Aon Reports Fourth Quarter and Full Year 2012 Resu
Aon Reports Fourth Quarter and Full Year 2012 Results
- Total revenue was $3.1 billion with organic revenue growth of 4% -
- EPS from continuing operations was $0.93 -
Fourth Quarter Summary
- EPS from continuing operations, adjusted for certain items, increased 9% to $1.27
- Risk Solutions revenue increased 2% to $2.1 billion with organic revenue growth of 3%
- Risk Solutions operating margin was 21.2% and the operating margin, adjusted for certain items, was flat at 23.2%
- HR Solutions revenue increased 7% to $1.1 billion with organic revenue growth of 6%
- HR Solutions operating margin was 7.2% and the operating margin, adjusted for certain items, increased 50 basis points to 17.0%
- Cash flow from operations increased 139% to $552 million, and free cash flow increased 243% to $484 million
- Repurchased 8.9 million Class A ordinary shares for approximately $500 million
- Launched the first fully insured multi-carrier corporate health care exchange with approximately 100,000 participants
LONDON, Feb. 1, 2013 /PRNewswire/ -- Aon plc (NYSE: AON) today reported results for the three months and twelve months ended December 31, 2012.
Net income attributable to Aon shareholders from continuing operations was $305 million, or $0.93 per share, compared to $277 million, or $0.82 per share, for the prior year quarter. Net income per share attributable to Aon shareholders from continuing operations, adjusted for certain items, was $1.27, an 9% increase compared to $1.16 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 13 of this press release.
"Our results reflect earnings growth of nine percent driven by a higher rate of organic revenue growth across each segment, strong free cash flow growth and effective capital management, as highlighted by the repurchase of $500 million of ordinary shares in the quarter," said Greg Case, president and chief executive officer. "We finished 2012 having made significant investments in GRIP and in healthcare exchanges, took significant steps to increase our strategic position and financial flexibility with the redomicile to London, delivered record cash flow from operations of $1.4 billion and created significant value for shareholders through the repurchase of more than $1.1 billion of ordinary shares. As we look ahead to 2013, we have positioned our industry-leading platform for solid long-term growth, improved operational performance, strong free cash flow growth and effective capital management."
FOURTH QUARTER FINANCIAL SUMMARY
Total revenue increased 4% to $3.1 billion compared to the prior year quarter driven by a 4% increase in organic revenue, partially offset by a 50% decline in investment income due to lower average interest rates.
Total operating expenses for the fourth quarter increased 4% to $2.7 billion compared to the prior year quarter at $2.6 billion due primarily to a 4% increase in organic revenue and a $21 million increase in intangible asset amortization expense, partially offset by savings related to the formal restructuring programs and an $18 million decline in non-cash charges related to the write-off of accounts receivable recognized in the prior year quarter.
Depreciation expense increased 14%, or $8 million, to $64 million compared to the prior year quarter.
Intangible asset amortization expense increased 24%, or $21 million, to $110 million compared to the prior year quarter due primarily to an $18 million increase relating to assets associated with the merger with Hewitt.
Restructuring expenses were $36 million compared to $43 million in the prior year quarter. In the fourth quarter, the Company incurred $30 million of costs in the HR Solutions segment and $11 million of costs in the Risk Solutions segment related to the Aon Hewitt restructuring program. The Company has closed and completed all restructuring activities and incurred 100% of the total costs for the Aon Benfield restructuring program. During the fourth quarter, a reversal of previously recognized restructuring expenses of $5 million was recorded ($3 million related to the 2007 restructuring program and $2 million related to the Aon Benfield restructuring program). An analysis of restructuring-related costs by type and segment are detailed on page 14 of this press release.
Restructuring savings in the fourth quarter related to the Aon Hewitt restructuring program are estimated at $67 million compared to $43 million in the prior year quarter. Of the estimated savings in the fourth quarter, approximately $12 million were related to the Risk Solutions segment compared to $5 million in the prior year quarter. The Company expects to deliver cumulative expense savings of $355 million in 2013 related to the Aon Hewitt restructuring program, 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 $52 million of the estimated savings under the Aon Hewitt restructuring program will be achieved in Risk Solutions. As of the fourth quarter, an estimated $40 million of cumulative savings have been achieved in Risk Solutions.
Restructuring savings in the fourth quarter related to the Aon Benfield restructuring program are estimated at $36 million compared to $33 million in the prior year quarter. Before any potential reinvestment of savings, the Aon Benfield restructuring program delivered cumulative expense savings of approximately $146 million in 2012.
Foreign currency exchange rates in the fourth quarter had no material impact on adjusted net income per share from continuing operations if the Company were to translate prior year quarter results at current quarter foreign exchange rates. A favorable impact in operating income for HR Solutions of $3 million was partially offset by a $1 million unfavorable impact in Risk Solutions.
Effective tax rate on net income from continuing operations decreased to 25.2% in the fourth quarter compared to 27.0% in the prior year quarter. The effective tax rate in the fourth quarter of 2012 was favorably impacted by certain discrete tax adjustments. The Company currently anticipates an effective tax rate on net income from continuing operations of approximately 26.0% in 2013.
Average diluted shares outstanding decreased to 327.5 million in the fourth quarter compared to 337.9 million in the prior year quarter. The Company repurchased 8.9 million Class A ordinary shares for approximately $500 million in the fourth quarter. The Company has $4.0 billion of remaining authorization.
Cash flow from operations increased 139% to $552 million in the fourth quarter due primarily to improved working capital and growth in net income, partially offset by a $106 million increase in pension contributions. Free cash flow, as defined by cash flow from operations less capital expenditures, increased 243% to $484 million in the fourth quarter driven by strong cash flow from operations and a 24%, or $22 million decline in capital expenditures. A reconciliation of free cash flow to cash flow from operations can be found on the "Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow" on page 12 of this press release.
FOURTH QUARTER SEGMENT REVIEW
Certain noteworthy items impacted operating income and operating margins in the fourth quarter of 2012 and 2011. 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 and Free Cash Flow" on page 12 and "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 13 of this press release.