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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 25, 2006
Willis Group Holdings Limited
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Bermuda
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
001-16503 98-0352587
- --------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
c/o Willis Group Limited
Ten Trinity Square
London EC3P 3AX, England
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(44) (20) 7488-8111
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
1
Item 2.02. Results of Operations and Financial Condition.
On October 25, 2006, Willis Group Holdings Limited ("WGHL") issued a press
release (the "Press Release 1") reporting results for the quarter and nine
months ended September 30, 2006. A copy of Press Release 1 is attached as
Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.
Item 5.02(b)
On October 25, 2006, WGHL issued a press release (the "Press Release 2")
announcing that it has accepted Paul Hazen's resignation from the Company's
Board of Directors effective October 25, 2006. Hazen has served the Company for
six years recently serving on the Compensation and Executive Committees of the
Board. A copy of Press Release 2 is attached as Exhibit 99.2 to this Report on
Form 8-K and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
99.1 Press Release 1 of WGHL dated October 25, 2006
99.2 Press Release 2 of WGHL dated October 25, 2006
2
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 hereunto duly authorized.
WILLIS GROUP HOLDINGS LIMITED
Date: October 31, 2006 By: /s/ Eric R. Dinallo
-----------------------
Name: Eric R. Dinallo
Title: General Counsel
3
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
99.1 Press Release 1 of WGHL dated October 25, 2006
99.2 Press Release 2 of WGHL dated October 25, 2006
4
Exhibit 99.1
Willis Group Reports Strong Third Quarter 2006 Results
Eleven Percent Reported Revenue Growth and Eight Percent Organic
Growth in Commissions and Fees Drives Performance
Commences Buyback; Declares Regular Quarterly Dividend
NEW YORK--(BUSINESS WIRE)--Oct. 25, 2006--Willis Group Holdings
Limited (NYSE: WSH), the global insurance broker, today reported
results for the quarter and nine months ended September 30, 2006.
Commenting on today's results, Joe Plumeri, Chairman and Chief
Executive Officer, said, "We are extremely proud of our quarterly
results and our performance through the first nine months of 2006. We
remain committed to delivering profitable growth which we demonstrated
again this quarter, with our strong organic growth in commissions and
fees of 8 percent coupled with our continued margin expansion."
Third Quarter 2006 Financial Results
Reported net income for the quarter ended September 30, 2006 was
USD 89 million, or USD 0.56 per diluted share, compared with net
income of USD 45 million, or USD 0.28 per diluted share, a year ago.
The results for the quarter ended September 30, 2006 were
significantly affected by the gain on the sale of the Company's London
headquarters and spending on Shaping our Future initiatives.
Excluding those items, which are reviewed in detail in this
release, adjusted net income was USD 57 million or USD 0.36 per
diluted share compared with reported (and adjusted) net income of USD
45 million, or USD 0.28 per diluted share, for the same period last
year.
Total reported revenues for the quarter ended September 30, 2006
were USD 543 million, compared with USD 487 million for the same
period last year, an increase of 11 percent. The effect of foreign
currency translation increased reported revenues by 2 percent and net
acquisitions by 1 percent.
Organic growth in commissions and fees, which excludes market
remuneration, was 8 percent in the third quarter 2006. Each business
unit contributed to overall organic growth in commissions and fees in
the quarter with Global at 9 percent, North America at 7 percent and
International at 9 percent.
Reported operating margin was 17.9 percent for the quarter ended
September 30, 2006. Excluding the gain on the sale of the Company's
London headquarters and Shaping our Future initiative expenses,
adjusted operating margin was 15.1 percent for the third quarter of
2006 compared with 13.6 percent for the same period last year.
The reduction of market remuneration, as well as changes to the
quarterly phasing of incentive compensation in 2006, negatively
impacted the year-over-year comparison of adjusted operating margin by
approximately 1.5 percentage points in the third quarter 2006 compared
to the third quarter 2005. Excluding these items, adjusted operating
margin improved by approximately 3 percentage points.
Salaries and benefits expense as reported was USD 383 million or
70.5 percent of total revenues in the third quarter 2006; excluding
Shaping our Future initiative expenses, they were USD 340 million or
62.6 percent of total revenues. This compares favorably with USD 319
million or 65.5 percent of total revenues in the third quarter 2005.
