Date of report (Date of earliest event reported) | February 6, 2015 |
Marsh & McLennan Companies, Inc. |
(Exact Name of Registrant as Specified in Charter) |
Delaware | 1-5998 | 36-2668272 |
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1166 Avenue of the Americas, New York, NY | 10036 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code | (212) 345-5000 |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
MARSH & McLENNAN COMPANIES, INC. | ||
By: | /s/ Carey Roberts | |
Name: | Carey Roberts | |
Title: | Deputy General Counsel & | |
Corporate Secretary |
99.1 | Press release issued by Marsh & McLennan Companies, Inc. on February 6, 2015. |
• | the impact of competition, including with respect to our geographic reach, the sophistication and quality of our services, our pricing relative to competitors, our customers' option to self-insure or use internal resources instead of consultants, and our corporate tax rates relative to a number of our competitors; |
• | the extent to which we retain existing clients and attract new business, and our ability to incentivize and retain key employees; |
• | the impact on expenses relating to our global pension plans of discount rates and asset returns and of projected salary increases, mortality rates, demographics, inflation, and cash contributions due to changes in the funded status of our global defined benefit pension plans; |
• | the impact on our net income of fluctuations in foreign currency exchange rates, particularly in light of the recent strengthening of the U.S. dollar against most other currencies worldwide; |
• | our ability to maintain adequate physical, technical and administrative safeguards to protect the security of confidential or personal information or data, and the potential of a system or network disruption that results in regulatory penalties, remedial costs or the improper disclosure of confidential or personal information or data; |
• | our exposure to potential liabilities arising from errors and omissions claims against us; |
• | our exposure to potential civil remedies or criminal penalties if we fail to comply with foreign and U.S. laws that are applicable in the domestic and international jurisdictions in which we operate, including evolving sanctions against Russia and existing trade sanctions laws relating to countries such as Cuba, Iran, Sudan and Syria, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, local laws prohibiting corrupt payments to government officials, as well as import and export restrictions; |
• | our ability to make acquisitions and dispositions and to integrate, and realize expected synergies, savings or benefits from, the businesses we acquire; |
• | our ability to successfully recover should we experience a disaster or other business continuity problem, such as an earthquake, hurricane, flood, terrorist attack, pandemic, security breach, cyber attack, power loss, telecommunications failure or other natural or man-made disaster; |
• | the impact of changes in interest rates and deterioration of counterparty credit quality on our cash balances and the performance of our investment portfolios, including corporate and fiduciary funds; |
• | the potential impact of rating agency actions on our cost of financing and ability to borrow, as well as on our operating costs and competitive position; |
• | changes in applicable tax or accounting requirements; and |
