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Aon Reports Third Quarter 2013 Results

Third Quarter Key Metrics Summary

- Total revenue was $2.8 billion with organic revenue growth of 3%

- Operating margin was 13%, and operating margin, adjusted for certain items, increased 10 basis points to 17.6%

- EPS from continuing operations was $0.82, and EPS from continuing operations, adjusted for certain items, increased 19% to $1.13

- Cash flow from operations was flat at $597 million, and free cash flow increased 4%, or $19 million, to $545 million

Third Quarter Highlights

- Repurchased 7.3 million Class A Ordinary Shares for approximately $500 million

- Announced that employer participation in Aon Hewitt's Corporate Health Care Exchange is expected to be six times higher in 2014, and employee enrollment is expected to triple to more than 330,000 U.S. employees, or more than 600,000 including eligible d

Oct 25, 2013

LONDON, Oct. 25, 2013 /PRNewswire/ -- Aon plc (NYSE: AON) today reported results for the three months ended September 30, 2013. 

Net income attributable to Aon shareholders from continuing operations was $256 million, or $0.82 per share, compared to $204 million, or $0.62 per share, for the prior year quarter.  Net income per share attributable to Aon shareholders from continuing operations, adjusted for certain items, increased 19% to $1.13, when compared to $0.95 in the prior year quarter.  Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 12 of this press release. 

"Our third quarter results reflect positive performance across each of our key metrics highlighted by strong operating margin improvement of 110 basis points in our Risk Solutions segment and the repurchase of $500 million of ordinary shares," said Greg Case, president and chief executive officer.  "Having made significant investments across the firm in both the Global Risk Insight Platform and the most robust set of solutions for healthcare exchanges, we are on-track for a solid finish to 2013 and continue to strengthen the platform for long-term growth, strong free cash flow generation and increased financial flexibility in 2014."

THIRD QUARTER FINANCIAL SUMMARY
Total revenue increased 2% to $2.8 billion when compared to the prior year quarter primarily driven by a 3% increase in organic revenue, partially offset by a 1% unfavorable impact from foreign currency translation and a 27% decline in investment income due to lower average interest rates.

Total operating expenses for the third quarter increased 1% to $2.4 billion when compared to the prior year quarter due primarily to a 3% increase in organic revenue and the inclusion of $8 million of expenses from acquisitions, partially offset by a $22 million favorable impact from foreign currency translation, savings related to the restructuring programs, and a $7 million decline in intangible asset amortization.

Depreciation expense increased 5%, or $3 million, to $59 million when compared to the prior year quarter.

Intangible asset amortization expense decreased 7%, or $7 million, to $98 million when compared to the prior year quarter due to a $4 million decrease in HR Solutions and a $3 million decrease in Risk Solutions.

Restructuring expenses decreased $2 million to $30 million when compared to $32 million in the prior year quarter.  In the third quarter, the Company incurred $24 million of costs in the Risk Solutions segment and $6 million of costs in the HR Solutions segment related to the Aon Hewitt restructuring program.  To date, the Company has incurred approximately 89% of the total costs necessary to deliver the remaining savings, and expects to incur 100% by the end of 2013.  An analysis of restructuring-related costs by type and segment are detailed on page 13 of this press release.

Restructuring savings in the third quarter related to the Aon Hewitt restructuring program are estimated at $88 million compared to $64 million in the prior year quarter.  Of the estimated savings in the third quarter, approximately $69 million were related to the HR Solutions segment compared to $54 million in the prior year quarter, and approximately $19 million were related to the Risk Solutions segment compared to $10 million in the prior year quarter. 

Before any potential reinvestment of savings, the Aon Hewitt restructuring program is expected to deliver cumulative savings of $378 million by the end of 2014.  Approximately $288 million of the estimated savings under the Aon Hewitt restructuring program will be achieved in HR Solutions by the end of 2014.  As of the third quarter, an estimated $242 million of cumulative savings have been achieved in HR Solutions.  Approximately $90 million of the estimated savings under the Aon Hewitt restructuring program will be achieved in Risk Solutions by the end of 2014.  As of the third quarter, an estimated $60 million of cumulative savings have been achieved in Risk Solutions.

Foreign currency exchange rates in the third quarter had a $0.02 per share, or $6 million pretax (in Risk Solutions), unfavorable impact on adjusted net income from continuing operations if the Company were to translate prior year quarter results at current quarter foreign exchange rates.

