View:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 7, 2007
Willis Group Holdings Limited
(Exact Name of Registrant as Specified in Its Charter)
Bermuda
(State or Other Jurisdiction of Incorporation)
001-16503 98-0352587
- --------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
c/o Willis Group Limited
Ten Trinity Square
London EC3P 3AX, England
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(44) (20) 7488-8111
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
1
Item 2.02. Results of Operations and Financial Condition.
On February 7, 2007, Willis Group Holdings Limited ("WGHL") issued a
press release (the "Press Release") reporting results for the quarter and year
ended December 31, 2006. A copy of the Press Release is attached as Exhibit 99.1
to this Report on Form 8-K and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
99.1 Press Release of WGHL dated February 7, 2007
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WILLIS GROUP HOLDINGS LIMITED
Date: February 13, 2007 By: /s/ Mary E. Caiazzo
--------------------
Name: Mary E. Caiazzo
Title: Deputy General Counsel
3
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Press Release of WGHL dated February 7, 2007
4
Exhibit 99.1
Willis Group Reports Strong Fourth Quarter and Full Year 2006 Results
Seven Percent Reported Growth in Commissions and Fees in 2006 up
from Zero Percent in 2005
Eight Percent Organic Growth in Commissions and Fees in 2006 up
from Five Percent in 2005
Operating (and Adjusted) Margin of 22.7 Percent in 2006 up from
19.9 Percent Operating Margin and 21.2 Percent Adjusted Operating
Margin in 2005
NEW YORK--(BUSINESS WIRE)--Feb. 7, 2007--Willis Group Holdings
Limited (NYSE: WSH), the global insurance broker, today reported
results for the quarter and year ended December 31, 2006.
Separately, the Board of Directors today approved a 6.4 percent
increase in the regular quarterly cash dividend on the Company's
common stock to USD 0.25 per share, an annual rate of USD 1.00 per
share. The dividend is payable on April 16, 2007 to shareholders of
record on March 31, 2007.
Commenting on today's results, Joe Plumeri, Chairman and Chief
Executive Officer, said, "Our results for 2006 were just what we said
they would be: our organic revenue growth was strong, our operating
margin expanded and our salaries and benefits to revenues decreased.
In addition, earnings per share grew more than 18 percent for the year
(excluding certain adjustments). We remain committed to executing the
Shaping Our Future strategy because this focus has already served us
well."
Throughout 2006, the Company's Shaping Our Future strategy has
progressed in line with expectations. Willis has made significant
progress in targeted growth areas including Employee Benefits, Energy,
Construction and Financial Institutions. The Company continues to
benefit from its focus on the Client Advocacy program, client
profitability, remodeling the London platform, the rollout of the
Willis Client Service Platform and the International efficiency
review. In addition, reorganization within Global Operations, Willis
UK and International, as well as in the US, is strengthening our
structure and framework enabling the Company to drive forward.
Fourth Quarter 2006 Financial Results
Reported net income for the quarter ended December 31, 2006 was
USD 148 million, or USD 0.94 per diluted share, compared with net
income of USD 55 million, or USD 0.35 per diluted share, a year ago.
Excluding certain items, which are reviewed in detail in this
release, adjusted net income was USD 157 million, or USD 1.00 per
diluted share, compared with reported (and adjusted) net income of USD
55 million, or USD 0.35 per diluted share, for the same period last
year. Fourth quarter 2006 adjusted net income benefited from a USD 71
million tax credit (equivalent to USD 0.45 per diluted share)
primarily relating to the resolution of certain prior year tax
matters. Net of the above, diluted earnings per share for the fourth
quarter 2006 were USD 0.55 compared to USD 0.35 in the comparable
period last year.
Total reported revenues for the quarter ended December 31, 2006
were USD 621 million, compared with USD 562 million for the same
period last year, an increase of 10 percent. The effect of foreign
currency translation increased reported revenues by 3 percent.
Organic growth in commissions and fees, which excludes market
remuneration, was 7 percent in the fourth quarter 2006. Each business
unit contributed to overall organic growth in commissions and fees in
the quarter with Global at 9 percent, North America at 4 percent and
International at 9 percent.
Reported operating margin was 21.3 percent for the quarter ended
December 31, 2006. Excluding Shaping Our Future expenditures of USD 17
million and a small gain on disposal of operations, adjusted operating
margin was 23.5 percent for the fourth quarter of 2006 compared with
17.6 percent for the same period last year.
