CHICAGO, Feb. 9 /PRNewswire-FirstCall/ -- Aon Corporation today reported fourth quarter and full year 2005 results.
Net income was $224 million or $0.65 per share in the fourth quarter of 2005 and $81 million or $0.24 per share in 2004. Fourth quarter 2005 net income from continuing operations increased 97% to $144 million or $0.42 per share compared to $73 million or $0.22 per share a year ago.
Net income for the full year of $737 million increased 35% from the prior year, and earnings per share of $2.17 was up 33%. Full year 2005 net income from continuing operations increased to $642 million or $1.89 per share from $545 million or $1.63 per share in 2004.
Excluding certain items that influenced the fourth quarter and full year results (as detailed in the attached supplemental schedules), net income per share from continuing operations was $0.67 and $2.21 for the fourth quarter and twelve months 2005, respectively.
Greg Case, Aon's president and CEO, said, "Our fourth quarter operating results show strong underlying margin improvement. Americas Brokerage, led by our U.S. and Latin America Retail businesses, showed very solid organic growth, continuing a trend which emerged previously in 2005. Our Affinity business continues to make an important contribution to organic revenue growth, and we continue to take steps to strengthen that business. For each of our operating segments, 2005 marked a year of good progress toward realizing the full potential of our tremendous portfolio of businesses."
Restructuring Plan
The previously announced three-year restructuring plan is currently expected to result in cumulative pretax charges of $262 million, including employee termination and lease consolidation costs, asset impairments, and other costs associated with the restructuring. Annualized cost savings are now targeted at approximately $180 million by 2008. Certain aspects of the plan are not finalized, and actual total costs, the timing of the costs, and ultimate savings may vary from the estimates due to changes in the scope or assumptions underlying this plan. An analysis of restructuring related expenses by segment for the fourth quarter and full year 2005 is presented in the attached reconciliation of non-GAAP measures.
Below is a summary of third and fourth quarter 2005 restructuring costs and an estimate of restructuring and related expenses through the end of 2007 by type and by geographic region.
(millions) Actual Estimated
--------------------------------------------------
Third Fourth
By Type: Quarter Quarter Total Annual Annual
2005 2005 2005 2006 2007 Total
--------------------------------------------------
Workforce reduction $2 $ 114 $ 116 $ 33 $8 $ 157
Lease consolidation 15 5 20 31 6 57
Asset impairments 15 2 17 2 4 23
Other costs
associated with
restructuring 3 2 5 15 5 25
--------------------------------------------------
Total
restructuring
and related
expenses $ 35 $ 123 $ 158 $ 81 $ 23 $ 262
==================================================
(millions) United United Continent Rest
By Region: States Kingdom of Europe of World Total
--------------------------------------------------------
2005 (incurred) $28 $92 $ 30 $8 $ 158
2006 estimated 25 44 10 2 81
2007 estimated 12 11 - - 23
--------------------------------------------------------
Total incurred
and remaining
estimated $65 $ 147 $ 40 $ 10 $ 262
========================================================
Fourth Quarter and Twelve Months Segment Review
Risk and Insurance Brokerage Services fourth quarter revenue of $1.4 billion was essentially unchanged from the prior year, with 3% organic revenue growth. Contingent commission revenue reflecting amounts relating to arrangements in existence prior to October 1, 2004 was $4 million in the fourth quarter of 2005 and $11 million in fourth quarter 2004. Contingent commission revenue was $26 million and $111 million for the twelve months of 2005 and 2004, respectively.
Organic revenue in Brokerage-Americas rose 10%, primarily driven by the impact of new business in all geographic regions as well as in the Affinity business. Brokerage-International organic revenue declined 3%, with strong new business generation in Continental Europe offset by weaker revenue performance in the U.K. A 1% decline in Reinsurance organic growth reflected the impact of higher risk retention by clients and weaker pricing in the international markets, partially offset by new business in the Americas.
Fourth quarter pretax income increased to $134 million from $12 million in 2004, and the pretax margin improved to 9.3% from 0.8% a year ago. Excluding unusual items as detailed in the attached reconciliations of non-GAAP measures, the pretax margin improved to 17.4% in 2005 from 12.8% in 2004, driven by a 5% decline in expenses.
Twelve months pretax income increased 25% to $719 million and the pretax margin improved 280 basis points to 13.3% from 10.5%. Excluding certain unusual items, the brokerage pretax margin was 16.0% for 2005 and 13.6% for 2004.
Consulting revenue of $336 million declined 1% during the quarter on both a reported and an organic basis. Lost business and lower levels of new business in the U.S. contributed to a 4% decline in Outsourcing organic revenue. Contingent commission revenue was $2 million and $4 million in the fourth quarter of 2005 and 2004, and $6 million and $21 million for the twelve months of 2005 and 2004, respectively.
