10-QPeriod: Q2 FY2010

MARSH & MCLENNAN COMPANIES, INC. Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 6, 2010For Securities:MRSHMMC

Summary

Marsh & McLennan Companies, Inc. (MMC) reported mixed financial results for the second quarter and first six months of 2010. While consolidated revenue saw an increase, driven by acquisitions and organic growth in the Risk and Insurance Services segment, the company reported a significant operating loss in the second quarter due to a substantial $400 million charge related to the settlement of litigation with the Alaska Retirement Management Board concerning Mercer. The company has been actively managing its portfolio, completing the sale of Kroll for $1.13 billion, which is expected to improve its financial position. Despite the large charge impacting short-term profitability, underlying operational performance in key segments showed resilience. Investors should note the strategic acquisitions in the Risk and Insurance Services segment, aimed at expanding market share, and the ongoing divestiture of non-core assets. The financial statements also highlight the impact of foreign currency fluctuations and provide detailed segment information, allowing for a clearer understanding of the performance drivers.

Financial Highlights

48 data points
Beta

Revenue

$2.61B

Net Income

$236.00M

9.1% Net Margin

EPS (Diluted)

$0.43

Total Assets

$15.62B

Cash & Equivalents

$1.51B

Free Cash Flow

$460.00M

Financial Statements
Beta
Revenue$2.61B
Operating Expenses$2.66B
Operating Income-$50.00M
Interest Expense$60.00M
Net Income$236.00M
EPS (Basic)$0.43
EPS (Diluted)$0.43
Shares Outstanding (Basic)541.00M
Shares Outstanding (Diluted)545.00M

Key Highlights

  • 1Consolidated revenue increased by 6% to $2.6 billion in Q2 2010 compared to Q2 2009, and by 7% to $5.24 billion for the first six months.
  • 2The company reported a consolidated operating loss of $50 million in Q2 2010, primarily due to a $400 million charge related to the settlement of litigation involving Mercer.
  • 3Net income attributable to MMC was $236 million in Q2 2010, a significant improvement from a net loss of $193 million in Q2 2009, largely driven by the sale of Kroll and other discontinued operations.
  • 4The Risk and Insurance Services segment showed revenue growth of 9% in Q2 2010, driven by acquisitions and underlying performance, though underlying growth was a more modest 1%.
  • 5The Consulting segment's revenue increased by 2% in Q2 2010, with Oliver Wyman showing strong underlying growth offset by a slight decline in Mercer's underlying revenue.
  • 6MMC completed the sale of Kroll to Altegrity for $1.13 billion in cash, which closed on August 3, 2010, and results of Kroll and Kroll Laboratory Specialists were reported as discontinued operations.
  • 7The company incurred restructuring costs of $41 million in the first six months of 2010 related to actions initiated in the current year, impacting operating expenses.

Frequently Asked Questions

The primary driver for the operating loss of $50 million in the second quarter of 2010 was a significant charge of $400 million related to the settlement of litigation brought by the Alaska Retirement Management Board against Mercer. This charge, after considering insurance coverage and tax effects, substantially impacted the company's reported profitability for the quarter.

The sale of Kroll, which closed on August 3, 2010, is reported as a discontinued operation. While the proceeds of $1.13 billion are not fully reflected in the Q2 2010 cash flow statement, the reclassification of Kroll's results significantly boosted net income attributable to MMC for the quarter, turning a net loss in the prior year's comparable period into a substantial net profit.

Consolidated revenue showed a modest increase in Q2 2010, driven by acquisitions in the Risk and Insurance Services segment and continued growth in Oliver Wyman. While underlying revenue growth was soft in some areas, particularly within Mercer's consulting lines, the company's strategic acquisitions and its focus on the Risk and Insurance Services segment suggest a continued, albeit moderate, revenue growth trajectory. Investors should monitor the effectiveness of recent acquisitions and the competitive landscape for future revenue trends.

MMC's debt levels remained relatively stable. The company has a $1 billion multi-currency revolving credit facility, with no borrowings outstanding as of June 30, 2010. The company expects to use proceeds from the Kroll disposition to fund the maturity of $550 million of senior notes. Operating cash flow improved significantly compared to the prior year, and the company continues to pay dividends, indicating a focus on managing its capital resources effectively.