Published: July 30, 2010
Aon Reports Second Quarter 2010 Results
CHICAGO, July 30 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE: AON) today reported results for the second quarter ended June 30, 2010.
Net income attributable to Aon stockholders was $153 million or $0.54 per share, compared to $149 million or $0.51 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations increased 22% to $179 million or $0.63 per share, compared to $147 million or $0.50 per share for the prior year quarter. Net income per share attributable to Aon stockholders from continuing operations, excluding certain items, increased 7% to $0.81 compared to $0.76 for the prior year quarter. Certain items that impacted second quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 12 of this press release.
"Our second quarter results reflect strong operational performance in Brokerage and Consulting. In Brokerage, our Americas business delivered a two percent increase in organic revenue highlighted by strong growth in Latin America and benefits related to the global risk insight platform. Consulting delivered a two percent increase in organic revenue highlighted by strong growth in international health and benefits and compensation consulting. On an adjusted basis, total operating margins increased 110 basis points, including a 200 basis point increase in Brokerage operating margins, and EPS from continuing operations increased seven percent," said Greg Case, president and chief executive officer. "Our GRIP platform, Aon Broking initiatives and restructuring programs are expected to deliver long-term growth and significant margin improvement in Brokerage. In addition, we continue to make substantial investments across our firm, including the recently announced merger of Hewitt with Aon, which upon close, will substantially strengthen our position as the preeminent global professional services firm focused on risk and human capital solutions."
SECOND QUARTER FINANCIAL SUMMARY
Total revenue increased 1% to $1.9 billion from the prior year quarter due to a 2% increase from acquisitions, primarily Allied North America, net of dispositions, and a 1% increase from foreign currency translation, partially offset by a 1% organic decline in commissions and fees and a 21% decline in fiduciary investment income.
Total operating expenses decreased 2% or $32 million to $1.6 billion due primarily to a $64 million decrease in restructuring related expenses and benefits related to the 2007 and Aon Benfield restructuring programs, partially offset by a non-cash charge to pension expense of $49 million and an estimated $10 million unfavorable impact from foreign currency translation.
Restructuring expenses were $31 million in the second quarter compared to $95 million in the prior year quarter. Including the second quarter expenses, the Company has incurred 96% of the $905 million of total costs necessary to deliver savings under the 2007 and Aon Benfield restructuring programs. An analysis of restructuring-related expenses by segment and type are detailed on page 13 of this release.
Restructuring savings in the second quarter related to the 2007 restructuring program are estimated at $113 million compared to $51 million in the prior year quarter. Of the estimated restructuring savings in the second quarter, $95 million were related to the Brokerage segment primarily from workforce reductions. Before any potential reinvestment of savings, the 2007 restructuring program is expected to deliver $536 million of annualized run-rate cost savings by the end of 2010.
Restructuring savings in the second quarter related to the Aon Benfield restructuring program are estimated at $24 million compared to $10 million in the prior year quarter. Before any potential reinvestment of savings, the Benfield restructuring program is expected to deliver cumulative cost savings of $90-100 million in 2010 and $122 million in 2011.
Currency fluctuations in the second quarter favorably impacted adjusted net income from continuing operations by $0.02 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 24.5% in the second quarter. Excluding the impact of the 40% tax rate applied to the non-cash charge to pension expense of $49 million, the effective tax rate on net income from continuing operations in the second quarter was 27.5% compared to 27.1% in the prior year quarter. The company anticipates an underlying tax rate on continuing operations of 28% for 2010.
Average diluted shares outstanding decreased to 282.6 million in the second quarter compared to 292.7 million in the prior year quarter due primarily to the Company's share repurchase program. During the quarter, the Company repurchased 1.2 million shares of common stock for $50 million. The company has approximately $165 million remaining under the share repurchase program previously authorized in 2005 and $2 billion under the share repurchase program previously authorized in 2010.
Discontinued Operations after-tax loss of $26 million is primarily related to the settlement of legacy litigation previously disclosed in the Company's SEC filings. The prior year quarter after-tax income of $2 million includes results for the run-off property and casualty insurance operations.
SECOND QUARTER SEGMENT REVIEW
Certain noteworthy items impacted operating income and operating margins in the second quarter of 2010 and 2009. 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 AND INSURANCE BROKERAGE SERVICES
-------------------------------------
Less:
(millions) Second Quarter Ended
--------------------
Commissions, Jun 30, Jun 30, %
Fees and Other 2010 2009 Change
-------------- ---- ---- ------
Retail $1,214 $1,186 2%
Reinsurance 359 372 (3)
Subtotal $1,573 $1,558 1%
------ ------
Investment
Income 14 19 (26)%
Total Revenue $1,587 $1,577 1%
====== ======
(millions) Less: Acquisitions,
Commissions, Currency Divestitures, Organic
Fees and Other Impact Other Revenue
-------------- ------ ----- -------
Retail 1% 2% (1)%
Reinsurance 1 (1) (3)
Subtotal 1 1 (1)
Investment
Income
Total Revenue
Risk and Insurance Brokerage Services total revenue increased 1% to $1.6 billion compared to the prior year quarter due to a 1% favorable impact from foreign currency translation on commissions and fees and a 1% increase from acquisitions, primarily Allied North America, net of dispositions, partially offset by a 1% organic decline in commissions and fees and a $5 million or 26% decline in fiduciary investment income.
