UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number 1-7933
Aon Corporation
(Exact Name of Registrant as
Specified in Its Charter)
DELAWARE
|
|
36-3051915
|
(State or Other Jurisdiction of
|
|
(I.R.S. Employer
|
Incorporation or Organization)
|
|
Identification No.)
|
|
|
|
200 E. RANDOLPH STREET, CHICAGO, ILLINOIS
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|
60601
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
(312) 381-1000
(Registrants Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES
x
NO
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). YES
x
NO
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated filer, accelerated
filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
x
|
|
Accelerated
filer
o
|
|
|
|
Non-accelerated
filer
o
|
|
Smaller
reporting company
o
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). YES
o
NO
x
Number of shares of common stock, $1.00 par value, outstanding as of September 30,
2009: 273,922,587
Part I
Financial Information
ITEM
1. FINANCIAL STATEMENTS
Aon Corporation
Condensed
Consolidated Statements of Income
(Unaudited)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(millions, except per share
data)
|
|
Sept. 30,
2009
|
|
Sept. 30,
2008
|
|
Sept. 30,
2009
|
|
Sept. 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
|
|
|
|
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
stockholders
|
|
$
|
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
|
|
$
|
0.41
|
|
$
|
0.55
|
|
$
|
1.74
|
|
$
|
1.68
|
|
Discontinued operations
|
|
0.01
|
|
(0.13
|
)
|
0.19
|
|
3.26
|
|
Net income
|
|
$
|
0.42
|
|
$
|
0.42
|
|
$
|
1.93
|
|
$
|
4.94
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per
share attributable to Aon stockholders
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.40
|
|
$
|
0.53
|
|
$
|
1.69
|
|
$
|
1.61
|
|
Discontinued operations
|
|
0.01
|
|
(0.13
|
)
|
0.19
|
|
3.14
|
|
Net income
|
|
$
|
0.41
|
|
$
|
0.40
|
|
$
|
1.88
|
|
$
|
4.75
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid per share
|
|
$
|
0.15
|
|
$
|
0.15
|
|
$
|
0.45
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding - basic
|
|
283.8
|
|
281.7
|
|
284.5
|
|
296.9
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding - diluted
|
|
292.1
|
|
293.9
|
|
292.2
|
|
308.9
|
|
See the
accompanying notes to the condensed consolidated financial statements
(unaudited).
2
Aon Corporation
Condensed Consolidated Statements of Financial
Position
(millions)
|
|
Sept. 30, 2009
|
|
Dec. 31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
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
|
|
See the accompanying notes to the condensed consolidated financial
statements (unaudited).
3
Aon Corporation
Condensed Consolidated Statement of Stockholders
Equity
(Unaudited)
(millions)
|
|
Shares
|
|
Common
Stock and
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive Loss,
Net of Tax
|
|
Non-
controlling
Interests
|
|
Total
|
|
Balance at January 1, 2009
|
|
361.7
|
|
$
|
3,582
|
|
$
|
6,816
|
|
$
|
(3,626
|
)
|
$
|
(1,462
|
)
|
$
|
105
|
|
$
|
5,415
|
|
Net
income
|
|
|
|
|
|
549
|
|
|
|
|
|
25
|
|
574
|
|
Shares
issued - employee benefit plans
|
|
1.0
|
|
96
|
|
|
|
|
|
|
|
|
|
96
|
|
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 September 30, 2009
|
|
362.7
|
|
$
|
3,529
|
|
$
|
7,189
|
|
$
|
(3,556
|
)
|
$
|
(1,172
|
)
|
$
|
140
|
|
$
|
6,130
|
|
See accompanying
notes to condensed consolidated financial statements (unaudited).
4
Aon Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(millions)
|
|
2009
|
|
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
|
|
See the accompanying notes to the condensed consolidated financial
statements (unaudited).
5
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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.
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
6
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):
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
Equity,
as previously reported
|
|
$
|
5,310
|
|
$
|
6,221
|
|
Increase
for reclassification of non-controlling interests
|
|
105
|
|
40
|
|
Equity,
as adjusted
|
|
$
|
5,415
|
|
$
|
6,261
|
|
The revised principle also requires that net income be adjusted to
include the net income attributable to the noncontrolling interests and a new
separate caption for net income attributable to Aon stockholders be presented
in the consolidated statements of income. The adoption of this new guidance
increased net income by $16 million, $13 million and $10 million for 2008, 2007
and 2006, respectively. Net income attributable to Aon stockholders equals net
income as previously reported prior to the adoption of the new guidance.
On January 1, 2009, Aon adopted a new principle which supplements
current disclosure requirements for derivative instruments and hedging
activities, under which Aon is required to provide enhanced qualitative and
quantitative information. See Note 12 for these disclosures.
Effective January 1, 2009, the Company adopted additional guidance
which states that 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. See Note 9 for further discussion of the
effect of adopting this new guidance on the Companys financial statements.
Effective April 1, 2009, Aon adopted a new principle which establishes
the period after the balance sheet date during which management is required to
evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements. This principle also requires that Aon
disclose the date through which subsequent events have been evaluated, as well
as whether that date is the date the financial statements were issued or the
date the financial statements were available to be issued. See Note 1 for this
disclosure.
7
Aon
adopted the following fair value guidance effective April 1, 2009:
·
additional guidance for estimating fair value
in accordance with current principles, when the volume and level of activity
for the asset or liability has significantly decreased. This guidance also
assists in identifying circumstances that indicate when a transaction is not
orderly.
·
guidance related to debt securities, which
requires an entity to recognize the credit component of an other-than-temporary
impairment of a debt security in earnings and the non-credit component in other
comprehensive income when the entity does not intend to sell the security and
it is more likely than not that the entity will not be required to sell the
security prior to recovery. Entities are required to record a cumulative effect
adjustment for the non-credit component of previously recognized
other-than-temporary impairments that meet certain criteria.
·
disclosure guidance related to the fair value
of financial instruments for interim reporting periods as well as in annual
financial statements.
The
adoption of the preceding guidance did not have a material impact on the
Companys financial statements. See Note 15 for the disclosure regarding
interim reporting of the carrying and fair value of Aons long-term debt.
Recent Accounting Pronouncements
In
December 2008, the FASB issued an amendment to current principles regarding
employers disclosures about pensions and other postretirement benefits. These
changes provide guidance as to an employers disclosures about plan assets of a
defined benefit pension or other postretirement plan. This amendment requires
pension and other postretirement plan disclosures be expanded to include
investment allocation decisions, the fair value of each major category of plan
assets based on the nature and risks of assets in the plans, and inputs and
valuation techniques used to develop fair value measurements of plan assets. The
Company is currently evaluating this amendment to determine any additional
disclosures required in the 2009 annual report.
In
June 2009, the FASB issued guidance amending current principles related to the
transfers of financial assets and variable interest entities (VIEs). This
guidance eliminates the concept of a qualifying special-purpose entity (QSPE),
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. Former QSPEs will be evaluated for consolidation based on the
updated VIE guidance. There are also changes to the approach a company must
take 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 will also be required. These changes will be
effective for Aon beginning in the first quarter of 2010. The adoption of this
guidance is not expected to have a material impact on the Companys financial
statements.
In
September 2009, the 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
8
Company
is currently evaluating this guidance to determine what impact, if any, it will
have on its consolidated financial statements.
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.
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
|
|
9
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 P&C 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.
10
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
|
|
P&C Operations
|
|
|
|
1
|
|
2
|
|
4
|
|
|
|
$
|
|
|
$
|
24
|
|
$
|
2
|
|
$
|
752
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
CICA and Sterling
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
66
|
|
AIS
|
|
|
|
(22
|
)
|
|
|
(13
|
)
|
P&C Operations
|
|
(1
|
)
|
(2
|
)
|
4
|
|
(5
|
)
|
Other
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
(24
|
)
|
4
|
|
47
|
|
Gain (loss) on sale
|
|
1
|
|
(33
|
)
|
89
|
|
1,393
|
|
|
|
$
|
|
|
$
|
(57
|
)
|
$
|
93
|
|
$
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
Operations
|
|
$
|
|
|
$
|
(16
|
)
|
$
|
3
|
|
$
|
23
|
|
Gain (loss) on sale
|
|
3
|
|
(22
|
)
|
52
|
|
947
|
|
|
|
$
|
3
|
|
$
|
(38
|
)
|
$
|
55
|
|
$
|
970
|
|
11
The
assets and liabilities reported as held-for-sale were as follows (in millions):
|
|
September 30, 2009
|
|
December 31, 2008
|
|
Assets:
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
Fixed maturities
|
|
$
|
|
|
$
|
104
|
|
All other investments
|
|
|
|
68
|
|
Receivables
|
|
|
|
24
|
|
Property and equipment and other assets
|
|
|
|
41
|
|
Total assets
|
|
$
|
|
|
$
|
237
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Policy liabilities:
|
|
|
|
|
|
Policy and contract claims
|
|
$
|
|
|
$
|
122
|
|
Unearned premium reserves and other
|
|
|
|
5
|
|
All other liabilities
|
|
|
|
19
|
|
Total liabilities
|
|
$
|
|
|
$
|
146
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
Invested equity
|
|
$
|
|
|
$
|
87
|
|
Net unrealized investment gains
|
|
|
|
4
|
|
Total equity
|
|
$
|
|
|
$
|
91
|
|
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
12
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.
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 4,100 job eliminations. As of September 30, 2009, approximately 2,700
positions have been eliminated. The Company has closed or consolidated several
offices resulting in sublease losses or lease buy-outs. The Company currently
estimates that the 2007 Plan will result in cumulative pretax charges totaling
approximately $700 million. Expenses include workforce reduction, lease
consolidation costs, asset impairments, as well as other expenses necessary to
implement the restructuring initiative. Costs related to the restructuring are
included in compensation and benefits, other general expenses and depreciation
and amortization in the accompanying condensed consolidated statements of
income. The Company expects the restructuring and related expenses to affect
continuing operations through the first half of 2010.
13
Below is a summary of the 2007 Plan restructuring
and related expenses by type incurred and estimated to be incurred through the
end of the restructuring initiative (in millions):
|
|
Actual
|
|
Estimated
|
|
|
|
2007
|
|
2008
|
|
Third
Quarter
2009
|
|
Nine
Months
2009
|
|
Total
Incurred
to Date
|
|
Total Cost for
Restructuring
Period (1)
|
|
Workforce reduction
|
|
$
|
17
|
|
$
|
166
|
|
$
|
48
|
|
$
|
118
|
|
$
|
301
|
|
$
|
470
|
|
Lease consolidation
|
|
22
|
|
38
|
|
29
|
|
56
|
|
116
|
|
145
|
|
Asset impairments
|
|
4
|
|
18
|
|
3
|
|
7
|
|
29
|
|
38
|
|
Other costs associated with restructuring (2)
|
|
3
|
|
29
|
|
4
|
|
11
|
|
43
|
|
47
|
|
Total restructuring and related expenses
|
|
$
|
46
|
|
$
|
251
|
|
$
|
84
|
|
$
|
192
|
|
$
|
489
|
|
$
|
700
|
|
(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 approved include, but are not limited to, changes in severance
calculations, changes in the assumptions underlying sublease loss calculations
due to changing market conditions, and changes in the overall analysis that
might cause the Company to add or cancel component initiatives.
(2)
Other costs associated with
restructuring initiatives, including moving costs and consulting and legal
fees, are recognized when incurred.
The following is a summary of actual restructuring
and related expenses incurred and estimated to be incurred through the end of
the restructuring initiative, by segment (in millions):
|
|
Actual
|
|
Estimated
|
|
|
|
2007
|
|
2008
|
|
Third
Quarter
2009
|
|
Nine
Months
2009
|
|
Total
Incurred
to Date
|
|
Total Cost for
Restructuring
Period
|
|
Risk and Insurance Brokerage Services
|
|
$
|
41
|
|
$
|
234
|
|
$
|
69
|
|
$
|
171
|
|
$
|
446
|
|
$
|
645
|
|
Consulting
|
|
5
|
|
17
|
|
15
|
|
21
|
|
43
|
|
55
|
|
Total restructuring and related expenses
|
|
$
|
46
|
|
$
|
251
|
|
$
|
84
|
|
$
|
192
|
|
$
|
489
|
|
$
|
700
|
|
Restructuring Liabilities
As of September 30, 2009, the Companys liabilities
for its restructuring plans are as follows (in millions):
|
|
Aon
|
|
2007
|
|
2005
|
|
|
|
|
|
Benfield
|
|
Plan
|
|
Plan
|
|
Total
|
|
Balance at January 1, 2008
|
|
$
|
|
|
$
|
25
|
|
$
|
63
|
|
$
|
88
|
|
Expensed in 2008
|
|
|
|
233
|
|
3
|
|
236
|
|
Cash payments in 2008
|
|
|
|
(148
|
)
|
(34
|
)
|
(182
|
)
|
Purchase price allocation
|
|
104
|
|
|
|
|
|
104
|
|
Foreign currency translation adjustment
|
|
|
|
(9
|
)
|
(4
|
)
|
(13
|
)
|
Balance at December 31, 2008
|
|
104
|
|
101
|
|
28
|
|
233
|
|
Expensed in 2009
|
|
42
|
|
185
|
|
(2
|
)
|
225
|
|
Cash payments in 2009
|
|
(60
|
)
|
(142
|
)
|
(9
|
)
|
(211
|
)
|
Purchase accounting adjustment
|
|
(27
|
)
|
|
|
|
|
(27
|
)
|
Foreign currency translation adjustment
|
|
6
|
|
5
|
|
1
|
|
12
|
|
Balance at September 30, 2009
|
|
$
|
65
|
|
$
|
149
|
|
$
|
18
|
|
$
|
232
|
|
14
Aons unpaid restructuring liabilities are included in accounts payable
and accrued liabilities as well as other non-current liabilities in the
condensed consolidated statements of financial position.
