Aon Reports Fourth Quarter and Full Year 2015 Results

Net income attributable to Aon shareholders in the fourth quarter of 2015 was $584 million, or $2.09 per share, compared to $459 million, or $1.56 per share, for the prior year quarter.  Net income per share attributable to Aon shareholders, adjusted for certain items, increased 20% to $2.27, compared to $1.89 in the prior year quarter, including a $0.10 per share unfavorable impact on adjusted net income from continuing operations if the Company were to translate prior year quarter results at current quarter foreign exchange rates ("foreign currency translation").  Certain items that impacted fourth quarter results and comparisons with the prior year quarter are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 13 of this press release. 

"Overall, our results reflect a strong performance for both the fourth quarter and the full year 2015.  In a year of substantial volatility driven by macroeconomic factors and industry headwinds, we continued to invest heavily in client-serving capabilities across our industry-leading platform," said Greg Case, President and Chief Executive Officer. "These investments, combined with the leadership of our colleagues around the globe, contributed to our strongest quarterly rate of organic growth in Risk Solutions since 2007, record operating margins in both segments, record free cash flow of $1.7 billion, and the return of $1.9 billion of capital to shareholders."

FOURTH QUARTER FINANCIAL SUMMARY

Total revenue in the fourth quarter was flat at $3.3 billion compared to the prior year quarter driven primarily by 5% organic revenue growth, offset by a 5% unfavorable impact from foreign currency translation.

Total operating expenses for the fourth quarter decreased 3% to $2.6 billion compared to the prior year quarter due primarily to a $130 million favorable impact from foreign currency translation, a $35 million reduction in expense related to legacy litigation incurred in the prior year quarter, and a $12 million decrease in intangible asset amortization, partially offset by an increase in expense associated with 5% organic revenue growth and $12 million of transaction and portfolio repositioning related costs.

Depreciation expense increased 2%, or $1 million, in the fourth quarter to $60 million compared to the prior year quarter.

Intangible asset amortization expense decreased 13%, or $12 million, in the fourth quarter to $77 million compared to the prior year quarter, consisting of a $9 million decrease in HR Solutions and a $3 million decrease in Risk Solutions.

Foreign currency exchange rates in the fourth quarter had a $0.10 per share, or $33 million, pretax unfavorable impact (-$27 million in Risk Solutions, -$6 million in HR Solutions) on adjusted net income from continuing operations if the Company were to translate prior year quarter results at current quarter foreign exchange rates.

Effective tax rate used in the U.S. GAAP financial statements for the fourth quarter was 15.8%, compared to the prior year quarter of 19.6%.  After adjusting the underlying annual tax rate to exclude the impact associated with expenses for legacy litigation incurred in the second quarter, the adjusted effective tax rate for the fourth quarter of 2015 declined to 17.9% compared to 19.6% in the prior year quarter, due primarily to certain favorable discrete items. This adjustment is discussed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 13 of this press release.

Average diluted shares outstanding decreased 5% to 279.3 million in the fourth quarter compared to 293.4 million in the prior year quarter. The Company repurchased 4.2 million Class A Ordinary Shares for approximately $400 million in the fourth quarter. As of December 31, 2015, the Company had $4.1 billion of remaining authorization under its share repurchase program.

Cash flow from operations for 2015, after giving effect to a reclassification described more fully on page 7 of this press release, increased 11%, or $197 million, to a record $2.0 billion driven by declines in pension contributions, restructuring related payments, and cash paid for taxes, as well as working capital improvements, partially offset by $137 million in cash paid to settle legacy litigation and strong organic growth in the fourth quarter.

Free cash flow, defined as cash flow from operations less capital expenditures, after giving effect to a reclassification described more fully on page 7 of this press release, increased 10%, or $163 million, to a record $1.7 billion for 2015.  Free cash flow was driven by an increase in cash flow from operations, partially offset by a $34 million increase in capital expenditures primarily for certain completed investments to optimize our global real estate portfolio.  A reconciliation of free cash flow to cash flow from operations can be found on the "Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow" on page 12 of this press release.

FOURTH QUARTER SEGMENT REVIEW

Certain noteworthy items impacted operating income and operating margins in the fourth quarters of 2015 and 2014.  The fourth quarter segment information provided below includes supplemental information related to organic revenue, adjusted operating income and adjusted operating margin, which is described in detail on the "Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow" on page 12 and "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 13 of this press release.

Risk Solutions total revenue for the fourth quarter decreased 2% compared to the prior year quarter driven by a 6% unfavorable impact from foreign currency translation, and a 1% decrease in commissions and fees resulting from acquisitions, net of divestitures, partially offset by 5% organic growth in commissions and fees.

