News
Marsh & McLennan Companies Reports Fourth Quarter and Full-Year 2018 Results
January 31, 2019 at 7:00 AM EST
Media Contact
Email:media@mmc.com
Strong Underlying Revenue Growth of 5% for the Quarter and 4% for the Year
Full-Year GAAP Operating Income Rises 4% and Adjusted Operating Income Increases 8%
Full-Year GAAP EPS Grows 13% to
"For the year,
"In addition to our impressive underlying performance, we had another
active year of acquisitions and delivered on our capital return
commitments. The highlight of the year was our agreement to acquire
Consolidated Results
Consolidated revenue in the fourth quarter of 2018 was
On a per share basis, net income attributable to the Company in the
fourth quarter increased to
For the year 2018, revenue was
Risk & Insurance Services
Risk & Insurance Services revenue was
Marsh's revenue in the fourth quarter of 2018 was
Consulting
Consulting revenue was
Mercer's revenue was
Oliver Wyman Group's revenue was
Other Items
As part of the Company's planned financing for the proposed acquisition
of JLT, the Company issued
Subject to receipt of required antitrust and regulatory approvals, the transaction is expected to close in the spring of 2019. In order to protect the Company from exchange rate volatility, the Company entered into a deal contingent forward foreign exchange contract. In addition, in the fourth quarter of 2018, the Company entered into Treasury lock contracts to hedge the economic risk of changes in interest rates related to a portion of the senior notes discussed above.
The Company recorded a charge of
Conference Call
A conference call to discuss fourth quarter and full year 2018 results
will be held today at
About
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied in our forward-looking statements. Factors that could materially affect our future results include, among other things:
- our ability to successfully consummate, integrate or achieve the intended benefits of the acquisition of JLT;
- the impact of any investigations, reviews, market studies or other activity by regulatory or law enforcement authorities, including the ongoing investigations by the European and Brazilian competition authorities;
- the impact from lawsuits, other contingent liabilities and loss contingencies arising from errors and omissions, breach of fiduciary duty or other claims against us;
- our organization's ability to maintain adequate safeguards to protect the security of our information systems and confidential, personal or proprietary information, particularly given the large volume of our vendor network and the need to patch software vulnerabilities;
- our ability to compete effectively and adapt to changes in the competitive environment, including to respond to disintermediation, digital disruption and other types of innovation;
- the financial and operational impact of complying with laws and regulations where we operate, including cybersecurity and data privacy regulations such as the E.U.'s General Data Protection Regulation, anti-corruption laws and trade sanctions regimes;
- the impact of macroeconomic, political, regulatory or market conditions on us, our clients and the industries in which we operate, including the impact and uncertainty around Brexit or the inability to collect on our receivables;
- the regulatory, contractual and reputational risks that arise based on insurance placement activities and various broker and consulting 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;
- the impact of changes in tax laws, guidance and interpretations, including related to certain provisions of the U.S. Tax Cuts and Jobs Act, or disagreements with tax authorities;
- the impact of fluctuations in foreign exchange and interest rates on our results; and
- the impact of changes in accounting rules or in our accounting estimates or assumptions, including the impact of the adoption of the revenue recognition, pension and lease accounting standards.
The factors identified above are not exhaustive.
Further information concerning
Consolidated
Statements of Income
(In millions, except per share figures)
(Unaudited)
Three Months Ended December 31, |
Twelve Months Ended December 31, |
|||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||
Revenue | $ | 3,712 | $ | 3,685 | $ | 14,950 | $ | 14,024 | ||||||||||
Expense: | ||||||||||||||||||
Compensation and Benefits | 2,163 | 2,114 | 8,605 | 8,085 | ||||||||||||||
Other Operating Expenses | 928 | 901 | 3,584 | 3,284 | ||||||||||||||
Operating Expenses | 3,091 | 3,015 | 12,189 | 11,369 | ||||||||||||||
Operating Income | 621 | 670 | 2,761 | 2,655 | ||||||||||||||
Other Net Benefit Credits (a) | 21 | 16 | 215 | 201 | ||||||||||||||
Interest Income | 3 | 3 | 11 | 9 | ||||||||||||||
Interest Expense | (92 | ) | (59 | ) | (290 | ) | (237 | ) | ||||||||||
Investment Income (Loss) | 12 | 12 | (12 | ) | 15 | |||||||||||||
Acquisition Related Derivative Contracts (b) | (341 | ) | — | (441 | ) | — | ||||||||||||
Income Before Income Taxes | 224 | 642 | 2,244 | 2,643 | ||||||||||||||
Income Tax Expense | 65 | 614 | 574 | 1,133 | ||||||||||||||
Income from Continuing Operations | 159 | 28 | 1,670 | 1,510 | ||||||||||||||
Discontinued Operations, Net of Tax | — | 2 | — | 2 | ||||||||||||||
