Underlying Revenue Increases 5% for the
Quarter and 4% for the First Nine Months of 2018
Nine Months GAAP EPS Rises 4% to $2.93 and
Adjusted EPS Increases 14% to $3.26
Excluding Revenue Standard Impact, Nine
Months EPS Grows 1% and Adjusted EPS Rises 10%
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
third quarter ended September 30, 2018.
Dan Glaser, President and CEO, said: "We are pleased with our
performance for the third quarter and first nine months of the
year. In the quarter, we produced excellent underlying revenue
growth of 5% in both Risk & Insurance Services and Consulting,
and adjusted EPS growth of 8% excluding the impact of the new
revenue standard. For the first nine months of 2018, we achieved
strong underlying revenue growth of 4% on a consolidated basis and
10% adjusted EPS growth excluding the impact of the new revenue
standard. Given our solid performance in the first nine months of
2018, the Company is well positioned to deliver full year
underlying revenue growth in the 3 to 5% range, as well as margin
expansion and strong growth in earnings per share."
"The highlight of the quarter was our agreement to acquire
Jardine Lloyd Thompson Group. JLT is a premier organization in
our industry that we have admired for a long time. The combination
of Marsh & McLennan and JLT will create innovative solutions
for our clients, career opportunities for our colleagues, and value
for our shareholders,” concluded Mr. Glaser.
Consolidated Results
Consolidated revenue in the third quarter of 2018 was $3.5
billion, an increase of 5% compared with the third quarter of 2017.
On an underlying basis, revenue increased 5%. Net income
attributable to the Company was $276 million. Operating income was
$541 million while adjusted operating income, which excludes
noteworthy items as presented in the attached supplemental
schedules, decreased 5% to $535 million. Excluding the impact of
the new revenue recognition standard, ASC 606, adjusted operating
income rose 3%.
On a per share basis, net income attributable to the Company in
the third quarter declined to $0.54 from $0.76 in the prior year.
Adjusted earnings per share of $0.78 was down 1% from the prior
year period. The 1% decrease in adjusted EPS includes a $0.07 per
share reduction from the application of ASC 606. Excluding ASC 606,
adjusted EPS increased 8%.
For the nine months ended September 30, 2018, consolidated
revenue was $11.2 billion, an increase of 9% and 4% on an
underlying basis. Operating income was $2.1 billion, an increase of
8% from the prior year period. Adjusted operating income, which
excludes noteworthy items as presented in the attached supplemental
schedules, rose 9% to $2.2 billion. Excluding the impact of ASC
606, adjusted operating income rose 5%. Net income attributable to
the Company increased 2% to $1.5 billion. Earnings per share
increased 4% to $2.93. Adjusted earnings per share increased 14% to
$3.26 compared with $2.87 for the comparable period in 2017. The
14% increase in adjusted EPS includes a $0.10 per share benefit
from the application of ASC 606. Excluding ASC 606, adjusted EPS
increased 10%.
Risk & Insurance Services
Risk & Insurance Services revenue was $1.9 billion in the
third quarter of 2018, an increase of 6%, or 5% on an underlying
basis. Operating income was $293 million, an increase of 9%, and
adjusted operating income declined 3% to $283 million. Excluding
ASC 606, adjusted operating income increased 13%. For the nine
months ended September 30, 2018, revenue was $6.3 billion, an
increase of 11%, or 4% on an underlying basis. Operating income
rose 12% to $1.5 billion and adjusted operating income rose 15% to
$1.5 billion. Excluding ASC 606, adjusted operating income
increased 10%.
Marsh's revenue in the third quarter was $1.6 billion, an
increase of 10%, or 3% on an underlying basis. In U.S./Canada,
underlying revenue rose 5%. International operations produced
underlying revenue growth of 2%, reflecting flat underlying growth
in EMEA, 3% in Asia Pacific, and 7% in Latin America. For the nine
months ended September 30, 2018, Marsh’s underlying revenue growth
was 3%.
Guy Carpenter's revenue in the third quarter was $215 million,
an increase of 11% on an underlying basis. For the nine months
ended September 30, 2018, Guy Carpenter’s underlying revenue growth
was 7%.
