Aon Reports Third Quarter and Nine Months 2004 Results; Provides Detail on Contingent Commissions.CHICAGO Chicago, city, United States Chicago (shĭkä`gō, shĭkô`gō), city (1990 pop. 2,783,726), seat of Cook co., NE Ill., on Lake Michigan; inc. 1837. -- 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 2004 results. Third Quarter and Nine Months Review Net income per share for the third quarter was $0.36 for both 2004 and 2003. 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 $121 million or $0.36 per share compared to $143 million or $0.45 per share a year ago. For the first nine months, net income per share for 2004 and 2003 was $1.40 and $1.30, respectively. Net income from continuing operations and the related per share amounts for nine months increased to $493 million or $1.48 from $460 million or $1.45. Patrick G. Ryan Ryan may refer to: Places
n. The process or condition of becoming worse. of its margin. Consulting and 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. results were in line with our expectations, with margins improving nicely in both segments. As previously announced, during the quarter we signed a definitive agreement to sell a majority interest in our Cambridge Cambridge, city, Canada Cambridge (kām`brĭj), city (1991 pop. 92,772), S Ont., Canada, on the Grand River, NW of Hamilton. It was formed in 1973 with the amalgamation of Galt, Hespeler, and Preston, all founded in the early 19th cent. Integrated Services In computer networking, IntServ or integrated services is an architecture that specifies the elements to guarantee quality of service (QoS) on networks. IntServ can for example be used to allow video and sound to reach the receiver without interruption. claims business. We expect to complete this sale within the coming weeks." Recent Industry Developments Commenting on recent industry developments, Mr. Ryan said, "While recent allegations concerning our industry are extremely troubling, at Aon we have always been committed to our core values of integrity and acting in our clients' best interest. As the second largest insurance broker in the world, Aon is committed to playing a leading role in restoring the credibility Believability. The major legal application of the term credibility relates to the testimony of a witness or party during a trial. Testimony must be both competent and credible if it is to be accepted by the trier of fact as proof of an issue being litigated. of the industry. We are in the process of terminating contingent Fortuitous; dependent upon the possible occurrence of a future event, the existence of which is not assured. The word contingent denotes that there is no present interest or right but only a conditional one which will become effective upon the happening of the commission arrangements, and we will work with clients, insurance carriers and regulators to implement a new business model which ensures that we are appropriately compensated compensated /com·pen·sat·ed/ (kom´pen-sa?tid) counterbalanced; offset. , while maintaining full transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. and the trust of our clients." On October October: see month. 22, 2004, Aon announced that it is terminating contingent commissions Contingent commissions is a term used in the American insurance industry for any kind of broker's commission which is contingent upon some event occurring (instead of a commission paid on the sale itself). In the UK this form of payment is known as Overriders. from underwriters. The following table provides information regarding revenue recorded as compensation for services to underwriters, including contingent commissions, for the nine months ended September September: see month. 30, 2004.
($ millions) Risk & % of % of
Insurance Segment Segment % of Aon
Brokerage Revenue Consulting Revenue Total Revenue
----------------------------------------------------------------------
Contingent
Commissions $100 2.4% $17 1.9% $117 1.6%
Other
Compensation
for Services to
Underwriters (a) 91 2.1% -- -- 91 1.2%
(a) Includes compensation for activities in which we act as the agent
for carriers such as affinity program management, managing general
underwriting and wholesale brokerage. Also includes compensation
for specific services as is customary in certain markets outside
the United States.
