e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number:
001-16503
WILLIS GROUP HOLDINGS PUBLIC
LIMITED COMPANY
(Exact name of Registrant as
specified in its charter)
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Ireland
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98-0352587
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(Jurisdiction of incorporation
or organization)
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(I.R.S. Employer Identification
No.)
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c/o Willis
Group Limited
51 Lime Street, London EC3M 7DQ, England
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(Address of principal executive
offices)
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(011) 44-20-3124-6000
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(Registrants telephone
number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each Class
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Name of each exchange on which registered
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Ordinary Shares, nominal value $0.000115 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
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None
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
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 and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definite proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of February 22, 2010, the aggregate market value of the
voting stock held by non-affiliates of the Registrant was
approximately $4,787,610,612.
As of February 22, 2010, there were outstanding
168,829,679 ordinary shares, nominal value $0.000115 per
share, of the Registrant.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of Willis Group Holdings Public Limited Companys
Proxy Statement for its 2010 Annual Meeting of Shareholders are
incorporated by reference into Part III of this
Form 10-K.
WILLIS
GROUP HOLDINGS PUBLIC LIMITED COMPANY
ANNUAL
REPORT ON
FORM 10-K
FOR THE
YEAR ENDED DECEMBER 31, 2009
Certain
Definitions
The following definitions apply throughout this annual report
unless the context requires otherwise:
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Company or Group or Willis |
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Willis-Bermuda and its subsidiaries for periods before the
Effective Time and Willis-Ireland and its subsidiaries for
periods after the Effective Time. |
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Effective Time |
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6:59 p.m. EST on December 31, 2009. |
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HRH |
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Hilb Rogal & Hobbs Company. |
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shares |
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The ordinary shares of Willis-Ireland, nominal value $0.000115
per share, and prior to the Effective Time, the common shares of
Willis-Bermuda, par value $0.000115 per share. |
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Willis-Bermuda |
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Willis Group Holdings Limited, a company organized under the
laws of Bermuda. |
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Willis Group Holdings or
Willis-Ireland |
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Willis Group Holdings Public Limited Company, a company
organized under the laws of Ireland. |
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INFORMATION
CONCERNING 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 the potential benefits of the
redomicile to Ireland, the HRH acquisition or the Gras Savoye
transaction, our outlook, future capital expenditures, growth in
commissions and fees, business strategies, competitive
strengths, goals, the benefits of new initiatives, growth of our
business and operations, plans and references to future
successes are forward-looking statements. Also, when we use the
words such as anticipate, believe,
estimate, expect, intend,
plan, probably, or similar expressions,
we are making forward-looking statements.
There are important 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:
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the impact of any regional, national or global political,
economic, business, competitive, market and regulatory
conditions on our global business operations;
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the impact of current financial market conditions on our results
of operations and financial condition, including as a result of
any insolvencies of or other difficulties experienced by our
clients, insurance companies or financial institutions;
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our ability to continue to manage our significant indebtedness;
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our ability to compete effectively in our industry;
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our ability to implement or realize anticipated benefits of our
Shaping Our Future, Right Sizing Willis initiatives or any other
new initiatives;
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material changes in commercial property and casualty markets
generally or the availability of insurance products or changes
in premiums
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resulting from a catastrophic event, such as a hurricane, or
otherwise;
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the volatility or declines in other insurance markets and
premiums on which our commissions are based, but which we do not
control;
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our ability to retain key employees and clients and attract new
business;
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the timing or ability to carry out share repurchases or take
other steps to manage our capital and the limitations in our
long-term debt agreements that may restrict our ability to take
these actions;
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any fluctuations in exchange and interest rates that could
affect expenses and revenue;
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rating agency actions that could inhibit ability to borrow funds
or the pricing thereof;
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a significant decline in the value of investments that fund our
pension plans or changes in our pension plan funding obligations;
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our ability to achieve the expected strategic benefits of
transactions, such as the Gras Savoye transaction or HRH
acquisition;
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changes in the tax or accounting treatment of our operations;
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the potential costs and difficulties in complying with a wide
variety of foreign laws and regulations and any related changes,
given the global scope of our operations;
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our involvements in and the results of any regulatory
investigations, legal proceedings and other contingencies;
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our exposure to potential liabilities arising from errors and
omissions and other potential claims against us; and
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the interruption or loss of our information processing systems
or failure to maintain secure information systems.
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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.
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
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assumptions, could themselves prove to be inaccurate. In light
of 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. In light of 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
History
and Development of the Company
Willis Group Holdings is the ultimate holding company for the
Group. We trace our history to 1828 and are one of the largest
insurance brokers in the world.
Willis Group Holdings was incorporated in Ireland on
September 24, 2009 to facilitate the change of the place of
incorporation of the parent company of the Group from Bermuda to
Ireland (the Redomicile). At the Effective Time the
common shares of Willis-Bermuda were canceled, the
Willis-Bermuda common shareholders received, on a one-for-one
basis, new ordinary shares of Willis Group Holdings, and Willis
Group Holdings became the ultimate parent company for the Group.
For administrative convenience, we utilize the offices of a
subsidiary company as our principal executive offices. The
address is:
Willis Group Holdings Public Limited Company
c/o Willis
Group Limited
The Willis Building
51 Lime Street
London EC3M 7DQ
England
Tel: +44 203 124 6000
For several years, we have focused on our core retail and
specialist broking operations. In 2008, we acquired HRH, at the
time the eighth largest insurance and risk management
intermediary in the United States. The acquisition almost
doubled our North America revenues and created critical mass in
key markets including California, Florida, Texas, Illinois, New
York, Boston, New Jersey and Philadelphia. In addition, we have
made a number of smaller acquisitions around the world and
increased our ownership in several of our associates and
existing subsidiaries, which were not wholly-owned, where doing
so strengthened our retail network and our specialty businesses.
Available
Information
The Company files annual, quarterly and current reports, proxy
statements and other information with the Securities and
Exchange Commission (the SEC). You may read and copy
any documents we file at the SECs Public Reference Room at
100 F Street, NE Washington, DC 20549. Please call the
SEC at
1-800-SEC-0330
for information on the Public Reference Room. The SEC maintains
a website that contains annual, quarterly and current reports,
proxy statements and other information that issuers (including
Willis Group Holdings) file electronically with the SEC. The
SECs website is www.sec.gov.
The Company makes available, free of charge through our website,
www.willis.com, our annual report on
Form 10-K,
our quarterly reports on
Form 10-Q,
our proxy statement, current reports on
Form 8-K
and Forms 3, 4, and 5 filed on behalf of directors and
executive officers, as well as any amendments to those reports
filed or furnished pursuant to the Securities Exchange Act of
1934 (the Exchange Act) as soon as reasonably
practicable after such material is electronically filed with, or
furnished to, the SEC. Unless specifically incorporated by
reference, information on our website is not a part of this
Form 10-K.
The Companys Corporate Governance Guidelines, Audit
Committee Charter, Compensation Committee Charter and Corporate
Governance and Nominating Committee Charter are available on our
website, www.willis.com, in the Investor Relations-Corporate
Governance section, or upon request. Requests for copies of
these documents should be directed in writing to the Company
Secretary
c/o Office
of General Counsel, Willis Group Holdings Public Limited
Company, One World Financial, 200 Liberty Street, New York, NY
10281.
General
We provide a broad range of insurance brokerage, reinsurance and
risk management consulting services to our clients worldwide. We
have significant market positions in the United States, in the
United Kingdom and, directly and through our associates, in many
other countries. We are a recognized leader in providing
specialized risk management advisory and other services on a
global basis to clients in various industries including
aerospace, marine, construction and energy.
In our capacity as an advisor and insurance broker, we act as an
intermediary between our clients and insurance carriers by
advising our clients on their
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risk management requirements, helping clients determine the best
means of managing risk, and negotiating and placing insurance
risk with insurance carriers through our global distribution
network.
We assist clients in the assessment of their risks, advise on
the best ways of transferring suitable risk to the global
insurance and reinsurance markets and then execute the
transactions at the most appropriate available price, terms and
conditions for our clients. Our global distribution network
enables us to place the risk in the most appropriate insurance
or reinsurance market worldwide.
We also offer clients a broad range of services to help them to
identify and control their risks. These services range from
strategic risk consulting (including providing actuarial
analyses), to a variety of due diligence services, to the
provision of practical
on-site risk
control services (such as health and safety or property loss
control consulting) as well as analytical and advisory services
(such as hazard modeling and reinsurance optimization studies).
We assist clients in planning how to manage incidents or crises
when they occur. These services include contingency planning,
security audits and product tampering plans. We are not an
insurance company and therefore we do not underwrite insurable
risks for our own account.
We and our associates serve a diverse base of clients located in
approximately 190 countries. These clients include major
multinational and middle-market companies in a variety of
industries, as well as public institutions and individual
clients. Many of our client relationships span decades.
Including our associates, we have approximately
20,000 employees around the world and a network of about
400 offices in some 100 countries.
We believe we are one of only a few insurance brokers in the
world possessing the global operating presence, broad product
expertise and extensive distribution network necessary to meet
effectively the global risk management needs of many of our
clients.
Business
Strategy Shaping Our Future
Our Shaping Our Future Strategy is our commitment to:
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segment clients and deliver service consistent with their needs
and target high growth businesses and geographies;
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drive profitable growth through providing our clients with value
and service above that provided by our competitors;
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use our global scale to manage carrier relationships in the best
interest of the clients and to deliver product innovation;
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aim to deliver service to clients efficiently by streamlining
our organization and utilizing industry leading technology. We
aim to create the optimal platform by enhancing our service
model, processes and technology; and
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become the employer of choice by creating a clear path of career
development for our people and a reward and recognition
framework that recognizes team work.
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Our
Business
Insurance and reinsurance is a global business, and its
participants are affected by global trends in capacity and
pricing. Accordingly, we operate as one global business which
ensures all clients interests are handled efficiently and
comprehensively, whatever their initial point of contact. We
organize our business into three segments: North America and
International, which together comprise our principal retail
operations, and Global. For information regarding revenues,
operating income and total assets per segment, see Note 23
of the Consolidated Financial Statements contained herein.
Global
Our Global business provides specialist brokerage and consulting
services to clients worldwide for the risks arising from
specific industrial and commercial activities. In these
operations, we have extensive specialized experience handling
diverse lines of coverage, including complex insurance programs,
and acting as an intermediary between retail brokers and
insurers. We increasingly provide consulting services on risk
management with the objective of assisting clients to reduce the
overall cost of risk. Our Global business serves clients in
around 190 countries, primarily from offices in the United
Kingdom, although we also serve clients from offices in the
United States, Continental Europe and Asia.
The Global business is divided into:
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Willis Re; and
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Faber & Dumas.
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Global
Specialties
Global Specialties has strong global positions in Aerospace,
Energy, Marine, Construction, Financial and Executive Risks and
several niche businesses.
We are highly experienced in the provision of insurance and
reinsurance brokerage and risk management services to Aerospace
clients worldwide, including aircraft manufacturers, air cargo
handlers and shippers, airport managers and other general
aviation companies. Advisory services provided by Aerospace
include claims recovery, contract and leasing risk management,
safety services and market information. Aerospaces clients
include approximately 35 percent of the worlds
airlines. The specialist Inspace division is also prominent in
supplying the space industry through providing insurance and
risk management services to approximately 40 companies.
Our Energy practice provides insurance brokerage services
including property damage, offshore construction, liability and
control of well and pollution insurance to the energy industry.
The Energy practice clients are worldwide. We are highly
experienced in providing insurance brokerage for all aspects of
the energy industry including exploration and production,
refining and marketing, offshore construction and pipelines.
Our Marine unit provides marine insurance and reinsurance
brokerage services, including hull, cargo and general marine
liabilities. Marines clients include ship owners, ship
builders, logistics operators, port authorities, traders and
shippers, other insurance intermediaries and insurance
companies. Marine insurance brokerage is our oldest line of
business dating back to our establishment in 1828.
Our Construction practice provides risk management advice and
brokerage services for a wide range of UK and international
construction activities. The clients of the Construction
practice include contractors, project owners, project managers,
project financiers, professional
consultants and insurers. We are the broker for many of the
leading global construction firms.
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Financial and Executive Risks
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Our Financial and Executive Risks unit specializes in broking
directors and officers insurance as well as
professional indemnity insurance for corporations and
professional firms. It incorporates our political risk unit, as
well as structured finance and credit teams. It also places
structured crime and specialist liability insurance for clients
across the broad spectrum of financial institutions as well as
specializing in strategic risk assessment and transactional risk
transfer solutions.
Willis
Re
We are one of the worlds largest intermediaries for
reinsurance and have a significant market share in the
worlds major markets, particularly marine and aviation. We
operate this business on a global basis and our clients are both
insurance and reinsurance companies.
We provide a complete range of transactional capabilities,
including, in conjunction with Willis Capital Market and
Advisory Services, risk transfer via the capital markets, as
well as analytical and advisory services including enterprise
risk management, hazard modeling, financial and balance sheet
analysis and reinsurance optimization studies.
Faber &
Dumas
Faber & Dumas, our wholesale brokerage division, was
launched in October 2008 on completion of Willis
acquisition of HRH. Faber & Dumas comprises HRHs
London-based operation Glencairn, together with our Fine Art,
Jewelry and Specie, Special Contingency Risk and Hughes-Gibb
units.
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Glencairn principally provides property, energy, casualty and
personal accident insurance to independent wholesaler brokers
worldwide who wish to access the London, European and Bermudan
markets.
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The Fine Art, Jewelry and Specie unit provides specialist risk
management and insurance services to fine art, diamond and
jewelry businesses and operators of armored cars. Coverage is
also obtained for vault and bullion risks.
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The Special Contingency Risks unit specializes in producing
packages to protect corporations, groups and individuals against
special contingencies such as kidnap and ransom, extortion,
detention and political repatriation.
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The Hughes-Gibb unit principally services the insurance and
reinsurance needs of the horse racing and horse breeding
industry.
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Retail
operations
Our North America and International retail operations provide
services to small, medium and major corporate clients, accessing
Globals specialist expertise when required.
North
America
Our North America business provides risk management, insurance
brokerage, related risk services, and employee benefits
brokerage and consulting to a wide array of industry and client
segments in the United States and Canada. With around 120
locations, organized into seven regions including Canada, Willis
North America locally delivers our global and national resources
and specialist expertise through this retail distribution
network.
In addition to being organized geographically and by specialty,
our North America business focuses on four client segments:
global, large national/middle-market, small commercial, and
private client, with service, marketing and sales platform
support for each segment.
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North America Construction
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The largest industry practice group in North America is
Construction, which specializes in providing risk management,
insurance brokerage, and surety bonding services to the
construction industry. Willis Construction provides these
services to around 25 percent of the Engineering News
Record Top 400 contractors (a listing of the largest 400
North American contractors based on revenue). In addition, this
practice group has expertise in owner controlled insurance
programs for large projects and insurance for national
homebuilders.
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Other industry practice groups
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Other industry practice groups include Healthcare, serving the
professional liability and other insurance and risk management
needs of private and not-for-profit health systems, hospitals
and
physicians groups; Financial Institutions, serving the needs of
large banks, insurers and other financial services firms; and
Mergers & Acquisitions, providing due diligence, and
risk management and insurance brokerage services to private
equity and merchant banking firms and their portfolio companies.
Willis Employee Benefits, fully integrated into the North
America platform, is our largest product-based practice group
and provides health, welfare and human resources consulting, and
brokerage services to all of our commercial client segments.
This practice groups value lies in helping clients control
employee benefit plan costs, reducing the amount of time human
resources professionals spend administering their
companies benefit plans and educating and training
employees on benefit plan issues.
Another industry-leading North America practice group is Willis
Executive Risks, a national team of technical professionals who
specialize in meeting the directors and officers, employment
practices, fiduciary liability insurance risk management, and
claims advocacy needs of public and private corporations and
organizations. This practice group also has expertise in
professional liability, especially internet risks.
The Captive, Actuarial, Programs, Pooling and Practices
Solutions (CAPPPS) group has a network of actuaries, certified
public accountants, financial analysts and pooled insurance
program experts who assist clients in developing, implementing
and managing alternative risks financing vehicles. The program
business is a leader in providing national insurance programs to
niche industries including ski resorts, auto dealers, recycling,
environmental, and specialty workers compensation.
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Willis Capital Markets and Advisory Services
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Willis Capital Markets and Advisory Services was established in
2009 to provide advice to insurance and reinsurance companies on
a broad array of capital markets products and mergers and
acquisitions.
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International
Our International business unit comprises our operations in
Eastern and Western Europe, the United Kingdom and Ireland,
Asia-Pacific, Russia, the Middle East, South Africa and Latin
America.
Our offices provide services to businesses locally in over 100
countries around the world, making use of skills, industry
knowledge and expertise available elsewhere in the Group.
The services provided are focused according to the
characteristics of each market and vary across offices, but
generally include direct risk management and insurance
brokerage, specialist and reinsurance brokerage and employee
benefits consulting.
We target large accounts and middle market clients. Recent
global market conditions have resulted in excellent
opportunities to recruit talented teams and individuals from the
competition with new and complementary skills and relationships.
Our Shaping Our Future initiative is delivering a range of
efficiency and growth focused actions aimed at being the leading
broker for customer service and providing a platform for
sustainable and market leading growth. This includes the
implementation of new client administration technology.
We believe the combined total revenues of our International
subsidiaries and associates provide an indication of the spread
and capability of our International network. The team generated
over 30 percent of the Groups total consolidated
commissions and fees in 2009.
We have identified high growth markets across all International
practice areas. These encompass the fast-developing, high growth
regions of Eastern Europe, Russia, Asia (excluding Japan), the
Middle East and South Africa. We bring particular capabilities
and scale in energy, construction, marine and aerospace to these
regions.
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Global Markets International
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Global Markets International work closely with our Global
business segment to further develop access for our retail
clients to global markets, and provide structuring and placing
skills in the relevant areas of property, casualty, terrorism,
accident & health, facultative and captives.
As part of our on-going strategy, we look for opportunities to
strengthen our International market share through acquisitions
and strategic investments. We have acquired a controlling
interest in a broad geographic spread of other
brokers a list of the significant International
subsidiaries is included in Exhibit 21.1 to this document.
We have also invested in associate companies; our significant
associates at December 31, 2009 were GS & Cie
Groupe (Gras Savoye), France (31 percent
holding) and Al-Futtaim Willis Co. LLC, Dubai (49 percent
holding). In connection with many of our investments we retain
the right to increase our ownership over time, typically to a
majority or 100 percent ownership position. In addition, in
certain instances our co-shareholders have a right, typically
based on some price formula of revenues or earnings, to put some
or all of their shares to us. On December 17, 2009 as part
of a reorganization of the share capital of Gras Savoye our
interest in that company reduced from 48 percent to
31 percent. In addition, we have the option to acquire a
100 percent interest in the capital of Gras Savoye in 2015.
For further information on the Gras Savoye capital
reorganization see Item 8 Financial
Statements and Supplementary Data
Note 15 Investments in Associates.
Customers
Our clients operate on a global and local scale in a multitude
of businesses and industries throughout the world and generally
range in size from major multinational corporations to
middle-market companies. Further, many of our client
relationships span decades, for instance our relationship with
The Tokio Marine and Fire Insurance Company Limited dates back
over 100 years. No one client accounted for more than
10 percent of revenues for fiscal year 2009. Additionally,
we place insurance with over 5,000 insurance carriers, none of
which individually accounted for more than 10 percent of
the total premiums we placed on behalf of our clients in 2009.
Competition
We face competition in all fields in which we operate based on
global capability, product breadth, innovation, quality of
service and price. According to the Directory of Agents and
Brokers published by Business Insurance in July 2009, the 150
largest
10
commercial insurance brokers globally reported brokerage
revenues totaling $40 billion in 2008, of which
Marsh & McLennan Companies Inc. had approximately
29 percent, Aon Corporation had approximately
18 percent and Willis had approximately 8 percent.
We compete with Marsh & McLennan and Aon as well as
with numerous specialist, regional and local firms.
Insurance companies also compete with brokers by directly
soliciting insureds without the assistance of an independent
broker or agent.
Competition for business is intense in all our business lines
and in every insurance market. Competition on premium rates has
also exacerbated the pressures caused by a continuing reduction
in demand in some classes of business. For example, rather than
purchase additional insurance through brokers, many insureds
have been retaining a greater proportion of their risk
portfolios than previously. Industrial and commercial companies
are increasingly relying upon captive insurance companies,
self-insurance pools, risk retention groups, mutual insurance
companies and other mechanisms for funding their risks, rather
than buying insurance.
Additional competitive pressures arise from the entry of new
market participants, such as banks, accounting firms and
insurance carriers themselves, offering risk management or
transfer services.
In 2005, we, along with Marsh & McLennan and Aon, agreed to
implement certain business reforms which included codification
of our voluntary termination of contingent commission
arrangements with insurers. However, most other special,
regional and local insurance brokers continued to accept
contingent compensation and did not disclose the compensation
received in connection with providing policy placement services
to its customers. In February 2010, we entered into the Amended
and Restated Assurance of Discontinuance with the Attorney
General of the State of New York and the Amended and Restated
Stipulation with the Superintendent of Insurance of the State of
New York which ended many of the requirements previously imposed
upon us. The new agreement no longer limits the type of
compensation we can receive and lowers the compensation
disclosure requirements we must make to our clients.
Our position is to refuse to accept contingent commissions from
carriers in our retail brokerage business. We seek to increase
revenue through higher commissions and fees that we disclose to
our clients, and to generate profitable revenue growth by
focusing on the provision of value-added risk advisory services
beyond traditional brokerage activities. Although we continue to
believe in the success of our strategy, we cannot be certain
that such steps will help us to continue to generate profitable
organic revenue growth.
Regulation
Our business activities are subject to legal requirements and
governmental and quasi-governmental regulatory supervision in
virtually all countries in which we operate. Also, such
regulations may require individual or company licensing to
conduct our business activities. While these requirements may
vary from location to location they are generally designed to
protect our clients by establishing minimum standards of conduct
and practice, particularly regarding the provision of advice and
product information as well as financial criteria.
United
States
Our activities in connection with insurance brokerage services
within the United States are subject to regulation and
supervision by state authorities. Although the scope of
regulation and form of supervision may vary from jurisdiction to
jurisdiction, insurance laws in the United States are often
complex and generally grant broad discretion to supervisory
authorities in adopting regulations and supervising regulated
activities. That supervision generally includes the licensing of
insurance brokers and agents and the regulation of the handling
and investment of client funds held in a fiduciary capacity. Our
continuing ability to provide insurance brokerage in the
jurisdictions in which we currently operate is dependent upon
our compliance with the rules and regulations promulgated from
time to time by the regulatory authorities in each of these
jurisdictions.
