AON PLC, 10-Q filed on 4/26/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 25, 2019
Document and Entity Information    
Entity Registrant Name Aon plc  
Entity Central Index Key 0000315293  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   240,521,662
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
v3.19.1
Condensed Consolidated Statements of Income (Unaudited) - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenue    
Total revenue $ 3,143 $ 3,090
Expenses    
Compensation and benefits 1,584 1,616
Information technology 117 115
Premises 87 93
Depreciation of fixed assets 40 39
Amortization and impairment of intangible assets 97 110
Other general expenses 346 318
Total operating expenses 2,271 2,291
Operating income 872 799
Interest income 2 4
Interest expense (72) (70)
Other income (expense) 0 (15)
Income from continuing operations before income taxes 802 718
Income taxes 126 114
Net income from continuing operations 676 604
Net income from discontinued operations 0 6
Net income 676 610
Less: Net income attributable to noncontrolling interests 17 16
Net income attributable to Aon shareholders $ 659 $ 594
Basic net income per share attributable to Aon shareholders    
Continuing operations (in dollars per share) $ 2.72 $ 2.37
Discontinued operations (in dollars per share) 0 0.02
Net income (in dollars per share) 2.72 2.39
Diluted net income per share attributable to Aon shareholders    
Continuing operations (in dollars per share) 2.70 2.35
Discontinued operations (in dollars per share) 0 0.02
Net income (in dollars per share) $ 2.70 $ 2.37
Weighted average ordinary shares outstanding - basic (in shares) 242.2 248.5
Weighted average ordinary shares outstanding - diluted (in shares) 243.7 250.2
v3.19.1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net income $ 676 $ 610
Less: Net income attributable to noncontrolling interests 17 16
Net income attributable to Aon shareholders 659 594
Other comprehensive income, net of tax:    
Change in fair value of financial instruments 7 14
Foreign currency translation adjustments 133 247
Postretirement benefit obligation 31 48
Total other comprehensive income 171 309
Less: Other comprehensive income attributable to noncontrolling interests 2 3
Total other comprehensive income attributable to Aon shareholders 169 306
Comprehensive income (loss) attributable to Aon shareholders $ 828 $ 900
v3.19.1
Condensed Consolidated Statements of Financial Position - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 600 $ 656
Short-term investments 134 172
Receivables, net 3,242 2,760
Fiduciary assets 11,412 10,166
Other current assets 531 618
Total current assets 15,919 14,372
Goodwill 8,219 8,171
Intangible assets, net 1,077 1,149
Fixed assets, net 606 588
Operating lease right-of-use assets 993  
Deferred tax assets 588 561
Prepaid pension 1,224 1,133
Other non-current assets 509 448
Total assets 29,135 26,422
Current liabilities    
Accounts payable and accrued liabilities 1,479 1,943
Short-term debt and current portion of long-term debt 426 251
Fiduciary liabilities 11,412 10,166
Other current liabilities 1,220 936
Total current liabilities 14,537 13,296
Long-term debt 5,990 5,993
Non-current operating lease liabilities 978  
Deferred tax liabilities 205 181
Pension, other postretirement, and postemployment liabilities 1,590 1,636
Other non-current liabilities 973 1,097
Total liabilities 24,273 22,203
Equity    
Ordinary shares - $0.01 nominal value Authorized: 750 shares (issued: 2019 - 240.9; 2018 - 240.1) 2 2
Additional paid-in capital 5,958 5,965
Retained earnings 2,555 2,093
Accumulated other comprehensive loss (3,740) (3,909)
Total Aon shareholders' equity 4,775 4,151
Noncontrolling interests 87 68
Total equity 4,862 4,219
Total liabilities and equity $ 29,135 $ 26,422
v3.19.1
Condensed Consolidated Statements of Financial Position (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
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) 240,900,000 240,100,000
v3.19.1
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, 2017   247.6      
Beginning Balance at Dec. 31, 2017 $ 5,140 $ 5,777 $ 2,795 $ (3,497) $ 65
Increase (Decrease) in Shareholders' Equity          
Net income 610   594   16
Shares issued - employee stock compensation plans (in shares)   1.5      
Shares issued - employee stock compensation plans (109) $ (109)      
Shares purchased (in shares)   (3.9)      
Shares purchased (553)   (553)    
Share-based compensation expense 77 $ 77      
Dividends to shareholders ($0.40 per share) (89)   (89)    
Net change in fair value of financial instruments 14     14  
Net foreign currency translation adjustments 247     244 3
Net postretirement benefit obligation 48     48  
Ending Balance (in shares) at Mar. 31, 2018   245.2      
Ending Balance at Mar. 31, 2018 $ 5,385 $ 5,745 2,747 (3,191) 84
Beginning Balance (in shares) at Dec. 31, 2018 240.1 240.1      
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 ($0.40 per share) (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 240.9 240.9      
Ending Balance at Mar. 31, 2019 $ 4,862 $ 5,960 $ 2,555 $ (3,740) $ 87
v3.19.1
Condensed Consolidated Statement of Shareholders' Equity Unaudited (Parenthetical) - $ / shares
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Stockholders' Equity [Abstract]    
Dividends (in dollars per share) $ 0.40 $ 0.36
v3.19.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities    
Net income $ 676 $ 610
Net income from discontinued operations 0 6
Adjustments to reconcile net income to cash provided by operating activities:    
Loss from sales of businesses, net (4) 1
Depreciation of fixed assets 40 39
Amortization and impairment of intangible assets 97 110
Share-based compensation expense 89 77
Deferred income taxes (25) 26
Change in assets and liabilities:    
Fiduciary receivables (609) (605)
Short-term investments — funds held on behalf of clients (541) (195)
Fiduciary liabilities 1,150 800
Receivables, net (458) (269)
Accounts payable and accrued liabilities (454) (439)
Restructuring reserves (25) (24)
Current income taxes 118 30
Pension, other postretirement and postemployment liabilities (54) (53)
Other assets and liabilities 74 38
Cash provided by operating activities 74 140
Cash flows from investing activities    
Proceeds from investments 12 17
Payments for investments (14) (11)
Net sales of short-term investments — non-fiduciary 41 415
Acquisition of businesses, net of cash acquired (15) (29)