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
|
|
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.
15
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.
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 for the nine months
ended September 30, 2009 and 2008, respectively.
16
The
weighted average shares outstanding for basic and diluted earnings per share
were as follows (in millions):
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Shares for basic EPS (1)
|
|
283.8
|
|
281.7
|
|
284.5
|
|
296.9
|
|
Common stock equivalents
|
|
8.3
|
|
12.2
|
|
7.7
|
|
12.0
|
|
Shares for diluted EPS
|
|
292.1
|
|
293.9
|
|
292.2
|
|
308.9
|
|
(1)
Includes 6.6 and 7.6 participating securities for
the three months ended September 30, 2009 and 2008, respectively, and 7.0 and
7.6 for the nine months ended September 30, 2009 and 2008, respectively.
Certain common stock equivalents related to options were
not included in the computation of diluted net income per share because those
options exercise price was greater than the average market price of the common
shares. The number of options excluded
from the quarterly calculation was 5 million and 2 million at September 30,
2009 and 2008, respectively. For nine
months ended September 30, 2009 and 2008, the number of options excluded was 5
million and 3 million, respectively.
Other Comprehensive Income (Loss)
The components of comprehensive income, net of tax,
are as follows (in millions):
|
|
Three months ended
September 30,
|
|
Nine months ended
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net income
|
|
$
|
134
|
|
$
|
121
|
|
$
|
574
|
|
$
|
1,480
|
|
Net derivative (losses) gains
|
|
(12
|
)
|
(12
|
)
|
6
|
|
(31
|
)
|
Net unrealized investment losses
|
|
(1
|
)
|
(24
|
)
|
(10
|
)
|
(4
|
)
|
Net foreign currency translation adjustments
|
|
87
|
|
(221
|
)
|
227
|
|
25
|
|
Net postretirement benefit obligations
|
|
11
|
|
9
|
|
71
|
|
(2
|
)
|
Comprehensive income (loss)
|
|
219
|
|
(127
|
)
|
868
|
|
1,468
|
|
Less: Comprehensive income attributable to noncontrolling
interest
|
|
17
|
|
4
|
|
29
|
|
12
|
|
Comprehensive income (loss) attributable to Aon
stockholders
|
|
$
|
202
|
|
$
|
(131
|
)
|
$
|
839
|
|
$
|
1,456
|
|
The components of accumulated other comprehensive loss, net of tax, are
as follows (in millions):
|
|
September 30, 2009
|
|
December 31, 2008
|
|
Net derivative losses
|
|
$
|
(7
|
)
|
$
|
(13
|
)
|
Net unrealized investment gains
|
|
46
|
|
56
|
|
Net foreign currency translation adjustments
|
|
325
|
|
102
|
|
Net postretirement benefit obligations
|
|
(1,536
|
)
|
(1,607
|
)
|
Accumulated other comprehensive loss, net of tax
|
|
$
|
(1,172
|
)
|
$
|
(1,462
|
)
|
17
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.
18
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 international pension 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.
19
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 average volatility
|
|
29.9
|
%
|
29.9
|
%
|
35.5
|
%
|
35.0
|
%
|
32.0
|
%
|
Expected dividend yield
|
|
1.6
|
%
|
1.6
|
%
|
1.3
|
%
|
1.5
|
%
|
1.5
|
%
|
Risk-free rate
|
|
2.7
|
%
|
3.0
|
%
|
1.5
|
%
|
1.9
|
%
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average expected life, in years
|
|
5.6
|
|
6.5
|
|
4.4
|
|
5.6
|
|
6.5
|
|
Weighted average estimated fair value per share
|
|
$
|
10.24
|
|
$
|
10.95
|
|
$
|
12.19
|
|
$
|
12.01
|
|
$
|
12.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
September 30,
2008
|
|
Nine months
ended
September 30,
2008
|
|
|
|
Key Employees
|
|
Executives
|
|
Key Employees
|
|
Weighted average
volatility
|
|
30.1
|
%
|
29.4
|
%
|
29.9
|
%
|
Expected dividend yield
|
|
1.3
|
%
|
1.3
|
%
|
1.4
|
%
|
Risk-free rate
|
|
3.4
|
%
|
3.2
|
%
|
3.0
|
%
|
|
|
|
|
|
|
|
|
Weighted average expected life, in years
|
|
5.7
|
|
5.1
|
|
5.7
|
|
Weighted average estimated fair value per share
|
|
$
|
13.98
|
|
$
|
11.87
|
|
$
|
12.95
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the first nine months of 2009, the Company granted approximately 1 million
stock options with an exercise price of $39 per share in connection with the
2009 LPP Plan and approximately 500,000 stock options with an exercise price of
$37 per share in connection with the Companys incentive compensation plans.
20
A
summary of the status of Aons stock options and related information is as
follows (shares in thousands):
|
|
Nine months ended September 30,
|
|
|
|
2009
|
|
2008
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
|
Beginning outstanding
|
|
19,666
|
|
$
|
31
|
|
26,479
|
|
$
|
31
|
|
Granted
|
|
1,468
|
|
38
|
|
1,537
|
|
44
|
|
Exercised
|
|
(3,855
|
)
|
27
|
|
(4,886
|
)
|
29
|
|
Forfeited and expired
|
|
(743
|
)
|
38
|
|
(1,517
|
)
|
41
|
|
Outstanding at end of period
|
|
16,536
|
|
33
|
|
21,613
|
|
31
|
|
Exercisable at end of period
|
|
10,365
|
|
31
|
|
12,214
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted average remaining contractual life, in years, of outstanding options
was 4.3 years and 4.5 years at September 30, 2009 and 2008, respectively.
The
aggregate intrinsic value represents the total pretax intrinsic value, based on
options with an exercise price less than the Companys closing stock price of
$40.69 as of September 30, 2009, which would have been received by the option
holders had those option holders exercised their options as of that date. At September 30, 2009, the aggregate
intrinsic value of options outstanding was $140 million, of which $102 million
was exercisable. The aggregate intrinsic
value of options exercised during the third quarter and nine months ended September
30, 2009 was $17 million and $55 million, respectively, and for the third
quarter and nine months ended September 30, 2008 was $17 million and $80
million, respectively.
Other
information related to the Companys stock options is as follows (in millions):
|
|
Nine months ended September 30,
|
|
|
|
2009
|
|
2008
|
|
Cash received from the exercise of stock options
|
|
$
|
104
|
|
$
|
146
|
|
Tax benefit realized from the exercise of stock
options
|
|
15
|
|
21
|
|
|
|
|
|
|
|
|
|
Unamortized
deferred compensation expense, which includes both options and awards, amounted
to $311 million as of September 30, 2009, with a remaining weighted-average
amortization period of approximately 2.1 years.
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
21
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 formally designated as a fair value, cash flow, or a net
investment hedge by documenting the relationship between the derivative and the
hedged item. The documentation will
include a description of the hedging instrument, the hedge item, the risk being
hedged, Aons risk management objective and strategy for undertaking the hedge,
the method for assessing the effectiveness of the hedge, and the method for
measuring hedge ineffectiveness.
Additionally, the hedge relationship must be expected to be highly effective
at offsetting changes in either the fair value or cash flows of the hedged item
at both inception of the hedge and on an ongoing basis. Aon assesses the ongoing effectiveness of its
hedges and measures and records hedge ineffectiveness, if any, at the end of
each quarter.
For a fair value hedge, the change in fair value of the hedging
instrument and the change in fair value of the hedged item attributable to the
risk being hedged are both recognized currently in earnings. For a cash flow hedge, the effective portion
of the change in fair value of a hedging instrument is recognized in Other
Comprehensive Income (OCI) and subsequently reclassified to income when the
hedged item affects earnings. The
ineffective portion of the change in fair value of a cash flow hedge is
recognized immediately in earnings. For
a net investment hedge, the effective portion of the change in fair value of
the hedging instrument is reported in OCI as part of the cumulative translation
adjustment, while the ineffective portion is recognized immediately in
earnings.
Changes in the fair value of a derivative that is not designated as an
accounting hedge (known as an economic hedge) are recorded in either
investment income or other general expenses (depending on the hedged exposure
and the Companys policy) in the current periods condensed consolidated
statement of income.
22
Aon discontinues hedge accounting prospectively when (1) the
derivative expires or is sold, terminated, or exercised, (2) it determines
that the derivative is no longer effective in offsetting changes in the hedged
items fair value or cash flows, (3) a hedged forecasted transaction is no
longer probable of occurring in the time period described in the hedge
documentation, (4) the hedged item matures or is sold, or (5) management
elects to discontinue hedge accounting voluntarily.
When hedge accounting is discontinued because the derivative no longer
qualifies as a fair value hedge, Aon will continue to carry the derivative in
the condensed consolidated statements of financial position at its fair value,
recognize subsequent changes in the fair value of the derivative in
current-period earnings, cease to adjust the hedged asset or liability for
changes in its fair value, and begin to amortize the hedged items cumulative
basis adjustment into earnings over the remaining life of the hedged item using
a method that approximates the level-yield method.
When hedge accounting is discontinued because the derivative no longer
qualifies as a cash flow hedge, Aon will continue to carry the derivative in
the condensed consolidated statements of financial position at its fair value,
recognize subsequent changes in the fair value of the derivative in
current-period earnings, and continue to defer the derivative gain or loss in
accumulated OCI until the hedged forecasted transaction affects earnings. If the hedged forecasted transaction is
probable of not occurring in the time period described in the hedge
documentation or within a two month period of time thereafter, the deferred
derivative gain or loss would be reclassified immediately to earnings.
Foreign
Exchange Risk Management
Certain of Aons foreign brokerage subsidiaries,
primarily in the U.K., receive revenues in currencies (primarily in U.S.
dollars and Euros) that differ from their functional currencies. The foreign subsidiarys functional currency
revenue will fluctuate as the currency exchange rates change. To reduce this variability, Aon uses foreign
exchange forward contracts and over-the-counter options to hedge the foreign
exchange risk of the forecasted revenue for up to a maximum of five years in
the future. Aon has designated these
derivatives as cash flow hedges of its forecasted foreign currency denominated
revenue. As of September 30, 2009,
a $12 million pretax loss has been deferred to OCI, of which a $12 million loss
is expected to be reclassified to earnings as an adjustment to other general
expenses in the next twelve months.
Deferred gains or losses will be reclassified from OCI to other general
expenses when the hedged revenue is recognized.
The hedge had no material ineffectiveness in the first nine months of
2009.
As of September 30, 2009, the Company had the
following outstanding foreign exchange forward and option contracts that were
entered into to hedge forecasted revenues and which qualify as cash flow hedges
(in millions):
|
|
Notional Amounts
|
|
Forecasted revenues
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
U.S.
Dollar
|
|
$
|
47
|
|
$
|
238
|
|
$
|
214
|
|
$
|
69
|
|
Euro
|
|
17
|
|
39
|
|
32
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Aon
also uses foreign exchange option and forward contracts to hedge its net
investments in foreign operations.
During the first nine months of 2009, these hedges had no
ineffectiveness, and a $31 million cumulative pretax loss has been included in
OCI at September 30, 2009. As of September 30,
2009, the total notional amount of the Companys foreign exchange option and
forward contracts related to these hedges was $1.7 billion.
Aon
subsidiaries have entered into cross-currency swaps and foreign exchange
forward contracts to hedge the foreign currency risks associated with foreign
denominated intercompany notes. These
derivatives have been designated as cash flow hedges. As of September 30, 2009, an $8 million
pretax loss has been deferred to OCI, and a $10 million loss is expected to be
reclassified to earnings as an adjustment to interest expense and other general
expense in the next twelve months. These
hedges had no material ineffectiveness in the first nine months of 2009. As of September 30, 2009, the total
notional amount of the Companys cross-currency swaps and foreign currency
forward contracts related to these hedges was $1.1 billion.
Several
of Aons subsidiaries have negotiated outsourcing service agreements in
currencies that differ from their functional currencies; primarily the
Philippine Peso and the Indian Rupee.
The subsidiarys functional currency equivalent of the expense will
fluctuate as the currency exchange rates change. To reduce this variability, Aon uses foreign
exchange forward contracts to hedge the foreign exchange risk associated with
the forecasted expense incurred for the life of the service agreements or up to
six years. Aon has designated these
derivatives as cash flow hedges of its forecasted foreign currency denominated
expense. As of September 30, 2009,
a $6 million pretax loss has been deferred to OCI, $2 million of which is
expected to be reclassified to earnings as an adjustment to other general
expenses in the next twelve months.
Deferred gains or losses will be reclassified from OCI to other general
expenses when the hedged expense is recognized.
During the third quarter, the Company discontinued hedge accounting and
recognized a pretax loss of less than $1 million related to $2 million of
hedged forecasted expenses determined to be probable of not occurring. The
hedge did not have any other ineffectiveness in the first nine months of 2009.
