- Total revenue1 increased 13% to
$2.69 billion for the quarter and 6% to$9.04 billion for the year
- Organic revenue growth of 6% for the quarter and 5% for the year
- Income from Operations was
$687 million or 25.5% of revenue for the quarter, up 570 basis points over prior year
- Income from Operations was
$1.33 billion or 14.7% of revenue for the year, up 520 basis points over prior year
- Adjusted Operating Income was
$809 million or 30.1% of revenue for the quarter, up 270 basis points over prior year
- Adjusted Operating Income was
$1.83 billion or 20.3% of revenue for the year, up 220 basis points over prior year
- Cash flows from operating activities were
$1.1 billion for the year and Free Cash Flow was$835 million for the year
____________
1 The revenue amounts included in this release are presented on a U.S. GAAP basis except where stated otherwise. The segment discussion is on an organic basis.
“For the year,
Company Highlights
Revenue was
For the year ended
Net income attributable to
For the year ended
Net income for the fourth quarter of 2019 was
For the year ended
Operating income margin improved by 570 basis points to 25.5% from 19.8% for the prior-year fourth quarter. Adjusted operating income margin improved by 270 basis points to 30.1% from 27.4% in the prior-year fourth quarter.
For the year ended
Cash flows from operating activities for the year ended December 31, 2019 were
Segment Highlights
Corporate Risk & Broking
The Corporate Risk & Broking (CRB) segment had revenue of
Investment, Risk & Reinsurance
The Investment, Risk & Reinsurance (IRR) segment had revenue of
Benefits Delivery & Administration
The Benefits Delivery & Administration (BDA) segment had revenue of
Conference Call
The Company will host a live webcast and conference call to discuss the financial results for the fourth quarter and full year of 2019. It will be held on
About
Select Questions and Answers
Q1: Why was your free cash flow below your guidance?
Our efforts to transform the contract-to-cash process across all of our businesses have proven more challenging than we had originally anticipated. We have defined and focused plans on improving this going forward. The year-over-year decline in free cash flow is primarily due to higher cash payments of approximately
Q2: What was the impact of foreign currency movements for the fourth quarter and on a full year basis?
For the quarter ended
Q3. What was the impact to the Health and Benefits’ business line’s revenue growth this quarter and for the full year 2019 related to the recovery of revenue not recognized last year with the new revenue standard adoption (ASC 606) in 2018?
The Health and Benefits (H&B) business recorded
Q4. How do you see Brexit impacting the Company?
Q5. What was the impact of the Company’s adoption of the new lease accounting standard (ASC 842, Leases)?
ASC 842 became effective, and was adopted by the Company, on
Q6: How should we think about the impact of currency for 2020?
Assuming foreign exchange rates remain at current levels, we expect a modest negative impact of about
Willis Towers Watson Non-GAAP Measures
In order to assist readers of our consolidated financial statements in understanding the core operating results that Willis Towers Watson’s management uses to evaluate the business and for financial planning, we present the following non-GAAP measures: (1) Constant Currency Change, (2) Organic Change, (3) Adjusted Operating Income/Margin, (4) Adjusted EBITDA/Margin, (5) Adjusted Net Income, (6) Adjusted Diluted Earnings Per Share, (7) Adjusted Income Before Taxes, (8) Adjusted Income Taxes/Tax Rate and (9) Free Cash Flow.
The Company believes that these measures are relevant and provide useful information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating performance, and in the case of free cash flow, our liquidity results.
Within these measures referred to as ‘adjusted’, we adjust for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. Some of these items may not be applicable for the current quarter, however they are expected to be part of our full-year results. These items include the following:
- Transaction and integration expenses - Management believes it is appropriate to adjust for transaction and integration expenses when they relate to a specific significant program with a defined set of activities and costs that are not expected to continue beyond a defined period of time, or significant acquisition-related transaction expenses. We believe the adjustment is necessary to present how the Company is performing, both now and in the future when the incurrence of these costs will have concluded.
