AON PLC, 10-Q filed on 8/6/2010
Quarterly Report
Condensed Consolidated Statements of Income (USD $)
In Millions, except Per Share data
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Revenue
 
 
 
 
Commissions, fees and other
$ 1,883 
$ 3,774 
$ 1,863 
$ 3,684 
Fiduciary investment income
15 
28 
19 
44 
Total revenue
1,898 
3,802 
1,882 
3,728 
Expenses
 
 
 
 
Compensation and benefits
1,169 
2,332 
1,134 
2,148 
Other general expenses
461 
929 
528 
994 
Total operating expenses
1,630 
3,261 
1,662 
3,142 
Operating income
268 
541 
220 
586 
Interest income
Interest expense
(33)
(67)
(26)
(55)
Other income
12 
14 
13 
Income from continuing operations before income taxes
244 
491 
210 
553 
Income taxes
60 
121 
57 
165 
Income from continuing operations
184 
370 
153 
388 
Income (loss) from discontinued operations before income taxes
(41)
(39)
93 
Income taxes
(15)
(13)
 
41 
Income (loss) from discontinued operations
(26)
(26)
52 
Net income
158 
344 
155 
440 
Less: Net income attributable to noncontrolling interests
13 
11 
Net income attributable to Aon stockholders
153 
331 
149 
429 
Net income (loss) attributable to Aon stockholders
 
 
 
 
Income from continuing operations
179 
357 
147 
377 
Income (loss) from discontinued operations
(26)
(26)
52 
Net income
153 
331 
149 
429 
Basic net income (loss) per share attributable to Aon stockholders
 
 
 
 
Continuing operations (in dollars per share)
0.64 
1.29 
0.52 
1.32 
Discontinued operations (in dollars per share)
(0.09)
(0.10)
 
0.19 
Net income (in dollars per share)
0.55 
1.19 
0.52 
1.51 
Diluted net income (loss) per share attributable to Aon stockholders
 
 
 
 
Continuing operations (in dollars per share)
0.63 
1.27 
0.50 
1.29 
Discontinued operations (in dollars per share)
(0.09)
(0.09)
0.01 
0.18 
Net income (in dollars per share)
0.54 
1.18 
0.51 
1.47 
Cash dividends per share paid on common stock (in dollars per share)
0.15 
0.30 
0.15 
0.30 
Weighted average common shares outstanding - basic (in shares)
278.4 
277.1 
285.4 
284.8 
Weighted average common shares outstanding - diluted (in shares)
282.6 
281.7 
292.7 
292.2 
Condensed Consolidated Statements of Financial Position (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
ASSETS
 
 
CURRENT ASSETS
 
 
Cash and cash equivalents
$ 260 
$ 217 
Short-term investments
474 
422 
Receivables, net
1,994 
2,052 
Fiduciary assets
12,226 
10,835 
Other current assets
543 
463 
Total Current Assets
15,497 
13,989 
Goodwill
5,710 
6,078 
Intangible assets, net
753 
791 
Fixed assets, net
450 
461 
Investments
301 
319 
Other non-current assets
1,245 
1,320 
TOTAL ASSETS
23,956 
22,958 
LIABILITIES AND EQUITY
 
 
LIABILITIES
 
 
CURRENT LIABILITIES
 
 
Fiduciary liabilities
12,226 
10,835 
Short-term debt and current portion of long-term debt
370 
10 
Accounts payable and accrued liabilities
1,192 
1,535 
Other current liabilities
350 
260 
Total Current Liabilities
14,138 
12,640 
Long-term debt
1,601 
1,998 
Pension and other post employment liabilities
1,716 
1,889 
Other non-current liabilities
1,023 
1,000 
TOTAL LIABILITIES
18,478 
17,527 
EQUITY
 
 
Common stock-$1 par value Authorized: 750 shares (issued: 6/30/10 - 362.7; 12/31/09 - 362.7)
363 
363 
Additional paid-in capital
3,134 
3,215 
Retained earnings
7,605 
7,335 
Treasury stock at cost (shares: 6/30/10 - 93.0; 12/31/09 - 96.4)
(3,713)
(3,859)
Accumulated other comprehensive loss
(1,961)
(1,675)
TOTAL AON STOCKHOLDERS' EQUITY
5,428 
5,379 
Noncontrolling interests
50 
52 
TOTAL EQUITY
5,478 
5,431 
TOTAL LIABILITIES AND EQUITY
$ 23,956 
$ 22,958 
Condensed Consolidated Statements of Financial Position (Parenthetical)
Share data in Millions, except Per Share data
Jun. 30, 2010
Dec. 31, 2009
Condensed Consolidated Statements of Financial Position
 
 
Common stock, par value (in dollars per share)
Common stock, Authorized shares
750 
750 
Common stock, issued shares
362.7 
362.7 
Treasury stock, shares
93.0 
96.4 
Condensed Consolidated Statement of Stockholders' Equity (USD $)
In Millions
Common Stock and Additional Paid-in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss, Net of Tax
Noncontrolling Interests
Total
1/1/2010 - 6/30/2010
 
 
 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Balance
$ 3,578 
$ 7,335 
$ (3,859)
$ (1,675)
$ 52 
$ 5,431 
Balance (in shares)
362.7 
 
 
 
 
 
Adoption of new accounting guidance
 
44 
 
(44)
 
 
Balance as adjusted
3,578 
7,379 
(3,859)
(1,719)
52 
5,431 
Balance as adjusted (in shares)
362.7 
 
 
 
 
 
Net income
 
331 
 
 
13 
344 
Shares issued - employee benefit plans
30 
 
 
 
 
30 
Shares purchased
 
 
(100)
 
 
(100)
Shares reissued - employee benefit plans
(246)
(23)
246 
 
 
(23)
Tax benefit - employee benefit plans
15 
 
 
 
 
15 
Stock compensation expense
123 
 
 
 
 
123 
Dividends to stockholders
 
(82)
 
 
 
(82)
Change in net derivative gains/losses
 
 
 
(26)
 
(26)
Net foreign currency translation adjustments
 
 
 
(271)
(2)
(273)
Net post-retirement benefit obligations
 
 
 
55 
 
55 
Purchase of subsidiary shares from noncontrolling interests
(3)
 
 
 
(3)
(6)
Capital contribution by noncontrolling interests
 
 
 
 
Dividends paid to noncontrolling interests on subsidiary common stock
 
 
 
 
(11)
(11)
Balance
3,497 
7,605 
(3,713)
(1,961)
50 
5,478 
Balance (in shares)
362.7 
 
 
 
 
 
Balance as adjusted
 
 
 
 
 
 
Balance as adjusted (in shares)
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows (USD $)
6 Months Ended
Jun. 30,
2010
2009
Cash Flows from Operating Activities:
 
 
Net income
$ 344,000,000 
$ 440,000,000 
Adjustments to reconcile net income to cash provided by operating activities:
 
 
(Gains) losses from sale of businesses, net
33,000,000 
(94,000,000)
Depreciation of fixed assets
62,000,000 
73,000,000 
Amortization of intangible assets
56,000,000 
45,000,000 
Stock compensation expense
123,000,000 
95,000,000 
Deferred income taxes
(16,000,000)
3,000,000 
Change in assets and liabilities:
 
 
Change in funds held on behalf of clients
633,000,000 
113,000,000 
Receivables, net
2,000,000 
138,000,000 
Accounts payable and accrued liabilities
(343,000,000)
(305,000,000)
Restructuring reserves
(18,000,000)
(3,000,000)
Current income taxes
46,000,000 
75,000,000 
Pension and other post employment liabilities
(41,000,000)
(320,000,000)
Other assets and liabilities
(9,000,000)
(163,000,000)
Cash Provided by Operating Activities
872,000,000 
97,000,000 
Cash Flows from Investing Activities:
 
 
Sales of long-term investments
77,000,000 
16,000,000 
Purchase of long-term investments
(15,000,000)
(17,000,000)
Net (purchases) sales of short-term investments - non-fiduciary
(79,000,000)
116,000,000 
Net purchases of short-term investments - funds held on behalf of clients
(633,000,000)
(113,000,000)
Acquisition of businesses, net of cash acquired
(65,000,000)
(40,000,000)
Proceeds from sale of businesses
10,000,000 
138,000,000 
Capital expenditures
(71,000,000)
(53,000,000)
Cash Provided by (Used for) Investing Activities
(776,000,000)
47,000,000 
Cash Flows from Financing Activities:
 
 
Purchase of treasury stock
(100,000,000)
(125,000,000)
Issuance of stock for employee benefit plans
81,000,000 
89,000,000 
Repayments of debt
(2,000,000)
(31,000,000)
Cash dividends to stockholders
(82,000,000)
(83,000,000)
Cash Used for Financing Activities
(103,000,000)
(150,000,000)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
50,000,000 
(39,000,000)
Net Increase (Decrease) in Cash and Cash Equivalents
43,000,000 
(45,000,000)
Cash and Cash Equivalents at Beginning of Period
217,000,000 
582,000,000 
Cash and Cash Equivalents at End of Period
260,000,000 
537,000,000 
Supplemental disclosures:
 
 
Interest paid
50,000,000 
56,000,000 
Income taxes paid, net of refunds
$ 63,000,000 
$ 112,000,000 
Basis of Presentation
Basis of Presentation

1.  Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include all normal recurring adjustments which Aon Corporation (“Aon” or the “Company”) considers necessary to present fairly the Company’s consolidated financial statements for all periods presented.  The consolidated financial statements include the accounts of Aon and its majority-owned subsidiaries and variable interest entities (“VIEs”) for which Aon is considered to be the primary beneficiary.  The consolidated financial statements exclude VIEs for which Aon is not the primary beneficiary. All material intercompany accounts and transactions have been eliminated.

 

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  The results for the three and six months ended June 30, 2010 are not necessarily indicative of operating results that may be expected for the full year ending December 31, 2010.

 

Use of Estimates

 

The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of reserves and expenses. These estimates and assumptions are based on management’s best estimates and judgments.  Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances.  Management adjusts such estimates and assumptions when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.  Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Accounting Principles and Practices
Accounting Principles and Practices

2.  Accounting Principles and Practices

 

Changes in Accounting Principles

 

On January 1, 2010, the Company adopted guidance amending current principles related to the transfers of financial assets and the consolidation of VIEs.  This guidance eliminates the concept of a qualifying special-purpose entity (“QSPE”) and the related exception for applying consolidation guidance, creates more stringent conditions for reporting the transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets.  Consequently, former QSPEs are evaluated for consolidation based on the updated VIE guidance.  In addition, the new guidance requires companies to take a qualitative approach in determining a VIE’s primary beneficiary and requires companies to more frequently reassess whether they must consolidate VIEs.  Additional year-end and interim period disclosures are also required outlining a company’s involvement with VIEs and any significant change in risk exposure due to that involvement, as well as how its involvement with VIEs impacts the Company’s financial statements.  See Note 9 regarding the consolidation of Private Equity Partnership Structures I, LLC (“PEPS I”).

 

On January 1, 2010, the Company adopted guidance requiring additional disclosures regarding fair value measurements.  The amended guidance requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy.  This guidance also clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements.  See Note 15 for these disclosures.  The guidance also requires entities to disclose information in the Level 3 rollforward about purchases, sales, issuances and settlements on a gross basis.  Aon will make the required disclosures beginning in the first quarter of 2011 when this part of the guidance becomes effective.

 

Recent Accounting Pronouncements

 

In September 2009, the Financial Accounting Standards Board (“FASB”) issued guidance updating current principles related to revenue recognition when there are multiple-element arrangements.  This revised guidance relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modifies the manner in which the transaction consideration is allocated across the separately identifiable deliverables.  The guidance also expands the disclosures required for multiple-element revenue arrangements.  These changes will be effective for Aon beginning in the first quarter of 2011, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or modified after the adoption date.  Early adoption is permitted. The Company believes that the adoption of this guidance will not have a material impact on its consolidated financial statements.

Cash and Cash Equivalents
Cash and Cash Equivalents

3.  Cash and Cash Equivalents

 

Cash and cash equivalents include cash balances and all highly liquid investments with initial maturities of three months or less.  Cash and cash equivalents included restricted balances of $79 million and $85 million at June 30, 2010 and December 31, 2009, respectively.

Other Income (Expense)
Other Income (Expense)

4.  Other Income (Expense)

 

Other income (expense) consists of the following (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Equity income of non-consolidated subsidiaries

 

$

4

 

$

1

 

$

6

 

$

2

 

Realized gain on sale of investments

 

 

 

1

 

 

Gains on disposal of businesses, net

 

2

 

7

 

6

 

6

 

Other

 

(1

)

6

 

(1

)

5

 

 

 

$

5

 

$

14

 

$

12

 

$

13

 

Acquisitions and Dispositions
Acquisitions and Dispositions

5.  Acquisitions and Dispositions

 

Acquisitions

 

In the first six months of 2010, the Company completed the acquisition of the JP Morgan Compensation and Benefit Strategies Division of JP Morgan Retirement Plan Services, LLC, which is included in the Consulting segment, as well as 13 other companies, which are included in the Risk and Insurance Brokerage Services segment.  In the first six months of 2009, the Company completed the acquisition of 5 companies, all of which were included in the Risk and Insurance Brokerage Services segment.  The following table includes the aggregate amount paid and the intangible assets recorded as a result of the acquisitions made during the first six months of 2010 and 2009.  Approximately $40 million of future payments relating primarily to earn-outs will be made for acquisitions completed during the first six months of 2010.  These amounts are recorded in Other current liabilities and Other non-current liabilities in the Condensed Consolidated Statements of Financial Position. For certain of the acquisitions made in the first six months of 2010, the Company is in the process of obtaining third-party valuations for the intangible assets other than goodwill, and therefore, at June 30, 2010 the allocation of the purchase prices are still subject to refinement.

 

 

 

Six months ended June 30,

 

(millions)

 

2010

 

2009

 

Cash paid

 

$

64

 

$

28

 

 

 

 

 

 

 

Intangible assets:

 

 

 

 

 

Goodwill

 

$

41

 

$

13

 

Other intangible assets

 

38

 

14

 

 

 

$

79

 

$

27

 

 

The results of operations of these acquisitions are included in the condensed consolidated financial statements from the dates they were acquired.  These acquisitions would not produce a materially different result if they had been reported from the beginning of the period.

 

Dispositions - Continuing Operations

 

Some of Aon’s U.S. (“Cananwill”), U.K., Canadian, and Australian subsidiaries (together “Cananwill International”) originated short-term loans (generally with terms of 12 months or less) to businesses to finance their insurance premium obligations, and then sold these premium finance agreements to unaffiliated companies, typically bank Special Purpose Entities (“SPEs”), in whole loan securitization transactions that met the criteria for sales accounting.  Cananwill’s results were included in the Risk and Insurance Brokerage Services segment.

 

In December 2008, Aon signed a definitive agreement to sell the U.S. Cananwill operations.  This disposition was completed in February 2009.  A pretax loss of $7 million was recorded, of which $2 million was recorded in first quarter 2009 and $5 million in 2008, and is included in Other income (expense) in the Condensed Consolidated Statements of Income.  Aon may receive up to $10 million from the buyer over the two years following the sale, based on the amount of insurance premiums and related obligations financed by the buyer over this period that are generated from certain of Cananwill’s producers.  As of June 30, 2010, Aon had received $5 million from the buyer, which is recorded in Other income (expense) in the Condensed Consolidated Statements of Income.

 

In connection with this sale, Aon has guaranteed the collection of the principal amount of the premium finance notes sold to the buyer, which, at June 30, 2010, was $2 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 lender’s 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.

 

In June and July of 2009, the Company entered into agreements with third parties with respect to Aon’s Cananwill International operations.  As a result of these agreements, these third parties began originating, financing and servicing premium finance loans generated by referrals from Aon’s brokerage operations.  The third parties did not acquire the existing portfolio of Aon’s premium finance loans, and as such, the Company did not extend any guarantees under these agreements.

 

Dispositions - Discontinued Operations

 

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.  As of June 30, 2010, Aon had not received any of the potential earn-out.

