10-QPeriod: Q3 FY2009

Aon plc Quarterly Report for Q3 Ended Sep 30, 2009

Filed November 3, 2009For Securities:AON

Summary

Aon plc reported its third quarter and nine-month results for the period ending September 30, 2009. The company faced significant headwinds due to the global economic recession, leading to a 3% and 1% decline in organic revenue for the quarter and nine months, respectively. This revenue pressure stemmed from decreasing insurable risks, clients' cost-saving measures, and sector-specific weaknesses, particularly in financial services, construction, and M&A. Despite revenue challenges, Aon demonstrated expense discipline. Operating expenses remained flat for the quarter and decreased for the nine-month period, benefiting from foreign currency translation, restructuring savings, and reduced incentive compensation, though partially offset by increased restructuring charges and the inclusion of Benfield's operations. Net income from continuing operations attributable to Aon stockholders saw a decrease in the quarter but a slight increase year-to-date, impacted by various factors including pension curtailment gains and lower investment income. Diluted EPS from continuing operations also experienced a decline in the quarter.

Financial Highlights

52 data points
Beta

Revenue

$1.79B

Net Income

$120.00M

6.7% Net Margin

EPS (Diluted)

$0.41

Total Assets

$21.64B

Cash & Equivalents

$580.00M

Free Cash Flow

$51.00M

Financial Statements
Beta
Revenue$1.79B
Operating Expenses$1.60B
Operating Income$194.00M
Interest Expense$32.00M
Net Income$120.00M
EPS (Basic)$0.42
EPS (Diluted)$0.41
Shares Outstanding (Basic)283.80M
Shares Outstanding (Diluted)292.10M

Key Highlights

  • 1Organic revenue declined 3% for the quarter and 1% year-to-date due to the challenging global economic environment.
  • 2Operating expenses were flat year-over-year for the quarter and decreased year-to-date, driven by cost discipline, restructuring savings, and favorable foreign currency translation.
  • 3Net income from continuing operations attributable to Aon stockholders decreased to $117 million in Q3 2009 from $155 million in Q3 2008.
  • 4Diluted EPS from continuing operations was $0.40 in Q3 2009, down from $0.53 in the prior year's quarter.
  • 5The company recorded significant restructuring charges related to the Aon Benfield and 2007 Restructuring Plans, with ongoing expenses expected into 2010 and 2011.
  • 6Investment income decreased significantly due to lower revenue from PEPS I investment, lower interest rates, and reduced investment balances.
  • 7Aon completed the sale of its U.S. premium finance business (Cananwill) in February 2009 and the FFG P&C operations in August 2009.

Frequently Asked Questions

The global economic recession significantly impacted Aon's revenue. Organic revenue declined by 3% for the quarter, driven by reduced insurable risks due to declining asset values, client cost-cutting measures, and weaknesses in specific sectors like financial services and construction.

Aon is executing two major restructuring plans: the Aon Benfield Plan and the 2007 Restructuring Plan. These plans involve job eliminations and operational streamlining, leading to significant restructuring charges recorded in operating expenses. While these charges negatively impact short-term profitability, they are expected to yield future cost savings. Restructuring activities are anticipated to continue affecting operations into 2010 and 2011.

Investment income decreased substantially in the third quarter and year-to-date periods. This decline was primarily attributed to lower revenue from Aon's PEPS I investment, the impact of lower interest rates across its investment portfolio, reduced overall investment balances, and unfavorable foreign currency translation.

Aon issued €500 million ($734 million) of 6.25% senior unsecured debentures in July 2009, primarily to repay existing indebtedness under its Euro credit facility. The company also repurchased $15 million of its mandatorily redeemable preferred capital securities, leading to a gain and subsequent dissolution of a related trust structure. Overall, total debt increased slightly due to the new issuance and currency impacts, offset by debt repayments.