Sale of businesses, net of cash sold 6 (1)
Capital expenditures (57) (45)
Cash provided by (used for) investing activities (27) 346
Cash flows from financing activities    
Share repurchase (100) (569)
Issuance of shares for employee benefit plans (98) (109)
Issuance of debt 871 808
Repayment of debt (694) (704)
Cash dividends to shareholders (96) (89)
Noncontrolling interests and other financing activities (23) 0
Cash used for financing activities (140) (663)
Effect of exchange rates on cash and cash equivalents 37 18
Net increase (decrease) in cash and cash equivalents (56) (159)
Cash and cash equivalents at beginning of period 656 756
Cash and cash equivalents at end of period 600 597
Supplemental disclosures:    
Interest paid 27 58
Income taxes paid, net of refunds $ 33 $ 58
v3.19.1
Basis of Presentation
3 Months Ended
Mar. 31, 2019
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 (“Aon” or the “Company”). 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. These 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, 2018. The results for the three months ended March 31, 2019 are not necessarily indicative of operating results that may be expected for the full year ending December 31, 2019.
Use of Estimates
The preparation of the accompanying 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, and foreign currency exchange rate movements 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.
v3.19.1
Accounting Principles and Practices
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Accounting Principles and Practices Accounting Principles and Practices
Adoption of New Accounting Standards
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued new accounting guidance related to reclassification of certain tax effects from accumulated other comprehensive income. The guidance allowed a reclassification from accumulated comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The guidance was effective for the Company in the first quarter of 2019. There was no impact on the net income of the Company as Aon did not elect to reclassify stranded tax effects on the Condensed Consolidated Statement of Financial Position. It is the Company’s policy to release income tax effects from accumulated other comprehensive loss using the portfolio approach.
Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued new accounting guidance on targeted improvements to accounting for hedging activities. The new guidance amended its hedge accounting model to enable entities to better portray their risk management activities in the financial statements. The guidance eliminated the requirement to separately measure and report hedge ineffectiveness and required the effect of a hedging instrument to be presented in the same income statement line as the hedged item. The new guidance was effective for Aon in the first quarter of 2019 and the Company adopted it on a modified retrospective basis with no cumulative effect adjustment to accumulated other comprehensive income or corresponding adjustment to Retained earnings. Changes to the Condensed Consolidated Statement of Income and financial statement disclosures were applied prospectively. Under the new guidance, gains or losses on derivative hedges are recognized in revenue as compared to other income (expense) under the previous guidance. The adoption of this guidance had no impact on the net income of the Company.
Leases
In February 2016, the FASB issued a new accounting standard on leases, which requires lessees to recognize assets and liabilities for most leases. Under the new standard, a lessee is required to recognize in the Consolidated Statements of Financial Position, liabilities to make future lease payments and right-of-use (“ROU”) assets representing its right to use the underlying assets for the lease term. The recognition, measurement, timing, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP.
The Company adopted the new standard as of January 1, 2019, using the modified retrospective approach for all leases existing at, or entered into after, the period of adoption. Under this approach, prior periods were not restated. Rather, lease balances and other disclosures for prior periods were provided in the notes to the financial statements as previously reported, and the cumulative effect of initially applying the guidance was recognized in the Condensed Consolidated Statement of Financial Position.
The modified retrospective approach includes several optional practical expedients available that entities may elect to apply upon transition. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allows a lessee to carryforward their population of existing leases, the classification of each lease, as well as the treatment of initial direct costs as of the period of adoption. In addition, the Company elected the practical expedient related to lease and non-lease components, as an accounting policy election for all asset classes, which allows a lessee to not separate non-lease from lease components and instead account for consideration paid in a contract as a single lease component. Lastly, the Company did not elect the practical expedient related to hindsight analysis which allows a lessee to use hindsight in determining the lease term and in assessing impairment of the entity’s ROU assets.
The Company has made a policy election to not recognize ROU assets and lease liabilities that arise from leases with an initial term of twelve months or less on the Condensed Consolidated Statements of Financial Position. However, the Company will recognize these lease payments in the Condensed Consolidated Statements of Income on a straight-line basis over the lease term and variable lease payments in the period in which the obligation is incurred. The Company has chosen to apply this accounting policy across all classes of underlying assets. Additionally, upon adoption, the Company utilized a discount rate to determine the present value of the lease payments based on information available as of January 1, 2019.
Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. Upon adoption, the Company recognized ROU assets and lease liabilities of $1.1 billion and $1.3 billion, respectively. The standard had an insignificant impact on the Condensed Consolidated Statements of Income and no impact on the Condensed Consolidated Statements of Cash Flows. Refer to Note 20 “Lease Commitments” for further information including significant assumptions and judgments made.

