.8
EXPENSE 1,480.4 1,413.8 1,297.4
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OPERATING INCOME $ 406.1 $ 376.7 $ 335.4
-------- -------- --------
-------- -------- --------
OPERATING INCOME MARGIN 21.5% 21.0% 20.5%
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Insurance Broking Revenue
Insurance broking services are provided primarily in connection with risk
management and the insurance placement process and involve analyzing various
types of property and liability loss exposures and developing alternatives to
deal effectively with these exposures. Services include traditional insurance
broking activities and professional counseling services on risk management
issues including risk analysis, coverage requirements, self insurance,
alternative insurance and funding methods, claims collection, injury management
and loss prevention.
Insurance broking revenue, which is received from a predominantly corporate
clientele, increased 5% in 1994. MMRC contributed approximately $18 million to
the increase resulting from the realization of a portion of its holdings in
insurers. Client revenue grew in Continental Europe reflecting stable premium
rates and new business, and revenue in the United Kingdom rose as a result of
growth in certain specialty lines, particularly marine, energy and aviation. In
the United States, property premium rates were generally stable, except for
catastrophic coverage such as for earthquakes in California and windstorm
exposures on the East Coast, where rates have increased. The casualty market in
North America continues to experience renewal rates that are flat to down on a
year-over-year basis. The Company does not expect market conditions to change
significantly in the first part of 1995.
In 1993, insurance broking revenue increased 1% over 1992 levels. Excluding the
impact of a generally stronger U.S. dollar that lowered the translated value of
revenue, 1993 insurance broking revenue exceeded 1992 by approximately 5%.
Premium rates for casualty insurance were stable to slightly down in North
America. Property rates for complex risks and catastrophic coverage increased
worldwide, and commercial premium rates continued to rise in the United Kingdom,
Continental Europe and in various specialty lines.
Reinsurance Broking Revenue
Reinsurance broking services involve acting as an intermediary for insurance and
reinsurance organizations on all classes of reinsurance. The intermediary
assists the insurance underwriter by providing advice, placing reinsurance
coverage with reinsurance organizations worldwide and furnishing related
services.
Reinsurance broking revenue increased 5% in 1994. MMRC contributed
approximately $9 million to the increase resulting from the realization of a
portion of its holdings in reinsurers. Excluding these transactions, revenue
increased 2% in 1994 reflecting the impact of higher volume due to increased
capacity for property catastrophe reinsurance and new business offset, in part,
by lower demand in the London market. Premium rates began to react to the
increased capacity and declined somewhat in the second half of the year.
In 1993, reinsurance broking revenue increased 6% over 1992, or approximately
10% excluding the effect of currency exchange rate fluctuations primarily due to
the impact of continued higher rates for property catastrophe reinsurance and
new business.
Insurance Program Management Revenue
Insurance program management primarily designs, places and administers life,
health, accident, disability, automobile, homeowners and professional liability
insurance programs for individuals, businesses and their employees, and
organizations and their members in North America and the United Kingdom. In
addition, it provides underwriting management services to insurers. In the
United Kingdom, it also provides personal financial planning and consumer
finance services to members of affinity groups.
Insurance program management revenue increased 7% in 1994. Revenue within North
America increased 8% from 1993 reflecting increased services provided to
corporations and institutions and increased insurance placed on behalf of small
businesses, as well as growth in professional liability programs. In the United
Kingdom, revenue grew 6% primarily due to an increase in demand for consumer
finance services. The market for motor and household insurance services in the
United Kingdom has become increasingly competitive.
In 1993, insurance program management revenue doubled compared with 1992
primarily due to the acquisition of The Frizzell Group Limited ("Frizzell"), a
U.K. firm, in December 1992. Within North America, revenue rose 2% in 1993
reflecting increased insurance placed on behalf of associations and their
members and small businesses, and from services provided to corporations and
institutions.
Interest Income on Fiduciary Funds
Interest income on fiduciary funds decreased 1% in 1994 due to lower average
short-term interest rates, particularly in the first half of the year, on funds
held outside North America. The decline outside North America was offset, in
large part, as U.S. and Canadian yields rose steadily during the year, the first
increase experienced since 1990.
In 1993, interest income on fiduciary funds decreased 16% compared with 1992
primarily due to lower average short-term interest rates. In the United States,
short-term interest rates continued to decline, while international rates fell
significantly.
Expense
Insurance services expenses increased 5% in 1994 primarily reflecting the impact
of ongoing spending on technology and systems automation initiatives and
provisions for excess office space on certain leases. The Company is in the
process of developing several major systems aimed at providing advanced
information and service to our clients. The Company expects to continue its
commitment to enhance and develop further its information systems.
Expenses for insurance services rose 9% in 1993 due to the impact of
acquisitions partially offset by the effect of the stronger U.S. dollar, which
reduced the translated value of expenses from international operations.
Excluding these items, expenses rose approximately 3% in 1993.
The results of operations for the Company's insurance services segment by
geographic area are presented below:
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(IN MILLIONS OF DOLLARS) 1994 1993 1992
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REVENUE:
United States $1,028.1 $ 971.4 $ 944.3
Europe 709.9 685.3 556.5
Canada 86.7 83.6 84.0
Pacific Rim and Other 61.8 50.2 48.0
-------- -------- --------
$1,886.5 $1,790.5 $1,632.8
-------- -------- --------
-------- -------- --------
OPERATING INCOME:
United States $216.0 $208.3 $205.0
Europe 150.3 137.4 104.1
Canada 23.6 19.2 15.9
Pacific Rim and Other 16.2 11.8 10.4
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$406.1 $376.7 $335.4
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CONSULTING
The Company provides advice and services to the management of organizations
throughout the world in the areas of human resources, including retirement,
health care and compensation consulting, and general management, which comprises
strategy, operations, marketing and manufacturing. It also provides
microeconomic research and analysis. One of a few large global consulting
firms, Mercer maintains a network of offices that serves clients in every major
business center of the world.
The results of operations for the Company's consulting segment are presented
below:
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(IN MILLIONS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------
REVENUE $933.1 $854.8 $908.2
EXPENSE 836.7 768.6 792.1
------ ------ ------
OPERATING INCOME $ 96.4 $ 86.2 $116.1
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OPERATING INCOME MARGIN 10.3% 10.1% 12.8%
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Revenue
Consulting services revenue increased 9% in 1994. After adjusting for the net
impact of several modestly sized acquisitions in Europe, Latin America and
Australia, revenue grew 8% as demand for services in all practices increased
throughout the year. Revenue increased 22% in general management consulting in
1994 and 13% in the global compensation practice. Retirement consulting
revenue, which represented 46% of the consulting segment, grew 2% in 1994 as
higher demand in the United States, Continental Europe, Latin America and
Australia was partially offset by slight declines in the United Kingdom and
Canada. Health care consulting, representing 17% of the segment, grew 5% in
1994.
Revenue for consulting services decreased 6% in 1993 compared with 1992. This
decrease partially was due to the effect of the stronger U.S. dollar and the
disposition of Clayton Environmental Consultants, a U.S.-based company, during
the second quarter of 1993 offset, in part, by several acquisitions. Excluding
these items, consulting revenue was essentially unchanged from 1992. Benefits,
compensation and related consulting revenue decreased 6% in 1993, or
approximately 1% excluding the effect of currency exchange rate fluctuations.
In North America, revenue for retirement consulting declined as a highly
competitive marketplace combined with reduced discretionary spending by clients
created a difficult operating environment. This decrease was partially offset
by increased demand for consulting in health care, flexible benefits and
compensation-related areas. Revenue for general management consulting, which is
largely project oriented, increased approximately 8% in 1993 over 1992. Demand
for management consulting, especially for re-engineering business processes,
remained strong. Microeconomic consulting was essentially the same in 1993
compared with 1992.
Expense
Consulting services expenses increased 9% in 1994 partly due to the impact of
acquisitions. Excluding the effect of acquisitions, expenses grew approximately
7% reflecting higher staff levels consistent with increased demand in general
management and United States retirement consulting as well as higher systems-
related expenses associated with initiatives to expand and increase the
efficiency of services provided in the United States.
Expenses for the consulting segment decreased 3% in 1993. Excluding the effects
of the stronger U.S. dollar and the net impact of acquisitions and dispositions,
1993 expenses increased approximately 3%. Reflecting demand, staff levels
increased in general management consulting and declined slightly in the North
American retirement practice.
The results of operations for the Company's consulting segment by geographic
area are presented below:
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(IN MILLIONS OF DOLLARS) 1994 1993 1992
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REVENUE:
United States $586.4 $554.1 $582.3
Europe 197.3 173.7 190.8
Canada 78.4 83.3 94.5
Pacific Rim and Other 71.0 43.7 40.6
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$933.1 $854.8 $908.2
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------ ------ ------
OPERATING INCOME:
United States $50.2 $48.5 $70.9
Europe 30.1 24.1 27.1
Canada 11.7 11.8 15.5
Pacific Rim and Other 4.4 1.8 2.6
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$96.4 $86.2 $116.1
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The net impact of currency exchange rate fluctuations on the consulting
segment's results of operations was not material in 1994; however, these
fluctuations can affect the results of operations in individual geographic
areas. In Europe and Australia, the translated value of revenue and operating
income in 1994 was higher than 1993 due to a weaker U.S. dollar compared with
the respective currencies in those locations. These increases were essentially
offset by the reduced translated value of revenue and operating income in Canada
resulting from a stronger U.S. dollar compared with the Canadian dollar.
INVESTMENT MANAGEMENT
The Company's investment management services, which are performed principally in
the United States, are provided primarily under the "Putnam" name. The services
include investment research along with management, accounting and related
services for a group of publicly held registered investment companies (the
"Putnam Funds"). Investment management services are also provided to profit
sharing and pension funds, state retirement systems, university endowment funds,
charitable foundations and other domestic and foreign institutional accounts.
Putnam serves as transfer agent, dividend disbursing agent, registrar and
custodian for the Putnam Funds and provides one or more of such services to
several external clients. Putnam also acts as principal underwriter of the
shares of open-end Putnam Funds, selling primarily through independent
broker/dealers and financial institutions, and directly to certain large 401(k)
plans and other institutional accounts.
Revenue is derived primarily from investment management fees. These fees are
approved annually by the trustees or shareholders of the Putnam Funds and are
charged at various rates depending on the individual mutual fund and the level
of assets under management. Putnam also receives compensation for providing
certain shareholder services.
