Aon Reports Second Quarter 2018 Results
LONDON, July 27, 2018 /PRNewswire/ --
Second Quarter Key Metrics as Reported under U.S. GAAP ((1))
-- Total revenue increased 8% to $2.6 billion, including a decrease of $36
million, or 2%, related to the FASB's new revenue recognition standard
-- Operating margin increased 480 basis points to (0.6)%, including a
decrease of 180 basis points related to the FASB's new revenue
recognition standard
-- EPS increased 195% to $0.19, including a decrease of $0.14 related to
the FASB's new revenue recognition standard
Second Quarter Key Metrics as Comparable to Pro Forma Financials and Highlights((1))
-- Total revenue increased 10% to $2.6 billion, including 5% organic
revenue growth
-- Operating margin increased to (0.6)%, and operating margin, adjusted for
certain items, increased 130 basis points to 22.0%
-- EPS increased to $0.19, and EPS, adjusted for certain items, increased
31% to $1.71
-- For the first six months of 2018, cash flow from operations decreased 5%
to $413 million, and adjusted free cash flow increased 17% to $580
million, when excluding certain near-term impacts related to the
divestiture of the outsourcing business
-- Repurchased 2.8 million Class A Ordinary Shares for approximately $400
million
-- Announced an 11% increase to the quarterly cash dividend
-- Took further steps to unite the firm including the appointment of Eric
Andersen and Michael O'Connor as Co-Presidents to further align the
leadership team, as well as the move to a single brand to increase
consistency and reinforce focus on long-term growth
-- Launched our Intellectual Property Solutions Group with the acquisition
of 601West providing increased industry knowledge for clients working to
protect and maximize their most valuable asset in today's business world
- intellectual property
Aon plc (NYSE: AON) today reported results for the three months ended June 30, 2018.
Net income (loss) from continuing operations attributable to Aon shareholders on a reported basis was $47 million, or $0.19 per share, compared to $(52) million, or $(0.20) per share, in the prior year period, which includes $(36) million, or $(0.14) per share, of unfavorable impact from adoption of the new revenue recognition standard. Net income per share from continuing operations on a comparable basis, adjusted for certain items and the impact of adoption of the new revenue recognition standard, increased 31% to $1.71, compared to $1.31 in the prior year period. Certain items that impacted second quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 11 of this press release.
"Our second quarter results reflect continued momentum toward our mission with positive performance across each of our key financial metrics; including strong organic revenue growth of 5% overall and substantial operational improvement reflected in 17% operating income growth and +130 basis points of operating margin expansion. During the quarter, we took specific steps to strengthen our client-serving capabilities and create greater long-term operating leverage," said Greg Case, Chief Executive Officer. "We enter the second half of the year with momentum, operating from a position of strength and on track to deliver our near-term target of exceeding $7.97 adjusted earnings per share for the full year 2018. More important, we believe these further steps toward our mission to unite the firm will help deliver our potential for clients and colleagues and will unlock significant shareholder value creation through double-digit free cash flow growth over the long-term."
SECOND QUARTER 2018 FINANCIAL SUMMARY
The second quarter 2018 financial results discussed herein represent performance from continuing operations unless otherwise noted. Adoption of the FASB's new revenue recognition standard on January 1, 2018 is not reflected in reported 2017 financials. A comparable year-over-year view of reported 2018 results to unaudited pro forma 2017 results incorporating the impact of adoption of the new revenue recognition standard is provided in detail on pages 10-15 of this press release.
Total revenue in the second quarter increased 8% to $2.6 billion on a reported basis compared to the prior year period, including a decrease of $36 million, or 2%, related to adoption of the new revenue recognition standard. Excluding this impact, comparable revenue increased $229 million, or 10%, compared to the prior year period driven by 5% organic revenue growth, a 3% increase related to acquisitions, net of divestitures, and a 2% favorable impact from foreign currency translation.
Total operating expenses in the second quarter increased 3% to $2.6 billion on a reported basis compared to the prior year period, including an increase of $4 million related to adoption of the new revenue recognition standard. Excluding this impact, comparable expenses increased $79 million, or 3%, compared to the prior year period due primarily to $103 million of expense related to legacy litigation, a $72 million increase in operating expenses related to acquisitions, net of divestitures, a $44 million unfavorable impact from foreign currency translation, a $40 million increase in restructuring charges, and an increase in expenses associated with 5% organic revenue growth, partially offset by a $204 million net decrease in impairment charges, $40 million of incremental savings related to restructuring and other operational improvement initiatives, and a $34 million decrease in costs related to regulatory and compliance matters.
Restructuring expenses were $195 million in the second quarter, primarily driven by costs associated with restructuring and separation initiatives and workforce reductions. As previously announced, the Company expects to invest $1,175 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 $975 million of cash restructuring charges and $200 million of capital expenditures. The Company has incurred $766 million, or 75%, of the total estimated restructuring charges. An analysis of restructuring and related costs by type is detailed on page 18 of this press release.
Restructuring savings in the second quarter related to restructuring and other operational improvement initiatives are estimated at $84 million before any reinvestment, an increase of $40 million compared to the prior year period. Before any potential reinvestment of savings, restructuring and other operational improvement initiatives are expected to deliver run-rate savings of $450 million annually in 2019. The Company has achieved $257 million, or 57%, of the total estimated annualized savings, before any potential reinvestment.
Foreign currency exchange rates in the second quarter had a $1 million, or immaterial per share, unfavorable impact on reported net income if the Company were to translate prior year quarter results at current quarter foreign exchange rates. On a comparable basis, there was an immaterial impact from foreign currency translation on net income adjusted for certain items and the impact of adoption of the new revenue recognition standard. If currency were to remain stable at today's rates, given U.S. Dollar strengthening primarily against Latin American currencies, we would expect an unfavorable impact of approximately -$0.03 per share in each of the third and fourth quarter of 2018.
Effective tax rate reflected in the reported financial statements in the second quarter was 165.5%, compared to 76.9% in the prior year period. After adjusting for the impact of adoption of the new revenue recognition standard and to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate on a comparable basis for the second quarter of 2018 decreased to 14.7% compared to 16.1% in the prior year quarter, primarily driven by changes in the geographical distribution of income. In addition, the adjusted effective tax rate in both periods includes a net favorable impact from certain discrete items. Certain items that impacted second quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 11 of this press release. As a result of changes to current assumptions of the geographical distribution of income, we believe the best estimate for our non-GAAP full year 2018 global effective tax rate to be approximately 18%.
