SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 2003
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, New York 10036
(212) 345-5000
Commission file number 1-5998
State of Incorporation: Delaware
I.R.S. Employer Identification No.
36-2668272
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . NO ___.
As of July 31, 2003 there were outstanding 532,637,345 shares of common stock, par value $1.00 per share, of the registrant.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Marsh & McLennan Companies, Inc. and its subsidiaries ("MMC") and their representatives may from time to time make verbal or written statements (including certain statements contained in this report and other MMC filings with the Securities and Exchange Commission and in our reports to stockholders) relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements may include, without limitation, discussions concerning revenues, expenses, earnings, cash flow, capital structure, pension funding, financial losses and expected insurance recoveries resulting from the September 11, 2001 attack on the World Trade Center in New York City, as well as market and industry conditions, premium rates, financial markets, interest rates, foreign exchange rates, contingencies and matters relating to MMC's operations and income taxes. Such forward-looking statements are based on available current market and industry materials, experts' reports and opinions and long-term trends, as well as management's expectations concerning future events impacting MMC. Forward-looking statements by their very nature involve risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by any forward-looking statements contained or incorporated or referred to herein include, in the case of MMC's risk and insurance services and consulting businesses, the amount of actual insurance recoveries and financial losses from the September 11 attack on the World Trade Center, or other adverse consequences from that incident. Other factors that should be considered in the case of MMC's risk and insurance services business are changes in competitive conditions, movements in premium rate levels, the continuation of difficult conditions for the transfer of commercial risk and other changes in the global property and casualty insurance markets, the impact of terrorist attacks, natural catastrophes, and mergers between client organizations, including insurance and reinsurance companies insolvencies. Factors to be considered in the case of MMC's investment management business include changes in worldwide and national equity and fixed income markets, actual and relative investment performance, the level of sales and redemptions, and the ability to maintain investment management and administrative fees at appropriate levels; and with respect to all of MMC's activities, changes in general worldwide and national economic conditions, changes in the value of investments made in individual companies and investment funds, fluctuations in foreign currencies, actions of competitors or regulators, changes in interest rates or in the ability to access financial markets, developments relating to claims, lawsuits and contingencies, prospective and retrospective changes in the tax or accounting treatment of MMC's operations and the impact of tax and other legislation and regulation in the jurisdictions in which MMC operates.
Forward-looking statements speak only as of the date on which they are made, and MMC undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.
MMC is committed to providing timely and materially accurate information to the investing public, consistent with our legal and regulatory obligations. To that end, MMC and its operating companies use their websites to convey meaningful information about their businesses, including the anticipated release of quarterly financial results, and the posting of updates of assets under management at Putnam. Monthly updates of total assets under management at Putnam will be posted to the MMC website on the first business day following the end of each month, except at the end of March, June, September and December, when such information will be released with MMC's quarterly earnings announcement. Putnam posts mutual fund and performance data to its website regularly. Assets for most Putnam retail mutual funds are posted approximately two weeks after each month-end. Mutual fund net asset value (NAV) is posted daily. Historical performance and Lipper rankings are also provided. Investors can link to MMC and its operating company websites through www.mmc.com.
PART I, FINANCIAL INFORMATION
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------------------------
(In millions, except per share figures) 2003 2002 2003 2002
--------------------------------------------------------------------------------
Revenue:
Service revenue $2,840 $2,607 $5,681 $5,210
Investment income (loss) 25 5 36 37
--------------------------------------------------------------------------------
Operating revenue 2,865 2,612 5,717 5,247
--------------------------------------------------------------------------------
Expense:
Compensation and benefits 1,475 1,281 2,853 2,530
Other operating expenses 791 766 1,548 1,465
--------------------------------------------------------------------------------
Operating expenses 2,266 2,047 4,401 3,995
--------------------------------------------------------------------------------
Operating income 599 565 1,316 1,252
Interest income 7 4 13 9
Interest expense (46) (38) (89) (75)
--------------------------------------------------------------------------------
Income before income taxes and minority interest 560 531 1,240 1,186
Income taxes 189 189 421 421
Minority interest, net of tax 6 6 11 11
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Net income $ 365 $ 336 $ 808 $ 754
--------------------------------------------------------------------------------
Basic net income per share $ .68 $ .62 $ 1.51 $ 1.38
--------------------------------------------------------------------------------
Diluted net income per share $ .66 $ .60 $ 1.47 $ 1.33
--------------------------------------------------------------------------------
Average number of shares outstanding-Basic 534 545 535 546
--------------------------------------------------------------------------------
Average number of shares outstanding-Diluted 552 562 550 565
--------------------------------------------------------------------------------
Dividends Declared $ 0.31 $ 0.28 $ 0.59 0.55
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The accompanying notes are an integral part of these consolidated statements.
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(In millions of dollars) 2003 2002
--------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 618 $ 546
--------------------------------------------------------------------------------
Receivables
Commissions and fees 2,403 2,178
Advanced premiums and claims 115 119
Other 308 305
--------------------------------------------------------------------------------
2,826 2,602
Less-allowance for doubtful accounts and cancellations (132) (124)
--------------------------------------------------------------------------------
Net receivables 2,694 2,478
--------------------------------------------------------------------------------
Prepaid dealer commissions - current portion 181 226
Other current assets 270 414
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Total current assets 3,763 3,664
Goodwill and intangible assets 5,741 5,404
Fixed assets, net 1,386 1,308
(net of accumulated depreciation and
amortization of $1,354 at June 30, 2003
and $1,275 at December 31, 2002)
Long-term investments 567 578
Prepaid dealer commissions 210 292
Prepaid pension 1,135 1,071
Other assets 1,655 1,538
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The accompanying notes are an integral part of these consolidated statements.
MARSH & MCLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(In millions of dollars) 2003 2002
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 369 $ 543
Accounts payable and accrued liabilities 1,561 1,406
Accrued compensation and employee benefits 1,271 1,568
Accrued income taxes 491 194
Dividends payable 167 152
--------------------------------------------------------------------------------
Total current liabilities 3,859 3,863
--------------------------------------------------------------------------------
Fiduciary liabilities 4,554 4,010
Less - cash and investments held in
a fiduciary capacity (4,554) (4,010)
--------------------------------------------------------------------------------
- -
Long-term debt 2,877 2,891
--------------------------------------------------------------------------------
Other liabilities 2,274 2,083
--------------------------------------------------------------------------------
Commitments and contingencies - -
--------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $1 par value, authorized
6,000,000 shares, none issued - -
Common stock, $1 par value, authorized
1,600,000,000 shares, issued 560,641,640
shares at June 30, 2003 and December 31, 2002 561 561
Additional paid-in capital 1,321 1,426
Retained earnings 4,982 4,490
Accumulated other comprehensive loss (264) (452)
--------------------------------------------------------------------------------
6,600 6,025
Less - treasury shares, at cost,
26,464,681 shares at June 30, 2003 and
22,441,817 shares at December 31, 2002 (1,153) (1,007)
--------------------------------------------------------------------------------
Total stockholders' equity 5,447 5,018
--------------------------------------------------------------------------------
$14,457 $13,855
--------------------------------------------------------------------------------
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The accompanying notes are an integral part of these consolidated statements.
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
--------------------------------------------------------------------------------
For Six Months Ended June 30, 2003 2002
(In millions of dollars)
--------------------------------------------------------------------------------
Operating cash flows:
Net income $ 808 $ 754
Adjustments to reconcile net income to cash generated from
(used for) operations:
Depreciation of fixed assets and amortization,
capitalized software and other intangible assets 194 175
Provision for deferred income taxes 73 14
(Gains) losses on investments (36) (37)
Changes in assets and liabilities:
Net receivables (189) (25)
Prepaid dealer commissions 127 159
Other current assets 36 (24)
Other assets (105) (111)
Accounts payable and accrued liabilities 80 54
Accrued compensation and employee benefits (297) (296)
Accrued income taxes 298 (151)
Other liabilities 17 (17)
Effect of exchange rate changes 50 24
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Net cash generated from operations 1,056 519
--------------------------------------------------------------------------------
Financing cash flows:
Net decrease in commercial paper (640) (357)
Proceeds from issuance of debt 502 748
Other repayments of debt (44) (6)
Purchase of treasury shares (492) (802)
Issuance of common stock 253 235
Dividends paid (301) (291)
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Net cash used for financing activities (722) (473)
--------------------------------------------------------------------------------
Investing cash flows:
Capital expenditures (240) (187)
Proceeds from sales related to fixed assets
and capitalized software 9 12
Acquisitions (101) (21)
Other, net 42 79
--------------------------------------------------------------------------------
Net cash used for investing activities (290) (117)
--------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents 28 5
--------------------------------------------------------------------------------
Increase/(Decrease) in cash & cash equivalents 72 (66)
Cash & cash equivalents at beginning of period 546 537
--------------------------------------------------------------------------------
Cash & cash equivalents at end of period $ 618 $ 471
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The accompanying notes are an integral part of these consolidated statements.
