10-Q 1 q32017aonplc.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED September 30, 2017
 
OR
 
o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-7933

Aon plc
(Exact Name of Registrant as Specified in Its Charter)
 
ENGLAND AND WALES
 
98-1030901
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
 
122 LEADENHALL STREET, LONDON, ENGLAND
 
EC3V 4AN
(Address of Principal Executive Offices)
 
(Zip Code)
+44 20 7623 5500
(Registrant’s Telephone Number,
Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  ý  NO  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  ý  NO  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO ý
 
Number of Class A Ordinary Shares of Aon plc, $0.01 nominal value, outstanding as of October 26, 2017249,897,712
 



Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Part I Financial Information
Item 1. Financial Statements
 
Aon plc
Condensed Consolidated Statements of Income
(Unaudited) 
 
 
Three Months Ended
 
Nine Months Ended
(millions, except per share data)
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Revenue
 
 

 
 

 
 
 
 
Total revenue
 
$
2,340

 
$
2,201

 
$
7,089

 
$
6,759

Expenses
 
 

 
 

 
 
 
 
Compensation and benefits
 
1,419

 
1,300

 
4,337

 
4,041

Information technology
 
109

 
99

 
295

 
281

Premises
 
89

 
86

 
259

 
257

Depreciation of fixed assets
 
40

 
39

 
148

 
118

Amortization and impairment of intangible assets
 
101

 
42

 
604

 
117

Other general expenses
 
317

 
267

 
956

 
770

Total operating expenses
 
2,075

 
1,833

 
6,599

 
5,584

Operating income
 
265

 
368

 
490

 
1,175

Interest income
 
10

 
1

 
20

 
6

Interest expense
 
(70
)
 
(70
)
 
(211
)
 
(212
)
Other income (expense)
 
(5
)
 
10

 
(20
)
 
27

Income from continuing operations before income taxes
 
200

 
309

 
279

 
996

Income tax expense (benefit)
 
4

 
25

 
(139
)
 
127

Net income from continuing operations
 
196

 
284

 
418

 
869

Income (loss) from discontinued operations, net of tax
 
(4
)
 
42

 
857

 
102

Net income
 
192

 
326

 
1,275

 
971

Less: Net income attributable to noncontrolling interests
 
7

 
7

 
30

 
27

Net income attributable to Aon shareholders
 
$
185

 
$
319

 
$
1,245

 
$
944

 
 
 
 
 
 
 
 
 
Basic net income (loss) per share attributable to Aon shareholders
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.74

 
$
1.03

 
$
1.49

 
$
3.13

Discontinued operations
 
(0.02
)
 
0.16

 
3.28

 
0.38

Net income
 
$
0.72

 
$
1.19

 
$
4.77

 
$
3.51

Diluted net income (loss) per share attributable to Aon shareholders
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.73

 
$
1.03

 
$
1.48

 
$
3.11

Discontinued operations
 
(0.01
)
 
0.15

 
3.26

 
0.37

Net income
 
$
0.72

 
$
1.18

 
$
4.74

 
$
3.48

Cash dividends per share paid on ordinary shares
 
$
0.36

 
$
0.33

 
$
1.05

 
$
0.96

Weighted average ordinary shares outstanding - basic
 
255.6

 
267.5

 
260.9

 
269.1

Weighted average ordinary shares outstanding - diluted
 
257.3

 
269.6

 
262.9

 
271.0

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

2



Aon plc
Condensed Consolidated Statements of Comprehensive Income
(Unaudited) 
 
 
Three Months Ended
 
Nine Months Ended
(millions)
 
September 30, 2017
 
September 30, 2016
 
September 30, 2017
 
September 30, 2016
Net income
 
$
192

 
$
326

 
$
1,275

 
$
971

Less: Net income attributable to noncontrolling interests
 
7

 
7

 
30

 
27

Net income attributable to Aon shareholders
 
$
185

 
$
319

 
$
1,245

 
$
944

Other comprehensive income (loss), net of tax:
 
 

 
 

 
 

 
 

Change in fair value of financial instruments
 
11

 

 
13

 
(11
)
Foreign currency translation adjustments
 
243

 
(89
)
 
434

 
(227
)
Postretirement benefit obligation
 
18

 
18

 
56

 
(132
)
Total other comprehensive income (loss)
 
272

 
(71
)
 
503

 
(370
)
Less: Other comprehensive income attributable to noncontrolling interests
 
7

 

 
3

 

Total other comprehensive income (loss) attributable to Aon shareholders
 
265

 
(71
)
 
500

 
(370
)
Comprehensive income attributable to Aon shareholders
 
$
450

 
$
248

 
$
1,745

 
$
574

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

3



Aon plc
Condensed Consolidated Statements of Financial Position
(Unaudited)
(millions, except nominal value)
 
September 30,
2017
 
December 31,
2016
ASSETS
 
 

 
 

CURRENT ASSETS
 
 

 
 

Cash and cash equivalents
 
$
749

 
$
426

Short-term investments
 
1,640

 
290

Receivables, net
 
2,068

 
2,106

Fiduciary assets 
 
9,292

 
8,959

Other current assets
 
518

 
247

Current assets of discontinued operations
 

 
1,118

Total Current Assets
 
14,267

 
13,146

Goodwill
 
7,888

 
7,410

Intangible assets, net
 
1,341

 
1,890

Fixed assets, net
 
545

 
550

Deferred tax assets
 
565

 
325

Prepaid pension
 
1,020

 
858

Other non-current assets
 
298

 
360

Non-current assets of discontinued operations
 

 
2,076

TOTAL ASSETS
 
$
25,924

 
$
26,615

 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

LIABILITIES
 
 

 
 

CURRENT LIABILITIES
 
 

 
 

Accounts payable and accrued liabilities
 
$
1,588

 
$
1,604

Short-term debt and current portion of long-term debt
 
305

 
336

Fiduciary liabilities
 
9,292

 
8,959

Other current liabilities
 
1,289

 
656

Current liabilities of discontinued operations
 

 
940

Total Current Liabilities
 
12,474

 
12,495

Long-term debt
 
5,662

 
5,869

Deferred tax liabilities
 
83

 
101

Pension, other postretirement and postemployment liabilities
 
1,612

 
1,760

Other non-current liabilities
 
846

 
719

Non-current liabilities of discontinued operations
 

 
139

TOTAL LIABILITIES
 
20,677

 
21,083

 
 
 
 
 
EQUITY
 
 

 
 

