Willis Towers Watson Reports Solid Fourth Quarter and Full Year 2020 Earnings
Willis Towers Watson (NASDAQ: WLTW) reported its financial results for Q4 and FY 2020, showing a 3% revenue increase to $2.76 billion for Q4 and $9.35 billion for the year. Operating cash flow reached $1.8 billion, up 64%, while free cash flow nearly doubled to $1.6 billion. However, diluted EPS fell 12% year-over-year for Q4 to $3.66 and 5% for the year to $7.65. The company incurred $110 million in transaction costs related to its merger with Aon. Despite a tough environment, it reported strong adjusted EPS growth of 7% for both the quarter and the year.
- Cash flows from operating activities increased by 64% to $1.8 billion.
- Free cash flow nearly doubled to $1.6 billion, up 86% from the prior year.
- Adjusted diluted EPS rose by 7% year-over-year for both the quarter ($5.23) and the year ($11.70).
- Revenue for the Benefits Delivery & Administration segment increased by 16%.
- Diluted EPS fell by 12% year-over-year for Q4 and 5% for the year.
- Net income attributable to the company decreased by 13% in Q4 and 5% for the year.
- Operating income as a percentage of revenue declined by 430 basis points in Q4.
- For the year, cash flows from operating activities were
$1.8 billion , up64% compared to$1.1 billion in the prior year - For the year, free cash flow almost doubled to
$1.6 billion compared to$835 million in the prior year - Revenue1 increased
3% for both the quarter and the year - Organic revenue growth of
2% for both the quarter and the year - Diluted Earnings per Share were
$3.66 for the quarter, down12% over prior year - Diluted Earnings per Share were
$7.65 for the year, down5% over prior year - Adjusted Diluted Earnings per Share were
$5.23 for the quarter, up7% over prior year - Adjusted Diluted Earnings per Share were
$11.70 for the year, up7% over prior year
ARLINGTON, Va. and LONDON, Feb. 09, 2021 (GLOBE NEWSWIRE) -- Willis Towers Watson (NASDAQ: WLTW) (the “Company”), a leading global advisory, broking and solutions company, today announced financial results for the fourth quarter and full year ended December 31, 2020.
“Our performance in the fourth quarter provided a strong finish to a good year in a difficult environment,” said John Haley, Willis Towers Watson’s chief executive officer. “We produced solid margins, almost doubled free cash flow, and delivered remarkable adjusted EPS growth. The results reflect the strong dedication and adaptability of our colleagues and their commitment to the values that underpin our Company. I couldn’t be prouder of Willis Towers Watson’s accomplishments to date and I look forward to our continued momentum in 2021 as we move toward our planned combination with Aon.”
Company Highlights
Cash flows from operating activities for the year ended December 31, 2020 were
Revenue was
For the year ended December 31, 2020, revenue was
Income from operations for the fourth quarter of 2020 was
For the year ended December 31, 2020, income from operations was
Net income for the fourth quarter of 2020 was
For the year ended December 31, 2020, net income was
1 The revenue amounts included in this release are presented on a U.S. GAAP basis except where stated otherwise. The segment discussion is on an organic basis.
Risks and Uncertainties Related to the COVID-19 Pandemic
The extent to which COVID-19 continues to impact our business and financial position will depend on future developments, which are difficult to predict, including the severity and scope of the COVID-19 pandemic 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. We continue to expect that the COVID-19 pandemic will negatively impact our revenue and operating results for 2021. During 2020, the COVID-19 pandemic had a negative impact on revenue growth, particularly in our businesses that are discretionary in nature, but otherwise it generally did not have a material impact on our overall results. Some of our discretionary, project-based businesses saw a reduction in demand, and additional negative impacts on our revenue and operating results may lag behind the developments thus far related to the COVID-19 pandemic. In light of the effects on our own business operations and those of our clients, suppliers and other third parties with whom we interact, the Company has considered, and will continue to consider, the impact of COVID-19 on our business, as appropriate taking into account our business resilience and continuity plans, financial modeling and stress testing of liquidity and financial resources. For additional information on the risks posed by COVID-19, see additional disclosures in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
Fourth Quarter 2020 Segment Highlights
Human Capital & Benefits
The Human Capital & Benefits (HCB) segment had revenue of
Corporate Risk & Broking
The Corporate Risk & Broking (CRB) segment had revenue of
Investment, Risk & Reinsurance
The Investment, Risk & Reinsurance (IRR) segment had revenue of
Benefits Delivery & Administration
The Benefits Delivery & Administration (BDA) segment had revenue of
Conference Call
The Company will host a live webcast and conference call to discuss the financial results for the fourth quarter. It will be held on Tuesday, February 9, 2021, beginning at 9:00 a.m. Eastern Time, and can be accessed via the Internet at www.willistowerswatson.com. The replay of the call will be available shortly after the live call for a period of three months. A telephonic replay of the call will also be available for 24 hours at 404-537-3406, conference ID 3871978.
