AOC Aon Corp.

- Total Revenue grew 6% to $1.8 billion with Organic Revenue growth of 2% CHICAGO, Oct. 31 /PRNewswire-FirstCall/ -- Aon Corporation (NYSE:AOC) today reported results for the third quarter ended September 30, 2008. Net income decreased 43% to $117 million or $0.40 per share, compared to $204 million or $0.64 per share for the prior year quarter, including the impact of businesses moved to discontinued operations. Net income from continuing operations increased 18% to $153 million or $0.52 per share, compared to $130 million or $0.41 per share for the prior year quarter. Net income from continuing operations per share, excluding certain items, increased 33% to $0.69 compared to $0.52 for the prior year quarter. Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the reconciliation of non-GAAP measures on page 11 of this press release. "We are pleased to deliver results that demonstrate continued progress in each of our key metrics: organic growth was two percent, adjusted pretax margin increased 140 basis points and adjusted earnings per share from continuing operations increased 33%. These results were achieved despite soft market conditions globally and unprecedented turmoil in the insurance industry," said Greg Case, president and chief executive officer, Aon Corporation. "Driven by a commitment to expense discipline, we increased savings related to our 2007 restructuring program by $60 million, enabling further investment in our industry-leading platform and concurrent margin improvement. Additionally, our balance sheet provides solid financial flexibility as we continue to make strategic investments including the acquisition of Benfield, while streamlining our core focus with the announced sale of AIS and returning more than $400 million of excess capital to shareholders." THIRD QUARTER FINANCIAL SUMMARY Total revenue increased 6% to $1.8 billion with organic revenue growth of 2%. Total operating expenses increased 8% or $113 million to $1.6 billion, including a $37 million increase in restructuring expense and a $28 million unfavorable impact from foreign currency translation. Restructuring expense was $54 million in the third quarter compared to $17 million in the prior year quarter. An analysis of restructuring-related expenses by segment and type for the 2007 restructuring program is detailed on page 12 of this release. Restructuring savings in the third quarter related to the 2005 restructuring program are estimated at $67 million compared to $61 million in the prior year quarter. Of the estimated restructuring savings in the third quarter, $57 million were related to the Brokerage segment, primarily due to 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. Restructuring savings in the third quarter related to the 2007 restructuring program are estimated at $29 million compared to no material savings in the prior year quarter. Of the estimated restructuring savings in the third quarter, $23 million were related to the Brokerage segment primarily for workforce reduction. Before any potential reinvestment of savings, the 2007 restructuring program is now expected to result in cumulative cost savings of approximately $75-80 million in 2008, $220-245 million in 2009 and $300 million in 2010, primarily as a result of additional cost savings opportunities to streamline non-client facing support functions globally. Foreign currency translation increased net income by $0.04 per share compared to the prior year quarter due primarily to fluctuations in the U.S. dollar versus the Euro and British pound. Effective tax rate on continuing operations was 27.8% for the third quarter compared to 41.7% for the prior year quarter. The rate in the third quarter includes an underlying tax rate on operations of 29.0%. The prior year quarter reflected an underlying tax rate of 33.5% and a $22 million non- cash adjustment related to the revaluation of deferred tax assets in the Company's UK operations resulting from a reduction in the statutory rate. Average diluted shares outstanding declined to 290 million in the third quarter compared to 322 million in the prior year quarter, due primarily to the Company's share repurchase program. During the third quarter, the Company repurchased 9.3 million shares of common stock for $426 million, at an average price of $45.90 per share. As of September 30, the Company had approximately $850 million of remaining share repurchase authorization. Discontinued Operations after-tax loss was $36 million or ($0.12) per share compared to after-tax income of $74 million or $0.23 per share for the prior year quarter. Discontinued operations include the results of Automobile Insurance Specialists (AIS) and post-close