- Reported Revenues increased 2% over pro forma prior year third quarter (5% constant currency increase, 1% organic increase)
- Diluted Loss per Share was
$0.23 - Adjusted Diluted Earnings per Share were
$1.04
Total Revenues were
Total Revenues were
Net loss attributable to
For the quarter, diluted loss per share was
Adjusted EBITDA for the third quarter of 2016 was
Adjusted EBITDA for the nine months ended
As of
“We continue to deliver revenue growth led by the acquisition of
Third Quarter Company Highlights
Segment Highlights
For the quarter, the
Corporate Risk & Broking
For the quarter, the Corporate Risk & Broking (“CRB”) segment had commissions and fees of
Investment, Risk & Reinsurance
For the quarter, the Investment, Risk & Reinsurance segment had commissions and fees of
Exchange Solutions
For the quarter, the Exchange Solutions segment had commissions and fees of
Reconciliation of Segment Operating Income to Income from Continuing Operations before Income Taxes and Interest in Earnings of Associates
For the third quarter, the Company recorded expenses that are excluded from our segment operating income. The following table represents the difference.
Three Months ended September 30, |
Nine Months ended September 30, |
||||||||
2016 | 2016 | ||||||||
Segment Operating Income | $ | 224 | $ | 1,219 | |||||
Differences in allocation methods(i) | 20 | 25 | |||||||
Fair value adjustment for deferred revenue | - | (58 | ) | ||||||
Amortization | (157 | ) | (443 | ) | |||||
Restructuring costs | (49 | ) | (115 | ) | |||||
Integration and transaction expenses | (36 | ) | (117 | ) | |||||
Provision for the Stanford litigation | - | (50 | ) | ||||||
Other, net | (1 | ) | 2 | ||||||
Income from Operations | 1 | 463 | |||||||
Interest expense | 45 | 138 | |||||||
Other expense/(income), net | 14 | 26 | |||||||
(Loss)/income from continuing operations before income taxes and interest in earnings of associates | $ | (58 | ) | $ | 299 | ||||
(i)Includes certain costs, primarily those related to corporate functions, leadership, projects, and certain differences between budgeted expenses determined at the beginning of the fiscal year and actual expenses that we report for GAAP purposes. | |||||||||
Outlook for 2016
For 2016, the Company expects reported revenue growth of around 6% and constant currency revenue growth between 9% and 10%, and 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 third quarter of 2016. It will be held on
About
Willis Towers Watson Non-GAAP Measures
In order to assist readers of our condensed 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 non-GAAP measures. Willis Towers Watson’s management began using the following measures from the effective date of the Merger: (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 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 and 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 restructuring costs, integration and transaction expenses, fair value adjustment to deferred revenue, gains or losses on our disposal of operations, our provision for the
- Restructuring, integration and transaction costs - Management believes it is appropriate to adjust for restructuring, integration and transaction costs 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. 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.
- Fair value adjustment to deferred revenue - Adjustment to normalize for the deferred revenue written down as part of the purchase accounting for the Merger.
- Provision for
Stanford litigation - The provision for theStanford litigation matter, which we consider to be a non-ordinary course litigation matter. - Venezuelan currency devaluation - Foreign exchange losses incurred as a consequence of the Venezuelan government’s enforced changes to exchange rate mechanisms.
These measures are different than those reported in our Form 10-K for the year ended
Adjusted Revenues – presents comparable 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 revenue that would otherwise have been recognized but for the purchase accounting treatment of these transactions. 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 – The organic presentation 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 acquisition-related items from our 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 acquisition-related items, since the nature, size and number of acquisitions can vary from period to period.
Adjusted Operating Income – Income from Operations adjusted for amortization, restructuring costs, integration and transaction expenses, 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 income taxes, interest expense, depreciation and amortization, restructuring costs, integration and transaction expenses, the fair value adjustment for deferred revenue, gain 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 toWillis Towers Watson adjusted for amortization, restructuring costs, integration and transaction expenses, the fair value adjustment of deferred revenue, gain on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results and the related tax effect of those adjustments. This measure is used solely for the purpose of calculating adjusted diluted earnings per share.
Adjusted Diluted Earnings Per Share – Adjusted Net Income divided by the weighted average shares of common stock, diluted.
Adjusted Income before taxes – Income from continuing operations before income taxes and interest in earnings of associates adjusted for amortization, restructuring costs, integration and transaction expenses, the fair value adjustment of deferred revenue, gain 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 income taxes adjusted for taxes on certain items of amortization, restructuring costs, integration and transaction expenses, the fair value adjustment of deferred revenue, gain 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 taxes is used solely for the purpose of calculating the adjusted income tax rate.
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 Willis Towers Watson’s financial statements.
Reconciliations of these measures are included in the accompanying tables to today’s press release and in the supplemental slides that are posted on our website.
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: changes in general economic, business and political conditions, including changes in the financial markets; consolidation in or conditions affecting the industries in which the company operates; any changes in the regulatory environment in which the company operates; the ability to successfully manage ongoing organizational changes; 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.