Other operating expenses as reported were USD 138 million or 25.4
percent of total revenues in the third quarter of 2006; excluding
Shaping our Future initiative expenses, they were USD 106 million or
19.5 percent of total revenues. This compares with USD 89 million or
18.3 percent of revenues in the third quarter 2005.
Foreign currency translation had a negative USD 0.01 per diluted
share impact on third quarter 2006 net income compared with the third
quarter 2005.
The Company provided for an effective tax rate of 31.5 percent
through the first half of 2006 on income excluding non-operating
items; however, the full year's effective tax rate in 2006 is now
estimated to be 30.5 percent, excluding the tax effects of the gain on
sale of the Company's London headquarters, net loss on disposals, the
amortization of intangibles and share-based compensation. The impact
of the lower effective tax rate contributed USD 0.02 per diluted share
to earnings in the quarter and nine months ended September 30, 2006.
Nine Months 2006 Financial Results
Net income for the nine months ended September 30, 2006 was USD
301 million, or USD 1.89 per diluted share, compared with a reported
net income of USD 226 million, or USD 1.38 per diluted share, a year
ago. The results for the nine months ended September 30, 2006 were
significantly affected by the gain on the sale of the Company's London
headquarters and spending on Shaping our Future initiatives, and, for
the nine months ended September 30, 2005, by regulatory settlements
and related expenses, severance costs and other provisions.
Excluding those items, which are reviewed in detail in this
release, adjusted net income was USD 269 million, or USD 1.69 per
diluted share, compared with adjusted net income of USD 254 million,
or USD 1.55 per diluted share, for the same period last year. Foreign
currency translation had a negative USD 0.04 per diluted share impact
on net income for the nine months ended September, 2006 compared with
the same period 2005.
Total reported revenues for the nine months ended September 30,
2006 were USD 1,807 million compared with USD 1,705 million for the
same period last year, an increase of 6 percent. The effect of foreign
currency translation decreased reported revenues by 1 percent and net
acquisitions of operations had no effect on reported revenues. Organic
growth in commissions and fees, which excludes market remuneration,
was 8 percent for the nine months ended September 30, 2006.
Reported operating margin was 23.2 percent for the nine months
ended September 30, 2006. Excluding the gain on the sale of the
Company's London headquarters and Shaping our Future initiative
expenses, adjusted operating margin was 22.4 percent for the first
nine months of 2006. This compares with a reported operating margin of
20.6 percent and an adjusted operating margin of 22.4 percent for the
same period last year.
The reduction of market remuneration, as well as changes to the
quarterly phasing of incentive compensation in 2006, negatively
impacted the year-over-year comparison of adjusted operating margin by
approximately 1.5 percentage points in the first nine months of 2006
compared to the same period in 2005. Excluding these items, adjusted
operating margin improved by approximately 1.5 percentage points.
Sale of London Headquarters
In September 2006, the Company completed the sale of its current
London headquarters at Ten Trinity Square. The building has been
leased back until the Company occupies its new London headquarters on
Lime Street which is expected to be in early 2008. Gross proceeds of
the sale were USD 191 million, of which 25 percent was received in
cash upon completion of the transaction with the balance due in
November 2006. The total pre-tax gain was USD 121 million: USD 99
million (USD 91 million or USD 0.57 per diluted share after tax) was
recognized in the third quarter 2006 and the remainder will be
recognized over the life of the lease.
Shaping our Future Initiative Expenses
The Company incurred expenses totaling USD 84 million (USD 59
million or USD 0.37 per diluted share after tax) in the third quarter
2006 in connection with the launch of Shaping our Future initiatives
for profitable growth.
NOTE: All figures are in USD unless otherwise stated.
Schedule of Shaping our Future Expenses by Initiative
- -----------------------------------------------------------
Pre-tax
(millions)
----------
Initiative
International efficiency review 25
Data center consolidation and Willis Client Service
Platform 10
Real estate rationalization 9
Reinsurance initiative 9
Remodeling London platform 7
Small commercial account initiative (United Kingdom) 6
Other, including business closure costs 18
----------
84
==========
The Company estimates that it may incur an additional USD 5 to USD
10 million in Shaping our Future-related expenses in the fourth
quarter of 2006.
It is anticipated that these expenses will generate annualized
pre-tax benefits of approximately USD 50 million by the end of 2008,
rising to USD 60 million by the end of 2009. Net of incremental
operating expenses related to the new headquarters in London and New
York (One World Financial Center), the net annualized benefits are
estimated to be USD 40 million pre tax by the end of 2009. The Company
expects these benefits to significantly contribute to its five-year
financial targets.