Effective tax rate on net income from continuing operations was 25.1% compared to 23.2% in the prior year quarter.  The effective tax rate in the third quarters of 2013 and 2012 were impacted by certain discrete tax adjustments. 

Average diluted shares outstanding decreased to 312.9 million in the third quarter compared to 331.0 million in the prior year quarter.  The Company repurchased 7.3 million Class A Ordinary Shares for approximately $500 million in the third quarter.  The Company has $2.95 billion of remaining authorization under its share repurchase program.

Cash flow from operations was flat at $597 million in the third quarter due primarily to a decrease in pension contributions and strong underlying working capital performance offset by an increase in cash paid for taxes and the unfavorable timing of certain interest expense payments.  Free cash flow, as defined by cash flow from operations less capital expenditures, increased 4%, or $19 million, to $545 million in the third quarter driven by a $20 million decrease in capital expenditures.  A reconciliation of free cash flow to cash flow from operations can be found on the "Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow" on page 11 of this press release.

THIRD QUARTER SEGMENT REVIEW
Certain noteworthy items impacted operating income and operating margins in the third quarters of 2013 and 2012.  The third quarter segment reviews provided below include supplemental information related to organic revenue, adjusted operating income and operating margin, which is described in detail on the "Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow" on page 11 and "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 12 of this press release.

RISK SOLUTIONS




Less:


(millions)

Three Months Ended




Less:


Acquisitions,



Commissions,

Sept 30,


Sept 30,


%


Currency


Divestitures,


Organic

Fees and Other

2013


2012


Change


Impact


Other


Revenue

Retail

$  1,424


$  1,390


2%


(1)%


(1)%


4%

Reinsurance

389


377


3


(1)


(1)


5

Subtotal

$  1,813


$  1,767


3%


(1)%


-%


4%

Investment Income

8


11


(27)







Total Revenue

$  1,821


$  1,778


2%



Risk Solutions total revenue increased 2% to $1.8 billion when compared to the prior year quarter due to 4% organic growth in commissions and fees, partially offset by a 1% unfavorable impact from foreign currency translation and a 27% decline in investment income.

Retail Brokerage organic revenue increased 4% reflecting revenue growth in both the Americas and International businesses.  Americas organic revenue increased 5% reflecting growth across all regions driven by strong management of the renewal book portfolio, including record retention rates in US Retail, and a modestly positive market impact.  International organic revenue increased 2% driven by strong growth across emerging markets, New Zealand and Asia, partially offset by a modest decline in Australia and Spain.  Reinsurance organic revenue increased 5% due primarily to growth in treaty and facultative placements, a modest favorable market impact and timing benefit in the quarter.



Three Months Ended





Sept 30,


Sept 30,


%

(millions)


2013


2012


Change

Revenue


$  1,821


$  1,778


2%

Expenses







Compensation and benefits


1,047


1,024


2

Other general expenses


441


445


(1)

Total operating expenses


1,488


1,469


1%

 

Operating income


$     333


$     309


8%

Operating margin


18.3%


17.4%










Operating income - adjusted


$     385


$     356


8%

Operating margin - adjusted 


21.1%


20.0%



Compensation and benefits for the third quarter increased 2%, or $23 million, when compared to the prior year quarter due primarily to 4% organic revenue growth, partially offset by a $9 million favorable impact from foreign currency translation, a $9 million decrease in restructuring costs related to the Aon Hewitt restructuring program and savings related to the restructuring programs.

Other general expenses for the third quarter decreased 1%, or $4 million, when compared to the prior year quarter due primarily to a $6 million favorable impact from foreign currency translation and savings related to the restructuring programs, partially offset by a $17 million increase in restructuring costs related to the Aon Hewitt restructuring program.

Third quarter operating income increased 8% to $333 million when compared to the prior year quarter.  Adjusting for certain items detailed on page 12 of this press release, operating income increased 8%, or $29 million, and operating margin increased 110 basis points to 21.1% when compared to the prior year quarter.  Adjusted operating margin was driven by organic revenue growth and savings related to the restructuring programs, partially offset by a 30 basis point unfavorable impact from unfavorable foreign currency translation and a decline in investment income.

