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Aon plc – ‘10-Q’ for 6/30/00

On: Friday, 8/11/00, at 2:44pm ET · For: 6/30/00 · Accession #: 948572-0-44 · File #: 1-07933

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/11/00  Aon plc                           10-Q        6/30/00    5:84K                                    Swift John S Co Inc/FA

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Aon Corporation                                       22    100K 
 2: EX-10       Aon Stock Award Plan                                   5     24K 
 3: EX-12       Computation of Ratios of Earnings - Exhibit 12         2     16K 
 4: EX-15       Unaudited Interim Financial Information                1      7K 
 5: EX-27       FDS 5                                                  2±     8K

10-Q — Aon Corporation
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Exhibits and Reports on Form 8-K Exhibit Table
1	1st Page - Filing Submission
21	Item 6. Exhibits and Reports on Form 8-K
22	Item 601. Exhibit Table

10-Q 1st Page of 22 TOC ↑Top Previous Next ↓Bottom Just 1st
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 FORM 10-Q

X          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)         
-                                                                   
OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

OR

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---                                                                   
OF THE SECURITIES EXCHANGE ACT OF 1934

 Commission file number 1-7933

 Aon Corporation
 ---------------
(Exact Name of Registrant as Specified in its Charter)

DELAWARE                                        36-3051915
--------                                        ----------
(State or Other Jurisdiction of                           (IRS Employer         
Incorporation or Organization)                            Identification No.) 

123 N. WACKER DR, CHICAGO, ILLINOIS                           60606             
-----------------------------------                           -----             
(Address of Principal Executive Offices)                      (Zip Code)        

(312) 701-3000                                          
--------------                                          
(Registrant's Telephone Number)                                         

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  and Exchange Act
of 1934  during the  preceding  3 months (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES X NO                              
             -

Number of shares of common stock outstanding:                                   

                                                     No. Outstanding
             Class                                   as of 6-30-00
             -----                                   -------------

   $1.00 par value Common                            255,010,419

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                                          PART 1                                           
                                   FINANCIAL INFORMATION                                   
                                      Aon CORPORATION                                      
                  CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                  

 (millions)                                                        AS OF          AS OF    
                                                               JUNE 30, 2000  DEC. 31, 1999
                                                              -----------------------------
 ASSETS                                                        (UNAUDITED)                 

 INVESTMENTS                                                                               

                                                                                           
   Fixed maturities at fair value                                 $  2,419        $  2,497 

   Equity securities at fair value                                     527             574 

   Short-term investments                                            2,322           2,362 

   Other investments                                                   867             751 
                                                              -------------  --------------
       TOTAL INVESTMENTS                                             6,135           6,184 

 CASH                                                                  930             837 

 RECEIVABLES                                                                               

   Insurance brokerage and consulting                                                      
        services                                                     7,065           6,230 

   Premiums and other                                                1,234           1,116 
                                                              -------------  --------------
       TOTAL RECEIVABLES                                             8,299           7,346 

 EXCESS OF COST OVER NET ASSETS PURCHASED                            3,296           3,359 

 OTHER INTANGIBLE ASSETS                                               493             503 

 OTHER ASSETS                                                        2,942           2,903 
                                                              -------------  --------------
       TOTAL ASSETS                                               $ 22,095        $ 21,132 
                                                              =============  ==============

                                                                  AS OF          AS OF     
                                                               JUNE 30, 2000  DEC. 31, 1999
                                                              -----------------------------
 LIABILITIES AND STOCKHOLDERS' EQUITY                          (UNAUDITED)                 

 INSURANCE PREMIUMS PAYABLE                                       $  8,493        $  7,643 

 POLICY LIABILITIES                                                                        
   Future policy benefits                                            1,010           1,005 
   Policy and contract claims                                          780             764 
   Unearned and advance premiums                                     2,056           2,012 
   Other policyholder funds                                          1,046           1,207 
                                                              -------------  --------------
       TOTAL POLICY LIABILITIES                                      4,892           4,988 

 GENERAL LIABILITIES                                                                       
   General expenses                                                  1,553           1,731 
   Short-term borrowings                                               390             303 
   Notes payable                                                     1,818           1,611 
   Other liabilities                                                 1,012             955 
                                                              -------------  --------------
       TOTAL LIABILITIES                                            18,158          17,231 

 COMMITMENTS AND CONTINGENT LIABILITIES                                                    

 REDEEMABLE PREFERRED STOCK                                             50              50 

 COMPANY-OBLIGATED MANDATORILY REDEEMABLE                                                  
   PREFERRED CAPITAL SECURITIES OF SUBSIDIARY                                              
   TRUST HOLDING SOLELY THE COMPANY'S JUNIOR                                               
   SUBORDINATED DEBENTURES                                             800             800 

 STOCKHOLDERS' EQUITY                                                                      
   Common stock - $1 par value                                         260             259 
   Paid-in additional capital                                          548             525 
   Accumulated other comprehensive loss                               (394)           (309)
   Retained earnings                                                 3,036           2,905 
   Less - Treasury stock at cost                                      (141)            (90)
          Deferred compensation                                       (222)           (239)
                                                              -------------  --------------
       TOTAL STOCKHOLDERS' EQUITY                                    3,087           3,051 
                                                              -------------  --------------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $ 22,095        $ 21,132 
                                                              =============  ==============

<FN>                                                                                       
See the accompanying notes to the condensed consolidated financial statements.             
</FN>                                                                                      

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                                                AON CORPORATION                                                             
                                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                               
                                                  (UNAUDITED)                                                               

                                                                          SECOND QUARTER ENDED         SIX MONTHS ENDED     
                                                                      --------------------------  --------------------------
 (millions except per share data)                                        JUNE 30,      JUNE 30,      JUNE 30,      JUNE 30, 
                                                                           2000          1999          2000          1999   
                                                                      ------------- ------------  ------------  ------------

 REVENUE                                                                                                                    
                                                                                                                            
    Brokerage commissions and fees ................................        $ 1,203      $ 1,143       $ 2,408       $ 2,255 
    Premiums and other ............................................            491          441           959           878 
    Investment income .............................................            125          139           262           289 
                                                                      ------------- ------------  ------------  ------------
       TOTAL REVENUE ..............................................          1,819        1,723         3,629         3,422 
                                                                      ------------- ------------  ------------  ------------

 EXPENSES                                                                                                                   
    General expenses ..............................................          1,262        1,167         2,533         2,476 
    Benefits to policyholders .....................................            257          237           509           476 
    Interest expense ..............................................             33           24            64            45 
    Amortization of intangible assets .............................             39           35            77            69 
                                                                      ------------- ------------  ------------  ------------
       TOTAL EXPENSES .............................................          1,591        1,463         3,183         3,066 
                                                                      ------------- ------------  ------------  ------------

 INCOME BEFORE INCOME TAX AND MINORITY INTEREST ...................            228          260           446           356 
    Provision for income tax ......................................             89           99           174           135 
                                                                      ------------- ------------  ------------  ------------
 INCOME BEFORE MINORITY INTEREST ..................................            139          161           272           221 
    Minority interest - 8.205% trust preferred capital securities .            (10)         (10)          (20)          (20)
                                                                      ------------- ------------  ------------  ------------
 NET INCOME .......................................................        $   129      $   151       $   252       $   201 
                                                                      ============= ============  ============  ============
    Preferred stock dividends .....................................              -           (1)           (1)           (1)
                                                                      ------------- ------------  ------------  ------------
 NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS .....................        $   129      $   150       $   251       $   200 
                                                                      ============= ============  ============  ============

