Willis Group Reports Third Quarter 2009 Results
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NEW YORK--(BUSINESS WIRE)-- Willis Group Holdings Limited (NYSE: WSH), the global insurance broker, today reported results for the quarter and nine months ended September 30, 2009.
Highlights of quarter ended September 30, 2009 include:
-- Reported earnings per diluted share from continuing operations of $0.46;
adjusted earnings per diluted share from continuing operations of $0.53
-- 28 percent reported growth in commissions and fees compared with third
quarter of 2008
-- 2 percent organic growth in commissions and fees: Global and
International segments with 4 percent and 3 percent growth,
respectively; North America decline of 3 percent improved from second
quarter of 2009
-- North America segment operating margin expansion of 1,140 basis points
over a year ago
-- Outlook raised to Stable by both Moody's and Standard & Poor's
-- Issued $300 million of senior unsecured notes due 2019 at 7.0 percent;
repurchased $160 million of 5.125 percent senior notes due July 2010
Highlights of the nine months ended September 30, 2009 include:
-- Reported earnings per diluted share from continuing operations of $2.13;
adjusted earnings per diluted share from continuing operations of $2.21
-- 2 percent organic growth in commissions and fees over the comparable
prior year; Global and International segments each with 5 percent growth
-- Reported operating margin of 21.4 percent; adjusted operating margin of
22.1 percent
-- North America segment operating margin expansion of 970 basis points
over prior year
"Willis continues to maintain its growth momentum in spite of the difficult global economy and soft market conditions - and that's a tribute to the strength of our diverse global business," said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings. "We continue to get strong contributions from each segment, despite the marketplace challenges we face, which are especially pronounced in the US, UK and Ireland. We continue to run the company with discipline and foresight, implementing strict cost controls, right sizing for the current environment, and investing in areas that will drive current and future growth."
Third Quarter 2009 Financial Results
Reported net income from continuing operations for the quarter ended September 30, 2009 was $78 million, or $0.46 per diluted share, compared with $36 million, or $0.25 per diluted share, in the same period a year ago. Reported net income for the third quarters of 2009 and 2008 was affected by certain items, including the acquisition of Hilb Rogal & Hobbs Company (HRH).
Excluding certain items, which are reviewed in detail in this release, adjusted earnings per diluted share from continuing operations were $0.53 in the third quarter of 2009 compared with $0.32 in the third quarter of 2008. Foreign currency movements had a negative $0.05 impact on earnings per diluted share in the third quarter of 2009.
Total reported revenues for the quarter ended September 30, 2009 were $725 million compared with $579 million for the same period last year, an increase of 25 percent. This increase was primarily due to the HRH acquisition. Foreign currency movements decreased reported revenues by 2 percent compared with a year ago.
Organic growth in commissions and fees was 2 percent in the third quarter of 2009 compared with the third quarter of 2008. This growth reflected net new business won of 5 percent, offset by a negative 3 percent impact from declining premium rates and other market factors. Continued strong client retention levels and momentum from Shaping our Future growth initiatives, such as Global Placement and Client Profitability, also contributed to organic growth in commissions and fees.
The International business segment contributed 3 percent organic growth in commissions and fees in the third quarter of 2009 compared with the same period in 2008. This growth came from strong new business and continued traction from Shaping our Future growth initiatives, which more than offset the soft rate environment and weakness in the UK and Ireland retail market. Outside of the UK and Ireland, the International business segment had high single-digit growth. There was strong growth across many regions, including Europe and Latin America.
The North America segment reported an improvement from the second quarter of 2009 with a 3 percent decline in organic commissions and fees compared with the third quarter of 2008, reflecting soft insurance market conditions as well as continued weakness in the US economy. North America remains focused on the integration of HRH and ongoing expense management. As a result, its operating margin expanded 1,140 basis points to 21.5 percent in the third quarter of 2009 compared to the prior year.
The Global segment, which comprises the Global Specialties, Faber & Dumas and Reinsurance divisions, recorded 4 percent organic growth in commissions and fees in the third quarter of 2009 compared with the third quarter of 2008. Each division within the Global segment recorded positive growth, led by continued high single-digit growth in reinsurance, together with strong performance in the aerospace, marine and financial and executive risks specialties.
