Second Quarter Revenue Growth of 16%;
Underlying Revenue Growth of 4%
Second Quarter GAAP EPS of $0.65; Adjusted
EPS Increases 7% to $1.18
Six Months GAAP Operating Income Rises 1%;
Adjusted Operating Income Grows 14%
Six Months GAAP EPS of $2.05; Adjusted EPS
Increases 9% to $2.70
Marsh & McLennan Companies, Inc. (NYSE:
MMC), the world's leading professional services firm in the areas
of risk, strategy and people, today reported financial results for
the second quarter ended June 30, 2019.
Dan Glaser, President and CEO, said: "We are pleased with our
second quarter results, which include Jardine Lloyd Thompson for
the first time. We generated solid growth in underlying
revenue and adjusted EPS while welcoming 10,000 new
colleagues. In the quarter, consolidated underlying revenue
grew 4%, adjusted operating income rose 19% to $894 million,
adjusted EPS grew 7% to $1.18 and our overall adjusted margin
expanded 150 basis points. We are tracking well against our
plans and are excited about the long-term growth prospects for our
combined firm."
"We delivered solid performance in the first half of 2019, with
4% underlying revenue growth, 9% adjusted EPS growth, and adjusted
margin expansion of 160 basis points," concluded Mr. Glaser.
Consolidated Results
Consolidated revenue in the second quarter of 2019 was $4.3
billion, an increase of 16% compared with the second quarter of
2018. Underlying revenue grew 4% compared to a year
ago. Underlying revenue growth is calculated as if MMC and JLT
were a combined company a year ago, but excludes the impact of
currency and other acquisitions, dispositions, and transfers among
businesses. Operating income was $680 million compared with $691
million in the prior year. Adjusted operating income, which
excludes noteworthy items as presented in the attached supplemental
schedules, rose 19% to $894 million. Net income attributable to the
Company was $332 million, or $0.65 per diluted share, compared with
$1.04 in the second quarter of 2018. Adjusted earnings per share
rose 7% to $1.18 per diluted share compared with $1.10 for the
prior year period.
For the six months ended June 30, 2019, consolidated revenue was
$8.4 billion, an increase of 9%, or 4% on an underlying basis.
Operating income was $1.6 billion, an increase of 1% from the prior
year period. Adjusted operating income, which excludes noteworthy
items as presented in the attached supplemental schedules, rose 14%
to $1.9 billion. Net income attributable to the Company was $1.0
billion. Fully diluted earnings per share was $2.05 compared with
$2.38 in the first six months of 2018. Adjusted earnings per share
increased 9% to $2.70 compared with $2.47 for the comparable period
in 2018.
Risk & Insurance Services
Risk & Insurance Services revenue was $2.6 billion in the
second quarter of 2019, an increase of 23%, or 3% on an underlying
basis. Operating income rose 10% to $517 million and adjusted
operating income was $641 million, an increase of 21% from the
prior year period. For the six months ended June 30, 2019, revenue
was $5.0 billion, an increase of 13%, or 4% on an underlying basis.
Operating income rose 5% to $1.3 billion and adjusted operating
income rose 13% to $1.4 billion.
Marsh's revenue in the second quarter was $2.2 billion, an
increase of 4% on an underlying basis. In U.S./Canada, underlying
revenue rose 5%. International operations produced underlying
revenue growth of 2%, reflecting 7% underlying revenue growth in
Asia Pacific, 4% in Latin America, and flat in EMEA. For the six
months ended June 30, 2019, Marsh’s underlying revenue growth was
4%.
Guy Carpenter's revenue in the second quarter was $392 million,
a decrease of 3% on an underlying basis. For the six months ended
June 30, 2019, Guy Carpenter’s underlying revenue growth was
2%.
Consulting
Consulting revenue in the second quarter was $1.8 billion, an
increase of 9%, or 5% on an underlying basis. Operating income
increased 4% to $278 million and adjusted operating income
increased 14% to $305 million. For the first six months of 2019,
revenue was $3.5 billion, an increase of 5%, or 4% on an underlying
basis. Operating income of $557 million increased 8% and adjusted
operating income increased 16% to $596 million.