As a result of applying the modified retrospective approach to adopt the new leasing standard, the following adjustments were made to the Condensed Consolidated Statements of Financial Position as of January 1, 2019 (in millions):
 
December 31,
2018
 
 
 
January 1,
2019
 
As Reported
 
Adjustments
 
As Adjusted
Assets
 
 
 
 
 
Operating lease right-of-use assets
$

 
$
1,021

 
$
1,021

Other non-current assets
$
448

 
$
78

 
$
526

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Other current liabilities
$
936

 
$
219

 
$
1,155

Non-current operating lease liabilities
$

 
$
1,014

 
$
1,014

Other non-current liabilities
$
1,097

 
$
(134
)
 
$
963


Accounting Standards Issued But Not Yet Adopted
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 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.
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. An entity will apply the new guidance on a prospective basis. The new guidance is effective for Aon in the first quarter of 2020 and early adoption is permitted. The Company is currently evaluating the period of adoption, but does not expect a 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. An entity will apply the new standard through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the standard is effective. The standard is effective for Aon in the first quarter of 2020 and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its Financial Statements and the period of adoption.
v3.19.1
Revenue from Contracts with Customers
3 Months Ended
Mar. 31, 2019
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
 
 
2019
 
2018
Commercial Risk Solutions
 
$
1,118

 
$
1,184

Reinsurance Solutions
 
788

 
742

Retirement Solutions
 
420

 
424

Health Solutions
 
486

 
451

Data & Analytic Services
 
336

 
294

Elimination
 
(5
)
 
(5
)
Total revenue
 
$
3,143

 
$
3,090


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
 
 
2019
 
2018
United States
 
$
1,161

 
$
1,116

Americas other than United States
 
226

 
237

United Kingdom
 
452

 
484

Europe, Middle East, & Africa other than United Kingdom
 
1,009

 
979

Asia Pacific
 
295

 
274

Total revenue
 
$
3,143

 
$
3,090



Contract Costs

An analysis of the changes in the net carrying amount of costs to fulfill contracts with customers are as follows (in millions):
As of
 
March 31,
2019
 
December 31,
2018
Balance at beginning of period
 
$
329

 
$
298

Additions
 
346

 
1,504

Amortization
 
(439
)
 
(1,465
)
Impairment
 

 

Foreign currency translation and other
 

 
(8
)
Balance at end of period
 
$
236

 
$
329



An analysis of the changes in the net carrying amount of costs to obtain contracts with customers are as follows (in millions):
As of
 
March 31,
2019
 
December 31,
2018
Balance at beginning of period
 
$
156

 
$
145

Additions
 
9

 
53

Amortization
 
(11
)
 
(41
)
Impairment
 

 

Foreign currency translation and other
 
1

 
(1
)
Balance at end of period
 
$
155

 
$
156

v3.19.1
Cash and Cash Equivalents and Short-term Investments
3 Months Ended
Mar. 31, 2019
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, 2019, Cash and cash equivalents and Short-term investments were $734 million compared to $828 million at December 31, 2018, a decrease of $94 million. Of the total balances, $140 million and $91 million were restricted as to their use at March 31, 2019 and December 31, 2018, respectively. Included within Cash and cash equivalents as of March 31, 2019, was $48 million of pledged cash, which was released on April 1, 2019. Included within Short-term investments as of March 31, 2019 and December 31, 2018 was £42.7 million ($56.4 million at March 31, 2019 exchange rates and $53.9 million at December 31, 2018 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.
v3.19.1
Other Financial Data
3 Months Ended
Mar. 31, 2019
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
 
