Marsh & McLennan Companies, Inc. 1166 Avenue of the Americas New York, New York 10036-2774 212 345 5000 www.mmc.com |
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 |
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) | % |
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. |
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 | % |
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. |
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. |
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. |
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). | |||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||
(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 |
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 | |||||||
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 |