European
Union
The European Union Insurance Mediation Directive introduced
rules to enable insurance and reinsurance intermediaries to
operate and provide services within each member state of the EU
on a basis
11
consistent with the EU single market and customer protection
aims. Each EU member state in which we operate is required to
ensure that the insurance and reinsurance intermediaries
resident in their country are registered with a statutory body
in that country and that each intermediary meets professional
requirements in relation to their competence, good repute,
professional indemnity cover and financial capacity.
United
Kingdom
In the United Kingdom, the statutory body is the Financial
Services Authority (FSA). The FSA has prescribed the
methods by which our insurance and reinsurance operations are to
conduct business, and has a wide range of rule-making,
investigatory and enforcement powers aimed at meeting its
overall aim of promoting efficient, orderly and fair markets and
helping retail consumers achieve a fair deal. The FSA conducts
monitoring visits to assess our compliance with regulatory
requirements.
Certain of our activities are governed by other regulatory
bodies, such as investment and securities licensing authorities.
In the United States, Willis Capital Markets operates through
our wholly-owned subsidiary Willis Securities, Inc., a
US-registered
broker-dealer and investment advisor, member FINRA/SIPC,
primarily in connection with investment banking-related services
and advising on alternative risk financing transactions. Willis
Capital Markets provides advice on securities or investments in
the EU through our wholly-owned
subsidiary Willis Structured Financial Solutions Limited, which
is authorized and regulated by the FSA.
Our failure, or that of our employees, to satisfy the regulators
that we are in compliance with their requirements or the legal
requirements governing our activities, can result in
disciplinary action, fines, reputational damage and financial
harm.
All companies carrying on similar activities in a given
jurisdiction are subject to regulations which are not dissimilar
to the requirements for our operations in the United States and
United Kingdom. We do not consider that these regulatory
requirements adversely affect our competitive position.
See Part I, Item 1A Risk Factors
Legal and Regulatory Risks for discussion of how
actions by regulatory authorities or changes in legislation and
regulation in the jurisdictions in which we operate may have an
adverse effect on our business.
Employees
As of December 31, 2009 we had approximately
17,000 employees worldwide of whom approximately 3,500 were
employed in the United Kingdom and 6,700 in the United States,
with the balance being employed across the rest of the world. In
addition, our associates had approximately 3,200 employees,
all of whom were located outside the United Kingdom and the
United States.
12
Risks
Relating to our Business and the Insurance Industry
This section describes material risks affecting the Groups
business. These risks could materially affect the Groups
business, its revenues, operating income, net income, net
assets, liquidity and capital resources and ability to achieve
its financial targets and, accordingly should be read in
conjunction with any forward-looking statements in this Annual
Report on
Form 10-K.
Competitive
Risks
Worldwide economic conditions could have an adverse effect on
our business.
Our business and operating results are materially affected by
worldwide economic conditions. Current global economic
conditions coupled with declining customer and business
confidence, increasing energy prices, and other challenges, may
have a significant negative impact on the buying behavior of
some of our clients as their businesses suffer from these
conditions. In particular, financial institutions, construction,
aviation, and logistics businesses such as marine cargo are most
likely to be affected. Further, the global economic downturn is
also negatively affecting some of the international economies
that have supported the strong growth in our International
operations. Our employee benefits practice may also be adversely
affected as businesses continue to downsize during this period
of economic turmoil. In addition, a growing number of
insolvencies associated with an economic downturn, especially
insolvencies in the insurance industry, could adversely affect
our brokerage business through the loss of clients or by
hampering our ability to place insurance and reinsurance
business. While it is difficult to predict consequences of any
further deterioration in global economic conditions on our
business, any significant reduction or delay by our clients in
purchasing insurance or making payment of premiums could have a
material adverse impact on our financial condition and results
of operations.
The potential for a significant insurer to fail or withdraw from
writing certain lines of insurance coverages that we offer our
clients could negatively impact overall capacity in the
industry, which could then reduce the placement of certain lines
and types of insurance and reduce our revenues and
profitability. The potential for an insurer to fail could also
result in errors and omissions claims by clients.
Since 2008, we have launched certain initiatives, such as Right
Sizing Willis and Shaping Our Future, to achieve cost-savings or
fund our future growth plans. In light of the global economic
uncertainty, we continue to vigorously manage our cost base in
order to fund further growth initiatives, but we cannot be
certain whether we will be able to realize any further benefits
from these initiatives or any new initiatives that we may
implement.
We do not control the premiums on which our commissions are
based, and volatility or declines in premiums may seriously
undermine our profitability.
We derive most of our revenues from commissions and fees for
brokerage and consulting services. We do not determine insurance
premiums on which our commissions are generally based. Premiums
are cyclical in nature and may vary widely based on market
conditions. From the late 1980s through late 2000, insurance
premium rates generally declined as a result of a number of
factors, including the expanded underwriting capacity of
insurance carriers; consolidation of both insurance
intermediaries and insurance carriers; and increased competition
among insurance carriers. From 2000 to 2003, we benefitted from
a hard market with premium rates stable or
increasing. During 2004, we saw a rapid transition from a hard
market, with premium rates stable or increasing, to a
soft market, with premium rates falling in most
markets. The soft market continued to have an adverse impact on
our commission revenues and operating margin from 2005 through
2008. Rates continued to decline in most sectors through 2005
and 2006, with the exception of catastrophe-exposed markets. In
2007, the market softened further with decreases in many of the
market sectors in which we operated and this continued into 2008
with further premium rate declines averaging 10 percent
across our market sectors. In 2009, the benefit of rate
increases in the reinsurance market and stabilization in some
specialty markets was offset by the continuing soft market in
other sectors and the adverse impact of the weakened economic
environment across the globe. Our North America and UK and Irish
retail operations have been particularly impacted by the
13
weakened economic climate and continued soft market with no
material improvement in rates across most sectors. This has
resulted in declines in 2009 revenues in these operations,
particularly amongst our smaller clients who are especially
vulnerable to the economic downturn.
In addition, as traditional risk-bearing insurance carriers
continue to outsource the production of premium revenue to
non-affiliated agents or brokers such as ourselves, those
insurance carriers may seek to reduce further their expenses by
reducing the commission rates payable to those insurance agents
or brokers. The reduction of these commission rates, along with
general volatility
and/or
declines in premiums, may significantly undermine our
profitability.
Competition in our industry is intense, and if we are unable
to compete effectively, we may suffer lower revenue, reduced
operating margins and lose market share which could materially
and adversely affect our business.
We face competition in all fields in which we operate, based on
global capability, product breadth, innovation, quality of
service and price. We compete with Marsh & McLennan
and Aon, the two other providers of global risk management
services, as well as with numerous specialist, regional and
local firms. Competition for business is intense in all our
business lines and in every insurance market, and the other two
providers of global risk management services have substantially
greater market share than we do. Competition on premium rates
has also exacerbated the pressures caused by a continuing
reduction in demand in some classes of business. For example,
rather than purchase additional insurance through brokers, many
insureds have been retaining a greater proportion of their risk
portfolios than previously. Industrial and commercial companies
have been increasingly relying upon their own subsidiary
insurance companies, known as captive insurance companies,
self-insurance pools, risk retention groups, mutual insurance
companies and other mechanisms for funding their risks, rather
than buying insurance. Additional competitive pressures arise
from the entry of new market participants, such as banks,
accounting firms and insurance carriers themselves, offering
risk management or transfer services.
In 2005, we, along with Marsh McLennan and Aon, agreed to
implement certain business reforms which included codification
of our voluntary termination
of contingent commission arrangements with insurers. However,
most other special, regional and local insurance brokers
continued to accept contingent compensation and did not disclose
the compensation received in connection with providing policy
placement services to its customers. In February 2010, we
entered into the Amended and Restated Assurance of
Discontinuance with the Attorney General of the State of New
York and the Amended and Restated Stipulation with the
Superintendent of Insurance of the State of New York which ended
many of the requirements previously imposed upon us. The new
agreement no longer limits the type of compensation we will
receive and lowers the compensation disclosure requirements we
must make to our clients.
Our position is to refuse to accept contingent commissions from
carriers in our retail brokerage business. We seek to increase
revenue through higher commissions and fees that we disclose to
our clients, and to generate profitable revenue growth by
focusing on the provision of value-added risk advisory services
beyond traditional brokerage activities. Although we continue to
believe in the success of our strategy, we cannot be certain
that such steps will help us to continue to generate profitable
organic revenue growth. If we are unable to compete effectively
against our competitors who are or may accept contingent
commissions, we may suffer lower revenue, reduced operating
margins and loss of market share which could materially and
adversely affect our business.
Dependence on Key Personnel The loss of our
Chairman and Chief Executive Officer or a number of our senior
management or a significant number of our brokers could
significantly impede our financial plans, growth, marketing and
other objectives.
The loss of our Chairman and Chief Executive Officer or a number
of our senior management or a significant number of our brokers
could significantly impede our financial plans, growth,
marketing and other objectives. Our success depends to a
substantial extent not only on the ability and experience of our
Chairman and Chief Executive Officer, Joseph J. Plumeri and
other members of our senior management, but also on the
individual brokers and teams that service our clients and
maintain client relationships. The insurance and reinsurance
brokerage industry has in the past experienced intense
competition for the services of
14
leading individual brokers and brokerage teams, and we have lost
key individuals and teams to competitors. We believe that our
future success will depend in part on our ability to attract and
retain additional highly skilled and qualified personnel and to
expand, train and manage our employee base. We may not continue
to be successful in doing so because the competition for
qualified personnel in our industry is intense.
Legal
and Regulatory Risks
Our compliance systems and controls cannot guarantee that we
are in compliance with all potentially applicable federal and
state or foreign laws and regulations, and actions by regulatory
authorities or changes in legislation and regulation in the
jurisdictions in which we operate may have an adverse effect on
our business.
Our activities are subject to extensive regulation under the
laws of the United States, the United Kingdom and the European
Union and its member states, and the other jurisdictions in
which we operate. Compliance with laws and regulations that are
applicable to our operations is complex and may increase our
cost of doing business. These laws and regulations include
insurance industry regulations, economic and trade sanctions and
laws against financial crimes such as money laundering, bribery
or other corruption, such as the U.S. Foreign Corrupt
Practices Act. In most jurisdictions, governmental and
regulatory authorities have the authority to interpret or amend
these laws and regulations and could impose penalties for
non-compliance, including sanctions or civil remedies, fines,
injunctions, loss of an operating license or approval, the
suspension of individual employees, limitations on engaging in a
particular business or redress to clients.
Given the increase in focus and developments in these laws over
the last few years in general, and the interest expressed by UK
and US regulators in the effectiveness of compliance controls
relating to financial crime in our market sector in particular,
we began a voluntary internal review of our policies and
controls three years ago. This ongoing review includes analysis
and advice from external experts on best practices, review of
public regulatory decisions, and ongoing discussions with
government regulators in the UK and US. We believe our
compliance policies, controls and programs are
effective and we make all reasonable efforts to comply with all
applicable laws and regulations, but given the complex nature of
these laws and regulations, we cannot assure the complete
adequacy of our policies and controls or that at all times we
have been or are in compliance with all applicable laws and
regulations or interpretations of these laws and regulations.
The cost of compliance or the consequences of non-compliance
could adversely affect our business and results of operations
and expose us to negative publicity, reputational damage or harm
to our client or employee relationships.
Our business, results of operations, financial condition or
liquidity may be materially adversely affected by actual and
potential claims, lawsuits, investigations and proceedings.
We are subject to various actual and potential claims, lawsuits,
investigations and other proceedings relating principally to
alleged errors and omissions in connection with the placement of
insurance and reinsurance in the ordinary course of business.
Because we often assist our clients with matters, including the
placement of insurance coverage and the handling of related
claims, involving substantial amounts of money, errors and
omissions claims against us may arise which allege our potential
liability for all or part of the amounts in question. Claimants
can seek large damage awards and these claims can involve
potentially significant defense costs. Such claims, lawsuits and
other proceedings could, for example, include allegations of
damages for our employees or sub-agents improperly failing to
place coverage or notify claims on behalf of clients, to provide
insurance carriers with complete and accurate information
relating to the risks being insured or to appropriately apply
funds that we hold for our clients on a fiduciary basis. Errors
and omissions claims, lawsuits and other proceedings arising in
the ordinary course of business are covered in part by
professional indemnity or other appropriate insurance. The terms
of this insurance vary by policy year and self-insured risks
have increased significantly in recent years. In respect of
self-insured risks, we have established provisions against these
items which we believe to be adequate in the light of current
information and legal advice, and we adjust such provisions from
time to time according to developments. Our business, results of
operations, financial condition and liquidity may be
15
adversely affected if in the future our insurance coverage
proves to be inadequate or unavailable or there is an increase
in liabilities for which we self-insure. Our ability to obtain
professional indemnity insurance in the amounts and with the
deductibles we desire in the future may be adversely impacted by
general developments in the market for such insurance or our own
claims experience.
We are also subject to actual and potential claims, lawsuits,
investigations and proceedings outside of errors and omissions
claims. The material actual or potential claims, lawsuits and
proceedings to which we are currently subject, including but not
limited to errors and omissions claims, are: (1) legal
proceedings and investigations relating to contingent commission
arrangements, bid rigging and tying;
(2) potential claims arising out of various legal
proceedings between reinsurers, reinsureds and their reinsurance
brokers relating to personal accident excess of loss reinsurance
placements for the years 1993 to 1998; (3) potential
damages arising out of a court action, on behalf of a purported
class of present and former female officer and officer
equivalent employees for alleged discrimination against them on
the basis of their gender; (4) claims with respect to our
placement of property and casualty insurance for a number of
entities which were directly impacted by the September 11,
2001 destruction of New Yorks World Trade Center complex;
and (5) claims relating to the collapse of The Stanford
Financial Group, for which we acted as brokers of record on
certain lines of insurance.
The ultimate outcome of all matters referred to above cannot be
ascertained and liabilities in indeterminate amounts may be
imposed on us. It is thus possible that future results of
operations or cash flows for any particular quarterly or annual
period could be materially affected by an unfavorable resolution
of these matters. In addition, these matters continue to divert
management and personnel resources away from operating our
business. Even if we do not experience significant monetary
costs, there may also be adverse publicity associated with these
matters that could result in reputational harm to the insurance
brokerage industry in general or to us in particular that may
adversely affect our business, client or employee relationships.
Interruption to or loss of our information processing
capabilities or failure to effectively maintain and upgrade our
information processing systems could cause material financial
loss, loss of human resources, regulatory actions, reputational
harm or legal liability.
Our business depends significantly on effective information
systems. Our capacity to service our clients relies on
effective storage, retrieval, processing and management of
information. Our information systems also rely on the commitment
of significant resources to maintain and enhance existing
systems and to develop new systems in order to keep pace with
continuing changes in information processing technology or
evolving industry and regulatory standards. The acquisition of
HRH and additional information systems has added to this
exposure. If the information we rely on to run our business
were found to be inaccurate or unreliable or if we fail to
maintain effective and efficient systems (either through a
telecommunications failure, if we fail to replace redundant or
obsolete computer applications or software systems or if we
experience other disruptions), this could result in material
financial loss, regulatory action, reputational harm or legal
liability.
Our inability to successfully recover should we experience a
disaster or other significant disruption to business continuity
could have a material adverse effect on our operations.
Our ability to conduct business may be adversely affected, even
in the short-term, by a disruption in the infrastructure that
supports our business and the communities where we are located.
This may include a disruption caused by restricted physical site
access, terrorist activities, disease pandemics, or outages to
electrical, communications or other services used by our
company, our employees or third parties with whom we conduct
business. Although we have certain disaster recovery procedures
in place and insurance to protect against such contingencies,
such procedures may not be effective and any insurance or
recovery procedures may not continue to be available at
reasonable prices and may not address all such losses or
compensate us for the possible loss of clients occurring during
any period that we are unable to provide services. Our
inability to successfully recover should we experience a
disaster or other
16
significant disruption to business continuity could have a
material adverse effect on our operations.
Improper disclosure of personal data could result in legal
liability or harm our reputation.
One of our significant responsibilities is to maintain the
security and privacy of our clients confidential and
proprietary information and the personal data of their
employees. We maintain policies, procedures and technological
safeguards designed to protect the security and privacy of this
information in our database. However, we cannot entirely
eliminate the risk of improper access to or disclosure of
personally identifiable information. Our technology may fail to
adequately secure the private information we maintain in our
databases and protect it from theft or inadvertent loss. In such
circumstances, we may be held liable to our clients, which could
result in legal liability or impairment to our reputation
resulting in increased costs or loss of revenue. Further
database privacy, identity theft, and related computer and
internet issues are matters of growing public concern and are
subject to frequently changing rules and regulations. Our
failure to adhere to or successfully implement processes in
response to changing regulatory requirements in this area could
result in legal liability or impairment to our reputation in the
marketplace.
Financial
Risks
We face certain risks associated with any acquisition or
disposition of business or reorganization of existing
investments.
In pursuing our corporate strategy, we may acquire or dispose of
or exit businesses or reorganize existing investments. The
success of this strategy is dependent upon our ability to
identify appropriate opportunities, negotiate transactions on
favorable terms and ultimately complete such transactions. Once
we complete acquisitions or reorganizations, such as the HRH
acquisition or Gras Savoye transaction, there can be no
assurance that we will realize the anticipated benefits of any
transaction, including revenue growth, operational efficiencies
or expected synergies. For example, if we fail to recognize some
or all of the strategic benefits and synergies expected from the
HRH transaction, goodwill and intangible assets may be impaired
in future periods. In addition, we may not be able to integrate
acquisitions successfully into our existing business, and we
could incur or assume unknown or
unanticipated liabilities or contingencies, which may impact our
results of operations. If we dispose of or otherwise exit
certain businesses, there can be no assurance that we will not
incur certain disposition related charges, or that we will be
able to reduce overheads related to the divested assets.
Our outstanding debt could adversely affect our cash flows
and financial flexibility.
As of December 31, 2009, we had total consolidated debt
outstanding of approximately $2.4 billion and our 2009
interest expense of $174 million is $69 million higher
than in 2008. Although management believes that our cash flows
will be more than adequate to service this debt, there may be
circumstances in which required payments of principal
and/or
interest on this debt could adversely affect our cash flows and
this level of indebtedness may:
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require us to dedicate a significant portion of our cash flow
from operations to payments on our debt, thereby reducing the
availability of cash flow to fund capital expenditures, to
pursue other acquisitions or investments in new technologies, to
pay dividends and for general corporate purposes;
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increase our vulnerability to general adverse economic
conditions, including if we borrow at variable interest rates,
which makes us vulnerable to increases in interest rates
generally;
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limit our flexibility in planning for, or reacting to, changes
or challenges relating to our business and industry; and
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put us at a competitive disadvantage against competitors who
have less indebtedness or are in a more favorable position to
access additional capital resources.
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The terms of our current financings also include certain
limitations. For example, the agreements relating to the debt
arrangements and credit facilities contain numerous operating
and financial covenants, including requirements to maintain
minimum ratios of consolidated adjusted EBITDA to consolidated
fixed charges and maximum levels of consolidated funded
indebtedness in relation to consolidated EBITDA, in each case
subject to certain adjustments.
A failure to comply with the restrictions under our credit
facilities and outstanding notes could result in a default under
the financing obligations or could
17
require us to obtain waivers from our lenders for failure to
comply with these restrictions. The occurrence of a default that
remains uncured or the inability to secure a necessary consent
or waiver could cause our obligations with respect to our debt
to be accelerated and have a material adverse effect on our
business, financial condition or results of operations.
Our pension liabilities may increase which could require us
to make additional cash contributions to our pension plans.
We have two principal defined benefit plans: one in the United
Kingdom and the other in the United States. Cash contributions
of approximately $122 million will be required in 2010 for
our pension plans, although we may elect to contribute more.
Total cash contributions to these defined benefit pension plans
in 2009 were $74 million. Future estimates are based on
certain assumptions, including discount rates, interest rates,
fair value of assets and expected return on plan assets.
Following changes to UK pension legislation in 2005, we are now
required to agree to a funding strategy for our UK defined
benefit plan with the plans trustees. In February 2009, we
agreed to make full year contributions to the UK plan of
$40 million for 2009 through 2012, excluding those
contributions made under our salary sacrifice scheme. In
addition, as certain funding targets have not been met at the
beginning of 2010, a further contribution of $40 million is
required for 2010. A similar, additional contribution may also
be required for 2011, depending on actual performance against
funding targets at the beginning of 2011. We have taken actions
to manage our pension liabilities, including closing our UK and
US plans to new participants and restricting final pensionable
salaries.
The determinations of pension expense and pension funding are
based on a variety of rules and regulations. Changes in these
rules and regulations could impact the calculation of pension
plan liabilities and the valuation of pension plan assets. They
may also result in higher pension costs, additional financial
statement disclosure, and accelerate and increase the need to
fully fund our pension plans. Our future required cash
contributions to our US and UK defined benefit pension plans may
increase based on the funding reform provisions that were
enacted into law. Further, a significant decline in the value of
investments that fund our pension plan, if not offset or
mitigated by a decline in our liabilities, may significantly
differ from or alter the values and actuarial assumptions used
to calculate our future pension expense and we could be required
to fund our plan with significant amounts of cash. In addition,
if the US Pension Benefit Guaranty Corporation requires
additional contributions to such plans or if other actuarial
assumptions are modified, our future required cash contributions
could increase. The need to make these cash contributions may
reduce the cash available to meet our other obligations,
including the payment obligations under our credit facilities
and other long-term debt, or to meet the needs of our business.
In addition to the critical assumptions described above, our
plans use certain assumptions about the life expectancy of plan
participants and surviving spouses. Periodic revision of those
assumptions can materially change the present value of future
benefits and therefore the funded status of the plans and the
resulting periodic pension expense. Changes in our pension
benefit obligations and the related net periodic costs or
credits may occur in the future due to any variance of actual
results from our assumptions and changes in the number of
participating employees. As a result, there can be no assurance
that we will not experience future decreases in stockholders
equity, net income, cash flow and liquidity or that we will not
be required to make additional cash contributions in the future
beyond those which have been estimated.
We could incur substantial losses if one of the financial
institutions we use in our operations failed.
The deterioration of the global credit and financial markets has
created challenging conditions for financial institutions,
including depositories. As the fallout from the credit crisis
persists, the financial strength of these institutions may
continue to decline. We maintain cash balances at various US
depository institutions that are significantly in excess of the
US Federal Deposit Insurance Corporation insurance limits. We
also maintain cash balances in foreign financial institutions.