Retail organic revenue for the fourth quarter increased 6% reflecting revenue growth in both the Americas and International businesses.  Americas organic revenue increased 6% reflecting strong growth across all regions and product lines, including record new business generation in US Retail and double-digit growth in Latin America. International organic revenue increased 6% driven by strong growth across Asia and the Pacific and effective management of the renewal book portfolio in continental Europe. 

Reinsurance organic revenue for the fourth quarter increased 2% compared to the prior year quarter driven by growth in treaty placements globally and record net new business, partially offset by a decline in capital markets transactions and advisory business and facultative placements, as well as a modest unfavorable market impact in the Americas.

Compensation and benefits for the fourth quarter decreased $1 million compared to the prior year quarter due primarily to a $69 million favorable impact from foreign currency translation and expense discipline, partially offset by an increase in expense associated with 5% organic revenue growth.

Other general expenses for the fourth quarter decreased 20%, or $94 million, compared to the prior year quarter due primarily to a $38 million favorable impact from foreign currency translation, a $35 million reduction in expense related to legacy litigation incurred in the prior year quarter, and expense discipline.

Fourth quarter operating income increased 11% to $491 million compared to the prior year quarter.  Adjusting for certain items detailed on page 13 of this press release, operating income increased 2%, or $10 million, including a $27 million unfavorable impact from foreign currency translation, and operating margin increased 100 basis points to 25.7%, each compared to the prior year quarter.  The increase in adjusted operating margin was driven primarily by strong organic revenue growth of 5%, return on investments in data and analytics across the portfolio, and a 30 basis point favorable impact from foreign currency translation.

HR Solutions total revenue for the fourth quarter increased 2% to $1.3 billion compared to the prior year quarter driven by 4% organic growth in commissions and fees, partially offset by a 2% unfavorable impact from foreign currency translation.

Organic revenue in Consulting Services increased 4% due primarily to solid growth in compensation consulting and continued growth in retirement solutions, particularly for investment consulting. Organic revenue in Outsourcing increased 4% compared to the prior year quarter due primarily to solid growth in benefits administration for project-related work, new client wins in HR BPO for cloud-based solutions, and higher enrollments in health care exchanges.

Compensation and benefits for the fourth quarter decreased $3 million compared to the prior year quarter due primarily to a $16 million favorable impact from currency translation and expense discipline, partially offset by  an increase in expense associated with 4% organic revenue growth and $10 million of transaction and portfolio repositioning related costs.

Other general expenses for the fourth quarter decreased 5%, or $18 million, compared to the prior year quarter due primarily to a $6 million favorable impact from foreign currency translation, a $9 million decrease in intangible asset amortization, and expense discipline, partially offset by $2 million of transaction and portfolio repositioning related costs.

Fourth quarter operating income increased 22% to $287 million compared to the prior year quarter.  Adjusting for certain items detailed on page 13 of this press release, operating income increased 14%, or $42 million, including a $6 million unfavorable impact from foreign currency translation, and operating margin increased 270 basis points to 26.2%, each compared to the prior year quarter.  The increase in adjusted operating margin was driven by solid organic revenue growth of 4% and return on investments, partially offset by $12 million, or -90 basis points, of transaction and portfolio repositioning related costs in the quarter primarily associated with the sale of a business in the quarter.

Unallocated expense for the fourth quarter increased $17 million to $61 million compared to the prior year quarter primarily due to the timing of certain employee incentive and employee benefit related expenses, as well as certain investments in shared services.  Interest income increased $1 million to $4 million compared to the prior year quarter.  Interest expense increased $1 million to $68 million compared to the prior year quarter due primarily to an increase in total debt outstanding.  Other income of $49 million primarily includes net gains on the sale of certain businesses, partially offset by net losses due to the unfavorable impact of exchange rates on the remeasurement of monetary assets and liabilities in non-functional currencies. The prior year quarter primarily includes net gains due to the favorable impact of exchange rates on the remeasurement of monetary assets and liabilities in non-functional currencies and gains on certain long term investments.

2015 FULL YEAR SUMMARY

Total revenue for 2015 decreased 3% to $11.7 billion due to a 6% unfavorable impact from foreign currency translation, partially offset by 3% organic growth in commissions and fees. Risk Solutions total revenue decreased 5% to $7.4 billion and HR Solutions total revenue increased 1% to $4.3 billion.

Net income attributable to Aon shareholders for 2015 decreased 1% to $1.4 billion compared to the prior year.  Net income attributable to Aon shareholders, adjusted for certain items, increased 2% to $1.8 billion.  Certain items that impacted full year results and comparisons against the prior year are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 13 of this press release.

