SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): NOVEMBER 2, 2000
Aon Corporation
------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 1-7933 36-3051915
------------------------ ------------------------ ------------------------
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION)
123 N. WACKER DRIVE, CHICAGO, ILLINOIS 60606
---------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 701-3000
NOT APPLICABLE
--------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 5. OTHER EVENTS
On November 2, 2000, Aon Corporation (the "Company") issued a press release
reporting its third quarter 2000 results and announcing that the Company's board
of directors approved, in principle, a comprehensive business transformation
plan.
A copy of the press release is being filed as an exhibit hereto.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
Aon CORPORATION
By: /s/ Harvey N. Medvin
--------------------
Name: Harvey N. Medvin
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT INDEX
The following exhibit 99 is filed herewith.
EXHIBIT No. EXHIBIT
----------- -------
99 Press release issued on November 2, 2000
- 2 -
<PAGE>
EXHIBIT 99
AON REPORTS THIRD QUARTER 2000 EARNINGS;
ANNOUNCES BUSINESS TRANSFORMATION PLAN
AND FUTURE RESTRUCTURING CHARGES;
GIVES OUTLOOK FOR 2000
Chicago, IL - November 2, 2000 - Aon Corporation (NYSE:AOC) announced today that
net income for the third quarter of 2000 was $139 million or $0.53 per dilutive
share compared to net income of $138 million or $0.52 per dilutive share in the
comparable 1999 quarter. Total third quarter revenues were $1.79 billion, up
slightly from a year ago. Adjusted for the impact of foreign currency
translations, total revenues increased 4 percent from the prior year's quarter.
Aon also announced today that its board of directors approved, in
principle, a comprehensive business transformation plan. The plan is designed to
significantly improve the way the company conducts its business, to improve
client service and to enhance our profitability. The plan combines existing,
proven technology with process redesign and organizational change. Total pretax
costs related to the business transformation plan are estimated to be between
$250 million and $325 million, the majority of which will be recorded as a
restructuring charge beginning in the fourth quarter of 2000.
"Aon has been known as a leader in the consolidation of the insurance
industry -- building a world class client franchise and professional services
organization that spans 600 offices in 120 countries," Aon Chairman and CEO
Patrick G. Ryan said. "Now is the right time for us to exhibit leadership in
leveraging our technology investments that will drive economies of scale and
further enhance quality for the benefit of our clients as well as our
shareholders."
BUSINESS TRANSFORMATION COSTS AND SAVINGS
Aon's technology investments have produced improved processing, accounting
and administrative systems, which coupled with new, redesigned work flows will
eliminate duplication and shorten process cycle times. These benefits will be
spread over an expanded office network to take advantage of additional growth
opportunities. Client service responsibilities will continue to emanate from
Aon's local offices, supported by new processing centers that will alleviate the
administrative burdens of relationship managers.
<PAGE>
o The business transformation costs will include a restructuring
charge and transition costs, both of which will be incurred during
the periods when the plan is being implemented. Implementation of
the plan will occur over the next five quarters to ensure a smooth
transition to the new operating models.
o The majority of the restructuring charge is expected to be taken
over the fourth quarter 2000 and the first quarter 2001 with the
remaining amount expected to be recognized in the second quarter
2001.
o The restructuring charge will largely reflect cash costs related to
severance payments from the reduction of about six percent of the
Corporation's 50,000 worldwide workforce, or approximately 3,000
positions.
o Most of the transition costs are related to running parallel
functions to insure high quality client service as we transition to
new operating models.
o Annualized pretax savings from the business transformation plan,
once fully implemented, are estimated to be approximately $150
million to $200 million.
o Some savings will be realized in the first and second quarters 2001.
In those quarters, however, the transition costs will mostly offset
the savings.
o By the third quarter 2001 these transition costs will decline
significantly, and the majority of the annualized savings will begin
to be realized in the fourth quarter 2001.
o Temporary revenue shortfalls may occur during the early stage of
implementation of the business transformation plan.
