Aon Reports Third Quarter and Nine Months 2003 Results.Business Editors CHICAGO--(BUSINESS WIRE)--Nov. 4, 2003 Aon Corporation (NYSE NYSE See: New York Stock Exchange :AOC AOC, n an acronym for the Aromatherapy Organizations Council. ) today reported third quarter and nine months 2003 results. Third Quarter and Nine Months Review Third quarter net income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the was $140 million or $0.44 per share compared with $121 million or $0.43 per share in 2002 before World Trade Center (WTC WTC World Trade Center, see there ) items. Nine months net income from continuing operations before WTC items grew to $477 million or $1.50 per share from $289 million or $1.03 per share in 2002. Reported net income per share for the third quarter was $0.36 compared with $0.46 in 2002. Nine months reported results increased to $1.30 per share from $1.03 per share in 2002. Third quarter losses from discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. were $0.08 and $0.01 per share in 2003 and 2002, respectively. Nine months comparable losses were $0.11 and $0.04 per share. The automobile automobile, self-propelled vehicle used for travel on land. The term is commonly applied to a four-wheeled vehicle designed to carry two to six passengers and a limited amount of cargo, as contrasted with a truck, which is designed primarily for the transportation of finance service business that is being discontinued 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: has been in run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → since first quarter 2001 (see below). WTC items were zero and a positive $0.04 per share, respectively, in third quarter 2003 and 2002. Similar nine months WTC comparisons were a negative $0.09 per share and a positive $0.04 per share. Patrick G. Ryan Ryan may refer to: Places
See America. brokerage. Overall brokerage results did not achieve our internal targets, and we will be implementing additional and more aggressive actions to improve both top and bottom line performance." Mr. Ryan added, "Consulting results have been pressured by the challenging economic environment, but I believe we are poised to improve our profitability in this business, especially if the employment picture begins to improve. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. in our 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. business was up from unusually low levels a year ago, and we are seeing the benefits of our back-to-basics strategy." Third Quarter Segment Review This press release contains references to certain non-GAAP financial measures. The company believes that these financial measures provide additional indicators of performance that investors can use in evaluating the company's results. The financial information attached to this press release contains a reconciliation of such financial measures to the relevant GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). amounts. Risk and Insurance Brokerage Services third quarter revenue grew 10% to $1.37 billion. Organic revenue growth for the total segment was 7%. Within the segment, International brokerage had the best organic revenue growth at 16%, followed by Reinsurance brokerage at 8%, driven mostly by good U.S. results. Americas brokerage grew 4% and Claims services revenues declined 10% on an organic basis. 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. was $187 million compared to $209 million in third quarter 2002, and the pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern margin was 13.6% versus 16.8% a year ago. Excluding a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. $18 million WTC item in third quarter 2002, prior year pretax income was $191 million and the pretax margin was 15.3%. Third quarter margin comparisons versus the prior year were negatively affected by the following items: a $25 million increase in pension costs, a $22 million decline in investment income and a $10 million decrease in claims services pretax income. As previously reported, management is taking actions to improve the long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. financial performance of Claims services and is evaluating strategic options. Brokerage results were also negatively affected by a stock-based incentive adjustment ($7 million pretax). The adjustment did not have a material impact on prior results and will not affect future periods. Consulting