 NET INCOME PER SHARE:                                                                                                      
    Basic net income per share ....................................        $  0.50      $  0.58       $ 0.97        $  0.77 
                                                                      ============= ============  ============  ============
    Dilutive net income per share .................................        $  0.49      $  0.57       $ 0.96        $  0.76 
                                                                      ============= ============  ============  ============

 CASH DIVIDENDS PAID ON COMMON STOCK ..............................        $  0.22      $  0.21       $ 0.43        $  0.40 
                                                                      ============= ============  ============  ============

 Dilutive average common and common equivalent shares outstanding .          261.7        263.7        261.1          262.9 
                                                                      ------------- ------------  ------------  ------------
<FN>                                                                                                                        
See the accompanying notes to the condensed consolidated financial statements.                                              
</FN>                                                                                                                       

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                                                    AON CORPORATION                                        
                                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                        
                                                      (UNAUDITED)                                          

                                                                                         Six Months Ended  
                                                                                       --------------------
                                                                                        June 30,   June 30,
 (millions)                                                                               2000       1999  
                                                                                       ---------  ---------

 CASH FLOWS FROM OPERATING ACTIVITIES:                                                                     
                                                                                                           
   Net income ........................................................................    $ 252      $ 201 
   Adjustments to reconcile net income to cash provided by operating activities                            
      Insurance assets / liabilities net of reinsurance ..............................       18        122 
      Amortization of intangible assets ..............................................       77         69 
      Depreciation of property and equipment .........................................       88         89 
      Income taxes ...................................................................       62        (23)
      Special charge and  purchase accounting liabilities (notes 8 and 11) ...........      (73)        73 
      Brokerage insurance premiums payable - net .....................................      277        355 
      Other ..........................................................................     (439)      (529)
                                                                                       ---------  ---------
 CASH PROVIDED BY OPERATING ACTIVITIES ...............................................      262        357 
                                                                                       ---------  ---------

 CASH FLOWS FROM INVESTING ACTIVITIES:                                                                     
   Sale of investments                                                                                     
      Fixed maturities                                                                                     
         Maturities ..................................................................       42         30 
         Calls and prepayments .......................................................       80        104 
         Sales .......................................................................      170        788 
      Equity securities. .............................................................       83        356 
      Other investments ..............................................................      183         38 
   Purchase of investments                                                                                 
      Fixed maturities ...............................................................     (245)      (848)
      Equity securities ..............................................................      (41)      (384)
      Other investments ..............................................................     (260)       (87)
      Purchase of short-term investments - net .......................................       (2)       (49)
   Acquisition of subsidiaries .......................................................      (41)      (177)
   Property and equipment and other ..................................................      (73)      (134)
                                                                                       ---------  ---------
         CASH USED BY INVESTING ACTIVITIES ...........................................     (104)      (363)
                                                                                       ---------  ---------

 CASH FLOWS FROM FINANCING ACTIVITIES:                                                                     
    Treasury stock transactions - net ................................................      (63)       (13)
    Issuance of short-term borrowings - net ..........................................      101        126 
    Issuance of long-term debt .......................................................      250        250 
    Issuance (repayment) of other long-term debt .....................................      (31)         2 
    Interest sensitive, annuity and investment-type contracts                                              
      Deposits .......................................................................       35        153 
      Withdrawals ....................................................................     (239)       (91)
    Cash dividends to stockholders ...................................................     (111)      (101)
                                                                                       ---------  ---------
         CASH PROVIDED (USED) BY FINANCING ACTIVITIES ................................      (58)       326 
                                                                                       ---------  ---------

 EFFECT OF EXCHANGE RATE CHANGES ON CASH .............................................       (7)        (5)
 INCREASE IN CASH ....................................................................       93        315 
 CASH AT BEGINNING OF PERIOD .........................................................      837        723 
                                                                                       ---------  ---------
 CASH AT END OF PERIOD ...............................................................    $ 930    $ 1,038 
                                                                                       =========  =========
<FN>                                                                                                       
See the accompanying notes to condensed consolidated financial statements.                                 
</FN>                                                                                                      

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10-Q 5th Page of 22 TOC 1st Previous Next ↓Bottom Just 5th
           Aon CORPORATION
            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    Statement of Accounting Principles                                        
----------------------------------                                  

      The  financial  results  included in this report are stated in  conformity
      with accounting principles generally accepted in the United States and are
      unaudited  but  include  all  normal  recurring   adjustments   which  the
      Registrant  ("Aon")  considers  necessary for a fair  presentation  of the
      results  for such  periods.  These  interim  figures  are not  necessarily
indicative of results for a full year as further discussed below.   

      Refer to the  consolidated  financial  statements  and notes in the Annual
      Report to Stockholders for the year ended December 31, 1999 for additional
      details  of Aon's  financial  position,  as well as a  description  of the
      accounting policies which have been continued without material change. The
      details  included  in the  notes  have not  changed  except as a result of
      normal  transactions  in the  interim  and  the  events  mentioned  in the
footnotes below.                                                    

      Certain  prior  period  amounts have been  reclassified  to conform to the
current period presentation.                                        

2.    Statements of Financial Accounting Standards (SFAS)                       
---------------------------------------------------                 

      In June 1998,  the  Financial  Accounting  Standards  Board (FASB)  issued
      Statement No. 133,  "Accounting  for  Derivative  Instruments  and Hedging
      Activities."  Statement  No.  133  establishes  accounting  and  reporting
      standards for derivative  instruments and for hedging  activities and will
      require Aon to recognize  all  derivatives  on the  statement of financial
      position at fair value.  Aon has not yet  determined  the effect,  if any,
this statement will have on the consolidated financial statements.  

      In June  1999,  the  FASB  issued  Statement  No.  137  that  amended  the
      required   adoption  date  of  Statement  No.  133  to  all  fiscal  years
      beginning  after June 15,  2000.  Early  adoption is  permitted  as of the
      beginning  of any quarter  subsequent  to the  issuance of  Statement  No.
      137.  In June 2000,  the FASB  issued  Statement  No.  138, a  significant
      amendment to Statement  No. 133,  which is effective  simultaneously  with
      Statement  No. 133. Aon has not yet decided  when it will adopt  Statement
No. 133.                                                            

      In June 2000, the Securities  and Exchange  Commission  (SEC) issued Staff
      Accounting Bulletin (SAB) No. 101B that amended the required adoption date
      of SAB 101 to fourth quarter 2000. SAB 101 provides  guidance for applying
      generally accepted accounting principles relating to the timing of revenue
      recognition  in  financial  statements  filed  with  the SEC.  Any  change
      required by the SAB must be made by the end of fourth  quarter 2000 with a
      cumulative   effect   accounting   change   effective   January  1,  2000.
      Aon has not yet  determined the effect, if any,  this SAB will have on the
consolidated financial statements.                                  

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10-Q 6th Page of 22 TOC 1st Previous Next ↓Bottom Just 6th
      In March 2000,  the  FASB issued Interpretation  No. 44  (Interpretation),
      "Accounting for Certain  Transactions  Involving Stock Compensation." This
      Interpretation  clarifies  the application of Accounting Principles  Board
      Opinion  No.  25,  "Accounting  for  Stock  Issued  to  Employees."   This
      Interpretation is effective July 1, 2000, but adoption is not expected  to
have a material impact on Aon's consolidated financial statements.  