If one or more of the institutions in which we maintain
significant cash balances were to fail, our ability to access
these funds might be temporarily or permanently limited, and we
could face a material liquidity problem and potentially material
financial losses.
18
A downgrade in the credit ratings of our outstanding debt may
adversely affect our borrowing costs and financial
flexibility.
A downgrade in the credit ratings of our debt would increase our
borrowing costs and reduce our financial flexibility. In
addition, certain downgrades would trigger a
step-up in
interest rates under the indenture for our 6.2% senior
notes due 2017 and our 7.0% senior notes due 2019, which
would increase our interest expense. If we need to raise capital
in the future, any credit rating downgrade could negatively
affect our financing costs or access to financing sources.
International
Risks
Our significant non-US operations, particularly our London
market operations, expose us to exchange rate fluctuations and
various risks that could impact our business.
A significant portion of our operations is conducted outside the
United States. Accordingly, we are subject to legal, economic
and market risks associated with operating in foreign countries,
including devaluations and fluctuations in currency exchange
rates; imposition of limitations on conversion of foreign
currencies into pounds sterling or dollars or remittance of
dividends and other payments by foreign subsidiaries;
hyperinflation in certain foreign countries; imposition or
increase of investment and other restrictions by foreign
governments; and the requirement of complying with a wide
variety of foreign laws.
We report our operating results and financial condition in US
dollars. Our US operations earn revenue and incur expenses
primarily in US dollars. In our London market operations,
however, we earn revenue in a number of different currencies,
but expenses are almost entirely incurred in pounds sterling.
Outside the United States and our London market operations, we
predominantly generate revenue and expenses in the local
currency. The table gives an approximate analysis of revenues
and expenses by currency in 2009.
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US
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Pounds
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Other
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Dollars
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Sterling
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Euros
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currencies
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Revenues
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60%
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10%
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14%
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16%
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Expenses
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59%
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20%
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7%
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14%
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Because of devaluations and fluctuations in currency exchange
rates or the imposition of limitations on conversion of foreign
currencies into US dollars, we
are subject to currency translation exposure on the profits of
our operations, in addition to economic exposure. Furthermore,
the mismatch between pounds sterling revenues and expenses,
together with any net sterling balance sheet position we hold in
our US dollar denominated London market operations, creates an
exchange exposure.
For example, as the pound sterling strengthens, the US dollars
required to be translated into pounds sterling to cover the net
sterling expenses increase, which then causes our results to be
negatively impacted. Our results may also be adversely impacted
if we are holding a net sterling position in our US dollar
denominated London market operations: if the pound sterling
weakens any net sterling asset we are holding will be less
valuable when translated into US dollars. Given these
facts, the strength of the pound sterling relative to the
US dollar has in the past had a material negative impact on
our reported results. This risk could have a material adverse
effect on our business financial condition, cash flow and
results of operations in the future.
Where possible, we hedge part of our operating exposure to
exchange rate movements, but such mitigating attempts may not be
successful.
In conducting our businesses around the world, we are subject
to political, economic, legal, market, nationalization,
operational and other risks that are inherent in operating in
many countries.
In conducting our businesses and maintaining and supporting our
global operations, we are subject to political, economic, legal,
market, nationalization, operational and other risks. Our
businesses and operations are increasingly expanding into new
regions throughout the world, including emerging markets, and we
expect this trend to continue. The possible effects of economic
and financial disruptions throughout the world could have an
adverse impact on our businesses. These risks include:
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the general economic and political conditions in foreign
countries, for example, the recent devaluation of the Venezuelan
Bolivar;
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|
the imposition of controls or limitations on the conversion of
foreign currencies or remittance of dividends and other payments
by foreign subsidiaries;
|
19
|
|
|
imposition of withholding and other taxes on remittances and
other payments from subsidiaries;
|
|
|
imposition or increase of investment and other restrictions by
foreign governments;
|
|
|
difficulties in controlling operations and monitoring employees
in geographically dispersed locations; and
|
|
|
the potential costs and difficulties in complying, or monitoring
compliance, with a wide variety of foreign laws (some of which
may conflict with US or other sources of law), laws and
regulations applicable to US business operations abroad,
including rules relating to trade sanctions administered by the
US Office of Foreign Assets Control, the EU, the UK and the
UN, and the requirements of the US Foreign Corrupt
Practices Act as well as other anti-bribery and corruption rules
and requirements in the countries in which we operate.
|
Legislative and regulatory action could materially and
adversely affect us and our effective tax rate may increase.
There is uncertainty regarding the tax policies of the
jurisdictions where we operate (which include the potential
legislative actions described below), and our effective tax rate
may increase and any such increase may be material.
Additionally, the tax laws of Ireland and other jurisdictions
could change in the future, and such changes could cause a
material change in our effective tax rate. For example,
legislative action may be taken by the US Congress which,
if ultimately enacted, could override tax treaties upon which we
rely or could broaden the circumstances under which we would be
considered a US resident, each of which could materially
and adversely affect our effective tax rate and cash tax
position. We cannot predict the outcome of any specific
legislative proposals. However, if proposals were enacted that
had the effect of limiting our ability to take advantage of tax
treaties between Ireland and other jurisdictions (including the
US), we could be subjected to increased taxation. In
addition, any future amendments to the current income tax
treaties between Ireland and other jurisdictions could subject
us to increased taxation.
Irish law differs from the laws in effect in the United
States and may afford less protection to holders of our
securities.
It may not be possible to enforce court judgments obtained in
the United States against us in Ireland based on the civil
liability provisions of the US federal or state securities laws.
In addition, there is some uncertainty as to whether the courts
of Ireland would recognize or enforce judgments of
US courts obtained against us or our directors or officers
based on the civil liabilities provisions of the US federal
or state securities laws or hear actions against us or those
persons based on those laws. We have been advised that the
United States currently does not have a treaty with Ireland
providing for the reciprocal recognition and enforcement of
judgments in civil and commercial matters. Therefore, a final
judgment for the payment of money rendered by any
US federal or state court based on civil liability, whether
or not based solely on US federal or state securities laws,
would not be directly enforceable in Ireland.
As an Irish company, Willis Group Holdings is governed by the
Irish Companies Acts, which differ in some material respects
from laws generally applicable to US corporations and
shareholders, including, among others, differences relating to
interested director and officer transactions and shareholder
lawsuits. Likewise, the duties of directors and officers of an
Irish company generally are owed to the company only.
Shareholders of Irish companies generally do not have a personal
right of action against directors or officers of the company and
may exercise such rights of action on behalf of the Company only
in limited circumstances. Accordingly, holders of Willis Group
Holdings securities may have more difficulty protecting their
interests than would holders of securities of a corporation
incorporated in a jurisdiction of the United States.
|
|
Item 1B
|
Unresolved
Staff Comments
|
The Company had no unresolved comments from the SECs staff.
20
We own and lease a number of properties for use as offices
throughout the world and believe that our properties are
generally suitable and adequate for the purposes for which they
are used. The principal properties are located in the United
Kingdom and the United States. Willis maintains over
4.1 million square feet of space worldwide.
London
In London we occupy a prime site comprising 491,000 square
feet spread over a 28 story tower and adjoining 10 story
building. We have a
25-year
lease on this property, which expires June 2032 and we sub-let
the 10-story adjoining building.
North
America
In North America outside of New York and Chicago, we lease
approximately 2.0 million square feet over 120 locations.
In 2009, we integrated the
HRH branch system and closed or consolidated over 60 branches.
New
York
In New York, we occupy 200,000 square feet of office space
at One World Financial Center under a 20 year lease,
expiring September 2026.
Chicago
As part of the HRH integration, we consolidated five offices in
Chicago into one 140,000 square feet location leased in the
Sears Tower, now renamed the Willis Tower. The lease on this
property expires February 2025.
Rest of
World
Outside of North America and London we lease approximately
1.3 million square feet of office space in over 190
locations.
|
|
Item 3
|
Legal
Proceedings
|
Information regarding legal proceedings is set forth in
Note 18 Commitments and Contingencies to the
Consolidated Financial Statements appearing under Part II,
Item 8 of this report.
|
|
Item 4
|
Submission
of Matters to a Vote of Security Holders
|
On December 11, 2009, Willis-Bermuda held a special
court-ordered meeting of its shareholders to vote:
|
|
1. |
to approve a scheme of arrangement under Bermuda law pursuant to
which shareholders of Willis-Bermuda would own ordinary shares
of Willis-Ireland instead common shares of Willis-Bermuda for
the purpose of changing the place of incorporation of the parent
company of the Group from Bermuda to Ireland; and
|
|
|
2. |
to approve the creation of distributable reserves of
Willis-Ireland (through the reduction of the entire share
premium account of Willis-Ireland or such lesser amount as may
be determined by the board of directors of Willis-Ireland) that
was previously approved by Willis-Bermuda and the other
shareholders of Willis-Ireland.
|
The following is the tabulation of votes for each proposal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposal
|
|
Shares Voted For
|
|
Shares Votes Against
|
|
Shares Abstained
|
|
Broker Non-Votes
|
|
1. Scheme of Arrangement
|
|
|
139,613,834
|
|
|
|
186,194
|
|
|
|
79,940
|
|
|
|
28,459,187
|
|
2. Distributable Reserves
|
|
|
139,616,966
|
|
|
|
184,318
|
|
|
|
78,685
|
|
|
|
28,459,187
|
|
21
PART II
|
|
Item 5
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
Our shares have been traded on the New York Stock Exchange
(NYSE) under the symbol WSH since
June 11, 2001. The high and low sale prices of our shares,
as reported by the NYSE, are set forth below for the periods
indicated, including trading of the common shares of
Willis-Bermuda through December 31, 2009 and trading of the
ordinary shares of Willis Group Holdings after that date.
|
|
|
|
|
|
|
|
|
|
|
Price Range
|
|
|
|
of Shares
|
|
|
|
High
|
|
|
Low
|
|
|
2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
37.97
|
|
|
$
|
30.40
|
|
Second Quarter
|
|
$
|
37.35
|
|
|
$
|
31.33
|
|
Third Quarter
|
|
$
|
35.21
|
|
|
$
|
29.76
|
|
Fourth Quarter
|
|
$
|
33.59
|
|
|
$
|
19.53
|
|
2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.32
|
|
|
$
|
18.52
|
|
Second Quarter
|
|
$
|
28.50
|
|
|
$
|
21.12
|
|
Third Quarter
|
|
$
|
28.67
|
|
|
$
|
23.88
|
|
Fourth Quarter
|
|
$
|
28.54
|
|
|
$
|
25.06
|
|
2010:
|
|
|
|
|
|
|
|
|
Through February 22, 2010
|
|
$
|
28.97
|
|
|
$
|
26.07
|
|
On February 22, 2010, the last reported sale price of our
shares as reported by the NYSE was $28.96 per share. As of
February 22, 2010 there were approximately
2,080 shareholders of record of our shares.
Dividends
We normally pay dividends on a quarterly basis to shareholders
of record on March 31, June 30, September 30 and
December 31. The dividend payment dates and amounts are as
follows:
|
|
|
|
|
Payment Date
|
|
$ Per Share
|
|
|
January 14, 2008
|
|
$
|
0.250
|
|
April 14, 2008
|
|
$
|
0.260
|
|
July 14, 2008
|
|
$
|
0.260
|
|
October 13, 2008
|
|
$
|
0.260
|
|
January 16, 2009
|
|
$
|
0.260
|
|
April 13, 2009
|
|
$
|
0.260
|
|
July 13, 2009
|
|
$
|
0.260
|
|
October 12, 2009
|
|
$
|
0.260
|
|
January 15, 2010
|
|
$
|
0.260
|
|
On February 2, 2010, subject to the Irish High Court
approving a reduction of our share capital in order to create
distributable reserves, (which under Irish law are required to
facilitate the payment of a dividend), and compliance generally
with the requirements of the Irish Companies Acts relating to
the payment of dividends, our Board of Directors authorized a
regular quarterly cash dividend of $0.26 per share, which will
be payable on April 16, 2010 to shareholders of record on
March 31, 2010.
Subject to the above, there are no governmental laws, decrees or
regulations in Ireland which will restrict the remittance of
dividends or other payments to non-resident holders of the
Companys shares.
In circumstances where one of Irelands many exemptions
from dividend withholding tax (DWT) does not apply,
dividends paid by the Company will be subject to Irish DWT
(currently 20%). Residents of the US should be exempted from
Irish DWT provided relevant documentation supporting the
exemption has been put in place. While the US-Ireland Double Tax
Treaty contains provisions reducing the rate of Irish DWT in
prescribed circumstances, it should generally be unnecessary for
US residents to rely on the provisions of this treaty due to the
wide scope of exemptions from DWT available under Irish domestic
law. Irish income tax may also arise in respect of dividends
paid by the Company. However, US residents entitled to an
exemption from Irish DWT generally have no Irish income tax
liability on dividends. An exception to this position applies
where a shareholder holds shares in the Company through a branch
or agency in Ireland through which a trade is carried on.
With respect to non-corporate US shareholders, certain dividends
received before January 1, 2009 from a qualified foreign
corporation may be subject to reduced rates of taxation. A
foreign corporation is treated as a qualified foreign
corporation with respect to dividends received from that
corporation on shares that are readily tradable on an
established securities market in the United States, such as our
shares. Non-corporate US shareholders that do not meet a minimum
holding period requirement for our shares during which they are
not protected from the risk of loss or that elect to treat the
dividend income
22
as investment income pursuant to
section 163(d)(4) of the Code will not be eligible for the
reduced rates of taxation regardless of our status as a
qualified foreign corporation. In addition, the rate reduction
will not apply to dividends if the recipient of a dividend is
obligated to make related payments with respect to positions in
substantially similar or related property. This disallowance
applies even if the minimum holding period has been met.
Non-corporate US shareholders should consult their own tax
advisors regarding the application of these rules given their
particular circumstances.
Total
Shareholder Return
The following graph demonstrates a five-year comparison of
cumulative total returns for the Company, the S&P 500 and a
peer group comprised of the Company, Aon Corporation, Arthur J.
Gallagher & Co., Brown & Brown Inc., and
Marsh & McLennan Companies, Inc. The comparison charts
the performance of $100 invested in the Company, the S&P
500 and the peer group on January 1, 2004, assuming full
dividend reinvestment.
Unregistered
Sales of Equity Securities and Use Of Proceeds
In addition to issuances disclosed in our quarterly filings
throughout 2009 the Company issued a total of
16,119 shares, during the period from October 1, 2009
to December 31, 2009 without registration under the
Securities Act of 1933, as amended (the Securities
Act), in reliance upon the exemption under
Section 4(2) of the Securities Act relating to sales by an
issuer not involving a public offering, none of which involved
the sale of more than 1 percent of the outstanding shares.
The following sales of shares related to partial consideration
for the acquisition of interests in the following companies to
their former shareholders, other than for the company last
listed, which related to full consideration for the shares
acquired:
|
|
|
|
|
|
|
|
|
Number
|
|
|
Date of Sale
|
|
of Shares
|
|
Acquisition
|
|
December 21, 2009
|
|
|
6,993
|
|
|
MGT Re Corredora de Reaseguros S.A and Newco Brokers S.A
|
December 21, 2009
|
|
|
9,126
|
|
|
Burkart Risk Consulting & Partner AG
|
In connection with the Redomicile, Willis-Ireland issued a total
of approximately 168,645,200 ordinary shares to holders of
Willis-Bermuda common shares immediately prior to the Effective
Time. The terms and conditions of the issuance of the securities
were sanctioned by the Supreme Court of Bermuda after a hearing
upon the fairness of such terms and conditions at which all
Willis-Bermuda shareholders had a right to appear and of which
adequate notice had been given. The issuance was exempt from the
registration requirements of the Securities Act of by virtue of
Section 3(a)(10) of the Securities Act.
Purchases
of Equity Securities by the Issuer And Affiliated
Purchasers
The Company may purchase shares, from time to time in the open
market or through negotiated trades with persons who are not
affiliates of the Company, at an aggregate purchase price of up
to $1 billion under an open-ended program approved by the
Board of Directors.
During the year ended December 31, 2009, there were no
shares repurchased. At December 31, 2009, $925 million
remained under the program for future repurchases.
The Company filed a Tender Offer Statement on Schedule TO, dated
July 8, 2009 and as amended on July 23, 2009 and
August 7, 2009, with the SEC to repurchase for cash options
to purchase Company shares. The tender offer expired on
August 6, 2009. Approximately 1.6 million options to
purchase Company shares were repurchased at an average per share
price of $2.04.
23
|
|
Item 6
|
Selected
Financial Data
|
Selected
Historical Consolidated Financial Data
The selected consolidated financial data presented below should
be read in conjunction with the audited consolidated financial
statements of the Company and the related notes and
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in this report.
The selected historical consolidated financial data presented
below as of and for each of the five years ended
December 31, 2009 have been derived from the audited
consolidated financial statements of the Company, which have
been prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008(i)
|
|
|
2009
|
|
|
|
(millions, except per share data)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,267
|
|
|
$
|
2,428
|
|
|
$
|
2,578
|
|
|
$
|
2,827
|
|
|
$
|
3,263
|
|
Operating income
|
|
|
451
|
|
|
|
552
|
|
|
|
620
|
|
|
|
503
|
|
|
|
694
|
|
Income from continuing operations before income taxes and
interest in earnings of associates
|
|
|
421
|
|
|
|
514
|
|
|
|
554
|
|
|
|
398
|
|
|
|
520
|
|
Income from continuing operations
|
|
|
292
|
|
|
|
467
|
|
|
|
426
|
|
|
|
323
|
|
|
|
457
|
|
Discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
Net income attributable to Willis Group Holdings
|
|
$
|
281
|
|
|
$
|
449
|
|
|
$
|
409
|
|
|
$
|
303
|
|
|
$
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share on continuing operations basic
|
|
$
|
1.75
|
|
|
$
|
2.86
|
|
|
$
|
2.82
|
|
|
$
|
2.04
|
|
|
$
|
2.60
|
|
Earnings per share on continuing operations diluted
|
|
$
|
1.72
|
|
|
$
|
2.84
|
|
|
$
|
2.78
|
|
|
$
|
2.04
|
|
|
$
|
2.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
|
|
161
|
|
|
|
157
|
|
|
|
145
|
|
|
|
148
|
|
|
|
168
|
|
diluted
|
|
|
163
|
|
|
|
158
|
|
|
|
147
|
|
|
|
148
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (as of year end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
1,507
|
|
|
$
|
1,564
|
|
|
$
|
1,648
|
|
|
$
|
3,275
|
|
|
$
|
3,277
|
|
Other intangible assets
|
|
|
77
|
|
|
|
92
|
|
|
|
78
|
|
|
|
682
|
|
|
|
572
|
|
Total
assets(ii)
|
|
|
12,194
|
|
|
|
13,378
|
|
|
|
12,969
|
|
|
|
16,402
|
|
|
|
15,623
|
|
Net assets
|
|
|
1,281
|
|
|
|
1,496
|
|
|
|
1,395
|
|
|
|
1,895
|
|
|
|
2,229
|
|
Total long-term debt
|
|
|
600
|
|
|
|
800
|
|
|
|
1,250
|
|
|
|
1,865
|
|
|
|
2,165
|
|
Shares and additional paid-in capital
|
|
|
557
|
|
|
|
388
|
|
|
|
41
|
|
|
|
886
|
|
|
|
918
|
|
Total stockholders equity
|
|
|
1,256
|
|
|
|
1,454
|
|
|
|
1,347
|
|
|
|
1,845
|
|
|
|
2,180
|
|
Other Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
32
|
|
|
$
|
55
|
|
|
$
|
185
|
|
|
$
|
94
|
|
|
$
|
96
|
|
Cash dividends declared per share
|
|
$
|
0.86
|
|
|
$
|
0.94
|
|
|
$
|
1.00
|
|
|
$
|
1.04
|
|
|
$
|
1.04
|
|
|
|
|
(i) |
|
On October 1, 2008, we
completed the acquisition of HRH, at the time the eighth largest
insurance and risk management intermediary in the United States.
The acquisition has significantly enhanced our North America
revenues and the combined operations have critical mass in key
markets across the US. We recognized goodwill and other
intangible assets on the HRH acquisition of approximately
$1.6 billion and $651 million, respectively.
|
|
(ii) |
|
As an intermediary, we hold funds
in a fiduciary capacity for the account of third parties,
typically as a result of premiums received from clients that are
in transit to insurance carriers and claims due to clients that
are in transit from insurance carriers. We report premiums,
which are held on account of, or due from policyholders, as
assets with a corresponding liability due to the insurance
carriers. Claims held by, or due to, us which are due to clients
are also shown as both assets and liabilities of ours. All those
balances due or payable are included in accounts receivable and
payable on the balance sheet. Investment income is earned on
those funds during the time between the receipt of the cash and
the time the cash is paid out. Fiduciary cash must be kept in
certain regulated bank accounts subject to guidelines, which
vary according to legal jurisdiction. These guidelines generally
emphasize capital protection and liquidity. Fiduciary cash is
not available to service our debt or for other corporate
purposes.
|
24
|
|
Item 7
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This discussion includes references to non-GAAP financial
measures as defined in Regulation G of SEC rules. We
present such non-GAAP financial measures, as we believe such
information is of interest to the investment community because
it provides additional meaningful methods of evaluating certain
aspects of the Companys operating performance from period
to period on a basis that may not be otherwise apparent on a
GAAP basis. Organic revenue growth and organic growth in
commissions and fees exclude the impact of acquisitions and
disposals and year over year movements in foreign exchange from
growth in revenues and commissions and fees. We believe organic
revenue growth and organic growth in commissions and fees
provide a measure that the investment community may find helpful
in assessing the performance of operations that were part of our
operations in both the current and prior periods,
and provide a measure against which our businesses may be
assessed in the future. These financial measures should be
viewed in addition to, not in lieu of, the Companys
consolidated financial statements for the year ended
December 31, 2009.
This discussion includes forward-looking statements,
including under the headings Business Overview and Market
Outlook, Executive Summary, Operating
Results Group, Revenues, Interest in
Earnings of Associates, Operating
Results Segment Information, Liquidity
and Capital Resources and Contractual
obligations pensions. Please see
Information Concerning Forward-Looking Statements
for certain cautionary information regarding forward-looking
statements and a list of factors that could cause actual results
to differ materially from those predicted in the forward-looking
statements.
