LONDON, Oct. 27, 2017 /PRNewswire/ --
Third Quarter Key Metrics From Continuing Operations
- Reported revenue increased 6% to $2.3
billion, with organic revenue growth of 2%
- Operating margin was 11.3%, and operating margin, adjusted for
certain items, increased 170 basis points to 20.3%
- EPS was $0.73, and EPS, adjusted
for certain items, increased 18% to $1.29
- For the first nine months of 2017, cash flow from operations
was $289 million, and free cash flow
was $164 million
Third Quarter Highlights
- Repurchased 5.4 million Class A Ordinary Shares for
approximately $750 million
- Entered into an agreement to acquire The Townsend Group, a
leading global real estate and investment management firm, bringing
greater depth of expertise in real estate assets to Aon's
distribution scale and increasing Aon's ability to provide more
attractive alternative private market assets to clients
- Entered into an agreement to acquire Unirobe Meeùs Groep in
the Netherlands, solidifying Aon's
position as the leading insurance broker and risk advisor in all
business-to-business market segments in the Netherlands
Aon plc (NYSE: AON) today reported results for the three months
ended September 30, 2017.
Net income attributable to Aon shareholders was
$185 million, or $0.72 per share, compared to $319 million or $1.18 per share, in the prior year period. Net
income per share attributable to Aon shareholders, adjusted for
certain items, decreased 6% to $1.25,
compared to $1.33 in the prior year
period. Net income from continuing operations
attributable to Aon shareholders was $189 million, or $0.73 per share, compared to $277 million, or $1.03 per share, in the prior year period. Net
income per share from continuing operations, adjusted for certain
items, increased 18% to $1.29,
compared to $1.09 in the prior year
period. Certain items that impacted third quarter results and
comparisons with the prior year period are detailed in the
"Reconciliation of Non-GAAP Measures - Operating Income from
Continuing Operations and Diluted Earnings per Share" on page 11 of
this press release.
"Our results for the quarter reflect strong organic revenue
growth in our reinsurance business, 170 basis points of adjusted
operating margin improvement, and 18% adjusted earnings per share
growth, highlighting increased operating leverage in our Aon United
operating model and effective capital management with the
repurchase of $750 million of shares
in the quarter." said Greg Case,
President and Chief Executive Officer. "Looking forward, we
expect a strong finish to the year as we head into our seasonally
strongest quarter. With continued momentum amplified by significant
capital deployment towards our industry-leading platform and share
repurchase, we believe we are on track to exceed $7.97 adjusted earnings per share in 2018 and
deliver double-digit free cash flow growth over the long-term."
THIRD QUARTER 2017 FINANCIAL SUMMARY
The third quarter
2017 financial results discussed herein represent performance from
continuing operations unless otherwise noted.
Total revenue in the third quarter increased 6% to
$2.3 billion compared to the prior
year period driven primarily by a 3% increase related to
acquisitions, net of divestitures, 2% organic revenue growth, and a
1% favorable impact from foreign currency translation.
Total operating expenses in the third quarter increased
13% to $2.1 billion compared to the
prior year period due primarily to $102
million of restructuring costs, a $62
million increase in operating expenses related to
acquisitions, net of divestitures, $54
million of accelerated amortization related to tradenames, a
$16 million unfavorable impact from
foreign currency translation, $10
million of transaction related costs associated with recent
acquisitions, and an increase in expense associated with 2% organic
revenue growth, partially offset by $55
million of savings related to restructuring and other
operational improvement initiatives.
Restructuring expenses were $102
million in the third quarter, primarily driven by workforce
reductions, IT rationalization, and other separation costs. As
previously announced, the Company expects to invest $900 million in total cash over a three-year
period, and incur $50 million of
non-cash charges, in driving one operating model across the firm.
This includes an estimated investment of $700 million of cash restructuring charges and
$200 million of capital expenditures.
To date, the Company has incurred $401
million, or 53%, of the total estimated restructuring
charges. An analysis of restructuring and related costs by type is
detailed on page 15 of this press release.
Restructuring savings in the third quarter related to
restructuring and other operational improvement initiatives are
$55 million before any reinvestment.
Before any potential reinvestment of savings, restructuring and
other operational improvement initiatives are expected to deliver
run-rate savings of $400 million
annually in 2019. To date, the Company has achieved
$109 million, or 27%, of the total
estimated annualized savings.
Foreign currency exchange rates in the third quarter had
a $0.01 per share, or $3 million, favorable impact on U.S. GAAP net
income and adjusted net income if the Company were to translate
prior year quarter results at current quarter foreign exchange
rates.
Effective tax rate reflected in the U.S. GAAP financial
statements in the third quarter was 2.0%, compared to the prior
year period of 8.1%. After adjusting to exclude the
applicable tax impact associated with estimated restructuring
expenses, accelerated tradename amortization, impairment charges,
regulatory and compliance provisions, and non-cash pension
settlement charges anticipated in Q4 2017, the adjusted effective
tax rate for the third quarter of 2017 was 17.5% compared to 14.2%
in the prior year quarter. The net impact of discrete items in the
current year quarter was not material; however, the tax rate in the
prior year quarter was favorably impacted by discrete items. These
adjustments are discussed in "Reconciliation of Non-GAAP Measures -
Operating Income from Continuing Operations and Diluted Earnings
per Share" on page 11 of this press release.
Weighted average diluted shares outstanding decreased to
257.3 million in the third quarter compared to 269.6 million in the
prior year period. The Company repurchased 5.4 million Class A
Ordinary Shares for approximately $750
million in the quarter. As of September 30, 2017, the Company had $5.9 billion of remaining authorization under its
share repurchase program.
