10-QPeriod: Q1 FY2008

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 8, 2008For Securities:MRSHMMC

Summary

Marsh & McLennan Companies (MMC) reported a net loss of $210 million, or $0.40 per share, for the first quarter of 2008, a significant decline from a net income of $268 million, or $0.49 per share, in the prior year. This downturn was largely driven by a substantial $425 million goodwill impairment charge within the Risk Consulting & Technology segment, which negatively impacted operating income. Excluding this charge, operating income decreased by 11% year-over-year, primarily due to weaker performance in the Risk and Insurance Services segment and increased corporate expenses. Despite the overall loss, the company's revenue grew 8% to $3.05 billion, with underlying revenue up 2%, showing resilience in its core operations. The Consulting segment performed well with a 15% revenue increase. However, the significant goodwill impairment, coupled with ongoing litigation and regulatory matters, presents a key concern for investors regarding the long-term value and stability of the Risk Consulting & Technology segment.

Key Highlights

  • 1Reported a net loss of $210 million ($0.40/share) for Q1 2008, down from a net income of $268 million ($0.49/share) in Q1 2007.
  • 2Recorded a significant $425 million goodwill impairment charge in the Risk Consulting & Technology segment.
  • 3Consolidated revenue increased 8% to $3.05 billion, with underlying revenue growth of 2%.
  • 4Consulting segment revenue grew 15%, driven by strong performance in Mercer and Oliver Wyman.
  • 5Risk and Insurance Services segment revenue grew 2%, but underlying revenue decreased by 4%.
  • 6Operating expenses increased 29% due to the goodwill impairment charge and higher underlying costs.
  • 7Cash flow from operations was negative at ($463 million) for the quarter, impacted by typical seasonal payments.

Frequently Asked Questions

The primary driver of the net loss was a $425 million goodwill impairment charge recognized in the Risk Consulting & Technology segment. This charge significantly impacted operating results and contributed to the company reporting a net loss for the quarter.

The Consulting segment showed strong performance with a 15% increase in revenue. The Risk and Insurance Services segment saw a 2% revenue increase, though underlying revenue declined 4%. The Risk Consulting & Technology segment's revenue increased 10%, but its operating results were severely impacted by the goodwill impairment.

The goodwill impairment suggests that management's prior valuation of this segment's assets was too high, likely due to a challenging operating environment. While the company expects to complete a further impairment test in Q2 2008, the significant write-down raises concerns about the segment's future profitability and value.

Yes, Marsh & McLennan faces numerous ongoing legal and regulatory matters, including those related to brokerage compensation practices, shareholder claims, and various other governmental inquiries. These are detailed in Note 15 and could potentially have a material impact on the company's financial condition or results of operations.