AOC Aon Corp.

- Net income from continuing operations per share increased 42% to $0.74 - - Revenue grew 13% to $2.5 billion with organic revenue growth of 8% - - Brokerage organic revenue growth was 6%, the highest rate since 2003 - CHICAGO, July 31 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE:AOC) today reported results for the second quarter ended June 30, 2007. All organic revenue growth percentages highlighted in the text of this press release exclude the impact of contingent commissions received in the prior year quarter. Net income increased 24% to $240 million or $0.75 per share, compared to $193 million or $0.57 per share for the prior year quarter. Net income from continuing operations increased 36% to $238 million or $0.74 per share, compared to $175 million or $0.52 per share for the prior year quarter. Certain items that impacted second quarter results and comparisons with the prior year quarter are detailed in the reconciliations of non-GAAP measures on pages 13 and 14 of this press release. "Our second quarter results reflect a continued emphasis on delivering the best of Aon to our clients, the strength of our industry-leading global network of resources and capabilities and a continued focus on productivity, renewal book management and talent development. Despite soft market conditions, our Brokerage segment generated the highest rate of organic revenue growth since 2003, with growth across all major business units," said Greg Case, president and chief executive officer, Aon Corporation. "Strong organic revenue growth, combined with expense initiatives, led to another quarter of meaningful margin improvement and earnings growth, even as we invest in innovative solutions and talent to deliver increased value for clients. Our balance sheet is strong, providing financial flexibility. During the quarter, we repurchased $279 million of stock and announced we are considering strategic options for CICA, highlighting a belief in the strength of Aon's platform and our commitment to creating long-term shareholder value." SECOND QUARTER FINANCIAL SUMMARY Total revenue increased 13% to $2.5 billion with organic revenue growth of 8%. Total expenses increased 9% or $182 million to $2.1 billion due primarily to a $94 million increase in benefits to policyholders and a $62 million unfavorable impact from foreign currency translation, partially offset by pension expense savings and benefits related to the restructuring program. Pension expense related to the Company's major defined benefit pension plans declined to $17 million in the second quarter compared to $62 million in the prior year quarter. The company currently anticipates that pension expense will be approximately $90 million in 2007. The decrease in pension expense reflects current actuarial assumptions and plan changes to both the U.S. and U.K. defined benefit pension plans. Restructuring expense was $26 million in the second quarter compared to $19 million for the prior year quarter. An analysis of restructuring related expenses by segment, type and geographic region is detailed on pages 14 and 15 of this release. The previously announced three-year restructuring plan is anticipated to result in annualized cost savings of approximately $235 million in 2007 and $280 million in 2008, consistent with previous estimates. Restructuring savings realized in the second quarter are estimated at $58 million compared to $29 million in the prior year quarter. Of the estimated restructuring savings in the second quarter, $45 million were related to the Brokerage segment, primarily for workforce reduction. Foreign currency translation increased net income by $0.01 per share compared to the prior year quarter. Effective tax rate on continuing operations was 34.8% for the second quarter compared to 34.5% for the prior year quarter. The variance from the anticipated effective tax rate of 34.0% is primarily attributable to the tax on a sale of a business during the quarter. The company anticipates a recurring effective tax rate on continuing operations of 34.0% for 2007. Diluted average shares outstanding were 322 million for the second quarter compared to 345 million in the prior year quarter. During