THIRD QUARTER 2017 CASH FLOW SUMMARY
Cash flow from
operations for the first nine months of 2017 decreased 75%, or
$863 million, to $289 million compared to the prior year period,
primarily reflecting cash tax payments associated with the
divestiture of our outsourcing businesses in the second quarter
("divested business"), $199 million
of cash restructuring charges, and $45
million of transaction costs related to the divested
business, partially offset by operational improvement.
Free cash flow, defined as cash flow from operations less
capital expenditures, decreased 84%, or $881
million, to $164 million for
the first nine months of 2017 compared to the prior year period,
reflecting a decline in cash flow from operations and a
$18 million increase in capital
expenditures, including investments in our operating model. A
reconciliation of free cash flow to cash flow from operations can
be found in "Reconciliation of Non-GAAP Measures - Organic Revenue
and Free Cash Flow" on page 10 of this press release.
THIRD QUARTER 2017 REVENUE REVIEW
The third quarter
revenue reviews provided below include supplemental information
related to organic revenue, which is a non-GAAP measure that is
described in detail in "Reconciliation of Non-GAAP Measures -
Organic Revenue and Free Cash Flow" on page 10 of this press
release.
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
%
Change
|
|
Less:
Currency
Impact
|
|
Less:
Fiduciary
Investment
Income
|
|
Less:
Acquisitions,
Divestitures &
Other
|
|
Organic
Revenue
Growth
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Risk
Solutions
|
|
$
|
917
|
|
$
|
884
|
|
4%
|
|
1%
|
|
—%
|
|
4%
|
|
(1)%
|
Reinsurance
Solutions
|
|
355
|
|
329
|
|
8
|
|
1
|
|
—
|
|
—
|
|
7
|
Retirement
Solutions
|
|
491
|
|
466
|
|
5
|
|
1
|
|
—
|
|
(1)
|
|
5
|
Health
Solutions
|
|
293
|
|
265
|
|
11
|
|
1
|
|
—
|
|
8
|
|
2
|
Data & Analytic
Services
|
|
289
|
|
260
|
|
11
|
|
1
|
|
—
|
|
7
|
|
3
|
Elimination
|
|
(5)
|
|
(3)
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Total
revenue
|
|
$
|
2,340
|
|
$
|
2,201
|
|
6%
|
|
1%
|
|
—%
|
|
3%
|
|
2%
|
Total organic revenue increased 2% compared to the prior year
period highlighted by strong growth in Reinsurance Solutions and
Retirement Solutions.
Commercial Risk Solutions organic revenue decreased 1%
compared to the prior year period driven by a modest decline across
the Americas, particularly in U.S. retail and Latin America due to certain unfavorable
timing, partially offset by solid growth across the EMEA and
Pacific regions.
Reinsurance Solutions organic revenue increased 7%
compared to the prior year period driven by growth across every
major product line, with particular strength in treaty placements
driven by record new business generation, partially offset by a
modest unfavorable market impact in the Americas.
Retirement Solutions organic revenue increased 5%
compared to the prior year period driven by strong growth in
investment consulting, primarily for delegated investment
management, as well as growth in our talent practice for
compensation surveys and benchmarking services.
Health Solutions organic revenue increased 2% compared to
the prior year period driven by solid growth in health &
benefits brokerage, particularly in the U.S. and Latin America, partially offset by a decline
in project related work in the healthcare exchange business.
Data & Analytic Services organic revenue increased 3%
compared to the prior year period driven by strong growth in the
Affinity business, with particular strength in the U.S.
THIRD QUARTER 2017 EXPENSE REVIEW
|
|
Three Months
Ended
|
|
|
|
|
|
(millions)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
$
Change
|
|
%
Change
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
$
|
1,419
|
|
$
|
1,300
|
|
$
|
119
|
|
9%
|
Information
technology
|
|
109
|
|
99
|
|
10
|
|
10
|
Premises
|
|
89
|
|
86
|
|
3
|
|
3
|
Depreciation of fixed
assets
|
|
40
|
|
39
|
|
1
|
|
3
|
Amortization and
impairment of intangible assets
|
|
101
|
|
42
|
|
59
|
|
140
|
Other general
expenses
|
|
317
|
|
267
|
|
50
|
|
19
|
Total operating
expenses
|
|
$
|
2,075
|
|
$
|
1,833
|
|
$
|
242
|
|
13%
|
Compensation and benefits expense increased 9%, or
$119 million, compared to the prior
year period due primarily to $52
million of restructuring costs, a $37
million increase in expenses related to acquisitions, net of
divestitures, a $14 million
unfavorable impact from foreign currency translation, $2 million of transaction related costs
associated with recent acquisitions, and an increase in expense
associated with 2% organic revenue growth, partially offset by
$32 million of savings related to
restructuring and other operational improvement initiatives.
Information technology expense increased 10%, or
$10 million, compared to the prior
year period due primarily to $12
million of restructuring costs, as well as investments in
growth, partially offset by $13
million of savings related to restructuring and other
operational improvement initiatives.
Premises expense increased 3%, or $3 million, compared to the prior year period due
primarily to $4 million of
restructuring costs, partially offset by $1
million of savings related to restructuring and other
operational improvement initiatives.
Depreciation of fixed assets increased 3%, or
$1 million, compared to the prior
year period primarily due to $2
million of restructuring costs related to fixed asset
write-offs.
Amortization and impairment of intangible assets
increased 140%, or $59 million,
compared to the prior year period primarily due to $54 million of accelerated amortization related
to tradenames.
Other general expenses increased 19%, or $50 million, compared to the prior year period
due primarily to $32 million of
restructuring costs, a $17 million
increase in operating expenses related to acquisitions, net of
divestitures, $8 million of costs
related to regulatory and compliance matters, and $8 million of transaction related costs
associated with recent acquisitions, partially offset by
$9 million of savings related to
restructuring and other operational improvement initiatives.