WILLIS TOWERS WATSON | |||||||||||||||||||||||||
Supplemental Segment Information | |||||||||||||||||||||||||
(In Millions of U.S. Dollars) | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
The pro forma financial information does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Willis Towers Watson would have been had the Merger occurred on January 1, 2015, nor is it necessarily indicative of future consolidated results of operations or consolidated financial position. | |||||||||||||||||||||||||
Segment revenue and operating income for the nine months ended September 30, 2016 both include 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 | ||||||||||||||||||||||||
ended September 30, | |||||||||||||||||||||||||
2016 | 2015 | Pro Forma Change | Currency Impact | Constant Currency Change | Acquisitions Divestitures | Organic Change | |||||||||||||||||||
Pro Forma | |||||||||||||||||||||||||
Human Capital & Benefits | $ | 747 | $ | 736 | 2 | % | (3 | )% | 5 | % | 3 | % | 2 | % | |||||||||||
Corporate Risk & Broking | 546 | 519 | 5 | % | (3 | )% | 8 | % | 8 | % | 0 | % | |||||||||||||
Investment, Risk & Reinsurance | 292 | 320 | (9 | )% | (4 | )% | (5 | )% | 0 | % | (5 | )% | |||||||||||||
Exchange Solutions | 161 | 128 | 25 | % | 0 | % | 25 | % | 0 | % | 25 | % | |||||||||||||
Commissions and Fees | $ | 1,746 | $ | 1,703 | 3 | % | (3 | )% | 6 | % | 4 | % | 2 | % | |||||||||||
Nine Months | Components of Revenue Change | ||||||||||||||||||||||||
ended September 30, | |||||||||||||||||||||||||
2016 | 2015 | Pro Forma Change | Currency Impact | Constant Currency Change | Acquisitions Divestitures | Organic Change | |||||||||||||||||||
Pro Forma | |||||||||||||||||||||||||
Human Capital & Benefits | $ | 2,459 | $ | 2,372 | 4 | % | (3 | )% | 7 | % | 6 | % | 1 | % | |||||||||||
Corporate Risk & Broking | 1,807 | 1,622 | 11 | % | (4 | )% | 15 | % | 15 | % | 0 | % | |||||||||||||
Investment, Risk & Reinsurance | 1,122 | 1,112 | 1 | % | (3 | )% | 4 | % | 8 | % | (4 | )% | |||||||||||||
Exchange Solutions | 478 | 340 | 40 | % | 0 | % | 40 | % | 3 | % | 37 | % | |||||||||||||
Commissions and Fees | $ | 5,866 | $ | 5,446 | 8 | % | (3 | )% | 11 | % | 9 | % | 2 | % | |||||||||||
Total Segment Revenues | |||||||||||||||||||||||||
Three Months ended September 30, | Nine Months ended September 30, | ||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Pro Forma | Pro Forma | ||||||||||||||||||||||||
Human Capital & Benefits | $ | 747 | $ | 741 | $ | 2,467 | $ | 2,388 | |||||||||||||||||
Corporate Risk & Broking | 554 | 523 | 1,828 | 1,635 | |||||||||||||||||||||
Investment, Risk & Reinsurance | 299 | 326 | 1,177 | 1,123 | |||||||||||||||||||||
Exchange Solutions | 161 | 129 | 479 | 342 | |||||||||||||||||||||
Total Segment Revenues | $ | 1,761 | $ | 1,719 | $ | 5,951 | $ | 5,488 | |||||||||||||||||
Reconciliation of Total Segment Revenues to Total Revenues | |||||||||||||||||||||||||
Three Months ended September 30, | Nine Months ended September 30, | ||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Pro Forma | Pro Forma | ||||||||||||||||||||||||
Total Segment Revenues | $ | 1,761 | $ | 1,719 | $ | 5,951 | $ | 5,488 | |||||||||||||||||
Fair value adjustment for deferred revenue | - | - | (58 | ) | - | ||||||||||||||||||||
Reimbursable expenses and other | 16 | 30 | 67 | 81 | |||||||||||||||||||||
Total Revenues | $ | 1,777 | $ | 1,749 | $ | 5,960 | $ | 5,569 | |||||||||||||||||
The components of the change in Total Revenues and Adjusted Revenues generated for the three months ended September 30, 2016 and pro forma total revenues for the three months ended September 30, 2015 are as follows: | |||||||||||||||||||||||||
Components of Revenue Change | |||||||||||||||||||||||||
Three Months ended September 30, | Pro Forma | Currency | Constant Currency |
Acquisitions | Organic | ||||||||||||||||||||
2016 | 2015 | Change | Impact | Change | Divestitures | Change | |||||||||||||||||||
Pro Forma | |||||||||||||||||||||||||
Total Revenues | $ | 1,777 | $ | 1,749 | 2 | % | (3 | )% | 5 | % | 4 | % | 1 | % | |||||||||||
Fair value adjustment for deferred revenue | - | - | |||||||||||||||||||||||
Adjusted Revenues | $ | 1,777 | $ | 1,749 | 2 | % | (3 | )% | 5 | % | 4 | % | 1 | % | |||||||||||
