Market Overview

Marsh & McLennan Companies Reports Second Quarter 2018 Results

Share:

Underlying Revenue Increases 3% for the Quarter and 4% for the
First Half of 2018

Six Months GAAP EPS Rises 16% and Adjusted EPS Increases 19%

Excluding Revenue Standard Impact, Six Months EPS Grows 8% and
Adjusted EPS Rises 11%

Marsh & McLennan Companies, Inc. (NYSE:MMC), a global professional
services firm offering clients advice and solutions in risk, strategy
and people, today reported financial results for the second quarter
ended June 30, 2018.

Dan Glaser, President and CEO, said: "We are pleased with our
performance in the first half of the year. For the first six months of
2018, we achieved 4% underlying revenue growth on a consolidated basis
and 11% adjusted EPS growth excluding the impact of the new revenue
standard. In the second quarter, we delivered underlying revenue growth
of 3%, highlighted by strong underlying growth of 5% in Risk & Insurance
Services with 1% growth in Consulting."

"With a solid first half of 2018, we believe the Company is well
positioned to deliver underlying revenue growth in the 3-5% range,
margin expansion and strong growth in adjusted earnings per share in
2018," concluded Mr. Glaser.

Consolidated Results

Consolidated revenue in the second quarter of 2018 was $3.7 billion, an
increase of 7% compared with the second quarter of 2017. On an
underlying basis, revenue increased 3%. Net income attributable to the
Company was $531 million. Operating income was $691 million while
adjusted operating income, which excludes noteworthy items as presented
in the attached supplemental schedules, increased 4% to $754 million.
Excluding the impact of ASC 606, adjusted operating income rose 2%.

On a per share basis, net income attributable to the Company in the
second quarter rose 8% to $1.04 from $0.96 in the prior year. Adjusted
earnings per share of $1.10 was up 10% from the prior year period. The
10% increase in adjusted EPS includes a $0.02 per share benefit from the
application of ASC 606, the new revenue accounting standard. Excluding
ASC 606, adjusted EPS increased 8%.

For the six months ended June 30, 2018, consolidated revenue was $7.7
billion, an increase of 11% and 4% on an underlying basis. Operating
income was $1.6 billion, an increase of 10% from the prior year period.
Adjusted operating income, which excludes noteworthy items as presented
in the attached supplemental schedules, rose 14% to $1.7 billion.
Excluding the impact of ASC 606, adjusted operating income rose 6%. Net
income attributable to the Company increased 14% to $1.2 billion.
Earnings per share rose 16% to $2.38. Adjusted earnings per share
increased 19% to $2.47 compared with $2.08 for the comparable period in
2017. The 19% increase in adjusted EPS includes a $0.16 per share
benefit from the application of ASC 606. Excluding ASC 606, adjusted EPS
increased 11%.

Risk & Insurance Services

Risk & Insurance Services revenue was $2.1 billion in the second quarter
of 2018, an increase of 9% or 5% on an underlying basis. Operating
income was $472 million, a decrease of 2%, and adjusted operating income
rose 9% to $532 million. Excluding ASC 606, adjusted operating income
increased 6%. For the six months ended June 30, 2018, revenue was $4.4
billion, an increase of 14%, or 4% on an underlying basis. Operating
income rose 13% to $1.2 billion and adjusted operating income rose 20%
to $1.3 billion. Excluding ASC 606, adjusted operating income increased
9%.

Marsh's revenue in the second quarter was $1.7 billion, an increase of
5% on an underlying basis. International operations produced underlying
revenue growth of 2%, reflecting 1% underlying growth in EMEA, 6% in
Asia Pacific, and 3% in Latin America. In U.S./Canada, underlying
revenue rose 8%. For the six months ended June 30, 2018, Marsh's
underlying revenue growth was 3%.

Guy Carpenter's revenue in the second quarter was $332 million, an
increase of 5% on an underlying basis. For the six months ended June 30,
2018, Guy Carpenter's underlying revenue growth was 6%.

Consulting

Consulting revenue in the second quarter was $1.7 billion, an increase
of 4% or 1% on an underlying basis. Operating income increased 1% to
$267 million and adjusted operating income decreased 5% to $267 million.
For the first six months of 2018, revenue was $3.3 billion, an increase
of 6% or 3% on an underlying basis. Operating income of $514 million
increased 5% and adjusted operating income increased 1% to $515 million.
Excluding ASC 606, adjusted operating income increased 2%.

