-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VBZmdimVfEDvNhFxs83Xd2WgPsRcGk7rryFvWjB8dOeW+PgTe4EtfdCW/a80kUKA Bp7rhNdCey+9JY84hMrQkQ== 0000950131-96-003954.txt : 19960816 0000950131-96-003954.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950131-96-003954 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: CSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AON CORP CENTRAL INDEX KEY: 0000315293 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 363051915 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07933 FILM NUMBER: 96613525 BUSINESS ADDRESS: STREET 1: 123 N WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3127013000 FORMER COMPANY: FORMER CONFORMED NAME: COMBINED INTERNATIONAL CORP DATE OF NAME CHANGE: 19870504 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) --- OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 1-7933 Aon Corporation --------------- (Exact Name of Registrant as Specified in its Charter) DELAWARE 36-3051915 -------- ------------ (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 123 N. WACKER DR., CHICAGO, ILLINOIS 60606 - --------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (312) 701-3000 -------------- (Registrant's Telephone Number) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Number of shares of common stock outstanding: No. Outstanding Class as of 6-30-96 ----- --------------- $1.00 par value Common 107,905,932 Part 1 Financial Information Aon CORPORATION Condensed Consolidated Statements of Financial Position -------------------------------------------------------
(millions) As of As of Assets June 30, 1996 Dec. 31, 1995 ------------- ------------- (Unaudited) Investments Fixed maturities Available for sale $ 2,558.9 $ 7,687.1 Equity securities at fair value Common stocks 264.3 300.0 Preferred stocks 508.7 706.3 Mortgage loans on real estate 33.9 632.0 Real estate (net of accumulated depreciation) 22.9 36.5 Policy loans 58.4 226.3 Other long-term investments 102.0 112.6 Short-term investments 1,497.8 938.3 ------------- ------------- Total investments 5,046.9 10,639.1 Cash 103.5 115.3 Receivables Insurance brokerage and consulting services 2,812.8 2,264.1 Premiums and other 841.3 580.2 Accrued investment income 64.6 152.4 ------------- ------------- Total receivables 3,718.7 2,996.7 Deferred Policy Acquisition Costs 629.7 1,261.5 Intangible Assets 1,383.8 1,597.7 Property and Equipment at Cost (net of accumulated depreciation) 275.2 307.8 Assets Held Under Special Contracts 301.3 2,307.2 Other Assets 539.9 510.5 ------------- ------------- Total Assets $ 11,999.0 $ 19,735.8 ============= =============
As of As of Liabilities and Equity June 30, 1996 Dec. 31, 1995 ------------- ------------- (Unaudited) Policy Liabilities Future policy benefits $ 876.5 $ 1,475.1 Policy and contract claims 870.2 970.9 Unearned and advance premiums 1,626.5 1,646.2 Other policyholder funds 360.6 5,464.2 ------------- ------------- Total policy liabilities 3,733.8 9,556.4 General Liabilities Insurance premiums payable 3,249.8 2,722.8 Commissions and general expenses 518.7 562.4 Accrued income taxes 230.4 332.6 Short-term borrowings 89.7 352.7 Notes payable 477.8 497.5 Debt guarantee of ESOP 56.8 56.8 Liabilities held under special contracts 301.3 2,307.2 Other liabilities 596.5 623.7 ------------- ------------- Total Liabilities 9,254.8 17,012.1 Commitments and Contingent Liabilities Redeemable Preferred Stock 50.0 50.0 Stockholders' Equity Preferred stock - $1 par value 7.6 8.1 Common stock - $1 par value 111.5 111.4 Paid-in additional capital 445.6 431.8 Net unrealized investment gains 74.8 123.1 Net foreign exchange gains/(losses) (14.9) 1.8 Retained earnings 2,337.0 2,212.1 Less - Treasury stock at cost (130.1) (97.3) Deferred compensation (137.3) (117.3) ------------- ------------- Total Stockholders' Equity 2,694.2 2,673.7 ------------- ------------- Total Liabilities and Equity $ 11,999.0 $ 19,735.8 ============= =============
See the accompanying notes to the condensed consolidated financial statements. 2 Aon CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (Unaudited) (millions except per share data)
Second Quarter Ended Six Months Ended -------------------- ----------------------- June 30, June 30, June 30, June 30, 1996 1995 1996 1995 --------- --------- ----------- ---------- REVENUE Brokerage commissions and fees........$ 445.5 $ 400.2 $ 913.5 $ 824.8 Premiums earned....................... 381.3 364.7 759.3 700.4 Net investment income................. 92.6 77.5 177.3 158.4 Realized investment gains (losses).... - (0.6) - 0.5 Other income.......................... 13.0 10.1 24.4 21.0 --------- --------- ----------- --------- Total revenue....................... 932.4 851.9 1,874.5 1,705.1 --------- --------- ----------- --------- BENEFITS AND EXPENSES Commissions and general expenses...... 554.8 489.4 1,084.2 963.1 Benefits to policyholders............. 192.8 174.9 378.8 339.0 Interest expense...................... 10.1 9.5 19.3 17.9 Amortization of deferred policy acquisition costs.................... 55.0 50.1 108.1 100.0 Amortization of intangible assets..... 18.4 20.0 37.2 40.4 --------- --------- ----------- --------- Total benefits and expenses......... 831.1 743.9 1,627.6 1,460.4 --------- --------- ----------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX...................... 101.3 108.0 246.9 244.7 Provision for income tax.............. 36.0 36.3 85.1 82.5 --------- --------- ----------- --------- INCOME FROM CONTINUING OPERATIONS.......$ 65.3 $ 71.7 $ 161.8 $ 162.2 DISCONTINUED OPERATIONS: (1) Income from discontinued operations, net of tax........................... - 27.0 22.4 47.7 Gain on disposal of discontinued operations, net of tax............... 21.0 - 21.0 - -------- --------- ----------- --------- NET INCOME..............................$ 86.3 $ 98.7 $ 205.2 $ 209.9 ======== ========= =========== ========= Net Income Available for Common Stockholders...........................$ 81.2 $ 91.9 $ 195.0 $ 196.3 ======== ========= =========== ========= PER SHARE Income from continuing operations(2)....$ 0.55 $ 0.60 $ 1.39 $ 1.37 Income from discontinued operations(1).. - 0.25 0.20 0.44 Gain on disposal of discontinued operations(1).......................... 0.19 - 0.19 - -------- --------- ----------- --------- Net income(2)...........................$ 0.74 $ 0.85 $ 1.78 $ 1.81 ======== ========= =========== ========= Cash dividends paid on common stock.....$ 0.36 $ 0.34 $ 0.70 $ 0.66 ======== ========= =========== ========= Average common and common equivalent shares outstanding..................... 109.8 108.4 109.8 108.6 -------- --------- ----------- ---------
(1) In April, 1996, Aon completed the sales of two of its insurance subsidiaries, Union Fidelity Life Insurance Company and The Life Insurance Company of Virginia. Their results are classified as discontinued operations. (2) Includes the effect of $5.1 million and $10.2 million, and $6.8 million and $13.6 million of dividends incurred on the 8%, 6.25% and Series C preferred stock in second quarter and six months ended June 30, 1996 and 1995, respectively. See the accompanying notes to the condensed consolidated financial statements. 3 Aon CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Unaudited) (millions)
