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): April 20, 2001
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Aon Corporation
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 1-7933 36-3051915
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
123 N. Wacker Drive, Chicago, Illinois 60606
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (312) 701-3000
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
On April 20, 2001, Aon Corporation (the "Company") issued a press
release announcing that the Company's board of directors approved, in principle,
a plan to spin off its underwriting businesses to its common stockholders,
creating two independent, publicly traded companies. The spin-off would take the
form of a tax-free stock dividend to the Company's common stockholders, pending
a favorable Internal Revenue Service ("IRS") ruling. The transaction requires
final board approval, subject to the favorable IRS ruling, and insurance
regulatory approvals.
The Company also announced estimated first quarter results and
reported that its previously announced business transformation plan remains on
target to achieve the financial goals it outlined in November 2000. In addition,
the Company announced that its board of directors voted to increase the
quarterly cash dividend to $0.225 per share of common stock from $0.22 per
share.
A copy of the press release is being filed as an exhibit hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) - (b) Not applicable.
(c) Exhibits:
Exhibit
Number Description of Exhibit
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99 Press release issued by the Company on April 20, 2001.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
AON CORPORATION
Date: April 24, 2001 By: /s/ Harvey N. Medvin
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Name: Harvey N. Medvin
Title: Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
The following is a list of the exhibits filed herewith.
Exhibit
Number Description of Exhibit
99 Press release issued by the Company on April 20, 2001.
Exhibit 99
AON PLANS SPIN-OFF OF UNDERWRITING OPERATIONS TO STOCKHOLDERS;
BUSINESS TRANSFORMATION ON TRACK;
QUARTERLY CASH DIVIDEND INCREASED FOR 50TH CONSECUTIVE YEAR;
SOLID PERFORMANCE FROM AGGREGATE OPERATING SEGMENTS;
CORPORATE SEGMENT REVENUE DOWN DUE TO EQUITY MARKET DECLINES
CHICAGO, April 20, 2001 - Aon Corporation (NYSE:AOC) announced today that its
Board of Directors has approved, in principle, a plan to spin-off its
underwriting businesses to its common stockholders, creating two independent,
publicly traded companies. The spin-off would take the form of a tax-free stock
dividend to Aon's common stockholders, pending a favorable Internal Revenue
Service (IRS) ruling. The transaction requires final Board approval, subject to
the favorable IRS ruling, and certain insurance regulatory approvals.
Aon also reported that the business transformation plan previously announced in
November 2000 is on track and operating segment pretax income in the aggregate
increased by approximately 7 percent before special charges in the first
quarter. "Our combined operating segments posted solid results for the quarter,"
Aon Chairman and Chief Executive Officer Patrick G. Ryan said. "Equity market
volatility negatively impacted our non-operating corporate segment revenue,
however, due primarily to limited partnership valuation declines."
Corporate segment revenue, derived primarily from limited partnership
investments, declined to approximately negative $85 million for the first
quarter versus a positive $30 million in the first quarter last year. This
represents a $115 million unfavorable year-over-year comparison equaling $0.26
per share.
The Company also announced that the quarterly cash dividend has been increased
to $0.225 marking the 50th consecutive year of increases.
SPIN-OFF OF UNDERWRITING OPERATIONS
"The spin-off of our underwriting businesses is the next logical step in Aon's
evolution as a client-centric company," Ryan said. "Through Aon's leadership,
the major consolidation phase of the global insurance brokerage industry is now
complete. The successful implementation of our business transformation program
will result in greater efficiency, enhanced productivity and better service. Now
we will seek to accelerate the growth of our key businesses by allowing each to
focus directly on its core client base. Once separate, each of the two companies
will be better able to pursue new business opportunities unhindered by potential
conflicts resulting from being under one holding company."
Patrick G. Ryan will remain chairman and CEO of Aon Corporation and Michael D.
O'Halleran will continue as president and chief operating officer. Richard
Ravin, who is currently chairman of Aon's Combined Insurance Company of America
subsidiary, will be president and CEO of the new holding company to be named
Combined Specialty Corporation. David Cole, now president and CEO of Aon's
Virginia Surety Company, will be vice chairman and COO. He will also be
chairman, president and CEO of the new holding company's specialty casualty
subsidiary, to be named Combined Specialty P&C. Ryan will also serve as
non-executive chairman of Combined Specialty Corporation.
"Richard and David are proven leaders of specialty underwriting companies and
collectively bring over 60 years of insurance experience to the new company,
along with a vision for building a world-class organization," Ryan said.
Aon's underwriting businesses currently operate through five major subsidiaries:
Combined Insurance Company of America, Combined Life Insurance Company of New
York, Virginia Surety Company, Inc., London General Insurance Company Limited,
and Aon Warranty Group, Inc. These subsidiaries now carry and will continue to
carry virtually all of Aon's fixed maturity investments (95 percent of which are
investment grade) and equity security investments (including limited
partnerships) on their balance sheets. These subsidiaries will be part of the
new Combined Specialty Corporation. Combined Specialty would have minimal
goodwill but would be allocated a portion of Aon's interest expense and
corporate general expenses. Combined Specialty's total assets are expected to
exceed $7 billion. Post spin-off, Aon would have an investment portfolio
comprised predominantly of short-term investment securities related to its
brokerage and consulting operations. Aon would retain virtually all of its
accounting goodwill. Although the Company has not yet finalized decisions on the
capital structures of the post spin-off companies, the intention is to establish
capital structures for each company necessary to maintain current ratings.
Combined Specialty is expected to focus on its core accident and health and
warranty lines and to gradually reintroduce specialty property and casualty
products. Aon had previously issued policies in the specialty property and
casualty lines through 1996 when the Company took a decisive strategic step to
sell its life insurance companies (Union Fidelity Life Insurance Co. and Life
Insurance Co. of Virginia) and to expand its brokerage business. These steps
necessitated putting the specialty property and casualty business into run-off
to avoid any conflicts with the expanding brokerage operations. Since 1996,
Aon's underwriting subsidiaries have focused almost solely on accident and
health and warranty business. Creating a separate company through the spin-off
of Aon's underwriting operations would allow Combined Specialty to seek business
through additional brokerage distribution channels beyond Aon. Additional
opportunities also exist to grow niche affinity and international business.
Combined Specialty will be able to market specialty property and casualty
policies that would otherwise be in conflict with Aon's insurance brokerage
operations.
Aon's underwriting subsidiaries have a solid record of strong balance sheets,
consistent profitability and cash flow. After the spin-off, each underwriting
subsidiary is expected to maintain its strong independent claims paying ratings
for the protection of its policyholders.
"The need to fund the growth of brokerage and consulting operations through
internally generated cash flow from our underwriting segment has greatly
diminished. Now, new opportunities that are achieved by focusing as independent
companies with unique client bases, selling strategies and products and services
have become more compelling," Ryan said.
Underwriting primarily serves individual consumers, automobile dealers and
retailers, with a network of professional career agents who sell insurance and
warranty protection. Insurance
brokerage and consulting professionals provide advice, fulfillment and
outsourcing solutions in the complex areas of risk management and human capital
management that concentrate on large-to-medium-sized companies.
The spin-off is expected to be finalized by the end of 2001. At the time of the
spin-off, Aon stockholders will initially have the same proportionate ownership
in the two independent companies represented by shares of Aon Corporation and
the new Combined Specialty Corporation.
"Our industry-leading brokerage and consulting businesses have the scale to grow
independently while our underwriting business can use its internally generated
cash flow to invest in new specialty casualty products where it has proven
expertise," Ryan said. "Spinning off our underwriting operation will minimize
the potential for conflict with our brokerage and consulting clients. Under
independent leadership, the new holding company can expand specialty casualty
underwriting and seek new business through brokerage distribution channels
around the world. The separation also has the added benefit of aligning
employees' long-term incentive compensation with the valuation of each
respective company," he added.
BUSINESS TRANSFORMATION PLAN
Aon also said today that its business transformation plan remains on target to
achieve the financial goals it outlined in November 2000. As previously
announced, annual savings from the plan are projected to be between $150 million
to $200 million. The majority of the annualized savings will begin to be
realized starting in fourth quarter 2001. Total pretax costs related to the
business transformation were estimated to be between $250 million and $325
million. The majority of these costs will be recorded as a special charge over
three consecutive quarters that began with the fourth quarter 2000 which
included an $82 million pretax charge. For first quarter 2001, business
transformation related charges are estimated to be approximately $70 million
pretax.
In U.S. retail brokerage, the conversion from a geographic model to a more
client-focused organizational structure is well underway. Decisions have been
made on the location of the four major U.S. retail brokerage processing centers
- - New York City, Los Angeles, Houston and Glenview, Illinois - and the migration
process for certain client service functions to these centers has been
initiated. The policy management and accounting system that is the foundation
for much of the transformation has been fully populated with client information
and has been further upgraded to provide even greater functionality. Central
U.S. processing locations have also been identified and announced for other
groups: affinity, wholesale, managing underwriting, claims services, premium
accounting, and broad market personal lines.
