REG-Marsh & McLennan Marsh & McLennan Companies Reports Second Quarter 2018 Results
26/07/2018 12:00
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Marsh & McLennan Companies Reports Second Quarter 2018 Results
Underlying Revenue Increases 3% for the Quarter and 4% for the
First Half of 2018
Six Months GAAP EPS Rises 16% and Adjusted EPS Increases 19%
Excluding Revenue Standard Impact, Six Months EPS Grows 8% and
Adjusted EPS Rises 11%
Marsh & McLennan Companies, Inc. (NYSE:MMC), a global professional
services firm offering clients advice and solutions in risk, strategy
and people, today reported financial results for the second quarter
ended June 30, 2018.
Dan Glaser, President and CEO, said: "We are pleased with our
performance in the first half of the year. For the first six months of
2018, we achieved 4% underlying revenue growth on a consolidated basis
and 11% adjusted EPS growth excluding the impact of the new revenue
standard. In the second quarter, we delivered underlying revenue growth
of 3%, highlighted by strong underlying growth of 5% in Risk & Insurance
Services with 1% growth in Consulting."
"With a solid first half of 2018, we believe the Company is well
positioned to deliver underlying revenue growth in the 3-5% range,
margin expansion and strong growth in adjusted earnings per share in
2018," concluded Mr. Glaser.
Consolidated Results
Consolidated revenue in the second quarter of 2018 was $3.7 billion, an
increase of 7% compared with the second quarter of 2017. On an
underlying basis, revenue increased 3%. Net income attributable to the
Company was $531 million. Operating income was $691 million while
adjusted operating income, which excludes noteworthy items as presented
in the attached supplemental schedules, increased 4% to $754 million.
Excluding the impact of ASC 606, adjusted operating income rose 2%.
On a per share basis, net income attributable to the Company in the
second quarter rose 8% to $1.04 from $0.96 in the prior year. Adjusted
earnings per share of $1.10 was up 10% from the prior year period. The
10% increase in adjusted EPS includes a $0.02 per share benefit from the
application of ASC 606, the new revenue accounting standard. Excluding
ASC 606, adjusted EPS increased 8%.
For the six months ended June 30, 2018, consolidated revenue was $7.7
billion, an increase of 11% and 4% on an underlying basis. Operating
income was $1.6 billion, an increase of 10% from the prior year period.
Adjusted operating income, which excludes noteworthy items as presented
in the attached supplemental schedules, rose 14% to $1.7 billion.
Excluding the impact of ASC 606, adjusted operating income rose 6%. Net
income attributable to the Company increased 14% to $1.2 billion.
Earnings per share rose 16% to $2.38. Adjusted earnings per share
increased 19% to $2.47 compared with $2.08 for the comparable period in
2017. The 19% increase in adjusted EPS includes a $0.16 per share
benefit from the application of ASC 606. Excluding ASC 606, adjusted EPS
increased 11%.
Risk & Insurance Services
Risk & Insurance Services revenue was $2.1 billion in the second quarter
of 2018, an increase of 9% or 5% on an underlying basis. Operating
income was $472 million, a decrease of 2%, and adjusted operating income
rose 9% to $532 million. Excluding ASC 606, adjusted operating income
increased 6%. For the six months ended June 30, 2018, revenue was $4.4
billion, an increase of 14%, or 4% on an underlying basis. Operating
income rose 13% to $1.2 billion and adjusted operating income rose 20%
to $1.3 billion. Excluding ASC 606, adjusted operating income increased
9%.
Marsh's revenue in the second quarter was $1.7 billion, an increase of
5% on an underlying basis. International operations produced underlying
revenue growth of 2%, reflecting 1% underlying growth in EMEA, 6% in
Asia Pacific, and 3% in Latin America. In U.S./Canada, underlying
revenue rose 8%. For the six months ended June 30, 2018, Marsh’s
underlying revenue growth was 3%.
Guy Carpenter's revenue in the second quarter was $332 million, an
increase of 5% on an underlying basis. For the six months ended June 30,
2018, Guy Carpenter’s underlying revenue growth was 6%.
Consulting
Consulting revenue in the second quarter was $1.7 billion, an increase
of 4% or 1% on an underlying basis. Operating income increased 1% to
$267 million and adjusted operating income decreased 5% to $267 million.
For the first six months of 2018, revenue was $3.3 billion, an increase
of 6% or 3% on an underlying basis. Operating income of $514 million
increased 5% and adjusted operating income increased 1% to $515 million.
Excluding ASC 606, adjusted operating income increased 2%.
