Third Quarter Revenue Growth of 13%;
Underlying Revenue Growth of 5% Third Quarter GAAP EPS of
$0.59; Adjusted EPS of $0.77 Nine Months Revenue Growth of
10%; Underlying Revenue Growth of 4% Nine Months GAAP
Operating Income Declines 3%; Adjusted Operating Income Grows
13%
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 third quarter
ended September 30, 2019.
Dan Glaser, President and CEO, said: "We are pleased with our
third quarter results, which reflect excellent performance across
the Company. In the quarter, we produced 13% revenue growth, 5%
underlying revenue growth including growth across both segments,
and 10% adjusted operating income growth. For the nine months of
2019, we achieved 4% underlying revenue growth, adjusted operating
income grew 13%, and the adjusted operating margin increased 110
basis points to 22.0%."
"Our year-to-date results position us well for a solid year,"
concluded Mr. Glaser.
Consolidated Results Consolidated
revenue in the third quarter of 2019 was $4.0 billion, an increase
of 13% compared with the third quarter of 2018. Underlying revenue
grew 5% compared to a year ago. Underlying revenue growth is
calculated as if Marsh & McLennan and Jardine Lloyd Thompson
were a combined company a year ago, but excludes the impact of
currency and other acquisitions, dispositions, and transfers among
businesses. Operating income was $467 million compared with $541
million in the prior year. Adjusted operating income, which
excludes noteworthy items as presented in the attached supplemental
schedules, rose 10% to $585 million. Net income attributable to the
Company was $303 million, or $0.59 per diluted share, compared with
$0.54 in the third quarter of 2018. Adjusted earnings per share
decreased 1% to $0.77 compared with $0.78 for the prior year
period.
For the nine months ended September 30, 2019, consolidated
revenue was $12.4 billion, an increase of 10%, or 4% on an
underlying basis. Operating income was $2.1 billion, while adjusted
operating income, which excludes noteworthy items as presented in
the attached supplemental schedules, rose 13% to $2.5 billion. Net
income attributable to the Company was $1.4 billion. Fully diluted
earnings per share was $2.64 compared with $2.93 in the first nine
months of 2018. Adjusted earnings per share increased 6% to $3.47
compared with $3.26 for the comparable period in 2018.
Risk & Insurance Services Risk
& Insurance Services revenue was $2.2 billion in the third
quarter of 2019, an increase of 18%, or 6% on an underlying basis.
Operating income was $218 million compared to $293 million in the
third quarter of 2018. Adjusted operating income was $313 million,
an increase of 11% compared with $283 million in the prior year
period. For the nine months ended September 30, 2019, revenue was
$7.2 billion, an increase of 14%, or 4% on an underlying basis.
Operating income declined 1% to $1.5 billion, and adjusted
operating income rose 12% to $1.7 billion.
Marsh's revenue in the third quarter was $1.9 billion, an
increase of 5% on an underlying basis. In U.S./Canada, underlying
revenue rose 6%. International operations produced underlying
revenue growth of 3%, reflecting 7% underlying revenue growth in
Asia Pacific, 2% in EMEA and a decline of 1% in Latin America. For
the nine months ended September 30, 2019, Marsh’s underlying
revenue growth was 4%.
Guy Carpenter's revenue in the third quarter was $273 million,
an increase of 11% on an underlying basis. For the nine months
ended September 30, 2019, Guy Carpenter’s underlying revenue growth
was 4%.
Consulting Consulting revenue in
the third quarter was $1.8 billion, an increase of 8%, or 4% on an
underlying basis. Operating income increased 9% to $317 million,
and adjusted operating income increased 9% to $320 million. For the
first nine months of 2019, revenue was $5.3 billion, an increase of
6%, or 4% on an underlying basis. Operating income of $874 million
increased 9%, and adjusted operating income increased 13% to $916
million.
Mercer's revenue was $1.3 billion in the third quarter, an
increase of 3% on an underlying basis. Health, with revenue of $441
million, was up 7% on an underlying basis. Career revenue of $247
million increased 5% on an underlying basis, and Wealth revenue of
$592 million was flat on an underlying basis. For the nine months
ended September 30, 2019, Mercer’s revenue was $3.7 billion, an
increase of 2% on an underlying basis.
Oliver Wyman’s revenue was $505 million in the third quarter, an
increase of 7% on an underlying basis. For the first nine months
ended September 30, 2019, Oliver Wyman’s revenue was $1.6 billion,
up 9% on an underlying basis.
