Condensed Consolidated Statemen
Condensed Consolidated Statements of Income (USD $) | ||||
In Millions, except Per Share data | 3 Months Ended
Jun. 30, 2009 | 3 Months Ended
Jun. 30, 2008 | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Revenue | ||||
Commissions, fees and other | $1,864 | $1,889 | $3,686 | $3,737 |
Investment income | 21 | 67 | 53 | 124 |
Total revenue | 1,885 | 1,956 | 3,739 | 3,861 |
Expenses | ||||
Compensation and benefits | 1,134 | 1,143 | 2,148 | 2,297 |
Other general expenses | 466 | 500 | 863 | 914 |
Depreciation and amortization | 58 | 58 | 118 | 108 |
Total operating expenses | 1,658 | 1,701 | 3,129 | 3,319 |
Operating income | 227 | 255 | 610 | 542 |
Interest expense | 26 | 31 | 55 | 64 |
Other (income) expense | (9) | (2) | 2 | (6) |
Income from continuing operations before income taxes | 210 | 226 | 553 | 484 |
Income taxes | 57 | 57 | 165 | 133 |
Income from continuing operations | 153 | 169 | 388 | 351 |
Income from discontinued operations before income taxes | 2 | 1,431 | 93 | 1,497 |
Income taxes | 0 | 464 | 41 | 489 |
Income from discontinued operations | 2 | 967 | 52 | 1,008 |
Net income | 155 | 1,136 | 440 | 1,359 |
Less: Net income attributable to noncontrolling interests | 6 | 3 | 11 | 8 |
Net income attributable to Aon stockholders | 149 | 1,133 | 429 | 1,351 |
Net income attributable to Aon stockholders | ||||
Income from continuing operations | 147 | 166 | 377 | 343 |
Income from discontinued operations | 2 | 967 | 52 | 1,008 |
Net income | $149 | $1,133 | $429 | $1,351 |
Basic net income per share attributable to Aon stockholders | ||||
Continuing operations (in dollars per share) | 0.52 | 0.56 | 1.33 | 1.13 |
Discontinued operations (in dollars per share) | 0.01 | 3.26 | 0.18 | 3.31 |
Net income (in dollars per share) | 0.53 | 3.82 | 1.51 | 4.44 |
Diluted net income per share attributable to Aon stockholders | ||||
Continuing operations (in dollars per share) | 0.51 | 0.54 | 1.3 | 1.1 |
Discontinued operations (in dollars per share) | 0.01 | 3.17 | 0.18 | 3.22 |
Net income (in dollars per share) | 0.52 | 3.71 | 1.48 | 4.32 |
Dividends paid per share (in dollars per share) | 0.15 | 0.15 | 0.3 | 0.3 |
Weighted average common shares outstanding - basic (in shares) | 278.3 | 289.5 | 277.6 | 296.8 |
Weighted average common shares outstanding - diluted (in shares) | 289.1 | 305.3 | 288.9 | 312.5 |
1_Condensed Consolidated Statem
Condensed Consolidated Statements of Financial Position (USD $) | ||
In Millions | Jun. 30, 2009
| Dec. 31, 2008
|
CURRENT ASSETS: | ||
Cash and cash equivalents | $537 | $582 |
Short-term investments | 580 | 684 |
Receivables | 1,937 | 1,990 |
Fiduciary assets | 12,323 | 10,678 |
Other current assets | 315 | 355 |
Assets held for sale | 189 | 237 |
Total Current Assets | 15,881 | 14,526 |
Goodwill | 5,883 | 5,637 |
Other intangible assets, net | 776 | 779 |
Fixed assets, net | 447 | 451 |
Investments | 296 | 332 |
Other non-current assets | 1,155 | 1,215 |
TOTAL ASSETS | 24,438 | 22,940 |
CURRENT LIABILITIES: | ||
Fiduciary liabilities | 12,323 | 10,678 |
Short-term debt | 681 | 105 |
Accounts payable and accrued liabilities | 1,392 | 1,560 |
Other current liabilities | 345 | 314 |
Liabilities held for sale | 118 | 146 |
Total Current Liabilities | 14,859 | 12,803 |
Long-term debt | 1,249 | 1,872 |
Pension and other post employment liabilities | 1,303 | 1,694 |
Other non-current liabilities | 1,019 | 1,156 |
TOTAL LIABILITIES | 18,430 | 17,525 |
AON STOCKHOLDERS' EQUITY: | ||
Common stock - $1 par value; Authorized: 750 shares (issued: 6/30/09 - 362.7; 12/31/08 - 361.7) | 363 | 362 |
Additional paid-in capital | 3,160 | 3,220 |
Retained earnings | 7,132 | 6,816 |
Treasury stock at cost (shares: 6/30/09 - 88.2; 12/31/08 - 89.9) | (3,535) | (3,626) |
Accumulated other comprehensive loss | (1,254) | (1,462) |
TOTAL AON STOCKHOLDERS' EQUITY | 5,866 | 5,310 |
Noncontrolling interests | 142 | 105 |
TOTAL EQUITY | 6,008 | 5,415 |
TOTAL LIABILITIES AND EQUITY | $24,438 | $22,940 |
2_Condensed Consolidated Statem
Condensed Consolidated Statements of Financial Position (parenthetical) (USD $) | ||
Share data in Millions, except Per Share data | Jun. 30, 2009
| Dec. 31, 2008
|
Common stock, par value (in dollars per share) | $1 | $1 |
Common stock, authorized (in shares) | 750 | 750 |
Common stock, issued (in shares) | 362.7 | 361.7 |
Treasury stock (in shares) | 88.2 | 89.9 |
3_Condensed Consolidated Statem
Condensed Consolidated Statement of Stockholders' Equity (USD $) | ||||||
In Millions | Common Stock and Additional Paid-in Capital
| Treasury Stock
| Retained Earnings
| Accumulated Other Comprehensive Loss, Net of Tax
| Noncontrolling Interests
| Total
|
Balance at Dec. 31, 2008 | $3,582 | ($3,626) | $6,816 | ($1,462) | $105 | $5,415 |
Shares issued, balance at Dec. 31, 2008 | 361.7 | |||||
Increase (Decrease) in Equity | ||||||
Net income | 429 | 11 | 440 | |||
Shares issued - employee benefit plans | 51 | 51 | ||||
Shares issued - employee benefit plans (in shares) | 1 | |||||
Shares purchased | (125) | (125) | ||||
Shares reissued - employee benefit plans | (216) | 216 | (30) | (30) | ||
Tax benefit - employee benefit plans | 16 | 16 | ||||
Stock compensation expense | 95 | 95 | ||||
Dividends to stockholders | (83) | (83) | ||||
Change in net derivative gains/losses | 18 | 18 | ||||
Change in net unrealized investment gains/losses | (9) | (9) | ||||
Net foreign currency translation adjustments | 139 | 1 | 140 | |||
Net post-retirement benefit obligation | 60 | 60 | ||||
Purchase of subsidiary shares from noncontrolling interests | (5) | (3) | (8) | |||
Capital contribution by noncontrolling interests | 35 | 35 | ||||
Dividends paid to noncontrolling interests on subsidiary common stock | (7) | (7) | ||||
Balance at Jun. 30, 2009 | $3,523 | ($3,535) | $7,132 | ($1,254) | $142 | $6,008 |
Shares issued, balance at Jun. 30, 2009 | 362.7 |
4_Condensed Consolidated Statem
Condensed Consolidated Statements of Cash Flows (USD $) | ||
In Millions | 6 Months Ended
Jun. 30, 2009 | 6 Months Ended
Jun. 30, 2008 |
Cash Flows from Operating Activities: | ||
Net income | $440 | $1,359 |
Adjustments to reconcile net income to cash provided by operating activities: | ||
Gain from disposal of operations | (94) | (1,430) |
Depreciation and amortization of fixed assets | 73 | 83 |
Amortization of intangible assets | 45 | 25 |
Stock compensation expense | 95 | 142 |
Deferred income taxes | 3 | (36) |
Change in assets and liabilities: | ||
