Annual Statements Open main menu

WILLIS TOWERS WATSON PLC - Quarter Report: 2021 June (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

Commission File Number: 001-16503

 

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

 

 

Ireland

(Jurisdiction of

incorporation or organization)

 

98-0352587

(I.R.S. Employer

Identification No.)  

 

 

 

c/o Willis Group Limited

51 Lime Street, London EC3M 7DQ, England

(Address of principal executive offices)

 

(011) 44-20-3124-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

 Ordinary Shares, nominal value $0.000304635 per share

 

WLTW

 

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes         No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes         No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘large accelerated filer’, ‘accelerated filer’, ‘smaller reporting company’, and ‘emerging growth company’ in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    

       Accelerated filer  

              Non-accelerated filer  

Smaller reporting company  

 

 

 

 

 

 

 

 

Emerging growth company  

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes         No  

 

As of July 29, 2021, there were outstanding 129,041,742 ordinary shares, nominal value $0.000304635 per share, of the registrant.

 

 

 

 


 

 

WILLIS TOWERS WATSON

INDEX TO FORM 10-Q

For the Three and Six Months Ended June 30, 2021  

 

 

 

Page

Certain Definitions

 

3

Disclaimer Regarding Forward-looking Statements

 

4

 

 

 

PART I. FINANCIAL INFORMATION

 

6

Item 1. Financial Statements (Unaudited)

 

6

Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2021 and 2020

 

6

Condensed Consolidated Balance Sheets – June 30, 2021 and December 31, 2020

 

7

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2021 and 2020

 

8

Condensed Consolidated Statements of Changes in Equity - Six Months Ended June 30, 2021 and 2020

 

9

Notes to the Condensed Consolidated Financial Statements

 

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

27

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

46

Item 4. Controls and Procedures

 

46

 

 

 

PART II. OTHER INFORMATION

 

48

Item 1. Legal Proceedings

 

48

Item 1A. Risk Factors

 

48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

48

Item 3. Defaults Upon Senior Securities

 

48

Item 4. Mine Safety Disclosures

 

48

Item 5. Other Information

 

48

Item 6. Exhibits

 

49

Signatures

 

50

 

2


 

 

Certain Definitions

The following definitions apply throughout this quarterly report unless the context requires otherwise:

 

‘We’, ‘Us’, ‘Company’, ‘Willis Towers Watson’, ‘Our’, ‘Willis Towers Watson plc’ or ‘WTW’

 

Willis Towers Watson Public Limited Company, a company organized under the laws of Ireland, and its subsidiaries

 

 

 

‘shares’

 

The ordinary shares of Willis Towers Watson Public Limited Company, nominal value $0.000304635 per share

 

 

 

‘Willis’

 

Willis Group Holdings Public Limited Company and its subsidiaries, predecessor to Willis Towers Watson, prior to the Merger

 

 

 

‘Towers Watson’

 

Towers Watson & Co. and its subsidiaries

 

 

 

‘Merger’

 

Merger of Willis Group Holdings Public Limited Company and Towers Watson & Co. pursuant to the Agreement and Plan of Merger, dated June 29, 2015, as amended on November 19, 2015, and completed on January 4, 2016

 

 

 

‘Miller’

 

Miller Insurance Services LLP and its subsidiaries

 

 

 

‘TRANZACT’

 

CD&R TZ Holdings, Inc. and its subsidiaries, doing business as TRANZACT

 

 

 

‘U.S.’

 

United States

 

 

 

‘U.K.’

 

United Kingdom

 

 

 

‘Brexit’

 

The United Kingdom’s exit from the European Union, which occurred on January 31, 2020.

 

 

 

‘E.U.’

 

European Union or European Union 27 (the number of member countries following the United Kingdom’s exit)

 

 

 

‘U.S. GAAP’

 

United States Generally Accepted Accounting Principles

 

 

 

‘FASB’

 

Financial Accounting Standards Board

 

 

 

‘ASU’

 

Accounting Standards Update

 

 

 

‘ASC’

 

Accounting Standards Codification

 

 

 

‘SEC’

 

United States Securities and Exchange Commission

 

 

 

 

 

 

 

3


 

 

Disclaimer Regarding Forward-looking Statements

We have included in this document ‘forward-looking statements’ within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, the impact of the COVID-19 pandemic on our business, impact of the termination of the business combination with Aon plc and the divestitures contemplated in connection therewith, future capital expenditures, ongoing working capital efforts, future share repurchases, financial results (including our revenue), the impact of changes to tax laws on our financial results, existing and evolving business strategies and acquisitions and dispositions, demand for our services and competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, our ability to successfully manage ongoing organizational and technology changes, including investments in improving systems and processes, and plans and references to future successes, including our future financial and operating results, plans, objectives, expectations and intentions are forward-looking statements. Also, when we use words such as ‘may,’ ‘will,’ ‘would,’ ‘anticipate,’ ‘believe,’ ‘estimate,’ ‘expect,’ ‘intend,’ ‘plan,’ ‘probably,’ or similar expressions, we are making forward-looking statements. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature.

