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WILLIS TOWERS WATSON PLC - Quarter Report: 2023 September (Form 10-Q)

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 September 30, 2023

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

 

img113083096_0.jpg 

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

 

WTW

 

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 October 23, 2023, there were outstanding 103,260,407 ordinary shares, nominal value $0.000304635 per share, of the registrant.

 

 


 

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

INDEX TO FORM 10-Q

For the Three and Nine Months Ended September 30, 2023

 

 

Page

Certain Definitions

 

3

Disclaimer Regarding Forward-looking Statements

 

4

 

 

 

PART I. FINANCIAL INFORMATION

 

7

Item 1. Financial Statements (Unaudited)

 

7

Condensed Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2023 and 2022

 

7

Condensed Consolidated Balance Sheets - September 30, 2023 and December 31, 2022

 

8

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2023 and 2022

 

9

Condensed Consolidated Statements of Changes in Equity - Nine Months Ended September 30, 2023 and 2022

 

10

Notes to the Condensed Consolidated Financial Statements

 

12

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

 

30

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

48

Item 4. Controls and Procedures

 

48

 

 

 

PART II. OTHER INFORMATION

 

49

Item 1. Legal Proceedings

 

49

Item 1A. Risk Factors

 

49

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

 

49

Item 3. Defaults Upon Senior Securities

 

50

Item 4. Mine Safety Disclosures

 

50

Item 5. Other Information

 

50

Item 6. Exhibits

 

51

Signatures

 

52

 

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

‘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

‘ASC’

 

Accounting Standards Codification

‘ASU’

 

Accounting Standards Update

‘SEC’

 

United States Securities and Exchange Commission

 

 

 

‘EBITDA’

 

Earnings before Interest, Taxes, Depreciation and Amortization

 

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 potential impact of natural or man-made disasters like health pandemics and other world health crises; future capital expenditures; ongoing working capital efforts; future share repurchases; financial results (including our revenue, costs or margins) and the impact of changes to tax laws on our financial results; existing and evolving business strategies and acquisitions and dispositions, including our completed sale of Willis Re to Arthur J. Gallagher & Co. (‘Gallagher’) and transitional arrangements related thereto; demand for our services and competitive strengths; strategic goals; the benefits of new initiatives; growth of our business and operations; our ability to successfully manage ongoing leadership, organizational and technology changes, including investments in improving systems and processes; our ability to implement and realize anticipated benefits of any cost-savings initiatives including the multi-year operational Transformation program; and plans and references to future successes, including our future financial and operating results, short-term and long-term financial goals, plans, objectives, expectations and intentions, including with respect to free cash flow generation, adjusted net revenue, adjusted operating margin and adjusted earnings per share, are forward-looking statements. Also, when we use words such as ‘may’, ‘will’, ‘would’, ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘intend’, ‘plan’, ‘continues’, ‘seek’, ‘target’, ‘goal’, ‘focus’, ‘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;
our ability to fully realize anticipated benefits of our growth strategy;
our ability to achieve our short-term and long-term financial goals, such as with respect to our cash flow generation, and the timing with respect to such achievement;
the risks related to changes in general economic (including a possible recession), business and political conditions, including changes in the financial markets, inflation, credit availability, increased interest rates and trade policies;
the risks to our short-term and long-term financial goals from any of the risks or uncertainties set forth herein;
the risks to our business, financial condition, results of operations, and long-term goals that may be materially adversely affected by any negative impact on the global economy and capital markets resulting from or relating to inflation, the military conflict between Russia and Ukraine, evolving events in Israel and Gaza or any other geopolitical tensions and the withdrawal from our high-margin businesses in Russia and our ability to achieve cost-mitigation measures;
our ability to successfully hedge against fluctuations in foreign currency rates;
the risks relating to the adverse impacts of natural or man-made disasters like health pandemics and other world health crises, such as the COVID-19 pandemic, including supply chain, workforce availability, vaccination rates, and other impacts on the people and businesses in jurisdictions where we do business, on the demand for our products and services, our cash flows and our business operations;
material interruptions to or loss of our information processing capabilities, or failure to effectively maintain and upgrade our information technology resources and systems and related risks of cybersecurity breaches or incidents;
our ability to comply with complex and evolving regulations related to data privacy, cybersecurity and artificial intelligence;
the risks relating to the transitional arrangements in effect subsequent to our now-completed sale of Willis Re to Gallagher;
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 and non-recurring revenue increases from disposals and book-of-business sales;
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;

4


 

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, including our ability to integrate or manage such acquired businesses as well as identify and successfully execute on opportunities for strategic collaboration;
our ability to integrate direct-to-consumer sales and marketing solutions with our existing offerings and solutions;
our ability to successfully manage ongoing organizational changes, including investments in improving systems and processes;
disasters or business continuity problems;
the ongoing impact of Brexit on our business and operations, including as a result of updated regulatory guidance, such as that issued by the European Insurance and Occupational Pensions Authority on February 3, 2023, ongoing efforts and resources allocated to the post-Brexit evolution of regulations and laws and the need to relocate talent or roles or both between or within the E.U. and the U.K., or otherwise;
our ability to successfully enhance our billing, collection and other working capital efforts, and thereby increase our free cash flow;
our ability to properly identify and manage conflicts of interest;
reputational damage, including from association with third parties;
reliance on third-party service providers and suppliers;
risks relating to changes in our management structures and in senior leadership;
the loss of key employees or a large number of employees and rehiring rates;
our ability to maintain our corporate culture;
doing business internationally, including the impact of foreign currency exchange rates;
compliance with extensive government regulation;
the risk of sanctions imposed by governments, or changes to associated sanction regulations (such as sanctions imposed on Russia) and related counter-sanctions;
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 legislative actions from the current U.S. Congress, and any other changes and developments in legal, economic, business or operational conditions impacting our Medicare benefits businesses such as TRANZACT;
the inability to protect our intellectual property rights, or the potential infringement upon the intellectual property rights of others;
fluctuations in our pension assets and liabilities and related changes in pension income, including as a result of, related to, or derived from movements in the interest rate environment, investment returns, inflation, or changes in other assumptions that are used to estimate our benefit obligations and its effect on adjusted earnings per share;
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 laws, and the enactment of additional, or the revision of existing, state, federal, and/or foreign laws and regulations, recent judicial decisions and development of case law, other regulations and any policy changes and legislative actions, including those that impact our effective tax rate;
U.S. federal income tax consequences to U.S. persons owning at least 10% of our shares;

5


 

changes in accounting principles, estimates or assumptions;
risks relating to or arising from environmental, social and governance (‘ESG’) practices;
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.wtwco.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 Quarterly Report on Form 10-Q, 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.