The results of operations for the Company's investment management segment are
presented below:
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(IN MILLIONS OF DOLLARS) 1994 1993 1992
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REVENUE $615.4 $518.1 $396.0
EXPENSE 407.2 348.8 271.6
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OPERATING INCOME $208.2 $169.3 $124.4
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OPERATING INCOME MARGIN 33.8% 32.7% 31.4%
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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.
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. As shown in the following table, assets held in
fixed income products declined by 7% in 1994 partially due to a decline in
market values. This decrease was more than offset by a 30% increase in assets
held in equity securities. During 1994, investors were attracted to the
potential for higher returns generated in the equity market and less toward
fixed income instruments. In 1993, both fixed income and equity assets
increased reflecting net additions to assets under management and market
appreciation.
Year-end and average assets under management are presented below:
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(IN BILLIONS OF DOLLARS) 1994 1993 1992
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MUTUAL FUNDS:
Domestic Equity $26.2 $20.8 $12.8
Taxable Bond 22.8 25.0 20.0
Tax-Free Income 15.2 16.9 12.0
International Equity 3.0 1.6 .8
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67.2 64.3 45.6
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INSTITUTIONAL ACCOUNTS:
Fixed Income 18.8 19.3 14.8
Domestic Equity 6.7 5.9 3.8
International Equity 2.6 1.4 .5
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28.1 26.6 19.1
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YEAR-END ASSETS $95.3 $90.9 $64.7
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AVERAGE ASSETS $93.5 $77.5 $57.5
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Revenue
Putnam's revenue increased 19% in 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 partially
offset by a decline in securities market valuations.
Revenue for Putnam increased 31% in 1993 reflecting strong growth in the level
of assets under management on which management fees are earned. The higher
asset level reflected increased institutional and mutual fund sales along with
higher securities market valuations.
Putnam had historically marketed front-end load funds through broker/dealers
and, more recently, through financial institutions including banks. In 1992,
Putnam commenced a marketing program that made certain mutual funds available
with a deferred sales charge. The related commissions, initially paid by Putnam
to broker/dealers for distributing the funds, are recovered through charges and
fees received over a number of years. This program gained wide acceptance and
has been expanded to essentially all of Putnam's mutual funds.
Expense
Putnam's expenses rose 17% in 1994 reflecting increased compensation and
benefits expense due to staff level growth consistent with new business, higher
incentive compensation levels commensurate with strong operating performance and
normal salary progressions. The increase in other operating expenses primarily
is due to a higher volume of business and higher client service-related systems
costs.
Expenses for Putnam increased 28% in 1993. Compensation and benefits expense
increased due to normal salary progressions, growth in staff necessary to meet
the demands of new business and incentive compensation levels commensurate with
strong operating performance. Other operating expenses rose in 1993 due to the
increased volume of business and higher client service-related expenses, such as
communications and information system costs.
INTEREST
Interest income earned on corporate funds was $11.8 million in 1994 compared
with $11.9 million in 1993. Yields in North America rose steadily during the
year offset by lower interest rates in Europe. Interest expense increased to
$50.6 million in 1994 from $46.1 million in 1993 due to an increase in
commercial paper borrowings and higher average interest rates on those
borrowings. The higher level of commercial paper borrowings reflected the
funding of Putnam's prepaid dealer commissions and the Company's share
repurchase program.
Interest income earned on corporate funds decreased to $11.9 million in 1993
from $16.6 million in 1992 due to significantly lower short-term interest rates
throughout the world. Interest expense increased to $46.1 million in 1993 from
$38.3 million in 1992 due to an increase in commercial paper borrowings,
partially offset by lower interest rates on those borrowings. The higher level
of commercial paper borrowings related to the funding of acquisitions in 1992
and the funding of Putnam's prepaid dealer commissions.
INCOME TAXES
The Company's consolidated domestic and foreign tax rates were 39.5% of income
before income taxes in 1994, 40.5% in 1993 and 41.5% in 1992. The reduction in
the 1994 tax rate reflects worldwide savings attributable to tax planning
strategies. The reduction in the tax rate in 1993 reflected the resolution of
various tax issues throughout the world. The overall tax rates are higher than
the U.S. statutory rates primarily because of the impact of state and local
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents aggregated $294.9 million at the end of
1994, a decrease of $37.1 million from the end of 1993.
Operating Cash Flows
The Company generated $368.5 million of cash from operations in 1994 compared
with $238.1 million in 1993. These amounts reflect the net income earned by the
Company in those years adjusted for non-cash charges and working capital
changes. Included in the cash flow from operations are the net cash
requirements of Putnam's prepaid dealer commissions, which amounted to $111.9
million in 1994 compared with $254.3 million in 1993. The current portion of
these prepaid dealer commissions is included in other current assets and the
long-term portion is included in other assets in the Consolidated Balance
Sheets. The tax benefit associated with these prepaid dealer commissions is
recorded in deferred taxes, the long-term portion of which is included in other
liabilities in the Consolidated Balance Sheets. The Company anticipates that
internally generated funds will be sufficient to meet the Company's foreseeable
recurring cash requirements, including dividends, capital expenditures and
scheduled repayments of long-term debt.
Financing Cash Flows
Financing activities for the Company reduced cash by $189.8 million in 1994 and
by $109.1 million in 1993. Dividends paid by the Company amounted to $206.4
million in 1994 ($2.80 per share) and $198.5 million in 1993 ($2.70 per share).
The Company regularly purchases shares of its common stock to meet the
requirements of the various stock compensation and benefit programs. During
1994, the Company purchased 1.7 million shares, while 535,000 shares of common
stock were purchased in 1993.
The Company maintains credit facilities with several banks primarily to support
its commercial paper borrowings. These facilities, which expire at various
dates through May 1996, provide that the Company may borrow up to $330 million
at varying market rates of interest. The Company also maintains other credit
facilities, related to operations located outside of the United States,
aggregating $70.9 million as of December 31, 1994.
The Company has a fixed rate non-recourse mortgage note agreement due in 2009
amounting to $200 million, bearing an interest rate of 9.8%, in connection with
its 56% interest in its worldwide headquarters building. Also related to the
purchase and renovation of the building, the Company has an interest rate swap
that fixes the interest rate on $100 million of commercial paper borrowings at
approximately 9.5% until February 1999.
Frizzell, the U. K.-based insurance program management firm, has a consumer
finance operation that provides affinity group members with a variety of
services including insurance premium financing programs, personal and secured
loans, mortgage loans and credit cards. These loans are financed by the
acceptance of deposits from the affinity group members and through bank
borrowings. The borrowings are under credit facilities maintained with various
banks aggregating $206 million. Customer deposits have one- to three-year
terms. The current portion of these deposits is included in accounts payable
and accrued liabilities, and the long-term portion is included in other
liabilities in the Consolidated Balance Sheets. The profitability of this
operation is sensitive to interest rate fluctuations as changes in interest
rates can affect the margin between interest earned on assets and interest paid
on liabilities. Risk management instruments such as interest rate swaps and
forward rate agreements are utilized to protect operating margins from the
effect of interest rate fluctuations.
Investing Cash Flows
The Company's capital expenditures, which amounted to $149.1 million in 1994 and
$98.8 million in 1993, have primarily related to computer equipment purchases
and the refurbishing and modernizing of office facilities.
The Company has been instrumental in developing new sources of insurance
capacity when market capacity has been limited. The Company, through MMRC,
maintains a minority ownership interest in the various entities it assisted in
organizing. These investments have been classified as securities available for
sale and, as discussed more fully in Note 11 to the consolidated financial
statements, the aggregate fair value of these holdings is included in long-term
securities in the Consolidated Balance Sheets. The Company, through Marsh &
McLennan Risk Capital Holdings, expects to continue to make strategic
investments in response to insurance and reinsurance capacity limitations and
related client needs, as appropriate.
Other
The insurance coverage for potential liability resulting from alleged errors and
omissions in the professional services provided by the Company includes elements
of both risk retention and risk transfer. The Company believes it has
adequately reserved for the self-insurance contingencies. Payments related to
the respective self-insured layers are made as legal fees are incurred and
claims are resolved and generally extend over a considerable number of years.
The amounts paid in that regard vary in relation to the severity of the claims
and the number of claims active in any particular year. The long-term portion
of this liability is included in other liabilities in the Consolidated Balance
Sheets.
The Company's policy for funding its tax qualified U.S. defined benefit
retirement plan is to contribute amounts at least sufficient to meet the funding
requirements set forth in U.S. employee benefit and tax laws. As described more
fully in Note 5 to the financial statements, the plan is currently well funded;
consequently, the Company has not been able to make a tax deductible
contribution since 1986. Because this situation is expected to continue, a 1995
cash contribution is currently not anticipated. The related long-term pension
liability is included in other liabilities in the Consolidated Balance Sheets.
The Company contributes to certain health care and life insurance benefits
provided to its retired employees. As described more fully in Note 5 to the
financial statements, the cost of these postretirement benefits for employees in
the United States is accrued during the period up to the date employees are
eligible to retire, but is funded by the Company as incurred. This
postretirement liability is included in other liabilities in the Consolidated
Balance Sheets.
Cumulative translation adjustments, a component of stockholders' equity in the
Consolidated Balance Sheets, represent the cumulative effect of translating the
financial statements of the Company's international operations from functional
currencies to U.S. dollars.