Weighted average diluted shares outstanding decreased to 247.4 million in the second quarter compared to 262.4 million in the prior year period. The Company repurchased 2.8 million Class A Ordinary Shares for approximately $400 million in the quarter. As of June 30, 2018, the Company had $4.5 billion of remaining authorization under its share repurchase program.
SECOND QUARTER 2018 CASH FLOW SUMMARY
Cash flow from operations for the first six months of 2018 decreased 5%, or $23 million, to $413 million compared to the prior year period, primarily reflecting $150 million of cash restructuring charges, partially offset by operational improvement.
Free cash flow, defined as cash flow from operations less capital expenditures, decreased 15%, or $52 million, to $302 million for the first six months of 2018 compared to the prior year quarter, reflecting a $29 million increase in capital expenditures, including investments in our operating model, and a decrease in cash flow from operations.
Adjusted free cash flow, defined as free cash flow excluding certain near-term impacts resulting from the divestiture of the outsourcing businesses, including restructuring initiatives, increased $83 million, or 17%, to $580 million compared to the prior year period. A reconciliation of free cash flow and adjusted 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.
SECOND QUARTER 2018 REVENUE REVIEW
The second 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) Jun 30, Jun 30, % Revenue Less: Less: Less: Organic
2018 2017 Change Recognition Currency Fiduciary Acquisitions, Revenue
Impact Investment Divestitures Growth
Income & Other
--- ------ -------
Revenue
-------
Commercial Risk Solutions $1,166 $1,042 12% -% 2% -% 4% 6%
Reinsurance Solutions 380 344 10 - 2 1 (1) 8
Retirement Solutions 431 389 11 - 3 - 5 3
Health Solutions 309 312 (1) (11) 1 - 2 7
Data & Analytic Services 277 285 (3) (2) 1 - 2 (4)
Elimination (2) (4) N/A N/A N/A N/A N/A N/A
----------- --- --- --- --- --- --- --- ---
Total revenue $2,561 $2,368 8% (2)% 2% -% 3% 5%
============= ====== ====== === === === === === ===
Total revenue increased 8%, or $193 million, on a reported basis, including a decrease of $36 million, or 2%, related to adoption of the new revenue recognition standard. Excluding this impact, revenue on a comparable basis increased $229 million, or 10%, compared to the prior year period, including organic revenue of 5% primarily driven by strong new business generation and retention globally across our core portfolio, as well as double-digit growth in specific areas of continued investment; including cyber solutions, transaction liability, and voluntary benefits.
Commercial Risk Solutions organic revenue increased 6% compared to the prior year period driven by growth across every major geography, highlighted by strength across North America, the UK, and Australia. Results reflect strong global new business generation and management of the renewal book portfolio. In North America, double-digit new business generation was highlighted by strength in our transaction liability business in the U.S. and our construction business in Canada.
Reinsurance Solutions organic revenue increased 8% compared to the prior year period driven by net new business generation globally in treaty and strong growth in facultative placements, partially offset by a modest decline in capital markets transactions. The prior year quarter benefited from record catastrophe bond issuance during the mid-year renewal season. Market impact was modestly unfavorable on results in the second quarter, as modest upward pressure in loss-exposed geographies was more than offset by record levels of capital.
Retirement Solutions organic revenue increased 3% compared to the prior year period driven by solid growth in core actuarial retirement driven by an increase in volume and rates across North America and the EMEA region, as well as solid growth in our talent practice for assessment services and in our rewards practice for data-driven services. In investment consulting, double-digit growth in our core delegated investment management business was more than offset by an unfavorable impact from the timing of certain performance-based fees earned in the prior year quarter.
Health Solutions organic revenue increased 7% compared to the prior year period driven by growth across every major geography, highlighted by particular strength in the U.S. and double-digit growth in both Latin America and Asia. Strength in the U.S. was highlighted by another quarter of strong growth in voluntary benefits, an area where we have seen increasing client demand.
Data & Analytic Services organic revenue decreased 4% compared to the prior year period driven by the anticipated near-term unfavorable impact from changes in certain client contracts, most notably the transition of a certain government contract in our flood business, partially offset by solid growth internationally in our core Affinity business.
SECOND QUARTER 2018 EXPENSE REVIEW
Three Months Ended
(millions) Jun 30, 2018 Jun 30, 2017 $ %
Change Change
--- ------ ------
Expenses
Compensation and benefits $1,494 $1,466 $28 2%
Information technology 123 98 25 26
Premises 96 86 10 12
Depreciation of fixed assets 47 54 (7) (13)
Amortization and impairment of intangible assets 282 460 (178) (39)
Other general expenses 535 331 204 62
Total operating expenses $2,577 $2,495 $82 3%
======================== ====== ====== === ===
Compensation and benefits expense increased $28 million, or 2%, on a reported basis, including $5 million related to adoption of the new revenue recognition standard. Excluding this impact, compensation and benefits expense on a comparable basis increased $23 million, or 2%, compared to the prior year period due primarily to a $55 million increase in expenses related to acquisitions, net of divestitures, a $32 million unfavorable impact from foreign currency translation, and an increase in expense associated with 5% organic revenue growth, partially offset by a $69 million decrease in restructuring costs and $44 million of incremental savings related to restructuring and other operational improvement initiatives.
Information technology expense increased $25 million, or 26%, compared to the prior year period due primarily to a $13 million increase in investments supporting growth initiatives and GDPR compliance, a $5 million increase in expenses related to acquisitions, net of divestitures, and a $2 million unfavorable impact from foreign currency translation.
Premises expense increased $10 million, or 12%, compared to the prior year period due primarily to a $9 million increase in restructuring costs and a $3 million increase related to acquisitions, net of divestitures, partially offset by $1 million of incremental savings related to restructuring and other operational improvement initiatives.
Depreciation of fixed assets decreased $7 million, or 13%, compared to the prior year period primarily due to a decrease in overall expense as we continue to optimize our IT and Real Estate portfolios.
Amortization and impairment of intangible assets decreased $178 million, or 39%, compared to the prior year period primarily due to a $204 million net decrease in impairment charges, partially offset by a $19 million increase in accelerated amortization related to tradenames as we move to a single brand.
