Business Context and Reporting Period
Company: Marsh & McLennan Companies, Inc. (MMC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2003
Business Overview: MMC is a professional services firm operating in three principal segments: Risk and Insurance Services (Marsh), Investment Management (Putnam), and Consulting (Mercer). The company employs approximately 60,000 people globally.
Key Financial Metrics
Figures in millions, except per share data.
| Metric | Q2 2003 | Q2 2002 | YTD 6mo 2003 | YTD 6mo 2002 |
|---|---|---|---|---|
| Operating Revenue | $2,865 | $2,612 | $5,717 | $5,247 |
| Operating Income | $599 | $565 | $1,316 | $1,252 |
| Net Income | $365 | $336 | $808 | $754 |
| Diluted EPS | $0.66 | $0.60 | $1.47 | $1.33 |
| Operating Margin | 20.9% | 21.6% | 23.0% | 23.9% |
| Cash from Operations (YTD) | $1,056 (vs. $519 in 2002) | |||
| Cash & Equivalents (End Period) | $618 | |||
| Total Debt (Short + Long Term) | $3,246 ($369 Short-term + $2,877 Long-term) |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 10% in Q2 2003 and 9% for the six-month period compared to 2002. On a constant currency basis, revenue grew 5% in Q2 and 4% YTD.
- Segment Performance:
- Risk & Insurance Services: Revenue grew 17% (Q2) and 19% (YTD), driven by strong demand for broking services and higher premium rates. Operating income rose 22% in Q2.
- Investment Management: Revenue declined 15% (Q2) and 20% (YTD) due to a 14% drop in average assets under management (AUM) to $260 billion.
- Consulting: Revenue increased 16% (Q2) and 14% (YTD), aided by foreign currency translation and the acquisition of Oliver Wyman.
- Expenses: Operating expenses rose 11% in Q2, primarily due to increased compensation costs in the Risk & Insurance segment and higher office/insurance costs.
- Acquisitions: MMC acquired Oliver, Wyman & Company (OWC) in April 2003 for $265 million ($159M cash, $106M stock).
Guidance, Outlook, and Risks
- Dividends: MMC increased its quarterly dividend by 11% to $0.31 per share, payable August 15, 2003.
- Capital Allocation: The company repurchased 11.5 million shares of common stock for $503 million during the first six months of 2003.
- Debt Management: MMC issued $500 million in senior notes in February 2003 and $300 million in July 2003 to extend debt maturity and reduce commercial paper reliance. Effective interest rates on existing notes range from 4.0% to 5.1%.
- Risks and Contingencies:
- Market Conditions: Investment management revenue remains sensitive to equity and fixed income market fluctuations and net redemptions.
- Legal/Claims: MMC faces various claims and lawsuits regarding errors and omissions. Management believes reserves are adequate and no material adverse effect is expected.
- September 11 Impact: Forward-looking statements note continued uncertainty regarding insurance recoveries and financial losses related to the 9/11 attacks.
Investor Verification Checklist
- Assets Under Management (AUM): Verify the trend in Putnam's AUM ($267B at June 30, 2003) and net flows, as this directly drives Investment Management revenue.
- Constant Currency Growth: Distinguish between GAAP revenue growth and constant currency growth to assess organic performance versus foreign exchange impacts.
- Debt Structure: Review the shift from commercial paper to long-term senior notes and the associated interest rate exposure.
- Acquisition Integration: Monitor the integration costs and revenue contribution from the Oliver Wyman acquisition.
- Stock Repurchases: Track the pace of share buybacks and their impact on diluted share count and EPS.