6


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

Condensed Consolidated Statements of Comprehensive Income

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

(Unaudited)

 

 

 

Three Months Ended
 September 30,

 

 

Nine Months Ended
 September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

$

2,166

 

 

$

1,953

 

 

$

6,569

 

 

$

6,144

 

Costs of providing services

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

1,359

 

 

 

1,225

 

 

 

4,019

 

 

 

3,802

 

Other operating expenses

 

 

396

 

 

 

384

 

 

 

1,282

 

 

 

1,263

 

Depreciation

 

 

60

 

 

 

60

 

 

 

184

 

 

 

191

 

Amortization

 

 

62

 

 

 

71

 

 

 

203

 

 

 

239

 

Restructuring costs

 

 

17

 

 

 

9

 

 

 

30

 

 

 

71

 

Transaction and transformation

 

 

113

 

 

 

50

 

 

 

265

 

 

 

108

 

Total costs of providing services

 

 

2,007

 

 

 

1,799

 

 

 

5,983

 

 

 

5,674

 

Income from operations

 

 

159

 

 

 

154

 

 

 

586

 

 

 

470

 

Interest expense

 

 

(61

)

 

 

(54

)

 

 

(172

)

 

 

(154

)

Other income, net

 

 

66

 

 

 

85

 

 

 

126

 

 

 

205

 

INCOME FROM CONTINUING OPERATIONS BEFORE
   INCOME TAXES

 

 

164

 

 

 

185

 

 

 

540

 

 

 

521

 

Provision for income taxes

 

 

(25

)

 

 

(1

)

 

 

(99

)

 

 

(63

)

INCOME FROM CONTINUING OPERATIONS

 

 

139

 

 

 

184

 

 

 

441

 

 

 

458

 

INCOME/(LOSS) FROM DISCONTINUED OPERATIONS,
   NET OF TAX

 

 

 

 

 

8

 

 

 

 

 

 

(27

)

NET INCOME

 

 

139

 

 

 

192

 

 

 

441

 

 

 

431

 

Income attributable to non-controlling interests

 

 

(3

)

 

 

(2

)

 

 

(8

)

 

 

(10

)

NET INCOME ATTRIBUTABLE TO WTW

 

$

136

 

 

$

190

 

 

$

433

 

 

$

421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per share

 

$

1.30

 

 

$

1.65

 

 

$

4.08

 

 

$

3.95

 

Income/(loss) from discontinued operations per share

 

 

 

 

 

0.07

 

 

 

 

 

 

(0.24

)

Basic earnings per share

 

$

1.30

 

 

$

1.72

 

 

$

4.08

 

 

$

3.71

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per share

 

$

1.29

 

 

$

1.65

 

 

$

4.06

 

 

$

3.95

 

Income/(loss) from discontinued operations per share

 

 

 

 

 

0.07

 

 

 

 

 

 

(0.24

)

Diluted earnings per share

 

$

1.29

 

 

$

1.72

 

 

$

4.06

 

 

$

3.71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income/(loss) before non-controlling interests

 

$

61

 

 

$

(42

)

 

$

444

 

 

$

(103

)

Comprehensive income attributable to non-controlling interests

 

 

(5

)

 

 

(2

)

 

 

(10

)

 

 

(10

)

Comprehensive income/(loss) attributable to WTW

 

$

56

 

 

$

(44

)

 

$

434

 

 

$

(113

)

 

See accompanying notes to the condensed consolidated financial statements

7


 

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

Condensed Consolidated Balance Sheets

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

(Unaudited)

 

 

 

September 30,
 2023

 

 

December 31,
 2022

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,247

 

 

$

1,262

 

Fiduciary assets

 

 

8,039

 

 

 

11,772

 

Accounts receivable, net

 

 

2,079

 

 

 

2,387

 

Prepaid and other current assets

 

 

469

 

 

 

414

 

Total current assets

 

 

11,834

 

 

 

15,835

 

Fixed assets, net

 

 

710

 

 

 

718

 

Goodwill

 

 

10,143

 

 

 

10,173

 

Other intangible assets, net

 

 

2,064

 

 

 

2,273

 

Right-of-use assets

 

 

533

 

 

 

586

 

Pension benefits assets

 

 

908

 

 

 

827

 

Other non-current assets

 

 

1,431

 

 

 

1,357

 

Total non-current assets

 

 

15,789

 

 

 

15,934

 

TOTAL ASSETS

 

$

27,623

 

 

$

31,769

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Fiduciary liabilities

 

$

8,039

 

 

$

11,772

 

Deferred revenue and accrued expenses

 

 

1,868

 

 

 

1,915

 

Current debt

 

 

649

 

 

 

250

 

Current lease liabilities

 

 

119

 

 

 

126

 

Other current liabilities

 

 

630

 

 

 

716

 

Total current liabilities

 

 

11,305

 

 

 

14,779

 

Long-term debt

 

 

4,565

 

 

 

4,471

 

Liability for pension benefits

 

 

433

 

 

 

480

 

Deferred tax liabilities

 

 

706

 

 

 

748

 

Provision for liabilities

 

 

360

 

 

 

357

 

Long-term lease liabilities

 

 

569

 

 

 

620

 

Other non-current liabilities

 

 

200

 

 

 

221

 

Total non-current liabilities

 

 

6,833

 

 

 

6,897

 

TOTAL LIABILITIES

 

 

18,138

 

 

 

21,676

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

EQUITY (i)

 

 

 

 

 

 

Additional paid-in capital

 

 

10,903

 

 

 

10,876

 

Retained earnings

 

 

1,127

 

 

 

1,764

 

Accumulated other comprehensive loss, net of tax

 

 

(2,620

)

 

 

(2,621

)

Treasury shares, at cost, 17,519 shares in 2022

 

 

 

 

 

(3

)

Total WTW shareholders’ equity

 

 

9,410

 

 

 

10,016

 

Non-controlling interests

 

 

75

 

 

 

77

 

   Total equity

 

 

9,485

 

 

 

10,093

 

TOTAL LIABILITIES AND EQUITY

 

$

27,623

 

 

$

31,769

 

 

(i)
Equity includes (a) Ordinary shares $0.000304635 nominal value; Authorized 1,510,003,775; Issued 103,321,046 (2023) and 106,756,364 (2022); Outstanding 103,321,046 (2023) and 106,756,364 (2022) and (b) Preference shares, $0.000115 nominal value; Authorized 1,000,000,000 and Issued none in 2023 and 2022.

 

See accompanying notes to the condensed consolidated financial statements

8


 

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

Condensed Consolidated Statements of Cash Flows

(In millions of U.S. dollars)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

NET INCOME

 

$

441

 

 

$

431

 

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

 

 

 

 

 

 

Depreciation

 

 

184

 

 

 

191

 

Amortization

 

 

203

 

 

 

239

 

Impairment

 

 

 

 

 

81

 

Non-cash restructuring charges

 

 

19

 

 

 

56

 

Non-cash lease expense

 

 

83

 

 

 

94

 

Net periodic benefit of defined benefit pension plans

 

 

(20

)

 

 

(113

)

Provision for doubtful receivables from clients

 

 

8

 

 

 

13

 

Benefit from deferred income taxes

 

 

(58

)

 

 

(92

)

Share-based compensation

 

 

87

 

 

 

71

 

Net (gain)/loss on disposal of operations

 

 

(44

)

 

 

76

 

Non-cash foreign exchange loss/(gain)

 

 

1

 

 

 

(178

)

Other, net

 

 

21

 

 

 

(1

)

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

 

 

 

 

 

 

Accounts receivable

 

 

261

 

 

 

270

 

Other assets

 

 

(175

)

 

