01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Willis Group Holdings plc reported a 2012 net loss attributable to Willis Group Holdings of $446 milliona, or $2.58 per diluted share, compared with net income of $204 million ($1.15 per diluted share) in 2011.
The loss was driven primarily by a $492 millionb non-cash goodwill impairment charge on the North America reporting unit, a $200 million write-off of unamortized cash retention awards, a $252 million accrual for 2012 cash bonuses payable in 2013, and a $113 million valuation allowance against US deferred tax assets. Total revenues rose 1 percent to $3,480 million, with organic commissions and fees growth of 3 percent, though North America organic commissions and fees declined 1 percent. Excluding the specified items, the company reported adjusted operating margin of 21.6 percent (down 90 basis points) and adjusted earnings per diluted share from continuing operations of $2.58, compared with $2.74 in 2011.
Management cites a soft insurance pricing market outside catastrophe-exposed lines, the Eurozone crisis, and Loan Protector declines as ongoing pressures. The company also announced a headcount reduction of about 200 positions with a pre-tax charge of $35 million to $45 millionc expected in the first quarter of 2013, and declared a quarterly dividend of $0.28 per share in February 2013. At year-end 2012 total debt was $2,353 million, cash and cash equivalents were $500 million, and total stockholders' equity was $1,699 million, giving a capitalization ratio of 58.1 percent.
Management believes liquidity is sufficient for at least the next 12 months. Investors should note the ongoing Stanford Financial Group litigation, the UK regulatory review of historical payments, and expected 2013 pension contributions of about $142 milliond.
02—Key points
Key Highlights
- Net loss attributable to Willis Group Holdings of $446 million ($2.58 per diluted share) in 2012, versus net income of $204 million ($1.15 per diluted share) in 2011.
- $492 million non-cash goodwill impairment charge on the North America reporting unit, following the October 1, 2012 annual impairment test.
- Total revenues of $3,480 million, up 1 percent, with organic commissions and fees growth of 3 percent; North America organic commissions and fees declined 1 percent.
- Adjusted operating margin of 21.6 percent in 2012, down 90 basis points from 2011; adjusted earnings per diluted share from continuing operations of $2.58 versus $2.74 in 2011.
- Write-off of $200 million in unamortized cash retention awards and a $252 million accrual for 2012 cash bonuses to be paid in 2013, following the change in remuneration policy.
- $113 million charge to establish a valuation allowance against US deferred tax assets; total deferred tax valuation allowance of $221 million at year end.
- Total debt of $2,353 million, cash of $500 million, and a capitalization ratio of 58.1 percent at December 31, 2012; $824 million remained available under the share repurchase authorization as of February 15, 2013.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $3.48B$3.45B | +1.0% |
| Operating Expenses | $3.71B$2.88B | +28.6% |
| Operating Income | -$225.00M$566.00M | −139.8% |
| Interest Expense | $128.00M$156.00M | −17.9% |
| Net Income | -$446.00M$204.00M | −318.6% |
| EPS (Basic) | $-2.58$1.18 | −318.6% |
| EPS (Diluted) | $-2.58$1.16 | −322.4% |
| Shares Outstanding (Basic) | 173.00M173.00M | 0.0% |
| Shares Outstanding (Diluted) | 173.00M176.00M | −1.7% |
05—Questions
Frequently Asked Questions
Why did Willis Group swing from a profit in 2011 to a loss in 2012?
The 2012 loss was driven mainly by a $492 million non-cash goodwill impairment on the North America unit, a $200 million write-off of unamortized cash retention awards, a $252 million accrual for 2012 cash bonuses, and a $113 million US deferred tax valuation allowance. Revenue growth partly offset these charges.
What is the outlook for commission revenue given market conditions?
The filing states that in general the company continues to be negatively affected by a soft insurance market across most sectors and geographies, although rates in catastrophe-exposed regions have firmed. Management believes that absent a significant catastrophe loss or capital impairment, a universal turn in market rates is not likely to occur. The outlook is described as challenging, particularly given Eurozone conditions.
How is the company managing its debt and liquidity?
Total debt was $2,353 million at December 31, 2012. Management cites $500 million of cash and cash equivalents and $522 million available under revolving credit facilities, and believes it has sufficient liquidity for at least the next 12 months. Only $15 million of scheduled mandatory debt repayments fall due in the next 12 months.
What cost actions and capital returns did the company announce?
The company plans to eliminate about 200 full-time positions, with a pre-tax charge of $35 million to $45 million in the first quarter of 2013 and expected savings of $20 million to $25 million in 2013. It repurchased $100 million of shares in 2012 and declared a quarterly dividend of $0.28 per share in February 2013.
What are the main legal and regulatory exposures disclosed?
The filing discloses numerous lawsuits related to the collapse of The Stanford Financial Group, including Troice, which the US Supreme Court agreed to hear in January 2013, and several February 2013 Florida actions. It also discloses a further internal review of certain high-risk payments made by the UK subsidiary between 2005 and 2009 following a 2011 FSA settlement. Management does not expect these matters to have a material adverse effect, though outcomes cannot be predicted.
06—Continue