Net Income Before Non-Controlling Interests | 159 | 30 | 1,670 | 1,512 | ||||||||||||||
Less: Net Income Attributable to Non-Controlling Interests | 6 | 1 | 20 | 20 | ||||||||||||||
Net Income Attributable to the Company | $ | 153 | $ | 29 | $ | 1,650 | $ | 1,492 | ||||||||||
Basic Net Income Per Share | ||||||||||||||||||
- Continuing Operations | $ | 0.30 | $ | 0.05 | $ | 3.26 | $ | 2.91 | ||||||||||
- Net Income Attributable to the Company | $ | 0.30 | $ | 0.06 | $ | 3.26 | $ | 2.91 | ||||||||||
Diluted Net Income Per Share | ||||||||||||||||||
- Continuing Operations | $ | 0.30 | $ | 0.05 | $ | 3.23 | $ | 2.87 | ||||||||||
- Net Income Attributable to the Company | $ | 0.30 | $ | 0.06 | $ | 3.23 | $ | 2.87 | ||||||||||
Average Number of Shares Outstanding | ||||||||||||||||||
- Basic | 504 | 510 | 506 | 513 | ||||||||||||||
- Diluted | 509 | 517 | 511 | 519 | ||||||||||||||
Shares Outstanding at 12/31 | 504 | 509 | 504 | 509 | ||||||||||||||
(a) Effective January 1, 2018, ASC 715, as amended, changed the presentation of net periodic pension cost and net periodic postretirement cost. The Company has restated prior years and quarters for this revised presentation. |
(b) To hedge the risk of appreciation of the pound sterling ("GBP") denominated purchase price of JLT relative to the U.S. dollar ("USD"), the Company entered into a deal contingent forward exchange contract to, solely upon consummation of the acquisition, purchase GBP and sell USD at a contracted exchange rate. An unrealized loss of $225 million and $325 million, respectively, related to the fair value changes to this derivative has been recognized in the consolidated statement of income for the three and twelve month periods ended December 31, 2018. |
In addition, to hedge the economic risk of increases in interest rates prior to its issuance of fixed rate debt in January 2019, the Company entered into Treasury locks contracts in the fourth quarter of 2018 related to a portion of the debt. These economic hedges were not designated as accounting hedges. The Company recorded an unrealized loss of $116 million related to the change in fair value of this derivative in the consolidated statement of income for the three and twelve periods ended December 31, 2018. The Company terminated and settled the Treasury rate lock contracts on January 8, 2019, recognizing an additional charge of $6 million that will be recognized in the first quarter of 2019. |
Consolidated
Statements of Income - Impact of Revenue Standard
(In millions,
except per share figures)
(Unaudited)
The Company adopted the 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 December 31, 2018 |
Twelve Months Ended December 31, 2018 |
|||||||||||||||||||||||||
As Reported |
Revenue |
Prior to |
As Reported |
Revenue |
Prior to |
|||||||||||||||||||||
Revenue | $ | 3,712 | $ | 129 | $ | 3,841 | $ | 14,950 | $ | 2 | $ | 14,952 | ||||||||||||||
Expense: | ||||||||||||||||||||||||||
Compensation and Benefits | 2,163 | 75 | 2,238 | 8,605 | 17 | 8,622 | ||||||||||||||||||||
Other Operating Expenses | 928 | — | 928 | 3,584 | — | 3,584 | ||||||||||||||||||||
Operating Expenses | 3,091 | 75 | 3,166 | 12,189 | 17 | 12,206 | ||||||||||||||||||||
Operating Income | 621 | 54 | 675 | 2,761 | (15 | ) | 2,746 | |||||||||||||||||||
Other Net Benefit Credits | 21 | — | 21 | 215 | — | 215 | ||||||||||||||||||||
Interest Income | 3 | — | 3 | 11 | — | 11 | ||||||||||||||||||||
Interest Expense | (92 | ) | — | (92 | ) | (290 | ) | — | (290 | ) | ||||||||||||||||
Investment Income (Loss) | 12 | — | 12 | (12 | ) | — | (12 | ) | ||||||||||||||||||
Acquisition Related Derivative Contracts | (341 | ) | — | (341 | ) | (441 | ) | — | (441 | ) | ||||||||||||||||
Income Before Income Taxes | 224 | 54 | 278 | 2,244 | (15 | ) | 2,229 | |||||||||||||||||||
Income Tax Expense | 65 | 14 | 79 | 574 | (4 | ) | 570 | |||||||||||||||||||
Net Income Before Non-Controlling Interests | 159 | 40 | 199 | 1,670 | (11 | ) | 1,659 | |||||||||||||||||||
Less: Net Income Attributable to Non-Controlling Interests | 6 | — | 6 | 20 | — | 20 | ||||||||||||||||||||
Net Income Attributable to the Company | $ | 153 | $ | 40 | $ | 193 | $ | 1,650 | $ | (11 | ) | $ | 1,639 | |||||||||||||
Net Income Per Share Attributable to the Company | ||||||||||||||||||||||||||
- Basic | $ | 0.30 | $ | 0.08 | $ | 0.38 | $ | 3.26 | $ | (0.02 | ) | $ | 3.24 | |||||||||||||
- Diluted | $ | 0.30 | $ | 0.08 | $ | 0.38 | $ | 3.23 | $ | (0.02 | ) | $ | 3.21 | |||||||||||||
Average Number of Shares Outstanding | ||||||||||||||||||||||||||
- Basic | 504 | 504 | 504 | 506 | 506 | 506 | ||||||||||||||||||||
- Diluted | 509 | 509 | 509 | 511 | 511 | 511 | ||||||||||||||||||||
Shares Outstanding at 12/31 | 504 | 504 | 504 | 504 | 504 | 504 | ||||||||||||||||||||
Supplemental
Information - Revenue Analysis
Three Months Ended
(Millions)
(Unaudited)
Components of Revenue Change* | ||||||||||||||||||||||||
Three Months Ended December 31, |
% Change |
Currency |
Acquisitions/
Dispositions/ |
Revenue Standard |
Underlying |
|||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
Risk and Insurance Services | ||||||||||||||||||||||||
Marsh | $ | 1,804 | $ | 1,712 | 5 | % | (3 | )% | 2 | % | — | 6 | % | |||||||||||
Guy Carpenter | 102 | 239 | (57 | )% | (1 | )% | — | (61 | )% | 5 | % | |||||||||||||