The quarterly phasing of incentive compensation positively
impacted the year over year comparison of the fourth quarter 2006
operating margin by approximately 4 percentage points compared to the
fourth quarter 2005. Excluding this and the reduction of market
remuneration, adjusted operating margin improved by approximately 3
percentage points.
Salaries and benefits expenses as reported were USD 375 million,
or 60.4 percent of total revenues, in the fourth quarter 2006;
excluding Shaping Our Future expenses, they were USD 362 million, or
58.3 percent of total revenues. This compares favorably with USD 356
million, or 63.3 percent of total revenues, in the fourth quarter
2005.
Other operating expenses as reported were USD 103 million, or 16.6
percent of total revenues, in the fourth quarter of 2006; excluding
Shaping Our Future expenses, they were USD 96 million or 15.5 percent
of total revenues. This compares favorably with USD 93 million, or
16.5 percent of revenues, in the fourth quarter 2005.
Full Year 2006 Financial Results
Net income for the year ended December 31, 2006 was USD 449
million, or USD 2.84 per diluted share, compared with a reported net
income of USD 281 million, or USD 1.72 per diluted share, a year ago.
The results for the year ended December 31, 2006 were significantly
affected by the gain on the sale of the Company's London headquarters,
spending on Shaping Our Future initiatives and, for the year ended
December 31, 2005, by regulatory settlements and related expenses,
severance costs, other provisions and net gain on the disposal of
operations.
Excluding these items, which are reviewed in detail in this
release, adjusted net income was USD 426 million, or USD 2.70 per
diluted share, compared with adjusted net income of USD 309 million,
or USD 1.90 per diluted share, for the same period last year. Full
year 2006 adjusted net income benefited from the USD 71 million tax
credit (equivalent to USD 0.45 per diluted share) primarily relating
to the resolution of certain prior year tax matters. Net of the above,
diluted earnings per share for the full year 2006 were USD 2.25, an
increase of 18 percent compared to USD 1.90 last year.
Total reported revenues for the year ended December 31, 2006 were
USD 2,428 million compared with USD 2,267 million for the same period
last year, an increase of 7 percent. The effect of foreign currency
translation and net acquisitions of operations had no effect on
reported revenues. Organic growth in commissions and fees, which
excludes market remuneration, was 8 percent for the year ended
December 31, 2006.
Reported operating margin was 22.7 percent for the year ended
December 31, 2006. Excluding the gain on the sale of the Company's
London headquarters and Shaping Our Future initiative expenses,
adjusted operating margin was also 22.7 percent for the full year
2006. This compares with a reported operating margin of 19.9 percent
and an adjusted operating margin of 21.2 percent for the same period
last year. Excluding the reduction in market remuneration, adjusted
operating margin improved by approximately 2 percentage points.
The full year's effective underlying tax rate in 2006 was 30.5
percent, excluding the tax effects of the gain on sale of the
Company's London headquarters, net loss on disposals, share-based
compensation and the USD 71 million tax credit recognized in the
fourth quarter.
Shaping Our Future Initiative Expenses
In the fourth quarter 2006 the Company recognized USD 17 million
of Shaping Our Future initiative expenses, which primarily related to
severance costs. For the second half of 2006, the Company recognized
USD 101 million relating to these initiatives.
The current estimated annualized benefit of these initiatives is
approximately USD 65 million pre tax by 2009, a USD 5 million increase
over the previous estimate, the majority of which will be direct cost
savings. These initiatives have created efficiencies that led to the
identification and elimination of nearly 500 positions - up from the
400 positions previously announced in the third quarter. Net of the
incremental costs of the new buildings in London and New York, the
annualized net benefit is anticipated to be approximately USD 20
million in 2007, USD 30 million by 2008 and USD 45 million by 2009.
The Company expects these benefits to contribute significantly to its
2010 financial targets.
Capital Management
In the fourth quarter 2006, the Company continued to buy back
shares under its existing USD 1 billion authorization. For the full
year 2006, the Company purchased 5.4 million shares for USD 211
million.
During the year ended December 31, 2006, the Company completed 8
acquisitions with annual revenues of approximately USD 30 million. In
addition, the Company purchased a further 5 percent of Gras Savoye &
Cie for approximately USD 25 million, increasing its ownership to 38
percent. Cash and cash equivalents totaled USD 288 million as at
December 31, 2006.
At December 31, 2006, total debt was USD 800 million and total
stockholders' equity was approximately USD 1.5 billion. The
capitalization ratio (total debt to total debt and stockholders'
equity) was 35 percent at December 31, 2006.
Outlook
For the full year 2007, Willis expects to continue to grow organic
revenue and expand adjusted operating margin modestly.
The Company expects to deliver breakout financial performance in
the next few years. Specifically, by the full year 2010, the Company
has set financial targets of salaries and benefits expense as a
percentage of total revenues to be below 54 percent, adjusted
operating margin of 28 percent or better and industry leading organic
revenue growth.
"As we continue to execute on the Shaping Our Future strategy, we
are positioning ourselves for success in the next chapter," Mr.
Plumeri concluded. "We are well on our way to meeting our 2010
financial goals for continued profitable growth."
Conference Call and Web Cast
A conference call to discuss fourth quarter 2006 results will be
held February 8, 2007 at 8:00 a.m. Eastern Time. To participate in the
live teleconference, please dial (888) 373-3590 (Domestic) +1 (210)
234-0000 (International) with a passcode of "Willis." The live audio
web cast (which will be listen-only) may be accessed at
www.willis.com. This call will be available by replay starting at
approximately 10:00 a.m., Eastern Time, and ending February 22, 2007
at 5:00 p.m. Eastern Time, by calling (800) 224-1285 (domestic) or +1
(402) 220-3691 (international) with no passcode, or by accessing the
website.
Willis Group Holdings Limited is a leading global insurance
broker, developing and delivering professional insurance, reinsurance,
risk management, financial and human resource consulting and actuarial
services to corporations, public entities and institutions around the
world. Including our Associates, we have over 300 offices in some 100
countries, with a global team of approximately 16,000 employees
serving clients in some 190 countries. Additional information on
Willis may be found on its web site www.willis.com.
This press release may contain certain statements relating to
future results, which are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from historical results or those anticipated, depending on a variety
of factors such as general economic conditions in different countries
around the world, fluctuations in global equity and fixed income
markets, changes in premium rates, the competitive environment and the
actual cost of resolution of contingent liabilities. Further
information concerning the Company and its business, including factors
that potentially could materially affect the Company's financial
results are contained in the Company's filings with the Securities and
Exchange Commission.
This press release includes supplemental financial information
which may contain references to non-GAAP financial measures as defined
in Regulation G of SEC rules. Consistent with Regulation G, a
reconciliation of this supplemental financial information to our
generally accepted accounting principles (GAAP) information follows.
We present such non-GAAP supplemental financial information as we
believe such information is of interest to the investment community
because it provides additional meaningful methods of evaluating
certain aspects of the Company's operating performance from period to
period on a basis that may not be otherwise apparent on a GAAP basis.
This supplemental financial information should be viewed in addition
to, not in lieu of, the Company's condensed consolidated statements of
operations for the three months and year ended December 31, 2006.
NOTE: All figures are in USD unless otherwise stated.
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months ended Year ended
December 31, December 31,
------------------ -----------------
2005 2005
As As
adjusted adjusted
2006 (Note 2) 2006 (Note 2)
-------- --------- ------- ---------
Revenues
Commissions and fees 598 544 2,341 2,194
Investment income 23 18 87 73
-------- --------- ------- ---------
Total Revenues 621 562 2,428 2,267
-------- --------- ------- ---------
Expenses
Salaries and benefits (after
charging share-based
compensation 3, 5, 18 and 18) 375 356 1,457 1,384
Other operating expenses 103 93 454 405
Regulatory settlements - - - 51
Depreciation expense and
amortization of intangible
assets 17 14 63 54
Gain on disposal of London
headquarters (3) - (102) -
Net (gain)/loss on disposal of
operations (3) - 4 (78)
-------- --------- ------- ---------
Total Expenses 489 463 1,876 1,816
-------- --------- ------- ---------
Operating Income 132 99 552 451
Interest expense, net 11 9 38 30
-------- --------- ------- ---------
Income before Income Taxes,
Interest in (Losses)/Earnings of
Associates and Minority Interest 121 90 514 421
Income taxes (38) 28 63 143
-------- --------- ------- ---------
Income before Interest in
(Losses)/Earnings of Associates
and Minority Interest 159 62 451 278
Interest in (losses)/earnings of
associates, net of tax (4) (3) 16 14
Minority interest, net of tax (7) (4) (18) (11)
-------- --------- ------- ---------
Net Income 148 55 449 281
======== ========= ======= =========
Earnings per Share
- Basic 0.95 0.35 2.86 1.75
- Diluted 0.94 0.35 2.84 1.72
======== ========= ======= =========
Average Number of Shares
Outstanding
- Basic 155 157 157 161
- Diluted 157 159 158 163
======== ========= ======= =========
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
1. Definitions of Non-GAAP Financial Measures
We believe that investors' understanding of the Company's
performance is enhanced by our disclosure of the following non-GAAP
financial measures. Our method of calculating these measures may
differ from those used by other companies and therefore comparability
may be limited.
