CHICAGO, July 30 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE: AOC) today reported results for the second quarter ended June 30, 2009.
Net income attributable to Aon stockholders was $149 million or $0.52 per share, compared to $1.1 billion or $3.71 per share for the prior year quarter. The decrease from the prior year quarter relates primarily to the $1.0 billion after-tax gain on the sales of Combined Insurance Companies of America (CICA) and Sterling Life Insurance (Sterling) that was included in the second quarter 2008. Net income attributable to Aon stockholders from continuing operations decreased 11% to $147 million or $0.51 per share, compared to $166 million or $0.54 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations per share, excluding certain items, increased 9% to $0.76 compared to $0.70 for the prior year quarter. Certain items that impacted second quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 12 of this press release.
"Our second quarter results reflect continued progress and a strong performance against difficult economic and industry conditions. Our organic revenue performance was led by four percent organic growth in our industry-leading reinsurance franchise, our total adjusted pretax margin increased 180 basis points, and adjusted earnings per share from continuing operations increased nine percent," said Greg Case, president and chief executive officer, Aon Corporation. "Despite macro-related challenges, we continue to strengthen the underlying foundation of Aon and invest heavily in the fundamental client-serving capabilities of our firm, as the merger with Benfield continues to perform exceptionally well. The 2007 and Aon Benfield restructuring programs are fully on-track and enabling investment in future growth with significant opportunity for margin expansion as we have achieved less than 40% thus far, of the total $492 million of savings we anticipate to realize under these two programs. Lastly, our balance sheet provides significant financial flexibility to effectively allocate capital and deliver long-term shareholder value, as highlighted by the repurchase of $125 million of our common stock in the second quarter."
SECOND QUARTER FINANCIAL SUMMARY
Total revenue decreased 4% to $1.9 billion due to a 9% decline resulting from foreign currency translation and a 69% decline in investment income, partially offset by a 7% increase from acquisitions, primarily Benfield, net of dispositions.
Total operating expenses decreased 3% or $43 million to $1.7 billion, including a $160 million favorable impact from foreign currency translation, partially offset by operating expenses from the Benfield merger and a $42 million increase in restructuring charges.
Restructuring expenses related to the 2007 and Aon Benfield restructuring programs were $95 million in the second quarter compared to $53 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for both the 2007 and Aon Benfield restructuring programs are detailed on page 13 of this release.
Restructuring savings in the second quarter related to the 2007 restructuring program are estimated at $52 million compared to $16 million in the prior year quarter. Of the estimated restructuring savings in the second quarter, $45 million were related to the Brokerage segment primarily for workforce reduction. Before any potential reinvestment of savings, the 2007 restructuring program is currently expected to deliver cumulative run-rate cost savings of approximately $240-265 million in 2009 and $370 million in 2010.
Restructuring savings in the second quarter related to the Aon Benfield restructuring program are estimated at $10 million. Before any potential reinvestment of savings, the Benfield restructuring program is currently expected to deliver cumulative cost savings of $33-41 million in 2009, $84-94 million in 2010 and $122 million in 2011.
Foreign currency translation decreased net income by $0.03 per share compared to the prior year quarter due primarily to fluctuations in the U.S. dollar against most major currencies. Excluding certain items highlighted on page 12 of this press release, the impact of foreign currency translation decreased net income by $0.04 per share ($0.04 per share unfavorable impact in Brokerage, $0.01 per share unfavorable impact in Consulting, partially offset by a $0.01 favorable impact in unallocated expenses).
Effective tax rate on continuing operations was 27.1% for the second quarter compared to 25.2% for the prior year quarter. The rate in the second quarter includes an underlying tax rate on operations of 28.0%. The prior year quarter reflected an underlying tax rate on operations of 30.0% and included the favorable resolution of prior year tax issues in the U.K.
Average diluted shares outstanding decreased to 289 million in the second quarter compared to 305 million in the prior year quarter, due primarily to the Company's share repurchase program. During the quarter, the Company repurchased 3.4 million shares of common stock for $125 million. As of June 30, the Company had approximately $730 million of remaining share repurchase authorization.
Discontinued Operations after-tax income was $2 million or $0.01 per share compared to after-tax income of $967 million or $3.17 per share for the prior year quarter. Discontinued operations include results of the run-off property and casualty insurance operations. The prior year quarter includes the results of Automobile Insurance Specialists (AIS), the run-off property and casualty insurance operations and a $1.0 billion after-tax gain on the sales of CICA and Sterling.
SECOND QUARTER SEGMENT REVIEW
Certain noteworthy items impacted pretax income and pretax margins in the second quarter of 2009 and 2008. The second quarter segment reviews provided below include supplemental information related to adjusted pretax income and pretax margin which is described in detail on the "Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted Earnings Per Share" on page 12 of this press release.
RISK AND INSURANCE BROKERAGE SERVICES
Second Quarter Ended Less:
(millions) -------------------- Less: Acquisitions, Organic
Commissions, June 30, June 30, % Currency Divestitures, Revenue
Fees, Other 2009 2008 Change Impact Other Growth
----------- ---- ---- ------ ------ ----- ------
Americas $574 $588 (2)% (4)% (1)% 3%
U.K. 181 214 (15) (14) 4 (5)
EMEA 309 364 (15) (14) 2 (3)
Asia Pacific 123 147 (16) (14) (1) (1)
Reinsurance 372 248 50 (7) 53 4
---- ---- ---- ---- ---- ----
Sub-Total $1,559 $1,561 -% (9)% 9% -%
------ ------ ---- ---- ---- ----
Investment
Income 19 49 (61)%
---- ---- ----
Total Revenue $1,578 $1,610 (2)%
====== ====== ====
Risk and Insurance Brokerage Services total revenue decreased 2% to $1.6 billion compared to the prior year quarter due to a 9% unfavorable impact from foreign currency translation on commissions and fees and a 61% decline in investment income, partially offset by a 9% increase from acquisitions, primarily Benfield, net of dispositions. Americas organic revenue increased 3% reflecting strong new business growth in both U.S. Retail and Latin America. U.K. organic revenue decreased 5% due primarily to weak economic conditions and lower new business. EMEA organic revenue decreased 3% as weak economic conditions in continental Europe offset growth in certain emerging markets. Asia Pacific organic revenue decreased 1% reflecting the impact of exiting certain businesses in Japan, partially offset by modest growth in Australia and certain emerging markets. Reinsurance organic revenue increased 4% due primarily to growth in global treaty and facultative placements.
Second Quarter Ended
--------------------
(millions) June 30, June 30, %
2009 2008 Change
---- ---- ------
Revenue $1,578 $1,610 (2)%
Expenses
Compensation and benefits 932 923 1
Other expenses 440 454 (3)
---- ---- ----
Total operating expenses 1,372 1,377 -
Operating income $206 $233 (12)%
Other (income) expense (4) (1) 300
---- ---- ----
Pretax income $210 $234 (10)%
==== ==== ====
Pretax margin 13.3% 14.5%
Pretax income - adjusted $309 $294 5%
Pretax margin - adjusted 19.6% 18.3%
Compensation and benefits for the second quarter increased $9 million from the prior year quarter including a $93 million favorable impact from foreign currency translation and benefits related to the restructuring programs, primarily offset by increased operating expenses from the Benfield merger and a $34 million increase in restructuring related costs. Other expenses for the second quarter decreased $14 million from the prior year quarter including a $41 million favorable impact from foreign currency translation and a $10 million decrease related to the reviews under the Foreign Corrupt Practices Act (FCPA) and similar laws in other countries and related compliance initiatives, partially offset by the inclusion of Benfield operating expenses and an $11 million increase in intangible amortization primarily related to the merger with Benfield. The prior year quarter included $20 million of legacy litigation accruals.
Second quarter pretax income decreased 10% to $210 million. Adjusting for certain items detailed on page 12 of this press release, pretax income increased 5% or $15 million to $309 million and pretax margin increased 130 basis points to 19.6% versus the prior year quarter due primarily to benefits of the 2007 and Aon Benfield restructuring programs and the inclusion of pretax income from the merger with Benfield, partially offset by a $30 million decrease in investment income and higher intangible amortization expenses.
