Document

 
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 September 30, 2017
_____________________________________________ 
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 October 25, 2017, there were outstanding 510,356,826 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: (1) the impact of any investigations, reviews or other activity by regulatory or law enforcement authorities, including the European Commission’s investigation into the aviation insurance and reinsurance sector; (2) the impact from lawsuits, other contingent liabilities and loss contingencies arising from errors and omissions, breach of fiduciary duty or other claims against us; (3) our ability to compete effectively and adapt to changes in the competitive environment, including to respond to disintermediation, pricing pressures and technological and other types of innovation; (4) our exposure to potential civil damages, criminal penalties or other consequences, such as reputational impact, if we fail to comply with applicable U.S. and non-U.S. laws and regulations; (5) 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 volume of our vendor network and the need to patch software vulnerabilities; (6) our ability to successfully recover if we experience a business continuity problem due to cyberattack, natural disaster or otherwise; (7) the impact of macroeconomic, political, regulatory or market conditions on us, our clients and the industries in which we operate; (8) the financial and operational impact of complying with laws and regulations where we operate, including the E.U.’s General Data Protection Regulation; (9) our ability to attract and retain key employees; (10) the impact on our competitive position of our tax rate relative to our competitors; (11) the impact of fluctuations in foreign exchange, interest rates and securities markets on our results; (12) the effect of our global pension obligations on our financial position, earnings and cash flows and the impact of low interest rates on those obligations; and (13) 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 standard.
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
September 30,
 
Nine Months Ended
September 30,
(In millions, except per share amounts)
2017

 
2016

 
2017

 
2016

Revenue
$
3,341

 
$
3,135

 
$
10,339

 
$
9,847

Expense:
 
 
 
 
 
 
 
Compensation and benefits
1,906

 
1,817

 
5,786

 
5,543

Other operating expenses
838

 
746

 
2,383

 
2,273

Operating expenses
2,744

 
2,563

 
8,169

 
7,816

Operating income
597

 
572

 
2,170

 
2,031

Interest income
2

 
—

 
6

 
4

Interest expense
(60
)
 
(47
)
 
(178
)
 
(141
)
Investment (loss) income
(2
)
 
—

 
3

 
(2
)
Income before income taxes
537

 
525

 
2,001

 
1,892

Income tax expense
140

 
141

 
519

 
538

Net income before non-controlling interests
397

 
384

 
1,482

 
1,354

Less: Net income attributable to non-controlling interests
4

 
5

 
19

 
22

Net income attributable to the Company
$
393

 
$
379

 
$
1,463

 
$
1,332

Net income Per Share Attributable to the Company:

 
 
 
 
 
 
 
Basic
$
0.77

 
$
0.73

 
$
2.85

 
$
2.56

Diluted
$
0.76

 
$
0.73

 
$
2.81

 
$
2.54

Average number of shares outstanding:
 
 
 
 
 
 
 
Basic
512

 
518

 
514

 
520

Diluted
519

 
523

 
520

 
525

Shares outstanding at September 30,
511

 
516

 
511

 
516

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
September 30,
 
Nine Months Ended
September 30,
(In millions)
2017

 
2016

 
2017

 
2016

Net income before non-controlling interests
$
397

 
$
384

 
$
1,482

 
$
1,354

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
    Foreign currency translation adjustments
127

 
(52
)
 
652

 
(373
)
    Unrealized investment (losses) gains
(8
)
 
1

 
11

 
1

    (Loss) gain related to pension/post-retirement plans
(168
)
 
82

 
(140
)
 
383

Other comprehensive (loss) income, before tax
(49
)
 
31

 
523

 
11

Income tax (credit) expense on other comprehensive income
(30
)
 
19

 
(10
)
 
80

Other comprehensive (loss) income, net of tax
(19
)
 
12

 
533

 
(69
)
Comprehensive income
378

 
396

 
2,015

 
1,285

Less: comprehensive income attributable to non-controlling interest
4

 
5

 
19

 
22

Comprehensive income attributable to the Company
$
374

 
$
391

 
$
1,996

 
$
1,263

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)
September 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,078

 
$
1,026

Receivables
 
 
 
Commissions and fees
3,651

 
3,370

Advanced premiums and claims
52

 
83

Other
311

 
286

 
4,014

 
3,739

Less-allowance for doubtful accounts and cancellations
(105
)
 
(96
)
Net receivables
3,909

 
3,643

Other current assets
228

 
215

Total current assets
5,215

 
4,884

Goodwill
9,100

 
8,369

Other intangible assets
1,320

 
1,126

Fixed assets
(net of accumulated depreciation and amortization of $1,822 at September 30, 2017 and $1,683 at December 31, 2016)
728

