-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, iVMnrGwGAEZOaTcgruozWPcjsr5qryMx5RyIZBQkTJ/KB1th9l7NzTu67krrFCcP X9Fpz364215bycFeQGAciw== 0000062709-95-000003.txt : 19950516 0000062709-95-000003.hdr.sgml : 19950516 ACCESSION NUMBER: 0000062709-95-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARSH & MCLENNAN COMPANIES INC CENTRAL INDEX KEY: 0000062709 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 362668272 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05998 FILM NUMBER: 95538736 BUSINESS ADDRESS: STREET 1: 1166 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2123455000 FORMER COMPANY: FORMER CONFORMED NAME: MARLENNAN CORP DATE OF NAME CHANGE: 19760505 10-Q 1 MMC 1995 1ST 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For quarter ended March 31, 1995 Marsh & McLennan Companies, Inc. 1166 Avenue of the Americas New York, New York 10036 (212) 345-5000 Commission file number 1-5998 State of Incorporation: Delaware I.R.S. Employer Identification No. 36-2668272 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . NO . As of April 28, 1995, there were outstanding 72,870,078 shares of common stock, par value $1.00 per share, of the registrant. PART I, FINANCIAL INFORMATION MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share figures) (Unaudited) Three Months Ended March 31, 1995 1994* Revenue $955.2 $910.2 Expense 741.6 681.8 Operating Income 213.6 228.4 Interest Income 4.1 2.9 Interest Expense (14.7) (11.6) Income Before Income Taxes and Cumulative Effect of Accounting Change 203.0 219.7 Income Taxes 78.2 89.0 Income Before Cumulative Effect of Accounting Change 124.8 130.7 Cumulative Effect of Accounting Change, Net of Income Tax Benefit - (10.5) Net Income $124.8 $120.2 Per Share Data: Income Before Cumulative Effect of Accounting Change $1.71 $1.77 Cumulative Effect of Accounting Change - (.14) Net Income $1.71 $1.63 Average Number of Shares Outstanding 73.1 73.9 Dividends Declared $.725 $.675 * Reflects the adoption, effective January 1, 1994, of SFAS No. 112, "Employers' Accounting for Postemployment Benefits." MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions of dollars) (Unaudited) March 31, December 31, 1995 1994 ASSETS Current assets: Cash and cash equivalents (including interest-bearing amounts of $275.8 at March 31, 1995 and $265.6 at December 31, 1994) $ 285.1 $ 294.9 Receivables- Commissions and fees 752.7 692.3 Advanced premiums and claims 81.5 78.0 Consumer finance and other 216.3 229.6 1,050.5 999.9 Less-allowance for doubtful accounts (47.5) (44.9) Net receivables 1,003.0 955.0 Other current assets 210.9 196.1 Total current assets 1,499.0 1,446.0 Consumer finance receivables, net 157.1 150.4 Long-term securities 296.0 282.8 Fixed assets, net 749.9 740.3 (net of accumulated depreciation and amortization of $605.8 at March 31, 1995 and $574.5 at December 31, 1994) Intangible assets 744.1 701.0 Other assets 518.1 510.1 $3,964.2 $3,830.6 MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions of dollars) (Unaudited) March 31, December 31, 1995 1994 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 473.1 $ 403.0 Accrued compensation and employee benefits 128.7 220.8 Accounts payable and accrued liabilities 485.7 496.7 Accrued income taxes 276.8 218.7 Dividends payable 52.9 53.1 Total current liabilities 1,417.2 1,392.3 Fiduciary liabilities 1,819.8 1,652.1 Less - cash and investments held in a fiduciary capacity (1,819.8) (1,652.1) - - Long-term debt 409.3 409.4 Other liabilities 575.1 568.3 Commitments and contingencies - - Stockholders' equity: Preferred stock, $1 par value, authorized 6,000,000 shares, none issued - - Common stock, $1 par value, authorized 200,000,000 shares, issued 76,794,531 shares at March 31, 1995 and December 31, 1994 76.8 76.8 Additional paid-in capital 165.9 166.1 Retained earnings 1,579.7 1,507.7 Unrealized securities holding gains, net of income taxes 102.2 91.6 Cumulative translation adjustments (64.8) (105.4) 1,859.8 1,736.8 Less - treasury shares, at cost, 3,842,502 shares at March 31, 1995 and 3,594,342 shares at December 31, 1994 (297.2) (276.2) Total stockholders' equity 1,562.6 1,460.6 $3,964.2 $3,830.6 MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions of dollars) (Unaudited) Three Months Ended March 31, 1995 1994 Operating cash flows: Net income $124.8 $120.2 Depreciation and amortization 32.2 28.9 Deferred income taxes 7.9 19.3 Other liabilities (2.7) 4.6 Cumulative effect of accounting change - 10.5 Prepaid dealer commissions (9.2) (63.8) Other, net (10.8) (.5) Net changes in operating working capital other than cash and cash equivalents - Receivables (40.6) (108.7) Other current assets (7.1) (13.2) Accrued compensation and employee benefits (93.1) (64.3) Accounts payable and accrued liabilities (15.2) 121.1 Accrued income taxes 50.0 (4.5) Effect of exchange rate changes (8.2) (1.5) Net cash generated from operations 