Aon Reports Third Quarter 2008 Results


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CHICAGO, October 31, 2008: Aon Corporation 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.

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