Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



For the Years Ended December 31,
(In millions, except per share figures)	2018			2017			2016
Revenue	$	14,950		$	14,024		$	13,211
Expense:
Compensation and benefits	8,605			8,085			7,694
Other operating expenses	3,584			3,284			3,086
Operating expenses	12,189			11,369			10,780
Operating income	2,761			2,655			2,431
Other net benefits credits	215			201			233
Interest income	11			9			5
Interest expense	(290		)	(237		)	(189		)
Investment (loss) income	(12		)	15			—
Acquisition related derivative contracts	(441		)	—			—
Income before income taxes	2,244			2,643			2,480
Income tax expense	574			1,133			685
Income from continuing operations	1,670			1,510			1,795
Discontinued operations, net of tax	—			2			—
Net income before non-controlling interests	1,670			1,512			1,795
Less: Net income attributable to non-controlling interests	20			20			27
Net income attributable to the Company	$	1,650		$	1,492		$	1,768
Basic net income per share
– Continuing operations	$	3.26		$	2.91		$	3.41
– Net income attributable to the Company	$	3.26		$	2.91		$	3.41
Diluted net income per share
– Continuing operations	$	3.23		$	2.87		$	3.38
– Net income attributable to the Company	$	3.23		$	2.87		$	3.38
Average number of shares outstanding
– Basic	506			513			519
– Diluted	511			519			524
Shares outstanding at December 31,	504			509			514

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

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



For the Years Ended December 31, (In millions)	2018			2017			2016
Net income before non-controlling interests	$	1,670		$	1,512		$	1,795
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments	(529		)	717			(742		)
Unrealized investment (loss) income	—			(7		)	21
(Loss) gain related to pension/post-retirement plans	(91		)	408			(119		)
Other comprehensive (loss) income, before tax	(620		)	1,118			(840		)
Income tax (credit) expense on other comprehensive (loss) income	(30		)	68			33
Other comprehensive (loss) income, net of tax	(590		)	1,050			(873		)
Comprehensive income	1,080			2,562			922
Less: Comprehensive income attributable to non-controlling interests	20			20			27
Comprehensive income attributable to the Company	$	1,060		$	2,542		$	895

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

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



December 31,
(In millions, except share figures)	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	1,066		$	1,205
Receivables
Commissions and fees	3,984			3,777
Advanced premiums and claims	79			65
Other	366			401
	4,429			4,243
Less-allowance for doubtful accounts and cancellations	(112		)	(110		)
Net receivables	4,317			4,133
Other current assets	551			224
Total current assets	5,934			5,562
Goodwill	9,599			9,089
Other intangible assets	1,437			1,274
Fixed assets, net	701			712
Pension related assets	1,688			1,693
Deferred tax assets	680			669
Other assets	1,539			1,430
	$	21,578		$	20,429
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	314		$	262
Accounts payable and accrued liabilities	2,234			2,083
Accrued compensation and employee benefits	1,778			1,718
Acquisition related derivatives	441			—
Accrued income taxes	157			199
Total current liabilities	4,924			4,262
Fiduciary liabilities	5,001			4,847
Less – cash and investments held in a fiduciary capacity	(5,001		)	(4,847		)
	—			—
Long-term debt	5,510			5,225
Pension, postretirement and postemployment benefits	1,911			1,888
Liability for errors and omissions	287			301
Other liabilities	1,362			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 December 31, 2018 and December 31, 2017	561			561
Additional paid-in capital	817			784
Retained earnings	14,347			13,140
Accumulated other comprehensive loss	(4,647		)	(4,043		)
Non-controlling interests	73			83
	11,151			10,525
Less – treasury shares, at cost, 56,804,468 shares at December 31, 2018 and 51,930,135 shares at December 31, 2017	(3,567		)	(3,083		)
Total equity	7,584			7,442
	$	21,578		$	20,429

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

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Years Ended December 31,
(In millions)	2018			2017			2016
Operating cash flows:
Net income before non-controlling interests	$	1,670		$	1,512		$	1,795
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization of fixed assets and capitalized software	311			312			308
Amortization of intangible assets	183			169			130
Adjustments and payments related to contingent consideration liability	(4		)	(24		)	(33		)
Loss (gain) on deconsolidation of entity	11			—			(11		)
(Benefit) Provision for deferred income taxes	(39		)	396			68
Loss (Gain) on investments	12			(15		)	—
(Gain) Loss on disposition of assets	(48		)	10			6
Share-based compensation expense	193			149			109
Change in fair value of acquisition-related derivative contracts	441			—			—
Changes in assets and liabilities:
Net receivables	(78		)	(454		)	(154		)
Other current assets	26			(3		)	(9		)
Other assets	(37		)	(199		)	34
Accounts payable and accrued liabilities	23			87			55
Accrued compensation and employee benefits	68			63			2
Accrued income taxes	(40		)	37			(21		)
Contributions to pension and other benefit plans in excess of current year expense/credit	(291		)	(457		)	(279		)
Other liabilities	9			406			(97		)
Effect of exchange rate changes	18			(96		)	104
Net cash provided by operations	2,428			1,893			2,007
Financing cash flows:
Purchase of treasury shares	(675		)	(900		)	(800		)
Net increase in commercial paper	—			—			50
Proceeds from issuance of debt	591			987			347
Repayments of debt	(263		)	(315		)	(12		)
Payment of bridge loan fees	(35		)	—			—
Shares withheld for taxes on vested units – treasury shares	(67		)	(49		)	(39		)
Issuance of common stock from treasury shares	93			166			188
Payments of deferred and contingent consideration for acquisitions	(117		)	(136		)	(98		)
Distributions of non-controlling interests	(30		)	(22		)	(21		)
Dividends paid	(807		)	(740		)	(682		)
Net cash used for financing activities	(1,310		)	(1,009		)	(1,067		)
Investing cash flows:
Capital expenditures	(314		)	(302		)	(253		)
Net sales (purchases) of long-term investments	4			(13		)	2
Proceeds from sales of fixed assets	3			8			4
Dispositions	110			—			—
Acquisitions	(884		)	(655		)	(813		)
Other, net	(8		)	6			4
Net cash used for investing activities	(1,089		)	(956		)	(1,056		)
Effect of exchange rate changes on cash and cash equivalents	(168		)	251			(232		)
(Decrease) Increase in cash and cash equivalents	(139		)	179			(348		)
Cash and cash equivalents at beginning of year	1,205			1,026			1,374
Cash and cash equivalents at end of year	$	1,066		$	1,205		$	1,026

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

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY



For the Years Ended December 31,
(In millions, except per share figures)	2018			2017			2016
COMMON STOCK
Balance, beginning and end of year	$	561		$	561		$	561
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year	$	784		$	842		$	861
Change in accrued stock compensation costs	66			63			44
Issuance of shares under stock compensation plans and employee stock purchase plans and related tax impact	(35		)	(120		)	(63		)
Other	2			(1		)	—
Balance, end of year	$	817		$	784		$	842
RETAINED EARNINGS
Balance, beginning of year	$	13,140		$	12,388		$	11,302
Net income attributable to the Company	1,650			1,492			1,768
Cumulative effect of adoption of the revenue recognition standard (See Note 1)	364			—			—
Cumulative effect of adoption of other accounting standards (See Note 1)	—			—			—
Dividend equivalents declared - (per share amounts: $1.58 in 2018, $1.43 in 2017, and $1.30 in 2016)	(7		)	(6		)	(7		)
Dividends declared – (per share amounts: $1.58 in 2018, $1.43 in 2017, and $1.30 in 2016)	(800		)	(734		)	(675		)
Balance, end of year	$	14,347		$	13,140		$	12,388
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of year	$	(4,043	)	$	(5,093	)	$	(4,220	)
Cumulative effect of adoption of the financial instruments standard (See Note 1)	(14		)	—			—
Other comprehensive (loss) income, net of tax	(590		)	1,050			(873		)
Balance, end of year	$	(4,647	)	$	(4,043	)	$	(5,093	)
TREASURY SHARES
Balance, beginning of year	$	(3,083	)	$	(2,506	)	$	(1,991	)
Issuance of shares under stock compensation plans and employee stock purchase plans	191			323			285
Purchase of treasury shares	(675		)	(900		)	(800		)
Balance, end of year	$	(3,567	)	$	(3,083	)	$	(2,506	)
NON-CONTROLLING INTERESTS
Balance, beginning of year	$	83		$	80		$	89
Net income attributable to non-controlling interests	20			20			27
Distributions and other changes	(30		)	(17		)	(22		)
Deconsolidation of subsidiary	—			—			(14		)
Balance, end of year	$	73		$	83		$	80
TOTAL EQUITY	$	7,584		$	7,442		$	6,272

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

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Nature of Operations: Marsh & McLennan Companies, Inc. (the "Company"), a global professional services firm, is organized based on the different services that it offers. Under this structure, the Company’s two business 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 consulting services and products. 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 5 below.

Principles of Consolidation: The accompanying consolidated financial statements include all wholly-owned and majority-owned subsidiaries. All significant inter-company transactions and balances have been eliminated.

Fiduciary Assets and Liabilities: In its capacity as an insurance broker or agent, generally 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 $65 million, $39 million and $26 million in 2018, 2017 and 2016, respectively. The Consulting segment recorded fiduciary interest income of $3 million, $4 million and $3 million in 2018, 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 were $7.3 billion and $6.8 billion at December 31, 2018 and 2017, respectively. 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.

Mercer manages assets in trusts or funds for which Mercer’s management or trustee fee is not considered a variable interest, since the fees are commensurate with the level of effort required to provide those services. Mercer is not the primary beneficiary of these trusts or funds. Mercer’s maximum exposure to loss of its interests is, therefore, limited to collection of its fees.

Revenue: The Company provides detailed discussion regarding its revenue policies in Note 2 to the consolidated financial statements

Cash and Cash Equivalents: Cash and cash equivalents primarily consist of certificates of deposit and time deposits, with original maturities of three months or less, and money market funds. The estimated fair value of the Company's cash and cash equivalents approximates their carrying value. The Company is required to maintain operating funds primarily related to regulatory requirements outside the United States or as collateral under captive insurance arrangements. At December 31, 2018, the Company maintained $186 million related to these regulatory requirements.

Fixed Assets: Fixed assets are stated at cost less accumulated depreciation and amortization. Expenditures for improvements are capitalized. Upon sale or retirement of an asset, the cost and related

accumulated depreciation and amortization are removed from the accounts and any gain or loss is reflected in income. Expenditures for maintenance and repairs are charged to operations as incurred.

Depreciation of buildings, building improvements, furniture, and equipment is provided on a straight-line basis over the estimated useful lives of these assets. Furniture and equipment is depreciated over periods ranging from three to ten years. Leasehold improvements are amortized on a straight-line basis over the periods covered by the applicable leases or the estimated useful life of the improvement, whichever is less. Buildings are depreciated over periods ranging from thirty to forty years. The Company periodically reviews long-lived assets for impairment whenever events or changes indicate that the carrying value of assets may not be recoverable.

The components of fixed assets are as follows:



December 31,
(In millions of dollars)	2018			2017
Furniture and equipment	$	1,159		$	1,179
Land and buildings	377			385
Leasehold and building improvements	1,007			974
	2,543			2,538
Less-accumulated depreciation and amortization	(1,842		)	(1,826		)
	$	701		$	712

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

The Company holds certain equity investments, that under legacy GAAP, were previously classified as available for sale securities, whereby the mark-to-market change was recorded to accumulated other comprehensive income in its consolidated balance sheet. As discussed in Note 1, 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 recorded a cumulative-effect adjustment that increased retained earnings as of the beginning of the period of adoption by $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. 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 its proportionate share of the change in fair value of the funds are recorded in earnings. Investments using the equity method of accounting are included in "other assets" in the consolidated balance sheets.

In 2018 the Company recorded an investment loss of $12 million compared to investment income of $15 million in 2017 and less than $1 million in 2016. The investment loss in 2018 includes an impairment charge of $83 million related to its investment in Alexander Forbes (see Note 10). The net investment loss in 2018 also includes gains of $54 million related to mark-to-market changes in equity securities and gains of $17 million related to investments in private equity funds and other investments.

Goodwill and Other Intangible Assets: Goodwill represents acquisition costs in excess of the fair value of net assets acquired. Goodwill is reviewed at least annually for impairment. The Company performs an annual impairment test for each of its reporting units during the third quarter of each year. When a step 1 test is performed, fair values of the reporting units are estimated using either a market approach or a discounted cash flow model. Carrying values for the reporting units are based on balances at the prior

quarter end and include directly identified assets and liabilities as well as an allocation of those assets and liabilities not recorded at the reporting unit level. As discussed in Note 6, the Company may elect to assess qualitative factors to determine if a step 1 test is necessary. Other intangible assets, which primarily consist of acquired customer lists, that are not deemed to have an indefinite life, are amortized over their estimated lives, typically ranging from 10 to 15 years, and reviewed for impairment upon the occurrence of certain triggering events in accordance with applicable accounting literature. The Company had no indefinite lived identified intangible assets at December 31, 2018 and 2017.

Capitalized Software Costs: The Company capitalizes certain costs to develop, purchase or modify software for the internal use of the Company. These costs are amortized on a straight-line basis over periods ranging from 3 to 10 years. Costs incurred during the preliminary project stage and post implementation stage, are expensed as incurred. Costs incurred during the application development stage are capitalized. Costs related to updates and enhancements are only capitalized if they will result in additional functionality. Capitalized computer software costs of $435 million and $488 million, net of accumulated amortization of $1.3 billion for both December 31, 2018 and 2017, are included in other assets in the consolidated balance sheets.

Legal and Other Loss Contingencies: The Company and its subsidiaries are subject to a significant number of claims, lawsuits and proceedings including claims for errors and omissions ("E&O"). The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires that a liability be recorded when a loss is both probable and reasonably estimable. Significant management judgment is required to apply this guidance. The Company utilizes case level reviews by inside and outside counsel, an internal actuarial analysis by Oliver Wyman Group, a subsidiary of the Company, and other methods to estimate potential losses. 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. Given the unpredictability of E&O claims and of litigation that could flow from them, it is possible that an adverse outcome in a particular matter could have a material adverse effect on the Company’s businesses, results of operations, financial condition or cash flow in a given quarterly or annual period.

In addition, to the extent that insurance coverage is available, significant management judgment is required to determine the amount of recoveries that are probable of collection under the Company’s various insurance programs.

The legal and other contingent liabilities described above are not discounted.

Income Taxes: The Company's effective tax rate reflects its income, statutory tax rates and tax planning in the various jurisdictions in which it operates. Significant judgment is required in determining the annual tax provision and in evaluating uncertain tax positions and the ability to realize deferred tax assets.