Fourth quarter pretax income increased 82% to $40 million, and the pretax margin was 11.9% for 2005 and 6.5% for 2004. A principal contributor to the year over year improvement was the impact of the provision for legal settlements in the fourth quarter of 2004. Twelve months pretax income increased 5% to $110 million and the pretax margin was 8.8% in 2005 compared to 8.4% in 2004.
Insurance Underwriting revenue was $756 million in the quarter, with segment organic revenue growth, which is based on written premiums and fees, of 9%. In the Accident & Health and Life business, organic revenue grew 10%, primarily driven by strong growth in the sales of a supplemental health product. Warranty, Credit and Property & Casualty organic revenue growth was 8% in the quarter.
Fourth quarter pretax income rose 30% to $79 million reflecting strong growth in sales of a supplemental health product, improved profitability in the specialty property and casualty business, and higher investment income. The pretax margin improved to 10.4% in 2005 from 7.8% in 2004. Twelve months pretax income increased 24% to $314 million and the pretax margin improved to 9.8% from 8.1% in 2004.
Corporate and Other segment revenue was $21 million in the quarter compared to $61 million in 2004. Fourth quarter 2004 results included a $37 million pretax gain on the sale of Endurance common stock.
The pretax loss in the Corporate and Other segment was $47 million compared with a loss of $2 million a year ago, principally driven by the gain on sale of Endurance common stock in 2004 and higher general expenses including restructuring costs in 2005.
The pretax loss for twelve months was $178 million compared to a pretax loss of $108 million a year ago, primarily reflecting the 2004 gain on sale of Endurance common stock, the impact of the Company's investment in Endurance common stock and warrants, and higher general expenses including 2005 restructuring costs.
Discontinued Operations
Fourth quarter after tax income from discontinued operations was $80 million ($0.23 per share) in 2005, primarily reflecting the gain on sale of Aon's U.S.-based wholesale broking operation, Swett & Crawford.
Effective Tax Rate and Earnings Repatriation
The effective tax rate for continuing operations was 30.1% for the fourth quarter of 2005 compared to 21.5% for the fourth quarter of 2004. The full year tax rates for 2005 and 2004 were 33.5% and 34.1%, respectively. The effective tax rate for the fourth quarter of 2005 reflects the favorable resolution of tax issues and lower effective state tax rates, partially offset by the impact of restructuring charges. In 2004, a one-time tax benefit resulting from the difference between Aon's tax and book basis in Cambridge (U.S. claims services business sold in 2004) reduced the effective tax rate.
In the fourth quarter of 2005, Aon repatriated $101 million of foreign earnings pursuant to the special tax incentives of the American Jobs Creation Act of 2004. The Company incurred $5 million ($0.01 per share) of tax expense in connection with the repatriated earnings.
Foreign Exchange Impact
Fourth quarter 2005 earnings per share were not affected by foreign currency translation. Fourth quarter 2005 and 2004 earnings per share included $0.02 and $0.05 of currency hedging gains, respectively.
Twelve months 2005 earnings per share were positively affected by $0.05 related to foreign currency translation gains. In addition, twelve months 2005 and 2004 earnings per share included $0.08 and $0.11 of currency hedging gains, respectively.
Financial Condition
Total debt and preferred stock decreased $55 million to $2.1 billion at December 31, 2005 from December 31, 2004. Total debt and preferred stock as a percentage of total capital was reduced to 28% from 30% over the same period. Stockholders' equity was $5.3 billion. Compared to September 30, 2005, total debt increased $225 million primarily reflecting an increase in funds borrowed by certain of the Company's foreign subsidiaries to offset earnings repatriated during the quarter.
During 2005, Aon made cash contributions of $463 million to its principal pension plans, including a $200 million contribution to the U.S. pension plan in the fourth quarter of 2005.
Approximately 94% of Aon's investment portfolio at quarter end was in short-term and fixed maturities, with 98% of the fixed income securities rated investment grade.
Stock Repurchase Program
During the fourth quarter of 2005, Aon completed the repurchase of 675,000 shares of common stock for $24.7 million under the existing $1 billion buyback authorization.
The Company will host an audio webcast on Friday, February 10 at 10:00 a.m. central time that can be accessed at http://www.aon.com/ .
Aon Corporation ( http://www.aon.com/ ) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 47,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.
This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future 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 either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, our ability to execute the stock repurchase program, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, changes in revenues and earnings due to the elimination of contingent commissions, other uncertainties surrounding a new compensation model, the impact of investigations brought by state attorneys general, state insurance regulators, federal prosecutors, and federal regulators, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, and ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, and the difference in ultimate paid claims in our underwriting companies from actuarial estimates. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission.