Ordinary shares - $0.01 nominal value
Authorized: 750 shares (issued: 2017 - 250.8; 2016 - 262.0)
 
3

 
3

Additional paid-in capital
 
5,670

 
5,577

Retained earnings
 
2,914

 
3,807

Accumulated other comprehensive loss
 
(3,412
)
 
(3,912
)
TOTAL AON SHAREHOLDERS' EQUITY
 
5,175

 
5,475

Noncontrolling interests
 
72

 
57

TOTAL EQUITY
 
5,247

 
5,532

TOTAL LIABILITIES AND EQUITY
 
$
25,924

 
$
26,615

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

4



Aon plc
Condensed Consolidated Statement of Shareholders’ Equity
(Unaudited) 
(millions)
 
Shares
 
Ordinary
Shares and
Additional
Paid-in Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Loss, Net of Tax
 
Non-
controlling
Interests
 
Total
Balance at December 31, 2016
 
262.0

 
$
5,580

 
$
3,807

 
$
(3,912
)
 
$
57

 
$
5,532

Adoption of new accounting guidance
 

 

 
49

 

 

 
49

Balance at January 1, 2017
 
262.0

 
5,580

 
3,856

 
(3,912
)
 
57

 
5,581

Net income
 

 

 
1,245

 

 
30

 
1,275

Shares issued - employee stock compensation plans
 
3.3

 
(117
)
 

 

 

 
(117
)
Shares purchased
 
(14.5
)
 

 
(1,913
)
 

 

 
(1,913
)
Share-based compensation expense
 

 
214

 

 

 

 
214

Dividends to shareholders
 

 

 
(274
)
 

 

 
(274
)
Net change in fair value of financial instruments
 

 

 

 
13

 

 
13

Net foreign currency translation adjustments
 

 

 

 
431

 
3

 
434

Net postretirement benefit obligation
 

 

 

 
56

 

 
56

Purchases of shares from noncontrolling interests
 

 
(4
)
 

 

 
(1
)
 
(5
)
Dividends paid to noncontrolling interests on subsidiary common stock
 

 

 

 

 
(17
)
 
(17
)
Balance at September 30, 2017
 
250.8

 
$
5,673

 
$
2,914

 
$
(3,412
)
 
$
72

 
$
5,247

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

5



Aon plc
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended
(millions)
 
September 30, 2017
 
September 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
1,275

 
$
971

Less: Income from discontinued operations, net of income taxes
 
857

 
102

Adjustments to reconcile net income to cash provided by operating activities:
 
 

 
 

Loss (gain) from sales of businesses and investments, net
 
2

 
(41
)
Depreciation of fixed assets
 
148

 
118

Amortization and impairment of intangible assets
 
604

 
117

Share-based compensation expense
 
214

 
210

Deferred income taxes
 
(208
)
 
(7
)
Change in assets and liabilities:
 
 

 
 

Fiduciary receivables
 
986

 
1,538

Short-term investments — funds held on behalf of clients
 
(701
)
 
(419
)
Fiduciary liabilities
 
(285
)
 
(1,119
)
Receivables, net
 
144

 
175

Accounts payable and accrued liabilities
 
(237
)
 
(246
)
Restructuring reserves
 
170

 

Current income taxes
 
(785
)
 
(80
)
Pension, other postretirement and other postemployment liabilities
 
(142
)
 
(70
)
Other assets and liabilities
 
(39
)
 
107

Cash provided by operating activities - continuing operations
 
289

 
1,152

Cash provided by operating activities - discontinued operations
 
64

 
323

CASH PROVIDED BY OPERATING ACTIVITIES
 
353

 
1,475

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Proceeds from investments
 
43

 
31

Payments for investments
 
(55
)
 
(47
)
Net sale (purchases) of short-term investments — non-fiduciary
 
(1,344
)
 
(108
)
Acquisition of businesses, net of cash acquired
 
(172
)
 
(198
)
Sale of businesses, net of cash sold
 
4,194

 
104

Capital expenditures
 
(125
)
 
(107
)
Cash provided by (used for) investing activities - continuing operations
 
2,541

 
(325
)
Cash used for investing activities - discontinued operations
 
(19
)
 
(46
)
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
 
2,522

 
(371
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Share repurchase
 
(1,888
)
 
(1,037
)
Issuance of shares for employee benefit plans
 
(118
)
 
(70
)
Issuance of debt
 
1,651

 
2,729

Repayment of debt
 
(1,998
)
 
(2,308
)
Cash dividends to shareholders
 
(274
)
 
(258
)
Noncontrolling interests and other financing activities
 
(21
)
 
(71
)
Cash used for financing activities - continuing operations
 
(2,648
)
 
(1,015
)
Cash used for financing activities - discontinued operations
 

 

CASH USED FOR FINANCING ACTIVITIES
 
(2,648
)
 
(1,015
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
91

 
10

NET INCREASE IN CASH AND CASH EQUIVALENTS
 
318

 
99

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
 
431

 
384

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
749

 
$
483

Supplemental disclosures:
 
 

 
 

Interest paid
 
$
195

 
$
196

Income taxes paid, net of refunds
 
$
854

 
$
153

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

6



Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements and Notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).  The Condensed Consolidated Financial Statements include the accounts of Aon plc and all of its controlled subsidiaries (“Aon” or the “Company”).  All intercompany accounts and transactions have been eliminated.  The Condensed Consolidated 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 Condensed Consolidated 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, 2016.  The results for the three and nine months ended September 30, 2017 are not necessarily indicative of operating results that may be expected for the full year ending December 31, 2017.
Discontinued Operations
On February 9, 2017, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Tempo Acquisition, LLC (the “Buyer”), an entity formed and controlled by affiliates of The Blackstone Group L.P. Pursuant to the Purchase Agreement, the Company sold its benefits administration and business process outsourcing business (the “Divested Business”) to the Buyer and certain designated purchasers that are direct or indirect subsidiaries of the Buyer (the “Transaction”). As a result, the Divested Business’s financial results are reflected in the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Financial Position, and Condensed Consolidated Statements of Cash Flows, retrospectively, as discontinued operations beginning in the first quarter of 2017. Additionally, all of the Notes to Condensed Consolidated Financial Statements have been retrospectively restated to only include the impacts of continuing operations, unless noted otherwise. The Transaction closed on May 1, 2017. Refer to Note 3 “Discontinued Operations” for additional information.
Reportable Segments
Beginning in the first quarter of 2017, the Company began operating as one segment that includes all of Aon’s continuing operations, which provides advice and solutions to clients focused on risk, retirement, and health through five revenue lines that make up our principal products and services. Refer to Note 17 “Segment Information” for additional information.
As a result of these initiatives, Aon made the following changes to its presentation of the Condensed Consolidated Statement of Income beginning in the first quarter of 2017:
Commissions, fees and other and Fiduciary investment income are now reported as one Total revenue line item; and
Other general expenses has been further broken out to provide greater clarity into charges related to Information technology, Premises, Depreciation of fixed assets, and Amortization and impairment of intangible assets.
Prior period comparable financial information has been reclassified to conform to this presentation.
The Company believes this presentation provides greater clarity into the risks and opportunities that management believes are important and allows users of the financial statements to assess the performance in the same way as the Chief Operating Decision Maker (the “CODM”).
Use of Estimates
The preparation of the accompanying Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.

