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MarketScreener Homepage  >  Equities  >  Nyse  >  Aon plc    AON   GB00B5BT0K07

AON PLC

(AON)
  Report
Delayed Quote. Delayed Nyse - 03/31 04:10:00 pm
165.04 USD   -3.50%
03/30WILLIS TOWERS WATSON PUBLIC : Form 8.3 - -2-
DJ
03/30WILLIS TOWERS WATSON PUBLIC : Form 8.3 -
DJ
03/26AON : Form 8.3 -
AQ
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AON : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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02/14/2020 | 05:23pm EDT
EXECUTIVE SUMMARY OF 2019 FINANCIAL RESULTS
Aon is a leading global professional services firm providing a broad range of
risk, retirement, and health solutions underpinned by proprietary data and
analytics. Management continues to lead its set of initiatives designed to
strengthen Aon and unite the firm with one portfolio of capability enabled by
proprietary data and analytics and one operating model to deliver additional
insight, connectivity, and efficiency.
Financial Results
In the first quarter of 2019, Aon adopted new accounting guidance related to the
treatment of leases that was applied using the modified retrospective approach.
Under this approach, prior periods were not restated. Refer to Note 2 "Summary
of Significant Accounting Principles and Practices" of the Notes to Consolidated
Financial Statements in Part II, Item 8 of this report for further information
surrounding the quantitative and qualitative impacts of adopting the new
accounting guidance.
The following is a summary of our 2019 financial results from continuing
operations:
•         Revenue increased $243 million, or 2%, to $11,013 million in 2019
          compared to 2018, reflecting 6% organic revenue growth, partially
          offset by a 3% unfavorable impact if we were to translate prior year

period results using current period foreign exchange rates ("foreign

currency translation") and a 1% unfavorable impact from divestitures,

net of acquisitions. Organic revenue growth for the year was

highlighted by each of the five solution lines contributing similar or

improved growth compared to the prior year.

• Operating expenses decreased $382 million, or 4%, to $8,844 million in

2019 compared to 2018 due primarily to a $238 million favorable impact

from foreign currency translation, a $176 million decrease from a

non-cash impairment charge related to certain assets and liabilities

that were classified as held for sale in the prior year period, $169

million of incremental savings from restructuring and other operational

improvement initiatives, an $81 million decrease in expenses related to

          divestitures, net of acquisitions, a $62 million net decrease in
          expense related to legacy litigation, and a $34 million decrease in
          restructuring charges, partially offset by an increase in expense

associated with 6% organic revenue growth and investments supporting

          long-term growth initiatives.


•         Operating margin increased to 19.7% in 2019 from 14.3% in 2018. The

increase in operating margin from the prior year is primarily driven by

          organic revenue growth of 6% and strong operational improvement.


•         Due to the factors set forth above, net income from continuing

operations was $1,574 million in 2019, an increase of $474 million, or

          43%, from 2018.


•         Diluted earnings per share from continuing operations was $6.37 per

share during the twelve months of 2019 compared to $4.29 per share for

the prior year period.

• Cash flows provided by operating activities was $1,835 million in 2019,

          an increase of $149 million, or 9%, from $1,686 million in 2018. The
          current year period includes approximately $130 million of net cash
          payments related to certain litigation settlements. The prior year
          comparable period included an $80 million accelerated pension
          contribution.


We focus on four key non-GAAP metrics that we communicate to shareholders:
organic revenue growth, adjusted operating margins, adjusted diluted earnings
per share, and free cash flows. These non-GAAP metrics should be viewed in
addition to, not instead of, our Consolidated Financial Statements and Notes
thereto (the "Consolidated Financial Statements"). The following is our measure
of performance against these four metrics from continuing operations for 2019:
•         Organic revenue growth, a non-GAAP measure defined under the caption
          "Review of Consolidated Results - Organic Revenue Growth," was 6% in
          2019, compared to 5% organic growth in the prior year. Organic revenue
          growth was driven by growth across every major revenue line, with
          particular strength in Reinsurance Solutions and Commercial Risk
          Solutions.


•         Adjusted operating margin, a non-GAAP measure defined under the caption
          "Review of Consolidated Results - Adjusted Operating Margin," was 27.5%
          in 2019, compared to 25.0% in the prior year. The increase in adjusted
          operating margin primarily reflects organic revenue growth of 6%,
          operational improvement, and $169 million of incremental savings

related to restructuring and other operational improvement initiatives.




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• Adjusted diluted earnings per share from continuing operations, a

non-GAAP measure defined under the caption "Review of Consolidated

Results - Adjusted Diluted Earnings per Share," was $9.17 per share in

2019, an increase of $1.01 per share, or 12%, from $8.16 per share in

2018. The increase in adjusted diluted earnings per share primarily

reflects strong operational performance and effective capital

management, highlighted by $2.0 billion of share repurchase during

2019, partially offset by an unfavorable impact from foreign currency

translation.

• Free cash flow, a non-GAAP measure defined under the caption "Review of

Consolidated Results - Free Cash Flow," was $1,610 million in 2019, an

          increase of $164 million, or 11%, from $1,446 million in 2018, driven
          by an increase of $149 million in cash flows in operations and a $15
          million decrease in capital expenditures.


PROPOSED REORGANIZATION
In October 2019, we announced the proposed Reorganization, which would result in
an Irish public limited company serving as our new publicly traded parent
company by means of a scheme of arrangement under English law. The
Reorganization would effectively change the jurisdiction of incorporation of the
publicly traded parent company of Aon from the U.K. to Ireland.
The Reorganization requires shareholder approval, which was obtained on February
4, 2020. We are also required to make an application to the High Court of
Justice of England and Wales to seek approval of the Reorganization. This
application is expected to be heard, and we currently anticipate that the
Reorganization will be completed, on March 31, 2020. This expected date depends
on a number of factors. If this expected date is changed, we will give adequate
notice of such change by issuing an announcement that will be made available at
our website.
Upon completion of the Reorganization, each shareholder will own the same number
of Class A Ordinary Shares of the new Irish parent company that such shareholder
owned immediately prior to completion of the Reorganization, and each
shareholder's proportionate ownership and relative voting rights will remain
unchanged. We will continue to report earnings and other financial statements in
accordance with SEC regulations, including U.S. dollar denominated financial
statements. We expect that the shares of the new Irish parent company will be
listed on the NYSE under the symbol "AON," the same symbol under which our Class
A Ordinary Shares are currently listed.
We believe the Reorganization will have no material impact on the day-to-day
conduct of the various operating companies within Aon, the strategy of Aon, or
the dividend policy of the new Irish parent company. The location of our future
operations will depend on the needs of our business, independent of legal
domicile, as per our practice prior to the Reorganization.

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REVIEW OF CONSOLIDATED RESULTS
Summary of Results
In the first quarter of 2019, Aon adopted new accounting guidance related to the
treatment of leases that was applied using the prospective approach. Under this
approach, prior periods were not restated. Refer to Note 2 "Summary of
Significant Accounting Principles and Practices" of the Notes to Consolidated
Financial Statements in Part II, Item 8 of this report for further information
surrounding the quantitative and qualitative impacts of adopting the new
accounting guidance. In the first quarter of 2018, Aon adopted new accounting
guidance related to the treatment of revenue from contracts with customers that
was applied prospectively on the U.S. GAAP financial statements and therefore
the 2017 comparable period has not been restated.
Our consolidated results are as follow:
                                                             Years ended December 31
(millions)                                              2019          2018          2017
Revenue
Total revenue                                        $  11,013$  10,770$   9,998
Expenses
Compensation and benefits                                6,054         6,103         6,003
Information technology                                     494           484           419
Premises                                                   339           370           348
Depreciation of fixed assets                               172           176           187
Amortization and impairment of intangible assets           392           593           704
Other general expense                                    1,393         1,500         1,272
Total operating expenses                                 8,844         9,226         8,933
Operating income                                         2,169         1,544         1,065
Interest income                                              8             5            27
Interest expense                                          (307 )        (278 )        (282 )
Other income (expense)                                       1           (25 )        (125 )
Income from continuing operations before income
taxes                                                    1,871         1,246           685
Income tax expense                                         297           146           250
Net income from continuing operations                    1,574         1,100           435
Net income (loss) from discontinued operations              (1 )          74           828
Net income                                               1,573         1,174         1,263
Less: Net income attributable to noncontrolling
interests                                                   41            40            37
Net income attributable to Aon shareholders          $   1,532$   1,134$   1,226
Diluted net income per share attributable to Aon
shareholders
Continuing operations                                $    6.37$    4.29$    1.53
Discontinued operations                                      -          0.30          3.17
Net income                                           $    6.37$    4.59$    4.70
Weighted average ordinary shares outstanding -
diluted                                                  240.6         

247.0 260.7



Consolidated Results for 2019 Compared to 2018
Revenue
Total revenue increased $243 million, or 2%, to $11,013 million in 2019,
compared to $10,770 million in 2018. The increase was driven by 6% organic
revenue growth, partially offset by a 3% unfavorable impact from foreign
currency translation and a 1% unfavorable impact from divestitures, net of
acquisitions. Organic revenue growth for the year was highlighted by each of the
five solution lines contributing similar or improved growth compared to the
prior year.
Commercial Risk Solutions revenue increased $21 million, or less than 1%, to
$4,673 million in 2019, compared to $4,652 million in 2018. Organic revenue
growth was 7% in 2019, reflecting growth across every major geography,
highlighted by double-