• | potential income statement effects from the application of FASB's ASC Topic No. 740 (“Income Taxes”) regarding accounting treatment of uncertain tax benefits and valuation allowances, including the effect of any subsequent adjustments to the estimates we use in applying this accounting standard. |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenue | $ | 3,246 | $ | 3,115 | $ | 12,951 | $ | 12,261 | |||||||||
Expense: | |||||||||||||||||
Compensation and Benefits | 1,896 | 1,833 | 7,515 | 7,226 | |||||||||||||
Other Operating Expenses | 814 | 793 | 3,135 | 2,958 | |||||||||||||
Operating Expenses | 2,710 | 2,626 | 10,650 | 10,184 | |||||||||||||
Operating Income | 536 | 489 | 2,301 | 2,077 | |||||||||||||
Interest Income | 5 | 5 | 21 | 18 | |||||||||||||
Interest Expense | (36 | ) | (43 | ) | (165 | ) | (167 | ) | |||||||||
Cost of Extinguishment of Debt | (137 | ) | (24 | ) | (137 | ) | (24 | ) | |||||||||
Investment Income | — | 11 | 37 | 69 | |||||||||||||
Income Before Income Taxes | 368 | 438 | 2,057 | 1,973 | |||||||||||||
Income Tax Expense | 99 | 131 | 586 | 594 | |||||||||||||
Income from Continuing Operations | 269 | 307 | 1,471 | 1,379 | |||||||||||||
Discontinued Operations, Net of Tax | 30 | — | 26 | 6 | |||||||||||||
Net Income Before Non-Controlling Interests | 299 | 307 | 1,497 | 1,385 | |||||||||||||
Less: Net Income Attributable to Non-Controlling Interests | 5 | 4 | 32 | 28 | |||||||||||||
Net Income Attributable to the Company | $ | 294 | $ | 303 | $ | 1,465 | $ | 1,357 | |||||||||
Basic Net Income Per Share | |||||||||||||||||
- Continuing Operations | $ | 0.49 | $ | 0.55 | $ | 2.64 | $ | 2.46 | |||||||||
- Net Income Attributable to the Company | $ | 0.54 | $ | 0.55 | $ | 2.69 | $ | 2.47 | |||||||||
Diluted Net Income Per Share | |||||||||||||||||
- Continuing Operations | $ | 0.48 | $ | 0.54 | $ | 2.61 | $ | 2.42 | |||||||||
- Net Income Attributable to the Company | $ | 0.54 | $ | 0.54 | $ | 2.65 | $ | 2.43 | |||||||||
Average Number of Shares Outstanding | |||||||||||||||||
- Basic | 541 | 548 | 545 | 549 | |||||||||||||
- Diluted | 548 | 557 | 553 | 558 | |||||||||||||
Shares Outstanding at 12/31 | 540 | 547 | 540 | 547 |
Components of Revenue Change* | ||||||||||||||||||||
Three Months Ended December 31, | % Change GAAP Revenue | Currency Impact | Acquisitions/ Dispositions Impact | Underlying Revenue | ||||||||||||||||
2014 | 2013 | |||||||||||||||||||
Risk and Insurance Services | ||||||||||||||||||||
Marsh | $ | 1,473 | $ | 1,418 | 4 | % | (4 | )% | 4 | % | 4 | % | ||||||||
Guy Carpenter | 212 | 209 | 1 | % | (2 | )% | — | 3 | % | |||||||||||
Subtotal | 1,685 | 1,627 | 4 | % | (3 | )% | 3 | % | 4 | % | ||||||||||
Fiduciary Interest Income | 6 | 6 | ||||||||||||||||||
Total Risk and Insurance Services | 1,691 | 1,633 | 4 | % | (3 | )% | 3 | % | 4 | % | ||||||||||
Consulting | ||||||||||||||||||||
Mercer | 1,106 | 1,084 | 2 | % | (3 | )% | — | 5 | % | |||||||||||
Oliver Wyman Group | 460 | 408 | 12 | % | (3 | )% | 1 | % | 15 | % | ||||||||||
Total Consulting | 1,566 | 1,492 | 5 | % | (3 | )% | — | 8 | % | |||||||||||
Corporate / Eliminations | (11 | ) | (10 | ) | ||||||||||||||||
Total Revenue | $ | 3,246 | $ | 3,115 | 4 | % | (3 | )% | 2 | % | 6 | % |
Components of Revenue Change* | ||||||||||||||||||||
Three Months Ended December 31, | % Change GAAP Revenue | Currency Impact | Acquisitions/ Dispositions Impact | Underlying Revenue | ||||||||||||||||