The components of the change in Total Revenues and Adjusted Revenues generated for the nine months ended September 30, 2016 and pro forma total revenues for the nine months ended September 30, 2015 are as follows: | |||||||||||||||||||||||||
Components of Revenue Change | |||||||||||||||||||||||||
Nine Months ended September 30, | Pro Forma | Currency | Constant Currency |
Acquisitions | Organic | ||||||||||||||||||||
2016 | 2015 | Change | Impact | Change | Divestitures | Change | |||||||||||||||||||
Pro Forma | |||||||||||||||||||||||||
Total Revenues | $ | 5,960 | $ | 5,569 | 7 | % | (3 | )% | 10 | % | 9 | % | 1 | % | |||||||||||
Fair value adjustment for deferred revenue | 58 | - | |||||||||||||||||||||||
Adjusted Revenues | $ | 6,018 | $ | 5,569 | 8 | % | (3 | )% | 11 | % | 9 | % | 2 | % | |||||||||||
SEGMENT OPERATING INCOME(i) | |||||||||||||||||||||||||
Three Months ended September 30, |
Nine Months ended September 30, |
||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Pro Forma | Pro Forma | ||||||||||||||||||||||||
Human Capital & Benefits | $ | 121 | $ | 123 | $ | 531 | $ | 544 | |||||||||||||||||
Corporate Risk & Broking | 59 | 76 | 298 | 269 | |||||||||||||||||||||
Investment, Risk & Reinsurance | 25 | 34 | 302 | 279 | |||||||||||||||||||||
Exchange Solutions | 19 | 15 | 88 | 38 | |||||||||||||||||||||
Segment Operating Income | $ | 224 | $ | 248 | $ | 1,219 | $ | 1,130 | |||||||||||||||||
(i)Segment operating income excludes certain costs, including amortization of intangibles, restructuring costs, certain integration and transaction 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 US GAAP purposes. | |||||||||||||||||||||||||
Reconciliation of Segment Operating Income to Income from continuing operations before income taxes and interest in earnings of associates | |||||||||||||||||||||||||
Three Months ended September 30, |
Nine Months ended September 30, |
||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
Pro Forma | Pro Forma | ||||||||||||||||||||||||
Segment Operating Income | $ | 224 | $ | 248 | $ | 1,219 | $ | 1,130 | |||||||||||||||||
Differences in allocation methods(i) | 20 | 20 | 25 | (6 | ) | ||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | (58 | ) | - | ||||||||||||||||||||
Amortization | (157 | ) | (137 | ) | (443 | ) | (396 | ) | |||||||||||||||||
Restructuring costs | (49 | ) | (24 | ) | (115 | ) | (93 | ) | |||||||||||||||||
Integration and transaction expenses | (36 | ) | (22 | ) | (117 | ) | (33 | ) | |||||||||||||||||
Provision for the Stanford litigation | - | - | (50 | ) | - | ||||||||||||||||||||
Other, net | (1 | ) | 19 | 2 | 30 | ||||||||||||||||||||
Income from Operations | 1 | 104 | 463 | 632 | |||||||||||||||||||||
Interest expense | 45 | 40 | 138 | 119 | |||||||||||||||||||||
Other expense/(income), net | 14 | (64 | ) | 26 | (83 | ) | |||||||||||||||||||
(Loss)/income from continuing operations before income taxes and interest in earnings of associates | $ | (58 | ) | $ | 128 | $ | 299 | $ | 596 | ||||||||||||||||
(i)Includes certain costs, primarily those related to corporate functions, leadership, projects, and certain differences between budgeted expenses determined at the beginning of the fiscal year and actual expenses that we report for GAAP purposes. |
WILLIS TOWERS WATSON | ||||||||||||||||||||||||||||
Reconciliation of Non-GAAP Measures | ||||||||||||||||||||||||||||
(In Millions of U.S. Dollars, Except Per Share Data) | ||||||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
RECONCILIATION OF NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON TO ADJUSTED DILUTED EARNINGS PER SHARE | ||||||||||||||||||||||||||||
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||
Net (Loss)/Income attributable to Willis Towers Watson | $ | (32 | ) | $ | 117 | $ | 278 | $ | 397 | |||||||||||||||||||
Adjusted for certain items(i) | ||||||||||||||||||||||||||||
Amortization | 157 | 23 | 443 | 53 | ||||||||||||||||||||||||
Restructuring costs | 49 | 24 | 115 | 93 | ||||||||||||||||||||||||
Integration and transaction expenses | 36 | 12 | 117 | 20 | ||||||||||||||||||||||||
Provision for the Stanford litigation | - | - | 50 | - | ||||||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | 58 | - | ||||||||||||||||||||||||
Gain on disposal of operations | - | (14 | ) | (2 | ) | (25 | ) | |||||||||||||||||||||
Venezuela currency devaluation | - | 2 | - | 3 | ||||||||||||||||||||||||
