AOC Aon Corp.

- Total Revenue was $1.9 billion with Organic Growth in Commissions and Fees of 2% CHICAGO, Feb. 6 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE:AOC) today reported results for the fourth quarter and full year ended December 31, 2008. Net income decreased 95% to $10 million or $0.03 per share, compared to $207 million or $0.64 per share for the prior year quarter, primarily due to an expected $116 million after-tax loss on the disposition of the remaining property and casualty insurance businesses that are now included in discontinued operations, an increase in restructuring-related costs, and costs related to the Benfield merger. Net income from continuing operations decreased 35% to $123 million or $0.43 per share, compared to $188 million or $0.58 per share for the prior year quarter. Net income from continuing operations per share, excluding certain items, increased 19% to $0.81 compared to $0.68 for the prior year quarter. Certain items that impacted fourth quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 12 of this press release. "In the fourth quarter, we achieved solid results despite a soft market and very challenging economic environment. These results reflect the strength of our industry-leading network of global resources and capabilities, and continued progress in each of our key operating metrics. Organic growth was two percent, adjusted pretax margin increased 120 basis points and adjusted earnings per share from continuing operations increased 19%," said Greg Case, president and chief executive officer, Aon Corporation. "We begin 2009 in a position of strength, with a core product portfolio that is now aligned around risk advice and human capital solutions. Our expense initiatives and restructuring programs are delivering meaningful margin improvement, while concurrently funding significant investments in value-added services and capabilities to support our clients. Our balance sheet has remained strong, which has provided us with financial flexibility to effectively allocate capital, as is highlighted by the recent merger with Benfield. All of these actions support our belief in the underlying strength of Aon and our on-going commitment to delivering long-term shareholder value." FOURTH QUARTER FINANCIAL SUMMARY Total revenue decreased 4% to $1.9 billion due to an 8% decline from foreign currency translation, a 2% increase from acquisitions net of dispositions and organic revenue growth in commissions and fees of 2%. Total expenses increased 1% or $16 million to $1.8 billion, including a $155 million favorable impact from foreign currency translation, partially offset by a $53 million increase in restructuring costs, $46 million of Benfield transaction costs and $42 million of other Benfield expenses. The fourth quarter includes the operating results of Benfield since the close of the merger on November 28, and reflects $38 million of revenue and $42 million of expenses. The results of Benfield decreased net income by $0.01 per share in the fourth quarter. Restructuring expense was $87 million in the fourth quarter compared to $34 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for both the 2007 and Benfield restructuring programs are detailed on page 13 of this release. Restructuring savings in the fourth quarter related to the 2007 restructuring program are estimated at $32 million compared to no material savings in the prior year quarter. Of the estimated restructuring savings in the fourth quarter, $27 million were related to the Brokerage segment primarily for workforce reduction. The 2007 restructuring program achieved approximately $78 million of cumulative savings in 2008. Before any potential reinvestment of savings, the 2007 restructuring program is now expected to deliver cumulative run-rate cost savings of approximately $240-265 million in 2009 and $370 million in 2010, primarily as a result of additional cost savings opportunities to streamline support functions globally. Although the recently announced Benfield restructuring program is expected to realize significant savings over the next three years, the Company realized no savings from the program in the fourth quarter. The Company expects the restructuring plan to result in cumulative pretax costs of approximately $185 million over a three-year period, a portion of which will be included in the purchase price allocation. Before any potential reinvestment of savings, the Benfield restructuring program is expected to deliver cumulative cost savings of $33-41 million in 2009, $84-94 million in 2010 and $122 million in 2011. Foreign currency translation decreased net income by $0.01 per share compared to the prior year quarter due primarily to fluctuations in the U.S. dollar against most major currencies. Effective tax rate on continuing operations declined to 28.9% for the fourth quarter compared to 30.6% for the prior year quarter due primarily to reductions in certain statutory tax rates and changes in the geographical distribution of income. Average diluted shares outstanding were 288 million in the fourth quarter compared to 324 million in the prior year quarter, due primarily to the Company's share repurchase program. Discontinued Operations after-tax loss was $113 