Change in funds held on behalf of brokerage and consulting clients | 113 | 300 |
Net receivables | 138 | 43 |
Accounts payable and accrued liabilities | (305) | (350) |
Restructuring reserves | (3) | 32 |
Pension and other post employment liabilities | (242) | (66) |
Other assets and liabilities | (166) | 166 |
Cash Provided by Operating Activities | 97 | 268 |
Cash Flows from Investing Activities: | ||
Sales of long-term investments | 16 | 279 |
Purchase of long-term investments | (17) | (282) |
Sales (purchases) of short-term investments, net | 3 | (1,704) |
Acquisition of subsidiaries, net of cash acquired | (40) | (63) |
Proceeds from sale of businesses | 138 | 2,915 |
Capital expenditures | (53) | (58) |
Cash Provided by Investing Activities | 47 | 1,087 |
Cash Flows from Financing Activities: | ||
Issuance of common stock | 42 | 35 |
Treasury stock transactions, net | (78) | (1,281) |
Short-term borrowings (repayments), net | 307 | (231) |
Issuance of long-term debt | 363 | |
Repayments of long-term debt | (338) | (297) |
Cash dividends to stockholders | (83) | (89) |
Cash Used for Financing Activities | (150) | (1,500) |
Effect of Exchange Rate Changes on Cash | (39) | 27 |
Net Decrease in Cash and Cash Equivalents | (45) | (118) |
Cash and Cash Equivalents at Beginning of Period | 582 | 584 |
Cash and Cash Equivalents at End of Period | 537 | 466 |
Supplemental disclosures | ||
Interest paid | 56 | 63 |
Income taxes paid, net of refunds | $112 | $230 |
Statement of Accounting Princip
Statement of Accounting Principles | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Statement of Accounting Principles | 1. Statement of Accounting Principles The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include all normal recurring adjustments which Aon Corporation (Aon or the Company) considers necessary to present fairly the Companys consolidated financial statements for all periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form10-K for the year ended December31, 2008. The results for the three and six months ended June30, 2009 are not necessarily indicative of operating results that may be expected for the full year ending December31, 2009. Certain amounts in prior period financial statements and related notes have been reclassified to conform to the 2009 presentation. In addition, due to the adoption of new principles regarding noncontrolling interests and participating securities, certain amounts in prior period financial statements and related notes have been restated to conform with the requirements of these new principles. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of reserves and expenses during the reporting periods. Actual amounts could differ from those estimates. Management has reviewed all material subsequent events through August7, 2009, the date the financial statements were issued, to determine whether any event required either recognition or disclosure in the financial statements. |
Accounting Principles and Pract
Accounting Principles and Practices | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Accounting Principles and Practices | 2. Accounting Principles and Practices Changes in Accounting Principles On January1, 2009, Aon adopted revised principles related to business combinations and noncontrolling interests. The revised principle on business combinations applies to all transactions or other events in which an entity obtains control over one or more businesses. It requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. Business combinations achieved in stages require recognition of the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values when control is obtained. This revision also changes the requirements for recognizing assets acquired and liabilities assumed arising from contingencies, and requires direct acquisition costs to be expensed. In addition, it provides certain changes to income tax accounting for business combinations which apply to both new and previously existing business combinations. In April2009, additional guidance was issued which revised certain business combination guidance related to accounting for contingent liabilities assumed in a business combination. The Company has adopted this guidance in conjunction with the adoption of the revised principles related to business combinations. The adoption of the revised principles related to business combinations has not had a material impact on the consolidated financial statements. The revised principle related to noncontrolling interests establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. The revised principle clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The revised principle also requires reported consolidated net income to include the amounts attributable to both the parent and the noncontrolling interest. The revised principle requires retrospective adjustments, for all periods presented, of stockholders equity and net income for noncontrolling interests. In addition to these financial reporting changes, the revised principle provides for significant changes in accounting related to noncontrolling interests; specifically, increases and decreases in Aons controlling financial interests in consolidated subsidiaries will be reported in equity similar to treasury stock transactions. If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net income. In previous periods, noncontrolling interests for operating subsidiaries were reported in other general expenses in the condensed consolidated statements of income. Prior period amounts have been restated to conform to the current years presentation. On January1, 2009, Aon also adopted a new principle which supplements current disclosure requirements for derivative in |
Cash and Cash Equivalents
Cash and Cash Equivalents | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Cash and Cash Equivalents | 3. Cash and Cash Equivalents Cash and cash equivalents at June30, 2009 and December31, 2008 included restricted balances of $117 million and $194 million, respectively. Restricted balances are held in trust for the benefit of reinsurance contract holders. |
Income Per Share