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
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For the Three Years Ended December 31, 1994
(IN MILLIONS, EXCEPT PER SHARE FIGURES) 1994 l993 1992
- ---------------------------------------------------------------------------
REVENUE $3,435.0 $3,163.4 $2,937.0
EXPENSE 2,764.7 2,570.6 2,396.0
-------- -------- --------
OPERATING INCOME 670.3 592.8 541.0
INTEREST INCOME 11.8 11.9 16.6
INTEREST EXPENSE (50.6) (46.1) (38.3)
-------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES 631.5 558.6 519.3
INCOME TAXES 249.5 226.2 215.5
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES 382.0 332.4 303.8
CUMULATIVE EFFECT OF ACCOUNTING CHANGES
(NET OF INCOME TAX BENEFIT OF $7.2 IN
1994 AND $32.1 IN 1992) (10.5) -- (40.1)
-------- -------- --------
NET INCOME $ 371.5 $ 332.4 $ 263.7
-------- -------- --------
-------- -------- --------
PER SHARE DATA:
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES $5.19 $4.52 $4.21
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (.14) -- (.56)
---- ------ -----
NET INCOME $5.05 $4.52 $3.65
----- ----- -----
----- ----- -----
AVERAGE NUMBER OF SHARES OUTSTANDING 73.6 73.5 72.2
---- ---- ----
---- ---- ----
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (including interest-bearing
amounts of $265.6 in 1994 and $315.7 in 1993) $ 294.9 $ 332.0
-------- --------
Receivables --
Commissions and fees 692.3 617.0
Advanced premiums and claims 78.0 80.7
Consumer finance and other 229.6 198.2
-------- --------
999.9 895.9
Less - allowance for doubtful accounts (44.9) (42.9)
-------- --------
Net receivables 955.0 853.0
-------- --------
Other current assets 196.1 127.4
-------- --------
TOTAL CURRENT ASSETS 1,446.0 1,312.4
CONSUMER FINANCE RECEIVABLES, NET 150.4 130.8
LONG-TERM SECURITIES 282.8 363.6
FIXED ASSETS, NET 740.3 688.1
INTANGIBLE ASSETS 701.0 660.1
OTHER ASSETS 510.1 391.6
-------- --------
$3,830.6 $3,546.6
-------- --------
-------- --------
- ---------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
- --------------------------------------------------------------------------------------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 403.0 $ 273.8
Accrued compensation and employee benefits 220.8 173.5
Accounts payable and accrued liabilities 496.7 444.4
Accrued income taxes 218.7 237.1
Dividends payable 53.1 49.9
-------- ---------
TOTAL CURRENT LIABILITIES 1,392.3 1,178.7
-------- ---------
FIDUCIARY LIABILITIES 1,652.1 1,623.6
LESS--CASH AND INVESTMENTS HELD IN A
FIDUCIARY CAPACITY (1,652.1) (1,623.6)
-------- ---------
-- --
-------- ---------
LONG-TERM DEBT 409.4 409.8
-------- ---------
OTHER LIABILITIES 568.3 592.8
-------- ---------
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 in 1994 and 1993 76.8 76.8
Additional paid-in capital 166.1 173.5
Retained earnings 1,507.7 1,345.7
Unrealized securities holding gains, net of income taxes 91.6 138.6
Cumulative translation adjustments (105.4) (157.5)
-------- ---------
1,736.8 1,577.1
Less - treasury shares, at cost, 3,594,342 shares in 1994
and 2,862,926 shares in 1993 (276.2) (211.8)
-------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,460.6 1,365.3
-------- ---------
$3,830.6 $3,546.6
-------- ---------
-------- ---------
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING CASH FLOWS:
Net income $371.5 $332.4 $263.7
Depreciation and amortization 120.6 119.9 112.0
Deferred income taxes 48.0 94.2 (11.1)
Other liabilities (31.4) 3.0 27.9
Cumulative effect of accounting changes 10.5 -- 40.1
Prepaid dealer commissions (111.9) (254.3) (77.5)
Other, net (14.2) (11.5) (6.8)
Net changes in operating working capital
other than cash and cash equivalents -
Receivables (77.7) (38.4) 9.8
Other current assets (39.2) (8.4) (5.9)
Accrued compensation and employee benefits 46.9 17.9 (14.8)
Accounts payable and accrued liabilities 53.9 (16.2) 4.4
Accrued income taxes (17.5) 4.3 33.7
Effect of exchange rate changes 9.0 (4.8) (30.4)
------ ------ ------
NET CASH GENERATED FROM OPERATIONS 368.5 238.1 345.1
------ ------ ------
FINANCING CASH FLOWS:
Net change in debt 121.0 63.8 207.0
Purchase of treasury shares (142.8) (49.5) (28.2)
Issuance of common stock 68.6 75.6 96.1
Dividends paid (206.4) (198.5) (191.1)
Other, net (30.2) (.5) --
------ ------ ------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES (189.8) (109.1) 83.8
------ ------ ------
INVESTING CASH FLOWS:
Additions to fixed assets (149.1) (98.8) (82.8)
Acquisitions (18.4) (7.8) (260.4)
Other, net (55.9) (51.7) (48.0)
------ ------ ------
NET CASH USED FOR INVESTING ACTIVITIES (223.4) (158.3) (391.2)
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 7.6 (9.8) (15.6)
------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (37.1) (39.1) 22.1
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 332.0 371.1 349.0
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $294.9 $332.0 $371.1
------ ------ ------
------ ------ ------
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE FIGURES) 1994 l993 1992
- -----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
Balance, beginning and end of year $ 76.8 $ 76.8 $ 76.8
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year $ 173.5 $ 170.9 $ 175.8
Issuance of shares for acquisitions -- 1.3 --
Exercise of stock options and related tax benefits (1.9) (1.8) (6.3)
Issuance of shares under compensation plans
and related tax benefits .8 2.6 1.7
Issuance of shares under employee stock purchase
plans and related tax benefits (6.3) .5 (.3)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 166.1 $ 173.5 $ 170.9
- -----------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year $1,345.7 $1,212.3 $1,142.4
Net income 371.5 332.4 263.7
Cash dividends declared-(per share amounts:
$2.85 in 1994, $2.70 in 1993 and $2.675 in 1992) (209.5) (199.0) (193.8)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $1,507.7 $1,345.7 $1,212.3
- -----------------------------------------------------------------------------------------------------------------------------
UNREALIZED SECURITIES HOLDING GAINS,
NET OF INCOME TAXES
Balance, beginning of year $ 138.6 $ -- $ --
Realized gains, net of income taxes (27.6) -- --
Unrealized securities holding
gains (losses), net of income taxes (19.4) 138.6 --
- -----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 91.6 $ 138.6 $ --
- -----------------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS
Balance, beginning of year $ (157.5) $ (106.7) $ (18.0)
Translation adjustments 52.1 (50.8) (88.7)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ (105.4) $ (157.5) $ (106.7)
- -----------------------------------------------------------------------------------------------------------------------------
TREASURY SHARES
Balance, beginning of year $ (211.8) $ (250.4) $ (342.0)
Purchase of treasury shares (142.8) (49.5) (28.2)
Issuance of shares for acquisitions -- 7.7 --
Exercise of stock options 11.6 30.7 68.9
Issuance of shares under compensation plans 15.8 6.4 6.9
Issuance of shares under employee stock purchase
plans 51.0 43.3 44.0
- -----------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ (276.2) $ (211.8) $ (250.4)
- -----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $1,460.6 $1,365.3 $1,102.9
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Marsh & McLennan Companies, Inc. and all its
subsidiaries (the "Company"). Various subsidiaries and affiliates have
transactions with each other in the ordinary course of business. All
significant intercompany accounts and transactions have been eliminated.
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 $78.7
million in 1994, $79.6 million in 1993 and $94.4 million in 1992.
Net uncollected premiums and claims and the related payables, amounting to
$2.8 billion at December 31, 1994 and $2.7 billion at December 31, 1993, are not
included in the accompanying Consolidated Balance Sheets.
In certain instances, the Company advances premiums, refunds or claims to
insurance underwriters or insureds prior to collection. These advances are made
from corporate funds and are reflected in the accompanying Consolidated Balance
Sheets as receivables.
REVENUE: Revenue includes insurance commissions, fees for services rendered,
compensation for services provided in connection with the formation and
capitalization of various insurers and reinsurers, including gains from sales of
interests in such entities, commissions on the sale of mutual fund shares and
interest income on fiduciary funds. Insurance commissions generally are
recorded as of the effective date of the applicable policies or, in certain
cases (primarily in the Company's reinsurance and London market operations), as
of the effective date or billing date, whichever is later. Fees for services
rendered are recorded as earned. Sales of mutual fund shares are recorded on a
settlement date basis and commissions thereon are recorded on a trade date
basis, in accordance with industry practice.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents primarily consist of
certificates of deposit and time deposits, generally with original maturities of
three months or less. The Company maintains a policy providing for the
diversification of cash and cash equivalents to limit the concentration of
credit risk exposure.
FIXED ASSETS, DEPRECIATION AND AMORTIZATION: Fixed assets are stated at cost
less accumulated depreciation and amortization. Expenditures for improvements
are capitalized. Upon sale or retirement, the cost and related accumulated
depreciation and amortization are removed from the accounts and the resulting
gain or loss, if any, is reflected in income. Expenditures for maintenance and
repairs are charged to operations as incurred.
Depreciation of buildings, building improvements, furniture and equipment is
provided on a straight-line basis over the estimated useful lives of these
assets. Leasehold improvements are amortized on a straight-line basis over the
periods covered by the applicable leases or the estimated useful life of the
improvement, whichever is less.
The components of fixed assets at December 31, 1994 and 1993 are as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Land and buildings $ 388.7 $ 389.2
Furniture and equipment 640.6 604.1
Leasehold and building improvements 285.5 233.6
-------- --------
1,314.8 1,226.9
Less - accumulated depreciation and amortization (574.5) (538.8)
-------- --------
$ 740.3 $ 688.1
-------- --------
-------- --------
- ---------------------------------------------------------------------------
INTANGIBLE ASSETS: Acquisition costs in excess of the fair value of net assets
acquired are amortized on a straight-line basis over periods up to 40 years.
Other intangible assets are amortized on a straight-line basis over their
estimated lives.
PREPAID DEALER COMMISSIONS: Certain mutual funds marketed by the Company's
investment management segment are made available with a deferred sales charge.
The related commissions, initially paid by the Company to broker/dealers for
distributing the funds, are recovered through charges and fees received over a
number of years. The current portion of these prepaid dealer commissions,
amounting to $99.8 million and $67.4 million at December 31, 1994 and 1993,
respectively, is included in other current assets in the Consolidated Balance
Sheets. The long-term portion amounting to $356.6 million and $277.1 million at
December 31, 1994 and 1993, respectively, is included in other assets in the
Consolidated Balance Sheets.
INCOME TAXES: Income taxes are provided in the year transactions affect net
income, regardless of when those transactions are reported for tax purposes.
U.S. Federal income taxes are provided on unremitted foreign earnings except
those that are considered permanently reinvested, which at December 31, 1994
amounted to approximately $285 million. However, if these earnings were not
considered permanently reinvested, under current law, foreign tax credits would
effectively offset any incremental tax liability which otherwise might be due
upon distribution.