THIRD QUARTER 2017 INCOME SUMMARY
Certain noteworthy
items impacted operating income and operating margins in the third
quarters of 2017 and 2016. The third quarter information
provided below includes supplemental information related to
adjusted operating income and adjusted operating margin, which are
non-GAAP measures that are described in detail in "Reconciliation
of Non-GAAP Measures - Operating Income from Continuing Operations
and Diluted Earnings per Share" on page 11 of this press
release.
|
|
Three Months Ended
|
|
|
(millions)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
%
Change
|
Revenue
|
|
$
|
2,340
|
|
$
|
2,201
|
|
6%
|
Expenses
|
|
2,075
|
|
1,833
|
|
13
|
Operating
income
|
|
$
|
265
|
|
$
|
368
|
|
(28)%
|
Operating
margin
|
|
11.3%
|
|
16.7%
|
|
|
Operating income -
adjusted
|
|
$
|
476
|
|
$
|
410
|
|
16%
|
Operating margin -
adjusted
|
|
20.3%
|
|
18.6%
|
|
|
Operating income decreased $103
million, or 28%, compared to the prior year period.
Adjusting for certain items detailed on page 11 of this press
release, operating income increased 16%, or $66 million, and operating margin increased 170
basis points to 20.3%, each compared to the prior year period. The
increase in adjusted operating margin was primarily driven by
$55 million, or +240 basis points, of
savings from restructuring and other operational initiatives, as
well as underlying operational improvement driven by return on
investments and increased operating leverage, partially offset by
$10 million, or -40 basis point,
unfavorable impact from transaction related costs associated with
recent acquisitions and a $5 million,
or -20 basis point, unfavorable impact from lower non-cash pension
income.
|
|
Three Months Ended
|
|
|
(millions)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
%
Change
|
Operating
income
|
|
$
|
265
|
|
$
|
368
|
|
(28)%
|
Interest
income
|
|
10
|
|
1
|
|
900
|
Interest
expense
|
|
(70)
|
|
(70)
|
|
—
|
Other income
(expense)
|
|
(5)
|
|
10
|
|
(150)
|
Income from
continuing operations before income taxes
|
|
$
|
200
|
|
$
|
309
|
|
(35)%
|
Interest income increased $9
million to $10 million
compared to the prior year period primarily due to additional
income earned on the balance of cash proceeds from the divested
business. Interest expense was flat at $70 million compared to the prior year period.
Other expense was $5 million
and includes $15 million of net
losses due to the unfavorable impact of exchange rates on the
remeasurement of assets and liabilities in non-functional
currencies, partially offset by $10
million of gains primarily related to certain long-term
investments. The prior year period included other income of
$10 million primarily related to
gains on certain long-term investments.
DISCONTINUED OPERATIONS
Net loss from
discontinued operations was $(4)
million, or $(0.01) per share,
compared to net income of $42
million, or $0.15 per share,
in the prior year period. Net income per share from
discontinued operations, adjusted for certain items, was
$(10) million, or $(0.04) per share, compared to $65 million, or $0.24 per share in the prior year period. Certain
items that impacted third quarter results and comparisons with the
prior year period are detailed in "Reconciliation of Non-GAAP
Measures - Operating Income from Continuing Operations and Diluted
Earnings per Share" on page 11 of this press release.
Conference Call, Presentation Slides and Webcast
Details
The Company will host a conference call on
Friday, October 27, 2017 at
7:30 a.m., central time.
Interested parties can listen to the conference call via a live
audio webcast and view the presentation slides at www.aon.com.
About Aon
Aon plc (NYSE:AON) Aon is a
leading global professional services firm providing a broad range
of risk, retirement and health solutions. Our 50,000
colleagues in 120 countries empower results for clients by using
proprietary data and analytics to deliver insights that reduce
volatility and improve performance.
Safe Harbor Statement
This communication
contains certain statements related to future results, or states
our intentions, beliefs and expectations or predictions for the
future which are forward-looking statements as that term is defined
in the Private Securities Litigation Reform Act 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. These forward-looking statements include
information about possible or assumed future results of our
operations. All statements, other than statements of historical
facts that address activities, events or developments that we
expect or anticipate may occur in the future, including such things
as our outlook, future capital expenditures, growth in commissions
and fees, changes to the composition or level of our revenues, cash
flow and liquidity, expected tax rates, business strategies,
competitive strengths, goals, the benefits of new initiatives,
growth of our business and operations, plans and references to
future successes, are forward-looking statements. Also, when we use
the words such as "anticipate", "believe", "estimate", "expect",
"intend", "plan", "probably", "potential", "looking forward", or
similar expressions, we are making forward-looking statements.