revenue rose 6% to $286 million. Benefits, compensation, management and communications consulting achieved 3% organic revenue growth in a challenging environment. Human resource 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. revenues declined 8% on an organic basis due mostly to reduced headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. at many client organizations. Third quarter human resource outsourcing comparisons included the large AT&T contract for the first time in both the current and prior year periods. Pretax income was $20 million compared with $26 million one year ago, and the pretax margin was 7.0% versus 9.7%. The margin decline is primarily due to a previously reported change in the 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 method ($4 million pretax) for centrally controlled costs, which was implemented in first quarter 2003. The previously noted stock-based incentive adjustment also reduced consulting segment pretax income by $3 million. Insurance Underwriting revenue increased 3% to $742 million in third quarter 2003. Total underwriting segment organic revenue growth, based on written premiums, was also 3%. Accident and health (A&H) insurance revenues declined 4% on an organic basis, due in part to the previously reported exiting of Latin Lat·in n. 1. a. The Indo-European language of the ancient Latins and Romans and the most important cultural language of western Europe until the end of the 17th century. b. American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of and other non-core businesses. Warranty An assurance, promise, or guaranty by one party that a particular statement of fact is true and may be relied upon by the other party. Warranties are used in a variety of commercial situations. In many instances a business may voluntarily make a warranty. , credit and select property and casualty organic revenue growth was 11%. Pretax income increased 41% to $58 million, compared with third quarter 2002. Pretax margins grew to 7.8% from 5.7%. The "back-to-basics" focus in A&H underwriting improved the benefits payout ratio Payout Ratio The percentage of earnings paid out in dividends. It is calculated by dividing dividends per share by earnings per share. Notes: The payout ratio indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend. , which contributed to the margin increase. The benefits ratio also improved in the warranty business, but worsened in the select property and casualty portfolio due to a $21 million pretax ($0.04 per share) loss from the run-off of National Program Services, Inc. (NPS NPS National Park Service NPS Naval Postgraduate School NPS Net Promoter Score (customer management) NPS Non-Point Source pollution NPS Native Plant Society NPS Norfolk Public Schools (Virginia) ) business (a matter previously reported in 2002). Third quarter 2002 results included costs from the previously planned 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. of the underwriting businesses. The pretax margin was negatively affected by the decline in investment income year-to-year. The decline was partially attributed to the run-off of deposit-type contracts, which also lowered benefits to policyholders. The statutory capital and surplus of the underwriting group has improved substantially during the past year, and it is anticipated that dividend payments to the parent company will resume in 2004. Corporate and Other segment revenue of $14 million improved from $8 million in third quarter 2002, due mostly to improved equity investment results. The Corporate and Other segment pretax loss pretax loss A loss reported before tax benefits are considered. improved to $28 million from a pretax loss of $51 million a year ago, largely due to improved revenues and lower general expenses, which were negatively impacted in the prior year by spin-off plan costs. Revenues and expenses related to the run-off of the automobile finance service business have been reclassified from the Corporate and Other segment to discontinued operations, beginning with the third quarter 2003 presentation (see below). Other Items Defined benefit pension costs increased by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $31 million pretax ($0.06 per share) in third quarter 2003 compared to a year ago on a consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: basis. 