Aon Reports Third Quarter 2010 Results

Oct 29, 2010, 06:30 ET from Aon Corporation

CHICAGO, Oct. 29 /PRNewswire-FirstCall/ --

Third Quarter Highlights

  • Total revenue was $1.8 billion with organic revenue similar to the prior year quarter
  • EPS from continuing operations increased 28% to $0.51 and adjusted EPS from continuing operations, excluding certain items, decreased 6% to $0.61
  • Brokerage revenue was $1.5 billion with a decline in organic revenue of 1%
  • Brokerage operating margin was 17.4% and the adjusted operating margin, excluding certain items, decreased 10 basis points to 17.9%
  • Consulting revenue was $321 million with an increase in organic revenue of 4%
  • Consulting operating margin was 16.8% and the adjusted operating margin, excluding certain items, increased 150 basis points to 17.1%
  • Subsequent to close of the quarter, completed the merger of Hewitt Associates, Inc. with Aon Consulting, creating a global leader in HR solutions

Aon Corporation (NYSE: AON) today reported results for the third quarter ended September 30, 2010.  

Net income attributable to Aon stockholders was $144 million or $0.51 per share, compared to $120 million or $0.41 per share for the prior year quarter.  Net income attributable to Aon stockholders from continuing operations increased 23% to $144 million or $0.51 per share, compared to $117 million or $0.40 per share for the prior year quarter.  Net income per share attributable to Aon stockholders from continuing operations, excluding certain items, decreased 6% to $0.61 compared to $0.65 for the prior year quarter.  Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 12 of this press release.  

"Our third quarter results reflect solid operational performance against a challenging global economy.  We delivered four percent organic revenue growth and a 150 basis point increase in margin in our Consulting segment and continued to improve the run-rate of organic revenue in our retail Brokerage business," said Greg Case, president and chief executive officer.  "Our GRIP platform, Aon Broking initiatives and benefits related to the restructuring programs are expected to deliver long-term growth and significant margin improvement in our Brokerage segment.  We also are excited about the recently completed merger of Hewitt with Aon Consulting, which substantially strengthens our position as the preeminent global professional services firm focused on risk and people.  Aon Hewitt's senior leadership team is fully in place, the integration is well underway and support from clients around the globe has been exceptional."

THIRD QUARTER FINANCIAL SUMMARY

Total revenue was similar to the prior year quarter at $1.8 billion due to a 2% increase from acquisitions, primarily Allied North America, net of dispositions, offset by a 1% decrease from foreign currency translation and a 6% decline in fiduciary investment income.

Total operating expenses decreased 4% or $62 million to $1.5 billion due primarily to a $91 million decrease in restructuring related expenses, benefits related to the 2007 and Aon Benfield restructuring programs and an estimated $30 million favorable impact from foreign currency translation, partially offset by the inclusion of operating expenses related to recent acquisitions and $19 million of costs associated with the merger of Hewitt with Aon Consulting.

Restructuring expenses were $8 million in the third quarter compared to $99 million in the prior year quarter.  Including the third quarter expenses, the Company has now incurred 100% of the $749 million of total costs necessary to deliver the remaining savings under the 2007 restructuring program and 84% of the $155 million of total costs necessary to deliver the remaining savings under the Aon Benfield restructuring program.  An analysis of restructuring-related expenses by segment and type are detailed on page 13 of this release.

Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $125 million compared to $68 million in the prior year quarter.  Of the estimated restructuring savings in the third quarter, $105 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 third quarter related to the Aon Benfield restructuring program are estimated at $27 million compared to $14 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.

Currency fluctuations in the third 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 increased to 29.4% in the third quarter compared to 26.7% in the prior year quarter due primarily to certain deferred tax adjustments.  The underlying tax rate on continuing operations is estimated to be approximately 30% for the fourth quarter 2010 including the impact of the Hewitt merger.

Average diluted shares outstanding decreased to 282.2 million in the third quarter compared to 292.1 million in the prior year quarter due primarily to the Company's share repurchase program.  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.