The following factors, among others, could cause actual results
to differ from those set forth in the forward looking
statements: general economic and political conditions in
different countries in which Aon does business around the world;
changes in the competitive environment; fluctuations in exchange
and interest rates, including negative yields in some
jurisdictions, that could influence revenue and expense; changes in
global equity and fixed income markets that could affect the return
on invested assets; changes in the funding status of Aon's various
defined benefit pension plans and the impact of any increased
pension funding resulting from those changes; the level of Aon's
debt limiting financial flexibility; rating agency actions that
could affect Aon's ability to borrow funds; the effect of the
change in global headquarters and jurisdiction of incorporation,
including differences in the anticipated benefits; changes in
estimates or assumptions on our financial statements; limits on
Aon's subsidiaries to make dividend and other payments to Aon; the
impact of lawsuits and other contingent liabilities and loss
contingencies arising from errors and omissions and other claims
against Aon; the impact of, and potential challenges in complying
with, legislation and regulation in the jurisdictions in which Aon
operates, particularly given the global scope of
Aon's businesses and the possibility of conflicting regulatory
requirements across jurisdictions in which Aon does business; the
impact of any investigations brought by regulatory authorities in
the U.S., U.K. and other countries; the impact of any inquiries
relating to compliance with the U.S. Foreign Corrupt Practices Act
and non-U.S. anti-corruption laws and with U.S. and non-U.S. trade
sanctions regimes; failure to protect intellectual property rights
or allegations that we infringe on the intellectual property rights
of others; the effects of English law on our operating flexibility
and the enforcement of judgments against Aon; the failure to retain
and attract qualified personnel; international risks associated
with Aon's global operations; the effect of natural or man-made
disasters; the potential of a system or network breach or
disruption resulting in operational interruption or improper
disclosure of personal data; Aon's ability to develop and implement
new technology; damage to our reputation among clients, markets or
third parties; the actions taken by third parties that preform
aspects of our business operations and client services; the extent
to which Aon manages risks associated with the various services,
including fiduciary and investments and other advisory services and
business process outsourcing services, among others, that Aon
provides or will provide to clients; Aon's ability to grow, develop
and integrate companies or new lines of business that it acquires;
changes in commercial property and casualty markets, commercial
premium rates or methods of compensation; changes in the health
care system or our relationships with insurance carriers; Aon's
ability to implement initiatives intended to yield cost savings,
and the ability to achieve those cost savings; risks and
uncertainties in connection with the sale of our benefits
administration and business process outsourcing business; and our
ability to realize the expected benefits from our restructuring
plan.
Any or all of Aon's forward-looking statements may turn out to
be inaccurate, and there are no guarantees about Aon's
performance. The factors identified above are not
exhaustive. Aon and its subsidiaries operate in a dynamic
business environment in which new risks may emerge
frequently. Further information concerning Aon and its
businesses, including factors that potentially could materially
affect Aon's financial results, is contained in Aon's filings with
the SEC. See Aon's Annual Report on
Form 10-K for the year ended December 31,
2016 and its Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2017, June 30, 2017 and September 30, 2017 for a further discussion of
these and other risks and uncertainties applicable to Aon's
businesses. These factors may be revised or supplemented in
subsequent reports. Aon is under no obligation, and expressly
disclaims any obligation, to update or alter any forward-looking
statement that it may make from time to time, whether as a result
of new information, future events or otherwise.
Explanation of Non-GAAP Measures
This
communication includes supplemental information related to organic
revenue, free cash flow, adjusted operating margin, and adjusted
earnings per share for continuing operations that exclude the
effects of intangible asset amortization, capital expenditures, and
certain other noteworthy items that affected results for the
comparable periods. Organic revenue includes the impact
of intercompany activity and excludes the impact of foreign
exchange rate changes, acquisitions, divestitures, transfers
between business units, fiduciary investment income, and
reimbursable expenses. The impact of foreign exchange is
determined by translating last year's revenue, expense or net
income at this year's foreign exchange rates. Reconciliations
are provided in the attached appendices. Supplemental organic
revenue information and additional measures that exclude the
effects of certain items noted above that do not affect net income
or any other U.S. GAAP reported amounts. Free cash flow is
cash flow from operating activity less capital expenditures. The
effective tax rate, as adjusted, excludes the applicable tax impact
associated with expenses for estimated restructuring expenses,
accelerated tradename amortization, impairment charges, regulatory
and compliance provisions, and non-cash pension settlement related
charges. Management believes that these measures are important to
make meaningful period-to-period comparisons and that this
supplemental information is helpful to investors. They should
be viewed in addition to, not in lieu of, the Company's
Consolidated Financial Statements. Industry peers provide