This press release includes supplemental information related to organic revenue growth, a measure that management believes is important to evaluate changes in revenue from existing operations. We believe that this supplemental information is helpful to investors. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses, unusual items, and for the underwriting segment only, an adjustment between written and earned premium. A reconciliation is provided in the attached schedules. The supplemental organic revenue growth information does not affect net income or any other GAAP reported amounts. It should be viewed in addition to, not in lieu of, the Company's Consolidated Summary of Operations. Industry peers provide similar supplemental information regarding their revenue performance, although they may not make identical adjustments.
This press release also includes supplemental information related to several measures -- income per share, expenses, and margins -- that exclude the effects of the restructuring charges and certain other noteworthy items that impacted revenue and pretax income in the comparable periods. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. The measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts. They should be viewed in addition to, not in lieu of, the Company's Consolidated Summary of Operations. Industry peers provide similar supplemental information regarding their performance.
Aon Corporation
Consolidated Summary of Operations
Fourth Quarter Ended Twelve Months Ended
-----------------------------------------------------
(millions except per
share data) Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent
2005 2004(1) Change 2005 2004(1) Change
-----------------------------------------------------
Revenue
Brokerage
commissions and
fees $1,725 $1,791 (4)% $6,646 $6,822 (3)%
Premiums and other 700 687 2 2,848 2,788 2
Investment income 105 122 (14) 343 321 7
-------- ------- ------ ------- ------- -----
Total revenue 2,530 2,600 (3) 9,837 9,931 (1)
-------- ------- ------ ------- ------- -----
Expenses
General expenses 1,849 1,855 - 6,914 6,969 (1)
Benefits to
policyholders 375 362 4 1,551 1,516 2
Depreciation and
amortization 68 75 (9) 277 303 (9)
Interest expense 31 35 (11) 125 136 (8)
Provision for
New York and
other state
settlements 1 180 (99) 5 180 (97)
-------- ------ ----- ------ ------ -----
Total expenses 2,324 2,507 (7) 8,872 9,104 (3)
-------- ------ ----- ------ ------ -----
Income from
continuing
operations before
provision for
income tax 206 93 122 965 827 17
Provision for
income tax (3) 62 20 210 323 282 15
---- ---- ----- ----- ----- ----
Income from
continuing
operations 144 73 97 642 545 18
Income from
discontinued
operations, net
of tax 80 8 +500 95 1 +500
-------- ---- ----- ----- ----- ------
Net income $224 $81 177% $737 $546 35%
======== ==== ===== ===== ===== ======
Preferred
stock
dividends - (1) N/A (2) (3) N/A
-------- ---- ----- ----- ----- ------
Net income
available for
common
stockholders $224 $80 180% $735 $543 35%
======== ==== ===== ===== ===== =======
Basic net income
per share:
Income from
continuing
operations $0.44 $0.23 91% $1.99 $1.70 17%
Discontinued
operations 0.25 0.02 +500 0.29 - N/A
------- ------- ------ ----- ----- ----
Net income $0.69 $0.25 176% $2.28 $1.70 34%
======= ======= ====== ===== ===== ====
Diluted net
income per
share:
Income from
continuing
operations $0.42 $0.22 91% $1.89 $1.63 16%
Discontinued
operations 0.23 0.02 +500 0.28 - N/A
------ ----- ----- ------ ------ -----
Net income $0.65 $0.24 171% $2.17 $1.63 33%
====== ===== ===== ====== ====== =====
Diluted average
common and
common equivalent
shares
outstanding (2) 347.5 336.4 341.5 336.6
====== ===== ====== ======
(1) Certain amounts relating to discontinued operations have been
reclassified to conform to the 2005 presentation.
(2) In accordance with EITF 04-08, the diluted net income per share
calculations for the fourth quarters and twelve months ended December
31, 2005 and 2004 include 14 million additional shares related to the
potential conversion of our 3.5% Senior Convertible Debentures.
In addition, the net income used in the calculation includes after-
tax interest expense of approximately $2 million for the fourth
quarters and $7 million for the twelve months ended December 31, 2005
and 2004.
(3) Tax rate is 30.1% and 21.5% for the fourth quarters ended December
31, 2005 and 2004, respectively, and 33.5% and 34.1% for the twelve
months ended December 31, 2005 and 2004, respectively.