There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including the following:

 

our ability to successfully establish, execute and achieve our global business strategy as it evolves;

 

changes in demand for our services, including any decline in consulting services, defined benefit pension plans or the purchasing of insurance;

 

the risks related to changes in general economic, business and political conditions, including changes in the financial markets and inflation;

 

the risks relating to the adverse impact of the ongoing COVID-19 pandemic on the demand for our products and services, our cash flows and our business operations, including increased demand on our information technology resources and systems and related risks of cybersecurity breaches or incidents;

 

the risks relating to or arising from the termination of the business combination with Aon plc announced in March 2020 and the divestitures contemplated in connection therewith, including, among others, risks relating to the impact of such terminations on relationships, including with suppliers, customers, employees and regulators, risks relating to litigation in connection with the business combination and the impact of the costs of the business combination that will be borne by us, despite the business combination being terminated and the receipt of the termination fee;

 

significant competition that we face and the potential for loss of market share and/or profitability;

 

the impact of seasonality and differences in timing of renewals;

 

the failure to protect client data or breaches of information systems or insufficient safeguards against cybersecurity breaches or incidents;

 

the risk of increased liability or new legal claims arising from our new and existing products and services, and expectations, intentions and outcomes relating to outstanding litigation;

 

the risk of substantial negative outcomes on existing litigation or investigation matters;

 

changes in the regulatory environment in which we operate, including, among other risks, the impacts of pending competition law and regulatory investigations;

 

various claims, government inquiries or investigations or the potential for regulatory action;

 

our ability to make divestitures or acquisitions and our ability to integrate or manage such acquired businesses;

 

our ability to successfully hedge against fluctuations in foreign currency rates;

 

our ability to integrate direct-to-consumer sales and marketing solutions with our existing offerings and solutions;

 

our ability to comply with complex and evolving regulations related to data privacy and cyber security;

 

our ability to successfully manage ongoing organizational changes, including investments in improving systems and processes;

 

disasters or business continuity problems;

 

the impact of Brexit;

4


 

 

 

our ability to successfully enhance our billing, collection and other working capital efforts, and thereby increase our free cash flow;

 

the potential impact of the anticipated replacement of the London Interbank Offered Rate (‘LIBOR’);

 

our ability to properly identify and manage conflicts of interest;

 

reputational damage, including from association with third parties;

 

reliance on third-party services;

 

the loss of key employees or a large number of employees;

 

doing business internationally, including the impact of exchange rates;

 

compliance with extensive government regulation;

 

the risk of sanctions imposed by governments, or changes to associated sanction regulations;

 

our ability to effectively apply technology, data and analytics changes for internal operations, maintaining industry standards and meeting client preferences;

 

changes and developments in the insurance industry or the U.S. healthcare system, including those related to Medicare and any policy changes from the new Presidential administration and legislative actions from the current U.S. Congress;

 

the inability to protect the Company’s intellectual property rights, or the potential infringement upon the intellectual property rights of others;

 

fluctuations in our pension assets and liabilities;

 

our capital structure, including indebtedness amounts, the limitations imposed by the covenants in the documents governing such indebtedness and the maintenance of the financial and disclosure controls and procedures of each;

 

our ability to obtain financing on favorable terms or at all;

 

adverse changes in our credit ratings;

 

the impact of recent or potential changes to U.S. or foreign tax laws, including on our effective tax rate, and the enactment of additional, or the revision of existing, state, federal, and/or foreign regulatory and tax laws and regulations and any policy changes from the new Presidential administration and legislative actions from the current U.S. Congress;

 

U.S. federal income tax consequences to U.S. persons owning at least 10% of our shares;

 

changes in accounting principles, estimates or assumptions;

 

fluctuation in revenue against our relatively fixed or higher than expected expenses;

 

the laws of Ireland being different from the laws of the U.S. and potentially affording less protections to the holders of our securities; and

 

our holding company structure potentially preventing us from being able to receive dividends or other distributions in needed amounts from our subsidiaries.

The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results. For more information, please see Part I, Item 1A in our Annual Report on Form 10-K, and our subsequent filings with the SEC. Copies are available online at http://www.sec.gov or www.willistowerswatson.com.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. Given the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.

Our forward-looking statements speak only as of the date made, and we will not update these forward-looking statements unless the securities laws require us to do so. With regard to these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.