similar supplemental information regarding their performance,
although they may not make identical adjustments.
Investor
Contact:
|
|
Media
Contact:
|
Investor
Relations
|
|
Donna
Mirandola
|
312-381-1801
|
|
Senior Director,
External Communications - Americas
|
investor.relations@aon.com
|
|
312-381-1532
|
Aon
plc
|
|
Condensed
Consolidated Statements of Income (Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
|
Nine Months
Ended
|
|
|
(millions, except per
share data)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
%
Change
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
%
Change
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
2,340
|
|
$
|
2,201
|
|
6%
|
|
$
|
7,089
|
|
$
|
6,759
|
|
5%
|
Expenses
|
|
|
|
|
|
|
|
|
|
Compensation and
benefits
|
|
1,419
|
|
1,300
|
|
9%
|
|
4,337
|
|
4,041
|
|
7%
|
Information
technology
|
|
109
|
|
99
|
|
10%
|
|
295
|
|
281
|
|
5%
|
Premises
|
|
89
|
|
86
|
|
3%
|
|
259
|
|
257
|
|
1%
|
Depreciation of fixed
assets
|
|
40
|
|
39
|
|
3%
|
|
148
|
|
118
|
|
25%
|
Amortization and
impairment of intangible assets
|
|
101
|
|
42
|
|
140%
|
|
604
|
|
117
|
|
416%
|
Other general
expenses
|
|
317
|
|
267
|
|
19%
|
|
956
|
|
770
|
|
24%
|
Total operating
expenses
|
|
2,075
|
|
1,833
|
|
13%
|
|
6,599
|
|
5,584
|
|
18%
|
Operating
income
|
|
265
|
|
368
|
|
(28)%
|
|
490
|
|
1,175
|
|
(58)%
|
Interest
income
|
|
10
|
|
1
|
|
900%
|
|
20
|
|
6
|
|
233%
|
Interest
expense
|
|
(70)
|
|
(70)
|
|
—%
|
|
(211)
|
|
(212)
|
|
—%
|
Other income
(expense)
|
|
(5)
|
|
10
|
|
(150)%
|
|
(20)
|
|
27
|
|
(174)%
|
Income from
continuing operations before income taxes
|
|
200
|
|
309
|
|
(35)%
|
|
279
|
|
996
|
|
(72)%
|
Income taxes
(1)
|
|
4
|
|
25
|
|
(84)%
|
|
(139)
|
|
127
|
|
(209)%
|
Net income from
continuing operations
|
|
196
|
|
284
|
|
(31)%
|
|
418
|
|
869
|
|
(52)%
|
Income from
discontinued operations, net of tax (2)
|
|
(4)
|
|
42
|
|
(110)%
|
|
857
|
|
102
|
|
740%
|
Net
income
|
|
192
|
|
326
|
|
(41)%
|
|
1,275
|
|
971
|
|
31%
|
Less: Net income
attributable to noncontrolling interests
|
|
7
|
|
7
|
|
—%
|
|
30
|
|
27
|
|
11%
|
Net income
attributable to Aon shareholders
|
|
$
|
185
|
|
$
|
319
|
|
(42)%
|
|
$
|
1,245
|
|
$
|
944
|
|
32%
|
|
|
|
|
|
|
|
|
|
|
Basic net income
(loss) per share attributable to Aon shareholders
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.74
|
|
$
|
1.03
|
|
(28)%
|
|
$
|
1.49
|
|
$
|
3.13
|
|
(52)%
|
Discontinued
operations (3)
|
|
(0.02)
|
|
0.16
|
|
(113)%
|
|
3.28
|
|
0.38
|
|
763%
|
Net income
|
|
$
|
0.72
|
|
$
|
1.19
|
|
(39)%
|
|
$
|
4.77
|
|
$
|
3.51
|
|
36%
|
Diluted net income
(loss) per share attributable to Aon shareholders
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.73
|
|
$
|
1.03
|
|
(29)%
|
|
$
|
1.48
|
|
$
|
3.11
|
|
(52)%
|
Discontinued
operations (3)
|
|
(0.01)
|
|
0.15
|
|
(107)%
|
|
3.26
|
|
0.37
|
|
781%
|
Net income
|
|
$
|
0.72
|
|
$
|
1.18
|
|
(39)%
|
|
$
|
4.74
|
|
$
|
3.48
|
|
36%
|
Weighted average
ordinary shares outstanding - basic
|
|
255.6
|
|
267.5
|
|
(4)%
|
|
260.9
|
|
269.1
|
|
(3)%
|
Weighted average
ordinary shares outstanding - diluted
|
|
257.3
|
|
269.6
|
|
(5)%
|
|
262.9
|
|
271.0
|
|
(3)%
|
|
|
(1)
|
The effective tax
rate was 2.0% and 8.1% for the three months ended
September 30, 2017 and 2016, respectively, and (49.8)% and
12.8% for the nine months ended September 30, 2017 and
2016, respectively.
|
(2)
|
Income from
discontinued operations, net of tax, includes a $803 million gain
on the sale of the Divested Business.
|
(3)
|
Upon triggering held
for sale criteria in February 2017, Aon ceased depreciating and
amortizing all long-lived assets included in discontinued
operations. No depreciation or amortization expense was
recognized during the three months ended September 30,
2017. Included within total operating expenses for the three
months ended September 30, 2016 was $18 million of
depreciation of fixed assets and $30 million of intangible asset
amortization. Total operating expenses for the nine months
ended September 30, 2017 and 2016 include, respectively, $8
million and $53 million of depreciation of fixed assets and $11
million and $90 million of intangible asset
amortization.
|
Aon
plc
|
|
Reconciliation of
Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow
(Unaudited)
|
|
Organic Revenue
Growth From Continuing Operations (Unaudited)
|
|
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
%
Change
|
|
Less:
Currency
Impact (1)
|
|
Less:
Fiduciary
Investment
Income (2)
|
|
Less:
Acquisitions,
Divestitures &
Other
|
|
Organic
Revenue
Growth (3)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Risk
Solutions
|
|
$
|
917
|
|
$
|
884
|
|
4%
|
|
1%
|
|
—%
|
|
4%
|
|
(1)%
|
Reinsurance
Solutions
|
|
355
|
|
329
|
|
8
|
|
1
|
|
—
|
|
—
|
|
7
|
Retirement
Solutions
|
|
491
|
|
466
|
|
5
|
|
1
|
|
—
|
|
(1)
|
|
5
|
Health
Solutions
|
|
293
|
|
265
|
|
11
|
|
1
|
|
—
|
|
8
|
|
2
|
Data & Analytic
Services
|
|
289
|
|
260
|
|
11
|
|
1
|
|
—
|
|
7
|
|
3
|
Elimination
|
|
(5)
|
|
(3)
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Total
revenue
|
|
$
|
2,340
|
|
$
|
2,201
|
|
6%
|
|
1%
|
|
—%
|
|
3%
|
|
2%
|
|
|
Nine Months
Ended
|
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
%
Change
|
|
Less:
Currency
Impact (1)
|
|
Less:
Fiduciary
Investment
Income (2)
|
|
Less:
Acquisitions,
Divestitures &
Other
|
|
Organic
Revenue
Growth (3)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Risk
Solutions
|
|
$
|
2,943
|
|
$
|
2,835
|
|
4%
|
|
(1)%
|
|
—%
|
|
4%
|
|
1%
|
Reinsurance
Solutions
|
|
1,070
|
|
1,032
|
|
4
|
|
(1)
|
|
—
|
|
—
|
|
5
|
Retirement
Solutions
|
|
1,266
|
|
1,266
|
|
—
|
|
(2)
|
|
—
|
|
(1)
|
|
3
|
Health
Solutions
|
|
977
|
|
838
|
|
17
|
|
(1)
|
|
—
|
|
11
|
|
7
|
Data & Analytic
Services
|
|
842
|
|
794
|
|
6
|
|
—
|
|
—
|
|
2
|
|
4
|
Elimination
|
|
(9)
|
|
(6)
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Total
revenue
|
|
$
|
7,089
|
|
$
|
6,759
|
|
5%
|
|
(1)%
|
|
—%
|
|
3%
|
|
3%
|
|
|
(1)
|
Currency impact is
determined by translating last year's revenue at this year's
foreign exchange rates.