Other Items The Company repurchased
2.1 million shares of its common stock for $200 million in the
third quarter. Through nine months, the Company has repurchased 3.1
million shares for $300 million.
During the third quarter, the Company repaid $300 million of
senior notes.
Conference Call A conference call
to discuss third 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 75,000 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;
- 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;
- 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 maintain our credit ratings and 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 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 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 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 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 September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenue
$
3,968
$
3,504
$
12,388
$
11,238
Expense:
Compensation and Benefits
2,437
2,083
7,256
6,442
Other Operating Expenses
1,064
880
3,047
2,656
Operating Expenses
3,501
2,963
10,303
9,098
Operating Income
467
541
2,085
2,140
Other Net Benefit Credits
69
63
203
194
Interest Income
4
2
34
8
Interest Expense
(133
)
(69
)
(394
)
(198
)
Cost of Early Extinguishment of
Debt
—
—
(32
)
—
Investment Income (Loss)
7
(52
)
20
(24
)
Acquisition Related Derivative
Contracts
—
(100
)
(8
)
(100
)
Income Before Income Taxes
414
385
1,908
2,020
Income Tax Expense
108
106
531
509
Net Income Before Non-Controlling
Interests
306
279
1,377
1,511
Less: Net Income Attributable to
Non-Controlling Interests
3
3
26
14
Net Income Attributable to the
Company
$
303
$
276
$
1,351
$
1,497
Net Income Per Share Attributable to
the Company:
- Basic
$
0.60
$
0.55
$
2.67
$
2.96
- Diluted
$
0.59
$
0.54
$
2.64
$
2.93
Average Number of Shares
Outstanding
- Basic
506
504
506
506
- Diluted
511
510
511
512
Shares Outstanding at September
30
505
504
505
504
JLT’s results of operations for the three months ended September
30, 2019 are included in the Company’s results of operations for
the three-month period ended September 30, 2019. JLT's results of
operations from April 1, 2019 through September 30, 2019 are
included in the Company's results of operations for the nine-month
period ended September 30, 2019. Prior periods in 2018 do not
include JLT’s results.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis Three Months Ended
September 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
nine months ended September 30, 2019 includes the results of JLT.
The column "2018 Including JLT" includes JLT's prior year third
quarter revenue (See reconciliation of non-GAAP measures on page
14).
Components of Revenue Change
Including JLT*
Three Months Ended September
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
$
1,902
$
1,630
17%
$
1,889
1%
(1)%
(2)%
5%
Guy Carpenter
273
215
27%
248
10%
—
(1)%
11%
Subtotal
2,175
1,845
18%
2,137
2%
(1)%
(2)%
5%
Fiduciary Interest Income
31
18
23
Total Risk and Insurance Services
2,206
1,863
18%
2,160
2%
(1)%
(2)%
6%
Consulting
Mercer
1,280
1,175
9%
1,261
2%
(2)%
—
3%
Oliver Wyman
505
481
5%
481
5%
(1)%
—
7%
Total Consulting
1,785
1,656
8%
1,742
3%
(2)%
—
4%
Corporate/Eliminations
(23
)
(15
)
(15
)
Total Revenue
$
3,968
$
3,504
13%
$
3,887
2%
(1)%
(1)%
5%
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 September
30,
% Change GAAP Revenue
2018 Including JLT
% Change Including JLT in
2018
Currency Impact
Acquisitions/ Dispositions/
Other Impact
Underlying
Revenue
2019
2018
Marsh:
EMEA
$
536
$
441
22%
$
550
(2)%
(2)%
(2)%
2%
Asia Pacific
242
167
45%
240
1%
(2)%
(4)%
7%
Latin America
110
96
14%
132
(17)%
(5)%
(11)%
(1)%
Total International
888
704
26%
922
(4)%
(3)%
(4)%
3%
U.S./Canada
1,014
926
10%
967
5%
—
(1)%
6%
Total Marsh
$
1,902
$
1,630
17%
$
1,889
1%
(1)%
(2)%
5%
Mercer:
Wealth
592
525
13%
592
—
(3)%
2%
—
Health
441
415
7%
432
2%
(1)%
(3)%
7%
Career
247
235
5%
237
5%
(2)%
1%
5%
Total Mercer
$
1,280
$
1,175
9%
$
1,261
2%
(2)%
—
3%
* 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)
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
nine months ended September 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 in the second quarter of 2019 is reflected in
the acquisitions/dispositions column. All other
acquisitions/dispositions activity is included in the
acquisitions/dispositions column.