2019
 
2018
Foreign currency remeasurement
$
(11
)
 
$
(16
)
Disposal of business
5

 
(1
)
Pension and other postretirement
4

 
2

Equity earnings
1

 
1

Financial instruments
1

 

Other

 
(1
)
Total
$

 
$
(15
)

Condensed Consolidated Statements of Financial Position Information
Allowance for Doubtful Accounts
An analysis of the allowance for doubtful accounts are as follows (in millions):
 
Three Months Ended March 31
 
2019
 
2018
Balance at beginning of period
$
64

 
$
59

Provision charged to Other general expenses
8

 
8

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

 
1

Balance at end of period
$
64

 
$
65


Other Current Assets
The components of Other current assets are as follows (in millions):
As of
March 31,
2019
 
December 31,
2018
Costs to fulfill contracts with customers (1)
$
236

 
$
329

Prepaid expenses
108

 
97

Taxes receivable
81

 
113

Other (2)
106

 
79

Total
$
531

 
$
618


(1)
Refer to Note 3 “Revenue from Contracts with Customers” for further information.
(2)
December 31, 2018 includes $12 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,
2019
 
December 31,
2018
Costs to obtain contracts with customers (1)
$
155

 
$
156

Taxes receivable
99

 
100

Leases (2)
70

 

Investments
55

 
54

Other
130

 
138

Total
$
509

 
$
448


(1)
Refer to Note 3 “Revenue from Contracts with Customers” for further information.
(2)
Refer to Note 20 “Lease Commitments” for further information.
Other Current Liabilities
The components of Other current liabilities are as follows (in millions):
As of
March 31,
2019
 
December 31,
2018
Deferred revenue (1)
$
305

 
$
251

Leases (2)
241

 

Taxes payable
158

 
83

Other
516

 
602

Total
$
1,220

 
$
936


(1)
During the Three Months Ended March 31, 2019, and twelve months ended December 31, 2018, $134 million and $487 million, respectively, was recognized in the Condensed Consolidated Statement of Income.
(2)
Refer to Note 20 “Lease Commitments” for further information.
Other Non-Current Liabilities
The components of Other non-current liabilities are as follows (in millions):
As of
March 31,
2019
 
December 31,
2018
Taxes payable (1)
$
596

 
$
585

Leases
50

 
169

Deferred revenue
60

 
65

Compensation and benefits
44

 
56

Other
223

 
222

Total
$
973

 
$
1,097


(1) Includes $238 million and $240 million for the non-current portion of the Transition Tax as of March 31, 2019 and December 31, 2018, respectively.
v3.19.1
Discontinued Operations
3 Months Ended
Mar. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations Discontinued Operations
On February 9, 2017, the Company entered into a Purchase Agreement with Tempo Acquisition, LLC (the “Purchase Agreement”) to sell its benefits administration and business process outsourcing business (the “Divested Business”) to an entity formed and controlled by affiliates of The Blackstone Group L.P. (the “Buyer”) and certain designated purchasers that are direct or indirect subsidiaries of the Buyer.
On May 1, 2017, the Buyer purchased all of the outstanding equity interests of the Divested Business, plus certain related assets and liabilities, for a purchase price of $4.3 billion in cash paid at closing, subject to customary adjustments set forth in the Purchase Agreement, and deferred consideration of up to $500 million (the “Transaction”). Cash proceeds after customary adjustments and before taxes due were $4.2 billion.
Aon and the Buyer entered into certain transaction related agreements at the closing, including two commercial agreements, a transition services agreement, certain intellectual property license agreements, sub-leases, and other customary agreements. Aon expects to continue to be a significant client of the Divested Business and the Divested Business has agreed to use Aon for its broking and other services for a specified period of time.
The financial results of the Divested Business for the three months ended March 31, 2019 and 2018 are presented as Income from discontinued operations on the Company’s Condensed Consolidated Statements of Income. The following table presents the financial results of the Divested Business (in millions):
 
 
Three Months Ended March 31

 
2019
 
2018
Expenses
 
 
 