The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step involves recognition. The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position derive from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not-recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate resolution with a taxing authority. Uncertain tax positions are evaluated based upon the facts and circumstances that exist at each reporting period. Subsequent changes in judgment based upon new information may lead to changes in recognition, de-recognition, and measurement. Adjustments may result, for example, upon resolution of an issue with the taxing authorities, or expiration of a statute of limitations barring an assessment for an issue. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Tax law may require items be included in the Company's tax returns at different times than the items are reflected in the financial statements. As a result, the annual tax expense reflected in the consolidated statements of income is different than that reported in the income tax returns. Some of these differences are permanent, such as expenses that are not deductible in the returns, and some differences are temporary and reverse over time, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which benefit has already been recorded in the financial statements. Valuation allowances are established for deferred tax assets when it is estimated that future taxable income will be insufficient to use a deduction or credit in that jurisdiction. Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment has been deferred, or expense for which a deduction has been taken already in the tax return but the expense has not yet been recognized in the financial statements.

Derivative Instruments: All derivatives, whether designated in hedging relationships or not, are recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. The fair value of the derivative is recorded in the consolidated balance sheet in other receivables or accounts payable and accrued liabilities. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the income statement when the hedged item affects earnings. Changes in the fair value attributable to the ineffective portion of cash flow hedges are recognized in earnings. If a derivative is not designated as an accounting hedge, the change in fair value is recorded in earnings.

Concentrations of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, commissions and fees receivable and insurance recoverables. The Company maintains a policy providing for the diversification of cash and cash equivalent investments and places its investments in a large number of high quality financial institutions to limit the amount of credit risk exposure. Concentrations of credit risk with respect to receivables are generally limited due to the large number of clients and markets in which the Company does business, as well as the dispersion across many geographic areas.

Per Share Data: Basic net income per share attributable to the Company and income from continuing operations per share are calculated by dividing the respective after-tax income attributable to common shares by the weighted average number of outstanding shares of the Company’s common stock.

Diluted net income per share attributable to the Company and income from continuing operations per share are calculated by dividing the respective after-tax income attributable to common shares 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. Reconciliations of the applicable components used to calculate basic and diluted EPS - Continuing Operations are presented below. The reconciling items related to the EPS calculation are the same for both basic and diluted EPS.



Basic and Diluted EPS Calculation - Continuing Operations
(In millions, except per share figures)	2018		2017		2016
Net income from continuing operations	$	1,670	$	1,510	$	1,795
Less: Net income attributable to non-controlling interests	20		20		27
	$	1,650	$	1,490	$	1,768
Basic weighted average common shares outstanding	506		513		519
Dilutive effect of potentially issuable common shares	5		6		5
Diluted weighted average common shares outstanding	511		519		524
Average stock price used to calculate common stock equivalents	$	83.13	$	77.30	$	63.51

Estimates: GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may vary from those estimates.

New Accounting Pronouncements Effective January 1, 2018:

The following new accounting standards were adopted using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of January 1, 2018:

New Revenue Recognition Standard

In May 2014, the 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. The Company adopted the new guidance effective January 1, 2018, using the modified retrospective method, which applies the new guidance beginning with 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 guidance includes requirements to estimate variable or contingent consideration to be received, which will result in revenue being recognized earlier than under legacy GAAP. In addition, the guidance requires the capitalization and amortization of certain costs which were expensed as incurred under legacy GAAP. The adoption of this new revenue recognition standard shifted revenue in the Risk and Insurance Services segment among quarters from historical patterns, but did not have a significant year-over-year impact on annual revenue in either segment.

Upon adoption of the new revenue standard, the Company recognized significant movement in the quarterly timing of revenue recognized in the Risk and Insurance Services segment. In particular, under the new standard the recognition of revenue for reinsurance broking was accelerated from historical patterns. Estimated revenue from these treaties is recognized largely at the policy effective date at which point control over the services provided by the Company transfers to the client and the client has accepted the services. This resulted in a significant increase in revenue in the first quarter of 2018 compared to the same period in 2017. Prior to the adoption of this standard, revenue related to most reinsurance placements was recognized on the later of billing or effective date as premiums are determined by the primary insurers and attached to the reinsurance treaties. Typically, this resulted in revenue being recognized over a 12 to 18 month period.

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 in both segments. These deferred costs are amortized over the expected life of the underlying customer relationships.

In the Risk and Insurance Services segment, certain pre-placement costs to fulfill are now deferred and amortized into earnings when revenue from the placement is recognized. These costs were previously expensed as incurred. As such, the recognition of costs shifted among quarters.

In Consulting, the Company incurs implementation costs necessary to facilitate the delivery of the contracted services. The Company has concluded that certain additional implementation costs previously expensed under legacy GAAP will be deferred under the new guidance. In addition, the amortization period for these implementation costs will include the initial contract term plus expected renewals.

The cumulative effect of adopting the standard, net of tax, on January 1, 2018 resulted in an increase to the opening balance of retained earnings of $364 million, with offsetting increases/decreases to other balance sheet accounts, e.g. accounts receivable, other assets and deferred income taxes. The comparative prior period information was not restated and will continue to be reported under the legacy accounting standards that were in effect for those periods.

The impact of adoption of the new revenue standard on the Company's consolidated income statement was as follows (in millions):



	For the Year Ended December 31, 2018
	As Reported			Revenue Standard Impact			Legacy GAAP
Revenue	$	14,950		$	2		$	14,952
Expense:
Compensation and benefits	8,605			17			8,622
Other operating expenses	3,584			—			3,584
Operating expenses	12,189			17			12,206
Operating income	2,761			(15		)	2,746
Other net benefit credits	215			—			215
Interest income	11			—			11
Interest expense	(290		)	—			(290		)
Investment (loss) income	(12		)	—			(12		)
Acquisition related derivative contracts	(441		)	—			(441		)
Income before income taxes	2,244			(15		)	2,229
Income tax expense	574			(4		)	570
Net income before non-controlling interests	1,670			(11		)	1,659
Less: Net income attributable to non-controlling interests	20			—			20
Net income attributable to the Company	$	1,650		$	(11	)	$	1,639

The impact of adoption of the new revenue standard on the Company's consolidated balance sheet was as follows (in millions):



	December 31, 2018
	As Reported			Revenue Standard Impact			Legacy GAAP
ASSETS
Current assets:
Cash and cash equivalents	$	1,066		$	—		$	1,066
Net receivables	4,317			(68		)	4,249
Other current assets	551			(326		)	225
Total current assets	5,934			(394		)	5,540
Goodwill and intangible assets	11,036			—			11,036
Fixed assets, net	701			—			701
Pension related assets	1,688			—			1,688
Deferred tax assets	680			107			787
Other assets	1,539			(242		)	1,297
TOTAL ASSETS	$	21,578		$	(529	)	$	21,049

LIABILITIES AND EQUITY
Current liabilities:
Short-term debt	$	314		$	—		$	314
Accounts payable and accrued liabilities	2,234			(129		)	2,105
Accrued compensation and employee benefits	1,778			—			1,778
Acquisition related derivatives	441			—			441
Accrued income taxes	157			—			157
Total current liabilities	4,924			(129		)	4,795
Fiduciary liabilities	5,001			—			5,001
Less - cash and investments held in a fiduciary capacity	(5,001		)	—			(5,001		)
	—			—			—
Long-term debt	5,510			—			5,510
Pension, post-retirement and post-employment benefits	1,911			—			1,911
Liabilities for errors and omissions	287			—			287
Other liabilities	1,362			(25		)	1,337
Total equity	7,584			(375		)	7,209
TOTAL LIABILITIES AND EQUITY	$	21,578		$	(529	)	$	21,049

The impact of adoption of the new revenue standard on the Company's consolidated statement of cash flow was as follows (in millions):



	Twelve Months Ended December 31, 2018
	As Reported			Revenue Standard Impact			Legacy GAAP
Operating cash flows:
Net income before non-controlling interests	$	1,670		$	(11	)	$	1,659
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization of fixed assets and capitalized software	311			—			311
Amortization of intangible assets	183			—			183
Adjustments and payments related to contingent consideration liability	(4		)	—			(4		)
Loss on deconsolidation of entity	11			—			11
Benefit for deferred income taxes	(39		)	—			(39		)
Loss on investments	12			—			12
Gain on disposition of assets	(48		)	—			(48		)
Change in fair value of acquisition related derivative contracts	441			—			441
Share-based compensation expense	193			—			193
Changes in assets and liabilities:
Net receivables	(78		)	—			(78		)
Other current assets	26			8			34
Other assets	(37		)	12			(25		)
Accounts payable and accrued liabilities	23			(7		)	16
Accrued compensation and employee benefits	68			—			68
Accrued income taxes	(40		)	—			(40		)
Contributions to pension and other benefit plans in excess of current year expense/credit	(291		)	—			(291		)
Other liabilities	9			(2		)	7
Effect of exchange rate changes	18			—			18
Net cash provided by operations	$	2,428		$	—		$	2,428

The adoption of the revenue recognition standard did not have an impact on the Company's financing or investing cash flows.

Other Standards Adopted Effective January 1, 2018 using the modified retrospective approach

In January 2016, the FASB issued new guidance intended to improve the recognition and measurement of financial instruments. The new guidance requires investments in equity securities (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; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requires a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also

referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The new guidance was effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company holds certain equity investments that under legacy GAAP were previously treated as available for sale securities, whereby the mark-to-market change was recorded to accumulated other comprehensive income in its consolidated balance sheet. The Company adopted the new accounting guidance, effective January 1, 2018, recording 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. Therefore, prior periods have not been restated.

In October 2016, the FASB also issued new guidance which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance eliminates the exception for an intra-entity transfer of an asset other than inventory. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company adopted the new guidance effective January 1, 2018, recording a cumulative-effect adjustment decrease to retained earnings of approximately $14 million as of the beginning of the period of adoption.

The impact on the Company's balance sheet as of January 1, 2018 related to the adoption of the accounting standards using the modified retrospective approach as discussed above is as follows:



			Adjustments
	Balance at December 31, 2017		Revenue Recognition			Financial Instruments			Intra-Entity Transfer			Balance at January 1, 2018
Balance Sheet
Assets
Net Receivables	$	4,133	$	68		$	—		$	—		$	4,201
Other Current Assets	224		318			—			—			542
Other Assets	1,430		226			—			—			1,656
Deferred Tax Assets	669		(103		)	—			(14		)	552
Liabilities
Accounts Payable and Accrued Liabilities	2,083		122			—			—			2,205
Other Liabilities	1,311		23			—			—			1,334
Equity
Other Accumulated Comprehensive Income	—		—			(14		)	—			(14		)
Retained Earnings	$	13,140	$	364		$	14		$	(14	)	$	13,504

Cumulative effect adjustment related to the adoption of the revenue recognition standard

The cumulative effect adjustment recorded to net receivables and other current assets is primarily related to contingent brokerage revenue and quota share reinsurance brokerage. Under the new guidance, the Company is required to record an estimate of variable or contingent consideration earlier than under the previous rules. Also under the new guidance, revenue related to most reinsurance placements is accelerated versus previous patterns.

The cumulative effect adjustments also includes the capitalization of costs to fulfill and costs to obtain that are included in other current assets and other assets, respectively. These costs were previously expensed as incurred. The adjustment to accounts payable and accrued liabilities includes deferred revenue related to the timing of fee revenue recognition for fee based arrangements and certain post

placement servicing costs, primarily related to reinsurance brokerage costs that were previously expensed as incurred.

Adoption of amended accounting standard using the retrospective application approach

Effective January 1, 2018, the Company adopted 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 consolidated results of operations, segment data and related disclosures contained in our notes to the consolidated financial statements to reflect the retrospective adoption of this standard.

Other accounting standards adopted effective January 1, 2018

In November 2016, the FASB issued new guidance which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance, which is required to be applied retrospectively to all periods presented, effective January 1, 2018. The adoption of this guidance did not impact the Company's consolidated balance sheets or consolidated statements of cash flows.

In August 2016, the FASB issued new guidance which adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows, including cash payments for debt prepayments or debt extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not impact the Company's consolidated statements of cash flows.

In January 2017, the FASB issued guidance which clarifies the definition of a business in order to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted this guidance effective January 1, 2018. The adoption of this standard did not have an impact on the Company's financial position or results of operations.

Other accounting standards adopted in prior years

In April 2016, the FASB issued new guidance which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The new guidance requires that companies record all 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. The Company adopted this new guidance prospectively, effective January 1, 2017 and prior periods have not been adjusted. The adoption of this new standard reduced income tax expense in the consolidated statements of income by approximately $28 million and $79 million for the years ended December 31, 2018 and 2017, respectively. For the year ended December 31, 2016 the Company recorded an excess tax benefit of $44 million as an increase to equity in its consolidated balance sheets, which was reflected as cash provided by financing activities in the consolidated statements of cash flows.

New Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued new guidance that amends required fair value measurement disclosures. The guidance adds new requirements, eliminates some current disclosures and modifies other required disclosures. The new disclosure requirements, along with modifications made to disclosures as a result of the change in requirements for narrative descriptions of measurement uncertainty, must be applied on a prospective basis. The effects of all other amendments included in the

guidance must be applied retrospectively for all periods presented. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted. Adoption of this guidance will impact disclosures only and will not have an impact on the Company's financial position or results of operations.

In August 2018, the FASB issued new guidance that amends disclosures related to Defined Benefit Plans. The guidance removes disclosures that no longer are considered cost-beneficial, clarifies the specific requirements of certain disclosures, and adds disclosure requirements identified as relevant. The guidance must be applied on a retrospective basis. The guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Adoption of this guidance will impact disclosures only and will not have an impact on the Company's financial position or results of operations.

In January 2017, the FASB issued new guidance to simplify the test for goodwill impairment. The new guidance eliminates the second step in the current two-step goodwill impairment process, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill for that reporting unit. The new guidance requires a one-step impairment test, in which the goodwill impairment charge is based on the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance should be applied on a prospective basis with the nature of and reason for the change in accounting principle disclosed upon transition. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial position or results of operations.

In February 2016, the FASB issued new guidance intended to improve financial reporting for leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification, which for lessees, will be defined as either financing or operating leases under the new guidance. However, unlike current GAAP, which only requires recognition of capital leases on the balance sheet, the new guidance requires that both types of leases be recognized on the balance sheet. The new guidance will require additional disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, and additional information about the amounts recorded in the financial statements.

The new guidance on leases became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this new standard effective January 1, 2019, using the modified retrospective method. Prior period information will not be restated. The cumulative effect of initially applying the guidance is recognized as an adjustment to retained earnings at January 1, 2019. The Company has elected to apply the set of practical expedients at transition, which among other things, allows the Company to carry forward historical lease classifications. As a practical expedient, the Company elected an accounting policy not to separate non-lease components from lease components and instead, account for these components as a single lease component. The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities for leases, that at the commencement date, are for 12 months or less. Substantially all of the Company’s leases are operating leases.

The Company expects to recognize a lease liability of approximately $1.8 billion and a corresponding right-of-use asset ("ROU asset") of approximately $1.6 billion, including the reclassification of approximately $200 million of unamortized lease incentives and restructuring liabilities, upon the adoption of this standard, with minimal impact on the consolidated statement of income.

