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) |
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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ☑ No ¨
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
As of November 1, 2017,April 27, 2020, there were outstanding 132,038,819128,735,691 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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50 | ||
51 |
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 | |
‘ | 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 exit from the European Union, which occurred on January 31, 2020. | |
‘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 | |
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, impact of the COVID-19 pandemic on our business, our pending business combination with Aon plc, future capital expenditures, ongoing working capital efforts, future share repurchases, growth in commissionsrevenue, the impact of changes to tax laws on our financial results, existing and fees,evolving business strategies and planned acquisitions (including the acquisitions of TRANZACT and Unity Group) and dispositions, demand for our services andcompetitive strengths, goals, the benefits of new initiatives, growth of our business and operations, our ability to successfully manage ongoing organizational and technology changes, including investments in improving systems and processes, and 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 consulting services, defined benefit pension plans or the purchasing of insurance; |
• | changes in general economic, business and political conditions, including changes in the financial markets; |
• | the risk that the COVID-19 pandemic materially and adversely impacts the demand for our products and services and cash flows, and/or continues to materially impact our business operations; |
• | the risks relating to our pending business combination with Aon plc announced in March 2020, including, among others, our ability to consummate the transaction, including on the terms of the business combination agreement, on the anticipated timeline, and/or with the required shareholder and regulatory approvals; |
• | 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 failure to protect client data or breaches of information systems or insufficient safeguards against cybersecurity breaches or incidents; |
• | 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 the Stanford litigation settlement approval will be overturned on appeal, the risk that the Stanford bar order may be challenged in other jurisdictions, and the risk that the charge related to the Stanford settlement may not be 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 impacts 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 the recently-completed acquisitions of TRANZACT and Unity Group); |
• | our ability to integrate direct-to-consumer sales and marketing solutions with our existing offerings and solutions; |
• | our ability to comply with complex and evolving regulations related to data privacy and cyber security; |
• | our ability to successfully manage ongoing organizational changes, including investments in improving systems and processes; |
• | disasters or business continuity problems; |
• | the impact of Brexit; |
• | our ability to successfully enhance our billing, collection and other working capital efforts, and thereby increase our free cash flow; |
• | the potential impact of the change in the method for determining the London Interbank Offered Rate (‘LIBOR’); |
• | our ability to properly identify and manage conflicts of interest; |
• | reputational damage, including from association with third parties; |
• | reliance on third-party services; |
• | the loss of key employees; |
• | doing business internationally, including the impact of exchange rates; |
• | compliance with extensive government regulation; |
• | the risk of sanctions imposed by governments, or changes to associated sanction regulations; |
• | our ability to effectively apply technology, data and analytics changes for internal operations, maintaining industry standards and meeting client preferences; |
• | changes and developments in the insurance industry or the U.S. healthcare system, including those related to Medicare; |
• | the risk that we may not be able to repurchase the intended number of outstanding shares due to M&A 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 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 regulatory and 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 or assumptions; |
• | fluctuation in revenue against our relatively fixed or higher than expected expenses; |
• | the laws of Ireland being different from the laws of the U.S. 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.
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, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenue |
| $ | 2,466 |
|
| $ | 2,312 |
|
Costs of providing services |
|
|
|
|
|
|
|
|
Salaries and benefits |
|
| 1,394 |
|
|
| 1,348 |
|
Other operating expenses |
|
| 484 |
|
|
| 418 |
|
Depreciation |
|
| 98 |
|
|
| 54 |
|
Amortization |
|
| 121 |
|
|
| 127 |
|
Transaction and integration expenses |
|
| 9 |
|
|
| 6 |
|
Total costs of providing services |
|
| 2,106 |
|
|
| 1,953 |
|
Income from operations |
|
| 360 |
|
|
| 359 |
|
Interest expense |
|
| (61 | ) |
|
| (54 | ) |
Other income, net |
|
| 92 |
|
|
| 55 |
|
INCOME FROM OPERATIONS BEFORE INCOME TAXES |
|
| 391 |
|
|
| 360 |
|
Provision for income taxes |
|
| (78 | ) |
|
| (67 | ) |
NET INCOME |
|
| 313 |
|
|
| 293 |
|
Income attributable to non-controlling interests |
|
| (8 | ) |
|
| (6 | ) |
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 305 |
|
| $ | 287 |
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 2.36 |
|
| $ | 2.21 |
|
Diluted earnings per share |
| $ | 2.34 |
|
| $ | 2.20 |
|
|
|
|
|
|
|
|
|
|
Comprehensive income before non-controlling interests |
| $ | 93 |
|
| $ | 315 |
|
Comprehensive income attributable to non-controlling interests |
|
| (7 | ) |
|
| (5 | ) |
Comprehensive income attributable to Willis Towers Watson |
| $ | 86 |
|
| $ | 310 |
|
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
WILLIS TOWERS WATSON
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 898 |
|
| $ | 887 |
|
Fiduciary assets |
|
| 15,589 |
|
|
| 13,004 |
|
Accounts receivable, net |
|
| 2,594 |
|
|
| 2,621 |
|
Prepaid and other current assets |
|
| 469 |
|
|
| 525 |
|
Total current assets |
|
| 19,550 |
|
|
| 17,037 |
|
Fixed assets, net |
|
| 974 |
|
|
| 1,046 |
|
Goodwill |
|
| 11,162 |
|
|
| 11,194 |
|
Other intangible assets, net |
|
| 3,360 |
|
|
| 3,478 |
|
Right-of-use assets |
|
| 906 |
|
|
| 968 |
|
Pension benefits assets |
|
| 915 |
|
|
| 868 |
|
Other non-current assets |
|
| 860 |
|
|
| 835 |
|
Total non-current assets |
|
| 18,177 |
|
|
| 18,389 |
|
TOTAL ASSETS |
| $ | 37,727 |
|
| $ | 35,426 |
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Fiduciary liabilities |
| $ | 15,589 |
|
| $ | 13,004 |
|
Deferred revenue and accrued expenses |
|
| 1,329 |
|
|
| 1,784 |
|
Current debt |
|
| 697 |
|
|
| 316 |
|
Current lease liabilities |
|
| 151 |
|
|
| 164 |
|
Other current liabilities |
|
| 858 |
|
|
| 802 |
|
Total current liabilities |
|
| 18,624 |
|
|
| 16,070 |
|
Long-term debt |
|
| 5,177 |
|
|
| 5,301 |
|
Liability for pension benefits |
|
| 1,261 |
|
|
| 1,324 |
|
Deferred tax liabilities |
|
| 501 |
|
|
| 526 |
|
Provision for liabilities |
|
| 541 |
|
|
| 537 |
|
Long-term lease liabilities |
|
| 914 |
|
|
| 964 |
|
Other non-current liabilities |
|
| 320 |
|
|
| 335 |
|
Total non-current liabilities |
|
| 8,714 |
|
|
| 8,987 |
|
TOTAL LIABILITIES |
|
| 27,338 |
|
|
| 25,057 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
EQUITY (i) |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
| 10,703 |
|
|
| 10,687 |
|
Retained earnings |
|
| 2,009 |
|
|
| 1,792 |
|
Accumulated other comprehensive loss, net of tax |
|
| (2,446 | ) |
|
| (2,227 | ) |
Treasury shares, at cost, 17,519 shares in 2020 and 2019, and 40,000 shares, €1 nominal value, in 2020 and 2019 |
|
| (3 | ) |
|
| (3 | ) |
Total Willis Towers Watson shareholders’ equity |
|
| 10,263 |
|
|
| 10,249 |
|
Non-controlling interests |
|
| 126 |
|
|
| 120 |
|
Total equity |
|
| 10,389 |
|
|
| 10,369 |
|
TOTAL LIABILITIES AND EQUITY |
| $ | 37,727 |
|
| $ | 35,426 |
|
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
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
NET INCOME |
| $ | 313 |
|
| $ | 293 |
|
Adjustments to reconcile net income to total net cash from operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 98 |
|
|
| 54 |
|
Amortization |
|
| 121 |
|
|
| 127 |
|
Non-cash lease expense |
|
| 34 |
|
|
| 36 |
|
Net periodic benefit of defined benefit pension plans |
|
| (46 | ) |
|
| (32 | ) |
Provision for doubtful receivables from clients |
|
| 24 |
|
|
| 8 |
|
Benefit from deferred income taxes |
|
| (23 | ) |
|
| (28 | ) |
Share-based compensation |
|
| (1 | ) |
|
| 10 |
|
Non-cash foreign exchange (gain)/loss |
|
| (12 | ) |
|
| 8 |
|
Other, net |
|
| 23 |
|
|
| 4 |
|
Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (46 | ) |
|
| (121 | ) |
Fiduciary assets |
|
| (2,873 | ) |
|
| (2,490 | ) |
Fiduciary liabilities |
|
| 2,873 |
|
|
| 2,490 |
|
Other assets |
|
| 7 |
|
|
| (37 | ) |
Other liabilities |
|
| (482 | ) |
|
| (379 | ) |
Provisions |
|
| 13 |
|
|
| 10 |
|
Net cash from/(used in) operating activities |
|
| 23 |
|
|
| (47 | ) |
CASH FLOWS USED IN INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Additions to fixed assets and software for internal use |
|
| (66 | ) |
|
| (57 | ) |
Capitalized software costs |
|
| (15 | ) |
|
| (17 | ) |
Acquisitions of operations, net of cash acquired |
|
| (66 | ) |
|
| (1 | ) |
Other, net |
|
| (15 | ) |
|
| — |
|
Net cash used in investing activities |
|
| (162 | ) |
|
| (75 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net borrowings on revolving credit facility |
|
| 396 |
|
|
| 138 |
|
Repayments of debt |
|
| (128 | ) |
|
| (1 | ) |
Proceeds from issuance of shares |
|
| 3 |
|
|
| 22 |
|
Dividends paid |
|
| (84 | ) |
|
| (77 | ) |
Acquisitions of and dividends paid to non-controlling interests |
|
| (1 | ) |
|
| — |
|
Net cash from financing activities |
|
| 186 |
|
|
| 82 |
|
INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 47 |
|
|
| (40 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (36 | ) |
|
| (1 | ) |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD (i) |
|
| 895 |
|
|
| 1,033 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (i) |
| $ | 906 |
|
| $ | 992 |
|
(i) | As a result of the acquired TRANZACT collateralized facility, cash, cash equivalents and restricted cash included $8 million of restricted cash at March 31, 2020 and December 31, 2019, which is included within prepaid and other current assets on our condensed consolidated balance sheets. There were 0 restricted cash amounts held at March 31, 2019 and December 31, 2018. |
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
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, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019 |
|
| 128,690 |
|
| $ | 10,687 |
|
| $ | 1,792 |
|
| $ | (3 | ) |
| $ | (2,227 | ) |
| $ | 10,249 |
|
| $ | 120 |
|
| $ | 10,369 |
|
|
|
| $ | — |
|
|
|
|
|
Net income |
|
| — |
|
|
| — |
|
|
| 305 |
|
|
| — |
|
|
| — |
|
|
| 305 |
|
|
| 8 |
|
|
| 313 |
|
|
|
|
| — |
|
| $ | 313 |
|
Dividends declared ($0.68 per share) |
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| — |
|
|
| (88 | ) |
|
| — |
|
|
| (88 | ) |
|
|
|
| — |
|
|
|
|
|
Dividends attributable to non-controlling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
|
|
|
| — |
|
|
|
|
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (219 | ) |
|
| (219 | ) |
|
| (1 | ) |
|
| (220 | ) |
|
|
|
| — |
|
| $ | (220 | ) |
Issuance of shares under employee stock compensation plans |
|
| 36 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
|
|
| — |
|
|
|
|
|
Share-based compensation and net settlements |
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
|
|
| — |
|
|
|
|
|
Foreign currency translation |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
|
|
| — |
|
|
|
|
|
Balance as of March 31, 2020 |
|
| 128,726 |
|
| $ | 10,703 |
|
| $ | 2,009 |
|
| $ | (3 | ) |
| $ | (2,446 | ) |
| $ | 10,263 |
|
| $ | 126 |
|
| $ | 10,389 |
|
|
|
| $ | — |
|
|
|
|
|
_________
(i) | |
Accumulated other comprehensive loss, net of tax (‘AOCL’). |
(ii) | |
The non-controlling interest |
See accompanying notes to the condensed consolidated financial statements
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 design and territories.
