Willis Group Holdings Limited (NYSE:WSH), the global insurance broker, today reported results for the quarter and nine months ended September 30, 2009.
Highlights of quarter ended September 30, 2009 include:
- Reported earnings per diluted share from continuing operations of $0.46; adjusted earnings per diluted share from continuing operations of $0.53
- 28 percent reported growth in commissions and fees compared with third quarter of 2008
- 2 percent organic growth in commissions and fees: Global and International segments with 4 percent and 3 percent growth, respectively; North America decline of 3 percent improved from second quarter of 2009
- North America segment operating margin expansion of 1,140 basis points over a year ago
- Outlook raised to Stable by both Moody''s and Standard & Poor''s
- Issued $300 million of senior unsecured notes due 2019 at 7.0 percent; repurchased $160 million of 5.125 percent senior notes due July 2010
Highlights of the nine months ended September 30, 2009 include:
- Reported earnings per diluted share from continuing operations of $2.13; adjusted earnings per diluted share from continuing operations of $2.21
- 2 percent organic growth in commissions and fees over the comparable prior year; Global and International segments each with 5 percent growth
- Reported operating margin of 21.4 percent; adjusted operating margin of 22.1 percent
- North America segment operating margin expansion of 970 basis points over prior year
“Willis continues to maintain its growth momentum in spite of the difficult global economy and soft market conditions - and that''s a tribute to the strength of our diverse global business,” said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings. “We continue to get strong contributions from each segment, despite the marketplace challenges we face, which are especially pronounced in the US, UK and Ireland. We continue to run the company with discipline and foresight, implementing strict cost controls, right sizing for the current environment, and investing in areas that will drive current and future growth.”
Third Quarter 2009 Financial Results
Reported net income from continuing operations for the quarter ended September 30, 2009 was $78 million, or $0.46 per diluted share, compared with $36 million, or $0.25 per diluted share, in the same period a year ago. Reported net income for the third quarters of 2009 and 2008 was affected by certain items, including the acquisition of Hilb Rogal & Hobbs Company (HRH).
Excluding certain items, which are reviewed in detail in this release, adjusted earnings per diluted share from continuing operations were $0.53 in the third quarter of 2009 compared with $0.32 in the third quarter of 2008. Foreign currency movements had a negative $0.05 impact on earnings per diluted share in the third quarter of 2009.
Total reported revenues for the quarter ended September 30, 2009 were $725 million compared with $579 million for the same period last year, an increase of 25 percent. This increase was primarily due to the HRH acquisition. Foreign currency movements decreased reported revenues by 2 percent compared with a year ago.
Organic growth in commissions and fees was 2 percent in the third quarter of 2009 compared with the third quarter of 2008. This growth reflected net new business won of 5 percent, offset by a negative 3 percent impact from declining premium rates and other market factors. Continued strong client retention levels and momentum from Shaping our Future growth initiatives, such as Global Placement and Client Profitability, also contributed to organic growth in commissions and fees.
The International business segment contributed 3 percent organic growth in commissions and fees in the third quarter of 2009 compared with the same period in 2008. This growth came from strong new business and continued traction from Shaping our Future growth initiatives, which more than offset the soft rate environment and weakness in the UK and Ireland retail market. Outside of the UK and Ireland, the International business segment had high single-digit growth. There was strong growth across many regions, including Europe and Latin America.
The North America segment reported an improvement from the second quarter of 2009 with a 3 percent decline in organic commissions and fees compared with the third quarter of 2008, reflecting soft insurance market conditions as well as continued weakness in the US economy. North America remains focused on the integration of HRH and ongoing expense management. As a result, its operating margin expanded 1,140 basis points to 21.5 percent in the third quarter of 2009 compared to the prior year.
The Global segment, which comprises the Global Specialties, Faber & Dumas and Reinsurance divisions, recorded 4 percent organic growth in commissions and fees in the third quarter of 2009 compared with the third quarter of 2008. Each division within the Global segment recorded positive growth, led by continued high single-digit growth in reinsurance, together with strong performance in the aerospace, marine and financial and executive risks specialties.
Reported operating margin was 11.3 percent for the quarter ended September 30, 2009 compared with 11.4 percent for the same period last year. Excluding certain items, which are reviewed in detail in this release, adjusted operating margin was 13.1 percent for the quarter ended September 30, 2009 compared with 12.1 percent a year ago. Foreign currency had an unfavorable 150-basis-point impact on adjusted operating margin in the quarter.
Nine Months 2009 Financial Results
Reported net income from continuing operations for the nine months ended September 30, 2009 was $357 million, or $2.13 per diluted share, compared with $241 million, or $1.70 per diluted share, in the same period a year ago. Reported net income for the first nine months of 2009 and 2008 was affected by certain items, including the acquisition of HRH and 2008 expense review charges for severance and other costs.
Excluding certain items, which are reviewed in detail in this release, adjusted earnings per diluted share from continuing operations were $2.21 for the nine months ended September 30, 2009 compared with $2.24 in the comparable period of 2008, a decrease of 1 percent. Foreign currency movements reduced earnings per diluted share by $0.14 for the nine months ended September 30, 2009.
