Underlying Revenue Increases 3% for the
Quarter and 4% for the First Half of 2018
Six Months GAAP EPS Rises 16% and Adjusted
EPS Increases 19%
Excluding Revenue Standard Impact, Six
Months EPS Grows 8% and Adjusted EPS Rises 11%
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 EndedJune
30, Six Months EndedJune 30, 2018
2017
2018 2017
Revenue $ 3,734
$ 3,495
$ 7,734 $ 6,998
Expense: Compensation and Benefits
2,135 1,998
4,359 4,003 Other Operating Expenses
908 796
1,776 1,545
Operating Expenses
3,043 2,794
6,135 5,548
Operating Income 691 701
1,599 1,450
Other
Net Benefit Credits (a) 65 63
131 123
Interest
Income 3 2
6 4
Interest Expense (68
) (60 )
(129 ) (118 )
Investment Income
28 5
28 5
Income
Before Income Taxes 719 711
1,635 1,464
Income
Tax Expense 183 204
403 379
Net Income Before Non-Controlling Interests
536 507
1,232 1,085
Less: Net Income Attributable
to Non-Controlling Interests 5 6
11
15
Net Income Attributable to the Company
$ 531 $ 501
$ 1,221
$ 1,070
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 at 6/30 505
513
505 513 (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
EndedJune 30, 2018 Six Months EndedJune
30, 2018
As
Reported
Revenue
Standard
Impact
Prior to
Adoption
As
Reported
Revenue
Standard
Impact
Prior to
Adoption
Revenue $ 3,734 $ (24
) $ 3,710 $ 7,734
$ (185 ) $ 7,549
Expense: Compensation and Benefits
2,135 (10
) 2,125 4,359 (70 ) 4,289
Other Operating Expenses
908 —
908 1,776 — 1,776
Operating Expenses 3,043 (10
) 3,033 6,135 (70
) 6,065 Operating Income 691
(14 ) 677 1,599 (115 )
1,484 Other Net Benefit Credits 65 —
65 131 — 131 Interest Income
3 — 3 6 — 6 Interest
Expense (68 ) — (68 )
(129 ) — (129 ) Investment
Income 28 — 28
28 — 28 Income Before
Income Taxes 719 (14 ) 705
1,635 (115 ) 1,520 Income Tax
Expense 183 (4 ) 179
403 (30 ) 373
Net Income Before Non-Controlling
Interests
536 (10 ) 526 1,232 (85
) 1,147
Less: Net Income Attributable to
Non-Controlling Interests
5 — 5 11
— 11
Net Income Attributable to the
Company
$ 531 $ (10 ) $
521 $ 1,221 $ (85
) $ 1,136
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
Outstanding at 6/30 505 505
505 505 505 505
Marsh & McLennan Companies,
Inc.
Supplemental Information - Revenue
Analysis
Three Months Ended June 30
(Millions) (Unaudited)
Components of Revenue
Change*
Three Months EndedJune
30,
%
Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions
Other Impact
Revenue
Standard
Impact
Underlying
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
Interest Income
15 9 Total Risk and Insurance
Services
2,096 1,916 9 % 2 % 1 % 1 % 5 %
Consulting Mercer
1,158 1,109 5 % 2 % 1 % — 2 %
Oliver Wyman Group
492 483 2 % 3 % — — (2 )%
Total Consulting
1,650 1,592 4 % 2 % 1 % — 1 %
Corporate / Eliminations (12 ) (13 )
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
June 30,
%
Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions
Other Impact
Revenue
Standard
Impact
Underlying
Revenue
2018 2017
Marsh:
EMEA
$ 526 $ 497 6 % 5 % — — 1 % Asia Pacific
183 168 9 % 2 % — — 6 % Latin America
99 99
— (5 )% 3 % — 3 % Total International
808 764 6 % 3 %
1 % — 2 % U.S. / Canada
941 850 11 % — 2 % 1 %
8 % Total Marsh
$ 1,749 $ 1,614 8 % 2 %
1 % — 5 %
Mercer: Defined Benefit Consulting &
Administration
$ 320 $ 340 (6 )% 3 % (3 )% — (6 )%
Investment Management & Related Services
232 192
20 % 2 % 6 % — 12 % Total Wealth
552 532 4 % 3 % — —
1 % Health
429 423 2 % 1 % — (1 )% 1 % Career
177
154 15 % 2 % 6 % — 7 % Total Mercer
$
1,158 $ 1,109 5 % 2 % 1 % — 2 %