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 $0.02 per share in the quarter. Discontinued Operations Aon decided in third quarter 2003 that it will sell its automobile finance servicing business, which has been in run-off since first quarter 2001. Based on this decision, the operating results from prior periods attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to this unit have been reclassified as discontinued operations. The loss recorded in third quarter 2003 for discontinued operations is comprised of operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. ($0.03 per share) and a loss from the revaluation Revaluation A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. of the business ($0.05 per share). As previously reported, operating losses from these operations were $16 million pretax ($0.03 per share) in the first half of 2003, and $12 million pretax ($0.03 per share) in the first half of 2002. Financial Strength Highlights Total debt decreased $227 million from June June: see month. 30, 2003 to approximately $1.5 billion at September September: see month. 30, 2003. 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. increased to approximately $4.4 billion. Total debt and preferred securities as a percentage of total capital improved to 34% from 37% at June 30, 2003. Approximately 90% of Aon's investment portfolio at quarter end was in 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 maturities. More than 96% of the fixed income securities were investment grade. WTC Property Insurance Claim In November November: see month. 2003, Aon reached a final settlement of approximately $200 million for its WTC property insurance claim. A cash payment of approximately $92 million is expected during fourth quarter 2003, in addition to the $108 million already collected. The final accounting treatment will be determined prior to the release of fourth quarter 2003 earnings. Additional Accounting and Disclosure Changes In May 2003, the 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). ) issued FAS Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement established standards for classifying and measuring as liabilities certain financial instruments that embody em·bod·y tr.v. em·bod·ied, em·bod·y·ing, em·bod·ies 1. To give a bodily form to; incarnate. 2. To represent in bodily or material form: obligations of the issuer and have characteristics of both liabilities and equity. On October October: see month. 29, 2003, FASB indefinitely in·def·i·nite adj. Not definite, especially: a. Unclear; vague. b. Lacking precise limits: an indefinite leave of absence. c. deferred the application of certain portions of FAS 150. As a result of this deferral deferral - Waiting for quiet on the Ethernet. and additional analysis, Aon will not reclassify Verb 1. reclassify - classify anew, change the previous classification; "The zoologists had to reclassify the mollusks after they found new species" class, classify, sort out, assort, sort, separate - arrange or order by classes or categories; "How would you to liabilities its Trust Preferred Capital Securities ($702 million) and Redeemable Redeemable Eligible for redemption under the terms of an indenture. Preferred Stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. ($50 million), or the minority interest and preferred dividends preferred dividend n. a payment of a corporation's profits to holders of preferred shares of stock. (See: preferred stock) related to these securities. Aon's third quarter 2003 financial statement presentation of these items is therefore consistent with second quarter 2003 and prior periods. Future Outlook Mr. Ryan commented, "We had lower than expected revenue growth and income in the quarter in our brokerage business. Excluding WTC and special items, the nine months pretax brokerage margin declined slightly from a year ago (14.2% versus 14.3%), and the comparable full year margin may not exceed the 15.2% margin achieved in 2002." Mr. Ryan added, "Seasonally, the fourth quarter is Aon's best, particularly in our brokerage and consulting businesses. A majority of analysts forecast fourth quarter earnings per share to be within a range of $0.54 to $0.58, and we are comfortable with that range, before any benefit from the WTC settlement, based on our current outlook of continuing operations. Nine months 2003 earnings per share from continuing operations were $1.50 before WTC charges ($0.09 per share)." "We have an outstanding team of professionals, a tremendous client franchise and industry-leading resources. We intend to impose a dramatically increased level of discipline around our operations, with a clear goal of increasing financial returns for our stockholders." The Company will host an audio webcast today at 10:00 a.m. (CST CST abbr. 1. Central Standard Time 2. convulsive shock treatment CST Central Standard Time Noun 1. ) 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 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 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