24
As of September 30, 2009, the Company had the
following outstanding foreign exchange forward contracts that were entered into
to hedge forecasted expenses and which qualify as cash flow hedges (in
millions):
|
|
Notional
Amounts
|
|
Forecasted expenses
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Indian
Rupee
|
|
$
|
6
|
|
$
|
10
|
|
$
|
9
|
|
$
|
4
|
|
Philippine
Peso
|
|
1
|
|
2
|
|
2
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
May 2009, Aon entered into a sponsorship agreement under which Aon is
required to make payments in British pounds over the next four years pursuant
to the terms of the contract. As a
result, the Company is exposed to foreign exchange transaction risk and has
hedged its exposure using over-the-counter options. Aon has designated these derivatives as cash
flow hedges of its forecasted foreign currency denominated expense. As of September 30, 2009, a $3 million
pretax loss has been deferred to OCI.
Deferred gains or losses will be reclassified from OCI to other general
expenses when the hedged expense is recognized.
This hedge did not have any ineffectiveness in the first nine months of
2009. As of September 30, 2009, the
total notional amount of the Companys over-the-counter options related to this
hedge was $83 million.
Aon
also uses foreign exchange forward and over-the-counter option contracts to
reduce the impact of foreign currency fluctuations on the translation of the
financial statements of Aons foreign operations and to manage the currency exposure
of Aons global liquidity profile. These
derivatives are not eligible for hedge accounting treatment and changes in the
fair value of these derivatives are recorded in other general expenses in the
condensed consolidated statements of income.
As of September 30, 2009, there was no notional amount outstanding.
Aon
also uses foreign exchange forward contracts to offset foreign exchange risk
associated with foreign denominated intercompany notes and brokerage
receivables. These derivatives were not
designated as hedges because changes in their fair value were largely offset in
earnings by remeasuring the notes and receivables for changes in spot exchange
rates. Changes in the fair value of
these derivatives were recorded in other general expenses in the condensed
consolidated statements of income. As of September 30, 2009, the total
notional amount of these derivatives was $104 million.
Interest Rate Risk Management
Aon
enters into receive-fixed-pay-floating interest rate swaps which are designated
as cash flow hedges of the benchmark interest rate risk component of a portion
of Aons U.S. dollar, Euro, Australian dollar, Canadian dollar and British
pound denominated brokerage funds held on behalf of clients and other operating
funds. Forecasted interest receipts
earned on deposit balances are hedged up to a maximum of three years into the
future. Changes in the fair value of the
swaps are recorded in OCI and will be reclassified to earnings as an adjustment
to investment income over the term of the swaps. As of September 30, 2009, an $18 million
pretax gain related to this hedge was recorded in OCI, all of which is expected
to be reclassified to earnings as an adjustment to investment income in the
next twelve months. This hedge had no
material ineffectiveness in the first nine months of 2009.
As
of September 30, 2009, the Company had the following outstanding interest
rate swaps that were entered into to hedge the interest rate exposure of the
forecasted interest receipts earned on short-term fund balances (in millions):
|
|
Notional Amounts
|
|
Fund balances
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
U.S.
Dollar
|
|
$
|
1,000
|
|
$
|
850
|
|
$
|
100
|
|
$
|
|
|
Euro
|
|
323
|
|
323
|
|
88
|
|
|
|
All
other
|
|
226
|
|
226
|
|
47
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In July 2009, an indirect wholly-owned subsidiary of Aon issued
500 million ($734 million) of fixed rate senior unsecured debentures due on July 1,
2014. As a result of the debt issuance,
the Company is exposed to changes in the fair value of the debt due to
fluctuations in the benchmark Euribor rate.
In order to hedge a portion of this risk, the Company entered into 250
million notional received-fixed-pay-floating interest rate swaps. This hedge
did not have any ineffectiveness in 2009. As of September 30, 2009, $1
million was recorded as a reduction to interest expense due to this swap.
25
The location and fair value of derivative instruments reported in the September 30,
2009 condensed consolidated statement of financial position, segregated between
derivatives that are designated as hedging instruments and those that are not,
are as follows (in millions):
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives
accounted for as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
Other assets
|
|
$
|
32
|
|
Other
liabilities
|
|
$
|
5
|
|
Foreign
exchange contracts
|
|
Other assets
|
|
240
|
|
Other
liabilities
|
|
195
|
|
Other
contracts (1)
|
|
Other assets
|
|
15
|
|
Other
liabilities
|
|
56
|
|
Total
|
|
|
|
287
|
|
|
|
256
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not accounted for as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Other assets
|
|
24
|
|
Other
liabilities
|
|
32
|
|
Total
|
|
|
|
$
|
311
|
|
|
|
$
|
288
|
|
(1) Other contracts include cross-currency swaps hedging the
foreign currency risk associated with foreign denominated intercompany loans,
as described above.
The location and amounts of the gains and losses reported in the
condensed consolidated statement of financial position in OCI, segregated by
type of hedge and further by type of derivative contract, are as follows (in
millions):
Three months ended
September 30, 2009
|
|
Amount of Gain
(Loss)
Recognized in
OCI on Derivative
(Effective Portion)
|
|
Location of Gain (Loss)
Reclassified from OCI
into Income (Effective
Portion)
|
|
Amount of Gain
(Loss)
Reclassified from
OCI into Income
(Effective Portion)
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
$
|
6
|
|
Investment income
|
|
$
|
8
|
|
Foreign
exchange contracts
|
|
4
|
|
Other general expenses
|
|
24
|
|
Other
contracts (1)
|
|
(5
|
)
|
Interest expense
|
|
(8
|
)
|
Total
|
|
$
|
5
|
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
Foreign
net investment hedges:
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
$
|
(52
|
)
|
N/A
|
|
$
|
|
|
26
Nine months ended
September 30, 2009
|
|
Amount of Gain
(Loss)
Recognized in
OCI on Derivative
(Effective Portion)
|
|
Location of Gain (Loss)
Reclassified from OCI into
Income (Effective Portion)
|
|
Amount of Gain
(Loss) Reclassified
from OCI into
Income (Effective
Portion)
|
|
|
|
|
|
|
|
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
$
|
14
|
|
Investment income
|
|
$
|
27
|
|
Foreign
exchange contracts
|
|
39
|
|
Other general expenses
|
|
16
|
|
Other
contracts (1)
|
|
(42
|
)
|
Other general expenses
and interest expense
|
|
(42
|
)
|
Total
|
|
$
|
11
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
Foreign
net investment hedges:
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
$
|
(86
|
)
|
N/A
|
|
$
|
|
|
(1)
Other contracts include
cross-currency swaps hedging the foreign currency risk associated with foreign
denominated intercompany loans, as described above.
|
|
Location of Gain (Loss)
|
|
Amount of Gain (Loss)
Recognized in Income
on Derivative
|
|
|
|
Recognized in Income on
Derivative
|
|
Three months ended
September 30, 2009
|
|
Nine months ended
September 30, 2009
|
|
Fair
value hedges:
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Interest expense
|
|
$
|
7
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss)
|
|
Amount of Gain (Loss)
Recognized in Income
on Related Hedged Item
|
|
|
|
Recognized in Income on
Related Hedged Item
|
|
Three months ended
September 30, 2009
|
|
Nine months ended
September 30, 2009
|
|
Hedged
items in fair value hedge relationships:
|
|
|
|
|
|
|
|
Fixed
rate debt
|
|
Interest expense
|
|
$
|
(6
|
)
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
The amount of gain (loss) recognized in income on the ineffective
portion of derivatives for both the three and nine month periods was
negligible.
The location and amounts of the gains and losses reported in the
condensed consolidated statement of income for derivatives not designated as
qualifying hedges are as follows (in millions):
|
|
Location of Gain (Loss)
|
|
Amount of Gain (Loss)
Recognized in Income
on Derivative
|
|
|
|
Recognized in Income on
Derivative
|
|
Three months ended
September 30, 2009
|
|
Nine months ended
September 30, 2009
|
|
Derivatives
not designated as hedges:
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Other general expenses
|
|
$
|
(7
|
)
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
27
13.
Premium Finance
Operations
In December 2008, Aon signed a definitive agreement to sell the
U.S. operations of the premium finance business (Cananwill). This disposition was completed in February 2009. 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 September 30,
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 August 2009, these loans were
sold in securitization transactions that met the criteria for sale accounting
under current accounting principles. In June and
July of 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 securitization arrangements prior to August 2009
are collected.
Pursuant
to the agreements, the total amount that can be advanced by the Bank SPEs on
premium finance agreements sold to them at any one time is limited by formula
to a percentage of the uncollected balance of the premium finance agreements.
The outstanding balance of sold portfolios at September 30, 2009 was $207
million, and the Bank SPEs had advanced $158 million. The outstanding balance of sold portfolios at
December 31, 2008 was $1.1 billion, and the Bank SPEs had advanced $981
million.
28
Aon
recorded gains on the sale of premium finance agreements. When Aon calculated the gain, all costs
expected to be incurred for the relevant Bank SPEs were included. The gains, which were included in
commissions, fees and other revenue in the condensed consolidated statements of
income, were $3 million and $9 million for the three months ended September 30,
2009 and 2008, respectively, and $17 million and $41 million for the nine
months ended September 30, 2009 and 2008, respectively.
Aon recorded its retained interest in the sold premium finance
agreements at fair value, and reports it in receivables in the condensed
consolidated statements of financial position.
Aon estimates 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.
Aon also retained servicing rights for sold agreements, and earns
servicing fee income over the servicing period.
Because the servicing fees represent adequate compensation for the
servicing of the receivables, the Company has not recorded any servicing assets
or liabilities.
The third-party bank sponsors or other participants in the Bank SPEs
provide the liquidity support and bear the credit risks on the receivables,
subject to limited recourse, in the form of over-collateralization provided by
Aon (and other sellers) as required by the sales agreements. The over-collateralization of the sold
receivables represents Aons maximum exposure to credit-related losses, and was
approximately $30 million at September 30, 2009. The Company continually reviews the retained
interest in the sold portfolio, taking into consideration credit loss trends in
the sold portfolio, conditions in the credit markets and other factors, and
adjusts its carrying value accordingly.
14.
Variable
Interest Entities
Aon
has the following VIEs that have been consolidated at September 30, 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 Class A 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 September 30, 2009 and $121
million and $22 million, respectively, at December 31, 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 September 30,
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 June 1, 2009.
Aon consolidated Globe Re as it was deemed to be the primary
beneficiary. In connection with the
winding up of its operations, during June 2009, Globe Re repaid its $100
million of short-term debt from available cash.
In early July 2009, 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.
29
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 September 30, 2009 (in millions):
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
Quoted Prices in
|
|
Significant
|
|
Significant
|
|
|
|
|
|
Active Markets
|
|
Other
|
|
Unobservable
|
|
|
|
Balance at
|
|
for Identical
|
|
Observable
|
|
Inputs
|
|
|
|
September 30, 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.
30
Guarantees
are carried at fair value, which is based on
discounted estimated future cash flows using published historical cumulative
default rates and discount rates commensurate with the underlying exposure.
The
following table presents the changes in the Level 3 fair-value category for the
three months ended September 30, 2009 (in millions):
|
|
Fair Value Measurements Using Level 3 Inputs
|
|
|
|
Other
|
|
|
|
Retained
|
|
|
|
|
|
Investments
|
|
Derivatives
|
|
Interests
|
|
Guarantees
|
|
Balance at June 30, 2009
|
|
$
|
102
|
|
$
|
|
|
$
|
61
|
|
$
|
(9
|
)
|
Total gains (losses):
|
|
|
|
|
|
|
|
|
|
Included in income
|
|
|
|
|
|
4
|
|
(4
|
)
|
Included in other comprehensive income
|
|
1
|
|
|
|
|
|
|
|
Purchases and sales
|
|
|
|
|
|
(35
|
)
|
9
|
|
Balance at September 30, 2009
|
|
$
|
103
|
|
$
|
|
|
$
|
30
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains (losses) for the period included
in income attributable to the change in unrealized losses relating to assets
or liabilities held at September 30, 2009
|
|
$
|
|
|
$
|
|
|
$
|
4
|
|
$
|
(4
|
)
|
The
following table presents the changes in the Level 3 fair-value category for the
nine months ended September 30, 2009 (in millions):
|
|
Fair Value Measurements Using Level 3 Inputs
|
|
|
|
Other
|
|
|
|
Retained
|
|
|
|
|
|
Investments
|
|
Derivatives
|
|
Interests
|
|
Guarantees
|
|
Balance at December 31, 2008
|
|
$
|
113
|
|
$
|
1
|
|
$
|
99
|
|
$
|
(9
|
)
|
Total gains (losses):
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
(1
|
)
|
14
|
|
(4
|
)
|
Included in other comprehensive income
|
|
(10
|
)
|
|
|
2
|
|
|
|
Purchases and sales
|
|
|
|
|
|
(85
|
)
|
9
|
|
Balance at September 30, 2009
|
|
$
|
103
|
|
$
|
|
|
$
|
30
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
The amount of total gains (losses) for the period included
in earnings attributable to the change in unrealized losses relating to
assets or liabilities held at September 30, 2009
|
|
$
|
|
|
$
|
|
|
$
|
16
|
|
$
|
(4
|
)
|
Gains (losses), both realized and unrealized, included in income for
the three and nine months ended September 30, 2009 are as follows (in
millions):
|
|
Three months ended September 30, 2009
|
|
Nine months ended September 30, 2009
|
|
|
|
Other general
|
|
Commissions,
|
|
Other general
|
|
Commissions,
|
|
|
|
expenses
|
|
fees and other
|
|
expenses
|
|
fees and other
|
|
Total gains (losses) included in income
|
|
$
|
(4
|
)
|
$
|
4
|
|
$
|
(5
|
)
|
$
|
14
|
|
Change in unrealized gains (losses) relating to
assets or liabilities held at September 30, 2009
|
|
$
|
(4
|
)
|
$
|
4
|
|
$
|
(4
|
)
|
$
|
16
|
|
The
following table discloses the Companys financial instruments where the
carrying amounts and fair values differ (in millions):
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Long-term debt
|
|
$
|
1,998
|
|
$
|
2,032
|
|
$
|
1,872
|
|
$
|
1,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
The
fair value of debt is based on quoted market prices or estimates using
discounted cash flow analyses based on current borrowing rates for similar
types of borrowing arrangements.
