Aon Reports Third Quarter 2008 Results |
- Total Revenue grew 6% to $1.8 billion with Organic Revenue growth of 2%
- EPS from Continuing Operations increased 27% to $0.52
Third Quarter Highlights
- EPS from continuing operations, excluding certain items, increased 33%
to $0.69
- Total pretax margin was 11.5% and the adjusted pretax margin, excluding
certain items, increased 140 bps to 15.1%
- Consulting revenue grew 4% with organic growth in commissions, fees and
other of 6%
- Consulting pretax margin was 15.4% and the adjusted pretax margin,
excluding certain items, increased 370 basis points to 15.7%
- Repurchased $426 million or 9.3 million shares of common stock
- Increased total annual savings related to the 2007 restructuring
program by $60 million to $300 million, and costs necessary to achieve
savings by $90 million to $450 million
- As previously announced, entered into a definitive agreement to acquire
Benfield Group for 844 million British pound in cash, and
assume 91 million British pound of Benfield Group debt
CHICAGO, Oct. 31 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE: AOC) today reported results for the third quarter ended September 30, 2008. Net income decreased 43% to $117 million or $0.40 per share, compared to $204 million or $0.64 per share for the prior year quarter, including the impact of businesses moved to discontinued operations. Net income from continuing operations increased 18% to $153 million or $0.52 per share, compared to $130 million or $0.41 per share for the prior year quarter. Net income from continuing operations per share, excluding certain items, increased 33% to $0.69 compared to $0.52 for the prior year quarter. Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 11 of this press release. "We are pleased to deliver results that demonstrate continued progress in each of our key metrics: organic growth was two percent, adjusted pretax margin increased 140 basis points and adjusted earnings per share from continuing operations increased 33%. These results were achieved despite soft market conditions globally and unprecedented turmoil in the insurance industry," said Greg Case, president and chief executive officer, Aon Corporation. "Driven by a commitment to expense discipline, we increased savings related to our 2007 restructuring program by $60 million, enabling further investment in our industry-leading platform and concurrent margin improvement. Additionally, our balance sheet provides solid financial flexibility as we continue to make strategic investments including the acquisition of Benfield, while streamlining our core focus with the announced sale of AIS and returning more than $400 million of excess capital to shareholders." THIRD QUARTER FINANCIAL SUMMARY Total revenue increased 6% to $1.8 billion with organic revenue growth of 2%. Total operating expenses increased 8% or $113 million to $1.6 billion, including a $37 million increase in restructuring expense and a $28 million unfavorable impact from foreign currency translation. Restructuring expense was $54 million in the third quarter compared to $17 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for the 2007 restructuring program is detailed on page 12 of this release. Restructuring savings in the third quarter related to the 2005 restructuring program are estimated at $67 million compared to $61 million in the prior year quarter. Of the estimated restructuring savings in the third quarter, $57 million were related to the Brokerage segment, primarily due to workforce reduction. The 2005 restructuring program resulted in cumulative cost savings of approximately $225 million in 2007 and is on track to achieve $270 million of cumulative cost savings in 2008. Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $29 million compared to no material savings in the prior year quarter. Of the estimated restructuring savings in the third quarter, $23 million were related to the Brokerage segment primarily for workforce reduction. Before any potential reinvestment of savings, the 2007 restructuring program is now expected to result in cumulative cost savings of approximately $75-80 million in 2008, $220-245 million in 2009 and $300 million in 2010, primarily as a result of additional cost savings opportunities to streamline non-client facing support functions globally. Foreign currency translation increased net income by $0.04 per share compared to the prior year quarter due primarily to fluctuations in the U.S. dollar versus the Euro and British pound. Effective tax rate on continuing operations was 27.8% for the third quarter compared to 41.7% for the prior year quarter. The rate in the third quarter includes an underlying tax rate on operations of 29.0%. The prior year quarter reflected an underlying tax rate of 33.5% and a $22 million non- cash adjustment related to the revaluation of deferred tax assets in the Company's UK operations resulting from a reduction in the statutory rate. Average diluted shares outstanding declined to 290 million in the third quarter compared to 322 million in the prior year quarter, due primarily to the Company's share repurchase program. During the third quarter, the Company repurchased 9.3 million shares of common stock for $426 million, at an average price of $45.90 per share. As of September 30, the Company had approximately $850 million of remaining share repurchase authorization. Discontinued Operations after-tax loss was $36 million or ($0.12) per share compared to after-tax income of $74 million or $0.23 per share for the prior year quarter. Discontinued operations include the results of Automobile Insurance Specialists (AIS) and post-close adjustments related to the sale of Combined Insurance Companies of America (CICA) and Sterling Life Insurance (Sterling). The prior year quarter includes the results of CICA, Sterling, and AIS. THIRD QUARTER SEGMENT REVIEW Certain noteworthy items impacted revenue, pretax income and pretax margins in the third quarter of 2008 and 2007. The third 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 Non-GAAP Measures - Segments and Diluted Earnings Per Share" on page 11 of this press release.