Deferred tax valuation allowance | - | (110 | ) | - | (110 | ) | ||||||||||||||||||||||
Tax effect on certain items listed above(iii) | (67 | ) | (16 | ) | (221 | ) | (42 | ) | ||||||||||||||||||||
Adjusted Net Income | $ | 143 | $ | 38 | $ | 838 | $ | 389 | ||||||||||||||||||||
Weighted average shares of common stock, diluted(ii) | 138 | 69 | 139 | 69 | ||||||||||||||||||||||||
Diluted (Loss)/Earnings Per Share | $ | (0.23 | ) | $ | 1.70 | $ | 2.00 | $ | 5.75 | |||||||||||||||||||
Adjusted for certain items(i) | ||||||||||||||||||||||||||||
Amortization | 1.14 | 0.33 | 3.19 | 0.77 | ||||||||||||||||||||||||
Restructuring costs | 0.36 | 0.35 | 0.83 | 1.35 | ||||||||||||||||||||||||
Integration and transaction expenses | 0.26 | 0.17 | 0.84 | 0.29 | ||||||||||||||||||||||||
Provision for the Stanford litigation | - | - | 0.36 | - | ||||||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | 0.42 | - | ||||||||||||||||||||||||
Gain on disposal of operations | - | (0.20 | ) | (0.02 | ) | (0.36 | ) | |||||||||||||||||||||
Venezuela currency devaluation | - | 0.03 | - | 0.04 | ||||||||||||||||||||||||
Deferred tax valuation allowance | - | (1.59 | ) | - | (1.59 | ) | ||||||||||||||||||||||
Tax effect on certain items listed above(iii) | (0.49 | ) | (0.23 | ) | (1.59 | ) | (0.61 | ) | ||||||||||||||||||||
Adjusted Diluted Earnings Per Share | $ | 1.04 | $ | 0.56 | $ | 6.03 | $ | 5.64 | ||||||||||||||||||||
(i) In the second quarter of 2016 Willis Towers Watson changed the manner in which adjusted items are presented in the reconciliation of Adjusted Net Income. This change resulted in adjusted items being presented on a pretax basis and the related tax impacts on adjusted items being aggregated into a separate line item. The adjusted items for prior periods presented were updated to conform to the current presentation. | ||||||||||||||||||||||||||||
(ii)Shares of common stock and diluted earnings per share for the three and nine months ended September 30, 2015 have been retroactively adjusted to reflect the reverse stock split on January 4, 2016. | ||||||||||||||||||||||||||||
(iii)The tax effect was calculated using the statutory tax rate applicable to the item being adjusted for in the jurisdiction from which each adjustment arises. | ||||||||||||||||||||||||||||
RECONCILIATION OF TOTAL REVENUES TO ADJUSTED REVENUES | ||||||||||||||||||||||||||||
Pro Forma (Unaudited) | ||||||||||||||||||||||||||||
Towers Watson | Willis Towers Watson | |||||||||||||||||||||||||||
Three Months ended September 30, | Three Months ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||||||||||
Total Revenues | $ | 1,777 | $ | 846 | $ | 903 | $ | 1,749 | ||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | - | - | ||||||||||||||||||||||||
Adjusted Revenues | $ | 1,777 | $ | 846 | $ | 903 | $ | 1,749 | ||||||||||||||||||||
Pro Forma (Unaudited) | ||||||||||||||||||||||||||||
Towers Watson | Willis Towers Watson | |||||||||||||||||||||||||||
Nine Months ended September 30, | Nine Months ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||||||||||
Total Revenues | $ | 5,960 | $ | 2,855 | $ | 2,714 | $ | 5,569 | ||||||||||||||||||||
Fair value adjustment for deferred revenue | 58 | - | - | - | ||||||||||||||||||||||||
Adjusted Revenues | $ | 6,018 | $ | 2,855 | $ | 2,714 | $ | 5,569 | ||||||||||||||||||||
RECONCILIATION OF NET (LOSS)/INCOME TO ADJUSTED EBITDA | ||||||||||||||||||||||||||||
Pro Forma (Unaudited) | ||||||||||||||||||||||||||||
Towers Watson | Willis Towers Watson | |||||||||||||||||||||||||||
Three Months ended September 30, | Three Months ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||||||||||
Net (Loss)/Income | $ | (31 | ) | (1.7 | )% | $ | 116 | 13.7 | % | $ | 92 | 208 | 11.9 | % | ||||||||||||||
(Benefit from)/provision for income taxes | (26 | ) | (112 | ) | 35 | (77 | ) | |||||||||||||||||||||
Interest expense | 45 | 35 | 5 | 40 | ||||||||||||||||||||||||
Depreciation | 45 | 25 | 15 | 40 | ||||||||||||||||||||||||
Amortization | 157 | 23 | 114 | 137 | ||||||||||||||||||||||||
EBITDA and EBITDA Margin | 190 | 10.7 | % | 87 | 10.3 | % | 261 | 348 | 19.9 | % | ||||||||||||||||||
Restructuring costs | 49 | 24 | - | 24 | ||||||||||||||||||||||||
Integration and transaction expenses | 36 | 12 | (10 | ) | 2 | |||||||||||||||||||||||
