AON PLC, 10-Q filed on 5/1/2020
Quarterly Report
v3.20.1
Cover - shares
3 Months Ended
Mar. 31, 2020
Apr. 30, 2020
Entity Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 1-7933  
Entity Registrant Name Aon plc  
Entity Incorporation, State or Country Code L2  
Entity Tax Identification Number 00-0000000  
Entity Address, Address Line One Metropolitan Building, James Joyce Street  
Entity Address, City or Town Dublin 1  
Entity Address, Country IE  
Entity Address, Postal Zip Code D01 K0Y8  
City Area Code 1  
Local Phone Number 266 6000  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   231,084,584
Entity Central Index Key 0000315293  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Class A Ordinary Shares $0.01 nominal value    
Entity Information [Line Items]    
Title of 12(b) Security Class A Ordinary Shares $0.01 nominal value  
Trading Symbol AON  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 2.800% Senior Notes due 2021    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 2.800% Senior Notes due 2021  
Trading Symbol AON21  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 4.000% Senior Notes due 2023    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 4.000% Senior Notes due 2023  
Trading Symbol AON23  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 3.500% Senior Notes due 2024    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 3.500% Senior Notes due 2024  
Trading Symbol AON24  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 3.875% Senior Notes due 2025    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 3.875% Senior Notes due 2025  
Trading Symbol AON25  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 2.875% Senior Notes due 2026    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 2.875% Senior Notes due 2026  
Trading Symbol AON26  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 4.250% Senior Notes due 2042    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 4.250% Senior Notes due 2042  
Trading Symbol AON24  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 4.450% Senior Notes due 2043    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 4.450% Senior Notes due 2043  
Trading Symbol AON43  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 4.600% Senior Notes due 2044    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 4.600% Senior Notes due 2044  
Trading Symbol AON44  
Security Exchange Name NYSE  
Guarantees of Aon plc’s 4.750% Senior Notes due 2045    
Entity Information [Line Items]    
Title of 12(b) Security Guarantees of Aon plc’s 4.750% Senior Notes due 2045  
Trading Symbol AON45  
Security Exchange Name NYSE  
v3.20.1
Condensed Consolidated Statements of Income (Unaudited) - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenue    
Total revenue $ 3,219 $ 3,143
Expenses    
Compensation and benefits 1,522 1,584
Information technology 111 117
Premises 73 87
Depreciation of fixed assets 41 40
Amortization of intangible assets 97 97
Other general expenses 342 346
Total operating expenses 2,186 2,271
Operating income 1,033 872
Interest income 2 2
Interest expense (83) (72)
Other income (expense) 29 0
Income from continuing operations before income taxes 981 802
Income tax expense 189 126
Net income from continuing operations 792 676
Net income (loss) from discontinued operations (1) 0
Net income 791 676
Less: Net income attributable to noncontrolling interests 19 17
Net income attributable to Aon shareholders $ 772 $ 659
Basic net income per share attributable to Aon shareholders    
Continuing operations (in dollars per share) $ 3.31 $ 2.72
Discontinued operations (in dollars per share) 0 0
Net income (in dollars per share) 3.31 2.72
Diluted net income per share attributable to Aon shareholders    
Continuing operations (in dollars per share) 3.29 2.70
Discontinued operations (in dollars per share) 0 0
Net income (in dollars per share) $ 3.29 $ 2.70
Weighted average ordinary shares outstanding - basic (in shares) 233.2 242.2
Weighted average ordinary shares outstanding - diluted (in shares) 234.5 243.7
v3.20.1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net income $ 791 $ 676
Less: Net income attributable to noncontrolling interests 19 17
Net income attributable to Aon shareholders 772 659
Other comprehensive income (loss), net of tax:    
Change in fair value of financial instruments (5) 7
Foreign currency translation adjustments (397) 133
Postretirement benefit obligation 24 31
Total other comprehensive income (loss) (378) 171
Less: Other comprehensive income attributable to noncontrolling interests (2) 2
Total other comprehensive income (loss) attributable to Aon shareholders (376) 169
Comprehensive income (loss) attributable to Aon shareholders $ 396 $ 828
v3.20.1
Condensed Consolidated Statements of Financial Position - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Current assets    
Cash and cash equivalents $ 690 $ 790
Short-term investments 170 138
Receivables, net 3,554 3,112
Fiduciary assets 12,401 11,834
Other current assets 530 602
Total current assets 17,345 16,476
Goodwill 8,293 8,165
Intangible assets, net 746 783
Fixed assets, net 666 621
Operating lease right-of-use assets 897 929
Deferred tax assets 638 645
Prepaid pension 1,164 1,216
Other non-current assets 533 570
Total assets 30,282 29,405
Current liabilities    
Accounts payable and accrued liabilities 1,549 1,939
Short-term debt and current portion of long-term debt 1,884 712
Fiduciary liabilities 12,401 11,834
Other current liabilities 1,277 1,086
Total current liabilities 17,111 15,571
Long-term debt 6,227 6,627
Non-current operating lease liabilities 910 944
Deferred tax liabilities 189 199
Pension, other postretirement, and postemployment liabilities 1,655 1,738
Other non-current liabilities 930 877
Total liabilities 27,022 25,956
Equity    
Ordinary shares - $0.01 nominal value Authorized: 750 shares (issued: 2020 - 231.1; 2019 - 232.1) 2 2
Additional paid-in capital 6,121 6,152
Retained earnings 1,455 1,254
Accumulated other comprehensive loss (4,409) (4,033)
Total Aon shareholders' equity 3,169 3,375
Noncontrolling interests 91 74
Total equity 3,260 3,449
Total liabilities and equity $ 30,282 $ 29,405
v3.20.1
Condensed Consolidated Statements of Financial Position (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Common stock, nominal or par value (in dollars per share) $ 0.01 $ 0.01
Common stock, authorized shares (in shares) 750,000,000 750,000,000
Common stock, issued shares (in shares) 234,100,000 240,100,000
v3.20.1
Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($)
shares in Millions, $ in Millions
Total
Ordinary Shares and Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Non- controlling Interests
Beginning Balance (in shares) at Dec. 31, 2018   240.1      
Beginning Balance at Dec. 31, 2018 $ 4,219 $ 5,967 $ 2,093 $ (3,909) $ 68
Increase (Decrease) in Shareholders' Equity          
Net income 676   659   17
Shares issued - employee stock compensation plans (in shares)   1.4      
Shares issued - employee stock compensation plans (96) $ (96)      
Shares purchased (in shares)   (0.6)      
Shares purchased (101)   (101)    
Share-based compensation expense 89 $ 89      
Dividends to shareholders (96)   (96)    
Net change in fair value of financial instruments 7     7  
Net foreign currency translation adjustments 133     131 2
Net postretirement benefit obligation 31     31  
Ending Balance (in shares) at Mar. 31, 2019   240.9      
Ending Balance at Mar. 31, 2019 $ 4,862 $ 5,960 2,555 (3,740) 87
Beginning Balance (in shares) at Dec. 31, 2019 240.1 232.1      
Beginning Balance at Dec. 31, 2019 $ 3,449 $ 6,154 1,254 (4,033) 74
Increase (Decrease) in Shareholders' Equity          
Net income 791   772   19
Shares issued - employee stock compensation plans (in shares)   1.2      
Shares issued - employee stock compensation plans (112) $ (112)      
Shares purchased (in shares)   (2.2)      
Shares purchased (463)   (463)    
Share-based compensation expense 81 $ 81      
Dividends to shareholders (102)   (102)    
Net change in fair value of financial instruments (5)     (5)  
Net foreign currency translation adjustments (397)     (395) (2)
Net postretirement benefit obligation $ 24     24  
Ending Balance (in shares) at Mar. 31, 2020 234.1 231.1      
Ending Balance at Mar. 31, 2020 $ 3,260 $ 6,123 $ 1,455 $ (4,409) $ 91
v3.20.1
Condensed Consolidated Statement of Shareholders' Equity Unaudited (Parenthetical) - $ / shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]    
Dividends (in dollars per share) $ 0.44 $ 400,000.00
v3.20.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities    
Net income $ 791 $ 676
Net income (loss) from discontinued operations (1) 0
Adjustments to reconcile net income to cash provided by operating activities:    
(Gain) loss from sales of businesses, net (25) (4)
Depreciation of fixed assets 41 40
Amortization and impairment of intangible assets 97 97