Other general expenses increased $204 million, or 62%, on a reported basis, including a $1 million decrease related to adoption of the new revenue recognition standard. Excluding this impact, other general expenses on a comparable basis increased $205 million, or 62%, compared to the prior year period due primarily to a $103 million increase in expense related to legacy litigation, a $102 million increase in restructuring costs, and an increase in expense associated with 5% organic revenue growth, partially offset by a $34 million decrease of costs related to regulatory and compliance matters.
SECOND QUARTER 2018 INCOME SUMMARY
The second quarter 2018 financial results discussed herein represent performance from continuing operations unless otherwise noted. Adoption of the FASB's new revenue recognition standard on January 1, 2018 is not reflected in reported 2017 financials. A comparable year-over-year view of reported 2018 results to unaudited pro forma 2017 results incorporating the impact of adoption of the new revenue recognition standard is provided in detail on pages 10-15 of this press release. In addition, certain noteworthy items impacted adjusted operating income and adjusted operating margins in the second quarters of 2018 and 2017, which are also described in detail in "Reconciliation of Non-GAAP Measures Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 11 of this press release.
AS REPORTED
Three Months Ended
(millions) Jun 30, Jun 30, %
2018 2017 Change
--- ---- ---- ------
Revenue $2,561 $2,368 8%
Expenses 2,577 2,495 3
Operating income - as reported $(16) $(127) (87)%
----
Operating margin - as reported (0.6)% (5.4)%
------------------------------ ----- -----
Operating income increased $111 million, or 87%, on a reported basis compared to the prior year period, including a decrease of $40 million, or 31%, related to adoption of the new revenue recognition standard. Operating margin increased 480 basis points on a reported basis compared to the prior year period, including a decrease of 180 basis points related to adoption of the new revenue recognition standard.
AS COMPARABLE TO 2017 UNAUDITED PRO FORMA FINANCIALS
Three Months Ended
(Pro Forma)
(millions) Jun 30, Jun 30, %
2018 2017
Change
--- ------
Revenue $2,561 $2,332 10%
Expenses 2,577 2,499 3
Operating income - as reported $(16) $(167) (90)%
----- ----
Operating margin - as reported (0.6)% (7.2)%
Operating income - as adjusted $564 $482 17%
---- ---- ---
Operating margin - as adjusted 22.0% 20.7%
------------------------------ ---- ----
Adjusting for certain items and the impact of adoption of the new revenue recognition standard detailed on page 11 of this press release, adjusted operating income on a comparable basis increased $82 million, or 17%, and adjusted operating margin on a comparable basis increased 130 basis points to 22.0%, each compared to the prior year period. The increase in adjusted operating margin on a comparable basis was primarily driven by strong organic growth, including strong growth in areas of continued investment across the portfolio, and $40 million, or 160 basis points, of incremental savings from restructuring and other operational initiatives, partially offset by a -30 basis points unfavorable impact from foreign currency translation.
Interest income decreased $7 million to $1 million as the prior year period included additional income earned on the proceeds of the sale of the outsourcing businesses. Interest expense decreased $2 million to $69 million compared to the prior year period reflecting lower outstanding term debt, partially offset by an increase in commercial paper borrowings. Other pension income (expense) was $(7) million, including $9 million of pension income, partially offset by $(16) million of non-cash expenses related to pension settlements. Excluding the non-cash expenses related to pension settlements, pension income of $9 million is similar to the prior year period. Other income was $4 million, including $8 million of net gains due to the favorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies, partially offset by $5 million of losses primarily related to certain company-owned life insurance plans. The prior year period included $5 million of losses related to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies.
DISCONTINUED OPERATIONS
Net income from discontinued operations on a reported basis was $1 million, or an insignificant impact per share, compared to net income of $821 million, or $3.13 per share, in the prior year period.
Conference Call, Presentation Slides and Webcast Details
The Company will host a conference call on Friday, 7/27/18 at 7:30 a.m., central time. The Company will provide management's prepared conference call remarks in the investor presentation prior to the beginning of the conference call in order to provide more time for discussion with the investment community. Interested parties can listen to the conference call via a live audio webcast, read management's prepared remarks, 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 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 or 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; the 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 certain risks created in connection with the various services, including fiduciary and investments and other advisory services and business process outsourcing services, among others, that Aon currently provides, or will provide in the future, to clients; Aon's ability to grow, develop and integrate companies that it acquires or new lines of business; 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; and Aon's ability to implement initiatives intended to yield cost savings, and the ability to achieve those cost savings.
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, 2017 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018 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 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, and fiduciary investment income. 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. Adjusted free cash flow is free cash flow excluding certain near-term impacts resulting from the divestiture of the outsourcing businesses, including restructuring initiatives. 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.
(1) For additional information regarding the reconciliation of non-GAAP pro forma financials refer to pages 10-15 of this press release
Investor Contact: Media Contact:
Investor Relations Donna Mirandola
312-381-3310 Vice President, Global External
Communications
investor.relations@aon.com 312-381-1532
Aon plc
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended
(millions, except per share data) Jun 30, Jun 30, % Jun 30, Jun 30, %
2018 2017 Change 2018 2017 Change
--- ---- ---- ------ ---- ---- ------
Revenue
Total revenue $2,561 $2,368 8% $5,651 $4,749 19%
------------- ------ ------ --- ------ ------ ---
Expenses
Compensation and benefits 1,494 1,466 2% 3,110 2,935 6%
Information technology 123 98 26% 238 186 28%
Premises 96 86 12% 189 170 11%
Depreciation of fixed assets 47 54 (13)% 86 108 (20)%
Amortization and impairment of intangible assets 282 460 (39)% 392 503 (22)%
Other general expenses 535 331 62% 853 639 33%
Total operating expenses 2,577 2,495 3% 4,868 4,541 7%
------------------------ ----- ----- --- ----- ----- ---
Operating income (loss) (16) (127) (87)% 783 208 276%
Interest income 1 8 (88)% 5 10 (50)%
Interest expense (69) (71) (3)% (139) (141) (1)%
Other income (expense) (3) 4 (175)% (18) 2 nm*
Income (loss) from continuing operations before income taxes (87) (186) (53)% 631 79 699%
Income taxes (1) (144) (143) 1% (30) (143) (79)%
--------------- ---- ---- --- --- ---- ----
Net income (loss) from continuing operations 57 (43) (233)% 661 222 198%
-------------------------------------------- --- --- ----- --- ---
Net income from discontinued operations 1 821 (100)% 7 861 (99)%
--------------------------------------- --- --- ----- --- --- ----
Net income 58 778 (93)% 668 1,083 (38)%
Less: Net income attributable to noncontrolling interests 10 9 11% 26 23 13%
--- --- ---
Net income attributable to Aon shareholders $48 $769 (94)% $642 $1,060 (39)%
=========================================== === ==== ==== ==== ====== ====
Basic net income (loss) per share attributable to Aon shareholders
Continuing operations $0.19 $(0.20) (195)% $2.57 $0.75 243%
Discontinued operations 0.01 3.13 (100)% 0.03 3.27 (99)%
-----
Net income $0.20 $2.93 (93)% $2.60 $4.02 (35)%
----- ----- ---- ----- ----- ----
Diluted net income (loss) per share attributable to Aon shareholders
Continuing operations $0.19 $(0.20) (195)% $2.55 $0.75 240%
Discontinued operations (2) - 3.13 (100)% 0.03 3.24 (99)%
-----
Net income $0.19 $2.93 (94)% $2.58 $3.99 (35)%
----- -----
Weighted average ordinary shares outstanding - basic 246.0 262.4 (6)% 247.2 263.6 (6)%
---------------------------------------------------- ----- ----- --- ----- ----- ---
Weighted average ordinary shares outstanding - diluted 247.4 262.4 (6)% 248.8 265.7 (6)%
====================================================== ===== ===== === ===== ===== ===
* not meaningful
(1) The effective tax rate was
165.5% and 76.9% for the three
months ended June 30, 2018 and
2017, respectively, and (4.8)%
and (181.0)% for the six months
ended June 30, 2018 and 2017,
respectively.