|
|
|
(2)
|
Fiduciary Investment
Income for the three months ended September 30, 2017 and 2016,
respectively, was $10 million and $6 million. Fiduciary Investment
Income for the nine months ended September 30, 2017 and 2016,
respectively, was $23 million and $16 million.
|
|
|
(3)
|
Organic revenue
growth includes the impact of intercompany activity and excludes
the impact of foreign exchange rate changes, acquisitions,
divestitures, transfers between business units, fiduciary
investment income, and reimbursable expenses.
|
Free Cash Flow
from Continuing Operations (Unaudited)
|
|
|
|
Nine Months
Ended
|
|
|
(millions)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
Percent
Change
|
Cash Provided by
Continuing Operating Activities
|
|
$
|
289
|
|
$
|
1,152
|
|
(75)%
|
Capital Expenditures
Used for Continuing Operations
|
|
(125)
|
|
(107)
|
|
17
|
Free Cash Flow
Provided by Continuing Operations (1)
|
|
$
|
164
|
|
$
|
1,045
|
|
(84)%
|
|
|
(1)
|
Free cash flow is
defined as cash flow from operations less capital expenditures.
This non-GAAP measure does not imply or represent a precise
calculation of residual cash flow available for discretionary
expenditures.
|
Aon
plc
|
|
Reconciliation of
Non-GAAP Measures - Operating Income from Continuing Operations and
Diluted Earnings Per Share (Unaudited) (1)
|
|
|
|
Three Months
Ended
|
|
|
|
Nine Months
Ended
|
|
|
(millions,
except percentages)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
Percent
Change
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
Percent
Change
|
Revenue from
continuing operations
|
|
$
|
2,340
|
|
$
|
2,201
|
|
6%
|
|
$
|
7,089
|
|
$
|
6,759
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
from continuing operations - as reported
|
|
$
|
265
|
|
$
|
368
|
|
(28)%
|
|
$
|
490
|
|
$
|
1,175
|
|
(58)%
|
Amortization and
impairment of intangible assets
|
|
101
|
|
42
|
|
|
|
604
|
|
117
|
|
|
Restructuring
|
|
102
|
|
—
|
|
|
|
401
|
|
—
|
|
|
Regulatory and
compliance matters
|
|
8
|
|
—
|
|
|
|
42
|
|
—
|
|
|
Pension
settlement
|
|
—
|
|
—
|
|
|
|
—
|
|
62
|
|
|
Operating income
from continuing operations - as adjusted
|
|
$
|
476
|
|
$
|
410
|
|
16%
|
|
$
|
1,537
|
|
$
|
1,354
|
|
14%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
from continuing operations - as reported
|
|
11.3%
|
|
16.7%
|
|
|
|
6.9%
|
|
17.4%
|
|
|
Operating margin
from continuing operations - as adjusted
|
|
20.3%
|
|
18.6%
|
|
|
|
21.7%
|
|
20.0%
|
|
|
|
|
Three Months
Ended
|
|
|
|
Nine Months
Ended
|
|
|
(millions, except per share data)
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
Percent
Change
|
|
Sep 30,
2017
|
|
Sep 30,
2016
|
|
Percent
Change
|
Operating income
from continuing operations - as adjusted
|
|
$
|
476
|
|
$
|
410
|
|
16%
|
|
$
|
1,537
|
|
$
|
1,354
|
|
14%
|
Interest
income
|
|
10
|
|
1
|
|
900%
|
|
20
|
|
6
|
|
233%
|
Interest
expense
|
|
(70)
|
|
(70)
|
|
—%
|
|
(211)
|
|
(212)
|
|
—%
|
Other income
(expense)
|
|
(5)
|
|
10
|
|
(150)%
|
|
(20)
|
|
27
|
|
(174)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes from continuing operations - as
adjusted
|
|
411
|
|
351
|
|
17%
|
|
1,326
|
|
1,175
|
|
13%
|
Income taxes
(2)
|
|
72
|
|
50
|
|
44%
|
|
194
|
|
176
|
|
10%
|
Net income from
continuing operations - as adjusted
|
|
339
|
|
301
|
|
13%
|
|
1,132
|
|
999
|
|
13%
|
Adjusted income
(loss) from discontinued operations, net of tax
(3)
|
|
(10)
|
|
65
|
|
(115)%
|
|
60
|
|
171
|
|
(65)%
|
Net income - as
adjusted
|
|
329
|
|
366
|
|
(10)%
|
|
1,192
|
|
1,170
|
|
2%
|
Less: Net income
attributable to noncontrolling interests
|
|
7
|
|
7
|
|
—%
|
|
30
|
|
27
|
|
11%
|
Net income
attributable to Aon shareholders - as adjusted
|
|
$
|
322
|
|
$
|
359
|
|
(10)%
|
|
$
|
1,162
|
|
$
|
1,143
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income
(loss) per share attributable to Aon shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
- as adjusted
|
|
$
|
1.29
|
|
$
|
1.09
|
|
18%
|
|
$
|
4.19
|
|
$
|
3.59
|
|
17%
|
Discontinued
operations - as adjusted
|
|
(0.04)
|
|
0.24
|
|
(117)%
|
|
0.23
|
|
0.63
|
|
(63)%
|
Net income - as
adjusted
|
|
$
|
1.25
|
|
$
|
1.33
|
|
(6)%
|
|
$
|
4.42
|
|
$
|
4.22
|
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
ordinary shares outstanding - diluted
|
|
257.3
|
|
269.6
|
|
(5)%
|
|
262.9
|
|
271.0
|
|
(3)%
|
|
|
(1)
|
Certain noteworthy
items impacting operating income in 2017 and 2016 are described in
this schedule. The items shown with the caption "as adjusted" are
non-GAAP measures.