Share-based compensation expense 76 89
Deferred income taxes (6) (25)
Change in assets and liabilities:    
Fiduciary receivables (808) (609)
Short-term investments — funds held on behalf of clients (237) (541)
Fiduciary liabilities 1,045 1,150
Receivables, net (543) (458)
Accounts payable and accrued liabilities (275) (454)
Restructuring reserves (60) (25)
Current income taxes 141 118
Pension, other postretirement and postemployment liabilities (41) (54)
Other assets and liabilities 141 74
Cash provided by operating activities 338 74
Cash flows from investing activities    
Proceeds from investments 6 12
Payments for investments (43) (14)
Net sales (purchases) of short-term investments — non-fiduciary (38) 41
Acquisition of businesses, net of cash acquired (334) (15)
Sale of businesses, net of cash sold 30 6
Capital expenditures (59) (57)
Cash used for investing activities (438) (27)
Cash flows from financing activities    
Share repurchase (463) (100)
Issuance of shares for employee benefit plans (112) (98)
Issuance of debt 2,060 871
Repayment of debt (1,341) (694)
Cash dividends to shareholders (102) (96)
Noncontrolling interests and other financing activities 40 (23)
Cash provided by (used for) financing activities 82 (140)
Effect of exchange rates on cash and cash equivalents (82) 37
Net increase (decrease) in cash and cash equivalents (100) (56)
Cash and cash equivalents at beginning of period 790 656
Cash and cash equivalents at end of period 690 600
Supplemental disclosures:    
Interest paid 51 27
Income taxes paid, net of refunds $ 53 $ 33
v3.20.1
Basis of Presentation
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements and Notes thereto (the “Financial Statements”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Financial Statements include the accounts of Aon plc and all of its controlled subsidiaries. Intercompany accounts and transactions have been eliminated. The Financial Statements include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for all periods presented.
Certain information and disclosures normally included in the Financial Statements prepared in accordance with U.S. GAAP have been condensed or omitted. The Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, including amendments and additions disclosed on Form 8-K issued April 1, 2020. The results for the three months ended March 31, 2020 are not necessarily indicative of operating results that may be expected for the full year ending December 31, 2020, particularly in light of the continuing effect of the COVID-19 pandemic.
On April 1, 2020, a scheme of arrangement under English law was completed pursuant to which the Class A ordinary shares of Aon plc, a public limited company incorporated under the laws of England and Wales and the publicly traded parent company of the Aon group (“Aon UK”), were cancelled and the holders thereof received, on a one-for-one basis, Class A ordinary shares of Aon plc, an Irish public limited company formerly known as Aon Limited (“Aon Ireland”), as described in the proxy statement filed with the U.S. Securities and Exchange Commission (“SEC”) on December 20, 2019 (the “Ireland Reorganization”). Aon Ireland is a tax resident of Ireland. References in the Financial Statements to “Aon” or the “Company” for time periods prior to April 1, 2020 refer to Aon UK. References in the Financial Statements to “Aon” or the “Company” for time periods on or after April 1, 2020, refer to Aon Ireland.
Use of Estimates
The preparation of the Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the Financial Statements, and the reported amounts of reserves and expenses. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management believes its estimates to be reasonable given the current facts available. Aon adjusts such estimates and assumptions when facts and circumstances dictate.  Illiquid credit markets, volatile equity markets, foreign currency exchange rate movements, and, recently, impacts from the COVID-19 pandemic increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment would, if applicable, be reflected in the Financial Statements in future periods.
v3.20.1
Accounting Principles and Practices
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Accounting Principles and Practices Accounting Principles and Practices
Adoption of New Accounting Standards
Cloud Computing Arrangements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The new guidance aligns capitalization requirements for certain implementation costs incurred in cloud computing arrangements with existing requirements for capitalizing implementation costs for internal-use software. These costs will be deferred over the term of the hosting arrangement, including any optional renewal periods the entity is reasonably certain to exercise. An entity may apply the new guidance on either a prospective or retrospective basis. The new guidance was effective for Aon in the first quarter of 2020 and was adopted on a prospective basis for all implementation costs incurred after the date of initial adoption. The adoption of this guidance had no significant impact on the Financial Statements.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued new accounting guidance on simplifying the test for goodwill impairment. Currently the standard requires an entity to perform a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, an entity compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying amount of goodwill for the reporting unit
exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting unit. The new guidance removes Step 2. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The new guidance was effective for Aon in the first quarter of 2020 and was adopted on a prospective basis. The adoption of this guidance had no significant impact on the Financial Statements.
Credit Losses
In June 2016, the FASB issued a new accounting standard on the measurement of credit losses on financial instruments. The new standard replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted the new standard as of January 1, 2020 using the modified retrospective approach. Under this approach, prior periods were not restated. Rather, the cumulative effect of initially applying the new standard was recognized as an adjustment to retained earnings. Upon the adoption of this guidance on January 1, 2020, the Company recognized a cumulative adjustment of $6 million to decrease retained earnings.
The Company’s estimate for allowance for credit losses with respect to receivables is based on a combination of factors, including evaluation of forward-looking information, historical write-offs, aging of balances, and other qualitative and quantitative analyses.
Accounting Standards Issued But Not Yet Adopted
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued new accounting guidance that simplifies the accounting for income taxes by eliminating some exceptions to the general approach in the existing guidance. It also clarifies certain aspects of the existing guidance to promote more consistent application. The new guidance is effective for Aon in the first quarter of 2021, with early adoption permitted. The Company is currently evaluating the impact that the guidance will have on the Financial Statements and the period of adoption.
Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued new accounting guidance related to the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. The guidance requires sponsors of these plans to provide additional disclosures, including weighted average interest rates used in the entity’s cash balance pension plans and a narrative description of reasons for any significant gains or losses impacting the benefit obligation for the period, and eliminates certain previous disclosure requirements. The new guidance is effective for Aon in the first quarter of 2021, with early adoption permitted and will be applied retrospectively. The Company is currently evaluating the impact that the guidance will have on the Financial Statements and the period of adoption.
Securities and Exchange Commission Final Rules
Financial Disclosures about Guarantors
In March 2020, the SEC passed changes to the disclosure requirements in Rules 3-10 and 3-16 of Regulation S-X to better align those requirements with the needs of investors and to simplify and streamline the disclosure obligations of registrants. The amendments are effective January 4, 2021, with early adoption permitted. The Company is currently evaluating the impact that the guidance will have on the Financial Statements and the period of adoption.
v3.20.1
Revenue from Contracts with Customers
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue from Contracts with Customers Revenue from Contracts with Customers
Disaggregation of Revenue
The following table summarizes revenue from contracts with customers by principal service line (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Commercial Risk Solutions
 