Mercer's revenue was $1.3 billion in the second quarter, an
increase of 2% on an underlying basis. Wealth, with revenue of $613
million, was flat on an underlying basis. Health revenue of $458
million was up 4% on an underlying basis and Career revenue of $189
million increased 6% on an underlying basis. For the six months
ended June 30, 2019, Mercer’s revenue was $2.4 billion, an increase
of 1% on an underlying basis.
Oliver Wyman's revenue was $540 million in the second quarter,
an increase of 13% on an underlying basis. For the first six months
ended June 30, 2019, Oliver Wyman's revenue was $1.1 billion, up
10% on an underlying basis.
Other Items
On April 1, 2019, the Company completed the acquisition of
Jardine Lloyd Thompson Group (JLT) for $5.6 billion in fully
diluted equity value, and assumed existing JLT debt of
approximately $1 billion. The Company repaid JLT’s $450 million
revolving credit facility with proceeds from 2019 debt issuances.
The remaining $550 million of senior notes assumed was refinanced
in the quarter using cash on hand and an incremental $300 million
one year term loan.
The second quarter results include costs related to the JLT
acquisition of $150 million which is comprised of costs to close
the transaction and related debt refinancing. Restructuring
and integration costs related to JLT were $98 million in the
quarter.
The Company repurchased 1.0 million shares of its common stock
for $100 million in the second quarter. In May, the Board of
Directors increased the quarterly dividend 10%, to $0.455 per
share, effective with the third quarter dividend payable on August
15, 2019.
Conference Call
A conference call to discuss second quarter 2019 results will be
held today at 8:30 a.m. Eastern time. To participate in the
teleconference, please dial +1 888 204 4368. Callers from outside
the United States should dial +1 323 794 2423. The access code for
both numbers is 3870718. The live audio webcast will be accessible
at mmc.com, and a replay 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 76,000 colleagues advise clients in over 130
countries. With annualized revenue approaching $17 billion, Marsh
& McLennan helps clients navigate an increasingly dynamic and
complex environment through four market-leading businesses. 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 integrate or achieve the intended
benefits of the acquisition of JLT;
- 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 identify and patch
software vulnerabilities, including those in the existing JLT
information systems;
- our ability to repay our outstanding long-term debt in a timely
manner and on favorable terms, including approximately $6.8 billion
issued in connection with the acquisition of JLT;
- the impact of any investigations, reviews, or other activity by
regulatory or law enforcement authorities, including the ongoing
investigation by the European Commission competition
authority;
- 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 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 and the risks of noncompliance with
such laws, including cybersecurity and data privacy regulations
such as the E.U.’s General Data Protection Regulation,
anti-corruption laws such as the U.S. Foreign Corrupt Practices Act
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 impact and uncertainty around Brexit or the
inability to collect on our receivables;
- the regulatory, contractual and reputational risks that arise
based on insurance placement activities and various broker revenue
streams;
- our ability to manage risks associated with our investment
management and related services business, including potential
conflicts of interest between investment consulting and fiduciary
management services;
- our ability to successfully recover if we experience a business
continuity problem due to cyberattack, natural disaster or
otherwise; and
- the impact of changes in tax laws, guidance and
interpretations, including certain provisions of the U.S. Tax Cuts
and Jobs Act, or disagreements with tax authorities.
The factors identified above are not exhaustive. Marsh &
McLennan Companies and its subsidiaries operate in a dynamic
business environment in which new risks emerge frequently.
Accordingly, 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. The Company undertakes no obligation to update or
revise any forward-looking statement to reflect events or
circumstances arising after the date on which it is made.
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.
Marsh & McLennan
Companies, Inc.
