- Total Revenues increased 4%
- Commissions and Fees increased 4%
- Diluted Loss per Share was
$0.40 - Adjusted Diluted Earnings per Share were
$1.12
Total Revenues were
For the third quarter of 2017, net loss attributable to
For the third quarter of 2017, net loss was
“I’m very pleased with the third quarter results and perhaps more important, with what they represent: the commitment of our leadership and colleagues to providing outstanding service to our clients, which in turn is allowing us to build a company and develop business strategies for the long-term as envisioned by the merger objectives. Their focus and determination are paying off,” said
Third 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 (Loss)/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 September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Segment Operating Income | $ | 266 | $ | 234 | $ | 1,351 | $ | 1,283 | |||||||||
Fair value adjustment for deferred revenue | - | - | - | (58 | ) | ||||||||||||
Amortization | (141 | ) | (157 | ) | (441 | ) | (443 | ) | |||||||||
Restructuring costs | (31 | ) | (49 | ) | (85 | ) | (115 | ) | |||||||||
Transaction and integration expenses | (74 | ) | (36 | ) | (177 | ) | (117 | ) | |||||||||
Provision for the Stanford litigation | - | - | - | (50 | ) | ||||||||||||
Unallocated, net(i) | 21 | 9 | (20 | ) | (37 | ) | |||||||||||
Income from operations | 41 | 1 | 628 | 463 | |||||||||||||
Interest expense | 47 | 45 | 139 | 138 | |||||||||||||
Other expense, net | 29 | 14 | 79 | 26 | |||||||||||||
(Loss)/Income from operations before income taxes and interest in earnings of associates | $ | (35 | ) | $ | (58 | ) | $ | 410 | $ | 299 | |||||||
(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 2017
For 2017, the Company expects constant currency revenue growth of around 3% 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 third quarter of 2017. It will be held on
About
Select Questions and Answers
Q1: We have seen a number of divestitures and some small acquisitions. Should we expect more, and in what areas?
A: We review our portfolio on a regular basis and have been assessing our strengths and weaknesses as part of the integration process as to how our assets align with our long-term growth strategies.
We’ve been divesting assets as some businesses aren’t optimal for our portfolio and may be more successful if owned by the right company. This also gives us room to invest in areas we think are more meaningful for the business and shareholder return.
We’ve also made some acquisitions and strategic partnerships such as: acquiring the Russell actuarial business in
Q2: How will the settlement of the shareholder appraisal lawsuit impact the share buy-backs for 2017? Does this impact Operating Free Cash Flow in 2017 or the share buy backs for 2018?
A: As we will discuss further in our Form 10-Q, we have settled the shareholder appraisal lawsuit. The settlement, which led to the cancellation of approximately 1.4 million shares represented in the Company’s issued and outstanding share count up until the settlement date does not impact the Board share buy-back authority. It also does not impact the proposed share buy-backs for 2017.
The majority of the settlement, which was paid in cash, did not impact operating Free Cash Flow.
We have not determined our share buy-back plans for 2018. We are currently working on our 2018 budget and will have a better idea on what our buy backs will be after this process. We expect to discuss this during our next Analyst Day in
Q3: How are the recent hurricanes, earthquakes and fires impacting the pricing? Most sources are citing an expected increase in property cat and property cat with losses products, yet
A: We believe there will be rate increases on property cat and property cat with losses products. We will be issuing the Marketplace Realities annual report for North American insurance buyers shortly.
However, it’s too soon to determine the impact those pricing increases may have on our business. Many of our clients may not need this type of insurance for their properties. We sell many different products in the U.S. and the natural catastrophes won’t impact all regions or products.
As prices increase, there could be clients who purchase less insurance and we don’t really yet know how competitors, who haven’t sustained losses, may act in this environment.
The prudent approach to planning is not to assume an impact.
Q4: What is the impact of the recently proposed tax reform in the U.S.?