Capital Management
The Company commenced a buy back under its existing authorization
in the third quarter 2006, and through September 30 purchased 0.9
million shares for USD 32 million.
Separately, the Board of Directors declared a regular quarterly
cash dividend on the Company's common stock of USD 0.235 per share, an
annual rate of USD 0.94 per share. The dividend is payable on January
15, 2007 to shareholders of record on December 31, 2006.
During the nine months ended September 30, 2006, the Company
completed 6 acquisitions with annual revenues of approximately USD 20
million. In addition, the Company purchased a further 5 percent of
Gras Savoye & Cie, increasing its ownership to 38 percent. Cash and
cash equivalents totaled USD 154 million. There was approximately USD
17 million of immediately available net cash at September 30, 2006.
At September 30, 2006, total debt was USD 635 million and total
stockholders' equity was approximately USD 1.5 billion. The
capitalization ratio (total debt to total debt and stockholders'
equity) was 30 percent at September 30, 2006.
Outlook
For the full year 2006, the Company anticipates continued growth
in organic commissions and fees. The Company still expects salaries
and benefits expense as a percentage of total revenues to be less than
59 percent and continues to expect modest adjusted operating margin
expansion.
The Company expects to deliver breakout financial performance in
the next five years. Specifically, by the full year 2010, the Company
has set financial targets of salaries and benefits expense as a
percentage of total revenues to be below 54 percent, adjusted
operating margin of 28 percent or better and industry leading organic
revenue growth.
"We are pleased with our performance and will maintain our
steadfast discipline as we continue to implement and execute the
Shaping our Future initiatives," Mr. Plumeri concluded. "We are
confident that these initiatives will have a positive long-term impact
on our Company."
Conference Call and Web Cast
A conference call to discuss third quarter 2006 results will be
held October 26, 2006 at 8:00 a.m. Eastern Time. To participate in the
live teleconference, please dial (888) 889-6348 (Domestic) +1 (210)
234-0002 (International) with a passcode of "Willis." The live audio
web cast (which will be listen-only) may be accessed at
www.willis.com. This call will be available by replay starting at
approximately 10:00 a.m., Eastern Time, and ending November 9, 2006 at
11:00 PM Eastern Time, by calling (800) 234-3897 (domestic) or +1
(402) 220-9689 (international) with no passcode, or by accessing the
website.
Willis Group Holdings Limited is a leading global insurance
broker, developing and delivering professional insurance, reinsurance,
risk management, financial and human resource consulting and actuarial
services to corporations, public entities and institutions around the
world. With over 300 offices in some 80 countries, its global team of
approximately 15,400 associates serves clients in some 190 countries.
Additional information on Willis may be found on its web site
www.willis.com.
This press release may contain certain statements relating to
future results, which are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially
from historical results or those anticipated, depending on a variety
of factors such as general economic conditions in different countries
around the world, fluctuations in global equity and fixed income
markets, changes in premium rates, the competitive environment and the
actual cost of resolution of contingent liabilities. Further
information concerning the Company and its business, including factors
that potentially could materially affect the Company's financial
results are contained in the Company's filings with the Securities and
Exchange Commission.
This press release includes supplemental financial information
which may contain references to non-GAAP financial measures as defined
in Regulation G of SEC rules. Consistent with Regulation G, a
reconciliation of this supplemental financial information to our
generally accepted accounting principles (GAAP) information follows.
We present such non-GAAP supplemental financial information 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 on a GAAP basis.
This supplemental financial information should be viewed in addition
to, not in lieu of, the Company's condensed consolidated statements of
operations for the three and nine months ended September 30, 2006.
NOTE: All figures are in USD unless otherwise stated.
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
---------------- -----------------
2005 2005
As As
adjusted adjusted
2006 (Note 2) 2006 (Note 2)
------ --------- ------- ---------
Revenues
Commissions and fees 519 469 1,743 1,650
Investment income 24 18 64 55
------ --------- ------- ---------
Total Revenues 543 487 1,807 1,705
------ --------- ------- ---------
Expenses
Salaries and benefits (after
charging share-based compensation
7, 4, 15 and 13) 383 319 1,082 1,028
Other operating expenses 138 89 351 312
Regulatory settlements - - - 51
Depreciation expense and
amortization of intangible assets 17 13 46 40
Gain on disposal of London
headquarters (99) - (99) -
Net loss/(gain) on disposal of
operations 7 - 7 (78)
------ --------- ------- ---------
Total Expenses 446 421 1,387 1,353
------ --------- ------- ---------
Operating Income 97 66 420 352
Interest expense, net 9 9 27 21
------ --------- ------- ---------
Income before Income Taxes, Equity
in Net Income of Associates and
Minority Interest 88 57 393 331
Income taxes 3 16 101 115
------ --------- ------- ---------
Income before Equity in Net Income
of Associates and Minority
Interest 85 41 292 216
Equity in net income of associates,
net of tax 6 5 20 17
Minority interest, net of tax (2) (1) (11) (7)
------ --------- ------- ---------
Net Income 89 45 301 226
====== ========= ======= =========
Earnings per Share
- Basic 0.57 0.28 1.92 1.40
- Diluted 0.56 0.28 1.89 1.38
====== ========= ======= =========
Average Number of Shares
Outstanding
- Basic 157 160 157 162
- Diluted 159 162 159 164
====== ========= ======= =========
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions) (unaudited)
1. Definitions of Non-GAAP Financial Measures
We believe that investors' understanding of the Company's
performance is enhanced by our disclosure of the following non-GAAP
financial measures. Our method of calculating these measures may
differ from those used by other companies and therefore comparability
may be limited.
Organic revenue growth
Organic revenue growth excludes the impact of foreign currency
translation, acquisitions and disposals and market remuneration from
reported revenues. We use organic revenue growth as a measure of
business growth generated by operations that were part of the Company
at the end of the period.
Adjusted operating income and adjusted net income
Our results have been significantly impacted by the gain on
disposal of our London headquarters, severance costs, net gains/losses
on disposal of operations, 2006 expenditure on strategic initiatives,
2005 charges for regulatory settlements and related expenses, and
other provisions in 2005. We believe that excluding these items from
operating income and net income as applicable, along with the GAAP
measures, provides a more complete and consistent comparative analysis
of our results of operations.
2. Accounting and reporting changes
We made a number of changes to our accounting and reporting in
first quarter 2006. In particular:
Revenue analysis
Following a change to our internal reporting structure, North
America Global Markets and International Global Markets revenues,
which were previously reported within our Global division, are now
reported in the North America and International divisions,
respectively. In addition, we refined our method of allocating
revenues between the Global and North America divisions. We have
adjusted our 2005 revenue analysis to be consistent with the new
internal reporting structure.
FAS 123R, Share-Based Payment
Effective January 1, 2006, we adopted FAS 123R using the
modified-retrospective transition method. Our 2005 comparative data
has therefore been adjusted to recognize the compensation cost
previously reported in the footnote disclosure to our financial
statements.
The retrospective application of FAS 123R has also impacted the
diluted share count in prior periods as proceeds under the treasury
stock method have been adjusted with a consequent impact on diluted
share count. Proceeds were adjusted to include the future potential
tax consequences that will arise when the options are exercised and
the average unrecognized compensation cost outstanding during the
period.
Pensions: market-related value
FAS 87, Employers' Accounting for Pensions, requires the expected
return on plan assets to be determined based on the expected long-term
rate of return on plan assets and the market-related value of plan
assets. The market-related value of plan assets may either be a fair
value or a calculated value that recognizes changes in a systematic
and rational manner over not more than five years.
Up to December 31, 2005, the market-related value of our UK
pension plan assets was determined using a calculated value that
recognized asset gains or losses over five years. With effect from
January 1, 2006, the market-related value of UK pension plan assets
has been determined on a fair value basis. We believe that fair value
is a preferable measure of determining the market-related value of
plan assets as it more fairly reflects the actual value of pension
plan assets as of the balance sheet date. In addition, it brings the
methodology used for calculating the market-related value of our UK
plan assets into line with the fair value methodology already used to
value our US plan assets.
We have adjusted our 2005 comparative data to reflect the change
in method of determining the market-related value of plan assets.
Pensions: return on assets
After reviewing the long-term rate of return on our UK plan
assets, effective January 1, 2006, we increased the expected long-term
rate to 7.75 percent from 7.25 percent.