RISK AND INSURANCE BROKERAGE SERVICES
(millions) Third Quarter Ended Less:
------------------- Less: Acquisitions, Organic
Commissions, Sep 30, Sep 30, % Currency Divestitures, Revenue
Fees, Other 2008 2007 Change Impact Other Growth
------------ --------- --------- -------- -------- ------------ --------
Americas $557 $546 2% 1% -% 1%
U.K. 182 193 (6) (2) (3) (1)
EMEA 314 268 17 10 2
5
Asia Pacific 120 116 3 3 (1) 1
Reinsurance 252 232 9 4 4 1
--------- --------- -------- -------- ------------ --------
Sub-Total $1,425 $1,355 5% 3% -% 2%
--------- --------- -------- -------- ------------ --------
Investment
Income $48 $56 (14)%
--------- --------- --------
Total
Revenue $1,473 $1,411 4%
========= ========= ========
Risk and Insurance Brokerage Services total revenue increased 4% to $1.5 billion compared to the prior year quarter including 2% organic revenue growth in commissions, fees and other and a 14% decline in investment income. Americas organic revenue increased 1% reflecting strong growth in Latin America and solid growth in Canada, partially offset by a significant decline in the Company's Cananwill premium financing business. U.K. organic revenue decreased 1% due primarily to soft market conditions. EMEA organic revenue increased 5% due to solid growth in continental Europe and strong growth in emerging markets. Asia Pacific organic revenue increased 1% reflecting solid growth in most Asian markets, primarily offset by the impact of certain regulatory changes in Japan. Reinsurance organic revenue increased 1% due primarily to growth in global facultative and treaty placements, partially offset by soft market conditions.
Third Quarter Ended
------------------------
(millions) Sep 30, Sep 30, %
2008 2007 Change
---------- ---------- ----------
Revenue $1,473 $ 1,411 4%
-------
Expenses
--------
Compensation and benefits 910 832 9
Other expenses 384 351 9
---------- ---------- ----------
Total operating expenses 1,294 1,183 9
Operating income $179 $228 (21)%
Other (income) expense (9) - N/A
---------- ---------- ----------
Pretax income $188 $228 (18)%
========== ========== ==========
Pretax margin 12.8% 16.2%
Pretax income - adjusted $247 $244 1%
Pretax margin - adjusted 16.8% 17.3%
Compensation and benefits for the third quarter increased 9% or $78 million from the prior year quarter including a $27 million increase in restructuring costs, a $19 million unfavorable impact from foreign currency translation and investments in key talent, partially offset by benefits related to the 2005 and 2007 restructuring programs. Other expenses increased 9% or $33 million compared to the prior year quarter including a $10 million increase in restructuring costs, an $8 million unfavorable impact from foreign currency translation and $6 million for the previously disclosed reviews under the Foreign Corrupt Practices Act (FCPA) and similar laws in other countries and related compliance initiatives. Third quarter pretax income decreased 18% to $188 million. Adjusting for certain items detailed on page 11 of this press release, pretax income increased 1% or $3 million to $247 million and pretax margin decreased 50 basis points to 16.8% versus the prior year quarter due primarily to lower investment income and a decline in Cananwill pretax income, which negatively impacted adjusted pretax margin by 80 basis points.
CONSULTING
(millions) Third Quarter Ended Less:
------------------- Less: Acquisitions, Organic
Commissions, Sep 30, Sep 30, % Currency Divestitures, Revenue
Fees, Other 2008 2007 Change Impact Other Growth
----------- --------- --------- -------- -------- ------------ --------
Services $284 $269 6% 1% (3)% 8%
Outsourcing 51 55 (7) (2) (1) (4)
--------- --------- -------- -------- ------------ --------
Sub-Total $335 $324 3% 1% (4)% 6%
--------- --------- -------- -------- ------------ --------
Investment
Income $2 $1 100%
--------- --------- --------
Total
Revenue $337 $325 4%
========= ========= ========
Consulting total revenue increased 4% to $337 million compared to the
prior year quarter including 6% organic revenue growth in commissions, fees
and other. Organic revenue in Consulting Services increased 8% reflecting
growth in compensation and health and benefits consulting. Organic revenue in
Outsourcing declined 4% due to the previously announced termination of a
significant outsourcing contract, partially offset by modest growth in
benefits outsourcing.