Consulting
Consulting revenue in the third quarter was $1.7 billion, an
increase of 4%, or 5% on an underlying basis. Operating income
decreased 6% to $291 million and adjusted operating income
decreased 6% to $293 million. For the first nine months of 2018,
revenue was $5.0 billion, an increase of 6%, or 4% on an underlying
basis. Operating income of $805 million increased 1% and adjusted
operating income decreased 2% to $808 million. Excluding ASC 606,
adjusted operating income decreased 1%.
Mercer's revenue was $1.2 billion in the third quarter, an
increase of 3% on an underlying basis. Wealth, with revenue of $525
million, grew 2% on an underlying basis. Within Wealth, Defined
Benefit Consulting & Administration decreased 3%, while
Investment Management & Related Services increased 9%. Health
revenue of $415 million was up 4% on an underlying basis and Career
revenue of $235 million increased 5% on an underlying basis. For
the nine months ended September 30, 2018, Mercer’s revenue was $3.5
billion, an increase of 3% on an underlying basis.
Oliver Wyman Group’s revenue was $481 million in the third
quarter, an increase of 11% on an underlying basis. For the first
nine months ended September 30, 2018, Oliver Wyman Group’s revenue
increased to $1.5 billion, up 5% on an underlying basis.
Other Items
On September 18, 2018, the Company announced an agreement to
acquire Jardine Lloyd Thompson Group (JLT), a leading provider of
insurance, reinsurance and employee benefits related advice,
brokerage and associated services. JLT is based in London and has
offices in over 40 countries including in key emerging markets
across Asia and Latin America.
The transaction is expected to close in spring of 2019, subject
to receipt of required antitrust and regulatory approvals and the
approval of JLT shareholders. In order to protect the Company from
pound sterling exchange rate volatility between announcement and
closing, the Company entered into a deal contingent forward foreign
exchange contract. As a result of entering into this contract, the
Company recorded a charge of $100 million reflecting the fair value
of the hedging instrument at the end of the quarter. This item is
classified as noteworthy and excluded from our adjusted
results.
In the third quarter, the Company recognized a charge of $81
million to reflect an other than temporary decline in the carrying
value of its equity investment in South African based Alexander
Forbes. Also in the quarter, a gain of $46 million was recognized
on the sale of a business in Marsh. Both of these items are
classified as noteworthy and therefore excluded from our adjusted
results.
The Company repurchased 2.1 million shares of its common stock
for $175 million in the third quarter. Through nine months, the
Company has repurchased 8.2 million shares for $675 million.
Conference Call
A conference call to discuss third quarter 2018 results will be
held today at 8:30 a.m. Eastern time. To participate in the
teleconference, please dial +1 888 254 3590. Callers from outside
the United States should dial +1 323 994 2093. The access code for
both numbers is 5467774. 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 approximately 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," "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:
- our ability to successfully consummate,
integrate or achieve the intended benefits of the acquisition of
JLT;
- 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 and the U.K. FCA market study;
- 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 impact of macroeconomic, political,
regulatory or market conditions on us, our clients and the
industries in which we operate, including the inability to collect
on our receivables in certain high-risk jurisdictions;
- 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; 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 EndedSeptember 30, Nine Months
EndedSeptember 30, 2018 2017
2018 2017
Revenue $ 3,504
$ 3,341
$ 11,238 $ 10,339
Expense: Compensation and Benefits
2,083 1,968
6,442 5,971 Other Operating Expenses
880 838
2,656 2,383
Operating Expenses
2,963 2,806
9,098 8,354
Operating Income 541 535
2,140 1,985
Other
Net Benefit Credits (a) 63 62
194 185
Interest
Income 2 2
8 6
Interest Expense (69
) (60 )
(198 ) (178 )
Investment (Loss)
Income (52 ) (2 )
(24 ) 3
Change
in Fair Value of Acquisition Related FX Contract (b)
(100 ) —
(100 ) —
Income Before Income Taxes 385 537
2,020 2,001
Income Tax Expense 106 140
509
519
Net Income Before Non-Controlling
Interests 279 397
1,511 1,482
Less: Net Income
Attributable to Non-Controlling Interests 3 4
14 19
Net Income Attributable to the
Company $ 276 $ 393
$
1,497 $ 1,463
Net Income Per Share
Attributable to the Company: - Basic $
0.55 $ 0.77
$ 2.96 $ 2.85
- Diluted $ 0.54 $ 0.76
$ 2.93 $ 2.81
Average Number of
Shares Outstanding - Basic 504 512
506 514
- Diluted 510 519
512 520
Shares Outstanding at
9/30 504 511
504 511
(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. (b) To hedge the risk of
appreciation of the pound sterling ("GBP") denominated purchase
price of JLT relative to the U.S. dollar ("USD"), the Company
entered into a deal contingent forward exchange contract to, solely
upon consummation of the acquisition, purchase GBP and sell USD at
a contracted exchange rate. An unrealized loss of $100 million
related to the fair value changes to this derivative has been
recognized in the consolidated statement of earnings for the three
and nine month periods ended September 30, 2018. The Company
expects to record fair value gains and losses through its income
statement until the completion of the transaction.
