Document
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
_____________________________________________ 
FORM 10-Q
_____________________________________________ 
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2016
_____________________________________________ 
Marsh & McLennan Companies, Inc.
1166 Avenue of the Americas
New York, New York 10036
(212) 345-5000
_____________________________________________ 
Commission file number 1-5998
State of Incorporation: Delaware
I.R.S. Employer Identification No. 36-2668272
_____________________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer  x
  
Accelerated Filer  ¨
 
 
Non-Accelerated Filer  ¨(Do not check if a smaller reporting company)
  
Smaller Reporting Company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  ý
As of July 25, 2016, there were outstanding 518,237,432 shares of common stock, par value $1.00 per share, of the registrant.
 




INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995. These statements, which express management's current views concerning future events or results, use words like "anticipate," "assume," "believe," "continue," "estimate," "expect," "intend," "plan," "project" and similar terms, and future or conditional tense verbs like "could," "may," "might," "should," "will" and "would." Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed or implied in our forward-looking statements.
Factors that could materially affect our future results include, among other things:

•
our ability to maintain adequate safeguards to protect the security of our information systems and confidential, personal or proprietary information;
•
our ability to successfully recover if we experience a business continuity problem due to cyberattack, natural disaster or otherwise;
•
our exposure to potential losses and liabilities, including reputational impact, arising from errors and omissions, breach of fiduciary duty and similar claims against us;
•
our ability to compete effectively and adapt to changes in the competitive environment, including to technological and other types of innovation;
•
the impact of potential changes in global economic, political and market conditions on us, our clients and the industries in which we operate, including the impact of the vote in the UK to exit the EU;
•
the impact of changes in applicable tax laws and regulations, including of the regulations recently proposed by the U.S. Treasury Department;
•
the effect of our global pension obligations on our financial position, earnings and cash flows and the impact of low interest rates on those obligations;
•
our exposure to potential civil remedies or criminal penalties if we fail to comply with U.S. and non-U.S. laws and regulations applicable in the jurisdictions in which we operate;
•
the financial and operational impact of complying with laws and regulations where we operate;
•
the impact of fluctuations in foreign exchange, interest rates and securities markets on our results;
•
the impact on our competitive position of our tax rate relative to our competitors;
•
our ability to incentivize and retain key employees; and
•
the impact of changes in accounting rules or in our accounting estimates or assumptions.

The factors identified above are not exhaustive. We caution readers not to place undue reliance on any forward-looking statements, which are based only on information currently available to us and speak only as of the dates on which they are made. The Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances arising after the date on which it is made.
Further information concerning Marsh & McLennan Companies and its businesses, including information about factors that could materially affect our results of operations and financial condition, is contained in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" section and the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section of our most recently filed Annual Report on Form 10-K.

2


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


3


PART I.    FINANCIAL INFORMATION
 
Item 1.
Financial Statements.

MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions, except per share figures)
2016

 
2015

 
2016

 
2015

Revenue
$
3,376

 
$
3,225

 
$
6,712

 
$
6,440

Expense:
 
 
 
 
 
 
 
Compensation and benefits
1,872

 
1,826

 
3,726

 
3,556

Other operating expenses
778

 
770

 
1,527

 
1,520

Operating expenses
2,650

 
2,596

 
5,253

 
5,076

Operating income
726

 
629

 
1,459

 
1,364

Interest income
2

 
3

 
4

 
6

Interest expense
(48
)
 
(40
)
 
(94
)
 
(76
)
Investment income (loss)
1

 
3

 
(2
)
 
5

Income before income taxes
681

 
595

 
1,367

 
1,299

Income tax expense
201

 
166

 
397

 
372

Income from continuing operations
480

 
429

 
970

 
927

Discontinued operations, net of tax
—

 
—

 
—

 
(3
)
Net income before non-controlling interests
480

 
429

 
970

 
924

Less: Net income attributable to non-controlling interests
8

 
10

 
17

 
23

Net income attributable to the Company
$
472

 
$
419

 
$
953

 
$
901

Basic net income per share – Continuing operations
$
0.91

 
$
0.78

 
$
1.83

 
$
1.68

 – Net income attributable to
    the Company
$
0.91

 
$
0.78

 
$
1.83

 
$
1.68

Diluted net income per share – Continuing operations
$
0.90

 
$
0.77

 
$
1.81

 
$
1.66

 – Net income attributable to
the Company
$
0.90

 
$
0.77

 
$
1.81

 
$
1.66

Average number of shares outstanding – Basic
521

 
535

 
521

 
537

– Diluted
525

 
541

 
526

 
543

Shares outstanding at June 30,
519

 
531

 
519

 
531

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


4


MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions)
2016

 
2015

 
2016

 
2015

Net income before non-controlling interests
$
480

 
$
429

 
$
970

 
$
924

Other comprehensive (loss) income, before tax:
 
 
 
 
 
 
 
    Foreign currency translation adjustments
(334
)
 
246

 
(321
)
 
(180
)
    Gain (loss) related to pension/post-retirement plans
163

 
(83
)
 
301

 
153

Other comprehensive (loss) income, before tax
(171
)
 
163

 
(20
)
 
(27
)
Income tax expense (credit) on other comprehensive income
33

 
(4
)
 
61

 
49

Other comprehensive (loss) income, net of tax
(204
)
 
167

 
(81
)
 
(76
)
Comprehensive income
276

 
596

 
889

 
848

Less: comprehensive income attributable to non-controlling interest
8

 
10

 
17

 
23

Comprehensive income attributable to the Company
$
268

 
$
586

 
$
872

 
$
825

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

5


MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share and per share figures)
June 30,
2016

 
December 31,
2015

ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
974

 
$
1,374

Receivables
 
 
 
Commissions and fees
3,473

 
3,198

Advanced premiums and claims
47

 
51

Other
287

 
309

 
3,807

 
3,558

Less-allowance for doubtful accounts and cancellations
(86
)
 
