01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
Willis Towers Watson plc reported total revenues of $8.2 billiona for 2017, up 4% from $7.9 billion in 2016, with growth in all four segments.
Income from operations rose to $738 millionb from $551 million, and net income attributable to Willis Towers Watson was $568 million, or $4.18 diluted earnings per share, compared with $420 million and $3.04 in 2016. Adjusted operating income increased to $1.8 billion and adjusted diluted earnings per share reached $8.51, versus $7.96 in 2016, with management citing revenue growth across all segments partly offset by higher salary and benefits costs. The company's balance sheet grew, with total assets of $32.5 billion and total debt of $4.5 billion at December 31, 2017, versus $3.9 billion a year earlier.
Cash flow from operations was $862 millionc and free cash flow was $562 million, down from $715 million in 2016, reflecting higher capital expenditures and discretionary compensation payments. The company repurchased $532 million of shares, paid $277 million in dividends, and on February 23, 2018 approved a quarterly dividend of $0.60 per share and a $400 million increase to its share repurchase program. The filing also highlights ongoing legal and regulatory matters, including the Stanford litigation settlement of $120 million pending appeal, a $40 million settlement in principle with the City of Houston, a European Commission civil investigation into aerospace broking, a U.K.
Competition & Markets Authority investment consulting investigation, and an FCA wholesale insurance broker market study. The company stated it could not estimate reasonably possible losses for several of these matters. The 2017 U.S. Tax Reform produced a provisional net income tax benefit of $204 milliond.
02—Key points
Key Highlights
- Total revenues of $8,202 million in 2017, up 4% from $7,887 million in 2016; organic change of 5%
- Income from operations of $738 million, up from $551 million; net income attributable to Willis Towers Watson of $568 million versus $420 million
- Diluted EPS of $4.18 versus $3.04; adjusted diluted EPS of $8.51 versus $7.96 in 2016
- Adjusted EBITDA of $1,901 million versus $1,771 million; adjusted operating income of $1,767 million versus $1,620 million
- Operating cash flow of $862 million and free cash flow of $562 million, down from $715 million in 2016
- Shareholder returns: $532 million of share repurchases and $277 million of dividends paid in 2017; quarterly dividend raised to $0.60 per share for 2018, and repurchase authority increased by $400 million on February 23, 2018
- Provisional net income tax benefit of $204 million from U.S. Tax Reform; the company expects to revise estimates throughout 2018
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $8.20B$7.89B | +4.0% |
| Operating Expenses | $7.69B$7.54B | +1.9% |
| Operating Income | $516.00M$348.00M | +48.3% |
| Interest Expense | $188.00M$184.00M | +2.2% |
| Net Income | $568.00M$420.00M | +35.2% |
| EPS (Basic) | $4.21$3.07 | +37.1% |
| EPS (Diluted) | $4.18$3.04 | +37.5% |
| Shares Outstanding (Basic) | 135.00M137.00M | −1.5% |
| Shares Outstanding (Diluted) | 136.00M138.00M | −1.4% |
05—Questions
Frequently Asked Questions
How did Willis Towers Watson's revenue and profitability change in 2017?
Total revenues rose to $8.2 billion from $7.9 billion, an increase of $315 million or 4%, driven by strong performances in all segments. Income from operations increased by $187 million to $738 million, and net income attributable to Willis Towers Watson rose to $568 million from $420 million. The filing attributes the operating income increase primarily to revenue growth, partly offset by integration costs and higher salary and benefits expense.
What are the main legal and regulatory risks disclosed?
The company disclosed the Stanford Financial Group litigation, for which a $120 million settlement was approved by the court in August 2017 but is subject to pending appeals to the Fifth Circuit; a $40 million settlement in principle with the City of Houston; a European Commission civil investigation into exchange of commercially sensitive information in aerospace broking; a U.K. CMA market investigation into investment consulting, with provisional findings expected in the third quarter of 2018; and an FCA market study of the London wholesale insurance broking sector. For several matters the company stated it could not estimate a reasonably possible loss.
How much debt does the company carry and how is it financed?
Total debt was $4,535 million at December 31, 2017, compared with $3,865 million at December 31, 2016, and the capitalization ratio was 30.9%. In 2017 the company entered into a $1.25 billion revolving credit facility maturing March 2022, repaid $407 million of 6.200% senior notes, and issued $650 million of 3.600% senior notes due 2024. At year end, $362 million was available under the revolving facility and cash and cash equivalents totaled $1.0 billion.
What was the impact of U.S. Tax Reform on the company?
The company recorded a provisional net income tax benefit of $204 million in 2017. This included a $208 million benefit from the reduction of the federal corporate tax rate to 21% and re-measurement of deferred tax liabilities, and a $76 million benefit from releasing a deferred tax liability on certain Towers Watson subsidiaries, offset by a $70 million one-time transition tax expense and other items. The company said the provisional amounts may change as it completes its analysis during 2018.
What is the company's capital return policy after 2017?
On February 23, 2018, the board approved a regular quarterly cash dividend of $0.60 per share, payable on or about April 16, 2018, compared with $0.53 per share paid in each quarter of 2017. The board also approved a $400 million increase to the share repurchase program, in addition to the $601 million remaining at December 31, 2017. The company expects 2018 capital expenditures of approximately $285 million and says cash from operations should adequately provide for these needs.
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