7



2. Accounting Principles and Practices
Adoption of New Accounting Standards
Share-based Compensation
In March 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The new guidance requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement and treated as discrete items in the reporting period.  Further, excess tax benefits are required to be classified along with other income tax cash flows as an operating activity.  Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term should be applied prospectively. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method.
The Company adopted this guidance on January 1, 2017, with the following impacts:
An increase to Deferred tax assets on the Condensed Consolidated Statement of Financial Position of approximately $49 million through a cumulative-effect adjustment to Retained earnings for excess tax benefits not previously recognized, and
The recognition of $5 million, or $0.02 per share, income tax benefit from continuing operations related to excess tax benefits in the Condensed Consolidated Statement of Income for the three months ended September 30, 2017, and $53 million, or $0.20 per share, for the nine months ended September 30, 2017.
Adoption of the guidance was applied prospectively on the Condensed Consolidated Statement of Cash Flows and prior period comparable information was not restated. Other elements of the guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Accounting Standards Issued But Not Yet Adopted
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 amends its hedge accounting model to enable entities to better portray their risk management activities in the financial statements. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and requires the effect of a hedging instrument to be presented in the same income statement line as the hedged item. An entity will apply the new guidance on a modified retrospective basis with a cumulative effect adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the period of adoption. Changes to income statement presentation and financial statement disclosures will be applied prospectively. The new guidance is effective for Aon in the first quarter of 2019 and early adoption is permitted. The Company is currently evaluating the impact that the standard will have on the Condensed Consolidated Financial Statements and the period in which it plans to adopt.  
Presentation of Net Periodic Pension and Postretirement Benefit Costs
In March 2017, the FASB issued new accounting guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. It also requires the other components of net periodic pension cost and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, only the service cost component is eligible for capitalization, when applicable. An entity will apply the new guidance retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the Condensed Consolidated Statement of Income and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension costs and net periodic postretirement benefit cost in assets. The new guidance allows a practical expedient that permits an employer to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The new guidance is effective for Aon in the first quarter of 2018. The adoption of this

8



guidance will have no impact on the total results of the Company.  The presentation of results will reflect a change in Operating income offset by an equal change in Other income (expense) for the period.
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 for annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the period of adoption and the impact that the standard will have on the Condensed Consolidated Financial Statements.
Income Tax Consequences of Intercompany Transactions
In October 2016, the FASB issued new accounting guidance on the income tax consequences of intra-entity asset transfers other than inventory.  The guidance will require that the seller and buyer recognize the consolidated current and deferred income tax consequences of a transaction in the period the transaction occurs rather than deferring to a future period and recognizing those consequences when the asset has been sold to an outside party or otherwise recovered through use (i.e., depreciated, amortized, or impaired).  An entity will apply the new guidance on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption.  The new guidance is effective for Aon in the first quarter of 2018, and the Company is currently evaluating the impact that the standard will have on the Condensed Consolidated Financial Statements. 
Statement of Cash Flows
In August 2016, the FASB issued new accounting guidance on the classification of certain cash receipts and cash payments. Under the new guidance, an entity will no longer have discretion to choose the classification for a number of transactions, including contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The new standard will be effective for the Company in the first quarter of 2018, with early adoption permitted. An entity will apply the new guidance through retrospective adjustment to all periods presented. The retrospective approach includes a practical expedient that entities may apply should retrospective adoption be impracticable; in this case, the amendments for these issues may be applied prospectively as of the earliest date practicable. The guidance will not have a material impact on the Company’s Condensed Consolidated Statements of Cash Flows.
Credit Losses
In June 2016, the FASB issued new accounting guidance on the measurement of credit losses on financial instruments. The new guidance 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 guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The guidance is effective for Aon in the first quarter of 2020 and early adoption is permitted beginning in the first quarter of 2019. Aon is currently evaluating the impact that the standard will have on the Condensed Consolidated Financial Statements, as well as the method of transition and period of adoption.
Leases
In February 2016, the FASB issued new accounting guidance on leases, which requires lessees to recognize assets and liabilities for most leases. Under the new guidance, a lessee should recognize in the Condensed Consolidated Statement of Financial Position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from currently effective U.S. GAAP. The new standard will be effective for the Company in the first quarter of 2019, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. 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

