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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): May 3, 2006
Willis Group Holdings Limited
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Bermuda
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(State or Other Jurisdiction of Incorporation)
001-16503 98-0352587
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(Commission File Number) (IRS Employer Identification No.)
c/o Willis Group Limited
Ten Trinity Square
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London EC3P 3AX, England
(Address of Principal Executive Offices)
(44) (20) 7488-8111
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(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))
Item 2.02. Results of Operations and Financial Condition.
On May 3, 2006, Willis Group Holdings Limited ("WGHL") issued a press
release (the "Press Release") reporting results for the quarter ended March 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.
(c) Exhibits.
99.1 Press Release of WGHL dated May 3, 2006
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: May 9, 2006 By: /s/ Eric Dinallo
---------------------
Name: Eric Dinallo
Title: General Counsel
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Press Release of WGHL dated May 3, 2006
Exhibit 99.1
Willis Group Reports Increased First Quarter 2006 Results;
Declares Regular Quarterly Dividend
NEW YORK--(BUSINESS WIRE)--May 3, 2006--Willis Group Holdings
Limited (NYSE: WSH), the global insurance broker, today reported
results for the quarter ended March 31, 2006.
Commenting on today's results, Joe Plumeri, Chairman and Chief
Executive Officer, said, "Last year we made disciplined decisions for
the long-term best interest of our Company, including investments in
talent, processes and technology. We are pleased that the first
quarter 2006, with 6 percent organic revenue growth and improved
earnings, reflects the early results of these investments."
First Quarter 2006 Financial Results
Total reported revenues for the quarter ended March 31, 2006 were
$671 million, compared with $669 million for the same period last
year. The effect of foreign currency translation decreased reported
revenues by 5 percent and net disposal of operations reduced reported
revenues by 1 percent.
Organic growth in commissions and fees excluding total market
remuneration was 6 percent in the first quarter 2006, comprised of
approximately 6 percent in net new business and a negligible impact
from insurance premium rates and other market factors. Although we
continue to see rates moderating, the impact is varied geographically
and according to product line.
Net income for the quarter ended March 31, 2006 was $140 million,
or $0.88 per diluted share, compared with $67 million, or $0.41 per
diluted share, a year ago. Excluding certain items which affected net
income for the quarter ended March 31, 2005, as detailed in the
Supplemental Financial Information of this press release, adjusted net
income was $0.88 for the first quarter of 2006 compared to $0.82 for
the same period last year, an increase of 7 percent. The impact of
foreign currency translation reduced first quarter 2006 net income by
$0.03 per diluted share compared with first quarter 2005.
On January 1, 2006, the Company adopted FAS 123R share-based
payment and also changed the methodology used to calculate the
market-related value of UK pension plan assets. Comparative figures
for 2005 have been adjusted to reflect the retrospective application
of the accounting changes. The Company also revised the expected
long-term rate of return assumption on the UK pension plan assets.
Each of these accounting changes is discussed in more detail in the
Supplemental Financial Information of this press release.
Salaries and benefits expense for the quarter ended March 31, 2006
was $348 million, or 51.9 percent of total revenues, compared with
$365 million, or 54.6 percent of total revenues in the comparable
period last year, excluding first quarter 2005 severance costs. The
improvement in this compensation ratio was helped by both increased
revenue contribution from recent hires and the benefit in the first
quarter 2006 of a more even quarterly recognition of incentive
compensation than in 2005.
Other expenses for the first quarter of 2006 were $105 million, or
15.6 percent of total revenues, compared to $96 million, or 14.3
percent in the comparable period last year, excluding first quarter
2005 costs related to regulatory settlements and other provisions.
Reported (and adjusted) operating margin was 30.4 percent for the
quarter ended March 31, 2006, compared with a 13.0 percent reported
margin and 29.1 percent adjusted operating margin for the same period
last year.
Excluding the effects on taxation of amortization of intangibles,
disposals of operations and share-based compensation, the underlying
tax rate in the first quarter of 2006 was 31.5 percent, the same as
for the full year 2005.
Outlook
For the full year 2006, the Company anticipates continued growth
in organic commissions and fees. The net impact of the accounting
changes for stock options and pension on salaries and benefits and
operating income in 2006 is not expected to be significant. For the
full year 2006, the Company expects salaries and benefits expense as a
percentage of total revenues to be less than 59 percent and expects
modest operating margin expansion. This outlook assumes a more
selective approach toward recruiting opportunities in an environment
which remains highly competitive.
In conclusion, Mr. Plumeri added, "As we move into the next
chapter at Willis we are committed to generating sustainable
profitable growth by increasing value to our clients and delivering
that value efficiently. From our already strong platform, we expect to
expand our market share and continue to enhance our top line and
bottom line. We anticipate that we will see significant benefits from
this strategy in 2007."
Other Items
The Board of Directors declared a regular quarterly cash dividend
on the Company's common stock of $0.235 per share, an annual rate of
$0.94 per share. The dividend is payable on July 14, 2006 to
shareholders of record on June 30, 2006.