 

The operating results of all businesses classified as discontinued operations are as follows (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Revenues

 

$

 

$

1

 

$

 

$

2

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes:

 

 

 

 

 

 

 

 

 

Operations

 

$

 

$

7

 

$

 

$

5

 

Gain (loss) on sale:

 

 

 

 

 

 

 

 

 

AIS

 

 

 

 

86

 

Other

 

(41

)

(5

)

(39

)

2

 

 

 

(41

)

2

 

(39

)

93

 

Income taxes

 

(15

)

 

(13

)

41

 

Net income (loss)

 

$

(26

)

$

2

 

$

(26

)

$

52

 

 

Included in Other Gain (loss) on sale for the three and six months ended June 30, 2010 is a $38 million expense for the settlement of legacy litigation related to the Buckner vs. Resource Life matter. See Note 16 “Commitments and Contingencies” for further information.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

6.  Goodwill and Other Intangible Assets

 

The changes in the net carrying amount of goodwill by operating segment for the six months ended June 30, 2010 are as follows (in millions):

 

 

 

Risk and

 

 

 

 

 

 

 

Insurance

 

 

 

 

 

 

 

Brokerage

 

 

 

 

 

 

 

Services

 

Consulting

 

Total

 

Balance as of December 31, 2009

 

$

5,693

 

$

385

 

$

6,078

 

Goodwill related to current year acquisitions

 

11

 

30

 

41

 

Goodwill related to prior year acquisitions

 

(14

)

1

 

(13

)

Foreign currency revaluation

 

(397

)

1

 

(396

)

Balance as of June 30, 2010

 

$

5,293

 

$

417

 

$

5,710

 

 

Other intangible assets by asset class are as follows (in millions):

 

 

 

June 30, 2010

 

December 31, 2009

 

 

 

Gross

 

 

 

Gross

 

 

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Accumulated

 

 

 

Amount

 

Amortization

 

Amount

 

Amortization

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

Trademarks

 

$

131

 

$

 

$

136

 

$

 

 

 

 

 

 

 

 

 

 

 

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

Trademarks

 

3

 

 

 

 

Customer related and contract based

 

772

 

267

 

757

 

234

 

Marketing, technology and other

 

363

 

249

 

376

 

244

 

 

 

$

1,269

 

$

516

 

$

1,269

 

$

478

 

 

Amortization expense on intangible assets was $29 million and $56 million for the three and six months ended June 30, 2010, respectively.  Amortization expense on intangible assets was $22 million and $45 million for the three and six months ended June 30, 2009, respectively.  As of June 30, 2010, the estimated amortization for intangible assets is as follows (in millions):

 

Remainder of 2010

 

$

55

 

2011

 

104

 

2012

 

93

 

2013

 

84

 

2014

 

73

 

Thereafter

 

213

 

 

 

$

622

 

Restructuring
Restructuring

7.  Restructuring

 

Aon Benfield Restructuring Plan

 

The Company announced a global restructuring plan (“Aon Benfield Plan”) in conjunction with its acquisition of Benfield in 2008.  The restructuring plan is intended to integrate and streamline operations across the combined Aon Benfield organization.  The Aon Benfield Plan includes an estimated 700 job eliminations, of which approximately 595 jobs have been eliminated as of June 30, 2010.  Additionally, duplicate space and assets will be abandoned.  The Company currently estimates the Plan will result in cumulative costs totaling approximately $155 million, of which $55 million was recorded as part of the purchase price allocation, $70 million has been recorded in earnings to date, and an estimated additional $30 million will be recorded in future earnings.  Expenses include workforce reduction, lease consolidation costs, asset impairments, as well as other expenses necessary to implement the restructuring initiative.  The Company recorded $6 million and $15 million of restructuring and related charges in the three and six months ended June 30, 2010, respectively.   The Company recorded $21 million and $30 million of restructuring and related charges in the three and six months ended June 30, 2009, respectively. Total payments of $90 million have been made under this Plan to date.

 

All costs associated with the Aon Benfield Plan are included in the Risk and Insurance Brokerage Services segment.  Costs related to the restructuring are included in Compensation and benefits and Other general expenses in the Condensed Consolidated Statements of Income.  The Company expects these restructuring activities and related expenses to affect continuing operations into 2011.

 

The following summarizes the restructuring and related costs by type that have been incurred and are estimated to be incurred through the end of the restructuring initiative related to the Aon Benfield plan (in millions):

 

 

 

Actual

 

Estimated

 

 

 

Purchase

 

 

 

Second

 

 

 

 

 

Total Cost for

 

 

 

Price

 

 

 

Quarter

 

Six Months

 

Total to

 

Restructuring

 

 

 

Allocation

 

2009

 

2010

 

2010

 

Date

 

Period (1)

 

Workforce reduction

 

$

32

 

$

38

 

$

3

 

$

8

 

$

78

 

$

96

 

Lease consolidation

 

22

 

14

 

2

 

5

 

41

 

49

 

Asset impairments

 

 

2

 

1

 

1

 

3

 

6

 

Other costs associated with restructuring (2)

 

1

 

1

 

 

1

 

3

 

4

 

Total restructuring and related expenses

 

$

55

 

$

55

 

$

6

 

$

15

 

$

125

 

$

155

 

 


(1)    Actual costs, when incurred, will vary due to changes in the assumptions built into this plan.  Significant assumptions likely to change when plans are finalized and implemented include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives.

 

(2)   Other costs associated with restructuring initiatives, including moving costs and consulting and legal fees, are recognized when incurred.

 

2007 Restructuring Plan

 

In 2007, the Company announced a global restructuring plan intended to create a more streamlined organization and reduce future expense growth to better serve clients (“2007 Plan”).  The 2007 Plan is substantially complete.  The Company expects to incur additional expenses of $4 million in 2010.  The 2007 Plan includes an estimated 4,600 job eliminations.  As of June 30, 2010, approximately 4,170 positions have been eliminated.  The Company has closed or consolidated several offices resulting in sublease losses or lease buy-outs.  Expenses include workforce reduction, lease consolidation costs, asset impairments, as well as other expenses necessary to implement the restructuring initiative.  The Company recorded $25 million and $92 million of restructuring and related charges in the three and six months ended June 30, 2010, respectively. The Company recorded $74 million and $108 million of restructuring and related charges in the three and six months ended June 30, 2009, respectively.  Costs related to the restructuring are included in Compensation and benefits and Other general expenses in the Condensed Consolidated Statements of Income.

 

The following summarizes the restructuring and related expenses by type that have been incurred and are estimated to be incurred through the end of the restructuring initiative related to the 2007 Plan (in millions):

 

 

 

Actual

 

Estimated

 

 

 

 

 

 

 

 

 

Second

 

 

 

 

 

Total Cost for

 

 

 

 

 

 

 

 

 

Quarter

 

Six Months

 

Total to

 

Restructuring

 

 

 

2007

 

2008

 

2009

 

2010

 

2010

 

Date

 

Period

 

Workforce reduction

 

$

17

 

$

166

 

$

251

 

$

16

 

$

73

 

$

507

 

$

509

 

Lease consolidation

 

22

 

38

 

78

 

7

 

13

 

151

 

152

 

Asset impairments

 

4

 

18

 

15

 

1

 

2

 

39

 

39

 

Other costs associated with restructuring (1)

 

3

 

29

 

13

 

1

 

4

 

49

 

50

 

Total restructuring and related expenses

 

$

46

 

$

251

 

$

357

 

$

25

 

$

92

 

$

746

 

$

750

 

 


(1) Other costs associated with restructuring initiatives, including moving costs and consulting and legal fees, are recognized when incurred.

 

The following summarizes the restructuring and related expenses by segment that have been incurred and are estimated to be incurred through the end of the restructuring initiative, related to the 2007 Plan (in millions):

 

 

 

Actual

 

Estimated

 

 

 

 

 

 

 

 

 

Second

 

 

 

 

 

Total Cost for

 

 

 

 

 

 

 

 

 

Quarter

 

Six Months

 

Total to

 

Restructuring

 

 

 

2007

 

2008

 

2009

 

2010

 

2010

 

Date

 

Period

 

Risk and Insurance Brokerage Services

 

$

41

 

$

234

 

$

322

 

$

23

 

$

83

 

$

680

 

$

684

 

Consulting

 

5

 

17

 

35

 

2

 

9

 

66

 

66

 

Total restructuring and related expenses

 

$

46

 

$

251

 

$

357

 

$

25

 

$

92

 

$

746

 

$

750

 

 

Restructuring Liabilities

 

As of June 30, 2010, the Company’s liabilities for its restructuring plans are as follows (in millions):

 

 

 

Benfield

 

2007

 

2005

 

 

 

 

 

Plan

 

Plan

 

Plan

 

Total

 

Balance at January 1, 2009

 

$

104

 

$

101

 

$

28

 

$

233

 

Expensed in 2009

 

53

 

342

 

(1

)

394

 

Cash payments in 2009

 

(67

)

(248

)

(12

)

(327

)

Purchase accounting adjustment

 

(49

)

 

 

(49

)

Foreign exchange translation

 

4

 

7

 

1

 

12

 

Balance at December 31, 2009

 

45

 

202

 

16

 

263

 

Expensed in 2010

 

14

 

90

 

 

104

 

Cash payments in 2010

 

(23

)

(95

)

(4

)

(122

)

Foreign exchange translation & other

 

(7

)

(15

)

1

 

(21

)

Balance at June 30, 2010

 

$

29

 

$

182

 

$

13

 

$

224

 

 

Aon’s unpaid restructuring liabilities are included in Accounts payable and accrued liabilities and Other non-current liabilities in the Condensed Consolidated Statements of Financial Position.

Investments
Investments

8.  Investments

 

The Company earns income on cash balances and investments, as well as on premium trust balances that Aon maintains for premiums collected from insureds but not yet remitted to insurance companies.  The premium trust balances are not owned by Aon, and cannot be used for general corporate purposes.  These balances, because of their nature, are required to be invested in very liquid securities with highly-rated, credit-worthy financial institutions.  Premium trust balances are included in Fiduciary assets in the Condensed Consolidated Statements of Financial Position.  Fiduciary assets included cash and investments of $3.8 billion and fiduciary receivables of $8.4 billion at June 30, 2010. Fiduciary assets included cash and investments of $3.3 billion and fiduciary receivables of $7.5 billion at December 31, 2009.

 

The Company’s interest-bearing assets are included in the following categories in the Condensed Consolidated Statements of Financial Position (in millions):

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

Cash and cash equivalents

 

$

260

 

$

217

 

Short-term investments

 

474

 

422

 

Fiduciary assets

 

3,805

 

3,329

 

Investments

 

301

 

319

 

 

 

$

4,840

 

$

4,287

 

 

The Company’s investments are as follows (in millions):

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

Equity method investments

 

$

179

 

$

113

 

Other investments at cost

 

108

 

103

 

Fixed-maturities at fair value

 

14

 

16

 

PEPS I preferred stock

 

 

87

 

 

 

$

301

 

$

319

 

Variable Interest Entities
Variable Interest Entities

9.              Variable Interest Entities

 

Consolidated Variable Interest Entities

 

In 2001, Aon sold the vast majority of its limited partnership (“LP”) portfolio, valued at $450 million, to PEPS I, a QSPE.  In accordance with the recently issued VIE guidance, former QSPEs must now be assessed to determine if they are VIEs. Aon concluded that PEPS I is a VIE and that it holds a variable interest in PEPS I.  Aon also concluded that it is the primary beneficiary of PEPS I, as it has the power to direct the activities that most significantly impact economic performance and it has the obligation or right to absorb losses or receive benefits that could potentially be significant to PEPS I. As a result of adopting this new guidance, Aon consolidated PEPS I effective January 1, 2010.  The financial statement impact of consolidating PEPS I resulted in:

 

·                  the removal of the $87 million PEPS I preferred stock, previously reported in investments, and

·                  the addition of $77 million of equity method investments in LP’s; cash of $57 million, of which $52 million is restricted; long-term debt of $47 million; a decrease in accumulated other comprehensive income net of tax of $44 million; and an increase in retained earnings of $44 million.

 

As part of the original transaction, Aon is required to purchase from PEPS I additional securities equal to the unfunded LP commitments, as they are requested.  These securities are rated below investment grade. Aon funded $1 million of commitments for both the second quarter and the first six months of 2010.  As of June 30, 2010, the unfunded commitments were $41 million.  The commitments have specific expiration dates and the general partners may decide not to draw on these commitments.

 

Unconsolidated Variable Interest Entities

 

At June 30, 2010, Aon held a 36% interest in Juniperus Insurance Opportunity Fund Limited (Juniperus), which is an investment vehicle that invests in an actively managed and diversified portfolio of insurance risks.  Aon has concluded that Juniperus is a VIE.  However, Aon has concluded that it is not the primary beneficiary as it lacks the power to direct the activities of Juniperus that most significantly impact economic performance.  The investment in Juniperus is accounted for using the equity method of accounting.

 

Aon’s potential loss at June 30, 2010 is limited to its investment in Juniperus of $67 million, which is recorded in Investments in the Condensed Consolidated Statements of Financial Position.  Aon has not provided any financing to Juniperus other than previously contractually required amounts.

Debt
Debt

10.               Debt

 

As a result of adopting the new guidance on VIEs and consolidating PEPS I effective January 1, 2010, Aon recorded $47 million of long-term debt in the Condensed Consolidated Statements of Financial Position as of June 30, 2010.

 

At June 30, 2010, Aon reclassified its 5.05% CAD 375 million ($362 million) debt securities to Short-term debt and current portion of long-term debt in the Condensed Consolidated Statements of Financial Position as the due date of the securities, April 2011, is less than one year from the balance sheet date.

Stockholders' Equity
Stockholders' Equity

11.  Stockholders’ Equity

 

Common Stock

 

Under the share repurchase program begun in 2005, Aon’s Board of Directors has authorized the Company to repurchase up to $4.6 billion of its outstanding common stock.  Shares may be repurchased through the open market or in privately negotiated transactions from time to time, based on prevailing market conditions, and will be funded from available cash.  Any repurchased shares will be available for employee stock plans and for other corporate purposes.  In second quarter 2010, Aon repurchased 1.2 million shares at a cost of $50 million, at an average price of $41.03 per share.  In the first six months of 2010, Aon repurchased 2.4 million shares at a cost of $100 million.  Since the inception of this share repurchase program, the Company has repurchased a total of 108.3 million shares for an aggregate cost of $4.4 billion.    As of June 30, 2010, the Company was authorized to purchase up to $165 million of additional shares under this stock repurchase program.  The timing and amount of future purchases will be based on market and other conditions.

 

In January 2010, the Company’s Board of Directors authorized a new share repurchase program under which up to $2 billion of common stock may be repurchased from time to time depending on market conditions or other factors through open market or privately negotiated transactions.  Repurchases will commence under the new share repurchase program upon conclusion of the existing program.

 

In connection with the acquisition of two entities controlled by Aon’s then-Chairman and Chief Executive Officer in 2001, Aon obtained approximately 22.4 million shares of its common stock.  These treasury shares are restricted as to their reissuance.

 

In the first six months of 2010, Aon reissued 5.7 million shares of treasury stock for employee benefit plans and 186,000 shares of treasury stock in connection with employee stock purchase plans.  No new shares were issued for employee benefit plans during the first six months of 2010.  In the first six months of 2009, Aon issued 966,000 new shares of common stock for employee benefit plans and reissued approximately 5.0 million shares of treasury stock for employee benefit plans and 157,000 shares in connection with employee stock purchase plans.

 

Participating Securities

 

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities, as defined, and therefore should be included in computing basic and diluted earnings per share using the two class method.  Certain of Aon’s restricted stock awards allow the holder to receive a non-forfeitable dividend equivalent.  Income from continuing operations, Income (loss) from discontinued operations and Net income, attributable to participating securities, were as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Income from continuing operations

 

$

4

 

$

4

 

$

8

 

$

9

 

Income (loss) from discontinued operations

 

(1

)

 

(1

)

2

 

Net income

 

$

3

 

$

4

 

$

7

 

$

11

 

 

Weighted average shares outstanding are as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Shares for basic earnings per share (1)

 

278.4

 

285.4

 

277.1

 

284.8

 

Common stock equivalents

 

4.2

 

7.3

 

4.6

 

7.4

 

Shares for diluted earnings per share

 

282.6

 

292.7

 

281.7

 

292.2

 

 


(1) Includes 6.3 million and 7.1 million of participating securities for the three months ended June 30, 2010 and 2009, respectively, and 6.3 million and 7.2 million of participating securities for the six months ended June 30, 2010 and 2009, respectively.

