10-QPeriod: Q2 FY2009

Aon plc Quarterly Report for Q2 Ended Jun 30, 2009

Filed August 7, 2009For Securities:AON

Summary

Aon plc (AON) reported its second quarter and first half 2009 financial results, reflecting the ongoing global economic recession and its impact on the insurance and consulting industries. While total revenue experienced a slight decline due to adverse foreign currency translation and lower investment income, the company demonstrated resilience with stable organic revenue in its core businesses, particularly in Americas retail and reinsurance. Despite macroeconomic headwinds such as declining insurable risks and client cost-saving measures, Aon focused on expense discipline and achieved improvements in its year-to-date pretax margins, largely driven by a significant pension curtailment gain and restructuring savings. The company continued to integrate the Benfield merger, incurring associated restructuring costs but also realizing integration benefits. Aon also managed its financial condition effectively, reducing debt and maintaining a strong equity position, while navigating complex legal and regulatory environments. Investors should note the ongoing integration of the Benfield acquisition and the company's efforts to control costs amidst a challenging economic landscape.

Financial Statements
Beta
Revenue$1.88B
Operating Expenses$1.66B
Operating Income$220.00M
Interest Expense$26.00M
Net Income$149.00M
EPS (Basic)$0.52
EPS (Diluted)$0.51
Shares Outstanding (Basic)285.40M
Shares Outstanding (Diluted)292.70M

Key Highlights

  • 1Total revenue decreased slightly year-over-year for both the quarter and the first half of 2009, primarily due to unfavorable foreign currency translation and lower investment income, partially offset by the inclusion of Benfield's revenue and acquisitions.
  • 2Organic revenue remained essentially flat for both the second quarter and the first six months of 2009, indicating resilience in core operations despite the challenging economic environment.
  • 3Operating expenses decreased due to favorable foreign currency translation and restructuring savings, although these were partially offset by integration costs from the Benfield merger and higher restructuring charges.
  • 4Income from continuing operations attributable to Aon stockholders decreased for the second quarter but increased for the first six months, with the year-to-date improvement largely driven by a significant pension curtailment gain.
  • 5Diluted earnings per share from continuing operations saw a decrease in the second quarter but an increase for the first six months, benefiting from lower share counts due to ongoing share repurchases.
  • 6The company continued to manage its debt effectively, with total debt decreasing and a new senior unsecured debenture issuance to repay existing credit facility debt.
  • 7Aon incurred significant restructuring charges related to both the Aon Benfield Plan and the 2007 Restructuring Plan, aimed at streamlining operations and achieving cost savings.

Frequently Asked Questions

Aon reported a slight decrease in total revenue for the quarter and year-to-date, largely due to foreign currency headwinds and reduced investment income. However, organic revenue remained stable, demonstrating resilience. Income from continuing operations saw a dip in the quarter but an increase year-to-date, significantly boosted by a pension curtailment gain and cost-saving measures, including restructuring initiatives.

The global economic recession is creating significant headwinds. Aon is experiencing pressure from declining insurable risks (due to lower asset values), client cost-cutting behaviors (leading to reduced spending and increased risk retention), and sector-specific weakness in areas like financial services and construction. Despite this, the company has seen stable organic revenue in its Americas retail and reinsurance businesses.

Aon is actively engaged in two major restructuring plans: the Aon Benfield Plan, aimed at integrating the Benfield merger, and the 2007 Restructuring Plan, focused on streamlining operations. These plans involve job eliminations, office consolidations, and other cost-saving measures. While these initiatives incur significant charges, they are expected to yield substantial cost savings in the medium to long term.

Aon's financial condition appears stable, with an increase in net assets and a decrease in working capital primarily due to an increase in short-term debt used to refinance longer-term obligations. The company has managed its debt levels, reducing total debt and maintaining access to credit facilities. Liquidity is supported by ongoing operating cash flows, although these were lower year-over-year due to factors like business disposals and pension contributions.