Total reported revenues for the nine months ended September 30, 2009 were $2,439 million compared with $2,035 million for the same period last year, an increase of 20 percent. The increase was primarily due to the HRH acquisition, while the effect of foreign currency translation decreased reported revenues by 6 percent.
Organic growth in commissions and fees was 2 percent in the first nine months of 2009 compared with the comparable period of 2008. This growth reflected net new business won of 5 percent, offset by a negative 3 percent impact from declining premium rates and other market factors.
Reported operating margin was 21.4 percent for the nine months ended September 30, 2009 compared with 18.1 percent for the same period last year. Excluding certain items, which are reviewed in detail in this release, adjusted operating margin was 22.1 percent for the first nine months of 2009 compared with 22.9 percent a year ago.
Tax
The reported income tax credit for the quarter ended September 30, 2009 was $29 million compared to $2 million income tax expense for the comparable period a year ago.
The third quarter 2009 tax credit included a provision of $27 million which had been recorded related to tax that would potentially be payable should the unremitted earnings of our foreign subsidiaries be repatriated. Following a change in UK tax law effective in the third quarter of 2009, these earnings could now be repatriated without additional tax cost and, consequently, the provision has been released. In addition, as in prior years, an $11 million credit has been recognized in the third quarter of 2009, compared with a $5 million credit in the year ago quarter, further to the closure of the statute of limitations on assessments relating to previously unrecognized tax benefits.
The effective underlying tax rate for the quarter and nine months ended September 30, 2009 was approximately 26 percent, the same as the 2008 full-year rate.
Discontinued Operations
Income from discontinued operations, net of tax, was $1 million, or $0.01 per diluted share, in the third quarter of 2009 and $2 million, or $0.01 per diluted share, for the nine months ended September 30, 2009, relating to disposals of Bliss & Glennon and Managing Agency Group, the Company''s US-based wholesale insurance operations. No net gain or loss was recognized relating to either transaction.
Capital
The Board of Directors declared a regular quarterly cash dividend on the Company''s common stock of $0.26 per share, or an annual rate of $1.04 per share. The dividend is payable on January 15, 2010 to shareholders of record on December 30, 2009.
As of September 30, 2009, cash and cash equivalents totaled $203 million and total debt was $2.6 billion. The Company issued $300 million of senior notes due 2019 at 7.0 percent, and repurchased $160 million of its 5.125 percent Senior Notes due July 2010 at a premium of $27.50 per $1,000 face value.
Total stockholders'' equity as at September 30, 2009 was $2.2 billion.
Gras Savoye
In June 2009, the Company announced that it was in discussions regarding the potential sale of a portion of its interest in Gras Savoye. Since that time, the Company and other Gras Savoye shareholders have entered into an exclusive arrangement with Astorg Partners, a private equity fund, but as of the date hereof, we have not entered into any definitive sale agreement. Pending the finalization of the financing terms, we anticipate executing definitive agreements in the next few months. We would expect: (i) elimination of the put presently exercisable by the Gras Savoye shareholders; (ii) receipt of cash proceeds between $100-$150 million, and (iii) retention of a 33 percent interest following the sale as well as the ability to acquire a majority interest in Gras Savoye in 2015. As a result of the significant uncertainties underlying these forward-looking statements, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.
Conclusion
“I am proud of what we''ve been able to accomplish this quarter and over the first nine months of 2009. This is a strong, diverse business that is able to perform well even under the worst global economic conditions,” Plumeri said. “As always, we are rigorous about our expenses and keeping our company at the right size for the current environment. Importantly, we remain ahead of plan on achieving HRH integration synergies, and we continue to invest in Shaping our Future. Accelerating growth remains our number one priority.”
Conference Call and Web Cast
A conference call to discuss the third quarter 2009 results will be held on Tuesday, October 27, 2009, at 8:00 AM Eastern Time. To participate in the live teleconference, please dial (866) 803-2143 (domestic) or +1 (210) 795-1098 (international) with a pass code of “Willis”. The live audio web cast (which will be listen-only) may be accessed at www.willis.com. This call will be available by replay starting at approximately 10:00 AM Eastern Time, through November 27, 2009 at 11:59 PM Eastern Time, by calling (877) 611-5293 (domestic) or +1 (203) 369-4862 (international) with no pass code, or by accessing the website.
Willis Group Holdings Limited is a leading global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 20,000 Associates serving clients in approximately 190 countries. Additional information on Willis may be found at www.willis.com.
Forward-Looking Statements
We have included in this document ''''forward-looking statements'''' within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our redomestication from Bermuda to Ireland, the potential benefits of the HRH acquisition, discussions concerning the sale of a portion of our interest in Gras Savoye, our outlook, future capital expenditures, growth in commissions and fees, business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes are forward-looking statements. Also, when we use the words such as ''''anticipate'''', ''''believe'''', ''''estimate'''', ''''expect'''', ''''intend'''', ''''plan'''', ''''probably'''', or similar expressions, we are making forward-looking statements.