 

(198

)

Other liabilities

 

 

(191

)

 

 

(510

)

Provisions

 

 

3

 

 

 

7

 

Net cash from operating activities

 

 

823

 

 

 

437

 

CASH FLOWS USED IN INVESTING ACTIVITIES

 

 

 

 

 

 

Additions to fixed assets and software for internal use

 

 

(116

)

 

 

(100

)

Capitalized software costs

 

 

(66

)

 

 

(50

)

Acquisitions of operations, net of cash acquired

 

 

(6

)

 

 

(80

)

Proceeds from sale of operations

 

 

86

 

 

 

1

 

Cash and fiduciary funds transferred in sale of operations

 

 

(922

)

 

 

(29

)

(Purchase)/sale of investments

 

 

(6

)

 

 

200

 

Net cash used in investing activities

 

 

(1,030

)

 

 

(58

)

CASH FLOWS USED IN FINANCING ACTIVITIES

 

 

 

 

 

 

Senior notes issued

 

 

748

 

 

 

750

 

Debt issuance costs

 

 

(7

)

 

 

(5

)

Repayments of debt

 

 

(253

)

 

 

(585

)

Repurchase of shares

 

 

(804

)

 

 

(3,090

)

Proceeds from issuance of shares

 

 

 

 

 

7

 

Net (payments)/proceeds from fiduciary funds held for clients

 

 

(71

)

 

 

157

 

Payments of deferred and contingent consideration related to acquisitions

 

 

(8

)

 

 

(22

)

Cash paid for employee taxes on withholding shares

 

 

(21

)

 

 

(32

)

Dividends paid

 

 

(265

)

 

 

(280

)

Acquisitions of and dividends paid to non-controlling interests

 

 

(47

)

 

 

(9

)

Net cash used in financing activities

 

 

(728

)

 

 

(3,109

)

DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (i)

 

 

(935

)

 

 

(2,730

)

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

 

 

(54

)

 

 

(290

)

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

 

 

4,721

 

 

 

7,691

 

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

 

$

3,732

 

 

$

4,671

 

 

(i)
The amounts of cash, cash equivalents and restricted cash, their respective classification on the condensed consolidated balance sheets as well as their respective portions of the increase or decrease in cash, cash equivalents and restricted cash for each of the periods presented have been included in Note 19 Supplemental Disclosures of Cash Flow Information.

 

See accompanying notes to the condensed consolidated financial statements

9


 

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

Condensed Consolidated Statements of Changes in Equity

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

(Unaudited)

 

 

 

Nine Months Ended September 30, 2023

 

 

 

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, 2022

 

 

106,756

 

 

$

10,876

 

 

$

1,764

 

 

$

(3

)

 

$

(2,621

)

 

$

10,016

 

 

$

77

 

 

$

10,093

 

Shares repurchased

 

 

(432

)

 

 

(3

)

 

 

(104

)

 

 

3

 

 

 

 

 

 

(104

)

 

 

 

 

 

(104

)

Net income

 

 

 

 

 

 

 

 

203

 

 

 

 

 

 

 

 

 

203

 

 

 

3

 

 

 

206

 

Dividends declared ($0.84 per share)

 

 

 

 

 

 

 

 

(89

)

 

 

 

 

 

 

 

 

(89

)

 

 

 

 

 

(89

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53

 

 

 

53

 

 

 

 

 

 

53

 

Issuance of shares under employee stock
   compensation plans

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation and net settlements

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Foreign currency translation

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance as of March 31, 2023

 

 

106,383

 

 

$

10,890

 

 

$

1,774

 

 

$

 

 

$

(2,568

)

 

$

10,096

 

 

$

80

 

 

$

10,176

 

Shares repurchased

 

 

(1,537

)

 

 

 

 

 

(350

)

 

 

 

 

 

 

 

 

(350

)

 

 

 

 

 

(350

)

Net income

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

 

 

 

94

 

 

 

2

 

 

 

96

 

Dividends declared ($0.84 per share)

 

 

 

 

 

 

 

 

(89

)

 

 

 

 

 

 

 

 

(89

)

 

 

 

 

 

(89

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

 

(4

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 

 

 

28

 

 

 

 

 

 

28

 

Issuance of shares under employee stock
   compensation plans

 

 

97

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation and net settlements

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Balance as of June 30, 2023

 

 

104,943

 

 

$

10,910

 

 

$

1,429

 

 

$

 

 

$

(2,540

)

 

$

9,799

 

 

$

78

 

 

$

9,877

 

Shares repurchased

 

 

(1,681

)

 

 

 

 

 

(350

)

 

 

 

 

 

 

 

 

(350

)

 

 

 

 

 

(350

)

Net income

 

 

 

 

 

 

 

 

136

 

 

 

 

 

 

 

 

 

136

 

 

 

3

 

 

 

139

 

Dividends declared ($0.84 per share)

 

 

 

 

 

 

 

 

(88

)

 

 

 

 

 

 

 

 

(88

)

 

 

 

 

 

(88

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

(8

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

(80

)

 

 

2

 

 

 

(78

)

Issuance of shares under employee stock
   compensation plans

 

 

59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation and net settlements

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Reduction of non-controlling interests (ii)

 

 

 

 

 

(29

)

 

 

 

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

(29

)

Foreign currency translation

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Balance as of September 30, 2023

 

 

103,321

 

 

$

10,903

 

 

$

1,127

 

 

$

 

 

$

(2,620

)

 

$

9,410

 

 

$

75

 

 

$

9,485

 

 

(i)
Accumulated other comprehensive loss, net of tax (‘AOCL’).
(ii)
Attributable to the divestiture of businesses that are less than wholly-owned or the acquisition of shares previously owned by minority interest holders. In an acquisition, additional paid-in capital is adjusted as well to the extent that the consideration transferred differs from the carrying value of non-controlling interests prior to the acquisition.

 

10


 

 

 

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

Condensed Consolidated Statements of Changes in Equity

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

(Unaudited)

 

 

 

Nine Months Ended September 30, 2022

 

 

 

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, 2021

 

 

122,056

 

 

$

10,804

 

 

$

4,645

 

 

$

(3

)

 

$

(2,186

)

 

$

13,260

 

 

$

48

 

 

$

13,308

 

Shares repurchased

 

 

(9,860

)

 

 

 

 

 

(2,250

)

 

 

 

 

 

 

 

 

(2,250

)

 

 

 

 

 

(2,250

)

Net income

 

 

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

122

 

 

 

3

 

 

 

125

 

Dividends declared ($0.82 per share)

 

 

 

 

 

 

 

 

(94

)

 

 

 

 

 

 

 

 

(94

)

 

 

 

 

 

(94

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

(56

)

 

 

 

 

 

(56

)

Issuance of shares under employee stock
   compensation plans

 

 

17

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share-based compensation and net settlements

 

 

 

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Additional non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

21

 

Foreign currency translation

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Balance as of March 31, 2022

 

 

112,213

 

 

$

10,826

 

 

$

2,423

 

 

$

(3

)

 

$

(2,242

)

 

$

11,004

 

 

$

71

 

 

$

11,075

 

Shares repurchased

 

 

(2,144

)

 