A: There are multiple versions of proposed tax reform currently and so any speculation is preliminary. Broadly speaking though, we expect our U.S. tax liability to decrease if a number of versions of the proposed reforms are enacted; however, this is preliminary and without regard to the impact a territorial tax regime will have on foreign tax credits and limitations on other tax attributes including interest.
Q5: Why was the third quarter U.S. GAAP Effective Tax Rate a negative 53.0%?
A: The (53.0%) U.S. GAAP tax rate is the result of a discrete tax expense, recorded in the third quarter of 2017, related to an internal restructuring in
Absent this expense, our U.S. GAAP tax rate would have been 0.2%.
As a reminder our U.S. GAAP tax rate is generally low due to tax benefits on amortization, transaction expenses, integration expenses, and restructuring costs.
Q6: Why was the third quarter adjusted tax rate, 32.1%, so high?
A: The 32.1% is the result of seasonality in our earnings. In the third quarter of 2017, we had a loss on disposal of operations (noted above as a discrete item), however our adjusting items are accrued ratably over the year. This gives rise to unusual fluctuations in the adjusted tax rate in quarters with seasonally high or seasonally low earnings. In the third quarter of 2017, the seasonally low earnings gave rise to an increase in the adjusted Effective Tax Rate.
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 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.
- 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 litigation - The 2016 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.
- Tax effects of internal reorganization - Relates to the U.S. income tax expense resulting from the completion of an internal reorganization of the ownership of certain businesses that reduced the investments held by our U.S.-controlled subsidiaries.
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, 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, transaction and integration expenses, 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, 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 income taxes adjusted for taxes on certain items of amortization, restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, gain/loss on disposal of operations, tax effects of internal reorganization 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 our condensed 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 2017” 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) | |||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||
Segment revenue and operating income for the nine months ended September 30, 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 September 30, | As Reported | Currency | Constant Currency | Acquisitions | Organic | ||||||||||||||||
2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
Human Capital & Benefits | $ | 736 | $ | 720 | 2 | % | 1 | % | 2 | % | (1 | )% | 3 | % | |||||||
Corporate Risk & Broking | 581 | 553 | 5 | % | 1 | % | 4 | % | 0 | % | 4 | % | |||||||||
Investment, Risk & Reinsurance | 320 | 312 | 3 | % | 0 | % | 2 | % | 0 | % | 2 | % | |||||||||
Benefits Delivery & Administration(ii) | 179 | 161 | 11 | % | 0 | % | 11 | % | 0 | % | 11 | % | |||||||||
Commissions and Fees | $ | 1,816 | $ | 1,746 | 4 | % | 1 | % | 3 | % | (1 | )% | 4 | % | |||||||
(i)Components of revenue change may not add due to rounding (ii)Formerly Exchange Solutions |
|||||||||||||||||||||
Nine Months | Components of Revenue Change(i) | ||||||||||||||||||||