$
1,146

 
$
1,118

Reinsurance Solutions
 
848

 
788

Retirement Solutions
 
397

 
420

Health Solutions
 
502

 
486

Data & Analytic Services
 
331

 
336

Elimination
 
(5
)
 
(5
)
Total revenue
 
$
3,219

 
$
3,143

Consolidated revenue from contracts with customers by geographic area, which is attributed on the basis of where the services are performed, is as follows (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
United States
 
$
1,227

 
$
1,161

Americas other than United States
 
228

 
226

United Kingdom
 
500

 
452

Europe, Middle East, & Africa other than United Kingdom
 
978

 
1,009

Asia Pacific
 
286

 
295

Total revenue
 
$
3,219

 
$
3,143



Contract Costs
An analysis of the changes in the net carrying amount of costs to fulfill contracts with customers are as follows (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Balance at beginning of period
 
$
335

 
$
329

Additions
 
318

 
346

Amortization
 
(416
)
 
(439
)
Impairment
 

 

Foreign currency translation and other
 
(8
)
 

Balance at end of period
 
$
229

 
$
236



An analysis of the changes in the net carrying amount of costs to obtain contracts with customers are as follows (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Balance at beginning of period
 
$
171

 
$
156

Additions
 
12

 
9

Amortization
 
(12
)
 
(11
)
Impairment
 

 

Foreign currency translation and other
 
(4
)
 
1

Balance at end of period
 
$
167

 
$
155


v3.20.1
Cash and Cash Equivalents and Short-term Investments
3 Months Ended
Mar. 31, 2020
Cash, Cash Equivalents, and Short-term Investments [Abstract]  
Cash and Cash Equivalents and Short-term Investments Cash and Cash Equivalents and Short-term Investments
Cash and cash equivalents include cash balances and all highly liquid instruments with initial maturities of three months or less.  Short-term investments consist of money market funds. The estimated fair value of cash and cash equivalents and short-term investments approximates their carrying values.
At March 31, 2020, Cash and cash equivalents and Short-term investments were $860 million compared to $928 million at December 31, 2019, a decrease of $68 million. Of the total balances, $95 million and $110 million were restricted as to their use at March 31, 2020 and December 31, 2019, respectively. Included within Short-term investments as of March 31, 2020 and December 31, 2019 were £42.7 million ($52.1 million at March 31, 2020 exchange rates and $55.5 million at December 31, 2019 exchange rates) of operating funds required to be held by the Company in the United Kingdom (the “U.K.”) by the Financial Conduct Authority (the “FCA”), a U.K.-based regulator.
v3.20.1
Other Financial Data
3 Months Ended
Mar. 31, 2020
Other Financial Data [Abstract]  
Other Financial Data Other Financial Data
Condensed Consolidated Statements of Income Information
Other Income (Expense)
Other income (expense) consists of the following (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Foreign currency remeasurement
 
$
42

 
$
(11
)
Disposal of businesses
 
25

 
5

Pension and other postretirement
 
4

 
4

Equity earnings
 
1

 
1

Financial instruments
 
(44
)
 
1

Other
 
1

 