Subtotal | 1,906 | 1,951 | (2 | )% | (3 | )% | 2 | % | (7 | )% | 6 | % | ||||||||||||
Fiduciary Interest Income | 19 | 11 | ||||||||||||||||||||||
Total Risk and Insurance Services | 1,925 | 1,962 | (2 | )% | (3 | )% | 2 | % | (7 | )% | 6 | % | ||||||||||||
Consulting | ||||||||||||||||||||||||
Mercer | 1,228 | 1,193 | 3 | % | (2 | )% | 2 | % | 1 | % | 2 | % | ||||||||||||
Oliver Wyman Group | 577 | 546 | 6 | % | (2 | )% | — | — | 7 | % | ||||||||||||||
Total Consulting | 1,805 | 1,739 | 4 | % | (2 | )% | 2 | % | 1 | % | 3 | % | ||||||||||||
Corporate / Eliminations | (18 | ) | (16 | ) | ||||||||||||||||||||
Total Revenue | $ | 3,712 | $ | 3,685 | 1 | % | (2 | )% | 2 | % | (3 | )% | 5 | % | ||||||||||
Revenue Details
The following table provides more detailed revenue information for certain of the components presented above:
Components of Revenue Change* | ||||||||||||||||||||||||
Three Months Ended December 31, |
% Change |
Currency |
Acquisitions/ |
Revenue |
Underlying |
|||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
Marsh: | ||||||||||||||||||||||||
EMEA | $ | 522 | $ | 521 | — | (2 | )% | — | — | 3 | % | |||||||||||||
Asia Pacific | 169 | 161 | 5 | % | (3 | )% | — | — | 8 | % | ||||||||||||||
Latin America | 121 | 130 | (8 | )% | (20 | )% | 5 | % | — | 8 | % | |||||||||||||
Total International | 812 | 812 | — | (5 | )% | 1 | % | — | 5 | % | ||||||||||||||
U.S. / Canada | 992 | 900 | 10 | % | — | 3 | % | — | 7 | % | ||||||||||||||
Total Marsh | $ | 1,804 | $ | 1,712 | 5 | % | (3 | )% | 2 | % | — | 6 | % | |||||||||||
Mercer: | ||||||||||||||||||||||||
Defined Benefit Consulting & Administration | $ | 320 | $ | 371 | (14 | )% | (2 | )% | (9 | )% | — | (2 | )% | |||||||||||
Investment Management & Related Services | 223 | 195 | 15 | % | (4 | )% | 17 | % | — | 1 | % | |||||||||||||
Total Wealth | 543 | 566 | (4 | )% | (3 | )% | — | — | (1 | )% | ||||||||||||||
Health | 449 | 409 | 10 | % | (1 | )% | 4 | % | 4 | % | 4 | % | ||||||||||||
Career | 236 | 218 | 8 | % | (3 | )% | 6 | % | — | 5 | % | |||||||||||||
Total Mercer | $ | 1,228 | $ | 1,193 | 3 | % | (2 | )% | 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. |
Supplemental
Information - Revenue Analysis
Twelve Months Ended
(Millions) (Unaudited)
Components of Revenue Change* | ||||||||||||||||||||||||
Twelve Months Ended December 31, |
% Change |
Currency |
Acquisitions/ |
Revenue |
Underlying |
|||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
Risk and Insurance Services | ||||||||||||||||||||||||
Marsh | $ | 6,877 | $ | 6,404 | 7 | % | — | 3 | % | — | 4 | % | ||||||||||||
Guy Carpenter | 1,286 | 1,187 | 8 | % | 1 | % | — | — | 7 | % | ||||||||||||||
Subtotal | 8,163 | 7,591 | 8 | % | 1 | % | 3 | % | — | 5 | % | |||||||||||||
Fiduciary Interest Income | 65 | 39 | ||||||||||||||||||||||
Total Risk and Insurance Services | 8,228 | 7,630 | 8 | % | — | 3 | % | — | 5 | % | ||||||||||||||
Consulting | ||||||||||||||||||||||||
Mercer | 4,732 | 4,528 | 5 | % | 1 | % | 1 | % | — | 3 | % | |||||||||||||
Oliver Wyman Group | 2,047 | 1,916 | 7 | % | 1 | % | — | — | 5 | % | ||||||||||||||
Total Consulting | 6,779 | 6,444 | 5 | % | 1 | % | 1 | % | — | 3 | % | |||||||||||||
Corporate / Eliminations | (57 | ) | (50 | ) | ||||||||||||||||||||
Total Revenue | $ | 14,950 | $ | 14,024 | 7 | % | 1 | % | 2 | % | — | 4 | % | |||||||||||
Revenue Details
The following table provides more detailed revenue information for certain of the components presented above:
Components of Revenue Change* | ||||||||||||||||||||||||
Twelve Months Ended December 31, |
% Change |
Currency |
Acquisitions/ |
Revenue |
Underlying |
|||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||
Marsh: | ||||||||||||||||||||||||
EMEA | $ | 2,132 | $ | 2,033 | 5 | % | 3 | % | 1 | % | — | — | ||||||||||||
Asia Pacific | 683 | 645 | 6 | % | — | — | — | 5 | % | |||||||||||||||
Latin America | 400 | 404 | (1 | )% | (10 | )% | 3 | % | — | 6 | % | |||||||||||||
Total International | 3,215 | 3,082 | 4 | % | 1 | % | 1 | % | — | 2 | % | |||||||||||||
U.S. / Canada | 3,662 | 3,322 | 10 | % | — | 5 | % | — | 6 | % | ||||||||||||||
Total Marsh | $ | 6,877 | $ | 6,404 | 7 | % | — | 3 | % | — | 4 | % | ||||||||||||
Mercer: | ||||||||||||||||||||||||
Defined Benefit Consulting & Administration | $ | 1,279 | $ | 1,381 | (7 | )% | 1 | % | (5 | )% | — | (4 | )% | |||||||||||
Investment Management & Related Services | 906 | 767 | 18 | % | — | 9 | % | — | 9 | % | ||||||||||||||
Total Wealth | 2,185 | 2,148 | 2 | % | 1 | % | — | — | 1 | % | ||||||||||||||
Health | 1,735 | 1,648 | 5 | % | — | 1 | % | — | 4 | % | ||||||||||||||
Career | 812 | 732 | 11 | % | — | 6 | % | — | 5 | % | ||||||||||||||
Total Mercer | $ | 4,732 | $ | 4,528 | 5 | % | 1 | % | 1 | % | — | 3 | % | |||||||||||
Note: |
Underlying revenue measures the change in revenue using consistent currency exchange rates, excluding the impact of certain items that affect comparability such as: acquisitions, dispositions, transfers among businesses, changes in estimate methodology and the impact of the new revenue standard. |
* Components of revenue change may not add due to rounding. |
Reconciliation of
Non-GAAP Measures
Includes Revenue Standard Impact
Three
Months Ended