REDOMICILE
On September 24, 2009, Willis-Ireland was incorporated in
Ireland to facilitate the redomicile of the Groups parent
company from Bermuda to Ireland. Willis-Ireland operated as a
wholly-owned subsidiary of Willis-Bermuda until the Effective
Time, when the outstanding common shares of Willis-Bermuda were
canceled and Willis-Ireland issued ordinary shares, with
substantially the same rights and preferences, on a one-for-one
basis to the holders of the Willis-Bermuda common shares that
were canceled. Upon completion of this transaction,
Willis-Ireland replaced Willis-Bermuda as the ultimate parent
company of the Group and Willis-Bermuda became a wholly-owned
subsidiary of
Willis-Ireland. We do not expect the Redomicile to have a
material impact on our financial results. We remain subject to
the SEC reporting requirements, the mandates of the
Sarbanes-Oxley Act and applicable corporate governance rules of
the NYSE, and we continue to report our consolidated financial
results in US dollars and in accordance with US GAAP. We also
comply with any additional reporting requirements of Irish Law.
The shares of Willis-Ireland are traded on the NYSE under the
symbol WSH, the same symbol under which
Willis-Bermuda shares traded prior to the Effective Time.
BUSINESS
OVERVIEW AND MARKET OUTLOOK
We provide a broad range of insurance broking, risk management
and consulting services to our clients worldwide. Our core
specialty businesses include Aerospace; Energy; Marine;
Construction; Financial and Executive Risks; Fine Art, Jewelry
and Specie; Special Contingency Risks; and Reinsurance. Our
retail operations provide services to small, medium and major
corporations and the employee benefits practice, our largest
product-based practice group, provides health, welfare and human
resources consulting and brokerage services.
In our capacity as advisor and insurance broker, we act as an
intermediary between our clients and
insurance carriers by advising our clients on their risk
management requirements, helping clients determine the best
means of managing risk, and negotiating and placing insurance
risk with insurance carriers through our global distribution
network.
We derive most of our revenues from commissions and fees for
brokerage and consulting services and do not determine the
insurance premiums on which our commissions are generally based.
Fluctuations in these premiums charged by the insurance carriers
have a direct and potentially material impact on our results of
operations. Commission levels generally
25
follow the same trend as premium levels as they are derived from
a percentage of the premiums paid by the insureds. Due to the
cyclical nature of the insurance market and the impact of other
market conditions on insurance premiums, they may vary widely
between accounting periods. Reductions in premium rates, leading
to downward pressure on commission revenues (a soft
market), can have a potentially material impact on our
commission revenues and operating margin.
A hard market occurs when premium uplifting factors,
including a greater than anticipated loss experience or capital
shortages, more than offset any downward pressures on premiums.
This usually has a favorable impact on our commission revenues
and operating margin.
From 2000 through 2003 we benefited from a hard market with
premium rates stable or increasing. During 2004, we saw a rapid
transition from a hard market to a soft market, with premium
rates falling in most markets. Rates continued to decline in
most sectors through 2005 and 2006, with the exception of
catastrophe-exposed markets. In 2007, the market softened
further with decreases in many of the market sectors in which we
operated and this
continued into 2008 with further premium rate declines averaging
10% across our markets. The soft market had an adverse impact on
our commission revenues and operating margin from 2005 through
2008.
In 2009, the stabilization of rates in the reinsurance market
and some specialty markets was offset by the continuing soft
market in other sectors and the adverse impact of the weakened
economic environment across the globe.
Our North America and UK and Irish retail operations have been
particularly impacted by the weakened economic climate and
continued soft market with no material improvement in rates
across most sectors. This has resulted in declines in 2009
revenues in these operations, particularly amongst our smaller
clients who are especially vulnerable to the economic downturn.
In 2010, our main priorities will include driving revenue
growth, continuing to execute our Shaping Our Future initiative,
creating incremental savings to fund growth, completing the HRH
integration and leveraging our growth opportunities from our
expanded footprint.
EXECUTIVE
SUMMARY
Overview
Despite the difficult trading conditions in 2009, we reported
2 percent organic growth in commissions and fees in 2009
compared with 2008. This reflected growth in Global operations,
in particular in Reinsurance, and many of our International
businesses partly offset by a fall in organic commissions and
fees in our North America, UK and Irish retail operations where
revenues were adversely impacted by the continued soft market
and weak economic conditions.
Operating margin for full year 2009 was 21 percent compared
with 18 percent for 2008. The increase over 2008 was
attributable to organic growth in commissions and fees,
continuing control of costs and favorable foreign exchange
movements, offset by increased pension costs and amortization of
intangible assets.
Results
from continuing operations: 2009 compared with
2008
Net income from continuing operations in 2009 was
$436 million, or $2.58 per diluted share, compared with
$302 million, or $2.04 per diluted share, in 2008. This
increase included organic growth in commissions and fees, a
reduction in costs associated with our 2008 expense review from
$0.45 per diluted share in 2008 to $0.11 per diluted share for
severance costs, in 2009 and a one-time tax release in 2009
relating to a change in UK tax law in 2009 equivalent to $0.16
per diluted share.
Total revenues from continuing operations at $3,263 million
for 2009 were $436 million, or 15 percent, higher than
in 2008. Organic revenue growth of 2 percent and a
19 percent benefit from net acquisitions and disposals in
2009, driven by the fourth quarter 2008 acquisition of HRH, were
partly offset by a negative 4 percent impact from foreign
currency translation and a $31 million decrease in
investment income compared to 2008.
26
Organic revenue growth of 2 percent comprised
5 percent net new business growth (which constitutes the
revenue growth from business won over the course of the year net
of the revenue from existing business lost) and a 3 percent
negative impact from declining premium rates and other market
factors.
Operating margin at 21 percent was 3 percentage points
higher than in 2008 with the increase mainly reflecting:
|
|
|
2 percent organic growth in commissions and fees;
|
|
|
the realization of savings from prior years Shaping Our
Future initiatives and disciplined cost control;
|
|
|
a favorable year over year impact from foreign currency
translation, equivalent to 3 percentage points; and
|
|
|
a $10 million gain from the sale of part of our interest in
Gras Savoye;
|
partly offset by
|
|
|
a $66 million increase in pension costs, mainly driven by
lower asset levels in our UK pension plan and excluding the
$12 million US curtailment gain and the impact of the UK
salary sacrifice scheme;
|
|
|
a $31 million reduction in investment income; and
|
|
|
a $64 million increase in the amortization of intangible
assets, including additional charges in respect of intangible
assets recognized on the HRH acquisition.
|
Results
from continuing operations: 2008 compared with
2007
Net income from continuing operations in 2008 was
$302 million, or $2.04 per diluted share, compared with
$409 million, or $2.78 per diluted share, in 2007. The
benefits of good organic revenue growth, improved margins in our
International and Global operations and a lower effective tax
rate were more than offset by a $0.45 per diluted share impact
of charges for the 2008 expense review and a $0.27 per diluted
share year over year impact from foreign exchange.
HRHs fourth quarter results, net of related funding costs
and intangible asset amortization, contributed $0.04 per diluted
share. New shares issued as part
consideration for the HRH acquisition had an $0.11 dilutive
impact on full year diluted earnings per share.
Total revenues at $2,827 million were $249 million, or
10 percent, higher than in 2007. Organic revenue growth of
4 percent, a 7 percent benefit from net acquisitions
and disposals primarily reflecting the HRH acquisition and a
1 percentage point benefit from foreign currency
translation were partly offset by lower investment and other
income. Organic revenue growth of 4 percent reflected net
new business growth of 6 percent and a 2 percent
negative impact from declining rates and other market factors.
Operating margin at 18 percent in 2008 was
6 percentage points lower than in 2007 with the decrease
mainly reflecting:
|
|
|
the $92 million charge for the 2008 expense review,
equivalent to 4 percentage points;
|
|
|
an adverse year over year impact from foreign currency
translation, equivalent to approximately 2 percentage
points; and
|
|
|
a $22 million increase in intangible asset amortization, of
which $21 million related to HRH;
|
partly offset by
|
|
|
increased productivity, with revenues per full time equivalent
(FTE) employee increasing to $190,000 in 2008
compared with $186,000 in 2007;
|
|
|
HRHs $38 million operating income in fourth quarter
2008, equivalent to 1 percentage point; and
|
|
|
good cost control, the realization of savings from 2007s
Shaping Our Future initiatives and lower pension costs.
|
Discontinued
operations
Income from discontinued operations relates to the disposals of
our Bliss & Glennon and Managing Agency Group US-based
wholesale insurance operations in the second and third quarters
of 2009, respectively. There were no net gains or losses
recognized on these disposals. These disposals were made as part
of our plan to dispose of non-core HRH activities.
27
HRH
acquisition and integration
On October 1, 2008, we completed the acquisition of HRH, at
the time the eighth largest insurance and risk management
intermediary in the United States.
We remain confident that the acquisition of HRH:
|
|
|
substantially improves our position in key markets such as New
York, Atlanta, California, Texas, Chicago, Boston, and Florida;
|
|
|
greatly strengthens our position as a middle market broker and
adds critical mass in the large account, Employee Benefits,
small commercial and private client areas; and
|
|
|
enables our North America operation to deliver enhanced value to
clients through a more robust and diversified platform.
|
The integration of HRH with the existing Willis North America
business was a key priority throughout 2009 and the process is
now substantially complete. We believe that the goals we set for
the integration are being successfully met, as we have:
|
|
|
maintained high producer and client retention levels;
|
|
|
reduced our expense base through synergies and other cost
savings. On a combined basis, we achieved approximately
$205 million of cost savings in 2009; and
|
|
|
for over 90 percent of HRHs contingent commissions we
have either converted them into higher standard commissions or
we have reaffirmed with carriers that the existing agreements
will remain in force for so long as permitted by the regulatory
authorities or until the commissions are converted, whichever
occurs first.
|
We recognized goodwill and other intangible assets on the HRH
acquisition of approximately $1.6 billion and
$0.6 billion, respectively.
Gras
Savoye
In December 2009, we completed a leveraged transaction with the
original family shareholders of Gras Savoye and Astorg Partners,
a private equity fund, to reorganize the capital of Gras Savoye.
As a result of this transaction:
|
|
|
we received cash proceeds, less costs, of $155 million
which we used to pay down debt;
|
|
|
|
we have one-third of the voting rights;
|
|
|
we reduced our ownership interest from 49 percent to
31 percent;
|
|
|
we recognized a gain of $10 million on disposal;
|
|
|
the previous put option exercisable by the Gras Savoye
shareholders until 2011 has been eliminated; and
|
|
|
we have a new call option to acquire a 100 percent interest
in Gras Savoye in 2015.
|
We believe that the revised structure enhances our financial
flexibility, while at the same time retaining Gras Savoye as a
key strategic partner.
As a consequence of the reduction in our ownership interest we
expect earnings from our associates to be approximately
$10 million lower in 2010 compared with 2009.
2008
Expense Review, Shaping Our Future and Right Sizing
Willis
Our Shaping Our Future strategy is a series of initiatives
designed to deliver profitable growth. As part of this we have
invested in key hires and initiatives in 2008 and 2009 and we
have funded these initiatives from a thorough review in 2008 of
all businesses to identify additional opportunities to
rationalize our expense base.
Additionally, in the latter part of 2008 and in light of the
global economic uncertainty, we launched Right Sizing Willis to
reinforce our cost saving initiatives. Right Sizing Willis
initiatives include talent management to either improve or
manage out poor performers, location optimization and aggressive
reduction of discretionary spending.
In 2009 we incurred pre-tax severance costs of $24 million
relating to approximately 450 positions which have been
eliminated ($17 million net of tax), equivalent to $0.11
per diluted share, in connection with our Right Sizing Willis
initiatives.
In 2008, we incurred a pre-tax charge of $92 million
($66 million net of tax, equivalent to $0.45 per diluted
share) comprising:
|
|
|
$42 million to buy out remuneration packages that no longer
align with the Groups overall remuneration strategy;
|
|
|
$24 million of severance costs relating to approximately
350 positions which have been eliminated; and
|
28
|
|
|
$26 million of other operating expenses, including property
and systems rationalization costs.
|
In light of the current global economic uncertainty, we continue
to vigorously manage our cost base in order to fund further
growth initiatives. Our current funding for growth initiatives
emphasize cost discipline including talent management, location
optimization and robust management of discretionary spending.
In 2009, we realized approximately $100 million of gross
benefits from previous initiatives, including:
|
|
|
approximately $30 million from global placement, which
reflects increased commissions from working closely with our
carrier partners;
|
|
|
approximately $20 million from client profitability, which
aims to achieve increased remuneration from our clients in
return for the value we deliver; and
|
|
|
approximately $15 million from a program of initiatives
within Reinsurance focused on enhancing our client offering,
including implementation of a global sales model, improving
service delivery, developing further cutting edge analytical
capabilities and hiring of additional production and specialist
product resources.
|
Cash
and financing
Cash at December 31, 2009 was $191 million,
$15 million higher than at December 31, 2008.
In March 2009, we issued 12.875% senior notes due 2016 in
an aggregate principal amount of $500 million to Goldman
Sachs Mezzanine Partners which generated net proceeds of
$482 million. These proceeds, together with
$208 million of cash generated from operating activities
and cash in hand, were used to pay down the $750 million
outstanding on our interim credit facility as of
December 31, 2008.
In September 2009, we issued $300 million of 7% senior
notes due 2019. We then launched a tender offer on
September 22, 2009 to repurchase any and all of our
$250 million 5.125% senior notes
due July 2010 at a premium of $27.50 per $1,000 face value.
Notes totaling $160 million were tendered and repurchased
on September 29, 2009.
Total debt, total equity and the capitalization ratio at
December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(millions, except percentages)
|
|
|
Long-term debt
|
|
$
|
2,165
|
|
|
$
|
1,865
|
|
Short-term debt
|
|
|
209
|
|
|
|
785
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
2,374
|
|
|
$
|
2,650
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
2,229
|
|
|
$
|
1,895
|
|
|
|
|
|
|
|
|
|
|
Capitalization ratio
|
|
|
52
|
%
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
Liquidity
Our principal sources of liquidity are cash from operations,
cash and cash equivalents of $191 million at
December 31, 2009 and $300 million remaining
availability under our revolving credit facility.
Based on current market conditions and information available to
us at this time, we believe that we have sufficient liquidity to
meet our cash needs for at least the next 12 months.
Share
buybacks
The Board has authorized a share buyback program for
$1 billion, of which $925 million remains available.
In 2008, we repurchased 2.3 million shares at a cost of
$75 million. We did not make any repurchases in 2009.
We currently target a debt to adjusted EBITDA (earnings before
interest, tax, depreciation and amortization) ratio of below 2.5
times. Once we are in a position to remain at or below this
ratio, we would consider recommencing our stock buy back
program. At December 31, 2009 the actual ratio was 2.6
times. However, there can be no assurance that we will achieve
our target debt to EBITDA ratio or recommence our stock buyback
program.
29
OPERATING
RESULTS GROUP
Revenues
2009
compared with 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Acquisitions
|
|
|
Organic
|
|
|
|
|
|
|
|
|
|
%
|
|
|
currency
|
|
|
and
|
|
|
revenue
|
|
|
|
2009
|
|
|
2008
|
|
|
change
|
|
|
translation
|
|
|
disposals(i)
|
|
|
growth(i)(ii)
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
$
|
822
|
|
|
$
|
784
|
|
|
|
5
|
%
|
|
|
(3
|
)%
|
|
|
4
|
%
|
|
|
4
|
%
|
North America
|
|
|
1,368
|
|
|
|
905
|
|
|
|
51
|
%
|
|
|
|
%
|
|
|
54
|
%
|
|
|
(3
|
)%
|
International
|
|
|
1,020
|
|
|
|
1,055
|
|
|
|
(3
|
)%
|
|
|
(8
|
)%
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and fees
|
|
$
|
3,210
|
|
|
$
|
2,744
|
|
|
|
17
|
%
|
|
|
(4
|
)%
|
|
|
19
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
50
|
|
|
|
81
|
|
|
|
(38
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
3
|
|
|
|
2
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,263
|
|
|
$
|
2,827
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Organic revenue growth excludes the
impact of foreign currency translation, the first twelve months
of net commission and fee revenues generated from acquisitions,
the net commission and fee revenues related to operations
disposed of in each period presented, market remuneration,
including contingent commissions related to the HRH acquisition,
investment income and other income from reported revenues.
|
|
|
|
Acquisitions and disposals includes
the first twelve months of net commission and fee revenues
generated from acquisitions, the net commission and fee revenues
related to operations disposed of in each period presented, and
contingent commissions related to the HRH acquisition.
|
|
|
|
Our methods of calculating these
measures may differ from those used by other companies and
therefore comparability may be limited.
|
|
(ii) |
|
From fourth quarter 2008, we have
changed our methodology for the calculation of organic growth in
commissions and fees. Previously, organic growth included growth
from acquisitions from the date of acquisition. Under the new
method, the first twelve months of commissions and fees
generated from acquisitions are excluded from organic growth in
commissions and fees.
|
Revenues for 2009 at $3,263 million were $436 million,
or 15 percent higher than in 2008, reflecting a
19 percent benefit from net acquisitions and disposals,
principally attributable to HRH, and organic growth in
commissions and fees of 2 percent, offset by a
4 percent adverse year over year impact from foreign
currency translation and lower investment income.
Our International and Global operations earn a significant
portion of their revenues in currencies other than the US
dollar. For the year ended December 31, 2009, reported
revenues were adversely impacted by the year over year effect of
foreign currency translation: in particular due to the
strengthening of the US dollar against the pound sterling
and against the euro, compared with 2008.
Investment income was $50 million for 2009,
$31 million lower than 2008, with the decrease reflecting
significantly lower average interest rates
in 2009. The impact of rate decreases on our investment income
was partially mitigated by our forward hedging program. In 2009
this generated additional income of $27 million compared
with LIBOR based rates. We expect to see a lower benefit from
our forward hedging program in 2010.
Organic growth in commissions and fees was 2 percent for
2009, despite a negative 3 percent impact from declining
premium rates and other market factors. Overall organic growth
comprises good growth in our Global operations and many of our
International operations, partly offset by declines in our North
America, UK and Irish retail operations reflecting the weak
economic environments and continuing soft market conditions in
these territories. Organic revenue growth by segment is
discussed further in Operating Results Segment
Information below.
30
2008
compared with 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
Acquisitions
|
|
|
Organic
|
|
|
|
|
|
|
|
|
|
%
|
|
|
currency
|
|
|
and
|
|
|
revenue
|
|
|
|
2008
|
|
|
2007
|
|
|
change
|
|
|
translation
|
|
|
disposals(i)
|
|
|
growth(i)(ii)
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
$
|
784
|
|
|
$
|
750
|
|
|
|
5
|
%
|
|
|
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
North America
|
|
|
905
|
|
|
|
751
|
|
|
|
21
|
%
|
|
|
|
%
|
|
|
22
|
%
|
|
|
(1
|
)%
|
International
|
|
|
1,055
|
|
|
|
962
|
|
|
|
10
|
%
|
|
|
1
|
%
|
|
|
|
%
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and fees
|
|
$
|
2,744
|
|
|
$
|
2,463
|
|
|
|
12
|
%
|
|
|
1
|
%
|
|
|
7
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
81
|
|
|
|
96
|
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
2
|
|
|
|
19
|
|
|
|
(89
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
2,827
|
|
|
$
|
2,578
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
Organic revenue growth excludes the
impact of foreign currency translation, the first twelve months
of net commission and fee revenues generated from acquisitions,
the net commission and fee revenues related to operations
disposed of in each period presented, market remuneration,
including contingent commissions related to the HRH acquisition,
investment income and other income from reported revenues.
|
|
|
|
Acquisitions and disposals includes
the first twelve months of net commission and fee revenues
generated from acquisitions, the net commission and fee revenues
related to operations disposed of in each period presented, and
contingent commissions related to the HRH acquisition.
|
|
|
|
Our methods of calculating these
measures may differ from those used by other companies and
therefore comparability may be limited.
|
|
(ii) |
|
From fourth quarter 2008, we have
changed our methodology for the calculation of organic growth in
commissions and fees. Previously, organic growth included growth
from acquisitions from the date of acquisition. Under the new
method, the first twelve months of commissions and fees
generated from acquisitions are excluded from organic growth in
commissions and fees.
|
Our 2008 total revenues at $2,827 million were
$249 million, or 10 percent, higher than in 2007,
reflecting a 7 percent benefit from net acquisitions and
disposals, principally attributable to HRH, organic commissions
and fee growth of 4 percent and a 1 percent benefit
from foreign currency translation, partly offset by lower
investment and other income.
For the year ended December 31, 2008, reported revenues in
International benefited from the year over year weakening of the
US dollar against the euro, compared with 2007. However, in our
Global operations the revenue line benefit of the stronger euro
was offset by sterling weakening against the US dollar, compared
with 2007.
Investment income was $81 million for 2008,
$15 million lower than in 2007, with the decrease
reflecting lower average interest rates in 2008.
Other income was $2 million for 2008, $17 million
lower than in 2007 which benefited from a higher than usual
level of proceeds from the sale of books of business.