Third Quarter Ended
------------------------
(millions) Sep 30, Sep 30, %
2008 2007 Change
---------- ---------- ----------
Revenue $337 $325 4%
Expenses
Compensation and benefits 206 209 (1)
Other expenses 79 78 1
---------- ---------- ----------
Total operating expenses 285 287 (1)
Operating income $52 $38 37%
Other (income) expense - - -
---------- ---------- ----------
Pretax income $52 $38 37%
========== ========== ==========
Pretax margin 15.4% 11.7%
Pretax income - adjusted $53 $39 36%
Pretax margin - adjusted 15.7% 12.0%
Total operating expenses for the third quarter decreased 1% or $2 million from the prior year quarter due primarily to benefits related to the 2007 restructuring program. Third quarter pretax income increased 37% to $52 million and the pretax margin increased 370 basis points to 15.4% versus the prior year quarter. Adjusting for certain items detailed on page 11, pretax income increased 36% to $53 million and the pretax margin increased 370 basis points to 15.7%.
UNALLOCATED INCOME AND EXPENSE
Third Quarter Ended
-------------------
(millions) Sep 30, Sep 30, %
2008 2007 Change
--------- --------- ---------
Operating segment income before tax $240 $266 (10)%
Property & Casualty operations (2) (5) (60)
Unallocated investment income 40 19 111
Unallocated expenses (34) (24) 42
Interest expense (32) (33) (3)
--------- --------- ---------
Income from continuing
operations before tax $212 $223 (5)%
========= ========= =========
Property & Casualty loss declined $3 million compared to the prior year quarter. All property & casualty business was placed into run-off in the fourth quarter 2006. Unallocated investment income for the third quarter increased $21 million to $40 million compared to the prior year quarter due primarily to a $13 million increase in certain private equity distributions and an increase in interest income from higher cash balances. Unallocated expenses increased $10 million to $34 million versus the prior year quarter due primarily to $6 million in Benfield costs and $3 million of absorbed costs previously allocated to the insurance underwriting segment. Interest expense was relatively unchanged from the prior year quarter. Conference Call and Webcast Details The Company will host a conference call on Friday, October 31, 2008 at 7:30 a.m. central time. Interested parties can listen to the conference call via a live audio webcast at http://www.aon.com. About Aon Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world's best broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon was ranked as the world's largest insurance broker by Business Insurance. Aon also was ranked by A.M. Best as the number one global insurance brokerage in 2007 and 2008 based on brokerage revenues, and voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 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 complete our pending acquisition of Benfield Group Limited and, if completed, to integrate Benfield successfully and to realize the anticipated benefits of the Benfield acquisition. 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. 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:
Scott Malchow
Vice President, Investor Relations
312-381-3983
Media Contact:
David Prosperi
Vice President, Global Public Relations
312-381-2485
Aon Corporation
Consolidated Summary of Operations (Unaudited)
Third Quarter Ended Nine Months Ended
(millions ----------------------------- -----------------------------
except Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent
per share 2008 2007 Change 2008 2007 Change
data) --------- --------- --------- --------- --------- ---------
Revenue
-------
Commissions,
fees and
other $1,756 $1,672 5% $5,493 $5,125 7%
Investment
income 91 77 18 218 236 (8)
--------- --------- --------- --------- --------- ---------
Total
revenue 1,847 1,749 6 5,711 5,361 7
--------- --------- --------- --------- --------- ---------
Expenses
--------
Compensation
and
benefits 1,132 1,048 8 3,432 3,188 8
Other
general
expenses 425 397 7 1,350 1,228 10
Depreciation
and
amortization 49 48 2 157 141 11
--------- --------- --------- --------- --------- ---------
Total
operating
expenses 1,606 1,493 8 4,939 4,557 8
--------- --------- --------- --------- --------- ---------
Operating income 241 256 (6) 772 804 (4)
Interest
expense 32 33 (3) 96 102 (6)
Other income (3) - N/A (9) (29) (69)
--------- --------- --------- --------- --------- ---------
Income from
continuing
operations
before
provision
for income tax 212 223 (5) 685 731 (6)
Provision for
income
tax (1) 59 93 (37) 191 262 (27)
--------- --------- --------- --------- --------- ---------
Income from
continuing
operations 153 130 18 494 469 5
Discontinued
operations
Income (loss)
from
discontinued
operations (55) 88 N/A 1,445 261 454
Provision
for
(benefit
from)
income
tax (2) (19) 14 N/A 471 73 545
--------- --------- --------- --------- --------- ---------
Income (loss)
from
discontinued
operations (36) 74 N/A 974 188 418
--------- --------- --------- --------- --------- ---------
Net income $117 $204 (43)% $1,468 $657 123%
========= ========= ========= ========= ========= =========
Basic net
income
(loss) per
share:
Continuing
operations $0.56 $0.44 27% $1.70 $1.59 7%
Discontinued
operations (0.13) 0.25 N/A 3.37 0.63 435
--------- --------- --------- --------- --------- ---------
Net income $0.43 $0.69 (38)% $5.07 $2.22 128%
========= ========= ========= ========= ========= =========
Diluted net
income
(loss) per
share:
Continuing
operations $0.52 $0.41 27% $1.62 $1.47 10%
Discontinued
operations (0.12) 0.23 N/A 3.19 0.58 450
--------- --------- --------- --------- --------- ---------
Net income $0.40 $0.64 (38)% $4.81 $2.05 135%
========= ========= ========= ========= ========= =========
Weighted average
common shares
outstanding -
diluted 290.3 321.5 (10)% 305.2 322.6 (5)%
========= ========= ========= ========= ========= =========
(1) Tax rate from continuing operations is 27.8% and 41.7% for the third
quarters ended September 30, 2008 and 2007, respectively, and 27.9%
and 35.8% for the nine months ended September 30, 2008 and 2007,
respectively.
(2) Tax rate from discontinued operations is 34.5% and 15.9% for the third
quarters ended September 30, 2008 and 2007, respectively, and 32.6%
and 28.0% for the nine months ended September 30, 2008 and 2007,
respectively.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Third Quarter Ended
--------------------------------------------------------
Less:
Acquisitions,
Sept. Sept. Less: Divestitures Organic
30, 30, Percent Currency & Revenue
(millions) 2008 2007 Change Impact Other Growth(1)
-------- -------- -------- -------- --------- ---------
Commissions,
Fees and Other
----------------
Risk and
Insurance
Brokerage
Services:
Americas $557 $546 2% 1% -% 1%
United Kingdom 182 193 (6) (2) (3) (1)
Europe, Middle
East & Africa 314 268 17 10 2 5
Asia Pacific 120 116 3 3 (1) 1
Reinsurance
brokerage
and related
services 252 232 9 4 4 1
-------- -------- -------- -------- --------- ---------
Total Risk and
Insurance
Brokerage
Services 1,425 1,355 5 3 - 2
-------- -------- -------- -------- --------- ---------
Consulting:
Consulting
services 284 269 6 1 (3) 8
Outsourcing 51 55 (7) (2) (1) (4)
-------- -------- -------- -------- --------- ---------
Total
Consulting 335 324 3 1 (4) 6
-------- -------- -------- -------- --------- ---------
Total
Operating
Segments $1,760 $1,679 5% 3% -% 2%
======== ======== ======== ======== ========= =========
Investment Income
-----------------
Risk and Insurance
Brokerage
Services $48 $56 (14)%
Consulting 2 1 100
-------- -------- --------
Total
Operating
Segments $50 $57 (12)%
======== ======== ========
Total Revenue
-------------
Risk and Insurance
Brokerage
Services $1,473 $1,411 4%
Consulting 337 325 4
Unallocated 41 21 95
Intersegment (4) (8) (50)
-------- -------- --------
Total $1,847 $1,749 6%
======== ======== ========
(1) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers, reimbursable expenses and
unusual items.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Nine Months Ended
--------------------------------------------------------
Less:
Acquisitions,
Sept. Sept. Less: Divestitures Organic
30, 30, Percent Currency & Revenue
(millions) 2008 2007 Change Impact Other Growth(1)
-------- -------- -------- -------- --------- ---------
Commissions, Fees
and Other
-----------------
Risk and
Insurance
Brokerage
Services:
Americas $1,638 $1,609 2% 2% -% -%
United Kingdom 546 545 - 1 (1) -
Europe,
Middle East &
Africa 1,188 988 20 13 2 5
Asia Pacific 373 343 9 8 (1) 2
Reinsurance
brokerage
and related
services 756 691 9 5 3 1
-------- -------- -------- -------- --------- ---------
Total Risk
and Insurance
Brokerage
Services 4,501 4,176 8 5 1 2
-------- -------- -------- -------- --------- ---------
Consulting:
Consulting
services 850 794 7 3 (1) 5
Outsourcing 162 177 (8) 1 (1) (8)
-------- -------- -------- -------- --------- ---------
Total
Consulting 1,012 971 4 3 (2) 3
-------- -------- -------- -------- --------- ---------
Total
Operating
Segments $5,513 $5,147 7% 5% -% 2%
======== ======== ======== ======== ========= =========
Investment Income
-----------------
Risk and Insurance
Brokerage Services $148 $154 (4)%
Consulting 4 8 (50)
-------- -------- --------
Total
Operating
Segments $152 $162 (6)%
======== ======== ========
Total Revenue
-------------
Risk and
Insurance
Brokerage
Services $4,649 $4,330 7%
Consulting 1,016 979 4
Unallocated 66 76 (13)
Intersegment (20) (24) (17)
-------- -------- --------
Total $5,711 $5,361 7%
======== ======== ========
(1) 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
------------------------------------------------------------
Third Quarter Ended Nine Months Ended
-------------------------- -------------------------
Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent
(millions) 2008 2007 Change 2008 2007 Change
------- ------- ------- ------- ------- -------
Revenue
-------
Commissions,
fees and other $1,425 $1,355 5% $4,501 $4,176 8%
Investment income 48 56 (14) 148 154 (4)
------- ------- ------- ------- ------- -------
Total revenue 1,473 1,411 4 4,649 4,330 7
------- ------- ------- ------- ------- -------
Expenses