- Gains and losses on disposals of operations - Adjustment to remove the gain or loss resulting from disposed operations.
- Pension settlement and curtailment gains and losses - Adjustment to remove significant pension settlement and curtailment gains and losses to better present how the Company is performing.
- Provisions for significant litigation - We will include provisions for litigation matters which we believe are not representative of our core business operations.
- Tax effects of internal reorganization - Relates to the U.S. income tax expense resulting from the completion of internal reorganizations of the ownership of certain businesses that reduced the investments held by our U.S.-controlled subsidiaries.
We evaluate our revenue on an as reported (U.S. GAAP), constant currency and organic basis. We believe presenting constant currency and organic information provides valuable supplemental information regarding our comparable results, consistent with how we evaluate our performance internally.
Constant Currency Change – represents the year-over-year change in revenue excluding the impact of foreign currency fluctuations. To calculate this impact, the prior year local currency results are first translated using the current year monthly average exchange rates. The change is calculated by comparing the prior year revenue, translated at the current year monthly average exchange rates, to the current year as reported revenue, for the same period. We believe constant currency measures provide useful information to investors because they provide transparency to performance by excluding the effects that foreign currency exchange rate fluctuations have on period-over-period comparability given volatility in foreign currency exchange markets.
Organic Change – excludes the impact of fluctuations in foreign currency exchange rates, as described above and the period-over-period impact of acquisitions and divestitures on current-year revenue. We believe that excluding transaction-related items from our U.S. GAAP financial measures provides useful supplemental information to our investors, and it is important in illustrating what our core operating results would have been had we not included these transaction-related items, since the nature, size and number of these translation-related items can vary from period to period.
Adjusted Operating Income/Margin – Income from Operations adjusted for amortization, transaction and integration expenses and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted Operating Income Margin is calculated by dividing adjusted operating income by revenue. We consider adjusted operating income/margin to be important financial measures, which are used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.
Adjusted EBITDA/Margin – Net Income adjusted for provision for income taxes, interest expense, depreciation and amortization, transaction and integration expenses, (gain)/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted EBITDA Margin is calculated by dividing adjusted EBITDA by revenue. We consider adjusted EBITDA/margin to be important financial measures, which are used to internally evaluate and assess our core operations, to benchmark our operating results against our competitors and to evaluate and measure our performance-based compensation plans.
Adjusted Net Income – Net Income Attributable to
Adjusted Diluted Earnings Per Share – Adjusted Net Income divided by the weighted-average number of shares of common stock, diluted. Adjusted diluted earnings per share is used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.
Adjusted Income Before Taxes – Income from operations before income taxes adjusted for amortization, transaction and integration expenses, (gain)/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted income before taxes is used solely for the purpose of calculating the adjusted income tax rate.
Adjusted Income Taxes/Tax Rate – Provision for income taxes adjusted for taxes on certain items of amortization, transaction and integration expenses, (gain)/loss on disposal of operations, the tax effects of internal reorganizations, and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results, divided by adjusted income before taxes. Adjusted income taxes is used solely for the purpose of calculating the adjusted income tax rate. Management believes that the adjusted income tax rate presents a rate that is more closely aligned to the rate that we would incur if not for the reduction of pre-tax income for the adjusted items and the tax effects of our internal reorganizations, which are not core to our current and future operations.
Free Cash Flow – Cash flows from operating activities less cash used to purchase fixed assets and software for internal use. Free Cash Flow is a liquidity measure and is not meant to represent residual cash flow available for discretionary expenditures. Management believes that free cash flow presents the core operating performance and cash generating capabilities of our business operations.
These non-GAAP measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP measures should be considered in addition to, and not as a substitute for, the information contained within our condensed consolidated financial statements.
Reconciliations of these measures are included in the accompanying tables with the following exception.
The Company does not reconcile its forward looking non-GAAP financial measures to the corresponding U.S. GAAP measures, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible; and because not all of the information, such as foreign currency impacts necessary for a quantitative reconciliation of these forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure, is available to the Company without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The Company provides non-GAAP financial measures that it believes will be achieved, however it cannot accurately predict all of the components of the adjusted calculations and the U.S. GAAP measures may be materially different than the non-GAAP measures.
Willis Towers Watson Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements and other forward-looking statements in this document by words such as “may”, “will”, “would”, “expect”, “anticipate”, “believe”, “estimate”, “plan”, “intend”, “continue”, or similar words, expressions or the negative of such terms or other comparable terminology. These statements include, but are not limited to, such things as our outlook, future capital expenditures, ongoing working capital efforts, future share repurchases, growth in revenue, the impact of changes to tax laws on our financial results, business strategies and planned acquisitions (including the acquisition of TRANZACT and our proposed acquisition of
There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained herein, including the following: the ability of the company to successfully establish, execute and achieve its global business strategy as it evolves; changes in demand for our services, including any decline in consulting services, defined benefit pension plans or the purchasing of insurance; changes in general economic, business and political conditions, including changes in the financial markets; significant competition that the company faces and the potential for loss of market share and/or profitability; the impact of seasonality and differences in timing of renewals; failure to protect client data or breaches of information systems or insufficient safeguards against cybersecurity breaches or incidents; the risk of increased liability or new legal claims arising from our new and existing products and services, and expectations, intentions and outcomes relating to outstanding litigation; the risk the
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.
Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against relying on these forward-looking statements.
Contact
INVESTORS
Investor Relations | +1 215 246 3961 | Investor_Relations@willistowerswatson.com
Supplemental Segment Information
(In millions of U.S. dollars)
(Unaudited)
| REVENUE | ||||||||||||||||||
| Components of Revenue Change(i) | ||||||||||||||||||
| Three Months Ended December 31, |
As Reported | Currency | Constant Currency |
Acquisitions/ | Organic | |||||||||||||
| 2019 | 2018 | % Change | Impact | Change | Divestitures | Change | ||||||||||||
| Human Capital & Benefits | $ | 865 | $ | 843 | 3% | (1)% | 4% | 0% | 4% | |||||||||
| Corporate Risk & Broking | 877 | 816 | 7% | (2)% | 9% | 0% | 9% | |||||||||||
| Investment, Risk & Reinsurance | 314 | 280 | 12% | (1)% | 14% | 2% | 12% | |||||||||||
| Benefits Delivery & Administration | 595 | 390 | 53% | 0% | 53% | 50% | 3% | |||||||||||
| Segment Revenue | 2,651 | 2,329 | 14% | (1)% | 15% | 9% | 6% | |||||||||||
| Reimbursable expenses and other | 39 | 43 | ||||||||||||||||
| Revenue | $ | 2,690 | $ | 2,372 | 13% | (1)% | 14% | 8% | 6% | |||||||||
| Components of Revenue Change(i) | ||||||||||||||||||
| Years Ended December 31, |
As Reported | Currency | Constant Currency |
Acquisitions/ | Organic | |||||||||||||
| 2019 | 2018 | % Change | Impact | Change | Divestitures | Change | ||||||||||||
| Human Capital & Benefits | $ | 3,298 | $ | 3,233 | 2% | (2)% | 4% | 0% | 4% | |||||||||
| Corporate Risk & Broking | 2,946 | 2,852 | 3% | (3)% | 6% | 0% | 6% | |||||||||||
| Investment, Risk & Reinsurance | 1,637 | 1,556 | 5% | (3)% | 8% | 1% | 7% | |||||||||||
| Benefits Delivery & Administration | 1,035 | 758 | 37% | 0% | 37% | 32% | 4% | |||||||||||
| Segment Revenue | 8,916 | 8,399 | 6% | (2)% | 9% | 3% | 5% | |||||||||||
| Reimbursable expenses and other | 123 | 114 | ||||||||||||||||
| Revenue | $ | 9,039 | $ | 8,513 | 6% | (2)% | 9% | 3% | 5% | |||||||||
__________
(i) Components of revenue change may not add due to rounding
SEGMENT OPERATING INCOME (i)
| Three Months Ended December 31, |
||||||||
| 2019 | 2018 | |||||||
| Human Capital & Benefits | $ | 261 | $ | 253 | ||||
| Corporate Risk & Broking | 266 | 240 | ||||||
| Investment, Risk & Reinsurance | 28 | 5 | ||||||
| Benefits Delivery & Administration | 311 | 240 | ||||||
| Segment Operating Income | $ | 866 | $ | 738 | ||||
| Years Ended December 31, |
||||||||
| 2019 | 2018 | |||||||
| Human Capital & Benefits | $ | 848 | $ | 789 | ||||
| Corporate Risk & Broking | 578 | 528 | ||||||
| Investment, Risk & Reinsurance | 420 | 384 | ||||||
| Benefits Delivery & Administration | 244 | 144 | ||||||
| Segment Operating Income | $ | 2,090 | $ | 1,845 | ||||
__________
(i) Segment operating income excludes certain costs, including amortization of intangibles, transaction and integration expenses, and to the extent that the actual expense based upon which allocations are made differs from the forecast/budget amount, a reconciling item will be created between internally allocated expenses and the actual expenses reported for U.S. GAAP purposes.
SEGMENT OPERATING MARGINS
| Three Months Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Human Capital & Benefits | 30.1 | % | 29.9 | % | ||||
| Corporate Risk & Broking | 30.3 | % | 29.4 | % | ||||
| Investment, Risk & Reinsurance | 9.1 | % | 1.9 | % | ||||
| Benefits Delivery & Administration | 52.4 | % | 61.4 | % | ||||
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Human Capital & Benefits | 25.7 | % | 24.4 | % | ||||
| Corporate Risk & Broking | 19.6 | % | 18.5 | % | ||||
| Investment, Risk & Reinsurance | 25.7 | % | 24.7 | % | ||||
| Benefits Delivery & Administration | 23.6 | % | 18.9 | % | ||||
RECONCILIATIONS OF SEGMENT OPERATING INCOME TO INCOME FROM OPERATIONS BEFORE INCOME TAXES
| Three Months Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Segment Operating Income | $ | 866 | $ | 738 | ||||
| Amortization | (121 | ) | (126 | ) | ||||
| Transaction and integration expenses | (1 | ) | (54 | ) | ||||
| Unallocated, net(i) | (57 | ) | (88 | ) | ||||
| Income from Operations | 687 | 470 | ||||||
| Interest expense | (62 | ) | (54 | ) | ||||
| Other income, net | 50 | 61 | ||||||
| Income from operations before income taxes | $ | 675 | $ | 477 | ||||
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Segment Operating Income | $ | 2,090 | $ | 1,845 | ||||
| Amortization | (489 | ) | (534 | ) | ||||
| Transaction and integration expenses (i) | (13 | ) | (202 | ) | ||||
| Unallocated, net (ii) | (259 | ) | (300 | ) | ||||
| Income from Operations | 1,329 | 809 | ||||||
| Interest expense | (234 | ) | (208 | ) | ||||
| Other income, net | 227 | 250 | ||||||
| Income from operations before income taxes | $ | 1,322 | $ | 851 | ||||
__________
(i) Includes transaction costs related to the TRANZACT acquisition in 2019, and transaction and integration expenses related to the Merger and the acquisition of
(ii) Includes certain costs, primarily related to corporate functions which are not directly related to the segments, and certain differences between budgeted expenses determined at the beginning of the year and actual expenses that we report for U.S. GAAP purposes.
Reconciliations of Non-GAAP Measures
(In millions of U.S. dollars, except per share data)
(Unaudited)
RECONCILIATIONS OF NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON TO ADJUSTED DILUTED EARNINGS PER SHARE
| Three Months Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Net income attributable to Willis Towers Watson | $ | 544 | $ | 378 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 121 | 126 | ||||||
| Transaction and integration expenses | 1 | 54 | ||||||
| Pension settlement and curtailment gains and losses | — | 8 | ||||||
| Loss on disposal of operations | 2 | — | ||||||
| Tax effect on certain items listed above(i) | (31 | ) | (45 | ) | ||||
| Tax effects of internal reorganizations | — | 3 | ||||||
| Adjusted net income | $ | 637 | $ | 524 | ||||
| Weighted-average shares of common stock — diluted | 130 | 131 | ||||||
| Diluted earnings per share | $ | 4.18 | $ | 2.89 | ||||
| Adjusted for certain items:(ii) | ||||||||
| Amortization | 0.93 | 0.96 | ||||||
| Transaction and integration expenses | 0.01 | 0.41 | ||||||
| Pension settlement and curtailment gains and losses | — | 0.06 | ||||||
| Loss on disposal of operations | 0.02 | — | ||||||
| Tax effect on certain items listed above(i) | (0.24 | ) | (0.34 | ) | ||||
| Tax effects of internal reorganizations | — | 0.02 | ||||||
| Adjusted diluted earnings per share | $ | 4.90 | $ | 4.00 | ||||
__________
(i) The tax effect was calculated using an effective tax rate for each item.
(ii) Per share values and totals may differ due to rounding.
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Net income attributable to Willis Towers Watson | $ | 1,044 | $ | 695 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 489 | 534 | ||||||
| Transaction and integration expenses | 13 | 202 | ||||||
| Pension settlement and curtailment gains and losses | — | 24 | ||||||
| Loss on disposal of operations | 2 | 9 | ||||||
| Tax effect on certain items listed above(i) | (121 | ) | (184 | ) | ||||
| Tax effects of internal reorganizations | — | 4 | ||||||
| Adjusted net income | $ | 1,427 | $ | 1,284 | ||||
| Weighted-average shares of common stock — diluted | 130 | 132 | ||||||
| Diluted earnings per share | $ | 8.02 | $ | 5.27 | ||||
| Adjusted for certain items:(ii) | ||||||||
| Amortization | 3.75 | 4.04 | ||||||
| Transaction and integration expenses | 0.10 | 1.53 | ||||||
| Pension settlement and curtailment gains and losses | — | 0.18 | ||||||
| Loss on disposal of operations | 0.02 | 0.07 | ||||||
| Tax effect on certain items listed above(i) | (0.93 | ) | (1.39 | ) | ||||
| Tax effects of internal reorganizations | — | 0.03 | ||||||
| Adjusted diluted earnings per share | $ | 10.96 | $ | 9.73 | ||||
__________
(i) The tax effect was calculated using an effective tax rate for each item.
(ii) Per share values and totals may differ due to rounding.
RECONCILIATIONS OF NET INCOME TO ADJUSTED EBITDA
| Three Months Ended December 31, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Net income | $ | 551 | 20.5 | % | $ | 383 | 16.1 | % | |||||
| Provision for income taxes | 124 | 94 | |||||||||||
| Interest expense | 62 | 54 | |||||||||||
| Depreciation | 69 | 55 | |||||||||||
| Amortization | 121 | 126 | |||||||||||
| Transaction and integration expenses | 1 | 54 | |||||||||||
| Pension settlement and curtailment gains and losses | — | 8 | |||||||||||
| Loss on disposal of operations | 2 | — | |||||||||||
| Adjusted EBITDA and adjusted EBITDA margin | $ | 930 | 34.6 | % | $ | 774 | 32.6 | % | |||||
| Years Ended December 31, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Net income | $ | 1,073 | 11.9 | % | $ | 715 | 8.4 | % | |||||
| Provision for income taxes | 249 | 136 | |||||||||||
| Interest expense | 234 | 208 | |||||||||||
| Depreciation | 240 | 208 | |||||||||||
| Amortization | 489 | 534 | |||||||||||
| Transaction and integration expenses | 13 | 202 | |||||||||||
| Pension settlement and curtailment gains and losses | — | 24 | |||||||||||
| Loss on disposal of operations | 2 | 9 | |||||||||||
| Adjusted EBITDA and adjusted EBITDA margin | $ | 2,300 | 25.4 | % | $ | 2,036 | 23.9 | % | |||||
RECONCILIATIONS OF INCOME FROM OPERATIONS TO ADJUSTED OPERATING INCOME
| Three Months Ended December 31, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Income from operations | $ | 687 | 25.5 | % | $ | 470 | 19.8 | % | |||||
| Adjusted for certain items: | |||||||||||||
| Amortization | 121 | 126 | |||||||||||
| Transaction and integration expenses | 1 | 54 | |||||||||||
| Adjusted operating income and adjusted operating income margin | $ | 809 | 30.1 | % | $ | 650 | 27.4 | % | |||||
| Years Ended December 31, | |||||||||||||
| 2019 | 2018 | ||||||||||||
| Income from operations | $ | 1,329 | 14.7 | % | $ | 809 | 9.5 | % | |||||
| Adjusted for certain items: | |||||||||||||
| Amortization | 489 | 534 | |||||||||||
| Transaction and integration expenses | 13 | 202 | |||||||||||
| Adjusted operating income and adjusted operating income margin | $ | 1,831 | 20.3 | % | $ | 1,545 | 18.1 | % | |||||
RECONCILIATIONS OF GAAP INCOME TAXES/TAX RATE TO ADJUSTED INCOME TAXES/TAX RATE
| Three Months Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Income from operations before income taxes | $ | 675 | $ | 477 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 121 | 126 | ||||||
| Transaction and integration expenses | 1 | 54 | ||||||
| Pension settlement and curtailment gains and losses | — | 8 | ||||||
| Loss on disposal of operations | 2 | — | ||||||
| Adjusted income before taxes | $ | 799 | $ | 665 | ||||
| Provision for income taxes | $ | 124 | $ | 94 | ||||
| Tax effect on certain items listed above(i) | 31 | 45 | ||||||
| Tax effects of internal reorganizations | — | (3 | ) | |||||
| Adjusted income taxes | $ | 155 | $ | 136 | ||||
| U.S. GAAP tax rate | 18.3 | % | 19.7 | % | ||||
| Adjusted income tax rate | 19.4 | % | 20.4 | % | ||||
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Income from operations before income taxes | $ | 1,322 | $ | 851 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 489 | 534 | ||||||
| Transaction and integration expenses | 13 | 202 | ||||||
| Pension settlement and curtailment gains and losses | — | 24 | ||||||
| Loss on disposal of operations | 2 | 9 | ||||||
| Adjusted income before taxes | $ | 1,826 | $ | 1,620 | ||||
| Provision for income taxes | $ | 249 | $ | 136 | ||||
| Tax effect on certain items listed above(i) | 121 | 184 | ||||||
| Tax effects of internal reorganizations | — | (4 | ) | |||||
| Adjusted income taxes | $ | 370 | $ | 316 | ||||
| U.S. GAAP tax rate | 18.8 | % | 16.0 | % | ||||
| Adjusted income tax rate | 20.3 | % | 19.5 | % | ||||
__________
(i) The tax effect was calculated using an effective tax rate for each item.