2014 | 2013 | |||||||||||||||||||
Marsh: | ||||||||||||||||||||
EMEA | $ | 471 | $ | 466 | 1 | % | (5 | )% | 1 | % | 5 | % | ||||||||
Asia Pacific | 163 | 163 | — | (5 | )% | — | 6 | % | ||||||||||||
Latin America | 128 | 132 | (4 | )% | (10 | )% | 3 | % | 3 | % | ||||||||||
Total International | 762 | 761 | — | (6 | )% | 1 | % | 5 | % | |||||||||||
U.S. / Canada | 711 | 657 | 8 | % | (1 | )% | 7 | % | 3 | % | ||||||||||
Total Marsh | $ | 1,473 | $ | 1,418 | 4 | % | (4 | )% | 4 | % | 4 | % | ||||||||
Mercer: | ||||||||||||||||||||
Health | $ | 380 | $ | 376 | 1 | % | (2 | )% | (1 | )% | 4 | % | ||||||||
Retirement | 343 | 338 | 1 | % | (4 | )% | — | 5 | % | |||||||||||
Investments | 214 | 199 | 8 | % | (6 | )% | 1 | % | 12 | % | ||||||||||
Talent | 169 | 171 | (1 | )% | (4 | )% | 1 | % | 2 | % | ||||||||||
Total Mercer | $ | 1,106 | $ | 1,084 | 2 | % | (3 | )% | — | 5 | % |
Notes |
Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items that affect comparability such as: acquisitions, dispositions and transfers among businesses. |
* Components of revenue change may not add due to rounding. |
Components of Revenue Change* | ||||||||||||||||||||
Twelve Months Ended December 31, | % Change GAAP Revenue | Currency Impact | Acquisitions/ Dispositions Impact | Underlying Revenue | ||||||||||||||||
2014 | 2013 | |||||||||||||||||||
Risk and Insurance Services | ||||||||||||||||||||
Marsh | $ | 5,753 | $ | 5,438 | 6 | % | (1 | )% | 3 | % | 4 | % | ||||||||
Guy Carpenter | 1,154 | 1,131 | 2 | % | — | 1 | % | 2 | % | |||||||||||
Subtotal | 6,907 | 6,569 | 5 | % | (1 | )% | 3 | % | 4 | % | ||||||||||
Fiduciary Interest Income | 24 | 27 | ||||||||||||||||||
Total Risk and Insurance Services | 6,931 | 6,596 | 5 | % | (1 | )% | 3 | % | 3 | % | ||||||||||
Consulting | ||||||||||||||||||||
Mercer | 4,350 | 4,241 | 3 | % | (1 | )% | — | 3 | % | |||||||||||
Oliver Wyman Group | 1,709 | 1,460 | 17 | % | — | 2 | % | 15 | % | |||||||||||
Total Consulting | 6,059 | 5,701 | 6 | % | (1 | )% | — | 6 | % | |||||||||||
Corporate / Eliminations | (39 | ) | (36 | ) | ||||||||||||||||
Total Revenue | $ | 12,951 | $ | 12,261 | 6 | % | (1 | )% | 2 | % | 5 | % | ||||||||
Components of Revenue Change* | ||||||||||||||||||||
Twelve Months Ended December 31, | % Change GAAP Revenue | Currency Impact | Acquisitions/ Dispositions Impact | Underlying Revenue | ||||||||||||||||
2014 | 2013 | |||||||||||||||||||
Marsh: | ||||||||||||||||||||
EMEA | $ | 1,980 | $ | 1,902 | 4 | % | — | 1 | % | 3 | % | |||||||||
Asia Pacific | 683 | 659 | 4 | % | (4 | )% | — | 7 | % | |||||||||||
Latin America | 413 | 392 | 5 | % | (10 | )% | 6 | % | 10 | % | ||||||||||
Total International | 3,076 | 2,953 | 4 | % | (2 | )% | 1 | % | 5 | % | ||||||||||
U.S. / Canada | 2,677 | 2,485 | 8 | % | (1 | )% | 6 | % | 3 | % | ||||||||||
Total Marsh | $ | 5,753 | $ | 5,438 | 6 | % | (1 | )% | 3 | % | 4 | % | ||||||||
Mercer: | ||||||||||||||||||||
Health | $ | 1,553 | $ | 1,511 | 3 | % | (1 | )% | — | 3 | % | |||||||||
Retirement | 1,375 | 1,344 | 2 | % | — | — | 2 | % | ||||||||||||
Investments | 836 | 780 | 7 | % | (3 | )% | 1 | % | 9 | % | ||||||||||
Talent | 586 | 606 | (3 | )% | (2 | )% | — | (1 | )% | |||||||||||
Total Mercer | $ | 4,350 | $ | 4,241 | 3 | % | (1 | )% | — | 3 | % | |||||||||
Notes |
Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items that affect comparability such as: acquisitions, dispositions and transfers among businesses. |
* Components of revenue change may not add due to rounding. |
The Company presents below certain additional financial measures that are "non-GAAP measures," within the meaning of Regulation G under the Securities Exchange Act of 1934. These measures are: adjusted operating income (loss); adjusted operating margin; and adjusted income, net of tax. |
The Company presents these non-GAAP measures to provide investors with additional information to analyze the Company's performance from period to period. Management also uses these measures to assess performance for incentive compensation purposes and to allocate resources in managing the Company's businesses. However, investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP. The Company's non-GAAP measures reflect subjective determinations by management, and may differ from similarly titled non-GAAP measures presented by other companies. |
Adjusted Operating Income (Loss) and Adjusted Operating Margin |
Adjusted operating income (loss) is calculated by excluding the impact of certain noteworthy items from the Company's GAAP operating income or loss. The following tables identify these noteworthy items and reconcile adjusted operating income (loss) to GAAP operating income or (loss), on a consolidated and segment basis, for the three months ended December 31, 2014 and 2013. The following tables also present adjusted operating margin, which is calculated by dividing adjusted operating income by consolidated or segment GAAP revenue. |
Risk & Insurance Services | Consulting | Corporate/ Eliminations | Total | |||||||||||||
Three Months Ended December 31, 2014 | ||||||||||||||||
Operating income (loss) | $ | 339 | $ | 250 | $ | (53 | ) | $ | 536 | |||||||
Add impact of Noteworthy Items: | ||||||||||||||||
Restructuring charges (a) | 1 | 1 | — | 2 | ||||||||||||
Adjustments to acquisition related accounts (b) | 15 | — | — | 15 | ||||||||||||
Operating income adjustments | 16 | 1 | — | 17 | ||||||||||||
Adjusted operating income (loss) | $ | 355 | $ | 251 | $ | (53 | ) | $ | 553 | |||||||
Operating margin | 20.1 | % | 16.0 | % | N/A | 16.5 | % | |||||||||
Adjusted operating margin | 21.0 | % | 16.1 | % | N/A | 17.0 | % | |||||||||
Three Months Ended December 31, 2013 | ||||||||||||||||
Operating income (loss) | $ | 310 | $ | 221 | $ | (42 | ) | $ | 489 | |||||||
Add (Deduct) impact of Noteworthy Items: | ||||||||||||||||
Restructuring charges (a) | 2 | 1 | 2 | 5 | ||||||||||||
Adjustments to acquisition related accounts (b) | 15 | 1 | — | 16 | ||||||||||||
Other | — | (1 | ) | — | (1 | ) | ||||||||||
Operating income adjustments | 17 | 1 | 2 | 20 | ||||||||||||
Adjusted operating income (loss) | $ | 327 | $ | 222 | $ | (40 | ) | $ | 509 | |||||||
Operating margin | 18.9 | % | 14.8 | % | N/A | 15.7 | % | |||||||||
Adjusted operating margin | 20.0 | % | 14.9 | % | N/A | 16.3 | % |
(a) Primarily severance, future rent under non-cancellable leases, and integration costs related to recent acquisitions. |
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions. |
The Company presents below certain additional financial measures that are "non-GAAP measures," within the meaning of Regulation G under the Securities Exchange Act of 1934. These measures are: adjusted operating income (loss); adjusted operating margin; and adjusted income, net of tax. |