Our risk controlmanagement services range frominclude 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 orand property loss control consulting), as well asand analytical and advisory services (such as hazard modeling and reinsurance optimization studies). We also assist our clients inwith planning how to managefor addressing 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 organizations anticipate, identifyoptimize benefits and capitalize on emerging opportunities in human capital managementcultivate talent. Our services and solutions encompass such areas as well asemployee benefits, total rewards, talent and benefits outsourcing. In addition, we provide investment advice to help our clients 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 exchangemarketplace in the United States (‘U.S.’). Through this exchange and those for through which, along with our active employees,employee marketplace, we help our clients move to a more sustainable economic model by capping and controlling the costs associated with healthcare benefits.
We are not an insurance company, and therefore we do not underwrite insurable risks for our own account.
Proposed Combination with Aon plc
On March 9, 2020, WTW and Aon plc (‘Aon’) issued an announcement disclosing that the respective boards of directors of WTW and Aon had reached agreement on the terms of a recommended acquisition of WTW by Aon. Under the terms of the agreement each WTW shareholder will receive 1.08 Aon ordinary shares for each WTW ordinary share. At the time of the announcement, it was estimated that upon completion of the combination, existing Aon shareholders will own approximately 63% and existing WTW shareholders will own approximately 37% of the combined company on a fully diluted basis.
The transaction is subject to the approval of the shareholders of both WTW and Aon, as well as other customary closing conditions, including required regulatory approvals. The parties expect the transaction to close in the first half of 2021, subject to satisfaction of these conditions.
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 26, 2020, 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, 2020 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 primarily 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.
Risks and Uncertainties Related to the COVID-19 Pandemic
The COVID-19 pandemic has had an adverse impact on global commercial activity, including the global supply chain, and has contributed to significant volatility in the financial markets including, among other effects, a decline in the equity markets and reduced liquidity. In light of the potential future disruption to our own business operations and those of our clients, suppliers and other third parties with whom we interact, the Company considered the impact of COVID-19 on our business. This analysis considered our business resilience and continuity plans, financial modeling and stress testing of liquidity and financial resources.
The analysis concluded that the COVID-19 pandemic did not have a material adverse impact to our financial results for the first quarter of fiscal 2020; however, we expect that the impact of COVID-19 on general economic activity could negatively impact our revenue and operating results for the remainder of 2020. We will continue to monitor the situation and assess possible implications to our business and our stakeholders and will take appropriate actions to help mitigate adverse consequences. The extent to which COVID-19 impacts our business and financial position will depend on future developments, which are difficult to predict, including the severity and scope of the COVID-19 outbreak as well as the types of measures imposed by governmental authorities to contain the virus or address its impact and the duration of those actions and measures.
The Company has considered multiple scenarios, with both positive and negative inputs, as part of the significant estimates and assumptions that are inherent in our financial statements and are based on trends in client behavior and the economic environment throughout the quarter as COVID-19 has moved throughout the geographies in which we operate. These estimates and assumptions include the collectability of billed and unbilled receivables, the estimation of revenue, and the fair value of our reporting units, tangible and intangible assets and contingent consideration. With regard to collectability, the Company believes it will face atypical delays in client payments going forward. In addition, we believe that the demand for certain discretionary lines of business may decrease, and that such decrease will impact our financial results in succeeding periods. Non-discretionary lines of business may also be adversely affected, for example because reduced economic activity or disruption in insurance markets reduces demand for or the extent of insurance coverage. We believe that these trends and uncertainties are comparable to those faced by other registrants as a result of the pandemic.
CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act was enacted in the U.S. to provide relief to companies in the midst of the COVID-19 pandemic and to stimulate the economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The Company has reviewed its eligibility requirements under the key provisions of the CARES Act, including if and how they apply and how they will affect the Company, particularly provisions that (i) eliminate the taxable income limit for certain net operating losses (‘NOLs’) and allow businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior tax years; (ii) generally loosen the business interest limitation under section 163(j) from 30 percent to 50 percent; and (iii) fix the ‘retail glitch’ for qualified improvement property. Additionally, the CARES Act offers an employee retention credit to encourage employers to maintain headcounts even if employees cannot report to work because of issues related to COVID-19 as well as a temporary provision allowing companies to defer remitting the employer share of some payroll taxes to the government. The income tax and payroll tax provisions of the CARES Act were not material for the three months ended March 31, 2020 and are currently not expected to be material for calendar year 2020.
Recent Accounting Pronouncements
Not yet adopted
In May 2014,December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which clarifies and amends existing guidance, including removing certain exceptions to the general principles of accounting for income taxes. This ASU becomes effective for the Company on January 1, 2021. Some of the changes must be applied on a retrospective or modified retrospective basis while others must be applied on a prospective basis. Early adoption is permitted. The Company does not plan to adopt this ASU early and is assessing the expected impact on our condensed consolidated financial statements.
Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Accounting Standards Board (‘FASB’) issued Accounting Standard Update (‘ASU’) No. 2014-09,
provided amended and additional guidance examples and technical corrections for the implementation of ASU No. 2014-09. The2016-13. All related guidance has been codified into, and is now known as, ASC 326, Financial Instruments—Credit Losses (‘ASC 326’). ASC 326 became effective for the Company at the beginning of its 2018 fiscal year, with early adoption permitted.
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,In March 2017,August 2018, the FASB issued ASU No. 2017-07,
In May 2017,March 2020, the SEC issued a final rule that amends the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rules 3-10 and 3-16 which currently require separate financial statements for subsidiary issuers and guarantors of registered debt securities unless certain exceptions are met, and affiliates that collateralize registered securities offerings if the affiliates’ securities are a substantial portion of the collateral. The final rule is generally effective for filings on or after January 4, 2021, however early application is permitted. The most pertinent portions of the final rule that are currently applicable to the Company include: (i) replacing the previous requirement under Rule 3-10 to provide condensed consolidating financial information in the registrant’s financial statements with a requirement to provide alternative financial disclosures (which include summarized
financial information of the parent and any issuers and guarantors, as well as other qualitative disclosures) in either the registrant’s Management’s Discussion & Analysis section or its financial statements; and, (ii) reducing the periods for which summarized financial information is required to the most recent annual period and year-to-date interim period. The Company elected to early-adopt the provisions of the final rule during the three months ended March 31, 2020. Further, the new reduced quantitative disclosures and accompanying qualitative disclosures as required by this final rule have been relocated from the notes to the financial statements to Item II, Management’s Discussion and Analysis of Financial Condition and Results of Operations on this Form 10-Q.
In March 2020, the FASB issued ASU No. 2017-09,
Note 3—Acquisitions
TRANZACT Acquisition
On July 30, 2019, the Company acquired TRANZACT, a U.S.-based provider of comprehensive, direct-to-consumer sales and marketing solutions for leading insurance carriers in the U.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 consumers. Pursuant to the terms of the acquisition agreement, subject to certain adjustments, the consideration consisted of $1.3 billion paid in cash at closing. Additional contingent consideration in the form of a potential earn-out of up to $17 million is to be paid in cash in 2021 based on the achievement of certain financial targets. The acquisition was initially funded in part with a $1.1 billion one-year term loan, with the prospective adoptionremainder being funded from the Company’s existing revolving credit facility. TRANZACT operates as part of our Benefits Delivery and Administration segment and enhances the recognition of excess tax benefits and deficiencies in the condensed consolidated statements of comprehensive income, we 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 benefits 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 flows for the nine months ended September 30, 2017. We elected to continue to estimate expected forfeitures. WeCompany’s existing Medicare broking offering, while also retrospectively adopted the amendment to present cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements as a financing activity. As a result, this $13 million
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 |
A summary of the preliminary fair values of the identifiable assets acquired, and liabilities assumed, of Towers WatsonTRANZACT at January 4, 2016July 30, 2019 are summarized in the following table.
Cash and cash equivalents |
| $ | 7 |
|
Restricted cash |
|
| 2 |
|
Accounts receivable, net |
|
| 3 |
|
Renewal commissions receivable, current (i) |
|
| 36 |
|
Prepaid and other current assets |
|
| 22 |
|
Renewal commissions receivable, non-current (i) |
|
| 130 |
|
Fixed assets |
|
| 9 |
|
Intangible assets |
|
| 646 |
|
Goodwill |
|
| 722 |
|
Right-of-use assets |
|
| 19 |
|
Other non-current assets |
|
| 2 |
|
Collateralized facility |
|
| (91 | ) |
Other current liabilities |
|
| (55 | ) |
Deferred tax liabilities, net |
|
| (104 | ) |
Lease liabilities |
|
| (19 | ) |
Net assets acquired |
| $ | 1,329 |
|
______________
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 |
(i) | |
Renewal commissions receivables arise from direct-to-consumer Medicare broking sales. Cash collections for these receivables are expected to occur over a period of several years. Due to the provisions of ASC 606, these receivables are not discounted for a significant financing component when initially recognized. However, as a result of recognizing the fair value of these receivables in |
Intangible assets consist primarily of the date$612 million of acquisition was based on a valuationcustomer relationships, with an expected life of the assets15.4 years. Additional intangibles acquired and liabilities assumed in the acquisition. The purchase price allocation was complete asconsist of December 31, 2016.
Goodwill is calculated as the difference between the aggregate Merger consideration and the acquisition date fair value of the net assets acquired, including the intangible assets acquired, and represents the value of the Legacy Towers WatsonTRANZACT’s assembled workforce and the future economic benefits that we expect to realizeachieve as a result of the Merger.acquisition. None of the goodwill recognized on the transaction is tax deductible.
During the three months ended March 31, 2020, purchase price allocation adjustments were made primarily to adjust the deferred tax liabilities related to the following categories:
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 |
Revenue related to TRANZACT was $95 million during the three months ended March 31, 2020.
Other Acquisitions
Other acquisitions were completed during the three months ended March 31, 2020 for combined cash payments of $71 million and contingent consideration with the Merger, we assumed certain stock options and restricted stock units (‘RSUs’) issued under 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.
Note 4—Revenue
Disaggregation of Revenue
The Company reports revenue by segment in Note 5 — Segment Information. The following table presents revenue by service offering and segment, as well as a reconciliation to total revenue for the stock optionsthree months ended March 31, 2020 and 2019. Along with reimbursable expenses and other, total revenue by service offering represents our revenue from customer contracts.
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| HCB |
|
| CRB |
|
| IRR |
|
| BDA |
|
| Corporate (i) |
|
| Total |
| ||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
Broking |
| $ | 83 |
|
| $ | 73 |
|
| $ | 648 |
|
| $ | 660 |
|
| $ | 433 |
|
| $ | 405 |
|
| $ | 98 |
|
| $ | 3 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,262 |
|
| $ | 1,141 |
|
Consulting |
|
| 582 |
|
|
| 580 |
|
|
| 47 |
|
|
| 31 |
|
|
| 93 |
|
|
| 114 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 3 |
|
|
| 724 |
|
|
| 728 |
|
Outsourced administration |
|
| 128 |
|
|
| 123 |
|
|
| 25 |
|
|
| 27 |
|
|
| 3 |
|
|
| 2 |
|
|
| 133 |
|
|
| 132 |
|
|
| — |
|
|
| — |
|
|
| 289 |
|
|
| 284 |
|
Other |
|
| 47 |
|
|
| 47 |
|
|
| 1 |
|
|
| 1 |
|
|
| 83 |
|
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 132 |
|
|
| 107 |
|
Total revenue by service offering |
|
| 840 |
|
|
| 823 |
|
|
| 721 |
|
|
| 719 |
|
|
| 612 |
|
|
| 579 |
|
|
| 231 |
|
|
| 135 |
|
|
| 3 |
|
|
| 4 |
|
|
| 2,407 |
|
|
| 2,260 |
|
Reimbursable expenses and other (i) |
|
| 15 |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 2 |
|
|
| 3 |
|
|
| 3 |
|
|
| 6 |
|
|
| 7 |
|
|
| 27 |
|
|
| 26 |
|
Total revenue from customer contracts |
| $ | 855 |
|
| $ | 837 |
|
| $ | 721 |
|
| $ | 719 |
|
| $ | 615 |
|
| $ | 581 |
|
| $ | 234 |
|
| $ | 138 |
|
| $ | 9 |
|
| $ | 11 |
|
| $ | 2,434 |
|
| $ | 2,286 |
|
Interest and other income (ii) |
|
| 10 |
|
|
| 6 |
|
|
| 18 |
|
|
| 9 |
|
|
| 3 |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 32 |
|
|
| 26 |
|
Total revenue |
| $ | 865 |
|
| $ | 843 |
|
| $ | 739 |
|
| $ | 728 |
|
| $ | 618 |
|
| $ | 591 |
|
| $ | 234 |
|
| $ | 138 |
|
| $ | 10 |
|
| $ | 12 |
|
| $ | 2,466 |
|
| $ | 2,312 |
|
______________
(i) | Reimbursable expenses and other, as well as Corporate revenue, are excluded from segment revenue, but included in total revenue on the condensed consolidated statements of comprehensive income. |
(ii) | 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 three months ended March 31, 2020 and 2019 have been included within the Other line in the tables above.