Mercer's revenue was $1.2 billion in the second quarter, an increase of
2% on an underlying basis. Wealth, with revenue of $552 million, grew 1%
on an underlying basis. Within Wealth, Defined Benefit Consulting &
Administration decreased 6%, while Investment Management & Related
Services increased 12%. Health revenue of $429 million was up 1% on an
underlying basis and Career revenue of $177 million increased 7% on an
underlying basis. For the six months ended June 30, 2018, Mercer’s
revenue was $2.3 billion, an increase of 3% on an underlying basis.
Oliver Wyman Group’s revenue was $492 million in the second quarter, a
decrease of 2% on an underlying basis. For the six months ended June 30,
2018, Oliver Wyman Group’s revenue increased to $989 million, up 2% on
an underlying basis.
Other Items
The Company repurchased 3.1 million shares of its common stock for $250
million in the second quarter. Through six months, the Company has
repurchased 6.1 million shares for $500 million. In May, the Board of
Directors increased the quarterly dividend 11%, to $0.415 per share,
effective with the third quarter dividend payable on August 15, 2018.
In late June, Marsh announced an agreement to acquire Houston based
Wortham Insurance. Wortham has annual revenue of approximately $130
million and 530 colleagues.
Conference Call
A conference call to discuss second quarter 2018 results will be held
today at 8:30 a.m. Eastern time. To participate in the teleconference,
please dial +1 866 548 4713. Callers from outside the United States
should dial +1 323 794 2129. The access code for both numbers is
2356303. The live audio webcast may be accessed at mmc.com
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A replay of the webcast will be available approximately two hours after
the event.
About Marsh & McLennan Companies
Marsh & McLennan (NYSE: MMC) is the world’s leading professional
services firm in the areas of risk, strategy and people. The company’s
nearly 65,000 colleagues advise clients in over 130 countries. With
annual revenue over $14 billion, Marsh & McLennan helps clients navigate
an increasingly dynamic and complex environment through four
market-leading firms. Marsh
(http://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.marsh.com%2Fus%2Fhome.html&esheet=51843157&newsitemid=20180726005405&lan=en-US&anchor=Marsh&index=2&md5=ad79ca6ece3b085e756cda624dcd0157)
advises individual and commercial clients of all sizes on insurance
broking and innovative risk management solutions. Guy
Carpenter
(http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.guycarp.com%2Fcontent%2Fguycarp%2Fen%2Fhome.html&esheet=51843157&newsitemid=20180726005405&lan=en-US&anchor=Guy+Carpenter&index=3&md5=2d7cc6dc4e4e3ee2140aeef06314bbc2)
develops advanced risk, reinsurance and capital strategies
that help clients grow profitably and pursue emerging opportunities. Mercer
(http://cts.businesswire.com/ct/CT?id=smartlink&url=https%3A%2F%2Fwww.mercer.com%2F&esheet=51843157&newsitemid=20180726005405&lan=en-US&anchor=Mercer&index=4&md5=16c13cb27de3d5df87600a5a2c06dcfa)
delivers advice and technology-driven solutions that help organizations
meet the health, wealth and career needs of a changing workforce. Oliver
Wyman
(http://cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww.oliverwyman.com%2Findex.html&esheet=51843157&newsitemid=20180726005405&lan=en-US&anchor=Oliver+Wyman&index=5&md5=2b9e437cc335265ef486c77a769fe2a1)
serves as a critical strategic, economic and brand advisor to
private sector and governmental clients. For more information, visit mmc.com
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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking statements," as defined in
the Private Securities Litigation Reform Act of 1995. These statements,
which express management's current views concerning future events or
results, use words like "anticipate," "assume," "believe," "continue,"
"estimate," "expect," "forecast," "intend," "plan," "project" and
similar terms, and future or conditional tense verbs like "could,"
"may," "might," "should," "will" and "would."
Forward-looking statements are subject to inherent risks and
uncertainties that could cause actual results to differ materially from
those expressed or implied in our forward-looking statements. Factors
that could materially affect our future results include, among other
things:
* the impact of any investigations, reviews, market studies or other
activity by regulatory or law enforcement authorities, including the
ongoing investigations by the European Commission, the Australian
Royal Commission and the U.K. FCA;
* the impact from lawsuits, other contingent liabilities and loss
contingencies arising from errors and omissions, breach of fiduciary
duty or other claims against us;
* our organization's ability to maintain adequate safeguards to protect
the security of our information systems and confidential, personal or
proprietary information, particularly given the large volume of our
vendor network and the need to patch software vulnerabilities;
* our ability to compete effectively and adapt to changes in the
competitive environment, including to respond to disintermediation,
digital disruption and other types of innovation;
* the financial and operational impact of complying with laws and
regulations where we operate, including cybersecurity and data privacy
regulations such as the E.U.’s General Data Protection Regulation,
anti-corruption laws and trade sanctions regimes;
* the regulatory, contractual and reputational risks that arise based on
insurance placement activities and various broker revenue streams;
* the extent to which we manage risks associated with the various
services, including fiduciary and investments and other advisory
services;
* our ability to successfully recover if we experience a business
continuity problem due to cyberattack, natural disaster or otherwise;
* the impact of changes in tax laws, guidance and interpretations,
including related to certain provisions of the U.S. Tax Cuts and Jobs
Act, or disagreements with tax authorities;
* the impact of fluctuations in foreign exchange and interest rates on
our results;
* the impact of macroeconomic, political, regulatory or market
conditions on us, our clients and the industries in which we operate;
and
* the impact of changes in accounting rules or in our accounting
estimates or assumptions, including the impact of the adoption of the
new revenue recognition, pension and lease accounting standards.