Income Per Share | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Income Per Share | 4. Income Per Share Income per share attributable to Aon stockholders is calculated as follows (in millions, except per share data): Three months ended June30, Six months ended June30, 2009 2008 2009 2008 Net income from continuing operations attributable to Aon stockholders $ 147 $ 166 $ 377 $ 343 Net income from discontinued operations attributable to Aon stockholders 2 967 52 1,008 Net income for basic and diluted per share calculation $ 149 $ 1,133 $ 429 $ 1,351 Basic shares outstanding 278 289 278 297 Common stock equivalents 11 16 11 16 Diluted potential common shares 289 305 289 313 Basic net income per share attributable to Aon stockholders: Continuing operations $ 0.52 $ 0.56 $ 1.33 $ 1.13 Discontinued operations 0.01 3.26 0.18 3.31 Net income $ 0.53 $ 3.82 $ 1.51 $ 4.44 Diluted net income per share attributable to Aon stockholders: Continuing operations $ 0.51 $ 0.54 $ 1.30 $ 1.10 Discontinued operations 0.01 3.17 0.18 3.22 Net income $ 0.52 $ 3.71 $ 1.48 $ 4.32 Antidilutive employee stock options 5 2 5 3 As discussed in Note 2, the Company began following new guidance regarding participating securities, effective January1, 2009. There were approximately 7 million participating shares for the three and six months ended June30, 2009 and approximately 8 million participating shares for both the three and six months ended June30, 2008. Basic net income per share was reduced from $3.91 to $3.82 for the three months ended June30, 2008 and from $4.55 to $4.44 for the six months ended June30, 2008 as a result of adopting the new guidance. |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Goodwill and Other Intangible Assets | 5. Goodwill and Other Intangible Assets The changes in the net carrying amount of goodwill by operating segment for the six months ended June30, 2009 are as follows (in millions): Risk and Insurance Brokerage Services Consulting Total Balance as of December31, 2008 $ 5,259 $ 378 $ 5,637 Goodwill acquired 26 26 Benfield purchase accounting adjustments 36 36 Goodwill related to disposals (13 ) (13 ) Foreign currency revaluation 194 3 197 Balance as of June30, 2009 $ 5,502 $ 381 $ 5,883 Other intangible assets by asset category are as follows (in millions): June30, 2009 December31, 2008 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Trademarks $ 134 $ $ 128 $ Customer Related and Contract Based 719 208 697 180 Marketing, Technology and Other 354 223 331 197 $ 1,207 $ 431 $ 1,156 $ 377 Amortization expense on intangible assets was $22 million and $45 million for the three and six months ended June30, 2009, respectively. Amortization expense was $11 million and $25 million for the three and six months ended June30, 2008, respectively. As of June30, 2009, the estimated amortization for intangible assets is as follows (in millions): Remainder of 2009 $ 49 2010 99 2011 92 2012 80 2013 70 Thereafter 252 Total $ 642 |
Disposal of Operations
Disposal of Operations | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Disposal of Operations | 6. Disposal of Operations Continuing Operations In December2008, Aon signed a definitive agreement to sell the U.S. operation of the premium finance business of Cananwill,Inc. (Cananwill). This disposition was completed in February2009. Cananwills results are included in the Risk and Insurance Brokerage Services segment. A pretax loss totaling $7 million was recorded, of which $2 million was recorded in first quarter 2009 and $5 million in 2008. This disposal did not meet the criteria for discontinued operations reporting. Aon may receive up to $10 million from the buyer over the next two years based on the volume of insurance premiums and related obligations financed by the buyer over this period that are generated by certain of Cananwills producers. Discontinued Operations Property and Casualty Operations In January2009, the Company signed a definitive agreement to sell FFG Insurance Company (FFG), Atlanta International Insurance Company (AIIC) and Citadel Insurance Company (Citadel) (together the PC operations). FFG and Citadel are property and casualty insurance operations that were in runoff. AIIC is a property and casualty insurance operation that was previously reported in discontinued operations. The sale is subject to various closing conditions and is expected to be completed in the second half of 2009. Aon anticipates incurring a pretax loss of approximately $191 million on the sale of these operations, which was recorded in 2008 in income (loss) from discontinued operations. As of November30, 2006, in connection with the sale of Aon Warranty Group (AWG), Aon sold Virginia Surety Company (VSC). VSC remains liable to policyholders of the PC operations to the extent reinsurers of the property and casualty businesses do not meet their obligations. In connection with the AWG sale, Aon provided an indemnification which protects the purchaser from the credit exposure related to the property and casualty balances that were reinsured. These reinsurance recoverables amount to $597 million at June30, 2009. Trust balances and letters of credit offsetting these reinsurance recoverables totaled approximately $118 million at June30, 2009. The liability balance reflecting the estimated fair value of this indemnification was $9 million at June30, 2009. The Company is not aware of any event of default by any reinsurer which would require it to satisfy the indemnification. In conjunction with the sale of the PC operations, the buyer will assume the indemnification with respect to these reinsurance balances. AIS Management Corporation In 2008, Aon reached a definitive agreement to sell AIS Management Corporation (AIS), which was previously included in the Risk and Insurance Brokerage Services segment, to Mercury General Corporation, for $120 million in cash at closing, plus a potential earn-out of up to $35 million payable over the two years following the completion of the agreement. The disposition was completed in January2009 and resulted in a pretax gain of $86 million in first quarter 2009. Accident, Life Health Operations On April1, 2008, the Company sold its Combined Insurance Company of America (CICA) subsidiary to |
Restructuring