Components of Revenue Change
Including JLT*
Nine Months Ended September
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
$
5,795
$
5,073
14%
$
5,684
2%
(2)%
—
4%
Guy Carpenter
1,328
1,184
12%
1,292
3%
(1)%
—
4%
Subtotal
7,123
6,257
14%
6,976
2%
(2)%
—
4%
Fiduciary Interest Income
80
46
54
Total Risk and Insurance Services
7,203
6,303
14%
7,030
2%
(2)%
—
4%
Consulting
Mercer
3,695
3,504
5%
3,677
—
(3)%
1%
2%
Oliver Wyman
1,563
1,470
6%
1,470
6%
(2)%
—
9%
Total Consulting
5,258
4,974
6%
5,147
2%
(3)%
1%
4%
Corporate/Eliminations
(73
)
(39
)
(39
)
Total Revenue
$
12,388
$
11,238
10%
$
12,138
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
Including JLT*
Nine Months Ended September
30,
% Change GAAP Revenue
2018 Including JLT
% Change Including JLT in
2018
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
2019
2018
Marsh:
EMEA
$
1,821
$
1,610
13%
$
1,871
(3)%
(4)%
—
2%
Asia Pacific
698
514
36%
697
—
(4)%
(3)%
7%
Latin America
304
279
9%
350
(13)%
(8)%
(8)%
3%
Total International
2,823
2,403
17%
2,918
(3)%
(5)%
(2)%
3%
U.S./Canada
2,972
2,670
11%
2,766
7%
—
3%
5%
Total Marsh
$
5,795
$
5,073
14%
$
5,684
2%
(2)%
—
4%
Mercer:
Wealth
1,748
1,642
6%
1,776
(2)%
(4)%
3%
(1)%
Health
1,341
1,286
4%
1,322
1%
(2)%
(1)%
4%
Career
606
576
5%
579
5%
(3)%
3%
5%
Total Mercer
$
3,695
$
3,504
5%
$
3,677
—
(3)%
1%
2%
* 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 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 and nine months ended September 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 nine months ended September 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 September 30, 2019 and
2018. Results for the three months ended September 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 September 30,
2019
Operating income (loss)
$
218
$
317
$
(68
)
$
467
Operating margin
9.9
%
17.7
%
N/A
11.8
%
Add (Deduct) impact of Noteworthy
Items:
Restructuring, excluding JLT (a)
—
10
2
12
Changes in contingent consideration
(b)
5
1
—
6
JLT integration and restructuring costs
(c)
58
5
14
77
JLT acquisition-related costs (d)
16
1
4
21
Disposal of businesses (e)
13
(14
)
—
(1
)
Other
3
—
—
3
Operating income adjustments
95
3
20
118
Adjusted operating income (loss)
$
313
$
320
$
(48
)
$
585
Total identified intangible amortization
expense
$
73
$
11
$
—
$
84
Adjusted operating margin
17.4
%
18.7
%
N/A
16.9
%
As Reported Results
Three Months Ended September 30,
2018
Operating income (loss), as
reported
$
293
$
291
$
(43
)
$
541
Operating margin
15.7
%
17.6
%
N/A
15.5
%
Add (Deduct) impact of Noteworthy
Items:
Restructuring, excluding JLT (a)
29
—
2
31
Changes in contingent consideration
(b)
7
2
—
9
Disposal of business (f)
(46
)
—
—
(46
)
Operating income adjustments
(10
)
2
2
(6
)
Adjusted operating income (loss)
$
283
$
293
$
(41
)
$
535
Total identified intangible amortization
expense
$
39
$
8
$
—
$
47
Adjusted operating margin
17.7
%
18.2
%
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. Consulting in 2019 reflects
severance related to the Mercer restructuring program. Risk &
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 for staff
reductions, lease related exit costs as well as legal and
consulting costs related to the integration.
(d) Reflects retention costs in the Risk
& Insurance Services and Consulting segments and legal fees at
corporate related to the closing of the JLT Transaction.
(e) Reflects the loss on the sale of a
U.S. Specialty business at Marsh and a gain on the sale of Mercer's
stand-alone U.S. large market health and defined benefit
administration business, which are both included in revenue. These
amounts are removed from GAAP revenue in the calculation of
adjusted operating income.