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MMC, a professional services firm, is organized based on the different services that it offers. Under this organization structure, MMC operates in three principal business segments: risk and insurance services, investment management and consulting. The risk and insurance services segment provides risk management and insurance broking, reinsurance broking and insurance program management services for businesses, public entities, insurance companies, associations, professional services organizations and private clients. It also provides services principally in connection with originating, structuring and managing insurance, financial services and other industry-focused investments. The investment management segment primarily provides securities investment advisory and management services and administrative services for a group of publicly held investment companies and institutional accounts. The consulting segment provides advice and services to the managements of organizations primarily in the areas of retirement services, human capital, health care and group benefit programs, management consulting, organizational change and organizational design, economic consulting and corporate identity.
The consolidated financial statements included herein have been prepared by MMC pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such rules and regulations, although MMC believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in MMC's latest Annual Report on Form 10-K.
The financial information contained herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the six-month periods ended June 30, 2003 and 2002. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation.
The caption "Investment income (loss)" in the consolidated statements of income comprises realized and unrealized gains and losses from investments recognized in income. It includes other than temporary declines in the value of available for sale securities, the change in value of trading securities and the change in value of MMC's holdings in certain private equity funds. MMC's investments may include seed shares for mutual funds, direct investments in insurance, consulting or investment management companies and investments in private equity funds.
In its capacity as an insurance broker or agent, MMC collects premiums from insureds and, after deducting its commissions, remits the premiums to the
respective insurance underwriters. MMC also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims are held in a fiduciary capacity. Interest income on these fiduciary funds, included in service revenue, amounted to $61 million and $56 million for the six-month periods ended June 30, 2003 and 2002, respectively. Since fiduciary assets are not available for corporate use, they are shown in the balance sheet as an offset to fiduciary liabilities.
Net uncollected premiums and claims and the related payables amounted to $12.0 billion at June 30, 2003 and $11.7 billion at December 31, 2002, respectively. MMC is not a principal to the contracts under which the right to receive premiums or the right to receive reimbursement of insured losses arises. Net uncollected premiums and claims and the related payables are, therefore, not assets and liabilities of MMC and are not included in the accompanying Consolidated Balance Sheets.
Basic net income per share is calculated by dividing net income by the weighted average number of shares of MMC's common stock outstanding. Diluted net income per share is calculated by reducing net income for the potential minority interest associated with unvested shares granted under the Putnam Equity Partnership Plan and adding back dividend equivalent expense related to common stock equivalents. This result is then divided by the weighted average common shares outstanding, which have been adjusted for the dilutive effect of potentially issuable common shares.
The following reconciles net income to net income for diluted earnings per share and basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three- and six-month periods ended June 30, 2003 and 2002.
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Three Months Ended Six Months Ended
June 30, June 30,
(In millions of dollars) 2003 2002 2003 2002
--------------------------------------------------------------------------------
Net income $365 $336 $808 $754
Less: Potential minority interest
associated with the Putnam Class B Common
Shares net of dividend equivalent expense
related to common stock equivalents - - - (1)
--------------------------------------------------------------------------------
Net income for diluted earnings per share $365 $336 $808 $753
--------------------------------------------------------------------------------
Basic weighted average common shares outstanding 534 545 535 546
Dilutive effect of potentially issuable
common shares 18 17 15 19
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The following schedule provides additional information concerning interest and income taxes paid for the six-month periods ended June 30, 2003 and 2002.
--------------------------------------------------------------------------- (In millions of dollars) 2003 2002 --------------------------------------------------------------------------- Interest paid $ 81 $ 62 Income taxes paid $ 41 $ 468 |
6. Comprehensive Income
The components of comprehensive income for the six-month periods ended June 30, 2003 and 2002 are as follows:
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(In millions of dollars) 2003 2002
---------------------------------------------------------------------------
Foreign currency translation adjustments $ 172 $ 60
Unrealized investment holding gains (losses),
net of income taxes 26 (33)
Less: Reclassification adjustment for realized
gains included in net income, net of income taxes (7) (18)
Deferred (loss) gain on cash flow hedges,
net of income taxes (3) 4
---------------------------------------------------------------------------
Other comprehensive income 188 13
Net income 808 754
---------------------------------------------------------------------------
Comprehensive income $996 $767
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In April 2003, MMC acquired Oliver, Wyman & Company ("OWC") for $265 million, $159 million in cash, which will be paid over 4 years, and $106 million in MMC stock. Substantially all former employees of OWC are now employees of MMC. Approximately $35 million of the purchase consideration is subject to continued employment of the selling shareholders and is being recorded as compensation expense over four years.
Changes in the carrying amount of goodwill for the six-month period ended June 30, 2003, are as follows:
-------------------------------------------------------------------------- (In millions of dollars) 2003 --------------------------------------------------------------------------- Balance as of January 1, $5,151 Goodwill acquired 221 Other adjustments (primarily foreign exchange) 61 --------------------------------------------------------------------------- Balance as of June 30, $5,433 --------------------------------------------------------------------------- |
The goodwill balance at June 30, 2003 and December 31, 2002 includes approximately $121 million of equity method goodwill.
Amortized intangible assets consist primarily of the cost of client lists and client relationships acquired and the rights to future revenue streams from certain existing private equity funds. MMC has no intangible assets with indefinite lives. The gross carrying amount and accumulated amortization by major intangible asset class is as follows:
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June 30, 2003 December 31, 2002
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Net Net
Gross Accumulated Carrying Gross Accumulated Carrying
(In millions of dollars) Cost Amortization Amount Cost Amortization Amount
------------------------------------------------------------------------------------------------------------------------
Client lists and client relationships $226 $ 59 $167 $148 $ 50 $ 98
acquired
Future revenue streams related to 216 83 133 216 70 146
existing private equity funds
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Total amortized intangibles $442 $142 $300 $364 $120 $244
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Aggregate amortization expense for the six-month periods ended June 30, 2003 and 2002 was $20 million and $16 million, respectively and the estimated aggregate amortization expense is as follows:
--------------------------------------------------------------------------- For the Years Ending December 31, Estimated (In millions of dollars) Expense --------------------------------------------------------------------------- 2003 $42 2004 $44 2005 $40 2006 $33 2007 $31 --------------------------------------------------------------------------- |
MMC has stock-based benefit plans under which employees are awarded grants of restricted stock, stock options and other forms of awards. As provided under SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123")
MMC has elected to continue to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and has provided the required additional pro forma disclosures.
Pro Forma Information: In accordance with the intrinsic value method allowed by APB 25, no compensation cost has been recognized in the Consolidated Statements of Income for MMC's stock option and stock purchase plans and the stock options awarded under the Putnam Investments Equity Partnership Plan. If compensation cost for MMC's stock-based compensation plans had been determined consistent with the fair value method prescribed by SFAS No. 123, MMC's net income and net income per share for the three- and six-month periods ended June 30, 2003 and 2002 would have been reduced to the pro forma amounts indicated in the table below.
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(In millions of dollars, except per share figures) Three Months Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
----------------------------------------------------------------------------------------------------------------------
Net Income:
As reported $365 $336 $808 $754
Adjustment for fair value method, net of tax (41) (39) (88) (74)
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Pro forma net income $324 $297 $720 $680
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Net Income Per Share:
Basic:
As reported $0.68 $0.62 $1.51 $1.38
Pro forma $0.61 $0.55 $1.35 $1.24
Diluted:
As reported $0.66 $0.60 $1.47 $1.33
Pro forma $0.59 $0.53 $1.32 $1.21
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The pro forma information above includes the cost of stock options issued under MMC incentive and stock award plans and the Putnam Investments Equity Partnership Plan and stock issued under MMC stock purchase plans. MMC stock purchase plans allow eligible employees to purchase MMC shares at prices not less than 85% of the less of the fair market value of the stock at the beginning or end of the offering period. The stock purchase plans represent approximately 20% of the increment from applying the fair value method in 2003 and 2002.