Ended September 30, | As Reported | Currency | Constant Currency | Acquisitions | Organic | ||||||||||||||||
2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
Human Capital & Benefits | $ | 2,405 | $ | 2,377 | 1 | % | (1 | )% | 2 | % | 0 | % | 3 | % | |||||||
Corporate Risk & Broking | 1,855 | 1,821 | 2 | % | (1 | )% | 3 | % | 0 | % | 3 | % | |||||||||
Investment, Risk & Reinsurance | 1,205 | 1,190 | 1 | % | (2 | )% | 3 | % | 0 | % | 3 | % | |||||||||
Benefits Delivery & Administration(ii) | 536 | 478 | 12 | % | 0 | % | 12 | % | 0 | % | 12 | % | |||||||||
Commissions and Fees | $ | 6,001 | $ | 5,866 | 2 | % | (2 | )% | 4 | % | 0 | % | 4 | % | |||||||
(i)Components of revenue change may not add due to rounding (ii)Formerly Exchange Solutions |
|||||||||||||||||||||
Total Segment Revenues | |||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Human Capital & Benefits | $ | 736 | $ | 720 | $ | 2,420 | $ | 2,386 | |||||||||||||
Corporate Risk & Broking | 586 | 561 | 1,871 | 1,841 | |||||||||||||||||
Investment, Risk & Reinsurance | 334 | 319 | 1,230 | 1,245 | |||||||||||||||||
Benefits Delivery & Administration(i) | 179 | 161 | 536 | 479 | |||||||||||||||||
Total Segment Revenues | $ | 1,835 | $ | 1,761 | $ | 6,057 | $ | 5,951 | |||||||||||||
(i)Formerly Exchange Solutions | |||||||||||||||||||||
Reconciliation of Total Segment Revenues to Total Revenues | |||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Total Segment Revenues | $ | 1,835 | $ | 1,761 | $ | 6,057 | $ | 5,951 | |||||||||||||
Fair value adjustment for deferred revenue | - | - | - | (58 | ) | ||||||||||||||||
Reimbursable expenses and other | 17 | 16 | 67 | 67 | |||||||||||||||||
Total Revenues | $ | 1,852 | $ | 1,777 | $ | 6,124 | $ | 5,960 | |||||||||||||
The components of the change in Total Revenues generated for the three months ended September 30, 2017 and 2016 are as follows: | |||||||||||||||||||||
Components of Revenue Change(i) | |||||||||||||||||||||
Three Months Ended September 30, | As Reported | Currency | Constant Currency | Acquisitions | Organic | ||||||||||||||||
2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
Total Revenues | $ | 1,852 | $ | 1,777 | 4 | % | 1 | % | 4 | % | 0 | % | 4 | % | |||||||
(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 nine months ended September 30, 2017 and 2016 are as follows: | |||||||||||||||||||||
Components of Revenue Change | |||||||||||||||||||||
Nine Months Ended September 30, | As Reported | Currency | Constant Currency | Acquisitions | Organic | ||||||||||||||||
2017 | 2016 | Change | Impact | Change | Divestitures | Change | |||||||||||||||
Total Revenues | $ | 6,124 | $ | 5,960 | 3 | % | (1 | )% | 4 | % | 0 | % | 4 | % | |||||||
Fair value adjustment for deferred revenue | - | 58 | |||||||||||||||||||
Adjusted Revenues | $ | 6,124 | $ | 6,018 | 2 | % | (1 | )% | 3 | % | 0 | % | 3 | % | |||||||
SEGMENT OPERATING INCOME(i) | |||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Human Capital & Benefits | $ | 143 | $ | 127 | $ | 615 | $ | 568 | |||||||||||||
Corporate Risk & Broking | 48 | 46 | 270 | 255 | |||||||||||||||||
Investment, Risk & Reinsurance | 39 | 38 | 358 | 360 | |||||||||||||||||
Benefits Delivery & Administration(ii) | 36 | 23 | 108 | 100 | |||||||||||||||||
Segment Operating Income | $ | 266 | $ | 234 | $ | 1,351 | $ | 1,283 | |||||||||||||
(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 (Loss)/Income from operations before income taxes and interest in earnings of associates | |||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Segment Operating Income | $ | 266 | $ | 234 | $ | 1,351 | $ | 1,283 | |||||||||||||
Fair value adjustment for deferred revenue | - | - | - | (58 | ) | ||||||||||||||||
Amortization | (141 | ) | (157 | ) | (441 | ) | (443 | ) | |||||||||||||
Restructuring costs | (31 | ) | (49 | ) | (85 | ) | (115 | ) | |||||||||||||
Transaction and integration expenses | (74 | ) | (36 | ) | (177 | ) | (117 | ) | |||||||||||||
Provision for the Stanford litigation | - | - | - | (50 | ) | ||||||||||||||||
Unallocated, net(i) | 21 | 9 | (20 | ) | (37 | ) | |||||||||||||||
Income from Operations | 41 | 1 | 628 | 463 | |||||||||||||||||
Interest expense | 47 | 45 | 139 | 138 | |||||||||||||||||
Other expense, net | 29 | 14 | 79 | 26 | |||||||||||||||||
(Loss)/Income from operations before income taxes and interest in earnings of associates | $ | (35 | ) | $ | (58 | ) | $ | 410 | $ | 299 | |||||||||||
(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) | |||||||||||||||||||||||||
(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, | ||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
Net (Loss)/Income attributable to Willis Towers Watson | $ | (54 | ) | $ | (32 | ) | $ | 323 | $ | 278 | |||||||||||||||
Adjusted for certain items | |||||||||||||||||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||||||||||||
Provision for the Stanford litigation | - | - | - | 50 | |||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | - | 58 | |||||||||||||||||||||
Loss/(Gain) on disposal of operations | 10 | - | 10 | (2 | ) | ||||||||||||||||||||
Venezuela currency devaluation | - | - | 2 | - | |||||||||||||||||||||
Tax effect on certain items listed above(i) | (74 | ) | (67 | ) | (219 | ) | (221 | ) | |||||||||||||||||
Tax effects of internal reorganization | 22 | - | 41 | - | |||||||||||||||||||||
Adjusted Net Income | $ | 150 | $ | 143 | $ | 860 | $ | 838 | |||||||||||||||||
Weighted average shares of common stock, diluted | 134 | 138 | 137 | 139 | |||||||||||||||||||||
Diluted (Loss)/Earnings Per Share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.36 | $ | 2.00 | |||||||||||||||
Adjusted for certain items | |||||||||||||||||||||||||
Amortization | 1.05 | 1.14 | 3.23 | 3.19 | |||||||||||||||||||||
Restructuring costs | 0.23 | 0.36 | 0.62 | 0.83 | |||||||||||||||||||||
Transaction and integration expenses | 0.55 | 0.26 | 1.30 | 0.84 | |||||||||||||||||||||
Provision for the Stanford litigation | - | - | - | 0.36 | |||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | - | 0.42 | |||||||||||||||||||||
Loss/(Gain) on disposal of operations | 0.08 | - | 0.07 | (0.02 | ) | ||||||||||||||||||||
Venezuela currency devaluation | - | - | 0.02 | - | |||||||||||||||||||||
Tax effect on certain items listed above(i) | (0.55 | ) | (0.49 | ) | (1.60 | ) | (1.59 | ) | |||||||||||||||||
Tax effects of internal reorganization | 0.16 | - | 0.30 | - | |||||||||||||||||||||
Adjusted Diluted Earnings Per Share | $ | 1.12 | $ | 1.04 | $ | 6.30 | $ | 6.03 | |||||||||||||||||
(i)The tax effect was calculated using an effective tax rate for each item. | |||||||||||||||||||||||||
RECONCILIATION OF TOTAL REVENUES TO ADJUSTED REVENUES | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
Total Revenues | $ | 1,852 | $ | 1,777 | $ | 6,124 | $ | 5,960 | |||||||||||||||||
Fair value adjustment for deferred revenue | - | - | - | 58 | |||||||||||||||||||||
Adjusted Revenues | $ | 1,852 | $ | 1,777 | $ | 6,124 | $ | 6,018 | |||||||||||||||||
