Willis Group Reports Strong Second Quarter 2006 Results; Eight Percent Reported Revenue Growth and Ten Percent Organic Revenue Growth are Company's Highest in Two Years.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Board Authorizes New $1 Billion Stock Buy Back Plan and Declares Regular Quarterly Dividend Willis Wil·lis , Thomas 1621-1675. English anatomist and physician known for his studies of the nervous system and the brain. He discovered the circle of Willis at the base of the brain. Group Holdings Limited (NYSE NYSE See: New York Stock Exchange : WSH See Windows Script Host. ), the global insurance broker, today reported results for the quarter and six months ended June June: see month. 30, 2006. Commenting on today's results, Joe Plumeri, Chairman and Chief Executive Officer, said, "We have already begun successfully implementing the Shaping Our Future initiatives throughout Willis. Our 10 percent organic revenue growth in the second quarter is a clear demonstration of the effectiveness of our sales culture. In addition, we see traction Traction Definition Traction is the use of a pulling force to treat muscle and skeleton disorders. Purpose Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. and accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the from the new hires that we made over the last few years. Importantly, the expansion of our underlying margins and profitability are direct results of solid growth and contributions from each and every area of our business through the first half of 2006." "We are confident that achieving leadership in our core businesses and delivering the best value to our clients through our distribution network will make a significant impact on our Company and drive our financial performance. We are focused on businesses where our unique expertise allows us to deliver superior advice, products and services. In addition, we believe that our extensive retail distribution network, client advocacy The act of Pleading or arguing a case or a position; forceful persuasion. and efficient delivery platform makes Willis the broker most valued by our clients." Mr. Plumeri continued, "The Board's authorization The right or permission to use a system resource; the process of granting access. See access control. of a new $1 billion stock buy back plan is a clear indicator Indicator Anything used to predict future financial or economic trends. Notes: In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. of their confidence in the future of Willis and a recognition that our best use of capital is to invest in ourselves." Second Quarter 2006 Financial Results Total reported revenues for the quarter ended June 30, 2006 were $593 million, compared with $549 million for the same period last year, an increase of 8 percent. The effect of foreign currency translation decreased reported revenues by 1 percent and net acquisitions of operations increased reported revenues by 1 percent. Organic growth in commissions and fees excluding total market remuneration REMUNERATION. Reward; recompense; salary. Dig. 17, 1, 7. was 10 percent in the second quarter 2006. Each business unit had a strong contribution to overall organic growth in commissions and fees including Global with 13 percent organic growth in the quarter (including double digit Noun 1. double digit - a two-digit integer; from 10 to 99 integer, whole number - any of the natural numbers (positive or negative) or zero; "an integer is a number that is not a fraction" organic growth in Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. ), North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. with 8 percent and International with 6 percent. The reduction of total market remuneration as well as changes to the quarterly phasing of incentive compensation in 2006 impacted the year-over-year comparison of adjusted operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: by over 4 percentage points in the second quarter of 2006 compared to the second quarter of 2005. The reported (and adjusted) operating margin was 20.1 percent in the second quarter of 2006, and excluding these items, this represented an over 2 percentage point improvement in adjusted operating margin over the second quarter of 2005. Other expenses for the second quarter of 2006 were $108 million, or 18.2 percent of total revenues, compared to $98 million, or 17.9 percent in the comparable period last year, relatively flat despite incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. spending for strategic initiatives. Excluding the effects on taxation of amortization of intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. , disposals of operations and share-based compensation, the underlying tax rate in the second quarter of 2006 was 31.5 percent, the same as the underlying rate for the full year 2005. Reported and adjusted net income for the quarter ended June 30, 2006 was $72 million, or $0.45 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with a reported net income of $114 million, or $0.70 per diluted share, a year ago and adjusted net income of $73 million, or $0.45 per diluted share, for the same period last year. Foreign currency translation had no impact on second quarter 2006 net income compared with second quarter 2005. Six Months 2006 Financial Results Total reported revenues increased by 4 percent to $1,264 million in the first six months of 2006, up from $1,218 million for the corresponding period in 2005. The effect of foreign currency translation decreased reported revenues by 2 percent and net disposals of operations decreased reported revenues by 1 percent. The reduction of total market remuneration as well as changes to the quarterly phasing of incentive compensation in 2006 impacted the year-over-year comparison of adjusted operating margin by over 1 percentage point in the first half of 2006 compared to