Net income per share attributable to Aon shareholders for 2015 increased 5% to $4.88 per share compared to $4.66 per share for the prior year.  Net income attributable to Aon shareholders, adjusted for certain items, increased 8% to $6.18 per share compared to $5.71 per share for the prior year, including a $0.41 per share unfavorable impact on adjusted net income from continuing operations if the Company were to translate prior year quarter results at current quarter foreign exchange rates.  Certain items that impacted full year results and comparisons against the prior year are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 13 of this press release.

During 2015, the Company repurchased approximately 16 million Class A Ordinary Shares for $1.6 billion at an average price of $97.04 per share.

Reclassification - Employee Shares Withheld for Taxes
During the quarter ended December 31, 2015, the Company reclassified certain cash flows related to employee shares withheld for taxes.  This resulted in reclassifying $227 million and $170 million for the years ended December 31, 2015 and 2014, respectively, from "Accounts payable and accrued liabilities" and "Other assets and liabilities" within Cash Flows From Operating Activities, to "Issuance of shares for employee benefit plans" within Cash Flows From Financing Activities.  The amounts reclassified from "Accounts payable and accrued liabilities" and "Other assets and liabilities" were $85 million and $85 million in 2014, respectively.  This reclassification had no impact on total cash flows generated or used by the Company for fiscal year 2015 or 2014.

About Aon
Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more  than 72,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via  innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com.

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The following factors, among others, could cause actual results to differ from those set forth in the forward looking statements:  general economic and political conditions in different countries in which Aon does business around the world; changes in the competitive environment; fluctuations in exchange and interest rates that could influence revenue and expense; changes in global equity and fixed income markets that could affect the return on invested assets; changes in the funding status of Aon's various defined benefit pension plans and the impact of any increased pension funding resulting from those changes; the level of Aon's debt limiting financial flexibility; rating agency actions that could affect Aon's ability to borrow funds; the effect of the change in global headquarters and jurisdiction of incorporation, including differences in the anticipated benefits; changes in estimates or assumptions on our financial statements; limits on Aon's subsidiaries to make dividend and other payments to Aon; the impact of lawsuits and other contingent liabilities and loss contingencies arising from errors and omissions and other claims against Aon; the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which Aon operates, particularly given the global scope of Aon's  businesses and the possibility of conflicting regulatory requirements across jurisdictions in which Aon does business; the impact of any investigations brought by regulatory authorities in the U.S., U.K. and other countries; the impact of any inquiries relating to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws and with U.S. and non-U.S. trade sanctions regimes; failure to protect intellectual property rights or allegations that we infringe on the intellectual property rights of others; the effects of English law on our operating flexibility and the enforcement of judgments against Aon; the failure to retain and attract qualified personnel; international risks associated with Aon's global operations; the effect or natural or man-made disasters; the potential of a system or network breach or disruption resulting in operational interruption or improper disclosure of personal data; Aon's ability to develop and implement new technology; the damage to our reputation among clients, markets or third parties; the actions taken by third parties that preform aspects of our business operations and client services;  the extent to which Aon manages certain risks created in connection with the various services, including fiduciary and investments and other advisory services and business process outsourcing services, among others, that Aon currently provides, or will provide in the future, to clients; Aon's ability to grow, develop and integrate companies that it acquires or new lines of business; changes in commercial property and casualty markets, commercial premium rates or methods of compensation; changes in the health care system or our relationships with insurance carriers; and Aon's ability to implement initiatives intended to yield cost savings, and the ability to achieve those cost savings.

Any or all of Aon's forward-looking statements may turn out to be inaccurate, and there are no guarantees about Aon's performance.  The factors identified above are not exhaustive.  Aon and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently.  Further information concerning Aon and its businesses, including factors that potentially could materially affect Aon's financial results, is contained in Aon's filings with the SEC. See Aon's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q for a further discussion of these and other risks and uncertainties applicable to Aon's businesses. These factors may be revised or supplemented in subsequent reports.  Aon is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statement that it may make from time to time, whether as a result of new information, future events or otherwise.

Explanation of Non-GAAP Measures
This communication includes supplemental information related to organic revenue, free cash flow, adjusted operating margin, adjusted earnings per share, and adjusted effective tax rate that exclude the effects of restructuring charges, intangible asset amortization, capital expenditures, transaction and integration costs and certain other noteworthy items that affected results for the comparable periods.  Organic revenue excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, reimbursable expenses and unusual items.  The impact of foreign exchange is determined by translating last year's revenue, expense or net income at this year's foreign exchange rates.  Reconciliations are provided in the attached schedules.  Supplemental organic revenue information and additional measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts.  Free cash flow is cash flow from operating activity less capital expenditures. The effective tax rate, as adjusted, excludes the applicable tax impact associated with expenses for legacy litigation. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors.  They should be viewed in addition to, not in lieu of, the Company's Consolidated Financial Statements.  Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments.