UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission File Number: 001-16503
WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
Ireland (Jurisdiction of incorporation or organization) | 98-0352587 (I.R.S. Employer Identification No.) | |
c/o Willis Group Limited 51 Lime Street, London EC3M 7DQ, England (Address of principal executive offices) | (011) 44-20-3124-6000 (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘large accelerated filer’, ‘accelerated filer’, ‘smaller reporting company’, and ‘emerging growth company’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Ordinary Shares, nominal value $0.000304635 per share | WLTW | NASDAQ Global Select Market |
As of November 1, 2017,April 30, 2019, there were outstanding 132,038,819129,236,178 ordinary shares, nominal value $0.000304635 per share, of the registrant.
WILLIS TOWERS WATSON
INDEX TO FORM 10-Q
For theThree and Nine Months Ended September 30, 2017
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54 |
2
Certain Definitions
The following definitions apply throughout this quarterly report unless the context requires otherwise:
‘ | Willis Towers Watson Public Limited Company, a company organized under the laws of Ireland, and its subsidiaries | |
‘shares’ | The ordinary shares of Willis Towers Watson Public Limited Company, nominal value $0.000304635 per share | |
‘Legacy Willis’ or ‘Willis’ | Willis Group Holdings Public Limited Company and its subsidiaries, predecessor to Willis Towers Watson, prior to the Merger | |
‘Legacy Towers Watson’ or ‘Towers Watson’ | Towers Watson & Co. and its subsidiaries | |
‘Merger’ | Merger of Willis Group Holdings Public Limited Company and Towers Watson & Co. pursuant to the Agreement and Plan of Merger, dated June 29, 2015, as amended on November 19, 2015, and completed on January 4, 2016 | |
‘ | Miller Insurance Services LLP and its subsidiaries | |
‘TRANZACT’ | CD&R TZ Holdings, Inc. and its subsidiaries, doing business as TRANZACT | |
‘U.S.’ | United States | |
‘U.K.’ | United Kingdom | |
‘Brexit’ | The United Kingdom’s planned exit from the European Union on a date yet to be determined | |
‘E.U.’ | European Union or European Union 27 (the number of member countries following the United Kingdom’s exit) | |
‘U.S. GAAP’ | United States Generally Accepted Accounting Principles | |
‘FASB’ | Financial Accounting Standards Board | |
‘ASU’ | Accounting Standards Update | |
‘ASC’ | Accounting Standards Codification | |
‘SEC’ | Securities and Exchange Commission | |
3
Disclaimer Regarding Forward-looking Statements
We have included in this document ‘forward-looking statements’ within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, future capital expenditures, future share repurchases, growth in commissions and fees,revenue, the impact of changes to tax laws on our financial results, business strategies and planned acquisitions, (including the pending acquisition of TRANZACT), competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, and the benefits of the Merger, including our future financial and operating results, plans, objectives, expectations and intentions are forward-looking statements. Also, when we use words such as ‘may,’ ‘will,’ ‘would,’ ‘anticipate,’ ‘believe,’ ‘estimate,’ ‘expect,’ ‘intend,’ ‘plan,’ ‘probably,’ or similar expressions, we are making forward-looking statements. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature.
There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including the following:
• | our ability to successfully establish, execute and achieve our global business strategy as it evolves; |
• | changes in demand for our services, including any decline in defined benefit pension plans or the purchasing of insurance; |
• | changes in general economic, business and political conditions, including changes in the financial markets; |
• | significant competition that we face and the potential for loss of market share and/or profitability; |
• | the impact of seasonality and differences in timing of renewals; |
• | the risk of increased liability or new legal claims arising from our new and existing products and services, and expectations, intentions and outcomes relating to outstanding litigation; |
• | the risk that the Stanford litigation settlement approval will be overturned on appeal, the risk that the bar order may be challenged in other jurisdictions, and the risk that the charge related to the settlement may not be tax deductible; |
• | the risk of material adverse outcomes on existing litigation or investigation matters; |
• | changes in the regulatory environment in which we operate, including, among other risks, the impact of pending competition law and regulatory investigations; |
• | various claims, government inquiries or investigations or the potential for regulatory action; |
• | our ability to make divestitures or acquisitions and our ability to integrate or manage such acquired businesses (including with respect to the pending acquisition of TRANZACT); |
• | failure to protect client data or breaches of information systems; |
• | the ability to comply with complex and evolving regulations related to data privacy and cyber security; |
• | the potential impact of Brexit; |
• | our ability to properly identify and manage conflicts of interest; |
• | reputational damage; |
• | reliance on third-party services; |
• | the loss of key employees; |
• | our ability to successfully manage ongoing organizational changes; |
• | disasters or business continuity problems; |
• | doing business internationally, including the impacts of foreign currency exchange rates; |
• | compliance with extensive government regulation; |
• | the risk of sanctions imposed by governments, or changes to associated sanction regulations; |
• | technological changes; |
• | changes and developments in the insurance industry or the U.S. healthcare system; |
4
• | the risk that we may not be able to repurchase our intended number of outstanding shares due to merger & acquisition activity or investment opportunities, market or business conditions, or other factors; |
• | the inability to protect the Company’s intellectual property rights, or the potential infringement upon the intellectual property rights of others; |
• | fluctuations in our pension assets and liabilities; |
• | our ability to meet our financial guidance; |
• | our capital structure, including indebtedness amounts, the limitations imposed by the covenants in the documents governing such indebtedness and the maintenance of the financial and disclosure controls and procedures of each; |
• | our ability to obtain financing on favorable terms or at all; |
• | adverse changes in our credit ratings; |
• | the impact of recent changes to U.S. tax laws, including on our effective tax rate, and the enactment of additional, or the revision of existing, state, federal, and/or foreign tax laws and regulations; |
• | U.S. federal income tax consequences to U.S. persons owning at least 10% of our shares; |
• | changes in accounting principles, estimates and assumptions, including the impact of the adoption of the new leasing standard; |
• | fluctuation in revenue against our relatively fixed expenses; |
• | the laws of Ireland being different from the laws of the United States and potentially affording less protections to the holders of our securities; and |
• | our holding company structure potentially preventing us from being able to receive dividends or other distributions in needed amounts from our subsidiaries. |
The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results. For more information, please see Item 1A. Risk Factors in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K, and our subsequent filings with the Securities and Exchange Commission.SEC. Copies are available online at http://www.sec.gov or www.willistowerswatson.com.
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.
Our forward-looking statements speak only as of the date made, and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against relying on these forward-looking statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Comprehensive Income
(In millions of U.S. dollars, except per share data)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Revenue |
| $ | 2,312 |
|
| $ | 2,292 |
|
Costs of providing services |
|
|
|
|
|
|
|
|
Salaries and benefits |
|
| 1,348 |
|
|
| 1,377 |
|
Other operating expenses |
|
| 418 |
|
|
| 423 |
|
Depreciation |
|
| 54 |
|
|
| 49 |
|
Amortization |
|
| 127 |
|
|
| 141 |
|
Transaction and integration expenses |
|
| 6 |
|
|
| 43 |
|
Total costs of providing services |
|
| 1,953 |
|
|
| 2,033 |
|
Income from operations |
|
| 359 |
|
|
| 259 |
|
Interest expense |
|
| (54 | ) |
|
| (51 | ) |
Other income, net |
|
| 55 |
|
|
| 56 |
|
INCOME FROM OPERATIONS BEFORE INCOME TAXES |
|
| 360 |
|
|
| 264 |
|
Provision for income taxes |
|
| (67 | ) |
|
| (43 | ) |
NET INCOME |
|
| 293 |
|
|
| 221 |
|
Income attributable to non-controlling interests |
|
| (6 | ) |
|
| (6 | ) |
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 287 |
|
| $ | 215 |
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 2.21 |
|
| $ | 1.62 |
|
Diluted earnings per share |
| $ | 2.20 |
|
| $ | 1.61 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income before non-controlling interests |
| $ | 315 |
|
| $ | 305 |
|
Comprehensive income attributable to non-controlling interests |
|
| (5 | ) |
|
| (7 | ) |
Comprehensive income attributable to Willis Towers Watson |
| $ | 310 |
|
| $ | 298 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | ||||||||||||||||
Commissions and fees | $ | 1,832 | $ | 1,761 | $ | 6,065 | $ | 5,874 | ||||||||
Interest and other income | 20 | 16 | 59 | 86 | ||||||||||||
Total revenues | 1,852 | 1,777 | 6,124 | 5,960 | ||||||||||||
Costs of providing services | ||||||||||||||||
Salaries and benefits | 1,145 | 1,119 | 3,484 | 3,519 | ||||||||||||
Other operating expenses | 366 | 370 | 1,158 | 1,171 | ||||||||||||
Depreciation | 54 | 45 | 151 | 132 | ||||||||||||
Amortization | 141 | 157 | 441 | 443 | ||||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | ||||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | ||||||||||||
Total costs of providing services | 1,811 | 1,776 | 5,496 | 5,497 | ||||||||||||
Income from operations | 41 | 1 | 628 | 463 | ||||||||||||
Interest expense | 47 | 45 | 139 | 138 | ||||||||||||
Other expense, net | 29 | 14 | 79 | 26 | ||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (35 | ) | (58 | ) | 410 | 299 | ||||||||||
Provision for/(benefit from) income taxes | 19 | (26 | ) | 73 | 11 | |||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | (32 | ) | 337 | 288 | ||||||||||
Interest in earnings of associates, net of tax | — | 1 | 2 | 2 | ||||||||||||
NET (LOSS)/INCOME | (54 | ) | (31 | ) | 339 | 290 | ||||||||||
Income attributable to non-controlling interests | — | (1 | ) | (16 | ) | (12 | ) | |||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (54 | ) | $ | (32 | ) | $ | 323 | $ | 278 | ||||||
EARNINGS PER SHARE | ||||||||||||||||
Basic (loss)/earnings per share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.38 | $ | 2.03 | ||||||
Diluted (loss)/earnings per share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.36 | $ | 2.00 | ||||||
Cash dividends declared per share | $ | 0.53 | $ | 0.48 | $ | 1.59 | $ | 1.44 | ||||||||
Comprehensive income/(loss) before non-controlling interests | $ | 34 | $ | (73 | ) | $ | 546 | $ | 96 | |||||||
Comprehensive loss/(income) attributable to non-controlling interests | 12 | 1 | (15 | ) | (2 | ) | ||||||||||
Comprehensive income/(loss) attributable to Willis Towers Watson | $ | 46 | $ | (72 | ) | $ | 531 | $ | 94 |
See accompanying notes to the condensed consolidated financial statements
6
WILLIS TOWERS WATSON
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 992 |
|
| $ | 1,033 |
|
Fiduciary assets |
|
| 15,129 |
|
|
| 12,604 |
|
Accounts receivable, net |
|
| 2,490 |
|
|
| 2,379 |
|
Prepaid and other current assets |
|
| 409 |
|
|
| 404 |
|
Total current assets |
|
| 19,020 |
|
|
| 16,420 |
|
Fixed assets, net |
|
| 957 |
|
|
| 942 |
|
Goodwill |
|
| 10,456 |
|
|
| 10,465 |
|
Other intangible assets, net |
|
| 3,187 |
|
|
| 3,318 |
|
Right-of-use assets |
|
| 946 |
|
|
| — |
|
Pension benefits assets |
|
| 833 |
|
|
| 773 |
|
Other non-current assets |
|
| 494 |
|
|
| 467 |
|
Total non-current assets |
|
| 16,873 |
|
|
| 15,965 |
|
TOTAL ASSETS |
| $ | 35,893 |
|
| $ | 32,385 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Fiduciary liabilities |
| $ | 15,129 |
|
| $ | 12,604 |
|
Deferred revenue and accrued expenses |
|
| 1,240 |
|
|
| 1,647 |
|
Current debt |
|
| 187 |
|
|
| 186 |
|
Current lease liabilities |
|
| 158 |
|
|
| — |
|
Other current liabilities |
|
| 940 |
|
|
| 864 |
|
Total current liabilities |
|
| 17,654 |
|
|
| 15,301 |
|
Long-term debt |
|
| 4,518 |
|
|
| 4,389 |
|
Liability for pension benefits |
|
| 1,135 |
|
|
| 1,170 |
|
Deferred tax liabilities |
|
| 544 |
|
|
| 559 |
|
Provision for liabilities |
|
| 543 |
|
|
| 540 |
|
Long-term lease liabilities |
|
| 961 |
|
|
| — |
|
Other non-current liabilities |
|
| 296 |
|
|
| 429 |
|
Total non-current liabilities |
|
| 7,997 |
|
|
| 7,087 |
|
TOTAL LIABILITIES |
|
| 25,651 |
|
|
| 22,388 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
REDEEMABLE NON-CONTROLLING INTEREST |
|
| 28 |
|
|
| 26 |
|
EQUITY (i) |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
| 10,630 |
|
|
| 10,615 |
|
Retained earnings |
|
| 1,439 |
|
|
| 1,201 |
|
Accumulated other comprehensive loss, net of tax |
|
| (1,974 | ) |
|
| (1,961 | ) |
Treasury shares, at cost, 17,519 shares in 2019 and 2018, and 40,000 shares, €1 nominal value, in 2019 and 2018 |
|
| (3 | ) |
|
| (3 | ) |
Total Willis Towers Watson shareholders’ equity |
|
| 10,092 |
|
|
| 9,852 |
|
Non-controlling interests |
|
| 122 |
|
|
| 119 |
|
Total equity |
|
| 10,214 |
|
|
| 9,971 |
|
TOTAL LIABILITIES AND EQUITY |
| $ | 35,893 |
|
| $ | 32,385 |
|
September 30, 2017 | December 31, 2016 | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 912 | $ | 870 | ||||
Fiduciary assets | 12,206 | 10,505 | ||||||
Accounts receivable, net | 2,155 | 2,080 | ||||||
Prepaid and other current assets | 418 | 337 | ||||||
Total current assets | 15,691 | 13,792 | ||||||
Fixed assets, net | 937 | 839 | ||||||
Goodwill | 10,529 | 10,413 | ||||||
Other intangible assets, net | 4,034 | 4,368 | ||||||
Pension benefits assets | 649 | 488 | ||||||
Other non-current assets | 432 | 353 | ||||||
Total non-current assets | 16,581 | 16,461 | ||||||
TOTAL ASSETS | $ | 32,272 | $ | 30,253 | ||||
LIABILITIES AND EQUITY | ||||||||
Fiduciary liabilities | $ | 12,206 | $ | 10,505 | ||||
Deferred revenue and accrued expenses | 1,472 | 1,481 | ||||||
Short-term debt and current portion of long-term debt | 85 | 508 | ||||||
Other current liabilities | 793 | 876 | ||||||
Total current liabilities | 14,556 | 13,370 | ||||||
Long-term debt | 4,493 | 3,357 | ||||||
Liability for pension benefits | 1,207 | 1,321 | ||||||
Deferred tax liabilities | 856 | 864 | ||||||
Provision for liabilities | 603 | 575 | ||||||
Other non-current liabilities | 476 | 532 | ||||||
Total non-current liabilities | 7,635 | 6,649 | ||||||
TOTAL LIABILITIES | 22,191 | 20,019 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
REDEEMABLE NON-CONTROLLING INTEREST | 55 | 51 | ||||||
EQUITY (i) | ||||||||
Additional paid-in capital | 10,501 | 10,596 | ||||||
Retained earnings | 1,130 | 1,452 | ||||||
Accumulated other comprehensive loss, net of tax | (1,676 | ) | (1,884 | ) | ||||
Treasury shares, at cost, 263,899 shares in 2017 and 795,816 shares in 2016, and 40,000 shares, €1 nominal value, in 2017 and 2016 | (40 | ) | (99 | ) | ||||
Total Willis Towers Watson shareholders’ equity | 9,915 | 10,065 | ||||||
Non-controlling interests | 111 | 118 | ||||||
Total equity | 10,026 | 10,183 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 32,272 | $ | 30,253 |
(i) | |
Equity includes (a) Ordinary shares $0.000304635 nominal value; Authorized 1,510,003,775; Issued |
See accompanying notes to the condensed consolidated financial statements
7
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
CASH FLOWS (USED IN)/FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
NET INCOME |
| $ | 293 |
|
| $ | 221 |
|
Adjustments to reconcile net income to total net cash from operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 54 |
|
|
| 51 |
|
Amortization |
|
| 127 |
|
|
| 141 |
|
Non-cash lease expense |
|
| 36 |
|
|
| — |
|
Net periodic benefit of defined benefit pension plans |
|
| (32 | ) |
|
| (61 | ) |
Provision for doubtful receivables from clients |
|
| 8 |
|
|
| 7 |
|
Benefit from deferred income taxes |
|
| (28 | ) |
|
| (26 | ) |
Share-based compensation |
|
| 10 |
|
|
| 3 |
|
Net loss on disposal of operations |
|
| — |
|
|
| 9 |
|
Non-cash foreign exchange loss |
|
| 8 |
|
|
| 17 |
|
Other, net |
|
| 4 |
|
|
| (3 | ) |
Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (121 | ) |
|
| (43 | ) |
Fiduciary assets |
|
| (2,490 | ) |
|
| (1,326 | ) |
Fiduciary liabilities |
|
| 2,490 |
|
|
| 1,326 |
|
Other assets |
|
| (37 | ) |
|
| 46 |
|
Other liabilities |
|
| (379 | ) |
|
| (393 | ) |
Provisions |
|
| 10 |
|
|
| 49 |
|
Net cash (used in)/from operating activities |
|
| (47 | ) |
|
| 18 |
|
CASH FLOWS USED IN INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Additions to fixed assets and software for internal use |
|
| (57 | ) |
|
| (65 | ) |
Capitalized software costs |
|
| (17 | ) |
|
| (13 | ) |
Acquisitions of operations, net of cash acquired |
|
| (1 | ) |
|
| (5 | ) |
Net proceeds from sale of operations |
|
| — |
|
|
| 4 |
|
Net cash used in investing activities |
|
| (75 | ) |
|
| (79 | ) |
CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net borrowings on revolving credit facility |
|
| 138 |
|
|
| 61 |
|
Repayments of debt |
|
| (1 | ) |
|
| (21 | ) |
Proceeds from issuance of shares |
|
| 22 |
|
|
| 11 |
|
Cash paid for employee taxes on withholding shares |
|
| — |
|
|
| (7 | ) |
Dividends paid |
|
| (77 | ) |
|
| (68 | ) |
Net cash from/(used in) financing activities |
|
| 82 |
|
|
| (24 | ) |
DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (40 | ) |
|
| (85 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| (1 | ) |
|
| 9 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
| 1,033 |
|
|
| 1,030 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 992 |
|
| $ | 954 |
|
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
NET INCOME | $ | 339 | $ | 290 | ||||
Adjustments to reconcile net income to total net cash from operating activities: | ||||||||
Depreciation | 169 | 132 | ||||||
Amortization | 441 | 443 | ||||||
Net periodic benefit of defined benefit pension plans | (106 | ) | (68 | ) | ||||
Provision for doubtful receivables from clients | 15 | 25 | ||||||
Benefit from deferred income taxes | (56 | ) | (120 | ) | ||||
Share-based compensation | 48 | 94 | ||||||
Net loss on disposal of operations | 10 | — | ||||||
Non-cash foreign exchange loss/(gain) | 79 | (23 | ) | |||||
Other, net | (21 | ) | 15 | |||||
Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | ||||||||
Accounts receivable | 31 | 20 | ||||||
Fiduciary assets | (1,233 | ) | (1,076 | ) | ||||
Fiduciary liabilities | 1,233 | 1,076 | ||||||
Other assets | (95 | ) | (211 | ) | ||||
Other liabilities | (351 | ) | (48 | ) | ||||
Provisions | 12 | 72 | ||||||
Net cash from operating activities | 515 | 621 | ||||||
CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES | ||||||||
Additions to fixed assets and software for internal use | (198 | ) | (151 | ) | ||||
Capitalized software costs | (52 | ) | (64 | ) | ||||
Acquisitions of operations, net of cash acquired | (13 | ) | 476 | |||||
Other, net | 1 | 22 | ||||||
Net cash (used in)/from investing activities | (262 | ) | 283 | |||||
CASH FLOWS USED IN FINANCING ACTIVITIES | ||||||||
Net borrowings/(payments) on revolving credit facility | 675 | (389 | ) | |||||
Senior notes issued | 650 | 1,606 | ||||||
Proceeds from issuance of other debt | 32 | 404 | ||||||
Debt issuance costs | (9 | ) | (14 | ) | ||||
Repayments of debt | (714 | ) | (1,861 | ) | ||||
Repurchase of shares | (462 | ) | (222 | ) | ||||
Proceeds from issuance of shares | 44 | 44 | ||||||
Payments related to share cancellation | (177 | ) | — | |||||
Payments of deferred and contingent consideration related to acquisitions | (43 | ) | (64 | ) | ||||
Cash paid for employee taxes on withholding shares | (14 | ) | (13 | ) | ||||
Dividends paid | (209 | ) | (133 | ) | ||||
Acquisitions of and dividends paid to non-controlling interests | (19 | ) | (17 | ) | ||||
Net cash used in financing activities | (246 | ) | (659 | ) | ||||
INCREASE IN CASH AND CASH EQUIVALENTS | 7 | 245 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 35 | (10 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 870 | 532 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 912 | $ | 767 |
See accompanying notes to the condensed consolidated financial statements
8
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Changes in Equity
(In millions of U.S. dollars and number of shares in thousands)
(Unaudited)
Shares outstanding (i) | Additional paid-in capital | Retained earnings | Treasury shares | AOCL (ii) | Total WTW shareholders’ equity | Non-controlling interests | Total equity | Redeemable Non-controlling interest (iii) | Total | |||||||||||||||||||||||||||||||
Balance as of December 31, 2015 | 68,625 | $ | 1,672 | $ | 1,597 | $ | (3 | ) | $ | (1,037 | ) | $ | 2,229 | $ | 131 | $ | 2,360 | $ | 53 | |||||||||||||||||||||
Shares repurchased | (1,791 | ) | — | (222 | ) | — | — | (222 | ) | — | (222 | ) | — | |||||||||||||||||||||||||||
Net income | — | — | 278 | — | — | 278 | 6 | 284 | 6 | $ | 290 | |||||||||||||||||||||||||||||
Dividends | — | — | (198 | ) | — | — | (198 | ) | (8 | ) | (206 | ) | (4 | ) | ||||||||||||||||||||||||||
Other comprehensive (loss)/income | — | — | — | — | (184 | ) | (184 | ) | (8 | ) | (192 | ) | (2 | ) | $ | (194 | ) | |||||||||||||||||||||||
Issuance of shares under employee stock compensation plans | 873 | 44 | — | — | — | 44 | — | 44 | — | |||||||||||||||||||||||||||||||
Issuance of shares for acquisitions | 69,500 | 8,686 | — | — | — | 8,686 | — | 8,686 | — | |||||||||||||||||||||||||||||||
Replacement share-based compensation awards issued on acquisition | — | 37 | — | — | — | 37 | — | 37 | — | |||||||||||||||||||||||||||||||
Share-based compensation | — | 94 | — | — | — | 94 | — | 94 | — | |||||||||||||||||||||||||||||||
Additional non-controlling interests | — | 5 | — | — | — | 5 | 13 | 18 | — | |||||||||||||||||||||||||||||||
Foreign currency translation | — | (2 | ) | — | — | — | (2 | ) | — | (2 | ) | — | ||||||||||||||||||||||||||||
Balance as of September 30, 2016 | 137,207 | $ | 10,536 | $ | 1,455 | $ | (3 | ) | $ | (1,221 | ) | $ | 10,767 | $ | 134 | $ | 10,901 | $ | 53 | |||||||||||||||||||||
Balance as of December 31, 2016 | 136,297 | $ | 10,596 | $ | 1,452 | $ | (99 | ) | $ | (1,884 | ) | $ | 10,065 | $ | 118 | $ | 10,183 | $ | 51 | |||||||||||||||||||||
Adoption of ASU 2016-16 (See Note 2) | — | — | (3 | ) | — | — | (3 | ) | — | (3 | ) | — | ||||||||||||||||||||||||||||
Shares repurchased | (3,354 | ) | — | (425 | ) | (37 | ) | — | (462 | ) | — | (462 | ) | — | ||||||||||||||||||||||||||
Shares canceled | (1,415 | ) | (177 | ) | — | 96 | — | (81 | ) | — | (81 | ) | — | |||||||||||||||||||||||||||
Net income | — | — | 323 | — | — | 323 | 9 | 332 | 7 | $ | 339 | |||||||||||||||||||||||||||||
Dividends | — | — | (217 | ) | — | — | (217 | ) | (15 | ) | (232 | ) | (3 | ) | ||||||||||||||||||||||||||
Other comprehensive income/(loss) | — | — | — | — | 208 | 208 | (1 | ) | 207 | — | $ | 207 | ||||||||||||||||||||||||||||
Issuance of shares under employee stock compensation plans | 755 | 44 | — | — | — | 44 | — | 44 | — | |||||||||||||||||||||||||||||||
Share-based compensation | — | 48 | — | — | — | 48 | — | 48 | — | |||||||||||||||||||||||||||||||
Additional non-controlling interests | — | (1 | ) | — | — | — | (1 | ) | — | (1 | ) | — | ||||||||||||||||||||||||||||
Foreign currency translation | — | (9 | ) | — | — | — | (9 | ) | — | (9 | ) | — | ||||||||||||||||||||||||||||
Balance as of September 30, 2017 | 132,283 | $ | 10,501 | $ | 1,130 | $ | (40 | ) | $ | (1,676 | ) | $ | 9,915 | $ | 111 | $ | 10,026 | $ | 55 |
|
| Shares outstanding |
|
| Additional paid-in capital |
|
| Retained earnings |
|
| Treasury shares |
|
| AOCL (i) |
|
| Total WTW shareholders’ equity |
|
| Non-controlling interests |
|
| Total equity |
|
|
|
| Redeemable non-controlling interest (ii) |
|
| Total |
| ||||||||||
Balance as of December 31, 2017 |
|
| 132,140 |
|
| $ | 10,538 |
|
| $ | 1,104 |
|
| $ | (3 | ) |
| $ | (1,513 | ) |
| $ | 10,126 |
|
| $ | 123 |
|
| $ | 10,249 |
|
|
|
| $ | 28 |
|
|
|
|
|
Adoption of ASC 606 |
|
| — |
|
|
| — |
|
|
| 317 |
|
|
| — |
|
|
| — |
|
|
| 317 |
|
|
| — |
|
|
| 317 |
|
|
|
|
| — |
|
|
|
|
|
Net income |
|
| — |
|
|
| — |
|
|
| 215 |
|
|
| — |
|
|
| — |
|
|
| 215 |
|
|
| 6 |
|
|
| 221 |
|
|
|
|
| — |
|
| $ | 221 |
|
Dividends declared ($0.60 per share) |
|
| — |
|
|
| — |
|
|
| (79 | ) |
|
| — |
|
|
| — |
|
|
| (79 | ) |
|
| — |
|
|
| (79 | ) |
|
|
|
| — |
|
|
|
|
|
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83 |
|
|
| 83 |
|
|
| 1 |
|
|
| 84 |
|
|
|
|
| — |
|
| $ | 84 |
|
Issuance of shares under employee stock compensation plans |
|
| 277 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
| 11 |
|
|
|
|
| — |
|
|
|
|
|
Share-based compensation and net settlements |
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
|
|
| — |
|
|
|
|
|
Foreign currency translation |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
|
|
|
| — |
|
|
|
|
|
Balance as of March 31, 2018 |
|
| 132,417 |
|
| $ | 10,548 |
|
| $ | 1,557 |
|
| $ | (3 | ) |
| $ | (1,430 | ) |
| $ | 10,672 |
|
| $ | 130 |
|
| $ | 10,802 |
|
|
|
| $ | 28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
|
| 128,922 |
|
| $ | 10,615 |
|
| $ | 1,201 |
|
| $ | (3 | ) |
| $ | (1,961 | ) |
| $ | 9,852 |
|
| $ | 119 |
|
| $ | 9,971 |
|
|
|
| $ | 26 |
|
|
|
|
|
Adoption of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| 36 |
|
|
| — |
|
|
| (36 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
|
Net income |
|
| — |
|
|
| — |
|
|
| 287 |
|
|
| — |
|
|
| — |
|
|
| 287 |
|
|
| 4 |
|
|
| 291 |
|
|
|
|
| 2 |
|
| $ | 293 |
|
Dividends declared ($0.65 per share) |
|
| — |
|
|
| — |
|
|
| (85 | ) |
|
| — |
|
|
| — |
|
|
| (85 | ) |
|
| — |
|
|
| (85 | ) |
|
|
|
| — |
|
|
|
|
|
Other comprehensive income/(loss) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| 23 |
|
|
| (1 | ) |
|
| 22 |
|
|
|
|
| — |
|
| $ | 22 |
|
Issuance of shares under employee stock compensation plans |
|
| 289 |
|
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 22 |
|
|
|
|
| — |
|
|
|
|
|
Share-based compensation and net settlements |
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
|
|
|
| — |
|
|
|
|
|
Balance as of March 31, 2019 |
|
| 129,211 |
|
| $ | 10,630 |
|
| $ | 1,439 |
|
| $ | (3 | ) |
| $ | (1,974 | ) |
| $ | 10,092 |
|
| $ | 122 |
|
| $ | 10,214 |
|
|
|
| $ | 28 |
|
|
|
|
|
_________
(i) | |
Accumulated other comprehensive loss, net of tax (‘AOCL’). |
(ii) | |
The non-controlling interest is related to Max Matthiessen Holding AB. |
See accompanying notes to the condensed consolidated financial statements
9
WILLIS TOWERS WATSON
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts in millions of U.S. dollars, except per share data)
(Unaudited)
Note 1 — Nature of Operations
Willis Towers Watson plc was formed upon completion of the Merger on January 4, 2016, between Willis and Towers Watson. See Note 3 — Merger for additional information pertaining to this transaction.
We offer our clients a broad range of services to help them to identify and control their risks, and to enhance business performance by improving their ability to attract, retain and engage a talented workforce. Our risk control services range from strategic risk consulting (including providing actuarial analysis), to a variety of due diligence services, to the provision of practical on-site risk control services (such as health and safety or property loss control consulting), as well as analytical and advisory services (such as hazard modeling and reinsurance optimization studies). We assist clients in planning how to manage incidents or crises when they occur. These services include contingency planning, security audits and product tampering plans. We help our clients enhance their business performance by delivering consulting services, technology and solutions that help organizationsthem anticipate, identify and capitalize on emerging opportunities in human capital management, as well as offer investment advice to help our clientsthem develop disciplined and efficient strategies to meet their investment goals.
As an insurance broker, we act as an intermediary between our clients and insurance carriers by advising our clients on their risk management requirements, helping clientsthem to determine the best means of managing risk and negotiating and placing insurance with insurance carriers through our global distribution network. We operate the largesta private Medicare exchange in the United States (‘U.S.’). Through this exchange and those for active employees, we help our clients move to a more sustainable economic model by capping and controlling the costs associated with healthcare benefits.
We believe our broad perspective allows us to see the critical intersections between talent, assets and ideas - the dynamic formula that drives business performance.
Note 2—Basis of Presentation and Recent Accounting Pronouncements
Basis of Presentation
The accompanying unaudited quarterly condensed consolidated financial statements of Willis Towers Watson and our subsidiaries are presented in accordance with the rules and regulations of the Securities and Exchange Commission (‘SEC’)SEC for quarterly reports on Form 10-Q and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles (‘GAAP’). We have reclassified certain prior period amounts to conform to current period presentation due to the adoption of certain updated accounting standards (see below for further discussion).GAAP. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial statements and results for the interim periods. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements should be read together with the Company’s Annual Report on Form 10-K, filed with the SEC on March 1, 2017,February 27, 2019, and may be accessed via EDGAR on the SEC’s web site at www.sec.gov.
The results of operations for the three and nine months ended September 30, 2017March 31, 2019 are not necessarily indicative of the results that can be expected for the entire year. The Company experiences seasonal fluctuations of its commissions and fees revenue. Commissions and fees areRevenue is typically higher during the Company’s first and fourth quarters due to the timing of broking-related activities. The results reflect certain estimates and assumptions made by management, including those estimates used in calculating acquisition consideration and fair value of tangible and intangible assets and liabilities, professional liability claims, estimated bonuses, valuation of billed and unbilled receivables, and anticipated tax liabilities that affect the amounts reported in the condensed consolidated financial statements and related notes.
Recent Accounting Pronouncements
Not yet adopted
In January 2017, the FASB issued ASU No. 2017-04,
Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, current U.S. GAAP requires the performance of procedures to determine the fair value at the10
financial statements upon adopting this ASU since the most recent Step 1 goodwill impairment test resulted in fair values in excess of carrying values for all reporting units at October 1, 2016.
In March 2017,August 2018, the FASB issued two ASU’s as part of its disclosure framework project. The focus of this project is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of an entity’s financial statements. Both of these ASU’s remove certain disclosure requirements and add or modify other requirements. The two ASU’s are as follows:
• | ASU No. 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement – effective for the Company on January 1, 2020, although early adoption is permitted immediately. Additionally, companies are permitted to immediately adopt the removal or modifications of disclosures as provided in this ASU, and adopt the additional disclosures on the effective date of the ASU. Certain provisions of the ASU must be adopted retrospectively, while others must be adopted prospectively. The Company is still assessing when and how it will adopt this ASU, but does not expect there to be a material impact to the notes to the condensed consolidated financial statements. |
• | ASU No. 2018-14, Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans – this ASU will impact certain 10-K disclosures and will be effective for the Company for its 2020 Annual Report on Form 10-K. Early adoption is permitted and must be applied on a retrospective basis. The Company is still assessing when it will adopt this ASU, but does not expect there to be a material impact to the notes to the condensed consolidated financial statements. |
Adopted
In February 2016, the FASB issued ASU No. 2017-07,
In August 2017, the FASB issued ASU No. 2017-12,
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which provides amendments under six specific objectives to better align risk management activities and financial reporting, and to simplify disclosure, presentation, hedging and the testing and measurement of ineffectiveness. The ASUIn March 2016,February 2018, the FASB issued ASU No. 2016-09,
Changes to Accounting Policies
As a result of the adoption of ASC 842 on January 1, 2019, we have updated our accounting policies for leases. These policies govern the recognition and accounting for leases in tandem with the prospectiveCompany’s option to elect certain practical expedients offered by ASC 842. These policies are consistent with the modified retrospective approach guidance and with those practical expedients offered by ASC 842 that we have elected to apply. Our lease policies for 2018 and prior reporting periods are reflected in the notes to our annual consolidated financial statements as filed on February 27, 2019, in our Annual Report on Form 10-K.
Leases
As an advisory, broking and solutions company providing services to clients in more than 140 countries, we enter into lease agreements from time to time, primarily for the use of real estate for our office space. We determine if an arrangement is a lease at the inception of the contract, and the nature of our operations is such that it is generally clear whether an arrangement contains a lease and what underlying asset is being leased. The majority of the leases into which we enter are operating leases. Upon entering into leases, we obtain the right to control the use of an identified space for a lease term and recognize these right-of-use (‘ROU’) assets on our condensed consolidated balance sheets with corresponding lease liabilities reflecting our obligation to make the related lease payments. ROU assets are amortized over the term of the lease.
Our real estate leases are generally long-term in nature, with terms that typically range from 5 to 15 years. Our most significant lease supports our London market operations with a lease term through 2032. Our real estate leases often contain options to renew the lease, either through exercise of the option or through automatic renewal. Additionally, certain leases have options to cancel the lease with appropriate notice to the landlord prior to the end of the stated lease term. As we enter into new leases after the adoption of ASC 842, we will consider these options as we assess lease terms in our recognized ROU assets and lease liabilities. If we are reasonably certain to exercise an option to renew a lease, we include this period in our lease term. To the recognitionextent that we have the option to cancel a lease, we recognize our ROU assets and lease liabilities using the term that would result from using this earlier date. If a significant penalty is required to cancel the lease at an earlier date, we assess our lease term as ending at the point when no significant penalty would be due.
In addition to payments for previously-agreed base rent, many of excess tax benefitsour lease agreements are subject to variable and deficienciesunknown future payments, typically in the condensed consolidated statementsform of comprehensive income, wecommon area maintenance charges (a non-lease component as defined by ASC 842) or real estate taxes. These variable payments are excluded from our lease liabilities and ROU assets, and instead are recognized a $3 million and $5 million tax benefit in provision for income taxes during the three and nine months ended September 30, 2017, respectively. In addition, we elected to prospectively adopt the amendment to present excess tax benefitsas lease expense within other operating expenses on share-based compensation as an operating activity, resulting in the recognition of a $5 million excess tax benefit as an operating activity in the condensed consolidated statement of cash flowscomprehensive income as the amounts are incurred. To the extent that we have agreed to fixed charges for common area maintenance or other non-lease components, or our base rent increases by an index or rate (most commonly an inflation rate), these amounts are included in the nine months ended September 30, 2017.measurement of our lease liabilities and ROU assets. We have elected the practical expedient under ASC 842 which allows the lease and non-lease components to continuebe combined in our measurement of lease liabilities and ROU assets.
From time to estimate expected forfeitures. We also retrospectively adopted the amendmenttime we may enter into subleases if we are unable to present cash paymentscancel or fully occupy a space and are able to tax authorities in connection with shares withheld to meet statutory tax withholding requirements asfind an appropriate subtenant. However, entering subleases is not a financing activity. As a result, this $13 million
Because the discount rates implicit in our leases are generally not readily determinable, we are required to net cash used in financing activitiesuse judgment in the condensed consolidated statement of cash flows for the nine months ended September 30, 2016.
Our leases generally do not subject us to restrictive covenants and Citadel Merger Sub, Inc.contain no residual value guarantees.