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digit growth across the U.S. and Latin America, driven by strong retention and
management of the renewal book portfolio. On average globally, exposures and
pricing were both modestly positive, resulting in a modestly positive market
impact overall.
Reinsurance Solutions revenue increased $123 million, or 8%, to $1,686 million
in 2019, compared to $1,563 million in 2018. Organic revenue growth was 10% in
2019 driven by strong net new business generation globally in treaty, as well as
double-digit growth globally in facultative placements and in capital markets
transactions. In addition, market impact was modestly positive on results.
Retirement Solutions revenue decreased $48 million, or 3%, to $1,817 million in
2019, compared to $1,865 million in 2018. Organic revenue growth was 2% in 2019
driven by solid growth in delegated investment management and in the Human
Capital practice, partially offset by an unfavorable impact from certain
businesses that were divested in the second quarter.
Health Solutions revenue increased $71 million, or 4%, to $1,667 million in
2019, compared to $1,596 million in 2018. Organic revenue growth was 5% in 2019
driven primarily by solid growth globally in health and benefits brokerage,
highlighted by particular strength internationally.
Data & Analytic Services revenue increased $79 million, or 7%, to $1,184 million
in 2019, compared to $1,105 million in 2018. Organic revenue growth was 4% in
2019 driven by growth globally across our Affinity business, with particular
strength across both business and consumer solutions in the U.S.
Compensation and Benefits
Compensation and benefits decreased $49 million, or 1%, in 2019 compared to
2018. The decrease was primarily driven by a $173 million favorable impact from
foreign currency translation, $144 million of incremental savings from
restructuring and other operational improvement initiatives, and a $47 million
decrease in expenses related to divestitures, net of acquisitions, partially
offset by a $90 million increase in restructuring charges and an increase in
expense associated with 6% organic revenue growth.
Information Technology
Information technology, which represents costs associated with supporting and
maintaining our infrastructure, increased $10 million, or 2%, in 2019 compared
to 2018. The increase was primarily driven by an increase in expense associated
with 6% organic revenue growth and an increase in investments to support growth
initiatives across the portfolio and enhance capabilities of our Aon Business
Services organization, partially offset by a $9 million favorable impact from
foreign currency translation, an $8 million decrease in restructuring charges, a
$5 million decrease in expenses related to divestitures, net of acquisitions,
and $4 million of incremental savings from restructuring and other operational
improvement initiatives.
Premises
Premises, which represents the cost of occupying offices in various locations
throughout the world, decreased $31 million, or 8%, in 2019 compared to 2018.
The decrease was primarily driven by an $11 million favorable impact from
foreign currency translation, $11 million of incremental savings from
restructuring and other operational improvement initiatives, and a reduction of
costs as we continue to optimize our global real estate footprint, partially
offset by a $5 million increase in restructuring charges.
Depreciation of Fixed Assets
Depreciation of fixed assets primarily relates to software, leasehold
improvements, furniture, fixtures and equipment, computer equipment, buildings,
and automobiles. Depreciation of fixed assets decreased $4 million, or 2%, in
2019 compared to 2018. The decrease was primarily driven by a $3 million
favorable impact from foreign currency translation.
Amortization and Impairment of Intangible Assets
Amortization and impairment of intangibles primarily relates to finite-lived
tradenames and customer-related, contract-based, and technology assets.
Amortization and impairment of intangibles decreased $201 million, or 34%, in
2019 compared to 2018. Included in 2018 was a $176 million non-cash impairment
charge related to certain assets and liabilities that were classified as held
for sale.
Other General Expenses
Other general expenses decreased $107 million, or 7%, in 2019 compared to 2018.
The decrease was primarily driven by a $122 million decrease in restructuring
charges, a $62 million net decrease in expense related to legacy litigation, a
$36 million favorable impact from foreign currency translation, a $12 million
decrease in expenses related to divestitures, net of acquisitions, and $11
million of incremental savings from restructuring and other operational
improvement initiatives, partially offset by an increase in expense associated
with 6% organic revenue growth and investments supporting long-term growth
initiatives.

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Interest Income
Interest income represents income earned on operating cash balances and other
income-producing investments. It does not include interest earned on funds held
on behalf of clients. Interest income was $8 million in 2019, an increase of $3
million, or 60%, from 2018, reflecting the currency composition of operating
cash.
Interest Expense
Interest expense, which represents the cost of our debt obligations, was $307
million in 2019, an increase of $29 million, or 10%, from 2018. The increase was
driven primarily by higher outstanding debt balances.
Other Income (Expense)
Total other income was $1 million in 2019, compared to other expense of $25
million in 2018. Other income in 2019 primarily includes $13 million in net
gains on the disposition of businesses, a $9 million favorable impact of
exchange rates on the remeasurement of assets and liabilities in non-functional
currencies, $9 million of pension and other postretirement income, and $4
million of equity earnings, partially offset by $34 million of losses on certain
financial instruments.
Income from Continuing Operations before Income Taxes
Due to factors discussed above, income from continuing operations before income
taxes was $1,871 million in 2019, a 50% increase from $1,246 million in 2018.
Income Taxes from Continuing Operations
The effective tax rate on net income from continuing operations was 15.9% in
2019 and 11.7% in 2018. The primary driver of the 2019 tax rate is the
geographical distribution of income, including restructuring charges, as well as
net favorable discrete items, including the impact of share-based payments.
The 2018 tax rate was primarily driven by the geographical distribution of
income including restructuring charges, legacy litigation, and the impairment of
certain assets and liabilities classified as held for sale. The tax rate was
also impacted by certain discrete items including the net tax benefit associated
with the sale of the disposal group and the impact of share-based payments
offset by the net tax expense from enactment date impacts of the Tax Cuts and
Jobs Act of 2017 and changes in valuation allowances.
Net Income from Discontinued Operations
Net loss from discontinued operations was $1 million in the twelve months ended
December 31, 2019, compared to net income from discontinued operations of $74
million in 2018.
Net Income Attributable to Aon Shareholders
Net income attributable to Aon shareholders increased to $1,532 million, or
$6.37 per diluted share, in 2019, compared to $1,134 million, or $4.59 per
diluted share, in 2018.
Consolidated Results for 2018 Compared to 2017
We have elected not to include a discussion of our consolidated results for 2018
compared to 2017 in this report in reliance upon Instruction 1 to Item 303(a) of
Regulation S-K. This discussion can be found in our Annual Report on Form 10-K
for the year ended December 31, 2018, which was filed with the SEC on February
19, 2019.
Non-GAAP Metrics
In our discussion of consolidated results, we sometimes refer to certain
non-GAAP supplemental information derived from consolidated financial
information specifically related to organic revenue growth, adjusted operating
margin, adjusted diluted earnings per share, free cash flow, and the impact of
foreign exchange rate fluctuations on operating results. This non-GAAP
supplemental information should be viewed in addition to, not instead of, our
Consolidated Financial Statements.

                                       30
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Organic Revenue Growth
We use supplemental information related to organic revenue growth to help us and
our investors evaluate business growth from existing operations. Organic revenue
growth is a non-GAAP measure that includes the impact of intercompany activity
and excludes the impact of the adoption of the new revenue recognition standard,
changes in foreign exchange rates, fiduciary investment income, acquisitions,
divestitures, transfers between revenue lines, and gains or losses on
derivatives accounted for as hedges. This supplemental information related to
organic revenue growth represents a measure not in accordance with U.S. GAAP and
should be viewed in addition to, not instead of, our Consolidated Financial
Statements. Industry peers provide similar supplemental information about their
revenue performance, although they may not make identical adjustments. A
reconciliation of this non-GAAP measure to the reported Total revenue is as
follows (in millions, except percentages):
                                  Twelve Months Ended
                                                                                                                      Less:             Less:
                                                                                                      Less:         Fiduciary       Acquisitions,
                                                                                   Revenue           Currency      Investment      Divestitures &     Organic Revenue
                             Dec 31, 2019      Dec 31, 2018      % Change       Recognition(1)      Impact(2)       Income(3)           Other            Growth(4)
Commercial Risk Solutions   $       4,673$      4,652           -  %             N/A               (3 )%             - %             (4 )%              7 %
Reinsurance Solutions               1,686            1,563           8                N/A               (2 )              1               (1 )              10
Retirement Solutions                1,817            1,865          (3 )              N/A               (2 )              -               (3 )               2
Health Solutions                    1,667            1,596           4                N/A               (3 )              -                2                 5
Data & Analytic Services            1,184            1,105           7                N/A               (3 )              -                6                 4
Elimination                           (14 )            (11 )       N/A                N/A              N/A              N/A              N/A               N/A
Total revenue               $      11,013$     10,770           2  %               - %             (3 )%             - %             (1 )%              6 %


                            Twelve Months Ended
                                                                                                                      Less:             Less:
                                                                                                                    Fiduciary       Acquisitions,       Organic
                                                                                                Less: Currency     Investment      Divestitures &       Revenue
                       Dec 31, 2018     Dec 31, 2017     % Change     Revenue Recognition(1)       Impact(2)        Income(3)           Other          Growth(4)
Commercial Risk
Solutions             $      4,652$      4,169         12  %               -  %                 1 %                 - %              5  %              6 %
Reinsurance
Solutions                    1,563            1,429          9                 (1 )                  2                   1                -                 7
Retirement
Solutions                    1,865            1,755          6                  -                    1                   -                3                 2
Health Solutions             1,596            1,515          5                 (1 )                  -                   -                1                 5
Data & Analytic
Services                     1,105            1,140         (3 )                -                    -                   -               (6 )               3
Elimination                    (11 )            (10 )       NA                 NA                   NA                  NA               NA                NA
Total revenue         $     10,770$      9,998          8  %               -  %                 1 %                 - %              2  %              5 %

(1) Revenue recognition represents the impact of Aon's adoption of the new

revenue recognition standard, effective for Aon in the first quarter of 2018.