The factors identified above are not exhaustive. Further information
concerning Marsh & McLennan Companies and its businesses, including
information about factors that could materially affect our results of
operations and financial condition, is contained in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section and the "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" section of our most
recently filed Annual Report on Form 10-K. We caution readers not to
place undue reliance on any forward-looking statements, which are based
only on information currently available to us and speak only as of the
dates on which they are made. We undertake no obligation to update or
revise any forward-looking statement to reflect events or circumstances
arising after the date on which it is made.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Revenue $ 3,734 $ 3,495 $ 7,734 $ 6,998
Expense:
Compensation and Benefits 2,135 1,998 4,359 4,003
Other Operating Expenses 908 796 1,776 1,545
Operating Expenses 3,043 2,794 6,135 5,548
Operating Income 691 701 1,599 1,450
Other Net Benefit Credits (a) 65 63 131 123
Interest Income 3 2 6 4
Interest Expense (68 ) (60 ) (129 ) (118 )
Investment Income 28 5 28 5
Income Before Income Taxes 719 711 1,635 1,464
Income Tax Expense 183 204 403 379
Net Income Before Non-Controlling Interests 536 507 1,232 1,085
Less: Net Income Attributable to Non-Controlling Interests 5 6 11 15
Net Income Attributable to the Company $ 531 $ 501 $ 1,221 $ 1,070
Net Income Per Share Attributable to the Company:
- Basic $ 1.05 $ 0.98 $ 2.41 $ 2.08
- Diluted $ 1.04 $ 0.96 $ 2.38 $ 2.05
Average Number of Shares Outstanding
- Basic 507 514 507 514
- Diluted 512 520 513 521
Shares Outstanding at 6/30 505 513 505 513
(a) Effective January 1, 2018, ASC 715, as amended, changed the
presentation of net periodic pension cost and net periodic
postretirement cost. The Company has restated prior years and
quarters for this revised presentation.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income - Impact of Revenue Standard
(In millions, except per share figures)
(Unaudited)
The Company adopted the new revenue standard ("ASC 606") using the
modified retrospective method, applied to all contracts. The
guidance requires entities that elected the modified retrospective
method to disclose the impact to financial statement line items as a
result of applying the new guidance (rather than previous U.S.
GAAP). The table below shows the impacts on the consolidated
statement of income.
Three Months Ended Six Months Ended
June 30, 2018 June 30, 2018
As Revenue Prior to As Revenue Prior to
Reported Standard Adoption Reported Standard Adoption
Impact Impact
Revenue $ 3,734 $ (24 ) $ 3,710 $ 7,734 $ (185 ) $ 7,549
Expense:
Compensation and Benefits 2,135 (10 ) 2,125 4,359 (70 ) 4,289
Other Operating Expenses 908 — 908 1,776 — 1,776
Operating Expenses 3,043 (10 ) 3,033 6,135 (70 ) 6,065
Operating Income 691 (14 ) 677 1,599 (115 ) 1,484
Other Net Benefit Credits 65 — 65 131 — 131
Interest Income 3 — 3 6 — 6
Interest Expense (68 ) — (68 ) (129 ) — (129 )
Investment Income 28 — 28 28 — 28
Income Before Income Taxes 719 (14 ) 705 1,635 (115 ) 1,520
Income Tax Expense 183 (4 ) 179 403 (30 ) 373
Net Income Before Non-Controlling 536 (10 ) 526 1,232 (85 ) 1,147
Interests
Less: Net Income Attributable to 5 — 5 11 — 11
Non-Controlling
Interests
Net Income Attributable to the $ 531 $ (10 ) $ 521 $ 1,221 $ (85 ) $ 1,136
Company
Net Income Per Share Attributable
to the Company:
- Basic $ 1.05 $ (0.02 ) $ 1.03 $ 2.41 $ (0.17 ) $ 2.24
- Diluted $ 1.04 $ (0.02 ) $ 1.02 $ 2.38 $ (0.16 ) $ 2.22
Average Number of Shares
Outstanding
- Basic 507 507 507 507 507 507
- Diluted 512 512 512 513 513 513
Shares Outstanding at 6/30 505 505 505 505 505 505
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Three Months Ended June 30
