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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 27, 2004
Willis Group Holdings Limited
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(Exact Name of Registrant as Specified in Its Charter)
Bermuda
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(State or Other Jurisdiction of Incorporation)
001-16503 98-0352587
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(Commission File Number) (IRS Employer Identification No.)
Ten Trinity Square
London EC3P 3AX, England
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(Address of Principal Executive Offices)
(44) (20) 7488-8111
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(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))
Item 2.02. Results of Operations and Financial Condition.
On October 27, 2004, Willis Group Holdings Limited ("WGHL") issued a press
release (the "Press Release") reporting results for the quarter and nine months
ended September 30, 2004 and announcing the approval of a regular quarterly cash
dividend on the Company's common stock. A copy of the Press Release is attached
as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by
reference.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Press Release of WGHL dated October 27, 2004.
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 28, 2004 By: /s/ Mary E. Caiazzo
-------------------
Name: Mary E. Caiazzo
Title: Assistant General Counsel
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Press Release of WGHL dated October 27, 2004.
Exhibit 99.1
Willis Group Reports Record Third Quarter 2004 Results;
Declares Regular Quarterly Dividend
NEW YORK--(BUSINESS WIRE)--Oct. 27, 2004--Willis Group Holdings
Limited (NYSE:WSH)
-- 19th Consecutive Quarter of Record Results; Reported Revenues
Grew 8% (4% Organic Growth)
-- Company Provides Direction on Impact of Abolishing Contingency
Payments
-- Will Pursue Aggressive Expansion of Global Market Share
-- Reaffirms Commitment to Clients through Client Advocates,
Client Bill of Rights, and Willis Excellence Model
Willis Group Holdings Limited (NYSE: WSH), the global insurance
broker, today reports record results for the quarter and nine months
ended September 30, 2004.
Separately, the Board of Directors today approved a regular
quarterly cash dividend on the Company's common stock of $0.1875 per
share, an annual rate of $0.75 per share. The dividend is payable on
January 14, 2005 to shareholders of record on December 31, 2004.
Third Quarter and Nine Months Ended September 30, 2004 Review
Net income for the quarter ended September 30, 2004 was $75
million, or $0.45 per diluted share, compared with $99 million, or
$0.59 per diluted share, a year ago. Excluding non-cash compensation
for performance-based stock options, a related one-time tax benefit
arising from a change in UK tax legislation in 2003, and net gain on
disposal of operations, adjusted net income increased 24 percent to
$77 million for the quarter ended September 30, 2004 from $62 million
in the same period last year, while adjusted net income per diluted
share rose 24 percent to $0.46 for the third quarter of 2004 from
$0.37 a year ago. Foreign currency translation had no impact on third
quarter 2004 reported earnings compared to a year ago.
Net income for the nine months ended September 30, 2004 was $319
million, or $1.89 per diluted share, compared to $296 million, or
$1.75 per diluted share, a year ago. Excluding non-cash compensation
for performance-based stock options, a related one-time tax benefit
arising from a change in UK tax legislation in 2003, net gain on
disposal of operations, and a subordinated debt redemption premium,
adjusted net income for the nine months ended September 30, 2004
increased 25 percent to $333 million from $267 million in the
corresponding period in 2003, while adjusted net income per diluted
share rose 25 percent to $1.97 from $1.58 in the corresponding period
in 2003. The impact of foreign currency translation increased reported
earnings for the nine months to September 2004 by approximately $0.01
per share compared to a year ago.
Total reported revenues for the quarter ended September 30, 2004
increased 8 percent to $490 million, from $452 million for the same
period last year. Organic revenue growth was 4 percent, which excluded
the effects of foreign currency translation (2 percent) and net
acquisitions (2 percent). The adjusted operating margin was 23.1
percent for the third quarter of 2004 compared with 23.0 percent for
the same period last year.
Total reported revenues for the nine months ended September 30,
2004 increased 13 percent to $1,687 million, up from $1,499 million
for the corresponding period in 2003, or 6 percent on an organic
basis. The adjusted operating margin was 29.7 percent through the nine
months to September 2004, compared with 29.0 percent for the same
period last year.
Joe Plumeri, Chairman and Chief Executive Officer said, "We saw
continued success this quarter, despite a tough business environment.
