Condensed Consolidated Statemen
Condensed Consolidated Statements of Income (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenue | ||
Commissions, fees and other | $1,891 | $1,821 |
Fiduciary investment income | 13 | 25 |
Total revenue | 1,904 | 1,846 |
Expenses | ||
Compensation and benefits | 1,163 | 1,014 |
Other general expenses | 468 | 466 |
Total operating expenses | 1,631 | 1,480 |
Operating Income | 273 | 366 |
Interest income | 1 | 7 |
Interest expense | (34) | (29) |
Other income (expense) | 7 | (1) |
Income from continuing operations before income taxes | 247 | 343 |
Income taxes | 61 | 108 |
Income from continuing operations | 186 | 235 |
Income from discontinued operations before income taxes | 2 | 91 |
Income taxes | 2 | 41 |
Income from discontinued operations | 50 | |
Net income | 186 | 285 |
Less: Net income attributable to noncontrolling interests | 8 | 5 |
Net income attributable to Aon stockholders | 178 | 280 |
Net income attributable to Aon stockholders | ||
Income from continuing operations | 178 | 230 |
Income from discontinued operations | 50 | |
Net income | $178 | $280 |
Basic net income per share attributable to Aon stockholders | ||
Continuing operations (in dollars per share) | 0.65 | 0.81 |
Discontinued operations (in dollars per share) | 0.18 | |
Net income (in dollars per share) | 0.65 | 0.99 |
Diluted net income per share attributable to Aon stockholders | ||
Continuing operations (in dollars per share) | 0.63 | 0.79 |
Discontinued operations (in dollars per share) | 0.17 | |
Net income (in dollars per share) | 0.63 | 0.96 |
Cash dividends per share paid on common stock (in dollars per share) | 0.15 | 0.15 |
Weighted average common shares outstanding - basic (in shares) | 275.9 | 284.3 |
Weighted average common shares outstanding - diluted (in shares) | 283.4 | 292 |
1_Condensed Consolidated Statem
Condensed Consolidated Statements of Financial Position (USD $) | ||
In Millions | Mar. 31, 2010
| Dec. 31, 2009
|
CURRENT ASSETS | ||
Cash and cash equivalents | $422 | $217 |
Short-term investments | 312 | 422 |
Receivables, net | 1,983 | 2,052 |
Fiduciary assets | 11,089 | 10,835 |
Other current assets | 462 | 463 |
Total Current Assets | 14,268 | 13,989 |
Goodwill | 5,887 | 6,078 |
Intangible assets, net | 770 | 791 |
Fixed assets, net | 452 | 461 |
Investments | 308 | 319 |
Other non-current assets | 1,274 | 1,320 |
TOTAL ASSETS | 22,959 | 22,958 |
CURRENT LIABILITIES: | ||
Fiduciary liabilities | 11,089 | 10,835 |
Short-term debt and current portion of long-term debt | 84 | 10 |
Accounts payable and accrued liabilities | 1,269 | 1,535 |
Other current liabilities | 334 | 260 |
Total Current Liabilities | 12,776 | 12,640 |
Long-term debt | 2,013 | 1,998 |
Pension and other post employment liabilities | 1,770 | 1,889 |
Other non-current liabilities | 943 | 1,000 |
TOTAL LIABILITIES | 17,502 | 17,527 |
EQUITY: | ||
Common stock-$1 par value Authorized: 750 shares (issued: 3/31/10 - 362.7; 12/31/09 - 362.7) | 363 | 363 |
Additional paid-in capital | 3,135 | 3,215 |
Retained earnings | 7,500 | 7,335 |
Treasury stock at cost (shares: 3/31/10 - 93.2; 12/31/09 - 96.4) | (3,725) | (3,859) |
Accumulated other comprehensive loss | (1,871) | (1,675) |
TOTAL AON STOCKHOLDERS' EQUITY | 5,402 | 5,379 |
Noncontrolling interests | 55 | 52 |
TOTAL EQUITY | 5,457 | 5,431 |
TOTAL LIABILITIES AND EQUITY | $22,959 | $22,958 |
2_Condensed Consolidated Statem
Condensed Consolidated Statements of Financial Position (Parenthetical) (USD $) | ||
Share data in Millions, except Per Share data | Mar. 31, 2010
| Dec. 31, 2009
|
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 shares | 362.7 | 362.7 |
Treasury stock, shares | 93.2 | 96.4 |
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 at Dec. 31, 2009 | $3,578 | $7,335 | ($3,859) | ($1,675) | $52 | $5,431 |
Balance (in shares) at Dec. 31, 2009 | 362.7 | |||||
Balance as adjusted at Dec. 31, 2009 | 3,578 | 7,379 | (3,859) | (1,719) | 52 | 5,431 |
Balance as adjusted (in shares) at Dec. 31, 2009 | 362.7 | |||||
Increase (Decrease) in Stockholders' Equity | ||||||
Adoption of new accounting guidance | 44 | (44) | ||||
Net income | 178 | 8 | 186 | |||
Shares issued - employee benefit plans | 31 | 31 | ||||
Shares purchased | (50) | (50) | ||||
Shares reissued - employee benefit plans | (184) | (16) | 184 | (16) | ||
Tax benefit - employee benefit plans | 9 | 9 | ||||
Stock-based compensation | 66 | 66 | ||||
Dividends to stockholders | (41) | (41) | ||||
Change in net derivative gains/losses | (24) | (24) | ||||
Net foreign currency translation adjustments | (141) | (141) | ||||
Net post-retirement benefit obligations | 13 | 13 | ||||
Purchase of subsidiary shares from noncontrolling interests | (2) | (4) | (6) | |||