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 (E&O) 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 August and October 2007, 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 November 17, 2009.
The outcome of these lawsuits, and any losses or other payments that may
occur as a result, cannot be predicted at this time.
Following
inquiries from regulators, the Company commenced an internal review of its
compliance with certain U.S. and non-U.S. anti-corruption laws, including the
U.S. Foreign Corrupt Practices Act (FCPA).
The U.S. Securities and Exchange Commission (SEC), and the U.S.
Department of Justice (DOJ), continue to investigate these matters. Aon is fully cooperating with these
investigations and has agreed with the U.S. agencies to toll any applicable
statute of limitations pending completion of the investigations. Based on current information, the Company is
unable to predict at this time when the SEC and DOJ matters will be concluded,
or what regulatory or other outcomes may result.
32
A
putative class action,
Buckner v. Resource Life
,
is pending in state court in Columbus, Georgia against a former subsidiary of
Aon, Resource Life Insurance Company.
The complaint alleges that Resource Life, which wrote policies insuring
repayment of auto loans, was obligated to identify and return unearned premium
to policyholders whose loans terminated before the end of their scheduled
terms. In connection with the sale of
Resource Life in 2006, Aon agreed to indemnify Resource Lifes buyer in certain
respects relating to this action. Aon
believes that Resource Life has meritorious defenses and Resource Life is
vigorously defending this action. In October 2009,
the court certified a nationwide class of policyholders whose loans terminated
before the end of their scheduled terms and who Resource Life cannot prove
received a refund of unearned premium. Resource Life will appeal. Also in
October 2009, Aon filed a lawsuit in Illinois state court seeking a declaratory
judgment with respect to the rights and obligations of Aon and Resource Life
under the indemnity agreement. The outcome of the actions, and the amount of
any losses or other payments that may result, cannot be predicted at this time.
Although
the ultimate outcome of all matters referred to above cannot be ascertained,
and liabilities in indeterminate amounts may be imposed on Aon or its
subsidiaries, on the basis of present information, amounts already provided,
availability of insurance coverages and legal advice received, it is the
opinion of management that the disposition or ultimate determination of such
claims will not have a material adverse effect on the consolidated financial
position of Aon. However, it is possible
that future results of operations or cash flows for any particular quarterly or
annual period could be materially affected by an unfavorable resolution of
these matters.
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 September 30,
|
|
|
|
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
|
|
33
|
|
Nine months ended September 30,
|
|
|
|
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
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
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
|
|
Total Consulting
|
|
308
|
|
335
|
|
916
|
|
1,012
|
|
Intersegment elimination
|
|
(8
|
)
|
(4
|
)
|
(20
|
)
|
(20
|
)
|
Unallocated
|
|
9
|
|
|
|
20
|
|
|
|
Total commissions, fees and other revenue
|
|
$
|
1,780
|
|
$
|
1,756
|
|
$
|
5,466
|
|
$
|
5,493
|
|
Aons operating segments geographic revenue and
income before income tax is as follows (in millions):
|
|
Risk and Insurance Brokerage
Services
|
|
Consulting
|
|
Three months ended
September 30,
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Revenue by geographic area:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
519
|
|
$
|
503
|
|
$
|
148
|
|
$
|
158
|
|
Americas, other than U.S.
|
|
175
|
|
184
|
|
28
|
|
30
|
|
United Kingdom
|
|
295
|
|
251
|
|
52
|
|
65
|
|
Europe, Middle East & Africa
|
|
360
|
|
389
|
|
57
|
|
63
|
|
Asia Pacific
|
|
140
|
|
146
|
|
23
|
|
21
|
|
Total revenue
|
|
$
|
1,489
|
|
$
|
1,473
|
|
$
|
308
|
|
$
|
337
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
188
|
|
$
|
192
|
|
$
|
33
|
|
$
|
52
|
|
34
|
|
Risk and Insurance Brokerage
Services
|
|
Consulting
|
|
Nine months ended
September 30,
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,594
|
|
$
|
1,465
|
|
$
|
437
|
|
$
|
459
|
|
Americas, other than U.S.
|
|
526
|
|
548
|
|
88
|
|
100
|
|
United Kingdom
|
|
828
|
|
743
|
|
145
|
|
199
|
|
Europe, Middle East & Africa
|
|
1,281
|
|
1,449
|
|
187
|
|
201
|
|
Asia Pacific
|
|
388
|
|
444
|
|
60
|
|
57
|
|
Total revenue
|
|
$
|
4,617
|
|
$
|
4,649
|
|
$
|
917
|
|
$
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
726
|
|
$
|
669
|
|
$
|
144
|
|
$
|
158
|
|
A reconciliation of segment income before income taxes to income from
continuing operations before income taxes is as follows (in millions):
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Risk and Insurance Brokerage Services
|
|
$
|
188
|
|
$
|
192
|
|
$
|
726
|
|
$
|
669
|
|
Consulting
|
|
33
|
|
52
|
|
144
|
|
158
|
|
Segment income from continuing operations before
income taxes
|
|
221
|
|
244
|
|
870
|
|
827
|
|
Unallocated investment income and other revenue
|
|
19
|
|
40
|
|
33
|
|
62
|
|
Unallocated expenses
|
|
(30
|
)
|
(34
|
)
|
(85
|
)
|
(91
|
)
|
Interest expense
|
|
(32
|
)
|
(32
|
)
|
(87
|
)
|
(96
|
)
|
Income from continuing operations before income
taxes
|
|
$
|
178
|
|
$
|
218
|
|
$
|
731
|
|
$
|
702
|
|
Unallocated investment income and other revenue consists
primarily of revenue from our equity ownership in insurance investments and
income associated with invested assets not directly required to support the
risk and insurance brokerage services and consulting businesses.
Unallocated expenses include administrative or other costs
not attributable to the operating segments, such as corporate governance costs
and the costs associated with corporate investments. Interest expense represents the cost of
worldwide debt obligations.
35
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The
outline for our Managements Discussion and Analysis is as follows:
EXECUTIVE SUMMARY
REVIEW OF CONSOLIDATED RESULTS
General
Consolidated Results
REVIEW BY SEGMENT
General
Risk and Insurance Brokerage Services
Consulting
Unallocated Income and Expense
FINANCIAL CONDITION AND LIQUIDITY
Cash Flows
Financial Condition
Borrowings
Equity
Variable Interest Entities
Restructuring Initiatives
Off Balance Sheet Arrangements
CRITICAL ACCOUNTING POLICIES
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
36
EXECUTIVE SUMMARY
The
current global economic recession is providing significant headwinds for our
business. We continue to operate in a
soft insurance pricing market, as property and casualty rates continue to
decline, although at a somewhat slower pace compared to last year. In addition to pricing declines, we are
seeing a volume impact driven by the current economic environment, which places
pressure on our business in three primary ways:
·
declining insurable risks
due to decreasing asset values, including property values, shipment volumes,
payroll and number of active employees,
·
client cost-driven behavior,
where clients are actively looking to reduce spending in order to meet budget
reductions and increase risk retention, as a result of prioritizing their total
spending, and
·
sector specific weakness,
including financial services, construction, private equity, and mergers and
acquisitions, all of which have been particularly impacted by the current
recession.
As
a result of this difficult market environment, organic revenue for the quarter
declined in both our brokerage and consulting segments. We continue to demonstrate expense
discipline, holding expenses to last years levels while we continue to invest
in our businesses.
Overall
organic revenue declined 3% and 1% for the third quarter and nine months 2009,
respectively. See our discussion below
for more details regarding organic revenue.
Our
consolidated pretax margins from continuing operations for the quarter declined
from 11.8% in 2008 to 9.8% in 2009. The
decline was principally driven by a 2% decline in revenue. Operating expenses were unchanged, despite a
$45 million increase in restructuring charges, due to restructuring savings and
a reduction in
discretionary
incentives. Year-to-date margins increased from 12.3%
last year to 13.2% in 2009. The
improvement is primarily attributable to net $78 million pension curtailment
gains related to the decision to cease crediting future benefits relating to
salary and service in our U.S. and Canada defined benefit pension plans,
restructuring savings, and a reduction in
discretionary
incentives, which more than offsets a 3% decline in revenue, a $70
million increase in restructuring charges, lower investment income and the
unfavorable impact of foreign currency translation.
The
following is a summary of our third quarter and nine months 2009 financial
results:
·
Revenue
decreased $38 million or 2% for the quarter and $160 million or 3%
year-to-date, as the negative effect of foreign exchange translation and
significantly lower investment income was only partially offset by the impact
of the Benfield merger and other acquisitions.
Organic revenue declined due primarily to weak economic conditions
globally.
·
Operating
expenses were comparable with last year for the quarter and decreased 4% for
nine months 2009, due primarily to favorable foreign exchange translation,
restructuring and other operational expense savings, and a reduction in
discretionary incentives, partially offset by the impact of the Benfield merger
and other acquisitions and higher restructuring charges. Nine months 2009 expenses were favorably
impacted by the net $78 million pension curtailment gain previously described,
restructuring and other operational expense savings and a reduction in
discretionary incentives, which more than offset the decline in revenue,
increased restructuring charges and lower investment income.
·
Net
income from continuing operations attributable to Aon stockholders decreased
$38 million from third quarter 2008 to $117 million. For nine months 2009, net income from
continuing operations attributable to Aon stockholders decreased $4 million to
$494 million.
37
·
Diluted
earnings per share from continuing operations attributable to Aons
stockholders were $0.40 for the third quarter 2009, a decrease of 25% from
$0.53 per share in 2008. Nine months
diluted earnings per share increased from $1.61 in 2008 to $1.69 in 2009.
REVIEW OF CONSOLIDATED RESULTS
General
In
our discussion of operating results, we sometimes refer to supplemental
information derived from our consolidated financial information.
We
use supplemental information related to organic revenue growth to help us and
our investors evaluate business growth from existing operations. Organic revenue growth excludes the impact of
foreign exchange rate changes, acquisitions, divestitures, transfers between
business units, investment income, reimbursable expenses, and unusual items.
Supplemental
information related to organic revenue growth represents a non-GAAP measure and
should be viewed in addition to, not instead of, our condensed consolidated
statements of income. Industry peers
provide similar supplemental information about their revenue performance,
although they may not make identical adjustments.
Because
we conduct business in over 120 countries, foreign exchange rate fluctuations
have an impact on our business. In
comparison to the U.S. dollar, foreign exchange rate movements may be
significant and may distort true period-to-period comparisons of changes in
revenue or pretax income. Therefore, we
have:
·
isolated the impact of the change in
currencies between periods by translating last years revenue and expenses at
this years foreign exchange rates, and
·
provided this form of reporting to give
financial statement users more meaningful information about our operations.
Some tables in the segment discussions reconcile organic revenue growth
percentages to the reported commissions, fees and other revenue growth
percentages. We disclose separately:
·
the impact of
foreign currency, and
·
the impact from
acquisitions, divestitures, transfers of business units, reimbursable expenses,
and unusual items, which represent the most significant reconciling items.
38
Consolidated Results
The consolidated results of continuing operations are as follows (in
millions):
|
|
Third quarter ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
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
|
|
|
|
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
|
|
Pretax margin - continuing
operations
|
|
9.8
|
%
|
11.8
|
%
|
13.2
|
%
|
12.3
|
%
|
Revenue
Commissions, fees and other
increased by $24 million, or 1%, for the quarter but decreased $27 million for
nine months. Both quarter and nine month
2009 results were positively influenced by the inclusion of revenue from the
merger with Benfield. Negatively
impacting both periods was foreign currency translation, which was $81 million
for the quarter and $442 million for nine months. Overall organic revenue
declined 3% for the quarter and 1% for the nine month period.
Investment
income
decreased $62 million for the quarter and $133 million for nine months
reflecting significantly lower revenue from our PEPS I investment, the impact
of lower interest rates, lower investment balances, and the negative impact of
foreign currency translation.
Expenses
Compensation and benefits
decreased $12 million or 1%
for the quarter and $161 million or 5% for nine months. For the quarter, the decrease was driven by a
$56 million favorable impact from foreign currency translation, lower
discretionary incentive compensation costs and continued restructuring savings,
partially offset by $14 million of increased restructuring costs and higher
expenses due to the inclusion of Benfields operations in 2009. On a year-to-date
basis, the decrease is due to a $290 million favorable impact from foreign
currency translation, a net $78 million pension curtailment gain related to the
decision to cease crediting future benefits relating to salary and service in
our U.S. and Canadian defined benefit pension plans, lower
discretionary
incentive compensation costs and continued
restructuring savings. These items were
partially offset by higher expenses from the inclusion of Benfields operations
in 2009 and $32 million in increased restructuring charges.