Organic revenue growth
Organic revenue growth excludes the impact of foreign currency
translation, acquisitions and disposals and market remuneration from
reported revenues. We use organic revenue growth as a measure of
business growth generated by operations that were part of the Company
at the end of the period.
Adjusted operating income and adjusted net income
Our results have been significantly impacted by the gain on
disposal of our London headquarters, severance costs, net gains/losses
on disposal of operations, 2006 expenditure on strategic initiatives,
2005 charges for regulatory settlements and related expenses, and
other provisions in 2005. We believe that excluding these items from
operating income and net income as applicable, along with the GAAP
measures, provides a more complete and consistent comparative analysis
of our results of operations.
2. Accounting and reporting changes
We made a number of changes to our accounting and reporting in
first quarter 2006. In particular:
Revenue analysis
Following a change to our internal reporting structure, North
America Global Markets and International Global Markets revenues,
which were previously reported within our Global division, are now
reported in the North America and International divisions,
respectively. In addition, we refined our method of allocating
revenues between the Global and North America divisions. We have
adjusted our 2005 revenue analysis to be consistent with the 2006
internal reporting structure.
FAS 123R, Share-Based Payment
Effective January 1, 2006, we adopted FAS 123R using the
modified-retrospective transition method. Our 2005 comparative data
has therefore been adjusted to recognize the compensation cost
previously reported in the footnote disclosure to our financial
statements.
The retrospective application of FAS 123R has also impacted the
diluted share count in prior periods as proceeds under the treasury
stock method have been adjusted with a consequent impact on diluted
share count. Proceeds were adjusted to include the future potential
tax consequences that will arise when the options are exercised and
the average unrecognized compensation cost outstanding during the
period.
Pensions: market-related value
FAS 87, Employers' Accounting for Pensions, requires the expected
return on plan assets to be determined based on the expected long-term
rate of return on plan assets and the market-related value of plan
assets. The market-related value of plan assets may either be a fair
value or a calculated value that recognizes changes in a systematic
and rational manner over not more than five years.
Up to December 31, 2005, the market-related value of our UK
pension plan assets was determined using a calculated value that
recognized asset gains or losses over five years. With effect from
January 1, 2006, the market-related value of UK pension plan assets
has been determined on a fair value basis. We believe that
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
2. Accounting and reporting changes (continued)
Pensions: market-related value (continued)
fair value is a preferable measure of determining the
market-related value of plan assets as it more fairly reflects the
actual value of pension plan assets as of the balance sheet date. In
addition, it brings the methodology used for calculating the
market-related value of our UK plan assets into line with the fair
value methodology already used to value our US plan assets.
We have adjusted our 2005 comparative data to reflect the change
in method of determining the market-related value of plan assets.
Pensions: return on assets
After reviewing the long-term rate of return on our UK plan
assets, effective January 1, 2006, we increased the expected long-term
rate to 7.75 percent from 7.25 percent.