There are important uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including the following:
- the impact of any regional, national or global political, economic, business, competitive, market and regulatory conditions on our global business operations;
- the impact of current financial market conditions and the current credit crisis on our results of operations and financial condition, including as a result of any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;
- our ability to achieve the expected cost savings, synergies and other strategic benefits as a result of the HRH acquisition and how the integration of HRH may affect the timing of such cost savings, synergies and benefits;
- our ability to continue to manage our significant indebtedness;
- our ability to implement and realize anticipated benefits of the Shaping our Future initiative and any other new initiatives;
- material changes in commercial property and casualty markets generally or the availability of insurance products or changes in premiums resulting from a catastrophic event, such as a hurricane, or otherwise;
- the volatility or declines in other insurance markets and premiums on which our commissions are based, but which we do not control;
- our ability to compete effectively in our industry;
- our ability to retain key employees and clients and attract new business;
- the timing or ability to carry out share repurchases or take other steps to manage our capital and the limitations in our long-term debt agreements that may restrict our ability to take these actions;
- any fluctuations in exchange and interest rates that could affect expenses and revenue;
- rating agency actions that could inhibit ability to borrow funds or the pricing thereof;
- a significant decline in the value of investments that fund our pension plans or changes in our pension plan funding obligations;
- the timing of any exercise of put and call arrangements with associated companies;
- changes in the tax or accounting treatment of our operations, such as the recent proposals made by the Obama administration regarding international tax reform;
- the potential costs and difficulties in complying with a wide variety of foreign laws and regulations and any related changes, given the global scope of our operations;
- our involvements in and the results of any regulatory investigations, legal proceedings and other contingencies;
- our exposure to potential liabilities arising from errors and omissions and other potential claims against us; and
- the interruption or loss of our information processing systems or failure to maintain secure information systems.
The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results. For additional factors see the section entitled ''''Risk Factors'''' included in Willis'' Form 10-K for the year ended December 31, 2008, and our subsequent filings with the Securities and Exchange Commission. Copies are available online at http://www.sec.gov or on request from the Company as set forth in Part I, Item 1 “Business-Available Information” in Willis'' Form 10-K.
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.
Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.
This press release contains references to non-GAAP financial measures as defined in Regulation G of SEC rules. Consistent with Regulation G, a reconciliation of this supplemental financial information to our generally accepted accounting principles (GAAP) information is in the note disclosures that follow. We present such non-GAAP supplemental financial information, as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company''s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be viewed in addition to, not in lieu of, the Company''s condensed consolidated income statements for the three and nine months ended September 30, 2009 and balance sheet as at that date.
WILLIS GROUP HOLDINGS LIMITED | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| Revenues | ||||||||||||||||
| Commissions and fees | $ | 714 | $ | 556 | $ | 2,401 | $ | 1,969 | ||||||||
| Investment income | 10 | 22 | 35 | 64 | ||||||||||||
| Other income | 1 | 1 | 3 | 2 | ||||||||||||
| Total Revenues | 725 | 579 | 2,439 | 2,035 | ||||||||||||
| Expenses | ||||||||||||||||
| Salaries and benefits | 449 | 359 | 1,372 | 1,198 | ||||||||||||
| Other operating expenses | 151 | 131 | 428 | 421 | ||||||||||||
| Depreciation expense | 15 | 14 | 43 | 41 | ||||||||||||
| Amortization of intangible assets | 29 | 6 | 76 | 12 | ||||||||||||
| Net gain on disposal of London headquarters | - | - | - | (8 | ) | |||||||||||
| Net (gain)/loss on disposal of operations | (1 | ) | 3 | (1 | ) | 3 | ||||||||||
| Total Expenses | 643 | 513 | 1,918 | 1,667 | ||||||||||||
| Operating Income | 82 | 66 | 521 | 368 | ||||||||||||
