- Total Revenues increased 8% for the quarter and 4% for the year
- Adjusted Organic Total Revenues increased 6% for the quarter and 4% for the year
- U.S. GAAP Tax Rate negative 221% for the quarter: One-time tax benefit of
$204 million - Adjusted Tax Rate 21% for the quarter
- U.S. GAAP Diluted Earnings per Share were
$1.84 for the quarter and$4.18 for the year - Adjusted Diluted Earnings per Share were
$2.21 for the quarter and$8.51 for the year
Total Revenues were
Total Revenues were
The U.S. GAAP tax rate for the fourth quarter of 2017 was negative 221%, which included a one-time tax benefit of
In connection with our analysis of the impact of U.S. Tax Reform, we have recorded a provisional net tax benefit of
The U.S. GAAP tax rate for the 12 months ended
For the fourth quarter of 2017, net income attributable to
For the fourth quarter of 2017, diluted earnings per share were
For the 12 months ended
The Company repurchased approximately
For the fourth quarter of 2017, net income was
For the 12 months ended
“We just celebrated the second anniversary of
Fourth Quarter Company Highlights
Segment Highlights
Beginning in 2017, we made certain changes that affect our segment results. These changes, which are detailed in the Current Report on Form 8-K filed with the
For the quarter, the
Corporate Risk & Broking
For the quarter, the Corporate Risk & Broking (“CRB”) segment had C&F of
Investment, Risk & Reinsurance
For the quarter, the Investment, Risk & Reinsurance (“IRR”) segment had C&F of
Benefits Delivery & Administration (formerly Exchange Solutions)
For the quarter, the Benefits Delivery & Administration (“BDA”) segment had C&F of
Reconciliation of Segment Operating Income to Income from Operations before Income Taxes and Interest in Earnings of Associates
The Company recorded expenses that are excluded from our segment operating income. The following table reconciles the exclusions.
| (In millions of U.S. dollars) | Three Months Ended December 31, |
Twelve Months Ended December 31, |
|||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Segment Operating Income | $ | 435 | $ | 410 | $ | 1,786 | $ | 1,693 | |||||||
| Fair value adjustment for deferred revenue | — | — | — | (58 | ) | ||||||||||
| Amortization | (140 | ) | (148 | ) | (581 | ) | (591 | ) | |||||||
| Restructuring costs | (47 | ) | (78 | ) | (132 | ) | (193 | ) | |||||||
| Transaction and integration expenses | (92 | ) | (60 | ) | (269 | ) | (177 | ) | |||||||
| Provision for Stanford and other significant litigation | (11 | ) | — | (11 | ) | (50 | ) | ||||||||
| Pension settlement and curtailment gains and losses | (36 | ) | — | (36 | ) | — | |||||||||
| Unallocated, net(i) | 1 | (36 | ) | (19 | ) | (73 | ) | ||||||||
| Income from operations | 110 | 88 | 738 | 551 | |||||||||||
| Interest expense | 49 | 46 | 188 | 184 | |||||||||||
| Other (income)/expense, net | (18 | ) | 1 | 61 | 27 | ||||||||||
| Income from operations before income taxes and interest in earnings of associates | $ | 79 | $ | 41 | $ | 489 | $ | 340 | |||||||
(i)Includes certain costs, primarily related to corporate functions which are not directly related to the segments, and certain differences between budgeted expenses determined at the beginning of the year and actual expenses that we report for U.S. GAAP purposes.
Outlook for 2018
For 2018, the Company expects constant currency revenue growth of around 3%, and 4% on an organic basis; and Adjusted Diluted Earnings per Share in the range of
Conference Call
The Company will host a live webcast and conference call to discuss the financial results for the fourth quarter of 2017. It will be held on
About
Select Questions and Answers
Q1: U.S. Tax Reform is effective in 2018, why was there an impact on the fourth quarter of 2017?
U.S. Tax Reform was generally effective for
Q2: Tax guidance for 2018 indicates a tax rate of approximately 24%. Will you be able to get this tax rate to be more in line with the U.S. corporate rate of 21%?
We continue to strive to align our tax rate with the U.S. Corporate income adjusted tax rate of 21%. However, we continue to review all of the implications of U.S. Tax Reform as we receive more clarity from published Treasury guidance over the next few months.
Q3: Why was an expense related to Pension adjusted from earnings?
In 2017, the amount of
Settlement charges often result due to factors difficult to predict. In this instance, the Pension Freedom Act and the very low interest rates in the
Q4: What was the primary driver of the operating income reduction for the IRR segment in the fourth quarter from 8% in 2016 to 2% in 2017?
Operating margin for IRR included a large investment for new technology and analytics. Also, the segment margins are on reported results and a higher pound, which has a negative impact on margins as the impact on expenses is greater than revenue. We transact some of the GB work revenues in U.S. dollars, but all expenses are paid in GB pounds.
Q5: Given the renewals that transpired in the fourth quarter, what is your view of the pricing environment?