Capital contribution by noncontrolling interests | 2 | 2 | ||||
Dividends paid to noncontrolling interests on subsidiary common stock | (3) | (3) | ||||
Balance at Mar. 31, 2010 | $3,498 | $7,500 | ($3,725) | ($1,871) | $55 | $5,457 |
Balance (in shares) at Mar. 31, 2010 | 362.7 |
4_Condensed Consolidated Statem
Condensed Consolidated Statements of Cash Flows (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash Flows from Operating Activities: | ||
Net income | $186 | $285 |
Adjustments to reconcile net income to cash provided by operating activities: | ||
Gains from sale of businesses, net | (6) | (92) |
Depreciation and amortization | 58 | 60 |
Stock-based compensation expense | 66 | 40 |
Deferred income taxes | (12) | 14 |
Change in assets and liabilities: | ||
Change in funds held on behalf of clients | 396 | 512 |
Receivables, net | 45 | 179 |
Accounts payable and accrued liabilities | (274) | (260) |
Restructuring reserves | (1) | (8) |
Current income taxes | 65 | 82 |
Pension and other post employment liabilities | (55) | (142) |
Other assets and liabilities | (4) | (117) |
Cash Provided by Operating Activities | 464 | 553 |
Cash Flows from Investing Activities: | ||
Sales of long-term investments | 66 | 7 |
Purchase of long-term investments | (10) | (12) |
Net sales (purchases) of short-term investments - non-fiduciary | 97 | (193) |
Net purchases of short-term investments - funds held on behalf of clients | (396) | (512) |
Acquisition of businesses, net of cash acquired | (47) | (33) |
Proceeds from sale of businesses | 128 | |
Capital expenditures | (33) | (21) |
Cash Used for Investing Activities | (323) | (636) |
Cash Flows from Financing Activities: | ||
Purchase of treasury stock | (50) | |
Issuance of stock for employee benefit plans | 35 | 55 |
Issuance (repayments) of debt | 73 | (1) |
Cash dividends to stockholders | (41) | (41) |
Cash Provided by Financing Activities | 17 | 13 |
Effect of Exchange Rate Changes on Cash | 47 | (11) |
Net Increase (Decrease) in Cash and Cash Equivalents | 205 | (81) |
Cash and Cash Equivalents at Beginning of Period | 217 | 582 |
Cash and Cash Equivalents at End of Period | 422 | 501 |
Supplemental disclosures: | ||
Interest paid | 30 | 37 |
Income taxes paid, net of refunds | $10 | $53 |
Basis of Presentation
Basis of Presentation | |
3 Months Ended
Mar. 31, 2010 | |
Basis of Presentation | |
Basis of Presentation | 1. Basis of Presentation 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. The consolidated financial statements include the accounts of Aon and its majority-owned subsidiaries and variable interest entities (VIEs) for which Aon is considered to be the primary beneficiary. The consolidated financial statements exclude VIEs for which Aon is not the primary beneficiary. All material intercompany accounts and transactions have been eliminated. 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, 2009. The results for the three months ended March31, 2010 are not necessarily indicative of operating results that may be expected for the full year ending December31, 2010. Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of reserves and expenses. These estimates and assumptions are based on managements best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets, and foreign currency movements have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. |
Accounting Principles and Pract
Accounting Principles and Practices | |
3 Months Ended
Mar. 31, 2010 | |
Accounting Principles and Practices | |
Accounting Principles and Practices | 2. Accounting Principles and Practices Changes in Accounting Principles On January1, 2010, the Company adopted guidance amending current principles related to the transfers of financial assets and the consolidation of VIEs. This guidance eliminates the concept of a qualifying special-purpose entity (QSPE) and the related exception for applying consolidation guidance, creates more stringent conditions for reporting the transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferors interest in transferred financial assets. Consequently, former QSPEs are evaluated for consolidation based on the updated VIE guidance. In addition, the new guidance requires companies to take a qualitative approach in determining a VIEs primary beneficiary and requires companies to more frequently reassess whether they must consolidate VIEs. Additional year-end and interim period disclosures are also required outlining a companys involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the Companys financial statements. See Note 9 regarding the consolidation of Private Equity Partnership Structures I, LLC (PEPS I). On January1, 2010, the Company adopted guidance requiring additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. This