SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
-
OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7933
Aon Corporation
---------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3051915
-------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
123 N. WACKER DR, CHICAGO, ILLINOIS 60606
----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(312) 701-3000
--------------
(Registrant's Telephone Number)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 3 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
-
Number of shares of common stock outstanding:
No. Outstanding
Class as of 6-30-00
----- -------------
$1.00 par value Common 255,010,419
<PAGE>
<TABLE>
<CAPTION>
PART 1
FINANCIAL INFORMATION
Aon CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) AS OF AS OF
JUNE 30, 2000 DEC. 31, 1999
-----------------------------
ASSETS (UNAUDITED)
INVESTMENTS
<S> <C> <C>
Fixed maturities at fair value $ 2,419 $ 2,497
Equity securities at fair value 527 574
Short-term investments 2,322 2,362
Other investments 867 751
------------- --------------
TOTAL INVESTMENTS 6,135 6,184
CASH 930 837
RECEIVABLES
Insurance brokerage and consulting
services 7,065 6,230
Premiums and other 1,234 1,116
------------- --------------
TOTAL RECEIVABLES 8,299 7,346
EXCESS OF COST OVER NET ASSETS PURCHASED 3,296 3,359
OTHER INTANGIBLE ASSETS 493 503
OTHER ASSETS 2,942 2,903
------------- --------------
TOTAL ASSETS $ 22,095 $ 21,132
============= ==============
AS OF AS OF
JUNE 30, 2000 DEC. 31, 1999
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
INSURANCE PREMIUMS PAYABLE $ 8,493 $ 7,643
POLICY LIABILITIES
Future policy benefits 1,010 1,005
Policy and contract claims 780 764
Unearned and advance premiums 2,056 2,012
Other policyholder funds 1,046 1,207
------------- --------------
TOTAL POLICY LIABILITIES 4,892 4,988
GENERAL LIABILITIES
General expenses 1,553 1,731
Short-term borrowings 390 303
Notes payable 1,818 1,611
Other liabilities 1,012 955
------------- --------------
TOTAL LIABILITIES 18,158 17,231
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE PREFERRED STOCK 50 50
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED CAPITAL SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY THE COMPANY'S JUNIOR
SUBORDINATED DEBENTURES 800 800
STOCKHOLDERS' EQUITY
Common stock - $1 par value 260 259
Paid-in additional capital 548 525
Accumulated other comprehensive loss (394) (309)
Retained earnings 3,036 2,905
Less - Treasury stock at cost (141) (90)
Deferred compensation (222) (239)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY 3,087 3,051
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,095 $ 21,132
============= ==============
<FN>
See the accompanying notes to the condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED
-------------------------- --------------------------
(millions except per share data) JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
------------- ------------ ------------ ------------
REVENUE
<S> <C> <C> <C> <C>
Brokerage commissions and fees ................................ $ 1,203 $ 1,143 $ 2,408 $ 2,255
Premiums and other ............................................ 491 441 959 878
Investment income ............................................. 125 139 262 289
------------- ------------ ------------ ------------
TOTAL REVENUE .............................................. 1,819 1,723 3,629 3,422
------------- ------------ ------------ ------------
EXPENSES
General expenses .............................................. 1,262 1,167 2,533 2,476
Benefits to policyholders ..................................... 257 237 509 476
Interest expense .............................................. 33 24 64 45
Amortization of intangible assets ............................. 39 35 77 69
------------- ------------ ------------ ------------
TOTAL EXPENSES ............................................. 1,591 1,463 3,183 3,066
------------- ------------ ------------ ------------
INCOME BEFORE INCOME TAX AND MINORITY INTEREST ................... 228 260 446 356
Provision for income tax ...................................... 89 99 174 135
------------- ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST .................................. 139 161 272 221
Minority interest - 8.205% trust preferred capital securities . (10) (10) (20) (20)
------------- ------------ ------------ ------------
NET INCOME ....................................................... $ 129 $ 151 $ 252 $ 201
============= ============ ============ ============
Preferred stock dividends ..................................... - (1) (1) (1)
------------- ------------ ------------ ------------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS ..................... $ 129 $ 150 $ 251 $ 200
============= ============ ============ ============
NET INCOME PER SHARE:
Basic net income per share .................................... $ 0.50 $ 0.58 $ 0.97 $ 0.77
============= ============ ============ ============
Dilutive net income per share ................................. $ 0.49 $ 0.57 $ 0.96 $ 0.76
============= ============ ============ ============
CASH DIVIDENDS PAID ON COMMON STOCK .............................. $ 0.22 $ 0.21 $ 0.43 $ 0.40
============= ============ ============ ============
Dilutive average common and common equivalent shares outstanding . 261.7 263.7 261.1 262.9
------------- ------------ ------------ ------------
<FN>
See the accompanying notes to the condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
--------------------
June 30, June 30,
(millions) 2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ........................................................................ $ 252 $ 201
Adjustments to reconcile net income to cash provided by operating activities
Insurance assets / liabilities net of reinsurance .............................. 18 122
Amortization of intangible assets .............................................. 77 69
Depreciation of property and equipment ......................................... 88 89
Income taxes ................................................................... 62 (23)
Special charge and purchase accounting liabilities (notes 8 and 11) ........... (73) 73
Brokerage insurance premiums payable - net ..................................... 277 355
Other .......................................................................... (439) (529)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES ............................................... 262 357
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments
Fixed maturities
Maturities .................................................................. 42 30
Calls and prepayments ....................................................... 80 104
Sales ....................................................................... 170 788
Equity securities. ............................................................. 83 356
Other investments .............................................................. 183 38
Purchase of investments
Fixed maturities ............................................................... (245) (848)
Equity securities .............................................................. (41) (384)
Other investments .............................................................. (260) (87)
Purchase of short-term investments - net ....................................... (2) (49)
Acquisition of subsidiaries ....................................................... (41) (177)
Property and equipment and other .................................................. (73) (134)
--------- ---------
CASH USED BY INVESTING ACTIVITIES ........................................... (104) (363)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions - net ................................................ (63) (13)
Issuance of short-term borrowings - net .......................................... 101 126
Issuance of long-term debt ....................................................... 250 250
Issuance (repayment) of other long-term debt ..................................... (31) 2
Interest sensitive, annuity and investment-type contracts
Deposits ....................................................................... 35 153
Withdrawals .................................................................... (239) (91)
Cash dividends to stockholders ................................................... (111) (101)
--------- ---------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES ................................ (58) 326
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................................. (7) (5)
INCREASE IN CASH .................................................................... 93 315
CASH AT BEGINNING OF PERIOD ......................................................... 837 723
--------- ---------
CASH AT END OF PERIOD ............................................................... $ 930 $ 1,038
========= =========
<FN>
See the accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
Aon CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Statement of Accounting Principles
----------------------------------
The financial results included in this report are stated in conformity
with accounting principles generally accepted in the United States and are
unaudited but include all normal recurring adjustments which the
Registrant ("Aon") considers necessary for a fair presentation of the
results for such periods. These interim figures are not necessarily
indicative of results for a full year as further discussed below.
