AOC Aon Corp.

CHICAGO, Aug. 3 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE:AOC) today reported second quarter and six months 2006 results. Second quarter 2006 net income was $193 million or $0.57 per share, compared to $191 million or $0.57 per share in 2005; excluding restructuring charges under the company's previously announced program, net income per share was $0.61 in second quarter 2006. Six months 2006 net income was $391 million or $1.13 per share, compared to $391 million or $1.16 per share in 2005. For the quarter, net income from continuing operations was $181 million or $0.53 per share, compared to $193 million or $0.58 per share a year ago. Six months 2006 net income from continuing operations was $362 million or $1.05 per share, compared to $381 million or $1.13 per share a year ago. Second quarter and six months 2005 results from continuing operations benefited by $0.10 per share from the favorable resolution of certain tax matters, resulting in unusually low effective tax rates. Certain items influenced the second quarter and six month comparisons against the prior year and are detailed in the reconciliation of the impact of non-GAAP measures on pages 10 and 11. On that basis, second quarter and six months 2006 earnings per share from continuing operations increased 29% and 20%, respectively, compared to a year ago. Greg Case, Aon's president and CEO, said, "This was a solid quarter for Aon. We achieved good organic revenue growth in Americas Brokerage and Reinsurance, while maintaining expense discipline across the company. The result is improvement in Aon's underlying earnings, margin, and organic growth rate compared to last year. We are making investments in our Consulting business which hold great promise, but which are affecting current performance. In the Insurance Underwriting segment, strong sales of a supplemental health product contributed to significant profit growth and margin improvement. With the pending disposition of Aon Warranty Group, we intend to focus future insurance underwriting activities solely on the business of Combined Insurance Company of America and its subsidiaries." Sale of Aon Warranty Group As previously announced, during the quarter Aon signed a definitive agreement to sell Aon Warranty Group (AWG) and its worldwide operations, including Virginia Surety Company. The operating results of this business, including related Corporate & Other segment investment income, have been reclassified to discontinued operations for the second quarter and six month periods ending June 30, 2006 and 2005 (see "Discontinued Operations"). The sale is expected to be completed in the fourth quarter of 2006. Aon continues to explore strategic options with respect to its Specialty Property and Casualty businesses, which are not included in the AWG transaction. Second Quarter Segment Review Risk and Insurance Brokerage Services second quarter revenue increased 5% to $1.4 billion, with 2% organic revenue growth. Organic revenue in Brokerage-Americas rose 5%, primarily driven by our U.S. Retail business and growth in Affinity and Latin America. Brokerage- International organic revenue declined 1% reflecting the negative impact of soft market conditions. Reinsurance organic revenue grew 5% in the quarter, reflecting double-digit growth in the Americas and Asia driven by new business and improved pricing, partially offset by the impact of higher risk retention by clients and weaker pricing in the U.K. and European markets. Second quarter pretax income increased 6% to $220 million from $208 million in 2005, and the pretax margin improved to 15.8% in 2006 from 15.6% in 2005. Adjusting for the items detailed on page 11, the 2006 segment pretax margin improved by 240 basis points to 17.1% from 14.7%, principally due to revenue growth and the benefits of operational improvements and cost reduction initiatives. Six months pretax income increased 5% to $469 million from $448 million, and the pretax margin improved to 16.8% from 16.7% in 2005. Adjusting for the items detailed on page 11, the pretax margin improved to 17.5% in 2006 from 15.4% in 2005. Consulting segment revenue of $309 million in the quarter reflects 1% organic growth driven primarily by Compensation Consulting and the recently established Financial Advisory and Litigation Consulting (FALC) unit. Second quarter pretax income was $23 million, compared to $29 million in 2005. The pretax income decline was principally due to investments made in the FALC and Global Benefits practices, and reduced volumes from certain outsourcing clients. The pretax margin was 7.4% in 2006 and 9.2% a year ago. Adjusting for the items detailed on page 11, the pretax margin was 8.4%, compared to 8.9% a year ago. Six months pretax income was $53 million, compared to $55 million, and the pretax margin was 8.6% in 2006, compared to 8.8% in 2005. Excluding the items detailed on page 11, the consulting margin improved by 150 basis points over the first six months of 2005. Insurance Underwriting revenue increased 