First, our role as trusted advisers for our clients is to help them manage risk and costs, so we try to manage prices down. However, ultimately, the carriers set the prices.
In primary lines, we saw a range of pricing, but think pricing was neutral to our revenues on the whole. In the reinsurance market, we saw property casualty rates in the range of flat to 7.5% increases. However, for the global portfolio of reinsurance products, pricing swings were up and down based on products and geography. Overall, we were neutral to perhaps a bit positive on pricing for fourth quarter reinsurance with most lines and geographies ceasing the rate decreases we have seen for the last 4 to 5 years.
However, we wouldn’t suggest a hard market for either the primary or reinsurance markets, but it seems to be more positive than last year.
Q6: What was the impact of foreign currency movement for the fourth quarter and full year?
Revenues included
Q7: The dollar has had a big move, so how should we be thinking about the benefit of that for 2018?
The US dollar has weakened here in
Q8: What is included in the provision for significant litigation that was adjusted from earnings?
This specific matter was related to litigation with the
Willis Towers Watson Non-GAAP Measures
In order to assist readers of our consolidated financial statements in understanding the core operating results that Willis Towers Watson’s management uses to evaluate the business and for financial planning, we present the following non-GAAP measures: (1) Adjusted Revenues, (2) Constant Currency Change, (3) Organic Change, (4) Adjusted Operating Income, (5) Adjusted EBITDA, (6) Adjusted Net Income, (7) Adjusted Diluted Earnings Per Share, (8) Adjusted Income Before Taxes, (9) Adjusted Income Taxes/Rate and (10) Free Cash Flow. The Company believes that these measures are relevant and provide useful information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating performance, and in the case of free cash flow, our liquidity results.
Within these measures, we have adjusted for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. These items include the following:
- Restructuring costs and transaction and integration expenses - Management believes it is appropriate to adjust for restructuring costs and transaction and integration expenses when they relate to a specific significant program with a defined set of activities and costs that are not expected to continue beyond a defined period of time, or one-time Merger-related transaction expenses. We believe the adjustment is necessary to present how the Company is performing, both now and in the future when these programs will have concluded.
- Pension settlement and curtailment gains and losses - Adjustment to remove significant pension settlement and curtailment gains and losses to better present how the Company is performing.
- Fair value adjustment to deferred revenue – Adjustment in 2016 to normalize for the deferred revenue written down as part of the purchase accounting for the Merger.
- Gains and losses on disposals of operations - Adjustment to remove the gain or loss resulting from disposed operations.
- Provision for
Stanford and other significant litigation - The 2016 provision for theStanford litigation matter, which we consider to be a non-ordinary course litigation matter. We will also include other litigation matters which we believe have a significant effect on our operating results. - Venezuelan currency devaluation - Foreign exchange losses incurred as a consequence of the Venezuelan government’s enforced changes to exchange rate mechanisms.
- Tax effects of internal reorganizations - Relates to the U.S. income tax expense resulting from the completion of internal reorganizations of the ownership of certain businesses that reduced the investments held by our U.S.-controlled subsidiaries.
- Tax effect of U.S. Tax Reform - Relates to the (1) U.S. income tax adjustment of deferred taxes upon the change in the federal corporate tax rate, (2) impact of the one-time transition tax on accumulated foreign earnings net of foreign tax credits, and (3) the re-measurement of our net deferred tax liabilities associated with the U.S. tax on certain foreign earnings offset with a write-off of deferred tax assets that will no longer be realizable under U.S. Tax Reform.
- Deferred tax valuation allowance - Adjustment to remove the effects of a release of the valuation allowance against certain U.S. deferred tax assets.
Adjusted Revenues – presents relevant period-over-period comparisons of revenues by excluding the impact of purchase accounting rules and is defined as: Total Revenues adjusted for the fair value adjustment for deferred revenues that would otherwise have been recognized but for the purchase accounting treatment of these transactions. U.S. GAAP accounting requires the elimination of this revenue.
Constant Currency Change – represents the year over year change in revenues excluding the impact of foreign currency fluctuations. To calculate this impact, the prior year local currency results are first translated using the current year monthly average exchange rates. The change is calculated by comparing the prior year revenues, translated at the current year monthly average exchange rates, to the current year as reported revenues, for the same period. We believe constant currency measures provide useful information to investors because they provide transparency to performance by excluding the effect that foreign currency exchange rate fluctuations have on period-over-period comparability given volatility in foreign currency exchange markets.
Organic Change – excludes both the impact of fluctuations in foreign currency exchange rates, as described above, as well as the period-over-period impact of acquisitions and divestitures. We believe that excluding transaction-related items from our U.S. GAAP financial measures provides useful supplemental information to our investors, and it is important in illustrating what our core operating results would have been had we not incurred these transaction-related items, since the nature, size and number of these translation-related items can vary from period to period.
Adjusted Operating Income – Income from Operations adjusted for amortization, restructuring costs, transaction and integration expenses, significant litigation settlements, significant pension settlement and curtailment activity, the fair value adjustment for deferred revenue and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results.