(2) Currency impact is determined by translating prior period's revenue at this

period's foreign exchange rates.

(3) Fiduciary investment income for the years ended December 31, 2019, 2018, and

2017, respectively, was $74 million, $53 million, and $32 million.

(4) Organic revenue growth includes the impact of intercompany activity and

excludes the impact of the adoption of the new revenue recognition standard,

changes in foreign exchange rates, fiduciary investment income, acquisitions,

    divestitures, transfers between revenue lines, and gains or losses on
    derivatives accounted for as hedges.



                                       31
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Adjusted Operating Margin
We use adjusted operating margin as a non-GAAP measure of core operating
performance of the Company. Adjusted operating margin excludes the impact of
certain items, as listed below, because management does not believe these
expenses reflect our core operating performance. This supplemental information
related to adjusted operating margin represents a measure not in accordance with
U.S. GAAP, and should be viewed in addition to, not instead of, our Consolidated
Financial Statements.
A reconciliation of this non-GAAP measure to reported operating margins is as
follows (in millions, except percentages):
                                                             Years ended 

December 31

                                                        2019          2018  

2017

Revenue from continuing operations                   $  11,013     $  

10,770 $ 9,998

Operating income from continuing operations $ 2,169$ 1,544$ 1,065 Restructuring

                                              451           485           497
Amortization and impairment of intangible assets
(1)                                                        392           593           704
Legacy litigation (2)                                       13            75             -
Regulatory and compliance matters                            -             -            28
Operating income from continuing operations - as
adjusted                                             $   3,025     $   

2,697 $ 2,294


Operating margin from continuing operations               19.7 %        14.3 %        10.7 %
Operating margin from continuing operations - as
adjusted                                                  27.5 %        

25.0 % 22.9 %

(1) Included in the twelve months ended December 30, 2018 was a $176 million

non-cash impairment charge taken on certain assets and liabilities held for

sale. Included in the twelve months ended December 31, 2017 was a $380

million non-cash impairment charge taken on indefinite-lived tradenames.

(2) During the fourth quarter of 2019 we settled legacy litigation that had been

reported in a prior year as an adjustment to GAAP earnings. In connection

with the settlement, we recorded a $13 million charge in the quarter, which

represents the difference between the amount accrued in the prior year and

the final settlement amount of the legacy litigation.

Adjusted Diluted Earnings per Share


We use adjusted diluted earnings per share as a non-GAAP measure of our core
operating performance. Adjusted diluted earnings per share excludes the items
identified above, along with pension settlements and related income taxes,
because management does not believe these expenses are representative of our
core earnings. This supplemental information related to adjusted diluted
earnings per share represents a measure not in accordance with U.S. GAAP and
should be viewed in addition to, not instead of, our Consolidated Financial
Statements.
A reconciliation of this non-GAAP measure to reported diluted earnings per share
is as follows (in millions, except per share data and percentages):

                                       32
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                                                                Year Ended December 31, 2019
(millions, except per share data)                    U.S. GAAP        Adjustments      Non-GAAP Adjusted
Operating income from continuing operations        $    2,169       $         856     $           3,025
Interest income                                             8                   -                     8
Interest expense                                         (307 )                 -                  (307 )
Other income (expense) (1)                                  1                   -                     1
Income before income taxes from continuing
operations                                              1,871                 856                 2,727
Income tax expense (2)                                    297                 181                   478
Net income from continuing operations                   1,574                 675                 2,249
Net income (loss) from discontinued operations
(3)                                                        (1 )                 -                    (1 )
Net income                                              1,573                 675                 2,248
Less: Net income attributable to noncontrolling
interests                                                  41                   -                    41

Net income attributable to Aon shareholders $ 1,532 $

   675     $           2,207

Diluted net income per share attributable to Aon
shareholders
Continuing operations                              $     6.37$        2.80     $            9.17
Discontinued operations                                     -                   -                     -
Net income                                         $     6.37$        2.80     $            9.17

Weighted average ordinary shares outstanding -
diluted                                                 240.6                   -                 240.6
Effective tax rates (3)
Continuing operations                                    15.9 %                                    17.5 %
Discontinued operations                                  47.4 %                                    47.4 %


                                                               Year Ended December 31, 2018
(millions, except per share data)                    U.S. GAAP       Adjustments     Non-GAAP Adjusted
Operating income from continuing operations        $    1,544$     1,153     $           2,697
Interest income                                             5                 -                     5
Interest expense                                         (278 )               -                  (278 )
Other income (expense) (1)                                (25 )              37                    12
Income before income taxes from continuing
operations                                              1,246             1,190                 2,436
Income tax expense (2)                                    146               233                   379
Net income from continuing operations                   1,100               957                 2,057
Net income (loss) from discontinued operations
(3)                                                        74               (82 )                  (8 )
Net income                                              1,174               875                 2,049
Less: Net income attributable to noncontrolling
interests                                                  40                 -                    40

Net income attributable to Aon shareholders $ 1,134$ 875 $

           2,009

Diluted net income (loss) per share attributable
to Aon shareholders
Continuing operations                              $     4.29$      3.87     $            8.16
Discontinued operations                                  0.30             (0.33 )               (0.03 )
Net income                                         $     4.59$      3.54     $            8.13

Weighted average ordinary shares outstanding -
diluted                                                 247.0                 -                 247.0
Effective tax rates (3)
Continuing operations                                    11.7 %                                  15.6 %
Discontinued operations                              15,949.3 %                                  29.7 %



                                       33
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                                                               Year Ended December 31, 2017
(millions, except per share data)                    U.S. GAAP       Adjustments     Non-GAAP Adjusted
Operating income from continuing operations        $    1,065$     1,229     $           2,294
Interest income                                            27                 -                    27
Interest expense                                         (282 )               -                  (282 )
Other income (expense) (1)                               (125 )             128                     3
Income before income taxes from continuing
operations                                                685             1,357                 2,042
Income tax expense (2)                                    250                55                   305
Net income from continuing operations                     435             1,302                 1,737
Net income (loss) from discontinued operations
(3)                                                       828              (772 )                  56
Net income                                              1,263               530                 1,793
Less: Net income attributable to noncontrolling
interests                                                  37                 -                    37

Net income attributable to Aon shareholders $ 1,226$ 530 $

           1,756

Diluted net income (loss) per share attributable
to Aon shareholders
Continuing operations                              $     1.53$      4.99     $            6.52
Discontinued operations                                  3.17             (2.95 )                0.22
Net income                                         $     4.70$      2.04     $            6.74

Weighted average ordinary shares outstanding -
diluted                                                 260.7                 -                 260.7
Effective tax rates (3)
Continuing operations                                    36.5 %                                  14.9 %
Discontinued operations                                  58.9 %                                  11.7 %

(1) Adjusted Other income (expense) excludes pension settlement charges of $37

million and $128 million, for the years ended 2018, and 2017, respectively.

(2) Adjusted items are generally taxed at the estimated annual effective tax

rate, except for the applicable tax impact associated with estimated

Restructuring Plan expenses, legacy litigation, accelerated tradename

amortization, impairment charges and non-cash pension settlement charges,

which are adjusted at the related jurisdictional rates. In addition, tax

expense excludes the tax impacts of the sale of the disposal group and

enactment date impacts of the Tax Cuts and Jobs Act of 2017.

(3) Adjusted Net income (loss) from discontinued operations excludes the gain on

sale of discontinued operations of $82 million and $779 million for the years

ended 2018, and 2017, respectively. Adjusted net income from discontinued

operations excludes intangible asset amortization of $11 million for the

twelve months ended December 31, 2017. The effective tax rate was further

adjusted for the applicable tax impact associated with the gain on sale and

intangible asset amortization, as applicable.