the second quarter, the Company repurchased approximately 6.7 million shares of common stock for $279 million at an average price of $41.53 per share. As of June 30, 2007, the company had approximately $300 million of remaining authorization under the existing $2 billion share repurchase program. SECOND QUARTER SEGMENT REVIEW Certain noteworthy items impacted revenue, pretax income and pretax margins in the second quarter of 2007 and 2006. The second quarter segment reviews provided below include supplemental information related to adjusted pretax income and pretax margin which is described in detail on the "Reconciliation of Non-GAAP Measures -- Segments" on page 14 of this press release. RISK AND INSURANCE BROKERAGE SERVICES Organic Less: Revenue Acquis- Growth itions, excluding Second Quarter Ended Divest- Contin- -------------------- Less: itures, Less: Organic gent (millions) June 30, June 30, % Currency Trans- All Revenue Commis- Revenue 2007 2006 Change Impact fers Other Growth sions ------- ------- ------- ------ ------ ------ ----- ------ ------ Americas $618 $581 6% 1% -% (2)% 7% 8% U.K. 218 191 14 5 2 1 6 6 EMEA 307 270 14 7 (1) 5 3 3 Asia Pacific 138 129 7 9 (4) (3) 5 5 Reinsurance 234 214 9 2 2 1 4 4 ------- ------- ------ ------ ------ ----- ------ ------ Total $1,515 $1,385 9% 3% -% 1% 5% 6% ======== ======== ====== ====== ====== ===== ====== ====== Risk and Insurance Brokerage Services revenue increased 9% compared to the prior year quarter with organic revenue growth of 6%. Americas organic revenue increased 8% due primarily to strong new business and effective management of the renewal book portfolio. U.K. organic revenue increased 6% due primarily to new business and an improved retention rate. EMEA organic revenue increased 3% with modest growth in continental Europe and strong growth in emerging markets. Asia Pacific organic revenue increased 5% reflecting strong growth in most Asian markets, partially offset by continued weakness in Australia. Reinsurance organic revenue increased 4% due primarily to strong growth of facultative placements. Second Quarter Ended -------------------- (millions) June 30, June 30, % 2007 2006 Change --------- --------- ------ Revenue $ 1,515 $ 1,385 9 % Expenses Compensation and benefits 884 822 8 Other expenses 353 348 1 --------- --------- ------ Total expenses 1,237 1,170 6 --------- --------- ------ Pretax income $ 278 $ 215 29 % ========= ========= ====== Pretax margin 18.3 % 15.5 % Pretax income - adjusted $ 269 $ 225 20 % Pretax margin - adjusted 17.8 % 16.3 % Compensation and benefits increased 8% compared to the prior year quarter due primarily to a $31 million unfavorable impact from foreign currency translation, higher incentive compensation and investments in talent, partially offset by benefits related to the restructuring program and pension expense savings. Other expenses increased 1%, including a $17 million unfavorable impact from foreign currency translation and a $30 million non- recurring gain from the sale of certain businesses. Second quarter pretax income was $278 million. Adjusting for certain items detailed on page 14 of this press release, pretax income increased 20% to $269 million and pretax margin increased 150 basis points to 17.8% versus the prior year quarter. CONSULTING Less: Acquis- itions, Second Quarter Ended Divest- -------------------- Less: itures, Less: Organic (millions) June 30, June 30, % Currency Trans- All Revenue Revenue 2007 2006 Change Impact fers Other Growth ------- ------- ------- ------ ------ ------ ----- ------- Services $269 $237 14% 3% 2% 3% 6% Outsourcing 56 72 (22) 3 - (2) (23) ------- ------- ------ ------ ------ ----- ------- Total $325 $309 5% 3% 2% 1% (1)% ======= ======= ====== ====== ====== ===== ======= Consulting revenue increased 5% to $325 million compared to the prior year quarter with an organic revenue decline of 1%. Organic revenue in Consulting Services increased 6% due to growth in most major practice groups and geographies. Organic revenue in Outsourcing decreased 23% due primarily to the previously announced termination of an outsourcing contract. Second Quarter Ended -------------------- (millions) June 30, June 30, % 2007 2006 