TIDMMHM
Marsh & McLennan Companies, Inc. (NYSE:MMC), a global
professional services firm offering clients advice and solutions in
risk, strategy and people, today reported financial results for the
second quarter ended June 30, 2018.
Dan Glaser, President and CEO, said: "We are pleased with our
performance in the first half of the year. For the first six months
of 2018, we achieved 4% underlying revenue growth on a consolidated
basis and 11% adjusted EPS growth excluding the impact of the new
revenue standard. In the second quarter, we delivered underlying
revenue growth of 3%, highlighted by strong underlying growth of 5%
in Risk & Insurance Services with 1% growth in Consulting."
"With a solid first half of 2018, we believe the Company is well
positioned to deliver underlying revenue growth in the 3-5% range,
margin expansion and strong growth in adjusted earnings per share
in 2018," concluded Mr. Glaser.
Consolidated Results
Consolidated revenue in the second quarter of 2018 was $3.7
billion, an increase of 7% compared with the second quarter of
2017. On an underlying basis, revenue increased 3%. Net income
attributable to the Company was $531 million. Operating income was
$691 million while adjusted operating income, which excludes
noteworthy items as presented in the attached supplemental
schedules, increased 4% to $754 million. Excluding the impact of
ASC 606, adjusted operating income rose 2%.
On a per share basis, net income attributable to the Company in
the second quarter rose 8% to $1.04 from $0.96 in the prior year.
Adjusted earnings per share of $1.10 was up 10% from the prior year
period. The 10% increase in adjusted EPS includes a $0.02 per share
benefit from the application of ASC 606, the new revenue accounting
standard. Excluding ASC 606, adjusted EPS increased 8%.
For the six months ended June 30, 2018, consolidated revenue was
$7.7 billion, an increase of 11% and 4% on an underlying basis.
Operating income was $1.6 billion, an increase of 10% from the
prior year period. Adjusted operating income, which excludes
noteworthy items as presented in the attached supplemental
schedules, rose 14% to $1.7 billion. Excluding the impact of ASC
606, adjusted operating income rose 6%. Net income attributable to
the Company increased 14% to $1.2 billion. Earnings per share rose
16% to $2.38. Adjusted earnings per share increased 19% to $2.47
compared with $2.08 for the comparable period in 2017. The 19%
increase in adjusted EPS includes a $0.16 per share benefit from
the application of ASC 606. Excluding ASC 606, adjusted EPS
increased 11%.
Risk & Insurance Services
Risk & Insurance Services revenue was $2.1 billion in the
second quarter of 2018, an increase of 9% or 5% on an underlying
basis. Operating income was $472 million, a decrease of 2%, and
adjusted operating income rose 9% to $532 million. Excluding ASC
606, adjusted operating income increased 6%. For the six months
ended June 30, 2018, revenue was $4.4 billion, an increase of 14%,
or 4% on an underlying basis. Operating income rose 13% to $1.2
billion and adjusted operating income rose 20% to $1.3 billion.
Excluding ASC 606, adjusted operating income increased 9%.
Marsh's revenue in the second quarter was $1.7 billion, an
increase of 5% on an underlying basis. International operations
produced underlying revenue growth of 2%, reflecting 1% underlying
growth in EMEA, 6% in Asia Pacific, and 3% in Latin America. In
U.S./Canada, underlying revenue rose 8%. For the six months ended
June 30, 2018, Marsh's underlying revenue growth was 3%.
Guy Carpenter's revenue in the second quarter was $332 million,
an increase of 5% on an underlying basis. For the six months ended
June 30, 2018, Guy Carpenter's underlying revenue growth was
6%.
Consulting
Consulting revenue in the second quarter was $1.7 billion, an
increase of 4% or 1% on an underlying basis. Operating income
increased 1% to $267 million and adjusted operating income
decreased 5% to $267 million. For the first six months of 2018,
revenue was $3.3 billion, an increase of 6% or 3% on an underlying
basis. Operating income of $514 million increased 5% and adjusted
operating income increased 1% to $515 million. Excluding ASC 606,
adjusted operating income increased 2%.
Mercer's revenue was $1.2 billion in the second quarter, an
increase of 2% on an underlying basis. Wealth, with revenue of $552
million, grew 1% on an underlying basis. Within Wealth, Defined
Benefit Consulting & Administration decreased 6%, while
Investment Management & Related Services increased 12%. Health
revenue of $429 million was up 1% on an underlying basis and Career
revenue of $177 million increased 7% on an underlying basis. For
the six months ended June 30, 2018, Mercer's revenue was $2.3
billion, an increase of 3% on an underlying basis.
Oliver Wyman Group's revenue was $492 million in the second
quarter, a decrease of 2% on an underlying basis. For the six
months ended June 30, 2018, Oliver Wyman Group's revenue increased
to $989 million, up 2% on an underlying basis.