Third Quarter Ended Nine Months Ended
----------------------- -----------------------
Sept. Sept. Sept. Sept.
(millions except per 30, 30, Percent 30, 30, Percent
share data) 2003 2002 Change 2003 2002 Change
------- ------- ------- ------- ------- -------
Revenue
-------
Brokerage commissions
and fees $1,660 $1,547 7 % $5,041 $4,493 12 %
Premiums and other 673 607 11 1,940 1,780 9
Investment income 58 88 (34) 228 171 33
------- ------- ------- ------- ------- -------
Total revenue 2,391 2,242 7 7,209 6,444 12
------- ------- ------- ------- ------- -------
Expenses
--------
General expenses 1,745 1,640 6 5,247 4,754 10
Benefits to
policyholders 367 350 5 1,037 1,055 (2)
Interest expense 24 32 (25) 79 91 (13)
Amortization of
intangible assets 18 13 38 46 38 21
Unusual charges
(credits) - World
Trade Center - (18) (100) 46 (18) N/A
------- ------- ------- ------- ------- -------
Total expenses 2,154 2,017 7 6,455 5,920 9
------- ------- ------- ------- ------- -------
Income From Continuing
Operations Before
Income Tax and
Minority Interest 237 225 5 754 524 44
Provision for income
tax (37% in 2003 and
2002) 88 83 6 279 194 44
------- ------- ------- ------- ------- -------
Income From Continuing
Operations Before
Minority Interest 149 142 5 475 330 44
Minority interest -
8.205% trust
preferred capital
securities (9) (10) N/A (27) (30) N/A
------- ------- ------- ------- ------- -------
Income From Continuing
Operations 140 132 6 448 300 49
Loss From Discontinued
Operations, net of
tax (25) (4) N/A (35) (12) N/A
------- ------- ------- ------- ------- -------
Net Income $115 $128 (10)% $413 $288 43 %
======= ======= ======= ======= ======= =======
Preferred stock
dividends (1) (1) - (2) (2) -
------- ------- ------- ------- ------- -------
Net Income Available
for Common
Stockholders $114 $127 (10)% $411 $286 44 %
======= ======= ======= ======= ======= =======
Basic Per Share:
Income from
continuing
operations $0.44 $0.47 (6)% $1.41 $1.08 30 %
Discontinued
operations (0.08) (0.01) N/A (0.11) (0.04) N/A
------- ------- ------- ------- ------- -------
Net income $0.36 $0.46 (22)% $1.30 $1.04 25 %
======= ======= ======= ======= ======= =======
Dilutive Per Share:
Income from
continuing
operations $0.44 $0.47 (6)% $1.41 $1.07 32 %
Discontinued
operations (0.08) (0.01) N/A (0.11) (0.04) N/A
------- ------- ------- ------- ------- -------
Net income $0.36 $0.46 (22)% $1.30 $1.03 26 %
======= ======= ======= ======= ======= =======
Dilutive average
common and common
equivalent shares
outstanding 318.6 277.1 317.3 277.2
======= ======= ======= =======
Aon Corporation
Segments - Third Quarter Continuing Operations
Third Quarter Ended
-----------------------------
Sept. 30, Sept. 30, Percent
(millions) 2003 2002 Change
-----------------------------
Revenue
-------
Risk and insurance brokerage services
Risk management and insurance brokerage
- Americas $ 562 $ 534 5 %
Risk management and insurance brokerage
- International 478 403 19
Reinsurance brokerage and related
services 232 210 10
Claims services 98 100 (2)
--------- --------- --------
Total risk and insurance brokerage
services 1,370 1,247 10
--------- --------- --------
Consulting
Benefits, compensation, management and
communications consulting 214 193 11
Human resource outsourcing 72 76 (5)
--------- --------- --------
Total consulting 286 269 6
--------- --------- --------
Insurance underwriting
Accident & health and life 416 415 -
Warranty, credit and property &
casualty 326 303 8
--------- --------- --------
Total insurance underwriting 742 718 3
--------- --------- --------
Total operating segments 2,398 2,234 7
Corporate and other 14 8 75
Intersegment revenues (21) - N/A
--------- --------- --------
Total revenue $ 2,391 $ 2,242 7 %
========= ========= ========
Investment Income (Included in Revenue above)
---------------------------------------------