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has more than 46,000 employees and services clients in more than 140 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.
Willis Towers Watson Non-GAAP Measures
In order to assist readers of our consolidated financial statements in understanding the core operating results that Willis Towers Watson’s management uses to evaluate the business and for financial planning, we present the following non-GAAP measures: (1) Constant Currency Change, (2) Organic Change, (3) Adjusted Operating Income/Margin, (4) Adjusted EBITDA/Margin, (5) Adjusted Net Income, (6) Adjusted Diluted Earnings Per Share, (7) Adjusted Income Before Taxes, (8) Adjusted Income Taxes/Tax Rate and (9) Free Cash Flow.
We believe 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 these measures referred to as ‘adjusted’, we adjust for significant items which will not be settled in cash, or which we believe to be items that are not core to our current or future operations. Some of these items may not be applicable for the current quarter, however they are expected to be part of our full-year results. These items include the following:
- Restructuring costs and transaction and integration expenses - Management believes it is appropriate to adjust for restructuring costs and 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. These amounts are presented net of insurance recovery receivables.
- Tax effect of the CARES Act - Relates to the incremental tax expense impact, primarily from the Base Erosion and Anti-Abuse Tax (“BEAT”), generated from electing certain income tax provisions of the CARES Act.
- 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.
We evaluate our revenue on an as reported (U.S. GAAP), constant currency and organic basis. We believe presenting constant currency and organic information provides valuable supplemental information regarding our comparable results, consistent with how we evaluate our performance internally.
We consider Constant Currency Change, Organic Change, Adjusted Operating Income/Margin, Adjusted EBITDA/Margin, Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted Income Before Taxes, Adjusted Income Taxes/Tax Rate and Free Cash Flow to be important financial measures, which are used to internally evaluate and assess our core operations and to benchmark our operating and liquidity results against our competitors. These non-GAAP measures are important in illustrating what our comparable operating and liquidity results would have been had we not incurred transaction-related and non-recurring items. Our non-GAAP measures and their accompanying definitions are presented as follows:
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 translation-related items can vary from period to period.
Adjusted Operating Income/Margin – Income from operations adjusted for amortization, restructuring costs, transaction and integration expenses and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results. Adjusted operating income margin is calculated by dividing adjusted operating income by revenue. We consider adjusted operating income/margin to be important financial measures, which are used internally to evaluate and assess our core operations and to benchmark our operating results against our competitors.
Adjusted EBITDA/Margin – Net Income adjusted for provision for income taxes, interest expense, depreciation and amortization, restructuring costs, transaction and integration expenses, gains and losses on disposals 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. We consider adjusted EBITDA/margin to be important financial measures, which are 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 Net Income – Net Income Attributable to Willis Towers Watson adjusted for amortization, restructuring costs, transaction and integration expenses, gains and losses on disposals 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 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 – Adjusted Net Income divided by the weighted-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.
Adjusted Income Before Taxes – Income from operations before income taxes adjusted for amortization, restructuring costs, transaction and integration expenses, gains and losses on disposals 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 – Provision for income taxes adjusted for taxes on certain items of amortization, restructuring costs, transaction and integration expenses, gains and losses on disposals of operations, the tax effects of internal reorganizations, and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results, divided by adjusted income before taxes. Adjusted income taxes is used solely for the purpose of calculating the adjusted income tax rate. 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 internal reorganizations, which are not core to our current and future operations.
Free Cash Flow – Cash flows from operating activities less cash used to purchase fixed assets and software for internal use. Free Cash Flow is a liquidity measure and is not meant to represent residual cash flow available for discretionary expenditures. Management believes that free cash flow presents the core operating performance and cash-generating capabilities of our business operations.
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.
Reconciliations of these measures are included in the accompanying tables with the following exception.
The Company does not reconcile its forward-looking non-GAAP financial measures to the corresponding U.S. GAAP measures, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible; and because not all of the information, such as foreign currency impacts necessary for a quantitative reconciliation of these forward-looking non-GAAP financial measures to the most directly comparable U.S. GAAP financial measure, is available to the Company without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The Company provides non-GAAP financial measures that it believes will be achieved, however it cannot accurately predict all of the components of the adjusted calculations and the U.S. GAAP measures may be materially different than the non-GAAP measures.
