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Exhibit 99.1

 

Investor Relations

 

News from Aon

 

Aon Reports Third Quarter 2011 Results

 

- Total revenue increased 51% to $2.7 billion with organic revenue growth of 1% -

- EPS from continuing operations increased 16% to $0.59 -

 

Third Quarter Highlights

 

·                  EPS from continuing operations, excluding certain items, increased 13% to $0.69

·                  Risk Solutions revenue increased 9% to $1.6 billion with organic revenue growth of 3%

·                  Risk Solutions operating margin was 19.0% and the operating margin, excluding certain items, increased 110 basis points to 19.0%

·                  HR Solutions revenue increased 246% to $1.1 billion with a 2% decline in organic revenue

·                  HR Solutions operating margin was 6.9% and the operating margin, excluding certain items, decreased 590 basis points to 11.2%

·                  Repurchased 3.8 million shares of common stock for $175 million

 

CHICAGO, IL — October 28, 2011 - Aon Corporation (NYSE: AON) today reported results for the third quarter ended September 30, 2011.

 

Net income attributable to Aon stockholders from continuing operations increased 38% to $198 million or $0.59 per share, compared to $144 million or $0.51 per share for the prior year quarter.  Net income per share attributable to Aon stockholders from continuing operations, excluding certain items, increased 13% to $0.69, compared to $0.61 in the prior year quarter, including a $61 million increase in intangible asset amortization expense.  Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the “Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share” on page 12 of this press release.

 

“Our third quarter results reflect 13 percent growth in earnings as highlighted by strong performance in our Risk segment and the delivery of synergy savings related to Aon Hewitt,” said Greg Case, president and chief executive officer.  “While macro economic conditions remain challenging globally, we are firmly on track to deliver growth in 2011, our restructuring programs continue to deliver cost savings and we have solid financial flexibility that will continue to drive increased shareholder value, as highlighted by the repurchase of $175 million of common stock in the quarter.”

 



 

THIRD QUARTER FINANCIAL SUMMARY

 

Total revenue increased 51% to $2.7 billion from the prior year quarter due to a 46% increase in commissions and fees resulting from acquisitions, primarily Hewitt, net of divestitures, a 5% increase from favorable foreign currency translation and a 1% increase in organic revenue.

 

Total operating expenses increased 55%, or $844 million, to $2.4 billion due primarily to the inclusion of Hewitt operating expenses, an estimated $72 million unfavorable impact from foreign currency translation, a $61 million increase in intangible asset amortization expense, and an $18 million increase in restructuring related costs, partially offset by benefits related to the restructuring programs.

 

Depreciation expense increased 77%, or $23 million, to $53 million compared to the prior year quarter as a result of the merger with Hewitt.

 

Intangible asset amortization expense increased 203%, or $61 million, to $91 million compared to the prior year quarter due primarily to $61 million of intangible asset amortization 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 $26 million compared to $8 million in the prior year quarter.  In the third quarter, the Company incurred $26 million of costs under the Aon Hewitt restructuring program primarily related to workforce reduction and lease consolidation.  The Company has completed all restructuring activities and incurred 100% of the total costs for the 2007 program and has incurred approximately 83% of the total costs necessary to deliver the remaining savings under the Aon Benfield program.  The Company expects to incur all of the remaining charges for the Aon Benfield program in the fourth quarter.  An analysis of restructuring-related expenses by segment and type is detailed on page 13 of this release.

 

Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $134 million compared to $125 million in the prior year quarter.  Of the restructuring savings in the third 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 expense savings of $536 million in 2011.

 

Restructuring savings in the third quarter related to the Aon Benfield restructuring program are estimated at $30 million compared to $27 million in the prior year quarter.  Before any potential reinvestment of savings, the Benfield restructuring program is now expected to deliver cumulative expense savings of $139 million in 2012 related to the Risk Solutions segment.

 

Restructuring savings in the third quarter related to the Aon Hewitt restructuring program are estimated at $37 million.  The Company expects to deliver cumulative expense savings of $355 million in 2013 related to the merger with Hewitt, including $280 million related to the restructuring program and $75 million in areas such as information technology, procurement and public company costs.

 

2



 

Currency fluctuations in the third 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 declined to 28.9% in the third quarter compared to 29.4% in the prior year quarter primarily due to certain deferred tax adjustments.