 
725

Pension related assets
1,155

 
776

Deferred tax assets
947

 
1,097

Other assets
1,225

 
1,213

 
$
19,690

 
$
18,190

 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)
September 30,
2017
 
December 31,
2016
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
13

 
$
312

Accounts payable and accrued liabilities
2,002

 
1,969

Accrued compensation and employee benefits
1,377

 
1,655

Accrued income taxes
229

 
146

Dividends payable
193

 
—

Total current liabilities
3,814

 
4,082

Fiduciary liabilities
5,128

 
4,241

Less – cash and investments held in a fiduciary capacity
(5,128
)
 
(4,241
)
 
—

 
—

Long-term debt
5,475

 
4,495

Pension, post-retirement and post-employment benefits
1,948

 
2,076

Liabilities for errors and omissions
316

 
308

Other liabilities
1,006

 
957

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 September 30, 2017
 
 
 
   and December 31, 2016
561

 
561

Additional paid-in capital
783

 
842

Retained earnings
13,113

 
12,388

Accumulated other comprehensive loss
(4,560
)
 
(5,093
)
Non-controlling interests
85

 
80

 
9,982

 
8,778

Less – treasury shares, at cost, 49,484,693 shares at September 30, 2017
 
 
 
   and 46,150,415 shares at December 31, 2016
(2,851
)
 
(2,506
)
Total equity
7,131

 
6,272

 
$
19,690

 
$
18,190

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 Nine Months Ended September 30,
 
 
 
(In millions)
2017

 
2016

Operating cash flows:
 
 
 
Net income before non-controlling interests
$
1,482

 
$
1,354

Adjustments to reconcile net income to cash provided by operations:
 
 
 
Depreciation and amortization of fixed assets and capitalized software
234

 
231

Amortization of intangible assets
122

 
99

Adjustments and payments related to contingent consideration liability
(30
)
 
(37
)
Gain on deconsolidation of subsidiary
—

 
(12
)
Provision for deferred income taxes
52

 
43

(Gain) loss on investments
(3
)
 
2

Loss on disposition of assets
9

 
3

Share-based compensation expense
111

 
84

Changes in assets and liabilities:
 
 
 
Net receivables
(248
)
 
(162
)
Other current assets
(14
)
 
(20
)
Other assets
(18
)
 
(2
)
Accounts payable and accrued liabilities
11

 
(29
)
Accrued compensation and employee benefits
(278
)
 
(349
)
Accrued income taxes
77

 
65

      Contributions to pension and other benefit plans in excess of current year expense/credit
(337
)
 
(214
)
Other liabilities
83

 
(3
)
Effect of exchange rate changes
(116
)
 
59

Net cash provided by operations
1,137

 
1,112

Financing cash flows:
 
 
 
Purchase of treasury shares
(600
)
 
(625
)
Proceeds from debt
987

 
347

Repayments of debt
(313
)
 
(9
)
Shares withheld for taxes on vested units – treasury shares
(49
)
 
(38
)
Issuance of common stock from treasury shares
134

 
154

Payments of deferred and contingent consideration for acquisitions
(127
)
 
(96
)
Distributions of non-controlling interests
(14
)
 
(12
)
Dividends paid
(545
)
 
(504
)
Net cash used for financing activities
(527
)
 
(783
)
Investing cash flows:
 
 
 
Capital expenditures
(217
)
 
(174
)
Net sales (purchases) of long-term investments
(21
)
 
(4
)
Proceeds from sales of fixed assets
4

 
5

Acquisitions
(629
)
 
(88
)
Other, net
4

 
3

Net cash used for investing activities
(859
)
 
(258
)
Effect of exchange rate changes on cash and cash equivalents
301

 
(57
)
Increase in cash and cash equivalents
52

 
14

Cash and cash equivalents at beginning of period
1,026

 
1,374

Cash and cash equivalents at end of period
$
1,078

 
$
1,388

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 Nine Months Ended September 30,
 
 
 
(In millions, except per share amounts)
2017

 
2016

COMMON STOCK
 
 
 
Balance, beginning and end of period
$
561

 
$
561

ADDITIONAL PAID-IN CAPITAL
 
 
 
Balance, beginning of year
$
842

 
$
861

Change in accrued stock compensation costs
26

 
14

Issuance of shares under stock compensation plans and employee stock purchase plans and related tax impact in 2016
(82
)
 
(63
)
Other
(3
)
 
—

Balance, end of period
$
783

 
$
812

RETAINED EARNINGS
 
 
 
Balance, beginning of year
$
12,388

 
$
11,302

Net income attributable to the Company
1,463

 
1,332

Dividend equivalents declared – (per share amounts: $1.43 in 2017 and $1.30 in 2016)
(4
)
 
(5
)
Dividends declared – (per share amounts: $1.43 in 2017 and $1.30 in 2016)
(734
)
 
(676
)
Balance, end of period
$
13,113

 
$
11,953

ACCUMULATED OTHER COMPREHENSIVE LOSS
 
 
 