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 approximately 1% of total revenue, and therefore is not presented as a separate line item.

As discussed in more detail below, the adoption of this new revenue standard shifted income among quarters from historical patterns, but did not have a significant year-over-year impact on annual revenue.

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. In many cases, fee compensation may be negotiated in advance, based on the type of risk, coverage required and service provided by the Company and ultimately, the extent of the risk placed into the insurance market or retained by the client. The trends and comparisons of revenue from one period to the next can be affected by changes in premium rate levels, fluctuations in client risk retention and increases or decreases in the value of risks that have been insured, as well as new and lost business, and the volume of business from new and existing clients. For such arrangements, revenue is recognized using output measures, which correspond to the progress toward completing the performance obligation. 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 which insurers participate). The Company is also 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 policies 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 from invoice date.

Reinsurance brokerage revenue is recognized on the effective date of the treaty. Payment terms depend on the type of reinsurance. For XOL treaties, brokerage revenue 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 to be 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 expected within 30 days 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.

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



	Twelve Months Ended December 31,
	2018		2017
Marsh:
EMEA	$	2,132	$	2,033
Asia Pacific	683		645
Latin America	400		404
Total International	3,215		3,082
U.S./Canada	3,662		3,322
Total Marsh	6,877		6,404
Guy Carpenter	1,286		1,187
Subtotal	8,163		7,591
Fiduciary interest income	65		39
Total Risk and Insurance Services	$	8,228	$	7,630

Mercer:
Defined Benefit Consulting & Administration	$	1,279	$	1,381
Investment Management & Related Services	906		767
Total Wealth	2,185		2,148
Health	1,735		1,648
Career	812		732
Total Mercer	4,732		4,528
Oliver Wyman	2,047		1,916
Total Consulting	$	6,779	$	6,444

Note: The 2017 information is prior to the adoption of ASC 606.

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



(In millions)	December 31, 2018		January 1, 2018
Contract Assets	$	112	$	128
Contract Liabilities	$	545	$	583

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 contingent insurer 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 December 31, 2018 is primarily due to $331 million of additions during the period offset by $347 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 current liabilities in the Company's consolidated balance sheet. Revenue recognized in 2018 that was included in the contract liability balance at the beginning of the year was $582 million. The amount of revenue recognized in 2018 from performance obligations satisfied in previous periods, mainly due to variable consideration from contracts with insurers, quota share business and consulting contracts previously considered constrained was $51 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 $32 million for Marsh, $486 million for Mercer and $2 million for Oliver Wyman. The Company expects revenue in 2019, 2020, 2021, 2022 and 2023 and beyond of $221 million, $141 million, $86 million, $53 million and $19 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.

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 at 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 December 31, 2018, the Company’s capitalized assets related to deferred implementation costs, costs to obtain and costs to fulfill were $41 million, $206 million and $227 million, respectively. Costs to obtain and deferred implementation costs are primarily included in other assets and costs to fulfill are primarily included in other current assets in the Company's consolidated balance sheet. The Company recorded amortization of compensation and benefits expense of $998 million in the year ended December 31, 2018 related to these capitalized costs.

A significant portion of deferred costs to fulfill in Risk and Insurance Services is amortized within three to six months. Therefore, the deferral of the cost and its amortization often occur in the same annual period.

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 either the quarters or the year-over-year annual period.

See Note 1 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.

Supplemental Disclosures

The following schedule provides additional information concerning acquisitions, interest and income taxes paid:



(In millions of dollars)	2018			2017			2016
Assets acquired, excluding cash	$	1,100		$	898		$	960
Liabilities assumed	(83		)	(134		)	(111		)
Contingent/deferred purchase consideration	(133		)	(109		)	(36		)
Net cash outflow for acquisitions	$	884		$	655		$	813



(In millions of dollars)	2018		2017		2016
Interest paid	$	264	$	199	$	178
Income taxes paid, net of refunds	$	632	$	583	$	642

The classification of contingent consideration payments in the consolidated statement of cash flows is dependent upon whether the payment was part of the initial liability established on the acquisition date (financing) or an adjustment to the acquisition date liability (operating). Deferred payments are classified as financing activities in the consolidated statements of cash flows.

The following amounts are included in the consolidated statements of cash flows as a financing activity. The Company paid deferred and contingent consideration of $117 million in the year ended December 31, 2018, consisting of deferred purchase consideration of $62 million and contingent purchase consideration of $55 million. In the year ended December 31, 2017 the Company paid deferred and contingent consideration of $136 million, consisting of deferred purchase consideration of $55 million and contingent consideration of $81 million, and in the year ended December 31, 2016 the Company paid deferred and contingent consideration of $98 million, consisting of deferred purchase consideration of $54 million and contingent consideration of $44 million.

The following amounts are included in the operating section of the consolidated statements of cash flows. For the year ended December 31, 2018, the Company recorded a net charge for adjustments to acquisition related accounts of $32 million and contingent consideration payments of $36 million. For the year ended December 31, 2017, the Company recorded a net charge for adjustments to acquisition related accounts of $3 million and contingent consideration payments of $27 million, and for the year ended December 31, 2016 the Company recorded a net charge for adjustments to acquisition related accounts of $9 million and contingent consideration payments of $42 million.

The Company had non-cash issuances of common stock under its share-based payment plan of $130 million, $88 million and $73 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company recorded stock-based compensation expense related to restricted stock units, performance stock units and stock options of $193 million, $149 million and $109 million for the years ended December 31, 2018, 2017 and 2016, respectively.

As discussed in Note 1, for the year ended December 31, 2016, the Company recorded an excess tax benefit of $44 million as an increase to equity in its consolidated balance sheets, which was reflected as cash provided by financing activities in the consolidated statements of cash flows.

An analysis of the allowance for doubtful accounts is as follows:



For the Years Ended December 31,
(In millions of dollars)	2018			2017			2016
Balance at beginning of year	$	110		$	96		$	87
Provision charged to operations	34			31			31
Accounts written-off, net of recoveries	(24		)	(17		)	(20		)
Effect of exchange rate changes and other	(8		)	—			(2		)
Balance at end of year	$	112		$	110		$	96

Other Comprehensive Income (Loss)

The changes in the balances of each component of Accumulated Other Comprehensive Income ("AOCI") for the years ended December 31, 2018 and 2017, including amounts reclassified out of AOCI, are as follows:



(In millions of dollars)	Unrealized Investment Gains (Losses)			Pension/Post-Retirement Plans Gains (Losses)			Foreign Currency Translation Adjustments			Total
Balance as of January 1, 2018	$	14		$	(2,892	)	$	(1,165	)	$	(4,043	)
Cumulative effect of amended accounting standard	(14		)	—			—			(14		)
Other comprehensive (loss) before reclassifications	—			(205		)	(529		)	(734		)
Amounts reclassified from accumulated other comprehensive loss	—			144			—			144
Net current period other comprehensive (loss)	—			(61		)	(529		)	(590		)
Balance as of December 31, 2018	$	—		$	(2,953	)	$	(1,694	)	$	(4,647	)



(In millions of dollars)	Unrealized Investment Gains (Losses)			Pension/Post-Retirement Plans Gains (Losses)			Foreign Currency Translation Adjustments			Total
Balance as of January 1, 2017	$	19		$	(3,232	)	$	(1,880	)	$	(5,093	)
Other comprehensive (loss) income before reclassifications	(5		)	160			715			870
Amounts reclassified from accumulated other comprehensive loss	—			180			—			180
Net current period other comprehensive (loss) income	(5		)	340			715			1,050
Balance as of December 31, 2017	$	14		$	(2,892	)	$	(1,165	)	$	(4,043	)

The components of other comprehensive income (loss) are as follows:



For the Years Ended December 31,	2018
(In millions of dollars)	Pre-Tax			Tax (Credit)			Net of Tax
Foreign currency translation adjustments	$	(529	)	$	—		$	(529	)
Pension/post-retirement plans:
Amortization of (gains) losses included in net periodic pension cost:
Prior service credits (a)	(4		)	(1		)	(3		)
Net actuarial losses (a)	145			32			113
Effect of settlement (a)	42			8			34
Subtotal	183			39			144
Net losses arising during period	(374		)	(88		)	(286		)
Foreign currency translation adjustments	141			25			116
Other adjustments	(41		)	(6		)	(35		)
Pension/post-retirement plans losses	(91		)	(30		)	(61		)
Other comprehensive loss	$	(620	)	$	(30	)	$	(590	)
(a) These components of net periodic pension cost are included in other net benefits credits in the Consolidated Statements of Income. Tax on prior service gains and net actuarial losses is included in income tax expense.



For the Years Ended December 31,	2017
(In millions of dollars)	Pre-Tax			Tax (Credit)			Net of Tax
Foreign currency translation adjustments	$	717		$	2		$	715
Unrealized investment losses	(7		)	(2		)	(5		)
Pension/post-retirement plans:
Amortization of (gains) losses included in net periodic pension cost:
Prior service credits (a)	(1		)	—			(1		)
Net actuarial losses (a)	167			30			137
Effect of curtailment (a)	(1		)	—			(1		)
Effect of settlement (a)	54			9			45
Subtotal	219			39			180
Net gains arising during period	374			62			312
Foreign currency translation adjustments	(201		)	(36		)	(165		)
Other adjustments	16			3			13
Pension/post-retirement plans gains	408			68			340
Other comprehensive income	$	1,118		$	68		$	1,050
(a) These components of net periodic pension cost are included in other net benefits credits in the Consolidated Statements of Income. Tax on prior service gains and net actuarial losses is included in income tax expense.



For the Years Ended December 31,	2016
(In millions of dollars)	Pre-Tax			Tax (Credit)			Net of Tax
Foreign currency translation adjustments	$	(742	)	$	36		$	(778	)
Unrealized investment gains	21			8			13
Pension/post-retirement plans:
Amortization of losses included in net periodic pension cost:
Prior service losses (a)	3			1			2
Net actuarial losses (a)	166			46			120
Subtotal	169			47			122
Effect of curtailment	102			38			64
Net losses arising during period	(855		)	(175		)	(680		)
Foreign currency translation adjustments	416			70			346
Other	49			9			40
Pension/post-retirement plans losses	(119		)	(11		)	(108		)
Other comprehensive (loss) income	$	(840	)	$	33		$	(873	)
(a) These components of net periodic pension cost are included in other net benefits credits in the consolidated statements of income. Tax on prior service costs and net actuarial losses is included in income tax expense.

The components of accumulated other comprehensive income (loss) are as follows:



(In millions of dollars)	December 31, 2018			December 31, 2017
Foreign currency translation adjustments (net of deferred tax asset of $15 in 2018 and deferred tax liability of $11 in 2017)	$	(1,694	)	$	(1,165	)
Net unrealized investment gains (net of deferred tax liability of $7 in 2017)	—			14
Net charges related to pension/post-retirement plans (net of deferred tax asset of $1,493 and $1,462 in 2018 and 2017, respectively)	(2,953		)	(2,892		)
	$	(4,647	)	$	(4,043	)

Acquisitions/Dispositions

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, 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 twelve acquisitions during 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.


•	May – Marsh acquired Mountlodge Limited, a Scotland-based independent insurance broker and Lorant Martínez Salas y Compañía Agente de Seguros y de Fianzas, S.A. de C.V., a Mexico-based multi-line insurance broker.


•	June – MMA acquired Bleakley Insurance Services, a California-based provider of employee benefits solutions; Klein Agency, Inc., a Minnesota-based surety and property/casualty agency; and Insurance Associates, Inc., a Maryland-based independent insurance agency.


•	August – Marsh acquired John L. Wortham & Son, L.P., a Houston-based independent insurance broker.


•	October – MMA acquired Eustis Insurance, Inc., a Louisiana-based insurance agency.


•	November – MMA acquired James P. Murphy & Associates, Inc., a Connecticut-based insurance agency.


•	December – MMA acquired Otis-Magie Insurance Agency, Inc., a Minnesota-based insurance agency, and Marsh acquired Hector Insurance PCC Ltd, a U.K.-based captive management company.

The Consulting segment completed eight acquisitions during 2018.


•	January – Oliver Wyman acquired Draw Ltd., a U.K.-based digital transformation agency.


•	March – Oliver Wyman acquired 8Works Limited, a U.K.-based design thinking consultancy.


•	May – Mercer acquired EverBe SAS, a France-based Workday implementer and advisory firm; and Evolve Intelligence Pty Ltd., an Australia-based talent strategy firm.


•	June – Mercer acquired India Life Capital Private Ltd., an India-based investment advisor.


•	November – Mercer acquired Induslynk Training Services Private Ltd., an India-based talent assessment company, Pavilion Financial Corp., a Canada-based investment services firm and Summit Strategies Inc., a Missouri-based investment consulting firm.

Total purchase consideration for acquisitions made during 2018 was approximately $1.04 billion, which consisted of cash paid of $910 million and deferred purchase and estimated contingent consideration of $133 million. Contingent consideration arrangements are based primarily on EBITDA and/or revenue targets over periods of two to four years. The fair value of the contingent consideration was based on projected revenue and earnings of the acquired entities. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized. During 2018, the Company also paid $62 million of deferred purchase consideration and $91 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, based on their fair values:



(In millions)	2018
Cash	$	910
Estimated fair value of deferred/contingent consideration	133
Total consideration	$	1,043
Allocation of purchase price:
Cash and cash equivalents	$	26
Accounts receivable, net	49
Other current assets	4
Property, plant, and equipment	8
Other intangible assets	405
Goodwill	626
Other assets	8
Total assets acquired	1,126
Current liabilities	37
Other liabilities	46
Total liabilities assumed	83
Net assets acquired	$	1,043

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 of other intangible assets acquired during 2018:

(a) Primarily non-compete agreements, trade names and developed technology.

Prior Year Acquisitions

During 2017, the Risk and Insurance Services segment completed 7 acquisitions.


•	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, 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 3 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 2017 was approximately $777 million, which consisted of cash paid of $668 million and deferred purchase and estimated contingent consideration of $109 million. Contingent consideration arrangements are based primarily on EBITDA and/or revenue targets over periods of two to four years. The fair value of the contingent consideration was based on projected revenue and earnings of the acquired entities. Estimated fair values of assets acquired and liabilities assumed are subject to adjustment when purchase accounting is finalized. During 2017, the Company also paid $55 million of deferred purchase consideration and $108 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, 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, 2017 and reflects acquisitions made in 2017 as if they occurred on January 1, 2016. The 2016 information includes 2016 acquisitions as if they occurred on January 1, 2015. The pro-forma information includes 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.