THIRD QUARTER SEGMENT REVIEW

Certain noteworthy items impacted operating income and operating margins in the third quarter of 2010 and 2009.  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 AND INSURANCE BROKERAGE SERVICES

Less:

(millions)

Third Quarter Ended

Less:

Acquisitions,

Commissions,

Sep 30,

 Sep 30,

%

Currency

Divestitures,

Organic

Fees and Other

2010

2009

Change

Impact

Other

Revenue

Retail

$ 1,108

$  1,090

2%

(1)%

3%

-%

Reinsurance

361

379

(5)

(2)

1

(4)

Subtotal

$ 1,469

$  1,469

-%

(1)

2

(1)

Investment Income

15

16

(6)%

Total Revenue

$ 1,484

$  1,485

-%

Risk and Insurance Brokerage Services total revenue was similar to the prior year quarter at $1.5 billion due to a 2% increase from acquisitions, primarily Allied North America, net of dispositions, offset by a 1% unfavorable impact from foreign currency translation and a 1% organic decline in commissions and fees.

Retail organic revenue was similar to the prior year quarter.  By geographic region in Retail, the Americas organic revenue increased 1% due to strong growth in Latin America and benefits related to the Global Risk Insight Platform (GRIP), partially offset by continued weakness in construction and the impact of soft pricing on the renewal book portfolio in U.S. Retail.  U.K. organic revenue decreased 8% due primarily to weak economic conditions and soft pricing.  EMEA organic revenue increased 4% due to modest growth in Continental Europe and strong growth in emerging markets.  APAC organic revenue increased 2% reflecting strong growth in New Zealand and China, partially offset by weak economic conditions in Thailand.  Reinsurance organic revenue decreased 4% due primarily to soft pricing globally in treaty placements.

Third Quarter Ended

(millions)

Sep 30,

Sep 30,

%

2010

2009

Change

Revenue

$  1,484

$ 1,485

-%

Expenses

Compensation and benefits

846

909

(7)

Other expenses

380

394

(4)

Total operating expenses

1,226

1,303

(6)

Operating income

$    258

$    182

42%

Operating margin

17.4%

12.3%

Operating income - adjusted

$     266

$    268

(1)%

Operating margin - adjusted  

17.9%

18.0%

Compensation and benefits for the third quarter decreased 7% or $63 million compared to the prior year quarter due primarily to a $40 million decrease in restructuring related costs, a $20 million favorable impact from foreign currency translation and benefits related to the restructuring programs, partially offset by the inclusion of operating expenses related to recent acquisitions.  Other expenses for the third quarter decreased 4% or $14 million from the prior year quarter due primarily to a $36 million decrease in restructuring related costs, benefits related to the restructuring programs and a $7 million favorable impact from foreign currency translation, partially offset by the inclusion of operating expenses related to recent acquisitions and expenses related to the launch of the Manchester United global partnership.

Third quarter operating income increased 42% to $258 million.  Adjusting for certain items detailed on page 12 of this press release, operating income decreased 1% or $2 million to $266 million and operating margin decreased 10 basis points to 17.9% compared to the prior year quarter due primarily to a modest decline in organic revenue, the inclusion of results related to recent acquisitions and expenses related to the launch of the Manchester United partnership, primarily offset by benefits of the restructuring programs.

CONSULTING

(millions)

Third Quarter Ended

Less:

Less: Acquisitions,

Commissions,

Sep 30,

Sep 30,

%

Currency

Divestitures,

Organic

Fees and Other

2010

2009

Change

Impact

Other

Revenue

Services

$    268

$    262

2%

(2)%

3%

1%

Outsourcing

53

46

15

(1)

(3)

19

Subtotal

$    321

$    308

4%

(2)%

2%

4%

Investment Income

-

-

N/A

Total Revenue

$    321

$    308

4%

Consulting total revenue increased 4% to $321 million compared to the prior year quarter due primarily to a 4% organic increase in commissions and fees, 2% increase from acquisitions, primarily J.P. Morgan Compensation and Benefits Strategies, net of dispositions, partially offset by a 2% unfavorable impact from foreign currency translation. Organic revenue in Consulting Services increased 1% primarily reflecting solid 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 increased 19% due to growth from new business in the U.S. and U.K in benefits outsourcing.

Third Quarter Ended

(millions)

Sep 30,

Sep 30,

%

2010

2009

Change

Revenue

$     321

$    308

4%

Expenses

Compensation and benefits

189

198

(5)

Other expenses

78

77

1

Total operating expenses

267

275

(3)

Operating income

$      54

$      33

64%

Operating margin

16.8%

10.7%

Operating income - adjusted

$      55

$      48

15%

Operating margin - adjusted  

17.1%

15.6%

Compensation and benefits for the third quarter decreased 5% or $9 million from the prior year quarter due primarily to a $10 million decrease in restructuring related costs and benefits related to the restructuring programs, partially offset by a $3 million increase from the inclusion of operating expenses related to recent acquisitions.  Other expenses increased 1% or $1 million from the prior year quarter including a $4 million increase from the inclusion of operating expenses related to recent acquisitions, partially offset by a $5 million decrease in restructuring related costs.