Mercer's revenue was $1.2 billion in the second quarter, an increase of
2% on an underlying basis. Wealth, with revenue of $552 million, grew 1%
on an underlying basis. Within Wealth, Defined Benefit Consulting &
Administration decreased 6%, while Investment Management & Related
Services increased 12%. Health revenue of $429 million was up 1% on an
underlying basis and Career revenue of $177 million increased 7% on an
underlying basis. For the six months ended June 30, 2018, Mercer's
revenue was $2.3 billion, an increase of 3% on an underlying basis.

Oliver Wyman Group's revenue was $492 million in the second quarter, a
decrease of 2% on an underlying basis. For the six months ended June 30,
2018, Oliver Wyman Group's revenue increased to $989 million, up 2% on
an underlying basis.

Other Items

The Company repurchased 3.1 million shares of its common stock for $250
million in the second quarter. Through six months, the Company has
repurchased 6.1 million shares for $500 million. In May, the Board of
Directors increased the quarterly dividend 11%, to $0.415 per share,
effective with the third quarter dividend payable on August 15, 2018.

In late June, Marsh announced an agreement to acquire Houston based
Wortham Insurance. Wortham has annual revenue of approximately $130
million and 530 colleagues.

Conference Call

A conference call to discuss second quarter 2018 results will be held
today at 8:30 a.m. Eastern time. To participate in the teleconference,
please dial +1 866 548 4713. Callers from outside the United States
should dial +1 323 794 2129. The access code for both numbers is
2356303. The live audio webcast may be accessed at mmc.com.
A replay of the webcast will be available approximately two hours after
the event.

About Marsh & McLennan Companies

Marsh & McLennan (NYSE:MMC) is the world's leading professional
services firm in the areas of risk, strategy and people. The company's
nearly 65,000 colleagues advise clients in over 130 countries. With
annual revenue over $14 billion, Marsh & McLennan helps clients navigate
an increasingly dynamic and complex environment through four
market-leading firms. Marsh
advises individual and commercial clients of all sizes on insurance
broking and innovative risk management solutions. Guy
Carpenter
develops advanced risk, reinsurance and capital strategies
that help clients grow profitably and pursue emerging opportunities. Mercer
delivers advice and technology-driven solutions that help organizations
meet the health, wealth and career needs of a changing workforce. Oliver
Wyman
serves as a critical strategic, economic and brand advisor to
private sector and governmental clients. For more information, visit mmc.com,
follow us on LinkedIn
and Twitter @mmc_global
or subscribe to BRINK.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This press release contains "forward-looking statements," as defined in
the Private Securities Litigation Reform Act of 1995. These statements,
which express management's current views concerning future events or
results, use words like "anticipate," "assume," "believe," "continue,"
"estimate," "expect," "forecast," "intend," "plan," "project" and
similar terms, and future or conditional tense verbs like "could,"
"may," "might," "should," "will" and "would."

Forward-looking statements are subject to inherent risks and
uncertainties that could cause actual results to differ materially from
those expressed or implied in our forward-looking statements. Factors
that could materially affect our future results include, among other
things:

  • the impact of any investigations, reviews, market studies or other
    activity by regulatory or law enforcement authorities, including the
    ongoing investigations by the European Commission, the Australian
    Royal Commission and the U.K. FCA;
  • the impact from lawsuits, other contingent liabilities and loss
    contingencies arising from errors and omissions, breach of fiduciary
    duty or other claims against us;
  • our organization's ability to maintain adequate safeguards to protect
    the security of our information systems and confidential, personal or
    proprietary information, particularly given the large volume of our
    vendor network and the need to patch software vulnerabilities;
  • our ability to compete effectively and adapt to changes in the
    competitive environment, including to respond to disintermediation,
    digital disruption and other types of innovation;
  • the financial and operational impact of complying with laws and
    regulations where we operate, including cybersecurity and data privacy
    regulations such as the E.U.'s General Data Protection Regulation,
    anti-corruption laws and trade sanctions regimes;
  • the regulatory, contractual and reputational risks that arise based on
    insurance placement activities and various broker revenue streams;
  • the extent to which we manage risks associated with the various
    services, including fiduciary and investments and other advisory
    services;
  • our ability to successfully recover if we experience a business
    continuity problem due to cyberattack, natural disaster or otherwise;
  • the impact of changes in tax laws, guidance and interpretations,
    including related to certain provisions of the U.S. Tax Cuts and Jobs
    Act, or disagreements with tax authorities;
  • the impact of fluctuations in foreign exchange and interest rates on
    our results;
  • the impact of macroeconomic, political, regulatory or market
    conditions on us, our clients and the industries in which we operate;
    and
  • the impact of changes in accounting rules or in our accounting
    estimates or assumptions, including the impact of the adoption of the
    new revenue recognition, pension and lease accounting standards.

