Condensed Consolidated Statemen
Condensed Consolidated Statements of Income (USD $) | ||||
In Millions, except Per Share data | 3 Months Ended
Sep. 30, 2009 | 3 Months Ended
Sep. 30, 2008 | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Revenue | ||||
Commissions, fees and other | $1,780 | $1,756 | $5,466 | $5,493 |
Investment income | 28 | 90 | 81 | 214 |
Total revenue | 1,808 | 1,846 | 5,547 | 5,707 |
Expenses | ||||
Compensation and benefits | 1,119 | 1,131 | 3,267 | 3,428 |
Other general expenses | 424 | 419 | 1,287 | 1,333 |
Depreciation and amortization | 56 | 49 | 174 | 157 |
Total operating expenses | 1,599 | 1,599 | 4,728 | 4,918 |
Operating income (loss) | 209 | 247 | 819 | 789 |
Interest expense | 32 | 32 | 87 | 96 |
Other (income) expense | (1) | (3) | 1 | (9) |
Income from continuing operations before income taxes | 178 | 218 | 731 | 702 |
Income taxes | 47 | 59 | 212 | 192 |
Income from continuing operations | 131 | 159 | 519 | 510 |
Income (loss) from discontinued operations before income taxes | (57) | 93 | 1,440 | |
Income taxes | (3) | (19) | 38 | 470 |
Income (loss) from discontinued operations | 3 | (38) | 55 | 970 |
Net income | 134 | 121 | 574 | 1,480 |
Less: Net income attributable to noncontrolling interests | 14 | 4 | 25 | 12 |
Net income attributable to Aon shareholders | 120 | 117 | 549 | 1,468 |
Net income attributable to Aon stockholders | ||||
Income from continuing operations | 117 | 155 | 494 | 498 |
Income (loss) from discontinued operations | 3 | (38) | 55 | 970 |
Net income | $120 | $117 | $549 | $1,468 |
Basic net income (loss) per share attributable to Aon stockholders | ||||
Continuing operations (in dollars per share) | 0.41 | 0.55 | 1.74 | 1.68 |
Discontinued operations (in dollars per share) | 0.01 | -0.13 | 0.19 | 3.26 |
Net income (in dollars per share) | 0.42 | 0.42 | 1.93 | 4.94 |
Diluted net income (loss) per share attributable to Aon stockholders | ||||
Continuing operations (in dollars per share) | 0.4 | 0.53 | 1.69 | 1.61 |
Discontinued operations (in dollars per share) | 0.01 | -0.13 | 0.19 | 3.14 |
Net income (in dollars per share) | 0.41 | 0.4 | 1.88 | 4.75 |
Dividends paid per share (in dollars per share) | 0.15 | 0.15 | 0.45 | 0.45 |
Weighted average common shares outstanding - basic (in shares) | 283.8 | 281.7 | 284.5 | 296.9 |
Weighted average common shares outstanding - diluted (in shares) | 292.1 | 293.9 | 292.2 | 308.9 |
1_Condensed Consolidated Statem
Condensed Consolidated Statements of Financial Position (USD $) | ||
In Millions | Sep. 30, 2009
| Dec. 31, 2008
|
CURRENT ASSETS: | ||
Cash and cash equivalents | $580 | $582 |
Short-term investments | 602 | 684 |
Receivables | 1,844 | 1,990 |
Fiduciary assets | 9,551 | 10,678 |
Other current assets | 349 | 355 |
Assets held for sale | 237 | |
Total Current Assets | 12,926 | 14,526 |
Goodwill | 5,957 | 5,637 |
Other intangible assets, net | 763 | 779 |
Fixed assets, net | 453 | 451 |
Investments | 297 | 332 |
Other non-current assets | 1,245 | 1,215 |
TOTAL ASSETS | 21,641 | 22,940 |
CURRENT LIABILITIES: | ||
Fiduciary liabilities | 9,551 | 10,678 |
Short-term debt | 12 | 105 |
Accounts payable and accrued liabilities | 1,377 | 1,560 |
Other current liabilities | 277 | 314 |
Liabilities held for sale | 146 | |
Total Current Liabilities | 11,217 | 12,803 |
Long-term debt | 1,998 | 1,872 |
Pension and other post employment liabilities | 1,245 | 1,694 |
Other non-current liabilities | 1,051 | 1,156 |
TOTAL LIABILITIES | 15,511 | 17,525 |
AON STOCKHOLDERS' EQUITY: | ||
Common stock-$1 par value Authorized: 750 shares (issued: 9/30/09 - 362.7; 12/31/08 - 361.7) | 363 | 362 |
Additional paid-in capital | 3,166 | 3,220 |
Retained earnings | 7,189 | 6,816 |
Treasury stock at cost (shares: 9/30/09 - 88.7; 12/31/08 - 89.9) | (3,556) | (3,626) |
Accumulated other comprehensive loss | (1,172) | (1,462) |
TOTAL AON STOCKHOLDERS' EQUITY | 5,990 | 5,310 |
Noncontrolling interests | 140 | 105 |
TOTAL EQUITY | 6,130 | 5,415 |
TOTAL LIABILITIES AND EQUITY | $21,641 | $22,940 |
2_Condensed Consolidated Statem
Condensed Consolidated Statements of Financial Position (Parenthetical) (USD $) | ||
Share data in Millions, except Per Share data | Sep. 30, 2009
| Dec. 31, 2008
|
Condensed Consolidated Statements of Financial Position | ||
