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Aon Reports Third Quarter 2018 Results

LONDON, Oct. 26, 2018 /PRNewswire/ --

Third Quarter Key Metrics as Reported under U.S. GAAP (1)

  • Total revenue was flat at $2.3 billion, including a decrease of $117 million, or 6%, related to the FASB's new revenue recognition standard
  • Operating margin increased 30 basis points to 11.2%, including a decrease of 380 basis points related to the FASB's new revenue recognition standard
  • EPS decreased 16% to $0.61, including a decrease of $0.31 related to the FASB's new revenue recognition standard

Third Quarter Key Metrics as Comparable to Pro Forma Financials and Highlights(1)

  • Total revenue increased 6% to $2.3 billion, including 6% organic revenue growth
  • Operating margin increased to 11.2%, and operating margin, adjusted for certain items, increased 190 basis points to 18.5%
  • EPS decreased to $0.61, and EPS, adjusted for certain items, increased 34% to $1.31
  • For the first nine months of 2018, cash flow from operations increased 237% to $975 million, and adjusted free cash flow increased 5% to $1,163 million, when excluding certain near-term impacts related to the divestiture of the outsourcing business
  • Repurchased 2.1 million Class A Ordinary Shares for approximately $300 million
  • Launched a silent cyber solution, driven by analytics and backed by a reinsurance solution, to help carriers respond to expanding cyber risk and regulations

Aon plc (NYSE: AON) today reported results for the three months ended September 30, 2018.

Net income (loss) from continuing operations attributable to Aon shareholders on a reported basis was $149 million, or $0.61 per share, compared to $189 million, or $0.73 per share, in the prior year period, which includes $(81) million, or $(0.31) per share, of unfavorable impact from adoption of the new revenue recognition standard. Net income per share from continuing operations on a comparable basis, adjusted for certain items and the impact of adoption of the new revenue recognition standard, increased 34% to $1.31, including an unfavorable impact of $0.05 per share related to foreign currency translation, compared to $0.98 in the prior year period. Certain items that impacted third quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 11 of this press release.

"In the third quarter, we delivered positive performance across each of our key financial metrics; highlighted by strong organic revenue growth of 6% overall, with four of our five revenue lines delivering organic revenue growth of 5% or greater, and 18% operating income growth, of which 9% was driven by core operational improvement. Results year-to-date reflect accelerating revenue growth and continued momentum toward achieving our near-term target of exceeding $7.97 adjusted earnings per share for the full year 2018," said Greg Case, Chief Executive Officer.  "While we are increasing our long-term growth profile through significant investments in client-facing colleagues and capabilities that deliver Aon United, we are also driving substantial free cash flow generation that is expected to enable tremendous capital allocation opportunities and unlock significant shareholder value creation over the long-term."

THIRD QUARTER 2018 FINANCIAL SUMMARY
The third quarter 2018 financial results discussed herein represent performance from continuing operations unless otherwise noted. Adoption of the FASB's new revenue recognition standard on January 1, 2018 is not reflected in reported 2017 financials. A comparable year-over-year view of reported 2018 results to unaudited pro forma 2017 results incorporating the impact of adoption of the new revenue recognition standard is provided in detail on pages 10-15 of this press release.

Total revenue in the third quarter was flat at $2.3 billion on a reported basis compared to the prior year period, including a decrease of $117 million, or 6%, related to adoption of the new revenue recognition standard. Excluding this impact, comparable revenue increased $126 million, or 6%, compared to the prior year period driven by 6% organic revenue growth and a 2% increase related to acquisitions, net of divestitures, partially offset by a 2% unfavorable impact from foreign currency translation.

Total operating expenses in the third quarter were flat at $2.1 billion on a reported basis compared to the prior year period, including a decrease of $18 million related to adoption of the new revenue recognition standard. Excluding this impact, comparable expenses increased $21 million compared to the prior year period due primarily to an increase in expenses associated with 6% organic revenue growth, a $38 million increase in operating expenses related to acquisitions, net of divestitures, a $4 million increase in errors and omissions expense, and investments across the portfolio to support long-term growth initiatives, partially offset by $50 million of incremental savings related to restructuring and other operational improvement initiatives, a $34 million favorable impact from foreign currency translation, a $25 million decrease related to reduced legacy litigation expense, a $10 million decrease in transaction related costs associated with acquisitions, an $8 million decrease in costs related to regulatory and compliance matters, and a $5 million decrease in restructuring charges.

Restructuring expenses were $97 million in the third quarter, primarily driven by costs associated with restructuring and separation initiatives and workforce reductions. As previously announced, the Company expects to invest $1,175 million in total cash over a three-year period and incur $50 million of non-cash charges in driving one operating model across the firm. This includes an estimated investment of $975 million of cash restructuring charges and $200 million of capital expenditures. The Company has incurred $863 million, or 84%, of the total estimated restructuring charges. An analysis of restructuring and related costs by type is detailed on page 18 of this press release.

Restructuring savings in the third quarter related to restructuring and other operational improvement initiatives are estimated at $105 million before any reinvestment, an increase of $50 million compared to the prior year period. Before any potential reinvestment of savings, restructuring and other operational improvement initiatives are expected to deliver run-rate savings of $450 million annually in 2019. The Company has achieved $308 million, or 68%, of the total estimated annualized savings, before any potential reinvestment.

Foreign currency exchange rates in the third quarter had a $5 million, or $0.02 per share, unfavorable impact on reported net income if the Company were to translate prior year quarter results at current quarter foreign exchange rates. On a comparable basis, there was a $13 million, or $0.05 per share, unfavorable impact from foreign currency translation on net income adjusted for certain items and the impact of adoption of the new revenue recognition standard. If currency were to remain stable at today's rates, with the U.S. Dollar strengthening further against Latin American currencies, we would expect an unfavorable impact of approximately $0.06 per share in the fourth quarter of 2018, which translates into approximately $18 million of unfavorable impact to operating income.

Effective tax rate reflected in the reported financial statements in the third quarter was 20.1%, compared to 2.0% in the prior year period. After adjusting for the impact of adoption of the new revenue recognition standard and to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate on a comparable basis for the third quarter of 2018 decreased to 12.8% compared to 17.3% in the prior year quarter, primarily driven by a net favorable impact from certain discrete tax items and changes in the geographical distribution of income. As a result of the favorable discrete tax items in the third quarter, the non-GAAP full year global effective tax rate is expected to be lower than the previous guidance of 18%. Certain items that impacted third quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 11 of this press release.