 

Certain common stock equivalents, primarily related to options, were not included in the computation of diluted net income per share because their inclusion would have been antidilutive.  The number of shares excluded from the calculation was 4 million and 5 million for the three months ended June 30, 2010 and 2009, respectively, and 5 million for both the six months ended June 30, 2010 and 2009.

 

Comprehensive Income (Loss)

 

The components of comprehensive income, net of related tax, are as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net income

 

$

158

 

$

155

 

$

344

 

$

440

 

Net derivative gains (losses)

 

(2

)

27

 

(26

)

18

 

Net unrealized investment losses

 

 

(1

)

 

(9

)

Net foreign currency translation adjustments

 

(132

)

235

 

(273

)

140

 

Net post-retirement benefit obligations

 

42

 

4

 

55

 

60

 

Comprehensive income

 

66

 

420

 

100

 

649

 

Less: Comprehensive income attributable to noncontrolling interests

 

3

 

8

 

11

 

12

 

Comprehensive income attributable to Aon stockholders

 

$

63

 

$

412

 

$

89

 

$

637

 

 

The components of Accumulated other comprehensive loss, net of related tax, are as follows (in millions):

 

 

 

June 30,

 

January 1,

 

December 31,

 

 

 

2010

 

2010 (1)

 

2009

 

Net derivative losses

 

$

(26

)

$

 

$

 

Net unrealized investment gains

 

 

 

44

 

Net foreign currency translation adjustments

 

30

 

301

 

301

 

Net post-retirement benefit obligations

 

(1,965

)

(2,020

)

(2,020

)

Accumulated other comprehensive loss, net of tax

 

$

(1,961

)

$

(1,719

)

$

(1,675

)

 


(1) Reflects impact of adopting new accounting guidance which resulted in the consolidation of PEPS I effective January 1, 2010.

Employee Benefits
Employee Benefits

12.  Employee Benefits

 

The following table provides the components of the net periodic benefit cost for Aon’s 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 June 30,

 

 

 

U.S.

 

International

 

 

 

2010

 

2009

 

2010

 

2009

 

Service cost

 

$

 

$

 

$

3

 

$

4

 

Interest cost

 

30

 

31

 

60

 

58

 

Expected return on plan assets

 

(29

)

(25

)

(57

)

(59

)

Amortization of net loss

 

5

 

5

 

12

 

10

 

Net periodic benefit cost

 

$

6

 

$

11

 

$

18

 

$

13

 

 

 

 

Six months ended June 30,

 

 

 

U.S.

 

International

 

 

 

2010

 

2009

 

2010

 

2009

 

Service cost

 

$

 

$

 

$

6

 

$

8

 

Interest cost

 

61

 

62

 

122

 

112

 

Expected return on plan assets

 

(59

)

(51

)

(117

)

(111

)

Amortization of prior-service cost

 

 

(1

)

 

1

 

Amortization of net loss

 

11

 

17

 

26

 

19

 

Net periodic benefit cost

 

$

13

 

$

27

 

$

37

 

$

29

 

 

In addition to the net periodic benefit cost shown above, during the second quarter of 2010, the Company recorded a non-cash charge to pension expense of $49 million, ($29 million after tax), with a corresponding credit to accumulated other comprehensive income.  This charge is reported in Compensation and benefits in the Condensed Consolidated Statements of Income and represents the correction of an error in the calculation of pension expense for the Company’s U.S. pension plan for the period from 1999 to the end of the first quarter of 2010.  The error was the result of an overstatement of the market-related value (“MRV”) of plan assets beginning in 1999 in conjunction with the merger of two U.S. pension plans.  MRV is used to determine both the expected return on assets and the amortization of gains and losses which are included in the calculation of the Company’s net periodic pension expense.  As a result of the overstatement of MRV, aggregate pension expense was understated in the period from 1999 to first quarter 2010.  However, as MRV is only used to determine pension expense, the funded status of the U.S. plan and the reported liability position has not been impacted in the period from 1999 to 2010.  The Company evaluated the impact of this error in relation to its reported results and financial position for the individual years in the period from 1999 to 2009 and also in relation to the expected full year results for 2010.  The Company concluded, in accordance with the guidance related to accounting for error corrections, that the impact was not material and, therefore, no restatement of any of the prior periods presented was required.

 

In first quarter 2009, a curtailment gain of $83 million was recognized as a result of the Company ceasing crediting future benefits relating to salary and service for the U.S. defined benefit pension plan, which is reported in Compensation and benefits in the Condensed Consolidated Statements of Income.

 

Also in first quarter 2009, a curtailment gain of $10 million was recognized in discontinued operations resulting from the sale of the Company’s Combined Insurance Company of America (“CICA”) subsidiary.  The curtailment gain related to the Company’s 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.

 

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, which is reported in Compensation and benefits in the Condensed Consolidated Statements of Income.

 

Based on current assumptions, in 2010, Aon plans to contribute $30 million and $248 million to its U.S. and material international defined benefit pension plans, respectively.  Projected contributions to the international plans have been lowered due to the completion of negotiations with certain U.K. pension plan trustees as well as the effects of foreign exchange rates.  As of June 30, 2010, contributions of $14 million and $126 million have been made to its U.S. and material international pension plans, respectively.

Stock Compensation Plans
Stock Compensation Plans

13.  Stock Compensation Plans

 

The following table summarizes stock compensation expense recognized in continuing operations in the Condensed Consolidated Statements of Income in Compensation and benefits (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Restricted stock units (“RSUs”)

 

$

29

 

$

30

 

$

70

 

$

64

 

Performance plans

 

22

 

11

 

41

 

16

 

Stock options

 

5

 

13

 

10

 

13

 

Employee stock purchase plans

 

1

 

1

 

2

 

2

 

Total stock compensation expense

 

$

57

 

$

55

 

$

123

 

$

95

 

 

During the first half of 2009, the Company converted its stock administration system to a new service provider.  In connection with this conversion, a reconciliation of the methodologies utilized was performed, which resulted in a $10 million reduction of expense for the six months ended June 30, 2009.

 

Stock Awards

 

During the first six months of 2010, the Company granted approximately 1.6 million shares in connection with the completion of the 2007 Leadership Performance Plan (“LPP”) cycle.  During the first six months of 2009, the Company granted approximately 2.0 million shares in connection with the completion of the 2006 LPP cycle.  In addition, the Company granted approximately 3.1 million restricted shares in connection with the Company’s incentive compensation plans in each of  the first six months of 2010 and 2009.

 

A summary of the status of Aon’s non-vested stock awards is as follows (shares in thousands):

 

 

 

Six months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

Fair

 

 

 

Fair

 

 

 

Shares

 

Value (1)

 

Shares

 

Value (1)

 

Non-vested at beginning of period

 

12,850

 

$

36

 

14,060

 

$

35

 

Granted

 

4,643

 

39

 

5,126

 

38

 

Vested

 

(5,235

)

36

 

(4,764

)

37

 

Forfeited

 

(248

)

36

 

(252

)

37

 

Non-vested at end of period

 

12,010

 

37

 

14,170

 

35

 

 


(1)         Represents weighted average fair value per share of award at date of grant.

 

Information regarding Aon’s performance-based plans is as follows (shares in thousands, dollars in millions):

 

 

 

As of June 30,

 

 

 

2010

 

2009

 

Potential RSUs to be issued based on current performance levels

 

5,343

 

6,116

 

Unamortized expense, based on current performance levels

 

$

139

 

$

138

 

 

Stock Options

 

The weighted average assumptions used to determine fair values, the weighted average expected life and weighted average estimated fair value per share of employee stock options granted are summarized as follows:

 

 

 

Three months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Special

 

 

 

All Other

 

LPP

 

Stock Plan

 

 

 

Options

 

Options

 

Options

 

Weighted average volatility

 

25.4

%

35.7

%

35.7

%

Expected dividend yield

 

1.4

%

1.5

%

1.5

%

Risk-free rate

 

3.0

%

1.5

%

1.8

%

 

 

 

 

 

 

 

 

Weighted average expected life, in years

 

6.1

 

4.4

 

5.6

 

Weighted average estimated fair value per share

 

$

10.99

 

$

10.88

 

$

12.27

 

 

 

 

Six months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Special

 

 

 

 

 

All Other

 

 

 

Stock Plan

 

All Other

 

 

 

Options

 

LPP Options

 

Options

 

Options

 

Weighted average volatility

 

28.5

%

35.5

%

35.7

%

35.5

%

Expected dividend yield

 

1.6

%

1.3

%

1.5

%

1.3

%

Risk-free rate

 

3.0

%

1.5

%

1.8

%

2.0

%

 

 

 

 

 

 

 

 

 

 

Weighted average expected life, in years

 

6.1

 

4.4

 

5.6

 

6.5

 

Weighted average estimated fair value per share

 

$

10.37

 

$

12.19

 

$

12.27

 

$

14.60

 

 

Beginning in the first quarter 2010, the Company eliminated the grant of options under two of its key equity award programs, the LPP and the Special Stock Plan, in order to manage share usage and expense.  During the first six months of 2009, the Company granted 1.0 million stock options at $39 per share in connection with the 2009 LPP Plan and approximately 0.4 million stock options at $37 per share in connection with the Company’s incentive compensation plans.

 

A summary of the status of Aon’s stock options and related information is as follows (shares in thousands):

 

 

 

Six months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Average

 

 

 

 

 

Exercise

 

 

 

Exercise

 

 

 

Shares

 

Price

 

Shares

 

Price

 

Outstanding at beginning of period

 

15,937

 

$

33

 

19,666

 

$

31

 

Granted

 

143

 

38

 

1,384

 

38

 

Exercised

 

(1,948

)

31

 

(2,508

)

26

 

Forfeited and expired

 

(242

)

32

 

(540

)

41

 

Outstanding at end of period

 

13,890

 

33

 

18,002

 

32

 

Exercisable at end of period

 

9,273

 

32

 

9,597

 

31

 

 

The weighted average remaining contractual life of outstanding options was 3.9 years and 4.5 years at June 30, 2010 and 2009, respectively.

 

The aggregate intrinsic value represents the total pretax intrinsic value, based on options with an exercise price less than the Company’s closing stock price of $37.12 as of June 30, 2010, which would have been received by the option holders had those option holders exercised their options as of that date.  At June 30, 2010, the aggregate intrinsic value of options outstanding was $75 million, of which $54 million was exercisable.

 

Other information related to the Company’s stock options is as follows (in millions):

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Aggregate intrinsic value of stock options exercised

 

$

6

 

$

7

 

$

21

 

$

38

 

Cash received from the exercise of stock options

 

28

 

15

 

60

 

67

 

Tax benefit realized from the exercise of stock options

 

3

 

2

 

4

 

13

 

 

Unamortized deferred compensation expense, which includes both options and awards, amounted to $316 million as of June 30, 2010, with a remaining weighted average amortization period of approximately 2.0 years.

Derivatives and Hedging
Derivatives and Hedging

14.  Derivatives and Hedging

 

Aon is exposed to market risk primarily from changes in foreign currency exchange rates and interest rates.  To manage the risk related to these exposures, Aon enters into various derivative transactions that reduce Aon’s 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 sensitivity analyses.

 

Certain derivatives also give rise to credit risks from the possible non-performance by counterparties.  The credit risk is generally limited to the fair value of those contracts that are favorable to Aon.  Aon has limited its credit risk by using International Swaps and Derivatives Association (“ISDA”) master agreements and credit support arrangements, entering into non-exchange-traded derivatives with highly-rated major financial institutions, and by using exchange-traded instruments.  Aon monitors the credit-worthiness of, and exposure to, its counterparties.  As of June 30, 2010, all derivative liability positions were entered into pursuant to terms of ISDA master agreements, and were free of credit risk contingent features.  In addition, Aon has received collateral of $169 million from counterparties and pledged collateral of $84 million to counterparties for derivatives subject to collateral support arrangements as of June 30, 2010, which are recorded in Other long-term liabilities in the Condensed Consolidated Statement of Financial Position.

 

Foreign Exchange Risk Management

 

Aon and its subsidiaries are exposed to foreign exchange risk when they receive revenues, pay expenses, or enter into intercompany loans denominated in a currency that differs from their functional currency.  Aon uses foreign exchange derivatives, typically forward contracts, options and cross currency swaps, to reduce its overall exposure to the effects of currency fluctuations on cash flows.  Aon has hedged these exposures up to six years in the future.  Aon has designated foreign exchange derivatives with a notional amount of $2.2 billion at June 30, 2010 as cash flow hedges of these exposures.  As of June 30, 2010, a $48 million pretax loss has been deferred to Other comprehensive income (“OCI’) related to these hedges, of which $28 million is expected to be reclassified to earnings in the next twelve months.  These hedges had no material ineffectiveness in either the first six months of 2010 or 2009.  As of June 30, 2010, Aon also has $161 million notional amount of foreign exchange derivatives not designated or qualifying as cash flow hedges offsetting its exposures to foreign exchange risks.

 

Aon also uses foreign exchange derivatives, typically forward contracts and options, to hedge its net investments in foreign operations for up to four years in the future.  As of June 30, 2010, the notional amount outstanding was $1.5 billion and a $205 million gain has been deferred to OCI related to this hedge.  This hedge had no ineffectiveness in either the first six months of 2010 or 2009.

 

 

Aon also uses foreign exchange derivatives, typically forward contracts and options, with a notional amount of $63 million at June 30, 2010, to reduce the impact of foreign currency fluctuations on the translation of the financial statements of Aon’s foreign operations and to manage the currency exposure of Aon’s global liquidity profile for one year in the future.  These derivatives are not eligible for hedge accounting treatment.

 

Interest Rate Risk Management

 

Aon holds variable rate short-term brokerage and other operating deposits. Aon uses interest rate derivatives, typically swaps, to reduce its exposure to the effects of interest rate fluctuations on the forecasted interest receipts from these deposits for up to three years in the future.  Aon has designated interest rate derivatives with a notional amount of $1.1 billion at June 30, 2010 as cash flow hedges of this exposure.  As of June 30, 2010, a $5 million pretax gain has been deferred to OCI related to this hedge, all of which is expected to be reclassified to earnings during the next twelve months.  This hedge had no material ineffectiveness in either the first six months of 2010 or 2009.

 

In 2009, a subsidiary of Aon issued €500 million ($618 million at June 30, 2010 exchange rates) of fixed rate debt due on July 1, 2014.  Aon is exposed to changes in the fair value of the debt due to interest rate fluctuations.  Aon uses receive-fixed-pay-floating interest rate swaps to reduce its exposure to the effects of interest rate fluctuations on the fair value of the debt.  Aon has designated interest rate swaps with a notional amount of €250 million ($309 million at June 30, 2010 exchange rates) at June 30, 2010 as a fair value hedge of this exposure.  This hedge did not have any ineffectiveness in either the first six months of 2010 or 2009.