Common stock, par value (in dollars per share) | $1 | $1 |
Common stock, Authorized shares | 750 | 750 |
Common stock, issued | 362.7 | 361.7 |
Treasury stock, shares | 88.7 | 89.9 |
3_Condensed Consolidated Statem
Condensed Consolidated Statement of Stockholders' Equity (USD $) | ||||||
In Millions | Common Stock and Additional Paid-in Capital
| Retained Earnings
| Treasury Stock
| Accumulated Other Comprehensive Loss, Net of Tax
| Noncontrolling Interests
| Total
|
Balance (in shares) at Dec. 31, 2008 | 361.7 | |||||
Balance at Dec. 31, 2008 | $3,582 | $6,816 | ($3,626) | ($1,462) | $105 | $5,415 |
Net income | 549 | 25 | 574 | |||
Shares issued - employee benefit plans | 96 | 96 | ||||
Shares issued - employee benefit plans (in shares) | 1 | |||||
Shares purchased | (250) | (250) | ||||
Shares reissued - employee benefit plans | (320) | (52) | 320 | (52) | ||
Tax benefit - employee benefit plans | 24 | 24 | ||||
Stock compensation expense | 152 | 152 | ||||
Dividends to stockholders | (124) | (124) | ||||
Change in net derivative gains/losses | 6 | 6 | ||||
Change in net unrealized investment gains/losses | (10) | (10) | ||||
Net foreign currency translation adjustments | 223 | 4 | 227 | |||
Net post-retirement benefit obligation | 71 | 71 | ||||
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 | (26) | (26) | ||||
Balance at Sep. 30, 2009 | $3,529 | $7,189 | ($3,556) | ($1,172) | $140 | $6,130 |
Balance (in shares) at Sep. 30, 2009 | 362.7 |
4_Condensed Consolidated Statem
Condensed Consolidated Statements of Cash Flows (USD $) | ||
In Millions | 9 Months Ended
Sep. 30, 2009 | 9 Months Ended
Sep. 30, 2008 |
Cash Flows from Operating Activities: | ||
Net income | $574 | $1,480 |
Adjustments to reconcile net income to cash provided by operating activities: | ||
Gain from disposal of operations | (97) | (1,403) |
Depreciation and amortization of fixed assets | 105 | 117 |
Amortization of intangible assets | 69 | 40 |
Stock compensation expense | 152 | 194 |
Deferred income taxes | 81 | (68) |
Change in assets and liabilities: | ||
Change in funds held on behalf of brokerage and consulting clients | 46 | 50 |
Net receivables | 218 | 111 |
Accounts payable and accrued liabilities | (399) | (357) |
Restructuring reserves | 16 | 47 |
Pension and other post employment liabilities | (284) | (86) |
Other assets and liabilities | (300) | (88) |
Cash Provided by Operating Activities | 181 | 37 |
Cash Flows from Investing Activities: | ||
Sales of long-term investments | 21 | 270 |
Purchase of long-term investments | (17) | (281) |
Sales (purchases) of short-term investments, net | 61 | (761) |
Acquisition of businesses, net of cash acquired | (55) | (85) |
Proceeds from sale of businesses | 139 | 2,803 |
Capital expenditures | (86) | (80) |
Cash Provided by Investing Activities | 63 | 1,866 |
Cash Flows from Financing Activities: | ||
Issuance of common stock | 50 | 42 |
Treasury stock transactions - net | (158) | (1,773) |
Short-term repayments, net | (370) | (232) |
Issuance of long-term debt | 683 | 364 |
Repayments of long-term debt | (339) | (297) |
Cash dividends to stockholders | (124) | (130) |
Cash Used for Financing Activities | (258) | (2,026) |
Effect of Exchange Rate Changes on Cash | 12 | 17 |
Net Decrease in Cash and Cash Equivalents | (2) | (106) |
Cash and Cash Equivalents at Beginning of Period | 582 | 584 |
Cash and Cash Equivalents at End of Period | 580 | 478 |
Supplemental disclosures: | ||
Interest paid | 84 | 96 |
Income taxes paid, net of refunds | $165 | $638 |
Statement of Accounting Princip
Statement of Accounting Principles | |
9 Months Ended
Sep. 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 Form 10-K for the year ended December 31, 2008. The results for the three and nine months ended September 30, 2009 are not necessarily indicative of operating results that may be expected for the full year ending December 31, 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 November 3, 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 | |
9 Months Ended