3. Revenue analysis
Organic revenue growth
Organic revenue growth is defined as revenue growth excluding the
impact of foreign currency translation, acquisitions and disposals and
market remuneration. The percentage change in reported revenues is the
most directly comparable GAAP measure, and the following table
reconciles this change to organic revenue growth by business unit for
the three months ended December 31, 2006:
Three months ended
December 31,
----------------------
%
2006 2005(1) Change
------ ------- -------
Global 223 197 13%
North America 214 207 3%
International 161 140 15%
------ ------- -------
Commissions and fees 598 544 10%
Investment Income 23 18 28%
------ ------- -------
Total revenues 621 562 10%
====== ======= =======
Change attributable to
-----------------------------------------------
Foreign Acquisitions Market Organic
currency and remuneration revenue
translation disposals growth
------------ ------------ ------------ --------
Global 6% (1)% (1)% 9%
North America 0% (1)% 0% 4%
International 3% 3% 0% 9%
------------ ------------ ------------ --------
Commissions and fees 4% 0% (1)% 7%
Investment Income 6% 2% 0% 20%
------------ ------------ ------------ --------
Total revenues 3% 0% (1)% 8%
============ ============ ============ ========
(1) As described in Note 2, our prior period revenue analysis has been
adjusted to reflect our 2006 internal reporting structure.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
3. Revenue analysis (continued)
The following table reconciles the percentage change in reported
revenues to organic revenue growth by business unit for the year ended
December 31, 2006:
Year ended
December 31,
------------------------
%
2006 2005(1) Change
------- ------- -------
Global 1,010 961 5%
North America 775 722 7%
International 556 511 9%
------- ------- -------
Commissions and fees 2,341 2,194 7%
Investment Income 87 73 19%
------- ------- -------
Total revenues 2,428 2,267 7%
======= ======= =======
Change attributable to
----------------------------------------------
Foreign Acquisitions Organic
currency and Market revenue
translation disposals remuneration growth
------------ ------------ ------------ --------
Global 1% (2)% (2)% 8%
North America 0% 0% 0% 7%
International (1)% 3% (1)% 8%
------------ ------------ ------------ --------
Commissions and fees 0% 0% (1)% 8%
Investment Income (2)% 0% 0% 21%
------------ ------------ ------------ --------
Total revenues 0% 0% (1)% 8%
============ ============ ============ ========
(1) As described in Note 2, our prior period revenue analysis has been
adjusted to reflect our 2006 internal reporting structure.
4. Shaping Our Future Initiative Expenses
The Company incurred expenses totaling USD 101 million (USD 71
million or USD 0.45 per diluted share after tax) in second half 2006
in connection with the launch of Shaping Our Future initiatives for
profitable growth, as analyzed in the following tables:
Pre-tax
-------------------------
Three months ended
------------------
September December Second
30, 31, half
2006 2006 2006
------------------ ------
Salaries and benefits, including severance
costs of 25, 10, 35 43 13 56
Other operating expenses 32 4 36
Amortization of intangible assets 2 - 2
Net loss on disposals of operations 7 - 7
--------- -------- ------
84 17 101
========= ======== ======
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
4. Shaping Our Future Initiative Expenses (continued)
Schedule of Shaping Our Future Expenses by Initiative
Second half
2006
Pre-tax
------------
Initiative
International efficiency review 28
Data center consolidation and Willis Client Service
Platform 10
Real estate rationalization 9
Reinsurance initiative 10
Remodeling London platform 13
Small commercial account initiative (United Kingdom) 8
US costs review 2
Other, including business closure costs 21
------------
101
============
The current estimated annualized benefit of these initiatives is
approximately USD 65 million pre tax by 2009, a USD 5 million increase
over the previous estimate, the majority of which will be direct cost
savings. These initiatives have created efficiencies that led to the
identification and elimination of nearly 500 positions - up from the
400 positions previously announced in the third quarter. Net of the
incremental costs of the new buildings in London and New York, the
annualized net benefit is anticipated to be approximately USD 20
million in 2007, USD 30 million by 2008 and USD 45 million by 2009.
The Company expects these benefits to contribute significantly to its
2010 financial targets.