28.0 48.1 Financing cash flows: Net change in debt 73.4 83.9 Purchase of treasury shares (34.4) (32.2) Issuance of common stock 12.8 12.7 Dividends paid (53.1) (49.9) Other, net (4.6) (4.7) Net cash provided by (used for) financing activities (5.9) 9.8 Investing cash flows: Additions to fixed assets (33.5) (24.1) Acquisitions (6.6) (1.2) Other, net 2.3 3.1 Net cash used for investing activities (37.8) (22.2) Effect of exchange rate changes on cash and cash equivalents 5.9 - Increase (decrease) in cash & cash equivalents (9.8) 35.7 Cash & cash equivalents at beginning of period 294.9 332.0 Cash & cash equivalents at end of period $285.1 $367.7 MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The financial information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three month periods ended March 31, 1995 and 1994. 2. Fiduciary Cash and Liabilities In its capacity as an insurance broker or agent, the Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurance underwriters; the Company also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims are held in a fiduciary capacity. Interest income on these fiduciary funds, included in revenue, amounted to $24.8 million and $16.9 million for the three months ended March 31, 1995 and 1994, respectively. Net uncollected premiums and claims and the related payables amounting to $3.1 billion at March 31, 1995 and $2.8 billion at December 31, 1994, are not included in the accompanying Consolidated Balance Sheets. 3. Net Income Per Share Net income per share is computed by dividing net income by the average number of shares of common stock outstanding. Common stock equivalents (relating principally to stock options), which have been excluded from the calculation because their dilutive effect is immaterial, are shown below for the three month periods ended March 31, 1995 and 1994. (In millions of shares) 1995 1994 Primary .7 .7 Fully Diluted .7 .7 4. Supplemental Disclosure to the Consolidated Statements of Cash Flows The following schedule provides additional information concerning acquisitions: Three Months Ended March 31, (In millions of dollars) 1995 1994 Purchase acquisitions: Assets acquired, excluding cash $21.0 $1.2 Liabilities assumed (7.9) - Issuance of debt and other obligations (6.5) - Net cash outflow for acquisitions $ 6.6 $1.2 The following schedule provides details of changes in the Company's short-term and long-term debt. Although a portion of the Company's commercial paper borrowings is classified as long-term debt in the Consolidated Balance Sheets, borrowings and repayments of commercial paper are shown below based on original maturities. Three Months Ended March 31, (In millions of dollars) 1995 1994 Net change in debt with maturities of three months or less $(131.2) $138.2 Borrowings with maturities over three months 206.1 46.6 Repayments of debt with maturities over three months (1.5) (100.9) Net increase in debt $ 73.4 $ 83.9 Interest paid during the three months ended March 31, 1995 and 1994 was $22.5 million and $12.0 million, respectively. Income taxes paid during the three months ended March 31, 1995 and 1994 were $28.6 million and $74.0 million, respectively. 5. Income Taxes Taxing authorities periodically challenge positions taken by the Company on its tax returns. On the basis of present information and advice received from counsel, it is the opinion of the Company's management that any assessments resulting from current tax audits will not have a material adverse effect on the Company's consolidated results of operations or its consolidated financial position. 6. Claims, Lawsuits and Other Contingencies The Company and its subsidiaries are subject to claims and lawsuits that arise in the ordinary course of business, consisting principally of alleged errors and omissions in connection with the placement of insurance or reinsurance and in rendering consulting and investment services. Some of these claims and lawsuits seek damages, including punitive damages, in amounts which could, if assessed, be significant. Among these is a group of claims relating to reinsurance contracts placed by reinsurance broking subsidiaries of the Company that were called into question by certain reinsurers. In general, these contracts concern so-called run-off exposures under which reinsurers assumed some or all remaining liability for claims against Lloyd's syndicates or other London insurers on policies, typically written in the past over a period of many years and sometimes without aggregate limits. The initial disputes, primarily between reinsurers and cedants, concerned these contracts, and have largely been resolved by negotiation, arbitration or litigation. More recently, related disputes have arisen, including litigation, between the members of syndicates, their underwriting and members' names agencies and, in some cases, subsidiaries of the Company. The syndicate