Weighted average diluted shares outstanding decreased to 245.6 million in the third quarter compared to 257.3 million in the prior year period. The Company repurchased 2.1 million Class A Ordinary Shares for approximately $300 million in the quarter.  As of September 30, 2018, the Company had $4.2 billion of remaining authorization under its share repurchase program.

THIRD QUARTER 2018 CASH FLOW SUMMARY
Cash flow from operations for the first nine months of 2018 increased $686 million, or 237%, to $975 million compared to the prior year period. The prior year period included $686 million of cash tax payments related to the divestiture of the outsourcing business. Strong operational improvement contributed to year-over-year growth, partially offset by $123 million of incremental cash restructuring charges and $80 million of accelerated pension contributions.

Free cash flow, defined as cash flow from operations less capital expenditures, increased $632 million, or 385%,  to $796 million for the first nine months of 2018 compared to the prior year quarter reflecting an increase in cash flow from operations, partially offset by a $54 million increase in capital expenditures, including investments in our operating model.

Adjusted free cash flow, defined as free cash flow excluding certain near-term impacts resulting from the divestiture of the outsourcing business, including restructuring initiatives, increased $57 million, or 5%, to $1,163 million compared to the prior year period. A reconciliation of free cash flow and adjusted free cash flow to cash flow from operations can be found in "Reconciliation of Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow" on page 10 of this press release.

THIRD QUARTER 2018 REVENUE REVIEW
The third quarter revenue reviews provided below include supplemental information related to organic revenue growth, which is a non-GAAP measure that is described in detail in "Reconciliation of Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow" on page 10 of this press release.   



Three Months Ended











(millions)


Sep 30,
2018


Sep 30,
2017


%
Change


Revenue
Recognition


Less:
Currency
Impact


Less:
Fiduciary
Investment
Income


Less:
Acquisitions,
Divestitures
 & Other


Organic
Revenue
Growth

Revenue
















Commercial Risk Solutions


$

1,029


$

917


12%


—%


(2)%


—%


6%


8%

Reinsurance Solutions


279


355


(21)


(30)


(1)


1


1


8

Retirement Solutions


501


491


2



(1)



1


2

Health Solutions


278


293


(5)


(5)


(4)



(4)


8

Data & Analytic Services


263


289


(9)


(1)


(1)



(12)


5

Elimination


(1)


(5)


N/A


N/A


N/A


N/A


N/A


N/A

Total revenue


$

2,349


$

2,340


—%


(6)%


(2)%


—%


2%


6%

Total revenue increased $9 million on a reported basis, including a decrease of $117 million, or 6%, related to adoption of the new revenue recognition standard. Excluding this impact, revenue on a comparable basis increased $126 million, or 6%, compared to the prior year period, including organic revenue growth of 6% primarily driven by strong new business generation and retention globally across our core portfolio, as well as double-digit growth in specific areas of continued investment; including cyber solutions, delegated investment management, transaction liability, and voluntary benefits.

Commercial Risk Solutions organic revenue growth of 8% compared to the prior year period was driven by growth across every major geography, reflecting strong global new business generation and management of the renewal book portfolio, highlighted by double-digit growth in the U.S. and Latin America. Results include double-digit growth in both cyber solutions and transaction liability, two specific areas of investment to support increasing client demand.

Reinsurance Solutions organic revenue growth of 8% compared to the prior year period was driven by strong growth in facultative placements and continued net new business generation globally in treaty. In addition, market impact was modestly favorable on results in the third quarter, primarily in the U.S.

Retirement Solutions organic revenue growth of 2% compared to the prior year period was driven by solid growth in investment consulting, including double-digit growth in delegated investment management, as well as solid growth in our talent practice for assessment services and in our rewards practice for compensation benchmarking.

Health Solutions organic revenue growth of 8% compared to the prior year period was driven by solid growth internationally, highlighted by particular strength in new business generation in the EMEA region and another quarter of strong growth in voluntary benefits in the U.S. Results also reflect strong growth across healthcare exchanges primarily driven by new client wins on the active exchange and expanded service offerings on the retiree exchange.

Data & Analytic Services organic revenue growth of 5% compared to the prior year period was driven by growth globally across our Affinity business, with particular strength in the U.S., as well as solid growth in Aon Client Treaty.

 THIRD QUARTER 2018 EXPENSE REVIEW



Three Months Ended



(millions)


Sep 30,
2018


Sep 30,
2017


$
Change


%
Change

Expenses







Compensation and benefits


$

1,392


$

1,428


$

(36)


(3)%

Information technology


125


109


16


15

Premises


94


89


5


6

Depreciation of fixed assets


40


40



Amortization and impairment of intangible assets


100


101


(1)


(1)

Other general expenses


336


317


19


6

Total operating expenses


$

2,087


$

2,084


$

3


—%

Compensation and benefits expense decreased $36 million, or 3%, on a reported basis, including an $8 million decrease related to adoption of the new revenue recognition standard. Excluding this impact, compensation and benefits expense on a comparable basis decreased $28 million, or 2%, compared to the prior year period due primarily to $42 million of incremental savings related to restructuring and other operational improvement initiatives, a $34 million decrease in restructuring costs, a $25 million favorable impact from foreign currency translation, and a $2 million decrease in transaction related costs associated with acquisitions, partially offset by an increase in expense associated with 6% organic revenue growth, a $28 million increase in expenses related to acquisitions, net of divestitures, and investments in Aon United growth initiatives.

Information technology expense increased $16 million, or 15%, compared to the prior year period due primarily to investments to support Aon United growth initiatives, including $8 million of investment in application development, and a $5 million increase in expenses related to acquisitions, net of divestitures, partially offset by $4 million of incremental savings related to restructuring and other operational improvement initiatives.

Premises expense increased $5 million, or 6%, compared to the prior year period due primarily to a $7 million increase in restructuring costs and a $3 million increase in expenses related to acquisitions, net of divestitures, partially offset by $6 million of incremental savings related to restructuring and other operational improvement initiatives.

Depreciation of fixed assets was flat compared to the prior year period.

Amortization and impairment of intangible assets decreased $1 million, or 1%, compared to the prior year period.

Other general expenses increased $19 million, or 6%, on a reported basis, including a $10 million decrease related to adoption of the new revenue recognition standard. Excluding this impact, other general expenses on a comparable basis increased $29 million, or 9%, compared to the prior year period due primarily to an increase in expense associated with 6% organic revenue growth, a $22 million increase in restructuring costs, a $4 million increase in errors and omissions expense, and investments to support long-term growth initiatives, partially offset by a $25 million decrease related to reduced legacy litigation expense, an $8 million decrease in costs related to regulatory and compliance matters, and an $8 million decrease in transaction related costs associated with acquisitions.