Organic growth in commissions and fees in 2008 was
4 percent compared with 2007, reflecting:
|
|
|
net new business growth of 6 percent which comprised good
growth in our International and Global Specialties businesses
offset by lower revenues in North America and Reinsurance;
|
partly offset by
|
|
|
a negative 2 percent impact from premium rates and other
market factors in 2008. The impact of significant rate decreases
in both periods was tempered by the benefit of other market
factors, including higher commission rates, client profitability
analyses, higher insured values and changes in limits or
exposures.
|
31
General
and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except percentages)
|
|
|
Salaries and benefits
|
|
$
|
1,827
|
|
|
$
|
1,638
|
|
|
$
|
1,448
|
|
Other
|
|
|
595
|
|
|
|
603
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
2,422
|
|
|
$
|
2,241
|
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits as a percentage of revenues
|
|
|
56
|
%
|
|
|
58
|
%
|
|
|
56
|
%
|
Other as a percentage of revenues
|
|
|
18
|
%
|
|
|
21
|
%
|
|
|
18
|
%
|
2009
compared with 2008
General and administrative expenses at $2,422 million for
2009 were $181 million, or 8 percent, higher than
2008. The increase was mainly attributable to:
|
|
|
$414 million impact from HRH, equivalent to approximately
18 percentage points; and
|
|
|
a $66 million increase in pension costs, equivalent to
approximately 3 percentage points. This excludes the
$12 million US curtailment gain and $8 million due to
the introduction of a salary sacrifice scheme in the UK. The
increase attributable to the salary sacrifice scheme was
marginally more than offset by a reduction in salaries and
payroll taxes;
|
partly offset by
|
|
|
a year over year benefit from foreign currency translation of
$172 million, equivalent to approximately 8 percentage
points. This includes the impact of losses on forward contracts
being more than offset by gains relating to the significant year
over year strengthening of the US dollar against the pound
sterling (in which our London market based operations incur the
majority of their expenses), and the euro, together with the
benefit of lower foreign exchange losses relating to the UK
sterling pension asset;
|
|
|
the $92 million reduction in costs associated with our 2008
expense review, equivalent to 4 percentage points, of which
$66 million related to salaries and benefits and
$26 million to other expenses; and
|
|
|
disciplined control of all discretionary costs, with significant
savings in travel and entertaining, advertising, printing and a
number of other areas.
|
Salaries
and benefits
Salaries and benefits were 56 percent of revenues for 2009,
compared with 58 percent in 2008 reflecting the benefits of:
|
|
|
good cost controls, including our previous Shaping Our Future
and 2008 expense review initiatives, together with the initial
benefits from our Right Sizing Willis initiatives in
2009; and
|
|
|
a $12 million curtailment gain realized on the closure of
our US defined benefit pension plan to accrual of benefit for
future service, equivalent to approximately 0.5 percentage
points (see below);
|
partly offset by
|
|
|
a $66 million increase in pension costs, mainly driven by
lower asset levels in our UK pension plan and excluding the
$12 million US curtailment gain and the impact of the UK
salary sacrifice scheme.
|
Effective May 15, 2009, we closed our US defined benefit
pension plan to future accrual and recognized a curtailment gain
of $12 million in second quarter 2009. As a result the full
year 2009 charge for the US plan was $7 million compared
with an expected $39 million charge had the plan not been
closed to future accrual.
We have also suspended the company match for our US 401(k) plan
which benefited 2009 by $9 million compared with 2008.
UK
salary sacrifice scheme
With effect from April 2009, the Company offered UK employees an
alternative basis on which to fund contributions into the UK
pension plans. UK employees can now agree to sacrifice an amount
of their salary and in return the Company makes additional
pension contributions on their behalf, equivalent to the value
of the salary sacrificed.
32
From a payroll tax perspective, this is a more efficient method
of making pension contributions.
As a result of this change, the Company made additional pension
contributions of $8 million, with a marginally higher
saving in salaries and payroll taxes.
Other
expenses
Other expenses were 18 percent of revenues for 2009
compared with 21 percent in 2008, reflecting the benefit of:
|
|
|
the non-recurrence of $26 million of costs eliminated by
the 2008 expense review, equivalent to 5 percentage
points; and
|
|
|
a reduction in discretionary expenses driven by our Right Sizing
Willis initiatives;
|
partly offset by
|
|
|
foreign currency translation losses of $40 million arising
on forward contracts maturing in 2009, compared with losses on
the equivalent contracts in 2008 of $12 million.
|
2008
compared with 2007
General and administrative expenses at $2,241 million for
2008 were $333 million, or 18 percent, higher than in
2007 of which:
|
|
|
$135 million, or 7 percentage points, was attributable
to the fourth quarter acquisition of HRH;
|
|
|
$92 million, or 5 percentage points, was attributable
to the charge for the 2008 expense review, of which
$66 million related to salaries and benefits and
$26 million to other expenses; and
|
|
|
a foreign exchange loss of $68 million, or
4 percentage points, including $34 million related to
the revaluation of our UK pension benefits asset together with
$23 million relating to sterling purchases to fund the
Companys contributions to the plan.
|
Salaries
and benefits
Salaries and benefits were 58 percent of 2008 revenues,
compared with 56 percent in 2007, with the increase
reflecting:
|
|
|
the $66 million charge relating to the 2008 expense
review; and
|
|
|
|
continued hiring in targeted development areas including
selected US regions; targeted International growth areas such as
Spain, Italy, Denmark and Brazil; and a number of our London
specialty businesses;
|
partly offset by
|
|
|
increased productivity: average revenues per FTE employee were
approximately $190,000 in 2008 compared with $186,000 in 2007;
|
|
|
the benefits of cost controls and previous Shaping Our Future
initiatives; and
|
|
|
a $15 million reduction in pension charges. This decrease
was mainly attributable to an increase in the expected return on
assets in the UK pension plan reflecting higher opening asset
levels due to the significant additional contributions we have
made.
|
Other
expenses
Other expenses were 21 percent of revenues in 2008 compared
with 18 percent in 2007, with the increase reflecting:
|
|
|
$33 million additional other expenses in fourth quarter
2008 as a result of the HRH acquisition, equivalent to
approximately 1 percentage point;
|
|
|
the $26 million charge relating to the 2008 expense review,
equivalent to approximately 1 percentage point; and
|
|
|
a $34 million foreign exchange loss related to the
revaluation of our UK pension benefits asset. This asset is a
sterling denominated asset but a portion of the asset is held
within our UK London market operations, which are US dollar
denominated for accounting purposes. As the US dollar
strengthened significantly against sterling in 2008, the
revaluation of the sterling pension benefit asset gave rise to a
foreign exchange loss.
|
We have a program that hedges our sterling cash outflows from
our London market operations, a part of which hedges the
sterling denominated cash contributions into the UK pension
plan. However, we do not hedge against the pension benefits
asset or liability recognized for accounting purposes.
The effects of the above increases were partly mitigated by the
benefits of our continued focus on cost controls.
33
Amortization
of intangible assets
Amortization of intangible assets of $100 million in 2009
was $64 million higher than in 2008.
The significant year over year increase was primarily
attributable to additional charges of $58 million in 2009
in respect of intangible assets recognized on the HRH
acquisition, including $7 million of accelerated
amortization relating to the HRH brand name. Following the
success of our integration of HRH into our previously existing
North America operations, we announced on October 1, 2009
that we were changing the name of
our North America operations from Willis HRH to Willis North
America. Consequently the intangible asset recognized on the
acquisition of HRH relating to the HRH brand name has been fully
amortized.
Amortization of intangible assets of $36 million in 2008
was $22 million higher than in 2007 with the increase
primarily attributable to a $21 million charge in fourth
quarter 2008 in respect of intangible assets recognized on the
HRH acquisition.
Operating
income and margin (operating income as a percentage of
revenues)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except percentages)
|
|
|
Revenues
|
|
$
|
3,263
|
|
|
$
|
2,827
|
|
|
$
|
2,578
|
|
Operating income
|
|
|
694
|
|
|
|
503
|
|
|
|
620
|
|
Operating margin or operating income as a percentage of revenues
|
|
|
21
|
%
|
|
|
18
|
%
|
|
|
24
|
%
|
2009
compared with 2008
Operating margin was 21 percent for 2009 compared with
18 percent for 2008. This increase reflected the impact of:
|
|
|
a reduction in costs associated with our 2008 expense review
from $92 million in 2008 to $24 million for severance
costs in 2009;
|
|
|
2 percent organic growth in fees and commissions;
|
|
|
the $12 million US pension curtailment gain recognized in
second quarter 2009; and
|
|
|
a further improvement in productivity, with revenues per FTE
employee increasing to $191,000 in 2009 compared with $190,000
in 2008;
|
partly offset by
|
|
|
a $66 million increase in pension costs, excluding the
$12 million US curtailment gain and the $8 million
impact of the UK salary sacrifice scheme discussed above;
|
|
|
a $64 million increase in amortization of intangible
assets, principally attributable to HRH; and
|
|
|
the $31 million year over year decline in investment income.
|
2008
compared with 2007
Operating margin was 18 percent in 2008 compared with
24 percent in 2007. This decrease reflected the impact of:
|
|
|
the $92 million charge for the 2008 expense review,
equivalent to 4 percentage points;
|
|
|
a negative 2 percentage point impact from foreign exchange
movements;
|
|
|
a $22 million increase in intangible asset amortization, of
which $21 million related to HRH;
|
|
|
our continued investments in targeted new hires and Shaping Our
Future initiatives; and
|
|
|
lower investment and other income;
|
partly offset by
|
|
|
increased productivity, with revenues per FTE employee
increasing to $190,000 in 2008 compared with $186,000 in 2007;
|
|
|
a $38 million benefit from the operating income
contribution of HRH in the fourth quarter; and
|
|
|
good cost control, the realization of savings from Shaping Our
Future initiatives and lower pension costs.
|
34
Interest
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Interest expense
|
|
$
|
174
|
|
|
$
|
105
|
|
|
$
|
66
|
|
Interest expense in 2009 of $174 million was
$69 million higher than in 2008. This increase primarily
reflects higher average debt levels following the HRH
acquisition, but also includes $5 million of premium and
costs relating to the early repurchase in September 2009 of
$160 million of our 5.125% senior notes due July 2010
at a premium of $27.50 per $1,000 face value.
We are currently reviewing opportunities to reduce future
interest costs, in the short-term, through a
fixed / floating interest rate swap.
Interest expense in 2008 of $105 million was
$39 million higher than in 2007. This increase primarily
reflects higher average debt levels, and in particular:
$18 million additional interest expense relating to the
term loan and interim credit facilities connected with the HRH
acquisition; a $9 million charge for amortization of debt
fees associated with these facilities; and a $9 million
additional interest expense in 2008 due to fixed term
$600 million senior notes issued in March 2007.
Income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except percentages)
|
|
|
Income from continuing operations before taxes
|
|
$
|
520
|
|
|
$
|
398
|
|
|
$
|
554
|
|
Income tax charge
|
|
|
96
|
|
|
|
97
|
|
|
|
144
|
|
Effective tax rate
|
|
|
18
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
2009
compared with 2008
The effective tax rate in 2009 was 18 percent compared with
24 percent in 2008. The decrease in rate reflects:
|
|
|
a $27 million release relating to a 2009 change in tax law.
As at June 30, 2009 we held a provision of $27 million
relating to tax that would potentially be payable should the
unremitted earnings of our foreign subsidiaries be repatriated.
Following a change in UK tax law effective in third quarter
2009, these earnings may now be repatriated without additional
tax cost and, consequently, the provision has been
released; and
|
|
|
an $11 million release relating to uncertain tax positions
due to the closure of the statute of limitations on assessments
for previously unrecognized tax benefits. There was a similar
$5 million release of uncertain tax positions in 2008.
|
Excluding the benefit of these tax credits, the effective tax
rate for 2009 would be 26 percent.
2008
compared with 2007
The effective tax rate in 2008 was 24 percent compared with
26 percent in 2007, with the decrease in rate reflecting:
|
|
|
a change in the geographical mix of profits with a greater
proportion of profits being earned outside the United States;
|
|
|
non-taxable exchange gains arising from the significant movement
in the exchange rate between the US dollar and sterling; and
|
|
|
a decrease in the statutory rate of corporation tax in the UK
from 30 percent in 2007 to an effective rate of
28.5 percent in 2008;
|
partly offset by
|
|
|
the benefit of a $10 million release of uncertain tax
provisions in 2007 compared to a $5 million release in
2008. Both 2008 and 2007 benefited from the release of tax
provisions relating to prior tax periods following the
resolution of tax issues surrounding prior debt
refinancing; and
|
|
|
a one-off benefit of $4 million in 2007 relating to the
restatement of the closing UK deferred tax liabilities to
reflect the reduced rate of corporation tax applicable on the
reversal of those liabilities.
|
35
Interest
in earnings of associates
Interest in earnings of associates, net of tax, was
$33 million in 2009, $11 million higher than in 2008.
These increases reflect improved performance and an increased
ownership share in Gras Savoye, our largest associate, for most
of the year. As described within the Executive
Summary section above, our interest in Gras Savoye reduced
from
49 percent to 31 percent following the reorganization
of that companys capital in December 2009. As a result of
this transaction we currently estimate that the interest in
earnings of associates will be approximately $10 million
lower in 2010 compared with 2009.
Net
income and diluted earnings per share from continuing
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except percentages)
|
|
|
Net income from continuing operations
|
|
$
|
436
|
|
|
$
|
302
|
|
|
$
|
409
|
|
Diluted earnings per share from continuing operations
|
|
$
|
2.58
|
|
|
$
|
2.04
|
|
|
$
|
2.78
|
|
Average diluted number of shares outstanding
|
|
|
169
|
|
|
|
148
|
|
|
|
147
|
|
2009
compared with 2008
Net income from continuing operations for 2009 was
$436 million compared with $302 million in 2008. The
$134 million increase primarily reflected the
$191 million increase in operating income, discussed above,
partly offset by the $69 million increase in interest
expense.
Diluted earnings per share from continuing operations for 2009
increased to $2.58 compared to $2.04 in 2008 as the benefit of
the increased net income was partly offset by a 21 million
increase in average diluted shares outstanding due primarily to
the shares issued on October 1, 2008 for the HRH
acquisition. The additional shares issued had a negative $0.36
impact on earnings per diluted share in 2009.
Foreign currency translation had a year over year $0.27 positive
impact on earnings per diluted share in 2009.
2008
compared with 2007
Net income for 2008 was $302 million, or $2.04 per diluted
share, compared to $409 million, or $2.78 per diluted
share, in 2007 with the decrease mainly reflecting the impact of:
|
|
|
the $66 million post-tax charges associated with the 2008
expense review, equivalent to $0.45 per diluted share; and
|
|
|
a year over year accounting loss of $0.27 per diluted share
primarily relating to the retranslation of our sterling
denominated UK pension benefits asset;
|
partly offset by
|
|
|
strong organic revenue growth in 2008;
|
|
|
a year over year benefit from a lower effective tax rate of
$0.09 per diluted share; and
|
|
|
HRHs fourth quarter results, net of related funding costs
and intangible amortization, contributed $0.04 per diluted share.
|
OPERATING
RESULTS SEGMENT INFORMATION
We organize our business into three segments: Global, North
America and International. Our Global business provides
specialist brokerage and consulting services to clients
worldwide for risks
arising from specific industries and activities. North America
and International comprise our retail operations and provide
services to small, medium and major corporations.
36
The following table is a summary of our operating results by
segment for the three years ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008(i)
|
|
|
2007(i)
|
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Operating
|
|
|
|
Revenues
|
|
|
Income
|
|
|
Margin
|
|
|
Revenues
|
|
|
Income
|
|
|
Margin
|
|
|
Revenues
|
|
|
Income
|
|
|
Margin
|
|
|
|
(millions)
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Global
|
|
$
|
835
|
|
|
$
|
255
|
|
|
|
31
|
%
|
|
$
|
814
|
|
|
$
|
240
|
|
|
|
29
|
%
|
|
$
|
796
|
|
|
$
|
224
|
|
|
|
28
|
%
|
North America
|
|
|
1,386
|
|
|
|
328
|
|
|
|
24
|
%
|
|
|
922
|
|
|
|
142
|
|
|
|
15
|
%
|
|
|
786
|
|
|
|
152
|
|
|
|
19
|
%
|
International
|
|
|
1,042
|
|
|
|
276
|
|
|
|
27
|
%
|
|
|
1,091
|
|
|
|
306
|
|
|
|
28
|
%
|
|
|
996
|
|
|
|
251
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Retail
|
|
|
2,428
|
|
|
|
604
|
|
|
|
25
|
%
|
|
|
2,013
|
|
|
|
448
|
|
|
|
22
|
%
|
|
|
1,782
|
|
|
|
403
|
|
|
|
23
|
%
|
Corporate &
Other(ii)
|
|
|
|
|
|
|
(165
|
)
|
|
|
n/a
|
|
|
|
|
|
|
|
(185
|
)
|
|
|
n/a
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
3,263
|
|
|
$
|
694
|
|
|
|
21
|
%
|
|
$
|
2,827
|
|
|
$
|
503
|
|
|
|
18
|
%
|
|
$
|
2,578
|
|
|
$
|
620
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
In 2008, the Company changed its
basis of segmental allocation for central costs. All accounting
adjustments for foreign exchange hedging activities and foreign
exchange movements on the UK pension plan asset or liability are
held at the Corporate level, together with legal costs that are
managed centrally.
|
|
(ii) |
|
Corporate & Other
comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
Amortization of intangible assets
|
|
$
|
(100
|
)
|
|
$
|
(36
|
)
|
|
$
|
(14
|
)
|
Foreign exchange hedging
|
|
|
(48
|
)
|
|
|
(47
|
)
|
|
|
(7
|
)
|
HRH integration costs
|
|
|
(18
|
)
|
|
|
(5
|
)
|
|
|
|
|
Gain on disposal of operations
|
|
|
13
|
|
|
|
|
|
|
|
2
|
|
2008 expense review
|
|
|
|
|
|
|
(92
|
)
|
|
|
|
|
Gain on disposal of London headquarters
|
|
|
|
|
|
|
7
|
|
|
|
14
|
|
Costs associated with the redomicile of the Companys
parent company
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(165
|
)
|
|
$
|
(185
|
)
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Our Global operations comprise Global Specialties, Reinsurance
and Faber & Dumas, our wholesale brokerage division
launched in fourth quarter 2008 on completion of the HRH
acquisition. Faber & Dumas comprises HRHs
London-based wholesale operation, Glencairn, together with our
previously
existing Fine Art, Jewelry and Specie; Special Contingency Risk
and Hughes-Gibb units. The following table sets out revenues,
organic revenue growth and operating income and margin for the
three years ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except percentages)
|
|
|
Commissions and fees
|
|
$
|
822
|
|
|
$
|
784
|
|
|
$
|
750
|
|
Investment income
|
|
|
13
|
|
|
|
30
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
835
|
|
|
$
|
814
|
|
|
$
|
796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income(i)
|
|
$
|
255
|
|
|
$
|
240
|
|
|
$
|
224
|
|
Organic revenue
growth(ii)(iii)
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
|
%
|
Operating
margin(i)
|
|
|
31
|
%
|
|
|
29
|
%
|
|
|
28
|
%
|
|
|
|
(i) |
|
In 2008, the Company changed its
basis of segmental allocation for central costs. All accounting
adjustments for foreign exchange hedging activities and foreign
exchange movements on the UK pension plan asset or liability are
held at the Corporate level, together
|
37
|
|
|
|
|
with legal costs that are managed
centrally. As a result of this change, $1 million net
operating profit for full year 2007, previously allocated to the
Global segment, has been reported within Corporate.
|
|
(ii) |
|
Organic revenue growth excludes the
impact of foreign currency translation, the first twelve months
of net commission and fee revenues generated from acquisitions,
the net commission and fee revenues related to operations
disposed of in each period presented, market remuneration,
including contingent commissions related to the HRH acquisition,
investment income and other income from reported revenues. Our
method of calculating this measure may differ from that used by
other companies and therefore comparability may be limited.
|
|
(iii) |
|
In fourth quarter 2008, we changed
our methodology for the calculation of organic growth in
commissions and fees. Previously, organic growth included growth
from acquisitions from the date of acquisition. Under the new
method, the first twelve months of commissions and fees
generated from acquisitions are excluded. Comparatives have been
adjusted accordingly.
|
Revenues:
2009 compared with 2008
Commissions and fees of $822 million were $38 million,
or 5 percent, higher in 2009 compared with 2008 of which
4 percent was attributable to the acquisition of the HRH UK
wholesale business, Glencairn and 4 percent to organic
revenue growth. These were partly offset by a 3 percent
negative impact from foreign exchange movements.
Net new business growth was 5 percent and there was a
1 percent adverse impact from rates and other market
factors. Reinsurance led the growth in net new business. Global
Specialties organic revenues were slightly higher than in 2008,
as growth in Marine, Aerospace and Financial and Executive Risks
was offset by reductions elsewhere. There was continued softness
in most specialty rates although there were signs of
stabilization and firming in some areas, including Aerospace and
Energy. The Faber & Dumas businesses continue to be
adversely impacted by the weakening economic environment.
There was a sharp decline in investment income in 2009 compared
with 2008 as global interest rates fell markedly in the latter
half of 2008 and early 2009.
Productivity continued to improve with a 3 percent rise in
revenues per FTE employee to $358,000 in 2009 compared with
2008. Client retention remained steady at 90 percent for
the full year 2009.
Revenues:
2008 compared with 2007
Commissions and fees were $34 million, or 5 percent,
higher in 2008 compared with 2007 of which 3 percent was
attributable to the net impact of acquisitions and disposals,
mainly due to HRHs UK-based specialty business. There was
no net impact from foreign currency translation as a benefit
from the euro strengthening year over year against the dollar
was offset by a negative impact from sterling weakening against
the dollar.
Organic revenue growth was 2 percent as the benefit of good
growth in Global Specialties was partly offset by lower
commissions and fees in Reinsurance.
Global Specialties organic revenue growth reflected the benefit
of good growth in Marine, Financial Institutions, Bloodstock,
Jewelry, Specie and Global Markets and was achieved despite
significant rate reductions.
Organic revenue growth in Reinsurance in 2008 was adversely
impacted by a combination of declining rates and a reduction in
amounts reinsured. We continue to make investments in
Reinsurance to strengthen capital markets and analytics
capabilities throughout the soft market and are beginning to see
the positive results of this investment as we moved into 2009.
Client retention levels in Global improved to approximately
90 percent in 2008 compared with approximately
89 percent in 2007.
Operating
margin: 2009 compared with 2008
Operating margin was 31 percent in 2009 compared with
29 percent in 2008. This improvement reflected a
significant benefit from foreign currency translation, together
with organic revenue growth, particularly driven by our
Reinsurance business, and good cost controls including a
reduction in discretionary expenses. The benefit of these was
partly offset by a significant increase in the UK pension
expense and the sharp reduction in investment income.
Despite an overall reduction in headcount since
December 31, 2008, we continue to recruit selectively for
our Global businesses. In first quarter 2009, we recruited a
reinsurance team from Carvill. This team provides specialty,
casualty and professional liability experience. We have also
recruited specialty expertise in Marine, Aerospace and
Faber & Dumas.
38
Operating
margin: 2008 compared with 2007
Operating margin in our Global operations was 29 percent in
2008 compared with 28 percent in 2007, as the benefit of
organic revenue growth in Global Specialties was partly offset
by the impact of lower revenues in Reinsurance and an adverse
impact from foreign exchange.
Operating margin in Global Specialties increased in 2008
compared with 2007 as the benefit from organic revenue growth,
lower pension costs and our Shaping Our Future initiatives more
than offset
further spend on targeted hires and strategic initiatives.
Operating margin in Reinsurance in 2008 was broadly in line with
2007 as the impact of lower commissions and fees was largely
offset by the benefits of Shaping Our Future initiatives, lower
pension costs and the positive results of our continued
investments to strengthen capital markets and analytics
capabilities throughout the soft market.