Willis Towers Watson Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements and other forward-looking statements in this document by words such as “may”, “will”, “would”, “expect”, “anticipate”, “believe”, “estimate”, “plan”, “intend”, “continue”, or similar words, expressions or the negative of such terms or other comparable terminology. These statements include, but are not limited to, such things as our outlook, the 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, financial results (including our revenue), the impact of changes to tax laws on our financial results, existing and evolving business strategies and acquisitions and dispositions, demand for our services and competitive 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, including our future financial and operating results, plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Willis Towers Watson’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 herein, including the following: the risks relating to or arising from 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 regulatory approvals; our ability to successfully establish, execute and achieve our global business strategy as it evolves; the risk that the COVID-19 pandemic substantially and negatively impacts the demand for our products and services and cash flows, and/or continues to materially impact our business operations, including increased demand on our information technology resources and systems and related risks of cybersecurity breaches or incidents; 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; 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 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 substantial negative outcomes on existing litigation or investigation matters; changes in the regulatory environment in which we operate, including, among other risks, the impact of pending competition law and regulatory investigations; various claims, government inquiries or investigations or the potential for regulatory action; our ability to make divestitures or acquisitions and our ability to integrate or manage such acquired businesses; our ability to successfully hedge against fluctuations in foreign currency rates; our ability to integrate direct-to-consumer sales and marketing solutions with our existing offerings and solutions; successfully manage ongoing organizational changes, including investments in improving systems and processes; disasters or business continuity problems; the impact of Brexit; risks relating to the U.S. 2020 election, including a potential increase in the corporate tax rate; 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 anticipated replacement of 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; 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; the ability to comply with complex and evolving regulations related to data privacy and cyber security; 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; changes and developments in the United States healthcare system, including those related to Medicare and any policy changes from the new Presidential administration and legislative actions from the current U.S. Congress; the inability to protect our intellectual property rights, or the potential infringement upon the intellectual property rights of others; the laws of Ireland being different from the laws of the United States and potentially affording less protections to the holders of our securities; 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 and any policy changes from the new Presidential administration and legislative actions from the current U.S. Congress; U.S. federal income tax consequences to U.S. persons owning at least
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.
Contact
INVESTORS
Claudia De La Hoz | Claudia.Delahoz@willistowerswatson.com
WILLIS TOWERS WATSON
Supplemental Segment Information
(In millions of U.S. dollars)
(Unaudited)
| REVENUE | |||||||||||||||||||||||||||||||||
| Components of Revenue Change(i) | |||||||||||||||||||||||||||||||||
| Three Months Ended December 31, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | ||||||||||||||||||||||||||||
| 2020 | 2019 | % Change | Impact | Change | Divestitures | Change | |||||||||||||||||||||||||||
| Human Capital & Benefits | $ | 865 | $ | 865 | 0 | % | 2 | % | (2 | )% | 0 | % | (1 | )% | |||||||||||||||||||
| Corporate Risk & Broking | 888 | 877 | 1 | % | 2 | % | (1 | )% | 0 | % | (1 | )% | |||||||||||||||||||||
| Investment, Risk & Reinsurance | 292 | 314 | (7 | )% | 2 | % | (9 | )% | (11 | )% | 1 | % | |||||||||||||||||||||
| Benefits Delivery & Administration | 693 | 595 | 16 | % | 0 | % | 16 | % | 0 | % | 16 | % | |||||||||||||||||||||