(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 December 31, 2018. The following tables also present adjusted operating margin. For the three months ended December 31, 2018, adjusted operating margin is calculated by dividing adjusted operating income by consolidated or segment GAAP revenue adjusted for the subsidiary or affiliate transactions discussed below. |
Risk & |
Consulting |
Corporate/ |
Total | ||||||||||||||
Three Months Ended December 31, 2018 | |||||||||||||||||
Operating income (loss) | $ | 383 | $ | 294 | $ | (56 | ) | $ | 621 | ||||||||
Add (Deduct) impact of Noteworthy Items: | |||||||||||||||||
Restructuring (a) | 12 | 51 | 3 | 66 | |||||||||||||
Adjustments to acquisition related accounts (b) | 6 | 7 | — | 13 | |||||||||||||
JLT acquisition related costs (c) | 5 | — | 7 | 12 | |||||||||||||
Subsidiary or affiliate transactions (d) | 11 | 6 | — | 17 | |||||||||||||
Other | 1 | 1 | — | 2 | |||||||||||||
Operating income adjustments | 35 | 65 | 10 | 110 | |||||||||||||
Adjusted operating income (loss) | $ | 418 | $ | 359 | $ | (46 | ) | $ | 731 | ||||||||
Operating margin | 19.9 | % | 16.3 | % | N/A | 16.7 | % | ||||||||||
Adjusted operating margin | 21.6 | % | 19.8 | % | N/A | 19.6 | % | ||||||||||
(a) Includes severance and related charges from restructuring activities, adjustments to restructuring liabilities for future rent under non-cancellable leases and other real estate costs, and restructuring costs related to the integration of recent acquisitions. Reflects severance and consulting costs relating to the Marsh simplification initiative and Mercer's business restructure. |
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions. |
(c) Primarily related to legal and consulting costs in connection with the JLT acquisition. |
(d) Dispositions or deconsolidation of businesses and results of certain equity method investments are reflected as an increase or decrease of other revenue, which is reflected as part of revenue in the consolidated statements of income. These items are removed from GAAP revenue in the calculation of adjusted operating margin. |
Note: |
Comparative financial information for the three months ended December 31, 2017 is presented on page 11. |
Reconciliation of
Non-GAAP Measures - Comparable Accounting Basis
Excludes the
Revenue Standard Impact
Three Months Ended
(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 | |||||||||||||
Three Months Ended December 31, 2018 | ||||||||||||||||
Operating income (loss) without adoption | $ | 456 | $ | 275 | $ | (56 | ) | $ | 675 | |||||||
Add impact of Noteworthy Items: | ||||||||||||||||
Restructuring (a) | 12 | 51 | 3 | 66 | ||||||||||||
Adjustments to acquisition related accounts (b) | 6 | 7 | — | 13 | ||||||||||||
JLT acquisition related costs (c) | 5 | — | 7 | 12 | ||||||||||||
Subsidiary or affiliate transactions (d) | 11 | 6 | — | 17 | ||||||||||||
Other | 1 | 1 | — | 2 | ||||||||||||
Operating income adjustments | 35 | 65 | 10 | 110 | ||||||||||||
Adjusted operating income (loss) | $ | 491 | $ | 340 | $ | (46 | ) | $ | 785 | |||||||
Operating margin - Comparable basis | 22.0 | % | 15.4 | % | N/A | 17.6 | % | |||||||||
Adjusted operating margin - Comparable basis | 23.6 | % | 19.0 | % | N/A | 20.4 | % | |||||||||
Three Months Ended December 31, 2017 | ||||||||||||||||
Operating income (loss) | $ | 413 | $ | 309 | $ | (52 | ) | $ | 670 | |||||||
Add impact of Noteworthy Items: | ||||||||||||||||
Restructuring (a) | 4 | 1 | 3 | 8 | ||||||||||||
Adjustments to acquisition related accounts (b) | 5 | 1 | — | 6 | ||||||||||||
Other | 1 | — | — | 1 | ||||||||||||
Operating income adjustments | 10 | 2 | 3 | 15 | ||||||||||||
Adjusted operating income (loss) | $ | 423 | $ | 311 | $ | (49 | ) | $ | 685 | |||||||
Operating margin | 21.0 | % | 17.8 | % | N/A | 18.2 | % | |||||||||
Adjusted operating margin | 21.6 | % | 17.9 | % | N/A | 18.6 | % | |||||||||
(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. Reflects severance and consulting costs in 2018 relating to the Marsh simplification initiative and Mercer's business restructure. |
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions. |
(c) Primarily related to legal and consulting costs in connection with the JLT acquisition. |
(d) Dispositions or deconsolidation of businesses and results of certain equity method investments are reflected as an increase or decrease of other revenue, which is reflected as part of revenue in the consolidated statements of income. These items are removed from GAAP revenue in the calculation of adjusted operating margin. |
Reconciliation of
Non-GAAP Measures
Includes Revenue Standard Impact
Twelve
Months Ended
(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 twelve months ended December 31, 2018. The following tables also present adjusted operating margin. For the twelve months ended December 31, 2018, adjusted operating margin is calculated by dividing adjusted operating income by consolidated or segment GAAP revenue adjusted for the subsidiary or affiliate transactions discussed below. |
Risk & |
Consulting |
Corporate/ |
Total | ||||||||||||||
Twelve Months Ended December 31, 2018 | |||||||||||||||||
Operating income (loss) | $ | 1,864 | $ | 1,099 | $ | (202 | ) | $ | 2,761 | ||||||||
Add (Deduct) impact of Noteworthy Items: | |||||||||||||||||