members have experienced significant and continuing losses on policies, some of which were the subject of run-off reinsurance contracts that have been voided or compromised. The Company believes that its subsidiaries performed their reinsurance broking services in conformity with accepted and customary practices in the London market. Subsidiaries of the Company in the course of their consulting and insurance activities advised certain clients in connection with their purchase of guaranteed investment contracts and annuities issued by Executive Life Insurance Company, which is currently being rehabilitated under the supervision of the California Insurance Department. Some of those clients as well as the Company's subsidiaries have been or may be subject to claims or lawsuits relating to losses in connection with those investments. In some instances, the subsidiaries have entered into agreements extending the time in which possible claims may be asserted against them, or have engaged in negotiating the deferral or resolution of claims and litigation. The Company believes that its subsidiaries acted in a proper and professional manner in connection with these matters. On the basis of present information, available insurance coverage and advice received from counsel, it is the opinion of the Company's management that the disposition or ultimate determination of these claims and lawsuits will not have a material adverse effect on the Company's consolidated results of operations or its consolidated financial position. 7. Cumulative Effect of Accounting Changes Effective January 1, 1994, the Company adopted SFAS No. 112 "Employers' Accounting for Postemployment Benefits," which requires the Company to accrue for the cost of certain benefits provided to former or inactive employees after employment but before retirement. The cumulative effect of adopting this standard resulted in a noncash charge, net of income taxes, of $10.5 million or $.14 per share. 8. Reclassification Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation. Marsh & McLennan Companies, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations First Quarter Ended March 31, 1995 General Marsh & McLennan Companies, Inc. and Subsidiaries (the "Company") is a professional services firm with insurance services, consulting and investment management businesses. More than 25,000 employees provide analysis, advice and transactional capabilities to clients worldwide. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's latest annual report on Form 10-K. The consolidated results of operations follow: (In millions of dollars) 1995 1994 Revenue: Insurance Services $541.4 $533.1 Consulting 249.6 222.4 Investment Management 164.2 154.7 955.2 910.2 Expense: Compensation and Benefits 474.7 432.6 Other Operating Expenses 266.9 249.2 741.6 681.8 Operating Income $213.6 $228.4 Operating Income Margin 22.4% 25.1% Revenue, derived mainly from commissions and fees, rose 5% from the first quarter of 1994 driven principally by strong demand for the Company's consulting services and an increase in revenue in the investment management segment attributable to higher assets under management. In the first quarter of 1994, Marsh & McLennan Risk Capital ("MMRC") contributed $35 million of revenue primarily from the realization of a portion of the Company's holdings in insurance entities that it was instrumental in originating. A significant reduction in revenue realized from MMRC activities in the first quarter of 1995 was offset by the effect of a generally weaker U.S. dollar and the impact of several small acquisitions. Operating expenses rose 9% in the first quarter of 1995 due, in part, to the effect of currency exchange rate fluctuations and the impact of acquisitions. The remaining increases in operating expenses largely were due to ongoing systems automation initiatives in the insurance services and consulting operations and the impact of staff growth in the investment management and consulting segments commensurate with the higher volume of business. The translated values of revenue and expense from the Company's international insurance services and consulting operations are subject to fluctuations due to changes in currency exchange rates. However, the net impact of these fluctuations on the Company's results of operations has not been material. Insurance Services (In millions of dollars) 1995 1994 Revenue: Insurance Broking $347.5 $341.5 Reinsurance Broking 95.4 104.5 Insurance Program Management 73.7 70.2 Interest Income on Fiduciary Funds 24.8 16.9 541.4 533.1 Expense 387.9 366.7 Operating Income $153.5 $166.4 Operating Income Margin 28.4% 31.2% Insurance Broking Revenue Insurance broking revenue, which is received from a predominantly corporate clientele, increased 2% from the first quarter of 1994. Excluding the impact of the generally weaker U.S. dollar and the significant reduction