10-QPeriod: Q3 FY2003

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 14, 2003For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MMC) reported solid financial results for the third quarter and nine months ended September 30, 2003. Revenue growth was driven by the Risk and Insurance Services and Consulting segments, partially offset by a decline in Investment Management. The company demonstrated improved profitability with operating income increasing year-over-year for both periods. MMC also highlighted strong operating cash flow generation, enabling continued investment in the business and returning capital to shareholders through dividends and share repurchases. A significant development disclosed during this period relates to regulatory actions against its Putnam Investments subsidiary concerning allegations of improper trading practices by investment management professionals. While MMC stated it is cooperating fully and implementing remedial actions, these matters represent a notable risk factor for the Investment Management segment and the company as a whole. Despite these challenges, management expressed confidence that the resolution of these issues would not materially impact the company's consolidated financial position or cash flows, although it could affect operating results.

Key Highlights

  • 1Revenue increased by 11% year-over-year in the third quarter, reaching $2.84 billion, driven by strong performance in Risk and Insurance Services and Consulting.
  • 2Operating income for the third quarter rose to $593 million, up from $512 million in the prior year's quarter, reflecting improved operational efficiency.
  • 3Net income for the nine months ended September 30, 2003, was $1.165 billion, an increase from $1.053 billion in the same period of 2002.
  • 4The company generated strong operating cash flow of $1.625 billion for the nine months ended September 30, 2003.
  • 5MMC repurchased approximately $910 million of its common stock during the first nine months of 2003.
  • 6The report details significant regulatory proceedings against Putnam Investments concerning alleged improper trading practices by its employees, with potential for civil penalties.
  • 7Goodwill and intangible assets increased to $5.712 billion and $0.268 billion respectively at September 30, 2003, primarily due to acquisitions like Oliver, Wyman & Company.

Frequently Asked Questions

Revenue growth is primarily driven by the Risk and Insurance Services segment, benefiting from higher premium rates and increased placement service revenues. The Consulting segment also contributes significantly, bolstered by acquisitions and growth in areas like Management Consulting and Economic Consulting. The Investment Management segment's revenue is more sensitive to market fluctuations and assets under management.

A major concern highlighted is the ongoing regulatory investigations and lawsuits against Putnam Investments concerning market timing and improper trading by employees. These could lead to fines, restitution, and reputational damage. Additionally, the company faces risks inherent in the financial markets, competitive pressures in its service lines, and potential impacts from global economic conditions and geopolitical events.

The company generated substantial operating cash flow, which is expected to be sufficient for ongoing operations, dividends, capital expenditures, and debt repayments. MMC has also accessed capital markets through the issuance of senior notes and maintains revolving credit facilities. They actively manage their capital structure, including share repurchases and dividend payments to shareholders.

The acquisition of OWC in April 2003 for $265 million has contributed to the growth in the Consulting segment, particularly in Management Consulting. A portion of the purchase price is recognized as compensation expense over four years, reflecting continued employment of former OWC employees.