We continued to build a sales culture, grow revenues, maintain expense
discipline, and enhance earnings, despite a continued decline in rates
across most lines of insurance in the third quarter.
"Willis was the first broker in the industry to abolish contingent
commissions and is strongly committed to maintaining our leadership
role in the industry as client advocates. Our new Client Bill of
Rights clearly describes for clients how we do business and
complements our Client Advocate Program to ensure we effectively
represent our clients' needs. We are extremely pleased with how
positively clients have responded to these measures," Mr. Plumeri
said.
Balance Sheet
At September 30, 2004, total long-term debt was $450 million, up
0.4 percent from $448 million a year ago.
Total stockholders' equity at the quarter end was approximately
$1.3 billion, up 16 percent from a year ago. The capitalization ratio
(total long-term debt to total long-term debt and stockholders'
equity) was 25 percent at quarter-end September 30, 2004.
Share Buybacks and Acquisitions
During the third quarter, the Company repurchased 3.5 million
shares of its common stock for $124 million, and through the nine
months, share buybacks totaled 9.0 million for $327 million under the
Company's $500 million authorization. There was approximately $168
million of immediately available cash at September 30, 2004, providing
significant financial flexibility to support the cash needs of the
Company.
To date in 2004, the Company has completed 8 acquisitions with
annual revenues of approximately $130 million. These include the
October 1, 2004 acquisition of a 56 percent interest in Coyle
Hamilton, the Republic of Ireland's largest privately owned insurance
broker with annualized revenues of approximately $60 million, and the
January 1, 2004 increase in its ownership position in Willis A/S in
Denmark to 100 percent from 30 percent, with annualized revenues of
$50 million.
Impact of Abolishing Contingents and Future Outlook
Last week the Company said that it anticipated it would have
received $160 million in total market derived revenues for 2004: $80
million of predominantly volume and profit-related contingent
commissions, and $80 million of other market service revenues. The
Company announced that it was abolishing volume and profit related
commissions and restructuring other market related arrangements with
insurers. Of the $80 million of volume and profit-related commissions,
the Company had recognized $50 million in the first nine months of the
year. The Company's decision could therefore reduce revenues in 2004
by approximately $30 million, pre-tax, or $.12 per diluted share. The
Company said that it expects adjusted net income for full year 2004 to
be in the range of $2.60 to $2.65 per diluted share. Because the
situation is still developing rapidly, the actual impact on 2004 could
be more or less than these estimates.
The Company sees significant new opportunities to enhance its
global market share, especially with middle market and large accounts.
Efforts to grow market share will include increased marketing,
aggressive targeting of new accounts and continued hiring of new
producers.
The Company said that while it was assessing the impact of its
decision to abolish contingencies and the rapidly changing industry
environment as well as benefits of its efforts to increase market
share, it does not believe it is appropriate, at this time, to provide
longer-term guidance.
Willis Commitment to Clients
Mr. Plumeri said, "Our business model is built around the value we
provide to clients and being responsive to their concerns as committed
client advocates. Our mission is to represent the buyers of insurance,
not the sellers, and we will continue to do that aggressively."
Building on its industry leadership in the area of client
advocacy, the Company has initiated a number of measures, which
reaffirm its commitment to clients, including:
-- Being the first company in the industry to announce the
outright abolition of contingency payments from carriers;
-- Introducing a Client Bill of Rights detailing the Company's
obligations to clients, including full transparency of
commission and fee payments;
-- Establishing toll-free client call-in lines and scheduling
regular conference calls for clients to meet with Joe Plumeri,
with over 750 clients participating in the first such call
last week;
-- Reaffirming that Willis does not and will not make financial
investments in carriers;
-- Expanding Willis' Client Advocacy program to dedicate an
internal advocate for every client of Willis;
-- Strengthening the monitoring and enforcement of the existing
Willis Excellence Model ("WEM") global compliance program
through the creation of an internal compliance hotline for
Willis Associates worldwide to report any evidence of
inappropriate market conduct behavior by Willis Associates,
insurer personnel or anyone else involved in Willis client
business.
WEM, which has been in place for more than three years,
establishes compliance standards for the client placement process.
These standards are monitored and enforced through a global employee
training program, Willis compliance officers assigned to every
business unit, regular quarterly self-assessment certification, and a
rigorous internal audit program. Reports on these audits are presented
monthly to Willis Chairman and Chief Executive Officer Joe Plumeri,
and quarterly to the Audit Committee of the Company's Board of
Directors.