Consolidated Statements of
Income
(In millions, except per share
figures)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Revenue
$
4,349
$
3,734
$
8,420
$
7,734
Expense:
Compensation and Benefits
2,537
2,135
4,819
4,359
Other Operating Expenses
1,132
908
1,983
1,776
Operating
Expenses
3,669
3,043
6,802
6,135
Operating Income
680
691
1,618
1,599
Other Net Benefit Credits
70
65
134
131
Interest Income
2
3
30
6
Interest Expense
(141
)
(68
)
(261
)
(129
)
Cost of Early Extinguishment of
Debt
(32
)
—
(32
)
—
Investment Income
8
28
13
28
Acquisition Related Derivative
Contracts
(37
)
—
(8
)
—
Income Before Income Taxes
550
719
1,494
1,635
Income Tax Expense
206
183
423
403
Net Income Before Non-Controlling
Interests
344
536
1,071
1,232
Less: Net Income Attributable to
Non-Controlling Interests
12
5
23
11
Net Income Attributable to the
Company
$
332
$
531
$
1,048
$
1,221
Net Income Per Share Attributable to
the Company:
- Basic
$
0.66
$
1.05
$
2.07
$
2.41
- Diluted
$
0.65
$
1.04
$
2.05
$
2.38
Average Number of Shares
Outstanding
- Basic
507
507
506
507
- Diluted
512
512
511
513
Shares Outstanding at June 30
507
505
507
505
JLT’s results of operations for the three months ended June 30,
2019 are included in the Company’s results of operations for the
three- and six-month periods ended June 30, 2019. Prior periods in
2018 do not include JLT’s results.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis Three Months
Ended June 30, 2019 (Millions) (Unaudited)
The Company conducts business in more than 130 countries. As a
result, foreign exchange rate movements may impact period-to-period
comparisons of revenue. Similarly, certain other items such as the
revenue impact of acquisitions and dispositions, including
transfers among businesses may impact period-to-period comparisons
of revenue. Underlying revenue measures the change in revenue from
one period to the next by isolating these impacts.
The calculation of underlying revenue growth for the three and
six months ended June 30, 2019 includes the results of JLT. The
column "2018 Including JLT" includes JLT's prior year revenue
beginning April 1, 2018 (See reconciliation of non-GAAP measures on
page 14). The decrease in revenue due to the disposal of JLT's
aerospace business is reflected in the acquisitions/dispositions
column beginning in June 2019. All other acquisitions/dispositions
activity is included in the acquisitions/dispositions column.
Components of Revenue Change
Including JLT*
Three Months Ended June
30,
% Change GAAP Revenue
2018 Including JLT
% Change Including JLT in
2018
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
2019
2018
Risk and Insurance Services
Marsh
$
2,156
$
1,749
23
%
$
2,102
3
%
(3
)%
2
%
4
%
Guy Carpenter
392
332
18
%
406
(4
)%
(1
)%
—
(3
)%
Subtotal
2,548
2,081
22
%
2,508
2
%
(2
)%
2
%
2
%
Fiduciary Interest Income
26
15
18
Total Risk and Insurance Services
2,574
2,096
23
%
2,526
2
%
(3
)%
2
%
3
%
Consulting
Mercer
1,260
1,158
9
%
1,245
1
%
(3
)%
2
%
2
%
Oliver Wyman
540
492
10
%
492
10
%
(3
)%
—
13
%
Total Consulting
1,800
1,650
9
%
1,737
4
%
(3
)%
1
%
5
%
Corporate/Eliminations
(25
)
(12
)
(12
)
Total Revenue
$
4,349
$
3,734
16
%
$
4,251
2
%
(3
)%
2
%
4
%
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue Change
Including JLT*
Three Months Ended June
30,
% Change GAAP Revenue
2018 Including JLT
% Change Including JLT in
2018
Currency Impact
Acquisitions/ Dispositions/
Other Impact
Underlying Revenue
2019
2018
Marsh:
EMEA
$
652
$
526
24
%
$
678
(4
)%
(4
)%
—
—
Asia Pacific
291
183
59
%
293
(1
)%
(5
)%
(3
)%
7
%
Latin America
116
99
17
%
135
(14
)%
(10
)%
(8
)%
4
%
Total International
1,059
808
31
%
1,106
(4
)%
(5
)%
(1
)%
2
%
U.S./Canada
1,097
941
16
%
996
10
%
—
5
%
5
%
Total Marsh
$
2,156
$
1,749
23
%
$
2,102
3
%
(3
)%
2
%
4
%
Mercer:
Wealth
613
552
11
%
619
(1
)%
(4
)%
3
%
—
Health
458
429
6
%
448
2
%
(1
)%
—
4
%
Career
189
177
7
%
178
7
%
(3
)%
4
%
6
%
Total Mercer
$
1,260
$
1,158
9
%
$
1,245
1
%
(3
)%
2
%
2
%
* 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)
The Company conducts business in more than 130 countries. As a
result, foreign exchange rate movements may impact period-to-period
comparisons of revenue. Similarly, certain other items such as the
revenue impact of acquisitions and dispositions, including
transfers among businesses may impact period-to-period comparisons
of revenue. Underlying revenue measures the change in revenue from
one period to the next by isolating these impacts.