guidance also clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. See Note 15 for these disclosures. The guidance also requires entities to disclose information in the Level 3 rollforward about purchases, sales, issuances and settlements on a gross basis. These disclosures will be effective for Aon beginning in the first quarter of 2011. The Company is currently evaluating this guidance to determine what additional disclosures, if any, will be required. Recent Accounting Pronouncements In September2009, the Financial Accounting Standards Board (FASB) issued guidance updating current principles related to revenue recognition when there are multiple-element arrangements. This revised guidance relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modifies the manner in which the transaction consideration is allocated across the separately identifiable deliverables. The guidance also expands the disclosures required for multiple-element revenue arrangements. These changes will be effective for Aon beginning in the first quarter of 2011, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or modified after the adoption date. Early adoption is permitted. The Company is currently evaluating this guidance to determine what i |
Cash and Cash Equivalents
Cash and Cash Equivalents | |
3 Months Ended
Mar. 31, 2010 | |
Cash and Cash Equivalents | |
Cash and Cash Equivalents | 3. Cash and Cash Equivalents Cash and cash equivalents include cash balances and all highly liquid investments with initial maturities of three months or less. Cash and cash equivalents included restricted balances of $186 million and $85 million at March31, 2010 and December31, 2009, respectively. |
Other Income
Other Income (Expense) | |
3 Months Ended
Mar. 31, 2010 | |
Other Income (Expense) | |
Other Income (Expense) | 4. Other Income (Expense) Other income (expense) consists of the following (in millions): Three months ended March31, 2010 2009 Equity income of non-consolidated subsidiaries $ 2 $ 1 Realized gain on sale of investments 1 Gain (loss) on disposal of businesses, net 4 (1 ) Other (1 ) $ 7 $ (1 ) |
Acquisitions and Dispositions
Acquisitions and Dispositions | |
3 Months Ended
Mar. 31, 2010 | |
Acquisitions and Dispositions | |
Acquisitions and Dispositions | 5. Acquisitions and Dispositions Acquisitions In first quarter 2010, the Company completed the acquisition of the JP Morgan Compensation and Benefit Strategies Division of JP Morgan Retirement Plan Services, LLC, which is included in the Consulting segment, as well as seven other companies, which are included in the Risk and Insurance Brokerage Services segment. In first quarter 2009, the Company completed the acquisition of four companies, all of which were included in the Risk and Insurance Brokerage Services segment. The following table includes the aggregate amount paid and the intangible assets recorded as a result of the acquisitions made during the first quarter 2010 and 2009. For certain of the acquisitions made in the first quarter 2010, the Company is in the process of obtaining third-party valuations for the intangible assets other than goodwill, and therefore, at quarter end the allocation of the purchase prices are still subject to refinement. Three months ended March31, (millions) 2010 2009 Cash paid $ 47 $ 26 Intangible assets: Goodwill $ 35 $ 11 Other intangible assets 33 13 $ 68 $ 24 The results of operations of these acquisitions are included in the condensed consolidated financial statements from the dates they were acquired. These acquisitions would not produce a materially different result if they had been reported from the beginning of the period. Dispositions - Continuing Operations Some of Aons U.S. (Cananwill), U.K., Canadian, and Australian subsidiaries (together Cananwill International) 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, typically bank Special Purpose Entities (SPEs), in whole loan securitization transactions that met the criteria for sales accounting. Cananwills results were included in the Risk and Insurance Brokerage Services segment. In December2008, Aon signed a definitive agreement to sell the U.S. Cananwill operations. This disposition was completed in February2009. A pretax loss of $7 million was recorded, of which $2 million was recorded in first quarter 2009 and $5 million in 2008, and is included in Other income (expense) in the Condensed Consolidated Statements of Income. Aon may receive up to $10 million from the buyer over the two years following the sale based on the amount of insurance premiums and related obligations financed by the buyer over this period that are generated from certain of Cananwills producers. As of March31, 2010, Aon had received $5 million from the buyer, which is recorded in Other income (expense) in the Condensed Consolidated Statements of Income. In connection with this sale, Aon has guaranteed the collection of the principal amount of the premium finance notes sold to the buyer, which, at March31, 2010, was $4 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 b |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | |
3 Months Ended
Mar. 31, 2010 | |
Goodwill and Other Intangible Assets | |
Goodwill and Other Intangible Assets | 6. Goodwill and Other Intangible Assets The changes in the net carrying amount of goodwill by operating segment for the three months ended March31, 2010 are as follows (in millions): Risk and Insurance Brokerage Services Consulting Total Balance as of December31, 2009 $ 5,693 $ 385 $ 6,078 Goodwill related to current year acquisitions 4 31 35 Goodwill related to prior year acquisitions 1 1 Foreign currency revaluation (228 ) 1 (227 ) Balance as of March31, 2010 $ 5,470 $ 417 $ 5,887 Other intangible assets by asset class are as follows (in millions): March31, 2010 December31, 2009 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Trademarks $ 134 $ $ 136 $ Customer Related and Contract Based 759 248 757 234 Marketing, Technology and Other 370 245 376 244 $ 1,263 $ 493 $ 1,269 $ 478 Amortization expense on intangible assets was $27 million and $23 million for the three months ended March31, 2010 and 2009, respectively. As of March31, 2010, the estimated amortization for intangible assets is as follows (in millions): Remainder of 2010 $ 72 2011 103 2012 93 2013 84 2014 73 Thereafter 211 $ 636 |
Restructuring
Restructuring | |
3 Months Ended
Mar. 31, 2010 | |
Restructuring | |
Restructuring | 7. Restructuring Aon Benfield Restructuring Plan The Company announced a global restructuring plan (Aon Benfield Plan) in conjunction with its acquisition of 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, of which approximately 575 jobs have been eliminated as of March31, 2010. Additionally, duplicate space and assets will be abandoned. The Company currently estimates the Plan will result in cumulative costs totaling approximately $155 million, of which $55 million was recorded as part of the purchase price allocation, $64 million has been recorded in earnings to date, and an estimated additional $36 million will be recorded in future earnings. Expenses include workforce reduction, lease consolidation costs, asset impairments, as well as other expenses necessary to implement the restructuring initiative. The Company recorded $9 million of restructuring and related charges in the first three months of both 2010 and 2009. Total payments of $85 million have been made under this Plan to date. All costs associated with the Aon Benfield Plan are included in the Risk and Insurance Brokerage Services segment. Costs related to the restructuring are included in Compensation and benefits and Other general expenses 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 that have been incurred and are estimated to be incurred through the end of the restructuring initiative related to the Aon Benfield plan (in millions): Actual Estimated Purchase Total Cost for Price First Quarter Total to Restructuring Allocation 2009 2010 Date Period (1) Workforce reduction $ 32 $ 38 $ 5 $ 75 $ 93 Lease consolidation 22 14 3 39 55 Asset impairments 2 2 4 Other costs associated with restructuring (2) 1 1 1 3 3 Total restructuring and related expenses $ 55 $ 55 $ 9 $ 119 $ 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 implemented include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives. (2) Other costs associated with restructuring initiatives, including moving costs and consulting 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 4,600 job el |
Investments
Investments | |
3 Months Ended
Mar. 31, 2010 | |
Investments | |
Investments | 8. Investments The Company earns 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 Condensed Consolidated Statements of Financial Position (in millions): March31, 2010 December31, 2009 Cash and cash equivalents $ 422 $ 217 Short-term investments 312 422 Fiduciary assets 3,600 3,329 Investments 308 319 $ 4,642 $ 4,287 The Companys investments are as follows (in millions): March31, 2010 December31, 2009 Equity method investments $ 183 $ 113 Cost method investments 59 54 Other investments 52 49 Fixed-maturity securities 14 16 PEPS I preferred stock 87 $ 308 $ 319 |
Variable Interest Entities
Variable Interest Entities | |
3 Months Ended
Mar. 31, 2010 | |
Variable Interest Entities | |