5


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

WILLIS TOWERS WATSON

Condensed Consolidated Statements of Comprehensive Income

(In millions of U.S. dollars, except per share data)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

2,286

 

 

$

2,113

 

 

$

4,876

 

 

$

4,579

 

Costs of providing services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

1,407

 

 

 

1,363

 

 

 

2,930

 

 

 

2,757

 

Other operating expenses

 

 

398

 

 

 

387

 

 

 

815

 

 

 

871

 

Depreciation

 

 

72

 

 

 

67

 

 

 

143

 

 

 

165

 

Amortization

 

 

98

 

 

 

119

 

 

 

201

 

 

 

240

 

Transaction and integration expenses

 

 

51

 

 

 

14

 

 

 

75

 

 

 

23

 

Total costs of providing services

 

 

2,026

 

 

 

1,950

 

 

 

4,164

 

 

 

4,056

 

Income from operations

 

 

260

 

 

 

163

 

 

 

712

 

 

 

523

 

Interest expense

 

 

(52

)

 

 

(62

)

 

 

(111

)

 

 

(123

)

Other income, net

 

 

74

 

 

 

76

 

 

 

513

 

 

 

168

 

INCOME FROM OPERATIONS BEFORE INCOME TAXES

 

 

282

 

 

 

177

 

 

 

1,114

 

 

 

568

 

Provision for income taxes

 

 

(96

)

 

 

(75

)

 

 

(192

)

 

 

(153

)

NET INCOME

 

 

186

 

 

 

102

 

 

 

922

 

 

 

415

 

Income attributable to non-controlling interests

 

 

(2

)

 

 

(8

)

 

 

(5

)

 

 

(16

)

NET INCOME ATTRIBUTABLE TO WILLIS TOWERS

   WATSON

 

$

184

 

 

$

94

 

 

$

917

 

 

$

399

 

EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.42

 

 

$

0.73

 

 

$

7.06

 

 

$

3.08

 

Diluted earnings per share

 

$

1.41

 

 

$

0.72

 

 

$

7.04

 

 

$

3.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income before non-controlling interests

 

$

219

 

 

$

158

 

 

$

1,005

 

 

$

251

 

Comprehensive income attributable to non-controlling interests

 

 

(2

)

 

 

(8

)

 

 

(7

)

 

 

(15

)

Comprehensive income attributable to Willis Towers Watson

 

$

217

 

 

$

150

 

 

$

998

 

 

$

236

 

 

See accompanying notes to the condensed consolidated financial statements

6


 

WILLIS TOWERS WATSON

Condensed Consolidated Balance Sheets

(In millions of U.S. dollars, except share data)

(Unaudited)  

 

 

 

June 30,

2021

 

 

December 31,

2020

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,217

 

 

$

2,089

 

Fiduciary assets

 

 

15,379

 

 

 

15,160

 

Accounts receivable, net

 

 

2,507

 

 

 

2,555

 

Prepaid and other current assets

 

 

465

 

 

 

497

 

Total current assets

 

 

20,568

 

 

 

20,301

 

Fixed assets, net

 

 

927

 

 

 

1,014

 

Goodwill

 

 

10,995

 

 

 

11,204

 

Other intangible assets, net

 

 

2,786

 

 

 

3,043

 

Right-of-use assets

 

 

830

 

 

 

902

 

Pension benefits assets

 

 

1,026

 

 

 

971

 

Other non-current assets

 

 

1,135

 

 

 

1,096

 

Total non-current assets

 

 

17,699

 

 

 

18,230

 

TOTAL ASSETS

 

$

38,267

 

 

$

38,531

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Fiduciary liabilities

 

$

15,379

 

 

$

15,160

 

Deferred revenue and accrued expenses

 

 

1,782

 

 

 

2,161

 

Current debt

 

 

1,110

 

 

 

971

 

Current lease liabilities

 

 

152

 

 

 

152

 

Other current liabilities

 

 

751

 

 

 

888

 

Total current liabilities

 

 

19,174

 

 

 

19,332

 

Long-term debt

 

 

3,995

 

 

 

4,664

 

Liability for pension benefits

 

 

1,238

 

 

 

1,405

 

Deferred tax liabilities

 

 

628

 

 

 

561

 

Provision for liabilities

 

 

399

 

 

 

407

 

Long-term lease liabilities

 

 

838

 

 

 

918

 

Other non-current liabilities

 

 

280

 

 

 

312

 

Total non-current liabilities

 

 

7,378

 

 

 

8,267

 

TOTAL LIABILITIES

 

 

26,552

 

 

 

27,599

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

EQUITY (i)

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

10,785

 

 

 

10,748

 

Retained earnings

 

 

3,166

 

 

 

2,434

 

Accumulated other comprehensive loss, net of tax

 

 

(2,278

)

 

 

(2,359

)

Treasury shares, at cost, 17,519 shares in 2021 and 2020

 

 

(3

)

 

 

(3

)

Total Willis Towers Watson shareholders’ equity

 

 

11,670

 

 

 

10,820

 

Non-controlling interests

 

 

45

 

 

 

112

 

Total equity

 

 

11,715

 

 

 

10,932

 

TOTAL LIABILITIES AND EQUITY

 

$

38,267

 

 

$

38,531

 

 

(i)

Equity includes (a) Ordinary shares $0.000304635 nominal value; Authorized 1,510,003,775; Issued 128,987,616 (2021) and 128,964,579 (2020); Outstanding 128,987,616 (2021) and 128,964,579 (2020) and (b) Preference shares, $0.000115 nominal value; Authorized 1,000,000,000 and Issued none in 2021 and 2020.