Balance, beginning of year
$
(5,093
)
 
$
(4,220
)
Other comprehensive income (loss), net of tax
533

 
(69
)
Balance, end of period
$
(4,560
)
 
$
(4,289
)
TREASURY SHARES
 
 
 
Balance, beginning of year
$
(2,506
)
 
$
(1,991
)
Issuance of shares under stock compensation plans and employee stock purchase plans
255

 
250

Purchase of treasury shares
(600
)
 
(625
)
Balance, end of period
$
(2,851
)
 
$
(2,366
)
NON-CONTROLLING INTERESTS
 
 
 
Balance, beginning of year
$
80

 
$
89

Net income attributable to non-controlling interests
19

 
22

Deconsolidation of subsidiary
—

 
(14
)
Distributions and other changes
(14
)
 
(14
)
Balance, end of period
$
85

 
$
83

TOTAL EQUITY
$
7,131

 
$
6,754

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 services 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 September 30, 2017, Mercer had assets under delegated management of approximately $210 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 7 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, 2016 (the "2016 Form 10-K").
The financial information contained herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial statements as of and for the three and nine month periods ended September 30, 2017 and 2016.
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 $184 million, primarily related to regulatory requirements outside the United States or as collateral under captive insurance arrangements.
Investments
The Company holds investments in certain private equity funds. Investments in private equity funds are accounted for under the equity method of accounting using a consistently applied three-month lag period adjusted for any known significant changes from the lag period to the reporting date of the Company. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. Investment gains or losses for the 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 caption "Investment income (loss)" 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 and available-for-sale securities and equity method gains or losses on the Company's investments in private equity funds. The Company recorded a net investment loss of $2 million in the third quarter of 2017 compared to a net investment gain of less than $1 million for the same period in 2016, and net investment income of $3 million compared to a net investment loss of $2 million for the nine months ended September 30, 2017 and 2016, respectively.

10


Income Taxes
The Company's effective tax rate in the third quarter of 2017 was 26.2% compared with 26.8% in the third quarter of 2016. The effective tax rate for the first nine months of 2017 and 2016 was 25.9% and 28.4%, respectively. The rates reflect foreign operations which are taxed at rates below the U.S. statutory tax rate, including the effect of repatriation, as well as the impact of discrete tax matters such as tax legislation, changes in valuation allowances, nontaxable adjustments to contingent acquisition consideration and, starting in 2017, excess tax benefits related to share-based compensation.
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 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 $65 million at December 31, 2016 to $64 million at September 30, 2017 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 $9 million within the next twelve months due to settlements of audits and expirations of statutes of limitation.
3.     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 $11 million and $8 million for the three months ended September 30, 2017 and 2016, respectively, and $28 million and $20 million for the nine months ended September 30, 2017 and 2016, respectively. The Consulting segment recorded fiduciary interest income of $2 million and $1 million for each of the three month periods ended September 30, 2017 and 2016, respectively, and $3 million and $2 million for the nine months ended September 30, 2017 and 2016, 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 $6.8 billion at September 30, 2017 and $7.0 billion at December 31, 2016. The Company is not a principal to the contracts under which the right to receive premiums or the right to receive reimbursement of insured losses arises. Accordingly, net uncollected premiums and claims and the related payables are not assets and liabilities of the Company and are not included in the accompanying consolidated balance sheets.
In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or insureds prior to collection. These advances are made from corporate funds and are reflected in the accompanying consolidated balance sheets as receivables.
4.    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.

11


Basic and Diluted EPS Calculation
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions, except per share amounts)
2017

 
2016

 
2017

 
2016

Net income before non-controlling interests
$
397

 
$
384

 
$
1,482

 
$
1,354

Less: Net income attributable to non-controlling interests
4

 
5

 
19

 
22

Net income attributable to the Company
$
393

 
$
379

 
$
1,463

 
$
1,332

Basic weighted average common shares outstanding
512

 
518

 
514

 
520

Dilutive effect of potentially issuable common shares
7

 
5

 
6

 
5

Diluted weighted average common shares outstanding
519

 
523

 
520

 
525

Average stock price used to calculate common stock equivalents
$
79.35

 
$
66.98

 
$
75.36

 
$
62.33

There were 11.3 million and 13.6 million stock options outstanding as of September 30, 2017 and 2016, respectively.
5.    Supplemental Disclosures to the Consolidated Statements of Cash Flows
The following schedule provides additional information concerning acquisitions, interest and income taxes paid for the nine-month periods ended September 30, 2017 and 2016.
(In millions)
 
2017

 
2016

Assets acquired, excluding cash
 
$
852

 
$
121

Liabilities assumed
 
(129
)
 
(4
)
Contingent/deferred purchase consideration
 
(94
)
 