Total
 
$
29

 
$


Condensed Consolidated Statements of Financial Position Information
Allowance for Doubtful Accounts
An analysis of the allowance for doubtful accounts is as follows (in millions):
 
 
Three Months Ended March 31,
 
 
2020 (1)
 
2019
Balance at December 31
 
$
70

 
$
64

Adoption of new accounting guidance (2)
 
7

 

Balance at January 1
 
77

 
64

Provision
 
9

 
8

Accounts written off, net of recoveries
 
(8
)
 
(8
)
Foreign currency translation and other
 
3

 

Balance at end of period
 
$
81

 
$
64


(1)
The Company’s estimate for allowance for credit losses with respect to receivables is based on a combination of factors, including evaluation of forward-looking information, historical write-offs, aging of balances, and other qualitative and quantitative analyses. Refer to Note 2 “Accounting Principles and Practices” for further information.
(2)
The allowance for doubtful accounts resulted in a $7 million charge from the adoption of the new accounting standard on the measurement of credit losses. After tax impacts, this resulted in a $6 million decrease to Retained earnings. Refer to Note 2 “Accounting Principles and Practices” for further information.
Other Current Assets
The components of Other current assets are as follows (in millions):
As of
March 31,
2020
 
December 31,
2019
Costs to fulfill contracts with customers (1)
$
229

 
$
335

Prepaid expenses
156

 
97

Taxes receivable
79

 
88

Other (2)
66

 
82

Total
$
530

 
$
602


(1)
Refer to Note 3 “Revenue from Contracts with Customers” for further information.
(2)
December 31, 2019 includes $4 million previously classified as “Receivables from the Divested Business”.

Other Non-Current Assets
The components of Other non-current assets are as follows (in millions):
As of
March 31,
2020
 
December 31,
2019
Costs to obtain contracts with customers (1)
$
167

 
$
171

Taxes receivable
101

 
102

Leases
93

 
100

Investments
52

 
53

Other
120

 
144

Total
$
533

 
$
570


(1)
Refer to Note 3 “Revenue from Contracts with Customers” for further information.
Other Current Liabilities
The components of Other current liabilities are as follows (in millions):
As of
March 31,
2020
 
December 31,
2019
Deferred revenue (1)
$
309

 
$
270

Leases
200

 
210

Taxes payable
196

 
93

Other
572

 
513

Total
$
1,277

 
$
1,086


(1)
During the three months ended March 31, 2020, $117 million was recognized in the Condensed Consolidated Statement of Income. During the 12 months ended December 31, 2019, $532 million was recognized in the Consolidated Statement of Income.
Other Non-Current Liabilities
The components of Other non-current liabilities are as follows (in millions):
As of
March 31,
2020
 
December 31,
2019
Taxes payable (1)
$
544

 
$
525

Leases
74

 
76

Deferred revenue
72

 
62

Compensation and benefits
41

 
49

Other
199

 
165

Total
$
930

 
$
877


(1)
Includes $145 million for the non-current portion of the one-time mandatory transition tax on accumulated foreign earnings as of March 31, 2020 and December 31, 2019.
v3.20.1
Restructuring
3 Months Ended
Mar. 31, 2020
Restructuring and Related Activities [Abstract]  
Restructuring Restructuring
In 2017, Aon initiated a global restructuring plan (the “Restructuring Plan”) in connection with the sale of the benefits administration and business process outsourcing business (the “Divested Business”). The Restructuring Plan was intended to streamline operations across the organization and deliver greater efficiency, insight, and connectivity. The Company incurred all remaining costs for the Restructuring Plan, and the Restructuring Plan was closed in the fourth quarter of 2019. As such, for the three months ended March 31, 2020, no charges were taken under the Restructuring Plan. For the three months ended March 31, 2019, $91 million of restructuring expenses were charged under the Restructuring Plan.
As of December 31, 2019, the remaining liabilities for the Restructuring Plan were $204 million. During the three months ended March 31, 2020, the Company made cash payments of $60 million, and the effect of foreign currency translation and other non-cash activity was $17 million, resulting in restructuring liabilities of $127 million as of March 31, 2020.
v3.20.1
Acquisitions and Dispositions of Businesses
3 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Acquisitions and Dispositions of Businesses Acquisitions and Dispositions of Businesses
Completed Acquisitions
The Company completed five acquisitions during the three months ended March 31, 2020 and one acquisition during the three months ended March 31, 2019. The following table includes the preliminary fair values of consideration transferred, assets acquired, and liabilities assumed as a result of the Company’s acquisitions (in millions):
Consideration Transferred
 
Three Months Ended March 31, 2020
Cash
 
$
351

Deferred, contingent, and other consideration
 
35

Aggregate consideration transferred
 
$
386

 
 