(2) Upon triggering held for sale
criteria in February 2017, Aon
ceased depreciating and
amortizing all long-lived
assets included in discontinued
operations. Total operating
expenses for 2017 include $8
million of depreciation of
fixed assets and $11 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) Jun 30, Jun 30, % Revenue Less: Less: Less: Organic
2018 2017 Change Recognition (1) Currency Fiduciary Acquisitions, Revenue
Impact (2) Investment Divestitures Growth (4)
Income (3) & Other
--- --------- -------
Revenue
-------
Commercial Risk Solutions $1,166 $1,042 12% -% 2% -% 4% 6%
Reinsurance Solutions 380 344 10 - 2 1 (1) 8
Retirement Solutions 431 389 11 - 3 - 5 3
Health Solutions 309 312 (1) (11) 1 - 2 7
Data & Analytic Services 277 285 (3) (2) 1 - 2 (4)
Elimination (2) (4) N/A N/A N/A N/A N/A N/A
----------- --- --- --- --- --- --- --- ---
Total revenue $2,561 $2,368 8% (2)% 2% -% 3% 5%
============= ====== ====== === === === === === ===
Six Months Ended
(millions) Jun 30, Jun 30, % Revenue Less: Less: Less: Organic
2018 2017 Change Recognition (1) Currency Fiduciary Acquisitions, Revenue
Impact (2) Investment Divestitures Growth (4)
Income (3) & Other
--- --------- -------
Revenue
-------
Commercial Risk Solutions $2,350 $2,026 16% -% 4% -% 7% 5%
Reinsurance Solutions 1,122 715 57 47 3 - 1 6
Retirement Solutions 855 775 10 (1) 4 - 6 1
Health Solutions 760 684 11 4 3 - 2 2
Data & Analytic Services 571 553 3 - 2 - 2 (1)
Elimination (7) (4) N/A N/A N/A N/A N/A N/A
----------- --- --- --- --- --- --- --- ---
Total revenue $5,651 $4,749 19% 8% 4% -% 3% 4%
============= ====== ====== === === === === === ===
(1) Revenue Recognition represents the
impact of Aon's adoption of new
revenue recognition standard that
became effective for Aon on the
January 1, 2018.
(2) Currency impact is determined by
translating last year's revenue
at this year's foreign exchange
rates.
(3) Fiduciary Investment Income for
the three months ended June 30,
2018 and 2017 was $12 million and
$7 million, respectively.
Fiduciary Investment Income for
the six months ended June 30,
2018 and 2017 was $22 million and
$13 million, respectively.
(4) Organic revenue growth includes
the impact of intercompany
activity and excludes the impact
of the adoption of the new
revenue recognition standard,
changes in foreign exchange
rates, acquisitions,
divestitures, transfers between
revenue lines, and fiduciary
investment income.
Free Cash Flow from Continuing Operations (Unaudited)
Six Months Ended
(millions) Jun 30, 2018 Jun 30, 2017 Percent
Change
--- ------
Cash Provided by Continuing Operating Activities $413 $436 (5)%
Capital Expenditures Used for Continuing Operations (111) (82) 35
Free Cash Flow Provided by Continuing Operations (1) $302 $354 (15)%
=================================================== ==== ==== ====
Adjustments:
Transaction Costs Associated with the Divested Business - 44 (100)%
Restructuring Plan Initiatives (2) 278 99 181%
--- ---
Free Cash Flow Provided by Continuing Operations - as adjusted (3) $580 $497 17%
================================================================= ==== ==== ===
(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.
(2) Restructuring plan cash payments
include cash used to settle
restructuring liabilities as well
as payments made on capital
expenditures under the program.
(3) Certain noteworthy items impacting
free cash flow from operating
activities in 2018 and 2017 are
described in this schedule. 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 Adjusted for Changes in Accounting Guidance - Operating Income from Continuing Operations and Diluted Earnings Per Share (Unaudited) (1)
Three Months Ended Six Months Ended
(millions, except percentages) Jun 30, Jun 30, Percent Jun 30, Jun 30, Percent
2018 2017 (2) Change 2018 2017 (2) Change
--- ---- ------- ------ ---- ------- ------
Revenue from continuing operations $2,561 $2,332 10% $5,651 $5,078 11%
------ ------ --- ------ ------ ---
Operating income from continuing operations $(16) $(167) (90)% $783 $455 72%
Amortization and impairment of intangible assets (3) 282 460 392 503
Restructuring 195 155 269 299
Legacy Litigation 103 - 103 -
Regulatory and Compliance Matters - 34 - 34
--- --- --- ---
Operating income from continuing operations - as adjusted $564 $482 17% $1,547 $1,291 20%
--------------------------------------------------------- ---- ---- --- ------ ------ ---
Operating margin from continuing operations (0.6)% (7.2)% 13.9% 9.0%
Operating margin from continuing operations - as adjusted 22.0% 20.7% 27.4% 25.4%
--------------------------------------------------------- ---- ---- ---- ----
Three Months Ended Six Months Ended
(millions, except percentages) Jun 30, Jun 30, Percent Jun 30, Jun 30, Percent
2018 2017 (2) Change 2018 2017 (2) Change
--- ---- ------- ------ ---- ------- ------
Operating income from continuing operations - as adjusted $564 $482 17% $1,547 $1,291 20%
Interest income 1 8 (88)% 5 10 (50)%
Interest expense (69) (71) (3)% (139) (141) (1)%
Other income (expense):
Other income (expense) - pensions - as adjusted (4) 9 9 -% 18 17 6%
Other income (expense) - other 4 (5) (180)% (13) (15) (13)%
--- --- --- --- ----
Total Other income (expense) - as adjusted (4) 13 4 225% 5 2 150%
--- --- --- --- ---
Income before income taxes from continuing operations - as adjusted 509 423 20% 1,418 1,162 22%
Income taxes expense (5) 75 68 10% 225 166 36%
---
Net income from continuing operations - as adjusted 434 355 22% 1,193 996 20%
Less: Net income attributable to noncontrolling interests 10 9 11% 26 23 13%
--- --- --- --- --- ---
Net income attributable to Aon shareholders from continuing operations - as adjusted 424 346 23% 1,167 973 20%
--- --- --- ---
Net income (loss) from discontinued operation - as adjusted (6) - 22 (100)% (2) 70 (103)%
--- --- --- ---
Income from discontinued operations, net of tax $424 $368 15% $1,165 $1,043 12%
=============================================== ==== ==== === ====== ====== ===
Diluted net income (loss) per share attributable to Aon shareholders
Continuing operations - as adjusted $1.71 $1.31 31% $4.69 $3.66 28%
Discontinued operations - as adjusted - 0.08 (100)% (0.01) 0.26 (104)%
Net income - as adjusted $1.71 $1.39 23% $4.68 $3.93 19%
------------------------ ----- ----- --- ----- ----- ---
Weighted average ordinary shares outstanding - diluted 247.4 264.3 (6)% 248.8 265.7 (6)%
====================================================== ===== ===== === ===== ===== ===
Effective Tax Rates (4)
Continuing Operations - U.S. GAAP 165.5% 76.9% (4.8)% (181.0)%
Continuing Operations - Non-GAAP 14.7% 16.1% 15.9% 14.3%
Discontinued Operations - U.S. GAAP 1.7% 59.0% 14.7% 58.1%
Discontinued Operations - Non-GAAP (6) 63.7% 16.2% 49.3% 25.9%
------------------------------------- ---- ---- ---- ----
(1) Certain noteworthy items impacting operating
income in 2018 and 2017 are described in
this schedule. The items shown with the
caption "as adjusted" are non-GAAP
measures. In the first quarter of 2018, Aon
adopted new accounting guidance related to
the treatment of revenue from contracts with
customers that was applied prospectively on
its U.S. GAAP financial statements in
accordance with FASB standards, and
therefore comparable prior periods were not
restated. On pages 11 through 15 of this
press release, the Company has included
unaudited pro forma consolidated results
that present the retrospective impact of the
new standard as if it were in effect for the
comparable periods ended June 30, 2017. We
use this supplemental information to help us
and our investors evaluate business growth
from core operations. Please see the U.S.
GAAP financial statements included as
Exhibit 99.2 to the Company's Form 8-K
filed on July 27, 2018 for a reconciliation
in accordance with FASB standards.
(2) The historical period presented above has
been adjusted retrospectively to reflect
changes in accounting guidance related to
revenue recognition, effective for Aon in
the first quarter of 2018.
(3) Included in the three and six months ended
June 30, 2018 was a $176 million non-cash
impairment charges taken on certain assets
and liabilities held for sale. Included in
the three and six months ended June 30, 2017
was a $380 million non-cash impairment
charge taken on indefinite-lived
tradenames.
(4) Adjusted Other income (expense) excludes
Pension settlement charges of $16 million
and $23 million for three and six months
ended June 30, 2018, respectively.
(5) Adjusted items are generally taxed at the
estimated annual effective tax rate, except
for the applicable tax impact associated
with estimated restructuring plan expenses,
legacy litigation, accelerated tradename
amortization, impairment charges, and non-
cash pension settlement charges, which are
adjusted at the related jurisdictional rate.
In addition, tax expense excludes the tax
impacts of the anticipated sale of the
disposal group as well as adjustments to the
provisional estimates of the impact of US
Tax Reform recorded pursuant to SAB 118.
(6) Adjusted income from discontinued operations,
net of tax, excludes the gain on sale of
discontinued operations of $1 million and $9
million for the three and six months ended
June 30, 2018 , respectively. Adjusted
income from discontinued operations, net of
tax, excludes the gain on sale of
discontinued operations of $798 million and
$798 million and $0 million and $11 million
of intangible asset amortization for the
three and six months ended June 30, 2017,
respectively. The effective tax rate was
further adjusted for the applicable tax
impact associated with the gain on sale and
intangible asset amortization, as
applicable.