Retail organic revenue declined 1% compared to the prior year quarter. By geographic region in Retail, the Americas organic revenue increased 2% due to strong growth in Latin America and benefits related to the global risk insight platform (GRIP), partially offset by the impact of soft pricing and lower exposure units on the renewal book portfolio in U.S. Retail. U.K. organic revenue decreased 6% due primarily to weak economic conditions and lower exposure units. EMEA organic revenue decreased 3% due to weak economic conditions and lower exposure units in Continental Europe and Ireland, partially offset by modest growth in emerging markets. APAC organic revenue increased 3% reflecting solid growth in Australia and New Zealand, partially offset by weak economic conditions in Japan and Thailand. Reinsurance organic revenue decreased 3% due primarily to higher cedent retentions and soft pricing globally in treaty placements, partially offset by an increase in revenue from capital markets transactions.
Second Quarter Ended
--------------------
(millions) Jun 30, Jun 30, %
2010 2009 Change
---- ---- ------
Revenue $1,587 $1,577 1%
Expenses
Compensation and benefits 909 932 (2)
Other expenses 373 444 (16)
--- ---
Total operating expenses 1,282 1,376 (7)
----- -----
$305 $201 52%
Operating income ==== ====
Operating margin 19.2% 12.7%
Operating income - adjusted $334 $300 11%
Operating margin - adjusted 21.0% 19.0%
Compensation and benefits for the second quarter decreased 2% or $23 million compared to the prior year quarter due primarily to a $42 million decrease in restructuring related costs and benefits related to the restructuring programs, partially offset by the inclusion of operating expenses related to recent acquisitions and a $4 million unfavorable impact from foreign currency translation. Other expenses for the second quarter decreased 16% or $71 million from the prior year quarter due primarily to a $21 million decrease in restructuring related costs and benefits related to the restructuring programs, partially offset by a $3 million unfavorable impact from foreign currency translation and the inclusion of operating expenses related to recent acquisitions.
Second quarter operating income increased 52% to $305 million. Adjusting for certain items detailed on page 12 of this press release, operating income increased 11% or $34 million to $334 million and operating margin increased 200 basis points to 21.0% compared to the prior year quarter due primarily to benefits of the restructuring programs, partially offset by a decline in organic revenue and a $5 million or 26% decrease in investment income.
CONSULTING
----------
(millions) Second Quarter Ended
--------------------
Commissions, Jun 30, Jun 30, %
Fees and Other 2010 2009 Change
-------------- ---- ---- ------
Services $265 $251 6%
Outsourcing 51 49 4
Subtotal $316 $300 5%
---- ----
Investment Income 1 - N/A
Total Revenue $317 $300 6%
==== ====
(millions) Less: Less:
Acquisitions,
Commissions, Currency Divestitures, Organic
Fees and Other Impact Other Revenue
-------------- ------ ----- -------
Services 1% 3% 2%
Outsourcing 2 3 (1)
Subtotal 1% 2% 2%
Investment Income
Total Revenue
Consulting total revenue increased 6% to $317 million compared to the prior year quarter due primarily to a 2% organic increase in commissions and fees, 2% increase from acquisitions, primarily J.P. Morgan Compensation and Benefits Strategies, net of dispositions, and a 1% favorable impact from foreign currency translation. Organic revenue in Consulting Services increased 2% primarily reflecting strong growth in global compensation consulting and international health and benefits brokerage, partially offset by the impact of weak economic conditions on retirement consulting. Organic revenue in Outsourcing declined 1% due to lower payroll counts impacting certain employee benefits and retirement outsourcing contracts.
Second Quarter Ended
--------------------
(millions) Jun 30, Jun 30, %
2010 2009 Change
-- -- ------
Revenue $317 $300 6%
Expenses
Compensation and benefits 194 184 5
Other expenses 78 75 4
--- ---
Total operating expenses 272 259 5
--- ---
$45 $41 10%
Operating income === ===
Operating margin 14.2% 13.7%
Operating income - adjusted $47 $45 4%
Operating margin - adjusted 14.8% 15.0%
Compensation and benefits for the second quarter increased 5% or $10 million from the prior year quarter including a $4 million increase from the inclusion of operating expenses related to recent acquisitions. Other expenses increased 4% or $3 million from the prior year quarter including a $2 million increase from the inclusion of operating expenses related to recent acquisitions, partially offset by benefits related to the 2007 restructuring program.