 

As of June 30, 2010, the fair values of derivative instruments are as follows (in millions):

 

 

 

Derivative Assets

 

Derivative Liabilities

 

 

 

Balance Sheet

 

Fair

 

Balance Sheet

 

Fair

 

 

 

Location

 

Value

 

Location

 

Value

 

Derivatives accounted for as hedges:

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Other assets

 

$

26

 

Other liabilities

 

$

 

Foreign exchange contracts

 

Other assets

 

354

 

Other liabilities

 

244

 

Total

 

 

 

380

 

 

 

244

 

 

 

 

 

 

 

 

 

 

 

Derivatives not accounted for as hedges:

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other assets

 

3

 

Other liabilities

 

2

 

Total

 

 

 

$

383

 

 

 

$

246

 

 

The amounts of derivative gains (losses) recognized in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2010 are as follows (in millions):

 

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Three months ended June 30, 2010

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

 

Investment income

 

$

5

 

Foreign exchange contracts

 

(65

)

Other general expenses and Interest expense

 

(67

)

Total

 

$

(65

)

 

 

$

(62

)

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

132

 

N/A

 

$

 

 

 

 

 

 

 

 

 

 

Location of Gain

 

 

 

Amount of Gain

 

 

 

 

 

(Loss) Recognized in

 

 

 

(Loss) Recognized in

 

 

 

Amount of Gain (Loss)

 

Income on Derivative

 

 

 

Income on

 

Hedged item in Fair Value

 

Recognized in Income

 

and Related Hedged

 

Three months ended June 30, 2010

 

Derivative

 

Hedge Relationships

 

on Related Hedged Item

 

Item

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

5

 

Fixed rate debt

 

$

(5

)

Interest expense

 

 

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Six months ended June 30, 2010

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

2

 

Investment income

 

$

11

 

Foreign exchange contracts

 

(140

)

Other general expenses and Interest expense

 

(106

)

Total

 

$

(138

)

 

 

$

(95

)

 

 

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

205

 

N/A

 

$

 

 

 

 

 

 

 

 

 

 

Location of Gain

 

 

 

Amount of Gain

 

 

 

 

 

(Loss) Recognized in

 

 

 

(Loss) Recognized in

 

 

 

Amount of Gain (Loss)

 

Income on Derivative

 

 

 

Income on

 

Hedged item in Fair Value

 

Recognized in Income

 

and Related Hedged

 

Six months ended June 30, 2010

 

Derivative

 

Hedge Relationships

 

on Related Hedged Item

 

Item

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

12

 

Fixed rate debt

 

$

(11

)

Interest expense

 

 

The amounts of derivative gains (losses) recognized in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2009 are as follows (in millions):

 

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Three months ended June 30, 2009

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

5

 

Investment income

 

$

9

 

Foreign exchange contracts

 

11

 

Other general expenses and Interest expense

 

(35

)

Total

 

$

16

 

 

 

$

(26

)

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

(30

)

N/A

 

$

 

 

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Six months ended June 30, 2009

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

8

 

Investment income

 

$

19

 

Foreign exchange contracts

 

(2

)

Other general expenses and Interest expense

 

(42

)

Total

 

$

6

 

 

 

$

(23

)

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

(34

)

N/A

 

$

 

 

The amount of gain (loss) recognized in income on the ineffective portion of derivatives for both the three months and six months ended June 30, 2010 and 2009 was negligible.

 

Aon recorded a gain of $4 million and a loss of $5 million in Other general expenses for foreign exchange derivatives not designated or qualifying as hedges for the three months ended June 30, 2010 and 2009, respectively.  Aon recorded a gain of $3 million and $6 million in Other general expenses for foreign exchange derivatives not designated or qualifying as hedges for the six months ended June 30, 2010 and 2009, respectively.

Fair Value and Financial Instruments
Fair Value and Financial Instruments

15.  Fair Value and Financial Instruments

 

Accounting standards establish a three tier fair value hierarchy which prioritizes the inputs used in measuring fair values as follows:

 

·                 Level 1 — observable inputs such as quoted prices for identical assets in active markets;

·                 Level 2 — inputs other than quoted prices for identical assets in active markets, that are observable either directly or indirectly; and

·                 Level 3 — unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions.

 

The following methods and assumptions are used to estimate the fair values of the Company’s financial instruments:

 

Money market funds and highly liquid debt securities are carried at cost and amortized cost, respectively, as an approximation of fair value.  Based on market convention, the Company considers cost a practical and expedient measure of fair value.

 

Fixed-maturity securities are carried at fair value, which is based on quoted market prices or on estimated values if they are not actively traded.  In some cases where a market price is available, the Company will make use of acceptable expedients (such as matrix pricing) to estimate fair value.

 

Derivatives are carried at fair value, based upon industry standard valuation techniques that use, where possible, current market-based or independently sourced pricing inputs, such as interest rates, currency exchange rates, or implied volatilities.

 

Guarantees are carried at fair value, which is based on discounted estimated future cash flows using published historical cumulative default rates and discount rates commensurate with the underlying exposure.

 

Debt is carried at outstanding principal balance. Fair value is based on quoted market prices or estimates using discounted cash flow analyses based on current borrowing rates for similar types of borrowing arrangements.

 

The following table presents, for each of the fair-value hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2010 (in millions):

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

 

 

Active Markets

 

Other

 

Unobservable

 

 

 

Balance at

 

for Identical

 

Observable

 

Inputs

 

 

 

June 30, 2010

 

Assets (Level 1)

 

Inputs (Level 2)

 

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds and highly liquid debt securities (1)

 

$

2,045

 

$

2,018

 

$

27

 

$

 

Fixed maturity securities

 

 

 

 

 

 

 

 

 

Corporate bonds

 

21

 

 

 

21

 

Government bonds

 

3

 

 

3

 

 

Derivatives

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

26

 

 

26

 

 

Foreign exchange contracts

 

270

 

 

270

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

159

 

 

159

 

 

Guarantees

 

4

 

 

 

4

 

 


(1) Includes $2,018 million of money market funds and $27 million of highly liquid debt securities that are classified as Fiduciary assets, Short-term investments or Cash equivalents in the Condensed Consolidated Statements of Financial Position, depending on their nature and initial maturity.  See Note 8 for additional information regarding the Company’s investments.

 

The following table presents the changes in the Level 3 fair-value category for the three months ended June 30, 2010 (in millions):

 

 

 

Fair Value Measurements Using Level 3 Inputs

 

 

 

Other

 

 

 

 

 

Investments

 

Guarantees

 

Balance at March 31, 2010

 

$

11

 

$

(4

)

Total gains (losses):

 

 

 

 

 

Included in earnings

 

 

 

Included in other comprehensive income

 

 

 

Purchases and sales

 

10

 

 

Transfers

 

 

 

Balance at June 30, 2010

 

$

21

 

$

(4

)

 

The following table presents the changes in the Level 3 fair-value category for the six months ended June 30, 2010 (in millions):

 

 

 

Fair Value Measurements Using Level 3 Inputs

 

 

 

Other

 

 

 

 

 

Investments

 

Guarantees

 

Balance at December 31, 2009

 

$

100

 

$

(4

)

Total gains (losses):

 

 

 

 

 

Included in earnings

 

 

 

Included in other comprehensive income

 

(1

)

 

Purchases and sales

 

9

 

 

Transfers (1)

 

(87

)

 

Balance at June 30, 2010

 

$

21

 

$

(4

)

 


(1) Transfers represent the removal of the investment in PEPS I preferred stock as a result of consolidating PEPS I on January 1, 2010.  See Note 9 for further information.

 

There are no realized or unrealized gains or losses related to assets and liabilities measured at fair value using level three inputs included in income for either the three or six months ended June 30, 2010.

 

The following table discloses the Company’s financial instruments where the carrying amounts and fair values differ (in millions):

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

Value

 

Value

 

Value

 

Value

 

Long-term debt

 

$

1,601

 

$

1,707

 

$

1,998

 

$

2,086

 

Commitments and Contingencies
Commitments and Contingencies

16.  Commitments and  Contingencies

 

Legal

 

Aon and its subsidiaries are subject to numerous claims, tax assessments, lawsuits and proceedings that arise in the ordinary course of business, which frequently include errors and omissions (“E&O”) claims.  The damages claimed in these matters are or may be substantial, including, in many instances, claims for punitive, treble or extraordinary damages.  Aon has historically purchased E&O insurance and other insurance to provide protection against certain losses that arise in such matters.  Aon has exhausted or materially depleted its coverage under some of the policies that protect the Company and, consequently, is self-insured or materially self-insured for some historical claims.  Accruals for these exposures, and related insurance receivables, when applicable, have been provided to the extent that losses are deemed probable and are reasonably estimable.  These accruals and receivables are adjusted from time to time as developments warrant.  Amounts related to settlement provisions are recorded in Other general expenses in the Condensed Consolidated Statements of Income.

 

At the time of the 2004-05 investigation of the insurance industry by the Attorney General of New York (“NYAG”) and other regulators, purported classes of clients filed civil litigation against Aon and other companies under a variety of legal theories, including state tort, contract, fiduciary duty, antitrust and statutory theories and federal antitrust and Racketeer Influenced and Corrupt Organizations Act (“RICO”) theories.  The federal actions were consolidated in the U.S. District Court for the District of New Jersey, and a state court collective action was filed in California.  In the New Jersey actions, the Court dismissed plaintiffs’ federal antitrust and RICO claims in separate orders in 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 originally submitted purported expert reports estimating a range of alleged damages of $353 million to $490 million, and plaintiffs in the ERISA class actions originally submitted revised purported expert reports estimating a range of alleged damages of $74 million to $349 million.  To protect against the uncertain outcome of litigation and to contain exposure to the Company, Aon settled the securities suit for $30 million in 2009 and has reached an agreement to settle the ERISA suit for $1.8 million.  On November 24, 2009, the Court entered a final order approving the securities settlement and dismissing the securities suit.  On April 15, 2010, the Court granted preliminary approval of the ERISA settlement pending notice to the class, and set a hearing for final approval to occur in September, 2010.

 

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”).  In January 2009, Aon Limited, Aon’s principal U.K. brokerage subsidiary, entered into a settlement agreement with the Financial Services Authority (“FSA”) to pay a £5.25 million fine arising from its failure to exercise reasonable care to establish and maintain effective systems and controls to counter the risks of bribery arising from the use of overseas firms and individuals who helped it win business.  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.

 

A putative class action, Buckner v Resource Life, was filed in state court in Columbus, Georgia, against a former subsidiary of Aon, Resource Life Insurance Company.  The complaint alleged that Resource Life, which wrote policies insuring repayment of auto loans, was obligated to identify and return unearned premiums 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 Life’s buyer in certain respects relating to 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 took an appeal from that decision.  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.  In July 2010, Aon entered into settlements of both cases, subject to providing notice to the Buckner class and obtaining court approval of the Buckner settlement.  Aon agreed to pay $47,750,000 on Resource Life’s behalf in complete settlement with the plaintiff class in Buckner, of which a pretax expense of $37,750,000 was reflected in Income (loss) from discontinued operations before income taxes in both the second quarter and the first six months 2010 Condensed Consolidated Statements of Income.  A portion of this payment may be returned to Aon if checks are undeliverable or some class members do not cash their settlement payments.  Subject to certain limitations, the return payment, if any, would be divided 50% to Aon and 50% to a fund to be used for charitable purposes.  Additionally, the settlement agreement with Resource Life provides potential future benefits from Resource Life.  At this time, the amount of future payments to Aon, if any, cannot be determined and Aon will record any such amounts when they are received.

 

From time to time, Aon’s clients may bring claims and take legal action pertaining to the performance of fiduciary responsibilities.  Whether client claims and legal action related to the Company’s performance of fiduciary responsibilities are founded or unfounded, if such claims and legal actions are resolved in a manner unfavorable to the Company, they may adversely affect Aon’s financial results and materially impair the market perception of the Company and that of its products and services.

 

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.

 

Guarantees and Indemnifications

 

Aon provides a variety of guarantees and indemnifications to its customers and others.  The maximum potential amount of future payments represents the notional amounts that could become payable under the guarantees and indemnifications if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or other methods.  These amounts may bear no relationship to the expected future payments, if any, for these guarantees and indemnifications.  Any anticipated amounts payable which are deemed to be probable and estimable are accrued in Aon’s consolidated financial statements.

 

Commitments associated with Aon’s limited partnership securitization are disclosed in Note 9. Guarantees associated with the collection of the principal amount of the premium finance notes sold to the buyer of the Company’s U.S. premium finance business are disclosed in Note 5.

 

Aon has total letters of credit (“LOCs”) outstanding for $60 million at June 30, 2010.  These LOCs secure deductible retentions for the Company’s workers compensation program, cover the beneficiaries related to its Canadian pension plan scheme, secure one of its U.S. pension plans, and to cover contingent payments for taxes and other business obligations to third parties.  Aon has also issued various other guarantees for miscellaneous purposes at its international subsidiaries.  Amounts are accrued in the consolidated financial statements to the extent the guarantees are probable and estimable.

 

Aon has certain contractual contingent guarantees for premium payments owed by clients to certain insurance companies.  Costs associated with these guarantees, to the extent estimable and probable, are provided in Aon’s allowance for doubtful accounts.  The estimated exposure with respect to such contractual contingent guarantees was approximately $8 million at June 30, 2010.

 

Aon expects that as prudent business interests dictate, additional guarantees and indemnifications may be issued from time to time.

Segment Information
Segment Information

17.  Segment Information

 

Aon classifies its businesses into two operating segments:  Risk and Insurance Brokerage Services and Consulting.  Unallocated income and expenses, when combined with the operating segments and after the elimination of intersegment revenues and expenses, total to the amounts in the Condensed Consolidated Financial Statements.

 

Operating segments have been determined using a management approach, which is consistent with the basis and manner in which Aon’s chief operating decision maker uses financial information for the purposes of allocating resources and evaluating performance.  Aon evaluates performance based on stand-alone operating segment operating income and generally accounts for intersegment revenue as if the revenue were from third parties and at what management believes are current market prices.

 

The Risk and Insurance Brokerage Services business acts as an advisor and insurance broker, helping clients manage their risks, as well as negotiating and placing insurance risk with insurance carriers through the Company’s global distribution network.

 

The Consulting business provides advice and services to clients related to health and benefits, retirement, compensation, strategic human capital, and human resource outsourcing.

 

Aon’s total revenue is as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Risk and Insurance Brokerage Services

 

$

1,587

 

$

1,577

 

$

3,174

 

$

3,120

 

Consulting

 

317

 

300

 

639

 

609

 

Intersegment elimination

 

(6

)

(6

)

(11

)

(12

)

Total operating segments

 

1,898

 

1,871

 

3,802

 

3,717

 

Unallocated

 

 

11

 

 

11

 

Total revenue

 

$

1,898

 

$

1,882

 

$

3,802

 

$

3,728

 

 

Commissions, fees and other revenue by product are as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Retail brokerage

 

$

1,214

 

$

1,186

 

$

2,400

 

$

2,310

 

Reinsurance brokerage

 

359

 

372

 

747

 

767

 

Total Risk and Insurance Brokerage Services Segment

 

1,573

 

1,558

 

3,147

 

3,077

 

Consulting services

 

265

 

251

 

540

 

514

 

Outsourcing

 

51

 

49

 

98

 

94

 

Total Consulting Segment

 

316

 

300

 

638

 

608

 

Intersegment elimination

 

(6

)

(6

)

(11

)

(12

)

Unallocated

 

 

11

 

 

11

 

Total commissions, fees and other revenue

 

$

1,883

 

$

1,863

 

$

3,774

 

$

3,684

 

 

Fiduciary investment income by segment is as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Risk and Insurance Brokerage Services

 

$

14

 

$

19

 

$

27

 

$

43

 

Consulting

 

1

 

 

1

 

1

 

Total fiduciary investment income

 

$

15

 

$

19

 

$

28

 

$

44

 

 

A reconciliation of segment operating income to total income from continuing operations before income taxes is as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Risk and Insurance Brokerage Services

 

$

305

 

$

201

 

$

562

 

$

524

 

Consulting

 

45

 

41

 

94

 

111

 

Unallocated revenue

 

 

11

 

 

11

 

Unallocated expenses

 

(82

)

(33

)

(115

)

(60

)

Total operating income

 

268

 

220

 

541

 

586

 

Interest income

 

4

 

2

 

5

 

9

 

Interest expense

 

(33

)

(26

)

(67

)

(55

)

Other income

 

5

 

14

 

12

 

13

 

Income from continuing operations before income taxes

 

$

244

 

$

210

 

$

491

 

$

553

 

 

Revenues are generally attributed to geographic areas based on the location of the resources producing the revenues. Intercompany revenues are eliminated in computing consolidated revenues.  Consolidated revenue by geographic area is as follows (in millions):

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

United States

 

$

741

 

$

705

 

$

1,384

 

$

1,355

 

Americas other than U.S.

 

249

 

245

 

447

 

417

 

United Kingdom

 

311

 

329

 

585

 

621

 

Europe, Middle East and Africa

 

412

 

438

 

1,062

 

1,051

 

Asia Pacific

 

185

 

165

 

324

 

284

 

Total

 

$

1,898

 

$

1,882

 

$

3,802

 

$

3,728

 

Subsequent Event
Subsequent Event

18.  Subsequent Event

 

On July 11, 2010, Aon entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Hewitt Associates, Inc., a Delaware corporation (“Hewitt”), Alps Merger Corp., a Delaware corporation and wholly owned subsidiary of Aon (“Merger Sub”), and Alps Merger LLC, a Delaware limited liability company and wholly owned subsidiary of Aon (“Merger LLC”).  The Merger Agreement provides, among other things, that, upon the terms and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub will merge with and into Hewitt, with Hewitt surviving as a wholly owned subsidiary of Aon (the “Merger”), and (ii) following the completion of the Merger, the surviving corporation from the Merger will merge with and into Merger LLC (the “Subsequent Merger”), with Merger LLC surviving the Subsequent Merger and continuing as a wholly owned subsidiary of Aon.