North
America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except percentages)
|
|
|
Commissions and fees
|
|
$
|
1,368
|
|
|
$
|
905
|
|
|
$
|
751
|
|
Investment income
|
|
|
15
|
|
|
|
15
|
|
|
|
18
|
|
Other
income(i)
|
|
|
3
|
|
|
|
2
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,386
|
|
|
$
|
922
|
|
|
$
|
786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
328
|
|
|
$
|
142
|
|
|
$
|
152
|
|
Organic revenue
growth(ii)(iii)
|
|
|
(3
|
)%
|
|
|
(1
|
)%
|
|
|
1
|
%
|
Operating margin
|
|
|
24
|
%
|
|
|
15
|
%
|
|
|
19
|
%
|
|
|
|
(i) |
|
Other income represents gains on
disposals of intangible assets, including books of business.
Prior to January 1, 2008 these gains were reported within
total commissions and fees but were excluded from organic
revenue growth with effect from April 1, 2007. As a result
of this change, $17 million previously reported within
North Americas commissions and fees in 2007, has been
transferred to other income.
|
|
(ii) |
|
Organic revenue growth excludes the
impact of foreign currency translation, the first twelve months
of net commission and fee revenues generated from acquisitions,
the net commission and fee revenues related to operations
disposed of in each period presented, market remuneration,
including contingent commissions related to the HRH acquisition,
investment income and other income from reported revenues. Our
method of calculating this measure may differ from that used by
other companies and therefore comparability may be limited.
|
|
(iii)
|
|
In fourth quarter 2008, we changed
our methodology for the calculation of organic growth in
commissions and fees. Previously, organic growth included growth
from acquisitions from the date of acquisition. Under the new
method, the first twelve months of commissions and fees
generated from acquisitions are excluded. Comparatives have been
adjusted accordingly.
|
Revenues:
2009 compared with 2008
Commissions and fees in North America were 51 percent
higher in 2009 compared with 2008 reflecting the uplift from the
additional revenues of HRH, partly offset by 3 percent
negative organic growth. Our North America operations were
significantly adversely impacted by soft market conditions, the
weakened US economy and a reduction in project based revenues
which more than offset a positive impact from net new business.
In particular, our Construction division has seen significant
declines. However, we saw the rate of decline moderate in the
third quarter of 2009 and North America reported 1 percent
organic growth
for the fourth quarter of 2009, despite a 6 percent rate
headwind.
Our primary focus in North America in 2009 was the integration
of HRH into our existing operations and the improvement of
margin. Additionally, in the second half of the year we
refocused our efforts on revenue growth and we believe this has
led to over 10 percent new business generation in parts of
the business during that time period.
Despite the difficult market conditions, our productivity
measured in terms of revenue per FTE employee remained high and
with a marginal increase to $226,000 for 2009 compared with
$225,000 for 2008.
39
Revenues:
2008 compared with 2007
Commissions and fees in North America were $154 million, or
21 percent, higher in 2008 compared with 2007, of which
$174 million was attributable to HRHs fourth quarter
2008 revenues. Excluding HRH, organic commissions and fees
declined by 1 percent reflecting the soft market conditions.
Chicago, Atlanta, Houston, Boston and Knoxville all generated
growth in excess of 5 percent, though several offices
recorded significant declines in the difficult market conditions.
The integration of the HRH acquisition made good progress in
fourth quarter 2008 with only 2 percent attrition of legacy
HRH producers since the announcement of the HRH acquisition in
June 2008.
Client retention levels improved to approximately
91 percent in 2008, an increase of approximately
3 percentage points from 2007, and productivity continued
to improve with an approximately 2 percent rise in revenues
per FTE employee in 2008 compared with 2007.
Operating
margin: 2009 compared with 2008
Operating margin in North America was 24 percent in 2009
compared with 15 percent in 2008. The higher margin
reflected:
|
|
|
the acquisition of HRH and the synergies and cost savings
achieved from the integration of HRH with our existing North
America operations;
|
|
|
a reduction in underlying expense base reflecting the benefits
of our 2008 Expense Review and Right Sizing Willis
initiatives; and
|
|
|
a $9 million benefit from the curtailment of the US pension
scheme relating to our North America retail employees;
|
partly offset by
|
|
|
the decline in organic revenues against the backdrop of the soft
market and weak economic conditions discussed above.
|
HRH
integration
The integration of HRH into our existing operations is now
substantially complete and, reflecting this success, we changed
the name of our North America retail operations from Willis HRH
to Willis North America on October 1, 2009. Progress to
date includes:
|
|
|
maintaining high producer and client retention levels;
|
|
|
reducing our expense base through synergies and other cost
savings. On a combined basis, we achieved approximately
$205 million of cost savings in 2009; and
|
|
|
as of December 31, 2009, for over 90 percent of
HRHs contingent commissions we have either converted them
into higher standard commissions or we have reaffirmed with
carriers that the existing agreements will remain in force for
so long as permitted by the regulatory authorities or until the
commissions are converted, whichever occurs first.
|
Operating
margin: 2008 compared with 2007
Operating margin in North America in 2008 was 15 percent
compared with 19 percent in 2007. The decrease of
4 percentage points reflected:
|
|
|
lower commissions and fees, reflecting the soft market
conditions;
|
|
|
a $15 million decrease in other income compared with 2007
which benefited from higher than usual proceeds from the sale of
books of business; and
|
|
|
continued spend on targeted new hires and other initiatives;
|
partly offset by
|
|
|
the acquisition of HRH which contributed $37 million of
operating income in fourth quarter 2008; and
|
|
|
the benefit of increased revenue per FTE employee and other cost
savings.
|
40
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except percentages)
|
|
|
Commissions and fees
|
|
$
|
1,020
|
|
|
$
|
1,055
|
|
|
$
|
962
|
|
Investment income
|
|
|
22
|
|
|
|
36
|
|
|
|
32
|
|
Other
income(i)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,042
|
|
|
$
|
1,091
|
|
|
$
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income(ii)
|
|
|
276
|
|
|
|
306
|
|
|
|
251
|
|
Organic revenue
growth(iii)(iv)
|
|
|
4
|
%
|
|
|
9
|
%
|
|
|
8
|
%
|
Operating
margin(ii)
|
|
|
26
|
%
|
|
|
28
|
%
|
|
|
25
|
%
|
|
|
|
(i) |
|
Other income represents gains on
disposals of intangible assets, including books of business.
Prior to January 1, 2008 these gains were reported within
total commissions and fees but were excluded from organic
revenue growth with effect from April 1, 2007. As a result
of this change, $2 million previously reported within
Internationals commissions and fees in 2007, has been
transferred to other income.
|
|
(ii) |
|
In 2008, the Company changed its
basis of segmental allocation for central costs. All accounting
adjustments for foreign exchange hedging activities and foreign
exchange movements on the UK pension plan asset or liability are
held at the Corporate level, together with legal costs that are
managed centrally. As a result of this change, $1 million
net operating loss for full year 2007 previously allocated to
the International segment, has been reported within Corporate.
|
|
(iii) |
|
Organic revenue growth excludes the
impact of foreign currency translation, the first twelve months
of net commission and fee revenues generated from acquisitions,
the net commission and fee revenues related to operations
disposed of in each period presented, market remuneration,
including contingent commissions related to the HRH acquisition,
investment income and other income from reported revenues. Our
method of calculating this measure may differ from that used by
other companies and therefore comparability may be limited.
|
|
(iv) |
|
In fourth quarter 2008, we changed
our methodology for the calculation of organic growth in
commissions and fees. Previously, organic growth included growth
from acquisitions from the date of acquisition. Under the new
method, the first twelve months of commissions and fees
generated from acquisitions are excluded. Comparatives have been
adjusted accordingly.
|
Revenues:
2009 compared with 2008
Commissions and fees in International were $35 million, or
3 percent, lower in 2009 compared with 2008 as double digit
new business generation in many of our International units was
more than offset by an adverse impact from foreign exchange of
8 percent, a 3 percent adverse impact from rates and
other market factors, and significantly lower revenues in our UK
and Irish retail operations.
A significant part of Internationals revenues are earned
in currencies other than the US dollar which has strengthened
significantly, on average, on a year over year basis against a
number of these currencies, most notably the euro, pound
sterling, Danish kroner and Australian dollar, consequently
reducing International revenues on a year over year basis when
reported in US dollars.
Despite the slowdown of the global economy, International
continued its organic growth. Excluding our UK and Irish retail
divisions, organic revenue growth was 8 percent in 2009,
with Latin America and Asia, led by Brazil, Columbia and China,
all reporting strong organic growth. However, our UK and Irish
retail division, which
represents approximately 20 percent of Internationals
operations, saw a 6 percent revenue decline, reflecting
weak local economic conditions.
Productivity in International continues to improve with revenues
per FTE employee increasing by 4 percent in 2009 compared
with 2008.
Client retention levels remained high at approximately
90 percent for 2009.
Revenues:
2008 compared with 2007
Commissions and fees in International were $93 million, or
10 percent, higher in 2008 compared with 2007.
Foreign currency translation benefited 2008 revenues by
1 percent compared with 2007.
Organic revenue growth of 9 percent in 2008 was achieved
despite declining rates in most countries.
We have seen consistent growth in our International business
over the last three years, with all twelve quarters in this
period showing growth of 5 percent or higher, with Spain,
Denmark and Latin America continuing to contribute significantly.
41
Productivity in International continued to improve with revenues
per FTE employee rising by 6 percent in 2008 compared with
2007 and average client retention levels remaining high at
approximately 91 percent.
Operating
margin: 2009 compared with 2008
Operating margin in International was 26 percent in 2009
compared with 28 percent in 2008. The benefits of:
|
|
|
the strong organic revenue growth outside of Ireland; and
|
|
|
focused expense management including savings in discretionary
costs driven by our Right Sizing Willis initiatives;
|
were more than offset by
|
|
|
increased pension expense for the UK pension plan;
|
|
|
a sharp reduction in investment income reflecting lower global
interest rates; and
|
|
|
a weak performance by our Irish retail operations reflecting
their difficult market conditions.
|
Operating
margin: 2008 compared with 2007
Operating margin in International was 28 percent in 2008
compared with 25 percent in 2007, with the
3 percentage point improvement reflecting the strong
organic revenue growth, increased productivity and continued
expense discipline partly offset by significant investment in
targeted hires and the adverse impact of declining rates in most
countries.
Venezuela
On January 8, 2010 the Venezuelan government announced its
intention to devalue its currency (Bolivar). Effective
January 1, 2010, the Venezuelan economy has been designated
as hyper-inflationary and, consequently, all future exchange
movements will flow through the income statement.
Our preliminary estimate of the impact of these changes on our
2010 income statement is that diluted earnings per share for the
Group may be approximately $0.03 lower than it would otherwise
have been.
Currently, we do not anticipate any material impact on our
balance sheet from the devaluation.
CRITICAL
ACCOUNTING ESTIMATES
Our accounting policies are described in Note 2 to the
Consolidated Financial Statements. Management considers that the
following accounting estimates or assumptions are the most
important to the presentation of our financial condition or
operating performance. Management has discussed its critical
accounting estimates and associated disclosures with our Audit
Committee.
Pension
expense
We maintain defined benefit pension plans for employees in the
US and UK. Both these plans are now closed to new entrants and,
with effect from May 15, 2009 we closed our US defined
benefit plan to future accrual. New entrants in the UK are
offered the opportunity to join a defined contribution plan and
in the United States are offered the opportunity to join a
401(k) plan. We also have smaller defined benefit schemes in
Ireland, Germany, Norway and the Netherlands. These schemes have
combined total assets of $120 million and a combined net
liability for pension benefits of $30 million as of
December 31,
2009. Elsewhere, pension benefits are typically provided through
defined contribution plans.
We make a number of assumptions when determining our pension
liabilities and pension expense which are reviewed annually by
senior management and changed where appropriate. The discount
rate will be changed annually if underlying rates have moved
whereas the expected long-term return on assets will be changed
less frequently as longer term trends in asset returns emerge.
Other material assumptions include rates of participant
mortality, the expected long-term rate of compensation and
pension increases and rates of employee termination.
We recorded a net pension charge on our UK and US defined
benefit pension plans in 2009 of $32 million, compared to a
net pension credit of $25 million in 2008, an increased
expense of $57 million.
42
The UK plan charge was $63 million higher reflecting:
|
|
|
lower asset returns from lower asset levels following the
decline in the equity markets;
|
|
|
additional pension contributions of $8 million in
connection with the pension related salary sacrifice
scheme; and
|
|
|
higher amortization from significant asset losses,
|
partly offset by
|
|
|
changes to the plan that cap the impact of future salary rises
on pension benefits.
|
The US pension charge was $6 million lower in 2009 compared
with 2008 reflecting the closure of the scheme and the resulting
$12 million curtailment gain.
Based on December 31, 2009 assumptions, we expect the net
pension charge in 2010 to increase by $2 million for the UK
plan and decrease by $6 million for the US plan.
UK
plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of a
|
|
|
|
|
|
|
|
|
|
As disclosed
|
|
|
0.50 percentage
|
|
|
Impact of a
|
|
|
|
|
|
|
using
|
|
|
point increase
|
|
|
0.50 percentage
|
|
|
One year
|
|
|
|
December 31,
|
|
|
in the expected
|
|
|
point increase
|
|
|
increase in
|
|
|
|
2009
|
|
|
rate of return
|
|
|
in the discount
|
|
|
mortality
|
|
|
|
assumptions
|
|
|
on
assets(i)
|
|
|
rate(i)
|
|
|
assumption(i)(ii)
|
|
|
|
(millions)
|
|
|
Estimated 2010 expense
|
|
$
|
29
|
|
|
$
|
(9
|
)
|
|
$
|
(16
|
)
|
|
$
|
6
|
|
Projected benefit obligation at December 31, 2009
|
|
|
1,811
|
|
|
|
n/a
|
|
|
|
(141
|
)
|
|
|
36
|
|
|
|
|
(i) |
|
With all other assumptions held
constant.
|
|
(ii) |
|
Assumes all plan participants are
one year younger. Expected long-term rates of return on plan
assets are developed from the expected future returns of the
various asset classes using the target asset allocations. The
expected long-term rate of return used for determining the
net UK pension expense in 2009 remained unchanged at
7.8 percent, equivalent to an expected return in 2009 of
$127 million. The expected and actual returns on UK plan
assets for the three years ended December 31, 2009 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
Actual
|
|
|
|
return on
|
|
|
return on
|
|
|
|
plan
|
|
|
plan
|
|
|
|
assets
|
|
|
assets
|
|
|
|
(millions)
|
|
|
2009
|
|
$
|
127
|
|
|
$
|
234
|
|
2008
|
|
|
184
|
|
|
|
(509
|
)
|
2007
|
|
|
182
|
|
|
|
99
|
|
During the latter half of 2008 the value of assets held by our
pension plans was significantly adversely affected by the
turmoil in worldwide markets. The holdings of equity securities
by our UK and US pension plans were particularly affected in
2008, but have recovered, to some extent, in 2009.
Rates used to discount pension plan liabilities at
December 31, 2009 were based on yields prevailing at that
date of high quality corporate bonds of appropriate maturity.
The selected rate used to discount UK plan liabilities was
5.8 percent compared with 6.5 percent at
December 31, 2008
with the decrease reflecting a reduction in UK long-term bond
rates in the second half of 2009. The lower discount rate and
reduced inflation assumption generated an actuarial gain of
$208 million at December 31, 2009.
Mortality assumptions at December 31, 2009 were unchanged
from December 31, 2008. The mortality assumption is the
100 percent PNA00 table without an age adjustment. As
an indication of the longevity assumed, our calculations assume
that a UK male retiree aged 65 at December 31, 2009 would
have a life expectancy of 22 years.
43
US
plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of a
|
|
|
|
|
|
|
|
|
|
As disclosed
|
|
|
0.50 percentage
|
|
|
Impact of a
|
|
|
|
|
|
|
using
|
|
|
point increase
|
|
|
0.50 percentage
|
|
|
One year
|
|
|
|
December 31,
|
|
|
in the expected
|
|
|
point increase
|
|
|
increase in
|
|
|
|
2009
|
|
|
rate of return
|
|
|
in the discount
|
|
|
mortality
|
|
|
|
assumptions
|
|
|
on assets(i)
|
|
|
rate(i)
|
|
|
assumption(i)(ii)
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Estimated 2010 expense
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
$
|
(1
|
)
|
|
$
|
2
|
|
Projected benefit obligation at December 31, 2009
|
|
|
686
|
|
|
|
n/a
|
|
|
|
(42
|
)
|
|
|
18
|
|
|
|
|
(i) |
|
With all other assumptions held
constant.
|
|
(ii) |
|
Assumes all plan participants are
one year younger.
|
The expected long-term rate of return used for determining the
net US pension scheme expense in 2009 was 8.0 percent,
consistent with 2008. The rate used to discount US plan
liabilities at December 31, 2009 was 6.1 percent,
determined based on expected plan cash flows discounted using
a corporate bond yield curve, a small reduction from
6.3 percent at December 31, 2008. The expected and
actual returns on US plan assets for the three years ended
December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Expected
|
|
|
Actual
|
|
|
|
return on
|
|
|
return on
|
|
|
|
plan assets
|
|
|
plan assets
|
|
|
|
(millions)
|
|
|
2009
|
|
$
|
36
|
|
|
$
|
86
|
|
2008
|
|
|
47
|
|
|
|
(142
|
)
|
2007
|
|
|
44
|
|
|
|
46
|
|
The mortality assumption at December 31, 2009 is the
RP-2000 Mortality Table (blended for annuitants and
non-annuitants), projected to 2010 by Scale AA
(December 31, 2008: projected to 2009 by Scale
AA). As an indication of the longevity assumed, our calculations
assume that a US male retiree aged 65 at December 31, 2009,
would have a life expectancy of 18 years.
Intangible
assets
Intangible assets represent the excess of cost over the value of
net tangible assets of businesses acquired. We classify our
intangible assets into three categories:
|
|
|
Goodwill;
|
|
|
Customer and Marketing Related includes client
lists, client relationships, trade names and non-compete
agreements; and
|
|
|
Contract-based, Technology and Other includes all
other purchased intangible assets.
|
Client relationships acquired on the HRH acquisition are
amortized over twenty years in line with the pattern in which
the economic benefits of the client relationships are expected
to be consumed. Over 80 percent of the client relationships
intangible will have been amortized after 10 years.
Non-compete agreements acquired in connection with the HRH
acquisition are amortized
over two years on a straight line basis. Intangible assets
acquired in connection with other acquisitions are amortized
over their estimated useful lives on a straight line basis.
Goodwill is not subject to amortization.
To determine the allocation of intangible assets between
goodwill and other intangible assets and the estimated useful
lives in respect of the HRH acquisition we considered a report
produced by a qualified independent appraiser. The calculation
of the allocation is subject to a number of estimates and
assumptions. We base our allocation on assumptions we believe to
be reasonable. However, changes in these estimates and
assumptions could affect the allocation between goodwill and
other intangible assets.
Impairment
review
We review all our intangible assets for impairment periodically
(at least annually) or whenever events or circumstances indicate
impairment may have
44
occurred. Application of the impairment test requires judgment,
including:
|
|
|
the identification of reporting units;
|
|
|
assignment of assets, liabilities and goodwill to reporting
units; and
|
|
|
determination of fair value of each reporting unit.
|
The fair value of each reporting unit is estimated using a
discounted cash flow methodology and, in aggregate, validated
against our market capitalization. This analysis requires
significant judgments, including:
|
|
|
estimation of future cash flows which is dependent on internal
forecasts;
|
|
|
estimation of the long-term rate of growth for our business;
|
|
|
the estimation of the useful life over which cash flows will
occur; and
|
|
|
determination of our weighted average cost of capital.
|
We base our fair value estimates on assumptions we believe to be
reasonable. However, changes in these estimates and assumptions
could materially affect the determination of fair value and
goodwill impairment for each reporting unit.
Our annual goodwill impairment analysis, which we performed
during the fourth quarter of 2009, did not result in an
impairment charge (2008: $nil, 2007: $nil).
Income
taxes
We recognize deferred tax assets and liabilities for the
estimated future tax consequences of events attributable to
differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases
and operating and capital loss and tax credit carry-forwards. We
estimate deferred tax assets and liabilities and assess the need
for any valuation allowances using tax rates in effect for the
year in which the differences are expected to be recovered or
settled taking into account our business plans and tax planning
strategies.
At December 31, 2009, we had gross deferred tax assets of
$390 million (2008: $362 million) against which a
valuation allowance of $92 million (2008:
$85 million) had been recognized. To the extent that:
|
|
|
the actual future taxable income in the periods during which the
temporary differences are expected to reverse differs from
current projections;
|
|
|
assumed prudent and feasible tax planning strategies fail to
materialize;
|
|
|
new tax planning strategies are developed; or
|
|
|
material changes occur in actual tax rates or loss carry-forward
time limits,
|
we may adjust the deferred tax asset considered realizable in
future periods. Such adjustments could result in a significant
increase or decrease in the effective tax rate and have a
material impact on our net income.
Positions taken in our tax returns may be subject to challenge
by the taxing authorities upon examination. We recognize the
benefit of uncertain tax positions in the financial statements
when it is more likely than not that the position will be
sustained on examination by the tax authorities. The benefit
recognized is the largest amount of tax benefit that has a
greater than 50 percent likelihood of being realized on
settlement with the tax authority, assuming full knowledge of
the position and all relevant facts. The Company adjusts its
recognition of these uncertain tax benefits in the period in
which new information is available impacting either the
recognition or measurement of its uncertain tax positions. In
2009, $11 million was released relating to uncertain tax
positions due to the closure of the statute of limitations on
assessments for previously unrecognized tax benefits. There was
a similar $5 million release of uncertain tax positions in
2008.
Commitments,
contingencies and accrued liabilities
We purchase professional indemnity insurance for errors and
omissions claims. The terms of this insurance vary by policy
year and self-insured risks have increased significantly over
recent years. We have established provisions against various
actual and potential claims, lawsuits and other proceedings
relating principally to alleged errors and omissions in
connection with the placement of insurance and reinsurance in
the ordinary course of business. Such provisions cover claims
that have been reported but not paid and also claims that have
been incurred but
45
not reported. These provisions are established based on
actuarial estimates together with individual case
reviews and are believed to be adequate in the light of current
information and legal advice.
NEW
ACCOUNTING STANDARDS
New accounting standards issued during the year that would have
a significant impact on the
Companys reporting are described in Note 2 to the
Consolidated Financial Statements.
LIQUIDITY
AND CAPITAL RESOURCES
During 2009, we have taken a number of actions to significantly
improve our debt maturity profile:
|
|
|
in March 2009, we issued 12.875% senior notes due 2016 in
an aggregate principal amount of $500 million to Goldman
Sachs Mezzanine Partners which generated net proceeds of
$482 million. These proceeds, together with
$208 million cash generated from operating activities and
cash in hand, were used to pay down the $750 million
outstanding on our interim credit facility as of
December 31, 2008; and
|
|
|
in September 2009, we issued $300 million of
7.0% senior unsecured notes due 2019. We then launched a
tender offer on September 22, 2009 to repurchase any and
all of our $250 million 5.125% senior notes due July
2010 at a premium of $27.50 per $1,000 face value. Notes
totaling $160 million were tendered and repurchased on
September 29, 2009.
|
Since December 31, 2009 we have:
|
|
|
repurchased on the open market a further $7 million of July
2010 bonds; and
|
|
|
repaid the full value of $9 million in respect of a fixed
rate loan note due 2010.
|
Once the remaining $83 million of senior notes due July
2010 are repaid, the only mandatory repayments over the next
5 years are the scheduled repayments on our
$700 million
5-year term
loan and $4 million due on a fixed rate loan note due 2012.
In the short term, our capital management priority is debt
reduction and we are currently targeting a debt to adjusted
EBITDA (earnings before interest, tax, depreciation and
amortization) ratio of below 2.5 times. Once we are in a
position to remain at or below this ratio, we would consider
recommencing our stock buyback program. At December 31,
2009 the actual ratio was 2.6 times. However, there can be no
assurance that we will achieve our target debt
to EBITDA ratio or recommence our stock buyback program.
Liquidity
Our principal sources of liquidity are cash from operations,
cash and cash equivalents of $191 million at
December 31, 2009 and remaining availability of
$300 million under our revolving credit facility.
As of December 31, 2009, our short-term liquidity
requirements consisted of:
|
|
|
payment of interest on debt and $110 million of mandatory
repayments under our 2013 term loan;
|
|
|
payment of the $90 million principal outstanding on our
senior notes due July 2010;
|
|
|
capital expenditure; and
|
|
|
working capital.
|
Our long-term liquidity requirements consist of:
|
|
|
the principal amount of outstanding notes; and
|
|
|
borrowings under our 2013 term loan and revolving credit
facility.
|
Based on current market conditions and information available to
us at this time, we believe that we have sufficient liquidity to
meet our cash needs for at least the next 12 months.
In an effort to reduce future cash interest payments as well as
future amounts due at maturity, we may from time to time seek to
retire or purchase our outstanding debt through tender offers,
cash purchases, in open market purchases, privately negotiated
transactions or otherwise. Such actions, if any, will depend on
prevailing market conditions, our liquidity requirements,
contractual restrictions and other factors. The amounts involved
may be material.
In September 2009, Standard and Poors and Moodys
revised their outlook on the Company to Stable from Negative. We
believe that the improved
46
outlook and our current ratings allow us more flexibility in our
capital planning.
We continue to identify and implement further actions to control
costs and enhance our operating performance, including cash
flow. These actions include the rationalization of our cost base
through our ongoing Right Sizing Willis initiatives to achieve
the best structure within the current environment.
Fiduciary
funds
As an intermediary, we hold funds generally in a fiduciary
capacity for the account of third parties, typically as the
result of premiums received from clients that are in transit to
insurers and claims due to clients that are in transit from
insurers. We report premiums, which are held on account of, or
due from, clients as assets with a corresponding liability due
to the insurers. Claims held by, or due to, us which are due to
clients are also shown as both assets and liabilities. All of
these balances due or payable are included in accounts
receivable and accounts payable on the balance sheet. We earn
interest on these funds during the time between the receipt of
the cash and the time the cash is paid out. Fiduciary cash must
be kept in certain regulated bank accounts subject to
guidelines, which generally emphasize capital preservation and
liquidity, and is not generally available to service our debt or
for other corporate purposes.
Operating
activities
2009
compared to 2008
Net cash provided by operations was $418 million in 2009
compared with $224 million in 2008. The $194 million
increase between 2008 and 2009 mainly reflects:
|
|
|
a $198 million increase in net income before the non-cash
charge for amortization of intangible assets; and
|
|
|
a reduction in pension scheme contributions to $82 million
in 2009, compared with $154 million in 2008;
|
partly offset by
|
|
|
the timing of cash collections and other working capital
movements.
|
2008
compared to 2007
Net cash from operations in 2008 was $51 million lower than
in 2007, mainly reflecting:
|
|
|
an $81 million decrease in net income before the non-cash
charge for amortization of intangible assets; and
|
|
|
a $65 million increase in cash payments for interest
reflecting higher average debt levels, particularly following
the funding of the HRH acquisition;
|
partly offset by
|
|
|
a $46 million reduction in additional contributions to our
UK and US defined benefit pension plans;
|
|
|
the benefit of a $14 million reduction in taxes
paid; and
|
|
|
the timing of cash collections and other working capital
movements.
|
Investing
activities
2009
compared to 2008
Total net cash inflow from investing activities was
$102 million in 2009 compared with an outflow of
$1,033 million in 2008, reflecting:
|
|
|
the $926 million net cash outflow attributable to the HRH
acquisition in 2008;
|
|
|
$113 million cash received in 2009 in respect of
investments in associates, compared with $31 million paid
in 2008. The 2009 receipt includes $155 million from the
reorganization of Gras Savoye, less $42 million settled in
January 2009 for an additional investment in Gras Savoye made in
December 2008; and
|
|
|
a $40 million increase in net proceeds from sale of
operations, mainly attributable to the second quarter 2009
disposal of Bliss & Glennon.
|
2008
compared to 2007
Total net cash used in investing activities was
$1,033 million in 2008 compared with $181 million in
2007. The movement was attributable to:
|
|
|
an $899 million net increase in the cost of acquisitions,
primarily reflecting $926 million attributable to the HRH
acquisition; and
|
47
|
|
|
a reduction in proceeds from disposals of operations,
investments and other assets of $14 million;
|
partly offset by
|
|
|
a reduction in fixed asset spend of $91 million,
principally attributable to sharply reduced expenditure on our
new London and US headquarters buildings following their
completion.
|
Financing
activities
Net cash used in financing activities was $516 million in
2009 compared with an inflow of $808 million in 2008 and an
outflow of $193 million in 2007.
Long-term
debt
In March 2009, we issued $500 million of senior notes due
2016 at 12.875%.
We used the $482 million net proceeds of the notes,
together with $208 million cash generated from operating
activities and $60 million cash in hand, to pay down the
$750 million outstanding on our interim credit facility as
of December 31, 2008.
In September 2009, we issued $300 million of
7.0% senior notes due 2019. We then launched a tender offer
on September 22, 2009 to repurchase any and all of our
$250 million 5.125% senior notes due July 2010 at a
premium of $27.50 per $1,000 face value. Notes totaling
$160 million were tendered and repurchased on
September 29, 2009.
In December 2009, we applied the net cash proceeds of
$155 million from the Gras Savoye transaction, together
with other cash in hand, to reduce the balance outstanding on
the 5-year
term loan by approximately $180 million to
$521 million, of which $27 million related to our
first mandatory debt repayment.
As of December 31, 2009, there were no amounts outstanding
under our $300 million revolving credit facility (2008:
$nil; 2007: $50 million).
Share
buybacks
We did not buyback any shares in 2009. There remains
$925 million under the current buyback authorization.
In 2008, we repurchased 2.3 million shares at a cost of
$75 million and in 2007 we repurchased 11.5 million
shares for $480 million of cash.
In 2009, the Company filed a Tender Offer Statement with the SEC
to repurchase for cash options to purchase Company shares. The
tender offer expired on August 6, 2009. Approximately 1.6
million options to purchase Company shares were repurchased at
an average per share price of $2.04.
Dividends
Cash dividends paid in 2009 were $174 million compared with
$146 million in 2008 and $143 million in 2007.
The $28 million increase primarily reflects dividend
payments on the 24 million additional shares issued in
connection with the fourth quarter 2008 acquisition of HRH. In
February 2010, we declared a quarterly cash dividend of $0.26
per share, an annual rate of $1.04 per share, subject to the
Irish High Court approving a reduction of our share capital in
order to create distributable reserves, (which under Irish law
are required to facilitate the payment of a dividend), and
compliance generally with the requirements of the Irish
Companies Act relating to the payment of dividends.
48
CONTRACTUAL
OBLIGATIONS
Our contractual obligations at December 31, 2009 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by
|
|
|
|
|
|
|
|
|
|
2011-
|
|
|
2013-
|
|
|
|
|
Obligations
|
|
Total
|
|
|
2010
|
|
|
2012
|
|
|
2014
|
|
|
After 2014
|
|
|
|
(millions)
|
|
|
5.125% senior notes due 2010
|
|
$
|
90
|
|
|
$
|
90
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
5.625% senior notes due 2015
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
12.875% senior notes due 2016
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
6.200% senior notes due 2017
|
|
|
600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600
|
|
7.000% senior notes due 2019
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Interest on senior notes
|
|
|
1,014
|
|
|
|
147
|
|
|
|
285
|
|
|
|
285
|
|
|
|
297
|
|
6.000% loan notes due 2010
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.000% loan notes due 2012
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Term loan expires 2013
|
|
|
521
|
|
|
|
110
|
|
|
|
219
|
|
|
|
192
|
|
|
|
|
|
Interest on term loan
|
|
|
31
|
|
|
|
12
|
|
|
|
16
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt and related interest
|
|
|
3,419
|
|
|
|
368
|
|
|
|
524
|
|
|
|
480
|
|
|
|
2,047
|
|
Operating
leases(i)
|
|
|
1,329
|
|
|
|
152
|
|
|
|
199
|
|
|
|
136
|
|
|
|
842
|
|
Pensions
|
|
|
426
|
|
|
|
122
|
|
|
|
244
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
5,174
|
|
|
$
|
642
|
|
|
$
|
967
|
|
|
$
|
676
|
|
|
$
|
2,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
facilities
In March 2009, we issued 12.875% senior notes due 2016 in
an aggregate principal amount of $500 million to Goldman
Sachs Mezzanine Partners which generated net proceeds of
$482 million. These proceeds, together with
$208 million cash generated from operating activities and
cash in hand, were used to pay down the $750 million
outstanding on our interim credit facility as of
December 31, 2008.
In September 2009, we issued $300 million of
7.0% senior notes due 2019. We then launched a tender offer
on September 22, 2009 to repurchase any and all of our
$250 million 5.125% senior notes due July 2010 at a
premium of $27.50 per $1,000 face value. Notes totaling
approximately $160 million were tendered and repurchased on
September 29, 2009.
In December 2009, we applied the net cash proceeds of
$155 million from the Gras Savoye transaction, together
with other cash in hand, to reduce the balance outstanding on
the 5-year
term loan by approximately $180 million to
$521 million.
Since the end of the year, we have:
|
|
|
repurchased a further $7 million of July 2010
bonds; and
|
|
|
repaid the full value of $9 million in respect of a fixed
rate loan note due 2010.
|
Once the remaining $83 million of July 2010 bonds are
repaid, the only mandatory repayments over the next 5 years
are the scheduled repayments on our $700 million
5-year term
loan and $4 million due on a fixed rate loan note due 2012.
Operating
leases
We lease our London headquarters building under a 25 year
operating lease, which expires in 2032. Annual rentals are
$31 million per year and we have subleased approximately
30 percent of the premises under leases up to
15 years. The outstanding contractual obligation for lease
rentals at December 31, 2009 was $785 million and the
amounts receivable from subleases was $100 million.
49
Pensions
Contractual obligations for our pension plans reflect the
contributions we expect to make over the next five years into
our US and UK plans. These contributions are based on current
funding positions and may increase or decrease dependent on the
future performance of the two plans.
In the UK, we are required to agree a funding strategy for our
UK defined benefit plan with the plans trustees. In
February 2009, we agreed to make full year contributions to the
UK plan of $40 million for 2009 through 2012, excluding
amounts in respect of the salary sacrifice scheme. In addition,
as certain funding targets have not been met at the beginning of
2010, a further contribution
of $40 million is required for 2010. A similar, additional
contribution may also be required for 2011, depending on actual
performance against funding targets at the beginning of 2011.
For the US plan, expected contributions are the contributions we
will be required to make under US pension legislation based on
our December 31, 2009 balance sheet position. We currently
expect to contribute $30 million in 2010 and
$30 million per year from 2011 to 2014.
The total contributions for all plans are currently estimated to
be approximately $120 million in 2010 excluding amounts in
respect of the salary sacrifice scheme.
OFF-BALANCE
SHEET TRANSACTIONS
Apart from commitments, guarantees and contingencies, as
disclosed in Note 18 to the Consolidated Financial
Statements, the Company has no off-balance sheet arrangements
that have, or
are reasonably likely to have, a material effect on the
Companys financial condition, results of operations or
liquidity.
50
|
|
Item 7A
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Financial
Risk Management
We are exposed to market risk from changes in foreign currency
exchange rates and interest rates. In order to manage the risk
arising from these exposures, we enter into a variety of
interest rate and foreign currency derivatives. We do not hold
financial or derivative instruments for trading purposes.
A discussion of our accounting policies for financial and
derivative instruments is included in Note 2
Basis of Presentation and Significant Accounting Policies of
Notes to the Consolidated Financial Statements, and further
disclosure is provided in Note 22 Financial
Instruments of Notes to the Consolidated Financial Statements.
Foreign
exchange risk management
Because of the large number of countries and currencies we
operate in, movements in currency exchange rates may affect our
results.
We report our operating results and financial condition in US
dollars. Our US operations earn revenue and incur expenses
primarily in US dollars. Outside the United States, we
predominantly generate revenues and expenses in the local
currency with the exception of our London market operations
which earns revenues in several currencies but incurs expenses
predominantly in pounds sterling.
The table below gives an approximate analysis of revenues and
expenses by currency in 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
Pounds
|
|
|
|
|
|
Other
|
|
|
|
Dollars
|
|
|
Sterling
|
|
|
Euros
|
|
|
currencies
|
|
|
Revenues
|
|
|
60%
|
|
|
|
10%
|
|
|
|
14%
|
|
|
|
16%
|
|
Expenses
|
|
|
59%
|
|
|
|
20%
|
|
|
|
7%
|
|
|
|
14%
|
|
Our principal exposures to foreign exchange risk arise from:
|
|
|
our London market operations; and
|
|
|
translation.
|
London
market operations
In our London market operations, we earn revenue in a number of
different currencies, principally US dollars, pounds sterling,
euros and Japanese yen, but incur expenses almost entirely in
pounds sterling.
We hedge this risk as follows:
|
|
|
to the extent that forecast pound sterling expenses exceed pound
sterling revenues, we limit our exposure to this exchange rate
risk by the use of forward contracts matched to specific,
clearly identified cash outflows arising in the ordinary course
of business; and
|
|
|
to the extent our London market operations earn significant
revenues in euros and Japanese yen, we limit our exposure to
changes in the exchange rate between the US dollar and these
currencies by the use of forward contracts matched to a
percentage of forecast cash inflows in specific currencies and
periods.
|
Generally, it is our policy to hedge at least 25 percent of
the next 12 months exposure in significant
currencies. We do not hedge exposures beyond three years.
In addition, we are also exposed to foreign exchange risk on any
net sterling asset or liability position in our London market
operations. Where this risk relates to short-term cash flows, we
hedge all or part of the risk by forward purchases or sales.
However, where the foreign exchange risk relates to any sterling
pension assets benefit or liability for pensions benefit, we do
not hedge the risk. Consequently, if our London market
operations have a significant pension asset or liability, we may
be exposed to accounting gains and losses if the US dollar and
pounds sterling exchange rate changes. We do, however, hedge the
pounds sterling contributions into the pension plan.
Translation
risk
Outside our US and London market operations, we predominantly
earn revenues and incur expenses in the local currency. When we
translate the results and net assets of these operations into US
dollars for reporting purposes, movements in exchange rates will
affect reported results and net assets. For example, if the US
dollar strengthens against the euro, the reported results of our
Eurozone operations in US dollar terms will be lower. We do not
hedge translation risk.
The table below provides information about our foreign currency
forward exchange contracts, which are sensitive to exchange rate
risk. The table
51
summarizes the US dollar equivalent amounts of each currency
bought and sold forward and the weighted average contractual
exchange rates. All
forward exchange contracts mature within four years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement date before December 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Contract
|
|
|
contractual
|
|
|
Contract
|
|
|
contractual
|
|
|
Contract
|
|
|
contractual
|
|
|
Contract
|
|
|
contractual
|
|
December 31, 2009
|
|
amount
|
|
|
exchange rate
|
|
|
amount
|
|
|
exchange rate
|
|
|
amount
|
|
|
exchange rate
|
|
|
amount
|
|
|
exchange rate
|
|
|
|
(millions)
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Foreign currency sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Dollars sold for sterling
|
|
$
|
168
|
|
|
$
|
1.77=£1
|
|
|
$
|
63
|
|
|
$
|
1.57=£1
|
|
|
$
|
30
|
|
|
$
|
1.52=£1
|
|
|
|
|
|
|
|
n/a
|
|
Euro sold for US Dollars
|
|
|
84
|
|
|
|
1=$1.42
|
|
|
|
63
|
|
|
|
1=$1.41
|
|
|
|
38
|
|
|
|
1=$1.42
|
|
|
|
|
|
|
|
n/a
|
|
Japanese Yen sold for US Dollars
|
|
|
24
|
|
|
¥
|
97.03=$1
|
|
|
|
21
|
|
|
¥
|
92.89=$1
|
|
|
|
11
|
|
|
¥
|
88.73=$1
|
|
|
|
2
|
|
|
¥
|
83.95=$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
276
|
|
|
|
|
|
|
$
|
147
|
|
|
|
|
|
|
$
|
79
|
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value(1)
|
|
$
|
(15
|
)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
1
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement date before December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Contract
|
|
|
contractual
|
|
|
Contract
|
|
|
contractual
|
|
|
Contract
|
|
|
contractual
|
|
December 31, 2008
|
|
amount
|
|
|
exchange rate
|
|
|
amount
|
|
|
exchange rate
|
|
|
amount
|
|
|
exchange rate
|
|
|
|
(millions)
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
Foreign currency sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Dollars sold for sterling
|
|
$
|
247
|
|
|
$
|
1.85=£1
|
|
|
$
|
144
|
|
|
$
|
1.80=£1
|
|
|
$
|
32
|
|
|
$
|
1.63=£1
|
|
Euro sold for US Dollars
|
|
|
83
|
|
|
|
1=$1.40
|
|
|
|
67
|
|
|
|
1=$1.43
|
|
|
|
17
|
|
|
|
1=$1.43
|
|
Japanese Yen sold for US Dollars
|
|
|
18
|
|
|
¥
|
106.08=$1
|
|
|
|
15
|
|
|
¥
|
100.20=$1
|
|
|
|
8
|
|
|
¥
|
97.34=$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
348
|
|
|
|
|
|
|
$
|
226
|
|
|
|
|
|
|
$
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value(1)
|
|
$
|
(55
|
)
|
|
|
|
|
|
$
|
(26
|
)
|
|
|
|
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
(1) |
|
Represents the difference between
the contract amount and the cash flow in US dollars which would
have been receivable had the foreign currency forward exchange
contracts been entered into on December 31, 2009 or 2008 at
the forward exchange rates prevailing at that date.
|
Income earned within foreign subsidiaries outside of the UK is
generally offset by expenses in the same local currency but the
Company does have exposure to foreign exchange movements on the
net income of these entities. The Company does not hedge net
income earned within foreign subsidiaries outside of the UK.
Interest
rate risk management
Our operations are financed principally by $1,840 million
fixed rate senior notes issued by subsidiaries and
$521 million under a
5-year term
loan facility. Of the fixed rate senior notes, $90 million
are due 2010, $350 million are due 2015, $500 million
are due 2016, $600 million are due 2017 and
$300 million are due 2019. The
5-year term
loan facility amortizes at the rate of $27 million per
quarter. As of December 31, 2009 we had access to, but had
not drawn $300 million under a
5-year
revolving credit facility. The interest rate applicable to the
bank borrowing is variable according to the period of each
individual drawdown.
We are also subject to market risk from exposure to changes in
interest rates based on our investing activities where our
primary interest rate risk arises from changes in short-term
interest rates in both US dollars and pounds sterling.
As a consequence of our insurance and reinsurance broking
activities, there is a delay between the time we receive cash
for premiums and claims and the time the cash needs to be paid.
We earn interest on this float, which is included in our
consolidated financial statements as investment income.
This float is regulated in terms of access and the instruments
in which it may be invested, most of which are short-term in
maturity. We manage the interest rate risk arising from this
exposure primarily through the use of interest rate swaps. It is
our policy that, for currencies with significant balances, a
minimum of 25 percent of forecast income arising is hedged
for each of the next three years.
The table below provides information about our derivative
instruments and other financial
52
instruments that are sensitive to changes in interest. For
interest rate swaps, the table presents notional principal
amounts and average interest rates analyzed by expected maturity
dates. Notional principal amounts are used to calculate the
contractual payments to be exchanged under the contracts. The
duration of interest rate swaps varies
between one and four years, with re-fixing periods of three
months. Average fixed and variable rates are, respectively, the
weighted-average actual and market rates for the interest hedges
in place. Market rates are the rates prevailing at
December 31, 2009 or 2008, as appropriate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to mature before December 31,
|
|
|
|
|
|
|
|
|
Fair
|
|
December 31, 2009
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value(1)
|
|
|
|
($ millions, except percentages)
|
|
|
Fixed rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal ($)
|
|
|
99
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
1,750
|
|
|
|
1,853
|
|
|
|
2,088
|
|
Fixed rate payable
|
|
|
5.13
|
%
|
|
|
|
|
|
|
6.00
|
%
|
|
|
|
|
|
|
8.14
|
%
|
|
|
8.12
|
%
|
|
|
|
|
Floating rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal ($)
|
|
|
110
|
|
|
|
109
|
|
|
|
110
|
|
|
|
192
|
|
|
|
|
|
|
|
521
|
|
|
|
521
|
|
Variable rate payable
|
|
|
2.85
|
%
|
|
|
3.54
|
%
|
|
|
4.17
|
%
|
|
|
4.54
|
%
|
|
|
|
|
|
|
4.16
|
%
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal ($)
|
|
|
235
|
|
|
|
240
|
|
|
|
40
|
|
|
|
90
|
|
|
|
|
|
|
|
605
|
|
|
|
17
|
|
Fixed rate receivable
|
|
|
5.20
|
%
|
|
|
4.37
|
%
|
|
|
1.84
|
%
|
|
|
2.80
|
%
|
|
|
|
|
|
|
4.72
|
%
|
|
|
|
|
Variable rate payable
|
|
|
0.54
|
%
|
|
|
1.10
|
%
|
|
|
2.34
|
%
|
|
|
2.77
|
%
|
|
|
|
|
|
|
1.85
|
%
|
|
|
|
|
Principal (£)
|
|
|
77
|
|
|
|
58
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
|
|
7
|
|
Fixed rate receivable
|
|
|
5.21
|
%
|
|
|
5.71
|
%
|
|
|
4.90
|
%
|
|
|
|
|
|
|
|
|
|
|
5.23
|
%
|
|
|
|
|
Variable rate payable
|
|
|
0.86
|
%
|
|
|
1.25
|
%
|
|
|
2.44
|
%
|
|
|
|
|
|
|
|
|
|
|
1.78
|
%
|
|
|
|
|
Principal ()
|
|
|
16
|
|
|
|
57
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
2
|
|
Fixed rate receivable
|
|
|
4.30
|
%
|
|
|
4.08
|
%
|
|
|
2.30
|
%
|
|
|
|
|
|
|
|
|
|
|
3.55
|
%
|
|
|
|
|
Variable rate payable
|
|
|
1.19
|
%
|
|
|
1.48
|
%
|
|
|
2.22
|
%
|
|
|
|
|
|
|
|
|
|
|
1.69
|
%
|
|
|
|
|
|
|
|
(1) |
|
Represents the net present value of
the expected cash flows discounted at current market rates of
interest as appropriate.
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to mature before December 31,
|
|
|
|
|
|
|
|
|
Fair
|
|
December 31, 2008
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value(1)
|
|
|
|
($ millions, except percentages)
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal ($)
|
|
|
7
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
Fixed rate receivable
|
|
|
4.82
|
%
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.41
|
%
|
|
|
|
|
Principal (£)
|
|
|
7
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Fixed rate receivable
|
|
|
5.50
|
%
|
|
|
4.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.42
|
%
|
|
|
|
|
Fixed rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal ($)
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
950
|
|
|
|
1,200
|
|
|
|
881
|
|
Fixed rate payable
|
|
|
|
|
|
|
5.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.02
|
%
|
|
|
5.97
|
%
|
|
|
|
|
Floating rate debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal ($)
|
|
|
785
|
|
|
|
140
|
|
|
|
140
|
|
|
|
140
|
|
|
|
245
|
|
|
|
|
|
|
|
1,450
|
|
|
|
1,450
|
|
Variable rate payable
|
|
|
3.21
|
%
|
|
|
3.94
|
%
|
|
|
4.53
|
%
|
|
|
4.85
|
%
|
|
|
5.15
|
%
|
|
|
|
|
|
|
4.51
|
%
|
|
|
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal ($)
|
|
|
350
|
|
|
|
235
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
825
|
|
|
|
29
|
|
Fixed rate receivable
|
|
|
4.69
|
%
|
|
|
5.14
|
%
|
|
|
4.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.72
|
%
|
|
|
|
|
Variable rate payable
|
|
|
2.36
|
%
|
|
|
2.03
|
%
|
|
|
1.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.85
|
%
|
|
|
|
|
Principal (£)
|
|
|
71
|
|
|
|
70
|
|
|
|
52
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
237
|
|
|
|
8
|
|
Fixed rate receivable
|
|
|
4.83
|
%
|
|
|
5.11
|
%
|
|
|
5.69
|
%
|
|
|
5.07
|
%
|
|
|
|
|
|
|
|
|
|
|
5.25
|
%
|
|
|
|
|
Variable rate payable
|
|
|
3.78
|
%
|
|
|
3.03
|
%
|
|
|
2.68
|
%
|
|
|
2.92
|
%
|
|
|
|
|
|
|
|
|
|
|
2.98
|
%
|
|
|
|
|
Principal ()
|
|
|
72
|
|
|
|
15
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
2
|
|
Fixed rate receivable
|
|
|
3.97
|
%
|
|
|
4.14
|
%
|
|
|
4.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.04
|
%
|
|
|
|
|
Variable rate payable
|
|
|
3.51
|
%
|
|
|
2.86
|
%
|
|
|
2.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.88
|
%
|
|
|
|
|
|
|
|
(1) |
|
Represents the net present value of
the expected cash flows discounted at current market rates of
interest as appropriate.
|
54
WILLIS
GROUP HOLDINGS PLC
|
|
Item 8
|
Financial
Statements and Supplementary Data
|
Index to
Consolidated Financial Statements and Supplementary
Data
55
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Stockholders of Willis Group Holdings Public
Limited Company
Dublin, Ireland
We have audited the accompanying consolidated balance sheets of
Willis Group Holdings Public Limited Company and subsidiaries
(the Company) as of December 31, 2009 and 2008,
and the related consolidated statements of operations, changes
in equity and comprehensive income, and cash flows for each of
the three years in the period ended December 31, 2009. Our
audits also included the consolidated financial statement
schedule listed in the Index at Item 15. These financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Willis Group Holdings Public Limited Company and subsidiaries as
of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such consolidated financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
As discussed in Note 2 to the consolidated financial
statements, on January 1, 2009, the Company adopted the
noncontrolling interest guidance from Accounting Standards
Codification 810, Consolidations (formerly Statement of
Financial Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of ARB 51). The Company has retrospectively
adjusted all periods presented in the consolidated financial
statements for the effect of this change.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2010 expressed an
unqualified opinion on the Companys internal control over
financial reporting.
Deloitte LLP
London, United Kingdom
February 26, 2010
56
WILLIS
GROUP HOLDINGS PLC
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except per share data)
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and fees
|
|
$
|
3,210
|
|
|
$
|
2,744
|
|
|
$
|
2,463
|
|
Investment income
|
|
|
50
|
|
|
|
81
|
|
|
|
96
|
|
Other income
|
|
|
3
|
|
|
|
2
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
3,263
|
|
|
|
2,827
|
|
|
|
2,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits (including share-based compensation of
$39 million, $40 million and $33 million
(Note 4))
|
|
|
(1,827
|
)
|
|
|
(1,638
|
)
|
|
|
(1,448
|
)
|
Other operating expenses
|
|
|
(595
|
)
|
|
|
(603
|
)
|
|
|
(460
|
)
|
Depreciation expense
|
|
|
(60
|
)
|
|
|
(54
|
)
|
|
|
(52
|
)
|
Amortization of intangible assets
|
|
|
(100
|
)
|
|
|
(36
|
)
|
|
|
(14
|
)
|
Gain on disposal of London headquarters (Note 5)
|
|
|
|
|
|
|
7
|
|
|
|
14
|
|
Net gain on disposal of operations (Note 6)
|
|
|
13
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
(2,569
|
)
|
|
|
(2,324
|
)
|
|
|
(1,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
694
|
|
|
|
503
|
|
|
|
620
|
|
Interest expense
|
|
|
(174
|
)
|
|
|
(105
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
INTEREST IN EARNINGS OF ASSOCIATES
|
|
|
520
|
|
|
|
398
|
|
|
|
554
|
|
Income taxes (Note 7)
|
|
|
(96
|
)
|
|
|
(97
|
)
|
|
|
(144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF
ASSOCIATES
|
|
|
424
|
|
|
|
301
|
|
|
|
410
|
|
Interest in earnings of associates, net of tax (Note 15)
|
|
|
33
|
|
|
|
22
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
|
|
|
457
|
|
|
|
323
|
|
|
|
426
|
|
Discontinued operations, net of tax (Note 8)
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
459
|
|
|
|
324
|
|
|
|
426
|
|
Less: net income attributable to noncontrolling interests
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
|
|
$
|
438
|
|
|
$
|
303
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNTS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS SHAREHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
$
|
436
|
|
|
$
|
302
|
|
|
$
|
409
|
|
Income from discontinued operations, net of tax (Note 8)
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
|
|
$
|
438
|
|
|
$
|
303
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER SHARE BASIC AND DILUTED (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.60
|
|
|
$
|
2.04
|
|
|
$
|
2.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
2.58
|
|
|
$
|
2.04
|
|
|
$
|
2.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH DIVIDENDS DECLARED PER SHARE
|
|
$
|
1.04
|
|
|
$
|
1.04
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
57
WILLIS
GROUP HOLDINGS PLC
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(millions, except share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
191
|
|
|
$
|
176
|
|
Fiduciary funds restricted (Note 11)
|
|
|
1,683
|
|
|
|
1,854
|
|
Short-term investments (Note 11)
|
|
|
|
|
|
|
20
|
|
Accounts receivable, net of allowance for doubtful accounts of
$20 million in 2009 and $24 million in 2008
|
|
|
8,638
|
|
|
|
9,131
|
|
Fixed assets, net of accumulated depreciation of
$257 million in 2009 and $236 million in 2008
(Note 12)
|
|
|
352
|
|
|
|
312
|
|
Goodwill (Note 13)
|
|
|
3,277
|
|
|
|
3,275
|
|
Other intangible assets, net of accumulated amortization of
$179 million in 2009 and $79 million in 2008
(Note 14)
|
|
|
572
|
|
|
|
682
|
|
Investments in associates (Note 15)
|
|
|
156
|
|
|
|
273
|
|
Deferred tax assets (Note 7)
|
|
|
82
|
|
|
|
76
|
|
Pension benefits asset (Note 16)
|
|
|
69
|
|
|
|
111
|
|
Other assets
|
|
|
603
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
15,623
|
|
|
$
|
16,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
9,686
|
|
|
$
|
10,314
|
|
Deferred revenue and accrued expenses
|
|
|
301
|
|
|
|
471
|
|
Deferred tax liabilities (Note 7)
|
|
|
29
|
|
|
|
21
|
|
Income taxes payable
|
|
|
46
|
|
|
|
18
|
|
Short-term debt (Note 17)
|
|
|
209
|
|
|
|
785
|
|
Long-term debt (Note 17)
|
|
|
2,165
|
|
|
|
1,865
|
|
Liability for pension benefits (Note 16)
|
|
|
187
|
|
|
|
237
|
|
Other liabilities
|
|
|
771
|
|
|
|
796
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,394
|
|
|
|
14,507
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 18)
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Shares, $0.000115 nominal value; Authorized: 4,000,000,000;
Issued and outstanding, 168,661,172 Shares in 2009 and
166,757,654 Shares in 2008
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
918
|
|
|
|
886
|
|
Retained earnings
|
|
|
1,859
|
|
|
|
1,593
|
|
Accumulated other comprehensive loss, net of tax (Note 19)
|
|
|
(594
|
)
|
|
|
(630
|
)
|
Treasury shares, at cost, 54,310 Shares in 2009 and
83,580 Shares in 2008
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
Total Willis Group Holdings stockholders equity
|
|
|
2,180
|
|
|
|
1,845
|
|
Noncontrolling interests
|
|
|
49
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
2,229
|
|
|
|
1,895
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
15,623
|
|
|
$
|
16,402
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
58
WILLIS
GROUP HOLDINGS PLC
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
459
|
|
|
$
|
324
|
|
|
$
|
426
|
|
Adjustments to reconcile net income to total net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
Net gain on disposal of operations, fixed and intangible assets
and short-term investments
|
|
|
(14
|
)
|
|
|
(2
|
)
|
|
|
(20
|
)
|
Gain on disposal of London headquarters (Note 5)
|
|
|
|
|
|
|
(7
|
)
|
|
|
(14
|
)
|
Depreciation expense
|
|
|
60
|
|
|
|
54
|
|
|
|
52
|
|
Amortization of intangible assets
|
|
|
100
|
|
|
|
36
|
|
|
|
14
|
|
(Release of) addition to provision for doubtful accounts
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
2
|
|
Provision for deferred income taxes
|
|
|
(21
|
)
|
|
|
46
|
|
|
|
66
|
|
Excess tax benefits from share-based payment arrangements
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(9
|
)
|
Share-based compensation (Note 4)
|
|
|
39
|
|
|
|
40
|
|
|
|
33
|
|
Undistributed earnings of associates
|
|
|
(21
|
)
|
|
|
(13
|
)
|
|
|
(10
|
)
|
Changes in operating assets and liabilities, net of effects from
purchase of subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiduciary funds restricted
|
|
|
221
|
|
|
|
(224
|
)
|
|
|
216
|
|
Accounts receivable
|
|
|
618
|
|
|
|
(599
|
)
|
|
|
455
|
|
Accounts payable
|
|
|
(773
|
)
|
|
|
782
|
|
|
|
(722
|
)
|
Additional funding of UK and US pension plans
|
|
|
|
|
|
|
(107
|
)
|
|
|
(153
|
)
|
Other assets
|
|
|
(102
|
)
|
|
|
(277
|
)
|
|
|
6
|
|
Other liabilities
|
|
|
(137
|
)
|
|
|
130
|
|
|
|
(68
|
)
|
Effect of exchange rate changes
|
|
|
(4
|
)
|
|
|
56
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operating activities
|
|
|
421
|
|
|
|
224
|
|
|
|
275
|
|
Net cash used in discontinued operating activities
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net cash provided by operating activities
|
|
|
418
|
|
|
|
224
|
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on disposal of fixed and intangible assets
|
|
|
20
|
|
|
|
6
|
|
|
|
27
|
|
Additions to fixed assets
|
|
|
(96
|
)
|
|
|
(94
|
)
|
|
|
(185
|
)
|
Acquisitions of subsidiaries, net of cash acquired
|
|
|
|
|
|
|
(940
|
)
|
|
|
(41
|
)
|
Acquisition of investments in associates
|
|
|
(42
|
)
|
|
|
(31
|
)
|
|
|
(1
|
)
|
Proceeds from reorganization of investments in associates (Note
6)
|
|
|
155
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of continuing operations, net of cash disposed
|
|
|
4
|
|
|
|
11
|
|
|
|
|
|
Proceeds from sale of discontinued operations, net of cash
disposed
|
|
|
40
|
|
|
|
|
|
|
|
|
|
Proceeds on sale of short-term investments
|
|
|
21
|
|
|
|
15
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing investing activities
|
|
|
102
|
|
|
|
(1,033
|
)
|
|
|
(181
|
)
|
Net cash provided by discontinued investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net cash provided by (used in) investing activities
|
|
|
102
|
|
|
|
(1,033
|
)
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued
on next page)
59
WILLIS
GROUP HOLDINGS PLC
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions)
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM OPERATING
AND INVESTING ACTIVITIES
|
|
|
520
|
|
|
|
(809
|
)
|
|
|
94
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from draw down of revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Proceeds from issue of short-term debt, net of debt issuance
costs
|
|
|
|
|
|
|
1,026
|
|
|
|
|
|
Proceeds from issue of long-term debt, net of debt issuance costs
|
|
|
|
|
|
|
643
|
|
|
|
|
|
Repurchase of 2010 senior notes
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
Repayments of debt
|
|
|
(929
|
)
|
|
|
(641
|
)
|
|
|
(200
|
)
|
Senior notes issued, net of debt issuance costs
|
|
|
778
|
|
|
|
|
|
|
|
593
|
|
Repurchase of shares (Note 21)
|
|
|
|
|
|
|
(75
|
)
|
|
|
(480
|
)
|
Proceeds from issue of shares
|
|
|
18
|
|
|
|
15
|
|
|
|
25
|
|
Excess tax benefits from share-based payment arrangements
|
|
|
1
|
|
|
|
6
|
|
|
|
9
|
|
Dividends paid
|
|
|
(174
|
)
|
|
|
(146
|
)
|
|
|
(143
|
)
|
Acquisition of noncontrolling interests
|
|
|
(33
|
)
|
|
|
(7
|
)
|
|
|
(40
|
)
|
Dividends paid to noncontrolling interests
|
|
|
(17
|
)
|
|
|
(13
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing financing activities
|
|
|
(516
|
)
|
|
|
808
|
|
|
|
(193
|
)
|
Net cash provided by discontinued financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net cash (used in) provided by financing activities
|
|
|
(516
|
)
|
|
|
808
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
4
|
|
|
|
(1
|
)
|
|
|
(99
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
11
|
|
|
|
(23
|
)
|
|
|
11
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
|
|
|
176
|
|
|
|
200
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR
|
|
$
|
191
|
|
|
$
|
176
|
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
60
WILLIS
GROUP HOLDINGS PLC
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except share data)
|
|
|
SHARES OUTSTANDING (thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
166,758
|
|
|
|
143,094
|
|
|
|
153,003
|
|
Shares issued
|
|
|
486
|
|
|
|
24,720
|
|
|
|
406
|
|
Repurchase of shares (Note 21)
|
|
|
|
|
|
|
(2,270
|
)
|
|
|
(11,515
|
)
|
Exercise of stock options and release of non vested shares
|
|
|
1,417
|
|
|
|
1,214
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
168,661
|
|
|
|
166,758
|
|
|
|
143,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
886
|
|
|
$
|
41
|
|
|
$
|
388
|
|
Issue of shares under employee stock compensation plans and
related tax benefits
|
|
|
18
|
|
|
|
20
|
|
|
|
35
|
|
Repurchase of shares (Note 21)
|
|
|
|
|
|
|
(55
|
)
|
|
|
(432
|
)
|
Issue of shares for acquisitions
|
|
|
12
|
|
|
|
840
|
|
|
|
16
|
|
Share-based compensation
|
|
|
39
|
|
|
|
40
|
|
|
|
33
|
|
Acquisition of noncontrolling interests
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
Repurchase of out of the money options
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
Gains on sale of treasury shares
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
918
|
|
|
|
886
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
1,593
|
|
|
|
1,463
|
|
|
|
1,250
|
|
Adjustment for uncertain tax positions
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,593
|
|
|
|
1,463
|
|
|
|
1,246
|
|
Net income attributable to Willis Group
Holdings(a)
|
|
|
438
|
|
|
|
303
|
|
|
|
409
|
|
Dividends
|
|
|
(172
|
)
|
|
|
(154
|
)
|
|
|
(143
|
)
|
Repurchase of shares (Note 21)
|
|
|
|
|
|
|
(19
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
1,859
|
|
|
|
1,593
|
|
|
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
(630
|
)
|
|
|
(153
|
)
|
|
|
(178
|
)
|
Foreign currency translation
adjustment(b)
|
|
|
27
|
|
|
|
(89
|
)
|
|
|
17
|
|
Unrealized holding
loss(c)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Pension funding
adjustment(d)
|
|
|
(33
|
)
|
|
|
(355
|
)
|
|
|
7
|
|
Net gain (loss) on derivative
instruments(e)
|
|
|
43
|
|
|
|
(33
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
(594
|
)
|
|
|
(630
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued
on next page)
61
WILLIS
GROUP HOLDINGS PLC
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY AND
COMPREHENSIVE
INCOME (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(millions, except share data)
|
|
|
TREASURY SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(6
|
)
|
Shares reissued under stock compensation plans
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL WILLIS GROUP HOLDINGS SHAREHOLDERS EQUITY
|
|
|
2,180
|
|
|
|
1,845
|
|
|
|
1,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTERESTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
50
|
|
|
|
48
|
|
|
|
42
|
|
Net income
|
|
|
21
|
|
|
|
21
|
|
|
|
17
|
|
Dividends
|
|
|
(17
|
)
|
|
|
(13
|
)
|
|
|
(7
|
)
|
Purchase of subsidiary shares from noncontrolling interests, net
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
(6
|
)
|
Acquisition of noncontrolling interests
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
49
|
|
|
|
50
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY
|
|
$
|
2,229
|
|
|
$
|
1,895
|
|
|
$
|
1,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP
HOLDINGS(a+b+c+d+e)
|
|
$
|
474
|
|
|
$
|
(174
|
)
|
|
$
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
62
WILLIS
GROUP HOLDINGS PLC
Willis Group Holdings plc (Willis Group Holdings)
(formerly Willis Group Holdings Limited
(Willis-Bermuda) see
Note 2 Redomicile to Ireland) and subsidiaries
(collectively, the Company or the Group) provide a
broad range of insurance and reinsurance broking and risk
management consulting services to its clients worldwide, both
directly and indirectly through its associates. The Company
provides both specialized risk management advisory and
consulting services on a global basis to clients engaged in
specific industrial and commercial activities, and services to
small, medium and major corporates through its retail operations.
In its capacity as an advisor and insurance broker, the Company
acts as an intermediary between clients and insurance carriers
by advising clients on risk management requirements, helping
clients determine the best means of managing risk, and
negotiating and placing insurance risk with insurance carriers
through the Companys global distribution network.
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2.
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BASIS OF
PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
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Redomicile
to Ireland
On September 24, 2009, Willis Group Holdings was
incorporated in Ireland, in order to effectuate the change of
the place of incorporation of the parent company of the Group.
Willis Group Holdings operated as a wholly-owned subsidiary of
Willis-Bermuda until December 31, 2009, when the
outstanding common shares of Willis-Bermuda were canceled and
Willis Group Holdings issued ordinary shares with substantially
the same rights and preferences on a
one-for-one
basis to the holders of the Willis-Bermuda common shares that
were canceled. Upon completion of this transaction, Willis Group
Holdings replaced Willis-Bermuda as the ultimate parent company
and Willis-Bermuda became a wholly-owned subsidiary of Willis
Group Holdings.
This transaction was accounted for as a merger between entities
under common control; accordingly, the historical financial
statements of Willis-Bermuda for periods prior to this
transaction are considered to be the historical financial
statements of Willis Group Holdings. No changes in capital
structure, assets or liabilities resulted from this transaction,
other than Willis Group Holdings has provided a guarantee of
amounts due under certain borrowing arrangements of two of its
subsidiaries as described in notes 24 and 25.
Recent
Accounting Pronouncements and Significant Accounting
Policies
These consolidated financial statements conform to accounting
principles generally accepted in the United States of America
(US GAAP). Presented below are summaries of:
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Recent accounting pronouncements; and
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Significant accounting policies followed in the preparation of
the consolidated financial statements.
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Recent
Accounting Pronouncements
Accounting
Standards Codification
During third quarter 2009, the new Accounting Standards
Codification (ASC) was issued by the Financial
Accounting Standards Board (FASB). The ASC has
become the source of authoritative US GAAP recognized by the
FASB to be applied by nongovernmental entities. The ASC is not
intended to change or alter existing GAAP and therefore all
references to GAAP remain throughout this document.
63
WILLIS
GROUP HOLDINGS PLC
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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2.
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BASIS OF
PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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Business
Combinations
New accounting guidance related to business combinations was
effective from January 1, 2009. This guidance made
substantial changes to how entities account for business
combinations, establishing principles and requirements for how
the acquirer: