01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Willis Group Holdings plc, one of the largest insurance brokers in the world, reported total revenues of $3,655 milliona for 2013, up $175 million, or 5.0 percent, from 2012, with organic growth in commissions and fees of 4.9 percent.
Operating income rebounded to $685 millionb from a loss of $209 million in 2012, which had included a $492 million non-cash goodwill impairment charge in North America, a $200 million write-off of cash retention awards, and a $252 million accrual for 2012 cash bonuses. Net income attributable to Willis Group Holdings was $365 million, or $2.04 per diluted share, compared with a loss of $446 million, or $2.58 per diluted share, in 2012. Adjusted operating margin was 20.0 percent in 2013, down 160 basis points from 2012, and adjusted earnings per diluted share from continuing operations were $2.64 versus $2.58.
The company's balance sheet showed total debt of $2,326 millionc at year-end 2013, cash and cash equivalents of $796 million, and stockholders' equity of $2,215 million. During 2013 it issued $250 million of 4.625% senior notes due 2023 and $275 million of 6.125% senior notes due 2043, and used the proceeds to repurchase $202 million of 5.625% notes due 2015, $206 million of 6.200% notes due 2017 and $113 million of 7.000% notes due 2019. The company also recorded a $60 million loss on extinguishment of debt and a $46 million Expense Reduction Initiative charge.
In February 2014 it declared a quarterly dividend of $0.30d per share, and it intends to repurchase $200 million of shares in 2014 to offset dilution from option exercises. Management cited a softening reinsurance market and continued price pressure as challenges.
The company said it has not accepted contingent commissions from carriers outside its Human Capital practice, which it describes as a stance that could put it at a competitive disadvantage. Pension contributions, the Stanford Financial Group litigation, and the sensitivity of commission revenue to premium rates are highlighted as ongoing risks.
02—Key points
Key Highlights
- Total revenues of $3,655 million in 2013, up 5.0 percent from $3,480 million, with organic commissions and fees growth of 4.9 percent.
- Operating income of $685 million in 2013 versus a $209 million loss in 2012, which included a $492 million goodwill impairment charge.
- Net income attributable to Willis Group Holdings of $365 million, or $2.04 per diluted share, versus a loss of $446 million, or $2.58 per diluted share, in 2012.
- Adjusted operating margin of 20.0 percent in 2013, down 160 basis points; adjusted diluted EPS from continuing operations of $2.64 versus $2.58.
- Debt refinancing in 2013 issued $525 million of new senior notes and repurchased $521 million of 2015, 2017 and 2019 notes, with a $60 million loss on extinguishment of debt.
- Total debt of $2,326 million and cash and cash equivalents of $796 million at December 31, 2013; the revolving credit facility was increased to $800 million.
- Quarterly dividend declared in February 2014 at $0.30 per share, an annual rate of $1.20 per share, a 7.1 percent increase over the prior 12 months; intent to repurchase $200 million of shares in 2014.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $3.65B$3.48B | +5.0% |
| Operating Expenses | $2.99B$3.71B | −19.2% |
| Operating Income | $663.00M-$225.00M | +394.7% |
| Interest Expense | $126.00M$128.00M | −1.6% |
| Net Income | $365.00M-$446.00M | +181.8% |
| EPS (Basic) | $5.53$-2.58 | +314.3% |
| EPS (Diluted) | $5.37$-2.58 | +308.1% |
| Shares Outstanding (Basic) | 66.00M173.00M | −61.8% |
| Shares Outstanding (Diluted) | 68.00M173.00M | −60.7% |
05—Questions
Frequently Asked Questions
Why did the company report a loss in 2012 and a profit in 2013?
The 2012 results included a $492 million non-cash goodwill impairment charge for the North America reporting unit, a $200 million write-off of unamortized cash retention awards, and a $252 million accrual for 2012 cash bonuses. None of these charges recurred in 2013, and the company reported operating income of $685 million, compared with an operating loss of $209 million in 2012.
What are the main risks to the company's commission revenue?
Commissions are a percentage of insurance premiums, which the company does not control. The filing notes that a soft or softening market leads to downward pressure on commission revenues and operating margin, and that the reinsurance market was experiencing price softening that was extending to other lines. Competition from Marsh & McLennan and Aon, and the company's refusal to accept contingent commissions outside Human Capital, are also identified as risks.
How is the company's debt structured and how did it change in 2013?
Long-term debt was $2,311 million at December 31, 2013. In August 2013 the company issued $250 million of 4.625% senior notes due 2023 and $275 million of 6.125% senior notes due 2043, and used the proceeds to tender for $202 million of 5.625% notes due 2015, $206 million of 6.200% notes due 2017 and $113 million of 7.000% notes due 2019. The 7-year term loan was extended to 2018 and the revolving credit facility was increased from $500 million to $800 million.
What pension obligations does the company have?
Total cash contributions to defined benefit pension plans were $150 million in 2013. The company expects to contribute approximately $134 million in 2014, although the filing notes that it may elect to contribute more. It must also negotiate a new UK funding arrangement during 2014, and additional UK contributions may be triggered by adjusted EBITDA above certain thresholds or by exceptional shareholder returns.
What legal exposure does the company disclose?
The company is a defendant in 13 lawsuits related to the collapse of The Stanford Financial Group, for which a Willis subsidiary acted as broker of record on certain insurance lines. Plaintiffs seek damages in amounts exceeding $1 billion in certain actions. The company disputes the allegations and intends to defend itself vigorously, and states that the outcome cannot be predicted at this time.
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