CONSULTING
(millions) Second Quarter Ended Less:
-------------------- Less: Acquisitions, Organic
Commissions, June 30, June 30, % Currency Divestitures, Revenue
Fees, Other 2009 2008 Change Impact Other Growth
----------- ---- ---- ------ ------ ----- ------
Services $251 $278 (10)% (9)% -% (1)%
Outsourcing 49 57 (14) (11) 1 (4)
---- ---- ---- ---- ---- ----
Sub-Total $300 $335 (10)% (9)% -% (1)%
---- ---- ---- ---- ---- ----
Investment
Income - 1 (100)%
---- ---- ----
Total Revenue $300 $336 (11)%
==== ==== ====
Consulting total revenue decreased 11% to $300 million compared to the prior year quarter due primarily to a 9% unfavorable impact from foreign currency translation and a 1% organic decline in commissions and fees revenue. Organic revenue in Consulting Services decreased 1% reflecting a decline in human capital and compensation consulting, partially offset by modest growth in health and benefits consulting. Organic revenue in Outsourcing declined 4% as a previously announced outsourcing contract winds down, partially offset by modest growth in benefits outsourcing.
Second Quarter Ended
--------------------
(millions) June 30, June 30, %
2009 2008 Change
---- ---- ------
Revenue $300 $336 (11)%
Expenses
Compensation and benefits 184 205 (10)
Other expenses 75 89 (16)
---- ---- ----
Total operating expenses 259 294 (12)
Operating income $41 $42 (2)%
Other (income) expense - (1) (100)
---- ---- ----
Pretax income $41 $43 (5)%
==== ==== ====
Pretax margin 13.7% 12.8%
Pretax income - adjusted $45 $47 (4)%
Pretax margin - adjusted 15.0% 14.0%
Compensation and benefits for the second quarter decreased 10% or $21 million from the prior year quarter including a $17 million favorable impact from foreign currency translation and benefits related to the 2007 restructuring program. Other expenses decreased 16% or $14 million compared to the prior year quarter due to an $8 million favorable impact from foreign currency translation.
Second quarter pretax income decreased 5% to $41 million. Adjusting for certain items detailed on page 12 of this press release, pretax income decreased 4% or $2 million to $45 million and pretax margin increased 100 basis points to 15.0% versus the prior year quarter due primarily to benefits related to the 2007 restructuring program and solid expense discipline.
UNALLOCATED INCOME AND EXPENSE
Second Quarter Ended
--------------------
(millions) June 30, June 30, %
2009 2008 Change
---- ---- ------
Operating segment income before tax $251 $277 (9)%
Unallocated investment income &
other revenue 13 17 (24)
Unallocated expenses (28) (37) (24)
Interest expense (26) (31) (16)
---- ---- ----
Income from continuing operations
before tax $210 $226 (7)%
==== ==== ====
Unallocated investment income and other revenue for the second quarter decreased $4 million to $13 million compared to the prior year quarter due to a decline in average interest rates and lower cash balances, primarily offset by $10 million of revenue related to the Company's equity ownership in certain insurance investment funds acquired with Benfield. Unallocated expenses decreased $9 million to $28 million versus the prior year quarter, including the recognition of a $5 million gain on the extinguishment of a portion of the Company's trust preferred securities and lower compensation related expenses, partially offset by $6 million of expense related to the Company's equity ownership in certain insurance investment funds acquired with Benfield. Interest expense decreased $5 million to $26 million from the prior year quarter due to fluctuations in foreign currency and a decline in average interest rates on outstanding debt.
Conference Call and Webcast Details
The Company will host a conference call on Thursday, July 30, 2009 at 7:30 a.m. central time. Interested parties can listen to the conference call via a live audio webcast at www.aon.com.
About Aon
Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 37,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008 and 2009 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007 and 2008, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/.
Safe Harbor Statement
This press release 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. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, the outcome of inquiries from regulators and investigations related to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws, the impact of investigations brought by U.S. state attorneys general, U.S. state insurance regulators, U.S. federal prosecutors, U.S. federal regulators, and regulatory authorities in the U.K. and other countries, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, our ability to integrate Benfield successfully and to realize the anticipated benefits of the Benfield merger. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission.
