Media Releases

Aon Reports Second Quarter 2011 Results
- Total revenue increased 48% to $2.8 billion with organic revenue growth of 1% -
- EPS from continuing operations increased 19% to $0.75 -
Second Quarter Highlights
- EPS from continuing operations, excluding certain items, increased 2% to $0.83
- Risk Solutions revenue increased 9% to $1.7 billion with organic revenue growth of 2%
- Risk Solutions operating margin was 20.5% and the operating margin, excluding certain items, decreased 140 basis points to 19.6%
- HR Solutions revenue increased 244% to $1.1 billion with flat organic revenue
- HR Solutions operating margin was 10.6% and the operating margin, excluding certain items, decreased 90 basis points to 13.9%
- Repurchased 5.8 million shares of common stock for $303 million
- Closed the acquisition of Glenrand M.I.B, significantly strengthening Aon's position in South Africa

CHICAGO, July 29, 2011 /PRNewswire/ -- Aon Corporation (NYSE: AON) today reported results for the second quarter ended June 30, 2011.  

Net income attributable to Aon stockholders increased 69% to $258 million or $0.75 per share, compared to $153 million or $0.54 per share for the prior year quarter.  Net income attributable to Aon stockholders from continuing operations increased 43% to $256 million or $0.75 per share, compared to $179 million or $0.63 per share for the prior year quarter.  Net income per share attributable to Aon stockholders from continuing operations, excluding certain items, increased 2% to $0.83, compared to $0.81 in the prior year quarter, including a $62 million increase in intangible asset amortization expense.  Certain items that impacted second quarter results and comparisons with the prior year quarter are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 12 of this press release.  

"We delivered solid organic revenue growth in our Retail Brokerage business while delivering on the synergy savings related to Aon Hewitt," said Greg Case, president and chief executive officer.  "While macro conditions remain challenging globally, we are firmly on track to deliver growth in 2011, our restructuring programs are delivering cost savings and we have solid financial flexibility that will continue to drive increased shareholder value, as highlighted by the repurchase of $303 million of common stock in the quarter."

SECOND QUARTER FINANCIAL SUMMARY

Total revenue increased 48% to $2.8 billion from the prior year quarter due to a 42% increase in commissions and fees resulting from acquisitions, primarily Hewitt, net of divestitures, a 6% increase from foreign currency translation and a 1% increase in organic revenue, partially offset by lower fiduciary investment income.

Total operating expenses increased 46%, or $747 million, to $2.4 billion due primarily to the inclusion of operating expenses related to the merger with Hewitt, an estimated $102 million unfavorable impact from foreign currency translation and a $62 million increase in intangible asset amortization expense, partially offset by benefits related to the restructuring programs and a $17 million decrease in restructuring related costs.  The prior year quarter included a $49 million non-cash charge to pension expense.

Depreciation and amortization expense increased 148%, or $89 million, to $149 million compared to the prior year quarter due primarily to the inclusion of $59 million in intangible asset amortization expense and $18 million of depreciation expense as a result of the merger with Hewitt.  The Company expects intangible asset amortization related to the Hewitt merger to be approximately $241 million in 2011, $310 million in 2012, $288 million in 2013 and to continue to decline each year from 2014 through 2023.

Restructuring expenses were $14 million compared to $31 million in the prior year quarter.  In the second quarter, the Company incurred $31 million of costs under the Aon Hewitt restructuring program, primarily related to lease consolidation and workforce reduction, partially offset by the reversal of $22 million of restructuring costs accrued in prior periods under the Aon Benfield and 2007 restructuring programs as a result of the company reoccupying vacated leasehold properties.  The Company has completed all restructuring activities and incurred 100% of the total costs for the 2007 program and has incurred approximately 95% of the total costs necessary to deliver the remaining savings under the Aon Benfield program.  An analysis of restructuring-related expenses by segment and type is detailed on page 13 of this release.

Restructuring savings in the second quarter related to the 2007 restructuring program are estimated at $134 million compared to $113 million in the prior year quarter.  Of the restructuring savings in the second quarter, $113 million were related to the Risk Solutions segment.  Before any potential reinvestment of savings, the 2007 restructuring program is expected to deliver cumulative cost savings of $536 million in 2011.

Restructuring savings in the second quarter related to the Aon Benfield restructuring program are estimated at $30 million compared to $24 million in the prior year quarter.  Before any potential reinvestment of savings, the Benfield restructuring program is expected to deliver cumulative cost savings of $122 million in 2011.

Restructuring savings in the second quarter related to the Aon Hewitt restructuring program are estimated at $34 million.  The Aon Hewitt merger is expected to deliver cumulative cost savings of $355 million in 2013, including $280 million related to the restructuring program and $75 million in areas such as information technology, procurement and public company costs.

Currency fluctuations in the second quarter had a $0.03 favorable impact on adjusted net income from continuing operations per diluted share when the Company translates prior year quarter results at current quarter foreign exchange rates.