Reported operating margin was 11.3 percent for the quarter ended September 30, 2009 compared with 11.4 percent for the same period last year. Excluding certain items, which are reviewed in detail in this release, adjusted operating margin was 13.1 percent for the quarter ended September 30, 2009 compared with 12.1 percent a year ago. Foreign currency had an unfavorable 150-basis-point impact on adjusted operating margin in the quarter.
Nine Months 2009 Financial Results
Reported net income from continuing operations for the nine months ended September 30, 2009 was $357 million, or $2.13 per diluted share, compared with $241 million, or $1.70 per diluted share, in the same period a year ago. Reported net income for the first nine months of 2009 and 2008 was affected by certain items, including the acquisition of HRH and 2008 expense review charges for severance and other costs.
Excluding certain items, which are reviewed in detail in this release, adjusted earnings per diluted share from continuing operations were $2.21 for the nine months ended September 30, 2009 compared with $2.24 in the comparable period of 2008, a decrease of 1 percent. Foreign currency movements reduced earnings per diluted share by $0.14 for the nine months ended September 30, 2009.
Total reported revenues for the nine months ended September 30, 2009 were $2,439 million compared with $2,035 million for the same period last year, an increase of 20 percent. The increase was primarily due to the HRH acquisition, while the effect of foreign currency translation decreased reported revenues by 6 percent.
Organic growth in commissions and fees was 2 percent in the first nine months of 2009 compared with the comparable period of 2008. This growth reflected net new business won of 5 percent, offset by a negative 3 percent impact from declining premium rates and other market factors.
Reported operating margin was 21.4 percent for the nine months ended September 30, 2009 compared with 18.1 percent for the same period last year. Excluding certain items, which are reviewed in detail in this release, adjusted operating margin was 22.1 percent for the first nine months of 2009 compared with 22.9 percent a year ago.
Tax
The reported income tax credit for the quarter ended September 30, 2009 was $29 million compared to $2 million income tax expense for the comparable period a year ago.
The third quarter 2009 tax credit included a provision of $27 million which had been recorded related to tax that would potentially be payable should the unremitted earnings of our foreign subsidiaries be repatriated. Following a change in UK tax law effective in the third quarter of 2009, these earnings could now be repatriated without additional tax cost and, consequently, the provision has been released. In addition, as in prior years, an $11 million credit has been recognized in the third quarter of 2009, compared with a $5 million credit in the year ago quarter, further to the closure of the statute of limitations on assessments relating to previously unrecognized tax benefits.
The effective underlying tax rate for the quarter and nine months ended September 30, 2009 was approximately 26 percent, the same as the 2008 full-year rate.
Discontinued Operations
Income from discontinued operations, net of tax, was $1 million, or $0.01 per diluted share, in the third quarter of 2009 and $2 million, or $0.01 per diluted share, for the nine months ended September 30, 2009, relating to disposals of Bliss & Glennon and Managing Agency Group, the Company's US-based wholesale insurance operations. No net gain or loss was recognized relating to either transaction.
Capital
The Board of Directors declared a regular quarterly cash dividend on the Company's common stock of $0.26 per share, or an annual rate of $1.04 per share. The dividend is payable on January 15, 2010 to shareholders of record on December 30, 2009.
As of September 30, 2009, cash and cash equivalents totaled $203 million and total debt was $2.6 billion. The Company issued $300 million of senior notes due 2019 at 7.0 percent, and repurchased $160 million of its 5.125 percent Senior Notes due July 2010 at a premium of $27.50 per $1,000 face value.
Total stockholders' equity as at September 30, 2009 was $2.2 billion.
Gras Savoye
In June 2009, the Company announced that it was in discussions regarding the potential sale of a portion of its interest in Gras Savoye. Since that time, the Company and other Gras Savoye shareholders have entered into an exclusive arrangement with Astorg Partners, a private equity fund, but as of the date hereof, we have not entered into any definitive sale agreement. Pending the finalization of the financing terms, we anticipate executing definitive agreements in the next few months. We would expect: (i) elimination of the put presently exercisable by the Gras Savoye shareholders; (ii) receipt of cash proceeds between $100-$150 million, and (iii) retention of a 33 percent interest following the sale as well as the ability to acquire a majority interest in Gras Savoye in 2015. As a result of the significant uncertainties underlying these forward-looking statements, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.