RECONCILIATION OF NET (LOSS)/INCOME TO ADJUSTED EBITDA | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
Net (Loss)/Income | $ | (54 | ) | -2.9 | % | $ | (31 | ) | -1.7 | % | $ | 339 | 5.5 | % | $ | 290 | 4.9 | % | |||||||
Provision for/(benefit from) income taxes | 19 | (26 | ) | 73 | 11 | ||||||||||||||||||||
Interest expense | 47 | 45 | 139 | 138 | |||||||||||||||||||||
Depreciation | 54 | 45 | 151 | 132 | |||||||||||||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||||||||||||
Provision for the Stanford litigation | - | - | - | 50 | |||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | - | 58 | |||||||||||||||||||||
Loss/(Gain) on disposal of operations | 10 | - | 10 | (2 | ) | ||||||||||||||||||||
Venezuela currency devaluation | - | - | 2 | - | |||||||||||||||||||||
Adjusted EBITDA and Adjusted EBITDA Margin | $ | 322 | 17.4 | % | $ | 275 | 15.5 | % | $ | 1,417 | 23.1 | % | $ | 1,352 | 22.5 | % | |||||||||
RECONCILIATION OF INCOME FROM OPERATIONS TO ADJUSTED OPERATING INCOME | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
Income from operations | $ | 41 | 2.2 | % | $ | 1 | 0.1 | % | $ | 628 | 10.3 | % | $ | 463 | 7.8 | % | |||||||||
Adjusted for certain items: | |||||||||||||||||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||||||||||||
Provision for the Stanford litigation | - | - | - | 50 | |||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | - | 58 | |||||||||||||||||||||
Adjusted operating income | $ | 287 | 15.5 | % | $ | 243 | 13.7 | % | $ | 1,331 | 21.7 | % | $ | 1,246 | 20.7 | % | |||||||||
RECONCILIATION OF GAAP INCOME TAXES/RATE TO ADJUSTED INCOME TAXES/RATE | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
(Loss)/Income from operations before income taxes and interest in earnings of associates | $ | (35 | ) | $ | (58 | ) | $ | 410 | $ | 299 | |||||||||||||||
Adjusted for certain items: | |||||||||||||||||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||||||||||||
Provision for the Stanford litigation | - | - | - | 50 | |||||||||||||||||||||
Fair value adjustment for deferred revenue | - | - | - | 58 | |||||||||||||||||||||
Loss/(Gain) on disposal of operations | 10 | - | 10 | (2 | ) | ||||||||||||||||||||
Venezuela currency devaluation | - | - | 2 | - | |||||||||||||||||||||
Adjusted income before taxes | $ | 221 | $ | 184 | $ | 1,125 | $ | 1,080 | |||||||||||||||||
Provision for/(benefit from) income taxes | $ | 19 | $ | (26 | ) | $ | 73 | $ | 11 | ||||||||||||||||
Tax effect on certain items listed above(i) | 74 | 67 | 219 | 221 | |||||||||||||||||||||
Tax effects of internal reorganization | (22 | ) | - | (41 | ) | - | |||||||||||||||||||
Adjusted income taxes | $ | 71 | $ | 41 | $ | 251 | $ | 232 | |||||||||||||||||
U.S. GAAP tax rate | (53.0 | )% | 45.9 | % | 17.7 | % | 3.5 | % | |||||||||||||||||
Adjusted tax rate | 32.1 | % | 22.2 | % | 22.3 | % | 21.4 | % | |||||||||||||||||
(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 | |||||||||||||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||
Cash flows from operating activities | $ | 515 | $ | 621 | |||||||||||||||||||||
Less: Additions to fixed assets and software for internal use | (198 | ) | (151 | ) | |||||||||||||||||||||
Free Cash Flow | $ | 317 | $ | 470 | |||||||||||||||||||||
WILLIS TOWERS WATSON | |||||||||||||||||
Condensed Consolidated Statements of Comprehensive Income | |||||||||||||||||
(In millions of U.S. dollars, except per share data) | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
Revenues | |||||||||||||||||