9% to $556 million in the quarter, with segment organic revenue growth, which is based on written premiums and fees, of 10%. In the Accident & Health and Life (A&H and Life) business, organic revenue grew 12% primarily driven by strong growth in a supplemental health product. Second quarter pretax income rose 25% to $79 million reflecting improved profitability in A&H and Life and higher investment income. The pretax margin improved to 14.2% in 2006 from 12.3% in 2005. Six months pretax income increased 15.0% to $135 million, and the pretax margin improved to 12.2% from 11.5% in 2005. Corporate and Other segment revenue was $18 million in the quarter, compared to $3 million in 2005. The pretax loss in the Corporate and Other segment was $46 million, compared with a loss of $54 million a year ago. The pretax loss for six months was $103 million, compared to a pretax loss of $80 million a year ago. Six months 2006 results included a $17 million pretax loss related to the revaluation of Endurance warrants, compared to a $15 million pretax gain in 2005. Restructuring Plan The previously announced three-year restructuring plan is currently expected to result in cumulative pretax charges of approximately $300 million, including employee termination and lease consolidation costs, asset impairments, and other costs associated with the restructuring. The increase from our previous estimate results primarily from newly identified IT cost saving initiatives. Annualized cost savings are now targeted at approximately $195 million by 2008. Certain aspects of the plan are not finalized, and actual total costs, the timing of the costs, and ultimate savings may vary from the estimates due to changes in the scope or assumptions underlying this plan. An analysis of restructuring-related expenses by segment for the second quarter and six months of 2006 is presented in the attached reconciliation of non-GAAP measures. Actual and estimated restructuring costs by reporting period, by type, and by geographic region are detailed on page 12. Discontinued Operations The second quarter after-tax income from discontinued operations was $12 million ($0.04 per share) in 2006 and a $2 million after-tax loss ($0.01 per share) in 2005, primarily reflecting the reclassification of AWG. Selected financial information relating to AWG is included on page 13. The effective tax rates on discontinued operations were unusually high for 2005 reflecting deferred tax adjustments relating to AWG. Effective Tax Rate The effective tax rate for continuing operations was 34.4% for the second quarter of 2006 compared to 21.5% for the second quarter of 2005. The year- to-date effective tax rates for the six months ending June 30, 2006 and 2005 were 34.7% and 29.4%, respectively. The effective tax rates for 2005 were unusually low reflecting the favorable resolution of certain tax matters. Foreign Exchange Impact Second quarter 2006 earnings per share were positively affected by $0.01 related to foreign currency translation gains relative to the second quarter of 2005. In addition, second quarter 2006 earnings per share included $0.01 of currency hedging losses compared to $0.02 of hedging gains in 2005. Accounting Change As of January 1, 2006, Aon adopted FASB Statement No.123(R) using the modified prospective transition method, as permitted. Accordingly, prior period amounts have not been restated. Stock option-based compensation expense (included in compensation and benefits expense) related to the adoption of Statement No.123(R) was $6 million pretax or $0.01 per share in the second quarter of 2006, and $13 million pretax or $0.02 per share for the six months of 2006. Financial Condition Total debt and preferred stock increased $201 million to $2.1 billion at June 30, 2006 from June 30, 2005. Total debt and preferred stock as a percentage of total capital increased to 28% from 27% over the same period. Stockholders' equity was $5.4 billion at June 30, 2006. Compared to December 31, 2005, total debt decreased $9 million. Approximately 94% of Aon's investment portfolio at quarter end was in short-term and fixed maturities, with 99% of the fixed income securities rated investment grade. Stock Repurchase Program During the second quarter of 2006, Aon completed the repurchase of approximately 5.6 million shares of common stock for $221 million. Through June 30, 2006, the Company has repurchased approximately 12.4 million shares for $493 million under the existing $1 billion buyback authorization announced in November 2005. The Company will host an audio webcast to discuss second quarter results on Friday, August 4 at 10:00 a.m. central time that can be accessed at http://www.aon.com/ . Aon Corporation ( http://www.aon.com/ ) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions. This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, our ability to execute the stock repurchase program, our ability to execute the planned sale of the Aon Warranty Group, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, changes in revenues and earnings due to the elimination of contingent commissions, other uncertainties surrounding a new compensation model, the impact of investigations brought by state attorneys general, state insurance regulators, federal prosecutors, and federal regulators, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, and ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, and the difference in ultimate paid claims in our underwriting companies from actuarial estimates. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission. This press release includes supplemental information related to organic revenue growth, a measure that management believes is important to evaluate changes in revenue from existing operations. We believe that this supplemental information is helpful to investors. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses, unusual items, and for the underwriting segment only, an adjustment between written and earned premium. A reconciliation is provided in the attached schedules. The supplemental organic revenue growth information does not affect net income or any other GAAP reported amounts. It should be viewed in addition to, not in lieu of, the Company's Consolidated Summary of Operations. Industry peers provide similar supplemental information regarding their revenue performance, although they may not make identical adjustments. This press release also includes supplemental information related to several measures -- income per share, expenses, and margins - that exclude the effects of the restructuring charges and certain other noteworthy items that impacted revenue and pretax income in the comparable periods. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. The measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts. They should be viewed in addition to, not in lieu of, the Company's Consolidated Summary of Operations. Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments. Investor Contact: Julie Ann Kotowski Investor Relations 312-381-3983 Media Contact: Al Orendorff Director, Public Relations 312-381-3153 Aon Corporation Consolidated Summary of Operations Second Quarter Ended Six Months Ended ---------------------- ---------------------- (millions except June June June June per share data) 30, 30, Percent 30, 30, Percent 2006 2005(1) Change 2006 2005(1) Change ------ -------- ------- ------ ------ ------- Revenue Brokerage commissions and fees $1,657 $1,610 3% $3,277 $3,236 1% Premiums and other 522 482 8 1,041 957 9 Investment income 86 56 54 177 133 33 ------ -------- ------- ------ ------ ------- Total revenue 2,265 2,148 5 4,495 4,326 4 ------ -------- ------- ------ ------ ------- Expenses Compensation and benefits 1,136 1,081 5 2,237 2,167 3 Other general expenses 471 471 - 946 910 4 Benefits to policyholders 292 258 13 581 520 12 Depreciation and amortization 55 59 (7) 110 121 (9) Interest expense 34 31 10 65 65 - Provision for New York and other state settlements 1 2 (50) 2 3 (33) ------ -------- ------- ------ ------ ------- Total expenses 1,989 1,902 5 3,941 3,786 4 ------ -------- ------- ------ ------ ------- Income from continuing operations before provision for income tax 276 246 12 554 540 3 Provision for income tax(3) 95 53 79 192 159 21 ------ -------- ------- ------ ------ ------- Income from continuing operations 181 193 (6) 362 381 (5) Discontinued Operations Income from discontinued operations 20 43 (53) 47 62 (24) Provision for income tax(4) 8 45 (82) 19 52 (63) ------ -------- ------- ------ ------ ------- Income (loss) from discontinued operations 12 (2) N/A 28 10 180 ------ -------- ------- ------ ------ ------- Income before accounting change 193 191 1 390 391 - Cumulative effect of change in accounting principle, net of tax(2) - - N/A 1 - N/A ------ -------- ------- ------ ------ ------- Net income $193 $191 1% $391 $391 -% ====== ======== ======= ====== ====== ======= Preferred stock dividends - - - - (1) (100) ------ -------- ------- ------ ------ ------- Net income available for common stockholders $193 $191 1% $391 $390 -% ====== ======== ======= ====== ====== ======= Basic net income (loss) per share: Income from continuing operations $0.56 $0.60 (7)% $1.13 $1.18 (4)% Discontinued operations 0.04 (0.01) N/A 0.09 0.03 200 Cumulative effect of change in accounting principle - - - - - - ------ -------- ------- ------ ------ ------- Net income $0.60 $0.59 2% $1.22 $1.21 1% ====== ======== ======= ====== ====== ======= Diluted net income (loss) per share: Income from continuing operations $0.53 $0.58 (9)% $1.05 $1.13 (7)% Discontinued operations 0.04 (0.01) N/A 0.08 0.03 167 Cumulative effect of change in accounting principle - - - - - - ------ -------- ------- ------ ------ ------- Net income $0.57 $0.57 -% $1.13 $1.16 (3)% ====== ======== ======= ====== ====== ======= Diluted average common and common equivalent shares outstanding 344.8 338.5 2% 347.5 337.8 3% ====== ======== ======= ====== ====== ======= (1) Certain amounts relating to discontinued operations have been reclassified to conform to the 2006 