 

 

 

 

(471

)

 

 

 

 

 

 

 

 

(471

)

 

 

 

 

 

(471

)

Net income

 

 

 

 

 

 

 

 

109

 

 

 

 

 

 

 

 

 

109

 

 

 

5

 

 

 

114

 

Dividends declared ($0.82 per share)

 

 

 

 

 

 

 

 

(90

)

 

 

 

 

 

 

 

 

(90

)

 

 

 

 

 

(90

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(244

)

 

 

(244

)

 

 

 

 

 

(244

)

Issuance of shares under employee stock
   compensation plans

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation and net settlements

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Additional non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

6

 

Foreign currency translation

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Balance as of June 30, 2022

 

 

110,096

 

 

$

10,855

 

 

$

1,971

 

 

$

(3

)

 

$

(2,486

)

 

$

10,337

 

 

$

80

 

 

$

10,417

 

Shares repurchased

 

 

(1,789

)

 

 

 

 

 

(369

)

 

 

 

 

 

 

 

 

(369

)

 

 

 

 

 

(369

)

Net income

 

 

 

 

 

 

 

 

190

 

 

 

 

 

 

 

 

 

190

 

 

 

2

 

 

 

192

 

Dividends declared ($0.82 per share)

 

 

 

 

 

 

 

 

(86

)

 

 

 

 

 

 

 

 

(86

)

 

 

 

 

 

(86

)

Dividends attributable to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(234

)

 

 

(234

)

 

 

 

 

 

(234

)

Issuance of shares under employee stock
   compensation plans

 

 

355

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Share-based compensation and net settlements

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

(14

)

Reduction of non-controlling interests (ii)

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

(2

)

 

 

 

Foreign currency translation

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Balance as of September 30, 2022

 

 

108,662

 

 

$

10,855

 

 

$

1,706

 

 

$

(3

)

 

$

(2,720

)

 

$

9,838

 

 

$

75

 

 

$

9,913

 

 

(i)
Accumulated other comprehensive loss, net of tax (‘AOCL’).
(ii)
Attributable to the divestiture of businesses that are less than wholly-owned or the acquisition of shares previously owned by minority interest holders. In an acquisition, additional paid-in capital is adjusted as well to the extent that the consideration transferred differs from the carrying value of non-controlling interests prior to the acquisition.

See accompanying notes to the condensed consolidated financial statements

 

11


 

WILLIS TOWERS WATSON PUBLIC LIMITED COMPANY

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 Public Limited Company is a leading global advisory, broking and solutions company that provides data-driven, insight-led solutions in the areas of people, risk and capital. The Company has more than 46,000 colleagues serving more than 140 countries and markets.

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). 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, work and rewards, employee experience 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 help sharpen strategies, enhance organizational resilience, motivate workforces and maximize performance to uncover opportunities for sustainable success.

Note 2 Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited quarterly condensed consolidated financial statements of WTW and our subsidiaries are presented in accordance with the rules and regulations of the SEC for quarterly reports on Form 10-Q and therefore certain footnote disclosures have been condensed or omitted from these financial statements as they are not required for interim reporting under 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 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 24, 2023, and may be accessed via EDGAR on the SEC’s web site at www.sec.gov.

The results of operations for the three and nine months ended September 30, 2023 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 acquisition-related 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.

Recent Accounting Pronouncements

There were no new pronouncements that are expected to have a significant impact to the Company or its condensed consolidated financial statements.

12


 

Tax Legislation

Inflation Reduction Act

The Inflation Reduction Act (the ‘IRA’) was enacted into law on August 16, 2022 and certain portions of the IRA became effective January 1, 2023. The IRA introduced, among other provisions, a share repurchase excise tax and a new Corporate Alternative Minimum Tax (‘CAMT’) which imposes a 15% tax on the adjusted financial statement income of ‘applicable corporations’. The Company does not expect the excise tax or CAMT to have a significant impact on its condensed consolidated financial statements.

Pillar Two

On December 12, 2022, E.U. member states reached an agreement to implement Pillar Two, which introduces a global corporate minimum tax of 15% for certain large multinational companies beginning in 2023. For the rules to take effect, E.U. member states are required to enact domestic legislation by the end of 2023 to be effective January 1, 2024. The Company is currently evaluating the impact Pillar Two will have on its condensed consolidated financial statements.

Note 3 — Acquisitions and Divestitures

Divestitures

Divestment of Russian Business

During the first quarter of 2022, WTW announced its intention to transfer ownership of its Russian subsidiaries to local management who will operate independently in the Russian market. Due to the sanctions and prohibitions on certain types of business and activities, WTW deconsolidated its Russian entities on March 14, 2022. The transfer of its Russian subsidiaries to local management was completed on the agreed-upon terms on July 18, 2022, and the transfer was registered in Russia on July 25, 2022. The deconsolidation in the first quarter of 2022 resulted in a loss of $57 million, which includes an allocation of Risk & Broking goodwill, and was recognized as a loss on disposal of a business within Other income, net on our condensed consolidated statements of comprehensive income. Further, certain Russian insurance contracts were placed historically by our U.K. brokers into the London market, the majority of which were under multi-year terms resulting in both current and non-current accounts receivables. Total net assets impaired, including accounts receivable balances related to our Russian business that are held outside of our Russian entities, were $81 million recorded during the three months ended March 31, 2022 in Other operating expenses on our condensed consolidated statements of comprehensive income.

Willis Re Divestiture

On August 13, 2021, the Company entered into a definitive security and asset purchase agreement (the ‘Willis Re SAPA’) to sell its treaty-reinsurance business (‘Willis Re’) to Arthur J. Gallagher & Co. (‘Gallagher’), a leading global provider of insurance, risk management and consulting services, for total upfront cash consideration of $3.25 billion plus an earnout payable in 2025 of up to $750 million in cash, subject to certain adjustments. The deal was subject to required regulatory approvals and clearances, as well as other customary closing conditions, and was completed on December 1, 2021 (‘Principal Closing’). Although the majority of the Willis Re businesses transferred to Gallagher at Principal Closing, the assets and liabilities of certain Willis Re businesses were not transferred to Gallagher at the time due to local territory restrictions (‘Deferred Closing’). The Deferred Closing for all but one business was completed during the second quarter of 2022, and all net earnings of the Deferred Closing businesses accumulated between the Principal Closing and Deferred Closing remained payable to Gallagher at June 30, 2022 and September 30, 2022. The Company recognized a preliminary pre-tax gain of $2.3 billion upon completion of the sale in 2021, and during the second quarter of 2022, WTW recognized a $60 million reduction to the pre-tax gain related to an updated estimate of the working capital transferred upon disposal. The Company recognized the final allocation of the proceeds and related tax expense, as well as an adjustment of certain indemnities for the three months ended September 30, 2022. These amounts as well as the amounts payable with respect to the settled Deferred Closing businesses were remitted to Gallagher in October 2022. The remaining Deferred Closing business transferred during the fourth quarter of 2022, and all businesses have now been transferred to Gallagher. The gain is subject to tax in certain jurisdictions, mainly in the U.S., and is predominantly tax-exempt in the U.K.