Sep. 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 January 1, 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 April 2009, 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 a separate component of equity in the consolidated statements of financial position. 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 changes in ownership of noncontrolling interests. Changes in Aons controlling financial interests in consolidated subsidiaries that do not result in a loss of control are accounted for as equity transactions similar to treasury stock transactions. If a change in ownership of a consolidated subsidiary result in loss of control and deconsolidation, any retained ownership interests are remeasured at fair value 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. The principal effect on the prior years balance sheets related to the adoption of the new guidance related to noncontrolling interests is summarized as follows (in millions) |
Cash and Cash Equivalents
Cash and Cash Equivalents | |
9 Months Ended
Sep. 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 September 30, 2009 and December 31, 2008 included restricted balances of $99 million and $194 million, respectively. Restricted balances are held in trust for the benefit of reinsurance contract holders. |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Goodwill and Other Intangible Assets | 4. Goodwill and Other Intangible Assets The changes in the net carrying amount of goodwill by operating segment for the nine months ended September 30, 2009 are as follows (in millions): Risk and Insurance Brokerage Services Consulting Total Balance as of December 31, 2008 $ 5,259 $ 378 $ 5,637 Goodwill acquired 40 40 Benfield adjustments 15 15 Goodwill related to disposals (13 ) (13 ) Foreign currency revaluation 273 5 278 Balance as of September 30, 2009 $ 5,574 $ 383 $ 5,957 The Company is in the process of finalizing the Benfield purchase price allocation. Therefore, the final goodwill to be recorded is still subject to refinement. This process will be finalized in the fourth quarter 2009. During the third quarter, the Company updated its allocation to reflect the impact of changes in actual employee severance costs compared to original estimates and the resolution of certain tax matters. Other intangible assets by asset category are as follows (in millions): September 30, 2009 December 31, 2008 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Trademarks $ 134 $ $ 128 $ Customer Related and Contract Based 703 222 697 180 Marketing, Technology and Other 386 238 331 197 $ 1,223 $ 460 $ 1,156 $ 377 Amortization expense on intangible assets was $24 million and $69 million for the three and nine months ended September 30, 2009, respectively. Amortization expense was $15 million and $40 million for the three and nine months ended September 30, 2008, respectively. As of September 30, 2009, the estimated amortization for intangible assets is as follows (in millions): Remainder of 2009 $ 28 2010 99 2011 93 2012 82 2013 73 Thereafter 254 Total $ 629 |
Disposal of Operations
Disposal of Operations | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Disposal of Operations | 5. Disposal of Operations Continuing Operations In December 2008, 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 February 2009. Cananwills results are included in the Risk and Insurance Brokerage Services segment. A pretax loss totaling $7 million was recognized, of which $2 million was recorded in first quarter 2009 and $5 million in fourth quarter 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 January 2009, 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 was completed in August 2009. A pretax loss totaling $194 million was recognized, of which $3 million was recorded in third quarter 2009 and $191 million in fourth quarter 2008. As part of the sale, the purchaser also assumed an indemnification in respect of certain reinsured property and casualty balances. The fair value of this indemnification was $9 million at June 30, 2009. 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 January 2009 and resulted in a pretax gain of $86 million in first quarter 2009. Accident, Life Health Operations On April 1, 2008, the Company sold its Combined Insurance Company of America (CICA) subsidiary to ACE Limited and its Sterling Life Insurance Company (Sterling) subsidiary to Munich Re Group. These two subsidiaries were previously included in the Companys former Insurance Underwriting segment. After final adjustments, Aon received $2.525 billion in cash for CICA and $341 million in cash for Sterling. Additionally, CICA paid a $325 million dividend to Aon before the sale transaction was completed. A pretax gain of $1.4 billion was recognized in the second quarter 2008 on the sale of these businesses. The operating results of all businesses classified as discontinued operations are as follows (in millions): Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Revenue: CICA and Sterling $ $ $ $ 677 AIS 23 71 PC Operations 1 2 4 $ $ 24 |