 
Total operating expenses
 
$

 
$
3

Loss from discontinued operations before income taxes
 

 
(3
)
Income tax benefit
 

 
(1
)
Net loss from discontinued operations excluding gain
 

 
(2
)
Gain on sale of discontinued operations, net of tax
 

 
8

Net income from discontinued operations
 
$

 
$
6


There were no Cash and cash equivalents of discontinued operations at March 31, 2019. Total proceeds received for the sale of the divested business and taxes paid as a result of the sale are recognized on the Condensed Consolidated Statements of Cash Flows in Cash provided by investing activities - continuing operations and Cash provided by operating activities - continuing operations, respectively.
v3.19.1
Restructuring
3 Months Ended
Mar. 31, 2019
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 Divested Business. The Restructuring Plan is intended to streamline operations across the organization and deliver greater efficiency, insight, and connectivity. The Company expects these restructuring activities and related expenses to affect continuing operations through the
fourth quarter of 2019, including an estimated 4,800 to 5,400 role eliminations. In the fourth quarter of 2018, Aon expanded the Restructuring Plan, which resulted in additional expected costs of approximately $200 million, consisting of $150 million of cash investment and $50 million of non-cash charges.
The Restructuring Plan is expected to result in cumulative costs of approximately $1,225 million through the end of the plan, consisting of approximately $450 million in employee termination costs, $130 million in technology rationalization costs, $65 million in lease consolidation costs, $50 million in non-cash asset impairments, and $530 million in other costs, including certain separation costs associated with the sale of the Divested Business.
From the inception of the Restructuring Plan through March 31, 2019, the Company has eliminated 4,491 positions and incurred total expenses of $1,073 million for restructuring and related separation costs. These charges are included in Compensation and benefits, Information technology, Premises, Depreciation of fixed assets, and Other general expenses in the accompanying Condensed Consolidated Statements of Income.
The following table summarizes restructuring and separation costs by type that have been incurred through March 31, 2019 and are estimated to be incurred through the end of the Restructuring Plan (in millions). Estimated costs by type may be revised in future periods as these assumptions are updated:
 
 
Three Months Ended March 31, 2019
 
Inception to Date
 
Estimated Remaining Costs
 
Estimated Total Cost (1)
Workforce reduction
 
$
24

 
$
438

 
$
12

 
$
450

Technology rationalization (2)
 
11

 
91

 
39

 
130

Lease consolidation (2)
 
9

 
45

 
20

 
65

Asset impairments
 

 
39

 
11

 
50

Other costs associated with restructuring and separation (2) (3)
 
47

 
460

 
70

 
530

Total restructuring and related expenses
 
$
91

 
$
1,073

 
$
152

 
$
1,225

(1)
Actual costs, when incurred, may vary due to changes in the assumptions built into the Restructuring Plan.  Significant assumptions that may change when plans are finalized and implemented include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives.
(2)
Total contract termination costs incurred under the Restructuring Plan associated with Technology rationalizations, Lease consolidations, and Other costs associated with restructuring and separation, respectively, for the three months ended March 31, 2019 were $1 million, $9 million, and $2 million; and since inception of the Restructuring Plan were, respectively, $7 million, $42 million, and $90 million. Total estimated contract termination costs expected to be incurred under the Restructuring Plan associated with Technology rationalizations, Lease consolidations, and Other costs associated with restructuring and separation, respectively, are $15 million, $80 million, and $95 million.
(3)
Other costs associated with the Restructuring Plan include those to separate the Divested Business, as well as moving costs, and consulting and legal fees. These costs are generally recognized when incurred.

The changes in the Company’s liabilities for the Restructuring Plan as of March 31, 2019 are as follows (in millions):
 
 
 
Balance as of December 31, 2018
 
$
201

Expensed
 
88

Cash payments
 
(113
)
Foreign currency translation
 
(1
)
Balance as of March 31, 2019
 
$
175

v3.19.1
Acquisitions and Dispositions of Businesses
3 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Acquisitions and Dispositions of Businesses Acquisitions and Dispositions of Businesses
Completed Acquisitions
The Company completed one acquisition during the three months ended March 31, 2019 and eight acquisitions during the twelve months ended December 31, 2018. The following table includes the fair values of consideration transferred, assets acquired, and liabilities assumed as a result of the Company’s acquisitions (in millions):
 
 
Three Months Ended March 31, 2019
Consideration Transferred
 
$
17

Deferred and contingent consideration
 
5

Aggregate consideration transferred
 
$
22

 
 
