REG-Marsh & McLennan Marsh & McLennan Reports Third Quarter 2020 Results
29/10/2020 11:05
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Marsh & McLennan Reports Third Quarter 2020 Results
Third Quarter Operating Income Rises 15% and Adjusted Operating Income
Increases 9%
Third Quarter EPS Rises to $0.62 from $0.59 and Adjusted EPS Increases 6% to
$0.82
Nine Months Operating Income Rises 20% and Adjusted Operating Income Increases
12%
Nine Months EPS Rises to $3.21 from $2.64 and Adjusted EPS Increases 9% to
$3.77
Marsh & McLennan Companies, Inc. (NYSE: MMC), the world’s leading
professional services firm in the areas of risk, strategy and people, today
reported financial results for the third quarter ended September 30, 2020.
Dan Glaser, President and CEO, said: “Marsh & McLennan’s strong
performance in this period of uncertainty demonstrates our continued excellent
execution and the resilience of our business. In the third quarter, we
generated 9% adjusted operating income growth and 6% growth in adjusted EPS,
despite a modest decline in underlying revenue. For the first nine months of
2020, we achieved 1% underlying revenue growth, 12% adjusted operating income
growth and 9% adjusted EPS growth.
“I am proud of the extraordinary dedication of our colleagues in serving our
clients and supporting each other.”
Consolidated Results
Consolidated revenue in the third quarter of 2020 was $4.0 billion, flat
compared with the third quarter of 2019. Underlying revenue declined 1%
compared to the prior period. Operating income was $540 million compared with
$467 million in the prior year. Adjusted operating income, which excludes
noteworthy items as presented in the attached supplemental schedules, rose 9%
to $638 million. Net income attributable to the Company was $316 million, or
$0.62 per diluted share, compared with $0.59 in the third quarter of 2019.
Adjusted earnings per share increased 6% to $0.82 compared with $0.77 for the
prior year period.
For the nine months ended September 30, 2020, consolidated revenue was $12.8
billion, an increase of 3%, or 1% on an underlying basis. Operating income was
$2.5 billion, while adjusted operating income, which excludes noteworthy items
as presented in the attached supplemental schedules, rose 12% to $2.8 billion.
Net income attributable to the Company was $1.6 billion. Fully diluted
earnings per share was $3.21 compared with $2.64 in the first nine months of
2019. Adjusted earnings per share increased 9% to $3.77 compared with $3.47
for the comparable period in 2019.
Risk & Insurance Services
Risk & Insurance Services revenue was $2.3 billion in the third quarter of
2020, an increase of 4%, or 2% on an underlying basis. Operating income was
$333 million compared with $218 million in the third quarter of 2019. Adjusted
operating income was $388 million, an increase of 24% compared with $313
million in the prior year period. For the nine months ended September 30,
2020, revenue was $7.8 billion, an increase of 8%, or 3% on an underlying
basis. Operating income increased 28% to $1.9 billion, and adjusted operating
income rose 20% to $2.1 billion.
Marsh's revenue in the third quarter was $2.0 billion, an increase of 3% on an
underlying basis. In US/Canada, underlying revenue rose 5%. International
operations produced 2% underlying revenue growth with 4% growth in Asia
Pacific, 2% growth in Latin America and flat in EMEA on an underlying basis.
For the nine months ended September 30, 2020, Marsh’s underlying revenue
growth was 3%.
Guy Carpenter's revenue in the third quarter was $274 million, flat on an
underlying basis, compared with the third quarter 2019. For the nine months
ended September 30, 2020, Guy Carpenter’s underlying revenue growth was 6%.
Consulting
Consulting revenue in the third quarter was $1.7 billion, a decrease of 5%, or
4% decline on an underlying basis. Operating income decreased 12% to $278
million, and adjusted operating income decreased 5% to $306 million. For the
first nine months of 2020, revenue was $5.1 billion, a decrease of 4%, or 2%
decline on an underlying basis. Operating income of $815 million decreased 7%,
and adjusted operating income decreased 6% to $860 million.
Mercer's revenue was $1.2 billion in the third quarter, a decrease of 3% on an
underlying basis. Health, with revenue of $430 million, was flat on an
underlying basis compared with third quarter 2019. Wealth revenue of $566
million decreased 3% on an underlying basis, and Career revenue of $220
million was down 11% on an underlying basis. For the nine months ended
September 30, 2020, Mercer’s revenue was $3.6 billion, a decrease of 1% on
an underlying basis.