Note 3—Acquisitions
TRANZACT Acquisition
On March 30, 2019, the Company entered into an agreement to acquire TRANZACT, a wholly-owned subsidiaryU.S.-based provider of Willis formedcomprehensive, direct-to-consumer sales and marketing solutions for leading insurance carriers in the purposeU.S. TRANZACT leverages digital, data and direct marketing solutions to deliver qualified leads, fully-provisioned sales and robust customer management systems to brands seeking to acquire and manage large numbers of facilitating this transaction (‘Merger Sub’), Merger Sub merged with and into Towers Watson, with Towers Watson continuing asconsumers. Subject to certain adjustments, the surviving corporation and as a wholly-owned subsidiaryconsideration consists of Willis.
Alston Gayler Acquisition
On December 29, 2015,21, 2018, the Company, through its majority-owned subsidiary, Miller, completed the transaction to acquire Alston Gayler, a U.K.-based insurance and reinsurance broker, for total consideration of $67 million. Cash consideration of $35 million was paid upon completion of the acquisition, with the remaining $32 million deferred consideration to be paid in equal installments on the first, second and third business day immediately prior toanniversaries of the closing date of the Merger, Towers Watson declaredacquisition.
The Company has preliminarily recognized $36 million of intangible assets, primarily arising from client relationships, and paid a pre-merger special dividend$24 million of $10.00 per share of its common stock, and approximately $694 million in the aggregate based on approximately 69 million Towers Watson shares issued and outstanding at December 29, 2015.
January 4, 2016 | ||||
Number of shares of Towers Watson common stock outstanding as of January 4, 2016 | 69 million | |||
Exchange ratio | 2.6490 | |||
Number of Willis Group Holdings shares issued (prior to reverse stock split) | 184 million | |||
Willis Group Holdings price per share on January 4, 2016 | $ | 47.18 | ||
Fair value of 184 million Willis ordinary shares | $ | 8,686 | ||
Value of equity awards assumed | 37 | |||
Aggregate Merger consideration | $ | 8,723 |
January 4, 2016 | ||||
Cash and cash equivalents | $ | 476 | ||
Accounts receivable, net | 825 | |||
Other current assets | 82 | |||
Fixed assets, net | 204 | |||
Goodwill | 6,783 | |||
Intangible assets | 3,991 | |||
Pension benefits assets | 67 | |||
Other non-current assets | 115 | |||
Deferred tax liabilities | (1,151 | ) | ||
Liability for pension benefits | (923 | ) | ||
Other current liabilities (i) | (667 | ) | ||
Other non-current liabilities (ii) | (331 | ) | ||
Long-term debt, including current portion (iii) | (740 | ) | ||
Net assets acquired | $ | 8,731 | ||
Non-controlling interests acquired | (8 | ) | ||
Allocated aggregate Merger consideration | $ | 8,723 |
12
Note 4—Revenue
Disaggregation of Revenue
The Company reports revenue by segment in the acquisition.Note 5 — Segment Information. The purchase price allocation was completefollowing table presents revenue by service offering and segment, as of December 31, 2016.
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| HCB |
|
| CRB |
|
| IRR |
|
| BDA |
|
| Corporate (ii) |
|
| Total |
| ||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||||||
Broking |
| $ | 73 |
|
| $ | 76 |
|
| $ | 660 |
|
| $ | 664 |
|
| $ | 405 |
|
| $ | 391 |
|
| $ | 3 |
|
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,141 |
|
| $ | 1,135 |
|
Consulting (i) |
|
| 580 |
|
|
| 577 |
|
|
| 31 |
|
|
| 44 |
|
|
| 114 |
|
|
| 117 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
|
| 728 |
|
|
| 741 |
|
Outsourced administration (i) |
|
| 123 |
|
|
| 132 |
|
|
| 27 |
|
|
| 23 |
|
|
| 2 |
|
|
| — |
|
|
| 132 |
|
|
| 118 |
|
|
| — |
|
|
| — |
|
|
| 284 |
|
|
| 273 |
|
Other (i) |
|
| 47 |
|
|
| 43 |
|
|
| 1 |
|
|
| 3 |
|
|
| 58 |
|
|
| 59 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 107 |
|
|
| 106 |
|
Total revenues by service offering |
|
| 823 |
|
|
| 828 |
|
|
| 719 |
|
|
| 734 |
|
|
| 579 |
|
|
| 567 |
|
|
| 135 |
|
|
| 122 |
|
|
| 4 |
|
|
| 4 |
|
|
| 2,260 |
|
|
| 2,255 |
|
Reimbursable expenses and other (ii) |
|
| 14 |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
|
| 3 |
|
|
| 2 |
|
|
| 7 |
|
|
| 1 |
|
|
| 26 |
|
|
| 19 |
|
Total revenue from customer contracts |
| $ | 837 |
|
| $ | 842 |
|
| $ | 719 |
|
| $ | 734 |
|
| $ | 581 |
|
| $ | 569 |
|
| $ | 138 |
|
| $ | 124 |
|
| $ | 11 |
|
| $ | 5 |
|
| $ | 2,286 |
|
| $ | 2,274 |
|
Interest and other income (iii) |
|
| 6 |
|
|
| 4 |
|
|
| 9 |
|
|
| 6 |
|
|
| 10 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 26 |
|
|
| 18 |
|
Total revenue |
| $ | 843 |
|
| $ | 846 |
|
| $ | 728 |
|
| $ | 740 |
|
| $ | 591 |
|
| $ | 576 |
|
| $ | 138 |
|
| $ | 124 |
|
| $ | 12 |
|
| $ | 6 |
|
| $ | 2,312 |
|
| $ | 2,292 |
|
______________
Amortization basis | Fair Value | Expected life (years) | |||||
Customer relationships | In line with underlying cash flows | $ | 2,221 | 15.0 | |||
Software - income approach | In line with underlying cash flows or straight-line basis | 567 | 6.4 | ||||
Software - cost approach | Straight-line basis | 108 | 4.9 | ||||
Product | In line with underlying cash flows | 42 | 17.5 | ||||
IPR&D (i) | n/a | 39 | n/a | ||||
Trade name | Straight-line basis | 1,003 | 25.0 | ||||
Favorable lease agreements | Straight-line basis | 11 | 6.5 | ||||
$ | 3,991 |
(i) | |
Amounts presented for HCB Outsourced administration revenue include a correction of approximately $58 million of revenue that was previously classified as |
(ii) | Reimbursable expenses and other, as well as Corporate revenue, are |
(iii) | Interest and other income is included in segment revenue and total revenue, however it has been presented separately in the above tables because it does not arise directly from contracts with customers. |
Individual revenue streams aggregating to approximately 5% of total revenue from customer contracts for the Merger, we assumed certain stock optionsthree months ended March 31, 2019 and restricted stock units (‘RSUs’) issued under2018, respectively, have been included within the Towers Watson & Co. 2009 Long Term Incentive Plan (‘LTIP’), the Liazon Corporation 2011 Equity Incentive Plan, and the Extend Health, Inc. 2007 Equity Incentive Plan.
The following table presents revenue by the geography where our work is performed for the numberthree months ended March 31, 2019 and 2018. The reconciliation to total revenue on our condensed consolidated statements of options. comprehensive income and to segment revenue is shown in the table above.
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| HCB |
|
| CRB |
|
| IRR |
|
| BDA |
|
| Corporate |
|
| Total |
| ||||||||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||||||
North America |
| $ | 471 |
|
| $ | 462 |
|
| $ | 220 |
|
| $ | 215 |
|
| $ | 164 |
|
| $ | 153 |
|
| $ | 135 |
|
| $ | 122 |
|
| $ | 4 |
|
| $ | 4 |
|
| $ | 994 |
|
| $ | 956 |
|
Great Britain |
|
| 118 |
|
|
| 129 |
|
|
| 142 |
|
|
| 148 |
|
|
| 300 |
|
|
| 295 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 560 |
|
|
| 572 |
|
Western Europe |
|
| 155 |
|
|
| 154 |
|
|
| 239 |
|
|
| 239 |
|
|
| 69 |
|
|
| 71 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 463 |
|
|
| 464 |
|
International |
|
| 79 |
|
|
| 83 |
|
|
| 118 |
|
|
| 132 |
|
|
| 46 |
|
|
| 48 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 243 |
|
|
| 263 |
|
Total revenue by geography |
| $ | 823 |
|
| $ | 828 |
|
| $ | 719 |
|
| $ | 734 |
|
| $ | 579 |
|
| $ | 567 |
|
| $ | 135 |
|
| $ | 122 |
|
| $ | 4 |
|
| $ | 4 |
|
| $ | 2,260 |
|
| $ | 2,255 |
|
Contract Balances
The fair valueCompany reports accounts receivable, net on the condensed consolidated balance sheet, which includes billed and unbilled receivables and current contract assets. In addition to accounts receivable, net, the Company had the following non-current contract assets and deferred revenue balances at March 31, 2019 and December 31, 2018:
|
| March 31, 2019 |
|
| December 31, 2018 |
| |||
Billed receivables, net of allowance for doubtful accounts of $44 million and $40 million |
| $ | 1,847 |
|
| $ | 1,702 |
| |
Unbilled receivables |
|
| 396 |
|
|
| 356 |
| |
Current contract assets |
|
| 247 |
|
|
| 321 |
| |
Accounts receivable, net |
| $ | 2,490 |
|
| $ | 2,379 |
| |
Non-current accounts receivable, net |
| $ | 17 |
|
| $ | 20 |
| |
Non-current contract assets |
| $ | 6 |
|
| $ | 3 |
| |
Deferred revenue |
| $ | 483 |
|
| $ | 448 |
|
During the three months ended March 31, 2019, revenue of approximately $242 million was recognized that was reflected as deferred revenue at December 31, 2018.
13
During the stock options was calculated usingthree months ended March 31, 2019, the Black-Scholes model withCompany recognized no material revenue related to performance obligations satisfied in a volatility and risk-free interest rate overprior period.
Performance Obligations
The Company has contracts for which performance obligations have not been satisfied as of March 31, 2019 or have been partially satisfied as of this date. The following table shows the expected term of each group of options and Willis Towers Watson’s closing share price ontiming for the date of acquisition. We determined the fair value of the portion of the outstanding options related to pre-acquisition employee service using the straight-line expense methodology from the date of grant to the acquisition date to be $7 million, which was added to the transaction consideration. The fair valuesatisfaction of the remaining portionperformance obligations. This table does not include contract renewals nor variable consideration, which was excluded from the transaction prices in accordance with the guidance on constraining estimates of options relatedvariable consideration.
In addition, in accordance with ASC 606, Revenue From Contracts With Customers (‘ASC 606’), the Company has elected not to disclose the post-acquisition employee services was $13 million, and will be recognized over the future vesting periods.
• | Performance obligations which are part of a contract that has an original expected duration of less than one year, and |
• | Performance obligations satisfied in accordance with ASC 606-10-55-18 (‘right to invoice’). |
|
| Remainder of 2019 |
|
| 2020 |
|
| 2021 onward |
|
| Total |
| ||||
Revenue expected to be recognized on contracts as of March 31, 2019 |
| $ | 314 |
|
| $ | 341 |
|
| $ | 432 |
|
| $ | 1,087 |
|
Since most of the outstanding RSUs related to pre-acquisition employee service usingCompany’s contracts are cancellable with less than one year’s notice, and have no substantive penalty for cancellation, the straight-line expense methodologymajority of the Company’s remaining performance obligations as of March 31, 2019 have been excluded from the date of grant to the acquisition date to be $30 million, which was added to the transaction consideration. The fair value of the remaining portion of RSUs related to the post-acquisition employee services was $32 million, and will be recognized over the future vesting periods.
Note 4 5—Segment Information
Willis Towers Watson has four reportable operating segments or business areas:
• | Human Capital and Benefits (‘HCB’) |
• | Corporate Risk and Broking (‘CRB’) |
• | Investment, Risk and Reinsurance (‘IRR’) |
• | Benefits Delivery and Administration (‘BDA’) |
Willis Towers Watson’s chief operating decision maker is its chief executive officer. We determined that the operational data used by the chief operating decision maker is at the segment level. Management bases strategic goals and decisions on these segments and the data presented below is used to assess the adequacy of strategic decisions and the methodmethods of achieving these strategies and related financial results.
The Company experiences seasonal fluctuations of its commissions and fees revenue. Revenue is typically higher during the Company’s first and fourth quarters due primarily to the timing of broking-related activities.
The following table presents segment commissions and fees, segment interest and other income, segment revenues,revenue and segment operating income for our reportable segments for the three months ended September 30, 2017March 31, 2019 and 2016.
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||
|
| HCB |
|
| CRB |
|
| IRR |
|
| BDA |
|
| Total |
| |||||||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||||
Segment revenue |
| $ | 829 |
|
| $ | 832 |
|
| $ | 728 |
|
| $ | 740 |
|
| $ | 589 |
|
| $ | 574 |
|
| $ | 135 |
|
| $ | 122 |
|
| $ | 2,281 |
|
| $ | 2,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income/(loss) |
| $ | 204 |
|
| $ | 193 |
|
| $ | 127 |
|
| $ | 125 |
|
| $ | 252 |
|
| $ | 261 |
|
| $ | (21 | ) |
| $ | (32 | ) |
| $ | 562 |
|
| $ | 547 |
|
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
HCB | CRB | IRR | BDA | Total | |||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||
Segment commissions and fees | $ | 736 | $ | 720 | $ | 581 | $ | 553 | $ | 320 | $ | 312 | $ | 179 | $ | 161 | $ | 1,816 | $ | 1,746 | |||||||||||||||||||
Segment interest and other income | — | — | 5 | 8 | 14 | 7 | — | — | 19 | 15 | |||||||||||||||||||||||||||||
Segment revenues | $ | 736 | $ | 720 | $ | 586 | $ | 561 | $ | 334 | $ | 319 | $ | 179 | $ | 161 | $ | 1,835 | $ | 1,761 | |||||||||||||||||||
Segment operating income | $ | 143 | $ | 127 | $ | 48 | $ | 46 | $ | 39 | $ | 38 | $ | 36 | $ | 23 | $ | 266 | $ | 234 |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
HCB | CRB | IRR | BDA | Total | |||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||
Segment commissions and fees | $ | 2,405 | $ | 2,377 | $ | 1,855 | $ | 1,821 | $ | 1,205 | $ | 1,190 | $ | 536 | $ | 478 | $ | 6,001 | $ | 5,866 | |||||||||||||||||||
Segment interest and other income | 15 | 9 | 16 | 20 | 25 | 55 | — | 1 | 56 | 85 | |||||||||||||||||||||||||||||
Segment revenues | $ | 2,420 | $ | 2,386 | $ | 1,871 | $ | 1,841 | $ | 1,230 | $ | 1,245 | $ | 536 | $ | 479 | $ | 6,057 | $ | 5,951 | |||||||||||||||||||
Segment operating income | $ | 615 | $ | 568 | $ | 270 | $ | 255 | $ | 358 | $ | 360 | $ | 108 | $ | 100 | $ | 1,351 | $ | 1,283 |
14
The following table presents a reconciliation of the information reported by segment to the Company’s condensed consolidated statement of comprehensive income amounts reported for the three and nine months ended September 30, 2017March 31, 2019 and 2016.
|
| Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Revenue: |
|
|
|
|
|
|
|
|
Total segment revenue |
| $ | 2,281 |
|
| $ | 2,268 |
|
Reimbursable expenses and other |
|
| 31 |
|
|
| 24 |
|
Revenue |
| $ | 2,312 |
|
| $ | 2,292 |
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
| $ | 562 |
|
| $ | 547 |
|
Amortization |
|
| (127 | ) |
|
| (141 | ) |
Transaction and integration expenses |
|
| (6 | ) |
|
| (43 | ) |
Unallocated, net (i) |
|
| (70 | ) |
|
| (104 | ) |
Income from operations |
|
| 359 |
|
|
| 259 |
|
Interest expense |
|
| (54 | ) |
|
| (51 | ) |
Other income, net |
|
| 55 |
|
|
| 56 |
|
Income from operations before income taxes |
| $ | 360 |
|
| $ | 264 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Total segment revenues | $ | 1,835 | $ | 1,761 | $ | 6,057 | $ | 5,951 | |||||||
Fair value adjustment for deferred revenue | — | — | — | (58 | ) | ||||||||||
Reimbursable expenses and other | 17 | 16 | 67 | 67 | |||||||||||
Total revenues | $ | 1,852 | $ | 1,777 | $ | 6,124 | $ | 5,960 | |||||||
Total segment operating income | $ | 266 | $ | 234 | $ | 1,351 | $ | 1,283 | |||||||
Fair value adjustment for deferred revenue | — | — | — | (58 | ) | ||||||||||
Amortization | (141 | ) | (157 | ) | (441 | ) | (443 | ) | |||||||
Restructuring costs | (31 | ) | (49 | ) | (85 | ) | (115 | ) | |||||||
Transaction and integration expenses | (74 | ) | (36 | ) | (177 | ) | (117 | ) | |||||||
Provision for the Stanford litigation | — | — | — | (50 | ) | ||||||||||
Unallocated, net (i) | 21 | 9 | (20 | ) | (37 | ) | |||||||||
Income from operations | 41 | 1 | 628 | 463 | |||||||||||
Interest expense | 47 | 45 | 139 | 138 | |||||||||||
Other expense, net | 29 | 14 | 79 | 26 | |||||||||||
(Loss)/income from operations before income taxes and interest in earnings of associates | $ | (35 | ) | $ | (58 | ) | $ | 410 | $ | 299 |
(i) | |
Includes certain costs, primarily related to corporate functions which are not directly related to the segments, and certain differences between budgeted expenses determined at the beginning of the year and actual expenses that we report for U.S. GAAP purposes. |
The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total asset position by segment.
Three Months Ended September 30, 2017 | |||||||||||||||||||||||
HCB | CRB | IRR | BDA | Corporate | Total | ||||||||||||||||||
Termination benefits | $ | — | $ | 5 | $ | — | $ | — | $ | 1 | $ | 6 | |||||||||||
Professional services and other | 1 | 20 | 2 | — | 2 | 25 | |||||||||||||||||
Total | $ | 1 | $ | 25 | $ | 2 | $ | — | $ | 3 | $ | 31 | |||||||||||
Three Months Ended September 30, 2016 | |||||||||||||||||||||||
HCB | CRB | IRR | BDA | Corporate | Total | ||||||||||||||||||
Termination benefits | $ | 12 | $ | 3 | $ | — | $ | — | $ | 1 | $ | 16 | |||||||||||
Professional services and other | — | 23 | 1 | — | 9 | 33 | |||||||||||||||||
Total | $ | 12 | $ | 26 | $ | 1 | $ | — | $ | 10 | $ | 49 | |||||||||||
Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
HCB | CRB | IRR | BDA | Corporate | Total | ||||||||||||||||||
Termination benefits | $ | — | $ | 14 | $ | 3 | $ | — | $ | 2 | $ | 19 | |||||||||||
Professional services and other | 2 | 50 | 4 | — | 10 | 66 | |||||||||||||||||
Total | $ | 2 | $ | 64 | $ | 7 | $ | — | $ | 12 | $ | 85 | |||||||||||
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
HCB | CRB | IRR | BDA | Corporate | Total | ||||||||||||||||||
Termination benefits | $ | 14 | $ | 11 | $ | 3 | $ | — | $ | 2 | $ | 30 | |||||||||||
Professional services and other | — | 60 | 2 | — | 23 | 85 | |||||||||||||||||
Total | $ | 14 | $ | 71 | $ | 5 | $ | — | $ | 25 | $ | 115 | |||||||||||
HCB | CRB | IRR | BDA | Corporate | Total | ||||||||||||||||||
2014 | |||||||||||||||||||||||
Termination benefits | $ | — | $ | 15 | $ | 1 | $ | — | $ | — | $ | 16 | |||||||||||
Professional services and other (i) | — | 3 | — | — | 17 | 20 | |||||||||||||||||
2015 | |||||||||||||||||||||||
Termination benefits | 2 | 24 | 7 | — | 3 | 36 | |||||||||||||||||
Professional services and other (i) | 1 | 57 | 2 | — | 30 | 90 | |||||||||||||||||
2016 | |||||||||||||||||||||||
Termination benefits | 1 | 18 | 3 | — | 1 | 23 | |||||||||||||||||
Professional services and other (i) | 1 | 81 | 4 | — | 36 | 122 | |||||||||||||||||
2017 | |||||||||||||||||||||||
Termination benefits | — | 14 | 3 | — | 2 | 19 | |||||||||||||||||
Professional services and other (i) | 2 | 50 | 4 | — | 10 | 66 | |||||||||||||||||
Total | |||||||||||||||||||||||
Termination benefits | 3 | 71 | 14 | — | 6 | 94 | |||||||||||||||||
Professional services and other (i) | 4 | 191 | 10 | — | 93 | 298 | |||||||||||||||||
Total | $ | 7 | $ | 262 | $ | 24 | $ | — | $ | 99 | $ | 392 |
Termination Benefits | Professional Services and Other | Total | |||||||||
Balance at January 1, 2014 | $ | — | $ | — | $ | — | |||||
Charges incurred | 16 | 20 | 36 | ||||||||
Cash payments | (11 | ) | (14 | ) | (25 | ) | |||||
Balance at December 31, 2014 | 5 | 6 | 11 | ||||||||
Charges incurred | 36 | 90 | 126 | ||||||||
Cash payments | (26 | ) | (85 | ) | (111 | ) | |||||
Balance at December 31, 2015 | 15 | 11 | 26 | ||||||||
Charges incurred | 23 | 122 | 145 | ||||||||
Cash payments | (31 | ) | (115 | ) | (146 | ) | |||||
Balance at December 31, 2016 | 7 | 18 | 25 | ||||||||
Charges incurred | 19 | 66 | 85 | ||||||||
Cash payments | (16 | ) | (78 | ) | (94 | ) | |||||
Balance at September 30, 2017 | $ | 10 | $ | 6 | $ | 16 |
Termination Benefits | Professional Services and Other | Total | |||||||||
Balance at January 1, 2016 | $ | — | $ | — | $ | — | |||||
Charges incurred | 45 | 3 | 48 | ||||||||
Cash payments | (19 | ) | (3 | ) | (22 | ) | |||||
Balance at December 31, 2016 | 26 | — | 26 | ||||||||
Cash payments | (21 | ) | — | (21 | ) | ||||||
Balance at September 30, 2017 | $ | 5 | $ | — | $ | 5 |
Note 6 — Income Taxes
Provision for income taxes for the three and nine months ended September 30, 2017March 31, 2019 was $19$67 million and $73 million, respectively, compared to a benefit from income taxes of $26 million and a provision for income taxes of $11$43 million for the three and nine months ended September 30, 2016, respectively.March 31, 2018. The effective tax rate was (53.0)% and 17.7%18.8% for the three and nine months ended September 30, 2017, respectively,March 31, 2019 and 45.9% and 3.5%16.3% for the three and nine months ended September 30, 2016, respectively.March 31, 2018. These effective tax rates are calculated using extended values from our condensed consolidated statements of comprehensive income, and are therefore more precise tax rates than can be calculated from rounded values. Our effective tax rate is generally lower than the U.S. statutory rate of 35%. This is primarily due to our global mix of income which creates deductions in jurisdictions with high statutory income tax rates. The (53.0)% effective tax rate for the three months ended September 30, 2017 was the result of a discrete income tax charge for an internal reorganization. The increase in tax expense for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 was primarily due to an internal restructuring for certain legacy Towers Watson businesses. The increase in the effective tax rate for the nine monthsperiod ended September 30, 2017 asMarch 31, 2019 compared to the nine monthsperiod ended September 30, 2016March 31, 2018 was primarily due to additional taxes on global intangible low-taxed income (GILTI).
In 2017, as a current yearresult of U.S. Tax Reform, we analyzed our global working capital and cash requirements and the potential tax expense resulting from internal reorganizations forliabilities attributable to a repatriation, and changed our assertion with respect to certain legacy Towers Watson businesses,subsidiaries. For those subsidiaries from which we were able to make a reasonable estimate of the tax effects of such repatriation, we recorded an estimate for foreign withholding and a prior year tax benefit resulting from an enacted statutory tax rate reduction in the U.K.
The Company records valuation allowances against net deferred tax assets based on whether it is more likely than not that the deferred tax assets will be realized.
Note 7—Goodwill and Other Intangible Assets
The components of goodwill are outlined below for the ninethree months ended September 30, 2017:
|
| HCB |
|
| CRB |
|
| IRR |
|
| BDA |
|
| Total |
| |||||
Balance at December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross |
| $ | 4,300 |
|
| $ | 2,308 |
|
| $ | 1,792 |
|
| $ | 2,557 |
|
| $ | 10,957 |
|
Accumulated impairment losses |
|
| (130 | ) |
|
| (362 | ) |
|
| — |
|
|
| — |
|
|
| (492 | ) |
Goodwill, net - December 31, 2018 |
|
| 4,170 |
|
|
| 1,946 |
|
|
| 1,792 |
|
|
| 2,557 |
|
|
| 10,465 |
|
Foreign exchange |
|
| (6 | ) |
|
| (7 | ) |
|
| 4 |
|
|
| — |
|
|
| (9 | ) |
Balance at March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross |
|
| 4,294 |
|
|
| 2,301 |
|
|
| 1,796 |
|
|
| 2,557 |
|
|
| 10,948 |
|
Accumulated impairment losses |
|
| (130 | ) |
|
| (362 | ) |
|
| — |
|
|
| — |
|
|
| (492 | ) |
Goodwill, net - March 31, 2019 |
| $ | 4,164 |
|
| $ | 1,939 |
|
| $ | 1,796 |
|
| $ | 2,557 |
|
| $ | 10,456 |
|
HCB | CRB | IRR | BDA | Total | |||||||||||||||
Balance at December 31, 2016: | |||||||||||||||||||
Goodwill, gross | $ | 4,412 | $ | 2,178 | $ | 1,758 | $ | 2,557 | $ | 10,905 | |||||||||
Accumulated impairment losses | (130 | ) | (362 | ) | — | — | (492 | ) | |||||||||||
Goodwill, net - December 31, 2016 | 4,282 | 1,816 | 1,758 | 2,557 | 10,413 | ||||||||||||||
Goodwill reassigned in segment realignment(i) | (113 | ) | 13 | 100 | — | — | |||||||||||||
Goodwill acquired during the period | — | 8 | — | — | 8 | ||||||||||||||
Goodwill disposed of during the period | (31 | ) | — | — | — | (31 | ) | ||||||||||||
Foreign exchange | 64 | 57 | 18 | — | 139 | ||||||||||||||
Balance at September 30, 2017: | |||||||||||||||||||
Goodwill, gross | 4,332 | 2,256 | 1,876 | 2,557 | 11,021 | ||||||||||||||
Accumulated impairment losses | (130 | ) | (362 | ) | — | — | (492 | ) | |||||||||||
Goodwill, net - September 30, 2017 | $ | 4,202 | $ | 1,894 | $ | 1,876 | $ | 2,557 | $ | 10,529 |
15
Other Intangible Assets
The following table reflects changes in the net carrying amounts of the components of finite-lived intangible assets for the ninethree months ended September 30, 2017:
|
| Balance at December 31, 2018 |
|
| Intangible assets acquired |
|
| Intangible assets disposed |
|
| ASC 842 reclassification (i) |
|
| Amortization |
|
| Foreign exchange |
|
| Balance at March 31, 2019 |
| |||||||
Client relationships |
| $ | 1,986 |
|
| $ | 3 |
|
| $ | (1 | ) |
| $ | — |
|
| $ | (82 | ) |
| $ | 3 |
|
| $ | 1,909 |
|
Management contracts |
|
| 48 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (2 | ) |
|
| 45 |
|
Software |
|
| 328 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (32 | ) |
|
| 2 |
|
|
| 298 |
|
Trademark and trade name |
|
| 920 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11 | ) |
|
| — |
|
|
| 909 |
|
Product |
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| 26 |
|
Favorable agreements |
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| (9 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Total amortizable intangible assets |
| $ | 3,318 |
|
| $ | 3 |
|
| $ | (1 | ) |
| $ | (9 | ) |
| $ | (127 | ) |
| $ | 3 |
|
| $ | 3,187 |
|
Balance at December 31, 2016 | Intangible assets acquired | Intangible assets disposed | Amortization(ii) | Foreign Exchange | Balance at September 30, 2017 | ||||||||||||||||||
Client relationships | $ | 2,655 | $ | 13 | $ | (22 | ) | $ | (289 | ) | $ | 89 | $ | 2,446 | |||||||||
Management contracts | 54 | — | — | (3 | ) | 7 | 58 | ||||||||||||||||
Software (i) | 570 | 36 | — | (112 | ) | 14 | 508 | ||||||||||||||||
Trademark and trade name | 1,006 | — | (1 | ) | (34 | ) | 5 | 976 | |||||||||||||||
Product | 33 | — | — | (2 | ) | 2 | 33 | ||||||||||||||||
Favorable agreements | 11 | — | — | (1 | ) | 1 | 11 | ||||||||||||||||
Other | 3 | — | — | (1 | ) | — | 2 | ||||||||||||||||
Total amortizable intangible assets | $ | 4,332 | $ | 49 | $ | (23 | ) | $ | (442 | ) | $ | 118 | $ | 4,034 |
__________________
(i)On January 1, 2019, in accordance with ASC 842, we reclassified our favorable lease agreement assets to right-of-use assets within our condensed consolidated balance sheet.
We recorded amortization related to our finite-lived intangible assets of $127 million for the three months ended March 31, 2019; for the three months ended March 31, 2018, we recorded amortization related to our finite-lived intangible assets, exclusive of the amortization of our favorable lease agreements, of $141 million and $441 million, for the three and nine months ended September 30, 2017, respectively, and $157 million and $443 million for the three and nine months ended September 30, 2016, respectively.
Our acquired unfavorable lease agreement liabilities were $27 million and $29$21 million at September 30, 2017 and December 31, 2016, respectively,2018 and are recorded in other non-current liabilities in the condensed consolidated balance sheet.
The following table reflects the carrying value of finite-lived intangible assets and liabilities at September 30, 2017March 31, 2019 and December 31, 2016:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Gross carrying amount |
|
| Accumulated amortization |
| ||||
Client relationships |
| $ | 3,405 |
|
| $ | (1,496 | ) |
| $ | 3,401 |
|
| $ | (1,415 | ) |
Management contracts |
|
| 60 |
|
|
| (15 | ) |
|
| 63 |
|
|
| (15 | ) |
Software |
|
| 754 |
|
|
| (456 | ) |
|
| 749 |
|
|
| (421 | ) |
Trademark and trade name |
|
| 1,052 |
|
|
| (143 | ) |
|
| 1,052 |
|
|
| (132 | ) |
Product |
|
| 36 |
|
|
| (10 | ) |
|
| 36 |
|
|
| (9 | ) |
Favorable agreements (i) |
|
| — |
|
|
| — |
|
|
| 14 |
|
|
| (5 | ) |
Other |
|
| 2 |
|
|
| (2 | ) |
|
| 3 |
|
|
| (3 | ) |
Total finite-lived assets |
| $ | 5,309 |
|
| $ | (2,122 | ) |
| $ | 5,318 |
|
| $ | (2,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfavorable agreements (i) |
| $ | — |
|
| $ | — |
|
| $ | 34 |
|
| $ | (13 | ) |
Total finite-lived intangible liabilities |
| $ | — |
|
| $ | — |
|
| $ | 34 |
|
| $ | (13 | ) |
September 30, 2017 | December 31, 2016 | ||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Client relationships | $ | 3,476 | $ | (1,030 | ) | $ | 3,396 | $ | (741 | ) | |||||
Management contracts | 69 | (11 | ) | 62 | (8 | ) | |||||||||
Software | 762 | (254 | ) | 711 | (141 | ) | |||||||||
Trademark and trade name | 1,054 | (78 | ) | 1,051 | (45 | ) | |||||||||
Product | 38 | (5 | ) | 36 | (3 | ) | |||||||||
Favorable agreements | 14 | (3 | ) | 13 | (2 | ) | |||||||||
Other | 5 | (3 | ) | 6 | (3 | ) | |||||||||
Total finite-lived assets | $ | 5,418 | $ | (1,384 | ) | $ | 5,275 | $ | (943 | ) | |||||
Unfavorable agreements | $ | 34 | $ | (7 | ) | $ | 34 | $ | (5 | ) | |||||
Total finite-lived intangible liabilities | $ | 34 | $ | (7 | ) | $ | 34 | $ | (5 | ) |
__________________
(i)On January 1, 2019, in accordance with ASC 842, we reclassified our favorable lease agreement assets and unfavorable lease agreement liabilities to right-of-use assets and as reductions to right-of-use assets, respectively, within our condensed consolidated balance sheet.
The weighted averageweighted-average remaining life of amortizable intangible assets and liabilities at September 30, 2017March 31, 2019 was 14.513.8 years.
The table below reflects the future estimated amortization expense for amortizable intangible assets and the rent offset resulting from amortization of the net lease intangible assets and liabilities for the remainder of 20172019 and for subsequent years:
|
| Amortization |
| |
Remainder of 2019 |
| $ | 353 |
|
2020 |
|
| 424 |
|
2021 |
|
| 347 |
|
2022 |
|
| 288 |
|
2023 |
|
| 239 |
|
Thereafter |
|
| 1,536 |
|
Total |
| $ | 3,187 |
|
Amortization | Rent offset | ||||||
Remainder of 2017 | $ | 142 | $ | (1 | ) | ||
2018 | 536 | (4 | ) | ||||
2019 | 478 | (2 | ) | ||||
2020 | 427 | (2 | ) | ||||
2021 | 348 | (2 | ) | ||||
Thereafter | 2,092 | (5 | ) | ||||
Total | $ | 4,023 | $ | (16 | ) |
16
Note 8—Derivative Financial Instruments
We are exposed to certain interest rate and foreign currency risks. Where possible, we identify exposures in our business that can be offset internally. Where no natural offset is identified, we may choose to enter into various derivative transactions. These instruments have the effect of reducing our exposure to unfavorable changes in interest and foreign currency rates. The Company’s board of directors reviews and approves policies for managing each of these risks as summarized below.
Foreign Currency Risk
Certain non-U.S. subsidiaries receive revenuesrevenue and incur expenses in currencies other than their functional currency, and as a result, the foreign subsidiary’s functional currency revenuesrevenue will fluctuate as the currency rates change. Additionally, the forecast Pounds sterling expenses of our London brokerage market operations may exceed their Pounds sterling revenues,revenue, and
These derivatives were designated as hedging instruments and at September 30, 2017March 31, 2019 and December 31, 20162018 had total notional amounts of $776$414 million and $945$438 million, respectively, and had net fair value liabilities of $34$3 million and $110$15 million, respectively.
At September 30, 2017,March 31, 2019, the Company estimates, based on current interest and exchange rates, there will be $33$2 million of net derivative losses on forward exchange rates interest rate swaps, and treasury locks reclassified from accumulated other comprehensive income/(loss)loss into earnings within the next twelve months as the forecast transactions affect earnings. At September 30, 2017,March 31, 2019, our longest outstanding maturity was 2.71.7 years.
The effects of the material derivative instruments that are designated as hedging instruments on the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
Three Months Ended March 31, |
| Gain recognized in OCI (effective element) |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Forward exchange contracts |
| $ | 8 |
|
| $ | 15 |
|
Location of gain/(loss) reclassified from Accumulated OCL into income (effective element) |
| Gain/(loss) reclassified from Accumulated OCL into income (effective element) |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Revenue |
| $ | 1 |
|
| $ | — |
|
Salaries and benefits |
|
| (5 | ) |
|
| — |
|
Other income, net |
|
| — |
|
|
| (11 | ) |
|
| $ | (4 | ) |
| $ | (11 | ) |
Three Months Ended September 30, | Gain/(loss) recognized in OCI (effective portion) | Location of loss reclassified from Accumulated OCI into income (effective element) | Loss reclassified from Accumulated OCI into income (effective element) | Location of gain/(loss) recognized in income (ineffective portion and amount excluded from effectiveness testing) | Gain/(loss) recognized in income (ineffective portion and amount excluded from effectiveness testing) | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
Forward exchange contracts | $ | 12 | $ | (6 | ) | Other expense, net | $ | (10 | ) | $ | (14 | ) | Interest expense | $ | — | $ | — |
Nine Months Ended September 30, | Gain/(loss) recognized in OCI (effective portion) | Location of loss reclassified from Accumulated OCI into income (effective element) | Loss reclassified from Accumulated OCI into income (effective element) | Location of gain/(loss) recognized in income (ineffective portion and amount excluded from effectiveness testing) | Gain/(loss) recognized in income (ineffective portion and amount excluded from effectiveness testing) | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
Forward exchange contracts | $ | 24 | $ | (81 | ) | Other expense, net | $ | (53 | ) | $ | (28 | ) | Interest expense | $ | 1 | $ | (1 | ) |
We also enter into foreign currency transactions, primarily to hedge certain intercompany loans. These derivatives are not generally designated as hedging instruments, and at September 30, 2017March 31, 2019 and December 31, 2016,2018, we had notional amounts of $569$890 million and $630$909 million, respectively, and had a net fair value liabilitiesliability of $1$7 million and $8a net fair value asset of $3 million, respectively.