Adjusted EBITDA – Net Income adjusted for provision for/(benefit from) income taxes, interest expense, depreciation and amortization, restructuring costs, transaction and integration expenses, significant litigation settlements, significant pension settlement and curtailment activity, the fair value adjustment for deferred revenue, gain/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results.
Adjusted Net Income – Net Income Attributable to
Adjusted Diluted Earnings Per Share – Adjusted Net Income divided by the weighted average shares of common stock, diluted.
Adjusted Income Before Taxes – Income from operations before income taxes and interest in earnings of associates adjusted for amortization, restructuring costs, transaction and integration expenses, significant litigation settlements, significant pension settlement and curtailment activity, the fair value adjustment of deferred revenue, (gain)/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted income before taxes is used solely for the purpose of calculating the adjusted income tax rate.
Adjusted Income Taxes/Rate – Provision for/(benefit from) income taxes adjusted for taxes on certain items of amortization, restructuring costs, transaction and integration expenses, significant litigation settlements, significant pension settlement and curtailment activity, the fair value adjustment for deferred revenue, gain/loss on disposal of operations, tax effects of internal reorganizations and U.S. Tax Reform, and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted income taxes is used solely for the purpose of calculating the Adjusted Income Tax Rate which is calculated by dividing Adjusted Income Before Taxes by Adjusted Income Taxes.
Free Cash Flow – Cash Flows from Operating Activities less cash used to purchase fixed assets and software for internal use. Free Cash Flow is a liquidity measure and is not meant to represent residual cash flow available for discretionary expenditures.
These non-GAAP measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP measures should be considered in addition to, and not as a substitute for, the information contained within our consolidated financial statements.
Reconciliations of these measures are included in the accompanying tables with the following exception.
The Company does not reconcile its forward looking non-GAAP financial measures to the corresponding U.S. GAAP measures (including the information under “Outlook for 2018” above), due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible; and because not all of the information, such as foreign currency impacts necessary for a quantitative reconciliation of these forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure is available to the Company without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The Company provides non-GAAP financial measures that it believes will be achieved, however it cannot accurately predict all of the components of the adjusted calculations and the U.S. GAAP measures may be materially different than the non-GAAP measures.
Willis Towers Watson Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements and other forward-looking statements in this document by words such as “may”, “will”, “would”, “expect”, “anticipate”, “believe”, “estimate”, “plan”, “intend”, “continue”, or similar words, expressions or the negative of such terms or other comparable terminology. These statements include, but are not limited to, the benefits of the business combination transaction involving Towers Watson and Willis, including the combined company’s future financial and operating results, plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Willis Towers Watson’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature.
There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained herein, including the following: the ability of the company to successfully integrate the Towers Watson,
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 relying on these forward-looking statements.
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INVESTORS
| WILLIS TOWERS WATSON | |||||||||||||||||||||
| Supplemental Segment Information | |||||||||||||||||||||
| (In millions of U.S. dollars) | |||||||||||||||||||||
| Segment revenue and operating income for the twelve months ended December 31, 2016 included revenue that was deferred at the time of the Merger, and eliminated due to purchase accounting. The impact of the elimination from purchase accounting (which is the reduction to 2016 consolidated revenue and operating income) has been included in the reconciliation to our consolidated results in order to provide the actual revenues the segments would have recognized on an unadjusted basis. | |||||||||||||||||||||