The estimated fair value of options granted was calculated using the Black-Scholes option pricing valuation model. The weighted average assumptions used in the valuation models are evaluated and revised, as necessary, to reflect market conditions and experience.
In February 2003, MMC issued $250 million of 3.625% Senior Notes due 2008 and $250 million of 4.85% Senior Notes due 2013. The net proceeds from the notes were used to pay down commercial paper borrowings.
In January 2003, MMC terminated and settled interest rate swaps that had hedged the fair value of senior notes issued in 2002. The cumulative amount of previously recognized adjustments of the fair value of the hedged notes is being amortized over the remaining life of those notes in accordance
with SFAS No. 133. As a result, the effective interest rate over the remaining life of the notes, including the amortization of the fair value adjustments, is 4.0% for the $500 million Senior Notes due in 2007 (5.375% coupon rate) and 5.1% for the $250 million Senior Notes due in 2012 (6.25% coupon rate).
Commercial paper borrowings of $250 million and $750 million respectively, at June 30, 2003 and December 31, 2002, have been classified as long-term debt based on MMC's intent and ability to maintain or refinance these obligations on a long-term basis.
In July 2003, MMC issued $300 million of 5.875% Senior Notes due 2033.
In 1999, as part of the 1998 combination with Sedgwick Group, plc ("Sedgwick") and the integration of Sedgwick, MMC adopted a plan to reduce staff and consolidate duplicative offices. The estimated cost of this plan relating to employees and offices of Sedgwick ("1999 Sedgwick Plan") amounted to $285 million and was included in the cost of the acquisition. Merger-related costs for employees and offices of MMC ("1999 MMC Plan") amounted to $266 million and were recorded as part of a 1999 special charge.
In the third quarter of 2001, as a result of weakening business conditions, which were exacerbated by the events of September 11, MMC adopted a plan to provide for staff reductions and office consolidations, primarily in the consulting segment ("2001 Plan"). The charge of $61 million related to this Plan is comprised of $44 million for severance and related benefits affecting 750 people and $17 million for future rent under non-cancelable leases.
The utilization of these charges is summarized as follows:
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Utilized and
1999 Sedgwick Plan: changes in
(In millions of dollars) Initial estimates Utilized in Balance
Balance through 2002 Six Months 2003 June30, 2003
------------------------------------------------------------------------------------------------------------
Termination payments to employees $ 183 $ (181) $ - $ 2
Other employee-related costs 5 (5) - -
Future rent under noncancelable leases 48 (33) (2) 13
Leasehold termination and related costs 49 (32) - 17
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$ 285 $ (251) $(2) $ 32
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Number of employee terminations 2,400 (2,400) - -
Number of office consolidations 125 (125) - -
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Utilized and
1999 MMC Plan: changes in
(In millions of dollars) Initial estimates Utilized in Balance
Balance through 2002 Six Months 2003 June 30, 2003
------------------------------------------------------------------------------------------------------------
Termination payments to employees $ 194 $ (190) $ - $ 4
Future rent under noncancelable leases 31 (21) (1) 9
Leasehold termination and related costs 16 (13) - 3
Other integration related costs 25 (25) - -
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$ 266 $ (249) $ (1) $ 16
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Number of employee terminations 2,100 (2,100) - -
Number of office consolidations 50 (50) - -
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The actions contemplated by the 1999 Sedgwick Plan and the 1999 MMC Plan were substantially complete by year-end 2000. Some accruals, primarily for future rent under noncancelable leases, costs to restore leased properties to contractually agreed upon condition and salary continuance arrangements, are expected to be paid over several years.
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Utilized
2001 Plan Initial through Utilized in Balance
(In millions of dollars) Balance 2002 Six Months 2003 June 30, 2003
------------------------------------------------------------------------------------------------------------
Termination payments to employees $ 44 $ (39) $ (1) $ 4
Future rent under noncancelable leases 17 (4) (1) 12
------------------------------------------------------------------------------------------------------------
$ 61 $ (43) $ (2) $ 16
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Number of employee terminations 750 (750) - -
Number of office consolidations 9 (9) - -
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Actions under the 2001 Plan were completed by September 30, 2002. Some accruals, primarily for future rent under noncancelable leases and salary continuance arrangements, are expected to be paid over several years.
In 2003, MMC repurchased shares of its common stock for treasury as well as to meet requirements for issuance of shares for its various stock compensation and benefit programs. During the six-month period ended June 30, 2003, MMC repurchased 11.5 million shares for total consideration of $503 million.
MMC repurchases shares subject to market conditions, including from time to time pursuant to the terms of a 10b5-1 plan. A 10b5-1 plan allows a company to purchase shares during a blackout period, provided the company communicates its share purchase instructions to the broker prior to the blackout period, pursuant to a written plan that may not be changed. Approximately 1.8 million shares of the repurchases discussed above were made under the 10b5-1 plan.
MMC and its subsidiaries are subject to various claims, lawsuits and proceedings consisting principally of alleged errors and omissions in connection with the placement of insurance or reinsurance and in rendering
investment and consulting services. Some of these matters seek damages, including punitive damages, in amounts that could, if assessed, be significant. Insurance coverage applicable to such matters includes elements of both risk retention and risk transfer.
As part of the combination with Sedgwick, MMC acquired River Thames Insurance Company Limited ("River Thames"), an insurance underwriting business that was already in run-off, which was sold in 2001. Sedgwick guaranteed payment of claims on certain policies underwritten through the Institute of London Underwriters by River Thames ("ILU Guarantee"). The policies covered by the ILU Guarantee are reinsured up to (pound)40 million by a related party of River Thames. Payment of claims under the reinsurance agreement is collateralized by segregated assets held in a trust. As of June 30, 2003, the reinsurance coverage exceeded the best estimate of the projected liability of the policies covered by the ILU Guarantee. To the extent River Thames or the reinsurer are unable to meet their obligations under those policies, a claimant may seek to recover from MMC under the guarantee. MMC does not expect any material net impact on its consolidated financial position or results of operations related to this guarantee.
Although the ultimate outcome of all matters referred to above cannot be ascertained and liabilities in indeterminate amounts may be imposed on MMC and its subsidiaries, on the basis of present information, it is the opinion of MMC's management that the disposition or ultimate determination of these claims, lawsuits, proceedings or guarantees will not have a material adverse effect on MMC's consolidated results of operations or its consolidated financial position.
MMC operates in three principal business segments based on the services provided. Segment performance is evaluated based on operating income, which is after deductions for directly related expenses and minority interest but before special charges. The accounting policies of the segments are the same as those used for the consolidated financial statements.
Selected information about MMC's operating segments for the six-month periods ended June 30, 2003 and 2002 follows:
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Segment Operating
(In millions of dollars) Revenue Income
--------------------------------------------------------------------------------
2003
Risk and Insurance Services $ 3,453 (a) $ 963
Investment Management 940 228
Consulting 1,324 182
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$5,717 $1,373
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2002
Risk and Insurance Services $ 2,912 (a) $ 791
Investment Management 1,175 344
Consulting 1,160 164
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$5,247 $1,299
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(a)Includes interest income on fiduciary funds ($61 million in 2003 and $56 million in 2002).
A reconciliation of the total segment operating income to income before income taxes and minority interest in the consolidated financial statements is as follows:
--------------------------------------------------------------------------- (In millions of dollars) 2003 2002 --------------------------------------------------------------------------- Total segment operating income $ 1,373 $1,299 Corporate expense (68) (58) Reclassification of minority interest 11 11 --------------------------------------------------------------------------- Operating income 1,316 1,252 Interest income 13 9 Interest expense (89) (75) --------------------------------------------------------------------------- Total income before income taxes and minority interest $ 1,240 $1,186 --------------------------------------------------------------------------- |
(In millions of dollars) 2003 2002
---------------------------------------------------------------------------
Risk and Insurance Services
Risk Management and Insurance Broking $2,593 $2,158
Reinsurance Broking and Services 423 334
Related Insurance Services 437 420
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Total Risk and Insurance Services 3,453 2,912
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Investment Management 940 1,175
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Consulting
Retirement Services 612 549
Health Care & Group Benefits 201 176
Human Capital 175 163
Management and Organizational Change 198 139
Economic 71 65
---------------------------------------------------------------------------
1,257 1,092
Reimbursed Expenses 67 68
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Total Consulting 1,324 1,160
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Total $5,717 $5,247
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In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 interprets Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and addresses consolidation by business enterprises qualifying as variable interest entities ("VIE"). FIN 46 defines a VIE as a corporation, partnership, trust or other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 applies immediately to VIEs created after January 31, 2003 in which the company obtains an interest after that date. FIN 46 applies to the first fiscal year or interim period beginning after June 15, 2003 for VIEs in which MMC holds a variable interest that it acquired before February 1, 2003.
MMC through Putnam, manages $3.3 billion in the form of Collateralized Debt Obligations ("CDO") and Collateralized Bond Obligations ("CBO"). The CDOs and CBOs were created prior to January 31, 2003. Separate limited liability companies were established to issue the notes and to hold the underlying collateral, which consists of high-yield bonds and other securities. Putnam serves as the collateral manager for the CDOs and CBOs. The maximum loss exposure related to the CDOs and CBOs is limited to Putnam's investment totaling $4.0 million, reflected in Long-term investments in the Consolidated Balance Sheets at June 30, 2003. The implementation of FIN 46 will not have a significant impact on MMC's consolidated results of operations, financial position or cash flows. The FASB may issue future interpretive guidance to FIN 46.
Marsh & McLennan Companies, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations Second Quarter and Six Months Ended June 30, 2003
General
Marsh & McLennan Companies, Inc. and Subsidiaries ("MMC") is a professional
services firm. MMC subsidiaries include Marsh, the world's largest risk and
insurance services firm; Putnam Investments, one of the largest investment
management companies in the United States; and Mercer, a major global provider
of consulting services. Approximately 60,000 employees worldwide provide
analysis, advice and transactional capabilities to clients in over 100
countries.
MMC operates in three principal business segments based on the services provided. Segment performance is evaluated based on operating income, which is after deductions for directly related expenses and minority interest.
For a description of critical accounting policies, including those which involve significant management judgment, see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the consolidated financial statements in MMC's Annual Report on Form 10-K for the year ended December 31, 2002.
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain statements relating to future results which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. See "Information Concerning Forward-Looking Statements" on page one of this filing. This Form 10-Q should be read in conjunction with MMC's latest Annual Report on Form 10-K.
Second Quarter Six Months
(In millions of dollars) 2003 2002 2003 2002
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Revenue:
Service Revenue $2,840 $2,607 $5,681 $5,210
Investment Income (Loss) 25 5 36 37
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Operating Revenue 2,865 2,612 5,717 5,247
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Expense:
Compensation and Benefits 1,475 1,281 2,853 2,530
Other Operating Expenses 791 766 1,548 1,465
--------------------------------------------------------------------------------
Operating Expenses 2,266 2,047 4,401 3,995
--------------------------------------------------------------------------------
Operating Income $ 599 $ 565 $1,316 $1,252
--------------------------------------------------------------------------------
Operating Income Margin 20.9% 21.6% 23.0% 23.9%
--------------------------------------------------------------------------------
|
Revenue, derived mainly from commissions and fees, increased 10% from the second quarter of 2002. Revenue increased 5% on a constant currency basis which measures the change in revenue using consistent current exchange rates, before the impact of acquisitions and dispositions. Revenue increases in the risk and insurance services and consulting segments were partially offset by a revenue decline in the investment management segment.
The impact of foreign currency translation and acquisitions on MMC's reported revenue is as follows:
----------------------------------------------------------------------------------------------------------------------------
Three Months Ended % Change Currency/
June 30, GAAP Constant Acquisitions
2003 2002 Revenue Currency (b) Impact
---------------------------------------------------------------------------------------------------------------------------
Risk and Insurance Services
Risk Management and Insurance Broking $1,270 $1,082 17% 13% 4%
Reinsurance Broking and Services 189 149 27% 24% 3%
Related Insurance Services (a) 221 205 8% 7% 1
---------------------------------------------------------------------------------------------------------------------------
Total Risk and Insurance Services 1,680 1,436 17% 14% 3%
---------------------------------------------------------------------------------------------------------------------------
Investment Management 495 581 (15)% (15)% -
---------------------------------------------------------------------------------------------------------------------------
Consulting
Retirement Services 312 279 12% 3% 9%
Health Care & Group Benefits 103 92 12% 6% 6%
Human Capital 89 85 5% 2% 3%
Management and Organizational Change 117 71 65% (1)% 66%
Economic 34 32 6% (1)% 7%
----------------------------------------------------------------------------------------------------------------------------
655 559 17% 2% 15%
Reimbursed Expenses 35 36 (3)% (3)% -
----------------------------------------------------------------------------------------------------------------------------
Total Consulting 690 595 16% 2% 14%
----------------------------------------------------------------------------------------------------------------------------
Total $2,865 $2,612 10% 5% 5%
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Six Months Ended % Change Currency/
June 30, GAAP Constant Acquisitions
2003 2002 Revenue Currency (b) Impact
----------------------------------------------------------------------------------------------------------------------------
Risk and Insurance Services
Risk Management and Insurance Broking $2,593 $2,158 20% 15% 5%
Reinsurance Broking and Services 423 334 27% 23% 4%
Related Insurance Services (a) 437 420 4% 4% -
----------------------------------------------------------------------------------------------------------------------------
Total Risk and Insurance Services 3,453 2,912 19% 15% 4%
----------------------------------------------------------------------------------------------------------------------------
Investment Management 940 1,175 (20)% (20)% -
----------------------------------------------------------------------------------------------------------------------------
Consulting
Retirement Services 612 549 11% 3% 8%
Health Care & Group Benefits 201 176 14% 9% 5%
Human Capital 175 163 7% 3% 4%
Management and Organizational Change 198 139 42% (3)% 45%
Economic 71 65 9% 5% 4%
----------------------------------------------------------------------------------------------------------------------------
1,257 1,092 15% 3% 12%
Reimbursed Expenses 67 68 (1)% (1)% -
----------------------------------------------------------------------------------------------------------------------------
Total Consulting 1,324 1,160 14% 3% 11%
----------------------------------------------------------------------------------------------------------------------------
Total $5,717 $5,247 9% 4% 5%
----------------------------------------------------------------------------------------------------------------------------
(a) Includes U.S. affinity, claims management, underwriting management and MMC
Capital businesses.
(b) Constant currency measures the change in revenue using consistent currency
exchange rates, before the impact of acquisitions and dispositions.
|
Revenue growth on a constant currency basis in the risk and insurance services segment was 14% in the second quarter of 2003, reflecting strong growth across all geographies in both insurance and reinsurance broking. Consulting revenue on a constant currency basis grew 2% primarily resulting from a higher volume of business in retirement services and health care & group benefits. Revenue
decreased 15% in the investment management segment as average assets under management declined 14% from the second quarter of 2002. For the six months, revenue growth was 9%, 4% on a constant currency basis.
Operating expenses increased 11% in the second quarter of 2003 (5% on a constant currency basis) primarily due to increased compensation and benefit costs in the risk and insurance services segment partially offset by lower expenses in the investment management segment. Operating expenses also reflect an increase in costs for office space and insurance. For the six months, operating expenses increased 10%, 5% on a constant currency basis.