See accompanying notes to the condensed consolidated financial statements

7


 

WILLIS TOWERS WATSON

Condensed Consolidated Statements of Cash Flows

(In millions of U.S. dollars)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

NET INCOME

 

$

922

 

 

$

415

 

Adjustments to reconcile net income to total net cash from operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

143

 

 

 

165

 

Amortization

 

 

201

 

 

 

240

 

Non-cash lease expense

 

 

73

 

 

 

74

 

Net periodic benefit of defined benefit pension plans

 

 

(81

)

 

 

(92

)

Provision for doubtful receivables from clients

 

 

8

 

 

 

28

 

Provision for deferred income taxes

 

 

56

 

 

 

40

 

Share-based compensation

 

 

52

 

 

 

28

 

Net (gain)/loss on disposal of operations

 

 

(357

)

 

 

2

 

Non-cash foreign exchange gain

 

 

(4

)

 

 

(12

)

Other, net

 

 

(12

)

 

 

1

 

Changes in operating assets and liabilities, net of effects from purchase of

   subsidiaries:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(39

)

 

 

128

 

Fiduciary assets

 

 

(1,198

)

 

 

(3,200

)

Fiduciary liabilities

 

 

1,198

 

 

 

3,200

 

Other assets

 

 

(91

)

 

 

82

 

Other liabilities

 

 

(506

)

 

 

(417

)

Provisions

 

 

1

 

 

 

3

 

Net cash from operating activities

 

 

366

 

 

 

685

 

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Additions to fixed assets and software for internal use

 

 

(79

)

 

 

(135

)

Capitalized software costs

 

 

(27

)

 

 

(33

)

Acquisitions of operations, net of cash acquired

 

 

 

 

 

(66

)

Net proceeds from sale of operations

 

 

696

 

 

 

2

 

Other, net

 

 

 

 

 

(17

)

Net cash from/(used in) investing activities

 

 

590

 

 

 

(249

)

CASH FLOWS USED IN FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Senior notes issued

 

 

 

 

 

282

 

Debt issuance costs

 

 

 

 

 

(2

)

Repayments of debt

 

 

(515

)

 

 

(311

)

Proceeds from issuance of shares

 

 

2

 

 

 

5

 

Payments of deferred and contingent consideration related to acquisitions

 

 

(17

)

 

 

 

Cash paid for employee taxes on withholding shares

 

 

(1

)

 

 

(1

)

Dividends paid

 

 

(269

)

 

 

(171

)

Acquisitions of and dividends paid to non-controlling interests

 

 

(21

)

 

 

(14

)

Other, net

 

 

 

 

 

(3

)

Net cash used in financing activities

 

 

(821

)

 

 

(215

)

INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED

   CASH

 

 

135

 

 

 

221

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(10

)

 

 

(22

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD (i)

 

 

2,096

 

 

 

895

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (i)

 

$

2,221

 

 

$

1,094

 

 

(i)

As a result of the acquired TRANZACT collateralized facility, cash, cash equivalents and restricted cash included $4 million and $7 million of restricted cash at June 30, 2021 and December 31, 2020, respectively, which is included within prepaid and other current assets on our condensed consolidated balance sheets. There was $7 million and $8 million of restricted cash held at June 30, 2020 and December 31, 2019, respectively.

 

See accompanying notes to the condensed consolidated financial statements

 

 

8


 

 

WILLIS TOWERS WATSON

Condensed Consolidated Statements of Changes in Equity

(In millions of U.S. dollars and number of shares in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30, 2021

 

 

 

Shares outstanding

 

 

Additional paid-in capital

 

 

Retained earnings

 

 

Treasury shares

 

 

AOCL (i)

 

 

Total WTW shareholders’ equity

 

 

Non-controlling interests

 

 

Total equity

 

Balance as of December 31, 2020

 

 

128,965

 

 

$

10,748

 

 

$

2,434

 

 

$

(3

)

 

$

(2,359

)

 

$

10,820

 

 

$

112

 

 

$

10,932

 

Net income

 

 

 

 

 

 

 

 

733

 

 

 

 

 

 

 

 

 

733

 

 

 

3

 

 

 

736

 

Dividends declared ($0.71 per share)

 

 

 

 

 

 

 

 

(92

)

 

 

 

 

 

 

 

 

(92

)

 

 

 

 

 

(92

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17

)

 

 

(17

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

48

 

 

 

48

 

 

 

2

 

 

 

50

 

Issuance of shares under employee stock

   compensation plans

 

 

9

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share-based compensation and net settlements