The calculation of underlying revenue growth for the three and
six months ended June 30, 2019 includes the results of JLT. The
column "2018 Including JLT" includes JLT's prior year revenue
beginning April 1, 2018 (See reconciliation of non-GAAP measures on
page 14). The decrease in revenue due to the disposal of JLT's
aerospace business is reflected in the acquisitions/dispositions
column beginning in June 2019. All other acquisitions/dispositions
activity is included in the acquisitions/dispositions column.
Components of Revenue Change
Including JLT*
Six Months Ended June
30,
% Change GAAP Revenue
2018 Including JLT
% Change Including JLT in
2018
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
2019
2018
Risk and Insurance Services
Marsh
$
3,893
$
3,443
13
%
$
3,795
3
%
(3
)%
2
%
4
%
Guy Carpenter
1,055
969
9
%
1,044
1
%
(1
)%
—
2
%
Subtotal
4,948
4,412
12
%
4,839
2
%
(3
)%
1
%
4
%
Fiduciary Interest Income
49
28
31
Total Risk and Insurance Services
4,997
4,440
13
%
4,870
3
%
(3
)%
1
%
4
%
Consulting
Mercer
2,415
2,329
4
%
2,416
—
(3
)%
2
%
1
%
Oliver Wyman
1,058
989
7
%
989
7
%
(3
)%
—
10
%
Total Consulting
3,473
3,318
5
%
3,405
2
%
(3
)%
2
%
4
%
Corporate/Eliminations
(50
)
(24
)
(24
)
Total Revenue
$
8,420
$
7,734
9
%
$
8,251
2
%
(3
)%
1
%
4
%
Revenue Details
The following table provides more detailed revenue information
for certain of the components presented above:
Components of Revenue Change
Including JLT*
Six Months Ended June
30,
% Change GAAP Revenue
2018 Including JLT
% Change Including JLT in
2018
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
2019
2018
Marsh:
EMEA
$
1,285
$
1,169
10
%
$
1,321
(3
)%
(5
)%
1
%
2
%
Asia Pacific
456
347
31
%
457
—
(4
)%
(3
)%
7
%
Latin America
194
183
6
%
218
(11
)%
(11
)%
(6
)%
6
%
Total International
1,935
1,699
14
%
1,996
(3
)%
(6
)%
(1
)%
3
%
U.S./Canada
1,958
1,744
12
%
1,799
9
%
—
4
%
5
%
Total Marsh
$
3,893
$
3,443
13
%
$
3,795
3
%
(3
)%
2
%
4
%
Mercer:
Wealth
1,156
1,117
4
%
1,184
(2
)%
(5
)%
3
%
(1
)%
Health
900
871
3
%
890
1
%
(2
)%
—
3
%
Career
359
341
5
%
342
5
%
(3
)%
4
%
4
%
Total Mercer
$
2,415
$
2,329
4
%
$
2,416
—
(3
)%
2
%
1
%
* Components of revenue change may not add
due to rounding.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Actual as Reported
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 and six months ended June 30, 2019
and 2018. The following tables also present adjusted operating
margin. In 2019, the Company changed its methodology for
calculating adjusted operating margin due to the significant amount
of identified intangible asset amortization related to the JLT
Transaction, on April 1, 2019. For the three and six months ended
June 30, 2019 and 2018, adjusted operating margin is calculated by
dividing the sum of adjusted operating income plus identified
intangible asset amortization by consolidated or segment adjusted
revenue.
