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EX-32.1 - SECTION 1350 CERTIFICATIONS - MARSH & MCLENNAN COMPANIES, INC.mmc0331201810qex_321.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF CHIEF FINANCIAL OFFICER - MARSH & MCLENNAN COMPANIES, INC.mmc0331201810qex_312.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER - MARSH & MCLENNAN COMPANIES, INC.mmc0331201810qex_311.htm
EX-12.1 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - MARSH & MCLENNAN COMPANIES, INC.mmc0331201810qex_121.htm
EX-10.6 - NON-COMPETE NON-SOLICIT DOYLE - MARSH & MCLENNAN COMPANIES, INC.non-competeagreement_doyle.htm
EX-10.5 - LETTER AGREEMENT DOYLE - MARSH & MCLENNAN COMPANIES, INC.letteragreement_doyle2017e.htm
EX-10.4 - FORM OF SO AWARD - MARSH & MCLENNAN COMPANIES, INC.formofsoaward2018ex_104.htm
EX-10.3 - FORM OF PSU AWARD - MARSH & MCLENNAN COMPANIES, INC.formofpsuaward2018ex_103.htm
EX-10.2 - FORM OF RSU AWARD - MARSH & MCLENNAN COMPANIES, INC.formofrsuaward2018ex_102.htm
EX-10.1 - FORM OF DSU AWARD - MARSH & MCLENNAN COMPANIES, INC.formofdsuaward2018ex_101.htm
EX-4.1 - TENTH SUPPLEMENTAL INDENTURE DATED MARCH 1, 2018 - MARSH & MCLENNAN COMPANIES, INC.mmctenthsupplindentureex_41.htm
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________ 
FORM 10-Q
_____________________________________________ 
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2018
_____________________________________________ 
Marsh & McLennan Companies, Inc.
logommc2015.jpg
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
_____________________________________________ 
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  x
  
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. o
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 April 25, 2018, there were outstanding 507,383,481 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 impact of any investigations, reviews, market studies or other activity by regulatory or law enforcement authorities, including the U.K. CMA investment consultants market investigation, the U.K. FCA wholesale insurance broker market study and the ongoing investigations by the European Commission;
the impact from lawsuits, other contingent liabilities and loss contingencies arising from errors and omissions, breach of fiduciary duty or other claims against us;
our organization's ability to maintain adequate safeguards to protect the security of our information systems and confidential, personal or proprietary information, particularly given the large volume of our vendor network and the need to patch software vulnerabilities;
our ability to compete effectively and adapt to changes in the competitive environment, including to respond to disintermediation, digital disruption and other types of innovation;
the financial and operational impact of complying with laws and regulations where we operate, including cybersecurity and data privacy regulations such as the E.U.’s General Data Protection Regulation, anti-corruption laws and trade sanctions regimes;
the regulatory, contractual and reputational risks that arise based on insurance placement activities and various broker revenue streams;
the extent to which we manage risks associated with the various services, including fiduciary and investments and other advisory services;
our ability to successfully recover if we experience a business continuity problem due to cyberattack, natural disaster or otherwise;
the impact of changes in tax laws, guidance and interpretations, including related to certain provisions of the U.S. Tax Cuts and Jobs Act, or disagreements with tax authorities;
the impact of fluctuations in foreign exchange and interest rates on our results;
the impact of macroeconomic, political, regulatory or market conditions on us, our clients and the industries in which we operate; and
the impact of changes in accounting rules or in our accounting estimates or assumptions, including the impact of the adoption of the new revenue recognition, pension and lease accounting standards.
The factors identified above are not exhaustive. 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 in 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.

2



TABLE OF CONTENTS
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
OF OPERATIONS
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.


3



PART I.    FINANCIAL INFORMATION
Item 1.
Financial Statements.
MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended
March 31,
(In millions, except per share amounts)
 
2018

 
2017

Revenue
 
$
4,000

 
$
3,503

Expense:
 
 
 
 
Compensation and benefits
 
2,224

 
2,005

Other operating expenses
 
868

 
749

Operating expenses
 
3,092

 
2,754

Operating income
 
908

 
749

Other net benefit credits
 
66

 
60

Interest income
 
3

 
2

Interest expense
 
(61
)
 
(58
)
Investment income
 

 

Income before income taxes
 
916

 
753

Income tax expense
 
220

 
175

Net income before non-controlling interests
 
696

 
578

Less: Net income attributable to non-controlling interests
 
6

 
9

Net income attributable to the Company
 
$
690

 
$
569

Net income Per Share Attributable to the Company:
 
 
 
 
Basic
 
$
1.36

 
$
1.10

Diluted
 
$
1.34

 
$
1.09

Average number of shares outstanding:
 
 
 
 
Basic
 
508

 
515

Diluted
 
514

 
522

Shares outstanding at March 31,
 
508

 
515

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
March 31,
(In millions)
 
2018

 
2017

Net income before non-controlling interests
 
$
696

 
$
578

Other comprehensive income (loss), before tax:
 
 
 
 
    Foreign currency translation adjustments
 
228

 
235

    Unrealized investment gains (losses)
 

 
(5
)
    (Loss) gain related to pension/post-retirement plans
 
(84
)
 
33

Other comprehensive income, before tax
 
144

 
263

Income tax (credit) expense on other comprehensive income
 
(8
)
 
7

Other comprehensive income, net of tax
 
152

 
256

Comprehensive income
 
848

 
834

Less: comprehensive income attributable to non-controlling interest
 
6

 
9

Comprehensive income attributable to the Company
 
$
842

 
$
825

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)
March 31,
2018
 
December 31,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,168

 
$
1,205

Receivables
 
 
 
Commissions and fees
4,217

 
3,777

Advanced premiums and claims
70

 
65

Other
389

 
401

 
4,676

 
4,243

Less-allowance for doubtful accounts and cancellations
(114
)
 
(110
)
Net receivables
4,562

 
4,133

Other current assets
540

 
224

Total current assets
6,270

 
5,562

Goodwill
9,194

 
9,089

Other intangible assets
1,256

 
1,274

Fixed assets
(net of accumulated depreciation and amortization of $1,889 at March 31, 2018 and $1,826 at December 31, 2017)
713

 
712

Pension related assets
1,857

 
1,693

Deferred tax assets
554

 
669

Other assets
1,535

 
1,430

 
$
21,379

 
$
20,429

 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)
March 31,
2018
 
December 31,
2017
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
512

 
$
262

Accounts payable and accrued liabilities
2,343

 
2,083

Accrued compensation and employee benefits
813

 
1,718

Accrued income taxes
261

 
199

Dividends payable
193

 

Total current liabilities
4,122

 
4,262

Fiduciary liabilities
5,140

 
4,847

Less – cash and investments held in a fiduciary capacity
(5,140
)
 
(4,847
)
 

 

Long-term debt
5,815

 
5,225

Pension, post-retirement and post-employment benefits
1,842

 
1,888

Liabilities for errors and omissions
312

 
301

Other liabilities
1,267

 
1,311

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 March 31, 2018
 
 
 
   and December 31, 2017
561

 
561

Additional paid-in capital
682

 
784

Retained earnings
13,812

 
13,140

Accumulated other comprehensive loss
(3,905
)
 
(4,043
)
Non-controlling interests
81

 
83

 
11,231

 
10,525

Less – treasury shares, at cost, 52,710,521 shares at March 31, 2018
 
 
 
   and 51,930,135 shares at December 31, 2017
(3,210
)
 
(3,083
)
Total equity
8,021

 
7,442

 
$
21,379

 
$
20,429

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

7



MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31,
 
 
 
(In millions)
2018

 
2017

Operating cash flows:
 
 
 
Net income before non-controlling interests
$
696

 
$
578

Adjustments to reconcile net income to cash used for operations:
 
 
 
Depreciation and amortization of fixed assets and capitalized software
80

 
80

Amortization of intangible assets
45

 
40

Adjustments and payments related to contingent consideration liability
(5
)
 
(20
)
Provision for deferred income taxes
11

 
25

(Gain) loss on disposition of assets
(1
)
 
6

Share-based compensation expense
50

 
42

Changes in assets and liabilities:
 
 
 
Net receivables
(357
)
 
(146
)
Other current assets
2

 
(43
)
Other assets
(32
)
 
(25
)
Accounts payable and accrued liabilities
135

 
60

Accrued compensation and employee benefits
(905
)
 
(888
)
Accrued income taxes
61

 
56

      Contributions to pension and other benefit plans in excess of current year expense/credit
(96
)
 
(106
)
Other liabilities
17

 
(46
)
Effect of exchange rate changes
(65
)
 