Second quarter operating income increased 10% to $45 million. Adjusting for certain items detailed on page 12 of this press release, operating income increased 4% or $2 million to $47 million and operating margin decreased 20 basis points to 14.8% versus the prior year quarter.
INCOME FROM CONTINUING OPERATIONS
---------------------------------
Second Quarter Ended
--------------------
(millions) Jun 30, Jun 30, %
2010 2009 Change
---- ---- ------
Risk and Insurance Brokerage Services $305 $201 52%
Consulting 45 41 10
Unallocated revenue - 11 (100)
Unallocated expenses (82) (33) 148
Operating income from continuing
operations before tax $268 $220 22%
---- ----
Interest income 4 2 100
Interest expense (33) (26) 27
Other income (expense) 5 14 (64)
Income from continuing operations
before tax $244 $210 16%
==== ====
Unallocated revenue declined $11 million compared to the prior year quarter. The prior year quarter reflected revenue related to the Company's equity ownership in certain insurance investment funds acquired with Benfield. Unallocated expenses increased $49 million to $82 million due primarily to a non-cash charge to pension expense of $49 million, which resulted from an adjustment to the market-related value of plan assets to properly reflect the merger of two U.S. pension plans in 1999. Interest expense increased $7 million to $33 million due to an increase in the average rate on outstanding debt. Other income was $5 million in the second quarter compared to $14 million in the prior year quarter. The prior year quarter primarily included the recognition of a $5 million gain on the extinguishment of a portion of the Company's trust preferred securities and gains related to the sales of certain businesses.
Conference Call and Webcast Details
The Company will host a conference call on Friday, June 30, 2010 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 a leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 36,000 colleagues worldwide, Aon delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007, 2008 and 2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/unitedin2010 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 proposed transaction will not be realized, or will not be realized within the expected time period; the ability to obtain governmental approvals of the merger on the proposed terms and schedule contemplated by the parties; the failure of stockholders of Hewitt Associates, Inc. ("Hewitt") to approve the proposal to adopt the merger agreement; the failure of the stockholders of Aon Corporation ("Aon") to approve the proposal to approve the issuance of shares of Aon common stock to Hewitt stockholders in the merger; the loss of key Aon or Hewitt employees following the merger; the risk that the Aon and Hewitt businesses will not be integrated successfully; disruption from the proposed transaction making it more difficult to maintain business and operational relationships with customers, partners and others; the possibility that the proposed transaction does not close, including, but not limited to, due to the failure to satisfy the closing conditions; general economic conditions in different countries in which Aon and Hewitt do business around the world; changes in global equity and fixed income markets that could affect the return on invested assets; fluctuations in exchange and interest rates that could impact revenue and expense; rating agency actions that could affect Aon's ability to borrow funds; changes in the funding status of Aon's various defined benefit pension plans and the impact of any increased pension funding resulting from those changes; Aon's ability to implement restructuring initiatives and other initiatives intended to yield cost savings, and the ability to achieve those cost savings; the impact on risk and insurance services commission revenues of changes in the availability of, and the premium insurance carriers charge for, insurance and reinsurance products, including the impact on premium rates and market capacity attributable to catastrophic events; 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 or Hewitt; the extent to which Aon and Hewitt retain existing clients and attract new businesses; the extent to which Aon and Hewitt manage certain risks created in connection with the various services, including fiduciary and advisory services, among others, that Aon and Hewitt currently provide, or will provide in the future, to clients; the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which Aon and Hewitt operate, particularly given the global scope of Aon's and Hewitt's businesses and the possibility of conflicting regulatory requirements across jurisdictions in which Aon and Hewitt do business; and the ability to realize the anticipated benefits to Aon of the Benfield merger. Further information concerning Aon, Hewitt, and their business, including factors that potentially could materially affect Aon's and Hewitt's financial results, is contained in Aon's and Hewitt's filings with the Securities and Exchange Commission (the "SEC"). See Aon's and Hewitt's Annual Reports on Form 10-K and Annual Reports to Stockholders for the fiscal years ended December 31, 2009 and September 30, 2009, respectively, and other public filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our businesses. Neither Aon nor Hewitt undertakes, and each of them 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.
Additional Information
This communication does not constitute an offer to sell or the solicitation of an offer to buy our securities or the solicitation of any vote or approval. This communication is being made in respect of the proposed transaction involving Aon and Hewitt. In connection with the proposed merger, Aon filed with the SEC a registration statement on Form S-4 that included a preliminary joint proxy statement of Aon and Hewitt that also constitutes a preliminary prospectus of Aon, and each of the companies may be filing with the SEC other documents regarding the proposed transaction. At the appropriate time, Aon and Hewitt will mail the definitive joint proxy statement/prospectus regarding the proposed merger to their respective stockholders. Before making any voting or investment decision, investors and stockholders are urged to read carefully in their entirety the definitive joint proxy statement/prospectus regarding the proposed transaction and any other relevant documents filed by either Aon or Hewitt with the SEC when they become available because they will contain important information about the proposed transaction. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SEC's website (www.sec.gov), by accessing Aon's website at www.aon.com under the heading "Investor Relations" and then under the link "SEC Filings" and from Aon by directing a request to Aon at Aon Corporation, 200 E. Randolph Street, Chicago, Illinois 60601, Attention: Investor Relations, and by accessing Hewitt's website at www.hewitt.com under the heading "Investor Relations" and then under the link "Reports & SEC Filings" and from Hewitt by directing a request to Hewitt at Hewitt Associates, Inc., 100 Half Day Road, Lincolnshire, Illinois 60069, Attention: Investor Relations.
