Willis Group Holdings plc — 2010 Form 10-K
Filing identity and period: The supplied filing is for Willis Group Holdings plc (NYSE: WSH), not Willis Towers Watson plc. It reports the fiscal year ended December 31, 2010; it is an annual report, not a standalone fourth-quarter filing. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
Willis is a global insurance and reinsurance broker and risk-management consultant, operating through Global, North America, and International segments. It generally earns commissions and fees and does not underwrite insurance risk for its own account. The parent company redomiciled from Bermuda to Ireland effective December 31, 2009.
Financial performance
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Total revenue | $3.339 billion | $3.263 billion |
| Operating income / margin | $753 million / 23% | $694 million / 21% |
| Income from continuing operations attributable to Willis shareholders | $455 million | $436 million |
| Diluted EPS from continuing operations | $2.66 | $2.58 |
| Operating cash flow | $489 million | $419 million |
| Interest expense | $166 million | $174 million |
| Total debt at year-end | $2.267 billion | $2.374 billion |
| Cash and cash equivalents at year-end | $316 million | $221 million |
Revenue grew 2%, reflecting 4% organic growth in commissions and fees, partly offset by currency translation, lower legacy HRH contingent commissions, and reduced investment income. Operating margin improved by 2 percentage points, supported by organic growth, expense discipline, and lower intangible amortization; higher incentive costs and other items partially offset those benefits. Income tax expense increased to $140 million from $96 million, and the effective tax rate rose to 24% from 18%.
Fourth quarter: Revenue was $835 million versus $824 million in Q4 2009; net income attributable to Willis was $98 million versus $79 million. Diluted continuing-operations EPS was $0.57 versus $0.47.
Segments: Global revenue was $880 million, with a 30% operating margin; North America revenue was $1.375 billion, with a 23% margin; and International revenue was $1.084 billion, with a 26% margin. Organic growth was 6% in Global and International and flat in North America. The filing describes North America as affected by soft insurance markets and weak economic conditions.
Liquidity, debt, and capital
Cash from operations funded $209 million of debt repayments, $176 million of dividends, and $83 million of capital expenditures. Year-end debt comprised $2.157 billion of long-term debt and $110 million of current debt. Willis reported $430 million of remaining availability under revolving facilities and said it believed liquidity was sufficient for at least the next 12 months. The $9.569 billion of fiduciary assets is matched by fiduciary liabilities; fiduciary funds are generally restricted and unavailable for corporate purposes.
The company maintained a $0.26 quarterly dividend, or $1.04 annualized. It made no share repurchases in 2010. The capitalization ratio decreased to 47% from 52%.
Outlook, commentary, and risks
- For 2011, management expected modest adjusted operating-margin expansion and modest adjusted diluted-EPS growth; it forecast significantly accelerated growth in both measures in 2012 and beyond. These are forward-looking, non-GAAP measures.
- A 2011 operational review was expected to produce $110 million to $130 million of pretax charges, primarily in Q1, and $65 million to $80 million of savings in 2011, rising to $90 million to $100 million annualized in 2012. Management also anticipated approximately $100 million of additional 2011 salary and benefit expense versus 2010.
- Management expected 2011 investment income of approximately $30 million and intangible amortization of approximately $65 million. It was reviewing the debt profile and could redeem $500 million of 12.875% notes due 2016; the estimated make-whole charge was approximately $180 million if redeemed.
- Material risks include soft insurance pricing and premium declines, economic weakness, competition and employee retention, foreign-exchange and interest-rate movements, significant indebtedness and covenant compliance, pension funding, regulatory scrutiny, client and insurer credit risk, information-system disruption, and litigation or errors-and-omissions claims.
- The filing describes an ongoing UK Financial Services Authority investigation of compliance systems and controls for 2005–2009. It also identifies Stanford-related litigation and reinsurance-market disputes; outcomes and potential liabilities were not predictable. The company stated that it did not expect known claims and proceedings, based on then-current information, to have an overall material adverse effect, while acknowledging that an adverse result could materially affect a particular period.
- Unusual items included a $12 million charge for the Venezuelan currency devaluation and a $7 million release of a previously established legal reserve. The annual goodwill impairment review resulted in no impairment charge. Deloitte issued unqualified audit opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: the provided document names Willis Group Holdings plc, not Willis Towers Watson plc.
- Confirm whether the desired period is FY 2010 or Q4 2010; the filing provides annual results and selected quarterly data, but is not a standalone Q4 report.
- Track execution and cash realization of the 2011 operational review, including charges, savings, and the stated 2012 targets.
- Assess refinancing plans and the potential cost of redeeming the 12.875% notes, alongside debt maturities, covenants, and liquidity needs.
- Monitor pension contributions and funding assumptions, soft-market exposure, foreign-exchange effects, and developments in the disclosed regulatory investigations and litigation.