presentation. (2) Adoption of FASB Statement No. 123(R), "Share-Based Payments," effective January 1, 2006. (3) Tax rate from continuing operations is 34.4% and 21.5% for the second quarters ended June 30, 2006 and 2005, respectively, and 34.7% and 29.4% for the six month periods ended June 30, 2006 and 2005, respectively. (4) Tax rate from discontinued operations is 40% and 104.7% for the second quarters ended June 30, 2006 and 2005, respectively, and 40.4% and 83.9% for the six month periods ended June 30, 2006 and 2005, respectively. Aon Corporation Revenue From Continuing Operations Second Quarter Ended ------------------------------------------------------- Less: Acquisitions, Less: Divest- Less: Organic Curr- itures All Revenue June 30, June 30, Percent ency & Other Growth (millions) 2006 2005(1) Change Impact Transfers (2) (3) -------- -------- ------- ------ --------- ---- ------- Revenue Risk and insurance brokerage services Risk management and insurance brokerage - Americas $591 $539 10% 2% 3% -% 5% Risk management and insurance brokerage - International 590 592 - (1) 2 - (1) Reinsurance brokerage and related services 214 203 5 (1) (3) 4 5 -------- -------- ------- ------ --------- ---- ------- Total risk and insurance brokerage services 1,395 1,334 5 - 2 1 2 -------- -------- ------- ------ --------- ---- ------- Consulting Consulting services 237 244 (3) - (5) 1 1 Outsourcing 72 71 1 1 2 (2) - -------- -------- ------- ------ --------- ---- ------- Total consulting 309 315 (2) - (3) - 1 -------- -------- ------- ------ --------- ---- ------- Insurance underwriting Accident & health and life 499 450 11 - - (1) 12 Property & casualty 57 61 (7) - - - (7) -------- -------- ------- ------ --------- ---- ------- Total insurance underwriting 556 511 9 - - (1) 10 -------- -------- ------- ------ --------- ---- ------- Corporate and other 18 3 500 N/A N/A N/A N/A Intersegment revenues (13) (15) N/A N/A N/A N/A N/A -------- -------- ------- ------ --------- ---- ------- Total $2,265 $2,148 5% -% 1% -% 4% ======== ======== ======= ====== ========= ==== ======= Six Months Ended ------------------------------------------------------- Less: Acquisitions, Less: Divest- Less: Organic Curr- itures All Revenue June 30, June 30, Percent ency & Other Growth (millions) 2006 2005(1) Change Impact Transfers (2) (3) ------------------------------------------------------- Revenue Risk and insurance brokerage services Risk management and insurance brokerage - Americas $1,121 $991 13% 1% 2% 5% 5% Risk management and insurance brokerage - International 1,207 1,252 (4) (4) 1 (1) - Reinsurance brokerage and related services 460 443 4 (2) - 4 2 -------- -------- ------- ------ --------- ---- ------- Total risk and insurance brokerage services 2,788 2,686 4 (2) 2 2 2 -------- -------- ------- ------ --------- ---- ------- Consulting Consulting services 475 484 (2) (1) (4) - 3 Outsourcing 142 140 1 (1) 3 (3) 2 -------- -------- ------- ------ --------- ---- ------- Total consulting 617 624 (1) (1) (3) 1 2 -------- -------- ------- ------ --------- ---- ------- Insurance underwriting Accident & health and life 980 890 10 - - (1) 11 Property & casualty 127 126 1 - - (13) 14 -------- -------- ------- ------ --------- ---- ------- Total insurance underwriting 1,107 1,016 9 - - (2) 11 -------- -------- ------- ------ --------- ---- ------- Corporate and other 15 30 (50) N/A N/A N/A N/A Intersegment revenues (32) (30) N/A N/A N/A N/A N/A -------- -------- ------- ------ --------- ---- ------- Total $4,495 $4,326 4% (1)% 1% -% 4% ======== ======== ======= ====== ========= ==== ======= (1) Certain amounts relating to discontinued operations have been reclassified to conform to the 2006 presentation. (2) Includes the impact of investment income, reimbursable expenses, adjustment between written and earned premium and fees in insurance underwriting only, and unusual items. (3) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers and items described in (2). Written premiums and fees are the basis for organic revenue growth within the Insurance Underwriting segment. Aon Corporation Risk and Insurance Brokerage Services - Continuing Operations Second Quarter Ended Six Months Ended ------------------------- ---------------------- June June June June 30, 30, Percent 30, 30, Percent (millions) 2006 2005(1) Change 2006 2005(1) Change ------- -------- ------ ----- -------- ------ Revenue Operating and other revenue $1,355 $1,306 4% $2,682 $2,633 2% Investment income 40 28 43 106 53 100 ------- -------- ------ ----- -------- ------ Total revenue 1,395 1,334 5 2,788 2,686 4 ------- -------- ------ ----- -------- ------ Expenses Compensation and benefits 826 781 6 1,627 1,570 4 Other expenses 349 345 1 692 668 4 ------- -------- ------ ----- -------- ------ Total expenses 1,175 1,126 4 2,319 2,238 4 ------- -------- ------ ----- -------- ------ Income from continuing operations before provision for income tax $220 $208 6% $469 $448 5% ======= ======== ====== ===== ======== ====== Pretax margin - income from