Aon and Hewitt and their respective directors and executive officers and certain other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. You can find information about Aon's directors and executive officers in its definitive proxy statement filed with the SEC on April 7, 2010. You can find information about Hewitt's directors and executive officers in its definitive proxy statement filed with the SEC on December 16, 2009. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other relevant materials to be filed with the SEC when they become available. You can obtain free copies of these documents from Aon and Hewitt using the contact information above.
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 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 Vice President, Global Public
Relations Relations
312-381-3983 312-381-2485
Aon Corporation
Consolidated Statements of Income (Unaudited)
Second Quarter Ended
--------------------
June 30, June 30, Percent
(millions except per share data) 2010 2009 Change
--------- --------- --------
Revenue
-------
Commissions, fees and other $1,883 $1,863 1 %
Fiduciary investment income 15 19 (21)
--- --- ---
Total revenue 1,898 1,882 1
----- ----- ---
Expenses
--------
Compensation and benefits 1,169 1,134 3
Other general expenses 461 528 (13)
--- --- ---
Total operating expenses 1,630 1,662 (2)
----- ----- ---
Operating income 268 220 22
Interest income 4 2 100
Interest expense (33) (26) 27
Other income 5 14 (64)
--- --- ---
Income from continuing operations
before income taxes 244 210 16
Income taxes (1) 60 57 5
--- --- ---
Income from continuing operations 184 153 20
--- --- ---
Income (loss) from discontinued
operations before income taxes (41) 2 N/A
Income taxes (2) (15) - N/A
--- --- --
Income (loss) from discontinued
operations (26) 2 N/A
--- --- ---
Net income 158 155 2
Less: Net income attributable to the
noncontrolling interests 5 6 (17)
--- --- ---
Net income attributable to Aon
stockholders $153 $149 3 %
==== ==== ===
Net income (loss) attributable to Aon
stockholders:
Income from continuing operations $179 $147 22 %
Income (loss) from discontinued
operations (26) 2 N/A
---
Net income $153 $149 3 %
==== ==== ===
Basic net income (loss) per share
attributable to Aon stockholders:
Income from continuing operations $0.64 $0.52 23 %
Income (loss) from discontinued
operations (0.09) - N/A
Net income $0.55 $0.52 6 %
===== ===== ===
Diluted net income (loss) per share
attributable to Aon stockholders:
Income from continuing operations $0.63 $0.50 26 %
Income (loss) from discontinued
operations (0.09) 0.01 N/A
Net income $0.54 $0.51 6 %
===== ===== ===
Weighted average common shares
outstanding -diluted 282.6 292.7 (3)%
===== ===== ===
Six Months Ended
----------------
June 30, June 30, Percent
(millions except per share data) 2010 2009 Change
--------- --------- --------
Revenue
-------
Commissions, fees and other $3,774 $3,684 2 %
Fiduciary investment income 28 44 (36)
--- --- ---
Total revenue 3,802 3,728 2
----- ----- ---
Expenses
--------
Compensation and benefits 2,332 2,148 9
Other general expenses 929 994 (7)
--- --- ---
Total operating expenses 3,261 3,142 4
----- ----- ---
Operating income 541 586 (8)
Interest income 5 9 (44)
Interest expense (67) (55) 22
Other income 12 13 (8)
--- --- ---
Income from continuing operations
before income taxes 491 553 (11)
Income taxes (1) 121 165 (27)
--- --- ---
Income from continuing operations 370 388 (5)
--- --- ---
Income (loss) from discontinued
operations before income taxes (39) 93 N/A
Income taxes (2) (13) 41 N/A
--- --- --
Income (loss) from discontinued
operations (26) 52 N/A
--- --- ---
Net income 344 440 (22)
Less: Net income attributable to the
noncontrolling interests 13 11 18
--- --- ---
Net income attributable to Aon
stockholders $331 $429 (23)%
==== ==== ====
Net income (loss) attributable to Aon
stockholders:
Income from continuing operations $357 $377 (5)%
Income (loss) from discontinued
operations (26) 52 N/A
--- --- ---
Net income $331 $429 (23)%
==== ==== ====
Basic net income (loss) per share
attributable to Aon stockholders:
Income from continuing operations $1.29 $1.32 (2)%
Income (loss) from discontinued
operations (0.10) 0.19 N/A
Net income $1.19 $1.51 (21)%
===== ===== ====
Diluted net income (loss) per share
attributable to Aon stockholders:
Income from continuing operations $1.27 $1.29 (2)%
Income (loss) from discontinued
operations (0.09) 0.18 N/A
Net income $1.18 $1.47 (20)%
===== ===== ====
Weighted average common shares
outstanding -diluted 281.7 292.2 (4)%
===== ===== ===
(1) Tax rate for continuing operations is 24.5% and 27.1% for the
second quarters ended June 30, 2010 and 2009, respectively, and
24.7% and 29.8% for the six months ended June 30, 2010 and 2009,
respectively. The underlying tax rate on continuing operations for
2010 is approximately 28%.