9



the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. Aon is currently evaluating the impact the standard will have on the Condensed Consolidated Financial Statements and period of adoption.
Financial Assets and Liabilities
In January 2016, the FASB issued new accounting guidance on recognition and measurement of financial assets and financial liabilities. The amendments in the new guidance make targeted improvements, which include the requirement to measure equity investments with readily determinable fair values at fair value through net income, simplification of the impairment assessment for equity investments without readily determinable fair values, adjustments to existing and additional disclosure requirements, and additional tax considerations. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values, including disclosure requirements, should be applied prospectively to equity investments that exist as of the date of adoption of the guidance. The guidance is effective for the Company in the first quarter of 2018 and early adoption is permitted. Aon is currently evaluating the impact that the standard will have on the Condensed Consolidated Financial Statements and period of adoption.
Revenue Recognition
In May 2014, the FASB issued a new accounting standard on revenue from contracts with customers, which, when effective, will supersede nearly all existing revenue recognition guidance under U.S. GAAP.  The core principal of the standard is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The standard is effective for Aon in the first quarter of 2018 and early adoption is permitted beginning in the first quarter of 2017. Two methods of transition are permitted upon adoption: full retrospective and modified retrospective. Under the full retrospective method, prior periods would be restated under the new revenue standard, providing a comparable view across all periods presented. Under the modified retrospective method, prior periods would not be restated. Rather, revenue and other disclosures for pre-2018 periods would be provided in the notes to the financial statements as previously reported under the current revenue standard. The Company will adopt this standard in the first quarter of 2018 using a modified retrospective adoption approach.
A preliminary assessment to determine the impacts of the new accounting standard has been performed. The Company is currently implementing accounting and operational processes and controls to ensure compliance with the new standard, but is still evaluating the quantitative impacts the standard will have on its financial statements.
However, the more significant impacts of the new standard to the Company are anticipated to be as follows:
The Company currently recognizes revenue either at a point in time or over a period of time based on the transfer of value to customers or as the remuneration becomes determinable. Under the new standard, the revenue related to certain brokerage activities recognized over a period of time will be recognized on the effective date of the associated policies when control of the policy transfers to the customer. As a result, revenue from these arrangements will be recognized in earlier periods under the new standard in comparison to the current guidance and will change the timing and amount of revenue recognized for annual and interim periods. This change is anticipated to result in a significant shift in interim revenue for Reinsurance Solutions and certain other brokerage services. The Company is currently assessing the timing and measurement of revenue recognition under the new standard for certain other services, including advisory, where limited impacts are anticipated.
Additionally, the new standard provides guidance on accounting for certain revenue-related costs including when to capitalize costs associated with obtaining and fulfilling a contract. The majority of these costs are currently expensed as incurred under existing U.S. GAAP. Assets recognized for the costs to obtain a contract, which includes certain sales commissions, will be amortized on a systematic basis that is consistent with the transfer of the services to which the asset relates, considering anticipated renewals when applicable. For situations where the renewal period is one year or less and renewal costs are commensurate with the initial contract, the Company plans to apply a practical expedient and recognize the costs of obtaining a contract as an expense when incurred. Assets recognized for the costs to fulfill a contract, which includes internal costs related to pre-placement broking activities, will be amortized on a systematic basis that is consistent with the transfer of the services to which the asset relates, which is generally expected to be less than one year. The Company is quantifying the nature and amount of costs that would qualify for capitalization and the amount of amortization that will be recognized in each period.

10



3. Discontinued Operations
On February 9, 2017, the Company entered into the Purchase Agreement with Tempo Acquisition, LLC to sell its benefits administration and business process outsourcing business to the Buyer, an entity formed and controlled by affiliates of The Blackstone Group L.P., 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. 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.
In the nine months ended September 30, 2017, the Company recorded an estimated gain on sale, net of taxes, of $803 million and a non-cash impairment charge to its tradenames associated with the Divested Business of $380 million as these assets were not sold to the Buyer. The impairment charge is included in Amortization and impairment of intangible assets on the Condensed Consolidated Statement of Income for the nine months ended September 30, 2017.
The Company has classified the results of the Divested Business as discontinued operations in the Company’s Condensed Consolidated Statements of Income for all periods presented. Additionally, the assets and liabilities of the Divested Business were retrospectively classified as discontinued operations in the Company’s Condensed Consolidated Statements of Financial Position upon triggering held for sale criteria in February 2017. These assets and liabilities were sold on May 1, 2017.
The financial results of the Divested Business for the three and nine months ended September 30, 2017 and 2016 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 September 30
 
Nine months ended September 30

 
2017
 
2016
 
2017
 
2016
Revenue
 
 
 
 
 
 
 
 
Total revenue
 
$

 
$
559

 
$
698

 
$
1,606

Expenses
 
 
 
 
 
 
 
 
Total operating expenses
 
14

 
491

 
640

 
1,443

Operating income from discontinued operations
 
(14
)
 
68

 
58

 
163

Other income
 
(1
)
 
(1
)
 
10

 

Income from discontinued operations before income taxes
 
(15
)
 
67

 
68

 
163

Income taxes
 
(6
)
 
25

 
14

 
61

Income from discontinued operations excluding gain, net of tax
 
(9
)
 
42

 
54

 
102

Gain on sale of discontinued operations, net of tax
 
5

 

 
803

 

Income from discontinued operations, net of tax
 
$
(4
)
 
$
42

 
$
857

 
$
102

Upon triggering held for sale criteria in February 2017, Aon ceased depreciating and amortizing all long-lived assets included in discontinued operations. No depreciation or amortization expense was recognized during the three months ended September 30, 2017. Included within Total operating expenses for the three months ended September 30, 2016 was $18 million of depreciation of fixed assets and $30 million of intangible asset amortization. Total operating expenses for the nine months ended September 30, 2017 and 2016 include, respectively, $8 million and $53 million of depreciation of fixed assets and $11 million and $90 million of intangible asset amortization.

11



The following table presents the aggregate carrying amounts of the classes of assets and liabilities presented as discontinued operations within the Company’s Condensed Consolidated Statements of Financial Position (in millions):
 
 
September 30,
2017 (1)
 
December 31,
2016
ASSETS
 
 

 
 

Cash and cash equivalents
 
$

 
$
5

Receivables, net
 

 
483

Fiduciary assets
 

 
526

Goodwill
 

 
1,337

Intangible assets, net
 

 
333

Fixed assets, net
 

 
215

Other assets
 

 
295

TOTAL ASSETS
 
$

 
$
3,194

 
 
 
 
 
LIABILITIES
 
 

 
 

Accounts payable and accrued liabilities
 
$

 
$
197

Fiduciary liabilities
 

 
526

Other liabilities
 

 
356

TOTAL LIABILITIES
 
$

 
$
1,079

(1)
All assets and liabilities associated with the Divested Business were sold on May 1, 2017.
The Company’s Condensed Consolidated Statements of Cash Flows present the operating, investing, and financing cash flows of the Divested Business as discontinued operations.  Aon uses a centralized approach to cash management and financing of its operations. Prior to the closing of the Transaction, portions of the Divested Business’s cash were transferred to Aon daily, and Aon would fund the Divested Business as needed. Cash and cash equivalents of discontinued operations at September 30, 2016 was $3 million.
4. 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 September 30, 2017, Cash and cash equivalents and Short-term investments were $2,389 million compared to $716 million at December 31, 2016, an increase of $1,673 million that was primarily related to the receipt of proceeds from the sale of the Divested Business. Of the total balances, $98 million and $82 million was restricted as to its use at September 30, 2017 and December 31, 2016, respectively. Included within the September 30, 2017 and December 31, 2016 balances, respectively, were £42.7 million ($57.5 million at September 30, 2017 exchange rates) and £43.3 million ($53.2 million at December 31, 2016 exchange rates) of operating funds required to be held by the Company in the United Kingdom by the Financial Conduct Authority, a U.K.-based regulator, which were included in Short-term investments.