3. Revenue analysis
Organic revenue growth
Organic revenue growth is defined as revenue growth excluding the
impact of foreign currency translation, acquisitions and disposals and
market remuneration. The percentage change in reported revenues is the
most directly comparable GAAP measure, and the following table
reconciles this change to organic revenue growth by business unit for
the three months ended September 30, 2006:
Three months ended
September 30,
----------------------
%
2006 2005(1) Change
------ ------- -------
Global 224 200 12%
North
America 185 173 7%
International 110 96 15%
------ ------- -------
Commissions
and fees 519 469 11%
Investment
Income 24 18 33%
------ ------- -------
Total
revenues 543 487 11%
====== ======= =======
Change attributable to
-----------------------------------------------
Foreign Acquisitions Organic
currency and Market revenue
translation disposals remuneration growth
------------ ------------ ------------ --------
Global 5% 0% (2)% 9%
North
America 0% 0% 0% 7%
International 3% 3% 0% 9%
------------ ------------ ------------ --------
Commissions
and fees 3% 1% (1)% 8%
Investment
Income 0% 1% 0% 32%
------------ ------------ ------------ --------
Total
revenues 2% 1% (1)% 9%
============ ============ ============ ========
(1)As described in Note 2, our prior period revenue analysis has been
adjusted to reflect our new internal reporting structure.
The following table reconciles the percentage change in reported
revenues to organic revenue growth by business unit for the nine
months ended September 30, 2006:
Nine months ended
September 30,
------------------------
%
2006 2005(1) Change
------- ------- -------
Global 787 764 3%
North
America 561 515 9%
International 395 371 6%
------- ------- -------
Commissions
and fees 1,743 1,650 6%
Investment
Income 64 55 16%
------- ------- -------
Total
revenues 1,807 1,705 6%
======= ======= =======
Change attributable to
----------------------------------------------
Foreign Acquisitions Organic
currency and Market revenue
translation disposals remuneration growth
------------ ------------ ------------ --------
Global (1)% (1)% (3)% 8%
North
America 0% 0% 0% 9%
International (4)% 3% 0% 7%
------------ ------------ ------------ --------
Commissions
and fees (1)% 0% (1)% 8%
Investment
Income (5)% 0% 0% 21%
------------ ------------ ------------ --------
Total
revenues (1)% 0% (1)% 8%
============ ============ ============ ========
(1)As described in Note 2, our prior period revenue analysis has
been adjusted to reflect our new internal reporting structure.
4. Shaping our Future Initiative Expenses
The following table provides an analysis by expense category of
third quarter 2006 expenditure on Shaping our Future initiatives:
Pre-tax
----------
Salaries and benefits, including severance
costs of 25 million 43
Other operating expenses 32
Amortization of intangible assets 2
Net loss on disposals of operations 7
----------
84
==========
5. Adjusted operating income
Adjusted operating income is defined as operating income excluding
the gain on disposal of our London headquarters, severance costs, net
gain/loss on disposal of operations, other 2006 expenditure on
strategic initiatives, 2005 charges for regulatory settlements and
related expenses, and other provisions in 2005. Operating income is
the most directly comparable GAAP measure, and the following tables
reconcile adjusted operating income to operating income for the three
months and nine months ended September 30, 2006 and 2005:
Three months ended September 30,
----------------------------------
2005
As adjusted %
2006 (Note 2) Change
----------- ------------- --------
Operating Income, GAAP basis 97 66 47%
Excluding:
Gain on disposal of London
headquarters (a) (99) -
Severance costs (b) 25 -
Net loss on disposal of operations 7 -
Other strategic initiative
expenditure (c) 52 -
----------- -------------
Adjusted Operating Income 82 66 24%
=========== =============
Operating Margin, GAAP basis, or
Operating Income as
a percentage of Total Revenues 17.9% 13.6%
=========== =============
Adjusted Operating Margin, GAAP
basis, or Adjusted
Operating Income as a percentage of
Total Revenues 15.1% 13.6%
=========== =============
Nine months ended September 30,
-------------------------------------
2005
As adjusted %
2006 (Note 2) Change
------------ ----------- ------------
Operating Income, GAAP basis 420 352 19%
Excluding:
Gain on disposal of London
headquarters (a) (99) -
Severance costs (b) 25 28
Net loss/(gain) on disposal of
operations (d) 7 (78)
Other strategic initiative
expenditure (c) 52 -
Regulatory settlements (e) - 51
Costs related to regulatory
settlements (e) - 9
Other provision (f) - 20
------------ -----------
Adjusted Operating Income 405 382 6%
============ ===========
Operating Margin, GAAP basis, or
Operating Income as
a percentage of Total Revenues 23.2% 20.6%
============ ===========
Adjusted Operating Margin, GAAP
basis, or Adjusted
Operating Income as a percentage
of Total Revenues 22.4% 22.4%
============ ===========
a) We completed the sale of our London headquarters building, Ten
Trinity Square, in the third quarter 2006.