(f) Relates to a gain on the disposal of a
risk management software and services business unit of Marsh. The
$46 million gain is removed from GAAP revenue in the calculation of
adjusted operating margin.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Actual as Reported
Nine Months Ended September 30 (Millions) (Unaudited)
The information presented below represents the actual as
reported data for the nine months ended September 30, 2019 and
2018. Results for the nine months ended September 30, 2018 are for
MMC only, as previously reported, and do not include JLT
results.
Risk & Insurance
Services
Consulting
Corporate/
Eliminations
Total
Nine Months Ended September 30,
2019
Operating income (loss)
$
1,468
$
874
$
(257
)
$
2,085
Operating margin
20.4
%
16.6
%
N/A
16.8
%
Add (Deduct) impact of Noteworthy
Items:
Restructuring, excluding JLT (a)
6
43
7
56
Changes in contingent consideration
(b)
24
2
—
26
JLT integration and restructuring costs
(c)
134
10
48
192
JLT acquisition-related costs (d)
81
1
51
133
Disposal of businesses (e)
13
(14
)
—
(1
)
Other
3
—
1
4
Operating income adjustments
261
42
107
410
Adjusted operating income (loss)
$
1,729
$
916
$
(150
)
$
2,495
Total identified intangible amortization
expense
$
194
$
41
$
—
$
235
Adjusted operating margin
26.6
%
18.3
%
N/A
22.0
%
As Reported Results
Nine Months Ended September 30,
2018
Operating income (loss), as
reported
$
1,481
$
805
$
(146
)
$
2,140
Operating margin
23.5
%
16.2
%
N/A
19.1
%
Add (Deduct) impact of Noteworthy
Items:
Restructuring, excluding JLT (a)
87
1
7
95
Changes in contingent consideration
(b)
16
3
—
19
Disposal of business (f)
(46
)
—
—
(46
)
Other
—
(1
)
—
(1
)
Operating income adjustments
57
3
7
67
Adjusted operating income (loss)
$
1,538
$
808
$
(139
)
$
2,207
Total identified intangible amortization
expense
$
111
$
24
$
—
$
135
Adjusted operating margin
26.4
%
16.7
%
N/A
20.9
%
(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 &
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 for staff
reductions, lease related exit costs as well as consulting costs
related to the integration.
(d) Includes advisor fees and stamp duty
taxes related to the closing of the JLT Transaction and retention
costs. Also includes the loss on the sale of JLT's aerospace
business, which is included in revenue. This loss is removed from
GAAP revenue in the calculation of adjusted operating income.
(e) Reflects the loss on the sale of a
U.S. Specialty business at Marsh and a gain on the sale of Mercer's
stand-alone U.S. large market health and defined benefit
administration business, which are both included in revenue. These
amounts are removed from GAAP revenue in the calculation of
adjusted operating income.
(f) Relates to a gain on the disposal of a
risk management software and services business unit of Marsh. The
$46 million gain is removed from GAAP revenue in the calculation of
adjusted operating margin.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures Three and Nine Months
Ended September 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 nine months ended September 30, 2019 and 2018. Results for the
three and nine months ended September 30, 2018 are for MMC only, as
previously reported, and do not include JLT results.
Three Months Ended September
30, 2019
Three Months Ended September 30,
2018
Amount
Adjusted EPS
Amount
Adjusted EPS
Net income before non-controlling
interests, as reported
$
306
$
279
Less: Non-controlling interest, net of
tax
3
3
Subtotal
$
303
$
0.59
$
276
$
0.54
Operating income adjustments
$
118
$
(6
)
Investments adjustment (a)
(4
)
55
Pension settlement adjustment
(2
)
—
Change in fair value of acquisition
related derivative contracts (b)
—
100
Financing costs (c)
—
3
Impact of income taxes on above items
(23
)
(16
)
Adjustments to provisional 2017 tax
estimates (e)
—
(14
)
89
0.18
122
0.24
Adjusted income, net of tax
$
392
$
0.77
$
398
$
0.78
Nine Months Ended September
30, 2019
Nine Months Ended September 30,
2018
Amount
Adjusted EPS
Amount
Adjusted EPS
Net income before non-controlling
interests, as reported
$
1,377
$
1,511
Less: Non-controlling interest, net of
tax
26
14
Subtotal
$
1,351
$
2.64
$
1,497
$
2.93
Operating income adjustments
$
410
$
67
Investments adjustment (a)
(10
)
37
Pension settlement adjustment
(2
)
—
Change in fair value of acquisition
related derivative contracts (b)
8
100
Financing costs (c)
53
3
Interest on funds held in escrow (d)
(25
)
—
Early extinguishment of debt
32
—
Impact of income taxes on above items
(45
)
(26
)
Adjustments to provisional 2017 tax
estimates (e)
—
(11
)
421
0.83
170
0.33
Adjusted income, net of tax
$
1,772
$
3.47
$
1,667
$
3.26
(a) The Company recorded mark-to-market
gains of $4 million and gains of $25 million for the three month
period and gains of $10 million and gains of $43 million for the
nine month period ended September 30, 2019 and September 30, 2018,
respectively, which are included in investment income in the
consolidated statements of income.