12



5. Other Financial Data
Condensed Consolidated Statements of Income Information
Other Income (Expense)
Other income (expense) consists of the following (in millions):
 
Three months ended September 30
 
Nine months ended September 30
 
2017
 
2016
 
2017
 
2016
Foreign currency remeasurement gain (loss)
$
(20
)
 
$
3

 
$
(32
)
 
$
(14
)
Gain (loss) on disposal of business

 

 
(2
)
 
41

Equity earnings
2

 
4

 
11

 
7

Gain (loss) on financial instruments
16

 
3

 
6

 
(7
)
Other
(3
)
 

 
(3
)
 

Total
$
(5
)
 
$
10

 
$
(20
)
 
$
27

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 September 30
 
Nine months ended September 30
 
2017
 
2016
 
2017
 
2016
Balance at beginning of period
$
59

 
$
64

 
$
56

 
$
58

Provision charged to Other general expenses
5

 
4

 
16

 
15

Accounts written off, net of recoveries

 
(5
)
 
(10
)
 
(11
)
Foreign currency translation
(5
)
 

 
(3
)
 
1

Balance at end of period
$
59

 
$
63

 
$
59

 
$
63

Other Current Assets
The components of Other current assets are as follows (in millions):
As of
September 30, 2017
 
December 31, 2016
Taxes receivable
$
208

 
$
100

Prepaid expenses
158

 
102

Receivables from the Divested Business (1)
124

 

Other
28

 
45

Total
$
518

 
$
247

(1)
Refer to Note 3 “Discontinued Operations” for additional information.

13



Other Non-Current Assets
The components of Other non-current assets are as follows (in millions):
As of
September 30, 2017
 
December 31, 2016
Investments
$
44

 
$
119

Taxes receivable
88

 
82

Other
166

 
159

Total
$
298

 
$
360

Other Current Liabilities
The components of Other current liabilities are as follows (in millions):
As of
September 30, 2017
 
December 31, 2016
Deferred revenue
$
331

 
$
199

Taxes payable (1)
537

 
77

Other
421

 
380

Total
$
1,289

 
$
656

(1)
Includes accrued taxes payable related to the gain on sale of the Divested Business.
Other Non-Current Liabilities
The components of Other non-current liabilities are as follows (in millions):
As of
September 30, 2017
 
December 31, 2016
Taxes payable
$
333

 
$
288

Deferred revenue
45

 
49

Leases
145

 
136

Compensation and benefits
61

 
56

Other
262

 
190

Total
$
846

 
$
719


14



6. Acquisitions and Dispositions of Businesses
Acquisitions
The Company completed eight acquisitions during the nine months ended September 30, 2017 and eight acquisitions during the twelve months ended December 31, 2016. 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):
 
 
For the nine months ended September 30, 2017
Cash
 
$
164

Deferred and contingent consideration
 
32

Aggregate consideration transferred
 
$
196

 
 
 
Assets acquired:
 
 
Cash and cash equivalents
 
$
7

Receivables, net
 
11

Goodwill
 
121

Intangible assets, net
 
90

Fixed assets, net
 
1

Other assets
 
10

Total assets acquired
 
240

Liabilities assumed:
 
 
Current liabilities
 
18

Other non-current liabilities
 
26

Total liabilities assumed
 
44

Net assets acquired
 
$
196

The results of operations of these acquisitions are included in the Condensed Consolidated 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.
2017 Acquisitions
On August 31, 2017, the Company completed the transaction to acquire Mark Kelly Insurance and Financial Services PTY LTD, an Australia-based broker servicing the insurance needs of commercial clients in and around the Townsville regional center.
On August 28, 2017, the Company completed the transaction to acquire a certain portfolio in the Charlotte office of The Hays Group, Inc. d/b/a Hays Companies.
On July 27, 2017, the Company completed the transaction to acquire Grupo Innovac Sociedad de Correduría de Seguros, S.A, an insurance broker based in Valencia, Spain.
On July 3, 2017, the Company completed the transaction to acquire PWZ AG, an independent insurance broker based in Zurich, Switzerland.
On May 31, 2017, the Company completed the transaction to acquire SchneiderGolling IFFOXX Assekuranzmakler AG and SchneiderGolling Industrie Assekuranzmaklergesellschaft mbH from SchneiderGolling Gruppe, a property and casualty broker based in Southern Germany.
On May 2, 2017, the Company completed the transaction to acquire cut-e Assessment Global Holdings Limited, a high-volume online psychometric assessments provider based in Ireland.
On March 3, 2017, the Company completed the transaction to acquire Finaccord Limited, a market research, publishing and consulting company based in the United Kingdom.
On January 19, 2017, the Company completed the transaction to acquire VERO Management AG, an insurance broker and risk advisor based in Austria.

15



2016 Acquisitions
On December 26, 2016, the Company completed the transaction to acquire Admix, a leading health and benefits brokerage and solutions firm based in Brazil.
On November 11, 2016 the Company completed the transaction to acquire CoCubes, a leading hiring assessment company based in India.
On October 31, 2016, the Company completed the transaction to acquire Stroz, Friedberg, Inc., a leading global cyber risk management firm based in New York City, with offices across the U.S. and in London, Zurich, Dubai and Hong Kong.
On August 19, 2016, the Company completed the transaction to acquire Cammack Health LLC, a leading health and benefits consulting firm that serves large health care organizations in the Eastern region of the U.S., including health plans, health systems and employers.
On June 1, 2016, the Company completed the transaction to acquire Univers Workplace Solutions, a leading elective benefit enrollment and communication services firm based in New Jersey.
On April 11, 2016, the Company completed the transaction to acquire Nexus Insurance Brokers Limited and Bayfair Insurance Centre Limited, insurance brokerage firms located in New Zealand.
On February 1, 2016, the Company completed the transaction to acquire Modern Survey, an employee survey and talent analytics solutions provider based in Minneapolis.
On January 1, 2016, the Company completed the transaction to acquire Globe Events Management, an insurance, retirement, and investment consulting business company based in Australia.
Dispositions
The Company completed no dispositions during the three months ended September 30, 2017 and four dispositions during the nine months ended September 30, 2017, excluding the sale of the Divested Business. Refer to Note 3 “Discontinued Operations” for further information. The Company completed no dispositions during the three months ended September 30, 2016 and four dispositions during the nine months ended September 30, 2016.
There were no gains recognized on the disposition of businesses for the three months ended September 30, 2017 and 2016, excluding the sale of the Divested Business. Total pretax losses recognized, net of gains, were $2 million for the nine months ended September 30, 2017, and total pretax gains recognized, net of losses, were $41 million for the nine months ended September 30, 2016. Gains and losses recognized as a result of a disposition are included in Other income (expense) in the Condensed Consolidated Statements of Income.
7. 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 2019, including an estimated 2,400 to 2,850 role eliminations. The Restructuring Plan is expected to result in cumulative costs of approximately $750 million through the end of the plan, consisting of approximately $303 million in employee termination costs, $146 million in technology rationalization costs, $80 million in lease consolidation costs, $40 million in asset impairments, and $181 million in other costs, including certain separation costs associated with the sale of the Divested Business. Included in the estimated $750 million are $50 million of non-cash charges related to asset impairments and lease consolidations.
From the inception of the Restructuring Plan through September 30, 2017, the Company has eliminated 2,125 positions and incurred total expenses of $401 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.