Other general expenses
increased $5 million or 1%
for the quarter and decreased $46 million or 3% for nine months. Favorable
foreign currency translation impacted the quarter and nine months by $20
million and $111
39
million,
respectively. For the quarter, higher
restructuring and Benfields operational costs more than offset restructuring
savings and the impact of foreign exchange.
For nine months, the benefits of operational expense management, lower
E&O costs, reduced expenses related to the FCPA and anti-corruption reviews
and related compliance initiatives, restructuring savings and the impact of
foreign exchange exceeded the additional costs related to Benfield and higher restructuring
charges.
Depreciation and amortization expense
increased $7 million for
the quarter and $17 million for nine months. Higher amortization expense
related to the Benfield merger and the charge associated with asset impairments
taken as part of our restructuring plans more than offset the favorable impact
of foreign exchange. The year-to-date increase
is driven by the higher intangible amortization related to the Benfield merger,
which more than offset the favorable foreign exchange impact.
Interest expense
was unchanged for the quarter and decreased $9 million for nine months
principally reflecting the impact of lower interest rates and favorable foreign
exchange translation.
Other income
of
$1 million for the quarter primarily
represents a net gain on the disposal of several small operations. In 2008, the $3 million of income represented
a restructuring of ownership interests of one of our subsidiaries, partially
offset by expenses related to the acquisition of Benfield. On a year-to-date basis,
$1 million of other expense includes $13 million of Benfield integration costs,
which more than offset a $5 million gain from the extinguishment of $15 million
of Junior Subordinated Debentures and net gains on disposal of operations. In 2008, we recorded $9 million of income,
which included the restructuring of ownership interests of one of our
subsidiaries and a $5 million gain on the sale of land in the U.K, partially
offset by expenses related to the Benfield acquisition.
Income from Continuing Operations before Income
Taxes
Income
from continuing operations before income taxes decreased $40 million or 18% to
$178 million for the quarter but increased $29 million or 4% for nine months.
Both periods were negatively impacted by lower investment income and higher
restructuring costs, and for the nine month period, foreign exchange
translation. For the quarter, these
items more than offset the positive impact of the Benfield merger and other
acquisitions as well as restructuring
and
other operational expense
savings.
The year-to-date improvement was driven by the net $78 million pension
curtailment gain, partially offset by those items listed above.
Income Taxes
The
effective
tax rate
for continuing operations was 26.7% for third quarter 2009 compared to
27.1% for third quarter 2008. On a
year-to-date basis, the
effective tax rate for continuing
operations was 29.1% and 27.4% for 2009 and 2008, respectively. The rates for all periods were favorably
impacted by the benefit of statutory rate reductions in key operating
jurisdictions in 2008 and the geographic distribution of earnings in both
years. The increase from 2008 on a
year-to-date basis was driven by the tax impact of the U.S. pension curtailment
gain. The underlying tax rate for
continuing operations is expected to be 28% for 2009 and was 29% for 2008.
Income from Continuing Operations
Income
from continuing operations for third quarter 2009 and 2008 was $131 million and
$159 million, respectively. Diluted
income per share in the third quarter 2009 was $0.40 versus $0.53 in 2008. Income from continuing operations for nine
months 2009 and 2008 was $519 million and $510 million, respectively. Diluted income per share for nine months 2009
was $1.69 versus $1.61 in 2008. Currency fluctuations negatively impacted
income from continuing operations in 2009 by $0.01 per diluted share in the
quarter and $0.06 for nine months when we translate 2008 results at current
period foreign exchange rates. Our
diluted per share calculations were favorably impacted this year primarily by
lower shares outstanding as a result of shares acquired as part of our share
repurchase program.
40
Discontinued Operations
Third
quarter income from discontinued operations was $3 million for 2009 or $0.01
per diluted share, versus a $38 million loss for 2008 or ($0.13) per diluted
share. Nine months income from
discontinued operations was $55 million for 2009 or $0.19 per diluted share,
versus $1.0 billion for 2008 or $3.14 per diluted share. Results for third quarter 2009 primarily
reflect adjustments to the gains and losses of previously sold companies. Results for nine months 2009 include our FFG
operations through the date of disposal, as well as the gain on the sale of
AIS, a curtailment gain on the post-retirement benefit plan related to the CICA
disposal and residual tax settlements related to our AWG disposal. Our results
for third quarter 2008 primarily reflect an adjustment to the gain on the sale
of our CICA and Sterling businesses.
Year-to-date 2008 results include both the gain on the sale of CICA and
Sterling as well as their operating results through the date of sale. Results for AIS and FFG are also included for
both the three and nine month periods in 2008.
REVIEW
BY SEGMENT
General
We classify our businesses into two operating segments: Risk and
Insurance Brokerage Services and Consulting.
Segment
revenue includes investment income generated by invested assets of that
segment, as well as the impact of related derivatives
.
Our Risk and Insurance Brokerage Services and
Consulting businesses invest funds held on behalf of clients and operating
funds in short-term obligations.
The
following table and commentary provide selected financial information on the
operating segments (in millions):
|
|
Third quarter ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Commissions, fees and other
revenue:
(1) (2)
|
|
|
|
|
|
|
|
|
|
Risk and Insurance Brokerage Services
|
|
$
|
1,471
|
|
$
|
1,425
|
|
$
|
4,550
|
|
$
|
4,501
|
|
Consulting
|
|
308
|
|
335
|
|
916
|
|
1,012
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
Risk and Insurance Brokerage Services
|
|
18
|
|
48
|
|
67
|
|
148
|
|
Consulting
|
|
|
|
2
|
|
1
|
|
4
|
|
Income from continuing operations
before income taxes:
|
|
|
|
|
|
|
|
|
|
Risk and Insurance Brokerage Services
|
|
188
|
|
192
|
|
726
|
|
669
|
|
Consulting
|
|
33
|
|
52
|
|
144
|
|
158
|
|
Pretax margins - continuing
operations:
|
|
|
|
|
|
|
|
|
|
Risk and Insurance Brokerage Services
|
|
12.6
|
%
|
13.0
|
%
|
15.7
|
%
|
14.4
|
%
|
Consulting
|
|
10.7
|
%
|
15.4
|
%
|
15.7
|
%
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Intersegment revenues
of $8 million and $4 million were included in third quarter 2009 and 2008,
respectively.
|
(2)
|
Intersegment revenues
of $20 million were included in both nine months 2009 and 2008.
|
Risk and Insurance Brokerage
Services
Aon is a leader in many sectors of the
insurance industry. Aon was ranked in
2009 and 2008 by
Business Insurance
as the worlds
largest insurance broker, by
A.M
.
Best
as the number one global insurance brokerage
41
based on brokerage revenues, and in 2008
voted the best insurance intermediary and best reinsurance intermediary by the
readers of
Business Insurance
.
In
2008, we experienced a soft market in many business lines/segments and in many
geographic areas. In a soft market,
premium rates flatten or decrease, along with commission revenues, due to
increased competition for market share among insurance carriers or increased
underwriting capacity. Prices fell
throughout the year, although the rate of decline slowed toward the end of the
year. During 2009, we continued to see a
soft market in our retail business. In
reinsurance, pricing overall was flat to up slightly, but was more than offset
by higher cedant retentions. Changes in premiums have a direct and potentially
material impact on the insurance brokerage industry, as commission revenues are
generally based on a percentage of the premiums paid by insureds.
Beginning
in late 2008 and continuing throughout 2009, we faced difficult conditions as a
result of unprecedented disruptions in the global economy, the repricing of
credit risk and the deterioration of financial markets. Continued volatility and further
deterioration in the credit markets have reduced our customers demand for our
brokerage and reinsurance services and products, which have hurt our
operational results. In addition,
overall capacity in the industry could decrease if a significant insurer either
fails or withdraws from writing insurance coverages that we offer our
clients. This failure could reduce our
revenues and profitability, since we would no longer have access to certain
lines and types of insurance.
Risk
and Insurance Brokerage Services generated approximately 83% of Aons total
operating segment revenues for both the third quarter and first nine months of
2009. Revenues are generated primarily
through:
·
fees paid by clients,
·
commissions and fees paid by
insurance and reinsurance companies, and
·
interest income on funds
held on behalf of clients.
Our revenues vary from
quarter to quarter throughout the year as a result of:
·
the timing of our clients
policy renewals,
·
the net effect of new and
lost business,
·
the timing of services
provided to our clients, and
·
the income we earn on
investments, which is heavily influenced by short-term interest rates.
42
Revenue
These tables show Risk and Insurance Brokerage
Services commissions, fees and other revenue (in millions):
|
|
Third Quarter Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
Acquisitions,
|
|
Organic
|
|
|
|
|
|
|
|
Percent
|
|
Currency
|
|
Divestitures,
|
|
Revenue
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Impact
|
|
&
Other
|
|
Growth
|
|
Americas
|
|
$
|
541
|
|
$
|
557
|
|
(3
|
)%
|
(2
|
)%
|
|
%
|
(1
|
)%
|
United Kingdom
|
|
167
|
|
182
|
|
(8
|
)
|
(9
|
)
|
5
|
|
(4
|
)
|
Europe, Middle East & Africa
|
|
273
|
|
314
|
|
(13
|
)
|
(7
|
)
|
(1
|
)
|
(5
|
)
|
Asia Pacific
|
|
111
|
|
120
|
|
(8
|
)
|
(5
|
)
|
(2
|
)
|
(1
|
)
|
Reinsurance
|
|
379
|
|
252
|
|
50
|
|
(4
|
)
|
58
|
|
(4
|
)
|
Total
|
|
$
|
1,471
|
|
$
|
1,425
|
|
3
|
%
|
(5
|
)%
|
11
|
%
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
Acquisitions,
|
|
Organic
|
|
|
|
|
|
|
|
Percent
|
|
Currency
|
|
Divestitures,
|
|
Revenue
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Impact
|
|
&
Other
|
|
Growth
|
|
Americas
|
|
$
|
1,592
|
|
$
|
1,638
|
|
(3
|
)%
|
(4
|
)%
|
|
%
|
1
|
%
|
United Kingdom
|
|
464
|
|
546
|
|
(15
|
)
|
(14
|
)
|
4
|
|
(5
|
)
|
Europe, Middle East & Africa
|
|
1,030
|
|
1,188
|
|
(13
|
)
|
(11
|
)
|
|
|
(2
|
)
|
Asia Pacific
|
|
318
|
|
373
|
|
(15
|
)
|
(12
|
)
|
(2
|
)
|
(1
|
)
|
Reinsurance
|
|
1,146
|
|
756
|
|
52
|
|
(6
|
)
|
58
|
|
|
|
Total
|
|
$
|
4,550
|
|
$
|
4,501
|
|
1
|
%
|
(8
|
)%
|
10
|
%
|
(1
|
)%
|
·
The 3% decline in Americas
revenue for the quarter is driven by unfavorable foreign currency translation
and overall economic weakness, especially in the construction and private
equity sectors, which more than offset strong organic revenue growth in Latin
America. Year-to-date, the decline was
driven by unfavorable foreign currency translation, as organic revenue growth
was 1% due to strong growth in Latin America and growth in our U.S. retail
operations despite overall economic weakness.
·
U.K. revenue
declined 8% for the quarter and 15% for nine months due to unfavorable foreign
currency translation and a 4% and 5% decline in organic revenue for the quarter
and nine months, respectively, reflecting weak economic conditions as well as
lower retention and new business.
·
Europe, Middle
East & Africa revenue decreased 13% for both the quarter and nine months,
mainly reflecting unfavorable foreign currency translation. Organic revenue
declined 5% for the quarter and 2% for nine months, reflecting weak economic
conditions in continental Europe and slower growth in emerging markets.
·
Asia Pacific
revenue declined 8% for the quarter and 15% for nine months, driven by
unfavorable foreign currency translation and a 1% organic revenue decline for both
periods. The decline in organic revenue
for both periods reflects the impact from exiting certain businesses in Japan,
economic weakness in Asia, and political unrest in Thailand, partially offset
by growth in New Zealand and certain emerging markets.
43
·
Reinsurance
revenue increased 50% for the quarter and 52% for nine months due to the impact
of the fourth quarter 2008 Benfield merger and the Gallagher Re acquisition in
first quarter 2008. Organic revenue
declined 4% for the quarter due primarily to higher cedant retentions in our
treaty business, partially offset by new net business globally in treaty
placements.
Income from Continuing Operations before Income
Taxes
Third quarter 2009 income from continuing operations before
income taxes decreased $4 million to $188 million while nine months 2009 income
from continuing operations before income taxes was $726 million, a $57 million
increase. In 2009, the quarterly pretax
margin in this segment was 12.6%, down 40 basis points from 13.0% in 2008. On a
year-to-date basis the pretax margin was 15.7%, up 130 basis points from 14.4%
in 2008. Contributing to the decreased
margins and pretax income for the quarter are:
·
$31 million in higher restructuring costs,
·
$30 million lower investment income, and
·
higher amortization costs related to the Benfield intangible assets.
