Aon Reports First Quarter 2002 Results; Provides Updates on Spin-Off, Business Transformation and World Trade Center Issues.Business Editors CHICAGO--(BUSINESS WIRE)--April 30, 2002 Aon Corporation (NYSE NYSE See: New York Stock Exchange : AOC AOC, n an acronym for the Aromatherapy Organizations Council. ) today reported first quarter dilutive earnings per share of $0.37 compared with $0.07 in the year ago period. Excluding special charges, unusual World Trade Center (WTC WTC World Trade Center, see there ) items, and a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. tax related item, first quarter earnings per share were $0.47 and $0.23 for 2002 and 2001, respectively. First quarter 2002 reported net income was $104 million compared with $19 million in the year ago period. As previously reported, first quarter 2002 earnings included the establishment of a $90 million pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern ($0.20 per share) allowance for a potentially uncollectible Adj. 1. uncollectible - not capable of being collected; "a bad (or uncollectible) debt" bad invalid - having no cogency or legal force; "invalid reasoning"; "an invalid driver's license" WTC reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. receivable that was partially offset by a favorable one-time tax related item of $48 million pretax, or $0.11 per share. Patrick G. Ryan Ryan may refer to: Places
1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. group within brokerage." Consolidated revenue of $2.088 billion in the first quarter increased 15% from $1.811 billion in the prior year. Operating segment revenue growth was principally driven by strong organic revenue growth in the Insurance Brokerage and Other Services segment. Improved equity investment results and the receipt of a one-time tax related item contributed to the year-over-year increase in non-operating Corporate and Other segment revenue. Operating Segments Aon's three operating segments - Insurance Brokerage and Other Services, Consulting, and Insurance Underwriting - recorded aggregate first quarter revenue of $2.0 billion, up 8% from the prior year. First quarter operating segment investment income decreased $43 million from the same period in 2001 to $64 million, due largely to declining interest rates. Excluding investment income, 2002 operating segment revenue increased 11% for the first quarter when compared to prior year. All operating segment comparisons exclude special charges and World Trade Center related items. Total operating segment pretax income pretax income Reported income before the deduction of income taxes. Pretax income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. in first quarter 2002 was $283 million compared with $289 million in 2001. Excluding investment income, first quarter operating segment pretax income increased 20% versus the prior year. Operating segment pretax margins, excluding investment income, were 11.1% compared to 10.2% for first quarter 2002 and 2001, respectively. First quarter Insurance Brokerage and Other Services segment reported revenue grew 10% to $1.232 billion compared with $1.117 billion in 2001. Organic revenue growth improved to 13% in the quarter from 8% in fourth quarter 2001. International, reinsurance and wholesale brokerage showed strong revenue growth. Investment income, however, decreased $25 million to $21 million in the first quarter primarily due to declining interest rates. Excluding investment income, Insurance Brokerage and Other Services segment revenue increased 13% compared to prior year. U.S. retail brokerage operations posted significantly improved revenue growth for the quarter. Increased compensation expenses related to retaining certain employees and hiring new employees into specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. positions, and the need to maintain duplicate DUPLICATE. The double of anything. 2. It is usually applied to agreements, letters, receipts, and the like, when two originals are made of either of them. Each copy has the same effect. back office processing (four service centers and the regional offices) pressured pretax income. Net transition costs related to the implementation of the business transformation were $3 million. Transition costs consisted mostly of process conversion expenses, consulting fees and temporary help. As previously reported, first quarter 2002 brokerage results also reflected temporarily lower revenues from certain managing general underwriting programs due to a required change in an insurance carrier relationship that is expected to be corrected during second quarter 2002. Premium rates continued to increase across all major property and casualty lines and clients continued to utilize alternative risk transfer services including captive captive said of naturally wild or feral animals kept in captivity for educational and scientific investigation with no attempt being made to domesticate them. management, claims, loss control and actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin services to minimize overall risk management costs. First quarter 2002 Insurance Brokerage and Other Services segment reported pretax income was $187 million compared with $196 million in first quarter 2001. The pretax margin in first quarter 2002 was 15.2% compared with 17.5% in the year ago period. A decline in investment income, due mostly to reduced interest rates, negatively affected margin comparisons. Excluding investment income, insurance brokerage pretax income increased 11%. International, reinsurance and wholesale brokerage all had good bottom line results for the quarter. Consulting segment reported revenue rose 10% to $233 million from $212 million in the year-ago first quarter. This increase partly reflects core growth in U.S. employee benefits business and the acquisition of ASI ASI, n See Anxiety Sensitivity Index. Solutions Incorporated (ASI) in May 2001. Consulting segment organic revenue growth for the quarter was 4%, partly reflecting slower economic conditions. Pretax income rose 8% to $27 million in first quarter 2001. The Consulting pretax margin was 11.6% in the first quarter, down from 11.8% in the year ago period. Margin comparisons were positively influenced during the quarter by strong results in the U.S. employee benefits business but were pressured by the effects of a weaker economic environment. Insurance Underwriting segment reported revenue increased to $578 million in first quarter 