16



The following table summarizes restructuring and separation costs by type that have been incurred through September 30, 2017 and are estimated to be incurred through the end of the Restructuring Plan (in millions). Estimated costs may be revised in future periods as these assumptions are updated:
 
 
Three months ended September 30, 2017
 
Nine months ended September 30, 2017
 
Estimated Remaining Costs
 
Estimated Total Cost (1)
Workforce reduction
 
$
52

 
$
257

 
$
46

 
$
303

Technology rationalization (2)
 
12

 
22

 
124

 
146

Lease consolidation (2)
 
4

 
8

 
72

 
80

Asset impairments
 
2

 
26

 
14

 
40

Other costs associated with restructuring and separation (2) (3)
 
32

 
88

 
93

 
181

Total restructuring and related expenses
 
$
102

 
$
401

 
$
349

 
$
750

(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)
Contract termination costs included within Technology rationalization for the three and nine months ended September 30, 2017 were $1 million. Contract termination costs included within Lease consolidations for the three and nine months ended September 30, 2017 were $3 million and $8 million, respectively. Contract termination costs included within Other costs associated with restructuring and separation were $1 million for the three and nine months ended September 30, 2017. Total estimated contract termination costs to be incurred under the Restructuring Plan associated with Technology rationalizations, Lease consolidations, and Other costs associated with restructuring and separation, respectively, are $10 million, $80 million, and $10 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 September 30, 2017 are as follows (in millions):
 
 
Restructuring Plan
Balance as of December 31, 2016
 
$

Expensed
 
369

Cash payments
 
(199
)
Foreign currency translation and other
 
17

Balance as of September 30, 2017
 
$
187

8. Goodwill and Other Intangible Assets
The changes in the net carrying amount of goodwill for the nine months ended September 30, 2017 are as follows (in millions):
Balance as of December 31, 2016
$
7,410

Goodwill related to current year acquisitions
121

Goodwill related to disposals
(1
)
Goodwill related to prior year acquisitions
(6
)
Foreign currency translation
364

Balance as of September 30, 2017
$
7,888


17



Other intangible assets by asset class are as follows (in millions):
 
September 30, 2017
 
December 31, 2016
 
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
$
2,104

 
$
1,380

 
$
724

 
$
2,023

 
$
1,198

 
$
825

Tradenames(1)
1,041

 
478

 
563

 
1,027

 
7

 
1,020

Technology and other(1)
384

 
330

 
54

 
347

 
302

 
45

 Total
$
3,529

 
$
2,188

 
$
1,341

 
$
3,397

 
$
1,507

 
$
1,890

(1)
Prior to May 1, 2017, finite lived tradenames were classified within Technology and other. As of December 31, 2016, $29 million of gross carrying amount and $7 million of accumulated amortization related to finite-lived tradenames was reclassified from Technology and other to Tradenames.
In the second quarter of 2017 and in connection with the completion of the sale of the Divested Business, the Company recognized a non-cash impairment charge to the associated tradenames of $380 million. The fair value of the tradenames was determined using the Relief from Royalty Method. This impairment was included in Amortization and impairment of intangible assets on the Condensed Consolidated Statement of Income. Refer to Note 3 “Discontinued Operations” for further information.
Additionally, effective May 1, 2017 and consistent with operating as one segment, the Company implemented a three-year strategy to transition to a unified Aon brand. As a result, Aon commenced amortization of all indefinite lived tradenames and prospectively accelerated amortization of its finite-lived tradenames over the three-year period. The change in estimated useful life resulted in additional amortization expense, net of tax, to continuing operations of $34 million, or $0.13 per share, and $56 million, or $0.21 per share, in the three and nine months ended September 30, 2017, respectively.
Amortization expense and impairment charges from finite lived intangible assets was $101 million and $604 million for the three and nine months ended September 30, 2017, respectively. Amortization expense from finite lived intangible assets was $42 million and $117 million for the three and nine months ended September 30, 2016, respectively.
The estimated future amortization for finite lived intangible assets as of September 30, 2017 is as follows (in millions):
Remainder of 2017
$
117

2018
376

2019
357

2020
196

2021
89

Thereafter
206

 Total
$
1,341

9. Debt
Notes
During the first quarter of 2017, the CAD 375 million ($304 million at September 30, 2017 exchange rates) 4.76% Senior Notes due March 2018 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 less than one year.
Revolving Credit Facilities
As of September 30, 2017, Aon had one primary committed credit facility outstanding: its $900 million multi-currency U.S. credit facility expiring in February 2021 (the “2021 Facility”). On October 19, 2017, Aon entered into a $400 million multi-currency U.S. credit facility expiring in October 2022 (the “2022 Facility”). This facility replaced the Company’s previous $400 million U.S. credit facility that expired in March 2017.