----------------------------------------------------------------------
Third Quarter and Nine Months Segment Review This press release contains references to organic revenue growth that management believes is an important measure to evaluate new business production from existing operations. Please see additional information below regarding organic revenue growth. Prior period segment results were reclassified in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with certain non-core businesses being placed into discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. . Risk and Insurance Brokerage Services reported revenue was $1.3 billion for both the current and prior year quarters, with organic revenue growth of negative 3%. 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. for the quarter was $144 million compared to $192 million in 2003 and the pretax pre·tax adj. Existing before tax deductions: pretax income. pretax adj [profit] → vor (Abzug der) Steuern margin was 10.7% versus 14.2% a year ago. Third quarter 2004 pretax income and margin comparisons versus the prior year were adversely influenced by lower revenue in the retail, 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 claims services businesses. Expenses were up 2% on an organic basis driven primarily by increased pension costs in our major plans. Third quarter 2003 results were adversely impacted by a $7 million stock-based incentive adjustment. Nine months pretax income declined 1% to $600 million and the pretax margin declined 60 basis points to 14.2%. Consulting revenue rose 6% to $300 million during the quarter. Organic revenue growth for the segment was 2%. Benefits, compensation, management and communications consulting achieved 4% organic revenue growth, while 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 3% on an organic basis. Pretax income increased 45% in the quarter to $29 million and the pretax margin grew to 9.7% from 7.0% in 2003. The pretax margin increase was driven by improved results in international consulting, human resource outsourcing, and the inclusion in third quarter 2003 of a $3 million stock-based incentive adjustment. Nine months pretax income rose 32% to $83 million and the pretax margin increased 180 basis points to 9.2%. Insurance Underwriting revenue increased 5% to $779 million, with segment organic revenue growth of negative 1% during the quarter. Reported revenue in the quarter was $26 million lower as a result of a book of U.K. specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. A&H business that was placed in run-off run-off n (in contest, election) → desempate m (= extra race); carrera de desempate run-off n (in contest, election) → . This was largely offset by a $23 million increase in reported revenue due to reinsurance program changes for a specialty A&H line. Pretax income rose 16% to $67 million in the quarter. Pretax margins were 8.6% for 2004 and 7.8% for 2003. Third quarter 2003 results in the select property and casualty portfolio included a $21 million pretax loss pretax loss A loss reported before tax benefits are considered. from the run-off of National Program Services, Inc. business with no comparable amount in 2004. In the balance of the specialty property and casualty business, profitability was lower due to reduced retentions and the discontinuance Cessation; ending; giving up. The discontinuance of a lawsuit, also known as a dismissal or a non-suit, is the voluntary or involuntary termination of an action. DISCONTINUANCE, pleading. A chasm or interruption in the pleading. 2. of certain programs. Nine months pretax income was $193 million compared with $185 million in 2003, and the pretax margin was 8.2% versus 8.6% a year ago. Corporate and Other segment revenue was a negative $6 million in the quarter compared to a positive $14 million in 2003. Third quarter 2004 results included a pretax loss of $13 million ($0.02 per share) related to the quarterly 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 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. warrants compared to a $2 million loss in the prior year. For the third quarter, Endurance equity earnings were $4 million in 2004 and $8 million in 2003. The pretax loss in the quarter was $52 million compared with a loss of $28 million a year ago. Interest expense in the quarter benefited from lower levels of debt offset by a $14 million increase in pretax interest expense from the reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. of the trust preferred after tax minority interest (as of first quarter 2004 under the adoption of FIN fin, organ of locomotion characteristic of fish and consisting of thin tissue supported by cartilaginous or bony rays. In some fish, e.g., the eel, a single fin extends from the back, around the tail, and along the ventral surface. 46). Prior periods were not restated. The pretax loss for nine months was $106 million compared to a loss of $84 million in 2003. Nine months 2003 results included a $46 million pretax ($0.09 per share) World Trade Center unusual charge. Financial Condition Total debt and 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. decreased $272 million to $2.0 billion (including $65 million 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. borrowings) at September 30, 2004 from September 30, 2003. Total debt and preferred stock as a percentage of total capital was reduced to 29% from 34% over the same period. 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 $4.9 billion. Compared to June June: see month. 