These declines were partially offset by:
·
restructuring savings,
·
other cost
saving initiatives,
·
lower
discretionary
incentive costs, and
·
$5 million in lower costs related to anti-corruption and compliance
initiatives
Contributing to the nine months increased margins and
pretax income were:
·
a $54 million gain from the pension curtailments,
·
$28 million in lower costs related to anti-corruption and compliance
initiatives,
·
the inclusion of Benfield results,
·
restructuring savings,
·
lower
discretionary
incentive costs, and
·
other cost saving
initiatives.
These improvements were partially offset by:
·
$81 million of lower investment income,
·
$57 million of higher restructuring costs,
·
the impact of unfavorable foreign exchange rates, and
·
higher intangible amortization costs related to Benfield.
Consulting
Aon Consulting is one of the worlds largest
integrated human capital consulting organizations. Our Consulting segment:
·
provides a broad range of
consulting services and outsourcing, and
·
generated 17% of Aons total
operating segment revenue for both third quarter and nine months 2009.
Beginning in late 2008 and continuing throughout 2009, the
disruption in the global credit markets and the deterioration of financial
markets created significant uncertainty in the marketplace. The prolonged economic downturn is hurting
our clients financial condition and the levels of business activities in the
industries and geographies where we operate.
While we believe that the majority of our practices are well positioned
to manage
44
through this time, these challenges are reducing demand for
some of our services and depressing pricing of those services, which is causing
an adverse effect on our new business and results of operations.
Consulting
Services
are provided in the following practice areas:
·
Health and Benefits
advises clients about how
to structure, fund, and administer employee benefit programs that attract,
retain, and motivate employees. Benefits
consulting includes health and welfare, executive benefits, workforce
strategies and productivity, absence management, benefits administration,
data-driven health, compliance, employee commitment, investment advisory and
elective benefits services.
·
Retirement
professionals
specialize in global actuarial services, defined contribution consulting,
investment consulting, tax and ERISA consulting, and pension administration.
·
Compensation
focuses on compensatory advisory/counsel including:
compensation planning design, executive reward strategies, salary survey and
benchmarking, market share studies and sales force effectiveness, with special
expertise in the financial services and technology industries.
·
Strategic Human Capital
delivers advice
to complex global organizations on talent, change and organizational
effectiveness issues, including talent strategy and acquisition, executive
on-boarding, performance management, leadership assessment and development,
communication strategy, workforce training and change management.
Outsourcing
offers employment processing, performance improvement, benefits
administration and other employment-related services.
Revenue
These tables show Consulting commissions, fees and
other revenue (in millions):
|
|
Third Quarter Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
Acquisitions,
|
|
Organic
|
|
|
|
|
|
|
|
Percent
|
|
Currency
|
|
Divestitures,
|
|
Revenue
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Impact
|
|
& Other
|
|
Growth
|
|
Consulting Services
|
|
$
|
262
|
|
$
|
284
|
|
(8
|
)%
|
(4
|
)%
|
1
|
%
|
(5
|
)%
|
Outsourcing
|
|
46
|
|
51
|
|
(10
|
)
|
(6
|
)
|
1
|
|
(5
|
)
|
Total
|
|
$
|
308
|
|
$
|
335
|
|
(8
|
)%
|
(4
|
)%
|
1
|
%
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
Acquisitions,
|
|
Organic
|
|
|
|
|
|
|
|
Percent
|
|
Currency
|
|
Divestitures,
|
|
Revenue
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Impact
|
|
&
Other
|
|
Growth
|
|
Consulting Services
|
|
$
|
776
|
|
$
|
850
|
|
(9
|
)%
|
(8
|
)%
|
|
%
|
(1
|
)%
|
Outsourcing
|
|
140
|
|
162
|
|
(14
|
)
|
(10
|
)
|
|
|
(4
|
)
|
Total
|
|
$
|
916
|
|
$
|
1,012
|
|
(9
|
)%
|
(8
|
)%
|
1
|
%
|
(2
|
)%
|
·
Consulting Services commissions, fees and
other revenue decreased $22 million or 8% and $74 million or 9% on a quarterly
and year-to-date basis, respectively, due to unfavorable foreign currency
translation and organic revenue declines.
Organic revenue declined by 5% and 1% for third quarter and nine months,
45
respectively. The quarterly decline was driven mainly by declines in
our compensation and human capital consulting practices. The year-to-date
decline was driven by our retirement, human capital and global compensation
consulting practices offset by growth in benefits brokerage.
·
Outsourcing revenue decreased $5 million or
10% and $22 million or 14% on a quarterly and year-to-date basis, respectively,
due to unfavorable foreign currency translation and an organic revenue decline
of 5% and 4% for the quarter and nine months, respectively. The organic revenue decline reflects the
previously announced termination of our contract with AT&T, partially
offset by modest growth in benefits outsourcing.
Income from Continuing Operations
before Income Taxes
Third quarter 2009 income from continuing operations before
income taxes decreased 37% to $33 million and the pretax margin decreased 470
basis points from 15.4% in 2008 to 10.7% in 2009. The decline in revenue for the quarter was partially
offset by savings related to the 2007 restructuring plan and lower discretionary
incentive compensation costs. On a year-to-date basis, 2009 income from
continuing operations before income taxes decreased $14 million or 9% to $144
million. The decline was principally
driven by the 10% decline in revenue, which was somewhat offset by the $20
million gain from the pension curtailment, savings related to the 2007
restructuring plan, lower incentive compensation costs and solid expense
discipline. Pretax margin rose slightly
from 15.6% in 2008 to 15.7% in 2009.
Unallocated Income and Expense
A
reconciliation of segment income before taxes to income from continuing
operations before income taxes follows (in millions):
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Segment income from continuing operations before
income taxes
|
|
$
|
221
|
|
$
|
244
|
|
$
|
870
|
|
$
|
827
|
|
Unallocated investment income and other revenue
|
|
19
|
|
40
|
|
33
|
|
62
|
|
Unallocated expenses
|
|
(30
|
)
|
(34
|
)
|
(85
|
)
|
(91
|
)
|
Interest expense
|
|
(32
|
)
|
(32
|
)
|
(87
|
)
|
(96
|
)
|
Income from continuing operations before income
taxes
|
|
$
|
178
|
|
$
|
218
|
|
$
|
731
|
|
$
|
702
|
|
Unallocated investment income and other revenue
consists
primarily of revenue from our equity ownership in insurance investments and
income associated with invested assets not directly required to support the
risk and insurance brokerage services and consulting businesses.
Unallocated investment income and other revenue
was $19 million for third quarter 2009, a decrease of $21
million from 2008. For the nine month
period, unallocated investment income and other revenue was $33 million, a
decrease of $29 million from 2008. For
both periods, the decrease was driven by lower investment income, attributable to lower interest rates and
investment balances, and lower income from our PEPS I investment. This decline was partially offset by revenue
associated with our Juniperus/JCHL and Intrepid Re investments.
Unallocated
expenses
include corporate governance costs not allocated to the operating segments, and
the costs associated with our ownership of insurance investments. These
expenses decreased to $30 million in third quarter
46
2009 from $34 million last
year. For the nine month period,
unallocated expenses decreased to $85 million from $91 million in 2008. For both periods the decline was mainly due
to $6 million of costs in 2008 associated with the Benfield acquisition, along
with lower
discretionary
incentive compensation expenses in
2009, partially offset by additional expense associated with our
ownership in insurance investments.
Nine month 2009 results benefited from a $5 million gain from the
extinguishment of $15 million of our Junior Subordinated Debentures.
Interest expense
, which represents the cost of our worldwide debt obligations, was
unchanged in the third quarter as favorable foreign exchange offset higher
interest rates on our foreign borrowings.
Year-to-date expense declined $9 million from last year, reflecting the
impact of favorable foreign exchange and lower interest rates.
FINANCIAL CONDITION AND LIQUIDITY
Cash Flows
Cash flows from operating
activities
Cash flows from operating
activities were $181 million for the nine months ended September 30, 2009,
compared to $37 million for the nine months ended September 30, 2008. Noncash adjustments totaled a positive $310
million in 2009 and a negative $1.1 billion in 2008, and included the
following:
·
Pretax gains
from disposal of businesses were $97 million in 2009 and $1.4 billion in
2008. 2009 activity was due principally
to the sale of our AIS business, which resulted in an $86 million gain. The
sale of our CICA and Sterling businesses resulted in gains totaling $1.4
billion during 2008.
·
Depreciation
and amortization of fixed assets was $105 million in 2009 and $117 million in
2008. The decline between years was
primarily due to impairments of computer software and leasehold improvements,
recognized in 2008 in connection with our restructuring programs.
·
Amortization of
intangible assets was $69 million in 2009 compared to $40 million in 2008. The
increase in amortization reflects the additional intangible assets associated
with the merger with Benfield in the fourth quarter of 2008.
·
Stock
compensation expense was $152 million in 2009 and $194 million in 2008. The decrease between years was due primarily
to an acceleration of expense in 2008 due to modification of stock awards and
options in connection with the sale of CICA, and a reduction of expense in 2009
identified as a result of a system conversion.
Changes in operating assets
and liabilities reduced cash by $703 million in 2009 and $323 million in 2008.
·
In our Risk and
Insurance Brokerage Services segment, we typically hold funds on behalf of
clients as a result of premiums received from clients and claims due to clients
that are in transit to insurers. These funds held on behalf of clients are
generally invested in interest bearing premium trust accounts and can fluctuate
significantly depending on when we collect cash from our clients and when
premiums are remitted to the insurance carriers. Aon earns interest in these accounts;
however, the principal is segregated and not available for general operating
expenses. During 2009, the net change in
the premium trust accounts was $46 million, while in 2008, the net change was
$50 million, representing increases in operating cash flows.
·
Net receivables
reflect changes in brokerage commission and fees, consulting work in progress,
premium finance notes and other items, representing an increase in operating
cash flow of $218 million
47
and $111 million for the nine months ended September 30, 2009 and 2008,
respectively. $73 million of the increase in 2009 reflects lower premium
finance notes as a result of the sale of the U.S. Cananwill business in February.
These types of receivables fluctuate based on when invoices are billed and cash
collected.
·
Reductions in
accounts payable and accrued liabilities negatively impacted operating cash
flows by $399 million and $357 million for the nine months ended September 30,
2009 and 2008, respectively, primarily reflecting the payment of incentive
compensation to our employees in the first quarter of both years. The decrease in 2009 also includes a payment
of $135 million to the buyer of our FFG subsidiary to true-up working capital
adjustments.
·
Cash
contributions to our major defined pension plans exceeded pension expense by
$284 million in 2009. The large cash
contributions are primarily driven by new funding agreements for our U.K.
pension plans, completed during second quarter 2009. Pension contributions for the nine months
ended September 30, 2009 and 2008 were $368 million and $142 million,
respectively. In 2009, we plan to
contribute $424 million to our major defined pension plans.
·
Other assets
and liabilities used $300 million in 2009, compared to $88 million in
2008. In 2009, the decrease is primarily
driven by the reduction in our net assets held for sale due to the sale of our
AIS and FFG subsidiaries, a prepayment associated with a sponsorship program,
and lower accruals related to risk management, E&O, and litigation.
Cash flows from investing
activities
Cash provided by investing activities was
$63 million for 2009, compared to $1.9 billion in 2008. In 2009, we received
$139 million in cash from the sale of operations, which was primarily our AIS
subsidiary. In 2008, the sale of our CICA and Sterling businesses generated
substantially all of the $2.8 billion of proceeds from the sale of operations. We spent $55 million in 2009 for
acquisitions, which were primarily for international retail businesses. In 2008, we spent $85 million for various
acquisitions, the largest being our acquisition of the U.S. and U.K.
reinsurance operations of A.J. Gallagher for $30 million. In 2008, net
purchases of short-term investments were $761 million, principally reflecting
the investment of the proceeds of the CICA and Sterling sales.
Cash flows from financing
activities
Our financing
activities used $258 million of cash in 2009.
Treasury stock transactions-net reflects the purchase of $250 million of
treasury shares, partially offset by the proceeds from the exercise of stock
options. During 2009, we received $681
million due to the issuance of long-term debt, which represents the issuance of
500 million of 6.25% senior unsecured debentures. These funds were primarily used to pay down
our borrowings under the Euro credit facility. We also used $100 million for
the repayment of short-term debt related to a VIE for which we were the primary
beneficiary.
Cash dividends to
shareholders used $124 million. In
2008, we used $2 billion for financing activities. This was primarily comprised of $1.9 billion
of share repurchase activity, less the proceeds from the exercise of stock
options; the net repayment of debt of $165 million, almost entirely related to
our Euro credit facility; and dividends of $130 million.
Financial Condition
Since year-end 2008, net
assets, representing total assets minus total liabilities, increased $715
million to $6.1 billion. Working
capital, excluding assets and liabilities held-for-sale, increased $77 million
to $1.7 billion. Items contributing to
these changes are as follows:
·
Accounts payable and accrued liabilities
decreased $183 million due primarily to the payment of incentive compensation
in the first quarter, a lower accrual rate of 2009 incentives compared to 2008,
and a payment of $135 million to the buyer of our FFG subsidiary to true-up
working capital adjustments, which more than offset higher restructuring
accruals.
·
Goodwill increased $320 million due
principally to the impact of foreign currency translation.