(Millions) (Unaudited)
Components of Revenue Change*
Three Months Ended % Currency Acquisitions/ Revenue Underlying
June 30,
Change Impact Dispositions Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Risk and Insurance Services
Marsh $ 1,749 $ 1,614 8 % 2 % 1 % — 5 %
Guy Carpenter 332 293 13 % 1 % — 7 % 5 %
Subtotal 2,081 1,907 9 % 2 % 1 % 1 % 5 %
Fiduciary Interest Income 15 9
Total Risk and Insurance Services 2,096 1,916 9 % 2 % 1 % 1 % 5 %
Consulting
Mercer 1,158 1,109 5 % 2 % 1 % — 2 %
Oliver Wyman Group 492 483 2 % 3 % — — (2 )%
Total Consulting 1,650 1,592 4 % 2 % 1 % — 1 %
Corporate / Eliminations (12 ) (13 )
Total Revenue $ 3,734 $ 3,495 7 % 2 % 1 % 1 % 3 %
Revenue Details
The following table provides more detailed revenue information for
certain of the components presented above:
Components of Revenue Change*
Three Months Ended % Currency Acquisitions/ Revenue Underlying
June 30, Change Impact Dispositions Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Marsh:
EMEA $ 526 $ 497 6 % 5 % — — 1 %
Asia Pacific 183 168 9 % 2 % — — 6 %
Latin America 99 99 — (5 )% 3 % — 3 %
Total International 808 764 6 % 3 % 1 % — 2 %
U.S. / Canada 941 850 11 % — 2 % 1 % 8 %
Total Marsh $ 1,749 $ 1,614 8 % 2 % 1 % — 5 %
Mercer:
Defined Benefit Consulting & Administration $ 320 $ 340 (6 )% 3 % (3 )% — (6 )%
Investment Management & Related Services 232 192 20 % 2 % 6 % — 12 %
Total Wealth 552 532 4 % 3 % — — 1 %
Health 429 423 2 % 1 % — (1 )% 1 %
Career 177 154 15 % 2 % 6 % — 7 %
Total Mercer $ 1,158 $ 1,109 5 % 2 % 1 % — 2 %
Note:
Underlying revenue measures the change in revenue using consistent
currency exchange rates, excluding the impact of certain items that
affect comparability such as: acquisitions, dispositions, transfers
among businesses, changes in estimate methodology and the impact of
the new revenue standard.
* Components of revenue change may not add due to rounding.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Six Months Ended June 30
(Millions) (Unaudited)
Components of Revenue Change*
Six Months Ended % Currency Acquisitions/ Revenue Underlying
June 30,
Change Impact Dispositions/ Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Risk and Insurance Services
Marsh $ 3,443 $ 3,210 7 % 3 % 2 % (1 )% 3 %
Guy Carpenter 969 678 43 % 2 % — 35 % 6 %
Subtotal 4,412 3,888 13 % 3 % 2 % 5 % 4 %
Fiduciary Interest Income 28 17
Total Risk and Insurance Services 4,440 3,905 14 % 3 % 2 % 5 % 4 %
Consulting
Mercer 2,329 2,186 7 % 3 % 1 % — 3 %
Oliver Wyman Group 989 932 6 % 4 % — — 2 %
Total Consulting 3,318 3,118 6 % 3 % 1 % — 3 %
Corporate / Eliminations (24 ) (25 )
Total Revenue $ 7,734 $ 6,998 11 % 3 % 1 % 3 % 4 %
Revenue Details
The following table provides more detailed revenue information for
certain of the components presented above:
Components of Revenue Change*
Six Months Ended % Currency Acquisitions/ Revenue Underlying
June 30,
Change Impact Dispositions/ Standard Revenue
GAAP Other Impact Impact
Revenue
2018 2017
Marsh:
EMEA $ 1,169 $ 1,086 8 % 8 % — — (1 )%
Asia Pacific 347 320 8 % 3 % — — 5 %
Latin America 183 179 2 % (4 )% 2 % — 4 %
Total International 1,699 1,585 7 % 6 % — — 1 %
U.S. / Canada 1,744 1,625 7 % — 4 % (2 )% 6 %
Total Marsh $ 3,443 $ 3,210 7 % 3 % 2 % (1 )% 3 %
Mercer:
Defined Benefit Consulting & Administration $ 659 $ 674 (2 )% 5 % (2 )% — (5 )%
Investment Management & Related Services 458 378 21 % 4 % 4 % — 14 %
Total Wealth 1,117 1,052 6 % 4 % — — 2 %
Health 871 838 4 % 2 % (1 )% (1 )% 4 %
Career 341 296 15 % 3 % 6 % — 6 %
Total Mercer $ 2,329 $ 2,186 7 % 3 % 1 % — 3 %
Note:
Underlying revenue measures the change in revenue using consistent
currency exchange rates, excluding the impact of certain items that
affect comparability such as: acquisitions, dispositions, transfers
among businesses, changes in estimate methodology and the impact of
the new revenue standard.