(2) Tax rate for discontinued operations is 34.6% and 34.9% for the
second quarters ended June 30, 2010 and 2009, respectively, and
33.0% and 44.6% for the six months ended June 30, 2010 and 2009,
respectively.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Second Quarter Ended
--------------------
(millions) June 30, June 30, Percent Organic
Revenue
2010 2009 Change (1)
---- ---- ------ --------
Commissions, Fees and Other
---------------------------
Risk and Insurance Brokerage
Services $1,573 $1,558 1 % (1)%
Consulting 316 300 5 2
--- ---
Total Operating Segments $1,889 $1,858 2 % (1)%
====== ======
Fiduciary Investment Income
---------------------------
Risk and Insurance Brokerage
Services $14 $19 (26)%
Consulting 1 - N/A
--- ---
Total Operating Segments $15 $19 (21)%
=== ===
Total Revenue
-------------
Risk and Insurance Brokerage
Services $1,587 $1,577 1 %
Consulting 317 300 6
Unallocated - 11 (100)
Intersegment (6) (6) -
--- ---
Total $1,898 $1,882 1 %
====== ======
Six Months Ended
----------------
(millions) June 30, June 30, Percent Organic
Revenue
2010 2009 Change (1)
---- ---- ------ --------
Commissions, Fees and Other
---------------------------
Risk and Insurance Brokerage
Services $3,147 $3,077 2 % (2)%
Consulting 638 608 5 -
--- ---
Total Operating Segments $3,785 $3,685 3 % (2)%
====== ======
Fiduciary Investment Income
---------------------------
Risk and Insurance Brokerage
Services $27 $43 (37)%
Consulting 1 1 -
--- ---
Total Operating Segments $28 $44 (36)%
=== ===
Total Revenue
-------------
Risk and Insurance Brokerage
Services $3,174 $3,120 2 %
Consulting 639 609 5
Unallocated - 11 (100)
Intersegment (11) (12) (8)
--- ---
Total $3,802 $3,728 2 %
====== ======
(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 and Insurance Brokerage
Services Second Quarter Ended
--------------------
(millions) June 30, June 30, Percent
2010 2009 Change
Revenue
-------
Commissions, fees and other $1,573 $1,558 1 %
Fiduciary investment income 14 19 (26)
--- ---
Total revenue 1,587 1,577 1
----- -----
Expenses
--------
Compensation and benefits 909 932 (2)
Other general expenses 373 444 (16)
--- ---
Total operating expenses 1,282 1,376 (7)
----- -----
Operating income $305 $201 52 %
==== ====
Operating margin 19.2% 12.7%
Consulting Second Quarter Ended
--------------------
(millions) June 30, June 30, Percent
2010 2009 Change
---- ---- ------
Revenue
-------
Commissions, fees and other $316 $300 5%
Fiduciary investment income 1 - N/A
--- ---
Total revenue 317 300 6
--- ---
Expenses
--------
Compensation and benefits 194 184 5
Other general expenses 78 75 4
--- ---
Total operating expenses 272 259 5
--- ---
Operating income $45 $41 10%
=== ===
Operating margin 14.2% 13.7%
Total Operating Income Second Quarter Ended
--------------------
(millions) June 30, June 30, Percent
2010 2009 Change
---- ---- ------
Risk and Insurance Brokerage
Services $305 $201 52 %
Consulting 45 41 10
Unallocated revenue - 11 (100)
Unallocated expenses (82) (33) 148
--- ---
Total operating income $268 $220 22%
==== ====
Total operating margin 14.1% 11.7%
Risk and Insurance Brokerage
Services Six Months Ended
----------------
(millions) June 30, June 30, Percent
2010 2009 Change
---- ---- ------
Revenue
-------
Commissions, fees and other $3,147 $3,077 2 %
Fiduciary investment income 27 43 (37)
--- ---
Total revenue 3,174 3,120 2
----- -----
Expenses
--------
Compensation and benefits 1,860 1,769 5
Other general expenses 752 827 (9)
--- ---
Total operating expenses 2,612 2,596 1
----- -----
Operating income $562 $524 7 %
==== ====
Operating margin 17.7% 16.8%
Consulting Six Months Ended
----------------
(millions) June 30, June 30, Percent
2010 2009 Change
---- ---- ------
Revenue
-------
Commissions, fees and other $638 $608 5 %
Fiduciary investment income 1 1 -