HR SOLUTIONS


(millions)

Three Months Ended




Less:


Less:

Acquisitions,



Commissions,

Sept 30,


Sept 30,


%


Currency


Divestitures,


Organic

Fees and Other

2013


2012


Change


Impact


Other


Revenue

Consulting Services

$    406


$    394


3%


(1)%


1%


3%

Outsourcing

587


585


-


-


1


(1)

Intersegment

(12)


(8)


  N/A


  N/A


   N/A


N/A

Subtotal

$    981


$    971


1%


(1)%


2%


-%

Investment Income

-


-


  N/A







Total Revenue

$    981


$    971


1%






HR Solutions total revenue increased 1% to $981 million when compared to the prior year quarter driven by a 2% increase in commissions and fees resulting from acquisitions, net of divestitures, partially offset by a 1% unfavorable impact from foreign currency translation.

Organic revenue in Consulting Services increased 3% driven primarily by growth in investment, compensation and communications consulting.  Organic revenue in Outsourcing declined 1% compared to the prior year quarter due primarily to an anticipated decline in benefits administration, partially offset by demand for discretionary services.



Three Months Ended





Sept 30,


Sept 30,


%

(millions)


2013


2012


Change

Revenue


$    981


$    971


1%

Expenses







Compensation and benefits


596


569


5

Other general expenses


310


322


(4)

Total operating expenses


906


891


2%

Operating income


$      75


$      80


(6)%

Operating margin


7.6%


8.2%










Operating income - adjusted


$   151


$    170


(11)%

Operating margin - adjusted 


15.4%


17.5%



Compensation and benefits for the third quarter increased 5%, or $27 million, when compared to the prior year quarter due primarily to a $12 million unfavorable impact from the timing of certain expenses, investments in certain businesses and the inclusion of $5 million of expenses from acquisitions, partially offset by savings related to the Aon Hewitt restructuring program.

Other general expenses for the third quarter decreased 4%, or $12 million, when compared to the prior year quarter due primarily to a $6 million decrease in restructuring costs related to the Aon Hewitt restructuring program, a $4 million decrease in intangible asset amortization, and savings related to the Aon Hewitt restructuring program.

Third quarter operating income decreased 6% to $75 million when compared to the prior year quarter.  Adjusting for certain items detailed on page 12 of this press release, operating income decreased 11%, or $19 million, and operating margin decreased 210 basis points to 15.4% when compared to the prior year quarter due primarily to a $12 million, or 120 basis point, unfavorable impact from the timing of certain expenses, an unfavorable revenue mix shift and investments in health care exchanges, partially offset by savings related to the Aon Hewitt restructuring program.

INCOME FROM CONTINUING OPERATIONS



Three Months Ended





Sept 30,


Sept 30,


%

(millions)


2013


2012


Change

Risk Solutions


$  333


$  309


8%

HR Solutions


75


80


(6)

Unallocated expenses


(44)


(50)


(12)

Operating income from continuing operations before tax


$  364


$  339


7%

Interest income


3


1


200

Interest expense


(53)


(57)


(7)

Other income (expense)


39


(9)


533

Income from continuing operations before tax


$  353


$  274


29%

Unallocated expenses decreased $6 million to $44 million due primarily to a decrease in expenses related to the Company's redomicile to the UK.  Interest income increased $2 million to $3 million due primarily to higher average cash balances.  Interest expense decreased $4 million to $53 million due primarily to both a decline in the average rate and the total amount of debt outstanding.  Other income (expense) of $39 million primarily includes $42 million of gains on sale of investments and certain Company owned life insurance plans.  The prior year quarter primarily includes a $16 million net loss due to the unfavorable impact of exchange rates on remeasurement of assets and liabilities in non-functional currencies, partially offset by $9 million of net gains on certain long-term investments.

Conference Call, Presentation Slides and Webcast Details
The Company will host a conference call on Friday, October 25, 2013 at 7:30 a.m. central time.  Interested parties can listen to the conference call via a live audio webcast and view the presentation slides at www.aon.com.

About Aon
Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 65,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.

