01—Abstract
Summary
Summary of the 10-K filed February 29, 2016. Cited figures are marked; the original filing is the authoritative source.
Willis Towers Watson's first Form 10-K, filed after the January 4, 2016 merger with Towers Watson, reports results of Legacy Willis only, since Legacy Towers Watson results are not presented.
Legacy Willis reported 2015 total revenues of $3,829 milliona, up $27 million or 0.7 percent, with commissions and fees of $3,809 million. Operating income fell to $427 million from $647 million, and operating margin dropped to 11.2 percent from 17.0 percent, reflecting $126 million of Operational Improvement Program restructuring costs, $84 million of M&A transaction-related costs, and a $70 million litigation provision for the Stanford matters. Net income attributable to Willis Towers Watson was $373 million, or $5.41 per diluted share, versus $362 million, or $5.32, in 2014.
Underlying operating margin was 18.5 percent and organic operating margin 19.5 percent, both non-GAAP measures the company presents. The company describes itself as a leading global advisory, broking and solutions company with approximately 39,000 employees in more than 120 countries, and it will report under four integrated segments from April 1, 2016. Liquidity is supported by $532 millionb of cash, $467 million drawn on revolving facilities, and a $592 million one-year term loan used to fund the Gras Savoye acquisition.
The filing notes approximately $988 millionc of debt maturing in 2016 and that the company is considering restructuring its debt with $1.5 billion to $2.0 billion of market financing. Key risks disclosed include soft insurance pricing cycles, the Stanford litigation, the City of Houston and British Coal Staff Superannuation Scheme claims, Merger integration, and Irish tax and inversion-rule uncertainty. Pro forma results including Towers Watson show 2015 revenues of $7,486 million and net income of $633 million.
02—Key points
Key Highlights
- 2015 total revenues of $3,829 million rose $27 million (0.7 percent) year over year; commissions and fees were $3,809 million.
- Operating income declined to $427 million from $647 million, and GAAP operating margin fell to 11.2 percent from 17.0 percent, driven by $126 million of restructuring costs, $84 million of M&A transaction-related costs and a $70 million Stanford litigation provision.
- Net income attributable to Willis Towers Watson was $373 million, or $5.41 per diluted share, up from $362 million, or $5.32 per diluted share, in 2014.
- Non-GAAP underlying operating margin was 18.5 percent and organic operating margin was 19.5 percent in 2015, with organic operating income up 11.7 percent to $706 million.
- Cash flow from operating activities fell to $243 million from $477 million, with $439 million of incentive payments and $857 million of acquisition consideration paid in 2015.
- Approximately $988 million of debt matures in 2016, and the company is considering restructuring its debt with $1.5 billion to $2.0 billion of market financing.
- Pro forma 2015 revenues including Towers Watson were $7,486 million with net income of $633 million, reflecting the January 4, 2016 merger.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 29, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $3.83B$3.80B | +0.7% |
| Operating Expenses | $3.40B$3.15B | +7.8% |
| Operating Income | $427.00M$647.00M | −34.0% |
| Interest Expense | $142.00M$135.00M | +5.2% |
| Net Income | $373.00M$362.00M | +3.0% |
| EPS (Basic) | $5.49$5.40 | +1.7% |
| EPS (Diluted) | $5.41$5.32 | +1.7% |
| Shares Outstanding (Basic) | 68.00M67.00M | +1.5% |
| Shares Outstanding (Diluted) | 69.00M68.00M | +1.5% |
05—Questions
Frequently Asked Questions
Why are Legacy Towers Watson's results not included in this 10-K?
The merger closed on January 4, 2016, after the fiscal year ended, so the 2015 financial statements reflect only Legacy Willis. The filing presents descriptions of the combined company and pro forma information, but not Towers Watson's historical results.
What drove the decline in 2015 operating margin?
Operating margin fell to 11.2 percent from 17.0 percent. The filing attributes this mainly to a $90 million increase in restructuring costs under the Operational Improvement Program, a $70 million litigation provision for Stanford matters, and the mid-year Miller acquisition, whose expenses initially exceeded its revenue contribution.
What is the Stanford litigation and how much has been accrued?
Willis of Colorado acted as broker of record on certain insurance lines for The Stanford Financial Group, and the company is a defendant in 13 related lawsuits. In the fourth quarter of 2015 it recognized a $70 million litigation provision, though the company says the ultimate outcome may differ and it cannot estimate the reasonably possible loss range.
How much of the company's revenue depends on insurance premiums?
The company derives the majority of its revenue from commissions and fees that are a percentage of insurance premiums paid by insureds, which it does not set. The filing states that a soft market with declining premium rates can have a material adverse impact on commission revenues and operating margin.
What are the expected cost savings from the Operational Improvement Program?
The program now expects annual cost savings of approximately $325 million by the end of 2017 and cumulative savings in excess of $490 million through the end of the program, excluding merger-related savings. Restructuring charges are expected to total up to approximately $440 million through 2017.
06—Continue