30, 2004, total debt and preferred stock decreased $94 million. Approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 90% of Aon's investment portfolio at quarter end was in short-term and fixed maturities. More than 96% of the fixed income securities were rated investment grade. Discontinued Operations The third quarter 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. gain from discontinued operations was $1 million in 2004 and a loss of $28 million ($0.09 per share) in 2003. During third quarter 2004, a non-core brokerage unit was reclassified to discontinued operations. The net loss in the quarter attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to this 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: business was $3 million after tax ($0.01 per share) for 2004 with a $1 million loss in 2003. Revenues for this unit were $1 million in each of the comparable periods. Other Items Third quarter and nine months 2004 dilutive net income per share calculations include approximately 14 million and 9 million additional shares, respectively, for the potential conversion of the 3 1/2% Senior Convertible Debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. . This diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. third quarter and nine months earnings by approximately $0.01 and $0.03 per share, respectively. Approximately $1 million and $3 million of after-tax interest expense from the assumed conversion of this convertible debt was added back to net income to calculate earnings per share in third quarter and nine months 2004, respectively. 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 exchange was approximately $0.02 per share for both third quarter 2004 and 2003. Future Outlook Mr. Ryan said, "Aon employees around the world have been working diligently dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d to serve our clients and policyholders, improve our financial discipline, and deliver the results our shareholders expect and deserve. During the course of this year, we established certain financial goals, including attaining earnings per share from continuing operations of $2.20 or greater. While softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. market conditions are increasingly favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. to our clients, our revenue growth has not been what we anticipated. This reality, coupled with the impact of recent industry developments (including our decision to terminate Terminate (terminat.exe) was a shareware modem terminal and host program for MS-DOS and compatible operating systems developed from the early to the late 1990s by the Dane Bo Bendtsen. The last release (5. contingent commission arrangements), leads us to withdraw our prior guidance relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the $2.20 earnings per share objective. We remain committed to improving our margins and returns to our shareholders. We believe that today's environment presents an unprecedented opportunity for Aon to gain market share due to our client-focused approach, our global network and our broad and deep resources. Our most immediate priority will be to ensure the confidence of clients and investors in the integrity and ethics ethics, in philosophy, the study and evaluation of human conduct in the light of moral principles. Moral principles may be viewed either as the standard of conduct that individuals have constructed for themselves or as the body of obligations and duties that a of our industry." The Company will host an audio webcast on Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , October 29 at 10:00 a.m. central time that can be accessed at www.aon.com. Aon Corporation (www.aon.com) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting Noun 1. management consulting - a service industry that provides advice to those in charge of running a business service industry - an industry that provides services rather than tangible objects , and specialty insurance underwriting. The company employs approximately 51,000 professionals in its 600 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions. 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, resolution of pending regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. investigations and related issues, including those related to compensation arrangements with underwriters, pension funding, ultimate paid claims may be different from actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin estimates and actuarial estimates may change over time, 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. , and 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. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission. This press release includes supplemental information related to organic revenue growth that management believes is an important measure to evaluate new business production from existing operations. We also believe that this supplemental information is helpful to investors. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable re·im·burse tr.v. re·im·bursed, re·im·burs·ing, re·im·burs·es 1. To repay (money spent); refund. 2. To pay back or compensate (another party) for money spent or losses incurred. expenses, unusual items, and for the underwriting segment only, an adjustment between written and earned premium Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. . A reconciliation is provided in the attached schedules. The supplemental organic revenue growth information does not affect net income or any other GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). reported amounts. It should be viewed in addition to, not in lieu of Instead of; in place of; in substitution of. It does not mean in addition to. , the Company's 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: Summary of Operations. Industry peers provide similar supplemental information regarding their revenue performance, although they do not make identical adjustments.