million or $0.40 per share compared to after-tax income of $19 million or $0.06 per share for the prior year quarter. Subsequent to the fourth quarter, the Company entered into an agreement to dispose of its property and casualty insurance operations, and the results were classified as held-for-sale and placed into discontinued operations for the quarter. The after-tax loss in the quarter is primarily due to an expected $116 million loss on disposal of these operations. Discontinued operations also include the results of Automobile Insurance Specialists (AIS), and for the prior year quarter, include the results of AIS, Combined Insurance Company of America and Sterling Life Insurance. FOURTH QUARTER SEGMENT REVIEW Certain noteworthy items impacted revenue, pretax income and pretax margins in the fourth quarter of 2008 and 2007. The fourth 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 the Impact of Non-GAAP Measures on Segments and Diluted Earnings Per Share" on page 12 of this press release. RISK AND INSURANCE BROKERAGE SERVICES ------------------------------------- (millions) Fourth Quarter Ended Less: ------------------------- Less: Acquisitions, Organic Commissions, Dec 31, Dec 31, % Currency Divestitures, Revenue Fees, Other 2008 2007 Change Impact Other Growth ------------ ------- ------- ------ -------- ------------- ------- Americas $642 $650 (1)% (4)% -% 3% U.K. 196 223 (12) (14) 1 1 EMEA 333 353 (6) (9) 2 1 Asia Pacific 119 140 (15) (16) (2) 3 Reinsurance 247 210 18 (5) 21 2 ------- ------- ------- -------- ------------- ------- Sub-Total $1,537 $1,576 (2)% (8)% 4% 2% ------- ------- ------- -------- ------------- ------- Investment Income $44 $51 (14)% ------- ------- ------- Total Revenue $1,581 $1,627 (3)% ======= ======= ======= Risk and Insurance Brokerage Services total revenue decreased 3% to $1.6 billion compared to the prior year quarter due to an 8% unfavorable impact from foreign currency translation and a 14% decline in investment income, partially offset by a 4% increase from acquisitions net of dispositions and 2% organic revenue growth in commissions and fees. Americas organic revenue increased 3% reflecting solid growth in U.S. Retail and strong growth in Latin America. U.K. organic revenue increased 1% due primarily to growth in Captives business. EMEA organic revenue increased 1% due to growth in continental Europe and emerging markets. Asia Pacific organic revenue increased 3% reflecting solid growth in most Asian markets, partially offset by the impact of certain regulatory changes in Japan. Reinsurance organic revenue increased 2% due primarily to growth in global facultative and treaty placements, partially offset by soft market conditions. Fourth Quarter Ended ------------------------ (millions) Dec 31, Dec 31, % 2008 2007 Change -------- -------- ------- Revenue $1,581 $1,627 (3)% Expenses Compensation and benefits 934 923 1 Other expenses 426 434 (2) -------- -------- ------- Total operating expenses 1,360 1,357 - Operating income 221 270 (18)% Other (income) expense 4 (6) N/A -------- -------- ------- Pretax income $217 $276 (21)% ======== ======== ======= Pretax margin 13.7% 17.0% Pretax income - adjusted $314 $300 5% Pretax margin - adjusted 19.9% 18.4% Total operating expenses for the fourth quarter increased $3 million from the prior year quarter. The $3 million increase includes a $48 million increase in restructuring costs, $40 million of Benfield operating expenses and $11 million for the previously disclosed reviews under the Foreign Corrupt Practices Act (FCPA) and similar laws in other countries and related compliance initiatives, primarily offset by a $124 million favorable impact from foreign currency translation, $27 million of benefits related to the 2007 restructuring program, and a $33 million benefit due primarily to an increase in U.S. dollar commissions and fees receivable in the U.K. This benefit currently reflects a more favorable ongoing relationship between U.S. dollar revenue and British pound expense, for business placed into the U.K. market. Fourth quarter pretax income decreased 21% to $217 million. Adjusting for certain items detailed on page 12 of this press release, pretax income increased 5% or $14 million to $314 million and pretax margin increased 150 basis points to 19.9% versus the prior year quarter due primarily to benefits of the 2007 restructuring program and other operational improvements, partially offset by a $21 million unfavorable impact related to conforming adjustments in certain European countries and a $7 million decline in investment income. Brokerage results for the fourth quarter include $38 million of revenue and a $2 million pretax loss for Benfield. Benfield operating results had an unfavorable impact of 60 basis points on adjusted Brokerage pretax margin. CONSULTING ---------- (millions) Fourth Quarter Ended Less: ----------------- Less: Acquisitions, Organic Commissions, Dec 31, Dec 31, % Currency Divestitures, Revenue Fees, Other 2008 2007 Change Impact Other Growth ----------- ------- ------- ------ -------- -------------- ------- Services $289 $313 (8)% (9)% (3)% 4% Outsourcing 52 59 (12) (10) 2 (4) ------- ------- ------ -------- -------------- ------- Sub-Total $341 $372 (8)% (9)% (2)% 