The Company will discuss financial results and outlook on a
conference call scheduled for 8:00 a.m. Eastern Time, October 28,
2004. This call is being web cast and can be accessed at
www.willis.com.
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
14,500 associates serves clients in some 180 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 consolidated statements of
operations for the quarter and nine months ended September 30, 2004.
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months Nine months
ended ended
Sept. 30, Sept. 30,
------------- ---------------
2004 2003 2004 2003
------ ------ ------- -------
Revenues:
Commissions and fees $472 $434 $1,636 $1,446
Interest income 18 18 51 53
------ ------ ------- -------
Total Revenues 490 452 1,687 1,499
------ ------ ------- -------
Expenses:
General and administrative expenses
(excluding non-cash compensation) 365 339 1,151 1,036
Non-cash compensation - performance
options (Note 1) 4 4 10 17
Depreciation expense 10 8 31 26
Amortization of intangible assets 2 1 4 2
Net gain on disposal of operations - (6) (5) (10)
------ ------ ------- -------
Total Expenses 381 346 1,191 1,071
------ ------ ------- -------
Operating Income 109 106 496 428
Interest expense 6 12 15 40
Premium on redemption of subordinated
debt - - 17 -
------ ------ ------- -------
Income before Income Taxes, Equity in
Net Income of Associates and Minority
Interest 103 94 464 388
Income tax expense (benefit) 31 (3) 155 102
------ ------ ------- -------
Income before Equity in Net Income of
Associates and Minority Interest 72 97 309 286
Equity in net income of associates 3 3 15 14
Minority interest - (1) (5) (4)
------ ------ ------- -------
Net Income $75 $99 $319 $296
====== ====== ======= =======
Net Income per Share
- Basic $0.48 $0.65 $2.02 $1.96
- Diluted $0.45 $0.59 $1.89 $1.75
====== ====== ======= =======
Average Number of Shares Outstanding
- Basic 157 153 158 151
- Diluted 167 168 169 169
====== ====== ======= =======
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (cont'd)
(in millions, except per share data)
(unaudited)
Note 1: Non-Cash Compensation - Performance Options
The non-cash compensation charge recognizes performance-based
stock options granted to management as part of the 1998 leveraged
buyout arrangement for meeting or exceeding 2001 and 2002 targets. In
accordance with GAAP, a quarterly charge is recognized, on a
cumulative basis, calculated in accordance with the vesting schedule
and the stock price at the end of the performance period, which ended
on December 31, 2002 when the stock price was $28.67. On a cumulative
basis at September 30, 2004, the Company has recognized $268 million,
or approximately 99 percent of the total estimated charge. The
remaining estimated charge of $2 million will be recognized in the
fourth quarter of 2004 in accordance with the vesting schedule.
Note 2: Income tax expense (benefit)
In the third quarter of 2003, certain changes to UK tax
legislation were enacted regarding the taxation of employee stock
options. When UK-based employees exercise their stock options, the
Company now obtains a corporate tax deduction equal to the market
price of the Company's shares on the date of exercise less the option
exercise price paid by the employee. This change largely brings UK tax
legislation into line with US tax legislation.
Non-cash compensation amounting to $123 million in respect of UK
performance options had been expensed in periods prior to June 30,
2003 without any income tax benefit being recognized. Accordingly,
following the change in UK tax legislation, an income tax benefit of
$37 million and a corresponding deferred asset were recognized in the
third quarter of 2003.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data)
(unaudited)
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.
Because the non-cash compensation charge for performance-based
stock options was based on our stock price at the end of each quarter
until December 31, 2002, changes in our stock price increased the
volatility of our reported operating income and reported net income.