In 2018, the Company had an investment in
Alexander Forbes (“AF”), which is accounted for using the equity
method. Based on the extent of and duration over which the shares
traded below the Company’s carrying value, the Company determined
the decline was other than temporary and during the third quarter
of 2018, recorded a charge of $81 million in investment gain or
loss.
(b) Reflects the change in fair value of
derivatives that were not redesignated as accounting hedges
following the JLT acquisition, a 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 Nine Months Ended
September 30
(Millions) (Unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Consolidated
Compensation and Benefits
$
2,437
$
2,083
$
7,256
$
6,442
Other Operating Expenses
1,064
880
3,047
2,656
Total Expenses
$
3,501
$
2,963
$
10,303
$
9,098
Depreciation and amortization expense
$
85
$
77
$
245
$
236
Identified intangible amortization
expense
84
47
235
135
Total
$
169
$
124
$
480
$
371
Stock option expense
$
4
$
3
$
23
$
20
Risk and Insurance Services
Compensation and Benefits
$
1,373
$
1,103
$
4,012
$
3,416
Other Operating Expenses
615
467
1,723
1,406
Total Expenses
$
1,988
$
1,570
$
5,735
$
4,822
Depreciation and amortization expense
$
43
$
36
$
114
$
108
Identified intangible amortization
expense
73
39
194
111
Total
$
116
$
75
$
308
$
219
Consulting
Compensation and Benefits
$
967
$
895
$
2,932
$
2,753
Other Operating Expenses
501
470
1,452
1,416
Total Expenses
$
1,468
$
1,365
$
4,384
$
4,169
Depreciation and amortization expense
$
24
$
23
$
75
$
74
Identified intangible amortization
expense
11
8
41
24
Total
$
35
$
31
$
116
$
98
JLT’s results of operations for the three months ended September
30, 2019 are included in the Company’s results of operations for
the three-month period ended September 30, 2019. JLT's results of
operations from April 1, 2019 through September 30, 2019 are
included in the Company's results of operations for the nine-month
period ended September 30, 2019. Prior periods in 2018 do not
include JLT’s results.
Marsh & McLennan
Companies, Inc.
Consolidated Balance
Sheets
(Millions)
(Unaudited) September 30,
2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
1,213
$
1,066
Net receivables
5,198
4,317
Other current assets
645
551
Total current assets
7,056
5,934
Goodwill and intangible assets
17,155
11,036
Fixed assets, net
816
701
Pension related assets
1,857
1,688
Right of use assets
1,957
—
Deferred tax assets
603
680
Other assets
1,653
1,539
TOTAL ASSETS
$
31,097
$
21,578
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt
$
1,139
$
314
Accounts payable and accrued
liabilities
2,479
2,234
Accrued compensation and employee
benefits
1,762
1,778
Acquisition related derivatives
—
441
Current lease liabilities
341
—
Accrued income taxes
251
157
Dividends payable
232
—
Total current liabilities
6,204
4,924
Fiduciary liabilities
7,547
5,001
Less - cash and investments held in a
fiduciary capacity
(7,547
)
(5,001
)
—
—
Long-term debt
11,429
5,510
Pension, post-retirement and
post-employment benefits
1,998
1,911
Long-term lease liabilities
1,957
—
Liabilities for errors and omissions
324
287
Other liabilities
1,388
1,362
Total equity
7,797
7,584
TOTAL LIABILITIES AND EQUITY
$
31,097
$
21,578
Marsh & McLennan
Companies, Inc.