 

Subject to the terms and conditions of the Merger Agreement, which has been approved and adopted by the boards of directors of each of Aon and Hewitt, at the effective time of the Merger (the “Effective Time”), each share of Class A common stock, par value $0.01 per share, of Hewitt (“Hewitt Common Stock”) outstanding immediately prior to the Effective Time will convert into, at the election of each of the holders of Hewitt Common Stock, (i) 0.6362 of a share of common stock, par value $1.00 per share, of Aon (“Aon Common Stock”), and $25.61 in cash (the “Mixed Consideration”), (ii) an amount of cash (the “Cash Consideration”) equal to the sum of (a) $25.61 and (b) the product obtained by multiplying 0.6362 by the Closing Volume-Weighted Average Price (as defined in the Merger Agreement), or (iii) a number of shares of Aon Common Stock (the “Stock Consideration”) equal to the sum of (a) 0.6362 and (b) the quotient obtained by dividing $25.61 by the closing volume-weighted average price of Aon Common Stock for the period of ten consecutive trading days ending on the second full trading day prior to the Effective Time (the “Exchange Ratio”).  Holders of Hewitt Common Stock who do not make an election will receive the Mixed Consideration.  The consideration to be paid to holders of Hewitt Common Stock electing to receive the Cash Consideration or the Stock Consideration in connection with the Merger is subject, pursuant to the terms of the Merger Agreement, to automatic adjustment, as applicable, to ensure that the amount of cash paid and the number of shares of Aon Common Stock issued by Aon in the Merger each represents approximately 50% of the aggregate merger consideration (taking into account the roll-over of Hewitt options, as described below).  No fractional shares of Aon Common Stock will be issued in the Merger, and holders of Hewitt Common Stock will receive cash in lieu of any fractional shares of Aon Common Stock.

 

In connection with the Merger, each outstanding unvested Hewitt stock option will fully vest, and, pursuant to the Merger Agreement, at the Effective Time, each outstanding Hewitt stock option will be converted into an option to purchase Aon Common Stock, with the same terms and conditions (but taking into account any changes, including any acceleration or vesting of such option, by reason of the Merger), with adjustments to reflect the Exchange Ratio.  Shares of Hewitt restricted stock will vest and be converted into the Mixed Consideration, and restricted stock units of Hewitt and performance share units of Hewitt will be settled in Hewitt common stock and then converted into the Mixed Consideration.

 

The closing of the Merger is subject to various conditions, including Aon and Hewitt stockholder approval, governmental and regulatory approvals and other usual and customary closing conditions.  The parties expect the Merger to close in mid-November 2010.

 

Concurrently, and in connection with entering into the Merger Agreement, Aon entered into a commitment letter (the “Debt Commitment Letter”) with Credit Suisse and Morgan Stanley Senior Funding, Inc. under which they committed to provide an unsecured term loan financing of up to $1.0 billion (the “Term Loan Facility”) and an unsecured bridge financing of up to $1.5 billion (the “Bridge Facility” and, together with the Term Loan Facility, the “Facilities”).  Aon has the option to issue up to $1.5 billion in senior notes in lieu of all or a portion of the drawing under the Bridge Facility or to refinance all or a portion of the Bridge Facility at a later date. The proceeds from these borrowings or issuances will be used by Aon to pay a portion of the cash consideration to be paid in the Merger, to refinance existing indebtedness of Hewitt and its subsidiaries and to pay related fees and expenses.  The Term Loan Facility will mature three years following the Effective Time, and the Bridge Facility will mature 364 days following the Effective Time.  The Debt Commitment Letter provides, among other things, that the closings of the Term Loan Facility and the Bridge Facility are subject to certain conditions.

Other Income (Expense) (Tables)
Other income (expense)

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Equity income of non-consolidated subsidiaries

 

$

4

 

$

1

 

$

6

 

$

2

 

Realized gain on sale of investments

 

 

 

1

 

 

Gains on disposal of businesses, net

 

2

 

7

 

6

 

6

 

Other

 

(1

)

6

 

(1

)

5

 

 

 

$

5

 

$

14

 

$

12

 

$

13

 

Acquisitions and Dispositions (Tables)
6 Months Ended
Jun. 30, 2010
Acquisitions and Dispositions
 
Schedule of business acquisition
Schedule of operating results of all businesses classified as discontinued operations

 

 

 

Six months ended June 30,

 

(millions)

 

2010

 

2009

 

Cash paid

 

$

64

 

$

28

 

 

 

 

 

 

 

Intangible assets:

 

 

 

 

 

Goodwill

 

$

41

 

$

13

 

Other intangible assets

 

38

 

14

 

 

 

$

79

 

$

27

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Revenues

 

$

 

$

1

 

$

 

$

2

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes:

 

 

 

 

 

 

 

 

 

Operations

 

$

 

$

7

 

$

 

$

5

 

Gain (loss) on sale:

 

 

 

 

 

 

 

 

 

AIS

 

 

 

 

86

 

Other

 

(41

)

(5

)

(39

)

2

 

 

 

(41

)

2

 

(39

)

93

 

Income taxes

 

(15

)

 

(13

)

41

 

Net income (loss)

 

$

(26

)

$

2

 

$

(26

)

$

52

 

Goodwill and Other Intangible Assets (Tables)
6 Months Ended
Jun. 30, 2010
Goodwill and Other Intangible Assets
 
Schedule of changes in the net carrying amount of goodwill by operating segment
Schedule of other intangible assets by asset class
Schedule of estimated amortization expense on intangible assets

 

 

 

Risk and

 

 

 

 

 

 

 

Insurance

 

 

 

 

 

 

 

Brokerage

 

 

 

 

 

 

 

Services

 

Consulting

 

Total

 

Balance as of December 31, 2009

 

$

5,693

 

$

385

 

$

6,078

 

Goodwill related to current year acquisitions

 

11

 

30

 

41

 

Goodwill related to prior year acquisitions

 

(14

)

1

 

(13

)

Foreign currency revaluation

 

(397

)

1

 

(396

)

Balance as of June 30, 2010

 

$

5,293

 

$

417

 

$

5,710

 

 

 

 

June 30, 2010

 

December 31, 2009

 

 

 

Gross

 

 

 

Gross

 

 

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Accumulated

 

 

 

Amount

 

Amortization

 

Amount

 

Amortization

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

 

 

Trademarks

 

$

131

 

$

 

$

136

 

$

 

 

 

 

 

 

 

 

 

 

 

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

Trademarks

 

3

 

 

 

 

Customer related and contract based

 

772

 

267

 

757

 

234

 

Marketing, technology and other

 

363

 

249

 

376

 

244

 

 

 

$

1,269

 

$

516

 

$

1,269

 

$

478

 

As of June 30, 2010, the estimated amortization for intangible assets is as follows (in millions):

 

Remainder of 2010

 

$

55

 

2011

 

104

 

2012

 

93

 

2013

 

84

 

2014

 

73

 

Thereafter

 

213

 

 

 

$

622

 

Restructuring (Tables)
6 Months Ended
Jun. 30, 2010
Restructuring
 
Schedule of restructuring and related expenses by type for Aon Benfield Restructuring Plan
Schedule of restructuring and related expenses by type for 2007 Restructuring Plan
Schedule summarizing the restructuring and related expenses by segment
Schedule of changes in company's liabilities for its restructuring plans

 

 

 

Actual

 

Estimated

 

 

 

Purchase

 

 

 

Second

 

 

 

 

 

Total Cost for

 

 

 

Price

 

 

 

Quarter

 

Six Months

 

Total to

 

Restructuring

 

 

 

Allocation

 

2009

 

2010

 

2010

 

Date

 

Period (1)

 

Workforce reduction

 

$

32

 

$

38

 

$

3

 

$

8

 

$

78

 

$

96

 

Lease consolidation

 

22

 

14

 

2

 

5

 

41

 

49

 

Asset impairments

 

 

2

 

1

 

1

 

3

 

6

 

Other costs associated with restructuring (2)

 

1

 

1

 

 

1

 

3

 

4

 

Total restructuring and related expenses

 

$

55

 

$

55

 

$

6

 

$

15

 

$

125

 

$

155

 

 


(1)    Actual costs, when incurred, will vary due to changes in the assumptions built into this plan.  Significant assumptions likely to change when plans are finalized and implemented include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives.

 

(2)   Other costs associated with restructuring initiatives, including moving costs and consulting and legal fees, are recognized when incurred.

 

 

 

Actual

 

Estimated

 

 

 

 

 

 

 

 

 

Second

 

 

 

 

 

Total Cost for

 

 

 

 

 

 

 

 

 

Quarter

 

Six Months

 

Total to

 

Restructuring

 

 

 

2007

 

2008

 

2009

 

2010

 

2010

 

Date

 

Period

 

Workforce reduction

 

$

17

 

$

166

 

$

251

 

$

16

 

$

73

 

$

507

 

$

509

 

Lease consolidation

 

22

 

38

 

78

 

7

 

13

 

151

 

152

 

Asset impairments

 

4

 

18

 

15

 

1

 

2

 

39

 

39

 

Other costs associated with restructuring (1)

 

3

 

29

 

13

 

1

 

4

 

49

 

50

 

Total restructuring and related expenses

 

$

46

 

$

251

 

$

357

 

$

25

 

$

92

 

$

746

 

$

750

 

 


(1) Other costs associated with restructuring initiatives, including moving costs and consulting and legal fees, are recognized when incurred.

 

 

 

Actual

 

Estimated

 

 

 

 

 

 

 

 

 

Second

 

 

 

 

 

Total Cost for

 

 

 

 

 

 

 

 

 

Quarter

 

Six Months

 

Total to

 

Restructuring

 

 

 

2007

 

2008

 

2009

 

2010

 

2010

 

Date

 

Period

 

Risk and Insurance Brokerage Services

 

$

41

 

$

234

 

$

322

 

$

23

 

$

83

 

$

680

 

$

684

 

Consulting

 

5

 

17

 

35

 

2

 

9

 

66

 

66

 

Total restructuring and related expenses

 

$

46

 

$

251

 

$

357

 

$

25

 

$

92

 

$

746

 

$

750

 

 

 

 

Benfield

 

2007

 

2005

 

 

 

 

 

Plan

 

Plan

 

Plan

 

Total

 

Balance at January 1, 2009

 

$

104

 

$

101

 

$

28

 

$

233

 

Expensed in 2009

 

53

 

342

 

(1

)

394

 

Cash payments in 2009

 

(67

)

(248

)

(12

)

(327

)

Purchase accounting adjustment

 

(49

)

 

 

(49

)

Foreign exchange translation

 

4

 

7

 

1

 

12

 

Balance at December 31, 2009

 

45

 

202

 

16

 

263

 

Expensed in 2010

 

14

 

90

 

 

104

 

Cash payments in 2010

 

(23

)

(95

)

(4

)

(122

)

Foreign exchange translation & other

 

(7

)

(15

)

1

 

(21

)

Balance at June 30, 2010

 

$

29

 

$

182

 

$

13

 

$

224

 

Investments (Tables)
6 Months Ended
Jun. 30, 2010
Investments
 
Schedule of interest bearing assets
Schedule of investments

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

Cash and cash equivalents

 

$

260

 

$

217

 

Short-term investments

 

474

 

422

 

Fiduciary assets

 

3,805

 

3,329

 

Investments

 

301

 

319

 

 

 

$

4,840

 

$

4,287

 

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

Equity method investments

 

$

179

 

$

113

 

Other investments at cost

 

108

 

103

 

Fixed-maturities at fair value

 

14

 

16

 

PEPS I preferred stock

 

 

87

 

 

 

$

301

 

$

319

 

Stockholders' Equity (Tables)
6 Months Ended
Jun. 30, 2010
Stockholders' Equity
 
Schedule disclosing share of participating securities in earnings
Schedule disclosing components of weighted average number of shares
Schedule of comprehensive income
Schedule of accumulated other comprehensive income

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Income from continuing operations

 

$

4

 

$

4

 

$

8

 

$

9

 

Income (loss) from discontinued operations

 

(1

)

 

(1

)

2

 

Net income

 

$

3

 

$

4

 

$

7

 

$

11

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Shares for basic earnings per share (1)

 

278.4

 

285.4

 

277.1

 

284.8

 

Common stock equivalents

 

4.2

 

7.3

 

4.6

 

7.4

 

Shares for diluted earnings per share

 

282.6

 

292.7

 

281.7

 

292.2

 

 


(1) Includes 6.3 million and 7.1 million of participating securities for the three months ended June 30, 2010 and 2009, respectively, and 6.3 million and 7.2 million of participating securities for the six months ended June 30, 2010 and 2009, respectively.

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Net income

 

$

158

 

$

155

 

$

344

 

$

440

 

Net derivative gains (losses)

 

(2

)

27

 

(26

)

18

 

Net unrealized investment losses

 

 

(1

)

 

(9

)

Net foreign currency translation adjustments

 

(132

)

235

 

(273

)

140

 

Net post-retirement benefit obligations

 

42

 

4

 

55

 

60

 

Comprehensive income

 

66

 

420

 

100

 

649

 

Less: Comprehensive income attributable to noncontrolling interests

 

3

 

8

 

11

 

12

 

Comprehensive income attributable to Aon stockholders

 

$

63

 

$

412

 

$

89

 

$

637

 

 

 

 

June 30,

 

January 1,

 

December 31,

 

 

 

2010

 

2010 (1)

 

2009

 

Net derivative losses

 

$

(26

)

$

 

$

 

Net unrealized investment gains

 

 

 

44

 

Net foreign currency translation adjustments

 

30

 

301

 

301

 

Net post-retirement benefit obligations

 

(1,965

)

(2,020

)

(2,020

)

Accumulated other comprehensive loss, net of tax

 

$

(1,961

)

$

(1,719

)

$

(1,675

)

 


(1) Reflects impact of adopting new accounting guidance which resulted in the consolidation of PEPS I effective January 1, 2010.

Employee Benefits (Tables)
Schedule disclosing components of the net periodic benefit cost

 

 

 

Three months ended June 30,

 

 

 

U.S.

 

International

 

 

 

2010

 

2009

 

2010

 

2009

 

Service cost

 

$

 

$

 

$

3

 

$

4

 

Interest cost

 

30

 

31

 

60

 

58

 

Expected return on plan assets

 

(29

)

(25

)

(57

)

(59

)

Amortization of net loss

 

5

 

5

 

12

 

10

 

Net periodic benefit cost

 

$

6

 

$

11

 

$

18

 

$

13

 

 

 

 

Six months ended June 30,

 

 

 

U.S.

 

International

 

 

 

2010

 

2009

 

2010

 

2009

 

Service cost

 

$

 

$

 

$

6

 

$

8

 

Interest cost

 

61

 

62

 

122

 

112

 

Expected return on plan assets

 

(59

)

(51

)

(117

)

(111

)

Amortization of prior-service cost

 

 

(1

)

 

1

 

Amortization of net loss

 

11

 

17

 

26

 

19

 

Net periodic benefit cost

 

$

13

 

$

27

 

$

37

 

$

29

 

Stock Compensation Plans (Tables)
6 Months Ended
Jun. 30, 2010
Stock Compensation Plans
 
Stock-based compensation expense
Non-vested stock awards
Performance-based plans
Weighted average assumptions, average expected life and estimated fair value of employee stock options
Stock options and related information

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Restricted stock units (“RSUs”)

 

$

29

 

$

30

 

$

70

 

$

64

 

Performance plans

 

22

 

11

 

41

 

16

 

Stock options

 

5

 

13

 

10

 

13

 

Employee stock purchase plans

 

1

 

1

 

2

 

2

 

Total stock compensation expense

 

$

57

 

$

55

 

$

123

 

$

95

 

 

Six months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

Fair

 

 

 

Fair

 

 

 

Shares

 

Value (1)

 

Shares

 

Value (1)

 

Non-vested at beginning of period

 

12,850

 

$

36

 

14,060

 

$

35

 

Granted

 

4,643

 

39

 

5,126

 

38

 

Vested

 

(5,235

)

36

 

(4,764

)

37

 

Forfeited

 

(248

)

36

 

(252

)

37

 

Non-vested at end of period

 

12,010

 

37

 

14,170

 

35

 

 


(1)         Represents weighted average fair value per share of award at date of grant.