Six Months Ended ------------------------ June 30, June 30, 1996 1995 ---------- ---------- CASH PROVIDED BY OPERATING ACTIVITIES...................................... $ 297.4 $ 372.9 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short term investments-net................................... (634.6) (59.9) Sale or maturity of fixed maturities Held to maturity - Maturities........................................ - 0.7 Calls and prepayments............................. - 79.8 Sales............................................. - 3.0 Available for sale - Maturities........................................ 78.7 52.2 Calls and prepayments............................. 130.8 100.2 Sales............................................. 439.4 1,273.2 Sale or maturities of other investments................................ 342.3 501.3 Purchase of fixed maturities - available for sale........................ (984.6) (1,637.2) Purchase of other investments............................................ (447.4) (537.2) Disposition (acquisition) of subsidiaries - net.......................... 1,273.9 (66.7) Property and equipment and other......................................... (35.1) (55.4) ---------- ---------- CASH PROVIDED (USED) BY INVESTING ACTIVITIES...... 163.4 (346.0) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Treasury stock transactions - net........................................ (27.9) (48.0) Repayment of short-term borrowings - net................................. (262.9) (16.9) Issuance of long-term debt............................................... - 18.6 Repayment of long-term debt.............................................. (2.4) (19.2) Interest sensitive life, annuity and investment contract deposits........ 348.2 690.9 Interest sensitive life, annuity and investment contract withdrawals..... (427.1) (813.9) Retirement of preferred stock............................................ (14.2) - Cash dividends to stockholders........................................... (86.3) (84.3) ---------- ---------- CASH USED BY FINANCING ACTIVITIES................. (472.6) (272.8) ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................... - 5.5 DECREASE IN CASH........................................................... (11.8) (240.4) CASH AT BEGINNING OF PERIOD................................................ 115.3 508.8 ---------- ---------- CASH AT END OF PERIOD...................................................... $ 103.5 $ 268.4 ========== ==========
See the accompanying notes to condensed consolidated financial statements. 4 Aon CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Statement of Accounting Principles ---------------------------------- The financial results included in this report are stated in conformity with generally accepted accounting principles and are unaudited but include all normal recurring adjustments which the Registrant (Aon) considers necessary for a fair presentation of the results for such periods. These interim figures are not necessarily indicative of results for a full year as further discussed below. Refer to the consolidated financial statements and notes in the Annual Report to Stockholders (Annual Report) for the year ended December 31, 1995 for additional details of Aon's financial position, as well as a description of the accounting policies which have been continued without material change. The details included in the notes have not changed except as a result of normal transactions in the interim and the events mentioned in the footnotes below. Certain prior period amounts have been reclassified to conform to the current period presentation. 2. Statements of Financial Accounting Standards (SFAS) --------------------------------------------------- As required, in first quarter 1996, Aon adopted SFAS Statement No. 121 (Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of). This Statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Implementation of this Statement did not have an effect on Aon's financial statements. In June 1996, the Financial Accounting Standards Board (FASB) issued Statement No. 125 (Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). This Statement provides accounting and reporting standards for sales, securitization, and servicing of receivables and other financial assets and extinguishments of liabilities. The provisions of this Statement are to be applied to transactions occurring after December 31, 1996. Aon anticipates adopting this Statement in its 1997 financial statements as required. Implementation of this Statement is not expected to have a material effect on Aon's financial statements. 3. Capital Stock ------------- During first half 1996, Aon purchased 944,000 shares of its common stock, at a total cost of $48 million. Aon reissued 503,000 shares of common stock from treasury for employee benefit plans during the first half 1996. There were 3.6 million shares of common stock held in treasury at June 30, 1996. In first half 1996, Aon purchased and retired 553,000 shares of its 8% Cumulative Perpetual Preferred stock at a total cost of $14.2 million. 5 4. Discontinued Operations ----------------------- On April 1, 1996, Aon completed the sales of Union Fidelity Life Insurance Company (UFLIC) and The Life Insurance Company of Virginia (LOV) and received after tax sales proceeds of approximately $1.2 billion. The gain on disposal of discontinued operations was $21 million after taxes incurred on the sale of approximately $175 million. 5. Special Charges --------------- Between April 2, 1996 and June 30, 1996, a voluntary early retirement program was in effect for all eligible employees of Aon's US domestic operating subsidiaries. In addition, programs similar in nature were introduced in parts of Europe. Approximately 450 people took advantage of these programs. In second quarter 1996, Aon recorded pretax special charges of $30.2 million related to the cost of these programs. 6 AON CORPORATION MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION REVENUE AND INCOME BEFORE INCOME TAX FOR SECOND QUARTER AND FIRST HALF 1996 GENERAL - ------- In fourth quarter 1995, Aon and its wholly owned subsidiary Combined Insurance Company of America (CICA) reached definitive agreements to sell two of its domestic insurance subsidiaries, UFLIC and LOV. The sales of UFLIC and LOV were completed in April, 1996, and resulted in a $21 million after tax gain on disposal. The results of UFLIC and LOV are classified in the consolidated statements of operations as discontinued operations. For purposes of the following discussions, comparisons against prior years' results are based on continuing operations. The after tax proceeds from the sales of UFLIC and LOV were $1.2 billion. The majority of the proceeds was used for both debt reductions and investment in highly liquid securities, yielding for this quarter, approximately 3% - 3.5% after tax. The potential long-term uses of the proceeds are the additional pay down of borrowings and the buy back of capital stock, and other general corporate purposes, including acquisitions. In the short-term, some of these uses are yielding returns that are lower than could have been generated from the operations of the subsidiaries sold. CONSOLIDATED RESULTS - -------------------- Brokerage commissions and fees increased $45.3 million or 11.3% in second quarter 1996, primarily reflecting internal growth, while the first half 1996 improvement of $88.7 million or 10.8% reflected internal growth, as well as business combination activity. Premiums earned increased $16.6 million or 4.6% and $58.9 million or 8.4% in second quarter and first half 1996, respectively, compared with the same periods last year. Extended warranty premiums earned increased $19.7 million or 25.9% in the quarter primarily reflecting a continuing higher volume of new business in the appliance and electronic equipment line. Direct Sales earned premium grew 1% from second quarter 1995 of which the strongest growth was in the international segment. Net investment income increased $15.1 million or 19.5% and $18.9 million or 11.9% in second quarter and first half 1996, respectively, when compared to prior year. Growth in second quarter 1996 was primarily attributable to investment income associated with the proceeds from the sales of UFLIC and LOV. The majority of the proceeds were invested in highly liquid securities yielding, for this quarter, approximately 3% - 3.5% after tax. For the first half 1996, investment income growth primarily reflected investment income on the sales proceeds. 