Total Revenue was $1.9 billion with Organic Growth in Commissions and Fees of 2% - EPS from Continuing Operations was $0.43 Fourth Quarter Highlights - EPS from continuing operations excluding certain items, increased 19% to $0.81 - Brokerage revenue declined 3% due to an 8% decline from foreign currency translation; Organic growth in commissions and fees of 2% - Brokerage pretax margin was 13.7% and the adjusted pretax margin, excluding certain items, increased 150 basis points to 19.9% - Consulting revenue declined 8% due to a 9% decline from foreign currency translation; Organic growth in commissions and fees of 3% - Consulting pretax margin was 16.1% and the adjusted pretax margin, excluding certain items, increased 180 basis points to 19.0% - Increased total annual savings related to the 2007 restructuring program by $70 million to $370 million, and costs necessary to achieve savings by $100 million to $550 million - Completed merger with Benfield Group, creating an unparalleled reinsurance franchise
CHICAGO, Feb. 6 /PRNewswire-FirstCall/ — Aon Corporation (NYSE: AOC - News) today reported results for the fourth quarter and full year ended December 31, 2008.
Net income decreased 95% to $10 million or $0.03 per share, compared to $207 million or $0.64 per share for the prior year quarter, primarily due to an expected $116 million after-tax loss on the disposition of the remaining property and casualty insurance businesses that are now included in discontinued operations, an increase in restructuring-related costs, and costs related to the Benfield merger. Net income from continuing operations decreased 35% to $123 million or $0.43 per share, compared to $188 million or $0.58 per share for the prior year quarter. Net income from continuing operations per share, excluding certain items, increased 19% to $0.81 compared to $0.68 for the prior year quarter. Certain items that impacted fourth 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.
“In the fourth quarter, we achieved solid results despite a soft market and very challenging economic environment. These results reflect the strength of our industry-leading network of global resources and capabilities, and continued progress in each of our key operating metrics. Organic growth was two percent, adjusted pretax margin increased 120 basis points and adjusted earnings per share from continuing operations increased 19%,” said Greg Case, president and chief executive officer, Aon Corporation. “We begin 2009 in a position of strength, with a core product portfolio that is now aligned around risk advice and human capital solutions. Our expense initiatives and restructuring programs are delivering meaningful margin improvement, while concurrently funding significant investments in value-added services and capabilities to support our clients. Our balance sheet has remained strong, which has provided us with financial flexibility to effectively allocate capital, as is highlighted by the recent merger with Benfield. All of these actions support our belief in the underlying strength of Aon and our on-going commitment to delivering long-term shareholder value.”
FOURTH QUARTER FINANCIAL SUMMARY
Total revenue decreased 4% to $1.9 billion due to an 8% decline from foreign currency translation, a 2% increase from acquisitions net of dispositions and organic revenue growth in commissions and fees of 2%. Total expenses increased 1% or $16 million to $1.8 billion, including a $155 million favorable impact from foreign currency translation, partially offset by a $53 million increase in restructuring costs, $46 million of Benfield transaction costs and $42 million of other Benfield expenses.
The fourth quarter includes the operating results of Benfield since the close of the merger on November 28, and reflects $38 million of revenue and $42 million of expenses. The results of Benfield decreased net income by $0.01 per share in the fourth quarter.
Restructuring expense was $87 million in the fourth quarter compared to $34 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for both the 2007 and Benfield restructuring programs are detailed on page 13 of this release.
Restructuring savings in the fourth quarter related to the 2007 restructuring program are estimated at $32 million compared to no material savings in the prior year quarter. Of the estimated restructuring savings in the fourth quarter, $27 million were related to the Brokerage segment primarily for workforce reduction. The 2007 restructuring program achieved approximately $78 million of cumulative savings in 2008. Before any potential reinvestment of savings, the 2007 restructuring program is now expected to deliver cumulative run-rate cost savings of approximately $240-265 million in 2009 and $370 million in 2010, primarily as a result of additional cost savings opportunities to streamline support functions globally.
Although the recently announced Benfield restructuring program is expected to realize significant savings over the next three years, the Company realized no savings from the program in the fourth quarter. The Company expects the restructuring plan to result in cumulative pretax costs of approximately $185 million over a three-year period, a portion of which will be included in the purchase price allocation. Before any potential reinvestment of savings, the Benfield restructuring program is expected to deliver cumulative cost savings of $33-41 million in 2009, $84-94 million in 2010 and $122 million in 2011.
Foreign currency translation decreased net income by $0.01 per share compared to the prior year quarter due primarily to fluctuations in the U.S. dollar against most major currencies.
Effective tax rate on continuing operations declined to 28.9% for the fourth quarter compared to 30.6% for the prior year quarter due primarily to reductions in certain statutory tax rates and changes in the geographical distribution of income.
Average diluted shares outstanding were 288 million in the fourth quarter compared to 324 million in the prior year quarter, due primarily to the Company’s share repurchase program.
Discontinued Operations after-tax loss was $113 million or $0.40 per share compared to after-tax income of $19 million or $0.06 per share for the prior year quarter. Subsequent to the fourth quarter, the Company entered into an agreement to dispose of its property and casualty insurance operations, and the results were classified as held-for-sale and placed into discontinued operations for the quarter. The after-tax loss in the quarter is primarily due to an expected $116 million loss on disposal of these operations. Discontinued operations also include the results of Automobile Insurance Specialists (AIS), and for the prior year quarter, include the results of AIS, Combined Insurance Company of America and Sterling Life Insurance.
