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Home . International Insurance News . Americas | Canada | Mexico . Aon Reports Fourth Quarter and Full Year 2011 Results

Aon Reports Fourth Quarter and Full Year 2011 Results

Monday, February 06, 2012

CHICAGO, Feb. 3, 2012 /PRNewswire/ -- Aon Corporation (NYSE: AON) today reported results for the fourth quarter and full year ended December 31, 2011.

Net income attributable to Aon stockholders from continuing operations increased 19% to $277 million or $0.82 per share, compared to $232 million or $0.67 per share for the prior year quarter. Net income per share attributable to Aon stockholders from continuing operations, adjusted for certain items, increased 15% to $0.97, compared to $0.84 in the prior year quarter. Certain items that impacted fourth quarter results and comparisons with the prior year quarter are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 14 of this press release.

"Our fourth quarter results reflect 15 percent growth in earnings as highlighted by organic growth across all major businesses and the continued delivery of synergy savings related to Aon Hewitt," said Greg Case, president and chief executive officer. "While macro economic conditions remain challenging globally, we are firmly on track to deliver improved growth in 2012, our restructuring programs will deliver cost savings and we have solid financial flexibility that will drive increased shareholder value, as highlighted by the repurchase of $828 million of common stock in 2011."

FOURTH QUARTER FINANCIAL SUMMARY

Total revenue increased 3% to $3.0 billion from the prior year quarter driven primarily by a 3% increase in organic revenue.

Total operating expenses increased 3%, or $72 million, to $2.6 billion due primarily to a 3% increase in organic revenue, a $21 million increase in intangible asset amortization expense and $18 million of non-cash charges related to the write-off of accounts receivable primarily from the years 2001 to 2004, partially offset by benefits related to the restructuring programs, a $15 million favorable impact from foreign currency exchange rates and a $14 million decline in restructuring costs.

Depreciation expense decreased 3%, or $2 million, to $56 million compared to the prior year quarter.

Intangible asset amortization expense increased 31%, or $21 million, to $89 million compared to the prior year quarter due primarily to a $22 million increase relating to assets recognized from the merger with Hewitt.

Restructuring expenses were $43 million compared to $57 million in the prior year quarter. In the fourth quarter, the Company incurred $25 million of costs under the Aon Hewitt restructuring program and $21 million of costs under the Aon Benfield restructuring program primarily related to workforce reduction. The Company has completed all restructuring activities and incurred 100% of the total costs for the 2007 restructuring program and has incurred approximately 96% of the total costs necessary to deliver the remaining $22 million of restructuring savings for the Aon Benfield restructuring program. An analysis of restructuring-related costs is detailed on page 16 of this release.

Restructuring savings in the fourth quarter related to the 2007 restructuring program are estimated at $134 million compared to $128 million in the prior year quarter. Of the restructuring savings in the fourth quarter, $113 million were related to the Risk Solutions segment. Before any potential reinvestment of savings, the 2007 restructuring delivered cumulative expense savings of $536 million in 2011.

Restructuring savings in the fourth quarter related to the Aon Benfield restructuring program are estimated at $33 million compared to $27 million in the prior year quarter. Before any potential reinvestment of savings, the Benfield restructuring program is expected to deliver cumulative expense savings of $144 million in 2012 related to the Risk Solutions segment.

Restructuring savings in the fourth quarter related to the Aon Hewitt restructuring program are estimated at $43 million compared to $4 million in the prior year quarter. The Company expects to deliver cumulative expense savings of $355 million in 2013 related to the merger with Hewitt, including $280 million related to the restructuring program and $75 million in additional synergy savings from areas such as information technology, procurement and public company costs. Associated with the transfer of the Health and Benefits business effective January 1, 2012, approximately $20 million of the estimated savings under the Aon Hewitt restructuring program will be achieved in the Risk Solutions segment.

Currency fluctuations in the fourth quarter had a $0.01 favorable impact on adjusted net income from continuing operations per diluted share when the Company translates prior year quarter results at current quarter foreign exchange rates.

Effective tax rate on net income from continuing operations declined to 27.0% in the fourth quarter compared to 32.8% in the prior year quarter. The prior year quarter was unfavorably impacted by certain deferred tax adjustments. The Company anticipates an effective tax rate on net income from continuing operations of approximately 29.0% in 2012.

Average diluted shares outstanding decreased to 337.9 million in the fourth quarter compared to 346.7 million in the prior year quarter due primarily to the Company's share repurchase program in 2011. The Company did not repurchase shares during the fourth quarter due to the subsequent announcement of the relocation of the corporate headquarters. The Company has approximately $1.2 billion of common stock remaining under the share repurchase program.