Gain on disposal of operations | - | (14 | ) | (55 | ) | (69 | ) | |||||||||||||||||||||
Venezuela currency devaluation | - | 2 | - | 2 | ||||||||||||||||||||||||
Adjusted EBITDA and Adjusted EBITDA Margin | $ | 275 | 15.5 | % | $ | 111 | 13.1 | % | $ | 196 | 307 | 17.6 | % | |||||||||||||||
Pro Forma (Unaudited) | ||||||||||||||||||||||||||||
Towers Watson | Willis Towers Watson | |||||||||||||||||||||||||||
Nine Months ended September 30, | Nine Months ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||||||||||
Net Income | $ | 290 | 4.9 | % | $ | 402 | 14.1 | % | $ | 171 | $ | 573 | 10.3 | % | ||||||||||||||
Provision for/(benefit from) income taxes | 11 | (37 | ) | 77 | 40 | |||||||||||||||||||||||
Interest expense | 138 | 103 | 16 | 119 | ||||||||||||||||||||||||
Depreciation | 132 | 70 | 50 | 120 | ||||||||||||||||||||||||
Amortization | 443 | 53 | 343 | 396 | ||||||||||||||||||||||||
EBITDA and EBITDA Margin | 1,014 | 17.0 | % | 591 | 20.7 | % | 657 | 1,248 | 22.4 | % | ||||||||||||||||||
Restructuring costs | 115 | 93 | - | 93 | ||||||||||||||||||||||||
Integration and transaction expenses | 117 | 20 | (13 | ) | 7 | |||||||||||||||||||||||
Provision for the Stanford litigation | 50 | - | - | - | ||||||||||||||||||||||||
Fair value adjustment for deferred revenue | 58 | - | - | - | ||||||||||||||||||||||||
Gain on disposal of operations | (2 | ) | (25 | ) | (55 | ) | (80 | ) | ||||||||||||||||||||
Venezuela currency devaluation | - | 3 | - | 3 | ||||||||||||||||||||||||
Adjusted EBITDA and Adjusted EBITDA Margin | $ | 1,352 | 22.5 | % | $ | 682 | 23.9 | % | $ | 589 | $ | 1,271 | 22.8 | % | ||||||||||||||
RECONCILIATION OF INCOME FROM OPERATIONS TO ADJUSTED OPERATING INCOME | ||||||||||||||||||||||||||||
Pro Forma (Unaudited) | ||||||||||||||||||||||||||||
Towers Watson | Willis Towers Watson | |||||||||||||||||||||||||||
Three Months ended September 30, | Three Months ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||||||||||
Income from operations | $ | 1 | 0.1 | % | $ | 27 | 3.2 |
% | $ | 77 | $ | 104 | 5.9 | % | ||||||||||||||
Adjusted for certain items | ||||||||||||||||||||||||||||
Amortization | 157 | 23 | 114 | 137 | ||||||||||||||||||||||||
Restructuring costs | 49 | 24 | - | 24 | ||||||||||||||||||||||||
Integration and transaction expenses | 36 | 12 | (10 | ) | 2 | |||||||||||||||||||||||
Adjusted Operating Income | $ | 243 | 13.7 | % | $ | 86 | 10.2 | % | $ | 181 | $ | 267 | 15.3 | % | ||||||||||||||
Pro Forma (Unaudited) | ||||||||||||||||||||||||||||
Towers Watson | Willis Towers Watson | |||||||||||||||||||||||||||
Nine Months ended September 30, | Nine Months ended September 30, | |||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||||||||||
Income from operations | $ | 463 | 7.8 | % | $ | 425 | 14.9 | % | $ | 207 | $ | 632 | 11.3 | % | ||||||||||||||
Adjusted for certain items | ||||||||||||||||||||||||||||
Amortization | 443 | 53 | 343 | 396 | ||||||||||||||||||||||||
Restructuring costs | 115 | 93 | - | 93 | ||||||||||||||||||||||||
Integration and transaction expenses | 117 | 20 | (13 | ) | 7 | |||||||||||||||||||||||
Provision for the Stanford litigation | 50 | - | - | - | ||||||||||||||||||||||||
Fair value adjustment for deferred revenue | 58 | - | - | - | ||||||||||||||||||||||||
Adjusted Operating Income | $ | 1,246 | 20.7 | % | $ | 591 | 20.7 | % | $ | 537 | $ | 1,128 | 20.3 | % | ||||||||||||||
RECONCILIATION OF GAAP INCOME TAXES/RATE TO ADJUSTED INCOME TAXES/RATE | ||||||||||||||||||||||||||||
Three Months | Nine Months | |||||||||||||||||||||||||||
ended | ended | |||||||||||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||||||||||
2016 | 2016 | |||||||||||||||||||||||||||
(Loss)/Income from continuing operations before income taxes and interest in earnings of associates | $ | (58 | ) | $ | 299 | |||||||||||||||||||||||
Adjusted for certain items | ||||||||||||||||||||||||||||
Amortization | 157 | 443 | ||||||||||||||||||||||||||
Restructuring costs | 49 | 115 | ||||||||||||||||||||||||||
Integration and transaction expenses | 36 | 117 | ||||||||||||||||||||||||||
Provision for the Stanford litigation | - | 50 | ||||||||||||||||||||||||||
Fair value adjustment for deferred revenue | - | 58 | ||||||||||||||||||||||||||
Gain on disposal of operations | - | (2 | ) | |||||||||||||||||||||||||