| Segment Revenue | 2,738 | 2,651 | 3 | % | 2 | % | 2 | % | (1 | )% | 3 | % | |||||||||||||||||||||
| Reimbursable expenses and other | 26 | 39 | |||||||||||||||||||||||||||||||
| Revenue | $ | 2,764 | $ | 2,690 | 3 | % | 2 | % | 1 | % | (1 | )% | 2 | % | |||||||||||||||||||
| Components of Revenue Change(i) | |||||||||||||||||||||||||||||||||
| Years Ended December 31, | As Reported | Currency | Constant Currency | Acquisitions/ | Organic | ||||||||||||||||||||||||||||
| 2020 | 2019 | % Change | Impact | Change | Divestitures | Change | |||||||||||||||||||||||||||
| Human Capital & Benefits | $ | 3,278 | $ | 3,298 | (1 | )% | 0 | % | (1 | )% | 0 | % | 0 | % | |||||||||||||||||||
| Corporate Risk & Broking | 2,977 | 2,946 | 1 | % | 0 | % | 1 | % | 0 | % | 1 | % | |||||||||||||||||||||
| Investment, Risk & Reinsurance | 1,651 | 1,637 | 1 | % | 0 | % | 1 | % | (3 | )% | 4 | % | |||||||||||||||||||||
| Benefits Delivery & Administration | 1,359 | 1,035 | 31 | % | 0 | % | 31 | % | 21 | % | 10 | % | |||||||||||||||||||||
| Segment Revenue | 9,265 | 8,916 | 4 | % | 0 | % | 4 | % | 2 | % | 2 | % | |||||||||||||||||||||
| Reimbursable expenses and other | 87 | 123 | |||||||||||||||||||||||||||||||
| Revenue | $ | 9,352 | $ | 9,039 | 3 | % | 0 | % | 4 | % | 2 | % | 2 | % | |||||||||||||||||||
(i) Components of revenue change may not add due to rounding
SEGMENT OPERATING INCOME (i)
| Three Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Human Capital & Benefits | 271 | 261 | ||||||
| Corporate Risk & Broking | 287 | 266 | ||||||
| Investment, Risk & Reinsurance | 33 | 28 | ||||||
| Benefits Delivery & Administration | 351 | 311 | ||||||
| Segment Operating Income | $ | 942 | $ | 866 | ||||
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Human Capital & Benefits | $ | 853 | $ | 848 | ||||
| Corporate Risk & Broking | 630 | 578 | ||||||
| Investment, Risk & Reinsurance | 457 | 420 | ||||||
| Benefits Delivery & Administration | 320 | 244 | ||||||
| Segment Operating Income | $ | 2,260 | $ | 2,090 | ||||
(i) Segment operating income excludes certain costs, including amortization of intangibles, restructuring costs, transaction and integration expenses, certain litigation provisions, and to the extent that the actual expense based upon which allocations are made differs from the forecast/budget amount, a reconciling item will be created between internally-allocated expenses and the actual expenses reported for U.S. GAAP purposes.
SEGMENT OPERATING MARGINS
| Three Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Human Capital & Benefits | 31.3 | % | 30.1 | % | ||||
| Corporate Risk & Broking | 32.3 | % | 30.3 | % | ||||
| Investment, Risk & Reinsurance | 11.0 | % | 9.1 | % | ||||
| Benefits Delivery & Administration | 50.7 | % | 52.4 | % | ||||
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Human Capital & Benefits | 26.0 | % | 25.7 | % | ||||
| Corporate Risk & Broking | 21.2 | % | 19.6 | % | ||||
| Investment, Risk & Reinsurance | 27.7 | % | 25.7 | % | ||||
| Benefits Delivery & Administration | 23.5 | % | 23.6 | % | ||||
RECONCILIATIONS OF SEGMENT OPERATING INCOME TO INCOME FROM OPERATIONS BEFORE INCOME TAXES
| Three Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Segment Operating Income | $ | 942 | $ | 866 | ||||
| Amortization | (114 | ) | (121 | ) | ||||
| Restructuring costs (i) | (24 | ) | — | |||||
| Transaction and integration expenses (ii) | (45 | ) | (1 | ) | ||||
| Provision for significant litigation (iii) | (50 | ) | — | |||||
| Unallocated, net (iv) | (122 | ) | (57 | ) | ||||
| Income from Operations | 587 | 687 | ||||||
| Interest expense | (60 | ) | (62 | ) | ||||
| Other income, net | 75 | 50 | ||||||
| Income from operations before income taxes | $ | 602 | $ | 675 | ||||
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Segment Operating Income | $ | 2,260 | $ | 2,090 | ||||
| Amortization | (462 | ) | (489 | ) | ||||
| Restructuring costs (i) | (24 | ) | — | |||||
| Transaction and integration expenses (ii) | (110 | ) | (13 | ) | ||||
| Provision for significant litigation (iii) | (65 | ) | — | |||||
| Unallocated, net (iv) | (416 | ) | (259 | ) | ||||
| Income from Operations | 1,183 | 1,329 | ||||||
| Interest expense | (244 | ) | (234 | ) | ||||
| Other income, net | 399 | 227 | ||||||
| Income from operations before income taxes | $ | 1,338 | $ | 1,322 | ||||
(i) Restructuring costs relate to minor restructuring activities carried out by various business lines throughout the Company.
(ii) Includes transaction costs related to the proposed Aon combination and TRANZACT acquisition in 2019.