Effective tax rate on net income from continuing operations was 24.7% in the second quarter compared to 24.5% in the prior year quarter.  The effective tax rate in the second quarter of 2011 and 2010 was favorably impacted by the resolution of an income tax audit and certain deferred tax adjustments.  The Company anticipates an effective tax rate on net income from continuing operations of 29.0% for 2011.

Discontinued operations after-tax income was $2 million in the second quarter compared to an after-tax loss of $26 million in the prior year quarter.  The prior year quarter included the settlement of legacy litigation.

Average diluted shares outstanding increased to 342.7 million in the second quarter compared to 282.6 million in the prior year quarter due primarily to the issuance of 61 million shares of common stock related to the merger with Hewitt, partially offset by the Company's share repurchase program.  The Company has approximately $1.4 billion remaining under the share repurchase program.

SECOND QUARTER SEGMENT REVIEW

Certain noteworthy items impacted operating income and operating margins in the second quarter of 2011 and 2010.  The second quarter segment reviews provided below include supplemental information related to organic revenue, adjusted operating income and operating margin which is described in detail on the "Reconciliation of Non-GAAP Measures - Organic Revenue" on page 11 and "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 12 of this press release.

RISK SOLUTIONS

 
                 

Less:

     

(millions)

Second Quarter Ended

     

Less:

 

Acquisitions,

     

Commissions,

Jun 30,

 

 Jun 30,

 

%

 

Currency

 

Divestitures,

 

Organic

 

Fees and Other

2011

 

2010

 

Change

 

Impact

 

Other

 

Revenue

 

Retail

$ 1,349

 

$  1,214

 

11%

 

6%

 

2%

 

3%

 

Reinsurance

367

 

359

 

2%

 

5%

 

(1)%

 

(2)%

 

Subtotal

$ 1,716

 

$  1,573

 

9%

 

6%

 

1%

 

2%

 

Investment Income

12

 

14

 

(14)%

             

Total Revenue

$ 1,728

 

$  1,587

 

9%

             
   
                       

 

Risk Solutions total revenue increased 9% to $1.7 billion compared to the prior year quarter due to a 6% favorable impact from foreign currency translation, 2% organic growth in commissions and fees, and a 1% favorable impact from acquisitions and divestitures, partially offset by a decline in fiduciary investment income.

Retail Brokerage organic revenue increased 3% reflecting solid organic revenue growth both in the Americas and International businesses.  Americas organic revenue increased 3% due primarily to strong growth in Latin America and in Affinity products.  International organic revenue increased 3% driven by strong growth in Asia, New Zealand and Africa.  Reinsurance organic revenue decreased 2% due primarily to a decline in capital market transactions and advisory business, partially offset by growth in global treaty placements.  

   
   

Second Quarter Ended

     

(millions)

 

Jun 30,

 

Jun 30,

 

%

 
   

2011

 

2010

 

Change

 

Revenue

 

$  1,728

 

$  1,587

 

9%

 

Expenses

             

Compensation and benefits

 

967

 

909

 

6%

 

Other expenses

 

406

 

373

 

9%

 

Total operating expenses

 

1,373

 

1,282

 

7%

 

Operating income

 

$    355

 

$    305

 

16%

 

Operating margin

 

20.5%

 

19.2%

     
               

Operating income - adjusted

 

$    338

 

$    334

 

1%

 

Operating margin - adjusted  

 

19.6%

 

21.0%

     
   
             

 

Compensation and benefits for the second quarter increased 6%, or $58 million, compared to the prior year quarter due to a $57 million unfavorable impact from foreign currency translation, a $17 million increase from acquisitions, primarily Glenrand M.I.B, net of divestitures, and organic revenue growth, partially offset by benefits related to the restructuring programs and a $14 million decrease in restructuring related costs.  Other expenses for the second quarter increased 9%, or $33 million, due to a $28 million unfavorable impact from foreign currency translation, $16 million of lease termination costs, an $11 million increase from acquisitions, primarily Glenrand M.I.B, net of divestitures, and organic revenue growth, partially offset by a $32 million decrease in restructuring related costs.

Second quarter operating income increased 16% to $355 million.  Adjusting for certain items detailed on page 12 of this press release, operating income increased 1%, or $4 million, to $338 million compared to the prior year quarter. Operating margin in the second quarter decreased 140 basis points to 19.6% compared to the prior year quarter due primarily to a 90 basis point impact from lease termination costs, a 30 basis point impact from a decline in investment income and a 20 basis point impact from foreign currency translation.

