Marsh McLennan Reports Third Quarter 2022 Results

Companies

Marsh & Mclennan Cos Inc. (MHM)

UK 100

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Marsh & McLennan Companies, Inc. Consolidated Statements of Income (In millions, except per share data) (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
		2022			2021			2022			2021
Revenue	$	4,770		$	4,583		$	15,698		$	14,683
Expense:
Compensation and benefits		2,923			2,853			9,033			8,520
Other operating expenses		1,056			990			3,065			2,837
Operating expenses		3,979			3,843			12,098			11,357
Operating income		791			740			3,600			3,326
Other net benefit credits		57			69			178			211
Interest income		4			1			6			2
Interest expense		(118	)		(107	)		(342	)		(335	)
Investment (loss) income		(1	)		13			27			43
Income before income taxes		733			716			3,469			3,247
Income tax expense		181			174			853			880
Net income before non-controlling interests		552			542			2,616			2,367
Less: Net income attributable to non-controlling interests		6			5			32			27
Net income attributable to the Company	$	546		$	537		$	2,584		$	2,340
Net income per share attributable to the Company:
- Basic	$	1.10		$	1.06		$	5.16		$	4.61
- Diluted	$	1.08		$	1.05		$	5.11		$	4.56
Average number of shares outstanding:
- Basic		498			506			501			508
- Diluted		503			513			506			513
Shares outstanding at September 30		497			505			497			505

									Components of Revenue Change*
	Three Months Ended September 30,						% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
		2022			2021		% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
Risk and Insurance Services
Marsh	$	2,470		$	2,352		5	%	(4	)%	1	%	8	%
Guy Carpenter		328			314		4	%	(3	)%	—		7	%
Subtotal		2,798			2,666		5	%	(4	)%	1	%	8	%
Fiduciary interest income		40			4
Total Risk and Insurance Services		2,838			2,670		6	%	(4	)%	1	%	9	%
Consulting
Mercer		1,284			1,315		(2	)%	(6	)%	(2	)%	5	%
Oliver Wyman Group		667			610		9	%	(5	)%	1	%	13	%
Total Consulting		1,951			1,925		1	%	(6	)%	(1	)%	8	%
Corporate Eliminations		(19	)		(12	)
Total Revenue	$	4,770		$	4,583		4	%	(5	)%	—		8	%

							Components of Revenue Change*
	Three Months Ended September 30,				% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
		2022		2021	% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
Marsh:
EMEA	$	589	$	600	(2	)%	(11	)%	(1	)%	9	%
Asia Pacific		312		281	11	%	(9	)%	7	%	14	%
Latin America		118		105	12	%	(3	)%	—		15	%
Total International		1,019		986	3	%	(9	)%	2	%	11	%
U.S./Canada		1,451		1,366	6	%	—		1	%	5	%
Total Marsh	$	2,470	$	2,352	5	%	(4	)%	1	%	8	%
Mercer:
Wealth	$	561	$	613	(9	)%	(7	)%	—		(1	)%
Health		451		449	1	%	(4	)%	(5	)%	10	%
Career		272		253	8	%	(7	)%	—		15	%
Total Mercer	$	1,284	$	1,315	(2	)%	(6	)%	(2	)%	5	%

									Components of Revenue Change*
	Nine Months Ended September 30,						% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
		2022			2021		% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
Risk and Insurance Services
Marsh	$	7,794		$	7,327		6	%	(3	)%	—		9	%
Guy Carpenter		1,849			1,697		9	%	(2	)%	1	%	10	%
Subtotal		9,643			9,024		7	%	(3	)%	1	%	9	%
Fiduciary interest income		57			12
Total Risk and Insurance Services		9,700			9,036		7	%	(3	)%	1	%	10	%
Consulting
Mercer		4,016			3,877		4	%	(4	)%	2	%	6	%
Oliver Wyman Group		2,029			1,813		12	%	(4	)%	1	%	15	%
Total Consulting		6,045			5,690		6	%	(4	)%	1	%	9	%
Corporate Eliminations		(47	)		(43	)
Total Revenue	$	15,698		$	14,683		7	%	(3	)%	1	%	9	%

							Components of Revenue Change*
	Nine Months Ended September 30,				% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
		2022		2021	% Change GAAP Revenue		Currency Impact		Acquisitions/ Dispositions/ Other Impact		Underlying Revenue
Marsh:
EMEA	$	2,176	$	2,233	(3	) %	(7	) %	(4	) %	8	%
Asia Pacific		1,015		902	13	%	(7	) %	6	%	14	%
Latin America		340		298	14	%	(1	) %	—		15	%
Total International		3,531		3,433	3	%	(6	) %	(1	) %	10	%
U.S./Canada		4,263		3,894	9	%	—		1	%	8	%
Total Marsh	$	7,794	$	7,327	6	%	(3	) %	—		9	%
Mercer:
Wealth	$	1,775	$	1,861	(5	) %	(5	) %	—		1	%
Health		1,562		1,398	12	%	(3	) %	5	%	10	%
Career		679		618	10	%	(5	) %	—		15	%
Total Mercer	$	4,016	$	3,877	4	%	(4	) %	2	%	6	%

	Risk & Insurance Services			Consulting			Corporate/ Eliminations			Total
Three Months Ended September 30, 2022
Operating income (loss)	$	529		$	350		$	(88	)	$	791
Operating margin		18.7	%		17.9	%		N/A			16.6	%
Add (deduct) impact of noteworthy items:
Restructuring (a)		18			5			15			38
Changes in contingent consideration (b)		11			—			—			11
JLT acquisition-related costs (c)		4			—			—			4
Other		—			7			—			7
Operating income adjustments		33			12			15			60
Adjusted operating income (loss)	$	562		$	362		$	(73	)	$	851
Total identified intangible amortization expense	$	74		$	10		$	—		$	84
Adjusted operating margin		22.4	%		19.1	%		N/A			19.6	%

Three Months Ended September 30, 2021
Operating income (loss)	$	403		$	404		$	(67	)	$	740
Operating margin		15.1	%		21.0	%		N/A			16.1	%
Add (deduct) impact of noteworthy items:
Restructuring (a)		18			9			4			31
Changes in contingent consideration (b)		17			1			—			18
JLT acquisition-related costs (c)		10			—			1			11
JLT legacy legal charges (d)		—			(63	)		—			(63	)
Legal claims and other (e)		21			(1	)		2			22
Operating income adjustments		66			(54	)		7			19
Adjusted operating income (loss)	$	469		$	350		$	(60	)	$	759
Total identified intangible amortization expense	$	75		$	14		$	—		$	89
Adjusted operating margin		20.4	%		18.9	%		N/A			18.5	%

(a)		Restructuring activities reflect costs primarily related to the Company's global information technology and HR functions, JLT integration costs, Marsh operational excellence and adjustments to restructuring liabilities for future rent under non-cancellable leases.
(b)		Primarily includes the change in fair value of contingent consideration related to acquisitions and dispositions measured each quarter.
(c)		Includes retention costs related to the acquisition of JLT.
(d)		Reflects a reduction in the liability for a legacy JLT E&O relating to suitability of advice provided to individuals for defined benefit pension transfers in the U.K., as well as recoveries under indemnities and insurance.
(e)		Primarily reflects settlement charges and legal costs related to strategic recruiting.

	Three Months Ended September 30, 2022							Three Months Ended September 30, 2021
	Amount					Adjusted EPS		Amount					Adjusted EPS
Net income before non-controlling interests, as reported				$	552						$	542
Less: Non-controlling interest, net of tax					6							5
Subtotal				$	546	$	1.08				$	537	$	1.05
Operating income adjustments	$	60						$	19
Investments adjustment (a)		4							(1	)
Pension settlement adjustment (b)		—							2
Income tax effect of adjustments (c)		(16	)						(10	)
Impact of U.K. tax rate change (d)		—							5
					48		0.10					15		0.03
Adjusted income, net of tax				$	594	$	1.18				$	552	$	1.08


	Nine Months Ended September 30, 2022							Nine Months Ended September 30, 2021
	Amount					Adjusted EPS		Amount					Adjusted EPS
Net income before non-controlling interests, as reported				$	2,616						$	2,367
Less: Non-controlling interest, net of tax					32							27
Subtotal				$	2,584	$	5.11				$	2,340	$	4.56
Operating income adjustments	$	142						$	59
Investments adjustment (a)		(4	)						(2	)
Pension settlement adjustment (b)		1							2
Income tax effect of adjustments (c)		(1	)						(31	)
Impact of U.K. tax rate change (d)		—							105
					138		0.27					133		0.26
Adjusted income, net of tax				$	2,722	$	5.38				$	2,473	$	4.82

(a)		In the third quarter of 2022, amount represents a net loss from the sale of investments, including the Company's remaining investment in Alexander Forbes ("AF"). Amounts for the other periods presented reflect mark to market gains.
(b)		Charges resulting from lump sum pension settlements elected by participants.
(c)		For items with an income tax impact, the tax effect was calculated using an effective tax rate based on the tax jurisdiction for each item.
(d)		Reflects the re-measurement of the Company's U.K. deferred tax assets and liabilities upon enactment of legislation that increased the corporate income tax rate applicable to U.K. based entities from 19% to 25%, effective April 1, 2023.

Marsh & McLennan Companies, Inc. Consolidated Balance Sheets (Millions)

	(Unaudited) September 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	802		$	1,752
Net receivables		5,819			5,586
Other current assets		953			926
Total current assets		7,574			8,264

Goodwill and intangible assets		17,979			19,127
Fixed assets, net		865			847
Pension related assets		2,074			2,270
Right of use assets		1,615			1,868
Deferred tax assets		533			551
Other assets		1,383			1,461
TOTAL ASSETS	$	32,023		$	34,388

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	967		$	17
Accounts payable and accrued liabilities		2,903			3,165
Accrued compensation and employee benefits		2,396			2,942
Current lease liabilities		298			332
Accrued income taxes		432			198
Dividends payable		296			—
Total current liabilities		7,292			6,654

Fiduciary liabilities		10,608			9,622
Less - cash and cash equivalents held in a fiduciary capacity		(10,608	)		(9,622	)
		—			—
Long-term debt		10,399			10,933
Pension, post-retirement and post-employment benefits		1,309			1,632
Long-term lease liabilities		1,620			1,880
Liabilities for errors and omissions		331			355
Other liabilities		1,281			1,712

Total equity		9,791			11,222
TOTAL LIABILITIES AND EQUITY	$	32,023		$	34,388

Marsh & McLennan Companies, Inc. Consolidated Statements of Cash Flows (Millions) (Unaudited)

	Nine Months Ended
	September 30,
		2022			2021
Operating cash flows:
Net income before non-controlling interests	$	2,616		$	2,367
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization		517			569
Non-cash lease expense		223			241
Deconsolidation of Russian businesses		39			—
Share-based compensation expense		283			263
Net gain on investments, disposition of assets and other		(139	)		(96	)

Changes in assets and liabilities:
Accrued compensation and employee benefits		(451	)		(20	)
Provision for taxes, net of payments and refunds		156			196
Net receivables		(745	)		(604	)
Other changes to assets and liabilities		14			(298	)
Contributions to pension and other benefit plans in excess of current year credit		(306	)		(282	)
Operating lease liabilities		(244	)		(262	)
Net cash provided by operations		1,963			2,074
Financing cash flows:
Purchase of treasury shares		(1,600	)		(734	)
Net proceeds from issuance of commercial paper		600			—
Repayments of debt		(14	)		(512	)
Net issuance of common stock from treasury shares		(105	)		16
Net distributions of non-controlling interests and deferred/contingent consideration		(161	)		(66	)
Dividends paid		(840	)		(750	)
Increase in fiduciary liabilities		2,148			1,919
Net cash provided by (used for) financing activities		28			(127	)
Investing cash flows:
Capital expenditures		(367	)		(268	)
Purchases of long term investments and other		(5	)		(34	)
Sales of long term investments		84			30
Dispositions		138			84
Acquisitions, net of cash and cash held in a fiduciary capacity acquired		(213	)		(384	)
Net cash used for investing activities		(363	)		(572	)
Effect of exchange rate changes on cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity		(1,592	)		(243	)
Increase in cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity		36			1,132
Cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity at beginning of period		11,374			10,674
Cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity at end of period	$	11,410		$	11,806

Reconciliation of cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity to the Consolidated Balance Sheets
Nine Months Ended September 30,		2022		2021
(In millions)
Cash and cash equivalents	$	802	$	1,398
Cash and cash equivalents held in a fiduciary capacity		10,608		10,408
Total cash, cash equivalents, and cash and cash equivalents held in a fiduciary capacity	$	11,410	$	11,806