Third quarter operating income increased 64% to $54 million.  Adjusting for certain items detailed on page 12 of this press release, operating income increased 15% or $7 million to $55 million and operating margin increased 150 basis points to 17.1% versus the prior year quarter due primarily to growth in organic revenue and benefits related to the 2007 restructuring program.

INCOME FROM CONTINUING OPERATIONS

Third Quarter Ended

(millions)

Sep 30,

Sep 30,

%

2010

2009

Change

Risk and Insurance Brokerage Services

$     258

$     182

42%

Consulting

54

33

64

Unallocated revenue

-

9

(100)

Unallocated expenses

(49)

(30)

63

Operating income from continuing operations before tax

$     263

$     194

36%

Interest income

4

3

33

Interest expense

(50)

(32)

56

Other expense (income)

(9)

13

N/A

Income from continuing operations before tax

$     208

$     178

17%

Unallocated revenue declined $9 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 $19 million to $49 million due primarily to $18 million of costs related to the merger of Hewitt with Aon Consulting.  Interest expense increased $18 million to $50 million due primarily to the inclusion of $14 million of non-recurring financing costs related to the merger of Hewitt with Aon Consulting.  Other expense was $9 million in the third quarter compared to income of $13 million in the prior year quarter.  The third quarter includes the loss on sale of a business.  The prior year quarter primarily included gains from investments and the sales of certain businesses.

Conference Call and Webcast Details

The Company will host a conference call on Friday, October 29, 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 the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 59,000 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 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 merger with 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 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 influence revenue and expense; rating agency actions that could affect Aon's ability to borrow funds; funding of Aon's various pension plans; 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 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 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.

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

Consolidated Statements of Income (Unaudited)

Third Quarter Ended

Nine Months Ended

(millions except per share data)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Revenue

Commissions, fees and other

$   1,786

$   1,778

-

%

$   5,560

$   5,462

2

%

Fiduciary investment income

15

16

(6)

43

60

(28)

Total revenue

1,801

1,794

-

5,603

5,522

1

Expenses

Compensation and benefits

1,050

1,119

(6)

3,382

3,267

4

Other general expenses

488

481

1

1,417

1,475

(4)

Total operating expenses

1,538

1,600

(4)

4,799

4,742

1

Operating income

263

194

36

804

780

3

Interest income

4

3

33

9

10

(10)

Interest expense

(50)

(32)

56

(117)

(87)

34

Other (expense) income

(9)

13

N/A

3

28

(89)

Income from continuing operations before income taxes

208

178

17

699

731

(4)

Income taxes (1)

61

47

30

182

212

(14)

Income from continuing operations

147

131

12

517

519

-

Income (loss) from discontinued operations before income taxes

1

-

N/A

(38)

93

N/A

Income taxes (2)

1

(3)

N/A

(12)

38

N/A

Income (loss) from discontinued operations

-

3

(100)

(26)

55

N/A

Net income

147

134

10

491

574

(14)

Less:  Net income attributable to the noncontrolling interests

3

14

(79)

16

25

(36)

Net income attributable to Aon stockholders

$      144

$      120

20

%

$      475

$      549

(13)

%

Net income (loss) attributable to Aon stockholders:

Income from continuing operations

$      144

$      117

23

%

$      501

$      494

1

%

Income (loss) from discontinued operations

-

3

(100)

(26)

55

N/A

Net income

$      144

$      120

20

%

$      475

$      549

(13)

%

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

Income from continuing operations

$     0.52

$     0.41

27

%

$     1.80

$     1.74

3

%

Income (loss) from discontinued operations

-

0.01

(100)

(0.09)

0.19

N/A

Net income

$     0.52

$     0.42

24

%

$     1.71

$     1.93

(11)

%

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

Income from continuing operations

$     0.51

$     0.40

28

%

$     1.78

$     1.69

5

%

Income (loss) from discontinued operations

-

0.01

(100)

(0.10)

0.19

N/A

Net income

$     0.51

$     0.41

24

%

$     1.68

$     1.88

(10)

%

Weighted average common shares outstanding - diluted

282.2

292.1

(3)

%

281.9

292.2

(4)

%

(1)  Tax rate for continuing operations is 29.4% and 26.7% for the third quarters ended September 30, 2010 and 2009, respectively, and 26.1% and 29.1% for the nine months ended September 30, 2010 and 2009, respectively.  