Other Items
The Company repurchased 3.1 million shares of its common stock
for $250 million in the second quarter. Through six months, the
Company has repurchased 6.1 million shares for $500 million. In
May, the Board of Directors increased the quarterly dividend 11%,
to $0.415 per share, effective with the third quarter dividend
payable on August 15, 2018.
In late June, Marsh announced an agreement to acquire Houston
based Wortham Insurance. Wortham has annual revenue of
approximately $130 million and 530 colleagues.
Conference Call
A conference call to discuss second quarter 2018 results will be
held today at 8:30 a.m. Eastern time. To participate in the
teleconference, please dial +1 866 548 4713. Callers from outside
the United States should dial +1 323 794 2129. The access code for
both numbers is 2356303. The live audio webcast may be accessed at
mmc.com. A replay of the webcast will be available approximately
two hours after the event.
About Marsh & McLennan Companies
Marsh & McLennan (NYSE: MMC) is the world's leading
professional services firm in the areas of risk, strategy and
people. The company's nearly 65,000 colleagues advise clients in
over 130 countries. With annual revenue over $14 billion, Marsh
& McLennan helps clients navigate an increasingly dynamic and
complex environment through four market-leading firms. Marsh
advises individual and commercial clients of all sizes on insurance
broking and innovative risk management solutions. Guy Carpenter
develops advanced risk, reinsurance and capital strategies that
help clients grow profitably and pursue emerging opportunities.
Mercer delivers advice and technology-driven solutions that help
organizations meet the health, wealth and career needs of a
changing workforce. Oliver Wyman serves as a critical strategic,
economic and brand advisor to private sector and governmental
clients. For more information, visit mmc.com, follow us on LinkedIn
and Twitter @mmc_global or subscribe to BRINK.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking statements," as
defined in the Private Securities Litigation Reform Act of 1995.
These statements, which express management's current views
concerning future events or results, use words like "anticipate,"
"assume," "believe," "continue," "estimate," "expect," "forecast,"
"intend," "plan," "project" and similar terms, and future or
conditional tense verbs like "could," "may," "might," "should,"
"will" and "would."
Forward-looking statements are subject to inherent risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied in our forward-looking statements.
Factors that could materially affect our future results include,
among other things:
-- the impact of any investigations, reviews, market studies or other
activity by regulatory or law enforcement authorities, including
the
ongoing investigations by the European Commission, the
Australian
Royal Commission and the U.K. FCA;
-- the impact from lawsuits, other contingent liabilities and loss
contingencies arising from errors and omissions, breach of
fiduciary
duty or other claims against us;
-- our organization's ability to maintain adequate safeguards to protect
the security of our information systems and confidential,
personal or
proprietary information, particularly given the large volume of
our
vendor network and the need to patch software
vulnerabilities;
-- our ability to compete effectively and adapt to changes in the
competitive environment, including to respond to
disintermediation,
digital disruption and other types of innovation;
-- the financial and operational impact of complying with laws and
regulations where we operate, including cybersecurity and data
privacy
regulations such as the E.U.'s General Data Protection
Regulation,
anti-corruption laws and trade sanctions regimes;
-- the regulatory, contractual and reputational risks that arise based on
insurance placement activities and various broker revenue
streams;
-- the extent to which we manage risks associated with the various
services, including fiduciary and investments and other
advisory
services;
-- our ability to successfully recover if we experience a business
continuity problem due to cyberattack, natural disaster or
otherwise;
-- the impact of changes in tax laws, guidance and interpretations,
including related to certain provisions of the U.S. Tax Cuts and
Jobs
Act, or disagreements with tax authorities;
-- the impact of fluctuations in foreign exchange and interest rates on
our results;
-- the impact of macroeconomic, political, regulatory or market
conditions on us, our clients and the industries in which we
operate;
and
-- the impact of changes in accounting rules or in our accounting
estimates or assumptions, including the impact of the adoption
of the
new revenue recognition, pension and lease accounting
standards.
The factors identified above are not exhaustive. Further
information concerning Marsh & McLennan Companies and its
businesses, including information about factors that could
materially affect our results of operations and financial
condition, is contained in the Company's filings with the
Securities and Exchange Commission, including the "Risk Factors"
section and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of our most recently
filed Annual Report on Form 10-K. We caution readers not to place
undue reliance on any forward-looking statements, which are based
only on information currently available to us and speak only as of
the dates on which they are made. We undertake no obligation to
update or revise any forward-looking statement to reflect events or
circumstances arising after the date on which it is made.
Marsh & McLennan
Companies, Inc.