Risk and Insurance Services
--------------------------------------------------------------------------------
Second Quarter Six Months
--------------------------------------------------------------------------------
(In millions of dollars) 2003 2002 2003 2002
--------------------------------------------------------------------------------
Revenue $1,680 $1,436 $3,453 $2,912
Expense 1,277 1,107 2,490 2,121
--------------------------------------------------------------------------------
Operating Income $ 403 $ 329 $ 963 $ 791
-------------------------------------------------------------------------------
Operating Income Margin 24.0% 22.9% 27.9% 27.2%
-------------------------------------------------------------------------------
|
Revenue
Revenue for the risk and insurance services segment grew 17% over the second
quarter of 2002 and on a constant currency basis grew 14%. The revenue growth
reflects continued strong demand for Marsh's services as clients face new,
expanding and more complex risks. The effect of higher premium rates and an
increase in placement service activities also contributed to the increase in
revenue. In the second quarter, constant currency revenues in risk management
and insurance broking, which accounts for approximately three quarters of the
risk and insurance services segment grew 13% with strong growth across all
geographies. Constant currency revenue in reinsurance broking and services grew
24%. Related insurance services revenues increased 7% on a constant currency
basis, with revenue increases in claims management and underwriting management
partially offset by declines in the U.S. affinity business and MMC Capital. For
the six months, revenue grew 19% over 2002 and 15% on a constant currency basis.
Pricing for commercial property risks has stabilized, however clients continue to face rate increases in most casualty lines, and restricted terms and conditions and coverage exclusions in all lines.
Expense
Risk and insurance services expenses increased 15% over the second quarter of
2002, 11% on a constant currency basis. Expense growth primarily reflects
increased headcount due to higher volumes of business along with increased
incentive compensation commensurate with the current operating environment.
Operating expenses also reflect an increase in costs for office space and
insurance. For the six months, operating expenses increased 17% over 2002, 13%
on a constant currency basis.
Investment Management
--------------------------------------------------------------------------------
Second Quarter Six Months
--------------------------------------------------------------------------------
(In millions of dollars) 2003 2002 2003 2002
--------------------------------------------------------------------------------
Revenue $ 495 $ 581 $ 940 $1,175
Expense 370 412 712 831
--------------------------------------------------------------------------------
Operating Income $ 125 $ 169 $ 228 $ 344
-------------------------------------------------------------------------------
Operating Income Margin 25.3% 29.1% 24.3% 29.3%
-------------------------------------------------------------------------------
|
Revenue
Putnam's revenue decreased 15% compared with the second quarter of 2002
reflecting a decline in the level of average assets under management on which
fees are earned. Assets under management averaged $260 billion in the second
quarter of 2003, a 14% decline from the $301 billion managed in the second
quarter of 2002. Assets under management aggregated $267 billion at June 30,
2003 compared with $284 billion at June 30, 2002 and $251 billion at December
31, 2002. The change from December 31, 2002 results primarily from an increase
in equity market levels partially offset by net redemptions of $4.3 billion,
including reinvested dividends. Positive flows from institutional business were
more than offset by net outflows in retail mutual funds. Assets under management
at July 31, 2003 aggregated $267 billion.
Expense
Putnam's expenses decreased 10% in the second quarter of 2003 from the same
period of 2002 primarily due to reductions in volume related expenses, including
amortization of prepaid dealer commissions and incentive compensation.
Quarter-end and average assets under management are presented below:
--------------------------------------------------------------------------------
(In billions of dollars) 2003 2002
--------------------------------------------------------------------------------
Mutual Funds:
Growth Equity $48 $58
Value Equity 42 49
Blend Equity 35 40
Fixed Income 46 44
--------------------------------------------------------------------------------
171 191
--------------------------------------------------------------------------------
Institutional:
Equity 72 74
Fixed Income 24 19
--------------------------------------------------------------------------------
96 93
--------------------------------------------------------------------------------
Quarter-end Assets $267 $284
--------------------------------------------------------------------------------
Assets from Non-US Investors $ 37 $30
--------------------------------------------------------------------------------
Average Assets $260 $301
--------------------------------------------------------------------------------
|
The categories of mutual fund assets reflect style designations aligned with each fund's prospectus. All prior year amounts have been reclassified to conform with the current investment mandate for each product.
Assets under management and revenue levels are particularly affected by fluctuations in domestic and international stock and bond market prices, the composition of assets under management and by the level of investments and withdrawals for current and new fund shareholders and clients. U.S. equity markets, which declined in 2002 for the third consecutive year after several years of substantial growth prior to 2000, increased in the second quarter of 2003. Items affecting revenue also include, but are not limited to, actual and relative investment performance, service to clients, the development and marketing of new investment products, the relative attractiveness of the investment style under prevailing market conditions, changes in the investment patterns of clients and the ability to maintain investment management and administrative fees at appropriate levels. Revenue levels are sensitive to all of the factors above, but in particular, to significant changes in stock and bond market valuations.
Putnam provides individual and institutional investors with a broad range of both equity and fixed income investment products and services, invested domestically and globally, designed to meet varying investment objectives and which afford its clients the opportunity to allocate their investment resources among various investment products as changing worldwide economic and market conditions warrant.
At the end of the second quarter, assets held in equity securities represented 74% of assets under management, compared with 78% at June 30, 2002, while investments in fixed income products represented 26%, compared with 22% at June 30, 2002.
Consulting
--------------------------------------------------------------------------------
Second Quarter Six Months
-------------------------------------------------------------------------------
(In millions of dollars) 2003 2002 2003 2002
-----------------------------------------------------------------------=-------
Revenue $ 690 $ 595 $1,324 $1,160
Expense 591 505 1,142 996
-------------------------------------------------------------------------------
Operating Income $ 99 $ 90 $ 182 $ 164
-------------------------------------------------------------------------------
Operating Income Margin 14.3% 15.1% 13.7% 14.1%
--------------------------------------------------------------------------------
|
Revenue
Consulting revenue increased 16% over 2002 primarily due to the effect
of foreign currency exchange rates, as well as acquisitions including Oliver,
Wyman & Company ("OWC"), which is included in the management consulting
practice. On a constant currency basis revenue increased 2%. Retirement services
revenue, which represented approximately 50% of the consulting segment revenue,
increased 3% on a constant currency basis and health care & group benefits
consulting grew 6%. For the six months, revenue grew 14% over 2002, 3% on a
constant currency basis.
Expense
Consulting expenses increased 17% over 2002 reflecting the impact of foreign
exchange as well as the acquisition of OWC. As described in Note 7 to the
financial statements, a portion of the OWC purchase consideration is contingent
upon future employment. This amount has been accounted for as deferred
compensation and is being recognized as compensation expense over four years.
Expenses increased 2% on a constant currency basis over 2002. For the six
months, expenses increased 15% over 2002, 3% on a constant currency basis.
Interest
Interest income earned on corporate funds amounted to $7 million in the second
quarter of 2003, an increase of $3 million from the second quarter of 2002.
Interest expense of $46 million in 2003 increased from $38 million in the second quarter of 2002 primarily due to an increase in the average interest rates on outstanding debt in the second quarter of 2003. Since March 2002, MMC has improved liquidity and extended the average maturity of its debt through the issuance of $1.3 billion of long-term senior notes through June 30, 2003. The net proceeds from the notes were used to pay down outstanding commercial paper balances. The increase in the average interest rate results from the conversion of a significant portion of the company's debt from floating to fixed rates.
Income Taxes
MMC's consolidated effective tax rate was 34% of income before income taxes and
minority interest in the second quarter of 2003 compared with 35.5% in the
second quarter of 2002. As a result of the geographic mix of MMC's businesses,
the effective tax rate for 2003 should remain at 34%.
Liquidity and Capital Resources
Operating Cash Flows
MMC anticipates that funds generated from operations will be sufficient to meet
its foreseeable recurring operating cash requirements as well as to fund
dividends, capital expenditures and scheduled repayments of long-term debt.
MMC's ability to generate cash flow from operations is subject to the business
risks inherent in each operating segment.
MMC generated $1.1 billion of cash from operations for the six-month period ended June 30, 2003 compared with $519 million for the same period in 2002. These amounts reflect the net income earned by MMC during those periods adjusted for non-cash charges and working capital changes. In 2003, MMC's tax payments decreased as compared to 2002. MMC's estimated tax payments related to the third quarter of 2001 were paid in the first quarter of 2002 due to the events of September 11, 2001 and the government's subsequent directives. In addition, current year tax payments reflect a refund of overpayment of prior year taxes. Other current assets at June 30, 2003 declined from the prior year end balance primarily due to lower deferred tax assets in the current period as well as a decrease in insurance recoveries receivable related to personal pension plan settlements in the United Kingdom.