 
Assets acquired
 
 
Cash and cash equivalents
 
$
2

Goodwill
 
15

Intangible assets, net
 
9

Other assets
 
4

Total assets acquired
 
30

Liabilities assumed
 
 
Current liabilities
 
6

Other non-current liabilities
 
2

Total liabilities assumed
 
8

Net assets acquired
 
$
22


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.
2019 Acquisitions
On January 1, 2019, the Company completed the transaction to acquire Chapka Assurances SAS based in France.
2018 Acquisitions
On December 31, 2018, the Company completed the transaction to acquire certain assets of Bill Beatty Insurance Agency, Inc. based in the United States.
On November 15, 2018, the Company completed the transaction to acquire certain business and assets of North Harbour Insurance Services (1985) Limited, a New Zealand-based firm.
On October 25, 2018, the Company completed the transaction to acquire 100% capital of GEFASS S.R.L and GE.F.IT S.R.L., Italy-based firms specialized in Bancassurance schemes.
On May 9, 2018, the Company completed the transaction to acquire certain assets of 601West, a division of Lee & Hayes, P.L.L.C. based in the United States.
On April 24, 2018, the Company completed the transaction to acquire Inspiring Benefits, S.L., a Spain-based firm specialized in employee loyalty, wellbeing, and rewards programs.
On March 1, 2018, the Company completed the transaction to acquire the business and assets of the trade credit business of Niche International Business Proprietary Limited, a trade credit brokerage based in Johannesburg, South Africa.
On March 1, 2018, the Company completed the transaction to acquire Affinity Risk Partners (Brokers) Pty. Ltd., an insurance broker in Victoria, Australia.
On January 19, 2018, the Company completed the transaction to acquire substantially all of the assets of The Burchfield Group, a provider in pharmacy benefit consulting, auditing, and health plan compliance services based in the United States.
Completed Dispositions
The Company completed one disposition during the three months ended March 31, 2019. The Company completed no dispositions during the three months ended March 31, 2018.
Total pretax gain, net of losses, for the three months ended March 31, 2019 was $5 million. Total pretax losses recognized for the three months ended March 31, 2018 was $1 million. Gains and losses recognized as a result of a disposition are included in Other income (expense) in the Condensed Consolidated Statements of Income.
v3.19.1
Goodwill and Other Intangible Assets
3 Months Ended
Mar. 31, 2019
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, 2019 are as follows (in millions):
Balance as of December 31, 2018
$
8,171

Goodwill related to current year acquisitions
15

Goodwill related to disposals
(1
)
Goodwill related to prior year acquisitions
1

Foreign currency translation and other
33

Balance as of March 31, 2019
$
8,219


Other intangible assets by asset class are as follows (in millions):
 
March 31, 2019
 
December 31, 2018
 
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
$
2,282

 
$
1,501

 
$
781

 
$
2,240

 
$
1,444

 
$
796

Tradenames
1,030

 
795

 
235

 
1,027

 
740

 
287

Technology and other
391

 
330

 
61

 
391

 
325

 
66

Total
$
3,703

 
$
2,626

 
$
1,077

 
$
3,658

 
$
2,509

 
$
1,149


The estimated future amortization for finite lived intangible assets as of March 31, 2019 is as follows (in millions):
Remainder of 2019
$
311

2020
217

2021
128

2022
85

2023
73

2024
56

Thereafter
207

Total
$
1,077

v3.19.1
Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt Debt
Notes
On December 3, 2018, Aon Corporation issued $350 million 4.50% Senior Notes due December 2028. The Company used the net proceeds of the offering to pay down a portion of outstanding commercial paper and for general corporate purposes.
On March 8, 2018, the Company’s CAD 375 million ($291 million at March 8, 2018 exchange rates) 4.76% Senior Note due March 2018 issued by a Canadian subsidiary of Aon Corporation matured and was repaid in full.
Revolving Credit Facilities
As of March 31, 2019, Aon plc had two primary committed credit facilities outstanding: its $900 million multi-currency United States (“U.S.”) credit facility expiring in February 2022 and its $400 million multi-currency U.S. credit facility expiring in October 2022 (collectively, the “2022 Facilities”).
Each of these 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, 2019, Aon did not have borrowings under the 2022 Facilities, and was in compliance with the financial covenants and all other covenants contained therein during the rolling twelve months ended March 31, 2019.
Commercial Paper
Aon Corporation, a wholly owned subsidiary of Aon plc, has established a U.S. commercial paper program and Aon plc has established a European multi-currency commercial paper program (collectively, the “CP 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 $1.3 billion at March 31, 2019. The U.S. commercial paper program is fully and unconditionally guaranteed by Aon plc and the European multi-currency commercial paper program is fully and unconditionally guaranteed by Aon Corporation.
Commercial paper outstanding, which is included in Short-term debt and current portion of long-term debt in the Company’s Condensed Consolidated Statements of Financial Position, is as follows (in millions):
As of
 
March 31, 2019
 
December 31, 2018
Commercial paper outstanding
 
$
423

 
$
250


The weighted average commercial paper outstanding and its related interest rates are as follows (in millions, except percentages):
 
 
Three Months Ended March 31
 
 
2019
 
2018
Weighted average commercial paper outstanding
 
$
323

 
$
125

Weighted average interest rate of commercial paper outstanding
 
0.49
%
 
(0.50
)%
v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The effective tax rate on net income from continuing operations was 15.7% for the three months ended March 31, 2019. The effective tax rate on net income from continuing operations was 15.9% for the three months ended March 31, 2018.
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. For the three months ended March 31, 2018, the tax rate was primarily driven by the geographical distribution of income and certain discrete items including the impact of share-based payments and a decrease in uncertain tax positions related to the statute of limitations expiration following an audit.
v3.19.1
Shareholders' Equity
3 Months Ended
Mar. 31, 2019
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 February 2017 for a total of $15.0 billion in repurchase authorizations.
Under the Repurchase Program, 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
 