|
|
|
(2)
|
The effective tax
rates in the U.S. GAAP financial statements for continuing
operations were 2.0% and (49.8)%, respectively, for the three
and nine months ended September 30, 2017. Adjusted items
are generally taxed at the estimated annual effective tax rate,
except for the applicable tax impact associated with estimated
restructuring expenses, accelerated tradename amortization,
impairment charges, regulatory and compliance provisions, and
non-cash pension settlement charges anticipated in Q4 2017, which
are adjusted at the related jurisdictional rate. After
adjusting to exclude the applicable tax impact, the adjusted
effective tax rates for continuing operations were 17.5% and 14.6%,
respectively, for the three and nine months ended
September 30, 2017. The effective tax rates used in the
U.S. GAAP financial statements for continuing operations were 8.1%
and 12.8%, respectively, for the three and nine months ended 2016.
Adjusted items are generally taxed at the estimated annual
effective tax rate, except for the applicable tax impact associated
with non-cash pension charges settled in Q2 2016, which are
adjusted at the related jurisdictional rate. After adjusting
to exclude the applicable tax impact, the adjusted effective tax
rates for continuing operations were 14.2% and 15.0%, respectively,
for the three and nine months ended 2016.
|
|
|
(3)
|
Adjusted income from
discontinued operations, net of tax, excludes the gain on sale and
intangible asset amortization on discontinued operations of $11
million and $0 million, respectively, for the three months ended
September 30, 2017 and $1,983 million and $11 million for the
nine months ended September 30, 2017. The effective tax
rates used in the U.S. GAAP financial statements for discontinued
operation were 35.1% and 21.8%, respectively, for the three months
and nine months ended September 30, 2017. After
adjusting to exclude the applicable tax impact associated with the
gain on sale and intangible asset amortization, the adjusted
effective tax rates for discontinued operations were 35.2% and
24.2%, respectively, for the three months and nine months ended
September 30, 2017. Adjusted income from discontinued
operations, net of tax, excludes intangible asset amortization on
discontinued operations of $30 million and $90 million,
respectively, for the three months and nine months ended
September 30, 2016. The effective tax rates used in the
U.S. GAAP financial statements for discontinued operation were
37.3% and 37.4% for the three and nine months ended 2016,
respectively. After adjusting to exclude the applicable tax impact
associated with amortization, the adjusted effective tax rates for
discontinued operations were 32.8% and 32.4% for the three and nine
months ended 2016, respectively.
|
Aon
plc
|
|
Condensed
Consolidated Statements of Financial Position
(Unaudited)
|
|
|
|
As of
|
(millions)
|
|
September 30,
2017
|
|
December 31,
2016
|
ASSETS
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
749
|
|
$
|
426
|
Short-term
investments
|
|
1,640
|
|
290
|
Receivables,
net
|
|
2,068
|
|
2,106
|
Fiduciary assets
(1)
|
|
9,292
|
|
8,959
|
Other current
assets
|
|
518
|
|
247
|
Current assets of
discontinued operations
|
|
—
|
|
1,118
|
Total Current
Assets
|
|
14,267
|
|
13,146
|
Goodwill
|
|
7,888
|
|
7,410
|
Intangible assets,
net
|
|
1,341
|
|
1,890
|
Fixed assets,
net
|
|
545
|
|
550
|
Deferred tax
assets
|
|
565
|
|
325
|
Prepaid
pension
|
|
1,020
|
|
858
|
Other non-current
assets
|
|
298
|
|
360
|
Non-current assets of
discontinued operations
|
|
—
|
|
2,076
|
TOTAL
ASSETS
|
|
$
|
25,924
|
|
$
|
26,615
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
LIABILITIES
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
$
|
1,588
|
|
$
|
1,604
|
Short-term debt and
current portion of long-term debt
|
|
305
|
|
336
|
Fiduciary
liabilities
|
|
9,292
|
|
8,959
|
Other current
liabilities
|
|
1,289
|
|
656
|
Current liabilities
of discontinued operations
|
|
—
|
|
940
|
Total Current
Liabilities
|
|
12,474
|
|
12,495
|
Long-term
debt
|
|
5,662
|
|
5,869
|
Deferred tax
liabilities
|
|
83
|
|
101
|
Pension, other
postretirement and postemployment liabilities
|
|
1,612
|
|
1,760
|
Other non-current
liabilities
|
|
846
|
|
719
|
Non-current
liabilities of discontinued operations
|
|
—
|
|
139
|
TOTAL
LIABILITIES
|
|
20,677
|
|
21,083
|
|
|
|
|
|
EQUITY
|
|
|
|
|
Ordinary shares -
$0.01 nominal value
|
|
3
|
|
3
|
Additional paid-in
capital
|
|
5,670
|
|
5,577
|
Retained
earnings
|
|
2,914
|
|
3,807
|
Accumulated other
comprehensive loss
|
|
(3,412)
|
|
(3,912)
|
TOTAL AON
SHAREHOLDERS' EQUITY
|
|
5,175
|
|
5,475
|
Noncontrolling
interests
|
|
72
|
|
57
|
TOTAL
EQUITY
|
|
5,247
|
|
5,532
|
TOTAL LIABILITIES
AND EQUITY
|
|
$
|
25,924
|
|
$
|
26,615
|
|
|
(1)
|
Includes cash and
short-term investments of $4,247 million and $3,290 million for the
periods ended September 30, 2017 and December 31, 2016,
respectively.