Restructuring (a) | 99 | 52 | 10 | 161 | |||||||||||||
Adjustments to acquisition related accounts (b) | 22 | 10 | — | 32 | |||||||||||||
JLT acquisition related costs (c) | 5 | — | 7 | 12 | |||||||||||||
Subsidiary or affiliate transactions (d) | (35 | ) | 6 | — | (29 | ) | |||||||||||
Other | 1 | — | — | 1 | |||||||||||||
Operating income adjustments | 92 | 68 | 17 | 177 | |||||||||||||
Adjusted operating income (loss) | $ | 1,956 | $ | 1,167 | $ | (185 | ) | $ | 2,938 | ||||||||
Operating margin | 22.7 | % | 16.2 | % | N/A | 18.5 | % | ||||||||||
Adjusted operating margin | 23.9 | % | 17.2 | % | N/A | 19.7 | % | ||||||||||
(a) Includes severance and related charges from restructuring activities, adjustments to restructuring liabilities for future rent under non-cancellable leases and other real estate costs, and restructuring costs related to the integration of recent acquisitions. Reflects severance and consulting costs in 2018 relating to the Marsh simplification initiative and Mercer's business restructure. |
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions. |
(c) Primarily related to legal and consulting costs in connection with the JLT acquisition. |
(d) Dispositions or deconsolidation of businesses and results of certain equity method investments are reflected as an increase or decrease of other revenue, which is reflected as part of revenue in the consolidated statements of income. These items are removed from GAAP revenue in the calculation of adjusted operating margin. |
Note: |
Comparative financial information for the twelve months ended December 31, 2017 is presented on page 13. |
Reconciliation of
Non-GAAP Measures - Comparable Accounting Basis
Excludes the
Revenue Standard Impact
Twelve Months Ended
(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 | ||||||||||||||
Twelve Months Ended December 31, 2018 | |||||||||||||||||
Operating income (loss) without adoption | $ | 1,864 | $ | 1,084 | $ | (202 | ) | $ | 2,746 | ||||||||
Add (Deduct) impact of Noteworthy Items: | |||||||||||||||||
Restructuring (a) | 99 | 52 | 10 | 161 | |||||||||||||
Adjustments to acquisition related accounts (b) | 22 | 10 | — | 32 | |||||||||||||
JLT acquisition related costs (c) | 5 | — | 7 | 12 | |||||||||||||
Subsidiary or affiliate transactions (d) | (35 | ) | 6 | — | (29 | ) | |||||||||||
Other | 1 | — | — | 1 | |||||||||||||
Operating income adjustments | 92 | 68 | 17 | 177 | |||||||||||||
Adjusted operating income (loss) | $ | 1,956 | $ | 1,152 | $ | (185 | ) | $ | 2,923 | ||||||||
Operating margin - Comparable basis | 22.6 | % | 16.0 | % | N/A | 18.4 | % | ||||||||||
Adjusted operating margin - Comparable basis | 23.9 | % | 17.0 | % | N/A | 19.6 | % | ||||||||||
Twelve Months Ended December 31, 2017 | |||||||||||||||||
Operating income (loss) | $ | 1,731 | $ | 1,110 | $ | (186 | ) | $ | 2,655 | ||||||||
Add impact of Noteworthy Items: | |||||||||||||||||
Restructuring (a) | 11 | 19 | 10 | 40 | |||||||||||||
Adjustments to acquisition related accounts (b) | — | 3 | — | 3 | |||||||||||||
Other Settlement, Legal and Regulatory (e) | 15 | — | — | 15 | |||||||||||||
Other | 1 | — | — | 1 | |||||||||||||
Operating income adjustments | 27 | 22 | 10 | 59 | |||||||||||||
Adjusted operating income (loss) | $ | 1,758 | $ | 1,132 | $ | (176 | ) | $ | 2,714 | ||||||||
Operating margin | 22.7 | % | 17.2 | % | N/A | 18.9 | % | ||||||||||
Adjusted operating margin | 23.0 | % | 17.6 | % | N/A | 19.4 | % | ||||||||||
(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. Reflects severance and consulting costs in 2018 relating to the Marsh simplification initiative and Mercer's business restructure. |
(b) Primarily includes the change in fair value as measured each quarter of contingent consideration related to acquisitions. |
(c) Primarily related to legal and consulting costs in connection with the JLT acquisition. |
(d) Dispositions or deconsolidation of businesses and results of certain equity method investments are reflected as an increase or decrease of other revenue, which is reflected as part of revenue in the consolidated statements of income. These items are removed from GAAP revenue in the calculation of adjusted operating margin. |
(e) Reflects the settlement of the final legacy litigation, originally filed in 2006, regarding Marsh's use of market service agreements. |
Reconciliation of
Non-GAAP Measures
Includes the Revenue Standard Impact
Three
and Twelve Months Ended
(Millions) (Unaudited)
Adjusted Income, Net of Tax and Adjusted Earnings per Share |
Adjusted income, net of tax is calculated as the Company's GAAP income from continuing operations, adjusted to reflect the after-tax impact of the operating income adjustments set forth in the preceding tables and investments gains or losses related to the impact of mark-to-market adjustments on certain equity securities previously recorded to equity, change in fair value of the acquisition related derivative contracts, amortization of bridge financing fees, pension settlement charges and adjustments to provisional 2017 tax estimates. Adjusted EPS is calculated by dividing the Company's adjusted income, net of tax, by MMC's average number of shares outstanding-diluted for the relevant period. The following tables reconcile adjusted income, net of tax to GAAP income from continuing operations and adjusted EPS to GAAP EPS for the three and twelve months ended December 31, 2018. |
