01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Willis Group Holdings Limited, a Bermuda-incorporated insurance broker with London headquarters, reported 2007 total revenues of $2,578 milliona, up $150 million or 6 percent from 2006, with organic revenue growth of 3 percent.
Net income was $409 millionb, or $2.78 per diluted share, compared with $449 million, or $2.84 per diluted share, in 2006; the decrease mainly reflected the non-recurrence of a $71 million tax credit and a $102 million London headquarters gain in 2006. Operating margin rose to 24 percent from 23 percent. The company described a soft market in 2007, with premium rate declines of 15 to 20 percent in the United States and 5 to 20 percent elsewhere.
The company reaffirmed its Shaping our Future strategy and financial targets, including adjusted diluted EPS guidance of $2.85c-$2.95 for 2008, $3.30-$3.40 for 2009 and $4.00-$4.10 for 2010, and an adjusted operating margin goal of 28 percent or better by 2010. Management expects a pretax restructuring charge of approximately $60 million to $90 million beginning in the first quarter of 2008. Capital activity was significant: the company issued $600 million of 6.20 percent senior notes due 2017, repurchased $481 million of shares in 2007, and authorized a new open-ended $1 billion buyback on November 1, 2007.
Total long-term debt rose to $1,250 milliond from $800 million, and the capitalization ratio increased to 48 percent from 35 percent. Key risks disclosed include ongoing regulatory investigations and class actions concerning contingent compensation, a reinsurance market dispute involving claims from ARIC and CNA of approximately $257 million and $251 million, and put arrangements for the Gras Savoye associate, where the incremental 48 percent stake could cost approximately $442 million at December 31, 2007. Cash contributions of approximately $174 million are required for pension plans in 2008.
02—Key points
Key Highlights
- Total revenues rose 6 percent to $2,578 million in 2007, with 3 percent organic growth and net new business growth of 4 percent.
- Net income was $409 million, or $2.78 per diluted share, versus $449 million, or $2.84 per diluted share, in 2006, which included a $71 million tax credit and a $102 million London headquarters gain.
- Operating margin improved to 24 percent from 23 percent, with the North America and International retail margins improving while Global margin fell to 28 percent from 30 percent.
- Adjusted diluted EPS guidance is $2.85-$2.95 for 2008, $3.30-$3.40 for 2009 and $4.00-$4.10 for 2010, with a goal of 28 percent or better adjusted operating margin by 2010.
- The company issued $600 million of 6.20 percent senior notes due 2017 and repurchased $481 million of shares in 2007, with a new $1 billion open-ended buyback authorized November 1, 2007.
- Premium rates declined sharply in 2007, with declines of 15 to 20 percent in the United States and 5 to 20 percent elsewhere, pressuring commission revenue.
- Pending litigation and regulatory matters include contingent compensation investigations, a reinsurance dispute with asserted claims of approximately $257 million and $251 million, and Gras Savoye put arrangements estimated at approximately $442 million.
03—Questions
Frequently Asked Questions
How did Willis Group Holdings perform financially in 2007?
Total revenues were $2,578 million, up $150 million or 6 percent from 2006, and operating income was $620 million, giving an operating margin of 24 percent. Net income was $409 million, or $2.78 per diluted share, down from $449 million, or $2.84 per diluted share, in 2006, mainly because 2006 included a $71 million tax credit and a $102 million gain on the London headquarters sale.
What is the company's outlook and financial target?
The company expects adjusted diluted EPS of $2.85-$2.95 in 2008, $3.30-$3.40 in 2009 and $4.00-$4.10 in 2010, including estimated share buyback accretion of $0.10 in 2008 rising to $0.30 by 2010. It also targets an adjusted operating margin of 28 percent or better by the end of 2010 and expects about 24 percent in 2008, before a planned pretax charge of approximately $60 million to $90 million beginning in the first quarter of 2008.
How did the market environment affect the company in 2007?
The company reported that premium rates continued to fall, with declines of 15 to 20 percent in the United States and 5 to 20 percent elsewhere during 2007. Reinsurance premium rates declined by at least 10 percent on average, and organic revenue growth in Global was flat, with Reinsurance organic revenues down 4 percent.
How much debt and capital return activity did the company undertake?
The company issued $600 million of 10-year senior notes at 6.20 percent in March 2007 and repurchased $481 million of shares during 2007. Total long-term debt was $1,250 million at year-end 2007, up from $800 million, and the capitalization ratio rose to 48 percent from 35 percent. A new $1 billion open-ended buyback was authorized on November 1, 2007.
What are the main legal and financial risks?
The company faces investigations and class actions over contingent compensation and related practices, along with a reinsurance market dispute in which ARIC and CNA asserted claims of approximately $257 million and $251 million, respectively. Put arrangements for Gras Savoye could require payments up to approximately $442 million for the incremental 48 percent stake based on the contractual formula at December 31, 2007. The company expects to make approximately $174 million of pension contributions in 2008.
04—Continue