Aon Corporation
Segments - Fourth Quarter Continuing Operations
Fourth Quarter Ended
-------------------------------------------------------
Organic
Less: Revenue
Acquisi- Growth
tions, Orga- with-
Divesti- nic out
Dec. Less: tures Less: Rev- Contin-
Dec. 31, Cur- & All enue gent
31, 2004 Percent rency Trans- Other Growth Comm-
2005 (1) Change Impact fers (2) (3) issions
------ ------ ------- ------ ------- ----- ------ -------
(millions)
Revenue
Risk and
insurance
brokerage
services
Risk
management
and
insurance
brokerage -
Americas $637 $560 14% 1% -% 3% 10% 9%
Risk
management
and
insurance
brokerage -
International 604 638 (5) (5) 2 1 (3) (1)
Reinsurance
brokerage and
related
services 193 199 (3) (1) - (1) (1) (1)
Claims services - 39 (100) - (100) - - -
------ ------ ------- ------ ------- ----- ------ -------
Total risk
and insurance
brokerage
services 1,434 1,436 - (2) (2) 1 3 3
------ ------ ------- ------ ------- ----- ------ -------
Consulting
Consulting
services 267 265 1 (2) 2 1 - -
Outsourcing 69 76 (9) (1) (2) (2) (4) (4)
------ ------ ------- ------ ------- ----- ------ -------
Total
consulting 336 341 (1) (2) 1 1 (1) (1)
------ ------ ------- ------ ------- ----- ------ -------
Insurance
underwriting
Accident &
health and
life 462 432 7 (1) - (2) 10 10
Warranty,
credit and
property &
casualty 294 353 (17) (2) - (23) 8 8
------ ------ ------- ------ ------- ----- ------ -------
Total
insurance
underwriting 756 785 (4) (1) - (12) 9 9
------ ------ ------- ------ ------- ----- ------ -------
Corporate and
other 21 61 (66) N/A N/A N/A N/A N/A
Intersegment
revenues (17) (23) N/A N/A N/A N/A N/A N/A
------ ------ ------- ------ ------- ----- ------ -------
Total $2,530 $2,600 (3)% (2)% (1)% (4)% 4% 4%
====== ====== ======= ====== ======= ===== ====== =======
Investment
income
(included in
Revenue above)
Risk and
insurance
brokerage
services $42 $26 62%
Consulting 1 1 -
Insurance
underwriting 41 34 21
Corporate and
other 21 61 (66)
------ ------ -------
Total $105 $122 (14)%
====== ====== =======
Income (loss)
from continuing
operations
before
provision for
income tax
Risk and
insurance
brokerage
services $134 $12 +500%
Consulting 40 22 82
Insurance
underwriting 79 61 30
Corporate and
other (47) (2) N/A
------ ------ -------
Total $206 $93 122%
====== ====== =======
Income from
continuing
operations
before
provision for
income tax -
margins
Risk and
insurance
brokerage
services 9.3% 0.8%
Consulting 11.9% 6.5%
Insurance
underwriting 10.4% 7.8%
Total 8.1% 3.6%
(1) Certain amounts relating to discontinued operations have been
reclassified to conform to the 2005 presentation.
(2) Includes the impact of investment income, reimbursable expenses,
adjustment between written and earned premium and fees in insurance
underwriting only, and unusual items.
(3) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers and items described in (2).
Written premiums and fees are the basis for organic revenue growth
within the Insurance Underwriting segment.
Aon Corporation
Segments - Year-to-date Continuing Operations
Twelve Months Ended
-------------------------------------------------------
Organic
Less: Revenue
Acquisi- Growth
tions, Orga- with-
Divesti- nic out
Dec. Less: tures Less: Rev- Contin-
Dec. 31, Cur- & All enue gent
31, 2004 Percent rency Trans- Other Growth Comm-
2005 (1) Change Impact fers (2) (3) issions
------ ------ ------- ------ ------- ----- ------ -------
(millions)
Revenue
Risk and
insurance
brokerage
services
Risk
management
and
insurance
brokerage -
Americas $2,172 $2,067 5% 1% -% 2% 2% 5%
Risk
management
and
insurance
brokerage -
International 2,383 2,357 1 1 2 - (2) (1)
Reinsurance
brokerage and
related
services 845 861 (2) 1 - 2 (5) (5)
Claims services - 212 (100) - (100) - - -
------ ------ ------- ------ ------- ----- ------ -------