FOURTH QUARTER SEGMENT REVIEW
Certain noteworthy items impacted revenue, pretax income and pretax margins in the fourth quarter of 2008 and 2007. The fourth 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
-------------------------------------
(millions) Fourth Quarter Ended
Less:
------------------------- Less: Acquisitions, Organic
Commissions, Dec 31, Dec 31, % Currency Divestitures, Revenue
Fees, Other 2008 2007 Change Impact Other Growth
------------ ------- ------- ------ -------- ------------- -------
Americas $642 $650 (1)% (4)% -% 3%
U.K. 196 223 (12) (14) 1 1
EMEA 333 353 (6) (9) 2 1
Asia Pacific 119 140 (15) (16) (2) 3
Reinsurance 247 210 18 (5) 21 2
------- ------- ------- -------- ------------- -------
Sub-Total $1,537 $1,576 (2)% (8)% 4% 2%
------- ------- ------- -------- ------------- -------
Investment Income $44 $51 (14)%
------- ------- -------
Total Revenue $1,581 $1,627 (3)%
======= ======= =======
Risk and Insurance Brokerage Services total revenue decreased 3% to $1.6 billion compared to the prior year quarter due to an 8% unfavorable impact from foreign currency translation and a 14% decline in investment income, partially offset by a 4% increase from acquisitions net of dispositions and 2% organic revenue growth in commissions and fees. Americas organic revenue increased 3% reflecting solid growth in U.S. Retail and strong growth in Latin America. U.K. organic revenue increased 1% due primarily to growth in Captives business. EMEA organic revenue increased 1% due to growth in continental Europe and emerging markets. Asia Pacific organic revenue increased 3% reflecting solid growth in most Asian markets, partially offset by the impact of certain regulatory changes in Japan. Reinsurance organic revenue increased 2% due primarily to growth in global facultative and treaty placements, partially offset by soft market conditions.
Fourth Quarter Ended
------------------------
(millions) Dec 31, Dec 31, %
2008 2007 Change
-------- -------- -------
Revenue $1,581 $1,627 (3)%
Expenses
Compensation and benefits 934 923 1
Other expenses 426 434 (2)
-------- -------- -------
Total operating expenses 1,360 1,357 -
Operating income 221 270 (18)%
Other (income) expense 4 (6) N/A
-------- -------- -------
Pretax income $217 $276 (21)%
======== ======== =======
Pretax margin 13.7% 17.0%
Pretax income - adjusted $314 $300 5%
Pretax margin - adjusted 19.9% 18.4%
Total operating expenses for the fourth quarter increased $3 million from the prior year quarter. The $3 million increase includes a $48 million increase in restructuring costs, $40 million of Benfield operating expenses and $11 million for the previously disclosed reviews under the Foreign Corrupt Practices Act (FCPA) and similar laws in other countries and related compliance initiatives, primarily offset by a $124 million favorable impact from foreign currency translation, $27 million of benefits related to the 2007 restructuring program, and a $33 million benefit due primarily to an increase in U.S. dollar commissions and fees receivable in the U.K. This benefit currently reflects a more favorable ongoing relationship between U.S. dollar revenue and British pound expense, for business placed into the U.K. market.
Fourth quarter pretax income decreased 21% to $217 million. Adjusting for certain items detailed on page 12 of this press release, pretax income increased 5% or $14 million to $314 million and pretax margin increased 150 basis points to 19.9% versus the prior year quarter due primarily to benefits of the 2007 restructuring program and other operational improvements, partially offset by a $21 million unfavorable impact related to conforming adjustments in certain European countries and a $7 million decline in investment income.
Brokerage results for the fourth quarter include $38 million of revenue and a $2 million pretax loss for Benfield. Benfield operating results had an unfavorable impact of 60 basis points on adjusted Brokerage pretax margin.
CONSULTING
----------
(millions) Fourth Quarter
Ended Less:
----------------- Less: Acquisitions, Organic
Commissions, Dec 31, Dec 31, % Currency Divestitures, Revenue
Fees, Other 2008 2007 Change Impact Other Growth
----------- ------- ------- ------ -------- -------------- -------
Services $289 $313 (8)% (9)% (3)% 4%
Outsourcing 52 59 (12) (10) 2 (4)
------- ------- ------ -------- -------------- -------
Sub-Total $341 $372 (8)% (9)% (2)% 3%
------- ------- ------ -------- -------------- -------
Investment Income $1 $1 -%
------- ------- ------
Total Revenue $342 $373 (8)%
======= ======= ======
Consulting total revenue decreased 8% to $342 million compared to the prior year quarter due to a 9% unfavorable impact from foreign currency translation, a 2% decrease from acquisitions net of dispositions, partially offset by 3% organic revenue growth in commissions and fees. Organic revenue in Services increased 4% reflecting growth in retirement and health and benefits consulting. Organic revenue in Outsourcing declined 4% due to the previously announced termination of a significant outsourcing contract, partially offset by modest growth in benefits outsourcing.
