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5. Acquisitions and Dispositions
Acquisitions
In the nine months ended September 30, 2011, the Company completed the acquisition of one company in the HR Solutions segment and two companies in the Risk Solutions segment, including Glenrand MIB Limited (“Glenrand”). For the same period in 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 HR Solutions segment, as well as 13 other companies, which are included in the Risk Solutions segment.
The following table includes the aggregate consideration transferred and the preliminary value of intangible assets recorded as a result of the Company’s acquisitions.
|
|
|
Nine months ended September 30, |
|
|
(millions) |
|
2011 |
|
2010 |
|
|
Consideration |
|
$ |
100 |
|
$ |
87 |
|
|
|
|
|
|
|
|
|
Intangible assets: |
|
|
|
|
|
|
Goodwill |
|
$ |
58 |
|
$ |
29 |
|
|
Other intangible assets |
|
29 |
|
52 |
|
|
|
|
$ |
87 |
|
$ |
81 |
|
The results of operations of these acquisitions are included in the Condensed Consolidated Financial Statements from the dates they were acquired. The results of operations of the Company would not have been materially different if these acquisitions had been reported from the beginning of the period.
Hewitt Associates, Inc.
On October 1, 2010, the Company completed its acquisition of Hewitt Associates, Inc. (“Hewitt”), one of the world’s leading human resource consulting and outsourcing companies. Aon purchased all of the outstanding shares of Hewitt common stock in a cash-and-stock transaction valued at approximately $4.9 billion, of which the total amount of cash paid and the total number of shares of stock issued by Aon each represented approximately 50% of the aggregate consideration.
The Company incurred certain acquisition and integration costs associated with the transaction that were expensed as incurred. In the three and nine months ended September 30, 2011, the Company’s HR Solutions segment incurred $22 million and $42 million, respectively, of these Hewitt related costs that are recorded in Other general expenses in the Condensed Consolidated Statements of Income.
The transaction has been accounted for using the acquisition method of accounting which requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.
The following table summarizes the recording of assets acquired and liabilities assumed as of the acquisition date (in millions):
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|
|
Amounts |
|
|
|
|
recorded as of |
|
|
|
|
the acquisition |
|
|
|
|
date |
|
|
Working capital (1) |
|
$ |
348 |
|
|
Property, equipment, and capitalized software |
|
297 |
|
|
Identifiable intangible assets: |
|
|
|
|
Customer relationships |
|
1,800 |
|
|
Trademarks |
|
890 |
|
|
Technology |
|
215 |
|
|
Other non-current assets (2) |
|
350 |
|
|
Long-term debt |
|
346 |
|
|
Other non-current liabilities (3) |
|
367 |
|
|
Net deferred tax liability (4) |
|
1,034 |
|
|
Net assets acquired |
|
2,153 |
|
|
Goodwill |
|
2,779 |
|
|
Total consideration transferred |
|
$ |
4,932 |
|
(1) Includes cash and cash equivalents, short-term investments, client receivables, other current assets, accounts payable and other current liabilities.
(2) Includes primarily deferred contract costs and long-term investments.
(3) Includes primarily unfavorable lease obligations and deferred contract revenues.
(4) As of the acquisition date, included in Other current assets ($31 million), Other non-current assets ($30 million), Other current liabilities ($7 million) and Other non-current liabilities ($1.1 billion) in the Company’s Condensed Consolidated Statements of Financial Position.
The acquired customer relationships are being amortized over a weighted average life of 12 years. The technology asset is being amortized over 7 years and trademarks were determined to have indefinite useful lives.
A single estimate of fair value results from a complex series of the Company’s judgments about future events and uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company’s results of operations.
Dispositions — Continuing Operations
In the nine months ended September 30, 2011, the Company completed the sale of two companies in the Risk Solutions segment. A pretax loss of $1.8 million was recognized on these sales, which is included in Other income (expense) in the Condensed Consolidated Statements of Income.
Dispositions — Discontinued Operations
Income from discontinued operations of $4 million, which represents proceeds from the sale of businesses in prior periods, was recorded for the nine months ended September 30, 2011. A loss from discontinued operations of $26 million, related primarily to the settlement of legacy litigation, was incurred in the nine months ended September 30, 2010. |