| Interest expense | 47 | 32 | 128 | 69 | ||||||||||||
| Income from Continuing Operations before Income Taxes and Interest in Earnings of Associates | 35 | 34 | 393 | 299 | ||||||||||||
| Income taxes (credit)/charge | (29 | ) | 2 | 64 | 74 | |||||||||||
| Income from Continuing Operations before Interest in Earnings of Associates | 64 | 32 | 329 | 225 | ||||||||||||
| Interest in earnings of associates, net of tax | 16 | 6 | 42 | 29 | ||||||||||||
| Income from Continuing Operations | 80 | 38 | 371 | 254 | ||||||||||||
| Discontinued Operations, net of tax | 1 | - | 2 | - | ||||||||||||
| Net Income | $ | 81 | $ | 38 | $ | 373 | $ | 254 | ||||||||
| Net income attributable to noncontrolling interests | (2 | ) | (2 | ) | (14 | ) | (13 | ) | ||||||||
| Net income attributable to Willis Group Holdings Limited | $ | 79 | $ | 36 | $ | 359 | $ | 241 | ||||||||
| Amounts attributable to Willis Group Holdings Limited common shareholders | ||||||||||||||||
| Income from Continuing Operations, net of tax | $ | 78 | $ | 36 | $ | 357 | $ | 241 | ||||||||
Income from Discontinued Operations, net of tax | 1 | - | 2 | - | ||||||||||||
| Net Income | $ | 79 | $ | 36 | $ | 359 | $ | 241 | ||||||||
WILLIS GROUP HOLDINGS LIMITED | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| Earnings per share - Basic and Diluted | ||||||||||||||||
| Basic Earnings per Share: | ||||||||||||||||
| Continuing Operations | $ | 0.46 | $ | 0.25 | $ | 2.13 | $ | 1.70 | ||||||||
| Discontinued Operations | 0.01 | - | 0.01 | - | ||||||||||||
Net Income attributable to Willis Group Holdings Limited common shareholders Limited common shareholders | $ | 0.47 | $ | 0.25 | $ | 2.14 | $ | 1.70 | ||||||||
| Diluted Earnings per Share: | ||||||||||||||||
| Continuing Operations | $ | 0.46 | $ | 0.25 | $ | 2.13 | $ | 1.70 | ||||||||
| Discontinued Operations | 0.01 | - | 0.01 | - | ||||||||||||
| Net Income attributable to Willis Group Holdings Limited common shareholders | $ | 0.47 | $ | 0.25 | $ | 2.14 | $ | 1.70 | ||||||||
| Average Number of Shares Outstanding | ||||||||||||||||
| - Basic | 168 | 142 | 168 | 142 | ||||||||||||
| - Diluted | 169 | 142 | 168 | 142 | ||||||||||||
| Shares outstanding at September 30 | 168 | 142 | 168 | 142 | ||||||||||||
WILLIS GROUP HOLDINGS LIMITED SUMMARY DRAFT BALANCE SHEETS (in millions) (unaudited) | ||||||||
September 30, | December 31, | |||||||
| Assets | ||||||||
| Cash & cash equivalents | $ | 203 | $ | 176 | ||||
| Fiduciary funds—restricted | 1,815 | 1,854 | ||||||
| Short-term investments | - | 20 | ||||||
| Accounts receivable, net | 8,980 | 9,131 | ||||||
| Fixed assets, net | 353 | 312 | ||||||
| Goodwill and intangibles, net | 3,886 | 3,957 | ||||||
| Investments in associates | 308 | 273 | ||||||
| Deferred tax assets | 8 | 76 | ||||||
| Pension benefits asset | 148 | 111 | ||||||
| Other assets | 674 | 492 | ||||||
| Total Assets | $ | 16,375 | $ | 16,402 | ||||
| Liabilities and Stockholders'' Equity | ||||||||
| Accounts payable | $ | 10,152 | $ | 10,314 | ||||
| Deferred revenue and accrued expenses | 305 | 471 | ||||||
| Deferred tax liabilities | 1 | 21 | ||||||
| Income taxes payable | 25 | 18 | ||||||
| Short-term debt | 141 | 785 | ||||||
| Long-term debt | 2,465 | 1,865 | ||||||
| Liability for pension benefits | 222 | 237 | ||||||
| Other liabilities | 863 | 796 | ||||||
| Total Liabilities | $ | 14,174 | $ | 14,507 | ||||
| Equity attributable to Willis Group Holdings Limited | 2,155 | 1,845 | ||||||
| Noncontrolling interests | 46 | 50 | ||||||
| Total Stockholders'' Equity | 2,201 | 1,895 | ||||||
| Total Liabilities and Stockholders'' Equity | $ | 16,375 | $ | 16,402 | ||||
WILLIS GROUP HOLDINGS LIMITED | |
1. | Definitions of Non-GAAP Financial Measures |
| We believe that investors'' understanding of the Company''s performance is enhanced by our disclosure of the following non-GAAP financial measures. Our method of calculating these measures may differ from those used by other companies and therefore comparability may be limited. | |
Organic commissions and fees growth | |
| Organic commissions and fees growth excludes the impact of foreign currency translation and acquisitions and disposals from reported commissions and fees. We use organic commissions and fees growth as a measure of business growth generated by operations that were part of the Company at the end of the period. | |
Adjusted operating income and adjusted net income | |
| Our results have been impacted by the accelerated amortization of intangible assets, a premium on the early redemption of 2010 bonds, charges related to the 2008 expense review and costs associated with the acquisition of HRH, together with net gains/losses on disposal of operations. We believe that excluding these items from operating income and net income as applicable, along with the GAAP measures, provides a more complete and consistent comparative analysis of our results of operations. | |