Consolidated
Statements
of Income
(In millions,
except
per share figures)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenue $ 3,734 $ 3,495 $ 7,734 $ 6,998
Expense:
Compensation 2,135 1,998 4,359 4,003
and Benefits
Other Operating 908 796 1,776 1,545
Expenses
Operating Expenses 3,043 2,794 6,135 5,548
Operating Income 691 701 1,599 1,450
Other Net Benefit 65 63 131 123
Credits (a)
Interest Income 3 2 6 4
Interest Expense (68 ) (60 ) (129 ) (118 )
Investment Income 28 5 28 5
Income Before 719 711 1,635 1,464
Income Taxes
Income Tax Expense 183 204 403 379
Net Income Before 536 507 1,232 1,085
Non-Controlling
Interests
Less: Net Income 5 6 11 15
Attributable
to Non-Controlling
Interests
Net $ 531 $ 501 $ 1,221 $ 1,070
Income Attributable
to the Company
Net Income
Per Share
Attributable
to the Company:
- Basic $ 1.05 $ 0.98 $ 2.41 $ 2.08
- Diluted $ 1.04 $ 0.96 $ 2.38 $ 2.05
Average Number
of Shares
Outstanding
- Basic 507 514 507 514
- Diluted 512 520 513 521
Shares Outstanding 505 513 505 513
at 6/30
(a) Effective January 1, 2018, ASC 715, as amended, changed
the presentation of net periodic pension cost and net
periodic postretirement cost. The Company has restated prior
years and quarters for this revised presentation.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income - Impact of Revenue Standard
(In millions, except per share figures)
(Unaudited)
The Company adopted the new revenue standard ("ASC 606")
using the modified retrospective method, applied
to all contracts. The guidance requires entities that
elected the modified retrospective method to
disclose the impact to financial statement line items
as a result of applying the new guidance (rather
than previous U.S. GAAP). The table below shows the
impacts on the consolidated statement of income.
Three Months Ended Six Months Ended
June 30, 2018 June 30, 2018
As Revenue Prior to As Revenue Prior to
Reported Standard Adoption Reported Standard Adoption
Impact Impact
Revenue $ 3,734 $ (24 ) $ 3,710 $ 7,734 $ (185 ) $ 7,549
Expense:
Compensation 2,135 (10 ) 2,125 4,359 (70 ) 4,289
and
Benefits
Other 908 - 908 1,776 - 1,776
Operating
Expenses
Operating 3,043 (10 ) 3,033 6,135 (70 ) 6,065
Expenses
Operating 691 (14 ) 677 1,599 (115 ) 1,484
Income
Other Net 65 - 65 131 - 131
Benefit
Credits
Interest 3 - 3 6 - 6
Income
Interest (68 ) - (68 ) (129 ) - (129 )
Expense
Investment 28 - 28 28 - 28
Income
Income 719 (14 ) 705 1,635 (115 ) 1,520
Before
Income
Taxes
Income Tax 183 (4 ) 179 403 (30 ) 373
Expense
Net Income 536 (10 ) 526 1,232 (85 ) 1,147
Before
Non-Controlling
Interests
Less: Net 5 - 5 11 - 11
Income
Attributable
to
Non-Controlling
Interests
Net $ 531 $ (10 ) $ 521 $ 1,221 $ (85 ) $ 1,136
Income
Attributable
to
the Company
Net Income
Per Share
Attributable
to
the Company:
- Basic $ 1.05 $ (0.02 ) $ 1.03 $ 2.41 $ (0.17 ) $ 2.24
- Diluted $ 1.04 $ (0.02 ) $ 1.02 $ 2.38 $ (0.16 ) $ 2.22
Average
Number
of Shares
Outstanding
- Basic 507 507 507 507 507 507
- Diluted 512 512 512 513 513 513
Shares 505 505 505 505 505 505
Outstanding
at 6/30
Marsh & McLennan
Companies, Inc.