This press release includes supplemental information related to organic revenue growth and several additional measures including expenses, margins and income per share, that exclude the effects of restructuring charges and certain other noteworthy items that affected results for the comparable periods. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, 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. Reconciliation is provided in the attached schedules. Supplemental organic revenue growth 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. 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 Summary of Operations. Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments.
Investor Contact: Media Contact:
Scott Malchow David Prosperi
Vice President, Vice President,
Investor Relations Global Public Relations
312-381-3983 312-381-2485
Aon Corporation
Consolidated Summary of Operations (Unaudited)
Second Quarter Ended Six Months Ended
---------------------- ---------------------
June June June June
(millions except per 30, 30, Percent 30, 30, Percent
share data) 2009 2008 Change 2009 2008 Change
----- ----- ------- ----- ----- -------
Revenue
-------
Commissions, fees
and other $1,864 $1,889 (1)% $3,686 $3,737 (1)%
Investment income 21 67 (69) 53 124 (57)
--- --- --- --- --- ---
Total revenue 1,885 1,956 (4) 3,739 3,861 (3)
----- ----- --- ----- ----- ---
Expenses
--------
Compensation and
benefits 1,134 1,143 (1) 2,148 2,297 (6)
Other general
expenses 466 500 (7) 863 914 (6)
Depreciation and
amortization 58 58 - 118 108 9
--- --- --- --- --- ---
Total operating
expenses 1,658 1,701 (3) 3,129 3,319 (6)
----- ----- --- ----- ----- ---
Operating income 227 255 (11) 610 542 13
Interest expense 26 31 (16) 55 64 (14)
Other (income)
expense (9) (2) 350 2 (6) N/A
--- --- --- --- --- -----
Income from
continuing operations
before provision
for income tax 210 226 (7) 553 484 14
Provision for
income tax (1) 57 57 - 165 133 24
--- --- --- --- --- ---
Income from
continuing operations 153 169 (9) 388 351 11
--- --- --- --- --- ---
Discontinued operations
Income from
discontinued
operations 2 1,431 (100) 93 1,497 (94)
Provision for
income tax (2) - 464 (100) 41 489 (92)
--- --- ---- -- --- ---
Income from
discontinued
operations 2 967 (100) 52 1,008 (95)
--- --- ---- -- ----- ---
Net income 155 1,136 (86) 440 1,359 (68)
Less: Net income
attributable to the
noncontrolling
interests 6 3 100 11 8 38
--- --- --- --- --- ---
Net income
attributable to Aon
stockholders $149 $1,133 (87)% $429 $1,351 (68)%
==== ====== === ==== ====== ===
Net income attributable
to Aon stockholders:
Income from
continuing
operations $147 $166 (11)% $377 $343 10%
Income from
discontinued
operations 2 967 (100) 52 1,008 (95)
--- --- ---- --- ----- ---
Net income $149 $1,133 (87)% $429 $1,351 (68)%
==== ====== === ==== ====== ===
Basic net income per
share attributable to Aon
stockholders (3):
Income from
continuing
operations $0.52 $0.56 (7)% $1.33 $1.13 18%
Income from
discontinued
operations 0.01 3.26 (100) 0.18 3.31 (95)
---- ---- ---- ---- ---- ---
Net income $0.53 $3.82 (86)% $1.51 $4.44 (66)%
===== ===== === ===== ===== ===
Diluted net income per
share attributable to Aon
stockholders:
Income from
continuing
operations $0.51 $0.54 (6)% $1.30 $1.10 18%
Income from
discontinued
operations 0.01 3.17 (100) 0.18 3.22 (94)
---- ---- ---- ---- ---- ---
Net income $0.52 $3.71 (86)% $1.48 $4.32 (66)%
===== ===== === ===== ===== ===
Weighted average
common shares
outstanding
- diluted 289.1 305.3 (5)% 288.9 312.5 (8)%
===== ===== === ===== ===== ===
(1) Tax rate for continuing operations is 27.1% and 25.2% for the second
quarters ended June 30, 2009 and 2008, respectively, and 29.8% and 27.5%
for the six months ended June 30, 2009 and 2008, respectively. The
underlying tax rate on continuing operations for 2009 is approximately
28%.