Restructuring
Restructuring | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Restructuring | 6. Restructuring Aon Benfield Restructuring Plan The Company announced a global restructuring plan (Aon Benfield Plan) in conjunction with its merger with Benfield 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 700 job eliminations. Additionally, duplicate space and assets will be abandoned. The Company originally estimated that this plan would result in cumulative costs totaling approximately $185 million over a three-year period, of which $104 million was recorded as part of the Benfield purchase price allocation and $81 million which was expected to result in future charges to earnings. The company currently estimates the Plan will result in cumulative costs totaling approximately $155 million. As of September 30, 2009, approximately 450 jobs have been eliminated under this Plan. The Company has recorded $15 million and $45 million of restructuring and related charges in the third quarter and nine months of 2009, respectively. Total payments of $60 million have been made under this Plan to date. Additionally, in the third quarter 2009, the Company reduced an accrual recorded as part of the Benfield purchase price allocation by $27 million to reflect actual severance costs being lower than originally estimated. 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 these 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 Purchase Price Allocation Third Quarter 2009 Nine Months 2009 Total to Date Estimated Total Cost for Restructuring Period (1) Workforce reduction $ 51 $ 6 $ 31 $ 82 $ 97 Lease consolidation 24 7 11 35 47 Asset impairments 1 2 2 8 Other costs associated with restructuring (2) 2 1 1 3 3 Total restructuring and related expenses $ 77 $ 15 $ 45 $ 122 $ 155 (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, 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 and consulting and legal fees, are recognized when incurred. 20 |
Investment Income and Investmen
Investment Income and Investments | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Investment Income and Investments | 7. Investment Income and Investments The components of investment income are as follows (in millions): Three months ended September 30, Nine months ended September 30, 2009 2008 2009 2008 Gross investment income $ 28 $ 92 $ 81 $ 218 Less: investment expenses 2 4 Investment income $ 28 $ 90 $ 81 $ 214 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): September 30, 2009 December 31, 2008 Cash and cash equivalents $ 580 $ 582 Short-term investments 602 684 Premium trust balances (included within fiduciary assets) 3,440 3,178 Investments 297 332 $ 4,919 $ 4,776 |
Debt
Debt | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Debt | 8. Debt On July 1, 2009, an indirect wholly-owned subsidiary of Aon issued 500 million ($734 million at September 30, 2009 exchange rates) of 6.25% senior unsecured debentures due on July 1, 2014. The payment of 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. 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. 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 of 2009, $100 million of short-term debt owned by a VIE where Aon is the primary beneficiary, was repaid. |
Equity