The information presented below represents the actual as
reported results for the three months ended June 30, 2019 and
2018. Results for the three months ended June 30, 2018 are for MMC
only, as previously reported, and do not include JLT results.
Risk & Insurance
Services
Consulting
Corporate/
Eliminations
Total
Three Months Ended June 30,
2019
Operating income (loss)
$
517
$
278
$
(115
)
$
680
Operating margin
20.1
%
15.5
%
N/A
15.6
%
Add (Deduct) impact of Noteworthy
Items:
Restructuring, excluding JLT (a)
1
22
3
26
Changes in contingent consideration
(b)
9
—
—
9
JLT integration and restructuring costs
(c)
75
5
18
98
JLT acquisition related costs (d)
41
—
41
82
Other
(2
)
—
1
(1
)
Operating income adjustments
124
27
63
214
Adjusted operating income (loss)
$
641
$
305
$
(52
)
$
894
Total identified intangible amortization
expense
$
80
$
20
$
—
$
100
Adjusted operating margin
27.8
%
18.0
%
N/A
22.8
%
As Reported Results
Three Months Ended June 30,
2018
Operating income (loss), as
reported
$
472
$
267
$
(48
)
$
691
Operating margin
22.5
%
16.2
%
N/A
18.5
%
Add (Deduct) impact of Noteworthy
Items:
Restructuring, excluding JLT (a)
55
—
3
58
Changes in contingent consideration
(b)
5
1
—
6
Other
—
(1
)
—
(1
)
Operating income adjustments
60
—
3
63
Adjusted operating income (loss)
$
532
$
267
$
(45
)
$
754
Total identified intangible amortization
expense
$
35
$
8
$
—
$
43
Adjusted operating margin
27.0
%
16.7
%
N/A
21.3
%
(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. Consulting in 2019 reflects
severance related to the Mercer restructuring program. 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) Includes costs incurred in Marsh and
Corporate for staff reductions, as well as consulting costs related
to the JLT Transaction. Also includes the loss on the sale of JLT's
aerospace business, which is included in revenue.
(d) Primarily advisor fees and stamp duty
taxes related to the closing of the JLT Transaction.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Actual as Reported
Six Months Ended June 30 (Millions) (Unaudited)
The information presented below represents the actual as
reported data for the six months ended June 30, 2019 and 2018.
Results for the six months ended June 30, 2018 are for MMC only, as
previously reported, and do not include JLT results.
Risk & Insurance
Services
Consulting
Corporate/
Eliminations
Total
Six Months Ended June 30, 2019
Operating income (loss)
$
1,250
$
557
$
(189
)
$
1,618
Operating margin
25.0
%
16.1
%
N/A
19.2
%
Add impact of Noteworthy Items:
Restructuring, excluding JLT (a)
6
33
5
44
Changes in contingent consideration
(b)
19
1
—
20
JLT integration and restructuring costs
(c)
95
5
34
134
JLT acquisition related costs (d)
46
—
47
93
Other
—
—
1
1
Operating income adjustments
166
39
87
292
Adjusted operating income (loss)
$
1,416
$
596
$
(102
)
$
1,910
Total identified intangible amortization
expense
$
121
$
30
$
—
$
151
Adjusted operating margin
30.6
%
18.0
%
N/A
24.4
%
As Reported Results
Six Months Ended June 30, 2018
Operating income (loss), as
reported
$
1,188
$
514
$
(103
)
$
1,599
Operating margin
26.8
%
15.5
%
N/A
20.7
%
Add (Deduct) impact of Noteworthy
Items:
Restructuring, excluding JLT (a)
58
1
5
64
Changes in contingent consideration
(b)
9
1
—
10
Other
—
(1
)
—
(1
)
Operating income adjustments
67
1
5
73
Adjusted operating income (loss)
$
1,255
$
515
$
(98
)
$
1,672
Total identified intangible amortization
expense
$
72
$
16
$
—
$
88
Adjusted operating margin
29.9
%
16.0
%
N/A
22.8
%
(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. Consulting in 2019 reflects
severance related to the Mercer restructuring program. 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) Includes costs incurred in Marsh and
Corporate for staff reductions, as well as consulting costs related
to the JLT Transaction. Also includes the loss on the sale of JLT's
aerospace business, which is included in revenue.