Restructuring | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Restructuring | 7. Restructuring Aon Benfield Restructuring Plan The Company announced a global restructuring plan in conjunction with its merger with Benfield Group Limited (Aon Benfield Plan) in 2008. The restructuring plan is intended to integrate and streamline operations across the combined Aon Benfield organization. The Aon Benfield Plan includes an estimated 500 to 700 job eliminations. As of June30, 2009, approximately 400 jobs have been eliminated under the Plan. Additionally, duplicate space and assets will be abandoned. The Company recorded $21 million and $30 million of restructuring and related expenses in the second quarter and six months 2009, respectively. The Company estimates that the Aon Benfield Plan will result in costs totaling approximately $185 million, of which $104 million was recorded in connection with the Benfield merger and is included as part of the Benfield purchase price allocation, and $81 million of which will result in charges to earnings. All costs associated with the Aon Benfield Plan are included in the Risk and Insurance Brokerage Services segment. Charges related to the restructuring are included in compensation and benefits, other general expenses, and depreciation and amortization in the accompanying condensed consolidated statements of income. The Company expects the restructuring activities and related expenses to affect continuing operations into 2011. The following summarizes the restructuring and related costs by type and estimated to be incurred through the end of the restructuring initiative related to the merger and integration of Benfield (in millions): Actual Estmated Purchase Price Allocation Second Quarter 2009 Six Months 2009 Total to Date Total Cost for Restructuring Period (1) Workforce reduction $ 74 $ 17 $ 25 $ 99 $ 126 Lease consolidation 28 4 4 32 48 Asset impairments 1 1 8 Other costs associated with restructuring (2) 2 2 3 Total restructuring and related expenses $ 104 $ 21 $ 30 $ 134 $ 185 (1) Actual costs, when incurred, will vary due to changes in the assumptions built into this plan. Significant assumptions likely to change when plans are finalized and approved include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives. (2) Other costs associated with restructuring initiatives, including moving costs, consulting fees and legal fees, are recognized when incurred. 2007 Restructuring Plan In 2007, the Company announced a global restructuring plan intended to create a more streamlined organization and reduce future expense growth to better serve clients (2007 Plan). The 2007 Plan includes an estimated 3,900 job eliminations. As of June30, 2009, approximately 2,300 positions have been eliminated. The Company also expects to close or consolidate several offices resulting in sublease losses or lease buy-outs. T |
Investment Income and Investmen
Investment Income and Investments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Investment Income and Investments | 8. Investment Income and Investments The components of investment income are as follows (in millions): Three months ended June30, Six months ended June30, 2009 2008 2009 2008 Gross investment income $ 21 $ 68 $ 53 $ 126 Less: investment expenses 1 2 Investment income $ 21 $ 67 $ 53 $ 124 The Company earns investment income on cash balances and investments, as well as on premium trust balances that Aon maintains for premiums collected from insureds but not yet remitted to insurance companies. Premium trust balances and a corresponding liability are included in fiduciary assets and fiduciary liabilities in the accompanying condensed consolidated statements of financial position. The Companys interest-bearing assets are included in the following categories in the accompanying condensed consolidated statements of financial position (in millions): June 30, 2009 December 31, 2008 Cash and cash equivalents $ 537 $ 582 Short-term investments 580 684 Premium trust balances (included within fiduciary assets) 3,694 3,178 Investments 296 332 $ 5,107 $ 4,776 |
Debt
Debt | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Debt | 9. Debt In 1997, Aon created Aon Capital A, a wholly-owned statutory business trust (Trust), for the purpose of issuing mandatorily redeemable preferred capital securities (Capital Securities). Aon received cash and an investment in 100% of the common equity of Aon Capital A by issuing 8.205% Junior Subordinated Deferrable Interest Debentures (the Debentures) to Aon Capital A. These transactions were structured such that the net cash flows from Aon to Aon Capital A matched the cash flows from Aon Capital A to the third party investors. Aon determined that it was not the primary beneficiary of Aon Capital A, a VIE, and, thus reflected the Debentures as long-term debt. During the first half of 2009, Aon repurchased $15 million face value of the Capital Securities for approximately $10 million, resulting in a $5 million gain reflected in other (income) expense in the condensed consolidated statement of income. To facilitate the legal release of the obligation created through the Debentures associated with this repurchase and future repurchases, Aon dissolved the Trust effective June 25, 2009. This dissolution resulted in the exchange of the Capital Securities held by third parties for the Debentures. Also in connection with the dissolution of the Trust, the $24 million of common equity of Aon Capital A held by Aon was exchanged for $24 million of Debentures, which were then cancelled. Following these actions, $687 million of Debentures remain outstanding as of June 30, 2009. The Debentures are subject to mandatory redemption on January 1, 2027 or are redeemable in whole, but not in part, at the option of Aon upon the occurrence of certain events. Also during the second quarter 2009, $100 million of short-term debt related to a VIE where Aon is the primary beneficiary was repaid. Subsequent to quarter end, on July1, 2009, an indirect wholly-owned subsidiary of Aon issued 500 million ($703 million at June30, 2009 exchange rates) of 6.25% senior unsecured debentures due on July1, 2014. The principal and interest on the debentures is unconditionally and irrevocably guaranteed by Aon. Proceeds from the offering were used to repay the Companys $677 million outstanding indebtedness under its Euro credit facility. Consequently, the amount due under the Euro credit facility at June 30, 2009 has been included within short-term debt in the condensed consolidated statement of financial position. |
Equity
Equity | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Equity | 10. Equity Common Stock During the first six months of 2009, Aon issued 966,000 new shares of common stock for employee benefit plans. In addition, Aon issued approximately 5.0 million shares of treasury stock for employee benefit programs and 157,000 shares in connection with employee stock purchase plans. Aons Board of Directors has authorized the Company to repurchase up to $4.6 billion of its outstanding common stock. Shares may be repurchased through the open market or in privately negotiated transactions from time to time, based on prevailing market conditions and will be funded from available capital. Any repurchased shares will be available for employee stock plans and for other corporate purposes. The Company did not repurchase any shares in first quarter 2009. The Company repurchased approximately 3.4 million shares at a cost of $125 million in the second quarter 2009. Since inception of its share repurchase program in 2005, the Company has repurchased a total of 94.2 million shares for an aggregate cost of $3.9 billion. As of June30, 2009, the Company remained authorized to purchase up to $730 million of additional shares under the current stock repurchase program. The timing and amount of future purchases will be based on market and other conditions. There are also 22.4 million shares of common stock held in treasury at June30, 2009 which are restricted as to their reissuance. Other Comprehensive Income (Loss) The components of comprehensive income, net of tax, are as follows (in millions): Three months ended June30, Six months ended June30, 2009 2008 2009 2008 Net income $ 155 $ 1,136 $ 440 $ 1,359 Net derivative gains (losses) 27 (22 ) 18 (19 ) Net unrealized investment (losses) gains (1 ) 7 (9 ) 20 Net foreign currency translation adjustments 235 (60 ) 140 246 Net postretirement benefit obligations 4 (19 ) 60 (11 ) Comprehensive income 420 1,042 649 1,595 Less: Comprehensive income attributable to noncontrolling interest 8 3 12 8 Comprehensive income attributable to Aon stockholders $ 412 $ 1,039 $ 637 $ 1,587 The components of accumulated other comprehensive loss, net of tax, are as follows (in millions): June30, 2009 December31, 2008 Net derivative gains (losses) $ 5 $ (13 ) Net unrealized investment gains 47 56 Net foreign currency translation adjustments 241 102 Net postretirement benefit obligations (1,547 ) (1,607 ) Accumulated other comprehensive loss, net of tax $ (1,254 ) $ (1,462 ) |
Employee Benefits
Employee Benefits | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Employee Benefits | 11. Employee Benefits Pension Plans The following table provides the components of the net periodic benefit cost for Aons U.S. pension plans, along with the material international plans, which are located in the U.K., The Netherlands, and Canada (in millions): Three months ended June30, U.S. International 2009 2008 2009 2008 Service cost $ $ 10 $ 4 $ 7 Interest cost 31 27 58 73 Expected return on plan assets (25 ) (32 ) (59 ) (78 ) Amortization of prior service cost (3 ) Amortization of net loss 5 5 10 10 Net periodic benefit cost $ 11 $ 7 $ 13 $ 12 Six months ended June30, U.S. International 2009 2008 2009 2008 Service cost $ $ 22 $ 8 $ 13 Interest cost 62 53 112 148 Expected return on plan assets (51 ) (64 ) (111 ) (158 ) Amortization of prior service cost (1 ) (7 ) 1 Amortization of net loss 17 11 19 20 Net periodic benefit cost $ 27 $ 15 $ 29 $ 23 On January30, 2009, the Aon Board of Directors adopted an amendment to the U.S. defined benefit pension plan whereby effective April1, 2009 the Company ceased crediting future benefits relating to salary and service. As a result of the U.S. plan amendment, the Company remeasured its pension expense for 2009 to reflect a new discount rate of 7.08%, the year-to-date decline in plan assets and change in amortization basis to the expected average remaining life of plan participants. The remeasurement resulted in a $163 million improvement in the funded status of Aons U.S. plan. Additionally, the Company recognized a curtailment gain of $83 million in first quarter 2009, which was reported in compensation and benefits in the condensed consolidated statements of income. Also during the first quarter 2009, an additional curtailment gain of $10 million was recognized in discontinued operations resulting from the sale of CICA. The curtailment gain relates to the Companys U.S. Retiree Health and Welfare Plan in which CICA employees were allowed to participate through the end of 2008, pursuant to the terms of the sale. In the second quarter 2008, a pension curtailment gain of $12 million was recognized in discontinued operations resulting from the sale of CICA. During the second quarter 2009, Aon recorded a $5 million curtailment charge attributable to a remeasurement resulting from the decision to cease service accruals in the Canadian plans beginning in 2010, which was reported in compensation and benefits in the condensed consolidated statements of income. In 2009, Aon plans to contribute $26 million and $393 million to its U.S. and material international defined benefit pension plans, respectively. As of June30, 2009, contributions of $11 million have been made to the U.S. pension plans and $287 million to its material international pension plans. |
Stock Compensation Plans
Stock Compensation Plans | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Stock Compensation Plans | 12. Stock Compensation Plans Compensation expense The following table summarizes stock-based compensation expense related to all stock-based payments recognized in continuing operations in the condensed consolidated statements of income in compensation and benefits (in millions): Three months ended Six months ended June30, June30, 2009 2008 2009 2008 Restricted Stock Units (RSUs) $ 30 $ 30 $ 64 $ 75 Performance plans 11 16 16 30 Stock options 13 7 13 13 Employee stock purchase plan 1 1 2 2 Total $ 55 $ 54 $ 95 $ 120 During the first half of 2009, the Company converted its stock administration system to a new service provider. In connection with this conversion, a reconciliation of the methodologies utilized was performed, which resulted in a $10 million reduction of expense for the six months ended June30, 2009. Stock Awards During the first six months of 2009, the Company granted approximately 2 million shares in connection with the completion of the 2006 Leadership Performance Plan (LPP) cycle and approximately 3.1 million restricted shares in connection with the Companys incentive compensation plans. A summary of the status of Aons non-vested stock awards is as follows (shares in thousands): Six months ended June30, 2009 2008 Shares Fair Value (1) Shares Fair Value (1) Non-vested at beginning of period 14,060 $ 35 14,150 $ 31 Granted 5,126 38 2,967 