Aon Restates Earnings On Stock Option Error

Aon Corp. insurance brokerage said in a Securities and Exchange Commission filing yesterday that it will restate earnings for the past four years after an internal review of stock options found that they were recorded incorrectly.

The company said no improper backdating was involved. Aon said compensation expenses for 2006 and 2005 would be increased by $2 million and $3 million, respectively, as a result of the restatement.

The Chicago-based firm said that while corrected compensation is not material to any reporting period, the aggregate impact for the years 1994 to 2006 “is considered sufficiently material to warrant restatement.”

According to the filing, Aon said an audit committee reviewed stock option grants from 1994 to 2006 and determined that the incorrect measurement dates were used for accounting purposes.

Aon said the problem occurred when stocks were issued to operating units for dispersal to individuals. When issued, the awards were dated on the date they were given to the operating units, not the day they were awarded to the individual. There were also incidents of accounting errors where the date of a verbal contract agreement was used instead of the actual issuance date of the stock option.

No misconduct by current or former managers or directors was found in the review. The review did find “a limited number of instances” where option grants were back-dated “to honor employment or other previously made contractual commitments.” The grants were not granted for pricing considerations, the filing said.

The cumulative impact of this action from 1994 to 2006 amounts to $66 million pretax and $43 million after tax, Aon said.

For 2006, Aon reported revenues of $8.9 billion and net income of $720 million.

A spokesman for the SEC said he could not comment on what, if any action the commission could or would take, or if any action was warranted.