Equity | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Equity | 9. Equity Common Stock During the first nine months of 2009, Aon issued 966,000 new shares of common stock for employee benefit plans. In addition, Aon issued approximately 7.2 million shares of treasury stock for employee benefit programs and 411,000 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 repurchased approximately 3.0 million shares at a cost of $125 million in the third quarter 2009. For the first nine months of 2009, the Company repurchased approximately 6.5 million shares at a cost of $250 million. Since inception of its share repurchase program in 2005, the Company has repurchased a total of 97.3 million shares for an aggregate cost of $4.0 billion. As of September 30, 2009, the Company remained authorized to purchase up to $605 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 September 30, 2009 which are restricted as to their reissuance. Income per Share As discussed in Note 2, the Company began following new guidance regarding participating securities, effective January 1, 2009. Basic and diluted net income per share were changed, as follows: Three Months Ended Nine Months Ended September 30, 2008 September 30, 2008 As Reported As Restated As Reported As Restated Basic net income per share: Continuing operations $ 0.57 $ 0.55 $ 1.72 $ 1.68 Discontinued operations (0.14 ) (0.13 ) 3.35 3.26 Net Income $ 0.43 $ 0.42 $ 5.07 $ 4.94 Diluted net income per share: Continuing operations $ 0.53 $ 0.53 $ 1.63 $ 1.61 Discontinued operations (0.13 ) (0.13 ) 3.18 3.14 Net Income $ 0.40 $ 0.40 $ 4.81 $ 4.75 The amount of income from continuing operations attributable to participating securities was $3 million and $4 million for the three months ended September 30, 2009 and 2008, respectively, and was $12 million for both the nine months ended September 30, 2009 and 2008. The amount of income (loss) from discontinued operations attributable to participating securities was $ nil million and $ (1) million for the three months ended September 30, 2009 and 2008, respectively, and was $1 million and $24 million for the nine months ended September 30, 2009 and 2008, respectively. The amount of net income attributable to participating securities was $3 million for both the three months ended September 30, 2009 and 2008, and was $13 million and $36 million f |
Employee Benefits
Employee Benefits | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Employee Benefits | 10. 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 September 30, U.S. International 2009 2008 2009 2008 Service cost $ $ 7 $ 5 $ 4 Interest cost 31 28 62 71 Expected return on plan assets (25 ) (32 ) (61 ) (76 ) Amortization of prior service cost (3 ) 1 Amortization of net loss 6 7 10 10 Net periodic benefit cost $ 12 $ 7 $ 16 $ 10 Nine months ended September 30, U.S. International 2009 2008 2009 2008 Service cost $ $ 29 $ 13 $ 18 Interest cost 93 81 174 219 Expected return on plan assets (76 ) (96 ) (172 ) (234 ) Amortization of prior service cost (1 ) (10 ) 1 1 Amortization of net loss 23 18 29 30 Net periodic benefit cost $ 39 $ 22 $ 45 $ 34 On January 30, 2009, the Aon Board of Directors adopted an amendment to the U.S. defined benefit pension plan whereby effective April 1, 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 $23 million and $401 million to its U.S. and material international defined benefit pension plans, respectively. As of September 30, 2009, contributions of $17 million have been made to the U.S. pension plans and $351 million to its material inter |
Stock Compensation Plans
Stock Compensation Plans | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Stock Compensation Plans | 11. 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 Nine months ended September 30, September 30, 2009 2008 2009 2008 Restricted Stock Units (RSUs) $ 32 $ 27 $ 96 $ 102 Performance plans 21 17 37 47 Stock options 4 7 17 20 Employee stock purchase plan 1 1 3 3 Total $ 58 $ 52 $ 153 $ 172 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 $12 million reduction of expense for the nine months ended September 30, 2009. Stock Awards During the first nine 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 3.5 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): Nine months ended September 30, 2009 2008 Shares Fair Value (1) Shares Fair Value (1) Non-vested at beginning of period 14,060 $ 35 14,150 $ 31 Granted 5,508 38 3,196 42 Vested (6,026 ) 35 (3,586 ) 28 Forfeited (408 ) 37 (429 ) 33 Non-vested at end of period 13,134 36 13,331 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 September 30, 2009 2008 Potential RSUs to be issued based on current performance levels 6,623 5,723 Unamortized expense, based on current performance levels $ 136 $ 85 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 September 30, 2009 Nine months ended September 30, 2009 SSP Options All Other Options LPP Options SSP Options All Other Options Weighted a |
