- Total Revenue was $1.8 billion and EPS from Continuing Operations was $0.40Third Quarter Summary- EPS from continuing operations, excluding certain items, decreased 6% to $0.65- Brokerage revenue was $1.5 billion with a decline in organic revenue of 3%-
Oct. 30, 2009 (PR Newswire) --
CHICAGO, Oct. 30 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE: AOC) today reported results for the third quarter ended September 30, 2009.
Net income attributable to Aon stockholders was $120 million or $0.41 per share, compared to $117 million or $0.40 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations decreased 25% to $117 million or $0.40 per share, compared to $155 million or $0.53 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations per share, excluding certain items, decreased 6% to $0.65 compared to $0.69 for the prior year quarter, including a $62 million or 69% decline in investment income. 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 discipline, as highlighted by a 140 basis point adjusted pretax margin improvement in our Brokerage segment, despite difficult economic and industry conditions and a 69 percent decline in total investment income," said Greg Case, president and chief executive officer. "We continue to make substantial investments across our businesses with the rollout of our Global Risk Insight Platform and the introduction of Inpoint, our insurance carrier consulting business, as well as the addition of key talent in Consulting. As we invest in future growth opportunities, our 2007 and Aon Benfield restructuring programs will continue to deliver additional cost savings as we have achieved less than 40 percent thus far, of the total $589 million of estimated annual savings under these two programs. Lastly, our balance sheet and strong cash flow provide significant financial flexibility to create shareholder value, as highlighted by the repurchase of an additional $125 million of stock during the quarter."
THIRD QUARTER FINANCIAL SUMMARY
Total revenue decreased 2% to $1.8 billion due to a 5% decline resulting from foreign currency translation and a 69% decline in investment income, partially offset by a 9% increase from acquisitions, primarily Benfield, net of dispositions.
Total operating expenses were similar to the prior year quarter at $1.6 billion, including an $82 million favorable impact from foreign currency translation, partially offset by a $45 million increase in restructuring charges and operating expenses from the Benfield merger.
Restructuring expenses related to the 2007 and Aon Benfield restructuring programs were $99 million in the third quarter compared to $54 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for both the 2007 and Aon Benfield restructuring programs are detailed on page 13 of this release.
Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $68 million compared to $29 million in the prior year quarter. Of the estimated restructuring savings in the third quarter, $57 million were related to the Brokerage segment primarily for workforce reduction. Before any potential reinvestment of savings, the 2007 restructuring program is now expected to deliver cumulative cost savings of approximately $240-245 million in 2009 and $467 million of annualized run-rate cost savings by the end of 2010, primarily as a result of additional cost savings opportunities to streamline support functions globally.
Restructuring savings in the third quarter related to the Aon Benfield restructuring program are estimated at $14 million. Before any potential reinvestment of savings, the Benfield restructuring program is now expected to deliver cumulative cost savings of $45-50 million in 2009, $90-100 million in 2010 and $122 million in 2011.
Currency fluctuations in the third quarter negatively impacted income from continuing operations by $0.01 per diluted share when the Company translates prior year quarter results at current quarter foreign exchange rates.
Effective tax rate on continuing operations was 26.7% for the third quarter compared to 27.1% for the prior year quarter. The rate in the third quarter includes an underlying tax rate on operations of 28.0%.
Average diluted shares outstanding decreased to 292.1 million in the third quarter compared to 293.9 million in the prior year quarter. As a result of accounting guidance introduced in the first quarter, share-based payment awards which receive non-forfeitable dividends are now included in the calculation of basic and diluted shares outstanding. Average diluted shares outstanding increased by approximately 3.4 million in the third quarter and 3.6 million in the prior year quarter as a result of these share-based awards being included in the calculation of diluted earnings per share.
During the quarter, the Company repurchased 3.0 million shares of common stock for $125 million. As of September 30, the Company had approximately $605 million of remaining share repurchase authorization.