--------
Compensation
and benefits 910 832 9 2,773 2,534 9
Other general
expenses 384 351 9 1,233 1,091 13
------- ------- ------- ------- ------- -------
Total
operating
expenses 1,294 1,183 9 4,006 3,625 11
------- ------- ------- ------- ------- -------
Operating income 179 228 (21) 643 705 (9)
Other income (9) - N/A (14) (29) (52)
------- ------- ------- ------- ------- -------
Income before
provision for
income tax $188 $228 (18)% $657 $734 (10)%
======= ======= ======= ======= ======= =======
Pretax income
margin 12.8% 16.2% 14.1% 17.0%
Consulting - Continuing Operations
----------------------------------
Third Quarter Ended Nine Months Ended
-------------------------- -------------------------
Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent
(millions) 2008 2007 Change 2008 2007 Change
------- ------- ------- ------- ------- -------
Revenue
-------
Commissions,
fees and other $335 $324 3% $1,012 $971 4%
Investment income 2 1 100 4 8 (50)
------- ------- ------- ------- ------- -------
Total revenue 337 325 4 1,016 979 4
------- ------- ------- ------- ------- -------
Expenses
--------
Compensation
and benefits 206 209 (1) 612 604 1
Other general
expenses 79 78 1 247 246 -
------- ------- ------- ------- ------- -------
Total operating
expenses 285 287 (1) 859 850 1
------- ------- ------- ------- ------- -------
Operating income 52 38 37 157 129 22
Other income - - N/A (1) - N/A
------- ------- ------- ------- ------- -------
Income before
provision for
income tax $52 $38 37% $158 $129 22%
======= ======= ======= ======= ======= =======
Pretax
income
margin 15.4% 11.7% 15.6% 13.2%
Reconciliation of
segment income
before provision
for income tax to
income from
continuing
operations
before provision
for income tax:
Third Quarter Ended Nine Months Ended
-------------------------- -------------------------
Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent
(millions) 2008 2007 Change 2008 2007 Change
------- ------- ------- ------- ------- -------
Segment income
before provision
for income tax
Risk and
Insurance
Brokerage
Services $188 $228 (18)% $657 $734 (10)%
Consulting 52 38 37 158 129 22
------- ------- ------- ------- ------- -------
Total segment
income before
provision for
income tax 240 266 (10) 815 863 (6)
Property &
Casualty
operations (2) (5) (60) (5) (9) (44)
Unallocated
investment
income 40 19 111 62 70 (11)
Unallocated
expenses (34) (24) 42 (91) (91) -
Interest expense (32) (33) (3) (96) (102) (6)
------- ------- ------- ------- ------- -------
Income from continuing
operations before
provision for
income tax $212 $223 (5)% $685 $731 (6)%
======= ======= ======= ======= ======= =======
Pretax
income
margin 11.5% 12.8% 12.0% 13.6%
Aon Corporation
Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted
Earnings Per Share (Unaudited) (1)
Third Quarter Ended Nine Months Ended
September 30, 2008 September 30, 2008
(millions------------------------------- -------------------------------
except Risk and Unallo- Risk and Unallo-
per Insurance cated Insurance cated
share Brokerage Cons- Income & Brokerage Cons- Income &
data) Services ulting Expense Total Services ulting Expense Total
Revenue --------- ------- ------- ------ --------- ------- ------- -----
as
reported $1,473 $337 $37 $1,847 $4,649 $1,016 $46 $5,711
========= ======= ======= ====== ========= ======= ======= =====
Income
(loss)
from
continuing
operations
before
provision
for income
tax - as
reported $188 $52 $(28) $212 $657 $158 $(130) $685
Restruc-
turing
charges
(2005
and
2007
plans) 53 1 - 54 159 8 - 167
Anti-bribery
and
compliance
initiatives 6 - - 6 31 - - 31
Benfield
costs - - 6 6 - - 6 6
Gain on
sale
of
land - - - - (5) - - (5)
--------- ------- ------- ------ --------- ------- ------- -----
Income (loss)
from
continuing
operations
before
provision
for income
tax - as
adjusted $247 $53 $(22) 278 $842 $166 $(124) 884
========= ======= ======= ========= ======= =======
Provision
for
income
taxes (2) 78 247
------ -----
Income from
continuing
operations -
as
adjusted $200 $637
====== =====
Diluted
earnings
per share
from