(87
)
Net receivables
3,721

 
3,471

Other current assets
235

 
199

Total current assets
4,930

 
5,044

Goodwill
7,945

 
7,889

Other intangible assets
955

 
1,036

Fixed assets
(net of accumulated depreciation and amortization of $1,666 at June 30, 2016 and $1,621 at December 31, 2015)
736

 
773

Pension related assets
1,197

 
1,159

Deferred tax assets
1,093

 
1,138

Other assets
1,220

 
1,177

 
$
18,076

 
$
18,216

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

6


MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(In millions, except share and per share figures)
June 30,
2016

 
December 31,
2015

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
261

 
$
12

Accounts payable and accrued liabilities
1,868

 
1,886

Accrued compensation and employee benefits
1,015

 
1,656

Accrued income taxes
182

 
154

Dividends payable
178

 
—

Total current liabilities
3,504

 
3,708

Fiduciary liabilities
4,538

 
4,146

Less – cash and investments held in a fiduciary capacity
(4,538
)
 
(4,146
)
 
—

 
—

Long-term debt
4,496

 
4,402

Pension, post-retirement and post-employment benefits
2,004

 
2,058

Liabilities for errors and omissions
322

 
318

Other liabilities
1,045

 
1,128

Commitments and contingencies
—

 
—

Equity:
 
 
 
Preferred stock, $1 par value, authorized 6,000,000 shares, none issued
—

 
—

Common stock, $1 par value, authorized
 
 
 
1,600,000,000 shares, issued 560,641,640 shares at June 30, 2016
 
 
 
   and December 31, 2015
561

 
561

Additional paid-in capital
789

 
861

Retained earnings
11,751

 
11,302

Accumulated other comprehensive loss
(4,301
)
 
(4,220
)
Non-controlling interests
81

 
89

 
8,881

 
8,593

Less – treasury shares, at cost, 41,593,434 shares at June 30, 2016
 
 
 
   and 38,743,686 shares at December 31, 2015
(2,176
)
 
(1,991
)
Total equity
6,705

 
6,602

 
$
18,076

 
$
18,216

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


7


MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30,
 
 
 
(In millions)
2016

 
2015

Operating cash flows:
 
 
 
Net income before non-controlling interests
$
970

 
$
924

Adjustments to reconcile net income to cash provided by operations:
 
 
 
Depreciation and amortization of fixed assets and capitalized software
154

 
156

Amortization of intangible assets
67

 
48

Adjustments and payments related to contingent consideration liability
(8
)
 
—

Gain on deconsolidation of subsidiary
(12
)
 
—

Provision for deferred income taxes
48

 
90

Loss (gain) on investments
2

 
(2
)
Loss on disposition of assets
3

 
1

Share-based compensation expense
58

 
46

Changes in assets and liabilities:
 
 
 
Net receivables
(280
)
 
(274
)
Other current assets
(37
)
 
(6
)
Other assets
(1
)
 
(15
)
Accounts payable and accrued liabilities
(24
)
 
(75
)
Accrued compensation and employee benefits
(645
)
 
(659
)
Accrued income taxes
35

 
37

      Contributions to pension and other benefit plans in excess of current year expense/credit
(139
)
 
(149
)
Other liabilities
(10
)
 
(59
)
Effect of exchange rate changes
48

 
49

Net cash provided by operations
229

 
112

Financing cash flows:
 
 
 
Purchase of treasury shares
(410
)
 
(775
)
Net increase in commercial paper
—

 
50

Proceeds from debt
347

 
494

Repayments of debt
(6
)
 
(5
)
Shares withheld for taxes on vested units – treasury shares
(38
)
 
(48
)
Issuance of common stock from treasury shares
131

 
147

Payments of deferred and contingent consideration for acquisitions
(63
)
 
(40
)
Distributions of non-controlling interests
(11
)
 
(15
)
Dividends paid
(326
)
 
(302
)
Net cash used for financing activities
(376
)
 
(494
)
Investing cash flows:
 
 
 
Capital expenditures
(114
)
 
(176
)
Net purchases of long-term investments
(4
)
 
(90
)
Proceeds from sales of fixed assets
1

 
1

Acquisitions
(77
)
 
(260
)
Other, net
4

 
(3
)
Net cash used for investing activities
(190
)
 
(528
)
Effect of exchange rate changes on cash and cash equivalents
(63
)
 
(118
)
Decrease in cash and cash equivalents
(400
)
 
(1,028
)
Cash and cash equivalents at beginning of period
1,374

 
1,958

Cash and cash equivalents at end of period
$
974

 
$
930

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

8


MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
For the Six Months Ended June 30,
 
 
 
(In millions, except per share figures)
2016

 
2015

COMMON STOCK
 
 
 
Balance, beginning and end of period
$
561

 
$
561

ADDITIONAL PAID-IN CAPITAL
 
 
 
Balance, beginning of year
$
861

 
$
930

Change in accrued stock compensation costs
(10
)
 
(19
)
Issuance of shares under stock compensation plans and employee stock purchase plans and related tax impact
(62
)
 
(69
)
Balance, end of period
$
789

 
$
842

RETAINED EARNINGS
 
 
 
Balance, beginning of year
$
11,302

 
$
10,335

Net income attributable to the Company
953

 
901

Dividend equivalents declared – (per share amounts: $0.96 in 2016 and $0.87 in 2015)
(4
)
 
(2
)
Dividends declared – (per share amounts: $0.96 in 2016 and $0.87 in 2015)
(500
)
 
(466
)
Balance, end of period
$
11,751

 
$
10,768

ACCUMULATED OTHER COMPREHENSIVE LOSS
 
 
 
Balance, beginning of year
$
(4,220
)
 
$
(3,847
)
Other comprehensive loss, net of tax
(81
)
 
(76
)
Balance, end of period
$
(4,301
)
 
$
(3,923
)
TREASURY SHARES
 
 
 
Balance, beginning of year
$
(1,991
)
 
$
(925
)
Issuance of shares under stock compensation plans and employee stock purchase plans
225

 
235

Purchase of treasury shares
(410
)
 
(775
)
Balance, end of period
$
(2,176
)
 