Commissions and fees | $ | 1,832 | $ | 1,761 | $ | 6,065 | $ | 5,874 | |||||||||
Interest and other income | 20 | 16 | 59 | 86 | |||||||||||||
Total revenues | 1,852 | 1,777 | 6,124 | 5,960 | |||||||||||||
Costs of providing services | |||||||||||||||||
Salaries and benefits | 1,145 | 1,119 | 3,484 | 3,519 | |||||||||||||
Other operating expenses | 366 | 370 | 1,158 | 1,171 | |||||||||||||
Depreciation | 54 | 45 | 151 | 132 | |||||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||||
Total costs of providing services | 1,811 | 1,776 | 5,496 | 5,497 | |||||||||||||
Income from operations | 41 | 1 | 628 | 463 | |||||||||||||
Interest expense | 47 | 45 | 139 | 138 | |||||||||||||
Other expense, net | 29 | 14 | 79 | 26 | |||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (35 | ) | (58 | ) | 410 | 299 | |||||||||||
Provision for/(benefit from) income taxes | 19 | (26 | ) | 73 | 11 | ||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | (32 | ) | 337 | 288 | |||||||||||
Interest in earnings of associates, net of tax | - | 1 | 2 | 2 | |||||||||||||
NET (LOSS)/INCOME | (54 | ) | (31 | ) | 339 | 290 | |||||||||||
Income attributable to non-controlling interests | - | (1 | ) | (16 | ) | (12 | ) | ||||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (54 | ) | $ | (32 | ) | $ | 323 | $ | 278 | |||||||
Earnings per share | |||||||||||||||||
Basic (loss)/earnings per share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.38 | $ | 2.03 | |||||||
Diluted (loss)/earnings per share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.36 | $ | 2.00 | |||||||
Weighted average shares of common stock, basic | 134 | 138 | 136 | 137 | |||||||||||||
Weighted average shares of common stock, diluted | 134 | 138 | 137 | 139 | |||||||||||||
Cash dividends declared per share | $ | 0.53 | $ | 0.48 | $ | 1.59 | $ | 1.44 | |||||||||
Comprehensive income/(loss) before non-controlling interests | $ | 34 | $ | (73 | ) | $ | 546 | $ | 96 | ||||||||
Comprehensive loss/(income) attributable to non-controlling interests | 12 | 1 | (15 | ) | (2 | ) | |||||||||||
Comprehensive income/(loss) attributable to Willis Towers Watson | $ | 46 | $ | (72 | ) | $ | 531 | $ | 94 | ||||||||
WILLIS TOWERS WATSON | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(In millions of U.S. dollars, except share data) | ||||||||
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 912 | $ | 870 | ||||
Fiduciary assets | 12,206 | 10,505 | ||||||
Accounts receivable, net | 2,155 | 2,080 | ||||||
Prepaid and other current assets | 418 | 337 | ||||||
Total current assets | 15,691 | 13,792 | ||||||
Fixed assets, net | 937 | 839 | ||||||
Goodwill | 10,529 | 10,413 | ||||||
Other intangible assets, net | 4,034 | 4,368 | ||||||
Pension benefits assets | 649 | 488 | ||||||
Other non-current assets | 432 | 353 | ||||||
Total non-current assets | 16,581 | 16,461 | ||||||
TOTAL ASSETS | $ | 32,272 | $ | 30,253 | ||||
LIABILITIES AND EQUITY | ||||||||
Fiduciary liabilities | $ | 12,206 | $ | 10,505 | ||||
Deferred revenue and accrued expenses | 1,472 | 1,481 | ||||||
Short-term debt and current portion of long-term debt | 85 | 508 | ||||||
Other current liabilities | 793 | 876 | ||||||
Total current liabilities | 14,556 | 13,370 | ||||||
Long-term debt | 4,493 | 3,357 | ||||||
Liability for pension benefits | 1,207 | 1,321 | ||||||
Deferred tax liabilities | 856 | 864 | ||||||
Provision for liabilities | 603 | 575 | ||||||
Other non-current liabilities | 476 | 532 | ||||||
Total non-current liabilities | 7,635 | 6,649 | ||||||
TOTAL LIABILITIES | 22,191 | 20,019 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
REDEEMABLE NON-CONTROLLING INTEREST | 55 | 51 | ||||||
EQUITY(i) | ||||||||
Additional paid-in capital | 10,501 | 10,596 | ||||||
Retained earnings | 1,130 | 1,452 | ||||||
Accumulated other comprehensive loss, net of tax | (1,676 | ) | (1,884 | ) | ||||
Treasury shares, at cost, 263,899 shares in 2017 and 795,816 shares in 2016, and 40,000 shares, €1 nominal value, in 2017 and 2016 | (40 | ) | (99 | ) | ||||
Total Willis Towers Watson shareholders' equity | 9,915 | 10,065 | ||||||
Non-controlling interests | 111 | 118 | ||||||
Total equity | 10,026 | 10,183 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 32,272 | $ | 30,253 | ||||
(i)Equity includes (a) Ordinary shares $0.000304635 nominal value; Authorized 1,510,003,775; Issued 132,529,824 (2017) and 137,075,068 (2016); Outstanding 132,283,444 (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 | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(In millions of U.S. dollars) | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
NET INCOME | $ | 339 | $ | 290 | ||||
Adjustments to reconcile net income to total net cash from operating activities: | ||||||||
Depreciation | 169 | 132 | ||||||
Amortization | 441 | 443 | ||||||
Net periodic benefit of defined benefit pension plans | (106 | ) | (68 | ) | ||||
Provision for doubtful receivables from clients | 15 | 25 | ||||||
Benefit from deferred income taxes | (56 | ) | (120 | ) | ||||
Share-based compensation | 48 | 94 | ||||||
Net loss on disposal of operations | 10 | — | ||||||
Non-cash foreign exchange loss/(gain) | 79 | (23 | ) | |||||
Other, net | (21 | ) | 15 | |||||
Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | ||||||||
Accounts receivable | 31 | 20 | ||||||
Fiduciary assets | (1,233 | ) | (1,076 | ) | ||||
Fiduciary liabilities | 1,233 | 1,076 | ||||||
Other assets | (95 | ) | (211 | ) | ||||
Other liabilities | (351 | ) | (48 | ) | ||||
Provisions | 12 | 72 | ||||||
Net cash from operating activities | 515 | 621 | ||||||
CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES | ||||||||
Additions to fixed assets and software for internal use | (198 | ) | (151 | ) | ||||
Capitalized software costs | (52 | ) | (64 | ) | ||||
Acquisitions of operations, net of cash acquired | (13 | ) | 476 | |||||
Other, net | 1 | 22 | ||||||
Net cash (used in)/from investing activities | (262 | ) | 283 | |||||
CASH FLOWS USED IN FINANCING ACTIVITIES | ||||||||
Net borrowings/(payments) on revolving credit facility | 675 | (389 | ) | |||||
Senior notes issued | 650 | 1,606 | ||||||
Proceeds from issuance of other debt | 32 | 404 | ||||||
Debt issuance costs | (9 | ) | (14 | ) | ||||
Repayments of debt | (714 | ) | (1,861 | ) | ||||
Repurchase of shares | (462 | ) | (222 | ) | ||||
Proceeds from issuance of shares | 44 | 44 | ||||||
Payments related to share cancellation | (177 | ) | — | |||||
Payments of deferred and contingent consideration related to acquisitions | (43 | ) | (64 | ) | ||||
Cash paid for employee taxes on withholding shares | (14 | ) | (13 | ) | ||||
Dividends paid | (209 | ) | (133 | ) | ||||
Acquisitions of and dividends paid to non-controlling interests | (19 | ) | (17 | ) | ||||
Net cash used in financing activities | (246 | ) | (659 | ) | ||||
INCREASE IN CASH AND CASH EQUIVALENTS | 7 | 245 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 35 | (10 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 870 | 532 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 912 | $ | 767 | ||||