Variable Interest Entities | 9. Variable Interest Entities Consolidated Variable Interest Entities In 2001, Aon sold the vast majority of its limited partnership (LP) portfolio, valued at $450 million, to PEPS I, a QSPE. In accordance with recently issued VIE guidance, former QSPEs must now be assessed to determine if they are VIEs. Aon has concluded that PEPS I is a VIE and that it holds a variable interest in PEPS I. Aon has also concluded that it is the primary beneficiary of PEPS I, as it has the power to direct the activities that most significantly impact economic performance and it has the obligation or right to absorb losses or receive benefits that could potentially be significant to PEPS I. As a result of adopting this new guidance, Aon consolidated PEPS I effective January1, 2010. The financial statement impact of consolidating PEPS I resulted in: The removal of the $87 million PEPS I preferred stock, previously reported in investments, and The addition of $77 million of equity method investments in LP cash of $57 million, of which $52 million is restricted; long-term debt of $47 million; a decrease in accumulated other comprehensive income net of tax of $44 million; and an increase in retained earnings of $44 million. As part of the original transaction, Aon is required to purchase from PEPS I additional securities equal to the unfunded LP commitments, as they are requested. These securities are rated below investment grade. Aon funded less than $1 million of commitments in first quarter 2010. As of March31, 2010, the unfunded commitments were $42 million. The commitments have specific expiration dates and the general partners may decide not to draw on these commitments. Unconsolidated Variable Interest Entities At March31, 2010, Aon held a 38% interest in Juniperus Insurance Opportunity Fund Limited (Juniperus), which is an investment vehicle that invests in an actively managed and diversified portfolio of insurance risks. Aon has concluded that Juniperus is a variable interest entity. However, Aon has concluded that it is not the primary beneficiary as it lacks the power to direct the activities of Juniperus that most significantly impact economic performance. The investment in Juniperus is accounted for using the equity method of accounting. Aons potential loss at March31, 2010 is limited to its investment in Juniperus of $70million, which is recorded in Investments in the Condensed Consolidated Statements of Financial Position. Aon has not provided any financing to Juniperus other than previously contractually required amounts. |
Debt
Debt | |
3 Months Ended
Mar. 31, 2010 | |
Debt | |
Debt | 10. Debt At March31, 2010, the Company had borrowed $75 million under its five-year 650 million ($872 million at March31, 2010 exchange rates) multi-currency foreign credit facility (Euro credit facility). This borrowing is included in Short-term debt and current portion of long-term debt in the Condensed Consolidated Statements of Financial Position. As a result of adopting new guidance on VIEs, Aon consolidated PEPS I effective January1, 2010, and recorded $47 million of long-term debt in the Condensed Consolidated Statements of Financial Position. |
Stockholders' Equity
Stockholders' Equity | |
3 Months Ended
Mar. 31, 2010 | |
Stockholders' Equity | |
Stockholder's Equity | 11. Stockholders Equity Common Stock Under the share repurchase program begun in 2005, 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 cash. Any repurchased shares will be available for employee stock plans and for other corporate purposes. In first quarter 2010, Aon repurchased 1.2 million shares at a cost of $50 million. Since the inception of this share repurchase program, the Company has repurchased a total of 107.1 million shares for an aggregate cost of $4.4 billion. As of March31, 2010, the Company was authorized to purchase up to $215 million of additional shares under this stock repurchase program. The timing and amount of future purchases will be based on market and other conditions. In January2010, the Companys Board of Directors authorized a new share repurchase program under which up to $2 billion of common stock may be repurchased from time to time depending on market conditions or other factors through open market or privately negotiated transactions. Repurchases will commence under the new share repurchase program upon conclusion of the existing program. In connection with the acquisition of two entities controlled by Aons then-Chairman and Chief Executive Officer in 2001, Aon obtained approximately 22.4 million shares of its common stock. These treasury shares are restricted as to their reissuance. In first quarter 2010, Aon reissued 4.3 million shares of treasury stock for employee benefit plans and 86,000 shares of treasury stock in connection with employee stock purchase plans. In first quarter 2009, Aon issued 966,000 new shares of common stock for employee benefit plans and reissued approximately 4.0 million