(2)  Tax rate for discontinued operations is 35.0% and not meaningful for the third quarters ended September 30, 2010 and 2009, respectively, and 32.9% and 40.9% for the nine months ended September 30, 2010 and 2009, respectively.  

Aon Corporation

Revenue from Continuing Operations (Unaudited)

Third Quarter Ended

Nine Months Ended

(millions)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Organic Revenue (1)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Organic Revenue (1)

Commissions, Fees and Other

Risk and Insurance Brokerage Services

$   1,469

$   1,469

-

%

(1)

%

$   4,616

$   4,546

2

%

(2)

%

Consulting

321

308

4

4

959

916

5

1

Total Operating Segments

$   1,790

$   1,777

1

%

-

%

$   5,575

$   5,462

2

%

(1)

%

Fiduciary Investment Income

Risk and Insurance Brokerage Services

$        15

$        16

(6)

%

$        42

$        59

(29)

%

Consulting

-

-

-

1

1

-

Total Operating Segments

$        15

$        16

(6)

%

$        43

$        60

(28)

%

Total Revenue

Risk and Insurance Brokerage Services

$   1,484

$   1,485

-

%

$   4,658

$   4,605

1

%

Consulting

321

308

4

960

917

5

Unallocated

-

9

(100)

-

20

(100)

Intersegment

(4)

(8)

(50)

(15)

(20)

(25)

Total

$   1,801

$   1,794

-

%

$   5,603

$   5,522

1

%

(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

Third Quarter Ended

Nine Months Ended

(millions)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Revenue

Commissions, fees and other

$   1,469

$   1,469

-

%

$      4,616

$   4,546

2

%

Fiduciary investment income

15

16

(6)

42

59

(29)

Total revenue

1,484

1,485

-

4,658

4,605

1

Expenses

Compensation and benefits

846

909

(7)

2,706

2,678

1

Other general expenses

380

394

(4)

1,132

1,221

(7)

Total operating expenses

1,226

1,303

(6)

3,838

3,899

(2)

Operating income

$      258

$      182

42

%

$      820

$      706

16

%

Operating margin

17.4%

12.3%

17.6%

15.3%

Consulting

Third Quarter Ended

Nine Months Ended

(millions)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Revenue

Commissions, fees and other

$      321

$      308

4

%

$      959

$      916

5

%

Fiduciary investment income

-

-

-

1

1

-

Total revenue

321

308

4

960

917

5

Expenses

Compensation and benefits

189

198

(5)

579

544

6

Other general expenses

78

77

1

233

229

2

Total operating expenses

267

275

(3)

812

773

5

Operating income

$        54

$        33

64

%

$      148

$      144

3

%

Operating margin

16.8%

10.7%

15.4%

15.7%

Total Operating Income

Third Quarter Ended

Nine Months Ended

(millions)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Risk and Insurance Brokerage Services

$      258

$      182

42

%

$      820

$      706

16

%

Consulting

54

33

64

148

144

3

Unallocated revenue

-

9

(100)

-

20

(100)

Unallocated expenses

(49)

(30)

63

(164)

(90)

82

Total operating income

$      263

$      194

36

%

$      804

$      780

3

%

Total operating margin

14.6%

10.8%

14.3%

14.1%

Aon Corporation

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

Third Quarter Ended

(millions)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Less:   Currency Impact (1)

Less: Acquisitions, Divestitures & Other

Organic Revenue (2)

Commissions, Fees and Other

Risk and Insurance Brokerage Services Segment:

Retail brokerage

Americas

$      574

$      541

6

%

1

%

4

%

1

%

United Kingdom

148

167

(11)

(3)

-

(8)

Europe, Middle East & Africa

265

271

(2)

(8)

2

4

Asia Pacific

121

111

9

7

-

2

Total Retail brokerage

1,108

1,090

2

(1)

3

-

Reinsurance brokerage

361

379

(5)

(2)

1

(4)

Total Risk and Insurance Brokerage Services

1,469

1,469

-

(1)

2

(1)

Consulting Segment:

Consulting services

268

262

2

(2)

3

1

Outsourcing

53

46

15

(1)

(3)

19

Total Consulting

321

308

4

(2)

2

4

Total Operating Segments

$   1,790

$   1,777

1

%

(1)

%

2

%

-

%

Nine Months Ended

(millions)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Less:   Currency Impact (1)