Oliver Wyman’s revenue was $480 million in the third quarter, a decrease of
6% on an underlying basis. For the first nine months ended September 30, 2020,
Oliver Wyman’s revenue was $1.5 billion, down 6% on an underlying basis.
Conference Call
A conference call to discuss third quarter 2020 results will be held today at
8:30 a.m. Eastern time. To participate in the teleconference, please dial +1
866 437 7574. Callers from outside the United States should dial +1 409 220
9376. The access code for both numbers is 8343803. The live audio webcast will
be accessible at mmc.com
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, and a replay will be available approximately two hours after the event.
About Marsh & McLennan Companies
Marsh & McLennan
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(NYSE: MMC) is the world’s leading professional services firm in the areas
of risk, strategy and people. The Company’s 76,000 colleagues advise clients
in over 130 countries. With annual revenue of $17 billion, Marsh &
McLennan helps clients navigate an increasingly dynamic and complex
environment through four market-leading businesses. Marsh
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advises individual and commercial clients of all sizes on insurance broking
and innovative risk management solutions. Guy Carpenter
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develops advanced risk, reinsurance and capital strategies that help clients
grow profitably and pursue emerging opportunities. Mercer
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delivers advice and solutions to help organizations reshape work, retirement,
investment and health outcomes for a changing workforce. Oliver Wyman
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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," "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 financial and operational impact of COVID-19 on our revenue and ability to
generate new business, our overall level of profitability and cash flow, and
our liquidity, including the timeliness and collectability of our receivables;
* the impact of disruption in the credit or financial markets, or changes to our
credit ratings, including as a result of COVID-19, on our ability to access
capital or repay our significant outstanding indebtedness on favorable terms
and our compliance with the covenants contained in the agreements that govern
our indebtedness;
* the impact from lawsuits, other contingent liabilities and loss contingencies
arising from errors and omissions, breach of fiduciary duty or other claims
against us, including claims related to pandemic coverage;
* the impact of investigations, reviews, or other activity by regulatory or law
enforcement authorities, including the ongoing U.K. FCA review of legacy JLT
enhanced transfer value advice;
* the financial and operational impact of complying with laws and regulations
where we operate and the risks of noncompliance with such laws, including
anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, U.K.
Anti-Bribery Act, trade sanctions regimes and cybersecurity and data privacy
regulations such as the E.U.’s General Data Protection Regulation;
* our ability to manage risks associated with our investment management and
related services business, particularly in the context of volatile equity
markets caused by COVID-19, including our ability to execute timely trades in
light of increased trading volume and to manage potential conflicts of
interest between investment consulting and fiduciary management services;
* our ability to compete effectively and adapt to changes in the competitive
environment, including to respond to technological change, disintermediation,
digital disruption and other types of innovation;
* our ability to attract and retain industry leading talent;
* our ability to maintain adequate safeguards to protect the security of our
information systems and confidential, personal or proprietary information,
including those in the existing JLT information systems, particularly given
the increased risk of phishing and other cybersecurity attacks or unauthorized
dissemination of information caused by remote work arrangements;
* the regulatory, contractual and reputational risks that arise based on
insurance placement activities and various insurer revenue streams;
* our ability to successfully recover if we experience a business continuity
problem due to cyberattack, natural disaster or otherwise; and
* the impact of changes in tax laws, guidance and interpretations, or
disagreements with tax authorities.
The factors identified above are not exhaustive. Marsh & McLennan
Companies and its subsidiaries operate in a dynamic business environment in
which new risks emerge frequently. Accordingly, we caution readers not to
place undue reliance on any forward-looking statements, which are based only
on information currently available to us and speak only as of the dates on
which they are made. The Company undertakes no obligation to update or revise
any forward-looking statement to reflect events or circumstances arising after
the date on which it is made.
Further information concerning Marsh & McLennan Companies and its
businesses, including information about factors that could materially affect
our results of operations and financial condition, is contained in the
Company's filings with the Securities and Exchange Commission, including the
"Risk Factors" section and the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations" section of our most recently
filed Annual Report on Form 10-K.
Marsh & McLennan Companies, Inc.