Three Months Ended
December 31, 2018 |
Twelve Months Ended
December 31, 2018 |
|||||||||||||||||||||||
Amount | Adjusted EPS | Amount | Adjusted EPS | |||||||||||||||||||||
Income from continuing operations | $ | 159 | $ | 1,670 | ||||||||||||||||||||
Less: Non-controlling interest, net of tax | 6 | 20 | ||||||||||||||||||||||
Subtotal | $ | 153 | $ | 0.30 | $ | 1,650 | $ | 3.23 | ||||||||||||||||
Operating income adjustments (from pages 10 and 12) | $ | 110 | $ | 177 | ||||||||||||||||||||
Investments adjustment (a) | (8 | ) | 29 | |||||||||||||||||||||
Pension settlement charge (b) | 42 | 42 | ||||||||||||||||||||||
Change in fair value of acquisition related derivative contracts (c) | 341 | 441 | ||||||||||||||||||||||
Amortization of bridge financing fees (d) | 27 | 30 | ||||||||||||||||||||||
Impact of income taxes on above items | (113 | ) | (139 | ) | ||||||||||||||||||||
Adjustments to provisional 2017 tax estimates (e) | 6 | (5 | ) | |||||||||||||||||||||
405 | 0.79 | 575 | 1.12 | |||||||||||||||||||||
Adjusted income, net of tax | $ | 558 | $ | 1.09 | $ | 2,225 | $ | 4.35 | ||||||||||||||||
(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 $8 million and $54 million for the three and twelve-month periods ended December 31, 2018, respectively, which are included in Investment Income in the Consolidated Statement of Income. |
The Company has an investment in Alexander Forbes ("AF"), which is accounted for using the equity method. AF's shares (which are publicly traded on the Johannesburg stock exchange) have been trading below the Company's carrying value. Based on the extent of and duration over which the shares have traded below the Company's carrying value, the Company determined the decline was other than temporary and in the third quarter recorded a charge of $83 million in Investment loss. |
(b) Pension settlement charge resulting from lump sum settlements elected by participants in primarily certain U.K. pension plans. Recognition of these payments as a partial settlement was required because in each respective plan the lump sum payments exceeded the total of interest and service cost for the year. |
(c) Reflects the change in fair value of the deal contingent foreign exchange contract and treasury rate locks related to the acquisition of JLT. |
(d) Reflects amortization of the bridge financing fees related to the pending acquisition of JLT recorded in interest expense. |
(e) Relates to final 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 twelve months ended December 31, 2017 is presented on page 15. |
Reconciliation of
Non-GAAP Measures - Comparable Accounting Basis
Excludes the
Revenue Standard Impact
Three and Twelve Months Ended
(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
December 31, 2018 |
Three Months Ended
December 31, 2017 |
|||||||||||||||||||||||
Amount | Adjusted EPS | Amount | Adjusted EPS | |||||||||||||||||||||
Income from continuing operations, (2018 prior to the impact of ASC 606) | $ | 199 | $ | 28 | ||||||||||||||||||||
Less: Non-controlling interest, net of tax | 6 | 1 | ||||||||||||||||||||||
Subtotal | $ | 193 | $ | 0.38 | $ | 27 | $ | 0.05 | ||||||||||||||||
Operating income adjustments (from page 11) | $ | 110 | $ | 15 | ||||||||||||||||||||
Investments adjustment (a) | (8 | ) | — | |||||||||||||||||||||
Pension settlement charge (b) | 42 | 54 | ||||||||||||||||||||||
Change in fair value of acquisition related derivative contracts (c) | 341 | — | ||||||||||||||||||||||
Amortization of bridge financing fees (d) | 27 | — | ||||||||||||||||||||||
Impact of income taxes on above items | (113 | ) | (12 | ) | ||||||||||||||||||||
Adjustments/Impact of U.S. tax reform (e) | 6 | 460 | ||||||||||||||||||||||
405 | 0.79 | 517 | 1.00 | |||||||||||||||||||||
Adjusted income, net of tax | $ | 598 | $ | 1.17 | $ | 544 | $ | 1.05 | ||||||||||||||||
Twelve Months Ended
December 31, 2018 |
Twelve Months Ended
December 31, 2017 |
|||||||||||||||||||||||
Amount | Adjusted EPS | Amount | Adjusted EPS | |||||||||||||||||||||
Income from continuing operations, (2018 prior to the impact of ASC 606) | $ | 1,659 | $ | 1,510 | ||||||||||||||||||||
Less: Non-controlling interest, net of tax | 20 | 20 | ||||||||||||||||||||||
Subtotal | $ | 1,639 | $ | 3.21 | $ | 1,490 | $ | 2.87 | ||||||||||||||||
Operating income adjustments (from page 13) | $ | 177 | $ | 59 | ||||||||||||||||||||
Investments adjustment (a) | 29 | — | ||||||||||||||||||||||
Pension settlement charge (b) | 42 | 54 | ||||||||||||||||||||||
Change in fair value of FX acquisition related derivative contracts (c) | 441 | — | ||||||||||||||||||||||
Amortization of bridge financing fees (d) | 30 | — | ||||||||||||||||||||||
Impact of income taxes on above items | (139 | ) | (28 | ) | ||||||||||||||||||||
Adjustments/Impact of U.S. tax reform (e) | (5 | ) | 460 | |||||||||||||||||||||
575 | 1.12 | 545 | 1.05 | |||||||||||||||||||||
Adjusted income, net of tax | $ | 2,214 | $ | 4.33 | $ | 2,035 | $ | 3.92 | ||||||||||||||||