shares of treasury stock for employee benefit plans and 69,000 shares in connection with employee stock purchase plans. Participating Securities Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities, as defined, and therefore should be included in computing basic and diluted earnings per share using the two class method. Certain of Aons restricted stock awards allow the holder to receive a non-forfeitable dividend equivalent. Income from continuing operations, Income from discontinued operations and Net income, attributable to participating securities, were as follows (in millions): Three months ended March31, 2010 2009 Income from continuing operations $ 4 $ 6 Income from discontinued operations 1 Net income $ 4 $ 7 Weighted average shares outstanding are as follows (in millions): ThreemonthsendedMarch31, 2010 2009 Shares for basic earnings per share (1) 275.9 284.3 Common stock equivalents 7.5 7.7 Shares for diluted earnings per share 283.4 292.0 (1) Includes 6.5 million and 7.3 million of participating securities for the three months ended |
Employee Benefits
Employee Benefits | |
3 Months Ended
Mar. 31, 2010 | |
Employee Benefits | |
Employee Benefits | 12. 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 March31, U.S. International 2010 2009 2010 2009 Service cost $ $ $ 3 $ 4 Interest cost 31 31 62 54 Expected return on plan assets (30 ) (26 ) (60 ) (52 ) Amortization of prior-service cost (1 ) 1 Amortization of net loss 6 12 14 9 Net periodic benefit cost $ 7 $ 16 $ 19 $ 16 In first quarter 2009, a curtailment gain of $83 million was recognized as a result of the Company ceasing crediting future benefits relating to salary and service of the U.S. defined benefit pension plan, which is reported in Compensation and benefits in the Condensed Consolidated Statements of Income. Also in first quarter 2009, a curtailment gain of $10 million was recognized in discontinued operations resulting from the sale of our Combined Insurance Company of America (CICA) subsidiary. The curtailment gain related 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. Based on current assumptions, in 2010 Aon plans to contribute $30 million and $326 million to its U.S. and material international defined benefit pension plans, respectively. As of March31, 2010, contributions of $6 million have been made to the U.S. pension plans and $75 million to its material international pension plans. |
Stock Compensation Plans
Stock Compensation Plans | |
3 Months Ended
Mar. 31, 2010 | |
Stock Compensation Plans | |
Stock Compensation Plans | 13. Stock Compensation Plans The following table summarizes stock-based compensation expense in continuing operations in the Condensed Consolidated Statements of Income in Compensation and benefits (in millions): Three months ended March31, 2010 2009 Restricted stock units (RSUs) $ 41 $ 34 Performance plans 19 5 Stock options 5 Employee stock purchase plans 1 1 Total stock-based compensation expense $ 66 $ 40 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 $16 million reduction of expense for the three months ended March31, 2009. Stock Awards During the first three months of 2010, the Company granted approximately 1.6 million shares in connection with the completion of the 2007 Leadership Performance Plan (LPP) cycle. During the first three months of 2009, the Company granted approximately 2.0 million shares in connection with the completion of the 2006 LPP cycle. In addition, during the first three months of both 2010 and 2009, the Company granted restricted shares of approximately 1.9 million 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): Three months ended March31, 2010 2009 Shares Fair Value (1) Shares Fair Value (1) Non-vested at beginning of period 12,850 $ 36 14,060 $ 35 Granted 3,495 39 3,855 39 Vested (4,290 ) 37 (4,127 ) 39 Forfeited (125 ) 37 (89 ) 38 Non-vested at end of period 11,930 36 13,699 35 (1) Represents weighted average fair value per share of award at date of grant. Information regarding Aons performance-based plans follows (shares in thousands, dollars in millions): As of March31 2010 2009 Potential RSUs to be issued based on current performance levels 7,408 5,258 Unamortized expense, based on current performance levels $ 187 $ 117 Stock Options The weighted average assumptions, the weighted average expected life and estimated fair value of employee stock options are summarized as follows: Three months ended March31, 2010 2009 All Other Options LPP Options Special Stock Plan Options All Other Options Weighted average volatility 28.5 % 35.5 % 35.5 % 35.5 % Expected dividend yield 1.6 % 1.3 % 1.3 % 1.3 % Risk-free rate 3.0 % 1.6 % 1.8 % 2.0 % Weighted average expected life, in years 6.1 4.4 5.6 6.5 Weighted average estimated fair value per share $ 10.36 $ 12.25 $ 13.77 $ 14.60 In connection with its incentive compensation plans in the first quarter 2010, the Company granted 141,000 stock options at $38 per share. Beginning in the first quarter 2010 |
Derivatives and Hedging
Derivatives and Hedging | |
3 Months Ended
Mar. 31, 2010 | |
Derivatives and Hedging | |
Derivatives and Hedging | 14. Derivatives and Hedging Aon is exposed to market risk primarily from changes in foreign currency exchange rates and interest rates. To manage the risk related to these exposures, Aon enters into various derivative transactions that reduce 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 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 March31, 2010, all 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 $68 million from counterparties and pledged collateral of $25 million to counterparties for derivatives subject to collateral support arrangements as of March31, 2010. Foreign Exchange Risk Management Aon and its subsidiaries are exposed to foreign exchange risk when they receive revenues, pay expenses, or enter into intercompany loans denominated in a currency that differs from their functional currency. Aon uses foreign exchange derivatives, typically forward contracts, options and cross currency swaps, to reduce its overall exposure to the effects of currency fluctuations on cash flows. Aon has hedged these exposures up to six years in the future. Aon has designated foreign exchange derivatives with a notional amount of $2.4 billion at March31, 2010 as cash flow hedges of these exposures. As of March31, 2010, a $50 million pretax loss has been deferred to OCI related to these hedges, of which $30 million is expected to be reclassified to earnings in the next twelve months. These hedges had no material ineffectiveness in either the first three months of 2010 or 2009. As of March31, 2010, Aon also has $129 million notional amount of foreign exchange derivatives not designated or qualifying as cash flow hedges offsetting its exposures to foreign exchange risks. Aon also uses foreign exchange derivatives, typically forward contracts and options, to hedge its net investments in foreign operations for up to four years in the future. As of March31, 2010, the notional amount outstanding was $1.5 billion and a $73 million gain has been deferred to OCI related to this hedge. This hedge had no ineffectiveness in either the first three months of 2010 or 2009. Aon also uses foreign exchange derivatives, typically forward contracts and options, with a notio |
Fair Value and Financial Instru
Fair Value and Financial Instruments | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value and Financial Instruments | |
Fair Value and Financial Instruments | 15. Fair Value and Financial Instruments 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 methods and assumptions are used to estimate the fair values of the Companys 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. Fixed-maturity securities are carried at fair value, which is based on quoted market prices or on estimated values if they are not actively traded. In some cases where a market price is available, the Company will make use of acceptable expedients (such as matrix pricing) to estimate fair value. 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. 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, for each of the fair-value hierarchy levels, the Companys assets and liabilities that are measured at fair value on a recurring basis at March31, 2010 (in millions): Fair Value Measurements Using Quoted Prices in Significant Significant Active Markets Other Unobservable Balance at for Identical Observable Inputs March31, 2010 Assets (Level 1) Inputs (Level 2) (Level 3) Assets: Money market funds and highly liquid debt securities (1) $ 2,295 $ 2,158 $ 137 $ Fixed maturity securities Corporate bonds 11 11 Government bonds 3 3 Derivatives Interest rate contracts 26 26 Foreign exchange contracts 151 151 Liabilities: Derivatives Foreign exchange contracts 101 101 Guarantees 4 4 (1)Includes $2,158 million of money market funds and $137 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 8 for additional information regarding the Companys investments. The following table presents the changes in the Level 3 fair-value category for the three months ended March31, 2010 (in millions): FairValueMeasurementsUsingLevel3Inputs Other Investments Guaran |
Commitments and Contingencies
Commitments and Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
Commitments and Contingencies | |