adjustments related to the sale of Combined Insurance Companies of America (CICA) and Sterling Life Insurance (Sterling). The prior year quarter includes the results of CICA, Sterling, and AIS. THIRD QUARTER SEGMENT REVIEW Certain noteworthy items impacted revenue, pretax income and pretax margins in the third quarter of 2008 and 2007. The third 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 and Diluted Earnings Per Share" on page 11 of this press release. RISK AND INSURANCE BROKERAGE SERVICES (millions) Third Quarter Ended Less: ------------------- Less: Acquisitions, Organic Commissions, Sep 30, Sep 30, % Currency Divestitures, Revenue Fees, Other 2008 2007 Change Impact Other Growth ------------ --------- --------- -------- -------- ------------ -------- Americas $557 $546 2% 1% -% 1% U.K. 182 193 (6) (2) (3) (1) EMEA 314 268 17 10 2 5 Asia Pacific 120 116 3 3 (1) 1 Reinsurance 252 232 9 4 4 1 --------- --------- -------- -------- ------------ -------- Sub-Total $1,425 $1,355 5% 3% -% 2% --------- --------- -------- -------- ------------ -------- Investment Income $48 $56 (14)% --------- --------- -------- Total Revenue $1,473 $1,411 4% ========= ========= ======== Risk and Insurance Brokerage Services total revenue increased 4% to $1.5 billion compared to the prior year quarter including 2% organic revenue growth in commissions, fees and other and a 14% decline in investment income. Americas organic revenue increased 1% reflecting strong growth in Latin America and solid growth in Canada, partially offset by a significant decline in the Company's Cananwill premium financing business. U.K. organic revenue decreased 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 increased 1% reflecting solid growth in most Asian markets, primarily offset by the impact of certain regulatory changes in Japan. Reinsurance organic revenue increased 1% due primarily to growth in global facultative and treaty placements, partially offset by soft market conditions. Third Quarter Ended ------------------------ (millions) Sep 30, Sep 30, % 2008 2007 Change ---------- ---------- ---------- Revenue $1,473 $ 1,411 4% ------- Expenses -------- Compensation and benefits 910 832 9 Other expenses 384 351 9 ---------- ---------- ---------- Total operating expenses 1,294 1,183 9 Operating income $179 $228 (21)% Other (income) expense (9) - N/A ---------- ---------- ---------- Pretax income $188 $228 (18)% ========== ========== ========== Pretax margin 12.8% 16.2% Pretax income - adjusted $247 $244 1% Pretax margin - adjusted 16.8% 17.3% Compensation and benefits for the third quarter increased 9% or $78 million from the prior year quarter including a $27 million increase in restructuring costs, a $19 million unfavorable impact from foreign currency translation and investments in key talent, partially offset by benefits related to the 2005 and 2007 restructuring programs. Other expenses increased 9% or $33 million compared to the prior year quarter including a $10 million increase in restructuring costs, an $8 million unfavorable impact from foreign currency translation and $6 million for the previously disclosed reviews under the Foreign Corrupt Practices Act (FCPA) and similar laws in other countries and related compliance initiatives. Third quarter pretax income decreased 18% to $188 million. Adjusting for certain items detailed on page 11 of this press release, pretax income increased 1% or $3 million to $247 million and pretax margin decreased 50 basis points to 16.8% versus the prior year quarter due primarily to lower investment income and a decline in Cananwill pretax income, which negatively impacted adjusted pretax margin by 80 basis points. CONSULTING (millions) Third Quarter Ended Less: ------------------- Less: Acquisitions, Organic Commissions, Sep 30, Sep 30, % Currency Divestitures, Revenue Fees, Other 2008 2007 Change Impact Other Growth ----------- --------- --------- -------- -------- ------------ -------- Services $284 $269 6% 1% (3)% 8% Outsourcing 51 55 (7) (2) (1) (4) --------- --------- -------- -------- ------------ -------- Sub-Total $335 $324 3% 1% (4)% 6% --------- --------- -------- -------- ------------ -------- Investment Income $2 $1 100% --------- --------- -------- Total Revenue $337 $325 4% ========= ========= ======== Consulting total revenue increased 4% to $337 million compared to the prior year quarter including 6% organic revenue growth in commissions, fees and other. Organic revenue in Consulting Services increased 8% reflecting growth in compensation and health and benefits consulting. Organic revenue in Outsourcing declined 4% due to the previously announced termination of a significant outsourcing contract, partially offset