--- ---
Total revenue 639 609 5
--- ---
Expenses
--------
Compensation and benefits 390 346 13
Other general expenses 155 152 2
--- ---
Total operating expenses 545 498 9
--- ---
Operating income $94 $111 (15)%
=== ====
Operating margin 14.7% 18.2%
Total Operating Income Six Months Ended
----------------
(millions) June 30, June 30, Percent
2010 2009 Change
---- ---- ------
Risk and Insurance Brokerage
Services $562 $524 7 %
Consulting 94 111 (15)
Unallocated revenue - 11 (100)
Unallocated expenses (115) (60) 92
---- ---
Total operating income $541 $586 (8)%
==== ====
Total operating margin 14.2% 15.7%
Aon Corporation
Reconciliation of Non-GAAP Measures - Organic Revenue (Unaudited)
Second Quarter Ended
--------------------
(millions) June 30, June 30, Percent Less:
2010 2009 Change Currency
---- ---- ------ Impact (1)
----------
Commissions,
Fees and
Other
------------
Risk and
Insurance
Brokerage
Services
Segment:
Retail
brokerage
Americas $616 $574 7 % 3 %
United
Kingdom 167 181 (8) (1)
Europe,
Middle
East &
Africa 291 308 (6) (4)
Asia
Pacific 140 123 14 10
--- ---
Total
Retail
brokerage 1,214 1,186 2 1
Reinsurance
brokerage 359 372 (3) 1
--- ---
Total Risk
and
Insurance
Brokerage
Services 1,573 1,558 1 1
----- -----
Consulting
Segment:
Consulting
services 265 251 6 1
Outsourcing 51 49 4 2
--- ---
Total
Consulting 316 300 5 1
--- ---
Total
Operating
Segments $1,889 $1,858 2 % 1 %
====== ======
Six Months Ended
----------------
(millions) June 30, June 30, Percent Less:
2010 2009 Change Currency
---- ---- ------ Impact (1)
----------
Commissions,
Fees and
Other
------------
Risk and
Insurance
Brokerage
Services
Segment:
Retail
brokerage
Americas $1,103 $1,051 5 % 3%
United
Kingdom 288 297 (3) 2
Europe,
Middle
East &
Africa 768 755 2 3
Asia
Pacific 241 207 16 14
--- ---
Total
Retail
Brokerage 2,400 2,310 4 4
Reinsurance
brokerage 747 767 (3) 3
--- ---
Total Risk
and
Insurance
Brokerage
Services 3,147 3,077 2 3
----- -----
Consulting
Segment:
Consulting
services 540 514 5 3
Outsourcing 98 94 4 4
--- ---
Total
Consulting 638 608 5 3
--- ---
Total
Operating
Segments $3,785 $3,685 3 % 3%
====== ======
Second Quarter Ended
--------------------
(millions) Less: Organic
Revenue
Acquisitions, (2)
Divestitures & --------
Other
-----
Commissions, Fees and Other
---------------------------
Risk and Insurance Brokerage
Services Segment:
Retail brokerage
Americas 2 % 2 %
United Kingdom (1) (6)
Europe, Middle East & Africa 1 (3)
Asia Pacific 1 3
Total Retail brokerage 2 (1)
Reinsurance brokerage (1) (3)
Total Risk and Insurance
Brokerage Services 1 (1)
Consulting Segment:
Consulting services 3 2
Outsourcing 3 (1)
Total Consulting 2 2
Total Operating Segments 2 % (1)%
Six Months Ended
----------------
(millions) Less: Organic
Revenue
Acquisitions, (2)
Divestitures & --------
Other
-----
Commissions, Fees and Other
---------------------------
Risk and Insurance Brokerage
Services Segment:
Retail brokerage
Americas 3 % (1)%
United Kingdom (1) (4)
Europe, Middle East & Africa 2 (3)
Asia Pacific - 2
Total Retail Brokerage 2 (2)
Reinsurance brokerage (2) (4)
Total Risk and Insurance
Brokerage Services 1 (2)
Consulting Segment:
Consulting services 1 1
Outsourcing 2 (2)
Total Consulting 2 -
Total Operating Segments 2 % (2)%
(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, 2010
----------------------------------
(millions) Risk and Consulting Unallocated Total
Insurance ---------- Income & -----
Brokerage Expense
Services -------
--------
Revenue $1,587 $317 $(6) $1,898
====== ==== === ======
Operating income
(loss) -as
reported $305 $45 $(82) $268
Restructuring
charges 29 2 - 31
Pension
adjustment - - 49 49
--- --- --- ---
Operating income
(loss) -as
adjusted $334 $47 $(33) $348
==== === ==== ====
Operating
margins -as
adjusted 21.0% 14.8% N/A 18.3%