Supplemental
Information
- Revenue
Analysis
Three Months
Ended
June 30
(Millions)
(Unaudited)
Components of Revenue Change*
Three Months EndedJune 30, % Currency Acquisitions/ Revenue Underlying
Change Impact Dispositions Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Risk
and Insurance
Services
Marsh $ 1,749 $ 1,614 8 % 2 % 1 % - 5 %
Guy Carpenter 332 293 13 % 1 % - 7 % 5 %
Subtotal 2,081 1,907 9 % 2 % 1 % 1 % 5 %
Fiduciary 15 9
Interest
Income
Total Risk and 2,096 1,916 9 % 2 % 1 % 1 % 5 %
Insurance
Services
Consulting
Mercer 1,158 1,109 5 % 2 % 1 % - 2 %
Oliver Wyman 492 483 2 % 3 % - - (2 )%
Group
Total Consulting 1,650 1,592 4 % 2 % 1 % - 1 %
Corporate (12 ) (13 )
/ Eliminations
Total Revenue $ 3,734 $ 3,495 7 % 2 % 1 % 1 % 3 %
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue Change*
Three Months Ended % Currency Acquisitions/ Revenue Underlying
June 30, Change Impact Dispositions Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Marsh:
EMEA $ 526 $ 497 6 % 5 % - - 1 %
Asia 183 168 9 % 2 % - - 6 %
Pacific
Latin 99 99 - (5 )% 3 % - 3 %
America
Total 808 764 6 % 3 % 1 % - 2 %
International
U.S. / 941 850 11 % - 2 % 1 % 8 %
Canada
Total Marsh $ 1,749 $ 1,614 8 % 2 % 1 % - 5 %
Mercer:
Defined $ 320 $ 340 (6 )% 3 % (3 )% - (6 )%
Benefit
Consulting
&
Administration
Investment 232 192 20 % 2 % 6 % - 12 %
Management
& Related
Services
Total 552 532 4 % 3 % - - 1 %
Wealth
Health 429 423 2 % 1 % - (1 )% 1 %
Career 177 154 15 % 2 % 6 % - 7 %
Total $ 1,158 $ 1,109 5 % 2 % 1 % - 2 %
Mercer
Note:
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, transfers among businesses, changes
in estimate methodology and the impact of the new revenue standard.
* Components of revenue change may not add due to rounding.
Marsh & McLennan
Companies, Inc.
Supplemental
Information
- Revenue
Analysis
Six Months Ended
June 30
(Millions)
(Unaudited)
Components of Revenue Change*
Six Months EndedJune 30, % Currency Acquisitions/ Revenue Underlying
Change Impact Dispositions/ Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Risk
and Insurance
Services
Marsh $ 3,443 $ 3,210 7 % 3 % 2 % (1 )% 3 %
Guy Carpenter 969 678 43 % 2 % - 35 % 6 %
Subtotal 4,412 3,888 13 % 3 % 2 % 5 % 4 %
Fiduciary 28 17
Interest
Income
Total Risk and 4,440 3,905 14 % 3 % 2 % 5 % 4 %
Insurance
Services
Consulting
Mercer 2,329 2,186 7 % 3 % 1 % - 3 %
Oliver Wyman 989 932 6 % 4 % - - 2 %
Group
Total Consulting 3,318 3,118 6 % 3 % 1 % - 3 %
Corporate (24 ) (25 )
/ Eliminations
Total Revenue $ 7,734 $ 6,998 11 % 3 % 1 % 3 % 4 %
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue Change*
Six Months EndedJune 30, % Currency Acquisitions/ Revenue Underlying
Change Impact Dispositions/ Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Marsh:
EMEA $ 1,169 $ 1,086 8 % 8 % - - (1 )%
Asia 347 320 8 % 3 % - - 5 %
Pacific
Latin 183 179 2 % (4 )% 2 % - 4 %
America
Total 1,699 1,585 7 % 6 % - - 1 %
International
U.S. / 1,744 1,625 7 % - 4 % (2 )% 6 %
Canada
Total Marsh $ 3,443 $ 3,210 7 % 3 % 2 % (1 )% 3 %
Mercer:
Defined $ 659 $ 674 (2 )% 5 % (2 )% - (5 )%
Benefit
Consulting
&
Administration
Investment 458 378 21 % 4 % 4 % - 14 %
Management
& Related
Services
Total 1,117 1,052 6 % 4 % - - 2 %
Wealth
Health 871 838 4 % 2 % (1 )% (1 )% 4 %
Career 341 296 15 % 3 % 6 % - 6 %
Total $ 2,329 $ 2,186 7 % 3 % 1 % - 3 %
Mercer
Note:
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, transfers among businesses, changes
in estimate methodology and the impact of the new revenue standard.
* Components of revenue change may not add due to rounding.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Includes Revenue Standard Impact
Three Months Ended June 30
(Millions) (Unaudited)
Overview
The Company reports its financial results in accordance
with accounting principles generally
accepted in the United States (referred to in this release as "GAAP" or "reported"
results). The Company also refers to and presents
below certain additional non-GAAP financial
measures, within the meaning of Regulation G under the Securities Exchange Act
of 1934. These measures are:adjusted operating income
(loss),adjusted operating margin, adjusted
income, net of taxandadjusted earnings per share (EPS). The Company has included
reconciliations of these non-GAAP financial
measures to the most directly comparable
financial measure calculated in accordance with GAAP in the following tables.
The Company believes these non-GAAP financial measures
provide useful supplemental information that
enables investors to better compare the Company's
performance across periods. Management also
uses these measures internally to assess the operating
performance of its businesses, to assess
performance for employee compensation purposes
and to decide how to allocate resources.