$
(1,465
)
NON-CONTROLLING INTERESTS
 
 
 
Balance, beginning of year
$
89

 
$
79

Net income attributable to non-controlling interests
17

 
23

Deconsolidation of subsidiary
(14
)
 
—

Distributions and other changes
(11
)
 
(13
)
Balance, end of period
$
81

 
$
89

TOTAL EQUITY
$
6,705

 
$
6,872

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

9


MARSH & McLENNAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.     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 organizational structure, the Company’s two business segments are Risk and Insurance Services and Consulting.
The Risk and Insurance Services segment provides risk management activities 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 two main business groups. Mercer provides consulting expertise, advice, services and solutions in the areas of health, retirement, talent and investments. Within the investments business, Mercer provides delegated investment (fiduciary management) solutions to institutional investors (such as retirement plan sponsors and trustees) and to individual investors (primarily through the inclusion of funds managed by Mercer on defined contribution and wealth management platforms). As of June 30, 2016, Mercer had assets under management of $146 billion worldwide. Oliver Wyman Group provides specialized management and economic and brand consulting services.
Acquisitions impacting the Risk and Insurance Services and Consulting segments are discussed in Note 7 to the consolidated financial statements.
2.     Principles of Consolidation and Other Matters
The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations for interim filings, the Company believes that the information and disclosures presented are adequate to make such information and disclosures not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the "2015 Form 10-K").
The financial information contained herein reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial statements as of and for the three- and six-month periods ended June 30, 2016 and 2015.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of certificates of deposit and time deposits, with original maturities of three months or less, and money market funds. The estimated fair value of the Company's cash and cash equivalents approximates their carrying value. The Company is required to maintain operating funds of approximately $188 million, primarily related to regulatory requirements outside the U.S. or as collateral under captive insurance arrangements.
Investments  
The Company holds investments in private companies and 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. The Company records in earnings, investment gains or losses for its proportionate share of the change in fair value of the funds. Investments using the equity method of accounting are included in other assets in the consolidated balance sheets.
The caption "Investment income (loss)" in the consolidated statements of income comprises realized and unrealized gains and losses from investments recognized in current earnings. It includes, when applicable, other than temporary declines in the value of debt and available-for-sale securities and equity method gains or losses on its investment in private equity funds. The Company's investments may include direct investments in insurance or consulting companies and investments in private equity funds. The Company recorded net investment income of $1

10


million in the second quarter of 2016 compared to a net investment income of $3 million for the same period in 2015, and recorded an investment loss of $2 million compared to net investment income of $5 million for the six months ended June 30, 2016 and 2015, respectively.
Income Taxes
The Company's effective tax rate in the second quarter of 2016 was 29.5% compared with 27.9% in the second quarter of 2015. The effective tax rate for the first six months of 2016 and 2015 was 29.0% and 28.6%, respectively. These rates reflect non-U.S. income taxed at rates below the U.S. statutory rate, including the effect of repatriation as well as the impact of discrete items such as changes in tax legislation and valuation allowances.
The Company is routinely examined by tax authorities in the jurisdictions in which it has significant operations. The Company regularly considers the likelihood of assessments in each of the taxing jurisdictions resulting from examinations. When evaluating the potential imposition of penalties, the Company considers a number of relevant factors under penalty statutes, including appropriate disclosure of the tax return position, the existence of legal authority supporting the Company's position, and reliance on the opinion of professional tax advisors.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in tax returns. The Company's gross unrecognized tax benefits decreased from
$74 million at December 31, 2015 to $70 million at June 30, 2016. It is reasonably possible that the total amount of unrecognized tax benefits will decrease between zero and approximately $7 million within the next twelve months due to settlements of audits and expirations of statutes of limitation.
3.     Fiduciary Assets and Liabilities
In its capacity as an insurance broker or agent, the Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurance underwriters. The Company also collects claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims proceeds are held by the Company in a fiduciary capacity. Risk and Insurance Services revenue includes interest on fiduciary funds of $6 million and $5 million for the three months ended June 30, 2016 and 2015, respectively, and $12 million and $10 million for the six months ended June 30, 2016 and 2015, respectively. The Consulting segment recorded fiduciary interest income of less than $1 million and $1 million for the three months ended June 30, 2016 and 2015, respectively, and $1 million and $2 million for the six months ended June 30, 2016 and 2015, respectively. Since fiduciary assets are not available for corporate use, they are shown in the consolidated balance sheets as an offset to fiduciary liabilities.
Net uncollected premiums and claims and the related payables amounted to $7.8 billion at June 30, 2016 and $6.9 billion at December 31, 2015. 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. Net uncollected premiums and claims and the related payables are, therefore, 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.


11


4.    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 income components used for diluted EPS - Continuing operations and basic weighted average common shares outstanding to diluted weighted average common shares outstanding are presented below. The reconciling items related to the calculation of diluted weighted average common shares outstanding are the same for net income attributable to the Company.
Basic and Diluted EPS Calculation - Continuing Operations
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions, except per share figures)
2016

 
2015

 
2016

 
2015

Net income from continuing operations
$
480

 
$
429

 
$
970

 
$
927

Less: Net income attributable to non-controlling interests
8

 
10

 
17

 
23

 
$
472

 
$
419

 
$
953

 
$
904

Basic weighted average common shares outstanding
521

 
535

 
521

 
537

Dilutive effect of potentially issuable common shares
4

 
6

 
5

 
6

Diluted weighted average common shares outstanding
525

 
541

 
526

 
543

Average stock price used to calculate common stock equivalents
$
64.17

 
$
57.75

 
$
60.01

 
$
57.06

There were 13.9 million and 16.2 million stock options outstanding as of June 30, 2016 and 2015, respectively.
5.    Supplemental Disclosures to the Consolidated Statements of Cash Flows
The following schedule provides additional information concerning acquisitions, interest and income taxes paid for the six-month periods ended June 30, 2016 and 2015.
(In millions of dollars)
 
2016

 
2015

Assets acquired, excluding cash
 
$
107

 
$
338

Liabilities assumed
 
(4
)
 