(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 $8 million and $54 million for the three and twelve-month periods ended December 31, 2018, respectively, which are included in Investment Income in the Consolidated Statement of Income. |
The Company has an investment in AF, which is accounted for using the equity method. AF's shares (which are publicly traded on the Johannesburg stock exchange) have been trading below the Company's carrying value. Based on the extent of and duration over which the shares have traded below the Company's carrying value, the Company determined the decline was other than temporary and in the third quarter recorded a charge of $83 million in Investment loss. |
(b) Pension settlement charge resulting from lump sum settlements elected by participants in primarily certain U.K. pension plans. Recognition of these payments as a partial settlement was required because in each respective plan the lump sum payments exceeded the total of interest and service cost for the year. |
(c) Reflects the change in fair value of the deal contingent foreign exchange contract and treasury rate locks related to the acquisition of JLT. |
(d) Reflects amortization of the bridge financing fees related to the pending acquisition of JLT recorded in interest expense. |
(e) Relates to final adjustments to provisional 2017 year-end estimates of transition taxes and U.S. deferred tax assets and liabilities from U.S. tax reform. |
Supplemental
Information
Three and Twelve Months Ended
(Millions)
(Unaudited)
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||||||
Excludes |
Excludes |
||||||||||||||||||||||||
2018 | 2018 | 2017 | 2018 | 2018 | 2017 | ||||||||||||||||||||
Consolidated | |||||||||||||||||||||||||
Compensation and Benefits | $ | 2,163 | $ | 2,238 | $ | 2,114 | $ | 8,605 | $ | 8,622 | $ | 8,085 | |||||||||||||
Other operating expenses | 928 | 928 | 901 | 3,584 | 3,584 | 3,284 | |||||||||||||||||||
Total Expenses | $ | 3,091 | $ | 3,166 | $ | 3,015 | $ | 12,189 | $ | 12,206 | $ | 11,369 | |||||||||||||
Depreciation and amortization expense | $ | 75 | $ | 75 | $ | 78 | $ | 311 | $ | 311 | $ | 312 | |||||||||||||
Identified intangible amortization expense | 48 | 48 | 47 | 183 | 183 | 169 | |||||||||||||||||||
Total | $ | 123 | $ | 123 | $ | 125 | $ | 494 | $ | 494 | $ | 481 | |||||||||||||
Stock option expense | $ | 2 | $ | 2 | $ | 1 | $ | 22 | $ | 22 | $ | 20 | |||||||||||||
Risk and Insurance Services | |||||||||||||||||||||||||
Compensation and Benefits | $ | 1,069 | $ | 1,141 | $ | 1,087 | $ | 4,485 | $ | 4,490 | $ | 4,171 | |||||||||||||
Other operating expenses | 473 | 473 | 462 | 1,879 | 1,879 | 1,728 | |||||||||||||||||||
Total Expenses | $ | 1,542 | $ | 1,614 | $ | 1,549 | $ | 6,364 | $ | 6,369 | $ | 5,899 | |||||||||||||
Depreciation and amortization expense | $ | 31 | $ | 31 | $ | 37 | $ | 139 | $ | 139 | $ | 143 | |||||||||||||
Identified intangible amortization expense | 40 | 40 | 39 | 151 | 151 | 139 | |||||||||||||||||||
Total | $ | 71 | $ | 71 | $ | 76 | $ | 290 | $ | 290 | $ | 282 | |||||||||||||
Consulting | |||||||||||||||||||||||||
Compensation and Benefits | $ | 1,007 | $ | 1,010 | $ | 938 | $ | 3,760 | $ | 3,772 | $ | 3,573 | |||||||||||||
Other operating expenses | 504 | 504 | 492 | 1,920 | 1,920 | 1,761 | |||||||||||||||||||
Total Expenses | $ | 1,511 | $ | 1,514 | $ | 1,430 | $ | 5,680 | $ | 5,692 | $ | 5,334 | |||||||||||||
Depreciation and amortization expense | $ | 24 | $ | 24 | $ | 23 | $ | 98 | $ | 98 | $ | 99 | |||||||||||||
Identified intangible amortization expense | 8 | 8 | 8 | 32 | 32 | 30 | |||||||||||||||||||
Total | $ | 32 | $ | 32 | $ | 31 | $ | 130 | $ | 130 | $ | 129 | |||||||||||||
Consolidated Balance
Sheets
(Millions) (Unaudited)
December 31, 2018 | December 31, 2017 | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 1,066 | $ | 1,205 | ||||||
Net receivables | 4,317 | 4,133 | ||||||||
Other current assets | 551 | 224 | ||||||||
Total current assets | 5,934 | 5,562 | ||||||||
Goodwill and intangible assets | 11,036 | 10,363 | ||||||||
Fixed assets, net | 701 | 712 | ||||||||
Pension related assets | 1,688 | 1,693 | ||||||||
Deferred tax assets | 680 | 669 | ||||||||
Other assets | 1,539 | 1,430 | ||||||||
TOTAL ASSETS | $ | 21,578 | $ | 20,429 | ||||||
LIABILITIES AND EQUITY | ||||||||||
Current liabilities: | ||||||||||
Short-term debt | $ | 314 | $ | 262 | ||||||
Accounts payable and accrued liabilities | 2,675 | 2,083 | ||||||||
Accrued compensation and employee benefits | 1,778 | 1,718 | ||||||||
Accrued income taxes | 157 | 199 | ||||||||
Total current liabilities | 4,924 | 4,262 | ||||||||
Fiduciary liabilities | 5,001 | 4,847 | ||||||||
Less - cash and investments held in a fiduciary capacity | (5,001 | ) | (4,847 | ) | ||||||
— | — | |||||||||
Long-term debt | 5,510 | 5,225 | ||||||||
Pension, post-retirement and post-employment benefits | 1,911 | 1,888 | ||||||||
Liabilities for errors and omissions | 287 | 301 | ||||||||
Other liabilities | 1,362 | 1,311 | ||||||||
Total equity | 7,584 | 7,442 | ||||||||
TOTAL LIABILITIES AND EQUITY | $ | 21,578 | $ | 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. |
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. |
December 31, 2018 | ||||||||||||||
As Reported |
Impact of |
Prior to |
||||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 1,066 | $ | — | $ | 1,066 | ||||||||