Financial Instruments
Financial Instruments | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Financial Instruments | 12. 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 September 30, 2009, all net derivative liability positions were entered into pursuant to terms of ISDA master agreements, and were free of credit risk contingent features. In addition, Aon has received collateral of $14 million from counterparties and pledged collateral of $21 million to counterparties for derivatives subject to collateral support arrangements as of September 30, 2009. 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 formall |
Premium Finance Operations
Premium Finance Operations | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Premium Finance Operations | 13. Premium Finance Operations In December2008, Aon signed a definitive agreement to sell the U.S. operations of the premium finance business (Cananwill). This disposition was completed in February2009. 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 September30, 2009, was $42 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. Some of Aons U.K., Canadian, and Australian subsidiaries originated short-term loans (generally with terms of 12 months or less) to businesses to finance their insurance premium obligations, and then sold these premium finance agreements to unaffiliated companies in whole loan sales. Prior to August2009, these loans were sold in securitization transactions that met the criteria for sale accounting under current accounting principles. In Juneand Julyof 2009, the Company entered into agreements with third parties with respect to Aons international premium finance businesses (collectively, the Cananwill International Agreements). As a result of the Cananwill International Agreements, the third parties began originating, financing and servicing premium finance loans generated by referrals from Aons brokerage operations. The Company expects to cease financing and servicing premium finance loans by year-end 2009. The third parties did not acquire the existing portfolio of Aons premium finance loans, and as such, the Company did not extend any guarantees under these agreements. In the U.K., premium finance agreements were sold to a special purpose entity (SPE), which is considered a QSPE, as defined. This QSPE funded its purchases of premium finance agreements by selling undivided beneficial interests in the agreements to a multi-seller commercial paper conduit SPE sponsored by unaffiliated banks (Bank SPEs). In Canada and Australia, undivided interests in the premium finance agreements were sold directly to Bank SPEs. The Bank SPEs are variable interest entities as defined under current accounting principles. The QSPE used in the U.K. is 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. Aons interest in the Bank SPEs will diminish as the loans sold through securitizat |
Variable Interest Entities
Variable Interest Entities | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Variable Interest Entities | 14. Variable Interest Entities Aon has the following VIEs that have been consolidated at September30, 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. Aon holds a 41% equity interest in the Juniperus ClassA shares and bears a majority of the expected residual return and losses. Aon has a 73% voting and economic interest in JCHL and absorbs a majority of JCHLs expected residual returns and 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 $194 million and $51 million, respectively, at September30, 2009 and $121 million and $22 million, respectively, at December31, 2008. Aon recognized $7 million and $11 million of pretax income from Juniperus/JCHL for the third quarter and nine months 2009, respectively. Aons potential loss at September30, 2009 is limited to its investment in the VIEs, which is $59 million for Juniperus/JCHL. Aon previously owned an 85% economic equity interest in Globe Re Limited (Globe Re), a VIE which 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. Aon consolidated Globe Re as it was deemed to be the primary beneficiary. 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 also repaid. Aon recognized $8 million of pretax income from Globe Re in nine months 2009. Globe Re was fully liquidated in third quarter 2009. |
Fair Value
Fair Value | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Fair Value | 15. Fair Value Accounting standards establish a three tier fair value hierarchy which prioritizes the inputs used in measuring fair values as follows: Level 1 observable inputs such as quoted prices for identical assets in active markets; Level 2 inputs other than quoted prices for identical assets in active markets, that are observable either directly or indirectly; and Level 3 unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions. The following 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 September30, 2009 (in millions): Fair Value Measurements Using Quoted Prices in Significant Significant Active Markets Other Unobservable Balance at for Identical Observable Inputs September30, 2009 Assets (Level 1) Inputs (Level 2) (Level 3) Assets: Money market funds and highly liquid debt securities (1) $ 2,093 $ $ 2,093 $ Other investments 106 3 103 Derivatives 140 140 Retained interests 30 30 Liabilities: Derivatives 117 117 Guarantees 4 4 (1)Includes $1,973 million of money market funds and $120 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 Note 7 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 Private Equity Partnership Structures I, LLC (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 change |
Contingencies
Contingencies | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Contingencies | 16. 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 certain 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. In the ERISA case, 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. The parties are in the final stages of expert discovery and trial is likely to be scheduled within the first half of 2010. In the securities case, Aon reached agreement on a proposed settlement under which Aon would pay $30 million to the class. Notice has been provided to class members advising of the proposed settlement, which has received preliminary approval by the district court. A final hearing and fairness determination has been scheduled for November17, 2009. The outcome of these lawsuits, and any losses or other payments that may occur as a result, cannot be predicted at t |
Business Segments
Business Segments | |
9 Months Ended
Sep. 30, 2009 USD / shares | |
Notes to the Condensed Consolidated Financial Statements | |
Business Segments | 17. 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 September30, 2009 2008 Commissions, Fees and Other Investment Income Total Commissions, Fees and Other Investment Income Total Risk and Insurance Brokerage Services $ 1,471 $ 18 $ 1,489 $ 1,425 $ 48 $ 1,473 Consulting 308 308 335 2 337 Intersegment elimination (8 ) (8 ) (4 ) (4 ) Total operating segments 1,771 18 1,789 1,756 50 1,806 Unallocated 9 10 19 40 40 Total revenue $ 1,780 $ 28 $ 1,808 $ 1,756 $ 90 $ 1,846 Nine months ended September30, 2009 2008 Commissions, Fees and Other Investment Income Total Commissions, Fees and Other Investment Income Total Risk and Insurance Brokerage Services $ 4,550 $ 67 $ 4,617 $ 4,501 $ 148 $ 4,649 Consulting 916 1 917 1,012 4 1,016 Intersegment elimination (20 ) (20 ) (20 ) (20 ) Total operating segments 5,446 68 5,514 5,493 152 5,645 Unallocated 20 13 33 62 62 Total revenue $ 5,466 $ 81 $ 5,547 $ 5,493 $ 214 $ 5,707 Commissions, fees and other revenue are as follows (in millions): Three months ended Nine months ended September30, September30, 2009 2008 2009 2008 Risk management and insurance brokerage: Americas $ 541 $ 557 $ 1,592 $ 1,638 United Kingdom 167 182 464 546 Europe, Middle East Africa 273 314 1,030 1,188 Asia Pacific 111 120 318 373 Reinsurance brokerage and related services 379 252 1,146 756 Total Risk and Insurance Brokerage Services 1,471 1,425 4,550 4,501 Consulting services 262 284 776 850 Outsourcing 46 51 140 162 To |
Document and Entity Information
Document and Entity Information (USD $) | ||
9 Months Ended
Sep. 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 | 2009-09-30 | |
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 | 273,922,587 |