Adjusted income before taxes | $ | 184 | $ | 1,080 | ||||||||||||||||||||||||
(Benefit from)/provision for income taxes | $ | (26 | ) | $ | 11 | |||||||||||||||||||||||
Tax effect on certain items listed above(i) | 67 | 221 | ||||||||||||||||||||||||||
Adjusted income taxes | $ | 41 | $ | 232 | ||||||||||||||||||||||||
GAAP tax rate(ii) | 45.9 | % | 3.5 | % | ||||||||||||||||||||||||
Adjusted income tax rate(ii) | 22.2 | % | 21.4 | % | ||||||||||||||||||||||||
(i)The tax effect and effective tax rate was calculated using the statutory tax rate applicable to the item being adjusted for in the jurisdiction from which each adjustment arises. | ||||||||||||||||||||||||||||
(ii)These effective tax rates are calculated using extended values from our condensed consolidated statement of operations or this reconciliation, and are therefore more precise tax rates than can be calculated from rounded values. |
WILLIS TOWERS WATSON | ||||||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||||||
(In Millions of U.S. Dollars, Except Per Share Data) | ||||||||||||||||||||
(Unaudited) | Pro Forma (Unaudited) | |||||||||||||||||||
Towers Watson(ii) | Willis Towers Watson | |||||||||||||||||||
Three Months ended September 30, | Three Months ended September 30, |
|||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||
Revenues | ||||||||||||||||||||
Commissions and fees | $ | 1,761 | $ | 841 | $ | 902 | $ | 1,743 | ||||||||||||
Interest and other income | 16 | 5 | 1 | 6 | ||||||||||||||||
Total revenues | 1,777 | 846 | 903 | 1,749 | ||||||||||||||||
Costs of providing services | ||||||||||||||||||||
Salaries and benefits | 1,119 | 570 | 531 | 1,101 | ||||||||||||||||
Other operating expenses | 370 | 177 | 165 | 342 | ||||||||||||||||
Depreciation | 45 | 25 | 15 | 40 | ||||||||||||||||
Amortization | 157 | 23 | 114 | 137 | ||||||||||||||||
Restructuring costs | 49 | 24 | - | 24 | ||||||||||||||||
Integration expenses(iii) | 36 | - | 1 | 1 | ||||||||||||||||
Total costs of providing services | 1,776 | 819 | 826 | 1,645 | ||||||||||||||||
Income from operations | 1 | 27 | 77 | 104 | ||||||||||||||||
Interest expense | 45 | 35 | 5 | 40 | ||||||||||||||||
Other expense/(income), net | 14 | (9 | ) | (55 | ) | (64 | ) | |||||||||||||
(LOSS)/INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (58 | ) | 1 | 127 | 128 | |||||||||||||||
(Benefit from)/provision for income taxes | (26 | ) | (112 | ) | 35 | (77 | ) | |||||||||||||
(LOSS)/INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (32 | ) | 113 | 92 | 205 | |||||||||||||||
Interest in earnings of associates, net of tax | 1 | 3 | - | 3 | ||||||||||||||||
NET (LOSS)/INCOME | (31 | ) | 116 | 92 | 208 | |||||||||||||||
(Income)/loss attributable to non-controlling interests | (1 | ) | 1 | - | 1 | |||||||||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (32 | ) | $ | 117 | $ | 92 | $ | 209 | |||||||||||
(LOSS)/EARNINGS PER SHARE(i) | ||||||||||||||||||||
Basic (loss)/earnings per share | $ | (0.23 | ) | $ | 1.72 | $ | 1.53 | |||||||||||||
Diluted (loss)/earnings per share | $ | (0.23 | ) | $ | 1.70 | $ | 1.51 | |||||||||||||
Cash dividends declared per share(i) | $ | 0.48 | $ | 0.82 | ||||||||||||||||
Weighted average shares of common stock, basic | 138 | 68 | 137 | |||||||||||||||||
Weighted average shares of common stock, diluted | 138 | 69 | 138 | |||||||||||||||||
(i)Basic and diluted earnings per share, and cash dividends declared per share, for the three months ended September 30, 2015 have been retroactively adjusted to reflect the reverse stock split on January 4, 2016. | ||||||||||||||||||||
(ii)Includes historical Towers Watson and pro forma adjustments. Additional pro forma details can be found in the supplemental slides to today's Press Release. | ||||||||||||||||||||
(iii)For the three months ended September 30, 2015, Legacy Willis had $12M of Integration expenses, in Other operating expenses, related to the Gras Savoye acquisition and the Towers Watson merger. | ||||||||||||||||||||
WILLIS TOWERS WATSON | ||||||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||||||
(In Millions of U.S. Dollars, Except Per Share Data) | ||||||||||||||||||||
(Unaudited) | Pro Forma (Unaudited) | |||||||||||||||||||
Willis | ||||||||||||||||||||
Towers | Towers | |||||||||||||||||||
Watson(ii) | Watson | |||||||||||||||||||