Change --------- --------- ------ Revenue $ 325 $ 309 5 % Expenses Compensation and benefits 198 202 (2) Other expenses 83 84 (1) --------- --------- ------ Total expenses 281 286 (2) --------- --------- ------ Pretax income $ 44 $ 23 91 % ========= ========= ====== Pretax margin 13.5 % 7.4 % Pretax income - adjusted $ 48 $ 25 92 % Pretax margin - adjusted 14.8 % 8.1 % Total expenses decreased 2% versus the prior year quarter due primarily to benefits related to the restructuring program and other operational improvements, partially offset by an $8 million unfavorable impact from foreign currency translation. Second quarter pretax income increased 91% to $44 million and the pretax margin increased 610 basis points to 13.5% versus the prior year quarter. Adjusting for certain items detailed on page 14, pretax income increased 92% to $48 million and the pretax margin increased 670 basis points to 14.8%. INSURANCE UNDERWRITING Less: Acquis- itions, Second Quarter Ended Divest- -------------------- Less: itures, Less: Organic (millions) June 30, June 30, % Currency Trans- All Revenue Revenue 2007 2006 Change Impact fers Other Growth ------- ------- ------- ------ ------ ------ ----- ------- Accident & Health and Life $611 $499 22% 2% -% -% 20% Property & Casualty (1) 6 N/A N/A N/A N/A N/A ------- ------- ------ ------ ------ ----- ------- Total $610 $505 21% 2% -% -% 19% ======= ======= ====== ====== ====== ===== ======= Insurance Underwriting revenue increased 21% to $610 million compared to $505 million in the prior year quarter. Accident & Health and Life (A&H and L) organic revenue, which is based on written premiums and fees, increased 20% attributable to strong growth of the Medicare Advantage product provided by the Sterling Life Insurance subsidiary (Sterling). Sterling and certain other leading providers of Medicare Advantage Private Fee for Service products voluntarily discontinued marketing of this product on June 22, 2007 at the request of the Centers for Medicare and Medicaid Services and, due to a recently enacted law limiting the enrollment period for Medicare Advantage policies, Sterling's general marketing of Medicare Advantage is not expected to commence again before November 2007. For the six months ended June 30, 2007, Sterling accounted for 32% of total A&H and L revenue and 9% of total A&H and L pretax income. All remaining Property & Casualty (P&C) business was placed into run-off in the fourth quarter 2006. As organic growth calculations are based on written premium, organic growth comparisons in P&C are not meaningful. Second Quarter Ended -------------------- (millions) June 30, June 30, % 2007 2006 Change --------- ----------- ------ Revenue $ 610 $ 505 21 % Expenses Benefits to policyholders 355 261 36 Compensation and benefits 100 96 4 Other expenses 88 73 21 --------- ----------- ------ Total expenses 543 430 26 --------- ----------- ------ Pretax income $ 67 $ 75 (11)% ========= =========== ====== Pretax margin 11.0 % 14.9 % Pretax income - adjusted $ 68 $ 75 (9)% Pretax margin - adjusted 11.1 % 14.9 % Benefits to policyholders increased 36% to $355 million versus the prior year quarter due primarily to strong growth in Sterling. Compensation and benefits increased 4% to $100 million versus the prior year quarter due primarily to commissions associated with growth in Sterling. Other expenses increased 21% to $88 million versus the prior year quarter principally reflecting an increase in marketing related costs for Sterling and higher professional fees. Second quarter pretax income decreased 11% to $67 million and the pretax margin was 11.0%. Also included in the Underwriting segment is a $2 million pretax loss attributable to the P&C runoff business. Adjusting for certain items detailed on page 14, pretax income decreased 9% to $68 million and the pretax margin was 11.1%. Subsequent to the close of the second quarter, the Company announced that it was considering strategic options for the Accident & Health and Life business (CICA and its subsidiaries). UNALLOCATED INCOME AND EXPENSE Unallocated investment income increased to $44 million in the second quarter compared to $18 million in the prior year quarter due primarily to