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
EndedSeptember 30, 2018 Nine Months
EndedSeptember 30, 2018
AsReported
RevenueStandardImpact
Prior toAdoption
AsReported
RevenueStandardImpact
Prior toAdoption
Revenue $ 3,504 $ 58
$ 3,562 $ 11,238
$ (127 ) $ 11,111
Expense: Compensation and Benefits
2,083 12
2,095 6,442 (58 ) 6,384 Other
Operating Expenses
880 — 880
2,656 — 2,656
Operating Expenses 2,963 12
2,975 9,098 (58 )
9,040 Operating Income 541 46
587 2,140 (69 ) 2,071 Other
Net Benefit Credits 63 — 63 194
— 194 Interest Income 2 —
2 8 — 8 Interest Expense
(69 ) — (69 ) (198
) — (198 ) Investment (Loss)
Income (52 ) — (52 )
(24 ) — (24 ) Change in Fair
Value of Acquisition Related FX Contract (100 )
— (100 ) (100 ) —
(100 ) Income Before Income Taxes
385 46 431 2,020 (69 )
1,951 Income Tax Expense 106 12
118 509 (18 )
491 Net Income Before Non-Controlling
Interests 279 34 313 1,511
(51 ) 1,460 Less: Net Income Attributable
to Non-Controlling Interests 3 —
3 14 — 14
Net Income Attributable to the Company $ 276
$ 34 $ 310
$ 1,497 $ (51 ) $
1,446 Net Income Per Share Attributable to the
Company: - Basic $ 0.55 $
0.06 $ 0.61 $ 2.96
$ (0.10 ) $ 2.86
- Diluted $ 0.54 $ 0.07
$ 0.61 $ 2.93
$ (0.10 ) $ 2.83
Average Number of Shares Outstanding - Basic
504 504 504 506
506 506 - Diluted
510 510 510 512
512 512 Shares Outstanding at
9/30 504 504 504
504 504 504
Marsh & McLennan Companies,
Inc.
