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Aon Releases Q3 Results


Posted on 28 Oct 2011

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Aon Corporation today reported results for the third quarter ended September 30, 2011.

Net income attributable to Aon stockholders from continuing operations increased 38% to $198 million or $0.59 per share, compared to $144 million or $0.51 per share for the prior year quarter. Net income per share attributable to Aon stockholders from continuing operations, excluding certain items, increased 13% to $0.69, compared to $0.61 in the prior year quarter, including a $61 million increase in intangible asset amortization expense.

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

THIRD QUARTER FINANCIAL SUMMARY

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

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

Depreciation expense increased 77%, or $23 million, to $53 million compared to the prior year quarter as a result of the merger with Hewitt.
Intangible asset amortization expense increased 203%, or $61 million, to $91 million compared to the prior year quarter due primarily to $61 million of intangible asset amortization expense as a result of the merger with Hewitt. The Company expects intangible asset amortization related to the Hewitt merger to be approximately $241 million in 2011, $310 million in 2012, $288 million in 2013 and to continue to decline each year from 2014 through 2023.

Restructuring expenses were $26 million compared to $8 million in the prior year quarter. In the third quarter, the Company incurred $26 million of costs under the Aon Hewitt restructuring program primarily related to workforce reduction and lease consolidation. The Company has completed all restructuring activities and incurred 100% of the total costs for the 2007 program and has incurred approximately 83% of the total costs necessary to deliver the remaining savings under the Aon Benfield program. The Company expects to incur all of the remaining charges for the Aon Benfield program in the fourth quarter.

Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $134 million compared to $125 million in the prior year quarter. Of the restructuring savings in the third quarter, $113 million were related to the Risk Solutions segment. Before any potential reinvestment of savings, the 2007 restructuring program is expected to deliver cumulative expense savings of $536 million in 2011.

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

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

Currency fluctuations in the third quarter had a $0.03 favorable impact on adjusted net income from continuing operations per diluted share when the Company translates prior year quarter results at current quarter foreign exchange rates.

Effective tax rate on net income from continuing operations declined to 28.9% in the third quarter compared to 29.4% in the prior year quarter primarily due to certain deferred tax adjustments.

Average diluted shares outstanding increased to 336.9 million in the third quarter compared to 282.2 million in the prior year quarter due primarily to the issuance of 61 million shares of common stock related to the merger.


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