(d) Primarily advisor fees and stamp duty
taxes related to the closing of the JLT Transaction.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures Three and Six
Months Ended June 30 (Millions) (Unaudited)
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 and adjustments to provisional 2017 tax
estimates. Adjustments also include JLT acquisition related items,
including change in fair value of derivative contracts, financing
costs and interest income on funds held in escrow. 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, 2019
and 2018. Results for the three and six months ended June 30, 2018
are for MMC only, as previously reported, and do not include JLT
results.
Three Months Ended June 30,
2019
Three Months Ended June 30,
2018
Amount
Adjusted EPS
Amount
Adjusted EPS
Net income before non-controlling
interests, as reported
$
344
$
536
Less: Non-controlling interest, net of
tax
12
5
Subtotal
$
332
$
0.65
$
531
$
1.04
Operating income adjustments
$
214
$
63
Investments adjustment (a)
(2
)
(26
)
Change in fair value of acquisition
related derivative contracts (b)
37
—
Financing costs (c)
(1
)
—
Early extinguishment of debt
32
—
Impact of income taxes on above items
(10
)
(6
)
270
0.53
31
0.06
Adjusted income, net of tax
$
602
$
1.18
$
562
$
1.10
Six Months Ended June 30,
2019
Six Months Ended June 30,
2018
Amount
Adjusted EPS
Amount
Adjusted EPS
Net income before non-controlling
interests, as reported
$
1,071
$
1,232
Less: Non-controlling interest, net of
tax
23
11
Subtotal
$
1,048
$
2.05
$
1,221
$
2.38
Operating income adjustments
$
292
$
73
Investments adjustment (a)
(6
)
(18
)
Change in fair value of acquisition
related derivative contracts (b)
8
—
Financing costs (c)
53
—
Interest on funds held in escrow (d)
(25
)
—
Early extinguishment of debt
32
—
Impact of income taxes on above items
(22
)
(10
)
Adjustments to provisional 2017 tax
estimates (e)
—
3
332
0.65
48
0.09
Adjusted income, net of tax
$
1,380
$
2.70
$
1,269
$
2.47
(a) The Company recorded mark-to-market
gains of $2 million and gains of $26 million for the three month
period and gains of $6 million and gains of $18 million for the six
month period ended June 30, 2019 and June 30, 2018, respectively,
which are included in investment income in the consolidated
statements of income.
(b) Reflects the change in fair value of
derivatives that were not redesignated as accounting hedges
following the JLT acquisition, the deal contingent foreign exchange
contract and derivative contracts related to debt issuances.
(c) Reflects interest expense on debt
issuances and amortization of bridge financing fees related to the
acquisition of JLT (prior to April 1, 2019).
(d) Interest income earned on funds held
in escrow related to the JLT acquisition (prior to April 1,
2019).