| SEGMENT REVENUE | |||||||||||||||||||||
| Commissions and Fees | |||||||||||||||||||||
| Three Months | Components of Revenue Change(i) | ||||||||||||||||||||
| Ended December 31, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | ||||||||||||||||
| 2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
| Human Capital & Benefits | $ | 758 | $ | 723 | 5 | % | 3 | % | 2 | % | (2 | )% | 4 | % | |||||||
| Corporate Risk & Broking | 770 | 698 | 10 | % | 3 | % | 7 | % | 0 | % | 7 | % | |||||||||
| Investment, Risk & Reinsurance | 300 | 285 | 5 | % | 3 | % | 2 | % | (2 | )% | 4 | % | |||||||||
| Benefits Delivery & Administration(ii) | 193 | 174 | 11 | % | 0 | % | 11 | % | 0 | % | 11 | % | |||||||||
| Commissions and Fees | $ | 2,021 | $ | 1,880 | 8 | % | 3 | % | 5 | % | (1 | )% | 6 | % | |||||||
| (i)Components of revenue change may not add due to rounding (ii)Formerly Exchange Solutions |
|||||||||||||||||||||
| Twelve Months | Components of Revenue Change(i) | ||||||||||||||||||||
| Ended December 31, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | ||||||||||||||||
| 2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
| Human Capital & Benefits | $ | 3,163 | $ | 3,100 | 2 | % | 0 | % | 2 | % | (1 | )% | 3 | % | |||||||
| Corporate Risk & Broking | 2,625 | 2,519 | 4 | % | 0 | % | 4 | % | 0 | % | 4 | % | |||||||||
| Investment, Risk & Reinsurance | 1,505 | 1,475 | 2 | % | (1 | )% | 3 | % | 0 | % | 4 | % | |||||||||
| Benefits Delivery & Administration(ii) | 729 | 652 | 12 | % | 0 | % | 12 | % | 0 | % | 12 | % | |||||||||
| Commissions and Fees | $ | 8,022 | $ | 7,746 | 4 | % | 0 | % | 4 | % | 0 | % | 4 | % | |||||||
| (i)Components of revenue change may not add due to rounding (ii)Formerly Exchange Solutions |
|||||||||||||||||||||
| Total Segment Revenues | |||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| Human Capital & Benefits | $ | 772 | $ | 731 | $ | 3,192 | $ | 3,117 | |||||||||||||
| Corporate Risk & Broking | 777 | 706 | 2,648 | 2,547 | |||||||||||||||||
| Investment, Risk & Reinsurance | 305 | 289 | 1,535 | 1,534 | |||||||||||||||||
| Benefits Delivery & Administration(i) | 193 | 175 | 729 | 654 | |||||||||||||||||
| Total Segment Revenues | $ | 2,047 | $ | 1,901 | $ | 8,104 | $ | 7,852 | |||||||||||||
| (i)Formerly Exchange Solutions | |||||||||||||||||||||
| Reconciliation of Total Segment Revenues to Total Revenues | |||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| Total Segment Revenues | $ | 2,047 | $ | 1,901 | $ | 8,104 | $ | 7,852 | |||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | (58 | ) | ||||||||||||||||
| Reimbursable expenses and other | 31 | 26 | 98 | 93 | |||||||||||||||||
| Total Revenues | $ | 2,078 | $ | 1,927 | $ | 8,202 | $ | 7,887 | |||||||||||||
| The components of the change in Total Revenues generated for the three months ended December 31, 2017 and 2016 are as follows: | |||||||||||||||||||||
| Components of Revenue Change(i) | |||||||||||||||||||||
| Three Months Ended December 31, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | ||||||||||||||||
| 2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
| Total Revenues | $ | 2,078 | $ | 1,927 | 8 | % | 3 | % | 5 | % | (1 | )% | 6 | % | |||||||
| (i)Components of revenue change may not add due to rounding | |||||||||||||||||||||
| The components of the change in Total Revenues and Adjusted Revenues generated for the twelve months ended December 31, 2017 and 2016 are as follows: | |||||||||||||||||||||
| Components of Revenue Change(i) | |||||||||||||||||||||
| Twelve Months Ended December 31, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | ||||||||||||||||
| 2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
| Total Revenues | $ | 8,202 | $ | 7,887 | 4 | % | 0 | % | 4 | % | 0 | % | 5 | % | |||||||
| Fair value adjustment for deferred revenue | - | 58 | |||||||||||||||||||
| Adjusted Revenues | $ | 8,202 | $ | 7,945 | 3 | % | 0 | % | 4 | % | 0 | % | 4 | % | |||||||
| (i)Components of revenue change may not add due to rounding | |||||||||||||||||||||
| SEGMENT OPERATING INCOME(i) | |||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| Human Capital & Benefits | $ | 166 | $ | 160 | $ | 781 | $ | 728 | |||||||||||||
| Corporate Risk & Broking | 218 | 208 | 488 | 463 | |||||||||||||||||
| Investment, Risk & Reinsurance | 7 | 23 | 365 | 383 | |||||||||||||||||