(2) Tax rate for discontinued operations is 34.9% and 32.4% for the second
quarters ended June 30, 2009 and 2008, respectively, and 44.6% and 32.7%
for the six months ended June 30, 2009 and 2008, respectively.
(3) In accordance with FSP EITF 03-6-1, the basic and diluted earnings
per share calculation was performed using the two-class method and
included the impact of certain unvested share-based payment awards that
have the right to receive nonforfeitable dividends.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Second Quarter Ended
-----------------------------------------------------
Less:
Acqui-
Less: sitions, Organic
June June Currency Divest- Revenue
30, 30, Percent Impact itures Growth
(millions) 2009 2008 Change (1) & Other (2)
---- ---- ------- ------ -------- ------
Commissions,
Fees and Other
---------------
Risk and
Insurance
Brokerage
Services:
Americas $574 $588 (2)% (4)% (1)% 3%
United
Kingdom 181 214 (15) (14) 4 (5)
Europe,
Middle
East &
Africa 309 364 (15) (14) 2 (3)
Asia Pacific 123 147 (16) (14) (1) (1)
Reinsurance
brokerage
and related
services 372 248 50 (7) 53 4
--- --- --- --- --- ---
Total Risk
and
Insurance
Brokerage
Services 1,559 1,561 - (9) 9 -
----- ----- --- --- --- ---
Consulting:
Consulting
services 251 278 (10) (9) - (1)
Outsourcing 49 57 (14) (11) 1 (4)
--- --- --- --- --- ---
Total
Consulting 300 335 (10) (9) - (1)
--- --- --- --- --- ---
Total
Operating
Segments $1,859 $1,896 (2)% (9)% 7% -%
====== ====== === === === ===
Investment
Income
----------
Risk and
Insurance
Brokerage
Services $19 $49 (61)%
Consulting - 1 (100)
Unallocated 2 17 (88)
--- --- ---
Total $21 $67 (69)%
=== === ===
Total Revenue
-------------
Risk and
Insurance
Brokerage
Services $1,578 $1,610 (2)%
Consulting 300 336 (11)
Unallocated
and Other 13 17 (24)
Intersegment (6) (7) (14)
--- --- ---
Total $1,885 $1,956 (4)%
====== ====== ===
(1) Currency impact is determined by translating last year's revenue
at this year's foreign exchange rates.
(2) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers, reimbursable expenses and
unusual items.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Six Months Ended
---------------------------------------------------------
Less:
Acqui-
Less: sitions, Organic
June June Currency Divest- Revenue
30, 30, Percent Impact itures Growth
(millions) 2009 2008 Change (1) & Other (2)
------ ----- --------- ------- -------- -------
Commissions,
Fees and
Other
------------
Risk and
Insurance
Brokerage
Services:
Americas $1,051 $1,081 (3)% (4)% (1)% 2%
United
Kingdom 297 364 (18) (16) 3 (5)
Europe,
Middle
East &
Africa 757 874 (13) (13) 1 (1)
Asia Pacific 207 253 (18) (16) (1) (1)
Reinsurance
brokerage and
related
services 767 504 52 (7) 57 2
--- --- --- --- --- ---
Total Risk
and
Insurance
Brokerage
Services 3,079 3,076 - (10) 10 -
----- ----- --- --- --- ---
Consulting:
Consulting
services 514 566 (9) (9) (1) 1
Outsourcing 94 111 (15) (12) 1 (4)
--- --- --- --- --- ---
Total
Consulting 608 677 (10) (10) - -
--- --- --- --- --- ---
Total
Operating
Segments $3,687 $3,753 (2)% (10)% 8% -%
====== ====== === === === ===
Investment
Income
----------
Risk and
Insurance
Brokerage
Services $49 $100 (51)%
Consulting 1 2 (50)
Unallocated 3 22 (86)
--- --- ---
Total $53 $124 (57)%
=== ==== ===
Total
Revenue
--------
Risk and
Insurance
Brokerage
Services $3,128 $3,176 (2)%
Consulting 609 679 (10)
Unallocated
and Other 14 22 (36)
Intersegment (12) (16) (25)
--- --- ---
Total $3,739 $3,861 (3)%
====== ====== ===
(1) Currency impact is determined by translating last year's revenue at
this year's foreign exchange rates.