Refer to the consolidated financial statements and notes in the Annual
Report to Stockholders for the year ended December 31, 1999 for additional
details of Aon's financial position, as well as a description of the
accounting policies which have been continued without material change. The
details included in the notes have not changed except as a result of
normal transactions in the interim and the events mentioned in the
footnotes below.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. Statements of Financial Accounting Standards (SFAS)
---------------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities and will
require Aon to recognize all derivatives on the statement of financial
position at fair value. Aon has not yet determined the effect, if any,
this statement will have on the consolidated financial statements.
In June 1999, the FASB issued Statement No. 137 that amended the
required adoption date of Statement No. 133 to all fiscal years
beginning after June 15, 2000. Early adoption is permitted as of the
beginning of any quarter subsequent to the issuance of Statement No.
137. In June 2000, the FASB issued Statement No. 138, a significant
amendment to Statement No. 133, which is effective simultaneously with
Statement No. 133. Aon has not yet decided when it will adopt Statement
No. 133.
In June 2000, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101B that amended the required adoption date
of SAB 101 to fourth quarter 2000. SAB 101 provides guidance for applying
generally accepted accounting principles relating to the timing of revenue
recognition in financial statements filed with the SEC. Any change
required by the SAB must be made by the end of fourth quarter 2000 with a
cumulative effect accounting change effective January 1, 2000.
Aon has not yet determined the effect, if any, this SAB will have on the
consolidated financial statements.
- 5 -
<PAGE>
In March 2000, the FASB issued Interpretation No. 44 (Interpretation),
"Accounting for Certain Transactions Involving Stock Compensation." This
Interpretation clarifies the application of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." This
Interpretation is effective July 1, 2000, but adoption is not expected to
have a material impact on Aon's consolidated financial statements.
3. Comprehensive Income
--------------------
The components of comprehensive income, net of related tax, for the second
quarter and six months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
(millions) Second Quarter Ended Six Months Ended
-------------------- ----------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $ 129 $ 151 $ 252 $ 201
Net unrealized investment losses (8) (37) (5) (100)
Net foreign exchange gains (losses) (48) 21 (80) (45)
Net additional minimum pension
liability reduction - 65 - 65
------------- ------------- ------------- -------------
Comprehensive income $ 73 $ 200 $ 167 $ 121
============= ============= ============= =============
</TABLE>
The components of accumulated other comprehensive loss, net of related
tax, at June 30, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(millions) 2000 1999
---- ----
<S> <C> <C>
Net unrealized investment losses $ (126) $ (121)
Net foreign exchange losses (232) (152)
Net additional minimum pension liability adjustment (36) (36)
------------ ------------
Accumulated other comprehensive loss $ (394) $ (309)
============ ============
</TABLE>
4. Business Segments
-----------------
Aon classifies its business into three major segments based on the type of
service or product, and a fourth nonoperating segment. The Insurance
Brokerage and Other Services segment is comprised of retail and
reinsurance brokerage operations, which include specialty and wholesale
activity. The Consulting segment is Aon's employee benefit and human
resource consulting organization. The Insurance Underwriting segment is
comprised of life, accident and health, and extended warranty and casualty
insurance products. The Corporate and Other segment revenues consist
primarily of investment income on policyholder surplus of insurance
underwriting companies which is not otherwise allocated to the operating
segments. Corporate and Other expenses consist primarily of amortization
of goodwill (excess of costs over net assets purchased), interest, certain
information technology expenses and other general and administrative
expenses.
- 6 -
<PAGE>
Amounts reported in the tables for these four segments, when aggregated,
total to the amounts in the accompanying condensed consolidated financial
statements. Revenues are attributed to geographic areas based on the
location of the resources producing the revenues. There are no material
inter-segment amounts to be eliminated.
Selected information about Aon's operating and geographic areas of
operation follows.
<TABLE>
<CAPTION>
========================================================================================
INSURANCE BROKERAGE AND OTHER SERVICES
(millions) Second quarter ended June 30, Six months ended June 30,
2000 1999 2000 1999
========================================================================================
Revenue:
<S> <C> <C> <C> <C>
United States $ 545 $ 537 $ 1,069 $ 1,020
United Kingdom 238 218 442 407
Continental Europe 143 143 369 368
Rest of World 139 122 259 222
----------------------------------------------------------------------------------------
Total revenue $ 1,065 $ 1,020 $ 2,139 $ 2,017
----------------------------------------------------------------------------------------
Income before income tax
excluding special charges $ 182 $ 188 $ 362 $ 372
Special charges - - - 119
----------------------------------------------------------------------------------------
Income before income tax $ 182 $ 188 $ 362 $ 253
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
========================================================================================
CONSULTING Second quarter ended June 30, Six months ended June 30,
(millions) 2000 1999 2000 1999
========================================================================================
Revenue:
<S> <C> <C> <C> <C>
United States $ 109 $ 98 $ 208 $ 189
United Kingdom 40 38 79 72
Continental Europe 14 9 36 25
Rest of World 17 16 33 31
----------------------------------------------------------------------------------------
Total revenue $ 180 $ 161 $ 356 $ 317
----------------------------------------------------------------------------------------
Income before income tax
excluding special charges $ 23 $ 19 $ 42 $ 36
Special charges - - - 44
----------------------------------------------------------------------------------------
Income (loss) before income tax $ 23 $ 19 $ 42 $ (8)
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
========================================================================================
INSURANCE UNDERWRITING Second quarter ended June 30, Six months ended June 30,
(millions) 2000 1999 2000 1999
========================================================================================
Revenue:
<S> <C> <C> <C> <C>
United States $ 394 $ 349 $ 770 $ 691
United Kingdom 81 79 159 161
Continental Europe 28 28 54 58
Rest of World 49 46 99 89
----------------------------------------------------------------------------------------
Total revenue $ 552 $ 502 $ 1,082 $ 999
----------------------------------------------------------------------------------------
Income before income tax $ 79 $ 75 $ 146 $ 139
----------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
========================================================================================
CORPORATE AND OTHER
(millions) Second quarter ended June 30, Six months ended June 30,
2000 1999 2000 1999
========================================================================================
<S> <C> <C> <C> <C>
Total revenue $ 22 $ 40 $ 52 $ 89
----------------------------------------------------------------------------------------
Loss before income tax $ (56) $ (22) $ (104) $ (28)
----------------------------------------------------------------------------------------
</TABLE>
5. Notes Payable
-------------
In May 2000, Aon filed a prospectus supplement to use the remaining $250
million of its universal shelf registration filed in May 1999, and issued
$250 million of 8.65% debt securities due May 2005. The net proceeds from
the sale of the 8.65% notes are being used for general corporate purposes,
including securities repurchase programs, capital expenditures, working
capital, repayment or reduction of long-term and short-term debt and the
financing of acquisitions.
6. Capital Stock
-------------
For the first six months of 2000, Aon reissued 588,700 shares of common
stock from treasury for employee benefit plans and 323,300 shares in
connection with the employee stock purchase plan. Aon purchased 2.8
million shares of its common stock at a total cost of $80 million during
six months 2000. There were 4.6 million shares of common stock held in
treasury at June 30, 2000.
In April 2000, Aon's stockholders approved an amendment to Aon's Second
Amended and Restated Certificate of Incorporation to increase the number
of shares of common stock Aon is authorized to issue from 300 million to
750 million.
7. Capital Securities
------------------
In 1997, Aon Capital A, a subsidiary trust of Aon, issued $800 million of
8.205% mandatorily redeemable preferred capital securities (capital
securities). The sole asset of Aon Capital A is $824 million aggregate
principal amount of Aon's 8.205% Junior Subordinated Deferrable Interest
Debentures due January 1, 2027.
8. Business Combinations
---------------------
In first quarter 1999, Aon consummated a plan of restructuring its
operations as a result of recent business combination activity. A pretax
special charge was recorded in the amount of $120 million.
In the first and second quarters of 2000, Aon made total payments of $8
million and $13 million, respectively, on restructuring charges and
purchase accounting liabilities relating to business combinations.
The movements of these special charges and purchase accounting liabilities
are presented below.
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<PAGE>
The following table demonstrates the activity related to the liability for
termination benefits and abandoned leases recorded as expenses in 1999:
Termination Lease
(millions) Benefits Abandonments Total
--------------------------------------------------------------------------
Expense charged in 1999 $ 67 $ 11 $ 78
Cash payments in 1999 (51) (6) (57)
Credit to expense in 2000 - (4) (4)
Cash payments in 2000 (5) - (5)
--------------------------------------------------------------------------
Balance at June 30, 2000 $ 11 $ 1 $ 12
--------------------------------------------------------------------------
The following table demonstrates the activity related to the liabilities
established as a result of 1998 acquisitions:
Termination Lease
(millions) Benefits Abandonments Total
--------------------------------------------------------------------------
Initial liability $ 40 $ 30 $ 70
Cash payments in 1998 (16) (4) (20)
Cash payments in 1999 (24) (6) (30)
Cash payments in 2000 - (2) (2)
--------------------------------------------------------------------------
Balance at June 30, 2000 $ - $ 18 $ 18
==========================================================================
The following table demonstrates the activity related to the "Aon Plan"
liabilities recorded as expenses in 1996 and 1997:
Lease
Abandonments
Termination and Other
(millions) Benefits Exit Costs Total
--------------------------------------------------------------------------
Balance at December 31, 1996 $ 12 $ 48 $ 60
Expense charged in 1997 40 68 108
Cash payments in 1997 (48) (10) (58)
Cash payments in 1998 (4) (26) (30)
Cash payments in 1999 - (24) (24)
Credit to expense in 1999 - (11) (11)
Credit to expense in 2000 - (2) (2)
Cash payments in 2000 - (6) (6)
--------------------------------------------------------------------------
Balance at June 30, 2000 $ - $ 37 $ 37
--------------------------------------------------------------------------
- 9 -
<PAGE>
The following table demonstrates the activity related to the A&A and Bain
Hogg plan liabilities established as a result of 1996 and 1997
acquisitions:
Lease
Abandonments
Termination and Other
(millions) Benefits Exit Costs Total
--------------------------------------------------------------------------
Initial liability $ 100 $ 164 $ 264
Cash payments in 1997 (65) (44) (109)
Cash payments in 1998 (35) (45) (80)
Cash payments in 1999 - (28) (28)
Charge to expense in 1999 - 13 13
Charge to expense in 2000 - 3 3
Cash payments in 2000 - (8) (8)
--------------------------------------------------------------------------
Balance at June 30, 2000 $ - $ 55 $ 55
--------------------------------------------------------------------------
All of Aon's liabilities relating to restructuring charges and purchase
accounting are reflected in the general expense liabilities in the
condensed consolidated statements of financial position.
9. Net Income Per Share
--------------------
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
(millions except per Second Quarter Ended Six Months Ended
share data) June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 129 $ 151 $ 252 $ 201
Redeemable preferred stock
dividends - 1 1 1
------ ------ ------ ------
Net income for dilutive and
basic $ 129 $ 150 $ 251 $ 200
====== ====== ====== ======
Basic shares outstanding 259 260 259 259
Common stock equivalents 3 4 2 4
------ ------ ------ ------
Dilutive potential common
shares 262 264 261 263
===================================================================================
Basic net income per share $0.50 $0.58 $0.97 $0.77
Dilutive net income per share $0.49 $0.57 $0.96 $0.76
===================================================================================
</TABLE>
- 10 -
<PAGE>
10. Alexander & Alexander Services Inc. (A&A) Discontinued Operations
-----------------------------------------------------------------
A&A discontinued its property and casualty insurance underwriting
operations in 1985, some of which were then placed into run-off, with the
remainder sold in 1987. In connection with those sales, A&A provided
indemnities to the purchasers for various estimated and potential
liabilities, including provisions to cover future losses attributable to
insurance pooling arrangements, a stop-loss reinsurance agreement, and
actions or omissions by various underwriting agencies previously managed
by an A&A subsidiary. As of June 30, 2000, the liabilities associated with
the foregoing indemnities and liabilities of insurance underwriting
subsidiaries that are currently in run-off were included in other
liabilities in the accompanying condensed consolidated statement of
financial position. Such liabilities amounted to $143 million and would be
substantially reduced if a February, 2000 ruling from the Court of Appeal
in England favorable to the Company, in respect of which right to appeal
has been granted, were upheld in a decision expected in or around 2002.
The stated liabilities are net of $174 million of reinsurance recoverables
and other assets.
11. Contingencies
-------------
Aon and its subsidiaries are subject to numerous claims, tax assessments
and lawsuits that arise in the ordinary course of business. The damages
that may be claimed are substantial, including in many instances claims
for punitive or extraordinary damages. Accruals for these items have been
provided to the extent that losses are deemed probable and are estimable.
In 1998, the Internal Revenue Service (IRS) proposed adjustments to the
tax of certain Aon subsidiaries for the period of 1990 through 1993. Most
of these adjustments should be resolved through factual substantiation of
certain accounting matters. However, the IRS has contended that
retro-rated extended warranty contracts do not constitute insurance for
tax purposes. Accordingly, the IRS has proposed a deferral of deductions
for obligations under those contracts. The effect of such deferral would
be to increase the current tax obligations of certain Aon subsidiaries by
approximately $74 million, $3 million, $5 million and $12 million (plus
interest) in years 1990, 1991, 1992, and 1993, respectively. Aon believes
that the IRS's position is without merit and inconsistent with numerous
previous IRS private letter rulings. Aon has commenced an administrative
appeal and intends to contest vigorously such treatment. Aon believes that
if the contracts are deemed not to be insurance for tax purposes, they
would be recharacterized in such a way that the increased taxes for the
years in question would be far less than the proposed assessments.
In the second quarter of 1999, Allianz Life Insurance Company of North
America, Inc. ("Allianz") filed an amended complaint in Minnesota adding a
brokerage subsidiary of Aon as a defendant in an action which Allianz
brought against three insurance carriers reinsured by Allianz. These three
carriers provided certain types of workers' compensation reinsurance to a
pool of insurers and to certain facilities managed by Unicover Managers,
Inc. ("Unicover"), a New Jersey corporation not affiliated with Aon.
Allianz alleges that the Aon subsidiary acted as an agent of the three
carriers when placing reinsurance coverage on their behalf. Allianz claims
that the reinsurance it issued should be rescinded or that it should be
awarded damages, based on alleged fraudulent, negligent and innocent
misrepresentations by the carriers, through their agents, including the
Aon subsidiary defendant. Aon believes that the Aon subsidiary has
meritorious defenses and the Aon subsidiary intends to vigorously defend
this claim.
- 11 -
<PAGE>
Except for an action filed in Illinois seeking to compel Aon to produce
documents and for an action filed in England disputing entitlement to
commissions and fees to both of which Aon is responding, the Allianz
lawsuit is the only lawsuit or arbitration relating to Unicover in which
any Aon related entity is a party. However, in fourth quarter 1999 Aon
recognized a pretax charge for $72 million in general expenses in its
insurance brokerage and other services segment relating to various
litigation matters including Unicover. As of June 30, 2000, Aon has $49
million remaining in general expense liabilities for these various
litigation matters, which are complex and, therefore, the timing of
resolution cannot yet be determined.
Certain U.K. subsidiaries of Aon have been required by their regulatory
body, the Personal Investment Authority (PIA), to review advice given by
those subsidiaries to individuals who bought pension plans during the
period from April 1988 to June 1994. These reviews have resulted in a
requirement to pay compensation to clients based on guidelines issued by
the PIA. In 1999, Aon charged general expenses for $121 million in the
consulting segment, of which $43 million was in first quarter 1999, to
provide for these payments. As of June 30, 2000, Aon has $77 million
remaining in general expense liabilities for these payments which are
expected to be disbursed over the next several years. Aon's ultimate
exposure from the private pension plan review, as presently calculated, is
subject to a number of variable factors including, among others, general
level of pricing in the equity markets, the rate of response to the
pension review mailings, the interest rate established quarterly by the
PIA for calculating compensation, and the precise scope, duration and
methodology of the review, including whether recent regulatory guidance
will have to be applied to previously settled claims.
Although the ultimate outcome of all matters referred to above cannot be
ascertained and liabilities in indeterminate amounts may be imposed on Aon
or its subsidiaries, on the basis of present information, availability of
insurance coverages and legal advice received, it is the opinion of
management that the disposition or ultimate determination of such claims
will not have a material adverse effect on the consolidated financial
position of Aon beyond amounts provided. However, it is possible that
future results of operations or cash flows for any particular quarterly or
annual period could be materially affected by an unfavorable resolution of
these matters.
- 12 -
<PAGE>
Aon CORPORATION
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS
AND FINANCIAL CONDITION
REVENUE AND INCOME BEFORE INCOME TAX
FOR SECOND QUARTER and SIX MONTHS 2000
CONSOLIDATED RESULTS
--------------------
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
This quarterly report contains 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 and the actual cost of resolution of contingent liabilities.
GENERAL
-------
Total revenue increased $96 million or 6% in the second quarter and $207 million
or 6% in six months 2000. The impact of foreign exchange rate reductions and the
absence of revenue from the Unicover workers compensation pool slowed revenue
growth in second quarter and six months 2000. On a comparable currency basis,
total revenues improved 8% in the quarter compared to 1999.
Brokerage commissions and fees increased $60 million or 5% in second quarter
2000 and $153 million or 7% in six months 2000, primarily reflecting growth from
business combination activity, internal growth from increased new business and
the impact of an improving premium rate environment on revenue. Partially
offsetting the growth in brokerage commission and fees was the impact of foreign
exchange rates in the quarter and six months.
Premiums and other, primarily related to insurance underwriting operations,
increased $50 million or 11% in second quarter 2000 and $81 million or 9% in six
months 2000 compared with the same period last year. Total premiums earned in
the insurance underwriting segment were $488 million, an increase of $52 million
or 12% over second quarter 1999. The increase primarily reflects new business
development in the domestic mechanical warranty and casualty lines and the
appliance and electronic lines and continued internal growth.
Investment income, which includes related expenses and income on disposals,
decreased 10% and 9% in the second quarter and six months 2000, respectively,
when compared to prior year. For six months 1999, investment income included $30
million of income on the disposal of tax-exempt bonds with no comparable amount
in 2000. Excluding the income on disposal of the bonds, six months 2000
investment income increased a modest 1% or $3 million, primarily reflecting
higher short-term interest rates offset by lower revenue from equity
investments. Revenues from private equity investments fluctuate due to the
inherent volatility of these investments. Investment income from insurance
brokerage and other services, and consulting operations, primarily relating to
fiduciary funds, increased $5 million in second quarter 2000 compared to second
quarter 1999. Higher short-term interest rates coupled with improved cashflows
contributed to the overall investment income increase in the brokerage segments.
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<PAGE>
In first quarter 1999, Aon recorded special charges of $163 million ($102
million after-tax or $0.39 per share) including provisions for U.K. pension
selling, an early retirement plan in the U.S. and Canada and the consolidation
of Aon's European insurance brokerage and other services operations. General
expenses, excluding 1999 special charges, increased $220 million or 10% in six
months 2000, primarily reflecting investments in new business initiatives and
technology. For example, incremental costs related to the rollout of the retail
insurance brokerage and other services brokerage system and related conversions,
running of parallel systems and training expenses, were incurred in second
quarter and six months 2000.
Benefits to policyholders increased $20 million or 8% in the quarter and $33
million or 7% in six months 2000 when compared to prior year. The increases were
fairly consistent with growth in related premiums earned and reflected no
unusual claims activity. Total expenses increased $128 million or 9% in second
quarter 2000 and $117 million or 4% when compared to prior year. Total expenses,
excluding the 1999 special charges, increased 10% for the six months when
compared to 1999. Interest expense increased 38% in the quarter compared to
prior year and 42% in six months 2000, attributed primarily to acquisition
financing in 1999 and the issuances of $250 million of 6.9% notes at the end of
second quarter 1999 and $250 million of 8.65% notes in second quarter 2000 (see
note 5). Restructuring liabilities for recent acquisitions and 1999 special
charges have been reduced by payments as planned.
Income before income tax and minority interest decreased $32 million or 12% in
second quarter 2000 when compared to prior year, primarily due to lower revenue
from equity investments, higher interest and technology expenses, new business
initiatives and the absence of Unicover revenue.
Although foreign exchange rates negatively affected revenues in the second
quarter, pretax income is generally hedged against foreign currency
fluctuations. In the second quarter, the net foreign exchange impact to pretax
income, after the benefit of hedge activity, was minimal. For the six months
2000, the foreign exchange impact to pretax income was $9 million.
Six months 2000 income before income tax increased $90 million or 25% over 1999
reflecting the inclusion of 1999 special charges. Excluding special charges, six
months 2000 income before income tax decreased $73 million or 14% when compared
to prior year, primarily reflecting lower revenue from equity investments, costs
to integrate Aon's global network, increased technology expenses related to
brokerage computer systems, additional interest expense, absence of Unicover
revenues, and the inclusion of the $30 million income on disposal of tax-exempt
securities in 1999.
BUSINESS SEGMENTS
-----------------
GENERAL
-------
For purposes of the following business segments discussions, comparisons against
1999 results exclude special charges. In addition, references to income before
income tax exclude minority interest related to the capital securities.
Aon classifies its businesses into three major operating segments: Insurance
Brokerage and Other Services, Consulting and Insurance Underwriting; and into
one nonoperating segment, Corporate and Other. A description of operations and a
review of financial performance for each of the four business segments follows.
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<PAGE>
INSURANCE BROKERAGE AND OTHER SERVICES
--------------------------------------
The Insurance Brokerage and Other Services segment consists principally of Aon's
retail and reinsurance brokerage operations, which include specialty and
wholesale activity.
Second quarter 2000 revenue was $1.1 billion, up 4%, and six months 2000 revenue
was $2.1 billion, up 6%. Post-second quarter 1999 acquisitions as well as
internal growth accounted for the majority of this revenue growth. Excluding the
impact of acquisitions and foreign exchange, revenue related to brokerage core
businesses grew approximately 6% in the quarter in a very competitive
environment. Excluding the impact of foreign exchange adjustments, revenue
growth in the quarter was 7% on a comparable currency basis. Revenue related to
reinsurance obtained by Unicover was $8 million and $14 million for second
quarter and six months 1999, respectively.
In the quarter, U.S. revenue of $545 million in 2000 was up 1% from 1999 due to
increased new business, acquisitions and growth in U.S. specialty operations. In
second quarter 2000, the premium rate environment continued to improve with a
lower level of decline internationally and an indicated slight increase in the
U.S. U. K. and Continental Europe revenue of $381 million increased 6% from
1999, primarily due to strong internal growth, particularly in Spain, Finland,
Germany and Ireland. The impact of foreign exchange rates partially offset this
revenue growth. Rest of world revenue increased 14% in 2000 primarily due to new
initiatives and internal growth.
In the six months, U.S. revenue of $1.1 billion in 2000 was up 5% from 1999
reflecting increased new business, acquisitions, and the impact of minimal
premium rate declines and growth in U.S. specialty operations. U.K. and
Continental Europe revenue of $811 million increased 5% from 1999, primarily
due to internal growth as mentioned above and to a lesser extent,
acquisitions. The impact of foreign exchange rates partially offset this
revenue growth. Rest of world revenue increased $37 million or 17% in 2000
primarily reflecting new initiatives and internal growth.
Excluding 1999 special charges, pretax income declined 3% both in the quarter
and six months 2000 over prior year, reflecting lower revenue sharing income
with insurers that was principally due to higher industry-wide underwriting
losses. While this negatively affected short-term results, poor underwriting
performance contributed to continued price firming.
Second quarter pretax margins in this segment were 17% in 2000 compared to 18%
in the prior year. Second quarter 1999 results benefited from high margin
Unicover revenue which was absent in 2000. In addition, higher technology costs
related to the rollout of Aon's U.S. retail brokerage computer system platform,
the impact of certain recent acquisitions that have seasonally higher expenses
relative to revenues and investments in new initiatives, with little or no
immediate revenue growth, contributed to the pretax income and related margin
declines in the second quarter.
CONSULTING
----------
The Consulting segment provides a range of consulting services including
employee benefits, human resources, compensation and change management.
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<PAGE>
In the Consulting segment, both second quarter and six months 2000 revenue
increased 12% to $180 million and $356 million, respectively. On a comparable
currency basis, Consulting revenue grew 14% in the quarter compared to 1999.
Internal growth, acquisition activity, and to a lesser extent, transfers of
business units to consulting from the Insurance Brokerage and Other Services
segment subsequent to second quarter 1999, influenced revenue growth. Absent
these factors, revenue grew approximately 7% in second quarter 2000.
U.S. revenue of $109 million in second quarter 2000 was up 11% from 1999
reflecting growth primarily in employee benefit consulting. U.K. and
Continental Europe revenue of $54 million increased 15% from 1999. U.K.
revenue grew 5% from the prior period reflecting strong growth in employee
benefit services. Continental Europe revenue increased 56% or $5 million
reflecting revenue growth of existing businesses and transfers of certain
operating activities to the consulting segment, partially offset by
unfavorable foreign exchange rates.
U.S. revenue of $208 million in six months 2000 was up 10% from 1999
reflecting growth primarily in employee benefit consulting. U.K. and
Continental Europe revenue of $115 million increased 19% from 1999. U.K.
revenue grew 10% from the prior period reflecting strong growth in employee
benefit services. Continental Europe revenue increased 44% or $11 million
reflecting revenue growth of existing businesses and transfers of certain
operating activities to the consulting segment, partially offset by
unfavorable foreign exchange rates.
Second quarter and six months pretax income, excluding 1999 special charges,
increased 21% to $23 million and 17% to $42 million, respectively, compared to
1999 primarily reflecting U.K. operations and domestic employee benefits, human
resources and change management consulting. Pretax margins in this segment
improved slightly in the quarter and six months compared to 1999.
INSURANCE UNDERWRITING
----------------------
The Insurance Underwriting segment is comprised of accident, health and life
insurance and extended warranty and casualty insurance products.
Revenue was $552 million in second quarter 2000, up 10% from 1999, primarily due
to growth in the U.S. appliance and electronics and mechanical extended warranty
and casualty products. Accident and health continued to expand product
distribution through worksite marketing programs, and the development of new
product initiatives introduced in 1999 on a global basis. However, the above
revenue growth is predominantly from core operations and acquisitions as these
new initiatives continue to build momentum. Excluding the impact of acquisitions
and foreign exchange, written premiums related to insurance underwriting core
businesses grew approximately 9% in the quarter.
U.S. revenue of $394 million was up 13% in second quarter 2000 due to growth
in revenues for accident and health and appliance and electronics extended
warranty products. U.K. and Continental Europe revenue of $109 million
improved 2% principally reflecting continued growth, particularly due to
direct sales accident and health products in the U.K. and Ireland. Rest of
world revenue was $49 million, up 7% from prior year reflecting continued
geographic expansion.
U.S. revenue of $770 million was up 11% in six months 2000 due to growth in
revenues for life, accident and health and extended warranty products. U.K.
and Continental Europe revenue of $213 million declined 3% reflecting the
transfer of certain business to the Insurance Brokerage and Other Services
segment in first quarter 2000. Rest of world revenue was $99 million, up 11%
from prior year reflecting continued geographic expansion.
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<PAGE>
Pretax income was $79 million in second quarter 2000, up 5% from last year. Six
months 2000 pretax income was $146 million, an increase of 5% over prior year.
Revenue growth and expense management was partially offset by start-up costs
related to new accident and health product initiatives and investments in new
product development in the extended warranty lines. Pretax margins in this
segment declined to 14% in second quarter 2000 compared to 15% in 1999,
principally reflecting the effect of start-up costs mentioned above.
CORPORATE AND OTHER
-------------------
Revenue in this category consists primarily of investment income (including
income on disposals) which is not otherwise allocated to the operating segments.
Corporate operating expenses include goodwill amortization, interest expense
and general expenses such as administrative and certain information technology
costs.
Corporate and Other revenue for the second quarter 2000 was $22 million, down
$18 million or 45% from second quarter 1999 primarily due to an increase in the
allocation of investment income to the operating segments and lower yields on
Corporate equity investments. For six months 2000, Corporate and Other revenue
declined $37 million or 42%. Six months 1999 corporate revenue included $30
million of income on the disposal of $500 million in tax-exempt bonds. Excluding
the gain, Corporate and Other revenue in the six months decreased $7 million or
12% from prior year primarily due to lower revenue from equity investments.
These investments generate a more variable income stream due to the inherent
fluctuations of equity security valuations.
Corporate and Other expenses for the quarter and six months were up $16 million
and $39 million, respectively, from the same periods last year. Interest expense
and goodwill amortization were up a total of $14 million over the second quarter
1999, reflecting the financing of acquisitions made during the last twelve
months and the issuance of approximately $500 million of debt securities since
June 1999.
Lower revenues from equity investments and increased interest and amortization
expenses were the primary factors that contributed to the overall corporate and
other pretax loss of $56 million in the quarter and $104 million for six months,
a decline of $34 million and $76 million, respectively.
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<PAGE>
NET INCOME FOR SECOND QUARTER AND SIX MONTHS 2000
Second quarter 2000 net income was $129 million ($0.49 dilutive per share)
compared to $151 million ($0.57 dilutive per share) in 1999. Six months 2000 net
income was $252 million ($0.96 dilutive per share) compared to $201 million
($0.76 per share) in 1999. Six months 1999 net income was primarily influenced
by after-tax 1999 special charges of $102 million ($0.39 per share) with no
comparable amount in six months 2000. In the second quarter and first six
months of 2000, there was no net income reflected in Aon's consolidated
financial statements from the impact of Unicover revenues. The impact of
Unicover revenues in 1999 was approximately $0.02 per share in the second
quarter and $0.03 per share for the first six months.
Basic net income per share, including 1999 special charges, was $0.50 and $0.58
in second quarter 2000 and 1999, respectively, and $0.97 and $0.77 in six months
2000 and 1999, respectively. Dividends on the redeemable preferred stock have
been deducted from net income to compute income per share. The effective tax
rate was 39% and 38.25% for second quarter 2000 and 1999, respectively. The
increase in the effective rate was primarily attributable to a shift in business
mix and to lower tax-exempt investment income.
CASH FLOW AND FINANCIAL POSITION
AT THE END OF SIX MONTHS 2000
Cash flows from operating activities reflect the net income earned by Aon in the
reported periods adjusted for non-cash charges and working capital changes. Cash
flows provided by operating actvities in six months 2000 were $262 million, a
decrease of $95 million from the $357 million reported at six months 1999. The
decrease is primarily due to payments on special charges related to
restructuring and purchase accounting liabilities from business combinations and
changes in insurance assets and liabilities net of reinsurance and net brokerage
insurance premiums payable. In addition, six months 2000 net income of $252
million was $51 million below prior year after adjusting for after-tax special
charges of $102 million at six months 1999. A refund due on prior year taxes
partially offset the decrease in operating cash flows for the six months 2000.