Fourth Quarter Ended
------------------------
(millions) Dec 31, Dec 31, %
2008 2007 Change
-------- -------- ------
Revenue $342 $373 (8)%
Expenses
Compensation and benefits 203 219 (7)
Other expenses 84 94 (11)
-------- -------- ------
Total operating expenses 287 313 (8)
Operating income 55 60 (8)%
Other (income) expense - - -
-------- -------- ------
Pretax income $55 $60 (8)%
======== ======== ======
Pretax margin 16.1% 16.1%
Pretax income - adjusted $65 $64 2%
Pretax margin - adjusted 19.0% 17.2%
Compensation and benefits for the fourth quarter decreased 7% or $16 million from the prior year quarter including an $18 million favorable impact from foreign currency translation and benefits related to the 2007 restructuring program, partially offset by a $4 million increase in restructuring costs. Other expenses decreased 11% or $10 million compared to the prior year quarter including a $7 million favorable impact from foreign currency translation and benefits related to the 2007 restructuring program.
Fourth quarter pretax income decreased 8% to $55 million due to an $8 million decline from foreign currency translation. Pretax margin was 16.1%, similar to the prior year quarter. Adjusting for certain items detailed on page 12, pretax income increased 2% to $65 million and the pretax margin increased 180 basis points to 19.0%.
UNALLOCATED INCOME AND EXPENSE
------------------------------
Fourth Quarter Ended
-----------------------
(millions) Dec 31, Dec 31, %
2008 2007 Change
------- ------- ------
Operating segment income
before tax $272 $336 (19)%
Unallocated investment income 6 11 (45)
Unallocated expenses (75) (40) 88
Interest expense (30) (36) (17)
------- ------- ------
Income from continuing
operations before tax $173 $271 (36)%
======= ======= ======
Unallocated investment income for the fourth quarter decreased $5 million to $6 million compared to the prior year quarter due primarily to the timing of distributions in certain private equity holdings. Unallocated expenses increased $35 million to $75 million versus the prior year quarter due primarily to $44 million of hedging costs related to the Benfield transaction. Interest expense decreased $6 million to $30 million from the prior year quarter due to fluctuations in foreign currency and a decline in average interest rates on outstanding debt.
2008 FULL YEAR SUMMARY
Total revenue for 2008 increased 4% to $7.6 billion with organic revenue growth of 2%. Risk and Insurance Brokerage Services total revenue increased 5% to $6.2 billion with organic revenue growth in commissions and fees of 2%. Consulting total revenue was similar to the prior year with organic revenue growth in commissions and fees of 3%.
Net income for 2008 increased 71% to $1.5 billion compared to $864 million for the prior year. Net income from continuing operations decreased 6% to $621 million compared to $662 million for the prior year.
EPS for 2008 increased 83% to $4.91 per share compared to $2.69 per share for the prior year. EPS from continuing operations was $2.06 compared to $2.07 for the prior year. EPS from continuing operations, excluding certain items, increased 24% to $2.90 compared to $2.33 for the prior year. Certain items that impacted full year results and comparisons against the prior year are detailed in the reconciliations of the impact of non-GAAP measures on page 12.
During 2008, the Company repurchased approximately 42.6 million shares of common stock for $1.9 billion at an average price of $45.08 per share. As of December 31, 2008, the Company had approximately $850 million of remaining share repurchase authorization.
Conference Call and Webcast Details
The Company will host a conference call on Friday, February 6, 2009 at 7:30 a.m. central time. Interested parties can listen to the conference call via a live audio webcast at http://www.aon.com.
About Aon
Aon Corporation (NYSE: AOC - News) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. With over 37,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources and technical expertise are delivered locally through more than 500 offices in over 120 countries. Named the world’s best broker by Euromoney magazine’s 2008 Insurance Survey, Aon also ranked highest on the Business Insurance listing of the world’s largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007 and 2008, and Aon was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com.
Safe Harbor Statement
This press release 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: general economic conditions in different countries in which we 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 our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, 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, ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, our ability to integrate Benfield successfully and to realize the anticipated benefits of the Benfield merger. Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is contained in the Company’s filings with the Securities and Exchange Commission.
This press release includes supplemental information related to organic revenue growth 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 growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses and unusual items. Reconciliation is provided in the attached schedules. Supplemental organic revenue growth 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 Summary of Operations. 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, Vice President,
Investor Relations Global Public Relations
312-381-3983 312-381-2485
Aon Corporation
Consolidated Summary of Operations (Unaudited)
Fourth Quarter Ended Twelve Months Ended
--------------------------------------------------------
(millions except Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent
per share data) 2008 2007 Change 2008 2007 Change
-------- -------- --------- --------- --------- --------
Revenue
-------
Commissions,
fees and
other $1,873 $1,943 (4)% $7,366 $7,066 4%
Investment
income 51 63 (19) 265 293 (10)
-------- -------- --------- --------- --------- --------
Total
revenue 1,924 2,006 (4) 7,631 7,359 4
-------- -------- --------- --------- --------- --------
Expenses
--------
Compensation
and benefits 1,153 1,157 - 4,581 4,341 6
Other general
expenses 455 496 (8) 1,800 1,712 5
Depreciation
and
amortization 65 52 25 222 193 15
-------- -------- --------- --------- --------- --------
Total
operating
expenses 1,673 1,705 (2) 6,603 6,246 6
-------- -------- --------- --------- --------- --------
Operating income 251 301 (17) 1,028 1,113 (8)
Interest
expense 30 36 (17) 126 138 (9)
Other
(income)
expense 48 (6) N/A 39 (35) N/A
-------- -------- --------- --------- --------- --------
Income from
continuing
operations
before
provision
for income tax 173 271 (36) 863 1,010 (15)
Provision for
income tax (1) 50 83 (40) 242 348 (30)
-------- -------- --------- --------- --------- --------
Income from
continuing
operations 123 188 (35) 621 662 (6)
Discontinued
operations
Income (loss)
from
discontinued
operations (184) 77 N/A 1,256 330 281
Provision for
(benefit from)
income tax (2) (71) 58 N/A 399 128 212
-------- -------- --------- --------- --------- --------
Income
(loss) from
discontinued
operations (113) 19 N/A 857 202 324
-------- -------- --------- --------- --------- --------
Net income $10 $207 (95)% $1,478 $864 71%
======== ======== ========= ========= ========= ========
Basic net income
(loss) per share:
Continuing
operations $0.45 $0.62 (27)% $2.18 $2.23 (2)%
Discontinued
operations (0.41) 0.07 N/A 3.00 0.67 348
-------- -------- --------- --------- --------- --------
Net income $0.04 $0.69 (94)% $5.18 $2.90 79%
======== ======== ========= ========= ========= ========
Diluted net income
(loss) per share:
Continuing
operations $0.43 $0.58 (26)% $2.06 $2.07 -%
Discontinued
operations (0.40) 0.06 N/A 2.85 0.62 360
-------- -------- --------- --------- --------- --------
Net income $0.03 $0.64 (95)% $4.91 $2.69 83%
======== ======== ========= ========= ========= ========
Weighted average
common shares
outstanding -
diluted 288.1 324.1 (11)% 300.9 323.0 (7)%
======== ======== ========= ========= ========= ========
(1) Tax rate from continuing operations is 28.9% and 30.6% for the fourth
quarters ended December 31, 2008 and 2007, respectively, and 28.0% and
34.5% for the twelve months ended December 31, 2008 and 2007,
respectively.
(2) Tax rate from discontinued operations is 38.6% and 75.3% for the
fourth quarters ended December 31, 2008 and 2007, respectively, and
31.8% and 38.8% for the twelve months ended December 31, 2008 and
2007, respectively.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Fourth Quarter Ended
----------------------------------------------------------
Less:
Less: Acquisitions, Organic
Dec. 31, Dec. 31, Percent Currency Divestitures Revenue
(millions) 2008 2007 Change Impact & Other Growth (1)
-------- ------- ------ -------- ------------ ------------
Commissions,
Fees and Other
---------------
Risk and
Insurance
Brokerage
Services:
Americas $642 $650 (1)% (4)% -% 3%
United
Kingdom 196 223 (12) (14) 1 1
Europe,
Middle
East &
Africa 333 353 (6) (9) 2 1
Asia Pacific 119 140 (15) (16) (2) 3
Reinsurance
brokerage
and
related
services 247 210 18 (5) 21 2
-------- ------- ------ -------- ------------ ------------
Total Risk
and
Insurance
Brokerage
Services 1,537 1,576 (2) (8) 4 2
-------- ------- ------ -------- ------------ ------------
Consulting:
Consulting
services 289 313 (8) (9) (3) 4
Outsourcing 52 59 (12) (10) 2 (4)
-------- ------- ------ -------- ------------ ------------
Total
Consulting 341 372 (8) (9) (2) 3
-------- ------- ------ -------- ------------ ------------
Total
Operating
Segments $1,878 $1,948 (4)% (8)% 2% 2%
======== ======= ====== ======== ============ ============
Investment
Income
----------
Risk and
Insurance
Brokerage
Services $44 $51 (14)%
Consulting 1 1 -
-------- ------- ------
Total
Operating
Segments $45 $52 (13)%
======== ======= ======
Total Revenue
-------------
Risk and
Insurance
Brokerage
Services $1,581 $1,627 (3)%
Consulting 342 373 (8)
Unallocated 6 11 (45)
Intersegment (5) (5) -
-------- ------- ------
Total $1,924 $2,006 (4)%
======== ======= ======
(1) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers, reimbursable expenses and
unusual items.