The following table presents revenue by the geography where our work is performed for the three months ended March 31, 2020 and 2019. The reconciliation to total revenue on our condensed consolidated statements of comprehensive income and to segment revenue is shown in the table above.
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||||||||||
|
| HCB |
|
| CRB |
|
| IRR |
|
| BDA |
|
| Corporate |
|
| Total |
| ||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
North America |
| $ | 476 |
|
| $ | 471 |
|
| $ | 233 |
|
| $ | 220 |
|
| $ | 170 |
|
| $ | 164 |
|
| $ | 229 |
|
| $ | 135 |
|
| $ | 2 |
|
| $ | 4 |
|
| $ | 1,110 |
|
| $ | 994 |
|
Great Britain |
|
| 126 |
|
|
| 118 |
|
|
| 137 |
|
|
| 142 |
|
|
| 321 |
|
|
| 300 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 584 |
|
|
| 560 |
|
Western Europe |
|
| 156 |
|
|
| 155 |
|
|
| 244 |
|
|
| 239 |
|
|
| 76 |
|
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 477 |
|
|
| 463 |
|
International |
|
| 82 |
|
|
| 79 |
|
|
| 107 |
|
|
| 118 |
|
|
| 45 |
|
|
| 46 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 236 |
|
|
| 243 |
|
Total revenue by geography |
| $ | 840 |
|
| $ | 823 |
|
| $ | 721 |
|
| $ | 719 |
|
| $ | 612 |
|
| $ | 579 |
|
| $ | 231 |
|
| $ | 135 |
|
| $ | 3 |
|
| $ | 4 |
|
| $ | 2,407 |
|
| $ | 2,260 |
|
Contract Balances
The Company 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, 2020 and December 31, 2019:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Billed receivables, net of allowance for doubtful accounts of $55 million and $37 million |
| $ | 1,870 |
|
| $ | 1,831 |
|
Unbilled receivables |
|
| 442 |
|
|
| 434 |
|
Current contract assets |
|
| 282 |
|
|
| 356 |
|
Accounts receivable, net |
| $ | 2,594 |
|
| $ | 2,621 |
|
Non-current accounts receivable, net |
| $ | 27 |
|
| $ | 30 |
|
Non-current contract assets |
| $ | 140 |
|
| $ | 105 |
|
Deferred revenue |
| $ | 562 |
|
| $ | 538 |
|
During the three months ended March 31, 2020, revenue of approximately $272 million was calculated usingrecognized that was reflected as deferred revenue at December 31, 2019.
During the Black-Scholes model withthree months ended March 31, 2020, the Company recognized revenue of approximately $6 million 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, 2020 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 or 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 2020 |
|
| 2021 |
|
| 2022 onward |
|
| Total |
| ||||
Revenue expected to be recognized on contracts as of March 31, 2020 |
| $ | 384 |
|
| $ | 400 |
|
| $ | 483 |
|
| $ | 1,267 |
|
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, 2020 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 four4 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, 2020 and 2016.
|
| Three Months Ended March 31, |
| |||||||||||||||||||||||||||||||||||||
|
| HCB |
|
| CRB |
|
| IRR |
|
| BDA |
|
| Total |
| |||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||
Segment revenue |
| $ | 850 |
|
| $ | 829 |
|
| $ | 739 |
|
| $ | 728 |
|
| $ | 615 |
|
| $ | 589 |
|
| $ | 231 |
|
| $ | 135 |
|
| $ | 2,435 |
|
| $ | 2,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income/(loss) |
| $ | 213 |
|
| $ | 204 |
|
| $ | 127 |
|
| $ | 127 |
|
| $ | 277 |
|
| $ | 252 |
|
| $ | (11 | ) |
| $ | (21 | ) |
| $ | 606 |
|
| $ | 562 |
|
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 |
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, 2020 and 2016.
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenue: |
|
|
|
|
|
|
|
|
Total segment revenue |
| $ | 2,435 |
|
| $ | 2,281 |
|
Reimbursable expenses and other |
|
| 31 |
|
|
| 31 |
|
Revenue |
| $ | 2,466 |
|
| $ | 2,312 |
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
| $ | 606 |
|
| $ | 562 |
|
Amortization |
|
| (121 | ) |
|
| (127 | ) |
Transaction and integration expenses (i) |
|
| (9 | ) |
|
| (6 | ) |
Unallocated, net (ii) |
|
| (116 | ) |
|
| (70 | ) |
Income from operations |
|
| 360 |
|
|
| 359 |
|
Interest expense |
|
| (61 | ) |
|
| (54 | ) |
Other income, net |
|
| 92 |
|
|
| 55 |
|
Income from operations before income taxes |
| $ | 391 |
|
| $ | 360 |
|
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 transaction costs related to the proposed Aon combination and TRANZACT acquisition in 2019. |
(ii) | 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, 2020 was $19$78 million and $73 million, respectively, compared to a benefit from income taxes of $26 million and a provision for income taxes of $11$67 million for the three and nine months ended September 30, 2016, respectively.March 31, 2019. The effective tax rate was (53.0)% and 17.7%20.0% for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and 45.9% and 3.5%18.8% for the three and nine months ended September 30, 2016, respectively.March 31, 2019. 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. OurThe prior year effective tax rate is generallywas lower than the U.S. statutory rate of 35%. This is primarily due to discrete valuation allowance releases in certain non-U.S. jurisdictions.
On April 7, 2020, U.S. Treasury and the Internal Revenue Service issued final regulations on specific aspects of U.S. Tax Reform that are retroactive to tax years beginning after December 20, 2018. These final regulations constitute a subsequent event and will be recognized in the period in which the regulation was issued. This legislation impacts certain positions previously taken with respect to amounts recorded in our global mix of income which creates deductionscondensed consolidated financial statements. We will adjust such amounts to reflect this legislation in jurisdictions with high statutory income tax rates. The (53.0)% effective tax rate forour condensed consolidated financial statements during the three months ended SeptemberJune 30, 2017 was2020. We have estimated the result of a discrete incomepotential adjustment to be between $50 million and $82 million.
The Company recognizes deferred tax charge for an internal reorganization. The increase in tax expense for the three months ended September 30, 2017 as comparedbalances related to the three months ended September 30, 2016 was primarily due to an internal restructuring for certain legacy Towers Watson businesses. The increaseundistributed 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 the effective tax rate for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily due to a current year U.S. tax expense resulting from internal reorganizations for certain legacy Towers Watson businesses, 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, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross |
| $ | 4,298 |
|
| $ | 2,309 |
|
| $ | 1,795 |
|
| $ | 3,284 |
|
| $ | 11,686 |
|
Accumulated impairment losses |
|
| (130 | ) |
|
| (362 | ) |
|
| — |
|
|
| — |
|
|
| (492 | ) |
Goodwill, net - December 31, 2019 |
|
| 4,168 |
|
|
| 1,947 |
|
|
| 1,795 |
|
|
| 3,284 |
|
|
| 11,194 |
|
Goodwill acquired |
|
| 14 |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
|
| 41 |
|
Acquisition accounting adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (5 | ) |
Foreign exchange |
|
| (27 | ) |
|
| (21 | ) |
|
| (20 | ) |
|
| — |
|
|
| (68 | ) |
Balance at March 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross |
|
| 4,285 |
|
|
| 2,315 |
|
|
| 1,775 |
|
|
| 3,279 |
|
|
| 11,654 |
|
Accumulated impairment losses |
|
| (130 | ) |
|
| (362 | ) |
|
| — |
|
|
| — |
|
|
| (492 | ) |
Goodwill, net - March 31, 2020 |
| $ | 4,155 |
|
| $ | 1,953 |
|
| $ | 1,775 |
|
| $ | 3,279 |
|
| $ | 11,162 |
|
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 |
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, 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 |
|
| Client relationships |
|
| Software |
|
| Trademark and trade name |
|
| Other |
|
| Total |
| |||||
Balance at December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, gross |
| $ | 4,029 |
|
| $ | 753 |
|
| $ | 1,051 |
|
| $ | 134 |
|
| $ | 5,967 |
|
Accumulated amortization |
|
| (1,731 | ) |
|
| (551 | ) |
|
| (176 | ) |
|
| (31 | ) |
|
| (2,489 | ) |
Intangible assets, net - December 31, 2019 |
|
| 2,298 |
|
|
| 202 |
|
|
| 875 |
|
|
| 103 |
|
|
| 3,478 |
|
Intangible assets acquired |
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| 46 |
|
Amortization |
|
| (77 | ) |
|
| (26 | ) |
|
| (10 | ) |
|
| (8 | ) |
|
| (121 | ) |
Foreign exchange |
|
| (40 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (43 | ) |
Balance at March 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, gross |
|
| 3,974 |
|
|
| 743 |
|
|
| 1,051 |
|
|
| 151 |
|
|
| 5,919 |
|
Accumulated amortization |
|
| (1,770 | ) |
|
| (567 | ) |
|
| (186 | ) |
|
| (36 | ) |
|
| (2,559 | ) |
Intangible assets, net - March 31, 2020 |
| $ | 2,204 |
|
| $ | 176 |
|
| $ | 865 |
|
| $ | 115 |
|
| $ | 3,360 |
|
The following table reflects the carrying value of finite-lived intangible assets and liabilities at September 30, 2017 and December 31, 2016:
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 | ) |
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 20172020 and for subsequent years:
|
| Amortization |
| |
Remainder of 2020 |
| $ | 331 |
|
2021 |
|
| 373 |
|
2022 |
|
| 315 |
|
2023 |
|
| 267 |
|
2024 |
|
| 235 |
|
Thereafter |
|
| 1,839 |
|
Total |
| $ | 3,360 |
|
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 | ) |
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 risksthis risk 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 and/or expenses 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, 2020 and December 31, 20162019 had total notional amounts of $776$495 million and $945$499 million, respectively, and had a net fair value liabilitiesliability of $34$14 million and $110a net fair value asset of $8 million, respectively.
