10-QPeriod: Q3 FY2002

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 14, 2002For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MMC) reported a strong third quarter and first nine months of 2002, demonstrating significant year-over-year growth in revenue and operating income. The Risk and Insurance Services segment was a key driver of this growth, benefiting from increased commercial insurance premium rates and net new business. Despite a challenging market, this segment showed robust underlying revenue growth. The Investment Management segment, however, experienced a decline in revenue and operating income due to a significant decrease in assets under management, largely attributed to market downturns and net fund redemptions. The Consulting segment showed modest revenue growth. The company also reported a substantial increase in cash generated from operations and maintained a solid liquidity position.

Key Highlights

  • 1Total revenue increased by 6% for the third quarter and 3% for the nine months ended September 30, 2002, compared to the prior year.
  • 2Operating income saw a significant increase, up 67% for the third quarter and 19% for the nine months, driven by strong performance in Risk and Insurance Services.
  • 3The Risk and Insurance Services segment reported a 17% revenue increase in Q3 2002, fueled by higher commercial insurance rates and new business.
  • 4The Investment Management segment's revenue declined by 15% in Q3 2002 due to a 19% decrease in average assets under management.
  • 5MMC generated $1.3 billion in net cash from operations for the nine months ended September 30, 2002, a substantial increase from $872 million in the prior year.
  • 6The company repurchased approximately 24 million shares of common stock for $1.2 billion during the first nine months of 2002.
  • 7Goodwill amortization was discontinued effective January 1, 2002, in accordance with SFAS No. 142, impacting reported earnings per share calculations.

Frequently Asked Questions

The primary driver is the Risk and Insurance Services segment, which has benefited from a hardening insurance market characterized by increased commercial insurance premium rates and a significant influx of net new business. This segment's strong performance has more than offset declines in other areas, leading to overall improved financial results.

The decline in the Investment Management segment, primarily driven by Putnam Investments, is due to a significant decrease in assets under management. This is largely a result of challenging equity market conditions and net fund redemptions, which reduce the fee base upon which investment management revenue is calculated.

Effective January 1, 2002, Marsh & McLennan discontinued the amortization of goodwill, in accordance with SFAS No. 142. This change has no impact on the company's cash flow but positively affects reported net income and earnings per share by removing the amortization expense. The filing provides pro-forma adjustments for prior periods to illustrate this impact.

In March 2002, MMC issued $750 million in senior notes to repay commercial paper borrowings. The company also utilizes interest rate swaps to manage its exposure to interest rate fluctuations on its debt. Additionally, MMC actively engages in share repurchases, having spent approximately $1.2 billion in the first nine months of 2002.