(iii) In the fourth quarter of 2020, the Company agreed in principle to settle both the federal litigation and the Delaware litigation associated with the 2016 Willis/Towers Watson merger for aggregate payments of
(iv) 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.
WILLIS TOWERS WATSON
Reconciliations of Non-GAAP Measures
(In millions of U.S. dollars, except per share data)
(Unaudited)
RECONCILIATIONS OF NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON TO ADJUSTED DILUTED EARNINGS PER SHARE
| Three Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net Income attributable to Willis Towers Watson | $ | 476 | $ | 544 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 114 | 121 | ||||||
| Restructuring costs | 24 | — | ||||||
| Transaction and integration expenses | 45 | 1 | ||||||
| Provision for significant litigation (i) | 50 | — | ||||||
| Loss on disposal of operations | 2 | 2 | ||||||
| Tax effect on certain items listed above (ii) | (53 | ) | (31 | ) | ||||
| Tax effect of the CARES Act | 23 | — | ||||||
| Adjusted Net Income | $ | 681 | $ | 637 | ||||
| Weighted-average shares of common stock, diluted | 130 | 130 | ||||||
| Diluted Earnings Per Share | $ | 3.66 | $ | 4.18 | ||||
| Adjusted for certain items: (iii) | ||||||||
| Amortization | 0.87 | 0.93 | ||||||
| Restructuring costs | 0.18 | — | ||||||
| Transaction and integration expenses | 0.35 | 0.01 | ||||||
| Provision for significant litigation (i) | 0.38 | — | ||||||
| Loss on disposal of operations | 0.02 | 0.02 | ||||||
| Tax effect on certain items listed above (ii) | (0.41 | ) | (0.24 | ) | ||||
| Tax effect of the CARES Act | 0.18 | — | ||||||
| Adjusted Diluted Earnings Per Share | $ | 5.23 | $ | 4.90 | ||||
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net Income attributable to Willis Towers Watson | $ | 996 | $ | 1,044 | ||||
| Adjusted for certain items: | ||||||||
| Abandonment of long-lived asset | 35 | — | ||||||
| Amortization | 462 | 489 | ||||||
| Restructuring costs | 24 | — | ||||||
| Transaction and integration expenses | 110 | 13 | ||||||
| Provision for significant litigation (i) | 65 | — | ||||||
| (Gain)/loss on disposal of operations | (81 | ) | 2 | |||||
| Tax effect on certain items listed above (ii) | (149 | ) | (121 | ) | ||||
| Tax effect of the CARES Act | 61 | — | ||||||
| Adjusted Net Income | $ | 1,523 | $ | 1,427 | ||||
| Weighted-average shares of common stock, diluted | 130 | 130 | ||||||
| Diluted Earnings Per Share | $ | 7.65 | $ | 8.02 | ||||
| Adjusted for certain items: (iii) | ||||||||
| Abandonment of long-lived asset | 0.27 | — | ||||||
| Amortization | 3.55 | 3.75 | ||||||
| Restructuring costs | 0.18 | — | ||||||
| Transaction and integration expenses | 0.84 | 0.10 | ||||||
| Provision for significant litigation (i) | 0.50 | — | ||||||
| (Gain)/loss on disposal of operations | (0.62 | ) | 0.02 | |||||
| Tax effect on certain items listed above (ii) | (1.14 | ) | (0.93 | ) | ||||
| Tax effect of the CARES Act | 0.47 | — | ||||||
| Adjusted Diluted Earnings Per Share | $ | 11.70 | $ | 10.96 | ||||
(i) In the fourth quarter of 2020, the Company agreed in principle to settle both the federal litigation and the Delaware litigation associated with the 2016 Willis/Towers Watson merger for aggregate payments of
(ii) The tax effect was calculated using an effective tax rate for each item.
(iii) Per share values and totals may differ due to rounding.