Net receivables | 4,317 | (68 | ) | 4,249 | ||||||||||
Other current assets | 551 | (326 | ) | 225 | ||||||||||
Total current assets | 5,934 | (394 | ) | 5,540 | ||||||||||
Goodwill and intangible assets | 11,036 | — | 11,036 | |||||||||||
Fixed assets, net | 701 | — | 701 | |||||||||||
Pension related assets | 1,688 | — | 1,688 | |||||||||||
Deferred tax assets | 680 | 107 | 787 | |||||||||||
Other assets | 1,539 | (242 | ) | 1,297 | ||||||||||
TOTAL ASSETS | $ | 21,578 | $ | (529 | ) | $ | 21,049 | |||||||
LIABILITIES AND EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Short-term debt | $ | 314 | $ | — | $ | 314 | ||||||||
Accounts payable and accrued liabilities | 2,675 | (129 | ) | 2,546 | ||||||||||
Accrued compensation and employee benefits | 1,778 | — | 1,778 | |||||||||||
Accrued income taxes | 157 | — | 157 | |||||||||||
Total current liabilities | 4,924 | (129 | ) | 4,795 | ||||||||||
Fiduciary liabilities | 5,001 | — | 5,001 | |||||||||||
Less - cash and investments held in a fiduciary capacity | (5,001 | ) | — | (5,001 | ) | |||||||||
— | — | — | ||||||||||||
Long-term debt | 5,510 | — | 5,510 | |||||||||||
Pension, post-retirement and post-employment benefits | 1,911 | — | 1,911 | |||||||||||
Liabilities for errors and omissions | 287 | — | 287 | |||||||||||
Other liabilities | 1,362 | (25 | ) | 1,337 | ||||||||||
Total equity | 7,584 | (375 | ) | 7,209 | ||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 21,578 | $ | (529 | ) | $ | 21,049 | |||||||
Consolidated
Statements of Cash Flows
(Millions) (Unaudited)
For the Years Ended December 31, | ||||||||||
2018 | 2017 | |||||||||
Operating cash flows: | ||||||||||
Net income before non-controlling interests | $ | 1,670 | $ | 1,512 | ||||||
Adjustments to reconcile net income to cash provided by operations: | ||||||||||
Depreciation and amortization of fixed assets and capitalized software | 311 | 312 | ||||||||
Amortization of intangible assets | 183 | 169 | ||||||||
Adjustments and payments related to contingent consideration liability | (4 | ) | (24 | ) | ||||||
Loss on deconsolidation of a business | 11 | — | ||||||||
(Benefit) Provision for deferred income taxes | (39 | ) | 396 | |||||||
Loss (Gain) on investments | 12 | (15 | ) | |||||||
Loss (Gain) on disposition of assets | (48 | ) | 10 | |||||||
Share-based compensation expense | 193 | 149 | ||||||||
Change in fair value of acquisition related derivative contracts | 441 | — | ||||||||
Changes in assets and liabilities: | ||||||||||
Net receivables | (78 | ) | (454 | ) | ||||||
Other current assets | 26 | (3 | ) | |||||||
Other assets | (37 | ) | (199 | ) | ||||||
Accounts payable and accrued liabilities | 23 | 87 | ||||||||
Accrued compensation and employee benefits | 68 | 63 | ||||||||
Accrued income taxes | (40 | ) | 37 | |||||||
Contributions to pension and other benefit plans in excess of current year expense/credit | (291 | ) | (457 | ) | ||||||
Other liabilities | 9 | 406 | ||||||||
Effect of exchange rate changes | 18 | (96 | ) | |||||||
Net cash provided by operations | 2,428 | 1,893 | ||||||||
Financing cash flows: | ||||||||||
Purchase of treasury shares | (675 | ) | (900 | ) | ||||||
Net increase in commercial paper | — | — | ||||||||
Proceeds from issuance of debt | 591 | 987 | ||||||||
Repayments of debt | (263 | ) | (315 | ) | ||||||
Payment of bridge loan fees | (35 | ) | — | |||||||
Shares withheld for taxes on vested units – treasury shares | (67 | ) | (49 | ) | ||||||
Issuance of common stock from treasury shares | 93 | 166 | ||||||||
Payments of deferred and contingent consideration for acquisitions | (117 | ) | (136 | ) | ||||||
Distributions of non-controlling interests | (30 | ) | (22 | ) | ||||||
Dividends paid | (807 | ) | (740 | ) | ||||||
Net cash used for financing activities | (1,310 | ) | (1,009 | ) | ||||||
Investing cash flows: | ||||||||||
Capital expenditures | (314 | ) | (302 | ) | ||||||
Net (purchases) sales of long-term investments | 4 | (13 | ) | |||||||
Proceeds from sales of fixed assets | 3 | 8 | ||||||||
Dispositions | 110 | — | ||||||||
Acquisitions | (884 | ) | (655 | ) | ||||||
Other, net | (8 | ) | 6 | |||||||
Net cash used for investing activities | (1,089 | ) | (956 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents | (168 | ) | 251 | |||||||
Increase (decrease) in cash and cash equivalents | (139 | ) | 179 | |||||||
Cash and cash equivalents at beginning of year | 1,205 | 1,026 | ||||||||
Cash and cash equivalents at end of year | $ | 1,066 | $ | 1,205 | ||||||
|
In 2017, U.S. tax reform had significant impacts on certain line items in the reconciliation of Net income before non-controlling interests to net cash provided from operating cash flows. The impact of income taxes is reflected in the following line items: Deferred tax provision- $396 million, Net receivables- $(73) million, Other assets- $(164) million and Other liabilities- $340 million, or a net impact of $499 million. In 2018, the impact of income taxes on those line items netted to $(18) million. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190131005424/en/
Source:
Media:
Erick R. Gustafson
Marsh & McLennan Companies
+1
202 263 7788
erick.gustafson@mmc.com
Investors:
Dan
Farrell
Marsh & McLennan Companies
+1 212 345 3713
daniel.farrell@mmc.com