Conclusion
"I am proud of what we've been able to accomplish this quarter and over the first nine months of 2009. This is a strong, diverse business that is able to perform well even under the worst global economic conditions," Plumeri said. "As always, we are rigorous about our expenses and keeping our company at the right size for the current environment. Importantly, we remain ahead of plan on achieving HRH integration synergies, and we continue to invest in Shaping our Future. Accelerating growth remains our number one priority."
Conference Call and Web Cast
A conference call to discuss the third quarter 2009 results will be held on Tuesday, October 27, 2009, at 8:00 AM Eastern Time. To participate in the live teleconference, please dial (866) 803-2143 (domestic) or +1 (210) 795-1098 (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 AM Eastern Time, through November 27, 2009 at 11:59 PM Eastern Time, by calling (877) 611-5293 (domestic) or +1 (203) 369-4862 (international) with no pass code, 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. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 20,000 Associates serving clients in approximately 190 countries. Additional information on Willis may be found at www.willis.com.
Forward-Looking Statements
We have included in this document ''forward-looking statements'' within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our redomestication from Bermuda to Ireland, the potential benefits of the HRH acquisition, discussions concerning the sale of a portion of our interest in Gras Savoye, our outlook, future capital expenditures, growth in commissions and fees, business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes are forward-looking statements. Also, when we use the words such as ''anticipate'', ''believe'', ''estimate'', ''expect'', ''intend'', ''plan'', ''probably'', or similar expressions, we are making forward-looking statements.
There are important uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including the following:
-- the impact of any regional, national or global political, economic,
business, competitive, market and regulatory conditions on our global
business operations;
-- the impact of current financial market conditions and the current credit
crisis on our results of operations and financial condition, including
as a result of any insolvencies of or other difficulties experienced by
our clients, insurance companies or financial institutions;
-- our ability to achieve the expected cost savings, synergies and other
strategic benefits as a result of the HRH acquisition and how the
integration of HRH may affect the timing of such cost savings, synergies
and benefits;
-- our ability to continue to manage our significant indebtedness;
-- our ability to implement and realize anticipated benefits of the Shaping
our Future initiative and any other new initiatives;
-- material changes in commercial property and casualty markets generally
or the availability of insurance products or changes in premiums
resulting from a catastrophic event, such as a hurricane, or otherwise;
-- the volatility or declines in other insurance markets and premiums on
which our commissions are based, but which we do not control;
-- our ability to compete effectively in our industry;
-- our ability to retain key employees and clients and attract new
business;
-- the timing or ability to carry out share repurchases or take other steps
to manage our capital and the limitations in our long-term debt
agreements that may restrict our ability to take these actions;
-- any fluctuations in exchange and interest rates that could affect
expenses and revenue;
-- rating agency actions that could inhibit ability to borrow funds or the
pricing thereof;
-- a significant decline in the value of investments that fund our pension
plans or changes in our pension plan funding obligations;
-- the timing of any exercise of put and call arrangements with associated
companies;
-- changes in the tax or accounting treatment of our operations, such as
the recent proposals made by the Obama administration regarding
international tax reform;
-- the potential costs and difficulties in complying with a wide variety of
foreign laws and regulations and any related changes, given the global
scope of our operations;
-- our involvements in and the results of any regulatory investigations,
legal proceedings and other contingencies;
-- our exposure to potential liabilities arising from errors and omissions
and other potential claims against us; and
-- the interruption or loss of our information processing systems or
failure to maintain secure information systems.
The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results. For additional factors see the section entitled ''Risk Factors'' included in Willis' Form 10-K for the year ended December 31, 2008, and our subsequent filings with the Securities and Exchange Commission. Copies are available online at http://www.sec.gov or on request from the Company as set forth in Part I, Item 1 "Business-Available Information" in Willis' Form 10-K.
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 unduly relying on these forward-looking statements.