b) 2006 severance costs relate to approximately 400 positions
identified or eliminated in the third quarter 2006 as part of our
Shaping our Future strategic initiatives. 2005 severance costs relate
to the headcount reduction program announced in first quarter 2005
which eliminated approximately 500 positions. Severance costs also
arise in the normal course of business and these charges amounted to
USD 1 million in the third quarter 2006 (USD 2 million in 2005) and
USD 5 million for the nine months ended September 30, 2006 (USD 2
million in 2005).
c) In addition to severance costs and a net loss on disposal of
operations, we incurred significant additional expenditure in 2006 to
launch our strategic initiatives, including professional fees, lease
termination costs and vacant space provisions.
d) The 2005 net gain on disposal of operations was primarily
attributable to a USD 79 million gain arising on the sale of the
Company's US wholesale unit Stewart Smith on April 14, 2005.
e) Comprises USD 51 million to establish the reimbursement funds
agreed with the New York and Minnesota Attorneys General and New York
Department of Insurance in April 2005 and USD 9 million of related
legal and administrative expenses.
f) Based on the quarterly review of legal proceedings at March 31,
2005, the Company increased its provision for claims by an additional
USD 20 million.
6. Adjusted net income
Adjusted net income is defined as net income excluding the gain on
disposal of our London headquarters, severance costs, net gain/loss on
disposal of operations, other 2006 expenditure on strategic
initiatives, 2005 charges for regulatory settlements and related
expenses, and other provisions in 2005. Net income is the most
directly comparable GAAP measure, and the following tables reconcile
adjusted net income to net income for the three months and nine months
ended September 30, 2006 and 2005:
Per diluted share
Three months ended Three months ended
September 30, September 30,
------------------------ ------------------------
2005 2005
As As
Adjusted % adjusted %
2006 (Note 2) Change 2006 (Note 2) Change
------- -------- ------- ------- -------- -------
Net income, GAAP
basis 89 45 98% 0.56 0.28 100%
Excluding:
Gain on disposal of
London
headquarters, net
of tax ((8)) (a) (91) - (0.57) -
Severance costs,
net of tax (8) (b) 17 - 0.11 -
Net loss on
disposal of
operations, net of
tax (2) (d) 5 - 0.03 -
Other strategic
initiative
expenditure, net
of tax (15) (c) 37 - 0.23 -
------- -------- ------- --------
Adjusted net income 57 45 27% 0.36 0.28 29%
======= ======== ======= ========
Diluted shares
outstanding, GAAP
basis 159 162
======= ========
Per diluted share
Nine months ended Nine months ended
September 30, September 30,
------------------------- ------------------------
2005 2005
As As
Adjusted % adjusted %
2006 (Note 2) Change 2006 (Note 2) Change
-------- -------- ------- ------- -------- -------
Net income, GAAP
basis 301 226 33% 1.89 1.38 37%
Excluding:
Gain on disposal
of London
headquarters, net
of tax ((8)) (a) (91) - (0.57) -
Severance costs,
net of tax (8, 9)
(b) 17 19 0.11 0.12
Net loss/(gain) on
disposal of
operations, net
of tax (2, (37))
(d) 5 (41) 0.03 (0.25)
Other strategic
initiative
expenditure, net
of tax (15) (c) 37 - 0.23 -
Regulatory
settlements, net
of tax (20) (e) - 31 - 0.19
Costs related to
regulatory
settlements, net
of tax (4) (e) - 5 - 0.03
Other provision,
net of tax (6)
(f) - 14 - 0.08
-------- -------- ------- --------
Adjusted net income 269 254 6% 1.69 1.55 9%
-------- -------- ------- --------
Diluted shares
outstanding, GAAP
basis 159 164
======== ========
a) We completed the sale of our London headquarters building, Ten
Trinity Square, in the third quarter 2006.