	Years Ended December 31,
(In millions, except per share data)	2018		2017		2016
Revenue	$	15,174	$	14,440	$	13,724
Income from continuing operations	$	1,680	$	1,516	$	1,787
Net income attributable to the Company	$	1,660	$	1,498	$	1,759
Basic net income per share:
– Continuing operations	$	3.28	$	2.92	$	3.39
– Net income attributable to the Company	$	3.28	$	2.92	$	3.39
Diluted net income per share:
– Continuing operations	$	3.25	$	2.88	$	3.36
– Net income attributable to the Company	$	3.25	$	2.89	$	3.36

The consolidated statement of income for 2018 includes approximately $120 million of revenue and $2 million of operating income related to acquisitions made during 2018. The consolidated statement of income for 2017 includes approximately $156 million of revenue and $19 million of operating income related to acquisitions made during 2017, and the consolidated statement of income for 2016 includes approximately $25 million of revenue and $4 million of operating income related to acquisitions made during 2016.

Acquisition-related expenses incurred in 2018 and 2017 were $7 million and $3 million, respectively.

Pending Acquisition

On September 18, 2018, the Company announced that it had reached agreement on the terms of a recommended cash acquisition of Jardine Lloyd Thompson Group plc ("JLT"), a public company organized under the laws of England and Wales (the "Transaction"). JLT is a provider of insurance, reinsurance and employee benefits related advice, brokerage and associated services with annual revenue of approximately $2 billion and 10,000 colleagues. Under the terms of the Transaction, JLT shareholders will receive £19.15 in cash for each JLT share, which values JLT’s existing issued and to be issued share capital at approximately £4.3 billion (or approximately $5.6 billion based on an exchange rate of U.S. $1.31:£1). The Company intends to implement the Transaction by way of a scheme of arrangement under Part 26 of the United Kingdom Companies Act 2006, as amended.

On November 7, 2018, the Transaction received the requisite approval of JLT shareholders. The Transaction remains subject to conditions and certain further terms, including, among others, (i) the sanction of the Transaction by the High Court of Justice in England and Wales, (ii) completion of the Transaction no later than December 31, 2019 and (iii) the receipt of certain antitrust, regulatory and other approvals. Subject to the satisfaction or waiver of all relevant conditions, the Transaction is expected to be completed in the spring of 2019.

Financing and hedging activities related to the Transaction are discussed in more detail in Notes 11 and 13 of the consolidated financial statements.

Dispositions

In September 2018, Marsh completed its sale of a risk management software and services business resulting in a pre-tax gain of $46 million, which is included in revenue in the consolidated statement of income.

In December 2015, Mercer sold its U.S. defined contribution recordkeeping business. The Company recognized a pre-tax gain of $6 million in 2016 from this transaction, which is included in revenue in the consolidated statements of income in that year.

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 2018 and concluded that a two-step goodwill impairment test was not required in 2018 and that goodwill was not impaired.

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 Company concluded that these intangible assets are not impaired.

Changes in the carrying amount of goodwill are as follows:



(In millions of dollars)	2018			2017
Balance as of January 1, as reported	$	9,089		$	8,369
Goodwill acquired	626			551
Other adjustments(a)	(116		)	169
Balance at December 31,	$	9,599		$	9,089

(a) Primarily due to the impact of foreign exchange in both years.

The goodwill acquired of $626 million in 2018 (approximately $359 million of which is deductible for tax purposes) is comprised of $402 million related to the Risk and Insurance Services segment and $224 million related to the Consulting segment.

Goodwill allocable to the Company’s reportable segments is as follows: Risk and Insurance Services, $6.8 billion and Consulting, $2.8 billion.

The gross cost and accumulated amortization at December 31, 2018 and 2017 are as follows:



(In millions of dollars)	2018						2017
	Gross Cost		Accumulated Amortization		Net Carrying Amount		Gross Cost		Accumulated Amortization		Net Carrying Amount
Client relationships	$	1,970	$	639	$	1,331	$	1,672	$	518	$	1,154
Other (a)	259		153		106		234		114		120
Amortized intangibles	$	2,229	$	792	$	1,437	$	1,906	$	632	$	1,274

(a) Primarily non-compete agreements, trade names and developed technology.

Aggregate amortization expense was $183 million for the year ended December 31, 2018, $169 million for the year ended December 31, 2017 and $130 million for the year ended December 31, 2016. The estimated future aggregate amortization expense is as follows:



For the Years Ending December 31,
(In millions of dollars)
2019	$	195
2020	176
2021	164
2022	149
2023	141
Subsequent years	612
	$	1,437

Income Taxes

For financial reporting purposes, income before income taxes includes the following components:



For the Years Ended December 31,
(In millions of dollars)	2018			2017		2016
Income before income taxes:
U.S.	$	460		$	819	$	725
Other	1,784			1,824		1,755
	$	2,244		$	2,643	$	2,480

The expense for income taxes is comprised of:
Current –
U.S. Federal	$	82		$	313	$	208
Other national governments	449			388		366
U.S. state and local	82			36		43
	613			737		617
Deferred –
U.S. Federal	(30		)	286		26
Other national governments	(1		)	72		32
U.S. state and local	(8		)	38		10
	(39		)	396		68
Total income taxes	$	574		$	1,133	$	685

The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:



December 31,
(In millions of dollars)	2018		2017
Deferred tax assets:
Accrued expenses not currently deductible	$	526	$	369
Differences related to non-U.S. operations (a)	170		139
Accrued U.S. retirement benefits	406		394
Net operating losses (b)	48		67
Income currently recognized for tax	20		49
Other	16		31
	$	1,186	$	1,049



Deferred tax liabilities:
Differences related to non-U.S. operations	$	287	$	235
Depreciation and amortization	342		338
Accrued retirement & postretirement benefits - non-U.S. operations	171		172
Capitalized expenses currently recognized for tax	78		—
Other	49		16
	$	927	$	761


(a)	Net of valuation allowances of $21 million in 2018 and $18 million in 2017.


(b)	Net of valuation allowances of $45 million in 2018 and $11 million in 2017.



December 31,
(In millions of dollars)	2018		2017
Balance sheet classifications:
Deferred tax assets	$	680	$	669
Other liabilities	$	421	$	381

Taxes are not provided on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration, which, at December 31, 2018, the Company estimates amounted to approximately $2.3 billion. The determination of the unrecognized deferred tax liability with respect to these investments is not practicable.

A reconciliation from the U.S. Federal statutory income tax rate to the Company’s effective income tax rate is shown below:



For the Years Ended December 31,	2018		2017		2016
U.S. Federal statutory rate	21.0	%	35.0	%	35.0	%
U.S. state and local income taxes—net of U.S. Federal income tax benefit	2.3		1.5		1.5
Differences related to non-U.S. operations	3.3		(8.6	)	(9.2	)
U.S. Tax Reform	(0.3	)	17.4		—
Equity compensation	(1.0	)	(2.6	)	—
Other	0.3		0.2		0.3
Effective tax rate	25.6	%	42.9	%	27.6	%

The Company’s consolidated effective tax rate was 25.6%, 42.9% and 27.6% in 2018, 2017 and 2016, respectively. The tax rate in 2017 and 2016 reflects foreign operations, which were generally taxed at rates lower than the U.S. statutory tax rate. The effective tax rate in 2017 reflects a provisional estimate of

the impact of the enactment of the TCJA, as well as the impact of the required change in accounting for equity awards.

The TCJA provided for a transition to a new method of taxing non-U.S. based operations via a transition tax on undistributed earnings of non-U.S. subsidiaries. The Company recorded a provisional charge of $240 million in the fourth quarter of 2017 as an estimate of U.S. transition taxes and ancillary effects, including state taxes and foreign withholding taxes related to the change in permanent reinvestment status with respect to our pre-2018 foreign earnings. This transition tax is payable over eight years. The reduction of the U.S. corporate tax rate from 35% to 21% reduced the value of the U.S. deferred tax assets and liabilities; accordingly, a charge of $220 million was recorded. Adjustments during 2018 to the provisional estimates of transition taxes and U.S. deferred tax assets and liabilities decreased income tax expense by $5 million. These amounts are now final.

Prior to 2017, the Company 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. As a result of the transition tax, the Company has begun repatriating most of the accumulated pre-2018 earnings that were previously intended to be permanently re-invested. We continue to evaluate our global investment and repatriation strategy in light of U.S. tax reform under the new quasi-territorial tax regime for future foreign earnings.

Valuation allowances had net increases of $36 million and $9 million in 2018 and 2017, respectively and a net decrease of $8 million in 2016. Adjustments of the beginning of the year balances of valuation allowances increased income tax expense by $1 million and $11 million in 2018 and 2017, respectively, and decreased income tax expense by $7 million in 2016. Approximately 53% of the Company’s net operating loss carryforwards expire from 2019 through 2037, and others are unlimited. The potential tax benefit from net operating loss carryforwards at the end of 2018 comprised federal, state and local, and non-U.S. tax benefits of $3 million, $42 million and $57 million, respectively, before reduction for valuation allowances.

The realization of deferred tax assets depends on generating future taxable income during the periods in which the tax benefits are deductible or creditable. Tax liabilities are determined and assessed jurisdictionally by legal entity or filing group. Certain taxing jurisdictions allow or require combined or consolidated tax filings. The Company assessed the realizability of its deferred tax assets. The Company considered all available evidence, including the existence of a recent history of losses, placing particular weight on evidence that could be objectively verified. A valuation allowance was recorded to reduce deferred tax assets to the amount that the Company believes is more likely than not to be realized.

Following is a reconciliation of the Company’s total gross unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016:



(In millions of dollars)	2018			2017			2016
Balance at January 1,	$	71		$	65		$	74
Additions, based on tax positions related to current year	6			1			2
Additions for tax positions of prior years	6			14			6
Reductions for tax positions of prior years	—			(6		)	(6		)
Settlements	(2		)	—			(7		)
Lapses in statutes of limitation	(3		)	(3		)	(4		)
Balance at December 31,	$	78		$	71		$	65

Of the total unrecognized tax benefits at December 31, 2018, 2017 and 2016, $64 million, $56 million and $53 million, respectively, represent the amount that, if recognized, would favorably affect the effective tax rate in any future periods. The total gross amount of accrued interest and penalties at December 31, 2018, 2017 and 2016, before any applicable federal benefit, was $15 million, $12 million and $11 million, respectively.

The Company is routinely examined by the jurisdictions in which it has significant operations. In the U.S. federal jurisdiction the Company participates in the Internal Revenue Service’s (IRS) Compliance

Assurance Process (CAP), which is structured to conduct real-time compliance reviews. The IRS is currently examining the Company’s 2016 and 2017 tax returns and is performing a pre-filing review of 2018. In 2018, the Company settled its federal audit for the year 2015.

During 2018, New York State and New York City closed the examination of tax years 2007 through 2009. New York State and New York City have examinations underway for various entities covering the years 2009 through 2014. Outside the United States, there are ongoing examinations in Italy for the tax year 2015, Canada of tax years 2013 through 2016, and in Singapore for the tax years 2014 through 2016. During 2018, the United Kingdom concluded an examination of tax years 2014 and 2015, and an examination of year 2016 is ongoing. During 2018, examinations in Germany for the years 2009 through 2012, and in France for the years 2011 and 2012 were concluded. The Company regularly considers the likelihood of assessments in each of the taxing jurisdictions resulting from examinations. The Company has established liabilities for uncertain tax positions in relation to the potential assessments. The Company believes the resolution of tax matters will not have a material effect on the consolidated financial position of the Company, although a resolution of tax matters could have a material impact on the Company's net income or cash flows and on its effective tax rate in a particular future period. It is reasonably possible that the total amount of unrecognized tax benefits will decrease between zero and approximately $10 million within the next twelve months due to settlement of audits and expiration of statutes of limitation.

Retirement Benefits

The Company maintains qualified and non-qualified defined benefit pension plans for its U.S. and non-U.S. eligible employees. The Company’s policy for funding its tax qualified defined benefit retirement 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 defined benefit plans.

Combined U.S. and non-U.S. Plans

The weighted average actuarial assumptions utilized for the U.S. and significant non-U.S. defined benefit plans and postretirement benefit plans are as follows:



	Pension Benefits				Postretirement Benefits
	2018		2017		2018		2017
Weighted average assumptions:
Discount rate (for expense)	3.07	%	3.40	%	3.21	%	3.64	%
Expected return on plan assets	5.83	%	6.64	%	—		—
Rate of compensation increase (for expense)	1.73	%	1.77	%	—		—
Discount rate (for benefit obligation)	3.48	%	3.07	%	3.65	%	3.21	%
Rate of compensation increase (for benefit obligation)	1.74	%	1.73	%	—		—

The Company uses actuaries from Mercer, a subsidiary of the Company, to perform valuations of its pension plans. The long-term rate of return on plan assets assumption is determined for each plan based on the facts and circumstances that exist as of the measurement date, and the specific portfolio mix of each plan’s assets. The Company utilizes a model developed by the Mercer actuaries to assist in the determination of this assumption. The model takes into account several factors, including: actual and target portfolio allocation; investment, administrative and trading expenses incurred directly by the plan trust; historical portfolio performance; relevant forward-looking economic analysis; and expected returns, variances and correlations for different asset classes. These measures are used to determine probabilities using standard statistical techniques to calculate a range of expected returns on the portfolio. Generally, the Company does not adjust the rate of return assumption from year to year if, at the measurement date, it is within the range between the 25th and 75th percentile of the expected long-term annual returns. Historical long-term average asset returns of the most significant plans are also reviewed to determine whether they are consistent and reasonable compared with the rate selected. The expected return on plan assets is determined by applying the assumed long-term rate of return to the market-

related value of plan assets. This market-related value recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future market-related value of the assets will be impacted as previously deferred gains or losses are reflected.

The target asset allocation for the U.S. Plans is 64% equities and equity alternatives and 36% fixed income. At the end of 2018, the actual allocation for the U.S. Plans was 62% equities and equity alternatives and 38% fixed income. The target asset allocation for the U.K. Plans, which comprise approximately 81% of non-U.S. Plan assets, is 34% equities and equity alternatives and 66% fixed income. At the end of 2018, the actual allocation for the U.K. Plans was 34% equities and equity alternatives and 66% fixed income. 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 uses threshold-based portfolio re-balancing to ensure the actual portfolio remains consistent with target asset allocation ranges.

The discount rate selected for each U.S. plan is based on a model bond portfolio with coupons and redemptions that closely match the expected liability cash flows from the plan. Discount rates for non-U.S. plans are based on appropriate bond indices adjusted for duration; in the U.K., the plan duration is reflected using the Mercer yield curve.