2. | Analysis of Commissions and Fees |
| Organic growth in commissions and fees is defined as growth in commissions and fees excluding the impact of foreign currency translation and acquisitions and disposals. The percentage change in reported commissions and fees is the most directly comparable GAAP measure, and the following tables reconcile this change to organic growth in commissions and fees by business unit for the three and nine months ended September 30, 2009: | |
Three months ended September 30, | Change attributable to | ||||||||||||||
|
| % | Foreign | Acquisitions | Organic | ||||||||||
| Global | $ | 175 | $ | 159 | 10% | 0% | 6% | 4% | |||||||
| North America | 320 | 175 | 83% | 0% | 86% | (3)% | |||||||||
| International | 219 | 222 | (1)% | (5)% | 1% | 3% | |||||||||
Commissions | $ | 714 | $ | 556 | 28% | (3)% | 29% | 2% | |||||||
Nine months ended | Change attributable to | ||||||||||||||
|
| % Change | Foreign | Acquisitions | Organic | ||||||||||
| Global | $ | 657 | $ | 627 | 5% | (5)% | 5% | 5% | |||||||
| North America | 1,023 | 559 | 83% | 0% | 88% | (5)% | |||||||||
| International | 721 | 783 | (8)% | (14)% | 1% | 5% | |||||||||
Commissions | $ | 2,401 | $ | 1,969 | 22% | (7)% | 27% | 2% | |||||||
_______________ | ||
| (a) | From fourth quarter 2008, we have changed our methodology for the calculation of organic growth in commissions and fees. Previously, organic growth included growth from acquisitions from the date of acquisition. Under the new method, the first twelve months of commissions and fees generated from acquisitions are excluded from organic growth in commissions and fees. | |
WILLIS GROUP HOLDINGS LIMITED | |
3. | 2008 Expense Review |
| In 2008, we conducted a thorough review of all businesses to identify additional opportunities to rationalize the expense base. Consequently, we incurred a pre-tax charge of $nil in the third quarter of 2008 and $95 million ($68 million or $0.47 per diluted share after tax) in the first nine months of 2008 for severance and other costs as analyzed in the following table: | |
Three months
| Nine months Pre-tax | ||||
| Salaries and benefits - severance (a) | $- | $24 | |||
| Salaries and benefits - other (b) | - | 42 | |||
Other operating expenses (primarily relating to | - | 29 | |||
| $- | $95 |
| a) | Severance costs relate to approximately 350 positions through the nine months ended September 30, 2008, which were eliminated in 2008. None of these costs were incurred in third quarter 2008. |
| b) | Other salaries and benefits costs relate primarily to contract buyouts. |
WILLIS GROUP HOLDINGS LIMITED | |
4. | Adjusted Operating Income |
| Adjusted operating income is defined as operating income excluding the accelerated amortization of intangible assets, integration costs associated with the acquisition of HRH, charges related to the 2008 expense review and net gains/losses on disposals. Operating income is the most directly comparable GAAP measure, and the following table reconciles adjusted operating income to operating income for the three and nine months ended September 30, 2009 and 2008: | |
Three months ended | |||||||||
| 2009 | 2008 | % | |||||||
| Operating Income, GAAP basis | $ | 82 | $ | 66 | 24% | ||||
| Excluding: | |||||||||
| HRH integration costs | 7 | 1 | |||||||
| Net (gain)/loss on disposal of operations | (1) | 3 | |||||||
| Accelerated amortization of intangible assets (a) | 7 | - | |||||||
| Adjusted Operating Income | $ | 95 | $ | 70 | 36% | ||||
Operating Margin, GAAP basis, or Operating Income as a percentage of Total Revenues | 11.3% | 11.4% | |||||||
Adjusted Operating Margin, or Adjusted Operating Income as a percentage of Total Revenues | 13.1% | 12.1% | |||||||
Nine months ended | |||||||||
| 2009 | 2008 | % | |||||||
| Operating Income, GAAP basis | $ | 521 | $ | 368 | 42% | ||||
| Excluding: | |||||||||
| HRH integration costs | 11 | 1 | |||||||
| Net (gain)/loss on disposal of operations | (1) | 3 | |||||||
| Salaries and benefits - severance costs (b) | - | 24 | |||||||
| Salaries and benefits - other (c) | - | 42 | |||||||
| Accelerated amortization of intangible assets (a) | 7 | - | |||||||
| Other operating expenses (primarily relating to property and systems rationalization) | - | 29 | |||||||
| Adjusted Operating Income | $ | 538 | $ | 467 | 15% | ||||
Operating Margin, GAAP basis, or Operating Income as a percentage of Total Revenues | 21.4% | 18.1% | |||||||
Adjusted Operating Margin, or Adjusted Operating Income as a percentage of Total Revenues | 22.1% | 22.9% | |||||||