In connection with the transaction, the Company reclassified the results of its Willis Re operations as discontinued operations on its condensed consolidated statements of comprehensive income and reclassified Willis Re assets and liabilities as held for sale on its condensed consolidated balance sheets. The condensed consolidated cash flow statements were not adjusted for the divestiture. Willis Re was previously included in the Company's former Investment, Risk and Reinsurance segment. As noted above, the results of the Deferred Closing businesses following the Principal Closing until their respective Deferred Closing dates have been included in income from discontinued operations on the condensed consolidated statements of comprehensive income during 2022.

The Company will account for the earnout as a gain contingency and therefore did not record any receivables upon close. Rather, the earnout will be recognized in the Company’s condensed consolidated financial statements, if it is received, in 2025.

13


 

A number of services are continuing under a cost reimbursement Transition Services Agreement (‘TSA’) in which WTW is providing Gallagher support including real estate leases, information technology, payroll, human resources and accounting. During the third quarter of 2023, the term for these services was extended from November 30, 2023 to May 31, 2024 and may be further extended by Gallagher, in accordance with the terms of the TSA. Fees earned under the TSA were $11 million and $29 million during the three and nine months ended September 30, 2023, respectively, and $8 million and $31 million during the three and nine months ended September 30, 2022, respectively, and have been recognized as a reduction to the costs incurred to service the TSA and are included in continuing operations within Other operating expenses on the condensed consolidated statements of comprehensive income. Costs incurred to service the TSA are expected to be reduced as part of the Company’s Transformation program (see Note 6 — Restructuring Costs for a description of the program) as quickly as possible when the services are no longer required by Gallagher.

The following selected financial information relates to the operations of Willis Re for the periods presented:

 

 

 

Three Months Ended
 September 30, 2022

 

 

Nine Months Ended
 September 30, 2022

 

 

 

 

 

 

 

 

Revenue from discontinued operations

 

$

10

 

 

$

50

 

Costs of providing services

 

 

 

 

 

 

Salaries and benefits

 

 

5

 

 

 

13

 

Other operating expenses

 

 

 

 

 

1

 

Total costs of providing services

 

 

5

 

 

 

14

 

Other income, net

 

 

 

 

 

 

Income from discontinued operations before income taxes

 

 

5

 

 

 

36

 

Adjustment to gain on disposal of Willis Re

 

 

(2

)

 

 

(65

)

Benefit from income taxes

 

 

5

 

 

 

7

 

Net income payable to Gallagher on Deferred Closing

 

 

 

 

 

(5

)

Income/(loss) from discontinued operations, net of tax

 

$

8

 

 

$

(27

)

The expense amounts reflected above represent only the direct costs attributable to the Willis Re business and exclude allocations of corporate costs that will be retained following the sale. Neither the discontinued operations presented above, nor the unallocated corporate costs, reflect the impact of any cost reimbursement that will be received under the TSA.

Certain amounts included in the condensed consolidated balance sheets did not transfer to Gallagher under the terms of the Willis Re SAPA, and instead were to be settled by the Company, noting that certain fiduciary positions continued to be held under the terms of various co-broking agreements between subsidiaries of the Company and Gallagher. At December 31, 2022, the amounts of significant assets and liabilities related to the Willis Re businesses which were not transferred in the sale were $3.2 billion of fiduciary assets and liabilities, $29 million of accounts receivable and $73 million of other current liabilities. On May 31, 2023, the Company and Gallagher entered into a side letter to the Willis Re SAPA which became effective on June 1, 2023 and which (A) ended the co-broking agreements prospectively and which (B) transferred related fiduciary and certain non-fiduciary assets and liabilities to Gallagher at that time based on then-current estimates. These non-fiduciary amounts were finalized in the third quarter of 2023. The value of the initial transfer amounted to $74 million of other current liabilities less $26 million of accounts receivables due to the Company, totaling $48 million of net cash transferred to Gallagher. Additionally, total fiduciary assets and liabilities of $4.5 billion, including $868 million of fiduciary cash, was transferred to Gallagher. The total cash outflow of $916 million is included in cash used in investing activities in the condensed consolidated statement of cash flows. During the third quarter of 2023, WTW and Gallagher agreed to a final settlement of all balances which resulted in a $5 million increase to the gain on disposal recognized during the three months and nine months ended September 30, 2023 and is included within Other income, net on our condensed consolidated statements of comprehensive income. The settlement of remaining amounts owed to Gallagher totaling $11 million was accrued in Deferred revenue and accrued expenses on the condensed consolidated balance sheet at September 30, 2023 and was transferred in October 2023.

Other Divestitures

During the nine months ended September 30, 2023, the Company completed other divestitures for total cash consideration of $86 million and net gains on disposal of $39 million, which is included within Other income, net on our condensed consolidated statements of comprehensive income.

14


 

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 nine months ended September 30, 2023 and 2022. Along with reimbursable expenses and other, total revenue by service offering represents our revenue from customer contracts.

 

 

 

Three Months Ended September 30,

 

 

 

HWC

 

 

R&B

 

 

Corporate (i) (ii)

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Broking

 

$

241

 

 

$

207

 

 

$

673

 

 

$

606

 

 

$

 

 

$

1

 

 

$

914

 

 

$

814

 

Consulting

 

 

643

 

 

 

616

 

 

 

88

 

 

 

85

 

 

 

4

 

 

 

2

 

 

 

735

 

 

 

703

 

Outsourced administration

 

 

272

 

 

 

222

 

 

 

21

 

 

 

18

 

 

 

 

 

 

 

 

 

293

 

 

 

240

 

Other

 

 

119

 

 

 

111

 

 

 

46

 

 

 

38

 

 

 

 

 

 

 

 

 

165

 

 

 

149

 

Total revenue by service offering

 

 

1,275

 

 

 

1,156

 

 

 

828

 

 

 

747

 

 

 

4

 

 

 

3

 

 

 

2,107

 

 

 

1,906

 

Reimbursable expenses and other (i) (ii)

 

 

16

 

 

 

16

 

 

 

3

 

 

 

2

 

 

 

(2

)

 

 

(5

)

 

 

17

 

 

 

13

 

Total revenue from customer contracts

 

$

1,291

 

 

$

1,172

 

 

$

831

 

 

$

749

 

 

$

2

 

 

$

(2

)

 

$

2,124

 

 

$

1,919

 

Interest and other income (ii)

 

 

7

 

 

 

6

 

 

 

27

 

 

 

18

 

 

 

8

 

 

 

10

 

 

 

42

 

 

 

34

 

Total revenue

 

$

1,298

 

 

$

1,178

 

 

$

858

 

 

$

767

 

 

$

10

 

 

$

8

 

 

$

2,166

 

 

$

1,953

 

 

 

 

Nine Months Ended September 30,

 

 

 

HWC

 

 

R&B

 

 

Corporate (i) (ii)

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Broking

 

$

789

 

 

$

714

 

 

$

2,088

 

 

$

1,963

 

 

$

8

 

 

$

8

 

 

$

2,885

 

 

$

2,685

 

Consulting

 

 

1,947

 

 

 

1,886

 

 

 

273

 

 

 

280

 

 

 

12

 

 

 

7

 

 

 

2,232

 

 

 

2,173

 

Outsourced administration

 

 

779

 

 

 

696

 

 

 

67

 

 

 

61

 

 

 

 

 

 

 

 

 

846

 

 

 

757

 

Other

 

 

247

 

 

 

237

 

 

 

168

 

 

 

147

 

 

 

 

 

 

 

 

 

415

 

 

 

384

 

Total revenue by service offering

 

 

3,762

 

 

 

3,533

 

 

 

2,596

 

 

 

2,451

 

 

 

20

 

 

 

15

 

 

 

6,378

 

 

 

5,999

 

Reimbursable expenses and other (i) (ii)

 

 

49

 

 

 

43

 

 

 

9

 

 

 

7

 

 

 

9

 

 

 

(6

)

 

 

67

 

 

 

44

 

Total revenue from customer contracts

 

$

3,811

 

 

$

3,576

 

 

$

2,605

 

 

$

2,458

 

 

$

29

 

 

$

9

 

 

$

6,445

 

 

$

6,043

 

Interest and other income (ii)

 

 

22

 

 

 

32

 

 

 

63

 

 

 

57

 

 

 

39

 

 

 

12

 

 

 

124

 

 

 

101

 

Total revenue

 

$

3,833

 

 

$

3,608

 

 

$

2,668

 

 

$

2,515

 

 

$

68

 

 

$

21

 

 

$

6,569

 

 

$

6,144

 

 

(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)
For the three and nine months ended September 30, 2022, $9 million of interest income was reclassified from Reimbursable expenses and other to Interest and other income in order to show the allocation of interest income related to fiduciary assets to Corporate. This amount was previously unallocated, but was allocated beginning with the presentation in our Annual Report on Form 10-K, filed with the SEC on February 24, 2023, and is therefore included in the full-year results presented therein.

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 components of interest and other income are as follows for the periods presented above:

 

 

 

Three Months Ended September 30,

 

 

 

HWC

 

 

R&B

 

 

Corporate

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Book-of-business settlements

 

$

 

 

$

1

 

 

$

1

 

 

$

11

 

 

$

 

 

$

 

 

$

1

 

 

$

12

 

Interest income

 

 

7

 

 

 

2

 

 

 

25

 

 

 

6

 

 

 

7

 

 

 

9

 

 

 

39

 

 

 

17

 

Other income

 

 

 

 

 

3

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

2

 

 

 

5

 

Total interest and other income

 

$

7

 

 

$

6

 

 

$

27

 

 

$

18

 

 

$

8

 

 

$

10

 

 

$

42

 

 

$

34

 

 

 

 

Nine Months Ended September 30,

 

 

 

HWC

 

 

R&B

 

 

Corporate

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Book-of-business settlements

 

$

 

 

$

19

 

 

$

11

 

 

$

41

 

 

$

 

 

$

 

 

$

11

 

 

$

60

 

Interest income

 

 

18

 

 

 

4

 

 

 

52

 

 

 

15

 

 

 

36

 

 

 

9

 

 

 

106

 

 

 

28

 

Other income

 

 

4

 

 

 

9

 

 

 

 

 

 

1

 

 

 

3

 

 

 

3

 

 

 

7

 

 

 

13

 

Total interest and other income

 

$

22

 

 

$

32

 

 

$

63

 

 

$

57

 

 

$

39

 

 

$

12

 

 

$

124

 

 

$

101

 

 

15


 

As a result of the cessation of the co-broking agreement, (see Note 3 — Acquisitions and Divestitures) interest income associated with fiduciary funds will be allocated more directly to the Risk and Broking segment beginning in the third quarter of 2023. These amounts were previously allocated to the Corporate segment following the disposal of Willis Re.

The following tables present revenue from service offerings by the geography where our work was performed for the three and nine months ended September 30, 2023 and 2022. 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 September 30,

 

 

 

HWC

 

 

R&B

 

 

Corporate

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

North America

 

$

830

 

 

$

766

 

 

$

344

 

 

$

326

 

 

$

3

 

 

$

2

 

 

$

1,177

 

 

$

1,094

 

Europe

 

 

330

 

 

 

285

 

 

 

354

 

 

 

297

 

 

 

1

 

 

 

1

 

 

 

685

 

 

 

583

 

International

 

 

115

 

 

 

105

 

 

 

130

 

 

 

124

 

 

 

 

 

 

 

 

 

245

 

 

 

229

 

Total revenue by geography

 

$

1,275

 

 

$

1,156

 

 

$

828

 

 

$

747

 

 

$

4

 

 

$

3

 

 

$

2,107

 

 

$

1,906

 

 

 

 

Nine Months Ended September 30,

 

 

 

HWC

 

 

R&B

 

 

Corporate

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

North America

 

$

2,445

 

 

$

2,301

 

 

$

990

 

 

$

936

 

 

$

6

 

 

$

6

 

 

$

3,441

 

 

$

3,243

 

Europe

 

 

991

 

 

 

931

 

 

 

1,214

 

 

 

1,128

 

 

 

12

 

 

 

8

 

 

 

2,217

 

 

 

2,067

 

International

 

 

326

 

 

 

301

 

 

 

392

 

 

 

387

 

 

 

2

 

 

 

1

 

 

 

720

 

 

 

689

 

Total revenue by geography

 

$

3,762

 

 

$

3,533

 

 

$

2,596

 

 

$

2,451

 

 

$

20

 

 

$

15

 

 

$

6,378

 

 

$

5,999

 

 

Contract Balances

The Company reports accounts receivable, net on the condensed consolidated balance sheets, which includes billed and unbilled receivables and current contract assets. In addition to accounts receivable, net, the Company had the following non-current contract assets and deferred revenue balances at September 30, 2023 and December 31, 2022:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

Billed receivables, net of allowance for doubtful accounts of $41 million and $46 million

 

$

1,296

 

 

$

1,464

 

Unbilled receivables

 

 

514

 

 

 

457

 

Current contract assets

 

 

269

 

 

 

466

 

Accounts receivable, net

 

$

2,079

 

 

$

2,387

 

Non-current accounts receivable, net

 

$

8

 

 

$

9

 

Non-current contract assets

 

$

803

 

 

$

745

 

Deferred revenue

 

$

666

 

 

$

646

 

 

During the three and nine months ended September 30, 2023, revenue of $62 million and $447 million, respectively, was recognized that was reflected as deferred revenue at December 31, 2022. During the three months ended September 30, 2023, revenue of $290 million was recognized that was reflected as deferred revenue at June 30, 2023.

During the three and nine months ended September 30, 2023, the Company recognized revenue of $1 million and $8 million, respectively, related to performance obligations satisfied prior to 2023.

Performance Obligations

The Company has contracts for which performance obligations have not been satisfied as of September 30, 2023 or have been partially satisfied as of this date. The following table shows the expected timing for the satisfaction of the remaining performance obligations. This table does not include contract renewals or variable consideration, which was excluded from the transaction prices in accordance with the guidance on constraining estimates of variable consideration.

