EX-99.1 2 a5203607ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 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--(BUSINESS WIRE)--Aug. 2, 2006-- Board Authorizes New $1 Billion Stock Buy Back Plan and Declares Regular Quarterly Dividend Willis Group Holdings Limited (NYSE: WSH), the global insurance broker, today reported results for the quarter and six months ended June 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 and accretion 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 and efficient delivery platform makes Willis the broker most valued by our clients." Mr. Plumeri continued, "The Board's authorization of a new $1 billion stock buy back plan is a clear indicator 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 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 organic growth in Reinsurance), North America 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 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 spending for strategic initiatives. Excluding the effects on taxation of amortization of intangibles, 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 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 certain one-time expenses related to the Company's strategic initiatives. Willis also expects to close on the sale of Ten Trinity Square, its current London headquarters during the third quarter of 2006. The Company is on schedule to move into a new London 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 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 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 13, 2006 to shareholders of record on September 30, 2006. During the six months ended June 30, 2006 the Company completed 4 acquisitions with annual revenues of approximately $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 was $600 million and total stockholders' equity was approximately $1.4 billion. The capitalization ratio (total long-term debt to total long-term debt and stockholders' equity) was 29 percent at June 30, 2006. Conference Call and Webcast 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 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 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 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 settlements and related expenses, our first quarter 2005 headcount 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 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 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 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. CONTACT: Willis Group Holdings Limited Investors: Kerry K. Calaiaro, 212-837-0880 kerry.calaiaro@willis.com or Media: Dan Prince, 212-837-0806 daniel.prince@willis.com