This press release contains 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 is in the note disclosures that follow. 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 income statements for the three and nine months ended September 30, 2009 and balance sheet as at that date.
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in millions, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
Revenues
Commissions and fees $ 714 $ 556 $ 2,401 $ 1,969
Investment income 10 22 35 64
Other income 1 1 3 2
Total Revenues 725 579 2,439 2,035
Expenses
Salaries and benefits 449 359 1,372 1,198
Other operating expenses 151 131 428 421
Depreciation expense 15 14 43 41
Amortization of intangible assets 29 6 76 12
Net gain on disposal of London - - - (8 )
headquarters
Net (gain)/loss on disposal of (1 ) 3 (1 ) 3
operations
Total Expenses 643 513 1,918 1,667
Operating Income 82 66 521 368
Interest expense 47 32 128 69
Income from Continuing Operations
before Income Taxes and Interest in 35 34 393 299
Earnings of Associates
Income taxes (credit)/charge (29 ) 2 64 74
Income from Continuing Operations
before Interest in Earnings of 64 32 329 225
Associates
Interest in earnings of associates, 16 6 42 29
net of tax
Income from Continuing Operations 80 38 371 254
Discontinued Operations, net of tax 1 - 2 -
Net Income $ 81 $ 38 $ 373 $ 254
Net income attributable to (2 ) (2 ) (14 ) (13 )
noncontrolling interests
Net income attributable to Willis $ 79 $ 36 $ 359 $ 241
Group Holdings Limited
Amounts attributable to Willis Group
Holdings Limited common shareholders
Income from Continuing Operations, net $ 78 $ 36 $ 357 $ 241
of tax
Income from Discontinued Operations, 1 - 2 -
net of tax
Net Income $ 79 $ 36 $ 359 $ 241
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED INCOME STATEMENTS (Continued)
(in millions, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
Earnings per share - Basic and Diluted
Basic Earnings per Share:
Continuing Operations $ 0.46 $ 0.25 $ 2.13 $ 1.70
Discontinued Operations 0.01 - 0.01 -
Net Income attributable to Willis Group
Holdings Limited common shareholders $ 0.47 $ 0.25 $ 2.14 $ 1.70
Limited common shareholders
Diluted Earnings per Share:
Continuing Operations $ 0.46 $ 0.25 $ 2.13 $ 1.70
Discontinued Operations 0.01 - 0.01 -
Net Income attributable to Willis Group $ 0.47 $ 0.25 $ 2.14 $ 1.70
Holdings Limited common shareholders
Average Number of Shares Outstanding
- Basic 168 142 168 142
- Diluted 169 142 168 142
Shares outstanding at September 30 168 142 168 142
WILLIS GROUP HOLDINGS LIMITED
SUMMARY DRAFT BALANCE SHEETS
(in millions) (unaudited)
September 30, December 31,
2009 2008
Assets
Cash & cash equivalents $ 203 $ 176
Fiduciary funds--restricted 1,815 1,854
Short-term investments - 20
Accounts receivable, net 8,980 9,131
Fixed assets, net 353 312
Goodwill and intangibles, net 3,886 3,957
Investments in associates 308 273
Deferred tax assets 8 76
Pension benefits asset 148 111
Other assets 674 492
Total Assets $ 16,375 $ 16,402
Liabilities and Stockholders' Equity
Accounts payable $ 10,152 $ 10,314
Deferred revenue and accrued expenses 305 471
Deferred tax liabilities 1 21
Income taxes payable 25 18
Short-term debt 141 785
Long-term debt 2,465 1,865
Liability for pension benefits 222 237
Other liabilities 863 796
Total Liabilities $ 14,174 $ 14,507
Equity attributable to Willis Group Holdings 2,155 1,845
Limited
Noncontrolling interests 46 50
Total Stockholders' Equity 2,201 1,895
Total Liabilities and Stockholders' Equity $ 16,375 $ 16,402
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 commissions and fees growth Organic commissions and fees growth excludes the impact of foreign currency translation and acquisitions and disposals from reported commissions and fees. We use organic commissions and fees 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 impacted by the accelerated amortization of intangible assets, a premium on the early redemption of 2010 bonds, charges related to the 2008 expense review and costs associated with the acquisition of HRH, together with net gains/losses on disposal of operations. 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. Analysis of Commissions and Fees Organic growth in commissions and fees is defined as growth in commissions and fees excluding the impact of foreign currency translation and acquisitions and disposals. The percentage change in reported commissions and fees is the most directly comparable GAAP measure, and the following tables reconcile this change to organic growth in commissions and fees by business unit for the three and nine months ended September 30, 2009:
Three months ended
Change attributable to
September 30,
Foreign Acquisitions Organic
% currency and commissions
2009 2008 Change translation disposals and fees
growth(a)
Global $ 175 $ 159 10% 0% 6% 4%
North America 320 175 83% 0% 86% (3)%
International 219 222 (1)% (5)% 1% 3%
Commissions $ 714 $ 556 28% (3)% 29% 2%
and fees
Nine months ended Change attributable to
September 30,
% Foreign Acquisitions Organic
currency and commissions
2009 2008 Change translation disposals and fees
growth(a)
Global $ 657 $ 627 5% (5)% 5% 5%
North America 1,023 559 83% 0% 88% (5)%
International 721 783 (8)% (14)% 1% 5%
Commissions $ 2,401 $ 1,969 22% (7)% 27% 2%
and fees
_______________
From fourth quarter 2008, we have changed our methodology for the
calculation of organic growth in commissions and fees. Previously, organic
(a) growth included growth from acquisitions from the date of acquisition. Under
the new method, the first twelve months of commissions and fees generated
from acquisitions are excluded from organic growth in commissions and fees.
WILLIS GROUP HOLDINGS LIMITED SUPPLEMENTAL FINANCIAL INFORMATION (in millions) (unaudited) 3. 2008 Expense Review In 2008, we conducted a thorough review of all businesses to identify additional opportunities to rationalize the expense base. Consequently, we incurred a pre-tax charge of $nil in the third quarter of 2008 and $95 million ($68 million or $0.47 per diluted share after tax) in the first nine months of 2008 for severance and other costs as analyzed in the following table:
Three months Nine months
ended ended
September 30, September 30,
2008 2008
Pre-tax
Pre-tax
Salaries and benefits - severance (a) $- $24
Salaries and benefits - other (b) - 42
Other operating expenses (primarily relating to - 29
property and systems rationalization)
$- $95
Severance costs relate to approximately 350 positions through the nine months a) ended September 30, 2008, which were eliminated in 2008. None of these costs were incurred in third quarter 2008. b) Other salaries and benefits costs relate primarily to contract buyouts.
WILLIS GROUP HOLDINGS LIMITED SUPPLEMENTAL FINANCIAL INFORMATION (in millions, except per share data) (unaudited) 4. Adjusted Operating Income Adjusted operating income is defined as operating income excluding the accelerated amortization of intangible assets, integration costs associated with the acquisition of HRH, charges related to the 2008 expense review and net gains/losses on disposals. Operating income is the most directly comparable GAAP measure, and the following table reconciles adjusted operating income to operating income for the three and nine months ended September 30, 2009 and 2008:
Three months ended
September 30,
2009 2008 %
Change
Operating Income, GAAP basis $ 82 $ 66 24%
Excluding:
HRH integration costs 7 1
Net (gain)/loss on disposal of operations (1) 3
Accelerated amortization of intangible assets (a) 7 -
Adjusted Operating Income $ 95 $ 70 36%
Operating Margin, GAAP basis, or Operating Income as a 11.3% 11.4%
percentage of Total Revenues
Adjusted Operating Margin, or Adjusted Operating Income 13.1% 12.1%
as a percentage of Total Revenues
Nine months ended
September 30,
2009 2008 %
Change
Operating Income, GAAP basis $ 521 $ 368 42%
Excluding:
HRH integration costs 11 1
Net (gain)/loss on disposal of operations (1) 3
Salaries and benefits - severance costs (b) - 24
Salaries and benefits - other (c) - 42
Accelerated amortization of intangible assets (a) 7 -
Other operating expenses (primarily relating to property - 29
and systems rationalization)
Adjusted Operating Income $ 538 $ 467 15%
Operating Margin, GAAP basis, or Operating Income as a 21.4% 18.1%
percentage of Total Revenues
Adjusted Operating Margin, or Adjusted Operating Income 22.1% 22.9%
as a percentage of Total Revenues
The $7 million charge for the accelerated amortization of intangibles
relates to the HRH brand name. Following the successful integration of HRH
into our North America operations, we announced on October 1, 2009 that our
a) North America retail operations would change their operating name from
Willis HRH to Willis North America. Consequently, the intangible asset
recognized on the acquisition of HRH relating to the HRH brand has been
fully amortized.