7 Total revenue increased $80.5 million or 9.4% and $169.4 million or 9.9% in the second quarter and first half 1996, respectively. Total benefits and expenses increased $87.2 million or 11.7% and $167.2 million or 11.4% in the same periods. The increases in the second quarter and first half expenses reflect the inclusion of pretax special charges of $30.2 million related to the completion of a voluntary early retirement program introduced domestically this quarter as well as similar programs internationally. Total benefits and expenses, excluding the 1996 special charges, increased 7.7% and 9.4% for the second quarter and first half 1996, respectively. Income before income tax decreased $6.7 million or 6.2% in second quarter and increased $2.2 million or 0.9% in first half 1996, respectively. The decrease in second quarter pretax earnings reflects $30.2 million of special charges. Excluding these special charges, pretax earnings increased 21.8% when compared to second quarter 1995, primarily due to the inclusion of investment income associated with the proceeds from the sale of discontinued operations. MAJOR LINES OF BUSINESS - ----------------------- GENERAL - ------- Beginning with the 1995 Annual Report, Aon reclassified its operating segments to reflect the focus of its continuing operations. Insurance underwriting operations were presented as one segment based on the related nature, distribution channels and markets of the continuing products. Insurance underwriting primarily includes life, accident and health insurance and extended warranty products. In this report, 1995 quarterly segments have been reclassified to conform to the 1996 presentation. In second quarter 1996, Aon reported a gain on disposal of discontinued operations, net of tax, of $21 million related to the sales of UFLIC and LOV. In addition, investment income associated with the sales proceeds was included in the corporate and other segment in the quarter. Aon also reported second quarter pretax special charges of $30.2 million related to early retirement programs. The special charges were allocated to each of the major lines of business. For the purposes of the following line of business discussions, comparisons against last year's results exclude the gain on sale of discontinued operations and the special charges. INSURANCE BROKERAGE AND CONSULTING SERVICES - ------------------------------------------- Beginning in first quarter 1996, Aon combined the retail brokerage and reinsurance and wholesale subsegments of Insurance Brokerage and Consulting Services into one subsegment called "Insurance and other services". Also included in this subsegment is revenue from financing services operations which includes service fees received from the placement of insurance premiums and retail auto financing receivables to unaffiliated parties. This operation was previously in the corporate and other segment. All prior period data has been reclassified to conform to the 1996 presentation. Insurance and other services revenue increased $37 million or 10.4% for the second quarter 1996 when compared with the same period last year. Insurance and other services continued to reflect highly competitive property and casualty pricing in the domestic market and increased revenues due primarily to internal growth and, to a lesser extent, acquisition activity. "Consulting" provides a full range of employee benefits and compensation consulting, specialized employee assessment and training programs, and administrative services. This business showed revenue growth of $6.5 million or 10% for the second quarter when compared to prior year, primarily due to the expanding integrated human resources consulting practice. 8 Overall, revenue for the insurance brokerage and consulting services segment increased $43.5 million or 10.4% in the second quarter and $86.6 million or 10.1% for first half 1996. Limiting this revenue increase, the brokerage segment continues to be impacted by a soft property and casualty market. Income before income tax increased $6.6 million or 13% and $15.3 million or 12% when compared to second quarter and first half 1995, respectively, primarily reflecting internal growth and, to a lesser extent, acquisition activity. Domestic/International Results - ------------------------------ Second quarter domestic insurance brokerage and consulting services revenue and income before income tax represent 70% and 77%, respectively, of the total segment. International brokerage revenue of $137.2 million increased 12.5% for the second quarter. International brokerage income before income tax increased 15.7% for the quarter. In the international insurance and other services subsegment, revenues continue the trend of being highest in the first quarter of the year, while expenses are incurred on a more even basis throughout the year. INSURANCE UNDERWRITING - ---------------------- The insurance underwriting line of business provides direct sales life and accident and health products, credit insurance and extended warranty products to individuals. On June 30, 1996, Aon completed the sale of North American auto credit underwriting and distribution. The sale also included distribution of extended warranties throughout North America. The extended warranty products will continue to be underwritten by Aon's subsidiary, Virginia Surety Company. Total North American auto credit insurance underwriting revenues included in Aon's consolidated statement of income for the second quarter and first half ended June 30, 1996 were approximately $30 million and $60 million, respectively. Revenue increased 6.7% or $28 million and 9.8% or $78.3 million for the second quarter and first half 1996, respectively, when compared to prior year primarily due to the continued expansion both domestically and internationally in the extended warranty appliance and electronic line. In addition, life business in Europe and the Pacific is being run off as planned. Pretax income from insurance underwriting increased $2.9 million or 4.5% and $6.2 million or 5.2% in second quarter and first half 1996, respectively, compared with last year. In general, expense margins in the second quarter 1996 remained stable while benefit levels increased slightly. Overall, benefit and expense margins in second quarter 1996 did not suggest any significant shift in operating trends. Domestic/International Results - ------------------------------ Second quarter domestic insurance underwriting revenue and income before income tax represent 73% and 68%, respectively, of the total segment. International insurance underwriting revenue of $120.2 million increased 6.6%, principally due to improved premiums earned in the extended warranty lines. International pretax income improved 18.2% primarily due to expansion in the appliance and electronic extended warranty line. 9 CORPORATE AND OTHER - ------------------- Revenue in this category consists primarily of investment income on capital and realized investment gains and losses. Allocation of investment income to the insurance underwriting segment is based on the invested assets which underlie policyholder liabilities. Excess invested assets and related investment income, which do not underlie underwriting liabilities, are reported in this segment. Expenses include interest and other financing expenses, corporate administrative costs, and goodwill amortization associated with acquisitions. Revenue increased 52.6% and 10.6% for the second quarter and first half 1996, respectively, due largely to the level of investment income associated with the proceeds from the sales of UFLIC and LOV in the second quarter. Revenue growth was limited by alternative uses of corporate capital and returns received from private placement equity securities whose income flows fluctuate somewhat by nature. There were no realized investment gains or losses in either second quarter or first half 1996. In second quarter and first half 1995, however, there were realized losses of $0.6 million and realized gains of $0.5 million, respectively. Income before income tax, excluding realized investment gains and losses, increased $13.4 million over the same quarter last year. DISCONTINUED OPERATIONS - ----------------------- Discontinued operations are composed principally of capital accumulation products and direct response products. Substantially all of the revenue and income before income tax generated from discontinued operations is domestic. These amounts have been segregated as "Income From Discontinued Operations" in the consolidated statements of operations. With the completion of the sales of UFLIC and LOV on April 1, 1996, there are no operating results from these discontinued operations going forward. The effective operating income tax rate on discontinued operations was 35% in 1996 and 1995. In addition, in second quarter 1996, a $21 million gain on disposal of discontinued operations, net of taxes incurred on the sale of approximately $175 million, was recorded. 10 Aon CORPORATION MAJOR LINES OF BUSINESS ----------------------- (millions)
Second Quarter Ended Six Months --------------------- -------------------- June 30 Percent June 30 Percent 1996 Change (1) 1996 Change (1) ------- ---------- ------- ---------- Revenue - ------- Insurance brokerage and consulting services.............................. $462.3 10.4% $ 947.3 10.1% Insurance underwriting.................. 444.0 6.7 880.1 9.8 Corporate and other..................... 26.1 52.6 47.1 10.6 ------- ---------- --------- ---------- Total revenue...................... $932.4 9.4% $1,874.5 9.9% ======= ========== ========= ========== Income Before Income Tax - ------------------------ Insurance brokerage and consulting services.............................. $ 57.2 13.0% $ 142.4 12.0% Special charges....................... (22.4) - (22.4) - ------- ---------- --------- ---------- Including special charges............. 34.8 (31.2) 120.0 (5.6) Insurance underwriting.................. 66.7 4.5 125.2 5.2 Special charges....................... (6.4) - (6.4) - ------- ---------- --------- ---------- Including special charges............. 60.3 (5.5) 118.8 (0.2) Corporate and other..................... 7.6 N/A 9.5 N/A Special charges....................... (1.4) - (1.4) - ------- ---------- --------- ---------- Including special charges............. 6.2 N/A 8.1 N/A ------- ---------- --------- ---------- Total income before income tax..... $101.3 (6.2)% $ 246.9 0.9% ======= ========== ========= ==========
(1) Prior Period amounts have been reclassified to conform to the 1996 presentation. 11 Aon CORPORATION REVENUE BY MAJOR PRODUCT LINE ----------------------------- (millions)
Second Quarter Ended Six Months Ended --------------------- ----------------------- June 30, Percent June 30, Percent 1996 Change (1) 1996 Change (1) -------- ---------- -------- ---------- INSURANCE BROKERAGE AND CONSULTING SERVICES Insurance and other services................ $391.1 10.4% $804.8 9.4% Consulting ................................. 71.2 10.0 142.5 14.0 -------- ---------- -------- ---------- TOTAL REVENUE.......................... $462.3 10.4% $947.3 10.1% ======== ========== ======== ========== INSURANCE UNDERWRITING Direct sales - life, accident and health.... $257.2 1.5% $510.8 1.8% Warranty and other ......................... 186.8 14.8 369.3 23.1 -------- ---------- -------- ---------- TOTAL REVENUE.......................... $444.0 6.7% $880.1 9.8% ======== ========== ======== ========== CORPORATE AND OTHER Investment income on capital and other...... $ 26.1 47.5% $ 47.1 11.9% Realized investment gains/losses............ - N/A - N/A -------- ---------- -------- ---------- TOTAL REVENUE.......................... $ 26.1 52.6% $ 47.1 10.6% ======== ========== ======== ==========
(1) Prior period amounts have been reclassified to conform to the 1996 presentation. 12 NET INCOME FOR SECOND QUARTER AND FIRST HALF 1996 Second quarter net income was $86.3 million ($0.74 per share) compared to $98.7 million ($0.85 per share) in 1995. Net income for the first half was $205.2 million ($1.78 per share) compared to $209.9 million ($1.81 per share) in 1995. The decrease in second quarter net income compared to 1995 reflects after tax special charges of $19.5 million or $0.18 per share and no comparable operating results from discontinued operations due to the completion of the sales of UFLIC and LOV ($0.25 per share in 1995). The principal factors that partially offset this second quarter 1996 decrease are the inclusion of the after tax gain on disposal of discontinued operations of $21 million or $0.19 per share and investment income associated with the sales proceeds. Second quarter and first half operating income from continuing operations before special charges was $84.8 million ($0.73 per share) and $181.3 million ($1.57 per share) in 1996, respectively, compared to $72.1 million ($0.60 per share) and $161.9 million ($1.36 per share) in 1995, respectively. Included in first half 1995 net income is after-tax realized investment gains of $0.01 per share. The effective tax rate on operating income from continuing operations, which excludes after-tax realized investment gains and losses, was 34.5% and 33.7% for first half 1996 and 1995, respectively. The effective tax rate for realized gains and losses was 36% for 1995. Average shares outstanding for second quarter increased 1.3% when compared to 1995. CASH FLOW AND FINANCIAL POSITION AT THE END OF FIRST HALF 1996 GENERAL - ------- Consistent with financial statement presentation, the following cash flow and financial position discussion reflects the completion of the sales of UFLIC and LOV in April, 1996. As a result of the sales, the condensed consolidated statement of financial position at June 30, 1996 has been significantly impacted when compared to year end 1995. Amounts contained in the condensed consolidated statement of cash flows for the first half ended June 30, 1996 compared to the same period in 1995 also reflect the impact of the sales of UFLIC and LOV. Cash flows from operating activities (including discontinued operations) in first half 1996 were $297.4 million, a decrease of $75.5 million from first half 1995. This decrease primarily reflects the timing of settlement of brokerage segment receivables and payables. Investing activities provided cash of $163.4 million which was made available from the completed sales of UFLIC and LOV, and offset in part, by net purchases of investments. Cash used for acquisition activity during the first half 1996 was $37.7 million. Cash totaling $472.6 million was used during first half 1996 for financing activities. Net cash used from capital accumulation product deposits and withdrawals was $78.9 million in first half 1996. Cash was used to pay dividends of $76 million on common stock, $5.7 million on 8% cumulative perpetual preferred stock, $3.3 million on 6.25% cumulative convertible exchangeable preferred stock and $1.3 million on Series C preferred stock. 