(29
)
Net cash outflow for current year acquisitions
 
$
629

 
$
88

(In millions)
2017

 
2016

Interest paid
$
174

 
$
148

Income taxes paid, net of refunds
$
406

 
$
417

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 $127 million for the nine months ended September 30, 2017. This consisted of deferred purchase consideration related to prior years' acquisitions of $47 million and contingent consideration of $80 million. For the nine months ended September 30, 2016, the Company paid deferred and contingent consideration of $96 million, consisting of deferred purchase consideration related to prior years' acquisitions of $53 million and contingent consideration of $43 million.
The following amounts are included in the operating section of the consolidated statements of cash flows. For the nine months ended September 30, 2017, the Company recorded a net credit for adjustments to acquisition related accounts of $3 million and made contingent consideration payments of $27 million. For the nine months ended September 30, 2016, the Company recorded a net charge for adjustments related to acquisition related accounts of $5 million and made contingent consideration payments of $42 million.
The Company had non-cash issuances of common stock under its share-based payment plan of $88 million and $71 million for the nine months ended September 30, 2017 and 2016, respectively. The Company recorded stock-based compensation expense for equity awards related to restricted stock units, performance stock units and stock options of $111 million and $84 million for the nine-month periods ended September 30, 2017 and 2016, respectively.
Effective January 1, 2017, the Company adopted new accounting guidance related to share-based compensation, that requires companies to record excess tax benefits and tax deficiencies as an income tax benefit or expense in the income statement and classify excess tax benefits as an operating activity in the statement of cash flows. Prior to the adoption of this standard, the Company recorded excess tax benefits in equity in the consolidated balance sheet and as a financing activity in the consolidated statement of cash flows. For the nine months ended September 30, 2017, the adoption of this new standard reduced income tax expense in the consolidated statement of income by approximately $58 million. For the nine months ended September 30, 2016, the Company recorded an

12


excess tax benefit of $30 million as an increase to equity in its consolidated balance sheet, which was reflected as cash provided by financing activities in the consolidated statement of cash flows.
6.    Other Comprehensive Income (Loss)
The changes, net of tax, in the balances of each component of Accumulated Other Comprehensive Income ("AOCI") for the three and nine-month periods ended September 30, 2017 and 2016, 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 July 1, 2017
$
30

 
$
(3,215
)
 
$
(1,356
)
 
$
(4,541
)
Other comprehensive (loss) income before reclassifications
(5
)
 
(173
)
 
126

 
(52
)
Amounts reclassified from accumulated other comprehensive income
—

 
33

 
—

 
33

Net current period other comprehensive (loss) income
(5
)
 
(140
)
 
126

 
(19
)
Balance as of September 30, 2017
$
25

 
$
(3,355
)
 
$
(1,230
)
 
$
(4,560
)
(In millions)
Unrealized Investment Gains
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Gains (Losses)
 
Total Gains (Losses)
Balance as of July 1, 2016
$
6

 
$
(2,885
)
 
$
(1,422
)
 
$
(4,301
)
Other comprehensive income (loss) before reclassifications
1

 
36

 
(54
)
 
(17
)
Amounts reclassified from accumulated other comprehensive income
—

 
29

 
—

 
29

Net current period other comprehensive income (loss)
1

 
65

 
(54
)
 
12

Balance as of September 30, 2016
$
7

 
$
(2,820
)
 
$
(1,476
)
 
$
(4,289
)
(In millions)
Unrealized Investment Gains
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Gains (Losses)
 
Total Gains (Losses)
Balance as of January 1, 2017
$
19

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

 
(219
)
 
650

 
437

Amounts reclassified from accumulated other comprehensive income
—

 
96

 
—

 
96

Net current period other comprehensive income (loss)
6

 
(123
)
 
650

 
533

Balance as of September 30, 2017
$
25

 
$
(3,355
)
 
$
(1,230
)
 
$
(4,560
)
(In millions)
Unrealized Investment Gains
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Gains (Losses)
 
Total Gains (Losses)
Balance as of January 1, 2016
$
6

 
$
(3,124
)
 
$
(1,102
)
 
$
(4,220
)
Other comprehensive income (loss) before reclassifications
1

 
214

 
(374
)
 
(159
)
Amounts reclassified from accumulated other comprehensive income
—

 
90

 
—

 
90

Net current period other comprehensive income (loss)
1

 
304

 
(374
)
 
(69
)
Balance as of September 30, 2016
$
7

 
$
(2,820
)
 
$
(1,476
)
 
$
(4,289
)

13


The components of other comprehensive income (loss) for the three and nine-month periods ended September 30, 2017 and 2016 are as follows:
Three Months Ended September 30,
 
2017
 
2016
(In millions)
 
Pre-Tax
Tax (Credit)
Net of Tax
 
Pre-Tax
Tax
Net of Tax
Foreign currency translation adjustments
 
$
127

$
1

$
126

 
$
(52
)
$
2

$
(54
)
Unrealized investment (losses) gains
 
(8
)
(3
)
(5
)
 
1

—

1

Pension/post-retirement plans:
 
 
 
 
 
 
 
 
Amortization of losses included in net periodic pension cost:
 
 
 
 
 
 


 
Prior service cost (a)
 
—

—

—

 
1

1

—

Net actuarial losses (a)
 
43

10

33

 
41

12

29

Subtotal
 
43

10

33

 
42

13

29

 Effect of remeasurement
 
3

—

3

 
—

—

—

 Effect of settlement
 
1

—

1

 
—

—

—

 Foreign currency translation (losses) gains
 
(215
)
(38
)
(177
)
 
40

4

36

Pension/post-retirement plans (losses) gains
 
(168
)
(28
)
(140
)
 
82

17

65

Other comprehensive (loss) income
 
$
(49
)
$
(30
)
$
(19
)
 
$
31

$
19

$
12

(a) Components of net periodic pension cost are included in compensation and benefits in the consolidated statements of income. Income tax credits on prior service cost and net actuarial losses are included in income tax expense.
Nine Months Ended September 30,
2017
 
2016
(In millions)
Pre-Tax
Tax
(Credit)
Net of Tax
 
Pre-Tax
Tax
Net of Tax
Foreign currency translation adjustments
$
652

$
2

$
650

 
$
(373
)
$
1

$
(374
)
Unrealized investment gains
11

5

6

 
1

—

1

Pension/post-retirement plans:
 
 
 
 
 
 
 
Amortization of losses included in net periodic pension cost:


 
 
 
 
 
 
 Prior service cost (a)
—

—

—

 
2

1

1

 Net actuarial losses (a)
125

29

96

 
125

36

89

Subtotal
125

29

96

 
127

37

90

Effect of remeasurement
12

3

9

 
(1
)
—

(1
)
Effect of curtailment
(1
)
—

(1
)
 
3

1

2

Effect of settlement
2

—

2

 
1

—

1

Foreign currency translation (losses) gains
(277
)
(49
)
(228
)
 
253

41

212

Other
(1
)
—

(1
)
 
—

—

—

Pension/post-retirement plans (losses) gains
(140
)
(17
)
(123
)
 
383

79

304

Other comprehensive income (loss)
$
523

$
(10
)
$
533

 
$
11

$
80

$
(69
)
(a) Components of net periodic pension cost are included in compensation and benefits in the consolidated statements of income. Tax on prior service cost and net actuarial losses is included in income tax expense.
7.     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.

14


The Risk and Insurance Services segment completed seven acquisitions during the first nine months of 2017.
•
January – Marsh & McLennan Agency ("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 Services, 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 property and casualty insurance agent, and MMA acquired Hendrick & Hendrick, Inc., a Texas-based insurance agency.
The Consulting segment completed one acquisition during the first nine months of 2017.
•
August – Mercer acquired Jaeson Associates, a Portugal-based talent management consulting organization.
Total purchase consideration for acquisitions made during the nine months ended September 30, 2017 was $734 million, which consisted of cash paid of $640 million and deferred purchase and estimated contingent consideration of $94 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 $47 million of deferred purchase consideration and $107 million of contingent consideration related to acquisitions made in prior years.
The following table presents the preliminary allocation of the acquisition cost to the assets acquired and liabilities assumed during 2017 based on their fair values:
For the Nine Months Ended September 30, 2017
 
(In millions)
 
Cash
$
640

Estimated fair value of deferred/contingent consideration
94

Total Consideration
$
734

Allocation of purchase price:
 
Cash and cash equivalents
$
11

Accounts receivable, net
17

Property, plant, and equipment
7

Other intangible assets
293

Goodwill
533

Other assets
2

Total assets acquired
863

Current liabilities
21

Other liabilities
108

Total liabilities assumed
129

Net assets acquired
$
734

The following chart provides information about other intangible assets acquired during 2017:
 
 
Amount
 
Weighted Average Amortization Period
Client relationships
 
$
252

 
12 years
Other
 
41

 
5 years
 
 
$
293

 
 

