Aon Reports First Quarter 2003 Results; Operating Segment Pretax Income Grows 10%.Business Editors CHICAGO--(BUSINESS WIRE)--May 5, 2003 Aon Corporation (NYSE NYSE See: New York Stock Exchange :AOC AOC, n an acronym for the Aromatherapy Organizations Council. ) today reported first quarter 2003 earnings. Aon is providing enhanced segment disclosure that includes more detailed sub-segment revenue information and an updated presentation of segment reporting segment reporting A type of financial reporting in which the firm discloses information by identifiable industry segments. For example, Union Pacific Corporation reports revenues, income, assets, depreciation, and capital expenditures for each of four , as previously disclosed. First quarter 2003 segment results also reflect a refined methodology for allocating certain centrally controlled costs. Supplemental financial information covering 2001 and 2002 was provided in a Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. on May 2, 2003 to conform the prior period segment presentation to the new format and to facilitate comparisons between periods. The Company's historical consolidated earnings per share, net income and pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern earnings have not changed as a result of the segment reclassifications and enhanced presentation. First Quarter Review Consolidated revenues of $2.388 billion increased 14% from a year ago. Foreign exchange translations accounted for 5% of the increase. First quarter 2003 net income was $152 million compared with $160 million a year ago. Earnings per share were $0.48 and $0.57, respectively. A 14% increase in average dilutive common and common equivalent shares outstanding resulting from the fourth quarter 2002 capital enhancement actions impacted the earnings per share comparisons. First quarter 2003 results included a negative $37 million pretax World Trade Center (WTC WTC World Trade Center, see there ) item ($0.07 per share), approximately $32 million pretax ($0.06 per share) of increased pension costs and a $34 million pretax ($0.07 per share) increase in equity and other investment income within the Corporate and Other segment. The investment income improvement was due largely to a $45 million pretax increase in the value of Endurance Endurance See also Longevity. Atalanta feminine name denotes power of endurance. [Gk. Myth.: Jobes, 148] Boston marathon famous 26-mile race held annually for long-distance runners. [Am. Pop. Culture: Misc. Specialty Holdings, Ltd. warrants (received as part of Aon's co-sponsorship investment in Endurance), offset somewhat by 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. write-downs of $28 million pretax in the quarter. First quarter 2002 results included a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. pretax $48 million ($0.11 per share) tax item that was partially offset by a previous spin off plan related special charge of $5 million pretax ($0.01 per share). Patrick G. Ryan Ryan may refer to: Places
adj. Being between 10 and 99 percent: double-digit inflation. organic revenue growth in our operating segments driven by continued client demand for our products and services. Although pension costs increased in the quarter compared to last year, improvements in our risk and insurance brokerage businesses more than offset these incremental costs Costs which are additional costs to the Service appropriations that would not have been incurred absent support of the contingency operation. See also financial management. , and brokerage margins improved." Ryan added, "Consulting revenue growth was good but margins were impacted, in part, by an increase in lower margin outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. business. Insurance underwriting Underwriting 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. also had good top line growth, but underperformance in certain warranty and P&C lines compressed margins." First Quarter Segment Review For first quarter 2003, the revised cost allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as methodology noted above reduced Consulting and Insurance Underwriting 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. by approximately $4 million and $3 million, respectively, with the $7 million offset reflected in the Risk and Insurance Brokerage Services segment. The revised methodology improves the assignment of costs, which are controlled on a centralized cen·tral·ize v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es v.tr. 1. To draw into or toward a center; consolidate. 2. basis, to the operating segments. Risk and Insurance Brokerage Services first quarter revenue grew 19% to $1.374 billion. Organic revenue growth was 12% for the segment, up from 10% in fourth quarter 2002. On a comparable currency basis, revenue was up 12%. Pretax income grew 22% to $230 million and pretax margins expanded to 16.7% from 16.3% a year ago. 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. and international brokerage operations had strong results and Americas A·mer·i·cas , the See America. brokerage improved through new business development and better retention rates. Managing underwriting profits Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. , which are included in Americas brokerage, increased compared to unusually low levels a year ago, but claims services performance was down for the quarter. Pension costs increased approximately $27 million in the segment. Consulting segment revenue rose 21% to $282 million in the quarter, or 15% excluding the impact of foreign exchange rates. Organic revenue growth was 13%, driven mostly by new outsourcing business initiated in third quarter 2002 and good growth in the United Kingdom and Continent of Europe. Organic revenue growth excluding outsourcing business was 6%. Pretax income was $20 million compared with $27 million one year ago. The pretax margin was 7.1% compared with 11.6% in first quarter 2002. Increased centrally allocated costs, an increasing mix of lower margin outsourcing revenues and increased pension costs were the principal factors compressing com·press tr.v. com·pressed, com·press·ing, com·press·es 1. To press together: compressed her lips. 2. To make more compact by or as if by pressing. 