Total risk
and
insurance
brokerage
services 5,400 5,497 (2) 1 (3) 1 (1) 1
------ ------ ------- ------ ------- ----- ------ -------
Consulting
Consulting
services 981 949 3 1 2 - - 2
Outsourcing 274 298 (8) - (2) 1 (7) (7)
------ ------ ------- ------ ------- ----- ------ -------
Total
consulting 1,255 1,247 1 - 1 2 (2) -
------ ------ ------- ------ ------- ----- ------ -------
Insurance
underwriting
Accident &
health and
life 1,805 1,721 5 1 - (1) 5 5
Warranty,
credit and
property &
casualty 1,383 1,429 (3) - - (2) (1) (1)
------ ------ ------- ------ ------- ----- ------ -------
Total
insurance
under-
writing 3,188 3,150 1 1 - (2) 2 2
------ ------ ------- ------ ------- ----- ------ -------
Corporate and
other 56 109 (49) N/A N/A N/A N/A N/A
Intersegment
revenues (62) (72) N/A N/A N/A N/A N/A N/A
------ ------ ------- ------ ------- ----- ------ -------
Total $9,837 $9,931 (1)% 1% (2)% -% -% 1%
====== ====== ======= ====== ======= ===== ====== =======
Investment
income
(included in
Revenue above)
Risk and
insurance
brokerage
services $129 $80 61%
Consulting 4 3 33
Insurance
underwriting 154 129 19
Corporate and
other 56 109 (49)
------ ------ -------
Total $343 $321 7%
====== ====== =======
Income (loss)
from continuing
operations
before
provision for
income tax
Risk and
insurance
brokerage
services $719 $576 25%
Consulting 110 105 5
Insurance
underwriting 314 254 24
Corporate and
other (178) (108) N/A
------ ------ -------
Total $965 $827 17%
====== ====== =======
Income from
continuing
operations
before
provision for
income tax -
margins
Risk and
insurance
brokerage
services 13.3% 10.5%
Consulting 8.8% 8.4%
Insurance
underwriting 9.8% 8.1%
Total 9.8% 8.3%
(1) Certain amounts relating to discontinued operations have been
reclassified to conform to the 2005 presentation.
(2) Includes the impact of investment income, reimbursable expenses,
adjustment between written and earned premium and fees in insurance
underwriting only, and unusual items.
(3) Organic revenue growth excludes the impact of foreign exchange,
acquisitions, divestitures, transfers and items described in (2).
Written premiums and fees are the basis for organic revenue growth
within the Insurance Underwriting segment.
Aon Corporation
Corporate and Other - Continuing Operations
Fourth Quarter Ended Twelve Months Ended
-------------------- -------------------
Dec. Dec. Dec. Dec.
31, 31, Percent 31, 31, Percent
(millions) 2005 2004 Change 2005 2004 Change
----- ---- ------- ---- ---- -------
Revenue
Income from marketable equity
securities and other
investments (1) $18 $13 38 % $44 $49 (10)%
Limited partnership
investments - - - 1 6 (83)
Net gain on disposals and
related expenses (2) 3 48 (94) 11 54 (80)
---- ---- ---- ---- ---- ----
Total revenue 21 61 (66) 56 109 (49)
Expenses
General expenses 37 28 32 109 81 35
Interest expense 31 35 (11) 125 136 (8)
---- ---- ---- --- --- ---
Total expenses 68 63 8 234 217 8
---- ---- ---- --- --- ---
Loss before income tax $(47) $(2) N/A % $(178) $(108) N/A %
==== ==== ==== === === ===
Notes:
Fourth Quarter
Ended Twelve Months Ended
------------------ -------------------
Dec. Dec. Dec. Dec.
31, 31, Percent 31, 31, Percent
2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
(1) Includes (millions):
Income from Endurance
warrants $8 $9 (11)% $10 $- N/A %
Equity earnings - Endurance - - - - 38 (100)
---- ---- ----- --- --- ------
Total $8 $9 (11)% $10 $38 (74)%
==== ==== ===== === === ======
(2) Includes gain on sale of
Endurance stock (millions) $- $37 (100)% $1 $48 (98)%
Aon Corporation
Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per
Share from Continuing Operations
Fourth Quarter and Twelve Months Ended December 31, 2005 and 2004
Fourth Quarter Ended Twelve Months Ended
-------------------- -------------------
Dec. Dec. Dec. Dec.