13 Included in notes payable at June 30, 1996 is approximately $4 million which represents the principal amount of notes due within one year. Aon's operating subsidiaries anticipate that there will be adequate liquidity to meet their needs in the foreseeable future. Aon anticipates continuation of the company's positive cash flow, the ability of the parent company to access adequate short- term lines of credit, and sufficient cash flow in the long-term. The businesses of Aon's operating subsidiaries continue to provide substantial positive cash flow. Brokerage cash flow has been used primarily for servicing acquisition-related debt. Due to the contractual nature of its insurance policyholder liabilities which are intermediate to long-term in nature, Aon has invested primarily in fixed maturities. With a carrying value of $2.6 billion, Aon's total fixed maturity portfolio is invested primarily in investment grade holdings (94.9%) and has a market value which is 102.6% of amortized cost. Mortgage-backed securities, primarily collateralized mortgage obligations (CMO's), included in the fixed maturities portfolio, totaled $50.1 million, down approximately $1.9 billion from year end 1995 with the difference attributed to discontinued operations. As of April 1, 1996, the assets and liabilities of discontinued operations, after reinvestment of net sales proceeds, (not included in the consolidated statement of financial position at June 30, 1996) are as follows:
(millions) - -------------------------------------------------------------------------------- Investments (net of proceeds) $ 5,102 Deferred policy acquisition costs 653 Intangible assets 149 Assets held under special contracts 2,047 Receivables and other assets 329 - -------------------------------------------------------------------------------- Total assets $ 8,280 ================================================================================ Policy liabilities $ 6,065 Liabilities held under special contracts 2,047 General and other liabilities 189 - -------------------------------------------------------------------------------- Total liabilities $ 8,301 - -------------------------------------------------------------------------------- Net gain on sale of discontinued operations $ 21 ================================================================================
Total assets decreased $7.7 billion to $12 billion, while invested assets at June 30, 1996 decreased $5.6 billion from year-end levels, primarily due to the sales of UFLIC and LOV. The amortized cost and fair value of less than investment grade fixed maturity investments, at June 30, 1996, were $119.4 million and $120.5 million, respectively. The carrying value of non-income producing investments in Aon's portfolio at June 30, 1996 was $5 million, or 0.9% of total invested assets. Mortgage loans totaled $33.9 million or 0.7% of total invested assets. Aon maintains investment reserves related to mortgage loan losses on real estate holdings, which include real estate ventures and limited partnerships, totaling $5.5 million at the end of second quarter 1996, down $25.3 million from the year end 1995 level of $30.8 million. Substantially all of the decrease in reserves relates to discontinued operations. 14 Aon uses derivative financial instruments (primarily financial futures, swaps and options) to: (a) manage its overall asset/liability duration match; (b) hedge asset price risk associated with financial instruments whose change in value is reported under SFAS 115; and (c) hedge other business risks. As of June 30, 1996, Aon had open contracts which had unrealized losses of approximately $0.1 million. Short-term borrowings decreased at the end of second quarter 1996 by $263 million when compared to year end 1995 primarily due to the use of sales proceeds to pay down debt. Stockholders' equity increased $20.5 million in second quarter 1996 to $23.15 per share, an increase of $0.38 per share since year-end 1995. The principal factors influencing this increase were net income which includes the after tax gain on the sale of discontinued operations of $21 million. Partially offsetting this increase were net unrealized investment losses of $48.3 million, net foreign exchange losses of $16.7 million, dividends to stockholders of $75.5 million, and $32.7 million for the repurchase of common stock for treasury. Review by Independent Auditors - ------------------------------ The condensed consolidated financial statements at June 30, 1996, and for the second quarter and first half then ended have been reviewed, prior to filing, by Ernst & Young LLP, Aon's independent auditors, and their report is included herein. 15 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors and Stockholders Aon Corporation We have reviewed the accompanying condensed consolidated statement of financial position of Aon Corporation as of June 30, 1996, and the related condensed consolidated statements of income for the three-month and six-month periods ended June 30, 1996 and 1995, and the condensed consolidated statements of cash flows for the six-month periods ended June 30, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated statement of financial position of Aon Corporation as of December 31, 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended, not presented herein, and in our report dated February 8, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 1995, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived. /s/ Ernst & Young LLP --------------------- ERNST & YOUNG LLP Chicago, Illinois August 1, 1996 16 PART II ------- OTHER INFORMATION ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - The exhibits filed with this report are listed on the attached Exhibit Index. (b) Reports on Form 8-K - No Current Reports on Form 8-K were filed for the quarter ended June 30, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Aon Corporation --------------- (Registrant) August 14, 1996 /s/ Harvey N. Medvin ----------------------------------- HARVEY N. MEDVIN EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER (Principal Financial and Accounting Officer) 17 Aon CORPORATION --------------- EXHIBIT INDEX -------------
Exhibit Number In Regulation S-K, Page Item 601 Exhibit Table No. - ---------------------- ---- (10)(a) Second Amendment to Aon Employee Stock Ownership Plan 19 (10)(b) Fifth Amendment to Aon Pension Plan 22 (10)(c) Third Amendment to Aon Savings Plan 24 (10)(d) Third Amendment to Aon Pension Plan 27 (11) Statement regarding Computation of Per Share Earnings. 31 (12) Statements regarding Computation of Ratios. (a) Statement regarding Computation of Ratio of Earnings to Fixed Charges. 32 (b) Statement regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 33 (15) Letter re: Unaudited Interim Financial Information. 34 (27) Financial Data Schedule
