Aon Reports Fourth Quarter and Twelve Months 2004 Results
Chicago (ots/PRNewswire)
Aon Corporation (NYSE: AOC) today reported fourth quarter and twelve months 2004 results.
Net income per share for the fourth quarter was US$0.56 compared to US$0.65 in 2003. Net income from continuing operations was US$192 million or US$0.57 per share compared to US$216 million or US$0.65 per share a year ago.
For the twelve months, net income per share for 2004 and 2003 was US$1.95 and US$1.90, respectively. Net income from continuing operations increased to US$685 million from US$676 million for the twelve months and the related per share amount for both periods was US$2.04. An analysis of certain items that influenced current and prior period results is provided below.
During the quarter, the company completed the sale of its Cambridge Integrated Services claims business and the sale of virtually all of its common stock ownership in Endurance Specialty Holdings Ltd. In addition, the company recorded a US$50 million provision for potential settlements that could result from investigations by New York and other states. Of this amount, US$43 million was allocated to the Risk and Insurance Brokerage Services segment and the balance to the Consulting segment.
Patrick G. Ryan, Aon's Chairman and CEO, stated, "It remains a difficult environment in which to achieve meaningful revenue growth given industry pricing trends and our decision to terminate contingent commission agreements. Nevertheless, we are doing everything possible to capitalize on the opportunities which exist in this period of industry transition. In addition, we are doing a much better job of controlling operating expenses and investment spending."
Fourth Quarter and Twelve Months Segment Review
This press release contains references to organic revenue growth, a measure that management believes is important to evaluate changes in revenue from existing operations. Please see additional information below regarding this measure. Prior period segment results were reclassified in conjunction with certain non-core businesses being placed into discontinued operations.
Risk and Insurance Brokerage Services reported revenue was US$1.5 billion for both the current and prior year quarters, with organic revenue declining 1%. Contingent commission revenue was US$11 million in fourth quarter 2004 compared to US$46 million in fourth quarter 2003, reflecting the termination of these arrangements. Excluding contingent commission revenue, organic revenue growth in the current quarter was 2%.
In the fourth quarter, expenses were up 6%, essentially reflecting the impact of foreign exchange and the previously mentioned settlement provision. Pretax income for the quarter was US$173 million compared to US$239 million in 2003 and the pretax margin was 11.5% versus 16.1% a year ago.
For the full year, pretax income declined 9% to US$773 million, and the pretax margin declined 170 basis points to 13.5%.
Consulting revenue rose 4% to US$341 million during the quarter, with no organic revenue growth. Benefits, compensation, management and communications consulting achieved 2% organic revenue growth primarily from international operations, while outsourcing revenues declined 4% on an organic basis. Contingent commission revenue was US$4 million in fourth quarter 2004 compared to US$6 million in fourth quarter 2003, again reflecting the termination of these arrangements. Excluding contingent commission revenue, organic revenue growth in the current quarter was 1%.
Pretax income increased 2% in the quarter to US$48 million, and the pretax margin was 14.1% versus 14.3% in 2003. Improved results in outsourcing and international consulting and effective expense management partially offset the margin decline attributable to the settlement provision.
Twelve months pretax income rose 19% to US$131 million, and the pretax margin increased 120 basis points to 10.5%.
Insurance Underwriting revenue increased 6% to US$785 million, with segment organic revenue declining 1% during the quarter. Reported revenue in the quarter included a US$23 million increase due to reinsurance program changes for a specialty accident and health line. These changes had no impact on organic revenue growth or pretax income.
Pretax income rose to US$61 million from US$11 million in the quarter. Pretax margins were 7.8% for 2004 and 1.5% for 2003. Fourth quarter 2003 results in the select property and casualty portfolio included a US$45 million pretax loss from the run-off of National Program Services (NPS) business with no comparable amount in 2004.
Twelve months pretax income was US$254 million compared with US$196 million in 2003, and the pretax margin was 8.1% versus 6.8% a year ago. Full year 2003 results included a US$66 million pretax loss from the run-off of NPS business.