(12
)
Net cash used for operations
(364
)
 
(399
)
Financing cash flows:
 
 
 
Purchase of treasury shares
(250
)
 
(200
)
Net increase in commercial paper
249

 
100

Proceeds from issuance of debt
592

 
987

Repayments of debt
(3
)
 
(5
)
Shares withheld for taxes on vested units – treasury shares
(61
)
 
(48
)
Issuance of common stock from treasury shares
32

 
73

Payments of deferred and contingent consideration for acquisitions
(70
)
 
(34
)
Distributions of non-controlling interests
(6
)
 
(1
)
Dividends paid
(189
)
 
(175
)
Net cash provided by financing activities
294

 
697

Investing cash flows:
 
 
 
Capital expenditures
(58
)
 
(62
)
Net sales of long-term investments
9

 
11

Proceeds from sales of fixed assets
1

 
1

Dispositions
3

 

Acquisitions
(24
)
 
(411
)
Other, net
(1
)
 

Net cash used for investing activities
(70
)
 
(461
)
Effect of exchange rate changes on cash and cash equivalents
103

 
67

Decrease in cash and cash equivalents
(37
)
 
(96
)
Cash and cash equivalents at beginning of period
1,205

 
1,026

Cash and cash equivalents at end of period
$
1,168

 
$
930

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

8



MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
For the Three Months Ended March 31,
 
 
 
(In millions, except per share amounts)
2018

 
2017

COMMON STOCK
 
 
 
Balance, beginning and end of period
$
561

 
$
561

ADDITIONAL PAID-IN CAPITAL
 
 
 
Balance, beginning of year
$
784

 
$
842

Change in accrued stock compensation costs
(75
)
 
(43
)
Issuance of shares under stock compensation plans and employee stock purchase plans
(27
)
 
(66
)
Balance, end of period
$
682

 
$
733

RETAINED EARNINGS
 
 
 
Balance, beginning of year
$
13,140

 
$
12,388

Cumulative effect of adoption of the revenue recognition standard (See Note 17)
364

 

Cumulative effect of adoption of other accounting standards (See Note 17)

 

Net income attributable to the Company
690

 
569

Dividend equivalents declared – (per share amounts: $0.75 in 2018 and $0.68 in 2017)
(1
)
 
(1
)
Dividends declared – (per share amounts: $0.75 in 2018 and $0.68 in 2017)
(381
)
 
(350
)
Balance, end of period
$
13,812

 
$
12,606

ACCUMULATED OTHER COMPREHENSIVE LOSS
 
 
 
Balance, beginning of year
$
(4,043
)
 
$
(5,093
)
Cumulative effect of adoption of the financial instruments standard (See Note 17)
(14
)
 

Other comprehensive income, net of tax
152

 
256

Balance, end of period
$
(3,905
)
 
$
(4,837
)
TREASURY SHARES
 
 
 
Balance, beginning of year
$
(3,083
)
 
$
(2,506
)
Issuance of shares under stock compensation plans and employee stock purchase plans
123

 
175

Purchase of treasury shares
(250
)
 
(200
)
Balance, end of period
$
(3,210
)
 
$
(2,531
)
NON-CONTROLLING INTERESTS
 
 
 
Balance, beginning of year
$
83

 
$
80

Net income attributable to non-controlling interests
6

 
9

Deconsolidation of subsidiary

 
(2
)
Distributions and other changes
(8
)
 

Balance, end of period
$
81

 
$
87

TOTAL EQUITY
$
8,021

 
$
6,619

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"), a global professional services firm, is organized based on the different services that it offers. Under this structure, the Company’s two segments are Risk and Insurance Services and Consulting.
The Risk and Insurance Services segment provides risk management solutions, services, advice and insurance broking, reinsurance broking and insurance program management services for businesses, public entities, insurance companies, associations, professional services organizations and private clients. The Company conducts business in this segment through Marsh and Guy Carpenter.
The Company conducts business in its Consulting segment through Mercer and Oliver Wyman Group. Mercer provides consulting expertise, advice, services and solutions in the areas of health, wealth and career. As of March 31, 2018, Mercer had assets under delegated management of approximately $240 billion worldwide. Oliver Wyman Group provides specialized management and economic and brand consulting services.
Acquisitions impacting the Risk and Insurance Services and Consulting segments are discussed in Note 8 to the consolidated financial statements.
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, 2017 (the "2017 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 month periods ended March 31, 2018 and 2017.
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 of approximately $199 million, primarily related to regulatory requirements outside the United States or as collateral under captive insurance arrangements.
Investments
The caption "Investment 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 debt 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.
As discussed in Note 17, effective January 1, 2018, the Company adopted new accounting guidance that requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The Company holds certain equity investments, that under legacy Generally Accepted Accounting Principles, were previously accounted as available for sale securities, whereby the mark-to-market change was recorded to other comprehensive income in its consolidated balance sheet. As required, the Company adopted the new accounting, effective January 1, 2018. The Company recorded a cumulative-effect adjustment increase to retained earnings as of the beginning of the period of adoption of $14 million, reflecting the reclassification of cumulative unrealized gains, net of tax as of December 31, 2017 from accumulated other comprehensive income to retained earnings. Prior periods have not been restated.
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

10



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 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 a net investment loss of less than $1 million for the three months ended March 31, 2018 compared to net investment income of less than $1 million for the same period in 2017. During the first quarter of 2018, equity method gains of $7 million related to the Company's investments in private equity funds were offset by mark-to-market losses on certain equity investments with readily determinable market values.
Income Taxes
The Company's effective tax rate in the first quarter of 2018 was 23.9% compared with 23.3% in the first quarter of 2017. The rate in the first quarter of 2018 reflects ongoing impacts of the Tax Cuts and Jobs Act (the "TCJA"), primarily the reduced 21% U.S. statutory rate largely offset by higher estimated costs from the new territorial system and greater disallowance of compensation and entertainment deductions. The rate in the first quarter of 2017 reflects foreign operations taxed at rates below the 35% U.S. statutory tax rate, including the effect of repatriation from current earnings. The tax rates in both periods reflect the impact of discrete tax matters such as excess tax benefits related to share-based compensation, tax legislation and nontaxable adjustments to contingent acquisition consideration. The excess tax benefit related to share based payments is the most significant discrete item, reducing the effective tax rate by 2.4% and 5.8% in the first quarters of 2018 and 2017, respectively.
As a result of TCJA, two discrete provisional charges were recorded in the fourth quarter of 2017. The transition to the new territorial tax system resulted in a transition tax payable over eight years on undistributed earnings of non-U.S. subsidiaries. This mandatory taxation of accumulated foreign earnings substantially changed the economic considerations of continued permanent investment of those accumulated earnings, a key component of the Company's global capital strategy. As a result of the transition tax, the Company anticipates repatriating the majority of the accumulated earnings that it previously intended to permanently invest. A charge of $240 million was recorded in the fourth quarter of 2017 as a provisional estimate of the transition tax and ancillary effects.
The provisional estimate of transition tax includes state taxes and foreign withholding taxes related to the change in the Company's indefinite reinvestment assertion with respect to its pre-2018 foreign earnings. The Company previously considered most unremitted earnings of its non-U.S. subsidiaries, except amounts repatriated in the year earned, to be permanently reinvested and, accordingly, recorded no deferred U.S. income taxes on such earnings. The Company has initially analyzed our global capital requirements and potential tax liabilities attributable to repatriation. The Company estimates that it will repatriate $3.4 billion that was previously considered indefinitely invested. Included in the $240 million charge in 2017 is a $53 million provisional estimate for withholding and state income taxes.
In addition, reducing the U.S. corporate tax rate from 35% to 21% and the change in deductibility of certain compensation awards to executive officers of the Company effective on January 1, 2018, resulted in a net charge of $220 million in the fourth quarter of 2017 to reduce the value of our U.S. deferred tax assets and liabilities. Adjustments during the first quarter of 2018 to provisional estimates of transition taxes and U.S. deferred tax assets and liabilities increased income tax expense by $3 million. These estimates may be further adjusted during 2018 when the Company has finalized its analysis of all the relevant information.
In December of 2017, the SEC issued Staff Accounting Bulletin 118 ("SAB 118"), establishing a one-year measurement period to complete the accounting for the income tax effects of the TCJA. SAB 118 anticipates three alternative states of completion at the end of the reporting period of accounting for these effects: (1) the tax accounting work has been completed with respect to an item; (2) a provisional amount has been recognized because a reasonable estimate was possible, or (3) a reasonable estimate cannot be provided. The Company believes its analysis of the TCJA to date provides an appropriate basis to record a provisional estimate. Our provisional estimates include the effects of the deemed repatriation tax and the Company's position with respect to permanently reinvested earnings, the impact of the Global Intangible Low Taxed Income ("GILTI") provision, and the remeasurement of U.S. deferred tax based on estimated enactment-date deferred tax balances, which may be adjusted in 2018 when the 2017 tax return is filed. However, given the significant complexity of the TCJA, anticipated guidance from the U.S. Treasury about its implementation, the potential for additional guidance from the SEC or FASB, and the global complexity of the Company, these estimates may be adjusted during 2018.
The Company is routinely examined by tax authorities in the jurisdictions in which it has significant operations. The Company regularly considers the likelihood of assessments in each of the taxing jurisdictions resulting from examinations. When evaluating the potential imposition of penalties, the Company considers a number of relevant

11



factors under penalty statutes, including appropriate disclosure of the tax return position, the existence of legal authority supporting the Company's position and reliance on the opinion of professional tax advisors.
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 $71 million at December 31, 2017 to $70 million at March 31, 2018 due to settlements of audits and expirations of statutes of limitation, partially offset by current accruals. It is reasonably possible that the total amount of unrecognized tax benefits will decrease between zero and approximately $4 million within the next twelve months due to settlements of audits and expirations of statutes of limitation.
3.     Revenue
2018 - Under the New Revenue Recognition Standard
In May 2014, the Financial Accounting Standards Board ("FASB") issued new accounting guidance related to revenue from contracts with customers. The core principle of the 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.
The Company adopted the new guidance effective January 1, 2018, using the modified retrospective method, which applies the new guidance beginning in the year of adoption, with the cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings at January 1, 2018. The Company elected to apply the modified retrospective method to all contracts. The comparative financial information included herein has not been restated and continues to be reported under the legacy accounting standards that were in effect for those periods.
In the first quarter of 2018, the Company recorded an increase to the opening balance of retained earnings of $364 million to reflect the cumulative effect of adopting this revenue standard. Other revenue included in the consolidated statements of income that is not from contracts with customers is less than one-quarter of one percent of total revenue, and therefore is not presented as a separate line item.
Risk and Insurance Services
Risk and Insurance Services revenue reflects compensation for brokerage and consulting services through commissions and fees. Commission rates and fees vary in amount and can depend upon a number of factors, including the type of insurance or reinsurance coverage provided, the particular insurer or reinsurer selected, and the capacity in which the broker acts and negotiates with clients. For the majority of the insurance and reinsurance brokerage arrangements, advice and services provided which culminate in the placement of an effective policy are considered a single performance obligation. Arrangements with clients may include the placement of a single policy, multiple policies or a combination of policy placements and other services. Consideration related to such "bundled arrangements" is allocated to the individual performance obligations based on their relative fair value. Revenue for policy placement is generally recognized on the policy effective date, at which point control over the services provided by the Company has transferred to the client and the client has accepted the services. The contractual terms for certain fee based brokerage arrangements meet the criteria for revenue recognition over time. For such arrangements, progress toward completion is estimated using output measures, which correspond to the timing of when revenue is recognized. Fees for non-risk transfer services provided to clients are recognized over time in the period the services are provided, using a proportional performance model, primarily based on input measures. These measures of progress provide a faithful depiction of the progress towards completion of the performance obligation.
Revenue related to reinsurance brokerage for excess of loss ("XOL") treaties is estimated based on contractually specified minimum or deposit premiums, and adjusted as additional evidence of the ultimate amount of brokerage is received. Revenue for quota share treaties is estimated based on indications of estimated premium income provided by the ceding insurer. The estimated brokerage revenue recognized for quota share treaties is constrained to an amount that is probable to not have a significant negative adjustment. The estimated revenue and the constraint are evaluated as additional evidence of the ultimate amount of underlying risks to be covered is received over the 12 to 18 months following the effective date of the placement.
In addition to commissions and fees from its clients, the Company also receives other compensation from insurance companies. This other insurer compensation includes, among other things, payments for consulting and analytics services provided to insurers, fees for administrative and other services provided to or on behalf of insurers (including services relating to the administration and management of quota shares, panels and other facilities in

12



which insurers participate). The Company may also be eligible for certain contingent commissions from insurers based on the attainment of specified metrics (i.e., volume and loss ratio measures) relating to Marsh's placements, particularly in Marsh & McLennan Agency ("MMA") and in parts of Marsh's international operations. Revenue for contingent commissions from insurers is estimated based on historical evidence of the achievement of the respective contingent metrics and recorded as the underlying polices that contribute to the achievement of the metric are placed. Due to the uncertainty of the amount of contingent consideration that will be received, the estimated revenue is constrained to an amount that is probable to not have a significant negative adjustment. Contingent consideration is generally received in the first quarter of the subsequent year.
A significant majority of the Company's Risk and Insurance Services revenue is for performance obligations recognized at a point in time. Marsh and Guy Carpenter also receive interest income on certain funds (such as premiums and claims proceeds) held in a fiduciary capacity for others.
Insurance brokerage commissions are generally invoiced on the policy effective date. Fee based arrangements generally include a percentage of the total fee due upon signing the arrangement, with additional fixed installments payable over the remainder of the year. Payment terms range from receipt of invoice up to 30 days of invoice.
Reinsurance brokerage is recognized on the effective date of the treaty. Payment terms depend on the type of reinsurance. For excess of loss treaties, brokerage is typically collected in four installments during an annual treaty period based on a contractually specified minimum or deposit premium. For proportional or quota share treaties, brokerage is billed as underlying insured risks attach to the reinsurance treaty, generally over 12 to 18 months.
Consulting
The major component of revenue in the Consulting business is fees paid by clients for advice and services. Mercer, principally through its health line of business, also receives revenue in the form of commissions received from insurance companies for the placement of group (and occasionally individual) insurance contracts, primarily health, life and accident coverages. Revenue for Mercer’s investment management business and certain of Mercer’s defined benefit administration services consists principally of fees based on assets under delegated management or administration.
Consulting projects in Mercer’s wealth and career businesses, as well as consulting projects in Oliver Wyman typically consist of a single performance obligation, which is recognized over time as control is transferred continuously to customers. Typically, revenue is recognized over time using an input measure of time expended to date relative to total estimated time incurred at project completion. Incurred hours represent services rendered and thereby faithfully depicts the transfer of control to the customer.
On a limited number of engagements, performance fees may also be earned for achieving certain prescribed performance criteria. Revenue for achievement is estimated and constrained to an amount that is probable to not have a significant negative adjustment.
A significant majority of fee revenues in the Consulting segment is recognized over time.
For consulting projects, Mercer generally invoices monthly in arrears with payment due within 30 days of the invoice date. Fees for delegated management services are either deducted from the net asset value of the fund or invoiced to the client on monthly or quarterly basis in arrears. Oliver Wyman typically bills its clients 30-60 days in arrears with payment due upon receipt of the invoice.
Health brokerage and consulting services are components of both Marsh, which includes MMA, and Mercer, with approximately 70% of such revenues reported in Mercer. Health contracts typically involve a series of distinct services that are treated as a single performance obligation. Revenue for these services is recognized over time based on the amount of remuneration the Company expects to be entitled in exchange for these services. Payments for health brokerage and consulting services are typically paid monthly in arrears from carriers based on insured lives under the contract.
 



13



The following schedule disaggregates various components of the Company's revenue:
 
 
Three Months Ended
March 31,
 
 
2018
Marsh:
 
 
EMEA
 
$
643

Asia Pacific
 
164

Latin America
 
84

Total International
 
891

U.S./Canada
 
803

Total Marsh
 
1,694

Guy Carpenter
 
637

 Subtotal
 
2,331

Fiduciary interest income
 
13

Total Risk and Insurance Services
 
$
2,344

 
 
 
Mercer:
 
 
Defined Benefit Consulting & Administration
 
$
339

Investment Management & Related Services
 
226

Total Wealth
 
565

Health
 
442

Career
 
164

Total Mercer
 
1,171

Oliver Wyman
 
497

Total Consulting
 
$
1,668

The following schedule provides contract assets and contract liabilities information from contracts with customers.
(In millions)
 
January 1, 2018
 
March 31, 2018
Contract Assets
 
$
128

 
$
169

Contract Liabilities
 
$
583

 
$
657

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. Estimated revenue related to achievement of volume or loss ratio metrics cannot be billed or collected until all related policy placements are completed and the contingency is resolved. The change in contract assets from January 1, 2018 to March 31, 2018 is primarily due to $128 million of additions during the period partly offset by $87 million transferred to accounts receivables, as the rights to bill and collect became unconditional. Contract assets are included in other current assets in the Company's consolidated balance sheet. Contract liabilities primarily relate to the advance consideration received from customers. Contract liabilities are included in other current liabilities in the Company's consolidated balance sheet. Revenue recognized in the current period that was included in the contract liability balance at the beginning of the period was $181 million. The amount of revenue recognized in the first quarter of 2018 from performance obligations satisfied in previous periods, mainly due to variable consideration from contracts with insurers, quota share and excess of loss business and consulting contracts previously considered constrained was $14 million.
 
 
 
 
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 $24 million for Marsh, $575 million for Mercer and $8 million for Oliver Wyman. The Company expects revenue in 2019, 2020, 2021, 2022 and

14



2023 and beyond of $284 million, $155 million, $94 million, $47 million and $27 million, respectively, related to these performance obligations.
 
Costs to Obtain and Fulfill a Contract
Under the new standard, certain costs to obtain or fulfill a contract that were previously expensed as incurred have been capitalized.
The Company capitalized the incremental costs to obtain contracts primarily related to commissions or sales bonus payments. These deferred costs are amortized over the expected life of the underlying customer relationships.
In Risk and Insurance Services, the Company capitalizes certain pre-placement costs that are considered fulfillment costs that meet the following criteria: these costs 1) relate directly to a contract, 2) enhance resources used to satisfy the Company’s performance obligation and 3) are expected to be recovered through revenue generated by the contract. These costs are amortized as of a point in time when the associated revenue is recognized.
In Consulting, the Company incurs implementation costs necessary to facilitate the delivery of the contracted services. These costs are capitalized and amortized over the initial contract term plus expected renewal periods.
At March 31, 2018, the Company’s capitalized assets related to deferred implementation costs, costs to obtain and costs to fulfill were $39 million, $194 million and $171 million, respectively. Costs to obtain and deferred implementation costs are included primarily in other assets and costs to fulfill are primarily included in other current assets in the Company's consolidated balance sheet. For the first quarter of 2018, the Company recorded amortization expense of $296 million related to these capitalized costs.
The Company has elected to use the practical expedient and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets is one year or less.
2017 - Revenue Recognized Under Guidance in Effect Prior to 2018
Risk and Insurance Services revenue includes insurance commissions, fees for services rendered and interest income on certain fiduciary funds. Insurance commissions and fees for risk transfer services generally were recorded as of the effective date of the applicable policies or, in certain cases (primarily in the Company's reinsurance broking operations), as of the effective date or billing date, whichever is later. A reserve for policy cancellation was provided based on historic and current data on cancellations. Consideration for fee arrangements covering multiple insurance placements, the provision of risk management and/or other services was allocated to all deliverables on the basis of the relative selling prices. Fees for non-risk transfer services provided to clients are recognized over the period in which the services are provided, using a proportional performance model. Fees resulting from achievement of certain performance thresholds are recorded when such levels are attained and such fees are not subject to forfeiture.
In the Consulting segment, the adoption of the new revenue standard did not have a significant impact on the timing of revenue recognition in the quarter.
See Note 17 for further discussion on the impact the new revenue recognition standard has on the Company's consolidated statements of income when comparing the 2018 financial information versus 2017.
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 of $13 million and $8 million for the three months ended March 31, 2018 and 2017, respectively. The Consulting segment recorded fiduciary interest income of $1 million in each of the three month periods ended March 31, 2018 and 2017, 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 $7.6 billion at March 31, 2018 and $6.8 billion at December 31, 2017. 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.

15



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.
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
March 31,
(In millions, except per share amounts)
2018

 
2017

Net income before non-controlling interests
$
696

 
$
578

Less: Net income attributable to non-controlling interests
6

 
9

Net income attributable to the Company
$
690

 
$
569

Basic weighted average common shares outstanding
508

 
515

Dilutive effect of potentially issuable common shares
6

 
7

Diluted weighted average common shares outstanding
514

 
522

Average stock price used to calculate common stock equivalents
$
82.83

 
$
71.32

There were 10.6 million and 12.8 million stock options outstanding as of March 31, 2018 and 2017, respectively.
6.    Supplemental Disclosures to the Consolidated Statements of Cash Flows
The following schedule provides additional information concerning acquisitions, interest and income taxes paid for the three-month periods ended March 31, 2018 and 2017.
(In millions)
 
2018

 
2017

Assets acquired, excluding cash
 
$
35

 
$
577

Liabilities assumed
 
(4
)
 
(76
)
Contingent/deferred purchase consideration
 
(7
)
 
(90
)
Net cash outflow for current year acquisitions
 
$
24

 
$
411

(In millions)
2018

 
2017

Interest paid
$
80

 
$
62

Income taxes paid, net of refunds
$
128

 
$
100

The classification of contingent consideration in the statement of cash flows is determined by whether the payment was part of the initial liability established on the acquisition date (financing) or an adjustment to the acquisition date liability (operating).
The following amounts are included in the consolidated statements of cash flows as a financing activity. The Company paid deferred and contingent consideration of $70 million for the three months ended March 31, 2018. This consisted of deferred purchase consideration related to prior years' acquisitions of $40 million and contingent consideration of $30 million. For the three months ended March 31, 2017, the Company paid deferred and contingent consideration of $34 million, consisting of deferred purchase consideration related to prior years' acquisitions of $26 million and contingent consideration of $8 million.
The following amounts are included in the operating section of the consolidated statements of cash flows. For the three months ended March 31, 2018, the Company recorded an expense for adjustments to acquisition related accounts of $5 million and made contingent consideration payments of $10 million. For the three months ended March 31, 2017, the Company recorded a net credit for adjustments related to acquisition related accounts of $16 million and made contingent consideration payments of $4 million.
The Company had non-cash issuances of common stock under its share-based payment plan of $125 million and $85 million for the three months ended March 31, 2018 and 2017, respectively. The Company recorded stock-based

16



compensation expense for equity awards related to restricted stock units, performance stock units and stock options of $50 million and $42 million for the three-month periods ended March 31, 2018 and 2017, respectively.
7.    Other Comprehensive Income (Loss)
The changes, net of tax, in the balances of each component of Accumulated Other Comprehensive Income ("AOCI") for the three-month period ended March 31, 2018 and 2017, including amounts reclassified out of AOCI, are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Unrealized Investment Gains (Losses)
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Gains (Losses)
 
Total Gains (Losses)
Balance as of December 31, 2017
$
14

 
$
(2,892
)
 
$
(1,165
)
 
$
(4,043
)
Cumulative effect of amended accounting standard
(14
)
 

 

 
(14
)
Other comprehensive income (loss) before reclassifications

 
(100
)
 
223

 
123

Amounts reclassified from accumulated other comprehensive income

 
29

 

 
29

Net current period other comprehensive income (loss)

 
(71
)
 
223

 
152

Balance as of March 31, 2018
$

 
$
(2,963
)
 
$
(942
)
 
$
(3,905
)
(In millions)
Unrealized Investment Gains (Losses)
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Gains (Losses)
 
Total Gains (Losses)
Balance as of December 31, 2016
$
19

 
$
(3,232
)
 
$
(1,880
)
 
$
(5,093
)
Other comprehensive income (loss) before reclassifications
(3
)
 
(6
)
 
235

 
226

Amounts reclassified from accumulated other comprehensive income

 
30

 

 
30

Net current period other comprehensive income (loss)
(3
)
 
24

 
235

 
256

Balance as of March 31, 2017
$
16

 
$
(3,208
)
 
$
(1,645
)
 
$
(4,837
)

17



The components of other comprehensive income (loss) for the three-month period ended March 31, 2018 and 2017 are as follows:
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
2018
 
2017
(In millions)
Pre-Tax
Tax
(Credit)
Net of Tax
 
Pre-Tax
Tax (Credit)
Net of Tax
Foreign currency translation adjustments
$
228

$
5

$
223

 
$
235

$

$
235

Unrealized investment gains



 
(5
)
(2
)
(3
)
Pension/post-retirement plans:
 
 
 
 
 
 
 
Amortization of losses included in net periodic pension cost:


 
 
 
 
 
 
 Prior service credits (a)
(1
)

(1
)
 



 Net actuarial losses (a)
37

7

30

 
40

10

30

Subtotal
36

7

29

 
40

10

30

Effect of remeasurement



 
9

2

7

Effect of curtailment



 
(1
)

(1
)
Effect of settlement



 
1


1

Foreign currency translation adjustments
(120
)
(20
)
(100
)
 
(15
)
(3
)
(12
)
Other



 
(1
)

(1
)
Pension/post-retirement plans (losses) gains
(84
)
(13
)
(71
)
 
33

9

24

Other comprehensive income (loss)
$
144

$
(8
)
$
152

 
$
263

$
7

$
256

(a) Components of net periodic pension cost are included in other net benefit credits in the consolidated statements of income. Tax on prior service cost and net actuarial losses is included in income tax expense.
8.     Acquisitions
The Company has continued its strategy to grow its businesses and build shareholder value through strategic acquisitions. The Company’s acquisitions have been accounted for as business combinations. Net assets and results of operations are included in the Company’s consolidated financial statements commencing at the respective purchase closing dates. In connection with acquisitions, the Company records the estimated value of the net tangible assets purchased and the value of the identifiable intangible assets purchased, which typically consist of purchased customer lists, developed technology, trademarks and non-compete agreements. The valuation of purchased intangible assets involves significant estimates and assumptions. Until final valuations are complete, any change in assumptions could affect the carrying value of tangible assets, goodwill and identifiable intangible assets.
The Risk and Insurance Services segment completed two acquisitions during the first three months of 2018.
February – MMA acquired Highsmith Insurance Agency, a North Carolina-based independent insurance brokerage firm.
March – Marsh acquired Hoken Soken, Inc., a Japan-based insurance agency.
The Consulting segment completed two acquisitions during the first three months of 2018.
January – Oliver Wyman acquired Draw, a U.K.-based digital transformation agency.
March – Oliver Wyman acquired 8Works Limited, a U.K.-based design thinking consultancy.
Total purchase consideration for acquisitions made during the three months ended March 31, 2018 was $36 million, which consisted of cash paid of $29 million and deferred purchase and estimated contingent consideration of $7 million. Contingent consideration arrangements are based primarily on earnings before interest, tax, depreciation and amortization ("EBITDA") or revenue targets over a period of two to four years. The fair value of the contingent consideration was based on projected revenue or EBITDA of the acquired entities. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized. The Company also paid $40 million of deferred purchase consideration and $40 million of contingent consideration related to acquisitions made in prior years.

18



The following table presents the preliminary allocation of the acquisition cost to the assets acquired and liabilities assumed during 2018 based on their fair values:
For the Three Months Ended March 31, 2018
 
(In millions)
 
Cash
$
29

Estimated fair value of deferred/contingent consideration
7

Total Consideration
$
36

Allocation of purchase price:
 
Cash and cash equivalents
$
5

Accounts receivable, net
3

Other intangible assets
13

Goodwill
15

Other assets
4

Total assets acquired
40

Current liabilities
3

Other liabilities
1

Total liabilities assumed
4

Net assets acquired
$
36

Other intangible assets acquired are based on initial estimates and subject to change based on final valuations during the measurement period post acquisition date. The following chart provides information about other intangible assets acquired during 2018:
 
 
Amount
 
Weighted Average Amortization Period
Client relationships
 
$
13

 
10 years
Prior-Year Acquisitions
The Risk and Insurance Services segment completed seven acquisitions during 2017.
January – MMA acquired J. Smith Lanier & Co. ("JSL"), a privately held insurance brokerage firm providing insurance, risk management, and employee benefits solutions to businesses and individuals throughout the U.S.
February – MMA acquired iaConsulting, a Texas-based employee benefits consulting firm.
March – MMA acquired Blakestad, Inc., a Minnesota-based private client and commercial lines insurance agency, and RJF Financial Services, a Minnesota-based retirement advisory firm.
May – MMA acquired Insurance Partners of Texas, a Texas-based employee benefits consulting firm.
August – Marsh acquired International Catastrophe Insurance Managers, LLC, a Colorado-based managing general agent providing property catastrophe insurance to business and homeowners, and MMA acquired Hendrick & Hendrick, Inc., a Texas-based insurance agency.
The Consulting segment completed three acquisitions during 2017.
August – Mercer acquired Jaeson Associates, a Portugal-based talent management consulting organization.
December – Mercer acquired Promerit AG, a Germany-based consultancy specializing in HR digitalization and business and HR transformation and BFC Asset Management Co., Ltd., a Japan-based independently owned asset manager, focused on alternative investment strategies.
Total purchase consideration for acquisitions made during the first three months of 2017 was $509 million, which consisted of cash paid of $419 million and deferred purchase and estimated contingent consideration of $90 million. Contingent consideration arrangements are primarily based on EBITDA or revenue targets over a period of two to four years. The fair value of the contingent consideration was based on projected revenue or earnings of the acquired entities. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when

19



purchase accounting is finalized. In the first three months of 2017, the Company also paid $26 million of deferred purchase consideration and $12 million of contingent consideration related to acquisitions made in prior years.
Pro-Forma Information
The following unaudited pro-forma financial data gives effect to the acquisitions made by the Company during 2018 and 2017. In accordance with accounting guidance related to pro-forma disclosures, the information presented for current year acquisitions is as if they occurred on January 1, 2017 and reflects acquisitions made in 2017 as if they occurred on January 1, 2016. The unaudited pro-forma information adjusts for the effects of amortization of acquired intangibles. The unaudited pro-forma financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if such acquisitions had occurred on the dates indicated, nor is it necessarily indicative of future consolidated results.
 
Three Months Ended
March 31,
(In millions, except per share figures)
2018

 
2017

Revenue
$
4,002

 
$
3,539

Net income attributable to the Company
$
690

 
$
569

Basic net income per share attributable to the Company
$
1.36

 
$
1.11

Diluted net income per share attributable to the Company
$
1.34

 
$
1.09

The consolidated statements of income include the results of operations of acquired companies since their respective acquisition dates. The consolidated statements of income for the three month period ended March 31, 2018 included approximately $3 million of revenue and an operating loss of $1 million for acquisitions made in 2018. The consolidated statements of income for the three month period ended March 31, 2017 included $28 million of revenue and operating income of $10 million related to acquisitions made in 2017.
9.    Goodwill and Other Intangibles
The Company is required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company performs the annual impairment assessment for each of its reporting units during the third quarter of each year. In accordance with applicable accounting guidance, the Company assesses qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test. As part of its assessment, the Company considers numerous factors, including that the fair value of each reporting unit exceeds its carrying value by a substantial margin based on its most recent estimates, whether significant acquisitions or dispositions occurred which might alter the fair value of its reporting units, macroeconomic conditions and their potential impact on reporting unit fair values, actual performance compared with budget and prior projections used in its estimation of reporting unit fair values, industry and market conditions, and the year-over-year change in the Company’s share price. The Company completed its qualitative assessment in the third quarter of 2017 and concluded that a two-step goodwill impairment test was not required in 2017 and that goodwill was not impaired.
Changes in the carrying amount of goodwill are as follows:
March 31,
 
 
 
(In millions)
2018

 
2017

Balance as of January 1,
$
9,089

 
$
8,369

Goodwill acquired
15

 
363

Other adjustments(a)
90

 
37

Balance at March 31,
$
9,194

 
$
8,769

(a) The increase in 2018 primarily reflects the impact of foreign exchange.
Goodwill allocable to the Company’s reportable segments at March 31, 2018 is as follows: Risk and Insurance Services, $6.5 billion and Consulting, $2.7 billion.
Other intangible assets that are not deemed to have an indefinite life are amortized over their estimated lives and reviewed for impairment upon the occurrence of certain triggering events in accordance with applicable accounting literature.

20



The gross cost and accumulated amortization at March 31, 2018 and December 31, 2017 are as follows:
  
March 31, 2018
 
December 31, 2017
(In millions)
Gross
Cost

 
Accumulated
Amortization

 
Net
Carrying
Amount

 
Gross
Cost

 
Accumulated
Amortization

 
Net
Carrying
Amount

Client Relationships
$
1,700

 
$
560

 
$
1,140

 
$
1,672

 
$
518

 
$
1,154

Other (a)
241

 
125

 
116

 
234

 
114

 
120

 Amortized intangibles
$
1,941

 
$
685

 
$
1,256

 
$
1,906

 
$
632

 
$
1,274

(a) Primarily non-compete agreements, trade names and developed technology.
Aggregate amortization expense for the three months ended March 31, 2018 and 2017 was $45 million and $40 million, respectively. The estimated future aggregate amortization expense is as follows:
For the Years Ending December 31,
 
(In millions)
Estimated Expense

2018 (excludes amortization through March 31, 2018)
$
137

2019
174

2020
154

2021
145

2022
132

Subsequent years
514

 
$
1,256

10.     Fair Value Measurements
Fair Value Hierarchy
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy as defined by the FASB. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, for disclosure purposes, is determined based on the lowest level input that is significant to the fair value measurement. Assets and liabilities recorded in the consolidated balance sheets at fair value are categorized based on the inputs in the valuation techniques as follows:
Level 1.
Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities and exchange-traded money market mutual funds).
Assets and liabilities measured using Level 1 inputs include exchange-traded equity securities, exchange-traded mutual funds and money market funds.
Level 2.
Assets and liabilities whose values are based on the following:
a)
Quoted prices for similar assets or liabilities in active markets;
b)
Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
c)
Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and
d)
Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full asset or liability (for example, certain mortgage loans).
The Company does not have any assets or liabilities that are measured using Level 2 inputs.
Level 3.
Assets and liabilities whose values are based on prices, or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

21



Liabilities measured using Level 3 inputs include liabilities for contingent purchase consideration.
Valuation Techniques
Equity Securities, Money Market Funds and Mutual Funds – Level 1
Investments for which market quotations are readily available are valued at the sale price on their principal exchange or, for certain markets, official closing bid price. Money market funds are valued using a valuation technique that results in price per share at $1.00.
Contingent Purchase Consideration Liability – Level 3
Purchase consideration for some acquisitions made by the Company includes contingent consideration arrangements. These arrangements typically provide for the payment of additional consideration if earnings or revenue targets are met over periods from two to four years. The fair value of the contingent purchase consideration liability is estimated as the present value of future cash flows to be paid, based on projections of revenue and earnings and related targets of the acquired entities.
The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017.
 
Identical Assets
(Level 1)
 
Observable Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
(In millions)
03/31/18

 
12/31/17

 
03/31/18

 
12/31/17

 
03/31/18

 
12/31/17

 
03/31/18

 
12/31/17

Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments owned:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange traded equity securities(a)
$
73

 
$
81

 
$

 
$

 
$

 
$

 
$
73

 
$
81

Mutual funds(a)
146

 
158

 

 

 

 

 
146

 
158

Money market funds(b)
27

 
143

 

 

 

 

 
27

 
143

Total assets measured at fair value
$
246

 
$
382

 
$

 
$

 
$

 
$

 
$
246

 
$
382

Fiduciary Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
36

 
$
111

 
$

 
$

 
$

 
$

 
$
36

 
$
111

Total fiduciary assets measured
at fair value
$
36

 
$
111

 
$

 
$

 
$

 
$

 
$
36

 
$
111

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent purchase
consideration liability(c)
$

 
$

 
$

 
$

 
$
161

 
$
189

 
$
161

 
$
189

Total liabilities measured at fair value
$

 
$

 
$

 
$

 
$
161

 
$
189

 
$
161

 
$
189

(a) Included in other assets in the consolidated balance sheets.
(b) Included in cash and cash equivalents in the consolidated balance sheets.
(c) Included in accounts payable and accrued liabilities and other liabilities in the consolidated balance sheets.
During the three-month period ended March 31, 2018, there were no assets or liabilities that were transferred between any of the levels.
The table below sets forth a summary of the changes in fair value of the Company’s Level 3 liabilities as of March 31, 2018 and 2017 that represent contingent consideration related to acquisitions:
 
Three Months Ended
March 31,
(In millions)
2018

2017

Balance at beginning of period,
$
189

$
241

Additions
6

34

Payments
(40
)
(12
)
Revaluation Impact
5

(16
)
Other (a)
1


Balance at March 31,
$
161

$
247

(a) Primarily reflects the impact of foreign exchange.

22



The fair value of the contingent purchase consideration liability is based on projections of revenue and EBITDA for the acquired entities in relation to the established targets and is reassessed on a quarterly basis. As set forth in the table above, based on the Company's ongoing assessment of the fair value of contingent consideration, the Company recorded a net increase in the estimated fair value of such liabilities for prior-period acquisitions of $5 million in the three-month period ended March 31, 2018. A 5% increase in the above mentioned projections would increase the liability by approximately $19 million. A 5% decrease in the above mentioned projections would decrease the liability by approximately $20 million.
Long-Term Investments
The Company holds investments in certain private equity investments, public companies and private companies that are accounted for using the equity method of accounting. The carrying value of these investments was $424 million and $405 million at March 31, 2018 and December 31, 2017, respectively.
Investments Accounted For Using the Equity Method of Accounting
Private Equity Investments
The Company's investments in private equity funds were $74 million and $76 million at March 31, 2018 and December 31, 2017, respectively. The carrying values of these private equity investments approximate fair value. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. The Company records in earnings, investment gains/losses for its proportionate share of the change in fair value of the funds. These investments are included in other assets in the consolidated balance sheets.
Investments in Public and Private Companies
Alexander Forbes: The Company owns approximately 33% of the common stock of Alexander Forbes, a South African company listed on the Johannesburg Stock Exchange, which it purchased in 2014 for 7.50 South African Rand per share. As of March 31, 2018, the carrying value of the Company’s investment in Alexander Forbes was approximately $286 million. As of March 31, 2018, the market value of the approximately 443 million shares of Alexander Forbes owned by the Company, based on the March 31, 2018 closing share price of 7.20 South African Rand per share, was approximately $269 million. The Company considered several factors in assessing its investment in Alexander Forbes, including its financial position, the near- and long-term prospects of Alexander Forbes and the broader South African economy and capital markets, the length of time and extent to which the market value was below cost and the Company’s intent and ability to retain the investment for a sufficient period of time to allow for anticipated recovery in market value. During the first quarter of 2018, the Alexander Forbes average opening and closing stock price was approximately 6.95 Rand (approximately 93% of the original purchase price) and ranged from a low of 6.31 Rand (in early February) to a high of 7.34 Rand (in late March) (approximately 84% to 98% of the purchase price). Based on its assessment of the factors discussed above, the Company determined the investment was not impaired.
The Company’s investment in Alexander Forbes and its other equity investments in private insurance and consulting companies are accounted for using the equity method of accounting, the results of which are included in revenue in the consolidated statements of income and the carrying value of which is included in other assets in the consolidated balance sheets. The Company records its share of income or loss on its equity method investments on a one quarter lag basis.
Other Investments
At March 31, 2018 the Company held certain equity investments with readily determinable market values of $89 million. During the first three months of 2018, the Company recorded an investment loss of $8 million, which reflects the decrease in the market value of these investments as compared to December 31, 2017. The Company also holds investments without readily determinable market values of $59 million at March 31, 2018.
11.    Retirement Benefits
The Company maintains qualified and non-qualified defined benefit pension plans for some of its U.S. and non-U.S. eligible employees. The Company’s policy for funding its tax-qualified defined benefit pension plans is to contribute amounts at least sufficient to meet the funding requirements set forth by U.S. law and the laws of the non-U.S. jurisdictions in which the Company offers such plans.
The target asset allocation for the Company's U.S. Plan was 64% equities and equity alternatives and 36% fixed income and at March 31, 2018 the actual allocation for the Company's U.S. Plan was 63% equities and equity alternatives and 37% fixed income. The target allocation for the U.K. plans at March 31, 2018 was 34% equities and

23



equity alternatives and 66% fixed income. At March 31, 2018, the actual allocation for the U.K. Plans was 37% equities and equity alternatives and 63% fixed income. The Company's U.K. Plans comprised approximately 81% of non-U.S. plan assets at December 31, 2017. The assets of the Company's defined benefit plans are diversified and are managed in accordance with applicable laws and with the goal of maximizing the plans' real return within acceptable risk parameters. The Company generally uses threshold-based portfolio re-balancing to ensure the actual portfolio remains consistent with target asset allocation ranges.
The components of the net periodic benefit cost for defined benefit and other post-retirement plans are as follows:
Combined U.S. and significant non-U.S. plans
Pension
Benefits
 
Post-retirement
Benefits
For the Three Months Ended March 31,
 
(In millions)
2018

 
2017

 
2018

 
2017

Service cost
$
10

 
$
18

 
$

 
$

Interest cost
118

 
122

 
1

 
1

Expected return on plan assets
(221
)
 
(224
)
 

 

Amortization of prior service (credit) cost

 

 
(1
)
 
1

Recognized actuarial loss (gain)
37

 
40

 

 

Net periodic benefit (credit) cost
$
(56
)
 
$
(44
)
 
$

 
$
2

Curtailment gain

 
(1
)
 

 

Settlement loss

 
1

 

 

Total (credit) cost
$
(56
)
 
$
(44
)
 