3. margins. Insurance Underwriting segment revenue increased 9% to $709 million in first quarter 2003, driven by warranty and select property and casualty insurance premium growth, primarily related to certain limited lines managed by Aon's managing underwriting group. Investment income decreased $14 million. Excluding the impact of foreign exchange rates, revenues rose 7%. In late 2002, Aon decided that by the end of 2003 it would discontinue dis·con·tin·ue v. dis·con·tin·ued, dis·con·tin·u·ing, dis·con·tin·ues v.tr. 1. To stop doing or providing (something); end or abandon: certain unprofitable accident and health insurance underwriting operations in Mexico, Argentina and Brazil, and exit its large company group life business. There were $7 million of revenues and $2 million of losses and other costs attributable to these businesses in the quarter compared to $18 million in revenues and approximately breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations results in first quarter 2002. Pretax income was $63 million compared with $68 million in first quarter 2002, which included $5 million ($0.01 per share) previously reported as a special charge. Pretax margins were 8.9% in first quarter 2003 and 11.2% in first quarter 2002 (adjusted for the $5 million special charge noted above). Underperformance in certain warranty and property and casualty lines negatively impacted the margin, due partly to higher loss costs and expenses, some of which are related to lines in runoff Runoff The procedure of printing the end-of-day prices for every stock on an exchange onto ticker tape. Notes: If the "tape is late" then it can take a long time to print off all the closing prices. . Corporate and Other segment revenue of $35 million declined from $49 million in first quarter 2002, which included a favorable pretax $48 million tax settlement. In first quarter 2003, gross investment writedowns were $28 million compared with $8 million in the prior year quarter. Investment income included a $45 million increase in the value of warrants acquired through Aon's co-sponsorship investment in Endurance in December 2001. Endurance completed its initial public offering in first quarter 2003. As of March 31, 2003, Aon owned approximately 4 million warrants. The Corporate and Other segment pretax loss pretax loss A loss reported before tax benefits are considered. was $57 million compared with a pretax loss of $13 million in the prior year quarter. The increased loss is due primarily to reduced revenue and a negative $37 million pretax WTC item described below. In order to resume business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets and minimize the loss caused by the WTC disaster, Aon secured temporary office space in Manhattan. Subsequently, permanent space was leased, and during the first quarter Aon assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. all of the temporary space to another company. The costs relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc this assignment transaction were $37 million pretax ($0.07 per share). We will incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. additional costs related to this assignment in future quarters, which in aggregate will not exceed $15 million. Aon will include all of these costs as part of its final, overall WTC property insurance claim; however, accounting principles do not allow Aon to offset this expense in the current quarter with an insurance recoverable. The normal claims process continues under the Company's property insurance coverage. Other Item 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 positive impact of foreign currency translations was approximately $0.03 per share. The comparable impact on first quarter 2002 results was immaterial Not essential or necessary; not important or pertinent; not decisive; of no substantial consequence; without weight; of no material significance. immaterial adj. . Financial Strength Highlights Total debt was reduced to approximately $1.7 billion at March 31, 2003, down from $1.8 billion at December 31, 2002. Commercial paper and preferred securities outstanding were unchanged for the same periods at $1 million and $752 million, respectively. Stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. was approximately $4.1 billion at March 31, 2003, up from $3.9 billion at year-end 2002. At March 31, 2003, Aon's total debt and preferred securities as a percentage of total capital improved to 37% versus 40% at December 31, 2002. Short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. and fixed maturity investments at March 31, 2003 comprised approximately 90% of Aon's investment portfolio. More than 93% of the fixed income securities portfolio is investment grade. Aon's senior debt is rated "A-" by Standard and Poor's Noun 1. Standard and Poor's - a broadly based stock market index Standard and Poor's Index and Fitch fitch: see polecat. , and Baa2 by Moody's. Aon's principal insurance underwriting subsidiaries are rated "A" by A.M. Best for their claims paying ability. Future Outlook Mr. Ryan commented, "Our fundamental businesses are strong and we continue to be comfortable with a 2003 earnings per share range of $1.90 to $2.00, excluding the WTC item, based on our current outlook." The future outlook may be impacted by internal and external factors, including economic conditions, equity markets and premium rate developments. 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. 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 contains certain statements relating to 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 either historical or anticipated results, depending on a variety of factors. Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, pension funding, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs 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. and other loss contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. , the heightened level of potential errors and omissions errors and omissions n. short-hand for malpractice insurance which gives physicians, attorneys, architects, accountants and other professionals coverage for claims by patients and clients for alleged professional errors and omissions which amount to negligence. liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. reserves are under pressure, and the timing and resolution of related insurance and reinsurance issues relating to the events of September 11, 2001. 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