48
·
Short-term debt decreased $93 million due
principally to the repayment of $100 million in debt related to a VIE for which
we were the primary beneficiary.
·
Long-term debt increased by $126 million,
principally reflecting the issuance of 500 million ($734 million at September 30,
2009 exchange rates) of 6.25% senior unsecured debentures due on July 1, 2014. Most of the net proceeds from the offering
were used to repay $677 million of outstanding indebtedness under our Euro
credit facility.
·
Pension and other post employment liabilities
declined $449 million, driven by a remeasurement of the U.S. defined benefit
pension plan as of January 31, 2009, as well as $368 million of contributions
made to our various plans during the first nine months of 2009.
In
our capacity as an insurance broker or agent, we collect premiums from insureds
and, after deducting our commission, remit the premiums to the respective
insurance underwriter. We also collect
claims or refunds from underwriters on behalf of insureds. Unremitted insurance premiums and claims are
held by us in a fiduciary capacity. The
levels of fiduciary assets and liabilities can fluctuate significantly,
depending on when we collect the premiums, claims and refunds, make payments to
underwriters and insured, and foreign currency movements. Fiduciary assets, because of their nature,
are required to be invested in very liquid securities with highly-rated,
credit-worthy financial institutions.
In
our condensed consolidated statements of financial position, the amount we
report for fiduciary assets and fiduciary liabilities are equal. Our fiduciary assets include cash and
investments of $3.4 billion and $3.2 billion at September 30, 2009 and December
31, 2008, respectively, and fiduciary receivables of $6.1 billion and $7.5
billion at September 30, 2009 and December 31, 2008, respectively.
As disclosed in Note 15 to our condensed
consolidated financial statements, the majority of our investments carried at
fair value are money market funds whose fair values are categorized as Level
2. Money market funds are carried at
cost as an approximation of fair value.
Based on market convention, we consider cost a practical and expedient
measure of fair value. These money
market funds are held throughout the world with various financial
institutions. We do not believe that
there are any market liquidity issues affecting the fair value of these
investments.
As of September 30, 2009, our investments in
money market funds and highly liquid debt instruments had a fair value of $2.1
billion and are classified as cash equivalents, short-term investments or
fiduciary assets in the consolidated statements of financial condition
depending on their nature and initial maturity.
49
The
following table summarizes our fiduciary assets and non-fiduciary cash and
investments as of September 30, 2009 (in millions):
|
|
Balance Sheet Classification
|
|
|
|
Asset Type
|
|
Cash and Cash
Equivalents
|
|
Short-term
Investments
|
|
Fiduciary Assets
|
|
Total
|
|
Certificates of deposit, bank deposits or time
deposits
|
|
$
|
525
|
|
$
|
|
|
$
|
2,004
|
|
$
|
2,529
|
|
Money market funds
|
|
|
|
602
|
|
1,371
|
|
1,973
|
|
Highly liquid debt instruments
|
|
55
|
|
|
|
65
|
|
120
|
|
Cash and investments
|
|
580
|
|
602
|
|
3,440
|
|
4,622
|
|
Fiduciary receivables
|
|
|
|
|
|
6,111
|
|
6,111
|
|
Total
|
|
$
|
580
|
|
$
|
602
|
|
$
|
9,551
|
|
$
|
10,733
|
|
We did not hold any investments categorized as
Level 1 during 2009.
Our
investments categorized as Level 3 were $103 million at September 30, 2009 and
are valued using internally developed models with unobservable inputs and
represent a small portion of our portfolio.
Borrowings
Total
debt at September 30, 2009 was $2.0 billion, an increase of $33 million from December
31, 2008, reflecting the issuance of 500 million ($734 million) of long-term
debt and the impact of foreign exchange rates, partially offset by the
repayment of $677 million of outstanding indebtedness under the Euro credit
facility and the repayment of $100 million of short-term debt held at one of
our consolidated VIEs, as well as a redemption and cancellation of a portion of
our 8.205% Debentures. Our total debt as
a percentage of total capital attributable to Aon shareholders was 25.1% and
27.1% at September 30, 2009 and December 31, 2008, respectively. On July 1, 2009, one of our indirectly
wholly-owned subsidiaries issued 500 million of 6.25% senior unsecured
debentures due on July 1, 2014. The
principal and interest on the debentures is unconditionally and irrevocable
guaranteed by us. Most of the net
proceeds from the offering were used to repay the $677 million outstanding
under our Euro credit facility.
At
September 30, 2009, we had a $600 million U.S. bank credit facility, which
expires in February 2010, to support commercial paper and other short-term
borrowings. The facility allows us to
issue up to $150 million in letters of credit.
At September 30, 2009, we have issued $20 million in letters of credit.
At September 30, 2009, we also have the following foreign
credit facilities available:
·
a five-year 650 million
($955 million at September 30, 2009 exchange rates) multi-currency facility,
and
·
a 364-day 25 million ($37 million) facility.
At
September 30, 2009, nothing was outstanding under either facility.
See
Note 10 to the consolidated financial statements in our 2008 Form 10-K for
further discussion of both the U.S. and Euro facilities.
In
1997, we created Aon Capital A, a wholly-owned statutory business trust (Trust),
for the purpose of issuing mandatorily redeemable preferred capital securities
(Capital Securities). We received cash
and an investment in 100% of the common equity of Aon Capital A by issuing
8.205% Junior Subordinated Deferrable Interest
50
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. We determined that we were
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, we 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, we 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 us was exchanged for $24 million of Debentures, which were then
cancelled. Following these actions, $687
million of Debentures remain outstanding as of September 30, 2009. The Debentures are subject to mandatory
redemption on January 1, 2027 or are redeemable in whole, but not in part, at
our option upon the occurrence of certain events.
The
major rating agencies ratings of our debt at November 2, 2009 appear in the
table below.
|
|
Ratings
|
|
|
|
|
|
Senior
Long-term Debt
|
|
Commercial
Paper
|
|
Outlook
|
|
Standard & Poors
|
|
BBB+
|
|
A-2
|
|
Stable
|
|
Moodys Investor Services
|
|
Baa2
|
|
P-2
|
|
Stable
|
|
Fitch, Inc.
|
|
BBB+
|
|
F-2
|
|
Stable
|
|
There
were no changes in our ratings or outlook during the quarter.
A
downgrade in the credit ratings of our senior debt and commercial paper would:
·
increase our borrowing costs
and reduce our financial flexibility, and
·
increase our commercial
paper interest rates or possibly restrict our access to the commercial paper
market altogether. Although we have
committed backup lines, we cannot ensure that our financial position will not
be hurt if we can no longer access the commercial paper market.
Equity
Equity increased $715 million from December 31, 2008 to
$6.1 billion, driven primarily by our 2009 net income of $574 million, stock
compensation expense of $152 million, and a $290 million decrease in our
accumulated other comprehensive loss, partially offset by share repurchases of
$250 million and $124 million of dividends to shareholders.
Accumulated other comprehensive loss decreased $290 million
since December 31, 2008, reflecting the following:
·
an improvement in net foreign currency translation adjustments of $223
million attributable to the weakening of the U.S. dollar against foreign
currencies,
·
net unrealized investment losses of $10 million,
·
net derivative gains of $6 million, and
·
a decrease in the net post-retirement benefit obligation of $71 million,
reflecting a remeasurement of the U.S. qualified defined benefit plan
associated with the decision to cease crediting future benefits relating to
salary and service period.
51
Variable
Interest Entities
Juniperus
Insurance Opportunity Fund Limited (Juniperus), a VIE, is an investment
vehicle that invests in an actively managed and diversified portfolio of
insurance risks. In 2008, a subsidiary of Aon acquired a 76% equity interest in
the Juniperus Class A shares. The
equity interest has been reduced to 41% at September 30, 2009. Also in 2008, Juniperus Capital Holdings
Limited (JCHL) was formed to provide investment management and related
services to Juniperus. Aon currently has
73% of the economic and voting interest of JCHL. Based on Aons interest in Juniperus, it is
subject to a majority of the expected residual returns and losses. Similarly, Aons equity and economic interest
in JCHL would cause it to absorb a majority of JCHLs expected losses. Therefore, Aon is considered the primary
beneficiary of both companies, and as such these entities have been
consolidated. At September 30, 2009,
Juniperus and JCHL together had assets of $194 million and liabilities of $51
million. For Juniperus, if a disaster
such as wind, earthquakes or other named catastrophe occurs, the value of our
investment, which is approximately $59 million at September 30, 2009, could be
impaired. Our investment represents a
$50 million equity investment, a $5 million loan, and our net earnings to date
of $4 million.
Globe
Re Limited (Globe Re) was a limited-life reinsurance vehicle. In June 2008,
Globe Re entered into a reinsurance agreement with a third party reinsurance
company, whereby Globe Re provided reinsurance coverage for a defined portfolio
of property catastrophe reinsurance contracts underwritten by the third
party. The reinsurance coverage was for
a one-year period, which ended on June 1, 2009.
Aon consolidated Globe Re because we owned an 85% equity economic
interest and it was deemed that we were the primary beneficiary. In connection with the winding up of its
operations, during June 2009 Globe Re repaid its $100 million of short-term
debt from available cash. In early July 2009,
Aons equity investment of $25 million in Globe Re was also repaid. Globe Re was fully liquidated in third
quarter 2009.
Restructuring
Initiatives
Aon Benfield Restructuring Plan
The
Company announced a global restructuring plan (Aon Benfield Plan) in
conjunction with our 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
52
income. The Company expects theses restructuring
activities and related expenses to affect continuing operations into 2011.
The restructuring plan, before any potential reinvestment
of savings, is now expected to deliver cumulative cost savings of approximately
$45-50 million in 2009, $90-100 million in 2010 and $122 million in 2011. We realized approximately $14 million and $28
million of cost savings in the third quarter and nine months of 2009,
respectively. All of the components of
the restructuring plan are not finalized and actual savings, total costs and
timing may vary from those estimated due to changes in the scope, underlying
assumptions of the plan, and to foreign exchange rates.
The following is a summary of the restructuring and related
expenses 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 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 4,100 job eliminations. As of September 30, 2009, approximately 2,700
positions have been eliminated. The
Company has closed or consolidated several offices resulting in sublease losses
or lease buy-outs. The Company currently
estimates that the 2007 Plan will result in cumulative pretax charges totaling
approximately $700 million. Expenses
include workforce reduction, lease consolidation costs, asset impairments, as
well as other expenses necessary to implement the restructuring initiative. Costs related to the restructuring are
included in compensation and benefits, other general expenses, and depreciation
and amortization in the accompanying condensed consolidated statements of
income. The Company expects the
restructuring and related expenses to affect continuing operations through the
first half of 2010. We realized
approximately $68 million and $161 million of cost savings in the third quarter
and nine months 2009, respectively. We
now anticipate that these initiatives will lead to cost savings, before any
potential reinvestment of savings, of approximately $240-$245 million in 2009,
and $467 million of annualized cost savings by the end of 2010. However, there can be no assurances that we
will achieve the targeted savings.
53
The following table summarizes the 2007 restructuring and
related expenses by type incurred and estimated to be incurred through the end
of the restructuring initiative (in millions):
|
|
Actual
|
|
Estimated
|
|
|
|
2007
|
|
2008
|
|
Third
Quarter
2009
|
|
Nine
Months
2009
|
|
Total
Incurred
to Date
|
|
Total Cost for
Restructuring
Period (1)
|
|
Workforce reduction
|
|
$
|
17
|
|
$
|
166
|
|
$
|
48
|
|
$
|
118
|
|
$
|
301
|
|
$
|
470
|
|
Lease consolidation
|
|
22
|
|
38
|
|
29
|
|
56
|
|
116
|
|
145
|
|
Asset impairments
|
|
4
|
|
18
|
|
3
|
|
7
|
|
29
|
|
38
|
|
Other costs associated with restructuring (2)
|
|
3
|
|
29
|
|
4
|
|
11
|
|
43
|
|
47
|
|
Total restructuring and related expenses
|
|
$
|
46
|
|
$
|
251
|
|
$
|
84
|
|
$
|
192
|
|
$
|
489
|
|
$
|
700
|
|
(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 approved include, but are not limited to,
changes in severance calculations, changes in the assumptions underlying
sublease loss calculations due to changing market conditions, and changes in
the overall analysis that might cause the Company to add or cancel component initiatives.
(2)
Other
costs associated with restructuring initiatives, including moving costs and
consulting and legal fees, are recognized when incurred.
Workforce reductions reflect a cash expense, though we may
recognize the expense before paying for the expenditure. Asset impairments are non-cash expenses. Lease consolidation accruals reflect the
present value of future cash flows.
Other costs are cash expenses, which are expensed in the period in which
they are incurred.
The following table summarizes actual restructuring and
related expenses incurred and estimated to be incurred through the end of the
restructuring initiative, by segment (in millions):
|
|
Actual
|
|
Estimated
|
|
|
|
2007
|
|
2008
|
|
Third
Quarter
2009
|
|
Nine
Months
2009
|
|
Total
Incurred
to Date
|
|
Total Cost for
Restructuring
Period
|
|
Risk and Insurance Brokerage Services
|
|
$
|
41
|
|
$
|
234
|
|
$
|
69
|
|
$
|
171
|
|
$
|
446
|
|
$
|
645
|
|
Consulting
|
|
5
|
|
17
|
|
15
|
|
21
|
|
43
|
|
55
|
|
Total restructuring and related expenses
|
|
$
|
46
|
|
$
|
251
|
|
$
|
84
|
|
$
|
192
|
|
$
|
489
|
|
$
|
700
|
|
Off
Balance Sheet Arrangements
Premium Financing Operations
In December 2008, we signed
a definitive agreement to sell our U.S. operations of the premium finance
business (Cananwill). In connection with
our sale of the U.S. premium finance business, we have guaranteed the
collection of the principal amount of the premium finance notes sold to the
buyer, which, at September 30, 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. We do not expect to incur any
significant losses related to this guarantee.