| Benefits Delivery & Administration(ii) | 44 | 19 | 152 | 119 | |||||||||||||||||
| Segment Operating Income | $ | 435 | $ | 410 | $ | 1,786 | $ | 1,693 | |||||||||||||
| (i)Segment operating income excludes certain costs, including amortization of intangibles, restructuring costs, certain transaction and integration expenses, certain litigation provisions and to the extent that the actual expense based upon which allocations are made differs from the forecast/budget amount, a reconciling item will be created between internally allocated expenses and the actual expense reported for U.S. GAAP purposes. | |||||||||||||||||||||
| (ii)Formerly Exchange Solutions | |||||||||||||||||||||
| Reconciliation of Segment Operating Income to Income from operations before income taxes and interest in earnings of associates | |||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
| Segment Operating Income | $ | 435 | $ | 410 | $ | 1,786 | $ | 1,693 | |||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | (58 | ) | ||||||||||||||||
| Amortization | (140 | ) | (148 | ) | (581 | ) | (591 | ) | |||||||||||||
| Restructuring costs | (47 | ) | (78 | ) | (132 | ) | (193 | ) | |||||||||||||
| Transaction and integration expenses | (92 | ) | (60 | ) | (269 | ) | (177 | ) | |||||||||||||
| Provision for Stanford and other significant litigation | (11 | ) | - | (11 | ) | (50 | ) | ||||||||||||||
| Pension settlement and curtailment gains and losses | (36 | ) | - | (36 | ) | - | |||||||||||||||
| Unallocated, net(i) | 1 | (36 | ) | (19 | ) | (73 | ) | ||||||||||||||
| Income from Operations | 110 | 88 | 738 | 551 | |||||||||||||||||
| Interest expense | 49 | 46 | 188 | 184 | |||||||||||||||||
| Other (income)/expense, net | (18 | ) | 1 | 61 | 27 | ||||||||||||||||
| Income from operations before income taxes and interest in earnings of associates | $ | 79 | $ | 41 | $ | 489 | $ | 340 | |||||||||||||
| (i)Includes certain costs, primarily related to corporate functions which are not directly related to the segments, and certain differences between budgeted expenses determined at the beginning of the year and actual expenses that we report for U.S. GAAP purposes. | |||||||||||||||||||||
| WILLIS TOWERS WATSON | ||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Measures | ||||||||||||||||||||||||||
| (In millions of U.S. dollars, except per share data) | ||||||||||||||||||||||||||
| RECONCILIATION OF NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON TO ADJUSTED DILUTED EARNINGS PER SHARE | ||||||||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
| Net Income attributable to Willis Towers Watson | $ | 245 | $ | 142 | $ | 568 | $ | 420 | ||||||||||||||||||
| Adjusted for certain items | ||||||||||||||||||||||||||
| Amortization | 140 | 148 | 581 | 591 | ||||||||||||||||||||||
| Restructuring costs | 47 | 78 | 132 | 193 | ||||||||||||||||||||||
| Transaction and integration expenses | 92 | 60 | 269 | 177 | ||||||||||||||||||||||
| Provision for Stanford and other significant litigation | 11 | - | 11 | 50 | ||||||||||||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | 58 | ||||||||||||||||||||||
| Pension settlement and curtailment gains and losses | 36 | - | 36 | - | ||||||||||||||||||||||
| Gain on disposal of operations | (23 | ) | - | (13 | ) | (2 | ) | |||||||||||||||||||
| Venezuela currency devaluation | - | - | 2 | - | ||||||||||||||||||||||
| Tax effect on certain items listed above(i) | (56 | ) | (99 | ) | (275 | ) | (320 | ) | ||||||||||||||||||
| Tax effects of internal reorganizations | 7 | - | 48 | - | ||||||||||||||||||||||
| Tax effect of U.S. Tax Reform | (204 | ) | - | (204 | ) | - | ||||||||||||||||||||
| Deferred tax valuation allowance | - | (69 | ) | - | (69 | ) | ||||||||||||||||||||
| Adjusted Net Income | $ | 295 | $ | 260 | $ | 1,155 | $ | 1,098 | ||||||||||||||||||
| Weighted average shares of common stock, diluted | 133 | 138 | 136 | 138 | ||||||||||||||||||||||
| Diluted Earnings Per Share | $ | 1.84 | $ | 1.03 | $ | 4.18 | $ | 3.04 | ||||||||||||||||||
| Adjusted for certain items | ||||||||||||||||||||||||||
| Amortization | 1.05 | 1.07 | 4.28 | 4.28 | ||||||||||||||||||||||
| Restructuring costs | 0.35 | 0.57 | 0.97 | 1.40 | ||||||||||||||||||||||
| Transaction and integration expenses | 0.69 | 0.43 | 1.98 | 1.28 | ||||||||||||||||||||||
| Provision for Stanford and other significant litigation | 0.08 | - | 0.08 | 0.36 | ||||||||||||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | 0.42 | ||||||||||||||||||||||