$

 
$
2

As discussed in Note 17, effective January 1, 2018, the Company adopted the new guidance that changes the presentation of net periodic pension cost and net periodic postretirement cost (''net periodic benefit costs"). The new guidance requires employers to report the service cost component of net periodic benefit costs in the same line item as other compensation costs in the income statement. The other components of net periodic benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The new guidance requires retrospective application for the presentation of the service cost component and the other components of net periodic benefit costs. Accordingly, we have reclassified prior period information in the following chart to conform with the current year's presentation:
Amounts Recorded in the Consolidated Statement of Income
 
 
 
 
 
 
Combined U.S. and significant non-U.S. plans
Pension
Benefits
 
Post-retirement
Benefits
For the Three Months Ended March 31,
 
(In millions)
2018

 
2017

 
2018

 
2017

Compensation and benefits expense (Operating income)
$
10

 
$
18

 
$

 
$

Other net benefit credits
(66
)
 
(62
)
 

 
2

Total (credit) cost
$
(56
)
 
$
(44
)
 
$

 
$
2

U.S. Plans only
Pension
Benefits
 
Post-retirement
Benefits
For the Three Months Ended March 31,
 
(In millions)
2018

 
2017

 
2018

 
2017

Service cost
$

 
$

 
$

 
$

Interest cost
59

 
66

 

 

Expected return on plan assets
(89
)
 
(89
)
 

 

Amortization of prior service cost

 

 

 
1

Recognized actuarial loss (gain)
13

 
9

 

 

Net periodic benefit (credit) cost
$
(17
)
 
$
(14
)
 
$

 
$
1

 
 
 
 
 
 
 
 

24



Significant non-U.S. plans only
Pension
Benefits
 
Post-retirement
Benefits
For the Three Months Ended March 31,
 
(In millions)
2018

 
2017

 
2018

 
2017

Service cost
$
10

 
$
18

 
$

 
$

Interest cost
59

 
56

 
1

 
1

Expected return on plan assets
(132
)
 
(135
)
 

 

Amortization of prior service credit

 

 
(1
)
 

Recognized actuarial loss
24

 
31

 

 

Net periodic benefit (credit) cost
$
(39
)
 
$
(30
)
 
$

 
$
1

Curtailment gain

 
(1
)
 

 

Settlement loss

 
1

 

 

Total (credit) cost
$
(39
)
 
$
(30
)
 
$

 
$
1

In March 2017, the Company modified its defined benefit pension plans in Canada to discontinue further benefit accruals for participants after December 31, 2017 and replaced them with a defined contribution arrangement. The Company also amended its post-retirement benefits plan in Canada so that individuals who retire after April 1, 2019 will not be eligible to participate, except in certain situations. The Company re-measured the assets and liabilities of the plans, based on assumptions and market conditions on the amendment date.
The weighted average actuarial assumptions utilized to calculate the net periodic benefit costs for the U.S. and significant non-U.S. defined benefit plans are as follows:
Combined U.S. and significant non-U.S. plans
Pension
Benefits
 
Post-retirement
Benefits
 
March 31,
2018

 
2017

 
2018

 
2017

Weighted average assumptions:
 
 
 
 
 
 
 
Expected return on plan assets
5.83
%
 
6.64
%
 

 

Discount Rate
3.07
%
 
3.40
%
 
3.21
%
 
3.64
%
Rate of compensation increase
1.73
%
 
1.77
%
 

 

The Company made approximately $33 million of contributions to its U.S. and non-U.S. defined benefit plans in the first three months of 2018. The Company expects to contribute approximately $76 million to its U.S. pension and non-U.S. pension plans during the remainder of 2018.
Defined Contribution Plans
The Company maintains certain defined contribution plans ("DC Plans") for its employees, the most significant being in the U.S. and the U.K. The cost of the U.S. DC Plans was $34 million for both 2018 and 2017. The cost of the U.K. DC Plans was $22 million and $20 million in 2018 and 2017, respectively.

25



12.    Debt
The Company’s outstanding debt is as follows:
(In millions)
March 31,
2018

 
December 31,
2017

Short-term:
 
 
 
Commercial paper
$
249

 
$

Current portion of long-term debt
263

 
262

 
512

 
262

Long-term:
 
 
 
Senior notes – 2.55% due 2018
250

 
250

Senior notes – 2.35% due 2019
299

 
299

Senior notes – 2.35% due 2020
498

 
498

Senior notes – 4.80% due 2021
499

 
498

Senior notes – 2.75% due 2022
497

 
496

Senior notes – 3.30% due 2023
348

 
348

Senior notes – 4.05% due 2023
248

 
248

Senior notes – 3.50% due 2024
596

 
596

Senior notes – 3.50% due 2025
496

 
496

Senior notes – 3.75% due 2026
596

 
596

Senior notes – 5.875% due 2033
297

 
297

Senior notes – 4.35% due 2047
492

 
492

Senior notes – 4.20% due 2048
592

 

Mortgage – 5.70% due 2035
367

 
370

Other
3

 
3

 
6,078

 
5,487

Less current portion
263

 
262

 
$
5,815

 
$
5,225

The senior notes in the table above are registered by the Company with the Securities and Exchange Commission and are not guaranteed.
The Company has established a short-term debt financing program of up to $1.5 billion through the issuance of commercial paper. The proceeds from the issuance of commercial paper are used for general corporate purposes. The Company had $249 million of commercial paper outstanding at March 31, 2018 at an effective interest rate of 2.44%.
In March 2018, the Company issued $600 million of 4.20% senior notes due 2048. The Company used the net proceeds for general corporate purposes.
In January 2017, the Company issued $500 million of 2.75% senior notes due 2022 and $500 million of 4.35% senior notes due 2047. The Company used the net proceeds for general corporate purposes, including the repayment of a $250 million debt maturity in April 2017.
The Company and certain of its foreign subsidiaries maintain a $1.5 billion multi-currency five-year unsecured revolving credit facility. The interest rate on this facility is based on LIBOR plus a fixed margin which varies with the Company's credit ratings. This facility expires in November 2020 and requires the Company to maintain certain coverage and leverage ratios which are tested quarterly. There were no borrowings outstanding under this facility at March 31, 2018.

26



Fair Value of Short-term and Long-term Debt
The estimated fair value of the Company’s short-term and long-term debt is provided below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or need to dispose of the financial instrument.
  
March 31, 2018
 
December 31, 2017
(In millions)
Carrying
Amount

 
Fair
Value

 
Carrying
Amount

 
Fair
Value

Short-term debt
$
512

 
$
514

 
$
262

 
$
264

Long-term debt
$
5,815

 
$
5,908

 
$
5,225

 
$
5,444

The fair value of the Company’s short-term debt consists primarily of commercial paper and term debt maturing within the next year and its fair value approximates its carrying value. The estimated fair value of a primary portion of the Company's long-term debt is based on discounted future cash flows using current interest rates available for debt with similar terms and remaining maturities. Short- and long-term debt would be classified as Level 2 in the fair value hierarchy.
13.    Restructuring Costs
The Company recorded total restructuring costs of $6 million in the first three months of 2018, primarily for severance at Marsh and Corporate, as well as future rent under non-cancelable leases at Corporate. These costs were incurred in Risk and Insurance Services ($3 million), Consulting ($1 million) and Corporate ($2 million).
Details of the restructuring activity from January 1, 2017 through March 31, 2018, which includes liabilities from actions prior to 2018, are as follows:
(In millions)
Liability at 1/1/17
 
Amounts
Accrued
 
Cash
Paid
 
Other 
 
Liability at 12/31/17
 
Amounts
Accrued
 
Cash
Paid
 
Other 
 
Liability at 3/31/18
Severance
$
32

 
$
31

 
$
(49
)
 
$
1

 
$
15

 
$
5

 
$
(4
)
 
$
(1
)
 
$
15

Future rent under non-cancelable leases and other costs
61

 
9

 
(22
)
 
2

 
50

 
1

 
(4
)
 
1

 
48

Total
$
93

 
$
40

 
$
(71
)
 
$
3

 
$
65

 
$
6

 
$
(8
)
 
$

 
$
63

The expenses associated with the above initiatives are included in compensation and benefits and other operating expenses in the consolidated statements of income. The liabilities associated with these initiatives are classified on the consolidated balance sheets as accounts payable and accrued liabilities, other liabilities or accrued compensation and employee benefits, depending on the nature of the items.
14.    Common Stock
During the first three months of 2018, the Company repurchased approximately 3.0 million shares of its common stock for consideration of $250 million. In November 2016, the Board of Directors of the Company authorized the Company to repurchase up to $2.5 billion in shares of the Company's common stock, which superseded any prior authorizations. As of March 31, 2018, the Company remained authorized to repurchase up to approximately $1.3 billion in shares of its common stock. There is no time limit on the authorization. During the first three months of 2017, the Company repurchased approximately 2.7 million shares of its common stock for consideration of $200 million.
The Company issued approximately 2.3 million and 3.3 million shares related to stock compensation and employee stock purchase plans during the first three months of 2018 and 2017, respectively.


27



15.    Claims, Lawsuits and Other Contingencies
Litigation Matters
The Company and its subsidiaries are subject to a significant number of claims, lawsuits and proceedings in the ordinary course of business. Such claims and lawsuits consist principally of alleged errors and omissions in connection with the performance of professional services, including the placement of insurance, the provision of actuarial services for corporate and public sector clients, the provision of investment advice and investment management services to pension plans, the provision of advice relating to pension buy-out transactions and the provision of consulting services relating to the drafting and interpretation of trust deeds and other documentation governing pension plans. These claims may seek damages, including punitive and treble damages, in amounts that could be significant. In establishing liabilities for errors and omissions claims in accordance with FASB guidance on Contingencies - Loss Contingencies, the Company uses case level reviews by inside and outside counsel, and internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other methods to estimate potential losses. A liability is established when a loss is both probable and reasonably estimable. The liability is reviewed quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we are unable, at the present time, to make a determination that a loss is both probable and reasonably estimable.
To the extent that expected losses exceed our deductible in any policy year, the Company also records an asset for the amount that we expect to recover under any available third-party insurance programs. The Company has varying levels of third-party insurance coverage, with policy limits and coverage terms varying significantly by policy year.
Governmental Inquiries and Enforcement Matters
Our activities are regulated under the laws of the United States and its various states, the European Union and its member states, and the other jurisdictions in which the Company operates.
Risk and Insurance Services Segment
In April 2017, the Financial Conduct Authority in the United Kingdom (the "FCA") commenced a civil competition investigation into the aviation insurance and reinsurance sector. In connection with that investigation, the FCA carried out an on-site inspection at the London office of Marsh Limited, our Marsh and Guy Carpenter operating subsidiary in the United Kingdom. The FCA indicated that it had reasonable grounds for suspecting that Marsh Limited and other participants in the market have been sharing competitively sensitive information within the aviation insurance and reinsurance broking sector.
In October 2017, the Company received a notice that the Directorate-General for Competition of the European Commission had commenced a civil investigation of a number of insurance brokers, including Marsh, regarding "the exchange of commercially sensitive information between competitors in relation to aviation and aerospace insurance and reinsurance broking products and services in the European Economic Area ("EEA"), as well as possible coordination between competitors." In light of the action taken by the European Commission, the FCA informed Marsh Limited at the same time that it has discontinued its investigation under U.K. competition law into the aviation insurance and reinsurance sector.
In July 2017, the Directorate-General for Competition of the European Commission together with the Irish Competition and Consumer Protection Commission conducted on-site inspections at the offices of Marsh and other industry participants in Dublin in connection with an investigation regarding the "possible participation in anticompetitive agreements and/or concerted practices contrary to [E.U. competition law] in the market for commercial motor insurance in the Republic of Ireland."
We are cooperating with these investigations and are conducting our own reviews. As these investigations are at early stages, we are unable to predict their likely timing, outcome or ultimate impact. There can be no assurance that the ultimate resolution of these or any related matters will not have a material adverse effect on our consolidated results of operations, financial condition or cash flows.
In November 2017, the FCA announced the terms of reference for a market study concerning the wholesale insurance broker sector in the United Kingdom, which affects Marsh and Guy Carpenter. The FCA is conducting the study to assess "how effectively competition is working in the wholesale insurance broker sector" and "how brokers influence competition in the underwriting sector." The FCA is expected to publish its interim report by the end of 2018, with a final report expected in 2019.

28



Consulting Segment
In June 2017, the FCA issued a final report in connection with a market study of the U.K. asset management industry, which includes asset managers and investment consultants, including Mercer. Following the report, in September 2017, the FCA announced its decision to refer the investment consultancy and fiduciary management markets to the U.K. Competition & Markets Authority (the "CMA") for a market investigation. The CMA expects to issue its provisional decision in July 2018 and to conclude its investigation of the investment consultancy and fiduciary management markets by March 2019.
In the ordinary course of business, the Company is also subject to other investigations, market studies, subpoenas, lawsuits and other regulatory actions undertaken by governmental authorities.
Other Contingencies-Guarantees
In connection with its acquisition of U.K.-based Sedgwick Group in 1998, the Company acquired several insurance underwriting businesses that were already in run-off, including River Thames Insurance Company Limited ("River Thames"), which the Company sold in 2001. Sedgwick guaranteed payment of claims on certain policies underwritten through the Institute of London Underwriters (the "ILU") by River Thames. The policies covered by this guarantee were reinsured up to £40 million by a related party of River Thames. Payment of claims under the reinsurance agreement is collateralized by segregated assets held in a trust. As of March 31, 2018, the reinsurance coverage exceeded the best estimate of the projected liability of the policies covered by the guarantee. To the extent River Thames or the reinsurer is unable to meet its obligations under those policies, a claimant may seek to recover from the Company under the guarantee.
From 1980 to 1983, the Company owned indirectly the English & American Insurance Company ("E&A"), which was a member of the ILU. The ILU required the Company to guarantee a portion of E&A's obligations. After E&A became insolvent in 1993, the ILU agreed to discharge the guarantee in exchange for the Company's agreement to post an evergreen letter of credit that is available to pay claims by policyholders on certain E&A policies issued through the ILU and incepting between July 3, 1980 and October 6, 1983. Certain claims have been paid under the letter of credit and the Company anticipates that additional claimants may seek to recover against the letter of credit.

* * * *

The pending proceedings described above and other matters not explicitly described in this Note 15 on Claims, Lawsuits and Other Contingencies may expose the Company or its subsidiaries to liability for significant monetary damages, fines, penalties or other forms of relief. Where a loss is both probable and reasonably estimable, the Company establishes liabilities in accordance with FASB guidance on Contingencies - Loss Contingencies. Except as described above, the Company is not able at this time to provide a reasonable estimate of the range of possible loss attributable to these matters or the impact they may have on the Company's consolidated results of operations, financial position or cash flows. This is primarily because these matters are still developing and involve complex issues subject to inherent uncertainty. Adverse determinations in one or more of these matters could have a material impact on the Company's consolidated results of operations, financial condition or cash flows in a future period.


29



16.    Segment Information
The Company is organized based on the types of services provided. Under this structure, the Company’s segments are:
Risk and Insurance Services, comprising insurance services (Marsh) and reinsurance services (Guy Carpenter); and
Consulting, comprising Mercer and Oliver Wyman Group.
The accounting policies of the segments are the same as those used for the consolidated financial statements described in Note 1 to the Company’s 2017 Form 10-K. Segment performance is evaluated based on segment operating income, which includes directly related expenses, and charges or credits related to integration and restructuring but not the Company’s corporate-level expenses. Revenues are attributed to geographic areas on the basis of where the services are performed.
Selected information about the Company’s operating segments for the three-month period ended March 31, 2018 and 2017 are as follows:
 
Three Months Ended
March 31,
(In millions)
Revenue
 
Operating
Income
(Loss)
2018–
 
 
 
Risk and Insurance Services
$
2,344

(a) 
$
716

Consulting
1,668

(b) 
247

Total Operating Segments
4,012

  
963

Corporate / Eliminations
(12
)
 
(55
)
Total Consolidated
$
4,000

  
$
908

2017–
 
 
 
Risk and Insurance Services
$
1,989

(a) 
$
568

Consulting
1,526

(b) 
225

Total Operating Segments
3,515

  
793

Corporate / Eliminations
(12
)
 
(44
)
Total Consolidated
$
3,503

  
$
749

(a) Includes inter-segment revenue of $1 million in 2018, interest income on fiduciary funds of $13 million and $8 million in 2018 and 2017, respectively, and equity method (loss) income of $(1) million and $2 million in 2018 and 2017, respectively.
(b) Includes inter-segment revenue of $11 million and $12 million in 2018 and 2017, respectively, interest income on fiduciary funds of $1 million in both 2018 and in 2017, and equity method income of $3 million in 2018 and $4 million in 2017, respectively.

30



Details of operating segment revenue for the three-month period ended March 31, 2018 and 2017 are as follows:
 
Three Months Ended
March 31,
(In millions)