(2) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers, reimbursable expenses and unusual
items.
Aon Corporation - Segments (Unaudited)
Risk and Insurance Brokerage Services - Continuing Operations
-------------------------------------------------------------
Second Quarter Ended Six Months Ended
------------------------ ------------------------
June June June June
30, 30, Percent 30, 30, Percent
(millions) 2009 2008 Change 2009 2008 Change
------- ------- -------- ------- ------- -------
Revenue
-------
Commissions,
fees and other $1,559 $1,561 -% $3,079 $3,076 -%
Investment
income 19 49 (61) 49 100 (51)
--- --- --- --- --- ---
Total
revenue 1,578 1,610 (2) 3,128 3,176 (2)
----- ----- --- ----- ----- ---
Expenses
--------
Compensation
and benefits 932 923 1 1,769 1,863 (5)
Other general
expenses 440 454 (3) 814 841 (3)
--- --- --- --- --- --
Total
operating
expenses 1,372 1,377 - 2,583 2,704 (4)
----- ----- --- ----- ----- ---
Operating income 206 233 (12) 545 472 15
Other expense
(income) (4) (1) 300 7 (5) N/A
--- --- --- --- --- -----
Income before
provision for
income tax $210 $234 (10)% $538 $477 13%
==== ==== === ==== ==== ===
Pretax income
margin 13.3% 14.5% 17.2% 15.0%
Consulting -
Continuing
Operations Second Quarter Ended Six Months Ended
------------ ------------------------ ------------------------
June June June June
30, 30, Percent 30, 30, Percent
(millions) 2009 2008 Change 2009 2008 Change
------- ------- -------- ------- ------- -------
Revenue
-------
Commissions,
fees and other $300 $335 (10)% $608 $677 (10)%
Investment
income - 1 (100) 1 2 (50)
--- --- ---- --- --- ---
Total
revenue 300 336 (11) 609 679 (10)
--- --- --- --- --- ---
Expenses
--------
Compensation
and benefits 184 205 (10) 346 406 (15)
Other general
expenses 75 89 (16) 152 168 (10)
--- --- --- --- --- ---
Total
operating
expenses 259 294 (12) 498 574 (13)
--- --- --- --- --- ---
Operating income 41 42 (2) 111 105 6
Other expense
(income) - (1) (100) - (1) (100)
--- --- ---- --- --- ----
Income before
provision for
income tax $41 $43 (5)% $111 $106 5%
=== === === ==== ==== ===
Pretax income
margin 13.7% 12.8% 18.2% 15.6%
Reconciliation of
segment income
before provision
for income tax
to income from
continuing
operations
before provision
for income tax:
Second Quarter Ended Six Months Ended
------------------------ ------------------------
June June June June
30, 30, Percent 30, 30, Percent
(millions) 2009 2008 Change 2009 2008 Change
------- ------- -------- ------- ------- -------
Segment income
before provision
for income tax
Risk and
Insurance
Brokerage
Services $210 $234 (10)% $538 $477 13%
Consulting 41 43 (5) 111 106 5
--- --- --- --- --- ---
Total
segment
income
before
provision
for income
tax 251 277 (9) 649 583 11
Unallocated
investment
income and
other revenue 13 17 (24) 14 22 (36)
Unallocated
expenses (28) (37) (24) (55) (57) (4)
Interest
expense (26) (31) (16) (55) (64) (14)
--- --- --- --- --- ---
Income from
continuing
operations
before
provision for
income tax $210 $226 (7)% $553 $484 14%
==== ==== === ==== ==== ===
Pretax income
margin 11.1% 11.6% 14.8% 12.5%
Aon Corporation
Reconciliation of the Impact of Non-GAAP
Measures on Segments and Diluted Earnings
Per Share (Unaudited) (1)
Second Quarter Ended June 30, 2009
----------------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
---------- ---------- ------------ -----
Revenue as reported $1,578 $300 $7 $1,885
====== ==== === ======
Income (loss) from
continuing operations
before provision for
income tax - as reported $210 $41 $(41) $210
Restructuring charges
(Aon Benfield and
2007 plan) 92 3 - 95
Pension curtailment 4 1 - 5
Anti-bribery and
compliance
initiatives 1 - - 1
Benfield integration
costs 2 - - 2
--- --- --- ---
Income (loss) from
continuing operations
before provision for income
tax -as adjusted $309 $45 $(41) 313
==== === ====
Provision for income
taxes (2) 86