Consolidated Statements of Income
(In millions, except per share figures)
(Unaudited)
Three Months Ended Nine Months Ended
September 30,
September 30,
2020 2019 2020 2019
Revenue $ 3,968 $ 3,968 $ 12,808 $ 12,388
Expense:
Compensation and Benefits 2,495 2,437 7,479 7,256
Other Operating Expenses 933 1,064 2,834 3,047
Operating Expenses 3,428 3,501 10,313 10,303
Operating Income 540 467 2,495 2,085
Other Net Benefit Credits 60 69 187 203
Interest Income 1 4 5 34
Interest Expense (128 ) (133 ) (387 ) (394 )
Cost of Early Extinguishment of Debt — — — (32 )
Investment (Loss) Income (14 ) 7 (47 ) 20
Acquisition Related Derivative Contracts — — — (8 )
Income Before Income Taxes 459 414 2,253 1,908
Income Tax Expense 139 108 586 531
Net Income Before Non-Controlling Interests 320 306 1,667 1,377
Less: Net Income Attributable to Non-Controlling Interests 4 3 25 26
Net Income Attributable to the Company $ 316 $ 303 $ 1,642 $ 1,351
Net Income Per Share Attributable to the Company:
- Basic $ 0.62 $ 0.60 $ 3.25 $ 2.67
- Diluted $ 0.62 $ 0.59 $ 3.21 $ 2.64
Average Number of Shares Outstanding
- Basic 507 506 506 506
- Diluted 512 511 511 511
Shares Outstanding at September 30 507 505 507 505
The Company acquired JLT on April 1, 2019 and JLT's results are included in
the Company's consolidated results of operations from that date.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Three Months Ended September 30
(Millions) (Unaudited)
The Company conducts business in more than 130 countries. As a result, foreign
exchange rate movements may impact period-to-period comparisons of revenue.
Similarly, certain other items such as the revenue impact of acquisitions and
dispositions, including transfers among businesses, may impact
period-to-period comparisons of revenue. Underlying revenue measures the
change in revenue from one period to the next by isolating these impacts.
Components of Revenue Change*
Three Months Ended % Change Currency Acquisitions/ Underlying
September 30,
GAAP
Impact
Dispositions/
Revenue
Revenue
Other Impact
2020 2019
Risk and Insurance Services
Marsh $ 2,009 $ 1,902 6 % — 3 % 3 %
Guy Carpenter 274 273 — — 1 % —
Subtotal 2,283 2,175 5 % — 2 % 3 %
Fiduciary Interest Income 8 31
Total Risk and Insurance Services 2,291 2,206 4 % — 2 % 2 %
Consulting
Mercer 1,216 1,280 (5) % 1 % (2) % (3) %
Oliver Wyman 480 505 (5) % 1 % — (6) %
Total Consulting 1,696 1,785 (5) % 1 % (2) % (4) %
Corporate/Eliminations (19 ) (23 )
Total Revenue $ 3,968 $ 3,968 — — 1 % (1) %
Revenue Details
The following table provides more detailed revenue information for certain of
the components presented above:
Components of Revenue Change*
Three Months Ended % Change Currency Acquisitions/ Underlying
September 30,
GAAP
Impact
Dispositions/
Revenue
Revenue
Other Impact
2020 2019
Marsh:
EMEA $ 536 $ 536 — 1 % (1) % —
Asia Pacific 254 242 5 % 1 % 1 % 4 %
Latin America 93 110 (15) % (12) % (5) % 2 %
Total International 883 888 — (1) % (1) % 2 %
U.S./Canada 1,126 1,014 11 % — 6 % 5 %
Total Marsh $ 2,009 $ 1,902 6 % — 3 % 3 %
Mercer:
Wealth 566 592 (4) % 2 % (3) % (3) %
Health 430 441 (3) % — (3) % —
Career 220 247 (11) % — — (11) %
Total Mercer $ 1,216 $ 1,280 (5) % 1 % (2) % (3) %
* Components of revenue change may not add due to rounding.
Marsh & McLennan Companies, Inc.
Supplemental Information - Revenue Analysis
Nine Months Ended September 30
(Millions) (Unaudited)
The Company conducts business in more than 130 countries. As a result, foreign
exchange rate movements may impact period-to-period comparisons of revenue.
Similarly, certain other items such as the revenue impact of acquisitions and
dispositions, including transfers among businesses, may impact
period-to-period comparisons of revenue. Underlying revenue measures the
change in revenue from one period to the next by isolating these impacts.
The calculation of underlying revenue growth for the nine months ended
September 30, 2020 includes the results of JLT. The column "2019 Including
JLT" includes JLT's prior year first quarter revenue (See reconciliation of
non-GAAP measures on page 14).
Components of Revenue Change
Including JLT*
Nine Months Ended % 2019 % Currency Acquisitions/ Un
September 30,
Change
Including
Change
Impact
Dispositions/ de
GAAP
JLT
Including
Other Impact rl
Revenue
JLT in yi
2019 ng
R
ev
en
ue
2020 2019
Risk and Insurance Services
Marsh $ 6,231 $ 5,795 8 % $ 6,027 3 % (1) % 2 % 3 %
Guy Carpenter 1,534 1,328 15 % 1,446 6 % — — 6 %
Subtotal 7,765 7,123 9 % 7,473 4 % (1) % 1 % 4 %
Fiduciary Interest Income 40 80 85
Total Risk and Insurance Services 7,805 7,203 8 % 7,558 3 % (1) % 1 % 3 %
Consulting
Mercer 3,616 3,695 (2) % 3,769 (4) % (1) % (2) % (1) %
Oliver Wyman 1,458 1,563 (7) % 1,563 (7) % — — (6) %
Total Consulting 5,074 5,258 (4) % 5,332 (5) % (1) % (2) % (2) %
Corporate/Eliminations (71 ) (73 ) (73 )
Total Revenue $ 12,808 $ 12,388 3 % $ 12,817 — (1) % — 1 %
Revenue Details
The following table provides more detailed revenue information for certain of
the components presented above:
Components of Revenue Change
Including JLT*
Nine Months Ended % 2019 % Change Currency Acquisitions/ Underlying
September 30,
Change
Including
Including
Impact
Dispositions/
Revenue
GAAP
JLT
JLT in
Other Impact
Revenue
2019
2020 2019
Marsh:
EMEA $ 1,887 $ 1,821 4 % $ 1,928 (2) % (1) % (1) % 1 %
Asia Pacific 790 698 13 % 764 3 % (1) % — 4 %
Latin America 283 304 (7) % 326 (13) % (12) % (4) % 3 %
Total International 2,960 2,823 5 % 3,018 (2) % (2) % (1) % 2 %
U.S./Canada 3,271 2,972 10 % 3,009 9 % — 5 % 4 %
Total Marsh $ 6,231 $ 5,795 8 % $ 6,027 3 % (1) % 2 % 3 %
Mercer:
Wealth 1,719 1,748 (2) % 1,803 (5) % (1) % (3) % (1) %
Health 1,348 1,341 1 % 1,360 (1) % (1) % (3) % 3 %
Career 549 606 (9) % 606 (9) % (1) % — (9) %
Total Mercer $ 3,616 $ 3,695 (2) % $ 3,769 (4) % (1) % (2) % (1) %
* Components of revenue change may not add due to rounding.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Actual as Reported
Three Months Ended September 30
(Millions) (Unaudited)
Overview
The Company reports its financial results in accordance with accounting
principles generally accepted in the United States (referred to in this
release as "GAAP" or "reported" results). The Company also refers to and
presents below certain additional non-GAAP financial measures, within the
meaning of Regulation G under the Securities Exchange Act of 1934. These
measures are: adjusted operating income (loss), adjusted operating margin,
adjusted income, net of tax and adjusted earnings per share (EPS). The Company
has included reconciliations of these non-GAAP financial measures to the most
directly comparable financial measure calculated in accordance with GAAP in
the following tables.
The Company believes these non-GAAP financial measures provide useful
supplemental information that enables investors to better compare the
Company’s performance across periods. Management also uses these measures
internally to assess the operating performance of its businesses, to assess
performance for employee compensation purposes and to decide how to allocate
resources. However, investors should not consider these non-GAAP measures in
isolation from, or as a substitute for, the financial information that the
Company reports in accordance with GAAP. The Company's non-GAAP measures
include adjustments that reflect how management views our businesses, and may
differ from similarly titled non-GAAP measures presented by other companies.
Adjusted Operating Income (Loss) and Adjusted Operating Margin
Adjusted operating income (loss) is calculated by excluding the impact of
certain noteworthy items from the Company's GAAP operating income or (loss).
The following tables identify these noteworthy items and reconcile adjusted
operating income (loss) to GAAP operating income or loss, on a consolidated
and segment basis, for the three and nine months ended September 30, 2020 and
2019. The following tables also present adjusted operating margin. In 2019,
the Company changed its methodology for calculating adjusted operating margin
due to the significant amount of identified intangible asset amortization
related to the JLT Transaction, on April 1, 2019. For the three and nine
months ended September 30, 2020 and 2019, adjusted operating margin is
calculated by dividing the sum of adjusted operating income plus identified
intangible asset amortization by consolidated or segment adjusted revenue.
Risk & Insurance Consulting Corporate/ Total
Services
Eliminations
Three Months Ended September 30, 2020
Operating income (loss) $ 333 $ 278 $ (71 ) $ 540
Operating margin 14.5 % 16.4 % N/A 13.6 %
Add (Deduct) impact of Noteworthy Items:
Restructuring, excluding JLT (a) — 11 12 23
Changes in contingent consideration (b) 15 1 — 16
JLT integration and restructuring costs (c) 25 14 5 44
JLT acquisition-related costs (d) 15 1 (1 ) 15
Other — 1 (1 ) —
Operating income adjustments 55 28 15 98
Adjusted operating income (loss) $ 388 $ 306 $ (56 ) $ 638
Total identified intangible amortization expense $ 75 $ 16 $ — $ 91
Adjusted operating margin 20.2 % 18.9 % N/A 18.4 %
As Reported Results
Three Months Ended September 30, 2019
Operating income (loss), as reported $ 218 $ 317 $ (68 ) $ 467
Operating margin 9.9 % 17.7 % N/A 11.8 %
Add (Deduct) impact of Noteworthy Items:
Restructuring, excluding JLT (a) — 10 2 12
Changes in contingent consideration (b) 5 1 — 6
JLT integration and restructuring costs (c) 58 5 14 77
JLT acquisition-related costs (d) 16 1 4 21
Disposal of businesses (e) 13 (14 ) — (1 )
Other 3 — — 3
Operating income adjustments 95 3 20 118
Adjusted operating income (loss) $ 313 $ 320 $ (48 ) $ 585
Total identified intangible amortization expense $ 73 $ 11 $ — $ 84
Adjusted operating margin 17.4 % 18.7 % N/A 16.9 %
(a) Corporate charges in 2020 primarily reflect restructuring costs related to
the Company's corporate led initiatives. Consulting charges in both 2020 and
2019 reflect severance related to the Mercer restructuring program.
(b) Primarily includes the change in fair value of contingent consideration
related to acquisitions and dispositions as measured each quarter.
(c) Includes costs incurred for staff reductions, lease related exit costs as
well as legal and consulting costs related to the JLT integration.
(d) Reflects retention costs in both 2020 and 2019 and legal fees related to
the closing of the JLT Transaction in 2019.
(e) Reflects the loss on the sale in 2019 of a U.S. Specialty business at
Marsh and a gain on the sale of Mercer's stand-alone U.S. large market health
and defined benefit administration business, which are both included in
revenue. These amounts are removed from GAAP revenue in the calculation of
adjusted operating income.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - Actual as Reported
Nine Months Ended September 30
(Millions) (Unaudited)
The information presented below represents the actual as reported data for the
nine months ended September 30, 2020 and 2019. Results for the nine months
ended September 30, 2019 do not include JLT's results of operations for the
period January 1, 2019 through March 31, 2019.
Risk & Insurance Consulting Corporate/ Total
Services
Eliminations
Nine Months Ended September 30, 2020
Operating income (loss) $ 1,883 $ 815 $ (203 ) $ 2,495
Operating margin 24.1 % 16.1 % N/A 19.5 %
Add (Deduct) impact of Noteworthy Items:
Restructuring, excluding JLT (a) 2 17 24 43
Changes in contingent consideration (b) 22 (2 ) 2 22
JLT integration and restructuring costs (c) 125 31 25 181
JLT acquisition-related costs (d) 39 2 — 41
Disposal of businesses (e) 6 (4 ) — 2
Other 5 1 (1 ) 5
Operating income adjustments 199 45 50 294
Adjusted operating income (loss) $ 2,082 $ 860 $ (153 ) $ 2,789
Total identified intangible amortization expense $ 222 $ 43 $ — $ 265
Adjusted operating margin 29.5 % 17.8 % N/A 23.8 %
As Reported Results
Nine Months Ended September 30, 2019
Operating income (loss), as reported $ 1,468 $ 874 $ (257 ) $ 2,085
Operating margin 20.4 % 16.6 % N/A 16.8 %
Add (Deduct) impact of Noteworthy Items:
Restructuring, excluding JLT (a) 6 43 7 56
Changes in contingent consideration (b) 24 2 — 26
JLT integration and restructuring costs (c) 134 10 48 192
JLT acquisition-related costs (d) 81 1 51 133
Disposal of business (f) 13 (14 ) — (1 )
Other 3 — 1 4
Operating income adjustments 261 42 107 410
Adjusted operating income (loss) $ 1,729 $ 916 $ (150 ) $ 2,495
Total identified intangible amortization expense $ 194 $ 41 $ — $ 235
Adjusted operating margin 26.6 % 18.3 % N/A 22.0 %
(a) Corporate charges in 2020 reflect restructuring and consulting costs
related to the Company's corporate led initiatives, including adjustments to
restructuring liabilities for future rent under non-cancellable leases. Risk
& Insurance Services reflects severance and related charges from non-JLT
merger integration costs. Consulting reflects severance related to the Mercer
restructuring program.
(b) Primarily includes the change in fair value of contingent consideration
related to acquisitions and dispositions as measured each quarter.
(c) Includes costs incurred for staff reductions, lease related exit costs as
well as legal and consulting costs related to the JLT integration.
(d) Reflects retention costs in 2020 and in 2019 retention costs, advisor
fees, stamp duty taxes and legal fees related to the closing of the JLT
Transaction. 2019 also includes the loss on the sale of JLT's aerospace
business, included in revenue. This loss is removed from GAAP revenue in the
calculation of adjusted operating income.
(e) Reflects net loss on disposal of specialty businesses sold in the U.S.,
U.K. and Canada, previously acquired as part of the JLT Transaction.
(f) Reflects the loss on the sale in 2019 of a U.S. Specialty business at
Marsh and a gain on the sale of Mercer's stand-alone U.S. large market health
and defined benefit administration business, which are both included in
revenue. These amounts are removed from GAAP revenue in the calculation of
adjusted operating income.
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures
Three and Nine Months Ended September 30,
(Millions) (Unaudited)
Adjusted income, net of tax is calculated as the Company's GAAP income from
continuing operations, adjusted to reflect the after tax impact of the
operating income adjustments set forth in the preceding tables and investments
gains or losses related to the impact of mark-to-market adjustments on certain
equity securities. Adjustments also include JLT acquisition related items,
including change in fair value of derivative contracts, financing costs and
interest income on funds held in escrow. Adjusted EPS is calculated by
dividing the Company’s adjusted income, net of tax, by MMC's average number
of shares outstanding-diluted for the relevant period. The following tables
reconcile adjusted income, net of tax to GAAP income from continuing
operations and adjusted EPS to GAAP EPS for the three and nine month periods
ended September 30, 2020 and 2019. The information presented below represents
the actual as reported results for the three and nine month periods ended
September 30, 2020 and 2019. Results for the nine months ended September 30,
2019 do not include JLT's results of operations for the period January 1, 2019
through March 31, 2019.
Three Months Ended Three Months Ended
September 30, 2020
September 30, 2019
Amount Adjusted EPS Amount Adjusted EPS
Net income before non-controlling interests, as reported $ 320 $ 306
Less: Non-controlling interest, net of tax 4 3
Subtotal $ 316 $ 0.62 $ 303 $ 0.59
Operating income adjustments $ 98 $ 118
Investments adjustment (a) 16 (4 )
Pension settlement adjustment — (2 )
Impact of income taxes on above items (12 ) (23 )
102 0.20 89 0.18
Adjusted income, net of tax $ 418 $ 0.82 $ 392 $ 0.77
Nine Months Ended Nine Months Ended
September 30, 2020
September 30, 2019
Amount Adjusted EPS Amount Adjusted EPS
Net income before non-controlling interests, as reported $ 1,667 $ 1,377
Less: Non-controlling interest, net of tax 25 26
Subtotal $ 1,642 $ 3.21 $ 1,351 $ 2.64
Operating income adjustments $ 294 $ 410
Investments adjustment (a) 42 (10 )
Pension settlement adjustment — (2 )
Change in fair value of acquisition related derivative contracts (b) — 8
Financing costs (c) — 53
Interest on funds held in escrow (d) — (25 )
Early extinguishment of debt — 32
Impact of income taxes on above items (50 ) (45 )
286 0.56 421 0.83
Adjusted income, net of tax $ 1,928 $ 3.77 $ 1,772 $ 3.47
(a) The Company recorded mark-to-market losses of $1 million and gains of $4
million for the three month periods ended September 30, 2020 and September 30,
2019, respectively, and losses of $4 million and gains of $10 million for the
nine month periods ended September 30, 2020 and September 30, 2019,
respectively, which are included in investment (loss) income in the
consolidated statements of income.
During the second quarter of 2020, the Company sold a portion of its
investment in Alexander Forbes ("AF"). The Company no longer accounts for this
investment under the equity method, and records the change in fair value in
each subsequent period as an investment gain or loss in the consolidated
statement of income. The Company recorded a loss of $15 million in the third
quarter of 2020 related to the change in the market value of AF from June 30,
2020. The nine month period ended September 30, 2020 also reflects a loss of
$23 million on the portion of AF sold in the second quarter of 2020.
(b) Reflects the change in fair value of derivatives that were not
redesignated as accounting hedges following the JLT acquisition, a deal
contingent foreign exchange contract and derivative contracts related to debt
issuances.
(c) Reflects interest expense on debt issuances and amortization of bridge
financing fees related to the acquisition of JLT (prior to April 1, 2019).
(d) Interest income earned on funds held in escrow related to the JLT
acquisition (prior to April 1, 2019).
Marsh & McLennan Companies, Inc.
Supplemental Information
Three and Nine Months Ended September 30,
(Millions) (Unaudited)
Three Months Ended Nine Months Ended
September 30,
September 30,
2020 2019 2020 2019
Consolidated
Compensation and Benefits $ 2,495 $ 2,437 $ 7,479 $ 7,256
Other Operating Expenses 933 1,064 2,834 3,047
Total Expenses $ 3,428 $ 3,501 $ 10,313 $ 10,303
Depreciation and amortization expense $ 94 $ 85 $ 282 $ 245
Identified intangible amortization expense 91 84 265 235
Total $ 185 $ 169 $ 547 $ 480
Stock option expense $ 4 $ 4 $ 25 $ 23
Risk and Insurance Services
Compensation and Benefits $ 1,400 $ 1,373 $ 4,234 $ 4,012
Other Operating Expenses 558 615 1,688 1,723
Total Expenses $ 1,958 $ 1,988 $ 5,922 $ 5,735
Depreciation and amortization expense $ 49 $ 43 $ 146 $ 114
Identified intangible amortization expense 75 73 222 194
Total $ 124 $ 116 $ 368 $ 308
Consulting
Compensation and Benefits $ 980 $ 967 $ 2,911 $ 2,932
Other Operating Expenses 438 501 1,348 1,452
Total Expenses $ 1,418 $ 1,468 $ 4,259 $ 4,384
Depreciation and amortization expense $ 29 $ 24 $ 86 $ 75
Identified intangible amortization expense 16 11 43 41
Total $ 45 $ 35 $ 129 $ 116
The Company acquired JLT on April 1, 2019 and JLT's results are included in
the Company's consolidated results of operations from that date.
Marsh & McLennan Companies, Inc.
Consolidated Balance Sheets
(Millions)
(Unaudited) December 31,
September 30,
2019
2020
ASSETS
Current assets:
Cash and cash equivalents $ 2,388 $ 1,155
Net receivables 5,236 5,236
Other current assets 688 677
Total current assets 8,312 7,068
Goodwill and intangible assets 17,745 17,445
Fixed assets, net 864 858
Pension related assets 1,825 1,632
Right of use assets 1,884 1,921
Deferred tax assets 623 676
Other assets 1,505 1,757
TOTAL ASSETS $ 32,758 $ 31,357
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt $ 1,216 $ 1,215
Accounts payable and accrued liabilities 2,662 2,746
Accrued compensation and employee benefits 1,762 2,197
Current lease liabilities 335 342
Accrued income taxes 318 179
Dividends payable 237 —
Total current liabilities 6,530 6,679
Fiduciary liabilities 8,765 7,344
Less - cash and investments held in a fiduciary capacity (8,765 ) (7,344 )
— —
Long-term debt 11,532 10,741
Pension, post-retirement and post-employment benefits 2,163 2,336
Long-term lease liabilities 1,902 1,926
Liabilities for errors and omissions 352 335
Other liabilities 1,450 1,397
Total equity 8,829 7,943
TOTAL LIABILITIES AND EQUITY $ 32,758 $ 31,357
Marsh & McLennan Companies, Inc.
Consolidated Statements of Cash Flows
(Millions) (Unaudited)
Nine Months Ended September 30,
2020 2019
Operating cash flows:
Net income before non-controlling interests $ 1,667 $ 1,377
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 547 480
Non cash lease expense 241 236
Charge for early extinguishment of debt — 32
Share-based compensation expense 219 184
Change in fair value of acquisition-related derivative contracts and other 48 110
Changes in Assets and Liabilities:
Accrued compensation and employee benefits (431 ) (281 )
Net receivables 77 (84 )
Other changes to assets and liabilities 58 (184 )
Contributions to pension & other benefit plans in excess of current year (240 ) (269 )
expense/credit
Operating lease liabilities (254 ) (240 )
Effect of exchange rate changes 67 (70 )
Net cash provided by operations 1,999 1,291
Financing cash flows:
Purchase of treasury shares — (300 )
Net borrowings from term-loan and credit facilities 1,000 300
Net increase in commercial paper — 325
Proceeds from issuance of debt 737 6,459
Repayments of debt (1,011 ) (760 )
Payments for early extinguishment of debt — (585 )
Acquisition-related derivative payments — (337 )
Net issuance of common stock from treasury shares (33 ) 43
Net distributions of non-controlling interests and deferred/contingent (154 ) (153 )
consideration
Dividends paid (702 ) (655 )
Net cash provided by financing activities (163 ) 4,337
Investing cash flows:
Capital expenditures (278 ) (284 )
Net sales of long-term investments and other 98 55
Dispositions 93 225
Acquisitions (559 ) (5,500 )
Net cash used for investing activities (646 ) (5,504 )
Effect of exchange rate changes on cash and cash equivalents 43 23
Increase in cash and cash equivalents 1,233 147
Cash and cash equivalents at beginning of period 1,155 1,066
Cash and cash equivalents at end of period $ 2,388 $ 1,213
Marsh & McLennan Companies, Inc.
Reconciliation of Non-GAAP Measures - 2019 Revenue Including JLT
Nine Months Ended September 30, 2019
(Millions) (Unaudited)
On April 1, 2019, the Company completed its previously announced acquisition
of Jardine Lloyd Thompson Group, plc. JLT's results of operations for the
three and nine month periods ended September 30, 2020 are included in the
Company’s results of operations for 2020. The Company's prior period 2019
results of operations do not include JLT’s results for the three months
ended March 31, 2019. Prior to being acquired by the Company, JLT operated in
three segments, Specialty, Reinsurance and Employee Benefits. As of April 1,
2019, the historical JLT businesses were combined into MMC operations as
follows: JLT Specialty was included by geography within Marsh, JLT Reinsurance
was included within Guy Carpenter and the majority of the JLT Employee
Benefits business was included in Mercer Health and Wealth.
The JLT Transaction had a significant impact on the Company’s results of
operations in 2019. The Company believes that in addition to the change in
reported GAAP revenue, a comparison of 2020 revenue to the combined 2019
revenue of MMC and JLT would provide investors useful information about the
year-over-year results.
The table below sets forth revenue information as if the companies were
combined on January 1, 2019. Consolidated revenue in 2019 for the nine months
ended September 30, 2019 "MMC as previously reported" does not include JLT
revenue for the period from January 1 to March 31, 2019. The "2019 Including
JLT" revenue information set forth in the table below presents revenue
information as if the companies were combined on January 1, 2019 and is not
necessarily indicative of what the results would have been had we operated the
business since January 1, 2019.
The MMC revenue amounts are as previously reported by the Company in its
quarterly filings on Form 10-Q for the applicable periods. JLT 2019 revenue
information is derived using the same policies and adjustments as the "JLT
Supplemental Information - Revenue Analysis" furnished to the SEC on June 6,
2019 on Form 8-K, and includes the revenue from JLT’s aerospace business.
Nine Months Ended
September 30, 2019
MMC As Previously Reported
Risk & Insurance Services
Marsh $ 5,795
Guy Carpenter 1,328
Subtotal 7,123
Fiduciary Interest Income 80
Total Risk & Insurance Services 7,203
Consulting
Mercer 3,695
Oliver Wyman 1,563
Total Consulting 5,258
Corporate/Eliminations (73 )
Total Revenue $ 12,388
JLT 2019
Specialty (Marsh) $ 232
Reinsurance (Guy Carpenter) 118
Employee Benefits (Mercer) 74
Subtotal 424
Fiduciary Interest Income 5
Total Revenue $ 429
2019 Including JLT
Marsh $ 6,027
Guy Carpenter 1,446
Subtotal 7,473
Fiduciary Interest Income 85
Total Risk & Insurance Services 7,558
Consulting
Mercer 3,769
Oliver Wyman 1,563
Total Consulting 5,332
Corporate/Eliminations (73 )
Total Revenue Including JLT $ 12,817
Media:
Erick R. Gustafson
Marsh & McLennan Companies
+1 202 263 7788
erick.gustafson@mmc.com (mailto:erick.gustafson@mmc.com)
Investor:
Sarah DeWitt
Marsh & McLennan Companies
+1 212 345 6750
sarah.dewitt@mmc.com (mailto:sarah.dewitt@mmc.com)
View source version on businesswire.com:
https://www.businesswire.com/news/home/20201029005610/en/
(https://www.businesswire.com/news/home/20201029005610/en/)
Marsh & McLennan Companies
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