b) 2006 severance costs relate to approximately 400 positions
identified or eliminated in the third quarter 2006 as part of our
Shaping our Future strategic initiatives. 2005 severance costs relate
to the headcount reduction program announced in first quarter 2005
which eliminated approximately 500 positions. Severance costs also
arise in the normal course of business and these charges amounted to
USD 1 million in the third quarter, 2006 (USD 2 million in 2005) and
USD 5 million for the nine months ended September 30, 2006 (USD 2
million in 2005).
c) In addition to severance costs and a net loss on disposal of
operations, we incurred significant additional expenditure in 2006 to
launch our strategic expenditure, including professional fees, lease
termination costs and vacant space provisions.
d) The 2005 net gain on disposal of operations was primarily
attributable to a USD 42 million gain net of tax arising on the sale
of the Company's US wholesale unit Stewart Smith on April 14, 2005.
e) Comprises USD 31 million net of tax to establish the
reimbursement funds agreed with the New York and Minnesota Attorneys
General and New York Department of Insurance in April 2005 and USD 5
million net of tax of related legal and administrative expenses.
f) Based on the quarterly review of legal proceedings at March 31,
2005, the Company increased its provision for claims by an additional
USD 14 million net of tax.
WILLIS GROUP HOLDINGS LIMITED, NON-GAAP FINANCIAL SUPPLEMENT
(in millions, except per share data) (unaudited)
2005
----------------------------------
Q1 Q2 Q3 Q4 FY
------ ------ ------ ------ ------
Revenues (1)
Global 326 238 200 197 961
North America 162 180 173 207 722
International 163 112 96 140 511
------ ------ ------ ------ ------
Commissions and fees 651 530 469 544 2,194
Investment income 18 19 18 18 73
------ ------ ------ ------ ------
Total Revenues 669 549 487 562 2,267
------ ------ ------ ------ ------
Expenses
Salaries and benefits as
previously reported/computed 386 309 313 348 1,356
Adoption of FAS 123R (2) 4 5 4 5 18
Pensions: market-related value
methodology (2) 3 2 2 3 10
------ ------ ------ ------ ------
Salaries and benefits as
adjusted/reported 393 316 319 356 1,384
Other operating expenses 125 98 89 93 405
Regulatory settlements 51 - - - 51
Depreciation expense and
amortization of intangible assets 13 14 13 14 54
Gain on disposal of London
headquarters - - - - -
Net (gain)/loss on disposal of
operations - (78) - - (78)
------ ------ ------ ------ ------
Total Expenses 582 350 421 463 1,816
------ ------ ------ ------ ------
Operating Income 87 199 66 99 451
Operating Income margin 13.0% 36.2% 13.6% 17.6% 19.9%
Interest expense, net 6 6 9 9 30
------ ------ ------ ------ ------
Income before Income Taxes, Equity
in Net Income of Associates and
Minority Interest 81 193 57 90 421
Income taxes as previously
reported/computed 26 77 18 31 152
Adoption of FAS 123R (1) (2) (1) (2) (6)
Pensions: market-related value
methodology (1) - (1) (1) (3)
------ ------ ------ ------ ------
Income taxes as adjusted/reported 24 75 16 28 143
------ ------ ------ ------ ------
133
Income before Equity in Net Income
of Associates and Minority
Interest 57 118 41 62 278
Equity in net income of associates,
net of tax 14 (2) 5 (3) 14
Minority interest, net of tax (4) (2) (1) (4) (11)
------ ------ ------ ------ ------
Net Income 67 114 45 55 281
====== ====== ====== ====== ======
Earnings per Share
- - Diluted (3) 0.41 0.70 0.28 0.35 1.72
====== ====== ====== ====== ======
Average Number of Shares
Outstanding
- Basic 163 163 160 157 161
Diluted as previously reported 168 166 163 160 164
Adoption of FAS 123R (3) (3) (2) (1) (1) (1)
------ ------ ------ ------ ------
- - Diluted as adjusted/ reported 165 164 162 159 163
====== ====== ====== ====== ======
2006
---------------------------
Q1 Q2 Q3 Q3 YTD
------ ------ ------ ------
Revenues (1)
Global 308 255 224 787
North America 181 195 185 561
International 163 122 110 395
------ ------ ------ ------
Commissions and fees 652 572 519 1,743
Investment income 19 21 24 64
------ ------ ------ ------
Total Revenues 671 593 543 1,807