(12
)
Contingent/deferred purchase consideration
 
(26
)
 
(95
)
Net cash outflow for current year acquisitions
 
$
77

 
$
231

Cash paid into escrow for future acquisition
 
—

 
29

Net cash outflow for acquisitions
 
$
77

 
$
260

(In millions of dollars)
2016

 
2015

Interest paid
$
86

 
$
69

Income taxes paid, net of refunds
$
303

 
$
223

The Company paid deferred and contingent consideration of $63 million for the six months ended June 30, 2016. This consisted of deferred purchase consideration related to prior years' acquisitions of $39 million and contingent consideration of $24 million. For the six months ended June 30, 2015, the Company paid deferred and contingent consideration of $39 million, consisting of deferred purchase consideration related to prior years' acquisitions of $28 million and contingent consideration of $11 million. These amounts are included in the consolidated statements of cash flows as a financing activity.
For the six months ended June 30, 2016, the Company recorded a net charge for adjustments related to acquisition related accounts of $18 million and contingent consideration payments of $26 million. For the six months ended June 30, 2015, the Company recorded a net charge for adjustments related to acquisition related accounts of $21 million and contingent consideration payments of $21 million. These amounts are included in the operating section of the consolidated statements of cash flows.

12


The Company had non-cash issuances of common stock under its share-based payment plan of $70 million and $67 million for the six months ended June 30, 2016 and 2015, respectively. The Company recorded stock-based compensation expense related to equity awards of $43 million and $33 million for the six-month periods ended June 30, 2016 and 2015, respectively.
The consolidated statement of cash flows includes the cash flow impact of discontinued operations related to indemnification payments from the Putnam disposition that reduced the net cash flow provided by operations by $82 million for the six months ended June 30, 2015.

13


6.    Other Comprehensive Income (Loss)
The changes in the balances of each component of Accumulated Other Comprehensive Income ("AOCI") for the three and six-month periods ended June 30, 2016 and 2015, including amounts reclassified out of AOCI, are as follows:
(In millions of dollars)
Unrealized Investment Gains
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Gains (Losses)
 
Total Gains (Losses)
Balance as of April 1, 2016
$
6

 
$
(3,014
)
 
$
(1,089
)
 
$
(4,097
)
Other comprehensive income (loss) before reclassifications
—

 
98

 
(333
)
 
(235
)
Amounts reclassified from accumulated other comprehensive income
—

 
31

 
—

 
31

Net current period other comprehensive income (loss)
—

 
129

 
(333
)
 
(204
)
Balance as of June 30, 2016
$
6

 
$
(2,885
)
 
$
(1,422
)
 
$
(4,301
)
(In millions of dollars)
Unrealized Investment Gains
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Gains (Losses)
 
Total Gains (Losses)
Balance as of April 1, 2015
$
5

 
$
(3,213
)
 
$
(882
)
 
$
(4,090
)
Other comprehensive income (loss) before reclassifications
—

 
(126
)
 
243

 
117

Amounts reclassified from accumulated other comprehensive income
—

 
50

 
—

 
50

Net current period other comprehensive income (loss)
—

 
(76
)
 
243

 
167

Balance as of June 30, 2015
$
5

 
$
(3,289
)
 
$
(639
)
 
$
(3,923
)
(In millions of dollars)
Unrealized Investment Gains
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Adjustments
 
Total Gains (Losses)
Balance as of January 1, 2016
$
6

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

 
178

 
(320
)
 
(142
)
Amounts reclassified from accumulated other comprehensive income
—

 
61

 
—

 
61

Net current period other comprehensive income (loss)
—

 
239

 
(320
)
 
(81
)
Balance as of June 30, 2016
$
6

 
$
(2,885
)
 
$
(1,422
)
 
$
(4,301
)
(In millions of dollars)
Unrealized Investment Gains
 
Pension/Post-Retirement Plans Gains (Losses)
 
Foreign Currency Translation Adjustments
 
Total Gains (Losses)
Balance as of January 1, 2015
$
5

 
$
(3,393
)
 
$
(459
)
 
$
(3,847
)
Other comprehensive income (loss) before reclassifications
—

 
2

 
(180
)
 
(178
)
Amounts reclassified from accumulated other comprehensive income
—

 
102

 
—

 
102

Net current period other comprehensive income (loss)
—

 
104

 
(180
)
 
(76
)
Balance as of June 30, 2015
$
5

 
$
(3,289
)
 
$
(639
)
 
$
(3,923
)



14


The components of other comprehensive income (loss) for the three- and six-month periods ended June 30, 2016 and 2015 are as follows:
Three Months Ended June 30,
 
2016
 
2015
(In millions of dollars)
 
Pre-Tax

Tax

Net of Tax

 
Pre-Tax

Tax (Credit)

Net of Tax

Foreign currency translation adjustments
 
$
(334
)
$
(1
)
$
(333
)
 
$
246

$
3

$
243

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


 
Net actuarial losses (a)
 
43

12

31

 
76

26

50

Subtotal
 
43

12

31

 
76

26

50

 Effect of remeasurement
 
—

—

—

 
1

—

1

 Effect of curtailment
 
3

1

2

 
—

—

—

 Effect of settlement
 
—

—

—

 
1

—

1

 Foreign currency translation gains (losses)
 
116

21

95

 
(161
)
(33
)
(128
)
 Other
 
1

—

1

 
—

—

—

Pension/post-retirement plans gains (losses)
 
163

34

129

 
(83
)
(7
)
(76
)
Other comprehensive (loss) income
 
$
(171
)
$
33

$
(204
)
 
$
163

$
(4
)
$
167

(a) Components of net periodic pension cost are included in compensation and benefits in the Consolidated Statements of Income. Income tax credits on prior service losses and net actuarial losses are included in income tax expense.
Six Months Ended June 30,
2016
 
2015
(In millions of dollars)
Pre-Tax

Tax

Net of Tax

 
Pre-Tax

Tax (Credit)

Net of Tax

Foreign currency translation adjustments
$
(321
)
$
(1
)
$
(320
)
 