Less: Acquisitions, Divestitures & Other

Organic Revenue (2)

Commissions, Fees and Other

Risk and Insurance Brokerage Services Segment:

Retail brokerage

Americas

$   1,677

$   1,592

5

%

2

%

4

%

(1)

%

United Kingdom

436

464

(6)

-

-

(6)

Europe, Middle East & Africa

1,033

1,026

1

-

2

(1)

Asia Pacific

362

318

14

12

-

2

Total Retail Brokerage

3,508

3,400

3

2

2

(1)

Reinsurance brokerage

1,108

1,146

(3)

1

-

(4)

Total Risk and Insurance Brokerage Services

4,616

4,546

2

2

2

(2)

Consulting Segment:

Consulting services

808

776

4

2

1

1

Outsourcing

151

140

8

2

2

4

Total Consulting

959

916

5

2

2

1

Total Operating Segments

$   5,575

$   5,462

2

%

2

%

1

%

(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)

Third Quarter Ended September 30, 2010

Nine Months Ended September 30, 2010

(millions)

Risk and Insurance Brokerage Services

Consulting

Unallocated Income & Expense

Total

Risk and Insurance Brokerage Services

Consulting

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 September 30, 2009

Nine Months Ended September 30, 2009

(millions)

Risk and Insurance Brokerage Services

Consulting

Unallocated Income & Expense

Total

Risk and Insurance Brokerage Services

Consulting

Unallocated Income & Expense

Total

Revenue

$       1,485

$          308

$               1

$ 1,794

$       4,605

$          917

$              -

$ 5,522

Operating income (loss) - as reported

$          182

$            33

$            (21)

$    194

$          706

$          144

$          (70)

$    780

Restructuring charges

84

15

-

99

216

21

-

237

Pension curtailment

-

-

-

-

(54)

(20)

(4)

(78)

Benfield integration costs

1

-

-

1

13

-

-

13

Anti-bribery and compliance initiatives

1

-

-

1

3

-

-

3

Operating income (loss) - as adjusted

$          268

$            48

$            (21)

$    295

$          884

$          145

$          (74)

$    955

Operating margins - as adjusted

18.0%

15.6%

N/A

16.4%

19.2%

15.8%

N/A

17.3%

Third Quarter Ended

Nine Months Ended

September 30,

September 30,

(millions except per share data)

2010

2009

2010

2009

Operating income - as adjusted

$          290

$          295

$          987

$          955

Interest income

4

3

9

10

Interest expense - as reported

(50)

(32)

(117)

(87)

Hewitt related costs

14

-

14

-

Interest expense - as adjusted

(36)

(32)

(103)

(87)

Other (expense) income

(9)

13

3

28

Income from continuing operations before income taxes - as adjusted

249

279

896

906

Income taxes (2)

73

75

242

251

Income from continuing operations - as adjusted

176

204

654

655

Less:  Net income attributable to noncontrolling interests

3

14

16

25

Income from continuing operations attributable to Aon stockholders - as adjusted

$          173

$          190

$          638

$          630

Diluted earnings per share from continuing operations - as adjusted

$         0.61

$         0.65

$         2.26

$         2.16

Weighted average common shares outstanding - diluted

282.2

292.1

281.9

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 29.4% and 26.7% for the third quarters ended September 30, 2010 and 2009, respectively, and 26.1% and 29.1% for the nine months ended September 30, 2010 and 2009, respectively (U.S. GAAP).  Reconciling items are generally taxed at the effective tax rate.  However, the nine months 2010 U.S. GAAP effective tax rate was adjusted to 27.0%, to exclude the 40% tax rate applied to a $49 million U.S. pension expense adjustment for prior years recorded in the second quarter.  In addition, the nine months 2009 U.S. GAAP effective tax rate was adjusted to 27.7% to exclude the impact of the 40% tax rate applied to a $83 million U.S. pension curtailment gain.  