---
Income from
continuing
operations - as
adjusted 227
Less: Net income
attributable to
noncontrolling
interests 6
---
Income from
continuing
operations - as
adjusted $221
====
Diluted earnings per
share from continuing
operations -as adjusted $0.76
=====
Weighted average common
shares outstanding -
diluted 289.1
=====
Pretax income margins -
as adjusted 19.6% 15.0% N/A 16.6%
==== ==== === ====
Second Quarter Ended June 30, 2008
----------------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
---------- ---------- ------------ -----
Revenue as reported $1,610 $336 $10 $1,956
====== ==== === ======
Income (loss) from
continuing operations
before provision for income
tax -as reported $234 $43 $(51) $226
Restructuring charges
(2007 plan) 49 4 - 53
Anti-bribery and
compliance
initiatives 11 - - 11
Gain on sale of land - - - -
--- --- --- ---
Income (loss) from
continuing operations
before provision for income
tax -as adjusted $294 $47 $(51) 290
==== === ====
Provision for income
taxes (2) 73
--
Income from
continuing
operations - as
adjusted 217
Less: Net income
attributable to
noncontrolling
interests 3
---
Income from
continuing
operations - as
adjusted $214
====
Diluted earnings per
share from continuing
operations -as adjusted $0.70
=====
Weighted average common
shares outstanding -
diluted 305.3
=====
Pretax income margins -
as adjusted 18.3% 14.0% N/A 14.8%
==== ==== === ====
Six Months Ended June 30, 2009
----------------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
---------- ---------- ------------ -----
Revenue as reported $3,128 $609 $2 $3,739
====== ==== === ======
Income (loss) from
continuing operations
before provision for income
tax -as reported $538 $111 $(96) $553
Restructuring charges
(Aon Benfield and
2007 plan) 132 6 - 138
Pension curtailment (54) (20) (4) (78)
Anti-bribery and
compliance
initiatives 2 - - 2
Benfield integration
costs 12 - - 12
-- --- --- ---
Income (loss) from
continuing operations
before provision for income
tax -as adjusted $630 $97 $(100) 627
==== === =====
Provision for income
taxes (2) 176
---
Income from
continuing
operations - as
adjusted 451
Less: Net income
attributable to
noncontrolling
interests 11
---
Income from
continuing
operations - as
adjusted $440
====
Diluted earnings per
share from continuing
operations -as adjusted $1.52
=====
Weighted average common
shares outstanding -
diluted 288.9
=====
Pretax income margins -
as adjusted 20.1% 15.9% N/A 16.8%
==== ==== === ====
Six Months Ended June 30, 2008
----------------------------------------------
Risk and
Insurance Unallocated
(millions except Brokerage Income &
per share data) Services Consulting Expense Total
---------- ---------- ------------ -----
Revenue as reported $3,176 $679 $6 $3,861
====== ==== === ======
Income (loss) from
continuing operations
before provision for income
tax -as reported $477 $106 $(99) $484
Restructuring charges
(2007 plan) 106 7 - 113
Anti-bribery and
compliance
initiatives 25 - - 25
Gain on sale of land (5) - - (5)
--- --- --- ---
Income (loss) from
continuing operations
before provision for income
tax -as adjusted $603 $113 $(99) 617
==== ==== ====
Provision for income
taxes (2) 170
---
Income from
continuing
operations - as
adjusted 447
Less: Net income
attributable to
noncontrolling
interests 8
---
Income from
continuing
operations - as
adjusted $439
====
Diluted earnings per
share from continuing
operations -as adjusted $1.40
=====
Weighted average common
shares outstanding -
diluted 312.5
=====
Pretax income margins -
as adjusted 19.0% 16.6% N/A 16.0%
==== ==== === ====
(1) Certain noteworthy items impacting pretax income in 2009 and 2008 are
described in this schedule. The income (loss) from continuing operations
before provision for income tax, diluted earnings per share from continuing
operations and related margins shown with the caption "as adjusted" are
non-GAAP measures.