3% ------- ------- ------ -------- -------------- ------- Investment Income $1 $1 -% ------- ------- ------ Total Revenue $342 $373 (8)% ======= ======= ====== Consulting total revenue decreased 8% to $342 million compared to the prior year quarter due to a 9% unfavorable impact from foreign currency translation, a 2% decrease from acquisitions net of dispositions, partially offset by 3% organic revenue growth in commissions and fees. Organic revenue in Services increased 4% reflecting growth in retirement and health and benefits consulting. Organic revenue in Outsourcing declined 4% due to the previously announced termination of a significant outsourcing contract, partially offset by modest growth in benefits outsourcing. Fourth Quarter Ended ------------------------ (millions) Dec 31, Dec 31, % 2008 2007 Change -------- -------- ------ Revenue $342 $373 (8)% Expenses Compensation and benefits 203 219 (7) Other expenses 84 94 (11) -------- -------- ------ Total operating expenses 287 313 (8) Operating income 55 60 (8)% Other (income) expense - - - -------- -------- ------ Pretax income $55 $60 (8)% ======== ======== ====== Pretax margin 16.1% 16.1% Pretax income - adjusted $65 $64 2% Pretax margin - adjusted 19.0% 17.2% Compensation and benefits for the fourth quarter decreased 7% or $16 million from the prior year quarter including an $18 million favorable impact from foreign currency translation and benefits related to the 2007 restructuring program, partially offset by a $4 million increase in restructuring costs. Other expenses decreased 11% or $10 million compared to the prior year quarter including a $7 million favorable impact from foreign currency translation and benefits related to the 2007 restructuring program. Fourth quarter pretax income decreased 8% to $55 million due to an $8 million decline from foreign currency translation. Pretax margin was 16.1%, similar to the prior year quarter. Adjusting for certain items detailed on page 12, pretax income increased 2% to $65 million and the pretax margin increased 180 basis points to 19.0%. UNALLOCATED INCOME AND EXPENSE ------------------------------ Fourth Quarter Ended ----------------------- (millions) Dec 31, Dec 31, % 2008 2007 Change ------- ------- ------ Operating segment income before tax $272 $336 (19)% Unallocated investment income 6 11 (45) Unallocated expenses (75) (40) 88 Interest expense (30) (36) (17) ------- ------- ------ Income from continuing operations before tax $173 $271 (36)% ======= ======= ====== Unallocated investment income for the fourth quarter decreased $5 million to $6 million compared to the prior year quarter due primarily to the timing of distributions in certain private equity holdings. Unallocated expenses increased $35 million to $75 million versus the prior year quarter due primarily to $44 million of hedging costs related to the Benfield transaction. Interest expense decreased $6 million to $30 million from the prior year quarter due to fluctuations in foreign currency and a decline in average interest rates on outstanding debt. 2008 FULL YEAR SUMMARY Total revenue for 2008 increased 4% to $7.6 billion with organic revenue growth of 2%. Risk and Insurance Brokerage Services total revenue increased 5% to $6.2 billion with organic revenue growth in commissions and fees of 2%. Consulting total revenue was similar to the prior year with organic revenue growth in commissions and fees of 3%. Net income for 2008 increased 71% to $1.5 billion compared to $864 million for the prior year. Net income from continuing operations decreased 6% to $621 million compared to $662 million for the prior year. EPS for 2008 increased 83% to $4.91 per share compared to $2.69 per share for the prior year. EPS from continuing operations was $2.06 compared to $2.07 for the prior year. EPS from continuing operations, excluding certain items, increased 24% to $2.90 compared to $2.33 for the prior year. Certain items that impacted full year results and comparisons against the prior year are detailed in the reconciliations of the impact of non-GAAP measures on page 12. During 2008, the Company repurchased approximately 42.6 million shares of common stock for $1.9 billion at an average price of $45.08 per share. As of December 31, 2008, the Company had approximately $850 million of remaining share repurchase authorization. Conference Call and Webcast Details The Company will host a conference call on Friday, February 6, 2009 at 7:30 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 (NYSE:AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. With over 37,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources and technical expertise are delivered locally through more than 500 offices in over 120 countries. Named the world's best broker by Euromoney magazine's 2008 Insurance Survey, Aon also ranked highest on the Business Insurance listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008. A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007 and 2008, and Aon was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/. 