Aon Corporation
Revenue from Continuing Operations (Unaudited)
Twelve Months Ended
-----------------------------------------------------------
Less:
Less: Acquisitions, Organic
Dec. 31, Dec. 31, Percent Currency Divestitures Revenue
(millions) 2008 2007 Change Impact & Other Growth (1)
-------- ------- ------ -------- ------------ -----------
Commissions,
Fees and Other
---------------
Risk and
Insurance
Brokerage
Services:
Americas $2,280 $2,259 1% -% -% 1%
United
Kingdom 742 768 (3) (4) 1 -
Europe,
Middle
East &
Africa 1,521 1,341 13 7 2 4
Asia
Pacific 492 483 2 1 (1) 2
Reinsurance
brokerage
and
related
services 1,003 901 11 3 7 1
-------- ------- ------ -------- ------------ -----------
Total
Risk and
Insurance
Brokerage
Services 6,038 5,752 5 2 1 2
-------- ------- ------ -------- ------------ -----------
Consulting:
Consulting
services 1,139 1,107 3 - (2) 5
Outsourcing 214 236 (9) (2) - (7)
-------- ------- ------ -------- ------------ -----------
Total
Consulting 1,353 1,343 1 - (2) 3
-------- ------- ------ -------- ------------ -----------
Total
Operating
Segments $7,391 $7,095 4% 1% 1% 2%
======== ======= ====== ======== ============ ===========
Investment
Income
----------
Risk and
Insurance
Brokerage
Services $192 $205 (6)%
Consulting 5 9 (44)
-------- ------- ------
Total
Operating
Segments $197 $214 (8)%
======== ======= ======
Total Revenue
-------------
Risk and
Insurance
Brokerage
Services $6,230 $5,957 5%
Consulting 1,358 1,352 -
Unallocated 68 79 (14)
Intersegment (25) (29) (14)
-------- ------- ------
Total $7,631 $7,359 4%
======== ======= ======
(1) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers, reimbursable expenses and
unusual items.
Aon Corporation - Segments (Unaudited)
Risk and Insurance Brokerage Services - Continuing Operations
-------------------------------------------------------------
Fourth Quarter Ended Twelve Months Ended
--------------------------- -----------------------------
Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent
(millions) 2008 2007 Change 2008 2007 Change
-------- --------- -------- --------- --------- --------
Revenue
-------
Commissions,
fees and
other $1,537 $1,576 (2)% $6,038 $5,752 5%
Investment
income 44 51 (14) 192 205 (6)
-------- --------- -------- --------- --------- --------
Total
revenue 1,581 1,627 (3) 6,230 5,957 5
-------- --------- -------- --------- --------- --------
Expenses
--------
Compensation
and
benefits 934 923 1 3,707 3,457 7
Other general
expenses 426 434 (2) 1,659 1,525 9
-------- --------- -------- --------- --------- --------
Total
operating
expenses 1,360 1,357 - 5,366 4,982 8
-------- --------- -------- --------- --------- --------
Operating
income 221 270 (18) 864 975 (11)
Other
(income)
expense 4 (6) N/A (10) (35) (71)
-------- --------- -------- --------- --------- --------
Income before
provision
for income
tax $217 $276 (21)% $874 $1,010 (13)%
======== ========= ======== ========= ========= ========
Pretax income
margin 13.7% 17.0% 14.0% 17.0%
Consulting -
Continuing
Operations Fourth Quarter Ended Twelve Months Ended
------------ --------------------------- -----------------------------
Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent
(millions) 2008 2007 Change 2008 2007 Change
-------- --------- -------- --------- --------- --------
Revenue
-------
Commissions,
fees and
other $341 $372 (8)% $1,353 $1,343 1%
Investment
income 1 1 - 5 9 (44)
-------- --------- -------- --------- --------- --------
Total
revenue 342 373 (8) 1,358 1,352 -
-------- --------- -------- --------- --------- --------
Expenses
--------
Compensation
and benefits 203 219 (7) 815 823 (1)
Other general
expenses 84 94 (11) 331 340 (3)
-------- --------- -------- --------- --------- --------
Total
operating
expenses 287 313 (8) 1,146 1,163 (1)
-------- --------- -------- --------- --------- --------
Operating
income 55 60 (8) 212 189 12
Other
(income)
expense - - - (1) - N/A
-------- --------- -------- --------- --------- --------
Income before
provision
for income
tax $55 $60 (8)% $213 $189 13%
======== ========= ======== ========= ========= =========
Pretax income
margin 16.1% 16.1% 15.7% 14.0%
Reconciliation of segment income before
provision for income tax to income from
continuing operations before provision
for income tax:
Fourth Quarter Ended Twelve Months Ended
--------------------------- -----------------------------
Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent
(millions) 2008 2007 Change 2008 2007 Change
-------- --------- -------- --------- --------- --------
Segment income
before
provision for
income tax
Risk and
Insurance
Brokerage
Services $217 $276 (21)% $874 $1,010 (13)%
Consulting 55 60 (8) 213 189 13
-------- --------- -------- --------- --------- --------
Total
segment
income
before
provision
for income
tax 272 336 (19) 1,087 1,199 (9)
Unallocated
investment
income 6 11 (45) 68 79 (14)
Unallocated
expenses (75) (40) 88 (166) (130) 28
Interest
expense (30) (36) (17) (126) (138) (9)
-------- --------- -------- --------- --------- --------
