Aon's 2015 Financial Description

AON Plc: Stock Symbol (AON) 

Website: WWW.SEC.gov 

10-K Annual Report for year ending December 31, 2015, filed on Feb 22, 2016 

Question 1 

What three items of important information does the income statement reveal about the financial performance of the company over the last three years? 

Summary of Income Statement for AON Corporation 

Consolidated results of operations (in millions) 

Years ended December 31	2015	2014	2013
Revenue:  Commissions, fees and other	$ 11,661	$ 12,019	$ 11,787
Fiduciary investment income	21	26	28
Total revenue	11,682	12,045	11,815
Expenses:
Compensation and benefits	6,837	7,014	6,945
Other general expenses	2,997	3,065	3,199
Total operating expenses	9,834	10,079	10,144
Operating income	1,848	1,966	1,671
Interest income	14	10	9
Interest expense	(273)	(255)	(210)
Other income	100	44	68
Income before income taxes	1,689	1,765	1,538
Income taxes	267	334	390
Net income	1,422	1,431	1,148
Less: Net income attributable to non-controlling interests	37	34	35
Net income attributable to Aon shareholders	$ 1,385	$ 1,397	$ 1,113

AON’S income statement retrieved from 

https://www.sec.gov/cgi-bin/viewer?action=view&cik=315293&accession_number=0001628280-16-011485&xbrl_type=v 

AON plc is a multinational corporation which provides logistic solutions among them risk management services, investment banking, human resource solutions, insurance and reinsurance brokerage and outsourcing services. As such, its main source of revenue is from fees and commissions. Throughout the three years, 2013 through to 2015, AON hada fluctuating total revenue. In 2013, total revenues were $11815 million. In the preceding year, 2014, total revenue jumped by $ 230 million to $12045 million, posting a 2 % increase. However, due to foreign currency fluctuation, the returns of the company were negatively affected, and the company saw a 3% (reduction by $363 million) reduction in total revenue from $12045 million in 2014 to $11682 million in 2015. The company’s total operating expense has been reducing steadily through the three years. The reason behind this could be the positive impact of foreign exchange rate changes. At a stronger value of the dollar compared to other currencies, the company’s expenses are positively impacted. Total operating expenses in 2015 decreased by 2% ($245 million) from $10079 million in 2014 to $9834 million in 2015. In 2015, the net income attributable to shareholders ($1385 million) dipped by 1 % ($12 million) compared to 2014 ($1397 million). 

Question 2 

What three items of important information does the balance sheet reveal about the financial position of the company over the last two years? 

Aon plc 

Consolidated Balance Sheet 

(millions, except nominal value) As of December 31	2015	2014
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$ 384	$ 374
Short-term investments	356	394
Receivables, net	2,734	2,815
Fiduciary assets	9,932	11,638
Other current assets	566	602
Total Current Assets	13,972	15,823
Goodwill	8,448	8,860
Intangible assets, net	2,180	2,520
Fixed assets, net	765	765
Non-current deferred tax assets	141	144
Prepaid pension	1,033	933
Other non-current assets	625	727
TOTAL ASSETS	$ 27164	$ 29772
LIABILITIES AND EQUITY
LIABILITIES
CURRENT LIABILITIES
Fiduciary liabilities	$ 9,932	$ 11,638
Short-term debt and current portion of long-term debt	562	783
Accounts payable and accrued liabilities	1,772	1,805
Other current liabilities	820	788
Total Current Liabilities	13,086	15,014
Long-term debt	5,175	4,799
Non-current deferred tax liabilities	176	313
Pension, other post retirement, and post employment liabilities	1,795	2,141
Other non-current liabilities	769	874
TOTAL LIABILITIES	21,001	23,141

EQUITY
Ordinary shares - $0.01 nominal value Authorized: 750 shares (issued: 2015 - 269.8; 2014 - 280.0)	3	3
Additional paid-in capital	5,409	5,097
Retained earnings	4,117	4,605
Accumulated other comprehensive loss	(3,423)	(3,134)
TOTAL AON SHAREHOLDERS' EQUITY	6,106	6,571
Non-controlling interests	57	60
TOTAL EQUITY	6,163	6,631
TOTAL LIABILITIES AND EQUITY	$ 27,164	$ 29,772