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, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, the outcome of inquiries from regulators and investigations related to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws, the impact of investigations brought by U.S. state attorneys general, U.S. state insurance regulators, U.S. federal prosecutors, U.S. federal regulators, and regulatory authorities in the U.K. and other countries, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, our ability to integrate Benfield successfully and to realize the anticipated benefits of the Benfield merger. 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 and several additional measures including expenses, margins and income per share, that exclude the effects of restructuring charges and certain other noteworthy items that affected results for the comparable periods. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses and unusual items. Reconciliation is provided in the attached schedules. Supplemental organic revenue growth 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. 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 Summary of Operations. Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments. Investor Contact: Media Contact: Scott Malchow David Prosperi Vice President, Vice President, Investor Relations Global Public Relations 312-381-3983 312-381-2485 Aon Corporation Consolidated Summary of Operations (Unaudited) Fourth Quarter Ended Twelve Months Ended -------------------------------------------------------- (millions except Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent per share data) 2008 2007 Change 2008 2007 Change -------- -------- --------- --------- --------- -------- Revenue ------- Commissions, fees and other $1,873 $1,943 (4)% $7,366 $7,066 4% Investment income 51 63 (19) 265 293 (10) -------- -------- --------- --------- --------- -------- Total revenue 1,924 2,006 (4) 7,631 7,359 4 -------- -------- --------- --------- --------- -------- Expenses -------- Compensation and benefits 1,153 1,157 - 4,581 4,341 6 Other general expenses 455 496 (8) 1,800 1,712 5 Depreciation and amortization 65 52 25 222 193 15 -------- -------- --------- --------- --------- -------- Total operating expenses 1,673 1,705 (2) 6,603 6,246 6 -------- -------- --------- --------- --------- -------- Operating income 251 301 (17) 1,028 1,113 (8) Interest expense 30 36 (17) 126 138 (9) Other (income) expense 48 (6) N/A 39 (35) N/A -------- -------- --------- --------- --------- -------- Income from continuing operations before provision for income tax 173 271 (36) 863 1,010 (15) Provision for income tax (1) 50 83 (40) 242 348 (30) -------- -------- --------- --------- --------- -------- Income from continuing operations 123 188 (35) 621 662 (6) Discontinued operations Income (loss) from discontinued operations (184) 77 N/A 1,256 330 281 Provision for (benefit from) income tax (2) (71) 58 N/A 399 128 212 -------- -------- --------- --------- --------- -------- Income (loss) from discontinued operations (113) 19 N/A 857 202 324 -------- -------- --------- --------- --------- -------- Net income $10 $207 (95)% $1,478 $864 71% ======== ======== ========= ========= ========= ======== Basic net income (loss) per share: Continuing operations $0.45 $0.62 (27)% $2.18 $2.23 (2)% Discontinued operations (0.41) 0.07 N/A 3.00 0.67 348 -------- -------- --------- --------- --------- -------- Net income $0.04 $0.69 (94)% $5.18 $2.90 79% ======== ======== ========= ========= ========= ======== Diluted net income (loss) per share: Continuing operations $0.43 $0.58 (26)% $2.06 $2.07 -% Discontinued operations (0.40) 0.06 N/A 2.85 0.62 360 -------- -------- --------- --------- --------- -------- Net income $0.03 $0.64 (95)% $4.91 $2.69 83% ======== ======== ========= ========= ========= ======== Weighted average common shares outstanding - diluted 288.1 324.1 (11)% 300.9 323.0 (7)% ======== ======== ========= ========= ========= ======== (1) Tax rate from continuing operations is 28.9% and 30.6% for the fourth quarters ended December 31, 2008 and 2007, respectively, and 28.0% and 34.5% for the twelve months ended December 31, 2008 and 2007, respectively. (2) Tax rate from discontinued operations is 38.6% and 75.3% for the fourth quarters ended December 31, 2008 and 2007, respectively, and 31.8% and 38.8% for the twelve months ended December 31, 2008 and 2007, respectively. Aon Corporation Revenue from Continuing Operations (Unaudited) Fourth Quarter Ended ---------------------------------------------------------- Less: Less: Acquisitions, Organic Dec. 31, Dec. 31, Percent Currency Divestitures Revenue (millions) 2008 2007 Change Impact & Other Growth (1) -------- ------- ------ -------- ------------ ------------ Commissions, Fees and Other --------------- Risk and Insurance Brokerage Services: Americas $642 $650 (1)% (4)% -% 3% United Kingdom 196 223 (12) (14) 1 1 Europe, Middle East & Africa 333 353 (6) (9) 2 1 Asia Pacific 119 140 (15) (16) (2) 3 Reinsurance brokerage and related services 247 210 18 (5) 21 2 -------- ------- ------ -------- ------------ ------------ Total Risk and Insurance Brokerage Services 1,537 1,576 (2) (8) 4 2 -------- ------- ------ -------- ------------ ------------ Consulting: Consulting services 289 313 (8) (9) (3) 4 Outsourcing 52 59 (12) (10) 2 (4) -------- ------- ------ -------- ------------ ------------ Total Consulting 341 372 (8) (9) (2) 3 -------- ------- ------ -------- ------------ ------------ Total Operating Segments $1,878 $1,948 (4)% (8)% 2% 2% ======== ======= ====== ======== ============ ============ Investment Income ---------- Risk and Insurance Brokerage Services $44 $51 (14)% Consulting 1 1 - -------- ------- ------ Total Operating Segments $45 $52 (13)% ======== ======= ====== Total Revenue ------------- Risk and Insurance Brokerage Services $1,581 $1,627 (3)% Consulting 342 373 (8) Unallocated 6 11 (45) Intersegment (5) (5) - -------- ------- ------ Total $1,924 $2,006 (4)% ======== ======= ====== (1) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers, reimbursable expenses and unusual items. Aon Corporation Revenue from Continuing Operations (Unaudited) Twelve Months Ended ----------------------------------------------------------- Less: Less: Acquisitions, Organic Dec. 31, Dec. 31, Percent Currency Divestitures Revenue (millions) 2008 2007 Change Impact & Other Growth (1) -------- ------- ------ -------- ------------ ----------- Commissions, Fees and Other --------------- Risk and Insurance Brokerage Services: Americas $2,280 $2,259 1% -% -% 1% United Kingdom 742 768 (3) (4) 1 - Europe, Middle East & Africa 1,521 1,341 13 7 2 4 Asia Pacific 492 483 2 1 (1) 2 Reinsurance brokerage and related services 1,003 901 11 3 7 1 -------- ------- ------ -------- ------------ ----------- Total Risk and Insurance Brokerage Services 6,038 5,752 5 2 1 2 -------- ------- ------ -------- ------------ ----------- Consulting: Consulting services 1,139 1,107 3 - (2) 5 Outsourcing 214 236 (9) (2) - (7) -------- ------- ------ -------- ------------ ----------- Total Consulting 1,353 1,343 1 - (2) 3 -------- ------- ------ -------- ------------ ----------- Total Operating Segments $7,391 $7,095 4% 1% 1% 2% ======== ======= ====== ======== ============ =========== Investment Income ---------- Risk and Insurance Brokerage Services $192 $205 (6)% Consulting 5 9 (44) -------- ------- ------ Total Operating Segments $197 $214 (8)% ======== ======= ====== Total Revenue ------------- Risk and Insurance Brokerage Services $6,230 $5,957 5% Consulting 1,358 1,352 - Unallocated 68 79 (14) Intersegment (25) (29) (14) -------- ------- ------ Total $7,631 $7,359 4% ======== ======= ====== (1) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers, reimbursable expenses and unusual items. Aon Corporation - Segments (Unaudited) Risk and Insurance Brokerage Services - Continuing Operations ------------------------------------------------------------- Fourth Quarter Ended Twelve Months Ended --------------------------- ----------------------------- Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent (millions) 2008 2007 Change 2008 2007 Change -------- --------- -------- --------- --------- -------- Revenue ------- Commissions, fees and other $1,537 $1,576 (2)% $6,038 $5,752 5% Investment income 44 51 (14) 192 205 (6) -------- --------- -------- --------- --------- -------- Total revenue 1,581 1,627 (3) 6,230 5,957 5 -------- --------- -------- --------- --------- -------- Expenses -------- Compensation and benefits 934 923 1 3,707 3,457 7 Other general expenses 426 434 (2) 1,659 1,525 9 -------- --------- -------- --------- --------- -------- Total operating expenses 1,360 1,357 - 5,366 4,982 8 -------- --------- -------- --------- --------- -------- Operating income 221 270 (18) 864 975 (11) Other (income) expense 4 (6) N/A (10) (35) (71) -------- --------- -------- --------- --------- -------- Income before provision for income tax $217 $276 (21)% $874 $1,010 (13)% ======== ========= ======== ========= ========= ======== Pretax income margin 13.7% 17.0% 14.0% 17.0% Consulting - Continuing Operations Fourth Quarter Ended Twelve Months Ended ------------ --------------------------- ----------------------------- Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent (millions) 2008 2007 Change 2008 2007 Change -------- --------- -------- --------- --------- -------- Revenue ------- Commissions, fees and other $341 $372 (8)% $1,353 $1,343 1% Investment income 1 1 - 5 9 (44) -------- --------- -------- --------- --------- -------- Total revenue 342 373 (8) 1,358 1,352 - -------- --------- -------- --------- --------- -------- Expenses -------- Compensation and benefits 203 219 (7) 815 823 (1) Other general expenses 84 94 (11) 331 340 (3) -------- --------- -------- --------- --------- -------- Total operating expenses 287 313 (8) 1,146 1,163 (1) -------- --------- -------- --------- --------- -------- Operating income 55 60 (8) 212 189 12 Other (income) expense - - - (1) - N/A -------- --------- -------- --------- --------- -------- Income before provision for income tax $55 $60 (8)% $213 $189 13% ======== ========= ======== ========= ========= ========= Pretax income margin 16.1% 16.1% 15.7% 14.0% Reconciliation of segment income before provision for income tax to income from continuing operations before provision for income tax: Fourth Quarter Ended Twelve Months Ended --------------------------- ----------------------------- Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent (millions) 2008 2007 Change 2008 2007 Change -------- --------- -------- --------- --------- -------- Segment income before provision for income tax Risk and Insurance Brokerage Services $217 $276 (21)% $874 $1,010 (13)% Consulting 55 60 (8) 213 189 13 -------- --------- -------- --------- --------- -------- Total segment income before provision for income tax 272 336 (19) 1,087 1,199 (9) Unallocated investment income 6 11 (45) 68 79 (14) Unallocated expenses (75) (40) 88 (166) (130) 28 Interest expense (30) (36) (17) (126) (138) (9) -------- --------- -------- --------- --------- -------- Income from continuing operations before provision for income tax $173 $271 (36)% $863 $1,010 (15)% ======== ========= ======== ========= ========= ======== Pretax income margin 9.0% 13.5% 11.3% 13.7% Aon Corporation Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted Earnings Per Share (Unaudited) (1) Fourth Quarter Ended Twelve Months Ended December 31, 2008 December 31, 2008 (millions------------------------------- ------------------------------- except Risk and Unallo- Risk and Unallo- per Insurance cated Insurance cated share Brokerage Cons- Income & Brokerage Cons- Income & data) Services ulting Expense Total Services ulting Expense Total Revenue --------- ------- ------- ------ --------- ------- ------- ----- as reported $1,581 $342 $1 $1,924 $6,230 $1,358 $43 $7,631 ========= ======= ======= ====== ========= ======= ======= ===== Income (loss) from continuing operations before provision for income tax - as reported $217 $55 $(99) $173 $874 $213 $(224) $863 Restruc- turing charges (2005 and 2007 plans) 78 9 - 87 237 17 - 254 Pension curtailment 6 1 1 8 6 1 1 8 Anti- bribery and compliance initia- tives 11 - - 11 42 - - 42 Benfield costs 2 - 44 46 2 - 50 52 Gain on sale of land - - - - (5) - - (5) --------- ------- ------- ------ --------- ------- ------- ----- Income (loss) from continuing operations before provision for income tax - as adjusted $314 $65 $(54) 325 $1,156 $231 $(173) 1,214 ========= ======= ======= ========= ======= ======= Provision for income taxes (2) 93 340 ------ ----- Income from continuing operations - as adjusted $232 $874 ====== ===== Diluted earnings per share from continuing operations - as adjusted $0.81 $2.90 ====== ===== Weighted average common shares outstanding - diluted 288.1 300.9 ====== ===== Pretax income margins - as adjusted 19.9% 19.0% N/A 16.9% 18.6% 17.0% N/A 15.9% ========= ======= ======= ====== ========= ======= ======= ===== Fourth Quarter Ended Twelve Months Ended December 31, 2007 December 31, 2007 (millions------------------------------- ------------------------------- except Risk and Unallo- Risk and Unallo- per Insurance cated Insurance cated share Brokerage Cons- Income & Brokerage Cons- Income & data) Services ulting Expense Total Services ulting Expense Total Revenue --------- ------- ------- ------ --------- ------- ------- ----- as reported $1,627 $373 $6 $2,006 $5,957 $1,352 $50 $7,359 ========= ======= ======= ====== ========= ======= ======= ===== Income (loss) from continuing operations before provision for income tax - as reported $276 $60 $(65) $271 $1,010 $189 $(189) $1,010 Restruc- turing charges (2005 and 2007 plans) 30 4 - 34 74 11 - 85 Gain on sale of businesses (6) - - (6) (36) - - (36) Resolution of U.K. balance sheet reconcil- iation difference - - 15 15 - - 15 15 Reinsur- ance litiga- tion - - - - 21 - - 21 --------- ------- ------- ------ --------- ------- ------- ----- Income (loss) from continuing operations before provision for income tax - as adjusted $300 $64 $(50) 314 $1,069 $200 $(174) 1,095 ========= ======= ======= ========= ======= ======= Provision for income taxes (2) 93 348 ------ ----- Income from continuing operations - as adjusted $221 $747 ====== ===== Diluted earnings per share from continuing operations - as adjusted $0.68 $2.33 ====== ===== Weighted average common shares outstanding - diluted 324.1 323.0 ====== ===== Pretax income margins - as adjusted 18.4% 17.2% N/A 15.7% 17.9% 14.8% N/A 14.9% ========= ======= ======= ====== ========= ======= ======= ===== (1) Certain noteworthy items impacting revenue and pretax income in 2008 and 2007 are described in this schedule. The revenue, income (loss) from continuing operations before provision for income tax, diluted earnings per share from continuing operations and related margins shown with the caption "as adjusted" are non-GAAP measures. (2) Tax rate from continuing operations is 28.6% and 29.6% for the fourth quarters ended December 31, 2008 and 2007, respectively, and 28.0% and 31.8% for the twelve months ended December 31, 2008 and 2007, respectively. Aon Corporation 2007 Restructuring Plan (Unaudited) By Type: Actual Estimated ----------------------------------------- --------- Nine 4th Full Total Months Quarter Year Incurred (millions) 2007 2008 2008 2008 to Date Total ----------------------------------------- --------- Workforce reduction (Compensation and benefits) $17 $118 $48 $166 $183 $330 Lease consolidation (Other general expenses) 22 25 13 38 60 134 Asset impairments (Depreciation and amortization) 4 13 5 18 22 45 Other costs associated with restructuring (Other general expenses) 3 9 20 29 32 41 ----------------------------------------- --------- Total restructuring and related expenses $46 $165 $86 $251 $297 $550 ========================================= ========= By Segment: Actual Estimated ----------------------------------------- --------- Nine 4th Full Total Months Quarter Year Incurred (millions) 2007 2008 2008 2008 to Date Total ----------------------------------------- --------- Risk and Insurance Brokerage Services $41 $157 $77 $234 $275 $503 Consulting 5 8 9 17 22 47 ----------------------------------------- --------- Total restructuring and related expenses $46 $165 $86 $251 $297 $550 ========================================= ========= Benfield Restructuring Plan (Unaudited) By Type: Estimated ------------------------ Non- Purchase Purchase Account- (millions) Accounting ing Total ------------------------ Workforce reduction (Compensation and benefits) $74 $52 $126 Lease consolidation (Other general expenses) 28 21 49 Asset impairments (Depreciation and amortization) - 8 8 Other costs associated with restructuring (Other general expenses) 2 - 2 ------------------------ Total restructuring and related expenses $104 $81 $185 ======================== Aon Corporation Consolidated Summary of Operations - Reclassified for Discontinued Operations (Unaudited) 2007 2008 -------------------------------- --------------------------------- (millions except per 1st 2nd 3rd 4th 1st 2nd 3rd 4th share Quar- Quar- Quar- Quar- Full Quar- Quar- Quar- Quar- Full data) ter ter ter ter Year ter ter ter ter Year ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Revenue ------- Comm- issions, fees and oth- er $1,702 $1,750 $1,671 $1,943 $7,066 $1,848 $1,889 $1,756 $1,873 $7,366 Invest- ment income 67 88 75 63 293 57 67 90 51 265 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total reve- nue 1,769 1,838 1,746 2,006 7,359 1,905 1,956 1,846 1,924 7,631 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Expenses -------- Compen- sation and bene- fits 1,040 1,097 1,047 1,157 4,341 1,154 1,143 1,131 1,153 4,581 Other general expen- ses 413 413 390 496 1,712 419 503 423 455 1,800 Deprecia- tion and amorti- zation 47 46 48 52 193 50 58 49 65 222 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total opera- ting expen- ses 1,500 1,556 1,485 1,705 6,246 1,623 1,704 1,603 1,673 6,603 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Operating income 269 282 261 301 1,113 282 252 243 251 1,028 Interest expense 35 34 33 36 138 33 31 32 30 126 Other (income) expense - (29) - (6) (35) (4) (2) (3) 48 39 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Income from continuing operations before provision for income tax 234 277 228 271 1,010 253 223 214 173 863 Provision for income tax 73 97 95 83 348 76 57 59 50 242 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Income from continuing opera- tions 161 180 133 188 662 177 166 155 123 621 Discontinued operations Income (loss) from discon- tinued opera- tions 79 91 83 77 330 66 1,431 (57) (184) 1,256 Provision for (benefit from) income tax 27 31 12 58 128 25 464 (19) (71) 399 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Income (loss) from discont- inued opera- tions 52 60 71 19 202 41 967 (38) (113) 857 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Net income $213 $240 $204 $207 $864 $218 $1,133 $117 $10 $1,478 ====== ====== ====== ====== ====== ====== ====== ====== ====== ===== Basic net income (loss) per share: Continu- ing operat- ions $0.54 $0.61 $0.45 $0.62 $2.23 $0.58 $0.57 $0.57 $0.45 $2.18 Discont- inued operat ions 0.17 0.20 0.24 0.07 0.67 0.14 3.34 (0.14) (0.41) 3.00 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Net in- come $0.71 $0.81 $0.69 $0.69 $2.90 $0.72 $3.91 $0.43 $0.04 $5.18 ====== ====== ====== ====== ====== ====== ====== ====== ====== ===== Dilutive net income (loss) per share: Contin- uing operat- ions $0.50 $0.57 $0.42 $0.58 $2.07 $0.55 $0.54 $0.53 $0.43 $2.06 Discont- inued opera- tions 0.16 0.18 0.22 0.06 0.62 0.13 3.17 (0.13) (0.40) 2.85 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Net in- come $0.66 $0.75 $0.64 $0.64 $2.69 $0.68 $3.71 $0.40 $0.03 $4.91 ====== ====== ====== ====== ====== ====== ====== ====== ====== ===== Weighted average common shares out- standing - di- luted 324.4 321.9 321.5 324.1 323.0 319.8 305.3 290.3 288.1 300.9 ====== ====== ====== ====== ====== ====== ====== ====== ====== ===== Aon Corporation Segments - Reclassification for Discontinued Operations (Unaudited) 2007 2008 ---------------------------------- --------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd Quar- Quar- Quar- Quar- Full Quar- Quar- Quar- Nine (millions) ter ter ter ter Year ter ter ter Months ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue ------- Risk and insurance brokerage services $1,429 $1,490 $1,411 $1,627 $5,957 $1,566 $1,610 $1,473 $4,649 Consulting 329 325 325 373 1,352 343 336 337 1,016 Unallocated As reported 23 32 21 13 89 7 18 41 66 Less: reclass- ification to discont- inued opera- tions (2) (3) (3) (2) (10) (2) (1) (1) (4) ------ ------ ------ ------ ------ ------ ------ ------ ------ As reclass- ified 21 29 18 11 79 5 17 40 62 Inter- segment (10) (6) (8) (5) (29) (9) (7) (4) (20) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total $1,769 $1,838 $1,746 $2,006 $7,359 $1,905 $1,956 $1,846 $5,707 ====== ====== ====== ====== ====== ====== ====== ====== ====== Income (loss) before income tax ------- Risk and insurance brokerage services $234 $272 $228 $276 $1,010 $238 $231 $188 $657 Consulting 47 44 38 60 189 63 43 52 158 Unallocated As reported (48) (41) (43) (68) (200) (50) (52) (28) (130) Less: reclass- ification to dis- continued opera- tions 1 2 5 3 11 2 1 2 5 ------ ------ ------ ------ ------ ------ ------ ------ ------ As reclass- ified (47) (39) (38) (65) (189) (48) (51) (26) (125) ------ ------ ------ ------ ------ ------ ------ ------ ------ Total $234 $277 $228 $271 $1,010 $253 $223 $214 $690 ====== ====== ====== ====== ====== ====== ====== ====== ====== Income from continuing operations before income tax - margins -------- Risk and insurance brokerage services 16.4% 18.3% 16.2% 17.0% 17.0% 15.2% 14.3% 12.8% 14.1% Consulting 14.3% 13.5% 11.7% 16.1% 14.0% 18.4% 12.8% 15.4% 15.6% Total As reported 13.2% 14.9% 12.8% 13.3% 13.6% 13.2% 11.3% 11.5% 12.0% As reclass- ified 13.2% 15.1% 13.1% 13.5% 13.7% 13.3% 11.4% 11.6% 12.1% Aon Corporation Property and Casualty Run-off Insurance Operations (Unaudited) 2007 ---------------------------------------- 1st 2nd 3rd 4th Full (millions except per share data) Quarter Quarter Quarter Quarter Year ------- ------- ------- -------- ------- Revenue ------- Commissions, fees and other $- $1 $1 $1 $3 Investment income 2 2 2 1 7 ------- ------- ------- -------- ------- Total revenue 2 3 3 2 10 ------- ------- ------- -------- ------- Expenses -------- Compensation and benefits 2 1 1 2 6 Other general expenses 1 4 7 3 15 ------- ------- ------- -------- ------- Total operating expenses 3 5 8 5 21 ------- ------- ------- -------- ------- Operating loss (1) (2) (5) (3) (11) Other expense - - - - - ------- ------- ------- -------- ------- Loss before benefit from income tax (1) (2) (5) (3) (11) Benefit from income tax - (1) (2) (1) (4) ------- ------- ------- -------- ------- Net loss $(1) $(1) $(3) $(2) $(7) ======= ======= ======= ======== ======= Basic net loss per share $(0.01) $(0.01) $(0.01) $(0.01) $(0.02) ======= ======= ======= ======== ======= Dilutive net loss per share $- $- $(0.01) $- $(0.02) ======= ======= ======= ======== ======= Weighted average common shares outstanding - diluted 324.4 321.9 321.5 324.1 323.0 ======= ======= ======= ======== ======= 2008 --------------------------------------- 1st 2nd 3rd 4th Full (millions except per share data) Quarter Quarter Quarter Quarter Year -------- ------- ------- -------- ----- Revenue Commissions, fees and other $- $- $- $1 $1 Investment income 2 1 1 1 5 -------- ------- ------- -------- ----- Total revenue 2 1 1 2 6 -------- ------- ------- -------- ----- Expenses Compensation and benefits 1 2 1 - 4 Other general expenses 3 - 2 (3) 2 -------- ------- ------- -------- ----- Total operating expenses 4 2 3 (3) 6 -------- ------- ------- -------- ----- Operating income (loss) (2) (1) (2) 5 - Other expense - - - 191 191 -------- ------- ------- -------- ----- Loss before benefit from income tax (2) (1) (2) (186) (191) Benefit from income tax (1) - - (73) (74) -------- ------- ------- -------- ----- Net loss $(1) $(1) $(2) $(113) $(117) ======== ======= ======= ======== ===== Basic net loss per share $(0.01) $- $(0.01) $(0.41) $(0.41) ======== ======= ======= ======== ===== Dilutive net loss per share $- $- $(0.01) $(0.39) $(0.39) ======== ======= ======= ======== ===== Weighted average common shares outstanding - diluted 319.8 305.3 290.3 288.1 300.9 ======== ======= ======= ======== ===== Aon Corporation Condensed Consolidated Statements of Financial Position As of ---------------------------------- (millions) Dec. 31, 2008 Dec. 31, 2007 (2) ---------- -------------- ------------------ (Unaudited) ASSETS ------ CURRENT ASSETS Cash $657 $584 Short-term investments 579 1,120 Receivables 1,992 1,993 Fiduciary assets (1) 10,678 9,498 Other current assets 480 276 Assets held for sale 237 4,601 -------------- ------------------ Total Current Assets 14,623 18,072 Goodwill 5,637 4,915 Other intangible assets 779 204 Fixed assets, net 451 497 Long-term investments 342 332 Other non-current assets 1,340 914 -------------- ------------------ TOTAL ASSETS $23,172 $24,934 ============== ================== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------ CURRENT LIABILITIES Fiduciary liabilities $10,678 $9,498 Short-term debt 105 252 Accounts payable and accrued liabilities 1,536 1,413 Other current liabilities 438 293 Liabilities held for sale 142 3,172 -------------- ------------------ Total Current Liabilities 12,899 14,628 Long-term debt 1,872 1,893 Pension, post employment and post retirement liabilities 1,694 1,251 Other non-current liabilities 1,393 941 -------------- ------------------ TOTAL LIABILITIES 17,858 18,713 TOTAL STOCKHOLDERS' EQUITY 5,314 6,221 -------------- ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,172 $24,934 ============== ================== (1) Includes short-term investments: 2008 - $3,204; 2007 - $3,122. (2) Certain amounts have been reclassified to conform to the 2008 presentation. DATASOURCE: Aon Corporation CONTACT: Investor, Scott Malchow, Vice President, Investor Relations, +1-312-381-3983, or Media, David Prosperi, Vice President, Global Public Relations, +1-312-381-2485, both of Aon Corporation Web site: http://www.aon.com/

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