Aon plc
Pro Forma Historical Reconciliation of Reported Non-GAAP Measures to Non-GAAP Measures Adjusted for Changes in Accounting Guidance (Unaudited)
Operating Income from Continuing Operations and Diluted Earnings Per Share (Unaudited) (1)(2)
Three months ended June 30, 2017 Six months ended June 30, 2017
(millions, except per share data) As Reported(3) Revenue Pro Forma As Reported(3) Revenue Pro Forma
Recognition Recognition
--- ----------- -----------
Revenue
Commercial Risk Solutions $1,042 $(1) $1,041 $2,026 $4 $2,030
Reinsurance Solutions 344 1 345 715 301 1,016
Retirement Solutions 389 (1) 388 775 (2) 773
Health Solutions 312 (31) 281 684 25 709
Data & Analytic Services 285 (4) 281 553 1 554
Elimination (4) - (4) (4) - (4)
--- --- --- --- --- ---
Total revenue $2,368 $(36) $2,332 $4,749 $329 $5,078
------------- ------ ---- ------ ------ ---- ------
Expenses
Compensation and benefits 1,466 5 1,471 2,935 84 3,019
Information technology 98 - 98 186 - 186
Premises 86 - 86 170 - 170
Depreciation of fixed assets 54 - 54 108 - 108
Amortization and impairment of intangible assets 460 - 460 503 - 503
Other general expenses 331 (1) 330 639 (2) 637
Total operating expenses 2,495 4 2,499 4,541 82 4,623
------------------------ ----- --- ----- ----- --- -----
Operating income (127) (40) (167) 208 247 455
Amortization and impairment of intangible assets 460 - 460 503 - 503
Restructuring 155 - 155 299 - 299
Regulatory and compliance matters 34 - 34 34 - 34
Operating income - as adjusted 522 (40) 482 1,044 247 1,291
------------------------------ --- --- --- ----- --- -----
Operating margin from continuing operations - as adjusted 22.0% 20.7% 22.0% 25.4%
--------------------------------------------------------- ---- ---- ---- ----
Interest income 8 - 8 10 - 10
Interest expense (71) - (71) (141) - (141)
Other income (expense):
Other income (expense) - pensions 9 - 9 17 - 17
Other income (expense) - other (4) (5) - (5) (15) - (15)
Total Other income (expense) 4 - 4 2 - 2
Income before income taxes from continuing operations - as adjusted 463 (40) 423 915 247 1,162
Income taxes - as adjusted (5) 72 (4) 68 122 44 166
Income from continuing operations - as adjusted 391 (36) 355 793 203 996
Less: Net income attributable to noncontrolling interests 9 - 9 23 - 23
--------------------------------------------------------- --- --- --- --- --- ---
Net income from continuing operations attributable to Aon shareholders - as adjusted $382 $(36) $346 $770 $203 $973
==================================================================================== ==== ==== ==== ==== ==== ====
Diluted earnings per share from continuing operations - as adjusted $1.45 $(0.14) $1.31 $2.90 $0.76 $3.66
=================================================================== ===== ====== ===== ===== ===== =====
Weighted average ordinary shares outstanding - diluted 264.3 264.3 264.3 265.7 265.7 265.7
====================================================== ===== ===== ===== ===== ===== =====
(1) Certain noteworthy items impacting
operating income in 2017 are
described in this schedule. The
items shown with the caption "as
adjusted" are non-GAAP measures.
(2) The historical period presented
above have been adjusted
retrospectively to reflect Aon's
adoption of new revenue recognition
standard in the first quarter of
2018.
(3) Reported results above reflect the
retrospective adoption of the new
pension accounting guidance
effective for Aon in the first
quarter of 2018.
(4) For illustrative purposes, the
impact of the total foreign
currency related to the new revenue
accounting guidance is excluded
from the Pro Forma financial
statements. Had the Company
included it, Other income (expense)
in the Revenue Recognition column
would have been $(4) million and
$(6) million, respectively, for the
three and six months ended June 30,
2017.
(5) The non-GAAP effective tax rate
reported was 15.6% and 13.3%,
respectively, for the three and six
months ended June 30, 2017.
Adjusted items are generally taxed
at the estimated annual effective
tax rate, except for the applicable
tax impact associated with
estimated restructuring charges,
accelerated tradename amortization,
impairment charges, regulatory and
compliance provisions, and non-
cash pension settlement charges,
which are adjusted at the related
jurisdictional rate. In addition,
tax expense excludes the
provisional estimates of the impact
of US Tax Reform recorded pursuant
to SAB 118. The non-GAAP
effective tax rate for continuing
operations, adjusted for the change
in accounting guidance was 16.1%
and 14.3%, respectively, for the
three and six months ended June 30,
2017.
Organic Revenue Growth From Continuing Operations (Unaudited)
Three Months Ended
(millions) Jun 30, Jun 30, % Less: Less: Fiduciary Less: Organic
2017 2016 Investment Acquisitions,
Change Currency Income(2) Revenue
Divestitures &
Impact (1) Other Growth (3)
--- --------- ----- ---------
Commercial Risk Solutions $1,041 $990 5% (1)% -% 4% 2%
Reinsurance Solutions 345 335 3% (2)% -% (1)% 6%
Retirement Solutions 388 405 (4)% (3)% -% (2)% 1%
Health Solutions 281 253 11% (2)% -% 9% 4%
Data & Analytic Services 281 271 4% (1)% -% 1% 4%
Elimination (4) (1) N/A N/A N/A N/A N/A
--- ---
Total revenue $2,332 $2,253 4% (2)% -% 4% 2%
============= ====== ====== === === === === ===
Six Months Ended
(millions) Jun 30, Jun 30, % Less: Less: Fiduciary Less: Organic
2017 2016 Investment Acquisitions,
Change Currency Income(2) Revenue
Divestitures &
Impact (1) Other Growth (3)
--- --------- ----- ---------
Commercial Risk Solutions $2,030 $1,959 4% (1)% -% 4% 1%
Reinsurance Solutions 1,016 1,002 1% (2)% -% (1)% 4%
Retirement Solutions 773 801 (3)% (4)% -% (1)% 2%
Health Solutions 709 591 20% (2)% -% 12% 10%
Data & Analytic Services 554 534 4% (1)% -% 1% 4%
Elimination (4) (3) N/A N/A N/A N/A N/A
--- ---
Total revenue $5,078 $4,884 4% (2)% -% 3% 3%
============= ====== ====== === === === === ===
(1) Currency impact is determined by
translating last year's revenue
at the subsequent year's foreign
exchange rates.
(2) Fiduciary Investment Income for
the three months ended June 30,
2017 and 2016, respectively, was
$7 million and $5 million.
Fiduciary Investment Income for
the six months ended June 30,
2017 and 2016, respectively, was
$13 million and $10 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,
and fiduciary investment income.