dividends received from holdings in certain private equity investments. Unallocated expenses were $34 million in the second quarter compared to $30 million in the prior year quarter. Interest expense was unchanged at $34 million in the second quarter compared to the prior year quarter. Conference Call and Webcast Details The Company will host a conference call on Wednesday, August 1, 2007 at 10:00 a.m. central time. Interested parties can listen to the conference call via a live audio webcast at http://www.aon.com/. About Aon 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 43,000 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. Safe Harbor Statement 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 successfully execute strategic options for our Combined Insurance subsidiary, the impact of current, pending and future regulatory and legislative actions that affect our ability to market and sell, and be reimbursed at current levels for, our Sterling subsidiary's Medicare Advantage health plans, 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, ERISA class actions, the impact of the analysis of practices relating to stock options, 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: Scott Malchow Vice President, Investor Relations 312-381-3983 Media Contact: David Prosperi Vice President, Public Relations 312-381-2485 Aon Corporation Consolidated Summary of Operations Second Quarter Ended Six Months Ended ------------------------- ------------------------- (millions except per June 30, June 30, Percent June 30, June 30, Percent share data) 2007 2006(1) Change 2007 2006(1) Change -------- -------- ------- -------- -------- ------- Revenue Commissions and fees $1,781 $1,651 8% $3,516 $3,263 8% Premiums and other 573 472 21 1,112 936 19 Investment income 134 85 58 241 174 39 -------- -------- ------- -------- -------- ------- Total revenue 2,488 2,208 13 4,869 4,373 11 -------- -------- ------- -------- -------- ------- Expenses Compensation and benefits 1,207 1,131 7 2,359 2,228 6 Other general expenses 477 459 4 987 920 7 Benefits to policyholders 355 261 36 678 515 32 Depreciation and amortization 49 55 (11) 99 110 (10) Interest expense 34 34 - 69 65 6 Provision for New York and other state settlements 1 1 - 1 2 (50) -------- -------- ------- -------- -------- ------- Total expenses 2,123 1,941 9 4,193 3,840 9 -------- -------- ------- -------- -------- ------- Income from continuing operations before provision for income tax 365 267 37 676 533 27 Provision for income tax(3) 127 92 38 226 185 22 -------- -------- ------- -------- -------- ------- Income from continuing operations 238 175 36 450 348 29 Discontinued operations Income from discontinued operations 3 29 (90) 5 68 (93) Provision for income tax(4) 1 11 (91) 2 26 (92) -------- -------- ------- -------- -------- ------- Income from discontinued operations 2 18 (89) 3 42 (93) -------- -------- ------- -------- -------- ------- Income before accounting change 240 193 24 453 390 16 Cumulative effect of change in accounting principle, net of tax(2) - - - - 1 (100) -------- -------- ------- -------- -------- ------- Net income $240 $193 24% $453 $391 16% ======== ======== ======= ======== ======== ======= Basic net income per share: Continuing operations $0.80 $0.54 48% $1.52 $1.09 39% Discontinued operations 0.01 0.06 (83) 0.01 0.13 (92) Cumulative effect of change in accounting principle - - - - - - -------- -------- ------- -------- -------- ------- Net income $0.81 $0.60 35% $1.53 $1.22 25% ======== ======== ======= ======== ======== ======= Diluted net income per share: Continuing operations $0.74 $0.52 42% $1.40 $1.01 39% Discontinued operations 0.01 0.05 (80) 0.01 0.12 (92) Cumulative effect of change in accounting principle - - - - - - -------- -------- ------- -------- -------- ------- Net income $0.75 $0.57 32% $1.41 $1.13 25% ======== ======== ======= ======== ======== ======= Diluted average common and common equivalent shares outstanding 321.9 344.8 (7)% 323.1 347.5 (7)% ======== ======== ======= ======== ======== ======= (1) Certain amounts relating to discontinued operations have been reclassified to conform to the 2007 presentation. (2) Adoption of FASB Statement No. 