5. Adjusted operating income
Adjusted operating income is defined as operating income excluding
the gain on disposal of our London headquarters, severance costs, net
gain/loss on disposal of operations, other 2006 expenditure on
strategic initiatives, 2005 charges for regulatory settlements and
related expenses, and other provisions in 2005. Operating income is
the most directly comparable GAAP measure, and the following tables
reconcile adjusted operating income to operating income for the three
months and year ended December 31, 2006 and 2005:
Three months ended
December 31,
--------------------------
2005
As
adjusted %
2006 (Note 2) Change
-------- --------- -------
Operating Income, GAAP basis 132 99 33%
Excluding:
Gain on sale and leaseback of London
headquarters (a) (3) -
London headquarters leaseback costs (a) 3 -
Severance costs (b) 10 -
Other strategic initiative expenditure (c) 7 -
Net gain on disposal of operations (d) (3) -
-------- ---------
Adjusted Operating Income 146 99 47%
======== =========
Operating Margin, GAAP basis, or Operating
Income as a percentage of Total Revenues 21.3% 17.6%
======== =========
Adjusted Operating Margin, GAAP basis, or
Adjusted Operating Income as a percentage
of Total Revenues 23.5% 17.6%
======== =========
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
5. Adjusted operating income (continued)
Year ended December 31,
------------------------
2005
As
adjusted %
2006 (Note 2) Change
------ --------- -------
Operating Income, GAAP basis 552 451 22%
Excluding:
Gain on sale and leaseback of London
headquarters (a) (102) -
London headquarters leaseback costs (a) 3 -
Severance costs (b) 35 28
Other strategic initiative expenditure (c) 59 -
Net loss/(gain) on disposal of operations
(d) 4 (78)
Regulatory settlements (e) - 51
Costs related to regulatory settlements (e) - 9
Other provision (f) - 20
------ ---------
Adjusted Operating Income 551 481 15%
====== =========
Operating Margin, GAAP basis, or Operating
Income as a percentage of Total Revenues 22.7% 19.9%
====== =========
Adjusted Operating Margin, GAAP basis, or
Adjusted Operating Income as a percentage of
Total Revenues 22.7% 21.2%
====== =========
a) We completed the sale of our London headquarters building, Ten
Trinity Square, in third quarter 2006. The building has been leased
back until the Company moves into its new headquarters in early 2008.
The total pre-tax gain on disposal was USD 121 million, of which USD
99 million was recognized in the third quarter and USD 22 million
(equivalent to the net present value of the leaseback rentals) was
deferred and is being recognized over the life of the lease.
b) 2006 severance costs relate to nearly 500 positions identified
or eliminated in the second half 2006 as part of our Shaping Our
Future strategic initiatives. 2005 severance costs relate to the
headcount reduction program announced in first quarter 2005 which
eliminated approximately 500 positions. Severance costs also arise in
the normal course of business and these charges amounted to USD 1
million in the fourth quarter 2006 (USD nil million in 2005) and USD 6
million for the year ended December 31, 2006 (USD 2 million in 2005).
c) In addition to severance costs and a net loss on disposal of
operations, we incurred significant additional expenditure in 2006 to
launch our strategic initiatives, including professional fees, lease
termination costs and vacant space provisions.
d) The 2005 net gain on disposal of operations was primarily
attributable to a USD 79 million gain arising on the sale of the
Company's US wholesale unit Stewart Smith on April 14, 2005.
e) Comprises USD 51 million to establish the reimbursement funds
agreed with the New York and Minnesota Attorneys General and New York
Department of Insurance in April 2005 and USD 9 million of related
legal and administrative expenses.
f) Based on the quarterly review of legal proceedings at March 31,
2005, the Company increased its provision for claims by an additional
USD 20 million.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data)
(unaudited)
6. Adjusted net income
Adjusted net income is defined as net income excluding the gain on
disposal of our London headquarters, severance costs, net gain/loss on
disposal of operations, other 2006 expenditure on strategic
initiatives, 2005 charges for regulatory settlements and related
expenses, and other provisions in 2005. Net income is the most
directly comparable GAAP measure, and the following tables reconcile
adjusted net income to net income for the three months and year ended
December 31, 2006 and 2005:
Three months ended Per diluted share
December 31, Three months ended
December 31,
----------------------- ------------------------
2005 2005
As As
Adjusted % adjusted %
2006 (Note 2) Change 2006 (Note 2) Change
------ -------- ------- ------- -------- -------
Net income, GAAP
basis 148 55 169% 0.94 0.35 169%
Excluding:
Gain on sale and
leaseback of
London
headquarters, net
of tax (nil) (a) (3) - (0.02) -
London headquarters
leaseback costs,
net of tax (1) (a) 2 - 0.01 -
Severance costs,
net of tax (3) (b) 7 - 0.05 -
Other strategic
initiative
expenditure, net
of tax (2) (c) 5 - 0.03 -
Net gain on
disposal of
operations, net of
tax ((1)) (d) (2) - (0.01) -
------ -------- ------- --------
Adjusted net income 157 55 185% 1.00 0.35 186%
====== ======== ======= ========
Diluted shares
outstanding, GAAP
Basis 157 159
====== ========
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data)
(unaudited)
6. Adjusted net income (continued)
Year ended Per diluted share
December 31, Year ended
December 31,
----------------------- ------------------------
2005 2005
As As
Adjusted % adjusted %
2006 (Note 2) Change 2006 (Note 2) Change
------ -------- ------- ------- -------- -------
Net income, GAAP basis 449 281 60% 2.84 1.72 65%
Excluding:
Gain on sale and
leaseback of London
headquarters, net
of tax ((8)) (a) (94) - (0.59) -
London headquarters
leaseback costs,
net of tax (1) (a) 2 - 0.01 -
Severance costs, net
of tax
(10, 9) (b) 25 19 0.16 0.12
Other strategic
initiative
expenditure, net of
tax (18) (c) 41 - 0.26 -
Net loss/(gain) on
disposal of
operations, net of
tax (1, (37)) (d) 3 (41) 0.02 (0.25)
Regulatory
settlements, net of
tax (20) (e) - 31 - 0.19
Costs related to
regulatory
settlements, net of
tax (4) (e) - 5 - 0.03
Other provision, net
of tax (6) (f) - 14 - 0.09
------ -------- ------- --------
Adjusted net income 426 309 38% 2.70 1.90 42%
------ -------- ------- --------
Diluted shares
outstanding, GAAP
Basis 158 163
====== ========
a) We completed the sale of our London headquarters building, Ten
Trinity Square, in third quarter 2006. The building has been leased
back until the Company moves into its new headquarters in early 2008.
