Aon Reports Fourth Quarter and Full Year 2007 Results

CHICAGO, Feb. 7 /PRNewswire-FirstCall/ -- Aon Corporation today reported results for the fourth quarter and full year ended December 31, 2007.

Net income decreased 7% to $207 million or $0.64 per share, compared to $223 million or $0.67 per share for the prior year quarter. Net income from continuing operations increased 33% to $190 million or $0.59 per share, compared to $143 million or $0.43 per share for the prior year quarter. Certain items that impacted fourth quarter results and comparisons with the prior year quarter are detailed in the reconciliations of non-GAAP measures on pages 11 and 12 of this press release. Net income from continuing operations per share, excluding certain items, increased 17% to $0.69 compared to $0.59 for the prior year quarter.

"We are pleased with our solid fourth quarter results, which reflect the strength of our industry-leading network of global resources and capabilities and continued progress in each of our key operating metrics. Organic revenue growth was two percent in our brokerage segment and three percent in consulting services, adjusted pretax margin increased 110 basis points, and adjusted earnings per share from continuing operations increased 17 percent," said Greg Case, president and chief executive officer, Aon Corporation.

"Our fourth quarter and 2007 results are fully on schedule with the second year of our three-year improvement plan. Our expense initiatives and restructuring programs are delivering meaningful margin improvement while funding investments in value-added services and capabilities for our clients. We increased our focus on core assets with the announced sale of our lower-margin, more capital-intensive insurance underwriting businesses. Our balance sheet is strong, which provides financial flexibility, and we increased our authorized share repurchase program by $2.6 billion. All these actions support our belief in the underlying strength of Aon and our ongoing commitment to long-term shareholder value creation."

FOURTH QUARTER FINANCIAL SUMMARY

Total revenue increased 8% to $2.0 billion with organic revenue growth of 1%. Total expenses increased 4% or $73 million to $1.8 billion, including a $92 million unfavorable impact from foreign currency translation.

Pension expense related to the Company's major defined benefit pension plans declined to $15 million in the fourth quarter compared to $54 million in the prior year quarter. Pension expense declined to $80 million in 2007 compared to $233 million in 2006 due primarily to plan amendments made in the Company's major defined benefit pension plans. The Company currently anticipates that 2008 pension expense will be similar to 2007.

Restructuring expense was $34 million in the fourth quarter compared to $78 million in the prior year quarter. An analysis of restructuring related expenses by segment and type for the 2005 and 2007 restructuring programs is detailed on page 13 of this release.

Restructuring savings realized in the fourth quarter are estimated at $64 million compared to $37 million in the prior year quarter. Of the estimated restructuring savings in the fourth quarter, $54 million were related to the Brokerage segment, primarily for workforce reduction. The 2005 restructuring program resulted in cumulative cost savings of approximately $225 million in 2007 and is on track to achieve $270 million of cumulative cost savings in 2008. Cumulative cost savings estimates do not include any benefits related to businesses placed into discontinued operations.

The 2007 restructuring program, before any potential reinvestment of savings, is expected to result in cumulative cost savings of approximately $50-70 million in 2008, $175-200 million in 2009 and $240 million in 2010, consistent with previous estimates.

Foreign currency translation increased net income by $0.04 per share compared to the prior year quarter.

Effective tax rate on continuing operations was 30.4% for the fourth quarter compared to 26.7% for the prior year quarter. Both quarters were impacted by the resolution of certain items, non-recurring tax adjustments and tax credits. The Company currently anticipates that the effective tax rate on continuing operations will be 33.0% for 2008.

Diluted average shares outstanding declined to 324 million in the fourth quarter compared to 334 million in the prior year quarter, due primarily to the Company's share repurchase program. During the fourth quarter, the Company repurchased 544,700 shares of common stock for $26 million, at an average price of $47.29 per share.

Discontinued Operations after-tax income was $17 million or $0.05 per share compared to $80 million or $0.24 per share for the prior year quarter. Discontinued operations include the results of Combined Insurance Company of America (CICA) and Sterling Life Insurance (Sterling), as well as the results and dispositions of Aon Warranty Group (AWG) and Construction Program Group (CPG), which were sold in the fourth quarter 2006. CICA's fourth quarter 2007 results include a $28 million non-recurring tax adjustment related to the recognition of deferred taxes of foreign subsidiaries.

FOURTH QUARTER SEGMENT REVIEW

Certain noteworthy items impacted revenue, pretax income and pretax margins in the fourth quarter of 2007 and 2006. 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 Non-GAAP Measures - Segments" on page 12 of this press release.

RISK AND INSURANCE BROKERAGE SERVICES (millions) Fourth Quarter Ended Less: -------------------- Less: Acquisitions, Less: Organic Dec 31, Dec 31, % Currency Divestitures, All Revenue Revenue 2007 2006 Change Impact Transfers Other Growth ------- -------- ------- ------ -------- ------------ ------ ------ Americas $686 $654 5% 2% -% -% 3% U.K. 234 206 14 10 1 4 (1) EMEA 359 291 23 12 2 4 5 Asia Pacific 145 147 (1) 11 (2) (5) (5) Reinsurance 227 224 1 1 1 (4) 3 -------- ------- ------ -------- ------------ ------ ------ Total $1,651 $1,522 8% 6% 1% (1)% 2% ======== ======= ====== ======== ============ ====== ======

Risk and Insurance Brokerage Services revenue increased 8% compared to the prior year quarter with organic revenue growth of 2%. Americas organic revenue increased 3% primarily reflecting strong growth in Latin America and Affinity. U.K. organic revenue declined 1% due primarily to soft market conditions. EMEA organic revenue increased 5% due to solid growth in continental Europe and strong growth in emerging markets. Asia Pacific organic revenue decreased 5% reflecting soft market conditions in Australia and the impact of certain regulatory changes in Japan, partially offset by solid growth in most other Asian markets. Reinsurance organic revenue increased 3% due primarily to growth in global facultative placements and capital markets transactions, partially offset by soft market conditions and higher cedant retentions.

Fourth Quarter Ended ----------------------- (millions) Dec 31, Dec 31, % 2007 2006 Change ------- ------- ------ Revenue $1,651 $1,522 8% Expenses Compensation and benefits 932 927 1 Other expenses 438 399 10 ------- ------- ------ Total expenses 1,370 1,326 3 ------- ------- ------ Pretax income $281 $196 43% ======= ======= ====== Pretax margin 17.0% 12.9% Pretax income - adjusted $305 $266 15% Pretax margin - adjusted 18.5% 17.5%

Compensation and benefits for the fourth quarter were essentially unchanged from the prior year quarter as a $55 million unfavorable impact from foreign currency translation was offset by lower restructuring costs and benefits related to the 2005 restructuring program.

Other expenses increased $39 million or 10% compared to the prior year quarter including a $14 million unfavorable impact from foreign currency translation and higher restructuring costs, partially offset by benefits related to the 2005 restructuring program.

Fourth quarter pretax income increased 43% to $281 million. Adjusting for certain items detailed on page 12 of this press release, pretax income increased 15% to $305 million and pretax margin increased 100 basis points to 18.5% versus the prior year quarter.

CONSULTING (millions) Fourth Quarter Ended Less: -------------------- Less: Acquisitions, Less: Organic Dec 31, Dec 31, % Currency Divestitures, All Revenue Revenue 2007 2006 Change Impact Transfers Other Growth ------- -------- ------- ------ -------- ------------ ------ ------ Services $314 $280 12% 5% 2% 2% 3% Outsourcing 59 84 (30) 3 (1) - (32) -------- ------- ------ -------- ------------ ------ ------ Total $373 $364 2% 5% 2% -% (5)% ======== ======= ====== ======== ============ ====== ======

Consulting revenue increased 2% to $373 million compared to the prior year quarter. Organic revenue in Consulting Services increased 3% due primarily to growth in compensation and health and benefits consulting. Organic revenue in Outsourcing decreased 32% due primarily to the previously announced termination of a significant outsourcing contract.

Fourth Quarter Ended ---------------------- (millions) Dec 31, Dec 31, % 2007 2006 Change ------ ------ ------ Revenue $373 $364 2% Expenses Compensation and benefits 219 217 1 Other expenses 94 98 (4) ------ ------ ------ Total expenses 313 315 (1) ------ ------ ------ Pretax income $60 $49 22% ====== ====== ====== Pretax margin 16.1% 13.5% Pretax income - adjusted $64 $56 14% Pretax margin - adjusted 17.2% 15.4%

Total expenses were relatively unchanged versus the prior year quarter due primarily to lower restructuring charges, benefits related to the 2005 restructuring program and other operational improvements, partially offset by a $14 million unfavorable impact from foreign currency translation.

Fourth quarter pretax income increased 22% to $60 million and the pretax margin increased 260 basis points to 16.1% versus the prior year quarter. Adjusting for certain items detailed on page 12, pretax income increased 14% to $64 million and the pretax margin increased 180 basis points to 17.2%.

UNALLOCATED INCOME AND EXPENSE Fourth Quarter Ended ---------------------- (millions) Dec 31, Dec 31, % 2007 2006 Change ------ ------ ------ Operating segment income before tax $341 $245 39% Property & Casualty operations (4) (3) 33 Unallocated investment income 11 10 10 Unallocated expenses (39) (27) 44 Interest expense (36) (30) 20 ------ ------ ------ Income from continuing operations before tax $273 $195 40% ====== ====== ======

Property & Casualty loss was $4 million compared to a loss of $3 million in the prior year quarter. All property & casualty business was placed into run-off in the fourth quarter 2006.

Unallocated investment income for the fourth quarter increased $1 million to $11 million compared to the prior year quarter. Unallocated expenses increased $12 million to $39 million versus the prior year quarter including the resolution of a $15 million non-cash balance sheet reconciliation difference in the U.K. Interest expense increased $6 million to $36 million versus the prior year quarter due primarily to a higher percentage of borrowings in foreign currencies and higher interest rates.

2007 FINANCIAL SUMMARY

Total revenue for 2007 increased 9% to $7.5 billion with organic revenue growth of 2%. Risk and Insurance Brokerage Services revenue increased 8% to $6.1 billion with organic revenue growth of 3%. Consulting revenue increased 5% to $1.4 billion with a decrease in organic revenue of 1%.

Net income for 2007 was $864 million or $2.69 per share, compared to $720 million or $2.13 per share for the prior year. Net income from continuing operations increased 50% to $672 million or $2.10 per share, compared to $447 million or $1.33 per share 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 pages 11 and 12. Net income from continuing operations, excluding certain items, increased 43% to $2.37 per share compared to $1.66 per share for the prior year.

During 2007, the Company repurchased approximately 19.1 million shares of common stock for $751 million at an average price of $39.30 per share. As of December 31, 2007, the Company had approximately $2.8 billion of remaining share repurchase authorization, which includes the $2.6 billion authorized increase announced during the fourth quarter 2007.

Conference Call and Webcast Details

The Company will host a conference call on Friday, February 8, 2008 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 is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. Through its 43,000 professionals worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was ranked by A.M. Best as the number one global insurance brokerage in 2007 based on brokerage revenues, and voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 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, our ability to successfully close the sales of our Combined Insurance and Sterling Life Insurance businesses, 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 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 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.

Investor Contact: Scott Malchow Vice President, Investor Relations 312-381-3983 Media Contact: David Prosperi Vice President, Global Public Relations 312-381-2485 Aon Corporation Consolidated Summary of Operations Fourth Quarter Ended Twelve Months Ended ------------------------- ------------------------- (millions except per Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent share data) 2007 2006 Change 2007 2006 Change -------- -------- -------- -------- -------- ------- Revenue Commissions, fees and other $1,967 $1,825 8 % $7,170 $6,660 8 % Investment income 65 56 16 301 221 36 -------- -------- -------- -------- -------- ------- Total revenue 2,032 1,881 8 7,471 6,881 9 -------- -------- -------- -------- -------- ------- Expenses Compensation and benefits 1,168 1,158 1 4,388 4,225 4 Other general expenses 502 429 17 1,726 1,637 5 Depreciation and amortization 53 68 (22) 194 224 (13) Interest expense 36 30 20 138 129 7 Provision for New York and other state settlements - 1 (100) 1 3 (67) -------- -------- -------- -------- -------- ------- Total expenses 1,759 1,686 4 6,447 6,218 4 -------- -------- -------- -------- -------- ------- Income from continuing operations before provision for income tax 273 195 40 1,024 663 54 Provision for income tax (2) 83 52 60 352 216 63 -------- -------- -------- -------- -------- ------- Income from continuing operations 190 143 33 672 447 50 Discontinued operations Income from discontinued operations 75 123 (39) 316 419 (25) Provision for income tax (3) 58 43 35 124 147 (16) -------- -------- -------- -------- -------- ------- Income from discontinued operations 17 80 (79) 192 272 (29) -------- -------- -------- -------- -------- ------- Income before accounting change 207 223 (7) 864 719 20 Cumulative effect of change in accounting principle, net of tax (1) - - N/A - 1 (100) -------- -------- -------- -------- -------- ------- Net income $207 $223 (7)% $864 $720 20 % ======== ======== ======== ======== ======== ======= Basic net income per share: Continuing operations $0.63 $0.46 37 % $2.25 $1.41 60 % Discontinued operations 0.06 0.26 (77) 0.65 0.86 (24) Cumulative effect of change in accounting principle - - - - - - -------- -------- -------- -------- -------- ------- Net income $0.69 $0.72 (4)% $2.90 $2.27 28 % ======== ======== ======== ======== ======== ======= Diluted net income per share: Continuing operations $0.59 $0.43 37 % $2.10 $1.33 58 % Discontinued operations 0.05 0.24 (79) 0.59 0.80 (26) Cumulative effect of change in accounting principle - - - - - - -------- -------- -------- -------- -------- ------- Net income $0.64 $0.67 (4)% $2.69 $2.13 26 % ======== ======== ======== ======== ======== ======= Diluted average common and common equivalent shares outstanding 324.1 333.6 323.0 342.1 ======== ======== ======== ======== (1) Adoption of FASB Statement No. 123R, "Share-Based Payments," effective January 1, 2006. (2) Tax rate from continuing operations is 30.4% and 26.7% for the fourth quarters ended December 31, 2007 and 2006, respectively, and 34.4% and 32.6% for the twelve months ended December 31, 2007 and 2006, respectively. (3) Tax rate from discontinued operations is 77.3% and 35.0% for the fourth quarters ended December 31, 2007 and 2006, respectively, and 39.2% and 35.1% for the twelve months ended December 31, 2007 and 2006, respectively. Aon Corporation Revenue from Continuing Operations Fourth Quarter Ended --------------------------------------------------------- Less: Acqui- sitions, Less: Divest- Less: Organic Curr- itures & All Revenue Dec. 31, Dec. 31, Percent ency Trans- Other Growth (millions) 2007 2006 Change Impact fers (1) (2) -------- -------- ------- ------ ------- ------- ------- Revenue Risk and Insurance Brokerage Services: Americas $686 $654 5 % 2 % - % - % 3 % United Kingdom 234 206 14 10 1 4 (1) Europe, Middle East & Africa 359 291 23 12 2 4 5 Asia Pacific 145 147 (1) 11 (2) (5) (5) Reinsurance brokerage and related services 227 224 1 1 1 (4) 3 -------- -------- ------- ------ ------- ------- ------- Total Risk and Insurance Brokerage Services 1,651 1,522 8 6 1 (1) 2 -------- -------- ------- ------ ------- ------- ------- Consulting: Consulting services 314 280 12 5 2 2 3 Outsourcing 59 84 (30) 3 (1) - (32) -------- -------- ------- ------ ------- ------- ------- Total consulting 373 364 2 5 2 - (5) -------- -------- ------- ------ ------- ------- ------- Unallocated revenue 13 18 (28) N/A N/A N/A N/A Intersegment revenues (5) (23) N/A N/A N/A N/A N/A -------- -------- ------- ------ ------- ------- ------- Total $2,032 $1,881 8 % 6 % 1 % - % 1 % ======== ======== ======= ====== ======= ======= ======= (1) Includes the impact of investment income, reimbursable expenses and unusual items. (2) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers and items described in (1). Aon Corporation Revenue from Continuing Operations Twelve Months Ended ------------------------------------------------------- Less: Acqui- sitions, Less: Divest- Less: Organic Curr- itures & All Revenue Dec. 31, Dec. 31, Percent ency Trans- Other Growth (millions) 2007 2006 Change Impact fers (1) (2) -------- -------- ------- ------ ------- ------- ------- Revenue Risk and Insurance Brokerage Services: Americas $2,405 $2,319 4 % 1 % - % (2)% 5 % United Kingdom 815 732 11 7 2 2 - Europe, Middle East & Africa 1,375 1,177 17 8 1 4 4 Asia Pacific 506 478 6 9 (3) (2) 2 Reinsurance brokerage and related services 958 922 4 2 1 (1) 2 -------- -------- ------- ------ ------- ------- ------- Total Risk and Insurance Brokerage Services 6,059 5,628 8 4 1 - 3 -------- -------- ------- ------ ------- ------- ------- Consulting: Consulting services 1,117 989 13 4 2 2 5 Outsourcing 235 293 (20) 3 - (1) (22) -------- -------- ------- ------ ------- ------- ------- Total consulting 1,352 1,282 5 4 2 - (1) -------- -------- ------- ------ ------- ------- ------- Unallocated revenue 89 30 197 N/A N/A N/A N/A Intersegment revenues (29) (59) N/A N/A N/A N/A N/A -------- -------- ------- ------ ------- ------- ------- Total $7,471 $6,881 9 % 4 % 1 % 2 % 2 % ======== ======== ======= ====== ======= ======= ======= (1) Includes the impact of investment income, reimbursable expenses and unusual items. (2) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers and items described in (1). Aon Corporation - Segments Risk and Insurance Brokerage Services - Continuing Operations --------------------------------------------------------------- Fourth Quarter Ended Twelve Months Ended -------------------------- ------------------------- Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent (millions) 2007 2006 Change 2007 2006 Change -------- -------- -------- -------- -------- ------- Revenue Commissions, fees and other $1,599 $1,478 8 % $5,853 $5,432 8 % Investment income 52 44 18 206 196 5 -------- -------- -------- -------- -------- ------- Total revenue 1,651 1,522 8 6,059 5,628 8 -------- -------- -------- -------- -------- ------- Expenses Compensation and benefits 932 927 1 3,498 3,362 4 Other expenses 438 399 10 1,524 1,425 7 -------- -------- -------- -------- -------- ------- Total expenses 1,370 1,326 3 5,022 4,787 5 -------- -------- -------- -------- -------- ------- Income before provision for income tax $281 $196 43 % $1,037 $841 23 % ======== ======== ======== ======== ======== ======= Pretax income margin 17.0% 12.9% 17.1% 14.9% Consulting - Continuing Operations Fourth Quarter Ended Twelve Months Ended -------------------------- ------------------------- Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent (millions) 2007 2006 Change 2007 2006 Change -------- -------- -------- -------- -------- ------- Revenue Commissions, fees and other $372 $363 2 % $1,343 $1,277 5 % Investment income 1 1 - 9 5 80 -------- -------- -------- -------- -------- ------- Total revenue 373 364 2 1,352 1,282 5 -------- -------- -------- -------- -------- ------- Expenses Compensation and benefits 219 217 1 823 811 1 Other expenses 94 98 (4) 340 351 (3) -------- -------- -------- -------- -------- ------- Total expenses 313 315 (1) 1,163 1,162 - -------- -------- -------- -------- -------- ------- Income before provision for income tax $60 $49 22 % $189 $120 58 % ======== ======== ======== ======== ======== ======= Pretax income margin 16.1% 13.5% 14.0% 9.4% Reconciliation of operating 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) 2007 2006 Change 2007 2006 Change -------- -------- -------- -------- -------- ------- Operating segment income: Risk and Insurance Brokerage Services $281 $196 43 % $1,037 $841 23 % Consulting 60 49 22 189 120 58 -------- -------- -------- -------- -------- ------- Operating segment income before provision for income tax 341 245 39 1,226 961 28 Property & Casualty operations (4) (3) 33 (13) (78) (83) Unallocated investment income 11 10 10 81 15 440 Unallocated expenses (39) (27) 44 (132) (106) 25 Interest expense (36) (30) 20 (138) (129) 7 -------- -------- -------- -------- -------- ------- Income from continuing operations before provision for income tax $273 $195 40 % $1,024 $663 54 % ======== ======== ======== ======== ======== ======= Aon Corporation Reconciliation of the Impact of Non-GAAP Measures on Diluted Earnings Per Share Fourth Quarter and Twelve Months Ended December 31, 2007 and 2006 Fourth Quarter Ended Twelve Months Ended ------------------------- ------------------------- Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent (millions except per 2007 2006 Change 2007 2006 Change share data) -------- -------- ------- -------- -------- ------- Income from continuing operations before provision for income taxes - as reported $273 $195 40 % $1,024 $663 54 % Adjustments: Restructuring charges 34 78 85 159 Gain on sale of businesses (6) - (36) - Resolution of U.K. balance sheet reconciliation difference 15 - 15 - Reinsurance litigation - - 21 - Gain on sale of Cambridge preferred stock investment - - - (35) Gain on sale of building in Spain - - - (30) Contingent commissions - - - (15) Property & Casualty reserve adjustments - - - 81 Endurance warrants - - - 14 -------- -------- -------- -------- Income from continuing operations before provision for income taxes - as adjusted 316 273 16 1,109 837 32 Provision for income taxes (1) 93 79 350 277 -------- -------- ------- -------- -------- ------- Income from continuing operations - as adjusted $223 $194 15 % $759 $560 36 % ======== ======== ======= ======== ======== ======= Diluted earnings per share from continuing operations - as adjusted $0.69 $0.59 17 % $2.37 $1.66 43 % ======== ======== ======= ======== ======== ======= Income from discontinued operations before provision for income taxes - as reported $75 $123 (39)% $316 $419 (25)% Adjustments: Restructuring charges - 8 - 8 CPG reserve adjustment - - - 21 CPG gain on sale - (27) - (27) AWG gain on sale - (16) - (16) -------- -------- -------- -------- Income from discontinued operations before provision for income taxes - as adjusted 75 88 (15) 316 405 (22) Provision for income taxes (2) 30 19 96 130 -------- -------- ------- -------- -------- ------- Income from discontinued operations - as adjusted $45 $69 (35)% $220 $275 (20)% ======== ======== ======= ======== ======== ======= Diluted earnings per share from discontinued operations - as adjusted $0.14 $0.21 (33)% $0.68 $0.80 (15)% ======== ======== ======= ======== ======== ======= Total earnings per share $0.83 $0.80 4 % $3.05 $2.46 24 % ======== ======== ======= ======== ======== ======= Diluted average common and common equivalent shares outstanding (millions) 324.1 333.6 323.0 342.1 ======== ======== ======== ======== (1) Tax rate from continuing operations is 29.4% and 28.9% for the fourth quarters ended December 31, 2007 and 2006, respectively, and 31.6% and 33.1% for the twelve months ended December 31, 2007 and 2006, respectively. (2) Tax rate from discontinued operations is 40.0% and 21.6% for the fourth quarters ended December 31, 2007 and 2006, respectively, and 30.4% and 32.1% for the twelve months ended December 31, 2007 and 2006, respectively. Aon Corporation Reconciliation of Non-GAAP Measures - Segments Fourth Quarter and Twelve Months Ended December 31, 2007 and 2006 (1) Fourth Quarter Ended December 31, 2007 -------------------------------------------- Risk and Insurance Unallocated Brokerage Income & (millions) Services Consulting Expense Total ----------- ---------- ----------- ------- Revenue as reported $1,651 $373 $8 $2,032 Income (loss) from continuing operations before provision for income tax - as reported $281 $60 $(68) $273 Restructuring charges 30 4 - 34 Gain on sale of businesses (6) - - (6) Resolution of U.K. balance sheet reconciliation difference - - 15 15 Reinsurance litigation - - - - ----------- ---------- ----------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $305 $64 $(53) $316 =========== ========== =========== ======= Income from continuing operations before provision for income tax - margins as adjusted 18.5% 17.2% N/A 15.6% =========== ========== =========== ======= Twelve Months Ended December 31, 2007 -------------------------------------------- Risk and Insurance Unallocated Brokerage Income & (millions) Services Consulting Expense Total ----------- ---------- ----------- ------- Revenue as reported $6,059 $1,352 $60 $7,471 Income (loss) from continuing operations before provision for income tax - as reported $1,037 $189 $(202) $1,024 Restructuring charges 74 11 - 85 Gain on sale of businesses (36) - - (36) Resolution of U.K. balance sheet reconciliation difference - - 15 15 Reinsurance litigation 21 - - 21 ----------- ---------- ----------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $1,096 $200 $(187) $1,109 =========== ========== =========== ======= Income from continuing operations before provision for income tax - margins as adjusted 18.1% 14.8% N/A 14.8% =========== ========== =========== ======= Fourth Quarter Ended December 31, 2006 -------------------------------------------- Risk and Insurance Unallocated Brokerage Income & (millions) Services Consulting Expense Total ----------- ---------- ----------- ------- Revenue as reported $1,522 $364 $(5) $1,881 Gain on Cambridge preferred stock investment - - - - Contingent commissions - - - - Endurance warrants - - - - ----------- ---------- ----------- ------- Revenue as adjusted $1,522 $364 $(5) $1,881 =========== ========== =========== ======= Income (loss) from continuing operations before provision for income tax - as reported $196 $49 $(50) $195 Restructuring charges 70 7 1 78 Gain on sale of Cambridge preferred stock investment - - - - Gain on sale of building in Spain - - - - Contingent commissions - - - - Property & Casualty reserve adjustments - - - - Endurance warrants - - - - ----------- ---------- ----------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $266 $56 $(49) $273 =========== ========== =========== ======= Income from continuing operations before provision for income tax - margins as adjusted 17.5% 15.4% N/A 14.5% =========== ========== =========== ======= Twelve Months Ended December 31, 2006 -------------------------------------------- Risk and Insurance Unallocated Brokerage Income & (millions) Services Consulting Expense Total ----------- ---------- ----------- ------- Revenue as reported $5,628 $1,282 $(29) $6,881 Gain on Cambridge preferred stock investment (35) - - (35) Contingent commissions (15) - - (15) Endurance warrants - - 14 14 ----------- ---------- ----------- ------- Revenue as adjusted $5,578 $1,282 $(15) $6,845 =========== ========== =========== ======= Income (loss) from continuing operations before provision for income tax - as reported $841 $120 $(298) $663 Restructuring charges 136 20 3 159 Gain on sale of Cambridge preferred stock investment (35) - - (35) Gain on sale of building in Spain (30) - - (30) Contingent commissions (15) - - (15) Property & Casualty reserve adjustments - - 81 81 Endurance warrants - - 14 14 ----------- ---------- ----------- ------- Income (loss) from continuing operations before provision for income tax - as adjusted $897 $140 $(200) $837 =========== ========== =========== ======= Income from continuing operations before provision for income tax - margins as adjusted 16.1% 10.9% N/A 12.2% =========== ========== =========== ======= (1) Certain noteworthy items impacted revenue and pretax income in 2007 and 2006, which are described in this schedule. The revenue and pretax income (loss) amounts and related margins shown in the captions "Revenue as adjusted" and "Income (loss) from continuing operations before provision for income tax - as adjusted" are non-GAAP measures. Aon Corporation 2007 Restructuring Plan | By Type: Actual |Estimated ---------------------------|---------- Third Fourth Total | Quarter Quarter Incurred | (millions) 2007 2007 to Date | Total ---------------------------|---------- Workforce reduction (Compensation | and benefits) $10 $7 $17| $220 Lease consolidation (Other general | expenses) 4 18 22| 79 Asset impairments (Depreciation and | amortization) 2 2 4| 41 Other costs associated with | restructuring (Other general | expenses) 1 2 3| 20 ---------------------------|---------- Total restructuring and related | expenses $17 $29 $46| $360 ===========================|========== By Segment: Actual |Estimated ---------------------------|---------- Third Fourth Total | Quarter Quarter Incurred | (millions) 2007 2007 to Date | Total ---------------------------|---------- Risk and Insurance Brokerage | Services $16 $25 $41| $320 Consulting 1 4 5| 40 ---------------------------|---------- Total restructuring and related | expenses $17 $29 $46| $360 ===========================|========== 2005 Restructuring Plan By Type: Actual ------------------------------------------------ Nine Fourth Full Full Year Full Year Months Quarter Year (millions) 2005 2006 2007 2007 2007 Total ------------------------------------------------ Workforce reduction (Compensation and benefits) $116 $116 $18 $3 $21 $253 Lease consolidation (Other general expenses) 20 27 11 2 13 60 Asset impairments (Depreciation and amortization) 17 12 3 - 3 32 Other costs associated with restructuring (Other general expenses) 5 12 4 - 4 21 ------------------------------------------------ Total restructuring and related expenses $158 $167 $36 $5 $41 $366 ================================================ By Segment: Actual ------------------------------------------------ Nine Fourth Full Full Year Full Year Months Quarter Year (millions) 2005 2006 2007 2007 2007 Total ------------------------------------------------ Risk and Insurance Brokerage Services $143 $136 $28 $5 $33 $312 Consulting 8 20 6 - 6 34 Unallocated income and expense 4 3 - - - 7 ------------------------------------------------ Restructuring and related expenses - continuing operations 155 159 34 5 39 353 Restructuring and related expenses - discontinued operations 3 8 2 - 2 13 ------------------------------------------------ Total restructuring and related expenses $158 $167 $36 $5 $41 $366 ================================================ Aon Corporation Consolidated Summary of Operations - Reclassified for Discontinued Operations 2006 -------------------------------------------- (millions except per share 1st 2nd 3rd 4th Full data) Quarter Quarter Quarter Quarter Year -------------------------------------------- Revenue Commissions, fees and other $1,610 $1,644 $1,581 $1,825 $6,660 Investment income 59 51 55 56 221 -------- ------- ------- -------- ------- Total revenue 1,669 1,695 1,636 1,881 6,881 -------- ------- ------- -------- ------- Expenses Compensation and benefits 1,005 1,037 1,025 1,158 4,225 Other general expenses 371 387 450 429 1,637 Depreciation and amortization 52 51 53 68 224 Interest expense 31 34 34 30 129 Provision for New York and other state settlements 1 1 - 1 3 -------- ------- ------- -------- ------- Total expenses 1,460 1,510 1,562 1,686 6,218 -------- ------- ------- -------- ------- Income from continuing operations before provision for income tax 209 185 74 195 663 Provision for income tax 73 64 27 52 216 -------- ------- ------- -------- ------- Income from continuing operations 136 121 47 143 447 Discontinued operations Income from discontinued operations 96 111 89 123 419 Provision for income tax 35 39 30 43 147 -------- ------- ------- -------- ------- Income from discontinued operations 61 72 59 80 272 -------- ------- ------- -------- ------- Income before accounting change 197 193 106 223 719 Cumulative effect of change in accounting principle, net of tax 1 - - - 1 -------- ------- ------- -------- ------- Net income $198 $193 $106 $223 $720 ======== ======= ======= ======== ======= Basic net income per share: Income from continuing operations $0.42 $0.37 $0.15 $0.46 $1.41 Discontinued operations 0.19 0.23 0.19 0.26 0.86 Cumulative effect of change in accounting principle - - - - - -------- ------- ------- -------- ------- Net income $0.61 $0.60 $0.34 $0.72 $2.27 ======== ======= ======= ======== ======= Dilutive net income per share: Income from continuing operations $0.40 $0.36 $0.15 $0.43 $1.33 Discontinued operations 0.17 0.21 0.17 0.24 0.80 Cumulative effect of change in accounting principle - - - - - -------- ------- ------- -------- ------- Net income $0.57 $0.57 $0.32 $0.67 $2.13 ======== ======= ======= ======== ======= Dilutive average common and common equivalent shares outstanding 350.2 344.8 340.1 333.6 342.1 ======== ======= ======= ======== ======= 2007 -------------------------------------------- (millions except per share 1st 2nd 3rd 4th Full data) Quarter Quarter Quarter Quarter Year -------------------------------------------- Revenue Commissions, fees and other $1,729 $1,776 $1,698 $1,967 $7,170 Investment income 69 90 77 65 301 -------- ------- ------- -------- ------- Total revenue 1,798 1,866 1,775 2,032 7,471 -------- ------- ------- -------- ------- Expenses Compensation and benefits 1,053 1,109 1,058 1,168 4,388 Other general expenses 423 395 406 502 1,726 Depreciation and amortization 47 46 48 53 194 Interest expense 35 34 33 36 138 Provision for New York and other state settlements - 1 - - 1 -------- ------- ------- -------- ------- Total expenses 1,558 1,585 1,545 1,759 6,447 -------- ------- ------- -------- ------- Income from continuing operations before provision for income tax 240 281 230 273 1,024 Provision for income tax 75 98 96 83 352 -------- ------- ------- -------- ------- Income from continuing operations 165 183 134 190 672 Discontinued operations Income from discontinued operations 73 87 81 75 316 Provision for income tax 25 30 11 58 124 -------- ------- ------- -------- ------- Income from discontinued operations 48 57 70 17 192 -------- ------- ------- -------- ------- Income before accounting change 213 240 204 207 864 Cumulative effect of change in accounting principle, net of tax - - - - - -------- ------- ------- -------- ------- Net income $213 $240 $204 $207 $864 ======== ======= ======= ======== ======= Basic net income per share: Income from continuing operations $0.55 $0.62 $0.45 $0.63 $2.25 Discontinued operations 0.16 0.19 0.24 0.06 0.65 Cumulative effect of change in accounting principle - - - - - -------- ------- ------- -------- ------- Net income $0.71 $0.81 $0.69 $0.69 $2.90 ======== ======= ======= ======== ======= Dilutive net income per share: Income from continuing operations $0.51 $0.57 $0.42 $0.59 $2.10 Discontinued operations 0.15 0.18 0.22 0.05 0.59 Cumulative effect of change in accounting principle - - - - - -------- ------- ------- -------- ------- Net income $0.66 $0.75 $0.64 $0.64 $2.69 ======== ======= ======= ======== ======= Dilutive average common and common equivalent shares outstanding 324.4 321.9 321.5 324.1 323.0 ======== ======= ======= ======== ======= Aon Corporation Segments - Reclassification for Discontinued Operations 2006 ----------------------------------------------- 1st 2nd 3rd 4th (millions) Quarter Quarter Quarter Quarter Full Year --------- ------- ------- ------- --------- Revenue Risk and insurance brokerage services $1,380 $1,385 $1,341 $1,522 $5,628 Consulting 308 309 301 364 1,282 Insurance underwriting: As reported 495 505 519 527 2,046 Less: reclassification to discontinued operations (490) (504) (518) (519) (2,031) Less: reclassification to unallocated revenue (5) (1) (1) (8) (15) --------- ------- ------- ------- --------- As reclassified - - - - - Unallocated revenue: As reported (3) 18 19 23 57 Less: reclassification to discontinued operations (6) (9) (14) (13) (42) Add: reclassification from insurance underwriting 5 1 1 8 15 --------- ------- ------- ------- --------- As reclassified (4) 10 6 18 30 Intersegment revenues (15) (9) (12) (23) (59) --------- ------- ------- ------- --------- Total $1,669 $1,695 $1,636 $1,881 $6,881 ========= ======= ======= ======= ========= Income (loss) before income tax Risk and insurance brokerage services $240 $215 $190 $196 $841 Consulting 30 23 18 49 120 Insurance underwriting : As reported 53 75 (27) 36 137 Less: reclassification to discontinued operations (53) (73) (54) (42) (222) Less: reclassification to unallocated income - (2) 81 6 85 --------- ------- ------- ------- --------- As reclassified - - - - - Unallocated income: As reported (57) (46) (42) (33) (178) Less: reclassification to discontinued operations (4) (9) (11) (11) (35) Add: reclassification from insurance underwriting - 2 (81) (6) (85) --------- ------- ------- ------- --------- As reclassified (61) (53) (134) (50) (298) --------- ------- ------- ------- --------- Total $209 $185 $74 $195 $663 ========= ======= ======= ======= ========= Income from continuing operations before income tax - margins Risk and insurance brokerage services 17.4% 15.5% 14.2% 12.9% 14.9% Consulting 9.7% 7.4% 6.0% 13.5% 9.4% Insurance underwriting: As reported 10.7% 14.9% -5.2% 6.8% 6.7% As reclassified N/A N/A N/A N/A N/A Total: As reported 12.3% 12.1% 6.4% 10.3% 10.3% As reclassified 12.5% 10.9% 4.5% 10.4% 9.6% 2007 ---------------------------------- 1st 2nd 3rd Nine (millions) Quarter Quarter Quarter Months ------- ------- ------- ------- Revenue Risk and insurance brokerage services $1,456 $1,515 $1,437 $4,408 Consulting 329 325 325 979 Insurance underwriting : As reported 574 610 627 1,811 Less: reclassification to discontinued operations (573) (607) (624) (1,804) Less: reclassification to unallocated revenue (1) (3) (3) (7) ------- ------- ------- ------- As reclassified - - - - Unallocated revenue: As reported 32 44 26 102 Less: reclassification to discontinued operations (10) (15) (8) (33) Add: reclassification from insurance underwriting 1 3 3 7 ------- ------- ------- ------- As reclassified 23 32 21 76 Intersegment revenues (10) (6) (8) (24) ------- ------- ------- ------- Total $1,798 $1,866 $1,775 $5,439 ======= ======= ======= ======= Income (loss) before income tax Risk and insurance brokerage services $242 $278 $236 $756 Consulting 47 44 38 129 Insurance underwriting : As reported 59 67 63 189 Less: reclassification to discontinued operations (64) (70) (70) (204) Less: reclassification to unallocated income 5 3 7 15 ------- ------- ------- ------- As reclassified - - - - Unallocated income: As reported (37) (24) (25) (86) Less: reclassification to discontinued operations (7) (14) (12) (33) Add: reclassification from insurance underwriting (5) (3) (7) (15) ------- ------- ------- ------- As reclassified (49) (41) (44) (134) ------- ------- ------- ------- Total $240 $281 $230 $751 ======= ======= ======= ======= Income from continuing operations before income tax - margins Risk and insurance brokerage services 16.6% 18.3% 16.4% 17.2% Consulting 14.3% 13.5% 11.7% 13.2% Insurance underwriting: As reported 10.3% 11.0% 10.0% 10.4% As reclassified N/A N/A N/A N/A Total: As reported 13.1% 14.7% 13.0% 13.6% As reclassified 13.3% 15.1% 13.0% 13.8% Aon Corporation Accident & Health and Life 2006 ------------------------------------------ 1st 2nd 3rd 4th Full (millions except per share data) Quarter Quarter Quarter Quarter Year ------------------------------------------ Revenue Commissions and fees $3 $7 $6 $6 $22 Premiums and other 463 472 489 489 1,913 Investment income 30 34 37 37 138 -------- ------- ------- ------- ------ Total revenue 496 513 532 532 2,073 -------- ------- ------- ------- ------ Expenses Compensation and benefits 92 94 91 99 376 Other general expenses 94 80 107 104 385 Benefits to policyholders 250 253 266 273 1,042 Depreciation and amortization 3 4 3 3 13 -------- ------- ------- ------- ------ Total expenses 439 431 467 479 1,816 -------- ------- ------- ------- ------ Income before provision for income tax 57 82 65 53 257 Provision for income tax 20 28 22 8 78 -------- ------- ------- ------- ------ Net income $37 $54 $43 $45 $179 ======== ======= ======= ======= ====== Basic net income per share $0.11 $0.17 $0.14 $0.15 $0.56 ======== ======= ======= ======= ====== Dilutive net income per share $0.11 $0.16 $0.13 $0.13 $0.52 ======== ======= ======= ======= ====== Dilutive average common and common equivalent shares outstanding 350.2 344.8 340.1 333.6 342.1 ======== ======= ======= ======= ====== 2007 ------------------------------------------ 1st 2nd 3rd 4th Full (millions except per share data) Quarter Quarter Quarter Quarter Year ------------------------------------------ Revenue Commissions and fees $6 $5 $6 $12 $29 Premiums and other 539 573 587 611 2,310 Investment income 38 44 39 42 163 -------- ------- ------- ------- ------ Total revenue 583 622 632 665 2,502 -------- ------- ------- ------- ------ Expenses Compensation and benefits 99 98 98 99 394 Other general expenses 93 89 87 139 408 Benefits to policyholders 317 348 363 338 1,366 Depreciation and amortization 3 3 2 3 11 -------- ------- ------- ------- ------ Total expenses 512 538 550 579 2,179 -------- ------- ------- ------- ------ Income before provision for income tax 71 84 82 86 323 Provision for income tax 24 29 28 56 137 -------- ------- ------- ------- ------ Net income $47 $55 $54 $30 $186 ======== ======= ======= ======= ====== Basic net income per share $0.16 $0.19 $0.18 $0.10 $0.63 ======== ======= ======= ======= ====== Dilutive net income per share $0.14 $0.17 $0.17 $0.09 $0.58 ======== ======= ======= ======= ====== Dilutive average common and common equivalent shares outstanding 324.4 321.9 321.5 324.1 323.0 ======== ======= ======= ======= ======