THIRD QUARTER 2018 INCOME SUMMARY
The third quarter 2018 financial results discussed herein represent performance from continuing operations unless otherwise noted. Adoption of the FASB's new revenue recognition standard on January 1, 2018 is not reflected in reported 2017 financials. A comparable year-over-year view of reported 2018 results to unaudited pro forma 2017 results incorporating the impact of adoption of the new revenue recognition standard is provided in detail on pages 10-15 of this press release. In addition, certain noteworthy items impacted adjusted operating income and adjusted operating margins in the third quarters of 2018 and 2017, which are also described in detail in "Reconciliation of Non-GAAP Measures Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 11 of this press release.

AS REPORTED



Three Months Ended



(millions)


Sep 30,
 2018


Sep 30,
 2017


%

 Change

Revenue


$

2,349


$

2,340


—%

Expenses


2,087


2,084


Operating income - as reported


$

262


$

256


2%

Operating margin - as reported


11.2%


10.9%



Operating income increased $6 million, or 2%, on a reported basis compared to the prior year period, including a decrease of $99 million, or 39%, related to adoption of the new revenue recognition standard. Operating margin increased 30 basis points on a reported basis compared to the prior year period, including a decrease of 380 basis points related to adoption of the new revenue recognition standard.

AS COMPARABLE TO 2017 UNAUDITED PRO FORMA FINANCIALS



Three Months Ended







(Pro Forma)



(millions)


Sep 30,
 2018


Sep 30,
 2017


%

 Change

Revenue


$

2,349


$

2,223


6%

Expenses


2,087


2,066


1

Operating income - as reported


$

262


$

157


67%

Operating margin - as reported


11.2%


7.1%



Operating income - as adjusted


$

434


$

368


18%

Operating margin - as adjusted


18.5%


16.6%



Adjusting for certain items and the impact of adoption of the new revenue recognition standard detailed on page 11 of this press release, adjusted operating income on a comparable basis increased $66 million, or 18%, and adjusted operating margin on a comparable basis increased 190 basis points to 18.5%, each compared to the prior year period. The increase in adjusted operating margin on a comparable basis was primarily driven by accelerating organic revenue growth, including strong growth in areas of continued investment across the portfolio, and $50 million, or 210 basis points, of incremental savings from restructuring and other operational initiatives, partially offset by a $4 million, or -20 basis points, headwind from the timing of increased errors and omissions expense and a $13 million, or -20 basis points, unfavorable impact from foreign currency translation. Core operational improvement of $33 million, or 9% of operating income growth, and +20 basis points of operating margin expansion compared to the prior year period also reflects the absorption of near-term investment in client-facing colleagues and capabilities to support long-term Aon United growth initiatives.

Interest income decreased $10 million as the prior year period included additional income earned on the proceeds of the sale of the outsourcing business. Interest expense decreased $1 million to $69 million compared to the prior year period reflecting lower outstanding term debt, partially offset by an increase in commercial paper borrowings. Other pension income (expense) included $9 million of pension income, offset by $9 million of non-cash expenses related to pension settlements. Excluding the non-cash expenses related to pension settlements, pension income of $9 million is similar to the prior year period. Other income was $1 million, primarily reflecting gains on certain company owned life insurance plans, partially offset by net losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies and losses on the disposal of certain assets. The prior year period included $15 million of net losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies, partially offset by $10 million of gains primarily related to certain long-term investments.

DISCONTINUED OPERATIONS
Net loss from discontinued operations on a reported basis was $2 million, or $(0.01) per share, compared to net loss of $4 million, or $(0.01) per share, in the prior year period.

Conference Call, Presentation Slides and Webcast Details
The Company will host a conference call on Friday, 10/26/2018 at 7:30 a.m., central time.  The Company will provide management's prepared conference call remarks in the investor presentation prior to the beginning of the conference call in order to provide more time for discussion with the investment community.  Interested parties can listen to the conference call via a live audio webcast, read management's prepared remarks, and view the presentation slides at www.aon.com.

About Aon
Aon plc (NYSE:AON) Aon is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

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", "potential", "looking forward", 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 and political conditions in different countries in which Aon does business around the world; changes in the competitive environment; fluctuations in exchange and interest rates that could influence revenue and expense; 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; the level of Aon's debt limiting financial flexibility; rating agency actions that could affect Aon's ability to borrow funds; the effect of the change in global headquarters and jurisdiction of incorporation, including differences in the anticipated benefits; changes in estimates or assumptions on our financial statements; limits on Aon's subsidiaries to make dividend and other payments to Aon; the impact of lawsuits and other contingent liabilities and loss contingencies arising from errors and omissions and other claims against Aon; 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 impact of any investigations brought by regulatory authorities in the U.S., U.K. and other countries; the impact of 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; failure to protect intellectual property rights or allegations that we infringe on the intellectual property rights of others; the effects of English law on our operating flexibility and the enforcement of judgments against Aon; the failure to retain and attract qualified personnel; international risks associated with Aon's global operations; the effect or natural or man-made disasters; the potential of a system or network breach or disruption resulting in operational interruption or improper disclosure of personal data; Aon's ability to develop and implement new technology; the damage to our reputation among clients, markets or third parties; the actions taken by third parties that preform aspects of our business operations and client services;  the extent to which Aon manages certain risks created in connection with the various services, including fiduciary and investments and other advisory services and business process outsourcing services, among others, that Aon currently provides, or will provide in the future, to clients; Aon's ability to grow, develop and integrate companies that it acquires or new lines of business; changes in commercial property and casualty markets, commercial premium rates or methods of compensation; changes in the health care system or our relationships with insurance carriers; and Aon's ability to implement initiatives intended to yield cost savings, and the ability to achieve those cost savings.

Any or all of Aon's forward-looking statements may turn out to be inaccurate, and there are no guarantees about Aon's performance.  The factors identified above are not exhaustive.  Aon and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently.  Further information concerning Aon and its businesses, 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 for the year ended December 31, 2017 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018, and September 30, 2018 for a further discussion of these and other risks and uncertainties applicable to Aon's businesses. These factors may be revised or supplemented in subsequent reports.  Aon is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statement that it may make from time to time, whether as a result of new information, future events or otherwise.