Investing activities used cash of $104 million, which was made available from
financing and operating activities. Cash used for acquisition activity during
six months 2000 was $41 million, primarily reflecting brokerage acquisitions.
Property and equipment and other expenditures for the first six months of 2000
were $73 million, net of proceeds of $33 million from the sale of certain
assets.
Cash totaling $58 million was used during six months 2000 from financing
activities. The decrease of $384 million from six months 1999 is primarily due
to net withdrawals of capital accumulation products and a reduction of new
short-term borrowings. Cash was used to pay dividends of $110 million on common
stock and $1 million on redeemable preferred stock during six months 2000.
Aon's operating subsidiaries anticipate that there will be adequate liquidity to
meet their needs in the foreseeable future. Aon's liquidity needs are primarily
for servicing its debt and for the payment of dividends on stock issues and
capital securities. The businesses of Aon's operating subsidiaries continue to
provide substantial positive cash flow. Brokerage cash flow has been used
primarily for business reinvestment (i.e. rollout of the new U.S. retail
brokerage system, acquisition financing and payments of special charge and
- 18 -
<PAGE>
purchase accounting liabilities). Aon anticipates continuation of the company's
positive cash flow, the ability of the parent company to access adequate
short-term lines of credit, and sufficient cash flow in the long term.
Aon's fixed maturity investments are invested primarily in investment grade
holdings (97%) and have a fair value of $2.4 billion at June 30, 2000, which is
approximately 96% of amortized cost.
Total assets increased $963 million to $22.1 billion since year-end 1999.
Invested assets at June 30, 2000 decreased $49 million from year-end levels
primarily from the use of short-term investments to fund special charge payments
and to settle policyholder fund liabilities. The amortized cost and fair value
of less than investment grade fixed maturity investments were $109 million and
$100 million, respectively, at June 30, 2000. The carrying value of non-income
producing investments in Aon's portfolio at June 30, 2000 was $100 million, or
1.6% of total invested assets.
In general, Aon uses derivative financial instruments (primarily financial
futures, swaps, options and foreign exchange forwards) to: (a) hedge income
statement foreign currency translation and transaction risks and other business
risks (i.e. interest rate and credit risk); (b) hedge asset price risk
associated with financial instruments whose change in value is reported under
SFAS 115; and (c) manage its overall asset/liability duration match. As of June
30, 2000, Aon had open contracts, related to certain of the above, which had net
unrealized gains of approximately $1 million.
Short-term borrowings increased at the end of six months 2000 by $87 million
when compared to year-end 1999. The increase is primarily due to the financing
of acquisitions, in particular the completion of minority interest buyouts
associated with previous acquisitions. Notes payable increased at the end of six
months 2000 by $207 million when compared to year-end 1999. The principal factor
influencing this increase is the issuance of $250 million of 8.65% debt
securities due May 2005 (see note 5). Debt repayments partially offset the
increase in notes payable. Included in notes payable at June 30, 2000 is
approximately $22 million, which represents the principal amount of notes to be
paid within one year.
Stockholders' equity increased $36 million in six months 2000 to $12.10 per
share, an increase of $0.19 per share since year-end 1999. The principal factor
influencing this increase was net income. Partially offsetting this increase
were net foreign exchange losses of $80 million and dividends to stockholders of
$111 million. Unrealized investment gains and losses and foreign exchange gains
and losses fluctuations from period to period are largely based on market
conditions. These short-term non-cash fluctuations are not economical to hedge
completely.
REVIEW BY INDEPENDENT AUDITORS
------------------------------
The condensed consolidated financial statements at June 30, 2000 and for the
second quarter and six months then ended have been reviewed, prior to filing, by
Ernst & Young LLP, Aon's independent auditors, and their report is included
herein.
- 19 -
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors and Stockholders
Aon Corporation
We have reviewed the accompanying condensed consolidated statement of financial
position of Aon Corporation as of June 30, 2000, and the related condensed
consolidated statements of income for the three-month and six-month periods
ended June 30, 2000 and 1999, and the condensed consolidated statements of cash
flows for the six-month periods ended June 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated statement of financial position
of Aon Corporation as of December 31, 1999, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended, not presented herein, and in our report dated February 8, 2000, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated statement of financial position as of December 31, 1999, is fairly
stated, in all material respects, in relation to the consolidated statement of
financial position from which it has been derived.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Chicago, Illinois
August 10, 2000
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<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits filed with this report are listed on
the attached Exhibit Index.
(b) Reports on Form 8-K - The Registrant filed one Current Report
on Form 8-K dated May 9, 2000 for the quarter ended June 30,
2000. The following exhibits were included in the report: (1)
Exhibit 3 - Certificate of Amendment of Second Restated
Certificate of Incorporation; (2) Exhibit 12(a) - Statement
regarding Computation of Ratio of Earnings to Fixed Charges;
(3) Exhibit 12(b) - Statement regarding Computation of Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends; and (4) Exhibit 99 - Press Release regarding First
Quarter 2000 Earnings.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Aon Corporation
---------------
(Registrant)
August 11, 2000 /s/ Harvey N. Medvin
--------------------------------
HARVEY N. MEDVIN
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting
Officer)
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<PAGE>
Aon CORPORATION
---------------
Exhibit Number
In Regulation S-K
Item 601 Exhibit Table
----------------------
(10) Material Contracts.
(a) Aon Stock Award Plan (as amended and restated through
February, 2000).
(12) Statements regarding Computation of Ratios.
(a) Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
(b) Statement regarding Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
- 22 -
<PAGE>