15


Prior-Year Acquisitions
The Risk and Insurance Services segment completed nine acquisitions during 2016.
•
February – MMA acquired The Celedinas Agency, Inc., a Florida-based brokerage firm, providing property, casualty and marine insurance, as well as employee benefits services, and Aviation Solutions, LLC, a Missouri-based aviation risk advisor and insurance broker.
•
March – MMA acquired Corporate Consulting Services, Ltd., a New York-based insurance brokerage and human resource consulting firm.
•
August – MMA acquired Benefits Advisory Group LLC, an Atlanta-based employee benefits consulting firm.
•
September – MMA acquired Vero Insurance, Inc., a Florida-based agency specializing in private client insurance services.
•
November – MMA acquired Benefits Resource Group Agency, LLC, an Ohio-based benefits consulting firm and Presidio Benefits Group, Inc., a California-based employee benefits consulting firm.
•
December – Marsh acquired AD Corretora, a multi-line broker located in Brazil, and Bluefin Insurance Group, Ltd, a U.K.-based insurance brokerage.
The Consulting segment completed six acquisitions during 2016.
•
January – Mercer acquired The Positive Ageing Company Limited, a U.K.-based firm providing advice on issues surrounding the aging workforce.
•
April – Mercer acquired the Extratextual software system and related client contracts. Extratextual is a web based compliance system that assists clients to manage and meet their compliance and risk management obligations.
•
December – Oliver Wyman acquired LShift Limited, a software development company, and Mercer acquired Sirota Consulting LLC, a global provider of employee benefit solutions; Pillar Administration, a superannuation provider located in Australia; and Thomsons Online Benefits, a U.K.-based global benefits software business.
Total purchase consideration for acquisitions made during the first nine months of 2016 was $119 million, which consisted of cash paid of $90 million and deferred purchase and estimated contingent consideration of $29 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 purchase accounting is finalized. In the first nine months of 2016, the Company also paid $53 million of deferred purchase consideration and $85 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 2017 and 2016. 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, 2016 and reflects acquisitions made in 2016 as if they occurred on January 1, 2015. 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
September 30,
 
Nine Months Ended
September 30,
(In millions, except per share figures)
2017

 
2016

 
2017

 
2016

Revenue
$
3,349

 
$
3,256

 
$
10,416

 
$
10,232

Net income attributable to the Company
$
392

 
$
372

 
$
1,466

 
$
1,320

Basic net income per share attributable to the Company
$
0.77

 
$
0.72

 
$
2.85

 
$
2.54

Diluted net income per share attributable to the Company
$
0.76

 
$
0.71

 
$
2.82

 
$
2.52

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 and nine-month periods ended

16


September 30, 2017 include approximately $40 million and $103 million of revenue, respectively, and an operating loss of $1 million and operating income of $16 million, respectively, related to acquisitions made in 2017.
8.    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. The Company considers numerous factors, which include whether the fair value of each reporting unit exceeded its carrying value by a substantial margin in its most recent estimate of reporting unit fair values, 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:
September 30,
 
 
 
(In millions)
2017

 
2016

Balance as of January 1, as reported
$
8,369

 
$
7,889

Goodwill acquired
533

 
74

Other adjustments(a)
198

 
12

Balance at September 30,
$
9,100

 
$
7,975

(a) 
The increase in 2017 primarily reflects the impact of foreign exchange.
Goodwill allocable to the Company’s reportable segments at September 30, 2017 is as follows: Risk and Insurance Services, $6.5 billion and Consulting, $2.6 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.
The gross cost and accumulated amortization at September 30, 2017 and December 31, 2016 are as follows:
  
September 30, 2017
 
December 31, 2016
(In millions)
Gross
Cost

 
Accumulated
Amortization

 
Net
Carrying
Amount

 
Gross
Cost

 
Accumulated
Amortization

 
Net
Carrying
Amount

Client Relationships
$
1,679

 
$
487

 
$
1,192

 
$
1,390

 
$
392

 
$
998

Other (a)
231

 
103

 
128

 
204

 
76

 
128

 Amortized intangibles
$
1,910

 
$
590

 
$
1,320

 
$
1,594

 
$
468

 
$
1,126

(a) Primarily non-compete agreements, trade names and developed technology.
Aggregate amortization expense for the nine months ended September 30, 2017 and 2016 was $122 million and $99 million, respectively. The estimated future aggregate amortization expense is as follows:
For the Years Ending December 31,
 
(In millions)
Estimated Expense

2017 (excludes amortization through September 30, 2017)
$
50

2018
176

2019
166

2020
145

2021
135

Subsequent years
648

 
$
1,320


17


9.     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 Financial Accounting Standards Board ("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.
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.

18


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 September 30, 2017 and December 31, 2016.
 
Identical Assets
(Level 1)
 
Observable Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
(In millions)
09/30/17

 
12/31/16

 
09/30/17

 
12/31/16

 
09/30/17

 
12/31/16

 
09/30/17

 
12/31/16

Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments owned:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange traded equity securities(a)
$
99

 
$
89

 
$
—

 
$
—

 
$
—

 
$
—

 
$
99

 
$
89

Mutual funds(a)
143

 
141

 
—

 
—

 
—

 
—

 
143

 
141

Money market funds(b)
54

 
22

 
—

 
—

 
—

 
—

 
54

 
22

Total assets measured at fair value
$
296

 
$
252

 
$
—

 
$
—

 
$
—

 
$
—

 
$
296

 
$
252

Fiduciary Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
50

 
$
90

 
$
—

 
$
—

 
$
—

 
$
—

 
$
50

 
$
90

Total fiduciary assets measured
at fair value
$
50

 
$
90

 
$
—

 
$
—

 
$
—

 
$
—

 
$
50

 
$
90

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent purchase
consideration liability(c)
$
—

