Aon plc today reported results for the three months ended March 31, 2013.
Net income attributable to Aon shareholders from continuing operations was $261 million, or $0.82 per share, compared to $238 million, or $0.71 per share, for the prior year quarter. Net income per share attributable to Aon shareholders from continuing operations, adjusted for certain items, was $1.11, a 13% increase compared to $0.98 in the prior year quarter. Certain items that impacted first quarter results and comparisons with the prior year quarter are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 12 of this press release.
"Our first quarter results reflect a solid start to the year with double-digit earnings growth driven by a strong performance in our Risk Solutions business and effective capital management, as highlighted by the repurchase of $300 million of ordinary shares in the quarter," said Greg Case, president and chief executive officer.
FIRST QUARTER FINANCIAL SUMMARY
Total revenue increased 3% to $2.9 billion compared to the prior year quarter primarily driven by a 2% increase in organic revenue and a 1% increase in commissions and fees resulting from acquisitions, net of divestitures, partially offset by a 42% decline in investment income due to lower average interest rates.
Total operating expenses for the first quarter increased 3% to $2.5 billion compared to the prior year quarter at $2.4 billion due primarily to a 2% increase in organic revenue, the inclusion of $10 million of expenses from acquisitions, and a $6 million increase in restructuring costs, partially offset by an $18 million favorable impact from foreign currency translation, a $5 million decrease in intangible asset amortization expense, and savings related to the restructuring programs.
Depreciation expense increased 7%, or $4 million, to $59 million compared to the prior year quarter.
Intangible asset amortization expense decreased 5%, or $5 million, to $99 million compared to the prior year quarter due primarily to a $4 million decrease in HR Solutions relating to assets associated with the merger with Hewitt.
Restructuring expenses increased $6 million to $26 million compared to $20 million in the prior year quarter driven by workforce reduction. In the first quarter, the Company incurred $15 million of costs in the HR Solutions segment and $11 million of costs in the Risk Solutions segment related to the Aon Hewitt restructuring program. An analysis of restructuring-related costs by type and segment are detailed on page 13 of this press release.
Restructuring savings in the first quarter related to the Aon Hewitt restructuring program are estimated at $69 million compared to $48 million in the prior year quarter. Of the estimated savings in the first quarter, approximately $13 million were related to the Risk Solutions segment compared to $8 million in the prior year quarter. The Company expects to deliver cumulative expense savings of $355 million in 2013 related to the Aon Hewitt restructuring program, including $280 million related to the restructuring program and $75 million in additional synergy savings from areas such as information technology, procurement and public company costs.
Associated with the transfer of the Health and Benefits business effective January 1, 2012, approximately $52 million of the estimated savings under the Aon Hewitt restructuring program will be achieved in Risk Solutions. As of the first quarter, an estimated $45 million of cumulative savings have been achieved in Risk Solutions.
Foreign currency exchange rates in the first quarter had a $0.02 per share, or $9 million pretax ($7 million in Risk Solutions and $2 million in HR Solutions), favorable impact on adjusted net income from continuing operations if the Company were to translate prior year quarter results at current quarter foreign exchange rates.
Effective tax rate on net income from continuing operations decreased to 26.1% in the first quarter compared to 28.0% in the prior year quarter due primarily to changes in the geographical distribution of income. The Company currently anticipates an effective tax rate on net income from continuing operations of approximately 26.0% in 2013.
Average diluted shares outstanding decreased to 320.0 million in the first quarter compared to 336.6 million in the prior year quarter. The Company repurchased 5.0 million Class A Ordinary Shares for approximately $300 million in the first quarter. The Company has $3.7 billion of remaining authorization under its share repurchase program.
Cash flow from operations increased $69 million to $54 million in the first quarter due primarily to improved working capital and 9% growth in net income, partially offset by a $106 million increase in cash taxes and an $86 million increase in pension contributions. Free cash flow, as defined by cash flow from operations less capital expenditures, increased 93% to a use of $6 million in the first quarter driven by improved cash flow from operations and a 15%, or $11 million, decline in capital expenditures. A reconciliation of free cash flow to cash flow from operations can be found on the "Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow" on page 11 of this press release.