The components of the net periodic benefit cost for defined benefit and other postretirement plans are as follows:



Combined U.S. and significant non-U.S. Plans	Pension									Postretirement
For the Years Ended December 31,	Benefits									Benefits
(In millions of dollars)	2018			2017			2016			2018			2017		2016
Service cost	$	34		$	76		$	178		$	1		$	1	$	2
Interest cost	463			497			537			3			4		5
Expected return on plan assets	(864		)	(921		)	(940		)	—			—		—
Amortization of prior service (credit) cost	(2		)	(2		)	(1		)	(2		)	1		4
Recognized actuarial loss (gain)	146			167			168			(1		)	—		(2		)
Net periodic benefit (credit) cost	$	(223	)	$	(183	)	$	(58	)	$	1		$	6	$	9
Curtailment (loss) gain	—			(1		)	(4		)	—			—		—
Settlement loss	42			54			—			—			—		—
Total (credit) cost	$	(181	)	$	(130	)	$	(62	)	$	1		$	6	$	9

As discussed in Note 1, effective January 1, 2018, the Company adopted the new guidance that changes the presentation of net periodic pension cost and net periodic post-retirement 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, the Company has 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 Years Ended December 31,
(In millions)	2018			2017			2016			2018		2017		2016
Compensation and benefits expense (Operating income)	$	34		$	76		$	178		$	1	$	1	$	2
Other net benefit (credit) cost	(215		)	(206		)	(240		)	—		5		7
Total (credit) cost	$	(181	)	$	(130	)	$	(62	)	$	1	$	6	$	9

Pension Settlement Charge

Defined Benefit Pension Plans in the U.K. allow participants an option for the payment of a lump sum distribution from plan assets before retirement in full satisfaction of the retirement benefits due to the participant as well as any survivor’s benefit. The Company’s policy under applicable U.S. GAAP is to treat these lump sum payments as a partial settlement of the plan liability if they exceed the total of interest plus service costs ("settlement thresholds"). Based on the amount of lump sum payments through December 31, 2018, the lump sum payments exceeded the settlement thresholds in two of the U.K. plans. The Company recorded non-cash settlement charges of $42 million and $54 million, recorded in the consolidated statements of income for the twelve month periods ended December 31, 2018 and 2017, respectively, primarily related to these plans.

Plan Assets

For the U.S. Plans, investment allocation decisions are made by a fiduciary committee composed of senior executives appointed by the Company’s Chief Executive Officer. For the non-U.S. plans, investment allocation decisions are made by local fiduciaries, in consultation with the Company for the larger plans. Plan assets are invested in a manner consistent with the fiduciary standards set forth in all relevant laws relating to pensions and trusts in each country. Primary investment objectives are (1) to achieve an investment return that, in combination with current and future contributions, will provide sufficient funds to pay benefits as they become due, and (2) to minimize the risk of large losses. The investment allocations are designed to meet these objectives by broadly diversifying plan assets among numerous asset classes with differing expected returns, volatilities, and correlations.

The major categories of plan assets include equity securities, equity alternative investments, and fixed income securities. For the U.S. Plan, the category ranges are 59-69% for equities and equity alternatives, and 31-41% for fixed income. For the U.K. Plans, the category ranges are 31-37% for equities and equity alternatives, and 63-69% for fixed income. Asset allocation is monitored frequently and re-balancing actions are taken as appropriate.

Plan investments are exposed to stock market, interest rate, and credit risk. Concentrations of these risks are generally limited due to diversification by investment style within each asset class, diversification by investment manager, diversification by industry sectors and issuers, and the dispersion of investments across many geographic areas.

Unrecognized Actuarial Gains/Losses

In accordance with applicable accounting guidance, the funded status of the Company's pension plans is recorded in the consolidated balance sheets and provides for a delayed recognition of actuarial gains or

losses arising from changes in the projected benefit obligation due to changes in the assumed discount rates, differences between the actual and expected value of plan assets and other assumption changes. The unrecognized pension plan actuarial gains or losses and prior service costs not yet recognized in net periodic pension cost are recognized in Accumulated Other Comprehensive Income ("AOCI"), net of tax. These gains and losses are amortized prospectively out of AOCI over a period that approximates the remaining life expectancy of participants in plans where substantially all participants are inactive, or the average remaining service period of active participants for plans with active participants.

U.S. Plans

The following schedules provide information concerning the Company’s U.S. defined benefit pension plans and postretirement benefit plans:



	U.S. Pension Benefits						U.S. Postretirement Benefits
(In millions of dollars)	2018			2017			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	6,221		$	5,894		$	36		$	37
Interest cost	235			264			1			2
Employee contributions	—			—			4			3
Actuarial (gain) loss	(502		)	538			(1		)	3
Benefits paid	(425		)	(475		)	(8		)	(9		)
Benefit obligation, December 31	$	5,529		$	6,221		$	32		$	36
Change in plan assets:
Fair value of plan assets at beginning of year	$	4,787		$	4,365		$	2		$	2
Actual return on plan assets	(330		)	812			—			—
Employer contributions	30			85			3			6
Employee contributions	—			—			4			3
Benefits paid	(425		)	(475		)	(8		)	(9		)
Fair value of plan assets, December 31	$	4,062		$	4,787		$	1		$	2
Net funded status, December 31	$	(1,467	)	$	(1,434	)	$	(31	)	$	(34	)
Amounts recognized in the consolidated balance sheets:
Current liabilities	$	(28	)	$	(27	)	$	(2	)	$	(2	)
Non-current liabilities	(1,439		)	(1,407		)	(29		)	(32		)
Net liability recognized, December 31	$	(1,467	)	$	(1,434	)	$	(31	)	$	(34	)
Amounts recognized in other comprehensive income (loss):
Net actuarial (loss) gain	(1,896		)	(1,766		)	6			6
Total recognized accumulated other comprehensive (loss) income, December 31	$	(1,896	)	$	(1,766	)	$	6		$	6
Cumulative employer contributions in excess of (less than) net periodic cost	429			332			(37		)	(40		)
Net amount recognized in consolidated balance sheet	$	(1,467	)	$	(1,434	)	$	(31	)	$	(34	)
Accumulated benefit obligation at December 31	$	5,529		$	6,221		$	—		$	—



	U.S. Pension Benefits				U.S. Postretirement Benefits
(In millions of dollars)	2018		2017		2018		2017
Reconciliation of prior service credit (cost) recognized in accumulated other comprehensive income (loss):
Beginning balance	$	—	$	—	$	—	$	(3	)
Recognized as component of net periodic benefit cost	—		—		—		3
Prior service cost, December 31	$	—	$	—	$	—	$	—



	U.S. Pension Benefits						U.S. Postretirement Benefits
(In millions of dollars)	2018			2017			2018			2017
Reconciliation of net actuarial (loss) gain recognized in accumulated other comprehensive income (loss):
Beginning balance	$	(1,766	)	$	(1,720	)	$	6		$	11
Recognized as component of net periodic benefit cost (credit)	55			37			(1		)	(1		)
Changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Other	—			—			—			(1		)
Liability experience	502			(538		)	1			(3		)
Asset experience	(687		)	455			—			—
Total (loss) gain recognized as change in plan assets and benefit obligations	(185		)	(83		)	1			(4		)
Net actuarial (loss) gain, December 31	$	(1,896	)	$	(1,766	)	$	6		$	6



For the Years Ended December 31,	U.S. Pension Benefits							U.S. Postretirement Benefits
(In millions of dollars)	2018		2017			2016		2018		2017		2016
Total recognized in net periodic benefit cost and other comprehensive loss (income)	$	63	$	(10	)	$	31	$	—	$	5	$	2

Estimated amounts that will be amortized from accumulated other comprehensive loss to net periodic pension cost in the next fiscal year:



	U.S. Pension Benefits		U.S. Postretirement Benefits
(In millions of dollars)	2019		2019
Net actuarial loss	$	44	$	1

The weighted average actuarial assumptions utilized in determining the above amounts for the U.S. defined benefit and other U.S. postretirement plans as of the end of the year are as follows:



	U.S. Pension Benefits				U.S. Postretirement Benefits
	2018		2017		2018		2017
Weighted average assumptions:
Discount rate (for expense)	3.86	%	4.58	%	3.67	%	4.12	%
Expected return on plan assets	7.95	%	7.95	%	—		—
Discount rate (for benefit obligation)	4.45	%	3.86	%	4.24	%	3.67	%

The projected benefit obligation, accumulated benefit obligation and aggregate fair value of plan assets for U.S. pension plans with accumulated benefit obligations in excess of plan assets were $5.5 billion, $5.5 billion and $4.1 billion, respectively, as of December 31, 2018 and $6.2 billion, $6.2 billion and $4.8 billion, respectively, as of December 31, 2017.

The projected benefit obligation and fair value of plan assets for U.S. pension plans with projected benefit obligations in excess of plan assets was $5.5 billion and $4.1 billion, respectively, as of December 31, 2018 and $6.2 billion and $4.8 billion, respectively, as of December 31, 2017.

As of December 31, 2018, the U.S. qualified plan holds 4 million shares of the Company’s common stock which were contributed to the qualified plan by the Company in 2005. This represented approximately 7.9% of that plan's assets as of December 31, 2018.

The components of the net periodic benefit cost (credit) for the U.S. defined benefit and other postretirement benefit plans are as follows:



U.S. Plans only	Pension Benefits									Postretirement Benefits
For the Years Ended December 31,
(In millions of dollars)	2018			2017			2016			2018			2017			2016
Service cost	$	—		$	—		$	106		$	—		$	—		$	—
Interest cost	235			264			264			1			2			2
Expected return on plan assets	(357		)	(357		)	(379		)	—			—			—
Amortization of prior service cost	—			—			—			—			3			4
Recognized actuarial loss (gain)	55			37			74			(1		)	(1		)	(2		)
Net periodic benefit (credit) cost	$	(67	)	$	(56	)	$	65		$	—		$	4		$	4

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 matching contribution, provides eligible U.S. employees with the opportunity to receive a total contribution of up to 7% of eligible base pay. As required under GAAP, the defined benefit plans that were significantly impacted by the modification were re-measured in October 2016 using market data and assumptions as of the modification date. The net periodic pension expense recognized in 2016 reflects the weighted average costs of the December 31, 2015 measurement and the October 2016 re-measurement. In addition, the Company's two U.S. qualified plans were merged effective December 30, 2016.

The assumed health care cost trend rate for Medicare eligibles and non-Medicare eligibles is approximately 6.19% in 2018, gradually declining to 4.5% in 2039. Assumed health care cost trend rates have a small effect on the amounts reported for the U.S. health care plans because the Company caps its share of health care trend at 5%. A one percentage point change in assumed health care cost trend rates would have no effect on the total service and interest cost components or the postretirement benefit obligation.

Estimated Future Contributions

The Company expects to contribute approximately $28 million to its U.S. plans in 2019. The Company’s policy for funding its tax-qualified defined benefit retirement plans is to contribute amounts at least sufficient to meet the funding requirements set forth in the U.S. and applicable foreign law.

Non-U.S. Plans

The following schedules provide information concerning the Company’s non-U.S. defined benefit pension plans and non-U.S. postretirement benefit plans:



	Non-U.S. Pension Benefits						Non-U.S. Postretirement Benefits
(In millions of dollars)	2018			2017			2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	10,053		$	9,670		$	68		$	81
Service cost	34			76			1			1
Interest cost	228			233			2			2
Employee contributions	2			7			—			—
Actuarial (gain) loss	(450		)	(149		)	(8		)	—
Plan amendments	44			—			—			(17		)
Effect of settlement	(162		)	(211		)	—			—
Effect of curtailment	—			(1		)	—			—
Benefits paid	(290		)	(291		)	(3		)	(3		)
Foreign currency changes	(491		)	703			(3		)	4
Other	1			16			—			—
Benefit obligation, December 31	$	8,969		$	10,053		$	57		$	68
Change in plan assets:
Fair value of plan assets at beginning of year	$	11,388		$	10,017		$	—		$	—
Actual return on plan assets	(141		)	875			—			—
Effect of settlement	(162		)	(211		)	—			—
Company contributions	82			229			3			3
Employee contributions	2			7			—			—
Benefits paid	(290		)	(291		)	(3		)	(3		)
Foreign currency changes	(573		)	749			—			—
Other	—			13			—			—
Fair value of plan assets, December 31	$	10,306		$	11,388		$	—		$	—
Net funded status, December 31	$	1,337		$	1,335		$	(57	)	$	(68	)
Amounts recognized in the consolidated balance sheets:
Non-current assets	$	1,687		$	1,684		$	—		$	—
Current liabilities	(5		)	(6		)	(3		)	(4		)
Non-current liabilities	(345		)	(343		)	(54		)	(64		)
Net asset (liability) recognized, December 31	$	1,337		$	1,335		$	(57	)	$	(68	)
Amounts recognized in other comprehensive (loss) income:
Prior service credit	$	(2	)	$	43		$	12		$	15
Net actuarial loss	(2,568		)	(2,646		)	(1		)	(10		)
Total recognized accumulated other comprehensive (loss) income, December 31	$	(2,570	)	$	(2,603	)	$	11		$	5
Cumulative employer contributions in excess of (less than) net periodic cost	3,907			3,938			(68		)	(73		)
Net asset (liability) recognized in consolidated balance sheets, December 31	$	1,337		$	1,335		$	(57	)	$	(68	)
Accumulated benefit obligation, December 31	$	8,752		$	9,783		$	—		$	—



	Non-U.S. Pension Benefits						Non-U.S. Postretirement Benefits
(In millions of dollars)	2018			2017			2018			2017
Reconciliation of prior service credit (cost) recognized in accumulated other comprehensive income (loss):
Beginning balance	$	43		$	43		$	15		$	—
Recognized as component of net periodic benefit credit:
Amortization of prior service credit	(2		)	(2		)	(2		)	(2		)
Effect of curtailment	—			(1		)	—			—
Total recognized as component of net periodic benefit credit	(2		)	(3		)	(2		)	(2		)
Changes in plan assets and benefit obligations recognized in other comprehensive income:
Plan amendments	(44		)	—			—			17
Exchange rate adjustments	1			3			(1		)	—
Prior service credit, December 31	$	(2	)	$	43		$	12		$	15



	Non-U.S. Pension Benefits						Non-U.S. Postretirement Benefits
(In millions of dollars)	2018			2017			2018			2017
Reconciliation of net actuarial (loss) gain recognized in accumulated other comprehensive (loss) income:
Beginning balance	$	(2,646	)	$	(3,081	)	$	(10	)	$	(11	)
Recognized as component of net periodic benefit cost:
Amortization of net loss	91			130			—			1
Effect of settlement	42			54			—			—
Total recognized as component of net periodic benefit credit	133			184			—			1
Changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Liability experience	450			149			8			—
Asset experience	(648		)	311			—			—
Other	3			(5		)	—			—
Effect of curtailment	—			1			—			—
Total amount recognized as change in plan assets and benefit obligations	(195		)	456			8			—
Exchange rate adjustments	140			(205		)	1			—
Net actuarial loss, December 31	$	(2,568	)	$	(2,646	)	$	(1	)	$	(10	)



For the Years Ended December 31,	Non-U.S. Pension Benefits								Non-U.S. Postretirement Benefits
(In millions of dollars)	2018			2017			2016		2018			2017			2016
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	(147	)	$	(513	)	$	21	$	(5	)	$	(14	)	$	10

Estimated amounts that will be amortized from accumulated other comprehensive loss to net periodic pension cost in the next fiscal year:



	Non-U.S. Pension Benefits		Non-U.S. Postretirement Benefits
(In millions of dollars)	2019		2019
Prior service credit	$	—	$	(2	)
Net actuarial loss	59		—
Projected cost	$	59	$	(2	)

The weighted average actuarial assumptions utilized for the non-U.S. defined and postretirement benefit plans as of the end of the year are as follows:



	Non-U.S. Pension Benefits				Non-U.S. Postretirement Benefits
	2018		2017		2018		2017
Weighted average assumptions:
Discount rate (for expense)	2.58	%	2.69	%	2.97	%	3.42	%
Expected return on plan assets	4.94	%	6.07	%	—		—
Rate of compensation increase (for expense)	2.80	%	2.85	%	—		—
Discount rate (for benefit obligation)	2.89	%	2.58	%	3.32	%	2.97	%
Rate of compensation increase (for benefit obligation)	2.82	%	2.80	%	—		—

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the non-U.S. pension plans with accumulated benefit obligations in excess of plan assets were $1.7 billion, $1.6 billion and $1.3 billion, respectively, as of December 31, 2018 and $1.3 billion, $1.2 billion and $1.0 billion, respectively, as of December 31, 2017.

The projected benefit obligation and fair value of plan assets for non-U.S. pension plans with projected benefit obligations in excess of plan assets was $1.9 billion and $1.6 billion, respectively, as of December 31, 2018 and $2.2 billion and $1.9 billion, respectively, as of December 31, 2017.

Non-U.S. Plan Amendments

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.

Components of Net Periodic Benefits Costs

The components of the net periodic benefit cost for the non-U.S. defined benefit and other postretirement benefit plans and the curtailment, settlement and termination expenses are as follows:



For the Years Ended December 31,	Non-U.S. Pension Benefits									Non-U.S. Postretirement Benefits
(In millions of dollars)	2018			2017			2016			2018			2017			2016
Service cost	$	34		$	76		$	72		$	1		$	1		$	2
Interest cost	228			233			273			2			2			3
Expected return on plan assets	(507		)	(564		)	(561		)	—			—			—
Amortization of prior service credit	(2		)	(2		)	(1		)	(2		)	(2		)	—
Recognized actuarial loss	91			130			94			—			1			—
Net periodic benefit (credit) cost	(156		)	(127		)	(123		)	1			2			5
Settlement loss	42			54			—			—			—			—
Curtailment (gain) loss	—			(1		)	(4		)	—			—			—
Total (credit) cost	$	(114	)	$	(74	)	$	(127	)	$	1		$	2		$	5

The non-U.S. pension credit in 2018 and 2017 includes the impact of the pension settlement charges in the U.K., as previously discussed.

The assumed health care cost trend rate was approximately 5.09% in 2018, gradually declining to 4.46% in 2026. Assumed health care cost trend rates can have a significant effect on the amounts reported for the non-U.S. health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects:



(In millions of dollars)	1 Percentage Point Increase		1 Percentage Point Decrease
Effect on total of service and interest cost components	$	—	$	—
Effect on postretirement benefit obligation	$	6	$	(5	)

Estimated Future Contributions

The Company expects to contribute approximately $65 million to its non-U.S. pension plans in 2019. Funding requirements for non-U.S. plans vary by country. Contribution rates are generally based on local funding practices and requirements, which may differ significantly from measurements under U.S. GAAP. Funding amounts may be influenced by future asset performance, the level of discount rates and other variables impacting the assets and/or liabilities of the plan. Discretionary contributions may also be affected by alternative uses of the Company’s cash flows, including dividends, investments and share repurchases.

In the U.K., the assumptions used to determine pension contributions are the result of legally-prescribed negotiations between the Company and the plans' trustee that typically occurs every three years in conjunction with the actuarial valuation of the plans. Currently, this results in a lower funded status than under U.S. GAAP and may result in contributions irrespective of the U.S. GAAP funded status. In November 2016, the Company and the Trustee of the U.K. Defined Benefits Plans agreed to a funding deficit recovery plan for the U.K. defined benefit pension plans. The current agreement with the Trustee sets out the annual deficit contributions which would be due based on the deficit at December 31, 2015. The funding level is subject to re-assessment, in most cases on November 1 of each year. If the funding level on November 1 is sufficient, no deficit funding contributions will be required in the following year, and the contribution amount will be deferred. The funding level was re-assessed on November 1, 2018 and no deficit funding contributions are required in 2019. The funding level will be re-assessed on November 1, 2019. As part of a long-term strategy, which depends on having greater influence over asset allocation and overall investment decisions, in November 2016 the Company renewed its agreement to support annual deficit contributions by the U.K. operating companies under certain circumstances, up to GBP 450 million over a seven-year period.

Estimated Future Benefit Payments

The estimated future benefit payments for the Company's pension and postretirement benefit plans are as follows:



For the Years Ended December 31,	Pension Benefits				Postretirement Benefits
(In millions of dollars)	U.S.		Non-U.S.		U.S.		Non-U.S.
2019	$	264	$	272	$	4	$	3
2020	$	277	$	282	$	4	$	3
2021	$	291	$	291	$	4	$	3
2022	$	299	$	302	$	3	$	3
2023	$	306	$	320	$	3	$	3
2024-2028	$	1,626	$	1,768	$	12	$	15

Defined Benefit Plans Fair Value Disclosures

The U.S. and non-U.S. plan investments are classified into Level 1, which refers to investments valued using quoted prices from active markets for identical assets; Level 2, which refers to investments not traded on an active market but for which observable market inputs are readily available; Level 3, which refers to investments valued based on significant unobservable inputs; and NAV, which refers to investments valued using net asset value as a practical expedient. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following table sets forth, by level within the fair value hierarchy, a summary of the U.S. and non-U.S. plans' investments measured at fair value on a recurring basis at December 31, 2018 and 2017:



	Fair Value Measurements at December 31, 2018
Assets (In millions of dollars)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		NAV		Total
Common/collective trusts	$	291	$	—	$	—	$	5,329	$	5,620
Corporate obligations	—		3,673		—		—		3,673
Corporate stocks	2,046		33		1		—		2,080
Private equity/partnerships	—		—		—		921		921
Government securities	15		535		—		—		550
Real estate	—		—		—		563		563
Short-term investment funds	286		—		—		—		286
Company common stock	319		—		—		—		319
Other investments	13		20		333		—		366
Total investments	$	2,970	$	4,261	$	334	$	6,813	$	14,378



	Fair Value Measurements at December 31, 2017
Assets (In millions of dollars)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		NAV		Total
Common/collective trusts	$	375	$	—	$	—	$	7,611	$	7,986
Corporate obligations	—		3,620		20		—		3,640
Corporate stocks	1,467		34		2		—		1,503
Private equity/partnerships	—		—		—		803		803
Government securities	15		556		—		—		571
Real estate	—		—		—		566		566
Short-term investment funds	391		16		—		—		407
Company common stock	326		—		—		—		326
Other investments	12		12		350		—		374
Total investments	$	2,586	$	4,238	$	372	$	8,980	$	16,176

The tables below set forth a summary of changes in the fair value of the plans’ Level 3 assets for the years ended December 31, 2018 and December 31, 2017:



Assets (In millions)	Fair Value, January 1, 2018		Purchases		Sales			Unrealized Gain/ (Loss)			Realized Gain/ (Loss)		Exchange Rate Impact			Transfers in/(out) and Other			Fair Value, December 31, 2018
Other investments	$	350	$	20	$	(19	)	$	(5	)	$	1	$	(14	)	$	—		$	333
Corporate stocks	2		—		—			—			—		—			(1		)	1
Corporate obligations	20		—		—			—			—		—			(20		)	—
Total assets	$	372	$	20	$	(19	)	$	(5	)	$	1	$	(14	)	$	(21	)	$	334



Assets (In millions)	Fair Value, January 1, 2017		Purchases		Sales			Unrealized Gain/ (Loss)			Realized Gain/ (Loss)		Exchange Rate Impact		Transfers in/(out) and Other			Fair Value, December 31, 2017
Other investments	$	312	$	20	$	(15	)	$	(7	)	$	—	$	40	$	—		$	350
Corporate stocks	2		—		—			—			—		—		—			2
Corporate obligations	9		9		(1		)	9			—		1		(7		)	20
Total assets	$	323	$	29	$	(16	)	$	2		$	—	$	41	$	(7	)	$	372

The following is a description of the valuation methodologies used for assets measured at fair value:

Company common stock: Valued at the closing price reported on the New York Stock Exchange.

Common stocks, preferred stocks, convertible equity securities, rights/warrants and real estate investment trusts (included in Corporate stocks): Valued at the closing price reported on the primary exchange.

Corporate bonds (included in Corporate obligations): The fair value of corporate bonds is estimated using recently executed transactions, market price quotations (where observable) and bond spreads. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that references a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models.

Commercial mortgage-backed and asset-backed securities (included in Corporate obligations): Fair value is determined using discounted cash flow models. Observable inputs are based on trade and quote activity of bonds with similar features including issuer vintage, purpose of underlying loan (first or second lien), prepayment speeds and credit ratings. The discount rate is the combination of the appropriate rate from the benchmark yield curve and the discount margin based on quoted prices.

Common/Collective trusts: Valued at the net asset value of units of a bank collective trust. The net asset value as provided by the trustee, is used as a practical expedient to estimate fair value. The net asset value is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported net asset value.

U.S. government bonds (included in Government securities): The fair value of U.S. government bonds is estimated by pricing models that utilize observable market data including quotes, spreads and data points for yield curves.

U.S. agency securities (included in Government securities): U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. Agency issued debt securities are valued by benchmarking market-derived prices to quoted market prices and trade data for identical or comparable securities. Mortgage pass-throughs include certain "To-be-announced" (TBA) securities and mortgage pass-through pools. TBA securities are generally valued using quoted market

prices or are benchmarked thereto. Fair value of mortgage pass-through pools are model driven with respect to spreads of the comparable TBA security.

Private equity and real estate partnerships: Investments in private equity and real estate partnerships are valued based on the fair value reported by the manager of the corresponding partnership and reported on a one quarter lag. The managers provide unaudited quarterly financial statements and audited annual financial statements which set forth the value of the fund. The valuations obtained from the managers are based on various analyses on the underlying holdings in each partnership, including financial valuation models and projections, comparable valuations from the public markets, and precedent private market transactions. Investments are valued in the accompanying financial statements based on the Plan’s beneficial interest in the underlying net assets of the partnership as determined by the partnership agreement.

Insurance group annuity contracts: The fair values for these investments are based on the current market value of the aggregate accumulated contributions plus interest earned.

Swap assets (included in Other investments): Fair values for interest rate swaps, equity index swaps and inflation swaps are estimated using a discounted cash flow pricing model. These models use observable market data such as contractual fixed rate, spot equity price or index value and dividend data. The fair values of credit default swaps are estimated using an income approach model which determines expected cash flows based on default probabilities from the issuer-specific credit spread curve and credit loss recovery rates, both of which are dependent on market quotes.

Short-term investment funds: Primarily high-grade money market instruments valued at net asset value at year-end.

Registered investment companies: Valued at the closing price reported on the primary exchange.

Defined Contribution Plans

The Company maintains certain defined contribution plans for its employees, including the Marsh & McLennan Companies 401(k) Savings & Investment Plan ("401(k) Plan"), that are qualified under U.S. tax laws. Under these plans, eligible employees may contribute a percentage of their base salary, subject to certain limitations. For the 401(k) Plan, the Company matches a fixed portion of the employees’ contributions. In addition, as mentioned above, as part of the modification to its U.S. defined benefit pension plans, the Company also 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. The 401(k) Plan contains an Employee Stock Ownership Plan feature under U.S. tax law. Approximately $444 million of the 401(k) Plan’s assets at December 31, 2018 and $499 million at December 31, 2017 were invested in the Company’s common stock. If a participant does not choose an investment direction for his or her future contributions, they are automatically invested in a BlackRock LifePath Portfolio that most closely matches the participant’s expected retirement year. The cost of these defined contribution plans was $133 million in 2018, $130 million in 2017 and $53 million in 2016. The increase in cost in 2018 and 2017 as compared to 2016 is primarily due to the additional automatic Company contribution mentioned above. In addition, the Company has a significant defined contribution plan in the U.K. As noted above, effective August 1, 2014, a newly formed defined contribution plan replaced the existing defined contribution and defined benefit plans with regard to future service. The cost of the U.K. defined contribution plan was $80 million, $75 million and $81 million in 2018, 2017 and 2016, respectively.

Stock Benefit Plans

The Company maintains multiple stock-based payment arrangements under which employees are awarded grants of restricted stock units, stock options and other forms of stock-based benefits.

Marsh & McLennan Companies, Inc. Incentive and Stock Award Plans

On May 19, 2011, the Marsh & McLennan Companies, Inc. 2011 Incentive and Stock Award Plan (the "2011 Plan") was approved by the Company's stockholders. The 2011 Plan replaced the Company's two previous equity incentive plans (the 2000 Senior Executive Incentive and Stock Award Plan and the 2000 Employee Incentive and Stock Award Plan).

The types of awards permitted under the 2011 Plan include stock options, restricted stock and restricted stock units payable in Company common stock or cash, and other stock-based and performance-based awards. The Compensation Committee of the Board of Directors (the "Compensation Committee") determines, at its discretion, which affiliates may participate in the 2011 Plan, which eligible employees will receive awards, the types of awards to be received, and the terms and conditions thereof. The right of an employee to receive an award may be subject to performance conditions as specified by the Compensation Committee. The 2011 Plan contains a provision which, in the event of a change in control of the Company, may accelerate the vesting of the awards. This provision requires both a change in control of the Company and a subsequent specified termination of employment for vesting to be accelerated.

The 2011 Plan retains the remaining share authority of the two previous plans as of the date the 2011 Plan was approved by stockholders. Thus, approximately 23.2 million shares of common stock, plus shares remaining unused under the previous plans, are available for awards over the life of the 2011 Plan.

The current practice is to grant non-qualified stock options, restricted stock units and/or performance stock units ("PSUs") on an annual basis to senior executives and a limited number of other employees as part of their total compensation. Restricted stock units are also granted to new hires or as retention awards for certain employees. Restricted stock has not been granted since 2005.

Stock Options: Options granted under the 2011 Plan may be designated as either incentive stock options or non-qualified stock options. The Compensation Committee determines the terms and conditions of the option, including the time or times at which an option may be exercised, the methods by which such exercise price may be paid, and the form of such payment. Options are generally granted with an exercise price equal to the market value of the Company's common stock on the date of grant. These option awards generally vest 25% per annum and have a contractual term of 10 years.

The estimated fair value of options granted is calculated using the Black-Scholes option pricing valuation model. This model takes into account several factors and assumptions. The risk-free interest rate is based on the yield on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumption at the time of grant. The expected life (estimated period of time outstanding) is estimated using the contractual term of the option and the effects of employees' expected exercise and post-vesting employment termination behavior. The Company uses a blended volatility rate based on the following: (i) volatility derived from daily closing price observations for the 10-year period ended on the valuation date, (ii) implied volatility derived from traded options for the period one week before the valuation date and (iii) average volatility for the 10-year periods ended on 15 anniversaries prior to the valuation date, using daily closing price observations. The expected dividend yield is based on expected dividends for the expected term of the stock options.

The assumptions used in the Black-Scholes option pricing valuation model for options granted by the Company in 2018, 2017 and 2016 are as follows:



	2018		2017		2016
Risk-free interest rate	2.73	%	2.09	%	1.39	%
Expected life (in years)	6.0		6.0		6.0
Expected volatility	23.23	%	23.23	%	25.55	%
Expected dividend yield	1.81	%	1.86	%	2.15	%

A summary of the status of the Company’s stock option awards as of December 31, 2018 and changes during the year then ended is presented below:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value ($000)
Balance at January 1, 2018	10,200,702		$	47.39
Granted	1,381,391		$	83.05
Exercised	(1,452,879	)	$	33.92
Forfeited	(161,176	)	$	69.64
Balance at December 31, 2018	9,968,038		$	53.94	5.8 years	$	258,062
Options vested or expected to vest at December 31, 2018	9,830,816		53.72		5.8 years	256,622
Options exercisable at December 31, 2018	6,321,055		$	43.78	4.5 years	$	224,687

In the above table, forfeited options are unvested options whose requisite service period has not been met. Expired options are vested options that were not exercised. The weighted-average grant-date fair value of the Company's option awards granted during the years ended December 31, 2018, 2017 and 2016 was $18.29, $15.01 and $11.57, respectively. The total intrinsic value of options exercised during the same periods was $72.9 million, $195.3 million and $137.7 million, respectively.

As of December 31, 2018, there was $17 million of unrecognized compensation cost related to the Company's option awards. The weighted-average period over which that cost is expected to be recognized is approximately 1.24 years. Cash received from the exercise of stock options for the years ended December 31, 2018, 2017 and 2016 was $46.7 million, $126.7 million and $105.4 million, respectively.

The Company's policy is to issue treasury shares upon option exercises or share unit conversion. The Company intends to issue treasury shares as long as an adequate number of those shares is available.

Restricted Stock Units and Performance Stock Units: Restricted stock units may be awarded under the Company's 2011 Incentive and Stock Award Plan. The Compensation Committee determines the restrictions on such units, when the restrictions lapse, when the units vest and are paid, and under what terms the units are forfeited. The cost of these awards is amortized over the vesting period, which is generally three years. Awards to senior executives and other employees may include three-year performance-based restricted stock units and three-year service-based restricted stock units. The payout of performance stock units (payable in shares of the Company's common stock) ranges, generally, from 0-200% of the number of units granted, based on the achievement of objective, pre-determined Company performance measure(s), generally, over a three-year performance period. The Company accounts for these awards as performance condition restricted stock units. The performance condition is not considered in the determination of grant date fair value of such awards. Compensation cost is recognized over the performance period based on management's estimate of the number of units expected to vest and shares to be paid and is adjusted to reflect the actual number of shares paid out at the end of the three-year performance period. Dividend equivalents are not paid out unless and until such time that the award vests.

A summary of the status of the Company's restricted stock units and performance stock units as of December 31, 2018 and changes during the period then ended is presented below:



	Restricted Stock Units				Performance Stock Units
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Non-vested balance at January 1, 2018	4,052,747		$	66.97	690,601		$	62.82
Granted	2,390,859		$	83.05	225,736		$	83.05
Vested	(1,796,343	)	$	64.22	(173,978	)	$	57.33
Forfeited	(317,032	)	$	73.81	(43,561	)	$	69.20
Non-vested balance at December 31, 2018	4,330,231		$	76.49	698,798		$	70.33

The weighted-average grant-date fair value of the Company's restricted stock units granted during the years ended December 31, 2017 and 2016 was $73.23 and $57.54, respectively. The weighted average grant date fair value of the Company's performance stock units granted during the years ended December 31, 2017 and 2016 was $73.20 and $57.47, respectively. The total fair value of the shares distributed during the years ended December 31, 2018, 2017 and 2016 in connection with the Company's non-option equity awards was $170.3 million, $117.1 million and $91.4 million, respectively.

The payout of shares in 2018 with respect to the PSUs awarded in 2015 was 117% of target based on performance for the three-year performance period. In aggregate, 203,590 shares became distributable in respect to PSUs vested in 2018.

As of December 31, 2018, there was $238.9 million of unrecognized compensation cost related to the Company's restricted stock units and performance stock unit awards. The weighted-average period over which that cost is expected to be recognized is approximately 1.02 years.

Marsh & McLennan Companies Stock Purchase Plans

In May 1999, the Company's stockholders approved an employee stock purchase plan (the "1999 Plan") to replace the 1994 Employee Stock Purchase Plan (the "1994 Plan"), which terminated on September 30, 1999 following its fifth annual offering. Under the current terms of the Plan, shares are purchased four times during the plan year at a price that is 95% of the average market price on each quarterly purchase date. Under the 1999 Plan, after including the available remaining unused shares in the 1994 Plan and reducing the shares available by 10,000,000 consistent with the Company's Board of Directors' action in March 2007 and the addition of 4,750,000 shares due to a shareholder action in May 2018, no more than 40,350,000 shares of the Company's common stock may be sold. Employees purchased 424,631 shares during the year ended December 31, 2018 and at December 31, 2018, 5,678,536 shares were available for issuance under the 1999 Plan. Under the 1995 Company Stock Purchase Plan for International Employees (the "International Plan"), after reflecting the additional 5,000,000 shares of common stock for issuance approved by the Company's Board of Directors in July 2002, the addition of 4,000,000 shares due to a shareholder action in May 2007 and reducing the shares available by 1,000,000 consistent with the Company's Board of Directors' action in March 2018, no more than 11,000,000 shares of the Company's common stock may be sold. Employees purchased 117,175 shares during the year ended December 31, 2018 and there were 1,374,735 shares available for issuance at December 31, 2018 under the International Plan. The plans are considered non-compensatory.

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 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).

Assets and liabilities using Level 2 inputs include treasury locks and an equity security.

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 (certain commercial mortgage whole loans, and long-dated or complex derivatives including certain foreign exchange options and long-dated options on gas and power).

Liabilities using Level 3 inputs include liabilities for contingent purchase consideration and the deal contingent foreign exchange contract (the "FX Contract").

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.

Treasury Locks - Level 2

In connection with the JLT Transaction, to hedge the risk of increases in future interest rates prior to its issuance of fixed rate debt in the fourth quarter of 2018, the Company entered into Treasury locks related to $2 billion of expected issuances of senior notes in January 2019. The fair value at December 31, 2018 is based on the published treasury rate plus forward premium as of December 31, 2018 compared to the all in rate at the inception of the contract.

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 and revenue targets are met over periods from two to four years. The fair value of contingent consideration is estimated as the present value of future cash flows resulting from the projected revenue and earnings of the acquired entities.

Foreign Exchange Forward Contract Liabilities - Level 3

In connection with the JLT Transaction, the Company entered into the FX Contract, to hedge the risk of appreciation of the GBP-denominated purchase price. The Company will purchase £5.2 billion at a contracted exchange rate, which is discussed in Note 11. The fair value was determined using the probability distribution approach, comparing the all in forward rate to the foreign exchange rate for possible dates the JLT Transaction is expected to close, discounted to the valuation date and adjusted for the fair value of the deal contingency feature. Determining the fair value of the FX Contract requires significant management judgments or estimates about the potential closing dates of the transaction and remaining value of the deal contingency feature.The fair value related to the deal contingency feature will decrease (and any unrealized loss increase or any unrealized gain decrease) as conditions to the closing are met.

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 December 31, 2018 and 2017:



(In millions of dollars)	Identical Assets (Level 1)				Observable Inputs (Level 2)				Unobservable Inputs (Level 3)				Total
	12/31/18		12/31/17		12/31/18		12/31/17		12/31/18		12/31/17		12/31/18		12/31/17
Assets:
Financial instruments owned:
Exchange traded equity securities (a)	$	133	$	81	$	—	$	—	$	—	$	—	$	133	$	81
Mutual funds(a)	151		158		—		—		—		—		151		158
Money market funds(b)	118		143		—		—		—		—		118		143
Other equity investment(a)	—		—		8		—		—		—		8		—
Total assets measured at fair value	$	402	$	382	$	8	$	—	$	—	$	—	$	410	$	382
Fiduciary Assets:
Money market funds	$	80	$	111	$	—	$	—	$	—	$	—	$	80	$	111
U.S. Treasury Bills	20		—		—		—		—		—		20		—
Total fiduciary assets measured at fair value	$	100	$	111	$	—	$	—	$	—	$	—	$	100	$	111
Liabilities:
Contingent purchase consideration liability(c)	$	—	$	—	$	—	$	—	$	183	$	189	$	183	$	189
Acquisition related derivative contracts	—		—		116		—		325		—		441		—
Total liabilities measured at fair value	$	—	$	—	$	116	$	—	$	508	$	189	$	624	$	189

(a) Included in other assets in the consolidated balance sheets.

(b) Included in cash and cash equivalents in the consolidated balance sheets.

During the year ended December 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 for the years ended December 31, 2018 and December 31, 2017.



(In millions)	2018			2017
Balance at January 1,	$	189		$	241
Additions	54			51
Payments	(91		)	(108		)
Revaluation Impact	32			3
Change in fair value of acquisition related derivative contracts	325			—
Other (a)	(1		)	2
Balance at December 31,	$	508		$	189

(a) Primarily reflects the impact of foreign exchange.

The fair value of the contingent purchase consideration liability is based on projections of revenue and earnings for the acquired entities that are 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 $32 million for the year ended December 31, 2018. A 5% increase in the above mentioned projections would increase the liability by approximately $43 million. A 5% decrease in the above mentioned projections would decrease the liability by approximately $35 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 $287 million and $405 million at December 31, 2018 and 2017, respectively.

Investments Accounted For Using the Equity Method of Accounting

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. The shares of AF had been trading below the Company’s carrying value since November of 2017, but had traded within 10% of the Company’s carrying value through much of the first quarter of 2018. In May 2018, the trading price declined to 30% to 35% below the Company’s cost and remained at the discounted level through the third quarter of 2018. The Company considered several factors in assessing the carrying value of its investment in AF, including its financial position, the near- and long-term prospects of AF 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. However, based on the duration of time and the extent to which the shares traded below their cost, the Company could not develop sufficient objective evidence to support a recovery of the price in the relatively near future. As such, the Company concluded the decline in value of the investment was other than temporary and recorded a charge of $83 million in 2018. As of December 31, 2018, the carrying value of the Company’s investment in Alexander Forbes was approximately $144 million. As of December 31, 2018, the market value of the approximately 443 million shares of Alexander Forbes owned by the Company, based on the December 31, 2018 closing share price of 5.14 South African Rand per share, was approximately $159 million.

The Company has other investments in private insurance and consulting companies with a carrying value of $61 million and $63 million at December 31, 2018 and December 31, 2017, respectively.

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 income statements 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.

Private Equity Investments

The Company's investments in private equity funds were $82 million and $76 million at December 31, 2018 and December 31, 2017, respectively. The carrying values of these private equity investments approximates 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. The Company recorded net investment income of $16 million and $14 million for the years ended December 31, 2018 and 2017, respectively, related to these investments.

Other Investments

At December 31, 2018 and December 31, 2017 the Company held certain equity investments with readily determinable market values of $146 million and $100 million, respectively. During 2018, the Company recorded investment gains of $54 million, which reflects the increase in the market value of these investments as compared to December 31, 2017. The Company also held investments without readily determinable market values of $75 million and $56 million at December 31, 2018 and 2017, respectively. The Company recorded net gains of approximately $1 million in 2018 and 2017 on these investments.

The summarized financial information presented below reflects the aggregated financial information of all equity method investees as of and for the twelve months ended September 30 of each year (or portion of those twelve months the Company owned its investment), consistent with the Company’s recognition of the results of its equity method investments on a one quarter lag. The investment income information presented below reflects the net realized and unrealized gains/losses, net of expenses, related to the Company's investment in Alexander Forbes and several private equity funds. Certain of the Company’s equity method investments, including Alexander Forbes, have unclassified balance sheets. Therefore, the asset and liability information presented below are not split between current and non-current.

Below is a summary of the financial information for the Company's equity method investees:



For the Twelve Months Ended September 30,
(In millions of dollars)	2018		2017		2016
Revenue	$	733	$	628	$	843
Net investment income (a)	$	1,699	$	1,834	$	1,824
Net income	$	554	$	476	$	91



As of September 30,
(In millions of dollars)	2018		2017
Total assets	$	24,644	$	24,739
Total liabilities	$	22,257	$	22,817
Non-controlling interests	$	22	$	19

(a) Net investment income in 2018, 2017 and 2016 includes approximately $1.2 billion, $1.5 billion and $1.9 billion, respectively, related to Alexander Forbes, substantially all of which is credited to policy holders.

Derivatives

On September 20, 2018, the Company entered into the FX Contract for the JLT Transaction, to hedge the risk of appreciation of the GBP-denominated purchase price. The Company will purchase £5.2 billion at a contracted exchange rate. The settlement of the FX Contract is contingent upon the closing of the JLT Transaction. The all in contract exchange rate includes the cost of a liquidity premium (due to the size of the JLT Transaction) and a deal contingent feature, which together increased the exchange rate in the FX Contract to purchase the £5.2 billion by .0343. The all in contract exchange rate is fixed through March 29, 2019, increases by .00016 through June 28, 2019 and by 0.000145 each day thereafter until the JLT Transaction closes.

The FX Contract is measured at fair value and the resulting gain or loss is recorded in the consolidated statements of income. The fair value was determined using the probability distribution approach, comparing the all in forward rate to the foreign exchange rate for possible dates the JLT Transaction is expected to close, discounted to the valuation date and adjusted for the fair value of the deal contingency feature. The fair value will decrease as the GBP depreciates, or increase as the GBP appreciates, relative to the contracted exchange rate. The fair value related to the deal contingency feature will also decrease (and any unrealized loss increase or any unrealized gain decrease) as conditions to the closing are met. An unrealized loss of $325 million related to the change in fair value of the FX contract was recorded in the consolidated statement of income during 2018 primarily related to the depreciation of the GBP from September 2018. The FX Contract does not qualify for hedge accounting treatment under applicable accounting guidance. The Company expects to record fair value gains or losses, which may be significant, through the consolidated statement of income until the closing of the JLT Transaction.

In connection with the JLT Transaction, to hedge the economic risk of changes in future interest rates prior to its issuance of fixed rate debt, in the fourth quarter of 2018, the Company entered into Treasury locks related to $2 billion of expected issuances of senior notes in 2019. The fair value at December 31, 2018 is based on the published treasury rate plus forward premium as of December 31, 2018 compared to the all in rate at the inception of the contact. The contracts were not designated as an accounting hedge. The Company recorded an unrealized loss of $116 million related to the change in the fair value of this derivative in the consolidated statement of income for the twelve months ended December 31, 2018. In January 2019, upon issuance of the $5 billion of senior notes, the Company settled the treasury lock derivatives and made a payment to its counter party for $122 million. An additional charge of $6 million will be recorded in the first quarter of 2019 related to the settlement of the Treasury lock derivatives.

