SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________________________ 

FORM 10-Q

_____________________________________________ 

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

____________________________________________ 

Marsh & McLennan Companies, Inc.

1166 Avenue of the Americas

New York, New York 10036

(212) 345-5000

_____________________________________________ 

Commission file number 1-5998

State of Incorporation: Delaware

I.R.S. Employer Identification No. 36-2668272

_____________________________________________ 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of exchange on which registered
Common Stock, par value $1.00 per share	MMC	New York Stock Exchange
		Chicago Stock Exchange
		London Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐(Do not check if a smaller reporting company)	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐   No  ý

As of July 24, 2020, there were outstanding 506,529,315 shares of common stock, par value $1.00 per share, of the registrant.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 the coronavirus global pandemic 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;

• 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, particularly given the increased risk of phishing and other cybersecurity attacks or unauthorized dissemination of information caused by remote work arrangements, including those in the existing JLT information systems;

• the impact of investigations, reviews, or other activity by regulatory or law enforcement authorities;

• 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;

• 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, including certain provisions of the U.S. Tax Cuts and Jobs Act, 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 this Quarterly Report on Form 10-Q and our most recently filed Annual Report on Form 10-K.

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TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION		4
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	4
	CONSOLIDATED STATEMENTS OF INCOME	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5
	CONSOLIDATED BALANCE SHEETS	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS	8
	CONSOLIDATED STATEMENTS OF EQUITY	9
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	10
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS	39
	OF OPERATIONS
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	55
ITEM 4.	CONTROLS & PROCEDURES	56
PART II. OTHER INFORMATION		57
ITEM 1.	LEGAL PROCEEDINGS	57
ITEM 1A.	RISK FACTORS	57
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	58
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	58
ITEM 4.	MINE SAFETY DISCLOSURE	58
ITEM 5.	OTHER INFORMATION	58
ITEM 6.	EXHIBITS	58

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PART I.    FINANCIAL INFORMATION

Item 1. Financial Statements.

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except per share amounts)	2020			2019			2020			2019
Revenue	$	4,189		$	4,349		$	8,840		$	8,420
Expense:
Compensation and benefits	2,429			2,537			4,984			4,819
Other operating expenses	875			1,132			1,901			1,983
Operating expenses	3,304			3,669			6,885			6,802
Operating income	885			680			1,955			1,618
Other net benefit credits	63			70			127			134
Interest income	2			2			4			30
Interest expense	(132		)	(141		)	(259		)	(261		)
Cost of extinguishment of debt	—			(32		)	—			(32		)
Investment (loss) income	(31		)	8			(33		)	13
Acquisition related derivative contracts	—			(37		)	—			(8		)
Income before income taxes	787			550			1,794			1,494
Income tax expense	207			206			447			423
Net income before non-controlling interests	580			344			1,347			1,071
Less: Net income attributable to non-controlling interests	8			12			21			23
Net income attributable to the Company	$	572		$	332		$	1,326		$	1,048
Net income per share attributable to the Company:
Basic	$	1.13		$	0.66		$	2.62		$	2.07
Diluted	$	1.12		$	0.65		$	2.60		$	2.05
Average number of shares outstanding:
Basic	506			507			505			506
Diluted	511			512			510			511
Shares outstanding at June 30,	506			507			506			507

The accompanying notes are an integral part of these unaudited consolidated statements.

4

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2020		2019		2020			2019
Net income before non-controlling interests	$	580	$	344	$	1,347		$	1,071
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments	241		13		(700		)	109
Gain related to pension/post-retirement plans	34		63		209			20
Other comprehensive income (loss), before tax	275		76		(491		)	129
Income tax expense on other comprehensive income	10		13		36			9
Other comprehensive income (loss), net of tax	265		63		(527		)	120
Comprehensive income	845		407		820			1,191
Less: comprehensive income attributable to non-controlling interest	8		12		21			23
Comprehensive income attributable to the Company	$	837	$	395	$	799		$	1,168

The accompanying notes are an integral part of these unaudited consolidated statements.

5

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)	(Unaudited) June 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,711		$	1,155
Receivables
Commissions and fees	5,045			4,608
Advanced premiums and claims	111			123
Other	635			645
	5,791			5,376
Less-allowance for credit losses	(144		)	(140		)
Net receivables	5,647			5,236
Other current assets	739			677
Total current assets	8,097			7,068
Goodwill	14,797			14,671
Other intangible assets	2,761			2,774
Fixed assets(net of accumulated depreciation and amortization of $2,052 at June 30, 2020 and $2,001 at December 31, 2019)	866			858
Pension related assets	1,672			1,632
Right of use assets	1,882			1,921
Deferred tax assets	618			676
Other assets	1,476			1,757
	$	32,169		$	31,357

 The accompanying notes are an integral part of these unaudited consolidated statements.

6

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(In millions, except share amounts)	(Unaudited) June 30, 2020			December 31, 2019
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	1,216		$	1,215
Accounts payable and accrued liabilities	2,668			2,746
Accrued compensation and employee benefits	1,345			2,197
Current lease liabilities	332			342
Accrued income taxes	367			179
Total current liabilities	5,928			6,679
Fiduciary liabilities	7,441			7,344
Less – cash and investments held in a fiduciary capacity	(7,441		)	(7,344		)
	—			—
Long-term debt	11,985			10,741
Pension, post-retirement and post-employment benefits	2,197			2,336
Long-term lease liabilities	1,902			1,926
Liabilities for errors and omissions	350			335
Other liabilities	1,415			1,397
Commitments and contingencies	—			—
Equity:
Preferred stock, $1 par value, authorized 6,000,000 shares, none issued	—			—
Common stock, $1 par value, authorized 1,600,000,000 shares, issued 560,641,640 shares at June 30, 2020 and December 31, 2019	561			561
Additional paid-in capital	814			862
Retained earnings	16,060			15,199
Accumulated other comprehensive loss	(5,582		)	(5,055		)
Non-controlling interests	166			150
	12,019			11,717
Less – treasury shares, at cost, 54,263,059 shares at June 30, 2020 and 57,013,097 shares at December 31, 2019	(3,627		)	(3,774		)
Total equity	8,392			7,943
	$	32,169		$	31,357

The accompanying notes are an integral part of these unaudited consolidated statements.

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MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES                        

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Six Months Ended June 30,
(In millions)	2020			2019
Operating cash flows:
Net income before non-controlling interests	$	1,347		$	1,071
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization of fixed assets and capitalized software	188			159
Amortization of intangible assets	174			151
Non cash lease expense	165			151
Adjustments and payments related to contingent consideration liability	(30		)	(9		)
Charge for early extinguishment of debt	—			32
Provision for deferred income taxes	7			82
Loss (gain) on investments	33			(13		)
Net loss on disposition of assets	5			21
Share-based compensation expense	147			117
Change in fair value of acquisition-related derivative contracts	—			8
Changes in assets and liabilities:
Net receivables	(389		)	(437		)
Other current assets	(81		)	(4		)
Other assets	140			(33		)
Accounts payable and accrued liabilities	(129		)	29
Accrued compensation and employee benefits	(848		)	(670		)
Accrued income taxes	204			6
Contributions to pension and other benefit plans in excess of current year credit	(165		)	(172		)
Other liabilities	(20		)	36
Operating lease liabilities	(164		)	(155		)
Effect of exchange rate changes	(6		)	(129		)
Net cash provided by operations	578			241
Financing cash flows:
Purchase of treasury shares	—			(100		)
Net increase in commercial paper	—			549
Net borrowings from term-loan and credit facilities	1,000			300
Proceeds from issuance of debt	737			6,459
Repayments of debt	(507		)	(457		)
Payments for early extinguishment of debt	—			(585		)
Purchase of non-controlling interests	(3		)	(50		)
Acquisition-related derivative payments	—			(337		)
Shares withheld for taxes on vested units – treasury shares	(115		)	(87		)
Issuance of common stock from treasury shares	66			108
Payments of deferred and contingent consideration for acquisitions	(69		)	(39		)
Distributions of non-controlling interests	(22		)	(15		)
Dividends paid	(466		)	(422		)
Net cash provided by financing activities	621			5,324
Investing cash flows:
Capital expenditures	(200		)	(161		)
Net sales of long-term investments	103			202
Purchase of equity investment	—			(91		)
Proceeds from sales of fixed assets	1			2
Dispositions	93			165
Acquisitions	(562		)	(5,500		)
Other, net	1			(47		)
Net cash used for investing activities	(564		)	(5,430		)
Effect of exchange rate changes on cash and cash equivalents	(79		)	93
Increase in cash and cash equivalents	556			228
Cash and cash equivalents at beginning of period	1,155			1,066
Cash and cash equivalents at end of period	$	1,711		$	1,294

The accompanying notes are an integral part of these unaudited consolidated statements.

8

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(In millions, except per share amounts)	2020			2019			2020			2019
COMMON STOCK
Balance, beginning and end of period	$	561		$	561		$	561		$	561
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period	$	746		$	681		$	862		$	817
Change in accrued stock compensation costs	66			59			(63		)	(42		)
Issuance of shares under stock compensation plans and employee stock purchase plans	2			(4		)	16			(39		)
Other	—			—			(1		)	—
Balance, end of period	$	814		$	736		$	814		$	736
RETAINED EARNINGS
Balance, beginning of period	$	15,490		$	14,642		$	15,199		$	14,347
Net income attributable to the Company	572			332			1,326			1,048
Dividend equivalents declared	(2		)	(2		)	(6		)	(4		)
Dividends declared	—			(231		)	(459		)	(650		)
Balance, end of period	$	16,060		$	14,741		$	16,060		$	14,741
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of period	$	(5,847	)	$	(4,590	)	$	(5,055	)	$	(4,647	)
Other comprehensive loss, net of tax	265			63			(527		)	120
Balance, end of period	$	(5,582	)	$	(4,527	)	$	(5,582	)	$	(4,527	)
TREASURY SHARES
Balance, beginning of period	$	(3,655	)	$	(3,385	)	$	(3,774	)	$	(3,567	)
Issuance of shares under stock compensation plans and employee stock purchase plans	28			39			147			221
Purchase of treasury shares	—			(100		)	—			(100		)
Balance, end of period	$	(3,627	)	$	(3,446	)	$	(3,627	)	$	(3,446	)
NON-CONTROLLING INTERESTS
Balance, beginning of period	$	156		$	77		$	150		$	73
Net income attributable to non-controlling interests	8			12			21			23
Net non-controlling interests acquired / (disposed)	2			195			(1		)	195
Distributions and other changes	—			(12		)	(4		)	(19		)
Balance, end of period	$	166		$	272		$	166		$	272
TOTAL EQUITY	$	8,392		$	8,337		$	8,392		$	8,337
Dividends declared per share	$	—		$	0.455		$	0.910		$	1.285

The accompanying notes are an integral part of these unaudited consolidated statements.

9

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.     Nature of Operations

Marsh & McLennan Companies, Inc. and its consolidated subsidiaries (the "Company") is a global professional services firm offering clients advice and solutions in risk, strategy and people. Its businesses include: Marsh, the insurance broker, intermediary and risk advisor; Guy Carpenter, the risk and reinsurance specialist; Mercer, the provider of HR and Investment related financial advice and services; and Oliver Wyman Group, the management, economic and brand consultancy. With 76,000 colleagues worldwide and annual revenue of $17 billion, the Company provides analysis, advice and transactional capabilities to clients in more than 130 countries.

Business Update Related To COVID-19

In March 2020, the World Health Organization declared the Coronavirus (COVID-19) a pandemic. The outbreak spread quickly around the world, including essentially every geography in which the Company operates. The pandemic has created uncertainty around the impact on the global economy and has resulted in impacts to the financial markets and asset values. Governments implemented various restrictions around the world, including closure of non-essential businesses, travel, shelter-in-place requirements for citizens and other restrictions. 

The Company took a number of precautionary steps to safeguard its businesses and colleagues from COVID-19, including implementing travel restrictions, arranging work from home capabilities and flexible work policies. Through the end of the second quarter, nearly all of the Company’s colleagues have continued working fully in a remote work environment, with virtually no disruption to the Company as a whole and its ability to serve clients. The safety and well-being of our colleagues continues to be our first priority.

Over the past several months, many countries have begun to “re-open” their economies, with various conditions imposed by each jurisdiction. The Company has re-opened offices in various locations around the world, while ensuring that it continues to adhere to guidelines and orders issued by national, state and local governments. The timing of office re-openings will vary based on the conditions and restrictions in each location, but it remains uncertain the extent to which colleagues will return to offices for the remainder of the year. However, the Company expects it will continue its ability to service clients effectively while colleagues remain in a remote work environment.

The ultimate extent of the COVID-19 impact to the Company will depend on numerous evolving factors and future developments that it is not able to predict. Factors that could adversely affect the Company’s financial statements related to the financial and operational impact of COVID-19 are outlined in “Item 1A - Risk Factors” in the Company’s Form 10-Q for the quarter ended March 31, 2020.

JLT Acquisition

On April 1, 2019, the Company completed its acquisition (the "Transaction") of all of the outstanding shares of Jardine Lloyd Thompson Group plc ("JLT"), a public company organized under the laws of England and Wales. JLT's results of operations for the three and six month periods ended June 30, 2020 are included in the Company's results of operations. The Company's results for the six months ended June 30, 2019 do not reflect JLT’s results of operations for the three months ended March 31, 2019 and therefore may affect comparability.

2.     Principles of Consolidation and Other Matters

The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations for interim filings, the Company believes that the information and disclosures presented are adequate to make such information and disclosures not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Form 10-K").

The financial information contained herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial statements as of and for the three and six month periods ended June 30, 2020 and 2019.

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Estimates: The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. On an ongoing basis the Company evaluates its estimates, judgments and methodologies. The estimates are based on historical experience and on various other assumptions that the Company believes are reasonable. Such matters include:

• the allowance for current expected credit losses on receivables,

• estimates of revenue,

• impairment assessments and charges,

• recoverability of long-lived assets,

• liabilities for errors and omissions,

• deferred tax assets, uncertain tax positions and income tax expense,

• share-based and incentive compensation expense,

• useful lives assigned to long-lived assets, and depreciation and amortization,

• fair value estimates of contingent consideration receivable or payable related to acquisitions or dispositions

The Company believes these estimates are reasonable based on information currently available at the time they are made. Management has made estimates of the impact of COVID-19 within the Company’s financial statements and there may be changes to those estimates in future periods. In most situations where estimates, fair values or recoverability of assets is dependent upon short or long term projections of cash flows, revenues or earnings before interest, taxes, depreciation and amortization ("EBITDA"), the Company has based its projections assuming the gradual lifting of global lockdowns starting in the third quarter, but recessionary conditions persisting through at least the remainder of 2020. The Company has also considered potential impacts to its customer base in various industries and geographies. The ultimate extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s businesses, results of operations and financial condition will depend on future developments that are highly uncertain, including new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, and the economic impact on local, regional, national and international customers and markets. Actual results may differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents primarily consist of certificates of deposit and time deposits, with original maturities of three months or less, and money market funds. The estimated fair value of the Company's cash and cash equivalents approximates their carrying value. The Company is required to maintain operating funds primarily related to regulatory requirements outside of the United States or as collateral under captive insurance arrangements. At June 30, 2020, the Company maintained $201 million compared to $197 million at December 31, 2019 related to these regulatory requirements.

Allowance for Current Expected Credit Losses on Accounts Receivable

The Company’s policy for providing an allowance for current expected credit losses (“CECL”) on its accounts receivable is based on management’s best estimate of amounts that will be uncollectible primarily based on the Company’s historical experience of collections in its various businesses and other events that may affect the net realizable value of receivables. The charge related to expected credit losses was immaterial to the consolidated statement of income in the three and six month periods ended June 30, 2020.

Investments

The caption "Investment (loss) income" in the consolidated statements of income comprises realized and unrealized gains and losses from investments recognized in earnings. It includes, when applicable, other than temporary declines in the value of securities, mark-to-market increases or decreases in equity investments with readily determinable fair values and equity method gains or losses on the Company's investments in private equity funds.

The Company holds investments in certain private equity funds that are accounted for under the equity method of accounting using a consistently applied three-month lag period adjusted for any known significant changes from the lag period to the reporting date of the Company. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. Investment gains or losses for the

11

Company's proportionate share of the change in fair value of the funds are recorded in earnings. Investments accounted for using the equity method of accounting are included in "other assets" in the consolidated balance sheets.

The Company recorded net investment losses of $31 million and $33 million for the three and six month periods ended June 30, 2020 compared to net investment income of $8 million and $13 million for the three and six month periods ended June 30, 2019. The three and six month periods ending June 30, 2020 primarily include a loss of $23 million from the sale of shares of Alexander Forbes and losses related to its private equity fund investments. The three and six month periods ending June 30, 2019 include gains of $3 million and $6 million related to mark-to-market changes in equity securities and gains of $5 million and $7 million related to investments in private equity funds and other investments.

Income Taxes

The Company's effective tax rate in the second quarter of 2020 was 26.2% compared with 37.4% in the second quarter of 2019. The effective tax rates for the first six months of 2020 and 2019 were 24.9% and 28.2%. The rate in the second quarter and first six months of 2019 reflects discrete adjustments related to the JLT acquisition, including tax on the disposition of JLT’s aerospace business and nondeductible expenses incurred in connection with the JLT Transaction. The tax rates in all periods reflect the impact of discrete tax matters such as excess tax benefits related to share-based compensation, tax legislation, changes in uncertain tax positions, deferred tax adjustments and nontaxable adjustments to contingent acquisition consideration.

The Company's tax rate reflects its income, statutory tax rates and tax planning in the various jurisdictions in which it operates. Significant judgment is required in determining the annual effective tax rate and in evaluating uncertain tax positions.

Losses in one jurisdiction, generally, cannot offset earnings in another, and within certain jurisdictions profits and losses may not offset between entities. Consequently, losses in certain jurisdictions may require valuation allowances affecting the effective tax rate, depending on estimates of the realizability of associated deferred tax assets. The tax rate is also sensitive to changes in unrecognized tax benefits, including the impact of settled tax audits and expired statutes of limitation.

Changes in tax laws or tax rulings may have a significant impact on our effective tax rate. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in tax returns. The Company's gross unrecognized tax benefits decreased from $86 million at December 31, 2019 to $79 million at June 30, 2020 due to settlements of audits, expirations of statutes of limitation and net changes to tax positions of prior years, offset by current accruals. It is reasonably possible that the total amount of unrecognized tax benefits will decrease between zero and approximately $12 million within the next twelve months due to settlements of audits and expirations of statutes of limitation.

Integration and Restructuring Charges

Severance and related costs are recognized based on amounts due under established severance plans or estimates of one-time benefits that will be provided. Typically, severance benefits are recognized when the impacted colleagues are notified of their expected termination and such termination is expected to occur within the legally required notification period. These costs are included in compensation and benefits in the consolidated statements of income.

Costs for real estate consolidation are recognized based on the type of cost, and the expected future use of the facility. For locations where the Company does not expect to sub-lease the property, the amortization of any right-of-use asset is accelerated from the decision date to the cease use date. For locations where the Company expects to sub-lease the properties subsequent to its vacating the property, the right-of-use asset is reviewed for potential impairment at the earlier of the cease use date or the date a sub-lease is signed. To determine the amount of impairment, the fair value of the right-of-use asset is determined based on the present value of the estimated net cash flows related to the property. Contractual costs outside of the right-of-use asset are recognized based on the net present value of expected future cash outflows for which the Company will not receive any benefit. Such amounts are reliant on estimates of future sub-lease income to be received and future contractual costs to be incurred. These costs are included in other operating expenses in the consolidated statements of income.

Other costs related to integration and restructuring, such as moving, legal or consulting costs are recognized as incurred. These costs are included in other operating expenses in the consolidated statements of income.

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3.     Revenue

The core principle of the revenue recognition guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that principle, the entity applies the following steps: identify the contract(s) with the customer, identify the performance obligations in the contract(s), determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the entity satisfies a performance obligation. Under the accounting guidance, a performance obligation is satisfied either at a “point in time” or “over time” depending on the nature of the product or service provided, and the specific terms of the contract with customers.

The Company's revenue recognition guidance is provided in more detail in Note 3 of the consolidated financial statements and the notes thereto included in 2019 Form 10-K for the year ended December 31, 2019.

The following schedule disaggregates components of the Company's revenue:

	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2020		2019		2020		2019
Marsh:
EMEA	$	597	$	652	$	1,351	$	1,285
Asia Pacific	298		291		536		456
Latin America	99		116		190		194
Total International	994		1,059		2,077		1,935
U.S./Canada	1,167		1,097		2,145		1,958
Total Marsh	2,161		2,156		4,222		3,893
Guy Carpenter	433		392		1,260		1,055
Subtotal	2,594		2,548		5,482		4,948
Fiduciary interest income	9		26		32		49
Total Risk and Insurance Services	$	2,603	$	2,574	$	5,514	$	4,997
Mercer:
Wealth	$	561	$	613	$	1,153	$	1,156
Health	432		458		918		900
Career	156		189		329		359
Total Mercer	1,149		1,260		2,400		2,415
Oliver Wyman	467		540		978		1,058
Total Consulting	$	1,616	$	1,800	$	3,378	$	3,473

The Company recognizes commission revenue from arrangements for a significant portion of its brokerage arrangements at a point in time at effective date of the underlying policy. Commission revenue is estimated using historical information about the risks to be covered over the policy period, some of which are dependent on variable factors such as number of employees covered, covered payroll, airline passenger miles flown, shipped tonnage of marine cargo and others.

The following schedule provides contract assets and contract liabilities information from contracts with customers.

(In millions)	June 30, 2020		December 31, 2019
Contract Assets	$	298	$	207
Contract Liabilities	$	696	$	593

The Company records accounts receivable when the right to consideration is unconditional, subject only to the passage of time. Contract assets primarily relate to quota share reinsurance brokerage and contingent insurer revenue. The Company does not have the right to bill and collect revenue for quota share brokerage until the underlying policies written by the ceding insurer attach to the treaty. Contract assets are included in other current assets in the Company's consolidated balance sheet. Contract liabilities primarily relate to the advance

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consideration received from customers. Contract liabilities are included in current liabilities in the Company's consolidated balance sheet. Revenue recognized in the first six months of 2020 and 2019 that was included in the contract liability balance at the beginning of each of those years was $418 million and $307 million, respectively.

The amount of revenue recognized in the first six months of 2020 and 2019 from performance obligations satisfied in previous periods, mainly due to variable consideration from contracts with insurers, quota share business and consulting contracts previously considered constrained was $67 million and $36 million, respectively.

During the second quarter of 2020, the Company recorded a revenue reduction of $36 million for estimated commission revenue accounted for on a point in time basis. The reduction relates to policy periods incepted from the third quarter of 2019 through the second quarter of 2020. Insurance exposures subject to variable factors described above are subject to mid-term and end of term adjustments, as well as policy audits, which may reduce premiums and corresponding commissions.  Estimates were updated based on internal data and industry specific economic data.  Approximately $33 million of the revenue reduction is related to Marsh in the U.S. and EMEA geographies. Mercer’s revenue was reduced by approximately $3 million in the Health segment.

The Company applies the practical expedient and therefore does not disclose the value of unsatisfied performance obligations for (1) contracts with original contract terms of one year or less and (2) contracts where the Company has the right to invoice for services performed. The revenue expected to be recognized in future periods during the non-cancellable term of existing contracts greater than one year that is related to performance obligations that are unsatisfied or partially satisfied at the end of the reporting period is approximately $51 million for Marsh, $220 million for Mercer and $2 million for Oliver Wyman. The Company expects revenue in 2021, 2022, 2023, 2024 and 2025 and beyond of $146 million, $71 million, $36 million, $14 million and $6 million, respectively, related to these performance obligations.

4.     Fiduciary Assets and Liabilities

In its capacity as an insurance broker or agent, the Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurance underwriters. The Company also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims proceeds are held by the Company in a fiduciary capacity. Risk and Insurance Services revenue includes interest on fiduciary funds ("fiduciary interest income") of $9 million and $32 million for the three and six month periods ended June 30, 2020, respectively, and $26 million and $49 million for the three and six month periods ended June 30, 2019, respectively. The Consulting segment recorded fiduciary interest income of less than $1 million for both the three and six month periods ended June 30, 2020, and $1 million and $2 million for the three and six month periods ended June 30, 2019, respectively. Since fiduciary assets are not available for corporate use, they are shown in the consolidated balance sheets as an offset to fiduciary liabilities.

Net uncollected premiums and claims and the related payables amounted to $11.6 billion at June 30, 2020 and $8.9 billion at December 31, 2019. The Company is not a principal to the contracts under which the right to receive premiums or the right to receive reimbursement of insured losses arises. Accordingly, net uncollected premiums and claims and the related payables are not assets and liabilities of the Company and are not included in the accompanying consolidated balance sheets.

In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or insureds prior to collection. These advances are made from corporate funds and are reflected in the accompanying consolidated balance sheets as receivables.

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5.    Per Share Data

Basic net income per share attributable to the Company is calculated by dividing the after-tax income attributable to the Company by the weighted average number of outstanding shares of the Company’s common stock.

Diluted net income per share attributable to the Company is calculated by dividing the after-tax income attributable to the Company by the weighted average number of outstanding shares of the Company’s common stock, which have been adjusted for the dilutive effect of potentially issuable common shares.

Basic and Diluted EPS Calculation	Three Months Ended June 30,				Six Months Ended June 30,
(In millions, except per share amounts)	2020		2019		2020		2019
Net income before non-controlling interests	$	580	$	344	$	1,347	$	1,071
Less: Net income attributable to non-controlling interests	8		12		21		23
Net income attributable to the Company	$	572	$	332	$	1,326	$	1,048
Basic weighted average common shares outstanding	506		507