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Reduction of non-controlling interests (ii)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

(52

)

Foreign currency translation

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Balance as of March 31, 2021

 

 

128,974

 

 

$

10,765

 

 

$

3,075

 

 

$

(3

)

 

$

(2,311

)

 

$

11,526

 

 

$

48

 

 

$

11,574

 

Net income

 

 

 

 

 

 

 

 

184

 

 

 

 

 

 

 

 

 

184

 

 

 

2

 

 

 

186

 

Dividends declared ($0.71 per share)

 

 

 

 

 

 

 

 

(93

)

 

 

 

 

 

 

 

 

(93

)

 

 

 

 

 

(93

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33

 

 

 

33

 

 

 

 

 

 

33

 

Issuance of shares under employee stock

   compensation plans

 

 

14

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share-based compensation and net settlements

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Reduction of non-controlling interests (ii)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Foreign currency translation

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of June 30, 2021

 

 

128,988

 

 

$

10,785

 

 

$

3,166

 

 

$

(3

)

 

$

(2,278

)

 

$

11,670

 

 

$

45

 

 

$

11,715

 

_________

(i)

Accumulated other comprehensive loss, net of tax (‘AOCL’).

(ii)

Attributable to the divestiture of our less than wholly-owned Miller subsidiary.

 


9


 

 

WILLIS TOWERS WATSON

Condensed Consolidated Statements of Changes in Equity – (continued)

(In millions of U.S. dollars and number of shares in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30, 2020

 

 

 

Shares outstanding

 

 

Additional paid-in capital

 

 

Retained earnings

 

 

Treasury shares

 

 

AOCL (i)

 

 

Total WTW shareholders’ equity

 

 

Non-controlling interests

 

 

Total equity

 

Balance as of December 31, 2019

 

 

128,690

 

 

$

10,687

 

 

$

1,792

 

 

$

(3

)

 

$

(2,227

)

 

$

10,249

 

 

$

120

 

 

$

10,369

 

Net income

 

 

 

 

 

 

 

 

305

 

 

 

 

 

 

 

 

 

305

 

 

 

8

 

 

 

313

 

Dividends declared ($0.68 per share)

 

 

 

 

 

 

 

 

(88

)

 

 

 

 

 

 

 

 

(88

)

 

 

 

 

 

(88

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(219

)

 

 

(219

)

 

 

(1

)

 

 

(220

)

Issuance of shares under employee stock

   compensation plans

 

 

36

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Share-based compensation and net settlements

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Foreign currency translation

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

4

 

Balance as of March 31, 2020

 

 

128,726

 

 

$

10,703

 

 

$

2,009

 

 

$

(3

)

 

$

(2,446

)

 

$

10,263

 

 

$

126

 

 

$

10,389

 

Net income

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

94

 

 

 

8

 

 

 

102

 

Dividends declared ($0.68 per share)

 

 

 

 

 

 

 

 

(88

)

 

 

 

 

 

 

 

 

(88

)

 

 

 

 

 

(88

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56

 

 

 

56

 

 

 

 

 

 

56

 

Issuance of shares under employee stock

   compensation plans

 

 

37

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Share-based compensation and net settlements

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

12

 

Reduction of non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Other

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Foreign currency translation

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of June 30, 2020

 

 

128,763

 

 

$

10,713

 

 

$

2,015

 

 

$

(3

)

 

$

(2,390

)

 

$

10,335

 

 

$

121

 

 

$

10,456

 

_________

(i)

Accumulated other comprehensive loss, net of tax (‘AOCL’).

 

 

See accompanying notes to the condensed consolidated financial statements

 

 

 

10


 

 

WILLIS TOWERS WATSON

Notes to the Condensed Consolidated Financial Statements

(Tabular amounts in millions of U.S. dollars, except per share data)

(Unaudited)

Note 1 — Nature of Operations

Willis Towers Watson plc is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. The Company has more than 46,000 employees and services clients in more than 140 countries.

We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals.

Our risk management services include strategic risk consulting (including providing actuarial analysis), a variety of due diligence services, the provision of practical on-site risk control services (such as health and safety and property loss control consulting), and analytical and advisory services (such as hazard modeling and reinsurance optimization studies). We also assist our clients with planning for addressing incidents or crises when they occur. These services include contingency planning, security audits and product tampering plans.

We help our clients enhance business performance by delivering consulting services, technology and solutions that optimize benefits and cultivate talent. Our services and solutions encompass such areas as employee benefits, total rewards, talent and benefits outsourcing. In addition, we provide investment advice to help our clients develop disciplined and efficient strategies to meet their investment goals and expand the power of capital.

As an insurance broker, we act as an intermediary between our clients and insurance carriers by advising on their risk management requirements, helping them to determine the best means of managing risk and negotiating and placing insurance with insurance carriers through our global distribution network.