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,
%
Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions/
Other Impact
Revenue
Standard
Impact
Underlying
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
Interest Income
28 17 Total Risk and Insurance
Services
4,440 3,905 14 % 3 % 2 % 5 % 4 %
Consulting Mercer
2,329 2,186 7 % 3 % 1 % — 3 %
Oliver Wyman Group
989 932 6 % 4 % — — 2 %
Total Consulting
3,318 3,118 6 % 3 % 1 % — 3 %
Corporate / Eliminations (24 ) (25 )
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,
%
Change
GAAP
Revenue
Currency
Impact
Acquisitions/
Dispositions/
Other Impact
Revenue
Standard
Impact
Underlying
Revenue
2018 2017
Marsh:
EMEA
$ 1,169 $ 1,086 8 % 8 % — — (1 )% Asia Pacific
347 320 8 % 3 % — — 5 % Latin America
183 179
2 % (4 )% 2 % — 4 % Total International
1,699 1,585 7
% 6 % — — 1 % U.S. / Canada
1,744 1,625 7 % —
4 % (2 )% 6 % Total Marsh
$ 3,443 $ 3,210
7 % 3 % 2 % (1 )% 3 %
Mercer: Defined Benefit
Consulting & Administration
$ 659 $ 674 (2 )% 5 %
(2 )% — (5 )% Investment Management & Related Services
458 378 21 % 4 % 4 % — 14 % Total Wealth
1,117 1,052 6 % 4 % — — 2 % Health
871 838 4 % 2 % (1
)% (1 )% 4 % Career
341 296 15 % 3 % 6 % — 6 %
Total Mercer
$ 2,329 $ 2,186 7 % 3 % 1
% — 3 %
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 tax and adjusted 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 reconcile
adjusted 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 present adjusted operating
margin. For the three months ended June 30, 2018, adjusted
operating margin is calculated by dividing adjusted operating
income by consolidated or segment GAAP revenue.
Risk &
Insurance
Services
Consulting
Corporate/Eliminations
Total Three Months Ended June 30, 2018
Operating income (loss) $ 472 $
267 $ (48 ) $
691 Add (Deduct) impact of Noteworthy
Items: Restructuring (a)
55 — 3 58
Adjustments to acquisition related accounts (b)
5 1
— 6 Other
— (1 ) —
(1 ) Operating income adjustments
60 — 3 63
Adjusted operating income (loss) $ 532
$ 267 $ (45 ) $
754 Operating margin
22.5 % 16.2 %
N/A
18.5 % Adjusted operating margin 25.4
% 16.2 %
N/A
20.2 % (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 &
Insurance
Services
Consulting
Corporate/
Eliminations
Total Three Months Ended June 30, 2018
Operating income (loss) without adoption $ 458
$ 267 $ (48 )
$ 677 Add (Deduct) impact
of Noteworthy Items: Restructuring (a)
55 — 3
58 Adjustments to acquisition related accounts (b)
5
1 — 6 Other
— (1 )
— (1 ) Operating income
adjustments 60 — 3
63 Adjusted operating income (loss) $
518 $ 267 $ (45
) $ 740
Operating margin - Comparable basis 22.2 %
16.2 %
N/A
18.3 % Adjusted operating margin - Comparable
basis 25.0 % 16.2 %
N/A
20.0 % Three Months Ended June 30, 2017
Operating income (loss) $ 482 $ 265 $
(46 ) $ 701 Add (Deduct) impact of
Noteworthy Items: Restructuring (a) — 13 2 15 Adjustments to
acquisition related accounts (b) 7 2 — 9
Operating income adjustments 7 15 2
24
Adjusted operating income (loss) $ 489
$ 280 $ (44 ) $ 725
Operating margin 25.2 % 16.6 %
N/A
20.1 %
Adjusted operating margin 25.5 % 17.6 %
N/A
20.7 % (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 and adjusted 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 reconcile
adjusted 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 present adjusted operating
margin. For the six months ended June 30, 2018, adjusted operating
margin is calculated by dividing adjusted operating income by
consolidated or segment GAAP revenue.