| a) | The $7 million charge for the accelerated amortization of intangibles relates to the HRH brand name. Following the successful integration of HRH into our North America operations, we announced on October 1, 2009 that our North America retail operations would change their operating name from Willis HRH to Willis North America. Consequently, the intangible asset recognized on the acquisition of HRH relating to the HRH brand has been fully amortized. | |
b) | Severance costs excluded from adjusted operating income in 2008 relate to approximately 350 positions through the nine months ended September 30, 2008 that were eliminated as part of the 2008 expense review. None of these costs were incurred in third quarter 2008. Severance costs also arise in the normal course of business and these charges (pre-tax) amounted to $2 million in the third quarter 2009 ($1 million in third quarter 2008). These costs amounted to $20 million and $2 million for the nine months ended September 30, 2009 and 2008, respectively. | |
c) | Other 2008 expense review salaries and benefits costs relate primarily to contract buyouts. |
WILLIS GROUP HOLDINGS LIMITED | |
5. | Adjusted Net Income |
| Adjusted net income is defined as net income from continuing operations excluding financing and integration costs associated with the acquisition of HRH, accelerated amortization of intangible assets, premium on redemption of 2010 bonds, charges related to the 2008 expense review and net gains/losses on disposals. Net income from continuing operations is the most directly comparable GAAP measure, and the following table reconciles adjusted net income from continuing operations to net income from continuing operations for the three and nine months ended September 30, 2009 and 2008: | |
Three months ended | Per diluted share | |||||||||||||||
| 2009 | 2008 | % | 2009 | 2008 | % | |||||||||||
| Net Income from Continuing Operations, GAAP basis | $ | 78 | $ | 36 | 117% | $ | 0.46 | $ | 0.25 | 84% | ||||||
| Excluding: | ||||||||||||||||
HRH financing and integration costs, net of tax ($2),($3) | 5 | 7 | 0.04 | 0.05 | ||||||||||||
| Net (gain)/loss on disposal of operations, net of tax ($nil),($1) | (1) | 2 | (0.01) | 0.02 | ||||||||||||
| Accelerated amortization of intangible assets, net of tax ($3), ($nil) (a) | 4 | - | 0.02 | - | ||||||||||||
| Premium on early redemption of 2010 bonds, net of tax ($1), ($nil) (b) | 4 | - | 0.02 | - | ||||||||||||
| Adjusted Net Income from Continuing Operations | $ | 90 | $ | 45 | 100% | $ | 0.53 | $ | 0.32 | 66% | ||||||
| Diluted shares outstanding, GAAP basis | 169 | 142 | ||||||||||||||
a) | The $7 million pre-tax charge for the accelerated amortization of intangibles relates to the HRH brand name. Following the successful integration of HRH into our North America operations, we announced on October 1, 2009 that our North America retail operations would change their operating name from Willis HRH to Willis North America. Consequently, the intangible asset recognized on the acquisition of HRH relating to the HRH brand has been fully amortized. |
b) | On September 29, 2009 we repurchased $160 million of our 5.125% Senior Notes due July 2010 at a premium of $27.50 per $1,000 face value, resulting in a total pre-tax premium on redemption, including fees, of $5 million. |
WILLIS GROUP HOLDINGS LIMITED | ||||||||||||
5. Adjusted Net Income (continued) | ||||||||||||
Nine months ended | Per diluted share | |||||||||||
| 2009 | 2008 | % | 2009 | 2008 | % | |||||||
| Net Income from Continuing Operations, GAAP basis | $ 357 | $ 241 | 48% | $2.13 | $1.70 | 25% | ||||||
| Excluding: | ||||||||||||
HRH financing and integration costs, net of tax ($3),($3) | 8 | 7 | 0.05 | 0.05 | ||||||||
| Net (gain)/loss on disposal of operations, net of tax ($nil),($1) | (1) | 2 | (0.01) | 0.02 | ||||||||
| Salaries and benefits - severance, net of tax ($nil),($7) (c) | - | 17 | - | 0.12 | ||||||||
| Salaries and benefits - other, net of tax ($nil),($12) (d) | - | 30 | - | 0.21 | ||||||||
| Accelerated amortization of intangible assets, net of tax ($3),($nil) (a) | 4 | - | 0.02 | - | ||||||||
| Other operating expenses (primarily relating to property and systems rationalization), net of tax ($nil),($8) | - | 21 | - | 0.14 | ||||||||
| Premium on early redemption of 2010 bonds, net of tax ($1),($nil) (b) | 4 | - | 0.02 | - | ||||||||
| Adjusted Net Income from Continuing Operations | $ 372 | $ 318 | 17% | $2.21 | $2.24 | (1)% | ||||||
| Diluted shares outstanding, GAAP basis | 168 | 142 | ||||||||||
| a) | The $7 million pre-tax charge for the accelerated amortization of intangibles relates to the HRH brand name. Following the successful integration of HRH into our North America operations, we announced on October 1, 2009 that our North America retail operations would change their operating name from Willis HRH to Willis North America. Consequently, the intangible asset recognized on the acquisition of HRH relating to the HRH brand has been fully amortized. |