The factors identified above are not exhaustive. Further information
concerning Marsh & McLennan Companies and its businesses, including
information about factors that could materially affect our results of
operations and financial condition, is contained in the Company's
filings with the Securities and Exchange Commission, including the "Risk
Factors" section and the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our most
recently filed Annual Report on Form 10-K. We caution readers not to
place undue reliance on any forward-looking statements, which are based
only on information currently available to us and speak only as of the
dates on which they are made. We undertake no obligation to update or
revise any forward-looking statement to reflect events or circumstances
arising after the date on which it is made.

 
 

Marsh & McLennan Companies, Inc.

Consolidated Statements of Income

(In millions, except per share figures)

(Unaudited)

       
Three Months Ended
June 30,
Six Months Ended
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
June 30, 2018
  Six Months Ended
June 30, 2018



As

Reported

 

Revenue

Standard

Impact

 



Prior to

Adoption

As

Reported

 

Revenue

Standard

Impact

 

Prior to

Adoption

Revenue $ 3,734   $ (24 ) $ 3,710   $ 7,734   $ (185 ) $ 7,549  
Expense:
Compensation and Benefits 2,135 (10 ) 2,125 4,359 (70 ) 4,289
Other Operating Expenses 908     908   1,776     1,776  
Operating Expenses 3,043   (10 ) 3,033   6,135   (70 ) 6,065  
Operating Income 691 (14 ) 677 1,599 (115 ) 1,484
Other Net Benefit Credits 65 65 131 131
Interest Income 3 3 6 6
Interest Expense (68 ) (68 ) (129 ) (129 )
Investment Income 28     28   28     28  
Income Before Income Taxes 719 (14 ) 705 1,635 (115 ) 1,520
Income Tax Expense 183   (4 ) 179   403   (30 ) 373  

Net Income Before Non-Controlling
Interests

536 (10 ) 526 1,232 (85 ) 1,147

Less: Net Income Attributable to
Non-Controlling
Interests

5     5   11     11  

Net Income Attributable to the
Company

$ 531   $ (10 ) $ 521   $ 1,221   $ (85 ) $ 1,136  

Net Income Per Share Attributable
to the Company:

- Basic $ 1.05   $ (0.02 ) $ 1.03   $ 2.41   $ (0.17 ) $ 2.24  
- Diluted $ 1.04   $ (0.02 ) $ 1.02   $ 2.38   $ (0.16 ) $ 2.22  
 

Average Number of Shares
Outstanding

- Basic 507   507   507   507   507   507  
- Diluted 512   512   512   513   513   513  
Shares Outstanding at 6/30 505   505   505   505   505   505  
 
 

Marsh & McLennan Companies, Inc.

Supplemental Information - Revenue Analysis

Three Months Ended June 30

(Millions) (Unaudited)

         
Components of Revenue Change*

Three Months Ended
June 30,

%

Change

GAAP

Revenue

Currency

Impact

 

Acquisitions/

Dispositions

Other Impact

 

Revenue

Standard

Impact

 

Underlying

Revenue

2018   2017        
Risk and Insurance Services
Marsh $ 1,749 $ 1,614 8 % 2 % 1 % 5 %
Guy Carpenter 332   293   13 % 1 % 7 % 5 %
Subtotal 2,081 1,907 9 % 2 % 1 % 1 % 5 %
Fiduciary Interest Income 15   9  
Total Risk and Insurance Services 2,096   1,916   9 % 2 % 1 % 1 % 5 %
Consulting
Mercer 1,158 1,109 5 % 2 % 1 % 2 %
Oliver Wyman Group 492   483   2 % 3 % (2 )%
Total Consulting 1,650   1,592   4 % 2 % 1 % 1 %
Corporate / Eliminations (12 ) (13 )
Total Revenue $ 3,734   $ 3,495   7 % 2 % 1 % 1 % 3 %
 
 

Revenue Details

The following table provides more detailed revenue information for
certain of the components presented above:

          Components of Revenue Change*

Three Months Ended

June 30,

%

Change

GAAP

Revenue

Currency

Impact

 

Acquisitions/

Dispositions

Other Impact

 

Revenue

Standard

Impact

 

Underlying

Revenue

2018   2017        
Marsh:  
EMEA $ 526 $ 497 6 % 5 % 1 %
Asia Pacific 183 168 9 % 2 % 6 %
Latin America 99   99   (5 )% 3 % 3 %
Total International 808 764 6 % 3 % 1 % 2 %
U.S. / Canada 941   850   11 % 2 % 1 % 8 %
Total Marsh $ 1,749   $ 1,614   8 % 2 % 1 % 5 %
Mercer:
Defined Benefit Consulting & Administration $ 320 $ 340 (6 )% 3 % (3 )% (6 )%
Investment Management & Related Services 232   192   20 % 2 % 6 % 12 %
Total Wealth 552 532 4 % 3 % 1 %
Health 429 423 2 % 1 % (1 )% 1 %
Career 177   154   15 % 2 % 6 % 7 %
Total Mercer $ 1,158   $ 1,109   5 % 2 % 1 % 2 %
 
Note:
Underlying revenue measures the change in revenue using consistent
currency exchange rates, excluding the impact of certain items that
affect comparability such as: acquisitions, dispositions, transfers
among businesses, changes in estimate methodology and the impact of
the new revenue standard.
 
* Components of revenue change may not add due to rounding.
 
 

Marsh & McLennan Companies, Inc.

Supplemental Information - Revenue Analysis

Six Months Ended June 30

(Millions) (Unaudited)

       
Components of Revenue Change*

Six Months Ended
June 30,

%

Change

GAAP

Revenue

Currency

Impact

 

Acquisitions/

Dispositions/

Other Impact

 

Revenue

Standard

Impact

 

Underlying

Revenue

2018   2017        
Risk and Insurance Services
Marsh $ 3,443 $ 3,210 7 % 3 % 2 % (1 )% 3 %
Guy Carpenter 969   678   43 % 2 % 35 % 6 %
Subtotal 4,412 3,888 13 % 3 % 2 % 5 % 4 %
Fiduciary Interest Income 28   17  
Total Risk and Insurance Services 4,440   3,905   14 % 3 % 2 % 5 % 4 %
Consulting
Mercer 2,329 2,186 7 % 3 % 1 % 3 %
Oliver Wyman Group 989   932   6 % 4 % 2 %
Total Consulting 3,318   3,118   6 % 3 % 1 % 3 %
Corporate / Eliminations (24 ) (25 )
Total Revenue $ 7,734   $ 6,998   11 % 3 % 1 % 3 % 4 %
 
 

Revenue Details

The following table provides more detailed revenue information for
certain of the components presented above:

        Components of Revenue Change*

Six Months Ended
June 30,

%

Change

GAAP

Revenue

Currency

Impact

 

Acquisitions/

Dispositions/

Other Impact

 

Revenue

Standard

Impact

 

Underlying

Revenue

2018   2017        
Marsh:
EMEA $ 1,169 $ 1,086 8 % 8 % (1 )%
Asia Pacific 347 320 8 % 3 % 5 %
Latin America 183   179   2 % (4 )% 2 % 4 %
Total International 1,699 1,585 7 % 6 % 1 %
U.S. / Canada 1,744   1,625   7 % 4 % (2 )% 6 %
Total Marsh $ 3,443   $ 3,210   7 % 3 % 2 % (1 )% 3 %
Mercer:
Defined Benefit Consulting & Administration $ 659 $ 674 (2 )% 5 % (2 )% (5 )%
Investment Management & Related Services 458   378   21 % 4 % 4 % 14 %
Total Wealth 1,117 1,052 6 % 4 % 2 %
Health 871 838 4 % 2 % (1 )% (1 )% 4 %
Career 341   296   15 % 3 % 6 % 6 %
Total Mercer $ 2,329   $ 2,186   7 % 3 % 1 % 3 %
 
Note:
Underlying revenue measures the change in revenue using consistent
currency exchange rates, excluding the impact of certain items that
affect comparability such as: acquisitions, dispositions, transfers
among businesses, changes in estimate methodology and the impact of
the new revenue standard.
 
* Components of revenue change may not add due to rounding.
 
 

Marsh & McLennan Companies, Inc.

Reconciliation of Non-GAAP Measures

Includes Revenue Standard Impact

Three Months Ended June 30

(Millions) (Unaudited)

 
Overview
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States
(referred to in this release as "GAAP" or "reported" results). The
Company also refers to and presents below certain additional
non-GAAP financial measures, within the meaning of Regulation G
under the Securities Exchange Act of 1934. These measures are: adjusted
operating income (loss)
, adjusted operating margin, adjusted
income, net of tax
and adjusted earnings per share (EPS).
The Company has included reconciliations of these non-GAAP financial
measures to the most directly comparable financial measure
calculated in accordance with GAAP in the following tables.
The Company believes these non-GAAP financial measures provide
useful supplemental information that enables investors to better
compare the Company's performance across periods. Management also
uses these measures internally to assess the operating performance
of its businesses, to assess performance for employee compensation
purposes and to decide how to allocate resources. However, investors
should not consider these non-GAAP measures in isolation from, or as
a substitute for, the financial information that the Company reports
in accordance with GAAP. The Company's non-GAAP measures include
adjustments that reflect how management views our businesses, and
may differ from similarly titled non-GAAP measures presented by
other companies.
 
Adjusted Operating Income (Loss) and Adjusted Operating Margin
Adjusted operating income (loss) is calculated by excluding
the impact of certain noteworthy items from the Company's GAAP
operating income or (loss). The following tables identify these
noteworthy items and reconcile adjusted operating income (loss)
to GAAP operating income or loss, on a consolidated and segment
basis, for the three months ended June 30, 2018. The following
tables also present adjusted operating margin. For the three
months ended June 30, 2018, adjusted operating margin is
calculated by dividing adjusted operating income by
consolidated or segment GAAP revenue.
   

Risk &

Insurance

Services

  Consulting  

Corporate/
Eliminations

  Total
Three Months Ended June 30, 2018  
Operating income (loss) $ 472   $ 267   $ (48 ) $       691  
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 55 3 58
Adjustments to acquisition related accounts (b) 5 1 6
Other   (1 )   (1 )
Operating income adjustments 60     3   63  
Adjusted operating income (loss) $ 532   $ 267   $ (45 ) $       754  
Operating margin 22.5 % 16.2 %

N/A   

18.5 %
Adjusted operating margin 25.4 % 16.2 %

N/A   

20.2 %
 
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
 
Note:
Comparative financial information for the three months ended June
30, 2017 is presented on page 10.
 
 

Marsh & McLennan Companies, Inc.

Reconciliation of Non-GAAP Measures - Comparable Accounting
Basis

Excludes the Revenue Standard Impact

Three Months Ended June 30

(Millions) (Unaudited)

 
As discussed earlier, the Company has adopted the new revenue
standard using the modified retrospective method, which requires the
disclosure of the impacts of the standard on each financial
statement line item. The non-GAAP measures below present an analysis
of results reflecting 2018 financial information excluding the
impact of the application of ASC 606, to facilitate a comparison to
the 2017 results. Except for the adjustment for the effects of ASC
606 in 2018, these non-GAAP measures are calculated as described on
the prior page.
   

Risk &

Insurance

Services

  Consulting  

Corporate/

Eliminations

  Total
Three Months Ended June 30, 2018  
Operating income (loss) without adoption $ 458   $ 267   $ (48 ) $       677  
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 55 3 58
Adjustments to acquisition related accounts (b) 5 1 6
Other   (1 )   (1 )
Operating income adjustments 60     3   63  
Adjusted operating income (loss) $ 518   $ 267   $ (45 ) $       740  
Operating margin - Comparable basis 22.2 % 16.2 %

N/A   

18.3 %
Adjusted operating margin - Comparable basis 25.0 % 16.2 %

N/A   

20.0 %
 
Three Months Ended June 30, 2017  
Operating income (loss) $ 482   $ 265   $ (46 ) $       701  
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 13 2 15
Adjustments to acquisition related accounts (b) 7   2     9  
Operating income adjustments 7   15   2   24  
Adjusted operating income (loss) $ 489   $ 280   $ (44 ) $       725  
Operating margin 25.2 % 16.6 %

N/A   

20.1 %
Adjusted operating margin 25.5 % 17.6 %

N/A   

20.7 %
 
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
Consulting in 2017 reflects severance related to the Mercer business
restructure.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
 
 

Marsh & McLennan Companies, Inc.

Reconciliation of Non-GAAP Measures

Includes Revenue Standard Impact

Six Months Ended June 30

(Millions) (Unaudited)

 
Overview
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States
(referred to in this release as "GAAP" or "reported" results). The
Company also refers to and presents below certain additional
non-GAAP financial measures, within the meaning of Regulation G
under the Securities Exchange Act of 1934. These measures are: adjusted
operating income (loss)
, adjusted operating margin, adjusted
income, net of ta
x and adjusted earnings per share (EPS).
The Company has included reconciliations of these non-GAAP financial
measures to the most directly comparable financial measure
calculated in accordance with GAAP in the following tables.
The Company believes these non-GAAP financial measures provide
useful supplemental information that enables investors to better
compare the Company's performance across periods. Management also
uses these measures internally to assess the operating performance
of its businesses, to assess performance for employee compensation
purposes and to decide how to allocate resources. However, investors
should not consider these non-GAAP measures in isolation from, or as
a substitute for, the financial information that the Company reports
in accordance with GAAP. The Company's non-GAAP measures include
adjustments that reflect how management views our businesses, and
may differ from similarly titled non-GAAP measures presented by
other companies.
 
Adjusted Operating Income (Loss) and Adjusted Operating Margin
Adjusted operating income (loss) is calculated by excluding
the impact of certain noteworthy items from the Company's GAAP
operating income or (loss). The following tables identify these
noteworthy items and reconcile adjusted operating income (loss)
to GAAP operating income or loss, on a consolidated and segment
basis, for the six months ended June 30, 2018. The following tables
also present adjusted operating margin. For the six months
ended June 30, 2018, adjusted operating margin is calculated
by dividing adjusted operating income by consolidated or
segment GAAP revenue.
   

Risk &

Insurance

Services

  Consulting   Corporate/
Eliminations
  Total
Six Months Ended June 30, 2018  
Operating income (loss) $ 1,188   $ 514   $ (103 ) $     1,599  
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 58 1 5 64
Adjustments to acquisition related accounts (b) 9 1 10
Other   (1 )   (1 )
Operating income adjustments 67   1   5   73  
Adjusted operating income (loss) $ 1,255   $ 515   $ (98 ) $     1,672  
Operating margin 26.8 % 15.5 %

N/A   

20.7 %
Adjusted operating margin 28.3 % 15.5 %

N/A   

21.6 %
 
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
 
Note:
Comparative financial information for the six months ended June 30,
2017 is presented on page 12.
 
 

Marsh & McLennan Companies, Inc.

Reconciliation of Non-GAAP Measures - Comparable Accounting
Basis

Excludes the Revenue Standard Impact

Six Months Ended June 30

(Millions) (Unaudited)

         

Reconciliation of Non-GAAP Measures - Comparable Accounting
Basis (cont'd)

 

Risk &

Insurance

Services

Consulting

Corporate/

Eliminations

Total
Six Months Ended June 30, 2018  
Operating income (loss) without adoption $ 1,068   $ 519   $ (103 ) $     1,484  
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 58 1 5 64
Adjustments to acquisition related accounts (b) 9 1 10
Other   (1 )   (1 )
Operating income adjustments 67   1   5   73  
Adjusted operating income (loss) $ 1,135   $ 520   $ (98 ) $     1,557  
Operating margin - Comparable basis 25.2 % 15.6 %

N/A   

19.7 %
Adjusted operating margin - Comparable basis 26.7 % 15.6 %

N/A   

20.6 %
Six Months Ended June 30, 2017  
Operating income (loss) $ 1,050   $ 490   $ (90 ) $     1,450  
Add (Deduct) impact of Noteworthy Items:
Restructuring (a) 4 16 4 24
Adjustments to acquisition related accounts (b) (10 ) 3     (7 )
Operating income adjustments (6 ) 19   4   17  
Adjusted operating income (loss) $ 1,044   $ 509   $ (86 ) $     1,467  
Operating margin 26.9 % 15.7 %

N/A   

20.7 %
Adjusted operating margin 26.7 % 16.3 %

N/A   

21.0 %
 
(a) Includes severance and related charges from restructuring
activities, adjustments to restructuring liabilities for future rent
under non-cancellable leases and other real estate costs, and
restructuring costs related to the integration of recent
acquisitions. Risk and Insurance Services in 2018 reflects severance
and consulting costs related to the Marsh simplification initiative.
Consulting in 2017 reflects severance related to the Mercer business
restructure.
(b) Primarily includes the change in fair value as measured each
quarter of contingent consideration related to acquisitions.
 
 

Marsh & McLennan Companies, Inc.

Reconciliation of Non-GAAP Measures

Includes the Revenue Standard Impact

Three and Six Months Ended June 30

(Millions) (Unaudited)

 
Adjusted Income, Net of Tax and Adjusted Earnings per Share
Adjusted income, net of tax is calculated as the
Company's GAAP income from continuing operations, adjusted to
reflect the after-tax impact of the operating income adjustments set
forth in the preceding tables and investments gains or losses
related to the impact of mark-to-market adjustments on certain
equity securities previously recorded to equity. Adjusted EPS
is calculated by dividing the Company's adjusted income, net of
tax
, by MMC's average number of shares outstanding-diluted for
the relevant period. The following tables reconcile adjusted
income, net of tax
to GAAP income from continuing operations and
adjusted EPS
to GAAP EPS for the three and six months ended June
30, 2018.
      Three Months 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
June 30, 2018

Three Months Ended
June 30, 2017
Amount

Adjusted

EPS

Amount

Adjusted

EPS

Income from continuing operations,

(2018 prior to the impact of ASC 606)

$   526 $   507
Less: Non-controlling interest, net of tax 5   6  
Subtotal $ 521 $   1.02 $ 501 $   0.96
Operating income adjustments $       63 $       24
Investments adjustment (a) (26 )
Impact of income taxes (6 ) (7 )
31   0.06   17   0.04
Adjusted income, net of tax $   552   $   1.08   $   518   $   1.00
 

Six Months Ended
June 30, 2018

Six Months Ended
June 30, 2017

Amount

Adjusted

EPS

Amount

Adjusted

EPS

Income from continuing operations,

(2018 prior to the impact of ASC 606)

$ 1,147 $ 1,085
Less: Non-controlling interest, net of tax 11   15  
Subtotal $ 1,136 $ 2.22 $ 1,070 $ 2.05
Operating income adjustments $ 73 $ 17
Investments adjustment (a) (18 )
Impact of income taxes (10 ) (6 )
Adjustments to provisional 2017 tax estimates (b) 3    
48   0.09   11   0.03
Adjusted income, net of tax $   1,184   $   2.31   $   1,081   $   2.08
 

(a) Mark-to-market adjustments for investments classified as
available for sale under prior guidance were recorded to equity,
net of tax. Beginning January 1, 2018 such adjustments must be
recorded as part of investment income. Prior periods were not
restated. The Company excludes such mark-to-market gains or losses
from its calculation of adjusted earnings per share. The Company
recorded mark-to-market gains of $26 million and $18 million for
the three and six-month periods ended June 30, 2018, respectively,
which are included in Investment Income in the Consolidated
Statement of Income.

(b) Relates to adjustments to provisional 2017 year-end estimates of
transition taxes and U.S. deferred tax assets and liabilities from
U.S. tax reform.
 
 

Marsh & McLennan Companies, Inc.

Supplemental Information - Impact of Revenue Recognition
Standard

Three and Six Months Ended June 30

(Millions) (Unaudited)

       
Three Months Ended June 30, Six Months Ended June 30,
 

Excludes

Impact of

Revenue

Standard

   

Excludes

Impact of

Revenue

Standard

 
2018 2018 2017 2018 2018 2017
Consolidated
Compensation and Benefits $ 2,135 $ 2,125 $ 1,998 $ 4,359 $ 4,289 $ 4,003
Other operating expenses 908   908   796   1,776   1,776   1,545
Total Expenses $ 3,043   $ 3,033   $ 2,794   $ 6,135   $ 6,065   $ 5,548
 
Depreciation and amortization expense $ 79 $ 79 $ 76 $ 159 $ 159 $ 156
Identified intangible amortization expense 43   43   40   88   88   80
Total $ 122   $ 122   $ 116   $ 247   $ 247   $ 236
 
Stock option expense $ 3 $ 3 $ 3 $ 17 $ 17 $ 17
Capital expenditures $ 77 $ 77 $ 82 $ 135 $ 135 $ 144
Operating cash flows $ 777 $ 777 $ 742 $ 413 $ 413 $ 343
 
Risk and Insurance Services
Compensation and Benefits $ 1,145 $ 1,132 $ 1,014 $ 2,313 $ 2,238 $ 2,039
Other operating expenses 479   479   420   939   939   816
Total Expenses $ 1,624   $ 1,611   $ 1,434   $ 3,252   $ 3,177   $ 2,855
 