Risk and insurance brokerage services $ 16 $ 38 (58)%
Consulting - - -
Insurance underwriting excluding
deposit-type contracts 27 35 (23)
Insurance underwriting - deposit-type
contracts 1 7 (86)
Corporate and other 14 8 75
--------- --------- --------
Total investment income $ 58 $ 88 (34)%
========= ========= ========
Income (Loss) From Continuing Operations
Before Income Tax and Minority Interest
----------------------------------------
Risk and insurance brokerage services
(3) $ 187 $ 209 (11)%
Consulting 20 26 (23)
Insurance underwriting 58 41 41
--------- --------- --------
Total operating segments 265 276 (4) %
Corporate and other (28) (51) N/A
--------- --------- --------
Total income from continuing
operations before income tax and
minority interest $ 237 $ 225 5 %
========= ========= ========
Income From Continuing Operations Before
Income Tax - Margins
---------------------
Risk and insurance brokerage services 13.6% 16.8%
Consulting 7.0% 9.7%
Insurance underwriting 7.8% 5.7%
Total operating segments 11.1% 12.4%
Aon Corporation
Segments - Third Quarter Continuing Operations
Third Quarter Ended
-------------------------------------
Less: Less: Organic
Less: Acquisitions, All Revenue
Currency Divestitures Other Growth
(millions) Impact & Transfers (1) (2)
--------- ------------ ------ -------
Revenue
-------
Risk and insurance brokerage
services
Risk management and insurance
brokerage - Americas 1 % - % - % 4 %
Risk management and insurance
brokerage - International 8 (2) (3) 16
Reinsurance brokerage and
related services 2 - - 8
Claims services 3 8 (3) (10)
-------- ------------- ----- --------
Total risk and insurance
brokerage services 4 - (1) 7
-------- ------------- ----- --------
Consulting
Benefits, compensation,
management and communications
consulting 4 - 4 3
Human resource outsourcing 1 - 2 (8)
-------- ------------- ----- --------
Total consulting 3 - 3 -
-------- ------------- ----- --------
Insurance underwriting
Accident & health and life 3 2 (1) (4)
Warranty, credit and property &
casualty 2 (4) (1) 11
-------- ------------- ----- --------
Total insurance underwriting 2 (1) (1) 3
-------- ------------- ----- --------
Total operating segments 3 - (1) 5
Corporate and other N/A N/A N/A N/A
Intersegment revenues N/A N/A N/A N/A
-------- ------------- ----- --------
Total revenue 3 % 1 % (2)% 5 %
======== ============= ===== ========
(1) Includes the impact of investment income, reimbursable expenses,
adjustment between written and earned premium and fees in
insurance underwriting only, and unusual items.
(2) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers and items described in (1).
Written premiums and fees are the basis for organic revenue growth
within the Insurance Underwriting segment.
(3) Includes World Trade Center related credits of $18 million for the
third quarter ended September 30, 2002.
Aon Corporation
Segments - Year-to-date Continuing Operations
Nine Months Ended
-----------------------------
Sept. 30, Sept. 30, Percent
(millions) 2003 2002 Change
--------- --------- ---------
Revenue
-------
Risk and insurance brokerage services
Risk management and insurance brokerage
- Americas $ 1,659 $ 1,499 11 %
Risk management and insurance brokerage
- International 1,509 1,236 22
Reinsurance brokerage and related
services 700 601 16
Claims services 300 283 6
--------- --------- --------
Total risk and insurance brokerage
services 4,168 3,619 15
--------- --------- --------
Consulting
Benefits, compensation, management and
communications consulting 647 570 14
Human resource outsourcing 215 180 19
--------- --------- --------
Total consulting 862 750 15
--------- --------- --------
Insurance underwriting
Accident & health and life 1,192 1,245 (4)
Warranty, credit and property & casualty 951 872 9
--------- --------- --------
Total insurance underwriting 2,143 2,117 1
--------- --------- --------
Total operating segments 7,173 6,486 11
Corporate and other 85 (42) N/A
Intersegment revenues (49) - N/A
--------- --------- --------
Total revenue $ 7,209 $ 6,444 12 %
========= ========= ========
Investment Income (Included in Revenue above)
---------------------------------------------
Risk and insurance brokerage services $ 56 $ 87 (36)%
Consulting 1 1 -
Insurance underwriting excluding
deposit-type contracts 82 96 (15)
Insurance underwriting - deposit-type
contracts 4 29 (86)
Corporate and other 85 (42) N/A
--------- --------- --------
Total investment income $ 228 $ 171 33 %