123R, "Share-Based Payments," effective January 1, 2006. (3) Tax rate from continuing operations is 34.8% and 34.5% for the second quarters ended June 30, 2007 and 2006, respectively, and 33.4% and 34.7% for the six months ended June 30, 2007 and 2006, respectively. (4) Tax rate from discontinued operations is 33.3% and 37.9% for the second quarters ended June 30, 2007 and 2006, respectively, and 40.0% and 38.2% for the six months ended June 30, 2007 and 2006, respectively. Aon Corporation Revenue from Continuing Operations Second Quarter Ended Organic Less: Revenue Acquisi- Growth tions, ex- Divest- cluding Less: itures Less: Organic Con- June June Cur- & All Revenue tingent 30, 30, Percent rency Tran- Other Growth Comm- (millions) 2007 2006(1) Change Impact sfers (2) (3) issions ------ ------- ------- ------ ----- ----- ------- ------- Revenue Risk and insurance brokerage services: Americas $618 $581 6% 1% -% (2)% 7% 8% United Kingdom 218 191 14 5 2 1 6 6 Europe, Middle East & Africa 307 270 14 7 (1) 5 3 3 Asia Pacific 138 129 7 9 (4) (3) 5 5 Reinsurance brokerage and related services 234 214 9 2 2 1 4 4 ------ ------- ------- ------ ----- ----- ------- ------- Total risk and insurance brokerage services 1,515 1,385 9 3 - 1 5 6 ------ ------- ------- ------ ----- ----- ------- ------- Consulting: Consulting services 269 237 14 3 2 3 6 6 Outsourcing 56 72 (22) 3 - (2) (23) (23) ------ ------- ------- ------ ----- ----- ------- ------- Total consulting 325 309 5 3 2 1 (1) (1) ------ ------- ------- ------ ----- ----- ------- ------- Insurance underwriting: Accident & health and life 611 499 22 2 - - 20 20 Property & casualty (1) 6 N/A N/A N/A N/A N/A N/A ------ ------- ------- ------ ----- ----- ------- ------- Total insurance under- writing 610 505 21 2 - - 19 19 ------ ------- ------- ------ ----- ----- ------- ------- Unallocated revenue 44 18 144 N/A N/A N/A N/A N/A Intersegment revenues (6) (9) N/A N/A N/A N/A N/A N/A ------ ------- ------- ------ ----- ----- ------- ------- Total $2,488 $2,208 13% 3% -% 3% 7% 8% ====== ======= ======= ====== ===== ===== ======= ======= (1) Certain amounts relating to discontinued operations have been reclassified to conform to the 2007 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 Revenue from Continuing Operations Six Months Ended Organic Less: Revenue Acquisi- Growth tions, ex- Divest- cluding Less: itures Less: Organic Con- June June Cur- & All Revenue tingent 30, 30, Percent rency Tran- Other Growth Comm- (millions) 2007 2006(1) Change Impact sfers (2) (3) issions ------ ------- ------- ------ ----- ----- ------- ------- Revenue Risk and insurance brokerage services: Americas $1,137 $1,098 4% -% -% (3)% 7% 8% United Kingdom 374 346 8 6 3 1 (2) (2) Europe, Middle East & Africa 741 644 15 7 1 4 3 3 Asia Pacific 238 217 10 7 (3) - 6 6 Reinsurance brokerage and related services 481 460 5 3 - - 2 2 ------ ------- ------- ------ ----- ----- ------- ------- Total risk and insurance brokerage services 2,971 2,765 7 4 1 (2) 4 4 ------ ------- ------- ------ ----- ----- ------- ------- Consulting: Consulting services 533 475 12 3 2 2 5 5 Outsourcing 121 142 (15) 3 - (1) (17) (17) ------ ------- ------- ------ ----- ----- ------- ------- Total consulting 654 617 6 3 2 1 - - ------ ------- ------- ------ ----- ----- ------- ------- Insurance underwriting: Accident & health and life 1,184 980 21 2 - 2 17 17 Property & casualty - 20 (100) N/A N/A N/A N/A N/A ------ ------- ------- ------ ----- ----- ------- ------- Total insurance under- writing 1,184 1,000 18 2 - - 16 16 ------ ------- ------- ------ ----- ----- ------- ------- Unallocated revenue 76 15 407 N/A N/A N/A N/A N/A Intersegment revenues (16) (24) N/A N/A N/A N/A N/A N/A ------ ------- ------- ------ ----- ----- ------- ------- Total $4,869 $4,373 11% 3% 1% 1% 6% 6% ====== ======= ======= ====== ===== ===== ======= ======= (1) Certain amounts relating to discontinued operations have been reclassified to conform to the 2007 presentation. (2) Includes the impact of investment income, reimbursable expenses, adjustment between written and earned premium and fees in insurance underwriting only, and unusual items. (3) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers and items described in (2). Written premiums and fees are the basis for organic revenue growth within the Insurance Underwriting segment. Aon Corporation - Segments Risk and Insurance Brokerage Services - Continuing Operations Second Quarter Ended Six Months Ended ------------------------ ----------------------- June 30, June 30, Percent June 30,June 30,Percent (millions) 2007 2006 (1) Change 2007 2006(1) Change -------- -------- ------ -------- -------- ------ Revenue Operating and other revenue $1,462 $1,345 9% $2,873 $2,660 8% Investment income 53 40 33 98 105 (7) -------- -------- ------ -------- -------- ------ Total revenue 1,515 1,385 9 2,971 2,765 7 -------- -------- ------ -------- -------- ------ Expenses Compensation and benefits 884 822 8 1,724 1,621 6 Other expenses 353 348 1 727 689 6 -------- -------- ------ -------- -------- ------ Total expenses 1,237 1,170 6 2,451 2,310 6 -------- -------- ------ -------- -------- ------ Income before provision for income tax $278 $215 29% $520 $455 14% ======== ======== ====== ======== ======== ====== Pretax margin - income before provision for income tax 18.3% 15.5% 17.5% 16.5% ======== ======== ======== ======== Consulting - Continuing Operations Second Quarter Ended Six Months Ended ------------------------ ----------------------- June 30, June 30, Percent June 30,June 30,Percent (millions) 2007 2006 Change 2007 2006 Change -------- -------- ------ -------- -------- ------ Revenue Operating and other revenue $319 $308 4% $647 $614 5% Investment income 6 1 500 7 3 133 -------- -------- ------ -------- -------- ------ Total revenue 325 309 5 654 617 6 -------- -------- ------ -------- -------- ------ Expenses Compensation and benefits 198 202 (2) 395 396 - Other expenses 83 84 (1) 168 168 - -------- -------- ------ -------- -------- ------ Total expenses 281 286 (2) 563 564 - -------- -------- ------ -------- -------- ------ Income before provision for income tax $44 $23 91% $91 $53 72% ======== ======== ====== ======== ======== ====== Pretax margin - income before provision for income tax 13.5% 7.4% 13.9% 8.6% ======== ======== ======== ======== (1) Certain amounts relating to discontinued operations have been reclassified to conform to the 2007 presentation. Aon Corporation - Segments Insurance Underwriting - Continuing Operations Second Quarter Ended Six Months Ended ------------------------ ----------------------- June 30, June 30, Percent June 30,June 30,Percent (millions) 2007 2006(1) Change 2007 2006(1) Change -------- -------- ------ -------- -------- ------ Revenue Premiums and other $579 $479 21% $1,124 $949 18% Investment income 31 26 19 60 51 18 -------- -------- ------ -------- -------- ------ Total revenue 610 505 21 1,184 1,000 18 -------- -------- ------ -------- -------- ------ Expenses Benefits to policyholders 355 261 36 678 515 32 Compensation and benefits 100 96 4 202 192 5 Other expenses 88 73 21 178 165 8 -------- -------- ------ -------- -------- ------ Total expenses 543 430 26 1,058 872 21 -------- -------- ------ -------- -------- ------ Income before provision for income tax $67 $75 (11)% $126 $128 (2)% ======== ======== ====== ======== ======== ====== Pretax margin - income before provision for income tax 11.0% 14.9% 10.6% 12.8% ======== ======== ======== ======== Reconciliation of operating segment income before provision for income tax to income from continuing operations before provision for income tax: Second Quarter Ended Six Months Ended ------------------------ ----------------------- June 30, June 30, Percent June 30,June 30,Percent (millions) 2007 2006(1) Change 2007 2006(1) Change -------- -------- ------ -------- -------- ------ Operating segment income Risk and insurance brokerage services $278 $215 29% $520 $455 14% Consulting 44 23 91 91 53 72 Insurance underwriting 67 75 (11) 126 128 (2) -------- -------- ------ -------- -------- ------ Operating segment income before provision for income tax 389 313 24 737 636 16 Unallocated investment income 44 18 144 76 15 407 Unallocated expenses (34) (30) 13 (68) (53) 28 Interest expense (34) (34) - (69) (65) 6 -------- -------- ------ -------- -------- ------ Income from continuing operations before provision for