Aon Corporation
Consolidated Summary of Operations
Third Quarter Ended Nine Months Ended
---------------------- -----------------------
(millions except per Sept. Sept. Percent Sept. Sept. Percent
share data) 30, 30, Change 30, 30, Change
2004 2003 2004 2003
(1) (1)
----------------------- -----------------------
Revenue
--------
Brokerage commissions
and fees $1,657 $1,638 1 % $5,207 $4,977 5 %
Premiums and other 693 673 3 2,101 1,940 8
Investment income 52 57 (9) 202 225 (10)
------- ------- ------ ------- ------- -------
Total revenue 2,402 2,368 1 7,510 7,142 5
------- ------- ------ ------- ------- -------
Expenses
---------
General expenses 1,787 1,718 4 5,442 5,164 5
Benefits to
policyholders 379 367 3 1,154 1,037 11
Interest expense (2) 32 24 33 101 79 28
Amortization of
intangible assets 16 17 (6) 43 43 -
Unusual charges -
World Trade Center - - - - 46 (100)
------- ------- ------ ------- ------- -------
Total expenses 2,214 2,126 4 6,740 6,369 6
------- ------- ------ ------- ------- -------
Income from continuing
operations before
income tax and minority
interest 188 242 (22) 770 773 -
Provision for income
tax (36% in 2004 and
37% in 2003) 67 90 (26) 277 286 (3)
------- ------- ------ ------- ------- -------
Income from continuing
operations before
minority interest 121 152 (20) 493 487 1
Minority interest -
8.205% trust
preferred capital
securities (2) - (9) N/A - (27) N/A
------- ------- ------ ------- ------- -------
Income from continuing
operations 121 143 (15) 493 460 7
Income (loss) from
discontinued
operations, net of tax 1 (28) N/A (28) (47) N/A
------- ------- ------ ------- ------- -------
Net income $ 122 $ 115 6 % $ 465 $ 413 13 %
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
Preferred stock
dividends (1) (1) - (2) (2) -
------- ------- ------ ------- ------- -------
Net income available
for common
stockholders $ 121 $ 114 6 % $ 463 $ 411 13 %
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
Basic net income per
share:
Income from
continuing
operations $ 0.38 $ 0.45 (16)% $1.54 $1.45 6 %
Discontinued
operations - (0.09) N/A (0.09) (0.15) N/A
------- ------- ------ ------- ------- -------
Net income $ 0.38 $ 0.36 6 % $1.45 $1.30 12 %
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
Dilutive net income
per share:
Income from
continuing
operations $0.36 $0.45 (20)% $1.48 $1.45 2 %
Discontinued
operations - (0.09) N/A (0.08) (0.15) N/A
------- ------- ------ ------- ------- -------
Net income $0.36 $0.36 - % $1.40 $1.30 8 %
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
Dilutive average common
and common equivalent
shares outstanding (3) 337.4 318.6 332.0 317.3
------- ------- ------- -------
------- ------- ------- -------
(1) Certain amounts relating to discontinued operations have been
reclassified to conform to the 2004 presentation.
(2) Upon the adoption of FIN 46 on December 31, 2003, Aon was required
to deconsolidate its trust preferred capital securities, which was
offset by an increase in notes payable. Beginning in 2004, no
after-tax interest on the capital securities will be reported;
however, pretax interest expense on the notes payable of $14
million and $43 million for third quarter and nine months ended
September 30, 2004, respectively, is reported as part of interest
expense.
(3) The dilutive net income per share calculation for third quarter
and nine months 2004 includes 14 million and 9 million additional
shares, respectively, for the potential conversion of the 3.5%
Senior Convertible Debentures. In addition, the net income used in
the calculation includes approximately $1 million and $3 million
of after-tax interest expense from the assumed conversion of this
debt for the third quarter and nine months ended September 30,
2004, respectively.
Aon Corporation
Segments - Third Quarter Continuing Operations
Third Quarter Ended
-----------------------------------------------------
(millions) Sept. Sept. Per- Less: Less: Less: Organic
30, 30, cent Cur- Acquis- All Revenue
2004 2003 Change rency itions, Other Growth
(1) Impact Divest- (2) (3)
itures &
Trans-
fers
-----------------------------------------------------
Revenue
--------
Risk and insurance
brokerage services
Risk management
and insurance
brokerage -
Americas $ 558 $ 561 (1)% - % - % - % (1)%
Risk management
and insurance
brokerage -
International 512 478 7 8 1 1 (3)
Reinsurance
brokerage and
related
services 219 225 (3) 4 - (2) (5)
Claims services 55 85 (35) - (25) 5 (15)
------- ------- ----- ------- ------- ----- --------
Total risk
and insurance
brokerage
services 1,344 1,349 - 3 (1) 1 (3)
------- ------- ----- ------- ------- ----- --------
Consulting
Benefits,
compensation,
management and
communications
consulting 229 214 7 3 1 (1) 4
Human resource
outsourcing 71 70 1 3 - 1 (3)
------- ------- ----- ------- ------- ----- --------
Total
consulting 300 284 6 3 1 - 2
------- ------- ----- ------- ------- ----- --------
Insurance
underwriting
Accident & health
and life 423 416 2 4 - 2 (4)
Warranty,
credit and
property &
casualty 356 326 9 3 - 5 1
------- ------- ----- ------- ------- ----- --------
Total insurance
underwriting 779 742 5 3 - 3 (1)
------- ------- ----- ------- ------- ----- --------
Corporate and other (6) 14 N/A N/A N/A N/A N/A
Intersegment
revenues (15) (21) N/A N/A N/A N/A N/A
------- ------- ----- ------- ------- ----- --------
Total $2,402 $2,368 1 % 3 % (1)% 1 % (2)%
------- ------- ----- ------- ------- ----- --------
------- ------- ----- ------- ------- ----- --------
Investment income (included in Revenue above)
---------------------------------------------
Risk and
insurance
brokerage
services $ 25 $ 15 67 %
Consulting 1 - N/A
Insurance
underwriting,
including
deposit-type
contracts 32 28 14
Corporate and
other (6) 14 N/A
------- ------- -----
Total $ 52 $ 57 (9)%
------- ------- -----
------- ------- -----
Income (loss) from continuing operations
before income tax and minority interest
---------------------------------------
Risk and
insurance
brokerage
services $ 144 $ 192 (25)%
Consulting 29 20 45
Insurance
underwriting 67 58 16
Corporate and
other (52) (28) N/A
------- ------- -----
Total $ 188 $ 242 (22)%
------- ------- -----
------- ------- -----
Income from continuing operations
before income tax - margins
-----------------------------
Risk and
insurance
brokerage
services 10.7% 14.2%
Consulting 9.7% 7.0%
Insurance
underwriting 8.6% 7.8%
Total 7.8% 10.2%
(1) Certain amounts relating to discontinued operations have been
reclassified to conform to the 2004 presentation.
(2) Includes the impact of investment income, reimbursable expenses,
adjustment between written and earned premium and fees in
insurance underwriting only, and unusual items.
(3) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers and items described in (2).
Written premiums and fees are the basis for organic revenue growth
within the Insurance Underwriting segment.
Aon Corporation
Segments - Year-to-date Continuing Operations
Nine Months Ended
----------------------------------------------------
(millions) Sept. Sept. Per- Less: Less: Less: Organic
30, 30, cent Cur- Acquis- All Revenue
2004 2003 Change rency itions, Other Growth
(1) Impact Divest- (2) (3)
itures &
Trans-
fers
----------------------------------------------------
Revenue
-------
Risk and insurance
brokerage services
Risk management
and insurance
brokerage -
Americas $1,686 $1,656 2 % 1 % - % - % 1 %
Risk management
and insurance
brokerage -
International 1,719 1,509 14 10 1 1 2
Reinsurance
brokerage and
related
services 662 681 (3) 5 - (3) (5)
Claims services 173 261 (34) - (25) 4 (13)
------- ------- ----- ----- ----- ----- --------
Total risk
and insurance
brokerage
services 4,240 4,107 3 5 (1) (1) -
------- ------- ----- ----- ----- ----- --------
Consulting
Benefits,
compensation,
management and
communications
consulting 684 647 6 4 - 1 1
Human resource