by modest growth in benefits outsourcing. Third Quarter Ended ------------------------ (millions) Sep 30, Sep 30, % 2008 2007 Change ---------- ---------- ---------- Revenue $337 $325 4% Expenses Compensation and benefits 206 209 (1) Other expenses 79 78 1 ---------- ---------- ---------- Total operating expenses 285 287 (1) Operating income $52 $38 37% Other (income) expense - - - ---------- ---------- ---------- Pretax income $52 $38 37% ========== ========== ========== Pretax margin 15.4% 11.7% Pretax income - adjusted $53 $39 36% Pretax margin - adjusted 15.7% 12.0% Total operating expenses for the third quarter decreased 1% or $2 million from the prior year quarter due primarily to benefits related to the 2007 restructuring program. Third quarter pretax income increased 37% to $52 million and the pretax margin increased 370 basis points to 15.4% versus the prior year quarter. Adjusting for certain items detailed on page 11, pretax income increased 36% to $53 million and the pretax margin increased 370 basis points to 15.7%. UNALLOCATED INCOME AND EXPENSE Third Quarter Ended ------------------- (millions) Sep 30, Sep 30, % 2008 2007 Change --------- --------- --------- Operating segment income before tax $240 $266 (10)% Property & Casualty operations (2) (5) (60) Unallocated investment income 40 19 111 Unallocated expenses (34) (24) 42 Interest expense (32) (33) (3) --------- --------- --------- Income from continuing operations before tax $212 $223 (5)% ========= ========= ========= Property & Casualty loss declined $3 million compared to the prior year quarter. All property & casualty business was placed into run-off in the fourth quarter 2006. Unallocated investment income for the third quarter increased $21 million to $40 million compared to the prior year quarter due primarily to a $13 million increase in certain private equity distributions and an increase in interest income from higher cash balances. Unallocated expenses increased $10 million to $34 million versus the prior year quarter due primarily to $6 million in Benfield costs and $3 million of absorbed costs previously allocated to the insurance underwriting segment. Interest expense was relatively unchanged from the prior year quarter. Conference Call and Webcast Details The Company will host a conference call on Friday, October 31, 2008 at 7:30 a.m. central time. Interested parties can listen to the conference call via a live audio webcast at http://www.aon.com/. About Aon Aon Corporation (NYSE:AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues 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 named the world's best broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon was ranked as the world's largest insurance broker by Business Insurance. Aon also was ranked by A.M. Best as the number one global insurance brokerage in 2007 and 2008 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, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, the outcome of inquiries from regulators and investigations related to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws, the impact of investigations brought by U.S. state attorneys general, U.S. state insurance regulators, U.S. federal prosecutors, U.S. federal regulators, and regulatory authorities in the U.K. and other countries, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, our ability to complete our pending acquisition of Benfield Group Limited and, if completed, to integrate Benfield successfully and to realize the anticipated benefits of the Benfield acquisition. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission. This press release includes supplemental information related to organic revenue growth and several additional measures including expenses, margins and income per share, that exclude the effects of restructuring charges and certain other noteworthy items that affected results for the comparable periods. Organic revenue growth excludes from reported revenues the impact of foreign exchange, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses and unusual items. Reconciliation is provided in the attached schedules. Supplemental organic revenue growth information and additional measures that exclude the effects of the restructuring charges and certain other items do not affect net income or any other GAAP reported amounts. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. They should be viewed in addition to, not in lieu of, the Company's Consolidated Summary of Operations. Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments. Investor Contact: 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 (Unaudited) Third Quarter Ended Nine Months Ended (millions ----------------------------- ----------------------------- except Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent per share 2008 2007 Change 2008 2007 Change data) --------- --------- --------- --------- --------- --------- Revenue ------- Commissions, fees and other $1,756 $1,672 5% $5,493 $5,125 7% Investment income 91 77 18 218 236 (8) --------- --------- --------- --------- --------- --------- Total revenue 1,847 1,749 6 5,711 5,361 7 --------- --------- --------- --------- --------- --------- Expenses -------- Compensation and benefits 1,132 1,048 8 3,432 3,188 8 Other general expenses 425 397 7 1,350 1,228 10 Depreciation and amortization 49 48 2 157 141 11 --------- --------- --------- --------- --------- --------- Total operating expenses 1,606 1,493 8 4,939 4,557 8 --------- --------- --------- --------- --------- --------- Operating income 241 256 (6) 772 804 (4) Interest expense 32 33 (3) 96 102 (6) Other income (3) - N/A (9) (29) (69) --------- --------- --------- --------- --------- --------- Income from continuing operations before provision for income tax 212 223 (5) 685 731 (6) Provision for income tax (1) 59 93 (37) 191 262 (27) --------- --------- --------- --------- --------- --------- Income from continuing operations 153 130 18 494 469 5 Discontinued operations Income (loss) from discontinued operations (55) 88 N/A 1,445 261 454 Provision for (benefit from) income tax (2) (19) 14 N/A 471 73 545 --------- --------- --------- --------- --------- --------- Income (loss) from discontinued operations (36) 74 N/A 974 188 418 --------- --------- --------- --------- --------- --------- Net income $117 $204 (43)% $1,468 $657 123% ========= ========= ========= ========= ========= ========= Basic net income (loss) per share: Continuing operations $0.56 $0.44 27% $1.70 $1.59 7% Discontinued operations (0.13) 0.25 N/A 3.37 0.63 435 --------- --------- --------- --------- --------- --------- Net income $0.43 $0.69 (38)% $5.07 $2.22 128% ========= ========= ========= ========= ========= ========= Diluted net income (loss) per share: Continuing operations $0.52 $0.41 27% $1.62 $1.47 10% Discontinued operations (0.12) 0.23 N/A 3.19 0.58 450 --------- --------- --------- --------- --------- --------- Net income $0.40 $0.64 (38)% $4.81 $2.05 135% ========= ========= ========= ========= ========= ========= Weighted average common shares outstanding - diluted 290.3 321.5 (10)% 305.2 322.6 (5)% ========= ========= ========= ========= ========= ========= (1) Tax rate from continuing operations is 27.8% and 41.7% for the third quarters ended September 30, 2008 and 2007, respectively, and 27.9% and 35.8% for the nine months ended September 30, 2008 and 2007, respectively. (2) Tax rate from discontinued operations is 34.5% and 15.9% for the third quarters ended September 30, 2008 and 2007, respectively, and 32.6% and 28.0% for the nine months ended September 30, 2008 and 2007, respectively. Aon Corporation Revenue from Continuing Operations (Unaudited) Third Quarter Ended -------------------------------------------------------- Less: Acquisitions, Sept. Sept. Less: Divestitures Organic 30, 30, Percent Currency & Revenue (millions) 2008 2007 Change Impact Other Growth(1) -------- -------- -------- -------- --------- --------- Commissions, Fees and Other ---------------- Risk and Insurance Brokerage Services: Americas $557 $546 2% 1% -% 1% United Kingdom 182 193 (6) (2) (3) (1) Europe, Middle East & Africa 314 268 17 10 2 5 Asia Pacific 120 116 3 3 (1) 1 Reinsurance brokerage and related services 252 232 9 4 4 1 -------- -------- -------- -------- --------- --------- Total Risk and Insurance Brokerage Services 1,425 1,355 5 3 - 2 -------- -------- -------- -------- --------- --------- Consulting: Consulting services 284 269 6 1 (3) 8 Outsourcing 51 55 (7) (2) (1) (4) -------- -------- -------- -------- --------- --------- Total Consulting 335 324 3 1 (4) 6 -------- -------- -------- -------- --------- --------- Total Operating Segments $1,760 $1,679 5% 3% -% 2% ======== ======== ======== ======== ========= ========= Investment Income ----------------- Risk and Insurance Brokerage Services $48 $56 (14)% Consulting 2 1 100 -------- -------- -------- Total Operating Segments $50 $57 (12)% ======== ======== ======== Total Revenue ------------- Risk and Insurance Brokerage Services $1,473 $1,411 4% Consulting 337 325 4 Unallocated 41 21 95 Intersegment (4) (8) (50) -------- -------- -------- Total $1,847 $1,749 6% ======== ======== ======== (1) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers, reimbursable expenses and unusual items. Aon Corporation Revenue from Continuing Operations (Unaudited) Nine Months Ended -------------------------------------------------------- Less: Acquisitions, Sept. Sept. Less: Divestitures Organic 30, 30, Percent Currency & Revenue (millions) 2008 2007 Change Impact Other Growth(1) -------- -------- -------- -------- --------- --------- Commissions, Fees and Other ----------------- Risk and Insurance Brokerage Services: Americas $1,638 $1,609 2% 2% -% -% United Kingdom 546 545 - 1 (1) - Europe, Middle East & Africa 1,188 988 20 13 2 5 Asia Pacific 373 343 9 8 (1) 2 Reinsurance brokerage and related services 756 691 9 5 3 1 -------- -------- -------- -------- --------- --------- Total Risk and Insurance Brokerage Services 4,501 4,176 8 5 1 2 -------- -------- -------- -------- --------- --------- Consulting: Consulting services 850 794 7 3 (1) 5 Outsourcing 162 177 (8) 1 (1) (8) -------- -------- -------- -------- --------- --------- Total Consulting 1,012 971 4 3 (2) 3 -------- -------- -------- -------- --------- --------- Total Operating Segments $5,513 $5,147 7% 5% -% 2% ======== ======== ======== ======== ========= ========= Investment Income ----------------- Risk and Insurance Brokerage Services $148 $154 (4)% Consulting 4 8 (50) -------- -------- -------- Total Operating Segments $152 $162 (6)% ======== ======== ======== Total Revenue ------------- Risk and Insurance Brokerage Services $4,649 $4,330 7% Consulting 1,016 979 4 Unallocated 66 76 (13) Intersegment (20) (24) (17) -------- -------- -------- Total $5,711 $5,361 7% ======== ======== ======== (1) Organic revenue growth excludes the impact of foreign exchange, acquisitions, divestitures, transfers, reimbursable expenses and unusual items. Aon Corporation - Segments (Unaudited) Risk and Insurance Brokerage Services- Continuing Operations ------------------------------------------------------------ Third Quarter Ended Nine Months Ended -------------------------- ------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions) 2008 2007 Change 2008 2007 Change ------- ------- ------- ------- ------- ------- Revenue ------- Commissions, fees and other $1,425 $1,355 5% $4,501 $4,176 8% Investment income 48 56 (14) 148 154 (4) ------- ------- ------- ------- ------- ------- Total revenue 1,473 1,411 4 4,649 4,330 7 ------- ------- ------- ------- ------- ------- Expenses -------- Compensation and benefits 910 832 9 2,773 2,534 9 Other general expenses 384 351 9 1,233 1,091 13 ------- ------- ------- ------- ------- ------- Total operating expenses 1,294 1,183 9 4,006 3,625 11 ------- ------- ------- ------- ------- ------- Operating income 179 228 (21) 643 705 (9) Other income (9) - N/A (14) (29) (52) ------- ------- ------- ------- ------- ------- Income before provision for income tax $188 $228 (18)% $657 $734 (10)% ======= ======= ======= ======= ======= ======= Pretax income margin 12.8% 16.2% 14.1% 17.0% Consulting - Continuing Operations ---------------------------------- Third Quarter Ended Nine Months Ended -------------------------- ------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions) 2008 2007 Change 2008 2007 Change ------- ------- ------- ------- ------- ------- Revenue ------- Commissions, fees and other $335 $324 3% $1,012 $971 4% Investment income 2 1 100 4 8 (50) ------- ------- ------- ------- ------- ------- Total revenue 337 325 4 1,016 979 4 ------- ------- ------- ------- ------- ------- Expenses -------- Compensation and benefits 206 209 (1) 612 604 1 Other general expenses 79 78 1 247 246 - ------- ------- ------- ------- ------- ------- Total operating expenses 285 287 (1) 859 850 1 ------- ------- ------- ------- ------- ------- Operating income 52 38 37 157 129 22 Other income - - N/A (1) - N/A ------- ------- ------- ------- ------- ------- Income before provision for income tax $52 $38 37% $158 $129 22% ======= ======= ======= ======= ======= ======= Pretax income margin 15.4% 11.7% 15.6% 13.2% Reconciliation of segment income before provision for income tax to income from continuing operations before provision for income tax: Third Quarter Ended Nine Months Ended -------------------------- ------------------------- Sept. 30, Sept. 30, Percent Sept. 30, Sept. 30, Percent (millions) 2008 2007 Change 2008 2007 Change ------- ------- ------- ------- ------- ------- Segment income before provision for income tax Risk and Insurance Brokerage Services $188 $228 (18)% $657 $734 (10)% Consulting 52 38 37 158 129 22 ------- ------- ------- ------- ------- ------- Total segment income before provision for income tax 240 266 (10) 815 863 (6) Property & Casualty operations (2) (5) (60) (5) (9) (44) Unallocated investment income 40 19 111 62 70 (11) Unallocated expenses (34) (24) 42 (91) (91) - Interest expense (32) (33) (3) (96) (102) (6) ------- ------- ------- ------- ------- ------- Income from continuing operations before provision for income tax $212 $223 (5)% $685 $731 (6)% ======= ======= ======= ======= ======= ======= Pretax income margin 11.5% 12.8% 12.0% 13.6% Aon Corporation Reconciliation of the Impact of Non-GAAP Measures on Segments and Diluted Earnings Per Share (Unaudited) (1) Third Quarter Ended Nine Months Ended September 30, 2008 September 30, 2008 (millions------------------------------- ------------------------------- except Risk and Unallo- Risk and Unallo- per Insurance cated Insurance cated share Brokerage Cons- Income & Brokerage Cons- Income & data) Services ulting Expense Total Services ulting Expense Total Revenue --------- ------- ------- ------ --------- ------- ------- ----- as reported $1,473 $337 $37 $1,847 $4,649 $1,016 $46 $5,711 ========= ======= ======= ====== ========= ======= ======= ===== Income (loss) from continuing operations before provision for income tax - as reported $188 $52 $(28) $212 $657 $158 $(130) $685 Restruc- turing charges (2005 and 2007 plans) 53 1 - 54 159 8 - 167 Anti-bribery and compliance initiatives 6 - - 6 31 - - 31 Benfield costs - - 6 6 - - 6 6 Gain on sale of land - - - - (5) - - (5) --------- ------- ------- ------ --------- ------- ------- ----- Income (loss) from continuing operations before provision for income tax - as adjusted $247 $53 $(22) 278 $842 $166 $(124) 884 ========= ======= ======= ========= ======= ======= Provision for income taxes (2) 78 247 ------ ----- Income from continuing operations - as adjusted $200 $637 ====== ===== Diluted earnings per share from continuing operations - as adjusted $0.69 $2.09 ===== ===== Weighted average common shares out- standing - diluted 290.3 305.2 ===== ===== Pretax income margins - as adjusted 16.8% 15.7% N/A 15.1% 18.1% 16.3% N/A 15.5% ========= ======= ======= ====== ========= ======= ======= ===== Third Quarter Ended Nine Months Ended September 30, 2007 September 30, 2007 (millions------------------------------- ------------------------------- except Risk and Unallo- Risk and Unallo- per Insurance cated Insurance cated share Brokerage Cons- Income & Brokerage Cons- Income & data) Services ulting Expense Total Services ulting Expense Total Revenue --------- ------- ------- ------ --------- ------- ------- ----- as reported $1,411 $325 $13 $1,749 $4,330 $979 $52 $5,361 ========= ======= ======= ====== ========= ======= ======= ===== Income (loss) from continuing operations before provision for income tax - as reported $228 $38 $(43) $223 $734 $129 $(132) $731 Restruc- turing charges (2005 and 2007 plans) 16 1 - 17 44 7 - 51 Gain on sale of businesses - - - - (30) - - (30) Reinsurance litigation - - - - 21 - - 21 ------- ------- ------- ------ -------- ------ ------ ----- Income (loss) from continuing operations before provision for income tax - as adjusted $244 $39 $(43) 240 $769 $136 $(132) 773 ========= ======= ======= ========= ======= ======= Provision for income taxes (2) 76 250 ------ ----- Income from continuing operations - as adjusted $164 $523 ====== ===== Diluted earnings per share from continuing operations - as adjusted $0.52 $1.64 ====== ===== Weighted average common shares out- standing - diluted 321.5 322.6 ====== ===== Pretax income margins - as adjusted 17.3% 12.0% N/A 13.7% 17.8% 13.9% N/A 14.4% ========= ======= ======= ====== ========= ======= ======= ===== (1) Certain noteworthy items impacting revenue and pretax income in 2008 and 2007 are described in this schedule. The revenue, income (loss) from continuing operations before provision for income tax, diluted earnings per share from continuing operations and related margins shown with the caption "as adjusted" are non-GAAP measures. (2) Tax rate from continuing operations is 28.1% and 31.7% for the third quarters ended September 30, 2008 and 2007, respectively, and 27.9% and 32.3% for the nine months ended September 30, 2008 and 2007, respectively. Aon Corporation 2007 Restructuring Plan (Unaudited) By Type: Actual Estimated ------------------------------------------- --------- Six Third Nine Total Months Quarter Months Incurred (millions) 2007 2008 2008 2008 to Date Total ------------------------------------------- --------- Workforce reduction (Compensation and benefits) $17 $76 $42 $118 $135 $284 Lease consolidation (Other general expenses) 22 18 7 25 47 88 Asset impairments (Depreciation and amortization) 4 14 (1) 13 17 44 Other costs associated with restructuring (Other general expenses) 3 5 4 9 12 34 ------------------------------------------- --------- Total restructuring and related expenses $46 $113 $52 $165 $211 $450 =========================================== ========= By Segment: Actual Estimated ------------------------------------------- --------- Six