Income from
continuing
operations
before
provision
for income
tax $173 $271 (36)% $863 $1,010 (15)%
======== ========= ======== ========= ========= ========
Pretax
income
margin 9.0% 13.5% 11.3% 13.7%
Aon Corporation
Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted
Earnings Per Share (Unaudited) (1)
Fourth Quarter Ended Twelve Months Ended
December 31, 2008 December 31, 2008
(millions------------------------------- -------------------------------
except Risk and Unallo- Risk and Unallo-
per Insurance cated Insurance cated
share Brokerage Cons- Income & Brokerage Cons- Income &
data) Services ulting Expense Total Services ulting Expense Total
Revenue --------- ------- ------- ------ --------- ------- ------- -----
as
reported $1,581 $342 $1 $1,924 $6,230 $1,358 $43 $7,631
========= ======= ======= ====== ========= ======= ======= =====
Income
(loss)
from
continuing
operations
before
provision
for income
tax - as
reported $217 $55 $(99) $173 $874 $213 $(224) $863
Restruc-
turing
charges
(2005
and
2007
plans) 78 9 - 87 237 17 - 254
Pension
curtailment 6 1 1 8 6 1 1 8
Anti-
bribery
and
compliance
initia-
tives 11 - - 11 42 - - 42
Benfield
costs 2 - 44 46 2 - 50 52
Gain on
sale
of
land - - - - (5) - - (5)
--------- ------- ------- ------ --------- ------- ------- -----
Income
(loss)
from
continuing
operations
before
provision
for income
tax - as
adjusted $314 $65 $(54) 325 $1,156 $231 $(173) 1,214
========= ======= ======= ========= ======= =======
Provision
for income
taxes (2) 93 340
------ -----
Income from
continuing
operations -
as adjusted $232 $874
====== =====
Diluted
earnings
per share
from
continuing
operations -
as
adjusted $0.81 $2.90
====== =====
Weighted
average
common
shares
outstanding -
diluted 288.1 300.9
====== =====
Pretax
income
margins -
as
adjusted 19.9% 19.0% N/A 16.9% 18.6% 17.0% N/A 15.9%
========= ======= ======= ====== ========= ======= ======= =====
Fourth Quarter Ended Twelve Months Ended
December 31, 2007 December 31, 2007
(millions------------------------------- -------------------------------
except Risk and Unallo- Risk and Unallo-
per Insurance cated Insurance cated
share Brokerage Cons- Income & Brokerage Cons- Income &
data) Services ulting Expense Total Services ulting Expense Total
Revenue --------- ------- ------- ------ --------- ------- ------- -----
as
reported $1,627 $373 $6 $2,006 $5,957 $1,352 $50 $7,359
========= ======= ======= ====== ========= ======= ======= =====
Income
(loss)
from
continuing
operations
before
provision
for income
tax - as
reported $276 $60 $(65) $271 $1,010 $189 $(189) $1,010
Restruc-
turing
charges
(2005
and
2007
plans) 30 4 - 34 74 11 - 85
Gain on
sale of
businesses (6) - - (6) (36) - - (36)
Resolution
of U.K.
balance
sheet
reconcil-
iation
difference - - 15 15 - - 15 15
Reinsur-
ance
litiga-
tion - - - - 21 - - 21
--------- ------- ------- ------ --------- ------- ------- -----
Income (loss)
from
continuing
operations
before
provision
for income
tax - as
adjusted $300 $64 $(50) 314 $1,069 $200 $(174) 1,095
========= ======= ======= ========= ======= =======
Provision
for income
taxes (2) 93 348
------ -----
Income from
continuing
operations -
as adjusted $221 $747
====== =====
Diluted
earnings per
share from
continuing
operations -
as adjusted $0.68 $2.33
====== =====
Weighted average
common shares
outstanding -
diluted 324.1 323.0
====== =====
Pretax
income
margins -
as
adjusted 18.4% 17.2% N/A 15.7% 17.9% 14.8% N/A 14.9%
========= ======= ======= ====== ========= ======= ======= =====
(1) Certain noteworthy items impacting revenue and pretax income in 2008
and 2007 are described in this schedule. The revenue, income (loss)
from continuing operations before provision for income tax, diluted
earnings per share from continuing operations and related margins
shown with the caption "as adjusted" are non-GAAP measures.
(2) Tax rate from continuing operations is 28.6% and 29.6% for the fourth
quarters ended December 31, 2008 and 2007, respectively, and 28.0% and
31.8% for the twelve months ended December 31, 2008 and 2007,
respectively.
Aon Corporation
2007 Restructuring Plan (Unaudited)
By Type: Actual Estimated
----------------------------------------- ---------
Nine 4th Full Total
Months Quarter Year Incurred
(millions) 2007 2008 2008 2008 to Date Total
----------------------------------------- ---------
Workforce reduction
(Compensation and
benefits) $17 $118 $48 $166 $183 $330
Lease consolidation
(Other general
expenses) 22 25 13 38 60 134
Asset impairments
(Depreciation and
amortization) 4 13 5 18 22 45
Other costs
associated with
restructuring
(Other general
expenses) 3 9 20 29 32 41
----------------------------------------- ---------
Total restructuring
and related
expenses $46 $165 $86 $251 $297 $550
========================================= =========
By Segment: Actual Estimated
----------------------------------------- ---------
Nine 4th Full Total
Months Quarter Year Incurred
(millions) 2007 2008 2008 2008 to Date Total
