Aon Posts 3Q 2009 Results

Aon Corp. on October 30 reported results for the third quarter ended September 30.

Net income attributable to Aon stockholders was $120 million or $0.41 per share, compared to $117 million or $0.40 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations decreased 25 percent to $117 million or $0.40 per share, compared to $155 million or $0.53 per share for the prior year quarter. Net income attributable to Aon stockholders from continuing operations per share, excluding certain items, decreased 6 percent to $0.65 compared to $0.69 for the prior year quarter, including a $62 million or 69 percent decline in investment income. Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 12 of this press release.

"Our third quarter results reflect solid operational discipline, as highlighted by a 140 basis point adjusted pretax margin improvement in our Brokerage segment, despite difficult economic and industry conditions and a 69 percent decline in total investment income," said Greg Case, president and chief executive officer. "We continue to make substantial investments across our businesses with the rollout of our Global Risk Insight Platform and the introduction of Inpoint, our insurance carrier consulting business, as well as the addition of key talent in Consulting. As we invest in future growth opportunities, our 2007 and Aon Benfield restructuring programs will continue to deliver additional cost savings as we have achieved less than 40 percent thus far, of the total $589 million of estimated annual savings under these two programs. Lastly, our balance sheet and strong cash flow provide significant financial flexibility to create shareholder value, as highlighted by the repurchase of an additional $125 million of stock during the quarter."

THIRD QUARTER FINANCIAL SUMMARY

Total revenue decreased 2 percent to $1.8 billion due to a 5 percent decline resulting from foreign currency translation and a 69 percent decline in investment income, partially offset by a 9 percent increase from acquisitions, primarily Benfield, net of dispositions.

Total operating expenses were similar to the prior year quarter at $1.6 billion, including an $82 million favorable impact from foreign currency translation, partially offset by a $45 million increase in restructuring charges and operating expenses from the Benfield merger.

Restructuring expenses related to the 2007 and Aon Benfield restructuring programs were $99 million in the third quarter compared to $54 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for both the 2007 and Aon Benfield restructuring programs are detailed on page 13 of this release.

Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $68 million compared to $29 million in the prior year quarter. Of the estimated restructuring savings in the third quarter, $57 million were related to the Brokerage segment primarily for workforce reduction. Before any potential reinvestment of savings, the 2007 restructuring program is now expected to deliver cumulative cost savings of approximately $240-245 million in 2009 and $467 million of annualized run-rate cost savings by the end of 2010, primarily as a result of additional cost savings opportunities to streamline support functions globally.

Restructuring savings in the third quarter related to the Aon Benfield restructuring program are estimated at $14 million. Before any potential reinvestment of savings, the Benfield restructuring program is now expected to deliver cumulative cost savings of $45-50 million in 2009, $90-100 million in 2010 and $122 million in 2011.

Currency fluctuations in the third quarter negatively impacted income from continuing operations by $0.01 per diluted share when the Company translates prior year quarter results at current quarter foreign exchange rates.

Effective tax rate on continuing operations was 26.7 percent for the third quarter compared to 27.1 percent for the prior year quarter. The rate in the third quarter includes an underlying tax rate on operations of 28.0 percent.

Average diluted shares outstanding decreased to 292.1 million in the third quarter compared to 293.9 million in the prior year quarter. As a result of accounting guidance introduced in the first quarter, share-based payment awards which receive non-forfeitable dividends are now included in the calculation of basic and diluted shares outstanding. Average diluted shares outstanding increased by approximately 3.4 million in the third quarter and 3.6 million in the prior year quarter as a result of these share-based awards being included in the calculation of diluted earnings per share.

During the quarter, the Company repurchased 3.0 million shares of common stock for $125 million. As of September 30, the Company had approximately $605 million of remaining share repurchase authorization.

Discontinued Operations after-tax income was $3 million or $0.01 per share compared to an after-tax loss of $38 million or $0.13 per share for the prior year quarter. Discontinued operations include adjustments to the gains and losses of previously sold companies. The prior year quarter includes the results of Automobile Insurance Specialists (AIS) and post-close adjustments related to the sale of Combined Insurance Companies of America (CICA) and Sterling Life Insurance (Sterling).

Aon Corp. is a global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 37,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions.

((Comments on this story may be sent to newsdesk@closeupmedia.com))

Related terms: accounting, acquisition, automobile insurance, business, carrier, ceo, consulting, currency, dividends, earnings, financial summary, foreign exchange, gaap, insurance, investment, life insurance, merger, president, productivity, rates, reinsurance, restructuring, revenue, sterling, tax