RECONCILIATIONS OF NET INCOME TO ADJUSTED EBITDA
| Three Months Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Net Income | $ | 483 | 17.5 | % | $ | 551 | 20.5 | % | ||||||
| Provision for income taxes | 119 | 124 | ||||||||||||
| Interest expense | 60 | 62 | ||||||||||||
| Depreciation | 70 | 69 | ||||||||||||
| Amortization | 114 | 121 | ||||||||||||
| Restructuring costs | 24 | — | ||||||||||||
| Transaction and integration expenses | 45 | 1 | ||||||||||||
| Provision for significant litigation (i) | 50 | — | ||||||||||||
| Loss on disposal of operations | 2 | 2 | ||||||||||||
| Adjusted EBITDA and Adjusted EBITDA Margin | $ | 967 | 35.0 | % | $ | 930 | 34.6 | % | ||||||
| Years Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Net Income | $ | 1,020 | 10.9 | % | $ | 1,073 | 11.9 | % | ||||||
| Provision for income taxes | 318 | 249 | ||||||||||||
| Interest expense | 244 | 234 | ||||||||||||
| Depreciation (ii) | 308 | 240 | ||||||||||||
| Amortization | 462 | 489 | ||||||||||||
| Restructuring costs | 24 | — | ||||||||||||
| Transaction and integration expenses | 110 | 13 | ||||||||||||
| Provision for significant litigation (i) | 65 | — | ||||||||||||
| (Gain)/loss on disposal of operations | (81 | ) | 2 | |||||||||||
| Adjusted EBITDA and Adjusted EBITDA Margin | $ | 2,470 | 26.4 | % | $ | 2,300 | 25.4 | % | ||||||
(i) In the fourth quarter of 2020, the Company agreed in principle to settle both the federal litigation and the Delaware litigation associated with the 2016 Willis/Towers Watson merger for aggregate payments of
(ii) Includes abandonment of long-lived asset of
RECONCILIATIONS OF INCOME FROM OPERATIONS TO ADJUSTED OPERATING INCOME
| Three Months Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Income from operations | $ | 587 | 21.2 | % | $ | 687 | 25.5 | % | ||||||
| Adjusted for certain items: | ||||||||||||||
| Amortization | 114 | 121 | ||||||||||||
| Restructuring costs | 24 | — | ||||||||||||
| Transaction and integration expenses | 45 | 1 | ||||||||||||
| Provision for significant litigation (i) | 50 | — | ||||||||||||
| Adjusted operating income | $ | 820 | 29.7 | % | $ | 809 | 30.1 | % | ||||||
| Years Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Income from operations | $ | 1,183 | 12.6 | % | $ | 1,329 | 14.7 | % | ||||||
| Adjusted for certain items: | ||||||||||||||
| Abandonment of long-lived asset | 35 | — | ||||||||||||
| Amortization | 462 | 489 | ||||||||||||
| Restructuring costs | 24 | — | ||||||||||||
| Transaction and integration expenses | 110 | 13 | ||||||||||||
| Provision for significant litigation (i) | 65 | — | ||||||||||||
| Adjusted operating income | $ | 1,879 | 20.1 | % | $ | 1,831 | 20.3 | % | ||||||
(i) In the fourth quarter of 2020, the Company agreed in principle to settle both the federal litigation and the Delaware litigation associated with the 2016 Willis/Towers Watson merger for aggregate payments of
RECONCILIATIONS OF GAAP INCOME TAXES/TAX RATE TO ADJUSTED INCOME TAXES/TAX RATE
| Three Months Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Income from operations before income taxes | $ | 602 | $ | 675 | ||||
| Adjusted for certain items: | ||||||||
| Amortization | 114 | 121 | ||||||
| Restructuring costs | 24 | — | ||||||
| Transaction and integration expenses | 45 | 1 | ||||||
| Provision for significant litigation (i) | 50 | — | ||||||
| Loss on disposal of operations | 2 | 2 | ||||||
| Adjusted income before taxes | $ | 837 | $ | 799 | ||||
| Provision for income taxes | $ | 119 | $ | 124 | ||||
| Tax effect on certain items listed above (ii) | 53 | 31 | ||||||
| Tax effect of the CARES Act | (23 | ) | — | |||||
| Adjusted income taxes | $ | 149 | $ | 155 | ||||
| U.S. GAAP tax rate | 19.7 | % | 18.3 | % | ||||
| Adjusted income tax rate | 17.8 | % | 19.4 | % | ||||
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Income from operations before income taxes | $ | 1,338 | $ | 1,322 | ||||
| Adjusted for certain items: | ||||||||
| Abandonment of long-lived asset | 35 | — | ||||||
| Amortization | 462 | 489 | ||||||
| Restructuring costs | 24 | — | ||||||
| Transaction and integration expenses | 110 | 13 | ||||||
| Provision for significant litigation (i) | 65 | — | ||||||
| (Gain)/loss on disposal of operations | (81 | ) | 2 | |||||
| Adjusted income before taxes | $ | 1,953 | $ | 1,826 | ||||
| Provision for income taxes | $ | 318 | $ | 249 | ||||
| Tax effect on certain items listed above (ii) | 149 | 121 | ||||||
| Tax effect of the CARES Act | (61 | ) | — | |||||
| Adjusted income taxes | $ | 406 | $ | 370 | ||||
| U.S. GAAP tax rate | 23.8 | % | 18.8 | % | ||||
| Adjusted income tax rate | 20.8 | % | 20.3 | % | ||||
(i) In the fourth quarter of 2020, the Company agreed in principle to settle both the federal litigation and the Delaware litigation associated with the 2016 Willis/Towers Watson merger for aggregate payments of
(ii) The tax effect was calculated using an effective tax rate for each item.
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES TO FREE CASH FLOW
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities | $ | 1,774 | $ | 1,081 | ||||
| Less: Additions to fixed assets and software for internal use | (223 | ) | (246 | ) | ||||
| Free Cash Flow | $ | 1,551 | $ | 835 | ||||
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Income
(In millions of U.S. dollars, except per share data)
(Unaudited)
| Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue | $ | 2,764 | $ | 2,690 | $ | 9,352 | $ | 9,039 | ||||||||
| Costs of providing services | ||||||||||||||||
| Salaries and benefits | 1,419 | 1,340 | 5,507 | 5,249 | ||||||||||||
| Other operating expenses | 505 | 472 | 1,758 | 1,719 | ||||||||||||
| Depreciation | 70 | 69 | 308 | 240 | ||||||||||||
| Amortization | 114 | 121 | 462 | 489 | ||||||||||||
| Restructuring costs | 24 | — | 24 | — | ||||||||||||
| Transaction and integration expenses | 45 | 1 | 110 | 13 | ||||||||||||
| Total costs of providing services | 2,177 | 2,003 | 8,169 | 7,710 | ||||||||||||
| Income from operations | 587 | 687 | 1,183 | 1,329 | ||||||||||||
| Interest expense | (60 | ) | (62 | ) | (244 | ) | (234 | ) | ||||||||
| Other income, net | 75 | 50 | 399 | 227 | ||||||||||||
| INCOME FROM OPERATIONS BEFORE INCOME TAXES | 602 | 675 | 1,338 | 1,322 | ||||||||||||
| Provision for income taxes | (119 | ) | (124 | ) | (318 | ) | (249 | ) | ||||||||
| NET INCOME | 483 | 551 | 1,020 | 1,073 | ||||||||||||
| Income attributable to non-controlling interests | (7 | ) | (7 | ) | (24 | ) | (29 | ) | ||||||||
| NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON | $ | 476 | $ | 544 | $ | 996 | $ | 1,044 | ||||||||
| Earnings per share | ||||||||||||||||
| Basic earnings per share | $ | 3.67 | $ | 4.20 | $ | 7.68 | $ | 8.05 | ||||||||
| Diluted earnings per share | $ | 3.66 | $ | 4.18 | $ | 7.65 | $ | 8.02 | ||||||||
| Weighted-average shares of common stock, basic | 130 | 129 | 130 | 130 | ||||||||||||
| Weighted-average shares of common stock, diluted | 130 | 130 | 130 | 130 | ||||||||||||
WILLIS TOWERS WATSON
Condensed Consolidated Balance Sheets
(In millions of U.S. dollars, except share data)
(Unaudited)
| December 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 2,089 | $ | 887 | ||||
| Fiduciary assets | 15,160 | 13,004 | ||||||
| Accounts receivable, net | 2,555 | 2,621 | ||||||
| Prepaid and other current assets | 497 | 525 | ||||||
| Total current assets | 20,301 | 17,037 | ||||||
| Fixed assets, net | 1,014 | 1,046 | ||||||
| Goodwill | 11,204 | 11,194 | ||||||
| Other intangible assets, net | 3,043 | 3,478 | ||||||
| Right-of-use assets | 902 | 968 | ||||||
| Pension benefits assets | 971 | 868 | ||||||
| Other non-current assets | 1,096 | 835 | ||||||
| Total non-current assets | 18,230 | 18,389 | ||||||
| TOTAL ASSETS | $ | 38,531 | $ | 35,426 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Fiduciary liabilities | $ | 15,160 | $ | 13,004 | ||||
| Deferred revenue and accrued expenses | 2,161 | 1,784 | ||||||
| Current debt | 971 | 316 | ||||||
| Current lease liabilities | 152 | 164 | ||||||
| Other current liabilities | 888 | 802 | ||||||
| Total current liabilities | 19,332 | 16,070 | ||||||
| Long-term debt | 4,664 | 5,301 | ||||||
| Liability for pension benefits | 1,405 | 1,324 | ||||||
| Deferred tax liabilities | 561 | 526 | ||||||
| Provision for liabilities | 407 | 537 | ||||||
| Long-term lease liabilities | 918 | 964 | ||||||
| Other non-current liabilities | 312 | 335 | ||||||
| Total non-current liabilities | 8,267 | 8,987 | ||||||
| TOTAL LIABILITIES | 27,599 | 25,057 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY(i) | ||||||||