The Company presents these non-GAAP measures to provide investors with additional information to analyze the Company's performance from period to period. Management also uses these measures to assess performance for incentive compensation purposes and to allocate resources in managing the Company's businesses. However, investors should not consider these non-GAAP measures in isolation from, or as a substitute for, the financial information that the Company reports in accordance with GAAP. The Company's non-GAAP measures reflect subjective determinations by management, and may differ from similarly titled non-GAAP measures presented by other companies. |
Adjusted Operating Income (Loss) and Adjusted Operating Margin |
Adjusted operating income (loss) is calculated by excluding the impact of certain noteworthy items from the Company's GAAP operating income or loss. The following tables identify these noteworthy items and reconcile adjusted operating income (loss) to GAAP operating income or (loss), on a consolidated and segment basis, for the twelve months ended December 31, 2014 and 2013. The following tables also present adjusted operating margin, which is calculated by dividing adjusted operating income by consolidated or segment GAAP revenue. |
Risk & Insurance Services | Consulting | Corporate/ Eliminations | Total | |||||||||||||
Twelve Months Ended December 31, 2014 | ||||||||||||||||
Operating income (loss) | $ | 1,509 | $ | 996 | $ | (204 | ) | $ | 2,301 | |||||||
Add (Deduct) impact of Noteworthy Items: | ||||||||||||||||
Restructuring charges (a) | 5 | 1 | 6 | 12 | ||||||||||||
Adjustments to acquisition related accounts (b) | 37 | — | — | 37 | ||||||||||||
Other | — | — | (1 | ) | (1 | ) | ||||||||||
Operating income adjustments | 42 | 1 | 5 | 48 | ||||||||||||
Adjusted operating income (loss) | $ | 1,551 | $ | 997 | $ | (199 | ) | $ | 2,349 | |||||||
Operating margin | 21.8 | % | 16.4 | % | N/A | 17.8 | % | |||||||||
Adjusted operating margin | 22.4 | % | 16.5 | % | N/A | 18.1 | % | |||||||||
Twelve Months Ended December 31, 2013 | ||||||||||||||||
Operating income (loss) | $ | 1,421 | $ | 845 | $ | (189 | ) | $ | 2,077 | |||||||
Add (Deduct) impact of Noteworthy Items: | ||||||||||||||||
Restructuring charges (a) | 7 | 2 | 13 | 22 | ||||||||||||
Adjustments to acquisition related accounts (b) | 31 | 1 | — | 32 | ||||||||||||
Other | (1 | ) | (1 | ) | (1 | ) | (3 | ) | ||||||||
Operating income adjustments | 37 | 2 | 12 | 51 | ||||||||||||
Adjusted operating income (loss) | $ | 1,458 | $ | 847 | $ | (177 | ) | $ | 2,128 | |||||||
Operating margin | 21.5 | % | 14.8 | % | N/A | 16.9 | % | |||||||||
Adjusted operating margin | 22.1 | % | 14.9 | % | N/A | 17.4 | % |
(a) Primarily severance, future rent under non-cancellable leases, and integration costs related to recent acquisitions. |
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions. |
Adjusted income, net of tax |
Adjusted income, net of tax is calculated as: the Company's GAAP income from continuing operations, adjusted to reflect (i) the after-tax impact of the operating income adjustments set forth in the preceding table and (ii) for 2014, due to its significance, the cost of extinguishment of debt of $137 million. The cost of extinguishment of debt of $24 million that was incurred in 2013 was included in the calculation for that period because it was not considered to be significant. Adjusted Diluted EPS is calculated as Adjusted income, net of tax, divided by MMC's average number of shares outstanding-diluted for the relevant period. |