MMC's cash and cash equivalents aggregated $618 million on June 30, 2003, an increase of $72 million from the end of 2002.
MMC increased its quarterly dividend by 11% to $.31 per share effective with the dividend to be paid on August 15, 2003.
Financing Cash Flows
In February 2003, MMC issued $250 million of 3.625% Senior Notes due in 2008 and
$250 million of 4.85% Senior Notes due in 2013 (the "2003 Notes"). The net
proceeds from the 2003 Notes were used to pay down commercial paper borrowings.
Commercial paper outstanding decreased $640 million during the first six months
of 2003 as a result of these repayments.
In January 2003, MMC terminated and settled interest rate swaps that had hedged
the fair value of senior notes issued in 2002. The cumulative amount of
previously recognized adjustments of the fair value of the hedged notes is being
amortized over the remaining life of those notes in accordance with SFAS No.
133. As a result, the effective interest rate over the remaining life of the
notes, including the amortization of the fair value adjustments, is 4.0% for the
$500 million Senior Notes due in 2007 (5.375% coupon rate) and 5.1% for the $250
million Senior Notes due in 2012 (6.25% coupon rate).
In July 2003, MMC issued $300 million of 5.875% Senior Notes due in 2033.
During the first six months of 2003, MMC repurchased 11.5 million shares of its common stock at a cost of $503 million. MMC repurchases shares subject to market conditions, including from time to time pursuant to the terms of a 10b5-1 plan. A 10b5-1 plan allows a company to purchase shares during a blackout period, provided the company communicates its share purchase instructions to the broker prior to the blackout period, pursuant to a written plan that may not be changed.
Investing Cash Flows
MMC's additions to fixed assets and capitalized software, which amounted to $240
million in the first six months of 2003 and $187 million in the first six months
last year, primarily relate to computer equipment purchases and the refurbishing
and modernizing of office facilities and software development costs.
MMC has committed to potential future investments of approximately $440 million in connection with various MMC Capital funds and other MMC investments. Approximately $35 million is expected to be invested during the remainder of 2003. MMC expects to fund future commitments, in part, with sales proceeds from existing investments.
Market Risk
Certain of MMC's revenues, expenses, assets and liabilities are exposed to the
impact of interest rate changes and fluctuations in foreign currency exchange
rates and equity markets.
Interest Rate Risk
MMC manages its net exposure to interest rate changes by utilizing a mixture of
variable and fixed rate borrowings to finance MMC's asset base. Interest rate
swaps are used on a limited basis to manage MMC's exposure to interest rate
movements on its cash and investments, as well as interest expense on
borrowings, and are only executed with counterparties of high creditworthiness.
Foreign Currency Risk
The translated values of revenue and expense from MMC's international risk and
insurance services and consulting operations are subject to fluctuations due to
changes in currency exchange rates. Forward contracts and options are
periodically utilized by MMC to limit foreign currency exchange rate exposure on
net income and cash flows for specific, clearly defined transactions arising in
the ordinary course of its business.
Equity Price Risk
MMC holds investments in both public and private companies as well as certain
private equity funds managed by MMC Capital including Trident II. Publicly
traded investments of $346 million are classified as available for sale under
SFAS No. 115. Non-publicly traded investments of $155 million and $311 million
are accounted for under APB Opinion No. 18 using the cost method and the equity
method, respectively. The investments are subject to risk of changes in market
value, which if determined to be other than temporary, could result in realized
impairment losses. MMC periodically reviews the carrying value of such
investments to determine if any valuation adjustments are appropriate under the
applicable accounting pronouncements.
MMC Capital helped develop an additional source of insurance and reinsurance capacity after September 11 through the formation of AXIS Specialty Holdings ("AXIS"), a Bermuda domiciled insurance company. AXIS had an initial capitalization of $1.6 billion, which included a $250 million investment by Trident II and a $100 million direct investment by MMC. AXIS completed an initial public offering on July 1, 2003. MMC's direct investment is currently carried at cost and will be classified as an available for sale security, as restrictions on the sale of AXIS shares expire, with changes in fair value recorded in other comprehensive income until realized. Trident II's investments are carried at fair value, in accordance with investment company accounting. MMC's proportionate share of the change in value of its investment in Trident II is recorded as part of investment income (loss) in the Consolidated Income Statement.
MMC utilizes option contracts to hedge the variability of cash flows from forecasted sales of certain available for sale investments. The hedge is achieved through the use of European style put and call options, which mature on the dates of the forecasted sales. The hedges are only executed with counterparties of high creditworthiness.
Other
The insurance coverage for potential liability resulting from alleged errors and
omissions in the professional services provided by MMC includes elements of both
risk retention and risk transfer. MMC believes it has adequately reserved for
the self-insurance portion of the contingencies. Payments related to the
respective self-insured layers are made as legal fees are incurred and claims
are resolved and generally extend over a considerable number of years. The
amounts paid in that regard vary in relation to the severity of the claims and
the number of claims active in any particular year. The long-term portion of
this liability is included in Other liabilities in the Consolidated Balance
Sheets.
New Accounting Pronouncements
New accounting pronouncements are discussed in Note 15 to the Consolidated
Financial Statements.
Controls and Procedures
Based on their evaluation, as of the end of the period for the filing of this Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) are effective in timely alerting them to material information relating to the Company required to be included in our reports filed under the Exchange Act.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Company's internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
INFORMATION REQUIRED FOR FORM 10-Q QUARTERLY REPORT
June 30, 2003
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of MMC was held on May 15, 2003. Represented at the meeting, at which stockholders took the following actions, were 460,647,321 shares, or 87 percent, of MMC's 528,696,095 shares of common stock outstanding and entitled to vote:
1. MMC's stockholders elected the five director nominees named below with each receiving the following votes:
Number of Number of Shares
Shares Voted Voted to be
For Withheld
Peter Coster 443,927,171 16,720,150
----------- ----------
Charles A. Davis 444,000,428 16,646,893
----------- ----------
Gwendolyn S. King 446,564,657 14,082,664
----------- ----------
Lawrence J. Lasser 435,329,928 25,317,393
----------- ----------
David A. Olsen 345,367,039 115,280,282
----------- -----------
|
2. MMC's stockholders adopted an amendment to MMC's Restated Certificate of Incorporation increasing the number of authorized shares of common stock from 800,000,000 to 1,600,000,000, with a favorable vote of 426,263,910 of the shares represented (30,764,982 against and 3,618,228 abstaining).
3. Deloitte & Touche LLP was ratified as MMC's independent auditors for the year ending December 31, 2003, with a favorable vote of 430,132,915 of the shares represented (27,212,518 against and 3,300,488 abstaining).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Third Supplemental Indenture dated as of July 30, 2003 between MMC and U.S. National Bank Association (as successor to State Street Bank and Trust Company), as trustee (includes the form of senior note due 2033).
10.1 Renewal of Consulting Agreement between A.J.C. Smith and MMC dated as of May 16, 2003.
12. Statement Re: Computation of Ratio of Earnings to Fixed Charges.
31. Rule 13a-14(a)/15d-14(a) Certifications.
32. Section 1350 Certifications.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 23, 2003 was filed by the registrant to report its issuance of a press release announcing its unaudited first quarter financial results for the quarter ended March 31, 2003.
MARSH & McLENNAN COMPANIES, INC.
AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, MMC has duly caused this report to be signed this 14th of August, 2003 on its behalf by the undersigned, thereunto duly authorized and in the capacity indicated.
MARSH & McLENNAN COMPANIES, INC.