HR SOLUTIONS

 

(millions)

Second Quarter Ended

     

Less:

 

Less:

Acquisitions,

     

Commissions,

Jun 30,

 

 Jun 30,

 

%

 

Currency

 

Divestitures,

 

Organic

 

Fees and Other

2011

 

2010

 

Change

 

Impact

 

Other

 

Revenue

 

Consulting Services

$     546

 

$    265

 

106%

 

6%

 

100%

 

-

 

Outsourcing

550

 

51

 

978%

 

5%

 

973%

 

-

 

Intersegment

(6)

 

-

 

N/A

 

N/A

 

N/A

 

N/A

 

Subtotal

$  1,090

 

$    316

 

245%

 

6%

 

239%

 

-

 

Investment Income

-

 

1

 

(100)%

             

Total Revenue

$  1,090

 

$    317

 

244%

             
                       

 

HR Solutions total revenue increased 244% to $1.1 billion compared to the prior year quarter due to acquisitions, primarily Hewitt, net of divestitures and a 6% favorable impact from foreign currency translation.  Organic revenue in Consulting Services was flat as growth in global compensation and investment management consulting was offset by a decline in U.S. retirement and health and benefits consulting.  Organic revenue in Outsourcing was flat as new client wins and growth in point solutions revenue was offset by price compression and a decline in project-related revenue.

   
   

Second Quarter Ended

     

(millions)

 

 Jun 30,

 

Jun 30,

 

%

 
   

2011

 

2010

 

Change

 

Revenue

 

$  1,090

 

$     317

 

244%

 

Expenses

             

Compensation and benefits

 

622

 

194

 

221%

 

Other expenses

 

353

 

78

 

353%

 

Total operating expenses

 

975

 

272

 

258%

 

Operating income

 

$     115

 

$       45

 

156%

 

Operating margin

 

10.6%

 

14.2%

     
               

Operating income - adjusted

 

$     151

 

$       47

 

221%

 

Operating margin - adjusted  

 

13.9%

 

14.8%

     
   
             

 

Compensation and benefits for the second quarter increased 221%, or $428 million, from the prior year quarter due primarily to the inclusion of Hewitt operating expenses and a $10 million unfavorable impact from foreign currency translation, partially offset by benefits related to the Aon Hewitt restructuring program.  Other expenses increased 353%, or $275 million, from the prior year quarter due primarily to the inclusion of Hewitt operating expenses, a $59 million increase in intangible asset amortization expense and $25 million of costs related to the Aon Hewitt restructuring program, partially offset by benefits related to the Aon Hewitt restructuring program.

Second quarter operating income increased 156% to $115 million.  Adjusting for certain items detailed on page 12 of this press release, operating income increased 221%, or $104 million, to $151 million reflecting operating income as a result of the merger of Hewitt and cost savings related to the restructuring program, partially offset by higher intangible asset amortization expense.  Operating margin decreased 90 basis points to 13.9% versus the prior year quarter due primarily to the inclusion of Hewitt operating results and an increase in intangible asset amortization expense.

INCOME FROM CONTINUING OPERATIONS

 

 
 

Second Quarter Ended

     

(millions)

 

Jun 30,

 

Jun 30,

 

%

 
   

2011

 

2010

 

Change

 

Risk Solutions

 

$    355

 

$     305

 

16%

 

HR Solutions

 

115

 

45

 

156%

 

Unallocated expenses

 

(36)

 

(82)

 

56%

 

Operating income from continuing operations before tax

 

$   434

 

268

 

62%

 

Interest income

 

4

 

4

 

-

 

Interest expense

 

(63)

 

(33)

 

91%

 

Other (expense)/income

 

(23)

 

5

 

(500)%

 

Income from continuing operations before tax

 

$   352

 

$    244

 

44%

 
   
             

 

Unallocated expenses were $36 million, a decrease of $46 million compared to prior year quarter.  The prior year quarter included a non-cash charge to pension expense of $49 million, which resulted from an adjustment to the market-related value of plan assets.  Interest income was comparable to the prior year quarter at $4 million. Interest expense increased $30 million to $63 million due primarily to an increase in the average amount of debt outstanding following the merger with Hewitt.  Other expense of $23 million in the second quarter includes a non-cash charge of $19 million as a result of the accelerated amortization of deferred financing costs associated with a repaid term credit agreement.  The second quarter also included a $13 million loss related to the company's ownership in certain insurance investment funds and $9 million of distributions from certain private equity securities.  The prior year quarter included gains from certain investments and the sale of certain businesses.

Conference Call and Webcast Details

The Company will host a conference call on Friday, July 29, 2011 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:AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human resource solutions and outsourcing. Through its more than 60,000 colleagues worldwide, Aon unites to deliver 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 in over 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary 2007-2010, best reinsurance intermediary 2006-2010, best captives manager 2009-2010, and best Employee benefits consulting firm 2007-2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.