in revenue realized from MMRC activities, first quarter 1995 insurance broking revenue increased approximately 3% from the same period of 1994. Client revenue growth was concentrated in Continental Europe and Canada reflecting increased renewals and new business. In the United States, client revenue was essentially the same as the first quarter of 1994 as property premium rates were generally stable with the exception of coastal and catastrophe prone regions where rates increased, while the casualty market continued to experience renewal rates that were flat to down on a year-over- year basis. The Company does not expect market conditions to change significantly in the near term. Reinsurance Broking Revenue Reinsurance broking revenue decreased 9% in the first quarter of 1995. This decrease primarily was due to the significant reduction in revenue realized from MMRC activities offset, in part, by the impact of the generally weaker U.S. dollar. Excluding the impact of these items, revenue declined slightly reflecting a decrease in the United States largely due to lower premium rates for property catastrophe and liability reinsurance. The Company expects these market conditions to remain the same for the near term. Insurance Program Management Revenue Insurance program management revenue increased 5% from the first quarter of 1994. Revenue for Seabury & Smith, which operates primarily in North America, increased 9% from 1994. This increase was primarily the result of increased services provided to corporations and institutions and their employees, increased insurance placed on behalf of small businesses, and the acquisition of a U.K.-based company which specializes in providing professional liability insurance products. In the United Kingdom, revenue for Frizzell Group Limited increased 1% in the first quarter of 1995. Excluding the impact of the weaker U.S. dollar, Frizzell's revenue decreased 5% as the market for motor and household insurance services remains extremely competitive. Interest Income on Fiduciary Funds Interest income on fiduciary funds increased 47% in the first quarter of 1995 due to higher average short-term interest rates, particularly in North America and the United Kingdom. Expense Insurance services expenses increased 6% from the first quarter of 1994. Excluding the impact of the generally weaker dollar and acquisitions, expenses increased 2% primarily reflecting ongoing spending on technology and systems automation initiatives. The Company is in the process of developing several major systems aimed at providing advanced information and service to clients. The Company expects to continue its commitment to enhance and develop further its information systems. Consulting (In millions of dollars) 1995 1994 Revenue $249.6 $222.4 Expense 228.4 201.5 Operating Income $ 21.2 $ 20.9 Operating Income Margin 8.5% 9.4% Revenue Consulting services revenue increased 12% in 1995. After adjusting for the impact of several small acquisitions and the generally weaker U.S. dollar, revenue grew 9% as demand for services in all major practices increased. Revenue increased 21% in general management consulting and 15% in the global compensation and communication practice in the first quarter of 1995. Retirement consulting revenue, which represented 45% of the consulting segment, grew 4% in the first quarter reflecting higher demand in the United States, Continental Europe and Latin America. Health care consulting, representing 17% of the segment, grew 8% in the quarter. Expense Consulting services expenses increased 13% in the first quarter of 1995 partly due to the impact of acquisitions and the generally weaker U.S. dollar. Excluding the effect of these items, expenses grew approximately 10% reflecting higher staff levels consistent with increased demand for worldwide consulting services and escalating systems-related expenses associated with initiatives to expand and increase the efficiency of administrative services provided in the United States. Costs relating to these initiatives are expected to continue for the remainder of the year. Investment Management (In millions of dollars) 1995 1994 Revenue $164.2 $154.7 Expense 115.2 101.7 Operating Income $ 49.0 $ 53.0 Operating Income Margin 29.9% 34.2% Revenue Putnam's revenue increased 6% from the first quarter of 1994 reflecting continued growth in the level of assets under management on which management fees are earned. The higher asset level reflects the impact of institutional and mutual fund sales and higher equity market valuations. Expense Putnam's expenses rose 13% in the first quarter of 1995 reflecting staff growth consistent with a higher volume of business, normal salary progressions and increased service- related costs including a new client service center that became operational in the second half of 1994. Quarter-end and average assets under management are presented