$
(180
)
$
—

$
(180
)
Pension/post-retirement plans:
 
 
 
 
 
 
 
Amortization of losses included in net periodic pension cost:


 
 
 
 
 
 
 Prior service losses (a)
1

—

1

 
—

—

—

 Net actuarial losses (a)
84

24

60

 
153

51

102

Subtotal
85

24

61

 
153

51

102

Effect of remeasurement
(1
)
—

(1
)
 
(3
)
(1
)
(2
)
Effect of curtailment
3

1

2

 
—

—

—

Effect of settlement
1

—

1

 
1

—

1

Plan Termination
—

—

—

 
(6
)
(2
)
(4
)
Foreign currency translation gains
213

37

176

 
8

1

7

Pension/post-retirement plans gains
301

62

239

 
153

49

104

Other comprehensive (loss) income
$
(20
)
$
61

$
(81
)
 
$
(27
)
$
49

$
(76
)
(a) Components of net periodic pension cost are included in compensation and benefits in the Consolidated Statements of Income. Tax on prior service gains and net actuarial losses is included in income tax expense.
 
 
 
 
 
 
 
 

15


7.     Acquisitions
The Risk and Insurance Services segment completed three acquisitions during the first six months of 2016.
•
February – Marsh & McLennan Agency ("MMA") acquired The Celedinas Agency, Inc., a Florida-based brokerage firm providing property and casualty and marine insurance as well as employee benefits services to businesses and individuals, and Aviation Solutions, LLC, a Missouri-based aviation risk advisor and insurance broker.
•
March – MMA acquired Corporate Consulting Services, Ltd., a New York-based insurance brokerage and human resource consulting firm.
The Consulting segment completed two acquisitions during the first six months of 2016.
•
January – Mercer acquired The Positive Ageing Company Limited, a U.K.-based firm providing advice on issues surrounding the aging workforce.
•
April – Mercer acquired the Extratextual software system and related client contracts. Extratextual is a web based compliance system that helps clients manage and meet their compliance and risk management obligations.
Total purchase consideration for acquisitions made during the first six months of 2016 was $105 million, which consisted of cash paid of $79 million and deferred purchase and estimated contingent consideration of $26 million. Contingent consideration arrangements are based primarily on EBITDA and revenue targets over a period of 3 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. The Company also paid $39 million of deferred purchase consideration and $50 million of contingent consideration related to acquisitions made in prior years.
The following table presents the preliminary allocation of the acquisition cost to the assets acquired and liabilities assumed during 2016 based on their fair values:
For the Six Months Ended June 30, 2016
 
(In millions of dollars)
 
Cash
$
79

Estimated fair value of deferred/contingent consideration
26

Total Consideration
$
105

Allocation of purchase price:
 
Cash and cash equivalents
$
2

Accounts receivable, net
1

Property, plant, and equipment
1

Other intangible assets
43

Goodwill
62

Total assets acquired
109

Current liabilities
2

Other liabilities
2

Total liabilities assumed
4

Net assets acquired
$
105

Other intangible assets acquired are based on initial estimates and subject to change based on final valuations during the measurement period after the acquisition date. The following chart provides information of other intangible assets acquired during 2016:
 
 
Amount
 
Weighted Average Amortization Period
Client relationships
 
$
41

 
10 years
Other (a)
 
2

 
3 years
 
 
$
43

 
 

16


(a) Primarily non-compete agreements, trade names and developed technology.
 
Prior-Year Acquisitions
The Risk and Insurance Services segment completed thirteen acquisitions during 2015.
•
January – Marsh acquired INGESEG S.A., an insurance brokerage located in Argentina.
•
May – Marsh acquired Sylvite Financial Services, Inc., a Canada-based insurance consulting firm and Sumitomo Life Insurance Agency America, Inc., an employee benefits brokerage and consulting firm providing employee benefit and other services to U.S.-based subsidiaries of Japanese companies.
•
June – Marsh & McLennan Agency ("MMA") acquired MHBT, Inc., a Texas-based insurance broker and Marsh acquired SIS Co. Ltd, a Korea-based insurance broker and advisor.
•
July – MMA acquired Vezina, a Canada-based independent insurance brokerage firm, Tequesta Insurance Advisors, an employee benefits insurance provider based in Florida, Cline Wood Agency, a Kansas City-based independent specialty insurance agency and J.W. Terrill, a Missouri-based independent insurance agency. Marsh acquired SMEI Group Ltd., a U.K.-based insurance broker providing specialist commercial insurance to small and medium-sized firms.
•
August – Marsh acquired Dovetail Insurance, a leading provider of insurance technology services to the U.S. small commercial market.
•
October – MMA acquired Dawson Insurance Agency, a North Dakota-based agency providing commercial and personal insurance, surety bonds, safety and loss control programs, and employee benefits services.
•
December – Marsh acquired Jelf Group, PLC, a U.K.-based insurance broking and financial consulting firm.
The Consulting segment completed eight acquisitions during 2015.
•
February – Oliver Wyman acquired TeamSAI, a Georgia-based provider of consulting and technical services to the transportation industry, and Mercer acquired Strategic Capital Management AG, a Switzerland-based institutional investment advisor.
•
June – Mercer acquired Kepler Associates, a U.K.-based executive remuneration specialist.
•
August – OWG acquired the Hong Kong and Shanghai franchises of OC&C Strategy Consultants.
•
September – Mercer acquired Comptryx, a global pay and workforce metrics business specializing in the technology sector.
•
November – Mercer acquired HR Business Solutions (Asia) Limited, a Hong Kong-based compensation and employee benefits consulting firm, and Gama Consultores Associados Ltda, a Brazil-based retirement consulting firm.
•
December – Mercer acquired CPSG Partners, a Workday Services partner assisting clients worldwide to maximize the value of Workday Financial Management and Human Capital Management.
Total purchase consideration for acquisitions made during the first six months of 2015 was $331 million, which consisted of cash paid of $236 million and deferred purchase and estimated contingent consideration of $95 million. Contingent consideration arrangements are primarily based on EBITDA and revenue targets over 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. In the first six months of 2015, the Company also paid $28 million of deferred purchase consideration and $33 million of contingent consideration related to acquisitions made in prior years. In addition, the Company purchased other intangible assets in the amount of $3 million.
Pro-Forma Information
While the Company does not believe its acquisitions in the aggregate are material, the following unaudited pro-forma financial data gives effect to the acquisitions made by the Company during 2016 and 2015. 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, 2015 and reflects acquisitions made in 2015 as if they occurred on January 1, 2014. The unaudited pro-forma information adjusts for the effects of amortization of acquired intangibles. The unaudited pro-forma financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved if such acquisitions had occurred on the dates indicated, nor is it necessarily indicative of future consolidated results.