2019
 
2018
Shares repurchased
0.6

 
3.9

Average price per share
$
161.16

 
$
140.94

Costs recorded to retained earnings:

 

Total repurchase cost
$
100

 
$
550

Additional associated costs
1

 
3

Total costs recorded to retained earnings
$
101

 
$
553


At March 31, 2019, the remaining authorized amount for share repurchase under the Repurchase Program was $3.9 billion. Under the Repurchase Program, the Company has repurchased a total of 118.9 million shares for an aggregate cost of approximately $11.1 billion.
Net Income Per Share
Weighted average ordinary shares outstanding are as follows (in millions):
 
Three Months Ended March 31
 
2019
 
2018
Basic weighted average ordinary shares outstanding
242.2

 
248.5

Dilutive effect of potentially issuable shares
1.5

 
1.7

Diluted weighted average ordinary shares outstanding
243.7

 
250.2


Potentially issuable shares are not included in the computation of diluted net income per share if its inclusion would be antidilutive. There were 0.1 million shares excluded from the calculation for the three months ended March 31, 2019 and March 31, 2018.
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, 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

 

 
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. Refer to Note 15 “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).
v3.19.1
Employee Benefits
3 Months Ended
Mar. 31, 2019
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 material U.K., U.S., and other significant international pension plans 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
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Interest cost
$
28

 
$
29

 
$
27

 
$
25

 
$
7

 
$
7

Expected return on plan assets, net of administration expenses
(49
)
 
(51
)
 
(34
)
 
(36
)
 
(10
)
 
(12
)
Amortization of prior-service cost
1

 

 
1

 

 

 

Amortization of net actuarial loss
7

 
8

 
13

 
15

 
3

 
3

Net periodic (benefit) cost
(13
)
 
(14
)
 
7

 
4

 

 
(2
)
Loss on pension settlement

 
7

 

 

 

 

Total net periodic (benefit) cost
$
(13
)

$
(7
)

$
7


$
4


$


$
(2
)

In March 2017, the Company approved a plan to offer a voluntary one-time lump sum payment option to certain eligible employees of the Company’s U.K. pension plans that, if accepted, would settle the Company’s pension obligations to them. The lump sum cash payment offer closed during 2018. For the three months ended March 31, 2018, lump sum payments from plan assets of £48 million ($68 million using March 31, 2018 exchange rates) were paid. As a result of this settlement, the Company remeasured the assets and liabilities of the U.K. pension plan during the first quarter of 2018, which in aggregate resulted in a reduction to the projected benefit obligation of £44 million ($63 million using March 31, 2018 exchange rates), as well as a non-cash settlement charge of £5 million ($7 million using average March 31, 2018 exchange rates) in the first quarter of 2018.
Contributions
The Company expects to make cash contributions of approximately $80 million, $46 million, and $19 million, based on exchange rates as of December 31, 2018, to its significant U.K., U.S., and other significant international pension plans, respectively, during 2019. During the three months ended March 31, 2019, cash contributions of $23 million, $17 million, and $7 million were made to the Company’s significant U.K., U.S., and other significant international pension plans, respectively.
During the three months ended March 31, 2018, cash contributions of $23 million, $17 million, and $8 million were made to the Company’s significant U.K., U.S., and other significant international pension plans, respectively.
v3.19.1
Share-Based Compensation Plans
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [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
 
2019
 
2018
Restricted share units (“RSUs”)
$
63

 
$
58

Performance share awards (“PSAs”)
23

 
16

Employee share purchase plans
3

 
3

Total share-based compensation expense 
$
89

 
$
77


Restricted Share Units
RSUs generally vest between three and five years. The fair value of RSUs is based upon the market value of Aon plc 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, including shares related to the Divested Business (shares in thousands, except fair value):
 
2019
 
2018
 
Shares
 
Fair Value (1) 
 
Shares
 
Fair Value (1) 
Non-vested at beginning of period
4,208

 
$
120

 
4,849

 
$
104

Granted
517

 
$
170

 
505

 
$
144

Vested
(677
)
 
$
117

 
(806
)
 
$
101

Forfeited
(41
)
 
$
121

 
(63
)
 
$
105

Non-vested at end of period
4,007

 
$
127

 
4,485

 
$
109


(1)
Represents per share weighted average fair value of award at date of grant.
Unamortized deferred compensation expense amounted to $366 million as of March 31, 2019, with a remaining weighted average amortization period of approximately 2 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 issue 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 Aon plc 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, 2019 and the years ended December 31, 2018 and 2017, respectively (shares in thousands and dollars in millions, except fair value):
 