RISK MANAGEMENT INSTRUMENTS: Net amounts received or paid under interest rate
swaps and forward rate agreements are included in the Consolidated Statements of
Income as incurred.
PER SHARE DATA: Per share data is computed using the average number of shares of
the Company's common stock outstanding. The dilutive effect of common stock
equivalents is not material.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES: As discussed in Note 5, effective
January 1, 1994 the Company changed its method of accounting for postemployment
benefits and, as discussed in Notes 4 and 5, effective January 1, 1992 the
Company changed its method of accounting for income taxes and postretirement
benefits.
RECLASSIFICATIONS: Certain reclassifications have been made to the prior years'
financial statements to conform with the current year presentation.
2. SUPPLEMENTAL DISCLOSURE TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
The following schedule provides additional information concerning acquisitions:
- ---------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------
Purchase acquisitions:
Assets acquired, excluding cash $26.5 $35.7 $578.3
Liabilities assumed (3.8) (10.6) (317.9)
Issuance of debt and other obligations (4.3) (8.3) --
Shares issued -- (9.0) --
----- ----- ------
Net cash outflow for acquisitions $18.4 $ 7.8 $260.4
----- ----- ------
----- ----- ------
- ---------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------
Net change in debt with
maturities of three
months or less $380.4 $(16.0) $ 89.7
Borrowings with maturities
over three months 51.3 535.9 326.1
Repayments of debt with maturities
over three months (310.7) (456.1) (208.8)
------ ------ ------
Net change in debt $121.0 $ 63.8 $207.0
------ ------ ------
------ ------ ------
- ---------------------------------------------------------------------------
Interest paid during 1994, 1993 and 1992 was $48.1 million, $42.1 million and
$41.3 million, respectively.
Income taxes paid during 1994, 1993 and 1992 were $222.5 million, $122.4 million
and $179.7 million, respectively.
3. ACQUISITIONS
During 1994, the Company acquired or increased its interest in several insurance
services and consulting businesses for a total cost of $22.7 million consisting
of cash and future obligations in transactions accounted for as purchases. The
cost of these acquisitions exceeded the fair value of net assets acquired by
$21.1 million.
During 1993, the Company acquired several insurance broking and consulting
businesses for a total cost of $26.7 million in transactions accounted for as
purchases. The purchase price of these acquisitions consisted of $17.7 million
in cash and future obligations and 104,556 shares of the Company's common stock
having a fair market value of $9.0 million. The total cost of these
acquisitions exceeded the fair value of net assets acquired by $24.6 million.
During 1992, the Company acquired or increased its interest in several insurance
services and consulting businesses for a total cost of $305.0 million in
transactions accounted for as purchases. The cost of these acquisitions
exceeded the fair value of net assets acquired by $299.3 million.
The effect of these acquisitions was not material to the Company's results of
operations.
4. INCOME TAXES
Income before income taxes shown below is based on the geographic location to
which such income is attributable. Although income taxes related to such income
may be assessed in more than one jurisdiction, the income tax provision
corresponds to the geographic location of the income.
- ---------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------
Income before income taxes and
cumulative effect of accounting changes:
U.S. $377.5 $340.6 $314.9
Other 254.0 218.0 204.4
------ ------ ------
$631.5 $558.6 $519.3
------ ------ ------
------ ------ ------
Income taxes:
Current-
U.S. Federal $ 99.9 $ 29.9 $ 77.7
Other national governments 71.8 74.7 70.0
U.S. state and local 29.8 27.4 40.6
------ ------ ------
201.5 132.0 188.3
------ ------ ------
Deferred-
U.S. Federal 15.5 74.1 21.7
Other national governments 18.9 6.3 7.6
U.S. state and local 13.6 13.8 (2.1)
------ ------ ------
48.0 94.2 27.2
------ ------ ------
Total income taxes $249.5 $226.2 $215.5
------ ------ ------
------ ------ ------
- ---------------------------------------------------------------------------
The significant components of deferred income tax assets and liabilities and
their balance sheet classifications are as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Accrued expenses not currently deductible $171.5 $142.1
Accrued retirement benefits 75.9 76.8
Differences related to non-U.S. operations 52.8 62.6
Other 15.7 18.8
------ ------
315.9 300.3
Valuation allowance (24.7) (23.6)
------ ------
$291.2 $276.7
------ ------
------ ------
DEFERRED TAX LIABILITIES:
Depreciation and amortization $ 33.3 $ 31.3
Prepaid dealer commissions 207.5 157.8
Safe harbor leasing 28.4 33.5
Unbilled revenue 23.0 21.6
Unrealized securities holding gains 49.1 75.2
Differences related to non-U.S. operations 65.7 57.6
Other 20.1 20.9
------ ------
$427.1 $397.9
------ ------
------ ------
BALANCE SHEET CLASSIFICATIONS:
Other current assets $ 5.3 $ 8.4
Accrued income taxes 27.4 26.6
Other liabilities 113.8 103.0
- ---------------------------------------------------------------------------
The valuation allowance relates to certain foreign deferred income tax assets.
A reconciliation from the U.S. Federal statutory income tax rate to the
Company's effective income tax rate is as follows:
- ---------------------------------------------------------------------------
For the Three Years Ended
December 31, 1994 1994 1993 1992
- ---------------------------------------------------------------------------
U.S. Federal statutory rate 35.0% 35.0% 34.0%
U.S. state and local income taxes-net of U.S.
Federal income tax benefit 4.5 4.8 4.9
Differences related to non-U.S. operations (.3) .9 1.8
Other .3 (.2) .8
---- ---- ----
Effective tax rate 39.5% 40.5% 41.5%
---- ---- ----
---- ---- ----
The impact of the increase in the U.S. Federal statutory rate in 1993 on the
Company's deferred tax balances was not material.
Effective January 1, 1992, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which requires deferred income tax balances to be determined
using current tax rates; therefore, the impact of a change in tax rates on
deferred tax balances is recognized in income in the period that the change is
enacted. The cumulative effect of adopting this standard increased net income
in the first quarter of 1992 by $5.0 million ($.07 per share).
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.
5. RETIREMENT BENEFITS
The Company maintains pension or profit sharing plans for substantially all
employees.
DEFINED BENEFIT PLANS - U.S.: The Marsh & McLennan Retirement Plan provides
benefits to eligible U.S. employees. The benefits under this plan are based on
the participants' length of service and compensation, subject to the Employee
Retirement Income Security Act of 1974 and Internal Revenue Service (IRS)
limitations. The funding policy for this plan is to contribute amounts at least
sufficient to meet the requirements set forth in U.S. employee benefit and tax
laws. The plan assets are invested primarily in listed stocks, corporate bonds
and U.S. Government Securities.
The Marsh & McLennan Benefit Equalization Plan provides those retirement
benefits to which U.S. employees would otherwise be entitled under the Marsh &
McLennan Retirement Plan if not for IRS limitations.
The Marsh & McLennan Supplemental Retirement Plan provides a minimum level
of retirement benefits to employees based on the participants' length of service
and compensation. The plan provides benefits to participants to the extent
that the minimum benefit exceeds the aggregate retirement benefit provided by
the Marsh & McLennan Retirement Plan, the Marsh & McLennan Benefit Equalization
Plan and Social Security.
The Company has a program of funding the vested benefits under the Benefit
Equalization and Supplemental Retirement Plans by purchasing annuity contracts
periodically.
The components of pension cost for the U.S. defined benefit plans are as
follows:
- ---------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------
Service cost $25.7 $23.3 $21.8
Interest cost on projected
benefit obligations 50.7 46.9 43.2
Expected return on plan assets (70.1) (59.2) (53.6)
Net amortization (2.0) (4.6) (5.3)
----- ----- -----
$ 4.3 $ 6.4 $ 6.1
----- ----- -----
----- ----- -----
- ---------------------------------------------------------------------------
The actual returns on plan assets were $4.3 million, $95.1 million and $40.6
million for 1994, 1993 and 1992, respectively. These returns reflect the
general securities market conditions experienced in the respective years.
The funded status of the U.S. defined benefit plans and the actuarial
assumptions used to measure the projected benefit obligation are as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Actuarial present value of accumulated
benefit obligation:
Vested $530.8 $558.9
Nonvested 18.2 22.9
------ ------
$549.0 $581.8
------ ------
------ ------
Projected benefit obligation $655.9 $671.3
Fair value of plan assets 695.2 712.6
------ ------
39.3 41.3
Unrecognized net gain from past
experience different from that assumed (90.0) (93.3)
Unrecognized prior service cost 34.1 38.1
Unrecognized SFAS No. 87 transition amount (46.1) (50.6)
------ ------
Accrued pension liability $(62.7) $(64.5)
------ ------
------ ------
Actuarial assumptions:
Discount rate 8.75% 7.75%
Weighted average rate
of compensation increase 6% 5%
Expected long-term rate of return
on plan assets 10% 10%
- ---------------------------------------------------------------------------
In 1994, the discount rate used to value the liabilities of the U.S. defined
benefit plans was increased to reflect current interest rates of high quality
fixed income debt securities. Assumptions, including projected compensation
increases and cost of living adjustments for retirees, were also revised to
reflect current levels of inflation. The decrease in the accumulated benefit
obligation and the projected benefit obligation reflects, in part, the net
impact of the change in these assumptions.
DEFINED BENEFIT PLANS - NON-U.S.: The Company maintains various plans that
provide benefits to eligible non-U.S. employees. The benefits under these plans
are based on the participants' length of service and compensation. The funding
policy for these plans is to contribute amounts at least sufficient to meet the
requirements under foreign government regulations. The plans' assets are
primarily invested in listed stocks, bonds and time deposits.
The components of pension expense (credits) for the significant non-U.S.
defined benefit plans are as follows:
- ---------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------
Service cost $32.3 $29.8 $27.9
Interest cost on projected benefit obligations 45.1 46.7 40.4
Expected return on plan assets (68.4) (67.1) (62.0)
Net amortization (6.9) (6.7) (8.9)
----- ----- -----
$ 2.1 $ 2.7 $(2.6)
----- ----- -----
----- ----- -----
- ---------------------------------------------------------------------------
The actual returns on plan assets were ($31.7) million, $160.4 million and $89.5
million for 1994, 1993 and 1992, respectively. These returns reflect the
general securities market conditions experienced in the respective years and the
impact of currency exchange rate fluctuations.