2002, up from $567 million in first quarter 2001, reflecting the impact of organic growth and acquisitions. Insurance Underwriting segment organic revenue growth, based on written premium, was 18% for the quarter, up significantly from 10% in fourth quarter 2001, mostly related to new specialty property and casualty insurance business. First quarter investment income decreased $17 million from the prior year period. Excluding investment income, insurance underwriting segment reported revenue increased 6% compared to prior year. Insurance Underwriting pretax income was $69 million in the first quarter compared with $68 million in the prior year period. The Underwriting pretax margin was 11.9% for the quarter compared with 12.0% in first quarter 2001 and was negatively impacted by reduced interest rates. Corporate and Other segment revenue was $45 million for the quarter compared with a negative $85 million in first quarter 2001. Improved investment results and a $48 million pretax one-time tax related item accounted for most of the improvement. The Corporate and Other segment pretax loss pretax loss A loss reported before tax benefits are considered. for the quarter was $7 million, compared with a pretax loss of $169 million in the prior year quarter due to a significant improvement in Corporate and Other revenue, the elimination of goodwill amortization and a decrease in interest expense. After netting the effect of currency hedges Currency hedge Applies mainly to international equities. Hedging technique to guard against foreign exchange fluctuations (i.e., short Euro l00 mm when holding a long position of Euro l00 mm in stocks). , the impact of foreign currency translations on net income in first quarter 2002 was not material. In first quarter 2002, Aon adopted Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). (FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). ) Statement No. 142, Goodwill and Other Intangible Assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , effective January January: see month. 1, 2002. The amortization of goodwill is no longer included in Aon's reported earnings per share. Goodwill amortization expense equaled $0.09 per share in the first quarter of 2001 with no comparable amount in 2002. As previously reported, no impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges resulted from the adoption of Statement No. 142. Goodwill amortization expense was $29 million in first quarter 2001. The exclusion of goodwill amortization in 2002 contributed to Aon's effective tax rate declining to 37% in first quarter 2002 from 39% in 2001. Spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. related charges were $5 million for the quarter, or $0.01 per share. Business Transformation Update Outside of U.S. retail brokerage, the business transformation plan has delivered expected benefits of improved revenue growth and enhanced productivity. In U.S. retail brokerage, however, a more extensive business transformation plan involved the redesign re·de·sign tr.v. re·de·signed, re·de·sign·ing, re·de·signs To make a revision in the appearance or function of. re of many processes and job roles, which resulted in delays implementing certain process conversions, as previously reported. The destruction of the WTC, the location of our largest U.S. retail regional office, also directly impacted Aon and exacerbated the internal conversion delays that were being experienced. In addition, September September: see month. 11 created new industry challenges while Aon was in the midst Adv. 1. in the midst - the middle or central part or point; "in the midst of the forest"; "could he walk out in the midst of his piece?" midmost of its transformation phase. During the first quarter, Aon completed the conversion of all large account back office servicing in U.S. retail brokerage from our regional offices to four service centers. Small account back office servicing in the U.S. will be converted by the end of the second quarter. The completion of this major initiative will not only enhance service quality for many day-to-day day-to-day adj. 1. Occurring on a routine or daily basis: the day-to-day movements of the stock market. 2. processing functions, but also allow relationship managers and other field personnel to offer even more value-added val·ue-add·ed adj. Of or relating to the estimated value that is added to a product or material at each stage of its manufacture or distribution: solutions to clients during this challenging period in the insurance industry. "Most clients now enjoy the benefits of enhanced local service coupled with advanced service centers that can process routine transactions more quickly and effectively," stated Mr. Ryan. "The conversion also permits a renewed focus on new account generation in U.S. retail, which was evident in the improved organic revenue growth in the first quarter." As previously reported, the $150 million pretax annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. savings related to actions already taken will be partially offset by increased compensation for certain brokerage employees and the hiring of employees with specialized skills. Mr. Ryan added, "We believe that operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: in the second half of 2002 in the brokerage segment will increase year-over-year as we improve the alignment of the U.S. retail brokerage cost structure with new business growth opportunities. We have undertaken a significant amount of change in the U.S. and have been directly impacted by September 11, but our employees have done an outstanding job and I am confident that profitability will improve." Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. D. O'Halleran, president and COO (Cell Of Origin) See mobile positioning. of Aon Corporation, said, "Margin compression resulted from factors such as conversion delays that negatively impacted both the expense side and top line performance. As we have transitioned to the new operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. , U.S. retail brokerage has also incurred costs for underutilized production capacity, such as vacated office space as certain work functions moved from regional offices to the four service centers. Given the strong expansion phase within our industry and the near completion of our U.S. transformation, we believe that we will improve our capacity utilization Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities, such as factories and machinery. Capacity Utilization generally rises when the economy is healthy and falls when demand softens. as new business increases." September 11 Update As reported, the Company established a first quarter $90 million pretax ($56 million after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. ) allowance for a potentially uncollectible receivable related to a previously disclosed dispute with certain reinsurers at Lloyd's over a World Trade Center reinsurance claim. This reduced earnings per share by $0.20 in the quarter. Combined Insurance Company of America (CICA CICA Competition In Contracting Act of 1984 (USA) CICA Canadian Institute of Chartered Accountants CICA Competition In Contracting Act CICA Criminal Injuries Compensation Authority (UK) ) underwrote a primary accident insurance policy for the benefit of Aon's employees that was reinsured by certain underwriters at Lloyd's. As previously announced, Aon believes its subsidiary, CICA, has valid reinsurance. Aon was compelled, however, to establish the allowance given accounting rules that require a reasonable estimate of the probable recovery under our reinsurance claim. A recent decision (in an unrelated case) by a Southern District of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of judge that may unfavorably impact the jurisdiction for Aon's litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. with reinsurers, prompted the accounting action. Nevertheless, Aon believes that the Airline Stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders Act clearly delineates the federal court in the Fifth District of New York as the only proper jurisdiction for Aon's case. Aon will vigorously pursue its claim with reinsurers. Aon's litigation with reinsurers of CICA's primary policy in no way impacts Aon's other insurance claims related to the destruction of the WTC. Aon is currently in the normal process of presenting insurance claims to its property and other insurers for losses related to property, extra expense, business interruption INTERRUPTION. The effect of some act or circumstance which stops the course of a prescription or act of limitation's. 2. Interruption of the use of a thing is natural or civil. and other coverages. Additional costs and recoveries remain to be identified and quantified, including business interruption claims. The ultimate financial impact of September 11 to Aon is not yet fully determinable Liable to come to an end upon the happening of a certain contingency. Susceptible of being determined, found out, definitely decided upon, or settled. determinable adj. . Insurance Underwriting Spin-off Update The Company has announced plans to spin-off its underwriting operations to stockholders through a new company to be named Combined Specialty Group, Inc. During first quarter 2002, Dennis B. Reding Reding may refer to: People
In March 2002, Combined Specialty filed a preliminary Form 10 with the Securities and Exchange Commission (SEC). The final Form 10 document, with complete details of the spin-off, will be sent to all stockholders after the SEC completes its review. In April 2002, Aon received a favorable private letter ruling from the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. advising that Aon's U.S. common stockholders should not owe any U.S. tax related to the issuance of shares of Combined Specialty in the spin-off. The spin-off requires regulatory and final Board approval and is expected to be completed in second quarter 2002. "We are very pleased to have Dennis and his executive management team leading Combined Specialty," said Mr. Ryan. "They have developed business and financial plans and are prepared to take advantage of new specialty property and casualty underwriting opportunities in one of the most favorable premium rate environments in recent history." Capital Raising As previously reported, Aon has filed with the SEC a universal shelf registration statement for the issuance and sale by Aon, of up to $750 million of equity and debt securities. The Company anticipates that a substantial portion of the securities to be registered will be for common equity. "Based on a review of capital raising options, and subject to market conditions, we expect to announce capital raising initiatives in the near term, primarily to take advantage of new insurance underwriting growth opportunities and to strengthen our capital base," said Mr. Ryan. Also as previously reported, Combined Specialty may conduct its own capital raising to fund growth opportunities. The Company will host an audio webcast today at 10:00 a.m. (CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT ) that can be accessed at www.aon.com, as previously reported. Aon Corporation (www.aon.com) is a holding company that is comprised of a family of insurance brokerage, consulting and insurance underwriting subsidiaries. This press release may contain certain statements relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc future results, which are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. as that term is defined in the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors such as general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, changes in commercial property and casualty premium rates, the competitive environment, the actual cost of resolution of contingent liabilities Contingent Liability 1. The possibility of an obligation to pay certain sums dependent on future events. 2. Defined obligations by a company that must be met, but the probability of payment is minimal. Notes: 1. , the final form of the business transformation plan, the ultimate cost and timing of the implementation thereof, the actual cost savings and other benefits resulting therefrom there·from adv. From that place, time, or thing. Adv. 1. therefrom - from that circumstance or source; "atomic formulas and all compounds thence constructible"- W.V. , whether the Company ultimately implements the proposed spin-off of its underwriting operations, and the timing and terms associated therewith there·with adv. 1. With that, this, or it. 2. In addition to that. 3. Archaic Immediately thereafter. Adv. 1. , and events surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. terrorists attacks of September 11, 2001, including the timing and resolution of related insurance and reinsurance issues. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, are contained in the Company's filings with the Securities and Exchange Commission.
Aon Corporation
Consolidated Summary of Operations
First Quarter Ended
--------------------------------
(millions except per
share data) Mar. 31, Mar. 31, Percent
2002 2001 Change
---- ---- ------
Revenue
Brokerage commissions and fees $ 1,444 $ 1,281 13%
Premiums and other 535 508 5
Investment income 109 22 395
------- ------- -------
Total revenue 2,088 1,811 15
------- ------- -------
Expenses
General expenses 1,458 1,324 10
Benefits to policyholders 314 292 8
Interest expense 29 36 (19)
Amortization of intangible assets 11 39 (72)
------- ------- -------
Total expenses 1,812 1,691 7
------- ------- -------
Income Before Unusual and
Special Charges 276 120 130
Unusual charges -
World Trade Center (90) - N/A
Special charges (5) (72) N/A
------- ------- -------
Income Before Income Tax and
Minority Interest 181 48 277
Provision for income tax
(37% in 2002 and 39% in 2001) 67 19 253
------- ------- -------
Income Before Minority Interest 114 29 293
Minority interest - 8.205% trust
preferred capital securities (10) (10) -
------- ------- -------
Net Income $ 104 $ 19 447%
======= ======= =======
Preferred stock dividends (1) (1) -
------- ------- -------
Net Income Available for
Common Stockholders $ 103 $ 18 472%
======= ======= =======
Net Income Per Share:
Basic net income per share $ 0.38 $ 0.07 443%
======= ======= =======
Dilutive net income per share:
Net income before unusual and
special charges $.0.58 $ 0.23 152%
Unusual charges - World Trade
Center (0.20) - N/A
Special charges - Spin-off
expenses (0.01) - N/A
Special charges - Business
Transformation plan - (0.16) N/A
------- -------- -------
Dilutive net income per share $ 0.37 $ 0.07 429%
======= ======== =======
Dilutive average common and common
equivalent shares outstanding 276.6 267.9
======= ========
Aon Corporation
Operating Segments
First Quarter Ended
--------------------------------
(millions) Mar. 31, Mar. 31, Percent
2002 2001 Change
------- ------- -------
Revenue
Insurance brokerage and
other services (1) $ 1,232 $ 1,117 10%
Consulting (2) 233 212 10
Insurance underwriting 578 567 2
------- ------- -------
Total revenue $ 2,043 $ 1,896 8%
======= ======= =======
Income Before Income Tax
Insurance brokerage and
other services $ 187 $ 196 (5)%
Consulting 27 25 8
Insurance underwriting 69 68 1
------- ------- -------
Total income before income tax
excluding unusual and
special charges 283 289 (2)
Unusual charges -
World Trade Center (90) - N/A
Special charges - Spin-off
costs (5) - N/A
Special charges - Business
Transformation plan - (72) N/A
------- -------- -------
Total income before income tax $ 188 $ 217 (13)%
======= ======== =======
(1) Includes investment income of $21 million and $46 million for the
first quarter ended March 31, 2002 and 2001, respectively.
(2) Includes investment income of $1 million and $2 million for the
first quarter ended March 31, 2002 and 2001, respectively.
Aon Corporation
Corporate and Other
First Quarter Ended
---------------------------------------
(millions) Mar. 31, Mar. 31, Percent
2002 2001 Change
--------- -------- -------
Corporate and other revenue (1) $ 45 $ (85) N/A %
-------------------------------
Non operating expenses
----------------------
General expenses $ 23 $ 19 21 %
Interest expense 29 36 (19)
Amortization of goodwill - 29 (100)
--------- -------- -------
Loss before income tax $ (7) $ (169) N/A %
========= ======== =======
First Quarter Ended
---------------------------------------
(millions) Mar. 31, Mar. 31, Percent
2002 2001 Change
--------- -------- -------
(1) Components of corporate
and other revenue
---------------------------
Limited partnership
investments $ 9 $ (56) N/A %
Income from marketable
equity securities and
other investments 3 1 200
--------- -------- -------
Corporate and other
revenue before one
time items and loss
on disposals and
related expenses 12 (55) N/A
Interest on tax refund 48 - N/A
Loss on disposals and
related expenses (A) (15) (30) N/A
--------- -------- -------
Corporate and other revenue $ 45 $ (85) N/A %
========= ======== =======
(A) Includes impairment writedowns of $8 million and $29 million for
the first quarter ended March 31, 2002 and 2001, respectively.
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