* Components of revenue change may not add due to rounding.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Includes Revenue Standard Impact
Three Months Ended June 30
(Millions) (Unaudited)
Overview
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States
(referred to in this release as "GAAP" or "reported" results). The
Company also refers to and presents below certain additional
non-GAAP financial measures, within the meaning of Regulation G
under the Securities Exchange Act of 1934. These measures are: adjusted
operating income (loss), adjusted operating margin, adjusted
income, net of tax and adjusted earnings per share (EPS).
The Company has included reconciliations of these non-GAAP financial
measures to the most directly comparable financial measure
calculated in accordance with GAAP in the following tables.
The Company believes these non-GAAP financial measures provide
useful supplemental information that enables investors to better
compare the Company’s performance across periods. Management also
uses these measures internally to assess the operating performance
of its businesses, to assess performance for employee compensation
purposes and to decide how to allocate resources. However, investors
should not consider these non-GAAP measures in isolation from, or as
a substitute for, the financial information that the Company reports
in accordance with GAAP. The Company's non-GAAP measures include
adjustments that reflect how management views our businesses, and
may differ from similarly titled non-GAAP measures presented by
other companies.
Adjusted Operating Income (Loss) and Adjusted Operating Margin
Adjusted operating income (loss) is calculated by excluding
the impact of certain noteworthy items from the Company's GAAP
operating income or (loss). The following tables identify these
noteworthy items and reconcile adjusted operating income (loss)
to GAAP operating income or loss, on a consolidated and segment
basis, for the three months ended June 30, 2018. The following
tables also present adjusted operating margin. For the three
months ended June 30, 2018, adjusted operating margin is
calculated by dividing adjusted operating income by
consolidated or segment GAAP revenue.
Risk & Consulting Corporate/ Total
Eliminations
Insurance
Services
Three Months Ended June 30, 2018
Operating income (loss) $ 472 $ 267 $ (48 ) $ 691
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 55 — 3 58
Adjustments to acquisition related accounts (b) 5 1 — 6
Other — (1 ) — (1 )
Operating income adjustments 60 — 3 63
Adjusted operating income (loss) $ 532 $ 267 $ (45 ) $ 754
Operating margin 22.5 % 16.2 % N/A 18.5 %
Adjusted operating margin 25.4 % 16.2 % N/A 20.2 %
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Note:
Comparative financial information for the three months ended June
30, 2017 is presented on page 10.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Comparable Accounting
Basis
Excludes the Revenue Standard Impact
Three Months Ended June 30
(Millions) (Unaudited)
As discussed earlier, the Company has adopted the new revenue
standard using the modified retrospective method, which requires the
disclosure of the impacts of the standard on each financial
statement line item. The non-GAAP measures below present an analysis
of results reflecting 2018 financial information excluding the
impact of the application of ASC 606, to facilitate a comparison to
the 2017 results. Except for the adjustment for the effects of ASC
606 in 2018, these non-GAAP measures are calculated as described on
the prior page.
Risk & Consulting Corporate/ Total
Insurance Eliminations
Services
Three Months Ended June 30, 2018
Operating income (loss) without adoption $ 458 $ 267 $ (48 ) $ 677
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 55 — 3 58
Adjustments to acquisition related accounts (b) 5 1 — 6
Other — (1 ) — (1 )
Operating income adjustments 60 — 3 63
Adjusted operating income (loss) $ 518 $ 267 $ (45 ) $ 740
Operating margin - Comparable basis 22.2 % 16.2 % N/A 18.3 %
Adjusted operating margin - Comparable basis 25.0 % 16.2 % N/A 20.0 %
Three Months Ended June 30, 2017
Operating income (loss) $ 482 $ 265 $ (46 ) $ 701
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) — 13 2 15
Adjustments to acquisition related accounts (b) 7 2 — 9
Operating income adjustments 7 15 2 24
Adjusted operating income (loss) $ 489 $ 280 $ (44 ) $ 725
Operating margin 25.2 % 16.6 % N/A 20.1 %
Adjusted operating margin 25.5 % 17.6 % N/A 20.7 %
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
Consulting in 2017 reflects severance related to the Mercer business
restructure.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Includes Revenue Standard Impact
Six Months Ended June 30
(Millions) (Unaudited)
Overview
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States
(referred to in this release as "GAAP" or "reported" results). The
Company also refers to and presents below certain additional
non-GAAP financial measures, within the meaning of Regulation G
under the Securities Exchange Act of 1934. These measures are: adjusted
operating income (loss), adjusted operating margin, adjusted
income, net of tax and adjusted earnings per share (EPS).