17


 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(In millions, except per share figures)
2016

 
2015

 
2016

 
2015

Revenue
$
3,376

 
$
3,328

 
$
6,721

 
$
6,658

Income from continuing operations
$
480

 
$
441

 
$
973

 
$
949

Net income attributable to the Company
$
472

 
$
431

 
$
955

 
$
922

Basic net income per share:
 
 
 
 
 
 
 
– Continuing operations
$
0.91

 
$
0.80

 
$
1.83

 
$
1.72

– Net income attributable to the Company
$
0.91

 
$
0.81

 
$
1.83

 
$
1.72

Diluted net income per share:
 
 
 
 
 
 
 
– Continuing operations
$
0.90

 
$
0.80

 
$
1.82

 
$
1.70

– Net income attributable to the Company
$
0.90

 
$
0.80

 
$
1.82

 
$
1.70

The consolidated statements of income include the results of operations of acquired companies since their respective acquisition dates. The consolidated statements of income for the six-month period ended June 30, 2016 includes approximately $9 million of revenue and $2 million of operating income related to acquisitions made in 2016.
8.    Goodwill and Other Intangibles
The Company is required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company performs the annual impairment assessment for each of its reporting units during the third quarter of each year. In accordance with applicable accounting guidance, the Company assesses qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test. The Company considered numerous factors, which included that the fair value of each reporting unit exceeded its carrying value by a substantial margin in its most recent estimate of reporting unit fair values, whether significant acquisitions or dispositions occurred which might alter the fair value of its reporting units, macroeconomic conditions and their potential impact on reporting unit fair values, actual performance compared with budget and prior projections used in its estimation of reporting unit fair values, industry and market conditions, and the year-over-year change in the Company’s share price. The Company completed its qualitative assessment in the third quarter of 2015 and concluded that a two-step goodwill impairment test was not required in 2015 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.
Changes in the carrying amount of goodwill are as follows:
June 30,
 
 
 
(In millions of dollars)
2016

 
2015

Balance as of January 1, as reported
$
7,889

 
$
7,241

Goodwill acquired
62

 
188

Other adjustments(a)
(6
)
 
(48
)
Balance at June 30,
$
7,945

 
$
7,381

(a) 
Primarily reflects the impact of foreign exchange in each period.
Goodwill allocable to the Company’s reportable segments at June 30, 2016 is as follows: Risk & Insurance Services, $5.6 billion and Consulting, $2.3 billion.

18


The gross cost and accumulated amortization at June 30, 2016 and December 31, 2015 are as follows:
  
June 30, 2016
 
December 31, 2015
(In millions of dollars)
Gross
Cost

 
Accumulated
Amortization

 
Net
Carrying
Amount

 
Gross
Cost

 
Accumulated
Amortization

 
Net
Carrying
Amount

Client Relationships
$
1,229

 
$
359

 
$
870

 
$
1,281

 
$
347

 
$
934

Other (a)
150

 
65

 
85

 
176

 
74

 
102

 Amortized intangibles
$
1,379

 
$
424

 
$
955

 
$
1,457

 
$
421

 
$
1,036

(a) Primarily non-compete agreements, trade names and developed technology.
Aggregate amortization expense for the six months ended June 30, 2016 and 2015 was $67 million and $48 million, respectively. The estimated future aggregate amortization expense is as follows:
For the Years Ending December 31,
 
(In millions of dollars)
Estimated Expense

2016 (excludes amortization through June 30, 2016)
$
66

2017
120

2018
117

2019
114

2020
95

Subsequent years
443

 
$
955

9.     Fair Value Measurements
Fair Value Hierarchy
The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy as defined by the Financial Accounting Standards Board ("FASB"). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, for disclosure purposes, is determined based on the lowest level input that is significant to the fair value measurement. Assets and liabilities recorded in the consolidated balance sheets at fair value are categorized based on the inputs in the valuation techniques as follows:
Level 1.
Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities and money market mutual funds).
Assets and liabilities utilizing Level 1 inputs include 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).

19


The Company does not have any assets or liabilities that utilize Level 2 inputs.
Level 3.
Assets and liabilities whose values are based on prices, or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include private equity investments, 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 utilizing Level 3 inputs include liabilities for contingent purchase consideration.
Valuation Techniques
Equity Securities, Money Market Funds and Mutual Funds – Level 1
Investments for which market quotations are readily available are valued at the sale price on their principal exchange, or official closing bid price for certain markets. The money market funds are valued using a valuation technique that results in price per share at $1.00.
Contingent Consideration Liability – Level 3
Purchase consideration for some acquisitions made by the Company includes contingent consideration arrangements. Contingent consideration arrangements are primarily based on meeting EBITDA and revenue targets 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.
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 June 30, 2016 and December 31, 2015.
 