The funded status of the significant non-U.S. defined benefit plans and the
weighted average actuarial assumptions used to measure the projected benefit
obligation are as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Actuarial present value of accumulated
benefit obligation:
Vested $542.4 $424.5
Nonvested 6.3 4.0
------ ------
$548.7 $428.5
------ ------
------ ------
Projected benefit obligation $643.5 $565.6
Fair value of plan assets 763.0 757.8
------ ------
119.5 192.2
Unrecognized net (gain) loss from past experience
different from that assumed 9.7 (74.1)
Unrecognized prior service benefit (4.4) ( 4.8)
Unrecognized SFAS No. 87 transition amount (34.8) (40.0)
------ ------
Prepaid pension cost $ 90.0 $ 73.3
------ ------
------ ------
Actuarial assumptions:
Discount rate 8.9% 8.0%
Weighted average rate of compensation increase 6.9% 6.1%
Expected long-term rate of return
on plan assets 10.3% 9.7%
- ---------------------------------------------------------------------------
In 1994, the discount rates used to value the liabilities of the non-U.S. plans
were increased to reflect current worldwide interest rates. Assumptions,
including projected compensation increases and cost of living adjustments for
retirees, were also revised to reflect current levels of inflation. The
increase in the accumulated benefit obligation and the projected benefit
obligation reflect, in part, the impact of the change in these assumptions and
the impact of foreign exchange rate fluctuations.
POSTRETIREMENT BENEFITS: The Company contributes to the cost of certain health
care and life insurance benefits provided to its retired employees. The cost to
the Company of these postretirement benefits is principally associated with
employees in the United States, as retired employees outside the United States
receive these benefits, in large part, from governmental health care programs.
United States employees become eligible for these benefits if they attain
retirement age while working for the Company, subject in certain instances to
minimum service requirements. The amount of the Company's contribution for
active employees who were not eligible to retire at January 1, 1991 is based, in
part, on their length of service with the Company. The cost of these
postretirement benefits is accrued during the period up to the date employees
are eligible to retire, but is funded by the Company as incurred.
The components of the United States postretirement benefits costs are as
follows:
- ---------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS) 1994 1993 1992
- ---------------------------------------------------------------------------
Service cost $1.6 $1.7 $1.4
Interest cost on accumulated postretirement benefits 6.2 7.0 6.7
---- ---- ----
$7.8 $8.7 $8.1
---- ---- ----
---- ---- ----
- ---------------------------------------------------------------------------
The accumulated postretirement benefit obligation at December 31, 1994 and 1993
is as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Retirees $51.4 $49.9
Fully eligible active plan participants 12.9 20.8
Other active plan participants 14.4 17.9
----- -----
78.7 88.6
Unrecognized net gain from past experience different
from that assumed 14.9 --
----- -----
Accrued postretirement liability $93.6 $88.6
----- -----
----- -----
- ---------------------------------------------------------------------------
The discount rates used in determining the accumulated postretirement benefit
obligations were 8 3/4% and 7 3/4% for 1994 and 1993, respectively. The
assumed health care cost trend rate was approximately 12% in 1994, gradually
declining to 4% in the year 2040. A 1% increase in the assumed health care cost
trend rates for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 by $8.9 million and the postretirement
benefit expense for the year then ended by $1.3 million.
In 1994, the discount rate used to value the accumulated postretirement benefit
obligation was increased to reflect current interest rates of high quality fixed
income debt securities. The decrease in the accumulated postretirement benefit
obligation reflects the impact of the change in the discount rate.
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The cumulative
effect of the change in accounting recorded in 1992 amounted to $45.1 million
($.63 per share). This noncash charge represents the accumulated postretirement
benefit obligation at January 1, 1992 ($77.2 million), partially reduced by a
deferred income tax benefit ($32.1 million).
DEFINED CONTRIBUTION PLANS: The Company maintains certain defined contribution
plans for its employees, including the Marsh & McLennan Companies Stock
Investment Plan ("SIP") and the Putnam Investments, Inc. Profit Sharing
Retirement Plan (the "Putnam Plan"). Under these plans, eligible employees may
contribute a percentage of their base salary, subject to certain limitations.
For the SIP, the Company matches a portion of the employees' contributions,
while under the Putnam Plan the contributions are at the discretion of the
Company subject to IRS limitations. The cost of these defined contribution
plans was $32.6 million, $31.3 million and $30.9 million for 1994, 1993 and
1992, respectively.
POSTEMPLOYMENT BENEFITS: Effective January 1, 1994, the Company adopted SFAS
No. 112, "Employers' Accounting for Postemployment Benefits." The cumulative
effect of the change in accounting recorded in 1994 amounted to $10.5 million
($.14 per share). This noncash charge represents the accumulated postemployment
benefit obligation at January 1, 1994 ($17.7 million), partially reduced by a
deferred income tax benefit ($7.2 million).
6. STOCK BENEFIT PLANS
INCENTIVE AND STOCK AWARD PLAN: In 1992, the Company's stockholders approved
the Marsh & McLennan Companies, Inc. 1992 Incentive and Stock Award Plan (the
"1992 Plan") under which awards may be granted to employees of the Company. The
types of awards permitted include stock options, restricted stock, restricted
stock units payable in Company common stock or cash, and other stock-based
awards. The Compensation Committee of the Board of Directors (the "Compensation
Committee") determines, in its discretion, which eligible employees will receive
awards, the types of awards to be received and the terms and conditions thereof.
The plan contains provisions which, in the event of a change in control of the
Company, may accelerate the vesting of the awards. Awards relating to not more
than 8,000,000 shares of common stock, plus such number of shares remaining
unused under the 1988 Incentive and Stock Award Plan (the "1988 Plan"), which
was terminated as to future awards and superseded by the 1992 Plan, may be made
over the five-year life of the 1992 Plan. There were 4,472,855 and 5,076,033
shares available for awards at December 31, 1994 and 1993, respectively.
STOCK OPTIONS: Options granted under the 1992 Plan may be designated as
incentive stock options or as non-qualified stock options. The Compensation
Committee shall determine the terms and conditions of the option, including the
time or times at which an option may be exercised, the methods by which such
exercise price may be paid and the form of such payment. Except under certain
limited circumstances, no stock option may be granted with an exercise price of
less than the fair market value of the stock at the time the stock option is
granted.
Stock option transactions under the 1992 Plan and prior plans are as follows:
- -----------------------------------------------------------------------------------------------
Exercise Price
Shares Per Share
- -----------------------------------------------------------------------------------------------
Balance at January 1, 1992
(3,552,821 exercisable) 5,877,471 $22 25/32 - 79 5/16
Granted 556,200 $73 7/8 - 92 1/16
Exercised (1,219,136) $22 25/32 - 79 5/16
Forfeited (189,250) $55 9/16 - 79 5/16
---------
Balance at December 31, 1992
(3,508,485 exercisable) 5,025,285 $22 25/32 - 92 1/16
Granted 3,550,970 $81 3/4 - 93 5/8
Exercised (494,337) $22 25/32 - 79 5/16
Forfeited (159,670) $55 9/16 - 93 5/8
---------
Balance at December 31, 1993
(4,206,018 exercisable) 7,922,248 $22 25/32 - 93 5/8
Granted 609,600 $74 15/16 - 88
Exercised (186,297) $22 25/32 - 79 5/16
Forfeited (224,410) $49 3/8 - 93 5/8
---------
Balance at December 31, 1994
(5,093,481 exercisable) 8,121,141 $33 3/16 - 93 5/8
---------
---------
RESTRICTED STOCK: Under the 1992 Plan, restricted shares of the Company's
common stock may be awarded and shall be subject to such restrictions on
transferability and other restrictions, if any, as the Compensation Committee
may impose. The Compensation Committee may also determine when and under what
circumstances the restrictions may lapse and whether the participant shall have
the rights of a stockholder, including, without limitation, the right to vote
and receive dividends. Unless the Compensation Committee determines otherwise,
restricted stock that is still subject to restrictions shall be forfeited upon
termination of employment.
There were 59,900 and 68,500 restricted shares granted in 1994 and 1993,
respectively, under the 1992 Plan and 76,300 restricted shares granted in 1992
under the 1988 Plan. The fair market value of these shares at the date of
grant, $4.9 million in 1994, $6.4 million in 1993 and $5.6 million in 1992, was
charged to expense. Shares that have been granted become unrestricted at the
earlier of January 1 of the eleventh year following the grant or the recipient's
normal retirement date or, for shares granted after 1987, the recipient's actual
retirement date if later than the normal retirement date.
RESTRICTED STOCK UNITS: Restricted stock units, payable in stock or cash, may
be awarded under the 1992 Plan. The Compensation Committee shall determine the
restrictions on such units, when the restrictions shall lapse, when the shares
of stock shall vest and be paid, and upon what terms the units shall be
forfeited.
There were 33,818 and 8,300 restricted stock units awarded during 1994 and 1993,
respectively, under the 1992 Plan and 39,330 incentive units, which have the
same characteristics as restricted stock units under the 1992 Plan, awarded
under the 1988 Plan during 1992.
STOCK PURCHASE PLAN: In May 1994, the Company's stockholders approved an
employee stock purchase plan (the "1994 Plan") to replace the 1990 Employee
Stock Purchase Plan which terminated on September 30, 1994 following its fourth
annual offering. Under these plans, eligible employees may purchase shares of
the Company's common stock, subject to certain limitations, at prices not less
than 85% of the lesser of the fair market value of the stock at the beginning or
end of any offering period. Under the 1994 Plan, no more than 4,000,000 shares
of the Company's common stock plus the remaining unissued shares in the 1990
Plan may be sold. Employees purchased 649,000, 574,000 and 625,000 shares in
1994, 1993 and 1992, respectively. At December 31, 1994, 4,431,000 shares are
available for issuance under the 1994 Plan.
7. LONG-TERM OBLIGATIONS
The Company leases office facilities, equipment and automobiles under
noncancelable operating leases. These leases expire on varying dates; in some
instances contain renewal and expansion options; do not restrict the payment of
dividends or the incurrence of debt or additional lease obligations; and contain
no significant purchase options. In addition to the base rental costs,
occupancy lease agreements generally provide for rent escalations resulting from
increased assessments for real estate taxes and other charges. Approximately
95% of the Company's lease obligations are for the use of office space.
The accompanying Consolidated Statements of Income include net rental costs
of $206.7 million, $198.2 million and $192.7 million for 1994, 1993 and 1992,
respectively, after deducting rentals from subleases ($8.8 million in 1994, $7.9
million in 1993 and $8.5 million in 1992).
At December 31, 1994, the aggregate future minimum rental commitments under
all noncancelable operating lease agreements are as follows:
- ---------------------------------------------------------------------------
Gross Rentals Net
For the Years Ending December 31, Rental from Rental
(IN MILLIONS OF DOLLARS) Commitments Subleases Commitments
- ---------------------------------------------------------------------------
1995 $ 167.3 $ 8.4 $ 158.9
1996 150.5 7.8 142.7
1997 128.7 5.3 123.4
1998 104.1 3.6 100.5
1999 89.5 3.1 86.4
Subsequent years 517.4 15.1 502.3
-------- ----- --------
$1,157.5 $43.3 $1,114.2
-------- ----- --------
-------- ----- --------
- ---------------------------------------------------------------------------
During 1994, the Company entered into agreements with various service companies
to outsource certain information systems activities and responsibilities which
previously were performed by the Company. Under these agreements, the Company
is required to pay minimum annual service charges. Additional fees may be
payable depending upon the volume of transactions processed with all future
payments subject to increases for inflation. At December 31, 1994, the
aggregate fixed future minimum commitments under these agreements are as
follows:
- ---------------------------------------------------------------------------
Future
For the Years Ending December 31, Minimum
(IN MILLIONS OF DOLLARS) Commitments
- ---------------------------------------------------------------------------
1995 $ 32.0
1996 28.6
1997 25.8
1998 24.7
1999 13.5
Subsequent years 38.5
------
$163.1
------
------
- ---------------------------------------------------------------------------
8. CONSUMER FINANCE OPERATION
The Company's insurance program management operation in the United Kingdom
includes Frizzell Bank Limited ("FBL"), an authorized institution under the
United Kingdom Banking Act 1987. FBL provides affinity group members with a
variety of financial services including insurance premium financing programs,
unsecured and secured loans and credit cards. These loans are financed by the
acceptance of deposits from the affinity group members and through bank
borrowings.
Consumer finance receivables, which include both fixed and variable rate loans,
bear interest at prevailing market rates. A summary of consumer finance
receivables at December 31, 1994 and 1993 is as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Receivable within one year $145.5 $125.4
Receivable after one year 157.6 138.8
------ ------
303.1 264.2
Less - allowance for doubtful accounts (12.0) (12.2)
------ ------
$291.1 $252.0
------ ------
------ ------
- ---------------------------------------------------------------------------
Customer deposits, which have one to three year terms at fixed interest rates,
amounted to $94.1 million and $124.2 million at December 31, 1994 and 1993,
respectively. The long-term portion of these customer deposits amounted to
$28.6 million and $55.4 million at December 31, 1994 and 1993, respectively, and
are included in other liabilities in the Consolidated Balance Sheets. The
current portion of customer deposits is included in accounts payable and accrued
liabilities.
FBL's results of operations can be affected by interest rate fluctuations as
changes in interest rates could impact the margin between interest earned on
assets (consumer finance receivables) and interest paid on liabilities
(borrowings and customer deposits). Risk management instruments such as
interest rate swaps and forward rate agreements are utilized to protect margins
from the effects of these fluctuations. These risk management instruments help
maintain the balanced relationship between fixed rate assets and fixed rate
liabilities within limits set by Company policy. If fixed rate liabilities are
greater than fixed rate assets, a risk management instrument generally is
utilized to transform the excess fixed rate liability into a variable rate
liability ("variable rate liabilities"). This strategy protects the margin
between interest earned on variable rate assets and interest paid on fixed rate
liabilities. Conversely, when fixed rate assets are greater than fixed rate
liabilities, a risk management instrument generally is utilized to convert
excess variable rate liabilities into fixed rate liabilities ("fixed rate
liabilities"). This strategy protects the margin between interest earned on
fixed rate assets and interest paid on variable rate liabilities. FBL only
enters into risk management instruments to hedge against the effects of changes
in interest rates, and does not hold or issue such instruments for trading
purposes.
FBL and the Company have developed detailed operating policies to provide
control over risk management instruments. Approval of each transaction is
required by an appointed treasury committee and procedures are in place for the
proper execution of each risk management instrument. In addition, periodic
reviews are performed by the Company's auditors to ensure FBL's compliance with
the Company's policies.
All such risk management instruments have a credit risk from the potential non-
performance by the counterparties to these transactions. The Company attempts
to limit its credit risk exposure by dealing with counterparties that satisfy
certain financial standards and by limiting the net notional amount of all
transactions with a particular counterparty. Regular credit reviews of the
counterparties are performed to ensure compliance with the Company's policies.
The amount of credit risk is restricted to the amount of any hedge gain and is
immaterial to the Company's consolidated financial statements.
The following table illustrates the gross notional amount of off-balance sheet
interest rate swaps and forward rate agreements outstanding and their weighted
average interest rates. Variable rates are based upon the London Interbank
Offered Rate ("LIBOR") on the latest reset date included in the underlying
contracts and are subject to fluctuations. Outstanding contracts at December
31, 1994 expire from 1995 to 1998.
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Variable rate liabilities - notional amount $ 8.6 $24.4
Average fixed rate received 5.6% 8.4%
Average variable rate paid 6.1% 5.9%
Fixed rate liabilities - notional amount $75.7 $48.5
Average fixed rate paid 7.5% 8.3%
Average variable rate received 6.2% 5.5%
FBL has also entered into forward start swaps and forward start forward rate
agreements having a gross notional amount of $28.1 million at December 31, 1994.
Under the forward start swap agreements, FBL will pay average fixed rates of
6.8%. Under the forward start forward rate agreements FBL will receive average
fixed interest rates of 6.4%. The weighted average variable rates for these
agreements will be based upon LIBOR on the effective date of the contract. At
December 31, 1993, FBL was a party to interest rate floor agreements having a
gross notional amount of $12.6 million. Under these agreements FBL received
fixed interest payments at a rate of 7.7% and made variable interest payments at
a rate of 5.8%. There were no interest rate floors outstanding at December 31,
1994.
The difference between amounts paid to and amounts received from the
counterparties is included in revenue in the Consolidated Statements of Income.
9. SHORT-TERM DEBT
The Company's outstanding short-term debt is as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Commercial paper $298.3 $170.6
Consumer finance borrowings 99.6 96.9
Current portion of long-term debt 5.1 6.3
------ ------
$403.0 $273.8
------ ------
------ ------
- ---------------------------------------------------------------------------
The weighted average interest rate on outstanding borrowings of commercial paper
at December 31, 1994 and 1993 was 6.1% and 3.3%, respectively. The weighted
average interest rate on outstanding consumer finance borrowings at December 31,
1994 and 1993 was 6.4% and 6.0%, respectively.
The Company maintains credit facilities with several banks primarily to support
its commercial paper borrowings. These facilities, which expire at varying
dates through May 1996, provide that the Company may borrow up to $330 million
at varying market rates of interest. Commitment fees ranging between 1/8% and
1/4% per annum are payable on any unused portion. The facilities require the
Company to maintain consolidated tangible net worth of at least $50 million and
contain other restrictions relating to consolidations, mergers and the sale or
pledging of assets.
The Company's consumer finance operation maintains credit facilities with
various banks aggregating $206 million. The Company also maintains other credit
facilities, primarily related to operations located outside of the United
States, aggregating $70.9 million.
10. LONG-TERM DEBT
The Company's outstanding long-term debt is as follows:
- ---------------------------------------------------------------------------
December 31, 1994 and 1993
(IN MILLIONS OF DOLLARS) 1994 1993
- ---------------------------------------------------------------------------
Commercial paper $200.0 $200.0
Mortgage - 9.8% due 2009 200.0 200.0
Mortgage - 7.25% due 1999 3.9 3.8
Other 10.6 12.3
------ ------
414.5 416.1
Less current portion 5.1 6.3
------ ------
$409.4 $409.8
------ ------
------ ------
- ---------------------------------------------------------------------------
The Company has a 20-year fixed rate non-recourse mortgage note agreement
amounting to $200 million, bearing an interest rate of 9.8%, in connection with
its 56% interest in its worldwide headquarters building. In the event the
mortgage is foreclosed following a default, the Company would be entitled to
remain in the space and would be obligated to pay rent sufficient to cover
interest on the notes or, starting in 1999, at fair market value if greater. At
December 31, 1994 and 1993, commercial paper borrowings amounting to $200
million have been classified in the Consolidated Balance Sheets as long-term
debt based on the Company's intent and ability to maintain or refinance these
obligations on a long-term basis. The Company has an interest rate swap which
was entered into as part of the acquisition and renovation of the Company's
worldwide headquarters which fixes the interest rate at approximately 9.5% on
$100 million of commercial paper borrowings until February 1999. The weighted
average interest rate on this swap at December 31, 1994, 1993 and 1992 was 4.6%,
3.2% and 3.9%, respectively. The difference between the fixed rate and the
weighted average rate is included in interest expense in the Consolidated
Statements of Income.
Other long-term debt primarily includes loans related to the purchase of
equipment.
Scheduled repayments of long-term debt, excluding the commercial paper described
above, in 1995 and in the four succeeding years are $5.1 million, $2.9 million,
$2.1 million, $.4 million and $4.0 million, respectively.
11. FINANCIAL INSTRUMENTS
The estimated fair value of the Company's significant financial instruments is
provided below. Certain estimates and judgments were required to develop the
fair value amounts. The fair value amounts shown below are not necessarily
indicative of the amounts that the Company would realize upon disposition nor do
they indicate the Company's intent or ability to dispose of the financial
instrument.
CASH AND CASH EQUIVALENTS: The estimated fair value of the Company's cash and
cash equivalents approximates their carrying value.
LONG-TERM INVESTMENTS: The Company has certain long-term investments, amounting
to $27.8 million and $31.1 million at December 31, 1994 and 1993, respectively,
which are carried on a cost basis. The Company has estimated, using various
accredited valuation techniques, that the fair value of these investments
amounted to approximately $28 million and $48 million at December 31, 1994 and
1993, respectively.
CONSUMER FINANCE RECEIVABLES AND CUSTOMER DEPOSITS: The fair value of consumer
finance receivables and customer deposits approximates their carrying value.
SHORT-TERM AND LONG-TERM DEBT: The fair value of the Company's short-term debt,
which consists primarily of commercial paper borrowings and consumer finance
borrowings, approximates its carrying value. The estimated fair value of the
$200 million mortgage on the Company's worldwide headquarters building is
approximately $213 million and $270 million at December 31, 1994 and 1993,
respectively, based on discounted future cash flows using interest rates
available for debt with similar terms and remaining maturities.
OFF-BALANCE SHEET INSTRUMENTS: The fair value of the Company's $100 million
interest rate swap has been estimated as a liability of approximately $7 million
and $22 million at December 31, 1994 and 1993, respectively. The fair value of
FBL's interest rate swaps and forward rate agreements was estimated as a
receivable of approximately $1 million and a liability of $2 million at December
31, 1994 and 1993, respectively. These calculations are based on discounted
future cash flows taking into account the current interest rate environment.
UNREALIZED SECURITIES HOLDING GAINS: Effective December 31, 1993, the Company
adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
The Company has classified as available for sale primarily equity securities
having an aggregate fair value of $255.0 million and $332.5 million at December
31, 1994 and 1993, respectively. Gross unrealized gains, amounting to $140.7
million and $213.8 million at December 31, 1994 and 1993, respectively, have
been excluded from earnings and reported as a separate component of
stockholders' equity, net of deferred income taxes.
Proceeds from the sale of available for sale securities for the year ended
December 31, 1994 was $54.7 million. Gross realized gains on available for sale
securities sold during 1994 amounted to $38.0 million. The cost of securities
sold is determined using the average cost method for equity securities.
A portion of insurance fiduciary funds which the Company holds to satisfy
fiduciary obligations are invested in high quality debt securities which are
generally held to maturity. The difference between cost and fair value of these
investments is not material.
12. SHAREHOLDER RIGHTS PLAN
Under the Company's Shareholder Rights Plan each common share has one Right
attached to it. Under the plan, the Rights generally become exercisable after a
person or group (i) acquires 15% or more of the Company's outstanding common
stock or (ii) commences a tender offer that would result in such person or group
owning 30% or more of the Company's common stock. When the Rights first become
exercisable, a holder will be entitled to buy from the Company one one-hundredth
of a share of a new series of Series A Junior Participating Preferred Stock of
the Company at a purchase price of $210. Alternatively, if any person acquires
15% or more of the Company's common stock except pursuant to an offer for all
shares at a fair price or if a 15% holder acquires the Company by means of a
reverse merger in which the Company and its stock survive, each Right not owned
by a 15% or more shareholder would become exercisable for common stock of the
Company (or, in certain circumstances, other consideration) having a market
value equal to twice the exercise price of the Right. If the Company is
involved in a merger or other business combination when there is a 15% or more
stockholder of the Company, the Rights will entitle a holder to buy shares of
common stock of the acquiring company having a market value of twice the
exercise price of each Right. The Rights expire on September 28, 1997, unless
redeemed earlier.
13. 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.
14. SEGMENTATION OF ACTIVITY BY TYPE OF SERVICE
AND GEOGRAPHIC AREA OF OPERATION
The Company, a professional services firm, operates in three principal business
segments: insurance services, consulting and investment management. Operating
income for each type of service is after deductions for all directly related
expenses and allocations of common expenses. General corporate expenses
primarily are comprised of employee compensation and benefits and related
occupancy costs for administrative personnel. General corporate assets
primarily consist of cash and cash equivalents, deferred income tax assets and a
portion of the Company's headquarters building.
The following table presents information about the Company's operations by
type of service and geographic area:
- -----------------------------------------------------------------------------------------------------------------------------
For the Three Years Ended December 31, 1994
(IN MILLIONS OF DOLLARS)
- -----------------------------------------------------------------------------------------------------------------------------
DEPRECIATION &
OPERATING IDENTIFIABLE AMORTIZATION CAPITAL
REVENUE INCOME ASSETS OF FIXED ASSETS EXPENDITURES
------- --------- ------------ ---------------- -------------
TYPE OF SERVICE:
1994-
INSURANCE SERVICES $1,886.5 $406.1 $2,021.9 $62.0 $ 70.9
CONSULTING 933.1 96.4 568.4 17.9 32.3
INVESTMENT MANAGEMENT 615.4 208.2 763.5 16.0 44.3
GENERAL CORPORATE -- (40.4) 476.8 3.7 1.6
-------- ------ -------- ----- ------
$3,435.0 $670.3 $3,830.6 $99.6 $149.1
-------- ------ -------- ----- ------
-------- ------ -------- ----- ------
1993-
Insurance Services $1,790.5 $376.7 $1,976.3 $ 63.7 $58.0
Consulting 854.8 86.2 499.1 20.2 15.3
Investment Management 518.1 169.3 586.5 12.5 25.0
General Corporate -- (39.4) 484.7 3.9 .5
-------- ------ -------- ----- ------
$3,163.4 $592.8 $3,546.6 $100.3 $98.8
-------- ------ -------- ----- ------
-------- ------ -------- ----- ------
1992-
Insurance Services $1,632.8 $335.4 $1,796.9 $61.1 $50.1
Consulting 908.2 116.1 475.4 21.6 13.8
Investment Management 396.0 124.4 257.7 10.6 18.4
General Corporate -- (34.9) 558.4 3.9 .5
-------- ------ -------- ----- ------
$2,937.0 $541.0 $3,088.4 $97.2 $82.8
-------- ------ -------- ----- ------
-------- ------ -------- ----- ------
GEOGRAPHIC AREA:
1994-
UNITED STATES $2,227.3 $478.6 $1,824.4
EUROPE 909.6 180.6 1,326.4
CANADA 165.1 35.3 97.3
PACIFIC RIM AND OTHER 133.0 16.2 105.7
GENERAL CORPORATE -- (40.4) 476.8
-------- ------ --------
$3,435.0 $670.3 $3,830.6
-------- ------ --------
-------- ------ --------
1993-
United States $2,040.7 $429.9 $1,763.0
Europe 861.6 161.6 1,131.1
Canada 167.0 31.1 100.0
Pacific Rim and Other 94.1 9.6 67.8
General Corporate -- (39.4) 484.7
-------- ------ --------
$3,163.4 $592.8 $3,546.6
-------- ------ --------
-------- ------ --------
1992-
United States $1,920.5 $402.7 $1,230.0
Europe 749.2 131.6 1,145.7
Canada 178.5 31.4 99.2
Pacific Rim and Other 88.8 10.2 55.1
General Corporate -- (34.9) 558.4
-------- ------ --------
$2,937.0 $541.0 $3,088.4
-------- ------ --------
-------- ------ --------
REPORT OF MANAGEMENT
The management of Marsh & McLennan Companies, Inc. has prepared and is
responsible for the accompanying financial statements and other related
financial information contained in this annual report. The Company's financial
statements were prepared in accordance with generally accepted accounting
principles, applying certain estimates and informed judgments as required.
Deloitte & Touche LLP, independent auditors, have audited the financial
statements and have issued their report thereon.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are executed in accordance with
management's authorization, that assets are safeguarded and that proper
financial records are maintained. Key elements of the Company's internal
controls include securing the services of qualified personnel and proper
segregation of duties. Internal auditors monitor the control system by
examining financial reports, by testing the accuracy of transactions, and by
otherwise obtaining assurance that the system is operating in accordance with
the Company's objectives.
The Audit Committee of the Board of Directors is composed entirely of
outside directors and is responsible for recommending to the Board the
independent auditors to be engaged to audit the Company's financial statements,
subject to stockholder ratification. In addition, the Audit Committee meets
periodically with internal auditors and the independent auditors, both with and
without management, to discuss the Company's internal accounting controls,
financial reporting and other related matters. The internal auditors and
independent auditors have full and unrestricted access to the Audit Committee.
/s/ Frank J. Borelli
Frank J. Borelli
Senior Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT
AUDITORS
The Board of Directors and Stockholders of
Marsh & McLennan Companies, Inc.:
We have audited the accompanying consolidated balance sheets of Marsh & McLennan
Companies, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Marsh & McLennan Companies, Inc.
and subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, during 1994 the
Company changed its method of accounting for postemployment benefits to conform
with Statement of Financial Accounting Standards ("SFAS") No. 112. As discussed
in Note 11 to the consolidated financial statements, at December 31, 1993 the
Company changed its method of accounting for certain investments in securities
to conform with SFAS No. 115. During 1992, as discussed in Notes 4 and 5 to the
consolidated financial statements, the Company changed its method of accounting
for income taxes and postretirement benefits other than pensions to conform with
SFAS No. 109 and 106.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
February 28, 1995
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL DATA AND
SUPPLEMENTAL INFORMATION (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE FIGURES)
Income Before
Cumulative
Effect of
Accounting
Changes Net Income
---------------- ---------------- Dividends Stock
Operating Per Per Paid Per Price Range
Revenue Income Amount Share Amount Share Share High-Low
- -----------------------------------------------------------------------------------------------------------------------------
1994:
First quarter $ 910.2 $228.4 $130.7 $1.77 $120.2 $1.63 $.675 $86 3/4 - 80 1/4
Second quarter 840.5 163.8 95.7 1.30 95.7 1.30 .675 $88 3/4 - 81 1/4
Third quarter 826.9 148.6 83.4 1.14 83.4 1.14 .725 $88 3/8 - 76
Fourth quarter 857.4 129.5 72.2 .98 72.2 .98 .725 $80 3/8 - 71 1/4
-------- ------ ------ ----- ------ ----- -----
$3,435.0 $670.3 $382.0 $5.19 $371.5 $5.05 $2.80 $88 3/4 - 71 1/4
-------- ------ ------ ----- ------ ----- -----
-------- ------ ------ ----- ------ ----- -----
1993:
First quarter $ 833.9 $187.2 $107.4 $1.46 $107.4 $1.46 $.675 $97 5/8 - 88 1/8
Second quarter 783.3 152.5 86.3 1.18 86.3 1.18 .675 $96 - 84 1/2
Third quarter 766.4 139.7 76.1 1.04 76.1 1.04 .675 $91 7/8 - 84 7/8
Fourth quarter 779.8 113.4 62.6 .84 62.6 .84 .675 $88 7/8 - 77
-------- ------ ------ ----- ------ ----- -----
$3,163.4 $592.8 $332.4 $4.52 $332.4 $4.52 $2.70 $97 5/8 - 77
-------- ------ ------ ----- ------ ----- -----
-------- ------ ------ ----- ------ ----- -----
1992:
First quarter $ 768.8 $179.5 $101.0 $1.40 $ 60.9 $ .84 $ .65 $83 3/4 - 73 1/2
Second quarter 733.0 143.1 79.5 1.11 79.5 1.11 .65 $79 3/4 - 71 1/4
Third quarter 730.0 123.8 69.0 .96 69.0 .96 .675 $90 7/8 - 76 7/8
Fourth quarter 705.2 94.6 54.3 .74 54.3 .74 .675 $94 1/2 - 88 1/4
-------- ------ ------ ----- ------ ----- -----
$2,937.0 $541.0 $303.8 $4.21 $263.7 $3.65 $2.65 $94 1/2 - 71 1/4
-------- ------ ------ ----- ------ ----- -----
-------- ------ ------ ----- ------ ----- -----
- -----------------------------------------------------------------------------------------------------------------------------
The Company's common stock (ticker symbol:MMC) is traded on the New York,
Chicago, Pacific and London stock exchanges. As of February 28, 1995, there
were 10,439 stockholders of record.