"Our streamlined processes will free up employees to find more creative
solutions and provide even better client service as we embark on this new era
with our redefined operating model clearly in view," Ryan said. "And during this
time our commitment to our clients will be evidenced by our willingness to do
everything possible - and incur whatever costs necessary -- to insure that
quality client service is maintained and strengthened."
The majority of the charges and savings are related to Insurance
Brokerage, Aon's largest business segment. Similarly, the majority of the
related savings will occur in the U.S. and the U.K. where Aon has many of its
offices and employees. Positions to be reduced will happen at all levels
including senior and middle management, corporate staff functions,
administrative and clerical.
"Workforce reductions are always difficult, and we will work closely with
our employees to help them through this transition," Ryan said.
- 2 -
<PAGE>
CLIENT BENEFITS
Aon's business transformation plan supports the Corporation's goal of
constantly improving the efficiency with which its professional advisory
services are delivered to clients around the world.
"We have anticipated the changing needs of our clients and now is the
right time to transform our business practices. We have already made prudent
investments in needed technology, and we have validated its performance. Equally
important, we have the leadership team in place to drive change," Ryan added.
Major steps in this business transformation process include:
o completing and implementing Bridge -- a proprietary policy
management and accounting system - and the redesign of business
processes across the U.S. retail brokerage network;
o finalizing a significant outsourcing agreement for information
technology infrastructure and telecommunications in the U.K.;
o creating a single services infrastructure across the U.K. that will
drive down corporate administrative costs, including a reduction in
the number of legal entities;
o leveraging existing technology investments across the global
network; and
o implementing continuous process improvement throughout the
organization.
In addition, Aon will continue its efforts to build its e-marketplace
presence, enhancing Aon's existing market exchange.
NINE-MONTH RESULTS AND THIRD QUARTER ANALYSIS
For the first nine months of 2000, net income was $391 million compared
with $339 million in the year-ago period. Earnings per dilutive share were $1.49
compared with $1.28 per share in the first nine months of 1999. Revenues for the
nine months were a record $5.41 billion, a 4 percent increase over the year ago
level of $5.19 billion. Adjusted for foreign currency translation, total
revenues increased 7 percent from the prior year period.
During the third quarter, insurance brokerage and other services revenue
grew to $1.042 billion, compared with $1.012 billion in the 1999 third quarter.
Adjusted for foreign currency translation, revenue growth was 7 percent.
International retail, specialty, and reinsurance had strong results. Pretax
income rose to $183 million from $163 million in the year earlier quarter.
Reported pretax margin increased to 17.5 percent from 16.1 percent in the 1999
- 3 -
<PAGE>
third quarter. For the nine months, pretax margin was 17.1 percent versus 17.7
percent in the year-ago period.
Consulting revenues rose 15 percent to $182 million from $158 million in
the year-ago third quarter. Pretax income was $26 million versus $15 million in
the same period last year. The nine-month pretax margin improved to 12.7 percent
from 10.8 percent in the first nine months of 1999, representing strong
fundamental improvement in this segment.
Insurance underwriting revenues were $536 million in third quarter 2000,
versus $540 million in the 1999 third quarter. Adjusted for foreign currency
translations, revenue was up 1 percent. Reported revenues declined
year-over-year due in part to a change in the mix of warranty services delivered
and some intentionally non-renewed business that did not meet profitability
hurdles. Pretax income rose to $81 million in the 2000 third quarter from $75
million in the comparable 1999 period.
Corporate and other revenue, comprised primarily of equity related
revenues from limited partnerships and directly owned common and preferred
stocks, was $25 million compared with $60 million in the 1999 third quarter.
Last year's third quarter revenue included higher income levels on private
equity investments including significant income on private equity disposals. The
corporate and other pretax loss of $46 million, compared with a pretax loss of
$14 million in the prior year quarter, was due largely to lower equity related
revenue and an increase in interest and amortization expenses.