3.    Comprehensive Income                                                      
--------------------                                                

      The components of comprehensive income, net of related tax, for the second
quarter and six months ended June 30, 2000 and 1999 are as follows: 

                                                        [Enlarge/Download Table]

(millions)                        Second Quarter Ended             Six Months Ended       
                                  --------------------             ----------------       
                               June 30, 2000  June 30, 1999  June 30, 2000   June 30, 1999
                               -------------  -------------  -------------   -------------

                                                                                          
Net income                         $   129      $   151        $   252        $    201    
Net unrealized investment losses        (8)         (37)            (5)           (100)   
Net foreign exchange gains (losses)    (48)          21            (80)            (45)   
Net additional minimum pension                                                            
    liability reduction                  -           65              -              65    
                               -------------  -------------  -------------   -------------
Comprehensive income               $    73      $   200        $   167        $    121    
                               =============  =============  =============   =============

      The components of  accumulated  other  comprehensive  loss, net of related
tax, at June 30, 2000 and December 31, 1999 are as follows:         

                                                                [Download Table]

(millions)                                              2000          1999   
                                                        ----          ----   

                                                                             
Net unrealized investment losses                      $  (126)      $  (121) 
Net foreign exchange losses                              (232)         (152) 
Net additional minimum pension liability adjustment       (36)          (36) 
                                                   ------------  ------------
Accumulated other comprehensive loss                  $  (394)      $  (309) 
                                                   ============  ============

4.    Business Segments                                                         
-----------------                                                   

      Aon classifies its business into three major segments based on the type of
      service or  product,  and a fourth  nonoperating  segment.  The  Insurance
      Brokerage  and  Other   Services   segment  is  comprised  of  retail  and
      reinsurance  brokerage  operations,  which include specialty and wholesale
      activity.  The  Consulting  segment is Aon's  employee  benefit  and human
      resource consulting  organization.  The Insurance  Underwriting segment is
      comprised of life, accident and health, and extended warranty and casualty
      insurance  products.  The  Corporate and Other  segment  revenues  consist
      primarily  of  investment  income  on  policyholder surplus  of  insurance
      underwriting companies  which is not  otherwise allocated to the operating
      segments.  Corporate and Other expenses consist primarily of  amortization
      of goodwill (excess of costs over net assets purchased), interest, certain
      information  technology  expenses and  other  general  and  administrative
expenses.                                                           

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10-Q 7th Page of 22 TOC 1st Previous Next ↓Bottom Just 7th
      Amounts  reported in the tables for these four segments,  when aggregated,
      total to the amounts in the accompanying  condensed consolidated financial
      statements.  Revenues  are  attributed  to  geographic  areas based on the
      location of the resources  producing  the revenues.  There are no material
inter-segment amounts to be eliminated.                             

      Selected  information  about  Aon's  operating  and  geographic  areas  of
operation follows.                                                  

                                                        [Enlarge/Download Table]

========================================================================================
INSURANCE BROKERAGE AND OTHER SERVICES                                                  
(millions)                      Second quarter ended June 30,  Six months ended June 30,
                                     2000          1999              2000          1999 
========================================================================================
Revenue:                                                                                
                                                                                        
   United States                  $   545       $   537           $ 1,069       $ 1,020 
   United Kingdom                     238           218               442           407 
   Continental Europe                 143           143               369           368 
   Rest of World                      139           122               259           222 
----------------------------------------------------------------------------------------
Total revenue                     $ 1,065       $ 1,020           $ 2,139       $ 2,017 
----------------------------------------------------------------------------------------

Income before income tax                                                                
   excluding special charges      $   182       $   188           $   362       $   372 
Special charges                         -             -                 -           119 
----------------------------------------------------------------------------------------
Income before income tax          $   182       $   188           $   362       $   253 
----------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

========================================================================================
CONSULTING                      Second quarter ended June 30,  Six months ended June 30,
(millions)                           2000          1999              2000          1999 
========================================================================================
Revenue:                                                                                
                                                                                        
   United States                  $   109       $    98           $   208       $   189 
   United Kingdom                      40            38                79            72 
   Continental Europe                  14             9                36            25 
   Rest of World                       17            16                33            31 
----------------------------------------------------------------------------------------
Total revenue                     $   180       $   161           $   356       $   317 
----------------------------------------------------------------------------------------

Income before income tax                                                                
   excluding special charges      $    23       $    19           $    42       $    36 
Special charges                         -             -                 -            44 
----------------------------------------------------------------------------------------
Income (loss) before income tax   $    23       $    19           $    42       $    (8)
----------------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

========================================================================================
INSURANCE UNDERWRITING         Second quarter ended June 30,   Six months ended June 30,
(millions)                           2000          1999             2000          1999  
========================================================================================
Revenue:                                                                                
                                                                                        
   United States                  $   394       $   349           $   770       $   691 
   United Kingdom                      81            79               159           161 
   Continental Europe                  28            28                54            58 
   Rest of World                       49            46                99            89 
----------------------------------------------------------------------------------------
Total revenue                     $   552       $   502           $ 1,082       $   999 
----------------------------------------------------------------------------------------
Income before income tax          $    79       $    75           $   146       $   139 
----------------------------------------------------------------------------------------

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                                                        [Enlarge/Download Table]

========================================================================================
CORPORATE AND OTHER                                                                     
(millions)                      Second quarter ended June 30,  Six months ended June 30,
                                     2000          1999              2000          1999 
========================================================================================
                                                                                        
Total revenue                     $    22       $    40          $     52       $    89 
----------------------------------------------------------------------------------------
Loss before income tax            $   (56)      $   (22)         $   (104)      $   (28)
----------------------------------------------------------------------------------------

5.    Notes Payable                                                             
-------------                                                       

      In May 2000,  Aon filed a prospectus  supplement to use the remaining $250
      million of its universal shelf  registration filed in May 1999, and issued
      $250 million of 8.65% debt  securities due May 2005. The net proceeds from
      the sale of the 8.65% notes are being used for general corporate purposes,
      including securities repurchase programs,  capital  expenditures,  working
      capital,  repayment or reduction of long-term and short-term  debt and the
financing of acquisitions.                                          

6.    Capital Stock                                                             
-------------                                                       

      For the first six months of 2000,  Aon reissued  588,700  shares of common
      stock from  treasury  for  employee  benefit  plans and 323,300  shares in
      connection  with the employee  stock  purchase  plan.  Aon  purchased  2.8
      million  shares of its common stock at a total cost of $80 million  during
      six months  2000.  There were 4.6 million  shares of common  stock held in
treasury at June 30, 2000.                                          

      In April 2000,  Aon's  stockholders  approved an amendment to Aon's Second
      Amended and Restated Certificate  of  Incorporation to increase the number
      of  shares of common stock Aon is authorized to issue from 300  million to
750 million.                                                        

7.    Capital Securities                                                        
------------------                                                  

      In 1997, Aon Capital A, a subsidiary  trust of Aon, issued $800 million of
      8.205%  mandatorily   redeemable  preferred  capital  securities  (capital
      securities).  The sole asset of Aon  Capital A is $824  million  aggregate
      principal amount of Aon's 8.205% Junior  Subordinated  Deferrable Interest
Debentures due January 1, 2027.                                     

8.    Business Combinations                                                     
---------------------                                               

      In  first  quarter  1999,  Aon  consummated  a plan of  restructuring  its
      operations as a result of recent business  combination  activity. A pretax
special charge was recorded in the amount of $120 million.          

      In the first and second  quarters of 2000,  Aon made total  payments of $8
      million  and $13  million,  respectively,  on  restructuring  charges  and
purchase accounting liabilities relating to business combinations.  

      The movements of these special charges and purchase accounting liabilities
are presented below.                                                

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      The following table demonstrates the activity related to the liability for
   termination benefits and abandoned leases recorded as expenses in 1999:

                       Termination         Lease
     (millions)                         Benefits      Abandonments       Total
      --------------------------------------------------------------------------
     Expense charged in 1999              $ 67            $ 11            $ 78
      Cash payments in 1999                 (51)             (6)            (57)
      Credit to expense in 2000               -              (4)             (4)
      Cash payments in 2000                  (5)              -              (5)
      --------------------------------------------------------------------------
     Balance at June 30, 2000             $ 11            $  1            $ 12
      --------------------------------------------------------------------------

      The following table  demonstrates  the activity related to the liabilities
established as a result of 1998 acquisitions:                       

                    Termination          Lease
     (millions)                       Benefits       Abandonments        Total
      --------------------------------------------------------------------------
    Initial liability                  $ 40            $ 30             $ 70
     Cash payments in 1998               (16)             (4)             (20)
     Cash payments in 1999               (24)             (6)             (30)
     Cash payments in 2000                 -              (2)              (2)
      --------------------------------------------------------------------------
    Balance at June 30, 2000           $  -            $ 18             $ 18
      ==========================================================================

      The  following table demonstrates  the activity  related to the "Aon Plan"
liabilities recorded as expenses in 1996 and 1997:                  
                                             Lease
                                            Abandonments
                            Termination      and Other
      (millions)                          Benefits        Exit Costs       Total
      --------------------------------------------------------------------------
     Balance at  December 31, 1996        $ 12            $ 48            $ 60
     Expense charged in 1997                40              68             108
      Cash payments in 1997                 (48)            (10)            (58)
      Cash payments in 1998                  (4)            (26)            (30)
      Cash payments in 1999                   -             (24)            (24)
      Credit to expense in 1999               -             (11)            (11)
      Credit to expense in 2000               -              (2)             (2)
      Cash payments in 2000                   -              (6)             (6)
      --------------------------------------------------------------------------
     Balance at June 30, 2000             $  -            $ 37            $ 37
      --------------------------------------------------------------------------

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10-Q 10th Page of 22 TOC 1st Previous Next ↓Bottom Just 10th
      The following table  demonstrates the activity related to the A&A and Bain
      Hogg  plan   liabilities   established  as  a  result  of  1996  and  1997
acquisitions:                                                       
                                               Lease
                                              Abandonments
                             Termination       and Other
      (millions)                           Benefits       Exit Costs       Total
      --------------------------------------------------------------------------
     Initial liability                   $ 100           $ 164           $ 264
      Cash payments in 1997                 (65)            (44)           (109)
      Cash payments in 1998                 (35)            (45)            (80)
      Cash payments in 1999                   -             (28)            (28)
     Charge to expense in 1999               -              13              13
     Charge to expense in 2000               -               3               3
      Cash payments in 2000                   -              (8)             (8)
      --------------------------------------------------------------------------
     Balance at June 30, 2000            $   -           $  55           $  55
      --------------------------------------------------------------------------

      All of Aon's  liabilities  relating to restructuring  charges and purchase
      accounting  are  reflected  in  the  general  expense  liabilities  in the
condensed consolidated statements of financial position.            

9.    Net Income Per Share                                                      
--------------------                                                

Net income per share is calculated as follows:                      

                                                                [Download Table]

(millions except per         Second Quarter Ended            Six Months Ended      
share data)              June 30, 2000  June 30, 1999  June 30, 2000  June 30, 1999
-----------------------------------------------------------------------------------
                                                                                   
Net income                      $ 129        $ 151          $ 252          $ 201   
Redeemable preferred stock                                                         
  dividends                         -            1              1              1   
                                ------       ------         ------         ------  
Net income for dilutive and                                                        
  basic                         $ 129        $ 150          $ 251          $ 200   
                                ======       ======         ======         ======  

Basic shares outstanding          259          260            259            259   
Common stock equivalents            3            4              2              4   
                                ------       ------         ------         ------  
Dilutive potential common                                                          
   shares                         262          264            261            263   
===================================================================================
Basic net income per share      $0.50        $0.58          $0.97          $0.77   
Dilutive net income per share   $0.49        $0.57          $0.96          $0.76   
===================================================================================

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10.   Alexander & Alexander Services Inc. (A&A) Discontinued Operations         
-----------------------------------------------------------------   

      A&A  discontinued  its  property  and  casualty   insurance   underwriting
      operations in 1985, some of which were then placed into run-off,  with the
      remainder  sold in 1987.  In  connection  with those  sales,  A&A provided
      indemnities  to  the  purchasers  for  various   estimated  and  potential
      liabilities,  including  provisions to cover future losses attributable to
      insurance pooling  arrangements,  a stop-loss reinsurance  agreement,  and
      actions or omissions by various  underwriting  agencies previously managed
      by an A&A subsidiary. As of June 30, 2000, the liabilities associated with
      the  foregoing  indemnities  and  liabilities  of  insurance  underwriting
      subsidiaries  that  are  currently  in  run-off  were  included  in  other
      liabilities  in  the  accompanying  condensed  consolidated  statement  of
      financial position. Such liabilities amounted to $143 million and would be
      substantially reduced if a February,  2000 ruling from the Court of Appeal
      in England  favorable to the Company,  in respect of which right to appeal
      has been  granted,  were upheld in a decision  expected in or around 2002.
      The stated liabilities are net of $174 million of reinsurance recoverables
and other assets.                                                   

11.   Contingencies                                                             
-------------                                                       

      Aon and its subsidiaries  are subject to numerous claims,  tax assessments
      and lawsuits  that arise in the ordinary  course of business.  The damages
      that may be claimed are  substantial,  including in many instances  claims
      for punitive or extraordinary damages.  Accruals for these items have been
     provided to the extent that losses are deemed probable and are estimable.

      In 1998, the Internal  Revenue  Service (IRS) proposed  adjustments to the
      tax of certain Aon  subsidiaries for the period of 1990 through 1993. Most
      of these adjustments should be resolved through factual  substantiation of
      certain  accounting   matters.   However,   the  IRS  has  contended  that
      retro-rated  extended warranty  contracts do not constitute  insurance for
      tax purposes.  Accordingly,  the IRS has proposed a deferral of deductions
      for obligations  under those contracts.  The effect of such deferral would
      be to increase the current tax obligations of certain Aon  subsidiaries by
      approximately  $74 million,  $3 million,  $5 million and $12 million (plus
      interest) in years 1990, 1991, 1992, and 1993, respectively.  Aon believes
      that the IRS's  position is without merit and  inconsistent  with numerous
      previous IRS private letter rulings.  Aon has commenced an  administrative
      appeal and intends to contest vigorously such treatment. Aon believes that
      if the contracts  are deemed not to be insurance  for tax  purposes,  they
      would be  recharacterized  in such a way that the increased  taxes for the
years in question would be far less than the proposed assessments.  