Supplemental Information - Revenue
Analysis
Three Months Ended September 30
(Millions) (Unaudited)
Components of Revenue Change* Three Months
EndedSeptember 30,
%ChangeGAAPRevenue
CurrencyImpact
Acquisitions/Dispositions/Other Impact
RevenueStandardImpact
UnderlyingRevenue
2018 2017
Risk
and Insurance Services Marsh
$
1,630 $ 1,482 10 % (1 )% 6 % 2 % 3 % Guy Carpenter
215 270 (20 )% — — (31 )% 11 % Subtotal
1,845 1,752 5 % (1 )% 5 % (3 )% 4 % Fiduciary Interest
Income
18 11 Total Risk and Insurance Services
1,863 1,763 6 % (1 )% 5 % (3 )% 5 %
Consulting Mercer
1,175 1,149 2 % (2 )% 1 % — 3 %
Oliver Wyman Group
481 438 10 % (1 )% — — 11 %
Total Consulting
1,656 1,587 4 % (2 )% 1 % — 5
%
Corporate / Eliminations (15 ) (9 )
Total
Revenue $ 3,504 $ 3,341 5 % (1 )% 3
% (2 )% 5 %
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue
Change* Three Months EndedSeptember 30,
%ChangeGAAPRevenue
CurrencyImpact
Acquisitions/Dispositions/Other Impact
RevenueStandardImpact
UnderlyingRevenue
2018 2017
Marsh:
EMEA
$ 441 $ 426 3 % (1 )% 4 % — — Asia Pacific
167 164 2 % (3 )% 2 % — 3 % Latin America
96
95 1 % (10 )% 5 % — 7 % Total International
704 685 3
% (3 )% 4 % — 2 % U.S. / Canada
926 797 16 % —
8 % 3 % 5 % Total Marsh
$ 1,630 $ 1,482
10 % (1 )% 6 % 2 % 3 %
Mercer: Defined Benefit Consulting
& Administration
$ 300 $ 336 (10 )% (1 )% (7 )% —
(3 )% Investment Management & Related Services
225
194 16 % (5 )% 11 % — 9 % Total Wealth
525 530
(1 )% (2 )% — — 2 % Health
415 401 3 % (1 )% 1 % (1 )% 4 %
Career
235 218 8 % (2 )% 6 % — 5 % Total
Mercer
$ 1,175 $ 1,149 2 % (2 )% 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.
Supplemental Information - Revenue
Analysis
Nine Months Ended September 30
(Millions) (Unaudited)
Components of Revenue Change* Nine Months
EndedSeptember 30,
%ChangeGAAPRevenue
CurrencyImpact
Acquisitions/Dispositions/Other Impact
RevenueStandardImpact
UnderlyingRevenue
2018 2017
Risk
and Insurance Services Marsh
$
5,073 $ 4,692 8 % 2 % 3 % — 3 % Guy Carpenter
1,184
948 25 % 1 % — 16 % 7 % Subtotal
6,257 5,640
11 % 2 % 3 % 2 % 4 % Fiduciary Interest Income
46 28
Total Risk and Insurance Services
6,303 5,668
11 % 2 % 3 % 2 % 4 %
Consulting Mercer
3,504
3,335 5 % 1 % 1 % — 3 % Oliver Wyman Group
1,470
1,370 7 % 2 % — — 5 % Total Consulting
4,974
4,705 6 % 2 % 1 % — 4 %
Corporate / Eliminations
(39 ) (34 )
Total Revenue $
11,238 $ 10,339 9 % 2 % 2 % 1 % 4 %
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue
Change* Nine Months EndedSeptember 30,
%ChangeGAAPRevenue
CurrencyImpact
Acquisitions/Dispositions/Other Impact
RevenueStandardImpact
UnderlyingRevenue
2018 2017
Marsh: EMEA
$ 1,610 $ 1,512 6 % 5 % 1 % — — Asia Pacific
514 484 6 % 1 % 1 % — 4 % Latin America
279
274 2 % (6 )% 3 % — 5 % Total International
2,403
2,270 6 % 3 % 1 % — 1 % U.S. / Canada
2,670 2,422
10 % — 5 % (1 )% 5 % Total Marsh
$ 5,073
$ 4,692 8 % 2 % 3 % — 3 %
Mercer: Defined
Benefit Consulting & Administration
$ 959 $ 1,010
(5 )% 3 % (3 )% — (4 )% Investment Management & Related
Services
683 572 19 % 1 % 6 % — 12 % Total
Wealth
1,642 1,582 4 % 2 % — — 2 % Health
1,286 1,239
4 % 1 % — (1 )% 4 % Career
576 514 12 % 1 % 6
% — 5 % Total Mercer
$ 3,504 $ 3,335 5
% 1 % 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 September 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
September 30, 2018. The following tables also present adjusted
operating margin. For the three months ended September 30, 2018,
adjusted operating margin is calculated by dividing adjusted
operating income by consolidated or segment GAAP revenue less the
gain on the disposal of Marsh's risk management software and
services business unit.