| Pension settlement and curtailment gains and losses | 0.27 | - | 0.27 | - | ||||||||||||||||||||||
| Gain on disposal of operations | (0.17 | ) | - | (0.09 | ) | (0.01 | ) | |||||||||||||||||||
| Venezuela currency devaluation | - | - | 0.01 | - | ||||||||||||||||||||||
| Tax effect on certain items listed above(i) | (0.42 | ) | (0.72 | ) | (2.02 | ) | (2.31 | ) | ||||||||||||||||||
| Tax effects of internal reorganizations | 0.05 | - | 0.35 | - | ||||||||||||||||||||||
| Tax effect of U.S. Tax Reform | (1.53 | ) | - | (1.50 | ) | - | ||||||||||||||||||||
| Deferred tax valuation allowance | - | (0.50 | ) | - | (0.50 | ) | ||||||||||||||||||||
| Adjusted Diluted Earnings Per Share | $ | 2.21 | $ | 1.88 | $ | 8.51 | $ | 7.96 | ||||||||||||||||||
| (i)The tax effect was calculated using an effective tax rate for each item. | ||||||||||||||||||||||||||
| RECONCILIATION OF TOTAL REVENUES TO ADJUSTED REVENUES | ||||||||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
| Total Revenues | $ | 2,078 | $ | 1,927 | $ | 8,202 | $ | 7,887 | ||||||||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | 58 | ||||||||||||||||||||||
| Adjusted Revenues | $ | 2,078 | $ | 1,927 | $ | 8,202 | $ | 7,945 | ||||||||||||||||||
| RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA | ||||||||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
| Net Income | $ | 253 | 12.2 | % | $ | 148 | 7.7 | % | $ | 592 | 7.2 | % | $ | 438 | 5.6 | % | ||||||||||
| Benefit from income taxes | (173 | ) | (107 | ) | (100 | ) | (96 | ) | ||||||||||||||||||
| Interest expense | 49 | 46 | 188 | 184 | ||||||||||||||||||||||
| Depreciation | 52 | 46 | 203 | 178 | ||||||||||||||||||||||
| Amortization | 140 | 148 | 581 | 591 | ||||||||||||||||||||||
| Restructuring costs | 47 | 78 | 132 | 193 | ||||||||||||||||||||||
| Transaction and integration expenses | 92 | 60 | 269 | 177 | ||||||||||||||||||||||
| Provision for Stanford and other significant litigation | 11 | - | 11 | 50 | ||||||||||||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | 58 | ||||||||||||||||||||||
| Pension settlement and curtailment gains and losses | 36 | - | 36 | - | ||||||||||||||||||||||
| Gain on disposal of operations | (23 | ) | - | (13 | ) | (2 | ) | |||||||||||||||||||
| Venezuela currency devaluation | - | - | 2 | - | ||||||||||||||||||||||
| Adjusted EBITDA and Adjusted EBITDA Margin | $ | 484 | 23.3 | % | $ | 419 | 21.7 | % | $ | 1,901 | 23.2 | % | $ | 1,771 | 22.3 | % | ||||||||||
| RECONCILIATION OF INCOME FROM OPERATIONS TO ADJUSTED OPERATING INCOME | ||||||||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
| Income from operations | $ | 110 | 5.3 | % | $ | 88 | 4.6 | % | $ | 738 | 9.0 | % | $ | 551 | 7.0 | % | ||||||||||
| Adjusted for certain items: | ||||||||||||||||||||||||||
| Amortization | 140 | 148 | 581 | 591 | ||||||||||||||||||||||
| Restructuring costs | 47 | 78 | 132 | 193 | ||||||||||||||||||||||
| Transaction and integration expenses | 92 | 60 | 269 | 177 | ||||||||||||||||||||||
| Provision for Stanford and other significant litigation | 11 | - | 11 | 50 | ||||||||||||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | 58 | ||||||||||||||||||||||
| Pension settlement and curtailment gains and losses | 36 | - | 36 | - | ||||||||||||||||||||||
| Adjusted operating income | $ | 436 | 21.0 | % | $ | 374 | 19.4 | % | $ | 1,767 | 21.5 | % | $ | 1,620 | 20.4 | % | ||||||||||
| RECONCILIATION OF GAAP INCOME TAXES/RATE TO ADJUSTED INCOME TAXES/RATE | ||||||||||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||
| Income from operations before income taxes and interest in earnings of associates | $ | 79 | $ | 41 | $ | 489 | $ | 340 | ||||||||||||||||||
| Adjusted for certain items: | ||||||||||||||||||||||||||
| Amortization | 140 | 148 | 581 | 591 | ||||||||||||||||||||||
| Restructuring costs | 47 | 78 | 132 | 193 | ||||||||||||||||||||||
| Transaction and integration expenses | 92 | 60 | 269 | 177 | ||||||||||||||||||||||
| Provision for Stanford and other significant litigation | 11 | - | 11 | 50 | ||||||||||||||||||||||
| Fair value adjustment for deferred revenue | - | - | - | 58 | ||||||||||||||||||||||
| Pension settlement and curtailment gains and losses | 36 | - | 36 | - | ||||||||||||||||||||||
| Gain on disposal of operations | (23 | ) | - | (13 | ) | (2 | ) | |||||||||||||||||||
| Venezuela currency devaluation | - | - | 2 | - | ||||||||||||||||||||||
| Adjusted income before taxes | $ | 382 | $ | 327 | $ | 1,507 | $ | 1,407 | ||||||||||||||||||
| Benefit from income taxes | $ | (173 | ) | $ | (107 | ) | $ | (100 | ) | $ | (96 | ) | ||||||||||||||
| Tax effect on certain items listed above(i) | 56 | 99 | 275 | 320 | ||||||||||||||||||||||
| Tax effects of internal reorganizations | (7 | ) | - | (48 | ) | - | ||||||||||||||||||||
| Tax effect of U.S. Tax Reform | 204 | - | 204 | - | ||||||||||||||||||||||
| Deferred tax valuation allowance | - | 69 | - | 69 | ||||||||||||||||||||||
| Adjusted income taxes | $ | 80 | $ | 61 | $ | 331 | $ | 293 | ||||||||||||||||||
| U.S. GAAP tax rate | (221.4 | )% | (261.0 | )% | (20.5 | )% | (28.1 | )% | ||||||||||||||||||
| Adjusted tax rate | 20.6 | % | 18.9 | % | 21.9 | % | 20.8 | % | ||||||||||||||||||
| (i)The tax effect was calculated using an effective tax rate for each item. | ||||||||||||||||||||||||||
| RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES TO FREE CASH FLOW | ||||||||||||||||||||||||||
| Twelve Months Ended December 31, | ||||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||||
| Cash flows from operating activities | $ | 862 | $ | 933 | ||||||||||||||||||||||
| Less: Additions to fixed assets and software for internal use | (300 | ) | (218 | ) | ||||||||||||||||||||||
| Free Cash Flow | $ | 562 | $ | 715 | ||||||||||||||||||||||
| WILLIS TOWERS WATSON | |||||||||||||||||
| Consolidated Statements of Income | |||||||||||||||||
| (In millions of U.S. dollars, except per share data) | |||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||
| Revenues | |||||||||||||||||
| Commissions and fees | $ | 2,051 | $ | 1,904 | $ | 8,116 | $ | 7,778 | |||||||||
| Interest and other income | 27 | 23 | 86 | 109 | |||||||||||||
| Total revenues | 2,078 | 1,927 | 8,202 | 7,887 | |||||||||||||
| Costs of providing services | |||||||||||||||||
| Salaries and benefits | 1,261 | 1,127 | 4,745 | 4,646 | |||||||||||||
| Other operating expenses | 376 | 380 | 1,534 | 1,551 | |||||||||||||
| Depreciation | 52 | 46 | 203 | 178 | |||||||||||||
| Amortization | 140 | 148 | 581 | 591 | |||||||||||||
| Restructuring costs | 47 | 78 | 132 | 193 | |||||||||||||
| Transaction and integration expenses | 92 | 60 | 269 | 177 | |||||||||||||
| Total costs of providing services | 1,968 | 1,839 | 7,464 | 7,336 | |||||||||||||
| Income from operations | 110 | 88 | 738 | 551 | |||||||||||||
| Interest expense | 49 | 46 | 188 | 184 | |||||||||||||
| Other (income)/expense, net | (18 | ) | 1 | 61 | 27 | ||||||||||||
| INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | 79 | 41 | 489 | 340 | |||||||||||||
| Benefit from income taxes | (173 | ) | (107 | ) | (100 | ) | (96 | ) | |||||||||
| INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | 252 | 148 | 589 | 436 | |||||||||||||
| Interest in earnings of associates, net of tax | 1 | - | 3 | 2 | |||||||||||||
| NET INCOME | 253 | 148 | 592 | 438 | |||||||||||||
| Income attributable to non-controlling interests | (8 | ) | (6 | ) | (24 | ) | (18 | ) | |||||||||
| NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 245 | $ | 142 | $ | 568 | $ | 420 | |||||||||
| Earnings per share | |||||||||||||||||
| Basic earnings per share | $ | 1.85 | $ | 1.04 | $ | 4.21 | $ | 3.07 | |||||||||
| Diluted earnings per share | $ | 1.84 | $ | 1.03 | $ | 4.18 | $ | 3.04 | |||||||||
| Weighted average shares of common stock, basic | 133 | 137 | 135 | 137 | |||||||||||||
| Weighted average shares of common stock, diluted | 133 | 138 | 136 | 138 | |||||||||||||
| Cash dividends declared per share | $ | 0.53 | $ | 0.48 | $ | 2.12 | $ | 1.92 | |||||||||
| WILLIS TOWERS WATSON | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| (In millions of U.S. dollars, except share data) | ||||||||||
| December 31, | December 31, | |||||||||
| 2017 | 2016 | |||||||||
| ASSETS | ||||||||||
| Cash and cash equivalents | $ | 1,030 | $ | 870 | ||||||
| Fiduciary assets | 12,155 | 10,505 | ||||||||
| Accounts receivable, net | 2,246 | 2,080 | ||||||||
| Prepaid and other current assets | 430 | 337 | ||||||||
| Total current assets | 15,861 | 13,792 | ||||||||
| Fixed assets, net | 985 | 839 | ||||||||
| Goodwill | 10,519 | 10,413 | ||||||||
| Other intangible assets, net | 3,882 | 4,368 | ||||||||
| Pension benefits assets | 764 | 488 | ||||||||
| Other non-current assets | 447 | 353 | ||||||||
| Total non-current assets | 16,597 | 16,461 | ||||||||
| TOTAL ASSETS | $ | 32,458 | $ | 30,253 | ||||||
| LIABILITIES AND EQUITY | ||||||||||
| Fiduciary liabilities | $ | 12,155 | $ | 10,505 | ||||||
| Deferred revenue and accrued expenses | 1,711 | 1,481 | ||||||||
| Short-term debt and current portion of long-term debt | 85 | 508 | ||||||||
| Other current liabilities | 804 | 876 | ||||||||