----------------------------------------- ---------
Risk and Insurance
Brokerage Services $41 $157 $77 $234 $275 $503
Consulting 5 8 9 17 22 47
----------------------------------------- ---------
Total restructuring
and related
expenses $46 $165 $86 $251 $297 $550
========================================= =========
Benfield Restructuring
Plan (Unaudited)
By Type: Estimated
------------------------
Non-
Purchase
Purchase Account-
(millions) Accounting ing Total
------------------------
Workforce reduction
(Compensation and
benefits) $74 $52 $126
Lease consolidation
(Other general
expenses) 28 21 49
Asset impairments
(Depreciation and
amortization) - 8 8
Other costs
associated with
restructuring
(Other general
expenses) 2 - 2
------------------------
Total restructuring
and related
expenses $104 $81 $185
========================
Aon Corporation
Consolidated Summary of Operations - Reclassified for Discontinued
Operations (Unaudited)
2007 2008
-------------------------------- ---------------------------------
(millions
except
per 1st 2nd 3rd 4th 1st 2nd 3rd 4th
share Quar- Quar- Quar- Quar- Full Quar- Quar- Quar- Quar- Full
data) ter ter ter ter Year ter ter ter ter Year
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Revenue
-------
Comm-
issions,
fees
and
oth-
er $1,702 $1,750 $1,671 $1,943 $7,066 $1,848 $1,889 $1,756 $1,873 $7,366
Invest-
ment
income 67 88 75 63 293 57 67 90 51 265
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total
reve-
nue 1,769 1,838 1,746 2,006 7,359 1,905 1,956 1,846 1,924 7,631
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Expenses
--------
Compen-
sation
and
bene-
fits 1,040 1,097 1,047 1,157 4,341 1,154 1,143 1,131 1,153 4,581
Other
general
expen-
ses 413 413 390 496 1,712 419 503 423 455 1,800
Deprecia-
tion
and
amorti-
zation 47 46 48 52 193 50 58 49 65 222
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total
opera-
ting
expen-
ses 1,500 1,556 1,485 1,705 6,246 1,623 1,704 1,603 1,673 6,603
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Operating
income 269 282 261 301 1,113 282 252 243 251 1,028
Interest
expense 35 34 33 36 138 33 31 32 30 126
Other
(income)
expense - (29) - (6) (35) (4) (2) (3) 48 39
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income
from
continuing
operations
before
provision
for
income
tax 234 277 228 271 1,010 253 223 214 173 863
Provision
for
income
tax 73 97 95 83 348 76 57 59 50 242
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income
from
continuing
opera-
tions 161 180 133 188 662 177 166 155 123 621
Discontinued
operations
Income
(loss)
from
discon-
tinued
opera-
tions 79 91 83 77 330 66 1,431 (57) (184) 1,256
Provision
for
(benefit
from)
income
tax 27 31 12 58 128 25 464 (19) (71) 399
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income
(loss)
from
discont-
inued
opera-
tions 52 60 71 19 202 41 967 (38) (113) 857
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net
income $213 $240 $204 $207 $864 $218 $1,133 $117 $10 $1,478
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Basic
net
income
(loss)
per
share:
Continu-
ing
operat-
ions $0.54 $0.61 $0.45 $0.62 $2.23 $0.58 $0.57 $0.57 $0.45 $2.18
Discont-
inued
operat
ions 0.17 0.20 0.24 0.07 0.67 0.14 3.34 (0.14) (0.41) 3.00
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net
in-
come $0.71 $0.81 $0.69 $0.69 $2.90 $0.72 $3.91 $0.43 $0.04 $5.18
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Dilutive
net
income
(loss)
per
share:
Contin-
uing
operat-
ions $0.50 $0.57 $0.42 $0.58 $2.07 $0.55 $0.54 $0.53 $0.43 $2.06
Discont-
inued
opera-
tions 0.16 0.18 0.22 0.06 0.62 0.13 3.17 (0.13) (0.40) 2.85
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net
in-
come $0.66 $0.75 $0.64 $0.64 $2.69 $0.68 $3.71 $0.40 $0.03 $4.91
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Weighted
average
common
shares
out-
standing -
di-
luted 324.4 321.9 321.5 324.1 323.0 319.8 305.3 290.3 288.1 300.9
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Aon Corporation
Segments - Reclassification for Discontinued Operations (Unaudited)
2007 2008
---------------------------------- ---------------------------
1st 2nd 3rd 4th 1st 2nd 3rd
Quar- Quar- Quar- Quar- Full Quar- Quar- Quar- Nine
(millions) ter ter ter ter Year ter ter ter Months
------ ------ ------ ------ ------ ------ ------ ------ ------
Revenue
-------
Risk and
insurance
brokerage
services $1,429 $1,490 $1,411 $1,627 $5,957 $1,566 $1,610 $1,473 $4,649
Consulting 329 325 325 373 1,352 343 336 337 1,016
Unallocated
As reported 23 32 21 13 89 7 18 41 66
Less:
reclass-
ification
to
discont-
inued
opera-
tions (2) (3) (3) (2) (10) (2) (1) (1) (4)
------ ------ ------ ------ ------ ------ ------ ------ ------
As
reclass-
ified 21 29 18 11 79 5 17 40 62
Inter-
segment (10) (6) (8) (5) (29) (9) (7) (4) (20)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $1,769 $1,838 $1,746 $2,006 $7,359 $1,905 $1,956 $1,846 $5,707
====== ====== ====== ====== ====== ====== ====== ====== ======
Income
(loss)
before
income
tax