 
Assets acquired
 
 
Cash and cash equivalents
 
$
17

Receivables
 
7

Goodwill
 
303

Intangible assets
 
74

Current assets
 
2

Non-current assets
 
5

Total assets acquired
 
408

Liabilities assumed
 
 
Current liabilities
 
11

Non-current liabilities
 
11

Total liabilities assumed
 
22

Net assets acquired
 
$
386


The results of operations of these acquisitions are included in the Financial Statements as of the respective acquisition dates. The Company’s results of operations would not have been materially different if these acquisitions had been reported from the beginning of the period in which they were acquired.
2020 Acquisitions
On January 1, 2020, the Company completed the acquisition of 100% share capital of Apollo Conseil et Courtage, an insurance broker based in France.
On January 1, 2020, the Company completed the acquisition of 100% share capital of Assimedia SA, an insurance broker based in Switzerland.
On January 1, 2020, the Company completed the acquisition of 100% share capital of TRIUM GmbH Insurance Broker, an insurance broker based in Germany.
On January 3, 2020, the Company completed the acquisition of 100% share capital of CoverWallet, Inc., a U.S.-based digital insurance platform for small- and medium-sized businesses.
On January 31, 2020, the Company completed the acquisition of 100% share capital of Cytelligence Inc., a Canadian-based cyber security firm that provides incident response advisory, digital forensic expertise, security consulting services, and cyber security training for employees to help organizations respond to cyber security threats and strengthen their security position.
2019 Acquisitions
On July 31, 2019, the Company completed the acquisition of 100% share capital of Ovatio Courtage SAS, an insurance broker based in France.
On July 31, 2019, the Company completed the acquisition of 100% share capital of Zalba-Caldu Correduria de Seguros, S.A., a Spanish insurance broker.
On January 1, 2019, the Company completed the acquisition of 100% share capital of Chapka Assurances SAS, based in France.
Completed Dispositions
The Company completed one disposition during the three months ended March 31, 2020. The Company completed one disposition during the three months ended March 31, 2019.
Total pretax gains recognized for the three months ended March 31, 2020 were $25 million. Total pretax gains recognized for the three months ended March 31, 2019 were $5 million. Gains and losses recognized as a result of a disposition are included in Other income (expense) in the Condensed Consolidated Statements of Income.
Other Significant Activity
On March 9, 2020, Aon and Willis Towers Watson Public Limited Company, an Irish public limited company (“WTW”), entered into a business combination agreement (the “Business Combination Agreement”) with respect to a combination of the parties (the “Combination”). Refer to “Business Combination Agreement” within Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information.
v3.20.1
Goodwill and Other Intangible Assets
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets Goodwill and Other Intangible Assets
The changes in the net carrying amount of goodwill for the three months ended March 31, 2020 are as follows (in millions):
Balance as of December 31, 2019
$
8,165

Goodwill related to current year acquisitions
303

Goodwill related to disposals
(3
)
Goodwill related to prior year acquisitions

Foreign currency translation
(172
)
Balance as of March 31, 2020
$
8,293


Other intangible assets by asset class are as follows (in millions):
 
March 31, 2020
 
December 31, 2019
 
Gross Carrying Amount
 
Accumulated
Amortization and Impairment
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated
Amortization and Impairment
 
Net Carrying Amount
Customer-related and contract-based
$
2,227

 
$
1,590

 
$
637

 
$
2,264

 
$
1,600

 
$
664

Tradenames
1,026

 
1,005

 
21

 
1,029

 
956

 
73

Technology and other
408

 
320

 
88

 
380

 
334

 
46

Total
$
3,661

 
$
2,915

 
$
746

 
$
3,673

 
$
2,890

 
$
783


The estimated future amortization for finite-lived intangible assets as of March 31, 2020 is as follows (in millions):
Remainder of 2020
$
139

2021
136

2022
96

2023
85

2024
69

2025
51

Thereafter
170

Total
$
746


v3.20.1
Debt
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt Debt
Notes
In March 2020, the Company’s $400 million 2.80% Senior Notes due March 2021 were classified as Short-term debt and current portion of long-term debt in the Condensed Consolidated Statements of Financial Position as the date of maturity is in less than one year.
On November 15, 2019, Aon Corporation, a Delaware corporation and a wholly owned subsidiary of the Company, issued $500 million 2.20% Senior Notes due November 2022. The Company used the net proceeds of the offering to pay down a portion of outstanding commercial paper and for general corporate purposes.
In September 2019, the Company’s $600 million 5.00% Senior Notes due September 2020 were classified as Short-term debt and current portion of long-term debt in the Condensed Consolidated Statements of Financial Position as the date of maturity is in less than one year.
On May 2, 2019, Aon Corporation issued $750 million 3.75% Senior Notes due May 2029. The Company used the net proceeds of the offering to pay down a portion of outstanding commercial paper and for general corporate purposes.
Revolving Credit Facilities
As of March 31, 2020, Aon plc had two primary committed credit facilities outstanding: its $900 million multi-currency U.S. credit facility expiring in February 2022 and its $750 million multi-currency U.S. credit facility expiring in October 2023. Effective February 27, 2020, the $750 million multi-currency U.S. credit facility was increased by $350 million from the original $400 million. In aggregate, these two facilities provide $1.65 billion in available credit.
Each of these primary committed credit facilities includes customary representations, warranties, and covenants, including financial covenants that require Aon to maintain specified ratios of adjusted consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”) to consolidated interest expense and consolidated debt to adjusted consolidated EBITDA, in each case, tested quarterly. At March 31, 2020, Aon did not have borrowings under either of these primary committed credit facilities, and was in compliance with the financial covenants and all other covenants contained therein during the rolling 12 months ended March 31, 2020.
Commercial Paper
Aon Corporation has established a U.S. commercial paper program (the “U.S. Program”) and Aon UK has established a European multi-currency commercial paper program (the “European Program” and, together with the U.S. Program, the “Commercial Paper Programs”). Commercial paper may be issued in aggregate principal amounts of up to $600 million under the U.S. Program and €525 million under the European Program, not to exceed the amount of the Company’s committed credit, which was $1.65 billion at March 31, 2020. As of March 31, 2020, the U.S. Program was fully and unconditionally guaranteed by Aon UK and the European Program was fully and unconditionally guaranteed by Aon Corporation. In connection with the Ireland Reorganization, on April 1, 2020, a new guarantee structure for the Commercial Paper Programs was established. Refer to Note 18 “Guarantee of Registered Securities” for further information.
Commercial paper outstanding, which is included in Short-term debt and current portion of long-term debt in the Condensed Consolidated Statements of Financial Position, is as follows (in millions):
As of
 
March 31, 2020
 
December 31, 2019
Commercial paper outstanding
 
$
833

 
$
112


The weighted average commercial paper outstanding and its related interest rates are as follows (in millions, except percentages):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Weighted average commercial paper outstanding
 