Safe Harbor Statement
This communication contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, future capital expenditures, growth in commissions and fees, changes to the composition or level of our revenues, cash flow and liquidity, expected tax rates, business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, are forward-looking statements. Also, when we use the words such as 'anticipate', 'believe', 'estimate', 'expect', 'intend', 'plan', 'probably', or similar expressions, we are making forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward looking statements:  general economic conditions in different countries in which Aon does business around the world, including conditions is the European Union relating to sovereign debt and the Euro; changes in the competitive environment; changes in global equity and fixed income markets that could affect the return on invested assets; changes in the funding status of Aon's various defined benefit pension plans and the impact of any increased pension funding resulting from those changes; rating agency actions that could affect Aon's ability to borrow funds; fluctuations in exchange and interest rates that could influence revenue and expense; the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions and ERISA class actions; the impact of any investigations brought by regulatory authorities in the U.S., U.K. and other countries;  the cost of resolution of other contingent liabilities and loss contingencies, including potential liabilities arising from error and omissions claims against Aon; the failure to retain and attract qualified personnel;  the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which Aon operates, particularly given the global scope of Aon's  businesses and the possibility of conflicting regulatory requirements across jurisdictions in which Aon does business; the effect of the change in global headquarters and jurisdiction of incorporation, including differences in the anticipated benefits; the extent to which Aon retains existing clients and attracts new businesses and Aon's ability to incentivize and retain key employees; the extent to which Aon manages certain risks created in connection with the various services, including fiduciary and advisory services and business process outsourcing services, among others, that Aon currently provides, or will provide in the future, to clients;  the possibility that the expected efficiencies and cost savings from the merger with Hewitt Associates Inc. ("Hewitt") will not be realized, or will not be realized within the expected time period; the risk that the Aon and Hewitt businesses will not be integrated successfully;  Aon's ability to implement restructuring initiatives and other initiatives intended to yield cost savings, and the ability to achieve those cost savings;  the potential of a system or network disruption resulting in operational interruption or improper disclosure of personal data; any inquiries relating to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws and with U.S. and non-U.S. trade sanctions regimes; and Aon's ability to grow, develop and integrate companies that it acquires or new lines of business.

Further information concerning Aon and its business, including factors that potentially could materially affect Aon's financial results, is contained in Aon's filings with the SEC. See Aon's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for a further discussion of these and other risks and uncertainties applicable to Aon's businesses. Aon does not undertake, and expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events or changes in their respective expectations, except as required by law.

Explanation of Non-GAAP Measures
This communication includes supplemental information related to organic revenue, free cash flow and several additional measures including expenses, margins and income per share, that exclude the effects of restructuring charges, intangible asset amortization, capital expenditures, transaction and integration costs and certain other noteworthy items that affected results for the comparable periods.  Organic revenue excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, reimbursable expenses and unusual items.  The impact of foreign exchange is determined by translating last year's revenue, expense or net income at this year's foreign exchange rates.  Reconciliations are provided in the attached schedules.  Supplemental organic revenue information and additional measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts.  Free cash flow is cash flow from operating activity less capital expenditures.  Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors.  They should be viewed in addition to, not in lieu of, the Company's Consolidated Financial Statements.  Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments.

Investor Contact:                                                         

Media Contact:

Scott Malchow                                                            

David Prosperi

Senior Vice President, Investor Relations                     

Vice President, Global Public Relations

+44 (0)20 7086 0100

312-381-2485

 

Aon plc














Condensed Consolidated Statements of Income (Unaudited)














Three Months Ended


Nine Months Ended

(millions, except per share data)



Sept. 30, 2013


Sept. 30, 2012


Percent Change


Sept. 30, 2013


Sept. 30, 2012


Percent Change

Revenue















Commissions, fees and other



$  2,786


$  2,726


2%


$  8,585


$  8,368


3%


Fiduciary investment income



8


11


(27)


21


31


(32)



Total revenue



2,794


2,737


2


8,606


8,399


2

















Expenses















Compensation and benefits



1,666


1,620


3


5,103


4,920


4


Other general expenses



764


778


(2)


2,347


2,344


-



Total operating expenses



2,430


2,398


1


7,450


7,264


3

Operating income



364


339


7


1,156


1,135


2


















Interest income



3


1


200


6


6


-


Interest expense



(53)


(57)


(7)


(153)


(173)


(12)


Other income (expense)



39


(9)


533


54


3


1,700

Income from continuing operations before income taxes



353


274


29


1,063


971


9


Income taxes (1) 



89


64


39


275


257


7

Income from continuing operations



264


210


26


788


714


10

















Loss from discontinued operations before income taxes



-


-


 N/A 


-


(1)


(100)


Income taxes (2) 



-


-


 N/A 


-


-


 N/A 

Loss from discontinued operations



-


-


 N/A 


-


(1)


(100)

















Net income 



264


210


26


788


713


11


Less:  Net income attributable to the noncontrolling interests



8


6


33


30


25


20

Net income attributable to Aon shareholders



$     256


$     204


25%


$     758


$     688


10%

















Net income (loss) attributable to Aon shareholders:















Income from continuing operations



$     256


$     204


25%


$     758


$     689


10%


Loss from discontinued operations



-


-


 N/A 


-


(1)


(100)