Reported third quarter general expenses declined 1 percent compared with
the prior year. Adjusted for foreign currency translations, expenses increased 4
percent.
YEAR-END OUTLOOK
"While we anticipate that most of our business segments will perform as
expected in the fourth quarter, factors principally affecting the corporate
segment may cause our earnings to be less than previously anticipated. In light
of these factors, we are more comfortable at this time with full year 2000
earnings in a range of $2.00 to $2.10 per share, excluding the impact of
business transformation plan costs and potential temporary revenue shortfalls
during the early implementation phase in the fourth quarter," Ryan said.
Updates on the finalization and implementation of the business
transformation plan will be provided in regular quarterly earnings
announcements.
Aon Corporation (www.aon.com) is a holding company that comprises a family
of insurance brokerage, consulting and insurance underwriting subsidiaries.
Aon's common stock is listed on the New York, Chicago, Frankfurt and London
stock exchanges.
- 4 -
<PAGE>
Aon Chairman and CEO Patrick G. Ryan will discuss subjects covered by this
release and respond to questions from investors and analysts during a conference
call that will also be webcast on Thursday, November 2, at 8 am (CST). To listen
to the conference call, go to www.bigshoulders.com/aon3q. Real Player or Windows
--------------------------
Media Player is required to listen to this webcast.
This press release may contain certain statements relating to future results,
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 historical results or those anticipated, depending on a
variety of factors such as general economic conditions in different countries
around the world, fluctuations in global equity and fixed income markets,
changes in commercial property and casualty premium rates, the competitive
environment, the actual cost of resolution of contingent liabilities, the final
form of the business transformation plan, the ultimate cost and timing of the
implementation thereof and the actual cost savings and other benefits resulting
therefrom. Further information concerning the company and its business,
including factors that potentially could materially affect the company's
financial results are contained in the company's filings with the Securities and
Exchange Commission.
-oOo-
Contact: Sean P. O'Neill
Vice President, Financial Relations
312-701-3983
Robert A. Rosholt
Executive Vice President, Media Relations
312-701-3092
- 5 -
<PAGE>
<TABLE>
<CAPTION>
Aon CORPORATION
CONSOLIDATED SUMMARY OF OPERATIONS
THIRD QUARTER ENDED NINE MONTHS ENDED
-------------------------------- ------------------------------
(millions except per share data) SEPT. 30, SEPT. 30, PERCENT SEPT. 30, SEPT. 30, PERCENT
2000 1999 CHANGE 2000 1999 CHANGE
-------------------------------- ------------------------------
REVENUE
<S> <C> <C> <C> <C> <C> <C>
Brokerage commissions and fees ............. $ 1,176 $ 1,127 4 % $ 3,584 $ 3,382 6 %
Premiums and other ......................... 476 475 - 1,435 1,353 6
Investment income .......................... 133 168 (21) 395 457 (14)
--------- --------- --------- --------- ---------- ---------
TOTAL REVENUE ........................... 1,785 1,770 1 5,414 5,192 4
--------- --------- --------- --------- ---------- ---------
EXPENSES
General expenses ........................... 1,208 1,222 (1) 3,741 3,535 6
Benefits to policyholders .................. 257 244 5 766 720 6
Interest expense ........................... 38 29 31 102 74 38
Amortization of intangible assets .......... 38 36 6 115 105 10
--------- --------- --------- --------- ---------- ---------
TOTAL EXPENSES .......................... 1,541 1,531 1 4,724 4,434 7
--------- --------- --------- --------- ---------- ---------
INCOME BEFORE SPECIAL CHARGES ................. 244 239 2 690 758 (9)
Special charges ............................ - - - - 163 -
--------- --------- --------- --------- ---------- ---------
INCOME BEFORE INCOME TAX AND MINORITY INTEREST 244 239 2 690 595 16