Long-term Commitments

The Company leases office facilities, equipment and automobiles under non-cancelable operating leases. These leases expire on varying dates, in some instances contain renewal and expansion options, do not restrict the payment of dividends or the incurrence of debt or additional lease obligations, and contain no significant purchase options. In addition to the base rental costs, occupancy lease agreements generally provide for rent escalations resulting from increased assessments for real estate taxes and other charges. Approximately 98% of the Company’s lease obligations are for the use of office space.

The consolidated statements of income include net rental costs of $383 million, $354 million and $367 million for 2018, 2017 and 2016, respectively, after deducting rentals from subleases ($8 million in 2018, $8 million in 2017 and $9 million in 2016). These net rental costs exclude rental costs and sublease income for previously accrued restructuring charges related to vacated space.

At December 31, 2018, the aggregate future minimum rental commitments under all non-cancelable operating lease agreements are as follows:



For the Years Ended December 31,	Gross Rental Commitments		Rentals from Subleases		Net Rental Commitments
(In millions of dollars)
2019	$	361	$	32	$	329
2020	$	340	$	31	$	309
2021	$	277	$	12	$	265
2022	$	252	$	10	$	242
2023	$	214	$	9	$	205
Subsequent years	$	753	$	32	$	721

The Company has entered into agreements, primarily with various service companies, to outsource certain information systems activities and responsibilities and processing activities. Under these agreements, the Company is required to pay minimum annual service charges. Additional fees may be payable depending upon the volume of transactions processed, with all future payments subject to increases for inflation. At December 31, 2018, the aggregate fixed future minimum commitments under these agreements are as follows:



For the Years Ended December 31,	Future Minimum Commitments
(In millions of dollars)
2019	$	189
2020	37
2021	14
Subsequent years	19
	$	259

Debt

The Company’s outstanding debt is as follows:



December 31,
(In millions)	2018		2017
Short-term:
Current portion of long-term debt	314		262
	314		262
Long-term:
Senior notes – 2.55% due 2018	—		250
Senior notes – 2.35% due 2019	300		299
Senior notes – 2.35% due 2020	499		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	249		248
Senior notes – 3.50% due 2024	597		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	358		370
Other	4		3
	5,824		5,487
Less current portion	314		262
	$	5,510	$	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 no commercial paper outstanding at December 31, 2018.

Bridge Loan Financing

On September 18, 2018, the Company entered into a bridge loan agreement to finance the pending JLT acquisition. The bridge loan agreement provides for commitments in the aggregate principal amount of £5.2 billion. Under the bridge loan agreement, any loans will mature 364 days from the date of the first borrowing, and the Company will be required to comply with certain covenants including maintaining an interest coverage ratio and leverage ratio within specified levels. The Company paid approximately $35 million of customary upfront fees related to the bridge loan at the inception of the loan commitment, of which $30 million was amortized as interest expense in 2018 based on the period of time the facility is expected to be in effect (including any loans outstanding). Any borrowings under the bridge loan agreement will accrue interest at an annual rate based on the London Interbank Offered Rate for British pounds sterling, plus an applicable margin based on the Company’s debt ratings and also increasing over time while loans are outstanding. The Company will also be required to pay a duration fee in an amount equal to 50, 75 and 100 basis points on the principal amount of loans, if any, outstanding on the 90th, 180th and 270th day, respectively, after the first borrowing under the facility, as well as an "unused fee" accruing on the available but unused commitments at a rate that varies with the Company’s debt ratings. Unused commitments will be reduced, and loans under the bridge loan agreement prepaid, with the proceeds of certain debt or equity issuances or asset sales. There were no borrowings under the bridge loan agreement at December 31, 2018. The commitments under the bridge loan agreement are expected to be reduced, and any loans thereunder refinanced, with long-term financing.

As discussed below, in January 2019, the Company issued $5 billion of senior notes which will be used to fund the acquisition of JLT. The commitments under the bridge loan have therefore been reduced by £3.79 billion, due to the issuance of these senior notes.

Senior Notes

In October 2018 the Company repaid $250 million of maturing senior notes.

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.

Subsequent Event – In January 2019, the Company issued $700 million of 3.50% Senior Notes due 2020, $1.0 billion of 3.875% Senior Notes due 2024, $1.25 billion of 4.375% Senior Notes due 2029, $500 million of 4.75% Senior Notes due 2039, $1.25 billion of 4.90% Senior Notes due 2049 and $300 million of Floating Rate Senior Notes due 2021. The Company intends to use the net proceeds to fund, in part, the pending acquisition of JLT, including the payment of related fees and expenses, and to repay certain JLT indebtedness, as well as for general corporate purposes.

Other Credit Facilities

In October 2018, the Company and certain of its foreign subsidiaries increased its multi-currency five-year unsecured revolving credit facility from $1.5 billion to $1.8 billion. 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 October 2023 and requires the Company to maintain certain coverage and leverage ratios which are tested quarterly. There were no borrowings outstanding under this facility at December 31, 2018.

Additional credit facilities, guarantees and letters of credit are maintained with various banks, primarily related to operations located outside the United States, aggregating $594 million at December 31, 2018 and $624 million at December 31, 2017. There were no outstanding borrowings under these facilities at December 31, 2018 and December 31, 2017.

Scheduled repayments of long-term debt in 2019 and in the four succeeding years, excluding the debt issued in January, 2019, are $314 million, $517 million, $515 million, $516 million and $616 million, respectively.

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.



	December 31, 2018				December 31, 2017
(In millions of dollars)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Short-term debt	$	314	$	313	$	262	$	264
Long-term debt	$	5,510	$	5,437	$	5,225	$	5,444

The fair value of the Company’s short-term debt consists primarily of 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.

Integration and Restructuring Costs

During the second quarter of 2018, Marsh initiated a program to simplify the organization through reduced management layers and more common structures across regions and businesses to more closely align with its more formalized segmentation strategy across large risk management, middle market corporate, and small commercial & personal segments. These efforts are expected to create increased efficiencies and additional capacity for reinvestment in people and technology. As of December 31, 2018, the Company has incurred restructuring severance and consulting costs of $96 million related to this initiative.

During the fourth quarter of 2018, Mercer initiated a program to restructure its business to further optimize the way Mercer operates, setting up the Company for a more fluid and nimble structure and operating model for the future. As of December 31, 2018, the Company has incurred restructuring severance and consulting costs of $51 million related to this initiative.

In addition to the charges discussed above, the Company incurred $14 million of restructuring costs related to severance and future rent under non-cancelable leases. These costs were incurred in Risk and Insurance Services—$3 million; Consulting—$1 million; and Corporate—$10 million.

Details of the restructuring liability activity from January 1, 2017 through December 31, 2018, including actions taken prior to 2018, are as follows:



(In millions)	Balance at 1/1/17		Expense Incurred		Cash Paid			Other		Balance at 12/31/17		Expense Incurred		Cash Paid			Other			Balance at 12/31/18
Severance	$	32	$	31	$	(49	)	$	1	$	15	$	137	$	(77	)	$	(2	)	$	73
Future rent under non-cancelable leases and other costs	61		9		(22		)	2		50		24		(37		)	2			39
Total	$	93	$	40	$	(71	)	$	3	$	65	$	161	$	(114	)	$	—		$	112

As of January 1, 2016, the liability balance related to restructuring activity was $93 million. In 2016, the Company accrued $44 million and had cash payments and other adjustments of $44 million related to restructuring activities that resulted in the liability balance at January 1, 2017 reported above.

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.

Common Stock

During 2018, the Company repurchased 8.2 million shares of its common stock for total consideration of $675 million. In November 2016, the Board of Directors of the Company authorized the Company to repurchase up to $2.5 billion of the Company's common stock, which superseded any prior authorizations. The Company remains authorized to purchase additional shares of its common stock up to a value of approximately $866 million. There is no time limit on the authorization. During 2017, the Company purchased 11.5 million shares of its common stock for total consideration of $900 million.

The Company issued approximately 3.3 million and 5.8 million shares related to stock compensation and employee stock purchase plans during the years ended December 31, 2018 and 2017, respectively.

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. In May 2018, the FCA advised that it would not be taking any further action with Marsh Limited in connection with this matter.

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."

In January 2019, the Company received a notice that the Administrative Council for Economic Defense anti-trust agency in Brazil had commenced an administrative proceeding against a number of insurance brokers, including Marsh, and insurers “to investigate an alleged sharing of sensitive commercial and competitive confidential information” in the aviation insurance and reinsurance sector.

We are cooperating with these investigations and are conducting our own reviews. At this time, 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 conducted the study to assess "how effectively competition is working in the wholesale insurance broker sector" and "how brokers influence competition in the underwriting sector." In February 2019, the FCA published its final report and closed the market study, concluding that it had "not found evidence of significant levels of harm that merit the introduction of regulatory intervention."

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 December 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 16 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.

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. 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 segments and geographic areas of operation are as follows:



For the Year Ended December 31, (In millions of dollars)	Revenue				Operating Income (Loss)			Total Assets				Depreciation and Amortization		Capital Expenditures
2018 –
Risk and Insurance Services	$	8,228		(a)	$	1,864		$	15,868			$	290	$	158
Consulting	6,779			(b)	1,099			8,003				130		97
Total Segments	15,007				2,963			23,871				420		255
Corporate/Eliminations	(57		)		(202		)	(2,293		)	(c)	74		59
Total Consolidated	$	14,950			$	2,761		$	21,578			$	494	$	314
2017 –
Risk and Insurance Services	$	7,630		(a)	$	1,731		$	16,490			$	282	$	139
Consulting	6,444			(b)	1,110			8,200				129		88
Total Segments	14,074				2,841			24,690				411		227
Corporate/Eliminations	(50		)		(186		)	(4,261		)	(c)	70		75
Total Consolidated	$	14,024			$	2,655		$	20,429			$	481	$	302
2016 –
Risk and Insurance Services	$	7,143		(a)	$	1,581		$	14,728			$	248	$	128
Consulting	6,112			(b)	1,038			6,770				121		68
Total Segments	13,255				2,619			21,498				369		196
Corporate/Eliminations	(44		)		(188		)	(3,308		)	(c)	69		57
Total Consolidated	$	13,211			$	2,431		$	18,190			$	438	$	253


(a)	Includes inter-segment revenue of $6 million, $5 million and $6 million in 2018, 2017 and 2016, respectively, interest income on fiduciary funds of $65 million, $39 million and $26 million in 2018, 2017 and 2016, respectively, and equity method income of $13 million, $14 million and $12 million in 2018, 2017 and 2016, respectively and $40 million related to the sale of business in 2018.


(b)	Includes inter-segment revenue of $51 million, $45 million and $38 million in 2018, 2017 and 2016, respectively, interest income on fiduciary funds of $3 million, $4 million and $3 million in 2018, 2017 and 2016, respectively, and equity method income of $8 million, $17 million and $19 million in 2018, 2017 and 2016, respectively.


(c)	Corporate assets primarily include insurance recoverables, pension related assets, the owned portion of the Company headquarters building and intercompany eliminations.

Details of operating segment revenue are as follows:



For the Years Ended December 31,
(In millions of dollars)	2018			2017			2016
Risk and Insurance Services
Marsh	$	6,923		$	6,433		$	5,997
Guy Carpenter	1,305			1,197			1,146
Total Risk and Insurance Services	8,228			7,630			7,143
Consulting
Mercer	4,732			4,528			4,323
Oliver Wyman Group	2,047			1,916			1,789
Total Consulting	6,779			6,444			6,112
Total Segments	15,007			14,074			13,255
Corporate/Eliminations	(57		)	(50		)	(44		)
Total	$	14,950		$	14,024		$	13,211

Information by geographic area is as follows:



For the Years Ended December 31,
(In millions of dollars)	2018			2017			2016
Revenue
United States	$	7,219		$	6,870		$	6,573
United Kingdom	2,243			2,112			2,019
Continental Europe	2,694			2,197			2,022
Asia Pacific	1,616			1,517			1,363
Other	1,235			1,378			1,278
	15,007			14,074			13,255
Corporate/Eliminations	(57		)	(50		)	(44		)
Total	$	14,950		$	14,024		$	13,211



For the Years Ended December 31,
(In millions of dollars)	2018		2017		2016
Fixed Assets, Net
United States	$	403	$	399	$	412
United Kingdom	91		91		94
Continental Europe	59		57		53
Asia Pacific	74		78		76
Other	74		87		90
Total	$	701	$	712	$	725

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Marsh & McLennan Companies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Marsh & McLennan Companies, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, cash flows, and equity for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2019 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

New York, New York

February 21, 2019

We have served as the Company’s auditor since 1989.

Marsh & McLennan Companies, Inc. and Subsidiaries

SELECTED QUARTERLY FINANCIAL DATA AND

SUPPLEMENTAL INFORMATION (UNAUDITED)



	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
(In millions, except per share figures)
2018:
Revenue	$	4,000	$	3,734	$	3,504	$	3,712
Operating income	$	908	$	691	$	541	$	621
Income from continuing operations	$	696	$	536	$	279	$	159
Net income attributable to the Company	$	690	$	531	$	276	$	153
Basic Per Share Data:
Continuing operations	$	1.36	$	1.05	$	0.55	$	0.30
Discontinued operations, net of tax	$	—	$	—	$	—	$	—
Net income attributable to the Company	$	1.36	$	1.05	$	0.55	$	0.30
Diluted Per Share Data:
Continuing operations	$	1.34	$	1.04	$	0.54	$	0.30
Discontinued operations, net of tax	$	—	$	—	$	—	$	—
Net income attributable to the Company	$	1.34	$	1.04	$	0.54	$	0.30
Dividends Paid Per Share	$	0.375	$	0.375	$	0.415	$	0.415
2017:
Revenue	$	3,503	$	3,495	$	3,341	$	3,685
Operating income	$	749	$	701	$	535	$	670
Income from continuing operations	$	578	$	507	$	397	$	28
Discontinued operations, net of tax	$	—	$	—	$	—	$	2
Net income attributable to the Company	$	569	$	501	$	393	$	29
Basic Per Share Data(a):
Continuing operations	$	1.10	$	0.98	$	0.77	$	0.05
Discontinued operations, net of tax	$	—	$	—	$	—	$	0.01
Net income attributable to the Company	$	1.10	$	0.98	$	0.77	$	0.06
Diluted Per Share Data(a):
Continuing operations	$	1.09	$	0.96	$	0.76	$	0.05
Discontinued operations, net of tax	$	—	$	—	$	—	$	0.01
Net income attributable to the Company	$	1.09	$	0.96	$	0.76	$	0.06
Dividends Paid Per Share	$	0.34	$	0.34	$	0.375	$	0.375

As of February 18th, 2019, there were 5,063 stockholders of record.

(a) Includes the impact of a $460 million provisional charge related to the enactment of U.S. tax reform.

Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.