The total pre-tax gain on disposal was USD 121 million, of which USD
99 million was recognized in the third quarter and USD 22 million
(equivalent to the net present value of the leaseback rentals) was
deferred and is being recognized over the life of the lease.
b) 2006 severance costs relate to nearly 500 positions identified
or eliminated in second half 2006 as part of our Shaping Our Future
strategic initiatives. 2005 severance costs relate to the headcount
reduction program announced in first quarter 2005 which eliminated
approximately 500 positions. Severance costs also arise in the normal
course of business and these charges amounted to USD 1 million in the
fourth quarter, 2006 (USD nil million in 2005) and USD 6 million for
the year ended December 31, 2006 (USD 2 million in 2005).
c) In addition to severance costs and a net loss on disposal of
operations, we incurred significant additional expenditure in 2006 to
launch our strategic expenditure, including professional fees, lease
termination costs and vacant space provisions.
d) The 2005 net gain on disposal of operations was primarily
attributable to a USD 42 million gain net of tax arising on the sale
of the Company's US wholesale unit Stewart Smith on April 14, 2005.
e) Comprises USD 31 million net of tax to establish the
reimbursement funds agreed with the New York and Minnesota Attorneys
General and New York Department of Insurance in April 2005 and USD 5
million net of tax of related legal and administrative expenses.
f) Based on the quarterly review of legal proceedings at March 31,
2005, the Company increased its provision for claims by an additional
USD 14 million net of tax.
WILLIS GROUP HOLDINGS LIMITED, NON-GAAP FINANCIAL SUPPLEMENT
(in millions, except per share data) (unaudited)
2005
-----------------------------------
Q1 Q2 Q3 Q4 FY
------ ------ ------ ------ -------
Revenues (1)
Global 326 238 200 197 961
North America 162 180 173 207 722
International 163 112 96 140 511
------ ------ ------ ------ -------
Commissions and fees 651 530 469 544 2,194
Investment income 18 19 18 18 73
------ ------ ------ ------ -------
Total Revenues 669 549 487 562 2,267
------ ------ ------ ------ -------
Expenses
Salaries and benefits as
previously reported/computed 386 309 313 348 1,356
Adoption of FAS 123R (2) 4 5 4 5 18
Pensions: market-related value
methodology (2) 3 2 2 3 10
------ ------ ------ ------ -------
Salaries and benefits as
adjusted/reported 393 316 319 356 1,384
Other operating expenses 125 98 89 93 405
Regulatory settlements 51 - - - 51
Depreciation expense and
amortization of intangible assets 13 14 13 14 54
Gain on disposal of London
headquarters - - - - -
Net (gain)/loss on disposal of
operations - (78) - - (78)
------ ------ ------ ------ -------
Total Expenses 582 350 421 463 1,816
------ ------ ------ ------ -------
Operating Income 87 199 66 99 451
Operating Income margin 13.0% 36.2% 13.6% 17.6% 19.9%
Interest expense, net 6 6 9 9 30
------ ------ ------ ------ -------
Income before Income Taxes,
Interest in (Losses)/ Earnings of
Associates and Minority Interest 81 193 57 90 421
Income taxes as previously
reported/computed 26 77 18 31 152
Adoption of FAS 123R (1) (2) (1) (2) (6)
Pensions: market-related value
methodology (1) - (1) (1) (3)
------ ------ ------ ------ -------
Income taxes as adjusted/reported 24 75 16 28 143
------ ------ ------ ------ -------
133
Income before Interest in (Losses)/
Earnings of Associates and