Nine Months ended September 30, |
Nine Months ended September 30, |
|||||||||||||||||||
2016 | 2015 | 2015 | 2015 | |||||||||||||||||
Revenues | ||||||||||||||||||||
Commissions and fees | $ | 5,874 | $ | 2,839 | 2,711 | $ | 5,550 | |||||||||||||
Interest and other income | 86 | 16 | 3 | 19 | ||||||||||||||||
Total revenues | 5,960 | 2,855 | 2,714 | 5,569 | ||||||||||||||||
Costs of providing services | ||||||||||||||||||||
Salaries and benefits | 3,519 | 1,698 | 1,591 | 3,289 | ||||||||||||||||
Other operating expenses | 1,171 | 516 | 520 | 1,036 | ||||||||||||||||
Depreciation | 132 | 70 | 50 | 120 | ||||||||||||||||
Amortization | 443 | 53 | 343 | 396 | ||||||||||||||||
Restructuring costs | 115 | 93 | - | 93 | ||||||||||||||||
Integration expenses(iii) | 117 | - | 3 | 3 | ||||||||||||||||
Total costs of providing services | 5,497 | 2,430 | 2,507 | 4,937 | ||||||||||||||||
Income from operations | 463 | 425 | 207 | 632 | ||||||||||||||||
Interest expense | 138 | 103 | 16 | 119 | ||||||||||||||||
Other expense/(income), net | 26 | (26 | ) | (57 | ) | (83 | ) | |||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | 299 | 348 | 248 | 596 | ||||||||||||||||
Provision for/(benefit from) income taxes | 11 | (37 | ) | 77 | 40 | |||||||||||||||
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | 288 | 385 | 171 | 556 | ||||||||||||||||
Interest in earnings of associates, net of tax | 2 | 17 | - | 17 | ||||||||||||||||
NET INCOME | 290 | 402 | 171 | 573 | ||||||||||||||||
Income attributable to non-controlling interests | (12 | ) | (5 | ) | - | (5 | ) | |||||||||||||
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 278 | $ | 397 | $ | 171 | $ | 568 | ||||||||||||
EARNINGS PER SHARE(i) | ||||||||||||||||||||
Basic earnings per share | $ | 2.03 | $ | 5.84 | $ | 4.15 | ||||||||||||||
Diluted earnings per share | $ | 2.00 | $ | 5.75 | $ | 4.12 | ||||||||||||||
Cash dividends declared per share(i) | $ | 1.44 | $ | 2.46 | ||||||||||||||||
Weighted average shares of common stock, basic | 137 | 68 | 137 | |||||||||||||||||
Weighted average shares of common stock, diluted | 139 | 69 | 138 | |||||||||||||||||
(i)Basic and diluted earnings per share, and cash dividends declared per share, for the Nine Months ended September 30, 2015 have been retroactively adjusted to reflect the reverse stock split on January 4, 2016. | ||||||||||||||||||||
(ii)Includes historical Towers Watson and pro forma adjustments. Additional pro forma details can be found in the supplemental slides to today's Press Release. | ||||||||||||||||||||
(iii)For the nine months ended September 30, 2015, Legacy Willis had $20M of Integration expenses, in Other operating expenses, related to the Gras Savoye acquisition and the Towers Watson merger. | ||||||||||||||||||||
WILLIS TOWERS WATSON | |||||||||||||
Condensed Consolidated Balance Sheets | |||||||||||||
(In Millions of U.S. Dollars, Except Share Data) | |||||||||||||
(Unaudited) | |||||||||||||
September 30, | December 31, | ||||||||||||
2016 | 2015 | ||||||||||||
ASSETS | |||||||||||||
Cash and cash equivalents | $ | 767 | $ | 532 | |||||||||
Fiduciary assets | 11,604 | 10,458 | |||||||||||
Accounts receivable, net | 2,043 | 1,258 | |||||||||||
Prepaid and other current assets | 319 | 255 | |||||||||||
Total current assets | 14,733 | 12,503 | |||||||||||
Fixed assets, net | 811 | 563 | |||||||||||
Goodwill | 10,483 | 3,737 | |||||||||||
Other intangible assets, net | 4,589 | 1,115 | |||||||||||
Pension benefits assets | 857 | 623 | |||||||||||
Other non-current assets | 328 | 298 | |||||||||||
Total non-current assets | 17,068 | 6,336 | |||||||||||
TOTAL ASSETS | $ | 31,801 | $ | 18,839 | |||||||||
LIABILITIES AND EQUITY | |||||||||||||
Fiduciary liabilities | $ | 11,604 | $ | 10,458 | |||||||||
Deferred revenue and accrued expenses | 1,282 | 752 | |||||||||||
Short-term debt and current portion of long-term debt | 519 | 988 | |||||||||||
Other current liabilities | 812 | 603 | |||||||||||
Total current liabilities | 14,217 | 12,801 | |||||||||||
Long-term debt | 3,267 | 2,278 | |||||||||||
Liability for pension benefits | 1,089 | 279 | |||||||||||
Deferred tax liabilities | 1,137 | 240 | |||||||||||
Provision for liabilities | 593 | 295 | |||||||||||
Other non-current liabilities | 544 | 533 | |||||||||||