Aon Corporation

Restructuring Plans (Unaudited) (1)

2007 Restructuring Plan

By Type:

Actual

(millions)

Full Year 2007

Full Year 2008

Full Year 2009

Third Quarter 2010

Nine Months 2010

Total Cost

Workforce reduction

$               17

$             166

$             251

$                        1

$               74

$          508

Lease consolidation

22

38

78

1

14

152

Asset impairments

4

18

15

-

2

39

Other costs associated with restructuring

3

29

13

1

5

50

Total restructuring and related expenses

$               46

$             251

$             357

$                        3

$               95

$          749

By Segment:

Risk and Insurance Brokerage Services

$               41

$             234

$             322

$                        3

$               86

$          683

Consulting

5

17

35

-

9

66

Total restructuring and related expenses

$               46

$             251

$             357

$                        3

$               95

$          749

Benfield Restructuring Plan

By Type:

Operations

(millions)

Purchase Price Allocation (2)

Full Year 2009

Third Quarter 2010

Nine Months 2010

Total to Date

Estimated Total

Workforce reduction

$               32

$               38

$                        3

$               11

$            81

$                          95

Lease consolidation

22

14

2

7

43

50

Asset impairments

-

2

-

1

3

6

Other costs associated with restructuring

1

1

-

1

3

4

Total restructuring and related expenses

$               55

$               55

$                        5

$               20

$          130

$                        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

(millions)

September 30, 2010

December 31, 2009

(Unaudited)

ASSETS

Current Assets

Cash and cash equivalents

$                 335

$                         217

Short-term investments

2,114

422

Receivables, net

2,086

2,052

Fiduciary assets (1)

9,545

10,835

Other current assets

532

463

Total Current Assets

14,612

13,989

Goodwill

5,976

6,078

Intangible assets, net

754

791

Fixed assets, net

468

461

Investments

301

319

Other non-current assets

1,247

1,320

Total Assets

$            23,358

$                    22,958

LIABILITIES AND EQUITY  

Current Liabilities

Fiduciary liabilities

$              9,545

$                    10,835

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

610

10

Accounts payable and accrued liabilities

1,281

1,535

Other current liabilities

383

260

Total Current Liabilities

11,819

12,640

Long-term debt

3,146

1,998

Pension and other post employment liabilities

1,673

1,889

Other non-current liabilities

876

1,000

Total Liabilities

17,514

17,527

Total Aon Stockholders' Equity

5,792

5,379

Noncontrolling interests

52

52

Total Equity

5,844

5,431

Total Liabilities and Equity

$            23,358

$                    22,958

(1) Includes short-term investments:  2010 - $3,793, 2009 - $3,329.

Aon Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended

(millions)

September 30, 2010

September 30, 2009

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$                 491

$                 574

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

Losses (gains) from sales of businesses, net

40

(97)

Depreciation of fixed assets

93

105

Amortization of intangible assets

86

69

Stock compensation expense

166

152

Deferred income taxes

13

81

Change in assets and liabilities:

Change in funds held on behalf of clients

466

46

Receivables, net

(40)

218

Accounts payable and accrued liabilities

(297)

(399)

Restructuring reserves

(54)

16

Current income taxes

(14)

(19)

Pension and other post employment liabilities

(95)

(362)

Other assets and liabilities

(82)

(203)

Cash Provided by Operating Activities

773

181

CASH FLOWS FROM INVESTING ACTIVITIES

Sales of long-term investments

82

21

Purchases of long-term investments

(17)

(17)

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

(1,692)

107

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

(466)

(46)

Acquisition of businesses, net of cash acquired

(90)

(55)

Proceeds from sale of businesses

10

139

Capital expenditures

(115)

(86)

Cash (Used for) Provided by Investing Activities

(2,288)

63

CASH FLOWS FROM FINANCING ACTIVITIES

Purchase of treasury stock

(100)

(250)

Issuance of stock for employee benefit plans

98

142

Issuance of debt

1,805

1,092

Repayment of debt

(81)

(1,118)

Cash dividends to stockholders

(123)

(124)

Cash Provided by (Used for) Financing Activities

1,599

(258)

Effect of Exchange Rate Changes on Cash and Cash Equivalents

34

12

Net Increase (Decrease) in Cash and Cash Equivalents

118

(2)

Cash and Cash Equivalents at Beginning of Period

217

582

Cash and Cash Equivalents at End of Period

$                 335

$                 580

Aon Corporation

Selected Financial Data for Hewitt Associates, Inc.

Fiscal Fourth Quarter Ended

(millions)

Sept. 30, 2010

Sept. 30, 2009

Percent Change

Organic Revenue (1)

Net Revenue

Consulting

$      285

$      265

8

%

10

%

Outsourcing

503

503

-

-

Intersegment

(8)

(10)

(20)

N/A

Total Net Revenue

$      780

$      758

3

%

3

%

Total operating income

$      110

$      106

4

%

Operating margins

14.1%

14.0%

(1)  Organic revenue excludes the impact of foreign exchange, acquisitions, divestitures, and third-party revenues.

SOURCE Aon Corporation



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