Net income 



$     256


$     204


25%


$     758


$     688


10%

Basic net income per share attributable to Aon shareholders















Income from continuing operations



$    0.83


$    0.62


34%


$    2.42


$    2.08


16%


Income from discontinued operations



-


-


 N/A 


-


-


 N/A 


Net income 



$    0.83


$    0.62


34%


$    2.42


$    2.08


16%

















Diluted net income per share attributable to Aon shareholders















Income from continuing operations



$    0.82


$    0.62


32%


$    2.39


$    2.06


16%


Income from discontinued operations



-


-


 N/A 


-


-


 N/A 


Net income 



$    0.82


$    0.62


32%


$    2.39


$    2.06


16%

















Weighted average ordinary shares outstanding - diluted



312.9


331.0


(5)%


316.7


334.4


(5)%



































(1)

The effective tax rate is 25.1% and 23.2% for the three months ended September 30, 2013 and 2012, respectively and 25.9% and 26.5% for the nine months ended September 30, 2013 and 2012, respectively.



















(2)

Tax rate for discontinued operations is not meaningful for the three and nine months ended September 30, 2013 and 2012, respectively.

 

Aon plc
















Revenue from Continuing Operations (Unaudited)














Three Months Ended


Nine Months Ended

(millions)

Sept. 30, 2013


Sept. 30, 2012


Percent Change


Organic Revenue (1)


Sept. 30, 2013


Sept. 30, 2012


Percent Change


Organic Revenue (1)

Commissions, Fees and Other
















Risk Solutions

$  1,813


$  1,767


3%


4%


$  5,715


$  5,551


3%


4%

HR Solutions

981


971


1


-


2,891


2,847


2


1



Total Operating Segments

$  2,794


$  2,738


2%


3%


$  8,606


$  8,398


2%


3%



















Fiduciary Investment Income
















Risk Solutions

$          8


$        11


(27)%




$        21


$        31


(32)%



HR Solutions

-


-


 N/A 




-


-


 N/A 





Total Operating Segments

$          8


$        11


(27)%




$        21


$        31


(32)%





















Total Revenue
















Risk Solutions

$  1,821


$  1,778


2%




$  5,736


$  5,582


3%



HR Solutions

981


971


1




2,891


2,847


2



Intersegment 

(8)


(12)


(33)




(21)


(30)


(30)





Total

$  2,794


$  2,737


2%




$  8,606


$  8,399


2%











































(1)

Organic revenue excludes the impact of foreign exchange, acquisitions, divestitures, transfers, reimbursable expenses and unusual items. Change in organic revenue, a non-GAAP measure, is reconciled to the corresponding U.S. GAAP percent change in revenue on page 11 of this release.


























 

Aon plc













Segments (Unaudited)



























Risk Solutions


Three Months Ended


Nine Months Ended

(millions)


Sept. 30,
2013


Sept. 30,
2012


Percent
Change


Sept. 30,
2013


Sept. 30,
2012


Percent
Change

Revenue














Commissions, fees and other


$  1,813


$  1,767


3%


$  5,715


$  5,551


3%


Fiduciary investment income


8


11


(27)


21


31


(32)



Total revenue


1,821


1,778


2


5,736


5,582


3
















Expenses














Compensation and benefits


1,047


1,024


2


3,253


3,146


3


Other general expenses


441


445


(1)


1,356


1,377


(2)



Total operating expenses


1,488


1,469


1


4,609


4,523


2
















Operating income


$     333


$     309


8%


$  1,127


$  1,059


6%
















Operating margin


18.3%


17.4%




19.6%


19.0%


















HR Solutions


Three Months Ended


Nine Months Ended

(millions)


Sept. 30,
2013


Sept. 30,
2012


Percent
Change


Sept. 30,
2013


Sept. 30,
2012


Percent
Change

Revenue














Commissions, fees and other


$     981


$     971


1%


$  2,891


$  2,847


2%


Fiduciary investment income


-


-


 N/A 


-


-


 N/A 



Total revenue


981


971


1


2,891


2,847


2
















Expenses














Compensation and benefits


596


569


5


1,775


1,703


4


Other general expenses


310


322


(4)


954


933


2



Total operating expenses


906


891


2


2,729


2,636


4
















Operating income


$        75


$        80


(6)%


$     162


$     211


(23)%
















Operating margin


7.6%


8.2%




5.6%


7.4%


















Total Operating Income (Loss)


Three Months Ended


Nine Months Ended

(millions)