MARSH & MCLENNAN COMPANIES, INC. AND SUBSIDIARIES
TEN-YEAR STATISTICAL SUMMARY OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
For the Ten Years Ended December 31, 1994
(In millions of dollars, except per share figures) 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------
REVENUE:
Insurance services $1,886.5 $1,790.5 $1,632.8 $1,571.0
Consulting 933.1 854.8 908.2 894.0
Investment management 615.4 518.1 396.0 314.2
-------- --------- --------- ---------
TOTAL REVENUE 3,435.0 3,163.4 2,937.0 2,779.2
-------- --------- --------- ---------
EXPENSES:
Compensation and benefits 1,740.2 1,635.7 1,557.8 1,461.1
Other operating expenses 1,024.5 934.9 838.2 820.0
-------- --------- --------- ---------
TOTAL EXPENSES 2,764.7 2,570.6 2,396.0 2,281.1
-------- --------- --------- ---------
OPERATING INCOME 670.3 592.8 541.0 498.1
INTEREST INCOME 11.8 11.9 16.6 24.8
INTEREST EXPENSE (50.6) (46.1) (38.3) (39.1)
OTHER INCOME (EXPENSE) -- -- -- 43.0
-------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 631.5 558.6 519.3 526.8
INCOME TAXES 249.5 226.2 215.5 221.3
-------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES $ 382.0 $ 332.4 $ 303.8 $ 305.5
-------- --------- --------- ---------
-------- --------- --------- ---------
NET INCOME $ 371.5 (b) $ 332.4 $ 263.7 (a) $ 305.5
-------- --------- --------- ---------
-------- --------- --------- ---------
EARNINGS PER SHARE INFORMATION:
Income Before Cumulative
Effect Of Accounting Changes $5.19 $4.52 $4.21 $4.18
----- ----- ----- -----
----- ----- ----- -----
NET INCOME PER SHARE $5.05 (b) $4.52 $3.65 (a) $4.18
----- ----- ----- -----
----- ----- ----- -----
AVERAGE NUMBER OF SHARES OUTSTANDING 73.6 73.5 72.2 73.1
DIVIDENDS PAID PER SHARE $2.80 $2.70 $2.65 $2.60
RETURN ON AVERAGE STOCKHOLDERS' EQUITY 26% 27% 25% 29%
YEAR-END FINANCIAL POSITION:
Working capital $ 53.7 $ 133.7 $ 198.3 $ 336.2
Total assets $3,830.6 $3,546.6 $3,088.4 $2,382.2
Long-term debt $ 409.4 $ 409.8 $ 411.2 $ 318.0
Stockholders' equity $1,460.6 $1,365.3 $1,102.9 $1,035.0
Total shares outstanding (excluding treasury shares) 73.2 73.9 73.3 71.8
OTHER INFORMATION:
Number of employees 26,100 25,600 25,800 23,400
Stock price ranges-
U.S. exchanges - High $88 3/4 $97 5/8 $94 1/2 $87 1/4
- Low $71 1/4 $77 $71 1/4 $69 1/8
London Stock Exchange - High L58 15/16 L67 7/16 L61 7/8 L49 5/8
- Low L45 5/16 L52 9/16 L39 5/16 L35 9/16
Price/earnings multiple 15.7 18.0 25.0 19.5
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
For the Ten Years Ended December 31, 1994
(In millions of dollars, except per share figures) 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------
REVENUE:
Insurance services $1,536.8 $1,400.3 $1,375.7 $1,380.2
Consulting 910.0 754.3 635.7 482.0
Investment management 276.2 273.1 261.0 284.9
-------- --------- --------- ---------
TOTAL REVENUE 2,723.0 2,427.7 2,272.4 2,147.1
-------- --------- --------- ---------
EXPENSES:
Compensation and benefits 1,400.0 1,223.4 1,108.9 982.6
Other operating expenses 795.7 694.8 648.1 614.3
-------- --------- --------- ---------
TOTAL EXPENSES 2,195.7 1,918.2 1,757.0 1,596.9
-------- --------- --------- ---------
OPERATING INCOME 527.3 509.5 515.4 550.2
INTEREST INCOME 33.5 27.7 22.7 31.0
INTEREST EXPENSE (31.0) (18.9) (23.1) (13.0)
OTHER INCOME (EXPENSE) (1.0) (1.0) 1.4 (.9)
-------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 528.8 517.3 516.4 567.3
INCOME TAXES 224.7 222.4 220.1 265.2
-------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES $ 304.1 $ 294.9 $ 296.3 $ 302.1
-------- --------- --------- ---------
-------- --------- --------- ---------
NET INCOME $ 304.1 $ 294.9 $ 296.3 $ 302.1
-------- --------- --------- ---------
-------- --------- --------- ---------
EARNINGS PER SHARE INFORMATION:
Income Before Cumulative
Effect Of Accounting Changes $4.15 $4.10 $4.09 $4.06
----- ----- ----- -----
----- ----- ----- -----
NET INCOME PER SHARE $4.15 $4.10 $4.09 $4.06
----- ----- ----- -----
----- ----- ----- -----
AVERAGE NUMBER OF SHARES OUTSTANDING 73.3 71.9 72.4 74.4
DIVIDENDS PAID PER SHARE $2.55 $2.50 $2.42 1/2 $2.15
RETURN ON AVERAGE STOCKHOLDERS' EQUITY 31% 36% 38% 42%
YEAR-END FINANCIAL POSITION:
Working capital $ 352.5 $ 312.7 $ 195.7 $ 243.2
Total assets $2,411.2 $2,035.2 $1,830.0 $1,634.4
Long-term debt $ 319.9 $ 319.4 $ 266.2 $ 16.4
Stockholders' equity $1,085.3 $ 873.0 $ 755.1 $ 791.7
Total shares outstanding (excluding treasury shares) 73.5 72.4 71.5 73.9
OTHER INFORMATION:
Number of employees 24,400 23,600 22,800 22,700
Stock price ranges-
U.S. exchanges - High $81 $89 3/4 $59 3/4 $72
- Low $59 3/4 $55 1/8 $45 1/4 $43 3/4
London Stock Exchange - High L49 L55 15/16 L35 L46 1/2
- Low L31 1/2 L30 13/16 L25 L24
Price/earnings multiple 18.8 19.0 13.8 12.2
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Compound
For the Ten Years Ended December 31, 1994 Growth Rate
(In millions of dollars, except per share figures) 1986 1985 1984-1994 (c)
- -----------------------------------------------------------------------------------------------------------------------------
REVENUE:
Insurance services $1,273.1 $1,001.6 9%
Consulting 333.3 267.8 16%
Investment management 197.7 98.2 24%
-------- --------
TOTAL REVENUE 1,804.1 1,367.6 12%
-------- --------
EXPENSES:
Compensation and benefits 812.5 646.6 12%
Other operating expenses 511.1 407.6 12%
-------- --------
TOTAL EXPENSES 1,323.6 1,054.2 12%
-------- --------
OPERATING INCOME 480.5 313.4 12%
INTEREST INCOME 25.9 25.1
INTEREST EXPENSE (5.3) (14.1)
OTHER INCOME (EXPENSE) .3 5.3
-------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 501.4 329.7 10%
INCOME TAXES 258.2 166.8 7%
-------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES $ 243.2 $ 162.9 12%
-------- --------
-------- --------
NET INCOME $ 243.2 $ 162.9 12%
-------- --------
-------- --------
EARNINGS PER SHARE INFORMATION:
Income Before Cumulative
Effect Of Accounting Changes $3.30 $2.23 12%
----- -----
----- -----
NET INCOME PER SHARE $3.30 $2.23 12%
----- -----
----- -----
AVERAGE NUMBER OF SHARES OUTSTANDING 73.8 73.0
DIVIDENDS PAID PER SHARE $1.56 1/4 $1.23 3/4 10%
RETURN ON AVERAGE STOCKHOLDERS' EQUITY 42% 37%
YEAR-END FINANCIAL POSITION:
Working capital $ 187.7 $ 229.6
Total assets $1,476.6 $1,029.9
Long-term debt $ 14.5 $ 9.8
Stockholders' equity $ 638.7 $ 515.2
Total shares outstanding (excluding treasury shares) 73.9 73.4
OTHER INFORMATION:
Number of employees 19,900 17,700
Stock price ranges-
U.S. exchanges - High $76 3/4 $41 3/4
- Low $40 5/8 $28 1/4
London Stock Exchange - High L50 1/8 L32 1/8
- Low L28 1/4 L23 3/8
Price/earnings multiple 18.4 18.3
<FN>
(a) Reflects the adoption, effective January 1, 1992, of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
and SFAS No. 109, "Accounting For Income Taxes."
(b) Reflects the adoption, effective January 1, 1994, of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits."
(c) Excludes the impact of unusual charge in 1984 related to the investment
loss of $110.0 million pre-tax, $61.0 million after tax.