FOURTH QUARTER SEGMENT REVIEW

Certain noteworthy items impacted operating income and operating margins in the fourth quarter of 2011 and 2010. The fourth quarter segment reviews provided below include supplemental information related to organic revenue, adjusted operating income and operating margin, which is described in detail on the "Reconciliation of Non-GAAP Measures - Organic Revenue" on page 13 and "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 14 of this press release (ISN editor: go to www.aon.com for fuller details).

RISK SOLUTIONS

					Less:
(millions)	Fourth Quarter Ended			Less:	Acquisitions,
Commissions,	Dec 31,	Dec 31,	%	Currency	Divestitures,	Organic
Fees and Other	2011	2010	Change	Impact	Other	Revenue
Retail	$ 1,466	$ 1,417	3%	(1)	2	2%
Reinsurance	344	336	2	-	(2)	4
Subtotal	$ 1,810	$ 1,753	3%	-	-	3%
Investment Income	13	12	8
Total Revenue	$ 1,823	$ 1,765	3%

Risk Solutions total revenue increased 3% to $1.8 billion compared to the prior year quarter due primarily to 3% organic growth in commissions and fees.

Retail Brokerage organic revenue increased 2% reflecting revenue growth in both the Americas and International businesses. Americas organic revenue increased 3% primarily as a result of strong management of the renewal book portfolio in Latin America and the U.S. and solid new business growth in both Canada and Latin America. International organic revenue increased 1% driven by strong growth in Asia and emerging markets, partially offset by challenging macro-economic conditions in continental Europe. Reinsurance organic revenue increased 4% due primarily to strong growth in capital market transactions and advisory business and modest growth in global facultative placements.


	Fourth Quarter Ended
(millions)	Dec 31,	Dec 31,	%
	2011	2010	Change
Revenue	$ 1,823	$ 1,765	3%
Expenses
Compensation and benefits	1,006	958	5
Other expenses	472	433	9
Total operating expenses	1,478	1,391	6%
Operating income	$ 345	$ 374	(8)%
Operating margin	18.9%	21.2%

Operating income - adjusted	$ 397	$ 387	3%
Operating margin - adjusted	21.8%	21.9%

Compensation and benefits for the fourth quarter increased 5%, or $48 million, compared to the prior year quarter due primarily to 3% organic revenue growth and a $30 million increase in restructuring costs, partially offset by benefits related to the restructuring programs. Other expenses for the fourth quarter increased 9%, or $39 million, primarily due to $18 million of non-cash charges related to the write-off of accounts receivable primarily from the years 2001 to 2004, 3% organic revenue growth and $4 million of integration costs related to the recent acquisition of Glenrand M-I-B.

Fourth quarter operating income decreased 8% to $345 million. Adjusting for certain items detailed on page 14 of this press release, operating income increased 3%, or $10 million compared to the prior year quarter, and operating margin decreased 10 basis points to 21.8% due primarily to a 20 basis point unfavorable impact for integration costs related to recent acquisitions.

HR SOLUTIONS


(millions)	Fourth Quarter Ended			Less:	Less: Acquisitions,
Commissions,	Dec 31,	Dec 31,	%	Currency	Divestitures,	Organic
Fees and Other	2011	2010	Change	Impact	Other	Revenue
Consulting Services	$ 581	$ 579	-%	-%	(2)%	2%
Outsourcing	605	580	4	-	-	4
Intersegment	(5)	(8)	N/A	N/A	N/A	N/A
Subtotal	$ 1,181	$ 1,151	3%	-	-	3%
Investment Income	1	-	N/A
Total Revenue	$ 1,182	$ 1,151	3%

HR Solutions total revenue increased 3% to $1.2 billion compared to the prior year quarter due primarily to 3% organic growth in commissions and fees.

Organic revenue in Consulting Services increased 2% driven primarily by growth in health and benefits and investment consulting, partially offset by a decline in retirement consulting. Organic revenue in Outsourcing increased 4% due primarily to new client wins in HR business process outsourcing and health care exchanges, partially offset by price compression and client losses in benefits administration.