(e) Reflects 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
Three and Six Months Ended
June 30
(Millions) (Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Consolidated
Compensation and Benefits
$
2,537
$
2,135
$
4,819
$
4,359
Other Operating Expenses
1,132
908
1,983
1,776
Total Expenses
$
3,669
$
3,043
$
6,802
$
6,135
Depreciation and amortization expense
$
86
$
79
$
160
$
159
Identified intangible amortization
expense
100
43
151
88
Total
$
186
$
122
$
311
$
247
Stock option expense
$
4
$
3
$
19
$
17
Risk and Insurance Services
Compensation and Benefits
$
1,418
$
1,145
$
2,639
$
2,313
Other Operating Expenses
639
479
1,108
939
Total Expenses
$
2,057
$
1,624
$
3,747
$
3,252
Depreciation and amortization expense
$
39
$
35
$
71
$
72
Identified intangible amortization
expense
80
35
121
72
Total
$
119
$
70
$
192
$
144
Consulting
Compensation and Benefits
$
1,009
$
902
$
1,965
$
1,858
Other Operating Expenses
513
481
951
946
Total Expenses
$
1,522
$
1,383
$
2,916
$
2,804
Depreciation and amortization expense
$
27
$
26
$
51
$
51
Identified intangible amortization
expense
20
8
30
16
Total
$
47
$
34
$
81
$
67
JLT’s results of operations for the three months ended June 30,
2019 are included in the Company’s results of operations for the
three- and six-month periods ended June 30, 2019. Prior periods in
2018 do not include JLT’s results.
Marsh & McLennan
Companies, Inc.
Consolidated Balance
Sheets
(Millions)
(Unaudited) June 30,
2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
1,294
$
1,066
Net receivables
5,553
4,317
Other current assets
679
551
Total current assets
7,526
5,934
Goodwill and intangible assets
17,562
11,036
Fixed assets, net
799
701
Pension related assets
1,821
1,688
Right of use assets
2,016
—
Deferred tax assets
628
680
Other assets
1,764
1,539
TOTAL ASSETS
$
32,116
$
21,578
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt
$
1,663
$
314
Accounts payable and accrued
liabilities
2,600
2,234
Accrued compensation and employee
benefits
1,375
1,778
Acquisition related derivatives
—
441
Current lease liabilities
347
—
Accrued income taxes
165
157
Dividends payable
232
—
Total current liabilities
6,382
4,924
Fiduciary liabilities
6,807
5,001
Less - cash and investments held in a
fiduciary capacity
(6,807
)
(5,001
)
—
—
Long-term debt
11,459
5,510
Pension, post-retirement and
post-employment benefits
2,044
1,911
Long-term lease liabilities
1,981
—
Liabilities for errors and omissions
319
287
Other liabilities
1,594
1,362
Total equity
8,337
7,584
TOTAL LIABILITIES AND EQUITY
$
32,116
$
21,578
Marsh & McLennan
Companies, Inc.
Consolidated Statements of
Cash Flows
(Millions) (Unaudited)
Six Months Ended June
30,
2019
2018
Operating cash flows:
Net income before non-controlling
interests
$
1,071
$
1,232
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization of fixed
assets and capitalized software
159
159
Amortization of intangible assets
151
88
Amortization of right of use asset
151
—
Adjustments and payments related to
contingent consideration liability
(9
)
2
Charge for early extinguishment of
debt
32
—
Provision for deferred income taxes
82
34
Gain on investments
(13
)
(28
)
(Gain) loss on disposition of assets
21
(1
)
Share-based compensation expense
117
99
Change in fair value of
acquisition-related derivative contracts
8
—
Changes in assets and liabilities:
Net receivables
(437
)
(388
)
Other current assets
(4
)
4
Other assets
(33
)
(10
)
Accounts payable and accrued
liabilities
29
30
Accrued compensation and employee
benefits
(670
)
(614
)
Accrued income taxes
6
18
Contributions to pension and other benefit
plans in excess of current year expense/credit
(172
)
(178
)
Other liabilities
36
(10
)
Operating lease liabilities
(155
)
—
Effect of exchange rate changes
(129
)
(24
)
Net cash provided by operations
241
413
Financing cash flows:
Purchase of treasury shares
(100
)
(500
)
Net increase in commercial paper
549
175
Net increase in short term borrowings
300
—
Proceeds from issuance of debt
6,459
592
Repayments of debt
(457
)
(6
)
Payments for early extinguishment of