31, 31, Percent 31, 31, Percent
(millions except per share data) 2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------
Diluted earnings per share from
continuing operations - as
reported $0.42 $0.22 91 % $1.89 $1.63 16 %
After tax earnings per share
adjustments:
Provision for Daniel & NY and
other state settlements - 0.42 0.01 0.42
Restructuring charges 0.25 - 0.31 -
Gain on sale of Cambridge - (0.12) - (0.12)
Gain on sale of Endurance
common stock - (0.07) - (0.09)
Endurance common stock equity
earnings - - - (0.07)
----- ----- ----- ------
Total after tax earnings per
share adjustments 0.25 0.23 0.32 0.14
----- ----- ----- ------
Diluted earnings per share from
continuing operations - as
adjusted $0.67 $0.45 49 % $2.21 $1.77 25 %
===== ===== ===== ===== ===== ====
Diluted average common and common
equivalent shares outstanding 347.5 336.4 341.5 336.6
===== ===== ===== =====
Aon Corporation
Reconciliation of Non-GAAP Measures - Segments
Fourth Quarter and Twelve Months Ended December 31, 2005 and 2004 (1)
Fourth Quarter Ended December 31,
2005
---------------------------------
(millions)
Risk and Insur-
Insurance ance
Brokerage Consult- Under- Corporate
Services ing writing & Other Total
--------- ------- ------- --------- -----
Revenue as reported $1,434 $336 $756 $4 $2,530
Gain on sale of Endurance
common stock - - - - -
--------- ------- ------- -------- ------
Revenue as adjusted $1,434 $336 $756 $4 $2,530
========= ======= ======= ======== ======
Income (loss) from continuing
operations before
provision for income tax
- as reported $134 $40 $79 $(47) $206
Provision for Daniel & NY
and other state settlements 1 - - - 1
Restructuring charges 114 4 3 2 123
Gain on sale of Endurance common
stock - - - - -
------ ------ ------ ------ ------
Income (loss) from continuing
operations before
provision for income tax - as
adjusted $249 $44 $82 $(45) $330
======= ====== ====== ====== ======
Income from continuing
operations before
provision for income
tax - margins as
adjusted 17.4% 13.1% 10.8% N/A 13.0%
====== ====== ====== ====== =======
Twelve Months Ended December 31, 2005
-------------------------------------
(millions)
Risk and Insur-
Insurance ance
Brokerage Consult- Under- Corporate
Services ing writing & Other Total
-------- -------- -------- -------- ------
Revenue as reported $5,400 $1,255 $3,188 $(6) $9,837
Gain on sale of Endurance
common stock - - - (1) (1)
-------- ------ ------ ----- ------
Revenue as adjusted $5,400 $1,255 $3,188 $(7) $9,836
======== ====== ====== ===== ======
Income (loss) from continuing
operations before
provision for income tax - as
reported $719 $110 $314 $(178) $965
Provision for Daniel & NY and
other state settlements 4 1 - - 5
Restructuring charges 143 8 3 4 158
Gain on sale of Endurance common
stock - - - (1) (1)
----- ------- ------ ------ --------
Income (loss) from continuing
operations before
provision for income tax - as
adjusted $866 $119 $317 $(175) $1,127
===== ======= ====== ====== ========
Income from continuing
operations before
provision for income tax
- margins as adjusted 16.0% 9.5% 9.9% N/A 11.5%
===== ======= ====== ====== =========
Fourth Quarter Ended December 31, 2004
--------------------------------------
(millions)
Risk and Insur-
Insurance ance
Brokerage Consult- Under- Corporate
Services ing writing & Other Total
--------- ------- ------- --------- -----
Revenue as reported $1,436 $341 $785 $38 $2,600
Endurance common stock
equity earnings - - - - -
Gain on sale of Endurance
common stock - - - (37) (37)
------- ------ ----- ----- -------
Revenue as adjusted $1,436 $341 $785 $1 $2,563
======= ====== ===== ===== =======
Income (loss) from
continuing operations before
provision for income tax -
as reported $12 $22 $61 $(2) $93
Provision for Daniel & NY
and other state settlements 187 33 - - 220
Gain on sale of Cambridge (15) - - - (15)
Gain on sale of Endurance
common stock - - - (37) (37)
Endurance common stock equity
earnings - - - - -
------ ----- ----- ----- ------
Income (loss) from continuing
operations before provision
for income tax - as adjusted $184 $55 $61 $(39) $261
====== ===== ===== ===== ======
Income from continuing
operations before
provision for income tax
- margins as adjusted 12.8% 16.1% 7.8% N/A 10.2%
====== ===== ==== ===== ======
Twelve Months Ended December 31, 2004
-------------------------------------
(millions)
Risk and Insur-
Insurance ance
Brokerage Consult- Under- Corporate
Services ing writing & Other Total
--------- ------- ------- --------- -----
Revenue as reported $5,497 $1,247 $3,150 $37 $9,931
Endurance common stock
equity earnings - - - (38) (38)
Gain on sale of Endurance
common stock - - - (48) (48)
-------- ------- ------- -------- -------
Revenue as adjusted $5,497 $1,247 $3,150 $(49) $9,845
======== ======= ======= ======== =======
Income (loss) from
continuing operations before
provision for income tax -
as reported $576 $105 $254 $(108) $827
Provision for Daniel & NY
and other state settlements 187 33 - - 220
Gain on sale of Cambridge (15) - - - (15)
Gain on sale of Endurance
common stock - - - (48) (48)
Endurance common stock
equity earnings - - - (38) (38)
------- ------ ---- ----- ------
Income (loss) from continuing
operations before provision
for income tax - as adjusted $748 $138 $254 $(194) $946
======= ====== ==== ====== ======
Income from continuing
operations before
provision for income tax
- margins as adjusted 13.6% 11.1% 8.1% N/A 9.6%
======= ====== ===== ==== =====
(1) Several noteworthy items impacted revenue and pretax income in 2005
and 2004, which are described in this schedule. The pretax income
(loss) amounts and related margins shown in the captions "Income
(loss) from continuing operations before provision for income tax -
as adjusted" are non-GAAP measures.