42 Vested (4,764 ) 37 (3,315 ) 28 Forfeited (252 ) 37 (285 ) 32 Non-vested at end of period 14,170 35 13,517 34 (1)Represents fair value of award at date of grant. Information regarding Aons performance-based plans follows (shares in thousands, dollars in millions): As of June30, 2009 2008 Potential RSUs to be issued based on current performance levels 6,116 5,708 Unamortized expense, based on current performance levels $ 138 $ 100 Stock Options In 2008 and prior years, Aon used historical data to estimate option exercise and employee terminations within the lattice-binomial option-pricing model, stratified between executives and key employees. Beginning in 2009, after reviewing additional historical data, the valuation model stratifies employees between those receiving LPP options, Special Stock Plan (SSP) options, and all other option grants. The Company believes that this stratification better represents prospective stock option exercise patterns. The weighted average assumptions, the weighted average expected life and estimated fair value of employee stock options are summarized as follows: Three months ended June30, 2009 Six months ended June30, 2009 LPP Options SSP Options LPP Options SSP Options All Other Options Weighted average volatility 35.7 % 35.7 % 35.5 % 35.7 % 35.5 % Expected dividend yield 1.5 % 1.5 % 1.3 % 1.5 |
Financial Instruments
Financial Instruments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Financial Instruments | 13. Financial Instruments Aon is exposed to market risk from changes in foreign currency exchange rates, interest rates and equity security prices. To manage the risk related to these exposures, Aon enters into various derivative transactions. The derivatives have the effect of reducing Aons market risks by creating offsetting market exposures. Aon does not enter into derivative transactions for trading purposes. Derivative transactions are governed by a uniform set of policies and procedures covering areas such as authorization, counterparty exposure and hedging practices. Positions are monitored using techniques such as market value and sensitivity analyses. Certain derivatives also give rise to credit risks from the possible non-performance by counterparties. The credit risk is generally limited to the fair value of those contracts that are favorable to Aon. Aon has limited its credit risk by using International Swaps and Derivatives Association (ISDA) master agreements, collateral and credit support arrangements, entering into non-exchange-traded derivatives with highly-rated major financial institutions and by using exchange-traded instruments. Aon monitors the credit-worthiness of, and exposure to, its counterparties. As of June30, 2009, all net derivative liability positions were entered into pursuant to terms of ISDA master agreements, and were free of credit risk contingent features. Accounting Policy for Derivative Instruments All derivative instruments are recognized in the condensed consolidated statements of financial position at fair value. Unless otherwise noted, derivative instruments with a positive fair value are reported in other assets and derivative instruments with a negative fair value are reported in other liabilities in the condensed consolidated statements of financial position. Where Aon has entered into master netting agreements with counterparties, the derivative positions are netted by counterparty and are reported accordingly in other assets or other liabilities. Changes in the fair value of derivative instruments are recognized immediately in earnings, unless the derivative is designated as a hedge and qualifies for hedge accounting. Accounting principles identify three hedging relationships where a derivative (hedging instrument) may qualify for hedge accounting: (i)a hedge of the change in fair value of a recognized asset or liability or firm commitment (fair value hedge), (ii)a hedge of the variability in cash flows from a recognized variable-rate asset or liability or forecasted transaction (cash flow hedge), and (iii)a hedge of the net investment in a foreign subsidiary (net investment hedge). Under hedge accounting, recognition of derivative gains and losses can be matched in the same period with that of the hedged exposure and thereby minimize earnings volatility. In order for a derivative to qualify for hedge accounting, the derivative must be formally designated as a fair value, cash flow, or a net investment hedge by documenting the relationship between the derivative and the hedged item. The documentation will include a description of the hedging instrument, the hedge item, t |
Premium Finance Operations
Premium Finance Operations | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Premium Finance Operations | 14. Premium Finance Operations Some of Aons U.S., U.K., Canadian, and Australian subsidiaries have originated short-term loans (generally with terms of 12 months or less) to businesses to finance their insurance premium obligations, and then have sold these premium finance agreements in securitization transactions that meet the criteria for sale accounting under current accounting principles. In December2008, Aon signed a definitive agreement to sell the U.S. operations of the premium finance business (Cananwill). In connection with Aons sale of its U.S. premium finance business, Aon has guaranteed the collection of the principal amount of the premium finance notes sold to the buyer, which, at June30, 2009, was $170 million, if losses exceed the historical credit loss reserve for the business. Historical losses in this business have been very low since the premium finance notes are generally fully collateralized by the lenders right, in the event of non-payment, to cancel the underlying insurance contract and collect the unearned premium from the insurance carrier. The Company does not expect to incur any significant losses related to this guarantee. This disposition was completed in February2009. In the U.K., premium finance agreements have been sold to special purpose entities (SPEs), which are considered QSPEs, as defined. The QSPEs fund their purchases of premium finance agreements by selling undivided beneficial interests in the agreements to multi-seller commercial paper conduit SPEs sponsored by unaffiliated banks (Bank SPEs). In Canada and Australia, undivided interests in the premium finance agreements have been sold directly to Bank SPEs. The Bank SPEs are variable interest entities as defined under current accounting principles. The QSPEs used in the U.K are not consolidated in Aons financial statements because the criteria for sale accounting have been met. For the Canadian and Australian sales, the Company determined that non-consolidation of the Bank SPEs is appropriate because Aon is not their primary beneficiary. Aons variable interest in the Bank SPEs in these jurisdictions is limited to the retained interests in premium finance agreements sold to the Bank SPEs. The Company reviews all material off-balance sheet transactions annually or whenever a reconsideration event occurs for the continued propriety of its accounting. The total amount that can be advanced by the Bank SPEs on premium finance agreements sold to them at any one time is limited by the sale agreements. The limit was $267 million at June30, 2009. The outstanding balance of sold portfolios at June 30, 2009 was $247 million, and the Bank SPEs had advanced $194 million. The outstanding balance of sold portfolios at December 31, 2008 was $1.1 billion, and the Bank SPEs had advanced $981 million. Aon records gains on the sale of premium finance agreements. When Aon calculates the gain, all costs expected to be incurred for the relevant Bank SPEs are included. The gains, which are included in commissions, fees and other revenue in the condensed consolidated statements of income, were $8 million and $15 million for the three months ended June30, 20 |
Variable Interest Entities
Variable Interest Entities | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Variable Interest Entities | 15. Variable Interest Entities Aon has the following VIEs that have been consolidated at June30, 2009: Globe Re Limited (Globe Re), provided reinsurance coverage for a defined portfolio of property catastrophe reinsurance contracts underwritten by a third party for a limited period which ended June1, 2009; Juniperus Insurance Opportunity Fund Limited (Juniperus), which is an investment vehicle that invests in an actively managed and diversified portfolio of insurance risks; and Juniperus Capital Holdings Limited (JCHL), which provides investment management and related services to Juniperus. Globe Re is deemed to be a VIE since the equity investors at risk lack a controlling financial interest. Aon owns an 85% equity economic interest in Globe Re, is deemed to be the primary beneficiary and consolidates Globe Re. In connection with the winding up of its operations, during June2009, Globe Re repaid its $100 million of short-term debt from available cash. In early July2009, Aons equity investment in Globe Re was repaid. Globe Re had assets and liabilities of $56 million and $2 million, respectively, at June30, 2009 and $187 million and $105 million, respectively, at December31, 2008. Aon recognized $4 million and $8 million of pretax income from Globe Re in the second quarter and six months 2009, respectively. Globe Re will be fully liquidated in third quarter 2009. Aon holds a 40% equity interest in the Juniperus ClassA shares and bears a majority of the expected returns and losses. Aon has a 73% voting and economic interest in JCHL and absorbs a majority of JCHLs expected losses. Aon is considered the primary beneficiary of both companies, and as such these entities have been consolidated. Juniperus/JCHL had assets and liabilities of $175 million and $35 million, respectively, at June30, 2009 and $121 million and $22 million, respectively, at December31, 2008. Aon recognized $4 million of pretax income from Juniperus/JCHL for both the second quarter and six months 2009. Aons potential loss at June30, 2009 is limited to its investment in the VIEs, which is $63 million for Juniperus/JCHL. |
Fair Value
Fair Value | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Fair Value | 16. Fair Value Accounting standards establish a three tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 observable inputs such as quoted prices for identical assets in active markets; Level 2 inputs other than quoted prices for identical assets in active markets, that are observable either directly or indirectly; and Level 3 unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions. The following table presents, for each of the fair-value hierarchy levels, the Companys assets and liabilities that are measured at fair value on a recurring basis at June30, 2009 (in millions): FairValueMeasurements Using QuotedPricesin Significant Significant ActiveMarkets Other Unobservable Balanceat forIdentical Observable Inputs June30,2009 Assets(Level1) Inputs(Level2) (Level3) Assets: Money market funds and highly liquid debt securities (1) $ 2,687 $ $ 2,687 $ Other investments 106 4 102 Derivatives 145 145 Retained interests 61 61 Liabilities: Derivatives 75 75 Guarantees 9 9 (1) Includes $2,546 million of money market funds and $141 million of highly liquid debt securities that are classified as fiduciary assets, short-term investments or cash equivalents in the condensed consolidated statements of financial position, depending on their nature and initial maturity. See Note8 for additional information regarding the Companys investments. The following methods and assumptions are used to estimate the fair values of our financial instruments: Money market funds and highly liquid debt securities are carried at cost and amortized cost, respectively, as an approximation of fair value. Based on market convention, the Company considers cost a practical and expedient measure of fair value. Other investments carried at fair value consists primarily of the Companys investment in PEPS I. Fair value is based on valuations received from the general partners of the limited partnership interests held by PEPS I. Derivatives are carried at fair value, based upon industry standard valuation techniques that use, where possible, current market-based or independently sourced pricing inputs, such as interest rates, currency exchange rates, or implied volatilities. Retained interests in the sold premium finance agreements of Aons premium financing operations are recorded at fair value by discounting estimated future cash flows using discount rates that are commensurate with the underlying risk, expected future prepayment rates, and credit loss estimates. Guarantees are carried at fair value, which is based on discounted estimated future cash flows using published historical cumulative default rates and discount rates commensurate with the underlying exposure. The following table presents the changes in the Level 3 fair-value category for the three months ended June30, 2009 (in millions): FairValueMeasurementsUsingLev |
Contingencies
Contingencies | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Contingencies | 17. Contingencies Aon and its subsidiaries are subject to numerous claims, tax assessments, lawsuits and proceedings that arise in the ordinary course of business. The damages claimed in these matters are or may be substantial, including, in many instances, claims for punitive, treble or extraordinary damages. Aon has purchased errors and omissions (EO) insurance and other appropriate insurance to provide protection against losses that arise in such matters. Accruals for these items, and related insurance receivables, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable. These accruals and receivables are adjusted from time to time as developments warrant. Amounts related to settlement provisions are recorded in other general expenses in the condensed consolidated statements of income. At the time of the 2004-05 investigation of the insurance industry by the Attorney General of New York (NYAG) and other regulators, purported classes of clients filed civil litigation against Aon and other companies under a variety of legal theories, including state tort, contract, fiduciary duty, antitrust and statutory theories and federal antitrust and Racketeer Influenced and Corrupt Organizations Act (RICO) theories. The federal actions were consolidated in the U.S. District Court for the District of New Jersey, and a state court collective action was filed in California. In the New Jersey actions, the Court dismissed plaintiffs federal antitrust and RICO claims in separate orders in Augustand October2007, respectively. Plaintiffs have appealed these dismissals. Aon believes it has meritorious defenses in all of these cases and intends to vigorously defend itself against these claims. The outcome of these lawsuits, and any losses or other payments that may occur as a result, cannot be predicted at this time. Also at the time of the NYAG investigation, putative classes filed actions against Aon in the U.S. District Court for the Northern District of Illinois under the federal securities laws and ERISA. Plaintiffs in the federal securities class action submitted purported expert reports estimating a range of alleged damages of $353 million to $490 million, and plaintiffs in the ERISA class actions submitted revised purported expert reports estimating a range of alleged damages of $74 million to $349 million. Aon submitted expert reports in opposition concluding that plaintiffs theories of liability and causation are meritless and that, in any event, plaintiffs incurred no damages. Aon believes it has meritorious defenses in all of these cases and has vigorously defended itself against these claims. In June2009, Aon reached agreement on a proposed settlement of the federal securities class action under which Aon would pay $30 million to the class. This settlement is subject to a process requiring final approval by the trial court and a possible appeal. The outcome of these lawsuits, and any losses or other payments that may occur as a result, cannot be predicted at this time. On June12, 2009, Aon entered into two settlement agreements with XL Insurance (Bermuda) Ltd. resulting in the rece |
Business Segments
Business Segments | |
6 Months Ended
Jun. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Business Segments | 18. Business Segments Aon classifies its businesses into two operating segments: Risk and Insurance Brokerage Services and Consulting. The Risk and Insurance Brokerage Services segment consists primarily of Aons retail and reinsurance brokerage operations, as well as related insurance services, including underwriting management, captive insurance company management services, investment banking products and services, and premium financing. Aon sold its U.S. operations of the premium finance business of Cananwill in first quarter 2009. The Consulting segment provides a broad range of consulting services. These services are delivered predominantly to corporate clientele that operate in the following practice areas: Consulting Services health and employee benefits, retirement, compensation, and strategic human capital, and Outsourcing - human resource outsourcing. Aons total revenue is as follows (in millions): Three months ended June30, 2009 2008 Commissions, Fees and Other Investment Income Total Commissions, Fees and Other Investment Income Total Risk and Insurance Brokerage Services $ 1,559 $ 19 $ 1,578 $ 1,561 $ 49 $ 1,610 Consulting 300 300 335 1 336 Intersegment elimination (6 ) (6 ) (7 ) (7 ) Total operating segments 1,853 19 1,872 1,889 50 1,939 Unallocated 11 2 13 17 17 Total revenue $ 1,864 $ 21 $ 1,885 $ 1,889 $ 67 $ 1,956 Six months ended June30, 2009 2008 Commissions, Fees and Other Investment Income Total Commissions, Fees and Other Investment Income Total Risk and Insurance Brokerage Services $ 3,079 $ 49 $ 3,128 $ 3,076 $ 100 $ 3,176 Consulting 608 1 609 677 2 679 Intersegment elimination (12 ) (12 ) (16 ) (16 ) Total operating segments 3,675 50 3,725 3,737 102 3,839 Unallocated 11 3 14 22 22 Total revenue $ 3,686 $ 53 $ 3,739 $ 3,737 $ 124 $ 3,861 Commissions, fees and other revenue are as follows (in millions): Three months ended Six months ended June30, June30, 2009 2008 2009 2008 Risk management and insurance brokerage: Americas $ 574 $ 588 $ 1,051 $ 1,081 United Kingdom 181 214 297 364 Europe, Middle East Africa 309 364 757 874 Asia Pacific 123 147 207 253 Reinsurance brokerage and related services 372 248 767 504 Total Risk and Insurance Brokerage Services 1,559 1,561 3,079 3,076 Consulting services 251 278 514 566 Outsourcing 49 57 94 111 Total Consulting 300 335 608 677 Intersegment elimination (6 ) (7 ) (12 ) (16 ) Unallocated 11 11 Total commissions, fees and other revenue $ 1,864 $ |
Document and Entity Information
Document and Entity Information (USD $) | ||
6 Months Ended
Jun. 30, 2009 | Jun. 30, 2008
| |
Document and Entity Information | ||
Entity Registrant Name | AON CORP | |
Entity Central Index Key | 0000315293 | |
Document Type | 10-Q | |
Document Period End Date | 2009-06-30 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | Yes | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Public Float | $11,883,580,723 | |
Entity Common Stock, Shares Outstanding | 274,481,537 |