01—Abstract
Summary
Summary of the 10-K filed March 1, 2017. Cited figures are marked; the original filing is the authoritative source.
Willis Towers Watson's 2016 Form 10-K, filed March 1, 2017, reports total revenues of $7.89 billiona for the year ended December 31, 2016, up from $3.83 billion in 2015, driven by the Merger with Towers Watson completed January 4, 2016 and the acquisition of Gras Savoye.
Net income attributable to Willis Towers Watson was $420 millionb, compared with $373 million in 2015, and diluted earnings per share were $3.04. Income from operations was $551 million, which includes $591 million of amortization, $193 million of restructuring costs, and $177 million of transaction and integration expenses. The company reports Adjusted Operating Income of $1.62 billion and Adjusted EBITDA of $1.77 billion, and Adjusted Diluted EPS of $7.96 on a non-GAAP basis.
The company now reports four segments: Human Capital and Benefits (41% of revenues), Corporate Risk and Broking (32%), Investment, Risk and Reinsurance (19%), and Exchange Solutions (8%). Cash flow from operations was $920 millionc, and free cash flow was $702 million. Total debt was $3.87 billion at year-end, and the company repurchased $396 million of shares during 2016.
The board approved a quarterly dividend of $0.53d per share, and an additional $1 billion share repurchase authorization was announced in November 2016. The filing also discloses material legal matters, including the Stanford Financial Group litigation, for which a $120 million settlement in principle was reached and is subject to court approval, and a $50 million increase to the litigation provision in 2016.
Other matters include the City of Houston suit and the Meriter Health Services claim seeking about $190 million. In addition, the filing notes that a $103 million tax benefit recorded in Q4 2016 corrected an immaterial error, which changed reported diluted EPS for the year from $2.26 to $3.04.
02—Key points
Key Highlights
- Total revenues were $7.89 billion for 2016, up from $3.83 billion in 2015, reflecting the Merger with Towers Watson and the Gras Savoye acquisition.
- Net income attributable to Willis Towers Watson was $420 million, or $3.04 diluted EPS, compared with $373 million and $5.41 in 2015.
- Adjusted Diluted EPS was $7.96 and Adjusted EBITDA was $1.77 billion on a non-GAAP basis, with Adjusted Operating Income of $1.62 billion.
- Operating cash flow was $920 million and free cash flow was $702 million, up from $243 million and $97 million in 2015.
- Total debt was $3.87 billion at December 31, 2016, and the company was in compliance with all financial covenants.
- The company repurchased $396 million of shares in 2016, and an additional $1 billion repurchase authorization was approved in November 2016.
- The Stanford litigation was settled in principle for $120 million, subject to court approval, and the company recorded a $50 million increase in its provision in 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 1, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.89B$3.83B | +106.0% |
| Operating Expenses | $7.54B$3.40B | +121.6% |
| Operating Income | $348.00M$427.00M | −18.5% |
| Interest Expense | $184.00M$142.00M | +29.6% |
| Net Income | $420.00M$373.00M | +12.6% |
| EPS (Basic) | $3.07$5.49 | −44.1% |
| EPS (Diluted) | $3.04$5.41 | −43.8% |
| Shares Outstanding (Basic) | 137.00M68.00M | +101.5% |
| Shares Outstanding (Diluted) | 138.00M69.00M | +100.0% |
05—Questions
Frequently Asked Questions
What drove the large increase in revenue and expenses in 2016?
The filing states that revenue growth of $4.1 billion, or 106%, was driven by the Merger with Towers Watson, which closed January 4, 2016, and the acquisition of Gras Savoye. Salaries and benefits rose to $4.6 billion from $2.3 billion, and amortization rose to $591 million from $76 million, primarily from intangible assets acquired in those transactions.
How does the company's profitability compare on GAAP and non-GAAP bases?
GAAP net income attributable to Willis Towers Watson was $420 million and diluted EPS was $3.04. The company's non-GAAP measures, which exclude amortization, restructuring, transaction and integration costs, the Stanford provision, and other items, show Adjusted Operating Income of $1.62 billion, Adjusted EBITDA of $1.77 billion, and Adjusted Diluted EPS of $7.96. The filing notes that these measures may not be comparable to those of other companies.
What is the status of the Stanford litigation?
On March 31, 2016, the company agreed to a settlement in principle of $120 million. Under the term sheet, Willis North America would make a one-time cash payment to the Receiver for distribution to Stanford investors, and bar orders would be sought. A final approval hearing was held January 20, 2017, and the court reserved decision. The company states that the settlement may not be approved and that it continues to dispute the allegations.
What did the company say about its share repurchases and dividends?
The company repurchased 3,170,330 shares in 2016 for $396 million. Dividends paid totaled $199 million in 2016. In February 2017, the board approved a quarterly dividend of $0.53 per share, payable on or about April 17, 2017, for an annual rate of $2.12 per share. About $1.1 billion remained available under open-ended repurchase authorizations at year-end.
06—Continue