Commitments and Contingencies | 16. Commitments and Contingencies Legal Aon and its subsidiaries are subject to numerous claims, tax assessments, lawsuits and proceedings that arise in the ordinary course of business, which frequently include errors and omissions (EO) claims. The damages claimed in these matters are or may be substantial, including, in many instances, claims for punitive, treble or extraordinary damages. Aon has historically purchased EO insurance and other insurance to provide protection against certain losses that arise in such matters. Aon has exhausted or materially depleted its coverage under some of the policies that protect the Company and, consequently, is self-insured or materially self-insured for some historical claims. Accruals for these exposures, 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 originally submitted purported expert reports estimating a range of alleged damages of $353 million to $490 million, and plaintiffs in the ERISA class actions originally submitted revised purported expert reports estimating a range of alleged damages of $74 million to $349 million. To protect against the uncertain outcome of litigation and to contain exposure to the Company, Aon settled the securities suit for $30 million in 2009 and has reached an agreement in principle to settle the ERISA suit for $1.8 million. On November24, 2009, the Court entered a final order approving the securities settlement and dismissing the securities suit. The proposed ERISA settlement is subject to notice and court approval. Following inquiries from regulators, the Company commenced an interna |
Segment Information
Segment Information | |
3 Months Ended
Mar. 31, 2010 | |
Segment Information | |
Segment Information | 17. Segment Information Aon classifies its businesses into two operating segments: Risk and Insurance Brokerage Services and Consulting. Unallocated income and expenses, when combined with the operating segments and after the elimination of intersegment revenues and expenses, total to the amounts in the Condensed Consolidated Financial Statements. Operating segments have been determined using a management approach, which is consistent with the basis and manner in which Aons chief operating decision maker uses financial information for the purposes of allocating resources and evaluating performance. Aon evaluates performance based on stand-alone operating segment operating income and generally accounts for intersegment revenue as if the revenue were from third parties and at what management believes are current market prices. The Risk and Insurance Brokerage Services business acts as an advisor and insurance broker, helping clients manage their risks, as well as negotiating and placing insurance risk with insurance carriers through our global distribution network. The Consulting business provides advice and services to clients related to health and benefits, retirement, compensation, strategic human capital, and human resource outsourcing. Aons total revenue is as follows (in millions): Three months ended March31, 2010 2009 Risk and Insurance Brokerage Services $ 1,587 $ 1,543 Consulting 322 309 Intersegment elimination (5 ) (6 ) Total revenue $ 1,904 $ 1,846 Commissions, fees and other revenue by product are as follows (in millions): Three months ended March31, 2010 2009 Retail brokerage $ 1,186 $ 1,124 Reinsurance brokerage 388 395 Total Risk and Insurance Brokerage Services Segment 1,574 1,519 Consulting services 275 263 Outsourcing 47 45 Total Consulting Segment 322 308 Intersegment elimination (5 ) (6 ) Total commissions, fees and other revenue $ 1,891 $ 1,821 Fiduciary investment income by segment is as follows (in millions): Three months ended March31, 2010 2009 Risk and Insurance Brokerage Services $ 13 $ 24 Consulting 1 Total fiduciary investment income $ 13 $ 25 A reconciliation of segment operating income to total income from continuing operations before income taxes is as follows (in millions): Three months ended March31, 2010 2009 Risk and Insurance Brokerage Services $ 257 $ 323 Consulting 49 70 Unallocated expenses (33 ) (27 ) Total operating income 273 366 Interest income 1 7 Interest expense (34 ) (29 ) Other income (expense) 7 (1 ) Income from continuing operations before income taxes $ 247 $ 343 Revenues are generally attributed to geographic areas based on the location of the resources producing the revenues. Intercompany revenues are eliminated in computing consolidated revenues. Consolidated revenue by geographic area is as follows (in milli |
Document and Entity Information
Document and Entity Information | |
3 Months Ended
Mar. 31, 2010 | |
Document and Entity Information | |
Entity Registrant Name | AON CORP |
Entity Central Index Key | 0000315293 |
Document Type | 10-Q |
Document Period End Date | 2010-03-31 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 269,418,951 |
Document Fiscal Year Focus | 2,010 |
Document Fiscal Period Focus | Q1 |