As described in Note 2 “Summary of Significant Accounting Principles and Practices” of the Notes to Consolidated Financial Statements, we adopted guidance related to the presentation of deferred tax assets and liabilities and debt issuance costs. Amounts below have been amended to reflect the adoption of the new guidance.
divestitures, partially offset by organic revenue growth of 3% in the Risk Solutions segment and 3% in the HR Solutions segment. Organic revenue growth in the Risk Solutions segment was driven by solid growth across both the Americas and International businesses. Record new business generation in US Retail, as well as strength in Affinity and growth across Latin America drove organic revenue growth in the Americas. International organic revenue growth was driven by growth across every major region; including Asia, EMEA, and the Pacific, despite economic weakness in certain countries. Reinsurance organic revenue growth was driven by net new business growth in treaty placements globally and modest growth in facultative placements, partially offset by an unfavorable market impact in treaty and a decline in capital markets transactions and advisory business. Organic revenue growth in the HR Solutions segment was driven by solid growth in both Consulting and Outsourcing. Consulting organic revenue growth was driven by retirement solutions, including investment consulting and delegated investment solutions, and communications consulting. Strong growth in health care exchanges and new client wins in HR BPO for cloud-based solutions drove organic revenue growth in Outsourcing.
Income before income taxes was $1.7 billion in 2016, a decrease of $20 million, or 1%, from $1.7 billion in 2015 due to drivers identified above.
A reconciliation of this non-GAAP measure to reported operating margins is as follows (in millions, except percentage data):
We also use adjusted diluted earnings per share as a non-GAAP measure of our core operating performance. Adjusted diluted earnings per share excludes the impact of intangible asset amortization and certain pension settlements, transaction costs, and litigation settlements, along with related income taxes because we do 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 and Notes thereto.
We believe that our balance sheet and strong cash flow provide us with adequate liquidity. Our primary sources of liquidity are cash flow from operations, available cash reserves, committed credit facilities, and debt capacity available through public debt markets, both short and long-term. Our primary uses of liquidity are operating expenses, capital expenditures, acquisitions, share repurchases, pension contributions, and shareholder dividends. We believe that cash flows from operations and available debt financing 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.
Pension contributions were $123 million during 2016 compared to $194 million during 2015. In 2017, we expect to contribute approximately $185 million to our pension plans, with the majority attributable to non-U.S. pension plans, which are subject to changes in foreign exchange rates.
December 31, 2015, $2.6 billion of Cash and cash equivalents and Short-term investments were held in the U.S. and overdrawn Cash and cash equivalents and Short-term investments of $1.9 billion were held in other countries. Due to differences in tax rates, the repatriation of funds from certain countries into the U.S. could have an unfavorable tax impact.
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 $278 million of liabilities for uncertain tax positions due to our inability to reasonably estimate the period(s) when potential cash settlements will be made.
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.
The accompanying Consolidated Financial Statements and Notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Consolidated Financial Statements include the accounts of Aon plc and all of its controlled subsidiaries (“Aon” or the “Company”). All intercompany accounts and transactions have been eliminated. The Consolidated Financial Statements include, in the opinion of management, all adjustments necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for all periods presented.
Intangible assets are primarily comprised of tradenames and customer-related, contract-based, and technology assets. Tradenames are not amortized when such assets have been determined to have indefinite useful lives, and are tested at least annually for impairments using an analysis of expected future cash flows. Interim impairment testing may be performed when events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. Customer related and contract based assets are amortized over periods ranging from 1 to 16 years, with a weighted average original life of 11 years. Technology assets are typically amortized over 7 years.
However, the primary impacts of the new standard to the Company’s product and service lines are anticipated to be as follows:
The components of Other non-current assets are as follows (in millions):
Valuation allowances have been established primarily with regard to the tax benefits of certain net operating loss, capital loss and interest expense carryforwards. Valuation allowances decreased by $32 million as of December 31, 2016, when compared to December 31, 2015, primarily attributable to the reversal of a valuation allowance and the impact of foreign currency translation.
Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above table are intended to permit reconciliation of the fair values to the amounts presented in the plan assets contained in this Note.
The following table provides an overview of the accumulated projected benefit obligation, fair value of plan assets, funded status and net amount recognized as of December 31, 2016 and 2015 for the Company’s other significant post-retirement benefit plans located in the U.S. and Canada (in millions):
For most of the participants in the U.S. plan, Aon’s liability for future plan cost increases for pre-65 and Medical Supplement plan coverage is limited to 5% per annum. Although the net employer trend rates range from 4% to 8.5% per year, because of this cap, these plans are effectively limited to 5% per year in the future.
Information regarding the Company’s target PSAs granted and shares that would be issued at current performance levels for PSAs granted during the years ended December 31, 2016, 2015, and 2014, respectively, is as follows (shares in thousands, dollars in millions, except fair value):
The Company recognized no gain (loss) in Interest expense for fair value hedges related to fixed rate debt for 2016 and 2015. There was a gain of $9 million recognized in 2014.
The Company has included in the current matters described below certain matters in which (1) loss is probable (2) loss is reasonably possible; that is, more than remote but not probable, or (3) there exists the reasonable possibility of loss greater than the accrued amount. In addition, the Company may from time to time disclose matters for which the probability of loss could be remote but the claim amounts associated with such matters are potentially significant. The reasonably possible range of loss for the matters described below, in excess of amounts that are deemed probable and estimable and therefore already accrued, is estimated to be between $0 and $0.2 billion, exclusive of any insurance coverage. These estimates are based on currently available information. As available information changes, the matters for which Aon is able to estimate may change, and the estimates themselves may change. In addition, many estimates involve significant judgment and uncertainty. For example, at the time of making an estimate, Aon may only have limited information about the facts underlying the claim, and predictions and assumptions about future court
Both Aon and the Buyer have agreed to indemnify each other for losses arising from certain breaches of the Purchase Agreement and for certain other liabilities, subject to certain limitations.