Free Cash Flow
We use free cash flow, defined as cash flow provided by operations minus capital
expenditures, as a non-GAAP measure of our core operating performance and cash
generating capabilities of our business operations. This supplemental
information related to free cash flow represents a measure not in accordance
with U.S. GAAP and should be viewed in addition to, not instead of, the
Consolidated Financial Statements. The use of this non-GAAP measure does not
imply or represent the residual cash flow for discretionary expenditures. A
reconciliation of this non-GAAP measure to cash flow provided by operations is
as follows (in millions):
Years Ended December 31                                 2019        2018    

2017

Cash provided by continuing operating activities $ 1,835$ 1,686

   $ 669
Capital expenditures used for continuing operations      (225 )      (240 )    (183 )
Free cash flow provided by continuing operations      $ 1,610$ 1,446

$ 486



Impact of Foreign Currency Exchange Rate Fluctuations
Because we conduct business in more than 120 countries and sovereignties,
foreign currency exchange rate fluctuations have a significant impact on our
business. Foreign currency exchange rate movements may be significant and may
distort true period-to-period comparisons of changes in revenue or pretax
income. Therefore, to give financial statement users meaningful information
about our operations, we have provided an illustration of the impact of foreign
currency exchange rate fluctuations on our financial

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results. The methodology used to calculate this impact isolates the impact of
the change in currencies between periods by translating the prior year's
revenue, expenses, and net income using the current year's foreign currency
exchange rates.
Translating prior year results at current year foreign currency exchange rates,
currency fluctuations had a $0.19 unfavorable impact on net income per diluted
share during the year ended December 31, 2019. Currency fluctuations had a $0.08
favorable impact on net income per diluted share during the year ended December
31, 2018, when 2017 results were translated at 2018 rates. Currency fluctuations
had a $0.12 favorable impact on net income per diluted share during the year
ended December 31, 2017, when 2016 results were translated at 2017 rates.
Translating prior year results at current year foreign currency exchange rates,
currency fluctuations had a $0.23 unfavorable impact on adjusted net income per
diluted share during the year ended December 31, 2019. Currency fluctuations had
a $0.09 favorable impact on adjusted net income per diluted share during the
year ended December 31, 2018, when 2017 results were translated at 2018 rates.
Currency fluctuations had a $0.08 favorable impact on adjusted net income per
diluted share during the year ended December 31, 2017, when 2016 results were
translated at 2017 rates. These translations are performed for comparative
purposes only and do not impact the accounting policies or practices for amounts
included in the Consolidated Financial Statements.
LIQUIDITY AND FINANCIAL CONDITION
Liquidity
Executive Summary
We believe that our balance sheet and strong cash flow provide us with adequate
liquidity. Our primary sources of liquidity are cash flows provided by
operations, available cash reserves, and debt capacity available under our
credit facilities. Our primary uses of liquidity are operating expenses and
investments, restructuring activities, capital expenditures, acquisitions, share
repurchases, pension obligations, and shareholder dividends. We believe that
cash flows from operations, available credit facilities, and the capital markets
will be sufficient to meet our liquidity needs, including principal and interest
payments on debt obligations, capital expenditures, pension contributions, and
anticipated working capital requirements, for the foreseeable future.
Cash on our balance sheet includes funds available for general corporate
purposes, as well as amounts restricted as to their use. Funds held on behalf of
clients in a fiduciary capacity are segregated and shown together with
uncollected insurance premiums and claims in Fiduciary assets in the
Consolidated Statements of Financial Position, with a corresponding amount in
Fiduciary liabilities.
In our capacity as an insurance broker or agent, we collect premiums from
insureds and, after deducting our commission, remit the premiums to the
respective insurance underwriters. We also collect claims or refunds from
underwriters on behalf of insureds, which are then returned to the insureds.
Unremitted insurance premiums and claims are held by us in a fiduciary capacity.
The levels of fiduciary assets and liabilities can fluctuate significantly
depending on when we collect the premiums, claims, and refunds, make payments to
underwriters and insureds, and collect funds from clients and make payments on
their behalf, and upon the impact of foreign currency movements. Fiduciary
assets, because of their nature, are generally invested in very liquid
securities with highly rated, credit-worthy financial institutions. Our
Fiduciary assets included cash and short-term investments of $5.2 billion and
$3.9 billion at December 31, 2019 and 2018, respectively, and fiduciary
receivables of $6.7 billion and $6.3 billion at December 31, 2019 and 2018,
respectively. While we earn investment income on the fiduciary assets held in
cash and investments, the cash and investments cannot be used for general
corporate purposes.
We maintain multi-currency cash pools with third-party banks in which various
Aon entities participate. Individual Aon entities are permitted to overdraw on
their individual accounts provided the overall global balance does not fall
below zero. At December 31, 2019, non-U.S. cash balances of one or more entities
were negative; however, the overall balance was positive.
The following table summarizes our Cash and cash equivalents, Short-term
investments, and Fiduciary assets as of December 31, 2019 (in millions):
                                            Statement of Financial Position Classification
                                            Cash and Cash      Short-Term        Fiduciary
Asset Type                                   Equivalents       Investments        Assets         Total
Certificates of deposit, bank deposits or
time deposits                              $         790     $           -     $     3,285$  4,075
Money market funds                                     -               138           1,869        2,007
Cash and short-term investments                      790               138           5,154        6,082
Fiduciary receivables                                  -                 -           6,680        6,680
Total                                      $         790     $         138     $    11,834$ 12,762



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Cash and cash equivalents increased $134 million in 2019 compared to 2018. A
summary of our cash flows provided by and used for continuing operations from
operating, investing, and financing activities is as follows (in millions):
                                                          Years Ended 

December 31

                                                   2019            2018     

2017

Cash provided by operating activities $ 1,835$ 1,686

    $       669
Cash provided by (used for) investing
activities                                     $      (229 )$        31$     2,806
Cash used for financing activities             $    (1,493 )$    (1,699 )$    (3,265 )
Effect of exchange rates changes on cash and
cash equivalents                               $        21$      (118 )$        69


Operating Activities
Net cash provided by operating activities during the twelve months ended
December 31, 2019 increased $149 million, or 9%, from the prior year to $1,835
million. This amount represents net income reported, as adjusted for gains or
losses on sales of businesses, share-based compensation expense, depreciation
expense, amortization and impairments, and other non-cash income and expenses,
as well as changes in working capital that relate primarily to the timing of
payments of accounts payable and accrued liabilities and the collection of
receivables.
Pension Contributions
Pension contributions were $135 million for the twelve months ended December 31,
2019, as compared to $252 million for the twelve months ended December 31, 2018.
In 2020, we expect to contribute approximately $123 million in cash to our
pension plans, including contributions to non-U.S. pension plans, which are
subject to changes in foreign exchange rates.
Restructuring Plan
In 2017, Aon initiated the Restructuring Plan in connection with the sale of the
Divested Business. The Restructuring Plan was intended to streamline operations
across the organization and deliver greater efficiency, insight, and
connectivity. The Company has incurred all remaining costs for the Restructuring
Plan and the plan was closed in the fourth quarter of 2019.
The Restructuring Plan resulted in cumulative charges of $1,433 million,
consisting of $619 million in workforce reduction, $119 million in technology
rationalization costs, $69 million in lease consolidation costs, $53 million in
non-cash asset impairments, and $573 million in other costs, including certain
separation costs associated with the sale of the Divested Business. These
charges are included in Compensation and benefits, Information technology,
Premises, Depreciation of fixed assets, and Other general expense in the
accompanying Consolidated Statements of Income. Before any potential
reinvestment of savings, the Restructuring Plan delivered annual cumulative
expense savings of $529 million in 2019 and is expected to deliver run-rate
savings of $580 million annually in 2020. The Company eliminated 5,832 positions
under the Restructuring Plan.
The following table summarizes restructuring and separation costs by type that
were incurred through the end of the Restructuring Plan (in millions):
                                                                                     Completed Plan
                                            2019           2018           2017            Total
Workforce reduction                     $      205$      115$      299     $         619
Technology rationalization (1)                  39             47             33               119
Lease consolidation (1)                         33             28              8                69
Asset impairments                               14             13             26                53
Other costs associated with
restructuring and separation (1) (2)           160            282            131               573
Total restructuring and related
expenses                                $      451$      485     $     

497 $ 1,433

(1) Total contract termination costs incurred under the Restructuring Plan

associated with technology rationalizations, lease consolidations, and other

costs associated with restructuring and separation for the twelve months

ended December 31, 2019 were $0 million, $33 million, and $13 million,

respectively; for the twelve months ended December 31, 2018 were $5 million,

$25 million, and $85 million, respectively; and for the twelve months ended

December 31, 2017 were $1 million, $8 million, and $3 million, respectively.

(2) 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 typically recognized when incurred.



                                       36
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The changes in the Company's liabilities for the Restructuring Plan as of December 31, 2019 are as follows (in millions):

                                          Restructuring Plan
Balance at December 31, 2018             $            201
Expensed                                              418
Cash payments                                        (415 )
Foreign currency translation and other                  -
Balance at December 31, 2019             $            204


The Company's unpaid liabilities for the Restructuring Plan are included in both
Accounts payable and accrued liabilities and Other non-current liabilities in
the Consolidated Statement of Financial Position. Of the remaining liabilities
as of December 31, 2019, we expect approximately $180 million to be paid in
2020.
Investing Activities
Cash flows used for investing activities in continuing operations during the
twelve months ended December 31, 2019 were $229 million, a decrease of $260
million compared to prior year. Generally, the primary drivers of cash flows
used for investing activities are acquisition of businesses, purchases of
short-term investments, capital expenditures, and payments for investments.
Generally, the primary drivers of cash flows provided by investing activities
are sales of businesses, sales of short-term investments, and proceeds from
investments. The gains and losses corresponding to cash flows provided by
proceeds from investments and used for payments for investments are primarily
recognized in Other income (expense) in the Consolidated Statements of Income.
Short-term Investments
Short-term investments decreased $34 million at December 31, 2019 as compared to
December 31, 2018. As disclosed in Note 16 "Fair Value Measurements and
Financial Instruments" of the Notes to Consolidated Financial Statements
contained in Part II, Item 8 of this report, the majority of our investments
carried at fair value are money market funds. These money market funds are held
throughout the world with various financial institutions. We are not aware of
any market liquidity issues that would materially impact the fair value of these
investments.
Acquisitions and Dispositions of Businesses
During 2019, the Company completed the acquisition of three businesses for
consideration of $39 million, net of cash acquired, and the disposition of eight
businesses for a $52 million cash inflow, net of cash sold.
During 2018, the Company completed the acquisition of eight businesses for
consideration of $58 million, net of cash acquired, and the disposition of four
businesses for a $10 million cash outflow, net of cash sold.
Capital Expenditures
The Company's additions to fixed assets, including capitalized software, which
amounted to $225 million in 2019 and $240 million in 2018, primarily related to
computer equipment purchases, the refurbishing and modernizing of office
facilities, and software development costs.
Financing Activities
Cash flows used for financing activities in continuing operations during the
twelve months ended December 31, 2019 were $1,493 million, a decrease of $206
million compared to prior year. Generally, the primary drivers of cash flows
used for financing activities are share repurchases, issuances of debt, net of
repayments, dividends paid to shareholders, issuances of shares for employee
benefit plans, transactions with noncontrolling interests, and other financing
activities, such as collection of or payments for deferred consideration in
connection with prior-year business acquisitions and divestitures.
Share Repurchase Program
Aon has a share repurchase program authorized by the Company's Board of
Directors. The Repurchase Program was established in April 2012 with $5.0
billion in authorized repurchases, and was increased by $5.0 billion in
authorized repurchases in each of November 2014 and June 2017, for a total of
$15.0 billion in repurchase authorizations.

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The following table summarizes the Company's Share Repurchase activity (in millions, except per share data):

                                                             Twelve months ended December 31
                                                                   2019               2018
Shares repurchased                                                       10.5           10.0
Average price per share                                     $          186.33     $   143.94
Costs recorded to retained earnings
Total repurchase cost                                       $           1,950     $    1,447
Additional associated costs                                                10              7
Total costs recorded to retained earnings                   $           

1,960 $ 1,454



At December 31, 2019, the remaining authorized amount for share repurchase under
the Repurchase Program was approximately $2.0 billion. Under the Repurchase
Program, we have repurchased a total of 128.7 million shares for an aggregate
cost of approximately $13.0 billion.
Borrowings
Total debt at December 31, 2019 was $7.3 billion, an increase of $1.1 billion
compared to December 31, 2018. Commercial paper activity during the years ended
December 31, 2019 and 2018 is as follows (in millions):
                        Twelve months ended December 31
                          2019                   2018
Total issuances(1) $         4,812         $         5,400
Total repayments            (4,941 )                (5,118 )
Net issuances      $          (129 )       $           282


(1) The proceeds of the commercial paper issuances were used primarily for
short-term working capital needs.
On November 15, 2019, Aon Corporation issued $500 million 2.20% Senior Notes due
November 2022. The Company used the net proceeds of the offering to pay down a
portion of outstanding commercial paper and for general corporate purposes.
In September 2019, the Company's $600 million 5.00% Senior Notes due September
2020 were classified as Short-term debt and current portion of long-term debt in
the Consolidated Statement of Financial Position as the date of maturity is in
less than one year.
On May 2, 2019, Aon Corporation issued $750 million 3.75% Senior Notes due May
2029. The Company used the net proceeds of the offering to pay down a portion of
outstanding commercial paper and for general corporate purposes.
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.
Other Liquidity Matters
Distributable Reserves
As a company incorporated in England and Wales, we are required under U.K. law
to have available "Distributable Reserves" to make share repurchases or pay
dividends to shareholders. Distributable Reserves are created through the
earnings of the U.K. parent company and, among other methods, through a
reduction in share capital approved by the High Court of Justice in England.
Distributable Reserves are not linked to a U.S. GAAP reported amount (e.g.,
retained earnings). As of December 31, 2019 and 2018, we had Distributable
Reserves in excess of $32.4 billion and $2.2 billion, respectively. On July 16,
2019, we completed a reduction in share capital to create additional
Distributable Reserves of $31 billion to support the payment of possible future
dividends or future share repurchases, if and to the extent declared by the
directors in compliance with their duties under U.K. law. We believe that we
will have sufficient Distributable Reserves to fund shareholder dividends and
make share repurchases for the foreseeable future. Additionally, following the
Reorganization, we would be required under Irish law to have available
"Distributable Profits" (the equivalent to Distributable Reserves under U.K.
law) to make share repurchases or pay dividends to shareholders.

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Credit Facilities
We expect cash generated by operations for 2019 to be sufficient to service our
debt and contractual obligations, finance capital expenditures, continue
purchases of shares under the Repurchase Program, and continue to pay dividends
to our shareholders.  Although cash from operations is expected to be sufficient
to service these activities, we have the ability to access the commercial paper
markets or borrow under our credit facilities to accommodate any timing
differences in cash flows. Additionally, under current market conditions, we
believe that we could access capital markets to obtain debt financing for
longer-term funding, if needed.
As of December 31, 2019, we had two primary committed credit facilities
outstanding: our $900 million multi-currency U.S. credit facility expiring in
February 2022 and our $400 million multi-currency U.S. credit facility expiring
in October 2023.
Each of these facilities includes customary representations, warranties, and
covenants, including financial covenants that require us to maintain specified
ratios of adjusted consolidated EBITDA to consolidated interest expense and
consolidated debt to adjusted consolidated EBITDA, in each case, tested
quarterly. At December 31, 2019, we did not have borrowings under either
facility, and we were in compliance with the financial covenants and all other
covenants contained therein during the twelve months ended December 31, 2019.
Shelf Registration Statement
On September 25, 2018, we filed a shelf registration statement with the SEC,
registering the offer and sale from time to time of an indeterminate amount of,
among other securities, debt securities, preference shares, Class A Ordinary
Shares, and convertible securities. Our ability to access the market as a source
of liquidity is dependent on investor demand, market conditions, and other
factors.
Rating Agency Ratings
The major rating agencies' ratings of our debt at February 14, 2020 appear in
the table below.
                                          Ratings
                          Senior Long-term Debt   Commercial Paper   Outlook
Standard & Poor's                  A-                   A-2          Stable
Moody's Investor Services         Baa2                  P-2          Stable
Fitch, Inc.                       BBB+                  F-2          Stable


A downgrade in the credit ratings of our senior debt and commercial paper could
increase our borrowing costs, reduce or eliminate our access to debt capital,
reduce our financial flexibility, or restrict our access to the commercial paper
market altogether, and/or impact future pension contribution requirements.
Guarantees in Connection with the Sale of the Divested Business
In connection with the sale of the Divested Business, we guaranteed future
operating lease commitments related to certain facilities assumed by the Buyer.
We are obligated to perform under the guarantees if the Divested Business
defaults on the leases at any time during the remainder of the lease agreements,
which expire on various dates through 2025. As of December 31, 2019, the
undiscounted maximum potential future payments under the lease guarantee were
$70 million, with an estimated fair value of $12 million. No cash payments were
made in connection to the lease commitments during the year ended December 31,
2019.
Additionally, we are subject to performance guarantee requirements under certain
client arrangements that were assumed by the Buyer. Should the Divested Business
fail to perform as required by the terms of the arrangements, we would be
required to fulfill the remaining contract terms, which expire on various dates
through 2023. As of December 31, 2019, the undiscounted maximum potential future
payments under the performance guarantees were $151 million, with an estimated
fair value of $1 million. No cash payments were made in connection to the
performance guarantees during the year ended December 31, 2019.
Letters of Credit and Other Guarantees
We have entered into a number of arrangements whereby our performance on certain
obligations is guaranteed by a third party through the issuance of a letter of
credit ("LOC"). We had total LOCs outstanding of approximately $73 million at
December 31, 2019, compared to $83 million at December 31, 2018. These LOCs
cover the beneficiaries related to certain of our U.S. and Canadian
non-qualified pension plan schemes and secure deductible retentions for our own
workers' compensation program. We also have obtained LOCs to cover contingent
payments for taxes and other business obligations to third parties, and other
guarantees for miscellaneous purposes at our international subsidiaries.

                                       39
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We have certain contractual contingent guarantees for premium payments owed by
clients to certain insurance companies. The maximum exposure with respect to
such contractual contingent guarantees was approximately $110 million at
December 31, 2019, compared to $103 million at December 31, 2018.
Off-Balance Sheet Arrangements
Apart from commitments, guarantees, and contingencies, as disclosed herein and
Note 17 "Claims, Lawsuits, and Other Contingencies" of the Notes to Consolidated
Financial Statements in Part II, Item 8 of this report, the Company had no
off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future material effect on the Company's financial condition, results
of operations, or liquidity. Our cash flows from operations, borrowing
availability, and overall liquidity are subject to risks and uncertainties. See
"Information Concerning Forward-Looking Statements" in Part I, Item I of this
report.
Contractual Obligations
Summarized in the table below are our contractual obligations and commitments as
of December 31, 2019. Payments by year due are estimated as follows (in
millions):
                                                                 Payments due by
                                        2020        2021-2022       2023-2024       After 2024       Total
Principal payments on debt           $    712$       900$       950$      4,882$  7,444
Interest payments on debt                 302             528             498            2,137        3,465
Operating leases                          208             379             254              432        1,273
Pension and other postretirement
benefit plans                             128             288             246              265          927
Purchase obligations                      156             129              63               48          396
Total                                $  1,506$     2,224$     2,011$      7,764$ 13,505


Pension and other postretirement benefit plan obligations include estimates of
our minimum funding requirements pursuant to the Employee Retirement Income
Security Act and other regulations, as well as minimum funding requirements
agreed with the trustees of our U.K. pension plans. Additional amounts may be
agreed to with, or required by, the U.K. pension plan trustees. Nonqualified
pension and other postretirement benefit obligations are based on estimated
future benefit payments. We may make additional discretionary contributions.
In 2019, our principal U.K. subsidiary agreed with the trustees of one of the
U.K. plans to contribute £1.2 million ($2 million at December 31, 2019 exchange
rates) per annum to facilitate de-risking. The trustees of the plan have certain
rights to request that our U.K. subsidiary advance an amount equal to an
actuarially determined winding-up deficit. As of December 31, 2019, the
estimated winding-up deficit was £64 million ($83 million at December 31, 2019
exchange rates). The trustees of the plan have accepted in practice the
agreed-upon schedule of contributions detailed above and have not requested the
winding-up deficit be paid.
Purchase obligations are defined as agreements to purchase goods and services
that are enforceable and legally binding on us, and that specifies all
significant terms, including the goods to be purchased or services to be
rendered, the price at which the goods or services are to be rendered, and the
timing of the transactions. Most of our purchase obligations are related to
purchases of information technology services or other service contracts.
Purchase obligations exclude $299 million of liabilities for uncertain tax
positions due to our inability to reasonably estimate the periods when potential
cash settlements will be made.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Consolidated Financial Statements have been prepared in accordance with
U.S. GAAP. To prepare these financial statements, we make estimates,
assumptions, and judgments that affect what we report as our assets and
liabilities, what we disclose as contingent assets and liabilities at the date
of the Consolidated Financial Statements, and the reported amounts of revenues
and expenses during the periods presented.
In accordance with our policies, we regularly evaluate our estimates,
assumptions, and judgments, including, but not limited to, those concerning
revenue recognition, restructuring, pensions, goodwill and other intangible
assets, contingencies, share-based payments, and income taxes, and base our
estimates, assumptions, and judgments on our historical experience and on
factors we believe reasonable under the circumstances. The results involve
judgments about the carrying values of assets and liabilities not readily
apparent from other sources. If our assumptions or conditions change, the actual
results we report may differ from these estimates. We believe the following
critical accounting policies affect the more significant estimates, assumptions,
and judgments we use to prepare these Consolidated Financial Statements.

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Revenue Recognition
The Company recognizes revenue when control of the promised services is
transferred to the customer in the amount that best reflects the consideration
to which the Company expects to be entitled in exchange for those services. For
arrangements where control is transferred over time, an input or output method
is applied that represents a faithful depiction of the progress towards
completion of the performance obligation. For arrangements that include variable
consideration, the Company assesses whether any amounts should be constrained.
For arrangements that include multiple performance obligations, the Company
allocates consideration based on their relative fair values.
Costs incurred by the Company in obtaining a contract are capitalized and
amortized on a systematic basis that is consistent with the transfer of control
of the services to which the asset relates, considering anticipated renewals
when applicable. Certain contract related costs, including pre-placement
brokerage costs, are capitalized as a cost to fulfill and are amortized on a
systematic basis consistent with the transfer of control of the services to
which the asset relates, which is generally less than one year.
Commercial Risk Solutions includes retail brokerage, cyber solutions, global
risk consulting, and captives. Revenue primarily includes insurance commissions
and fees for services rendered. Revenue is predominantly recognized at a point
in time upon the effective date of the underlying policy (or policies), or for a
limited number of arrangements, over the term of the arrangement using output
measures to depict the transfer of control of the services to customers in an
amount that reflects the consideration to which the Company expects to be
entitled in exchange for those services. For arrangements recognized over time,
various output measures, including units transferred and time elapsed, are
utilized to provide a faithful depiction of the progress towards completion of
the performance obligation. Revenue is recorded net of allowances for estimated
policy cancellations, which are determined based on an evaluation of historical
and current cancellation data. Commissions and fees for brokerage services may
be invoiced near the effective date of the underlying policy or over the term of
the arrangement in installments during the policy period.
Reinsurance Solutions includes treaty and facultative reinsurance brokerage and
capital markets. Revenue primarily includes reinsurance commissions and fees for
services rendered. Revenue is predominantly recognized at a point in time upon
the effective date of the underlying policy (or policies), or for a limited
number of arrangements, over the term of the arrangement using output measures
to depict the transfer of control of the services to customers in an amount that
reflects the consideration to which the Company expects to be entitled in
exchange for those services. For arrangements recognized over time, various
output measures, including units delivered and time elapsed, are utilized to
provide a faithful depiction of the progress towards completion of the
performance obligation. Commissions and fees for brokerage services may be
invoiced at the inception of the reinsurance period for certain reinsurance
brokerage, or more commonly, over the term of the arrangement in installments
based on deposit or minimum premiums for most treaty reinsurance arrangements.
Retirement Solutions includes core retirement, investment consulting, and human
capital. Revenue consists primarily of fees paid by customers for consulting
services. Revenue recognized for these arrangements is predominantly recognized
over the term of the arrangement using input or output measures to depict the
transfer of control of the services to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those
services, or for certain arrangements, at a point in time upon completion of the
services. For consulting arrangements recognized over time, revenue will be
recognized based on a measure of progress that depicts the transfer of control
of the services to the customer, utilizing an appropriate input or output
measure to provide a reasonable assessment of the progress towards completion of
the performance obligation including units delivered or time elapsed. Fees paid
by customers for consulting services are typically charged on an hourly, project
or fixed-fee basis, and revenue for these arrangements is typically recognized
based on time incurred, days elapsed, or reports delivered. Revenue from
time-and-materials or cost-plus arrangements are recognized as services are
performed using input or output measures to provide a reasonable assessment of
the progress towards completion of the performance obligation including hours
worked, and revenue for these arrangements is typically recognized based on time
and materials incurred. Reimbursements received for out-of-pocket expenses are
recorded as a component of revenue. Payment terms vary but are typically over
the contract term in installments.
Health Solutions includes health and benefits brokerage and health care
exchanges. Revenue primarily includes insurance commissions and fees for
services rendered. For brokerage commissions, revenue is predominantly
recognized at the effective date of the underlying policy (or policies), or for
a limited number of arrangements, over the term of the arrangement to depict the
transfer of control of the services to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those
services using input or output measures, including units delivered or time
elapsed, to provide a faithful depiction of the progress towards completion of
the performance obligation. Revenue from health care exchange arrangements are
typically recognized upon successful enrollment of participants, net of a
reserve for estimated cancellations. Commissions and fees for brokerage services
may be invoiced at the effective date of the underlying policy or over the term
of the arrangement in installments during the policy period. Payment terms for
other services vary but are typically over the contract term in installments.

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Data & Analytic Services includes Affinity, Aon InPoint, and ReView. Revenue
consists primarily of fees for services rendered and is generally recognized
over the term of the arrangement to depict the transfer of control of the
services to customers in an amount that reflects the consideration to which the
Company expects to be entitled in exchange for those services. Payment terms
vary but are typically over the contract term in installments. For arrangements
recognized over time, revenue will be recognized based on a measure of progress
that depicts the transfer of control of the services to the customer, utilizing
an appropriate input or output measure to provide a faithful depiction of the
progress towards completion of the performance obligation, including units
delivered or time elapsed. Input and output measures utilized vary based on the
arrangement but typically include reports provided or days elapsed.
Restructuring
Workforce reduction costs
The method used to account for workforce reduction costs depends on whether the
costs result from an ongoing severance plan, which represents the majority of
these costs, or are considered one-time costs related to exit and disposal
activities, which are less frequent. We account for relevant expenses as
severance costs when we have an established severance policy, statutory
requirements dictate the severance amounts, or we have an established pattern of
paying by a specific formula. We recognize these costs when the likelihood of
future settlement is probable and the amount of the related benefit is
reasonably estimable, or on a straight-line basis over the remaining service
period, if applicable.
Although less frequent than costs subject to our established severance policy,
when applicable, we estimate our one-time workforce reduction costs related to
exit and disposal activities not resulting from an ongoing severance plan based
on the benefits available to the employees being terminated. We recognize these
costs when we identify the specific classification (or functions) and locations
of the employees being terminated, notify the employees who might be included in
the termination, and expect to terminate employees within the legally required
notification period. When employees are receiving incentives to stay beyond the
legally required notification period, we record the cost of their severance over
the remaining service period.
Lease consolidation costs
In the first quarter of 2019, Aon adopted new accounting guidance related to the
treatment of leases that was applied using the modified retrospective approach.
Under this approach, prior periods were not restated. Refer to Note 2 "Summary
of Significant Accounting Principles and Practices" of the Notes to Consolidated
Financial Statements in Part II, Item 8 of this report for further information
surrounding the quantitative and qualitative impacts of adopting the new
accounting guidance.
Where we have provided notice of cancellation pursuant to a lease agreement, we
remove the associated right-of-use ("ROU") asset and the related lease
liability, including any additional termination penalties incurred that were not
previously included within the liability. To the extent that the associated ROU
assets and lease liabilities are removed, a corresponding gain or loss is
recorded.

For properties where we plan to permanently cease use of a space and have the
intent and ability to sublease the property, we will test the ROU asset for
impairment to determine if a loss has occurred. The test for impairment will
adjust the book value of the asset based on the net present value of the future
cash flows expected from a sublease agreement using current market quotes for
similar properties. When we finalize definitive agreements with the sublessee,
we may record an additional impairment to reflect actual outcomes.

For properties where we plan to permanently cease use of a space and have no
intention of reoccupying or subleasing the property, the amortization related to
the ROU asset will be accelerated and recognized on a straight-line basis from
the date that we commit to a plan to abandon the space through the date we
permanently exit the property.

Additionally, a loss will also be recognized for lease related costs that are
not reflected within the lease liability, such as operating expenses, taxes, and
insurance that we are obligated to pay to the landlord after we have permanently
exited the property.
Fair value concepts of one-time workforce reduction costs and lease losses
Accounting guidance requires that our exit and disposal accruals reflect the
fair value of the liability. Where material, we discount the lease loss
calculations to arrive at their net present value. Most workforce reductions
happen over a short span of time, so no discounting is necessary.
For the remaining lease term, we decrease the liability for payments and
increase the liability for accretion of the discount, if material. The discount
reflects our incremental borrowing rate, which matches the lifetime of the
liability. Significant changes in the discount rate selected or the estimations
of sublease income in the case of leases could impact the amounts recorded.

                                       42
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Asset impairments
Asset impairments relate to fixed assets and are accounted for in the period
when they become known. Furthermore, we record impairments by reducing the book
value to the net present value of future cash flows (in situations where the
asset had an identifiable cash flow stream) or accelerating the depreciation to
reflect the revised useful life.
Other associated costs of exit and disposal activities
We recognize other costs associated with exit and disposal activities as they
are incurred, including separation costs, moving costs, and consulting and legal
fees.
Pensions
We sponsor defined benefit pension plans throughout the world. Our most
significant plans are located in the U.S., the U.K., the Netherlands, and
Canada, which are closed to new entrants. We have ceased crediting future
benefits relating to salary and services for our U.S., U.K., Netherlands, and
Canada plans to the extent statutorily permitted.
The service cost component of net periodic benefit cost is reported in
Compensation and benefits and all other components are reported in Other income
(expense). We used a full-yield curve approach in the estimation of the service
and interest cost components of net periodic pension and postretirement benefit
cost for our major pension and other postretirement benefit plans; this was
obtained by applying the specific spot rates along the yield curve used in the
determination of the benefit obligation to the relevant projected cash flows.
Recognition of gains and losses and prior service
Certain changes in the value of the obligation and in the value of plan assets,
which may occur due to various factors such as changes in the discount rate and
actuarial assumptions, actual demographic experience, and/or plan asset
performance are not immediately recognized in net income. Such changes are
recognized in Other comprehensive income and are amortized into net income as
part of the net periodic benefit cost.
Unrecognized gains and losses that have been deferred in Other comprehensive
income, as previously described, are amortized into expense as a component of
periodic pension expense based on the average life expectancy of the U.S., U.K.,
Netherlands, and Canada plan members. We amortize any prior service expense or
credits that arise as a result of plan changes over a period consistent with the
amortization of gains and losses.
As of December 31, 2019, our pension plans have deferred losses that have not
yet been recognized through income in the Consolidated Financial Statements. We
amortize unrecognized actuarial losses outside of a corridor, which is defined
as 10% of the greater of market-related value of plan assets or projected
benefit obligation. To the extent not offset by future gains, incremental
amortization as calculated above will continue to affect future pension expense
similarly until fully amortized.
The following table discloses our unrecognized actuarial gains and losses, the
number of years over which we are amortizing the experience loss, and the
estimated 2020 amortization of loss by country (in millions, except amortization
period):
                                                       U.K.                U.S.                Other

Unrecognized actuarial gains and losses $ 1,244 $

    1,763     $            454
Amortization period                                8 to 27 years       7 to 23 years       13 to 38 years
Estimated 2020 amortization of loss              $            32     $            68     $             12


The unrecognized prior service cost (credit) at December 31, 2019 was $1
million, $40 million, and $(6) million for the U.S., U.K. and other plans,
respectively.
For the U.S. pension plans, we use a market-related valuation of assets approach
to determine the expected return on assets, which is a component of net periodic
benefit cost recognized in the Consolidated Statements of Income. This approach
recognizes 20% of any gains or losses in the current year's value of
market-related assets, with the remaining 80% spread over the next four years.
As this approach recognizes gains or losses over a five-year period, the future
value of assets and therefore, our net periodic benefit cost will be impacted as
previously deferred gains or losses are recorded. As of December 31, 2019, the
market-related value of assets was $2.0 billion. We do not use the
market-related valuation approach to determine the funded status of the U.S.
plans recorded in the Consolidated Statements of Financial Position. Instead, we
record and present the funded status in the Consolidated Statements of Financial
Position based on the fair value of the plan assets. As of December 31, 2019,
the fair value of plan assets was $2.1 billion. Our non-U.S. plans use fair
value to determine expected return on assets.

                                       43
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Rate of return on plan assets and asset allocation The following table summarizes the expected long-term rate of return on plan assets for future pension expense as of December 31, 2019:

                                                    U.K.U.S.

Other

Expected return on plan assets, net of
administration expenses                             2.74%     3.30 - 7.04%  

2.10 - 3.10%



In determining the expected rate of return for the plan assets, we analyze
investment community forecasts and current market conditions to develop expected
returns for each of the asset classes used by the plans. In particular, we
surveyed multiple third-party financial institutions and consultants to obtain
long-term expected returns on each asset class, considered historical
performance data by asset class over long periods, and weighted the expected
returns for each asset class by target asset allocations of the plans.
The U.S. pension plan asset allocation is based on approved allocations
following adopted investment guidelines. The investment policy for U.K. and
other non-U.S. pension plans is generally determined by the plans' trustees.
Because there are several pension plans maintained in the U.K. and other
non-U.S. categories, our target allocation presents a range of the target
allocation of each plan. Target allocations are subject to change.
Impact of changing economic assumptions
Changes in the discount rate and expected return on assets can have a material
impact on pension obligations and pension expense.
Holding all other assumptions constant, the following table reflects what a 25
basis point ("bps") increase and decrease in our discount rate would have on our
projected benefit obligation at December 31, 2019 (in millions):
                                                               25 bps Change in Discount Rate
Increase (decrease) in projected benefit obligation (1)         Increase              Decrease
U.K. plans                                                 $          (211 )       $         193
U.S. plans                                                 $           (92 )       $          98
Other plans                                                $           (61 )       $          65

(1) Increases to the projected benefit obligation reflect increases to our

pension obligations, while decreases in the projected benefit obligation are

recoveries toward fully-funded status. A change in the discount rate has an

inverse relationship to the projected benefit obligation.



Holding all other assumptions constant, the following table reflects what a 25
bps increase and decrease in our discount rate would have on our estimated 2020
pension expense (in millions):
                                  25 bps Change in Discount Rate
Increase (decrease) in expense     Increase              Decrease
U.K. plans                     $         (2 )         $          -
U.S. plans                     $          1           $         (1 )
Other plans                    $          1           $         (1 )


Holding all other assumptions constant, the following table reflects what a 25
bps increase and decrease in our long-term rate of return on plan assets would
have on our estimated 2020 pension expense (in millions):
                                                           25 bps Change in 

Long-Term Rate of Return on

                                                                           Plan Assets
Increase (decrease) in expense                                  Increase               Decrease
U.K. plans                                                 $            (15 )   $                  15
U.S. plans                                                 $             (5 )   $                   5
Other plans                                                $             (3 )   $                   3

Estimated future contributions We estimate cash contributions of approximately $123 million to our pension plans in 2020 as compared with cash contributions of $135 million in 2019.