debt
(585
)
—
Purchase of non-controlling interests
(50
)
—
Acquisition-related derivative
payments
(337
)
—
Shares withheld for taxes on vested units
– treasury shares
(87
)
(62
)
Issuance of common stock from treasury
shares
108
48
Payments of deferred and contingent
consideration for acquisitions
(39
)
(85
)
Distributions of non-controlling
interests
(15
)
(11
)
Dividends paid
(422
)
(383
)
Net cash provided by (used for)
financing activities
5,324
(232
)
Investing cash flows:
Capital expenditures
(161
)
(135
)
Sales (Purchases) of long-term
investments
202
(3
)
Purchase of equity investment
(91
)
—
Proceeds from sales of fixed assets
2
1
Dispositions
165
4
Acquisitions
(5,500
)
(144
)
Other, net
(47
)
(2
)
Net cash used for investing
activities
(5,430
)
(279
)
Effect of exchange rate changes on cash
and cash equivalents
93
(71
)
Increase (decrease) in cash and cash
equivalents
228
(169
)
Cash and cash equivalents at beginning
of period
1,066
1,205
Cash and cash equivalents at end of
period
$
1,294
$
1,036
Marsh and McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - 2018 Revenue Including
JLT Three and Six Months Ended June 30, 2018 (Millions)
(Unaudited)
On April 1, 2019, the Company completed its previously announced
acquisition of Jardine Lloyd Thompson Group, plc. JLT results of
operations for the three months ended June 30, 2019 are included in
the Company’s results of operations for the second quarter of 2019.
Prior periods in 2018 do not include JLT’s results. Prior to being
acquired by the Company, JLT operated in three segments, Specialty,
Reinsurance and Employee Benefits. As of April 1, 2019, the
historical JLT businesses were combined into MMC operations as
follows: JLT Specialty was included by geography within Marsh, JLT
Reinsurance was included within Guy Carpenter and the majority of
the JLT Employee Benefits business was included in Mercer Health
and Wealth.
The JLT Transaction had a significant impact on the Company’s
results of operations in 2019. The Company believes that in
addition to the change in reported GAAP revenue, a comparison of
2019 revenue to the combined 2018 revenue of MMC and JLT would
provide investors useful information about the year-over-year
results.
The table below sets forth revenue information as if the
companies were combined on April 1, 2018. Consistent with
consolidated revenue in 2019, the six months ended June 30, 2018
does not include JLT revenue for the period from January 1 to March
31, 2018. JLT 2018 revenue information is derived from the "JLT
Supplemental Information - Revenue Analysis" furnished to the SEC
on June 6, 2019 on Form 8-K and includes the revenue from JLT’s
aerospace business. Please see the notes to the supplemental
information on that Form 8-K for additional information.
Three Months Ended June 30,
2018
Six Months Ended June 30,
2018
MMC As Previously Reported
Risk & Insurance Services
Marsh
$
1,749
$
3,443
Guy Carpenter
332
969
Subtotal
2,081
4,412
Fiduciary Interest Income
15
28
Total Risk & Insurance Services
2,096
4,440
Consulting
Mercer
1,158
2,329
Oliver Wyman Group
492
989
Total Consulting
1,650
3,318
Corporate Eliminations
(12
)
(24
)
Total Revenue
$
3,734
$
7,734
JLT 2018*
Specialty (Marsh)
$
353
$
352
Reinsurance (Guy Carpenter)
74
75
Employee Benefits (Mercer)
87
87
Subtotal
514
514
Fiduciary Interest Income
3
3
Total Revenue
$
517
$
517
2018 Including JLT
Marsh
$
2,102
$
3,795
Guy Carpenter
406
1,044
Subtotal
2,508
4,839
Fiduciary Interest Income
18
31
Total Risk & Insurance Services
2,526
4,870
Consulting
Mercer
1,245
2,416
Oliver Wyman Group
492
989
Total Consulting
1,737
3,405
Corporate Eliminations
(12
)
(24
)
Total Revenue
$
4,251
$
8,251
*JLT 2018 revenue information for the three
and six months differ due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190730005543/en/
Media: Erick R. Gustafson Marsh & McLennan Companies
+1 202 263 7788 erick.gustafson@mmc.com
Investor: Sarah DeWitt Marsh & McLennan Companies +1
212 345 6750 sarah.dewitt@mmc.com
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