We operate a private Medicare marketplace in the U.S. through which, along with our active employee marketplace, we help our clients move to a more sustainable economic model by capping and controlling the costs associated with healthcare benefits. We also provide direct-to-consumer sales of Medicare coverage.

We are not an insurance company, and therefore we do not underwrite insurable risks for our own account. We believe our broad perspective allows us to see the critical intersections between talent, assets and ideas - the dynamic formula that drives business performance.

Termination of Proposed Combination with Aon plc

On March 9, 2020, WTW and Aon plc (‘Aon’) issued an announcement disclosing that the respective boards of directors of WTW and Aon had reached agreement on the terms of a recommended acquisition of WTW by Aon. Under the terms of the agreement each WTW shareholder would receive 1.08 Aon ordinary shares for each WTW ordinary share. At the time of the announcement, it was estimated that upon completion of the combination, existing Aon shareholders would own approximately 63% and existing WTW shareholders would own approximately 37% of the combined company on a fully diluted basis.

The transaction was approved by the shareholders of both WTW and Aon during meetings of the respective shareholders held on August 26, 2020. On June 16, 2021, the U.S. Department of Justice filed suit in U.S. District Court in the District of Columbia against WTW and Aon, seeking to enjoin the proposed business combination between the two companies (among other relief). On July 26, 2021, WTW and Aon announced they had terminated the business combination agreement and that Aon had agreed to pay WTW, in connection with such termination, a $1 billion termination fee (the ‘Termination’). Pursuant to the terms of the termination agreement, among other things, the business combination agreement between WTW and Aon was terminated by mutual consent, subject to payment in cash by Aon of the $1 billion, which was received by WTW on July 27, 2021 (the ‘Termination Agreement’). Under the Termination Agreement, WTW and Aon on behalf of themselves and certain other related and affiliated parties, each agreed to release the other from all claims and actions arising out of or related to the business combination agreement and the transactions contemplated thereby, subject to certain exceptions. See Note 13 – Commitments and Contingencies for a summary of the pending lawsuits in the U.S. arising in connection with the business combination.

Note 2 Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited quarterly condensed consolidated financial statements of Willis Towers Watson and our subsidiaries are presented in accordance with the rules and regulations of the SEC for quarterly reports on Form 10-Q and therefore do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial statements and results for the interim periods. All intercompany accounts and transactions have been

11


 

eliminated in consolidation. The condensed consolidated financial statements should be read together with the Company’s Annual Report on Form 10-K, filed with the SEC on February 23, 2021, and may be accessed via EDGAR on the SEC’s web site at www.sec.gov.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results that can be expected for the entire year. The Company experiences seasonal fluctuations of its revenue. Revenue is typically higher during the Company’s first and fourth quarters due primarily to the timing of broking-related activities. The results reflect certain estimates and assumptions made by management, including those estimates used in calculating acquisition consideration and fair value of tangible and intangible assets and liabilities, professional liability claims, estimated bonuses, valuation of billed and unbilled receivables, and anticipated tax liabilities that affect the amounts reported in the condensed consolidated financial statements and related notes.

Risks and Uncertainties Related to the COVID-19 Pandemic

The COVID-19 pandemic has had an adverse impact on global commercial activity, including the global supply chain, and has contributed to significant volatility in the global financial markets including, among other effects, occasional declines in the equity markets, changes in interest rates and reduced liquidity on a global basis. With regard to the effects on our own business operations and those of our clients, suppliers and other third parties with whom we interact, the Company has regularly considered the impact of COVID-19 on our business, taking into account our business resilience and continuity plans, financial modeling and stress testing of liquidity and financial resources.

Generally, the COVID-19 pandemic did not have a material adverse impact on our overall financial results during 2020 or on our results for the first half of 2021; however, during 2020 and through the first quarter of 2021, the COVID-19 pandemic had a negative impact on our revenue growth, primarily in our businesses that are discretionary in nature. We saw an increased demand for these services, which improved revenue growth, in the second quarter of 2021. We believe this positive trend could continue for the remainder of the year but may vary based on further disruptions to the supply chain, workforce availability, vaccination rates and further social-distancing orders in jurisdictions where we do business.

We have considered this outlook as part of the significant estimates and assumptions that are inherent in our financial statements, including the collectability of billed and unbilled receivables, the estimation of revenue, and the fair value of our reporting units, tangible and intangible assets and contingent consideration. With regard to collectability of receivables, we believe we may continue to face atypical delays in client payments going forward. Although the primary revenue impact of the pandemic has been on certain discretionary lines of business, non-discretionary lines of business have also been, to some extent, adversely affected and may be adversely affected in the future. Further, reduced economic activity or disruption in insurance markets could reduce the demand for or the extent of insurance coverage. For example, in 2020, we saw instances where the reduced demand for air travel reduced the extent of insurance coverage needed. Also, the increased frequency and severity of coverage disputes between our clients and (re)insurers arising out of the pandemic could increase our professional liability risk. We will continue to monitor the situation and assess any implications to our business and our stakeholders.