| b) | On September 29, 2009 we repurchased $160 million of our 5.125% Senior Notes due July 2010 at a premium of $27.50 per $1,000 face value, resulting in a total pre-tax premium on redemption, including fees, of $5 million. |
c) | Severance costs excluded from adjusted operating income in 2008 relate to approximately 350 positions through the nine months ended September 30, 2008 that were eliminated as part of the 2008 expense review. None of these costs were incurred in third quarter 2008. Severance costs also arise in the normal course of business and these charges (pre-tax) amounted to $20 million in the nine months ended September 30, 2009 related to approximately [357] positions ($2 million in the nine months ended September 30, 2008). |
| d) | Other salaries and benefits costs relate primarily to contract buyouts. |
WILLIS GROUP HOLDINGS LIMITED | ||||||||||||||||||||||||||||||||||||||||
| 2008 | 2009 | |||||||||||||||||||||||||||||||||||||||
| Q1 | Q2 | Q3 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | Q3 | |||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||||
| Commissions and fees | $ | 772 | $ | 641 | $ | 556 | $ | 1,969 | $ | 782 | $ | 2,751 | $ | 915 | $ | 772 | $ | 714 | $ | 2,401 | ||||||||||||||||||||
| Investment income | 22 | 20 | 22 | 64 | 17 | 81 | 13 | 12 | 10 | 35 | ||||||||||||||||||||||||||||||
| Other income | 1 | — | 1 | 2 | — | 2 | 2 | — | 1 | 3 | ||||||||||||||||||||||||||||||
| Total Revenues | 795 | 661 | 579 | 2,035 | 799 | 2,834 | 930 | 784 | 725 | 2,439 | ||||||||||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||||||||||
| Salaries and benefits | 411 | 428 | 359 | 1,198 | 444 | 1,642 | 480 | 443 | 449 | 1,372 | ||||||||||||||||||||||||||||||
| Other operating expenses | 149 | 141 | 131 | 421 | 184 | 605 | 138 | 139 | 151 | 428 | ||||||||||||||||||||||||||||||
| Depreciation expense | 13 | 14 | 14 | 41 | 13 | 54 | 14 | 14 | 15 | 43 | ||||||||||||||||||||||||||||||
| Amortization of intangible assets | 3 | 3 | 6 | 12 | 24 | 36 | 24 | 23 | 29 | 76 | ||||||||||||||||||||||||||||||
| Net (gain)/loss on disposal of London headquarters | (6 | ) | (2 | ) | — | (8 | ) | 1 | (7 | ) | — | — | — | — | ||||||||||||||||||||||||||
| Net loss/(gain) on disposal of operations | — | — | 3 | 3 | (3 | ) | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||||||||||
| Total Expenses | 570 | 584 | 513 | 1,667 | 663 | 2,330 | 656 | 619 | 643 | 1,918 | ||||||||||||||||||||||||||||||
| Operating Income | 225 | 77 | 66 | 368 | 136 | 504 | 274 | 165 | 82 | 521 | ||||||||||||||||||||||||||||||
| Interest expense | 16 | 21 | 32 | 69 | 36 | 105 | 38 | 43 | 47 | 128 | ||||||||||||||||||||||||||||||
| (209 | ) | (56 | ) | (34 | ) | (100 | ) | (399 | ) | (236 | ) | (122 | ) | (35 | ) | (393 | ) | |||||||||||||||||||||||
| Income from Continuing Operations before Income Taxes and Interest in Earnings of Associates | 209 | 56 | 34 | 299 | 100 | 399 | 236 | 122 | (35 | ) | (393 | ) | ||||||||||||||||||||||||||||
| Income taxes charge/(credit) | 60 | 12 | 2 | 74 | 23 | 97 | 62 | 31 | (29 | ) | 64 | |||||||||||||||||||||||||||||
| (149 | ) | (44 | ) | (32 | ) | (77 | ) | (302 | ) | (174 | ) | (91 | ) | |||||||||||||||||||||||||||
| Income from Continuing Operations before Interest in Earnings of Associates | 149 | 44 | 32 | 225 | 77 | 302 | 174 | 91 | 64 | 329 | ||||||||||||||||||||||||||||||
| Interest in earnings of associates, net of tax | 26 | (3 | ) | 6 | 29 | (7 | ) | 22 | 26 | — | 16 | 42 | ||||||||||||||||||||||||||||
| Income from Continuing Operations | 175 | 41 | 38 | 254 | 70 | 324 | 200 | 91 | 80 | 371 | ||||||||||||||||||||||||||||||
| Discontinued operations, net of tax | — | — | — | — | — | — | 1 | — | 1 | 2 | ||||||||||||||||||||||||||||||
| Net Income | 175 | 41 | 38 | 254 | 70 | 324 | 201 | 91 | 81 | 373 | ||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | (9 | ) | (2 | ) | (2 | ) | (13 | ) | (8 | ) | (21 | ) | (8 | ) | (4 | ) | (2 | ) | (14 | ) | ||||||||||||||||||||
| Net income attributable to Willis Group Holdings Limited | $ | 166 | $ | 39 | $ | 36 | $ | 241 | $ | 62 | $ | 303 | $ | 193 | $ | 87 | $ | 79 | $ | 359 | ||||||||||||||||||||
| Diluted Earnings per Share | ||||||||||||||||||||||||||||||||||||||||
| - Continuing Operations | $ | 1.16 | $ | 0.27 | $ | 0.25 | $ | 1.70 | $ | 0.37 | $ | 2.05 | $ | 1.15 | $ | 0.52 | $ | 0.46 | $ | 2.13 | ||||||||||||||||||||
| - Discontinued Operations | — | — | — | — | — | — | 0.01 | — | 0.01 | 0.01 | ||||||||||||||||||||||||||||||
| Net Income attributable to Willis Group Holdings Limited common shareholders | $ | 1.16 | $ | 0.27 | $ | 0.25 | $ | 1.70 | $ | 0.37 | $ | 2.05 | $ | 1.16 | $ | 0.52 | $ | 0.47 | $ | 2.14 | ||||||||||||||||||||
| Average Number of Shares Outstanding | ||||||||||||||||||||||||||||||||||||||||
| - Diluted | 143 | 142 | 142 | 142 | 167 | 148 | 167 | 168 | 169 | 168 | ||||||||||||||||||||||||||||||
WILLIS GROUP HOLDINGS LIMITED | ||||||||||||||||||||||||||||||||||||||||
| 2008 | 2009 | |||||||||||||||||||||||||||||||||||||||
| Q1 | Q2 | Q3 | Q3 | Q4 | FY | Q1 | Q2 | Q3 | Q3 | |||||||||||||||||||||||||||||||
| Commissions and Fees | ||||||||||||||||||||||||||||||||||||||||
| Global | $ | 277 | $ | 191 | $ | 159 | $ | 627 | $ | 157 | $ | 784 | $ | 275 | $ | 207 | $ | 175 | $ | 657 | ||||||||||||||||||||
| North America | 191 | 193 | 175 | 559 | 353 | 912 | 371 | 332 | 320 | 1,023 | ||||||||||||||||||||||||||||||
| International | 304 | 257 | 222 | 783 | 272 | 1,055 | 269 | 233 | 219 | 721 | ||||||||||||||||||||||||||||||
| Total Commissions and Fees | $ | 772 | $ | 641 | $ | 556 | $ | 1,969 | $ | 782 | $ | 2,751 | $ | 915 | $ | 772 | $ | 714 | $ | 2,401 | ||||||||||||||||||||
| Total Revenues | ||||||||||||||||||||||||||||||||||||||||
| Global | $ | 285 | $ | 199 | $ | 167 | $ | 651 | $ | 163 | $ | 814 | $ | 278 | $ | 209 | $ | 176 | $ | 663 | ||||||||||||||||||||
| North America | 196 | 197 | 179 | 572 | 357 | 929 | 377 | 336 | 325 | 1,038 | ||||||||||||||||||||||||||||||
| International | 314 | 265 | 233 | 812 | 279 | 1,091 | 275 | 239 | 224 | 738 | ||||||||||||||||||||||||||||||
| Total Revenue | $ | 795 | $ | 661 | $ | 579 | $ | 2,035 | $ | 799 | $ | 2,834 | $ | 930 | $ | 784 | $ | 725 | $ | 2,439 | ||||||||||||||||||||
| Operating Income (c) | ||||||||||||||||||||||||||||||||||||||||
| Global | $ | 132 | $ | 60 | $ | 29 | $ | 221 | $ | 19 | $ | 240 | $ | 127 | $ | 74 | $ | 33 | $ | 234 | ||||||||||||||||||||
| North America | 27 | 31 | 18 | 76 | 67 | 143 | 94 | 75 | 70 | 239 | ||||||||||||||||||||||||||||||
| International | 104 | 57 | 38 | 199 | 107 | 306 | 96 | 55 | 30 | 181 | ||||||||||||||||||||||||||||||
| Corporate and Other (a) (b) | (38 | ) | (71 | ) | (19 | ) | (128 | ) | (57 | ) | (185 | ) | (43 | ) | (39 | ) | (51 | ) | (133 | ) | ||||||||||||||||||||
| Total Operating Income | $ | 225 | $ | 77 | $ | 66 | $ | 368 | $ | 136 | $ | 504 | $ | 274 | $ | 165 | $ | 82 | $ | 521 | ||||||||||||||||||||
| Organic Commissions and Fees Growth | ||||||||||||||||||||||||||||||||||||||||
| Global | 2 | % | 0 | % | (2 | )% | 0 | % | 9 | % | 2 | % | 5 | % | 7 | % | 4 | % | 5 | % | ||||||||||||||||||||
| North America | 3 | % | (1 | )% | (2 | )% | 0 | % | (4 | )% | (1 | )% | (5 | )% | (8 | )% | (3 | )% | (5 | )% | ||||||||||||||||||||
| International | 5 | % | 10 | % | 10 | % | 8 | % | 11 | % | 9 | % | 5 | % | 5 | % | 3 | % | 5 | % | ||||||||||||||||||||
| Total Organic Commissions and fees Growth | 3 | % | 3 | % | 2 | % | 3 | % | 6 | % | 4 | % | 2 | % | 1 | % | 2 | % | 2 | % | ||||||||||||||||||||
| Operating Margin (c) | ||||||||||||||||||||||||||||||||||||||||
| Global | 46.3 | % | 30.2 | % | 17.4 | % | 33.9 | % | 11.7 | % | 29.5 | % | 45.7 | % | 35.4 | % | 18.8 | % | 35.3 | % | ||||||||||||||||||||
| North America | 13.8 | % | 15.7 | % | 10.1 | % | 13.3 | % | 18.8 | % | 15.4 | % | 24.9 | % | 22.3 | % | 21.5 | % | 23.0 | % | ||||||||||||||||||||
| International | 33.1 | % | 21.5 | % | 16.3 | % | 24.5 | % | 38.4 | % | 28.0 | % | 34.9 | % | 23.0 | % | 13.4 | % | 24.5 | % | ||||||||||||||||||||
| Total Operating Margin | 28.3 | % | 11.6 | % | 11.4 | % | 18.1 | % | 17.0 | % | 17.8 | % | 29.5 | % | 21.0 | % | 11.3 | % | 21.4 | % | ||||||||||||||||||||
| (a) | Corporate and Other includes the costs of the holding company, foreign exchange hedging activities and foreign exchange on the UK pension plan asset, amortization of intangible assets, net gains and losses on disposal of operations, certain legal costs, integration costs associated with the acquisition of HRH and 2008 expense review costs. | |
| (b) | The Company does not hold business segment management accountable for managing foreign exchange exposure on the retranslation of the UK pension plan asset. Historically, a relatively stable exchange rate environment had led to foreign exchange on the UK pension plan asset having no material impact on segment operating income and margin. However, following significant exchange rate movements in 2008, the Company decided that, effective October 1, 2008, foreign exchange on the UK pension plan asset would be excluded from segment operating income and reported within Corporate and Other. | |
| (c) | Prior periods restated to conform to current period presentation. |
Contacts:
Willis Group Holdings Limited
Investors:
Kerry K. Calaiaro,
212-915-8084
kerry.calaiaro@willis.com
Media:
Will
Thoretz, 212-915-8251
will.thoretz@willis.com