continuing operations before provision for income tax 15.8% 15.6% 16.8% 16.7% Consulting - Continuing Second Quarter Ended Six Months Ended ------------------------ -------------------- Operations June June June June 30, 30, Percent 30, 30, Percent (millions) 2006 2005 Change 2006 2005 Change ------- -------- ------ ----- -------- ------ Revenue Operating and other revenue $308 $314 (2)% $614 $622 (1)% Investment income 1 1 - 3 2 50 ------- -------- ------ ----- -------- ------ Total revenue 309 315 (2) 617 624 (1) ------- -------- ------ ----- -------- ------ Expenses Compensation and benefits 202 198 2 396 395 - Other expenses 84 88 (5) 168 174 (3) ------- -------- ------ ----- -------- ------ Total expenses 286 286 - 564 569 (1) ------- -------- ------ ----- -------- ------ Income from continuing operations before provision for income tax $23 $29 (21)% $53 $55 (4)% ======= ======== ====== ===== ======== ====== Pretax margin - income from continuing operations before provision for income tax 7.4% 9.2% 8.6% 8.8% (1) Certain amounts relating to discontinued operations have been reclassified to conform to the 2006 presentation. Aon Corporation Insurance Underwriting - Continuing Operations Second Quarter Ended Six Months Ended ------------------------- ---------------------- June June June June 30, 30, Percent 30, 30, Percent (millions) 2006 2005(1) Change 2006 2005(1) Change ------- -------- ------ ----- -------- ------ Revenue Premiums and other $529 $487 9% $1,054 $968 9% Investment income 27 24 13 53 48 10 ------- -------- ------ ----- -------- ------ Total revenue 556 511 9 1,107 1,016 9 ------- -------- ------ ----- -------- ------ Expenses Benefits to policyholders 292 258 13 581 520 12 Compensation and benefits 97 92 5 195 186 5 Other expenses 88 98 (10) 196 193 2 ------- -------- ------ ----- -------- ------ Total expenses 477 448 6 972 899 8 ------- -------- ------ ----- -------- ------ Income from continuing operations before provision for income tax $79 $63 25% $135 $117 15% ======= ======== ====== ===== ======== ====== Pretax margin - income from continuing operations before provision for income tax 14.2% 12.3% 12.2% 11.5% Corporate and Other - Continuing Operations Second Quarter Ended Six Months Ended ------------------------- ---------------------- June June June June 30, 30, Percent 30, 30, Percent (millions) 2006 2005(1) Change 2006 2005(1) Change ------- -------- ------ ----- -------- ------ Revenue Income from marketable equity securities and other investments (2) $17 $10 70% $20 $38 (47)% Limited partnership investments 1 - N/A 1 1 - Net loss on disposals and related expenses - (7) N/A (6) (9) N/A ------- -------- ------ ----- -------- ------ Total revenue 18 3 500 15 30 (50) ------- -------- ------ ----- -------- ------ Expenses Compensation and benefits 11 10 10 19 16 19 Other general expenses 19 16 19 34 29 17 Interest expense 34 31 10 65 65 - ------- -------- ------ ----- -------- ------ Total expenses 64 57 12 118 110 7 ------- -------- ------ ----- -------- ------ Loss from continuing operations before provision for income tax $(46) $(54) N/A% $(103) $(80) N/A% ======= ======== ====== ===== ======== ====== (1) Certain amounts related to discontinued operations have been reclassified to conform to the 2006 presentation. (2) Includes gain (loss) from Endurance warrants of ($17) million for the six months ended June 30, 2006 and ($1) million and $15 million for the second quarter and six months ended June 30, 2005, respectively. Aon Corporation Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share Second Quarter and Six Months Ended June 30, 2006 and 2005 Second Quarter Ended Six Months Ended ------------------------- ---------------------- June June June June 30, 30, Percent 30, 30, Percent 2006 2005 Change 2006 2005 Change ------- -------- ------ ----- -------- ------ Diluted earnings per share from continuing operations - as reported $0.53 $0.58 (9)% $1.05 $1.13 (7)% After tax earnings per share adjustments: Restructuring charges 0.04 - 0.10 - Contingent commissions (0.01) (0.01) (0.02) (0.03) Stock option expense 0.01 - 0.02 - Hedging (gains) losses 0.01 (0.02) 0.01 (0.04) Favorable resolution of tax contingencies and deferred tax adjustments - (0.10) - (0.10) Gain on sale of Cambridge preferred stock investment - - (0.07) - Endurance warrants - - 0.03 (0.03) ------- -------- ------- ------ Total after tax earnings per share adjustments 0.05 (0.13) 0.07 (0.20) ------- -------- ------- ------ Diluted earnings per share from continuing operations - as adjusted 0.58 0.45 29 1.12 0.93 20 Diluted earnings per share from discontinued operations - as reported 0.04 (0.01) 0.08 0.03 Deferred tax adjustments attributable to Aon Warranty Group - 0.09 - 0.09 ------- -------- ------- ------ Diluted earnings per share from discontinued operations - as adjusted 0.04 0.08 (50) 0.08 0.12 (33) Total diluted earnings per share - as adjusted $0.62 $0.53 17% $1.20 $1.05 14% ======= ======== ======= ====== Diluted average common and common equivalent shares outstanding (millions) 344.8 338.5 347.5 337.8 ======= ======== ======= ====== Aon Corporation Reconciliation of Non-GAAP Measures - Segments Second Quarter and Six Months Ended June 30, 2006 and 2005 (1) Second Quarter Ended June 30, 2006 ----------------------------------------- Risk and Insur- Insurance ance Brokerage Consult- Under- Corporate (millions) Services ing writing & Other Total --------- ------- ---------------- ------ Revenue as reported $1,395 $309 $556 $5 $2,265 Gain on sale of Cambridge preferred stock investment - - - - - Contingent commissions (7) - - - (7) Endurance warrants - - - - - --------- ------- ------- -------- ------ Revenue as adjusted $1,388 $309 $556 $5 $2,258 ========= ======= ======= ======== ====== Income (loss) from continuing operations before provision for income tax - as reported $220 $23 $79 $(46) $276 Restructuring charges 17 2 - - 19 Contingent commissions (7) - - - (7) Stock option expense 4 1 1 - 6 Hedging losses 3 - - - 3 Gain on sale of Cambridge preferred stock investment - - - - - Endurance warrants - - - - - --------- ------- ------- -------- ------ Income (loss) from continuing operations before provision for income tax - as adjusted $237 $26 $80 $(46) $297 ========= ======= ======= ======== ====== Income from continuing operations before provision for income tax - margins as adjusted 17.1% 8.4% 14.4% N/A 13.2% ========= ======= ======= ======== ====== Six Months Ended June 30, 2006 ----------------------------------------- Risk and Insur- Insurance ance Brokerage Consult- Under- Corporate (millions) Services ing writing & Other Total --------- ------- ---------------- ------ Revenue as reported $2,788 $617 $1,107 $(17) $4,495 Gain on sale of Cambridge preferred stock investment (35) - - - (35) Contingent commissions (13) - - - (13) Endurance warrants - - - 17 17 --------- ------- ------- -------- ------ Revenue as adjusted $2,740 $617 $1,107 $- $4,464 ========= ======= ======= ======== ====== Income (loss) from continuing operations before provision for income tax - as reported $469 $53 $135 $(103) $554 Restructuring charges 43 8 - 1 52 Contingent commissions (13) - - - (13) Stock option expense 9 2 2 - 13 Hedging losses 6 - - - 6 Gain on sale of Cambridge preferred stock investment (35) - - - (35) Endurance warrants - - - 17 17 --------- ------- ------- -------- ------ Income (loss) from continuing operations before provision for income tax - as adjusted $479 $63 $137 $(85) $594 ========= ======= ======= ======== ====== Income from continuing operations before provision for income tax - margins as adjusted 17.5% 10.2% 12.4% N/A 13.3% ========= ======= ======= ======== ====== Second Quarter Ended June 30, 2005 ----------------------------------------- Risk and Insur- Insurance ance Brokerage Consult- Under- Corporate (millions) Services ing writing & Other Total --------- ------- ---------------- ------ Revenue as reported $1,334 $315 $511 $(12) $2,148 Contingent commissions (3) (1) - - (4) Endurance warrants - - - 1 1 --------- ------- ------- -------- ------ Revenue as adjusted $1,331 $314 $511 $(11) $2,145 ========= ======= ======= ======== ====== Income (loss) from continuing operations before provision for income tax - as reported $208 $29 $63 $(54) $246 Contingent commissions (3) (1) - - (4) Hedging gains (9) - - - (9) Endurance warrants - - - 1 1 --------- ------- ------- -------- ------ Income (loss) from continuing operations before provision for income tax - as adjusted $196 $28 $63 $(53) $234 ========= ======= ======= ======== ====== Income from continuing operations before provision for income tax - margins as adjusted 14.7% 8.9% 12.3% N/A 10.9% ========= ======= ======= ======== ====== Six Months Ended June 30, 2005 ----------------------------------------- Risk and Insur- Insurance ance Brokerage Consult- Under- Corporate (millions) Services ing writing & Other Total --------- ------- ---------------- ------ Revenue as reported $2,686 $624 $1,016 $- $4,326 Contingent commissions (16) (1) - - (17) Endurance warrants - - - (15) (15) --------- --------------- -------- ------ Revenue as adjusted $2,670 $623 $1,016 $(15) $4,294 ========= ======= ======= ======== ====== Income (loss) from continuing operations before provision for income tax - as reported $448 $55 $117 $(80) $540 Contingent commissions (16) (1) - - (17) Hedging gains (20) - - - (20) Endurance warrants - - - (15) (15) Income (loss) from continuing operations before provision --------- ------- ------- -------- ------ for income tax - as adjusted $412 $54 $117 $(95) $488 ========= ======= ======= ======== ====== Income from continuing operations before provision for income tax - margins as adjusted 15.4% 8.7% 11.5% N/A 11.4% ========= ======= ======= ======== ====== (1) Certain noteworthy items impacted revenue and pretax income in 2006 and 2005, which are described in this schedule. The pretax income (loss) amounts and related margins shown in the captions "Income (loss) from continuing operations before provision for income tax - as adjusted" are non-GAAP