continuing
operations -
as
adjusted $0.69 $2.09
===== =====
Weighted
average
common
shares
out-
standing -
diluted 290.3 305.2
===== =====
Pretax
income
margins -
as
adjusted 16.8% 15.7% N/A 15.1% 18.1% 16.3% N/A 15.5%
========= ======= ======= ====== ========= ======= ======= =====
Third Quarter Ended Nine Months Ended
September 30, 2007 September 30, 2007
(millions------------------------------- -------------------------------
except Risk and Unallo- Risk and Unallo-
per Insurance cated Insurance cated
share Brokerage Cons- Income & Brokerage Cons- Income &
data) Services ulting Expense Total Services ulting Expense Total
Revenue --------- ------- ------- ------ --------- ------- ------- -----
as
reported $1,411 $325 $13 $1,749 $4,330 $979 $52 $5,361
========= ======= ======= ====== ========= ======= ======= =====
Income
(loss)
from
continuing
operations
before
provision
for income
tax - as
reported $228 $38 $(43) $223 $734 $129 $(132) $731
Restruc-
turing
charges
(2005
and
2007
plans) 16 1 - 17 44 7 - 51
Gain on
sale of
businesses - - - - (30) - - (30)
Reinsurance
litigation - - - - 21 - - 21
------- ------- ------- ------ -------- ------ ------ -----
Income (loss)
from
continuing
operations
before
provision
for income
tax - as
adjusted $244 $39 $(43) 240 $769 $136 $(132) 773
========= ======= ======= ========= ======= =======
Provision
for
income
taxes (2) 76 250
------ -----
Income
from
continuing
operations -
as
adjusted $164 $523
====== =====
Diluted
earnings
per share
from
continuing
operations -
as
adjusted $0.52 $1.64
====== =====
Weighted
average
common
shares
out-
standing -
diluted 321.5 322.6
====== =====
Pretax
income
margins -
as
adjusted 17.3% 12.0% N/A 13.7% 17.8% 13.9% N/A 14.4%
========= ======= ======= ====== ========= ======= ======= =====
(1) Certain noteworthy items impacting revenue and pretax income in 2008
and 2007 are described in this schedule. The revenue, 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 from continuing operations is 28.1% and 31.7% for the third
quarters ended September 30, 2008 and 2007, respectively, and 27.9%
and 32.3% for the nine months ended September 30, 2008 and 2007,
respectively.
Aon Corporation
2007 Restructuring Plan (Unaudited)
By Type: Actual Estimated
------------------------------------------- ---------
Six Third Nine Total
Months Quarter Months Incurred
(millions) 2007 2008 2008 2008 to Date Total
------------------------------------------- ---------
Workforce reduction
(Compensation and
benefits) $17 $76 $42 $118 $135 $284
Lease consolidation
(Other general
expenses) 22 18 7 25 47 88
Asset impairments
(Depreciation
and amortization) 4 14 (1) 13 17 44
Other costs associated
with restructuring
(Other general
expenses) 3 5 4 9 12 34
------------------------------------------- ---------
Total restructuring
and related
expenses $46 $113 $52 $165 $211 $450
=========================================== =========
By Segment: Actual Estimated
------------------------------------------- ---------
Six Third Nine Total
Months Quarter Months Incurred
(millions) 2007 2008 2008 2008 to Date Total
------------------------------------------- ---------
Risk and Insurance
Brokerage Services $41 $106 $51 $157 $198 $403
Consulting 5 7 1 8 13 47
------------------------------------------- ---------
Total restructuring
and related
expenses $46 $113 $52 $165 $211 $450
=========================================== =========
Aon Corporation
Consolidated Summary of Operations - Reclassified for Discontinued
Operations (Unaudited)
2007 2008
-------------------------------- ----------------------------
(millions
except
per
share 1st 2nd 3rd 4th 1st 2nd 3rd
data) Quar- Quar- Quar- Quar- Full Quar- Quar- Quar- Nine
ter ter ter ter Year ter ter ter Months
------ ------ ------ ------ ------ ------ ------ ------ ------
Revenue
-------
Commi-
ssions,
fees and
other $1,702 $1,751 $1,672 $1,944 $7,069 $1,848 $1,889 $1,756 $5,493
Inve-
stment
income 69 90 77 64 300 59 68 91 218
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
rev-
enue 1,771 1,841 1,749 2,008 7,369 1,907 1,957 1,847 5,711
------ ------ ------ ------ ------ ------ ------ ------ ------
Expenses
--------
Compen-
sation
and
benefits 1,042 1,098 1,048 1,159 4,347 1,155 1,145 1,132 3,432
Other
general
expenses 414 417 397 499 1,727 422 503 425 1,350
Depre-
ciation
and
amort-
ization 47 46 48 52 193 50 58 49 157
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
oper-
ating
expe-
nses 1,503 1,561 1,493 1,710 6,267 1,627 1,706 1,606 4,939
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating
income 268 280 256 298 1,102 280 251 241 772
Interest
expense 35 34 33 36 138 33 31 32 96
Other
income - (29) - (6) (35) (4) (2) (3) (9)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income
from
cont-
inuing
operations
before
provision
for income
tax 233 275 223 268 999 251 222 212 685
Provision
for
income
tax 73 96 93 82 344 75 57 59 191
------ ------ ------ ------ ------ ------ ------ ------ ------
Income
from
conti-
nuing
opera-
tions 160 179 130 186 655 176 165 153 494
Disc-
ontinued
opera-
tions
Income
(loss)
from
discont-
inued
opera-
tions 80 93 88 80 341 68 1,432 (55) 1,445
Provision
for
(benefit
from)
income
tax 27 32 14 59 132 26 464 (19) 471
------ ------ ------ ------ ------ ------ ------ ------ ------
Income
(loss)
from
discon-
tinued
opera-
tions 53 61 74 21 209 42 968 (36) 974
------ ------ ------ ------ ------ ------ ------ ------ ------
Net
income $213 $240 $204 $207 $864 $218 $1,133 $117 $1,468
====== ====== ====== ====== ====== ====== ====== ====== ======
Basic net
income (loss)
per
share:
Conti-
nuing
opera-
tions $0.53 $0.60 $0.44 $0.62 $2.20 $0.58 $0.57 $0.56 $1.70
Discon-
tinued
opera-
tions 0.18 0.21 0.25 0.07 0.70 0.14 3.34 (0.13) 3.37
------ ------ ------ ------ ------ ------ ------ ------ ------
Net
income $0.71 $0.81 $0.69 $0.69 $2.90 $0.72 $3.91 $0.43 $5.07
====== ====== ====== ====== ====== ====== ====== ====== ======
Dilutive
net income
(loss)
per share:
Conti-
nuing
opera-
tions $0.50 $0.56 $0.41 $0.58 $2.04 $0.55 $0.54 $0.52 $1.62
Discon-
tinued
opera-
tions 0.16 0.19 0.23 0.06 0.65 0.13 3.17 (0.12) 3.19
------ ------ ------ ------ ------ ------ ------ ------ ------
Net
income $0.66 $0.75 $0.64 $0.64 $2.69 $0.68 $3.71 $0.40 $4.81
====== ====== ====== ====== ====== ====== ====== ====== ======
Weighted
average
common
shares
outstanding
- diluted 324.4 321.9 321.5 324.1 323.0 319.8 305.3 290.3 305.2
====== ====== ====== ====== ====== ====== ====== ====== ======
Aon Corporation
Segments- Reclassification for Discontinued Operations (Unaudited)
2007 2008
-------------------------------------- -----------------------
1st 2nd 3rd 4th Full 1st 2nd Six
(millions) Quarter Quarter Quarter Quarter Year Quarter Quarter Months
------- ------- ------- ------- ---- ------- ------- ------
Revenue
-------
Risk and
insurance
brokerage
services
As re-
ported $1,456 $1,515 $1,437 $1,651 $6,059 $1,591 $1,633 3,224
Less:
reclassifi-
cation to
discon-
tinued
opera-
tions (27) (25) (26) (24) (102) (25) (23) (48)
------- ------- ------- ------- ----- ------- ------- ------
As re-
class-
ified 1,429 1,490 1,411 1,627 5,957 1,566 1,610 3,176
Consulting 329 325 325 373 1,352 343 336 679
Unallocated 23 32 21 13 89 7 18 25
Interseg-
ment (10) (6) (8) (5) (29) (9) (7) (16)
------- ------- ------- ------- ----- ------- ------- ------
Total $1,771 $1,841 $1,749 $2,008 $7,369 $1,907 $1,957 $3,864
======= ======= ======= ======= ===== ======= ======= ======
Income (loss)
before income
tax
--------------
Risk and
insurance
brokerage
services
As re-
ported $242 $278 $236 $281 $1,037 $244 $235 $479
Less:
reclass-
ification
to discon-
tinued
opera-
tions (8) (6) (8) (5) (27) (6) (4) (10)
------- ------- ------- ------- ----- ------- -------- ------
As re-
class-
ified 234 272 228 276 1,010 238 231 469
Consulting 47 44 38 60 189 63 43 106
Unallocated
As re-
ported (49) (41) (44) (68) (202) (51) (52) (103)
Less:
reclass-
ification
to discon-
tinued
opera-
tions 1 - 1 - 2 1 - 1
------- ------- ------- ------- ----- ------- -------- ------
As re-
class-
ified (48) (41) (43) (68) (200) (50) (52) (102)
------- ------- ------- ------- ----- ------- -------- ------