18 EX-10.(A) 2 2ND AMEND. TO AON EMPLOYEE STOCK OWNERSHIP PLAN Exhibit 10(a) Second Amendment to the 1994 Restatement of Aon Employee Stock Ownership Plan --------------------------------- Whereas, the Aon Employee Stock Ownership Plan (the "Plan") is currently set out in the 1994 Restatement of the Aon Employee Stock Ownership Plan, which was generally effective as of January 1, 1994 (the "Restatement"). Whereas, the Board of Directors of Aon Corporation desires to amend the Plan pursuant to the Board's authority to do so under Section 12.01 of the Plan and pursuant to the terms of the contemplated sales of the common stock of Ryan Dealer Group, Inc., and other assets to Resource Financial Corporation. Now, therefore, the Plan, as set out in the Restatement is amended as follows, effective as of January 1, 1996, or as otherwise specified: Section 4.02 A new subsection (g) of Section 4.02 shall be added to read as follows: (g) For the Plan Year beginning January 1, 1996, there shall be posted to the Stock Sub-Accounts of each RDG Participant (defined herein) his share of Employer Securities contributed, acquired or released under Sections 3.01 and 3.03 and forfeitures from the Stock Sub-Accounts. The RDG Participant's share shall be posted if the RDG Participant earned 1,000 Hours of Service (including annualized service) and without regard to whether the RDG Participant was employed on the last day of the Plan Year. Amounts credited to the Stock Sub-Accounts of all Participants, including RDG Participants, shall be determined as set forth in subsection (a), except that Compensation for RDG Participants shall be only that portion of Compensation earned from January 1, 1996, through the Closing Date (defined herein). (i) An RDG Participant is a Participant who is listed on Schedule 6(a) of the Asset Purchase Agreement between Aon Corporation and Resource Financial Corporation (attached as Exhibit A). (ii) The Closing Date shall mean the date of the sale and purchase of the common stock of Ryan Dealer Group, Inc. 19 Section 4.06 Paragraph (ii) of subsection (d) of Section 4.06 shall be deleted in its entirety and the following substituted in its place: (ii) For dividends on unallocated Employer Securities in the suspense account, the released shares shall be allocated to the Stock Sub-Accounts of Participants pursuant to their relative Compensation in the same manner as under subsections (a) and, for the Plan Year beginning January 1, 1996, subsections (f) and (g), of Section 4.02. Section 4.06. A new subparagraph (B) shall be added to paragraph (v) of subsection (d) of Section 4.06: (B) For purposes of this subparagraph (v), an RDG Participant, as defined in Section 4.02(g), shall be deemed to be employed by the Company on December 31, 1996. Section 9.02. A new subsection (h) of section 9.02 shall be added to read as follows: (h) Participants who are listed on Schedule 6(a) of the Asset Purchase Agreement ("RDG Participants") between Aon Corporation and Resource Financial Corporation (attached as Exhibit A) shall be 100% vested on the date of the sale and purchase of the common stock of Ryan Dealer Group, Inc. 20 IN WITNESS WHEREOF, Aon Corporation hereby adopts this Second Amendment to the 1994 Restatement of Aon Savings Plan, effective as set forth above, as of this 1st day of August, 1996. Aon CORPORATION By: /s/ Daniel T. Cox --------------------------- Daniel T. Cox Executive Vice President 21 EX-10.(B) 3 5TH AMENDMENT TO AON PENSION PLAN Exhibit 10(b) Fifth Amendment to the 1994 Restatement of Aon Pension Plan ---------------- Whereas, the Aon Pension Plan (the "Plan") is currently set out in the 1994 Restatement of Aon Pension Plan, which was generally effective as of January 1, 1994 (the "Restatement"). Whereas, the Board of Directors of Aon Corporation desires to amend the Plan pursuant to the Board's authority to do so under Section 9.02 of the Plan and pursuant to the terms of the contemplated sale of the common stock of Ryan Dealer Group, Inc., and other assets to Resource Financial Corporation. Now, therefore, the Plan, as set out in the Restatement is amended as follows, effective as of January 1, 1996 or as otherwise specified: Section 5.03 A new subsection (e) shall be added to Section 5.03 to read as follows: (e) Participants who are listed on Schedule 6(a) ("RDG Participants") of the Asset Purchase Agreement between Aon Corporation and Resource Financial Corporation (attached as Exhibit A), shall be 100% vested on the date of the sale and purchase of the common stock of Ryan Dealer Group, Inc. 22 IN WITNESS WHEREOF, Aon Corporation hereby adopts this Fifth Amendment to the 1994 Restatement of Aon Pension Plan, effective as set forth above, as of this 1st day of August, 1996. Aon CORPORATION By: /s/ Daniel T. Cox --------------------------- Daniel T. Cox Executive Vice President 23 EX-10.(C) 4 3RD AMENDMENT TO AON SAVINGS PLAN Exhibit 10(c) Third Amendment to the 1994 Restatement of Aon Savings Plan ---------------- Whereas, the Aon Savings Plan (the "Plan") is currently set out in the 1994 Restatement of Aon Savings Plan, which was generally effective as of January 1, 1994 (the "Restatement"). Whereas, the Board of Directors of Aon Corporation desires to amend the Plan pursuant to the Board's authority to do so under Section 12.01 of the Plan. Now, therefore, the Plan, as set out in the Restatement, is amended as follows, effective as of January 1, 1996: Section 3.01. A new paragraph (v) of subsection (a) of Section 3.01 shall be added to read as follows: (v) The aggregate contribution of the Companies for Employees shall include a special contribution (the "Special Contribution") equal to one hundred percent (100%) of the Basic Pay Deferral Amounts deferred as of the Closing Date by Participants who are listed on Schedule 6(a) ("RDG Participants") of the Asset Purchase Agreement between Aon Corporation and Resource Financial Corporation (the "Agreement"). (Schedule 6(a) is attached as Exhibit A). The Special Contribution shall be made only on Basic Pay Deferral Amounts of up to 3% of a Participant's Compensation and shall not be made on additional Basic Pay Deferral Amounts. For this purpose: (A) The Closing Date shall mean the date of the sale and purchase of the common stock of Ryan Dealer Group, Inc., and other assets as contemplated in the Agreement. (B) No additional Company contributions described in Section 3.01(a)(iii) shall be posted to the accounts of RDG Participants for the Plan Year beginning January 1, 1996. Instead, there shall be posted to the Company Contribution Account of each RDG Participant such Participant's share of the Special Contribution in accordance with the rules of Section 4.01. (C) Notwithstanding the requirements of Section 3.02, the date of the contribution of the Special Contribution will be deemed to be the Closing Date, even though received by the Trustee at a later or earlier date. 24 Section 9.02 A new subsection (h) of section 9.02 shall be added to read as follows: (h) Participants who are listed on Schedule 6(a) of the Asset Purchase Agreement ("RDG Participants") between Aon Corporation and Resource Financial Corporation, shall be 100% vested on the date of the sale and purchase of the common stock of Ryan Dealer Group, Inc. Section 8.12. A new section 8.12 shall be added to read as follows: 8.12 TRUSTEE TO TRUSTEE TRANSFERS. A participant who is listed on Schedule 6(a) ("RDG Participants") of the Asset Purchase Agreement between Aon Corporation and Resource Financial Corporation (the "Agreement") shall be entitled to direct the Trustee to transfer the balance in such Participant's account directly to the trustee or custodian of a cash or deferred arrangement which is established by Resource Financial Corporation, consistent with the requirements of Section 14.03; provided, however, that no transfer will be effective unless such other cash or deferred arrangement has been determined to be qualified under Section 401(a) of the Code. 25 IN WITNESS WHEREOF, Aon Corporation hereby adopts this Third Amendment to the 1994 Restatement of Aon Savings Plan, effective as set forth above, as of this 1st day of August, 1996. Aon CORPORATION By: /s/ Daniel T. Cox --------------------------- Daniel T. Cox Executive Vice President 26 EX-10.