Provision for income tax ................... 95 91 4 269 226 19
--------- --------- --------- --------- ---------- ---------
INCOME BEFORE MINORITY INTEREST ............... 149 148 1 421 369 14
Minority interest - 8.205% trust preferred
capital securities ....................... (10) (10) - (30) (30) -
--------- --------- --------- --------- ---------- ---------
NET INCOME .................................... $ 139 $ 138 1 % $ 391 $ 339 15 %
========= ========= ========= ========= ========== =========
Preferred stock dividends .................. (1) (1) - (2) (2) -
--------- --------- --------- --------- ---------- ---------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 138 $ 137 1 % $ 389 $ 337 15 %
========= ========= ========= ========= ========== =========
NET INCOME PER SHARE:
Basic net income per share ................. $ 0.53 $ 0.53 - % $ 1.50 $ 1.30 15 %
========= ========= ========= ========= ========== =========
Dilutive net income per share:
Net income before special charges ...... $ 0.53 $ 0.52 2 % $ 1.49 $ 1.67 (11)%
Special charges ........................ - - - - (0.39) -
--------- --------- --------- --------- ---------- ---------
Dilutive net income per share ....... $ 0.53 $ 0.52 2 % $ 1.49 $ 1.28 16 %
========= ========= ========= ========= ========== =========
Dilutive average common and common equivalent
shares outstanding ....................... 262.8 264.2 261.7 263.3
--------- --------- --------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aon CORPORATION
BUSINESS SEGMENTS
THIRD QUARTER ENDED NINE MONTHS ENDED
-------------------------------- ------------------------------
(millions) SEPT. 30, SEPT. 30, PERCENT SEPT. 30, SEPT. 30, PERCENT
2000 1999 CHANGE 2000 1999 CHANGE
--------- --------- ---------- --------- --------- ---------
REVENUE
-------
<S> <C> <C> <C> <C> <C> <C>
Insurance brokerage and other services (1) .......... $ 1,042 $ 1,012 3 % $ 3,181 $ 3,029 5 %
Consulting (2) ...................................... 182 158 15 538 475 13
Insurance underwriting .............................. 536 540 (1) 1,618 1,539 5
Corporate and other ................................. 25 60 (58) 77 149 (48)
--------- --------- ---------- --------- --------- ---------
Total revenue ..................................... $ 1,785 $ 1,770 1 % $ 5,414 $ 5,192 4 %
========= ========= ============ ========= ========= ===========
INCOME BEFORE INCOME TAX
------------------------
Insurance brokerage and other services .............. $ 183 $ 163 12 % $ 545 $ 535 2 %
Special charges ................................... - - - - (119) -
--------- --------- ------------ --------- --------- -----------
Including special charges ......................... 183 163 12 545 416 31
Consulting .......................................... 26 15 73 68 51 33
Special charges ................................... - - - - (44) -
--------- --------- ------------ --------- --------- -----------
Including special charges ......................... 26 15 73 68 7 +500
Insurance underwriting .............................. 81 75 8 227 214 6
Corporate and other ................................. (46) (14) N/A (150) (42) N/A
--------- --------- ------------ --------- --------- -----------
TOTAL INCOME BEFORE INCOME TAX EXCLUDING
SPECIAL CHARGES .............................. 244 239 2 690 758 (9)
SPECIAL CHARGES ................................... - - - - (163) -
--------- --------- ---------- --------- --------- ---------
TOTAL INCOME BEFORE INCOME TAX .................... $ 244 $ 239 2 % $ 690 $ 595 16 %
========= ========= =========== ========= ========= ===========
<FN>
(1) Includes investment income of $47 million and $44 million for the third
quarter ended September 30, 2000 and 1999, respectively, and $132 million
and $120 million for the nine months ended September 30, 2000 and 1999,
respectively
(2) Includes investment income of $2 million and $1 million for the third
quarter ended September 30, 2000 and 1999, respectively, and $4 million
and $3 million for the nine months ended September 30, 2000 and 1999,
respectively
</FN>
</TABLE>
<PAGE>