18



The 2021 Facility 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 September 30, 2017, Aon did not have borrowings under the 2021 Facility, and was in compliance with all covenants contained therein during the nine months ended September 30, 2017.
Commercial Paper
Aon Corporation, a wholly-owned subsidiary of Aon plc, has established a U.S. commercial paper program and a European multi-currency commercial paper program (collectively the “CP Programs”). Commercial paper may be issued in an aggregate principal amount of up to $1.3 billion under the CP Programs, allocated between the two programs as determined by management, not to exceed the amount of committed credit, which was $900 million at September 30, 2017. The U.S. commercial paper program is fully and unconditionally guaranteed by Aon plc and the European 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
 
September 30, 2017
 
December 31, 2016
Commercial paper outstanding
 
$

 
$
329

The weighted average commercial paper outstanding and its related interest rates are as follows:
 
 
Three months ended September 30
 
Nine months ended September 30
 
 
2017
 
2016
 
2017
 
2016
Weighted average commercial paper outstanding
 
$

 
$
271

 
$
227

 
$
251

Weighted average interest rate of commercial paper outstanding
 
%
 
0.02
%
 
0.18
%
 
0.27
%
10. Income Taxes
The effective tax rate on net income from continuing operations was 2.0% and (49.8)% for the three and nine months ended September 30, 2017, respectively. The effective tax rate on net income from continuing operations was 8.1% and 12.8% for the three and nine months ended September 30, 2016, respectively. For the three months ended September 30, 2017, the Company reported tax expense of $4 million on pretax income of $200 million, which resulted in an effective tax rate of 2.0%, primarily driven by the jurisdictional distribution of income including the estimated impact of the Restructuring Program and the accelerated amortization of tradenames. For the nine months ended September 30, 2017, the Company reported a tax benefit of $139 million on pretax income of $279 million, which resulted in an effective tax rate of (49.8)%. The primary components of the year to date tax amounts were the non-cash tax benefit from the tradename impairment associated with the Divested Business and the impact of share-based payments from adoption of the new share-based compensation guidance. Refer to Note 2 “Accounting Principles and Practices” for additional details.
11. 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 up to $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.
In the three months ended September 30, 2017, the Company repurchased 5.4 million shares at an average price per share of $139.61, for a total cost of approximately $749 million and recorded an additional $3.8 million of costs associated with the repurchases to retained earnings. During the nine months ended September 30, 2017, the Company repurchased 14.5 million shares at an average price per share of $131.58, for a total cost of approximately $1.9 billion and recorded an additional $9.5 million of costs associated with the repurchases to retained earnings. Included in the 5.4 million shares and 14.5 million shares repurchased during the three and nine months ended September 30, 2017 were 165 thousand shares that did not settle until October 2017. These shares were settled at an average price per share of $146.52 and total cost of $24.2 million. In the three months ended

19



September 30, 2016, the Company repurchased 2.7 million shares at an average price per share of $110.26 for a total cost of approximately $301 million. During the nine months ended September 30, 2016, the Company repurchased 10.4 million shares at an average price per share of $101.16, for a total cost of approximately $1.1 billion. At September 30, 2017, the remaining authorized amount for share repurchase under the Repurchase Program was $5.9 billion. Under the Repurchase Program, the Company has repurchased a total of 104.7 million shares for an aggregate cost of approximately $9.1 billion.
Net Income Per Share
Weighted average shares outstanding are as follows (in millions):
 
Three months ended September 30
 
Nine months ended September 30
 
2017
 
2016
 
2017
 
2016
Basic weighted-average ordinary shares outstanding
255.6

 
267.5

 
260.9

 
269.1

Dilutive effect of potentially issuable shares
1.7

 
2.1

 
2.0

 
1.9

Diluted weighted-average ordinary shares outstanding
257.3

 
269.6

 
262.9

 
271.0

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 excluded from the calculation for the three and nine months ended September 30, 2017 and 2016.
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
 
Post-Retirement Benefit Obligation (2)
 
Total
Balance at December 31, 2016
$
(37
)
 
$
(1,264
)
 
$
(2,611
)
 
$
(3,912
)
Other comprehensive income (loss) before reclassifications, net
13

 
442

 

 
455

Amounts reclassified from accumulated other comprehensive loss:
 
 


 


 


Amounts reclassified from accumulated other comprehensive income (loss)
(2
)
 
(11
)
 
80

 
67

Tax benefit (expense)
2

 

 
(24
)
 
(22
)
Amounts reclassified from accumulated other comprehensive income (loss), net

 
(11
)
 
56

 
45

Net current period other comprehensive income (loss)
13

 
431

 
56

 
500

Balance at September 30, 2017
$
(24
)
 
$
(833
)
 
$
(2,555
)
 
$
(3,412
)
(1)
Reclassifications from this category included in Accumulated other comprehensive loss are recorded in Other income (expense), Other general expenses, and Compensation and benefits. See Note 14 “Derivatives and Hedging” for additional information regarding the Company’s derivative and hedging activity.
(2)
Reclassifications from this category included in Accumulated other comprehensive loss are recorded in Compensation and benefits.

20



12. Employee Benefits
The following table provides the components of the net periodic cost (benefit) recognized in the Condensed Consolidated Statements of Income in Compensation and benefits for Aon’s material U.K., U.S., and other significant international pension plans located in the Netherlands and Canada (in millions):
 
Three months ended September 30
 
U.K.
 
U.S.
 
Other
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
$

 
$

 
$

 
$

 
$

 
$

Interest cost
31

 
37

 
24

 
28

 
7

 
7

Expected return on plan assets, net of administration expenses
(50
)
 
(58
)
 
(34
)
 
(39
)
 
(13
)
 
(12
)
Amortization of prior-service cost

 

 

 
1

 

 

Amortization of net actuarial loss
8

 
7

 
13

 
12

 
3

 
3

Net periodic cost (benefit)
$
(11
)
 
$
(14
)
 
$
3

 
$
2

 
$
(3
)
 
$
(2
)
Loss on pension settlement

 

 

 

 

 

Total net periodic cost (benefit)
$
(11
)

$
(14
)

$
3


$
2


$
(3
)

$
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30
 
U.K.
 
U.S.
 
