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21st Century Insurance Group Reports Operating Results (10-Q)

February 08, 2013 | About:
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10qk

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21st Century Insurance Group (TW) filed Quarterly Report for the period ended 2012-12-31.

Towers Watson & Co. has a market cap of $4.85 billion; its shares were traded at around $65.49 with a P/E ratio of 17.1821 and P/S ratio of 1.3452. The dividend yield of Towers Watson & Co. stocks is 0.66%. Towers Watson & Co. had an annual average earning growth of 11.3% over the past 10 years. GuruFocus rated Towers Watson & Co. the business predictability rank of 2.5-star.
This is the annual revenues and earnings per share of TW over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of TW.


Highlight of Business Operations:

Revenue for the three months ended December 31, 2012 was $946.3 million, an increase of $66.5 million, or 8%, compared to $879.7 million for the three months ended December 31, 2011. Revenue for the six months ended December 31, 2012 was $1.8 billion, an increase of $90.4 million, or 5%, compared to $1.7 billion for the six months ended December 31, 2011. Our new segment, Exchange Solutions, contributed 2% to our total revenue growth in the second quarter and in the first half of fiscal year 2013. Our Benefits, Risk and Financial Services and Talent and Rewards segments experienced constant currency revenue growth in the second quarter and first half of fiscal year 2013 compared to fiscal year 2012. This growth was driven by economic and regulatory changes. Our consultants developed and successfully executed an innovative strategy related to bulk lump sum project work, a de-risking process which allows organizations to reduce their pension liabilities by paying certain groups of terminated employees. In addition, our reserve improvement contributed to 1% of our total revenue increase in the second quarter. We have returned to a normalized level of cash collections as evidenced by our 82 days sales outstanding calculation for the second quarter of fiscal year 2013. In our previous three quarters we have experienced higher reserves and receivables related to the deployment of our new ERP system. On a constant currency basis, which excludes the effects of currency, revenue increased 8% for the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012. On a constant currency basis, revenue increased 7% for the first half of fiscal 2013 compared to the first half of fiscal 2012.

Salaries and employee benefits were $579.6 million for the second quarter of fiscal year 2013, an increase of $44.3 million, or 8%, compared to $535.3 million for the second quarter of fiscal year 2012. On a constant currency basis, salaries and employee benefits increased by 9%. For the second quarter of fiscal year 2013, our salary expense increase was driven by an increase in base salary of $24.0 million attributable to a 6.5% increase in headcount, our annual increase in base salary and the impact of foreign currency translation. Our acquisition in the fourth quarter of fiscal year 2012 of Extend Health accounted for 38% of our headcount increase and our EMEA and APAC operations accounted for 60% of our headcount increase as of December 31, 2012, compared to December 31, 2011. Our discretionary annual bonus is based on pre-bonus profitability and can fluctuate based on the operating results of the Company, and as a result, our bonus expense for the second quarter of fiscal year 2013 increased by $13.2 million compared to the second quarter of fiscal year 2012. The $3.3 million increase in our pension expense was due to decreases in discount rates. Stock-based compensation decreased $7.5 million in the current quarter primarily due to our use of the graded-vesting method of recording expense related to the restricted stock units issued to employees of Towers Perrin in the Merger, offset by an increase in non-cash stock based compensation from the stock option plan that we assumed when we acquired Extend Health in May 2012. As a percentage of revenue, salaries and employee benefits remained consistent and was 61% for the second quarter of fiscal years 2013 and 2012.

Salaries and employee benefits were $1.1 billion for the first half of fiscal year 2013 compared to $1.0 billion for the first half of fiscal year 2012, an increase of $60.7 million, or 6%. On a constant currency basis, salaries and employee benefits increased by 7%. This increase was primarily driven by an increase in base salary of $53.7 million attributed to a 6.5% increase in headcount and an annual increase in base salary. Our discretionary annual bonus is based on pre-bonus profitability and can fluctuate based on the operating results of the Company, and as a result, our bonus expense for the first half of fiscal year 2013 increased by $0.6 million compared to the first half of fiscal year 2012. The $7.5 million increase in our pension expense was due to decreases in discount rates. Stock-based compensation decreased $13.1 million in the current quarter primarily due to our use of the graded-vesting method of recording

General and administrative expenses for the second quarter of fiscal year 2013 was $87.0 million, compared to $72.3 million for the second quarter of fiscal year 2012, an increase of $14.7 million, or 20%. General and administrative expenses for the first half of fiscal year 2013 was $169.7 million, compared to $135.1 million for the first half of fiscal year 2012, an increase of $34.6 million, or 26%. Our professional liability expense increased $6.2 million and $15.7 million in our second quarter and first half of fiscal year 2013 compared to 2012, respectively, due to a reduction in our reserves in fiscal year 2012 from favorable claims experience and IBNR. We also experienced an increase of $7.3 million and $11.7 million in our telecommunications, video conferencing and internet expenses for the second quarter and first half of fiscal year 2013 compared to 2012, respectively. These expenses were classified in professional and subcontracted services in fiscal year 2012 as we previously contracted with an external service provider for these services. In addition, our new segment Exchange Solutions was formed in the fourth quarter of fiscal year 2012 contributing to higher general and administrative expenses in fiscal year 2013. As a percentage of revenue, general and administrative expenses were 9% and 10% for the three and six months ended December 31, 2012, respectively, compared to 8% for the three and six months ended December 31, 2011.

Depreciation and amortization expense for the second quarter of fiscal year 2013 was $45.7 million, compared to $38.6 million for the second quarter of fiscal year 2012, an increase of $7.0 million, or 18%. Depreciation and amortization expense for the first half of fiscal year 2013 was $89.3 million, compared to $73.2 million for the first half of fiscal year 2012, an increase of $16.1 million, or 22%. The increase is partially due to the amortization of intangibles related to our acquisition of Extend Health in the fourth quarter of fiscal year 2012. In addition, we accelerated amortization for a software application that we acquired in the Merger as management determined that its use would be discontinued in the next three to four years. A portion of the increase is also attributable to increased depreciation on the computer hardware that has been placed in service in fiscal year 2011 and 2012. As a percentage of revenue, depreciation and amortization expenses were 5% for three and six months ended December 31, 2012 and 4% for the three and six months ended December 31, 2011.

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