Total $233 $275 $223 $268 $999 $251 $222 $473
======= ======= ======= ======= ===== ======= ======== ======
Income from
continuing
operations
before income
tax - margins
-------------
Risk and
insurance
brokerage
services
As re-
ported 16.6% 18.3% 16.4% 17.0% 17.1% 15.3% 14.4% 14.9%
As re-
class-
ified 16.4% 18.3% 16.2% 17.0% 17.0% 15.2% 14.3% 14.8%
Consulting 14.3% 13.5% 11.7% 16.1% 14.0% 18.4% 12.8% 15.6%
Total
As re-
ported 13.3% 15.1% 13.0% 13.4% 13.7% 13.3% 11.4% 12.3%
As re-
class-
ified 13.2% 14.9% 12.8% 13.3% 13.6% 13.2% 11.3% 12.2%
Aon Corporation
Auto Insurance Specialists (Unaudited)
(mill-
ions 2007 2008
except ------------------------------------ -----------------------------
per 1st 2nd 3rd 4th Full 1st 2nd 3rd Nine
share Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Months
data) ------- ---------------------------- -----------------------------
Revenue
-------
Commi-
ssions,
fees
and
other $27 $25 $26 $23 $101 $25 $23 $23 $71
Inves-
tment
income - - - 1 1 - - - -
------- ------- ------- ------- ---- ------- ------- ------- ------
Total
rev-
enue 27 25 26 24 102 25 23 23 71
------- ------- ------- ------- ---- ------- ------- ------- ------
Expenses
Compen-
sation
and
bene-
fits 11 11 10 9 41 11 10 11 32
Other
general
expe-
nses 9 8 9 9 35 9 9 34 52
Deprecia-
tion
and
amor-
tiza-
tion - - - 1 1 - - - -
------- ------- ------- ------- ---- ------- ------- ------- ------
Total
oper-
ating
expen-
ses 20 19 19 19 77 20 19 45 84
------- ------- ------- ------- ---- ------- ------- ------- ------
Operating
income
(loss) 7 6 7 5 25 5 4 (22) (13)
Interest
expense - - - - - - - - -
Other
income - - - - - - - - -
------- ------- ------- ------- ---- ------- ------- ------- ------
Income (loss)
before
provision
for
(benefit
from)
income
tax 7 6 7 5 25 5 4 (22) (13)
Provision
for
(benefit
from)
income
tax 2 2 3 1 8 2 1 (8) (5)
------- ------- ------- ------- ---- ------- ------- ------- ------
Net
income
(loss) $5 $4 $4 $4 $17 $3 $3 $(14) $(8)
======= ======= ======= ======= ==== ======= ======= ======= ======
Basic net
income
(loss)
per
share $0.02 $0.02 $0.01 $0.01 $0.05 $0.01 $0.01 $(0.05)$(0.03)
======= ======= ======= ======= ==== ======= ======= ====== ======
Dilutive
net
income
(loss)
per
share $0.01 $0.01 $0.01 $0.01 $0.06 $0.01 $0.01 $(0.05) (0.03)
======= ======= ======= ====== ===== ======= ======= ======= ======
Weighted
average
common
shares
out-
standing -
dil-
uted 324.4 321.9 321.5 324.1 323.0 319.8 305.3 290.3 305.2
======= ======= ======= ======= ==== ======= ======= ======= ======
Aon Corporation
Condensed Consolidated Statements of Financial Position
As of
-------------------------
(millions) Sept. 30, Dec. 31,
2008 2007 (2)
----------------------------------------------- ----------- ----------
(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash $478 $584
Short-term investments 1,946 1,209
Receivables 1,877 1,996
Fiduciary assets (1) 9,109 9,498
Other current assets 245 219
Assets held for sale 31 4,418
----------- ----------
Total Current Assets 13,686 17,924
Goodwill 4,882 4,915
Other intangible assets 222 204
Fixed assets, net 449 497
Long-term investments 370 417
Other non-current assets 1,109 920
----------- -----------
TOTAL ASSETS $20,718 $24,877
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Fiduciary liabilities $9,109 $9,498
Short-term debt - 252
Accounts payable and accrued liabilities 1,180 1,416
Other current liabilities 346 288
Liabilities held for sale 3 3,028
----------- ----------
Total Current Liabilities 10,638 14,482
Long-term debt 1,964 1,893
Pension, post employment and post retirement
liabilities 1,136 1,251
Other non-current liabilities 1,033 1,030
----------- ----------
TOTAL LIABILITIES 14,771 18,656
TOTAL STOCKHOLDERS' EQUITY 5,947 6,221
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,718 $24,877
=========== ===========
(1) Includes short-term investments: 2008 - $3,092; 2007 - $3,122.
(2) Certain amounts have been reclassified to conform to the 2008
presentation.
SOURCE |
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