Reconciliation of the Impact of Non-GAAP Measures on diluted earnings per share - | ||||||||||||||||||||||||
Three Months Ended December 31, 2014 | Three Months Ended December 31, 2013 | |||||||||||||||||||||||
Amount | Diluted EPS | Amount | Diluted EPS | |||||||||||||||||||||
Income from continuing operations | $ | 269 | $ | 307 | ||||||||||||||||||||
Less: Non-controlling interest, net of tax | 5 | 4 | ||||||||||||||||||||||
Subtotal | $ | 264 | $ | 0.48 | $ | 303 | $ | 0.54 | ||||||||||||||||
Operating income adjustments | $ | 17 | $ | 20 | ||||||||||||||||||||
Adjustment for cost of extinguishment of debt | 137 | — | ||||||||||||||||||||||
Impact of income taxes | (55 | ) | (7 | ) | ||||||||||||||||||||
99 | 0.18 | 13 | 0.03 | |||||||||||||||||||||
Adjusted income, net of tax | $ | 363 | $ | 0.66 | $ | 316 | $ | 0.57 | ||||||||||||||||
Twelve Months Ended December 31, 2014 | Twelve Months Ended December 31, 2013 | |||||||||||||||||||||||
Amount | Diluted EPS | Amount | Diluted EPS | |||||||||||||||||||||
Income from continuing operations | $ | 1,471 | $ | 1,379 | ||||||||||||||||||||
Less: Non-controlling interest, net of tax | 32 | 28 | ||||||||||||||||||||||
Subtotal | $ | 1,439 | $ | 2.61 | $ | 1,351 | $ | 2.42 | ||||||||||||||||
Operating income adjustments | $ | 48 | $ | 51 | ||||||||||||||||||||
Adjustment for cost of extinguishment of debt | 137 | — | ||||||||||||||||||||||
Impact of income taxes | (66 | ) | (18 | ) | ||||||||||||||||||||
119 | 0.21 | 33 | 0.06 | |||||||||||||||||||||
Adjusted income, net of tax | $ | 1,558 | $ | 2.82 | $ | 1,384 | $ | 2.48 | ||||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Depreciation and amortization expense | $ | 77 | $ | 73 | $ | 302 | $ | 286 | ||||||||
Identified intangible amortization expense | $ | 22 | $ | 19 | $ | 86 | $ | 72 | ||||||||
Stock option expense | $ | 3 | $ | 3 | $ | 17 | $ | 18 | ||||||||
Capital expenditures | $ | 83 | $ | 113 | $ | 368 | $ | 401 |
December 31, 2014 | December 31, 2013 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,958 | $ | 2,303 | ||||
Net receivables | 3,377 | 3,310 | ||||||
Other current assets | 686 | 687 | ||||||
Total current assets | 6,021 | 6,300 | ||||||
Goodwill and intangible assets | 7,933 | 7,365 | ||||||
Fixed assets, net | 809 | 828 | ||||||
Pension related assets | 967 | 979 | ||||||
Deferred tax assets | 910 | 626 | ||||||
Other assets | 1,200 | 882 | ||||||
TOTAL ASSETS | $ | 17,840 | $ | 16,980 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term debt | $ | 11 | $ | 334 | ||||
Accounts payable and accrued liabilities | 1,883 | 1,861 | ||||||
Accrued compensation and employee benefits | 1,633 | 1,466 | ||||||
Accrued income taxes | 178 | 148 | ||||||
Total current liabilities | 3,705 | 3,809 | ||||||
Fiduciary liabilities | 4,552 | 4,234 | ||||||
Less - cash and investments held in a fiduciary capacity | (4,552 | ) | (4,234 | ) | ||||
— | — | |||||||
Long-term debt | 3,376 | 2,621 | ||||||
Pension, post-retirement and post-employment benefits | 2,244 | 1,150 | ||||||
Liabilities for errors and omissions | 341 | 373 | ||||||
Other liabilities | 1,041 | 1,052 | ||||||
Total equity | 7,133 | 7,975 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 17,840 | $ | 16,980 |