Discontinued Operations after-tax income was $3 million or $0.01 per share compared to an after-tax loss of $38 million or $0.13 per share for the prior year quarter. Discontinued operations include adjustments to the gains and losses of previously sold companies. The prior year quarter includes the results of Automobile Insurance Specialists (AIS) and post-close adjustments related to the sale of Combined Insurance Companies of America (CICA) and Sterling Life Insurance (Sterling).
THIRD QUARTER SEGMENT REVIEW
Certain noteworthy items impacted pretax income and pretax margins in the third quarter of 2009 and 2008. The third quarter segment reviews provided below include supplemental information related to adjusted pretax income and pretax margin which is described in detail on the "Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted Earnings Per Share" on page 12 of this press release.
RISK AND INSURANCE BROKERAGE SERVICES
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Third Quarter Ended Less:
(millions) ------------------- Less: Acquisitions, Organic
Commissions, Sep 30, Sep 30, % Currency Divestitures, Revenue
Fees and Other 2009 2008 Change Impact Other Growth
-------------- ---- ---- ------ ------ ----- ------
Americas $541 $557 (3)% (2)% -% (1)%
U.K. 167 182 (8) (9) 5 (4)
EMEA 273 314 (13) (7) (1) (5)
Asia Pacific 111 120 (8) (5) (2) (1)
Reinsurance 379 252 50 (4) 58 (4)
--- --- --- --- --- ---
Subtotal $1,471 $1,425 3% (5)% 11% (3)%
------ ------ --- --- --- ---
Investment
Income 18 48 (63)%
--- --- ---
Total Revenue $1,489 $1,473 1%
====== ====== ===
Risk and Insurance Brokerage Services total revenue increased 1% to $1.5 billion compared to the prior year quarter due to an 11% increase from acquisitions, primarily Benfield, net of dispositions, partially offset by a 5% unfavorable impact from foreign currency translation on commissions and fees and a 63% decline in investment income. Americas organic revenue decreased 1% due primarily to weak economic conditions and a soft market in both U.S. Retail and Canada, partially offset by strong growth in Latin America. U.K. organic revenue decreased 4% due primarily to weak economic conditions and lower new business. EMEA organic revenue decreased 5% as weak economic conditions in continental Europe offset growth in certain emerging markets. Asia Pacific organic revenue decreased 1% reflecting the impact of exiting certain businesses in Japan, partially offset by modest growth in New Zealand and certain emerging markets. Reinsurance organic revenue decreased 4% due primarily to higher cedent retentions in treaty business, partially offset by new business growth globally in treaty placements.
Third Quarter Ended
-------------------
(millions) Sept 30, Sept 30, %
2009 2008 Change
------ ------ ------
Revenue $1,489 $1,473 1%
Expenses
Compensation and benefits 909 910 -
Other expenses 393 380 3
----- --- ---
Total operating expenses 1,302 1,290 1
----- ----- ---
$187 $183 2%
Operating income
Other (income) expense (1) (9) (89)
---- ---- ---
Pretax income $188 $192 (2)%
==== ==== ===
Pretax margin 12.6% 13.0%
Pretax income - adjusted $274 $251 9%
Pretax margin - adjusted 18.4% 17.0%
Compensation and benefits for the third quarter was similar to the prior year quarter including a $48 million favorable impact from foreign currency translation, benefits related to the restructuring programs and lower discretionary incentive compensation, primarily offset by increased operating expenses from the Benfield merger and a $7 million increase in restructuring related costs. Other expenses for the third quarter increased $13 million from the prior year quarter due primarily to a $24 million increase in restructuring related costs, the inclusion of Benfield operating expenses and an $11 million increase in intangible amortization expense related to the merger with Benfield, partially offset by a $18 million favorable impact from foreign currency translation.