Total non-current liabilities | 6,630 | 3,625 | |||||||||||
TOTAL LIABILITIES | 20,847 | 16,426 | |||||||||||
COMMITMENTS AND CONTINGENCIES | — | — | |||||||||||
REDEEMABLE NONCONTROLLING INTEREST | 53 | 53 | |||||||||||
EQUITY | |||||||||||||
Ordinary shares, $0.000304635 nominal value; Authorized: 1,510,003,775; | |||||||||||||
Issued 137,206,851 shares in 2016 and 68,624,892 in 2015 | — | — | |||||||||||
Ordinary shares, €1 nominal value; Authorized: 40,000; | — | — | |||||||||||
Issued 40,000 shares in 2016 and 2015 | |||||||||||||
Preference shares, $0.000115 nominal value; Authorized: 1,000,000,000; | |||||||||||||
Issued nil shares in 2016 and 2015 | — | — | |||||||||||
Additional paid-in capital | 10,536 | 1,672 | |||||||||||
Retained earnings | 1,455 | 1,597 | |||||||||||
Accumulated other comprehensive loss, net of tax | (1,221 | ) | (1,037 | ) | |||||||||
Treasury shares, at cost, 17,519 shares in 2016 and 2015, and 40,000 shares, | |||||||||||||
€1 nominal value, in 2016 and 2015 | (3 | ) | (3 | ) | |||||||||
Total Willis Towers Watson shareholders' equity | 10,767 | 2,229 | |||||||||||
Noncontrolling interests | 134 | 131 | |||||||||||
Total Equity | 10,901 | 2,360 | |||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 31,801 | $ | 18,839 | |||||||||
WILLIS TOWERS WATSON | |||||||||||||
Condensed Consolidated Statements of Cash Flows | |||||||||||||
(In Millions of U.S. Dollars) | |||||||||||||
(Unaudited) | |||||||||||||
Nine Months ended September 30, | |||||||||||||
2016 | 2015 | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||
NET INCOME | $ | 290 | $ | 402 | |||||||||
Adjustments to reconcile net income to total net cash from operating activities: | |||||||||||||
Depreciation | 132 | 70 | |||||||||||
Amortization | 443 | 53 | |||||||||||
Net periodic benefit of defined benefit pension plans | (68 | ) | (54 | ) | |||||||||
Provision for doubtful receivables from clients | 25 | 3 | |||||||||||
Benefit from deferred income taxes | (120 | ) | (71 | ) | |||||||||
Share-based compensation | 94 | 46 | |||||||||||
Non-cash foreign exchange (gain)/loss | (23 | ) | 34 | ||||||||||
Net gain on disposal of operations of fixed and intangible assets | — | (30 | ) | ||||||||||
Other, net | 15 | (13 | ) | ||||||||||
Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | |||||||||||||
Accounts receivable | 20 | (55 | ) | ||||||||||
Fiduciary assets | (1,076 | ) | (1,109 | ) | |||||||||
Fiduciary liabilities | 1,076 | 1,109 | |||||||||||
Other assets | (211 | ) | (107 | ) | |||||||||
Other liabilities | (61 | ) | (157 | ) | |||||||||
Movement on provisions | 72 | (8 | ) | ||||||||||
Net cash from operating activities | 608 | 113 | |||||||||||
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | |||||||||||||
Additions to fixed assets and software for internal use | (151 | ) | (100 | ) | |||||||||
Capitalized software costs | (64 | ) | — | ||||||||||
Acquisitions of operations, net of cash acquired | 476 | (293 | ) | ||||||||||
Net proceeds from sale of operations | — | 45 | |||||||||||
Other, net | 22 | — | |||||||||||
Net cash from/(used in) investing activities | 283 | (348 | ) | ||||||||||
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES | |||||||||||||
Net (repayments)/borrowings on revolving credit facility | (389 | ) | 420 | ||||||||||
Senior notes issued | 1,606 | — | |||||||||||
Proceeds from issue of other debt | 404 | — | |||||||||||
Debt issuance costs | (14 | ) | (1 | ) | |||||||||
Repayments of debt | (1,861 | ) | (159 | ) | |||||||||
Repurchase of shares | (222 | ) | (82 | ) | |||||||||
Proceeds from issuance of shares and excess tax benefit | 44 | 100 | |||||||||||
Payments of deferred and contingent consideration related to acquisitions | (64 | ) | — | ||||||||||
Dividends paid | (133 | ) | (165 | ) | |||||||||
Acquisitions of and dividends paid to noncontrolling interests | (17 | ) | (19 | ) | |||||||||
Net cash (used in)/from financing activities | (646 | ) | 94 | ||||||||||
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 245 | (141 | ) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | (10 | ) | (28 | ) | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 532 | 635 | |||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 767 | $ | 466 | |||||||||
Contact INVESTORSAida Sukys | +1 703 258 8033 | aida.sukys@willistowerswatson.com