$
456

 
$
323

Weighted average interest rate of commercial paper outstanding
 
0.96
%
 
0.49
%

v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The effective tax rate on Net income from continuing operations was 19.3% for the three months ended March 31, 2020. The effective tax rate on Net income from continuing operations was 15.7% for the three months ended March 31, 2019.
For the three months ended March 31, 2020, the tax rate was primarily driven by the geographical distribution of income and certain discrete items, primarily the favorable impact of share-based payments.
For the three months ended March 31, 2019, the tax rate was primarily driven by the geographical distribution of income and certain discrete items, primarily the favorable impact of shared-based payments.
v3.20.1
Shareholders' Equity
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Shareholders' Equity Shareholders’ Equity
Ordinary Shares
Aon has a share repurchase program authorized by the Company’s Board of Directors (the “Repurchase Program”). The Repurchase Program was established in April 2012 with $5.0 billion in authorized repurchases, and was increased by $5.0 billion in authorized repurchases in each of November 2014 and June 2017 for a total of $15.0 billion in repurchase authorizations. The Repurchase Program was adopted by Aon Ireland’s Board of Directors on April 1, 2020.
Under the Repurchase Program, the Company’s Class A Ordinary Shares may be repurchased through the open market or in privately negotiated transactions, from time to time, based on prevailing market conditions, and will be funded from available capital.
The following table summarizes the Company’s share repurchase activity (in millions, except per share data):
 
Three Months Ended March 31,
 
2020
 
2019
Shares repurchased
2.2

 
0.6

Average price per share
$
212.78

 
$
161.16

Costs recorded to retained earnings

 

Total repurchase cost
$
461

 
$
100

Additional associated costs
2

 
1

Total costs recorded to retained earnings
$
463

 
$
101


At March 31, 2020, the remaining authorized amount for share repurchases under the Repurchase Program was $1.6 billion. Under the Repurchase Program, the Company has repurchased a total of 130.9 million shares for an aggregate cost of approximately $13.4 billion. Due to COVID-19, the Company has temporarily suspended share repurchase.
Net Income Per Share
Weighted average ordinary shares outstanding are as follows (in millions):
 
Three Months Ended March 31,
 
2020
 
2019
Basic weighted average ordinary shares outstanding
233.2

 
242.2

Dilutive effect of potentially issuable shares
1.3

 
1.5

Diluted weighted average ordinary shares outstanding
234.5

 
243.7


Potentially issuable shares are not included in the computation of Diluted net income per share if their inclusion would be antidilutive. There were no shares and 0.1 million shares excluded from the calculation for the three months ended March 31, 2020 and March 31, 2019, respectively.
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss by component, net of related tax, are as follows (in millions):
 
Change in Fair Value of Financial Instruments (1) 
 
Foreign Currency Translation Adjustments
 
Postretirement Benefit Obligation (2)
 
Total
Balance at December 31, 2019
$
(12
)
 
$
(1,305
)
 
$
(2,716
)
 
$
(4,033
)
Other comprehensive income (loss) before reclassifications, net
(9
)
 
(395
)
 
1

 
(403
)
Amounts reclassified from accumulated other comprehensive income
 
 


 


 


Amounts reclassified from accumulated other comprehensive income
5

 

 
30

 
35

Tax expense
(1
)
 

 
(7
)
 
(8
)
Amounts reclassified from accumulated other comprehensive income, net (3)
4

 

 
23

 
27

Net current period other comprehensive income (loss)
(5
)
 
(395
)
 
24

 
(376
)
Balance at March 31, 2020
$
(17
)
 
$
(1,700
)
 
$
(2,692
)
 
$
(4,409
)
(1)
Reclassifications from this category included in Accumulated other comprehensive loss are recorded in Revenue, Interest expense, and Compensation and benefits in the Condensed Consolidated Statements of Income. Refer to Note 14 “Derivatives and Hedging” for further information regarding the Company’s derivative and hedging activity.
(2)
Reclassifications from this category included in Accumulated other comprehensive loss are recorded in Other income (expense) in the Condensed Consolidated Statements of Income.
(3)
It is the Company’s policy to release income tax effects from accumulated other comprehensive loss using the portfolio approach.
 
Change in Fair Value of Financial Instruments (1) 
 
Foreign Currency Translation Adjustments
 
Postretirement Benefit Obligation (2)
 
Total
Balance at December 31, 2018
$
(15
)
 
$
(1,319
)
 
$
(2,575
)
 
$
(3,909
)
Other comprehensive income before reclassifications, net
4

 
131

 
11

 
146

Amounts reclassified from accumulated other comprehensive income
 
 
 
 
 
 
 
Amounts reclassified from accumulated other comprehensive income
5

 

 
26

 
31

Tax expense
(2
)
 

 
(6
)
 
(8
)
Amounts reclassified from accumulated other comprehensive income, net (3)
3

 

 
20

 
23

Net current period other comprehensive income
7

 
131

 
31

 
169

Balance at March 31, 2019
$
(8
)
 
$
(1,188
)
 
$
(2,544
)
 
$
(3,740
)
(1)
Reclassifications from this category included in Accumulated other comprehensive loss are recorded in Revenue, Interest expense, and Compensation and benefits in the Condensed Consolidated Statements of Income. Refer to Note 14 “Derivatives and Hedging” for further information regarding the Company’s derivative and hedging activity.
(2)
Reclassifications from this category included in Accumulated other comprehensive loss are recorded in Other income (expense) in the Condensed Consolidated Statements of Income.
(3)
It is the Company’s policy to release income tax effects from accumulated other comprehensive loss using the portfolio approach.
v3.20.1
Employee Benefits
3 Months Ended
Mar. 31, 2020
Retirement Benefits [Abstract]  
Employee Benefits Employee Benefits
The following table provides the components of the net periodic (benefit) cost recognized in the Condensed Consolidated Statements of Income for Aon’s significant U.K., U.S., and other major pension plans, which are located in the Netherlands and Canada. Service cost is reported in Compensation and benefits and all other components are reported in Other income (expense) as follows (in millions):
 
Three Months Ended March 31,
 
U.K.
 
U.S.
 