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES TO FREE CASH FLOW
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities | $ | 1,081 | $ | 1,288 | ||||
| Less: Additions to fixed assets and software for internal use | (246 | ) | (268 | ) | ||||
| Free cash flow | $ | 835 | $ | 1,020 | ||||
Consolidated Statements of Income
(In millions of U.S. dollars, except per share data)
(Unaudited)
| Three Months Ended December 31, |
Years Ended December 31, |
|||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenue | $ | 2,690 | $ | 2,372 | $ | 9,039 | $ | 8,513 | ||||||||
| Costs of providing services | ||||||||||||||||
| Salaries and benefits | 1,340 | 1,233 | 5,249 | 5,123 | ||||||||||||
| Other operating expenses | 472 | 434 | 1,719 | 1,637 | ||||||||||||
| Depreciation | 69 | 55 | 240 | 208 | ||||||||||||
| Amortization | 121 | 126 | 489 | 534 | ||||||||||||
| Transaction and integration expenses | 1 | 54 | 13 | 202 | ||||||||||||
| Total costs of providing services | 2,003 | 1,902 | 7,710 | 7,704 | ||||||||||||
| Income from operations | 687 | 470 | 1,329 | 809 | ||||||||||||
| Interest expense | (62 | ) | (54 | ) | (234 | ) | (208 | ) | ||||||||
| Other income, net | 50 | 61 | 227 | 250 | ||||||||||||
| INCOME FROM OPERATIONS BEFORE INCOME TAXES | 675 | 477 | 1,322 | 851 | ||||||||||||
| Provision for income taxes | (124 | ) | (94 | ) | (249 | ) | (136 | ) | ||||||||
| NET INCOME | 551 | 383 | 1,073 | 715 | ||||||||||||
| Income attributable to non-controlling interests | (7 | ) | (5 | ) | (29 | ) | (20 | ) | ||||||||
| NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 544 | $ | 378 | $ | 1,044 | $ | 695 | ||||||||
| EARNINGS PER SHARE | ||||||||||||||||
| Basic earnings per share | $ | 4.20 | $ | 2.91 | $ | 8.05 | $ | 5.29 | ||||||||
| Diluted earnings per share | $ | 4.18 | $ | 2.89 | $ | 8.02 | $ | 5.27 | ||||||||
| Weighted-average shares of common stock, basic | 129 | 130 | 130 | 131 | ||||||||||||
| Weighted-average shares of common stock, diluted | 130 | 131 | 130 | 132 | ||||||||||||
Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)
| December 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 887 | $ | 1,033 | ||||
| Fiduciary assets | 13,089 | 12,604 | ||||||
| Accounts receivable, net | 2,621 | 2,379 | ||||||
| Prepaid and other current assets | 525 | 404 | ||||||
| Total current assets | 17,122 | 16,420 | ||||||
| Fixed assets, net | 1,046 | 942 | ||||||
| Goodwill | 11,194 | 10,465 | ||||||
| Other intangible assets, net | 3,478 | 3,318 | ||||||
| Right-of-use assets | 968 | — | ||||||
| Pension benefits assets | 868 | 773 | ||||||
| Other non-current assets | 835 | 467 | ||||||
| Total non-current assets | 18,389 | 15,965 | ||||||
| TOTAL ASSETS | $ | 35,511 | $ | 32,385 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Fiduciary liabilities | $ | 13,089 | $ | 12,604 | ||||
| Deferred revenue and accrued expenses | 1,784 | 1,647 | ||||||
| Current debt | 316 | 186 | ||||||
| Current lease liabilities | 164 | — | ||||||
| Other current liabilities | 802 | 864 | ||||||
| Total current liabilities | 16,155 | 15,301 | ||||||
| Long-term debt | 5,301 | 4,389 | ||||||
| Liability for pension benefits | 1,324 | 1,170 | ||||||
| Deferred tax liabilities | 526 | 559 | ||||||
| Provision for liabilities | 537 | 540 | ||||||
| Long-term lease liabilities | 964 | — | ||||||
| Other non-current liabilities | 335 | 429 | ||||||
| Total non-current liabilities | 8,987 | 7,087 | ||||||
| TOTAL LIABILITIES | 25,142 | 22,388 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| REDEEMABLE NON-CONTROLLING INTEREST | — | 26 | ||||||
| EQUITY(i) | ||||||||
| Additional paid-in capital | 10,687 | 10,615 | ||||||
