Aon Corp. shares dropped 30 percent Aug. 7 after the broker posted lower-than- expected second-quarter results and announced the possible impact of its accounting talks with the Securities and Exchange Commission.
The Chicago-based company also announced it was delaying the pending spin- off of its insurance underwriting operations, Combined Specialty Group Inc., citing current market conditions.
For the second quarter, Aon broke even, compared with net income of $29 million, or 11 cents a share, a year earlier.
Revenue climbed 11 percent to $2.12 billion from $1.92 billion a year earlier. The latest results included a charge of $3 million, or a penny a share, for spin-off costs and a gain of $6 million, or a penny a share, related to its business transformation plan. Aon in the latest quarter also recorded a pretax adjustment of $56 million, or 13 cents a share, in its non-operating corporate and other segment revenue.
The company has been working with the Securities and Exchange Commission regarding a comment letter regarding its annual financial report and first-quarter report as well as a Form 10 filing for the spin-off of its Combined Specialty Group unit.
Although Aon said it hasn’t reached an agreement to date on all the questions raised by the SEC, the adjustment reflects the non-cash cumulative pretax earnings impact of other than temporary impairment losses for certain investments for the years ended 1999 and 2000, and for the first quarter ended March 31.
Based on its talks with the SEC, Aon said it has determined that certain non- cash, other-than-temporary losses should have been recorded in previous periods. The company believes the impact wouldn’t be material and recorded it in the present period. Aon, however, said the SEC could challenge this treatment and may require it to amend prior-year results to reflect the adjustment. The reduction to pretax earnings would be $27 million, or six cents a share, in 1999; $24 million, or six cents a share, in 2000; and $5 million, or a penny a share, in the first quarter of 2002.
Aon said it expects 2002 earnings to exceed $1.80 a share, excluding items. The company said it is delaying the proposed spin-off of its Combined Specialty Group operations and is looking at other alternatives, including a possible sale or partial spin-off.