At September 30, 2017,March 31, 2020, the Company estimates, based on current interest and exchange rates, there will be $33$13 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, 2020, 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, 2020 and 20162019 are as follows:
Three Months Ended March 31, |
| (Loss)/gain recognized in OCI (effective element) |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Forward exchange contracts |
| $ | (24 | ) |
| $ | 8 |
|
Location of gain/(loss) reclassified from Accumulated OCL into income (effective element) |
| Gain/(loss) reclassified from Accumulated OCL into income (effective element) |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Revenue |
| $ | — |
|
| $ | 1 |
|
Salaries and benefits |
|
| (2 | ) |
|
| (5 | ) |
|
| $ | (2 | ) |
| $ | (4 | ) |
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.loans and other balance sheet exposures in currencies other than the functional currency of a given entity. These derivatives are not generally designated as hedging instruments and at September 30, 2017March 31, 2020 and December 31, 2016,2019, we had notional amounts of $569 million$1.1 billion and $630$931 million, respectively, and had net fair value liabilitiesassets of $1$5 million and $8$21 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, 2020 and 20162019 are as follows:
|
|
|
| Loss recognized in income |
| |||||
|
|
|
| Three Months Ended March 31, |
| |||||
Derivatives not designated as hedging instruments: |
| Location of loss recognized in income |
| 2020 |
|
| 2019 |
| ||
Forward exchange contracts |
| Other income, net |
| $ | (12 | ) |
| $ | (10 | ) |
(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 | ) |
Note 9—Debt
Current debt consists of the following:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Term loan due 2020 |
| $ | 174 |
|
| $ | 292 |
|
Current portion of collateralized facility |
|
| 24 |
|
|
| 24 |
|
5.750% senior notes due 2021 |
|
| 499 |
|
|
| — |
|
|
| $ | 697 |
|
| $ | 316 |
|
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, 2020 |
|
| December 31, 2019 |
| ||
Revolving $1.25 billion credit facility |
| $ | 396 |
|
| $ | — |
|
Collateralized facility (i) |
|
| 53 |
|
|
| 60 |
|
5.750% senior notes due 2021 |
|
| — |
|
|
| 499 |
|
3.500% senior notes due 2021 |
|
| 448 |
|
|
| 448 |
|
2.125% senior notes due 2022 (ii) |
|
| 590 |
|
|
| 604 |
|
4.625% senior notes due 2023 |
|
| 249 |
|
|
| 249 |
|
3.600% senior notes due 2024 |
|
| 646 |
|
|
| 646 |
|
4.400% senior notes due 2026 |
|
| 546 |
|
|
| 546 |
|
4.500% senior notes due 2028 |
|
| 595 |
|
|
| 595 |
|
2.950% senior notes due 2029 |
|
| 446 |
|
|
| 446 |
|
6.125% senior notes due 2043 |
|
| 271 |
|
|
| 271 |
|
5.050% senior notes due 2048 |
|
| 395 |
|
|
| 395 |
|
3.875% senior notes due 2049 |
|
| 542 |
|
|
| 542 |
|
|
| $ | 5,177 |
|
| $ | 5,301 |
|
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) | At March 31, 2020 and December 31, 2019, the Company had $119 million and $127 million, respectively, of renewal commissions receivables pledged as collateral for this facility. |
(ii) | Notes issued in Euro (€540 million) |
At March 7, 2017, the Company, together with its wholly-owned subsidiary, Trinity Acquisition plc (see
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. |
• | 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, which at times includes the use of a Monte Carlo simulation, and discounting the probability-weighted payout. Typically, milestones are based on revenue or earnings 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, 2020 and December 31, 2016:
|
|
|
| Fair Value Measurements on a Recurring Basis at March 31, 2020 |
| |||||||||||||
|
| 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 |
| $ | 6 |
|
| $ | — |
|
| $ | — |
|
| $ | 6 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Prepaid and other current assets and other non-current assets |
| $ | — |
|
| $ | 9 |
|
| $ | — |
|
| $ | 9 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (ii) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | — |
|
| $ | 21 |
|
| $ | 21 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | 18 |
|
| $ | — |
|
| $ | 18 |
|
|
|
|
| Fair Value Measurements on a Recurring Basis at December 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 |
| $ | 20 |
|
| $ | — |
|
| $ | — |
|
| $ | 20 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Prepaid and other current assets and other non-current assets |
| $ | — |
|
| $ | 32 |
|
| $ | — |
|
| $ | 32 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration (ii) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | — |
|
| $ | 17 |
|
| $ | 17 |
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (i) |
| Other current liabilities and other non-current liabilities |
| $ | — |
|
| $ | 3 |
|
| $ | — |
|
| $ | 3 |
|
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, 2020 |
| |
Balance at December 31, 2019 |
| $ | 17 |
|
Obligations assumed |
|
| 4 |
|
Payments |
|
| — |
|
Realized and unrealized losses |
|
| 1 |
|
Foreign exchange |
|
| (1 | ) |
Balance at March 31, 2020 |
| $ | 21 |
|
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 no0 significant transfers between Levels 1, 2to or from Level 3 in the three and nine months ended September 30, 2017 and 2016, respectively.
The following tables present our liabilities not measured at fair value on a recurring basis at September 30, 2017March 31, 2020 and December 31, 2016:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current debt |
| $ | 697 |
|
| $ | 704 |
|
| $ | 316 |
|
| $ | 319 |
|
Long-term debt |
| $ | 5,177 |
|
| $ | 5,290 |
|
| $ | 5,301 |
|
| $ | 5,694 |
|
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 values of our revolving lines of credit facility, collateralized facility and term loansloan approximate their fair values. 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, 2020 and 2016:
Three Months Ended September 30, |
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 |
| 2020 |
|
| 2019 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | — |
| $ | 18 |
|
| $ | 4 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 16 |
|
| $ | 4 |
|
| $ | 5 |
|
| $ | — |
| |||||||||||||||
Interest cost | 34 | 23 | 4 | 1 | 34 | 26 | 6 | 1 |
|
| 33 |
|
|
| 18 |
|
|
| 4 |
|
|
| 1 |
|
|
| 40 |
|
|
| 24 |
|
|
| 4 |
|
|
| 1 |
| |||||||||||||||||||||||
Expected return on plan assets | (61 | ) | (72 | ) | (7 | ) | — | (61 | ) | (58 | ) | (8 | ) | — |
|
| (73 | ) |
|
| (62 | ) |
|
| (8 | ) |
|
| — |
|
|
| (64 | ) |
|
| (63 | ) |
|
| (7 | ) |
|
| — |
| |||||||||||||||||
Settlement | 1 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of net loss | 4 | 13 | — | — | 3 | 10 | — | — |
|
| 9 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
|
| 5 |
|
|
| 1 |
|
|
| — |
| |||||||||||||||||||||||
Amortization of prior service credit | — | (4 | ) | — | — | — | (5 | ) | — | — |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| (1 | ) | |||||||||||||||||||||
Net periodic benefit (income)/cost | $ | (6 | ) | $ | (32 | ) | $ | 3 | $ | 1 | $ | (9 | ) | $ | (21 | ) | $ | 3 | $ | 1 |
| $ | (13 | ) |
| $ | (38 | ) |
| $ | 1 |
|
| $ | — |
|
| $ | (3 | ) |
| $ | (34 | ) |
| $ | 3 |
|
| $ | — |
|
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 million0 contributions to its U.S. plans for the ninethree months ended September 30, 2017March 31, 2020 and anticipates making no further$60 million in contributions forover the remainder of the fiscal year. The Company made contributions of $45$20 million to its U.K. plans for the ninethree months ended September 30, 2017March 31, 2020 and anticipates making additional contributions of $18$55 million for the remainder of the fiscal year. The Company made contributions of $11$14 million to its other plans for the ninethree months ended September 30, 2017March 31, 2020 and anticipates making additional contributions of $4$5 million for the remainder of the fiscal year.
Defined Contribution Plans
The Company made contributions to its defined contribution plans of $39$43 million and $118$41 million during the three months ended March 31, 2020 and 2019, respectively.
Note 12—Leases
The following table presents lease costs recorded on our condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2017, respectively,March 31, 2020 and $37 million and $118 million for2019, respectively:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| $ | 1 |
|
| $ | 1 |
|
Interest on lease liabilities |
|
| 1 |
|
|
| 1 |
|
Operating lease cost |
|
| 47 |
|
|
| 48 |
|
Short-term lease cost |
|
| — |
|
|
| — |
|
Variable lease cost |
|
| 10 |
|
|
| 13 |
|
Sublease income |
|
| (5 | ) |
|
| (4 | ) |
Total lease cost, net |
| $ | 54 |
|
| $ | 59 |
|
The total lease cost is recognized in different locations in our condensed consolidated statements of comprehensive income. Amortization of the three and nine months ended September 30, 2016, respectively.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.
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 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 any one or more of 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. On May 8, 2019, the parties argued the appeal, and on August 30, 2019, the Fourth Circuit vacated the dismissal order and remanded the case to the Eastern District of Virginia for further proceedings consistent with its decision. On September 13, 2019, the defendants filed a petition for rehearing by the Fourth Circuit en banc, which the Fourth Circuit denied on September 27, 2019. On November 8, 2019, the defendants filed renewed motions to dismiss in the Eastern District of Virginia based upon certain arguments that were advanced in their original motions to dismiss, but undecided by both the district court and the Fourth Circuit. On December
18, 2019, the parties completed briefing on the defendants’ renewed motions, and, on December 20, 2019, the court heard argument on the motions. On January 31, 2020, the court denied the motions.
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
On October 2, 2017. On September 15, 2017,18, 2018, 3 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 theOn 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 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 7 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 2 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 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 2 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, 5 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 2 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 5 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 4 actions pending the JPML’s transfer decision. On June 20, 2013, the JPML issued a conditional transfer order for the transfer of the 5 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, Willis 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 schedulingorders 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 1 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 5 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 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. TheOral argument on the appeals are currently pending. was heard on December 3, 2018, and, on July 22, 2019, the Fifth Circuit affirmed the approval of the settlement, including the bar orders. On August 5, 2019, certain of the plaintiff-appellants filed a petition for rehearing by the Fifth Circuit en banc (the ‘Petition’). On August 19, 2019, the Fifth Circuit requested a response to the Petition. On August 29, 2019, the Receiver filed a response to the Petition. On December 19, 2019, the Fifth Circuit granted the Petition (treating it as a petition for panel rehearing), withdrew its July 22, 2019 opinion, and substituted a new opinion that also affirmed the approval of the settlement, including the bar orders. On January 2, 2020, certain of the plaintiff-appellants filed another petition for rehearing by the Fifth Circuit en banc (the ‘Second Petition’), in which the other plaintiff-appellants joined. On January 21, 2020, the Fifth Circuit denied the Second Petition.
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 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.
Since 2017, we have become aware that other countries are conducting their own investigations of the FCA has informed us that it has closed its competition act investigation. However, it retains its jurisdiction over broking regulatory matters arising fromsame or similar alleged conduct, including, without limitation, Brazil. In January 2019, the conduct being investigated.
Given the status of the investigation,above-noted 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.
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 |
Prepaid and other current assets consist of the following:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Prepayments and accrued income |
| $ | 166 |
|
| $ | 145 |
|
Deferred contract costs |
|
| 72 |
|
|
| 101 |
|
Derivatives and investments |
|
| 25 |
|
|
| 49 |
|
Deferred compensation plan assets |
|
| 14 |
|
|
| 18 |
|
Retention incentives |
|
| 9 |
|
|
| 11 |
|
Corporate income and other taxes |
|
| 52 |
|
|
| 56 |
|
Restricted cash |
|
| 8 |
|
|
| 8 |
|
Acquired renewal commissions receivable |
|
| 23 |
|
|
| 25 |
|
Other current assets |
|
| 100 |
|
|
| 112 |
|
Total prepaid and other current assets |
| $ | 469 |
|
| $ | 525 |
|
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 |
Deferred revenue and accrued expenses consist of the following:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
Accounts payable, accrued liabilities and deferred income |
| $ | 854 |
|
| $ | 856 |
|
Accrued discretionary and incentive compensation |
|
| 265 |
|
|
| 727 |
|
Accrued vacation |
|
| 163 |
|
|
| 137 |
|
Other employee-related liabilities |
|
| 47 |
|
|
| 64 |
|
Total deferred revenue and accrued expenses |
| $ | 1,329 |
|
| $ | 1,784 |
|
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, 2020 |
|
| December 31, 2019 |
| ||
Claims, lawsuits and other proceedings |
| $ | 459 |
|
| $ | 456 |
|
Other provisions |
|
| 82 |
|
|
| 81 |
|
Total provision for liabilities |
| $ | 541 |
|
| $ | 537 |
|
September 30, 2017 | December 31, 2016 | ||||||
Claims, lawsuits and other proceedings | $ | 478 | $ | 456 | |||
Other provisions | 125 | 119 | |||||
Total provision for liabilities | $ | 603 | $ | 575 |
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, 2020 and 2016. This table excludes2019. 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) |
|
| Derivative instruments (i) |
|
| Defined pension and post-retirement benefit costs (ii) |
|
| Total |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Balance at December 31, 2019 and 2018, respectively |
| $ | (538 | ) |
| $ | (616 | ) |
| $ | 13 |
|
| $ | (8 | ) |
| $ | (1,702 | ) |
| $ | (1,337 | ) |
| $ | (2,227 | ) |
| $ | (1,961 | ) |
Other comprehensive (loss)/income before reclassifications |
|
| (208 | ) |
|
| 9 |
|
|
| (19 | ) |
|
| 6 |
|
|
| (4 | ) |
|
| 1 |
|
|
| (231 | ) |
|
| 16 |
|
Loss reclassified from accumulated other comprehensive loss (net of income tax benefit of $0 and $4, respectively) |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 5 |
|
|
| 11 |
|
|
| 2 |
|
|
| 12 |
|
|
| 7 |
|
Net current-period other comprehensive (loss)/income |
|
| (208 | ) |
|
| 9 |
|
|
| (18 | ) |
|
| 11 |
|
|
| 7 |
|
|
| 3 |
|
|
| (219 | ) |
|
| 23 |
|
Reclassification of tax effects per ASU 2018-02 (iii) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36 | ) |
|
| — |
|
|
| (36 | ) |
Balance at March 31, 2020 and 2019, respectively |
| $ | (746 | ) |
| $ | (607 | ) |
| $ | (5 | ) |
| $ | 3 |
|
| $ | (1,695 | ) |
| $ | (1,370 | ) |
| $ | (2,446 | ) |
| $ | (1,974 | ) |
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 |
(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. |
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, 2020 and 2016,2019, there were 0.90.2 million and 1.30.3 million time-based share options; 1.00.3 million and 1.20.4 million performance-based options; 0.4and 0.3 million and 0.9 million restricted time-based stock units; and 0.6 million and 0.70.5 million restricted performance-based stock units outstanding, respectively.
Basic and diluted earnings per share are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net income attributable to Willis Towers Watson |
| $ | 305 |
|
| $ | 287 |
|
|
|
|
|
|
|
|
|
|
Basic average number of shares outstanding |
|
| 130 |
|
|
| 130 |
|
Dilutive effect of potentially issuable shares |
|
| — |
|
|
| — |
|
Diluted average number of shares outstanding |
|
| 130 |
|
|
| 130 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 2.36 |
|
| $ | 2.21 |
|
Dilutive effect of potentially issuable shares |
|
| (0.02 | ) |
|
| (0.01 | ) |
Diluted earnings per share |
| $ | 2.34 |
|
| $ | 2.20 |
|
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 0 anti-dilutive options or restricted stock options was not computedunits for the three months ended September 30, 2017March 31, 2020 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 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.
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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
Proposed Combination with Aon plc
On March 9, 2020, WTW and Aon plc (‘Aon’) issued an announcement disclosing that the respective boards of directors of WTW and Aon had reached agreement on the terms of a recommended acquisition of WTW by Aon. Under the terms of the agreement each WTW shareholder will receive 1.08 Aon ordinary shares for each WTW ordinary share. At the time of the announcement, it was estimated that upon completion of the combination, existing Aon shareholders will own approximately 63% and existing WTW shareholders will own approximately 37% of the combined company on a fully diluted basis.
The transaction is subject to the approval of the shareholders of both WTW and Aon, as well as other customary closing conditions, including required regulatory approvals. The parties expect the transaction to close in the first half of 2021, subject to satisfaction of these conditions.
Risks and Uncertainties of the COVID-19 Pandemic
The COVID-19 pandemic has had an adverse impact on global commercial activity, including the global supply chain, and has contributed to significant volatility in the financial markets including, among other effects, a decline in the equity markets and reduced liquidity. In light of the potential future disruption to our own business operations and those of our clients, suppliers and other third parties with whom we interact, the Company considered the impact of COVID-19 on our business. This analysis considered our business resilience and continuity plans, financial modeling and stress testing of liquidity and financial resources.
The analysis concluded that the COVID-19 pandemic did not have a material adverse impact to our financial results for the first quarter of fiscal 2020; however, we expect that the impact of COVID-19 on general economic activity could negatively impact our revenue and operating results for the remainder of 2020. We will continue to monitor the situation and assess possible implications to our business and our stakeholders and will take appropriate actions to help mitigate adverse consequences. The extent to which COVID-19 impacts our business and financial position will depend on future developments, which are difficult to predict, including the severity and scope of the COVID-19 outbreak as well as the types of measures imposed by governmental authorities to contain the virus or address its impact and the duration of those actions and measures.
The Company has considered multiple scenarios, with both positive and negative inputs, as part of the significant estimates and assumptions that are inherent in our financial statements and are based on trends in client behavior and the economic environment throughout the quarter as COVID-19 has moved throughout the geographies in which we operate. These estimates and assumptions include the collectability of billed and unbilled receivables, the estimation of revenue, and the fair value of our reporting units, tangible and intangible assets and contingent consideration. With regard to collectability, the Company believes it will face atypical delays in client payments going forward. In addition, we believe that the demand for certain discretionary lines of business may decrease, and that such decrease will impact our financial results in succeeding periods. Non-discretionary lines of business may also be adversely affected, for example because reduced economic activity or disruption in insurance markets reduces demand for or the extent of insurance coverage. We believe that these trends and uncertainties are comparable to those faced by other registrants as a result of the pandemic. See also Part II, Item 1A., ‘Risk Factors’ for a discussion of actual and potential impacts of COVID-19 on our business, clients and operations.
We continue to closely monitor the spread and impact of COVID-19 while adhering to government health directives. The Company has implemented restrictions on business travel, office access, meetings and events. We have thorough business continuity and incident management processes in place that have been activated, including split team operations and work-from-home protocols for essential workers which are now globally effective. We are communicating frequently with clients and critical vendors, while meeting our objectives via remote working capabilities, overseen and coordinated by our incident management response team. While no contingency plan can eliminate all risk of temporary service interruption, we continually assess and update our plans to help mitigate
all reasonable risk. As of the date of this filing, we do not believe our work-from-home protocol has materially adversely impacted our internal controls, financial reporting systems or our operations.
Market Conditions
Due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, commission revenuesrevenue may vary widely between accounting periods. A period of low or declining premium rates, generally known as a ‘soft’ or ‘softening’ market, generally leads to downward pressure on commission revenuesrevenue and can have a material adverse impact on our commission revenuesrevenue and operating margin. A ‘hard’ or ‘firming’ market, during which premium rates rise, generally has a favorable impact on our commission revenuesrevenue and operating margin. Rates, however, vary by geography, industry and client segment. As a result, and due to the global and diverse nature of our business, we view rates in the aggregate.
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.
The terms of Brexit and its impact are highly uncertain.remain uncertain, and the Company is currently in the process of establishing appropriate arrangements for the continued servicing of client business in the countries expected to be most affected. 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 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 cyclical during the early period of a significant economic change.
On an annual basis for 2017,2020, although we expect that approximately 22%21% of our revenuesrevenue will be generated in the U.K., we expect that only about 13%approximately 11% 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% 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 ofaffected by 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. In that regard, we are focused on developing and implementing technology, data and analytic solutions for both internal operations and for maintaining industry standards and meeting client preferences. We have made such investments from time to time and may decide, based on perceived business needs, to make investments in the future that may be greater than we currently anticipate. Conversely, particularly given the impact of the COVID-19 pandemic, we may make fewer information technology-based investments than previously anticipated, which could potentially create business operational risk.
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 26, 2020 for a discussion of risks that may affect our ability to compete.
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, |
| |||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||
|
| ($ in millions, except per share data) |
| |||||||||||||
Revenue |
| $ | 2,466 |
|
|
| 100 | % |
| $ | 2,312 |
|
|
| 100 | % |
Costs of providing services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
| 1,394 |
|
|
| 57 | % |
|
| 1,348 |
|
|
| 58 | % |
Other operating expenses |
|
| 484 |
|
|
| 20 | % |
|
| 418 |
|
|
| 18 | % |
Depreciation |
|
| 98 |
|
|
| 4 | % |
|
| 54 |
|
|
| 2 | % |
Amortization |
|
| 121 |
|
|
| 5 | % |
|
| 127 |
|
|
| 5 | % |
Transaction and integration expenses |
|
| 9 |
|
|
| — | % |
|
| 6 |
|
|
| — | % |
Total costs of providing services |
|
| 2,106 |
|
|
|
|
|
|
| 1,953 |
|
|
|
|
|
Income from operations |
|
| 360 |
|
|
| 15 | % |
|
| 359 |
|
|
| 16 | % |
Interest expense |
|
| (61 | ) |
|
| (2 | )% |
|
| (54 | ) |
|
| (2 | )% |
Other income, net |
|
| 92 |
|
|
| 4 | % |
|
| 55 |
|
|
| 2 | % |
Provision for income taxes |
|
| (78 | ) |
|
| (3 | )% |
|
| (67 | ) |
|
| (3 | )% |
Income attributable to non-controlling interests |
|
| (8 | ) |
|
| — | % |
|
| (6 | ) |
|
| — | % |
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 305 |
|
|
| 12 | % |
| $ | 287 |
|
|
| 12 | % |
Diluted earnings per share |
| $ | 2.34 |
|
|
|
|
|
| $ | 2.20 |
|
|
|
|
|
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 $2.5 billion for the three months ended September 30, 2016,March 31, 2020, compared to $2.3 billion for the three months ended March 31, 2019, an increase of $75$154 million, or 4%7%, on both an as reported and constant currencyas-reported 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%. Adjusting for the impactimpacts of foreign currency and acquisitions and disposals, our organic revenue grew bygrowth was 4% for the ninethree months ended September 30, 2017.March 31, 2020. The quarterly and year-to-date increasesincrease in revenues wereorganic revenue 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, 2020, currency translation decreased our consolidated revenuesrevenue by $81$34 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, 2020. These figures do not represent the currency of the related revenue, which is presented in the next table.
Geographic Region | % of Revenue | |||
United States | 44 | % | ||
United Kingdom | 24 | % | ||
France | 6 | % | ||
Germany | 3 | % | ||
Canada | ||||
3 | % | |||
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 | % |
|
| 53 | % |
|
| 52 | % | |
Pounds sterling | 13 | % | 19 | % |
|
| 13 | % |
|
| 19 | % | |
Euro | 15 | % | 12 | % |
|
| 19 | % |
|
| 13 | % | |
Other currencies | 17 | % | 18 | % |
|
| 15 | % |
|
| 16 | % |
(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 |
The following table sets forth the total revenue for the three months ended March 31, 2020 and 2019 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, 2020, as follows:compared to the prior year period:
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Total revenues | $ | 6,124 | $ | 5,960 | 3% | (1)% | 4% | —% | 4% |
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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.
Impact of the COVID-19 Pandemic on our Segments
The COVID-19 pandemic is projected to have an impact on certain of our service offerings. These impacts may be negative in some instances and positive in others, may be material in either event, and primarily impact our revenue. We have preliminarily assessed the expected impact of COVID-19 in part by determining which of our business offerings are discretionary and non-discretionary in nature. Most of the services we provide, including broking for various insurance products, compliance and valuation services, risk mitigation and outsourced administration for both pension and health and welfare plans are considered non-discretionary to our clients and recurring in nature. We expect that these businesses will be the least impacted of our offerings.
The pandemic is expected to adversely affect certain elements of our business which are more discretionary in nature, such as consultative project work arrangements. Therefore, we expect to experience unpredictable volatility in demand around our discretionary services and solutions. Clients may defer or delay decision-making or planned work or seek to terminate existing agreements for these discretionary services and solutions.
We recognize that the broad, global nature of the COVID-19 crisis has impacted the liquidity of our clients generally and may cause us to not meet our original growth estimates for the year. We are monitoring the global outbreak of the COVID-19 pandemic and taking steps to mitigate the risks to us posed by its spread, including by working with our clients, colleagues, suppliers and other stakeholders. Due to the global breadth of the COVID-19 spread and the range of governmental and community reactions thereto, there is uncertainty around its duration, ultimate impact and the timing of recovery. Therefore, the pandemic could lead to an extended disruption of economic activity and the impact on our consolidated results of operations, financial position and cash flows, could be material. Meanwhile, while we cannot predict how long this situation will last, we are focused on maintaining a strong balance sheet, liquidity and financial flexibility.
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 solutionsis further strengthened with teams of international consultants who provide support through each of our business units to employers outsidethe global headquarters of the United States.
The following table sets forth the components of HCB revenuessegment revenue for the three months ended September 30, 2017March 31, 2020 and 2016, respectively,2019, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2020 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 |
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HCB commissions and fees, and total segment revenues,revenue for the three months ended September 30, 2017March 31, 2020 and 2016 were $7362019 was $850 million and $720$829 million, respectively. As expected,On an organic basis, Health and Benefits delivered strong revenue growth, driven by increased consulting and brokerage services, growth in specialty products, and continued expansion of our client portfolio for both local and global appointments. Retirement commissions and fees declined slightly in the third quarter due to the expected decrease in bulk lump sum work in 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. Talent and Rewards commissions and fees were up slightlyrevenue grew moderately as a result of our product offerings and higherincreased project work in Great Britain. The remainder of the segment’s revenue growth was generated by increased demand for change management consulting, offset by a slight declineproject work and product sales 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.
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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 our 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.
The following table sets forth the components of CRB revenuesrevenue for the three months ended September 30, 2017March 31, 2020 and 2016, respectively,2019, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2020 from the three months ended September 30, 2016.
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Commissions and fees | $ | 581 | $ | 553 | 5% | 1% | 4% | —% | 4% | |||||||||
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Total segment revenues | $ | 586 | $ | 561 |
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CRB total segment revenuesrevenue for the three months ended September 30, 2017March 31, 2020 and 2016 were $5862019 was $739 million and $561$728 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.led the segment, followed by Western Europe, had solid growth ledprimarily with new business generation along with strong renewals. A gain recorded in connection with a sale in North America also contributed to the segment’s growth. The revenue increase was partially offset by Sweden and Benelux.declines in Great Britain commissions and fees declined slightlyInternational, due to a change in the remuneration model for certain lines of business. This change, which is neutral to operating income, results in lower revenue and an equal reduction to salaries and benefits expense. Absent this change, both Great Britain and International’s revenue increased, primarily as a result of declines in Transport and a strong comparable in the prior-year third quarter.
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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 our 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 specificinsurance-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, 2020 and 2016, respectively,2019, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2020 from the three months ended September 30, 2016.
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Total segment revenues | $ | 334 | $ | 319 |
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IRR total segment revenuesrevenue for the three months ended September 30, 2017March 31, 2020 and 2016 were $3342019 was $615 million and $319$589 million, respectively. CommissionsOn an organic basis, all lines of business contributed to the growth. Reinsurance and fees for the three months ended September 30, 2017Wholesale growth was driven by new business wins and 2016 were $320 million and $312 million, respectively.favorable renewal factors while Insurance Consulting and Technology formerly Risk Consulting and Software, led the growth for the segmentrevenue grew from strong technology sales. Max Matthiessen revenue increased as a result of increased project workoverall growth in Great Britain and a soft comparablenet commissions. Revenue growth in Western Europe. Max Matthiessen, Wholesale and the Securities business showed commissions and fees growth, primarily asInvestment businesses was a result of strong sales and increased performance fees. Reinsurance and Investment both experienced 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 programs in the portfolio.client wins.
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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 |
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. A significant portion of the revenue in this segment is recurring in nature, driven by either the commissions from the policies we sell, or from long-term service contracts with our clients that typically range from three to five years. Revenue across this segment may be seasonal, driven by the magnitude and timing of client enrollment activities, which often occur during the fourth quarter, with increased membership levels typically effective January 1, after calendar year-end benefits elections. On July 30, 2019, the Company acquired TRANZACT, which operates as part of the BDA services individual populations via its ‘groupsegment. TRANZACT experiences seasonally higher revenue during the fourth quarter due primarily 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 employeestiming of employers across the United States. 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, 2020 and 2016, respectively,2019, and the components of the change in commissions and feesrevenue for the three months ended September 30, 2017March 31, 2020 from the three months ended September 30, 2016.
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BDA total segment revenuesrevenue for the three months ended September 30, 2017March 31, 2020 and 2016 were $1792019 was $231 million and $161$135 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 organic growth continued to be led by Group Marketplace, formerly Active Exchanges,its expanded 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 oflarge-market spaces. For the additional 2017 enrollments, and Benefit Outsourcing’s growth was a result of new client wins.
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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 for the three months ended March 31, 2020 were $1.8$2.1 billion, compared to $2.0 billion for the three months ended September 30, 2017, compared to $1.8 billion for the three months ended September 30, 2016,March 31, 2019, an increase of $35$153 million, or 2%8%. 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, 2020 were $1.1$1.4 billion, compared to $1.1$1.3 billion for the three months ended September 30, 2016,March 31, 2019, an increase of $26 million. This$46 million, or 3%. The increase was primarily a result of higher incentive accruals as compared to the prior year.
Other operating expenses
Other operating expenses for the three months ended September 30, 2017March 31, 2020 were $366$484 million, compared to $370$418 million for the three months ended September 30, 2016, a decreaseMarch 31, 2019, an increase of $4$66 million, or 1%16%. This $4 million decreaseincrease was primarily due primarily to lowerthe inclusion of TRANZACT’s operating expenses in the current quarter and higher professional liability costs,fees, 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, 2020 was $54$98 million, compared to $45$54 million for the three months ended September 30, 2016,March 31, 2019, an increase of $9$44 million, or 20%81%. Depreciation forThe year-over-year increase was primarily due to an acceleration of depreciation of $35 million related to the nine months ended September 30, 2017 was $151 million, comparedabandonment of an internally-developed software asset prior to $132 million for the nine months ended September 30, 2016, an increase of $19 million, or 14%. These increases were due primarily to a higher depreciable base of assets resulting from additional assetsbeing placed in service during 2016.
Amortization
Amortization for the three months ended September 30, 2017March 31, 2020 was $141$121 million, compared to $157$127 million for the three months ended September 30, 2016,March 31, 2019, a decrease of $16$6 million, or 10%5%. 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 related to intangible assets purchased prior to our acquisition of TRANZACT will continue to decrease over time.
Transaction and integration expenses
Transaction and integration expenses for the three months ended September 30, 2017 were $74March 31, 2020 is comprised of $9 million of transaction costs related to our proposed combination with Aon and the acquisition of TRANZACT, compared to $6 million of transaction costs related to the then-pending acquisition of TRANZACT for the three months ended March 31, 2019.
Income from Operations
Income from operations for the three months ended March 31, 2020 was $360 million, compared to $36$359 million for the three months ended September 30, 2016,March 31, 2019, 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, 2020 was $47$61 million, compared to $45$54 million for the three months ended September 30, 2016,March 31, 2019, an increase of $2$7 million, or 4%13%. 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 senior notes offering during the second half of 2019 and additional levels of indebtedness.
Other Expense,Income, Net
Other expense,income, net for the three months ended September 30, 2017March 31, 2020 was $29$92 million, compared to $14$55 million for the three months ended September 30, 2016,March 31, 2019, an increase of $15 million. Other expense, net$37 million, primarily resulting from favorable foreign exchange activity for the nine months ended September 30, 2017 was $79 million, compared to $26 millioncurrent quarter and increased pension income.
Provision for the nine months ended September 30, 2016, an increase of $53 million. The additional expense in 2017 as compared to the prior year related to the impact of foreign exchange hedging contracts, unfavorable balance sheet remeasurement and further devaluation of 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 for the three months ended September 30, 2017March 31, 2020 was a provision of $19$78 million, compared to an income tax benefit of $26$67 million for the three months ended September 30, 2016,March 31, 2019, an increase to income tax expense of $45$11 million. The effective tax rate was (53.0)%20.0% for the three months ended September 30, 2017,March 31, 2020, and 45.9%18.8% for the three months ended September 30, 2016. The (53.0)%March 31, 2019. 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, 2020 was $54$305 million, compared to $32$287 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.
Recently, the COVID-19 pandemic has contributed to significant volatility in financial markets, including declines in equity markets, changes in interest rates and reduced liquidity on a global basis. Specific to Willis Towers Watson, we believe this may negatively impact work we perform for our clients and cash collections from clients, particularly those in certain harder-hit industries, although to date the impact to our results has not been material. We have also reduced our spending on travel and associated expenses and third-party contractors, and have the ability to reduce spending on discretionary projects and certain capital expenditures.
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 $850 million of capacity on 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.
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.
Undistributed Earnings of Foreign Subsidiaries
The Company recognizes deferred tax balances related to the 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 the capital markets.
We continue to have certain subsidiaries whose earnings have not been deemed permanently reinvested, for which we completed an offering of $650 million of 3.600% Senior Notes due 2024. Net proceeds of $644 million were used to pay down amounts outstanding under our revolving credit facility and for general corporate purposes.
Cash and Cash Equivalents
Our cash and cash equivalents at September 30, 2017March 31, 2020 totaled $912$898 million, compared to $870$887 million at December 31, 2016.2019. The increase in cash from December 31, 20162019 to September 30, 2017March 31, 2020 was primarily due primarily to foreign currency translation, asnet borrowings against our revolving credit facility and positive cash flows from operating activities were offset by our investing and financing activities.
Additionally, at September 30, 2017, $329March 31, 2020, $850 million was available to draw against our $1.25 billion revolving credit facility as compared to $557 million,$1.2 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, 2020 and December 31, 20162019 are amounts held for regulatory capital adequacy requirements, including $89$112 million and $87$114 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, 2020 and 2016:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in millions) |
| |||||
Net cash from/(used in): |
|
|
|
|
|
|
|
|
Operating activities |
| $ | 23 |
|
| $ | (47 | ) |
Investing activities |
|
| (162 | ) |
|
| (75 | ) |
Financing activities |
|
| 186 |
|
|
| 82 |
|
INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 47 |
|
|
| (40 | ) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (36 | ) |
|
| (1 | ) |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD (i) |
|
| 895 |
|
|
| 1,033 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (i) |
| $ | 906 |
|
| $ | 992 |
|
(i) | As a result of the acquired TRANZACT collateralized facility, cash, cash equivalents and restricted cash included $8 million of restricted cash at March 31, 2020 and December 31, 2019, which is included within prepaid and other current assets on our condensed consolidated balance sheets. There were no restricted cash amounts held at March 31, 2019 and December 31, 2018. |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
(in millions) | |||||||
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 FromFrom/(Used In) Operating Activities
Cash flows from operating activities were $515$23 million for the ninethree months ended September 30, 2017,March 31, 2020, compared to cash flows fromused in operating activities of $621$47 million for the ninethree months ended September 30, 2016.March 31, 2019. The $515$23 million of net cash from operating activities for the ninethree months ended September 30, 2017March 31, 2020 included net income of $339$313 million adjusted for $579
The $621$47 million of net cash flows fromused in operating activities for the ninethree months ended September 30, 2016March 31, 2019 included net income of $290$293 million and $498$187 million of non-cash adjustments, to reconcile net income to cash provided by operating activities, partially offset by changes in operating assets and liabilities of $167$527 million.
Cash Flows (Used In)/FromUsed In Investing Activities
Cash flows used in investing activities for the ninethree months ended September 30, 2017March 31, 2020 and 2019 were $262$162 million and $75 million, respectively, primarily driven primarily by capital expenditures and capitalized software costs.additions,and an acquisition during the first quarter of 2020.
Cash Flows From Financing Activities
Cash flows from investing activities for the nine months ended September 30, 2016 were $283 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 through the issuance of shares. Fixed asset purchases and capitalized costs of developing software for internal use totaled $215 million.
Cash flows used infrom financing activities for the ninethree months ended September 30, 2016March 31, 2019 were $659$82 million. The significant financing activities included net borrowings of $137 million driven primarily by debtand proceeds from the issuance of $2.0 billion, debt repaymentsshares of $1.9 billion, net payments on the revolving credit facility of $389$22 million, partially offset by dividend payments of $133 million, and share repurchases of $222$77 million.
Indebtedness
Total debt, total equity, and the capitalization ratioratios at September 30, 2017March 31, 2020 and December 31, 20162019 were as follows:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||
|
| ($ in millions) |
| |||||
Long-term debt |
| $ | 5,177 |
|
| $ | 5,301 |
|
Current debt |
|
| 697 |
|
|
| 316 |
|
Total debt |
| $ | 5,874 |
|
| $ | 5,617 |
|
|
|
|
|
|
|
|
|
|
Total Willis Towers Watson shareholders’ equity |
| $ | 10,263 |
|
| $ | 10,249 |
|
|
|
|
|
|
|
|
|
|
Capitalization ratio |
|
| 36.4 | % |
|
| 35.4 | % |
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, 2020, our material mandatory debt repayments over the next twelve months include scheduled repayments of $85$500 million outstanding on our 5.750% senior notes due 2021, $175 million outstanding on our one-year unsecured term loan, maturing in 2019.
At September 30, 2017March 31, 2020 and December 31, 2016,2019, 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, 2020 and December 31, 2016,2019, we had fiduciary funds of $3.1$3.7 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.
On February 26, 2020, the board of directors approved a $251 million increase to the existing share repurchase program, increasing the total remaining authorization to $500 million.
During the three months ended March 31, 2020, the Company had no share repurchase activity. With regards to certain prohibitions under the transaction agreement in connection with our pending business combination with Aon, the board of directors does not expect to repurchase any shares during the remainder of 2020.
At September 30, 2017,March 31, 2020, approximately $671$500 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 31, 2020 of $154.23$169.85 was 4,351,419.
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$66 million during the ninethree months ended September 30, 2017.March 31, 2020. The Company estimates that there will be additional such expenditures of approximately $75$175 million during the remainder of 2017. 2020.
We currently 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$84 million were paid during the ninethree months ended September 30, 2017.March 31, 2020. In September 2017,February 2020, the board of directors declaredapproved a quarterly cash dividend of $0.53$0.68 per share ($2.122.72 per share annualized rate), which was paid on October 16, 2017April 15, 2020 to shareholders of record as of September 30, 2017.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Transactions
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 26, 2020, for a discussion pertaining to off-balance sheet transactions.
Contractual Obligations
There have been no material changes to our operating lease obligations since we filed our Annual Report on Form 10-K with the SEC on March 1, 2017.
Supplemental Guarantor Financial Information
As of March 1,31, 2020, Willis Towers Watson has issued the following debt securities (the ‘notes’):
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 $2.7 billion senior notes outstanding, of which $650 million were issued on May 16, 2017, $1.0 billion were issued on September 10, 2018, and $1.0 billion were issued on September 10, 2019; and $175 million currently outstanding under a one-year unsecured term loan; 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 $396 million currently outstanding on a consolidated basis under the $1.25 billion revolving credit facility issued on March 7, 2017. |
The following table presents a summary of the entities that issue each note and those wholly owned subsidiaries of the Company that guarantee each respective note on a joint and several basis. These subsidiaries are discussedall consolidated by the parent company and together with the parent company comprise the ‘Obligor group’.
Entity | Willis Towers Watson plc Notes | Trinity Acquisition plc Notes | Willis North America Inc. Notes | |||
Willis Towers Watson plc | Issuer | Guarantor | Guarantor | |||
Trinity Acquisition plc | Guarantor | Issuer | Guarantor | |||
Willis North America Inc. | Guarantor | Guarantor | Issuer | |||
Willis Netherlands Holdings B.V. | Guarantor | Guarantor | Guarantor | |||
Willis Investment UK Holdings Limited | Guarantor | Guarantor | Guarantor | |||
TA I Limited | Guarantor | Guarantor | Guarantor | |||
Willis Group Limited | Guarantor | Guarantor | Guarantor | |||
Willis Towers Watson Sub Holdings Unlimited Company | Guarantor | Guarantor | Guarantor | |||
Willis Towers Watson UK Holdings Limited | Guarantor | Guarantor | Guarantor |
The notes issued by the parent company, Willis North America and Trinity Acquisition plc:
• | rank equally with all of the issuer’s existing and future unsubordinated and unsecured debt; |
• | rank equally with the issuer’s guarantee of all of the existing senior debt of the Company and the other guarantors, including any debt under the Revolving Credit Facility; |
• | are senior in right of payment to all of the issuer’s future subordinated debt; and |
• | are effectively subordinated to all of the issuer’s secured debt to the extent of the value of the assets securing such debt. |
All other subsidiaries of the parent company are non-guarantor subsidiaries (‘the non-guarantor subsidiaries’).
Each member of the Obligor group has only a stockholder’s claim on the assets of the non-guarantor subsidiaries. This stockholder’s claim is junior to the claims that creditors have against those non-guarantor subsidiaries. Holders of the notes will only be creditors of the Obligor group and not creditors of the non-guarantor subsidiaries. As a result, all of the existing and future liabilities of the non-
guarantor subsidiaries, including any claims of trade creditors and preferred stockholders, will be structurally senior to the notes. As of and for the periods ended March 31, 2020 and December 31, 2019, the non-guarantor subsidiaries represented substantially all of the total assets and accounted for substantially all of the total revenue of the Company prior to consolidating adjustments. The non-guarantor subsidiaries have other liabilities, including contingent liabilities that may be significant. Each indenture does not contain any limitations on the amount of additional debt that the Obligor group and the non-guarantor subsidiaries may incur. The amounts of this debt could be substantial, and this debt may be debt of the non-guarantor subsidiaries, in Note 9 — Debtwhich case this debt would be effectively senior in right of payment to the notes.
The notes are obligations exclusively of the Obligor group. Substantially all of the Obligor group’s operations are conducted through its non-guarantor subsidiaries. Therefore, the Obligor group’s ability to service its debt, including the notes, is dependent upon the net cash flows of its non-guarantor subsidiaries and Note 11 — Retirement Benefits.their ability to distribute those net cash flows as dividends, loans or other payments to the Obligor group. Certain laws restrict the ability of these non-guarantor subsidiaries to pay dividends and make loans and advances to the Obligor group. In addition, such non-guarantor subsidiaries may enter into contractual arrangements that limit their ability to pay dividends and make loans and advances to the Obligor group.
Intercompany balances and transactions between members of the Obligor group have been eliminated. All intercompany balances and transactions between the Obligor group and the non-guarantor subsidiaries have been presented in the disclosures below on a net presentation basis, rather than a gross basis, as this better reflects the nature of the intercompany positions and presents the funding or funded position that is to be received or owed. The intercompany balances and transactions between the Obligor group and non-guarantor subsidiaries, presented below, relate to a number of items including loan funding for acquisitions and other purposes, transfers of surplus cash between subsidiary companies, funding provided for working capital purposes, settlement of expense accounts, transactions related to share-based payment arrangements and share issuances, intercompany royalty arrangements, intercompany dividends and intercompany interest. At March 31, 2020 and December 31, 2019, the intercompany balances of the Obligor group with non-guarantor subsidiaries were net receivables of $1.1 billion and $4.3 billion, respectively, and net payables of $7.6 billion and $3.5 billion, respectively.
No balances or transactions of non-guarantor subsidiaries are presented in the disclosures other than the intercompany items noted above.
Presented below is certain summarized financial information for the Obligor group.
` |
| As of March 31, 2020 |
|
| As of December 31, 2019 |
| ||
|
| (in millions) |
| |||||
Total current assets |
| $ | 532 |
|
| $ | 1,210 |
|
Total non-current assets |
|
| 888 |
|
|
| 3,436 |
|
Total current liabilities |
|
| 4,838 |
|
|
| 3,993 |
|
Total non-current liabilities |
|
| 8,901 |
|
|
| 5,387 |
|
|
| Three months ended March 31, 2020 |
| |
|
| (in millions) |
| |
Revenue |
| $ | 70 |
|
Income from operations |
|
| 20 |
|
Loss from operations before income taxes (i) |
|
| (107 | ) |
Net loss |
|
| (89 | ) |
Net loss attributable to Willis Towers Watson |
|
| (89 | ) |
(i)Includes intercompany expense, net of the Obligor group from non-guarantor subsidiaries of $10 million for the three months ended March 31, 2020.
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 | Adjusted operating | |
Net | Adjusted | |
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 may 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. |
• | Abandonment of long-lived asset - Adjustment to remove the depreciation expense resulting from internally-developed software that was abandoned prior to being placed into service. |
• | Provisions for significant litigation - We will include provisions for litigation matters which we believe are not representative of our core business operations. |
• | 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, 2020 from the three months ended March 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Components of Revenue Change (i) |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| As |
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|
|
|
|
| Constant |
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|
|
|
|
|
|
|
| ||
|
| Three Months Ended March 31, |
|
| Reported |
|
| Currency |
|
| Currency |
|
| Acquisitions/ |
|
| Organic |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| Impact |
|
| Change |
|
| Divestitures |
|
| Change |
| |||||||
|
| ($ in millions) |
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| |||||
Revenue |
| $ | 2,466 |
|
| $ | 2,312 |
|
| 7% |
|
| (2)% |
|
| 8% |
|
| 4% |
|
| 4% |
|
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 4% for the three months ended March 31, 2020. This organic increase in revenue was driven by strong performances in all segments.
Adjusted Operating Income
We consider adjusted operating incomeincome/margin to be an important financial measure,measures, which isare used internally to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.
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, 2020 and 20162019 are as follows:
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
| (in millions) |
| |||||
Income from operations | $ | 360 |
|
| $ | 359 |
|
Adjusted for certain items: |
|
|
|
|
|
|
|
Abandonment of long-lived asset |
| 35 |
|
|
| — |
|
Amortization |
| 121 |
|
|
| 127 |
|
Transaction and integration expenses |
| 9 |
|
|
| 6 |
|
Adjusted operating income | $ | 525 |
|
| $ | 492 |
|
|
|
|
|
|
|
|
|
Income from operations margin |
| 14.6 | % |
|
| 15.5 | % |
Adjusted operating income margin |
| 21.3 | % |
|
| 21.3 | % |
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, 2020 to $287$525 million, compared to $243from $492 million for the three months ended September 30, 2016, as a result of strongMarch 31, 2019. This increase was primarily due to organic revenue growth duringacross all segments and the quarter from increased client demand.
Adjusted EBITDA
We consider adjusted EBITDAEBITDA/margin to be an important financial measure,measures, which isare 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)/lossgains and losses on disposaldisposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenue.
Reconciliations of net (loss)/income to adjusted EBITDA for the three and nine months ended September 30, 2017March 31, 2020 and 20162019 are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in millions) |
| |||||
NET INCOME |
| $ | 313 |
|
| $ | 293 |
|
Provision for income taxes |
|
| 78 |
|
|
| 67 |
|
Interest expense |
|
| 61 |
|
|
| 54 |
|
Depreciation (i) |
|
| 98 |
|
|
| 54 |
|
Amortization |
|
| 121 |
|
|
| 127 |
|
Transaction and integration expenses |
|
| 9 |
|
|
| 6 |
|
Adjusted EBITDA |
| $ | 680 |
|
| $ | 601 |
|
|
|
|
|
|
|
|
|
|
Net income margin |
|
| 12.7 | % |
|
| 12.7 | % |
Adjusted EBITDA margin |
|
| 27.6 | % |
|
| 26.0 | % |
(i) | Includes abandonment of long-lived asset of $35 million for the three months ended March 31, 2020. |
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, 2020 was $322$680 million, compared to $275$601 million for the three months ended September 30, 2016. RevenueMarch 31, 2019. This increase was primarily due to organic revenue growth from increased client demand, driven byacross all segments wasand the addition of TRANZACT’s operating results, partially offset by adverse foreign currency movements.