2003 2002 Change
--------------------------
Revenue
-------
Brokerage commissions and fees $1,676 $1,444 16 %
Premiums and other 632 535 18
Investment income 80 109 (27)
------- ---------- -------
Total revenue 2,388 2,088 14
------- ---------- -------
Expenses
--------
General expenses 1,709 1,463 17
Benefits to policyholders 345 314 10
Interest expense 28 29 (3)
Amortization of intangible assets 13 11 18
Unusual charges - World Trade Center 37 - N/A
------- ---------- -------
Total expenses 2,132 1,817 17
------- ---------- -------
Income Before Income Tax and Minority
Interest 256 271 (6)
Provision for income tax (37% in 2003 and
2002) 95 101 (6)
------- ---------- -------
Income Before Minority Interest 161 170 (5)
Minority interest - 8.205% trust
preferred capital securities (9) (10) (10)
------- ---------- -------
Net Income $152 $160 (5)%
======= ========== =======
Preferred stock dividends (1) (1) -
------- ---------- -------
Net Income Available for Common
Stockholders $151 $159 (5)%
======= ========== =======
Net Income Per Share:
Basic net income per share $0.48 $0.58 (17)%
======= ========== =======
Dilutive net income per share $0.48 $0.57 (16)%
======= ========== =======
Dilutive average common and common
equivalent shares outstanding 315.2 276.6 14 %
======= ========== =======
Aon Corporation
Segments
First Quarter Ended
-----------------------------------
(millions) Mar. 31, Mar. 31, Percent Organic
2003 2002 Change Revenue
Growth(5)
-----------------------------------
Revenue
-------
Risk and insurance brokerage
services (1)
Risk management and insurance
brokerage - Americas $507 $448 13 % 13 %
Risk management and insurance
brokerage - International 524 420 25 11
Reinsurance brokerage and
related services 242 199 22 15
Claims services 101 90 12 7
--------- -------- ------- --------
Total risk and insurance
brokerage services 1,374 1,157 19 12
--------- -------- ------- --------
Consulting (2)
Benefits, compensation,
management and communications
consulting 209 183 14 6
Human resource outsourcing 73 50 46 38
--------- -------- ------- --------
Total consulting 282 233 21 13
--------- -------- ------- --------
Insurance underwriting (3)
Accident & health and life 399 389 3 5
Warranty, credit and property &
casualty 310 260 19 20
--------- -------- ------- --------
Total insurance underwriting 709 649 9 12
Corporate and other 35 49 (29) N/A
Intersegment revenues (4) (12) - N/A N/A
--------- -------- ------- --------
Total revenue $2,388 $2,088 14 % 12 %
========= ======== ======= ========
Income (Loss) Before Income Tax
and Minority Interest
-------------------------------
Risk and insurance brokerage
services $230 $189 22 %
Consulting 20 27 (26)
Insurance underwriting 63 68 (7)
Corporate and other (57) (13) N/A
--------- -------- -------
Total income before income tax
and minority interest $256 $271 (6)%
========= ======== =======
(1) Includes investment income of $20 million and $21 million for the
first quarter ended March 31, 2003 and 2002, respectively.
(2) Includes investment income of $1 million for both the first
quarter ended March 31, 2003 and 2002.
(3) Includes investment income of $28 million and $42 million, of
which $2 million and $12 million pertain to interest earned on
investments underlying investment-type contracts, for the first
quarter ended March 31, 2003 and 2002, respectively.
(4) The above numbers include intersegment revenues of $12 million for
the first quarter ended March 31, 2003 which have been eliminated
in the consolidated summary of operations. Intersegment revenues
in periods prior to March 31, 2003 have not been eliminated in the
consolidated summary of operations due to immateriality.
(5) Organic revenue growth excludes the impact of acquisitions,
dispositions, transfers, investment income, foreign exchange and
unusual items. Written premiums and fees are the basis for organic
revenue growth within the Insurance Underwriting segment.
Aon Corporation
Corporate and Other
First Quarter Ended
-------------------------------
(millions) Mar. 31, Mar. 31, Percent
2003 2002 Change
--------- --------- -----------
Revenue
-------
Investment Income:
Limited partnership investments $- $9 (100)%
Income from marketable equity
securities and other investments 53 3 +500
Interest on tax refund - 48 (100)
Net loss on disposals and related
expenses (1) (22) (15) N/A
--------- --------- -----------
Total investment income 31 45 (31)
Auto finance service revenue 4 4 -
--------- --------- -----------
Total revenue 35 49 (29)
--------- --------- -----------
Expenses
--------
General expenses (2) 27 33 (18)
Interest expense 28 29 (3)
Unusual charges - World Trade Center 37 - N/A
--------- --------- -----------
Total expenses 92 62 48
--------- --------- -----------
Loss before income tax $(57) $(13) N/A %
========= ========= ===========
(1) Includes impairment writedowns of $28 million and $8 million for
the first quarter ended March 31, 2003 and 2002, respectively.
(2) Includes $11 million and $10 million of costs for the first
quarter ended March 31, 2003 and 2002, respectively, related to
the auto finance operations.
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