During the quarter ended March 31, 2006 the Company completed 4
acquisitions with annual revenues of approximately $13 million. Cash
and cash equivalents totaled $158 million, including approximately $53
million of immediately available cash at March 31, 2006. There were no
shares repurchased during the first quarter 2006, and there is $140
million available under the existing $500 million buyback
authorization.
At March 31, 2006, total long-term debt was $600 million and total
stockholders' equity was approximately $1.4 billion. The
capitalization ratio (total long-term debt to total long-term debt and
stockholders' equity) was 30 percent at March 31, 2006.
Conference Call and Web Cast
A conference call to discuss first quarter 2006 results will be
held May 4, 2006 at 8:00 a.m. Eastern Time. To participate in the live
teleconference, please dial (800) 857-6553 (US) or (773) 756-0108
(International) with a pass code of "Willis". The live audio web cast
(which will be listen-only) may be accessed at www.willis.com. This
call will be available by replay starting at approximately 10:00 a.m.,
Eastern Time, and ending May 18, 2006. To access the audio replay,
please dial (866) 442-1775 (US), or (203) 369-1075 (International), or
by accessing the web site.
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. With over 300 offices in some 80 countries, its global team of
approximately 15,400 associates serves 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 quarter ended March 31, 2006.
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months ended
March 31,
----------------
2005
As
adjusted
2006 (Note 2)
------ --------
Revenues
Commissions and fees $652 $651
Investment income 19 18
------ --------
Total Revenues 671 669
------ --------
Expenses
Salaries and benefits (including share-based
compensation of $3, $4) 348 393
Other operating expenses 105 125
Regulatory settlements - 51
Depreciation expense and amortization of intangible
assets 14 13
------ --------
Total Expenses 467 582
------ --------
Operating Income 204 87
Interest expense, net 9 6
------ --------
Income before Income Taxes, Equity in Net Income of
Associates and Minority Interest 195 81
Income taxes 62 24
------ --------
Income before Equity in Net Income of Associates and
Minority Interest 133 57
Equity in net income of associates, net of tax 14 14
Minority interest, net of tax (7) (4)
------ --------
Net Income $140 $67
====== ========
Earnings per Share
- Basic $0.89 $0.41
- Diluted $0.88 $0.41
====== ========
Average Number of Shares Outstanding
- Basic 157 163
- Diluted 159 165
====== ========
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 total 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 for the three months ended March 31, 2005 were
significantly impacted by charges for regulatory settlements and
related expenses, our first quarter 2005 headcount reduction program
and other provisions. 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. These items did not have a material
effect on the results for the three months ended March 31, 2006.
2. Accounting and reporting changes
We have 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 new
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 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 have increased the expected
long-term rate to 7.75% from 7.25%.
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
total 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 March 31, 2006:
Three months ended
March 31,
-----------------------
%
2006 2005(1) Change
----- ------- --------
Global $308 $326 (6)%
North America 181 162 12%
International 163 163 0%
----- ------- --------
Commissions and fees $652 $651 0%
Investment Income 19 18 6%
----- ------- --------
Total revenues $671 $669 0%
===== ======= ========
Change attributable to
-------------------------------------------------
Foreign Acquisitions Total market Organic
currency and remuneration revenue
translation disposals growth
------------ ------------ ------------- --------
Global (4)% (4)% (1)% 3%
North America 0% 1% 0% 11%
International (9)% 3% (1)% 7%
------------ ------------ ------------- --------
Commissions and fees (4)% (1)% (1)% 6%
Investment Income (7)% (5)% 0% 18%
------------ ------------ ------------- --------
Total revenues (5)% (1)% 0% 6%
============ ============ ============= ========
(1) As described in Note 2, our prior period revenue analysis has been
adjusted to reflect our new internal reporting structure.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
4. Non-GAAP Supplemental Financial Information
Adjusted operating income
Adjusted operating income is defined as operating income excluding
net gain on disposal of operations and, for 2005, charges for
regulatory settlements and related expenses, severance costs relating
to our first quarter 2005 headcount reduction program and other
provisions. Operating income is the most directly comparable GAAP
measure, and the following table reconciles adjusted operating income
to operating income for the three months ended March 31, 2006 and
2005:
Three months ended March 31,
----------------------------
2005
As adjusted %
2006 (Note 2) Change
----- --------- --------
Operating Income, GAAP basis $204 $87 134%
Excluding:
Regulatory settlements (a) - 51
Costs related to regulatory settlements
(a) - 9
Severance costs (b) - 28
Other provision (c) - 20
----- ---------
Adjusted Operating Income $204 $195 5%
===== =========
Operating Margin, GAAP basis, or Operating
Income as a percentage of Total Revenues 30.4% 13.0%
===== =========
Adjusted Operating Margin, GAAP basis, or
Adjusted Operating Income as a percentage
of Total Revenues 30.4% 29.1%
===== =========
a) Comprises $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 $9 million of related legal
and administrative expenses.
b) Severance costs relate to the headcount reduction program
announced in first quarter 2005 which eliminated approximately 500
positions at a cost of $28 million.
c) Based on the quarterly review of legal proceedings at March 31,
2005, the Company increased its provision for claims by an additional
$20 million.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data)
(unaudited)
4. Non-GAAP Supplemental Financial Information (continued)
Adjusted net income
Adjusted net income is defined as net income excluding net gain on
disposal of operations and, for 2005, charges for regulatory
settlements and related expenses, severance costs relating to our
first quarter 2005 headcount reduction program and other provisions.