Risk
&InsuranceServices
Consulting
Corporate/Eliminations
Total Three Months Ended September 30, 2018
Operating income (loss) $ 293 $
291 $ (43) $ 541 Add (Deduct)
impact of Noteworthy Items: Restructuring (a)
29 —
2 31 Adjustments to acquisition related accounts (b)
7 2 — 9 Disposal of business (c)
(46) — — (46) Operating income
adjustments (10) 2 2 (6)
Adjusted operating income (loss) $ 283
$ 293 $ (41) $ 535
Operating margin 15.7% 17.6% N/A
15.5% Adjusted operating margin 15.5%
17.7% N/A 15.5% (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. (c) Relates to a gain on the
disposal of a risk management software and services business unit
of Marsh. The $46 million gain is also removed from GAAP revenue in
the calculation of adjusted operating margin.
Note:
Comparative financial information for the three months ended
September 30, 2017 is presented on page 11.
Marsh & McLennan Companies,
Inc.
Reconciliation of Non-GAAP Measures -
Comparable Accounting Basis
Excludes the Revenue Standard
Impact
Three Months Ended September 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
&InsuranceServices
Consulting
Corporate/Eliminations
Total Three Months Ended September 30,
2018 Operating income (loss) without adoption $
340 $ 290 $ (43
) $ 587 Add (Deduct) impact of
Noteworthy Items: Restructuring (a)
29 — 2
31 Adjustments to acquisition related accounts (b)
7
2 — 9 Disposal of business (c)
(46
) — — (46 )
Operating income adjustments (10 ) 2
2 (6 ) Adjusted operating
income (loss) $ 330 $ 292
$ (41 ) $ 581
Operating margin - Comparable basis 17.7 %
17.5 % N/A 16.5 %
Adjusted operating margin - Comparable basis 17.6
% 17.6 % N/A 16.5
% Three Months Ended September 30, 2017
Operating income (loss) $ 268 $ 311 $ (44 ) $
535 Add (Deduct) impact of Noteworthy Items: Restructuring
(a) 3 2 3 8 Adjustments to acquisition related accounts (b) 5 (1 )
— 4 Other Settlement, Legal and Regulatory (d) 15 — —
15
Operating income adjustments 23 1
3 27
Adjusted operating income (loss) $
291 $ 312 $ (41 ) $ 562
Operating
margin 15.2 % 19.6 % N/A 16.0 %
Adjusted operating
margin 16.5 % 19.7 % N/A 16.8 % (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. (c) Relates to a gain on the disposal of a
risk management software and services business unit of Marsh. The
$46 million gain is also removed from GAAP revenue in the
calculation of adjusted operating margin. (d) Reflects the
settlement of the final legacy litigation, originally filed in
2006, regarding Marsh’s use of market service agreements.
Marsh & McLennan Companies,
Inc.
Reconciliation of Non-GAAP
Measures
Includes Revenue Standard
Impact
Nine Months Ended September 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 nine months ended
September 30, 2018. The following tables also present adjusted
operating margin. For the nine months ended September 30, 2018,
adjusted operating margin is calculated by dividing adjusted
operating income by consolidated or segment GAAP revenue less the
gain on the disposal of Marsh's risk management software and
services business unit.
Risk
&InsuranceServices
Consulting
Corporate/Eliminations
Total Nine Months Ended September 30,
2018 Operating income (loss) $ 1,481
$ 805 $ (146 )
$ 2,140 Add (Deduct) impact of Noteworthy
Items: Restructuring (a)
87 1 7 95
Adjustments to acquisition related accounts (b)
16 3
— 19 Disposal of business (c)
(46 )
— — (46 ) Other
—
(1 ) — (1 ) Operating
income adjustments 57 3 7
67 Adjusted operating income (loss)
$ 1,538 $ 808 $
(139 ) $ 2,207 Operating
margin 23.5 % 16.2 % N/A
19.1 % Adjusted operating margin
24.6 % 16.3 % N/A
19.7 % (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. (b) Primarily includes the change in
fair value as measured each quarter of contingent consideration
related to acquisitions. (c) Relates to a gain on the disposal of a
risk management software and services business unit of Marsh. The
$46 million gain is also removed from GAAP revenue in the
calculation of adjusted operating margin.
Note:
Comparative financial information for the nine months ended
September 30, 2017 is presented on page 13.
Marsh & McLennan Companies,
Inc.
Reconciliation of Non-GAAP Measures -
Comparable Accounting Basis
Excludes the Revenue Standard
Impact
Nine Months Ended September 30
(Millions) (Unaudited)
Reconciliation of Non-GAAP Measures -
Comparable Accounting Basis (cont’d)
Risk
&InsuranceServices
Consulting Corporate/
Eliminations
Total Nine Months Ended September 30, 2018
Operating income (loss) without adoption $
1,408 $ 809 $ (146
) $ 2,071 Add (Deduct) impact of
Noteworthy Items: Restructuring (a)
87 1 7
95 Adjustments to acquisition related accounts (b)
16
3 — 19 Disposal of business (c)
(46
) — — (46 ) Other
—
(1 ) — (1 )
Operating income adjustments 57 3
7 67 Adjusted operating
income (loss) $ 1,465 $ 812
$ (139 ) $ 2,138
Operating margin - Comparable basis 22.9 %
16.2 % N/A 18.6 %
Adjusted operating margin - Comparable basis 23.9
% 16.3 % N/A 19.3
% Nine Months Ended September 30, 2017
Operating income (loss) $ 1,318 $ 801 $ (134 )
$ 1,985 Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 7 18 7 32 Adjustments to acquisition related
accounts (b) (5 ) 2 — (3 ) Other Settlement, Legal and Regulatory
(d) 15 — — 15
Operating income
adjustments 17 20 7 44
Adjusted
operating income (loss) $ 1,335 $ 821 $ (127 ) $
2,029
Operating margin 23.3 % 17.0 % N/A 19.2
%
Adjusted operating margin 23.6 % 17.5 % N/A 19.6 %
(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. 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. (c) Relates to a gain on the disposal of a
risk management software and services business unit of Marsh. The
$46 million gain is also removed from GAAP revenue in the
calculation of adjusted operating margin. (d) Reflects the
settlement of the final legacy litigation, originally filed in
2006, regarding Marsh’s use of market service agreements.
Marsh & McLennan Companies,
Inc.
Reconciliation of Non-GAAP
Measures
Includes the Revenue Standard
Impact
Three and Nine Months Ended September
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, change in fair
value of fx forward, bridge financing fees and adjustments to
provisional 2017 tax estimates. 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 nine months ended September 30, 2018.
Three Months EndedSeptember 30, 2018
Amount Adjusted EPS Income from
continuing operations
$ 279 Less:
Non-controlling interest, net of tax
3 Subtotal
$ 276 $ 0.54 Operating income
adjustments (from page 10)
$ (6
) Investments adjustment (a)
55 Change in fair value
of FX forward (b)
100 Amortization of bridge financing fees
(c)
3 Impact of income taxes on above items
(16
) Adjustments to provisional 2017 tax estimates (d)
(14 ) 122 0.24 Adjusted income,
net of tax
$ 398 $ 0.78
Nine Months EndedSeptember 30, 2018 Amount
Adjusted EPS Income from continuing operations
$
1,511 Less: Non-controlling interest, net of tax
14
Subtotal
$ 1,497 $ 2.93
Operating income adjustments (from page 12)
$ 67
Investments adjustment (a)
37 Change in fair value of FX
forward (b)
100 Amortization of bridge financing fees (c)
3 Impact of income taxes on above items
(26 )
Adjustments to provisional 2017 tax estimates (d)
(11
) 170 0.33 Adjusted income, net of tax
$ 1,667 $ 3.26 (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 $25 million and $43 million for the three and nine-month
periods ended September 30, 2018, respectively, which are included
in Investment Income in the Consolidated Statement of Income. The
Company has an investment in Alexander Forbes (“AF”), which is
accounted for using the equity method. AF’s shares (which are
publicly traded on the Johannesburg stock exchange) have been
trading below the Company’s carrying value. Based on the extent of
and duration over which the shares have traded below the Company’s
carrying value, the Company determined the decline was other than
temporary and recorded a charge of $81 million in Investment gain
or loss. (b) Reflects the change in fair value of the deal
contingent foreign exchange contract related to the acquisition of
JLT. (c) Reflects amortization of fees on the bridge financing
included in interest expense related to the acquisition of JLT. (d)
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 nine months ended September 30, 2017 is presented on
page 15.
Marsh & McLennan Companies,
Inc.
Reconciliation of Non-GAAP Measures -
Comparable Accounting Basis
Excludes the Revenue Standard
Impact
Three and Nine Months Ended September
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
EndedSeptember 30, 2018 Three Months
EndedSeptember 30, 2017
Amount
AdjustedEPS
Amount
AdjustedEPS
Income from continuing operations, (2018 prior to the impact of ASC
606)
$ 313 $ 397
Less: Non-controlling interest, net of tax
3 4
Subtotal
$ 310 $ 0.61 $ 393 $ 0.76
Operating income adjustments (from page 11)
$
(6 ) $ 27 Investments adjustment (a)
55 — Change in fair value of FX forward (b)
100 —
Amortization of bridge financing fees (c)
3 — Impact of
income taxes on above items
(16 ) (10 ) Adjustments
to provisional 2017 tax estimates (d)
(14 ) —
122 0.24 17 0.03 Adjusted
income, net of tax
$ 432 $
0.85 $ 410 $ 0.79
Nine Months
EndedSeptember 30, 2018 Nine Months EndedSeptember 30,
2017
Amount
AdjustedEPS
Amount
AdjustedEPS
Income from continuing operations, (2018 prior to the impact of ASC
606)
$ 1,460 $ 1,482 Less: Non-controlling interest,
net of tax
14 19 Subtotal
$
1,446 $ 2.83 $ 1,463 $ 2.81 Operating income
adjustments (from page 13)
$ 67 $ 44 Investments
adjustment (a)
37 — Change in fair value of FX forward (b)
100 — Amortization of bridge financing fees (c)
3 —
Impact of income taxes on above items
(26 ) (16 )
Adjustments to provisional 2017 tax estimates (d)
(11
) —
170 0.33 28
0.06 Adjusted income, net of tax
$ 1,616
$ 3.16 $ 1,491 $ 2.87 (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 $25 million and $43 million for the three and nine-month
periods ended September 30, 2018, respectively, which are included
in Investment Income in the Consolidated Statement of Income. The
Company has an investment in Alexander Forbes (“AF”), which is
accounted for using the equity method. AF’s shares (which are
publicly traded on the Johannesburg stock exchange) have been
trading below the Company’s carrying value. Based on the extent of
and duration over which the shares have traded below the Company’s
carrying value, the Company determined the decline was other than
temporary and recorded a charge of $81 million in Investment gain
or loss. (b) Reflects the change in fair value of the deal
contingent foreign exchange contract related to the acquisition of
JLT. (c) Reflects amortization of fees on the bridge financing
included in interest expense related to the acquisition of JLT. (d)
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 Nine Months Ended September
30
(Millions) (Unaudited)
Three Months Ended September 30, Nine Months Ended
September 30,
ExcludesImpact
ofRevenueStandard
ExcludesImpact
ofRevenueStandard
2018 2018 2017
2018 2018
2017
Consolidated Compensation and Benefits
$
2,083 $ 2,095 $ 1,968
$ 6,442
$ 6,384 $ 5,971 Other operating expenses
880
880 838
2,656
2,656 2,383 Total Expenses
$ 2,963
$ 2,975 $ 2,806
$
9,098 $ 9,040 $ 8,354
Depreciation and amortization expense
$ 77 $
77 $ 78
$ 236 $ 236 $ 234
Identified intangible amortization expense
47
47 42
135 135 122
Total
$ 124 $ 124 $ 120
$ 371 $ 371 $ 356
Stock option expense
$ 3 $ 3 $ 2
$ 20 $ 20 $ 19 Capital expenditures
$ 87 $ 87 $ 73
$ 222
$ 222 $ 217 Operating cash flows
$ 906
$ 906 $ 794
$ 1,319 $
1,319 $ 1,137
Risk and Insurance Services
Compensation and Benefits
$ 1,103 $
1,111 $ 1,045
$ 3,416 $ 3,349 $
3,084 Other operating expenses
467 467
450
1,406 1,406 1,266 Total
Expenses
$ 1,570 $ 1,578
$ 1,495
$ 4,822 $ 4,755
$ 4,350 Depreciation and amortization expense
$ 36 $ 36 $ 36
$ 108
$ 108 $ 106 Identified intangible amortization
expense
39 39 35
111
111 100 Total
$ 75
$ 75 $ 71
$ 219
$ 219 $ 206
Consulting
Compensation and Benefits
$ 895 $ 899 $
843
$ 2,753 $ 2,762 $ 2,635 Other
operating expenses
470 470 433
1,416 1,416 1,269 Total Expenses
$ 1,365 $ 1,369 $ 1,276
$ 4,169 $ 4,178 $
3,904 Depreciation and amortization expense
$
23 $ 23 $ 25
$ 74 $
74 $ 76 Identified intangible amortization expense
8
8 7
24 24
22 Total
$ 31 $ 31 $ 32
$ 98 $ 98 $ 98
Marsh & McLennan Companies,
Inc.
Consolidated Balance Sheets
(Millions)
(Unaudited)September 30, 2018
December 31,2017
ASSETS Current assets: Cash and cash equivalents
$
951 $ 1,205 Net receivables
4,476 4,133 Other current
assets
539 224
Total current assets
5,966 5,562 Goodwill and intangible assets
10,764 10,363 Fixed assets, net
707 712 Pension
related assets
1,814 1,693 Deferred tax assets
497
669 Other assets
1,381 1,430
TOTAL
ASSETS $ 21,129 $ 20,429
LIABILITIES AND EQUITY Current liabilities: Short-term debt
$ 638 $ 262 Accounts payable and accrued liabilities
2,293 2,083 Accrued compensation and employee benefits
1,406 1,718 Accrued income taxes
179 199 Dividends
payable
211 —
Total current liabilities
4,727 4,262 Fiduciary liabilities
5,185 4,847
Less - cash and investments held in a fiduciary capacity
(5,185 ) (4,847 )
— — Long-term debt
5,512 5,225 Pension, post-retirement and post-employment
benefits
1,727 1,888 Liabilities for errors and omissions
303 301 Other liabilities
1,322 1,311
Total
equity 7,538 7,442
TOTAL LIABILITIES
AND EQUITY $ 21,129 $ 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.
September 30,
2018 As Reported
Impact
ofRevenueStandard
Prior toAdoption
ASSETS Current assets: Cash and cash equivalents
$
951 $ — $ 951 Net receivables
4,476 (175 ) 4,301 Other current assets
539 (290 ) 249 Total
current assets 5,966 (465 ) 5,501
Goodwill and intangible assets
10,764 —
10,764 Fixed assets, net
707 — 707
Pension related assets
1,814 — 1,814 Deferred
tax assets
497 121 618 Other assets
1,381 (238 ) 1,143
TOTAL ASSETS $ 21,129 $
(582 ) $ 20,547
LIABILITIES AND EQUITY Current liabilities: Short-term debt
$ 638 $ — $ 638 Accounts
payable and accrued liabilities
2,293 (143 )
2,150 Accrued compensation and employee benefits
1,406 — 1,406 Accrued income taxes
179
— 179 Dividends payable
211 —
211 Total current liabilities
4,727 (143 ) 4,584 Fiduciary
liabilities
5,185 — 5,185 Less - cash and
investments held in a fiduciary capacity
(5,185 )
— (5,185 ) — — —
Long-term debt
5,512 — 5,512 Pension,
post-retirement and post-employment benefits
1,727 —
1,727 Liabilities for errors and omissions
303
— 303 Other liabilities
1,322 (24
) 1,298 Total equity 7,538
(415 ) 7,123 TOTAL
LIABILITIES AND EQUITY $ 21,129 $
(582 ) $ 20,547
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181025005434/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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