AON’S statement on financial position retrieved from 

https://www.sec.gov/cgi-bin/viewer?action=view&cik=315293&accession_number=0001628280-16-011485&xbrl_type=v# 

The company’s total assets have decreased by $ 2608 million from $29772 million in 2014 to $ 27164 in 2015. This represents an 8 % decrease in the value of the corporation. The company’s liquidity, judged by the amount of cash and cash equivalent at hand, has considerably increased by $ 10 million. This shows a good financial position and is strengthened by the fact that the company’s working capital is positive. It should also be noted that working capital has also increased from $ 809 million in 2014 to $886 million in 2015. As such the company cannot be strained in meeting its short term liability. Despite the fact that the company’s equity has dipped by 7% ($468 million), the company is still solvent since total assets exceed total liabilities with $6163 million. From the balance sheet we can conclude that, despite the weakened financial performance of the company, it is still financially sound. 

Question 3 

Can you identify the major sources of funding used by the company from the information presented in the company's annual report? Please look at the Statement of Cash Flows, formerly called the Source and Uses of Funds Statement. 

Aon plc 

Consolidated Statements of Cash Flows 

(millions) Years ended December 31	2015	2014	2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 1,422	$ 1,431	$ 1,148
Adjustments to reconcile net income to cash provided by operating activities:
Gain from sales of businesses and investments, net	(81)	(44)	(65)
Depreciation of fixed assets	229	242	240
Amortization of intangible assets	314	352	395
Share-based compensation expense	340	328	300
Deferred income taxes	(223)	(135)	(14)
Change in assets and liabilities:
Fiduciary receivables	599	(19)	(4)
Short-term investments — funds held on behalf of clients	350	(403)	156
Fiduciary liabilities	(949)	422	(152)
Receivables, net	(83)	(25)	141
Accounts payable and accrued liabilities	87	4	110
Restructuring reserves	(31)	(83)	15
Current income taxes	116	42	(116)
Pension, other post-retirement and other post-employment liabilities	(230)	(340)	(502)
Other assets and liabilities	149	40	101
CASH PROVIDED BY OPERATING ACTIVITIES	2,009	1,812	1,753

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from investments	220	52	93
Payments for investments	(266)	(20)	(15)
Net sales (purchases) of short-term investments — non-fiduciary	9	110	(174)
Acquisition of businesses, net of cash acquired	(16)	(479)	(54)
Proceeds from sale of businesses	205	48	40
Capital expenditures	(290)	(256)	(229)
CASH USED FOR INVESTING ACTIVITIES	(138)	(545)	(339)

CASH FLOWS FROM FINANCING ACTIVITIES
Share repurchase	(1,550)	(2,250)	(1,102)
Issuance of shares for employee benefit plans	(30)	(105)	(22)
Issuance of debt	5,351	5,239	4,906
Repayment of debt	(5,098)	(3,918)	(4,679)
Cash dividends to shareholders	(323)	(273)	(212)
Non-controlling interests and other financing activities	(39)	4	(27)
CASH USED FOR FINANCING ACTIVITIES	(1,689)	(1,303)	(1,136)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	-172	-67	-92
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	10	-103	186
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	374	477	291
CASH AND CASH EQUIVALENTS AT END OF YEAR	384	374	477
Supplemental disclosures:
Interest paid	254	245	206
Income taxes paid, net of refunds	$249	$337	$44

AON’S statement cash flow retrieved from 

https://www.sec.gov/cgi-bin/viewer?action=view&cik=315293&accession_number=0001628280-16-011485&xbrl_type=v# 

Cash as presented by 2015’s operating activities is $ 2009 million. This represents an 11% increase ($197 million) compared to 2014, which recorded $ 1812 million. The bulk of cash generated from operating activities came from 2015’s net income of $ 1,422 million followed by fiduciary receivable of $599 M for the same year. Net cash used for investing activities was (138 million). A capital expenditure of ($290 M) and payment for the investment of ($ 266M) were majorly offset by proceeds from investment and sale of the business at $ 220M and $ 205M respectively. AON bought shares at $1550M, lent out $ 5351M amongst other financing activities. The NET CHANGE was $10M. As such, the major contributors of AON’s cash flow were net income $1422M, a fiduciary receivable of $ 599 M, and sale of business and investment at $ 205M and $220M respectively. 

