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, and a replay will be available approximately two hours
after the event.
About Marsh & McLennan Companies
Marsh & McLennan (NYSE: MMC) is the world’s leading
professional services firm in the areas of risk, strategy and
people. The Company’s 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 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 solutions to help organizations reshape work,
retirement, investment and health outcomes for a changing
workforce. Oliver Wyman serves as a critical strategic, economic
and brand advisor to private sector and governmental clients. For
more information, visit mmc.com, follow us on LinkedIn and Twitter
@mmc_global or subscribe to BRINK.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking statements," as
defined in the Private Securities Litigation Reform Act of 1995.
These statements, which express management's current views
concerning future events or results, use words like "anticipate,"
"assume," "believe," "continue," "estimate," "expect," "intend,"
"plan," "project" and similar terms, and future or conditional
tense verbs like "could," "may," "might," "should," "will" and
"would."
Forward-looking statements are subject to inherent risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied in our forward-looking statements.
Factors that could materially affect our future results include,
among other things:
- 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
September 30,
Nine Months Ended
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
September 30,
% Change GAAP Revenue
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
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
September 30,
% Change GAAP
Revenue
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
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
September 30,
% Change GAAP Revenue
2019 Including JLT
% Change Including JLT in
2019
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
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
September 30,
% Change GAAP Revenue
2019 Including JLT
% Change Including JLT in
2019
Currency Impact
Acquisitions/
Dispositions/ Other Impact
Underlying Revenue
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
Services
Consulting
Corporate/
Eliminations
Total
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
Services
Consulting
Corporate/
Eliminations
Total
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
September 30, 2020
Three Months Ended 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
September 30, 2020
Nine Months Ended 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
InformationThree and Nine Months Ended September 30,(Millions)
(Unaudited)
Three Months Ended September
30,
Nine Months Ended 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) September
30, 2020
December 31, 2019
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 expense/credit
(240
)
(269
)
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 consideration
(154
)
(153
)
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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201029005591/en/
Media: Erick R. Gustafson Marsh & McLennan Companies
+1 202 263 7788 erick.gustafson@mmc.com
Investor: Sarah DeWitt Marsh & McLennan Companies +1
212 345 6750 sarah.dewitt@mmc.com
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