measures. Aon Corporation 2005 Restructuring Plan By Type: Actual Estimated ------------------------------------------------ Total Full First Second Incurred Remainder Year Quarter Quarter to of (millions) 2005 2006 2006 Date 2006 2007 Total ------------------------------------------------ Workforce reduction $116 $25 $7 $148 $32 $7 $187 Lease consolidation 20 5 7 32 22 10 64 Asset impairments 17 1 1 19 6 - 25 Other costs associated with restructuring 5 2 4 11 9 4 24 ------------------------------------------------ Total restructuring and related expenses $158 $33 $19 $210 $69 $21 $300 ================================================ By Region: United United Continent Rest of (millions) States Kingdom of Europe World Total ------------------------------------------------ 2005 (incurred) $28 $92 $30 $8 $158 2006 (incurred - 1st Qtr.) 12 13 5 3 33 2006 (incurred - 2nd Qtr.) 3 15 - 1 19 2006 remaining (estimated) 15 36 14 4 69 2007 (estimated) 16 2 2 1 21 ------------------------------------------------ Total incurred and remaining estimated $74 $158 $51 $17 $300 ================================================ Aon Corporation Aon Warranty Group (millions except 2005 2006 per --------------------------------------- ---------------------- share 4th data) 1st 2nd 3rd Quarter Full 1st 2nd Six Quarter Quarter Quarter (1) Year Quarter Quarter Months --------------------------------------- ---------------------- Revenue Brokerage commissions and fees $49 $54 $52 $8 $163 $44 $46 $90 Premiums and other 223 236 246 196 901 230 243 473 Investment income - from Insurance Under- writing segment 12 15 15 15 57 16 18 34 Investment income - from Corporate & Other segment 2 3 3 3 11 3 3 6 ------ ------ ------- ----- ------ ----- ----- ----- Total revenue 286 308 316 222 1,132 293 310 603 ----- ------ ------- ----- ------ ----- ----- ----- Expenses General expenses 134 159 152 67 512 135 145 280 Benefits to policy- holders 131 123 130 119 503 130 141 271 Deprec- iation & amort- ization 5 3 3 6 17 2 3 5 ------ ------- ------ ----- ------- ----- ------ ----- Total expen- ses 270 285 285 192 1,032 267 289 556 ------ ------- ------ ----- ------- ----- ------ ----- Income before provision for income tax 16 23 31 30 100 26 21 47 Provision for income tax 6 36 11 10 63 9 7 16 ------ ------- ------ ----- ------ ----- ----- ----- Net income (loss) $10 $(13) $20 $20 $37 $17 $14 $31 ======= ======= ====== ===== ====== ===== ===== ===== Basic net income (loss) per share $0.03 $(0.04) $0.06 $0.06 $0.11 $0.05 $0.04 $0.10 ====== ======= ====== ====== ====== ====== ====== ===== Dilutive net income (loss) per share $0.03 $(0.04) $0.06 $0.06 $0.11 $0.05 $0.04 $0.09 ====== ======= ====== ====== ====== ====== ====== ===== Dilutive average common and common equiv- alent shares outstan- ding 337.1 338.5 342.7 347.5 341.5 350.2 344.8 347.5 ====== ====== ====== ====== ======= ====== ====== ===== (1) The change in the quarterly pattern of revenue and expense primarily reflects cumulative reclassifications. Aon Corporation Consolidated Summary of Operations - Reclassified for Discontinued Operations (millions except per share data) 2005 2006 -------------------------------------- ----------------------- 1st 2nd 3rd 4th Full 1st 2nd Six Quarter Quarter Quarter Quarter Year Quarter Quarter Months ------- ----------------------------- ----------------------- Revenue Brokerage commissions and fees $1,626 $1,610 $1,530 $1,717 $6,483 $1,620 $1,657 $3,277 Premiums and other 475 482 486 504 1,947 519 522 1,041 Investment income 77 56 55 87 275 91 86 177 ------- ------ ------ ------ ------ ------ ------ ------ Total revenue 2,178 2,148 2,071 2,308 8,705 2,230 2,265 4,495 ------- ------ ------ ------ ------ ------ ------ ------ Expenses General expenses 1,525 1,552 1,543 1,782 6,402 1,576 1,607 3,183 Benefits to policy- holders 262 258 272 256 1,048 289 292 581 Depreciation & amort- ization 62 59 77 62 260 55 55 110 Interest expense 34 31 29 31 125 31 34 65 Provision for New York and other state settlements 1 2 1 1 5 1 1 2 ------- ------ ------ ------ ------ ------ ------ ------ Total expenses 1,884 1,902 1,922 2,132 7,840 1,952 1,989 3,941 ------- ------ ------ ------ ------ ------ ------ ------ Income from continuing operations before provision for income tax 294 246 149 176 865 278 276 554 Provision for income tax 106 53 49 52 260 97 95 192 ------- ------ ------ ------ ------ ------ ------ ------ Income from continuing operations 188 193 100 124 605 181 181 362 Discontinued Operations Income from Discontinued Operations 19 43 34 234 330 27 20 47 Provision for income tax 7 45 12 134 198 11 8 19 ------- ------ ------ ------ ------ ------ ------ ------ Income (loss) from discontinued operations 12 (2) 22 100 132 16 12 28 ------- ------ ------ ------ ------ ------ ------ ------ Income before accounting change 200 191 122 224 737 197 193 390 Cumulative effect of change in accounting principle, net of tax - - - - - 1 - 1 ------- ------ ------ ------ ------ ------ ------ ------ Net income $200 $191 $122 $224 $737 $198 $193 $391 ======= ====== ====== ====== ====== ====== ====== ====== Preferred stock dividends (1) - (1) - (2) - - - ------- ------ ------ ------ ------ ------ ------ ------ Net income available for common stockholders $199 $191 $121 $224 $735 $198 $193 $391 ======= ====== ====== ====== ====== ====== ====== ====== Basic net income (loss) per share: Income from continuing operations $0.58 $0.60 $0.30 $0.38 $1.87 $0.56 $0.56 $1.13 Discontinued operations 0.04 (0.01) 0.07 0.31 0.41 0.05 0.04 0.09 Cumulative effect of change in accounting principle - - - - - - - - ------- ------ ------ ------ ------ ------ ------ ------ Net income $0.62 $0.59 $0.37 $0.69 $2.28 $0.61 $0.60 $1.22 ======= ====== ====== ====== ====== ====== ====== ====== Dilutive net income (loss) per share: Income from continuing operations $0.55 $0.58 $0.30 $0.36 $1.78 $0.52 $0.53 $1.05 Discontinued operations 0.04 (0.01) 0.06 0.29 0.39 0.05 0.04 0.08 Cumulative effect of change in accounting principle - - - - - - - - ------- ------ ------ ------ ------ ------ ------ ------ Net income $0.59 $0.57 $0.36 $0.65 $2.17 $0.57 $0.57 $1.13 ======= ====== ====== ====== ====== ====== ====== ====== Dilutive average common and common equivalent shares outstanding 337.1 338.5 342.7 347.5 341.5 350.2 344.8 347.5 ======= ====== ====== ====== ====== ====== ====== ====== Aon Corporation Segments - Reclassification for Discontinued Operations 2005 2006 ------------------------------------------- ------ 1st 2nd 3rd 4th Full 1st (millions) Quarter Quarter Quarter Quarter Year Quarter ----------- ------- ------- -------- ---- ------- Revenue Risk and insurance brokerage services $1,352 $1,334 $1,280 $1,434 $5,400 $1,393 Consulting 309 315 295 336 1,255 308 Insurance underwriting : As reported 789 816 827 756 3,188 841 Less: reclassification to discontinued operations (284) (305) (313) (219) (1,121) (290) ----------- ------- ------- -------- ---- ------- As reclassified 505 511 514 537 2,067 551 Corporate and other: As reported 29 6 - 21 56 - Less: reclassification to discontinued operations (2) (3) (3) (3) (11) (3) ----------- ------- ------- -------- ---- ------- As reclassified 27 3 (3) 18 45 (3) Intersegment revenues (15) (15) (15) (17) (62) (19) ----------- ------- ------- -------- ---- ------- Total $2,178 $2,148 $2,071 $2,308 $8,705 $2,230 =========== ======= ======= ======== ==== ======= Income (Loss) Before Income Tax Risk and insurance brokerage services $240 $208 $137 $134 $719 $249 Consulting 26 29 15 40 110 30 Insurance underwriting: As reported 68 83 84 79 314 79 Less: reclassification to discontinued operations (14) (20) (28) (27) (89) (23) ----------- ------- ------- -------- ---- ------- As reclassified 54 63 56 52 225 56 Corporate and other: As reported (24) (51) (56) (47) (178) (54) Less: reclassification to discontinued operations (2) (3) (3) (3) (11) (3) ----------- ------- ------- -------- ---- ------- As reclassified (26) (54) (59) (50) (189) (57) ----------- ------- ------- -------- ---- ------- Total $294 $246 $149 $176 $865 $278 =========== ======= ======= ======== ==== ======= Income from continuing operations before income tax - margins Risk and insurance brokerage services 17.8% 15.6% 10.7% 9.3% 13.3% 17.9% Consulting 8.4% 9.2% 5.1% 11.9% 8.8% 9.7% Insurance Underwriting As reported 8.6% 10.2% 10.2% 10.4% 9.8% 9.4% As reclassified 10.7% 12.3% 10.9% 9.7% 10.9% 10.2% Total As reported 12.6% 11.0% 7.5% 8.1% 9.8% 12.0% As reclassified 13.5% 11.5% 7.2% 7.6% 9.9% 12.5% Aon Corporation Preliminary Condensed Consolidated Statements of Financial Position As of ---------------------------- (billions) Jun. 30, Dec. 31, 2006 2005 ------------ ---------- (Unaudited) ASSETS Investments Fixed maturities at fair value $2.8 $2.8 Short-term investments 4.1 4.0 Other investments 0.5 0.5 ------------ ---------- Total investments 7.4 7.3 Cash 0.4 0.5 Receivables 10.3 9.1 Deferred Policy Acquisition Costs 0.6 0.5 Goodwill 4.4 4.2 Other Intangible Assets 0.1 0.1 Property and Equipment, net 0.5 0.5 Assets Held for Sale 4.1 3.9 Other Assets 2.2 1.7 ------------ ---------- TOTAL ASSETS $30.0 $27.8 ============ ========== LIABILITIES AND STOCKHOLDERS' EQUITY Insurance Premiums Payable $11.0 $9.4 Policy Liabilities Future policy benefits 1.8 1.7 Policy and contract claims 1.6 1.6 Unearned and advance premiums and contract fees 0.5 0.5 ------------ ---------- Total Policy Liabilities 3.9 3.8 General Liabilities General expenses 1.5 1.6 Notes payable 2.1 2.1 Pension, post-employment and post-retirement liabilities 1.6 1.5 Liabilities held for sale 3.5 3.3 Other liabilities 1.0 0.8 ------------ ---------- TOTAL LIABILITIES 24.6 22.5 Stockholders' Equity 5.4 5.3 ------------ ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $30.0 $27.8 ============ ========== DATASOURCE: Aon Corporation CONTACT: Investor Contact, Julie Ann Kotowski, Investor Relations, +1-312-381-3983, or Media Contact, Al Orendorff, Director, Public Relations, +1-312-381-3153, both of Aon Corporation Web site: http://www.aon.com/

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