      In the second  quarter of 1999,  Allianz Life  Insurance  Company of North
      America, Inc. ("Allianz") filed an amended complaint in Minnesota adding a
      brokerage  subsidiary  of Aon as a defendant  in an action  which  Allianz
      brought against three insurance carriers reinsured by Allianz. These three
      carriers provided certain types of workers' compensation  reinsurance to a
      pool of insurers and to certain  facilities  managed by Unicover Managers,
      Inc.  ("Unicover"),  a New Jersey  corporation  not  affiliated  with Aon.
      Allianz  alleges  that the Aon  subsidiary  acted as an agent of the three
      carriers when placing reinsurance coverage on their behalf. Allianz claims
      that the  reinsurance  it issued  should be rescinded or that it should be
      awarded  damages,  based on alleged  fraudulent,  negligent  and  innocent
      misrepresentations  by the carriers,  through their agents,  including the
      Aon  subsidiary  defendant.  Aon  believes  that  the Aon  subsidiary  has
      meritorious  defenses and the Aon subsidiary  intends to vigorously defend
this claim.                                                         

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      Except for an action  filed in  Illinois  seeking to compel Aon to produce
      documents  and for an action  filed in England  disputing  entitlement  to
      commissions  and  fees to both of which  Aon is  responding,  the  Allianz
      lawsuit is the only lawsuit or  arbitration  relating to Unicover in which
      any Aon related  entity is a party.  However,  in fourth  quarter 1999 Aon
      recognized  a pretax  charge for $72  million in general  expenses  in its
      insurance  brokerage  and  other  services  segment  relating  to  various
      litigation  matters including  Unicover.  As of June 30, 2000, Aon has $49
      million  remaining  in  general  expense  liabilities  for  these  various
      litigation  matters,  which are  complex  and,  therefore,  the  timing of
resolution cannot yet be determined.                                

      Certain U.K.  subsidiaries  of Aon have been required by their  regulatory
      body, the Personal  Investment  Authority (PIA), to review advice given by
      those  subsidiaries  to  individuals  who bought  pension plans during the
      period  from April 1988 to June 1994.  These  reviews  have  resulted in a
      requirement to pay  compensation to clients based on guidelines  issued by
      the PIA. In 1999,  Aon charged  general  expenses  for $121 million in the
      consulting  segment,  of which $43 million was in first  quarter  1999, to
      provide  for these  payments.  As of June 30,  2000,  Aon has $77  million
      remaining in general  expense  liabilities  for these  payments  which are
      expected to be  disbursed  over the next  several  years.  Aon's  ultimate
      exposure from the private pension plan review, as presently calculated, is
      subject to a number of variable factors  including,  among others, general
      level of pricing in the  equity  markets,  the  rate  of response  to  the
      pension review mailings,  the interest rate  established  quarterly by the
      PIA for calculating  compensation,  and  the precise  scope,  duration and
      methodology  of the review,  including whether recent  regulatory guidance
will have to be applied to previously settled claims.               

      Although the ultimate  outcome of all matters  referred to above cannot be
      ascertained and liabilities in indeterminate amounts may be imposed on Aon
      or its subsidiaries, on the basis of present information,  availability of
      insurance  coverages  and legal  advice  received,  it is the  opinion  of
      management that the disposition or ultimate  determination  of such claims
      will not have a  material  adverse  effect on the  consolidated  financial
      position of Aon beyond  amounts  provided.  However,  it is possible  that
      future results of operations or cash flows for any particular quarterly or
      annual period could be materially affected by an unfavorable resolution of
these matters.                                                      

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 Aon CORPORATION
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS
 AND FINANCIAL CONDITION

REVENUE AND INCOME BEFORE INCOME TAX
FOR SECOND QUARTER and SIX MONTHS 2000

CONSOLIDATED RESULTS                                                            
--------------------                                                            

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS                               
-------------------------------------------------                               

This quarterly  report contains certain  statements  relating to future results,
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 historical results or those  anticipated,  depending on a
variety of factors such as general  economic  conditions in different  countries
around the  world,  fluctuations  in global  equity  and fixed  income  markets,
changes in  commercial  property and casualty  premium  rates,  the  competitive
environment and the actual cost of resolution of contingent liabilities.        

GENERAL                                                                         
-------                                                                         

Total revenue increased $96 million or 6% in the second quarter and $207 million
or 6% in six months 2000. The impact of foreign exchange rate reductions and the
absence of revenue from the  Unicover workers compensation pool  slowed  revenue
growth in  second quarter and six months 2000.  On a comparable  currency basis,
total revenues improved 8% in the quarter compared to 1999.                     

Brokerage  commissions  and fees  increased $60 million or 5% in second  quarter
2000 and $153 million or 7% in six months 2000, primarily reflecting growth from
business combination  activity,  internal growth from increased new business and
the impact of  an  improving  premium  rate  environment on  revenue.  Partially
offsetting the growth in brokerage commission and fees was the impact of foreign
exchange rates in the quarter and six months.                                   

Premiums  and other,  primarily  related to insurance  underwriting  operations,
increased $50 million or 11% in second quarter 2000 and $81 million or 9% in six
months 2000 compared with the same period last year.  Total  premiums  earned in
the insurance underwriting segment were $488 million, an increase of $52 million
or 12% over second  quarter 1999. The increase  primarily  reflects new business
development  in the domestic  mechanical  warranty  and  casualty  lines and the
appliance and electronic lines and continued internal growth.                   

Investment  income,  which  includes  related  expenses and income on disposals,
decreased  10% and 9% in the second  quarter and six months 2000,  respectively,
when compared to prior year. For six months 1999, investment income included $30
million of income on the disposal of tax-exempt bonds with no comparable  amount
in 2000.  Excluding  the  income on  disposal  of the  bonds,  six  months  2000
investment  income  increased  a modest 1% or $3 million,  primarily  reflecting
higher   short-term   interest   rates  offset  by  lower  revenue  from  equity
investments.  Revenues  from private  equity  investments  fluctuate  due to the
inherent  volatility  of these  investments.  Investment  income from  insurance
brokerage and other services, and consulting  operations,  primarily relating to
fiduciary funds,  increased $5 million in second quarter 2000 compared to second
quarter 1999. Higher short-term  interest rates coupled with improved  cashflows
contributed to the overall investment income increase in the brokerage segments.

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In first  quarter  1999,  Aon recorded  special  charges of $163  million  ($102
million after-tax or  $0.39 per share)  including  provisions for  U.K.  pension
selling, an early  retirement plan in the U.S. and Canada and the  consolidation
of Aon's European insurance  brokerage and other services  operations.   General
expenses, excluding 1999 special charges, increased  $220 million or 10%  in six
months 2000,  primarily reflecting investments  in new business initiatives  and
technology. For example,  incremental costs related to the rollout of the retail
insurance brokerage and other services brokerage system and related conversions,
running of  parallel  systems and  training  expenses,  were  incurred in second
quarter and six months 2000.                                                    

Benefits  to  policyholders  increased  $20 million or 8% in the quarter and $33
million or 7% in six months 2000 when compared to prior year. The increases were
fairly  consistent  with  growth in related  premiums  earned and  reflected  no
unusual claims activity.  Total expenses  increased $128 million or 9% in second
quarter 2000 and $117 million or 4% when compared to prior year. Total expenses,
excluding  the 1999  special  charges,  increased  10% for the six  months  when
compared to 1999.  Interest  expense  increased  38% in the quarter  compared to
prior year and 42% in six  months  2000,  attributed  primarily  to  acquisition
financing in 1999 and the  issuances of $250 million of 6.9% notes at the end of
second  quarter 1999 and $250 million of 8.65% notes in second quarter 2000 (see
note 5).  Restructuring  liabilities  for recent  acquisitions  and 1999 special
charges have been reduced by payments as planned.                               

Income before income tax and minority  interest  decreased $32 million or 12% in
second quarter 2000 when compared to prior year,  primarily due to lower revenue
from equity investments,  higher interest and technology expenses,  new business
initiatives and the absence of Unicover revenue.                                

Although  foreign  exchange  rates  negatively  affected  revenues in the second
quarter,   pretax  income  is  generally   hedged   against   foreign   currency
fluctuations.  In the second quarter,  the net foreign exchange impact to pretax
income,  after the benefit of hedge  activity,  was minimal.  For the six months
2000, the foreign exchange impact to pretax income was $9 million.              

Six months 2000 income  before income tax increased $90 million or 25% over 1999
reflecting the inclusion of 1999 special charges. Excluding special charges, six
months 2000 income  before income tax decreased $73 million or 14% when compared
to prior year, primarily reflecting lower revenue from equity investments, costs
to integrate  Aon's global network, increased  technology  expenses  related  to
brokerage  computer  systems,  additional interest  expense, absence of Unicover
revenues, and the inclusion of the $30  million income on disposal of tax-exempt
securities in 1999.                                                             

BUSINESS SEGMENTS                                                               
-----------------                                                               

GENERAL                                                                         
-------                                                                         

For purposes of the following business segments discussions, comparisons against
1999 results exclude special charges.  In addition,  references to income before
income tax exclude minority interest related to the capital securities.         

Aon classifies its businesses  into three major  operating  segments:  Insurance
Brokerage and Other Services,  Consulting and Insurance  Underwriting;  and into
one nonoperating segment, Corporate and Other. A description of operations and a
review of financial performance for each of the four business segments follows. 

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10-Q 15th Page of 22 TOC 1st Previous Next ↓Bottom Just 15th
INSURANCE BROKERAGE AND OTHER SERVICES                                          
--------------------------------------                                          

The Insurance Brokerage and Other Services segment consists principally of Aon's
retail  and  reinsurance  brokerage  operations,  which  include  specialty  and
wholesale activity.                                                             

Second quarter 2000 revenue was $1.1 billion, up 4%, and six months 2000 revenue
was $2.1  billion,  up 6%.  Post-second  quarter  1999  acquisitions  as well as
internal growth accounted for the majority of this revenue growth. Excluding the
impact of acquisitions and foreign  exchange,  revenue related to brokerage core
businesses  grew   approximately  6%  in  the  quarter  in  a  very  competitive
environment.  Excluding  the impact of  foreign  exchange  adjustments,  revenue
growth in the quarter was 7% on a comparable currency basis.  Revenue related to
reinsurance  obtained  by  Unicover  was $8 million  and $14  million for second
quarter and six months 1999, respectively.                                      

In the quarter,  U.S. revenue of $545 million in 2000 was up 1% from 1999 due to
increased new business, acquisitions and growth in U.S. specialty operations. In
second  quarter 2000, the premium rate  environment  continued to improve with a
lower level of decline  internationally  and an indicated slight increase in the
U.S. U. K. and  Continental  Europe  revenue of $381  million  increased 6% from
1999, primarily due to strong internal growth,  particularly in Spain,  Finland,
Germany and Ireland.  The impact of foreign exchange rates partially offset this
revenue growth. Rest of world revenue increased 14% in 2000 primarily due to new
initiatives and internal growth.                                                

In the six  months,  U.S.  revenue  of $1.1  billion in 2000 was up 5% from 1999
reflecting  increased  new  business,  acquisitions,  and the  impact of minimal
premium  rate  declines  and  growth  in   U.S. specialty  operations.  U.K. and
Continental  Europe  revenue of $811 million  increased 5% from 1999,  primarily
due  to  internal   growth  as   mentioned   above  and  to  a  lesser   extent,
acquisitions.  The  impact of  foreign  exchange  rates  partially  offset  this
revenue  growth.  Rest of world  revenue  increased  $37  million or 17% in 2000
primarily reflecting new initiatives and internal growth.                       

Excluding 1999 special  charges,  pretax income  declined 3% both in the quarter
and six months 2000 over prior year,  reflecting  lower revenue  sharing  income
with  insurers that was  principally  due to higher  industry-wide  underwriting
losses.  While this negatively affected  short-term  results,  poor underwriting
performance  contributed to continued price firming.                            

Second  quarter  pretax margins in this segment were 17% in 2000 compared to 18%
in the prior  year.  Second  quarter  1999  results  benefited  from high margin
Unicover revenue which was absent in 2000. In addition,  higher technology costs
related to the rollout of Aon's U.S. retail brokerage  computer system platform,
the impact of certain recent  acquisitions  that have seasonally higher expenses
relative to  revenues  and  investments  in new  initiatives,  with little or no
immediate  revenue  growth,  contributed to the pretax income and related margin
declines in the second quarter.                                                 

CONSULTING                                                                      
----------                                                                      

The  Consulting  segment  provides  a range  of  consulting  services  including
employee benefits, human resources, compensation and change management.         

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In the Consulting segment,  both  second  quarter  and six months  2000  revenue
increased 12% to $180 million and $356  million,  respectively.  On a comparable
currency basis,  Consulting  revenue grew 14% in the quarter  compared to  1999.
Internal growth, acquisition  activity,  and to a  lesser  extent, transfers  of
business units to consulting from the Insurance  Brokerage  and  Other  Services
segment subsequent to second quarter  1999, influenced  revenue  growth.  Absent
these factors, revenue grew approximately 7% in second quarter 2000.            

U.S.  revenue  of $109  million  in  second  quarter  2000 was up 11% from  1999
reflecting   growth   primarily  in  employee  benefit   consulting.   U.K.  and
Continental  Europe  revenue  of $54  million  increased  15%  from  1999.  U.K.
revenue  grew 5% from the prior  period  reflecting  strong  growth in  employee
benefit  services.  Continental  Europe  revenue  increased  56%  or $5  million
reflecting  revenue  growth of  existing  businesses  and  transfers  of certain
operating   activities  to  the   consulting   segment,   partially   offset  by
unfavorable foreign exchange rates.                                             

U.S.  revenue  of  $208  million  in  six  months  2000  was up  10%  from  1999
reflecting   growth   primarily  in  employee  benefit   consulting.   U.K.  and
Continental  Europe  revenue  of $115  million  increased  19% from  1999.  U.K.
revenue  grew 10% from the prior  period  reflecting  strong  growth in employee
benefit  services.  Continental  Europe  revenue  increased  44% or $11  million
reflecting  revenue  growth of  existing  businesses  and  transfers  of certain
operating   activities  to  the   consulting   segment,   partially   offset  by
unfavorable foreign exchange rates.                                             

Second  quarter and six months pretax income,  excluding  1999 special  charges,
increased 21% to $23 million and 17% to $42 million,  respectively,  compared to
1999 primarily reflecting U.K. operations and domestic employee benefits,  human
resources  and change  management  consulting.  Pretax  margins in this  segment
improved slightly in the quarter and six months compared to 1999.               

INSURANCE UNDERWRITING                                                          
----------------------                                                          

The  Insurance  Underwriting  segment is comprised of accident,  health and life
insurance and extended warranty and casualty insurance products.                

Revenue was $552 million in second quarter 2000, up 10% from 1999, primarily due
to growth in the U.S. appliance and electronics and mechanical extended warranty
and  casualty  products.   Accident  and  health  continued  to  expand  product
distribution  through worksite  marketing  programs,  and the development of new
product  initiatives  introduced in 1999 on a global basis.  However,  the above
revenue growth is  predominantly  from core operations and acquisitions as these
new initiatives continue to build momentum. Excluding the impact of acquisitions
and foreign  exchange,  written premiums related to insurance  underwriting core
businesses grew approximately 9% in the quarter.                                

U.S.  revenue of $394  million was up 13% in second  quarter  2000 due to growth
in revenues for  accident  and health and  appliance  and  electronics  extended
warranty  products.   U.K.  and  Continental  Europe  revenue  of  $109  million
improved  2%  principally  reflecting  continued  growth,  particularly  due  to
direct  sales  accident and health  products in the U.K.  and  Ireland.  Rest of
world  revenue  was $49  million,  up 7% from  prior year  reflecting  continued
geographic expansion.                                                           

U.S.  revenue of $770  million  was up 11% in six  months  2000 due to growth in
revenues  for life,  accident and health and extended  warranty  products.  U.K.
and  Continental  Europe  revenue of $213  million  declined 3%  reflecting  the
transfer  of certain  business to the  Insurance  Brokerage  and Other  Services
segment in first  quarter 2000.  Rest of world  revenue was $99 million,  up 11%
from prior year reflecting continued geographic expansion.                      

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Pretax income was $79 million in second  quarter 2000, up 5% from last year. Six
months 2000 pretax income was $146  million,  an increase of 5% over prior year.
Revenue  growth and expense  management  was partially  offset by start-up costs
related to new accident and health product  initiatives  and  investments in new
product  development  in the extended  warranty  lines.  Pretax  margins in this
segment  declined  to  14% in  second  quarter  2000  compared  to 15% in  1999,
principally reflecting the effect of start-up costs mentioned above.            

CORPORATE AND OTHER                                                             
-------------------                                                             

Revenue in this  category  consists  primarily of investment  income  (including
income on disposals) which is not otherwise allocated to the operating segments.
Corporate  operating expenses include goodwill  amortization,  interest  expense
and general expenses such as administrative and certain  information  technology
costs.                                                                          

Corporate  and Other revenue for the second  quarter 2000 was $22 million,  down
$18 million or 45% from second  quarter 1999 primarily due to an increase in the
allocation  of investment  income to the operating  segments and lower yields on
Corporate equity investments.  For six months 2000,  Corporate and Other revenue
declined  $37 million or 42%.  Six months 1999  corporate  revenue  included $30
million of income on the disposal of $500 million in tax-exempt bonds. Excluding
the gain,  Corporate and Other revenue in the six months decreased $7 million or
12% from prior year primarily due to  lower  revenue  from  equity  investments.
These investments  generate  a  more  variable income stream due to the inherent
fluctuations of equity security valuations.                                     

Corporate and Other  expenses for the quarter and six months were up $16 million
and $39 million, respectively, from the same periods last year. Interest expense
and goodwill amortization were up a total of $14 million over the second quarter
1999,  reflecting  the  financing  of  acquisitions  made during the last twelve
months and the issuance of  approximately  $500 million of debt securities since
June 1999.                                                                      

Lower revenues from equity  investments and increased  interest and amortization
expenses were the primary factors that contributed to the overall  corporate and
other pretax loss of $56 million in the quarter and $104 million for six months,
a decline of $34 million and $76 million, respectively.                         

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NET INCOME FOR SECOND QUARTER AND SIX MONTHS 2000 

Second  quarter  2000 net income was $129  million  ($0.49  dilutive  per share)
compared to $151 million ($0.57 dilutive per share) in 1999. Six months 2000 net
income was $252  million  ($0.96  dilutive  per share)  compared to $201 million
($0.76 per share) in 1999.  Six months 1999 net income was primarily  influenced
by  after-tax  1999 special  charges of $102  million  ($0.39 per share) with no
comparable   amount in  six  months  2000.  In the second quarter and  first six
months of 2000,  there  was  no  net  income  reflected  in  Aon's  consolidated
financial  statements from the  impact  of  Unicover  revenues.  The  impact  of
Unicover  revenues  in  1999  was  approximately  $0.02  per share in the second
quarter and $0.03 per share for the first six months.                           

Basic net income per share,  including 1999 special charges, was $0.50 and $0.58
in second quarter 2000 and 1999, respectively, and $0.97 and $0.77 in six months
2000 and 1999,  respectively.  Dividends on the redeemable  preferred stock have
been  deducted  from net income to compute  income per share.  The effective tax
rate was 39% and 38.25%  for second  quarter  2000 and 1999,  respectively.  The
increase in the effective rate was primarily attributable to a shift in business
mix and to lower tax-exempt investment income.                                  

CASH FLOW AND FINANCIAL POSITION
 AT THE END OF SIX MONTHS 2000

Cash flows from operating activities reflect the net income earned by Aon in the
reported periods adjusted for non-cash charges and working capital changes. Cash
flows  provided by operating  actvities in six months 2000 were $262 million,  a
decrease of $95 million from the $357 million  reported at six months 1999.  The
decrease  is  primarily   due  to  payments  on  special   charges   related  to
restructuring and purchase accounting liabilities from business combinations and
changes in insurance assets and liabilities net of reinsurance and net brokerage
insurance  premiums  payable.  In  addition,  six months 2000 net income of $252
million was $51 million below prior year after  adjusting for after-tax  special
charges of $102  million at six  months  1999.  A refund due on prior year taxes
partially offset the decrease in operating cash flows for the six months 2000.  

Investing  activities  used cash of $104 million,  which was made available from
financing and operating  activities.  Cash used for acquisition  activity during
six months 2000 was $41 million,  primarily reflecting  brokerage  acquisitions.
Property and equipment and other  expenditures  for the first six months of 2000
were  $73  million,  net of  proceeds of $33  million from  the sale of  certain
assets.                                                                         

Cash  totaling  $58  million  was used  during  six months  2000 from  financing
activities.  The decrease of $384 million from six months 1999 is primarily  due
to net  withdrawals  of capital  accumulation  products  and a reduction  of new
short-term borrowings.  Cash was used to pay dividends of $110 million on common
stock and $1 million on redeemable preferred stock during six months 2000.      

Aon's operating subsidiaries anticipate that there will be adequate liquidity to
meet their needs in the foreseeable future.  Aon's liquidity needs are primarily
for  servicing  its debt and for the payment of  dividends  on stock  issues and
capital securities.  The businesses of Aon's operating  subsidiaries continue to
provide  substantial  positive  cash  flow.  Brokerage  cash  flow has been used
primarily  for  business  reinvestment  (i.e.  rollout  of the new  U.S.  retail
brokerage  system,  acquisition  financing  and  payments of special  charge and

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purchase accounting liabilities).  Aon anticipates continuation of the company's
positive  cash  flow,  the  ability of the  parent  company  to access  adequate
short-term lines of credit, and sufficient cash flow in the long term.          

Aon's fixed  maturity  investments  are invested  primarily in investment  grade
holdings (97%) and have a fair  value of $2.4 billion at June 30, 2000, which is
approximately 96% of amortized cost.                                            

Total  assets  increased  $963 million to $22.1  billion  since  year-end  1999.
Invested  assets at June 30, 2000  decreased  $49 million from  year-end  levels
primarily from the use of short-term investments to fund special charge payments
and to settle  policyholder fund liabilities.  The amortized cost and fair value
of less than investment  grade fixed maturity  investments were $109 million and
$100 million,  respectively,  at June 30, 2000. The carrying value of non-income
producing  investments in Aon's portfolio at June 30, 2000 was $100 million,  or
1.6% of total invested assets.                                                  

In general,  Aon uses  derivative  financial  instruments  (primarily  financial
futures,  swaps,  options and foreign  exchange  forwards)  to: (a) hedge income
statement foreign currency  translation and transaction risks and other business
risks  (i.e.  interest  rate and  credit  risk);  (b)  hedge  asset  price  risk
associated  with financial  instruments  whose change in value is reported under
SFAS 115; and (c) manage its overall asset/liability  duration match. As of June
30, 2000, Aon had open contracts, related to certain of the above, which had net
unrealized gains of approximately $1 million.                                   

Short-term  borrowings  increased  at the end of six months  2000 by $87 million
when compared to year-end  1999.  The increase is primarily due to the financing
of  acquisitions,  in particular  the  completion of minority  interest  buyouts
associated with previous acquisitions. Notes payable increased at the end of six
months 2000 by $207 million when compared to year-end 1999. The principal factor
influencing  this  increase  is the  issuance  of $250  million  of  8.65%  debt
securities  due May 2005 (see note 5).  Debt  repayments  partially  offset  the
increase  in notes  payable.  Included  in  notes  payable  at June 30,  2000 is
approximately $22 million,  which represents the principal amount of notes to be
paid within one year.                                                           

Stockholders'  equity  increased  $36  million in six months  2000 to $12.10 per
share, an increase of $0.19 per share since year-end 1999. The principal  factor
influencing  this increase was net income.  Partially  offsetting  this increase
were net foreign exchange losses of $80 million and dividends to stockholders of
$111 million.  Unrealized investment gains and losses and foreign exchange gains
and  losses  fluctuations  from  period to period  are  largely  based on market
conditions.  These short-term non-cash  fluctuations are not economical to hedge
completely.                                                                     

REVIEW BY INDEPENDENT AUDITORS                                                  
------------------------------                                                  

The  condensed  consolidated  financial  statements at June 30, 2000 and for the
second quarter and six months then ended have been reviewed, prior to filing, by
Ernst & Young LLP,  Aon's  independent  auditors,  and their  report is included
herein.                                                                         

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INDEPENDENT ACCOUNTANTS' REVIEW REPORT                                          

Board of Directors and Stockholders                                             
Aon Corporation                                                                 

We have reviewed the accompanying  condensed consolidated statement of financial
position of Aon  Corporation  as of June 30,  2000,  and the  related  condensed
consolidated  statements of income for the  three-month  and  six-month  periods
ended June 30, 2000 and 1999, and the condensed consolidated  statements of cash
flows for the six-month  periods ended June 30, 2000 and 1999.  These  financial
statements are the responsibility of the Company's management.                  

We  conducted  our  reviews in  accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial  information consists principally of applying analytical procedures to
financial  data, and making  inquiries of persons  responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance  with auditing  standards  generally  accepted in the United  States,
which will be performed  for the full year with the  objective of  expressing an
opinion regarding the financial statements taken as a whole. Accordingly,  we do
not express such an opinion.                                                    

Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above  for them to be in  conformity  with  accounting  principles  generally
accepted in the United States.                                                  

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United States, the consolidated  statement of financial position
of Aon  Corporation  as of  December  31,  1999,  and the  related  consolidated
statements  of income,  stockholders'  equity,  and cash flows for the year then
ended,  not  presented  herein,  and in our report  dated  February 8, 2000,  we
expressed an unqualified opinion on those consolidated financial statements.  In
our  opinion,   the  information  set  forth  in  the   accompanying   condensed
consolidated  statement of financial position as of December 31, 1999, is fairly
stated, in all material respects,  in relation to the consolidated  statement of
financial position from which it has been derived.                              

                                     /s/ ERNST & YOUNG LLP
                                     ---------------------
                                 ERNST & YOUNG LLP

Chicago, Illinois                                                               
August 10, 2000                                                                 

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 PART II
 -------

 OTHER INFORMATION
 -----------------

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K                              

    (a)           Exhibits - The  exhibits  filed with this report are listed on
the attached Exhibit Index.                 

    (b)           Reports on Form 8-K - The Registrant  filed one Current Report
                  on Form 8-K dated May 9, 2000 for the  quarter  ended June 30,
                  2000. The following  exhibits were included in the report: (1)
                  Exhibit  3 -  Certificate  of  Amendment  of  Second  Restated
                  Certificate  of  Incorporation;  (2) Exhibit 12(a) - Statement
                  regarding  Computation  of Ratio of Earnings to Fixed Charges;
                  (3) Exhibit 12(b) - Statement  regarding  Computation of Ratio
                  of Earnings  to Combined  Fixed  Charges and  Preferred  Stock
                  Dividends;  and (4) Exhibit 99 - Press Release regarding First
Quarter 2000 Earnings.                      

SIGNATURE                                                                       

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.                                          

                         Aon Corporation
                         ---------------
                      (Registrant)

August 11, 2000                               /s/ Harvey N. Medvin              
                                          --------------------------------
                          HARVEY N. MEDVIN
                                      EXECUTIVE VICE PRESIDENT AND
                                 CHIEF FINANCIAL OFFICER
                                             (Principal Financial and Accounting
                  Officer)

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Aon CORPORATION                                                                 
---------------                                                                 

Exhibit Number                                                                  
In Regulation S-K                                                               

Item 601 Exhibit Table                                                          
----------------------                                                          

(10) Material Contracts.                                                        

            (a)   Aon  Stock  Award  Plan  (as  amended  and  restated   through
February, 2000).                            

(12) Statements regarding Computation of Ratios.                                

            (a)   Statement regarding  Computation of Ratio of Earnings to Fixed
Charges.                                    

            (b)   Statement regarding  Computation  of   Ratio  of  Earnings  to
         Combined Fixed Charges and Preferred Stock Dividends.

(15) Letter re: Unaudited Interim Financial Information                         

(27) Financial Data Schedule                                                    

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	1/1/27	8
Filed on:	8/11/00	21
	8/10/00	20		SC 13G/A
	7/1/00	6
For Period End:	6/30/00	1	21	10-Q/A, 13F-HR
	6/15/00	5		11-K
	5/9/00	21		8-K
	2/8/00	20		SC 13G
	1/1/00	5
	12/31/99	2	20	10-K, 11-K, 11-K/A, 13F-HR
	6/30/99	6	20	10-Q, 13F-HR
	12/31/96	9		10-K
				List all Filings

4 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/16/24  Aon plc                           10-K       12/31/23  141:142M                                   Workiva Inc Wde… FA01/FA
 2/17/23  Aon plc                           10-K       12/31/22  135:18M                                    Workiva Inc Wde… FA01/FA
 2/18/22  Aon plc                           10-K       12/31/21  141:20M                                    Workiva Inc Wde… FA01/FA
 2/19/21  Aon plc                           10-K       12/31/20  138:19M                                    Workiva Inc Wde… FA01/FA

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Filing Submission 0000948572-00-000044 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Aon plc – ‘10-Q’ for 6/30/00

On: Friday, 8/11/00, at 2:44pm ET · For: 6/30/00 · Accession #: 948572-0-44 · File #: 1-07933

Quarterly Report — Form 10-QFiling Table of Contents

10-Q — Aon CorporationDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

4 Subsequent Filings that Reference this Filing

Quarterly Report — Form 10-Q
Filing Table of Contents

10-Q — Aon Corporation
Document Table of Contents