(D) 5 THIRD AMENDMENT TO PENSION PLAN Exhibit 10(d) Third Amendment to the 1994 Restatement of Aon Pension Plan ---------------- Whereas, the Aon Pension Plan (the "Plan") is currently set out in the 1994 Restatement of Aon Pension Plan, which was generally effective as of January 1, 1994 (the "Restatement"). Whereas, the Board of Directors of Aon Corporation desires to amend the Plan pursuant to the Board's authority to do so under Section 9.20 of the Plan. Now, therefore, the Plan, as set out in the Restatement, is amended as follows, effective as of May 1, 1996: Section 21. A new section 21 shall be added to the Plan to read as follows: SECTION 21 - 1996 VOLUNTARY RETIREMENT PROGRAM 21.01 VOLUNTARY RETIREMENT PROGRAM. The terms of this Section 21 are effective to provide retirement benefits to supplement those otherwise provided under this Plan to certain Participants described herein who terminate employment with an Employer. Participants employed by The Life Insurance Company of Virginia; Union Fidelity Life Insurance Company; Forth Financial Resources, Ltd.; and Newco Properties, Inc., shall not be eligible to receive benefits under this Section 21. 21.02 DEFINITIONS. In addition to those of Section 2, the following definitions shall apply for purposes of this Section 21: (a) "Additional Temporary Supplement" shall mean an amount equal to $150, to be paid monthly until the first to occur of: (i) attainment of age 65; (ii) death of the Participant; or (iii) completion of 24 payments. (b) "Lifetime Pension Supplement" shall mean an amount equal to 0.5 percent of one twelfth of the Participant's Final Average Earnings multiplied by Years of Employment up to but not in excess of 20 Years of Employment. The Lifetime Pension Supplement shall be paid monthly at the same time and in the same optional form as benefits paid to the Participant under Section 4 or 5 and shall terminate coincident with the termination of such benefits. 27 (c) "Temporary Pension Supplement" shall mean an amount equal to 0.5 percent of one twelfth of the Participant's Final Average Earnings multiplied by Years of Employment up to but not in excess of 20 Years of Employment. The Temporary Pension Supplement shall be paid monthly until the first to occur of: (i) attainment of age 65; (ii) death of the Participant; or (iii) completion of 120 payments. (d) "Voluntary Retirement Participant" shall mean a Participant, other than a Participant employed by The Life Insurance Company of Virginia; Union Fidelity Life Insurance Company; Forth Financial Resources, Ltd.; and Newco Properties, Inc., who: (i) is actively employed on May 1, 1996; (ii) has attained 55 years of age on or before June 30, 1996; and (iii) meets the requirements of (A) or (B): (A) has Annual Earnings in 1995 of less than $66,000 and whose combined total Years of Employment and age as of June 30, 1996, is at least 60; or (B) has Annual Earnings in 1995 of $66,000 or more and whose combined total Years of Employment and age as of June 30, 1996, is at least 72. Employees defined in Section 2.13 of this Plan ("Field Sales Agent") are not eligible for benefits under this Section 21. (e) "Years of Employment" shall mean total number of years of Employment with an Employer, beginning on the date an Employee first performs an Hour of Service and ending on the date the Voluntary Retirement Participant retires under the terms of this Section 21. Periods of service as a Field Sales Agent shall not be included in the determination of Years of Employment. Years of Employment shall include years of employment by a Voluntary Retirement Participant for an employer the stock or assets of which were acquired by an Employer at the time such employee was employed by the acquired entity. In determining Years of Employment (including with respect to preacquisition service), partial years of employment and periods commencing with an Employee's discharge or termination and ending with such Employee's rehire shall be excluded. In no event shall Years of Employment be less than Years of Service as defined in Section 2.31. 28 The determination of a Participant's Years of Employment shall be used solely for purposes of eligibility under Section 21.02(d)(iii)(A) and (B) and computation of the Lifetime Pension Supplement and the Temporary Pension Supplement under this Section 21, and not for any other purpose under this Plan. 21.03 VOLUNTARY RETIREMENT PROGRAM BENEFITS. A Voluntary Retirement Participant shall be entitled to receive the Temporary Pension Supplement, the Additional Temporary Pension Supplement and the Lifetime Pension Supplement upon satisfaction of (a) and (b): (a) receipt by an Employer of a Voluntary Retirement Participant's election pursuant to the requirements of Sections 7.06 and 7.14; and (b) termination of employment with an Employer on or after May 1, 1996, but no later than June 30, 1996. A Voluntary Retirement Participant who is entitled to receive a Temporary Pension Supplement, an Additional Temporary Pension Supplement or a Lifetime Pension Supplement upon satisfaction of (a) and (b) shall be 100% vested in the Temporary Pension Supplement, the Additional Temporary Pension Supplement and the Lifetime Pension Supplement upon termination of Employment. With regard to all other benefits due the Voluntary Retirement Participant under the terms of this Plan, the Voluntary Retirement Participant's nonforfeitable percentage of such benefit shall be as determined under Section 5 of this Plan. 21.04 COMMENCEMENT OF BENEFITS. Payment of the Temporary Pension Supplement and the Additional Temporary Pension Supplement shall commence as soon as practicable upon satisfaction of the requirements of Section 21.03 by the Voluntary Retirement Participant. Payment of the Lifetime Pension Supplement shall commence coincident with commencement of benefits paid to the Voluntary Retirement Participant in accordance with any election made by such Participant under Section 4 or 5. The amount of the Lifetime Pension Supplement, if payment is deferred, shall be the actuarial equivalent of the Lifetime Pension Supplement as if payment had commenced upon the later of attainment of age 55 or termination of employment. 21.05 CREDIT FOR YEARS OF SERVICE FOR 1996. A Voluntary Retirement Participant who satisfies the requirements of Section 21.03, and who has continuously worked for an Employer from January 1, 1996, through Employment termination, shall be deemed to have earned a Year of Service under Section 2.31 regardless of the Hours of Service that would otherwise be credited to such Participant. Nothing in this Section 21.05 shall permit a Voluntary Retirement Participant to accrue more than one Year of Service for 1996. 29 IN WITNESS WHEREOF, Aon Corporation hereby adopts this Third Amendment to the 1994 Restatement of Aon Pension Plan, effective as set forth above, as of this 1st day of August, 1996. AON CORPORATION By: /s/ Daniel T. Cox ---------------------------- Daniel T. Cox Executive Vice President 30 EX-11 6 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Aon Corporation and Subsidiaries CONSOLIDATED NET INCOME PER SHARE COMPUTATION (millions except per share data)