(2) Tax rate for continuing operations is 27.1% and 25.2% for the second
quarters ended June 30, 2009 and 2008, respectively, and 28.0% and 27.6%
for the six months ended June 30, 2009 and 2008, respectively.
Aon Corporation - Restructuring Plans (Unaudited) (1)
2007 Restructuring Plan
By Type: Actual
---------------------------------------------
Full Full Second Six Total
Year Year Quarter Months Incurred Estimated
(millions) 2007 2008 2009 2009 to Date Total
------ ----- -------- ------- --------- -----------
Workforce
reduction $17 $166 $43 $70 $253 $330
Lease
consolidation 22 38 22 27 87 134
Asset
impairments 4 18 4 4 26 40
Other costs
associated
with
restructuring 3 29 5 7 39 46
--- --- --- --- --- ---
Total
restructuring
and
related
expenses $46 $251 $74 $108 $405 $550
=== ==== === ==== ==== ====
By Segment:
Risk and Insurance
Brokerage
Services $41 $234 $71 $102 $377 $504
Consulting 5 17 3 6 28 46
--- --- --- --- --- ---
Total
restructuring
and related
expenses $46 $251 $74 $108 $405 $550
=== ==== === ==== ==== ====
Benfield Restructuring Plan
By Type:
Operations
----------------
Purchase
Price Second Six
Allocation Quarter Months Estimated
(millions) (2) 2009 2009 Total
----------- -------- ------- ---------
Workforce reduction $74 $17 $25 $126
Lease consolidation 28 4 4 48
Asset impairments - - 1 8
Other costs associated with
restructuring 2 - - 3
--- --- --- ---
Total restructuring and
related expenses $104 $21 $30 $185
==== === === ====
(1) In the Consolidated Summary of Operations, workforce reductions are
included in "Compensation and benefits," lease consolidations and other
costs associated with restructuring are included in "Other general
expenses," and asset impairments are included in "Depreciation and
amortization."
(2) Represents estimated liabilities to be incurred within one year of
the acquisition date (11/30/08). Any excess liabilities will be reversed
if obligations are settled for less than expected.
Aon Corporation
Condensed Consolidated Statements of Financial Position
As of
-------------------------------
(millions) Jun. 30, 2009 Dec. 31, 2008 (2)
------------- -----------------
(Unaudited)
ASSETS
--------
CURRENT ASSETS
Cash and cash equivalents $537 $582
Short-term investments 580 684
Receivables 1,937 1,990
Fiduciary assets (1) 12,323 10,678
Other current assets 315 355
Assets held for sale 189 237
--- ---
Total Current Assets 15,881 14,526
Goodwill 5,883 5,637
Other intangible assets 776 779
Fixed assets, net 447 451
Investments 296 332
Other non-current assets 1,155 1,215
----- -----
TOTAL ASSETS $24,438 $22,940
======= =======
LIABILITIES
--------------
CURRENT LIABILITIES
Fiduciary liabilities $12,323 $10,678
Short-term debt 681 105
Accounts payable and
accrued liabilities 1,392 1,560
Other current liabilities 345 314
Liabilities held for sale 118 146
--- ---
Total Current
Liabilities 14,859 12,803
Long-term debt 1,249 1,872
Pension, post employment
and post retirement
liabilities 1,303 1,694
Other non-current
liabilities 1,019 1,156
--- -----
TOTAL LIABILITIES 18,430 17,525
------ ------
TOTAL STOCKHOLDERS'
EQUITY 5,866 5,310
Noncontrolling interest 142 105
--- ---
TOTAL EQUITY 6,008 5,415
----- -----
TOTAL LIABILITIES AND
EQUITY $24,438 $22,940
======= =======
(1) Includes short-term investments: 2009 - $3,694; 2008 - $3,178.
(2) Certain amounts have been reclassified to conform to the 2009
presentation.
SOURCE Aon Corporation
SOURCE: Aon Corporation
Web site: http://www.aon.com/
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