Identical Assets
(Level 1)
 
Observable Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
(In millions of dollars)
06/30/16

 
12/31/15

 
06/30/16

 
12/31/15

 
06/30/16

 
12/31/15

 
06/30/16

 
12/31/15

Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial instruments owned:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds(a)
$
133

 
$
142

 
$
—

 
$
—

 
$
—

 
$
—

 
$
133

 
$
142

Money market funds(b)
43

 
140

 
—

 
—

 
—

 
—

 
43

 
140

Total assets measured at fair value
$
176

 
$
282

 
$
—

 
$
—

 
$
—

 
$
—

 
$
176

 
$
282

Fiduciary Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
27

 
$
48

 
$
—

 
$
—

 
$
—

 
$
—

 
$
27

 
$
48

Total fiduciary assets measured
at fair value
$
27

 
$
48

 
$
—

 
$
—

 
$
—

 
$
—

 
$
27

 
$
48

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent purchase
consideration liability(c)
$
—

 
$
—

 
$
—

 
$
—

 
$
279

 
$
309

 
$
279

 
$
309

Total liabilities measured at fair value
$
—

 
$
—

 
$
—

 
$
—

 
$
279

 
$
309

 
$
279

 
$
309

(a) 
Included in other assets in the consolidated balance sheets.
(b) 
Included in cash and cash equivalents in the consolidated balance sheets.
(c) 
Included in accounts payable and accrued liabilities and other liabilities in the consolidated balance sheets.
During the six-month period ended June 30, 2016, there were no assets or liabilities that were transferred between any of the levels.






20


The table below sets forth a summary of the changes in fair value of the Company’s Level 3 liabilities as of June 30, 2016 and 2015 that represent contingent consideration related to acquisitions: 
(In millions of dollars)
2016

 
2015

Balance at January 1,
$
309

 
$
207

Additions
8

 
49

Payments
(50
)
 
(33
)
Revaluation Impact
18

 
21

Other (a)
(6
)
 
—

Balance at June 30,
$
279

 
$
244

(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 $18 million in the six-month period ended June 30, 2016. A 5% increase in the above mentioned projections would increase the liability by approximately $26 million. A 5% decrease in the above mentioned projections would decrease the liability by approximately $45 million.
Long-Term Investments
The Company holds investments in certain private companies, public companies and private equity investments that are accounted for using the equity method of accounting. The carrying value of these investments amounted to $377 million and $347 million at June 30, 2016 and December 31, 2015, respectively.
Private Equity Investments
The Company's investments in private equity funds were $81 million and $76 million at June 30, 2016 and December 31, 2015, respectively. The carrying values of these private equity investments approximate fair value. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. The Company records in earnings, investment gains/losses for its proportionate share of the change in fair value of the funds. These investments would be classified as Level 3 in the fair value hierarchy and are included in other assets in the consolidated balance sheets.
Investments in Public Companies
Alexander Forbes: The Company owns approximately 33% of the common stock of Alexander Forbes, a South African company listed on the Johannesburg Stock Exchange, which it purchased in 2014 for 7.50 South African Rand per share. As of June 30, 2016, the carrying value of the Company’s investment in Alexander Forbes was approximately $235 million. As of June 30, 2016, the market value of the approximately 443 million shares of Alexander Forbes owned by the Company, based on the June 30, 2016 closing share price of 6.50 South African Rand per share, was approximately $190 million. During 2015, the share price of Alexander Forbes ranged from 5.32 Rand to 10.38 Rand. The trading price of the Company's shares of Alexander Forbes first dropped below the purchase price in November 2015. During the first six months of 2016, the shares closed between 4.61 Rand (in late January) to 7.16 Rand (in early May), with trades as high as 7.63 Rand. The Company considered several factors related to its investment in Alexander Forbes, including its financial position, the near- and long-term prospects of Alexander Forbes and the broader South African economy and capital markets, the length of time and extent to which the market value was below cost and the Company’s intent and ability to retain the investment for a sufficient period of time to allow for anticipated recovery in market value. As a result, the Company has determined the investment is not impaired as of June 30, 2016.
The Company’s investment in Alexander Forbes and its other equity investments in private 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.
Benefitfocus: On February 24, 2015, Mercer purchased shares of common stock of Benefitfocus (NASDAQ:BNFT) constituting approximately 9.9% of BNFT's outstanding capital stock as of the acquisition date. The purchase price

21


for the BNFT shares and certain other rights and other consideration was approximately $75 million. The Company has elected to account for this investment under the cost method of accounting as the shares purchased are categorized as restricted and cannot be sold for an extended period. Effective January 1, 2017, these shares will be accounted for as available for sale securities, classified as Level 2 in the fair value hierarchy and included in other assets in the consolidated balance sheets. The value of the BNFT shares based on the closing price on the NASDAQ as of June 30, 2016 and without regard to the restrictions on sale was approximately $107 million.
Deconsolidation of a Subsidiary
Marsh operates in India through Marsh India Insurance Brokers Limited (Marsh India), which is owned 26% by Marsh and 74% by local shareholders. Prior to the second quarter, under the terms of its shareholders’ agreement with the local shareholders, Marsh had a controlling financial interest in Marsh India and its results were consolidated under US GAAP. Under the recently adopted Insurance Laws (Amendment) Act, 2015 of India and related regulations issued by the Indian Insurance Regulatory and Development Authority, Indian insurance companies (including insurance intermediaries and brokers like Marsh India) must now be controlled by Indian promoters or Indian investors.
In the second quarter, the shareholders’ agreement between the shareholders of Marsh India was amended to comply with these new regulations, which resulted in Marsh no longer having a controlling financial interest under US GAAP. In accordance with US GAAP, the Company was required to deconsolidate Marsh India and recognize its interest in Marsh India at fair value, with the difference between the carrying value and fair value recognized in earnings. The Company estimated the fair value of its interest in Marsh India, primarily using a discounted cash flow approach, which considered various cash flow scenarios and a discount rate appropriate for the investment. Certain provisions relating to restrictions on sales and repurchase of shares of Marsh India owned by its employees were also required to be removed by the new regulations. As a result, the deferred compensation expense related to those shares was accelerated in the second quarter. The net gain on the Company’s pre-tax income as a result of these changes was approximately $12 million, which is included in revenue. Going forward, the Company’s investment in Marsh India will be accounted for using the equity method of accounting.