Second Quarter Ended Six Months Ended -------------------- -------------------- June 30, June 30, June 30, June 30, 1996 1995 1996 1995 -------- -------- -------- -------- EARNINGS PER SHARE Net income............................... $ 86.3 $ 98.7 $205.2 $209.9 Preferred stock dividends................ 5.1 6.8 10.2 13.6 ------ ------ ------ ------ Net income less preferred stock dividends............................. $ 81.2 $ 91.9 $195.0 $196.3 ====== ====== ====== ====== Average common shares issued............. 111.5 110.6 111.5 110.6 Net effect of treasury stock activity.... (2.9) (2.8) (3.0) (2.6) Net effect of dilutive stock compensation plans based on the treasury stock method 1.2 0.6 1.3 0.6 Average common and common equivalent ------ ------ ------ ------ shares outstanding...................... 109.8 108.4 109.8 108.6 ====== ====== ====== ====== Net income per share....................... $ 0.74 $ 0.85 $ 1.78 $ 1.81 ====== ====== ====== ======
31 EX-12.(A) 7 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12(a) Aon CORPORATION AND CONSOLIDATED SUBSIDIARIES COMBINED WITH UNCONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Ended June 30, Years Ended December 31, ----------------- ----------------------------------------------------- (millions except ratios) 1996 1995 1995 1994 1993 1992(1) 1991 ------ ------ ------ ------ ------ ------- ------- Income from continuing operations before provision for income taxes $ 246.9 $ 244.7 $ 458.0 $ 397.0 $ 331.6 $ 179.1 $ 242.4 Add back fixed charges: Interest on indebtedness 23.9 27.0 55.5 46.4 42.3 41.9 40.7 Interest on ESOP 2.4 2.7 5.3 5.9 6.5 6.9 7.2 Portion of rents representative of interest factor 13.4 12.0 21.4 28.7 26.1 19.2 15.4 ------ ------ ------ ------ ------ ------ ------ INCOME AS ADJUSTED $ 286.6 $ 286.4 $ 540.2 $ 478.0 $ 406.5 $ 247.1 $ 305.7 ====== ====== ====== ====== ====== ====== ====== FIXED CHARGES: Interest on indebtedness $ 23.9 $ 27.0 $ 55.5 $ 46.4 $ 42.3 $ 41.9 $ 40.7 Interest on ESOP 2.4 2.7 5.3 5.9 6.5 6.9 7.2 Portion of rents representative of interest factor 13.4 12.0 21.4 28.7 26.1 19.2 15.4 ------ ------ ------ ----- ----- ----- ----- TOTAL FIXED CHARGES $ 39.7 $ 41.7 $ 82.2 $ 81.0 $ 74.9 $ 68.0 $ 63.3 ====== ====== ====== ===== ===== ===== ===== RATIO OF EARNINGS TO FIXED CHARGES 7.2 6.9 6.6 5.9 5.4 3.6 4.8 ====== ====== ====== ===== ===== ===== ===== Ratio of earnings to fixed charges (2) 8.1 8.6 8.4 7.6 7.4 5.3 6.2 ====== ====== ====== ===== ===== ===== =====
(1) Income from continuing operations before provision for income taxes excludes the cumulative effect of changes in accounting principles. (2) The calculation of this ratio of earnings to fixed charges reflects the addition of the income from discontinued operations before the provision for income tax component for each period presented. 32 EX-12.(B) 8 COMP. OF RATIO OF EARNINGS TO COMB. FIXED CHARGES Exhibit 12(b) Aon Corporation and Consolidated Subsidiaries Combined With Unconsolidated Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
Six Months Ended June 30, Years Ended December 31, ---------------- ------------------------------------------------------ (millions except ratios) 1996 1995 1995 1994 1993 1992(1) 1991 ------ ------ ------ ------ ------ ------ ------ Income from continuing operations before provision for income taxes $246.9 $244.7 $458.0 $397.0 $331.6 $179.1 $242.4 Add back fixed charges: Interest on indebtedness 23.9 27.0 55.5 46.4 42.3 41.9 40.7 Interest on ESOP 2.4 2.7 5.3 5.9 6.5 6.9 7.2 Portion of rents representative of interest factor 13.4 12.0 21.4 28.7 26.1 19.2 15.4 ------ ------ ------ ------ ------ ------ ------ INCOME AS ADJUSTED $286.6 $286.4 $540.2 $478.0 $406.5 $247.1 $305.7 ====== ====== ====== ====== ====== ====== ====== FIXED CHARGES AND PREFERRED STOCK DIVIDENDS: Interest on indebtedness $ 23.9 $ 27.0 $ 55.5 $ 46.4 $ 42.3 $ 41.9 $ 40.7 Preferred stock dividends 15.7 20.6 37.5 48.4 47.5 20.3 3.5 ------ ------ ------ ------ ------ ------ ------ INTEREST AND DIVIDENDS 39.6 47.6 93.0 94.8 89.8 62.2 44.2 Interest on ESOP 2.4 2.7 5.3 5.9 6.5 6.9 7.2 Portion of rents representative of interest factor 13.4 12.0 21.4 28.7 26.1 19.2 15.4 ------ ------ ------ ------ ------ ------ ------ TOTAL FIXED CHARGES AND PREFERRED STOCK DIVIDENDS $ 55.4 $ 62.3 $119.7 $129.4 $122.4 $ 88.3 $ 66.8 ====== ====== ====== ====== ====== ====== ====== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS 5.2 4.6 4.5 3.7 3.3 2.8 4.6 ====== ====== ====== ====== ====== ====== ====== Ratio of earnings to combined fixed charges and preferred stock dividends(2) 5.8 5.1 5.8 4.8 4.5 4.1 5.9 ====== ====== ====== ====== ====== ====== ======
(1) Income from continuing operations before provision for income taxes excludes the cumulative effect of changes in accounting principles. (2) The calculation of this ratio of earnings to fixed charges reflects the addition of the income from discontinued operations before the provision for income tax component for each period presented. 33 EX-15 9 UNAUDITED INTERIM FINANCIAL INFORMATION Exhibit 15 Board of Directors and Stockholders Aon Corporation We are aware of the incorporation by reference in the Registration Statements of Aon Corporation ("Aon") described in the following table of our report dated August 1, 1996 relating to the unaudited condensed consolidated interim financial statements of Aon Corporation that are included in its Form 10-Q for the quarter ended June 30, 1996:
Registration Statement ---------------------- Form Number Purpose ---- ------ ------- S-8 2-79114 Pertaining to Aon's stock option plan S-8 2-82791 Pertaining to Aon's stock option plan S-8 33-27984 Pertaining to Aon's savings plan S-8 33-42575 Pertaining to Aon's stock award plan and stock option plan S-8 33-59037 Pertaining to Aon's stock award plan and stock option plan S-3 33-57562 Registration of Aon's 8% cumulative perpetual preferred stock and 6 1/4% cumulative convertible exchangeable preferred stock
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young LLP ERNST & YOUNG LLP Chicago, Illinois August 1, 1996 34 EX-27 10 FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from Condensed Consolidated Statements of Financial Position and Condensed Consolidated Statements of Operations and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 2,559 0 0 773 34 23 5,047 104 0 630 11,999 877 1,627 870 361 624 112 50 8 2,575 11,999 759 177 0 938 379 108 1,141 247 85 162 43 0 0 205 1.78 0.00 715 0 0 0 0 0 0 Available on an annual basis only. Includes short-term borrowings and debt guarantee of ESOP. Common stock at par value. Preferred stock at par value. Includes brokerage commissions and fees and other income.
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