Corporate and Other segment revenue was US$61 million in the quarter compared to US$40 million in 2003. Fourth quarter 2004 results included a US$37 million pretax gain on the sale of Endurance common stock compared to Endurance equity earnings of US$18 million in 2003. Fourth quarter 2004 results also included a pretax gain of US$9 million related to the quarterly revaluation of Endurance warrants compared to a US$16 million gain in the prior year.
The pretax loss in the quarter was US$2 million compared with pretax income of US$61 million a year ago. Fourth quarter 2003 results included a US$60 million pretax World Trade Center (WTC) unusual credit. Interest expense in the quarter was higher principally due to the reclassification of the trust-preferred after-tax minority interest (as of first quarter 2004 under the adoption of FIN 46). Prior periods were not restated.
The pretax loss for twelve months was US$108 million compared to a loss of US$23 million in 2003, reflecting the performance of the company's investment in Endurance common stock and warrants, the gain on sale of Endurance stock as well as the full year effect of the trust preferred reclassification discussed above.
Discontinued Operations
The fourth quarter after-tax loss from discontinued operations was US$3 million (US$0.01 per share) in 2004 and US$1 million in 2003 which in each case is attributable to businesses discontinued in prior periods. Revenues pertaining to total discontinued operations were US$1 million and US$27 million in each of the comparable periods.
Effective Tax Rate
The effective tax rate on continuing operations for the full year 2004 was 34.8% compared to 36% reported in prior quarters. The lower rate is principally attributable to the difference between our tax basis and book basis in Cambridge.
Supplemental Information
The table below shows certain pretax items that influenced fourth quarter and full year results.
After netting the effect of currency hedges, the positive impact of foreign exchange was approximately US$0.04 per share for fourth quarter 2004 and US$0.05 per share in fourth quarter 2003.
Financial Condition
Total debt and preferred stock decreased US$31 million to US$2.2 billion at December 31, 2004 from December 31, 2003. Total debt and preferred stock as a percentage of total capital was reduced to 30% from 33% over the same period. Stockholders' equity increased to US$5.2 billion. Compared to September 30, 2004, total debt and preferred stock increased US$153 million.
In February 2005, Aon renewed its three-year U.S. commercial paper back-up facility in the amount of US$600 million as well as its EUR650 million credit facility. The three year and five year portions of the Euro facility were for EUR325 million each.
Approximately 94% of Aon's investment portfolio at quarter end was in short-term and fixed maturities. More than 96% of the fixed income securities were rated investment grade.
Other Item
In October 2004, the Financial Accounting Standards Board (FASB) ratified EITF No. 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share. EITF 04-8 requires that contingent convertible instruments be included in diluted earnings per share computations (if dilutive) regardless of whether the market price trigger has been met.
Aon's 3.5% convertible debt securities, which were issued in November 2002 and are due November 2012, are contingently convertible. Aon included the effect of the 3.5% convertible debt securities in its diluted per share calculation in the second and third quarters of 2004, as the closing price of Aon's common stock had exceeded the threshold for the requisite time period during the previous quarter. As required, Aon has adjusted for comparative purposes its diluted earnings per share for each quarter and year-to-date period in 2003, as well as for the first quarter, and the six and nine months of 2004. Diluted earnings per share as initially reported and as adjusted for the effect of EITF 04-8 are as follows:
2003 As Reported As Adjusted
---- ----------- -----------
First quarter US$0.48 US$0.46
Second quarter 0.46 0.45
Six months 0.94 0.91
Third quarter 0.36 0.35
Nine months 1.30 1.26
Fourth quarter 0.67 0.65
Twelve months 1.97 1.90
2004
First quarter 0.53 0.51
Second quarter 0.52 0.52
Six months 1.04 1.03
Third quarter 0.36 0.36
Nine months 1.40 1.39The Company will host an audio webcast on Wednesday, February 9 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. The company employs approximately 48,000 professionals in its 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 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 either historical or anticipated results, depending on a variety of factors. Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, resolution of pending regulatory investigations and related issues, including those related to compensation arrangements with underwriters, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, and the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure. 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 also 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 do not make identical adjustments.
Web site: http://www.aon.com
Contact:
Investors, Craig Streem, Corporate Vice President, Investor
Relations, +1-312-381-3983, or Media, Al Orendorff, Director of
Public Relations, +1-312-381-3153, both of Aon Corporation