Severance costs excluded from adjusted operating income in 2008 relate to
approximately 350 positions through the nine months ended September 30, 2008
that were eliminated as part of the 2008 expense review. None of these costs
b) were incurred in third quarter 2008. Severance costs also arise in the
normal course of business and these charges (pre-tax) amounted to $2 million
in the third quarter 2009 ($1 million in third quarter 2008). These costs
amounted to $20 million and $2 million for the nine months ended September
30, 2009 and 2008, respectively.
c) Other 2008 expense review salaries and benefits costs relate primarily to
contract buyouts.
WILLIS GROUP HOLDINGS LIMITED SUPPLEMENTAL FINANCIAL INFORMATION (in millions, except per share data) (unaudited) 5. Adjusted Net Income Adjusted net income is defined as net income from continuing operations excluding financing and integration costs associated with the acquisition of HRH, accelerated amortization of intangible assets, premium on redemption of 2010 bonds, charges related to the 2008 expense review and net gains/losses on disposals. Net income from continuing operations is the most directly comparable GAAP measure, and the following table reconciles adjusted net income from continuing operations to net income from continuing operations for the three and nine months ended September 30, 2009 and 2008:
Three months ended Per diluted share
September 30, Three months ended September 30,
2009 2008 % 2009 2008 %
Change Change
Net Income from
Continuing Operations, $ 78 $ 36 117% $ 0.46 $ 0.25 84%
GAAP basis
Excluding:
HRH financing and
integration costs, net 5 7 0.04 0.05
of tax ($2),($3)
Net (gain)/loss on
disposal of operations, (1) 2 (0.01) 0.02
net of tax ($nil),($1)
Accelerated amortization
of intangible assets, 4 - 0.02 -
net of tax ($3), ($nil)
(a)
Premium on early
redemption of 2010 4 - 0.02 -
bonds, net of tax ($1),
($nil) (b)
Adjusted Net Income from $ 90 $ 45 100% $ 0.53 $ 0.32 66%
Continuing Operations
Diluted shares 169 142
outstanding, GAAP basis
The $7 million pre-tax charge for the accelerated amortization of intangibles relates to the HRH brand name. Following the successful integration of HRH a) into our North America operations, we announced on October 1, 2009 that our North America retail operations would change their operating name from Willis HRH to Willis North America. Consequently, the intangible asset recognized on the acquisition of HRH relating to the HRH brand has been fully amortized. On September 29, 2009 we repurchased $160 million of our 5.125% Senior Notes b) due July 2010 at a premium of $27.50 per $1,000 face value, resulting in a total pre-tax premium on redemption, including fees, of $5 million.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
5. Adjusted Net Income (continued)
Nine months ended Per diluted share
September 30, Nine months ended September 30,
2009 2008 % 2009 2008 %
Change Change
Net Income from
Continuing Operations, $ 357 $ 241 48% $2.13 $1.70 25%
GAAP basis
Excluding:
HRH financing and
integration costs, net of 8 7 0.05 0.05
tax ($3),($3)
Net (gain)/loss on
disposal of operations, (1) 2 (0.01) 0.02
net of tax ($nil),($1)
Salaries and benefits -
severance, net of tax - 17 - 0.12
($nil),($7) (c)
Salaries and benefits -
other, net of tax ($nil), - 30 - 0.21
($12) (d)
Accelerated amortization