outsourcing 222 209 6 3 4 (1) -
------- ------- ----- ----- ----- ----- --------
Total
consulting 906 856 6 4 1 - 1
------- ------- ----- ----- ----- ----- --------
Insurance underwriting
Accident & health
and life 1,289 1,192 8 4 - 9 (5)
Warranty, credit
and property &
casualty 1,076 951 13 4 - 1 8
------- ------- ----- ----- ----- ----- --------
Total insurance
underwriting 2,365 2,143 10 4 - 5 1
------- ------- ----- ----- ----- ----- --------
Corporate and
other 48 85 (44) N/A N/A N/A N/A
Intersegment
revenues (49) (49) N/A N/A N/A N/A N/A
------- ------- ----- ----- ----- ----- --------
Total $7,510 $7,142 5 % 4 % - % 1 % - %
------- ------- ----- ----- ----- ----- --------
------- ------- ----- ----- ----- ----- --------
Investment income (included in Revenue above)
---------------------------------------------
Risk and
insurance
brokerage
services $ 57 $ 53 8 %
Consulting 2 1 100
Insurance
underwriting,
including
deposit-type
contracts 95 86 10
Corporate and
other 48 85 (44)
------- ------- -----
Total $ 202 $ 225 (10)%
------- ------- -----
------- ------- -----
Income (loss) from continuing operations
before income tax and minority interest
-----------------------------------------
Risk and
insurance
brokerage
services $ 600 $ 609 (1) %
Consulting 83 63 32
Insurance
underwriting 193 185 4
Corporate and
other (106) (84) N/A
------- ------- -----
Total $ 770 $ 773 - %
------- ------- -----
------- ------- -----
Income from continuing operations
before income tax - margins
-----------------------------
Risk and
insurance
brokerage
services 14.2% 14.8%
Consulting 9.2% 7.4%
Insurance
underwriting 8.2% 8.6%
Total 10.3% 10.8%
(1) Certain amounts relating to discontinued operations have been
reclassified to conform to the 2004 presentation.
(2) Includes the impact of investment income, reimbursable expenses,
adjustment between written and earned premium and fees in
insurance underwriting only, and unusual items.
(3) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers and items described in (2).
Written premiums and fees are the basis for organic revenue growth
within the Insurance Underwriting segment.
Aon Corporation
Corporate and Other - Continuing Operations
Third Quarter Ended Nine Months Ended
------------------- --------------------
(millions) Sept. Sept. Per- Sept. Sept. Per-
30, 30, cent 30, 30, cent
2004 2003 Change 2004 2003 Change
----------------------------------------
Revenue
--------
Income (loss) from
marketable equity
securities and other
investments (1) $ (7) $ 12 N/A % $ 36 $101 (64)%
Limited partnership
investments - 1 (100) 6 1 500
Net gain (loss) on
disposals and related
expenses (2) 1 1 - 6 (17) N/A
----- ----- ------ ------ ----- -------
Total revenue (6) 14 N/A 48 85 (44)
Expenses
---------
General expenses 14 18 (22) 53 44 20
Interest expense (3) 32 24 33 101 79 28
Unusual charges -
World Trade Center - - - - 46 (100)
----- ----- ------ ------ ----- -------
Total expenses 46 42 10 154 169 (9)
----- ----- ------ ------ ----- -------
Loss before income tax $(52) $(28) N/A % $(106) $(84) N/A %
----- ----- ------ ------ ----- -------
----- ----- ------ ------ ----- -------
Notes:
Third Quarter Ended Nine Months Ended
------------------- --------------------
Sept. Sept. Per- Sept. Sept. Per-
30, 30, cent 30, 30, cent
2004 2003 Change 2004 2003 Change
----- ----- ------ ------ ----- -------
(1) Includes (millions):
Income (loss) from
Endurance warrants $(13) $ (2) N/A % $ (9) $ 64 N/A %
Equity earnings -
Endurance 4 8 (50) 38 28 36
----- ----- ------ ------ ----- -------
Total $ (9) $ 6 N/A % $ 29 $ 92 (68)%
----- ----- ------ ------ ----- -------
----- ----- ------ ------ ----- -------
(2) Includes (millions):
Gain on sale of
Endurance stock $ - $ - - % $ 11 $ - N/A %
Impairment writedowns - (1) N/A (2) (34) N/A
(3) Upon the adoption of FIN 46 on December 31, 2003, Aon was required
to deconsolidate its trust preferred capital securities, which was
offset by an increase in notes payable. Interest expense for third
quarter and nine months 2004 includes $14 million and $43 million,
respectively, on these notes payable.
