Marsh & McLennan Companies, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This is an annual filing, not a standalone fourth-quarter report. The company is a global professional-services firm with two segments: Risk and Insurance Services (Marsh and Guy Carpenter) and Consulting (Mercer and Oliver Wyman Group), operating in more than 100 countries.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $11.526 billion | $10.550 billion |
| Operating income | $1.638 billion | $939 million |
| Operating margin | 14.2% | 8.9% |
| Continuing-operations income | $982 million | $565 million |
| Net income attributable to MMC | $993 million | $855 million |
| Diluted EPS attributable to MMC | $1.79 | $1.55 |
| Operating cash flow | $1.705 billion | $722 million |
Revenue rose 9%; underlying revenue, excluding currency and acquisition/disposition effects, increased 5%. Risk and Insurance Services revenue was $6.301 billion, with operating income of $1.229 billion and a 19.5% margin. Consulting revenue was $5.265 billion, with operating income of $588 million and an 11.2% margin. Segment revenues each grew 9% reported; underlying growth was 5% for Risk and Insurance Services and 5% for Consulting.
Fourth quarter: Revenue was $2.908 billion, operating income $391 million, continuing-operations income $244 million, and net income attributable to MMC $256 million; diluted EPS was $0.46. In Q4 2010, the respective figures were $2.785 billion, $325 million, $192 million, $203 million, and $0.37.
Liquidity, debt, and capital allocation
At year-end, cash and cash equivalents were $2.113 billion; total debt was approximately $2.928 billion ($260 million current and $2.668 billion long-term). Working capital was $1.909 billion. Operating cash flow less capital expenditures was approximately $1.425 billion. A $1.0 billion five-year revolving credit facility was undrawn. Fiduciary cash and investments of $4.082 billion are client funds and are not available for corporate use.
The company paid $480 million in dividends ($0.86 per share) and repurchased approximately 12.3 million shares for $361 million in 2011; no shares were repurchased in Q4. Year-end goodwill and intangible assets totaled $6.963 billion, about 45% of total assets.
Changes, unusual items, and outlook
- Operating income increased substantially versus 2010, which included a $400 million net Alaska Retirement Management Board settlement charge and $139 million of restructuring and other noteworthy charges. Excluding those charges, 2010 operating income was about $1.5 billion.
- 2011 included a $72 million debt-extinguishment charge after the company repurchased $600 million of notes. Restructuring costs were $51 million; expected annualized savings were approximately $45 million.
- Discontinued operations included $50 million of credits relating to legacy legal, insurance, and tax matters, partly offset by a $17 million after-tax software write-off as Marsh began a plan to sell its BPO business.
- No consolidated revenue or earnings guidance is provided. Management expected 2012 pension expense to increase about $30 million before partly offsetting effects, and expected pension contributions of approximately $124 million to U.S. plans (including a $100 million contribution made in January 2012) and $395 million to non-U.S. plans.
- Material risks include professional-liability claims, regulatory and compliance exposure, economic weakness and competitive pricing, foreign-exchange and Eurozone risks, pension funding and market sensitivity, client retention and collections, and acquisition integration. The company reported approximately $12 billion of pension obligations and warned additional deferred-tax valuation allowances of up to about $240 million could be needed if sufficient taxable income is not generated.
Important facts for investors to verify
- Whether the 5% underlying revenue growth and margin gains persist, particularly across Consulting and insurance brokerage markets.
- Actual 2012 pension expense and funding needs, given lower discount rates and increased actuarial losses.
- Resolution and potential financial exposure from E&O claims, regulatory matters, guarantees, and retained indemnities; the filing does not provide a clear aggregate range of possible loss.
- Cash availability and repatriation costs, as most foreign cash was considered permanently invested, and the company depends on subsidiary distributions to meet parent-company obligations.
- Progress on the Marsh BPO sale, restructuring savings, and the realization of acquisition benefits. The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.