This disposition was completed in February 2009.
54
Some
of our 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 August 2009, these loans were sold in securitization
transactions that met the criteria for sale accounting under current accounting
principles. In June and July of 2009, we
entered into agreements with third parties with respect to our 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 our
brokerage operations. We expect to cease
financing and servicing premium finance loans by year-end 2009. The third parties did not acquire the
existing portfolio of our premium finance loans, and as such we did not extend
any guarantees under these agreements.
In
the U.K., premium finance agreements have been sold to a special purpose entity
(SPE), which is considered a QSPE. The
QSPE funds 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 our financial statements because the criteria for sale accounting have been
met. For the Canadian and Australian
sales, we determined that non-consolidation of the Bank SPEs is appropriate
because we are not their primary beneficiary.
Our
variable interest in the Bank SPEs in these jurisdictions is limited to our
retained interests in premium finance agreements sold to the Bank SPEs. We review all material off-balance sheet
transactions annually or whenever a reconsideration event occurs for the
continued propriety of our accounting.
Our interest in the Bank SPEs will diminish as the loans sold through
securitization arrangements prior to August 2009 are collected.
Pursuant
to the agreements, the total amount that can be advanced by the Bank SPEs on
premium finance agreements sold to them at any one time is limited by formula
to a percentage of the uncollected balance of the sale agreements. The outstanding balance of sold portfolios at
September 30, 2009 was $207 million, and the Bank SPEs had advanced $158
million. The outstanding balance of sold
portfolios at December 31, 2008 was $1.1 billion, and the Bank SPEs had
advanced $981 million.
We
record gains on the sale of premium finance agreements. When we calculate the gain, we include all
costs we expect to incur for the relevant Bank SPEs. The gains, which are included in commissions,
fees and other revenue in the condensed consolidated statements of income, were
$3 million and $9 million for the three months ended September 30, 2009 and
2008, respectively, and $17 million and $41 million for the nine months ended September
30, 2009 and 2008, respectively.
·
We record our retained
interest in the sold premium finance agreements at fair value, and report it in
receivables in the condensed consolidated statements of financial
position. We estimate 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.
·
We also retain servicing
rights for sold agreements, and earn servicing fee income over the servicing
period. Because the servicing fees
represent adequate compensation for the servicing of the receivables, we have
not recorded any servicing assets or liabilities.
The
third-party bank sponsors or other participants in the Bank SPEs provide the
liquidity support and bear the credit risks on the receivables, subject to
limited recourse, in the form of over-collateralization provided by us
55
(and
other sellers) as required by the sales agreements. The over-collateralization of our sold
receivables represents our maximum exposure to credit-related losses, and was
approximately $30 million at September 30, 2009. We continually review our retained interest
in the sold portfolio, taking into consideration credit loss trends in the sold
portfolio, conditions in the credit markets and other factors, and adjust its
carrying value accordingly.
PEPS I
In 2001, we sold the vast majority of our limited
partnerships (LP) portfolio, valued at $450 million, to PEPS I, a QSPE. The common stock interest in PEPS I is held
by a limited liability company owned by us (49%) and by a charitable trust,
which we do not control (51%). We do not
include PEPS Is assets and liabilities and operations in our consolidated
financial statements.
In 2001, PEPS I sold approximately $171 million of
investment grade fixed-maturity securities to unaffiliated third parties. PEPS I then paid our insurance underwriting
subsidiaries the $171 million in cash and issued them an additional $279
million in fixed-maturity and preferred stock securities.
As part of this transaction, we are required to purchase
additional fixed-maturity securities from PEPS I in an amount equal to the
unfunded LP commitments as they are requested.
These fixed-maturity securities are rated below investment grade. No commitments were funded by us in either
the third quarter or nine months of 2009.
As of September 30, 2009, unfunded commitments amounted to $42
million. These commitments have specific
expiration dates, and the general partners may decide not to draw on these
commitments.
We
received $1 million in income distributions from our preferred investment in
PEPS I in the third quarter 2009, versus $28 million in third quarter
2008. We received $2 million and $30
million in distributions in the first nine months of 2009 and 2008,
respectively. Any distributions are
included in investment income. Whether
we receive additional preferred returns will depend on the performance of the
LP interests underlying PEPS I, which we expect to vary from period to
period. We do not control the timing of
the distributions.
We
derive the estimated fair value of our $90 million preferred stock investments
in PEPS I primarily from valuations received from the general partners of the
LP interests held by PEPS I.
CRITICAL
ACCOUNTING POLICIES
There
have been no changes in our critical accounting policies, which include restructuring,
pensions, contingencies, intangible assets, share-based payments, and income
taxes, as discussed in our 2008 Annual Report on Form 10-K.
INFORMATION CONCERNING
FORWARD-LOOKING STATEMENTS
This
report contains certain statements related to future results, or states our
intentions, beliefs and expectations or predictions for the future which are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from either historical or anticipated results depending on a variety
of factors. Potential factors that could impact results include: general
economic conditions in different countries in which we do business around the
world, changes in global equity and fixed income markets that could affect the
return on invested assets, fluctuations in exchange and interest rates that
could influence revenue and expense, rating agency actions that could affect
our ability to borrow funds, funding of our various pension plans, changes in
the competitive environment, our ability to implement restructuring initiatives
and other initiatives intended to yield cost savings, changes in commercial
property and casualty markets and commercial premium rates that could impact
revenues, the outcome of inquiries from
56
regulators
and investigations related to compliance with the U.S. Foreign Corrupt Practices
Act and non-U.S. anti-corruption laws, the impact of investigations brought by
U.S. state attorneys general, U.S. state insurance regulators, U.S. federal
prosecutors, U.S. federal regulators, and regulatory authorities in the U.K.
and other countries, the impact of class actions and individual lawsuits
including client class actions, securities class actions, derivative actions
and ERISA class actions, the cost of resolution of other contingent liabilities
and loss contingencies, our ability to integrate Benfield successfully and to
realize the anticipated benefits of the Benfield merger.
We
undertake no obligation to publicly update forward-looking statements, whether
as a result of new information, future events or otherwise.
57
ITEM
3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We are exposed to potential
fluctuations in earnings, cash flows and the fair value of certain of our
assets and liabilities due to changes in interest and foreign exchange
rates. To manage the risk from these
exposures, we enter into a variety of derivative instruments. We do not enter into derivatives or financial
instruments for trading purposes.
We are subject to foreign
exchange rate risk from translating the financial statements of our foreign
subsidiaries into U.S. dollars. Our primary exposures are to the British pound,
the Euro, the Canadian dollar, and the Australian dollar. We use over-the-counter (OTC) options and
forward contracts to reduce the impact of foreign currency fluctuations on the
translation of our foreign operations financial statements.
Additionally, some of our
foreign brokerage subsidiaries receive revenues in currencies that differ from
their functional currencies. Our U.K.
subsidiary earns a portion of its revenue in U.S. dollars and Euros but most of
its expenses are incurred in pounds sterling.
Our policy is to convert into pounds sterling sufficient U.S. dollar and
Euro revenue to fund the subsidiarys pound sterling expenses using OTC options
and forward exchange contracts. At September 30,
2009, we have hedged approximately 39%
and 34% of our U.K. subsidiaries expected U.S. dollar and Euro
transaction exposures for the next twelve months, respectively. We do not generally hedge these exposures beyond
three years.
The translated value of
revenue and expense from our international brokerage operations are subject to
fluctuations in foreign exchange rates.
Third quarter and nine months 2009 diluted earnings per share were negatively impacted by approximately $0.01 and $0.06, respectively, related
to translation losses.
We also use forward
contracts to offset foreign exchange risk associated with foreign denominated
inter-company notes.
Our businesses income is
affected by changes in international and domestic short-term interest
rates. We monitor our net exposure to
short-term interest rates and, as appropriate, hedge our exposure with various
derivative financial instruments. This
activity primarily relates to brokerage funds held on behalf of clients in the
U.S. and on the continent of Europe. A
decrease in global short-term interest rates adversely affects our income.
58
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls
and procedures.
Based on Aon
managements evaluation (with the participation of the chief executive officer
and chief financial officer), as of the end of the period covered by this
report, Aons chief executive officer and chief financial officer have concluded
that the disclosure controls and procedures (as defined in Rules 13a-15(e) and
15(d) 15(e) under the Securities Exchange Act of 1934, as amended,
(the Exchange Act)) are effective to ensure that information required to be
disclosed by Aon in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms.
Changes in internal control over
financial reporting.
In November
2008, the Company acquired Benfield Group Limited and its subsidiaries (Benfield). As a result, we have expanded our internal
controls over financial reporting to include the Benfield operations.
Integration of Benfields operations, along with the related internal controls,
into Aons organization is expected to continue throughout 2009 and 2010. Future material changes to internal controls,
if applicable, will be disclosed in accordance with SEC requirements. Other than the changes above, no other
changes in Aons internal control over financial reporting occurred during
third quarter 2009 that have materially affected, or are reasonably likely to
materially affect, Aons internal control over financial reporting.
59
PART II
OTHER INFORMATION
ITEM 1.
|
|
LEGAL PROCEEDINGS
|
|
|
|
|
|
See Note 16
(Contingencies) to the condensed consolidated financial statements contained
in Part I, Item 1, which is incorporated by reference herein.
|
ITEM 2.
|
|
UNREGISTERED SALES OF
EQUITY SECURITIES AND USE OF PROCEEDS
|
|
|
|
|
|
(a) None.
|
|
|
(b) None.
|
|
|
(c) Issuer Purchases
of Equity Securities.
|
The following information relates to the repurchase of
equity securities by Aon or any affiliated purchaser during each month within
the third quarter of 2009:
Period
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid per Share (1)
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
|
Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs (1) (2)
|
|
7/1/09 7/31/09
|
|
|
|
$
|
|
|
|
|
$
|
729,501,374
|
|
8/1/09 8/31/09
|
|
3,041,150
|
|
41.08
|
|
3,041,150
|
|
$
|
604,579,159
|
|
9/1/09 9/30/09
|
|
|
|
|
|
|
|
$
|
604,579,159
|
|
Total
|
|
3,041,150
|
|
$
|
41.08
|
|
3,041,150
|
|
|
|
(1)
Does not
include commissions paid to repurchase shares.
(2)
In fourth
quarter 2007, the Company announced that its Board of Directors had increased
the authorized share repurchase program to $4.6 billion. Shares may be repurchased through the open
market or in privately negotiated transactions.
Through September 30, 2009, the Company has repurchased 97.3
million shares of common stock at an average price (excluding commissions) of
$41.08 per share for an aggregate purchase price of $4.0 billion since
inception of the stock repurchase program, and the remaining authorized amount
for stock repurchases under this program is $605 million, with no termination
date.
ITEM 6.
|
|
EXHIBITS
|
|
|
|
|
|
Exhibits The exhibits
filed with this report are listed on the attached Exhibit Index.
|
60
SIGNATURE
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Aon Corporation
|
|
(Registrant)
|
|
|
November 3, 2009
|
By:
|
/s/ Laurel Meissner
|
|
LAUREL MEISSNER
|
|
SENIOR VICE PRESIDENT AND
|
|
GLOBAL CONTROLLER
|
|
(Principal Accounting
Officer and duly authorized officer of Registrant)
|
61
AON CORPORATION
Exhibit Index
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
12.1
|
|
Statement
regarding Computation of Ratio of Earnings to Fixed Charges
|
|
|
|
12.2
|
|
Statement
regarding Computation of Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends
|
|
|
|
31.1
|
|
Certification
of CEO
|
|
|
|
31.2
|
|
Certification
of CFO
|
|
|
|
32.1
|
|
Certification
of CEO Pursuant to section 1350 of Title 18 of the United States Code
|
|
|
|
32.2
|
|
Certification
of CFO Pursuant to section 1350 of Title 18 of the United States Code
|
|
|
|
99.1
|
|
Aircraft
Dry Lease made effective as of December 19, 2003 by and between 17AN
Leasing, LLC and Aon Corporation
|
99.2
|
|
Aircraft
Dry Lease made effective as of December 19, 2007 by and between Global
Leasing, Inc. and Aon Corporation
|
99.3
|
|
Notice
of Termination of Aircraft Dry Leases by and between 17AN Leasing, LLC, Globe
Leasing, Inc. and Aon Corporation
|
101
|
|
Interactive
Data Files. The following materials
are filed electronically with this Quarterly Report on Form 10-Q:
|
|
|
101.INS XBRL Report Instance Document
|
|
|
101.SCH XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL XBRL Taxonomy Calculation Linkbase Document
|
|
|
101.DEF XBRL Taxonomy Definition Linkbase Document
|
|
|
101.PRE XBRL Taxonomy Presentation Linkbase
Document
|
|
|
101.LAB XBRL Taxonomy Calculation Linkbase Document
|
62
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