Aon plc
Pro Forma Historical Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share from Continuing Operations as Adjusted for Changes in Accounting Guidance (Unaudited) (1)(2)
Pro Forma Periods Reported Period
----------------- ---------------
Three Months Ended (5) Three Months Ended (6) Full Three Months Ended (7)
(millions, except per share data) Mar 31, Jun 30, Sep 30, Dec 31, Full Year Mar 31, Jun 30, Sep 30, Dec 31, Year Mar 31, Jun 30,
2016 2016 2016 2016 2017 2017 2017 2017 2018 2018
2016 (5) 2017 (6)
--- ------- -------
Revenue
Commercial Risk Solutions $969 $990 $884 $1,088 $3,931 $989 $1,041 $915 $1,218 $4,163 $1,184 $1,166
Reinsurance Solutions 667 335 234 131 1,367 671 345 257 153 1,426 742 380
Retirement Solutions 396 405 465 441 1,707 385 388 492 489 1,754 424 431
Health Solutions 338 253 245 522 1,358 428 281 277 526 1,512 451 309
Data & Analytic Services 263 271 260 256 1,050 273 281 287 299 1,140 294 277
Elimination (2) (1) (3) (2) (8) - (4) (5) (1) (10) (5) (2)
--- --- --- --- --- --- --- --- --- --- --- ---
Total revenue $2,631 $2,253 $2,085 $2,436 $9,405 $2,746 $2,332 $2,223 $2,684 $9,985 $3,090 $2,561
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Expenses
Compensation and benefits 1,444 1,372 1,293 1,417 5,526 1,548 1,471 1,420 1,568 6,007 1,616 1,494
Information technology 83 99 99 105 386 88 98 109 124 419 115 123
Premises 82 89 86 86 343 84 86 89 89 348 93 96
Depreciation of fixed assets 38 41 39 44 162 54 54 40 39 187 39 47
Amortization of intangible assets 37 38 42 40 157 43 460 101 100 704 110 282
Other general expenses 270 230 257 279 1,036 307 330 307 328 1,272 318 535
--- --- --- --- --- --- --- --- ---
Total operating expenses 1,954 1,869 1,816 1,971 7,610 2,124 2,499 2,066 2,248 8,937 2,291 2,577
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income 677 384 269 465 1,795 622 (167) 157 436 1,048 799 (16)
Amortization of intangible assets 37 38 42 40 157 43 460 101 100 704 110 282
Restructuring - - - - - 144 155 102 96 497 74 195
Legacy Litigation - - - - - - - - - - - 103
Regulatory and compliance matters - - - - - - 34 8 (14) 28 - -
Transaction costs - - - 15 15 - - - - - -
---
Operating income - as adjusted 714 422 311 520 1,967 809 482 368 618 2,277 983 564
------------------------------ --- --- --- --- ----- --- --- --- --- ----- --- ---
Operating margin from continuing operations - as adjusted 27.1% 18.7% 14.9% 21.3% 20.9% 29.5% 20.7% 16.6% 23.0% 22.8% 31.8% 22.0%
--------------------------------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Interest income 2 3 1 3 9 2 8 10 7 27 4 1
Interest expense (69) (73) (70) (70) (282) (70) (71) (70) (71) (282) (70) (69)
Other income (expense):
Other income (expense) - pensions - as adjusted (3) 11 11 12 13 47 8 9 9 16 42 9 9
Other income (expense) - other - as adjusted (4) 18 (1) 10 9 36 (10) (5) (5) (19) (39) (17) 4
--- --- --- --- --- --- --- --- --- --- --- ---
Total Other income (expense) - as adjusted (3)(4) 29 10 22 22 83 (2) 4 4 (3) 3 (8) 13
--- --- --- --- --- --- --- --- --- ---
Income before income taxes from continuing operations - as adjusted 676 362 264 475 1,777 739 423 312 551 2,025 909 509
Income taxes 107 53 35 49 244 98 68 54 81 301 150 75
------------ --- ---
Income from continuing operations - as adjusted 569 309 229 426 1,533 641 355 258 470 1,724 759 434
Less: Net income attributable to noncontrolling interests 12 8 7 7 34 14 9 7 7 37 16 10
--------------------------------------------------------- --- --- --- --- --- --- --- --- --- --- --- ---
Net income attributable to Aon shareholders from continuing operations - as adjusted $557 $301 $222 $419 $1,499 $627 $346 $251 $463 $1,687 $743 $424
==================================================================================== ==== ==== ==== ==== ====== ==== ==== ==== ==== ====== ==== ====
Diluted earnings per share from continuing operations - as adjusted $2.04 $1.12 $0.82 $1.56 $5.55 $2.35 $1.31 $0.98 $1.82 $6.47 $2.97 $1.71
=================================================================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Weighted average ordinary shares outstanding - diluted 273.7 269.8 269.6 268.3 270.3 267.0 264.3 257.3 254.5 260.7 250.2 247.4
====================================================== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Notes
(1) Certain noteworthy items impacting
operating income in 2016 and 2017
are described in this schedule. The
items shown with the caption "as
adjusted" are non-GAAP measures.
(2) The historical period presented
above have been adjusted
retrospectively to reflect Aon's
adoption of new revenue recognition
standard in the first quarter of
2018. For a complete
reconciliation of prior period
reported balances to the pro forma
adjusted balances above, please
refer to our press release issued
on February 2, 2018.
(3) Adjusted Other income (expense)
excludes pension settlement charges
taken within each respective
period. Pension settlement charges
were $62 million for the three
months ended June 30, 2016, and
$158 million and $220 million for
the three and twelve months ended
December 31, 2016, respectively.
Pension settlement charges were
$128 million for the three and
twelve months ended December 31,
2017. Pension settlement chargers
were $7 million and $16 million,
respectively, for the three months
ended March 31, 2018 and June 30,
2018 and $23 million for the six
months ended June 30, 2018.
(4) For illustrative purposes, the
impact of the total foreign
currency related to the new revenue
accounting guidance is excluded
from the Pro Forma financial
statements. The impact on Other
income (expense) of foreign
currency due to this new guidance
was $(3) million, $5 million, $1
million, and $4 million,
respectively, for the three months
ended March 31, 2016, June 30,
2016, September 30, 2016, and
December 31, 2016 and $7 million
for the twelve months ended
December 31, 2016. The impact on
Other income (expense) of foreign
currency due to this new guidance
was $(2) million, $(4) million,
$(6) million, and $1 million,
respectively, for the three months
ended March 31, 2017, June 30,
2017, September 30, 2017, and
December 31, 2017, and $(11)
million for the twelve months ended
December 31, 2017.
(5) The non-GAAP effective tax rates
reported were 15.7%, 14.9%, 14.2%,
and 12.0%, respectively, for the
three months ended March 31, 2016,
June 30, 2016, September 30, 2016,
and December 31, 2016 and 13.9% for
the twelve months ended December
31, 2016. Adjusted items are
generally taxed at the estimated
annual effective tax rate, except
for the applicable tax impact
associated with non-cash pension
settlements and transaction costs
which are adjusted at the related
jurisdictional rate. The non-GAAP
effective tax rates for continuing
operations, adjusted for the change
in accounting guidance were 15.8%,
14.6%, 13.3%, and 10.3% for the
three months ended March 31, 2016,
June 30, 2016, September 30, 2016,
and December 31, 2016, and 13.7%
for the twelve months ended
December 31, 2016.