Safe Harbor Statement

This communication contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: the possibility that the expected efficiencies and cost savings from the merger with Hewitt Associates Inc. ("Hewitt") will not be realized, or will not be realized within the expected time period; the risk that the Aon and Hewitt businesses will not be integrated successfully; disruption from the merger with Hewitt making it more difficult to maintain business and operational relationships; general economic conditions in different countries in which Aon does 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 Aon's ability to borrow funds; funding of Aon's various pension plans; our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, and the ability to achieve those cost savings; changes in the competitive environment; 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 and ERISA class actions; the cost of resolution of other contingent liabilities and loss contingencies, including potential liabilities arising from error and omissions claims against Aon; the extent to which Aon retains existing clients and attract new businesses; the extent to which Aon manages certain risks created in connection with the various services, including fiduciary and advisory services, among others, that Aon currently provides, or will provide in the future, to clients; the extent to which Aon retains existing employees and attracts new personnel; Aon's ability to maintain the security and privacy of confidential information belonging to its clients or their personnel; Aon's ability to innovate and keep pace with rapid and continuing changes in technology, industry standards and client preferences; 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; changes in costs or assumptions associated with our outsourcing and consulting engagements that affect the profitability of these engagements; and the ability to realize the anticipated benefits to Aon of the Benfield merger. Further information concerning Aon and its business, including factors that potentially could materially affect Aon's financial results, is contained in Aon's and, historically, Hewitt's filings with the SEC. See Aon's Annual Report on Form 10-K and Annual Report to Stockholders for the fiscal year ended December 31, 2010 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011 and other public filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our businesses. Aon does not undertake, and expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events or changes in their respective expectations, except as required by law.

Explanation of Non-GAAP Measures

This communication includes supplemental information related to organic revenue and several additional measures including expenses, margins and income per share, that exclude the effects of restructuring charges, transaction and integration costs and certain other noteworthy items that affected results for the comparable periods.  Organic revenue excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, reimbursable expenses and unusual items.  The impact of foreign exchange is determined by translating last year's revenue, expense or net income at this year's foreign exchange rates.  Reconciliations are provided in the attached schedules.  Supplemental organic revenue information and additional measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts.  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 Statements of Income.  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, Investor Relations

Vice President, Global Public Relations

 

312-381-3983

312-381-2485

 
   

 

Aon Corporation

 

Condensed Consolidated Statements of Income (Unaudited)

 
     

Second Quarter Ended

 

Six Months Ended

 

(millions except per share data)

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Revenue

                       
 

Commissions, fees and other

$  2,799

 

$  1,883

 

49%

 

$  5,547

 

$  3,774

 

47%

 
 

Fiduciary investment income

12

 

15

 

(20)

 

23

 

28

 

(18)

 
   

Total revenue

2,811

 

1,898

 

48

 

5,570

 

3,802

 

47

 
                             

Expenses

                       
 

Compensation and benefits

1,612

 

1,169

 

38

 

3,209

 

2,332

 

38

 
 

Other general expenses

765

 

461

 

66

 

1,531

 

929

 

65

 
   

Total operating expenses

2,377

 

1,630

 

46

 

4,740

 

3,261

 

45

 

Operating income

434

 

268

 

62

 

830

 

541

 

53

 
                             
 

Interest income

4

 

4

 

-

 

10

 

5

 

100

 
 

Interest expense

(63)

 

(33)

 

91

 

(126)

 

(67)

 

88

 
 

Other income (expense)

(23)

 

5

 

(500)

 

(6)

 

12

 

(150)

 

Income from continuing operations before income taxes

352

 

244

 

44

 

708

 

491

 

44

 
 

Income taxes (1)

87

 

60

 

45

 

190

 

121

 

57

 

Income from continuing operations

265

 

184

 

44

 

518

 

370

 

40

 
                             

Income (loss) from discontinued operations before income taxes

1

 

(41)

 

102

 

5

 

(39)

 

113

 
 

Income taxes (2)

(1)

 

(15)

 

93

 

1

 

(13)

 

108

 

Income (loss) from discontinued operations

2

 

(26)

 

108

 

4

 

(26)

 

115

 
                             

Net income

267

 

158

 

69

 

522

 

344

 

52

 
 

Less:  Net income attributable to the noncontrolling interests

9

 

5

 

80

 

18

 

13

 

38

 

Net income attributable to Aon stockholders

$     258

 

$     153

 

69%

 

$     504

 

$     331

 

52%

 
                             

Net income (loss) attributable to Aon stockholders:

                       
 

Income from continuing operations

$     256

 

$     179

 

43%

 

$     500

 

$     357

 

40%

 
 

Income (loss) from discontinued operations

2

 

(26)

 

108

 

4

 

(26)

 

115

 
 

Net income

$     258

 

$     153

 

69%

 

$     504

 

$     331

 

52%

 

Basic net income (loss) per share attributable to Aon stockholders:

                       
 

Income from continuing operations

$    0.76

 

$    0.64

 

19%

 

$    1.48

 

$    1.29

 

15%

 
 

Income (loss) from discontinued operations

-

 

(0.09)

 

100

 

0.01

 

(0.10)

 

110

 
 

Net income

$    0.76

 

$    0.55

 

38%

 

$    1.49

 

$    1.19

 

25%

 
                             

Diluted net income (loss) per share attributable to Aon stockholders:

                       
 

Income from continuing operations

$    0.75

 

$    0.63

 

19%

 

$    1.45

 

$    1.27

 

14%

 
 

Income (loss) from discontinued operations

-

 

(0.09)

 

100

 

0.01

 

(0.09)

 

111

 
 

Net income

$    0.75

 

$    0.54

 

39%

 

$    1.46

 

$    1.18

 

24%

 
                             

Weighted average common shares outstanding - diluted

342.7

 

282.6

 

21%

 

344.0

 

281.7

 

22%

 
                             

(1)  Tax rate for continuing operations is 24.7% and 24.5% for the second quarters ended June 30, 2011 and 2010, respectively, and 26.8% and 24.7% for the six months ended June 30, 2011 and 2010, respectively.  