Aon Corporation
Consolidated Summary of Operations - Reclassified for Discontinued
Operations
2004 2005
---------------------------------------------------------------------
(millions
except
per share
data) 1st 2nd 3rd 4th Full 1st 2nd 3rd Nine
Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Months
---------------------------------------------------------------------
Revenue
-------
Brokerage
commissions
and
fees $1,739 $1,691 $1,601 $1,791 $6,822 $1,675 $1,664 $1,582 $4,921
Premiums
and
other 692 716 693 687 2,788 698 718 732 2,148
Investment
income 80 69 50 122 321 91 74 73 238
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
revenue 2,511 2,476 2,344 2,600 9,931 2,464 2,456 2,387 7,307
------ ------ ------ ------ ------ ------ ------ ------ ------
Expenses
--------
General
expen-
ses 1,725 1,707 1,682 1,855 6,969 1,659 1,711 1,695 5,065
Benefits
to policy-
holders 383 392 379 362 1,516 393 381 402 1,176
Depreciation
& amort-
ization 69 82 77 75 303 67 62 80 209
Interest
expense 34 35 32 35 136 34 31 29 94
Provision
for New
York and
other
state
settle-
ments - - - 180 180 1 2 1 4
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
expen-
ses 2,211 2,216 2,170 2,507 9,104 2,154 2,187 2,207 6,548
------ ------ ------ ------ ------ ------ ------ ------ ------
Income
from
continuing
operations
before
provision
for income
tax 300 260 174 93 827 310 269 180 759
Provision
for
income
tax 107 93 62 20 282 112 89 60 261
------ ------ ------ ------ ------ ------ ------ ------ ------
Income
from
continuing
oper-
ations 193 167 112 73 545 198 180 120 498
Income
(loss)
from
discontinued
operations,
net of
tax (23) 6 10 8 1 2 11 2 15
------ ------ ------ ------ ------ ------ ------ ------ ------
Net
income $170 $173 $122 $81 $546 $200 $191 $122 $513
====== ====== ====== ====== ====== ====== ====== ====== ======
Preferred
stock
divi-
dends (1) - (1) (1) (3) (1) - (1) (2)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net
income
available
for
common
stock-
holders $169 $173 $121 $80 $543 $199 $191 $121 $511
====== ====== ====== ====== ====== ====== ====== ====== ======
Basic
net
income
per share:
Income
from
continuing
operat-
ions $0.60 $0.52 $0.35 $0.23 $1.70 $0.61 $0.56 $0.36 $1.54
Discontinued
operat-
ions (0.07) 0.02 0.03 0.02 - 0.01 0.03 0.01 0.05
------ ------ ------ ------ ------ ------ ------ ------ ------
Net in-
come $0.53 $0.54 $0.38 $0.25 $1.70 $0.62 $0.59 $0.37 $1.59
====== ====== ====== ====== ====== ====== ====== ====== ======
Dilutive net
income
per
share:
Income
from
continuing
operat-
ions $0.58 $0.50 $0.33 $0.22 $1.63 $0.58 $0.54 $0.35 1.48
Discontinued
operat-
ions (0.07) 0.02 0.03 0.02 - 0.01 0.03 0.01 0.04
------ ------ ------ ------ ------ ------ ------ ------ ------
Net in-
come $0.51 $0.52 $0.36 $0.24 $1.63 $0.59 $0.57 $0.36 1.52
====== ====== ====== ====== ====== ====== ====== ====== ======
Dilutive
average
common
and common
equivalent
shares out-
stand-
ing 335.3 337.1 337.4 336.4 336.6 337.1 338.5 342.7 339.4
====== ====== ====== ====== ====== ====== ====== ====== ======
Note: The above information represents the reclassification to
discontinued operations of the results of a non-core brokerage
operation in Australia.