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 include adjustments that
reflect how management views our businesses,
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 reconcileadjusted
operating income (loss)to GAAP operating income or loss, on a consolidated
and segment basis, for the three months ended June 30, 2018. The following
tables also presentadjusted operating margin. For the three months
ended June 30, 2018,adjusted operating marginis calculated by dividingadjusted
operating incomeby consolidated or segment GAAP revenue.
Risk & Consulting Corporate/Eliminations Total
Insurance
Services
Three Months
Ended
June 30, 2018
Operating $ 472 $ 267 $ (48 ) $ 691
income
(loss)
Add (Deduct)
impact of
Noteworthy
Items:
Restructuring 55 - 3 58
(a)
Adjustments to 5 1 - 6
acquisition
related accounts
(b)
Other - (1 ) - (1 )
Operating 60 - 3 63
income
adjustments
Adjusted $ 532 $ 267 $ (45 ) $ 754
operating
income (loss)
Operating 22.5 % 16.2 % N/A 18.5 %
margin
Adjusted 25.4 % 16.2 % N/A 20.2 %
operating
margin
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities
for future rent under non-cancellable leases and
other real estate costs, and restructuring
costs related to the integration of recent acquisitions.
Risk and Insurance Services in 2018
reflects severance and consulting costs related
to the Marsh simplification initiative.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Note:
Comparative financial information for the three months
ended June 30, 2017 is presented on page 10.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Comparable Accounting Basis
Excludes the Revenue Standard Impact
Three Months Ended June 30
(Millions) (Unaudited)
As discussed earlier, the Company has adopted
the new revenue standard using
the modified retrospective method, which requires the disclosure
of the impacts of the standard on each financial statement line item.
The non-GAAP measures below present an analysis of results
reflecting 2018 financial information excluding
the impact of the application
of ASC 606, to facilitate a comparison to the 2017 results.
Except for the adjustment for the effects of ASC 606 in 2018, these
non-GAAP measures are calculated as described on the prior page.
Risk & Consulting Corporate/ Total
Insurance Eliminations
Services
Three Months Ended
June 30, 2018
Operating income $ 458 $ 267 $ (48 ) $ 677
(loss)
without adoption
Add (Deduct)
impact of
Noteworthy Items:
Restructuring (a) 55 - 3 58
Adjustments to 5 1 - 6
acquisition
related accounts
(b)
Other - (1 ) - (1 )
Operating income 60 - 3 63
adjustments
Adjusted operating $ 518 $ 267 $ (45 ) $ 740
income (loss)
Operating margin - 22.2 % 16.2 % N/A 18.3 %
Comparable basis
Adjusted operating 25.0 % 16.2 % N/A 20.0 %
margin
- Comparable basis
Three Months Ended
June 30, 2017
Operating income $ 482 $ 265 $ (46 ) $ 701
(loss)
Add (Deduct)
impact of
Noteworthy Items:
Restructuring (a) - 13 2 15
Adjustments to 7 2 - 9
acquisition
related accounts
(b)
Operating income 7 15 2 24
adjustments
Adjusted operating $ 489 $ 280 $ (44 ) $ 725
income (loss)
Operating margin 25.2 % 16.6 % N/A 20.1 %
Adjusted operating 25.5 % 17.6 % N/A 20.7 %
margin
(a) Includes severance and related charges from restructuring activities,
adjustments to restructuring liabilities for future
rent under non-cancellable leases and other real estate costs,
and restructuring costs related to the integration
of recent acquisitions. Risk and Insurance Services in 2018
reflects severance and consulting costs related to the
Marsh simplification initiative. Consulting in 2017 reflects
severance related to the Mercer business restructure.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Includes Revenue Standard Impact
Six Months Ended June 30
(Millions) (Unaudited)
Overview
The Company reports its financial results in accordance
with accounting principles generally
accepted in the United States (referred to
in this release as "GAAP" or "reported"
results). The Company also refers to and presents
below certain additional non-GAAP financial
measures, within the meaning of Regulation
G under the Securities Exchange Act
of 1934. These measures are:adjusted operating income
(loss),adjusted operating margin,adjusted
income, net of tax andadjusted earnings per
share (EPS). The Company has included
reconciliations of these non-GAAP financial
measures to the most directly comparable
financial measure calculated in accordance with GAAP in the following tables.
The Company believes these non-GAAP financial measures
provide useful supplemental information that
enables investors to better compare the Company's
performance across periods. Management also
uses these measures internally to assess the operating
performance of its businesses, to assess
performance for employee compensation purposes
and to decide how to allocate resources.
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 include adjustments that
reflect how management views our businesses,
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 reconcileadjusted
operating income (loss)to GAAP operating income or loss, on a consolidated
and segment basis, for the six months ended June 30, 2018. The following
tables also presentadjusted operating margin. For the six months
ended June 30, 2018,adjusted operating marginis
calculated by dividingadjusted
operating incomeby consolidated or segment GAAP revenue.
Risk & Consulting Corporate/ Total
Insurance Eliminations
Services
Six Months
Ended
June 30, 2018
Operating $ 1,188 $ 514 $ (103 ) $ 1,599
income
(loss)
Add (Deduct)
impact of
Noteworthy
Items:
Restructuring 58 1 5 64
(a)
Adjustments to 9 1 - 10
acquisition
related accounts
(b)
Other - (1 ) - (1 )
Operating 67 1 5 73
income
adjustments
Adjusted $ 1,255 $ 515 $ (98 ) $ 1,672
operating
income (loss)
Operating 26.8 % 15.5 % N/A 20.7 %
margin
Adjusted 28.3 % 15.5 % N/A 21.6 %
operating
margin
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities
for future rent under non-cancellable leases and
other real estate costs, and restructuring
costs related to the integration of recent acquisitions.
Risk and Insurance Services in 2018
reflects severance and consulting costs related
to the Marsh simplification initiative.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Note:
Comparative financial information for the six months
ended June 30, 2017 is presented on page 12.
Marsh
& McLennan
Companies, Inc.
Reconciliation
of Non-GAAP
Measures
- Comparable
Accounting
Basis
Excludes the
Revenue
Standard Impact
Six Months
Ended
June 30
(Millions)
(Unaudited)
Reconciliation
of Non-GAAP
Measures -
Comparable
Accounting
Basis
(cont'd)
Risk & Consulting Corporate/ Total
Insurance Eliminations
Services
Six Months
Ended
June 30, 2018
Operating $ 1,068 $ 519 $ (103 ) $ 1,484
income
(loss)
without
adoption
Add (Deduct)
impact of
Noteworthy
Items:
Restructuring 58 1 5 64
(a)
Adjustments to 9 1 - 10
acquisition
related accounts
(b)
Other - (1 ) - (1 )
Operating 67 1 5 73
income
adjustments
Adjusted $ 1,135 $ 520 $ (98 ) $ 1,557
operating
income (loss)
Operating 25.2 % 15.6 % N/A 19.7 %
margin -
Comparable
basis
Adjusted 26.7 % 15.6 % N/A 20.6 %
operating
margin
- Comparable
basis
Six Months
Ended
June 30, 2017
Operating $ 1,050 $ 490 $ (90 ) $ 1,450
income
(loss)
Add (Deduct)
impact of
Noteworthy
Items:
Restructuring 4 16 4 24
(a)
Adjustments to (10 ) 3 - (7 )
acquisition
related accounts
(b)
Operating (6 ) 19 4 17
income
adjustments
Adjusted $ 1,044 $ 509 $ (86 ) $ 1,467
operating
income (loss)
Operating 26.9 % 15.7 % N/A 20.7 %
margin
Adjusted 26.7 % 16.3 % N/A 21.0 %
operating
margin
(a) Includes severance and related charges from restructuring activities,
adjustments to restructuring liabilities for future
rent under non-cancellable leases and other real estate costs,
and restructuring costs related to the integration
of recent acquisitions. Risk and Insurance Services in 2018
reflects severance and consulting costs related to the
Marsh simplification initiative. Consulting in 2017 reflects
severance related to the Mercer business restructure.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Includes the Revenue Standard Impact
Three and Six Months Ended June 30
(Millions) (Unaudited)
Adjusted Income, Net of Tax and Adjusted Earnings per Share
Adjusted income,net of taxis calculated as the Company's
GAAP income from continuing operations,
adjusted to reflect the after-tax impact
of the operating income adjustments
set forth in the preceding tables and investments
gains or losses related to the impact
of mark-to-market adjustments on certain
equity securities previously recorded to
equity.Adjusted EPSis calculated by dividing the
Company'sadjusted income, net of tax, by
MMC's average number of shares outstanding-diluted
for the relevant period. The following
tables reconcileadjusted income, net of taxto
GAAP income from continuing operations
andadjusted EPSto GAAP EPS for the three
and six months ended June 30, 2018.
Three Months Ended
June 30, 2018
Amount Adjusted EPS
Income from continuing $ 536
operations
Less: Non-controlling 5
interest, net of tax
Subtotal $ 531 $ 1.04
Operating income adjustments $ 63
Investments adjustment (a) (26 )
Impact of income taxes (6 )
31 0.06
Adjusted income, net of tax $ 562 $ 1.10
Six Months Ended
June 30, 2018
Amount Adjusted EPS
Income from continuing $ 1,232
operations
Less: Non-controlling 11
interest, net of tax
Subtotal $ 1,221 $ 2.38
Operating income adjustments $ 73
Investments adjustment (a) (18 )
Impact of income taxes (10 )
Adjustments to provisional 3
2017 tax estimates (b)
48 0.09
Adjusted income, net of tax $ 1,269 $ 2.47
(a) Mark-to-market adjustments for investments
classified as available for sale
under prior guidance were recorded to equity,
net of tax. Beginning January
1, 2018 such adjustments must be recorded
as part of investment income. Prior
periods were not restated. The Company excludes such mark-to-market
gains or losses from its calculation of
adjusted earnings per share. The Company
recorded mark-to-market gains of $26 million and $18 million for the
three and six-month periods ended June
30, 2018, respectively, which are
included in Investment Income in the Consolidated Statement of Income.