------ ------ ------ ------
Expenses
Salaries and benefits as previously
reported/computed 351 352 382 1,085
Adoption of FAS 123R (2) 3 5 7 15
Pensions: market-related value
methodology (2) (6) (6) (6) (18)
------ ------ ------ ------
Salaries and benefits as adjusted/reported 348 351 383 1,082
Other operating expenses 105 108 138 351
Regulatory settlements - - - -
Depreciation expense and amortization of
intangible assets 14 15 17 46
Gain on disposal of London headquarters - - (99) (99)
Net (gain)/loss on disposal of operations - - 7 7
------ ------ ------ ------
Total Expenses 467 474 446 1,387
------ ------ ------ ------
Operating Income 204 119 97 420
Operating Income margin 30.4% 20.1% 17.9% 23.2%
Interest expense, net 9 9 9 27
------ ------ ------ ------
Income before Income Taxes, Equity in Net
Income of Associates and Minority Interest 195 110 88 393
Income taxes as previously
reported/computed 61 36 3 100
Adoption of FAS 123R (1) (2) (2) (5)
Pensions: market-related value
methodology 2 2 2 6
------ ------ ------ ------
Income taxes as adjusted/reported 62 36 3 101
------ ------ ------ ------
2
Income before Equity in Net Income of
Associates and Minority Interest 133 74 85 292
Equity in net income of associates, net of
tax 14 - 6 20
Minority interest, net of tax (7) (2) (2) (11)
------ ------ ------ ------
Net Income 140 72 89 301
====== ====== ====== ======
Earnings per Share
- - Diluted (3) 0.88 0.45 0.56 1.89
====== ====== ====== ======
Average Number of Shares Outstanding
- Basic 157 157 157 157
Diluted as previously reported 159 159 159 159
Adoption of FAS 123R (3) - - - -
------ ------ ------ ------
- - Diluted as adjusted/ reported 159 159 159 159
====== ====== ====== ======
(1) As described in Note 2, our prior period revenue analysis has been
adjusted to reflect our new internal reporting structure.
(2) Details of the accounting and reporting changes are described in
Note 2.
(3) The impact on diluted share count from the retrospective
application of FAS 123R is described in Note 2.
CONTACT: Willis Group Holdings Limited
Investors:
Kerry K. Calaiaro, +1 212-837-0880
kerry.calaiaro@willis.com
or
Media:
Dan Prince, +1 212-837-0806
daniel.prince@willis.com
Exhibit 99.2
Paul Hazen Resigns from the Willis Group Board of Directors
NEW YORK--(BUSINESS WIRE)--Oct. 25, 2006--Willis Group Holdings,
Ltd. (NYSE: WSH), the global insurance broker, announced that it has
accepted Paul Hazen's resignation today from the Company's Board of
Directors. Hazen has served the Company for six years recently serving
on the Compensation and Executive Committees of the Board.
Hazen, the retired Chairman of Wells Fargo, is scaling back his
involvement in business to pursue personal interests.
"We are grateful for Paul's long and lasting contribution to
Willis," said Joe Plumeri, Chairman and CEO of Willis. "He has brought
great insights into operations, client service and the overall
management of the Company and has left an indelible mark on Willis
that will be felt for years to come."
"In addition what he has meant to the Company, I have been
fortunate to be able to call on Paul for his personal advice and
experienced perspective on a wide range of issues," Plumeri continued.
"He has been a friend and a counselor and having him in my corner has
been invaluable. He has my deepest personal thanks and best wishes."
This leaves the Willis Board with 12 members - 11 of whom are
independent.
Willis Group Holdings Limited is a leading global insurance
broker, developing and delivering professional insurance, reinsurance,
risk management, financial and human resource consulting and actuarial
services to corporations, public entities and institutions around the
world. With over 300 offices in more than 100 countries, its global
team of 15,400 Employees and Associates serves clients in some 190
countries. Willis is publicly traded on the New York Stock Exchange
(NYSE: WSH). Additional information on Willis may be found on its web
site: www.willis.com.
CONTACT: Willis Group Holdings, Ltd.
Investors:
Kerry K. Calaiaro, +1 212 837-0880
kerry.calaiaro@willis.com
or
Media:
Dan Prince, +1 212 837-0806
daniel.prince@willis.com