The extent to which COVID-19 impacts our business and financial position will depend on future developments, which are difficult to predict. These future developments may include the severity and scope of the COVID-19 outbreak, which may unexpectedly change or worsen, and the types and duration of measures imposed by governmental authorities to contain the virus or address its impact. We continue to expect that the COVID-19 pandemic will negatively impact our revenue and operating results in fiscal 2021. We believe that these trends and uncertainties are similar to those faced by other comparable registrants as a result of the pandemic.

Recent Accounting Pronouncements

Not Yet Adopted

There are no pending accounting pronouncements that are expected to have a significant impact on our condensed consolidated financial statements.

Adopted

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which clarifies and amends existing guidance, including removing certain exceptions to the general principles of accounting for income taxes. Some of the changes must be applied on a retrospective or modified retrospective basis while others must be applied on a prospective basis. The Company adopted this guidance as it became effective on January 1, 2021 without any impact to our condensed consolidated financial statements.

Note 3 — Divestitures

Termination of Potential Divestiture Related to the Aon Combination

As part of the potential combination with Aon and the required regulatory clearances in connection therewith, on May 12, 2021, the Company entered into a definitive agreement to sell its wholly-owned subsidiary Willis Re and certain of the Company’s corporate

12


 

risk and broking and health and benefit businesses to Arthur J. Gallagher & Co. (‘Gallagher’), a leading global provider of insurance, risk management and consulting services, for total consideration of $3.57 billion. In connection with the Termination, the definitive agreement with Gallagher automatically terminated in accordance with its terms.

Miller Divestiture

On March 1, 2021, the Company completed the transaction to sell its U.K.-based, majority-owned wholesale subsidiary Miller for final total consideration of GBP 623 million ($818 million), which includes amounts paid to the minority shareholder. The $356 million net tax-exempt gain on the sale was included in Other income, net in the condensed consolidated statement of comprehensive income for the six months ended June 30, 2021. Prior to disposal, Miller was included within the Investment, Risk and Reinsurance segment.

Max Matthiessen Divestiture

In September 2020, the Company completed the transaction to sell its Swedish majority-owned subsidiary MM Holding AB (‘Max Matthiessen’) for total consideration of SEK 2.3 billion ($262 million) plus certain other adjustments, resulting in a tax-exempt gain on the sale of $86 million, which was included in Other income, net in the consolidated statement of comprehensive income during the year ended December 31, 2020. Of the total consideration, the Company financed a SEK 600 million ($68 million) note repayable by the purchaser. The note has no fixed term but is repayable subject to certain terms and conditions and bears an interest rate that could range from 5% to 10%, increasing the longer the note remains outstanding. This note receivable is included in Other non-current assets in the condensed consolidated balance sheet. Prior to disposal, Max Matthiessen was included within the Investment, Risk and Reinsurance segment.

Note 4 Revenue

Disaggregation of Revenue

The Company reports revenue by segment in Note 5 Segment Information. The following tables present revenue by service offering and segment, as well as reconciliations to total revenue for the three and six months ended June 30, 2021 and 2020. Along with reimbursable expenses and other, total revenue by service offering represents our revenue from customer contracts.

 

 

 

Three Months Ended June 30,

 

 

 

HCB

 

 

CRB

 

 

IRR

 

 

BDA

 

 

Corporate (i)

 

 

Total

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Broking

 

$

83

 

 

$

71

 

 

$

687

 

 

$

637

 

 

$

203

 

 

$

258

 

 

$

121

 

 

$

90

 

 

$

 

 

$

 

 

$

1,094

 

 

$

1,056

 

Consulting

 

 

576

 

 

 

531

 

 

 

46

 

 

 

40

 

 

 

115

 

 

 

95

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

739

 

 

 

668

 

Outsourced administration

 

 

124

 

 

 

122

 

 

 

15

 

 

 

16

 

 

 

4

 

 

 

3

 

 

 

121

 

 

 

119

 

 

 

 

 

 

 

 

 

264

 

 

 

260

 

Other

 

 

50

 

 

 

41

 

 

 

5

 

 

 

1

 

 

 

76

 

 

 

55

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

132

 

 

 

98

 

Total revenue by service offering

 

 

833

 

 

 

765

 

 

 

753

 

 

 

694

 

 

 

398

 

 

 

411

 

 

 

242

 

 

 

209

 

 

 

3

 

 

 

3

 

 

 

2,229

 

 

 

2,082

 

Reimbursable expenses and other (i)

 

 

12

 

 

 

11

 

 

 

1

 

 

 

1

 

 

 

2

 

 

 

1

 

 

 

2

 

 

 

2

 

 

 

(1

)

 

 

4

 

 

 

16

 

 

 

19

 

Total revenue from customer

   contracts

 

$

845

 

 

$

776

 

 