                                       44
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Goodwill and Other Intangible Assets
Goodwill represents the excess of cost over the fair market value of the net
assets acquired. We classify our intangible assets acquired as either
tradenames, customer-related and contract-based, or technology and other.
Goodwill is not amortized, but rather tested for impairment at least annually in
the fourth quarter. We test more frequently if there are indicators of
impairment or whenever business circumstances suggest that the carrying value of
goodwill may not be recoverable. These indicators may include a sustained
significant decline in our share price and market capitalization, a decline in
our expected future cash flows, or a significant adverse change in legal factors
or in the business climate, among others. No events occurred during 2019 that
indicate the existence of an impairment with respect to our reported goodwill.
We perform impairment reviews at the reporting unit level. A reporting unit is
an operating segment or one level below an operating segment (referred to as a
"component"). A component of an operating segment is a reporting unit if the
component constitutes a business for which discrete financial information is
available and segment management regularly reviews the operating results of that
component. An operating segment shall be deemed to be a reporting unit if all of
its components are similar, if none of its components are a reporting unit, or
if the segment comprises only a single component.
When evaluating these assets for impairment, we may first perform a qualitative
assessment to determine whether it is more likely than not that a reporting unit
is impaired. If we do not perform a qualitative assessment, or if we determine
that it is not more likely than not that the fair value of the reporting unit
exceeds its carrying amount, then the goodwill impairment test becomes a
two-step analysis. Step 1 requires the fair value of each reporting unit to be
compared to its book value. Management must apply judgment in determining the
estimated fair value of the reporting units. If the fair value of a reporting
unit is determined to be greater than the carrying value of the reporting unit,
goodwill is deemed not to be impaired and no further testing is necessary. If
the fair value of a reporting unit is less than the carrying value, we perform
Step 2. Step 2 uses the calculated fair value of the reporting unit to perform a
hypothetical purchase price allocation to the fair value of the assets and
liabilities of the reporting unit. The difference between the fair value of the
reporting unit calculated in Step 1 and the fair value of the underlying assets
and liabilities of the reporting unit is the implied fair value of the reporting
unit's goodwill. A charge is recorded in the financial statements if the
carrying value of the reporting unit's goodwill is greater than its implied fair
value.
In determining the fair value of our reporting units, we use a discounted cash
flow ("DCF") model based on our most current forecasts. We discount the related
cash flow forecasts using the weighted-average cost of capital method at the
date of evaluation. Preparation of forecasts and selection of the discount rate
for use in the DCF model involve significant judgments, and changes in these
estimates could affect the estimated fair value of one or more of our reporting
units and could result in a goodwill impairment charge in a future period. We
also use market multiples which are obtained from quoted prices of comparable
companies to corroborate our DCF model results. The combined estimated fair
value of our reporting units from our DCF model often results in a premium over
our market capitalization, commonly referred to as a control premium. We believe
the implied control premium determined by our impairment analysis is reasonable
based upon historic data of premiums paid on actual transactions within our
industry. Based on tests performed in both 2019 and 2018, there was no
indication of goodwill impairment, and no further testing was required.
We review intangible assets that are being amortized for impairment whenever
events or changes in circumstance indicate that their carrying amount may not be
recoverable. There were no indications that the carrying values of amortizable
intangible assets were impaired as of December 31, 2019. If we are required to
record impairment charges in the future, they could materially impact our
results of operations.
Contingencies
We define a contingency as an existing condition that involves a degree of
uncertainty as to a possible gain or loss that will ultimately be resolved when
one or more future events occur or fail to occur. Under U.S. GAAP, we are
required to establish reserves for loss contingencies when the loss is probable
and we can reasonably estimate its financial impact. We are required to assess
the likelihood of material adverse judgments or outcomes, as well as potential
ranges or probability of losses. We determine the amount of reserves required,
if any, for contingencies after carefully analyzing each individual item. The
required reserves may change due to new developments in each issue. We do not
recognize gain contingencies until the contingency is resolved and amounts due
are probable of collection.
Share-Based Payments
Share-based compensation expense is measured based on the grant date fair value
and recognized over the requisite service period for awards that we ultimately
expect to vest. We estimate forfeitures at the time of grant based on our actual
experience to date and revise our estimates, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.

                                       45
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Restricted Share Units
Restricted share units ("RSUs") are service-based awards for which we recognize
the associated compensation cost on a straight-line basis over the requisite
service period. We estimate the fair value of the awards based on the market
price of the underlying share on the date of grant, reduced by the present value
of estimated dividends foregone during the vesting period where applicable.
Performance Share Awards
Performance share awards ("PSAs") are performance-based awards for which vesting
is dependent on the achievement of certain objectives. Such objectives may be
made on a personal, group or company level. We estimate the fair value of the
awards based on the market price of the underlying share on the date of grant,
reduced by the present value of estimated dividends foregone during the vesting
period.
Compensation expense is recognized over the performance period. The number of
shares issued on the vesting date will vary depending on the actual performance
objectives achieved, which are based on a fixed number of potential outcomes. We
make assessments of future performance using subjective estimates, such as
long-term plans. As a result, changes in the underlying assumptions could have a
material impact on the compensation expense recognized.
The largest plan is the Leadership Performance Plan ("LPP"), which has a
three-year performance period. As the percent of expected performance increases
or decreases, the potential change in expense can go from 0% to 200% of the
targeted total expense. The 2017 to 2019 performance period ended on December
31, 2019, the 2016 to 2018 performance period ended on December 31, 2018, and
the 2015 to 2017 performance period ended on December 31, 2017. The LPP
currently has two open performance periods: 2018 to 2020 and 2019 to 2021. A 10%
upward adjustment in our estimated performance achievement percentage for both
open performance periods would have increased our 2019 expense by approximately
$7.5 million, while a 10% downward adjustment would have decreased our expense
by approximately $7.5 million.
Income Taxes
We earn income in numerous countries and this income is subject to the laws of
taxing jurisdictions within those countries.
The carrying values of deferred income tax assets and liabilities reflect the
application of our income tax accounting policies and are based on management's
assumptions and estimates about future operating results and levels of taxable
income, and judgments regarding the interpretation of the provisions of current
accounting principles.
Deferred tax assets are reduced by valuation allowances if, based on the
consideration of all available evidence, it is more likely than not that some
portion of the deferred tax asset will not be realized. Considerations with
respect to the realizability of deferred tax assets include the period of
expiration of the deferred tax asset, historical earnings and projected future
taxable income by jurisdiction as well as tax liabilities for the tax
jurisdiction to which the tax asset relates. Significant management judgment is
required in determining the assumptions and estimates related to the amount and
timing of future taxable income. Valuation allowances are evaluated periodically
and will be subject to change in each future reporting period as a result of
changes in various factors.
We assess carryforwards and tax credits for realization as a reduction of future
taxable income by using a "more likely than not" determination.
We base the carrying values of liabilities and assets for income taxes currently
payable and receivable on management's interpretation of applicable tax laws and
incorporate management's assumptions and judgments about using tax planning
strategies in various taxing jurisdictions. Using different estimates,
assumptions, and judgments in accounting for income taxes, especially those that
deploy tax planning strategies, may result in materially different carrying
values of income tax assets and liabilities and changes in our results of
operations.
NEW ACCOUNTING PRONOUNCEMENTS
Note 2 "Summary of Significant Accounting Principles and Practices" of the Notes
to Consolidated Financial Statements in Part II, Item 8 of this report contains
a summary of our significant accounting policies, including a discussion of
recently issued accounting pronouncements and their impact or future potential
impact on our financial results, if determinable.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
We are exposed to potential fluctuations in earnings, cash flows, and the fair
values of certain of our assets and liabilities due to changes in interest rates
and foreign exchange rates. To manage the risk from these exposures, we enter
into a variety of derivative instruments. We do not enter into derivatives or
financial instruments for trading or speculative purposes.

                                       46
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The following discussion describes our specific exposures and the strategies we
use to manage these risks. Refer to Note 2 "Summary of Significant Accounting
Principles and Practices" of the Notes to Consolidated Financial Statements in
Part II, Item 8 of this report for a discussion of our accounting policies for
financial instruments and derivatives.
Foreign Exchange Risk
We are subject to foreign exchange rate risk. Our primary exposures include
exchange rates between the U.S. dollar and the euro, the British pound, the
Canadian dollar, the Australian dollar, the Indian rupee, and the Japanese yen.
We use over-the-counter options and forward contracts to reduce the impact of
foreign currency risk to our financial statements.
Additionally, some of our non-U.S. brokerage subsidiaries receive revenue in
currencies that differ from their functional currencies. Our U.K. subsidiaries
earn a portion of their revenue in U.S. dollars, euro, and Japanese yen, but
most of their expenses are incurred in British pounds. At December 31, 2019, we
have hedged approximately 45% of our U.K. subsidiaries' expected exposures to
the U.S. dollar, euro, and Japanese yen transactions for the years ending
December 31, 2020 and 2021. We generally do not hedge exposures beyond three
years.
We also use forward and option contracts to economically hedge foreign exchange
risk associated with monetary balance sheet exposures, such as intercompany
notes and current assets and liabilities that are denominated in a
non-functional currency and are subject to remeasurement.
The potential loss in future earnings from foreign exchange derivative
instruments resulting from a hypothetical 10% adverse change in year-end
exchange rates would be $23 million and $6 million at December 31, 2020 and
2021, respectively.
The translated value of revenues and expenses from our international brokerage
operations are subject to fluctuations in foreign exchange rates. If we were to
translate prior year results at current year exchange rates, diluted earnings
per share would have an unfavorable $0.19 impact during the twelve months ended
December 31, 2019. Further, adjusted diluted earnings per share, a non-GAAP
measure as defined and reconciled under the caption "Review of Consolidated
Results - Adjusted Diluted Earnings Per Share," would have an unfavorable $0.23
impact during the twelve months ended December 31, 2019 if we were to translate
prior year results at current quarter exchange rates.
Interest Rate Risk
Our fiduciary investment income is affected by changes in short-term interest
rates. We monitor our net exposure to short-term interest rates, and as
appropriate, hedge our exposure with various derivative financial instruments.
This activity primarily relates to brokerage funds held on behalf of clients in
North America, continental Europe, and the Asia Pacific region. A hypothetical,
instantaneous parallel decrease in the year-end yield curve of 100 basis points
would cause a decrease, net of derivative positions, of $50 million to each of
2020 and 2021 pretax income. A corresponding increase in the year-end yield
curve of 100 basis points would cause an increase, net of derivative positions,
of $50 million to each of 2020 and 2021 pre-tax income.
We have long-term debt outstanding, excluding the current portion, with a fair
market value of $7.4 billion and $6.2 billion as of December 31, 2019 and
December 31, 2018, respectively. The fair value was greater than the carrying
value by $815 million at December 31, 2019, and $166 million greater than the
carrying value at December 31, 2018. A hypothetical 1% increase or decrease in
interest rates would change the fair value by a decrease of 7% or an increase of
8%, respectively, at December 31, 2019.
We have selected hypothetical changes in foreign currency exchange rates,
interest rates, and equity market prices to illustrate the possible impact of
these changes; we are not predicting market events.

                                       47

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