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Willis Towers Watson Annual Report, Year Ended Dec 31, 2005

Filing Date
Filed March 2, 2006
Period End
December 31, 2005
Security
WTW
In the record · 2016–202610-K1210-Q338-K148

WTW filed 12 annual reports (10-K), 33 quarterly reports (10-Q) and 148 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · May ’17May ’17
  2. Leadership change8-K · Mar ’20Mar ’20
  3. Leadership change8-K · Feb ’22Feb ’22
  4. Material agreement8-K · Jan ’26Jan ’26

01—Abstract

Summary

Summary of the 10-K filed March 2, 2006. Cited figures are marked; the original filing is the authoritative source.

Willis Group Holdings Limited, now Willis Towers Watson, reported 2005 net income of $300 milliona, or $1.83 per diluted share, down from $427 million, or $2.54 per diluted share, in 2004.

Total revenues were $2,267 millionb, compared with $2,275 million in 2004. The filing attributes the decline mainly to a sharp reduction in market remuneration, which fell to $29 million from $148 million, and to falling insurance premium rates. Operating margin fell to 21 percent from 29 percent.

The results also include a $51 millionc regulatory settlement, a $78 million gain on the sale of Stewart Smith, and a $20 million increase in severance costs. Management expects the compensation ratio in 2006 to be similar to 2005's 59 percent excluding severance, and anticipates modest operating margin expansion in 2006. The company is the subject of investigations by more than 20 states, Canada and Australia into contingent compensation and related practices, and faces multiple class actions.

It resolved the New York investigation in April 2005 by paying $50 milliond into a customer fund, and it continues to respond to other regulators. Other material matters include a lawsuit by CDL Hotels and Millennium & Copthorne seeking damages in excess of $45 million related to the World Trade Center placement, and a put arrangement for shares of Gras Savoye, valued at approximately $326 million at December 31, 2005, which could be exercised through 2011.

On the balance sheet, cash was $193 million at year end, and the company issued $600 million of senior notes in July 2005, used to repay a $450 million bank loan. Share repurchases totaled $360 million during 2005, and the quarterly dividend was raised to $0.235 per share from $0.215.

02—Key points

Key Highlights

  1. Net income fell to $300 million ($1.83 diluted EPS) from $427 million ($2.54) in 2004, with total revenues of $2,267 million versus $2,275 million.
  2. Market remuneration dropped to $29 million in 2005 from $148 million in 2004, following the October 2004 abolition of contingent compensation arrangements.
  3. Operating margin declined to 21 percent from 29 percent, and the compensation ratio rose to 60 percent from 52 percent.
  4. Regulatory settlements of $51 million were recorded in 2005, and the New York settlement required a $50 million payment into a customer fund.
  5. The company completed a $600 million senior notes offering in July 2005 and repurchased 10.3 million shares for $360 million during 2005.
  6. Quarterly dividend was increased to $0.235 per share, payable April 14, 2006, and the company expects 2006 dividend costs of approximately $146 million.
  7. Gras Savoye put arrangement could require substantial payments, with an estimated $326 million at December 31, 2005 and exercisable through 2011.

03—Questions

Frequently Asked Questions

  1. Why did Willis's earnings decline in 2005?

    The filing attributes the decline to a sharp reduction in market remuneration, which fell to $29 million from $148 million, falling insurance premium rates, and increased retention, recruitment and pension costs. Net income also absorbed a $36 million post-tax cost of regulatory settlements and related legal costs, partly offset by a $41 million post-tax net gain on disposal, mainly from the Stewart Smith sale.

  2. What is the company's outlook for 2006?

    Management expects revenue growth in 2006 to be primarily organic, and anticipates modest operating margin expansion. It expects the compensation ratio to be similar to 2005's 59 percent excluding severance costs, and expects net pension expense to rise by approximately $20 million. The company notes that recruiting and retention competition will continue to weigh on the ratio of remuneration costs to revenues in the shorter term.

  3. What are the main legal and regulatory risks?

    The company is cooperating with investigations by more than 20 states, Canada and Australia into contingent compensation and related practices, and faces purported class actions in several states and federal courts, including RICO and antitrust claims. It cannot predict how or when these matters will be resolved. Other significant matters include the CDL Hotels and Millennium & Copthorne suit seeking damages in excess of $45 million related to World Trade Center insurance, and a gender discrimination class action covering approximately 200 women.

  4. How is the company returning capital to shareholders?

    During 2005 the company repurchased 10.3 million shares for $360 million, and the board increased the buyback authorization to $500 million in July 2005, leaving $140 million available. Cash dividends paid in 2005 were $135 million, and the quarterly dividend was raised to $0.235 per share in February 2006, which is 9 percent higher than the prior rate.

04—Continue

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