| Total current liabilities | 14,755 | 13,370 | ||||||||
| Long-term debt | 4,450 | 3,357 | ||||||||
| Liability for pension benefits | 1,259 | 1,321 | ||||||||
| Deferred tax liabilities | 615 | 864 | ||||||||
| Provision for liabilities | 558 | 575 | ||||||||
| Other non-current liabilities | 544 | 532 | ||||||||
| Total non-current liabilities | 7,426 | 6,649 | ||||||||
| TOTAL LIABILITIES | 22,181 | 20,019 | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||
| REDEEMABLE NON-CONTROLLING INTEREST | 28 | 51 | ||||||||
| EQUITY(i) | ||||||||||
| Additional paid-in capital | 10,538 | 10,596 | ||||||||
| Retained earnings | 1,104 | 1,452 | ||||||||
| Accumulated other comprehensive loss, net of tax | (1,513 | ) | (1,884 | ) | ||||||
| Treasury shares, at cost, 17,519 shares in 2017 and 795,816 shares in 2016, and 40,000 shares, €1 nominal value, in 2017 and 2016 | (3 | ) | (99 | ) | ||||||
| Total Willis Towers Watson shareholders' equity | 10,126 | 10,065 | ||||||||
| Non-controlling interests | 123 | 118 | ||||||||
| Total equity | 10,249 | 10,183 | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 32,458 | $ | 30,253 | ||||||
| (i)Equity includes (a) Ordinary shares $0.000304635 nominal value; Authorized 1,510,003,775; Issued 132,139,581 (2017) and 137,075,068 (2016); Outstanding 132,139,581 (2017) and 136,296,771 (2016); (b) Ordinary shares, €1 nominal value; Authorized and Issued 40,000 shares in 2017 and 2016; and (c) Preference shares, $0.000115 nominal value; Authorized 1,000,000,000 and Issued none in 2017 and 2016. | ||||||||||
| WILLIS TOWERS WATSON | ||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| (In millions of U.S. dollars) | ||||||||||||
| Twelve Months Ended December 31, | ||||||||||||
| 2017 | 2016 | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| NET INCOME | $ | 592 | $ | 438 | ||||||||
| Adjustments to reconcile net income to total net cash from operating activities: | ||||||||||||
| Depreciation | 252 | 178 | ||||||||||
| Amortization | 581 | 591 | ||||||||||
| Net periodic benefit of defined benefit pension plans | (91 | ) | (93 | ) | ||||||||
| Provision for doubtful receivables from clients | 17 | 36 | ||||||||||
| Benefit from deferred income taxes | (285 | ) | (244 | ) | ||||||||
| Share-based compensation | 67 | 123 | ||||||||||
| Net gain on disposal of operations | (13 | ) | — | |||||||||
| Non-cash foreign exchange loss/(gain) | 77 | (28 | ) | |||||||||
| Other, net | (57 | ) | 27 | |||||||||
| Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | ||||||||||||
| Accounts receivable | (64 | ) | (101 | ) | ||||||||
| Fiduciary assets | (1,167 | ) | (249 | ) | ||||||||
| Fiduciary liabilities | 1,167 | 249 | ||||||||||
| Other assets | (128 | ) | (233 | ) | ||||||||
| Other liabilities | (51 | ) | 174 | |||||||||
| Provisions | (35 | ) | 65 | |||||||||
| Net cash from operating activities | 862 | 933 | ||||||||||
| CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES | ||||||||||||
| Additions to fixed assets and software for internal use | (300 | ) | (218 | ) | ||||||||
| Capitalized software costs | (75 | ) | (85 | ) | ||||||||
| Acquisitions of operations, net of cash acquired | (13 | ) | 476 | |||||||||
| Other, net | 53 | 22 | ||||||||||
| Net cash (used in)/from investing activities | (335 | ) | 195 | |||||||||
| CASH FLOWS USED IN FINANCING ACTIVITIES | ||||||||||||
| Net borrowings/(payments) on revolving credit facility | 642 | (237 | ) | |||||||||
| Senior notes issued | 649 | 1,606 | ||||||||||
| Proceeds from issuance of other debt | 32 | 404 | ||||||||||
| Debt issuance costs | (9 | ) | (14 | ) | ||||||||
| Repayments of debt | (734 | ) | (1,901 | ) | ||||||||
| Repurchase of shares | (532 | ) | (396 | ) | ||||||||
| Proceeds from issuance of shares | 61 | 63 | ||||||||||
| Payments related to share cancellation | (177 | ) | — | |||||||||
| Payments of deferred and contingent consideration related to acquisitions | (65 | ) | (67 | ) | ||||||||
| Cash paid for employee taxes on withholding shares | (18 | ) | (13 | ) | ||||||||
| Dividends paid | (277 | ) | (199 | ) | ||||||||
| Acquisitions of and dividends paid to non-controlling interests | (51 | ) | (21 | ) | ||||||||
| Net cash used in financing activities | (479 | ) | (775 | ) | ||||||||
| INCREASE IN CASH AND CASH EQUIVALENTS | 48 | 353 | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 112 | (15 | ) | |||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 870 | 532 | ||||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,030 | $ | 870 | ||||||||