Question 4 

4) Who is responsible for: a) The issuance, and b) The Content? 

According with the report of registered public accounting firm on page 50, we learn that the company’s management are the one responsible for the content of the financial statement. The person responsible for the issuance of the statement is the company’s board of director but through the company’s president and CEO Greg Case. This is confirmed by the letter written to shareholders at the beginning of the annual report. 

AON’S information retrieved from http://s2.q4cdn.com/545627090/files/doc_financials/2016/Aon-plc-Final-Annual-Report.pdf 

Question 5 

What assurance, if any, is there that the financial statements are in compliance with GAAP, and are free of material misstatements?  

On page 50 of the AON 2015 annual report, there is a report from the external auditing firm Ernst & Young LLP. The presence of an independent and renowned independent auditor, is indeed an indication that the company is compliant with the Sarbanes-Oxley Act, whereby an independent auditor has to go audit a company and ensure that there are proper internal control mechanisms. From the external auditor’s report, the auditors are confirming that they have audited all the financial statements of the company for each of the three periods ended 31 st December 2015. They also confirm that they audited the company’s reports by the US’s standards of the Public Company Accounting Oversight Board (PCAOB). From their audit, they confirm that the financial statement is free of material misstatement and from their report dated 22 nd February 2016; they ‘expressed an unqualified opinion thereon.' 

AON’S information retrieved from http://s2.q4cdn.com/545627090/files/doc_financials/2016/Aon-plc-Final-Annual-Report.pdf 

Question 6 

Of what use, if any, are the notes to the financial statements? Give an example of something learned from the footnotes of your company. 

Footnotes in the financial statement offer explanatory support to the financial statement. Depending on the financial framework used, footnotes reveal the crucial information needed by analysts such as how different accounting policies were applied and how they impacted the company’s financial results (Accounting tools, 2016). Financial frameworks include the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). On page 25 of the AON’s 2015 financial report, a note is provided that no sale of unregistered equity was made during the financial year ending 2015. 

Question 7 

What can you learn from the Business Section of the 10-K? Give two facts learn from reading this section. 

The 10K section of a company is separated into different parts or items, and it serves to describe or reveal a lot of detail about the company. It states the risks a company faces, the financial and the operating results of a company for a particular fiscal year. The section also highlights some of the company’s perspective on their results and what is pushing them ahead (US Security and Exchange Commission, 2011). Under item 1 of part 1, we can learn the company’s strategy, the products the company is offering i.e. risk management, human resource solutions, insurance brokerage among others. It also provides information on its employees and subsidiaries. The company has 69000 employees operating through their 120 subsidiaries across the world. The section also reveals important information on unresolved staff concerns. This refers to any explanation on a comment which could have been received from a SEC officer during field operation but had not been resolved after a long period. This comment was however not there in the AON’s annual report for the year ending 2015. 

Question 8 

What can you learn from the Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A)? Give two facts learned from reading this section. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations  from the 10-K section serve to highlight the company’s standpoint as per the company’s results of the previous financial year. This section, recognized as the MD&A in short, permits the company management to tell its results in its own words using adjusted values which could not necessarily follow financial statement framework. It presents operation and financial results, material alterations of the company’s results and the way they compare to previous results and the firm’s contractual commitments. From AON’s financial report we learn of financial summaries of 2015 as reflected by management. We also learn more of the four key non GAAP metrics used in the financial report and how they measured the 2015 performance. 

Reference 

Accounting Tools (2016). What are financial statement footnotes? Retrieved from http ://www.accountingtools.com/questions-and-answers/what-are-financial-statement-footnotes.html 

AON Plc (2016). 2015 Annual Financial Report. Retrieved from http://s2.q4cdn.com/545627090/files/doc_financials/2016/Aon-plc-Final-Annual-Report.pdf 

US Security and Exchange Commission (2011). How to read a 10-K . Retrieved from https://www.sec.gov/answers/reada10k.htm 

Financial statements in the paper were retrieved from http://s2.q4cdn.com/545627090/files/doc_financials/2016/Aon-plc-Final-Annual-Report.pdf