 

(2)  Tax rate for discontinued operations is not meaningful for second quarter 2011 and 34.6% for the second quarter 2010, and 23.2% and 33.0% for the six months ended June 30, 2011 and 2010, respectively.  

 
                           

 

Aon Corporation

 

Revenue from Continuing Operations (Unaudited)

 
     

Second Quarter Ended

 

Six Months Ended

 

(millions)

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Organic
Revenue (1)

 

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Organic
Revenue (1)

 

Commissions, Fees and Other

                               

Risk Solutions

$  1,716

 

$  1,573

 

9%

 

2%

 

$  3,354

 

$  3,147

 

7%

 

2%

 

HR Solutions

1,090

 

316

 

245

 

-

 

2,207

 

638

 

246

 

-

 
   

Total Operating Segments

$  2,806

 

$  1,889

 

49%

 

1%

 

$  5,561

 

$  3,785

 

47%

 

1%

 
                                     

Fiduciary Investment Income

                               

Risk Solutions

$       12

 

$       14

 

(14)%

     

$       23

 

$       27

 

(15)%

     

HR Solutions

-

 

1

 

(100)

     

-

 

1

 

(100)

     
   

Total Operating Segments

$       12

 

$       15

 

(20)%

     

$       23

 

$       28

 

(18)%

     
                                     

Total Revenue

                               

Risk Solutions

$  1,728

 

$  1,587

 

9%

     

$  3,377

 

$  3,174

 

6%

     

HR Solutions

1,090

 

317

 

244

     

2,207

 

639

 

245

     

Intersegment

(7)

 

(6)

 

17

     

(14)

 

(11)

 

27

     
   

Total

$  2,811

 

$  1,898

 

48%

     

$  5,570

 

$  3,802

 

47%

     
                                     

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

 
                                   

 

Aon Corporation

 

Segments (Unaudited)

 
                             

Risk Solutions

Second Quarter Ended

 

Six Months Ended

 

(millions)

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Revenue

                       
 

Commissions, fees and other

$  1,716

 

$  1,573

 

9%

 

$  3,354

 

$  3,147

 

7%

 
 

Fiduciary investment income

12

 

14

 

(14)

 

23

 

27

 

(15)

 
   

Total revenue

1,728

 

1,587

 

9

 

3,377

 

3,174

 

6

 
                             

Expenses

                       
 

Compensation and benefits

967

 

909

 

6

 

1,888

 

1,860

 

2

 
 

Other general expenses

406

 

373

 

9

 

828

 

752

 

10

 
   

Total operating expenses

1,373

 

1,282

 

7

 

2,716

 

2,612

 

4

 
                             

Operating income

$     355

 

$     305

 

16%

 

$     661

 

$     562

 

18%

 
                             

Operating margin

20.5%

 

19.2%

     

19.6%

 

17.7%

     
                           

 
                             

HR Solutions

Second Quarter Ended

 

Six Months Ended

 

(millions)

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Revenue

                       
 

Commissions, fees and other

$  1,090

 

$     316

 

245%

 

$  2,207

 

$     638

 

246%

 
 

Fiduciary investment income

-

 

1

 

(100)

 

-

 

1

 

(100)

 
   

Total revenue

1,090

 

317

 

244

 

2,207

 

639

 

245

 
                             

Expenses

                       
 

Compensation and benefits

622

 

194

 

221

 

1,275

 

390

 

227

 
 

Other general expenses

353

 

78

 

353

 

694

 

155

 

348

 
   

Total operating expenses

975

 

272

 

258

 

1,969

 

545

 

261

 
                             

Operating income

$     115

 

$       45

 

156%

 

$     238

 

$       94

 

153%

 
                             

Operating margin

10.6%

 

14.2%

     

10.8%

 

14.7%

     
                           

 
                             

Total Operating Income (Loss)

Second Quarter Ended

 

Six Months Ended

 

(millions)

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Risk Solutions

$     355

 

$     305

 

16%

 

$     661

 

$     562

 

18%

 

HR Solutions

115

 

45

 

156

 

238

 

94

 

153

 

Unallocated

(36)

 

(82)

 

56

 

(69)

 

(115)

 

40

 
 

Total operating income (loss)

$     434

 

$     268

 

62%

 

$     830

 

$     541

 

53%

 
                             

Total operating margin

15.4%

 

14.1%

     

14.9%

 

14.2%

     
                           

 

Aon Corporation

 

Reconciliation of Non-GAAP Measures - Organic Revenue (Unaudited)

 
                                 
         

Second Quarter Ended

 

(millions)

 