(6) The non-GAAP effective tax rates
reported were 11.1%, 15.6%, 17.5%,
and 15.5%, respectively, for the
three months ended March 31, 2017,
June 30, 2017, September 30, 2017,
and December 31, 2017, and 14.9%
for the twelve months ended
December 31, 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
settlements, which are adjusted at
the related jurisdictional rate.
In addition, tax expense excludes
the provisional estimates of the
impact of U.S. Tax Reform recorded
pursuant to SAB 118. The non-GAAP
effective tax rates for continuing
operations, adjusted for the change
in accounting guidance were 13.3%,
16.1%, 17.3%, and 14.7% for the
three months ended March 31, 2017,
June 30, 2017, September 30, 2017,
and December 31, 2017, and 14.9%
for the twelve months ended
December 31, 2017.
(7) The non-GAAP effective tax rates
reported were 16.5% and 14.7%,
respectively, for the three months
ended March 31, 2018 and June 30,
2018, and 15.9% for the six months
ended June 30, 2018. Adjusted
items are generally taxed at the
estimated annual effective tax
rate, except for the applicable tax
impact associated with estimated
restructuring expenses, legacy
litigation, accelerated tradename
amortization, impairment charges,
and non-cash pension settlement
charges, which are adjusted at the
related jurisdictional rate. In
addition, tax expense excludes the
tax impacts of the anticipated sale
of the disposal group as well as
adjustments to the provisional
estimates of the impact of US Tax
Reform recorded pursuant to SAB
118.
Aon plc
Condensed Consolidated Statements of Financial Position (Unaudited)
As of
(millions) June 30, December 31,
2018 2017
--- ---- ----
ASSETS
Current assets
Cash and cash equivalents $487 $756
Short-term investments 173 529
Receivables, net 2,992 2,478
Fiduciary assets (1) 10,476 9,625
Other current assets 732 289
--- ---
Total current assets 14,860 13,677
Goodwill 8,291 8,358
Intangible assets, net 1,363 1,733
Fixed assets, net 575 564
Deferred tax assets 452 389
Prepaid pension 1,272 1,060
Other non-current assets 404 307
Total assets $27,217 $26,088
============ ======= =======
Liabilities and equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities $1,447 $1,961
Short-term debt and current portion of long-term debt 799 299
Fiduciary liabilities 10,476 9,625
Other current liabilities 1,121 870
----- ---
Total current liabilities 13,843 12,755
Long-term debt 5,659 5,667
Deferred tax liabilities 294 127
Pension, other postretirement, and postemployment liabilities 1,715 1,789
Other non-current liabilities 1,088 1,102
----- -----
Total liabilities 22,599 21,440
----------------- ------ ------
Equity
Ordinary shares - $0.01 nominal value 2 2
Additional paid-in capital 5,772 5,775
Retained earnings 2,295 2,302
Accumulated other comprehensive loss (3,524) (3,496)
------ ------
Total Aon shareholders' equity 4,545 4,583
Noncontrolling interests 73 65
--- ---
Total equity 4,618 4,648
Total liabilities and equity $27,217 $26,088
============================ ======= =======
(1) Includes cash and short-term
investments of $3,839 million and
$3,743 million for the periods
ended June 30, 2018 and December
31, 2017, respectively.
Aon plc
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended
(millions) June 30, 2018 June 30, 2017
--------- ------------- -------------
Cash flows from operating activities
Net income $668 $1,083
Less: Income from discontinued operations, net of income taxes 7 861
Adjustments to reconcile net income to cash provided by operating activities:
Loss from sales of businesses, net 1 3
Depreciation of fixed assets 86 108
Amortization and impairment of intangible assets 392 503
Share-based compensation expense 147 148
Deferred income taxes (93) (227)
Change in assets and liabilities:
Fiduciary receivables (883) 10
Short-term investments - funds held on behalf of clients (154) (286)
Fiduciary liabilities 1,037 275
Receivables, net (371) (25)
Accounts payable and accrued liabilities (495) (377)
Restructuring reserves 12 178
Current income taxes (144) (25)
Pension, other postretirement and other postemployment liabilities (84) (101)
Other assets and liabilities 301 30
--- ---
Net cash provided by operating activities - continuing operations 413 436
Net cash provided by operating activities - discontinued operations - 64
--- ---
Cash provided by operating activities 413 500
------------------------------------- --- ---
Cash flows from investing activities
Proceeds from investments 23 29
Payments for investments (36) (32)
Net sale of short-term investments - non-fiduciary 352 (2,451)
Acquisition of businesses, net of cash acquired (50) (149)
Sale of businesses, net of cash sold 1 4,193
Capital expenditures (111) (82)
---- ---
Net cash provided by investing activities - continuing operations 179 1,508
Net cash used for investing activities - discontinued operations - (19)
--- ---
Cash provided by investing activities 179 1,489
------------------------------------- --- -----
Cash flows from financing activities
Share repurchase (971) (1,100)
Issuance of shares for employee benefit plans (150) (139)
Issuance of debt 2,552 1,651
Repayment of debt (2,027) (1,990)
Cash dividends to shareholders (187) (182)
Noncontrolling interests and other financing activities (15) (10)
--- ---
Net cash provided by financing activities - continuing operations (798) (1,770)
Net cash provided by financing activities - discontinued operations - -
Cash used for financing activities (798) (1,770)
---------------------------------- ---- ------
Effect of exchange rates on cash and cash equivalents (63) 34
--- ---
Net increase (decrease) in cash and cash equivalents (269) 253
Cash and cash equivalents at beginning of period 756 431
Cash and cash equivalents at end of period $487 $684
========================================== ==== ====
Aon plc
Restructuring Plan (Unaudited) (1)
Three months ended Six months ended Inception to Estimated Estimated
June 30, 2018 June 30, 2018 Date Remaining Costs Total Cost (2)
------------- ------------- ---- --------------- --------------
Workforce reduction $33 $66 $365 $55 $420
Technology rationalization 8 18 51 79 130
Lease consolidation 10 13 21 39 60
Asset impairments 8 9 35 5 40
Other costs associated with restructuring and separation (3) 136 163 294 81 375
---
Total restructuring and related expenses $195 $269 766 $259 $1,025
======================================== ==== ==== === ==== ======
(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-second-quarter-2018-results-300687548.html
SOURCE Aon plc