Depreciation and amortization expense $ 35 $ 35 $ 35 $ 72 $ 72 $ 70
Identified intangible amortization expense 35   35   33   72   72   65
Total $ 70   $ 70   $ 68   $ 144   $ 144   $ 135
 
Consulting
Compensation and Benefits $ 902 $ 905 $ 901 $ 1,858 $ 1,863 $ 1,792
Other operating expenses 481   481   426   946   946   836
Total Expenses $ 1,383   $ 1,386   $ 1,327   $ 2,804   $ 2,809   $ 2,628
 
Depreciation and amortization expense $ 26 $ 26 $ 24 $ 51 $ 51 $ 51
Identified intangible amortization expense 8   8   7   16   16   15
Total $ 34   $ 34   $ 31   $ 67   $ 67   $ 66
 
 

Marsh & McLennan Companies, Inc.

Consolidated Balance Sheets

(Millions)

           
(Unaudited)
June 30,
2018

December 31,

2017

ASSETS
Current assets:
Cash and cash equivalents $ 1,036 $ 1,205
Net receivables 4,601 4,133
Other current assets 538   224  
Total current assets 6,175 5,562
 
Goodwill and intangible assets 10,411 10,363
Fixed assets, net 698 712
Pension related assets 1,808 1,693
Deferred tax assets 532 669
Other assets 1,535   1,430  
TOTAL ASSETS $ 21,159   $ 20,429  
 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 439 $ 262
Accounts payable and accrued liabilities 2,246 2,083
Accrued compensation and employee benefits 1,103 1,718
Accrued income taxes 216 199
Dividends payable 212    
Total current liabilities 4,216 4,262
 
Fiduciary liabilities 5,118 4,847
Less - cash and investments held in a fiduciary capacity (5,118 ) (4,847 )
Long-term debt 5,813 5,225
Pension, post-retirement and post-employment benefits 1,768 1,888
Liabilities for errors and omissions 303 301
Other liabilities 1,262 1,311
 
Total equity 7,797   7,442  
TOTAL LIABILITIES AND EQUITY $ 21,159   $ 20,429  
 
Note:
Effective January 1, 2018, the Company, upon the adoption of the new
revenue recognition standard, recorded a cumulative effect
adjustment, net of tax resulting in an increase to the opening
balance of retained earnings of $364 million, with offsetting
increases/decreases to other balance sheet accounts, e.g. accounts
receivable, other current assets, other assets and deferred income
taxes.
 
 

Marsh & McLennan Companies, Inc.

Consolidated Balance Sheets - Impact of Revenue Standard

(Millions) (Unaudited)

 
As discussed earlier, the Company adopted the new revenue standard
(ASC 606) using the modified retrospective method, applied to all
contracts. The guidance requires entities that elected the modified
retrospective method to disclose the impact to financial statement
line items as a result of applying the new guidance (rather than
previous U.S. GAAP). The table below shows the impacts on the
consolidated balance sheet.
    June 30, 2018
As Reported  

Impact of

Revenue

Standard

 

Prior to

Adoption

ASSETS
Current assets:
Cash and cash equivalents $ 1,036 $ $ 1,036
Net receivables 4,601 (254 ) 4,347
Other current assets 538   (298 ) 240  
Total current assets 6,175 (552 ) 5,623
 
Goodwill and intangible assets 10,411 10,411
Fixed assets, net 698 698
Pension related assets 1,808 1,808
Deferred tax assets 532 133 665
Other assets 1,535   (230 ) 1,305  
TOTAL ASSETS $ 21,159   $ (649 ) $ 20,510  
 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 439 $ $ 439
Accounts payable and accrued liabilities 2,246 (177 ) 2,069
Accrued compensation and employee benefits 1,103 1,103
Accrued income taxes 216 216
Dividends payable 212     212  
Total current liabilities 4,216 (177 ) 4,039
 
Fiduciary liabilities 5,118 5,118
Less - cash and investments held in a fiduciary capacity (5,118 )   (5,118 )
Long-term debt 5,813 5,813
Pension, post-retirement and post-employment benefits 1,768 1,768
Liabilities for errors and omissions 303 303
Other liabilities 1,262 (23 ) 1,239
 
Total equity 7,797   (449 ) 7,348  
TOTAL LIABILITIES AND EQUITY $ 21,159   $ (649 ) $ 20,510  

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