10.    Retirement Benefits
The Company maintains qualified and non-qualified defined benefit pension plans for some of its U.S. and non-U.S. eligible employees. The Company’s policy for funding its tax-qualified defined benefit 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.
The target asset allocation for the Company's U.S. Plan was 64% equities and equity alternatives and 36% fixed income and at June 30, 2016, the actual allocation for the Company's U.S. Plan was 62% equities and equity alternatives and 38% fixed income. The target asset allocation for the Company's U.K. Plans, which comprise approximately 83% of non-U.S. Plan assets, is 48% equities and equity alternatives and 52% fixed income. At June 30, 2016, the actual allocation for the U.K. Plans was 46% equities and equity alternatives and 54% 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 generally uses threshold-based portfolio re-balancing to ensure the actual portfolio remains consistent with target asset allocation ranges.

22


The components of the net periodic benefit cost for defined benefit and other post-retirement plans are as follows:
Combined U.S. and significant non-U.S. Plans
Pension
 
Post-retirement
For the Three Months Ended June 30,
Benefits
 
Benefits
(In millions of dollars)
2016

 
2015

 
2016

 
2015

Service cost
$
46

 
$
50

 
$
—

 
$
1

Interest cost
138

 
146

 
1

 
2

Expected return on plan assets
(242
)
 
(243
)
 
—

 
—

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

 
1

 
1

Recognized actuarial loss (gain)
42

 
78

 
—

 
(1
)
Net periodic benefit (credit) cost
$
(17
)
 
$
31

 
$
2

 
$
3

Curtailment gain
(5
)
 
—

 
—

 
—

Settlement loss
1

 
—

 
—

 
—

Total (credit) cost
$
(21
)
 
$
31

 
$
2

 
$
3

 
 
 
 
 
 
 
 
Combined U.S. and significant non-U.S. Plans
Pension
 
Post-retirement
For the Six Months Ended June 30,
Benefits
 
Benefits
(In millions of dollars)
2016

 
2015

 
2016

 
2015

Service cost
$
90

 
$
102

 
$
—

 
$
2

Interest cost
275

 
292

 
3

 
4

Expected return on plan assets
(483
)
 
(486
)
 
—

 
—

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

 
2

 
1

Recognized actuarial loss (gain)
84

 
154

 
(1
)
 
(1
)
Net periodic benefit (credit) cost
$
(35
)
 
$
62

 
$
4

 
$
6

Curtailment gain
(5
)
 
—

 
—

 
—

Settlement loss
1

 
—

 
—

 
—

Plan termination
—

 
—

 
—

 
(128
)
Total (credit) cost
$
(39
)
 
$
62

 
$
4

 
$
(122
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Plans only
Pension
 
Post-retirement
For the Three Months Ended June 30,
Benefits
 
Benefits
(In millions of dollars)
2016

 
2015

 
2016

 
2015

Service cost
$
27

 
$
29

 
$
—

 
$
—

Interest cost
66

 
63

 
—

 
1

Expected return on plan assets
(95
)
 
(92
)
 
—

 
—

Amortization of prior service cost
—

 
—

 
1

 
1

Recognized actuarial loss (gain)
18

 
46

 
—

 
(1
)
Net periodic benefit cost
$
16

 
$
46

 
$
1

 
$
1

Plan termination
—

 
—

 
—

 
—

Total cost
$
16

 
$
46

 
$
1

 
$
1


23


U.S. Plans only
Pension
 
Post-retirement
For the Six Months Ended June 30,
Benefits
 
Benefits
(In millions of dollars)
2016

 
2015

 
2016

 
2015

Service cost
$
53

 
$
59

 
$
—

 
$
1

Interest cost
132

 
125

 
1

 
2

Expected return on plan assets
(190
)
 
(184
)
 
—

 
—

Amortization of prior service cost
—

 
—

 
2

 
1

Recognized actuarial loss (gain)
36

 
91

 
(1
)
 
(1
)
Net periodic benefit cost
$
31

 
$
91

 
$
2

 
$
3

Plan termination
—

 
—

 
—

 
(128
)
Total cost (credit)
$
31

 
$
91

 
$
2

 
$
(125
)
 
 
 
 
 
 
 
 
Effective September 1, 2015, the Company divided its U.S. qualified defined benefit plan to provide enhanced flexibility and better manage the risks. The existing plan was amended to cover only the retirees currently receiving benefits and terminated vested participants as of August 1, 2015. The Company's active participants as of that date were transferred into a newly established, legally separate qualified defined benefit plan. The benefits offered to the plans’ participants were unchanged. As a result of the plan amendment and establishment of the new plan, the Company re-measured the assets and liabilities of the two plans as required under U.S. GAAP, based on assumptions and market conditions at the amendment date. The net periodic pension expense recognized in 2016 reflects the impact of the amendment discussed above.
In March 2015, the Company amended its U.S. Post-65 retiree medical reimbursement plan (the "RRA plan"), resulting in its termination, with benefits to certain participants to be paid through December 31, 2016. As a result of the termination of the RRA plan, the Company recognized a net credit of approximately $125 million in the first quarter of 2015.
Significant non-U.S. Plans only
Pension
 
Post-retirement
For the Three Months Ended June 30,
Benefits
 
Benefits
(In millions of dollars)
2016

 
2015

 
2016

 
2015

Service cost
$
19

 
$
21

 
$
—

 
$
1

Interest cost
72

 
83

 
1

 
1

Expected return on plan assets
(147
)
 
(151
)
 
—

 
—

Amortization of prior service credit
(1
)
 
—

 
—

 
—

Recognized actuarial loss
24

 
32

 
—

 
—

Net periodic benefit (credit) cost
$
(33
)
 
$
(15
)
 
$
1

 
$
2

Curtailment (gain)
(5
)
 
—

 
—

 
—

Settlement loss
1

 
—

 
—

 
—

Total (credit) cost
$
(37
)
 
$
(15
)
 
$
1

 
$
2


24


Significant non-U.S. Plans only
Pension
 
Post-retirement
For the Six Months Ended June 30,
Benefits
 
Benefits
(In millions of dollars)
2016

 
2015

 
2016

 
2015

Service cost
$
37

 
$
43

 
$
—

 
$
1

Interest cost
143