Minority Interest 57 118 41 62 278
Interest in (losses)/earnings of
associates, net of tax 14 (2) 5 (3) 14
Minority interest, net of tax (4) (2) (1) (4) (11)
------ ------ ------ ------ -------
Net Income 67 114 45 55 281
====== ====== ====== ====== =======
Earnings per Share
- - Diluted (3) 0.41 0.70 0.28 0.35 1.72
====== ====== ====== ====== =======
Average Number of Shares
Outstanding
- Basic 163 163 160 157 161
Diluted as previously reported 168 166 163 160 164
Adoption of FAS 123R (3) (3) (2) (1) (1) (1)
------ ------ ------ ------ -------
- - Diluted as adjusted/ reported 165 164 162 159 163
====== ====== ====== ====== =======
2006
-----------------------------------
Q1 Q2 Q3 Q4 FY
------ ------ ------ ------ -------
Revenues (1)
Global 308 255 224 223 1,010
North America 181 195 185 214 775
International 163 122 110 161 556
------ ------ ------ ------ -------
Commissions and fees 652 572 519 598 2,341
Investment income 19 21 24 23 87
------ ------ ------ ------ -------
Total Revenues 671 593 543 621 2,428
------ ------ ------ ------ -------
Expenses
Salaries and benefits as
previously reported/computed 351 352 382 377 1,462
Adoption of FAS 123R (2) 3 5 7 3 18
Pensions: market-related value
methodology (2) (6) (6) (6) (5) (23)
------ ------ ------ ------ -------
Salaries and benefits as
adjusted/reported 348 351 383 375 1,457
Other operating expenses 105 108 138 103 454
Regulatory settlements - - - - -
Depreciation expense and
amortization of intangible assets 14 15 17 17 63
Gain on disposal of London
headquarters - - (99) (3) (102)
Net (gain)/loss on disposal of
operations - - 7 (3) 4
------ ------ ------ ------ -------
Total Expenses 467 474 446 489 1,876
------ ------ ------ ------ -------
Operating Income 204 119 97 132 552
Operating Income margin 30.4% 20.1% 17.9% 21.3% 22.7%
Interest expense, net 9 9 9 11 38
------ ------ ------ ------ -------
Income before Income Taxes,
Interest in (Losses)/ Earnings of
Associates and Minority Interest 195 110 88 121 514
Income taxes as previously
reported/computed 61 36 3 (39) 61
Adoption of FAS 123R (1) (2) (2) (1) (6)
Pensions: market-related value
methodology 2 2 2 2 8
------ ------ ------ ------ -------
Income taxes as adjusted/reported 62 36 3 (38) 63
------ ------ ------ ------ -------
2
Income before Interest in
(Losses)/ Earnings of Associates
and Minority Interest 133 74 85 159 451
Interest in (losses)/earnings of
associates, net of tax 14 - 6 (4) 16
Minority interest, net of tax (7) (2) (2) (7) (18)
------ ------ ------ ------ -------
Net Income 140 72 89 148 449
====== ====== ====== ====== =======
Earnings per Share
- - Diluted (3) 0.88 0.45 0.56 0.94 2.84
====== ====== ====== ====== =======
Average Number of Shares
Outstanding
- Basic 157 157 157 155 157
Diluted as previously reported 159 159 159 157 158
Adoption of FAS 123R (3) - - - - -
------ ------ ------ ------ -------
- - Diluted as adjusted/ reported 159 159 159 157 158
====== ====== ====== ====== =======
(1) As described in Note 2, our prior period revenue analysis has been
adjusted to reflect our 2006 internal reporting structure.
(2) Details of the accounting and reporting changes are described in
Note 2.
(3) The impact on diluted share count from the retrospective
application of FAS 123R is described in Note 2.
CONTACT: Willis Group Holdings Limited
Investors:
Kerry K. Calaiaro, +1 212-837-0880
kerry.calaiaro@willis.com
Or
Media:
Dan Prince, +1 212-837-0806
daniel.prince@willis.com