 

Average diluted shares outstanding increased to 336.9 million in the third quarter compared to 282.2 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 $1.2 billion of common stock remaining under the share repurchase program.

 

THIRD QUARTER SEGMENT REVIEW

 

Certain noteworthy items impacted operating income and operating margins in the third quarter of 2011 and 2010.  The third quarter segment reviews provided below include supplemental information related to organic revenue, adjusted operating income and operating margin, which is described in detail on the “Reconciliation of Non-GAAP Measures - Organic Revenue” 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)

 

Third Quarter Ended

 

 

 

Less:

 

Acquisitions,

 

 

 

Commissions, 

 

Sept 30,

 

Sept 30,

 

%

 

Currency

 

Divestitures,

 

Organic

 

Fees and Other

 

2011

 

2010

 

Change

 

Impact

 

Other

 

Revenue

 

Retail

 

$

1,237

 

$

1,108

 

12

%

5

%

3

%

4

%

Reinsurance

 

365

 

361

 

1

%

4

%

(2

)%

(1

)%

Subtotal

 

$

1,602

 

$

1,469

 

9

%

5

%

1

%

3

%

Investment Income

 

15

 

15

 

 

 

 

 

 

 

 

Total Revenue

 

$

1,617

 

$

1,484

 

9

%

 

 

 

 

 

 

 

Risk Solutions total revenue increased 9% to $1.6 billion compared to the prior year quarter due to a 5% favorable impact from foreign currency translation, 3% organic growth in commissions and fees, and a 1% favorable impact from acquisitions, net of divestitures.

 

Retail Brokerage organic revenue increased 4% reflecting solid organic revenue growth both in the Americas and International businesses.  Americas organic revenue increased 4% as a result of strong management of the renewal book portfolio in Latin America and U.S. Retail and solid growth in new business in Canada.  International organic revenue increased 4% driven by strong growth in Asia and New Zealand and modest growth in Africa and Australia.  Reinsurance organic revenue decreased 1% due primarily to a decline in global facultative placements, partially offset by growth in capital market transactions and advisory business and international treaty placements.

 

3



 

 

 

Third Quarter Ended

 

 

 

 

 

Sept 30,

 

Sept 30,

 

%

 

(millions)

 

2011

 

2010

 

Change

 

Revenue

 

$

1,617

 

$

1,484

 

9

%

Expenses

 

 

 

 

 

 

 

Compensation and benefits

 

931

 

846

 

10

%

Other expenses

 

378

 

380

 

(1

)%

Total operating expenses

 

1,309

 

1,226

 

7

%

 

 

 

 

 

 

 

 

Operating income

 

$

308

 

$

258

 

19

%

Operating margin

 

19.0

%

17.4

%

 

 

 

 

 

 

 

 

 

 

Operating income - adjusted

 

$

308

 

$

266

 

16

%

Operating margin - adjusted

 

19.0

%

17.9

%

 

 

 

Compensation and benefits for the third quarter increased 10%, or $85 million, compared to the prior year quarter due to a $41 million unfavorable impact from foreign currency translation, a $21 million increase from acquisitions, primarily Glenrand M·I·B, net of divestitures, and organic revenue growth, partially offset by benefits related to the restructuring programsOther expenses for the third quarter decreased 1%, or $2 million, due to operating expense discipline and lower restructuring costs, partially offset by a $19 million unfavorable impact from foreign currency translation, and a $14 million increase from acquisitions, primarily Glenrand M·I·B, net of divestitures.

 

Third quarter operating income increased 19% to $308 million.  Adjusting for certain items detailed on page 12 of this press release, operating income increased 16%, or $42 million, compared to the prior year quarter.  Operating margin in the third quarter increased 110 basis points to 19.0% compared to the prior year quarter due primarily to an increase in organic revenue.