Other
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$

 
$

 
$

 
$

 
$

Interest cost
22

 
28

 
21

 
27

 
4

 
7

Expected return on plan assets, net of administration expenses
(39
)
 
(49
)
 
(33
)
 
(34
)
 
(8
)
 
(10
)
Amortization of prior-service cost

 
1

 

 
1

 

 

Amortization of net actuarial loss
7

 
7

 
17

 
13

 
3

 
3

Total net periodic (benefit) cost
$
(10
)
 
$
(13
)
 
$
5

 
$
7

 
$
(1
)
 
$


Contributions
Assuming no additional contributions are agreed to with, or required by, the pension plan trustees, the Company expects to make total cash contributions of approximately $5 million, $99 million, and $19 million, (at December 31, 2019 exchange rates) to its significant U.K., U.S., and other major pension plans, respectively, during 2020. The following table summarizes contributions made to the Company’s significant pension plans (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Contributions to U.K. pension plans
 
$
2

 
$
23

Contributions to U.S. pension plans
 
31

 
17

Contributions to other major pension plans
 
2

 
7

Total contributions
 
$
35

 
$
47


v3.20.1
Share-Based Compensation Plans
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation Plans Share-Based Compensation Plans
The following table summarizes share-based compensation expense recognized in the Condensed Consolidated Statements of Income in Compensation and benefits (in millions):
 
Three Months Ended March 31,
 
2020
 
2019
Restricted share units (“RSUs”)
$
58

 
$
63

Performance share awards (“PSAs”)
14

 
23

Employee share purchase plans
4

 
3

Total share-based compensation expense 
$
76


$
89


Restricted Share Units
RSUs generally vest between three and five years. The fair value of RSUs is based upon the market value of the Company’s Class A ordinary shares at the date of grant. With certain limited exceptions, any break in continuous employment will cause the forfeiture of all non-vested awards. Compensation expense associated with RSUs is recognized on a straight-line basis over the requisite service period. Dividend equivalents are paid on certain RSUs, based on the initial grant amount.
The following table summarizes the status of the Company’s RSUs (shares in thousands, except fair value):
 
Three Months Ended March 31,
 
2020
 
2019
 
Shares
 
Fair Value (1) 
 
Shares
 
Fair Value (1) 
Non-vested at beginning of period
3,634

 
$
143

 
4,208

 
$
120

Granted
432

 
$
179

 
517

 
$
170

Vested
(583
)
 
$
141

 
(677
)
 
$
117

Forfeited
(79
)
 
$
146

 
(41
)
 
$
121

Non-vested at end of period
3,403

 
$
147

 
4,007

 
$
127


(1)
Represents per share weighted average fair value of award at date of grant.
Unamortized deferred compensation expense amounted to $359 million as of March 31, 2020, with a remaining weighted average amortization period of approximately two years.
Performance Share Awards
The vesting of PSAs is contingent upon meeting a cumulative level of earnings per share related performance over a three-year period. The actual issuance of shares may range from 0-200% of the target number of PSAs granted, based on the terms of the plan and level of achievement of the related performance target. The grant date fair value of PSAs is based upon the market price of the Company’s Class A ordinary shares at the date of grant. The performance conditions are not considered in the determination of the grant date fair value for these awards. Compensation expense is recognized over the performance period based on management’s estimate of the number of units expected to vest. Management evaluates its estimate of the actual number of shares expected to be issued at the end of the programs on a quarterly basis. The cumulative effect of the change in estimate is recognized in the period of change as an adjustment to Compensation and benefits in the Condensed Consolidated Statements of Income, if necessary. Dividend equivalents are not paid on PSAs.
The following table summarizes the Company’s target PSAs granted and shares that would be issued at current performance levels for PSAs granted during the three months ended March 31, 2020 and the years ended December 31, 2019 and 2018, respectively (shares in thousands and dollars in millions, except fair value):
 
March 31,
2020
 
December 31,
2019
 
December 31,
2018
Target PSAs granted during period
487

 
467

 
564

Weighted average fair value per share at date of grant
$
160

 
$
165

 
$
134

Number of shares that would be issued based on current performance levels
487

 
451

 
818

Unamortized expense, based on current performance levels
$
78

 
$
42

 
$
24


v3.20.1
Derivatives and Hedging
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Derivatives and Hedging
The Company is exposed to market risks, including changes in foreign currency exchange rates and interest rates. To manage the risk related to these exposures, the Company enters into various derivative instruments that reduce these risks by creating offsetting exposures. The Company does not enter into derivative transactions for trading or speculative purposes.
Foreign Exchange Risk Management
The Company is exposed to foreign exchange risk when it earns revenues, pays expenses, and enters into monetary intercompany transfers or other transactions denominated in a currency that differs from its functional currency. The Company uses foreign exchange derivatives, typically forward contracts, options and cross currency swaps, to reduce its overall exposure to the effects of currency fluctuations on cash flows. These exposures are hedged, on average, for less than two years. These derivatives are accounted for as hedges, and changes in fair value are recorded each period in Other comprehensive income (loss) in the Condensed Consolidated Statements of Comprehensive Income.
The Company also uses foreign exchange derivatives, typically forward contracts and options, to economically hedge the currency exposure of the Company’s global liquidity profile, including monetary assets or liabilities that are denominated in a non-functional currency of an entity, typically on a rolling 30-day basis, but may be for up to one year in the future. These derivatives are not accounted for as hedges, and changes in fair value are recorded each period in Other income (expense) in the Condensed Consolidated Statements of Income.
The notional and fair values of derivative instruments are as follows (in millions):
 
Notional Amount
 
Net Amount of Derivative Assets
 Presented in the Statements of Financial Position (1)
 
Net Amount of Derivative Liabilities
 Presented in the Statements of Financial Position (2)
 
March 31,
2020
 
December 31,
2019
 
March 31,
2020
 
December 31,
2019
 
March 31,
2020
 
December 31,
2019
Foreign exchange contracts
 

 
 

 
 

 
 

 
 

 
 

Accounted for as hedges
$
537

 
$
579

 
$
8

 
$
16

 
$
(3
)
 
$
1

Not accounted for as hedges (3)
385

 
297

 
4

 
2

 
(1
)
 

Total
$
922

 
$
876

 
$
12

 
$
18

 
$
(4
)
 
$
1

(1)
Included within Other current assets ($7 million at March 31, 2020 and $7 million at December 31, 2019) or Other non-current assets ($5 million at March 31, 2020 and $11 million at December 31, 2019).
(2)
Included within Other current liabilities ($3 million at March 31, 2020 and $1 million at December 31, 2019) or Other non-current liabilities ($1 million at March 31, 2020 and $0 million at December 31, 2019).
(3)
These contracts typically are for 30-day durations and executed close to the last day of the most recent reporting month, thereby resulting in nominal fair values at the balance sheet date.
The amounts of derivative gains (losses) recognized in the Condensed Consolidated Financial Statements are as follows (in millions):
 