Explanation of Non-GAAP Measures
This communication includes supplemental information related to organic revenue growth, free cash flow, adjusted free cash flow, adjusted operating margin, and adjusted earnings per share for continuing operations that exclude the effects of intangible asset amortization, restructuring, capital expenditures, and certain other noteworthy items that affected results for the comparable periods.   Organic revenue growth includes the impact of intercompany activity and excludes the impact of the adoption of the new revenue recognition standard, foreign exchange rate changes, acquisitions, divestitures, transfers between revenue lines, and fiduciary investment income.  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 appendices.  Supplemental organic revenue growth information and additional measures that exclude the effects of certain items noted above do not affect net income or any other U.S. GAAP reported amounts.  Free cash flow is cash flow from operating activity less capital expenditures. Adjusted free cash flow is free cash flow excluding certain near-term impacts resulting from the divestiture of the outsourcing businesses, including restructuring initiatives. The effective tax rate, as adjusted, excludes the applicable tax impact associated with expenses for estimated intangible asset amortization, restructuring, and certain other noteworthy items. 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:

Investor Relations


Donna Mirandola

312-381-3310


Vice President, Global External Communications

investor.relations@aon.com


312-381-1532

 

Aon plc

Condensed Consolidated Statements of Income (Unaudited)





Three Months Ended



Nine Months Ended



(millions, except per share data)


Sep 30,
 2018


Sep 30,
 2017


%
Change


Sep 30,
 2018


Sep 30,
 2017


%

Change

Revenue













Total revenue


$

2,349


$

2,340


—%


$

8,000


$

7,089


13%

Expenses













Compensation and benefits


1,392


1,428


(3)%


4,502


4,363


3%

Information technology


125


109


15%


363


295


23%

Premises


94


89


6%


283


259


9%

Depreciation of fixed assets


40


40


—%


126


148


(15)%

Amortization and impairment of intangible assets


100


101


(1)%


492


604


(19)%

Other general expenses


336


317


6%


1,189


956


24%

Total operating expenses


2,087


2,084


—%


6,955


6,625


5%

Operating income


262


256


2%


1,045


464


125%

Interest income



10


(100)%


5


20


(75)%

Interest expense


(69)


(70)


(1)%


(208)


(211)


(1)%

Other income (expense)


1


4


(75)%


(17)


6


(383)%

Income from continuing operations before income taxes


194


200


(3)%


825


279


196%

Income taxes (1)


39


4


875%


9


(139)


(106)%

Net income from continuing operations


155


196


(21)%


816


418


95%

Net income (loss) from discontinued operations


(2)


(4)


(50)%


5


857


(99)%

Net income


153


192


(20)%


821


1,275


(36)%

Less: Net income attributable to noncontrolling interests


6


7


(14)%


32


30


7%

Net income attributable to Aon shareholders


$

147


$

185


(21)%


$

789


$

1,245


(37)%














Basic net income (loss) per share attributable to Aon shareholders













Continuing operations


$

0.61


$

0.74


(18)%


$

3.18


$

1.49


113%

Discontinued operations


(0.01)


(0.02)


(50)%


0.02


3.28


(99)%

Net income


$

0.60


$

0.72


(17)%


$

3.20


$

4.77


(33)%

Diluted net income (loss) per share attributable to Aon shareholders













Continuing operations


$

0.61


$

0.73


(16)%


$

3.17


$

1.48


114%

Discontinued operations (2)


(0.01)


(0.01)


—%


0.02


3.26


(99)%

Net income


$

0.60


$

0.72


(17)%


$

3.19


$

4.74


(33)%

Weighted average ordinary shares outstanding - basic


244.0


255.6


(5)%


246.2


260.9


(6)%

Weighted average ordinary shares outstanding - diluted


245.6


257.3


(5)%


247.7


262.9


(6)%



(1)

The effective tax rate from continuing operations was 20.1% and 2.0% for the three months ended September 30, 2018 and 2017, respectively, and 1.1% and (49.8)% for the nine months ended September 30, 2018 and 2017, respectively.

(2)

Upon triggering held for sale criteria in February 2017, Aon ceased depreciating and amortizing all long-lived assets included in discontinued operations. Total operating expenses for 2017 include $8 million of depreciation of fixed assets and $11 million of intangible asset amortization.


 

Aon plc

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

Organic Revenue Growth From Continuing Operations (Unaudited)





Three Months Ended





(millions)


Sep 30,
2018


Sep 30,
2017


%
Change


Revenue
Recognition (1)


Less:
Currency
Impact (2)


Less:
Fiduciary
Investment
Income (3)


Less:
Acquisitions,
Divestitures 
& Other


Organic
Revenue
Growth (4)

Revenue

















Commercial Risk Solutions


$

1,029


$

917


12%


—%


(2)%


—%


6%


8%

Reinsurance Solutions


279


355


(21)


(30)


(1)


1


1


8

Retirement Solutions


501


491


2



(1)



1


2

Health Solutions


278


293


(5)


(5)


(4)



(4)


8

Data & Analytic Services


263


289


(9)


(1)


(1)



(12)


5

Elimination


(1)


(5)


N/A


N/A


N/A


N/A


N/A


N/A

Total revenue


$

2,349


$

2,340


—%


(6)%


(2)%


—%


2%


6%

































Nine Months Ended













(millions)


Sep 30,
2018


Sep 30,
2017


%
Change


Revenue
Recognition (1)


Less:
Currency
Impact (2)


Less:
Fiduciary
Investment
Income (3)


Less:
Acquisitions,
Divestitures 
& Other


Organic
Revenue
Growth (4)

Revenue

















Commercial Risk Solutions


$

3,379


$

2,943


15%


—%


2%


—%


7%


6%

Reinsurance Solutions


1,401


1,070


31


21


3


1


(1)


7

Retirement Solutions


1,356


1,266


7



2



3


2

Health Solutions


1,038


977


6


1


1




4

Data & Analytic Services


834


842


(1)



1



(3)


1

Elimination


(8)


(9)


N/A


N/A


N/A


N/A


N/A


N/A

Total revenue


$

8,000


$

7,089


13%


3%


2%


—%


4%


4%



(1)

Revenue Recognition represents the impact of Aon's adoption of the new revenue recognition standard, effective for Aon in the first quarter of 2018.

(2)

Currency impact is determined by translating prior period's revenue at this period's foreign exchange rates.

(3)

Fiduciary investment income for the three months ended September 30, 2018 and 2017 was $15 million and $10 million, respectively. Fiduciary Investment Income for the nine months ended September 30, 2018 and 2017 was $37 million and $23 million, respectively.

(4)

Organic revenue growth includes the impact of intercompany activity and excludes the impact of the adoption of the new revenue recognition standard, changes in foreign exchange rates, acquisitions, divestitures, transfers between revenue lines, and fiduciary investment income.