$

754

 

 

$

695

 

 

$

400

 

 

$

412

 

 

$

244

 

 

$

211

 

 

$

2

 

 

$

7

 

 

$

2,245

 

 

$

2,101

 

Interest and other income (ii)

 

 

3

 

 

 

2

 

 

 

35

 

 

 

7

 

 

 

2

 

 

 

2

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

 

 

41

 

 

 

12

 

Total revenue

 

$

848

 

 

$

778

 

 

$

789

 

 

$

702

 

 

$

402

 

 

$

414

 

 

$

244

 

 

$

211

 

 

$

3

 

 

$

8

 

 

$

2,286

 

 

$

2,113

 

13


 

 

 

 

 

Six Months Ended June 30,

 

 

 

HCB

 

 

CRB

 

 

IRR

 

 

BDA

 

 

Corporate (i)

 

 

Total

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Broking

 

$

180

 

 

$

154

 

 

$

1,404

 

 

$

1,285

 

 

$

615

 

 

$

691

 

 

$

273

 

 

$

188

 

 

$

 

 

$

 

 

$

2,472

 

 

$

2,318

 

Consulting

 

 

1,170

 

 

 

1,113

 

 

 

90

 

 

 

87

 

 

 

238

 

 

 

188

 

 

 

 

 

 

 

 

 

4

 

 

 

4

 

 

 

1,502

 

 

 

1,392

 

Outsourced administration

 

 

256

 

 

 

250

 

 

 

40

 

 

 

41

 

 

 

8

 

 

 

6

 

 

 

253

 

 

 

252

 

 

 

 

 

 

 

 

 

557

 

 

 

549

 

Other

 

 

99

 

 

 

88

 

 

 

9

 

 

 

2

 

 

 

141

 

 

 

138

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

 

 

251

 

 

 

230

 

Total revenue by service offering

 

 

1,705

 

 

 

1,605

 

 

 

1,543

 

 

 

1,415

 

 

 

1,002

 

 

 

1,023

 

 

 

526

 

 

 

440

 

 

 

6

 

 

 

6

 

 

 

4,782

 

 

 

4,489

 

Reimbursable expenses and other (i)

 

 

23

 

 

 

26

 

 

 

1

 

 

 

1

 

 

 

3

 

 

 

4

 

 

 

4

 

 

 

5

 

 

 

(6

)

 

 

10

 

 

 

25

 

 

 

46

 

Total revenue from customer

   contracts

 

$

1,728

 

 

$

1,631

 

 

$

1,544

 

 

$

1,416

 

 

$

1,005

 

 

$

1,027

 

 

$

530

 

 

$

445

 

 

$

 

 

$

16

 

 

$

4,807

 

 

$

4,535

 

Interest and other income (ii)

 

 

6

 

 

 

12

 

 

 

55

 

 

 

25

 

 

 

3

 

 

 

5

 

 

 

3

 

 

 

 

 

 

2

 

 

 

2

 

 

 

69

 

 

 

44

 

Total revenue

 

$

1,734

 

 

$

1,643

 

 

$

1,599

 

 

$

1,441

 

 

$

1,008

 

 

$

1,032

 

 

$

533

 

 

$

445

 

 

$

2

 

 

$

18

 

 

$

4,876

 

 

$

4,579

 

______________

(i)

Reimbursable expenses and other, as well as Corporate revenue, are excluded from segment revenue, but included in total revenue on the condensed consolidated statements of comprehensive income. Amounts included in Corporate revenue may include eliminations, adjustments to reserves and impacts from hedged revenue transactions.

(ii)

Interest and other income is included in segment revenue and total revenue. However, it has been presented separately in the above tables because it does not arise directly from contracts with customers. The significant increase in CRB’s interest and other income resulted from book-of-business sales.

The following tables present revenue by the geography where our work is performed for the three and six months ended June 30, 2021 and 2020. Reconciliations to total revenue on our condensed consolidated statements of comprehensive income and to segment revenue are shown in the tables above.

 

 

 

Three Months Ended June 30,

 

 

 

HCB

 

 

CRB

 

 

IRR

 

 

BDA

 

 

Corporate

 

 

Total

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

North America

 

$

477

 

 

$

462

 

 

$

308

 

 

$

296

 

 

$

125

 

 

$

117

 

 

$

239

 

 

$

207

 

 

$

3

 

 

$

2

 

 

$

1,152

 

 

$

1,084

 

Great Britain

 

 

143

 

 

 

117

 

 

 

173

 

 

 

160

 

 

 

205

 

 

 

207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

521

 

 

 

484

 

Western Europe

 

 

138

 

 

 

119

 

 

 

144

 

 

 

127

 

 

 

25

 

 

 

49

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

307

 

 

 

296

 

International

 

 

75

 

 

 

67

 

 

 

128

 

 

 

111

 

 

 

43

 

 

 

38

 

 

 

3

 

 

 

2