Other
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
$

 
$

 
$

 
$

 
$

 
$

Interest cost
91

 
123

 
72

 
83

 
19

 
21

Expected return on plan assets, net of administration expenses
(147
)
 
(187
)
 
(104
)
 
(117
)
 
(35
)
 
(36
)
Amortization of prior-service cost

 
1

 
1

 
2

 

 

Amortization of net actuarial loss
23

 
24

 
38

 
37

 
9

 
8

Net periodic cost (benefit)
$
(33
)
 
$
(39
)
 
$
7

 
$
5

 
$
(7
)
 
$
(7
)
Loss on pension settlement

 
61

 

 

 

 

Total net periodic cost (benefit)
$
(33
)
 
$
22

 
$
7

 
$
5

 
$
(7
)
 
$
(7
)
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 obligation to them. A non-cash settlement charge is expected in the fourth quarter of 2017.
Contributions
The Company expects to make cash contributions of approximately $80 million, $51 million, and $18 million, based on exchange rates as of December 31, 2016, to its significant U.K., U.S., and other significant international pension plans, respectively, during 2017.  During the three months ended September 30, 2017, cash contributions of $22 million, $5 million, and $3 million were made to the Company’s significant U.K., U.S., and other significant international pension plans, respectively. During the nine months ended September 30, 2017, cash contributions of $64 million, $31 million, and $14 million were made to the Company’s significant U.K., U.S., and other significant international pension plans, respectively. During the three and nine months ended September 30, 2017, Aon made a non-cash contribution of approximately $80 million to its U.S. pension plan.
During the three months ended September 30, 2016, cash contributions of $19 million, $5 million, and $4 million were made to the Company’s significant U.K., U.S., and other significant international pension plans, respectively. During the nine months ended September 30, 2016, cash contributions of $53 million, $24 million, and $14 million were made to the Company’s significant U.K., U.S., and other significant international pension plans, respectively.

21



13. 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 September 30
 
Nine months ended September 30
 
2017
 
2016
 
2017
 
2016
Restricted share units (“RSUs”)
$
42

 
$
40

 
$
143

 
$
136

Performance share awards (“PSAs”)
22

 
24

 
63

 
67

Employee share purchase plans
3

 
2

 
8

 
7

Total share-based compensation expense 
$
67

 
$
66

 
$
214

 
$
210

Restricted Share Units
RSUs generally vest between three and five years. The fair value of RSUs is based upon the market value of Aon 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):
 
2017
 
2016
 
Shares
 
Fair Value (1)
 
Shares
 
Fair Value (1)
Non-vested at December 31
6,195

 
$
89

 
7,167

 
$
77

Granted
1,549

 
122

 
2,110

 
101

Vested
(2,294
)
 
82

 
(2,729
)
 
70

Forfeited
(590
)
 
92

 
(333
)
 
81

Non-vested at September 30
4,860

 
$
102

 
6,215

 
$
88

(1)
Represents per share weighted average fair value of award at date of grant.
Unamortized deferred compensation expense amounted to $367 million as of September 30, 2017, with a remaining weighted-average amortization period of approximately 2.1 years.
Performance Share Awards
The vesting of PSAs is contingent upon meeting a cumulative level of earnings per share 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 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 expense, if necessary. Dividend equivalents are not paid on PSAs.
Information as of September 30, 2017 regarding the Company’s target PSAs granted and shares that would be issued at current performance levels for PSAs granted during the nine months ended September 30, 2017 and the years ended December 31, 2016 and 2015, respectively, is as follows (shares in thousands and dollars in millions, except fair value):
 
September 30,
2017
 
December 31,
2016
 
December 31,
2015
Target PSAs granted during period
548

 
752

 
967

Weighted average fair value per share at date of grant
$
114

 
$
100

 
$
96

Number of shares that would be issued based on current performance levels
544

 
663

 
1,362

Unamortized expense, based on current performance levels
$
51

 
$
27

 
$
11


22



14. 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 denominated in a currency that differs from its functional currency, or enters into other transactions that are denominated in a currency other than 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
 
Derivative Assets (1)
 
Derivative Liabilities (2)
 
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
Foreign exchange contracts
 

 
 

 
 

 
 

 
 

 
 

Accounted for as hedges
$
711

 
$
758

 
$
31

 
$
14

 
$
3

 
$
13

Not accounted for as hedges (3)
245

 
189

 

 
1

 
2

 
1

   Total
$
956

 
$
947

 
$
31

 
$
15

 
$
5

 
$
14

(1)
Included within Other current assets ($6 million at September 30, 2017 and $6 million at December 31, 2016) or Other non-current assets ($25 million at September 30, 2017 and $9 million at December 31, 2016).
(2)
Included within Other current liabilities ($3 million at September 30, 2017 and $7 million at December 31, 2016) or Other non-current liabilities ($2 million at September 30, 2017 and $7 million at December 31, 2016).
(3)
These contracts typically are for 30 day durations and are executed close to the last day of the most recent reporting month, thereby resulting in nominal fair values at the balance sheet date.
Offsetting of derivatives assets are as follows (in millions):
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Assets Presented in the Statement of Financial Position (1)
Derivatives accounted for as hedges
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
Foreign exchange contracts
$
31

 
$
14

 
$

 
$
(1
)
 
$
31

 
$
13

(1)
Included within Other current assets ($6 million at September 30, 2017 and $4 million at December 31, 2016) or Other non-current assets ($25 million at September 30, 2017 and $9 million at December 31, 2016).

23



Offsetting of derivative liabilities are as follows (in millions):
 
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Liabilities Presented in the Statement of Financial Position (1)
 Derivatives accounted for as hedges
 
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
 
September 30,
2017
 
December 31,
2016
Foreign exchange contracts
 
$
3

 
$
13

 
$

 
$
(1
)
 
$
3

 
$
12

(1)
Included within Other current liabilities ($2 million at September 30, 2017 and $5 million at December 31, 2016) or Other non-current liabilities ($1 million at September 30, 2017 and $7 million at December 31, 2016).
The amounts of derivative gains (losses) recognized in the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2017 and 2016 are as follows (in millions):
Cash Flow Hedge - Foreign Exchange Contracts
 
Location of Eventual Reclassification from Accumulated Other Comprehensive Loss
 
Gain (Loss) Currently Recognized in Accumulated Other Comprehensive Loss
Three months ended September 30
 
Compensation and Benefits
 
Other General Expenses
 
Interest Expense
 
Other Income (Expense)
 
Total
2017
 
$

 
$
3

 
$

 
$
8

 
$
11

2016
 
10

 
(4
)
 

 
(7
)
 
(1
)
Cash Flow Hedge - Foreign Exchange Contracts
 
Location of Eventual Reclassification from Accumulated Other Comprehensive Loss
 
Gain (Loss) Currently Recognized in Accumulated Other Comprehensive Loss
Nine months ended September 30
 
Compensation and Benefits
 
Other General Expenses
 
Interest Expense
 
Other Income (Expense)
 
Total
2017
 
$
9

 
$
5

 
$

 
$
4

 
$
18

2016
 
8

 
(9
)
 

 
(18
)
 
(19
)
Cash Flow Hedge - Foreign Exchange Contracts
 
Gain (Loss) reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)
Three months ended September 30