 

Free Cash Flow from Continuing Operations (Unaudited)






Nine Months Ended



(millions)


Sep 30,
2018


Sep 30,
2017


Percent
Change

Cash provided by continuing operating activities


$

975


$

289


237%

Capital expenditures used for continuing operations


(179)


(125)


43

Free cash flow provided by continuing operations (1)


$

796


$

164


385%








Adjustments:







Transaction costs associated with the divested business



45


(100)%

Income taxes on sale of the divested business



686


(100)

Restructuring plan initiatives (2)


367


211


74%

Free cash flow provided by continuing operations - as adjusted (3)


$

1,163


$

1,106


5%



(1)

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. 

(2)

Restructuring plan cash payments include cash used to settle restructuring liabilities as well as payments made on capital expenditures under the program.

(3)

Certain noteworthy items impacting free cash flow from operating activities in 2018 and 2017 are described in this schedule. 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 Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share (Unaudited) (1)




Three Months Ended




Nine Months Ended



(millions, except percentages)


Sep 30,
2018


Sep 30,
2017 (2)


Percent
Change


Sep 30,
2018


Sep 30,
2017 (2)


Percent
Change

Revenue from continuing operations


$

2,349


$

2,223


6%


$

8,000


$

7,301


10%














Operating income from continuing operations


$

262


$

157


67%


$

1,045


$

612


71%

Amortization and impairment of intangible assets (3)


100


101




492


604



Restructuring


97


102




366


401



Legacy litigation


(25)





78




Regulatory and Compliance Matters



8





42



Operating income from continuing operations - as adjusted


$

434


$

368


18%


$

1,981


$

1,659


19%

Operating margin from continuing operations


11.2%


7.1%




13.1%


8.4%



Operating margin from continuing operations - as adjusted


18.5%


16.6%




24.8%


22.7%







Three Months Ended




Nine Months Ended



(millions, except percentages)


Sep 30,
2018


Sep 30,
2017 (2)


Percent
Change


Sep 30,
2018


Sep 30,
2017 (2)


Percent
Change

Operating income from continuing operations - as adjusted


$

434


$

368


18%


$

1,981


$

1,659


19%

Interest income



10


(100)%


5


20


(75)%

Interest expense


(69)


(70)


(1)%


(208)


(211)


(1)%

Other income (expense):













Other income (expense) - pensions - as adjusted (4)


9


9


—%


27


26


4%

Other income (expense) - other


1


(5)


(120)%


(12)


(20)


(40)%

Total Other income (expense) - as adjusted (4)


10


4


150%


15


6


150%

Income before income taxes from continuing operations - as adjusted


375


312


20%


1,793


1,474


22%

Income taxes expense (5)


48


54


(11)%


273


220


24%

Net income from continuing operations - as adjusted


327


258


27%


1,520


1,254


21%

Less: Net income attributable to noncontrolling interests


6


7


(14)%


32


30


7%

Net income attributable to Aon shareholders from continuing operations - as adjusted


321


251


28%


1,488


1,224


22%

Net income (loss) from discontinued operation - as adjusted (6)


(2)


(10)


(80)%


(4)


60


(107)%

Net income - as adjusted


$

319


$

241


32%


$

1,484


$

1,284


16%

Diluted net income (loss) per share attributable to Aon shareholders













Continuing operations - as adjusted


$

1.31


$

0.98


34%


$

6.01


$

4.66


29%

Discontinued operations - as adjusted


(0.01)


(0.04)


(75)%


(0.02)


0.22


(109)%

Net income - as adjusted


$

1.30


$

0.94


38%


$

5.99


$

4.88


23%

Weighted average ordinary shares outstanding - diluted


245.6


257.3


(5)%


247.7


262.9


(6)%

Effective Tax Rates (5)













Continuing Operations - U.S. GAAP


20.1%


2.0%




1.1%


(49.8)%



Continuing Operations - Non-GAAP


12.8%


17.3%




15.2%


14.9%



Discontinued Operations - U.S. GAAP


21.3%


35.1%




8.8%


21.8%



Discontinued Operations - Non-GAAP (6)


26.7%


35.2%




36.5%


24.2%





(1)

Certain noteworthy items impacting operating income in 2018 and 2017 are described in this schedule. The items shown with the caption "as adjusted" are non-GAAP measures. In the first quarter of 2018, Aon adopted new accounting guidance related to the treatment of revenue from contracts with customers that was applied prospectively on its U.S. GAAP financial statements in accordance with FASB standards, and therefore comparable prior periods were not restated.  On pages 11 through 15 of this press release, the Company has included unaudited pro forma consolidated results that present the retrospective impact of the new standard as if it were in effect for the comparable periods ended September 30, 2017.  We use this supplemental information to help us and our investors evaluate business growth from core operations.  Please see the U.S. GAAP financial statements included as Exhibit 99.2 to the Company's Form 8-K filed on October 26, 2018 for a reconciliation in accordance with FASB standards.

(2)

The historical period presented above has been adjusted retrospectively to reflect changes in accounting guidance related to revenue recognition, effective for Aon in the first quarter of 2018.

(3)

Included in the nine months ended September 30, 2018 was a $175 million non-cash impairment charges taken on certain assets and liabilities held for sale.  Included in the nine months ended September 30, 2017 was a $380 million non-cash impairment charge taken on indefinite-lived tradenames.

(4)

Adjusted Other income (expense) excludes Pension settlement charges of $9 million and $32 million for three and nine months ended September 30, 2018, respectively.

(5)

Adjusted items are generally taxed at the estimated annual effective tax rate, except for the applicable tax impact associated with estimated restructuring plan expenses, legacy litigation, accelerated tradename amortization, impairment charges, and non-cash pension settlement charges, which are adjusted at the related jurisdictional rate.  In addition, tax expense excludes the tax impacts of the sale of certain assets and liabilities previously classified as held for sale, as well as adjustments to the provisional estimates of the impact of US Tax Reform recorded pursuant to SAB 118.

(6)

Adjusted net income from discontinued operations excludes the gain on sale of discontinued operations of $9 million for the nine months ended September 30, 2018.  Adjusted net income from discontinued operations excludes the gain on sale of discontinued operations of $5 million and $803 million and $0 million and $11 million of intangible asset amortization for the three and nine months ended September 30, 2017, respectively. The effective tax rate was further adjusted for the applicable tax impact associated with the gain on sale and intangible asset amortization, as applicable.