Risk &
Insurance
Services
Consulting
Corporate/Eliminations Total Six
Months Ended June 30, 2018 Operating income
(loss) $ 1,188 $ 514
$ (103 ) $ 1,599
Add (Deduct) impact of Noteworthy Items: Restructuring (a)
58 1 5 64 Adjustments to acquisition
related accounts (b)
9 1 — 10 Other
— (1 ) — (1
) Operating income adjustments 67
1 5 73 Adjusted
operating income (loss) $ 1,255 $
515 $ (98 ) $
1,672 Operating margin 26.8
% 15.5 %
N/A
20.7 % Adjusted operating margin 28.3
% 15.5 %
N/A
21.6 % (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 &
Insurance
Services
Consulting
Corporate/
Eliminations
Total Six Months Ended June 30, 2018
Operating income (loss) without adoption $
1,068 $ 519 $ (103
) $ 1,484 Add (Deduct)
impact of Noteworthy Items: Restructuring (a)
58 1
5 64 Adjustments to acquisition related accounts (b)
9 1 — 10 Other
—
(1 ) — (1 ) Operating
income adjustments 67 1 5
73 Adjusted operating income (loss)
$ 1,135 $ 520 $
(98 ) $ 1,557
Operating margin - Comparable basis 25.2 %
15.6 %
N/A
19.7 % Adjusted operating margin - Comparable
basis 26.7 % 15.6 %
N/A
20.6 % Six Months Ended June 30, 2017
Operating income (loss) $ 1,050 $ 490 $ (90 )
$ 1,450 Add (Deduct) impact of Noteworthy
Items: Restructuring (a) 4 16 4 24 Adjustments to acquisition
related accounts (b) (10 ) 3 — (7 )
Operating
income adjustments (6 ) 19 4 17
Adjusted operating income (loss) $ 1,044 $ 509
$ (86 ) $ 1,467
Operating margin 26.9 %
15.7 %
N/A
20.7 %
Adjusted operating margin 26.7 % 16.3 %
N/A
21.0 % (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 tax is 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 EPS is
calculated by dividing the Company’s adjusted income, net of tax,
by MMC's average number of shares outstanding-diluted for the
relevant period. The following tables reconcile adjusted income,
net of tax to GAAP income from continuing operations and adjusted
EPS to GAAP EPS for the three and six months ended June 30, 2018.
Three Months EndedJune 30, 2018
Amount Adjusted EPS Income from
continuing operations
$ 536
Less: Non-controlling interest, net of tax
5 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 EndedJune 30,
2018 Amount Adjusted EPS Income from continuing
operations
$ 1,232 Less: Non-controlling interest,
net of tax
11 Subtotal
$ 1,221 $
2.38 Operating income adjustments
$ 73
Investments adjustment (a)
(18 ) Impact of income
taxes
(10 ) Adjustments to provisional 2017 tax
estimates (b)
3 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 EndedJune 30, 2017
Amount
Adjusted
EPS
Amount
Adjusted
EPS
Income from continuing operations,
(2018 prior to the impact of ASC 606)
$ 526 $ 507 Less: Non-controlling
interest, net of tax
5 6 Subtotal
$
521 $ 1.02 $ 501 $ 0.96
Operating income adjustments
$
63 $ 24 Investments adjustment (a)
(26 ) — Impact of income taxes
(6 ) (7
)
31 0.06 17 0.04 Adjusted
income, net of tax
$ 552 $
1.08 $ 518 $ 1.00
Six Months EndedJune 30,
2018
Six Months EndedJune 30, 2017
Amount
Adjusted
EPS
Amount
Adjusted
EPS
Income from continuing operations,
(2018 prior to the impact of ASC 606)
$ 1,147 $ 1,085 Less: Non-controlling interest, net
of tax