of intangible assets, net 4 - 0.02 -
of tax ($3),($nil) (a)
Other operating expenses
(primarily relating to
property and systems - 21 - 0.14
rationalization), net of
tax ($nil),($8)
Premium on early
redemption of 2010 bonds, 4 - 0.02 -
net of tax ($1),($nil)
(b)
Adjusted Net Income from $ 372 $ 318 17% $2.21 $2.24 (1)%
Continuing Operations
Diluted shares 168 142
outstanding, GAAP basis
The $7 million pre-tax charge for the accelerated amortization of intangibles relates to the HRH brand name. Following the successful integration of HRH a) into our North America operations, we announced on October 1, 2009 that our North America retail operations would change their operating name from Willis HRH to Willis North America. Consequently, the intangible asset recognized on the acquisition of HRH relating to the HRH brand has been fully amortized. On September 29, 2009 we repurchased $160 million of our 5.125% Senior Notes b) due July 2010 at a premium of $27.50 per $1,000 face value, resulting in a total pre-tax premium on redemption, including fees, of $5 million. Severance costs excluded from adjusted operating income in 2008 relate to approximately 350 positions through the nine months ended September 30, 2008 that were eliminated as part of the 2008 expense review. None of these costs c) were incurred in third quarter 2008. Severance costs also arise in the normal course of business and these charges (pre-tax) amounted to $20 million in the nine months ended September 30, 2009 related to approximately [357] positions ($2 million in the nine months ended September 30, 2008). d) Other salaries and benefits costs relate primarily to contract buyouts.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data) (unaudited)
2008 2009
Q1 Q2 Q3 Q3 Q4 FY Q1 Q2 Q3 Q3
YTD YTD
Revenues
Commissions $ 772 $ 641 $ 556 $ 1,969 $ 782 $ 2,751 $ 915 $ 772 $ 714 $ 2,401
and fees
Investment 22 20 22 64 17 81 13 12 10 35
income
Other income 1 -- 1 2 -- 2 2 -- 1 3
Total Revenues 795 661 579 2,035 799 2,834 930 784 725 2,439
Expenses
Salaries and 411 428 359 1,198 444 1,642 480 443 449 1,372
benefits
Other
operating 149 141 131 421 184 605 138 139 151 428
expenses
Depreciation 13 14 14 41 13 54 14 14 15 43
expense
Amortization
of intangible 3 3 6 12 24 36 24 23 29 76
assets
Net
(gain)/loss on
disposal of (6 ) (2 ) -- (8 ) 1 (7 ) -- -- -- --
London
headquarters
Net loss/
(gain) on -- -- 3 3 (3 ) -- -- -- (1 ) (1 )
disposal of
operations
Total Expenses 570 584 513 1,667 663 2,330 656 619 643 1,918
Operating 225 77 66 368 136 504 274 165 82 521
Income
Interest 16 21 32 69 36 105 38 43 47 128
expense
(209 ) (56 ) (34 ) (100 ) (399 ) (236 ) (122 ) (35 ) (393 )
Income from
Continuing
Operations
before Income 209 56 34 299 100 399 236 122 (35 ) (393 )
Taxes and
Interest in
Earnings of
Associates
Income taxes
charge/ 60 12 2 74 23 97 62 31 (29 ) 64
(credit)
(149 ) (44 ) (32 ) (77 ) (302 ) (174 ) (91 )
Income from
Continuing
Operations
before 149 44 32 225 77 302 174 91 64 329
Interest in
Earnings of
Associates
Interest in
earnings of 26 (3 ) 6 29 (7 ) 22 26 -- 16 42
associates,
net of tax
Income from
Continuing 175 41 38 254 70 324 200 91 80 371
Operations
Discontinued
operations, -- -- -- -- -- -- 1 -- 1 2
net of tax
Net Income 175 41 38 254 70 324 201 91 81 373
Net income
attributable
to (9 ) (2 ) (2 ) (13 ) (8 ) (21 ) (8 ) (4 ) (2 ) (14 )