/s/ Sandra S. Wijnberg -------------------------------- Senior Vice President and Chief Financial Officer |
Exhibit 4.1
MARSH & McLENNAN COMPANIES INC.,
Issuer,
and
U.S. Bank National Association (as successor to State Street Bank and Trust Company),
Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of July 30, 2003
$300,000,000 principal amount of 5.875% Senior Notes Due 2033
THIRD SUPPLEMENTAL INDENTURE, dated as of July 30, 2003, between MARSH
& McLENNAN COMPANIES, INC., a Delaware corporation (the "Company" and
hereinafter the "Issuer"), and U.S. BANK NATIONAL ASSOCIATION (as successor to
State Street Bank and Trust Company), a national banking association, as Trustee
(the "Trustee")
W I T N E S S E T H:
WHEREAS, the Issuer and the Trustee executed and delivered an Indenture, dated as of June 14, 1999 (as supplemented hereby, the "Indenture"), to provide for the issuance by the Issuer from time to time of senior debt securities evidencing its unsecured indebtedness;
WHEREAS, U.S. Bank National Association purchased substantially all of the corporate trust business of the State Street Bank and Trust Company, succeeding as the Trustee pursuant to Section 7.12 of the Indenture;
WHEREAS, pursuant to a Board Resolution, the Issuer has authorized the issuance of $300,000,000 principal amount of 5.875% Senior Notes due 2033 (the "Notes");
WHEREAS, the entry into this Third Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Indenture; and
WHEREAS, the Issuer desires to establish the terms of the Notes in accordance with Section 2.01 of the Indenture and to establish the form of the Notes in accordance with Section 2.02 of the Indenture; and
WHEREAS, all things necessary to make this Third Supplemental Indenture a valid indenture and agreement according to its terms have been done.
NOW, THEREFORE, for and in consideration of the premises, the Issuer and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective holders from time to time of the Notes as follows:
Article 1
Section 1.01 . Terms of Notes. The following terms relating to the Notes are hereby established:
(a) The Notes shall constitute a series of securities having the title "5.875% Senior Notes due 2033."
(b) The aggregate principal amount of the Notes that may be authenticated and delivered under the Indenture (except for Notes authenticated
and delivered upon registration of, transfer of, or in exchange for, or in lieu of, other Notes pursuant to Sections 2.05, 2.06, 2.07 or 9.01) shall be up to $300,000,000.
(c) The entire outstanding principal of the Notes shall be payable on August 1, 2033 plus any unpaid interest accrued to such date.
(d) The rate at which the Notes shall bear interest shall be 5.875% per annum; the date from which interest shall accrue on the Notes shall be July 30, 2003; the Interest Payment Dates for the Notes on which interest will be payable shall be February 1 and August 1 in each year, beginning February 1, 2004; the Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the January 15 and July 15 preceding the applicable Interest Payment Date; and the basis upon which interest shall be calculated shall be that of a 360-day year consisting of twelve 30-day months.
(e) The Notes shall be issuable in denominations of $1,000 and any integral multiple thereof.
(f) The Trustee shall also be the security registrar and paying agent for the Notes.
(g) Payments of the principal of and interest on the Notes shall be made in U.S. Dollars, and the Notes shall be denominated in U.S. Dollars.
(h) The holders of the Notes shall have no special rights in addition to those provided in the Indenture upon the occurrence of any particular events.
(i) The Notes shall not be subordinated to any other debt of the Issuer, and shall constitute senior unsecured obligations of the Issuer.
The Notes are issuable in book entry form and are not convertible into shares of common stock or other securities of the Company.
Section 1.02 . Amendment to Article IV. Article IV of the Indenture is hereby amended to include the following covenant with respect to the Notes only (and not with respect to any other series of securities issuable pursuant to the Indenture unless the supplemental indenture relating thereto expressly so provides), which reads in its entirety as follows:
Section 4.06. Limitation on Liens on Stock of Significant Subsidiaries. The Company will not, and it will not permit any Subsidiary of the Company to, at any time directly or indirectly create, assume, incur or permit to exist any Indebtedness secured by a pledge, lien or other encumbrance (any pledge, lien or other encumbrance being hereinafter in this Section referred to as a
"lien") on the voting stock or voting equity interest of Marsh Inc., Putnam, LLC or Mercer Inc. (each a "Significant Subsidiary") without making effective provision whereby the Notes then Outstanding (and, if the Company so elects, any other Indebtedness of the Company that is not subordinate to the Notes and with respect to which the governing instruments require, or pursuant to which the Company is otherwise obligated or required, to provide such security) shall be equally and ratably secured with such secured Indebtedness so long as such other Indebtedness shall be so secured.
"Indebtedness" of any person means the principal of and premium, if any, and interest due on indebtedness of such Person, whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, which is (a) indebtedness for money borrowed, and (b) any amendments, renewals, extensions, modifications and refundings of any such indebtedness. For the purposes of this definition, "indebtedness for money borrowed" means (i) any obligation of, or any obligation guaranteed by, such Person for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments, (ii) any obligation of, or any such obligation guaranteed by, such Person evidenced by bonds, debentures, notes or similar written instruments, including obligations assumed or incurred in connection with the acquisition of properly, assets or businesses (provided, however, that the deferred purchase price of any business or property or assets shall not be considered Indebtedness if the purchase price thereof is payable in full within 90 days from the date on which such indebtedness was created), and (iii) any obligations of such Person as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and leases of property or assets made as part of any sale and lease-back transaction to which such Person is a party. For purposes of this covenant only, Indebtedness also includes any obligation of, or any obligation guaranteed by, any Person for the payment of amounts due under a swap agreement or similar instrument or agreement, or under a foreign currency hedge or similar instrument or agreement.
If the Company shall hereafter be required to secure the Notes equally and ratably with any other Indebtedness pursuant to this Section, (i) the Company will promptly deliver to the Trustee an Officers' Certificate stating that the foregoing covenant has been complied with, and an Opinion of Counsel stating that in the opinion of such counsel the foregoing covenant has been complied
with and (ii) the Trustee is hereby authorized to enter into an indenture or agreement supplemental hereto and to take such action, if any, as it may deem advisable to enable it to enforce the rights of the holders of the Notes so secured.
Section 1.03 . Amendment of Article Ten. Article Ten of the Indenture is hereby amended and restated in its entirety with respect to the Notes only (and not with respect to any other series of securities issuable pursuant to the Indenture unless the supplemental indenture relating thereto expressly so provides) as follows:
Section 10.01. Company May Consolidate, Etc., Only on Certain Terms. (a) Subject to Section 10.01(c) below, the Company shall not consolidate with or merge into any other Person or convey, transfer or lease all or substantially all of its properties and assets to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company, unless:
(1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease all or substantially all of its properties and assets to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, all or substantially all of the properties and assets of the Company shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.
Section 10.02. Successor Substitute. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of all or substantially all of the properties and assets of the Company in accordance with Section 10.01 above, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under the Indenture and the Notes.
Section 10.03. Evidence of Consolidation, Etc. to Trustee. The Trustee, subject to the provisions of Section 7.01, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article.
Section 1.04 . Trustee's Obligations with Respect to the Covenants. The Trustee shall not be obligated to monitor or confirm, on a continuing basis or otherwise, the Issuer's compliance with the covenants contained in this Article One or with respect to reports or other documents filed under the Indenture; provided, however, that nothing herein shall relieve the Trustee of any obligations to monitor the Issuer's timely delivery of all reports and certificates required under Sections 5.01 and 5.03 of the Indenture and to fulfill its obligations under Article Seven of the Indenture.
Section 1.05 . Form Of Note. The form of the Notes is attached hereto as Exhibit A.
Article 2
MISCELLANEOUS
Section 2.01 . Definitions. Capitalized terms used but not defined in this Third Supplemental Indenture shall have the meanings ascribed thereto in the Indenture.
Section 2.02 . Confirmation of Indenture. The Indenture, as heretofore supplemented and amended and as further supplemented and amended by this Third Supplemental Indenture, is in all respects ratified and confirmed, and the
Indenture, this Third Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument.
Section 2.03 . Concerning the Trustee. The Trustee assumes no duties, responsibilities or liabilities by reason of this Third Supplemental Indenture other than as set forth in the Indenture and, in carrying out its responsibilities hereunder, shall have all of the rights, protections and immunities which it possesses under the Indenture.
Section 2.04 . Governing Law. This Third Supplemental Indenture, the Indenture and the Securities shall be governed by and construed in accordance with the law of the State of New York.
Section 2.05 . Separability. In case any provision in this Third Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 2.06 . Counterparts. This Third Supplemental Indenture may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, this Supplemental Indenture has been duly executed by the Company and the Trustee as of the day and year first written above.
MARSH & McLENNAN COMPANIES, INC.