Aon Corporation
Segments - Reclassification for Discontinued Operations
2004 2005
---------------------------------------------------------------------
(millions)
1st 2nd 3rd 4th Full 1st 2nd 3rd Nine
Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Months
---------------------------------------------------------------------
Revenue
-------
Risk and
insurance
brokerage
services
As report-
ed $1,413 $1,366 $1,289 $1,442 $5,510 $1,354 $1,336 $1,283 $3,973
Less:
reclass-
ification
to dis-
continued
operat-
ions (2) (2) (3) (6) (13) (2) (2) (3) (7)
------ ------ ------ ------ ------ ------ ------ ------ ------
As re-
classifi-
ed 1,411 1,364 1,286 1,436 5,497 1,352 1,334 1,280 3,966
------ ------ ------ ------ ------ ------ ------ ------ ------
Consult-
ing 301 305 300 341 1,247 309 315 295 919
Insur-
ance
under-
writ-
ing 781 805 779 785 3,150 789 816 827 2,432
Corporate
and
other 36 18 (6) 61 109 29 6 - 35
Inter-
segment
reven-
ues (18) (16) (15) (23) (72) (15) (15) (15) (45)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $2,511 $2,476 $2,344 $2,600 $9,931 $2,464 $2,456 $2,387 $7,307
====== ====== ====== ====== ====== ====== ====== ====== ======
Income (Loss)
Before Income
Tax
--------------
Risk and
insurance
brokerage
services
As report-
ed $243 $191 $131 $15 $580 $240 $208 $138 $586
Less: reclass-
ification
to discontin-
ued oper-
ations - - (1) (3) (4) - - (1) (1)
------ ------ ------ ------ ------ ------ ------ ------ ------
As re-
classif-
ied 243 191 130 12 576 240 208 137 585
------ ------ ------ ------ ------ ------ ------ ------ ------
Consult-
ing 26 28 29 22 105 26 29 15 70
Insurance
under-
writing 53 73 67 61 254 68 83 84 235
Corporate
and
other (22) (32) (52) (2) (108) (24) (51) (56) (131)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total $300 $260 $174 $93 $827 $310 $269 $180 $759
====== ====== ====== ====== ====== ====== ====== ====== ======
Income from
continuing
operations
before income
tax - margins
--------------
Risk and
insurance
brokerage
services
As report-
ed 17.2% 14.0% 10.2% 1.0% 10.5% 17.7% 15.6% 10.8% 14.7%
As re-
classifi-
ed 17.2% 14.0% 10.1% 0.8% 10.5% 17.8% 15.6% 10.7% 14.8%
Consult-
ing 8.6% 9.2% 9.7% 6.5% 8.4% 8.4% 9.2% 5.1% 7.6%
Insurance
under-
writ-
ing 6.8% 9.1% 8.6% 7.8% 8.1% 8.6% 10.2% 10.2% 9.7%
Total
As
report-
ed 11.9% 10.5% 7.5% 3.7% 8.4% 12.6% 10.9% 7.6% 10.4%
As re-
classifi-
ed 11.9% 10.5% 7.4% 3.6% 8.3% 12.6% 11.0% 7.5% 10.4%
Note: The above information represents the reclassification to
discontinued operations of the results of a non-core brokerage
operation in Australia.
Aon Corporation
Preliminary Consolidated Statements of Financial Position
As of
----------------------------
(billions) Dec. 31, 2005 Dec. 31, 2004
------------- -------------
(Unaudited)
ASSETS
Investments
Fixed maturities at fair value $ 4.2 $ 3.5
Short-term investments 4.3 4.4
Other investments 0.6 0.5
------ ------
Total investments 9.1 8.4
Cash 0.5 0.6
Receivables 9.7 9.9
Deferred Policy Acquisition Costs 1.2 1.1
Goodwill 4.4 4.6
Other Intangible Assets 0.1 0.1
Property and Equipment, net 0.5 0.7
Other Assets 2.3 2.9
------ ------
TOTAL ASSETS $ 27.8 $ 28.3
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance Premiums Payable $ 9.4 $ 9.8
Policy Liabilities
Future policy benefits 1.7 1.5
Policy and contract claims 1.8 1.9
Unearned and advance premiums and contract fees 3.0 3.0
------ ------
Total Policy Liabilities 6.5 6.4
General Liabilities
General expenses 1.7 1.6
Notes payable 2.1 2.1
Pension, post-employment and
post-retirement liabilities 1.5 1.5
Other liabilities 1.3 1.8
------ ------
TOTAL LIABILITIES 22.5 23.2
Commitments and Contingent Liabilities
Stockholders' Equity 5.3 5.1
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27.8 $ 28.3
====== ======
Investor Contact: Craig Streem
Corporate Vice President, Investor Relations
312-381-3983
Media Contact: Al Orendorff
Director, Public Relations
312-381-3153
First Call Analyst:
FCMN Contact: elena_sioson@aon.com