|
Aon
plc
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
Nine Months
Ended
|
(millions)
|
|
September 30,
2017
|
|
September 30,
2016
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
|
|
Net
income
|
|
$
|
1,275
|
|
$
|
971
|
Less: Income from
discontinued operations, net of income taxes
|
|
857
|
|
102
|
Adjustments to
reconcile net income to cash provided by operating
activities:
|
|
|
|
|
Loss (gain) from
sales of businesses and investments, net
|
|
2
|
|
(41)
|
Depreciation of fixed
assets
|
|
148
|
|
118
|
Amortization and
impairment of intangible assets
|
|
604
|
|
117
|
Share-based
compensation expense
|
|
214
|
|
210
|
Deferred income
taxes
|
|
(208)
|
|
(7)
|
Change in assets and
liabilities:
|
|
|
|
|
Fiduciary
receivables
|
|
986
|
|
1,538
|
Short-term
investments — funds held on behalf of clients
|
|
(701)
|
|
(419)
|
Fiduciary
liabilities
|
|
(285)
|
|
(1,119)
|
Receivables,
net
|
|
144
|
|
175
|
Accounts payable and
accrued liabilities
|
|
(237)
|
|
(246)
|
Restructuring
reserves
|
|
170
|
|
—
|
Current income
taxes
|
|
(785)
|
|
(80)
|
Pension, other
postretirement and other postemployment liabilities
|
|
(142)
|
|
(70)
|
Other assets and
liabilities
|
|
(39)
|
|
107
|
Net cash provided
by operating activities - continuing operations
|
|
289
|
|
1,152
|
Net cash provided
by operating activities - discontinued operations
|
|
64
|
|
323
|
CASH PROVIDED BY
OPERATING ACTIVITIES
|
|
353
|
|
1,475
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
|
|
Proceeds from
investments
|
|
43
|
|
31
|
Payments for
investments
|
|
(55)
|
|
(47)
|
Net sale (purchases)
of short-term investments — non-fiduciary
|
|
(1,344)
|
|
(108)
|
Acquisition of
businesses, net of cash acquired
|
|
(172)
|
|
(198)
|
Sale of businesses,
net of cash sold
|
|
4,194
|
|
104
|
Capital
expenditures
|
|
(125)
|
|
(107)
|
Net cash provided
by (used for) investing activities - continuing
operations
|
|
2,541
|
|
(325)
|
Net cash used for
investing activities - discontinued operations
|
|
(19)
|
|
(46)
|
CASH PROVIDED BY
(USED FOR) INVESTING ACTIVITIES
|
|
2,522
|
|
(371)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
|
|
Share
repurchase
|
|
(1,888)
|
|
(1,037)
|
Issuance of shares
for employee benefit plans
|
|
(118)
|
|
(70)
|
Issuance of
debt
|
|
1,651
|
|
2,729
|
Repayment of
debt
|
|
(1,998)
|
|
(2,308)
|
Cash dividends to
shareholders
|
|
(274)
|
|
(258)
|
Noncontrolling
interests and other financing activities
|
|
(21)
|
|
(71)
|
Net cash provided
by financing activities - continuing operations
|
|
(2,648)
|
|
(1,015)
|
Net cash provided
by financing activities - discontinued operations
|
|
—
|
|
—
|
CASH USED FOR
FINANCING ACTIVITIES
|
|
(2,648)
|
|
(1,015)
|
|
|
|
|
|
EFFECT OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
91
|
|
10
|
NET INCREASE IN
CASH AND CASH EQUIVALENTS
|
|
318
|
|
99
|
CASH AND CASH
EQUIVALENTS AT BEGINNING OF PERIOD
|
|
431
|
|
384
|
CASH AND CASH
EQUIVALENTS AT END OF PERIOD (1)
|
|
$
|
749
|
|
$
|
483
|
|
|
(1)
|
Includes $0 million
and $3 million of discontinued operations at September 30,
2017 and September 30, 2016, respectively.
|
Aon
plc
|
|
Restructuring Plan
(Unaudited) (1)
|
|
|
|
Three months
ended
September 30, 2017
|
|
Nine months
ended
September 30, 2017
|
|
Estimated
Remaining Costs
|
|
Estimated
Total
Cost (2)
|
Workforce
reduction
|
|
$
|
52
|
|
$
|
257
|
|
$
|
46
|
|
$
|
303
|
Technology
rationalization
|
|
12
|
|
22
|
|
124
|
|
146
|
Lease
consolidation
|
|
4
|
|
8
|
|
72
|
|
80
|
Asset
impairments
|
|
2
|
|
26
|
|
14
|
|
40
|
Other costs
associated with restructuring and separation
(3)
|
|
32
|
|
88
|
|
93
|
|
181
|
Total restructuring
and related expenses
|
|
$
|
102
|
|
$
|
401
|
|
$
|
349
|
|
$
|
750
|
|
|
(1)
|
In the Condensed
Consolidated Statements of Income, workforce reductions are
included in "Compensation and benefits," IT rationalization is
included in "Information technology," lease consolidations are
included in "Premises," asset impairments are included in
"Depreciation of fixed assets," and other costs associated with
restructuring are included in "Other general expenses" depending on
the nature of the expense.
|
|
|
(2)
|
Actual costs, when
incurred, may vary due to changes in the assumptions built into
this plan. Significant assumptions that may change when plans
are finalized and implemented include, but are not limited to,
changes in severance calculations, changes in the assumptions
underlying sublease loss calculations due to changing market
conditions, and changes in the overall analysis that might cause
the Company to add or cancel component initiatives. Estimated
allocations between expense categories may be revised in future
periods as these assumptions are updated.
|
|
|
(3)
|
Other costs
associated with the Restructuring Plan include those to separate
the Divested Business, as well as moving costs and consulting and
legal fees. These costs are generally recognized when
incurred.
|
View original
content:http://www.prnewswire.com/news-releases/aon-reports-third-quarter-2017-results-300544614.html
SOURCE Aon plc