 

 

 

As of June 30,

 

 

 

2010

 

2009

 

Potential RSUs to be issued based on current performance levels

 

5,343

 

6,116

 

Unamortized expense, based on current performance levels

 

$

139

 

$

138

 

 

 

 

Three months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Special

 

 

 

All Other

 

LPP

 

Stock Plan

 

 

 

Options

 

Options

 

Options

 

Weighted average volatility

 

25.4

%

35.7

%

35.7

%

Expected dividend yield

 

1.4

%

1.5

%

1.5

%

Risk-free rate

 

3.0

%

1.5

%

1.8

%

 

 

 

 

 

 

 

 

Weighted average expected life, in years

 

6.1

 

4.4

 

5.6

 

Weighted average estimated fair value per share

 

$

10.99

 

$

10.88

 

$

12.27

 

 

 

 

Six months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

Special

 

 

 

 

 

All Other

 

 

 

Stock Plan

 

All Other

 

 

 

Options

 

LPP Options

 

Options

 

Options

 

Weighted average volatility

 

28.5

%

35.5

%

35.7

%

35.5

%

Expected dividend yield

 

1.6

%

1.3

%

1.5

%

1.3

%

Risk-free rate

 

3.0

%

1.5

%

1.8

%

2.0

%

 

 

 

 

 

 

 

 

 

 

Weighted average expected life, in years

 

6.1

 

4.4

 

5.6

 

6.5

 

Weighted average estimated fair value per share

 

$

10.37

 

$

12.19

 

$

12.27

 

$

14.60

 

 

Six months ended June 30,

 

 

 

2010

 

2009

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Average

 

 

 

 

 

Exercise

 

 

 

Exercise

 

 

 

Shares

 

Price

 

Shares

 

Price

 

Outstanding at beginning of period

 

15,937

 

$

33

 

19,666

 

$

31

 

Granted

 

143

 

38

 

1,384

 

38

 

Exercised

 

(1,948

)

31

 

(2,508

)

26

 

Forfeited and expired

 

(242

)

32

 

(540

)

41

 

Outstanding at end of period

 

13,890

 

33

 

18,002

 

32

 

Exercisable at end of period

 

9,273

 

32

 

9,597

 

31

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Aggregate intrinsic value of stock options exercised

 

$

6

 

$

7

 

$

21

 

$

38

 

Cash received from the exercise of stock options

 

28

 

15

 

60

 

67

 

Tax benefit realized from the exercise of stock options

 

3

 

2

 

4

 

13

 

Derivatives and Hedging (Tables)
6 Months Ended
Jun. 30, 2010
Derivatives and Hedging
 
Fair values of derivative instruments
Derivative gains (losses)

As of June 30, 2010, the fair values of derivative instruments are as follows (in millions):

 

 

 

Derivative Assets

 

Derivative Liabilities

 

 

 

Balance Sheet

 

Fair

 

Balance Sheet

 

Fair

 

 

 

Location

 

Value

 

Location

 

Value

 

Derivatives accounted for as hedges:

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

Other assets

 

$

26

 

Other liabilities

 

$

 

Foreign exchange contracts

 

Other assets

 

354

 

Other liabilities

 

244

 

Total

 

 

 

380

 

 

 

244

 

 

 

 

 

 

 

 

 

 

 

Derivatives not accounted for as hedges:

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other assets

 

3

 

Other liabilities

 

2

 

Total

 

 

 

$

383

 

 

 

$

246

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Three months ended June 30, 2010

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

 

Investment income

 

$

5

 

Foreign exchange contracts

 

(65

)

Other general expenses and Interest expense

 

(67

)

Total

 

$

(65

)

 

 

$

(62

)

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

132

 

N/A

 

$

 

 

 

 

 

 

 

 

 

 

Location of Gain

 

 

 

Amount of Gain

 

 

 

 

 

(Loss) Recognized in

 

 

 

(Loss) Recognized in

 

 

 

Amount of Gain (Loss)

 

Income on Derivative

 

 

 

Income on

 

Hedged item in Fair Value

 

Recognized in Income

 

and Related Hedged

 

Three months ended June 30, 2010

 

Derivative

 

Hedge Relationships

 

on Related Hedged Item

 

Item

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

5

 

Fixed rate debt

 

$

(5

)

Interest expense

 

 

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Six months ended June 30, 2010

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

2

 

Investment income

 

$

11

 

Foreign exchange contracts

 

(140

)

Other general expenses and Interest expense

 

(106

)

Total

 

$

(138

)

 

 

$

(95

)

 

 

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

205

 

N/A

 

$

 

 

 

 

 

 

 

 

 

 

Location of Gain

 

 

 

Amount of Gain

 

 

 

 

 

(Loss) Recognized in

 

 

 

(Loss) Recognized in

 

 

 

Amount of Gain (Loss)

 

Income on Derivative

 

 

 

Income on

 

Hedged item in Fair Value

 

Recognized in Income

 

and Related Hedged

 

Six months ended June 30, 2010

 

Derivative

 

Hedge Relationships

 

on Related Hedged Item

 

Item

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

12

 

Fixed rate debt

 

$

(11

)

Interest expense

 

 

 

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Three months ended June 30, 2009

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

5

 

Investment income

 

$

9

 

Foreign exchange contracts

 

11

 

Other general expenses and Interest expense

 

(35

)

Total

 

$

16

 

 

 

$

(26

)

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

(30

)

N/A

 

$

 

 

 

 

Amount of Gain

 

 

 

Amount of Gain (Loss)

 

 

 

(Loss) Recognized in

 

Location of Gain (Loss)

 

Reclassified from OCI

 

 

 

OCI on Derivative

 

Reclassified from OCI into

 

into Income (Effective

 

Six months ended June 30, 2009

 

(Effective Portion)

 

Income (Effective Portion)

 

Portion)

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

Interest rate contracts

 

$

8

 

Investment income

 

$

19

 

Foreign exchange contracts

 

(2

)

Other general expenses and Interest expense

 

(42

)

Total

 

$

6

 

 

 

$

(23

)

 

 

 

 

 

 

 

 

Foreign net investment hedges:

 

 

 

 

 

 

 

Foreign exchange contracts

 

$

(34

)

N/A

 

$

 

Fair Value and Financial Instruments (Tables)
6 Months Ended
Jun. 30, 2010
Fair Value and Financial Instruments
 
Schedule of assets and liabilities that are measured at fair value on a recurring basis
Schedule of changes in the Level 3 fair-value category
Schedule of financial instruments where the carrying amounts and fair values differ

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

 

 

Active Markets

 

Other

 

Unobservable

 

 

 

Balance at

 

for Identical

 

Observable

 

Inputs

 

 

 

June 30, 2010

 

Assets (Level 1)

 

Inputs (Level 2)

 

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

Money market funds and highly liquid debt securities (1)

 

$

2,045

 

$

2,018

 

$

27

 

$

 

Fixed maturity securities

 

 

 

 

 

 

 

 

 

Corporate bonds

 

21

 

 

 

21

 

Government bonds

 

3

 

 

3

 

 

Derivatives

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

26

 

 

26

 

 

Foreign exchange contracts

 

270

 

 

270

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

159

 

 

159

 

 

Guarantees

 

4

 

 

 

4

 

 


(1) Includes $2,018 million of money market funds and $27 million of highly liquid debt securities that are classified as Fiduciary assets, Short-term investments or Cash equivalents in the Condensed Consolidated Statements of Financial Position, depending on their nature and initial maturity.  See Note 8 for additional information regarding the Company’s investments.

 

Fair Value Measurements Using Level 3 Inputs

 

 

 

Other

 

 

 

 

 

Investments

 

Guarantees

 

Balance at March 31, 2010

 

$

11

 

$

(4

)

Total gains (losses):

 

 

 

 

 

Included in earnings

 

 

 

Included in other comprehensive income

 

 

 

Purchases and sales

 

10

 

 

Transfers

 

 

 

Balance at June 30, 2010

 

$

21

 

$

(4

)

 

 

 

 

Fair Value Measurements Using Level 3 Inputs

 

 

 

Other

 

 

 

 

 

Investments

 

Guarantees

 

Balance at December 31, 2009

 

$

100

 

$

(4

)

Total gains (losses):

 

 

 

 

 

Included in earnings

 

 

 

Included in other comprehensive income

 

(1

)

 

Purchases and sales

 

9

 

 

Transfers (1)

 

(87

)

 

Balance at June 30, 2010

 

$

21

 

$

(4

)

 


(1) Transfers represent the removal of the investment in PEPS I preferred stock as a result of consolidating PEPS I on January 1, 2010.  See Note 9 for further information.

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

 

Value

 

Value

 

Value

 

Value

 

Long-term debt

 

$

1,601

 

$

1,707

 

$

1,998

 

$

2,086

 

Segment Information (Tables)
6 Months Ended
Jun. 30, 2010
Segment Information
 
Schedule of total revenue by business segments
Schedule of commissions, fees and other revenue by products
Schedule of fiduciary investment income by business segments
Schedule of reconciliation of segment operating income to total income from continuing operations before income taxes
Schedule of revenues attributed to geographic areas based on the location of the resources producing the revenues

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Risk and Insurance Brokerage Services

 

$

1,587

 

$

1,577

 

$

3,174

 

$

3,120

 

Consulting

 

317

 

300

 

639

 

609

 

Intersegment elimination

 

(6

)

(6

)

(11

)

(12

)

Total operating segments

 

1,898

 

1,871

 

3,802

 

3,717

 

Unallocated

 

 

11

 

 

11

 

Total revenue

 

$

1,898

 

$

1,882

 

$

3,802

 

$

3,728

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Retail brokerage

 

$

1,214

 

$

1,186

 

$

2,400

 

$

2,310

 

Reinsurance brokerage

 

359

 

372

 

747

 

767

 

Total Risk and Insurance Brokerage Services Segment

 

1,573

 

1,558

 

3,147

 

3,077

 

Consulting services

 

265

 

251

 

540

 

514

 

Outsourcing

 

51

 

49

 

98

 

94

 

Total Consulting Segment

 

316

 

300

 

638

 

608

 

Intersegment elimination

 

(6

)

(6

)

(11

)

(12

)

Unallocated

 

 

11

 

 

11

 

Total commissions, fees and other revenue

 

$

1,883

 

$

1,863

 

$

3,774

 

$

3,684

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Risk and Insurance Brokerage Services

 

$

14

 

$

19

 

$

27

 

$

43

 

Consulting

 

1

 

 

1

 

1

 

Total fiduciary investment income

 

$

15

 

$

19

 

$

28

 

$

44

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Risk and Insurance Brokerage Services

 

$

305

 

$

201

 

$

562

 

$

524

 

Consulting

 

45

 

41

 

94

 

111

 

Unallocated revenue

 

 

11

 

 

11

 

Unallocated expenses

 

(82

)

(33

)

(115

)

(60

)

Total operating income

 

268

 

220

 

541

 

586

 

Interest income

 

4

 

2

 

5

 

9

 

Interest expense

 

(33

)

(26

)

(67

)

(55

)

Other income

 

5

 

14

 

12

 

13

 

Income from continuing operations before income taxes

 

$

244

 

$

210

 

$

491

 

$

553

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

United States

 

$

741

 

$

705

 

$

1,384

 

$

1,355

 

Americas other than U.S.

 

249

 

245

 

447

 

417

 

United Kingdom

 

311

 

329

 

585

 

621

 

Europe, Middle East and Africa

 

412

 

438

 

1,062

 

1,051

 

Asia Pacific

 

185

 

165

 

324

 

284

 

Total

 

$

1,898

 

$

1,882

 

$

3,802

 

$

3,728

 

Cash and Cash Equivalents (Details) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Cash and Cash Equivalents
 
 
Restricted balances
$ 79 
$ 85 
Other Income (Expense) (Details) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Other Income (Expense)
 
 
 
 
Equity income of non-consolidated subsidiaries
$ 4 
$ 6 
$ 1 
$ 2 
Realized gain on sale of investments
 
 
 
Gains on disposal of businesses, net
Other
(1)
(1)
Other income
$ 5 
$ 12 
$ 14 
$ 13 
Acquisitions and Dispositions (Details)
6 Months Ended
Jun. 30,
2010
2009
Risk and Insurance Brokerage Services
 
 
Number of companies acquired under business combination
13 
Acquisitions and Dispositions (Details 2) (USD $)
In Millions
Jun. 30, 2010
Jun. 30, 2009
Acquisitions and Dispositions
 
 
Future acquisition payments
$ 40 
 
Cash paid
64 
28 
Intangible assets
 
 
Goodwill
41 
13 
Other intangible assets
38 
14 
Intangible assets
$ 79 
$ 27 
Acquisitions and Dispositions (Details 3) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
15 Months Ended
Mar. 31, 2009
3 Months Ended
Mar. 31, 2009
Year Ended
Dec. 31, 2008
Dispositions continuing operations
 
 
 
 
 
 
 
Pretax loss on disposition of continuing operations
$ 2 
$ 6 
$ 7 
$ 6 
 
 
 
Dispositions discontinued operations
 
 
 
 
 
 
 
Operating results for all businesses classified as discontinued operations (in millions):
 
 
 
 
 
 
 
Revenues
 
 
 
Income (loss) before income taxes:
 
 
 
 
 
 
 
Operations
 
 
 
Income (loss) from discontinued operations before income taxes
(41)
(39)
93 
 
 
 
Income taxes
(15)
(13)
 
41 
 
 
 
Income (loss) from discontinued operations
(26)
(26)
52 
 
 
 
Expense for the settlement of legacy litigation
38 
38 
 
 
 
 
 
U.S. Cananwill operations
 
 
 
 
 
 
 
Dispositions continuing operations
 
 
 
 
 
 
 
Pretax loss on disposition of continuing operations
 
 
 
 
Disposition, potential contingent consideration
10 
10 
 
 
 
 
 
Disposition, Contingent consideration, period of time following the sale (in years)
 
 
 
 
 
 
Amount received from buyer recorded in other income (expense)
 
 
 
 
 
 
Potential liability, guarantee of collection of principal amount of premium finance notes sold to the buyer
 
 
 
 
 
 
AIS Management Corporation
 
 
 
 
 
 
 
Dispositions continuing operations
 
 
 
 
 
 
 
Disposition, potential contingent consideration
 
 
 
 
 
 
35 
Disposition, Contingent consideration, period of time following the sale (in years)
 
 
 
 
 
 
Dispositions discontinued operations
 
 
 
 
 
 
 
Cash consideration on sale of discontinued operation
 
 
 
 
 
 
120 
Income (loss) before income taxes:
 
 
 
 
 
 
 
Gain on sale:
 
86 
 
 
 
Other discontinued operations
 
 
 
 
 
 
 
Income (loss) before income taxes:
 
 
 
 
 
 
 
Gain on sale:
$ (41)
$ (39)
$ (5)
$ 2 
 
 
 
Goodwill and Other Intangible Assets (Details) (USD $)
In Millions
6 Months Ended
Jun. 30, 2010
Changes in the net carrying amount of goodwill by operating segment (in millions)
 
Balance as of December 31, 2009
$ 6,078 
Goodwill related to current year acquisitions
41 
Goodwill related to prior year acquisitions
(13)
Foreign currency revaluation
(396)
Balance as of June 30, 2010
5,710 
Risk and Insurance Brokerage Services
 
Changes in the net carrying amount of goodwill by operating segment (in millions)
 
Balance as of December 31, 2009
5,693 
Goodwill related to current year acquisitions
11 
Goodwill related to prior year acquisitions
(14)
Foreign currency revaluation
(397)
Balance as of June 30, 2010
5,293 
Consulting
 
Changes in the net carrying amount of goodwill by operating segment (in millions)
 
Balance as of December 31, 2009
385 
Goodwill related to current year acquisitions
30 
Goodwill related to prior year acquisitions
Foreign currency revaluation
Balance as of June 30, 2010
$ 417 
Goodwill and Other Intangible Assets (Details 2) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
Dec. 31, 2009
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Goodwill and Other Intangible Assets
 
 
 
 
 
Trademarks
$ 131 
$ 131 
$ 136 
 
 
Other intangible assets, accumulated amortization
516 
516 
478 
 
 
Other intangible assets, gross
1,269 
1,269 
1,269 
 
 
Amortization expense on intangible assets
29 
56 
 
22 
45 
Estimated amortization for intangible assets
 
 
 