Adjusted Net Income and Adjusted Diluted Earnings Per Share
Adjusted net income is defined as net income/(loss)income attributable to Willis Towers Watson adjusted for amortization, restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, (gain)/lossgains and losses on disposaldisposals of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results and the related tax effect of those adjustments.adjustments and the tax effects of internal reorganizations. This measure is used solely for the purpose of calculating adjusted diluted earnings per share.
Adjusted diluted earnings per share is defined as adjusted net income divided by the weighted averageweighted-average number of shares of common stock, diluted. Adjusted diluted earnings per share is used to internally evaluate and assess our core operations and to benchmark our operating results against our competitors.
Three Months Ended September 30, | |||||||
2017 | 2016 | ||||||
($ 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 |
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, 2020and 2016, respectively,2019 are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| ($ in millions) |
| |||||
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON |
| $ | 305 |
|
| $ | 287 |
|
Adjusted for certain items: |
|
|
|
|
|
|
|
|
Abandonment of long-lived asset |
|
| 35 |
|
|
| — |
|
Amortization |
|
| 121 |
|
|
| 127 |
|
Transaction and integration expenses |
|
| 9 |
|
|
| 6 |
|
Tax effect on certain items listed above (i) |
|
| (35 | ) |
|
| (32 | ) |
Adjusted net income |
| $ | 435 |
|
| $ | 388 |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock — diluted |
|
| 130 |
|
|
| 130 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
| $ | 2.34 |
|
| $ | 2.20 |
|
Adjusted for certain items (ii) : |
|
|
|
|
|
|
|
|
Abandonment of long-lived asset |
|
| 0.27 |
|
|
| — |
|
Amortization |
|
| 0.93 |
|
|
| 0.97 |
|
Transaction and integration expenses |
|
| 0.07 |
|
|
| 0.05 |
|
Tax effect on certain items listed above (i) |
|
| (0.27 | ) |
|
| (0.25 | ) |
Adjusted diluted earnings per share |
| $ | 3.34 |
|
| $ | 2.98 |
|
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, 2020 as compared to the prior year primarily due to organic revenue growth.growth across all segments and the addition of TRANZACT’s operating results.
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)/lossgains and losses on disposaldisposals 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)/lossgains and losses on disposaldisposals 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,reorganizations, which are not core to our current and future operations.
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, 2020 and 2016, respectively,2019 are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| ($ in millions) |
| |||||
INCOME FROM OPERATIONS BEFORE INCOME TAXES |
| $ | 391 |
|
| $ | 360 |
|
Adjusted for certain items: |
|
|
|
|
|
|
|
|
Abandonment of long-lived asset |
|
| 35 |
|
|
| — |
|
Amortization |
|
| 121 |
|
|
| 127 |
|
Transaction and integration expenses |
|
| 9 |
|
|
| 6 |
|
Adjusted income before taxes |
| $ | 556 |
|
| $ | 493 |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| $ | 78 |
|
| $ | 67 |
|
Tax effect on certain items listed above (i) |
|
| 35 |
|
|
| 32 |
|
Adjusted income taxes |
| $ | 113 |
|
| $ | 99 |
|
|
|
|
|
|
|
|
|
|
U.S. GAAP tax rate |
|
| 20.0 | % |
|
| 18.8 | % |
Adjusted income tax rate |
|
| 20.4 | % |
|
| 20.1 | % |
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 20.0% and 45.9%18.8% for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and 17.7% and 3.5% for the nine months ended September 30, 2017 and 2016,2019, respectively.
Our adjusted income tax rates were 32.1%20.4% and 22.2%20.1% for the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and 22.3% and 21.4% for the nine months ended September 30, 2017 and 2016,2019, 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 fromfrom/(used in) operating activities to free cash flow for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 are as follows:
|
| Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
|
| (in millions) |
| |||||
Cash flows from/(used in) operating activities |
| $ | 23 |
|
| $ | (47 | ) |
Less: Additions to fixed assets and software for internal use |
|
| (66 | ) |
|
| (57 | ) |
Free cash flow |
| $ | (43 | ) |
| $ | (104 | ) |
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 decreasefavorable movement in free cash flows in 20172020 was primarily due to positive cash flows from our improved working capital for the three months ended March 31, 2020 as compared to 2016 primarily resulted from higher capital expenditures, unfavorable changes 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 the Merger.
Critical Accounting Policies and Estimates
There were no material changes from the Critical Accounting Policies and Estimates disclosed in our 20162019 Annual Report on Form 10-K, filed with the SEC on March 1, 2017.February 26, 2020.
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, 2020 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, 2016,2019, filed with the SEC on February 26, 2020. However, we have provided the following information to supplement or update our disclosures on our Form 10-K.
LIBOR-Related Debt Instruments
In July 2017, the Financial Conduct Authority, the authority that regulates LIBOR, announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (‘ARRC’), a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from U.S. dollar LIBOR (‘USD-LIBOR’) to a more robust reference rate, has proposed that the Secured Overnight Financing Rate (‘SOFR’) represents the best alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a transition plan with specific steps and timelines designed to encourage the adoption of SOFR and guide the transition to SOFR from USD-LIBOR. Organizations are currently working on industry-wide and company-specific transition plans related to derivatives and cash markets exposed to USD-LIBOR. Similar efforts are underway to identify suitable replacement reference rates for LIBOR in other major currencies.
As of March 1, 2017.
We are currently evaluating the LIBOR-related risks that may be inherent elsewhere in our business and are monitoring for further proposals and guidance from the ARRC and other alternative-rate initiatives, with the expectation that we will be prepared for the termination and replacement of the LIBOR benchmarks.
Interest Income on Fiduciary Funds
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 31, 2020, we held $1.8 billion of fiduciary funds invested in interest-bearing accounts. If short-term interest rates increased or decreased by 25 basis points, interest earned on these invested fiduciary funds, and therefore our interest income recognized, would increase or decrease by approximately $4 million on an annualized basis.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2017,March 31, 2020, 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.
Our assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal control over financial reporting at TRANZACT. SEC guidance permits management to omit an assessment of an acquired business’ internal control over financial reporting from its assessment of internal control over financial reporting for a period not to exceed one year from the date of acquisition. We are in the process of integrating TRANZACT operations within our internal control structure. Accordingly, management has excluded controls relating to TRANZACT in this quarter’s evaluation of disclosure controls and procedures.
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, 2020 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.
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 26, 2020. We urge you to read the risk factors contained therein.
We have been impacted by the COVID-19 pandemic and may be materially and adversely impacted by it in the future.
Recently, the COVID-19 pandemic has had an adverse impact on global commercial activity, including the global supply chain; and has contributed to significant volatility in financial markets, including, among other effects, a decline in equity markets, changes in interest rates and reduced liquidity. It has also resulted in increased travel restrictions and extended shutdowns of businesses in various industries including, among others, travel, trade, tourism, health systems and food supply, and significantly reduced overall economic output. As such, there is a risk that COVID-19 could have a material adverse impact on client demand and cash flow.
COVID-19 risks could magnify other risks discussed in this report and any of our SEC filings. For example, the effectiveness of external parties, including governmental and non-governmental organizations, in combating the spread and severity of COVID-19 could have a material impact on demand for our business. In addition, steps taken by market counterparties such as (re)insurance carriers to limit their exposures to COVID-19 and related risks could have an impact on their willingness to provide or renew coverage for our clients on historical terms and pricing, which could again impact demand for our business. Coverage disputes arising out of the pandemic could also increase our professional liability risk by increasing the frequency and severity of allegations by others that, in the course of providing services, we have committed errors or omissions for which we should have liability. Also, travel restrictions have caused the postponement or cancellation of various conferences and meetings around the world and adversely impacted sales activity. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on our business. Nevertheless, COVID-19 presents material uncertainty and risk with respect to demand for our products and services.
In addition, COVID-19 could materially disrupt our own business operations and the services we provide, as well as the business operations of our clients, suppliers and other third parties with whom we interact. As an increasing percentage of our colleagues work remotely, we face resiliency risks, such as the risk that our information technology platform could potentially be inadequate to support increasing demand, as well as the risk that unusual working arrangements could impact the effectiveness of our operations or controls. We may also make fewer information technology-based investments than previously anticipated, which could potentially create business operational risk. In addition, we depend on third-party platforms and other infrastructure to provide certain of our products and services, and such third-party infrastructures face similar resiliency risks. Also, a potential COVID-19 infection of any of our key colleagues could materially and adversely impact our operations. Further, it is possible that COVID-19 causes us to close down call centers and other processes on which we rely, or impacts processes of third-party vendors on whom we rely, which could also materially impact our operations. The rapidly evolving changes in financial markets could also have a material impact on our own hedging and other financial transactions, which could impact our liquidity. In addition, it is possible that COVID-19 restrictions could create difficulty for satisfying our legal or regulatory filing or other obligations, including with the SEC and other regulators.
All of the foregoing events or potential outcomes, including in combination with other risk factors included in this Quarterly Report on Form 10-Q or our Annual Report.Report on Form 10-K, could cause a material adverse effect on our results of operations in any period and, depending on their severity, could also materially and adversely affect our financial condition. In addition, such events and outcomes could potentially impact our reputation with clients and regulators, among others.
Our pending combination with Aon creates incremental business, regulatory and reputational risks.
On March 9, 2020, the Company announced that it had entered into a business combination agreement with Aon. The proposed transaction with Aon entails important risks, including, among others: the risk that we are unable to obtain the requisite shareholder or regulatory approvals or satisfy all of the other conditions required to consummate the proposed transaction on the proposed terms and schedule, if at all; the risk that we and Aon are unable to successfully integrate our combined operations and employees and realize the proposed transaction’s benefits, including potential synergies, or that we are unable to realize such benefits at the times and to the extent anticipated or that results are different from those contained in forecasts when made; the risk that transaction and/or integration costs or dis-synergies are greater than expected, including as a result of conditions regulators put on any approvals of the transaction; the potential impact of the announcement and/or consummation of the proposed transaction on relationships, including with employees, suppliers, clients and competitors; the risk that we and/or the combined company will not have the ability to hire and retain key personnel; the risk that management’s attention is diverted from other matters; the risks posed by changes in general economic, business and political conditions, including changes in the financial markets and any epidemic, pandemic or disease
outbreaks; the risk of potential litigation associated with the proposed transaction; the fact that the business combination agreement subjects the Company to various significant restrictions on its operations between signing and closing (including, among others, with respect to share repurchases, the incurrence of debt above thresholds or the acquisition or disposition of assets above specified thresholds, or specified changes to compensation and benefit programs); the risk of disruptions from the proposed transaction that impact our and/or Aon’s business, including current plans and operations; the risk posed by extensive government regulation on our business and/or the business of the combined company; the risk of adverse effects on the market price of Aon’s and the Company’s securities and on Aon’s and the Company’s operating results for any reason; and other risks described in the Company’s SEC filings, including definitive additional materials, the merger proxy statement and other filings generally applicable to significant transactions and related integrations that are or will be filed with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the ninethree months ended September 30, 2017,March 31, 2020, 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.
On February 26, 2020, the Company’s repurchasesboard of ordinarydirectors approved a $251 million increase to the existing share repurchase program, increasing the total remaining authorization to $500 million.
During the three months ended March 31, 2020, there was no share repurchase activity. With regards to certain prohibitions under the transaction agreement in connection with our pending business combination with Aon, the board of directors does not expect to repurchase any shares induring the third quarterremainder of 2017 and2020.
At March 31, 2020 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 |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
EXHIBIT INDEX
Exhibit Number | ||
Description of Exhibit | ||
2.1 | ||
2.2 | ||
2.3 | ||
10.1 | ||
10.2 | ||
10.3 | ||
22.1 | ||
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 | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
* | Filed or furnished herewith. |
† | Management contract or compensatory plan or arrangement. |
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 | April 30, 2020 | |||
Name: | John J. Haley | Date | ||
Title: | Chief Executive Officer | |||
/s/ Michael J. Burwell | April 30, 2020 | |||
Name: | Michael J. Burwell | Date | ||
Title: | Chief Financial Officer | |||
/s/ Susan D. Davies | April 30, 2020 | |||
Name: | Susan D. Davies | Date | ||
Title: | Principal Accounting Officer and Controller |
51