	Fourth Quarter Ended
(millions)	Dec 31,	Dec 31,	%
	2011	2010	Change
Revenue	$ 1,182	$ 1,151	3%
Expenses
Compensation and benefits	695	737	(6)
Other expenses	354	328	8
Total operating expenses	1,049	1,065	(2)%
Operating income	$ 133	$ 86	55%
Operating margin	11.3%	7.5%

Operating income - adjusted	$ 147	$ 157	(6)%
Operating margin - adjusted	12.4%	13.6%

Compensation and benefits for the fourth quarter decreased 6%, or $42 million, from the prior year quarter due primarily to benefits related to the Aon Hewitt restructuring program and a $39 million decline in restructuring costs, partially offset by 3% organic revenue growth and investment in the business. Other expenses increased 8%, or $26 million, from the prior year quarter due primarily to a $22 million increase in intangible asset amortization expense and 3% organic revenue growth, partially offset by benefits related to the Aon Hewitt restructuring program.

Fourth quarter operating income increased 55% to $133 million. Adjusting for certain items detailed on page 14 of this press release, operating income decreased 6%, or $10 million, to $147 million and operating margin decreased 120 basis points to 12.4% versus the prior year quarter due primarily to a 190 basis point impact from intangible asset amortization expense, investment in the business and an unfavorable revenue mix shift, partially offset by benefits related to the restructuring program.

INCOME FROM CONTINUING OPERATIONS


	Fourth Quarter Ended
(millions)	Dec 31,	Dec 31,	%
	2011	2010	Change
Risk Solutions	$ 345	$ 374	(8)%
HR Solutions	133	86	55
Unallocated expenses	(43)	(38)	13
Operating income from continuing operations before tax	$ 435	$ 422	3%
Interest income	4	6	(33)
Interest expense	(59)	(65)	(9)
Other income (expense)	4	(3)	233
Income from continuing operations before tax	$ 384	$ 360	7%

Unallocated expenses increased $5 million to $43 million including costs for project-related work. Interest income decreased $2 million to $4 million due to lower average interest rates. Interest expense decreased $6 million to $59 million due primarily to a decline in the average rate on total debt outstanding.

Other income of $4 million in the fourth quarter includes gains on certain Company owned life insurance plans, partially offset by losses on the Company's ownership in certain private equity securities and other long-term investments. The prior year quarter included a loss of $8 million on extinguishment of debt and losses related to certain long-term investments, partially offset by gains related to the Company's ownership in certain insurance investment funds.

2011 FULL YEAR SUMMARY

Total revenue for 2011 increased 33% to $11.3 billion due to a 29% increase in commissions and fees resulting from acquisitions, primarily Hewitt, net of dispositions, a 2% increase in organic revenue driven by Risk Solutions, and a 2% favorable impact from foreign currency exchange rates. Risk Solutions total revenue increased 6% to $6.8 billion and HR Solutions total revenue increased 113% to $4.5 billion as a result of the merger with Hewitt.

Net income attributable to Aon stockholders for 2011 increased 39% to $979 million compared to $706 million for the prior year. Net income attributable to Aon stockholders from continuing operations increased 33% to $975 million compared to $733 million for the prior year. Net income attributable to Aon stockholders, adjusted for certain items, increased 21% to $1.1 billion compared to $929 million for the prior year. Certain items that impacted full year results and comparisons against the prior year are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 14 of this press release.

Net income attributable to Aon stockholders for 2011 increased 21% to $2.87 per share compared to $2.37 per share for the prior year. Net income attributable to Aon stockholders from continuing operations increased 16% to $2.86 per share compared to $2.46 per share for the prior year. Net income attributable to Aon stockholders, adjusted for certain items, increased 5% to $3.29 per share compared to $3.12 per share for the prior year. Certain items that impacted full year results and comparisons against the prior year are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 14 of this press release.

During 2011, the Company repurchased approximately 16.4 million shares of common stock for $828 million at an average price of $50.39 per share.

SUBSEQUENT ANNOUNCEMENT

On January 13, 2012, the Company announced, as an important part of its global growth strategy, it intends to change its jurisdiction of incorporation from Delaware to the U.K. and move its corporate headquarters to London. The proposed transaction requires shareholder approval and is expected to close in the second quarter of 2012 subject to the satisfaction of other conditions.

CHANGES TO DISCLOSURE IN 2012

Effective January 1, 2012, the Company moved the global Aon Hewitt Health and Benefits businesses from the HR Solutions segment into the Risk Solutions segment. This move will allow the businesses to benefit from a broader global distribution channel and to promote the Company's deep health and benefits capabilities in data and analytics with clients and insurance carriers.

Effective January 1, 2012, the Company will begin reporting adjusted results that exclude the impact of non-cash intangible asset amortization and certain one-time items.

Historical selected financial information for the years 2009, 2010 and 2011, that fully reflect the disclosure changes for both the Health and Benefits transfer and for intangible amortization, are provided on pages 19-22 of this press release.

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Aon Reports Fourth Quarter and Full Year 2011 Results

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