By:/s/ Matthew B. Bartley ----------------------------------- Name: Matthew B. Bartley Title: Vice President and Treasurer |
U.S. BANK NATIONAL
ASSOCIATION (as successor to
State Street Bank and Trust
Company), as Trustee
By:/s/ Patrick E. Thebado ----------------------------------- Name: Patrick E. Thebado Title: Vice President |
Exhibit A
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO, HAS AN INTEREST HEREIN.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM IN ACCORDANCE WITH THE PROVISIONS OF THE INDENTURE AND THE TERMS OF THE SECURITIES, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC OR BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
Certificate No. $300,000,000
CUSIP _________
MARSH & McLENNAN COMPANIES, INC.
5.875% Senior Notes
due August 1, 2033
MARSH & McLENNAN COMPANIES, INC., a Delaware corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or its registered assigns, the principal sum of 300,000,000 Dollars ($300,000,000) on August 1, 2033 and to pay interest on said principal sum from July 30, 2003 or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, semiannually on February 1 and August 1 of each year commencing February 1, 2004 at the rate of 5.875% per annum until the principal hereof shall have become
due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Note is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Note (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the Regular Record Date for such interest installment which shall be January 15 or July 15 preceding such Interest Payment Date. Any such interest installment not punctually paid or duly provided for (as defined in the Indenture, the "Defaulted Interest") shall forthwith cease to be payable to the registered holders on such regular record date, and may be paid to the person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such Defaulted Interest, which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment, and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment or at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Note shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America which at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Security Register. Notwithstanding the foregoing, so long as the Holder of this Note is Cede & Co., the payment of the principal of (and premium, if any) and interest on this Note will be made at such place and to such account as may be designated by DTC.
The indebtedness evidenced by this Note is, to the extent provided in the Indenture, senior and unsecured and will rank in right of payment on parity with all other senior unsecured obligations of the Company.
This Note shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee.
The provisions of this Note are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
Dated July 30, 2003
MARSH & McLENNAN COMPANIES, INC.
Title:
MARSH & McLENNAN COMPANIES, INC.
Title:
Attest:
By_______________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series of Notes described in the within-mentioned Indenture.
U.S. BANK NATIONAL
ASSOCIATION, as Trustee
By_____________________________
Authorized Signatory
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to
the within Note of Marsh & McLennan Companies, Inc. and hereby does irrevocably constitute and appoint
Dated:___________________ ___________________________________
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-1 5.
NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Note in every particular, without alteration or enlargement or any change whatever.
MARSH & McLENNAN COMPANIES, INC.
5.875% Senior Notes due 2033
This Note is one of a duly authorized series of Securities of the Company (herein sometimes referred to as the "Notes"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an indenture (the "Base Indenture") dated as of June 14, 1999 between the Company, and U.S. Bank National Association (as successor to State Street Bank and Trust Company), as Trustee (the "Trustee"), as supplemented by the Third Supplemental Indenture dated as of July 30, 2003 between the Company and the Trustee (the Base Indenture as so supplemented, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. This series of Notes is limited in aggregate principal amount as specified in said Third Supplemental Indenture.
The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes of each series affected at the time Outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Notes; provided, however, that no such supplemental indenture shall, without the consent of the holders of each Note then Outstanding and affected thereby (i) extend the fixed maturity of any Notes of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, or (ii) reduce the aforesaid percentage of Notes, the Holders of which are required to consent to any such supplemental indenture. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Notes of any series at the time Outstanding affected thereby, on behalf of all of the Holders of the Notes of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any of the Notes of such series and except as provided in Section 6.06 of the Base Indenture. Any such consent or waiver by the registered Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and of any Note issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Note at the time and place and at the rate and in the money herein prescribed.
The Issuer is subject to certain covenants contained in the Indenture with respect to, and for the benefit of the Holders of, the Notes. The Trustee shall not be obligated to monitor or confirm, on a continuing basis or otherwise, the Issuer's compliance with the covenants contained in the Indenture or with respect to reports or other certificates filed under the Indenture; provided, however, that nothing herein shall relieve the Trustee of any obligations to monitor the Issuer's timely delivery of all reports and certificates required under Section 5.03 of the Indenture and to fulfill its obligations under Article VII of the Indenture. If an Event of Default as defined in the Indenture with respect to the Notes shall occur and be continuing, the principal of the Notes may be declared due and payable in the manner and with the effect provided in the Indenture.
As provided in and subject to the provisions of the Indenture, the Holder of this Note shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Notes, the Holders of not less than 25% in principal amount of the Notes at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall have failed to institute any such proceeding for 60 days after receipt of such notice, request and offer of indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of the Notes at the time Outstanding a direction inconsistent with such request. The foregoing shall not apply to any suit instituted by the Holder of this Note for the enforcement of any payment of principal hereof or any interest on or after the respective due dates expressed herein.
As provided in the Indenture and subject to certain limitations therein set forth, this Note is transferable by the registered holder hereof on the Security Register of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company in the borough of Manhattan, the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer,
but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Note, the Company, the Trustee, any paying agent and any Security Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Note shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Note Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released.
The Notes of this series are issuable only in registered form without coupons in authorized denominations. As provided in the Indenture and subject to certain limitations herein and therein set forth, Notes of this series so issued are exchangeable for a like aggregate principal amount of Notes of this series of a different authorized denomination, as requested by the Holder surrendering the same.
All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE NOTES INCLUDING THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuer has caused "CUSIP" numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Notes, and reliance may be placed only on the other identification numbers printed hereon.
Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purposes.
Exhibit 12.1
Marsh & McLennan Companies, Inc. and Subsidiaries
Ratio of Earnings to Fixed Charges
(In millions, except ratios)
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Six
Months
Ended Years Ended December 31,
June 30, --------------------------------------------------------
2003
(Unaudited) 2002 2001 2000 1999 1998
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Earnings
--------
Income before income taxes and minority
interest* $1,240 $2,133 $1,590 $1,955 $1,255 $1,305
Interest expense 89 160 196 247 233 140
Portion of rents representative of
the interest factor 75 135 122 120 121 104
Amortization of capitalized interest - - - - 1 1
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$1,404 $2,428 $1,908 $2,322 $1,610 $1,550
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Fixed Charges
-------------
Interest expense $89 $160 $196 $ 247 $ 233 $ 140
Portion of rents representative of
the interest factor 75 135 122 120 121 104
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$164 $295 $318 $367 $354 $244
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Ratio of Earnings to Fixed Charges 8.6 8.2 6.0 6.3 4.5 6.4
* Minority interest has been reclassified in the prior years (1998-1999) to
conform to the current year presentation.
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EXHIBIT 31
CERTIFICATIONS
I, Jeffrey W. Greenberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Marsh & McLennan Companies, Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2003 /s/ Jeffrey W. Greenberg
----------------------------------------
Jeffrey W. Greenberg
Chief Executive Officer
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CERTIFICATIONS
I, Sandra S. Wijnberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Marsh & McLennan Companies, Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2003 /s/ Sandra S. Wijnberg
-----------------------------------------
Sandra S. Wijnberg
Chief Financial Officer
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EXHIBIT 32
The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q for the fiscal quarter ending June 30, 2003 (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Jeffrey W. Greenberg, the Chief Executive Officer and Sandra S. Wijnberg, the Chief Financial Officer of Marsh & McLennan Companies, Inc. each certifies that, to the best of his or her knowledge:
1. such Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Marsh & McLennan Companies, Inc.
/s/ Jeffrey W. Greenberg ---------------------------------- Name: Jeffrey W. Greenberg Chief Executive Officer /s/ Sandra S. Wijnberg ---------------------------------- Name: Sandra S. Wijnberg Chief Financial Officer |
EXHIBIT 10.1
May 16, 2003
Mr. A. J. C. Smith
630 Park Avenue
New York, NY 10021
Dear Ian,
The purpose of this letter is to confirm that the terms of your consultant agreement (described in
the attached letter of June 1, 2000) regarding Section 3, Payment for Services, are amended to
provide that for the period beginning June 1, 2003 through May 31, 2004 the Company will pay
you an annual fee of $2,000,000 in equal monthly installments in arrears. Please indicate your
acceptance below. Thank you.
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Sincerely,
/s/ Francis N. Bonsignore
--------------------------------------
Senior Vice President, Executive
Resources & Development
/s/ A.J.C. Smith
------------------------------------
Accepted
A. J. C. Smith
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