Third quarter pretax income decreased 2% to $188 million. Adjusting for certain items detailed on page 12 of this press release, pretax income increased 9% or $23 million to $274 million and pretax margin increased 140 basis points to 18.4% versus the prior year quarter due primarily to benefits of the restructuring programs, lower discretionary incentive compensation and the inclusion of pretax income from the merger with Benfield, partially offset by a $30 million decrease in investment income and higher intangible amortization expenses.
CONSULTING
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Third Quarter Ended Less:
(millions) ------------------- Less: Acquisitions, Organic
Commissions, Sept 30, Sept 30, % Currency Divestitures, Revenue
Fees and Other 2009 2008 Change Impact Other Growth
-------------- ---- ---- ------ ------ ----- ------
Services $262 $284 (8)% (4)% 1% (5)%
Outsourcing 46 51 (10) (6) 1 (5)
--- --- --- --- --- ---
Subtotal $308 $335 (8)% (4)% 1% (5)%
---- ---- --- --- --- ---
Investment
Income - 2 (100)%
--- --- ---
Total Revenue $308 $337 (9)%
==== ==== ===
Consulting total revenue decreased 9% to $308 million compared to the prior year quarter due primarily to a 5% decline in organic commissions and fees revenue and a 4% unfavorable impact from foreign currency translation. Organic revenue in Consulting Services decreased 5% primarily reflecting a decline in compensation and human capital consulting. Organic revenue in Outsourcing declined 5% as a previously announced outsourcing contract winds down.
Third Quarter Ended
-------------------
(millions) Sept 30, Sept 30, %
2009 2008 Change
---- ---- ------
Revenue $308 $337 (9)%
Expenses
Compensation and benefits 198 206 (4)
Other expenses 77 79 (3)
--- --- ---
Total operating expenses 275 285 (4)
--- --- ---
Operating income $33 $52 (37)%
Other (income) expense - - N/A
--- --- ---
Pretax income $33 $52 (37)%
=== === ===
Pretax margin 10.7% 15.4%
Pretax income - adjusted $48 $53 (9)%
Pretax margin - adjusted 15.6% 15.7%
Compensation and benefits for the third quarter decreased 4% or $8 million from the prior year quarter including a $9 million favorable impact from foreign currency translation, benefits related to the 2007 restructuring program and lower discretionary incentive compensation, partially offset by a $7 million increase in restructuring related costs. Other expenses decreased 3% or $2 million compared to the prior year quarter due to a $3 million favorable impact from foreign currency translation.
Third quarter pretax income decreased 37% to $33 million. Adjusting for certain items detailed on page 12 of this press release, pretax income decreased 9% or $5 million to $48 million and pretax margin decreased 10 basis points to 15.6% versus the prior year quarter as lower organic revenue was partially offset by benefits related to the 2007 restructuring program and lower discretionary incentive compensation.
UNALLOCATED INCOME AND EXPENSE
------------------------------
Third Quarter Ended
-------------------
(millions) Sept 30, Sept 30, %
2009 2008 Change
---- ---- ------
Operating segment income before tax $221 $244 (9)%
Unallocated investment income & other
revenue 19 40 (53)
Unallocated expenses (30) (34) (12)
Interest expense (32) (32) -
--- --- ---
Income from continuing operations
before tax $178 $218 (18)%
==== ==== ====
Unallocated investment income and other revenue for the third quarter decreased $21 million to $19 million compared to the prior year quarter due primarily to a $27 million decline in certain private equity distributions, partially offset by $10 million of revenue related to the Company's equity ownership in certain insurance investment funds. Unallocated expenses decreased $4 million to $30 million. The third quarter included $3 million of expense related to the Company's equity ownership in certain insurance investment funds. The prior year quarter included $6 million of costs related to the Benfield merger. Interest expense was similar to the prior year quarter at $32 million.
Conference Call and Webcast Details
The Company will host a conference call on Friday, October 30, 2009 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: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 37,000 colleagues worldwide, Aon readily 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 and 2009 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.