Third Nine Total Months Quarter Months Incurred (millions) 2007 2008 2008 2008 to Date Total ------------------------------------------- --------- Risk and Insurance Brokerage Services $41 $106 $51 $157 $198 $403 Consulting 5 7 1 8 13 47 ------------------------------------------- --------- Total restructuring and related expenses $46 $113 $52 $165 $211 $450 =========================================== ========= Aon Corporation Consolidated Summary of Operations - Reclassified for Discontinued Operations (Unaudited) 2007 2008 -------------------------------- ---------------------------- (millions except per share 1st 2nd 3rd 4th 1st 2nd 3rd data) Quar- Quar- Quar- Quar- Full Quar- Quar- Quar- Nine ter ter ter ter Year ter ter ter Months ------ ------ ------ ------ ------ ------ ------ ------ ------ Revenue ------- Commi- ssions, fees and other $1,702 $1,751 $1,672 $1,944 $7,069 $1,848 $1,889 $1,756 $5,493 Inve- stment income 69 90 77 64 300 59 68 91 218 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total rev- enue 1,771 1,841 1,749 2,008 7,369 1,907 1,957 1,847 5,711 ------ ------ ------ ------ ------ ------ ------ ------ ------ Expenses -------- Compen- sation and benefits 1,042 1,098 1,048 1,159 4,347 1,155 1,145 1,132 3,432 Other general expenses 414 417 397 499 1,727 422 503 425 1,350 Depre- ciation and amort- ization 47 46 48 52 193 50 58 49 157 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total oper- ating expe- nses 1,503 1,561 1,493 1,710 6,267 1,627 1,706 1,606 4,939 ------ ------ ------ ------ ------ ------ ------ ------ ------ Operating income 268 280 256 298 1,102 280 251 241 772 Interest expense 35 34 33 36 138 33 31 32 96 Other income - (29) - (6) (35) (4) (2) (3) (9) ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from cont- inuing operations before provision for income tax 233 275 223 268 999 251 222 212 685 Provision for income tax 73 96 93 82 344 75 57 59 191 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from conti- nuing opera- tions 160 179 130 186 655 176 165 153 494 Disc- ontinued opera- tions Income (loss) from discont- inued opera- tions 80 93 88 80 341 68 1,432 (55) 1,445 Provision for (benefit from) income tax 27 32 14 59 132 26 464 (19) 471 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income (loss) from discon- tinued opera- tions 53 61 74 21 209 42 968 (36) 974 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net income $213 $240 $204 $207 $864 $218 $1,133 $117 $1,468 ====== ====== ====== ====== ====== ====== ====== ====== ====== Basic net income (loss) per share: Conti- nuing opera- tions $0.53 $0.60 $0.44 $0.62 $2.20 $0.58 $0.57 $0.56 $1.70 Discon- tinued opera- tions 0.18 0.21 0.25 0.07 0.70 0.14 3.34 (0.13) 3.37 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net income $0.71 $0.81 $0.69 $0.69 $2.90 $0.72 $3.91 $0.43 $5.07 ====== ====== ====== ====== ====== ====== ====== ====== ====== Dilutive net income (loss) per share: Conti- nuing opera- tions $0.50 $0.56 $0.41 $0.58 $2.04 $0.55 $0.54 $0.52 $1.62 Discon- tinued opera- tions 0.16 0.19 0.23 0.06 0.65 0.13 3.17 (0.12) 3.19 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net income $0.66 $0.75 $0.64 $0.64 $2.69 $0.68 $3.71 $0.40 $4.81 ====== ====== ====== ====== ====== ====== ====== ====== ====== Weighted average common shares outstanding - diluted 324.4 321.9 321.5 324.1 323.0 319.8 305.3 290.3 305.2 ====== ====== ====== ====== ====== ====== ====== ====== ====== Aon Corporation Segments- Reclassification for Discontinued Operations (Unaudited) 2007 2008 -------------------------------------- ----------------------- 1st 2nd 3rd 4th Full 1st 2nd Six (millions) Quarter Quarter Quarter Quarter Year Quarter Quarter Months ------- ------- ------- ------- ---- ------- ------- ------ Revenue ------- Risk and insurance brokerage services As re- ported $1,456 $1,515 $1,437 $1,651 $6,059 $1,591 $1,633 3,224 Less: reclassifi- cation to discon- tinued opera- tions (27) (25) (26) (24) (102) (25) (23) (48) ------- ------- ------- ------- ----- ------- ------- ------ As re- class- ified 1,429 1,490 1,411 1,627 5,957 1,566 1,610 3,176 Consulting 329 325 325 373 1,352 343 336 679 Unallocated 23 32 21 13 89 7 18 25 Interseg- ment (10) (6) (8) (5) (29) (9) (7) (16) ------- ------- ------- ------- ----- ------- ------- ------ Total $1,771 $1,841 $1,749 $2,008 $7,369 $1,907 $1,957 $3,864 ======= ======= ======= ======= ===== ======= ======= ====== Income (loss) before income tax -------------- Risk and insurance brokerage services As re- ported $242 $278 $236 $281 $1,037 $244 $235 $479 Less: reclass- ification to discon- tinued opera- tions (8) (6) (8) (5) (27) (6) (4) (10) ------- ------- ------- ------- ----- ------- -------- ------ As re- class- ified 234 272 228 276 1,010 238 231 469 Consulting 47 44 38 60 189 63 43 106 Unallocated As re- ported (49) (41) (44) (68) (202) (51) (52) (103) Less: reclass- ification to discon- tinued opera- tions 1 - 1 - 2 1 - 1 ------- ------- ------- ------- ----- ------- -------- ------ As re- class- ified (48) (41) (43) (68) (200) (50) (52) (102) ------- ------- ------- ------- ----- ------- -------- ------ Total $233 $275 $223 $268 $999 $251 $222 $473 ======= ======= ======= ======= ===== ======= ======== ====== Income from continuing operations before income tax - margins ------------- Risk and insurance brokerage services As re- ported 16.6% 18.3% 16.4% 17.0% 17.1% 15.3% 14.4% 14.9% As re- class- ified 16.4% 18.3% 16.2% 17.0% 17.0% 15.2% 14.3% 14.8% Consulting 14.3% 13.5% 11.7% 16.1% 14.0% 18.4% 12.8% 15.6% Total As re- ported 13.3% 15.1% 13.0% 13.4% 13.7% 13.3% 11.4% 12.3% As re- class- ified 13.2% 14.9% 12.8% 13.3% 13.6% 13.2% 11.3% 12.2% Aon Corporation Auto Insurance Specialists (Unaudited) (mill- ions 2007 2008 except ------------------------------------ ----------------------------- per 1st 2nd 3rd 4th Full 1st 2nd 3rd Nine share Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Months data) ------- ---------------------------- ----------------------------- Revenue ------- Commi- ssions, fees and other $27 $25 $26 $23 $101 $25 $23 $23 $71 Inves- tment income - - - 1 1 - - - - ------- ------- ------- ------- ---- ------- ------- ------- ------ Total rev- enue 27 25 26 24 102 25 23 23 71 ------- ------- ------- ------- ---- ------- ------- ------- ------ Expenses Compen- sation and bene- fits 11 11 10 9 41 11 10 11 32 Other general expe- nses 9 8 9 9 35 9 9 34 52 Deprecia- tion and amor- tiza- tion - - - 1 1 - - - - ------- ------- ------- ------- ---- ------- ------- ------- ------ Total oper- ating expen- ses 20 19 19 19 77 20 19 45 84 ------- ------- ------- ------- ---- ------- ------- ------- ------ Operating income (loss) 7 6 7 5 25 5 4 (22) (13) Interest expense - - - - - - - - - Other income - - - - - - - - - ------- ------- ------- ------- ---- ------- ------- ------- ------ Income (loss) before provision for (benefit from) income tax 7 6 7 5 25 5 4 (22) (13) Provision for (benefit from) income tax 2 2 3 1 8 2 1 (8) (5) ------- ------- ------- ------- ---- ------- ------- ------- ------ Net income (loss) $5 $4 $4 $4 $17 $3 $3 $(14) $(8) ======= ======= ======= ======= ==== ======= ======= ======= ====== Basic net income (loss) per share $0.02 $0.02 $0.01 $0.01 $0.05 $0.01 $0.01 $(0.05)$(0.03) ======= ======= ======= ======= ==== ======= ======= ====== ====== Dilutive net income (loss) per share $0.01 $0.01 $0.01 $0.01 $0.06 $0.01 $0.01 $(0.05) (0.03) ======= ======= ======= ====== ===== ======= ======= ======= ====== Weighted average common shares out- standing - dil- uted 324.4 321.9 321.5 324.1 323.0 319.8 305.3 290.3 305.2 ======= ======= ======= ======= ==== ======= ======= ======= ====== Aon Corporation Condensed Consolidated Statements of Financial Position As of ------------------------- (millions) Sept. 30, Dec. 31, 2008 2007 (2) ----------------------------------------------- ----------- ---------- (Unaudited) ASSETS ------ CURRENT ASSETS Cash $478 $584 Short-term investments 1,946 1,209 Receivables 1,877 1,996 Fiduciary assets (1) 9,109 9,498 Other current assets 245 219 Assets held for sale 31 4,418 ----------- ---------- Total Current Assets 13,686 17,924 Goodwill 4,882 4,915 Other intangible assets 222 204 Fixed assets, net 449 497 Long-term investments 370 417 Other non-current assets 1,109 920 ----------- ----------- TOTAL ASSETS $20,718 $24,877 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Fiduciary liabilities $9,109 $9,498 Short-term debt - 252 Accounts payable and accrued liabilities 1,180 1,416 Other current liabilities 346 288 Liabilities held for sale 3 3,028 ----------- ---------- Total Current Liabilities 10,638 14,482 Long-term debt 1,964 1,893 Pension, post employment and post retirement liabilities 1,136 1,251 Other non-current liabilities 1,033 1,030 ----------- ---------- TOTAL LIABILITIES 14,771 18,656 TOTAL STOCKHOLDERS' EQUITY 5,947 6,221 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,718 $24,877 =========== =========== (1) Includes short-term investments: 2008 - $3,092; 2007 - $3,122. (2) Certain amounts have been reclassified to conform to the 2008 presentation. DATASOURCE: Aon Corporation CONTACT: Investors, Scott Malchow, Vice President, Investor Relations, +1-312-381-3983, or Media, David Prosperi, Vice President, Global Public Relations, +1-312-381-2485, both of Aon Corporation Web site: http://www.aon.com/

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