 
$
—

 
$
—

 
$
—

 
$
170

 
$
241

 
$
170

 
$
241

Total liabilities measured at fair value
$
—

 
$
—

 
$
—

 
$
—

 
$
170

 
$
241

 
$
170

 
$
241

(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 nine-month period ended September 30, 2017, 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 September 30, 2017 and 2016 that represent contingent consideration related to acquisitions: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(In millions)
2017

2016

 
2017

2016

Balance at beginning of period,
$
203

$
279

 
$
241

$
309

Additions
2

1

 
36

9

Payments
(42
)
(35
)
 
(107
)
(85
)
Revaluation Impact
5

(13
)
 
(3
)
5

Other (a)
2

—

 
3

(6
)
Balance at September 30,
$
170

$
232

 
$
170

$
232

(a) Primarily reflects the impact of foreign exchange.
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 decrease in the estimated fair value of such liabilities for prior-period acquisitions of $3 million in the nine-month period ended September 30, 2017. A 5% increase in the above mentioned projections would increase the liability by approximately $18 million. A 5% decrease in the above mentioned projections would decrease the liability by approximately $19 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 $405 million and $389 million at September 30, 2017 and December 31, 2016, respectively.

19


Private Equity Investments
The Company's investments in private equity funds were $72 million and $79 million at September 30, 2017 and December 31, 2016, 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 September 30, 2017, the carrying value of the Company’s investment in Alexander Forbes was approximately $268 million. As of September 30, 2017, the market value of the approximately 443 million shares of Alexander Forbes owned by the Company, based on the September 30, 2017 closing share price of 6.75 South African Rand per share, was approximately $225 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 nine months of 2017, the daily closing share price ranged from a high of 7.89 Rand (in early January) to a low of 5.99 Rand (in late April). During the third quarter of 2017, the Alexander Forbes average opening and closing stock price was approximately 6.75 Rand (approximately 90% of the original purchase price) and ranged from 6.40 Rand to 7.28 Rand (approximately 85% to 97% 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.
Benefitfocus: On February 24, 2015, the Company purchased shares of common stock of Benefitfocus (NASDAQ:BNFT) constituting 9.9% of BNFT's outstanding capital stock as of the acquisition date. The purchase price for the BNFT shares and certain other rights and other consideration was approximately $75 million. Until December 31, 2016, the Company accounted for this investment under the cost method of accounting as the shares purchased were categorized as restricted. Effective December 31, 2016, these shares were no longer considered restricted for the purpose of determining if they are marketable securities under applicable accounting guidance, and are now accounted for as available for sale securities and included in other assets in the consolidated balance sheets. The value of the BNFT shares based on the closing price on the NASDAQ as of September 30, 2017 was approximately $95 million. During the first nine months of 2017 an unrealized gain related to these shares of approximately $11 million was recorded in other comprehensive income.
10.    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 September 30, 2017, the actual allocation for the Company's U.S. Plan was 65% equities and equity alternatives and 35% fixed income. The target allocation for the U.K. plans at September 30, 2017 was 46% equities and equity alternatives and 54% fixed income. At September 30, 2017, the actual allocation for the U.K. Plans was 47% equities and equity alternatives and 53% fixed income. The Company's U.K. Plans comprised approximately 81% of non-U.S. plan assets at December 31, 2016. 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.

20


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 September 30,
 
(In millions)
2017

 
2016

 
2017

 
2016

Service cost
$
19

 
$
43

 
$
—

 
$
1

Interest cost
125

 
132

 
1

 
—

Expected return on plan assets
(232
)
 
(232
)
 
—

 
—

Amortization of prior service cost
—

 
1

 
1

 
1

Recognized actuarial loss
42

 
43

 
—

 
—

Net periodic benefit (credit) cost
$
(46
)
 
$
(13
)
 
$
2

 
$
2

Settlement loss
1

 
—

 
—

 
—

Total (credit) cost
$
(45
)
 
$
(13
)
 
$
2

 
$
2

 
 
 
 
 
 
 
 
Combined U.S. and significant non-U.S. plans
Pension
Benefits
 
Post-retirement
Benefits
For the Nine Months Ended September 30,
 
(In millions)
2017

 
2016

 
2017

 
2016

Service cost
$
56

 
$
133

 
$
—

 
$
1

Interest cost
371

 
407

 
3

 
3

Expected return on plan assets
(686
)
 
(715
)
 
—

 
—

Amortization of prior service (credit) cost
(1
)
 
—

 
2

 
3

Recognized actuarial loss (gain)
125

 
127

 
—

 
(1
)
Net periodic benefit (credit) cost
$
(135
)
 
$
(48
)
 