March 31,
2019
 
December 31,
2018
 
December 31,
2017
Target PSAs granted during period
467

 
564

 
548

Weighted average fair value per share at date of grant
$
165

 
$
134

 
$
114

Number of shares that would be issued based on current performance levels
467

 
838

 
1,067

Unamortized expense, based on current performance levels
$
77

 
$
70

 
$
32

v3.19.1
Derivatives and Hedging
3 Months Ended
Mar. 31, 2019
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, 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 2 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 1 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,
2019
 
December 31,
2018
 
March 31,
2019
 
December 31,
2018
 
March 31,
2019
 
December 31,
2018
Foreign exchange contracts
 

 
 

 
 

 
 

 
 

 
 

Accounted for as hedges
$
565

 
$
646

 
$
20

 
$
17

 
$
1

 
$
2

Not accounted for as hedges (3)
321

 
269

 

 
1

 

 
6

Total
$
886

 
$
915

 
$
20

 
$
18

 
$
1

 
$
8

(1)
Included within Other current assets ($6 million at March 31, 2019 and $3 million at December 31, 2018) or Other non-current assets ($14 million at March 31, 2019 and $15 million at December 31, 2018).
(2)
Included within Other current liabilities ($1 million at March 31, 2019 and $5 million at December 31, 2018) or Other non-current liabilities ($3 million at December 31, 2018).
(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 Financial Statements are as follows (in millions):
 
 
Three Months Ended
 
 
March 31, 2019
 
March 31, 2018
Gain (Loss) recognized in Accumulated other comprehensive loss
 
$
4

 
$
14


The amounts of derivative gains (losses) reclassified from Accumulated other comprehensive loss into the Condensed Consolidated Statements of Income are as follows (in millions):
 
 
Three Months Ended
 
 
March 31, 2019
 
March 31, 2018
Compensation and benefits
 
$

 
$
1

Other general expenses
 

 
(1
)
Interest expense
 
(1
)
 
(1
)
Revenue (1)
 
(4
)
 

Other income (expense) (1)
 

 
(3
)
Total
 
$
(5
)
 
$
(4
)

(1)
With the adoption of new derivative guidance in 2019, gains (losses) on derivatives accounted for as hedges are recognized in Total revenue in the Company’s Condensed Consolidated Statements of Income rather than Other income (expense). Refer to Note 2 “Accounting Principles and Practices” for additional details.
The Company estimates that approximately $10 million of pretax losses currently included within Accumulated other comprehensive loss will be reclassified in to earnings in the next twelve months.
During the three months ended March 31, 2019, the Company recorded a gain of $5 million in Other income (expense) for foreign exchange derivatives not accounted for as hedges. During the three months ended March 31, 2018, the Company recorded a gain of $9 million in Other income (expense) for foreign exchange derivatives not accounted for 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.
As of March 31, 2019, the Company has €220 million ($248 million at March 31, 2019 exchange rates) of outstanding euro-denominated commercial paper designated as a hedge of the foreign currency exposure of its net investment in its European operations. As of March 31, 2019, the unrealized gain recognized in Accumulated other comprehensive loss related to the net investment non derivative hedging instrument was $23 million.
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, 2019 and 2018.
v3.19.1
Fair Value Measurements and Financial Instruments
3 Months Ended
Mar. 31, 2019
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 domestic and international 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 and 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 the Company’s 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, 2019 and December 31, 2018 (in millions):
 
 
 
Fair Value Measurements Using
 
Balance at
March 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)
$
1,979

 
$
1,979

 
$

 
$

Other investments
 

 
 

 
 

 
 

Government bonds
$
1

 
$

 
$
1

 
$

Equity investments
$
2

 
$

 
$
2

 
$

Derivatives (2)
 

 
 

 
 

 
 

Gross foreign exchange contracts
$
25

 
$

 
$
25

 
$

Liabilities
 

 
 

 
 

 
 

Derivatives (2)
 

 
 

 
 

 
 

Gross foreign exchange contracts
$
6

 
$

 
$
6

 
$

(1)
Included within Fiduciary assets or Short-term investments in the Condensed Consolidated Statements of Financial Position, depending on their nature and initial maturity.
(2)
Refer to Note 15 “Derivatives and Hedging” for additional information regarding the Company’s derivatives and hedging activity.
 
 
 
Fair Value Measurements Using
 
Balance at December 31, 2018
 
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)
$
1,759

 
$
1,759

 
$

 
$

Other investments
 

 
 

 
 

 
 

Government bonds
$
1

 
$

 
$
1

 
$

Equity investments
$
2

 
$

 
$
2

 
$

Derivatives (2)
 

 
 

 
 

 
 

Gross foreign exchange contracts
$
21

 
$

 
$
21

 
$

Liabilities
 

 
 

 
 

 
 

Derivatives (2)
 

 
 

 
 

 
 

Gross foreign exchange contracts
$
12

 
$

 
$