noncontrolling
interests
Net income
attributable
to Willis $ 166 $ 39 $ 36 $ 241 $ 62 $ 303 $ 193 $ 87 $ 79 $ 359
Group Holdings
Limited
Diluted
Earnings per
Share
- Continuing $ 1.16 $ 0.27 $ 0.25 $ 1.70 $ 0.37 $ 2.05 $ 1.15 $ 0.52 $ 0.46 $ 2.13
Operations
- Discontinued -- -- -- -- -- -- 0.01 -- 0.01 0.01
Operations
Net Income
attributable
to Willis $ 1.16 $ 0.27 $ 0.25 $ 1.70 $ 0.37 $ 2.05 $ 1.16 $ 0.52 $ 0.47 $ 2.14
Group Holdings
Limited common
shareholders
Average Number
of Shares
Outstanding
- Diluted 143 142 142 142 167 148 167 168 169 168
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data) (unaudited)
2008 2009
Q1 Q2 Q3 Q3 Q4 FY Q1 Q2 Q3 Q3
YTD YTD
Commissions
and Fees
Global $ 277 $ 191 $ 159 $ 627 $ 157 $ 784 $ 275 $ 207 $ 175 $ 657
North America 191 193 175 559 353 912 371 332 320 1,023
International 304 257 222 783 272 1,055 269 233 219 721
Total
Commissions $ 772 $ 641 $ 556 $ 1,969 $ 782 $ 2,751 $ 915 $ 772 $ 714 $ 2,401
and Fees
Total
Revenues
Global $ 285 $ 199 $ 167 $ 651 $ 163 $ 814 $ 278 $ 209 $ 176 $ 663
North America 196 197 179 572 357 929 377 336 325 1,038
International 314 265 233 812 279 1,091 275 239 224 738
Total Revenue $ 795 $ 661 $ 579 $ 2,035 $ 799 $ 2,834 $ 930 $ 784 $ 725 $ 2,439
Operating
Income(c)
Global $ 132 $ 60 $ 29 $ 221 $ 19 $ 240 $ 127 $ 74 $ 33 $ 234
North America 27 31 18 76 67 143 94 75 70 239
International 104 57 38 199 107 306 96 55 30 181
Corporate and (38 ) (71 ) (19 ) (128 ) (57 ) (185 ) (43 ) (39 ) (51 ) (133 )
Other (a) (b)
Total
Operating $ 225 $ 77 $ 66 $ 368 $ 136 $ 504 $ 274 $ 165 $ 82 $ 521
Income
Organic
Commissions
and Fees
Growth
Global 2 % 0 % (2 )% 0 % 9 % 2 % 5 % 7 % 4 % 5 %
North America 3 % (1 )% (2 )% 0 % (4 )% (1 )% (5 )% (8 )% (3 )% (5 )%
International 5 % 10 % 10 % 8 % 11 % 9 % 5 % 5 % 3 % 5 %
Total Organic
Commissions 3 % 3 % 2 % 3 % 6 % 4 % 2 % 1 % 2 % 2 %
and fees
Growth
Operating
Margin(c)
Global 46.3 % 30.2 % 17.4 % 33.9 % 11.7 % 29.5 % 45.7 % 35.4 % 18.8 % 35.3 %
North America 13.8 % 15.7 % 10.1 % 13.3 % 18.8 % 15.4 % 24.9 % 22.3 % 21.5 % 23.0 %
International 33.1 % 21.5 % 16.3 % 24.5 % 38.4 % 28.0 % 34.9 % 23.0 % 13.4 % 24.5 %
Total
Operating 28.3 % 11.6 % 11.4 % 18.1 % 17.0 % 17.8 % 29.5 % 21.0 % 11.3 % 21.4 %
Margin
Corporate and Other includes the costs of the holding company, foreign
exchange hedging activities and foreign exchange on the UK pension plan
(a) asset, amortization of intangible assets, net gains and losses on disposal
of operations, certain legal costs, integration costs associated with the
acquisition of HRH and 2008 expense review costs.
The Company does not hold business segment management accountable for
managing foreign exchange exposure on the retranslation of the UK pension
plan asset. Historically, a relatively stable exchange rate environment had
led to foreign exchange on the UK pension plan asset having no material
(b) impact on segment operating income and margin. However, following
significant exchange rate movements in 2008, the Company decided that,
effective October 1, 2008, foreign exchange on the UK pension plan asset
would be excluded from segment operating income and reported within
Corporate and Other.
(c) Prior periods restated to conform to current period presentation.
Source: Willis Group Holdings Limited
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