$
5

 
$
6

Curtailment gain
(1
)
 
(5
)
 
—

 
—

Settlement loss
2

 
1

 
—

 
—

Total (credit) cost
$
(134
)
 
$
(52
)
 
$
5

 
$
6

 
 
 
 
 
 
 
 
U.S. Plans only
Pension
Benefits
 
Post-retirement
Benefits
For the Three Months Ended September 30,
 
(In millions)
2017

 
2016

 
2017

 
2016

Service cost
$
—

 
$
26

 
$
—

 
$
—

Interest cost
66

 
66

 
—

 
—

Expected return on plan assets
(89
)
 
(95
)
 
—

 
—

Amortization of prior service cost
—

 
—

 
1

 
1

Recognized actuarial loss
9

 
19

 
—

 
—

Net periodic benefit (credit) cost
$
(14
)
 
$
16

 
$
1

 
$
1

U.S. Plans only
Pension
Benefits
 
Post-retirement
Benefits
For the Nine Months Ended September 30,
 
(In millions)
2017

 
2016

 
2017

 
2016

Service cost
$
—

 
$
79

 
$
—

 
$
—

Interest cost
198

 
198

 
1

 
1

Expected return on plan assets
(268
)
 
(285
)
 
—

 
—

Amortization of prior service cost
—

 
—

 
3

 
3

Recognized actuarial loss (gain)
28

 
55

 
(1
)
 
(1
)
Net periodic benefit (credit) cost
$
(42
)
 
$
47

 
$
3

 
$
3


21


In October 2016, the Company modified its U.S. defined benefit pension plans to discontinue further benefit accruals for participants after December 31, 2016. At the same time, the Company amended its U.S. defined contribution retirement plans for most of its U.S. employees to add an automatic Company contribution equal to 4% of eligible base pay beginning on January 1, 2017. This new Company contribution, together with the Company’s current matching contribution, provides eligible U.S. employees with the opportunity to receive a total contribution of up to 7% of eligible base pay. In addition, the U.S. qualified defined benefit plans were merged effective December 30, 2016.
Significant non-U.S. plans only
Pension
Benefits
 
Post-retirement
Benefits
For the Three Months Ended September 30,
 
(In millions)
2017

 
2016

 
2017

 
2016

Service cost
$
19

 
$
17

 
$
—

 
$
1

Interest cost
59

 
66

 
1

 
—

Expected return on plan assets
(143
)
 
(137
)
 
—

 
—

Amortization of prior service cost
—

 
1

 
—

 
—

Recognized actuarial loss
33

 
24

 
—

 
—

Net periodic benefit (credit) cost
$
(32
)
 
$
(29
)
 
$
1

 
$
1

Settlement loss
1

 
—

 
—

 
—

Total (credit) cost
$
(31
)
 
$
(29
)
 
$
1

 
$
1

Significant non-U.S. plans only
Pension
Benefits
 
Post-retirement
Benefits
For the Nine Months Ended September 30,
 
(In millions)
2017

 
2016

 
2017

 
2016

Service cost
$
56

 
$
54

 
$
—

 
$
1

Interest cost
173

 
209

 
2

 
2

Expected return on plan assets
(418
)
 
(430
)
 
—

 
—

Amortization of prior service credit
(1
)
 
—

 
(1
)
 
—

Recognized actuarial loss
97

 
72

 
1

 
—

Net periodic benefit (credit) cost
$
(93
)
 
$
(95
)
 
$
2

 
$
3

Curtailment gain
(1
)
 
(5
)
 
—

 
—

Settlement loss
2

 
1

 
—

 
—

Total (credit) cost
$
(92
)
 
$
(99
)
 
$
2

 
$
3

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
September 30,
2017

 
2016

 
2017

 
2016

Weighted average assumptions:
 
 
 
 
 
 
 
Expected return on plan assets
6.64
%
 
7.07
%
 
—

 
—

Discount rate
3.40
%
 
4.11
%
 
3.64
%
 
4.12
%
Rate of compensation increase*
1.77
%
 
2.44
%
 
—

 
—

*The 2017 assumption does not include a rate of compensation increase for the U.S. defined benefit plans since future benefit accruals were discontinued for those plans after December 31, 2016.

22


The Company made approximately $193 million of contributions to its U.S. and non-U.S. defined benefit plans in the first nine months of 2017. The Company expects to contribute approximately $63 million to its U.S. pension and non-U.S. pension plans during the remainder of 2017.
Defined Contribution Plans
The Company maintains certain defined contribution plans for its employees, the most significant being in the U.S. and the U.K. The cost of these U.S. and U.K. defined contribution plans was $99 million and $56 million, respectively, for the nine months ended September 30, 2017.
11.    Debt
The Company’s outstanding debt is as follows:
 
(In millions)
September 30,
2017

 
December 31,
2016

Short-term:
 
 
 
Commercial paper