The effects of derivatives that have not been designated as hedging instruments on the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
|
|
|
| Loss recognized in income |
| |||||
|
|
|
| Three Months Ended March 31, |
| |||||
Derivatives not designated as hedging instruments: |
| Location of loss recognized in income |
| 2019 |
|
| 2018 |
| ||
Forward exchange contracts |
| Other income, net |
| $ | (10 | ) |
| $ | (5 | ) |
(Loss)/gain recognized in income | ||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
Derivatives not designated as hedging instruments: | Location of (loss)/gain recognized in income | 2017 | 2016 | 2017 | 2016 | |||||||||||||
Forward exchange contracts | Other expense, net | $ | (3 | ) | $ | 4 | $ | 6 | $ | (6 | ) |
17
Note 9—Debt
Current debt consists of the following:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
7.000% senior notes due 2019 |
| $ | 187 |
|
| $ | 186 |
|
September 30, 2017 | December 31, 2016 | ||||||
6.200% senior notes due 2017 | $ | — | $ | 394 | |||
Current portion of 7-year term loan facility | — | 22 | |||||
Current portion of term loan due 2019 | 85 | 85 | |||||
Short-term borrowing under bank overdraft arrangement | — | 5 | |||||
Other debt | — | 2 | |||||
$ | 85 | $ | 508 |
Long-term debt consists of the following:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Revolving $1.25 billion credit facility |
| $ | 269 |
|
| $ | 130 |
|
5.750% senior notes due 2021 |
|
| 498 |
|
|
| 498 |
|
3.500% senior notes due 2021 |
|
| 448 |
|
|
| 448 |
|
2.125% senior notes due 2022 (i) |
|
| 604 |
|
|
| 615 |
|
4.625% senior notes due 2023 |
|
| 248 |
|
|
| 248 |
|
3.600% senior notes due 2024 |
|
| 646 |
|
|
| 645 |
|
4.400% senior notes due 2026 |
|
| 544 |
|
|
| 544 |
|
4.500% senior notes due 2028 |
|
| 595 |
|
|
| 595 |
|
6.125% senior notes due 2043 |
|
| 271 |
|
|
| 271 |
|
5.050% senior notes due 2048 |
|
| 395 |
|
|
| 395 |
|
|
| $ | 4,518 |
|
| $ | 4,389 |
|
September 30, 2017 | December 31, 2016 | ||||||
Revolving $1.25 billion credit facility | $ | 917 | $ | — | |||
Revolving $800 million credit facility | — | 238 | |||||
7-year term loan facility | — | 196 | |||||
Term loan due 2019 | 105 | 169 | |||||
7.000% senior notes due 2019 | 186 | 186 | |||||
5.750% senior notes due 2021 | 496 | 496 | |||||
3.500% senior notes due 2021 | 447 | 446 | |||||
2.125% senior notes due 2022 (i) | 635 | 565 | |||||
4.625% senior notes due 2023 | 248 | 247 | |||||
3.600% senior notes due 2024 | 645 | — | |||||
4.400% senior notes due 2026 | 543 | 543 | |||||
6.125% senior notes due 2043 | 271 | 271 | |||||
$ | 4,493 | $ | 3,357 |
(i) | |
Notes issued in Euro (€540 million) |
At March 7, 2017, the Company, together with its wholly-owned subsidiary, Trinity Acquisition plc (see
One-Year Term Loan Commitment
As part of the pending acquisition of TRANZACT, the Company togetherhas secured financing of up to $1.1 billion in the form of a one-year unsecured term loan. Borrowing will occur in conjunction with its wholly-owned subsidiary, Willis North America Inc. (see
Amounts outstanding under the RCFterm loan shall bear interest, at the option of the borrowers, at a rate equal to (a) LIBOR plus 0.75% to 1.375% for Eurocurrency Rate Loans or (b) the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the ‘prime rate’ quoted by Bank of America, N.A., and for general corporate purposes.
The term loan is pre-payable in part or in full prior to the maturity date at the Company’s discretion. Covenants and events of default are substantively the same as in our existing revolving credit facility.
Note 10—Fair Value Measurements
The Company has categorized its assets and liabilities that are measured at fair value on a recurring and non-recurring basis into a three-level fair value hierarchy, based on the reliability of the inputs used to determine fair value as follows:
• | Level 1: refers to fair values determined based on quoted market prices in active markets for identical assets; |
• | Level 2: refers to fair values estimated using observable market-based inputs or unobservable inputs that are corroborated by market data; and |
• | Level 3: includes fair values estimated using unobservable inputs that are not corroborated by market data. |
The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:
• | Available-for-sale securities are classified as Level 1 because we use quoted market prices in determining the fair value of these securities. |
• | Market values for our derivative instruments have been used to determine the fair value of forward foreign exchange contracts based on estimated amounts the Company would receive or have to pay to terminate the agreements, taking into account observable information about the current foreign currency forward rates. Such financial instruments are classified as Level 2 in the fair value hierarchy. |
18
• | Contingent consideration payable is classified as Level 3, and we estimate fair value based on the likelihood and timing of achieving the relevant milestones of each arrangement, applying a probability assessment to each of the potential outcomes, and discounting the probability-weighted payout. Typically, milestones are based on revenue or Earnings Before Interest, Tax, Depreciation and Amortization (‘EBITDA’) growth for the acquired business. |
The following table presentstables present our assets and liabilities measured at fair value on a recurring basis at September 30, 2017March 31, 2019 and December 31, 2016:
|
|
|
| Fair Value Measurements on a Recurring Basis at March 31, 2019 |
| |||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds / exchange traded funds |
| Prepaid and other current assets and other non-current assets |
| $ | 19 |
|
| $ | — |
|
| $ | — |
|
| $ | 19 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Prepaid and other current assets and other non-current assets |
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
| $ | 4 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (ii) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | — |
|
| $ | 55 |
|
| $ | 55 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | 14 |
|
| $ | — |
|
| $ | 14 |
|
|
|
|
| Fair Value Measurements on a Recurring Basis at December 31, 2018 |
| |||||||||||||
|
| Balance Sheet Location |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds / exchange traded funds |
| Prepaid and other current assets and other non-current assets |
| $ | 18 |
|
| $ | — |
|
| $ | — |
|
| $ | 18 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Prepaid and other current assets and other non-current assets |
| $ | — |
|
| $ | 5 |
|
| $ | — |
|
| $ | 5 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (ii) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | — |
|
| $ | 51 |
|
| $ | 51 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | 17 |
|
| $ | — |
|
| $ | 17 |
|
Fair Value Measurements on a Recurring Basis at September 30, 2017 | ||||||||||||||||
Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Mutual funds / exchange traded funds | Prepaid and other current assets and other non-current assets | $ | 40 | $ | — | $ | — | $ | 40 | |||||||
Derivatives: | ||||||||||||||||
Derivative financial instruments (i) | Prepaid and other current assets and other non-current assets | $ | — | $ | 11 | $ | — | $ | 11 | |||||||
Liabilities: | ||||||||||||||||
Contingent consideration: | ||||||||||||||||
Contingent consideration (ii) | Other current liabilities and other non-current liabilities | $ | — | $ | — | $ | 44 | $ | 44 | |||||||
Derivatives: | ||||||||||||||||
Derivative financial instruments (i) | Other current liabilities and other non-current liabilities | $ | — | $ | 47 | $ | — | $ | 47 |
Fair Value Measurements on a Recurring Basis at December 31, 2016 | ||||||||||||||||
Balance Sheet Location | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Mutual funds / exchange traded funds | Prepaid and other current assets and other non-current assets | $ | 37 | $ | — | $ | — | $ | 37 | |||||||
Derivatives: | ||||||||||||||||
Derivative financial instruments (i) | Prepaid and other current assets and other non-current assets | $ | — | $ | 15 | $ | — | $ | 15 | |||||||
Liabilities: | ||||||||||||||||
Contingent consideration: | ||||||||||||||||
Contingent consideration (ii) | Other current liabilities and other non-current liabilities | $ | — | $ | — | $ | 55 | $ | 55 | |||||||
Derivatives: | ||||||||||||||||
Derivative financial instruments (i) | Other current liabilities and other non-current liabilities | $ | — | $ | 133 | $ | — | $ | 133 |
(i) | |
See Note 8 — Derivative Financial Instruments for further information on our derivative investments. |
(ii) | |
Probability weightings are based on our knowledge of the past and planned performance of the acquired entity to which the contingent consideration applies. The |
The following table summarizes the change in fair value of the Level 3 liabilities:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| March 31, 2019 |
| |
Balance at December 31, 2018 |
| $ | 51 |
|
Obligations assumed |
|
| 4 |
|
Payments |
|
| (1 | ) |
Realized and unrealized gains |
|
| — |
|
Foreign exchange |
|
| 1 |
|
Balance at March 31, 2019 |
| $ | 55 |
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | September 30, 2017 | |||
Balance at December 31, 2016 | $ | 55 | ||
Obligations assumed | — | |||
Payments | (9 | ) | ||
Realized and unrealized losses | (6 | ) | ||
Foreign exchange | 4 | |||
Balance at September 30, 2017 | $ | 44 |
There were no significant transfers between Levels 1, 2 or 3 in the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, respectively.
19
The following tables present our liabilities not measured at fair value on a recurring basis at September 30, 2017March 31, 2019 and December 31, 2016:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current debt |
| $ | 187 |
|
| $ | 190 |
|
| $ | 186 |
|
| $ | 191 |
|
Long-term debt |
| $ | 4,518 |
|
| $ | 4,721 |
|
| $ | 4,389 |
|
| $ | 4,458 |
|
September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
Liabilities: | |||||||||||||||
Short-term debt and current portion of long-term debt | $ | 85 | $ | 85 | $ | 508 | $ | 513 | |||||||
Long-term debt | $ | 4,493 | $ | 4,332 | $ | 3,357 | $ | 3,504 |
The carrying valuesvalue of our revolving lines of credit and term loans approximate theirfacility approximates its fair values.value. The fair values above are not necessarily indicative of the amounts that the Company would realize upon disposition nor do they indicate the Company’s intent or ability to dispose of the financial instrument.
Note 11—Retirement Benefits
Defined Benefit Plans and Post-retirement Welfare Plan
Willis Towers Watson sponsors both qualified and non-qualified defined benefit pension plans and other post-retirement welfare plans (‘PRW’) plans throughout the world. The majority of our plan assets and obligations are in the United StatesU.S. and
Components of Net Periodic Benefit (Income)/Cost for Defined Benefit Pension and Post-retirement Welfare Plans
The following table sets forth the components of net periodic benefit (income)/cost for the Company’s defined benefit pension and PRW plans for the three and nine months ended September 30, 2017March 31, 2019 and 2016:
Three Months Ended September 30, |
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 |
| 2019 |
|
| 2018 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. | U.K. | Other | PRW | U.S. | U.K. | Other | PRW |
| U.S. |
|
| U.K. |
|
| Other |
|
| PRW |
|
| U.S. |
|
| U.K. |
|
| Other |
|
| PRW |
| ||||||||||||||||||||||||||||||||
Service cost | $ | 16 | $ | 8 | $ | 6 | $ | — | $ | 15 | $ | 6 | $ | 5 | $ | — |
| $ | 16 |
|
| $ | 4 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 16 |
|
| $ | 5 |
|
| $ | 5 |
|
| $ | — |
| |||||||||||||||
Interest cost | 34 | 23 | 4 | 1 | 34 | 26 | 6 | 1 |
|
| 40 |
|
|
| 24 |
|
|
| 4 |
|
|
| 1 |
|
|
| 35 |
|
|
| 24 |
|
|
| 5 |
|
|
| 1 |
| |||||||||||||||||||||||
Expected return on plan assets | (61 | ) | (72 | ) | (7 | ) | — | (61 | ) | (58 | ) | (8 | ) | — |
|
| (64 | ) |
|
| (63 | ) |
|
| (7 | ) |
|
| — |
|
|
| (68 | ) |
|
| (78 | ) |
|
| (8 | ) |
|
| — |
| |||||||||||||||||
Settlement | 1 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of net loss | 4 | 13 | — | — | 3 | 10 | — | — |
|
| 5 |
|
|
| 5 |
|
|
| 1 |
|
|
| — |
|
|
| 3 |
|
|
| 12 |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||
Amortization of prior service credit | — | (4 | ) | — | — | — | (5 | ) | — | — |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| — |
| |||||||||||||||||||||
Net periodic benefit (income)/cost | $ | (6 | ) | $ | (32 | ) | $ | 3 | $ | 1 | $ | (9 | ) | $ | (21 | ) | $ | 3 | $ | 1 |
| $ | (3 | ) |
| $ | (34 | ) |
| $ | 3 |
|
| $ | — |
|
| $ | (14 | ) |
| $ | (42 | ) |
| $ | 2 |
|
| $ | 1 |
|
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||||||||
U.S. | U.K. | Other | PRW | U.S. | U.K. | Other | PRW | ||||||||||||||||||||||||
Service cost | $ | 49 | $ | 23 | $ | 15 | $ | — | $ | 44 | $ | 19 | $ | 14 | $ | — | |||||||||||||||
Interest cost | 104 | 69 | 13 | 3 | 102 | 83 | 20 | 3 | |||||||||||||||||||||||
Expected return on plan assets | (184 | ) | (211 | ) | (22 | ) | — | (180 | ) | (186 | ) | (26 | ) | — | |||||||||||||||||
Settlement | 1 | — | — | — | — | — | 2 | — | |||||||||||||||||||||||
Amortization of net loss | 10 | 39 | 1 | — | 8 | 32 | 1 | — | |||||||||||||||||||||||
Amortization of prior service credit | — | (13 | ) | — | — | — | (15 | ) | — | — | |||||||||||||||||||||
Net periodic benefit (income)/cost | $ | (20 | ) | $ | (93 | ) | $ | 7 | $ | 3 | $ | (26 | ) | $ | (67 | ) | $ | 11 | $ | 3 |
Employer Contributions to Defined Benefit Pension Plans
The Company made $50 millionno contributions to its U.S. plans for the ninethree months ended September 30, 2017March 31, 2019 and anticipates making no further$60 million in contributions forover the remainder of the fiscal year. The Company made contributions of $45$18 million to its U.K. plans for the ninethree months ended September 30, 2017March 31, 2019 and anticipates making additional contributions of $18$58 million for the remainder of the fiscal year. The Company made contributions of $11$15 million to its other plans for the ninethree months ended September 30, 2017March 31, 2019 and anticipates making additional contributions of $4$7 million for the remainder of the fiscal year.
Defined Contribution Plans
The Company made contributions to its defined contribution plans of $39$41 million and $118$48 million during the three months ended March 31, 2019 and 2018, respectively.
Note 12—Leases
On January 1, 2019, the Company adopted ASC 842. The adoption of this new guidance had a material impact to the amounts and classifications of certain lease-related balances within our condensed consolidated financial statements and accompanying note disclosures. The Company adopted the standard using the modified retrospective approach whereby it recognized a transition adjustment at the effective date of ASC 842, January 1, 2019, rather than at the beginning of the earliest comparative period presented. The adoption of ASC 842 resulted in an additional $1.2 billion of lease liabilities and $1.0 billion of ROU assets being recognized at January 1, 2019. Furthermore, we reflected additional deferred tax assets of $252 million and deferred tax liabilities of $252 million on the gross lease liabilities and gross ROU assets, respectively. There was no adjustment to retained earnings. Rather, all operating lease-related balances, such as deferred rent accruals and lease-related intangibles, reflected on our condensed consolidated balance sheet as of December 31, 2018 were reclassified as a reduction to the opening ROU asset balance in accordance with the new guidance on January 1, 2019. Likewise, existing deferred taxes on operating lease-related balances have been reclassified as a reduction to the deferred tax liabilities related to the ROU assets.
20
• | We assessed the transition practical expedients available under the guidance and, in addition to selecting the modified retrospective transition approach as noted above, we made the following elections: |
o | Practical expedient package – We elected this package, and therefore did not reassess lease classifications for our existing or expired leases, whether any existing or expired contracts contain a lease, or our treatment of any initial direct costs. |
o | Hindsight practical expedient – As permitted under the transition rules, the Company did not revisit its estimate of lease terms upon transition to ASC 842. |
o | Short-term lease exemption – We elected this exemption, and therefore did not recognize any right-of-use assets or liabilities for short-term leases (generally defined as having a term of 12 months or less) on our condensed consolidated balance sheet. |
o | Separation of lease and non-lease components – We elected the practical expedient to not separate the cash flows associated with lease and non-lease components in our lease accounting and resulting amounts recorded in our condensed consolidated financial statements. |
The following table presents amounts recorded on our condensed consolidated balance sheet at March 31, 2019, classified as either operating or finance leases. Operating leases are presented separately on our condensed consolidated balance sheet. For the finance leases, the ROU assets are included in fixed assets, net, and the liabilities are classified within other current liabilities or other non-current liabilities.
|
| Operating Leases |
|
| Finance Leases |
|
| Total Leases |
| |||
Right-of-use assets |
| $ | 946 |
|
| $ | 14 |
|
| $ | 960 |
|
Current lease liabilities |
|
| 158 |
|
|
| 3 |
|
|
| 161 |
|
Long-term lease liabilities |
|
| 961 |
|
|
| 25 |
|
|
| 986 |
|
The following table presents amounts recorded on our condensed consolidated statement of comprehensive income for the three and nine months ended September 30, 2017, respectively, and $37March 31, 2019:
|
| Three Months Ended March 31, 2019 |
| |
Finance lease cost: |
|
|
|
|
Amortization of right-of-use assets |
| $ | 1 |
|
Interest on lease liabilities |
|
| 1 |
|
Operating lease cost |
|
| 48 |
|
Short-term lease cost |
|
| — |
|
Variable lease cost |
|
| 13 |
|
Sublease income |
|
| (4 | ) |
Total lease cost, net |
| $ | 59 |
|
The total lease cost is recognized in different locations in our condensed consolidated statement of comprehensive income. Amortization of the finance lease ROU assets is included in depreciation, while the interest cost component of these finance leases is included in interest expense. All other costs are included in other operating expenses. The Company had rent expense of $64 million, and $118 millionnet of sublease income, for the three and nine months ended September 30, 2016, respectively.March 31, 2018 related to operating leases classified within other operating expenses on our condensed consolidated statement of comprehensive income.
Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2019, as well as their location in the condensed consolidated statement of cash flows, is as follows:
|
| Three Months Ended March 31, 2019 |
| |
Cash flows from operating activities: |
|
|
|
|
Operating leases |
| $ | 55 |
|
Finance leases |
|
| 1 |
|
Cash flows from financing activities: |
|
|
|
|
Finance leases |
|
| 1 |
|
Total lease payments |
| $ | 57 |
|
21
There were immaterial ROU assets acquired during the three months ended March 31, 2019.
Our operating and finance leases have the following weighted-average terms and discount rates as of March 31, 2019:
The maturity of our lease liabilities on an undiscounted basis, including a reconciliation to the total lease liabilities reported on the condensed consolidated balance sheet as of March 31, 2019, is as follows:
|
| Operating Leases |
|
| Finance Leases |
|
| Total Leases |
| |||
Remainder of 2019 |
| $ | 147 |
|
| $ | 4 |
|
| $ | 151 |
|
2020 |
|
| 180 |
|
|
| 6 |
|
|
| 186 |
|
2021 |
|
| 160 |
|
|
| 6 |
|
|
| 166 |
|
2022 |
|
| 142 |
|
|
| 6 |
|
|
| 148 |
|
2023 |
|
| 132 |
|
|
| 6 |
|
|
| 138 |
|
Thereafter |
|
| 552 |
|
|
| 14 |
|
|
| 566 |
|
Total future lease payments |
|
| 1,313 |
|
|
| 42 |
|
|
| 1,355 |
|
Interest |
|
| (194 | ) |
|
| (14 | ) |
|
| (208 | ) |
Total lease liabilities |
| $ | 1,119 |
|
| $ | 28 |
|
| $ | 1,147 |
|
Prior to the adoption of ASC 842, on December 31, 2018, the maturity of our operating and finance leases on an undiscounted basis was as follows:
|
| Operating Leases |
|
| Finance Leases |
|
| Total Leases |
| |||
2019 |
| $ | 197 |
|
| $ | 5 |
|
| $ | 202 |
|
2020 |
|
| 180 |
|
|
| 6 |
|
|
| 186 |
|
2021 |
|
| 159 |
|
|
| 6 |
|
|
| 165 |
|
2022 |
|
| 142 |
|
|
| 6 |
|
|
| 148 |
|
2023 |
|
| 131 |
|
|
| 6 |
|
|
| 137 |
|
Thereafter |
|
| 542 |
|
|
| 14 |
|
|
| 556 |
|
Total future lease payments |
|
| 1,351 |
|
|
| 43 |
|
|
| 1,394 |
|
Interest |
|
| (202 | ) |
|
| (14 | ) |
|
| (216 | ) |
Total lease liabilities |
| $ | 1,149 |
|
| $ | 29 |
|
| $ | 1,178 |
|
Note 12 13—Commitments and Contingencies
Indemnification Agreements
Willis Towers Watson has various agreements which provide that it may be obligated to indemnify the other party to the agreement with respect to certain matters. Generally, these indemnification provisions are included in contracts arising in the normal course of business and in connection with the purchase and sale of certain businesses. Although it is not possible to predict the maximum potential amount of future payments that may become due under these indemnification agreements because of the conditional nature of Willis Towers Watson’sthe Company’s obligations and the unique facts of each particular agreement, the Company doeswe do not believe that any potential liability that mightmay arise from such indemnity provisions is probable or material. There are no provisions for recourse to third parties, nor are any assets held by any third parties that any guarantor can liquidate to recover amounts paid under such indemnities.
Legal Proceedings
In the ordinary course of business, the Company is subject to various actual and potential claims, lawsuits and other proceedings. Some of the claims, lawsuits and other proceedings seek damages in amounts which could, if assessed, be significant. We do not expect the impact of claims or demands not described below to be material to the Company’s condensed consolidated financial statements. The Company also receives subpoenas in the ordinary course of business and, from time to time, receives requests for information in connection with governmental investigations.
Errors and omissions claims, lawsuits, and other proceedings arising in the ordinary course of business are covered in part by professional indemnity or other appropriate insurance. The terms of this insurance vary by policy year. Regarding self-insured risks, the Company has established provisions which are believed to be adequate in light of current information and legal advice, or, in certain cases, where a range of loss exists, the Company accrues the minimum amount in the range if no amount within the range is a
22
better estimate than any other amount. The Company adjusts such provisions from time to time according to developments.
On the basis of current information, the Company does not expect that the actual claims, lawsuits and other proceedings to which the Companyit is subject, or potential claims, lawsuits, and other proceedings relating to matters of which it is aware, will ultimately have a material adverse effect on the Company’sits financial condition, results of operations or liquidity. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation and disputes with insurance companies, it is possible that an adverse outcome or settlement in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods. In addition, given the early stages of some litigation or regulatory proceedings described below, it ismay not be possible to predict their outcomeoutcomes or resolution,resolutions, and it is possible that these events may have a material adverse effect on the Company.
The Company provides for contingent liabilities based on ASC 450,
Contingencies, when it is determined that a liability, inclusive of defense costs, is probable and reasonably estimable. The contingent liabilities recorded are primarily developed actuarially. Litigation is subject to many factors which are difficult to predict so there can be no assurance that in the event of a material unfavorable result in one or more claims, we will not incur material costs.Merger-Related Securities Litigation
On November 12, 2015 and December 10, 2015, in connection with the then-proposed Merger,21, 2017, a purported former stockholder of Legacy Towers Watson received demands for appraisal under Section 262 of the Delaware General Corporation Lawfiled a putative class action complaint on behalf of ten purported beneficial ownersa putative class consisting of an aggregateall Legacy Towers Watson stockholders as of approximately 2.4%October 2, 2015 against the Company, Legacy Towers Watson, Legacy Willis, ValueAct Capital Management (‘ValueAct’), and certain current and former directors and officers of Legacy Towers Watson and Legacy Willis (John Haley, Dominic Casserley, and Jeffrey Ubben), in the United States District Court for the Eastern District of Virginia. The complaint asserted claims against certain defendants under Section 14(a) of the sharesSecurities Exchange Act of 1934 (the ‘Exchange Act’) for allegedly false and misleading statements in the proxy statement for the Merger; and against other defendants under Section 20(a) of the Exchange Act for alleged ‘control person’ liability with respect to such allegedly false and misleading statements. The complaint further contended that the allegedly false and misleading statements caused stockholders of Legacy Towers Watson common stock outstanding atto accept inadequate Merger consideration. The complaint sought damages in an unspecified amount. On February 20, 2018, the timecourt appointed the Regents of the Merger. BetweenUniversity of California (‘Regents’) as Lead Plaintiff and Bernstein Litowitz Berger & Grossman LLP (‘Bernstein’) as Lead Counsel for the putative class, consolidated all subsequently filed, removed, or transferred actions, and captioned the consolidated action ‘In re Willis Towers Watson plc Proxy Litigation,’ Master File No. 1:17-cv-1338-AJT-JFA. On March 3, 20169, 2018, Lead Plaintiff filed an Amended Complaint. On April 13, 2018, the defendants filed motions to dismiss the Amended Complaint, and, on July 11, 2018, following briefing and argument, the court granted the motions and dismissed the Amended Complaint in its entirety. On July 30, 2018, Lead Plaintiff filed a notice of appeal from the court’s July 11, 2018 dismissal order to the United States Court of Appeals for the Fourth Circuit, and, on December 6, 2018, the parties completed briefing on the appeal. The appeal is scheduled to be argued on May 8, 2019.
On February 27, 2018 and March 23, 2016, three appraisal petitions were8, 2018, two additional purported former stockholders of Legacy Towers Watson, City of Fort Myers General Employees’ Pension Fund (‘Fort Myers’) and Alaska Laborers-Employers Retirement Trust (‘Alaska’), filed putative class action complaints on behalf of a putative class of Legacy Towers Watson stockholders against the former members of the Legacy Towers Watson board of directors, Legacy Towers Watson, Legacy Willis and ValueAct, in the Delaware Court of Chancery, for the Statecaptioned City of Delaware on behalf of three purported beneficial owners of Towers Watson common stock, captioned
On March 9, 2018, Regents filed a putative class action complaint on behalf of a putative class of Legacy Towers Watson stockholders against the Company, Legacy Willis, ValueAct, and Messrs. Haley, Casserley, and Ubben, in the Delaware Court of Chancery, captioned The appraisal petitions seek, among other things, a determinationRegents of the fair valueUniversity of California v. John J. Haley, et al., C.A. No. 2018-0166. Based on similar allegations as the appraisal petitioners’ shares atEastern District of Virginia action described above, the timecomplaint asserts claims against Mr. Haley for breach of fiduciary duty and against all other defendants for aiding and abetting breach of fiduciary duty. Also on March 9, 2018, Regents filed a motion for consolidation of all pending and subsequently filed Delaware Court of Chancery actions, and for appointment as Lead Plaintiff and for the Merger; an order that Towers Watson pay that valueappointment of Bernstein as Lead Counsel for the putative class. On March 29, 2018, Fort Myers and Alaska responded to Regents’ motion and cross-moved for appointment as Co-Lead Plaintiffs and for the appraisal petitioners, together with interest at the statutory rate;appointment of their counsel, Grant & Eisenhofer P.A. and an award of costs, attorneys’ fees, and other expenses. Towers Watson answered the appraisal petitions between March 24, 2016 andKessler Topaz Meltzer & Check, LLP as Co-Lead Counsel. On April 18, 2016. On May 9, 2016,2, 2018, the court consolidated the three pending appraisal proceedings underDelaware Court of Chancery actions and all related actions subsequently filed in or transferred to the caption
23
and on March 29, 2019, the parties completed briefing on the motions. The court provisionally scheduled trial forheard argument on the motions on April 11, 2019 and reserved judgment.
On October 2, 2017. On September 15, 2017,18, 2018, three additional purported former stockholders of Legacy Towers Watson, Naya Master Fund LP, Naya 174 Fund Limited and Naya Lincoln Park Master Fund Limited (collectively, ‘Naya’), filed a complaint against the Company, reached a settlement with all shareholders who made demands for appraisal, resolving all claims related toLegacy Towers Watson, Legacy Willis and John Haley, in the appraised shares. Under the termsSupreme Court of the settlement, these shareholders surrendered all rightsState of New York, County of New York, captioned Naya Master Fund LP, et al. v. John J. Haley, et al., Index No. 654968/2018. Based on similar allegations as the Eastern District of Virginia and Delaware actions described above, the complaint asserts claims for common law fraud and negligent misrepresentation. On December 18, 2018, the defendants filed a motion to dismiss the Towers Watson sharescomplaint, and all potential Merger consideration issuableon March 21, 2019, the parties completed briefing on the motion. On April 23, 2019, the parties filed a Stipulation and Proposed Order Voluntarily Discontinuing Action providing for the legacy shares. In exchange,dismissal of the action with prejudice, which the court entered on April 29, 2019.
The defendants dispute the allegations in these actions and intend to defend the lawsuits vigorously. Given the stage of the proceedings, the Company made a paymentis unable to these shareholders of approximately $211 million, which represented $134.75 per share plus accrued interest at the statutory rate of interest. As a resultprovide an estimate of the settlement, the Court, on September 18, 2017, dismissed all claimsreasonably possible loss or range of loss in the case with prejudice. The Company thereafter canceled allrespect of the Towers Watson common shares at issue in the appraisal proceeding.
Stanford Financial Group
The Company has been named as a defendant in 15 similar lawsuits relating to the collapse of The Stanford Financial Group (‘Stanford’), for which Willis of Colorado, Inc. acted as broker of record on certain lines of insurance. The complaints in these actions generally allege that the defendants actively and materially aided Stanford’s alleged fraud by providing Stanford with certain letters regarding coverage that they knew would be used to help retain or attract actual or prospective Stanford client investors. The complaints further allege that these letters, which contain statements about Stanford and the insurance policies that the defendants placed for Stanford, contained untruths and omitted material facts and were drafted in this manner to help Stanford promote and sell its allegedly fraudulent certificates of deposit.
The 15 actions are as follows:
• | Troice, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:9-CV-1274-N, was filed on July 2, 2009 in the U.S. District Court for the Northern District of Texas against Willis Group Holdings plc, Willis of Colorado, Inc. and a Willis associate, among others. On April 1, 2011, plaintiffs filed the operative Third Amended Class Action Complaint individually and on behalf of a putative, worldwide class of Stanford investors, adding Willis Limited as a defendant and alleging claims under Texas statutory and common law and seeking damages in excess of $1 billion, punitive damages and costs. On May 2, 2011, the defendants filed motions to dismiss the Third Amended Class Action Complaint, arguing, inter alia, that the plaintiffs’ claims are precluded by the Securities Litigation Uniform Standards Act of 1998 (‘SLUSA’). |
On May 10, 2011, the court presiding over the Stanford-related actions in the Northern District of Texas entered an order providing that it would consider the applicability of SLUSA to the Stanford-related actions based on the decision in a separate Stanford action not involving a Willis entity,
Roland v. Green, Civil Action No. 3:10-CV-0224-N (‘Roland’). On August 31, 2011, the court issued its decision in Roland, dismissing that action with prejudice under SLUSA.On October 27, 2011, the court in
Troice entered an order (i) dismissing with prejudice those claims asserted in the Third Amended Class Action Complaint on a class basis on the grounds set forth in the Roland decision discussed above and (ii) dismissing without prejudice those claims asserted in the Third Amended Class Action Complaint on an individual basis. Also on October 27, 2011, the court entered a final judgment in the action.On October 28, 2011, the plaintiffs in
Troice filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit. Subsequently, Troice, Roland and a third action captioned Troice, et al. v. Proskauer Rose LLP, Civil Action No. 3:09-CV-01600-N, which also was dismissed on the grounds set forth in the Roland decision discussed above and on appeal to the U.S. Court of Appeals for the Fifth Circuit, were consolidated for purposes of briefing and oral argument. Following the completion of briefing and oral argument, on March 19, 2012, the Fifth Circuit reversed and remanded the actions. On April 2, 2012, the defendants-appellees filed petitions for rehearingen banc. On April 19, 2012, the petitions for rehearing en banc were denied. On July 18, 2012, defendants-appellees filed a petition for writ of certiorari with the United States Supreme Court regarding the Fifth Circuit’s reversal in Troice. On January 18, 2013, the Supreme Court granted our petition. Opening briefs were filed on May 3, 2013 and the Supreme Court heard oral argument on October 7, 2013. On February 26, 2014, the Supreme Court affirmed the Fifth Circuit’s decision.On March 19, 2014, the plaintiffs in
Troice filed a Motion to Defer Resolution of Motions to Dismiss, to Compel Rule 26(f) Conference and For Entry of Scheduling Order.On March 25, 2014, the parties in
Troiceand theJanvey, et al. v. Willis of Colorado, Inc., et al. action discussed below stipulated to the consolidation of the two actions for pre-trial purposes under Rule 42(a) of the Federal Rules of Civil Procedure. On March 28, 2014, the Court ‘so ordered’ that stipulation and, thus, consolidated Troice and Janvey for pre-trial purposes under Rule 42(a).On September 16, 2014, the court (a) denied the plaintiffs’ request to defer resolution of the defendants’ motions to dismiss, but granted the plaintiffs’ request to enter a scheduling order; (b) requested the submission of supplemental briefing by all parties on the defendants’ motions to dismiss, which the parties submitted on September 30, 2014; and (c) entered an order
24
setting a schedule for briefing and discovery regarding plaintiffs’ motion for class certification, which schedule, among other things, provided for the submission of the plaintiffs’ motion for class certification (following the completion of briefing and discovery) on April 20, 2015.
On December 15, 2014, the court granted in part and denied in part the defendants’ motions to dismiss. On January 30, 2015, the defendants except Willis Group Holdings plc answered the Third Amended Class Action Complaint.
On April 20, 2015, the plaintiffs filed their motion for class certification, the defendants filed their opposition to plaintiffs’ motion, and the plaintiffs filed their reply in further support of the motion. Pursuant to an agreed stipulation also filed with the court on April 20, 2015, the defendants on June 4, 2015 filed sur-replies in further opposition to the motion. The Court has not yet scheduled a hearing on the motion.
On June 19, 2015, Willis Group Holdings plc filed a motion to dismiss the complaint for lack of personal jurisdiction. On November 17, 2015, Willis Group Holdings plc withdrew the motion.
On March 31, 2016, the parties in the
Troice and Janvey actions entered into a settlement in principle that is described in more detail below.• | Ranni v. Willis of Colorado, Inc., et al., C.A. No. 9-22085, was filed on July 17, 2009 against Willis Group Holdings plc and Willis of Colorado, Inc. in the U.S. District Court for the Southern District of Florida. The complaint was filed on behalf of a putative class of Venezuelan and other South American Stanford investors and alleges claims under Section 10(b) of the Securities Exchange Act of 1934 (and Rule 10b-5 thereunder) and Florida statutory and common law and seeks damages in an amount to be determined at trial. On October 6, 2009, Ranni was transferred, for consolidation or coordination with other Stanford-related actions (including Troice), to the Northern District of Texas by the U.S. Judicial Panel on Multidistrict Litigation (the ‘JPML’). The defendants have not yet responded to the complaint in Ranni. On August 26, 2014, the plaintiff filed a notice of voluntary dismissal of the action without prejudice. |
• | Canabal, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:9-CV-1474-D, was filed on August 6, 2009 against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate named as a defendant in Troice, among others, also in the Northern District of Texas. The complaint was filed individually and on behalf of a putative class of Venezuelan Stanford investors, alleged claims under Texas statutory and common law and sought damages in excess of $1 billion, punitive damages, attorneys’ fees and costs. On December 18, 2009, the parties in Troice and Canabal stipulated to the consolidation of those actions (under the Troice civil action number), and, on December 31, 2009, the plaintiffs in Canabal filed a notice of dismissal, dismissing the action without prejudice. |
• | Rupert, et al. v. Winter, et al., Case No. 2009C115137, was filed on September 14, 2009 on behalf of 97 Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under the Securities Act of 1933, Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $300 million, attorneys’ fees and costs. On October 20, 2009, certain defendants, including Willis of Colorado, Inc., (i) removed Rupert to the U.S. District Court for the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On April 1, 2010, the JPML issued a final transfer order for the transfer of Rupert to the Northern District of Texas. On January 24, 2012, the court remanded Rupert to Texas state court (Bexar County), but stayed the action until further order of the court. On August 13, 2012, the plaintiffs filed a motion to lift the stay, which motion was denied by the court on September 16, 2014. On October 10, 2014, the plaintiffs appealed the court’s denial of their motion to lift the stay to the U.S. Court of Appeals for the Fifth Circuit. On January 5, 2015, the Fifth Circuit consolidated the appeal with the appeal in the Rishmague, et ano. v. Winter, et al. action discussed below, and the consolidated appeal, was fully briefed as of March 24, 2015. Oral argument on the consolidated appeal was held on September 2, 2015. On September 16, 2015, the Fifth Circuit affirmed. The defendants have not yet responded to the complaint in Rupert. |
• | Casanova, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:10-CV-1862-O, was filed on September 16, 2010 on behalf of seven Stanford investors against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate, among others, also in the Northern District of Texas. The complaint alleges claims under Texas statutory and common law and seeks actual damages in excess of $5 million, punitive damages, attorneys’ fees and costs. On February 13, 2015, the parties filed an Agreed Motion for Partial Dismissal pursuant to which they agreed to the dismissal of certain claims pursuant to the motion to dismiss decisions in the Troice action discussed above and the Janvey action discussed below. Also on February 13, 2015, the defendants except Willis Group Holdings plc answered the complaint in the Casanova action. On June 19, 2015, Willis Group Holdings plc filed a motion to dismiss the complaint for lack of personal jurisdiction. Plaintiffs have not opposed the motion. |
• | Rishmague, et ano. v. Winter, et al., Case No. 2011CI2585, was filed on March 11, 2011 on behalf of two Stanford investors, individually and as representatives of certain trusts, against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more |
25
than $37 million and attorneys’ fees and costs. On April 11, 2011, certain defendants, including Willis of Colorado, Inc., (i) removed Rishmague to the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On August 8, 2011, the JPML issued a final transfer order for the transfer of Rishmague to the Northern District of Texas, where it is currently pending. On August 13, 2012, the plaintiffs joined with the plaintiffs in the Rupert action in their motion to lift the court’s stay of the Rupert action. On September 9, 2014, the court remanded Rishmague to Texas state court (Bexar County), but stayed the action until further order of the court and denied the plaintiffs’ motion to lift the stay. On October 10, 2014, the plaintiffs appealed the court’s denial of their motion to lift the stay to the Fifth Circuit. On January 5, 2015, the Fifth Circuit consolidated the appeal with the appeal in the Rupert action, and the consolidated appeal was fully briefed as of March 24, 2015. Oral argument on the consolidated appeal was held on September 2, 2015. On September 16, 2015, the Fifth Circuit affirmed. The defendants have not yet responded to the complaint in Rishmague. |
• | MacArthur v. Winter, et al., Case No. 2013-07840, was filed on February 8, 2013 on behalf of two Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Harris County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks actual, special, consequential and treble damages of approximately $4 million and attorneys’ fees and costs. On March 29, 2013, Willis of Colorado, Inc. and Willis of Texas, Inc. (i) removed MacArthur to the U.S. District Court for the Southern District of Texas and (ii) notified the JPML of the pendency of this related action. On April 2, 2013, Willis of Colorado, Inc. and Willis of Texas, Inc. filed a motion in the Southern District of Texas to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. Also on April 2, 2013, the court presiding over MacArthur in the Southern District of Texas transferred the action to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On September 29, 2014, the parties stipulated to the remand (to Texas state court (Harris County)) and stay of MacArthur until further order of the court (in accordance with the court’s September 9, 2014 decision in Rishmague (discussed above)), which stipulation was ‘so ordered’ by the court on October 14, 2014. The defendants have not yet responded to the complaint in MacArthur. |
• | Florida suits: On February 14, 2013, five lawsuits were filed against Willis Group Holdings plc, Willis Limited and Willis of Colorado, Inc. in Florida state court (Miami-Dade County), alleging violations of Florida common law. The five suits are: (1) Barbar, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05666CA27, filed on behalf of 35 Stanford investors seeking compensatory damages in excess of $30 million; (2) de Gadala-Maria, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05669CA30, filed on behalf of 64 Stanford investors seeking compensatory damages in excess of $83.5 million; (3) Ranni, et ano. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05673CA06, filed on behalf of two Stanford investors seeking compensatory damages in excess of $3 million; (4) Tisminesky, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05676CA09, filed on behalf of 11 Stanford investors seeking compensatory damages in excess of $6.5 million; and (5) Zacarias, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05678CA11, filed on behalf of 10 Stanford investors seeking compensatory damages in excess of $12.5 million. On June 3, 2013, Willis of Colorado, Inc. removed all five cases to the Southern District of Florida and, on June 4, 2013, notified the JPML of the pendency of these related actions. On June 10, 2013, the court in Tisminesky issued an order sua sponte staying and administratively closing that action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation and coordination with the other Stanford-related actions. On June 11, 2013, Willis of Colorado, Inc. moved to stay the other four actions pending the JPML’s transfer decision. On June 20, 2013, the JPML issued a conditional transfer order for the transfer of the five actions to the Northern District of Texas, the transmittal of which was stayed for seven days to allow for any opposition to be filed. On June 28, 2013, with no opposition having been filed, the JPML lifted the stay, enabling the transfer to go forward. |
On September 30, 2014, the court denied the plaintiffs’ motion to remand in
Zacarias, and, on October 3, 2014, the court denied the plaintiffs’ motions to remand in Tisminesky and de Gadala Maria. On December 3, 2014 and March 3, 2015, the court granted the plaintiffs’ motions to remand in Barbar and Ranni, respectively, remanded both actions to Florida state court (Miami-Dade County) and stayed both actions until further order of the court. On January 2, 2015 and April 1, 2015, the plaintiffs in Barbar and Ranni, respectively, appealed the court’s December 3, 2014 and March 3, 2015 decisions to the Fifth Circuit. On April 22, 2015 and July 22, 2015, respectively, the Fifth Circuit dismissed the Barbar and Ranni appealssua spontefor lack of jurisdiction. The defendants have not yet responded to the complaints in Ranni or Barbar.On April 1, 2015, the defendants except Willis Group Holdings plc filed motions to dismiss the complaints in
Zacarias, Tisminesky and de Gadala-Maria. On June 19, 2015, Willis Group Holdings plc filed motions to dismiss the complaints in Zacarias, Tisminesky and de Gadala-Maria for lack of personal jurisdiction. On July 15, 2015, the court dismissed the complaint in Zacarias in its entirety with leave to replead within 21 days. On July 21, 2015, the court dismissed the complaints in Tisminesky and de Gadala-Maria in their entirety with leave to replead within 21 days. On August 6, 2015, the plaintiffs in Zacarias, Tisminesky and de Gadala-Maria filed amended complaints (in which, among other things, Willis26
Group Holdings plc was no longer named as a defendant). On September 11, 2015, the defendants filed motions to dismiss the amended complaints. The motions await disposition by the court.
• | Janvey, et al. v. Willis of Colorado, Inc., et al., Case No. 3:13-CV-03980-D, was filed on October 1, 2013 also in the Northern District of Texas against Willis Group Holdings plc, Willis Limited, Willis North America Inc., Willis of Colorado, Inc. and the same Willis associate. The complaint was filed (i) by Ralph S. Janvey, in his capacity as Court-Appointed Receiver for the Stanford Receivership Estate, and the Official Stanford Investors Committee (the ‘OSIC’) against all defendants and (ii) on behalf of a putative, worldwide class of Stanford investors against Willis North America Inc. Plaintiffs Janvey and the OSIC allege claims under Texas common law and the court’s Amended Order Appointing Receiver, and the putative class plaintiffs allege claims under Texas statutory and common law. Plaintiffs seek actual damages in excess of $1 billion, punitive damages and costs. As alleged by the Stanford Receiver, the total amount of collective losses allegedly sustained by all investors in Stanford certificates of deposit is approximately $4.6 billion. |
On November 15, 2013, plaintiffs in
Janveyfiled the operative First Amended Complaint, which added certain defendants unaffiliated with Willis. On February 28, 2014, the defendants filed motions to dismiss the First Amended Complaint, which motions, other than with respect to Willis Group Holding plc’s motion to dismiss for lack of personal jurisdiction, were granted in part and denied in part by the court on December 5, 2014. On December 22, 2014, Willis filed a motion to amend the court’s December 5 order to certify an interlocutory appeal to the Fifth Circuit, and, on December 23, 2014, Willis filed a motion to amend and, to the extent necessary, reconsider the court’s December 5 order. On January 16, 2015, the defendants answered the First Amended Complaint. On January 28, 2015, the court denied Willis’s motion to amend the court’s December 5 order to certify an interlocutory appeal to the Fifth Circuit. On February 4, 2015, the court granted Willis’s motion to amend and, to the extent necessary, reconsider the December 5 order.As discussed above, on March 25, 2014, the parties in
Troice and Janvey stipulated to the consolidation of the two actions for pre-trial purposes under Rule 42(a) of the Federal Rules of Civil Procedure. On March 28, 2014, the Court ‘so ordered’ that stipulation and, thus, consolidated Troice and Janvey for pre-trial purposes under Rule 42(a).On January 26, 2015, the court entered an order setting a schedule for briefing and discovery regarding the plaintiffs’ motion for class certification, which schedule, among other things, provided for the submission of the plaintiffs’ motion for class certification (following the completion of briefing and discovery) on July 20, 2015. By letter dated March 4, 2015, the parties requested that the court consolidate the scheduling orders entered in
Troice and Janvey to provide for a class certification submission date of April 20, 2015 in both cases. On March 6, 2015, the court entered an order consolidating the scheduling orders in Troice and Janvey, providing for a class certification submission date of April 20, 2015 in both cases, and vacating the July 20, 2015 class certification submission date in the original Janvey scheduling order.On November 17, 2015, Willis Group Holdings plc withdrew its motion to dismiss for lack of personal jurisdiction.
On March 31, 2016, the parties in the
Troice and Janvey actions entered into a settlement in principle that is described in more detail below.• | Martin v. Willis of Colorado, Inc., et al., Case No. 201652115, was filed on August 5, 2016, on behalf of one Stanford investor against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate in Texas state court (Harris County). The complaint alleges claims under Texas statutory and common law and seeks actual damages of less than $100,000, exemplary damages, attorneys’ fees and costs. On September 12, 2016, the plaintiff filed an amended complaint, which added five more Stanford investors as plaintiffs and seeks damages in excess of $1 million. The defendants have not yet responded to the amended complaint in Martin. |
• | Abel, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:16-cv-2601, was filed on September 12, 2016, on behalf of more than 300 Stanford investors against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate, also in the Northern District of Texas. The complaint alleges claims under Texas statutory and common law and seeks actual damages in excess of $135 million, exemplary damages, attorneys’ fees and costs. On November 10, 2016, the plaintiffs filed an amended complaint, which, among other things, added several more Stanford investors as plaintiffs. The defendants have not yet responded to the complaint in Abel. |
The plaintiffs in
Janvey and Troice and the other actions above seek overlapping damages, representing either the entirety or a portion of the total alleged collective losses incurred by investors in Stanford certificates of deposit, notwithstanding the fact that Legacy Willis acted as broker of record for only a portion of time that Stanford issued certificates of deposit. In the fourth quarter of 2015, the Company recognized a $70 million litigation provision for loss contingencies relating to the Stanford matters based on its ongoing review of a variety of factors as required by accounting standards.On March 31, 2016, the Company entered into a settlement in principle for $120 million relating to this litigation, and increased its provisions by $50 million during that quarter. Further details on this settlement in principle are given below.
The settlement is contingent on a number of conditions, including court approval of the settlement and a bar order prohibiting any continued or future litigation against Willis related to Stanford, which may not be given. Therefore, the ultimate resolution of these
27
matters may differ from the amount provided for. The Company continues to dispute the allegations and, to the extent litigation proceeds, to defend the lawsuits vigorously.
Settlement
.On March 31, 2016, the Company entered into a settlement in principle, as reflected in a Settlement Term Sheet, relating to the Stanford litigation matter. The Company agreed to the Settlement Term Sheet to eliminate the distraction, burden, expense and uncertainty of further litigation. In particular, the settlement and the related bar orders described below, if upheld through any appeals, would enable the Company (a newly-combined firm) to conduct itself with the bar orders’ protection from the continued overhang of matters alleged to have occurred approximately a decade ago. Further, the Settlement Term Sheet provided that the parties understood and agreed that there is no admission of liability or wrongdoing by the Company. The Company expressly denies any liability or wrongdoing with respect to the matters alleged in the Stanford litigation.On or about August 31, 2016, the parties to the settlement signed a formal Settlement Agreement memorializing the terms of the settlement as originally set forth in the Settlement Term Sheet. The parties to the Settlement Agreement are Ralph S. Janvey (in his capacity as the Court-appointed receiver (the ‘Receiver’) for The Stanford Financial Group and its affiliated entities in receivership (collectively, ‘Stanford’)), the Official Stanford Investors Committee, Samuel Troice, Martha Diaz, Paula Gilly-Flores, Punga Punga Financial, Ltd., Manuel Canabal, Daniel Gomez Ferreiro and Promotora Villa Marina, C.A. (collectively, ‘Plaintiffs’), on the one hand, and Willis Towers Watson Public Limited Company (formerly Willis Group Holdings Public Limited Company), Willis Limited, Willis North America Inc., Willis of Colorado, Inc. and the Willis associate referenced above (collectively, ‘Defendants’), on the other hand. Under the terms of the Settlement Agreement, the parties agreed to settle and dismiss the
Janvey and Troice actions (collectively, the ‘Actions’) and all current or future claims arising from or related to Stanford in exchange for a one-time cash payment to the Receiver by the Company of $120 million to be distributed to all Stanford investors who have claims recognized by the Receiver pursuant to the distribution plan in place at the time the payment is made.The Settlement Agreement also provides the parties’ agreement to seek the Court’s entry of bar orders prohibiting any continued or future litigation against the Defendants and their related parties of claims relating to Stanford, whether asserted to date or not. The terms of the bar orders therefore would prohibit all Stanford-related litigation described above, and not just the Actions, but including any pending matters and any actions that may be brought in the future. Final Court approval of these bar orders is a condition of the settlement.
On September 7, 2016, Plaintiffs filed with the Court a motion to approve the settlement. On October 19, 2016, the Court preliminarily approved the settlement. Several of the plaintiffs in the other actions above objected to the settlement, and a hearing to consider final approval of the settlement was held on January 20, 2017, after which the Court reserved decision. On August 23, 2017, the Court approved the settlement, including the bar orders. Several of the objectors have since appealed the settlement approval and bar orders to the Fifth Circuit. The briefing related to the appeals are currently pending. is now completed and oral argument on the appeals was heard on December 3, 2018. There is no date certain for when the appeals will be decided.
The Company will not make the $120 million settlement payment unless and until the appeals are decided in its favor and the settlement is not subject to any further appeal.
Aviation Broking Competition Investigations
In April 2017, the Financial Conduct Authority (‘FCA’) informed Willis Limited, our U.K. broking subsidiary, that it had opened a formal investigation into possible agreements/concerted practices in the aviation broking sector.
In October 2017, the European Commission (‘Commission’) disclosed to us that it has initiated civil investigation proceedings in respect of a suspected infringement of E.U. competition rules involving several broking firms, including our principal U.K. broking subsidiary and one of its parent entities. In particular, the Commission has stated that the civil proceedings concern the exchange of commercially sensitive information between competitors in relation to aviation and aerospace insurance and reinsurance broking products and services in the European Economic Area, as well as possible coordination between competitors. The initiation of proceedings does not mean there has been a finding of infringement, merely that the Commission will investigate the case.
When the Commission initiated these proceedings, the FCA has informed us that it has closed its related competition act investigation. However, it retains itsinvestigation, but still retained jurisdiction over broking regulatory matters arising from this conduct. In early 2018, the conduct being investigated.
In May 2018, the Korea Fair Trade Commission (‘KFTC’) disclosed to us that it is investigating alleged cartels in the insurance broking industry. The KFTC has since requested information related to, among other topics, the aviation and aerospace insurance brokerage market and exchanges of information between brokers about insurance policies.
In January 2019, the Brazil Conselho Administrativo de Defesa Economica (‘CADE’) launched an administrative proceeding to investigate alleged sharing of competitive and commercially sensitive information in the insurance and reinsurance brokerage industry for aviation and aerospace and related ancillary services. The CADE identified 11 entities under investigation, including Willis Group Limited, one of our U.K. subsidiaries.
28
Given the status of the investigation,these investigations, the Company is currently unable to assess the terms on which this investigation,they will be resolved, or any other regulatory matter or civil claims emanating from the conduct being investigated, will be resolved, and thus is unable to provide an estimate of the reasonably possible loss or range of loss.
U.K. Investment Consulting Investigation
In September 2017, the FCA announced that it would make a market investigation referral with respect to the investment consulting industry to the U.K. Competition & Markets Authority (the ‘CMA’). The CMA then commenced a market investigation, and the Company is currently cooperating with the investigation.
The CMA investigationreleased its final report on December 12, 2018, finding that there is an adverse effect on competition. To address these findings, the CMA has proposed certain remedies, including mandatory tendering when trustees first purchase fiduciary management services, the reporting of investment performance to customers using a set of common standards, transparency in reporting of fees in fiduciary management and the expansion of the FCA’s regulatory perimeter to include the main activities of investment consulting marketconsultancy and fiduciary management providers. The Company is generally supportive of these proposed remedies. The CMA will implement the remedies by way of an order on pension scheme trustees and firms providing the relevant services. The remedies are expected to take at least 18 months to conclude. Given the early stage of the investigation,be effective later in 2019, and the Company is currently unabledoes not expect compliance costs associated with these remedies to assess whether the CMA will find any adverse effectshave a material impact on competition, and, if the CMA does find any adverse effects on competition, what remedies it may impose on the industry. Given this, the Company is unable to provide an estimate of the reasonably possible loss or range of loss.
Note 1314 — Supplementary Information for Certain Balance Sheet Accounts
Additional details of specific balance sheet accounts are detailed below.
September 30, 2017 | December 31, 2016 | ||||||
Billed, net of allowance for doubtful debts of $47 million and $40 million | $ | 1,790 | $ | 1,789 | |||
Accrued and unbilled, at estimated net realizable value | 365 | 291 | |||||
Accounts receivable, net | $ | 2,155 | $ | 2,080 |
Deferred revenue and other current assetsaccrued expenses consist of the following:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Accounts payable, accrued liabilities and deferred income |
| $ | 688 |
|
| $ | 691 |
|
Accrued discretionary and incentive compensation |
|
| 327 |
|
|
| 758 |
|
Accrued vacation |
|
| 143 |
|
|
| 111 |
|
Other employee-related liabilities |
|
| 82 |
|
|
| 87 |
|
Total deferred revenue and accrued expenses |
| $ | 1,240 |
|
| $ | 1,647 |
|
September 30, 2017 | December 31, 2016 | ||||||
Prepayments and accrued income | $ | 162 | $ | 131 | |||
Derivatives and investments | 24 | 32 | |||||
Deferred compensation plan assets | 18 | 15 | |||||
Retention incentives | 8 | 7 | |||||
Corporate income and other taxes | 139 | 97 | |||||
Other current assets | 67 | 55 | |||||
Total prepaid and other current assets | $ | 418 | $ | 337 |
September 30, 2017 | December 31, 2016 | ||||||
Prepayments and accrued income | $ | 15 | $ | 15 | |||
Deferred compensation plan assets | 125 | 111 | |||||
Deferred tax assets | 50 | 50 | |||||
Accounts receivable, net | 33 | 27 | |||||
Other investments | 29 | 30 | |||||
Other non-current assets | 180 | 120 | |||||
Total other non-current assets | $ | 432 | $ | 353 |
Provision for liabilities consists of the following:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Claims, lawsuits and other proceedings |
| $ | 460 |
|
| $ | 455 |
|
Other provisions |
|
| 83 |
|
|
| 85 |
|
Total provision for liabilities |
| $ | 543 |
|
| $ | 540 |
|
September 30, 2017 | December 31, 2016 | ||||||
Claims, lawsuits and other proceedings | $ | 478 | $ | 456 | |||
Other provisions | 125 | 119 | |||||
Total provision for liabilities | $ | 603 | $ | 575 |
Other non-current liabilities consistconsists of the following:
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||
Incentives from lessors |
| $ | — |
|
| $ | 120 |
|
Deferred compensation plan liability |
|
| 132 |
|
|
| 125 |
|
Contingent and deferred consideration on acquisitions |
|
| 25 |
|
|
| 22 |
|
Liabilities for uncertain tax positions |
|
| 48 |
|
|
| 46 |
|
Finance leases |
|
| 25 |
|
|
| 26 |
|
Other non-current liabilities |
|
| 66 |
|
|
| 90 |
|
Total other non-current liabilities |
| $ | 296 |
|
| $ | 429 |
|
September 30, 2017 | December 31, 2016 | ||||||
Incentives from lessors | $ | 140 | $ | 133 | |||
Deferred compensation plan liability | 127 | 111 | |||||
Contingent and deferred consideration on acquisitions | 36 | 89 | |||||
Derivatives | 7 | 51 | |||||
Other non-current liabilities | 166 | 148 | |||||
Total other non-current liabilities | $ | 476 | $ | 532 |
Note 1415 — Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss, net of non-controlling interests, and net of tax are provided in the following tabletables for both the three and nine months ended September 30, 2017March 31, 2019 and 2016. This table excludes2018. These tables exclude amounts attributable to non-controlling interests, which are not material for further disclosure. Amounts related to available-for-sale securities are immaterial.
|
| Foreign currency translation (i) |
|
| Cash flow hedges (i) |
|
| Defined pension and post-retirement benefit costs (ii) |
|
| Total |
| ||||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||||
Balance at December 31, 2018 and 2017, respectively |
| $ | (616 | ) |
| $ | (365 | ) |
| $ | (8 | ) |
| $ | (10 | ) |
| $ | (1,337 | ) |
| $ | (1,138 | ) |
| $ | (1,961 | ) |
| $ | (1,513 | ) |
Other comprehensive income/(loss) before reclassifications |
|
| 9 |
|
|
| 58 |
|
|
| 6 |
|
|
| 9 |
|
|
| 1 |
|
|
| (1 | ) |
|
| 16 |
|
|
| 66 |
|
Loss reclassified from accumulated other comprehensive loss (net of income tax benefit of $4 and $1, respectively) |
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 10 |
|
|
| 2 |
|
|
| 7 |
|
|
| 7 |
|
|
| 17 |
|
Reclassification of tax effects per ASU 2018-02 (iii) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36 | ) |
|
| — |
|
|
| (36 | ) |
|
| — |
|
Net current-period other comprehensive income/(loss) |
|
| 9 |
|
|
| 58 |
|
|
| 11 |
|
|
| 19 |
|
|
| (33 | ) |
|
| 6 |
|
|
| (13 | ) |
|
| 83 |
|
Balance at March 31, 2019 and 2018, respectively |
| $ | (607 | ) |
| $ | (307 | ) |
| $ | 3 |
|
| $ | 9 |
|
| $ | (1,370 | ) |
| $ | (1,132 | ) |
| $ | (1,974 | ) |
| $ | (1,430 | ) |
Foreign currency translation (i) | Cash flow hedges (i) | Defined pension and post-retirement benefit costs (ii) | Total | ||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Quarter-to-date activity: | |||||||||||||||||||||||||||||||
Balance at June 30, 2017 and 2016, respectively | $ | (647 | ) | $ | (398 | ) | $ | (39 | ) | $ | (73 | ) | $ | (1,090 | ) | $ | (710 | ) | $ | (1,776 | ) | $ | (1,181 | ) | |||||||
Other comprehensive income/(loss) before reclassifications | 78 | (36 | ) | 6 | (1 | ) | (5 | ) | (6 | ) | 79 | (43 | ) | ||||||||||||||||||
Loss/(income) reclassified from accumulated other comprehensive loss (net of income tax benefit of $4 and $1, respectively) | — | — | 11 | (6 | ) | 10 | 9 | 21 | 3 | ||||||||||||||||||||||
Net current-period other comprehensive income/(loss) | 78 | (36 | ) | 17 | (7 | ) | 5 | 3 | 100 | (40 | ) | ||||||||||||||||||||
Balance at September 30, 2017 and 2016, respectively | $ | (569 | ) | $ | (434 | ) | $ | (22 | ) | $ | (80 | ) | $ | (1,085 | ) | $ | (707 | ) | $ | (1,676 | ) | $ | (1,221 | ) | |||||||
Year-to-date activity: | |||||||||||||||||||||||||||||||
Balance at December 31, 2016 and 2015, respectively | $ | (650 | ) | $ | (314 | ) | $ | (82 | ) | $ | (10 | ) | $ | (1,152 | ) | $ | (713 | ) | $ | (1,884 | ) | $ | (1,037 | ) | |||||||
Other comprehensive income/(loss) before reclassifications | 81 | (120 | ) | 15 | (56 | ) | 39 | (26 | ) | 135 | (202 | ) | |||||||||||||||||||
Loss/(income) reclassified from accumulated other comprehensive loss (net of income tax benefit of $17 and income tax expense of $3, respectively) | — | — | 45 | (14 | ) | 28 | 32 | 73 | 18 | ||||||||||||||||||||||
Net current-period other comprehensive income/(loss) | 81 | (120 | ) | 60 | (70 | ) | 67 | 6 | 208 | (184 | ) | ||||||||||||||||||||
Balance at September 30, 2017 and 2016, respectively | $ | (569 | ) | $ | (434 | ) | $ | (22 | ) | $ | (80 | ) | $ | (1,085 | ) | $ | (707 | ) | $ | (1,676 | ) | $ | (1,221 | ) |
(i) | |
Reclassification adjustments from accumulated other comprehensive loss related to foreign currency translation and cash flow hedges are included in Revenue, Salaries and benefits, and Other |
(ii) | |
Reclassification adjustments from accumulated other comprehensive loss are included in the computation of net periodic pension cost (see Note 11 — Retirement |
(iii) | On January 1, 2019, in accordance with ASU 2018-02, we reclassified to Retained earnings $36 million of defined pension and postretirement costs, representing the ‘stranded’ tax effect of the change in the U.S. federal corporate tax rate resulting from U.S. Tax Reform. See Note 2 — Basis of Presentation and Recent Accounting Pronouncements for further information. |
Note 1516 — Earnings Per Share
Basic and diluted earnings per share are calculated by dividing net income attributable to Willis Towers Watson by the average number of ordinary shares outstanding during each period. The computation of diluted earnings per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue shares were exercised or converted into shares or resulted in the issuance of shares that then shared in the net income of the Company.
At September 30, 2017March 31, 2019 and 2016,2018, there were 0.90.3 million and 1.30.7 million time-based share options; 1.00.4 million and 1.20.6 million performance-based options; 0.4 million and 0.9 million restricted time-based stock units; and 0.60.5 million and 0.7 million restricted performance-based stock units outstanding, respectively.
Basic and diluted earnings per share are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Net income attributable to Willis Towers Watson |
| $ | 287 |
|
| $ | 215 |
|
|
|
|
|
|
|
|
|
|
Basic average number of shares outstanding |
|
| 130 |
|
|
| 133 |
|
Dilutive effect of potentially issuable shares |
|
| — |
|
|
| — |
|
Diluted average number of shares outstanding |
|
| 130 |
|
|
| 133 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 2.21 |
|
| $ | 1.62 |
|
Dilutive effect of potentially issuable shares |
|
| (0.01 | ) |
|
| (0.01 | ) |
Diluted earnings per share |
| $ | 2.20 |
|
| $ | 1.61 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net (loss)/income attributable to Willis Towers Watson | $ | (54 | ) | $ | (32 | ) | $ | 323 | $ | 278 | |||||
Basic average number of shares outstanding | 134 | 138 | 136 | 137 | |||||||||||
Dilutive effect of potentially issuable shares | — | — | 1 | 2 | |||||||||||
Diluted average number of shares outstanding | 134 | 138 | 137 | 139 | |||||||||||
Basic (loss)/earnings per share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.38 | $ | 2.03 | |||||
Dilutive effect of potentially issuable shares | — | — | (0.02 | ) | (0.03 | ) | |||||||||
Diluted (loss)/earnings per share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.36 | $ | 2.00 |
There were no anti-dilutive options or restricted stock options was not computedunits for the three months ended September 30, 2017March 31, 2019 and 2016 as the Company reported a net loss within its condensed consolidated statements of comprehensive income. There were no anti-dilutive options for the nine months ended September 2018.
30 2017. Options to purchase 0.6 million shares for the nine months ended September 30, 2016 were not included in the computation of the dilutive effect of stock options because their effect was anti-dilutive.
Note 17 — Financial Information for Parent Guarantor,Issuers and Other Guarantor Subsidiaries and Non-Guarantor Subsidiaries
As of which $187 million were issued on September 29, 2009, and $650 million were issued on May 16, 2017. Additionally, Willis North America had $394 million of senior notes issued on March 28, 2007; these were subsequently repaid on March 28, 2017.
Three Months Ended September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | — | $ | 3 | $ | 1,829 | $ | — | $ | 1,832 | |||||||||||
Interest and other income | — | — | — | 20 | — | 20 | |||||||||||||||||
Total revenues | — | — | 3 | 1,849 | — | 1,852 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | 2 | — | 20 | 1,123 | — | 1,145 | |||||||||||||||||
Other operating expenses | — | 30 | 6 | 330 | — | 366 | |||||||||||||||||
Depreciation | — | 2 | — | 52 | — | 54 | |||||||||||||||||
Amortization | — | 1 | — | 143 | (3 | ) | 141 | ||||||||||||||||
Restructuring costs | — | 1 | 1 | 29 | — | 31 | |||||||||||||||||
Transaction and integration expenses | — | 2 | 4 | 68 | — | 74 | |||||||||||||||||
Total costs of providing services | 2 | 36 | 31 | 1,745 | (3 | ) | 1,811 | ||||||||||||||||
(Loss)/income from operations | (2 | ) | (36 | ) | (28 | ) | 104 | 3 | 41 | ||||||||||||||
Income from Group undertakings | — | (136 | ) | (46 | ) | (39 | ) | 221 | — | ||||||||||||||
Expenses due to Group undertakings | — | 13 | 48 | 160 | (221 | ) | — | ||||||||||||||||
Interest expense | 8 | 25 | 9 | 5 | — | 47 | |||||||||||||||||
Other (income)/expense, net | — | (48 | ) | — | (120 | ) | 197 | 29 | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (10 | ) | 110 | (39 | ) | 98 | (194 | ) | (35 | ) | |||||||||||||
(Benefit from)/provision for income taxes | (1 | ) | 10 | (4 | ) | 14 | — | 19 | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 100 | (35 | ) | 84 | (194 | ) | (54 | ) | |||||||||||||
Interest in earnings of associates, net of tax | — | — | — | — | — | — | |||||||||||||||||
Equity account for subsidiaries | (45 | ) | (142 | ) | (248 | ) | — | 435 | — | ||||||||||||||
NET (LOSS)/INCOME | (54 | ) | (42 | ) | (283 | ) | 84 | 241 | (54 | ) | |||||||||||||
Income attributable to non-controlling interests | — | — | — | — | — | — | |||||||||||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (54 | ) | $ | (42 | ) | $ | (283 | ) | $ | 84 | $ | 241 | $ | (54 | ) | |||||||
Comprehensive income/(loss) before non-controlling interests | $ | 46 | $ | 62 | $ | (215 | ) | $ | (4 | ) | $ | 145 | $ | 34 | |||||||||
Comprehensive loss attributable to non-controlling interest | — | — | — | 12 | — | 12 | |||||||||||||||||
Comprehensive income/(loss) attributable to Willis Towers Watson | $ | 46 | $ | 62 | $ | (215 | ) | $ | 8 | $ | 145 | $ | 46 |
Three Months Ended September 30, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | — | $ | 5 | $ | 1,756 | $ | — | $ | 1,761 | |||||||||||
Interest and other income | — | — | — | 16 | — | 16 | |||||||||||||||||
Total revenues | — | — | 5 | 1,772 | — | 1,777 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | — | — | 14 | 1,105 | — | 1,119 | |||||||||||||||||
Other operating expenses | 1 | 27 | 10 | 332 | — | 370 | |||||||||||||||||
Depreciation | — | 1 | 4 | 40 | — | 45 | |||||||||||||||||
Amortization | — | — | — | 157 | — | 157 | |||||||||||||||||
Restructuring costs | — | 7 | 7 | 35 | — | 49 | |||||||||||||||||
Transaction and integration expenses | — | 1 | 5 | 30 | — | 36 | |||||||||||||||||
Total costs of providing services | 1 | 36 | 40 | 1,699 | — | 1,776 | |||||||||||||||||
(Loss)/income from operations | (1 | ) | (36 | ) | (35 | ) | 73 | — | 1 | ||||||||||||||
Income from Group undertakings | — | (126 | ) | (61 | ) | (34 | ) | 221 | — | ||||||||||||||
Expenses due to Group undertakings | — | 13 | 48 | 160 | (221 | ) | — | ||||||||||||||||
Interest expense | 8 | 22 | 10 | 5 | — | 45 | |||||||||||||||||
Other expense, net | — | — | — | 14 | — | 14 | |||||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 55 | (32 | ) | (72 | ) | — | (58 | ) | |||||||||||||
Benefit from income taxes | — | (9 | ) | (10 | ) | (7 | ) | — | (26 | ) | |||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 64 | (22 | ) | (65 | ) | — | (32 | ) | |||||||||||||
Interest in earnings of associates, net of tax | — | — | — | 1 | — | 1 | |||||||||||||||||
Equity account for subsidiaries | (23 | ) | (82 | ) | (29 | ) | — | 134 | — | ||||||||||||||
NET LOSS | (32 | ) | (18 | ) | (51 | ) | (64 | ) | 134 | (31 | ) | ||||||||||||
Income attributable to non-controlling interests | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||
NET LOSS ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (32 | ) | $ | (18 | ) | $ | (51 | ) | $ | (65 | ) | $ | 134 | $ | (32 | ) | ||||||
Comprehensive loss before non-controlling interests | $ | (72 | ) | $ | (58 | ) | $ | (77 | ) | $ | (91 | ) | $ | 225 | $ | (73 | ) | ||||||
Comprehensive loss attributable to non-controlling interest | — | — | — | 1 | — | 1 | |||||||||||||||||
Comprehensive loss attributable to Willis Towers Watson | $ | (72 | ) | $ | (58 | ) | $ | (77 | ) | $ | (90 | ) | $ | 225 | $ | (72 | ) |
Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | — | $ | 14 | $ | 6,051 | $ | — | $ | 6,065 | |||||||||||
Interest and other income | — | — | — | 59 | — | 59 | |||||||||||||||||
Total revenues | — | — | 14 | 6,110 | — | 6,124 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | 4 | — | 40 | 3,440 | — | 3,484 | |||||||||||||||||
Other operating expenses | 2 | 74 | 16 | 1,066 | — | 1,158 | |||||||||||||||||
Depreciation | — | 5 | — | 146 | — | 151 | |||||||||||||||||
Amortization | — | 3 | — | 441 | (3 | ) | 441 | ||||||||||||||||
Restructuring costs | — | 5 | 1 | 79 | — | 85 | |||||||||||||||||
Transaction and integration expenses | — | 32 | 6 | 139 | — | 177 | |||||||||||||||||
Total costs of providing services | 6 | 119 | 63 | 5,311 | (3 | ) | 5,496 | ||||||||||||||||
(Loss)/income from operations | (6 | ) | (119 | ) | (49 | ) | 799 | 3 | 628 | ||||||||||||||
Income from Group undertakings | — | (402 | ) | (160 | ) | (112 | ) | 674 | — | ||||||||||||||
Expenses due to Group undertakings | — | 52 | 144 | 478 | (674 | ) | — | ||||||||||||||||
Interest expense | 23 | 75 | 25 | 16 | — | 139 | |||||||||||||||||
Other (income)/expense, net | — | (48 | ) | — | (70 | ) | 197 | 79 | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (29 | ) | 204 | (58 | ) | 487 | (194 | ) | 410 | ||||||||||||||
(Benefit from)/provision for income taxes | (2 | ) | 19 | (7 | ) | 63 | — | 73 | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (27 | ) | 185 | (51 | ) | 424 | (194 | ) | 337 | ||||||||||||||
Interest in earnings of associates, net of tax | — | — | — | 2 | — | 2 | |||||||||||||||||
Equity account for subsidiaries | 350 | 158 | (23 | ) | — | (485 | ) | — | |||||||||||||||
NET INCOME/(LOSS) | 323 | 343 | (74 | ) | 426 | (679 | ) | 339 | |||||||||||||||
Income attributable to non-controlling interests | — | — | — | (16 | ) | — | (16 | ) | |||||||||||||||
NET INCOME/(LOSS) ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 323 | $ | 343 | $ | (74 | ) | $ | 410 | $ | (679 | ) | $ | 323 | |||||||||
Comprehensive income before non-controlling interests | $ | 531 | $ | 552 | $ | 68 | $ | 434 | $ | (1,039 | ) | $ | 546 | ||||||||||
Comprehensive income attributable to non-controlling interests | — | — | — | (15 | ) | — | (15 | ) | |||||||||||||||
Comprehensive income attributable to Willis Towers Watson | $ | 531 | $ | 552 | $ | 68 | $ | 419 | $ | (1,039 | ) | $ | 531 |
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | — | $ | 16 | $ | 5,858 | $ | — | $ | 5,874 | |||||||||||
Interest and other income | — | 1 | — | 85 | — | 86 | |||||||||||||||||
Total revenues | — | 1 | 16 | 5,943 | — | 5,960 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | 1 | 1 | 38 | 3,479 | — | 3,519 | |||||||||||||||||
Other operating expenses | 4 | 84 | 82 | 1,001 | — | 1,171 | |||||||||||||||||
Depreciation | — | 3 | 11 | 118 | — | 132 | |||||||||||||||||
Amortization | — | — | — | 443 | — | 443 | |||||||||||||||||
Restructuring costs | — | 18 | 23 | 74 | — | 115 | |||||||||||||||||
Transaction and integration expenses | — | 13 | 15 | 89 | — | 117 | |||||||||||||||||
Total costs of providing services | 5 | 119 | 169 | 5,204 | — | 5,497 | |||||||||||||||||
(Loss)/income from operations | (5 | ) | (118 | ) | (153 | ) | 739 | — | 463 | ||||||||||||||
Income from Group undertakings | — | (367 | ) | (177 | ) | (104 | ) | 648 | — | ||||||||||||||
Expenses due to Group undertakings | — | 53 | 134 | 461 | (648 | ) | — | ||||||||||||||||
Interest expense | 25 | 65 | 29 | 19 | — | 138 | |||||||||||||||||
Other expense/(income), net | 1 | (2 | ) | — | 27 | — | 26 | ||||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (31 | ) | 133 | (139 | ) | 336 | — | 299 | |||||||||||||||
(Benefit from)/provision for income taxes | — | (32 | ) | (41 | ) | 84 | — | 11 | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (31 | ) | 165 | (98 | ) | 252 | — | 288 | |||||||||||||||
Interest in earnings of associates, net of tax | — | — | — | 2 | — | 2 | |||||||||||||||||
Equity account for subsidiaries | 309 | 124 | 92 | — | (525 | ) | — | ||||||||||||||||
NET INCOME/(LOSS) | 278 | 289 | (6 | ) | 254 | (525 | ) | 290 | |||||||||||||||
Income attributable to non-controlling interests | — | — | — | (12 | ) | — | (12 | ) | |||||||||||||||
NET INCOME/(LOSS) ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 278 | $ | 289 | $ | (6 | ) | $ | 242 | $ | (525 | ) | $ | 278 | |||||||||
Comprehensive income/(loss) before non-controlling interests | $ | 94 | $ | 104 | $ | (107 | ) | $ | 88 | $ | (83 | ) | $ | 96 | |||||||||
Comprehensive income attributable to non-controlling interest | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||
Comprehensive income/(loss) attributable to Willis Towers Watson | $ | 94 | $ | 104 | $ | (107 | ) | $ | 86 | $ | (83 | ) | $ | 94 |
As of September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 5 | $ | — | $ | 907 | $ | — | $ | 912 | |||||||||||
Fiduciary assets | — | — | — | 12,206 | — | 12,206 | |||||||||||||||||
Accounts receivable, net | — | — | 5 | 2,150 | — | 2,155 | |||||||||||||||||
Prepaid and other current assets | 2 | 26 | 143 | 298 | (51 | ) | 418 | ||||||||||||||||
Amounts due from group undertakings | 6,131 | 1,478 | 1,360 | 2,576 | (11,545 | ) | — | ||||||||||||||||
Total current assets | 6,133 | 1,509 | 1,508 | 18,137 | (11,596 | ) | 15,691 | ||||||||||||||||
Investments in subsidiaries | 4,357 | 8,895 | 6,209 | — | (19,461 | ) | — | ||||||||||||||||
Fixed assets, net | — | 35 | — | 902 | — | 937 | |||||||||||||||||
Goodwill | — | — | — | 10,529 | — | 10,529 | |||||||||||||||||
Other intangible assets, net | — | 61 | — | 4,034 | (61 | ) | 4,034 | ||||||||||||||||
Pension benefits assets | — | — | — | 649 | — | 649 | |||||||||||||||||
Other non-current assets | — | 14 | 246 | 373 | (201 | ) | 432 | ||||||||||||||||
Non-current amounts due from group undertakings | — | 4,918 | 861 | 48 | (5,827 | ) | — | ||||||||||||||||
Total non-current assets | 4,357 | 13,923 | 7,316 | 16,535 | (25,550 | ) | 16,581 | ||||||||||||||||
TOTAL ASSETS | $ | 10,490 | $ | 15,432 | $ | 8,824 | $ | 34,672 | $ | (37,146 | ) | $ | 32,272 | ||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||||||
Fiduciary liabilities | $ | — | $ | — | $ | — | $ | 12,206 | $ | — | $ | 12,206 | |||||||||||
Deferred revenue and accrued expenses | 1 | 9 | 82 | 1,380 | — | 1,472 | |||||||||||||||||
Short-term debt and current portion of long-term debt | — | — | — | 85 | — | 85 | |||||||||||||||||
Other current liabilities | 78 | 43 | 117 | 546 | 9 | 793 | |||||||||||||||||
Amounts due to group undertakings | — | 7,537 | 2,402 | 1,607 | (11,546 | ) | — | ||||||||||||||||
Total current liabilities | 79 | 7,589 | 2,601 | 15,824 | (11,537 | ) | 14,556 | ||||||||||||||||
Long-term debt | 496 | 2,945 | 946 | 106 | — | 4,493 | |||||||||||||||||
Liability for pension benefits | — | — | — | 1,207 | — | 1,207 | |||||||||||||||||
Deferred tax liabilities | — | — | — | 1,057 | (201 | ) | 856 | ||||||||||||||||
Provision for liabilities | — | — | 120 | 483 | — | 603 | |||||||||||||||||
Other non-current liabilities | — | 7 | 59 | 410 | — | 476 | |||||||||||||||||
Non-current amounts due to group undertakings | — | — | 519 | 5,308 | (5,827 | ) | — | ||||||||||||||||
Total non-current liabilities | 496 | 2,952 | 1,644 | 8,571 | (6,028 | ) | 7,635 | ||||||||||||||||
TOTAL LIABILITIES | 575 | 10,541 | 4,245 | 24,395 | (17,565 | ) | 22,191 | ||||||||||||||||
REDEEMABLE NON-CONTROLLING INTEREST | — | — | — | 55 | — | 55 | |||||||||||||||||
EQUITY | |||||||||||||||||||||||
Total Willis Towers Watson shareholders’ equity | 9,915 | 4,891 | 4,579 | 10,111 | (19,581 | ) | 9,915 | ||||||||||||||||
Non-controlling interests | — | — | — | 111 | — | 111 | |||||||||||||||||
Total equity | 9,915 | 4,891 | 4,579 | 10,222 | (19,581 | ) | 10,026 | ||||||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 10,490 | $ | 15,432 | $ | 8,824 | $ | 34,672 | $ | (37,146 | ) | $ | 32,272 |
As of December 31, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | 870 | $ | — | $ | 870 | |||||||||||
Fiduciary assets | — | — | — | 10,505 | — | 10,505 | |||||||||||||||||
Accounts receivable, net | — | — | 7 | 2,073 | — | 2,080 | |||||||||||||||||
Prepaid and other current assets | — | 49 | 23 | 324 | (59 | ) | 337 | ||||||||||||||||
Amounts due from group undertakings | 7,229 | 1,706 | 1,190 | 2,370 | (12,495 | ) | — | ||||||||||||||||
Total current assets | 7,229 | 1,755 | 1,220 | 16,142 | (12,554 | ) | 13,792 | ||||||||||||||||
Investments in subsidiaries | 3,409 | 7,733 | 5,480 | — | (16,622 | ) | — | ||||||||||||||||
Fixed assets, net | — | 34 | — | 805 | — | 839 | |||||||||||||||||
Goodwill | — | — | — | 10,413 | — | 10,413 | |||||||||||||||||
Other intangible assets, net | — | 64 | — | 4,368 | (64 | ) | 4,368 | ||||||||||||||||
Pension benefits assets | — | — | — | 488 | — | 488 | |||||||||||||||||
Other non-current assets | — | 10 | 80 | 310 | (47 | ) | 353 | ||||||||||||||||
Non-current amounts due from group undertakings | — | 4,655 | 836 | — | (5,491 | ) | — | ||||||||||||||||
Total non-current assets | 3,409 | 12,496 | 6,396 | 16,384 | (22,224 | ) | 16,461 | ||||||||||||||||
TOTAL ASSETS | $ | 10,638 | $ | 14,251 | $ | 7,616 | $ | 32,526 | $ | (34,778 | ) | $ | 30,253 | ||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||||||
Fiduciary liabilities | $ | — | $ | — | $ | — | $ | 10,505 | $ | — | $ | 10,505 | |||||||||||
Deferred revenue and accrued expenses | — | 15 | 27 | 1,488 | (49 | ) | 1,481 | ||||||||||||||||
Short-term debt and current portion of long-term debt | — | 22 | 394 | 92 | — | 508 | |||||||||||||||||
Other current liabilities | 77 | 94 | 23 | 684 | (2 | ) | 876 | ||||||||||||||||
Amounts due to group undertakings | — | 8,323 | 2,075 | 2,097 | (12,495 | ) | — | ||||||||||||||||
Total current liabilities | 77 | 8,454 | 2,519 | 14,866 | (12,546 | ) | 13,370 | ||||||||||||||||
Long-term debt | 496 | 2,506 | 186 | 169 | — | 3,357 | |||||||||||||||||
Liability for pension benefits | — | — | — | 1,321 | — | 1,321 | |||||||||||||||||
Deferred tax liabilities | — | — | — | 1,013 | (149 | ) | 864 | ||||||||||||||||
Provision for liabilities | — | — | 120 | 455 | — | 575 | |||||||||||||||||
Other non-current liabilities | — | 48 | 15 | 483 | (14 | ) | 532 | ||||||||||||||||
Non-current amounts due to group undertakings | — | — | 518 | 4,973 | (5,491 | ) | — | ||||||||||||||||
Total non-current liabilities | 496 | 2,554 | 839 | 8,414 | (5,654 | ) | 6,649 | ||||||||||||||||
TOTAL LIABILITIES | 573 | 11,008 | 3,358 | 23,280 | (18,200 | ) | 20,019 | ||||||||||||||||
REDEEMABLE NON-CONTROLLING INTEREST | — | — | — | 51 | — | 51 | |||||||||||||||||
EQUITY | |||||||||||||||||||||||
Total Willis Towers Watson shareholders’ equity | 10,065 | 3,243 | 4,258 | 9,077 | (16,578 | ) | 10,065 | ||||||||||||||||
Non-controlling interests | — | — | — | 118 | — | 118 | |||||||||||||||||
Total equity | 10,065 | 3,243 | 4,258 | 9,195 | (16,578 | ) | 10,183 | ||||||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 10,638 | $ | 14,251 | $ | 7,616 | $ | 32,526 | $ | (34,778 | ) | $ | 30,253 |
Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES | $ | 525 | $ | (498 | ) | $ | (99 | ) | $ | 774 | $ | (187 | ) | $ | 515 | ||||||||
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | |||||||||||||||||||||||
Additions to fixed assets and software for internal use | — | (6 | ) | — | (192 | ) | — | (198 | ) | ||||||||||||||
Capitalized software costs | — | — | — | (52 | ) | — | (52 | ) | |||||||||||||||
Acquisitions of operations, net of cash acquired | — | — | — | (13 | ) | — | (13 | ) | |||||||||||||||
Other, net | — | — | — | 1 | — | 1 | |||||||||||||||||
Proceeds from intercompany investing activities | 1,102 | 336 | 10 | 223 | (1,671 | ) | — | ||||||||||||||||
Repayments of intercompany investing activities | — | (195 | ) | — | (311 | ) | 506 | — | |||||||||||||||
Reduction in investment in subsidiaries | — | 1,148 | — | 59 | (1,207 | ) | — | ||||||||||||||||
Additional investment in subsidiaries | (1,000 | ) | (207 | ) | — | — | 1,207 | — | |||||||||||||||
Net cash from/(used in) investing activities | $ | 102 | $ | 1,076 | $ | 10 | $ | (285 | ) | $ | (1,165 | ) | $ | (262 | ) | ||||||||
CASH FLOWS USED IN FINANCING ACTIVITIES | |||||||||||||||||||||||
Net borrowings on revolving credit facility | — | 560 | 115 | — | — | 675 | |||||||||||||||||
Senior notes issued | — | — | 650 | — | — | 650 | |||||||||||||||||
Proceeds from issuance of other debt | — | — | — | 32 | — | 32 | |||||||||||||||||
Debt issuance costs | — | (4 | ) | (5 | ) | — | — | (9 | ) | ||||||||||||||
Repayments of debt | — | (219 | ) | (400 | ) | (95 | ) | — | (714 | ) | |||||||||||||
Repurchase of shares | (462 | ) | — | — | — | — | (462 | ) | |||||||||||||||
Proceeds from issuance of shares | 44 | — | — | — | — | 44 | |||||||||||||||||
Payments related to share cancellation | — | — | — | (177 | ) | — | (177 | ) | |||||||||||||||
Payments of deferred and contingent consideration related to acquisitions | — | — | — | (43 | ) | — | (43 | ) | |||||||||||||||
Cash paid for employee taxes on withholding shares | — | — | — | (14 | ) | — | (14 | ) | |||||||||||||||
Dividends paid | (209 | ) | — | (58 | ) | (129 | ) | 187 | (209 | ) | |||||||||||||
Acquisitions of and dividends paid to non-controlling interests | — | — | — | (19 | ) | — | (19 | ) | |||||||||||||||
Proceeds from intercompany financing activities | — | 163 | 148 | 195 | (506 | ) | — | ||||||||||||||||
Repayments of intercompany financing activities | — | (1,073 | ) | (361 | ) | (237 | ) | 1,671 | — | ||||||||||||||
Net cash (used in)/from financing activities | $ | (627 | ) | $ | (573 | ) | $ | 89 | $ | (487 | ) | $ | 1,352 | $ | (246 | ) | |||||||
INCREASE IN CASH AND CASH EQUIVALENTS | — | 5 | — | 2 | — | 7 | |||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | 35 | — | 35 | |||||||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | — | — | — | 870 | — | 870 | |||||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | — | $ | 5 | $ | — | $ | 907 | $ | — | $ | 912 |
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES | $ | 6 | $ | (130 | ) | $ | (175 | ) | $ | 989 | $ | (69 | ) | $ | 621 | ||||||||
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | |||||||||||||||||||||||
Additions to fixed assets and software for internal use | — | (76 | ) | (8 | ) | (131 | ) | 64 | (151 | ) | |||||||||||||
Capitalized software costs | — | — | — | (64 | ) | — | (64 | ) | |||||||||||||||
Acquisitions of operations, net of cash acquired | — | — | — | 476 | — | 476 | |||||||||||||||||
Other, net | — | — | 1 | 16 | 5 | 22 | |||||||||||||||||
Proceeds from intercompany investing activities | 47 | 47 | — | 18 | (112 | ) | — | ||||||||||||||||
Repayments of intercompany investing activities | (4,015 | ) | (3,953 | ) | — | (805 | ) | 8,773 | — | ||||||||||||||
Reduction in investment in subsidiaries | 4,600 | 3,600 | — | — | (8,200 | ) | — | ||||||||||||||||
Additional investment in subsidiaries | — | (4,600 | ) | — | (3,600 | ) | 8,200 | — | |||||||||||||||
Net cash from/(used in) investing activities | $ | 632 | $ | (4,982 | ) | $ | (7 | ) | $ | (4,090 | ) | $ | 8,730 | $ | 283 | ||||||||
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES | |||||||||||||||||||||||
Net payments on revolving credit facility | — | (389 | ) | — | — | — | (389 | ) | |||||||||||||||
Senior notes issued | — | 1,606 | — | — | — | 1,606 | |||||||||||||||||
Proceeds from issuance of other debt | — | 400 | — | 4 | — | 404 | |||||||||||||||||
Debt issuance costs | — | (14 | ) | — | — | — | (14 | ) | |||||||||||||||
Repayments of debt | (300 | ) | (1,032 | ) | — | (529 | ) | — | (1,861 | ) | |||||||||||||
Repurchase of shares | (222 | ) | — | — | — | — | (222 | ) | |||||||||||||||
Proceeds from issuance of shares | 44 | — | — | — | — | 44 | |||||||||||||||||
Payments of deferred and contingent consideration related to acquisitions | — | — | — | (64 | ) | — | (64 | ) | |||||||||||||||
Dividends paid | (133 | ) | — | — | — | — | (133 | ) | |||||||||||||||
Cash paid for employee taxes on withholding shares | — | — | — | (13 | ) | — | (13 | ) | |||||||||||||||
Acquisitions of and dividends paid to non-controlling interests | — | — | — | (17 | ) | — | (17 | ) | |||||||||||||||
Proceeds from intercompany financing activities | — | 4,557 | 199 | 4,017 | (8,773 | ) | — | ||||||||||||||||
Repayments of intercompany financing activities | (30 | ) | (18 | ) | (17 | ) | (47 | ) | 112 | — | |||||||||||||
Net cash (used in)/from financing activities | $ | (641 | ) | $ | 5,110 | $ | 182 | $ | 3,351 | $ | (8,661 | ) | $ | (659 | ) | ||||||||
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | (3 | ) | (2 | ) | — | 250 | — | 245 | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | (10 | ) | — | (10 | ) | |||||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 3 | 2 | — | 527 | — | 532 | |||||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | — | $ | — | $ | — | $ | 767 | $ | — | $ | 767 |
a) | Willis Towers Watson plc (the parent company) has $500 million senior notes outstanding, which were issued on March 17, 2011; |
b) | Willis North America Inc. (‘Willis North America’) has approximately $1.8 billion senior notes outstanding, of which $187 million were issued on September 29, 2009, $650 million were issued on May 16, 2017, and $1.0 billion were issued on September 10, 2018; and |
c) | Trinity Acquisition plc has approximately $2.1 billion senior notes outstanding, of which $525 million were issued on August 15, 2013, $1.0 billion were issued on March 22, 2016 and €540 million ($609 million) were issued on May 26, 2016, and $269 million currently outstanding on a consolidated basis under the $1.25 billion revolving credit facility issued on March 7, 2017. |
The notes issued by the Company are guaranteed by certain of the Company’s subsidiaries. Therefore, the Company is providing the condensed consolidating financial information below. The following additional wholly owned subsidiaries (directly or indirectly) fully and unconditionally guarantee the WTW Debt Securities on a joint and several basis: Willis Netherlands Holdings B.V., Willis Investment U.K. Holdings Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited, Willis North America, Inc., Willis Towers Watson Sub Holdings Unlimited Company and Willis Towers Watson UKU.K. Holdings Limited (the ‘Guarantors’).
As a newly formed entity,result of an internal tax reorganization, certain subsidiaries that were previously indirectly owned by Willis North America and Trinity Acquisition plc are no longer subsidiaries of these issuer and guarantor companies, however the subsidiaries remain indirect subsidiaries of both Willis Towers Watson UK Holdings Limited, becameplc and collectively the successor to,other guarantor companies, since the subsidiaries in question are now direct and assumed all guarantees of, WTW Bermuda Holdings Limited under the outstanding indentures for the senior notes described above. As both entities are directindirect subsidiaries of TA I Limited, and sub-consolidate withinLimited. This reorganization did not change the ‘Other Guarantors’ columns of the financial statements presented herein, there is no significant impact on the condensed consolidated financial statements from what has previously been disclosed. Please refer to the Current Report on Form 8-K filed on August 16, 2017 for additional information regarding this change.
The notes issued by Willis North America described in
The notes issued by Trinity Acquisition plc describedare guaranteed on a joint and several basis by the Company and each of the subsidiaries that guarantees the Company notes, except for Trinity Acquisition plc itself.
For the purposes of this footnote, the companies that guarantee the Company notes, the Willis North America notes and the Trinity Acquisition plc notes, other than Willis North America and Trinity Acquisition plc, are referred to as the ‘other guarantors.’
The presentation of the financial information for issuers and other guarantor subsidiaries has been changed from that included in
All intercompany receivables/payables have been presented in the condensed consolidating financial information for:
Presented below is condensed financial information for:
(i) | Willis Towers Watson plc, which is both an issuer and guarantor, on a parent company only basis; |
(ii) | Willis North America, which is both an issuer and guarantor, on a company only basis; |
(iii) | Trinity Acquisition plc, which is both an issuer and guarantor, on a company only basis; |
(iv) | Other guarantors, which are all wholly owned direct or indirect subsidiaries of the parent, on a combined basis; |
(v) | Non-guarantors, which are all wholly owned direct or indirect subsidiaries of the parent, on a combined basis; |
(vi) | Eliminations, which are consolidating adjustments on a combined basis; and |
(vii) | The consolidated Company. |
31
Unaudited Condensed Consolidating Statement of Comprehensive Income
|
| Three months ended March 31, 2019 |
| |||||||||||||||||||||||||
|
| Willis Towers Watson plc |
|
| Willis North America |
|
| Trinity Acquisition plc |
|
| Other guarantors |
|
| Non-guarantors |
|
| Eliminations |
|
| Consolidated |
| |||||||
Revenue |
| $ | — |
|
| $ | 22 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,290 |
|
| $ | — |
|
| $ | 2,312 |
|
Costs of providing services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
| 1 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 1,332 |
|
|
| — |
|
|
| 1,348 |
|
Other operating expenses |
|
| 1 |
|
|
| 7 |
|
|
| — |
|
|
| 37 |
|
|
| 373 |
|
|
| — |
|
|
| 418 |
|
Depreciation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 53 |
|
|
| — |
|
|
| 54 |
|
Amortization |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 126 |
|
|
| — |
|
|
| 127 |
|
Transaction and integration expenses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Total costs of providing services |
|
| 2 |
|
|
| 22 |
|
|
| — |
|
|
| 39 |
|
|
| 1,890 |
|
|
| — |
|
|
| 1,953 |
|
(Loss)/income from operations |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (39 | ) |
|
| 400 |
|
|
| — |
|
|
| 359 |
|
Intercompany (expense)/income |
|
| — |
|
|
| (12 | ) |
|
| 23 |
|
|
| 66 |
|
|
| (77 | ) |
|
| — |
|
|
| — |
|
Interest expense |
|
| (7 | ) |
|
| (21 | ) |
|
| (22 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (54 | ) |
Other income, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 55 |
|
|
| — |
|
|
| 55 |
|
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES |
|
| (9 | ) |
|
| (33 | ) |
|
| 1 |
|
|
| 27 |
|
|
| 374 |
|
|
| — |
|
|
| 360 |
|
Benefit from/(provision for) income taxes |
|
| — |
|
|
| 7 |
|
|
| (1 | ) |
|
| (4 | ) |
|
| (69 | ) |
|
| — |
|
|
| (67 | ) |
Equity account for subsidiaries |
|
| 296 |
|
|
| 67 |
|
|
| 221 |
|
|
| 270 |
|
|
| — |
|
|
| (854 | ) |
|
| — |
|
NET INCOME |
|
| 287 |
|
|
| 41 |
|
|
| 221 |
|
|
| 293 |
|
|
| 305 |
|
|
| (854 | ) |
|
| 293 |
|
Income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (6 | ) |
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 287 |
|
| $ | 41 |
|
| $ | 221 |
|
| $ | 293 |
|
| $ | 299 |
|
| $ | (854 | ) |
| $ | 287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income before non- controlling interests |
| $ | 311 |
|
| $ | 19 |
|
| $ | 204 |
|
| $ | 317 |
|
| $ | 298 |
|
| $ | (834 | ) |
| $ | 315 |
|
Comprehensive income attributable to non- controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Comprehensive income attributable to Willis Towers Watson |
| $ | 311 |
|
| $ | 19 |
|
| $ | 204 |
|
| $ | 317 |
|
| $ | 293 |
|
| $ | (834 | ) |
| $ | 310 |
|
Three Months Ended September 30, 2017 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
Revenues | |||||||||||||||||||
Commissions and fees | $ | — | $ | 3 | $ | 1,829 | $ | — | $ | 1,832 | |||||||||
Interest and other income | — | — | 20 | — | 20 | ||||||||||||||
Total revenues | — | 3 | 1,849 | — | 1,852 | ||||||||||||||
Costs of providing services | |||||||||||||||||||
Salaries and benefits | 2 | 20 | 1,123 | — | 1,145 | ||||||||||||||
Other operating expenses | — | 36 | 330 | 366 | |||||||||||||||
Depreciation | — | 2 | 52 | — | 54 | ||||||||||||||
Amortization | — | 1 | 143 | (3 | ) | 141 | |||||||||||||
Restructuring costs | — | 2 | 29 | — | 31 | ||||||||||||||
Transaction and integration expenses | — | 6 | 68 | — | 74 | ||||||||||||||
Total costs of providing services | 2 | 67 | 1,745 | (3 | ) | 1,811 | |||||||||||||
(Loss)/income from operations | (2 | ) | (64 | ) | 104 | 3 | 41 | ||||||||||||
Income from Group undertakings | — | (155 | ) | (39 | ) | 194 | — | ||||||||||||
Expenses due to Group undertakings | — | 34 | 160 | (194 | ) | — | |||||||||||||
Interest expense | 8 | 34 | 5 | — | 47 | ||||||||||||||
Other (income)/expense, net | — | (48 | ) | (120 | ) | 197 | 29 | ||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (10 | ) | 71 | 98 | (194 | ) | (35 | ) | |||||||||||
(Benefit from)/provision for income taxes | (1 | ) | 6 | 14 | — | 19 | |||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 65 | 84 | (194 | ) | (54 | ) | |||||||||||
Interest in earnings of associates, net of tax | — | — | — | — | — | ||||||||||||||
Equity account for subsidiaries | (45 | ) | (107 | ) | — | 152 | — | ||||||||||||
NET (LOSS)/INCOME | (54 | ) | (42 | ) | 84 | (42 | ) | (54 | ) | ||||||||||
Income attributable to non-controlling interests | — | — | — | — | — | ||||||||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (54 | ) | $ | (42 | ) | $ | 84 | $ | (42 | ) | $ | (54 | ) | |||||
Comprehensive income before non-controlling interests | $ | 46 | $ | 62 | $ | (4 | ) | $ | (70 | ) | $ | 34 | |||||||
Comprehensive loss attributable to non-controlling interests | — | — | 12 | — | 12 | ||||||||||||||
Comprehensive income attributable to Willis Towers Watson | $ | 46 | $ | 62 | $ | 8 | $ | (70 | ) | $ | 46 |
32
Unaudited Condensed Consolidating Statement of Comprehensive Income
|
| Three months ended March 31, 2018 |
| |||||||||||||||||||||||||
|
| Willis Towers Watson plc |
|
| Willis North America |
|
| Trinity Acquisition plc |
|
| Other guarantors |
|
| Non-guarantors |
|
| Eliminations |
|
| Consolidated |
| |||||||
Revenue |
| $ | — |
|
| $ | 6 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,286 |
|
| $ | — |
|
| $ | 2,292 |
|
Costs of providing services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
| 1 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 1,361 |
|
|
| — |
|
|
| 1,377 |
|
Other operating expenses |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 42 |
|
|
| 376 |
|
|
| — |
|
|
| 423 |
|
Depreciation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 48 |
|
|
| — |
|
|
| 49 |
|
Amortization |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 140 |
|
|
| — |
|
|
| 141 |
|
Transaction and integration expenses |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 1 |
|
|
| 37 |
|
|
| — |
|
|
| 43 |
|
Total costs of providing services |
|
| 1 |
|
|
| 25 |
|
|
| — |
|
|
| 45 |
|
|
| 1,962 |
|
|
| — |
|
|
| 2,033 |
|
(Loss)/income from operations |
|
| (1 | ) |
|
| (19 | ) |
|
| — |
|
|
| (45 | ) |
|
| 324 |
|
|
| — |
|
|
| 259 |
|
Intercompany (expense)/income |
|
| — |
|
|
| (5 | ) |
|
| 30 |
|
|
| 92 |
|
|
| (117 | ) |
|
| — |
|
|
| — |
|
Interest expense |
|
| (7 | ) |
|
| (11 | ) |
|
| (27 | ) |
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (51 | ) |
Other income, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 55 |
|
|
| — |
|
|
| 56 |
|
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES |
|
| (8 | ) |
|
| (35 | ) |
|
| 3 |
|
|
| 48 |
|
|
| 256 |
|
|
| — |
|
|
| 264 |
|
Benefit from/(provision for) income taxes |
|
| — |
|
|
| 5 |
|
|
| (1 | ) |
|
| (8 | ) |
|
| (39 | ) |
|
| — |
|
|
| (43 | ) |
Equity account for subsidiaries |
|
| 223 |
|
|
| (7 | ) |
|
| 142 |
|
|
| 181 |
|
|
| — |
|
|
| (539 | ) |
|
| — |
|
NET INCOME/(LOSS) |
|
| 215 |
|
|
| (37 | ) |
|
| 144 |
|
|
| 221 |
|
|
| 217 |
|
|
| (539 | ) |
|
| 221 |
|
Income attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (6 | ) |
NET INCOME/(LOSS) ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 215 |
|
| $ | (37 | ) |
| $ | 144 |
|
| $ | 221 |
|
| $ | 211 |
|
| $ | (539 | ) |
| $ | 215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss) before non- controlling interests |
| $ | 298 |
|
| $ | (22 | ) |
| $ | 226 |
|
| $ | 303 |
|
| $ | 338 |
|
| $ | (838 | ) |
| $ | 305 |
|
Comprehensive income attributable to non- controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
Comprehensive income/(loss) attributable to Willis Towers Watson |
| $ | 298 |
|
| $ | (22 | ) |
| $ | 226 |
|
| $ | 303 |
|
| $ | 331 |
|
| $ | (838 | ) |
| $ | 298 |
|
Three Months Ended September 30, 2016 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
Revenues | |||||||||||||||||||
Commissions and fees | $ | — | $ | 5 | $ | 1,756 | $ | — | $ | 1,761 | |||||||||
Interest and other income | — | — | 16 | — | 16 | ||||||||||||||
Total revenues | — | 5 | 1,772 | — | 1,777 | ||||||||||||||
Costs of providing services | |||||||||||||||||||
Salaries and benefits | — | 14 | 1,105 | — | 1,119 | ||||||||||||||
Other operating expenses | 1 | 37 | 332 | — | 370 | ||||||||||||||
Depreciation | — | 5 | 40 | — | 45 | ||||||||||||||
Amortization | — | — | 157 | — | 157 | ||||||||||||||
Restructuring costs | — | 14 | 35 | — | 49 | ||||||||||||||
Transaction and integration expenses | — | 6 | 30 | — | 36 | ||||||||||||||
Total costs of providing services | 1 | 76 | 1,699 | — | 1,776 | ||||||||||||||
(Loss)/income from operations | (1 | ) | (71 | ) | 73 | — | 1 | ||||||||||||
Income from Group undertakings | — | (159 | ) | (34 | ) | 193 | — | ||||||||||||
Expenses due to Group undertakings | — | 33 | 160 | (193 | ) | — | |||||||||||||
Interest expense | 8 | 32 | 5 | — | 45 | ||||||||||||||
Other expense, net | — | — | 14 | — | 14 | ||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 23 | (72 | ) | — | (58 | ) | |||||||||||
Benefit from income taxes | — | (19 | ) | (7 | ) | — | (26 | ) | |||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 42 | (65 | ) | — | (32 | ) | |||||||||||
Interest in earnings of associates, net of tax | — | — | 1 | — | 1 | ||||||||||||||
Equity account for subsidiaries | (23 | ) | (60 | ) | — | 83 | — | ||||||||||||
NET LOSS | (32 | ) | (18 | ) | (64 | ) | 83 | (31 | ) | ||||||||||
Income attributable to non-controlling interests | — | — | (1 | ) | — | (1 | ) | ||||||||||||
NET LOSS ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (32 | ) | $ | (18 | ) | $ | (65 | ) | $ | 83 | $ | (32 | ) | |||||
Comprehensive loss before non-controlling interests | $ | (72 | ) | $ | (58 | ) | $ | (91 | ) | $ | 148 | $ | (73 | ) | |||||
Comprehensive loss attributable to non-controlling interests | — | — | 1 | — | 1 | ||||||||||||||
Comprehensive loss attributable to Willis Towers Watson | $ | (72 | ) | $ | (58 | ) | $ | (90 | ) | $ | 148 | $ | (72 | ) |
Nine Months Ended September 30, 2017 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
Revenues | |||||||||||||||||||
Commissions and fees | $ | — | $ | 14 | $ | 6,051 | $ | — | $ | 6,065 | |||||||||
Interest and other income | — | — | 59 | — | 59 | ||||||||||||||
Total revenues | — | 14 | 6,110 | — | 6,124 | ||||||||||||||
Costs of providing services | |||||||||||||||||||
Salaries and benefits | 4 | 40 | 3,440 | — | 3,484 | ||||||||||||||
Other operating expenses | 2 | 90 | 1,066 | — | 1,158 | ||||||||||||||
Depreciation | — | 5 | 146 | — | 151 | ||||||||||||||
Amortization | — | 3 | 441 | (3 | ) | 441 | |||||||||||||
Restructuring costs | — | 6 | 79 | — | 85 | ||||||||||||||
Transaction and integration expenses | — | 38 | 139 | — | 177 | ||||||||||||||
Total costs of providing services | 6 | 182 | 5,311 | (3 | ) | 5,496 | |||||||||||||
(Loss)/income from operations | (6 | ) | (168 | ) | 799 | 3 | 628 | ||||||||||||
Income from Group undertakings | — | (478 | ) | (112 | ) | 590 | — | ||||||||||||
Expenses due to Group undertakings | — | 112 | 478 | (590 | ) | — | |||||||||||||
Interest expense | 23 | 100 | 16 | — | 139 | ||||||||||||||
Other (income)/expense, net | — | (48 | ) | (70 | ) | 197 | 79 | ||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (29 | ) | 146 | 487 | (194 | ) | 410 | ||||||||||||
(Benefit from)/provision for income taxes | (2 | ) | 12 | 63 | — | 73 | |||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (27 | ) | 134 | 424 | (194 | ) | 337 | ||||||||||||
Interest in earnings of associates, net of tax | — | — | 2 | — | 2 | ||||||||||||||
Equity account for subsidiaries | 350 | 209 | — | (559 | ) | — | |||||||||||||
NET INCOME | 323 | 343 | 426 | (753 | ) | 339 | |||||||||||||
Income attributable to non-controlling interests | — | — | (16 | ) | — | (16 | ) | ||||||||||||
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 323 | $ | 343 | $ | 410 | $ | (753 | ) | $ | 323 | ||||||||
Comprehensive income before non-controlling interests | $ | 531 | $ | 552 | $ | 434 | $ | (971 | ) | $ | 546 | ||||||||
Comprehensive income attributable to non-controlling interests | — | — | (15 | ) | — | (15 | ) | ||||||||||||
Comprehensive income attributable to Willis Towers Watson | $ | 531 | $ | 552 | $ | 419 | $ | (971 | ) | $ | 531 |
Nine Months Ended September 30, 2016 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
Revenues | |||||||||||||||||||
Commissions and fees | $ | — | $ | 16 | $ | 5,858 | $ | — | $ | 5,874 | |||||||||
Interest and other income | — | 1 | 85 | — | 86 | ||||||||||||||
Total revenues | — | 17 | 5,943 | — | 5,960 | ||||||||||||||
Costs of providing services | |||||||||||||||||||
Salaries and benefits | 1 | 39 | 3,479 | — | 3,519 | ||||||||||||||
Other operating expenses | 4 | 166 | 1,001 | — | 1,171 | ||||||||||||||
Depreciation | — | 14 | 118 | — | 132 | ||||||||||||||
Amortization | — | — | 443 | — | 443 | ||||||||||||||
Restructuring costs | — | 41 | 74 | — | 115 | ||||||||||||||
Transaction and integration expenses | — | 28 | 89 | — | 117 | ||||||||||||||
Total costs of providing services | 5 | 288 | 5,204 | — | 5,497 | ||||||||||||||
(Loss)/income from operations | (5 | ) | (271 | ) | 739 | — | 463 | ||||||||||||
Income from Group undertakings | — | (461 | ) | (104 | ) | 565 | — | ||||||||||||
Expenses due to Group undertakings | — | 104 | 461 | (565 | ) | — | |||||||||||||
Interest expense | 25 | 94 | 19 | — | 138 | ||||||||||||||
Other expense/(income), net | 1 | (2 | ) | 27 | — | 26 | |||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (31 | ) | (6 | ) | 336 | — | 299 | ||||||||||||
(Benefit from)/provision for income taxes | — | (73 | ) | 84 | — | 11 | |||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (31 | ) | 67 | 252 | — | 288 | |||||||||||||
Interest in earnings of associates, net of tax | — | — | 2 | — | 2 | ||||||||||||||
Equity account for subsidiaries | 309 | 222 | — | (531 | ) | — | |||||||||||||
NET INCOME | 278 | 289 | 254 | (531 | ) | 290 | |||||||||||||
Income attributable to non-controlling interests | — | — | (12 | ) | — | (12 | ) | ||||||||||||
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 278 | $ | 289 | $ | 242 | $ | (531 | ) | $ | 278 | ||||||||
Comprehensive income before non-controlling interests | $ | 94 | $ | 104 | $ | 88 | $ | (190 | ) | $ | 96 | ||||||||
Comprehensive income attributable to non-controlling interests | — | — | (2 | ) | — | (2 | ) | ||||||||||||
Comprehensive income attributable to Willis Towers Watson | $ | 94 | $ | 104 | $ | 86 | $ | (190 | ) | $ | 94 |
33
Unaudited Condensed Consolidating Balance Sheet
|
| As of March 31, 2019 |
| |||||||||||||||||||||||||
|
| Willis Towers Watson plc |
|
| Willis North America |
|
| Trinity Acquisition plc |
|
| Other guarantors |
|
| Non-guarantors |
|
| Eliminations |
|
| Consolidated |
| |||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 992 |
|
| $ | — |
|
| $ | 992 |
|
Fiduciary assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,129 |
|
|
| — |
|
|
| 15,129 |
|
Accounts receivable, net |
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| — |
|
|
| 2,462 |
|
|
| — |
|
|
| 2,490 |
|
Prepaid and other current assets |
|
| — |
|
|
| 371 |
|
|
| 1 |
|
|
| 30 |
|
|
| 338 |
|
|
| (331 | ) |
|
| 409 |
|
Total current assets |
|
| — |
|
|
| 399 |
|
|
| 1 |
|
|
| 30 |
|
|
| 18,921 |
|
|
| (331 | ) |
|
| 19,020 |
|
Intercompany receivables, net |
|
| 4,733 |
|
|
| — |
|
|
| 1,452 |
|
|
| — |
|
|
| — |
|
|
| (6,185 | ) |
|
| — |
|
Fixed assets, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| 940 |
|
|
| — |
|
|
| 957 |
|
Goodwill |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,456 |
|
|
| — |
|
|
| 10,456 |
|
Other intangible assets, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57 |
|
|
| 3,187 |
|
|
| (57 | ) |
|
| 3,187 |
|
Right-of-use assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 946 |
|
|
| — |
|
|
| 946 |
|
Pension benefits assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 833 |
|
|
| — |
|
|
| 833 |
|
Other non-current assets |
|
| — |
|
|
| 142 |
|
|
| 2 |
|
|
| 48 |
|
|
| 420 |
|
|
| (118 | ) |
|
| 494 |
|
Total non-current assets |
|
| 4,733 |
|
|
| 142 |
|
|
| 1,454 |
|
|
| 122 |
|
|
| 16,782 |
|
|
| (6,360 | ) |
|
| 16,873 |
|
Investments in subsidiaries |
|
| 5,952 |
|
|
| 6,401 |
|
|
| 2,526 |
|
|
| 7,947 |
|
|
| — |
|
|
| (22,826 | ) |
|
| — |
|
TOTAL ASSETS |
| $ | 10,685 |
|
| $ | 6,942 |
|
| $ | 3,981 |
|
| $ | 8,099 |
|
| $ | 35,703 |
|
| $ | (29,517 | ) |
| $ | 35,893 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiduciary liabilities |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 15,129 |
|
| $ | — |
|
| $ | 15,129 |
|
Deferred revenue and accrued expenses |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 1,237 |
|
|
| — |
|
|
| 1,240 |
|
Current debt |
|
| — |
|
|
| 187 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 187 |
|
Current lease liabilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 158 |
|
|
| — |
|
|
| 158 |
|
Other current liabilities |
|
| 97 |
|
|
| 28 |
|
|
| 19 |
|
|
| 5 |
|
|
| 1,070 |
|
|
| (279 | ) |
|
| 940 |
|
Total current liabilities |
|
| 97 |
|
|
| 215 |
|
|
| 19 |
|
|
| 8 |
|
|
| 17,594 |
|
|
| (279 | ) |
|
| 17,654 |
|
Intercompany payables, net |
|
| — |
|
|
| 748 |
|
|
| — |
|
|
| 4,709 |
|
|
| 728 |
|
|
| (6,185 | ) |
|
| — |
|
Long-term debt |
|
| 498 |
|
|
| 1,655 |
|
|
| 2,364 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 4,518 |
|
Liability for pension benefits |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,135 |
|
|
| — |
|
|
| 1,135 |
|
Deferred tax liabilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 662 |
|
|
| (118 | ) |
|
| 544 |
|
Provision for liabilities |
|
| — |
|
|
| 120 |
|
|
| — |
|
|
| — |
|
|
| 423 |
|
|
| — |
|
|
| 543 |
|
Long-term lease liabilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 961 |
|
|
| — |
|
|
| 961 |
|
Other non-current liabilities |
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| 2 |
|
|
| 278 |
|
|
| — |
|
|
| 296 |
|
Total non-current liabilities |
|
| 498 |
|
|
| 2,539 |
|
| �� | 2,364 |
|
|
| 4,711 |
|
|
| 4,188 |
|
|
| (6,303 | ) |
|
| 7,997 |
|
TOTAL LIABILITIES |
|
| 595 |
|
|
| 2,754 |
|
|
| 2,383 |
|
|
| 4,719 |
|
|
| 21,782 |
|
|
| (6,582 | ) |
|
| 25,651 |
|
REDEEMABLE NON-CONTROLLING INTEREST |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| 28 |
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Willis Towers Watson shareholders’ equity |
|
| 10,090 |
|
|
| 4,188 |
|
|
| 1,598 |
|
|
| 3,380 |
|
|
| 13,771 |
|
|
| (22,935 | ) |
|
| 10,092 |
|
Non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122 |
|
|
| — |
|
|
| 122 |
|
Total equity |
|
| 10,090 |
|
|
| 4,188 |
|
|
| 1,598 |
|
|
| 3,380 |
|
|
| 13,893 |
|
|
| (22,935 | ) |
|
| 10,214 |
|
TOTAL LIABILITIES AND EQUITY |
| $ | 10,685 |
|
| $ | 6,942 |
|
| $ | 3,981 |
|
| $ | 8,099 |
|
| $ | 35,703 |
|
| $ | (29,517 | ) |
| $ | 35,893 |
|
As of September 30, 2017 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
ASSETS | |||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 5 | $ | 907 | $ | — | $ | 912 | |||||||||
Fiduciary assets | — | — | 12,206 | — | 12,206 | ||||||||||||||
Accounts receivable, net | — | 5 | 2,150 | — | 2,155 | ||||||||||||||
Prepaid and other current assets | 2 | 169 | 298 | (51 | ) | 418 | |||||||||||||
Amounts due from group undertakings | 6,131 | 1,728 | 2,576 | (10,435 | ) | — | |||||||||||||
Total current assets | 6,133 | 1,907 | 18,137 | (10,486 | ) | 15,691 | |||||||||||||
Investments in subsidiaries | 4,357 | 10,524 | — | (14,881 | ) | — | |||||||||||||
Fixed assets, net | — | 35 | 902 | — | 937 | ||||||||||||||
Goodwill | — | — | 10,529 | — | 10,529 | ||||||||||||||
Other intangible assets, net | — | 61 | 4,034 | (61 | ) | 4,034 | |||||||||||||
Pension benefits assets | — | — | 649 | — | 649 | ||||||||||||||
Other non-current assets | — | 261 | 373 | (202 | ) | 432 | |||||||||||||
Non-current amounts due from group undertakings | — | 5,260 | 48 | (5,308 | ) | — | |||||||||||||
Total non-current assets | 4,357 | 16,141 | 16,535 | (20,452 | ) | 16,581 | |||||||||||||
TOTAL ASSETS | $ | 10,490 | $ | 18,048 | $ | 34,672 | $ | (30,938 | ) | $ | 32,272 | ||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||
Fiduciary liabilities | $ | — | $ | — | $ | 12,206 | $ | — | $ | 12,206 | |||||||||
Deferred revenue and accrued expenses | 1 | 91 | 1,380 | — | 1,472 | ||||||||||||||
Short-term debt and current portion of long-term debt | — | — | 85 | — | 85 | ||||||||||||||
Other current liabilities | 78 | 160 | 546 | 9 | 793 | ||||||||||||||
Amounts due to group undertakings | — | 8,829 | 1,607 | (10,436 | ) | — | |||||||||||||
Total current liabilities | 79 | 9,080 | 15,824 | (10,427 | ) | 14,556 | |||||||||||||
Long-term debt | 496 | 3,891 | 106 | — | 4,493 | ||||||||||||||
Liability for pension benefits | — | — | 1,207 | — | 1,207 | ||||||||||||||
Deferred tax liabilities | — | — | 1,057 | (201 | ) | 856 | |||||||||||||
Provision for liabilities | — | 120 | 483 | — | 603 | ||||||||||||||
Other non-current liabilities | — | 66 | 410 | — | 476 | ||||||||||||||
Non-current amounts due to group undertakings | — | — | 5,308 | (5,308 | ) | — | |||||||||||||
Total non-current liabilities | 496 | 4,077 | 8,571 | (5,509 | ) | 7,635 | |||||||||||||
TOTAL LIABILITIES | 575 | 13,157 | 24,395 | (15,936 | ) | 22,191 | |||||||||||||
REDEEMABLE NON-CONTROLLING INTEREST | — | — | 55 | — | 55 | ||||||||||||||
EQUITY | |||||||||||||||||||
Total Willis Towers Watson shareholders’ equity | 9,915 | 4,891 | 10,111 | (15,002 | ) | 9,915 | |||||||||||||
Non-controlling interests | — | — | 111 | — | 111 | ||||||||||||||
Total equity | 9,915 | 4,891 | 10,222 | (15,002 | ) | 10,026 | |||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 10,490 | $ | 18,048 | $ | 34,672 | $ | (30,938 | ) | $ | 32,272 |
34
Unaudited Condensed Consolidating Balance Sheet
|
| As of December 31, 2018 |
| |||||||||||||||||||||||||
|
| Willis Towers Watson plc |
|
| Willis North America |
|
| Trinity Acquisition plc |
|
| Other guarantors |
|
| Non-guarantors |
|
| Eliminations |
|
| Consolidated |
| |||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,033 |
|
| $ | — |
|
| $ | 1,033 |
|
Fiduciary assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,604 |
|
|
| — |
|
|
| 12,604 |
|
Accounts receivable, net |
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| 2,355 |
|
|
| — |
|
|
| 2,379 |
|
Prepaid and other current assets |
|
| — |
|
|
| 311 |
|
|
| 1 |
|
|
| 33 |
|
|
| 357 |
|
|
| (298 | ) |
|
| 404 |
|
Total current assets |
|
| — |
|
|
| 335 |
|
|
| 1 |
|
|
| 33 |
|
|
| 16,349 |
|
|
| (298 | ) |
|
| 16,420 |
|
Intercompany receivables, net |
|
| 4,755 |
|
|
| — |
|
|
| 1,355 |
|
|
| — |
|
|
| — |
|
|
| (6,110 | ) |
|
| — |
|
Fixed assets, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| 926 |
|
|
| — |
|
|
| 942 |
|
Goodwill |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,465 |
|
|
| — |
|
|
| 10,465 |
|
Other intangible assets, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 58 |
|
|
| 3,318 |
|
|
| (58 | ) |
|
| 3,318 |
|
Pension benefits assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 773 |
|
|
| — |
|
|
| 773 |
|
Other non-current assets |
|
| — |
|
|
| 92 |
|
|
| 2 |
|
|
| 49 |
|
|
| 452 |
|
|
| (128 | ) |
|
| 467 |
|
Total non-current assets |
|
| 4,755 |
|
|
| 92 |
|
|
| 1,357 |
|
|
| 123 |
|
|
| 15,934 |
|
|
| (6,296 | ) |
|
| 15,965 |
|
Investments in subsidiaries |
|
| 5,691 |
|
|
| 6,649 |
|
|
| 2,677 |
|
|
| 8,108 |
|
|
| — |
|
|
| (23,125 | ) |
|
| — |
|
TOTAL ASSETS |
| $ | 10,446 |
|
| $ | 7,076 |
|
| $ | 4,035 |
|
| $ | 8,264 |
|
| $ | 32,283 |
|
| $ | (29,719 | ) |
| $ | 32,385 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiduciary liabilities |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 12,604 |
|
| $ | — |
|
| $ | 12,604 |
|
Deferred revenue and accrued expenses |
|
| 1 |
|
|
| 2 |
|
|
| — |
|
|
| 3 |
|
|
| 1,641 |
|
|
| — |
|
|
| 1,647 |
|
Current debt |
|
| — |
|
|
| 186 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 186 |
|
Other current liabilities |
|
| 95 |
|
|
| 38 |
|
|
| 33 |
|
|
| 13 |
|
|
| 935 |
|
|
| (250 | ) |
|
| 864 |
|
Total current liabilities |
|
| 96 |
|
|
| 226 |
|
|
| 33 |
|
|
| 16 |
|
|
| 15,180 |
|
|
| (250 | ) |
|
| 15,301 |
|
Intercompany payables, net |
|
| — |
|
|
| 902 |
|
|
| — |
|
|
| 4,691 |
|
|
| 517 |
|
|
| (6,110 | ) |
|
| — |
|
Long-term debt |
|
| 498 |
|
|
| 1,635 |
|
|
| 2,256 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,389 |
|
Liability for pension benefits |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,170 |
|
|
| — |
|
|
| 1,170 |
|
Deferred tax liabilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 688 |
|
|
| (129 | ) |
|
| 559 |
|
Provision for liabilities |
|
| — |
|
|
| 120 |
|
|
| — |
|
|
| — |
|
|
| 420 |
|
|
| — |
|
|
| 540 |
|
Other non-current liabilities |
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| 5 |
|
|
| 411 |
|
|
| — |
|
|
| 429 |
|
Total non-current liabilities |
|
| 498 |
|
|
| 2,670 |
|
|
| 2,256 |
|
|
| 4,696 |
|
|
| 3,206 |
|
|
| (6,239 | ) |
|
| 7,087 |
|
TOTAL LIABILITIES |
|
| 594 |
|
|
| 2,896 |
|
|
| 2,289 |
|
|
| 4,712 |
|
|
| 18,386 |
|
|
| (6,489 | ) |
|
| 22,388 |
|
REDEEMABLE NON-CONTROLLING INTEREST |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 26 |
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Willis Towers Watson shareholders’ equity |
|
| 9,852 |
|
|
| 4,180 |
|
|
| 1,746 |
|
|
| 3,552 |
|
|
| 13,752 |
|
|
| (23,230 | ) |
|
| 9,852 |
|
Non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 119 |
|
|
| — |
|
|
| 119 |
|
Total equity |
|
| 9,852 |
|
|
| 4,180 |
|
|
| 1,746 |
|
|
| 3,552 |
|
|
| 13,871 |
|
|
| (23,230 | ) |
|
| 9,971 |
|
TOTAL LIABILITIES AND EQUITY |
| $ | 10,446 |
|
| $ | 7,076 |
|
| $ | 4,035 |
|
| $ | 8,264 |
|
| $ | 32,283 |
|
| $ | (29,719 | ) |
| $ | 32,385 |
|
As of December 31, 2016 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
ASSETS | |||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 870 | $ | — | $ | 870 | |||||||||
Fiduciary assets | — | — | 10,505 | — | 10,505 | ||||||||||||||
Accounts receivable, net | — | 7 | 2,073 | — | 2,080 | ||||||||||||||
Prepaid and other current assets | — | 72 | 324 | (59 | ) | 337 | |||||||||||||
Amounts due from group undertakings | 7,229 | 1,648 | 2,370 | (11,247 | ) | — | |||||||||||||
Total current assets | 7,229 | 1,727 | 16,142 | (11,306 | ) | 13,792 | |||||||||||||
Investments in subsidiaries | 3,409 | 8,955 | — | (12,364 | ) | — | |||||||||||||
Fixed assets, net | — | 34 | 805 | — | 839 | ||||||||||||||
Goodwill | — | — | 10,413 | — | 10,413 | ||||||||||||||
Other intangible assets, net | — | 64 | 4,368 | (64 | ) | 4,368 | |||||||||||||
Pension benefits assets | — | — | 488 | — | 488 | ||||||||||||||
Other non-current assets | — | 90 | 310 | (47 | ) | 353 | |||||||||||||
Non-current amounts due from group undertakings | — | 4,973 | — | (4,973 | ) | — | |||||||||||||
Total non-current assets | 3,409 | 14,116 | 16,384 | (17,448 | ) | 16,461 | |||||||||||||
TOTAL ASSETS | $ | 10,638 | $ | 15,843 | $ | 32,526 | $ | (28,754 | ) | $ | 30,253 | ||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||
Fiduciary liabilities | $ | — | $ | — | $ | 10,505 | $ | — | $ | 10,505 | |||||||||
Deferred revenue and accrued expenses | — | 42 | 1,488 | (49 | ) | 1,481 | |||||||||||||
Short-term debt and current portion of long-term debt | — | 416 | 92 | — | 508 | ||||||||||||||
Other current liabilities | 77 | 117 | 684 | (2 | ) | 876 | |||||||||||||
Amounts due to group undertakings | — | 9,150 | 2,097 | (11,247 | ) | — | |||||||||||||
Total current liabilities | 77 | 9,725 | 14,866 | (11,298 | ) | 13,370 | |||||||||||||
Long-term debt | 496 | 2,692 | 169 | — | 3,357 | ||||||||||||||
Liability for pension benefits | — | — | 1,321 | — | 1,321 | ||||||||||||||
Deferred tax liabilities | — | — | 1,013 | (149 | ) | 864 | |||||||||||||
Provision for liabilities | — | 120 | 455 | — | 575 | ||||||||||||||
Other non-current liabilities | — | 63 | 483 | (14 | ) | 532 | |||||||||||||
Non-current amounts due to group undertakings | — | — | 4,973 | (4,973 | ) | — | |||||||||||||
Total non-current liabilities | 496 | 2,875 | 8,414 | (5,136 | ) | 6,649 | |||||||||||||
TOTAL LIABILITIES | 573 | 12,600 | 23,280 | (16,434 | ) | 20,019 | |||||||||||||
REDEEMABLE NON-CONTROLLING INTEREST | — | — | 51 | — | 51 | ||||||||||||||
EQUITY | |||||||||||||||||||
Total Willis Towers Watson shareholders’ equity | 10,065 | 3,243 | 9,077 | (12,320 | ) | 10,065 | |||||||||||||
Non-controlling interests | — | — | 118 | — | 118 | ||||||||||||||
Total equity | 10,065 | 3,243 | 9,195 | (12,320 | ) | 10,183 | |||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 10,638 | $ | 15,843 | $ | 32,526 | $ | (28,754 | ) | $ | 30,253 |
35
Unaudited Condensed Consolidating Statement of Cash Flows
|
| Three months ended March 31, 2019 |
| |||||||||||||||||||||||||
|
| Willis Towers Watson plc |
|
| Willis North America |
|
| Trinity Acquisition plc |
|
| Other guarantors |
|
| Non-guarantors |
|
| Eliminations |
|
| Consolidated |
| |||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES |
| $ | 38 |
|
| $ | (130 | ) |
| $ | (31 | ) |
| $ | (82 | ) |
| $ | 158 |
|
| $ | — |
|
| $ | (47 | ) |
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to fixed assets and software for internal use |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (56 | ) |
|
| — |
|
|
| (57 | ) |
Capitalized software costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| (17 | ) |
Acquisitions of operations, net of cash acquired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Proceeds from/(repayments of) intercompany investing activities, net |
|
| 17 |
|
|
| 111 |
|
|
| (137 | ) |
|
| 78 |
|
|
| (34 | ) |
|
| (35 | ) |
|
| — |
|
Net cash from/(used in) investing activities |
| $ | 17 |
|
| $ | 111 |
|
| $ | (137 | ) |
| $ | 77 |
|
| $ | (108 | ) |
| $ | (35 | ) |
| $ | (75 | ) |
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on revolving credit facility |
|
| — |
|
|
| 20 |
|
|
| 118 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 138 |
|
Repayments of debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Proceeds from issuance of shares |
|
| 22 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22 |
|
Dividends paid |
|
| (77 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (77 | ) |
(Repayments of)/proceeds from intercompany financing activities, net |
|
| — |
|
|
| (1 | ) |
|
| 50 |
|
|
| 5 |
|
|
| (89 | ) |
|
| 35 |
|
|
| — |
|
Net cash (used in)/from financing activities |
| $ | (55 | ) |
| $ | 19 |
|
| $ | 168 |
|
| $ | 5 |
|
| $ | (90 | ) |
| $ | 35 |
|
| $ | 82 |
|
DECREASE IN CASH AND CASH EQUIVALENTS |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40 | ) |
|
| — |
|
|
| (40 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,033 |
|
|
| — |
|
|
| 1,033 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 992 |
|
| $ | — |
|
| $ | 992 |
|
Nine Months Ended September 30, 2017 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES | $ | 525 | $ | (655 | ) | $ | 774 | $ | (129 | ) | $ | 515 | |||||||
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | |||||||||||||||||||
Additions to fixed assets and software for internal use | — | (6 | ) | (192 | ) | — | (198 | ) | |||||||||||
Capitalized software costs | — | — | (52 | ) | — | (52 | ) | ||||||||||||
Acquisitions of operations, net of cash acquired | — | — | (13 | ) | — | (13 | ) | ||||||||||||
Other, net | — | — | 1 | — | 1 | ||||||||||||||
Proceeds from intercompany investing activities | 1,102 | 143 | 223 | (1,468 | ) | — | |||||||||||||
Repayments of intercompany investing activities | — | (195 | ) | (311 | ) | 506 | — | ||||||||||||
Reduction in investment in subsidiaries | — | 1,148 | 59 | (1,207 | ) | — | |||||||||||||
Additional investment in subsidiaries | (1,000 | ) | (207 | ) | — | 1,207 | — | ||||||||||||
Net cash from/(used in) investing activities | $ | 102 | $ | 883 | $ | (285 | ) | $ | (962 | ) | $ | (262 | ) | ||||||
CASH FLOWS USED IN FINANCING ACTIVITIES | |||||||||||||||||||
Net borrowings on revolving credit facility | — | 675 | — | — | 675 | ||||||||||||||
Senior notes issued | — | 650 | — | — | 650 | ||||||||||||||
Proceeds from issuance of other debt | — | — | 32 | — | 32 | ||||||||||||||
Debt issuance costs | — | (9 | ) | — | — | (9 | ) | ||||||||||||
Repayments of debt | — | (619 | ) | (95 | ) | �� | (714 | ) | |||||||||||
Repurchase of shares | (462 | ) | — | — | — | (462 | ) | ||||||||||||
Proceeds from issuance of shares | 44 | — | — | — | 44 | ||||||||||||||
Payments related to share cancellation | — | — | (177 | ) | — | (177 | ) | ||||||||||||
Payments of deferred and contingent consideration related to acquisitions | — | — | (43 | ) | — | (43 | ) | ||||||||||||
Cash paid for employee taxes on withholding shares | — | — | (14 | ) | — | (14 | ) | ||||||||||||
Dividends paid | (209 | ) | — | (129 | ) | 129 | (209 | ) | |||||||||||
Acquisitions of and dividends paid to non-controlling interests | — | — | (19 | ) | — | (19 | ) | ||||||||||||
Proceeds from intercompany financing activities | — | 311 | 195 | (506 | ) | — | |||||||||||||
Repayments of intercompany financing activities | — | (1,231 | ) | (237 | ) | 1,468 | — | ||||||||||||
Net cash used in financing activities | $ | (627 | ) | $ | (223 | ) | $ | (487 | ) | $ | 1,091 | $ | (246 | ) | |||||
INCREASE IN CASH AND CASH EQUIVALENTS | — | 5 | 2 | — | 7 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | 35 | — | 35 | ||||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | — | — | 870 | — | 870 | ||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | — | $ | 5 | $ | 907 | $ | — | $ | 912 |
36
Unaudited Condensed Consolidating Statement of Cash Flows
|
| Three months ended March 31, 2018 |
| |||||||||||||||||||||||||
|
| Willis Towers Watson plc |
|
| Willis North America |
|
| Trinity Acquisition plc |
|
| Other guarantors |
|
| Non-guarantors |
|
| Eliminations |
|
| Consolidated |
| |||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES |
| $ | 72 |
|
| $ | (98 | ) |
| $ | (196 | ) |
| $ | 245 |
|
| $ | 328 |
|
| $ | (333 | ) |
| $ | 18 |
|
CASH FLOWS (USED IN)/FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to fixed assets and software for internal use |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (64 | ) |
|
| — |
|
|
| (65 | ) |
Capitalized software costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13 | ) |
|
| — |
|
|
| (13 | ) |
Acquisitions of operations, net of cash acquired |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Net proceeds from sale of operations |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
(Repayments of)/proceeds from intercompany investing activities, net |
|
| (17 | ) |
|
| 67 |
|
|
| 326 |
|
|
| 63 |
|
|
| (195 | ) |
|
| (244 | ) |
|
| — |
|
Net cash (used in)/from investing activities |
| $ | (17 | ) |
| $ | 67 |
|
| $ | 326 |
|
| $ | 62 |
|
| $ | (273 | ) |
| $ | (244 | ) |
| $ | (79 | ) |
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings on revolving credit facility |
|
| — |
|
|
| 55 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Repayments of debt |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21 | ) |
|
| — |
|
|
| (21 | ) |
Proceeds from issuance of shares |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
Cash paid for employee taxes on withholding shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
Dividends paid |
|
| (68 | ) |
|
| — |
|
|
| (332 | ) |
|
| (1 | ) |
|
| — |
|
|
| 333 |
|
|
| (68 | ) |
(Repayments of)/proceeds from intercompany financing activities, net |
|
| — |
|
|
| (24 | ) |
|
| 196 |
|
|
| (306 | ) |
|
| (110 | ) |
|
| 244 |
|
|
| — |
|
Net cash (used in)/from financing activities |
| $ | (57 | ) |
| $ | 31 |
|
| $ | (130 | ) |
| $ | (307 | ) |
| $ | (138 | ) |
| $ | 577 |
|
| $ | (24 | ) |
DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (83 | ) |
|
| — |
|
|
| (85 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1,027 |
|
|
| — |
|
|
| 1,030 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1 |
|
| $ | 953 |
|
| $ | — |
|
| $ | 954 |
|
Nine Months Ended September 30, 2016 | |||||||||||||||||||
Willis Towers Watson — the Parent Issuer | The Guarantors | Other | Consolidating adjustments | Consolidated | |||||||||||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES | $ | 6 | $ | (305 | ) | $ | 989 | $ | (69 | ) | $ | 621 | |||||||
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | |||||||||||||||||||
Additions to fixed assets and software for internal use | — | (84 | ) | (131 | ) | 64 | (151 | ) | |||||||||||
Capitalized software costs | — | — | (64 | ) | — | (64 | ) | ||||||||||||
Acquisitions of operations, net of cash acquired | — | — | 476 | — | 476 | ||||||||||||||
Other, net | — | 1 | 16 | 5 | 22 | ||||||||||||||
Proceeds from intercompany investing activities | 47 | 30 | 18 | (95 | ) | — | |||||||||||||
Repayments of intercompany investing activities | (4,015 | ) | (3,953 | ) | (805 | ) | 8,773 | — | |||||||||||
Reduction in investment in subsidiaries | 4,600 | 3,600 | — | (8,200 | ) | — | |||||||||||||
Additional investment in subsidiaries | — | (4,600 | ) | (3,600 | ) | 8,200 | — | ||||||||||||
Net cash from/(used in) investing activities | $ | 632 | $ | (5,006 | ) | $ | (4,090 | ) | $ | 8,747 | $ | 283 | |||||||
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES | |||||||||||||||||||
Net payments on revolving credit facility | — | (389 | ) | — | — | (389 | ) | ||||||||||||
Senior notes issued | — | 1,606 | — | — | 1,606 | ||||||||||||||
Proceeds from issuance of other debt | — | 400 | 4 | — | 404 | ||||||||||||||
Debt issuance costs | — | (14 | ) | — | — | (14 | ) | ||||||||||||
Repayments of debt | (300 | ) | (1,032 | ) | (529 | ) | — | (1,861 | ) | ||||||||||
Repurchase of shares | (222 | ) | — | — | — | (222 | ) | ||||||||||||
Proceeds from issuance of shares | 44 | — | — | — | 44 | ||||||||||||||
Payments of deferred and contingent consideration related to acquisitions | — | — | (64 | ) | — | (64 | ) | ||||||||||||
Dividends paid | (133 | ) | — | — | — | (133 | ) | ||||||||||||
Cash paid for employee taxes on withholding shares | — | — | (13 | ) | — | (13 | ) | ||||||||||||
Acquisitions of and dividends paid to non-controlling interests | — | — | (17 | ) | — | (17 | ) | ||||||||||||
Proceeds from intercompany financing activities | — | 4,756 | 4,017 | (8,773 | ) | — | |||||||||||||
Repayments of intercompany financing activities | (30 | ) | (18 | ) | (47 | ) | 95 | — | |||||||||||
Net cash (used in)/from financing activities | $ | (641 | ) | $ | 5,309 | $ | 3,351 | $ | (8,678 | ) | $ | (659 | ) | ||||||
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | (3 | ) | (2 | ) | 250 | — | 245 | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | (10 | ) | — | (10 | ) | ||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 3 | 2 | 527 | — | 532 | ||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | — | $ | — | $ | 767 | $ | — | $ | 767 |
Three Months Ended September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | 3 | $ | — | $ | 1,829 | $ | — | $ | 1,832 | |||||||||||
Interest and other income | — | — | — | 20 | — | 20 | |||||||||||||||||
Total revenues | — | 3 | — | 1,849 | — | 1,852 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | 2 | 20 | — | 1,123 | — | 1,145 | |||||||||||||||||
Other operating expenses | — | 35 | 1 | 330 | — | 366 | |||||||||||||||||
Depreciation | — | 2 | — | 52 | — | 54 | |||||||||||||||||
Amortization | — | 1 | — | 143 | (3 | ) | 141 | ||||||||||||||||
Restructuring costs | — | 2 | — | 29 | — | 31 | |||||||||||||||||
Transaction and integration expenses | — | 6 | — | 68 | — | 74 | |||||||||||||||||
Total costs of providing services | 2 | 66 | 1 | 1,745 | (3 | ) | 1,811 | ||||||||||||||||
(Loss)/income from operations | (2 | ) | (63 | ) | (1 | ) | 104 | 3 | 41 | ||||||||||||||
Income from Group undertakings | — | (148 | ) | (36 | ) | (39 | ) | 223 | — | ||||||||||||||
Expenses due to Group undertakings | — | 57 | 6 | 160 | (223 | ) | — | ||||||||||||||||
Interest expense | 8 | 9 | 25 | 5 | — | 47 | |||||||||||||||||
Other (income)/expense, net | — | (48 | ) | — | (120 | ) | 197 | 29 | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (10 | ) | 67 | 4 | 98 | (194 | ) | (35 | ) | ||||||||||||||
(Benefit from)/provision for income taxes | (1 | ) | 6 | — | 14 | — | 19 | ||||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 61 | 4 | 84 | (194 | ) | (54 | ) | ||||||||||||||
Interest in earnings of associates, net of tax | — | — | — | — | — | — | |||||||||||||||||
Equity account for subsidiaries | (45 | ) | (103 | ) | (108 | ) | — | 256 | — | ||||||||||||||
NET (LOSS)/INCOME | (54 | ) | (42 | ) | (104 | ) | 84 | 62 | (54 | ) | |||||||||||||
Income attributable to non-controlling interests | — | — | — | — | — | — | |||||||||||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (54 | ) | $ | (42 | ) | $ | (104 | ) | $ | 84 | $ | 62 | $ | (54 | ) | |||||||
Comprehensive income before non-controlling interests | $ | 46 | $ | 62 | $ | 2 | $ | (4 | ) | $ | (72 | ) | $ | 34 | |||||||||
Comprehensive loss attributable to non-controlling interests | — | — | — | 12 | — | 12 | |||||||||||||||||
Comprehensive income attributable to Willis Towers Watson | $ | 46 | $ | 62 | $ | 2 | $ | 8 | $ | (72 | ) | $ | 46 |
Three Months Ended September 30, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | 5 | $ | — | $ | 1,756 | $ | — | $ | 1,761 | |||||||||||
Interest and other income | — | — | — | 16 | — | 16 | |||||||||||||||||
Total revenues | — | 5 | — | 1,772 | — | 1,777 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | — | 14 | — | 1,105 | — | 1,119 | |||||||||||||||||
Other operating expenses | 1 | 37 | — | 332 | — | 370 | |||||||||||||||||
Depreciation | — | 5 | — | 40 | — | 45 | |||||||||||||||||
Amortization | — | — | — | 157 | — | 157 | |||||||||||||||||
Restructuring costs | — | 14 | — | 35 | — | 49 | |||||||||||||||||
Transaction and integration expenses | — | 6 | — | 30 | — | 36 | |||||||||||||||||
Total costs of providing services | 1 | 76 | — | 1,699 | — | 1,776 | |||||||||||||||||
(Loss)/income from operations | (1 | ) | (71 | ) | — | 73 | — | 1 | |||||||||||||||
Income from Group undertakings | — | (155 | ) | (34 | ) | (34 | ) | 223 | — | ||||||||||||||
Expenses due to Group undertakings | — | 57 | 6 | 160 | (223 | ) | — | ||||||||||||||||
Interest expense | 8 | 10 | 22 | 5 | — | 45 | |||||||||||||||||
Other expense, net | — | — | — | 14 | — | 14 | |||||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 17 | 6 | (72 | ) | — | (58 | ) | ||||||||||||||
Benefit from income taxes | — | (19 | ) | — | (7 | ) | — | (26 | ) | ||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (9 | ) | 36 | 6 | (65 | ) | — | (32 | ) | ||||||||||||||
Interest in earnings of associates, net of tax | — | — | — | 1 | — | 1 | |||||||||||||||||
Equity account for subsidiaries | (23 | ) | (54 | ) | (55 | ) | — | 132 | — | ||||||||||||||
NET LOSS | (32 | ) | (18 | ) | (49 | ) | (64 | ) | 132 | (31 | ) | ||||||||||||
Income attributable to non-controlling interests | — | — | — | (1 | ) | — | (1 | ) | |||||||||||||||
NET LOSS ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (32 | ) | $ | (18 | ) | $ | (49 | ) | $ | (65 | ) | $ | 132 | $ | (32 | ) | ||||||
Comprehensive loss before non-controlling interests | $ | (72 | ) | $ | (58 | ) | $ | (59 | ) | $ | (91 | ) | $ | 207 | $ | (73 | ) | ||||||
Comprehensive loss attributable to non-controlling interests | — | — | — | 1 | — | 1 | |||||||||||||||||
Comprehensive loss attributable to Willis Towers Watson | $ | (72 | ) | $ | (58 | ) | $ | (59 | ) | $ | (90 | ) | $ | 207 | $ | (72 | ) |
Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | 14 | $ | — | $ | 6,051 | $ | — | $ | 6,065 | |||||||||||
Interest and other income | — | — | — | 59 | — | 59 | |||||||||||||||||
Total revenues | — | 14 | — | 6,110 | — | 6,124 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | 4 | 40 | — | 3,440 | — | 3,484 | |||||||||||||||||
Other operating expenses | 2 | 89 | 1 | 1,066 | — | 1,158 | |||||||||||||||||
Depreciation | — | 5 | — | 146 | — | 151 | |||||||||||||||||
Amortization | — | 3 | — | 441 | (3 | ) | 441 | ||||||||||||||||
Restructuring costs | — | 6 | — | 79 | — | 85 | |||||||||||||||||
Transaction and integration expenses | — | 38 | — | 139 | — | 177 | |||||||||||||||||
Total costs of providing services | 6 | 181 | 1 | 5,311 | (3 | ) | 5,496 | ||||||||||||||||
(Loss)/income from operations | (6 | ) | (167 | ) | (1 | ) | 799 | 3 | 628 | ||||||||||||||
Income from Group undertakings | — | (457 | ) | (108 | ) | (112 | ) | 677 | — | ||||||||||||||
Expenses due to Group undertakings | — | 180 | 19 | 478 | (677 | ) | — | ||||||||||||||||
Interest expense | 23 | 24 | 76 | 16 | — | 139 | |||||||||||||||||
Other (income)/expense, net | — | (48 | ) | — | (70 | ) | 197 | 79 | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (29 | ) | 134 | 12 | 487 | (194 | ) | 410 | |||||||||||||||
(Benefit from)/provision for income taxes | (2 | ) | 11 | 1 | 63 | — | 73 | ||||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (27 | ) | 123 | 11 | 424 | (194 | ) | 337 | |||||||||||||||
Interest in earnings of associates, net of tax | — | — | — | 2 | — | 2 | |||||||||||||||||
Equity account for subsidiaries | 350 | 220 | 117 | — | (687 | ) | — | ||||||||||||||||
NET INCOME | 323 | 343 | 128 | 426 | (881 | ) | 339 | ||||||||||||||||
Income attributable to non-controlling interests | — | — | — | (16 | ) | — | (16 | ) | |||||||||||||||
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 323 | $ | 343 | $ | 128 | $ | 410 | $ | (881 | ) | $ | 323 | ||||||||||
Comprehensive income before non-controlling interests | $ | 531 | $ | 552 | $ | 336 | $ | 434 | $ | (1,307 | ) | $ | 546 | ||||||||||
Comprehensive income attributable to non-controlling interests | — | — | — | (15 | ) | — | (15 | ) | |||||||||||||||
Comprehensive income attributable to Willis Towers Watson | $ | 531 | $ | 552 | $ | 336 | $ | 419 | $ | (1,307 | ) | $ | 531 |
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
Revenues | |||||||||||||||||||||||
Commissions and fees | $ | — | $ | 16 | $ | — | $ | 5,858 | $ | — | $ | 5,874 | |||||||||||
Interest and other income | — | 1 | — | 85 | — | 86 | |||||||||||||||||
Total revenues | — | 17 | — | 5,943 | — | 5,960 | |||||||||||||||||
Costs of providing services | |||||||||||||||||||||||
Salaries and benefits | 1 | 39 | — | 3,479 | — | 3,519 | |||||||||||||||||
Other operating expenses | 4 | 166 | — | 1,001 | — | 1,171 | |||||||||||||||||
Depreciation | — | 14 | — | 118 | — | 132 | |||||||||||||||||
Amortization | — | — | — | 443 | — | 443 | |||||||||||||||||
Restructuring costs | — | 41 | — | 74 | — | 115 | |||||||||||||||||
Transaction and integration expenses | — | 28 | — | 89 | — | 117 | |||||||||||||||||
Total costs of providing services | 5 | 288 | — | 5,204 | — | 5,497 | |||||||||||||||||
(Loss)/income from operations | (5 | ) | (271 | ) | — | 739 | — | 463 | |||||||||||||||
Income from Group undertakings | — | (451 | ) | (98 | ) | (104 | ) | 653 | — | ||||||||||||||
Expenses due to Group undertakings | — | 173 | 19 | 461 | (653 | ) | — | ||||||||||||||||
Interest expense | 25 | 28 | 66 | 19 | — | 138 | |||||||||||||||||
Other expense/(income), net | 1 | (2 | ) | — | 27 | — | 26 | ||||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (31 | ) | (19 | ) | 13 | 336 | — | 299 | |||||||||||||||
(Benefit from)/provision for income taxes | — | (74 | ) | 1 | 84 | — | 11 | ||||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (31 | ) | 55 | 12 | 252 | — | 288 | ||||||||||||||||
Interest in earnings of associates, net of tax | — | — | — | 2 | — | 2 | |||||||||||||||||
Equity account for subsidiaries | 309 | 234 | 57 | — | (600 | ) | — | ||||||||||||||||
NET INCOME | 278 | 289 | 69 | 254 | (600 | ) | 290 | ||||||||||||||||
Income attributable to non-controlling interests | — | — | — | (12 | ) | — | (12 | ) | |||||||||||||||
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 278 | $ | 289 | $ | 69 | $ | 242 | $ | (600 | ) | $ | 278 | ||||||||||
Comprehensive income/(loss) before non-controlling interests | $ | 94 | $ | 104 | $ | (3 | ) | $ | 88 | $ | (187 | ) | $ | 96 | |||||||||
Comprehensive income attributable to non-controlling interests | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||
Comprehensive income/(loss) attributable to Willis Towers Watson | $ | 94 | $ | 104 | $ | (3 | ) | $ | 86 | $ | (187 | ) | $ | 94 |
As of September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 5 | $ | — | $ | 907 | $ | — | $ | 912 | |||||||||||
Fiduciary assets | — | — | — | 12,206 | — | 12,206 | |||||||||||||||||
Accounts receivable, net | — | 5 | — | 2,150 | — | 2,155 | |||||||||||||||||
Prepaid and other current assets | 2 | 172 | 1 | 298 | (55 | ) | 418 | ||||||||||||||||
Amounts due from group undertakings | 6,131 | 1,449 | 1,655 | 2,576 | (11,811 | ) | — | ||||||||||||||||
Total current assets | 6,133 | 1,631 | 1,656 | 18,137 | (11,866 | ) | 15,691 | ||||||||||||||||
Investments in subsidiaries | 4,357 | 10,112 | 2,143 | — | (16,612 | ) | — | ||||||||||||||||
Fixed assets, net | — | 35 | — | 902 | — | 937 | |||||||||||||||||
Goodwill | — | — | — | 10,529 | — | 10,529 | |||||||||||||||||
Other intangible assets, net | — | 61 | — | 4,034 | (61 | ) | 4,034 | ||||||||||||||||
Pension benefits assets | — | — | — | 649 | — | 649 | |||||||||||||||||
Other non-current assets | — | 259 | 1 | 373 | (201 | ) | 432 | ||||||||||||||||
Non-current amounts due from group undertakings | — | 4,461 | 1,318 | 48 | (5,827 | ) | — | ||||||||||||||||
Total non-current assets | 4,357 | 14,928 | 3,462 | 16,535 | (22,701 | ) | 16,581 | ||||||||||||||||
TOTAL ASSETS | $ | 10,490 | $ | 16,559 | $ | 5,118 | $ | 34,672 | $ | (34,567 | ) | $ | 32,272 | ||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||||||
Fiduciary liabilities | $ | — | $ | — | $ | — | $ | 12,206 | $ | — | $ | 12,206 | |||||||||||
Deferred revenue and accrued expenses | 1 | 91 | — | 1,380 | — | 1,472 | |||||||||||||||||
Short-term debt and current portion of long-term debt | — | — | — | 85 | — | 85 | |||||||||||||||||
Other current liabilities | 78 | 150 | 14 | 546 | 5 | 793 | |||||||||||||||||
Amounts due to group undertakings | — | 9,775 | 7 | 1,607 | (11,389 | ) | — | ||||||||||||||||
Total current liabilities | 79 | 10,016 | 21 | 15,824 | (11,384 | ) | 14,556 | ||||||||||||||||
Long-term debt | 496 | 946 | 2,945 | 106 | — | 4,493 | |||||||||||||||||
Liability for pension benefits | — | — | — | 1,207 | — | 1,207 | |||||||||||||||||
Deferred tax liabilities | — | — | — | 1,057 | (201 | ) | 856 | ||||||||||||||||
Provision for liabilities | — | 120 | — | 483 | — | 603 | |||||||||||||||||
Other non-current liabilities | — | 66 | — | 410 | — | 476 | |||||||||||||||||
Non-current amounts due to group undertakings | — | 519 | 423 | 5,308 | (6,250 | ) | — | ||||||||||||||||
Total non-current liabilities | 496 | 1,651 | 3,368 | 8,571 | (6,451 | ) | 7,635 | ||||||||||||||||
TOTAL LIABILITIES | 575 | 11,667 | 3,389 | 24,395 | (17,835 | ) | 22,191 | ||||||||||||||||
REDEEMABLE NON-CONTROLLING INTEREST | — | — | — | 55 | — | 55 | |||||||||||||||||
EQUITY | |||||||||||||||||||||||
Total Willis Towers Watson shareholders’ equity | 9,915 | 4,892 | 1,729 | 10,111 | (16,732 | ) | 9,915 | ||||||||||||||||
Non-controlling interests | — | — | — | 111 | — | 111 | |||||||||||||||||
Total equity | 9,915 | 4,892 | 1,729 | 10,222 | (16,732 | ) | 10,026 | ||||||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 10,490 | $ | 16,559 | $ | 5,118 | $ | 34,672 | $ | (34,567 | ) | $ | 32,272 |
As of December 31, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
ASSETS | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | 870 | $ | — | $ | 870 | |||||||||||
Fiduciary assets | — | — | — | 10,505 | — | 10,505 | |||||||||||||||||
Accounts receivable, net | — | 7 | — | 2,073 | — | 2,080 | |||||||||||||||||
Prepaid and other current assets | — | 74 | 1 | 324 | (62 | ) | 337 | ||||||||||||||||
Amounts due from group undertakings | 7,229 | 849 | 1,595 | 2,370 | (12,043 | ) | — | ||||||||||||||||
Total current assets | 7,229 | 930 | 1,596 | 16,142 | (12,105 | ) | 13,792 | ||||||||||||||||
Investments in subsidiaries | 3,409 | 8,621 | 7,309 | — | (19,339 | ) | — | ||||||||||||||||
Fixed assets, net | — | 34 | — | 805 | — | 839 | |||||||||||||||||
Goodwill | — | — | — | 10,413 | — | 10,413 | |||||||||||||||||
Other intangible assets, net | — | 64 | — | 4,368 | (64 | ) | 4,368 | ||||||||||||||||
Pension benefits assets | — | — | — | 488 | — | 488 | |||||||||||||||||
Other non-current assets | — | 90 | — | 310 | (47 | ) | 353 | ||||||||||||||||
Non-current amounts due from group undertakings | — | 4,859 | 1,055 | — | (5,914 | ) | — | ||||||||||||||||
Total non-current assets | 3,409 | 13,668 | 8,364 | 16,384 | (25,364 | ) | 16,461 | ||||||||||||||||
TOTAL ASSETS | $ | 10,638 | $ | 14,598 | $ | 9,960 | $ | 32,526 | $ | (37,469 | ) | $ | 30,253 | ||||||||||
LIABILITIES AND EQUITY | |||||||||||||||||||||||
Fiduciary liabilities | $ | — | $ | — | $ | — | $ | 10,505 | $ | — | $ | 10,505 | |||||||||||
Deferred revenue and accrued expenses | — | 41 | 1 | 1,488 | (49 | ) | 1,481 | ||||||||||||||||
Short-term debt and current portion of long-term debt | — | 394 | 22 | 92 | — | 508 | |||||||||||||||||
Other current liabilities | 77 | 87 | 33 | 684 | (5 | ) | 876 | ||||||||||||||||
Amounts due to group undertakings | — | 9,946 | — | 2,097 | (12,043 | ) | — | ||||||||||||||||
Total current liabilities | 77 | 10,468 | 56 | 14,866 | (12,097 | ) | 13,370 | ||||||||||||||||
Long-term debt | 496 | 186 | 2,506 | 169 | — | 3,357 | |||||||||||||||||
Liability for pension benefits | — | — | — | 1,321 | — | 1,321 | |||||||||||||||||
Deferred tax liabilities | — | — | — | 1,013 | (149 | ) | 864 | ||||||||||||||||
Provision for liabilities | — | 120 | — | 455 | — | 575 | |||||||||||||||||
Other non-current liabilities | — | 63 | — | 483 | (14 | ) | 532 | ||||||||||||||||
Non-current amounts due to group undertakings | — | 518 | 423 | 4,973 | (5,914 | ) | — | ||||||||||||||||
Total non-current liabilities | 496 | 887 | 2,929 | 8,414 | (6,077 | ) | 6,649 | ||||||||||||||||
TOTAL LIABILITIES | 573 | 11,355 | 2,985 | 23,280 | (18,174 | ) | 20,019 | ||||||||||||||||
REDEEMABLE NON-CONTROLLING INTEREST | — | — | — | 51 | — | 51 | |||||||||||||||||
EQUITY | |||||||||||||||||||||||
Total Willis Towers Watson shareholders’ equity | 10,065 | 3,243 | 6,975 | 9,077 | (19,295 | ) | 10,065 | ||||||||||||||||
Non-controlling interests | — | — | — | 118 | — | 118 | |||||||||||||||||
Total equity | 10,065 | 3,243 | 6,975 | 9,195 | (19,295 | ) | 10,183 | ||||||||||||||||
TOTAL LIABILITIES AND EQUITY | $ | 10,638 | $ | 14,598 | $ | 9,960 | $ | 32,526 | $ | (37,469 | ) | $ | 30,253 |
Nine Months Ended September 30, 2017 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES | $ | 525 | $ | (649 | ) | $ | 50 | $ | 774 | $ | (185 | ) | $ | 515 | |||||||||
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | |||||||||||||||||||||||
Additions to fixed assets and software for internal use | — | (6 | ) | — | (192 | ) | — | (198 | ) | ||||||||||||||
Capitalized software costs | — | — | — | (52 | ) | — | (52 | ) | |||||||||||||||
Acquisitions of operations, net of cash acquired | — | — | — | (13 | ) | — | (13 | ) | |||||||||||||||
Other, net | — | — | — | 1 | — | 1 | |||||||||||||||||
Proceeds from intercompany investing activities | 1,102 | 137 | 212 | 223 | (1,674 | ) | — | ||||||||||||||||
Repayments of intercompany investing activities | — | (48 | ) | (438 | ) | (311 | ) | 797 | — | ||||||||||||||
Reduction in investment in subsidiaries | — | 1,148 | — | 59 | (1,207 | ) | — | ||||||||||||||||
Additional investment in subsidiaries | (1,000 | ) | (59 | ) | (148 | ) | — | 1,207 | — | ||||||||||||||
Net cash from/(used in) investing activities | $ | 102 | $ | 1,172 | $ | (374 | ) | $ | (285 | ) | $ | (877 | ) | $ | (262 | ) | |||||||
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES | |||||||||||||||||||||||
Net borrowings on revolving credit facility | — | 115 | 560 | — | — | 675 | |||||||||||||||||
Senior notes issued | — | 650 | — | — | — | 650 | |||||||||||||||||
Proceeds from issuance of other debt | — | — | — | 32 | — | 32 | |||||||||||||||||
Debt issuance costs | — | (5 | ) | (4 | ) | — | — | (9 | ) | ||||||||||||||
Repayments of debt | — | (400 | ) | (219 | ) | (95 | ) | — | (714 | ) | |||||||||||||
Repurchase of shares | (462 | ) | — | — | — | — | (462 | ) | |||||||||||||||
Proceeds from issuance of shares | 44 | — | — | — | — | 44 | |||||||||||||||||
Payments related to share cancellation | — | — | — | (177 | ) | — | (177 | ) | |||||||||||||||
Payments of deferred and contingent consideration related to acquisitions | — | — | — | (43 | ) | — | (43 | ) | |||||||||||||||
Cash paid for employee taxes on withholding shares | — | — | — | (14 | ) | — | (14 | ) | |||||||||||||||
Dividends paid | (209 | ) | (56 | ) | — | (129 | ) | 185 | (209 | ) | |||||||||||||
Acquisitions of and dividends paid to non-controlling interests | — | — | — | (19 | ) | — | (19 | ) | |||||||||||||||
Proceeds from intercompany financing activities | — | 602 | — | 195 | (797 | ) | — | ||||||||||||||||
Repayments of intercompany financing activities | — | (1,424 | ) | (13 | ) | (237 | ) | 1,674 | — | ||||||||||||||
Net cash (used in)/from financing activities | $ | (627 | ) | $ | (518 | ) | $ | 324 | $ | (487 | ) | $ | 1,062 | $ | (246 | ) | |||||||
INCREASE IN CASH AND CASH EQUIVALENTS | — | 5 | — | 2 | — | 7 | |||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | 35 | — | 35 | |||||||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | — | — | — | 870 | — | 870 | |||||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | — | $ | 5 | $ | — | $ | 907 | $ | — | $ | 912 |
Nine Months Ended September 30, 2016 | |||||||||||||||||||||||
Willis Towers Watson | The Other Guarantors | The Issuer | Other | Consolidating adjustments | Consolidated | ||||||||||||||||||
NET CASH FROM/(USED IN) OPERATING ACTIVITIES | $ | 6 | $ | (314 | ) | $ | 9 | $ | 989 | $ | (69 | ) | $ | 621 | |||||||||
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES | |||||||||||||||||||||||
Additions to fixed assets and software for internal use | — | (84 | ) | — | (131 | ) | 64 | (151 | ) | ||||||||||||||
Capitalized software costs | — | — | — | (64 | ) | — | (64 | ) | |||||||||||||||
Acquisitions of operations, net of cash acquired | — | — | — | 476 | — | 476 | |||||||||||||||||
Other, net | — | 1 | — | 16 | 5 | 22 | |||||||||||||||||
Proceeds from intercompany investing activities | 47 | 42 | 17 | 18 | (124 | ) | — | ||||||||||||||||
Repayments of intercompany investing activities | (4,015 | ) | (3,386 | ) | (567 | ) | (805 | ) | 8,773 | — | |||||||||||||
Reduction in investment subsidiaries | 4,600 | 3,600 | — | — | (8,200 | ) | — | ||||||||||||||||
Additional investment in subsidiaries | — | (4,600 | ) | — | (3,600 | ) | 8,200 | — | |||||||||||||||
Net cash from/(used in) investing activities | $ | 632 | $ | (4,427 | ) | $ | (550 | ) | $ | (4,090 | ) | $ | 8,718 | $ | 283 | ||||||||
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES | |||||||||||||||||||||||
Net payments on revolving credit facility | — | — | (389 | ) | — | — | (389 | ) | |||||||||||||||
Senior notes issued | — | — | 1,606 | — | — | 1,606 | |||||||||||||||||
Proceeds from issuance of other debt | — | — | 400 | 4 | — | 404 | |||||||||||||||||
Debt issuance costs | — | — | (14 | ) | — | — | (14 | ) | |||||||||||||||
Repayments of debt | (300 | ) | — | (1,032 | ) | (529 | ) | — | (1,861 | ) | |||||||||||||
Repurchase of shares | (222 | ) | — | — | — | — | (222 | ) | |||||||||||||||
Proceeds from issuance of shares | 44 | — | — | — | — | 44 | |||||||||||||||||
Payments of deferred and contingent consideration related to acquisitions | — | — | — | (64 | ) | — | (64 | ) | |||||||||||||||
Dividends paid | (133 | ) | — | — | — | — | (133 | ) | |||||||||||||||
Cash paid for employee taxes on withholding shares | — | — | — | (13 | ) | — | (13 | ) | |||||||||||||||
Acquisitions of and dividends paid to non-controlling interests | — | — | — | (17 | ) | — | (17 | ) | |||||||||||||||
Proceeds from intercompany financing activities | — | 4,756 | — | 4,017 | (8,773 | ) | — | ||||||||||||||||
Repayments of intercompany financing activities | (30 | ) | (17 | ) | (30 | ) | (47 | ) | 124 | — | |||||||||||||
Net cash (used in)/from financing activities | $ | (641 | ) | $ | 4,739 | $ | 541 | $ | 3,351 | $ | (8,649 | ) | $ | (659 | ) | ||||||||
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | (3 | ) | (2 | ) | — | 250 | — | 245 | |||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | — | (10 | ) | — | (10 | ) | |||||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 3 | 2 | — | 527 | — | 532 | |||||||||||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | — | $ | — | $ | — | $ | 767 | $ | — | $ | 767 |
37
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion includes forward-looking statements. See ‘Disclaimer Regarding Forward-looking Statements’ for certain cautionary information regarding forward-looking statements and a list of factors that could cause actual results to differ materially from those predicted in those statements.
This discussion includes references to non-GAAP financial measures as defined in the rules of the Securities and Exchange Commission (‘SEC’).SEC. We present such non-GAAP financial measures, specifically, adjusted, constant currency and organic non-GAAP financial measures, as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent under U.S. GAAP, and these provide a measure against which our businesses may be assessed in the future.
See ‘Non-GAAP Financial Measures’ below for further discussion of our adjusted, constant currency and organic non-GAAP financial measures.
Executive Overview
Market Conditions
Market conditions in ourthe broking industry in which we operate are generally defined by factors such as the strength of the economies in the various geographic regions in which we serve around the world, insurance rate movements, and insurance and reinsurance buying patterns of our clients.
Insurance market rates vary by geography, industry and procedures forclient segment. As a member to leave the E.U.) on March 29, 2017, the early general election held on June 8, 2017,result, and the uncertainties about the near-term and longer-term effects of Brexit on the Company. The terms of Brexit, and its impact, are highly uncertain. For a further discussion of the risks of Brexitdue to the Company, see Part I, Item 1A. Risk Factorsglobal and diverse nature of our business, we view rates in our Annual Report on Form 10-K, filed with the SEC on March 1, 2017.
Typically, our business benefits from regulatory change, political risk or economic uncertainty. Insurance broking generally tracks the economy, but demand for both insurance broking and consulting services usually remains steady during times of uncertainty. We believe that the U.K. has good long-term growth opportunities and, given that, we believe the impact to Willis Towers Watson will be neutral to slightly positive over the next few years, with some periods of increase and decrease in that time frame. We have some businesses, such as our health and benefits and administration businesses, which can be counter cyclicalcounter-cyclical during the early period of a significant economic change.
Management has considered the uncertainties about the near-term and longer-term effects of Brexit on the Company. The terms of Brexit, the date and manner of its occurrence, and its impact, remain uncertain, and the Company is currently in the process of establishing appropriate arrangements for the continued servicing of client business. For a further discussion of the risks of Brexit to the Company, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K, filed with the SEC on February 27, 2019.
On an annual basis for 2017,2019, although we expect that approximately 22% of our revenuesrevenue will be generated in the U.K., we expect that only about 13%approximately 12% of revenuesrevenue will be denominated in Pounds sterling, as much of the insurance business is transacted in U.S. dollars. We expect that approximately 19%21% of our expenses will be denominated in Pounds sterling; thus, we generally benefit from a weakening Pound sterling in our income from operations. However, westerling. We have a Company hedging strategy for this aspect of our business, which is designed to mitigate significant fluctuations in currency.
The markets for our consulting, technology and solutions, and private exchangemarketplace services are subject to changes as a result of economic, regulatory and legislative changes, technological developments, and increased competition from established and new competitors. We believe that the primary factors in selecting a human resources or risk management consulting firm include reputation, the ability to provide measurable increases to shareholder value and return on investment, global scale, quality of service and the ability to tailor services to clients’ unique needs. With regard to the market for exchanges, we believe that clients base their decisions on a variety of factors that include the ability of the provider to deliver measurable cost savings for clients, a strong reputation for efficient execution and an innovative service delivery model and platform. Part of the employer sponsoredemployer-sponsored insurance market has matured and become more fragmented while other segments remain in the entry phase. As
See Part II, Item 1A. Risk Factors elsewhere within this Form 10-Q, and Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K, filed with the SEC on March 1, 2017February 27, 2019 for a discussion of risks that may affect our ability to compete.
38
Financial Statement Overview
The table below sets forth our summarized condensed consolidated statements of comprehensive income and data as a percentage of revenue for the periods indicated.
|
| Three Months Ended March 31, |
| |||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||
|
| ($ in millions, except per share data) |
| |||||||||||||
Revenue |
| $ | 2,312 |
|
|
| 100 | % |
| $ | 2,292 |
|
|
| 100 | % |
Costs of providing services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
| 1,348 |
|
|
| 58 | % |
|
| 1,377 |
|
|
| 60 | % |
Other operating expenses |
|
| 418 |
|
|
| 18 | % |
|
| 423 |
|
|
| 18 | % |
Depreciation |
|
| 54 |
|
|
| 2 | % |
|
| 49 |
|
|
| 2 | % |
Amortization |
|
| 127 |
|
|
| 5 | % |
|
| 141 |
|
|
| 6 | % |
Transaction and integration expenses |
|
| 6 |
|
|
| — | % |
|
| 43 |
|
|
| 2 | % |
Total costs of providing services |
|
| 1,953 |
|
|
|
|
|
|
| 2,033 |
|
|
|
|
|
Income from operations |
|
| 359 |
|
|
| 16 | % |
|
| 259 |
|
|
| 11 | % |
Interest expense |
|
| (54 | ) |
|
| (2 | )% |
|
| (51 | ) |
|
| (2 | )% |
Other income, net |
|
| 55 |
|
|
| 2 | % |
|
| 56 |
|
|
| 2 | % |
Provision for income taxes |
|
| (67 | ) |
|
| (3 | )% |
|
| (43 | ) |
|
| (2 | )% |
Income attributable to non-controlling interests |
|
| (6 | ) |
|
| — | % |
|
| (6 | ) |
|
| — | % |
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 287 |
|
|
| 12 | % |
| $ | 215 |
|
|
| 9 | % |
Diluted earnings per share |
| $ | 2.20 |
|
|
|
|
|
| $ | 1.61 |
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
($ in millions, except per share data) | |||||||||||||||||||||||||||
Total revenues | $ | 1,852 | 100 | % | $ | 1,777 | 100 | % | $ | 6,124 | 100 | % | $ | 5,960 | 100 | % | |||||||||||
Costs of providing services | |||||||||||||||||||||||||||
Salaries and benefits | 1,145 | 62 | % | 1,119 | 63 | % | 3,484 | 57 | % | 3,519 | 59 | % | |||||||||||||||
Other operating expenses | 366 | 20 | % | 370 | 21 | % | 1,158 | 19 | % | 1,171 | 20 | % | |||||||||||||||
Depreciation | 54 | 3 | % | 45 | 3 | % | 151 | 2 | % | 132 | 2 | % | |||||||||||||||
Amortization | 141 | 8 | % | 157 | 9 | % | 441 | 7 | % | 443 | 7 | % | |||||||||||||||
Restructuring costs | 31 | 2 | % | 49 | 3 | % | 85 | 1 | % | 115 | 2 | % | |||||||||||||||
Transaction and integration expenses | 74 | 4 | % | 36 | 2 | % | 177 | 3 | % | 117 | 2 | % | |||||||||||||||
Total costs of providing services | 1,811 | 1,776 | 5,496 | 5,497 | |||||||||||||||||||||||
Income from operations | 41 | 2 | % | 1 | — | % | 628 | 10 | % | 463 | 8 | % | |||||||||||||||
Interest expense | 47 | 3 | % | 45 | 3 | % | 139 | 2 | % | 138 | 2 | % | |||||||||||||||
Other expense, net | 29 | 2 | % | 14 | 1 | % | 79 | 1 | % | 26 | — | % | |||||||||||||||
Provision for/(benefit from) income taxes | 19 | 1 | % | (26 | ) | (1 | )% | 73 | 1 | % | 11 | — | % | ||||||||||||||
Interest in earnings of associates, net of tax | — | — | % | 1 | — | % | 2 | — | % | 2 | — | % | |||||||||||||||
Income attributable to non-controlling interests | — | — | % | (1 | ) | — | % | (16 | ) | — | % | (12 | ) | — | % | ||||||||||||
NET (LOSS)/INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (54 | ) | (3 | )% | $ | (32 | ) | (2 | )% | $ | 323 | 5 | % | $ | 278 | 5 | % | |||||||||
Diluted (loss)/earnings per share | $ | (0.40 | ) | $ | (0.23 | ) | $ | 2.36 | $ | 2.00 |
Consolidated Revenues
Revenue was approximately $2.3 billion, for both the three months ended September 30, 2017 were $1.9 billion, compared to $1.8 billion for the three months ended September 30, 2016, anMarch 31, 2019 and 2018, with a current year increase of $75$20 million, or 4% on both an as reported and constant currency basis. Revenues for the nine months ended September 30, 2017 were $6.1 billion, compared to $6.0 billion for the nine months ended September 30, 2016, an increase of $164 million or 3%1%. Adjusting for the impact of foreign currency, our organic revenue grew by 4%growth was 5% for the ninethree months ended September 30, 2017.March 31, 2019. The quarterly and year-to-date increasesorganic increase in revenues wererevenue was driven by strong performances in all segments.
Our revenuesrevenue can be materially impacted by changes in currency conversions, which can fluctuate significantly over the course of a calendar year. For the three months ended September 30, 2017, currency translation increased our consolidated revenues by $12 million; for the nine months ended September 30, 2017,March 31, 2019, currency translation decreased our consolidated revenuesrevenue by $81$84 million. The primary currencies driving these changesthis change were the Euro and Pound sterling, the Canadian dollar, and the Euro.
The following table details our top five markets based on the percentage of consolidated revenuesrevenue (in U.S. dollars) from the countries where work iswas performed for the ninethree months ended September 30, 2017.March 31, 2019. These figures do not represent the currency of the related revenue, which is presented in the next table.
Geographic Region | % of Revenue | |||
United States | 41 | % | ||
United Kingdom | 25 | % | ||
France | 7 | % | ||
Germany | 3 | % | ||
Canada | ||||
2 | % | |||
The table below details the percentage of our revenuesrevenue and expenses by transactional currency for the ninethree months ended September 30, 2017.
Transactional Currency | Revenues | Expenses (i) |
| Revenue |
|
| Expenses (i) |
| |||||
U.S. dollars | 55 | % | 51 | % |
|
| 51 | % |
|
| 47 | % | |
Pounds sterling | 13 | % | 19 | % |
|
| 13 | % |
|
| 21 | % | |
Euro | 15 | % | 12 | % |
|
| 21 | % |
|
| 14 | % | |
Other currencies | 17 | % | 18 | % |
|
| 15 | % |
|
| 18 | % |
(i) | |
These percentages exclude certain expenses for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. These items include Merger-related amortization of intangible assets |
39
The following table sets forth the total revenue for the three months ended March 31, 2019 and 2018 and the components of the change in revenues generatedtotal revenue for the three month and nine months ended September 30, 2017 and 2016 areMarch 31, 2019, as follows:compared to the respective prior year period:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Components of Revenue Change (i) |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| As |
|
|
|
|
|
| Constant |
|
|
|
|
|
|
|
|
| ||
|
| Three Months Ended March 31, |
|
| Reported |
|
| Currency |
|
| Currency |
|
| Acquisitions/ |
|
| Organic |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Change |
|
| Impact |
|
| Change |
|
| Divestitures |
|
| Change |
| |||||||
|
| ($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Revenue |
| $ | 2,312 |
|
| $ | 2,292 |
|
| 1% |
|
| (4)% |
|
| 5% |
|
| —% |
|
| 5% |
|
Three Months Ended September 30, | Components of Revenue Change(i) | |||||||||||||||||
2017 | 2016 | As Reported Change | Currency Impact | Constant Currency Change | Acquisitions/Divestitures | Organic Change | ||||||||||||
($ in millions) | ||||||||||||||||||
Total revenues | $ | 1,852 | $ | 1,777 | 4% | 1% | 4% | —% | 4% |
Nine Months Ended September 30, | Components of Revenue Change(i) | |||||||||||||||||
2017 | 2016 | As Reported Change | Currency Impact | Constant Currency Change | Acquisitions/Divestitures | Organic Change | ||||||||||||
($ in millions) | ||||||||||||||||||
Total revenues | $ | 6,124 | $ | 5,960 | 3% | (1)% | 4% | —% | 4% |
(i) | |
Components of revenue change may not add due to rounding. |
Definitions of Constant Currency Change and Organic Change are included under the section entitled Non-GAAP‘Non-GAAP Financial MeasuresMeasures’ elsewhere within Item 2 of this Form 10-Q.
Segment Revenues
The segment descriptions below should be read in conjunction with the full descriptions of our businesses contained in Part I, Item 1. Business, contained inwithin our Annual Report on Form 10-K, filed with the SEC on March 1, 2017, as updated by the Form 8-K filed with the SEC on April 7, 2017.
The Company experiences seasonal fluctuations ofin its commissions and fees revenue. Revenue is typically higher during the Company’s first and fourth quarters due primarily to the timing of broking-related activities.
Human Capital and Benefits (‘HCB’)
The HCB segment provides an array of advice, broking, solutions and software for our clients. HCB is the largest segment of the Company. The segmentCompany, and is focused on addressing our clients’ employeepeople and risk needs so that they can deliver sustainable employee experiences.to help them take on the challenges of operating in a global marketplace. This segment also delivers full outsourcing solutionsservices to employers outside of the United States.
The following table sets forth the components of HCB revenuessegment revenue for the three months ended September 30, 2017March 31, 2019 and 2016, respectively,2018, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2019 from the three months ended September 30, 2016.
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Commissions and fees | $ | 736 | $ | 720 | 2% | 1% | 2% | (1)% | 3% | |||||||||
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Total segment revenues | $ | 736 | $ | 720 |
(i) | |
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HCB commissions and fees, and total segment revenues,revenue for the three months ended September 30, 2017March 31, 2019 and 2016 were $7362018 was $829 million and $720$832 million, respectively. As expected, Retirement commissionsOn an organic basis, Health and fees declined slightlyBenefits delivered significant revenue growth, driven by increased consulting and brokerage services, growth in specialty products, and expansion of our client portfolio for both local and global appointments. Health and Benefits’ revenue growth was bolstered further by revenue reductions in the third quarter due toprior year resulting from the expected decrease in bulk lump sum work ininitial adoption of the U.S. as compared to the third quarter of 2016. Great Britain’s commissions and fees increase was primarily related to pension legislation in the U.K., and International’s commissions and fees increase was due to higher demand for consulting work.new revenue standard, ASC 606. Our Talent and Rewards commissionsbusiness generated moderate revenue growth, resulting from increased product revenue and fees were up slightly as a result of our product offerings and higher demand for change management consulting, offset by a slight decline in rewards advisory projects. Health and Benefits commissions and fees growth was moderate, as we experienced strong growth in Great Britain and Western Europe, with low growth in North America, and a decline in International due primarily to the sale of our Global Wealth Solutions business. Commissions and fees in the Technology and Administration Solutions business experienced strong growth in all regions as a result of new administration clients and project activity.
Components of Revenue Change(i) | ||||||||||||||||||
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Commissions and fees | $ | 2,405 | $ | 2,377 | 1% | (1)% | 2% | —% | 3% | |||||||||
Interest and other income | 15 | 9 | ||||||||||||||||
Total segment revenues | $ | 2,420 | $ | 2,386 |
Corporate Risk and Broking (‘CRB’)
The CRB segment provides a broad range of risk advice, insurance broking and consulting services to clients worldwide ranging from small businesses to multinational corporations. The segment delivers innovative, integrated global solutions tailored to client needs and underpinned by data and analytics. CRB operates as an integrated global team comprising both functional and geographic leadership. In these operations, we have extensive specialized experience handling diverse lines of insurance coverage, including complex risk management programs. A key objective is to assist clients in reducing their overall cost of risk.
40
The following table sets forth the components of CRB revenuesrevenue for the three months ended September 30, 2017March 31, 2019 and 2016, respectively,2018, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2019 from the three months ended September 30, 2016.
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Commissions and fees | $ | 581 | $ | 553 | 5% | 1% | 4% | —% | 4% | |||||||||
Interest and other income | 5 | 8 | ||||||||||||||||
Total segment revenues | $ | 586 | $ | 561 |
(i) | |
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CRB total segment revenuesrevenue for the three months ended September 30, 2017March 31, 2019 and 2016 were $5862018 was $728 million and $561$740 million, respectively. Commissions and fees for the three months ended September 30, 2017 and 2016 were $581 million and $553 million, respectively. As expected,On an organic basis, North America commissions and fees produced strong growth, with all sub-regions showing commissions and fees growth. International continued to have strong commissions and fees growth primarily from Russia, South Africa and Asia.lead the segment, followed by Western Europe had solid growth led by Sweden and Benelux. Great Britain commissions and fees declined slightly as a result of declines in Transport and aInternational, primarily with new business generation along with strong comparable in the prior-year third quarter.
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Nine Months Ended September 30, | As Reported Change | Currency Impact | Constant Currency Change | Acquisitions/Divestitures | Organic Change | |||||||||||||
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Commissions and fees | $ | 1,855 | $ | 1,821 | 2% | (1)% | 3% | —% | 3% | |||||||||
Interest and other income | 16 | 20 | ||||||||||||||||
Total segment revenues | $ | 1,871 | $ | 1,841 |
Investment, Risk and Reinsurance (‘IRR’)
The IRR segment uses a sophisticated approach to risk, which helps clients free up capital and manage investment complexity. TheThis segment works closely with investors, reinsurers and insurers to manage the equation between risk and return. Blending advanced analytics with deep institutional knowledge, IRR identifies new opportunities to maximize performance. IRRThis segment provides investment consulting and discretionary management services and insurance specific services and solutions through reserves opinions, software, ratemaking, usage-based insurance, risk underwriting and reinsurance broking.
The following table sets forth the components of IRR revenuesrevenue for the three months ended September 30, 2017March 31, 2019 and 2016, respectively,2018, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2019 from the three months ended September 30, 2016.
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Commissions and fees | $ | 320 | $ | 312 | 3% | —% | 2% | —% | 2% | |||||||||
Interest and other income | 14 | 7 | ||||||||||||||||
Total segment revenues | $ | 334 | $ | 319 |
(i) | |
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IRR total segment revenuesrevenue for the three months ended September 30, 2017March 31, 2019 and 2016 were $3342018 was $589 million and $319$574 million, respectively. Commissions and fees for the three months ended September 30, 2017 and 2016 were $320 million and $312 million, respectively.On an organic basis, Reinsurance, Insurance Consulting and Technology, formerly RiskUnderwriting and Capital Management, and Max Matthiessen drove the segment’s strong performance. Reinsurance and Underwriting and Capital Management growth was driven by net new business growth and favorable renewal factors while Insurance Consulting and Software, led the growth for the segmentTechnology revenue grew from strong technology sales. Max Matthiessen revenue increased as a result of increased project workoverall growth in Great Britainnet commissions. The segment’s revenue growth was partially offset by a decline in our Wholesale business due to decreased net new business and a soft comparabledecline in Western Europe. Max Matthiessen, WholesaleInvestment revenue, resulting from lower asset-based fees and the Securities business showed commissions and fees growth, primarily as a result of strong sales and increased performance fees. Reinsurance and Investment both experiencedone-time revenue growth, but commissions and fees were flat for both groups. The reduction in Portfolio and Underwriting Services commissions and fees was driven by a loss of profit commissions following the Atlantic hurricanes, the cancellation of a key contract, and the divestiture of small programsitems in the portfolio.
Components of Revenue Change(i) | ||||||||||||||||||
Nine Months Ended September 30, | As Reported Change | Currency Impact | Constant Currency Change | Acquisitions/Divestitures | Organic Change | |||||||||||||
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Commissions and fees | $ | 1,205 | $ | 1,190 | 1% | (2)% | 3% | —% | 3% | |||||||||
Interest and other income | 25 | 55 | ||||||||||||||||
Total segment revenues | $ | 1,230 | $ | 1,245 |
41 million) received for a settlement related to the Fine Arts, Jewellery and Specie Team. Commissions and fees for both the nine months ended September 30, 2017 and 2016 were $1.2 billion. Wholesale, Investment, Insurance Consulting and Technology, Max Matthiessen, Securities and Reinsurance all posted commissions and fees revenue growth, primarily as a result of strong sales and increased performance fees. The reduction in Portfolio and Underwriting Services commissions and fees was driven by a loss of profit commissions following the Atlantic hurricanes, the cancellation of a key contract, and the divestiture of small programs in the portfolio.
Benefits Delivery and Administration (‘BDA’)
The BDA segment formerly known as Exchange Solutions, provides primary medical and ancillary benefit exchange and outsourcing services to active employees and retirees across both the group and individual markets. BDA services individual populations via its ‘group to individual’ technology platform, which tightly integrates patented call routing technology, an efficient quoting and enrollment engine, a custom-developed Customer Relationship Management system and comprehensive insurance carrier connectivity. This segment also delivers group benefit exchanges and full outsourcing solutions serving the active employees of employers across the United States.U.S. BDA uses Software as a Service (‘SaaS’)-based technology and related services to deliver consumer-driven healthcare and reimbursement accounts, including health savings accounts, health reimbursement arrangements, flexible spending accounts and other consumer-directed accounts.
The following table sets forth the components of BDA revenuesrevenue for the three months ended September 30, 2017March 31, 2019 and 2016, respectively,2018, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2019 from the three months ended September 30, 2016.
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Commissions and fees | $ | 179 | $ | 161 | 11% | —% | 11% | —% | 11% | |||||||||
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Total segment revenues | $ | 179 | $ | 161 |
(i) | |
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BDA total segment revenuesrevenue for the three months ended September 30, 2017March 31, 2019 and 2016 were $1792018 was $135 million and $161$122 million, respectively. Individual Marketplace, formerly Retiree and Access Exchanges, commissions and fees increased by 9% and the rest of the segment grew by 15%,BDA’s growth was primarily led by Group Marketplace, formerly Active Exchanges,the continued expansion of its client base and Benefits Outsourcing, formerly Technology and Administration Solutions. Growthincreased demand for project work in the Individualmid-market and Group Marketplaces was a result of the additional 2017 enrollments, and Benefit Outsourcing’s growth was a result of new client wins.
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Nine Months Ended September 30, | As Reported Change | Currency Impact | Constant Currency Change | Acquisitions/Divestitures | Organic Change | |||||||||||||
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Commissions and fees | $ | 536 | $ | 478 | 12% | —% | 12% | —% | 12% | |||||||||
Interest and other income | — | 1 | ||||||||||||||||
Total segment revenues | $ | 536 | $ | 479 |
Costs of Providing Services
Total costs of providing services were $1.8approximately $2.0 billion for both the three months ended September 30, 2017, compared to $1.8 billion for the three months ended September 30, 2016, an increaseMarch 31, 2019 and 2018, with a current year decrease of $35$80 million, or 2%4%. Total costs of providing services were $5.5 billion for the nine months ended September 30, 2017, compared to $5.5 billion for the nine months ended September 30, 2016, a decrease of $1 million. See the analysis belowfollowing discussion for further information.
Salaries and benefits
Salaries and benefits for the three months ended September 30, 2017March 31, 2019 were $1.1$1.3 billion, compared to $1.1$1.4 billion for the three months ended September 30, 2016, an increaseMarch 31, 2018, a decrease of $26 million. This increase$29 million, or 2%, from the prior year. The decrease was primarily a result of higherlower incentive accruals as compared to the prior year.
Other operating expenses
Other operating expenses for the three months ended September 30, 2017March 31, 2019 were $366$418 million, compared to $370$423 million for the three months ended September 30, 2016,March 31, 2018, a decrease of $4$5 million, or 1%. This $4 million decrease was primarily due primarily to lower professional liability, travel and occupancy costs, partially offset by increased professional services expenses. As a result of this cost decrease, other operating expenses as a percentage of revenue decreased from 21% to 20%.
Depreciation
Depreciation for the three months ended September 30, 2017March 31, 2019 was $54 million, compared to $45$49 million for the three months ended September 30, 2016,March 31, 2018, an increase of $9$5 million, or 20%10%. Depreciation for the nine months ended September 30, 2017This increase was $151 million, compared to $132 million for the nine months ended September 30, 2016, an increase of $19 million, or 14%. These increases wereprimarily due primarily to a higher depreciable base of assets resulting from additional assets placed in service during 2016.
Amortization
Amortization for the three months ended September 30, 2017March 31, 2019 was $141$127 million, compared to $157$141 million for the three months ended September 30, 2016,March 31, 2018, a decrease of $16$14 million, or 10%. Amortization for the nine months ended September 30, 2017 was $441 million, compared to $443 million for the nine months ended September 30, 2016, a decrease of $2 million. Our intangible amortization is more heavily weighted to the initial years of the useful lives of the related intangibles, and therefore amortization will continue to decrease over time.
Transaction and integration expenses
Transaction and integration expenses for the three months ended September 30, 2017March 31, 2019 is comprised of $6 million of transaction costs related to the pending acquisition of TRANZACT, compared to $43 million of integration costs for the three months ended March 31, 2018. There were $74no integration costs incurred during 2019 due to the completion of all integration activities in 2018 in connection with the Merger.
42
Income from Operations
Income from operations for the three months ended March 31, 2019 was $359 million, compared to $36$259 million for the three months ended September 30, 2016,March 31, 2018, an increase of $38 million, or 106%. Transaction and integration expenses for the nine months ended September 30, 2017 were $177 million, compared to $117 million for the nine months ended September 30, 2016, an increase of $60 million, or 51%. The increase in expenses primarily related to costs associated with the settlement of the Merger-related appraisal demand lawsuit (see Part I, Item 1. Note 12 - Commitments and Contingencies - Legal Proceedings for additional information), along with costs associated with our other integration activities.
Interest Expense
Interest expense for the three months ended September 30, 2017March 31, 2019 was $47$54 million, compared to $45$51 million for the three months ended September 30, 2016,March 31, 2018, an increase of $2$3 million, or 4%6%. Interest expense for the nine months ended September 30, 2017 was $139 million, compared to $138 million for the nine months ended September 30, 2016, anThis increase of $1 million, or 1%. The increase in interest expense resulted from higher interest rates associated with our additional levelssenior notes offering during the second half of indebtedness.
Other Expense,Income, Net
Other expense,income, net for the three months ended September 30, 2017March 31, 2019 was $29$55 million, compared to $14$56 million for the three months ended September 30, 2016, an increaseMarch 31, 2018, a decrease of $15 million. Other expense, net for$1 million, primarily resulting from decreased pension income, partially offset by the nine months ended September 30, 2017 was $79 million, compared to $26 million forabsence of the nine months ended September 30, 2016, an increaseloss on disposal of $53 million. The additional expense in 2017 as compared tooperations from the prior year related to the impact ofand favorable foreign exchange hedging contracts, unfavorable balance sheet remeasurement and further devaluation ofactivity for the Venezuelan currency. Additionally, during the three months ended September 30, 2017, the Company recorded a loss of $10 million associated with the disposal of the Global Wealth Solutions business.
Provision for/(Benefit from)for Income Taxes
Provision for/(benefit from)for income taxes for the three months ended September 30, 2017March 31, 2019 was a provision of $19$67 million, compared to an income tax benefit of $26$43 million for the three months ended September 30, 2016,March 31, 2018, an increase to income tax expense of $45$24 million. The effective tax rate was (53.0)%18.8% for the three months ended September 30, 2017,March 31, 2019, and 45.9%16.3% for the three months ended September 30, 2016. The (53.0)%March 31, 2018. These effective tax rate for the three months ended September 30, 2017 was the resultrates are calculated using extended values from our condensed consolidated statements of a discretecomprehensive income, and are therefore more precise tax charge for an internal reorganization. Our effective tax rate is generally lowerrates than the U.S. statutory rate of 35%. This is primarily due to our global mix of income, which results in deductions in jurisdictions with high statutory income tax rates.
Net (Loss)/Income Attributable to Willis Towers Watson
Net lossincome attributable to Willis Towers Watson for the three months ended September 30, 2017March 31, 2019 was $54$287 million, compared to $32$215 million for the three months ended September 30, 2016, a net loss increase of $22 million, or 69%. This additional loss resulted from increases in revenues for the quarter being more than offset by increases in the total costs of providing services, provision for income taxes, and other expenses, net.
Liquidity and Capital Resources
Executive Summary
Our principal sources of liquidity are funds generated by operating activities, available cash and cash equivalents and amounts available under our revolving credit facilities or new debt offerings.
Based on our current balance sheets, combinedsheet and cash flows, current market conditions and information available to us at this time, we believe that Willis Towers Watson has access to sufficient liquidity, which includes our undrawn revolving credit facilities, to meet our cash needs for the next twelve months, including investing in the business for growth, creating value through the integration of Willis, Towers Watson and Gras Savoye, scheduled debt repayments and dividend payments, and contemplated share repurchases, subject to market conditions and other factors.
The Company accrues taxes on cumulativerelated to its undistributed earnings of subsidiaries when it expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of our subsidiaries that have been reinvested indefinitely. Assubsidiaries. In 2017, as a result of U.S. Tax Reform, we analyzed our planglobal working capital and cash requirements and the potential tax liabilities attributable to restructure or distribute accumulated earnings ofa repatriation, and changed our assertion with respect to certain acquiredlegacy Towers Watson subsidiaries. For those subsidiaries for which we were able to make a reasonable estimate of the tax effects of such repatriation, we recorded an estimate for foreign operations,withholding and state income taxes. For all other subsidiaries, we continue to accrue deferred taxes on current year earnings of those subsidiaries. However, we assert that the
Events that could change the historical cash flow dynamics discussed above include significant changes in operating results, potential future acquisitions or divestitures, material changes in geographic sources of cash, unexpected adverse impacts from litigation or regulatory matters, or future pension funding during periods of severe downturn in the capital markets.
Assets and liabilities associated with non-U.S. entities have been translated into U.S. dollars as of September 30, 2017March 31, 2019 at U.S. dollar rates that fluctuate compared to historical periods. As a result, cash flows derived from changes in the condensed consolidated balance sheets include the impact of the change in foreign exchange translation rates.
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Cash and Cash Equivalents
Our cash and cash equivalents at September 30, 2017March 31, 2019 totaled $912$992 million, compared to $870 million$1.0 billion at December 31, 2016.2018. The increasedecrease in cash from December 31, 20162018 to September 30, 2017March 31, 2019 was primarily due primarily to foreign currency translation, asnegative cash flows from our operating activities were offset by our investingresulting from a shift in the timing of income tax payments and financing activities.
Additionally, at September 30, 2017, $329March 31, 2019, $977 million was available to draw against our $1.25 billion revolving credit facility as compared to $557 million,$1.1 billion, which was available to draw against our previous $800 million revolving creditthe facility at December 31, 2016.
Included within cash and cash equivalents at September 30, 2017March 31, 2019 and December 31, 20162018 are amounts held for regulatory capital adequacy requirements, including $89$83 million and $87$90 million, respectively, held within our regulated U.K. entities for regulatory capital adequacy requirements.
Summarized Condensed Consolidated Cash Flows
The following table presents the summarized condensed consolidated cash flow information for the ninethree months ended September 30, 2017March 31, 2019 and 2016:
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DECREASE IN CASH AND CASH EQUIVALENTS |
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Effect of exchange rate changes on cash and cash equivalents |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 992 |
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Net cash from/(used in): | |||||||
Operating activities | $ | 515 | $ | 621 | |||
Investing activities | (262 | ) | 283 | ||||
Financing activities | (246 | ) | (659 | ) | |||
INCREASE IN CASH AND CASH EQUIVALENTS | 7 | 245 | |||||
Effect of exchange rate changes on cash and cash equivalents | 35 | (10 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 870 | 532 | |||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 912 | $ | 767 |
Cash Flows (Used In)/From Operating Activities
Cash flows fromused in operating activities were $515$47 million for the ninethree months ended September 30, 2017,March 31, 2019, compared to cash flows from operating activities of $621$18 million for the ninethree months ended September 30, 2016.March 31, 2018. The $515$47 million of net cash fromused in operating activities for the ninethree months ended September 30, 2017March 31, 2019 included net income of $339$293 million adjusted for $579
The $621$18 million of net cash flows from operating activities for the ninethree months ended September 30, 2016March 31, 2018 included net income of $290$221 million, and $498adjusted for $138 million of non-cash adjustments, to reconcile net income to cash provided by operating activities, partiallylargely offset by changes in operating assets and liabilities of $167$341 million.
Cash Flows (Used In)/FromUsed In Investing Activities
Cash flows used in investing activities for the ninethree months ended September 30, 2017March 31, 2019 and 2018 were $262$75 million and $79 million, respectively, primarily driven primarily by capital expenditures and capitalized software costs.
Cash Flows From/(Used In) Financing Activities
Cash flows from investingfinancing activities for the ninethree months ended September 30, 2016March 31, 2019 were $283$82 million. The significant financing activities included net borrowings of $137 million driven primarily by $476 million of cash acquired as a result of the Merger, which was a non-cash transaction as it was consummated throughand proceeds from the issuance of shares. Fixed asset purchases and capitalized costsshares of developing software for internal use totaled $215$22 million, partially offset by dividend payments of $77 million.
Cash flows used in financing activities for the ninethree months ended September 30, 2017March 31, 2018 were $246$24 million. The significant financing activities included the payment of $177 million related to the cancellation of Towers Watson shares in connection with the settlement of the Merger-related appraisal demand lawsuit (consisting of the portion of the settlement equal to the value of consideration that would have been due to the shareholders at the closing of the Merger if they had exchanged their shares; see Part I, Item 1. Note 12 - Commitments and Contingencies - Legal Proceedings for additional information), share repurchases of $462 million and dividend payments of $209$68 million, which were partially offset by net borrowings of $634$40 million.
44
Indebtedness
Total debt, total equity, and the capitalization ratioratios at September 30, 2017March 31, 2019 and December 31, 20162018 were as follows:
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| March 31, 2019 |
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| December 31, 2018 |
| ||
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| ($ in millions) |
| |||||
Long-term debt |
| $ | 4,518 |
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| $ | 4,389 |
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Current debt |
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| 187 |
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| 186 |
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Total debt |
| $ | 4,705 |
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| $ | 4,575 |
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Total Willis Towers Watson shareholders’ equity |
| $ | 10,092 |
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| $ | 9,852 |
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Capitalization ratio |
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| 31.8 | % |
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| 31.7 | % |
September 30, 2017 | December 31, 2016 | ||||||
($ in millions) | |||||||
Long-term debt | $ | 4,493 | $ | 3,357 | |||
Short-term debt and current portion of long-term debt | 85 | 508 | |||||
Total debt | $ | 4,578 | $ | 3,865 | |||
Total Willis Towers Watson shareholders’ equity | $ | 9,915 | $ | 10,065 | |||
Capitalization ratio | 31.6 | % | 27.7 | % |
At September 30, 2017,March 31, 2019, our material mandatory debt repaymentsrepayment over the next twelve months includeis a scheduled repaymentsrepayment of $85$187 million on our term loan maturingoutstanding 7.000% senior notes due in 2019.
As part of the pending acquisition of TRANZACT, the Company has secured financing of up to $1.1 billion in the form of a one-year unsecured term loan. Borrowing will occur in conjunction with the closing of the acquisition, which is expected during the third quarter of 2019.
At September 30, 2017March 31, 2019 and December 31, 2016,2018, we were in compliance with all financial covenants.
Fiduciary Funds
As an intermediary, we hold funds, generally in a fiduciary capacity, for the account of third parties, typically as the result of premiums received from clients that are in transit to insurers and claims due to clients that are in transit from insurers. We report premiums, which are held on account of, or due from, clients as assets with a corresponding liability due to the insurers. Claims held by, or due to us, which are due to clients, are also shown as both Fiduciary assets and Fiduciary liabilities on our condensed consolidated balance sheets.
Fiduciary funds are generally required to be kept in regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity; such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with clients and insurers, the Company is entitled to retain investment income earned on fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.
At September 30, 2017March 31, 2019 and December 31, 2016,2018, we had fiduciary funds of $3.1$3.5 billion and
Share Repurchase Program
The Company is authorized to repurchase shares, by way of redemption, and will consider whether to do so from time to time, based on many factors, including market conditions. There are no expiration dates for our repurchase plans or programs. At September 30, 2017,March 31, 2019, approximately $671$399 million remained on the current repurchase authority. The maximum number of shares that could be repurchased based on the closing price of our ordinary shares on September 30, 2017March 29, 2019 of $154.23$175.65 was 4,351,419.
There are no expiration dates for the repurchase plans or programs. During the three and nine months ended September 30, 2017,March 31, 2019, the Company had the followingno share repurchase activity:
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||
Shares repurchased | 1,116,645 | 3,354,482 | |||
Average price per share | $148.83 | $137.72 | |||
Aggregate repurchase cost (excluding broker costs) | $166 million | $462 million |
Capital Commitments
Capital expenditures for fixed assets and software for internal use were $198$57 million during the ninethree months ended September 30, 2017.March 31, 2019. The Company estimates that there will be additional such expenditures of approximately $75$190 million during the remainder of 2017.2019. We expect cash from operations to adequately provide for these cash needs. There have been no material changes to our capital commitments since December 31, 2016.
Dividends
Total cash dividends of $209$77 million were paid during the ninethree months ended September 30, 2017.March 31, 2019. In September 2017,February 2019, the board of directors declaredapproved a quarterly cash dividend of $0.53$0.65 per share ($2.122.60 per share annualized rate), which was paid on October 16, 2017April 15, 2019 to shareholders of record as of September 30, 2017.
45
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Transactions
As of January 1, 2019, in accordance with ASC 842, we recognized operating lease commitments on the condensed consolidated balance sheet, which were previously an off-balance sheet arrangement (see Note 12 — Leases for further information). Other than this change, see Part II, Item 7. ‘Off-Balance Sheet Arrangements and Contractual Obligations’ in our Annual Report on Form 10-K, filed with the SEC on March 1, 2017,February 27, 2019, for a discussion pertaining to off-balance sheet transactions.
Contractual Obligations
Material changes to our other contractual obligations since we filed our Annual Report on Form 10-K with the SEC on March 1, 2017,February 27, 2019 are discussed in Note 9 — Debt and Note 11 — Retirement Benefits.
Non-GAAP Financial Measures
In order to assist readers of our condensed consolidated financial statements in understanding the core operating results that Willis Towers Watson’s management uses to evaluate the business and for financial planning purposes, we present the following non-GAAP measures and their most directly comparable U.S. GAAP measure:
Most Directly Comparable U.S. GAAP Measure | Non-GAAP Measure | |
As reported change | Constant currency change | |
As reported change | Organic change | |
Income from operations | Adjusted operating income | |
Net income | Adjusted EBITDA | |
Net income attributable to Willis Towers Watson | Adjusted net income | |
Diluted earnings per share | Adjusted diluted earnings per share | |
Income from operations before income taxes | Adjusted income before taxes | |
Provision for income taxes/U.S. GAAP tax rate | Adjusted income taxes/tax rate | |
Net cash from operating activities | Free cash flow |
The Company believes that these measures are relevant and provide useful information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating performance, and in the case of free cash flow, our liquidity results.
Within thesethe measures referred to as ‘adjusted’, we have adjustedadjust for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. Some of these items may not be applicable for the current quarter, however they are expected to be part of our full-year results. These items include the following:
• | Transaction and integration expenses - Management believes it is appropriate to adjust for transaction and integration expenses when they relate to a specific significant program with a defined set of activities and costs that are not expected to continue beyond a defined period of time, or significant acquisition-related transaction expenses. We believe the adjustment is necessary to present how the Company is performing, both now and in the future when the incurrence of these costs will have concluded. |
• | Gains and losses on disposals of operations - Adjustment to remove the gain or loss resulting from disposed operations. |
• | Pension settlement and curtailment gains and losses - Adjustment to remove significant pension settlement and curtailment gains and losses to better present how the Company is performing. |
• | Provisions for significant litigation - We will include provisions for litigation matters which we believe are not representative of our core business operations. |
46
• | Tax effects of internal reorganization - Relates to the U.S. income tax expense resulting from the completion of internal reorganizations of the ownership of certain businesses that reduced the investments held by our U.S.-controlled subsidiaries. |
These non-GAAP measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP measures should be considered in addition to, and not as a substitute for, the information contained within our condensed consolidated financial statements.
Constant Currency Change and Organic Change
We evaluate our revenuesrevenue on an as reported (U.S. GAAP), constant currency and organic basis. We believe providingpresenting constant currency and organic information provides valuable supplemental information regarding our comparable results, consistent with how we evaluate our performance internally.
• | Constant currency change - Represents the year-over-year change in revenue excluding the impact of foreign currency fluctuations. To calculate this impact, the prior year local currency results are first translated using the current year monthly average exchange rates. The change is calculated by comparing the prior year revenue, translated at the current year monthly average exchange rates, to the current year as reported revenue, for the same period. We believe constant currency measures provide useful information to investors because they provide transparency to performance by excluding the effects that foreign currency exchange rate fluctuations have on period-over-period comparability given volatility in foreign currency exchange markets. |
• | Organic change - Excludes the impact of fluctuations in foreign currency exchange rates as described above and the period-over-period impact of acquisitions and divestitures on current-year revenue. We believe that excluding transaction-related items from our U.S. GAAP financial measures provides useful supplemental information to our investors, and it is important in illustrating what our core operating results would have been had we not included these transaction-related items, since the nature, size and number of these transaction-related items can vary from period to period. |
The constant currency and organic change results, and a reconciliation from the reported results for consolidated revenuesrevenue are included in the Consolidated RevenuesRevenue section within this Form 10-Q. These measures are also reported by segment in the Segment RevenuesRevenue section within this Form 10-Q.
A reconciliation of the reported changes to the constant currency and organic changes for the three and nine months ended September 30, 2017 areMarch 31, 2019 from the three months ended March 31, 2018 is as follows:
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| Components of Revenue Change (i) |
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| As |
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| Constant |
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| Three Months Ended March 31, |
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| Reported |
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| Currency |
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| Currency |
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| Acquisitions/ |
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| Organic |
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| 2019 |
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| 2018 |
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| Change |
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| Impact |
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| Change |
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| Divestitures |
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| Change |
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| ($ in millions) |
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Revenue |
| $ | 2,312 |
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| $ | 2,292 |
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| 1% |
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| (4)% |
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| 5% |
|
| —% |
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| 5% |
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Components of Revenue Change(i) | ||||||||||||||||||
Three Months Ended September 30, | As Reported Change | Currency Impact | Constant Currency Change | Acquisitions/Divestitures | Organic Change | |||||||||||||
2017 | 2016 | |||||||||||||||||
($ in millions) | ||||||||||||||||||
Total revenues | $ | 1,852 | $ | 1,777 | 4% | 1% | 4% | —% | 4% |
(i) | |
Components of revenue change may not add due to rounding. |
Components of Revenue Change | ||||||||||||||||||
Nine Months Ended September 30, | As Reported Change | Currency Impact | Constant Currency Change | Acquisitions/Divestitures | Organic Change | |||||||||||||
2017 | 2016 | |||||||||||||||||
($ in millions) | ||||||||||||||||||
Total revenues | $ | 6,124 | $ | 5,960 | 3% | (1)% | 4% | —% | 4% | |||||||||
Fair value adjustment for deferred revenue | — | 58 | ||||||||||||||||
Adjusted revenues | $ | 6,124 | $ | 6,018 | 2% | (1)% | 3% | —% | 3% |
Adjusting for the impacts of foreign currency and acquisitions and disposals in the calculation of our organic activity, our revenue grew by 5% for the three months ended March 31, 2019. This organic increase in revenue was driven by strong performances in all segments.
Adjusted Operating Income
We consider adjusted operating income to be an important financial measure, which is used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.
47
Adjusted operating income is defined as income from operations adjusted for amortization, restructuring costs, transaction and integration expenses the fair value adjustment for deferred revenue and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results.
Reconciliations of income from operations to adjusted operating income for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
| Three Months Ended March 31, |
| |||||
| 2019 |
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| 2018 |
| ||
| (in millions) |
| |||||
Income from operations | $ | 359 |
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| $ | 259 |
|
Adjusted for certain items: |
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Amortization |
| 127 |
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|
| 141 |
|
Transaction and integration expenses |
| 6 |
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|
| 43 |
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Adjusted operating income | $ | 492 |
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| $ | 443 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in millions) | |||||||||||||||
Income from operations | $ | 41 | $ | 1 | $ | 628 | $ | 463 | |||||||
Adjusted for certain items: | |||||||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||
Provision for the Stanford litigation | — | — | — | 50 | |||||||||||
Fair value adjustment for deferred revenue | — | — | — | 58 | |||||||||||
Adjusted operating income | $ | 287 | $ | 243 | $ | 1,331 | $ | 1,246 |
Adjusted operating income increased for the three months ended September 30, 2017March 31, 2019 to $287$492 million, compared to $243from $443 million for the three months ended September 30, 2016, as a result of strongMarch 31, 2018. This increase was primarily due to lower operating expenses and organic revenue growth during the quarter from increased client demand.
Adjusted EBITDA
We consider adjusted EBITDA to be an important financial measure, which is used internally to evaluate and assess our core operations, to benchmark our operating results against our competitors and to evaluate and measure our performance-based compensation plans.
Adjusted EBITDA is defined as net income/(loss)income adjusted for provision for income taxes, interest expense, depreciation and amortization, restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, (gain)/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results.
Reconciliations of net (loss)/income to adjusted EBITDA for the three and nine months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
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| Three Months Ended March 31, |
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| 2019 |
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| 2018 |
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| (in millions) |
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NET INCOME |
| $ | 293 |
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| $ | 221 |
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Provision for income taxes |
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| 67 |
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| 43 |
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Interest expense |
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| 54 |
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| 51 |
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Depreciation |
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| 54 |
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| 49 |
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Amortization |
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| 127 |
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| 141 |
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Transaction and integration expenses |
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| 6 |
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| 43 |
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Loss on disposal of operations |
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| — |
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| 9 |
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Adjusted EBITDA |
| $ | 601 |
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| $ | 557 |
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Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in millions) | |||||||||||||||
NET (LOSS)/INCOME | $ | (54 | ) | $ | (31 | ) | $ | 339 | $ | 290 | |||||
Provision for/(benefit from) income taxes | 19 | (26 | ) | 73 | 11 | ||||||||||
Interest expense | 47 | 45 | 139 | 138 | |||||||||||
Depreciation | 54 | 45 | 151 | 132 | |||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||
Provision for the Stanford litigation | — | — | — | 50 | |||||||||||
Fair value adjustment for deferred revenue | — | — | — | 58 | |||||||||||
Loss/(gain) on disposal of operations | 10 | — | 10 | (2 | ) | ||||||||||
Venezuela currency devaluation | — | — | 2 | — | |||||||||||
Adjusted EBITDA | $ | 322 | $ | 275 | $ | 1,417 | $ | 1,352 |
Adjusted EBITDA for the three months ended September 30, 2017March 31, 2019 was $322$601 million, compared to $275$557 million for the three months ended September 30, 2016. RevenueMarch 31, 2018. This increase was primarily due to lower operating expenses and organic revenue growth from increased client demand, driven byacross all segments, was partially offset by adverse foreign currency movements.
Adjusted Net Income and Adjusted Diluted Earnings Per Share
Adjusted net income is defined as net income/(loss)income attributable to Willis Towers Watson adjusted for amortization, restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, (gain)/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results, and the related tax effect of those adjustments.adjustments and the tax effects of internal reorganizations. This measure is used solely for the purpose of calculating adjusted diluted earnings per share.
Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted averageweighted-average number of shares of common stock, diluted. Adjusted diluted earnings per share is used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.
Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
($ in millions) | |||||||
NET LOSS ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | (54 | ) | $ | (32 | ) | |
Adjusted for certain items: | |||||||
Amortization | 141 | 157 | |||||
Restructuring costs | 31 | 49 | |||||
Transaction and integration expenses | 74 | 36 | |||||
Loss on disposal of operations | 10 | — | |||||
Tax effect on certain items listed above (i) | (74 | ) | (67 | ) | |||
Tax effects of internal reorganization | 22 | — | |||||
Adjusted net income | $ | 150 | $ | 143 | |||
Weighted average shares of common stock — diluted | 134 | 138 | |||||
Diluted loss per share | $ | (0.40 | ) | $ | (0.23 | ) | |
Adjusted for certain items: | |||||||
Amortization | 1.05 | 1.14 | |||||
Restructuring costs | 0.23 | 0.36 | |||||
Transaction and integration expenses | 0.55 | 0.26 | |||||
Loss on disposal of operations | 0.08 | — | |||||
Tax effect on certain items listed above (i) | (0.55 | ) | (0.49 | ) | |||
Tax effects of internal reorganization | 0.16 | — | |||||
Adjusted diluted earnings per share | $ | 1.12 | $ | 1.04 |
48
Reconciliations of net income attributable to Willis Towers Watson to adjusted diluted earnings per share for the ninethree months ended September 30, 2017 March 31, 2019and 2016, respectively,2018 are as follows:
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| Three Months Ended March 31, |
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| 2019 |
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| 2018 |
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| ($ in millions) |
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NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 287 |
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| $ | 215 |
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Adjusted for certain items: |
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Amortization |
|
| 127 |
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| 141 |
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Transaction and integration expenses |
|
| 6 |
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| 43 |
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Loss on disposal of operations |
|
| — |
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| 9 |
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Tax effect on certain items listed above (i) |
|
| (32 | ) |
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| (47 | ) |
Adjusted net income |
| $ | 388 |
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| $ | 361 |
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Weighted-average shares of common stock — diluted |
|
| 130 |
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| 133 |
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Diluted earnings per share |
| $ | 2.20 |
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| $ | 1.61 |
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Adjusted for certain items (ii) : |
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Amortization |
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| 0.97 |
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| 1.06 |
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Transaction and integration expenses |
|
| 0.05 |
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| 0.32 |
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Loss on disposal of operations |
|
| — |
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|
| 0.07 |
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Tax effect on certain items listed above (i) |
|
| (0.25 | ) |
|
| (0.35 | ) |
Adjusted diluted earnings per share |
| $ | 2.98 |
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| $ | 2.71 |
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Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
($ in millions) | |||||||
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 323 | $ | 278 | |||
Adjusted for certain items: | |||||||
Amortization | 441 | 443 | |||||
Restructuring costs | 85 | 115 | |||||
Transaction and integration expenses | 177 | 117 | |||||
Provision for the Stanford litigation | — | 50 | |||||
Fair value adjustment for deferred revenue | — | 58 | |||||
Loss/(gain) on disposal of operations | 10 | (2 | ) | ||||
Venezuela currency devaluation | 2 | — | |||||
Tax effect on certain items listed above (i) | (219 | ) | (221 | ) | |||
Tax effects of internal reorganization | 41 | — | |||||
Adjusted net income | $ | 860 | $ | 838 | |||
Weighted average shares of common stock — diluted | 137 | 139 | |||||
Diluted earnings per share | $ | 2.36 | $ | 2.00 | |||
Adjusted for certain items: | |||||||
Amortization | 3.23 | 3.19 | |||||
Restructuring costs | 0.62 | 0.83 | |||||
Transaction and integration expenses | 1.30 | 0.84 | |||||
Provision for the Stanford litigation | — | 0.36 | |||||
Fair value adjustment for deferred revenue | — | 0.42 | |||||
Loss/(gain) on disposal of operations | 0.07 | (0.02 | ) | ||||
Venezuela currency devaluation | 0.02 | — | |||||
Tax effect on certain items listed above (i) | (1.60 | ) | (1.59 | ) | |||
Tax effects of internal reorganization | 0.30 | — | |||||
Adjusted diluted earnings per share | $ | 6.30 | $ | 6.03 |
(i) | |
The tax effect was calculated using an effective tax rate for each item. |
(ii) | Per share values and totals may differ due to rounding. |
Our adjusted diluted earnings per share benefited from thisincreased for the three months ended March 31, 2019 as compared to the prior year primarily due to lower operating expenses and organic revenue growth.
Adjusted Income Before Taxes and Adjusted Income Taxes/Tax Rate
Adjusted income before taxes is defined as income from operations before income taxes and interest in earnings of associates adjusted for amortization, restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, (gain)/loss on disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted income before taxes is used solely for the purpose of calculating the adjusted income tax rate.
Adjusted income taxes/tax rate is defined as the provision for/(benefit from)for income taxes adjusted for taxes on certain items of amortization, restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, (gain)/loss on disposal of operations, the tax effects of internal reorganizationreorganizations and non-recurring items that, in management’s judgment,
Management believes that the adjusted income tax rate presents a rate that is more closely aligned to the rate that we would incur if not for the reduction of pre-tax income for the adjusted items and the tax effects of our internal reorganization, which are not core to our current and future operations.
49
Reconciliations of income/(loss)income from operations before income taxes and interest in earnings of associates to adjusted income before taxes and provision for/(benefit from)for income taxes to adjusted income taxes for the three and nine months ended September 30, 2017March 31, 2019 and 2016, respectively,2018 are as follows:
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| Three Months Ended March 31, |
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| 2019 |
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| 2018 |
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| ($ in millions) |
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INCOME FROM OPERATIONS BEFORE INCOME TAXES |
| $ | 360 |
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| $ | 264 |
|
Adjusted for certain items: |
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|
|
|
|
|
|
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Amortization |
|
| 127 |
|
|
| 141 |
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Transaction and integration expenses |
|
| 6 |
|
|
| 43 |
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Loss on disposal of operations |
|
| — |
|
|
| 9 |
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Adjusted income before taxes |
| $ | 493 |
|
| $ | 457 |
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|
|
|
|
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|
|
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Provision for income taxes |
| $ | 67 |
|
| $ | 43 |
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Tax effect on certain items listed above (i) |
|
| 32 |
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|
| 47 |
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Adjusted income taxes |
| $ | 99 |
|
| $ | 90 |
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U.S. GAAP tax rate |
|
| 18.8 | % |
|
| 16.3 | % |
Adjusted income tax rate |
|
| 20.1 | % |
|
| 19.7 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
($ in millions) | |||||||||||||||
(LOSS)/INCOME FROM OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | $ | (35 | ) | $ | (58 | ) | $ | 410 | $ | 299 | |||||
Adjusted for certain items: | |||||||||||||||
Amortization | 141 | 157 | 441 | 443 | |||||||||||
Restructuring costs | 31 | 49 | 85 | 115 | |||||||||||
Transaction and integration expenses | 74 | 36 | 177 | 117 | |||||||||||
Provision for the Stanford litigation | — | — | — | 50 | |||||||||||
Fair value adjustment for deferred revenue | — | — | — | 58 | |||||||||||
Loss/(gain) on disposal of operations | 10 | — | 10 | (2 | ) | ||||||||||
Venezuela currency devaluation | — | — | 2 | — | |||||||||||
Adjusted income before taxes | $ | 221 | $ | 184 | $ | 1,125 | $ | 1,080 | |||||||
Provision for/(benefit from) income taxes | $ | 19 | $ | (26 | ) | $ | 73 | $ | 11 | ||||||
Tax effect on certain items listed above(i) | 74 | 67 | 219 | 221 | |||||||||||
Tax effects of internal reorganization | (22 | ) | — | (41 | ) | — | |||||||||
Adjusted income taxes | $ | 71 | $ | 41 | $ | 251 | $ | 232 | |||||||
U.S. GAAP tax rate | (53.0 | )% | 45.9 | % | 17.7 | % | 3.5 | % | |||||||
Adjusted income tax rate | 32.1 | % | 22.2 | % | 22.3 | % | 21.4 | % |
(i) | |
The tax effect was calculated using an effective tax rate for each item. |
Our U.S. GAAP tax rate is generally lower than the U.S. statutory tax rate of 35%. This is primarily due to our global mix of income, which results in deductions in jurisdictions with high statutory income tax rates. Our U.S. GAAP tax rate was (53.0)%rates were 18.8% and 45.9%16.3% for the three months ended September 30, 2017March 31, 2019 and 2016, respectively, and 17.7% and 3.5%2018, respectively. The increase in the U.S. GAAP tax rate for the ninethree months ended September 30, 2017 and 2016, respectively.
Our adjusted income tax rates were 32.1%20.1% and 22.2%19.7% for the three months ended September 30, 2017March 31, 2019 and 2016, respectively, and 22.3% and 21.4% for the nine months ended September 30, 2017 and 2016,2018, respectively. The increase in the adjusted tax rate for the three and nine months ended September 30, 2017 was primarily due to a prior year tax benefit resulting from an enacted statutory tax rate reduction in the U.K.
Free Cash Flow
Free cash flow is defined as cash flows (used in)/from operating activities less cash used to purchase fixed assets and software for internal useuse. Free cash flow is a liquidity measure and is usednot meant to evaluaterepresent residual cash flow available for discretionary expenditures.Management believes that free cash flow presents the core operating performance and cash generating capabilities of our liquidity.
Reconciliations of cash flows (used in)/from operating activities to free cash flow for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (in millions) |
| |||||
Cash flows (used in)/from operating activities |
| $ | (47 | ) |
| $ | 18 |
|
Less: Additions to fixed assets and software for internal use |
|
| (57 | ) |
|
| (65 | ) |
Free cash flow |
| $ | (104 | ) |
| $ | (47 | ) |
Nine Months Ended September 30, | |||||||
2017 | 2016(i) | ||||||
(in millions) | |||||||
Cash flows from operating activities | $ | 515 | $ | 621 | |||
Less: Additions to fixed assets and software for internal use | (198 | ) | (151 | ) | |||
Free cash flow | $ | 317 | $ | 470 |
The decrease in free cash flows in 2017 as compared to 20162019 primarily resulted from higher capital expenditures, unfavorable changesa shift in working capital and higher discretionary compensation payments made in 2017 for the 2016 compensation cycle. These discretionary compensation payments were lower in 2016 because they included only a partial payment to Legacy Towers Watson colleagues due to the timing of income tax payments and pension contributions and higher bonus payments in the Merger.
Critical Accounting Policies and Estimates
There were no material changes from the Critical Accounting Policies and Estimates disclosed in our 20162018 Annual Report on Form 10-K, filed with the SEC on March 1, 2017.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have considered changes in our exposure to market risks during the ninethree months ended September 30, 2017March 31, 2019 and have determined that there have been no material changes to our exposure to market risks from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2018, filed with the SEC on February 27, 2019.
However, as described in our Form 10-K, we are exposed to interest rate risk. Specifically, as a result of our operating activities, we receive cash for premiums and claims which we deposit in short-term investments denominated in U.S. dollars and other currencies. We earn interest on these funds, which is included in our condensed consolidated financial statements as interest income. These funds are regulated in terms of access and the instruments in which they may be invested, most of which are short-term in maturity. At March 1, 2017.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2017,March 31, 2019, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (‘CEO’) and the Chief Financial Officer (‘CFO’), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined by Exchange Act Rule 13a-15(e). Based upon that evaluation, the CEO and the CFO concluded that the Company’s disclosure controls and procedures are effective in ensuring that the information required to be included in the Company’s periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the CEO and the CFO, as appropriate, to allow for timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no other changes in ourthe Company’s internal controlcontrols over financial reporting during the quarter ended September 30, 2017March 31, 2019 that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will necessarily prevent all errors and all fraud. However, management does expect that the control system provides reasonable assurance that its objectives will be met. A control system, no matter how well designed and operated, cannot provide absolute assurance that the control system’s objectives will be met. In addition, the design of such internal controls must take into account the costs of designing and maintaining such a control system. Certain inherent limitations exist in control systems to make absolute assurances difficult, including the realities that judgments in decision-making can be faulty, that breakdowns can occur because of a simple error or mistake, and that individuals can circumvent controls. The design of any control system is based in part upon existing business conditions and risk assessments. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in business conditions or deterioration in the degree of compliance with policies or procedures. As a result, they may require change or revision. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected. Nevertheless, the disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives, and the CEO and CFO have concluded that the disclosure controls and procedures are effective at a reasonable assurance level.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to various lawsuits, arbitrations or mediations that arise in the ordinary course of business. The disclosure called for by Part II, Item 1. regarding our legal proceedings is incorporated by reference herein from Part I, Item 1.
ITEM 1A. RISK FACTORS
Except as described below, there are no material changes from risk factors as previously disclosed in our Annual Report on Form 10-K, filed with the SEC on March 1, 2017.February 27, 2019. We urge you to read the risk factors contained in our Annual Report.
Our pending acquisition of TRANZACT may create incremental business, regulatory and reputational risks.
On March 30, 2019, the Company entered into an agreement to acquire TRANZACT, a U.S.-based direct-to-consumer health care organization that links individuals to US insurance carriers. The TRANZACT acquisition entails important risks, including the following, among others: the risk that we are unable to obtain requisite regulatory approvals or the satisfaction of other conditions to the consummation of the proposed transaction on the proposed terms and schedule, if at all; the risk that we are unable to successfully integrate TRANZACT’S operations and employees and realize its benefits, including the acceleration of our direct-to-consumer strategy at the times and to the extent anticipated; the potential impact of the consummation of the proposed transaction on relationships, including with employees, suppliers, clients and competitors; the risk of material changes in U.S. health care regulation; changes in general economic, business and political conditions, including changes in the financial markets; significant competition in the marketplace; and compliance with extensive government regulation. For a further discussion of risks relating to our Benefits and Delivery Administration segment, and with respect to acquisitions generally, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K, filed with the SEC on February 27, 2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the ninethree months ended September 30, 2017,March 31, 2019, no shares were issued by the Company without registration under the Securities Act of 1933, as amended.
(c) Issuer Purchases of Equity Securities
The Company is authorized to repurchase shares, by way of redemption, and will consider whether to do so from time to time, based on many factors, including market conditions.
There was no share repurchase activity during the Company’s repurchases of ordinary shares in the third quarter of 2017 and the Company’s repurchase authority.
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs | ||||||||
July 1, 2017 through July 31, 2017 | 407,175 | $ | 146.74 | 407,175 | 5,060,889 | |||||||
August 1, 2017 through August 31, 2017 | 403,880 | $ | 149.24 | 403,880 | 4,657,009 | |||||||
September 1, 2017 through September 30, 2017 | 305,590 | $ | 151.07 | 305,590 | 4,351,419 | |||||||
1,116,645 | $ | 148.83 | 1,116,645 |
The maximum number of shares that may yet be purchased under the existing stock repurchase plan is 4,351,419.2,271,829. At September 30, 2017,March 31, 2019, approximately $671$399 million remained on the current open-ended repurchase authoritiesauthority granted by the board. An estimate of the maximum number of shares under the existing authorityauthorities was determined using the closing price of our ordinary shares on September 30, 2017March 29, 2019 of $154.23.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
Exhibit Number | ||
Description of Exhibit | ||
4.1 | ||
10.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
101.INS | XBRL Instance | |
101.SCH | XBRL Taxonomy Extension Schema Document* | |
101.CAL | ||
101.DEF | ||
101.LAB | ||
101.PRE |
* | Filed or furnished herewith. |
† | Management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Willis Towers Watson Public Limited Company | ||||
(Registrant) | ||||
/s/ John J. Haley | May 3, 2019 | |||
Name: | John J. Haley | Date | ||
Title: | Chief Executive Officer | |||
/s/ Michael J. Burwell | May 3, 2019 | |||
Name: | Michael J. Burwell | Date | ||
Title: | Chief Financial Officer | |||
/s/ Susan D. Davies | May 3, 2019 | |||
Name: | Susan D. Davies | Date | ||
Title: | Principal Accounting Officer and Controller |
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