 
 
Remainder of 2010
55 
 
 
 
 
2011
104 
 
 
 
 
2012
93 
 
 
 
 
2013
84 
 
 
 
 
2014
73 
 
 
 
 
Thereafter
213 
 
 
 
 
Estimated amortization for intangible assets
622 
 
 
 
 
Trademarks
 
 
 
 
 
Gross Carrying Amount
 
 
 
 
Customer Related and Contract Based
 
 
 
 
 
Gross Carrying Amount
772 
 
757 
 
 
Other intangible assets, accumulated amortization
267 
 
234 
 
 
Marketing, Technology and Other
 
 
 
 
 
Gross Carrying Amount
363 
 
376 
 
 
Other intangible assets, accumulated amortization
$ 249 
 
$ 244 
 
 
Restructuring (Details) (USD $)
In Millions
Year Ended
Dec. 31,
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
Year Ended
Dec. 31, 2009
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
2008
2007
Purchase price allocation
$ 0 
$ 0 
$ 0 
$ 0 
$ 0 
$ 0 
$ 0 
Estimated Total Cost for Restructuring Period
Aon Benfield Restructuring Plan
 
 
 
 
 
 
 
Number of employees eliminated to date under the plan
595 
595 
 
 
 
 
 
Number of employees expected to be eliminated under the plan
700 
700 
 
 
 
 
 
Restructuring costs recorded in earnings to date
 
70 
 
 
 
 
 
Estimated additional restructuring costs to be recorded in future earnings
 
30 
 
 
 
 
 
Total restructuring payments to date
 
90 
 
 
 
 
 
Purchase price allocation
 
55 
 
 
 
 
 
Restructuring and related charges
15 
55 
21 
30 
 
 
Restructuring charges total to date
 
125 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
155 
 
 
 
 
 
Aon Benfield Restructuring Plan | Workforce reduction
 
 
 
 
 
 
 
Purchase price allocation
 
32 
 
 
 
 
 
Restructuring and related charges
38 
 
 
 
 
Restructuring charges total to date
 
78 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
96 
 
 
 
 
 
Aon Benfield Restructuring Plan | Lease consolidation
 
 
 
 
 
 
 
Purchase price allocation
 
22 
 
 
 
 
 
Restructuring and related charges
14 
 
 
 
 
Restructuring charges total to date
 
41 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
49 
 
 
 
 
 
Aon Benfield Restructuring Plan | Asset impairments
 
 
 
 
 
 
 
Restructuring and related charges
 
 
 
 
Restructuring charges total to date
 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
 
 
 
 
 
Aon Benfield Restructuring Plan | Other costs associated with restructuring
 
 
 
 
 
 
 
Purchase price allocation
 
 
 
 
 
 
Restructuring and related charges
 
 
 
 
 
Restructuring charges total to date
 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
 
 
 
 
 
2007 Restructuring Plan
 
 
 
 
 
 
 
Number of employees eliminated to date under the plan
4,170 
4,170 
 
 
 
 
 
Number of employees expected to be eliminated under the plan
4,600 
4,600 
 
 
 
 
 
Estimated additional restructuring costs to be recorded in future earnings
 
 
 
 
 
 
Restructuring and related charges
25 
92 
357 
74 
108 
251 
46 
Restructuring charges total to date
 
746 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
750 
 
 
 
 
 
2007 Restructuring Plan | Workforce reduction
 
 
 
 
 
 
 
Restructuring and related charges
16 
73 
251 
 
 
166 
17 
Restructuring charges total to date
 
507 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
509 
 
 
 
 
 
2007 Restructuring Plan | Lease consolidation
 
 
 
 
 
 
 
Restructuring and related charges
13 
78 
 
 
38 
22 
Restructuring charges total to date
 
151 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
152 
 
 
 
 
 
2007 Restructuring Plan | Asset impairments
 
 
 
 
 
 
 
Restructuring and related charges
15 
 
 
18 
Restructuring charges total to date
 
39 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
39 
 
 
 
 
 
2007 Restructuring Plan | Other costs associated with restructuring
 
 
 
 
 
 
 
Restructuring and related charges
13 
 
 
29 
Restructuring charges total to date
 
49 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
$ 50 
 
 
 
 
 
Restructuring (Details 2) (USD $)
Year Ended
Dec. 31,
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
Year Ended
Dec. 31, 2009
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
2008
2007
Estimated Total Cost for Restructuring Period
$ 0 
$ 0 
$ 0 
$ 0 
$ 0 
$ 0 
$ 0 
Risk and Insurance Brokerage Services | 2007 Restructuring Plan
 
 
 
 
 
 
 
Restructuring and related charges
23,000,000 
83,000,000 
322,000,000 
 
 
234,000,000 
41,000,000 
Restructuring charges total to date
 
680,000,000 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
684,000,000 
 
 
 
 
 
2007 Restructuring Plan
 
 
 
 
 
 
 
Restructuring and related charges
25,000,000 
92,000,000 
357,000,000 
74,000,000 
108,000,000 
251,000,000 
46,000,000 
Restructuring charges total to date
 
746,000,000 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
750,000,000 
 
 
 
 
 
Consulting | 2007 Restructuring Plan
 
 
 
 
 
 
 
Restructuring and related charges
2,000,000 
9,000,000 
35,000,000 
 
 
17,000,000 
5,000,000 
Restructuring charges total to date
 
66,000,000 
 
 
 
 
 
Estimated Total Cost for Restructuring Period
 
$ 66,000,000 
 
 
 
 
 
Restructuring (Details 3) (USD $)
In Millions
6 Months Ended
Jun. 30, 2010
Year Ended
Dec. 31, 2009
Restructuring Reserve
 
 
Beginning balance
$ 263 
$ 233 
Expensed
104 
394 
Cash payments
(122)
(327)
Purchase accounting adjustment
(49)
Foreign exchange translation & other
(21)
12 
Ending balance
224 
263 
Aon Benfield Restructuring Plan
 
 
Restructuring Reserve
 
 
Beginning balance
45 
104 
Expensed
14 
53 
Cash payments
(23)
(67)
Purchase accounting adjustment
(49)
Foreign exchange translation & other
(7)
Ending balance
29 
45 
2007 Restructuring Plan
 
 
Restructuring Reserve
 
 
Beginning balance
202 
101 
Expensed
90 
342 
Cash payments
(95)
(248)
Purchase accounting adjustment
 
Foreign exchange translation & other
(15)
Ending balance
182 
202 
2005 Restructuring Plan
 
 
Restructuring Reserve
 
 
Beginning balance
16 
28 
Expensed
(1)
Cash payments
(4)
(12)
Purchase accounting adjustment
 
Foreign exchange translation & other
Ending balance
$ 13 
$ 16 
Investments (Details) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Jun. 30, 2009
Dec. 31, 2008
Fiduciary Assets
 
 
 
 
Fiduciary assets, interest-bearing cash and investments
$ 3,805 
$ 3,329 
 
 
Fiduciary assets, fiduciary receivables
8,400 
 
 
7,500 
Interest Bearing Assets
 
 
 
 
Cash and cash equivalents
260 
217 
537 
582 
Short-term investments
474 
422 
 
 
Fiduciary assets, interest-bearing cash and investments
3,805 
3,329 
 
 
Investments
301 
319 
 
 
Total interest-bearing assets
4,840 
4,287 
 
 
Investments:
 
 
 
 
Equity method investments
179 
113 
 
 
Other investments at cost
108 
103 
 
 
Fixed-maturity securities
14 
16 
 
 
PEPS I preferred stock
 
87 
 
 
Investments
$ 301 
$ 319 
 
 
Variable Interest Entities (Details) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Jun. 30, 2009
Dec. 31, 2008
Year Ended
Dec. 31, 2001
Equity method investments
$ 179 
$ 113 
 
 
 
Cash
260 
217 
537 
582 
 
Restricted cash
79 
85 
 
 
 
Accumulated other comprehensive income net of tax
1,961 
1,675 
 
 
 
Retained earnings
7,605 
7,335 
 
 
 
Private Equity Partnership Structures I, LLC (PEPS I)
 
 
 
 
 
Sale of majority of limited partnership portfolio to PEPS I
 
 
 
 
450 
Elimination of the investment in PEPS I preferred stock on consolidation
87 
 
 
 
 
Equity method investments
77 
 
 
 
 
Cash
57 
 
 
 
 
Restricted cash
52 
 
 
 
 
Long-term debt
47 
 
 
 
 
Accumulated other comprehensive income net of tax
44 
 
 
 
 
Retained earnings
44 
 
 
 
 
Funded Commitments to variable interest entity
 
 
 
 
Unfunded commitments to variable interest entity
41 
 
 
 
 
Juniperus Insurance Opportunity Fund Limited (Juniperus)
 
 
 
 
 
Equity method investments
 
 
 
 
Variable interest entity ownership (percent in hundredths)
36% 
 
 
 
 
Maximum potential loss on investment in Variable Interest Entities
67 
 
 
 
 
Investment in Variable interest entity
$ 67 
 
 
 
 
Debt (Details)
In Millions
3 Months Ended
Jun. 30, 2010
Debt
 
Long-term debt from consolidation of PEPS I VIE
$ 47 
Reclassification of debt to short-term debt and current portion of long-term debt
Can$ 375 
Percentage interest rate on reclassified debt (in hundredths)
5.05% 
Stockholders' Equity (Details) (USD $)
In Millions, except Share data in Thousands and Per Share data
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
Mar. 31, 2010
6 Months Ended
Jun. 30, 2009
Dec. 31, 2005
Year Ended
Dec. 31, 2001
Cost of shares repurchased (in dollars)
 
$ 100 
 
 
 
 
Number of entities acquired that returned shares of Aon common stock upon acquisition
 
 
 
 
 
Aon shares obtained upon acquisition of controlled entities
22,400 
 
 
 
 
 
Number of treasury shares reissued for employee benefit plans
 
5,700 
 
5,000 
 
 
Number of treasury shares reissued for employee stock purchase plans
 
186 
 
157 
 
 
Number of shares issued for employee benefit plans
 
 
 
966 
 
 
Share repurchase program of year 2005
 
 
 
 
 
 
Share repurchase authorization limit (in dollars)
4,600 
4,600 
 
 
4,600 
 
Cost of shares repurchased (in dollars)
50 
100 
 
 
 
 
Number of shares repurchased
1,200 
2,400 
 
 
 
 
Cumulative value of shares purchased under share repurchase program (in dollars)
4,400 
4,400 
 
 
 
 
Cumulative number of shares purchased under share repurchase program
108,300 
108,300 
 
 
 
 
Average price per share of shares purchased under share repurchase program (in dollars per share)
41.03 
 
 
 
 
 
Share repurchase program, remaining funds authorized (in dollars)
165 
165 
 
 
 
 
Share repurchase program of year 2010
 
 
 
 
 
 
Share repurchase authorization limit (in dollars)
$ 2,000 
$ 2,000 
$ 2,000 
 
 
 
Stockholders' Equity (Details 2) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Participating Securities
 
 
 
 
Income from continuing operations (in dollars)
$ 4 
$ 8 
$ 4 
$ 9 
Income (loss) from discontinued operations (in dollars)
(1)
(1)
 
Net income (in dollars)
11 
Shares for basic earnings per share
278.4 
277.1 
285.4 
284.8 
Common stock equivalents
4.2 
4.6 
7.3 
7.4 
Shares for diluted earnings per share
282.6 
281.7 
292.7 
292.2 
Number of participating securities
6.3 
6.3 
7.1 
7.2 
Number of shares excluded from the calculation of diluted earnings per share
4.0 
5.0 
5.0 
5.0 
Stockholders' Equity (Details 3) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Comprehensive income, net of related tax:
 
 
 
 
Net income
$ 158 
$ 344 
$ 155 
$ 440 
Net derivative gains (losses)
(2)
(26)
27 
18 
Net unrealized investment losses
 
 
(1)
(9)
Net foreign currency translation adjustments
(132)
(273)
235 
140 
Net post-retirement benefit obligations
42 
55 
60 
Total Comprehensive Income
66 
100 
420 
649 
Less: Comprehensive income attributable to noncontrolling interests
11 
12 
Comprehensive income attributable to Aon stockholders
$ 63 
$ 89 
$ 412 
$ 637 
Stockholders' Equity (Details 4) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Net derivative losses
$ (26)
 
Net unrealized investment gains
44 
Net foreign currency translation adjustments
30 
301 
Net post-retirement benefit obligations
(1,965)
(2,020)
Accumulated other comprehensive loss, net of tax
(1,961)
(1,675)
Adoption of new accounting guidance
 
 
Net derivative losses
 
Net unrealized investment gains
 
Net foreign currency translation adjustments
 
301 
Net post-retirement benefit obligations
 
(2,020)
Accumulated other comprehensive loss, net of tax
 
$ (1,719)
Employee Benefits (Details) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
3 Months Ended
Mar. 31, 2009
U.S.
 
 
 
 
 
Service cost
$ 0 
$ 0 
 
 
 
Interest cost
30 
61 
31 
62 
 
Expected return on plan assets
(29)
(59)
(25)
(51)
 
Amortization of prior-service cost
 
 
 
(1)
 
Amortization of net loss
11 
17 
 
Net periodic benefit cost
13 
11 
27 
 
Pretax expenses recognized as a result of an error
49 
 
 
 
 
Expenses recognized as a result of an error, net of taxes
29 
 
 
 
 
Estimate of aggregate contributions to defined benefit pension plans for the current fiscal year
30 
30 
 
 
 
Contributions made to defined benefit pension plans
 
14 
 
 
 
U.S. | Continuing operations
 
 
 
 
 
Curtailment gain, ceasing crediting future benefits
 
 
 
 
83 
U.S. | Discontinued operations
 
 
 
 
 
Curtailment gain, ceasing crediting future benefits
 
 
 
 
10 
International
 
 
 
 
 
Service cost
 
Interest cost
60 
122 
58 
112 
 
Expected return on plan assets
(57)
(117)
(59)
(111)
 
Amortization of prior-service cost
 
 
 
 
Amortization of net loss
12 
26 
10 
19 
 
Net periodic benefit cost
18 
37 
13 
29 
 
Curtailment charge , ceasing service accruals
 
 
 
 
Estimate of aggregate contributions to defined benefit pension plans for the current fiscal year
248 
248 
 
 
 
Contributions made to defined benefit pension plans
 
$ 126 
 
 
 
Stock Compensation Plans (Details) (USD $)
In Millions, except Share data in Thousands and Per Share data
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Stock Compensation Plans
 
 
 
 
Restricted stock units ("RSUs")
$ 29 
$ 70 
$ 30 
$ 64 
Performance plans
22 
41 
11 
16 
Stock options
10 
13 
13 
Employee stock purchase plans
Total stock compensation expense
57 
123 
55 
95 
Reduction of stock-based compensation expense
 
 
 
10 
Shares granted
 
3,100 
 
3,100 
Shares
 
 
 
 
Non-vested at beginning of period (in shares)
 
12,850 
 
14,060 
Granted (in shares)
 
4,643 
 
5,126 
Vested (in shares)
 
(5,235)
 
(4,764)
Forfeited (in shares)
 
(248)
 
(252)
Non-vested at end of period (in shares)
12,010 
12,010 
14,170 
14,170 
Weighted Average Fair value
 
 
 
 
Non-vested at beginning of period (in dollars per share)
 
36 
 
35 
Granted (in dollars per share)
 
39 
 
38 
Vested (in dollars per share)
 
36 
 
37 
Forfeited (in dollars per share)
 
36 
 
37 
Non-vested at end of period (in dollars per share)
37 
37 
35 
35 
Potential RSUs to be issued based on current performance levels (in shares)
5,343 
5,343 
6,116 
6,116 
Unamortized expense, based on current performance levels
139 
139 
138 
138 
Leadership Performance Plan ("LPP") cycle
 
 
 
 
Shares granted
 
1,600 
 
2,000 
Stock Compensation Plans (Details 2)
Share data in Thousands, except Per Share data
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Stock Compensation Plans
 
 
 
 
Stock Options
 
 
 
 
Outstanding at beginning of period (in shares)
 
15,937 
 
19,666 
Granted (in shares)
 
143 
 
1,384 
Exercised (in shares)
 
(1,948)
 
(2,508)
Forfeited and expired (in shares)
 
(242)
 
(540)
Outstanding at end of period (in shares)
13,890 
13,890 
18,002 
18,002 
Exercisable (in shares)
9,273 
9,273 
9,597 
9,597 
Weighted-Average Exercise Price
 
 
 
 
Outstanding at beginning of period (in dollars per share)
 
33 
 
31 
Granted (in dollars per share)
 
38 
 
38 
Exercised (in dollars per share)
 
31 
 
26 
Forfeited and expired (in dollars per share)
 
32 
 
41 
Outstanding at end of period (in dollars per share)
33 
33 
32 
32 
Exercisable at end of period (in dollars per share)
32 
32 
31 
31 
Weighted average remaining contractual life, in years, of outstanding options (in years)
3.9 
 
4.5 
 
All Other Options
 
 
 
 
Weighted average volatility (percent in hundredths)
25.4% 
28.5% 
 
35.5% 
Expected dividend yield (percent in hundredths)
1.4% 
1.6% 
 
1.3% 
Risk-free rate (percent in hundredths)
3.0% 
3.0% 
 
2% 
Weighted average expected life, (in years)
6.1 
6.1 
 
6.5 
Weighted average estimated fair value per share (in dollars per share)
10.99 
10.37 
 
14.60 
Leadership Performance Plan ("LPP") cycle
 
 
 
 
Weighted average volatility (percent in hundredths)
 
 
35.7% 
35.5% 
Expected dividend yield (percent in hundredths)
 
 
1.5% 
1.3% 
Risk-free rate (percent in hundredths)
 
 
1.5% 
1.5% 
Weighted average expected life, (in years)
 
 
4.4 
4.4 
Weighted average estimated fair value per share (in dollars per share)
 
 
10.88 
12.19 
Stock Options
 
 
 
 
Granted (in shares)
 
 
 
1,000 
Weighted-Average Exercise Price
 
 
 
 
Granted (in dollars per share)
 
 
 
39 
Special Stock Plan Options
 
 
 
 
Weighted average volatility (percent in hundredths)
 
 
35.7% 
35.7% 
Expected dividend yield (percent in hundredths)
 
 
1.5% 
1.5% 
Risk-free rate (percent in hundredths)
 
 
1.8% 
1.8% 
Weighted average expected life, (in years)
 
 
5.6 
5.6 
Weighted average estimated fair value per share (in dollars per share)
 
 
12.27 
12.27 
Stock Options
 
 
 
 
Granted (in shares)
 
 
 
400 
Weighted-Average Exercise Price
 
 
 
 
Granted (in dollars per share)
 
 
 
37 
Stock Compensation Plans (Details 3) (USD $)
In Millions, except Per Share data
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Stock Options
 
 
 
 
Closing stock price (in dollars per share)
37.12 
37.12 
 
 
Aggregate intrinsic value of options outstanding
75 
75 
 
 
Aggregate intrinsic value of exercisable options outstanding
54 
54 
 
 
Aggregate intrinsic value of stock options exercised
21 
38 
Cash received from the exercise of stock options
28 
60 
15 
67 
Tax benefit realized from the exercise of stock options
13 
Unamortized deferred compensation expense
$ 316 
$ 316 
 
 
Remaining weighted-average amortization period (in years)
2.0 
 
 
 
Derivatives and Hedging (Details)
In Millions
3 Months Ended
Jun. 30, 2010
Year Ended
Dec. 31, 2009
Derivatives and Hedging
 
 
Collateral received from derivative counterparties
$ 169 
 
Collateral pledged to derivative counterparties
84 
 
Foreign Exchange Risk Management
 
 
Foreign currency exposures, maximum hedging period (in years)
 
Notional amount of foreign exchange cash flow hedge derivatives
2,200 
 
Pretax gain or loss deferred to OCI related to cash flow hedges utilizing foreign currency derivatives
48 
 
Expected reclassification of gains or losses on foreign exchange derivatives used as cash flow hedges to earnings in next twelve months
28 
 
Notional amount of foreign exchange derivatives not designated or qualifying as cash flow hedges
161 
 
Net investments in foreign operations, maximum hedging period (in years)
 
Notional amount of foreign exchange derivatives used as net investment hedge
1,500 
 
Pretax gain or loss deferred to OCI related to net investment hedges utilizing foreign exchange derivatives
205 
 
Notional amount of foreign currency derivatives not eligible for hedge accounting treatment
63 
 
Period to manage the currency exposure of global liquidity profile (in years)
 
Interest Rate Risk Management
 
 
Interest rate fluctuations, maximum hedging period (in years)
 
Notional amount of interest rate derivatives designated as cash flow hedges for exposures to interest rate fluctuations
1,100 
 
Pretax gain or loss deferred to OCI related to interest rate derivatives used as cash flow hedges
 
Pretax gain or loss deferred to OCI related to interest rate derivatives used as cash flow hedges and expected to be reclassified to earnings in the next 12 months
 
Fixed rate debt issued by subsidiary (in EUR)
 
500 
Carrying amount of fixed rate debt issued by foreign subsidiary at exchange rates in effect at end of period (in dollars)
618 
 
Notional amount of interest rate derivatives designated as fair value hedges
250 
 
Total fair value of derivative assets accounted for as hedges
380 
 
Total fair value of derivative liabilities accounted for as hedges
244 
 
Total fair value of derivative assets
383 
 
Total fair value of derivative liabilities
246 
 
Other assets
 
 
Fair value of interest rate contracts accounted for as hedges, assets
26 
 
Fair value of foreign exchange contracts accounted for as hedges, assets
354 
 
Fair value of foreign exchange contracts not accounted for as hedges, assets
 
Other liabilities
 
 
Fair value of interest rate contracts accounted for as hedges, liabilities
 
Fair value of foreign exchange contracts accounted for as hedges, liabilities
244 
 
Fair value of foreign exchange contracts not accounted for as hedges, liabilities
$ 2 
 
Derivatives and Hedging (Details 2) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion), Interest rate contracts cash flow hedges
$ 0 
$ 2 
$ 5 
$ 8 
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion), Foreign exchange contracts cash flow hedges
(65)
(140)
11 
(2)
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion), cash flow hedges
(65)
(138)
16 
Amount of Gain (Loss) Reclassified from OCI into Income (Effective Portion), cash flow hedges
(62)
(95)
(26)
(23)
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion), Foreign exchange contracts net investment hedges
132 
205 
(30)
(34)
Amount of Gain (Loss) Reclassified from OCI into Income (Effective Portion), Foreign exchange contracts net investment hedges
Amount of Gain (Loss) Recognized in Income on Derivative, foreign exchange contracts fair value hedges
12 
 
 
Hedged item in Fair Value Hedge Relationships
Fixed rate debt 
Fixed rate debt 
 
 
Investment income
 
 
 
 
Amount of Gain (Loss) Reclassified from OCI into Income (Effective Portion), Interest rate contracts cash flow hedges
11 
19 
Other general expenses and interest expense
 
 
 
 
Amount of Gain (Loss) Reclassified from OCI into Income (Effective Portion), Foreign exchange contracts cash flow hedges
(67)
(106)
(35)
(42)
Gain (loss) related to foreign exchange derivatives not designated or qualifying as hedges
(5)
Interest expense
 
 
 
 
Amount of Gain (Loss) Recognized in Income on Related Hedged Item
$ (5)
$ (11)
 
 
Fair Value and Financial Instruments (Details) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Assets:
 
 
Fixed-maturity securities
$ 14 
$ 16 
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)
 
 
Assets:
 
 
Money market funds and highly liquid debt securities
2,018 
 
Significant Other Observable Inputs (Level 2)
 
 
Assets:
 
 
Money market funds and highly liquid debt securities
27 
 
Significant Other Observable Inputs (Level 2) | Government bonds
 
 
Assets:
 
 
Fixed-maturity securities
 
Significant Other Observable Inputs (Level 2) | Interest rate contracts
 
 
Assets:
 
 
Derivatives
26 
 
Significant Other Observable Inputs (Level 2) | Foreign exchange contracts
 
 
Assets:
 
 
Derivatives
270 
 
Liabilities:
 
 
Derivatives
159 
 
Fair Value Measurements of Significant Unobservable (Level 3) Inputs
 
 
Liabilities:
 
 
Guarantees
 
Fair Value Measurements of Significant Unobservable (Level 3) Inputs | Corporate bonds
 
 
Assets:
 
 
Fixed-maturity securities
21 
 
Money market funds
 
 
Assets:
 
 
Money market funds and highly liquid debt securities
2,018 
 
Highly liquid debt securities
 
 
Assets:
 
 
Money market funds and highly liquid debt securities
27 
 
Fair Value
 
 
Assets:
 
 
Money market funds and highly liquid debt securities
2,045 
 
Liabilities:
 
 
Guarantees
 
Fair Value | Corporate bonds
 
 
Assets:
 
 
Fixed-maturity securities
21 
 
Fair Value | Interest rate contracts
 
 
Assets:
 
 
Derivatives
26 
 
Fair Value | Foreign exchange contracts
 
 
Assets:
 
 
Derivatives
270 
 
Liabilities:
 
 
Derivatives
159 
 
Fair Value | Government bonds
 
 
Assets:
 
 
Fixed-maturity securities
$ 3 
 
Fair Value and Financial Instruments (Details 2) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
Mar. 31, 2010
Other Investments. | Fair Value Measurements of Significant Unobservable (Level 3) Inputs
 
 
 
Fair value assets
 
 
 
Beginning balance
$ 11 
$ 100 
 
Gains (losses) included in other comprehensive income
 
(1)
 
Purchases and sales
10 
 
Transfers
 
(87)
 
Ending balance
21 
21 
 
Guarantees | Fair Value Measurements of Significant Unobservable (Level 3) Inputs
 
 
 
Fair value assets
 
 
 
Beginning balance
 
 
(4)
Ending balance
$ (4)
$ (4)
 
Fair Value and Financial Instruments (Details 3) (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
Long-term debt
$ 1,601 
$ 1,998 
Fair Value
 
 
Long-term debt
1,707 
2,086 
Carrying Value
 
 
Long-term debt
$ 1,601 
$ 1,998 
Commitments and Contingencies (Details)
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
Year Ended
Dec. 31, 2009
Settlement agreement with the FSA to pay fine (amount in GBP)
£ 5,250,000 
 
 
Expense for the settlement of legacy litigation
37,750,000 
37,750,000 
 
Letters of credit ("LOCs"), outstanding
60,000,000 
60,000,000 
 
Estimated exposure with respect to contractual contingent guarantees for premium payments owed by clients
8,000,000 
8,000,000 
 
Federal securities class
 
 
 
Purported expert reports estimating a range of alleged damages minimum
353,000,000 
353,000,000 
 
Purported expert reports estimating a range of alleged damages maximum
490,000,000 
490,000,000 
 
Securities suit settlement
 
 
30,000,000 
ERISA class
 
 
 
Revised purported expert reports estimating a range of alleged damages minimum
74,000,000 
74,000,000 
 
Revised purported expert reports estimating a range of alleged damages maximum
349,000,000 
349,000,000 
 
Agreement in principle to settle ERISA suit
1,800,000 
 
 
Buckner settlement
 
 
 
Settlement of class action case
47,750,000 
47,750,000 
 
Expense for the settlement of legacy litigation
$ 37,750,000 
$ 37,750,000 
 
Percentage of settlement funds to be returned to Aon if checks are undeliverable or certain class members do not cash their settlement payments (in hundredths)
 
50% 
 
Percentage of settlement funds to be used for charitable purpose if checks are undeliverable or certain class members do not cash their settlement payments (in hundredths)
 
50% 
 
Segment Information (Details) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Segment Information
 
 
 
 
Number of Reportable Segments
Revenue
$ 1,898 
$ 3,802 
$ 1,882 
$ 3,728 
Risk and Insurance Brokerage Services
 
 
 
 
Revenue
1,587 
3,174 
1,577 
3,120 
Total operating segments
 
 
 
 
Revenue
1,898 
3,802 
1,871 
3,717 
United States
 
 
 
 
Revenue
741 
1,384 
705 
1,355 
Americas other than U.S.
 
 
 
 
Revenue
249 
447 
245 
417 
United Kingdom
 
 
 
 
Revenue
311 
585 
329 
621 
Europe, Middle East and Africa
 
 
 
 
Revenue
412 
1,062 
438 
1,051 
Asia Pacific
 
 
 
 
Revenue
185 
324 
165 
284 
Intersegment elimination
 
 
 
 
Revenue
(6)
(11)
(6)
(12)
Consulting
 
 
 
 
Revenue
317 
639 
300 
609 
Unallocated Revenue
 
 
 
 
Revenue
 
 
$ 11 
$ 11 
Segment Information (Details 2) (USD $)
In Millions
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Commissions, fees and other revenue
$ 1,883 
$ 3,774 
$ 1,863 
$ 3,684 
Fiduciary investment income
15 
28 
19 
44 
Operating Income
268 
541 
220 
586 
Interest income
Interest expense
(33)
(67)
(26)
(55)
Other income
12 
14 
13 
Income from continuing operations before income taxes
244 
491 
210 
553 
Risk and Insurance Brokerage Services
 
 
 
 
Commissions, fees and other revenue
1,573 
3,147 
1,558 
3,077 
Fiduciary investment income
14 
27 
19 
43 
Operating Income
305 
562 
201 
524 
Retail brokerage
 
 
 
 
Commissions, fees and other revenue
1,214 
2,400 
1,186 
2,310 
Reinsurance brokerage
 
 
 
 
Commissions, fees and other revenue
359 
747 
372 
767 
Intersegment elimination
 
 
 
 
Commissions, fees and other revenue
(6)
(11)
(6)
(12)
Consulting
 
 
 
 
Commissions, fees and other revenue
316 
638 
300 
608 
Fiduciary investment income
 
Operating Income
45 
94 
41 
111 
Consulting services
 
 
 
 
Commissions, fees and other revenue
265 
540 
251 
514 
Outsourcing
 
 
 
 
Commissions, fees and other revenue
51 
98 
49 
94 
Unallocated Revenue
 
 
 
 
Commissions, fees and other revenue
 
 
11 
11 
Operating Income
 
 
11 
11 
Unallocated Expense
 
 
 
 
Operating Income
$ (82)
$ (115)
$ (33)
$ (60)
Subsequent Event (Details) (USD $)
Jun. 30, 2010
Dec. 31, 2009
Acquisition of Hewitt Associates
 
 
Common stock, par value (in dollars per share)
 
Hewett Class A common stock, par value (in dollars per share)
0.01 
 
Number of trading days used to calculate the closing volume-weighted average price of Aon stock (in days)
10 
 
Percentage of aggregate merger consideration, cash
50.0% 
 
Percentage of aggregate merger consideration, stock
50.0% 
 
Acquisition of Hewitt Associates | Cash Consideration
 
 
Number used to calculate additional cash portion of acquisition consideration per share of Hewitt
0.6362 
 
Acquisition of Hewitt Associates | Stock Consideration
 
 
Number used to calculate additional stock portion of acquisition consideration per share of Hewitt
25.61 
 
Acquisition of Hewitt Associates | Cash Consideration and Mixed Consideration
 
 
Cash portion of acquisition consideration per share of Hewitt (in dollars per share)
25.61 
 
Acquisition of Hewitt Associates | Stock Consideration and Mixed Consideration
 
 
Shares of common stock as a portion of acquisition consideration per share of Hewitt (in shares)
0.6362 
 
Commitment Letter
 
 
Term loan facility
1,000,000,000 
 
Bridge loan facility
1,500,000,000 
 
Senior notes, option to issue
1,500,000,000 
 
Term loan facility, term of loan (in years)
 
Bridge loan facility, term of loan (in days)
364 
 
Common stock, par value (in dollars per share)
Document and Entity Information
6 Months Ended
Jun. 30, 2010
Document and Entity Information
 
Entity Registrant Name
AON CORP 
Entity Central Index Key
0000315293 
Document Type
10-Q 
Document Period End Date
06/30/2010 
Amendment Flag
FALSE 
Current Fiscal Year End Date
12/31 
Entity Current Reporting Status
Yes 
Entity Filer Category
Large Accelerated Filer 
Entity Common Stock, Shares Outstanding
269,705,249 
Document Fiscal Year Focus
2010 
Document Fiscal Period Focus
Q2