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Less:
Currency
Impact (1)

 

Less:
Acquisitions,
Divestitures &
Other

 

Organic
Revenue (2)

 

Commissions, Fees and Other

                         

Risk Solutions Segment:

                         
 

Retail brokerage

                         
   

Americas

 

$     682

 

$     616

 

11%

 

2%

 

6%

 

3%

 
   

International

 

667

 

598

 

12

 

11

 

(2)

 

3

 
     

Total Retail brokerage

 

1,349

 

1,214

 

11

 

6

 

2

 

3

 
 

Reinsurance brokerage

 

367

 

359

 

2

 

5

 

(1)

 

(2)

 
     

Total Risk Solutions

 

1,716

 

1,573

 

9

 

6

 

1

 

2

 

HR Solutions Segment:

                         
   

Consulting services

 

546

 

265

 

106

 

6

 

100

 

-

 
   

Outsourcing

 

550

 

51

 

978

 

5

 

973

 

-

 
   

Intrasegment

 

(6)

 

-

 

N/A

 

N/A

 

N/A

 

N/A

 
     

Total HR Solutions

 

1,090

 

316

 

245

 

6

 

239

 

-

 

Total Operating Segments

 

$  2,806

 

$  1,889

 

49%

 

6%

 

42%

 

1%

 
                               

 
                                 
         

Six Months Ended

 

(millions)

 

June 30,
2011

 

June 30,
2010

 

Percent
Change

 

Less:
Currency
Impact (1)

 

Less:
Acquisitions,
Divestitures &
Other

 

Organic
Revenue (2)

 

Commissions, Fees and Other

                           

Risk Solutions Segment:

                         
 

Retail brokerage

                         
   

Americas

 

$  1,214

 

$  1,103

 

10%

 

2%

 

5%

 

3%

 
   

International

 

1,386

 

1,297

 

7

 

5

 

(1)

 

3

 
     

Total Retail Brokerage

 

2,600

 

2,400

 

8

 

4

 

1

 

3

 
 

Reinsurance brokerage

 

754

 

747

 

1

 

3

 

(1)

 

(1)

 
     

Total Risk Solutions

 

3,354

 

3,147

 

7

 

3

 

2

 

2

 

HR Solutions Segment:

                         
   

Consulting services

 

1,115

 

540

 

106

 

3

 

101

 

2

 
   

Outsourcing

 

1,106

 

98

 

1,029

 

4

 

1,026

 

(1)

 
   

Intrasegment

 

(14)

 

-

 

N/A

 

N/A

 

N/A

 

N/A

 
     

Total HR Solutions

 

2,207

 

638

 

246

 

4

 

242

 

-

 

Total Operating Segments

 

$  5,561

 

$  3,785

 

47%

 

3%

 

43%

 

1%

 
                                 

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

 

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

 
                                 

 

Aon Corporation

 

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

 
                                     
     

Second Quarter Ended June 30, 2011

 

Six Months Ended June 30, 2011

 

(millions)

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Revenue

$     1,728

 

$     1,090

 

$              (7)

 

$ 2,811

 

$     3,377

 

$     2,207

 

$            (14)

 

$ 5,570

 
                                     

Operating income (loss) - as reported

$        355

 

$        115

 

$            (36)

 

$    434

 

$        661

 

$        238

 

$            (69)

 

$    830

 
 

Restructuring charges

(17)

 

31

 

-

 

14

 

(10)

 

54

 

-

 

44

 
 

Hewitt related costs

-

 

5

 

-

 

5

 

-

 

20

 

-

 

20

 

Operating income (loss) - as adjusted

$        338

 

$        151

 

$            (36)

 

$    453

 

$        651

 

$        312

 

$            (69)

 

$    894

 
                                     

Operating margins - as adjusted

19.6%

 

13.9%

 

N/A

 

16.1%

 

19.3%

 

14.1%

 

N/A

 

16.1%

 
                                   

 
                                     
     

Second Quarter Ended June 30, 2010

 

Six Months Ended June 30, 2010

 

(millions)

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Revenue

$     1,587

 

$        317

 

$              (6)

 

$ 1,898

 

$     3,174

 

$        639

 

$            (11)

 

$ 3,802

 
                                     

Operating income (loss) - as reported

$        305

 

$          45

 

$            (82)

 

$    268

 

$        562

 

$          94

 

$          (115)

 

$    541

 
 

Restructuring charges

29

 

2

 

-

 

31

 

98

 

9

 

-

 

107

 
 

Pension adjustment

-

 

-

 

49

 

49

 

-

 

-

 

49

 

49

 

Operating income (loss) - as adjusted

$        334

 

$          47

 

$            (33)

 

$    348

 

$        660

 

$        103

 

$            (66)

 

$    697

 
                                     

Operating margins - as adjusted

21.0%

 

14.8%

 

N/A

 

18.3%

 

20.8%

 

16.1%

 

N/A

 

18.3%

 
                                   

 
                     
     

Second Quarter Ended

 

Six Months Ended

 
     