Three Months Ended March 31,
 
2020
 
2019
(Loss) Gain recognized in Accumulated other comprehensive loss
$
(11
)
 
$
4


The amounts of derivative gains (losses) reclassified from Accumulated other comprehensive loss in the Condensed Consolidated Statements of Income are as follows (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Total revenue
 
$
(4
)
 
$
(4
)
Interest expense
 
(1
)
 
(1
)
Total
 
$
(5
)
 
$
(5
)

The Company estimates that approximately $14 million of pretax losses currently included within Accumulated other comprehensive loss will be reclassified into earnings in the next 12 months.
The Company recorded a loss of $35 million and a gain of $5 million in Other income (expense) during the three months ended March 31, 2020 and March 31, 2019, respectively, for foreign exchange derivatives not designated or qualifying as hedges.
Net Investments in Foreign Operations Risk Management
The Company uses non-derivative financial instruments to protect the value of its investments in a number of foreign subsidiaries. The Company has designated a portion of its euro-denominated commercial paper issuances as a non-derivative hedge of the foreign currency exposure of a net investment in its European operations. The change in fair value of the designated portion of the euro-denominated commercial paper due to changes in foreign currency exchange rates is recorded in Foreign currency translation adjustment, a component of Accumulated other comprehensive loss, to the extent it is effective as a hedge. The foreign currency translation adjustment of the hedged net investments is also recorded in Accumulated other comprehensive loss. Ineffective portions of net investment hedges, if any, are reclassified from Accumulated other comprehensive loss into earnings during the period of change.
The Company had €101 million ($112 million at March 31, 2020 exchange rates) and €101 million ($112 million at December 31, 2019 exchange rates) of outstanding euro-denominated commercial paper at March 31, 2020 and December 31, 2019, respectively, designated as a hedge of the foreign currency exposure of its net investment in its European operations. The unrealized gain recognized in Accumulated other comprehensive loss related to the net investment non-derivative hedging instrument was $30 million and $29 million, as of March 31, 2020 and December 31, 2019, respectively.
The Company did not reclassify any deferred gains or losses related to net investment hedges from Accumulated other comprehensive loss to earnings during the three months ended March 31, 2020 and 2019.
v3.20.1
Fair Value Measurements and Financial Instruments
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Financial Instruments Fair Value Measurements and Financial Instruments
Accounting standards establish a three tier fair value hierarchy that prioritizes the inputs used in measuring fair values as follows:
Level 1 — observable inputs such as quoted prices for identical assets in active markets;
Level 2 — inputs other than quoted prices for identical assets in active markets, that are observable either directly or indirectly; and
Level 3 — unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions.
The following methods and assumptions are used to estimate the fair values of the Company’s financial instruments:
Money market funds consist of institutional prime, treasury, and government money market funds. The Company reviews treasury and government money market funds to obtain reasonable assurance that the fund net asset value is $1 per share, and reviews the floating net asset value of institutional prime money market funds for reasonableness. 
Equity investments consist of equity securities and equity derivatives valued using the closing stock price on a national securities exchange. Over the counter equity derivatives are valued using observable inputs such as underlying prices of the underlying security and volatility. On a sample basis, the Company reviews the listing of Level 1 equity securities in the portfolio, agrees the closing stock prices to a national securities exchange, and independently verifies the observable inputs for Level 2 equity derivatives and securities.
Fixed income investments consist of certain categories of bonds and derivatives. Corporate, government, and agency bonds are valued by pricing vendors who estimate fair value using recently executed transactions and proprietary models based on observable inputs, such as interest rate spreads, yield curves, and credit risk. Asset-backed securities are valued by pricing vendors who estimate fair value using discounted cash flow models utilizing observable inputs based on trade and quote activity of securities with similar features. Fixed income derivatives are valued by pricing vendors using observable inputs such as interest rates and yield curves. The Company obtains an understanding of the models, inputs, and assumptions used in developing prices provided by its vendors through discussions with the fund managers. The Company independently verifies the observable inputs, as well as assesses assumptions used for reasonableness based on relevant market conditions and internal Company guidelines. If an assumption is deemed unreasonable, based on internal Company guidelines, it is then reviewed by management and the fair value estimate provided by the vendor is adjusted, if deemed appropriate. These adjustments do not occur frequently and historically are not material to the fair value estimates used in the Financial Statements.
Derivatives are carried at fair value, based upon industry standard valuation techniques that use, where possible, current market-based or independently sourced pricing inputs, such as interest rates, currency exchange rates, or implied volatilities.
Debt is carried at outstanding principal balance, less any unamortized issuance costs, discount or premium. Fair value is based on quoted market prices or estimates using discounted cash flow analyses based on current borrowing rates for similar types of borrowing arrangements.
The following tables present the categorization of the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 (in millions):
 
 
 
Fair Value Measurements Using
 
Balance at March 31, 2020
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Assets
 

 
 

 
 

 
 

Money market funds (1)
$
2,252

 
$
2,252

 
$

 
$

Other investments
 

 
 

 
 

 
 

Government bonds
$
1

 
$

 
$
1

 
$

Equity investments
$
1

 
$

 
$
1

 
$

Derivatives (2)
 

 
 

 
 

 
 

Gross foreign exchange contracts
$
13

 
$

 
$
13

 
$

Liabilities
 

 
 

 
 

 
 

Derivatives (2)
 

 
 

 
 

 
 

Gross foreign exchange contracts
$
5

 
$

 
$
5

 
$


 
 
 
Fair Value Measurements Using
 
Balance at December 31, 2019
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
Assets
 

 
 

 
 

 
 

Money market funds (1)
$
2,007

 
$
2,007

 
$

 
$

Other investments
 

 
 

 
 

 
 

Government bonds
$
1

 
$

 
$
1

 
$

Equity investments
$
1

 
$

 
$
1

 
$

Derivatives (2)