Consolidated Statements of
Cash Flows
(Millions) (Unaudited)
Nine Months Ended September
30,
2019
2018
Operating cash flows:
Net income before non-controlling
interests
$
1,377
$
1,511
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization of fixed
assets and capitalized software
245
236
Amortization of intangible assets
235
135
Non cash lease expense
236
—
Adjustments and payments related to
contingent consideration liability
(9
)
(10
)
Charge for early extinguishment of
debt
32
—
Provision for deferred income taxes
95
66
Loss (gain) on investments
(20
)
24
Loss (gain) on disposition of assets
36
(53
)
Share-based compensation expense
184
146
Change in fair value of
acquisition-related derivative contracts
8
100
Changes in assets and liabilities:
Net receivables
(84
)
(210
)
Other current assets
30
19
Other assets
(59
)
(51
)
Accounts payable and accrued
liabilities
(126
)
(3
)
Accrued compensation and employee
benefits
(281
)
(312
)
Accrued income taxes
120
(13
)
Contributions to pension and other benefit
plans in excess of current year expense/credit
(269
)
(250
)
Other liabilities
(149
)
11
Operating lease liabilities
(240
)
—
Effect of exchange rate changes
(70
)
(27
)
Net cash provided by operations
1,291
1,319
Financing cash flows:
Purchase of treasury shares
(300
)
(675
)
Net increase in commercial paper
325
75
Net increase in short term borrowings
300
—
Proceeds from issuance of debt
6,459
592
Repayments of debt
(760
)
(10
)
Acquisition-related derivative
payments
(337
)
—
Payment of bridge loan fees
—
(24
)
Payments for early extinguishment of
debt
(585
)
—
Purchase of non-controlling interests
(75
)
—
Shares withheld for taxes on vested units
– treasury shares
(89
)
(62
)
Issuance of common stock from treasury
shares
132
72
Payments of deferred and contingent
consideration for acquisitions
(60
)
(106
)
Distributions of non-controlling
interests
(18
)
(15
)
Dividends paid
(655
)
(594
)
Net cash provided by (used for)
financing activities
4,337
(747
)
Investing cash flows:
Capital expenditures
(284
)
(222
)
Sales (Purchases) of long-term
investments
193
(1
)
Purchase of equity investment
(91
)
—
Proceeds from sales of fixed assets
4
3
Dispositions
225
5
Acquisitions
(5,500
)
(536
)
Other, net
(51
)
(1
)
Net cash used for investing
activities
(5,504
)
(752
)
Effect of exchange rate changes on cash
and cash equivalents
23
(74
)
Increase (decrease) in cash and cash
equivalents
147
(254
)
Cash and cash equivalents at beginning
of period
1,066
1,205
Cash and cash equivalents at end of
period
$
1,213
$
951
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - 2018 Revenue Including
JLT Three and Nine Months Ended September 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 September 30, 2019 are
included in the Company’s results of operations for the third
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 nine months ended September 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 September
30, 2018
Nine Months Ended September
30, 2018
MMC As Previously Reported
Risk & Insurance Services
Marsh
$
1,630
$
5,073
Guy Carpenter
215
1,184
Subtotal
1,845
6,257
Fiduciary Interest Income
18
46
Total Risk & Insurance Services
1,863
6,303
Consulting
Mercer
1,175
3,504
Oliver Wyman
481
1,470
Total Consulting
1,656
4,974
Corporate/Eliminations
(15
)
(39
)
Total Revenue
$
3,504
$
11,238
JLT 2018
Specialty (Marsh)
$
259
$
611
Reinsurance (Guy Carpenter)
33
108
Employee Benefits (Mercer)
86
173
Subtotal
378
892
Fiduciary Interest Income
5
8
Total Revenue
$
383
$
900
2018 Including JLT
Marsh
$
1,889
$
5,684
Guy Carpenter
248
1,292
Subtotal
2,137
6,976
Fiduciary Interest Income
23
54
Total Risk & Insurance Services
2,160
7,030
Consulting
Mercer
1,261
3,677
Oliver Wyman
481
1,470
Total Consulting
1,742
5,147
Corporate/Eliminations
(15
)
(39
)
Total Revenue
$
3,887
$
12,138
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191029005555/en/
Media: Erick R. Gustafson Marsh & McLennan Companies
+1 202 263 7788 erick.gustafson@mmc.com
Investors: Sarah DeWitt Marsh & McLennan Companies +1
212 345 6750 sarah.dewitt@mmc.com
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