 

Aon plc

Pro Forma Historical Reconciliation of Reported Non-GAAP Measures to Non-GAAP Measures Adjusted for Changes in Accounting Guidance (Unaudited)

Operating Income from Continuing Operations and Diluted Earnings Per Share (Unaudited) (1)(2)




Three months ended September 30, 2017


Nine months ended September 30, 2017

(millions, except per share data)


As
Reported(3)


Revenue

Recognition


Pro Forma


As
Reported(3)


Revenue

Recognition


Pro Forma

Revenue













Commercial Risk Solutions


$

917


$

(2)


$

915


$

2,943


$

2


$

2,945

Reinsurance Solutions


355


(98)


257


1,070


203


1,273

Retirement Solutions


491


1


492


1,266


(1)


1,265

Health Solutions


293


(16)


277


977


9


986

Data & Analytic Services


289


(2)


287


842


(1)


841

Elimination


(5)



(5)


(9)



(9)

Total revenue


$

2,340


$

(117)


$

2,223


$

7,089


$

212


$

7,301

Expenses













Compensation and benefits


1,428


(8)


1,420


4,363


76


4,439

Information technology


109



109


295



295

Premises


89



89


259



259

Depreciation of fixed assets


40



40


148



148

Amortization and impairment of intangible assets


101



101


604



604

Other general expenses


317


(10)


307


956


(12)


944

Total operating expenses


2,084


(18)


2,066


6,625


64


6,689

Operating income


256


(99)


157


464


148


612

Amortization and impairment of intangible assets


101



101


604



604

Restructuring


102



102


401



401

Regulatory and compliance matters


8



8


42



42

Operating income - as adjusted


467


(99)


368


1,511


148


1,659

Operating margin from continuing operations - as adjusted


20.0%




16.6%


21.3%




22.7%

Interest income


10



10


20



20

Interest expense


(70)



(70)


(211)



(211)

Other income (expense):













Other income (expense) - pensions


9



9


26



26

Other income (expense) - other (4)


(5)



(5)


(20)



(20)

Total Other income (expense)


4



4


6



6

Income before income taxes from continuing operations - as adjusted


411


(99)


312


1,326


148


1,474

Income taxes - as adjusted (5)


72


(18)


54


194


26


220

Income from continuing operations - as adjusted


339


(81)


258


1,132


122


1,254

Less: Net income attributable to noncontrolling interests


7



7


30



30

Net income from continuing operations attributable to Aon shareholders - as adjusted


$

332


$

(81)


$

251


$

1,102


$

122


$

1,224

Diluted earnings per share from continuing operations - as adjusted


$

1.29


$

(0.31)


$

0.98


$

4.19


$

0.47


$

4.66

Weighted average ordinary shares outstanding - diluted


257.3


257.3


257.3


262.9


262.9


262.9


(1)

Certain noteworthy items impacting operating income in 2017 are described in this schedule. The items shown with the caption "as adjusted" are non-GAAP measures.

(2)

The historical period presented above have been adjusted retrospectively to reflect Aon's adoption of new revenue recognition standard in the first quarter of 2018.  

(3)

Reported results above reflect the retrospective adoption of the new pension accounting guidance effective for Aon in the first quarter of 2018.

(4)

For illustrative purposes, the impact of the total foreign currency related to the new revenue accounting guidance is excluded from the Pro Forma financial statements. Had the Company included it, Other income (expense) in the Revenue Recognition column would have been $(6) million and $(12) million, respectively, for the three and nine months ended September 30, 2017.

(5)

The non-GAAP effective tax rate reported was 17.5% and 14.6%, respectively, for the three and nine months ended September 30, 2017. Adjusted items are generally taxed at the estimated annual effective tax rate, except for the applicable tax impact associated with estimated restructuring charges, accelerated tradename amortization, impairment charges, regulatory and compliance provisions, and non-cash pension settlement charges, which are adjusted at the related jurisdictional rate. The non-GAAP effective tax rate for continuing operations, adjusted for the change in accounting guidance was 17.3% and 14.9%, respectively, for the three and nine months ended September 30, 2017.

 

Organic Revenue Growth From Continuing Operations (Unaudited)




Three Months Ended











(millions)


Sep 30,
 2017


Sep 30,
 2016


%

Change


Less:

Currency

Impact (1)


Less:
Fiduciary
Investment
Income(2)


Less:
Acquisitions,
Divestitures
& Other


Organic

Revenue

Growth (3)

Commercial Risk Solutions


$

915



$

884



4%


1%


—%


4%


(1)%

Reinsurance Solutions


257



234



10%


1%


1%


(2)%


10%

Retirement Solutions


492



465



6%


1%


—%


(1)%


6%

Health Solutions


277



245



13%


1%


—%


8%


4%

Data & Analytic Services


287



260



10%


1%


—%


7%


2%

Elimination


(5)



(3)



N/A


N/A


N/A


N/A


N/A

Total revenue


$

2,223



$

2,085



7%


1%


—%


4%


2%

 



Nine Months Ended











(millions)


Sep 30,
 2017


Sep 30,
 2016


%

Change


Less:

Currency

Impact (1)


Less:
Fiduciary
nvestment
Income(2)


Less:
Acquisitions,
Divestitures
& Other


Organic

Revenue

Growth (3)

Commercial Risk Solutions


$

2,945



$

2,843



4%


(1)%


—%


5%


—%

Reinsurance Solutions


1,273



1,236



3%


(2)%


—%


—%


5%

Retirement Solutions


1,265



1,266



—%


(2)%


—%


(1)%


3%

Health Solutions


986



836



18%


(1)%


—%


11%


8%

Data & Analytic Services


841



794



6%


—%


—%


2%


4%

Elimination


(9)



(6)



N/A


N/A


N/A


N/A


N/A

Total revenue


$

7,301



$

6,969



5%


(1)%


—%


3%


3%

(1)

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

(2)

Fiduciary Investment Income for the three months ended September 30, 2017 and 2016, respectively, was $10 million and $6 million. Fiduciary Investment Income for the Nine months ended September 30, 2017 and 2016, respectively, was $23 million and $16 million.

(3)

Organic revenue growth includes the impact of intercompany activity and excludes the impact of foreign exchange rate changes, acquisitions, divestitures, transfers between revenue lines, and fiduciary investment income.


 

Aon plc

Pro Forma Historical Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share from Continuing Operations as Adjusted for Changes in Accounting Guidance (Unaudited) (1)(2)




Pro Forma Periods


Reported Period



Three Months Ended (5)


Full Year
2016 (5)


Three Months Ended (6)


Full Year

2017 (6)


Three Months Ended (7)

(millions, except per share data)


Mar 31,
2016


Jun 30,
2016


Sep 30,
2016


Dec 31,
2016



Mar 31,
2017


Jun 30,
2017


Sep 30,
2017


Dec 31,
2017



Mar 31,
2018

Jun 30,
2018

Sep 30,
2018

Revenue

























Commercial Risk Solutions


$

969



$

990



$

884



$

1,088



$

3,931



$

989



$

1,041



$

915



$

1,218



$

4,163



$

1,184


$

1,166


$

1,029


Reinsurance Solutions


667



335



234



131



1,367



671



345



257



153



1,426



742


380


279


Retirement Solutions


396



405



465



441



1,707



385



388



492



489



1,754



424


431


501


Health Solutions


338



253



245



522



1,358



428



281



277



526



1,512



451


309


278


Data & Analytic Services


263



271



260



256



1,050



273



281



287



299



1,140



294


277


263


Elimination


(2)



(1)



(3)



(2)



(8)





(4)



(5)



(1)



(10)



(5)


(2)


(1)


Total revenue


$

2,631



$

2,253



$

2,085



$

2,436



$

9,405



$

2,746



$

2,332



$

2,223



$

2,684



$

9,985



$

3,090


$

2,561


$

2,349


Expenses

























Compensation and benefits


1,444



1,372



1,293



1,417



5,526



1,548



1,471



1,420



1,568



6,007



1,616


1,494


1,392


Information technology


83



99



99



105



386



88



98



109



124



419



115


123


125


Premises


82



89



86



86



343



84



86



89



89



348



93


96


94


Depreciation of fixed assets


38



41



39



44



162



54



54



40



39



187



39


47


40


Amortization of intangible assets


37



38



42



40



157



43



460



101



100



704



110


282


100


Other general expenses


270



230



257



279



1,036



307



330



307



328



1,272



318


535


336


Total operating expenses


1,954



1,869



1,816



1,971



7,610



2,124



2,499



2,066



2,248



8,937



2,291


2,577


2,087


Operating income


677



384



269



465



1,795



622



(167)



157



436



1,048



799


(16)


262


Amortization of intangible assets


37



38



42



40



157



43



460



101



100



704



110


282


100


Restructuring












144



155



102



96



497



74


195


97


Legacy Litigation























103


(25)


Regulatory and compliance matters














34



8



(14)



28






Transaction costs








15



15
















Operating income - as adjusted


714



422



311



520



1,967



809



482



368



618



2,277



983


564


434


Operating margin from continuing operations - as adjusted


27.1%



18.7%



14.9%



21.3%



20.9%



29.5%



20.7%



16.6%



23.0%



22.8%



31.8%


22.0%


18.5%


Interest income


2



3



1



3



9



2



8



10



7



27



4


1



Interest expense


(69)



(73)



(70)



(70)



(282)



(70)



(71)



(70)



(71)



(282)



(70)


(69)


(69)


Other income (expense):

























Other income (expense) - pensions - as adjusted (3)


11



11



12



13



47



8



9



9



16



42



9


9


9


Other income (expense) - other - as adjusted (4)


18



(1)



10



9



36



(10)



(5)



(5)



(19)



(39)



(17)


4


1


Total Other income (expense) - as adjusted (3)(4)


29



10



22



22



83



(2)



4



4



(3)



3



(8)


13


10


Income before income taxes from continuing operations - as adjusted


676



362



264



475



1,777



739



423



312



551



2,025



909


509


375


Income taxes


107



53



35



49



244



98



68



54



81



301



150


75


48


Income from continuing operations - as adjusted


569



309



229



426



1,533



641



355



258



470



1,724



759


434


327


Less: Net income attributable to noncontrolling interests


12



8



7



7



34



14



9



7



7



37



16


10


6


Net income attributable to Aon shareholders from continuing operations - as adjusted


$

557



$

301



$

222



$

419



$

1,499



$

627



$

346



$

251



$

463



$

1,687



$

743


$

424


$

321


Diluted earnings per share from continuing operations - as adjusted


$

2.04



$

1.12



$

0.82



$

1.56



$

5.55



$

2.35



$

1.31



$

0.98



$

1.82



$

6.47



$

2.97


$

1.71


$

1.31


Weighted average ordinary shares outstanding - diluted


273.7



269.8



269.6



268.3



270.3



267.0



264.3



257.3



254.5



260.7



250.2


247.4


245.6



Notes

(1)

Certain noteworthy items impacting operating income in 2016 and 2017 are described in this schedule. The items shown with the caption "as adjusted" are non-GAAP measures.

(2)

The historical period presented above have been adjusted retrospectively to reflect Aon's adoption of new revenue recognition standard in the first quarter of 2018.  For a complete reconciliation of prior period reported balances to the pro forma adjusted balances above, please refer to our press release issued on February 2, 2018.

(3)

Adjusted Other income (expense) excludes pension settlement charges taken within each respective period.  Pension settlement charges were $62 million for the three months ended June 30, 2016, and $158 million and $220 million for the three and twelve months ended December 31, 2016, respectively.  Pension settlement charges were $128 million for the three and twelve months ended December 31, 2017.  Pension settlement chargers were $7 million, $9 million, and $9 million, respectively, for the three months ended March 31, 2018, June 30, 2018, and September 30, 2018, and $32 million for the nine months ended September 30, 2018.

(4)

For illustrative purposes, the impact of the total foreign currency related to the new revenue accounting guidance is excluded from the Pro Forma financial statements.  The impact on Other income (expense) of foreign currency due to this new guidance was $(3) million, $5 million, $1 million, and $4 million, respectively, for the three months ended March 31, 2016, June 30, 2016, September 30, 2016, and December 31, 2016 and $7 million for the twelve months ended December 31, 2016.  The impact on Other income (expense) of foreign currency due to this new guidance was $(2) million, $(4) million, $(6) million, and $1 million, respectively, for the three months ended March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017, and $(11) million for the twelve months ended December 31, 2017.

(5)

The non-GAAP effective tax rates reported were 15.7%, 14.9%, 14.2%, and 12.0%, respectively, for the three months ended March 31, 2016, June 30, 2016, September 30, 2016, and December 31, 2016 and 13.9% for the twelve months ended December 31, 2016.  Adjusted items are generally taxed at the estimated annual effective tax rate, except for the applicable tax impact associated with non-cash pension settlements and transaction costs which are adjusted at the related jurisdictional rate. The non-GAAP effective tax rates for continuing operations, adjusted for the change in accounting guidance were 15.8%, 14.6%, 13.3%, and 10.3% for the three months ended March 31, 2016, June 30, 2016, September 30, 2016, and December 31, 2016, and 13.7% for the twelve months ended December 31, 2016.