========= ========= ========
Income (Loss) From Continuing Operations
Before Income Tax and Minority Interest
----------------------------------------
Risk and insurance brokerage services
(3) $ 592 $ 542 9 %
Consulting 61 76 (20)
Insurance underwriting 185 111 67
--------- --------- --------
Total operating segments 838 729 15 %
Corporate and other (84) (205) N/A
--------- --------- --------
Total income from continuing operations
before income tax and minority
interest $ 754 $ 524 44 %
========= ========= ========
Income From Continuing Operations Before
Income Tax - Margins
---------------------
Risk and insurance brokerage services 14.2% 15.0%
Consulting 7.1% 10.1%
Insurance underwriting 8.6% 5.2%
Total operating segments 11.7% 11.2%
Aon Corporation
Segments - Year-to-date Continuing Operations
Nine Months Ended
-------------------------------------
Less: Less: Organic
Less: Acquisitions, All Revenue
Currency Divestitures Other Growth
(millions) Impact & Transfers (1) (2)
--------- ------------ ------ -------
Revenue
-------
Risk and insurance brokerage
services
Risk management and insurance
brokerage - Americas - % 1 % - % 10 %
Risk management and insurance
brokerage - International 12 - (2) 12
Reinsurance brokerage and
related services 5 - (1) 12
Claims services 3 - 2 1
-------- ------------- ----- --------
Total risk and insurance
brokerage services 5 - - 10
-------- ------------- ----- --------
Consulting
Benefits, compensation,
management and communications
consulting 5 - 4 5
Human resource outsourcing 2 - 4 13
-------- ------------- ----- --------
Total consulting 4 - 4 7
-------- ------------- ----- --------
Insurance underwriting
Accident & health and life 3 (4) (3) -
Warranty, credit and property &
casualty 3 (2) (9) 17
-------- ------------- ----- --------
Total insurance underwriting 3 (3) (7) 8
-------- ------------- ----- --------
Total operating segments 4 (1) (1) 9
Corporate and other N/A N/A N/A N/A
Intersegment revenues N/A N/A N/A N/A
-------- ------------- ----- --------
Total revenue 4 % (1)% - % 9 %
======== ============= ===== ========
(1) Includes the impact of investment income, reimbursable expenses,
adjustment between written and earned premium and fees in
insurance underwriting only, and unusual items.
(2) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers and items described in (1).
Written premiums and fees are the basis for organic revenue growth
within the Insurance Underwriting segment.
(3) Includes World Trade Center related credits of $18 million for the
nine months ended September 30, 2002.
Aon Corporation
Corporate and Other - Continuing Operations
Third Quarter Ended Nine Months Ended
------------------------- -------------------------
(millions) Sept. Sept. Sept. Sept.
30, 30, Percent 30, 30, Percent
2003 2002 Change 2003 2002 Change
-------- -------- ------- -------- -------- -------
Revenue
-------
Income from
marketable
equity
securities and
other
investments (1) $ 12 $ 8 50 % $ 101 $ 14 +500 %
Limited
partnership
investments 1 - N/A 1 14 (93)
Interest on tax
refund - - - - 48 (100)
Net gain (loss)
on disposals and
related expenses
(2) 1 - N/A (17) (118) N/A
-------- -------- ------- -------- -------- -------
Total revenue 14 8 75 85 (42) N/A
Expenses
--------
General expenses 18 27 (33) 44 72 (39)
Interest expense 24 32 (25) 79 91 (13)
Unusual charges -
World Trade
Center - - - 46 - N/A
-------- -------- ------- -------- -------- -------
Total
expenses 42 59 (29) 169 163 4
-------- -------- ------- -------- -------- -------
Loss from
continuing
operations before
income tax $ (28) $ (51) N/A % $ (84) $ (205) N/A %
======== ======== ======= ======== ======== =======
(1) Includes loss of $2 million and income of $64 million related to
changes in the value of warrants held by the company in Endurance
Specialty for the third quarter and nine months ended September
30, 2003, respectively, as well as $8 million and $28 million from
a common equity interest in Endurance for the third quarter and
nine months ended September 30, 2003, respectively.
(2) Includes impairment writedowns of $1 million and $11 million for
the third quarters ended September 30, 2003 and 2002,
respectively, and $34 million and $120 million (including $51
million cumulative adjustment relating to prior financial
reporting periods) for the nine months ended September 30, 2003
and 2002, respectively.
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