The Company has included reconciliations of these non-GAAP financial
measures to the most directly comparable financial measure
calculated in accordance with GAAP in the following tables.
The Company believes these non-GAAP financial measures provide
useful supplemental information that enables investors to better
compare the Company’s performance across periods. Management also
uses these measures internally to assess the operating performance
of its businesses, to assess performance for employee compensation
purposes and to decide how to allocate resources. However, investors
should not consider these non-GAAP measures in isolation from, or as
a substitute for, the financial information that the Company reports
in accordance with GAAP. The Company's non-GAAP measures include
adjustments that reflect how management views our businesses, and
may differ from similarly titled non-GAAP measures presented by
other companies.
Adjusted Operating Income (Loss) and Adjusted Operating Margin
Adjusted operating income (loss) is calculated by excluding
the impact of certain noteworthy items from the Company's GAAP
operating income or (loss). The following tables identify these
noteworthy items and reconcile adjusted operating income (loss)
to GAAP operating income or loss, on a consolidated and segment
basis, for the six months ended June 30, 2018. The following tables
also present adjusted operating margin. For the six months
ended June 30, 2018, adjusted operating margin is calculated
by dividing adjusted operating income by consolidated or
segment GAAP revenue.
Risk & Consulting Corporate/ Total
Eliminations
Insurance
Services
Six Months Ended June 30, 2018
Operating income (loss) $ 1,188 $ 514 $ (103 ) $ 1,599
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 58 1 5 64
Adjustments to acquisition related accounts (b) 9 1 — 10
Other — (1 ) — (1 )
Operating income adjustments 67 1 5 73
Adjusted operating income (loss) $ 1,255 $ 515 $ (98 ) $ 1,672
Operating margin 26.8 % 15.5 % N/A 20.7 %
Adjusted operating margin 28.3 % 15.5 % N/A 21.6 %
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Note:
Comparative financial information for the six months ended June 30,
2017 is presented on page 12.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Comparable Accounting
Basis
Excludes the Revenue Standard Impact
Six Months Ended June 30
(Millions) (Unaudited)
Reconciliation of Non-GAAP Measures - Comparable Accounting
Basis (cont’d)
Risk & Consulting Corporate/ Total
Insurance Eliminations
Services
Six Months Ended June 30, 2018
Operating income (loss) without adoption $ 1,068 $ 519 $ (103 ) $ 1,484
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 58 1 5 64
Adjustments to acquisition related accounts (b) 9 1 — 10
Other — (1 ) — (1 )
Operating income adjustments 67 1 5 73
Adjusted operating income (loss) $ 1,135 $ 520 $ (98 ) $ 1,557
Operating margin - Comparable basis 25.2 % 15.6 % N/A 19.7 %
Adjusted operating margin - Comparable basis 26.7 % 15.6 % N/A 20.6 %
Six Months Ended June 30, 2017
Operating income (loss) $ 1,050 $ 490 $ (90 ) $ 1,450
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 4 16 4 24
Adjustments to acquisition related accounts (b) (10 ) 3 — (7 )
Operating income adjustments (6 ) 19 4 17
Adjusted operating income (loss) $ 1,044 $ 509 $ (86 ) $ 1,467
Operating margin 26.9 % 15.7 % N/A 20.7 %
Adjusted operating margin 26.7 % 16.3 % N/A 21.0 %
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
Consulting in 2017 reflects severance related to the Mercer business
restructure.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Includes the Revenue Standard Impact
Three and Six Months Ended June 30
(Millions) (Unaudited)
Adjusted Income, Net of Tax and Adjusted Earnings per Share
Adjusted income, net of tax is calculated as the
Company's GAAP income from continuing operations, adjusted to
reflect the after-tax impact of the operating income adjustments set
forth in the preceding tables and investments gains or losses
related to the impact of mark-to-market adjustments on certain
equity securities previously recorded to equity. Adjusted EPS
is calculated by dividing the Company’s adjusted income, net of
tax, by MMC's average number of shares outstanding-diluted for
the relevant period. The following tables reconcile adjusted
income, net of tax to GAAP income from continuing operations and
adjusted EPS to GAAP EPS for the three and six months ended June
30, 2018.