| Additional paid-in capital | 10,748 | 10,687 | ||||||
| Retained earnings | 2,434 | 1,792 | ||||||
| Accumulated other comprehensive loss, net of tax | (2,359 | ) | (2,227 | ) | ||||
| Treasury shares, at cost, 17,519 shares in 2020 and 2019, and 40,000 shares, | (3 | ) | (3 | ) | ||||
| Total Willis Towers Watson shareholders' equity | 10,820 | 10,249 | ||||||
| Non-controlling interests | 112 | 120 | ||||||
| Total Equity | 10,932 | 10,369 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 38,531 | $ | 35,426 | ||||
(i) Equity includes (a) Ordinary shares
WILLIS TOWERS WATSON
Condensed Consolidated Statements of Cash Flows
(In millions of U.S. dollars)
(Unaudited)
| Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| NET INCOME | $ | 1,020 | $ | 1,073 | ||||
| Adjustments to reconcile net income to total net cash from operating activities: | ||||||||
| Depreciation | 308 | 240 | ||||||
| Amortization | 462 | 489 | ||||||
| Non-cash lease expense | 146 | 148 | ||||||
| Net periodic benefit of defined benefit pension plans | (196 | ) | (135 | ) | ||||
| Provision for doubtful receivables from clients | 29 | 9 | ||||||
| Provision for/(benefit from) deferred income taxes | 99 | (72 | ) | |||||
| Share-based compensation | 90 | 74 | ||||||
| Net (gain)/loss on disposal of operations | (81 | ) | 2 | |||||
| Non-cash foreign exchange (gain)/loss | (6 | ) | 26 | |||||
| Other, net | (17 | ) | 17 | |||||
| Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | ||||||||
| Accounts receivable | 72 | (261 | ) | |||||
| Fiduciary assets | (1,774 | ) | (365 | ) | ||||
| Fiduciary liabilities | 1,774 | 365 | ||||||
| Other assets | (205 | ) | (269 | ) | ||||
| Other liabilities | 191 | (264 | ) | |||||
| Provisions | (138 | ) | 4 | |||||
| Net cash from operating activities | 1,774 | 1,081 | ||||||
| CASH FLOWS USED IN INVESTING ACTIVITIES | ||||||||
| Additions to fixed assets and software for internal use | (223 | ) | (246 | ) | ||||
| Capitalized software costs | (63 | ) | (59 | ) | ||||
| Acquisitions of operations, net of cash acquired | (69 | ) | (1,329 | ) | ||||
| Net proceeds from sale of operations | 212 | 17 | ||||||
| Other, net | (17 | ) | 3 | |||||
| Net cash used in investing activities | (160 | ) | (1,614 | ) | ||||
| CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES | ||||||||
| Net payments on revolving credit facility | — | (131 | ) | |||||
| Senior notes issued | 282 | 997 | ||||||
| Proceeds from issuance of other debt | — | 1,100 | ||||||
| Debt issuance costs | (2 | ) | (13 | ) | ||||
| Repayments of debt | (327 | ) | (995 | ) | ||||
| Repurchase of shares | — | (150 | ) | |||||
| Proceeds from issuance of shares | 16 | 45 | ||||||
| Payments of deferred and contingent consideration related to acquisitions | (12 | ) | (57 | ) | ||||
| Cash paid for employee taxes on withholding shares | (14 | ) | (15 | ) | ||||
| Dividends paid | (346 | ) | (329 | ) | ||||
| Acquisitions of and dividends paid to non-controlling interests | (28 | ) | (55 | ) | ||||
| Other, net | (3 | ) | — | |||||
| Net cash (used in)/from financing activities | (434 | ) | 397 | |||||
| INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 1,180 | (136 | ) | |||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 21 | (2 | ) | |||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR (i) | 895 | 1,033 | ||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR (i) | $ | 2,096 | $ | 895 | ||||
(i) As a result of the acquired TRANZACT collateralized facility, cash, cash equivalents and restricted cash included
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FAQ
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