income tax $365 $267 37% $676 $533 27% ======== ======== ====== ======== ======== ====== (1) Certain amounts related to discontinued operations have been reclassified to conform to the 2007 presentation. Aon Corporation Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share Second Quarter and Six Months Ended June 30, 2007 and 2006 Second Quarter Ended Six Months Ended ------------------------ ----------------------- June 30, June 30, Percent June 30,June 30,Percent 2007 2006 Change 2007 2006 Change -------- -------- ------ -------- -------- ------ Diluted earnings per share from continuing operations - as reported $0.74 $0.52 42% $1.40 $1.01 39% After tax earnings per share adjustments: Restructuring charges 0.05 0.04 0.07 0.10 Gain on sale of businesses (0.06) - (0.06) - Tax impact on sale of business 0.01 - 0.01 - Reinsurance litigation - - 0.04 - Nonrecurring tax adjustments - - (0.02) - Gain on Cambridge preferred stock investment - - - (0.07) Endurance warrants - - - 0.03 Contingent commissions - (0.01) - (0.02) -------- -------- -------- -------- Total after tax earnings per share adjustments - 0.03 0.04 0.04 -------- -------- -------- -------- Diluted earnings per share from continuing operations - as adjusted $0.74 $0.55 35% $1.44 $1.05 37% -------- -------- -------- -------- Diluted average common and common equivalent shares outstanding (millions) 321.9 344.8 323.1 347.5 ======== ======== ======== ======== Aon Corporation Reconciliation of Non-GAAP Measures - Segments Second Quarter and Six Months Ended June 30, 2007 and 2006(1) Second Quarter Ended June 30, 2007 -------------------------------------------- Risk and Unallo- Insurance Insurance cated Brokerage Under- Income & (millions) Services Consulting writing Expense Total --------- ---------- ------- ------- ------- Revenue as reported $1,515 $325 $610 $38 $2,488 Income (loss) from continuing operations before provision for income tax - as reported $278 $44 $67 $(24) $365 Restructuring charges 21 4 1 - 26 Gain on sale of businesses (30) - - - (30) Reinsurance litigation - - - - - --------- ---------- ------- ------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $269 $48 $68 $(24) $361 ========== ========== ======= ======= ======= Income from continuing operations before provision for income tax - margins as adjusted 17.8% 14.8% 11.1% N/A 14.5% ========== ========== ======= ======= ======= Second Quarter Ended June 30, 2006 --------------------------------------------- Risk and Unallo- Insurance Insurance cated Brokerage Under- Income & (millions) Services Consulting writing Expense Total ---------- ---------- ------- ------- ------- Revenue as reported $1,385 $309 $505 $9 $2,208 Gain on Cambridge preferred stock investment - - - - - Contingent commissions (7) - - - (7) Endurance warrants - - - - - --------- ---------- ------- ------- ------- Revenue as adjusted $1,378 $309 $505 $9 $2,201 ========== ========== ======= ======= ======= Income (loss) from continuing operations before provision for income tax - as reported $215 $23 $75 $(46) $267 Restructuring charges 17 2 - - 19 Gain on Cambridge preferred stock investment - - - - - Contingent commissions (7) - - - (7) Endurance warrants - - - - - --------- ---------- ------- ------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $225 $25 $75 $(46) $279 ========== ========== ======= ======= ======= Income from continuing operations before provision for income tax - margins as adjusted 16.3% 8.1% 14.9% N/A 12.7% ========== ========== ======= ======= ======= Six Months Ended June 30, 2007 --------------------------------------------- Risk and Unallo- Insurance Insurance cated Brokerage Under- Income & (millions) Services Consulting writing Expense Total ---------- ---------- ------- ------- ------- Revenue as reported $2,971 $654 $1,184 $60 $4,869 Income (loss) from continuing operations before provision for income tax - as reported $520 $91 $126 $(61) $676 Restructuring charges 28 6 2 - 36 Gain on sale of businesses (30) - - - (30) Reinsurance litigation 21 - - - 21 ---------- ---------- ------- ------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $539 $97 $128 $(61) $703 ========== ========== ======= ======= ======= Income