 

HR SOLUTIONS

 

(millions)

 

Third Quarter Ended

 

 

 

Less:

 

Less:
Acquisitions,

 

 

 

Commissions, 

 

Sep 30,

 

Sep 30,

 

%

 

Currency

 

Divestitures,

 

Organic

 

Fees and Other

 

2011

 

2010

 

Change

 

Impact

 

Other

 

Revenue

 

Consulting Services

 

$

555

 

$

268

 

107

%

5

%

104

%

(2

)%

Outsourcing

 

561

 

53

 

958

 

3

 

957

 

(2

)

Intersegment

 

(4

)

 

N/A

 

N/A

 

N/A

 

N/A

 

Subtotal

 

$

1,112

 

$

321

 

246

%

4

%

244

%

(2

)%

Investment Income

 

 

 

N/A

 

 

 

 

 

 

 

Total Revenue

 

$

1,112

 

$

321

 

246

%

 

 

 

 

 

 

 

HR Solutions total revenue increased 246% to $1.1 billion compared to the prior year quarter due to acquisitions, primarily Hewitt, net of divestitures and a 4% favorable impact from foreign currency translation, partially offset by a decline in organic revenue.

 

Organic revenue in Consulting Services decreased 2% due primarily to a decline in health and benefits and communications consulting, partially offset by growth in global compensation and

 

4



 

investment management consulting.  Organic revenue in Outsourcing decreased 2% due to a decline in project-related revenue and price compression, partially offset by new client wins.

 

 

 

Third Quarter Ended

 

 

 

 

 

Sept 30,

 

Sept 30,

 

%

 

(millions)

 

2011

 

2010

 

Change

 

Revenue

 

$

1,112

 

$

321

 

246

%

Expenses

 

 

 

 

 

 

 

Compensation and benefits

 

670

 

189

 

254

%

Other expenses

 

365

 

78

 

368

%

Total operating expenses

 

1,035

 

267

 

288

%

Operating income

 

$

77

 

$

54

 

43

%

Operating margin

 

6.9

%

16.8

%

 

 

 

 

 

 

 

 

 

 

Operating income - adjusted

 

$

125

 

$

55

 

127

%

Operating margin - adjusted

 

11.2

%

17.1

%

 

 

 

Compensation and benefits for the third quarter increased 254%, or $481 million, from the prior year quarter due primarily to the inclusion of Hewitt operating expenses, $15 million of costs related to the Aon Hewitt restructuring program, and an $8 million unfavorable impact from foreign currency translation, partially offset by benefits related to the Aon Hewitt restructuring program.  Other expenses increased 368%, or $287 million, from the prior year quarter due primarily to the inclusion of Hewitt operating expenses, a $61 million increase in intangible asset amortization expense, $21 million of Hewitt related costs, and $11 million of costs related to the Aon Hewitt restructuring program, partially offset by benefits related to the Aon Hewitt restructuring program.

 

Third quarter operating income increased 43% to $77 million.  Adjusting for certain items detailed on page 12 of this press release, operating income increased 127%, or $70 million, to $125 million reflecting operating income as a result of the merger with Hewitt and cost savings related to the restructuring program, partially offset by higher intangible asset amortization expense and a decrease in organic revenue.  Operating margin decreased 590 basis points to 11.2% versus the prior year quarter due primarily to the inclusion of Hewitt operating expenses, an increase in intangible asset amortization expense, and a decline in organic revenue.

 

5



 

INCOME FROM CONTINUING OPERATIONS

 

 

 

Third Quarter Ended

 

 

 

 

 

Sept 30,

 

Sept 30,

 

%

 

(millions)

 

2011

 

2010

 

Change

 

Risk Solutions

 

$

308

 

$

258

 

19

%

HR Solutions

 

77

 

54

 

43

%

Unallocated expenses

 

(44

)

(49

)

(10

)%

Operating income from continuing operations before tax

 

$

341

 

263

 

30

%

Interest income

 

4

 

4

 

 

Interest expense

 

(60

)

(50

)

20

%

Other income (expense)

 

7

 

(9

)

178

%

Income from continuing operations before tax

 

$

292

 

$

208

 

40

%

 

Unallocated expenses were $44 million.  The prior year quarter included $18 million of costs related to the merger with Hewitt.  Excluding those costs, unallocated expenses increased $13 million due primarily to an $11 million unfavorable mark-to-market on certain company owned life insurance plans.  Interest income was comparable to the prior year quarter at $4 million.  Interest expense increased $10 million to $60 million due primarily to an increase in debt outstanding following the merger with Hewitt.  Other income of $7 million in the third quarter includes gains related to the company’s ownership in certain insurance investment funds and other long-term investments.  The prior year quarter included an $8 million loss from the sale of certain businesses.