Three Months Ended
June 30, 2018
Amount Adjusted EPS
Income from continuing operations $ 536
Less: Non-controlling interest, net of tax 5
Subtotal $ 531 $ 1.04
Operating income adjustments $ 63
Investments adjustment (a) (26 )
Impact of income taxes (6 )
31 0.06
Adjusted income, net of tax $ 562 $ 1.10
Six Months Ended
June 30, 2018
Amount Adjusted EPS
Income from continuing operations $ 1,232
Less: Non-controlling interest, net of tax 11
Subtotal $ 1,221 $ 2.38
Operating income adjustments $ 73
Investments adjustment (a) (18 )
Impact of income taxes (10 )
Adjustments to provisional 2017 tax estimates (b) 3
48 0.09
Adjusted income, net of tax $ 1,269 $ 2.47
(a) Mark-to-market adjustments for investments classified as
available for sale under prior guidance were recorded to equity,
net of tax. Beginning January 1, 2018 such adjustments must be
recorded as part of investment income. Prior periods were not
restated. The Company excludes such mark-to-market gains or losses
from its calculation of adjusted earnings per share. The Company
recorded mark-to-market gains of $26 million and $18 million for
the three and six-month periods ended June 30, 2018, respectively,
which are included in Investment Income in the Consolidated
Statement of Income.
(b) Relates to adjustments to provisional 2017 year-end estimates of
transition taxes and U.S. deferred tax assets and liabilities from
U.S. tax reform.
Note:
Comparative financial information for the three and six months ended
June 30, 2017 is presented on page 14.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Comparable Accounting
Basis
Excludes the Revenue Standard Impact
Three and Six Months Ended June 30
(Millions) (Unaudited)
As discussed earlier, the Company adopted the new revenue standard
using the modified retrospective method, which requires the
disclosure of the impacts of the standard on each financial
statement line item. The non-GAAP measures below present an analysis
of results reflecting 2018 financial information excluding the
impact of the application of ASC 606, to facilitate a comparison to
the 2017 results. Except for the adjustment for the effects of ASC
606 in 2018, these non-GAAP measures are calculated as described on
the prior page.
Three Months Ended Three Months Ended
June 30, 2018 June 30, 2017
Amount Adjusted Amount Adjusted
EPS EPS
Income from continuing operations, $ 526 $ 507
(2018 prior to the impact of ASC 606)
Less: Non-controlling interest, net of tax 5 6
Subtotal $ 521 $ 1.02 $ 501 $ 0.96
Operating income adjustments $ 63 $ 24
Investments adjustment (a) (26 ) —
Impact of income taxes (6 ) (7 )
31 0.06 17 0.04
Adjusted income, net of tax $ 552 $ 1.08 $ 518 $ 1.00
Six Months Ended Six Months Ended
June 30, 2018 June 30, 2017
Amount Adjusted Amount Adjusted
EPS EPS
Income from continuing operations, $ 1,147 $ 1,085
(2018 prior to the impact of ASC 606)
Less: Non-controlling interest, net of tax 11 15
Subtotal $ 1,136 $ 2.22 $ 1,070 $ 2.05
Operating income adjustments $ 73 $ 17
Investments adjustment (a) (18 ) —
Impact of income taxes (10 ) (6 )
Adjustments to provisional 2017 tax estimates (b) 3 —
48 0.09 11 0.03
Adjusted income, net of tax $ 1,184 $ 2.31 $ 1,081 $ 2.08
(a) Mark-to-market adjustments for investments classified as
available for sale under prior guidance were recorded to equity,
net of tax. Beginning January 1, 2018 such adjustments must be
recorded as part of investment income. Prior periods were not
restated. The Company excludes such mark-to-market gains or losses
from its calculation of adjusted earnings per share. The Company
recorded mark-to-market gains of $26 million and $18 million for
the three and six-month periods ended June 30, 2018, respectively,
which are included in Investment Income in the Consolidated
Statement of Income.
(b) Relates to adjustments to provisional 2017 year-end estimates of
transition taxes and U.S. deferred tax assets and liabilities from
U.S. tax reform.
Marsh & McLennan Companies, Inc.
Supplemental Information - Impact of Revenue Recognition
Standard
Three and Six Months Ended June 30
(Millions) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
Excludes Excludes
Impact of Impact of
Revenue Revenue
Standard Standard
2018 2018 2017 2018 2018 2017
Consolidated
Compensation and Benefits $ 2,135 $ 2,125 $ 1,998 $ 4,359 $ 4,289 $ 4,003
Other operating expenses 908 908 796 1,776 1,776 1,545
Total Expenses $ 3,043 $ 3,033 $ 2,794 $ 6,135 $ 6,065 $ 5,548
Depreciation and amortization expense $ 79 $ 79 $ 76 $ 159 $ 159 $ 156
Identified intangible amortization expense 43 43 40 88 88 80
Total $ 122 $ 122 $ 116 $ 247 $ 247 $ 236
Stock option expense $ 3 $ 3 $ 3 $ 17 $ 17 $ 17
Capital expenditures $ 77 $ 77 $ 82 $ 135 $ 135 $ 144
Operating cash flows $ 777 $ 777 $ 742 $ 413 $ 413 $ 343
Risk and Insurance Services
Compensation and Benefits $ 1,145 $ 1,132 $ 1,014 $ 2,313 $ 2,238 $ 2,039
Other operating expenses 479 479 420 939 939 816
Total Expenses $ 1,624 $ 1,611 $ 1,434 $ 3,252 $ 3,177 $ 2,855
Depreciation and amortization expense $ 35 $ 35 $ 35 $ 72 $ 72 $ 70
Identified intangible amortization expense 35 35 33 72 72 65
Total $ 70 $ 70 $ 68 $ 144 $ 144 $ 135
Consulting
Compensation and Benefits $ 902 $ 905 $ 901 $ 1,858 $ 1,863 $ 1,792
Other operating expenses 481 481 426 946 946 836
Total Expenses $ 1,383 $ 1,386 $ 1,327 $ 2,804 $ 2,809 $ 2,628
Depreciation and amortization expense $ 26 $ 26 $ 24 $ 51 $ 51 $ 51
Identified intangible amortization expense 8 8 7 16 16 15
Total $ 34 $ 34 $ 31 $ 67 $ 67 $ 66
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions)
(Unaudited) December 31,
June 30,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 1,036 $ 1,205
Net receivables 4,601 4,133
Other current assets 538 224
Total current assets 6,175 5,562
Goodwill and intangible assets 10,411 10,363
Fixed assets, net 698 712
Pension related assets 1,808 1,693
Deferred tax assets 532 669
Other assets 1,535 1,430
TOTAL ASSETS $ 21,159 $ 20,429
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 439 $ 262
Accounts payable and accrued liabilities 2,246 2,083
Accrued compensation and employee benefits 1,103 1,718
Accrued income taxes 216 199
Dividends payable 212 —
Total current liabilities 4,216 4,262
Fiduciary liabilities 5,118 4,847
Less - cash and investments held in a fiduciary capacity (5,118 ) (4,847 )
— —
Long-term debt 5,813 5,225
Pension, post-retirement and post-employment benefits 1,768 1,888
Liabilities for errors and omissions 303 301
Other liabilities 1,262 1,311
Total equity 7,797 7,442
TOTAL LIABILITIES AND EQUITY $ 21,159 $ 20,429
Note:
Effective January 1, 2018, the Company, upon the adoption of the new
revenue recognition standard, recorded a cumulative effect
adjustment, net of tax resulting in an increase to the opening
balance of retained earnings of $364 million, with offsetting
increases/decreases to other balance sheet accounts, e.g. accounts
receivable, other current assets, other assets and deferred income
taxes.
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets - Impact of Revenue Standard
(Millions) (Unaudited)
As discussed earlier, the Company adopted the new revenue standard
(ASC 606) using the modified retrospective method, applied to all
contracts. The guidance requires entities that elected the modified
retrospective method to disclose the impact to financial statement
line items as a result of applying the new guidance (rather than
previous U.S. GAAP). The table below shows the impacts on the
consolidated balance sheet.
June 30, 2018
As Reported Impact of Prior to
Revenue Adoption
Standard
ASSETS
Current assets:
Cash and cash equivalents $ 1,036 $ — $ 1,036
Net receivables 4,601 (254 ) 4,347
Other current assets 538 (298 ) 240
Total current assets 6,175 (552 ) 5,623
Goodwill and intangible assets 10,411 — 10,411
Fixed assets, net 698 — 698
Pension related assets 1,808 — 1,808
Deferred tax assets 532 133 665
Other assets 1,535 (230 ) 1,305
TOTAL ASSETS $ 21,159 $ (649 ) $ 20,510
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 439 $ — $ 439
Accounts payable and accrued liabilities 2,246 (177 ) 2,069
Accrued compensation and employee benefits 1,103 — 1,103
Accrued income taxes 216 — 216
Dividends payable 212 — 212
Total current liabilities 4,216 (177 ) 4,039
Fiduciary liabilities 5,118 — 5,118
Less - cash and investments held in a fiduciary capacity (5,118 ) — (5,118 )
— — —
Long-term debt 5,813 — 5,813
Pension, post-retirement and post-employment benefits 1,768 — 1,768
Liabilities for errors and omissions 303 — 303
Other liabilities 1,262 (23 ) 1,239
Total equity 7,797 (449 ) 7,348
TOTAL LIABILITIES AND EQUITY $ 21,159 $ (649 ) $ 20,510
Media:
Marsh & McLennan Companies
Erick R. Gustafson, +1 202-263-7788
erick.gustafson@mmc.com (mailto:erick.gustafson@mmc.com)
or
Investors:
Marsh & McLennan Companies
Dan Farrell, +1 212-345-3713
daniel.farrell@mmc.com (mailto:daniel.farrell@mmc.com)
View source version on businesswire.com:
https://www.businesswire.com/news/home/20180726005405/en/
(https://www.businesswire.com/news/home/20180726005405/en/)
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