from continuing operations before provision for income tax - margins as adjusted 18.1% 14.8% 10.8% N/A 14.4% ========== ========== ======= ======= ======= Six Months Ended June 30, 2006 --------------------------------------------- Risk and Unallo- Insurance Insurance cated Brokerage Under- Income & (millions) Services Consulting writing Expense Total ---------- ---------- ------- ------- ------- Revenue as reported $2,765 $617 $1,000 $(9) $4,373 Gain on Cambridge preferred stock investment (35) - - - (35) Contingent commissions (13) - - - (13) Endurance warrants - - - 17 17 ---------- ---------- ------- ------- ------- Revenue as adjusted $2,717 $617 $1,000 $8 $4,342 ========== ========== ======= ======= ======= Income (loss) from continuing operations before provision for income tax - as reported $455 $53 $128 $(103) $533 Restructuring charges 43 8 - 1 52 Gain on Cambridge preferred stock investment (35) - - - (35) Contingent commissions (13) - - - (13) Endurance warrants - - - 17 17 ---------- ---------- ------- ------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $450 $61 $128 $(85) $554 ========== ========== ======= ======= ======= Income from continuing operations before provision for income tax - margins as adjusted 16.6% 9.9% 12.8% N/A 12.8% ========== ========== ======= ======= ======= (1) Certain noteworthy items impacted revenue and pretax income in 2007 and 2006, 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 ------------------------------------- --------------- Full Full First Second Total Year Year Quarter Quarter Incurred Remainder (millions) 2005 2006 2007 2007 to Date of 2007 Total ------------------------------------- --------------- Workforce reduction $116 $116 $3 $15 $250 $3 $253 Lease consolidation 20 27 3 8 58 1 59 Asset impairments 17 12 2 1 32 - 32 Other costs associated with restructuring 5 12 2 2 21 - 21 ------------------------------------- --------------- Total restructuring and related expenses $158 $167 $10 $26 $361 $4 $365 ====================================================== By Region: Americas Europe, United United other than Middle East Asia (millions) States Kingdom U.S. and Africa Pacific Total ----------------------------------------------------------- 2005 $28 $92 $6 $31 $1 $158 2006 66 56 3 35 7 167 1st quarter 2007 4 5 - 2 (1) 10 2nd quarter 2007 12 13 - 1 - 26 ----------------------------------------------------------- Incurred to date 110 166 9 69 7 361 Estimated remaining 2007 3 1 - - - 4 ----------------------------------------------------------- Total incurred and remaining estimated $113 $167 $9 $69 $7 $365 =========================================================== Aon Corporation Preliminary Condensed Consolidated Statements of Financial Position As of --------------------------------- (millions) June 30, 2007 Dec. 31, 2006 --------------- --------------- (Unaudited) ASSETS Investments Fixed maturities at fair value $2.9 $2.8 Short-term investments 4.2 4.3 Other investments 0.5 0.5 --------------- --------------- Total investments 7.6 7.6 Cash 0.4 0.3 Receivables 9.3 9.0 Deferred Policy Acquisition Costs 0.6 0.5 Goodwill 4.7 4.5 Other Intangible Assets 0.2 0.2 Property and Equipment, net 0.5 0.5 Other Assets 1.5 1.7 --------------- --------------- TOTAL ASSETS $24.8 $24.3 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Insurance Premiums Payable $10.6 $9.7 Policy Liabilities Future policy benefits 1.9 1.8 Policy and contract claims 0.6 0.6 Unearned and advance premiums and other 0.4 0.4 --------------- --------------- Total Policy Liabilities 2.9 2.8 General Liabilities General expenses 1.5 1.9 Notes payable and short-term borrowings 2.2 2.3 Pension, post-employment and post-retirement liabilities 1.4 1.5 Other liabilities 0.8 0.9 --------------- --------------- TOTAL LIABILITIES 19.4 19.1 Stockholders' Equity 5.4 5.2 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24.8 $24.3 =============== =============== DATASOURCE: Aon Corporation CONTACT: Scott Malchow, Vice President, Investor Relations, +1-312-381-3983, or David Prosperi, Vice President, Public Relations, +1-312-381-2485, both of Aon Corporation Web site: http://www.aon.com/

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