(b) Relates to adjustments to provisional
2017 year-end estimates of transition
taxes and U.S. deferred tax assets and
liabilities from U.S. tax reform.
Note:
Comparative financial information for the three and six
months ended June 30, 2017 is presented on page 14.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Comparable Accounting Basis
Excludes the Revenue Standard Impact
Three and Six Months Ended June 30
(Millions) (Unaudited)
As discussed earlier, the Company adopted the new revenue standard using
the modified retrospective method, which requires the disclosure of
the impacts of the standard on each financial statement line item. The
non-GAAP measures below present an analysis of results reflecting
2018 financial information excluding the impact of the application of
ASC 606, to facilitate a comparison to the 2017 results. Except
for the adjustment for the effects of ASC 606 in 2018, these non-GAAP
measures are calculated as described on the prior page.
Three Months EndedJune 30, 2018 Three Months Ended
June 30, 2017
Amount Adjusted Amount Adjusted
EPS EPS
Income from $ 526 $ 507
continuing
operations,
(2018 prior
to the
impact of
ASC 606)
Less: 5 6
Non-controlling
interest, net
of tax
Subtotal $ 521 $ 1.02 $ 501 $ 0.96
Operating $ 63 $ 24
income
adjustments
Investments (26 ) -
adjustment
(a)
Impact of (6 ) (7 )
income
taxes
31 0.06 17 0.04
Adjusted $ 552 $ 1.08 $ 518 $ 1.00
income,
net of tax
Six Months EndedJune 30, 2018 Six Months EndedJune 30, 2017
Amount Adjusted Amount Adjusted
EPS EPS
Income from $ 1,147 $ 1,085
continuing
operations,
(2018 prior
to the
impact of
ASC 606)
Less: 11 15
Non-controlling
interest, net
of tax
Subtotal $ 1,136 $ 2.22 $ 1,070 $ 2.05
Operating $ 73 $ 17
income
adjustments
Investments (18 ) -
adjustment
(a)
Impact of (10 ) (6 )
income
taxes
Adjustments 3 -
to
provisional
2017
tax estimates
(b)
48 0.09 11 0.03
Adjusted $ 1,184 $ 2.31 $ 1,081 $ 2.08
income,
net of tax
(a) Mark-to-market adjustments for investments
classified as available for sale
under prior guidance were recorded to equity,
net of tax. Beginning January
1, 2018 such adjustments must be recorded
as part of investment income. Prior
periods were not restated. The Company excludes such mark-to-market
gains or losses from its calculation of
adjusted earnings per share. The Company
recorded mark-to-market gains of $26 million and $18 million for the
three and six-month periods ended June
30, 2018, respectively, which are
included in Investment Income in the Consolidated Statement of Income.
(b) Relates to adjustments to provisional
2017 year-end estimates of transition
taxes and U.S. deferred tax assets and
liabilities from U.S. tax reform.
Marsh
&
McLennan
Companies,
Inc.