-------
Risk
and
insurance
brokerage
services $234 $272 $228 $276 $1,010 $238 $231 $188 $657
Consulting 47 44 38 60 189 63 43 52 158
Unallocated
As reported (48) (41) (43) (68) (200) (50) (52) (28) (130)
Less:
reclass-
ification
to
dis-
continued
opera-
tions 1 2 5 3 11 2 1 2 5
------ ------ ------ ------ ------ ------ ------ ------ ------
As
reclass-
ified (47) (39) (38) (65) (189) (48) (51) (26) (125)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $234 $277 $228 $271 $1,010 $253 $223 $214 $690
====== ====== ====== ====== ====== ====== ====== ====== ======
Income
from
continuing
operations
before
income
tax -
margins
--------
Risk and
insurance
brokerage
services 16.4% 18.3% 16.2% 17.0% 17.0% 15.2% 14.3% 12.8% 14.1%
Consulting 14.3% 13.5% 11.7% 16.1% 14.0% 18.4% 12.8% 15.4% 15.6%
Total
As
reported 13.2% 14.9% 12.8% 13.3% 13.6% 13.2% 11.3% 11.5% 12.0%
As
reclass-
ified 13.2% 15.1% 13.1% 13.5% 13.7% 13.3% 11.4% 11.6% 12.1%
Aon Corporation
Property and Casualty Run-off Insurance Operations (Unaudited)
2007
----------------------------------------
1st 2nd 3rd 4th Full
(millions except per share data) Quarter Quarter Quarter Quarter Year
------- ------- ------- -------- -------
Revenue
-------
Commissions, fees and other $- $1 $1 $1 $3
Investment income 2 2 2 1 7
------- ------- ------- -------- -------
Total revenue 2 3 3 2 10
------- ------- ------- -------- -------
Expenses
--------
Compensation and benefits 2 1 1 2 6
Other general expenses 1 4 7 3 15
------- ------- ------- -------- -------
Total operating expenses 3 5 8 5 21
------- ------- ------- -------- -------
Operating loss (1) (2) (5) (3) (11)
Other expense - - - - -
------- ------- ------- -------- -------
Loss before benefit from income
tax (1) (2) (5) (3) (11)
Benefit from income tax - (1) (2) (1) (4)
------- ------- ------- -------- -------
Net loss $(1) $(1) $(3) $(2) $(7)
======= ======= ======= ======== =======
Basic net loss per share $(0.01) $(0.01) $(0.01) $(0.01) $(0.02)
======= ======= ======= ======== =======
Dilutive net loss per share $- $- $(0.01) $- $(0.02)
======= ======= ======= ======== =======
Weighted average common shares
outstanding - diluted 324.4 321.9 321.5 324.1 323.0
======= ======= ======= ======== =======
2008
---------------------------------------
1st 2nd 3rd 4th Full
(millions except per share data) Quarter Quarter Quarter Quarter Year
-------- ------- ------- -------- -----
Revenue
Commissions, fees and other $- $- $- $1 $1
Investment income 2 1 1 1 5
-------- ------- ------- -------- -----
Total revenue 2 1 1 2 6
-------- ------- ------- -------- -----
Expenses
Compensation and benefits 1 2 1 - 4
Other general expenses 3 - 2 (3) 2
-------- ------- ------- -------- -----
Total operating expenses 4 2 3 (3) 6
-------- ------- ------- -------- -----
Operating income (loss) (2) (1) (2) 5 -
Other expense - - - 191 191
-------- ------- ------- -------- -----
Loss before benefit from income
tax (2) (1) (2) (186) (191)
Benefit from income tax (1) - - (73) (74)
-------- ------- ------- -------- -----
Net loss $(1) $(1) $(2) $(113) $(117)
======== ======= ======= ======== =====
Basic net loss per share $(0.01) $- $(0.01) $(0.41) $(0.41)
======== ======= ======= ======== =====
Dilutive net loss per share $- $- $(0.01) $(0.39) $(0.39)
======== ======= ======= ======== =====
Weighted average common shares
outstanding - diluted 319.8 305.3 290.3 288.1 300.9
======== ======= ======= ======== =====
Aon Corporation
Condensed Consolidated Statements of Financial Position
As of
----------------------------------
(millions) Dec. 31, 2008 Dec. 31, 2007 (2)
---------- -------------- ------------------
(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash $657 $584
Short-term investments 579 1,120
Receivables 1,992 1,993
Fiduciary assets (1) 10,678 9,498
Other current assets 480 276
Assets held for sale 237 4,601
-------------- ------------------
Total Current Assets 14,623 18,072
Goodwill 5,637 4,915
Other intangible assets 779 204
Fixed assets, net 451 497
Long-term investments 342 332
Other non-current assets 1,340 914
-------------- ------------------
TOTAL ASSETS $23,172 $24,934
============== ==================
LIABILITIES AND STOCKHOLDERS'
EQUITY
------------------------------
CURRENT LIABILITIES
Fiduciary liabilities $10,678 $9,498
Short-term debt 105 252
Accounts payable and accrued
liabilities 1,536 1,413
Other current liabilities 438 293
Liabilities held for sale 142 3,172
-------------- ------------------
Total Current Liabilities 12,899 14,628
Long-term debt 1,872 1,893
Pension, post employment and post
retirement liabilities 1,694 1,251
Other non-current liabilities 1,393 941
-------------- ------------------
TOTAL LIABILITIES 17,858 18,713
TOTAL STOCKHOLDERS' EQUITY 5,314 6,221
-------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $23,172 $24,934
============== ==================
(1) Includes short-term investments: 2008 - $3,204; 2007 - $3,122.
(2) Certain amounts have been reclassified to conform to the 2008
presentation.