==== ==== === ====
Second Quarter Ended June 30, 2009
----------------------------------
(millions) Risk and Consulting Unallocated Total
Insurance ---------- Income & -----
Brokerage Expense
Services -------
--------
Revenue $1,577 $300 $5 $1,882
====== ==== === ======
Operating income
(loss) -as
reported $201 $41 $(22) $220
Restructuring
charges 92 3 - 95
Pension
curtailment 4 1 - 5
Benfield
integration
costs 2 - - 2
Anti-bribery
and compliance
initiatives 1 - - 1
--- --- --- ---
Operating income
(loss) -as
adjusted $300 $45 $(22) $323
==== === ==== ====
Operating
margins -as
adjusted 19.0% 15.0% N/A 17.2%
==== ==== === ====
Second Quarter Ended
June 30,
--------
(millions except
per share data) 2010 2009
---- ----
Operating income
-as adjusted $348 $323
Interest income 4 2
Interest expense (33) (26)
Other income 5 14
--- ---
Income from
continuing
operations
before income
taxes -as
adjusted 324 313
Income taxes (2) 89 86
--- ---
Income from
continuing
operations -as
adjusted 235 227
Less: Net
income
attributable to
noncontrolling
interests 5 6
--- ---
Income from
continuing
operations
attributable to
Aon
stockholders -
as adjusted $230 $221
==== ====
Diluted earnings
per share from
continuing
operations -as
adjusted $0.81 $0.76
===== =====
Weighted average
common shares
outstanding -
diluted 282.6 292.7
===== =====
Six Months Ended June 30, 2010
------------------------------
(millions) Risk and Consulting Unallocated Total
Insurance ---------- Income & -----
Brokerage Expense
Services -------
--------
Revenue $3,174 $639 $(11) $3,802
====== ==== ==== ======
Operating income
(loss) -as
reported $562 $94 $(115) $541
Restructuring
charges 98 9 - 107
Pension
adjustment - - 49 49
--- --- --- ---
Operating income
(loss) -as
adjusted $660 $103 $(66) $697
==== ==== ==== ====
Operating
margins -as
adjusted 20.8% 16.1% N/A 18.3%
==== ==== === ====
Six Months Ended June 30, 2009
------------------------------
(millions) Risk and Consulting Unallocated Total
Insurance ---------- Income & -----
Brokerage Expense
Services -------
--------
Revenue $3,120 $609 $(1) $3,728
====== ==== === ======
Operating income
(loss) -as
reported $524 $111 $(49) $586
Restructuring
charges 132 6 - 138
Pension
curtailment (54) (20) (4) (78)
Benfield
integration
costs 12 - - 12
Anti-bribery
and compliance
initiatives 2 - - 2
--- --- --- ---
Operating income
(loss) -as
adjusted $616 $97 $(53) $660
==== === ==== ====
Operating
margins -as
adjusted 19.7% 15.9% N/A 17.7%
==== ==== === ====
Six Months Ended
June 30,
--------
(millions except
per share data) 2010 2009
---- ----
Operating income
-as adjusted $697 $660
Interest income 5 9
Interest expense (67) (55)
Other income 12 13
--- ---
Income from
continuing
operations
before income
taxes -as
adjusted 647 627
Income taxes (2) 169 176
--- ---
Income from
continuing
operations -as
adjusted 478 451
Less: Net
income
attributable to
noncontrolling
interests 13 11
--- ---
Income from
continuing
operations
attributable to
Aon
stockholders -
as adjusted $465 $440
==== ====
Diluted earnings
per share from
continuing
operations -as
adjusted $1.65 $1.51
===== =====
Weighted average
common shares
outstanding -
diluted 281.7 292.2
===== =====
(1) Certain noteworthy items impacting operating income in 2010 and
2009 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 24.5% and
27.1% for the second quarters ended June 30, 2010 and 2009,
respectively, and 24.7% and 29.8% for the six months ended June 30,
2010 and 2009, respectively (U.S. GAAP). Reconciling 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 $49 million U.S. pension expense
adjustment for prior years. In addition, the six months 2009 U.S.
GAAP effective tax rate was adjusted to 28.0% to exclude the impact
of the 40% tax rate applied to the $83 million U.S. pension
curtailment gain.