Supplemental
Information
-
Impact
of
Revenue
Recognition
Standard
Three
and
Six
Months
Ended
June
30
(Millions)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
Excludes Excludes
Impact of Impact of
Revenue Revenue
Standard Standard
2018 2018 2017 2018 2018 2017
Consolidated
Compensation $ 2,135 $ 2,125 $ 1,998 $ 4,359 $ 4,289 $ 4,003
and
Benefits
Other 908 908 796 1,776 1,776 1,545
operating
expenses
Total $ 3,043 $ 3,033 $ 2,794 $ 6,135 $ 6,065 $ 5,548
Expenses
Depreciation $ 79 $ 79 $ 76 $ 159 $ 159 $ 156
and
amortization
expense
Identified 43 43 40 88 88 80
intangible
amortization
expense
Total $ 122 $ 122 $ 116 $ 247 $ 247 $ 236
Stock $ 3 $ 3 $ 3 $ 17 $ 17 $ 17
option
expense
Capital $ 77 $ 77 $ 82 $ 135 $ 135 $ 144
expenditures
Operating $ 777 $ 777 $ 742 $ 413 $ 413 $ 343
cash
flows
Risk
and
Insurance
Services
Compensation $ 1,145 $ 1,132 $ 1,014 $ 2,313 $ 2,238 $ 2,039
and
Benefits
Other 479 479 420 939 939 816
operating
expenses
Total $ 1,624 $ 1,611 $ 1,434 $ 3,252 $ 3,177 $ 2,855
Expenses
Depreciation $ 35 $ 35 $ 35 $ 72 $ 72 $ 70
and
amortization
expense
Identified 35 35 33 72 72 65
intangible
amortization
expense
Total $ 70 $ 70 $ 68 $ 144 $ 144 $ 135
Consulting
Compensation $ 902 $ 905 $ 901 $ 1,858 $ 1,863 $ 1,792
and
Benefits
Other 481 481 426 946 946 836
operating
expenses
Total $ 1,383 $ 1,386 $ 1,327 $ 2,804 $ 2,809 $ 2,628
Expenses
Depreciation $ 26 $ 26 $ 24 $ 51 $ 51 $ 51
and
amortization
expense
Identified 8 8 7 16 16 15
intangible
amortization
expense
Total $ 34 $ 34 $ 31 $ 67 $ 67 $ 66
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions)
(Unaudited) December 31,
June 30, 2017
2018
ASSETS
Current assets:
Cash and cash equivalents $ 1,036 $ 1,205
Net receivables 4,601 4,133
Other current assets 538 224
Total current assets 6,175 5,562
Goodwill and intangible assets 10,411 10,363
Fixed assets, net 698 712
Pension related assets 1,808 1,693
Deferred tax assets 532 669
Other assets 1,535 1,430
TOTAL ASSETS $ 21,159 $ 20,429
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 439 $ 262
Accounts payable and 2,246 2,083
accrued liabilities
Accrued compensation and 1,103 1,718
employee benefits
Accrued income taxes 216 199
Dividends payable 212 -
Total current liabilities 4,216 4,262
Fiduciary liabilities 5,118 4,847
Less - cash and investments held (5,118 ) (4,847 )
in a fiduciary capacity
- -
Long-term debt 5,813 5,225
Pension, post-retirement and 1,768 1,888
post-employment benefits
Liabilities for errors and omissions 303 301
Other liabilities 1,262 1,311
Total equity 7,797 7,442
TOTAL LIABILITIES AND EQUITY $ 21,159 $ 20,429
Note:
Effective January 1, 2018, the Company, upon the adoption
of the new revenue recognition standard, recorded
a cumulative effect adjustment, net of tax resulting
in an increase to the opening balance
of retained earnings of $364 million, with offsetting
increases/decreases to other balance sheet accounts,
e.g. accounts receivable, other current assets,
other assets and deferred income taxes.
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets - Impact of Revenue Standard
(Millions) (Unaudited)
As discussed earlier, the Company adopted the new revenue
standard (ASC 606) using the modified retrospective
method, applied to all contracts. The guidance requires
entities that elected the modified retrospective
method to disclose the impact to financial statement
line items as a result of applying the new guidance
(rather than previous U.S. GAAP). The table below shows
the impacts on the consolidated balance sheet.
June 30, 2018
As Reported Impact of Prior to
Revenue Adoption
Standard
ASSETS
Current assets:
Cash and cash equivalents $ 1,036 $ - $ 1,036
Net receivables 4,601 (254 ) 4,347
Other current assets 538 (298 ) 240
Total current assets 6,175 (552 ) 5,623
Goodwill and intangible assets 10,411 - 10,411
Fixed assets, net 698 - 698
Pension related assets 1,808 - 1,808
Deferred tax assets 532 133 665
Other assets 1,535 (230 ) 1,305
TOTAL ASSETS $ 21,159 $ (649 ) $ 20,510
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 439 $ - $ 439
Accounts payable and 2,246 (177 ) 2,069
accrued liabilities
Accrued compensation and 1,103 - 1,103
employee benefits
Accrued income taxes 216 - 216
Dividends payable 212 - 212
Total current liabilities 4,216 (177 ) 4,039
Fiduciary liabilities 5,118 - 5,118
Less - cash and investments (5,118 ) - (5,118 )
held
in a fiduciary capacity
- - -
Long-term debt 5,813 - 5,813
Pension, post-retirement and 1,768 - 1,768
post-employment benefits
Liabilities for errors 303 - 303
and omissions
Other liabilities 1,262 (23 ) 1,239
Total equity 7,797 (449 ) 7,348
TOTAL LIABILITIES AND EQUITY $ 21,159 $ (649 ) $ 20,510
Media:
Marsh & McLennan Companies
Erick R. Gustafson, +1 202-263-7788
erick.gustafson@mmc.com
or
Investors:
Marsh & McLennan Companies
Dan Farrell, +1 212-345-3713
daniel.farrell@mmc.com
View source version on businesswire.com:
https://www.businesswire.com/news/home/20180726005405/en/
This information is provided by Business Wire
(END) Dow Jones Newswires
July 26, 2018 07:00 ET (11:00 GMT)
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