Aon Corporation
Consolidated Summary of Operations -
Reclassified for Discontinued Operations
2003
---------------------------------------
(millions except per share data) 1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
---------------------------------------
Revenue
--------
Brokerage commissions and
fees $1,652 $1,687 $1,638 $1,820 $6,797
Premiums and other 632 635 673 669 2,609
Investment income 79 89 57 87 312
------- ------- ------- ------- -------
Total revenue 2,363 2,411 2,368 2,576 9,718
------- ------- ------- ------- -------
Expenses
---------
General expenses 1,671 1,775 1,718 1,849 7,013
Benefits to policyholders 345 325 367 390 1,427
Interest expense 28 27 24 22 101
Amortization of intangible
assets 12 14 17 17 60
Unusual charges (credits) -
World Trade Center 37 9 - (60) (14)
------- ------- ------- ------- -------
Total expenses 2,093 2,150 2,126 2,218 8,587
------- ------- ------- ------- -------
Income from continuing
operations before income tax
and minority interest 270 261 242 358 1,131
Provision for income tax 100 96 90 133 419
------- ------- ------- ------- -------
Income from continuing
operations before minority
interest 170 165 152 225 712
Minority interest - 8.205%
trust preferred capital
securities (9) (9) (9) (9) (36)
------- ------- ------- ------- -------
Income from continuing
operations 161 156 143 216 676
Loss from discontinued
operations, net of tax (9) (10) (28) (1) (48)
------- ------- ------- ------- -------
Net income $ 152 $ 146 $ 115 $ 215 $ 628
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Preferred stock dividends (1) - (1) (1) (3)
------- ------- ------- ------- -------
Net income available for
common stockholders $ 151 $ 146 $ 114 $ 214 $ 625
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Basic net income per share:
Income from continuing
operations $ 0.51 $ 0.49 $ 0.45 $ 0.67 $ 2.12
Discontinued operations (0.03) (0.03) (0.09) - (0.15)
------- ------- ------- ------- -------
Net income $ 0.48 $ 0.46 $ 0.36 $ 0.67 $ 1.97
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Dilutive net income per share:
Income from continuing
operations $ 0.51 $ 0.49 $ 0.45 $ 0.67 $ 2.12
Discontinued operations (0.03) (0.03) (0.09) - (0.15)
------- ------- ------- ------- -------
Net income $ 0.48 $ 0.46 $ 0.36 $ 0.67 $ 1.97
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Dilutive average common and
common equivalent shares
outstanding 315.2 318.2 318.6 319.3 317.8
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Aon Corporation Consolidated Summary of Operations -
Reclassified for Discontinued Operations
2004
------------------------
(millions except per share data) 1st 2nd Six
Quarter Quarter Months
------------------------
Revenue
--------
Brokerage commissions and
fees $ 1,791 $ 1,759 $ 3,550
Premiums and other 692 716 1,408
Investment income 81 69 150
------------------------
Total revenue 2,564 2,544 5,108
------------------------
Expenses
---------
General expenses 1,834 1,821 3,655
Benefits to policyholders 383 392 775
Interest expense 34 35 69
Amortization of intangible
assets 13 14 27
Unusual charges (credits) -
World Trade Center - - -
------------------------
Total expenses 2,264 2,262 4,526
------------------------
Income from continuing
operations before income tax
and minority interest 300 282 582
Provision for income tax 108 102 210
------------------------
Income from continuing
operations before minority
interest 192 180 372
Minority interest - 8.205%
trust preferred capital
securities - - -
------------------------
Income from continuing
operations 192 180 372
Loss from discontinued
operations, net of tax (22) (7) (29)
------------------------
Net income $ 170 $ 173 $ 343
------------------------
------------------------
Preferred stock dividends (1) - (1)
------------------------
Net income available for
common stockholders $ 169 $ 173 $ 342
------------------------
------------------------
Basic net income per share:
Income from continuing
operations $ 0.60 $ 0.56 $ 1.16
Discontinued operations (0.07) (0.02) (0.09)
------------------------
Net income $ 0.53 $ 0.54 $ 1.07
------------------------
------------------------
Dilutive net income per share:
Income from continuing
operations $ 0.60 $ 0.54 $ 1.13
Discontinued operations (0.07) (0.02) (0.09)
------------------------
Net income $ 0.53 $ 0.52 $ 1.04
------------------------
------------------------
Dilutive average common and
common equivalent shares
outstanding 321.3 337.1 329.2
------------------------
------------------------
Aon Corporation
Segments - Reclassification for Discontinued Operations
2003
---------------------------------------
(millions) 1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
---------------------------------------
Revenue
--------
Risk and insurance brokerage
services
As reported $1,356 $1,404 $1,350 $1,488 $5,598
Less: reclassification to
discontinued operations (1) (1) (1) (2) (5)
------- ------- ------- ------- -------
As reclassified 1,355 1,403 1,349 1,486 5,593
------- ------- ------- ------- -------
Consulting 280 292 284 329 1,185
Insurance underwriting 709 692 742 740 2,883
Corporate and other 31 40 14 40 125
Intersegment revenues (12) (16) (21) (19) (68)
------- ------- ------- ------- -------
Total $2,363 $2,411 $2,368 $2,576 $9,718
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Income (Loss) Before Income Tax and Minority Interest
------------------------------------------------------
Risk and insurance brokerage
services
As reported $ 235 $ 180 $ 191 $ 239 $ 845
Less: reclassification to
discontinued operations 1 1 1 - 3
------- ------- ------- ------- -------
As reclassified 236 181 192 239 848
------- ------- ------- ------- -------
Consulting 21 22 20 47 110
Insurance underwriting 63 64 58 11 196
Corporate and other (50) (6) (28) 61 (23)
------- ------- ------- ------- -------
Total $ 270 $ 261 $ 242 $ 358 $1,131
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Income from continuing operations before income tax - margins
--------------------------------------------------------------
Risk and insurance brokerage
services
As reported 17.3% 12.8% 14.1% 16.1% 15.1%
As reclassified 17.4% 12.9% 14.2% 16.1% 15.2%
Consulting 7.5% 7.5% 7.0% 14.3% 9.3%
Insurance underwriting 8.9% 9.2% 7.8% 1.5% 6.8%
Total
As reported 11.4% 10.8% 10.2% 13.9% 11.6%
As reclassified 11.4% 10.8% 10.2% 13.9% 11.6%
Aon Corporation
Segments - Reclassification for Discontinued Operations
2004
------------------------
(millions) 1st 2nd Six
Quarter Quarter Months
------------------------
Revenue
--------
Risk and insurance brokerage
services
As reported $1,465 $1,433 $2,898
Less: reclassification to
discontinued operations (1) (1) (2)
------------------------
As reclassified 1,464 1,432 2,896
------------------------
Consulting 301 305 606
Insurance underwriting 781 805 1,586
Corporate and other 36 18 54
Intersegment revenues (18) (16) (34)
------------------------
Total $2,564 $2,544 $5,108
------------------------
------------------------
Income (Loss) Before Income Tax and Minority Interest
-----------------------------------------------------
Risk and insurance brokerage
services
As reported $ 242 $ 212 $ 454
Less: reclassification to
discontinued operations 1 1 2
------------------------
As reclassified 243 213 456
------------------------
Consulting 26 28 54
Insurance underwriting 53 73 126
Corporate and other (22) (32) (54)
------------------------
Total $ 300 $ 282 $ 582
------------------------
------------------------
Income from continuing operations before income tax - margins
-------------------------------------------------------------
Risk and insurance brokerage
services
As reported 16.5% 14.8% 15.7%
As reclassified 16.6% 14.9% 15.7%
Consulting 8.6% 9.2% 8.9%
Insurance underwriting 6.8% 9.1% 7.9%
Total
As reported 11.7% 11.0% 11.4%
As reclassified 11.7% 11.1% 11.4%
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