Aon Corporation
Restructuring Plans (Unaudited) (1)
2007 Restructuring Plan
By Type: Actual
------
(millions) Full Full Full
Year Year Year
2007 2008 2009
---- ---- ----
Workforce reduction $17 $166 $251
Lease consolidation 22 38 78
Asset impairments 4 18 15
Other costs associated with
restructuring 3 29 13
--- --- ---
Total restructuring and
related expenses $46 $251 $357
=== ==== ====
By Segment:
Risk and Insurance
Brokerage Services $41 $234 $322
Consulting 5 17 35
--- --- ---
Total restructuring and
related expenses $46 $251 $357
=== ==== ====
Benfield Restructuring Plan
By Type: Operations
----------
(millions) Purchase Full
Price Year
Allocation
(2) 2009
----------- ----
Workforce reduction $32 $38
Lease consolidation 22 14
Asset impairments - 2
Other costs associated with
restructuring 1 1
---
Total restructuring and
related expenses $55 $55
=== ===
By Type: Actual
------
(millions) Second Six Total
Quarter Months to
2010 2010 Date
---- ---- ----
Workforce reduction $16 $73 $507
Lease consolidation 7 13 151
Asset impairments 1 2 39
Other costs associated with
restructuring 1 4 49
--- --- ---
Total restructuring and
related expenses $25 $92 $746
=== === ====
By Segment:
Risk and Insurance
Brokerage Services $23 $83 $680
Consulting 2 9 66
--- --- ---
Total restructuring and
related expenses $25 $92 $746
=== === ====
Benfield Restructuring Plan
By Type: Operations
----------
(millions) Second Six Total
Quarter Months to
2010 2010 Date
---- ---- ----
Workforce reduction $3 $8 $78
Lease consolidation 2 5 41
Asset impairments 1 1 3
Other costs associated with
restructuring - 1 3
---
Total restructuring and
related expenses $6 $15 $125
=== === ====
By Type:
(millions) Estimated
Total
-----
Workforce reduction $509
Lease consolidation 152
Asset impairments 39
Other costs associated with
restructuring 50
---
Total restructuring and
related expenses $750
====
By Segment:
Risk and Insurance
Brokerage Services $684
Consulting 66
---
Total restructuring and
related expenses $750
====
Benfield Restructuring Plan
By Type:
(millions) Estimated
Total
-----
Workforce reduction $96
Lease consolidation 49
Asset impairments 6
Other costs associated with
restructuring 4
Total restructuring and
related expenses $155
====
(1) In the 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).
Aon Corporation
Condensed Consolidated Statements of Financial Position
As of
-----
December
(millions) June 30, 31,
2010 2009
---- ----
(Unaudited)
ASSETS
------
Current Assets
Cash and cash equivalents $260 $217
Short-term investments 474 422
Receivables, net 1,994 2,052
Fiduciary assets (1) 12,226 10,835
Other current assets 543 463
--- ---
Total Current Assets 15,497 13,989
Goodwill 5,710 6,078
Intangible assets, net 753 791
Fixed assets, net 450 461
Investments 301 319
Other non-current assets 1,245 1,320
----- -----
Total Assets $23,956 $22,958
======= =======
LIABILITIES AND EQUITY
----------------------
Current Liabilities
Fiduciary liabilities $12,226 $10,835
Short-term debt and current portion of
long-term debt 370 10
Accounts payable and accrued liabilities 1,192 1,535
Other current liabilities 350 260
--- ---
Total Current Liabilities 14,138 12,640
Long-term debt 1,601 1,998
Pension and other post employment
liabilities 1,716 1,889
Other non-current liabilities 1,023 1,000
----- -----
Total Liabilities 18,478 17,527
------ ------
Total Aon Stockholders' Equity 5,428 5,379
Noncontrolling interests 50 52
--- ---
Total Equity 5,478 5,431
Total Liabilities and Equity $23,956 $22,958
======= =======
(1) Includes short-term investments: 2010 - $3,805, 2009 - $3,329.
Aon Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
----------------
(millions) June 30, June 30,
2010 2009
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $344 $440
Adjustments to reconcile net income to cash
provided by operating activities:
(Gains) losses from sales of businesses, net 33 (94)
Depreciation of fixed assets 62 73
Amortization of intangible assets 56 45
Stock compensation expense 123 95
Deferred income taxes (16) 3
Change in assets and liabilities:
Change in funds held on behalf of clients 633 113
Receivables, net 2 138
Accounts payable and accrued liabilities (343) (305)
Restructuring reserves (18) (3)
Current income taxes 46 75
Pension and other post employment
liabilities (41) (320)
Other assets and liabilities (9) (163)
--- ----
Cash Provided by Operating Activities 872 97
--- ---
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of long-term investments 77 16
Purchase of long-term investments (15) (17)
Net (purchases) sales of short-term
investments - non-fiduciary (79) 116
Net purchases of short-term investments -
funds held on behalf of clients (633) (113)
Acquisition of businesses, net of cash
acquired (65) (40)
Proceeds from sale of businesses 10 138
Capital expenditures (71) (53)
--- ---
Cash Provided by (Used for) Investing
Activities (776) 47
---- ---
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (100) (125)
Issuance of stock for employee benefit plans 81 89
Repayments of debt (2) (31)
Cash dividends to stockholders (82) (83)
--- ---
Cash Used for Financing Activities (103) (150)
---- ----
Effect of Exchange Rate Changes on Cash and
Cash Equivalents 50 (39)
--- ---
Net Increase (Decrease) in Cash and Cash
Equivalents 43 (45)
Cash and Cash Equivalents at Beginning of
Period 217 582
--- ---
Cash and Cash Equivalents at End of Period $260 $537
==== ====
SOURCE Aon Corporation
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