June 30,

 

June 30,

 

(millions except per share data)

2011

 

2010

 

2011

 

2010

 

Operating income - as adjusted

$        453

 

$        348

 

$        894

 

$        697

 
 

Interest income

4

 

4

 

10

 

5

 
                     
 

Interest expense

(63)

 

(33)

 

(126)

 

(67)

 
                     
 

Other (expense) income - as reported

(23)

 

5

 

(6)

 

12

 
   

Loss on Debt Extinguishment

19

 

-

 

19

 

-

 
 

Other (expense) income - as adjusted

(4)

 

5

 

13

 

12

 
                     

Income from continuing operations before income taxes -

               
 

as adjusted

390

 

324

 

791

 

647

 
 

Income taxes (2)

96

 

89

 

212

 

169

 

Income from continuing operations - as adjusted

294

 

235

 

579

 

478

 
 

Less:  Net income attributable to noncontrolling interests

9

 

5

 

18

 

13

 

Income from continuing operations attributable to

               
 

Aon stockholders - as adjusted

$        285

 

$        230

 

$        561

 

$        465

 
                     

Diluted earnings per share from continuing operations -

               
 

as adjusted

$       0.83

 

$       0.81

 

$       1.63

 

$       1.65

 
                     

Weighted average common shares outstanding - diluted

342.7

 

282.6

 

344.0

 

281.7

 
                     
                   

 

(1)  Certain noteworthy items impacting operating income in 2011 and 2010 are described in this schedule.  The items shown with the caption "as adjusted" are non-GAAP measures.  

 

(2)  The effective tax rate for continuing operations is 24.7% and 24.5% for the second quarters ended June 30, 2011 and 2010, respectively, and 26.8% and 24.7% for the six months ended June 30, 2011 and 2010, respectively.  All adjusting items are generally taxed at the effective tax rate.  However, the second quarter and six months 2010 U.S. GAAP effective tax rate was adjusted to 27.5% and 26.1%, respectively, to exclude the impact of the 40% tax rate applied to the a $49 million U.S. pension expense adjustment for prior years.  

 
 

 

Aon Corporation

 

Restructuring Plans (Unaudited) (1)

 
               

Aon Hewitt Restructuring Plan

 

By Type:

 
 

Actual

     

(millions)

Full Year
2010

Second
Quarter
2011

Six
Months
2011

Total to
Date

 

Estimated
Total

 

Workforce reduction

$                  49

$        6

$      24

$             73

 

$         180

 

Lease consolidation

3

20

25

28

 

95

 

Asset impairments

-

4

4

4

 

47

 

Other costs associated with restructuring

-

1

1

1

 

3

 

Total restructuring and related expenses

$                  52

$      31

$      54

$           106

 

$         325

 
             

 

Aon Benfield Restructuring Plan

 

By Type:

 

Operations

     

(millions)

Purchase
Price
Allocation (2)

Full
Year
2009

Full
Year
2010

Second
Quarter
2011

Six
Months
2011

Total
Operations
to Date

 

Estimated
Total

 

Workforce reduction

$                   32

$            38

$            15

$        4

$      11

$             64

 

$         101

 

Lease consolidation (3)

22

14

7

(16)

(16)

5

 

29

 

Asset impairments

-

2

2

-

-

4

 

4

 

Other costs associated with restructuring

1

1

2

-

-

3

 

4

 

Total restructuring and related expenses

$                   55

$            55

$            26

$     (12)

$       (5)

$             76

 

$         138

 
                 

 

2007 Restructuring Plan

 

By Type:

Actual

 

(millions)

Inception to
2010

Second
Quarter
2011

Total

 

Workforce reduction

$                 506

$                     -

$                506

 

Lease consolidation (3)

153

(5)

148

 

Asset impairments

39

-

39

 

Other costs associated with restructuring

50

-

50

 

Total restructuring and related expenses

$                 748

$                  (5)

$                743

 
         
       

 

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

 

(2)  Represents costs associated with the execution of restructuring activity identified at the acquisition date (November 30, 2008).

 

(3)  Includes impact of reoccupying previously vacated leased properties.  Total restructuring reversal was $22 million, of which $17 million was related to the Aon Benfield Restructuring Plan and $5 million was related to the 2007 Restructuring Plan.

 
 

 

Aon Corporation

 

Condensed Consolidated Statements of Financial Position

 
             
     

As of

 

(millions)

June 30,
2011

 

December 31,
2010

 
     

(Unaudited)

     

ASSETS

       
 

Current Assets

       
 

Cash and cash equivalents

$           300

 

$               346

 
 

Short-term investments

515

 

785

 
 

Receivables, net

2,785

 

2,701

 
 

Fiduciary assets (1)

11,760

 

10,063

 
 

Other current assets

571

 

624

 
   

Total Current Assets

15,931

 

14,519

 
 

Goodwill

8,975

 

8,647

 
 

Intangible assets, net

3,484

 

3,611

 
 

Fixed assets, net

798

 

781

 
 

Investments

249

 

312

 
 

Other non-current assets

1,059

 

1,112

 
 

Total Assets

$      30,496

 

$          28,982

 
             

LIABILITIES AND EQUITY  

       
 

Current Liabilities

       
 

Fiduciary liabilities

$      11,760

 

$          10,063

 
 

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

52

 

492

 
 

Accounts payable and accrued liabilities

1,557

 

1,810

 
 

Other current liabilities

618

 

584

 
   

Total Current Liabilities

13,987

 

12,949

 
 

Long-term debt

4,479

 

4,014

 
 

Pension and other post employment liabilities

1,773

 

1,896

 
 

Other non-current liabilities

1,792

 

1,817

 
 

Total Liabilities

22,031

 

20,676

 
             

EQUITY

       
 

STOCKHOLDER'S EQUITY

       
 

Common stock-$1 par value  

386

 

386

 
 

Additional paid-in capital

3,946

 

4,000

 
 

Retained earnings

8,233

 

7,861

 
 

Accumulated other comprehensive loss

(1,698)

 

(1,917)

 
 

Treasury stock at cost  

(2,469)

 

(2,079)

 
 

Total Aon Stockholders' Equity

8,398

 

8,251

 
 

Noncontrolling interests

67

 

55

 
 

Total Equity

8,465

 

8,306

 
 

Total Liabilities and Equity

$      30,496

 

$          28,982

 
             

(1) Includes short-term investments:  2011 - $4,344, 2010 - $3,489.

 
           

 

Aon Corporation

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 
       

Second Quarter Ended

 

Six Months Ended

 

(millions)

June 30,
2011

 

June 30,
2010

 

June 30,
2011

 

June 30,
2010

 

CASH FLOWS FROM OPERATING ACTIVITIES

               
 

Net income

$     267

 

$     158

 

$     522

 

$     344

 
 

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

               
   

(Gain) loss from sales of businesses, net

(4)

 

39

 

(4)

 

33

 
   

Depreciation of fixed assets

58

 

31

 

111

 

62

 
   

Amortization of intangible assets

91

 

29

 

182

 

56

 
   

Stock compensation expense

47

 

57

 

121

 

123

 
   

Deferred income taxes

6

 

(4)

 

17

 

(16)

 
 

Change in assets and liabilities:

               
   

Change in funds held on behalf of clients

315

 

237

 

742

 

633

 
   

Receivables, net

(126)

 

(43)

 

(18)

 

2

 
   

Accounts payable and accrued liabilities

24

 

(69)

 

(303)

 

(343)

 
   

Restructuring reserves

(26)

 

(17)

 

(54)

 

(18)

 
   

Current income taxes

64

 

(19)

 

122

 

46

 
   

Pension and other post employment liabilities

(65)

 

14

 

(146)

 

(41)

 
   

Other assets and liabilities

(72)

 

3

 

(131)

 

2

 
     

CASH PROVIDED BY OPERATIONS

579

 

416

 

1,161

 

883

 
                       

CASH FLOWS FROM INVESTING ACTIVITIES

               
 

Sales of long-term investments

79

 

11

 

96

 

77

 
 

Purchases of long-term investments

(14)

 

(5)

 

(20)

 

(15)

 
 

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

72

 

(176)

 

290

 

(79)

 
 

Net purchases of short-term investments - funds held on behalf of clients

(315)

 

(237)

 

(742)

 

(633)

 
 

Acquisition of businesses, net of cash acquired

(92)

 

(18)

 

(95)

 

(65)

 
 

Proceeds from sale of businesses

8

 

10

 

8

 

10

 
 

Capital expenditures

(43)

 

(38)

 

(99)

 

(71)

 
     

CASH USED FOR INVESTING ACTIVITIES

(305)

 

(453)

 

(562)

 

(776)

 
                       

CASH FLOWS FROM FINANCING ACTIVITIES

               
 

Purchase of treasury stock

(303)

 

(50)

 

(653)

 

(100)

 
 

Issuance of stock for employee benefit plans

77

 

46

 

162

 

81

 
 

Issuance of debt

1,040

 

-

 

1,469

 

75

 
 

Repayment of debt

(1,425)

 

(75)

 

(1,504)

 

(77)

 
 

Cash dividends to stockholders

(49)

 

(41)

 

(100)

 

(82)

 
 

Dividends paid to non controlling interests

(6)

 

(8)

 

(6)

 

(11)

 
     

CASH USED FOR FINANCING ACTIVITIES

(666)

 

(128)

 

(632)

 

(114)

 
                       

Effect of Exchange Rate Changes on Cash and Cash Equivalents

10

 

3

 

(13)

 

50

 

Net (Decrease) Increase in Cash and Cash Equivalents

(382)

 

(162)

 

(46)

 

43

 

Cash and Cash Equivalents at Beginning of Period

682

 

422

 

346

 

217

 

Cash and Cash Equivalents at End of Period

$     300

 

$     260

 

$     300

 

$     260

 
                     

 

SOURCE Aon Corporation

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