In addition, in accordance with ASC 606, Revenue From Contracts With Customers (‘ASC 606’), the Company has elected not to disclose the remaining performance obligations when one or both of the following circumstances apply:

Performance obligations which are part of a contract that has an original expected duration of less than one year, and
Performance obligations satisfied in accordance with ASC 606-10-55-18 (‘right to invoice’).

16


 

 

 

 

Remainder of 2023

 

 

2024

 

 

2025 onward

 

 

Total

 

Revenue expected to be recognized on contracts as of September 30, 2023

 

$

213

 

 

$

470

 

 

$

704

 

 

$

1,387

 

 

Since most of the Company’s contracts are cancellable with less than one year’s notice and have no substantive penalty for cancellation, the majority of the Company’s remaining performance obligations as of September 30, 2023 have been excluded from the table above.

 

Note 5 Segment Information

WTW has two reportable operating segments or business areas:

Health, Wealth & Career (‘HWC’); and
Risk & Broking (‘R&B’).

WTW’s chief operating decision maker is its chief executive officer. We determined that the operational data used by the chief operating decision maker is at the segment level. Management bases strategic goals and decisions on these segments and the data presented below is used to assess the adequacy of strategic decisions and the methods of achieving these strategies and related financial results. Management evaluates the performance of its segments and allocates resources to them based on net operating income on a pre-tax basis.

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 following table presents segment revenue and segment operating income for our reportable segments for the three months ended September 30, 2023 and 2022.

 

 

 

Three Months Ended September 30,

 

 

 

HWC

 

 

R&B

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Segment revenue

 

$

1,282

 

 

$

1,162

 

 

$

855

 

 

$

765

 

 

$

2,137

 

 

$

1,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

305

 

 

$

236

 

 

$

134

 

 

$

105

 

 

$

439

 

 

$

341

 

 

The following table presents segment revenue and segment operating income for our reportable segments for the nine months ended September 30, 2023 and 2022.

 

 

 

Nine Months Ended September 30,

 

 

 

HWC

 

 

R&B

 

 

Total

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Segment revenue

 

$

3,784

 

 

$

3,565

 

 

$

2,659

 

 

$

2,508

 

 

$

6,443

 

 

$

6,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

$

836

 

 

$

710

 

 

$

459

 

 

$

465

 

 

$

1,295

 

 

$

1,175

 

 

17


 

The following table presents reconciliations of the information reported by segment to the Company’s condensed consolidated statements of comprehensive income amounts reported for the three and nine months ended September 30, 2023 and 2022.

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Total segment revenue

 

$

2,137

 

 

$

1,927

 

 

$

6,443

 

 

$

6,073

 

Reimbursable expenses and other

 

 

29

 

 

 

26

 

 

 

126

 

 

 

71

 

Revenue

 

$

2,166

 

 

$

1,953

 

 

$

6,569

 

 

$

6,144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total segment operating income

 

$

439

 

 

$

341

 

 

$

1,295

 

 

$

1,175

 

Impairment (i)

 

 

 

 

 

 

 

 

 

 

 

(81

)

Amortization

 

 

(62

)

 

 

(71

)

 

 

(203

)

 

 

(239

)

Restructuring costs (ii)

 

 

(17

)

 

 

(9

)

 

 

(30

)

 

 

(71

)

Transaction and transformation (iii)

 

 

(113

)

 

 

(50

)

 

 

(265

)

 

 

(108

)

Unallocated, net (iv)

 

 

(88

)

 

 

(57

)

 

 

(211

)

 

 

(206

)

Income from operations

 

 

159

 

 

 

154

 

 

 

586

 

 

 

470

 

Interest expense

 

 

(61

)

 

 

(54

)

 

 

(172

)

 

 

(154

)

Other income, net

 

 

66

 

 

 

85

 

 

 

126

 

 

 

205

 

Income from continuing operations before income taxes

 

$

164

 

 

$

185

 

 

$

540

 

 

$

521

 

 

(i)
Represents the impairment related to the net assets of our Russian business that are held outside of our Russian entities (see Note 3 — Acquisitions and Divestitures for further information).
(ii)
See Note 6 — Restructuring Costs for the composition of costs for 2023 and 2022.
(iii)
In 2023 and 2022, in addition to legal fees and other transaction costs, includes primarily consulting fees and compensation costs related to the Transformation program (see Note 6 — Restructuring Costs).
(iv)
Includes certain costs, primarily related to corporate functions which are not directly related to the segments, and certain differences between budgeted expenses determined at the beginning of the year and actual expenses that we report for U.S. GAAP purposes.

The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total asset position by segment.

 

Note 6 Restructuring Costs

 

In the fourth quarter of 2021, the Company initiated a three-year ‘Transformation program’ designed to enhance operations, optimize technology and align its real estate footprint to its new ways of working. During the second quarter of 2023, we revised the expected costs and savings under the program and we now expect the program to generate annual cost savings in excess of $380 million by the end of 2024. The program is expected to incur cumulative costs of approximately $630 million and capital expenditures of approximately $270 million, for a total investment of $900 million. The main categories of charges will be in the following four areas:

Real estate rationalization — includes costs to align the real estate footprint to the new ways of working (hybrid work) and includes breakage fees and the impairment of right-of-use (‘ROU’) assets and other related leasehold assets.
Technology modernization — these charges are incurred in moving to common platforms and technologies, including migrating certain platforms and applications to the cloud. This category will include the impairment of technology assets that are duplicative or no longer revenue-producing, as well as costs for technology investments that do not qualify for capitalization.
Process optimization — these costs will be incurred in the right-shoring strategy and automation of our operations, which will include optimizing resource deployment and appropriate colleague alignment. These costs will include process and organizational design costs, severance and separation-related costs and temporary retention costs.
Other — other costs not included above including fees for professional services, other contract terminations not related to the above categories and supplier migration costs.

 

Certain costs under the Transformation program are accounted for under ASC 420, Exit or Disposal Cost Obligation, and are included as restructuring costs in the condensed consolidated statements of comprehensive income. Other costs incurred under the Transformation program are included in transaction and transformation and were $104 million and $231 million during the three and nine months ended September 30, 2023, respectively, and $42 million and $73 million during the three and nine months ended

18


 

September 30, 2022, respectively. An analysis of total restructuring costs incurred under the Transformation program by category and by segment and corporate functions, from commencement to September 30, 2023, is as follows:

 

 

 

HWC

 

 

R&B

 

 

Corporate

 

 

Total

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

Real estate rationalization

 

$

 

 

$

 

 

$

19

 

 

$

19

 

Technology modernization

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Process optimization

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

2

 

 

 

2

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

Real estate rationalization

 

 

 

 

 

 

 

 

79

 

 

 

79

 

Technology modernization

 

 

 

 

 

3

 

 

 

16

 

 

 

19

 

Process optimization

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

Real estate rationalization

 

 

 

 

 

 

 

 

29

 

 

 

29

 

Technology modernization

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Process optimization

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Real estate rationalization

 

 

 

 

 

 

 

 

127

 

 

 

127

 

Technology modernization

 

 

 

 

 

8

 

 

 

17

 

 

 

25

 

Process optimization

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Other

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Total

 

$

1

 

 

$

8

 

 

$

146

 

 

$

155

 

 

A rollforward of the liability associated with cash-based charges related to restructuring costs associated with the Transformation program is as follows:

 

 

 

Real estate rationalization

 

 

Technology modernization

 

 

Process optimization

 

 

Other

 

 

Total

 

Balance at October 1, 2021

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Charges incurred

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Cash payments

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance at December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Charges incurred

 

 

27

 

 

 

 

 

 

1

 

 

 

 

 

 

28

 

Cash payments

 

 

(21

)

 

 

 

 

 

(1

)

 

 

(1

)

 

 

(23

)

Balance at December 31, 2022

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Charges incurred

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Cash payments

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

(14

)

Balance at September 30, 2023

 

$

3

 

 

$

 

 

$

 

 

$

 

 

$

3

 

 

Note 7 — Income Taxes

Provision for income taxes for the three and nine months ended September 30, 2023 was $25 million and $99 million, respectively, compared to $1 million and $63 million for the three and nine months ended September 30, 2022, respectively. The effective tax rates were 15.5% and 18.3% for the three and nine months ended September 30, 2023, respectively, and 0.7% and 12.1% for the three and nine months ended September 30, 2022, respectively. These effective tax rates are calculated using extended values from our condensed consolidated statements of comprehensive income and are therefore more precise tax rates than can be calculated from rounded values. The prior-year quarter effective tax rate was lower due to certain discrete tax benefits related to amending the Company’s U.S. federal and state tax returns in order to change certain elections available under the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act, and excess tax benefits on executive share-based compensation.

The Company recognizes deferred tax balances related to the undistributed earnings of subsidiaries when it expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. Historically, the Company has not provided taxes on cumulative earnings of its subsidiaries that have been reinvested indefinitely. As a result of its plans to restructure or distribute accumulated earnings of certain foreign operations, the Company has recorded an estimate of non-U.S. withholding and state income taxes. However, the Company asserts that the historical cumulative earnings of its other subsidiaries are reinvested indefinitely and therefore does not provide deferred tax liabilities on these amounts.

19


 

The Company records valuation allowances against net deferred tax assets based on whether it is more likely than not that the deferred tax assets will be realized. We have liabilities for uncertain tax positions under ASC 740, Income Taxes of $41 million, excluding interest and penalties. The Company believes the outcomes that are reasonably possible within the next 12 months may result in a reduction in the liability for uncertain tax positions of approximately $1 million to $2 million, excluding interest and penalties.

Note 8 Goodwill and Other Intangible Assets

The components of goodwill are outlined below for the nine months ended September 30, 2023.

 

 

 

HWC

 

 

R&B

 

 

Total

 

Balance at December 31, 2022:

 

 

 

 

 

 

 

 

 

Goodwill, gross

 

$

7,870

 

 

$

2,795

 

 

$

10,665

 

Accumulated impairment losses

 

 

(130

)

 

 

(362

)

 

 

(492

)

Goodwill, net - December 31, 2022

 

 

7,740

 

 

 

2,433

 

 

 

10,173

 

Goodwill disposals

 

 

(21

)

 

 

 

 

 

(21

)

Foreign exchange

 

 

 

 

 

(9

)

 

 

(9

)

Balance at September 30, 2023:

 

 

 

 

 

 

 

 

 

Goodwill, gross

 

 

7,849

 

 

 

2,786

 

 

 

10,635

 

Accumulated impairment losses

 

 

(130

)

 

 

(362

)

 

 

(492

)

Goodwill, net - September 30, 2023

 

$

7,719

 

 

$

2,424

 

 

$

10,143

 

 

Other Intangible Assets

The following table reflects changes in the net carrying amounts of the components of finite-lived intangible assets for the nine months ended September 30, 2023:

 

 

 

Client relationships

 

 

Software

 

 

Trademark and trade name

 

 

Other

 

 

Total

 

Balance at December 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets, gross

 

$

3,760

 

 

$

725

 

 

$

1,038

 

 

$

98

 

 

$

5,621

 

Accumulated amortization

 

 

(2,282

)

 

 

(712

)

 

 

(298

)

 

 

(56

)

 

 

(3,348

)

Intangible assets, net - December 31, 2022

 

 

1,478

 

 

 

13

 

 

 

740

 

 

 

42

 

 

 

2,273

 

Intangible assets acquired

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Intangible asset disposals

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

(13

)

Amortization

 

 

(156

)

 

 

(9

)

 

 

(32

)

 

 

(6

)

 

 

(203

)

Balance at September 30, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets, gross

 

 

3,766

 

 

 

720

 

 

 

1,037

 

 

 

63

 

 

 

5,586

 

Accumulated amortization

 

 

(2,437

)

 

 

(716

)

 

 

(329

)

 

 

(40

)

 

 

(3,522

)

Intangible assets, net - September 30, 2023

 

$

1,329

 

 

$

4

 

 

$

708

 

 

$

23

 

 

$

2,064

 

 

The weighted-average remaining life of amortizable intangible assets at September 30, 2023 was 11.9 years.

The table below reflects the future estimated amortization expense for amortizable intangible assets for the remainder of 2023 and for subsequent years:

 

 

 

Amortization

 

Remainder of 2023

 

$

60

 

2024

 

 

229

 

2025

 

 

209

 

2026

 

 

200

 

2027

 

 

196

 

Thereafter

 

 

1,170

 

Total

 

$

2,064

 

 

Note 9 Derivative Financial Instruments

We are exposed to certain foreign currency risks. Where possible, we identify exposures in our business that can be offset internally. Where no natural offset is identified, we may choose to enter into various derivative transactions. These instruments have the effect of reducing our exposure to unfavorable changes in foreign currency rates. The Company’s board of directors reviews and approves

20


 

policies for managing this risk as summarized below. Additional information regarding our derivative financial instruments can be found in Note 11 — Fair Value Measurements and Note 17 — Accumulated Other Comprehensive Loss.

Foreign Currency Risk

Certain non-U.S. subsidiaries receive revenue and incur expenses in currencies other than their functional currency, and as a result, the foreign subsidiary’s functional currency revenue and/or expenses will fluctuate as the currency rates change. Additionally, the forecast Pounds sterling expenses of our London brokerage market operations may exceed their Pounds sterling revenue, and the entity with such operations may also hold significant foreign currency asset or liability positions in the condensed consolidated balance sheets. To reduce such variability, we use foreign exchange contracts to hedge against this currency risk.

These derivatives were designated as hedging instruments and at September 30, 2023 and December 31, 2022 had total notional amounts of $106 million and $134 million, respectively, and had net fair value liabilities of $1 million and $3 million, respectively.

At September 30, 2023, the Company estimates, based on current exchange rates, there will be less than $1 million of net derivative losses on forward exchange rates reclassified from accumulated other comprehensive loss into earnings within the next twelve months as the forecast transactions affect earnings. At September 30, 2023, our longest outstanding maturity was 1.7 years.

The effects of the material derivative instruments that are designated as hedging instruments on the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2023 and 2022 are below. Amounts pertaining to the ineffective portion of hedging instruments and those excluded from effectiveness testing were immaterial for the three and nine months ended September 30, 2023 and 2022.

 

 

 

(Loss)/gain recognized in OCI (effective element)

 

 

 

Three months ended September 30,