 

Conference Call and Webcast Details

 

The Company will host a conference call on Friday, October 28, 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 resources solutions and outsourcing. Through its more than 59,000 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

 

6



 

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 attracts 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; the implementation of changes to the methods in which Aon internally process and monitors transactions 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 Reports on Form 10-Q for the fiscal quarters ended March 31, 2011 and June 30, 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

 

7



 

Aon Corporation

Condensed Consolidated Statements of Income (Unaudited)

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

(millions except per share data)

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions, fees and other

 

$

2,708

 

$

1,786

 

52

%

$

8,255

 

$

5,560

 

48

%

Fiduciary investment income

 

15

 

15

 

 

38

 

43

 

(12

)

Total revenue

 

2,723

 

1,801

 

51

 

8,293

 

5,603

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

1,634

 

1,050

 

56

 

4,843

 

3,382

 

43

 

Other general expenses

 

748

 

488

 

53

 

2,279

 

1,417

 

61

 

Total operating expenses

 

2,382

 

1,538

 

55

 

7,122

 

4,799

 

48

 

Operating income

 

341

 

263

 

30

 

1,171

 

804

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

4

 

4

 

 

14

 

9

 

56

 

Interest expense

 

(60

)

(50

)

20

 

(186

)

(117

)

59

 

Other income (expense)

 

7

 

(9

)

178

 

1

 

3

 

(67

)

Income from continuing operations before income taxes

 

292

 

208

 

40

 

1,000

 

699

 

43

 

Income taxes (1) 

 

84

 

61

 

38

 

274

 

182

 

51

 

Income from continuing operations

 

208

 

147

 

41

 

726

 

517

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations before income taxes

 

 

1

 

(100

)

5

 

(38

)

113

 

Income taxes (2) 

 

 

1

 

(100

)

1

 

(12

)

108

 

Income (loss) from discontinued operations

 

 

 

N/A

 

4

 

(26

)

115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

208

 

147

 

41

 

730

 

491

 

49

 

Less: Net income attributable to the noncontrolling interests

 

10

 

3

 

233

 

28

 

16

 

75

 

Net income attributable to Aon stockholders

 

$

198

 

$

144

 

38

%

$

702

 

$

475

 

48

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Aon stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

198

 

$

144

 

38

%

$

698

 

$

501

 

39

%

Income (loss) from discontinued operations

 

 

 

N/A

 

4

 

(26

)

115

 

Net income

 

$

198

 

$

144

 

38

%

$

702

 

$

475

 

48

%

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.59

 

$

0.52

 

13

%

$

2.07

 

$

1.80

 

15

%

Income (loss) from discontinued operations

 

 

 

N/A

 

0.01

 

(0.09

)

111

 

Net income

 

$

0.59

 

$

0.52

 

13

%

$

2.08

 

$

1.71

 

22

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.59

 

$

0.51

 

16

%

$

2.04

 

$

1.78

 

15

%

Income (loss) from discontinued operations

 

 

 

N/A

 

0.01

 

(0.10

)

110

 

Net income

 

$

0.59

 

$

0.51

 

16

%

$

2.05

 

$

1.68

 

22

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - diluted

 

336.9

 

282.2

 

19

%

341.8

 

281.9

 

21

%

 


(1)

Tax rate for continuing operations is 28.9% and 29.4% for the third quarters ended September 30, 2011 and 2010, respectively, and 27.4% and 26.1% for the nine months ended September 30, 2011 and 2010, respectively.

(2)

Tax rate for discontinued operations is 34.4% and 35.0% for the third quarters ended September 30, 2011 and 2010, respectively, and 24.3% and 32.9% for the nine months ended September 30, 2011 and 2010, respectively.

 

8



 

Aon Corporation

Revenue from Continuing Operations (Unaudited)

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

(millions)

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Organic
Revenue (1)

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Organic
Revenue (1)

 

Commissions, Fees and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Solutions

 

$

1,602

 

$

1,469

 

9

%

3

%

$

4,956

 

$

4,616

 

7

%

2

%

HR Solutions

 

1,112

 

321

 

246

 

(2

)

3,319

 

959

 

246

 

 

Total Operating Segments

 

$

2,714

 

$

1,790

 

52

%

1

%

$

8,275

 

$

5,575

 

48

%

1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiduciary Investment Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Solutions

 

$

15

 

$

15

 

%

 

 

$

38

 

$

42

 

(10

)%

 

 

HR Solutions

 

 

 

N/A

 

 

 

 

1

 

(100

)

 

 

Total Operating Segments

 

$

15

 

$

15

 

%

 

 

$

38

 

$

43

 

(12

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk Solutions

 

$

1,617

 

$

1,484

 

9

%

 

 

$

4,994

 

$

4,658

 

7

%

 

 

HR Solutions

 

1,112

 

321

 

246

 

 

 

3,319

 

960

 

246

 

 

 

Intersegment

 

(6

)

(4

)

50

 

 

 

(20

)

(15

)

33

 

 

 

Total

 

$

2,723

 

$

1,801

 

51

%

 

 

$

8,293

 

$

5,603

 

48

%

 

 

 


(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.

 

9



 

Aon Corporation

Segments (Unaudited)

 

Risk Solutions

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

(millions)

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions, fees and other

 

$

1,602

 

$

1,469

 

9

%

$

4,956

 

$

4,616

 

7

%

Fiduciary investment income

 

15

 

15

 

 

38

 

42

 

(10

)

Total revenue

 

1,617

 

1,484

 

9

 

4,994

 

4,658

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

931

 

846

 

10

 

2,819

 

2,706

 

4

 

Other general expenses

 

378

 

380

 

(1

)

1,206

 

1,132

 

7

 

Total operating expenses

 

1,309

 

1,226

 

7

 

4,025

 

3,838

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

308

 

$

258

 

19

%

$

969

 

$

820

 

18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

19.0

%

17.4

%

 

 

19.4

%

17.6

%

 

 

 

HR Solutions

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

(millions)

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions, fees and other

 

$

1,112

 

$

321

 

246

%

$

3,319

 

$

959

 

246

%

Fiduciary investment income

 

 

 

N/A

 

 

1

 

(100

)

Total revenue

 

1,112

 

321

 

246

 

3,319

 

960

 

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

670

 

189

 

254

 

1,945

 

579

 

236

 

Other general expenses

 

365

 

78

 

368

 

1,059

 

233

 

355

 

Total operating expenses

 

1,035

 

267

 

288

 

3,004

 

812

 

270

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

77

 

$

54

 

43

%

$

315

 

$

148

 

113

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

6.9

%

16.8

%

 

 

9.5

%

15.4

%

 

 

 

Total Operating Income (Loss)

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

(millions)

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Sept. 30,
2011

 

Sept. 30,
2010

 

Percent
Change

 

Risk Solutions

 

$

308

 

$

258

 

19

%

$

969

 

$

820

 

18

%

HR Solutions

 

77

 

54

 

43

 

315

 

148

 

113

 

Unallocated

 

(44

)

(49

)

(10

)

(113

)

(164

)

(31

)

Total operating income

 

$

341

 

$

263

 

30

%

$

1,171

 

$

804

 

46

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating margin

 

12.5

%

14.6

%

 

 

14.1

%

14.3

%

 

 

 

10



 

Aon Corporation

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

 

 

 

Third Quarter Ended

 

(millions)

 

Sept. 30,
2011

 

Sept. 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

 

$

641

 

$

574

 

12

%

2

%

6

%

4

%

International

 

596

 

534

 

12

 

9

 

(1

)

4

 

Total Retail brokerage

 

1,237

 

1,108

 

12

 

5

 

3

 

4

 

Reinsurance brokerage

 

365

 

361

 

1

 

4

 

(2

)

(1

)

Total Risk Solutions

 

1,602

 

1,469

 

9

 

5

 

1

 

3

 

HR Solutions Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting services

 

555

 

268

 

107

 

5

 

104

 

(2

)

Outsourcing

 

561

 

53

 

958

 

3

 

957

 

(2

)

Intrasegment

 

(4

)

 

N/A

 

N/A

 

N/A

 

N/A

 

Total HR Solutions

 

1,112

 

321

 

246

 

4

 

244

 

(2

)

Total Operating Segments

 

$

2,714

 

$

1,790

 

52

%

5

%

46

%

1

%

 

 

 

Nine Months Ended

 

(millions)

 

Sept. 30,
2011

 

Sept. 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

 

$

1,855

 

$

1,677

 

11

%

2

%

6

%

3

%

International

 

1,982

 

1,831

 

8

 

6

 

(1

)

3

 

Total Retail brokerage

 

3,837

 

3,508

 

9

 

4

 

2

 

3

 

Reinsurance brokerage

 

1,119

 

1,108

 

1

 

3

 

(1

)

(1

)

Total Risk Solutions

 

4,956

 

4,616

 

7

 

4

 

1

 

2

 

HR Solutions Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting services

 

1,670

 

808

 

107

 

4

 

103

 

 

Outsourcing

 

1,667

 

151

 

1,004

 

4

 

1,002

 

(2

)

Intrasegment

 

(18

)

 

N/A

 

N/A

 

N/A

 

N/A

 

Total HR Solutions

 

3,319

 

959

 

246

 

4

 

242

 

 

Total Operating Segments

 

$

8,275

 

$

5,575

 

48

%

4

%

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.

 

11



 

Aon Corporation

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

 

 

 

Third Quarter Ended September 30, 2011

 

Nine Months Ended September 30, 2011

 

(millions)

 

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Revenue

 

$

1,617

 

$

1,112

 

$

(6

)

$

2,723

 

$

4,994

 

$

3,319

 

$

(20

)

$

8,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) - as reported

 

$

308

 

$

77

 

$

(44

)

$

341

 

$

969

 

$

315

 

$

(113

)

$

1,171

 

Restructuring charges

 

 

26

 

 

26

 

(10

)

80

 

 

70

 

Pension adjustment

 

 

 

 

 

 

 

 

 

Hewitt related costs

 

 

22

 

 

22

 

 

42

 

 

42

 

Operating income (loss) - as adjusted

 

$

308

 

$

125

 

$

(44

)

$

389

 

$

959

 

$

437

 

$

(113

)

$

1,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margins - as adjusted

 

19.0

%

11.2

%

N/A

 

14.3

%

19.2

%

13.2

%

N/A

 

15.5

%

 

 

 

Third Quarter Ended September 30, 2010

 

Nine Months Ended September 30, 2010

 

(millions)

 

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Risk
Solutions

 

HR
Solutions

 

Unallocated
Income &
Expense

 

Total

 

Revenue

 

$

1,484

 

$

321

 

$

(4

)

$

1,801

 

$

4,658

 

$

960

 

$

(15

)

$

5,603

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss) - as reported

 

$

258

 

$

54

 

$

(49

)

$

263

 

$

820

 

$

148

 

$

(164

)

$

804

 

Restructuring charges

 

8

 

 

 

8

 

106

 

9

 

 

115

 

Pension adjustment

 

 

 

 

 

 

 

49

 

49

 

Hewitt related costs

 

 

1

 

18

 

19

 

 

1

 

18

 

19

 

Operating income (loss) - as adjusted

 

$

266

 

$

55

 

$

(31

)

$

290

 

$

926

 

$

158

 

$

(97

)

$

987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margins - as adjusted

 

17.9

%

17.1

%

N/A

 

16.1

%

19.9

%

16.5

%

N/A

 

17.6

%

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

(millions except per share data)

 

2011

 

2010

 

2011

 

2010

 

Operating income - as adjusted

 

$

389

 

$

290

 

$

1,283

 

$

987

 

Interest income

 

4

 

4

 

14

 

9

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(60

)

(50

)

(186

)

(117

)

Hewitt related costs

 

 

14

 

 

14

 

Interest expense - as adjusted

 

(60

)

(36

)

(186

)

(103

)

 

 

 

 

 

 

 

 

 

 

Other (expense) income - as reported

 

7

 

(9

)

1

 

3

 

Loss on Debt Extinguishment

 

 

 

19

 

 

Other (expense) income - as adjusted

 

7

 

(9

)

20

 

3

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes - as adjusted

 

340

 

249

 

1,131

 

896

 

Income taxes (2)

 

98

 

73

 

310

 

242

 

Income from continuing operations - as adjusted

 

242

 

176

 

821

 

654

 

Less: Net income attributable to noncontrolling interests

 

10

 

3

 

28

 

16

 

Income from continuing operations attributable to Aon stockholders - as adjusted

 

$

232

 

$

173

 

$

793

 

$

638

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share from continuing operations - as adjusted

 

$

0.69

 

$

0.61

 

$

2.32

 

$

2.26

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - diluted

 

336.9

 

282.2

 

341.8

 

281.9

 

 


(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 28.9% and 29.4% for the third quarters ended September 30, 2011 and 2010, respectively, and 27.4% and 26.1% for the nine months ended September 30, 2011 and 2010, respectively. All adjusting items are generally taxed at the effective tax rate. However, the nine months ended September 30, 2010 U.S. GAAP effective tax rate was adjusted to 27.0% to exclude the impact of the 40% tax rate applied to the a $49 million U.S. pension expense adjustment for prior years recorded in the second quarter 2010.

 

12



 

Aon Corporation

Restructuring Plans (Unaudited) (1)

 

Aon Hewitt Restructuring Plan

 

By Type:

 

 

 

Actual

 

 

 

(millions)

 

Full Year
2010

 

Third
Quarter
2011

 

Nine
Months
2011

 

Total to
Date

 

Estimated
Total

 

Workforce reduction

 

$

49

 

$

15

 

$

39

 

$

88

 

$

180

 

Lease consolidation

 

3

 

8

 

33

 

36

 

95

 

Asset impairments

 

 

3

 

7

 

7

 

47

 

Other costs associated with restructuring

 

 

 

1

 

1

 

3

 

Total restructuring and related expenses

 

$

52

 

$

26

 

$

80

 

$

132

 

$

325

 

 

Aon Benfield Restructuring Plan

 

By Type:

 

 

 

 

 

Operations

 

 

 

(millions)

 

Purchase
Price
Allocation (2)

 

Full
Year
2009

 

Full
Year
2010

 

Third
Quarter
2011

 

Nine
Months
2011

 

Total
Operations
to Date

 

Estimated
Total

 

Workforce reduction

 

$

32

 

$

38

 

$

15

 

$

3

 

$

14

 

$

99

 

$

125

 

Lease consolidation (3)

 

20

 

14

 

7

 

(1

)

(17

)

24

 

26

 

Asset impairments

 

 

2

 

2

 

 

 

4

 

4

 

Other costs associated with restructuring

 

1

 

1

 

2

 

1

 

1

 

5

 

5

 

Total restructuring and related expenses

 

$

53

 

$

55

 

$

26

 

$

3

 

$

(2

)

$

132

 

$

160

 

 

2007 Restructuring Plan

 

By Type:

 

 

 

Actual

 

(millions)

 

Inception to
2010

 

Third
Quarter
2011

 

Nine
Months
2011

 

Total

 

Workforce reduction

 

$

506

 

$

 

$

 

$

506

 

Lease consolidation (3)

 

153

 

(3

)

(8

)

145

 

Asset impairments

 

39

 

 

 

39

 

Other costs associated with restructuring

 

50

 

 

 

50

 

Total restructuring and related expenses

 

$

748

 

$

(3

)

$

(8

)

$

740

 

 


(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 $27 million, of which $19 million was related to the Aon Benfield Restructuring Plan and $8 million was related to the 2007 Restructuring Plan.

 

13



 

Aon Corporation

Condensed Consolidated Statements of Financial Position

 

 

 

As of

 

(millions)

 

September 30,
2011

 

December 31,
2010

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

 

$

295

 

$

346

 

Short-term investments

 

607

 

785

 

Receivables, net

 

2,745

 

2,701

 

Fiduciary assets (1) 

 

10,315

 

10,063

 

Other current assets

 

538

 

624

 

Total Current Assets

 

14,500

 

14,519

 

Goodwill

 

8,835

 

8,647

 

Intangible assets, net

 

3,361

 

3,611

 

Fixed assets, net

 

773

 

781

 

Investments

 

254

 

312

 

Other non-current assets

 

1,022

 

1,112

 

Total Assets

 

$

28,745

 

$

28,982

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Fiduciary liabilities

 

$

10,315

 

$

10,063

 

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

 

163

 

492

 

Accounts payable and accrued liabilities

 

1,611

 

1,810

 

Other current liabilities

 

676

 

584

 

Total Current Liabilities

 

12,765

 

12,949

 

Long-term debt

 

4,415

 

4,014

 

Pension and other post employment liabilities

 

1,543

 

1,896

 

Other non-current liabilities

 

1,743

 

1,817

 

Total Liabilities

 

20,466

 

20,676

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

STOCKHOLDER’S EQUITY

 

 

 

 

 

Common stock-$1 par value

 

386

 

386

 

Additional paid-in capital

 

3,975

 

4,000

 

Retained earnings

 

8,377

 

7,861

 

Accumulated other comprehensive loss

 

(1,900

)

(1,917

)

Treasury stock at cost

 

(2,605

)

(2,079

)

Total Aon Stockholders’ Equity

 

8,233

 

8,251

 

Noncontrolling interests

 

46

 

55

 

Total Equity

 

8,279

 

8,306

 

Total Liabilities and Equity

 

$

28,745

 

$

28,982

 

 


(1) Includes short-term investments:  2011 - $4,109, 2010 - $3,489.

 

14



 

Aon Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Third Quarter Ended

 

Nine Months Ended

 

(millions) 

 

September 30,
2011

 

September 30,
2010

 

September 30,
2011

 

September 30,
2010

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

Net income

 

$

208

 

$

147

 

$

730

 

$

491

 

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

 

 

 

 

 

 

 

 

 

Loss (gain) from sales of businesses, net

 

 

7

 

(4

)

40

 

Depreciation of fixed assets

 

53

 

31

 

164

 

93

 

Amortization of intangible assets

 

91

 

30

 

273

 

86

 

Stock compensation expense

 

58

 

43

 

179

 

166

 

Deferred income taxes

 

(14

)

29

 

3

 

13

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

 

Change in funds held on behalf of clients

 

(116

)

(167

)

626

 

466

 

Receivables, net

 

(18

)

(42

)

(36

)

(40

)

Accounts payable and accrued liabilities

 

76

 

46

 

(227

)

(297

)

Restructuring reserves

 

(14

)

(36

)

(68

)

(54

)

Current income taxes

 

50

 

(60

)

172

 

(14

)

Pension and other post employment liabilities

 

(188

)

(54

)

(334

)

(95

)

Other assets and liabilities

 

66

 

(69

)

(65

)

(61

)

CASH PROVIDED BY (USED FOR) OPERATIONS

 

252

 

(95

)

1,413

 

794

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

Sales of long-term investments

 

7

 

5

 

103

 

82

 

Purchases of long-term investments

 

(8

)

(2

)

(28

)

(17

)

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

 

(114

)

(1,613

)

176

 

(1,692

)

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

 

116

 

167

 

(626

)

(466

)

Acquisition of businesses, net of cash acquired

 

(7

)

(25

)

(102

)

(90

)

Proceeds from sale of businesses

 

1

 

 

9

 

10

 

Capital expenditures

 

(52

)

(44

)

(151

)

(115

)

CASH USED FOR INVESTING ACTIVITIES

 

(57

)

(1,512

)

(619

)

(2,288

)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

(175

)

 

(828

)

(100

)

Issuance of stock for employee benefit plans

 

3

 

17

 

165

 

98

 

Issuance of debt

 

103

 

1,730

 

1,572

 

1,805

 

Repayment of debt

 

(19

)

(4

)

(1,523

)

(81

)

Cash dividends to stockholders

 

(50

)

(41

)

(150

)

(123

)

Purchase of shares from non controlling interests

 

(24

)

 

(24

)

(6

)

Dividends paid to non controlling interests

 

(15

)

(4

)

(21

)

(15

)

CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES

 

(177

)

1,698

 

(809

)

1,578

 

 

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

(23

)

(16

)

(36

)

34

 

Net (Decrease) Increase in Cash and Cash Equivalents

 

(5

)

75

 

(51

)

118

 

Cash and Cash Equivalents at Beginning of Period

 

300

 

260

 

346

 

217

 

Cash and Cash Equivalents at End of Period

 

$

295

 

$

335

 

$

295

 

$

335

 

 

15