below: (In billions of dollars) 1995 1994 Mutual Funds: Domestic Equity $ 30.1 $21.5 Taxable Bond 23.4 24.8 Tax-Free Income 16.0 16.1 International Equity 2.8 2.1 72.3 64.5 Institutional Accounts: Fixed Income 19.1 19.3 Domestic Equity 7.3 5.8 International Equity 2.6 1.6 29.0 26.7 Quarter-end Assets $101.3 $91.2 Average Assets $98.0 $92.9 Assets under management are affected by fluctuations in bond and stock market prices, by investments and withdrawals for current and new fund shareholders and clients, by the development of new investment products, and by investment performance and service to clients. Revenue levels are sensitive to all of the factors above, but in particular, to significant changes in bond and stock market valuations. Assets held in fixed income products declined by 3% from the first quarter of 1994 primarily due to lower bond valuations. This decrease was more than offset by a 38% increase in assets held in equity securities as investors were attracted to the potential for higher returns generated in the equity market and less toward fixed income instruments. Interest Interest income earned on corporate funds was $4.1 million in the first quarter of 1995 compared with $2.9 million in 1994. Interest rate increases in North America and the U.K. were offset slightly by lower interest rates in Continental Europe. Interest expense increased to $14.7 million in the first quarter of 1995 from $11.6 million in 1994 due to an increase in commercial paper borrowings and higher average interest rates on those borrowings. The higher level of commercial paper borrowings reflected, in part, the Company's share repurchase program. Income Taxes The Company's consolidated domestic and foreign tax rates were 38.5% of income before income taxes in the first quarter of 1995 and 40.5% for the same period of 1994. The reduction in the 1995 tax rate reflects worldwide savings attributable to tax planning strategies. The overall tax rates are higher than the U.S. statutory rates primarily because of the impact of state and local income taxes. Liquidity and Capital Resources The Company's cash and cash equivalents aggregated $285.1 million on March 31, 1995, as compared with $294.9 million on December 31, 1994. In the three months ended March 31, 1995, the Company generated $28.0 million of cash from operations compared with $48.1 million in 1994. The cash requirements for working capital increased in the first quarter of 1995 reflecting the higher volume of business primarily in the consulting and investment management segments. On April 19, 1995, the Company entered into a new credit agreement with several banks, to replace an existing agreement, primarily to support its commercial paper borrowings. Under this agreement, the Company may borrow up to $500 million at varying market rates of interest. Cash flow from operations includes the net cash requirements of Putnam's prepaid dealer commissions, which amounted to $9.2 million for the three months ended, compared with $63.8 million during the same period of 1994. The long-term portion of these prepaid dealer commissions is included in other assets in the Consolidated Balance Sheets. The Company's capital expenditures, which amounted to $33.5 million in the first three months of 1995 and $24.1 million in 1994, were primarily related to computer equipment purchases and the refurbishing and modernizing of office facilities. The other liabilities in the Consolidated Balance Sheet, which totaled $575.1 million on March 31, 1995 and $568.3 million at December 31, 1994, include the Company's long-term pension liability, reserves related to the Company's professional liability insurance program, and the postretirement liability for certain health care and life insurance benefits. PART II, OTHER INFORMATION MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES INFORMATION REQUIRED FOR FORM 10-Q QUARTERLY REPORT MARCH 31, 1995 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27. Financial Data Schedule. (b) Reports on Form 8-K. None. MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed this 12th day of May, 1995 on its behalf by the undersigned, thereunto duly authorized and in the capacity indicated. MARSH & McLENNAN COMPANIES, INC. By:/s/FRANK J. BORELLI Senior Vice President and Chief Financial Officer EX-27 2 ARTICLE 5
5 This schedule contains summary financial information extracted from the consolidated Marsh & McLennan Companies, Inc. and subsidiaries March 31, 1995 financial statements and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1995 MAR-31-1995 285,100,000 0 1,050,500,000 47,500,000 0 1,499,000,000 1,355,700,000 605,800,000 3,964,200,000 1,417,200,000 409,300,000 76,800,000 0 0 1,485,800,000 3,964,200,000 0 955,200,000 0 741,600,000 0 0 14,700,000 203,000,000 78,200,000 124,800,000 0 0 0 124,800,000 1.71 1.71
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