the first half of 2005. The reported (and adjusted) operating margin was 25.6 percent in the first half of 2006, and excluding these items, this represented an over 1 percentage point improvement in adjusted operating margin over the first half of 2005. Other expenses for the first half of 2006 were $213 million, or 16.9 percent of total revenues, compared to $194 million, or 15.9 percent in the comparable period last year (excluding the first quarter 2005 non-operating items), principally as a result of incremental spending for strategic initiatives. Reported and adjusted net income for the six months ended June 30, 2006 was $212 million or $1.33 per diluted share, compared to a reported net income of $181 million, or $1.10 per diluted share and adjusted net income of $209 million, or $1.27 per diluted share, for the same period last year. Foreign currency translation had a negative $0.03 impact on results for the first six months of 2006, compared with same period last year. 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. In the third quarter 2006, Willis expects to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. certain one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. expenses related to the Company's strategic initiatives. Willis also expects to close on the sale of Ten Trinity Trinity, doctrine in Christianity Trinity [Lat.,=threefoldness], fundamental doctrine in Christianity, by which God is considered as existing in three persons. Square, its current London London, city, Canada London, city (1991 pop. 303,165), SE Ont., Canada, on the Thames River. The site was chosen in 1792 by Governor Simcoe to be the capital of Upper Canada, but York was made capital instead. London was settled in 1826. headquarters during the third quarter of 2006. The Company is on schedule to move into a new London New London, city (1990 pop. 24,540), New London co., SE Conn., on the Thames River near its mouth on Long Island Sound; laid out 1646 by John Winthrop, inc. 1784. headquarters in late 2007/early 2008. The Company expects to deliver breakout financial performance in the next five years. Specifically, by 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. In conclusion, Mr. Plumeri added, "We remain focused and committed to the Shaping Our Future initiatives which are designed to drive revenue and profitable growth in our Company. We have seen early signs that the execution of our strategy is working well and expect an even more significantly positive impact on our results in 2007 and beyond." Capital Management The Board of Directors approved a new $1 billion stock buy back plan. This authorization replaces the Company's previously announced $500 million buy back plan and its remaining $140 million authorization. The buy back is an open-ended o·pen-end·ed adj. 1. Not restrained by definite limits, restrictions, or structure. 2. Allowing for or adaptable to change. 3. plan to purchase, from time to time in the open market or through negotiated trades with persons who are not affiliates of the Company, shares of the Company's common stock. Separately, the Board of Directors declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. a regular quarterly cash dividend on the Company's common stock of $0.235 per share, an annual rate of $0.94 per share. The dividend is payable on October October: see month. 13, 2006 to shareholders of record on September September: see month. 30, 2006. During the six months ended June 30, 2006 the Company completed 4 acquisitions with annual revenues of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $13 million. Cash and cash equivalents totaled $210 million, including approximately $104 million of immediately available cash at June 30, 2006. No shares were repurchased during the first half of 2006. At June 30, 2006, total long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. was $600 million and total stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. was approximately $1.4 billion. The capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. ratio (total long-term debt to total long-term debt and stockholders' equity) was 29 percent at June 30, 2006. Conference Call and Web Cast A conference call to discuss second quarter 2006 results will be held August 3, 2006 at 8:00 a.m. Eastern Time. To participate in the live teleconference, please dial (888) 316-9406 (Domestic) or +1 (210) 234-0000 (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 August 17, 2006. To access the audio replay, please dial (866) 445-8187 (Domestic) or +1 (203) 369-1139 (International), or by accessing the web site. Willis Group Holdings Limited is a leading global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting Services Provided Human Resource Consulting firms provides advice to their clients regarding the financial and retirement security, health, productivity, and employment relationships of their global workforce. and actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin 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 relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc future results, which are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. as that term is defined in the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 Contingent Liability 1. The possibility of an obligation to pay certain sums dependent on future events. 2. Defined obligations by a company that must be met, but the probability of payment is minimal. Notes: 1. . 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 The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See 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 Instead of; in place of; in substitution of. It does not mean in addition to. , the Company's condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: statements of operations for the three and six months ended June 30, 2006.
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
2005 2005
As As
adjusted adjusted
2006 (Note 2) 2006 (Note 2)
-------- --------- ------- ---------
Revenues
Commissions and fees $ 572 $ 530 $ 1,224 $ 1,181
Investment income 21 19 40 37
-------- -------- ------- --------
Total Revenues 593 549 1,264 1,218
-------- -------- ------- --------
Expenses
Salaries and benefits (after
charging share-based
compensation $5, $5, $8 and
$9) 351 316 699 709
Other operating expenses 108 98 213 223
Regulatory settlements - - - 51
Depreciation expense and
amortization of intangible
assets 15 14 29 27
Net gain on disposal of
operations - (78) - (78)
-------- -------- ------- --------
Total Expenses 474 350 941 932
-------- -------- ------- --------
Operating Income 119 199 323 286
Interest expense, net 9 6 18 12
-------- -------- ------- --------
Income before Income Taxes,
Equity in Net Income of
Associates and Minority
Interest 110 193 305 274
Income taxes 36 75 98 99
-------- -------- ------- --------
Income before Equity in Net
Income of Associates and
Minority Interest 74 118 207 175
Equity in net income of
associates, net of tax - (2) 14 12
Minority interest, net of tax (2) (2) (9) (6)
-------- -------- ------- --------
Net Income $ 72 $ 114 $ 212 $ 181
======== ======== ======= ========
Earnings per Share
- Basic $ 0.46 $ 0.70 $ 1.35 $ 1.11
- Diluted $ 0.45 $ 0.70 $ 1.33 $ 1.10
======== ======== ======= ========
Average Number of Shares
Outstanding
- Basic 157 163 157 163
- Diluted 159 164 159 164
======== ======== ======= ========
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 total 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 Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. and adjusted net income Our results for the six months June 30, 2005 were significantly impacted by gains on disposal of operations, charges for regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. settlements and related expenses, our first quarter 2005 headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. reduction program and other provisions. 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. These items did not have a material effect on the results for the six months ended June 30, 2006. 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 January: see month. 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 Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." disclosure to our financial statements. The retrospective LAW, RETROSPECTIVE. A retrospective law is one that is to take effect, in point of time, before it was passed. 2. Whenever a law of this kind impairs the obligation of contracts, it is void. 3 Dall. 391. 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 con·se·quent adj. 1. a. Following as a natural effect, result, or conclusion: tried to prevent an oil spill and the consequent damage to wildlife. b. 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 Expected Return The average of a probability distribution of possible returns, calculated by using the following formula: on plan assets to be determined based on the expected long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-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 December: see month. 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 Return on assets (ROA) Indicator of profitability. Determined by dividing net income for the past 12 months by total average assets. Result is shown as a percentage. ROA can be decomposed into return on sales (net income/sales) multiplied by asset utilization (sales/assets). After reviewing the long-term rate of return on our UK plan assets, effective January 1, 2006, we have increased the expected long-term rate to 7.75% from 7.25%. 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 total 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 June 30, 2006:
Three months ended
June 30,
---------------------------------------
%
2006 2005(1) Change
------------ ------------ -----------
Global $ 255 $ 238 7%
North America 195 180 8%
International 122 112 9%
------------ ------------ -----------
Commissions and fees $ 572 $ 530 8%
Investment Income 21 19 11%
------------ ------------ -----------
Total revenues $ 593 $ 549 8%
============ ============ ===========
Change attributable to
-----------------------------------------------
Foreign Acquisitions Total market Organic
currency and remuneration revenue
translation disposals growth
------------ ------------ ------------- --------
Global (1)% (1)% (4)% 13%
North America 0% 0% 0% 8%
International 0% 3% 0% 6%
------------ ------------ ------------- --------
Commissions and fees 0% 0% (2)% 10%
Investment Income (10)% 1% 0% 20%
------------ ------------ ------------- --------
Total revenues (1)% 1% (2)% 10%
============ ============ ============= ========
(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 six months ended June 30, 2006:
Six months ended
June 30,
------------------------------------------
2006 2005(1) % Change
------------- ------------- -------------
Global $563 $564 0%
North America 376 342 10%
International 285 275 4%
------------- ------------- -------------
Commissions and
fees $1,224 $1,181 4%
Investment Income 40 37 8%
------------- ------------- -------------
Total revenues $1,264 $1,218 4%
============= ============= =============
Change attributable to
------------------------------------------------
Foreign Acquisitions Total market Organic
currency and remuneration revenue
translation disposals growth
------------ ------------ ------------- --------
Global (2)% (3)% (2)% 7%
North America 0% 1% 0% 9%
International (5)% 3% (1)% 7%
------------ ------------ ------------- --------
Commissions and fees (2)% 0% (2)% 8%
Investment Income (7)% (1)% 0% 16%
------------ ------------ ------------- --------
Total revenues (2)% (1)% (1)% 8%
============ ============ ============= ========
(1) As described in Note 2, our prior period revenue analysis has been
adjusted to reflect our new internal reporting structure.
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data)
(unaudited)
4. Non-GAAP Supplemental Financial Information Adjusted operating income Adjusted operating income is defined as operating income excluding net gain on disposal of operations and, for 2005, charges for regulatory settlements and related expenses, severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when costs relating to our first quarter 2005 headcount reduction program and other provisions. 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 six months ended June 30, 2006 and 2005:
Three months ended June 30,
-----------------------------------
2005 As
adjusted %
2006 (Note 2) Change
--------- ------------ -----------
Operating Income, GAAP basis $ 119 $ 199 (40)%
Excluding:
Net gain on disposal of
operations (a) - (78)
--------- -----------
Adjusted Operating Income $ 119 $ 121 (2)%
========= ===========
Operating Margin, GAAP basis, or
Operating Income as a percentage
of Total Revenues 20.1% 36.2%
========= ===========
Adjusted Operating Margin, GAAP
basis, or Adjusted Operating
Income as a percentage of Total
Revenues 20.1% 22.0%
========= ===========
Six months ended June 30,
----------------------------------
2005 As
adjusted %
2006 (Note 2) Change
----------- ---------- ----------
Operating Income, GAAP basis $ 323 $ 286 13%
Excluding:
Regulatory settlements (b) - 51
Costs related to regulatory
settlements (b) - 9
Severance costs (c) - 28
Other provision (d) - 20
Net gain on disposal of operations
(a) - (78)
----------- ---------
Adjusted Operating Income $ 323 $ 316 2%
=========== =========
Operating Margin, GAAP basis, or
Operating Income as a percentage of
Total Revenues 25.6% 23.5%
=========== =========
Adjusted Operating Margin, GAAP
basis, or Adjusted Operating Income
as a percentage of Total Revenues 25.6% 25.9%
=========== =========
a) Primarily attributable to the $79 million gain arising on the sale
of the Company's US wholesale unit Stewart Smith on April 14,
2005.
b) Comprises $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 $9 million of related
legal and administrative expenses.
c) Severance costs relate to the headcount reduction program announced
in the first quarter 2005 which eliminated approximately 500
positions at a cost of $28 million.
d) Based on the quarterly review of legal proceedings at March 31,
2005, the Company increased its provision for claims by an
additional $20 million.
Adjusted net income Adjusted net income is defined as net income excluding net gain on disposal of operations and, for 2005, charges for regulatory settlements and related expenses, severance costs relating to our first quarter 2005 headcount reduction program and other provisions. 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 six months ended June 30, 2006 and 2005:
Three months ended Per diluted share
June 30, Three months ended
June 30,
----------------------- ------------------------
2005 2005 %
As As Change
Adjusted % adjusted
2006 (Note 2) Change 2006 (Note 2)
----- -------- -------- ------ -------- --------
Net income, GAAP basis $72 $114 (37)% $0.45 $0.70 (36)%
Excluding:
Net gain on disposal
of operations, net
of tax ($nil,
$(37)) - (41) - (0.25)
----- -------- ------ --------
Adjusted net income $72 $73 (1)% $0.45 $0.45 0%
===== ======== ====== ========
Diluted shares
outstanding, GAAP
basis 159 164
===== ========
Per diluted share
Six months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2005 2005
As As
adjusted % adjusted %
2006 (Note 2) Change 2006 (Note 2) Change
----- -------- -------- ----- -------- --------
Net income, GAAP
basis $ 212 $ 181 17% $1.33 $ 1.10 21%
Excluding:
Regulatory
settlements, net
of tax
($20) - 31 - 0.19
Costs related to
regulatory
settlements, net
of tax ($4) - 5 - 0.03
Severance costs,
net of tax ($9) - 19 - 0.12
Other provision,
net of tax ($6) - 14 - 0.08
Net gain on
disposal of
operations, net of
tax ($nil, $(37)) - (41) - (0.25)
----- ------- ----- ------
Adjusted net income $ 212 $ 209 1% $1.33 $ 1.27 5%
===== ======= ===== ======
Diluted shares
outstanding, GAAP
basis 159 164
===== =======
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
Net gain 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
----- ----- ----- ----- ------
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 Q2 YTD
------ ------ -------
Revenues (1)
Global $ 308 255 563
North America 181 195 376
International 163 122 285
----- ----- ------
Commissions and fees 652 572 1,224
Investment income 19 21 40
----- ----- ------
Total Revenues 671 593 1,264
----- ----- ------
Expenses
Salaries and benefits as previously
reported/computed 351 352 703
Adoption of FAS 123R (2) 3 5 8
Pensions: market-related value methodology (2) (6) (6) (12)
----- ----- ------
Salaries and benefits as adjusted/reported 348 351 699
Other operating expenses 105 108 213
Regulatory settlements - - -
Depreciation expense and amortization of
intangible assets 14 15 29
Net gain on disposal of operations - - -
----- ----- ------
Total Expenses 467 474 941
----- ----- ------
Operating Income 204 119 323
Operating Income margin 30.4% 20.1% 25.6%
Interest expense, net 9 9 18
----- ----- ------
Income before Income Taxes, Equity in Net Income
of Associates and Minority Interest 195 110 305
Income taxes as previously reported/computed 61 36 97
Adoption of FAS 123R (1) (2) (3)
Pensions: market-related value methodology 2 2 4
----- ----- ------
Income taxes as adjusted/reported 62 36 98
----- ----- ------
Income before Equity in Net Income of Associates
and Minority Interest 133 74 207
Equity in net income of associates, net of tax 14 - 14
Minority interest, net of tax (7) (2) (9)
----- ----- ------
Net Income $ 140 $ 72 $ 212
===== ===== ======
Earnings per Share
- Diluted (3) $0.88 $0.45 $ 1.33
===== ===== ======
Average Number of Shares Outstanding
- Basic 157 157 157
Diluted as previously reported 159 159 159
Adoption of FAS 123R (3) - - -
----- ----- ------
- Diluted as adjusted/ reported 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.
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