| Retained earnings | 1,792 | 1,201 | ||||||
| Accumulated other comprehensive loss, net of tax | (2,227 | ) | (1,961 | ) | ||||
| Treasury shares, at cost, 17,519 shares in 2019 and 2018, and 40,000 shares, €1 nominal value, in 2019 and 2018 | (3 | ) | (3 | ) | ||||
| Total Willis Towers Watson shareholders’ equity | 10,249 | 9,852 | ||||||
| Non-controlling interests | 120 | 119 | ||||||
| Total equity | 10,369 | 9,971 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 35,511 | $ | 32,385 | ||||
_________
(i) Equity includes (a) Ordinary shares
WILLIS TOWERS WATSON
Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| NET INCOME | $ | 1,073 | $ | 715 | ||||
| Adjustments to reconcile net income to total net cash from operating activities: | ||||||||
| Depreciation | 240 | 213 | ||||||
| Amortization | 489 | 534 | ||||||
| Non-cash lease expense | 148 | — | ||||||
| Net periodic benefit of defined benefit pension plans | (135 | ) | (163 | ) | ||||
| Provision for doubtful receivables from clients | 9 | 8 | ||||||
| Benefit from deferred income taxes | (72 | ) | (115 | ) | ||||
| Share-based compensation | 74 | 50 | ||||||
| Net loss on disposal of operations | 2 | 9 | ||||||
| Non-cash foreign exchange loss | 26 | 26 | ||||||
| Other, net | 17 | 8 | ||||||
| Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | ||||||||
| Accounts receivable | (261 | ) | 68 | |||||
| Fiduciary assets | (449 | ) | (839 | ) | ||||
| Fiduciary liabilities | 449 | 839 | ||||||
| Other assets | (269 | ) | (22 | ) | ||||
| Other liabilities | (264 | ) | (20 | ) | ||||
| Provisions | 4 | (23 | ) | |||||
| Net cash from operating activities | 1,081 | 1,288 | ||||||
| CASH FLOWS USED IN INVESTING ACTIVITIES | ||||||||
| Additions to fixed assets and software for internal use | (246 | ) | (268 | ) | ||||
| Capitalized software costs | (59 | ) | (54 | ) | ||||
| Acquisitions of operations, net of cash acquired | (1,329 | ) | (36 | ) | ||||
| Net proceeds from sale of operations | 17 | 4 | ||||||
| Other, net | 3 | 13 | ||||||
| Net cash used in investing activities | (1,614 | ) | (341 | ) | ||||
| CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES | ||||||||
| Net payments on revolving credit facility | (131 | ) | (754 | ) | ||||
| Senior notes issued | 997 | 998 | ||||||
| Proceeds from issuance of other debt | 1,100 | — | ||||||
| Debt issuance costs | (13 | ) | (8 | ) | ||||
| Repayments of debt | (995 | ) | (170 | ) | ||||
| Repurchase of shares | (150 | ) | (602 | ) | ||||
| Proceeds from issuance of shares | 45 | 45 | ||||||
| Payments of deferred and contingent consideration related to acquisitions | (57 | ) | (50 | ) | ||||
| Cash paid for employee taxes on withholding shares | (15 | ) | (30 | ) | ||||
| Dividends paid | (329 | ) | (306 | ) | ||||
| Acquisitions of and dividends paid to non-controlling interests | (55 | ) | (26 | ) | ||||
| Net cash from/(used in) financing activities | 397 | (903 | ) | |||||
| (DECREASE)/INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (136 | ) | 44 | |||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (2 | ) | (41 | ) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR (i) | 1,033 | 1,030 | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR (i) | $ | 895 | $ | 1,033 | ||||
_________
(i) As a result of the acquired TRANZACT collateralized facility, cash, cash equivalents and restricted cash at the end of the year included $8 million of restricted cash at December 31, 2019, which is included within prepaid and other current assets on our consolidated balance sheet. There were no restricted cash amounts held at December 31, 2018 and 2017.
Source: Willis Towers Watson Public Limited Company