(6)

The non-GAAP effective tax rates reported were 11.1%, 15.6%, 17.5%, and 15.5%, respectively, for the three months ended March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017, and 14.9% for the twelve months ended December 31, 2017.  Adjusted items are generally taxed at the estimated annual effective tax rate, except for the applicable tax impact associated with estimated restructuring expenses, accelerated tradename amortization, impairment charges, regulatory and compliance provisions, and non-cash pension settlements, which are adjusted at the related jurisdictional rate.  In addition, tax expense excludes the provisional estimates of the impact of U.S. Tax Reform recorded pursuant to SAB 118.  The non-GAAP effective tax rates for continuing operations, adjusted for the change in accounting guidance were 13.3%, 16.1%, 17.3%, and 14.7% for the three months ended March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017, and 14.9% for the twelve months ended December 31, 2017.

(7)

The non-GAAP effective tax rates reported were 16.5%, 14.7%, and 12.8% respectively, for the three months ended March 31, 2018, June 30, 2018, and September 30, 2018, and 15.2% for the nine months ended September 30, 2018.  Adjusted items are generally taxed at the estimated annual effective tax rate, except for the applicable tax impact associated with estimated restructuring expenses, legacy litigation, accelerated tradename amortization, impairment charges, and non-cash pension settlement charges, which are adjusted at the related jurisdictional rate.  In addition, tax expense excludes the tax impacts of the sale of certain assets and liabilities previously classified as held for sale, as well as adjustments to the provisional estimates of the impact of US Tax Reform recorded pursuant to SAB 118.


 

Aon plc

Condensed Consolidated Statements of Financial Position (Unaudited)




As of

(millions)


September 30,
 2018


December 31,
 2017

ASSETS





Current assets





Cash and cash equivalents


$

484



$

756


Short-term investments


167



529


Receivables, net


2,656



2,478


Fiduciary assets (1)


9,314



9,625


Other current assets


727



289


Total current assets


13,348



13,677


Goodwill


8,282



8,358


Intangible assets, net


1,260



1,733


Fixed assets, net


594



564


Deferred tax assets


476



389


Prepaid pension


1,208



1,060


Other non-current assets


434



307


Total assets


$

25,602



$

26,088







Liabilities and equity





Liabilities





Current liabilities





Accounts payable and accrued liabilities


$

1,600



$

1,961


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


741



299


Fiduciary liabilities


9,314



9,625


Other current liabilities


988



870


Total current liabilities


12,643



12,755


Long-term debt


5,665



5,667


Deferred tax liabilities


273



127


Pension, other postretirement, and postemployment liabilities


1,603



1,789


Other non-current liabilities


1,090



1,102


Total liabilities


21,274



21,440







Equity





Ordinary shares - $0.01 nominal value


2



2


Additional paid-in capital


5,850



5,775


Retained earnings


2,042



2,302


Accumulated other comprehensive loss


(3,632)



(3,496)


Total Aon shareholders' equity


4,262



4,583


Noncontrolling interests


66



65


Total equity


4,328



4,648


Total liabilities and equity


$

25,602



$

26,088




(1)

Includes cash and short-term investments of $4,363 million and $3,743 million for the periods ended September 30, 2018 and December 31, 2017, respectively.

 

Aon plc

Condensed Consolidated Statements of Cash Flows (Unaudited)




Nine Months Ended

(millions)


September 30,
2018


September 30,
2017

Cash flows from operating activities





Net income


$

821



$

1,275


Less: Income from discontinued operations, net of income taxes


5



857


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





Loss from sales of businesses, net


4



2


Depreciation of fixed assets


126



148


Amortization and impairment of intangible assets


492



604


Share-based compensation expense


214



214


Deferred income taxes


(128)



(208)


Change in assets and liabilities:





Fiduciary receivables


766



986


Short-term investments — funds held on behalf of clients


(731)



(701)


Fiduciary liabilities


(35)



(285)


Receivables, net


(11)



144


Accounts payable and accrued liabilities


(331)



(237)


Restructuring reserves


14



170


Current income taxes


(137)



(785)


Pension, other postretirement and postemployment liabilities


(223)



(142)


Other assets and liabilities


139



(39)


Net cash provided by operating activities - continuing operations


975



289


Net cash provided by operating activities - discontinued operations




64


Cash provided by operating activities


975



353







Cash flows from investing activities





Proceeds from investments


30



43


Payments for investments


(65)



(55)


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


356



(1,344)


Acquisition of businesses, net of cash acquired


(50)



(172)


Sale of businesses, net of cash sold


(8)



4,194


Capital expenditures


(179)



(125)


Net cash provided by investing activities - continuing operations


84



2,541


Net cash used for investing activities - discontinued operations




(19)


Cash provided by investing activities


84



2,522







Cash flows from financing activities





Share repurchase


(1,272)



(1,888)


Issuance of shares for employee benefit plans


(139)



(118)


Issuance of debt


3,960



1,651


Repayment of debt


(3,498)



(1,998)


Cash dividends to shareholders


(285)



(274)


Noncontrolling interests and other financing activities


(21)



(21)


Net cash provided by financing activities - continuing operations


(1,255)



(2,648)


Net cash provided by financing activities - discontinued operations





Cash used for financing activities


(1,255)



(2,648)







Effect of exchange rates on cash and cash equivalents


(76)



91


Net increase (decrease) in cash and cash equivalents


(272)



318


Cash and cash equivalents at beginning of period


756



431


Cash and cash equivalents at end of period


$

484



$

749



 

Aon plc

Restructuring Plan (Unaudited) (1)




Three months ended
September 30, 2018


Nine months ended
September 30, 2018


Inception to
Date


Estimated
Remaining
Costs


Estimated
Total
Cost (2)

Workforce reduction


$

18



$

84



$

383



$

37



$

420


Technology rationalization


12



30



63



67



130


Lease consolidation


11



24



32



28



60


Asset impairments


2



11



37



3



40


Other costs associated with restructuring and separation (3)


54



217



348



27



375


Total restructuring and related expenses


$

97



$

366



863



$

162



$

1,025




(1)

In the Condensed Consolidated Statements of Income, workforce reductions are included in "Compensation and benefits," IT rationalization is included in "Information technology," lease consolidations are included in "Premises,"  asset impairments are included in "Depreciation of fixed assets," and other costs associated with restructuring are included in "Other general expenses" depending on the nature of the expense.

(2)

Actual costs, when incurred, may vary due to changes in the assumptions built into this plan.  Significant assumptions that may change when plans are finalized and implemented include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives.  Estimated allocations between expense categories may be revised in future periods as these assumptions are updated.

(3)

Other costs associated with the Restructuring Plan include those to separate the Divested Business, as well as moving costs and consulting and legal fees.  These costs are generally recognized when incurred.

 

SOURCE Aon plc



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