11 15 Subtotal
$ 1,136
$ 2.22 $ 1,070 $ 2.05 Operating income adjustments
$ 73 $ 17 Investments adjustment (a)
(18
) — Impact of income taxes
(10 ) (6 )
Adjustments to provisional 2017 tax estimates (b)
3 —
48 0.09 11 0.03 Adjusted
income, net of tax
$ 1,184 $
2.31 $ 1,081 $ 2.08
(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
Impact of
Revenue
Standard
Excludes
Impact of
Revenue
Standard
2018 2018 2017
2018 2018 2017
Consolidated Compensation and Benefits
$ 2,135
$ 2,125 $ 1,998
$ 4,359 $
4,289 $ 4,003 Other operating expenses
908
908 796
1,776 1,776
1,545 Total Expenses
$ 3,043 $
3,033 $ 2,794
$ 6,135
$ 6,065 $ 5,548 Depreciation and
amortization expense
$ 79 $ 79 $ 76
$ 159 $ 159 $ 156 Identified intangible
amortization expense
43 43 40
88 88 80 Total
$ 122
$ 122 $ 116
$ 247
$ 247 $ 236 Stock option expense
$ 3 $ 3 $ 3
$ 17 $
17 $ 17 Capital expenditures
$ 77 $
77 $ 82
$ 135 $ 135 $ 144
Operating cash flows
$ 777 $ 777 $ 742
$ 413 $ 413 $ 343
Risk and
Insurance Services Compensation and Benefits
$
1,145 $ 1,132 $ 1,014
$ 2,313
$ 2,238 $ 2,039 Other operating expenses
479
479 420
939 939
816 Total Expenses
$ 1,624 $
1,611 $ 1,434
$ 3,252
$ 3,177 $ 2,855 Depreciation and
amortization expense
$ 35 $ 35 $ 35
$ 72 $ 72 $ 70 Identified intangible
amortization expense
35 35 33
72 72 65 Total
$ 70
$ 70 $ 68
$ 144
$ 144 $ 135
Consulting
Compensation and Benefits
$ 902 $ 905 $
901
$ 1,858 $ 1,863 $ 1,792 Other
operating expenses
481 481 426
946 946 836 Total Expenses
$
1,383 $ 1,386 $ 1,327
$ 2,804 $ 2,809 $ 2,628
Depreciation and amortization expense
$ 26
$ 26 $ 24
$ 51 $ 51 $ 51
Identified intangible amortization expense
8 8
7
16 16 15 Total
$
34 $ 34 $ 31
$
67 $ 67 $ 66
Marsh & McLennan Companies,
Inc.
Consolidated Balance Sheets
(Millions)
(Unaudited)June
30, 2018
December 31,
2017
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 accrued liabilities
2,246 2,083 Accrued compensation and employee benefits
1,103 1,718 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 in a fiduciary capacity
(5,118 ) (4,847 )
— — Long-term debt
5,813 5,225 Pension, post-retirement and post-employment
benefits
1,768 1,888 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
Revenue
Standard
Prior to
Adoption
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 accrued liabilities
2,246 (177 )
2,069 Accrued compensation and employee benefits
1,103 — 1,103 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 held in a fiduciary capacity
(5,118 )
— (5,118 ) — — —
Long-term debt
5,813 — 5,813 Pension,
post-retirement and post-employment benefits
1,768 —
1,768 Liabilities for errors and omissions
303
— 303 Other liabilities
1,262 (23
) 1,239 Total equity 7,797
(449 ) 7,348 TOTAL
LIABILITIES AND EQUITY $ 21,159 $
(649 ) $ 20,510
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version on businesswire.com: https://www.businesswire.com/news/home/20180726005395/en/
Media:Marsh & McLennan CompaniesErick R. Gustafson,
+1
202-263-7788erick.gustafson@mmc.comorInvestors:Marsh
& McLennan CompaniesDan Farrell, +1
212-345-3713daniel.farrell@mmc.com
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