The Company has initiated the rollout process of its proprietary policy
management and accounting system applications from the U.S. to the U.K. and
Canada. Significant steps have also been taken to begin to better leverage Aon's
e-commerce and technology platforms. Aon will have a common global platform with
local applications.
"We are on target to achieve the benefits of our business transformation:
expanded growth as well as cost savings from improved technologies, business
processes and organizational
structures," Ryan said. "We believe more benefits for both our clients and our
stockholders will be achieved as we continue to implement the transformation
plan."
FIRST QUARTER OUTLOOK
Aon also said today that total pretax income from its operating segments -
insurance brokerage, consulting and underwriting - are estimated to increase
approximately 7 percent from $266 million in first quarter 2000 before special
charges. "Organic revenue growth for brokerage and consulting increased
approximately 8 percent for the quarter," Ryan stated. During the quarter,
premium rates continued to rise across all major property and casualty lines.
Consulting had continued strong results and the underwriting segment that
includes warranty is expected to perform in line with the first quarter last
year. Warranty incurred higher losses than expected in the quarter due to
unusual claims activity for an isolated program that has been terminated and
will not impact future quarters.
The non-operating corporate segment has experienced significant non-cash
valuation declines in the equity portfolio related primarily to investments in
limited partnerships accounted for on the equity method. First quarter corporate
segment revenue, the majority of which is comprised of revenue from our limited
partnership portfolio, is estimated to be negative $85 million compared with a
positive $30 million in first quarter 2000 - a difference of $115 million or
$0.26 per share. This decline is largely due to valuation changes. The long-term
history of Aon's limited partnership investments is that they have outperformed
other investments. These investments are well diversified by industry type, and
the majority of these investments are in buyout equity partnerships. Aon's full
first quarter earnings will be released on May 3, 2001.
FULL YEAR 2001 OUTLOOK
"We continue to believe that Aon's combined operating segments - brokerage,
consulting and underwriting - will achieve double-digit pretax income growth in
2001," Ryan said. "However, given the decline of the equity markets, Aon may not
be able to achieve double-digit consolidated earnings per share growth before
special charges in 2001 compared with 2000."
DIVIDEND INCREASE ANNOUNCED
Aon said today its Board of Directors voted to increase its quarterly cash
dividend to $0.225 per common share from $0.22. This marks the 50th consecutive
year in which Aon has increased its quarterly cash dividend. The cash dividend
will be payable on May 16, 2001 to stockholders of record at the close of
business on May 3, 2001.
While the respective Boards of each company will determine their own cash
dividend policy post-spinoff, at this time it is expected that the initial
combined cash dividends of the two companies would be at the level of Aon's
current cash dividend.
ANNUAL MEETING AND INVESTMENT ANALYST WEBCAST - 10:00 AM (CDT)
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Aon Corporation Chairman and CEO Patrick G. Ryan will host the Company's annual
stockholders' meeting today, April 20, 2001, at 10:00 AM (CDT) and will cover
all of the topics in this press release. The presentation and questions by
stockholders attending the meeting in
Chicago can be listened to via a live webcast by going to Aon's website at
www.aon.com. This webcast will be in listen only mode. A Windows Media Player is
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required to listen to this webcast.
POST MEETING INVESTMENT ANALYST Q&A WEBCAST - 1:30 PM (CDT)
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At 1:30 PM (CDT), following the stockholders' meeting, Mr. Ryan and other
members of Aon's senior management team will host a webcast to answer questions
from institutional investors and financial analysts. We recommend that
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investment analysts and investors listen to the 10 a.m. webcast since the
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presentation addressing this press release will not be repeated at 1:30 p.m. All
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investors and other interested parties are also invited to listen. Both the
annual meeting and the question and answer session webcasts will be archived for
two weeks. In the U.S. and Canada, the annual meeting is available for replay at
800-839-4225 and the question and answer session is available at 888-568-0542.
Outside the U.S. and Canada, the number for the annual meeting is 402-998-1204
and the question and answer session replay can be heard at 402-998-1512.
Aon Corporation (www.aon.com) is a holding company that is comprised of a family
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of insurance brokerage, consulting and insurance underwriting subsidiaries.
Aon's common stock is listed on the New York, Chicago, Frankfurt and London
stock exchanges.
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, the actual cost savings and other benefits resulting
therefrom, whether the Company ultimately implements the proposed spin-off of
its underwriting operations, and the timing and terms associated therewith.
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.
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Contacts: Sean O'Neill
Vice President Financial Relations
312-701-3983
Robert Rosholt
Executive Vice President - Media
312-701-3092