Sept. 30,
2013


Sept. 30,
2012


Percent
Change


Sept. 30,
2013


Sept. 30,
2012


Percent
Change

Risk Solutions


$     333


$     309


8%


$  1,127


$  1,059


6%

HR Solutions


75


80


(6)


162


211


(23)

Unallocated


(44)


(50)


(12)


(133)


(135)


(1)


 Total operating income


$     364


$     339


7%


$  1,156


$  1,135


2%
















Total operating margin


13.0%


12.4%




13.4%


13.5%



 

Aon plc















Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow (Unaudited)





















Organic Revenue (Unaudited)















Three Months Ended

(millions)


Sept. 30, 2013


Sept. 30, 2012


Percent Change



Less:
  Currency
Impact (1)


Less:
Acquisitions,
Divestitures &
Other


Organic
Revenue
(2)

Commissions, Fees and Other














Risk Solutions Segment:















Retail brokerage
















Americas


$       774


$       743


4%



(2)%


1%


5%



International


650


647


-



(1)


(1)


2




 Total Retail brokerage


1,424


1,390


2



(1)


(1)


4


Reinsurance brokerage 


389


377


3



(1)


(1)


5




 Total Risk Solutions 


1,813


1,767


3



(1)


-


4

HR Solutions Segment:
















Consulting services


406


394


3



(1)


1


3



Outsourcing


587


585


-



-


1


(1)



Intrasegment


(12)


(8)


 N/A 



 N/A 


 N/A 


 N/A 




 Total HR Solutions 


981


971


1



(1)


2


-

Total Operating Segments


$   2,794


$   2,738


2%



(1)%


0%


3%








































Nine Months Ended

(millions)


Sept. 30, 2013


Sept. 30, 2012


Percent Change



Less:
  Currency
Impact (1)


Less:
Acquisitions,
Divestitures &
Other


Organic
Revenue
(2)

Commissions, Fees and Other














Risk Solutions Segment:















Retail brokerage
















Americas


$   2,286


$   2,188


4%



(1)%


-%


5%



International


2,262


2,207


2



-


(1)


3




Total Retail brokerage 


4,548


4,395


3



(1)


-


4


Reinsurance brokerage 


1,167


1,156


1



(1)


-


2




 Total Risk Solutions 


5,715


5,551


3



(1)


-


4

HR Solutions Segment:
















Consulting services


1,176


1,140


3



(1)


1


3



Outsourcing


1,746


1,723


1



-


1


-



Intrasegment


(31)


(16)


 N/A 



 N/A 


 N/A 


 N/A 




 Total HR Solutions 


2,891


2,847


2



-


1


1

Total Operating Segments


$   8,606


$   8,398


2%



(1)%


-%


3%























































 Free Cash Flow (Unaudited) 


 Three Months Ended 



 Nine Months Ended 

(millions)


Sept. 30, 2013


Sept. 30, 2012


Percent Change 



Sept. 30, 2013


Sept. 30, 2012


Percent Change

Cash Provided By (Used For) Operations


$       597


$       598


-%



$   984


$       867


13%


Less: Capital Expenditures


(52)


(72)


(28)



(174)


(201)


(13)

Free Cash Flow (3)


$       545


$       526


4%



$   810


$       666


22%












(1)

Currency impact is determined by translating last year's revenue at this year's foreign exchange rates.






















(2)

Organic revenue excludes the impact of foreign exchange, acquisitions, divestitures, transfers, reimbursable expenses and unusual items. 


















(3)

Free cash flow is defined as cash flow from operations less capital expenditures. This non-GAAP measure does not imply or represent a precise calculation of residual cash flow available for discretionary expenditures.











 

Aon plc
















Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share (Unaudited) (1)






















Three Months Ended September 30, 2013


Nine Months Ended September 30, 2013

(millions)

Risk
Solutions


HR
Solutions


Unallocated Income & Expense


Total


Risk
Solutions


HR
Solutions


Unallocated Income & Expense


Total

Revenue 

$               1,821


$              981


$               (8)


$ 2,794


$               5,736


$           2,891


$             (21)


$ 8,606



















Operating income (loss) - as reported

$                  333


$                 75


$             (44)


$    364


$               1,127


$              162


$           (133)


$ 1,156


Restructuring charges

24


6


-


30


52


57


-


109


Intangible asset amortization

28


70


-


98


86


210


-


296


Headquarters relocation costs

-


-


1


1


-


-


5


5

Operating income (loss) - as adjusted

$                  385


$              151


$             (43)


$    493


$               1,265


$              429


$           (128)


$ 1,566



















Operating margins - as adjusted

21.1%


15.4%


N/A


17.6%


22.1%


14.8%


N/A


18.2%






















Three Months Ended September 30, 2012


Nine Months Ended September 30, 2012

(millions)

Risk
Solutions


HR
Solutions


Unallocated Income & Expense


Total


Risk
Solutions


HR
Solutions


Unallocated Income & Expense


Total

Revenue 

$               1,778


$              971


$             (12)


$ 2,737


$               5,582


$           2,847


$             (30)


$ 8,399



















Operating income (loss) - as reported

$                  309


$                 80


$             (50)


$    339


$               1,059


$              211


$           (135)


$ 1,135


Restructuring charges 

16


16


-


32


29


36


-


65


Intangible asset amortization

31


74


-


105


91


222


-


313


Headquarters relocation costs

-


-


4


4


-


-


21


21

Operating income (loss) - as adjusted

$                  356


$              170


$             (46)


$    480


$               1,179


$              469


$           (114)


$ 1,534



















Operating margins - as adjusted

20.0%


17.5%


N/A


17.5%


21.1%


16.5%


N/A


18.3%






















Three Months Ended






Nine Months Ended








September 30,






September 30,





(millions except per share data)

2013


2012






2013


2012





Operating income - as adjusted

$                  493


$              480






$               1,566


$           1,534






Interest income

3


1






6


6






Interest expense 

(53)


(57)






(153)


(173)






Other income (expense)

39


(7)






54


5























Income from continuing operations before income taxes -

















as adjusted

482


417






1,473


1,372






Income taxes (2)

122


98






382


364





Income from continuing operations - as adjusted

360


319






1,091


1,008






Less:  Net income attributable to noncontrolling interests

8


6






30


25





Income from continuing operations attributable to

















Aon shareholders - as adjusted

$                  352


$              313






$               1,061


$              983























Diluted earnings per share from continuing operations -

















as adjusted

$                 1.13


$             0.95






$                 3.35


$             2.94























Weighted average ordinary shares outstanding - diluted

312.9


331.0






316.7


334.4












(1)

Certain noteworthy items impacting operating income in 2013 and 2012 are described in this schedule. The items shown with the caption "as adjusted" are non-GAAP measures.













(2)

The effective tax rate for continuing operations is 25.1% and 23.2% for the three months ended September 30, 2013 and 2012, respectively and 25.9% and 26.5% for the nine months ended September 30, 2013 and 2012, respectively. Adjusting items are generally taxed at the effective tax rate.










 

Aon plc











Restructuring Plans (Unaudited) (1)









































Aon Hewitt Restructuring Plan 






















By Type:














Actual



(millions)



Full Year
2010

Full Year
2011

Full Year
2012

Third
Quarter
2013

Nine
Months
2013

Total to
Date


Estimated
Total

Workforce reduction 



$                  49

$           64

$        74

$                 12

$               50

$             237


$          261

Lease consolidation 



3

32

18

17

53

106


128

Asset impairments 



-

7

4

-

3

14


15

Other costs associated with restructuring 



-

2

2

1

3

7


7

Total restructuring and related expenses



$                  52

$         105

$        98

$                 30

$            109

$             364


$          411












By Segment: (2)






















HR Solutions



52

49

66

6

57

224


244

Risk Solutions



-

56

32

24

52

140


167

Total restructuring and related expenses



$                  52

$         105

$        98

$                 30

$            109

$             364


$          411
























(1)

In the Condensed Consolidated Statements of Income, workforce reductions are included in "Compensation and benefits"; lease consolidations, asset impairments, and other costs associated with restructuring are included in "Other general expenses".



(2)

Costs included in the Risk Solutions segment are associated with the transfer of the Health and Benefits Consulting business from HR Solutions to Risk Solutions effective January 1, 2012. Costs incurred in 2011 in the HR Solutions segment of $41 million related to the Health and Benefits Consulting business have been reclassified and presented in the Risk Solutions segment.

 

 Aon plc 






 Condensed Consolidated Statements of Financial Position (Unaudited) 


















 As of 

 (millions) 



September 30, 
2013


December 31, 
2012







(Unaudited)



 ASSETS 







 Current Assets 







 Cash and cash equivalents 



$                369


$              291


 Short-term investments 



357


346


 Receivables, net 



2,666


3,101


 Fiduciary assets (1) 



11,698


12,214


 Other current assets 



484


430



 Total Current Assets 



15,574


16,382


 Goodwill 



8,958


8,943


 Intangible assets, net 



2,657


2,975


 Fixed assets, net 



803


820


 Investments 



139


165


 Other non-current assets 



1,174


1,201


 Total Assets 



$           29,305


$         30,486










 LIABILITIES AND EQUITY  






 Current Liabilities 







 Fiduciary liabilities 



$           11,698


$         12,214


 Short-term debt and current portion of long-term debt 


1,206


452


 Accounts payable and accrued liabilities 


1,523


1,853


 Other current liabilities 



764


831



 Total Current Liabilities 


15,191


15,350


 Long-term debt 



3,352


3,713


 Pension, other post retirement and other post employment liabilities 


1,773


2,276


 Other non-current liabilities 



1,399


1,342


 Total Liabilities 



21,715


22,681










 EQUITY 







 Shareholders' Equity 







 Ordinary shares ($0.01 nominal value) 


3


3


 Additional paid-in capital 



4,660


4,436


 Retained earnings 



5,507


5,933


 Accumulated other comprehensive loss 


(2,636)


(2,610)


 Total Aon Shareholders' Equity 


7,534


7,762


 Noncontrolling interests 



56


43


 Total Equity 



7,590


7,805


 Total Liabilities and Equity 


$           29,305


$         30,486


(1)

Includes short-term investments: 2013 - $4,335, 2012 - $4,029


 

 Aon plc 





 Condensed Consolidated Statements of Cash Flows (Unaudited) 



 Three Months Ended 

 Nine Months Ended 

 (millions) 


September 30, 2013


September 30, 2012


September 30, 2013


September 30, 2012

 CASH FLOWS FROM OPERATING ACTIVITIES 










 Net income 


$                264


$                210


$               788


$                   713


 Adjustments to reconcile net income to cash provided by operating activities: 











 Gain from sales of businesses and investments, net 


(28)


(1)


(28)


(1)



 Depreciation of fixed assets 


59


56


177


168



 Amortization of intangible assets 


98


105


296


313



 Share-based compensation expense 


70


55


207


160



 Deferred income taxes 


76


(2)


100


21


 Change in assets and liabilities: 











 Fiduciary receivables 


1,338


1,054


684


(447)



 Short term investments - funds held on behalf of clients 


(157)


637


(369)


118



 Fiduciary liabilities 


(1,181)


(1,691)


(315)


329



 Receivables, net 


183


159


374


240



 Accounts payable and accrued liabilities 


101


153


(330)


(347)



 Restructuring reserves 


(2)


(5)


(7)


(43)



 Current income taxes 


(87)


19


(197)


67



 Pension and other post employment liabilities 


(110)


(214)


(401)


(414)



 Other assets and liabilities 


(27)


63


5


(10)




 CASH PROVIDED BY OPERATIONS 


597


598


984


867










 CASH FLOWS FROM INVESTING ACTIVITIES 










 Proceeds from sale of long-term investments 


58


120


81


171


 Purchases of long-term investments 


(7)


(2)


(13)


(9)


 Net (purchases) sales of short-term investments - non-fiduciary 


(42)


(193)


(13)


66


 Acquisition of businesses, net of cash acquired 


(3)


(15)


(26)


(97)


 Proceeds from sale of business 


5


1


6


2


 Capital expenditures 


(52)


(72)


(174)


(201)




 CASH USED FOR INVESTING ACTIVITIES 


(41)


(161)


(139)


(68)










 CASH FLOWS FROM FINANCING ACTIVITIES 










 Share repurchase 


(500)


(275)


(1,025)


(625)


 Issuance of shares for employee benefit plans 


27


29


84


93


 Issuance of debt 


1,356


1


4,270


333


 Repayment of debt 


(1,263)


(122)


(3,870)


(427)


 Cash dividends to shareholders 


(54)


(51)


(159)


(153)


 Purchase of shares from noncontrolling interests 


(6)


(1)


(6)


-


 Dividends paid to noncontrolling interests 


(7)


(11)


(13)


(17)




 CASH USED FOR FINANCING ACTIVITIES 


(447)


(430)


(719)


(796)










 Effect of Exchange Rate Changes on Cash and Cash Equivalents 


(6)


(3)


(48)


15

 Net Increase in Cash and Cash Equivalents 


103


4


78


18

 Cash and Cash Equivalents at Beginning of Period 


266


286


291


272

 Cash and Cash Equivalents at End of Period 


$                369


$                290


$               369


$                   290

 

SOURCE Aon plc



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