The net gain or loss on disposal of operations and the non-recurring
subordinated debt redemption premium also impact the volatility of our
reported results. We believe that excluding these items from the
following non-GAAP measures, along with the GAAP measures, provides a
more complete and consistent comparative analysis of our results of
operations.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION (cont'd)
(in millions, except per share data)
(unaudited)
Adjusted Operating Income:
Adjusted operating income is defined as operating income excluding
non-cash compensation for performance-based stock options and net gain
or loss on disposal of operations. Operating income is the most
directly comparable GAAP measure, and the following table reconciles
adjusted operating income to operating income for the quarters and
nine months ended September 30, 2004 and 2003:
Three months ended
September 30,
------------------------
2004 2003 % Change
------ ----- ---------
Operating Income, GAAP basis $109 $106 3%
Excluding:
Non-cash compensation - performance options 4 4
Net gain on disposal of operations - (6)
------ -----
Adjusted Operating Income $113 $104 9%
====== =====
Operating Margin, GAAP basis, or Operating
Income as a percentage of Total Revenues 22.2% 23.5%
====== =====
Adjusted Operating Margin, or Adjusted
Operating Income as a percentage of Total
Revenues 23.1% 23.0%
====== =====
Nine months ended
September 30,
---------------------
2004 2003 % Change
----- ----- ---------
Operating Income, GAAP basis $496 $428 16%
Excluding:
Non-cash compensation - performance options 10 17
Net gain on disposal of operations (5) (10)
----- -----
Adjusted Operating Income $501 $435 15%
===== =====
Operating Margin, GAAP basis, or Operating Income
as a percentage of Total Revenues 29.4% 29.0%
===== =====
Adjusted Operating Margin, or Adjusted Operating
Income as a percentage of Total Revenues 29.7% 29.0%
===== =====
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION (cont'd)
(in millions, except per share data)
(unaudited)
Adjusted Net Income:
Adjusted net income is defined as net income excluding non-cash
compensation for performance-based stock options, net gain or loss on
disposal of operations and the non-recurring subordinated debt
redemption premium. Net income is the most directly comparable GAAP
measure, and the following table reconciles adjusted net income to net
income for the quarters and nine months ended September 30, 2004 and
2003:
Three months ended Per Diluted Share
September 30, Three months ended
September 30,
--------------------- -----------------------
2004 2003 % Change 2004 2003 % Change
----- ----- --------- ------ ------ ---------
Net Income, GAAP basis $75 $99 (24)% $0.45 $0.59 (24)%
Excluding:
Non-cash compensation -
performance options,
net of tax ($2, $1) 2 3 0.01 0.02
Net gain on disposal of
operations, net of tax
(nil, $(3)) - (3) - (0.02)
One-time income tax
benefit - performance
options (Note 2) - (37) - (0.22)
----- ----- ------ ------
Adjusted Net Income $77 $62 24% $0.46 $0.37 24%
===== ===== ====== ======
Diluted shares
outstanding, GAAP basis 167 168
===== =====
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION (cont'd)
(in millions, except per share data)
(unaudited)
Nine months ended Per Diluted Share
September 30, Nine months ended
September 30,
--------------------- -----------------------
2004 2003 % Change 2004 2003 % Change
----- ----- --------- ------ ------ ---------
Net Income, GAAP basis $319 $296 8% $1.89 $1.75 8%
Excluding:
Non-cash compensation -
performance options,
net of tax ($3, $3) 7 14 0.04 0.08
Net gain on disposal of
operations, net of tax
($(2), $(4)) (3) (6) (0.02) (0.03)
Non-recurring premium on
redemption of
subordinated debt, net
of tax ($7) 10 - 0.06 -
One-time income tax
benefit - performance
options (Note 2) - (37) - (0.22)
----- ----- ------ ------
Adjusted Net Income $333 $267 25% $1.97 $1.58 25%
===== ===== ====== ======
Diluted shares
outstanding, GAAP basis 169 169
===== =====
Forward-Looking Information: Our stated goal is to grow adjusted
net income per diluted share by 15 percent or better each year. The
most directly comparable GAAP measure is net income per diluted share.
We are not in a position to reconcile adjusted net income per diluted
share to net income per diluted share for this forward-looking
information. Historically, reconciling items have consisted of
non-cash compensation for performance-based stock options, estimated
at $2 million for the remainder of 2004; net gain or loss on disposal
of operations; and the tax effects thereon. We are unable to provide
estimates for future gains or losses on disposals.
CONTACT: Willis Group Holdings Limited
Investors:
Kerry K. Calaiaro, +1 212 837-0880
Email: calaiaro_ke@willis.com
Media:
Nicholas Jones, +44 20 7488-8190
Email: jonesnr@willis.com
Dan Prince, +1 212 837-0806
Email: princeda@willis.com