Net income is the most directly comparable GAAP measure, and the
following table reconciles adjusted net income to net income for the
three months ended March 31, 2006 and 2005:
Three months ended Per diluted share
March 31, Three months ended
March 31,
----------------------- ------------------------
2005 2005
As adjusted % As adjusted %
2006 (Note 2) Change 2006 (Note 2) Change
----- -------- -------- ------ -------- --------
Net income, GAAP
basis $140 $67 109% $0.88 $0.41 115%
Excluding:
Regulatory
settlements, net
of tax ($20) - 31 - 0.19
Costs related to
regulatory
settlements, net of
tax ($4) - 5 - 0.03
Severance costs,
net of tax ($9) - 19 - 0.11
Other provision,
net of tax ($6) 14 - 0.08
----- -------- ------ --------
Adjusted net income $140 $136 3% $0.88 $0.82 7%
===== ======== ====== ========
Diluted shares
outstanding, GAAP
basis 159 165
===== ========
WILLIS GROUP HOLDINGS LIMITED
NON-GAAP FINANCIAL SUPPLEMENT
(in millions, except per share data)
(unaudited)
2005 2006
---------------------------------- ------
Q1 Q2 Q3 Q4 FY Q1
------ ------ ------ ------ ------ ------
Revenues (1)
Global $326 $235 $202 $200 $963 $308
North America 162 182 171 205 720 181
International 163 113 96 139 511 163
------ ------ ------ ------ ------ ------
Commissions and fees 651 530 469 544 2,194 652
Investment income 18 19 18 18 73 19
------ ------ ------ ------ ------ ------
Total Revenues 669 549 487 562 2,267 671
------ ------ ------ ------ ------ ------
Expenses
Salaries and benefits as
previously
reported/computed 386 309 313 348 1,356 351
Adoption of FAS 123R (2) 4 5 4 5 18 3
Pensions: market-related
value methodology (2) 3 2 2 3 10 (6)
------ ------ ------ ------ ------ ------
Salaries and benefits as
adjusted/reported 393 316 319 356 1,384 348
Other operating expenses 125 98 89 93 405 105
Regulatory settlements 51 - - - 51 -
Depreciation expense and
amortization of intangible
assets 13 14 13 14 54 14
Net gain on disposal of
operations - (78) - - (78) -
------ ------ ------ ------ ------ ------
Total Expenses 582 350 421 463 1,816 467
------ ------ ------ ------ ------ ------
Operating Income 87 199 66 99 451 204
Operating Income margin 13.0% 36.2% 13.6% 17.6% 19.9% 30.4%
Interest expense, net 6 6 9 9 30 9
------ ------ ------ ------ ------ ------
Income before Income Taxes,
Equity in Net Income
(Loss) of Associates and
Minority Interest 81 193 57 90 421 195
Income taxes as
previously
reported/computed 26 77 18 31 152 61
Adoption of FAS 123R (1) (2) (1) (2) (6) (1)
Pensions: market-related
value methodology (1) - (1) (1) (3) 2
------ ------ ------ ------ ------ ------
Income taxes as
adjusted/reported 24 75 16 28 143 62
------ ------ ------ ------ ------ ------
Income before Equity in Net
Income (Loss) of
Associates and Minority
Interest 57 118 41 62 278 133
Equity in net income (loss)
of associates, net of tax 14 (2) 5 (3) 14 14
Minority interest, net of tax (4) (2) (1) (4) (11) (7)
------ ------ ------ ------ ------ ------
Net Income $67 $114 $45 $55 $281 $140
====== ====== ====== ====== ====== ======
Earnings per Share
- - Diluted (3) $0.41 $0.70 $0.28 $0.35 $1.72 $0.88
====== ====== ====== ====== ====== ======
Average Number of Shares
Outstanding
- Basic 163 163 160 157 161 157
Diluted as previously
reported 168 166 163 160 164 159
Adoption of FAS 123R (3) (3) (2) (1) (1) (1) -
------ ------ ------ ------ ------ ------
- - Diluted as adjusted/
reported 165 164 162 159 163 159
====== ====== ====== ====== ====== ======
(1) As described in Note 2, our prior period revenue analysis has
been adjusted to reflect our new 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, 212-837-0880
kerry.calaiaro@willis.com
or
Media:
Dan Prince, 212-837-0806
daniel.prince@willis.com