UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
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þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2011 2013 |
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o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:001-16503
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WILLIS GROUP HOLDINGS PUBLIC
LIMITED COMPANY
(Exact name of Registrant as specified in its charter)
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Ireland (Jurisdiction of incorporation or organization) | | |
Ireland
(Jurisdiction of
incorporation or organization) | | 98-0352587
(I.R.S. Employer
Identification No.) |
c/o Willis Group Limited
51 Lime Street, London EC3M 7DQ, England
(Address of principal executive offices)
(011) 44-20-3124-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each Class
Ordinary Shares, nominal value $0.000115 per share | | Name of each exchange on which registered
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
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 ofRegulation 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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definite proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 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’ inRule 12b-2 of the Exchange Act.
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Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting companyo |
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). Yes o No þ
As of February 17, 2012, theThe aggregate market value of the voting stockcommon equity held by non-affiliates of the Registrant, computed by reference to the last reported price at which the Registrant’s common equity was approximately $5,813,892,215.sold on June 30, 2013 (the last day of the Registrant’s most recently completed second quarter) was $7,147,793,450.
As of February 17, 2012,14, 2014, there were outstanding 174,139,971179,021,595 ordinary shares, nominal value $0.000115 per share, of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Willis Group Holdings Public Limited Company’s Proxy Statement for its 2012 Annual Meeting of Shareholders arePart III will be incorporated by reference into Part I and Part IIIin accordance with Instruction G(3) to Form 10-K no later than April 30, 2014.
Certain Definitions
The following definitions apply throughout this annual report unless the context requires otherwise:
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| ‘We’, ‘Us’, ‘Company’, ‘Group’, ‘Willis’, or ‘Our’ | | Willis Group Holdings and its subsidiaries. |
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| ‘Willis Group Holdings’ or ‘Willis Group Holdings plc’ | | Willis Group Holdings Public Limited Company, a company organized under the laws of Ireland. |
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‘Willis-Bermuda’ | | Willis Group Holdings Limited, a company organized under the laws of Bermuda. |
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| ‘shares’ | | The ordinary shares of Willis Group Holdings Public Limited Company, nominal value $0.000115 per share. |
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| ‘HRH’ | | Hilb Rogal & Hobbs Company.Company, a 100 percent owned subsidiary acquired in 2008. |
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Table Of Contents
3
Willis Group Holdings plc
FORWARD-LOOKING STATEMENTS
We have included in this document ‘forward-looking statements’'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our, outlook 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’'anticipate', ‘believe’'believe', ‘estimate’'estimate', ‘expect’'expect', ‘intend’'intend', ‘plan’'plan', ‘probably’'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, environmental or 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 those associated with the current Eurozone sovereign debt crisis any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions; |
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• | our ability to implement and realize anticipated benefits of the 2011 Operational Review or any revenue generating initiatives; |
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• | the volatility or declines in insurance markets and premiums on which our commissions are based, but which we do not control; |
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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, including the impact of our refusal to accept contingent commissions from carriers in the non-Employee Benefit areas of our retail brokerage business; |
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• | material changes in commercial property and casualty markets generally or the availability of insurance products or changes in premiums resulting from a catastrophic event, such as a hurricane, or otherwise; |
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• | our ability to retain key employees and clients and attract new business; |
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• | the timing and ability to carry out share repurchases and redemptions; |
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• | the timing or ability to carry out refinancing 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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• | 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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• | rating agency actions that could inhibit our 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 liabilities or funding obligations; |
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• | our ability to achieve the expected strategic benefits of transactions; |
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• | the impairment of the goodwill of one of our reporting units, in which case we may be required to record significant charges to earnings; |
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• | our ability to receive dividends or other distributions in needed amounts from our subsidiaries; |
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• | changes in the tax or accounting treatment of our operations; |
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• | any potential impact from the US healthcare reform legislation; |
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• | our involvements in and the results of any regulatory investigations, legal proceedings and other contingencies; |
the impact of any regional, national or global political, economic, business, competitive, market, environmental or regulatory conditions on our global business operations;
the impact of current global economic conditions on our results of operations and financial condition, including as a result of those associated with the ongoing Eurozone crisis, any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;
our ability to implement and realize anticipated benefits of any expense reduction initiative, charge or any revenue generating initiatives;
our ability to implement and fully realize anticipated benefits of our new growth strategy and revenue generating and cost-saving initiatives;
volatility or declines in insurance markets and premiums on which our commissions are based, but which we do not control;
our ability to develop and implement technology solutions and invest in innovative product offerings in an efficient and competitive manner;
our ability to continue to manage our significant indebtedness;
our ability to compete effectively in our industry, including any impact if we continue to refuse to accept contingent commissions to date from carriers in the non-Human Capital areas of our retail brokerage business and developing new products and services;
material changes in commercial property and casualty markets generally or the availability of insurance products or changes in premiums resulting from a catastrophic event, such as a hurricane;
our ability to retain key employees and clients and attract new business;
the timing or ability to carry out share repurchases and redemptions;
the timing or ability to carry out refinancing 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;
fluctuations in our earnings as a result of potential changes to our valuation allowance(s) on our deferred tax assets;
any fluctuations in exchange and interest rates that could affect expenses and revenue;
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;
rating agency actions, including a downgrade to our credit rating, that could inhibit our ability to borrow funds or the pricing thereof and in certain circumstances cause us to offer to buy back some of our debt;
a significant decline in the value of investments that fund our pension plans or changes in our pension plan liabilities or funding obligations;
our ability to achieve the expected strategic benefits of transactions, including any growth from associates;
further impairment of the goodwill of one of our reporting units, in which case we may be required to record additional significant charges to earnings;
our ability to receive dividends or other distributions in needed amounts from our subsidiaries;
changes in the tax or accounting treatment of our operations and fluctuations in our tax rate;
any potential impact from the US healthcare reform legislation;
our involvement in and the results of any regulatory investigations, legal proceedings and other contingencies;
underwriting, advisory or reputational risks associated with non-core operations as well as the potential significant impact our non-core operations (including the Willis Capital Markets & Advisory operations) can have on our financial results;
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our exposure to potential liabilities arising from errors and omissions and other potential claims against us; and
the interruption or loss of our information processing systems, data security breaches or failure to maintain secure information systems.
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• | underwriting, advisory or reputational risks associated with non-core operations as well as the potential significant impact our non-core operations (including our Loan Protector operations) can have on our financial results; |
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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. |
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 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.
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Willis Group Holdings plc
PART I
PART I
Item 1 — Business
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 December 31, 2009, the common shares of Willis-Bermuda were canceled, the Willis-Bermuda common shareholders received, on aone-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 12420 3124 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 SEC’s Public Reference Room at 100 F Street, NE Washington, DC 20549. Please call the SEC at1-800-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 SEC’s website is www.sec.gov.
The Company makes available, free of charge through our website, www.willis.com, our annual report onForm 10-K, our quarterly reports onForm 10-Q, our proxy statement, current reports onForm 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 thisForm 10-K.
The Company’s Corporate Governance Guidelines, Audit Committee Charter, Risk 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 Secretaryc/o Office of General Counsel, Willis Group Holdings Public Limited Company, One World Financial Center, 200 Liberty Street, New York, NY 10281.
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About Willis
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 risk management requirements, helping clients determine the best means of managing risk, and negotiating and placing insurance 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)analysis), to a variety of due diligence services, to the provision of practicalon-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 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. Commission levels generally follow the same trend as premium levels as they are derived from a percentage of the premiums paid by the insureds. Fluctuations in these premiums charged by the insurance carriers can therefore have a direct and potentially material impact on our results of operations.
We and our associates serve a diverse base of clients including 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. We have approximately 20,00021,700 employees around the world (including approximately 3,3003,700 at our associate companies) and a network of in excess of 400 offices in nearly 120 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
Our aim is to be the insurance broker and risk adviser of choice globally.
Our business model is aligned to the needs of each client segment:
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• | Insurer — platform-neutral capital management and advisory services; |
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• | Large Accounts — delivering Willis’s global capabilities through client advocacy; |
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• | Mid-Market — mass-customization through our Sales 2.0 model; |
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• | Commercial — providing product and services to networks of retail brokers; and |
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• | Personal — focused on affinity models and High Net Worth segments. |
Our business model has three elements:
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• | Organic growth; |
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• | Recruitment of teams and individuals; and |
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• | Strategic acquisitions. |
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Willis Group Holdings plc
Business Strategy
Today we operate in attractive growth markets with a diversified platform across geographies, industries, segments and lines of business. We aim to become the risk advisor, insurance and reinsurance broker of choice globally.
To meetWe will achieve this by being completely focused on:
where we compete and that means the needs of our clients,areas where we realigned our business model in 2011 to further grow the company and position us to deliver the Willis Cause:can succeed by:
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• ◦ | Geography - we thoroughly understandwill re-balance our clients’ needsbusiness mix towards faster growing geographies, with both developed and their industries;developing markets |
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| ◦ | Client Segmentation - we will segment our client offering to provide distinct offerings to different types of client, focusing on the value we provide to our clients |
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• ◦ | Sector - we develop client solutions with the best markets, pricewill build business lines around our industry and terms;sector strength e.g. Human Capital and Employee Benefits. |
How we compete which will be centered on meeting the needs of our client by:
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| ◦ | Connection - leading to more cross-selling |
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• ◦ | we relentlessly deliver quality client service;Innovation - competing on analytics and innovation |
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• ◦ | we get claims paid quicklyInvestment - focusing on earnings accretion, competitive position and fit |
Through these strategies we aim to grow revenue with positive operating leverage, grow cash flows and generate compelling returns for investors.
...With Integrity
About Willis
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’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. In 2011 and 2010, approximately 50 percent of our total revenue was generated from within the US, with no other country contributing in excess of 20 percent. For information regarding revenues and operating income and total assets per segment, see Note 2728 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 over 150 countries, primarily from offices in the United Kingdom, although we also serve clients from offices in the United States, Continental Europe, Asia and Asia.Australia.
The Global business is divided into:
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• | Global Specialties; |
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• | Willis Re; |
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• | Willis Faber & Dumas (formerly London Market Wholesale); and |
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• | Willis Capital Markets & Advisory. |
Global SpecialtiesWillis Re;
Global Specialties has strong global positions in Aerospace, Energy, Marine, Construction, FinancialFaber Global;
Specialty; and Executive Risks as well as Financial Solutions.
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. Aerospace’s clients include approximately one third of the world’s airlines. The specialist Inspace division is also prominent in supplying the space industry through providing insurance and risk management services to approximately 30 companies.
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About Willis Capital Markets & Advisory.
Our Energy practice provides insurance brokerage services including property damage, offshore construction, liability and control of well and pollution insurance to the energy industry. Our 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. Marine’s 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 a broker for a number of the leading global construction firms.
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• | Financial and Executive Risks |
Our Financial and Executive Risks unit specializes in broking directors’ and officers’ insurance as well as professional indemnity insurance for corporations and professional firms.
Financial Solutions is a global business unit which 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 world’sworld's largest intermediaries for reinsurance and have a significant market share in all of the world’sworld's major markets. Our clients are both insurance and reinsurance companies.
We operate this business on a global basis and provide a complete range of transactional capabilities, including, in conjunction with Willis Capital Markets & Advisory, a wide variety of capital markets based products. Our services are underpinned by leading modeling, financial analysis and risk management advice. We bolster and enhance all of these services with the cutting edge knowledge derived from our Willis Research Network, the insurance industry’sindustry's largest partnership with global academic research.
Faber Global
Our Faber Global unit provides facultative and wholesale solutions for property and casualty, health and specialty insurances to cedants and independent wholesaler brokers worldwide who want solutions provided through the London, European and Bermudian markets.
Specialty
During first quarter 2014 we announced changes to the structure of our UK-based insurance operations, combining our Global Specialty businesses with the Willis Faber & Dumas
UK retail business to create a market leading client proposition.
This combined unit has strong global positions in Aerospace, Energy, Marine, Construction, Financial and Executive Risks as well as Financial Solutions, wholesale and facultative.
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. Aerospace's clients include approximately one third of the world's
Willis Group Holdings plc
airlines. The specialist Inspace division is also prominent in serving the space industry by providing insurance and risk management services to approximately 30 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. Our 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. Marine's 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.
Financial and Executive Risks
Our Financial and Executive Risks unit specializes in broking directors' and officers' insurance as well as professional indemnity insurance for corporations, financial institutions and professional firms.
Construction, Property and Casualty
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 a broker for a number of the leading global construction firms. The Construction practice is now tied to Willis' specialist internal unit providing our retail colleagues' clients with access to global insurance markets, providing structuring and placing services supported by specialist knowledge and expertise across a variety of industries on a global basis in large and complex property and casualty risk exposures.
Financial Solutions is a global business unit was created on January 1, 2011which incorporates our Political and amalgamates Faber & DumasCredit Risk businesses, as well as Structured Finance and Global Markets International. Prior to January 1, 2012, this unit was known as London Market Wholesale.Project Risk Consulting teams. It also comprises specialist Trade Credit, Contingent Aviation and Mortgage teams.
Faber & Dumas, our wholesale brokerage division, comprises London-based operation, Glencairn, together with ourFine Art, Jewelry and Specie
The Fine Art, Jewelry and Specie unit provides specialist risk management, insurance and reinsurance services to fine art, diamond and jewelry businesses and armored car operators.
Special Contingency RiskRisks
Special Contingency Risks specializes in people risk solutions using a combination of risk management, kidnap and ransom and personal accident services and products to meet the needs of corporations and private clients.
Hughes-Gibb
The Hughes-Gibb units.unit principally services the insurance and reinsurance needs of thoroughbred horse racing and horse breeding industry and of the agri-business sector, covering livestock breeders, aquaculture & agriculture industries.
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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 and is successfully diversifying its portfolio into Agriculture/Crop sector. |
UK retail operations
Our UK retail operations provide risk management, insurance brokerage and related risks services to a wide array of industry and client segments.
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Willis Group Holdings plc
About Willis
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• | Global Markets International |
Global Markets International works closely with other Global business units 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.
Willis Capital Markets & Advisory
Willis Capital Markets & Advisory, with offices in New York and London, provides advice to companies involved in the insurance and reinsurance industry on a broad array of mergers and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work.
Retail operations
Our North America and International retail operations provide services to small, medium and large corporate clients, accessing Global’sGlobal's 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 Canada and Mexico.Canada. With around 120100 locations, organized into seven geographical regions including Canada, and Mexico, 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.
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 provided these services to around 25nearly 12,000 clients including approximately 20 percent of theEngineering News RecordTop 400 contractors (a listing of the largest 400 North American contractors based on reported revenue). In addition, this practice group has expertise in owner-controlledprofessional liability insurance, controlled insurance programs for large projects and insurance for national homebuilders.
Human Capital
Willis Employee Benefits,Human Capital, fully integrated into the North America platform, is ourthe Group's 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 group’sgroup's value lies in helping clients control employee benefit plan costs, reducing the amount of time human resources professionals spend administering their companies’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 internetcyber risks.
The Captive, Actuarial, Programs, Pooling, Personal Lines and Strategic Outcomes (CAPPPS) group has a network of actuaries, certified public accountants, financial analysts and pooled insurance program experts who assist clients in developing and implementing alternative risk management solutions. The program business is a leader in providing national insurance programs to niche industries including ski resorts, auto dealers, recycling, environmental, and specialty workers’workers' compensation. Through our Loan Protector business, a specialty business acquired as part of the
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About Willis
HRH business, this group also works with financial institutions to confirm their loans are properly insured and their interests are adequately protected.
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• | Other industry practice groups |
Other industry practice groups
Other industry practice groups include Healthcare, serving the professional liability and other insurance and risk management needs of private andnot-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.
International
Willis Group Holdings plc
International
Our International business comprises our operations in Eastern and Western Europe, the United KingdomCentral and Ireland, Asia-Pacific, Russia,Eastern Europe, Asia, Australasia, the Middle East, South Africa and Latin America.
Our offices provide services to businesses locally in overnearly 120 countries around the world, making use of local expertise as well as 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.
As part of our on-going strategy, we continue to look for opportunities to strengthen our International market share through acquisitions and strategic investments. A list of significant subsidiaries is included in Exhibit 21.1 to this document.
We have also invested in associate companies; our significant associates at December 31, 20112013 were GS & Cie Groupe (‘Gras Savoye’('Gras Savoye'), a French organization (30 percent holding) and Al-Futtaim Willis Co. LLC, organized under the laws of 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 2011 our ownership reduced further to 30 percent following issuance of additional share capital as part of an employee share incentive scheme. 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 14 — Investments in Associates’.
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 teamThese operations generated overapproximately 30 percent of the Group’s total consolidated commissions and fees in 2011.2013.
Customers
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 2011.2013. Additionally, we place insurance with approximately 5,0002,500 insurance carriers, none of which individually accounted for more than 10 percent of the total premiums we placed on behalf of our clients in 2011.2013.
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 2011, the 140 largest commercial insurance brokers globally reported brokerage revenues totaling $42 billion in 2010, of which
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Willis Group Holdings plc
Marsh & McLennan Companies Inc. had approximately 25 percent, Aon Corporation had approximately 25 percent and Willis had approximately 8 percent.
We compete with Marsh & McLennan and Aon, the two other major providers of global risk management services, as well as with numerous specialist, regional and local firms. Competition for business is intense in all of our business lines and in every insurance market, and the other two providers of global risk management servicesMarsh & McLennan and Aon 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, manysome insureds have been retaining a greater proportion of their risk portfolios than previously. Industrial and commercial companies increasingly rely 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 buy 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 with New York State and other regulators through an AssuranceA particular area of Discontinuance, to implement certain business reformscompetitive pressure is market-derived income (MDI), which included codificationis revenue that insurance intermediaries increasingly have been obtaining from insurance carriers. Contingent commissions are one type of our October 2004 voluntary terminationMDI where insurance carriers remunerate intermediates based on either the volume or profitability of contingent commission arrangements with insurers. Most other special, regional, and local insurance brokers, however, 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 an Amended and Restated Assurance of Discontinuancerisks placed 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 limited the type of compensation we could receive and simplified our compensation disclosure requirements.
Following the introduction of health care reform legislation in 2010, some major health insurance carriers in North America began to change their compensation practices in particular lines of business in certain locations. In response to market pressures those changes caused, we announced in July 2011 that in order to remain competitive, we would begin accepting standard compensation based on volume, but would continue to resist traditional contingent commissions and bonus payments because, while legal, we believe these forms of compensation create conflicts with our clients. After several months of review under changing market conditions,carrier. While we have concludedrecently stated that we cannot be fully competitivewill apply a set of criteria to evaluate on Employee Benefits business if we continue to refuse these legal forms of compensation. Consequently,a case-by-case basis whether we will begintake MDI, and in what form, to accept all forms of compensation from Employee Benefits providers effective April 1, 2012. While accepting contingent compensation is legal, and whiledate we will only accept them in full compliance with all applicable laws and regulations and consistent with ethical business practices, in the past it has been the subject of regulatory action and civil litigation and we cannot predict whether our position will cause regulatory or other scrutiny.
We will continue to refuse to accepthave not accepted contingent commissions from carriers other than in the non-Employee Benefit areas of our retail brokerage business unless similar external factors such as legislative change make our position untenable. However, we do not believe such a change is likely.Human Capital practice. To our knowledge, we are the only insurance broker that takes this stance. We seek to increase revenue through higher commissions and feesTo the extent 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 commissions and fees growth. If we are unable to compete effectively against our competitors who are acceptingaccept volume- or may accept contingentprofit-based continent commissions we may suffer lower revenue, reduced operating margins, and loss of market share which could materially and adversely affect our business.
Regulation
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. Our three most significant regulatory regions are described below:
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About Willis
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 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 isour business was previously regulated by the Financial Services Authority (‘FSA’('FSA'). Under legislation enacted by the UK Parliament, the regulation of our business transitioned from the FSA to the Financial Conduct Authority ('FCA') on April 1, 2013. The FSA has prescribed the methods by which our insurance and reinsurance operations are to conduct business, andFCA 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.
The FCA has a sole strategic objective: to protect and enhance confidence in the UK financial system. Its operational objectives are to: secure an appropriate degree of protection for consumers; promote efficiency and choice in the market for financial services; and protect and enhance the integrity of the UK financial system. The FCA also has a duty to act in a way that promotes competition, and to minimize the extent to which regulated businesses may be used for a purpose connected with financial crime. Finally, the FCA has new powers in product intervention. For instance, it can instruct firms to withdraw or amend misleading financial promotions.
Other
Certain of our activities are governed by other regulatory bodies, such as investment and securities licensing authorities. In the United States, our Willis Capital Markets & Advisory business 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 Capital Markets & Advisory Limited, which is authorized and regulated by the FSA.
FCA.
Our failure, or that of our employees, to satisfy the regulators that we comply 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
Willis Group Holdings plc
Employees
As of December 31, 20112013 we had approximately 17,00018,000 employees worldwide of whom approximately 3,4003,700 were employed in the United Kingdom and 6,2006,100 in the United States, with the balance being employed across the rest of the world. In addition, our associates had approximately 3,3003,700 employees, all of whom were located outside the United Kingdom and the United States.
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Item 1A—1A -Risk Factors
Risks Relating to our Business and the Insurance Industry
This section describes material risks affecting the Group’s business. These risks could materially affect the Group’s 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 onForm 10-K.
Competitive Risks
Worldwide economic conditions including those associated with the current Eurozone sovereign debt crisis, could have an adverse effect on our business, prospects, operating results, financial condition and cash flows.
Our business and operating results are materially affected by worldwide economic conditions. Current global economic conditions, including those associated with the currentongoing Eurozone sovereign debt crisis, coupled with declininglow 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. For example,Since 2008, many of our employee benefits practice may be adversely affected as businesses continue to downsize during this period of economic turmoil and our construction business may be adversely affected by the lack of new construction. Our North American and UK and Irish retail operations have been particularly impacted by the weakened economic climate and continued soft market from 2009 through 2011 with no material improvement in rates across most sectors. The global economic downturn is negatively affecting some of the international economies that have supported the strong growth in our International operations.
climate. A growing number of insolvencies associated with an economic downturn could adversely affect our brokerage business through the loss of clients or by hampering our ability to place insurance and reinsurance business. In addition, an increase in mergers and acquisitions can also result in the loss of clients. While it is difficult to predict the 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. In addition, the potential for a significant insurer to fail, be downgraded 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 or be downgraded could also result in errors and omissions claims by clients.
The credit and economic conditions withinof certain European Union countries in particular, Greece, Ireland, Italy, Portugalremain fragile and Spain, have continuedmay contribute to deteriorate and have contributed to the instability in the global credit and financial markets. WhileIf credit conditions worsen or financial market volatility increases in the outcome of these events cannot be predicted,Eurozone, it is possible that such eventsit could have a negative effect on the global economy as a whole, and our business, operating results and financial condition. If the European debtEurozone crisis continues or further deteriorates, there will likely be a negative effect on our European business, (which constitutes approximately 40 percent of our business in terms of revenue), as well as the businesses of our European clients. IfFurther, were the euroEuro to be withdrawn entirely, or the Eurozone were to be dissolved entirely,as a common currency area, the legal and contractual consequences for holders of euro-denominatedEuro-denominated obligations would be determined by laws in effect at such time. A significant devaluation of the euroEuro would cause the value of our financial assets that are denominated in Euros to be significantly reduced. Any of these conditions could ultimately harm our overall business, prospects, operating results, financial condition and cash flows.
We may not be able to fully realize the anticipated benefits of our new growth strategy.
At our 2013 Investor Conference, we stated that our goal is, over a medium-term period of five years, to deliver mid-teens total shareholder return, deliver consistent revenue growth in the mid-single digits and target revenue growth to outpace expense growth by more than 70 basis points. We emphasized that such results could fluctuate on a quarterly basis.
In order to achieve these goals, we are implementing certain revenue growth strategies and continue to strive to manage our cost base. For example, we announced a series of actions that include, among other things, the appointments of new global industry and product heads, the creation of a new Global Human Capital & Benefits Practice, a geographic realignment of the firm’s leadership team in North America and the merger of our UK retail and Global Specialty businesses. In light of the current global economic uncertainty, we strive to vigorously manage our cost base in order to fund further growth initiatives. While we completed anpotential operational review and commenced certain revenue generatingrisks associated with these new initiatives, in 2011 (such as Sales 2.0, WillPlace and Global Solutions), we cannot be certain whether we will be able to realize benefits from current revenue generating or cost-saving initiatives and ultimately realize our objectives. There can be no assurance that our actual results will meet these initiatives or any new initiatives that we may implement.
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financial goals.
Risk factors
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. Weservices and do not determine the insurance premiums on which our commissions are generally based. PremiumsCommission levels generally follow the same trend as premium levels, as they are cyclicala percentage of the premiums paid by the insureds. Fluctuations in the premiums charged by the insurance carriers can therefore have a direct and potentially material impact on our results of operations. Due to the cyclical
Willis Group Holdings plc
nature of the insurance market and the impact of other market conditions on insurance premiums, commission levels may vary widely based on market conditions. For a three-yearbetween accounting periods. A period in early 2000s, we benefitted from a ‘hard’ market withof low or declining premium rates, stablegenerally known as a 'soft' or increasing. Since that time, we saw'softening' market, generally leads to downward pressure on commission revenues and can have a rapid transition from a hard market to a ‘soft’ market, with premium rates falling in most markets which impactedmaterial adverse impact on our commission revenues and operating margin. In 2009, the stabilization ofA 'hard' or 'firming' market, during which premium rates in the reinsurance marketrise, generally has a favorable impact on our commission revenues and some specialty markets was offsetoperating margin. Rates, however, vary by the continuinggeography, industry and client segment. We have been and continue to be negatively impacted by soft market in otherconditions across certain sectors and the adverse impact of the weakened economic environment across the globe. Our North American and UK and Irish retail operations have been particularly impacted by the weakened economic climate and continued soft market from 2009 through 2011 with no material improvement in rates across most sectors. This resulted in declines in 2009 revenues in these operations with a modest improvement in 2010 followed by declines in 2011, particularly amongst our smaller clients who have been especially vulnerable to the economic downturn.
geographic regions. 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.brokers such as ourselves. The reduction of these commission rates, along with general volatilityand/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 othermajor global providers of global risk management services, as well as with numerous specialist, regional and local firms. Competition for business is intense in all of our business lines and in every insurance market, and the other two providers of global risk management servicesMarsh & McLennan and Aon 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, manysome insureds have been retaining a greater proportion of their risk portfolios than previously. Industrial and commercial companies increasingly rely 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 buy insurance. Additional competitive pressures arise from the entry of newnon-traditional 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 with New York State and other regulators through an Assurance of Discontinuance, to implement certain business reforms which included codification of our October 2004 voluntary termination of contingent commission arrangements with insurers. Most other special, regional, and local insurance brokers, however, 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 an 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 limited the type of compensation we could receive and simplified our compensation disclosure requirements.
Following the introduction of health care reform legislation in 2010, some major health insurance carriers in North America began to change their compensation practices in particular lines of business in certain locations. In response to market pressures those changes caused, we announced in July 2011 that in order to remain competitive, we would begin accepting standard compensation based on volume, but would continue to resist traditional contingent commissions and bonus payments because, while legal, we believe these forms of compensation create conflicts with our clients. After several months of review under changing market conditions, we have concluded that we cannot be fully competitive on Employee Benefits business if we continue to refuse these legal forms of compensation. Consequently, we will begin to accept all forms of compensation from Employee Benefits providers effective April 1, 2012. While accepting contingent compensation is legal, and while we will only accept them in full compliance with all applicable laws and regulations and
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Willis Group Holdings plc
consistent with ethical business practices, in the past it has been the subject of regulatory action and civil litigation and we cannot predict whether our position will cause regulatory or other scrutiny.
We will continue to refuse to accept contingent commissions from carriers in the non-Employee Benefit areas of our retail brokerage business unless similar external factors such as legislative change make our position untenable. However, we do not believe such a change is likely. To our knowledge, we are the only insurance broker that takes this stance. 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 accepting or may accept contingent commissions, we may suffer lower revenue, reduced operating margins and loss oflose 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, 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. PlumeriDominic Casserley, 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 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.
Investment in innovative product offerings may fail to yield sufficient return to cover their investment.
From time to time, we may enter new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, including the investment of significant time and resources, the possibility that these efforts will be unprofitable, and the risk of additional liabilities associated with these efforts. Failure to successfully manage these risks in the development and implementation of new lines of business and new products and services could have a material adverse effect on our business, financial condition or results for operations. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business. In addition, we can provide no assurance that the entry into new lines of business or development of new products and services will be successful.
We are continually developing and investing in new and innovative offerings that we believe will address needs that we identify in the market. Nevertheless, the ability of these efforts to produce meaningful value is dependent on a number of other factors, some of which are outside of our control. For example, we have recently launched G360, a suite of facilities for our specialty insurance clients which we expect will provide faster placement and claims agreements for our clients, and promote greater price competition in the specialty insurance market. The success of G360 will depend on client participation, market reaction as well as other factors both inside and outside our control. Additionally, our Global Human Capital and Benefits Practice has invested substantial time and resources in launching The Willis Advantage under the belief that this exchange will serve a useful role to help corporations and individuals in the US manage their growing health care expenses. But in order for The
Willis Advantage to be successful, health care insurers and corporate and individual participants must deem it suitable to participate in, and such decisions are based on their own particular circumstances.
Our business performance and growth plans could be negatively affected if we are not able to effectively apply technology to drive value for our clients through technology-based solutions or gain internal efficiencies through the effective application of technology and related tools.
Our success depends, in part, on our ability to develop and implement technology solutions that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments in a timely and cost-effective manner, and our ideas may not be accepted in the marketplace. Additionally, the effort to gain technological expertise and develop new technologies in our business requires us to incur significant expenses. Our competitors are seeking to develop competing technologies, and their success in this space may impact our ability to differentiate our services to our clients through the use of unique technological solutions. If we cannot offer new technologies as quickly as our competitors or if our competitors develop more cost-effective technologies, it could have a material adverse effect on our ability to obtain and complete client engagements.
Legal and Regulatory Risks
Our compliance systems and controls cannot guarantee that we are in compliancecomply with all applicable federal and state or foreign laws and regulations, and actions by regulatory authorities or changes in applicable laws and regulations in the jurisdictions in which we operate may have an adverse effect on our business.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. Indeed, over the last few years, there has been a generalsubstantial increase in focus on and developments in these laws and regulations. Compliance with laws and regulations that are applicableapply to our operations is complex and may increase our cost of doing business. These laws and regulations include insurance and financial industry regulations, economic and trade sanctions and laws against financial crimes, such asincluding client money and money laundering, bribery or other corruption, such as the U.S.US Foreign Corrupt Practices Act.Act, the UK Bribery Act and other anti-competitive regulations. In most jurisdictions, governmental and regulatory authorities have the ability to interpret and amend these laws and regulations and impose penalties for non-compliance, including sanctions, civil remedies, monetary fines, injunctions, revocation of licenses or approvals, suspension of individuals, limitations on business activities or redress to clients.
Given the increased interest expressed by US and UK regulators in the effectiveness of compliance controls relating to financial crime in our market sector in particular, While we began a voluntary internal review of our policies and controls five years ago. This review includes analysis and advice from external experts on best practices, review of public regulatory decisions, and discussions with government regulators in the US and UK. In addition, the UK FSA conducted an investigation of Willis Limited’s, our UK brokerage subsidiary, compliance systems and controls between 2005 and 2009. On July 21, 2011,believe that we and the FSA announced a settlement under which the FSA concluded its investigation by assessing a £7 million ($11 million) fine on Willis Limited for lapses in its implementation and documentation of its controls to counter the risks of improper payments being made to non-FSA authorized overseas third parties engaged to help win business, particularly in high risk jurisdictions.
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Risk factors
As a result of the FSA settlement, we are conducting a further internal review of all payments made between 2005 and 2009. We also continue to fully cooperatecurrently maintain good relationships with our US regulators however we are unable to predict at this time when our discussions with them will be concluded. We do not believe that this further internal review or our discussions with the US regulators will result in any material fines or sanctions, but there can be no assurance that any resolution will not have an adverse impact on our ability to conduct our business in certain jurisdictions. While we believeand that our current systems and controls are adequate and in accordance with all applicable laws and regulations, we cannot assure that such systems and controls will prevent any violations of applicable laws and regulations.
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 orsub-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 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. An example of material claims for which we are subject that are outside of the error and omissions claims context relate
Willis Group Holdings plc
to those arising out of the collapse of The Stanford Financial Group, for which we acted as brokers of record on certain lines of insurance.
The ultimate outcome of these matters 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.
Accepting market derived income (MDI) may cause regulatory or other scrutiny, which may have a material and adverse effect on our business, and our position on contingent commissions may put us at a competitive disadvantage.
Insurance intermediaries have traditionally been remunerated by commission or fees paid by clients. Intermediaries also obtain revenue from insurance carriers. This is commonly known as market derived income or 'MDI'. MDI takes a variety of forms, including volume- or profit-based contingent commissions, facilities administration charges, business development agreements, and fees for providing certain data to carriers. We have recently stated that we will apply a set of criteria to evaluate on a case-by-case basis whether we will take MDI, and in what form.
MDI creates various risks. Intermediaries have a duty to act in the best interests of their clients and payments from carriers can incentivize intermediaries to put carriers’ interests ahead of their clients. Accordingly, MDI may be subject to scrutiny by various regulators under conflict of interest, anti-trust, unfair competition, and anti-bribery laws and regulations. While accepting MDI is a lawful and acceptable business practice, and while we will comply with all applicable laws and regulations, we cannot predict whether our position will cause regulatory or other scrutiny.
Additionally, as noted above, contingent commissions are a form of MDI. Over the past five years, other than in our Human Capital practice, we have not accepted contingent commissions from carriers. To our knowledge, we are the only insurance broker that takes this stance. If we continue to not accept contingents and our competitors accept volume- or profit-based continent commissions we may suffer lower revenue, reduced operating margins, and loss of market share which could materially and adversely affect our business.
IT and Operational Risks
Interruption to or loss of our information processing capabilities or failure to effectively maintain and upgrade our information processing systems or data security breaches 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, develop and to developcreate new systems and products in order to keep pace with continuing changes in information processing technology or evolving industry and regulatory standards.
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Willis Group Holdings plc
Computer viruses, hackersstandards and other external hazards could exposeto be at the forefront of a range of technology relevant to our data systems to security breaches. These increased risks, and expanding regulatory requirements regarding data security, could expose us to data loss, monetary and reputational damages and significant increases in compliance costs.
business.
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 (including through a telecommunications failure, failure to replace or update 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 significant disruption to business continuity could have a material adverse effect on our operations.
ImproperData security breaches or improper disclosure of confidential company or personal data could result in material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability or harm our reputation.liability.
OneComputer viruses, hackers and other external hazards could expose confidential company and personal data systems to security breaches. Additionally, 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. These increased risks, and expanding regulatory requirements regarding data security, could expose us to data loss, monetary and reputational damages and significant increases in compliance costs.
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 data security breaches, improper access to or disclosure of confidential company or personally identifiable information. Our technology may fail to adequately secure the private information we maintain in our databases and protect it from theft, computer viruses, hackers 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.
Our non-core operations, such as our Willis Capital Markets & Advisory business, pose certain underwriting, advisory or reputational risks and can have a significant adverse impact on our financial results.
We provide a broad range of brokerage, reinsurance and risk management consulting services to our clients worldwide. We also engage in certain non-core operations. For example, our Willis Capital Markets & Advisory business provides advice to insurance and reinsurance companies on a broad array of mergers and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work. These operations may pose certain underwriting, advisory or reputational risks to our core business.
In addition, these non-core operations, although not material to the Group as a whole may, in any period, have a material effect on our results of operations. For example, our Willis Capital Markets & Advisory business is transaction-based which can cause results to differ from period-to-period. In another example, our financial results in 2011 and first two quarters of 2012 were adversely impacted by the significant deterioration of the financial results of our Loan Protector business driven by the loss of clients through attrition and M&A activity, industry-wide commission pressures and a slowdown in foreclosures.
Financial Risks
Our outstanding debt could adversely affect our cash flows and financial flexibility.flexibility
.
We had total consolidated debt outstanding of approximately $2.4$2.3 billion as of December 31, 20112013 and our 20112013 interest expense was $156$126 million. Although management believes that our cash flows will be sufficient to service this debt, there may be circumstances in which required payments of principaland/or interest on this debt could adversely affect our cash flows and this level of indebtedness may:
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;
| |
• | 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; |
|
• | 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; |
|
• | limit our flexibility in planning for, or reacting to, changes or challenges relating to our business and industry; and |
18
Risk factorsWillis Group Holdings plc
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;
limit our flexibility in planning for, or reacting to, changes or challenges relating to our business and industry; and
| |
• | put us at a competitive disadvantage against competitors who have less indebtedness or are in a more favorable position to access additional capital resources. |
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 EBITDA to consolidated cash interest expense 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 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 reducing the cash available for other uses.uses
.
We have two principal defined benefit plans: one in the United Kingdom and the other in the United States, and in addition, we have several smaller defined benefit pension plans in certain other countries in which we operate. CashTotal cash contributions to these defined benefit pension plans in 2013 were $150 million, including employees' salary sacrifice contributions. In 2014, the Company expects to make cash contributions of approximately $142$134 million, will be required in 2012 forincluding employees' salary sacrifice contributions, to these pension plans, although we may elect to contribute more. Total cash contributions to these defined benefit pension plans in 2011 were $135 million. Future estimates are based on certain assumptions, including discount rates, interest rates, mortality, fair value of assets and expected return on plan assets.
In early 2012, we provisionally agreed a revised funding strategy with the UK plan’s trustee. Whilstplan's trustee under which we are committed to make additional cash contributions in the proposedevent that our adjusted EBITDA exceeds certain thresholds, or we make exceptional returns for our shareholders, including share buybacks or special dividends. As a result, we may be committed to make additional contributions through to 2017 based on the prior year's performance. In addition, during 2014 we will be required to negotiate a new funding strategy has not been definitively agreed atarrangement with the date of this report,UK pension trustee, which may further change the contributions we expect thisare required to occur by the end of March 2012,make during 2014 and we expect the cash contributions to the scheme in 2012 to be approximately equal to those in 2011.
beyond.
We have taken actions to manage our pension liabilities, including closing our UK and US plans to new participants and restricting final pensionable salaries. Future benefit accruals in the US pension plan were also stopped, or frozen, on May 15, 2009. Nevertheless, the determination of pension expense and pension funding is 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 through increased cash contributions. 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 alter the values and actuarial assumptions used to calculate our future pension expense and we could be required to fund our plan with significant additional amounts of cash. 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, the related net periodic costs or credits, and the required level of future cash contributions, may occur in the future due to any variance of actual results from our assumptions and changes in the number of participating employees. The need to make additional cash contributions may reduce the Company’sour financial flexibility and increase liquidity risk by reducing the cash available to meet our other obligations, including the payment obligations under our credit facilities and other long-term debt, or other needs of our business.
We could incur substantial losses, including with respect to our own cash and fiduciary cash held on behalf of insurance companies and clients, 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,depositories and the financial strength of these institutions may continue to decline. We maintain significant cash balances at various US depository institutions that are significantly in excess of the US Federal Deposit Insurance Corporation insurance limits. We also maintain significant cash balances in
19
Willis Group Holdings plc
foreign financial institutions. A significant portion of this fiduciary cash is held on behalf of insurance companies or clients. 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. We could also be liable to claims made by the insurance companies or our clients regarding the fiduciary cash held on their behalf.
A downgrade to our corporate credit rating and the credit ratings of our outstanding debt may adversely affect our borrowing costs and financial flexibility.flexibility and, under certain circumstances, may require us to offer to buy back some of our outstanding debt.
A downgrade in our corporate credit rating or the credit ratings of our debt would increase our borrowing costs including those under our credit facilities, and reduce our financial flexibility. In addition, certain downgrades would trigger astep-up in interest rates under the indentures for our 6.2%6.200% senior notes due 2017 and our 7.0%7.000% 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. This may in turn impact the assumptions when performing our goodwill impairment testing which may reduce the excess of fair value over carrying value of the reporting units.
In addition, under the indenture for our 4.625% senior notes due 2023 and our 6.125% senior notes due 2043, if we experience a ratings decline together with a change of control event, we would be required to offer to purchase our 4.625% senior notes due 2023 and our 6.125% senior notes due 2043 from holders unless we had previously redeemed those notes. We may not have sufficient funds available or access to funding to repurchase tendered notes in that event, which could result in a default under the notes. Any future debt that we incur may contain covenants regarding repurchases in the event of a change of control triggering event.
We face certain risks associated with the acquisition or disposition of businesses or reorganizationand lack of existing investments.
control over investments in associates.
In pursuing our corporate strategy, we may acquire or dispose of or exit businesses or reorganize existing investments. For example, we have a call option to acquire 100 percent of the capital of Gras Savoye. The success of thisour overall acquisition and disposition 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 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 a 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.
We also own an interest in a number of associates, such as Gras Savoye, where we do not exercise management control and we are therefore unable to direct or manage the business to realize the anticipated benefits that we can achieve through full integration.
If our goodwill becomes impaired, we may be required to record significant charges to earnings.
We have a substantial amount of goodwill on our balance sheet as a result of acquisitions we have completed. We review goodwill for impairment annually or whenever events or circumstances indicate impairment may have occurred.
Our annual goodwill impairment analysis is performed each year at October 1. In fiscal year 2012, we recognized an impairment charge of $492 million in the Consolidated Statement of Operations in relation to our North American business. At October 1, 2013, our analysis showed that the estimated fair values of each of our reporting units were in excess of the carrying values and therefore did not result in any impairment charge in 2013.
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. Notwithstanding the fact that we recognized an impairment charge in fiscal year 2012 for our North American reporting unit, the risk remains that a significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of a part of a reporting unit could result in an impairment charge in the future, which could have a significant adverse impact on our reported earnings.
Willis Group Holdings plc
For further information on our testing for goodwill impairment, see ‘Critical Accounting Estimates’ under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We are a holding company and, therefore, may not be able to receive dividends or other distributions in needed amounts from our subsidiaries.
Willis Group Holdings is organized as a holding company that conducts no business of its own. We are dependent upon dividends and other payments from our operating subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, for paying dividends to shareholders and for corporate expenses. Legal and regulatory restrictions, foreign exchange controls, as well as operating requirements of our subsidiaries, may limit our ability to obtain cash from these subsidiaries. For example, Willis Limited, our UK brokerage subsidiary regulated by the FCA, is currently required to maintain $126 million in unencumbered and available funds, of which at least $79 million must be in cash, for regulatory purposes. In the event our operating subsidiaries are unable to pay dividends and make other payments to Willis Group Holdings, we may not be able to service debt, pay obligations or pay dividends on ordinary shares.
If our goodwill becomes impaired, we may be required to record significant charges to earnings.
We have a substantial amount of goodwill on our balance sheet as a result of acquisitions we have completed. We review goodwill for impairment annually or whenever events or circumstances indicate impairment may have 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. A significant deterioration
20
Risk factors
in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of a part of a reporting unit could result in an impairment charge in the future, which could have a significant adverse impact on our reported earnings.
Our annual goodwill impairment analysis is performed each year at October 1. At October 1, 2011 our analysis showed the estimated fair value of each reporting unit was in excess of the carrying value, and therefore did not result in an impairment charge (2010: $nil, 2009: $nil). The fair values of the Global and International reporting units were significantly in excess of their carrying values. The fair value of the North American unit exceeded its carrying value by approximately 14 percent.
In the fourth quarter of 2011 our North America segment continued to be hampered by declining Loan Protector business results, the effect of the soft economy in the U.S. and declining retention rates primarily related to M&A activity and lost legacy HRH business. Consequently, the annual impairment test described above included additional sensitivity analysis, over and above that we would usually perform, in relation to our North America segment’s goodwill impairment review. This additional analysis included reductions to assumed rates of revenue growth, increases to assumed rates of expense growth and flexing the assumed weighted average cost of capital. Although our testing concluded there is no impairment, the analysis indicated that in respect of the North America segment, in the event of either a significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of part of the reporting unit there could be an impairment to the carrying value in future periods.
For further information on our testing for goodwill impairment, see ‘Critical Accounting Estimates’ under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 2011.2013.
| | | | | | | | | | | | | | | | | |
| | | US
| | Pounds
| | | | Other
|
| | | Dollars | | Sterling | | Euros | | currencies |
| |
| Revenues | | | 58% | | | | 9% | | | | 14% | | | | 19% | |
| Expenses | | | 51% | | | | 23% | | | | 10% | | | | 16% | |
|
| | | | | | | |
| | US Dollars | | Pounds Sterling | | Euros | | Other currencies |
| Revenues | 60% | | 8% | | 13% | | 19% |
| Expenses | 49% | | 25% | | 9% | | 17% |
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. However, any net sterling asset we
21
Willis Group Holdings plc
are holding will be more 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,needed, we hedgedeploy a hedging strategy to mitigate part of our operating exposure to exchange rate movements, but such mitigating attempts may not be successful. For more information on this strategy, see Part II Item 8 - 'Note 26 Derivative Financial Instruments and Hedging Activities'.
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 continue to expand into new regions throughout the world, including emerging markets. The possible effects of economic and financial disruptions throughout the world could have an adverse impact on our businesses. These risks include:
the general economic and political conditions in foreign countries;
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• | the general economic and political conditions in foreign countries, for example,the potential dissolution of the euro and the 2010 devaluation of the Venezuelan Bolivar; |
|
• | the imposition of controls or limitations on the conversion of foreign currencies or remittance of dividends and other payments by foreign subsidiaries; |
|
• | 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 and culturally diverse 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. |
the imposition of controls or limitations on the conversion of foreign currencies or remittance of dividends and other payments by foreign subsidiaries;
imposition of withholding and other taxes on remittances and other payments from subsidiaries;
imposition or increase of investment and other restrictions by foreign governments;
fluctuations in our effective tax rate;
difficulties in controlling operations and monitoring employees in geographically dispersed and culturally diverse locations;
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 insurance brokers and US business operations abroad, including rules relating to the conduct of business, 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; and
the potential costs and difficulties in complying with local regulation for our operating subsidiaries across the globe.
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
22
Risk factors
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. While not directly enforceable, it is possible for a final judgment for the payment of money rendered by any US federal or state court based on civil liability to be enforced in Ireland through common law rules. However, this process is subject to numerous established principles and would involve the commencement of a new set of proceedings in Ireland to enforce the judgment.
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.
Our non-core operations pose certain underwriting, advisory or reputational risks and can have, such as our Loan Protector business, a significant adverse impact on our financial results.
We provide a broad range of brokerage, reinsurance and risk management consulting services to our clients worldwide. We also engage in certain non-core operations. For example, our Willis Capital Markets & Advisory business provides advice to insurance and reinsurance companies on a broad array of mergers and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work. These operations may pose certain underwriting, advisory or reputational risks to our core business.
In addition, these non-core operations, although not material to the Group as a whole may, in any period, have a material effect on our results of operations. For example, our Willis Capital Markets & Advisory business is transaction-based which can cause results to differ fromperiod-to-period. In addition, our financial results in 2011 were adversely impacted by the significant deterioration of the financial results of our Loan Protector business driven by the loss of clients through attrition and M&A activity, industry-wide commission pressures and a slowdown in foreclosures.
Item 1B — Unresolved Staff Comments
The Company had no unresolved comments from the SEC’s staff.
23
Willis Group Holdings plc
Item 2 — Properties
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 4.24.1 million square feet of space worldwide.
London
In London we occupy a prime site comprising 491,000 square feet spread over a 28 story28-story tower and adjoining 10 story10-story building. We have a25-year lease on this property which expires June 2032 and we2032. We sub-let the 10-story adjoining building. In September 2011 approximately 17,500 square feet of the 28 story28-story tower was sublet to a third party, a further 52,000 square feet is being marketed.party. We also sub-let the 10-story adjoining building.
North America
In North America, outside of New York, Chicago and Chicago,Nashville, we lease approximately 1.91.4 million square feet over 120around 100 locations.
New York
In New York, we occupy 205,000 square feet of office space at One World Financial Center under a 20 year20-year lease, expiring September 2026.
Chicago
In Chicago, we occupy 140,000 square feet at the Willis Tower (formerly the Sears Tower), under a lease expiring February 2025.
Nashville
In 2010Nashville, we renegotiated our lease and began a major restack of our operations facility in Nashville. The first stage was completed in December 2010 and the remainder was completed in May 2011. We reduced our square footage from 327,000 square feet tooccupy 160,000 square feet eliminating sublet space.under a lease expiring April 2026.
Rest of World
Outside of North America and London we lease approximately 1.5 million square feet of office space in over 150200 locations. Two of our properties in Ipswich, United Kingdom have liens on the land and buildings in connection with a revolving credit facility.
Item 3 — Legal Proceedings
Information regarding claims, lawsuits and other proceedings is set forth in Note 2122 ‘Commitments and Contingencies’ to the Consolidated Financial Statements appearing under Part II, Item 8 of this report and incorporated herein by reference.
Item 4 — Mine Safety Disclosures
Not applicable.
24
Part II
Part II
|
| |
| Item 5 — | Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Share data
Data
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.
| | | | | | | | | |
| | | Price Range
| |
| | | of Shares | |
| | | High | | | Low | |
| |
2010: | | | | | | | | |
| First Quarter | | $ | 32.14 | | | $ | 26.07 | |
| Second Quarter | | $ | 34.98 | | | $ | 28.94 | |
| Third Quarter | | $ | 32.29 | | | $ | 28.91 | |
| Fourth Quarter | | $ | 34.71 | | | $ | 30.55 | |
2011: | | | | | | | | |
| First Quarter | | $ | 40.36 | | | $ | 34.37 | |
| Second Quarter | | $ | 42.42 | | | $ | 39.06 | |
| Third Quarter | | $ | 42.21 | | | $ | 33.11 | |
| Fourth Quarter | | $ | 40.70 | | | $ | 33.04 | |
2012: | | | | | | | | |
| Through February 17, 2012 | | $ | 39.85 | | | $ | 33.81 | |
|
| | | | | | | |
| | Price Range of Shares |
| | High | | Low |
| 2012: | |
| | |
|
| First Quarter | $ | 39.85 |
| | $ | 33.81 |
|
| Second Quarter | $ | 37.38 |
| | $ | 34.24 |
|
| Third Quarter | $ | 37.94 |
| | $ | 34.11 |
|
| Fourth Quarter | $ | 37.62 |
| | $ | 31.98 |
|
| 2013: | |
| | |
|
| First Quarter | $ | 39.50 |
| | $ | 33.89 |
|
| Second Quarter | $ | 43.02 |
| | $ | 37.86 |
|
| Third Quarter | $ | 45.45 |
| | $ | 40.10 |
|
| Fourth Quarter | $ | 47.22 |
| | $ | 42.15 |
|
| 2014: | | | |
| Through February 14, 2014 | $ | 45.38 |
| | $ | 41.30 |
|
On February 17, 2012,14, 2014, the last reported sale price of our shares as reported by the NYSE was $34.10$41.46 per share. As of February 17, 201214, 2014 there were approximately 1,7161,242 shareholders on 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 15, 2010 | | | $0.260 | |
April 16, 2010 | | | $0.260 | |
July 16, 2010 | | | $0.260 | |
October 15, 2010 | | | $0.260 | |
January 14, 2011 | | | $0.260 | |
April 15, 2011 | | | $0.260 | |
July 15, 2011 | | | $0.260 | |
October 14, 2011 | | | $0.260 | |
January 13, 2012 | | | $0.260 | |
|
| | | |
| Payment Date | $ Per Share |
| | |
| January 13, 2012 | $ | 0.260 |
|
| April 13, 2012 | $ | 0.270 |
|
| July 13, 2012 | $ | 0.270 |
|
| October 15, 2012 | $ | 0.270 |
|
| January 15, 2013 | $ | 0.270 |
|
| April 15, 2013 | $ | 0.280 |
|
| July 15, 2013 | $ | 0.280 |
|
| October 15, 2013 | $ | 0.280 |
|
| January 15, 2014 | $ | 0.280 |
|
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 Company’s shares.
Willis Group Holdings plc
In circumstances where one of Ireland’s many exemptions from dividend withholding tax (‘DWT’) does not apply, dividends paid by the Company will be subject to Irish DWT (currently 20 percent). Residents of the US should be exemptedexempt 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 Irish DWT available under Irish domestic law. Irish income tax may also arise in respect of dividends paid by the
25
Willis Group Holdings plc
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, 2011 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 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. 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 December 31, 2006,2008, assuming full dividend reinvestment.
Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended December 31, 2011,2013, no shares were issued by the Company without registration under the Securities Act of 1933, as amended.
26
Share data and dividends
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company is authorized to repurchase or redeembuy back its ordinary shares, under a varietyby way of methodsredemption, and will consider whether to do so from time to time based on many factors including market conditions. There remains approximately $922 million under the current authorization. The Company didis authorized to purchase up to one billion shares from time to time in the open market (such open market purchases would be effected as redemptions under Irish law) and it may also redeem its shares through negotiated trades with persons who are not repurchase or redeem anyaffiliated with the Company as long as the cost of the acquisition of the Company's shares does not exceed $824 million. The Company intends to buy back $200 million in shares in 2011 or 2010. In February 2012,2014 to offset the Company announced thatincrease in 2012 it intends to buyback up to $100 millionshares outstanding resulting from the exercise of shares throughstock options in 2013. The buybacks will be made in the open market or privately negotiatedthrough privately-negotiated transactions, from time to time, depending on market conditions. AsThe share buy back program may be modified, extended or terminated at February 23, 2012any time by the Company acquired 75,000 shares at a total priceBoard of approximately $3 million.
Directors.
The information under ‘Securities Authorized for Issuance Under Equity Compensation Plans’ under Part III, Item 12 ‘Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters’ is incorporated herein by reference.
27
Willis Group Holdings plc
|
| |
| 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 — ‘Management’s 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, 20112013 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, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2008(i) | | | 2007 | |
| | | (millions, except per share data) | |
| |
Statement of Operations Data | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 3,447 | | | $ | 3,332 | | | $ | 3,253 | | | $ | 2,827 | | | $ | 2,578 | |
| Operating income | | | 566 | | | | 753 | | | | 690 | | | | 503 | | | | 620 | |
| Income from continuing operations before income taxes and interest in earnings of associates | | | 239 | | | | 587 | | | | 516 | | | | 398 | | | | 554 | |
| Income from continuing operations | | | 203 | | | | 470 | | | | 455 | | | | 323 | | | | 426 | |
| Discontinued operations, net of tax | | | 1 | | | | — | | | | 4 | | | | 1 | | | | — | |
| Net income attributable to Willis Group Holdings | | $ | 204 | | | $ | 455 | | | $ | 438 | | | $ | 303 | | | $ | 409 | |
| | | | | | | | | | | | | | | | | | | | | |
| Earnings per share on continuing operations — basic | | $ | 1.17 | | | $ | 2.68 | | | $ | 2.58 | | | $ | 2.04 | | | $ | 2.82 | |
| Earnings per share on continuing operations — diluted | | $ | 1.15 | | | $ | 2.66 | | | $ | 2.57 | | | $ | 2.04 | | | $ | 2.78 | |
| | | | | | | | | | | | | | | | | | | | | |
| Average number of shares outstanding | | | | | | | | | | | | | | | | | | | | |
| — basic | | | 173 | | | | 170 | | | | 168 | | | | 148 | | | | 145 | |
| — diluted | | | 176 | | | | 171 | | | | 169 | | | | 148 | | | | 147 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance Sheet Data (as of year end) | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | $ | 3,295 | | | $ | 3,294 | | | $ | 3,277 | | | $ | 3,275 | | | $ | 1,648 | |
| Other intangible assets, net | | | 420 | | | | 492 | | | | 572 | | | | 682 | | | | 78 | |
Total assets(ii) | | | 15,728 | | | | 15,850 | | | | 15,625 | | | | 16,402 | | | | 12,969 | |
| Net assets | | | 2,517 | | | | 2,608 | | | | 2,229 | | | | 1,895 | | | | 1,395 | |
| Total long-term debt | | | 2,354 | | | | 2,157 | | | | 2,165 | | | | 1,865 | | | | 1,250 | |
| Shares and additional paid-in capital | | | 1,073 | | | | 985 | | | | 918 | | | | 886 | | | | 41 | |
| Total stockholders’ equity | | | 2,486 | | | | 2,577 | | | | 2,180 | | | | 1,845 | | | | 1,347 | |
| | | | | | | | | | | | | | | | | | | | | |
Other Financial Data | | | | | | | | | | | | | | | | | | | | |
| Capital expenditures (excluding capital leases) | | $ | 111 | | | $ | 83 | | | $ | 96 | | | $ | 94 | | | $ | 185 | |
| Cash dividends declared per share | | $ | 1.04 | | | $ | 1.04 | | | $ | 1.04 | | | $ | 1.04 | | | $ | 1.00 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2013 | | 2012 | | 2011 | | 2010 | | 2009 |
| | (millions, except per share data) |
| Statement of Operations Data | |
| | |
| | |
| | |
| | |
|
| Total revenues | $ | 3,655 |
| | $ | 3,480 |
| | $ | 3,447 |
| | $ | 3,332 |
| | $ | 3,253 |
|
| Goodwill impairment charge | — |
| | (492 | ) | | — |
| | — |
| | — |
|
| Operating income (loss) | 685 |
| | (209 | ) | | 566 |
| | 753 |
| | 690 |
|
| Income (loss) from continuing operations before income taxes and interest in earnings of associates | 499 |
| | (337 | ) | | 239 |
| | 587 |
| | 516 |
|
| Income (loss) from continuing operations | 377 |
| | (433 | ) | | 219 |
| | 470 |
| | 455 |
|
| Discontinued operations, net of tax | — |
| | — |
| | 1 |
| | — |
| | 4 |
|
| Net income (loss) attributable to Willis Group Holdings | $ | 365 |
| | $ | (446 | ) | | $ | 204 |
| | $ | 455 |
| | $ | 438 |
|
| Earnings per share on continuing operations — basic | 2.07 |
| | (2.58 | ) | | 1.17 |
| | 2.68 |
| | 2.58 |
|
| Earnings per share on continuing operations — diluted | 2.04 |
| | (2.58 | ) | | 1.15 |
| | 2.66 |
| | 2.57 |
|
| Average number of shares outstanding | |
| | |
| | |
| | |
| | |
|
| — basic | 176 |
| | 173 |
| | 173 |
| | 170 |
| | 168 |
|
| — diluted | 179 |
| | 173 |
|
| 176 |
| | 171 |
| | 169 |
|
| Balance Sheet Data (as of year end) | |
| | |
| | |
| | |
| | |
|
| Goodwill | $ | 2,838 |
| | $ | 2,827 |
| | $ | 3,295 |
| | $ | 3,294 |
| | $ | 3,277 |
|
| Other intangible assets, net | 353 |
| | 385 |
| | 420 |
| | 492 |
| | 572 |
|
Total assets (i) | 14,800 |
| | 15,112 |
| | 15,728 |
| | 15,850 |
| | 15,625 |
|
| Total equity | 2,243 |
| | 1,725 |
| | 2,517 |
| | 2,608 |
| | 2,229 |
|
| Long-term debt | 2,311 |
| | 2,338 |
| | 2,354 |
| | 2,157 |
| | 2,165 |
|
| Shares and additional paid-in capital | 1,316 |
| | 1,125 |
| | 1,073 |
| | 985 |
| | 918 |
|
| Total Willis Group Holdings stockholders’ equity | 2,215 |
| | 1,699 |
| | 2,486 |
| | 2,577 |
| | 2,180 |
|
| Other Financial Data | |
| | |
| | |
| | |
| | |
|
| Capital expenditures (excluding capital leases) | $ | 105 |
| | $ | 133 |
| | $ | 111 |
| | $ | 83 |
| | $ | 96 |
|
| Cash dividends declared per share | 1.12 |
| | 1.08 |
| | 1.04 |
| | 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) | | The Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers which it then remits to insureds. Uncollected premiums from insureds and uncollected claims or refunds from insurers (‘fiduciary receivables’) are recorded as fiduciary assets on the Company’s consolidated balance sheet. Unremitted insurance premiums, claims or refunds (‘fiduciary funds’) are also recorded within fiduciary assets. |
28
|
| |
| Item 7 — | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This discussion includes references to non-GAAP financial measures as defined inRegulation G of the rules of the Securities and Exchange Commission ('SEC'). Wepresent such non-GAAP financial measures, specifically, organic growth in commissionsand fees, adjusted operating margin, adjusted operating income, adjusted net incomefrom continuing operations and adjusted earnings per diluted share from continuingoperations, as we believe such information is of interest to the investment communitybecause it provides additional meaningful methods of evaluating certain aspects ofthe Company's operating performance from period to period on a basis that may not beotherwise apparent on a GAAP basis. Organic growth in commissions and fees excludesthe impact of acquisitions and disposals, period over period movements in foreign currency , andinvestment and other income from growth in revenues.Adjusted operating income, adjusted operating margin, adjusted net income from continuing operations andadjusted earnings per diluted share from continuing operations are calculated byexcluding the impact of certain specified items from operating income, net income or loss from continuingoperations, and earnings per diluted share from continuing operations, respectively, the most directly comparable GAAP measures. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. These financial measuresshould be viewed in addition to, not in lieu of, the consolidated financialstatements for the year ended December 31, 2013.
This discussion includes forward-looking statements, including under the headings ‘Executive Summary’'Executive Summary', ‘Liquidity'Liquidity and Capital Resources’Resources', ‘Critical'Critical Accounting Estimates’Estimates' and ‘Contractual Obligations’'Contractual Obligations'. Please see ‘Forward-Looking Statements’'Forward-Looking Statements' forcertain cautionary information regarding forward-looking statements and a list offactors that could cause actual results to differ materially from those predicted in the forward-lookingthose statements.
EXECUTIVE SUMMARY
Business Overview
We provide a broad range of insurance broking, risk management and consulting services to our clients worldwide and organize our business into three segments: Global, North America and International.
Our Global business provides specialist brokerage and consulting services to clients worldwide arising from specific industries and activities including Aerospace; Energy; Marine; Construction;Construction, Property and Casualty; Financial and Executive Risks; Financial Solutions; Faber Global; Fine Art, Jewelry and Specie; Special Contingency Risks; Hughes-Gibbs; Willis Capital Markets & Advisory; Placement and Reinsurance.
North America and International comprisecomprise: our retail operations and provide services to small, medium and large corporationscorporations; and the employee benefitsHuman Capital 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 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. Commission levels generally follow the same trend as premium levels as they are derived from a percentage of the premiums paid by the insureds. Fluctuations in these premiums charged by the insurance carriers can therefore have a direct and potentially material impact on our results of operations.
Due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, commission revenues may vary widely between accounting periods. A period of low or declining premium rates, generally known as a ‘soft’'soft' or ‘softening’'softening' market, generally leads to downward pressure on commission revenues and can have a material adverse impact on our commission revenues and operating margin. A ‘hard’'hard' or ‘firming’'firming' market, during which premium rates rise, generally has a favorable impact on our commission revenues and operating margin. Rates, however, vary by geography, industry and client segment. As a result and due to the global and diverse nature of our business, we view rates holistically.
Willis Group Holdings plc
Market Conditions
Market conditions in our industry are generally defined by factors such as the strength of the economies in the various geographic regions in which we serve around the world, insurance rate movements, and insurance and reinsurance buying patterns of our clients.
The years 2005 through 2010 were almost universally viewed as softindustry and market years across most of our product offeringsin general throughout 2011 and our commission revenues and operating margins throughout that period were negatively impacted, although in 2009 the marketearly 2012 experienced modest stabilization in the reinsurance market and certain specialty markets.
Our North America and UK and Irish retail operations were particularly impacted by the weakened economic climate and continued soft market throughout 2009 and 2010 with no material improvement in rates across most sectors in these geographic regions. This resulted in declines in revenues in these operations, particularly amongst our smaller clients who have been especially vulnerable to the economic downturn.
In 2011, we saw some modest increasesincrease in catastrophe-exposed property insurance and reinsurance pricing levels driven by significant 2011 catastrophe losses including the Japanese earthquake and tsunami, the New Zealand earthquake the
29
and, late in 2012, Super Storm Sandy. Also during that period, direct carriers in North America, facing persistent low investment returns, started to modestly raise rates in certain products. This firming rate environment, however, generally did not extend beyond North America to impact our International retail business.
Willis Group Holdings plc
mid-west US tornadoesEarly in 2013 the reinsurance market was generally flat, however, as the year progressed we saw changing market sentiment driven by changes in the sources of capital and Thailand floods. However,increases in general, we continuedcapital supply in the reinsurance market, most notably within the North American catastrophe-exposed property market. The influx of third party capital coupled with changes to be negatively impacted byreinsurance buying patterns and regulatory complexity is leading to growing complexity in the soft insurancereinsurance market and challenging economic conditions across other sectorsa softening of prices.
This pattern of new capacity and most geographic regions.
We believe that,market entrants coupled with strong underwriting performance in 2013, due to the absence of a significantnatural and man-made catastrophes, means that the trend of price softening is continuing as we enter 2014 and is extending to other lines of business, not just catastrophe loss or capital impairmentexposed property.
The outlook for our business, operating results and financial condition continues to be challenging due to the global economic condition. There are signs of improving conditions both in the industry,US, and within certain European Union countries, including a universal turnreturn to sustained GDP growth in market rates is notcertain countries. If conditions in the Global economy, including the US, the UK and the Eurozone deteriorate, there will likely to occur. However, more recentlybe a negative effect on our business as well as the businesses of our clients.
In the face of this challenging economic environment we have not seen the same reductionadopted a strategy to invest selectively in rates globally that were faced in early 2011growth areas, defined by geography, industry sector and during 2010client segment, and 2009. There have been recent signs that the unprofitability of certain business lines suchto better align our three segments so as property catastrophe and workers compensation is slowly firming rates in those lines. Additionally, there has been some evidence of firming or hardening in certain sectors of the reinsurance market in early 2012.
Financial Performance
General
This discussion includes references to, non-GAAP financial measures as defined in Regulation G of the rules of the Securities and Exchange Commission (‘SEC’). We present such non-GAAP financial measures, specifically, organic growth in commissions and fees, adjusted operating margin, adjusted operating income, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations, as we believe such information is of interestamong other things, bring our clients greater access to the Company's specialty areas and analytical capabilities. Our growth strategy also involves increasing our investment community because it provides additional meaningful methodsin, and deployment of, evaluating certain aspects of the Company’s operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. Organic growth in commissions and fees excludes the impact of acquisitions and disposals, year over year movements in foreign exchange, legacy contingent commissions assumed as part of the HRH acquisition, and investment and other income from growth in revenues and commissions and fees. Adjusted operating margin, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations are calculated by excluding the impact of certain specified items from net income from continuing operations, the most directly comparable GAAP measure. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2011.our analytical capabilities.
Financial Performance
Consolidated Financial Performance
20112013 compared to 20102012
Despite difficult market conditions, totalTotal revenues in 20112013 of $3,447$3,655 million increased by $115$175 million, or 3%5.0 percent, compared to 2010.2012. This included organic growth in commissions and fees of 2%4.9 percent, and 0.5 percent growth from acquisitions and disposals. Organic growth was achieved in all three of our operating segments led by Global with 5.6 percent. Our North America operations reported organic growth of 4.9 percent, which included a $5 million positive revenue recognition adjustment. Our International operations achieved organic growth of 4.1 percent despite recognizing a $15 million negative revenue recognition adjustment. Foreign currency movements had a negative $12 million or 0.3 percent impact on commissions and fees in 2013.
Total expenses for 2013 of $2,970 million were $719 million or 19.5 percent lower compared to 2012.
The 2013 total expenses included $46 million related to the Expense Reduction Initiative (see 'Expense Reduction Initiative' section below) conducted earlier in the year. The 2012 total expenses included a $492 million non-cash goodwill impairment charge related to our North American reporting unit, a $200 million write-off of unamortized cash retention awards following the decision to eliminate the repayment requirement of past awards, and a $252 million expense related to the accrual for 2012 cash bonuses paid in 2013. Foreign currency movements had a $9 million positive impact on total expenses in 2013.
Excluding the items noted above, total expenses in 2013 were $188 million, or 6.8 percent, higher than in 2012. The largest driver of this was the increase in salaries and benefits due to annual salary reviews, higher charges for share-based compensation and new hires and investments in targeted businesses and geographies. In addition to these, we recorded higher incentives as a result of growth in commissions and fees, and the change in remuneration policy. Other operating expenses also increased due to travel, accommodation and client entertaining costs to support business development, marketing costs, strategic review charges and higher professional fees.
The Company incurred a loss on extinguishment of debt of $60 million from the refinancing that was completed during 2013.
The tax rate for the full year was affected by an incremental US tax expense of $9 million recorded after taking into account the impact of adjustments to the valuation allowance placed against our US deferred tax assets.
Earnings from associates were down $5 million, net of tax, mainly due to costs of a reorganization program in our principal associate, Gras Savoye.
Net income attributable to Willis shareholders from continuing operations was $365 million or $2.04 per diluted share in 2013 compared to a loss of $446 million or $2.58 per diluted share in 2012. The $811 million increase in net income compared to 2012 can be attributed primarily to the non-recurrence of the 2012 items discussed above and growth in commissions and fees partially offset by growth in expenses.
2012 compared to 2011
Total revenues in 2012 of $3,480 million increased by $33 million, or 1.0 percent, compared to 2011, including a $59 million or 1.7 percent negative impact from movements in foreign exchange. Organic growth in commissions and fees of 3.1 percent was driven by our International and Global operations. Our North America operations reported a revenue decline of 4%, including a 4% decline0.6 percent in organic commissions and fees, reflectingdue to lower revenues generated by Loan Protector, a specialty business acquired as part of the HRH business, and the continued adverse impact of difficult economic conditions in the US.
Total expenses in 20112012 of $2,881$3,689 million increased $302$808 million compared to 2010,2011, primarily due to incremental expense relatingthe recognition of a $492 million non-cash goodwill impairment charge related to the 2011 Operational Review (discussed later in this section),our North American reporting unit, a $22$200 million write-off of an uncollectible accounts receivable balance relating to periods prior to January 1, 2011, also discussed later in this section, continued investment to support future growth, increased incentives amortization relating to ourunamortized cash retention awards reinstatementfollowing the decision to eliminate the repayment requirement of salary reviewspast awards, and a $252 million expense related to the accrual for all associates2012 cash bonuses paid in March2013.
Excluding these expenses, total operating expenses declined $136 million, or 4.7 percent, principally due to $180 million expense recognized in 2011 related to the Operational Review and 401(k) matching contributions for our US associates from January 2011, unfavorablefavorable movements in foreign currency translation and an $11 million UK FSA regulatory settlement. These increases wereexchange partially offset by cost savings arising from implementation of the 2011 Operational Review, reduced pension expense of $24 millionincreases in salary and theyear-on-year $8 million benefit from the release of fundsbenefits expenses linked to annual pay reviews, new hires and reserves related to potential legal liabilities.investments in targeted businesses and geographies.
Net incomeloss attributable to Willis shareholders from continuing operations was $446 million or a loss of $2.58 per diluted share in 2012 compared to a profit of $203 million or $1.15 per diluted share in 2011 compared to $4552011. The $649 million or $2.66 per diluted share in 2010. The $252 million reductiondecrease in net income compared to 20102011 primarily reflects the increase in total expenses described above and the $113 million charge to establish a valuation allowance against deferred tax assets in our US operations, partially offset by the non-recurrence of the $131 million post-tax cost in 2011 relating to the make-whole amounts on the repurchase and redemption of $500 million of our senior debt and the write-off of related unamortized debt issuance costs partly offsetand by the revenue growth achieved during the year. Net income in 2012 was also adversely impacted by an $11a $7 million reduction in interest in earnings of associates, net of tax, mainly due to declining performance in our principal associate, Gras Savoye.
30
Business discussionWillis Group Holdings plc
2010 compared to 2009
Total revenues in 2010 of $3,332 million increased by $79 million, or 2%, compared to 2009, reflecting organic growth in commissions and fees of 4% being partly offset by a 1% adverse impact from foreign currency translation and decreased investment and other income. Total expenses in 2010 of $2,579 million, were $16 million higher compared to 2009. Salaries and benefits expense increased by $46 million, primarily due to a $60 million increase in incentive expense, partly offset by reduced severance costs and favorable foreign currency translation. Other operating expenses declined by $26 million, driven by reduced losses on our forward hedging program and a reduction in the amortization of intangible assets of $18 million due to a lower amortization charge for HRH-related intangibles.
Net income attributable to Willis shareholders from continuing operations was $455 million or $2.66 per diluted share in 2010 compared to $434 million or $2.57 per diluted share in 2009. The $21 million increase in net income compared to 2009 primarily reflects the revenue growth described above, partly offset by the $16 million increase in total expenses, an increase in the effective tax rate from 18% in 2009 to 24% in 2010 and a $10 million reduction in interest in earnings of associates, net of tax following the December 2009 reduction from 49% to 31% in our ownership interest in Gras Savoye.
Adjusted Operating Income, Adjusted Net Income from Continuing Operations and Adjusted Earnings per Diluted Share from Continuing Operations
AdjustedOur non-GAAP measures of adjusted operating income, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations are calculated by excluding the impact of certain items (as detailed below) from operating income and(loss), net income (loss) from continuing operations, and earnings per diluted share from continuing operations, respectively, the most directly comparable GAAP measures.
The following items are excluded from operating income (loss) and net income (loss) from continuing operations as applicable:
| |
| (i) | the additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which will not feature a repayment requirement; |
| |
| (ii) | write-off of unamortized cash retention awards following the decision to eliminate the repayment requirement on past awards; |
| |
| (iii) | goodwill impairment charge; |
| |
| (iv) | valuation allowance against deferred tax assets; |
| |
| (v) | write-off of uncollectible accounts receivable balance and associated legal fees arising in Chicago due to fraudulent overstatement of commissions and fees; |
| |
| (vi) | costs associated with the 2011 Operational Review; |
| |
| (vii) | significant legal and regulatory settlements which are managed centrally; |
| |
| (viii) | gains and losses on the disposal of operations; |
| |
| (ix) | insurance recoveries; |
| |
| (x) | make-whole amounts on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs; |
| |
| (xi) | loss and fees related to the extinguishment of debt; and |
| |
| (xii) | costs associated with the Expense Reduction Initiative. |
We believe that excluding these items, as applicable, from operating income and(loss), net income (loss) from continuing operations and earnings per diluted share from continuing operations provides a more complete and consistent comparative analysis of our results of operations. We use these and other measures to establish Group performance targets and evaluate the performance of our operations. The Company also uses both adjusted earnings per diluted share from continuing operations and adjusted operating margin measures to form the basis of establishing and assessing components of compensation.
As set out in the tables below, adjusted operating margin at 22.5%20.0 percent in 2011,2013, was down 50160 basis points compared to 2010,2012, while adjusted net income from continuing operations at $482$472 million was $12$18 million higher than in 2010 and adjusted2012. Adjusted earnings per diluted share from continuing operations was $2.74$2.64 in 2011,2013, compared to $2.75$2.58 in 2010.2012.
A reconciliation of adjustedreported operating income to reported operating income,or loss, the most directly comparable GAAP measure, to adjusted operating income is as follows (in millions, except percentages):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
| Operating Income, GAAP basis | | $ | 566 | | | $ | 753 | | | $ | 690 | |
| Excluding: | | | | | | | | | | | | |
| Net (gain)/loss on disposal of operations | | | (4 | ) | | | 2 | | | | (13 | ) |
2011 Operational Review(a) | | | 180 | | | | — | | | | — | |
FSA regulatory settlement(b) | | | 11 | | | | — | | | | — | |
Venezuela currency devaluation(c) | | | — | | | | 12 | | | | — | |
Write-off of uncollectible accounts receivable balance(d) | | | 22 | | | | — | | | | — | |
| HRH integration costs | | | — | | | | — | | | | 18 | |
| Accelerated amortization of intangible assets | | | — | | | | — | | | | 7 | |
| Costs associated with the redomicile of the Company’s parent company | | | — | | | | — | | | | 6 | |
| | | | | | | | | | | | | |
| Adjusted Operating Income | | $ | 775 | | | $ | 767 | | | $ | 708 | |
| | | | | | | | | | | | | |
| Operating Margin, GAAP basis, or Operating Income as a percentage of Total Revenues | | | 16.4 | % | | | 22.6 | % | | | 21.2 | % |
| | | | | | | | | | | | | |
| Adjusted Operating Margin, or Adjusted Operating Income as a percentage of Total Revenues | | | 22.5 | % | | | 23.0 | % | | | 21.8 | % |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Operating income (loss), GAAP basis | $ | 685 |
| | $ | (209 | ) | | $ | 566 |
|
| Excluding: | | | | | |
Additional incentive accrual for change in remuneration policy (a) | — |
| | 252 |
| | — |
|
Write-off of unamortized cash retention awards (b) | — |
| | 200 |
| | — |
|
Goodwill impairment charge (c) | — |
| | 492 |
| | — |
|
India JV settlement (d) | — |
| | 11 |
| | — |
|
Insurance recovery (e) | — |
| | (10 | ) | | — |
|
Write-off of uncollectible accounts receivable balance (f) | — |
| | 13 |
| | 22 |
|
| Net (gain) loss on disposal of operations | (2 | ) | | 3 |
| | (4 | ) |
2011 Operational Review (g) | — |
| | — |
| | 180 |
|
FSA regulatory settlement (h) | — |
| | — |
| | 11 |
|
Expense Reduction Initiative (i) | 46 |
| | — |
| | — |
|
| Fees related to the extinguishment of debt | 1 |
| | — |
| | — |
|
| Adjusted operating income | $ | 730 |
| | $ | 752 |
| | $ | 775 |
|
| Operating margin, GAAP basis, or operating income (loss) as a percentage of total revenues | 18.7 | % | | (6.0 | )% | | 16.4 | % |
| Adjusted operating margin, or adjusted operating income as a percentage of total revenues | 20.0 | % | | 21.6 | % | | 22.5 | % |
_________________
| |
(a) | Additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which will not feature a repayment requirement. |
| |
(a)(b)
| Write-off of unamortized cash retention awards following the decision to eliminate the repayment requirement on past awards. |
| |
(c) | Non-cash charge recognized related to the impairment of the carrying value of the North America reporting unit's goodwill. |
| |
(d) | $11 million settlement with former partners related to the termination of a joint venture arrangement in India. In addition, a $1 million loss on disposal of operations was recorded related to the termination. |
| |
(e) | Insurance recovery related to the previously disclosed fraudulent activity in Chicago. See 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods', below. |
| |
(f) | Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods', below. |
| |
(g) | Charge relating to the 2011 operational review,Operational Review, including $98 million of severance costs related to the elimination of approximately 1,200 positions for the full year 2011. |
| |
(b)(h)
| | Regulatory settlement with the UK Financial Services Authority (FSA), now the Financial Conduct Authority (FCA). |
| |
(i) | Charge related to the assessment of the Company's organizational design. See 'Expense Reduction Initiative' section below. |
31
Willis Group Holdings plc
| | |
(c) | | With effect from January 1, 2010 the Venezuelan economy was designated as hyper-inflationary. The Venezuelan government also devalued the Bolivar Fuerte in January 2010. As a result of these actions, the Company recorded a one-time charge in other operating expenses to reflect the re-measurement of its net assets denominated in Venezuelan Bolivar Fuerte. |
|
(d) | | Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see ‘Correction of commissions and fees overstatement relating to 2011 and prior periods’, below. |
A reconciliation of adjustedreported net income from continuing operations and adjusted earnings per diluted share from continuing operations to reported net incomeor loss from continuing operations and reported earnings per diluted share from continuing operations, the most directly comparable GAAP measures, to adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations is as follows (in millions, except per share data):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended
| | | Per diluted share
| |
| | | December 31, | | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | |
| |
| Net Income from Continuing Operations, GAAP basis | | $ | 203 | | | $ | 455 | | | $ | 434 | | | $ | 1.15 | | | $ | 2.66 | | | $ | 2.57 | |
| Excluding: | | | | | | | | | | | | | | | | | | | | | | | | |
| Net (gain) loss on disposal of operations, net of tax ($nil), ($(1)), ($2) | | | (4 | ) | | | 3 | | | | (11 | ) | | | (0.02 | ) | | | 0.02 | | | | (0.06 | ) |
2011 Operational Review, net of tax ($52), ($nil), ($nil)(a) | | | 128 | | | | — | | | | — | | | | 0.73 | | | | — | | | | — | |
FSA regulatory settlement, net of tax ($nil), ($nil), ($nil)(b) | | | 11 | | | | — | | | | — | | | | 0.06 | | | | — | | | | — | |
| HRH integration costs, net of tax ($nil), ($nil), ($(5)) | | | — | | | | — | | | | 13 | | | | — | | | | — | | | | 0.08 | |
| Costs associated with the redomicile of the Company’s parent company, net of tax ($nil), ($nil), ($nil) | | | — | | | | — | | | | 6 | | | | — | | | | — | | | | 0.03 | |
| Accelerated amortization of intangible assets, net of tax ($nil), ($nil), ($(3)) | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | 0.02 | |
| Premium on early redemption of 2010 bonds, net of tax ($nil), ($nil), ($(1)) | | | — | | | | — | | | | 4 | | | | — | | | | — | | | | 0.02 | |
| Make-whole amounts on repurchase and redemption of Senior Notes and write-off of unamortized debt issuance costs, net of tax ($50), ($nil), ($nil) | | | 131 | | | | — | | | | — | | | | 0.74 | | | | — | | | | — | |
Write-off of uncollectible accounts receivable balance, net of tax ($9), ($nil), ($nil)(c) | | | 13 | | | | — | | | | — | | | | 0.08 | | | | — | | | | — | |
Venezuela currency devaluation, net of tax ($nil), ($nil), ($nil)(d) | | | — | | | | 12 | | | | — | | | | — | | | | 0.07 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted Net Income from Continuing Operations | | $ | 482 | | | $ | 470 | | | $ | 450 | | | $ | 2.74 | | | $ | 2.75 | | | $ | 2.66 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Average diluted shares outstanding, GAAP basis | | | 176 | | | | 171 | | | | 169 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Per diluted share Year Ended December 31, |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| Net income (loss) from continuing operations, GAAP basis | $ | 365 |
| | $ | (446 | ) | | $ | 203 |
| | $ | 2.04 |
| | $ | (2.58 | ) | | $ | 1.15 |
|
| Excluding: | | | | | | | | | | | |
Additional incentive accrual for change in remuneration policy, net of tax ($nil, $77, $nil) (a) | — |
| | 175 |
| | — |
| | — |
| | 0.99 |
| | — |
|
Write-off of unamortized cash retention awards, net of tax ($nil, $62, $nil) (b) | — |
| | 138 |
| | — |
| | — |
| | 0.78 |
| | — |
|
Goodwill impairment charge, net of tax ($nil, $34, $nil) (c) | — |
| | 458 |
| | — |
| | — |
| | 2.60 |
| | — |
|
India JV settlement, net of tax ($nil, $nil, $nil) (d) | — |
| | 11 |
| | — |
| | — |
| | 0.06 |
| | — |
|
Insurance recovery, net of tax ($nil, $4, $nil) (e) | — |
| | (6 | ) | | — |
| | — |
| | (0.03 | ) | | — |
|
Write-off of uncollectible accounts receivable balance, net of tax ($nil, $5, $9) (f) | — |
| | 8 |
| | 13 |
| | — |
| | 0.05 |
| | 0.08 |
|
| Net (gain) loss on disposal of operations, net of tax ($1, $nil, $nil) | (1 | ) | | 3 |
| | (4 | ) | | (0.01 | ) | | 0.02 |
| | (0.02 | ) |
2011 Operational Review, net of tax ($nil, $nil, $52) (g) | — |
| | — |
| | 128 |
| | — |
| | — |
| | 0.73 |
|
FSA regulatory settlement, net of tax ($nil, $nil, $nil) (h) | — |
| | — |
| | 11 |
| | — |
| | — |
| | 0.06 |
|
| Make-whole amounts on repurchase and redemption of Senior Notes and write-off of unamortized debt issuance costs, net of tax ($nil, $nil, $50) | — |
| | — |
| | 131 |
| | — |
| | — |
| | 0.74 |
|
Expense Reduction Initiative, net of tax ($8, $nil, $nil) (i) | 38 |
| | — |
| | — |
| | 0.21 |
| | — |
| | — |
|
| Fees related to the extinguishment of debt, net of tax ($nil, $nil, $nil) | 1 |
| | — |
| | — |
| | 0.01 |
| | — |
| | — |
|
| Loss on extinguishment of debt, net of tax ($nil, $nil, $nil) | 60 |
| | — |
| | — |
| | 0.34 |
| | — |
| | — |
|
| Impact of US valuation allowance | 9 |
| | 113 |
| | — |
| | 0.05 |
| | 0.64 |
| | — |
|
Dilutive impact of potentially issuable shares (j) | — |
| | — |
| | — |
| | — |
| | 0.05 |
| | — |
|
| Adjusted net income from continuing operations | $ | 472 |
| | $ | 454 |
| | $ | 482 |
| | $ | 2.64 |
| | $ | 2.58 |
| | $ | 2.74 |
|
Average diluted shares outstanding, GAAP basis (j) | 179 |
| | 173 |
| | 176 |
| | | | | | |
_________________
| |
(a) | Additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which will not feature a repayment requirement. |
| |
(a)(b)
| Write-off of unamortized cash retention awards debtor following the decision to eliminate the repayment requirement on past awards. |
| |
(c) | Non-cash charge recognized related to the impairment of the carrying value of the North America reporting unit's goodwill. |
| |
(d) | $11 million settlement with former partners related to the termination of a joint venture arrangement in India. In addition, a $1 million loss on disposal of operations was recorded related to the termination. |
| |
(e) | Insurance recovery related to the previously disclosed fraudulent activity in Chicago. See 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods', below. |
| |
(f) | Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods', below. |
| |
(g) | Charge relating to the 2011 Operational Review, including $98 million pre-tax of severance costs related to the elimination of approximately 1,200 positions for the full year 2011. |
| |
(b)(h)
| | Regulatory settlement with the UK Financial Services Authority (FSA), now the Financial Conduct Authority (FCA). |
|
(c) | | Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see ‘Correction of commissions and fees overstatement relating to 2011 and prior periods’, below. |
|
(d) | | With effect from January 1, 2010 the Venezuelan economy was designated as hyper-inflationary. The Venezuelan government also devalued the Bolivar Fuerte in January 2010. As a result of these actions the Company recorded a one-time charge in other operating expenses to reflect the re-measurement of its net assets denominated in Venezuelan Bolivar Fuerte. |
2011 Operational review
In order to fund the higher anticipated salaries and benefits expense and continued investment for the future, we implemented a review of all our businesses in 2011 to better align our resources with our growth strategies. In connection with this review, we incurred pre-tax charges of $180 million in 2011 including:
| |
• (i) | $98 million of severance costs (including $9 million relatingCharge related to the waiverassessment of retention awards) relating to approximately 1,200 positions which have been, or arethe Company's organizational design. See 'Expense Reduction Initiative' section below. |
| |
(j) | Potentially issuable shares were not included in the processcalculation of being, eliminated; |
|
• | $37 million of other salaries and benefits expense to buy out previously existing incentive schemes and other contractual arrangements that no longer align withdiluted earnings per share, GAAP basis, because the Group’s overall remuneration strategy; and |
|
• | $45 million of other operating expenses, including: property and systems rationalization costs; related accelerated systems depreciation of $5 million; and re-negotiation of sourcing contracts.Company's net loss from continuing operations rendered their impact anti-dilutive. |
32
Goodwill Impairment
The fullOur annual goodwill impairment analysis is performed each year costat October 1. At October 1, 2013 our analysis showed the estimated fair value of each reporting unit was in excess of the 2011 Operational Review at $180 million representscarrying value, and therefore did not result in an increase of $20 million from our third quarter impairment charge (2012: $492 million; 2011 estimate. This is the result of the identification of additional opportunities to achieve efficiencies.
: $nil).
In 2011 we realized total cost savings attributable to the 2011 Operational Review of approximately $80 million. We now expect to achieve annualized savings of approximately $135 million beginning in 2012 an increase from our previous estimateimpairment charge for the North America reporting unit was required and amounted to $492 million. There was no impairment for the Global and International reporting units, as the fair values of $115 million to $125 million, and represents incremental savingsthese units were significantly in 2012 compared to 2011excess of approximately $55 million.their carrying value.
The statements under ‘2011 Operational Review’ constitute forward-looking statements. Please see ‘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.
Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs
We issued $800 million of new debt in March 2011, comprised of $300 million 4.125% senior notes due 2016 and $500 million 5.750% senior notes due 2021. Net proceeds of approximately $787 million were used in part to repurchase and redeem $500 million 12.875% senior notes due 2016 and make related make-whole payments totaling $158 million. In addition to the make-whole payment we also wrote off unamortized debt issuance costs of $13 million.
Correction of commissionsCommissions and fees overstatement relatingFees Overstatement Relating to 2011 and prior periodsPrior Periods
In the first quarter ofAs previously disclosed, in early 2012 we identified through our internal financial control process and a subsequent internal investigation an uncollectible accounts receivable balance of approximately $28$40 million in a stand-alone business unit that appears to be due toChicago from the fraudulent overstatementsoverstatement of Commissions and Feesfees from the years 2005 to 2011. This matter was brought to management’s attention after we had announced our fourth quarter and annual earnings on February 14, 2012.
The Company is conducting an internal investigation into this matter with the assistance of our professional advisors. Based on the results of the investigation to date, we believe that the overstatements resulted from the conduct of a few associates within or dealing with our Employee Benefits group who colluded to misapply certain current cash receipts to older outstanding accounts receivable balances. We have concluded that the overstatements we uncoveredtotal $40 million of overstatement did not materially affect our previously-issuedpreviously issued financial statements for any of the prior periods.
For the year ended December 31, 2011,periods and we have corrected the misstatement of Commissions and Fees from prior periods by recognizing a $22 million charge to Other Operating Expensesoperating expenses to write off the uncollectible receivable at January 1,(a) of $13 million (including legal expenses) in the first quarter of 2012 and (b) of $22 million in the fourth quarter of 2011. In the fourth quarter 2011 and by reversing thewe also reversed a $6 million balance of Commissions and Feesfees which had been recorded during 2011. We have also reversed2011 and $2 million of Salaries and Benefitsbenefits expense representing an over-accrual of production bonuses relating to the overstated revenue. AsDuring 2012, we recorded within Other operating expenses a result$10 million insurance settlement from insurers in respect of correcting these misstatements, our financial statementsclaim under Group insurance policies, for 2011 differcompensation paid out in certain immaterial respects, including a net $0.01 reduction in adjusted earnings per diluted share, from the unaudited financial statements included in our press release issuedyears 2005 to 2010 on February 14, 2012.
the fraudulently overstated revenues discussed above.
The associatesemployees in question, who have been placed on administrative leave pending completion of the investigation, haveterminated, were not been members of Willis executive management or playednor did they play a significant role in internal control over financial reporting. Based on the results of our investigation, to date,which has now been completed, we do not believe that any client or carrier funds were misappropriated or that any other business units were affected.
We have taken steps to enhanceenhanced our internal controls in relation to the business unit in question, including enhanced procedures over handlingreceipt of checks and application of cash, receipts, increased segregation of duties between the operating unit and the accounting and settlement function, and additional central sign off requirement on revenue recognition.
33
Expense Reduction Initiative
The Company recorded a pre-tax charge of $46 million in the first quarter of 2013 related to the previously announced assessment of the Company's organizational design. In connection with this assessment, we incurred the following pre-tax charges:
Willis Group Holdings plc$29 million of severance and other staff related costs towards the elimination of 207 positions; and
$17 million of Other operating expenses and Depreciation resulting from the rationalization of property and systems.
The Company did not incur any further charges related to this review.
The actions taken resulted in total cost savings of approximately $20 million exclusive of the costs incurred in 2013. It is also anticipated that we will achieve prospective annualized cost savings of approximately $25 million to $30 million.
Cash retention awardsRetention Awards
We started makingFor the past several years, certain cash retention awards in 2005under the Company's annual incentive programs included a feature which required the recipient to a small number of employees. With the success of the program, we expanded it over time to include more staff and we believe it is a contributing factor to the reduction in employee turnover we have seen in recent years.
Salaries and benefits do not reflect the unamortized portion of annual cash retention awards made to employees. Employees must repay a proportionate amount of thesethe annual award if the employee voluntarily left the Company before a specified date, which was generally three years following the award. As previously disclosed, the Company made the cash retention awards if they voluntarily leave our employ (other than inpayment to the event of retirement or permanent disability) within a certain time period, currently three years. We make cash payments to our employeesrecipient in the year weof grant these retention awards and recognize these paymentsrecognized the payment in expense ratably over the period they areit was subject to repayment, beginning in the quarter in which the award iswas made.
During 2011, we made $210 million of cash retention award payments compared with $196 million in 2010 and $148 million in 2009. Salaries and benefits in 2011 include $185 million of amortization of cash retention award payments made on or before December 31, 2011, compared with $119 million in 2010 and $88 million in 2009. As of December 31, 2011, December 31, 2010 and December 31, 2009, we included $196 million, $173 million and $98 million, respectively, within other current assets and other non-current assets on the balance sheet, which represented the The unamortized portion of cash retention award paymentsawards was recorded within 'other current assets' and 'other non-current assets' in the consolidated balance sheets.
The following table sets out the amount of cash retention awards made on or beforeand the related amortization of those dates.awards for the three years ended December 31, 2013.
Willis Group Holdings plc
|
| | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2013 | | 2012 | | 2011 |
| | | (millions) |
| Cash retention awards made | | $ | 12 |
| | $ | 221 |
| | $ | 210 |
|
| Amortization of cash retention awards included in salaries and benefits | | 6 |
| | 216 |
| | 185 |
|
In December 2012, the Company decided to eliminate the repayment requirement from past annual cash retention awards and, as a result, recognized a non-cash, pre-tax charge of $200 million which represents the write-off of the unamortized balance of past awards at that date.
There were, however, a number of off-cycle awards with a fixed period guarantee attached, for which we have not waived the repayment requirement. The unamortized portion of these awards amounted to $15 million at December 31, 2013 (2012: $9 million; 2011: $196 million).
In addition, in 2012, the Company replaced annual cash retention awards with annual cash bonuses which did not include a repayment requirement. As at December 31, 2012, the Company had accrued $252 million for these bonuses.
Pension Expense
We recorded a net pension chargeperiodic benefit income on our UK anddefined benefit pension plan in 2013 of $5 million (2012: $5 million; 2011: cost of $6 million). On our US defined benefit pension plansplan, we recorded a net periodic benefit income of $4 million in 20112013 (2012: cost of $6$3 million and $nil respectively, compared with $28 million and $1 million respectively in 2010 and $25 million and $7 million respectively in 2009.; 2011: $nil). On our internationalother defined benefit pension plans, we recorded a net pension chargecost of $5$5 million in 2011, compared with $62013 (2012: $4 million in 2010 and $10; 2011: $5 million in 2009.
).
The periodic benefit income on the UK plan charge was $22 million lowerin 2013 is flat compared to 20102012 as the benefits of higher asset returns lowerwere offset by higher amortization of prior periodunrecognized actuarial losses and increased service costs.
The movement to $5 million income on the UK plan in 2012 from a lower service$6 million cost reflecting certain changesin 2011 was primarily due to plan benefits were partlyhigher asset returns partially offset by anhigher amortization of unrecognized actuarial losses and increased interest cost.
On the US plan, the movement to a $4 million income in 2013 from a $3 million cost in 2012 was primarily due to higher asset returns.
The UK2012 US pension chargecost was $3 million higher in 2010 compared to 2009 as the benefit from higher asset returns was more than offset by a higher service cost, higher amortization of prior period losses and higher interest cost.
The US pension charge was $1 million lower in 2011 compared with 2010 reflecting2011 was primarily due to an increased asset return from a higher asset base partly offset by a reductionincrease in amortization of prior period losses. The US pension charge was $6 million lower in 2010 compared to 2009 reflecting an increased asset return, a reduction in the amortization of prior periodunrecognized actuarial losses and the first full year’s benefit from closing the scheme to future accrual in May 2009, partlypartially offset by the non-recurrence of a $12 million curtailment gain in 2009.higher asset returns.
See ‘Contractual Obligations’'Contractual Obligations' below for further information on our obligations relating to our pension plans.
Acquisitions and Disposals
In first quarter 2014 the Company agreed to acquire Charles Monat Limited, a market-leading life insurance solutions adviser to high net worth clients. The acquisition represents a key enhancement to our expanding Global Wealth Solutions practice, particularly in Asia, however completion of the transaction is currently subject to regulatory approval.
During first quarter 2011, we acquired2014 the Company disposed of Insurance Noodle, a 23% interestsmall online wholesale business in a South African brokerage at a total cost of $2 million. During third quarter 2011, we acquired a 100% interest in a Polish brokerage, Brokerskie Centrum Ubezpieczeniowe, at a total cost of $2 million. Willis North America, to Insureon.
In the fourth quarter 2011, we2013 the Company acquired 100% of Broking Italia, a Rome-basedthe employee benefits broker at a total costconsulting division of $12 million.
During 2010, we acquired an additional 39% of our Chinese operations at a total cost of approximately $17 million, bringing our ownership to 90% and an additional 15% of our Colombian operations at a total cost of approximately $7 million, bringing our ownership to 80% at December 31, 2010.
On December 31, 2011, weCapital Strategies Group, Inc. based in Birmingham, Alabama. We disposed of Global Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets associated with Willis of Maclean, Oddy & Associates, Inc. We have recorded within Discontinued Operations, net incomeNorthern New England to a small Maine-based broker specializing in attorneys, not-for-profit organizations, hospitals and contractors.
In third quarter 2013, the Company disposed of the trade and assets associated with CBT, our book of small commercial clients in the UK, to Chesham Insurance Brokers.
In second quarter 2013, the Company acquired 100 percent of PPH Limited and its subsidiary Prime Professions Limited (together referred to as Prime Professions), a leading UK based professional indemnity insurance broker, at a cost of $29 million.
In first quarter 2013, the Company acquired 100 percent of CBC Broker Srl, an Italian broker, at a cost of $1 million in 2011million.
34
Management Structure
associated with these entities, comprising a net loss for the year of $1 million offset by the benefit of a $2 million net gain on disposal.
Business Strategy
Our aim is to be the insurance broker and risk adviser of choice globally.
Our business model is alignedDuring first quarter 2014 we announced changes to the needs of each client segment:
| |
• | Insurer — platform-neutral capital management and advisory services; |
|
• | Large Accounts — delivering Willis’s global capabilities through client advocacy; |
|
• | Mid-Market — mass-customization through our Sales 2.0 model; |
|
• | Commercial — providing products and services to networks of retail brokers; and |
|
• | Personal — focused on affinity models and High Net Worth segments. |
Our business model has three elements:
| |
• | Organic growth; |
|
• | Recruitment of teams and individuals; and |
|
• | Strategic acquisitions. |
To meet the needsstructure of our clients, we realignedUK-based insurance operations, combining our Global Specialty insurance business model in 2011 to further grow the company and position us to deliverwith the Willis Cause:UK retail business to create a market leading client proposition. Following this change, effective January 1, 2014, UK retail, previously reported as part of our International reporting segment will be reported in our Global reporting segment.
| |
• | we thoroughly understand our clients’ needs and their industries; |
|
• | we develop client solutions with the best markets, price and terms; |
|
• | we relentlessly deliver quality client service; and |
|
• | we get claims paid quickly |
In addition, effective January 1, 2014 Mexico which was previously reported within our North America reporting segment, will be reported in our International reporting segment, Placement which was previously reported as part of our Global reporting segment will be reported within Corporate and other, and our US Captive consulting business and Facultative reinsurance businesses, which were previously reported as part of our North America reporting segment will be reported in our Global reporting segment.
...With Integrity
35
Willis Group Holdings plc
Business Strategy
Today we operate in attractive growth markets with a diversified platform across geographies, industries, segments and lines of business. We aim to become the risk advisor, insurance and reinsurance broker of choice globally.
We will achieve this by being completely focused on:
where we compete and that means the areas where we can succeed by:
| |
| ◦ | Geography - we will re-balance our business mix towards faster growing geographies, with both developed and developing markets |
| |
| ◦ | Client Segmentation - we will segment our client offering to provide distinct offerings to different types of client, focusing on the value we provide to our clients |
| |
| ◦ | Sector - we will build business lines around our industry and sector strength e.g. Human Capital and Employee Benefits. |
How we compete which will be centered on meeting the needs of our client by:
| |
| ◦ | Connection - leading to more cross-selling |
| |
| ◦ | Innovation - competing on analytics and innovation |
| |
| ◦ | Investment - focusing on earnings accretion, competitive position and fit |
Through these strategies we aim to grow revenue with positive operating leverage, grow cash flows and generate compelling returns for investors.
REVIEW OF CONSOLIDATED RESULTS
The following table is a summary of our revenues, operating income (loss), operating margin, net income from continuing operations(loss) and diluted earnings per share from continuing operations (in millions, except per share data and percentages):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
| REVENUES | | | | | | | | | | | | |
| Commissions and fees | | $ | 3,414 | | | $ | 3,293 | | | $ | 3,200 | |
| Investment income | | | 31 | | | | 38 | | | | 50 | |
| Other income | | | 2 | | | | 1 | | | | 3 | |
| | | | | | | | | | | | | |
| Total revenues | | | 3,447 | | | | 3,332 | | | | 3,253 | |
| | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | |
| Salaries and benefits | | | (2,087 | ) | | | (1,868 | ) | | | (1,822 | ) |
| Other operating expenses | | | (656 | ) | | | (564 | ) | | | (590 | ) |
| Depreciation expense | | | (74 | ) | | | (63 | ) | | | (64 | ) |
| Amortization of intangible assets | | | (68 | ) | | | (82 | ) | | | (100 | ) |
| Net gain (loss) on disposal of operations | | | 4 | | | | (2 | ) | | | 13 | |
| | | | | | | | | | | | | |
| Total expenses | | | (2,881 | ) | | | (2,579 | ) | | | (2,563 | ) |
| | | | | | | | | | | | | |
| OPERATING INCOME | | | 566 | | | | 753 | | | | 690 | |
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | | | (171 | ) | | | — | | | | — | |
| Interest expense | | | (156 | ) | | | (166 | ) | | | (174 | ) |
| | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | 239 | | | | 587 | | | | 516 | |
| Income taxes | | | (32 | ) | | | (140 | ) | | | (94 | ) |
| | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | 207 | | | | 447 | | | | 422 | |
| Interest in earnings of associates, net of tax | | | 12 | | | | 23 | | | | 33 | |
| | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | | | 219 | | | | 470 | | | | 455 | |
| Discontinued operations, net of tax | | | 1 | | | | — | | | | 4 | |
| | | | | | | | | | | | | |
| NET INCOME | | | 220 | | | | 470 | | | | 459 | |
| Less: net income attributable to noncontrolling interests | | | (16 | ) | | | (15 | ) | | | (21 | ) |
| | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | $ | 204 | | | $ | 455 | | | $ | 438 | |
| | | | | | | | | | | | | |
| Salaries and benefits as a percentage of total revenues | | | 61 | % | | | 56 | % | | | 56 | % |
| Other operating expenses as a percentage of total revenues | | | 19 | % | | | 17 | % | | | 18 | % |
| Operating margin (operating income as a percentage of total revenues) | | | 16 | % | | | 23 | % | | | 21 | % |
| Diluted earnings per share from continuing operations | | $ | 1.15 | | | $ | 2.66 | | | $ | 2.57 | |
| Average diluted number of shares outstanding | | | 176 | | | | 171 | | | | 169 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| REVENUES | |
| | |
| | |
|
| Commissions and fees | $ | 3,633 |
| | $ | 3,458 |
| | $ | 3,414 |
|
| Investment income | 15 |
| | 18 |
| | 31 |
|
| Other income | 7 |
| | 4 |
| | 2 |
|
| Total revenues | 3,655 |
| | 3,480 |
| | 3,447 |
|
| EXPENSES | |
| | |
| | |
|
| Salaries and benefits | (2,207 | ) | | (2,475 | ) | | (2,087 | ) |
| Other operating expenses | (616 | ) | | (581 | ) | | (656 | ) |
| Depreciation expense | (94 | ) | | (79 | ) | | (74 | ) |
| Amortization of intangible assets | (55 | ) | | (59 | ) | | (68 | ) |
| Goodwill impairment charge | — |
| | (492 | ) | | — |
|
| Net gain (loss) on disposal of operations | 2 |
| | (3 | ) | | 4 |
|
| Total expenses | (2,970 | ) | | (3,689 | ) | | (2,881 | ) |
| OPERATING INCOME (LOSS) | 685 |
| | (209 | ) | | 566 |
|
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | — |
| | — |
| | (171 | ) |
| Loss on extinguishment of debt | (60 | ) | | — |
| | — |
|
| Interest expense | (126 | ) | | (128 | ) | | (156 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | 499 |
| | (337 | ) | | 239 |
|
| Income taxes | (122 | ) | | (101 | ) | | (32 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | 377 |
| | (438 | ) | | 207 |
|
| Interest in earnings of associates, net of tax | — |
| | 5 |
| | 12 |
|
| INCOME (LOSS) FROM CONTINUING OPERATIONS | 377 |
| | (433 | ) | | 219 |
|
| Discontinued operations, net of tax | — |
| | — |
| | 1 |
|
| NET INCOME (LOSS) | 377 |
| | (433 | ) | | 220 |
|
| Less: net income attributable to noncontrolling interests | (12 | ) | | (13 | ) | | (16 | ) |
| NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | 365 |
| | $ | (446 | ) | | $ | 204 |
|
| | | | | | |
| Salaries and benefits as a percentage of total revenues | 60.4 | % | | 71.1 | % | | 60.5 | % |
| Other operating expenses as a percentage of total revenues | 16.9 | % | | 16.7 | % | | 19.0 | % |
| Operating margin (operating income (loss) as a percentage of total revenues) | 18.7 | % | | (6.0 | )% | | 16.4 | % |
| Diluted earnings per share from continuing operations | $ | 2.04 |
| | $ | (2.58 | ) | | $ | 1.15 |
|
| Average diluted number of shares outstanding | 179 |
| | 173 |
| | 176 |
|
36
Business discussionWillis Group Holdings plc
Consolidated Results for 20112013 compared to 20102012
Revenues
RevenuesTotal revenues by segment for 2013 and 2012 are shown below (millions, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Change attributable to: | | | | |
| | | | | | | | | | | | Foreign
| | | Acquisitions
| | | | | | Organic
| |
| | | | | | | | | | | | currency
| | | and
| | | Contingent
| | | commissions and
| |
| Year ended December 31, | | 2011 | | | 2010 | | | % Change | | | translation | | | disposals | | | Commissions(b) | | | fees growth(a) | |
| | | (millions) | | | | | | | | | | | | | | | | |
| |
Global(c) | | $ | 1,073 | | | $ | 987 | | | | 9 | % | | | 2 | % | | | — | % | | | — | % | | | 7 | % |
North America(d) | | | 1,314 | | | | 1,369 | | | | (4 | )% | | | — | % | | | — | % | | | — | % | | | (4 | )% |
| International | | | 1,027 | | | | 937 | | | | 10 | % | | | 5 | % | | | — | % | | | — | % | | | 5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | 3,414 | | | $ | 3,293 | | | | 4 | % | | | 2 | % | | | — | % | | | — | % | | | 2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment income | | | 31 | | | | 38 | | | | (18 | )% | | | | | | | | | | | | | | | | |
| Other income | | | 2 | | | | 1 | | | | 100 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 3,447 | | | $ | 3,332 | | | | 3 | % | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | Change attributable to: |
| Year ended December 31, | 2013 | | 2012 | | % Change | | Foreign
currency translation | | Acquisitions
and disposals | | Organic
commissions and fees growth(a) |
| | | | | | | | | | |
| Global | $ | 1,188 |
| | $ | 1,124 |
| | 5.7 | % | | (0.9 | )% | | 1.0 | % | | 5.6 | % |
North America(b) | 1,377 |
| | 1,306 |
| | 5.4 | % | | (0.1 | )% | | 0.6 | % | | 4.9 | % |
International(c) | 1,068 |
| | 1,028 |
| | 3.9 | % | | (0.2 | )% | | — | % | | 4.1 | % |
| Commissions and fees | $ | 3,633 |
| | $ | 3,458 |
| | 5.1 | % | | (0.3 | )% | | 0.5 | % | | 4.9 | % |
| Investment income | 15 |
| | 18 |
| | (16.7 | )% | | |
| | |
| | |
|
| Other income | 7 |
| | 4 |
| | 75.0 | % | | |
| | |
| | |
|
| Total revenues | $ | 3,655 |
| | $ | 3,480 |
| | 5.0 | % | | |
| | |
| | |
|
_________________
| | |
(a) | | Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented; (iv) in North America, legacy contingent commissions assumed as part of the HRH acquisition that had not been converted into higher standard commission; and (v) investment income and other income from reported revenues.presented. |
| |
|
(b) | | Included in North America reported commissions and fees were legacy HRH contingent commissionsin 2013 included the positive impact of a $5 million adjustment to align the recognition of revenue in 2011 comparedthe North America Personal Lines business with $11 million in 2010.the rest of the Group. |
| |
|
(c) | | ReportedInternational commissions and fees and organic commissions and fees growth for Global for 2011in 2013 included the negative impact of a 2011 favorable impact from a change$15 million adjustment to align the recognition of revenue in accounting methodology in a Global Specialty businessChina with the rest of $6 million. |
|
(d) | | Reported commissions and fees included a favorable impact from a change in accounting methodology in a specialty business in North America of $7 million in the year ended December 31, 2010. |
|
| | Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.Group. |
RevenueOur methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.
Total revenues increased by $115$175 million, or 3%5.0 percent, in 20112013 compared to 2010. Commissions and fees increased by $121 million or 4%, including organic2012. This was primarily due to 5.1 percent growth in commissions and fees and an increase of 2%$3 million in other income arising from the disposal of books of business, partially offset by a $3 million decrease in investment income due to continued falling yields on deposits.
Total commissions and fees in 2013 were $3,633 million, which comprised 4% netup $175 million, or 5.1 percent, from $3,458 million in 2012. This increase was due to organic growth of 4.9 percent and growth through acquisitions and disposals of 0.5 percent partially offset by negative foreign currency movements of $13 million or 0.3 percent.
Organic growth of 4.9 percent was driven by low double-digit new business growth driventempered by solid new business generationlost business.
Commissions and higher retentionfees were reduced by a net $9 million impact of existing clients,two revenue recognition adjustments in the North America and International segments discussed below.
The Global segment reported 5.7 percent growth in commissions and fees, comprising 5.6 percent organic growth and a 2%net 1.0 percent growth from acquisitions and disposals mainly due to Prime Professions which was acquired in second quarter 2013. This growth was partially offset by a 0.9 percent negative impact from renewal fluctuationsforeign currency translation.
Organic commissions and other market factors.fees growth of 5.6 percent was led by high single-digit growth in Reinsurance, where all the divisions reported positive growth. Global Specialties reported mid single-digit growth primarily due to strong growth from Financial and Executive Risk, and P&C and Construction. Willis Capital Markets & Advisory performed solidly but was down compared to the very strong result it recorded in 2012 relating to meaningfully higher volumes of advisory fees and catastrophe bond deals.
ThereThe North America segment reported 5.4 percent growth in commissions and fees compared to 2012. This comprised organic growth of 4.9 percent and acquisitions of 0.6 percent from Avalon Actuarial Inc., which was acquired at the end of fourth quarter 2012, partially offset by a net 2%year-over-year benefit to revenue growthnegative 0.1 percent impact from foreign currency translation driven by the weakening of the US dollar against a number of currencies in which we earn our revenues.
The 2%translation. Organic growth in organic commissions and fees comprised netwas positively impacted by a $5 million adjustment to align the recognition of revenue in the North America Personal Lines business with the rest of the Group.
Organic growth was driven by double-digit new business growth and increased client retention levels compared to 2012. Growth was achieved across all of our North America regions, led by the Metro, Midwest, Canada and CAPPPS regions.
Similarly, most of the major practice groups recorded positive growth including mid-single digit growth in our operating segments:two largest practices, Human Capital and Construction.
| |
• | Global achieved 7%The International segment reported 3.9 percent growth including growth in our Reinsurance, Global Specialties and Willis Faber and Dumas (formerly London Market Wholesale) businesses, together with a $6 million 2011 benefit from a change in accounting within a Global Specialty business to conform to current Group accounting policy; |
|
• | International achieved 5% organic growth driven primarily by our Latin America and Eastern Europe regions; and |
|
• | North America reported a 4% decline in organic commissions and fees, primarily driven by the revenue decline in Loan Protector (a small specialty business acquired as part of the HRH business that works with financial institutions to confirm their loans are properly insured and interests are adequately protected). Excluding Loan Protector, the North America segment recorded a 2% decline in organic commissions and fees as the benefit of new business generation was more than offset by a 1% decline in client retention levels, the continued negative impact of the soft market and ongoing weakened economic conditions in the US. |
Investment income in 2011 at $31commissions and fees compared with 2012, comprising 4.1 percent organic growth slightly offset by a 0.2 percent negative impact from foreign currency translation. Organic growth in commissions and fees included the negative impact of a $15 million was $7 million lower thanadjustment to align the recognition of revenue in 2010, as low interest rates across the globe, in particular in the UK and US, togetherChina with the roll-offrest of the Group.
Organic growth was led by double-digit growth in our interest rate hedge program continued toLatin America region and high single-digit growth in Eastern Europe. We reported low single-digit growth in Western Europe, despite the generally weak economic conditions within the region. Despite the negative impact our investment income.
37
Willis Group Holdings plc
of the $15 million revenue adjustment, we recorded good growth in Asia, predominantly in Hong Kong and Singapore. We also reported low single-digit growth in Australasia.
Organic commissions and fees growth by segment is discussed further in ‘Operating Results — Segment Information’'Review of Segmental Results', below.
Salaries and Benefits
Salaries and Benefits
Salaries and benefits increased $219were $268 million, or 10.8 percent, lower in 2013 compared with 2012. Foreign currency movements lowered salaries and benefits by $9 million, or 12%0.4 percent.
In 2012 we recorded a $452 million charge as a result of the change in 2011, compared with 2010,remuneration policy for future incentive awards and the elimination of the repayment requirement on past awards. Excluding the impact of this change and foreign currency movements, salaries and benefits were up by $193 million or 9.5 percent. This increase is primarily reflecting additional expense in 2011 of $135 million associated with our 2011 Operational Review, a $66 million increasedue to annual salary reviews, increased headcount due to targeted investments, increased incentives from the amortization of cash retention awardschange in remuneration policy and theyear-on-year net adverse impact from foreign currency translation, driven primarily by the movement of the US dollar against the Pound sterling (in which our London Market based operations incur the majority of their expenses). Furthermore, we incurredgrowth in commissions and fees, and an additional $10charge to increase the 401(k) match. It also includes $29 million expense relating to the reinstatement of our 401(k) match planExpense Reduction Initiative that was undertaken in first quarter 2013 (see 'Executive Summary - Expense Reduction Initiative' section above for our North America employees from January 2011 and incremental expense following reinstatement of annual salary reviews for all employees from April 2011. These increases were partly offset by cost savings arising from implementation of the 2011 Operational Review, reduced payments of non-retentive incentives and a $24 million decrease in pension expense driven by a higher return on assets and lower amortization of prior period gains and losses.further details).
Other Expenses
Other operating expenseswere $92$35 million, or 16%6.0 percent, higher in 20112013 compared with 2010, primarily reflecting $402012. The $35 million increase includes $12 million of additional expense associated with the 2011 Operational Review, a $22costs that were incurred in first quarter 2013 as part of our Expense Reduction Initiative (see 'Executive Summary - Expense Reduction Initiative' above for details).
The remaining $23 million write-off of an uncollectible accounts receivable balance relating to periods prior to January 1, 2011, and discussed earlier in this section, the $11 million second quarter UK FSA regulatory settlement and increased expense in support of revenue growth initiatives. These were partly offset by cost savings arising from implementation of the 2011 Operational Review, theyear-over-year favorable comparisonincrease was primarily due to the $12higher business development costs, consulting and professional fees to assist us in our growth initiatives, and marketing costs.
Depreciation expense was $94 million 2010 charge in 2013, compared with $79 million in 2012. The increase of $15 million includes $5 million which was incurred in first quarter 2013 relating to the devaluationrationalization of property and systems as part of our Expense Reduction Initiative (see 'Executive Summary - Expense Reduction Initiative' above for details). The remaining $10 million increase is primarily due to a number of significant information technology related projects becoming operational during the Venezuelan currency,year and the $8 millionyear-over-year benefit from the releasewrite-off of fundsreplaced systems and reserves related to potential legal liabilities and positiveyear-over-yearother assets. foreign currency translation, driven primarily by gains in 2011 on our forward rate hedging program, compared to losses in 2010.
Depreciation expensewas $74 million in 2011, compared with $63 million in 2010. The increase primarily reflects accelerated depreciation expense of $5 million in 2011 relating to systems rationalization in connection with the 2011 Operational Review and depreciation of newly capitalized systems project costs in 2011.
Amortization of intangible assetswas $68$55 million in 2011,2013, a reduction of $14$4 million compared to 2010.2012. The decrease primarily reflects theyear-over-year benefit of the 2010 amortization of ongoing reduction in the HRH non-compete agreement acquiredacquisition amortization.
Net gain on disposal of operations of $2 million was related principally to the disposal of our share in 2008, which was fully amortized in 2010.an Iberian associate.
Make-wholeLoss on repurchase and redemptionExtinguishment of senior notes andDebt
The Company incurred total losses on extinguishment of debt of $60 million during the year ended December 31, 2013. This was made up of a tender premium of $65 million, the write-off of unamortized debt issuance costs
As described above, we issued $800 of $2 million and a credit for the reduction of new debt in March 2011 and net proceeds of approximately $787 million were used to repurchase and redeem $500 million of 12.875%the fair value adjustment on 5.625% senior notes due 2016 and make related make-whole payments totaling $1582015 of $7 million. In addition to the make-whole payment we also wrote off unamortized debt issuance costs
Interest ExpenseWillis Group Holdings plc
Interest expense was $156 million in 2011, a reduction of $10 million compared to 2010. The decrease in interest expense primarily reflects the lower coupon payable on our new debt issued in March 2011, theperiod-over-period decrease in the outstanding balance on our5-year term loan facility and net gains recognized on our forward rate hedging program. These benefits were partially offset by the $10 million fourth quarter expense relating to the write-off of debt issuance costs following the refinancing of our bank facility.
38
Business discussion
Income Taxes
The effective tax rate on ordinary income for 20112013 was 24%,20 percent, compared with 26%25 percent for 2010, with the reduction driven primarily by the benefit from the higher tax rates at which costs associated with the 2011 Operational Review are relieved and a different geographic mix of business.2012. The effective tax rate on ordinary income is calculated before the impact of certain discrete items. The significant discreteDiscrete items occurring in 2011 are:2013 with a significant impact on the tax rate were:
an incremental US tax expense of $9 million recorded after the taking into account the impact of adjustments to the valuation allowance placed against US deferred tax assets, US costs of $16 million associated with the Expense Reduction Initiative, and US costs of $61 million associated with the extinguishment of debt;
| |
• | tax related to the make-whole payment on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs which are relieved at a higher rate than the underlying rate; |
|
• | the net impact of gains and losses on disposals recorded in continuing operations; |
|
• | tax related to the write-off of an uncollectible accounts receivable balance which is relieved at a higher rate than the underlying rate; |
|
• | the impact of the UK FSA regulatory settlement expense for which no tax relief is available; |
|
• | the impact of the change in rate of UK corporate income tax being applied to the Company’s opening temporary differences; and |
|
• | adjustments made in respect of tax on profits of prior periods to bring in line the Company’s tax provisions
further non-US costs of $30 million associated with the Expense Reduction Initiative that are generally relieved at a rate higher than the underlying rate;
a net benefit of $4 million associated with a reduction in the corporation tax rate being applied to temporary tax differences in the UK;
a net benefit of $7 million associated with a change in the recognition of unrecognized tax benefits outside of the US; and
a net expense of $1 million associated with tax on profits of prior periods to bring in line the Company’s tax provision to filed tax positions. |
Including the impact of discrete items, the effective tax rate for 2013 was 13%24 percent. This compares to a tax charge of $101 million recorded on the net loss from continuing operations of $337 million in 2011 compared to 24% in 2010.2012.
Interest in Earnings of Associates, net of Tax
We own anThe majority of our interest in a numberearnings of associates such asrelates to our share of ownership of Gras Savoye, where we do not exercise management control and we are therefore unable to direct or manage the business to realize the anticipated benefits that we can achieve through full integration.leading broker in France. Interest in earnings of associates, net of tax, in 2013was $12$nil compared to $5 million in 2011, compared with $23 million in 2010.2012. The decline was mainly driven by a reduction inlower net income reported by our principal associate,recorded in Gras Savoye following recent refinancing actions taken bydue to the company, ongoing restructuring activity and the negative impact on their results from adverse economic conditionscosts recognized in France and other parts of Europe.
Discontinued Operations, net of Tax
Net income from discontinued operationsrelation to a reorganization program undertaken in 2011 relates to our fourth quarter disposal of Global Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets of Maclean, Oddy & Associates, Inc. We recorded net income from discontinued operations of $1 million in 2011, comprising a net loss for the year of $1 million offset by the benefit of a $2 million net gain on disposal.
39designed to drive growth in revenues and operational efficiencies.
Willis Group Holdings plc
Consolidated Results for 20102012 compared to 20092011
Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Change attributable to: | | | | | | | | | | | | | | | | |
| | | | | | | | | Foreign
| | Acquisitions
| | | | Organic
| | | | | | | | Change attributable to: |
| | | | | | | | | currency
| | and
| | Contingent
| | commissions and
| | |
| Year ended December 31 | | 2010 | | 2009 | | % Change | | translation | | disposals | | Commissions(b) | | fees growth(a) | | |
| | | (millions) | | | | | | | | | | | | |
| Year ended December 31, | | 2012 | | 2011 | | % Change | | Foreign
currency translation | | Acquisitions
and disposals | | Organic
commissions and fees growth(a) |
| | | | | | | | | | |
| Global | | $ | 987 | | | $ | 921 | | | | 7 | % | | | — | % | | | — | % | | | — | % | | | 7 | % | $ | 1,124 |
| | $ | 1,073 |
| | 4.8 | % | | (1.3 | )% | | — | % | | 6.1 | % |
North America(c) | | | 1,369 | | | | 1,381 | | | | (1 | )% | | | — | % | | | — | % | | | (1 | )% | | | — | % | |
| North America | | 1,306 |
| | 1,314 |
| | (0.6 | )% | | — | % | | — | % | | (0.6 | )% |
| International | | | 937 | | | | 898 | | | | 4 | % | | | (2 | )% | | | 1 | % | | | — | % | | | 5 | % | 1,028 |
| | 1,027 |
| | 0.1 | % | | (4.8 | )% | | — | % | | 4.9 | % |
| | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | 3,293 | | | $ | 3,200 | | | | 3 | % | | | (1 | )% | | | — | % | | | — | % | | | 4 | % | $ | 3,458 |
| | $ | 3,414 |
| | 1.3 | % | | (1.8 | )% | | — | % | | 3.1 | % |
| | | | | | | | | | | |
| Investment income | | | 38 | | | | 50 | | | | (24 | )% | | | | | | | | | | | | | | | | | 18 |
| | 31 |
| | (41.9 | )% | | |
| | |
| | |
|
| Other income | | | 1 | | | | 3 | | | | (67 | )% | | | | | | | | | | | | | | | | | 4 |
| | 2 |
| | 100.0 | % | | |
| | |
| | |
|
| | | | | | | | | |
| Total revenues | | $ | 3,332 | | | $ | 3,253 | | | | 2 | % | | | | | | | | | | | | | | | | | $ | 3,480 |
| | $ | 3,447 |
| | 1.0 | % | | |
| | |
| | |
|
| | | | | | | | | |
_________________
| | |
(a) | | Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented; (iv) in North America, legacy contingent commissions assumed as part of the HRH acquisition and that had not been converted into higher standard commission; and (v) investment income and other income from reported revenues. |
|
(b) | | Included in North America reported commissions and fees were legacy HRH contingent commissions of $11 million in 2010, compared with $27 million in 2009. |
|
(c) | | Reported commissions and fees included a favorable impact from a change in accounting methodology in a specialty business in North America of $7 million in the year ended December 31, 2010. |
|
| | Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.presented. |
RevenueOur methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.
Total revenues increased $79by $33 million, or 2%,1.0 percent, in 20102012 compared to 2009, reflecting2011, including 3.1 percent growth in organic commissions and fees partially offset by a $59 million, or 1.8 percent, negative impact from foreign exchange and a $13 million decrease in investment income due to continued falling yields on deposits.
Total commissions and fees in 2012 were $3,458 million, up $44 million, or 1.3 percent, from $3,414 million in 2011. Foreign currency movements negatively impacted commissions and fees by 1.8 percent. Organic commissions and fees growth was 3.1 percent.
New business growth was in the double-digits and there were modest benefits in the year from improving rates in certain business lines and geographies; these positive movements were however, offset by a slight increase in lost business.
The Global segment reported 4.8 percent growth in commissions and fees, comprising 6.1 percent organic growth in commissions and fees of 4%, offset byand a 1% adverse1.3 percent negative impact from foreign currency translationtranslation. Organic commissions and decreased investmentfees growth of 6.1 percent was led by high single-digit growth across Reinsurance and other income. OurWillis Faber & Dumas. Global Specialties reported low single-digit growth as strong growth from our Marine, Energy, Financial Solutions, and Construction specialties were partially offset by declines in Aerospace, which continues to be hampered by competitive pricing and a soft rate environment.
The North America segment achieved 7%reported a 0.6 percent decline in organic commissions and fees, compared to 2011. Whilst new business levels were higher than in 2011 resulting in growth in commissioncertain regions and business segments, these were more than offset by lower Loan Protector revenues, the impact of the weakened economy, which negatively impacted our Construction and Human Capital practice groups, and a modest decrease in client retention levels.
The International segment reported essentially flat growth in commissions and fees and the International segment achieved 5% growth. North Americacompared with 2011, comprising 4.9 percent organic commissions and fees growth was flat with the positive benefitand a 4.8 percent negative impact from strongforeign currency translation. Organic growth in our specialty businesses, driven by good business growth, together with a $7 million increase in commissions and fees from a change in accounting in an acquired specialty business to conform to current Group accounting policy, 3%was led by double digit growth in our employee benefits practice, good net new business generationLatin America region, supported by high single-digit growth in Asia and improved client retention, offset by the impact ofEastern Europe. Our Western Europe operations reported low single-digit growth despite the continued soft market and ongoing weakened economic conditions.weakness of economies within the Eurozone.
Investment income in 2012 at $18 million was $12$13 million lower than in 2010 compared2011, primarily due to 2009 with the impact of lower interest rates across the globe, particularlydeclining net yields on our Euro-denominated deposits, partially mitigated by our forward hedging program.
cash and cash equivalents. Organic commissions and fees growth by segment is discussed further in ‘Operating Results — Segment Information’'Review of Segmental Results', below.
Salaries and Benefits
Salaries and benefits increased by $46$388 million, or 3%18.6 percent, in 20102012 compared to 2009, primarily due to a $60with 2011. Foreign currency movements lowered salaries and benefits by $34 million, increase in incentive expenses, comprising a $31 million increase in the amortization of cash retention awards and a $29 million increase in the accrual for non-retentive incentive compensation due to increased headcount and improved performance across many regions.or 1.6 percent. The increase in incentive expense was partially offset by reduced severance costs in 2010 andyear-on-year net favorable impact from foreign currency translation was driven primarily by theyear-on-year strengthening movement of the US dollar against the Pound Sterling.
40pound sterling (in which our London Market based operations incur the majority of their expenses).
Business discussion
Other Expenses
Other operating expensesdeclinedExcluding the impact of foreign exchange, salaries and benefits increased by $26$422 million, or 20.2 percent, compared with 2011 primarily due to the $452 million expense recognized as a result of the change in 2010 comparedremuneration policy for future incentive awards and the elimination of the repayment requirement on past awards; an approximate $55 million increase in salaries, including associated taxes and benefits, resulting from new hires and annual pay reviews; increases in incentives linked to 2009 asproduction; long term incentive plans and the benefit from $25 millionamortization of lower losses on our forward hedging program, the release of a $7 million previously established legal reserve and continued disciplined management of discretionary expensescash retention awards. These increases were partially offset by a $12the $135 million first quarter 2010 charge relating toexpense recognized in salaries and benefits associated with the devaluation2011 Operational Review and lower defined benefit pension plan expenses.
Other Expenses
Other operating expenses were $75 million, or 11.4 percent, lower in 2012 compared with 2011. Foreign currency movements positively impacted expenses by $35 million, or 5.3 percent.
Excluding the impact of the Venezuelan currency and expense increases in support of revenue growth initiatives.
Amortization of intangible assetsdeclinedforeign exchange, other operating expenses decreased by $18$40 million in 2010or 6.1 percent compared to 2009 due to the declining charge for the HRH customer relationship intangible and theyear-on-year benefit from a $7 million accelerated amortization in 2009 relating to the HRH brand name.
Net gain (loss) on disposal of operationsdeclined by $15 million in 2010 compared to 2009with 2011 primarily due to the recordingnon-recurrence of the $73 million expense recognized in 2009other operating expenses associated with the 2011 Operational Review and the $10 million insurance recovery in 2012 related to the previously disclosed fraudulent activity, partially offset by increases in certain other costs, including provisioning for bad debts and higher technology expenditure.
Willis Group Holdings plc
Depreciation expense was $79 million in 2012, compared with $74 million in 2011. The increase is primarily due to a number of information technology related projects becoming operational at the end of 2011 and during first half 2012 partially offset by $5 million depreciation charge incurred in 2011 related to the Operational Review.
Amortization of intangible assets was $59 million in 2012, a reduction of $9 million compared to 2011. The decrease primarily reflects the ongoing reduction in the HRH acquisition amortization.
Goodwill impairment charge was $492 million in 2012. This was a non-cash charge recognized related to the impairment of the carrying value of the North America reporting unit's goodwill. For further information on our testing for goodwill impairment, see 'Critical Accounting Estimates', below.
Net loss on disposal of operations of $3 million was related principally to the dissolution of a joint venture operation in India and loss recognized on disposal of Mauritian reinsurance operation.
Interest Expense
Interest expense was $128 million in 2012 compared to $156 million in 2011. The decrease in interest expense primarily reflects the non-recurrence of a $10 million gain on sale followingwrite-off of debt fees in 2011 related to the part-disposalrefinancing of the Group’s holding in Gras Savoye.
Interest Expense
Interest expense in 2010 was $8 million lower than in 2009, as interest expense savings arising from the reduction in average term loan and revolving credit facility balances was partly offset by the effectand savings as a result of the higherlower coupon payable and reduced fee amortization on the $500 million 12.875% senior unsecured notesour new debt issued in March 2009.2011 and December 2011.
Income Taxes
The effective tax rate was 24% for 2010 compared to 18% in 2009 as a $22 million benefit in 2010 from prior year tax adjustments was more than offset by the adverse impact from the $12 million charge relating to the devaluation of the Venezuelan currency for which no tax credits are available and positive impacts on the 2009 effective tax rate from a $27 million release relating to a 2009 change in tax law 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. Excluding these items, the effective tax rate of 26% on ordinary income for 20102012 was broadly25 per cent, compared with 24 per cent for 2011, with the increase driven primarily by higher than anticipated US state income tax expense, the benefit from the higher tax rates at which costs associated with the 2011 Operational Review are relieved and from a different geographic mix of earnings. The effective tax rate on ordinary income is calculated before the impact of certain discrete items. Discrete items occurring in 2012 with a significant impact on the tax rate are:
a tax credit of $34 million on the $492 million charge related to the impairment of the carrying value of the North America reporting unit's goodwill. The tax credit arises in relation to that part of the charge that is attributable to tax deductible goodwill;
tax related to the $252 million charge for the additional incentive accrual arising from a change in remuneration policy which is generally relieved at a higher rate than the underlying rate;
tax related to the $200 million charge for the write-off of unamortized retention awards which is generally relieved at a higher rate than the underlying rate;
a valuation allowance of $125 million made against US deferred tax assets recorded following cumulative losses being incurred in the US. The cumulative losses are primarily attributable to exceptional charges associated with the 2011 Operational review, the impairment of North America goodwill and the additional incentive costs associated with the change in remuneration policy. Of the total valuation allowance, $113 million was recorded in the income statement and $12 million in other comprehensive income;
a non-deductible charge of $11 million for a settlement with former partners related to the termination of a joint venture arrangement in India;
adjustments made in respect of tax on profits of prior periods to bring in line with 2009.the Company's tax provisions to filed tax positions; and
the net tax impact of the $3 million loss on disposal of operations.
Including the impact of discrete items, a tax charge of $101 million was recorded on a net loss from continuing operations before interest in earnings of associates of $337 million. This compares to a tax rate of 13 percent in 2011.
Interest in Earnings of Associates, net of Tax
The majority of our interest in earnings of associates relates to our share of ownership of Gras Savoye, the leading broker in France. Interest in earnings of associates, net of tax, in 2010 of $232012 was $5 million compared to $12 million in 2011. The decline was $10 million lower thanmainly driven by a reduction in 2009, primarily duenet income reported by our principal associate, Gras Savoye.
Similar to many businesses located in the reduction from 49% to 31% in our ownership interest inEurozone, Gras Savoye's operations are being pressured by the economic conditions. In addition, Gras Savoye as partappointed a new CEO and began undergoing a business review that was designed to drive growth in revenues and improve operational efficiencies.
Discontinued Operations, net of Tax
There were no discontinued operations in 2012.
In 2011 the reorganizationCompany disposed of their capital structure in December 2009. Interest receivableGlobal Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets of Maclean, Oddy & Associates, Inc. The gain (net of tax) on the vendor financing we provided as part of the capital reorganization is recorded under this caption.disposal was $2 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Debt
We believe that our balance sheet and strong cash flow provide us with the platform and flexibility to remain committed to our cash allocation strategy of:
Total debt, total equity and the capitalization ratio at December 31, 2011 and 2010 were as follows (in millions, except percentages):
| | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | |
| |
| Long-term debt | | $ | 2,354 | | | $ | 2,157 | |
| Short-term debt and current portion of long-term debt | | $ | 15 | | | $ | 110 | |
| | | | | | | | | |
| Total debt | | $ | 2,369 | | | $ | 2,267 | |
| | | | | | | | | |
| Total equity | | $ | 2,517 | | | $ | 2,608 | |
| | | | | | | | | |
| Capitalization ratio | | | 48 | % | | | 47 | % |
| | | | | | | | | |
41•
Willis Group Holdings plc
In March 2011 we issued $800 million of new debt, comprised of $300 million 4.125% senior notes due 2016 and $500 million 5.750% senior notes due 2021. We received net proceeds, after underwriting discounts and expenses of approximately $787 million, which were used largely in part to repurchase and redeem $500 million 12.875% senior notes due 2016 and make related make-whole payments totaling $158 million, which represented a slight discount to the make-whole redemption amount providedinvesting in the indenture governing this debt. In addition to business for growth;
•value-creating merger and acquisition activity;
•generating a steadily rising dividend; and
•the make-whole paymentsrepurchase of $158 million, we also wrote off unamortized debt issuance costs of $13 million.shares.
In December 2011 we refinanced our bank facility, comprising a new5-year $300 million term loan and a new5-year $500 million revolving credit facility. The $300 million term loan repaid the majority of the $328 million balance outstanding on our $700 million5-year term loan facility and the $500 million revolving credit facility replaces our existing $300 million and $200 million revolving credit facilities. Unamortized debt issuance costs of $10 million relating to these facilities were written off in December 2011 following completion of the refinancing. In 2011, we made $83 million of mandatory repayments against the5-year term loan before repaying the $328 million balance in December 2011.
These refinancing actions have lengthened our debt maturity profile. At December 31, 2011, we have $nil outstanding under both the $500 million and the existing $20 million facility compared with December 31, 2010 when we had $90 million outstanding under our $300 million facility and $nil outstanding under our $200 million and $20 million facilities. At December 31, 2011 the only scheduled debt repayments falling due over the next 12 months are scheduled repayments on our new $300 million5-year term loan totaling $11 million and repayment of the $4 million 6% loan notes due 2012.
Liquidity
Our principal sources of liquidity are cash from operations, available cash and $520 millioncash equivalents and amounts available under our three revolving credit facilities, of whichexcluding the $20 million UK facility which is solely for use by our main regulated UK entity in certain exceptional circumstances. At December 31, 2011 we had $436 million
Our principal short-term uses of cashliquidity and cash equivalents,capital resources are operating expenses, capital expenditures, shareholder returns, funding defined benefit pension plans and the repurchase of which approximately $100 million is available for general corporate purposes.shares.
As of December 31, 2011, our short-term liquidity requirements consisted of $125 million payment of interest on debt, $11 million of mandatory repayments under our5-year term loan, a $4 million mandatory repayment of our 6.000% loan notes due 2012, $1 million of revolving credit facility commitment fees, capital expenditure and working capital requirements. In addition, our estimated pension contributions for 2012 are $142 million. Our long-term liquidity requirements consist of the principal amount of outstanding notes andnotes; borrowings under our5-year 7-year term loan facility.and revolving credit facilities; and our pension contributions as discussed below.
As at December 31, 2013 cash and cash equivalents were $796 million, an increase of $296 million compared to December 31, 2012. Included within cash and cash equivalents is $707 million available for corporate purposes and $89 million held within our regulated UK entities for regulatory capital adequacy requirements.
Cash flows from operating activities increased to $561 million in 2013 from $525 million in 2012. In addition, funds were also provided from the disposal of fixed and intangible assets $12 million (2012: $5 million), $155 million proceeds from the issue of shares (2012: $53 million), and $20 million proceeds from the disposal of operations (2012: $nil).
As at December 31, 2013 there was $nil drawn down on the revolving credit facilities (2012: $nil).
The primary uses of funds during 2013 included $346 million of cash incentive award payments relating to 2012, $193 million related to payments of dividends, $150 million cash contributions, including employees' salary sacrifice contributions, to our defined benefit schemes, capital expenditures of $112 million related to leasehold improvements, information technology and transformation projects, $30 million for the acquisition of Prime Professions and CBC Broker Srl, and a $4 million cash payment to acquire the remaining noncontrolling interest in our Colombia reinsurance operation.
Willis Group Holdings plc
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 the next twelve months.
The Company is authorized to buy back its ordinary shares by way of redemption, and intends to buy back $200 million shares in 2014 to offset the increase in shares from the exercise of employee stock options.
The impact of movements in liquidity, debt and EBITDA in 2013 had a negative impact on the interest coverage ratio and a positive impact on the leverage ratio. Both ratios remain well within the requirements of the revolving credit facility covenants.
Debt
Total debt, total equity and the capitalization ratio at leastDecember 31, 2013 and 2012 were as follows (in millions, except percentages):
|
| | | | | | | |
| | December 31, 2013 | | December 31, 2012 |
| Long-term debt | $ | 2,311 |
| | $ | 2,338 |
|
| Short-term debt and current portion of long-term debt | $ | 15 |
| | $ | 15 |
|
| Total debt | $ | 2,326 |
| | $ | 2,353 |
|
| Stockholders' equity | $ | 2,215 |
| | $ | 1,699 |
|
| Capitalization ratio | 51.2 | % | | 58.1 | % |
On July 23, 2013 we entered into an amendment to our existing credit facilities to extend both the amount of financing and the maturity date of the facilities. As a result of this amendment, our revolving credit facility was increased from $500 million to $800 million. The maturity date on both the revolving credit facility and the $300 million term loan was extended to July 23, 2018, from December 16, 2016. At the amendment date we owed $281 million on the term loan and there was no change to this amount as a result of the refinancing.
The 7-year term loan facility expiring 2018 bears interest at LIBOR plus 1.50% and is repayable in quarterly installments and a final repayment of $186 million is due in the third quarter of 2018. In 2013, we made $15 million of mandatory repayments against this 7-year term loan. Drawings under the $800 million revolving credit facility bear interest at LIBOR plus 1.50%. These margins apply while the Company’s debt rating remains BBB-/Baa3. As of December 31, 2013 $nil was outstanding under this revolving credit facility (December 31, 2012: $nil).
On August 15, 2013 the Company issued $250 million of 4.625% senior notes due 2023 and $275 million of 6.125% senior notes due 2043. The effective interest rates of these senior notes are 4.696% and 6.154%, respectively, which include the impact of the discount upon issuance.
On July 25, 2013 the Company commenced an offer to purchase for cash any and all of its 5.625% senior notes due 2015 and a portion of its 6.200% senior notes due 2017 and its 7.000% senior notes due 2019 for an aggregate purchase price of up to $525 million. On August 22, 2013 the proceeds from the issue of the senior notes due 2023 and 2043 were used to fund the purchase of $202 million of 5.625% senior notes due 2015, $206 million of 6.200% senior notes due 2017 and $113 million of 7.000% senior notes due 2019.
The Company incurred total losses on extinguishment of debt of $60 million during the year ended December 31, 2013. This was made up of a tender premium of $65 million, the write-off of unamortized debt issuance costs of $2 million and a credit for the reduction of the fair value adjustment on 5.625% senior notes due 2015 of $7 million.
The agreements relating to our 7-year term loan facility expiring 2018 and the revolving $800 million credit facility contain requirements to maintain maximum levels of consolidated funded indebtedness in relation to consolidated EBITDA and minimum level of consolidated EBITDA to consolidated cash interest expense, subject to certain adjustments. In addition, the agreements relating to our credit facilities and senior notes include, in the aggregate covenants relating to the delivery of financial statements, reports and notices, limitations on liens, limitations on sales and other disposals of assets, limitations on indebtedness and other liabilities, limitations on sale and leaseback transactions, limitations on mergers and other fundamental changes, maintenance of property, maintenance of insurance, nature of business, compliance with applicable laws, maintenance of corporate existence and rights, payment of taxes and access to information and properties. At December 31, 2013, the Company was in compliance with all covenants.
These refinancing actions have lengthened our debt maturity profile. At December 31, 2013, we had $nil outstanding under the $800 million facility (December 31, 2012: $nil), the UK $20 million facility (December 31, 2012: $nil) and the RMB facility
(December 31, 2012: $nil). At December 31, 2013 the only mandatory debt repayments falling due over the next 12 months.months are scheduled repayments on our 7-year term loan totaling $15 million.
Pensions
Pensions
UK plan
In early 2012 we provisionally agreed a revised funding strategy withThe Company made cash contributions of $88 million in 2013 (2012: $80 million) into the UK plan’s trustee. Whilstdefined benefit pension plan, and $12 million (2012: $12 million) in respect of employees' salary sacrifice contributions.
Contributions to the proposedUK defined benefit pension plan in 2014 are expected to total $83 million, of which approximately $23 million relates to on-going contributions calculated as 15.9 percent of active plan members’ pensionable salaries and approximately $60 million relates to contributions towards funding the deficit. Additionally $12 million will be made in respect of employees' salary sacrifice contributions.
In addition, further contributions may be payable based on a profit share calculation (equal to 20 percent of EBITDA in excess of $900 million per annum as defined by the revised schedule of contributions) and an exceptional return calculation (equal to 10 percent of any exceptional returns made to shareholders, for example, share buybacks and special dividends). Aggregate contributions under the deficit funding contribution and the profit share calculation are capped at £312 million ($517 million) over the six years ended December 31, 2017.
The schedule of contributions is automatically renegotiated after three years and at any earlier time jointly agreed by the Company and the Trustee. During 2014 we will be required to negotiate a new funding strategy has not been definitively agreed atarrangement which may change the date of this report,contributions we expect thisare required to occur bymake in the end of March 2012, and we expect thefuture.
US plan
We made cash contributions to the schemeour US defined benefit plan of $40 million in 2012 to be approximately equal to those2013 and in 2011, of $92 million.2012.
US plan
We will make cash contributions of approximately $40$30 million to the US plan in 2012, compared2014.
Other defined benefit pension plans
We made cash contributions to contributionsour other defined benefit pension plans of $30$10 million in 2011. We also intend2013 and $11 million 2012.
In 2014, we expect to make lump sum paymentscontribute approximately $9 million to specific classesthese schemes.
Contents
Business discussionWillis Group Holdings plc
Cash flow
their pension obligations. Such payments will only be made in limited tranches. Whilst such payments will have a positive impact on the overall liabilities of the US plan they may require us to provide additional funding to the plan.
Summary consolidated cash flow information (in millions):
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
Cash provided by operating activities | | | | | | | | | | | | |
| Net cash provided by continuing operating activities | | $ | 441 | | | $ | 491 | | | $ | 421 | |
| Net cash used in discontinued operations | | | (2 | ) | | | (2 | ) | | | (2 | ) |
| | | | | | | | | | | | | |
| Total net cash provided by operating activities | | | 439 | | | | 489 | | | | 419 | |
Cash flows from investing activities | | | | | | | | | | | | |
| Total net cash (used in) provided by continuing investing activities | | | (101 | ) | | | (94 | ) | | | 102 | |
| | | | | | | | | | | | | |
| Increase in cash and cash equivalents from operating and investing activities | | | 338 | | | | 395 | | | | 521 | |
Cash flows from financing activities | | | | | | | | | | | | |
| Total net cash used in continuing financing activities | | | (214 | ) | | | (293 | ) | | | (516 | ) |
| | | | | | | | | | | | | |
| Increase in cash and cash equivalents | | | 124 | | | | 102 | | | | 5 | |
| Effect of exchange rate changes on cash and cash equivalents | | | (4 | ) | | | (7 | ) | | | 11 | |
| Cash and cash equivalents, beginning of year | | | 316 | | | | 221 | | | | 205 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, end of year | | $ | 436 | | | $ | 316 | | | $ | 221 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Cash provided by operating activities | |
| | |
| | |
|
| Net cash provided by continuing operating activities | $ | 561 |
| | $ | 525 |
| | $ | 441 |
|
| Net cash used in discontinued operations | — |
| | — |
| | (2 | ) |
| Total net cash provided by operating activities | 561 |
| | 525 |
| | 439 |
|
| Cash flows from investing activities | |
| | |
| | |
|
| Total net cash used in continuing investing activities | (120 | ) | | (172 | ) | | (101 | ) |
| Cash flows from financing activities | |
| | |
| | |
|
| Total net cash used in continuing financing activities | (137 | ) | | (291 | ) | | (214 | ) |
| Increase in cash and cash equivalents | 304 |
| | 62 |
| | 124 |
|
| Effect of exchange rate changes on cash and cash equivalents | (8 | ) | | 2 |
| | (4 | ) |
| Cash and cash equivalents, beginning of year | 500 |
| | 436 |
| | 316 |
|
| Cash and cash equivalents, end of year | $ | 796 |
| | $ | 500 |
| | $ | 436 |
|
This summary consolidated cash flow should be viewed in addition to, not in lieu of, the Company’s consolidated financial statements.
Consolidated Cash Flow for 20112013 compared to 20102012
Operating Activities
Net cash provided by operating activities in 2013 increased by $36 million to $561 million compared with 2012.
The $561 million cash from operations comprises net income of $377 million, net $313 million of non-cash adjustments to reconcile net income to cash provided by operating activities and working capital movements
The non-cash adjustments included depreciation, amortization of intangible assets, share-based compensation, gain on derivative instruments, provision for deferred income taxes and the tender premium on early redemption of our debt, which is presented as a financing cash item.
Movements in working capital included $346 million of incentive payments and $150 million cash contributions (including $12 million for employees’ salary sacrifice) to our defined benefit pension schemes. Additionally, there was a $116 million increase in accounts receivable, as revenue recognized in 2013 was greater than cash collection, and $445 million positive movement in other liabilities which included incentives accrued during 2013 that will be paid in 2014.
The $36 million increase in cash provided by operating activities in 2013 compared to 2012 was primarily driven by favorable movements in working capital versus the prior year.
Investing Activities
Net cash used in investing activities in 2013 was $120 million including, capital expenditure of $112 million, cash used to purchase subsidiaries, intangible assets and other investments of $44 million partly offset by $12 million cash received from the sale of fixed and intangible assets and $24 million of proceeds from the disposal of operations and the sale of the Company’s holding in a Spanish associate company.
Financing Activities
Net cash used in financing activities in 2013 was $137 million primarily due to total dividends paid, including dividends paid to noncontrolling interests, of $203 million, a net $72 million outflow in relation to the refinancing in the third quarter 2013, discussed below, and $15 million of mandatory repayments against the term loan offset by cash receipts of $155 million from the issue of shares.
The refinancing during 2013 resulted in a net cash outflow of $72 million which included: $521 million cash paid to repurchase $202 million of 5.625% senior notes due 2015, $206 million of 6.200% senior notes due 2017 and $113 million of 7.000% senior notes due 2019, the tender premium of $65 million and debt issuance costs of $8 million; this was primarily funded by $522 million cash inflow from senior notes issued, discussed earlier, and free operating cash flows.
Consolidated Cash Flow for 2012 compared to 2011
Operating Activities
Total net cash provided by continuing operating activities was $439$525 million in 2012, compared with $441 million in 2011. The increase of $84 million primarily reflects a $100 million reduction in cash outflows relating to the 2011 Operational Review and a higher volume of collections made on higher revenues and accounts receivable compared with 2011, partially offset by the modest decline in operating earnings, adjusted for non-cash items; and the $11 million year-on-year increase in payments for cash retention awards.
Investing Activities
Total net cash used in continuing investing activities was $172 million in 2012 compared to $101 million in 2011. The $71 million increase in net outflow was due to higher capital spend, including; the fit-out and refurbishment of certain leasehold properties, including the completion of the European Data Center; development and implementation of a number of information technology projects including, financial systems and trading platforms; a $23 million increase in payments to acquire subsidiaries, primarily related to the acquisition of Avalon Actuarial, Inc, a Canadian actuarial consulting firm; and the non-recurrence of proceeds from the disposal of certain businesses during 2011.
Financing Activities
Total net cash used in continuing financing activities was $291 million in 2012 compared to $214 million in 2011. The $77 million increase in cash used was the result of the $100 million cash outflow relating to the repurchase of 2.8 million shares during 2012 and the $30 million year-on-year increase in payments made to acquire noncontrolling interests including, Gras Savoye Re, and our Columbian retail operation; partially offset by the reduction in repayments of debt, net of the refinancing during 2011.
Consolidated Cash Flow for 2011 compared to 2010
Operating Activities
Total net cash provided by continuing operating activities was $441 million in 2011 compared with $489$491 million in 2010. The decrease of $50 million primarily reflects the $57 millionyear-on-year increase in accounts receivable, reflecting increased revenue but also slower collections in the US due to current economic conditions; cash outflows of approximately $120 million relating to the 2011 Operational Review; and the $24 millionyear-on-year increase in payments for cash retention awards. These were partly offset by realized cash savings resulting from the 2011 Operational Review and other working capital movements.
Investing Activities
Total net cash used in continuing investing activities was $101 million in 2011 compared to $94 million in 2010. The $101 million net outflow was mainly due to capital spend including fit-out of our Nashville office and IT project investments.
Financing Activities
Total net cash used in continuing financing activities was $214 million in 2011 compared towith $293 million in 2010. We issued $800 million of new debt in March 2011 and net proceeds of approximately $787 million were used to repurchase and redeem $500 million of 12.875% senior notes due 2016. As part of this debt refinancing we made a $158 million make-whole payment on the redemption of our 12.875% senior notes due 2016. Other significant financing activities in 2011 includeincluded refinancing our bank facility in December 2011, dividend payments of $180 million and receipt of $60 million from the issue of shares.
43
Willis Group Holdings plc
Consolidated Cash Flow for 2010 compared to 2009
Operating Activities
Total net cash provided by continuing operating activities was $489 million in 2010 compared with $419 million in 2009. The $70 million increase compared with 2009 primarily reflected the benefits of a $142 million increase in net income from continuing operations before non-cash items offset by a $48 million increase in pension scheme contributions, a $48 million increase in cash retention award payments, the timing of cash collections and other working capital movements.
Investing Activities
Total net cash outflow from continuing investing activities was $94 million in 2010 compared with a net cash inflow of $102 million in 2009. The 2010 outflow was primarily due to capital spend and $21 million of payments for acquisitions of subsidiaries, mainly in respect of prior year acquisitions. In 2009, capital spend of $96 million was offset by net receipts of $113 million from changes in our ownership interest in Gras Savoye, $42 million net proceeds from sale of discontinued operations, mainly attributable to the second quarter 2009 disposal of Bliss & Glennon and $21 million proceeds from the sale of short-term investments.
Financing Activities
Net cash used in continuing financing activities was $293 million in 2010 compared with $516 million in 2009. The net decrease in cash used in financing activities of $223 million was mainly attributable to a $90 million drawdown against the revolving credit facilities in 2010 and debt refinancing actions in 2009 that resulted in $102 million higher debt repayments net of debt issuance in that year.
Own funds
As of December 31, 2011,2013, we had cash and cash equivalents of $436$796 million, compared with $316$500 million at December 31, 2010 and $5202012. Additionally, $822 million remainedwas available to draw under our revolving credit facilities at December 31, 2013, compared with $430$520 million at December 31, 2010.2012.
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.
Fiduciary funds are generally required to be kept in certain regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity; such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with clients and insurers, the Company is entitled to retain investment income earned on fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds. As of December 31, 2013, we had fiduciary funds of $1.7 billion, compared with $1.8 billion at December 31, 2012.
Share buybacks
Share redemptions or repurchases
The Company is authorized to repurchase or redeembuy back shares, under a varietyby way of methodsredemption, and will consider whether to do so from time to time, based on many factors, including market conditions. ThereThe Company is authorized to purchase up to one billion shares from time to time in the open market (such open market purchases would be effected as redemptions under Irish law) and it may also redeem its shares through negotiated trades with persons who are not affiliated with the Company as long as the cost of the acquisition of the Company's shares does not exceed $824 million.
As of February 14, 2014 there remains approximately $922$824 million available to purchase common shares under the current authorization.
The Company did not repurchase or redeem anyintends to buy back $200 million in shares in 2011 or 2010. In February 2012,2014 to offset the Company announced thatincrease in 2012 it intends to buyback up to $100 millionshares outstanding resulting from the exercise of shares throughemployee stock options. The buybacks will be made in the open market or privately
44
Business discussion
negotiatedthrough privately-negotiated transactions, from time to time, depending on market conditions. As
The share buy back program may be modified, extended or terminated at February 23, 2012any time by the Company acquired 75,000 shares at a total priceBoard of approximately $3 million.Directors.
Dividends
Dividends
Cash dividends paid in 20112013 were $180$193 million compared with $176$185 million in 20102012 and $174$180 million in 2009, with the year-on-year increases due to increases in share count over each year.
2011. In February 2012,2014, we declared a quarterly cash dividend of $0.27$0.30 per share, an annual rate of $1.08$1.20 per share, an increase of 3.8%7.1 percent over the prior 12 month period.
REVIEW OF SEGMENTAL RESULTS
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.
The following table is a summary of our operating results by segment for the three years ended December 31, 20112013 (in millions except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | | | | Operating
| | | Operating
| | | | | | Operating
| | | Operating
| | | | | | Operating
| | | Operating
| |
| | | Revenues | | | Income | | | Margin | | | Revenues | | | Income | | | Margin | | | Revenues | | | Income | | | Margin | |
| |
Global(a) | | $ | 1,082 | | | $ | 352 | | | | 33 | % | | $ | 996 | | | $ | 320 | | | | 32 | % | | $ | 938 | | | $ | 311 | | | | 33 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
North America(b)(c) | | | 1,323 | | | | 271 | | | | 20 | % | | | 1,385 | | | | 320 | | | | 23 | % | | | 1,399 | | | | 328 | | | | 23 | % |
| International | | | 1,042 | | | | 221 | | | | 21 | % | | | 951 | | | | 226 | | | | 24 | % | | | 916 | | | | 216 | | | | 24 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Retail | | | 2,365 | | | | 492 | | | | 21 | % | | | 2,336 | | | | 546 | | | | 23 | % | | | 2,315 | | | | 544 | | | | 23 | % |
| Corporate & Other | | | — | | | | (278 | ) | | | n/a | | | | — | | | | (113 | ) | | | n/a | | | | — | | | | (165 | ) | | | n/a | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Consolidated | | $ | 3,447 | | | $ | 566 | | | | 16 | % | | $ | 3,332 | | | $ | 753 | | | | 23 | % | | $ | 3,253 | | | $ | 690 | | | | 21 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | Revenues | | Operating Income | | Operating Margin | | Revenues | | Operating Income (Loss) | | Operating Margin | | Revenues | | Operating Income | | Operating Margin |
| Global | $ | 1,191 |
| | $ | 334 |
| | 28.0 | % | | $ | 1,129 |
| | $ | 372 |
| | 32.9 | % | | $ | 1,082 |
| | $ | 352 |
| | 32.5 | % |
| North America | 1,386 |
| | 269 |
| | 19.4 | % | | 1,313 |
| | 240 |
| | 18.3 | % | | 1,323 |
| | 271 |
| | 20.5 | % |
| International | 1,078 |
| | 181 |
| | 16.8 | % | | 1,038 |
| | 183 |
| | 17.6 | % | | 1,042 |
| | 221 |
| | 21.2 | % |
| Total Retail | 2,464 |
| | 450 |
| | 18.3 | % | | 2,351 |
| | 423 |
| | 18.0 | % | | 2,365 |
| | 492 |
| | 20.8 | % |
| Corporate & Other | — |
| | (99 | ) | | n/a |
| | — |
| | (1,004 | ) | | n/a |
| | — |
| | (278 | ) | | n/a |
|
| Total Consolidated | $ | 3,655 |
| | $ | 685 |
| | 18.7 | % | | $ | 3,480 |
| | $ | (209 | ) | | (6.0 | )% | | $ | 3,447 |
| | $ | 566 |
| | 16.4 | % |
| | |
(a) | | Reported commissions and fees include a 2011 benefit of $6 million from a change in accounting within a Global Specialty business to conform to current Group accounting policy. |
|
(b) | | Included in North America reported commissions and fees were legacy HRH contingent commissions of $5 million in 2011, $11 million in 2010 and $27 million in 2009. |
|
(c) | | Reported commissions and fees included a favorable impact from a change in accounting methodology in a specialty business in North America of $7 million in the year ended December 31, 2010. |
Global
Our Global operations comprise Global Specialties, Reinsurance, Willis Faber & Dumas (formerly London Market Wholesale),Re, Placement, and as of 2010, Willis Capital Markets & Advisory (WCMA). From January 1, 2011, Willis Faber & Dumas also includes our Global Markets International unit. We have retrospectively adjusted our segmental information disclosures within this discussion to reflect this change to our reporting structure.
45
Willis Group Holdings plc
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 20112013 (in millions, except percentages):
| | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
Commissions and fees(a) | | $ | 1,073 | | | $ | 987 | | | $ | 921 | |
| Investment income | | | 9 | | | | 9 | | | | 17 | |
| | | | | | | | | | | | | |
| Total revenues | | $ | 1,082 | | | $ | 996 | | | $ | 938 | |
| | | | | | | | | | | | | |
| Operating income | | $ | 352 | | | $ | 320 | | | $ | 311 | |
| Revenue growth | | | 9 | % | | | 6 | % | | | 2 | % |
| Organic commissions and fees growth | | | 7 | % | | | 7 | % | | | 4 | % |
| Operating margin | | | 33 | % | | | 32 | % | | | 33 | % |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| Commissions and fees | $ | 1,188 |
| | $ | 1,124 |
| | $ | 1,073 |
|
| Investment income | 3 |
| | 5 |
| | 9 |
|
| Total revenues | $ | 1,191 |
| | $ | 1,129 |
| | $ | 1,082 |
|
| Operating income | $ | 334 |
| | $ | 372 |
| | $ | 352 |
|
| Revenue growth | 5.5 | % | | 4.3 | % | | 8.6 | % |
Organic commissions and fees growth (a) | 5.6 | % | | 6.1 | % | | 6.6 | % |
| Operating margin | 28.0 | % | | 32.9 | % | | 32.5 | % |
_________________
| | |
(a) | | ReportedOrganic commissions and fees include a $6 milliongrowth excludes: (i) the impact of foreign currency translation; (ii) the first quarter 2011 benefittwelve months of net commission and fee revenues generated from a changeacquisitions; and (iii) the net commission and fee revenues related to operations disposed of in accounting within a Global Specialty business to conform to current Group accounting policy.each period presented. |
20112013 compared to 20102012
Revenues
Revenues
Commissions and fees of $1,073$1,188 million were $86$64 million, or 9%5.7 percent, higher in 20112013 compared with 2010, reflecting2012. The increase includes organic growth of 5.6 percent and 1.0 percent growth from acquisitions and disposals, most notably from the acquisition of Prime Professions in second quarter 2013, partially offset by a 0.9 percent negative impact from foreign currency movements.
The 5.6 percent organic growth in commissions and fees was driven by strong new business growth and higher client retention levels compared with the year ago period, partially offset by lost business. Rates had no material impact on commissions and fees.
Willis Re reported high single-digit growth, with North America leading the way with double-digit results. New business was strong across all three divisions and we reported increased client retention levels compared to the prior year.
Specialty reported mid single-digit growth, with solid performance in our Financial and Executive Risk, and P&C and Construction. Growth from new business was solid and we saw increased client retention levels compared to 2012.
Willis Group Holdings plc
Willis Capital Markets & Advisory performed solidly but was down compared to the very strong result it recorded in 2012 relating to meaningfully higher volumes of advisory fees and a net benefit fromcatastrophe bond deals.
Client retention levels improved to 91.9 percent for 2013, compared with 90.3 percent for 2012.
Expenses
Total operating expenses of $857 million were $100 million, or 13.2 percent, higher for 2013 compared with 2012. Excluding the $8 million, or 1.1 percent, impact of favorable foreign currency translationmovements, total operating expenses increased $108 million or 14.3 percent.
The year-on-year growth in expenses was primarily due to higher salaries and benefits as a result of 2%. Organicincreased incentives
from the change in remuneration policy and growth in commissions and fees. In addition, this increase also included the benefit of net new business generation despite the adverse impact of the continued difficult economic environmentincrease in headcount relative to the prior year, annual salary reviews and soft market in manyhigher charges for share-based compensation.
Other expenses also increased compared to 2012 due to higher travel, accommodation and client entertaining costs to support business development and increased professional fees related to the strategic review of the specialty classes.segment.
Operating margin
Full year operating margin was 28.0 percent in 2013 and 32.9 percent in 2012. The decline was driven by the additional expenses discussed above, partially offset by solid commissions and fees growth.
2012 compared to 2011
Revenues
Commissions and fees of $1,124 million were $51 million, or 4.8 percent, higher in 2012 compared with 2011. Foreign exchange movements had a net 1.3 percent negative impact on commissions and fees; organic growth was 6.1 percent.
Organic growth included positive growth across Reinsurance, Global Specialties, Willis Faber & Dumas and WCMA, businesses, together with a $6 million first quarter 2011 benefit from a change in accounting within a Global Specialty business to conform to current Group accounting policy.
Organic growth in Reinsurance in 2011 was led by growth in North America and Asia-Pacific, and included the benefit ofas strong new business growth and a profitability initiative that may or may not recur. Overall Reinsurance showed stable pricing with modesthigher one-off transactions, primarily in WCMA, were partially offset by increases in some lines and geographies, particularly those affected by catastrophe losses.
lost business.
Organic growth in Global Specialties was led by strong contributionsperformances from Energy, Marine, Energy, Financial Solutions and Construction Specialties reflecting single-digit net new business. This growth was partially offset by declines in Aerospace, reflecting good new business, high retention levels, targeted hiringwhich continued to be negatively impacted by competitive pricing and rate decreases.
Reinsurance reported mid single-digit growth in 2012, as growth in the International, Specialty and North America divisions was partially offset by the non-recurrence of producer talenta fee related to a 2011 profitability initiative. Rates had a modest positive impact on commission and connectivity betweenfees in the retail network and specialty businesses. However, the operating environment remains challenging across most Global Specialty businesses with depressed world trade and transit volumes, industry consolidation and pressure on financing of construction projects still evident.
year.
Willis Faber & Dumas also reported positivemid-single digit growth in 2012.WCMA is a transaction-oriented business and its results are more variable than some of our other businesses. In 2012 we reported significantly higher organic commissions and fees growththan in 2011 and our2011. Growth in the WCMA business was marginally positive compared to 2010.positively impacted by a higher volume of advisory and catastrophe bond deals closing during the year.
The 2% net benefit to revenue growth from foreign currency translation in 2011 primarily reflected theperiod-over-period positive impact of the weakening of the US dollar against both the Euro and Pound sterling, in which we earn a significant portion of Global revenues.
Productivity in Global, measured in terms of revenue per FTE employee, increased to $386,000 for 2011 compared with $366,000 for 2010.
Client retention levels improveddeclined to 91%90.3 percent for 2011,2012, compared with 90%91.3 percent for 2010.2011.
Operating margin
46Operating margin was 32.9 percent in 2012 and 32.5 percent in 2011. The organic growth in commissions and fees discussed above, and lower defined benefit pension costs were offset by higher salary and benefit expense due to the impact of annual salary increases and new hires, higher production linked incentives and increases to discretionary costs.
Operating margin
Operating margin was 33% in 2011 compared to 32% in 2010 as the benefit of 7% organic commissions and fees growth discussed above and an $18 million decrease in pension expense was offset by a net negative impact from foreign currency movements, an $8 million increase in incentive expense, including amortization of cash retention award payments and the impact of costs associated with continued support of current and future growth.
Operating margin is impacted by foreign exchange movements as the London market operations earn revenues in US dollars, Pounds sterling and Euros and primarily incur expenses in Pounds sterling. In addition, they are exposed to exchange risk on certain Pound sterling-denominated balances.
Theperiod-over-period net negative impact from foreign currency movements in 2011 primarily reflected the increased US dollar value of our Pound sterling expense base as a result of the weakening of the US dollar versus the Pound sterling and the net negative impact of translation of non-USD assets and liabilities into US dollar in our London market operations. These factors were partially offset by the US dollar weakening against the Pound sterling and the Euro, increasing the US dollar value of our Pound and Euro denominated revenues.
2010 compared to 2009
Revenues
Commissions and fees were $66 million, or 7%, higher in 2010 compared with 2009 which was driven by 7% organic commissions and fees growth.
Our Reinsurance and Global Specialties businesses reported mid-single digit organic growth in 2010, driven by net new business generation despite the adverse impact of the difficult rate environment and soft market in many of the specialty classes.
Reinsurance reported strong new business growth in 2010 and client retention levels remained high. Organic growth in Global Specialties was led by strong contributions from Financial and Executive Risks, Construction and Energy, reflecting strong new business, improved retention, targeted hiring of producer talent and improved cooperation across the retail and specialty businesses.
Our WCMA business contributed to organic growth in 2010, substantially due to a $9 million fee on a single capital markets transaction in the second quarter.
Within Willis Faber & Dumas, revenues in Faber & Dumas were slightly lower than 2009, mainly reflecting the soft wholesale market, together with continued pressure on the most economically sensitive lines such as bloodstock, jewelry and fine arts.
Productivity in Global, measured in terms of revenue per FTE employee, increased to $366,000 for 2010 compared with $352,000 for 2009.
Client retention levels remained high at 90% for 2010, in line with 2009.
Operating margin
Operating margin was 32% in 2010 compared with 33% in 2009. This decrease primarily reflected the adverse impact of foreign currency translation, as the positive effect on our Pound sterling expense base from the strengthening US dollar, was more than offset by the adverse impact of foreign currency movements on sterling-denominated balances.
47
Willis Group Holdings plc
Excluding the impact of this foreign currency translation, Global’s operating margin remained flat as the benefits of good organic commissions and fees growth and disciplined cost control were offset by the impact of costs associated with continued support of current and future growth.
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, Canada and as of January 1, 2011, Mexico retail. We have retrospectively adjusted our segmental information disclosures within this discussion to reflect the allocation of Mexico retail operations to our North America segment.Mexico.
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 20112013 (in millions, except percentages):
| | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
Commissions and fees(a)(b) | | $ | 1,314 | | | $ | 1,369 | | | $ | 1,381 | |
| Investment income | | | 7 | | | | 15 | | | | 15 | |
| Other income | | | 2 | | | | 1 | | | | 3 | |
| | | | | | | | | | | | | |
| Total revenues | | $ | 1,323 | | | $ | 1,385 | | | $ | 1,399 | |
| | | | | | | | | | | | | |
| Operating income | | $ | 271 | | | $ | 320 | | | $ | 328 | |
| Revenue growth | | | (4 | )% | | | (1 | )% | | | 49 | % |
| Organic commissions and fees growth | | | (4 | )% | | | 0 | % | | | (4 | )% |
| Operating margin | | | 20 | % | | | 23 | % | | | 23 | % |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
Commissions and fees (a) | $ | 1,377 |
| | $ | 1,306 |
| | $ | 1,314 |
|
| Investment income | 2 |
| | 3 |
| | 7 |
|
Other income (b) | 7 |
| | 4 |
| | 2 |
|
| Total revenues | $ | 1,386 |
| | $ | 1,313 |
| | $ | 1,323 |
|
| Operating income | $ | 269 |
| | $ | 240 |
| | $ | 271 |
|
| Revenue growth | 5.6 | % | | (0.8 | )% | | (4.5 | )% |
Organic commissions and fees growth (c) | 4.9 | % | | (0.6 | )% | | (3.5 | )% |
| Operating margin | 19.4 | % | | 18.3 | % | | 20.5 | % |
_________________
| | |
(a) | | Included in North America reported commissions and fees were legacy HRH contingent commissions of $5 million in 2011, compared with $11 million in 2010 and $27 million in 2009. |
|
(b) | | Reported commissionsCommissions and fees included a favorable impact from a changepositive $5 million adjustment to align the recognition of revenue in accounting methodology in a specialty business inthe North America Personal Lines business with the rest of $7 millionthe Group. |
| |
(b) | Other income comprises gains on disposal of intangible assets, which primarily arise from settlements through enforcing non-compete agreements in the year ended December 31, 2010.event of losing accounts through producer defection or the disposal of books of business. |
| |
(c) | Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented. |
20112013 compared to 20102012
Revenues
RevenuesCommissions and fees of $1,377 million were $71 million, or 5.4 percent, higher in 2013 compared with 2012.
This increase was primarily due to organic growth of 4.9 percent and 0.6 percent positive impact from the acquisition of Avalon Actuarial, Inc. in fourth quarter 2012 partially offset by a 0.1 percent negative impact from foreign currency movements.
Commissions and fees included a positive $5 million adjustment to align the recognition of revenue in the North America Personal Lines business with the rest of the Group.
The 4.9 percent organic growth in commissions and fees was driven by strong new business growth and higher client retention levels compared with the year ago period, partially offset by lost business. Rates had a small positive impact on the full year's commissions and fees.
Growth was achieved across all our North America regions, led by the Metro, Midwest, Canada and CAPPPS regions. This was attributed to new business growth as well as increased client retention rates in almost all regions.
Similarly, most of the major practice groups recorded positive growth. Our two largest practices, Human Capital and Construction, recorded mid single-digit growth and in our other practices we recorded high single-digit growth in Real Estate and low single-digit growth in Financial & Executive Risks, Healthcare and Manufacturing.
Client retention levels were 92.0 percent in 2013 compared with 90.7 percent in 2012.
Expenses
Total operating expenses of $1,117 million were $44 million or 4.1 percent, higher for 2013 compared to 2012.
The year-on-year growth is primarily due to higher salaries and benefits most notably as a result of annual salary reviews. Salaries and benefits were also impacted by a higher incentives charge as a result of higher commissions and fees and the
Willis Group Holdings plc
change in remuneration policy, and additional 401(k) match and medical charges, partially offset by lower charges for share-based compensation and pensions.
In addition, there was an increase in other expenses due to a $6 million write-off of a receivable related to a non-E&O settlement, professional fees related to the strategic review of the segment, and higher travel and accommodation expense to support revenue growth and client retention, partially offset by a $4 million insurance premium accrual reversal.
Foreign currency movements had no material impact on expenses.
Operating margin
Operating margin in North America was 19.4 percent in 2013 compared with 18.3 percent in 2012 driven by solid commissions and fees growth.
2012 compared to 2011
Revenues
Commissions and fees of $1,314$1,306 million were $55$8 million, or 4%,0.6 percent, lower in 20112012 compared with 2010 of which $6 million was attributable to the decrease in legacy contingent commissions assumed as part of the HRH acquisition from $11 million in 2010 to $5 million in 2011.
Organic commissions and fees growth declined 4%0.6 percent in 2012 compared with 2011, whilst new business levels were higher than in 2011, compared with 2010, as the benefits of new business generation andresulting in growth in somecertain regions and business segments. These were more than offset by declininglower Loan Protector revenues and the impact of the soft market conditions and weakened economy across most sectors.
economy.
The decline in the financial performance of our Loan Protector business had a 2%0.8 percent negative impact on North America organic growth in commissions and fees and for the full year 2011 negatively impacted the segment’ssegment's revenue by $27$10 million. The Loan Protector decline was driven by the loss of clients through attrition and M&A activity, industry-wide commission pressures and a slowdown in foreclosuresbusiness in its specialized market in the US in 2011.
Following the introduction of health care reform legislation in 2010, some major health insurance carriers in North America began to change their compensation practices in particular lines of business in certain locations. In response to market pressures those changes caused, we announced in July 2011 that in order to remain competitive, we would begin accepting standard compensation based on volume, but would continue to resist traditional contingent commissions and bonus payments because, while legal, we believe these forms of compensation create conflicts with our clients. After
48
Business discussion
several months of review under changing market conditions, we have concluded that we cannot be fully competitive on Employee Benefits business if we continue to refuse these legal forms of compensation. Consequently, we will begin to accept all forms of compensation from Employee Benefits providers effective April 1, 2012 in North America.
Despite the decline in revenues, productivity in North America, measured in terms of revenue per FTE employee, increased to $235,000 for 2011 compared with $234,000 for 2010.
Client retention levels were 91%90.7 percent in 20112012 compared to 92%with 91.5 percent in 2010.2011.
Operating margin
Operating margin in North America was 20%18.3 percent in 20112012 compared with 23%20.5 percent in 2010,2011, reflecting the adverse impact from the 4%0.6 percent decline in organic commissions and fees growth discussed above, aperiod-over-period increase $4 million reduction in 401(k) match expense of $10 million following its reinstatement in January 2011investment income due to declining yields, and a $7 million increase inincreases to incentive expense, including amortization of cash retention award payments.expenses, production linked awards and share-based compensation. These were partly offset by a $5 million decrease in stock-based compensation expense and the benefit of cost reductions driven by the 2011 Operational Review and continued focus on expense management.
2010 comparedreduction to 2009
Revenues
Commissions and fees of $1,369 million were $12 million, or 1%,other expenses, including lower for 2010 compared with 2009. Excluding the $16 million decrease in legacy contingency commissions assumed as part of the HRH acquisition, there was a modest increase in commissions and fees.
Organic commissions and fees growth was flat for 2010. We experienced strong performance in our specialty businesses, driven by good business growth together with a $7 million increase in commissions and fees from a change in accounting of an acquired specialty business in North America to conform to Group accounting policy. Our employee benefits practice recorded 3% growth despite the soft labor market and we achieved good net new business generation, with improved client retention. This was offset by a negative 2% impact from rate declines and other market factorspremises costs and a further decline in our Construction business and smaller declines elsewhere reflecting continued soft market conditions and the weak US economy.
Despite the small decline in revenues, productivity in North America, measured in terms of revenue per FTE employee, increased to $234,000 for 2010 compared with $223,000 for 2009.
Client retention levels increased to 92% for 2010, compared with 91% for 2009.
Operating margin
Operating margin in North America was 23% in both 2010 and 2009, as the benefits of continued disciplined cost control and underlying lower pension expense in 2010 were offset by a $16 million reduction in legacy HRH contingent commissions, increased incentive expense, including the impactE&O provisions.
International
Our International business comprises our retail operations in EasternWestern Europe, Central and WesternEastern Europe, the United Kingdom, and Ireland, Asia-Pacific, Russia,Asia, Australasia, the Middle East, South Africa and Latin America. The services provided are focused
49
Willis Group Holdings plc
according to the characteristics of each market and vary across offices, but generally include direct risk management and insurance brokerage and employee benefits consulting.
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 2011(in2013 (in millions, except percentages):
| | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
| Commissions and fees | | $ | 1,027 | | | $ | 937 | | | $ | 898 | |
| Investment income | | | 15 | | | | 14 | | | | 18 | |
| | | | | | | | | | | | | |
| Total revenues | | $ | 1,042 | | | $ | 951 | | | $ | 916 | |
| | | | | | | | | | | | | |
| Operating income | | | 221 | | | | 226 | | | | 216 | |
| Revenue growth | | | 10 | % | | | 4 | % | | | (4 | )% |
| Organic commissions and fees growth | | | 5 | % | | | 5 | % | | | 5 | % |
| Operating margin | | | 21 | % | | | 24 | % | | | 24 | % |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
Commissions and fees (a) | $ | 1,068 |
| | $ | 1,028 |
| | $ | 1,027 |
|
| Investment income | 10 |
| | 10 |
| | 15 |
|
| Total revenues | $ | 1,078 |
| | $ | 1,038 |
| | $ | 1,042 |
|
| Operating income | 181 |
| | 183 |
| | 221 |
|
| Revenue growth | 3.9 | % | | (0.4 | )% | | 9.6 | % |
Organic commissions and fees growth (b) | 4.1 | % | | 4.9 | % | | 4.8 | % |
| Operating margin | 16.8 | % | | 17.6 | % | | 21.2 | % |
________________
| |
(a) | Commissions and fees in 2013 included a negative $15 million adjustment to align the recognition of revenue in China with the rest of the Group. |
| |
(b) | Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented. |
20112013 compared to 20102012
Revenues
RevenuesCommissions and fees of $1,068 million were $40 million, or 3.9 percent, higher in 2013 compared with 2012. Organic commissions and fees growth was 4.1 percent partially offset by 0.2 percent negative impact from foreign currency movements.
Organic growth included double-digit new business growth partly offset by lost business. Rates had no significant impact on commissions and fees.
Commissions and fees included the negative impact of a $15 million adjustment to align the recognition of revenue in China with the rest of the Group.
Latin America reported double-digit growth arising primarily from Brazil and Venezuela which was partially offset by a double-digit decline in Colombia.
Asia reported low-single digit growth. We recorded good growth throughout the region especially in Hong Kong and Korea, however the negative $15 million revenue recognition adjustment partially offset these results.
Eastern Europe reported high single-digit growth arising primarily from Russia tempered by a mid-single digit decline in Poland.
Western Europe reported low single-digit growth. Despite difficult economic conditions, Italy and Iberia produced mid-single digit growth partially offset by mid single-digit declines in Ireland and the Netherlands.
The UK reported a low single-digit decline amid a challenging economic environment.
Client retention rates were largely flat at 93.1 percent for 2013 compared to 93.3 percent for 2012.
Expenses
Total operating expenses of $897 million were $42 million, or 4.9 percent, higher for 2013 compared with 2012. Foreign currency movements favorably impacted operating expenses by $12 million or 1.4 percent; excluding the impact of foreign currency movements total operating expenses increased $54 million or 6.3 percent.
Willis Group Holdings plc
This increase was due primarily to higher salaries and benefits as a result of new hires, annual salary reviews, higher incentives due to the change in remuneration policy and an increased charge for share-based compensation.
In addition to this, we incurred professional fees related to the strategic review of the segment, higher travel and accommodation expense to support business development, and a $5 million VAT related charge. These charges were partially offset by a reduced bad debt expense and non-recurring 2012 legal claims settlements.
Operating margin
Operating margin in International was 16.8 percent in 2013, compared with 17.6 percent in 2012. The decline was driven by the increase in expenses discussed above partially offset by solid commissions and fees growth.
2012 compared to 2011
Revenues
Commissions and fees of $1,027$1,028 million were $90$1 million, or 10%,0.1 percent, higher in 20112012 compared with 2010, comprising 5% organic growth and a net 5% positive impact from foreign currency translation.2011. Organic growth included net new business growth of 7%, partly offset by the negative impact from rates and other market factors.
There were strong contributions to 2011 organic commissions and fees growth from most regions, including double-digitof 4.9 percent was partially offset by negative foreign exchange movements of 4.8 percent. Organic growth included double digit new business growth, partly offset by slight increases to lost business. Rates and other market factors had no significant impact on commissions and fees in the year.
Despite the ongoing economic difficulties faced by the Eurozone, our Latin America and Eastern Europe regions, together withlarge retail operations in the region delivered low single-digit growth in Asia and Western Europe. In particular, there was strong growth in Brazil, Chile, Argentina, Russia and China.
The single-digit organic commissions and fees growth in our large retail operation in Continental Europe was primarily2012, driven by strong growth in Italy, SpainGermany, Sweden and Germany, despite the ongoing challenging economic conditions inDenmark, although this region,growth was partially offset by lower commissionsdeclines in Ireland and feesNorway.
Our Latin American operation delivered high double-digit growth in Denmark2012, the result of significant new business growth; principally in Brazil, Venezuela and the Netherlands.Argentina.
Asia reported high single-digit growth in 2012 led by strong growth in Japan, China and Korea.
Organic commissions and fees growth in our UK and Ireland retail operations, declined 2%operation was flat in 2011,2012, compared with 2011, this reflects a stabilization of the same period 2010, driven bybusiness in the economic pressures that continue to affect both the UK and Ireland.region following a 2.3 percent decline in 2011.
A significant part of International’sInternational's revenues are earned in currencies other than the US dollar, most notably the Euro, Pound sterlingeuro and the Australian dollar. The net 5% benefit4.8 percent negative impact from foreign currency translation in 20112012 primarily reflected the weakening of the US dollar against these and other currencies in which we earn International revenues.
Productivity in our International business, measured in terms of revenue per FTE employee, increased to $160,000 for 2011 compared with $150,000 for 2010.
Client retention levels increaseddecreased to 94%93.3 percent for 2011,2012, compared with 93%93.7 percent for 2010.2011.
Operating margin
Operating margin in International was 21%17.6 percent in 2011,2012, compared with 24%21.2 percent in 2010, with the2011. The decrease primarily reflectingreflected significant increases in salaries and benefits as a $17 million increaseresult of new hires supporting growth in incentive expenses including amortization of cash retention award payments,targeted geographies, annual pay increases, the negative impact of the reinstated annual salary review for all employees from April 2011foreign exchange on revenues and increased spending on initiativesincreases to drive future growth,certain provisions including investment hires.bad debts. These increases were partly offset by the benefit from organic commissions and fees growth and favorable foreign currency movements as discussed above and reduced pension expense.above.
50
2010 compared to 2009
Revenues
CommissionsCorporate and fees of $937 million were $39 million, or 4%, higher for 2010 compared with 2009, as the benefits of 5% organic commissions and fees growth and 1% from the net effect of acquisitions and disposals were partly offset by a 2% adverse impact from foreign currency translation. Organic growth included net new business growth of 8% and there was a negative 3% impact from rates and other market factors.
There were strong contributions to organic commissions and fees growth from most regions, led by growth in Latin America, Asia-Pacific and Western Europe. There was further positive growth in our Eastern Europe operations, driven by a strong contribution from Russia. Organic commissions and fees growth was also positive in our UK and Irish retail operations, driven by new business growth in the UK. Our employee benefits practice, which represents approximately 10% of International commissions and fees, performed well in 2010 with growth in the mid single digits.
A significant part of International’s revenues are earned in currencies other than the US dollar. The US dollar strengthened against a number of these currencies in 2010 compared with 2009, most notably the Euro, Venezuelan Bolivar Fuerte, Danish Kroner and Pound Sterling. The adverse impact of this strengthening was partly offset by the weakening of the US dollar against the Australian dollar. The net impact of these movements was a 2% reduction in 2010 revenues compared to 2009.
Productivity in our International business, measured in terms of revenue per FTE employee, increased to $150,000 for 2010 compared with $147,000 for 2009.
Client retention levels remained high at 93% for 2010.
Operating margin
Operating margin in International was 24% in both 2010 and 2009. Benefits from 5% organic commissions and fees growth and continued focus on disciplined expense management were offset by the adverse impact from foreign currency translation due to the strengthening of the US dollar against the Euro and other currencies in which we earn a significant portion of our operating income, increased incentive expenses, including amortization of cash retention award payments, a reduction in investment income, driven by lower interest rates particularly in the Eurozone, and spending on initiatives to drive future growth.
Corporate & Other
The Company evaluates the performance of its operating segments based on organic commissions and fees growth and operating income. For internal reporting and segmental reporting, items for which segmental management are not held responsible for are held within ‘Corporate &and Other’.
51
Willis Group Holdings plc
Corporate &and Other comprises the following (in millions):
| | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
| Amortization of intangible assets | | $ | (68 | ) | | $ | (82 | ) | | $ | (100 | ) |
| Foreign exchange hedging | | | 5 | | | | (16 | ) | | | (42 | ) |
| Foreign exchange gain (loss) on the UK pension plan asset | | | — | | | | 3 | | | | (6 | ) |
| HRH integration costs | | | — | | | | — | | | | (18 | ) |
| Net gain (loss) on disposal of operations | | | 4 | | | | (2 | ) | | | 13 | |
| 2011 Operational Review | | | (180 | ) | | | — | | | | — | |
| UK FSA Regulatory settlement | | | (11 | ) | | | — | | | | — | |
| Venezuela currency devaluation | | | — | | | | (12 | ) | | | — | |
| Write-off of uncollectible accounts receivable balance in North America | | | (22 | ) | | | — | | | | — | |
| Redomicile of parent company costs | | | — | | | | — | | | | (6 | ) |
Other(a) | | | (6 | ) | | | (4 | ) | | | (6 | ) |
| | | | | | | | | | | | | |
| Total corporate and other | | $ | (278 | ) | | $ | (113 | ) | | $ | (165 | ) |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | | | | | |
| Amortization of intangible assets | $ | (55 | ) | | $ | (59 | ) | | $ | (68 | ) |
Additional incentive accrual for change in remuneration policy (a) | — |
| | (252 | ) | | — |
|
Write-off of unamortized cash retention awards (b) | — |
| | (200 | ) | | — |
|
Goodwill impairment charge (c) | — |
| | (492 | ) | | — |
|
India joint venture settlement (d) | — |
| | (11 | ) | | — |
|
Insurance recovery (e) | — |
| | 10 |
| | — |
|
Write-off of uncollectible accounts receivable balance in Chicago (f) | — |
| | (13 | ) | | (22 | ) |
Net gain (loss) on disposal of operations (d) | 2 |
| | (3 | ) | | 4 |
|
| Foreign exchange hedging | 3 |
| | 8 |
| | 5 |
|
| Foreign exchange gain (loss) on the UK pension plan asset | 8 |
| | (1 | ) | | — |
|
| 2011 Operational Review | — |
| | — |
| | (180 | ) |
| FSA Regulatory settlement | — |
| | — |
| | (11 | ) |
| Expense Reduction Initiative | (46 | ) | | — |
| | — |
|
| Fees related to the extinguishment of debt | (1 | ) | | — |
| | — |
|
Other (g) | (10 | ) | | 9 |
| | (6 | ) |
| Total Corporate and other | $ | (99 | ) | | $ | (1,004 | ) | | $ | (278 | ) |
_________________
| |
(a) | Additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which do not feature a repayment requirement. |
| |
(a)(b)
| Write-off of unamortized cash retention awards following the decision to eliminate the repayment requirement on past awards. |
| |
(c) | Non-cash charge recognized related to the impairment of the carrying value of the North America reporting unit's goodwill. |
| |
(d) | $11 million settlement with former partners related to the termination of a joint venture arrangement in India. In addition, a $1 million loss on disposal of operations was recorded related to the termination. |
| |
(e) | Insurance recovery, recorded in Other operating expenses, related to a previously disclosed fraudulent activity in Chicago. See 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods' discussed above. |
| |
(f) | Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods' discussed above. |
| |
(g) | Other includes $12$7 million in 2013 (2012: $7 million, 2011: $12 million) from the release of funds and reserves related to potential legal liabilities (2010: $7 million, 2009: $nil).liabilities. |
Willis Group Holdings plc
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. performance:
pension expense (discount rates, expected asset returns and mortality);
intangible assets and goodwill impairment (determination of reporting units, fair value of reporting units and annual goodwill impairment analysis);
income taxes; and
commitments, contingencies and accrued liabilities.
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 of 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 entrantsemployees in the UK are offered the opportunity to join a defined contribution plan and in the United StatesUS are offered the opportunity to join a 401(k) plan. We also have smaller defined benefit schemesplans in Ireland, Germany, Norway and the Netherlands.Netherlands, a non-qualified plan in the US and an unfunded plan in the UK. These international schemessmaller defined benefit plans have combined total assets of $128$168 million and a combined net liability for pension benefits of $3$27 million as of December 31, 2011.2013. Elsewhere, pension benefits are typically provided through defined contribution plans.
We recorded a $5 million and a $4 million net pension chargeperiodic benefit income on our UK and US defined benefit pension plansscheme respectively in 2011 of $6 million, and $nil respectively,2013, compared with $28a net periodic benefit income of $5 million on the UK scheme and $1a net periodic benefit cost of $3 million respectivelyon the US scheme in 2010.2012. On our international defined benefit pension plans, US non-qualified plan and UK unfunded plan, we recorded a net pension chargeperiodic benefit cost of $5$5 million in 2011,2013, compared with $6$4 million in 2010.2012.
Based on December 31, 20112013 assumptions (except for one update - the expected rate of return in the UK pension plan changed from 7.25% to 7.00%), we expect the net pension chargecredit in 2012 to decrease by $112014 will increase $7 million for the UK plan,plan. The net pension credit will increase by $3$4 million for the US plan and increase athe net pension charge will decrease by $1 million for the internationalother 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 or long term target asset allocations are revised. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases and rates of employee termination. Our approach to determining appropriate assumptions for our UK and US pension plans is set out below.
52
Business discussion
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
| |
| | | 2011
| | | rate of return
| | | in the discount
| | | mortality
| |
| | | assumptions | | | on assets(a) | | | rate(a) | | | assumption(b) | |
| | | (millions) | |
| |
| Estimated 2012 (income)/ expense | | $ | (5 | ) | | $ | (12 | ) | | $ | (19 | ) | | $ | 7 | |
| Projected benefit obligation at December 31, 2011 | | | 2,217 | | | | n/a | | | | (194 | ) | | | 44 | |
|
| | | | | | | | | | | | | | | |
| | As disclosed using December 31, 2013 assumptions(a) | | Impact of a 0.50 percentage point increase in the expected rate of return on assets(b) | | Impact of a 0.50 percentage point increase in the discount rate(b) | | One year increase in mortality assumption(c) |
| | (millions) |
| Estimated 2014 (income) / expense | $ | (12 | ) | | $ | (15 | ) | | $ | (24 | ) | | $ | 8 |
|
| Projected benefit obligation at December 31, 2013 | 2,785 |
| | n/a |
| | (254 | ) | | 56 |
|
_________________
| |
(a) | Except for the expected rate of return updated to 7%. |
| |
(a)(b)
| | With all other assumptions held constant. |
| |
(b)(c)
| | Assumes all plan participants are one year younger. |
Discount rate
During 2011,2013 we moved from an index based approachcontinued to determining the discount rate touse a duration basedduration-based approach, which more closely matches the actual timingstiming of expected cash flows to the applicable discount rate. The selected rate used to discount UK plan liabilities in 2013 was 4.80% compared4.40% consistent with 5.45%the 4.40% used at December 31, 20102012. During 2013, sterling high-quality corporate bond yields had risen slightly at shorter to median durations but fallen at longer durations however, the rate consistent with expected maturity of the decrease reflecting a reduction in UK long-term bond rates in 2011. Under the old approach, the discount rate at the end of 2011 would have been 4.65%. We estimate the impact of this changeplan's liabilities was to:unchanged.
| |
• | increase the 2011 funded status by approximately $54 million; and |
|
• | reduce the 2012 estimated pension expense by approximately $5 million. |
The lower discount rate generated an actuarial loss of approximately $240 million at December 31, 2011.
Expected and actual asset returns
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 20112013 was 7.25% (2012: 7.50% (2010: 7.75%), equivalent to an expected return in 20112013 of $161$191 million (2010: $141(2012: $181 million). Effective January 1, 2014, the expected long-term rate of return was decreased to 7.00%. The decrease in the expected long-term rate of return followed a change in the underlying target asset mix.mix, which reflects the actions taken during 2013 in accordance with the de-risking strategy proposed by the Trustees which will lead to a strategic target asset allocation with a greater weighting to non-return seeking assets.
The expected and actual returns on UK plan assets for the three years ended December 31, 20112013 were as follows:
| | | | | | | | | |
| | | | | | Actual
| |
| | | Expected
| | | return
| |
| | | return on
| | | on plan
| |
| | | plan assets | | | assets | |
| | | (millions) | |
| |
| 2011 | | $ | 161 | | | $ | 269 | |
| 2010 | | | 141 | | | | 245 | |
| 2009 | | | 127 | | | | 234 | |
Mortality |
| | | | | | | |
| | Expected return on plan assets | | Actual return on plan assets |
| | (millions) |
| 2013 | $ | 191 |
| | $ | 255 |
|
| 2012 | 181 |
| | 226 |
|
| 2011 | 161 |
| | 269 |
|
Mortality
During 2011, we amended the mortality assumptions to more closely align them to those used in the most recent funding valuation. The mortality assumption used during 2013 is now the 90 / 90/105% PNA00 table for males /and females, (2010: 100% PNA00 table without an age adjustment).and is unchanged from the assumptions used during 2012.
This change gave rise to an approximate $85 million increase in the 2011 projected benefit obligation compared to using the 2010 mortality assumptions.
53
Willis Group Holdings plc
As an indication of the longevity assumed, our calculations assume that a UK male retiree aged 65 at December 31, 20112013 would have a life expectancy of 24 years.
US plan
| | | | | | | | | | | | | | | | | |
| | | | | | Impact of a
| | | | | | | |
| | | | | | 0.50 percentage
| | | Impact of a
| | | | |
| | | As disclosed
| | | point increase
| | | 0.50 percentage
| | | One year
| |
| | | using
| | | in the expected
| | | point increase
| | | increase in
| |
| | | December 31, 2011
| | | rate of return
| | | in the discount
| | | mortality
| |
| | | assumptions(a) | | | on assets(b) | | | rate(b) | | | assumption(b)(c) | |
| | | (millions) | |
| |
| Estimated 2012 expense / (income) | | $ | 2 | | | $ | (3 | ) | | $ | (1 | ) | | $ | 2 | |
| Projected benefit obligation at December 31, 2011 | | | 897 | | | | n/a | | | | (58 | ) | | | 25 | |
|
| | | | | | | | | | | | | | | |
| | As disclosed using December 31, 2013 assumptions | | Impact of a 0.50 percentage point increase in the expected rate of return on assets(a) | | Impact of a 0.50 percentage point increase in the discount rate(a) | | One year increase in mortality assumption(b) |
| | (millions) |
| Estimated 2014 (income) / expense | $ | (8 | ) | | $ | (4 | ) | | $ | — |
| | $ | 2 |
|
| Projected benefit obligation at December 31, 2013 | 864 |
| | n/a |
| | (51 | ) | | 22 |
|
_________________
| | |
(a) | | Except for expected rate of return updated to 7.25%. |
|
(b) | | With all other assumptions held constant. |
| |
(c)(b)
| | Assumes all plan participants are one year younger. |
Discount rate
The discount rate used toat December 31, 2013 was 4.76%, an increase of 69 basis points from the discount US plan liabilitiesrate of 4.07% at December 31, 2010 was 5.58%, determined based on expected plan cash flows discounted using a corporate bond yield curve. Since the end of 2010, AA corporate bond spot yields have fallen and spreads of long term AA bonds over gilts have widened. Consequently,2012. The increase in the discount rate at December 31, 2011 was 4.63%, a reduction of 95 basis points from 2010 year end. reflects the increase in high-quality corporate bond yields during 2013.
The impact of the lowerhigher discount rate in 2011 increased2013 decreased the projected benefit obligation by approximately $100$86 million.
Willis Group Holdings plc
Expected and actual asset returns
The expected long-term rate of return used for determining the net US pension scheme expense in 20112013 was 7.50%, a reduction of 0.25% from 2010. Effective January 1, 2012, the expected long-term rate of return was further decreased to 7.25%, following a change in the underlying target asset mix. (2012: 7.25%)
The expected and actual returns on US plan assets for the three years ended December 31, 20112013 were as follows:
| | | | | | | | | |
| | | | | | Actual
| |
| | | Expected
| | | return
| |
| | | return on
| | | on plan
| |
| | | plan assets | | | assets | |
| | | (millions) | |
| |
| 2011 | | $ | 44 | | | $ | 34 | |
| 2010 | | | 42 | | | | 70 | |
| 2009 | | | 36 | | | | 86 | |
Mortality |
| | | | | | | |
| | Expected return on plan assets | | Actual return on plan assets |
| | (millions) |
| 2013 | $ | 51 |
| | $ | 60 |
|
| 2012 | 46 |
| | 80 |
|
| 2011 | 44 |
| | 34 |
|
Mortality
The mortality assumption at December 31, 20112013 is the RP-2000 Mortality Table (blended for annuitants and non-annuitants), projected by Scale AA to 20192021 for annuitants and 20272029 for non-annuitants (December(December 31, 2010:2012: RP-2000 Mortality Table (blended for annuitants and non-annuitants), projected to 2011 by Scale AA). This change more closely aligns assumptions madeAA to 2020 for accounting purposes to thoseannuitants and 2028 for funding purposes. The impact of the change in mortality assumptions increased the projected benefit obligation at December 31, 2011 by approximately $27 million.
54non-annuitants).
Business discussion
As an indication of the longevity assumed, our calculations assume that a US male retiree aged 65 at December 31, 2011,2013, would have a life expectancy of 19 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;
| |
• | Goodwill; |
|
• | ‘Customer and Marketing Related’ which includes client lists, client relationships, trade names and non-compete agreements; and |
|
• | ‘Contract-based, Technology and Other’ which includes all other purchased intangible assets. |
‘Customer and Marketing Related’ which includes client lists, client relationships, trade names and non-compete agreements; and
•‘Contract-based, Technology and Other’ which 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% of the client relationships intangible will have been amortized after 10 years. Non-compete agreements acquired in connection with the HRH acquisition were 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 ofWe review purchased intangible assets between goodwill and otherwith finite lives for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of these intangible assets is assessed based on the estimated undiscounted future cash flows expected to result from the continued use of the asset. If the undiscounted future cash flows are less than the carrying amount, the purchased intangible assets with finite lives are considered to be impaired. The amount of the impairment is measured as the difference between the carrying value 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.fair value.
Goodwill impairment review
We reviewtest goodwill for impairment annually or whenever events or circumstances indicate impairment may have occurred.
The goodwill impairment test is a two step analysis. Step One requires the fair value of each reporting unit to be compared to its bookcarrying value. If the fair value of a reporting unit is determined to be greater than the carrying value of the reporting unit, goodwill is not to beconsidered impaired and no further testing is necessary. If the fair value of a reporting unit is less than the carrying value, we perform Step Two. Step Two requires the implied fair value of reporting unit goodwill to be compared with the carrying amount of that goodwill. Determining the implied fair value of goodwill requires a valuation of the reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of the purchase price in a business combination. Any excess of the value of a reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
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.
Determination of reporting units
We have determined our reporting units to be consistent with our operating segments: North America; International and Global. Goodwill is allocated to these reporting units based on the original purchase price allocation for acquisitions within the reporting units.
55
Willis Group Holdings plc
Fair value of reporting units
The fair value of each reporting unit is estimated using a discounted cash flow methodology and, in aggregate, validated against our market capitalization.
Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include estimations of future cash flows which are dependent on internal forecasts, long-term rate of growth for our business and determination of our weighted average cost of capital.
We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Therefore changes in these estimates and assumptions could materially affect the determination of fair value and result in goodwill impairment.
In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.
Annual goodwill impairment analysis
Our annual goodwill impairment analysis is performed each year at October 1. At October 1, 20112013 our analysis showed the estimatedestimate fair value of each reporting unit was in excess of the carrying value, and therefore did not result in an impairment charge.
The goodwill impairment analysis as of October 1, 2012 concluded that an impairment charge (2010: $nil, 2009: $nil).was required to reduce the carrying value of the goodwill associated with the Company's North America reporting unit. The fair values ofgoodwill impairment charge for the North America reporting unit amounted to $492 million. There was no impairment for the Global and International reporting units, as the fair values of these units were significantly in excess of their carrying values. Thevalue.
Under the income approach, the fair value of the North AmericanAmerica reporting unit exceededwas determined based on the present value of estimated future cash flows. The fair value measurements used unobservable inputs in a discounted cash flow model based on the Company's most recent forecasts. Such projections were based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions, and the uncertainty related to the reporting unit's ability to execute on the projected cash flows with consideration of market comparables where appropriate. The discount rate was based on the weighted-average cost of capital adjusted for the relevant risk associated with market participant expectations of characteristics of the individual reporting units.
As the fair value of the reporting unit was less than its carrying value, by approximately 14%.
the second step of the impairment test was performed to measure the amount of any impairment loss. In the fourth quarter of 2011 oursecond step, the North America segment continuedreporting unit's fair value was allocated to beall of the assets and liabilities of the reporting unit, including any unrecognized intangible assets. The fair value of intangible assets associated with the North America reporting unit included customer relationship intangible assets, which were valued using a multiple period excess earnings approach involving discounted future projections of associated revenue streams.
The decline in the fair value of the North America reporting unit, as well as differences between fair values and carrying values for other assets and liabilities in the second step of the goodwill impairment test, resulted in an implied fair value of goodwill substantially below the carrying value of the goodwill for the reporting unit. As a result, the Company recorded a goodwill impairment charge of $492 million in 2012.
As previously disclosed, the North America reporting unit had been hampered by the declining Loan Protector business results, the effect of the soft economy in the U.S., which had significantly impacted the Construction and Human Capital sectors, and declining retention rates primarily related to M&A activity and lost legacy HRH business. Consequently, the annual impairment test described above included additional sensitivity analysis, over and above that we would usually perform, in relation to our North America segment’s goodwill impairment review. This additional analysis included reductions to assumed rates of revenue growth, increases to assumed rates of expense growth and flexing the assumed weighted average cost of capital. Although our testing concluded there is no impairment, the analysis indicated that in respect of the North America segment,
The decline in the event of either a significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of partestimated fair value of the reporting unit there could beresulted from lower projected revenue growth rates and profitability levels as well as an impairmentincrease in the discount rate used to calculate the discounted cash flows. The increase in the discount rate was due to increases in the risk-free rate and small company premium offset by a reduction to the carrying valueexpected market rate of
Willis Group Holdings plc
return. The lower projected profitability levels reflect changes in future periods.assumptions related to organic revenue growth and cost rates which can be attributed to the declines discussed above and also includes consideration of the uncertainty related to the business's ability to execute on the projected cash flows.
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, 2011,2013, we had gross deferred tax assets of $432$383 million (2010: $294 million) (2012: $451 million) against which a valuation allowance of $102$196 million (2010: $87 million) (2012: $221 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;
| |
• | 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 |
|
• | 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, |
56
Business discussion
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% 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 2011,2013, there was a net increase in uncertain tax positions of $3$4 million compared to a net decreaseincrease of $4$21 million in 2010.2012. The Company recognizes interest relating to unrecognized tax benefits and penalties within income taxes. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.
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 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.
CONTRACTUAL OBLIGATIONS
The Company’s contractual obligations as at December 31, 20112013 are presented below:
| | | | | | | | | | | | | | | | | | | | | |
| | | Payments due by | |
| Obligations | | Total | | | 2012 | | | 2013-2014 | | | 2015-2016 | | | After 2016 | |
| | | (millions) | |
| |
5-year term loan facility expires 2016 | | $ | 300 | | | $ | 11 | | | $ | 30 | | | $ | 259 | | | $ | — | |
| Interest on term loan | | | 28 | | | | 6 | | | | 12 | | | | 10 | | | | — | |
| Revolving $500 million credit facility commitment fees | | | 6 | | | | 1 | | | | 3 | | | | 2 | | | | — | |
| 6.000% loan notes due 2012 | | | 4 | | | | 4 | | | | — | | | | — | | | | — | |
| 5.625% senior notes due 2015 | | | 350 | | | | — | | | | — | | | | 350 | | | | — | |
| Fair value adjustments on 5.625% senior notes due 2015 | | | 20 | | | | — | | | | — | | | | 20 | | | | — | |
| 4.125% senior notes due 2016 | | | 300 | | | | — | | | | — | | | | 300 | | | | — | |
| 6.200% senior notes due 2017 | | | 600 | | | | — | | | | — | | | | — | | | | 600 | |
| 7.000% senior notes due 2019 | | | 300 | | | | — | | | | — | | | | — | | | | 300 | |
| 5.750% senior notes due 2021 | | | 500 | | | | — | | | | — | | | | — | | | | 500 | |
| Interest on senior notes | | | 744 | | | | 119 | | | | 238 | | | | 200 | | | | 187 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total debt and related interest | | | 3,152 | | | | 141 | | | | 283 | | | | 1,141 | | | | 1,587 | |
Operating leases(a) | | | 1,307 | | | | 146 | | | | 203 | | | | 151 | | | | 807 | |
| Pensions | | | 386 | | | | 91 | | | | 181 | | | | 114 | | | | — | |
Other contractual obligations(b) | | | 164 | | | | 72 | | | | 13 | | | | 37 | | | | 42 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations | | $ | 5,009 | | | $ | 450 | | | $ | 680 | | | $ | 1,443 | | | $ | 2,436 | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Payments due by |
Obligations (c) | Total | | 2014 | | 2015-2016 | | 2017-2018 | | After 2018 |
| | (millions) |
| 7-year term loan facility expires 2018 | $ | 274 |
| | $ | 15 |
| | $ | 39 |
| | $ | 220 |
| | $ | — |
|
| Interest on term loan | 19 |
| | 5 |
| | 9 |
| | 5 |
| | — |
|
| Revolving $500 million credit facility commitment fees | 9 |
| | 2 |
| | 4 |
| | 3 |
| | — |
|
| 5.625% senior notes due 2015 | 148 |
| | — |
| | 148 |
| | — |
| | — |
|
| Fair value adjustments on 5.625% senior notes due 2015 | 4 |
| | — |
| | 4 |
| | — |
| | — |
|
| 4.125% senior notes due 2016 | 300 |
| | — |
| | 300 |
| | — |
| | — |
|
| 6.200% senior notes due 2017 | 394 |
| | — |
| | — |
| | 394 |
| | — |
|
| 7.000% senior notes due 2019 | 187 |
| | — |
| | — |
| | — |
| | 187 |
|
| 5.750% senior notes due 2021 | 500 |
| | — |
| | — |
| | — |
| | 500 |
|
| 4.625% senior notes due 2023 | 250 |
| | — |
| | — |
| | — |
| | 250 |
|
| 6.125% senior notes due 2043 | 275 |
| | — |
| | — |
| | — |
| | 275 |
|
| Interest on senior notes | 1,011 |
| | 115 |
| | 209 |
| | 146 |
| | 541 |
|
| Total debt and related interest | 3,371 |
| | 137 |
| | 713 |
| | 768 |
| | 1,753 |
|
Operating leases (a) | 1,235 |
| | 131 |
| | 213 |
| | 167 |
| | 724 |
|
| Pensions | 566 |
| | 122 |
| | 244 |
| | 161 |
| | 39 |
|
Other contractual obligations (b) | 91 |
| | 24 |
| | 16 |
| | 12 |
| | 39 |
|
| Total contractual obligations | $ | 5,263 |
| | $ | 414 |
| | $ | 1,186 |
| | $ | 1,108 |
| | $ | 2,555 |
|
__________________
| | |
(a) | | Presented gross of sublease income. |
| |
(b) | | Other contractual obligations include capital lease commitments, put option obligations and investment fund capital call obligations, the timing of which are included at the earliest point they may fall due. |
57
| |
(c) | The above excludes $41 million for liabilities for unrecognized tax benefits as we are unable to reasonably predict the timing of settlement of these liabilities. |
Willis Group Holdings plc
Debt obligations and facilities
The Company’s debt and related interest obligations at December 31, 20112013 are shown in the above table.
In March 2011On July 23, 2013 we issued $800 millionentered into an amendment to our existing credit facilities to extend the amount of new debt, comprisedfinancing of $300 millionthe facilities. As a result of 4.125% senior notes due 2016 andthis amendment, our revolving credit facility was increased from $500 million of 5.750% senior notes due 2021. We received net proceeds, after underwriting discounts and expenses of approximately $787 million, which were used, to repurchase and redeem $500 million of 12.875% senior notes due 2016 and make related make-whole payments totaling $158 million, which represented a slight discount to$800 million. As at December 31, 2013 $nil was outstanding under the make-whole redemption amount providedrevolving credit facility.
This facility is in the indenture governing this debt. In addition to the make-whole paymentsremaining availability of $158$22 million we also wrote off unamortized debt issuance costs of $13 million.
In December 2011 we refinanced our bank facility, comprising a new5-year $300 million term loan and a new5-year $500 millionunder the Company’s two other previously existing revolving credit facility. The $300 million term loan repaid the majority of the $328 million balance outstanding on our $700 million5-year term loan facility and the $500 million revolving facility replaces our existing $300 million and our $200 million revolving credit facilities. Unamortized debt issuance costs of $10 million relating to these facilities were written off in December 2011 following completion of the refinancing.
Conditions to borrowing under the banking facility include the accuracy and completeness in all material respects of all representations and warranties in the loan documentation and that no default under the banking facility then existed or would result from such borrowing or the application of the proceeds thereof. Voluntary prepayments are permitted without penalty or premium (subject to minimum amounts) and mandatory prepayments are required in certain circumstances.
We are subject to various affirmative and negative covenants and reporting obligations under the banking facility. These include, among others, limitations on subsidiary indebtedness, liens, sale and leaseback transactions, certain investments, fundamental changes, assets sales and restricted payments, and maintenance of certain financial covenants. Events of default under the banking facility include non-payment of amounts due to the lenders, violation of covenants, incorrect representations, defaults under other material indebtedness, judgments and specified insolvency-related events, certain ERISA events and invalidity of loan documents, subject to, in certain instances, specified thresholds, cure periods and exceptions.
At December 31, 2011 theThe only mandatory debt repayments falling dueof debt over the next 12 months are the scheduled repayments on our new $300 million5-year term loan totaling $11 million and repayment of $15 million current portion of the $4 million 6% loanCompany’s 7-year term loan. We also have the right, at our option, to prepay indebtedness under the credit facility without further penalty and to redeem the senior notes due 2012.at our option by paying a ‘make-whole’ premium as provided under the applicable debt instrument.
Operating leases
The Company leases certain land, buildings and equipment under various operating lease arrangements. Original non-cancellable lease terms typically are between 10 and 20 years and may contain escalation clauses, along with options that permit early withdrawal. The total amount of the minimum rent is expensed on a straight-line basis over the term of the lease.
Willis Group Holdings plc
As of December 31, 2011,2013, the aggregate future minimum rental commitments under all non-cancellable operating lease agreements are as follows:
| | | | | | | | | | | | | |
| | | Gross rental
| | | Rentals from
| | | Net rental
| |
| | | commitments | | | subleases | | | commitments | |
| | | (millions) | |
| |
| 2012 | | $ | 146 | | | $ | (14 | ) | | $ | 132 | |
| 2013 | | | 109 | | | | (14 | ) | | | 95 | |
| 2014 | | | 94 | | | | (13 | ) | | | 81 | |
| 2015 | | | 79 | | | | (12 | ) | | | 67 | |
| 2016 | | | 72 | | | | (11 | ) | | | 61 | |
| Thereafter | | | 807 | | | | (32 | ) | | | 775 | |
| | | | | | | | | | | | | |
| Total | | $ | 1,307 | | | $ | (96 | ) | | $ | 1,211 | |
| | | | | | | | | | | | | |
58
|
| | | | | | | | | | | |
| | Gross rental commitments | | Rentals from subleases | | Net rental commitments |
| | (millions) |
| 2014 | $ | 131 |
| | $ | (15 | ) | | $ | 116 |
|
| 2015 | 114 |
| | (14 | ) | | 100 |
|
| 2016 | 99 |
| | (13 | ) | | 86 |
|
| 2017 | 88 |
| | (12 | ) | | 76 |
|
| 2018 | 79 |
| | (8 | ) | | 71 |
|
| Thereafter | 724 |
| | (16 | ) | | 708 |
|
| Total | $ | 1,235 |
| | $ | (78 | ) | | $ | 1,157 |
|
Business discussion
The Company leases its main London building under a25-year25-year operating lease, which expires in 2032.2032. The Company’s contractual obligations in relation to this commitment included in the table above total $715$719 million (2010: $744 million) (2012: $730 million). Annual rentals are $30$36 million (2012: $32 million) per year and the Company has subleased approximately 29%29 percent (2012: 29 percent) of the premises under leases up to 15 years.years. The amounts receivable from subleases, included in the table above, total $82$66 million (2010: $87 million; 2009: $100 million) (2012: $76 million; 2011: $82 million).
Rent expense amounted to $127$141 million for the year ended December 31, 2013 (2012: $135 million; 2011 (2010: $131 million; 2009: $154 million): $127 million). The Company’s rental income from subleases was $18$15 million for the year ended December 31, 2013 (2012: $17 million; 2011 (2010: $22 million; 2009: $21 million): $18 million).
Pensions
Contractual obligations for our pension plans reflect the contributions we expect to make over the next five years into our US UK and internationalUK, plans. These contributions are based on current funding positions and may increase or decrease dependent on the future performance of the two plans.
UK plan
WeDuring 2013, the Company made total cash contributions to ourthe UK defined benefit pension plan of $92$88 million in 2011 (including amounts(2012: $80 million; 2011: $81 million), additionally $12 million (2012: $12 million; 2011: $11 million) was paid into the plan in respect of theemployees' salary sacrifice contribution) compared with $88 million in 2010 and $49 million in 2009.
contributions.
In March 2012, the Company agreed to a revised schedule of contributions towards on-going accrual of benefits and deficit funding contributions the Company will make to the UK plan over the six years ended December 31, 2017. Contributions in each of the next four years are expected to total approximately $83 million, of which approximately $23 million relates to on-going contributions calculated as 15.9 percent of active plan members' pensionable salary and approximately $60 million that relates to contributions towards the funding deficit.
In addition, further contributions will be payable based on a profit share calculation (equal to 20 percent of EBITDA in excess of $900 million per annum as defined by the revised schedule of contributions) and an exceptional return calculation (equal to 10 percent of any exceptional returns made to shareholders, for example, share buybacks, and special dividends). Upon finalization of these calculations the Company made a further contribution in 2013 of $10 million, calculated as 10 percent of the $100 million share buy-back program completed during 2012. Aggregate contributions under the deficit funding contribution and the profit share calculation are capped at £312 million ($517 million) over the six years ended December 31, 2017.
The schedule of contributions is automatically renegotiated after three years and at any earlier time jointly agreed by the Company and the Trustee. During 2014 we will be required to negotiate a new funding arrangement which may further change the contributions we are required to agree to a funding strategy for our UK defined benefit plan with the plan’s trustees. In February 2009, we agreed to make full year contributions to the UK plan of approximately $39 million for 2009 through 2011, excluding amounts in respect of the salary sacrifice scheme. In addition, if certain funding targets were not met at the beginning of any of those years, a further contribution of approximately $39 million was required for that year. The additional funding requirement was triggered in both 2010 and 2011.
The amounts included as contractual obligations in the table above reflect those payable under the current funding strategy which expires in March 2015, including amounts in respect of the salary sacrifice arrangements. Negotiations between the Company and the plan trustees on a revised funding strategy are continuing as set out in the ‘Liquidity and Capital Resources’ section.future.
US plan
We made total cash contributions to our US defined benefit pension plan of $30$40 million in 2011,2013, compared with $30$40 million in 20102012 and $27$30 million in 2009.2011.
We expect to make contributions of approximately $40$30 million in 20122014 through 2016 under US2019.
Other defined benefit pension legislation based on our December 31, 2011 balance sheet position.plans
International plans
We made total cash contributions to our internationalother defined benefit pension plans of $13$10 million in 2013, compared with $11 million in 2012 and 13 million in 2011 compared with $12 million in 2010 and $6 million in 2009..
In 2012,2014, we expect to contribute approximately $12$9 million to our international plans.
Based on the current UK funding strategy and as shown in the table above, the total contracted contributions for all plans are currently estimated to be approximately $91 million in 2012, excluding amounts of approximately $12 million in respect of the salary sacrifice scheme. However, a revised UK funding strategy, and hence 2012 contribution, is expected
59
Willis Group Holdings plc
to be finalized shortly and theThe final 20122014 contribution for all plans is expected to be approximately $142$122 million including, excluding salary sacrifice which compares to an equivalent 20112013 total contribution of $135 million.$138 million.
Guarantees
Guarantees issued by certain of Willis Group Holdings’ subsidiaries with respect to the senior notes and revolving credit facilities are discussed in Note 2120 — Commitments and Contingencies —'Debt' in these consolidated financial statements.
Certain of Willis Group Holdings’ subsidiaries have given the landlords of some leasehold properties occupied by the Company in the UKUnited Kingdom and the USUnited States guarantees in respect of the performance of the lease obligations of the subsidiary holding the lease. The operating lease obligations subject to such guarantees amounted to $828$828 million and $855$829 million at December 31, 2013 and 2012, respectively. The capital lease obligations subject to such guarantees amounted to $11 million as at December 31, 2011 and 2010, respectively.2013 (2012: $nil).
In addition, the Company has given guarantees to bankers and other third parties relating principally to letters of credit amounting to $3$11 million and $11$10 million at December 31, 20112013 and 2010,2012, respectively. Willis Group Holdings also guarantees certain of its UK and Irish subsidiaries’ obligations to fund the UK and Irish defined benefit plans.
Other Contractual Obligations
For certain subsidiaries and associates, the Company has the right to purchase shares (a call option) from co-shareholders at various dates in the future. In addition, the co-shareholders of certain subsidiaries and associates have the right to sell their shares (a put option) their shares to the Company at various dates in the future. Generally, the exercise price of such put options and call options is formula-based (using revenues and earnings) and is designed to reflect fair value.
At December 31, 2011 the Company owned 50.1% of Gras Savoye Re., a company we consolidate in our financial statements. In January 2012 the co-shareholders of Gras Savoye exercised a put option for the Company to acquire the remaining 49.9% of Gras Savoye Re. for approximately $30 million and we anticipate concluding this transaction in March 2012.
Based on current projections of profitability and exchange rates and assuming the put options are exercised, the potential amount payable from these options including Gras Savoye Re., is not expected to exceed $72$12 million (2010: $40 million) (2012: $19 million).
In July 2010, the Company made a capital commitment of $25 million to Trident V Parallel Fund, LP, an investment fund managed by Stone Point Capital. This replaced a capital commitment of $25 million that had been made to Trident V, LP in December 2009. As at December 31, 20112013 there have been approximately $6$15 million of capital contributions.
In May 2011, the Company made a capital commitment of $10 million to Dowling Capital Partners I, LP. As at December 31, 20112013 there hadhave been noapproximately $4 million of capital contributions.
Other contractual obligations at December 31, 20112013, also include thecertain capital lease on the Company’s Nashville property ofobligations totaling $63 million payable from (2012 onwards.: $53 million), primarily in respect of the Company's Nashville property.
NEW ACCOUNTING STANDARDS
Other Comprehensive Income
In MayJune 2011, the Financial Accounting Standards Board (‘FASB’)(FASB) issued new guidance to provide a consistent definitionAccounting Standards Update (ASU) No. 2011-05, Presentation of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and International Financial Reporting Standards (‘IFRS’). The guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements.
In June 2011, the FASB issued new guidanceComprehensive Income to revise the manner in which entities present comprehensive income in their financial statements, requiringstatements. These changes require that the components of comprehensive income be presented in either a single
60
Business discussion
continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income (OCI) or when an item of OCIother comprehensive income must be reclassified to net income.income.This guidance is effective for interim and annual periods beginning after December 15, 2011 and has been applied retrospectively.
Willis Group Holdings plc
ASU No. 2011-05 also requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. In SeptemberDecember 2011, the FASB also issued ASU No. 2011-12 in order to defer those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments. In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB's deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income but do require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to allowbe reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This guidance is effective for interim and annual periods beginning after December 15, 2012 and has been applied retrospectively.
Presentation of Unrecognized Tax Benefits
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carryforward Exists a consensus of the FASB Emerging Issues Task Force. The ASU does not affect the recognition or measurement of uncertain tax positions under US GAAP.
However, under the ASU, unrecognized tax benefits, or portions of unrecognised tax benefits, must be presented in the financial statements as a reduction to deferred tax assets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists except when:
a net operating loss carryforward, a similar tax loss or a tax credit carryfoward is not available at the reporting date under the governing tax laws to settle taxes that would result from the disallowance of the tax position; or
the entity does not intend to use the deferred tax asset for this purpose, provided that the tax law permits a choice.
If either of these conditions exists, an entity should present an unrecognized tax benefit in the optionfinancial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.
The amendments under the ASU:
are effective prospectively for annual and interim periods beginning after December 15, 2013 although early adoption is permitted; and
should be applied to make a qualitative evaluation aboutall unrecognized tax benefits that exist as of the likelihoodeffective date although entities may choose to apply the amendments retrospectively to each prior reporting period presented.
The Company has decided to not adopt this guidance early. However, as an indication of goodwill impairmentthe likely balance sheet reclassification based on the position at December 31, 2013, the Company had recognized $22 million of unrecognized tax benefits within Other non-current liabilities that would be reclassified to determineNon-current deferred tax assets. The Company has not yet determined whether it should calculatewill apply the fair value of aamendments to the prior reporting unit. All of the above accounting changes become effectiveperiod for the Company fromits first quarter 2012.2014 reporting.
Further details of the changes are described in Note 2 to the Condensed Consolidated Financial Statements.
Other than the changes described above, there were no new accounting standards issued during 20112013 that would impact on the Company’s reporting.
OFF BALANCE SHEET TRANSACTIONS
Apart from commitments, guarantees and contingencies, as disclosed in Note 2122 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 Company’s financial condition, results of operations or liquidity.
61
Willis Group Holdings plcMarket risk
|
| |
| 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'Basis of Presentation and Significant Accounting PoliciesPolicies' of Notes to the Consolidated Financial Statements, and further disclosure is provided in Note 2526 — Derivative'Derivative Financial Instruments and Hedging Activities.Activities'.
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 2011.2013.
| | | | | | | | | | | | | | | | | |
| | | US
| | Pounds
| | | | Other
|
| | | Dollars | | Sterling | | Euros | | currencies |
| |
| Revenues | | | 58% | | | | 9% | | | | 14% | | | | 19% | |
| Expenses | | | 51% | | | | 23% | | | | 10% | | | | 16% | |
|
| | | | | | | | | | | |
| | US Dollars | | Pounds Sterling | | Euros | | Other currencies |
| Revenues | 60 | % | | 8 | % | | 13 | % | | 19 | % |
| Expenses | 49 | % | | 25 | % | | 9 | % | | 17 | % |
Our principal exposures to foreign exchange risk arise from:
| |
• | our London market operations; and |
|
• | translation. |
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 poundto the extent that forecast pounds 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. |
62
Market risk
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. In addition, we are also exposed to foreign exchange risk on any net sterling asset or liability position in our London market operations.
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,Euro, the reported results of our Eurozone operations in US dollar terms will be lower.
We
Willis Group Holdings plc
With the exception of foreign currency hedges for certain intercompany loans, that are not designated as hedging instruments, 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 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 three years.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Settlement date before December 31, | | | | | | | | | | | | | |
| | | 2012 | | 2013 | | 2014 | | Settlement date before December 31, |
| | | | | Average
| | | | Average
| | | | Average
| | 2014 | | 2015 | | 2016 |
| | | Contract
| | contractual
| | Contract
| | contractual
| | Contract
| | contractual
| | |
| December 31, 2011 | | amount | | exchange rate | | amount | | exchange rate | | amount | | exchange rate | | |
| | | (millions) | | | | (millions) | | | | (millions) | | | | |
| December 31, 2013 | | Contract amount | | Average contractual exchange rate | | Contract amount | | Average contractual exchange rate | | Contract amount | | Average contractual exchange rate |
| | (millions) | | | | (millions) | | | | (millions) | | |
Foreign currency sold | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | |
| | |
| US dollars sold for sterling | | $ | 156 | | | $ | 1.55=£1 | | | $ | 63 | | | $ | 1.57=£1 | | | $ | 16 | | | $ | 1.62=£1 | | $ | 212 |
| | $1.57 = £1 | | $ | 91 |
| | $1.53 = £1 | | $ | — |
| | — |
| Euro sold for US dollars | | | 86 | | | € | 1=$1.39 | | | | 43 | | | € | 1=$1.39 | | | | — | | | | — | | 60 |
| | €1 = $1.33 | | 37 |
| | €1 = $1.36 | | — |
| | — |
| Japanese yen sold for US dollars | | | 26 | | | ¥ 85.93=$ | 1 | | | | 18 | | | ¥ 81.96=$ | 1 | | | | 6 | | | ¥ 78.33=$ | 1 | | 23 |
| | ¥ 88.08=$1 | | 12 |
| | ¥ 97.98 = $1 | | — |
| | — |
| | | | | | | | | |
| Total | | $ | 268 | | | | | | | $ | 124 | | | | | | | $ | 22 | | | | | | $ | 295 |
| | | | $ | 140 |
| | | | $ | — |
| | |
| | | | | | | | | |
Fair Value(i) | | $ | 2 | | | | | | | $ | (1 | ) | | | | | | $ | (1 | ) | | | | | $ | 13 |
| | | | $ | 8 |
| | | | $ | — |
| | |
|
| | | | | | | | | | | | | | | | | |
| | Settlement date before December 31, |
| | 2013 | | 2014 | | 2015 |
| December 31, 2012 | Contract amount | | Average contractual exchange rate | | Contract amount | | Average contractual exchange rate | | Contract amount | | Average contractual exchange rate |
| | (millions) | | | | (millions) | | | | (millions) | | |
| Foreign currency sold | |
| | | | |
| | | | |
| | |
| US dollars sold for sterling | $ | 167 |
| | $1.59 = £1 | | $ | 88 |
| | $1.60 = £1 | | $ | — |
| | — |
| Euro sold for US dollars | 55 |
| | €1 = $1.36 | | �� |
| | — | | — |
| | — |
| Japanese yen sold for US dollars | 22 |
| | ¥ 81.72=$1 | | 10 |
| | ¥ 79.02=$1 | | — |
| | — |
| Total | $ | 244 |
| | | | $ | 98 |
| | | | $ | — |
| | |
Fair Value (i) | $ | 7 |
| | | | $ | 2 |
| | | | $ | — |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Settlement date before December 31, | |
| | | 2011 | | | 2012 | | | 2013 | |
| | | | | | Average
| | | | | | Average
| | | | | | Average
| |
| | | Contract
| | | contractual
| | | Contract
| | | contractual
| | | Contract
| | | contractual
| |
| December 31, 2010 | | amount | | | exchange rate | | | amount | | | exchange rate | | | amount | | | exchange rate | |
| | | (millions) | | | | | | (millions) | | | | | | (millions) | | | | |
| |
Foreign currency sold | | | | | | | | | | | | | | | | | | | | | | | | |
| US dollars sold for sterling | | $ | 209 | | | $ | 1.53=£1 | | | $ | 91 | | | $ | 1.51=£1 | | | $ | 15 | | | $ | 1.49=£1 | |
| Euro sold for US dollars | | | 86 | | | € | 1=$1.40 | | | | 61 | | | € | 1=$1.39 | | | | 10 | | | € | 1=$1.38 | |
| Japanese yen sold for US dollars | | | 26 | | | ¥ 91.69=$ | 1 | | | | 23 | | | ¥ 86.38=$ | 1 | | | | 15 | | | ¥ 82.38=$ | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 321 | | | | | | | $ | 175 | | | | | | | $ | 40 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value(i) | | $ | 3 | | | | | | | $ | 3 | | | | | | | $ | — | | | | | |
_________________
| | |
(i) | | 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, 20112013 or 20102012 at the forward exchange rates prevailing at that date. |
63
Willis Group Holdings plc
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 $2,050$2,054 million fixed rate senior notes issued by the Group and $300$274 million under a new5-year7-year term loan facility. Of the fixed rate senior notes, $350$148 million are due 2015, $300 million are due 2016, $600$394 million are due 2017, $300$187 million are due 2019, and $500 million are due 2021.2021, $250 million are due 2023, and $275 million are due 2043. The5-year 7-year term loan facility is repayable in quarterly installments and a final repayment of $225$186 million is due in the forthsecond quarter of 2016.2018. As of December 31, 20112013 we had access to $520$822 million under three revolving credit facilities and, as at this date, no drawings had been madeamount was outstanding under those facilities. 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 result of our operating activities, we receive cash for premiums and claims which we deposit in short-term investments denominated in US dollars and other currencies. We earn interest on these funds, which is included in our consolidated financial statements as investment income. These funds are regulated in terms of access and the instruments in which itthey may be invested, most of which are short-term in maturity. In order to manage interest rate risk arising from these financial assets, we enterentered into interest rate swaps to receive a fixed rate of interest and pay a variable rate of interest in the various currencies related to the short-term investments. The use of interest rate contracts essentially convertsconverted groups of short-term variable rate investments to fixed rates. However, in the fourth quarter of 2011, we stopped renewing hedged positions on their maturity given the current flat yield curve environment.
Further to this, during second quarter 2012, the Company closed out its legacy position for these interest rate swap contracts.
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. The Company hashad previously designated and accounts for these instruments as fair value hedges against its $350 million 5.625% senior notes due 2015. The fair values2015 and had accounted for them accordingly until the first quarter of 2013 at which point these swaps, although remaining as economic hedges, no longer qualified for hedge accounting. During the three months ended September 30, 2013 the Company closed out the above interest rate swaps are included within other assets or other liabilities and the fair valuereceived a cash settlement of the hedged element of the senior notes is included within the principal amount of the debt.$13 million on termination.
The table below provides information about our derivative instruments and other financial instruments that are sensitive to changes in interest rates. For interest rate swaps, the table presents notional principal amounts and average interest rates analyzed by expected maturity dates. Notional principal amounts are used to calculate the contractual payments to be exchanged under the contracts. The duration of interest rate swaps variesvaried between one and five years, with re-fixing periods of three to six months. Average fixed and variable rates are, respectively, the weighted-average actual and market rates for the interest rate hedges in place. Market rates are the rates prevailing at December 31, 20112013 or 2010,2012, as appropriate.
64
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Expected to mature before December 31, | | | | | | |
| December 31, 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter | | Total | | Fair Value(i) |
| | | ($ millions, except percentages) |
| Fixed rate debt | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Principal ($) | | | | 148 |
| | 300 |
| | 394 |
| |
|
| | 1,212 |
| | 2,054 |
| | 2,185 |
|
| Fixed rate payable | | | | 5.625% |
| | 4.125 | % | | 6.200 | % | |
|
| | 5.796 | % | | 5.617 | % | | |
|
| Floating rate debt | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Principal ($) | | 15 |
| | 17 |
| | 23 |
| | 23 |
| | 196 |
| | |
| | 274 |
| | 274 |
|
| Variable rate payable | | 1.84 | % | | 2.45 | % | | 3.51 | % | | 4.36 | % | | 4.73 | % | | |
| | 4.52 | % | | |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Expected to mature before December 31, | | | | | | |
| December 31, 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Thereafter | | Total | | Fair Value (i) |
| | | ($ millions, except percentages) |
| Fixed rate debt | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Principal ($) | | | | |
| | 350 |
| | 300 |
| | 600 |
| | 800 |
| | 2,050 |
| | 2,302 |
|
| Fixed rate payable | | | | |
| | 5.625% |
| | 4.125 | % | | 6.200 | % | | 6.219 | % | | 5.805 | % | | |
|
| Floating rate debt | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Principal ($) | | 15 |
| | 15 |
| | 17 |
| | 242 |
| | | | |
| | 289 |
| | 289 |
|
| Variable rate payable | | 1.89 | % | | 2.05 | % | | 2.34 | % | | 3.00 | % | | | | |
| | 2.93 | % | | |
|
| Interest rate swaps | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Fixed to Variable | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Principal ($) | | |
| | |
| | |
| | 350 |
| | |
| | |
| | 350 |
| | 22 |
|
| Fixed rate receivable | | |
| | |
| | |
| | 2.71 | % | | |
| | |
| | 2.71 | % | | |
|
| Variable rate payable | | |
| | |
| | |
| | 0.75 | % | | |
| | |
| | 0.75 | % | | |
|
Market risk
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Expected to mature before December 31, | | | | | | Fair
|
| December 31, 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | Thereafter | | Total | | Value(i) |
| | | ($ millions, except percentages) |
| |
Fixed rate debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal ($) | | | 4 | | | | | | | | | | | | 350 | | | | 300 | | | | 1,400 | | | | 2,054 | | | | 2,214 | |
| Fixed rate payable | | | 6.00 | % | | | | | | | | | | | 5.625 | % | | | 4.125 | % | | | 6.18 | % | | | 5.92 | % | | | | |
Floating rate debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal ($) | | | 11 | | | | 15 | | | | 15 | | | | 17 | | | | 242 | | | | | | | | 300 | | | | 300 | |
| Variable rate payable | | | 2.05 | % | | | 2.10 | % | | | 2.25 | % | | | 2.83 | % | | | 3.4 | % | | | | | | | 3.29 | % | | | | |
Interest rate swaps | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable to Fixed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal ($) | | | 40 | | | | 225 | | | | 305 | | | | 170 | | | | | | | | | | | | 740 | | | | 11 | |
| Fixed rate receivable | | | 1.84 | % | | | 2.31 | % | | | 1.95 | % | | | 2.24 | % | | | | | | | | | | | 2.20 | % | | | | |
| Variable rate payable | | | 0.55 | % | | | 0.60 | % | | | 0.81 | % | | | 1.33 | % | | | | | | | | | | | 0.88 | % | | | | |
| Principal (£) | | | 74 | | | | 49 | | | | 56 | | | | 62 | | | | | | | | | | | | 241 | | | | 3 | |
| Fixed rate receivable | | | 4.06 | % | | | 2.30 | % | | | 2.59 | % | | | 2.66 | % | | | | | | | | | | | 3.00 | % | | | | |
| Variable rate payable | | | 1.27 | % | | | 1.15 | % | | | 1.30 | % | | | 1.65 | % | | | | | | | | | | | 1.35 | % | | | | |
| Principal (€) | | | 29 | | | | 44 | | | | 44 | | | | 26 | | | | | | | | | | | | 143 | | | | 1 | |
| Fixed rate receivable | | | 1.93 | % | | | 1.93 | % | | | 2.67 | % | | | 2.80 | % | | | | | | | | | | | 2.31 | % | | | | |
| Variable rate payable | | | 1.29 | % | | | 0.98 | % | | | 1.25 | % | | | 2.10 | % | | | | | | | | | | | 1.33 | % | | | | |
Fixed to Variable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal (€) | | | | | | | | | | | | | | | 350 | | | | | | | | | | | | 350 | | | | 26 | |
| Fixed rate payable | | | | | | | | | | | | | | | 2.71 | % | | | | | | | | | | | 2.71 | % | | | | |
| Variable rate receivable | | | | | | | | | | | | | | | 0.44 | % | | | | | | | | | | | 0.44 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Expected to mature before December 31, | | | | | | Fair
|
| December 31, 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | Thereafter | | Total | | Value(i) |
| | | ($ millions, except percentages) |
| |
Fixed rate debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal ($) | | | | | | | 4 | | | | | | | | | | | | 350 | | | | 1,400 | | | | 1,754 | | | | 2,059 | |
| Fixed rate payable | | | | | | | 6.00 | % | | | | | | | | | | | 5.63 | % | | | 8.56 | % | | | 8.14 | % | | | | |
Floating rate debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal ($) | | | 110 | | | | 109 | | | | 282 | | | | | | | | | | | | | | | | 501 | | | | 501 | |
| Variable rate payable | | | 2.70 | % | | | 3.05 | % | | | 3.53 | % | | | | | | | | | | | | | | | 3.36 | % | | | | |
Interest rate swaps | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable to Fixed | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal ($) | | | 240 | | | | 40 | | | | 225 | | | | 220 | | | | | | | | | | | | 725 | | | | 11 | |
| Fixed rate receivable | | | 4.14 | % | | | 1.84 | % | | | 2.31 | % | | | 1.81 | % | | | | | | | | | | | 2.44 | % | | | | |
| Variable rate payable | | | 0.65 | % | | | 0.78 | % | | | 1.07 | % | | | 2.51 | % | | | | | | | | | | | 1.33 | % | | | | |
| Principal (£) | | | 56 | | | | 74 | | | | 50 | | | | 49 | | | | | | | | | | | | 229 | | | | 3 | |
| Fixed rate receivable | | | 5.77 | % | | | 4.18 | % | | | 2.28 | % | | | 2.44 | % | | | | | | | | | | | 3.16 | % | | | | |
| Variable rate payable | | | 0.93 | % | | | 1.52 | % | | | 1.81 | % | | | 2.86 | % | | | | | | | | | | | 1.88 | % | | | | |
| Principal (€) | | | 53 | | | | 31 | | | | 46 | | | | 25 | | | | | | | | | | | | 155 | | | | 1 | |
| Fixed rate receivable | | | 4.19 | % | | | 1.99 | % | | | 1.86 | % | | | 2.12 | % | | | | | | | | | | | 2.18 | % | | | | |
| Variable rate payable | | | 1.30 | % | | | 1.60 | % | | | 1.74 | % | | | 2.39 | % | | | | | | | | | | | 1.81 | % | | | | |
Fixed to Variable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Principal (€) | | | | | | | | | | | | | | | | | | | 350 | | | | | | | | 350 | | | | 14 | |
| Fixed rate payable | | | | | | | | | | | | | | | | | | | 2.71 | % | | | | | | | 2.71 | % | | | | |
| Variable rate receivable | | | | | | | | | | | | | | | | | | | 2.04 | % | | | | | | | 2.04 | % | | | | |
_________________
| | |
(i) | | Represents the net present value of the expected cash flows discounted at current market rates of interest or quoted market rates as appropriate. |
65
Willis Group Holdings plc
Liquidity Risk
Our objective is to ensure we have the ability to generate sufficient cash either from internal or external sources, in a timely and cost-effective manner, to meet our commitments as they fall due. Our management of liquidity risk is embedded within our overall risk management framework. Scenario analysis is continually undertaken to ensure that our resources can meet our liquidity requirements. These resources are supplemented by access to $520$822 million under twothree revolving credit facilities. We undertake short-term foreign exchange swaps for liquidity purposes.
See ‘Liquidity’‘Liquidity and Capital Resources’ section under Item 7, “Management’s'Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations'.
66
Credit Risk and Concentrations of Credit Risk
Credit risk represents the loss that would be recognized at the reporting date if counterparties failed to perform as contracted and from movements in interest rates and foreign exchange rates. The Company currently does not anticipate non-performance by its counterparties. The Company generally does not require collateral or other security to support financial instruments with credit risk; however, it is the Company's policy to enter into master netting arrangements with counterparties as practical.
Concentrations of credit risk that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments on the balance sheet that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivatives which are recorded at fair value.
The Company maintains a policy providing for the diversification of cash and cash equivalent investments and places such investments in an extensive number of financial institutions to limit the amount of credit risk exposure. These financial institutions are monitored on an ongoing basis for credit quality predominantly using information provided by credit agencies.
Concentrations of credit risk with respect to receivables are limited due to the large number of clients and markets in which the Company does business, as well as the dispersion across many geographic areas. Management does not believe significant risk exists in connection with the Company's concentrations of credit as of December 31, 2013.
|
| |
| Item 8 — | Financial Statements and Supplementary Data |
Index to Consolidated Financial Statements and Supplementary Data
67
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, 20112013 and 2010,2012, and the related consolidated statements of operations, comprehensive income, changes in equity, and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2011.2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thethese consolidated financial statements 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, 20112013 and 2010,2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011,2013, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Notes 30 to 32 the the financial statements, the 2012 and 2011 financial statements have been restated to be in accordance with the principles for presentation of condensed consolidating financial information contained in the United States Code of Federation Regulations (17 CFR Part 210) Regulations S-X, Article 3-10.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011,2013, based on the criteria established inInternal Control — Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 201227, 2014 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte LLP
London, United Kingdom
February 29, 201227, 2014
68
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| | | | | | Years ended December 31, | |
| | | Note | | | 2011 | | | 2010 | | | 2009 | |
| | | | | | (millions, except per share data) | |
| |
| REVENUES | | | | | | | | | | | | | | | | |
| Commissions and fees | | | | | | $ | 3,414 | | | $ | 3,293 | | | $ | 3,200 | |
| Investment income | | | | | | | 31 | | | | 38 | | | | 50 | |
| Other income | | | | | | | 2 | | | | 1 | | | | 3 | |
| | | | | | | | | | | | | | | | | |
| Total revenues | | | | | | | 3,447 | | | | 3,332 | | | | 3,253 | |
| | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | |
| Salaries and benefits | | | 3 | | | | (2,087 | ) | | | (1,868 | ) | | | (1,822 | ) |
| Other operating expenses | | | | | | | (656 | ) | | | (564 | ) | | | (590 | ) |
| Depreciation expense | | | 11 | | | | (74 | ) | | | (63 | ) | | | (64 | ) |
| Amortization of intangible assets | | | 13 | | | | (68 | ) | | | (82 | ) | | | (100 | ) |
| Net gain (loss) on disposal of operations | | | 6 | | | | 4 | | | | (2 | ) | | | 13 | |
| | | | | | | | | | | | | | | | | |
| Total expenses | | | | | | | (2,881 | ) | | | (2,579 | ) | | | (2,563 | ) |
| | | | | | | | | | | | | | | | | |
| OPERATING INCOME | | | | | | | 566 | | | | 753 | | | | 690 | |
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | | | | | | | (171 | ) | | | — | | | | — | |
| Interest expense | | | 19 | | | | (156 | ) | | | (166 | ) | | | (174 | ) |
| | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | | | | | 239 | | | | 587 | | | | 516 | |
| Income taxes | | | 7 | | | | (32 | ) | | | (140 | ) | | | (94 | ) |
| | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | | | | | 207 | | | | 447 | | | | 422 | |
| Interest in earnings of associates, net of tax | | | 14 | | | | 12 | | | | 23 | | | | 33 | |
| | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | | | | | | | 219 | | | | 470 | | | | 455 | |
| Discontinued operations, net of tax | | | 8 | | | | 1 | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | | | |
| NET INCOME | | | | | | | 220 | | | | 470 | | | | 459 | |
| Less: net income attributable to noncontrolling interests | | | | | | | (16 | ) | | | (15 | ) | | | (21 | ) |
| | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | | | | | $ | 204 | | | $ | 455 | | | $ | 438 | |
| | | | | | | | | | | | | | | | | |
| AMOUNTS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS SHAREHOLDERS | | | | | | | | | | | | | | | | |
| Income from continuing operations, net of tax | | | | | | $ | 203 | | | $ | 455 | | | $ | 434 | |
| Income from discontinued operations, net of tax | | | | | | | 1 | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | | | | | $ | 204 | | | $ | 455 | | | $ | 438 | |
| | | | | | | | | | | | | | | | | |
| EARNINGS PER SHARE — BASIC AND DILUTED | | | 9 | | | | | | | | | | | | | |
| BASIC EARNINGS PER SHARE | | | | | | | | | | | | | | | | |
| — Continuing operations | | | | | | $ | 1.17 | | | $ | 2.68 | | | $ | 2.58 | |
| | | | | | | | | | | | | | | | | |
| DILUTED EARNINGS PER SHARE | | | | | | | | | | | | | | | | |
| — Continuing operations | | | | | | $ | 1.15 | | | $ | 2.66 | | | $ | 2.57 | |
| | | | | | | | | | | | | | | | | |
| CASH DIVIDENDS DECLARED PER SHARE | | | | | | $ | 1.04 | | | $ | 1.04 | | | $ | 1.04 | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements
69
Willis Group Holdings plc
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | |
| | | | | | December 31, | |
| | | Note | | | 2011 | | | 2010 | |
| | | | | | (millions, except share data) | |
| |
| ASSETS | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | |
| Cash and cash equivalents | | | | | | $ | 436 | | | $ | 316 | |
| Accounts receivable, net | | | | | | | 910 | | | | 839 | |
| Fiduciary assets | | | 10 | | | | 9,338 | | | | 9,569 | |
| Deferred tax assets | | | 7 | | | | 44 | | | | 36 | |
| Other current assets | | | 15 | | | | 259 | | | | 340 | |
| | | | | | | | | | | | | |
| Total current assets | | | | | | | 10,987 | | | | 11,100 | |
| | | | | | | | | | | | | |
| NON-CURRENT ASSETS | | | | | | | | | | | | |
| Fixed assets, net | | | 11 | | | | 406 | | | | 381 | |
| Goodwill | | | 12 | | | | 3,295 | | | | 3,294 | |
| Other intangible assets, net | | | 13 | | | | 420 | | | | 492 | |
| Investments in associates | | | 14 | | | | 170 | | | | 161 | |
| Deferred tax assets | | | 7 | | | | 22 | | | | 7 | |
| Pension benefits asset | | | 18 | | | | 145 | | | | 182 | |
| Other non-current assets | | | 15 | | | | 283 | | | | 233 | |
| | | | | | | | | | | | | |
| Total non-current assets | | | | | | | 4,741 | | | | 4,750 | |
| | | | | | | | | | | | | |
| TOTAL ASSETS | | | | | | $ | 15,728 | | | $ | 15,850 | |
| | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES | | | | | | | | | | | | |
| Fiduciary liabilities | | | | | | $ | 9,338 | | | $ | 9,569 | |
| Deferred revenue and accrued expenses | | | | | | | 320 | | | | 298 | |
| Income taxes payable | | | | | | | 15 | | | | 57 | |
| Short-term debt and current portion of long-term debt | | | 19 | | | | 15 | | | | 110 | |
| Deferred tax liabilities | | | 7 | | | | 26 | | | | 9 | |
| Other current liabilities | | | 16 | | | | 282 | | | | 266 | |
| | | | | | | | | | | | | |
| Total current liabilities | | | | | | | 9,996 | | | | 10,309 | |
| | | | | | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | | | | | |
| Long-term debt | | | 19 | | | | 2,354 | | | | 2,157 | |
| Liability for pension benefits | | | 18 | | | | 270 | | | | 167 | |
| Deferred tax liabilities | | | 7 | | | | 32 | | | | 83 | |
| Provisions for liabilities | | | 20 | | | | 196 | | | | 179 | |
| Other non-current liabilities | | | 16 | | | | 363 | | | | 347 | |
| | | | | | | | | | | | | |
| Total non-current liabilities | | | | | | | 3,215 | | | | 2,933 | |
| | | | | | | | | | | | | |
| Total liabilities | | | | | | | 13,211 | | | | 13,242 | |
| | | | | | | | | | | | | |
(Continued on next page)
70
Financial statements
CONSOLIDATED BALANCE SHEETS (Continued)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | |
| | | | | | December 31, | |
| | | Note | | | 2011 | | | 2010 | |
| | | | | | (millions, except share data) | |
| |
| COMMITMENTS AND CONTINGENCIES | | | 21 | | | | | | | | | |
| EQUITY | | | | | | | | | | | | |
| Ordinary shares, $0.000115 nominal value; Authorized: 4,000,000,000; Issued 173,829,693 shares in 2011 and 170,883,865 shares in 2010 | | | | | | | — | | | | — | |
| Ordinary shares, €1 nominal value; Authorized: 40,000; Issued 40,000 shares in 2011 and 2010 | | | | | | | — | | | | — | |
| Preference shares, $0.000115 nominal value; Authorized: 1,000,000,000; Issued nil shares in 2011 and 2010 | | | | | | | — | | | | — | |
| Additional paid-in capital | | | | | | | 1,073 | | | | 985 | |
| Retained earnings | | | | | | | 2,160 | | | | 2,136 | |
| Accumulated other comprehensive loss, net of tax | | | 22 | | | | (744 | ) | | | (541 | ) |
| Treasury shares, at cost, 46,408 shares in 2011 and 2010, and 40,000 shares, €1 nominal value, in 2011 and 2010 | | | | | | | (3 | ) | | | (3 | ) |
| | | | | | | | | | | | | |
| Total Willis Group Holdings stockholders’ equity | | | | | | | 2,486 | | | | 2,577 | |
| Noncontrolling interests | | | | | | | 31 | | | | 31 | |
| | | | | | | | | | | | | |
| Total equity | | | | | | | 2,517 | | | | 2,608 | |
| | | | | | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | | | | | | $ | 15,728 | | | $ | 15,850 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | | | Years ended December 31, |
| | Note | | 2013 | | 2012 | | 2011 |
| | | | (millions, except per share data) |
| REVENUES | |
| | |
| | |
| | |
|
| Commissions and fees | |
| | $ | 3,633 |
| | $ | 3,458 |
| | $ | 3,414 |
|
| Investment income | |
| | 15 |
| | 18 |
| | 31 |
|
| Other income | |
| | 7 |
| | 4 |
| | 2 |
|
| Total revenues | |
| | 3,655 |
| | 3,480 |
| | 3,447 |
|
| EXPENSES | |
| | |
| | |
| | |
|
| Salaries and benefits | 3 |
| | (2,207 | ) | | (2,475 | ) | | (2,087 | ) |
| Other operating expenses | |
| | (616 | ) | | (581 | ) | | (656 | ) |
| Depreciation expense | 12 |
| | (94 | ) | | (79 | ) | | (74 | ) |
| Amortization of intangible assets | 14 |
| | (55 | ) | | (59 | ) | | (68 | ) |
| Goodwill impairment charge | 13 |
| | — |
| | (492 | ) | | — |
|
| Net gain (loss) on disposal of operations | 6 |
| | 2 |
| | (3 | ) | | 4 |
|
| Total expenses | |
| | (2,970 | ) | | (3,689 | ) | | (2,881 | ) |
| OPERATING INCOME (LOSS) | |
| | 685 |
| | (209 | ) | | 566 |
|
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | |
| | — |
| | — |
| | (171 | ) |
| Loss on extinguishment of debt | 20 |
| | (60 | ) | | — |
| | — |
|
| Interest expense | 20 |
| | (126 | ) | | (128 | ) | | (156 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | |
| | 499 |
| | (337 | ) | | 239 |
|
| Income taxes | 7 |
| | (122 | ) | | (101 | ) | | (32 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | |
| | 377 |
| | (438 | ) | | 207 |
|
| Interest in earnings of associates, net of tax | 15 |
| | — |
| | 5 |
| | 12 |
|
| INCOME (LOSS) FROM CONTINUING OPERATIONS | |
| | 377 |
| | (433 | ) | | 219 |
|
| Discontinued operations, net of tax | 8 |
| | — |
| | — |
| | 1 |
|
| NET INCOME (LOSS) | |
| | 377 |
| | (433 | ) | | 220 |
|
| Less: net income attributable to noncontrolling interests | |
| | (12 | ) | | (13 | ) | | (16 | ) |
| NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | |
| | $ | 365 |
| | $ | (446 | ) | | $ | 204 |
|
| AMOUNTS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS SHAREHOLDERS | |
| | |
| | |
| | |
|
| Income (loss) from continuing operations, net of tax | |
| | $ | 365 |
| | $ | (446 | ) | | $ | 203 |
|
| Income from discontinued operations, net of tax | |
| | — |
| | — |
| | 1 |
|
| NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | |
| | $ | 365 |
| | $ | (446 | ) | | $ | 204 |
|
| BASIC EARNINGS PER SHARE | 9 |
| | |
| | |
| | |
|
| — Continuing operations | |
| | $ | 2.07 |
| | $ | (2.58 | ) | | $ | 1.17 |
|
| DILUTED EARNINGS PER SHARE | 9 |
| | |
| | |
| | |
|
| — Continuing operations | |
| | $ | 2.04 |
| | $ | (2.58 | ) | | $ | 1.15 |
|
| CASH DIVIDENDS DECLARED PER SHARE | |
| | $ | 1.12 |
| | $ | 1.08 |
| | $ | 1.04 |
|
The accompanying notes are an integral part of these consolidated financial statements.
71
Willis Group Holdings plc
| | | | | | | | | | | | | | | | | |
| | | | | | Years ended December 31, | |
| | | Note | | | 2011 | | | 2010 | | | 2009 | |
| | | | | | (millions) | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | | | | | |
| Net income | | | | | | $ | 220 | | | $ | 470 | | | $ | 459 | |
| Adjustments to reconcile net income to total net cash provided by operating activities: | | | | | | | | | | | | | | | | |
| Income from discontinued operations | | | | | | | (1 | ) | | | — | | | | (4 | ) |
| Net (gain) loss on disposal of operations, fixed and intangible assets | | | | | | | (6 | ) | | | 3 | | | | (14 | ) |
| Depreciation expense | | | | | | | 74 | | | | 63 | | | | 64 | |
| Amortization of intangible assets | | | | | | | 68 | | | | 82 | | | | 100 | |
| Provision for doubtful accounts | | | | | | | 4 | | | | — | | | | (1 | ) |
| Provision (benefit) for deferred income taxes | | | | | | | 17 | | | | 77 | | | | (21 | ) |
| Excess tax benefits from share-based payment arrangements | | | | | | | (5 | ) | | | (2 | ) | | | (1 | ) |
| Share-based compensation | | | 4 | | | | 41 | | | | 47 | | | | 39 | |
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | | | | | | | 171 | | | | — | | | | — | |
| Undistributed earnings of associates | | | | | | | (5 | ) | | | (18 | ) | | | (21 | ) |
| Non-cash Venezuela currency devaluation | | | | | | | — | | | | 12 | | | | — | |
| Effect of exchange rate changes on net income | | | | | | | 14 | | | | 6 | | | | (4 | ) |
| Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | | | | | | | | | | | | | | | | |
| Accounts receivable, net | | | | | | | (92 | ) | | | (35 | ) | | | 77 | |
| Fiduciary assets | | | | | | | 162 | | | | 78 | | | | 776 | |
| Fiduciary liabilities | | | | | | | (162 | ) | | | (78 | ) | | | (776 | ) |
| Other assets | | | | | | | (43 | ) | | | (230 | ) | | | (103 | ) |
| Other liabilities | | | | | | | (32 | ) | | | 61 | | | | (193 | ) |
| Movement on provisions | | | | | | | 16 | | | | (45 | ) | | | 44 | |
| | | | | | | | | | | | | | | | | |
| Net cash provided by continuing operating activities | | | | | | | 441 | | | | 491 | | | | 421 | |
| Net cash used in discontinued operating activities | | | | | | | (2 | ) | | | (2 | ) | | | (2 | ) |
| | | | | | | | | | | | | | | | | |
| Total net cash provided by operating activities | | | | | | | 439 | | | | 489 | | | | 419 | |
| | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | |
| Proceeds on disposal of fixed and intangible assets | | | | | | | 13 | | | | 10 | | | | 20 | |
| Purchases of fixed assets | | | | | | | (111 | ) | | | (83 | ) | | | (96 | ) |
| Acquisitions of subsidiaries, net of cash acquired | | | | | | | (10 | ) | | | (21 | ) | | | — | |
| Acquisition of investments in associates | | | | | | | (2 | ) | | | (1 | ) | | | (42 | ) |
| Investment in Trident V Parallel Fund, LP | | | | | | | (5 | ) | | | (1 | ) | | | — | |
| Proceeds from reorganization of investments in associates | | | 6 | | | | — | | | | — | | | | 155 | |
| Proceeds from sale of continuing operations, net of cash disposed | | | | | | | — | | | | 2 | | | | 4 | |
| Proceeds from sale of discontinued operations, net of cash disposed | | | | | | | 14 | | | | — | | | | 40 | |
| Proceeds on sale of short-term investments | | | | | | | — | | | | — | | | | 21 | |
| | | | | | | | | | | | | | | | | |
| Total net cash (used in) provided by continuing investing activities | | | | | | | (101 | ) | | | (94 | ) | | | 102 | |
| | | | | | | | | | | | | | | | | |
(Continued on next page)
72
|
| | | | | | | | | | | | | | |
| | | | Years ended December 31, |
| | Note | | 2013 | | 2012 | | 2011 |
| | | | (millions) |
| | | | | | | | |
| Net income (loss) | | | $ | 377 |
| | $ | (433 | ) | | $ | 220 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Foreign currency translation adjustments | | | 20 |
| | 46 |
| | (29 | ) |
| Pension funding adjustment: | | | | | | | |
| Foreign currency translation on pension funding adjustment | | | (10 | ) | | (22 | ) | | 8 |
|
| Net actuarial gain (loss) | | | 85 |
| | (167 | ) | | (208 | ) |
| Prior service gain | | | — |
| | — |
| | 7 |
|
| Amortization of unrecognized actuarial loss | | | 46 |
| | 38 |
| | 25 |
|
| Amortization of unrecognized prior service gain | | | (4 | ) | | (5 | ) | | (4 | ) |
| | | | 117 |
| | (156 | ) | | (172 | ) |
| Derivative instruments: | | | | | | | |
| Gain on interest rate swaps (effective element) | | | — |
| | 2 |
| | 10 |
|
| Interest rate swap reclassification adjustment | | | (4 | ) | | (4 | ) | | (10 | ) |
| Gain on forward exchange contracts (effective element) | | | 8 |
| | 9 |
| | 2 |
|
| Forward exchange contracts reclassification adjustment | | | 1 |
| | (3 | ) | | (5 | ) |
| Gain on treasury lock (effective element) | | | 15 |
| | — |
| | — |
|
| | | | 20 |
| | 4 |
| | (3 | ) |
| Other comprehensive income (loss), net of tax | 23 |
| | 157 |
| | (106 | ) | | (204 | ) |
| Comprehensive income (loss) | | | 534 |
| | (539 | ) | | 16 |
|
| Less: Comprehensive income attributable to noncontrolling interests | | | (12 | ) | | (13 | ) | | (15 | ) |
| Comprehensive income (loss) attributable to Willis Group Holdings | | | $ | 522 |
| | $ | (552 | ) | | $ | 1 |
|
Financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| | | | | | Years ended December 31, | |
| | | Note | | | 2011 | | | 2010 | | | 2009 | |
| | | | | | (millions) | |
| |
| INCREASE IN CASH AND CASH EQUIVALENTS FROM OPERATING AND INVESTING ACTIVITIES | | | | | | $ | 338 | | | $ | 395 | | | $ | 521 | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | |
| (Repayment on) proceeds from draw down of revolving credit facility | | | 19 | | | | (90 | ) | | | 90 | | | | — | |
| Repayments of debt | | | 19 | | | | (911 | ) | | | (209 | ) | | | (1,089 | ) |
| Senior notes issued | | | | | | | 794 | | | | — | | | | 800 | |
| Debt issuance costs | | | | | | | (12 | ) | | | — | | | | (22 | ) |
| Proceeds from issue of term loan | | | | | | | 300 | | | | — | | | | — | |
| Make-whole on repurchase and redemption of senior notes | | | | | | | (158 | ) | | | — | | | | — | |
| Proceeds from issue of shares | | | | | | | 60 | | | | 36 | | | | 18 | |
| Excess tax benefits from share-based payment arrangements | | | | | | | 5 | | | | 2 | | | | 1 | |
| Dividends paid | | | | | | | (180 | ) | | | (176 | ) | | | (174 | ) |
| Acquisition of noncontrolling interests | | | | | | | (9 | ) | | | (10 | ) | | | (33 | ) |
| Dividends paid to noncontrolling interests | | | | | | | (13 | ) | | | (26 | ) | | | (17 | ) |
| | | | | | | | | | | | | | | | | |
| Total net cash used in continuing financing activities | | | | | | | (214 | ) | | | (293 | ) | | | (516 | ) |
| | | | | | | | | | | | | | | | | |
| INCREASE IN CASH AND CASH EQUIVALENTS | | | | | | | 124 | | | | 102 | | | | 5 | |
| Effect of exchange rate changes on cash and cash equivalents | | | | | | | (4 | ) | | | (7 | ) | | | 11 | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | | | | | 316 | | | | 221 | | | | 205 | |
| | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | | | | | $ | 436 | | | $ | 316 | | | $ | 221 | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
73
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | | | | |
| | | | December 31, |
| | Note | | 2013 | | 2012 |
| | | | (millions, except share data) |
| ASSETS | |
| | |
| | |
|
| CURRENT ASSETS | |
| | |
| | |
|
| Cash and cash equivalents | |
| | $ | 796 |
| | $ | 500 |
|
| Accounts receivable, net | |
| | 1,041 |
| | 933 |
|
| Fiduciary assets | 11 |
| | 8,412 |
| | 9,271 |
|
| Deferred tax assets | 7 |
| | 15 |
| | 13 |
|
| Other current assets | 16 |
| | 197 |
| | 181 |
|
| Total current assets | |
| | 10,461 |
| | 10,898 |
|
| NON-CURRENT ASSETS | |
| | |
| | |
|
| Fixed assets, net | 12 |
| | 481 |
| | 468 |
|
| Goodwill | 13 |
| | 2,838 |
| | 2,827 |
|
| Other intangible assets, net | 14 |
| | 353 |
| | 385 |
|
| Investments in associates | 15 |
| | 176 |
| | 174 |
|
| Deferred tax assets | 7 |
| | 7 |
| | 18 |
|
| Pension benefits asset | 19 |
| | 278 |
| | 136 |
|
| Other non-current assets | 16 |
| | 206 |
| | 206 |
|
| Total non-current assets | |
| | 4,339 |
| | 4,214 |
|
| TOTAL ASSETS | |
| | $ | 14,800 |
| | $ | 15,112 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES | |
| | |
| | |
|
| Fiduciary liabilities | |
| | $ | 8,412 |
| | $ | 9,271 |
|
| Deferred revenue and accrued expenses | |
| | 586 |
| | 541 |
|
| Income taxes payable | |
| | 21 |
| | 19 |
|
| Short-term debt and current portion of long-term debt | 20 |
| | 15 |
| | 15 |
|
| Deferred tax liabilities | 7 |
| | 25 |
| | 21 |
|
| Other current liabilities | 17 |
| | 415 |
| | 327 |
|
| Total current liabilities | |
| | 9,474 |
| | 10,194 |
|
| NON-CURRENT LIABILITIES | |
| | |
| | |
|
| Long-term debt | 20 |
| | 2,311 |
| | 2,338 |
|
| Liability for pension benefits | 19 |
| | 136 |
| | 282 |
|
| Deferred tax liabilities | 7 |
| | 56 |
| | 18 |
|
| Provisions for liabilities | 21 |
| | 206 |
| | 180 |
|
| Other non-current liabilities | 17 |
| | 374 |
| | 375 |
|
| Total non-current liabilities | |
| | 3,083 |
| | 3,193 |
|
| Total liabilities | |
| | 12,557 |
| | 13,387 |
|
(Continued on next page)
Willis Group Holdings plc
CONSOLIDATED BALANCE SHEETS (Continued)
|
| | | | | | | | | | |
| | | | December 31, |
| | Note | | 2013 | | 2012 |
| | | | (millions, except share data) |
| COMMITMENTS AND CONTINGENCIES | 22 |
| |
|
| |
|
|
| EQUITY | |
| | |
| | |
|
| Ordinary shares, $0.000115 nominal value; Authorized: 4,000,000,000; Issued 178,861,250 shares in 2013 and 173,178,733 shares in 2012 | |
| | — |
| | — |
|
| Ordinary shares, €1 nominal value; Authorized: 40,000; Issued 40,000 shares in 2013 and 2012 | |
| | — |
| | — |
|
| Preference shares, $0.000115 nominal value; Authorized: 1,000,000,000; Issued nil shares in 2013 and 2012 | |
| | — |
| | — |
|
| Additional paid-in capital | |
| | 1,316 |
| | 1,125 |
|
| Retained earnings | |
| | 1,595 |
| | 1,427 |
|
| Accumulated other comprehensive loss, net of tax | 23 |
| | (693 | ) | | (850 | ) |
| Treasury shares, at cost, 46,408 shares in 2013 and 2012, and 40,000 shares, €1 nominal value, in 2013 and 2012 | |
| | (3 | ) | | (3 | ) |
| Total Willis Group Holdings stockholders’ equity | | | 2,215 |
| | 1,699 |
|
| Noncontrolling interests | 24 |
| | 28 |
| | 26 |
|
| Total equity | | | 2,243 |
| | 1,725 |
|
| TOTAL LIABILITIES AND EQUITY | |
| | $ | 14,800 |
| | $ | 15,112 |
|
AND COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| | | | | | December 31, | |
| | | Note | | | 2011 | | | 2010 | | | 2009 | |
| | | | | | (millions, except share data) | |
| |
| SHARES OUTSTANDING (thousands) | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | | | | | 170,884 | | | | 168,661 | | | | 166,758 | |
| Shares issued | | | | | | | — | | | | 14 | | | | 486 | |
| Exercise of stock options and release of non-vested shares | | | | | | | 2,946 | | | | 2,209 | | | | 1,417 | |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | | | | | 173,830 | | | | 170,884 | | | | 168,661 | |
| | | | | | | | | | | | | | | | | |
| ADDITIONAL PAID-IN CAPITAL | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | | | | $ | 985 | | | $ | 918 | | | $ | 886 | |
| Issue of shares under employee stock compensation plans and related tax benefits | | | | | | | 49 | | | | 37 | | | | 18 | |
| Issue of shares for acquisitions | | | | | | | — | | | | 1 | | | | 12 | |
| Share-based compensation | | | | | | | 39 | | | | 47 | | | | 39 | |
| Acquisition of noncontrolling interests | | | | | | | — | | | | (18 | ) | | | (33 | ) |
| Repurchase of out of the money options | | | | | | | — | | | | — | | | | (4 | ) |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | | | | | 1,073 | | | | 985 | | | | 918 | |
| | | | | | | | | | | | | | | | | |
| RETAINED EARNINGS | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | | | | | 2,136 | | | | 1,859 | | | | 1,593 | |
Net income attributable to Willis Group Holdings(a) | | | | | | | 204 | | | | 455 | | | | 438 | |
| Dividends | | | | | | | (180 | ) | | | (178 | ) | | | (172 | ) |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | | | | | 2,160 | | | | 2,136 | | | | 1,859 | |
| | | | | | | | | | | | | | | | | |
| ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | | | | | (541 | ) | | | (594 | ) | | | (630 | ) |
Foreign currency translation adjustment(b) | | | | | | | (28 | ) | | | (6 | ) | | | 27 | |
Unrealized holding gain (loss)(c) | | | | | | | — | | | | 2 | | | | (1 | ) |
Pension funding adjustment(d) | | | | | | | (172 | ) | | | 51 | | | | (33 | ) |
Net (loss) gain on derivative instruments(e) | | | | | | | (3 | ) | | | 6 | | | | 43 | |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | 22 | | | | (744 | ) | | | (541 | ) | | | (594 | ) |
| | | | | | | | | | | | | | | | | |
| TREASURY SHARES | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | | | | | (3 | ) | | | (3 | ) | | | (4 | ) |
| Shares reissued under stock compensation plans | | | | | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | | | | | (3 | ) | | | (3 | ) | | | (3 | ) |
| | | | | | | | | | | | | | | | | |
| TOTAL WILLIS GROUP HOLDINGS SHAREHOLDERS’ EQUITY | | | | | | $ | 2,486 | | | $ | 2,577 | | | $ | 2,180 | |
| | | | | | | | | | | | | | | | | |
(Continued on next page)
74
Financial statements
AND COMPREHENSIVE INCOME (Continued)
| | | | | | | | | | | | | | | | | |
| | | | | | December 31, | |
| | | Note | | | 2011 | | | 2010 | | | 2009 | |
| | | | | | (millions, except share data) | |
| |
| NONCONTROLLING INTERESTS | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | | | | $ | 31 | | | $ | 49 | | | $ | 50 | |
| Net income | | | | | | | 16 | | | | 15 | | | | 21 | |
| Dividends | | | | | | | (15 | ) | | | (26 | ) | | | (17 | ) |
| Purchase of subsidiary shares from noncontrolling interests, net | | | | | | | — | | | | (5 | ) | | | (10 | ) |
| Additional noncontrolling interests | | | | | | | — | | | | — | | | | 5 | |
| Foreign currency translation | | | | | | | (1 | ) | | | (2 | ) | | | — | |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | | | | | 31 | | | | 31 | | | | 49 | |
| | | | | | | | | | | | | | | | | |
| TOTAL EQUITY | | | | | | $ | 2,517 | | | $ | 2,608 | | | $ | 2,229 | |
| | | | | | | | | | | | | | | | | |
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS(a+b+c+d+e) | | | | | | $ | 1 | | | $ | 508 | | | $ | 474 | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statementsstatements.
75
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | | | |
| | | | Years ended December 31, |
| | Note | | 2013 | | 2012 | | 2011 |
| | | | (millions) |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| | |
| | |
|
| Net income (loss) | |
| | $ | 377 |
| | $ | (433 | ) | | $ | 220 |
|
| Adjustments to reconcile net income to total net cash provided by operating activities: | |
| | |
| | |
| | |
|
| Income from discontinued operations | |
| | — |
| | — |
| | (1 | ) |
| Goodwill impairment | | | — |
| | 492 |
| | — |
|
| Net gain on disposal of operations, fixed and intangible assets | |
| | (7 | ) | | — |
| | (6 | ) |
| Depreciation expense | 12 |
| | 94 |
| | 79 |
| | 74 |
|
| Amortization of intangible assets | 14 |
| | 55 |
| | 59 |
| | 68 |
|
| Amortization and write-off of cash retention awards | 3 |
| | 6 |
| | 416 |
| | 185 |
|
| Net periodic cost of defined benefit pension plans | 19 |
| | (4 | ) | | 2 |
| | 11 |
|
| Provision for doubtful accounts | 18 |
| | 3 |
| | 16 |
| | 4 |
|
| Provision for deferred income taxes | |
| | 39 |
| | 54 |
| | 17 |
|
| Gain on derivative instruments | | | 18 |
| | 11 |
| | 3 |
|
| Excess tax benefits from share-based payment arrangements | |
| | (2 | ) | | (2 | ) | | (5 | ) |
| Share-based compensation | 4 |
| | 42 |
| | 32 |
| | 41 |
|
| Tender premium included in loss on extinguishment of debt | 20 |
| | 65 |
| | — |
| | — |
|
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | |
| | — |
| | — |
| | 171 |
|
| Undistributed earnings of associates | |
| | 8 |
| | (2 | ) | | (5 | ) |
| Effect of exchange rate changes on net income | |
| | (4 | ) | | (14 | ) | | 14 |
|
| Changes in operating assets and liabilities, net of effects from purchase of subsidiaries: | |
| | |
| | |
| | |
|
| Accounts receivable | |
| | (116 | ) | | (17 | ) | | (92 | ) |
| Fiduciary assets | |
| | 804 |
| | 111 |
| | 162 |
|
| Fiduciary liabilities | |
| | (804 | ) | | (111 | ) | | (162 | ) |
| Cash incentives paid | | | (346 | ) | | (323 | ) | | (310 | ) |
| Funding of defined benefit pension plans | 19 |
| | (150 | ) | | (143 | ) | | (135 | ) |
| Other assets | |
| | 14 |
| | (1 | ) | | 70 |
|
| Other liabilities | |
| | 445 |
| | 319 |
| | 101 |
|
| Movement on provisions | |
| | 24 |
| | (20 | ) | | 16 |
|
| Net cash provided by continuing operating activities | |
| | 561 |
| | 525 |
| | 441 |
|
| Net cash used in discontinued operating activities | |
| | — |
| | — |
| | (2 | ) |
| Total net cash provided by operating activities | |
| | 561 |
| | 525 |
| | 439 |
|
Willis Group Holdings plc
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) |
| | | | | | | | | | | | | |
| | | | Years ended December 31, |
| | Note | | 2013 | | 2012 | | 2011 |
| | | | (millions) |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | | | 12 |
| | 5 |
| | 13 |
|
| Additions to fixed assets | | | (112 | ) | | (135 | ) | | (111 | ) |
| Additions to intangible assets | | | (7 | ) | | (2 | ) | | — |
|
| Acquisitions of subsidiaries, net of cash acquired | | | (30 | ) | | (33 | ) | | (10 | ) |
| Acquisition of investments in associates | | | — |
| | — |
| | (2 | ) |
| Payments to acquire other investments | | | (7 | ) | | (7 | ) | | (5 | ) |
| Proceeds from sale of associates | | | 4 |
| | — |
| | — |
|
| Proceeds from sale of operations, net of cash disposed | | | 20 |
| | — |
| | 14 |
|
| Net cash used in continuing investing activities | | | (120 | ) | | (172 | ) | | (101 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| | |
| | |
|
| Repayment of revolving credit facility | | | — |
| | — |
| | (90 | ) |
| Senior notes issued | 20 | | 522 |
| | — |
| | 794 |
|
| Debt issuance costs | | | (8 | ) | | — |
| | (12 | ) |
| Repayments of debt | 20 | | (536 | ) | | (15 | ) | | (911 | ) |
| Tender premium on extinguishment of senior notes | 20 | | (65 | ) | | — |
| | — |
|
| Proceeds from issue of term loan | | | — |
| | — |
| | 300 |
|
| Proceeds from issue of other debt | | | — |
| | 1 |
| | — |
|
| Make-whole on repurchase and redemption of senior notes | | | — |
| | — |
| | (158 | ) |
| Repurchase of shares | | | — |
| | (100 | ) | | — |
|
| Proceeds from issue of shares | | | 155 |
| | 53 |
| | 60 |
|
| Excess tax benefits from share-based payment arrangements | | | 2 |
| | 2 |
| | 5 |
|
| Dividends paid | | | (193 | ) | | (185 | ) | | (180 | ) |
| Proceeds from sale of noncontrolling interests | | | — |
| | 3 |
| | — |
|
| Acquisition of noncontrolling interests | | | (4 | ) | | (39 | ) | | (9 | ) |
| Dividends paid to noncontrolling interests | | | (10 | ) | | (11 | ) | | (13 | ) |
| Net cash used in continuing financing activities | | | (137 | ) | | (291 | ) | | (214 | ) |
| INCREASE IN CASH AND CASH EQUIVALENTS | | | 304 |
| | 62 |
| | 124 |
|
| Effect of exchange rate changes on cash and cash equivalents | | | (8 | ) | | 2 |
| | (4 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | 500 |
| | 436 |
| | 316 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | | | $ | 796 |
| | $ | 500 |
| | $ | 436 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the financial statements
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
| | | | | | | | | | | | | |
| | | | December 31, |
| | Note | | 2013 | | 2012 | | 2011 |
| | | | (millions, except share data) |
| SHARES OUTSTANDING (thousands) | | | |
| | |
| | |
|
| Balance, beginning of year | | | 173,179 |
| | 173,830 |
| | 170,884 |
|
| Shares issued | | | — |
| | 24 |
| | — |
|
| Shares repurchased | | | — |
| | (2,797 | ) | | — |
|
| Exercise of stock options and release of non-vested shares | | | 5,682 |
| | 2,122 |
| | 2,946 |
|
| Balance, end of year | | | 178,861 |
| | 173,179 |
| | 173,830 |
|
| | | | | | | | |
| ADDITIONAL PAID-IN CAPITAL | | | |
| | |
| | |
|
| Balance, beginning of year | | | $ | 1,125 |
| | $ | 1,073 |
| | $ | 985 |
|
| Issue of shares under employee stock compensation plans and related tax benefits | | | 153 |
| | 50 |
| | 49 |
|
| Issue of shares for acquisitions | | | — |
| | 1 |
| | — |
|
| Share-based compensation | | | 42 |
| | 32 |
| | 39 |
|
| Acquisition of noncontrolling interests | | | (4 | ) | | (31 | ) | | — |
|
| Disposal of noncontrolling interests | | | — |
| | 2 |
| | — |
|
| Foreign currency translation | | | — |
| | (2 | ) | | — |
|
| Balance, end of year | | | 1,316 |
| | 1,125 |
| | 1,073 |
|
| | | | | | | | |
| RETAINED EARNINGS | | | |
| | |
| | |
|
| Balance, beginning of year | | | 1,427 |
| | 2,160 |
| | 2,136 |
|
| Net income (loss) attributable to Willis Group Holdings | | | 365 |
| | (446 | ) | | 204 |
|
| Dividends | | | (197 | ) | | (187 | ) | | (180 | ) |
| Repurchase of shares | | | — |
| | (100 | ) | | — |
|
| Balance, end of year | | | 1,595 |
| | 1,427 |
| | 2,160 |
|
| | | | | | | | |
| ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX | | | | | | | |
| Balance, beginning of year | | | (850 | ) | | (744 | ) | | (541 | ) |
| Other comprehensive income (loss) | 23 | | 157 |
| | (106 | ) | | (203 | ) |
| Balance, end of year | | | (693 | ) | | (850 | ) | | (744 | ) |
| | | | | | | | |
| TREASURY SHARES | | | |
| | |
| | |
|
| Balance, beginning of year | | | (3 | ) | | (3 | ) | | (3 | ) |
| Balance, end of year | | | (3 | ) | | (3 | ) | | (3 | ) |
| TOTAL WILLIS GROUP HOLDINGS SHAREHOLDERS’ EQUITY | | | $ | 2,215 |
| | $ | 1,699 |
| | $ | 2,486 |
|
| | | | (Continued on next page) | |
Willis Group Holdings plc
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Continued)
|
| | | | | | | | | | | | | |
| | | | December 31, |
| | Note | | 2013 | | 2012 | | 2011 |
| | | | (millions, except share data) |
| NONCONTROLLING INTERESTS | | | |
| | |
| | |
|
| Balance, beginning of year | | | $ | 26 |
| | $ | 31 |
| | $ | 31 |
|
| Net income | | | 12 |
| | 13 |
| | 16 |
|
| Dividends | | | (10 | ) | | (11 | ) | | (15 | ) |
| Purchase of subsidiary shares from noncontrolling interests, net | | | — |
| | (8 | ) | | — |
|
| Additional noncontrolling interests | | | — |
| | 1 |
| | — |
|
| Foreign currency translation | | | — |
| | — |
| | (1 | ) |
| Balance, end of year | | | 28 |
| | 26 |
| | 31 |
|
| TOTAL EQUITY | | | $ | 2,243 |
| | $ | 1,725 |
| | $ | 2,517 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Notes to the financial statements
Willis provides 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 large corporations through its retail operations.
In its capacity as an advisor, insurance and insurancereinsurance 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 Company’s global distribution network.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
| |
| 2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
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 aone-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. On July 29, 2010 Willis-Bermuda was liquidated.
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 providing a guarantee of amounts due under certain borrowing arrangements of one of its subsidiaries as described in Note 29.
Recent Accounting Pronouncements
Fair Value Measurement and Disclosure
Other Comprehensive Income
In MayJune 2011, the Financial Accounting Standards Board (‘FASB’)(FASB) issued Accounting Standards Update (‘ASU’)No. 2011-04,Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.The new guidance was issued to provide a consistent definition of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and International Financial Reporting Standards (‘IFRS’). The guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements.
This guidance is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively.
Other Comprehensive Income
In June 2011, the FASB issued ASU(ASU) No. 2011-05,Presentation of Comprehensive Incometo revise the manner in which entities present comprehensive income in their financial statements. These changes require that components of comprehensive income be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
Thisincome.This guidance is effective for interim and annual periods beginning after December 15, 2011 and ishas been applied retrospectively.
76
Notes to the financial statements
| |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) |
ASU No.2011-05 also requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued ASU No. 2011-12 in order to defer those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments.
Goodwill impairment testing
In September 2011,February 2013, the FASB issued ASUNo. 2011-08,Intangibles — Goodwill and Other: Testing Goodwill for Impairment2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB's deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The new guidance was issuedamendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income but do require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to reduce complexity and costs by allowing an entity the optionbe reclassified in their entirety to make a qualitative evaluation about the likelihood of goodwill impairmentnet income must be cross-referenced to determine whether it should calculate the fair value of a reporting unit.
other disclosures that provide additional detail. This guidance is effective for interim and annual goodwill impairment tests performed for fiscal yearsperiods beginning after December 15, 2011.2012 and has been applied retrospectively.
Presentation of Unrecognized Tax Benefits
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carryforward Exists a consensus of the FASB Emerging Issues Task Force. The ASU does not affect the recognition or measurement of uncertain tax positions under US GAAP.
However, under the ASU, unrecognized tax benefits, or portions of unrecognised tax benefits, must be presented in the financial statements as a reduction to deferred tax assets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists except when:
a net operating loss carryforward, a similar tax loss or a tax credit carryfoward is not available at the reporting date under the governing tax laws to settle taxes that would result from the disallowance of the tax position; or
the entity does not intend to use the deferred tax asset for this purpose, provided that the tax law permits a choice.
If either of these conditions exists, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.
Willis Group Holdings plc
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
The amendments under the ASU:
are effective prospectively for annual and interim periods beginning after December 15, 2013 although early adoption is permitted; and
should be applied to all unrecognized tax benefits that exist as of the effective date although entities may choose to apply the amendments retrospectively to each prior reporting period presented.
The adoption ofCompany has decided to not adopt this guidance is not expected to have a material impactearly. However, as an indication of the likely balance sheet reclassification based on the financial statements.position at December 31, 2013, the Company had recognized $22 million of unrecognized tax benefits within Other non-current liabilities that would be reclassified to Non-current deferred tax assets. The Company has not yet determined whether it will apply the amendments to the prior reporting period for its first quarter 2014 reporting.
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 significant accounting policies followed in the preparation of the consolidated financial statements.
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Willis Group Holdings and its subsidiaries, which are controlled through the ownership of a majority voting interest. Intercompany balances and transactions have been eliminated on consolidation.
Foreign Currency Translation
Transactions in currencies other than the functional currency of the entity are recorded at the rates of exchange prevailing at the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are translated at the rates of exchange prevailing at the balance sheet date and the related transaction gains and losses are reported in the statements of operations. Certain intercompany loans are determined to be of a long-term investment nature. The Company records transaction gains and losses from remeasuring such loans as a component of other comprehensive income.
Upon consolidation, the results of operations of subsidiaries and associates whose functional currency is other than the US dollar are translated into US dollars at the average exchange rate and assets and liabilities are translated at year-end exchange rates. Translation adjustments are presented as a separate component of other comprehensive income in the financial statements and are included in net income only upon sale or liquidation of the underlying foreign subsidiary or associated company.
77
Willis Group Holdings plc
| |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the year. In the preparation of these consolidated financial statements, estimates and assumptions have been made by management concerning: the valuation of intangible assets and goodwill (including those acquired through business combinations); the selection of useful lives of fixed and intangible assets; impairment testing; provisions necessary for accounts receivable, commitments and contingencies and accrued liabilities; long-term asset returns, discount rates and mortality rates in order to estimate pension liabilities and pension expense; income tax valuation allowances; and other similar evaluations. Actual results could differ from the estimates underlying these consolidated financial statements.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of time deposits with original maturities of three months or less.
Notes to the financial statements
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fiduciary Assets and Fiduciary Liabilities
In its capacity as an insurance agent or broker, the Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers which it then remits to insureds.
Fiduciary Receivables
Fiduciary receivables represent uncollected premiums from insureds and uncollected claims or refunds from insurers.
Fiduciary Funds
Fiduciary funds represent unremitted premiums received from insureds and unremitted claims or refunds received from insurers. Fiduciary funds are generally required to be kept in certain regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity. Such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with insureds and insurers, the Company is entitled to retain investment income earned on fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.
In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or insureds prior to collection. Such advances are made from fiduciary funds and are reflected in the accompanying consolidated balance sheets as fiduciary assets.
Fiduciary Liabilities
The obligations to remit these funds to insurers or insureds are recorded as fiduciary liabilities on the Company’s consolidated balance sheets. The period for which the Company holds such funds is dependent upon the date the insured remits the payment of the premium to the Company and the date the Company is required to forward such payment to the insurer. Balances arising from insurance brokerage transactions are reported as separate assets or liabilities unless such balances are due to or from the same party and a right of offset exists, in which case the balances are recorded net.
78
liabilities.
Notes to the financial statements
| |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Accounts Receivable
Accounts receivable are stated at estimated net realizable values. Allowances are recorded, when necessary, in an amount considered by management to be sufficient to meet probable future losses related to uncollectible accounts.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Expenditures for improvements are capitalized; repairs and maintenance are charged to expenses as incurred. Depreciation is computed using the straight-line method based on the estimated useful lives of assets.
Depreciation on buildings and long leaseholds is calculated over the lesser of 50 years or the lease term. Depreciation on leasehold improvements is calculated over the lesser of the useful life of the assets or the remaining lease term. Depreciation on furniture and equipment is calculated based on a range of 3 to 10 years. Freehold land is not depreciated.
Recoverability of Fixed Assets
Long-lived assets are tested for recoverability whenever events or changes in circumstance indicate that their carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. Recoverability is determined based on the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Operating Leases
Rentals payable on operating leases are charged straight line to expenses over the lease term as the rentals become payable.
Willis Group Holdings plc
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of businesses acquired over the fair market value of identifiable net assets at the dates of acquisition. The Company reviews goodwill for impairment annually and whenever facts or circumstances indicate that the carrying amounts may not be recoverable. In testing for impairment, the fair value of each reporting unit is compared with its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the amount of an impairment loss, if any, is calculated by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.
Acquired intangible assets are amortized over the following periods:
|
| | | | | | |
| | | | | Expected
|
| | Amortization basis | | life (years) |
|
| Acquired other intangible assets | | Straight line | | | 10 | |
Acquired HRH customerclient relationships | | In line with underlying cashflows | | | 10 to 20 | |
Acquired HRH non-compete agreements | | Straight line | | | 2 | 5 |
Acquired HRH trade names | | Straight line | | | 3 to 4 | |
Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
79
Willis Group Holdings plc
| |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Investments in Associates
Investments are accounted for using the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an equity ownership in the voting stock of the investee between 20 and 50 percent, although other factors, such as representation on the Board of Directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting the investment is carried at cost of acquisition, plus the Company’s equity in undistributed net income since acquisition, less any dividends received since acquisition.
The Company periodically reviews its investments in associates for which fair value is less than cost to determine if the decline in value is other than temporary. If the decline in value is judged to be other than temporary, the cost basis of the investment is written down to fair value. The amount of any write-down is included in the statements of operations as a realized loss.
All other equity investments where the Company does not have the ability to exercise significant influence are accounted for by the cost method. Such investments are not publicly traded.
Derivative Financial Instruments
The Company uses derivative financial instruments for other than trading purposes to alter the risk profile of an existing underlying exposure. Interest rate swaps are used to manage interest risk exposures. Forward foreign currency exchange contracts are used to manage currency exposures arising from future income and expenses. The fair values of derivative contracts are recorded in other assets and other liabilities. The effective portions of changes in the fair value of derivatives that qualify for hedge accounting as cash flow hedges are recorded in other comprehensive income. Amounts are reclassified from other comprehensive income into earnings when the hedged exposure affects earnings. If the derivative is designated as and qualifies as an effective fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are both recognized in earnings. The amount of hedge ineffectiveness recognisedrecognized in earnings is based on the extent to which an offset between the fair value of the derivative and hedged item is not achieved. Changes in fair value of derivatives that do not qualify for hedge accounting, together with any hedge ineffectiveness on those that do qualify, are recorded in other operating expenses or interest expense as appropriate.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating and capital loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and
Notes to the financial statements
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
liabilities of changes in tax rates is recognized in the statement of operations in the period in which the enactment date changes.change is enacted. Deferred tax assets are reduced through the establishment of a valuation allowance at such time as, based on available evidence, it is more likely than not that the deferred tax assets will not be realized. The Company adjusts valuation allowances to measure deferred tax assets at the amount considered realizable in future periods if the Company’s facts and assumptions change. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. The Company recognizes 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 upon lapse of the relevant statute of limitations, or when positions are effectively settled. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely to be realized on settlement with the tax authority, assuming full knowledge of the position and all
80
Notes to the financial statements
| |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) |
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. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
The Company recognizes interest and penalties relating to unrecognized tax benefits within income taxes.
Provisions for Liabilities
The Company is subject to various actual and potential claims, lawsuits and other proceedings. The Company records liabilities for such contingencies including legal costs when it is probable that a liability has been incurred before the balance sheet date and the amount can be reasonably estimated. To the extent such losses can be recovered under the Company’s insurance programs, estimated recoveries are recorded when losses for insured events are recognized and the recoveries are likely to be realized. Significant management judgment is required to estimate the amounts of such contingent liabilities and the related insurance recoveries. The Company analyzes its litigation exposure based on available information, including consultation with outside counsel handling the defense of these matters, to assess its potential liability. Contingent liabilities are not discounted.
Pensions
The Company has two principal defined benefit pension plans which cover approximately half of employees in the United States and United Kingdom. Both these plans are now closed to new entrants. New entrantsemployees in the United Kingdom 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. In addition, there are smaller plans in certain other countries in which the Company operates.operates, including a non-qualified plan in the United States. Elsewhere, pension benefits are typically provided through defined contribution plans.
Defined benefit plans
The net periodic cost of the Company’s defined benefit plans are measured on an actuarial basis using the projected unit credit method and several actuarial assumptions the most significant of which are the discount rate and the expected long-term rate of return on plan assets. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases and rates of employee termination. Gains and losses occur when actual experience differs from actuarial assumptions. If such gains or losses exceed ten percent of the greater of plan assets or plan liabilities the Company amortizes those gains or losses over the average remaining service period or average remaining life expectancy as appropriate of the employees.
plan participants.
In accordance with US GAAP the Company records on the balance sheet the funded status of its pension plans based on the projected benefit obligation.
Willis Group Holdings plc
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Defined contribution plans
Contributions to the Company’s defined contribution plans are recognized as they fall due. Differences between contributions payable in the year and contributions actually paid are shown as either other assets or other liabilities in the consolidated balance sheets.
81
Willis Group Holdings plc
| |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) |
Share-Based Compensation
The Company accounts for share-based compensation as follows:
| |
• | the cost resulting from all equity awards is recognized in the financial statements at fair value estimated at the grant date; |
|
• | the fair value is recognized (generally as compensation cost) over the requisite service period for all awards that vest; and |
|
• | compensation cost is not recognized for awards that do not vest because service or performance conditions are not satisfied. |
the fair value is recognized (generally as compensation cost) over the requisite service period for all awards that vest; and
compensation cost is not recognized for awards that do not vest because service or performance conditions are not satisfied.
Revenue Recognition
Revenue includes insurance commissions, fees for services rendered, certain commissions receivable from insurance carriers, investment income and other income.
Brokerage income and fees negotiated in lieu of brokerage are recognized at the later of policy inception date or when the policy placement is complete. Commissions on additional premiums and adjustments are recognized when approved by or agreed between the parties and collectability is reasonably assured.
Fees for risk management and other services are recognized as the services are provided. Consideration for negotiated fee arrangements for an agreed period covering multiple insurance placements, the provision of risk managementand/or other services are allocated to all deliverables on the basis of their relative selling prices. The Company establishes contract cancellation reserves where appropriate: at December 31, 2011, 20102013, 2012 and 2009,2011, such amounts were not material.
During the year ended December 31, 2013, the Company aligned the recognition of revenue in China and its North America Personal Lines business with the rest of the Group. The impact of these realignments was not material for prior periods and, consequently, the impacts of the realignments have been made in 2013.
Investment income is recognized as earned.
Other income comprises gains on disposal of intangible assets, which primarily arise on the disposal of books of business. Although the Company is not in the business of selling intangible assets, from time to time the Company will dispose of a book of business (a customer list) or other intangible assets that do not produce adequate margins or fit with the Company’s strategy.
The average number of persons, including Executive Directors, employed by the Company is as follows:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| |
| Global | | | 4,042 | | | | 3,931 | | | | 3,815 | |
| | | | | | | | | | | | | |
| North America | | | 6,479 | | | | 6,710 | | | | 7,116 | |
| International | | | 6,634 | | | | 6,460 | | | | 6,202 | |
| | | | | | | | | | | | | |
| Total Retail | | | 13,113 | | | | 13,170 | | | | 13,318 | |
| | | | | | | | | | | | | |
| Total average number of employees for the year | | | 17,155 | | | | 17,101 | | | | 17,133 | |
| | | | | | | | | | | | | |
82
Notes to the financial statements |
| | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Global | 4,545 |
| | 4,304 |
| | 4,042 |
|
| | | | | | |
| North America | 6,334 |
| | 6,323 |
| | 6,479 |
|
| International | 7,072 |
| | 6,843 |
| | 6,634 |
|
| Total Retail | 13,406 |
| | 13,166 |
| | 13,113 |
|
| Total average number of employees for the year | 17,951 |
| | 17,470 |
| | 17,155 |
|
Salaries and benefits expense comprises the following:
86
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Salaries and other compensation awards including amortization of cash retention awards of $185 million, $119 million and $88 million (see below) | | $ | 1,776 | | | $ | 1,618 | | | $ | 1,570 | |
| Share-based compensation | | | 41 | | | | 47 | | | | 39 | |
| Severance costs | | | 89 | | | | 15 | | | | 24 | |
| Social security costs | | | 130 | | | | 119 | | | | 117 | |
| Retirement benefits — defined benefit plan expense | | | 11 | | | | 35 | | | | 42 | |
| Retirement benefits — defined contribution plan expense | | | 40 | | | | 34 | | | | 30 | |
| | | | | | | | | | | | | |
| Total salaries and benefits expense | | $ | 2,087 | | | $ | 1,868 | | | $ | 1,822 | |
| | | | | | | | | | | | | |
Severance Costs
As part of the Company’s 2011 Operational Review, the Company incurred severance costs of $89 million in the year ended December 31, 2011. These costs relate to approximately 1,200 positions that have been eliminated.
$81 million of these severance costs for these employees were recognized pursuant to a one-time benefit arrangement, with the remaining $8 million recognized pursuantNotes to the terms of employees’ existing benefit arrangements or employee arrangements. All of these costs have been recognized within salaries and benefits.financial statements
In addition to the severance incurred as part of the 2011 Operational Review, an additional charge of $9 million in the year ended December 31, 2011 was recognized within salaries and benefits relating to the write-off of retention awards held on the balance sheet for the approximately 1,200 positions that have been eliminated.3. EMPLOYEES (Continued)
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Salaries and other compensation awards including amortization and write-off of cash retention awards of $6 million, $416 million and $185 million (see below) | $ | 1,953 |
| | $ | 2,258 |
| | $ | 1,776 |
|
| Share-based compensation | 42 |
| | 32 |
| | 41 |
|
| Severance costs | 32 |
| | 6 |
| | 89 |
|
| Social security costs | 135 |
| | 133 |
| | 130 |
|
| Retirement benefits — defined benefit plan (income) expense | (4 | ) | | 2 |
| | 11 |
|
| Retirement benefits — defined contribution plan expense | 49 |
| | 44 |
| | 40 |
|
| Total salaries and benefits expense | $ | 2,207 |
| | $ | 2,475 |
| | $ | 2,087 |
|
The Company’s severance liability under the 2011 Operational Review was:
| | | | | |
| | | December 31,
| |
| | | 2011 | |
| | | (millions) | |
| |
| Balance at January 1, 2011 | | $ | — | |
| Severance costs accrued | | | 89 | |
| Cash payments | | | (64 | ) |
| Foreign exchange | | | (1 | ) |
| | | | | |
| Balance at December 31, 2011 | | $ | 24 | |
| | | | | |
The Company evaluates the performance of its operating segments based on organic commissions and fees growth and operating income. For internal reporting and segmental reporting, segmental management are not held accountable for certain items deemed to be centrally-controlled costs and initiatives, which includes the 2011 Operational Review. See Note 27 — Segment Information for an analysis of centrally-controlled costs and initiatives, including the 2011 Operational Review costs, disclosed within ‘Corporate and Other’.
Severance Costs
Severance costs also arise in the normal course of business and these charges amounted to a nominal amount$4 million in the year ended December 31, 2013 (2012: $6 million; 2011: $nil).
During the year ended December 31, 2013, the Company incurred additional salaries and benefits costs of $29 million of which $28 million related to severance costs, in relation to an Expense Reduction Initiative in the first quarter. These costs related to 207 positions that have been eliminated.
During 2011, (2010: $15 million; 2009: $24 million).the Company incurred additional severance costs of $89 million relating to the Company's 2011 Operational Review. These costs relate to approximately 1001,200 positions (2010: 550 positions; 2009: 450 positions) that have been, or are in the process of being,were eliminated.
83
Willis Group Holdings plc
Cash Retention Awards
As part ofFor the Company’s incentive compensation, the Company makes annualpast several years, certain cash retention awards under the Company's annual incentive programs included a feature which required the recipient to its employees. Employees must repay a proportionate amount of these awardsthe annual award if theythe employee voluntarily leaveleft the Company’s employ (other than in the event of retirement or permanent disability)Company before a certain time period, currently upspecified date, which was generally three years following the award. As previously disclosed, the Company made the cash payment to three years. The Company makes cash payments to its employeesthe recipient in the year it grants these retention awardsof grant and recognizes these paymentsrecognized the payment in expense ratably over the period they areit was subject to repayment, beginning in the quarter in which the award iswas made. The unamortized portion of cash retention awards iswas recorded within other'other current assetsassets' and other'other non-current assets.assets' in the consolidated balance sheet.
The following table sets out the amount of cash retention awards made and the related amortization of those awards for the years ended December 31, 2011, 20102013, 2012 and 2009:2011:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Cash retention awards made | | $ | 210 | | | $ | 196 | | | $ | 148 | |
| Amortization of cash retention awards included in salaries and benefits | | | 185 | | | | 119 | | | | 88 | |
Unamortized |
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Cash retention awards made | $ | 12 |
| | $ | 221 |
| | $ | 210 |
|
| Amortization of cash retention awards included in salaries and benefits | 6 |
| | 216 |
| | 185 |
|
In December 2012, the Company decided to eliminate the repayment requirement from the past annual cash retention awards totaled $196and, as a result, recognized a one-time, non-cash, pre-tax charge of $200 million aswhich represented the write-off of the unamortized balance of past awards at that date.
There were however, a number of off-cycle awards with a fixed guarantee attached, for which the Company has not waived the repayment requirement. The unamortized portion of retention awards amounted to $15 million at December 31, 2011 (2010: $1732013 (2012: $9 million; 2009: $982011: $196 million).
In addition, in 2012, the Company replaced annual cash retention awards with annual cash bonuses which did not include a repayment requirement. As at December 31, 2012, the Company had accrued $252 million for these bonuses.
Willis Group Holdings plc
|
| |
| 4. | SHARE-BASED COMPENSATION |
On December 31, 2011,2013, the Company had a number of open share-based compensation plans, which provide for the grant of time-based options and performance-based options, time-based restricted stock units and performance-based restricted stock units, and various other share-based grants to employees. All of the Company’s share-based compensation plans under which any options, restricted stock units or other share-based grants are outstanding as at December 31, 20112013 are described below. The compensation cost that has been recognized for those plans for the year ended December 31, 20112013 was $41$42 million (2010: $47 million; 2009: $39 million) (2012: $32 million; 2011: $41 million). The total income tax benefit recognized in the statement of operations for share-based compensation arrangements for the year ended December 31, 20112013 was $11$9 million (2010: $14 million; 2009: $12 million) (2012: $9 million; 2011: $11 million).
2008 Share Purchase and Option2012 Equity Incentive Plan
This plan, which was established on April 25, 2012, provides for the granting of ISOs, time-based or performance-based non-statutory stock options, share appreciation rights ('SARs'), restricted shares, time-based or performance-based restricted share units ('RSUs'), performance-based awards and other share-based grants or any combination thereof (collectively referred to as 'Awards') to employees, officers, directors and consultants ('Eligible Individuals') of the Company and any of its subsidiaries (the 'Willis Group'). The Board of Directors also adopted a sub-plan under the 2012 plan to provide an employee sharesave scheme in the UK.
There are 13,776,935 shares available for grant under this plan. In addition, Shares subject to awards that were granted under the Willis Group Holdings 2008 Share Purchase and Option Plan, that terminate, expire or lapse for any reason will be made available for future Awards under this Plan. Options are exercisable on a variety of dates, including from the second, third, fourth or fifth anniversary of grant. Unless terminated sooner by the Board of Directors, the 2012 Plan will expire 10 years after the date of its adoption. That termination will not affect the validity of any grants outstanding at that date.
2008 Share Purchase and Option Plan
This plan, which was established on April 23, 2008, provides for the granting of time and performance-based options, restricted stock units and various other share-based grants at fair market value to employees of the Company. There are 8,000,000The 2008 plan was terminated as at April 25, 2012 and no further grants will be made under this plan. Any shares available for grant under this plan. the 2008 plan were included in the 2012 Equity Incentive Plan availability.
Options are exercisable on a variety of dates, including from the third, fourth or fifth anniversary of grant. Unless terminated sooner by the Board of Directors, the 2008 Plan will expire 10 years after the date of its adoption. That termination will not affect the validity of any grant outstanding at that date..
2001 Share Purchase and Option Plan
This plan, which was established on May 3, 2001, provides for the granting of time-based options, restricted stock units and various other share-based grants at fair market value to employees of the Company. The Board of Directors has adopted severalsub-plans under the 2001 plan to provide employee sharesave schemes in the UK, Ireland and internationally. The 2001 Plan (and allsub-plans) expired on May 3, 2011 and no further grants will be made under the plan. Options are exercisable on a variety of dates, including from the first, second, third, sixth or eighth anniversary of grant, although for certain options the exercisable date may accelerate depending on the achievement of certain performance goals.
84
Notes to the financial statements
| |
4. | SHARE-BASED COMPENSATION (Continued) |
HRH Option Plans
Options granted under the Hilb Rogal and Hamilton Company 2000 Stock Incentive Plan (‘HRH 2000 Plan’) and the Hilb Rogal & Hobbs Company 2007 Stock Incentive Plan (the ‘HRH 2007 Plan’) were converted into options to acquire shares of Willis Group Holdings. No further grants are to be made under the HRH 2000 Plan. Willis is authorized to grant equity awards under the HRH 2007 Plan until 2017 to employees who were formerly employed by HRH and to new employees who have joined Willis or one of its subsidiaries since October 1, 2008, the date that the acquisition of HRH was completed.
Employee Stock Purchase Plans
The Company has adopted the Willis Group Holdings 2001 North America Employee Share Purchase Plan, which expired on May 31, 2011 and the Willis Group Holdings 2010 North America Employee Stock Purchase Plan.Plan, which expires on May 31, 2020. They provide certain eligible employees to the Company’s subsidiaries in the US and Canada the ability to contribute payroll deductions to the purchase of Willis Shares at the end of each offering period.
Notes to the financial statements
4. SHARE-BASED COMPENSATION (Continued)
Option Valuation Assumptions
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock. With effect from January 1, 2006, theThe Company uses the simplified method set out in Accounting Standard Codification (‘ASC’)718-10-S99 to derive the expected term of options granted.granted as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free rate for periods within the expected life of the option is based on the US Treasury yield curve in effect at the time of grant.
| | | | | | | | | | | | | |
| | | Years ended December 31, |
| | | 2011 | | 2010 | | 2009 |
| |
| Expected volatility | | | 31.4 | % | | | 30.4 | % | | | 32.4 | % |
| Expected dividends | | | 2.5 | % | | | 3.4 | % | | | 3.9 | % |
| Expected life (years) | | | 6 | | | | 5 | | | | 5 | |
| Risk-free interest rate | | | 2.2 | % | | | 2.2 | % | | | 3.0 | % |
85
Willis Group Holdings plc |
| | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| Expected volatility | 24.7 | % | | 32.1 | % | | 31.4 | % |
| Expected dividends | 2.6 | % | | 3.2 | % | | 2.5 | % |
| Expected life (years) | 4 |
| | 5 |
| | 6 |
|
| Risk-free interest rate | 1.5 | % | | 0.9 | % | | 2.2 | % |
| |
4. | SHARE-BASED COMPENSATION (Continued) |
A summary of option activity under the plans at December 31, 2011,2013, and changes during the year then ended is presented below:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted
| | | | |
| | | | | | Weighted
| | | Average
| | | | |
| | | | | | Average
| | | Remaining
| | | Aggregate
| |
| | | | | | Exercise
| | | Contractual
| | | Intrinsic
| |
| (Options in thousands) | | Options | | | Price(i) | | | Term | | | Value | |
| | | | | | | | | | | | (millions) | |
| |
Time-based stock options | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | 11,449 | | | $ | 32.73 | | | | | | | | | |
| Granted | | | 140 | | | $ | 30.30 | | | | | | | | | |
| Exercised | | | (1,769 | ) | | $ | 29.44 | | | | | | | | | |
| Forfeited | | | (521 | ) | | $ | 32.46 | | | | | | | | | |
| Expired | | | (125 | ) | | $ | 32.17 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | 9,174 | | | $ | 33.35 | | | | 3 years | | | $ | 50 | |
| | | | | | | | | | | | | | | | | |
| Options vested or expected to vest at December 31, 2011 | | | 8,896 | | | $ | 33.51 | | | | 3 years | | | $ | 49 | |
| Options exercisable at December 31, 2011 | | | 7,702 | | | $ | 34.07 | | | | 3 years | | | $ | 38 | |
| | | | | | | | | | | | | | | | | |
Performance-based stock options | | | | | | | | | | | | | | | | |
| Balance, beginning of year | | | 9,449 | | | $ | 32.14 | | | | | | | | | |
| Granted | | | 1,523 | | | $ | 41.40 | | | | | | | | | |
| Exercised | | | (96 | ) | | $ | 29.61 | | | | | | | | | |
| Forfeited | | | (3,593 | ) | | $ | 36.23 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance, end of year | | | 7,283 | | | $ | 32.09 | | | | 6 years | | | $ | 49 | |
| | | | | | | | | | | | | | | | | |
| Options vested or expected to vest at December 31, 2011 | | | 6,227 | | | $ | 32.30 | | | | 6 years | | | $ | 44 | |
| Options exercisable at December 31, 2011 | | | 1,879 | | | $ | 32.80 | | | | 5 years | | | $ | 11 | |
|
| | | | | | | | | | | | |
| | | | Weighted Average Exercise | | Weighted Average Remaining Contractual | | Aggregate Intrinsic |
| (Options in thousands) | Options | | Price(i) | | Term | | Value |
| | | | | | | | (millions) |
| Time-based stock options | |
| | |
| | | | |
|
| Balance, beginning of year | 10,152 |
| | $ | 33.44 |
| | | | |
|
| Granted | 1,612 |
| | $ | 42.77 |
| | | | |
|
| Exercised | (3,697 | ) | | $ | 32.10 |
| | | | |
|
| Forfeited | (47 | ) | | $ | 38.42 |
| | | | |
|
| Expired | (37 | ) | | $ | 26.68 |
| | | | |
|
| Balance, end of year | 7,983 |
| | $ | 35.95 |
| | 4 years | | $ | 71 |
|
| Options vested or expected to vest at December 31, 2013 | 7,308 |
| | $ | 35.99 |
| | 4 years | | $ | 64 |
|
| Options exercisable at December 31, 2013 | 3,976 |
| | $ | 35.38 |
| | 1 year | | $ | 37 |
|
| Performance-based stock options | |
| | |
| | | | |
|
| Balance, beginning of year | 6,517 |
| | $ | 32.19 |
| | | | |
|
| Exercised | (1,111 | ) | | $ | 29.27 |
| | | | |
|
| Forfeited | (146 | ) | | $ | 32.40 |
| | | | |
|
| Balance, end of year | 5,260 |
| | $ | 32.80 |
| | 4 years | | $ | 63 |
|
| Options vested or expected to vest at December 31, 2013 | 4,675 |
| | $ | 32.61 |
| | 4 years | | $ | 57 |
|
| Options exercisable at December 31, 2013 | 2,716 |
| | $ | 31.48 |
| | 3 years | | $ | 36 |
|
| | |
(i) | | Certain options are exercisable in pounds sterling and are converted to dollars using the exchange rate at December 31, 2011.2013. |
The weighted average grant-date fair value of time-based options granted during the year ended December 31, 20112013 was $9.49 (2010: $5.25; 2009: $5.87)$7.74 (2012: $6.98; 2011: $9.49). The total intrinsic value of options exercised during the year ended December 31, 20112013 was $17$32 million (2010: $8 million; 2009: $3 million) (2012: $8 million; 2011: $17 million). At December 31, 20112013 there was $7$20 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under time-based stock option plans; that cost is expected to be recognized over a weighted average period of 2 years.years.
There were no performance-based options granted during the year ended December 31, 2013. The weighted average grant-date fair value of performance-based options granted duringwas $7.61 in the year ended December 31, 2012 (2011 was $10.26 (2010: $7.11; 2009: $5.89): $10.26). The total intrinsic value of options exercised during the year ended December 31, 20112013 was $1$14 million (2010: $nil; 2009: $1 million) (2012: $5 million; 2011: $1 million). At
Willis Group Holdings plc
4. SHARE-BASED COMPENSATION (Continued)
December 31, 20112013 there was $26$7 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under performance-based stock option plans; that cost is expected to be recognized over a weighted-average period of 3 years.
861 year
.
Notes to the financial statements
| |
4. | SHARE-BASED COMPENSATION (Continued) |
A summary of restricted stock unit activity under the Plans at December 31, 2011,2013, and changes during the year then ended is presented below:
| | | | | | | | | |
| | | | | | Weighted
| |
| | | | | | Average
| |
| | | | | | Grant Date
| |
| (Units awarded in thousands) | | Shares | | | Fair Value | |
| |
Nonvested shares (restricted stock units) | | | | | | | | |
| Balance, beginning of year | | | 1,798 | | | $ | 28.82 | |
| Granted | | | 346 | | | $ | 40.77 | |
| Vested | | | (918 | ) | | $ | 29.31 | |
| Forfeited | | | (34 | ) | | $ | 27.18 | |
| | | | | | | | | |
| Balance, end of year | | | 1,192 | | | $ | 31.96 | |
| | | | | | | | | |
|
| | | | | | |
| | | | Weighted
Average
Grant Date |
| (Units awarded in thousands) | Shares | | Fair Value |
| Nonvested shares (restricted stock units) | |
| | |
|
| Balance, beginning of year | 2,525 |
| | $ | 33.80 |
|
| Granted | 1,377 |
| | $ | 44.33 |
|
| Vested | (874 | ) | | $ | 34.02 |
|
| Forfeited | (99 | ) | | $ | 33.09 |
|
| Balance, end of year | 2,929 |
| | $ | 38.71 |
|
The total number of restricted stock units vested during the year ended December 31, 20112013 was 918,480873,670 shares at an average share price of $39.52 (2010: 744,633$41.10 (2012: 408,005 shares at an average share price of $32.17)$35.82). At December 31, 20112013 there was $17$82 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under the plan; that cost is expected to be recognized over a weighted average period of 2 years.3 years.
Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 20112013 was $60$155 million (2010: $37 million; 2009: $19 million) (2012: $53 million; 2011: $60 million). The actual tax benefit realizedrecognized for the tax deductions from option exercises of the share-based payment arrangements totaled $18$28 million for the year ended December 31, 2013 (2012: $8 million; 2011 (2010: $10 million; 2009: $5 million): $18 million).
An analysis of auditors’ remuneration is as follows:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Audit of group consolidated financial statements | | $ | 4 | | | $ | 4 | | | $ | 3 | |
| Other assurance services | | | 3 | | | | 3 | | | | 3 | |
| Other non-audit services | | | 1 | | | | 1 | | | | — | |
| | | | | | | | | | | | | |
| Total auditors’ remuneration | | $ | 8 | | | $ | 8 | | | $ | 6 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Audit of group consolidated financial statements | $ | 4 |
| | $ | 4 |
| | $ | 4 |
|
| Other assurance services | 3 |
| | 3 |
| | 3 |
|
| Other non-audit services | 1 |
| | 1 |
| | 1 |
|
| Total auditors’ remuneration | $ | 8 |
| | $ | 8 |
| | $ | 8 |
|
Notes to the financial statements
|
| |
| 6. | NET GAIN (LOSS) ON DISPOSAL OF OPERATIONS |
A gain on disposal of $4$2 million is recorded in the consolidated statements of operations for the year ended December 31, 2013. This principally relates to the disposal of an associated undertaking based in Spain.
A loss on disposal of $3 million is recorded in the consolidated statements of operations for the year ended December 31, 2012. This principally relates to the termination of a joint venture arrangement in India.
A gain on disposal of $4 million is recorded in the consolidated statements of operations for the year ended December 31, 2011 following conclusion of the accounting for the Gras Savoye December 2009 leveraged transaction — see Note 1415 — Investments'Investments in Associates.Associates'.
Total proceeds from the disposal of operations for 2010 were $4 million, comprising $2 million relating to 2010 disposals of operations and $2 million of deferred proceeds relating to prior year. A loss on disposal of $2 million is recorded in the consolidated statements of operations for the year ended December 31, 2010.
Total proceeds from the disposal of operations for 2009 were $315 million, including $281 million for 18 percent of the Group’s 49 percent interest in Gras Savoye and $39 million for 100 percent of Bliss & Glennon. A gain on disposal of
87
Willis Group Holdings plc
|
| |
6. 7. | NET GAIN (LOSS) ON DISPOSAL OF OPERATIONS (Continued)INCOME TAXES |
$13 million is recorded in the statement of consolidated operations for the year ended December 31, 2009, of which $10 million relates to Gras Savoye as shown below.
On December 17, 2009, the Company 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 (‘December 2009 leveraged transaction’), its principal investment in associates. The Company, the family shareholders and Astorg owned equal stakes of 31 percent in Gras Savoye and had equal representation of one third of the voting rights on its board. The remaining shareholding was held by a large pool of Gras Savoye managers and minority shareholders. The Company’s interest was reduced from 31 percent to 30 percent in 2011 following issuance of additional share capital as part of an employee share incentive scheme.
As a result of the December 2009 leveraged transaction the Company recognized a gain of $10 million in the consolidated statement of operations from the reduction of its interest in Gras Savoye from 49 percent to 31 percent.
The Company received total proceeds of $281 million, comprising cash and interest bearing vendor loans and convertible bonds issued by Gras Savoye. An analysis of the proceeds and the calculation of the gain is as follows:
| | | | | |
| | | (millions) | |
| |
| Proceeds: | | | | |
| Cash | | $ | 155 | |
| Vendor Loans | | | 47 | |
| Convertible Bonds | | | 79 | |
| | | | | |
| Net proceeds | | | 281 | |
| Less net assets disposed of | | | (97 | ) |
| Less interest in new liabilities of Gras Savoye | | | (174 | ) |
| | | | | |
| Gain on disposal | | $ | 10 | |
| | | | | |
An analysis of income from continuing operations before income taxes and interest in earnings of associates by location of the taxing jurisdiction is as follows:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Ireland | | $ | (39 | ) | | $ | 3 | | | $ | (2 | ) |
| US | | | (25 | ) | | | 84 | | | | 2 | |
| UK | | | (58 | ) | | | 183 | | | | 204 | |
| Other jurisdictions | | | 361 | | | | 317 | | | | 312 | |
| | | | | | | | | | | | | |
| Income from continuing operations before income taxes and interest in earnings of associates | | $ | 239 | | | $ | 587 | | | $ | 516 | |
| | | | | | | | | | | | | |
88
Notes to the financial statements
| |
7. | INCOME TAXES (Continued) |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Ireland | $ | (52 | ) | | $ | (47 | ) | | $ | (39 | ) |
| US | (11 | ) | | (615 | ) | | (25 | ) |
| UK | 282 |
| | 25 |
| | (58 | ) |
| Other jurisdictions | 280 |
| | 300 |
| | 361 |
|
| Income (loss) from continuing operations before income taxes and interest in earnings of associates | $ | 499 |
| | $ | (337 | ) | | $ | 239 |
|
The provision for income taxes by location of the taxing jurisdiction consisted of the following:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Current income taxes: | | | | | | | | | | | | |
| Irish corporation tax | | $ | — | | | $ | 1 | | | $ | — | |
| US federal tax | | | — | | | | (30 | ) | | | 40 | |
| US state and local taxes | | | 1 | | | | — | | | | 17 | |
| UK corporation tax | | | (33 | ) | | | 54 | | | | 17 | |
| Other jurisdictions | | | 42 | | | | 41 | | | | 52 | |
| | | | | | | | | | | | | |
| Total current taxes | | | 10 | | | | 66 | | | | 126 | |
| | | | | | | | | | | | | |
| Non-current taxes: | | | | | | | | | | | | |
| US federal tax | | | 5 | | | | (3 | ) | | | (9 | ) |
| US state and local taxes | | | — | | | | (3 | ) | | | (2 | ) |
| UK corporation tax | | | (4 | ) | | | — | | | | — | |
| Other jurisdictions | | | 4 | | | | 3 | | | | — | |
| | | | | | | | | | | | | |
| Total non-current taxes | | | 5 | | | | (3 | ) | | | (11 | ) |
| | | | | | | | | | | | | |
| Deferred taxes: | | | | | | | | | | | | |
| US federal tax | | | (6 | ) | | | 57 | | | | (24 | ) |
| US state and local taxes | | | 1 | | | | 9 | | | | (3 | ) |
| UK corporation tax | | | 20 | | | | 3 | | | | 1 | |
| Other jurisdictions | | | 2 | | | | 8 | | | | 5 | |
| | | | | | | | | | | | | |
| Total deferred taxes | | | 17 | | | | 77 | | | | (21 | ) |
| | | | | | | | | | | | | |
| Total income taxes | | $ | 32 | | | $ | 140 | | | $ | 94 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Current income taxes: | |
| | |
| | |
|
| US federal tax | $ | 7 |
| | $ | 3 |
| | $ | 5 |
|
| US state and local taxes | 3 |
| | 1 |
| | 1 |
|
| UK corporation tax | 28 |
| | 2 |
| | (37 | ) |
| Other jurisdictions | 45 |
| | 41 |
| | 46 |
|
| Total current taxes | 83 |
| | 47 |
| | 15 |
|
| Deferred taxes: | |
| | |
| | |
|
| US federal tax | 10 |
| | (44 | ) | | (6 | ) |
| US state and local taxes | 1 |
| | (41 | ) | | 1 |
|
| Effect of additional US valuation allowance | 2 |
| | 113 |
| | — |
|
| UK corporation tax | 17 |
| | 27 |
| | 20 |
|
| Other jurisdictions | 9 |
| | (1 | ) | | 2 |
|
| Total deferred taxes | 39 |
| | 54 |
| | 17 |
|
| Total income taxes | $ | 122 |
| | $ | 101 |
| | $ | 32 |
|
89
Willis Group Holdings plc
| |
7. | INCOME TAXES (Continued) |
Notes to the financial statements
7. INCOME TAXES (Continued)
The reconciliation between US federal income taxes at the statutory rate and the Company’s provision for income taxes on continuing operations is as follows:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions, except percentages) | |
| |
| Income from continuing operations before income taxes and interest in earnings of associates | | $ | 239 | | | $ | 587 | | | $ | 516 | |
| | | | | | | | | | | | | |
| US federal statutory income tax rate | | | 35 | % | | | 35 | % | | | 35 | % |
| | | | | | | | | | | | | |
| Income tax expense at US federal tax rate | | | 84 | | | | 205 | | | | 181 | |
| Adjustments to derive effective rate: | | | | | | | | | | | | |
| Non-deductible expenditure | | | 15 | | | | 7 | | | | 4 | |
| Movement in provision for non-current taxes | | | 3 | | | | (3 | ) | | | (11 | ) |
| Release of provision for unremitted earnings | | | — | | | | — | | | | (27 | ) |
| Impact of change in tax rate on deferred tax balances | | | (3 | ) | | | (4 | ) | | | — | |
| Adjustment in respect of prior periods | | | (13 | ) | | | (22 | ) | | | (6 | ) |
| Non-deductible Venezuelan foreign exchange loss | | | — | | | | 4 | | | | — | |
| Non-taxable profit on disposal of Gras Savoye | | | — | | | | 1 | | | | (3 | ) |
| Effect of foreign exchange and other differences | | | 1 | | | | 11 | | | | 2 | |
| Changes in valuation allowances applied to deferred tax assets | | | 5 | | | | — | | | | — | |
| Net tax effect of intra-group items | | | (31 | ) | | | (26 | ) | | | — | |
| Tax differentials of foreign earnings: | | | | | | | | | | | | |
| UK earnings | | | 6 | | | | (13 | ) | | | (13 | ) |
| Other jurisdictions and US state taxes | | | (35 | ) | | | (20 | ) | | | (33 | ) |
| | | | | | | | | | | | | |
| Provision for income taxes | | $ | 32 | | | $ | 140 | | | $ | 94 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions, except percentages) |
| Income (loss) from continuing operations before income taxes and interest in earnings of associates | $ | 499 |
| | $ | (337 | ) | | $ | 239 |
|
| US federal statutory income tax rate | 35 | % | | 35 | % | | 35 | % |
| Income tax expense at US federal tax rate | 175 |
| | (118 | ) | | 84 |
|
| Adjustments to derive effective rate: | |
| | |
| | |
|
| Non-deductible expenditure | 19 |
| | 15 |
| | 15 |
|
| Tax impact of internal restructurings | 11 |
| | — |
| | — |
|
| Movement in provision for unrecognized tax benefits | (1 | ) | | 6 |
| | 3 |
|
| Impairment of non-qualifying goodwill | — |
| | 137 |
| | — |
|
| Impact of change in tax rate on deferred tax balances | (4 | ) | | (3 | ) | | (3 | ) |
| Adjustment in respect of prior periods | 1 |
| | 6 |
| | (13 | ) |
| Effect of foreign exchange and other differences | 1 |
| | 2 |
| | 1 |
|
| Changes in valuation allowances applied to deferred tax assets | — |
| | 114 |
| | 5 |
|
| Net tax effect of intra-group items | (30 | ) | | (31 | ) | | (31 | ) |
| Tax differentials of foreign earnings: | |
| | |
| | |
|
| Foreign jurisdictions | (54 | ) | | (12 | ) | | (31 | ) |
| US state taxes and local taxes | 4 |
| | (15 | ) | | 2 |
|
| Provision for income taxes | $ | 122 |
| | $ | 101 |
| | $ | 32 |
|
Willis Group Holdings plc is a non-trading holding company tax resident in Ireland where it is taxed at the statutory rate of 25%. The provision for income tax on continuing operations has been reconciled above to the US federal statutory tax rate of 35% to be consistent with prior periods.
The net tax effect of intra-group items principally relates to transactions, the pre-tax effect of which has been eliminated in arriving at the Company’s consolidated income from continuing operations before income taxes. The prior-year comparative analysis is restated to separately disclose these items, which were previously included as part
Contents
Notes to the financial statements
| |
7. | INCOME TAXES (Continued) |
Willis Group Holdings plc
7. INCOME TAXES (Continued)
The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
| Deferred tax assets: | | | | | | | | |
| Accrued expenses not currently deductible | | $ | 116 | | | $ | 34 | |
| US state net operating losses | | | 56 | | | | 47 | |
| US federal net operating losses | | | 23 | | | | — | |
| UK net operating losses | | | 1 | | | | 2 | |
| Other net operating losses | | | 7 | | | | 3 | |
| UK capital losses | | | 45 | | | | 49 | |
| Accrued retirement benefits | | | 105 | | | | 62 | |
| Deferred compensation | | | 45 | | | | 46 | |
| Stock options | | | 34 | | | | 51 | |
| | | | | | | | | |
| Gross deferred tax assets | | | 432 | | | | 294 | |
| Less: valuation allowance | | | (102 | ) | | | (87 | ) |
| | | | | | | | | |
| Net deferred tax assets | | $ | 330 | | | $ | 207 | |
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Cost of intangible assets, net of related amortization | | $ | 149 | | | $ | 155 | |
| Cost of tangible assets, net of related amortization | | | 42 | | | | 25 | |
| Prepaid retirement benefits | | | 36 | | | | 50 | |
| Accrued revenue not currently taxable | | | 26 | | | | 7 | |
| Cash retention award | | | 63 | | | | 10 | |
| Tax-leasing transactions | | | 2 | | | | 3 | |
| Financial derivative transactions | | | 4 | | | | 6 | |
| Other | | | — | | | | — | |
| | | | | | | | | |
| Deferred tax liabilities | | | 322 | | | | 256 | |
| | | | | | | | | |
| Net deferred tax asset (liability) | | $ | 8 | | | $ | (49 | ) |
| | | | | | | | | |
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | (millions) |
| Deferred tax assets: | |
| | |
|
| Accrued expenses not currently deductible | $ | 153 |
| | $ | 120 |
|
| US state net operating losses | 70 |
| | 64 |
|
| US federal net operating losses | — |
| | 28 |
|
| UK net operating losses | 3 |
| | — |
|
| Other net operating losses | 5 |
| | 8 |
|
| UK capital losses | 43 |
| | 42 |
|
| Accrued retirement benefits | 47 |
| | 101 |
|
| Deferred compensation | 37 |
| | 48 |
|
| Stock options | 25 |
| | 40 |
|
| Gross deferred tax assets | 383 |
| | 451 |
|
| Less: valuation allowance | (196 | ) | | (221 | ) |
| Net deferred tax assets | $ | 187 |
| | $ | 230 |
|
| Deferred tax liabilities: | |
| | |
|
| Cost of intangible assets, net of related amortization | $ | 120 |
| | $ | 118 |
|
| Cost of tangible assets, net of related amortization | 44 |
| | 51 |
|
| Prepaid retirement benefits | 56 |
| | 35 |
|
| Accrued revenue not currently taxable | 23 |
| | 29 |
|
| Cash retention award | — |
| | 2 |
|
| Tax-leasing transactions | — |
| | 1 |
|
| Financial derivative transactions | 3 |
| | 2 |
|
| Deferred tax liabilities | 246 |
| | 238 |
|
| Net deferred tax (liability) asset | $ | (59 | ) | | $ | (8 | ) |
| | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
| Balance sheet classifications: | | | | | | | | |
| Current: | | | | | | | | |
| Deferred tax assets | | $ | 44 | | | $ | 36 | |
| Deferred tax liabilities | | | (26 | ) | | | (9 | ) |
| | | | | | | | | |
| Net current deferred tax assets | | | 18 | | | | 27 | |
| | | | | | | | | |
| Non-current: | | | | | | | | |
| Deferred tax assets | | | 22 | | | | 7 | |
| Deferred tax liabilities | | | (32 | ) | | | (83 | ) |
| | | | | | | | | |
| Net non-current deferred tax liabilities | | | (10 | ) | | | (76 | ) |
| | | | | | | | | |
| Net deferred tax asset (liability) | | $ | 8 | | | $ | (49 | ) |
| | | | | | | | | |
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | (millions) |
| Balance sheet classifications: | |
| | |
|
| Current: | |
| | |
|
| Deferred tax assets | $ | 15 |
| | $ | 13 |
|
| Deferred tax liabilities | (25 | ) | | (21 | ) |
| Net current deferred tax liabilities | (10 | ) | | (8 | ) |
| Non-current: | |
| | |
|
| Deferred tax assets | 7 |
| | 18 |
|
| Deferred tax liabilities | (56 | ) | | (18 | ) |
| Net non-current deferred tax liabilities | (49 | ) | | — |
|
| Net deferred tax liabilities | $ | (59 | ) | | $ | (8 | ) |
91
Willis Group Holdings plc
| |
7. | INCOME TAXES (Continued) |
Notes to the financial statements
7. INCOME TAXES (Continued)
As a result of certain realization requirements of ASC 718 Compensation - Stock Compensation, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets of $8 million (2012: $nil), that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. Equity will be increased by $8 million if and when such deferred tax assets are ultimately realized. The Company uses a 'with and without' basis when determining when excess tax benefits have been realized.
At December 31, 20112013 the Company had valuation allowances of $102$196 million (2010: $87 million) (2012: $221 million) to reduce its deferred tax assets to estimated realizable value. The valuation allowances at December 31, 20112013 relate to the deferred tax assets arising from UK capital loss carryforwards ($45 million)($43 million) and other net operating losses ($6 million)($4 million), which have no expiration date, and to the deferred tax assets arising fromin the US State($149 million). US Federal net operating losses ($51 million).will expire between 2028 and 2032 and US State net operating losses will expire by 2030.2032. Capital loss carryforwards can only be offset against future UK capital gains.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Additions/
| | | | | | | | | | |
| | | | | | (releases)
| | | | | | | | | Balance
| |
| | | Balance at
| | | charged to
| | | | | | Foreign
| | | at
| |
| | | beginning
| | | costs and
| | | Deductions/Other
| | | exchange
| | | end of
| |
| Description | | of year | | | expenses | | | movements | | | differences | | | year | |
| | | (millions) | |
| |
| Year ended December 31, 2011 | | | | | | | | | | | | | | | | | | | | |
| Deferred tax valuation allowance | | | 87 | | | | — | | | | 15 | | | | — | | | | 102 | |
| | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2010 | | | | | | | | | | | | | | | | | | | | |
| Deferred tax valuation allowance | | | 92 | | | | — | | | | (4 | ) | | | (1 | ) | | | 87 | |
| | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2009 | | | | | | | | | | | | | | | | | | | | |
| Deferred tax valuation allowance | | | 85 | | | | — | | | | 2 | | | | 5 | | | | 92 | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Balance at beginning of year | | Additions/ (releases) charged to costs and expenses | | Other movements | | Foreign exchange differences | | Balance at end of year |
| Description | | | | |
| | (millions) |
| Year Ended December 31, 2013 | |
| | |
| | |
| | |
| | |
|
| Deferred tax valuation allowance | $ | 221 |
| | $ | 15 |
| | $ | (40 | ) | | $ | — |
| | $ | 196 |
|
| Year Ended December 31, 2012 | |
| | |
| | |
| | |
| | |
|
| Deferred tax valuation allowance | 102 |
| | 110 |
| | 12 |
| | (3 | ) | | 221 |
|
| Year Ended December 31, 2011 | |
| | |
| | |
| | |
| | |
|
| Deferred tax valuation allowance | 87 |
| | — |
| | 15 |
| | — |
| | 102 |
|
The amount charged to tax expense in the table above differs from the effect of $nil disclosed in the rate reconciliation primarily because the movement in this table includes effects of state taxes, which are disclosed separately in the rate reconciliation. The impact of Other movements is primarily recorded in other comprehensive income.
At December 31, 20112013 the Company had deferred tax assets of $330$187 million (2010: $207 million) (2012: $230 million), net of the valuation allowance. Management believes, based upon the level of historical taxable income and projections for future taxable income, it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are revised.
The Company recognizes deferred tax balances related to the undistributed earnings of subsidiaries when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. The Company does not, however, provide for income taxes on the unremitted earnings of certain other subsidiaries where, in management’s opinion, such earnings have been indefinitely reinvested in those operations, or will be remitted either in a tax free liquidation or as dividends with taxes substantially offset by foreign tax credits. It is not practical to determine the amount of unrecognized deferred tax liabilities for temporary differences related to these investments.
Unrecognized tax benefits
Total unrecognized tax benefits as at December 31, 2011,2013, totaled $16 million.$41 million. During the next 12 months it is reasonably possible that the Company will recognize approximately $1$1 million of tax benefits related to the release of provisions for potential inter company pricing adjustments no longer required due to either settlement through negotiation or closure of the statute of limitations on assessment.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Balance at January 1 | | $ | 13 | | | $ | 17 | | | $ | 33 | |
| Reductions due to a lapse of the applicable statute of limitation | | | — | | | | (7 | ) | | | (11 | ) |
| Adjustment to assessment of acquired HRH balances | | | — | | | | — | | | | (8 | ) |
| Other movements | | | 3 | | | | 3 | | | | 3 | |
| | | | | | | | | | | | | |
| Balance at December 31 | | $ | 16 | | | $ | 13 | | | $ | 17 | |
| | | | | | | | | | | | | |
92
Notes to the financial statements
| |
7. | INCOME TAXES (Continued) |
Willis Group Holdings plc
All7. INCOME TAXES (Continued)
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Balance at January 1 | $ | 37 |
| | $ | 16 |
| | $ | 13 |
|
| Reductions due to a lapse of the applicable statute of limitation | (5 | ) | | (3 | ) | | — |
|
| Increases for positions taken in current period | 9 |
| | 8 |
| | — |
|
| Increases for positions taken in prior periods | — |
| | 16 |
| | — |
|
| Other movements | — |
| | — |
| | 3 |
|
| Balance at December 31 | $ | 41 |
| | $ | 37 |
| | $ | 16 |
|
$12 million of the unrecognized tax benefits at December 31, 20112013 would, if recognized, favorably affect the effective tax rate in future periods.
The Company files tax returns in the various tax jurisdictions in which it operates. The 20072009 US tax year closed in 20112013 upon the expiration of the statute of limitations on assessment. Although tax years 2008 and 2009 are closed, the IRS could make adjustments (but not assess additional tax) up to the amount of the net operating losses carried forward from those years. US tax returns have been filed timely. The Company has received notice that the IRS will be examining the 2009 tax return. The Company has not extended the federal statute of limitations for assessment in the US.
All UK tax returns have been filed timely and are in the normal process of being reviewed, with HM Revenue & Customs making enquiriesinquiries to obtain additional information. There are no material ongoing enquiriesinquiries in relation to filed UK returns. In other jurisdictions the Company is no longer subject to examinations prior to 2002.2004.
|
| |
| 8. | DISCONTINUED OPERATIONS |
On December 31, 2011, the Company disposed of Global Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets of Maclean, Oddy & Associates, Inc.. Gross proceeds were $15 million.
The net assets at December 31, 2011 were $11 million, of which $9 million related to identifiable intangible assets and goodwill. In addition, there were costs and income taxes relating to the transaction of $2 million. The gain (net of tax) on this disposal was $2 million.$2 million.
Amounts
Notes to the following:financial statements
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Revenues | | $ | 8 | | | $ | 7 | | | $ | 19 | |
| | | | | | | | | | | | | |
| Income before income taxes | | | (1 | ) | | | — | | | | 6 | |
| Income taxes | | | — | | | | — | | | | (2 | ) |
| | | | | | | | | | | | | |
| Income from discontinued operations | | $ | (1 | ) | | $ | — | | | $ | 4 | |
| Gain on disposal of discontinued operations, net of tax | | | 2 | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Discontinued operations, net of tax | | $ | 1 | | | $ | — | | | $ | 4 | |
| | | | | | | | | | | | | |
Net assets and liabilities of discontinued operations consist of the following:
| | | | | |
| | | At
| |
| | | December 31,
| |
| | | 2011 | |
| | | (millions) | |
| |
| Cash and cash equivalents | | $ | 1 | |
| Fiduciary assets | | | 17 | |
| Goodwill | | | 3 | |
| Other intangible assets, net | | | 6 | |
| Other current assets | | | 2 | |
| | | | | |
| Total assets | | | 29 | |
| | | | | |
| Fiduciary liabilities | | | (17 | ) |
| Other current liabilities | | | (1 | ) |
| | | | | |
| Total liabilities | | | (18 | ) |
| | | | | |
| Net assets of discontinued operations | | $ | 11 | |
| | | | | |
93
Willis Group Holdings plc
Basic and diluted earnings per share are calculated by dividing net income attributable to Willis Group Holdings by the average number of shares outstanding during each period. The computation of diluted earnings per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue shares were exercised or converted into shares or resulted in the issue of shares that then shared in the net income of the Company.
In periods where losses are reported the weighted average shares outstanding excludes potentially issuable shares described above, because their inclusion would be antidilutive.
For the year ended December 31, 2011,2013, time-based and performance-based options to purchase 8.0 million and 5.3 million shares (2012: 10.2 million and 6.5 million; 2011: 9.2 million and 7.3 million (2010: 11.5 million and 9.4 million; 2009: 13.4 million and 8.9 million) shares,), respectively, and 1.22.9 million restricted stock units (2010: 1.8 million; 2009: 2.2 million),(2012: 2.5 million; 2011: 1.2 million) were outstanding.
Basic and diluted earnings per share are as follows:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions, except per share data) | |
| |
| Net income attributable to Willis Group Holdings | | $ | 204 | | | $ | 455 | | | $ | 438 | |
| | | | | | | | | | | | | |
| Basic average number of shares outstanding | | | 173 | | | | 170 | | | | 168 | |
| Dilutive effect of potentially issuable shares | | | 3 | | | | 1 | | | | 1 | |
| | | | | | | | | | | | | |
| Diluted average number of shares outstanding | | | 176 | | | | 171 | | | | 169 | |
| | | | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | | | |
| Continuing operations | | $ | 1.17 | | | $ | 2.68 | | | $ | 2.58 | |
| Discontinued operations | | | 0.01 | | | | — | | | | 0.03 | |
| | | | | | | | | | | | | |
| Net income attributable to Willis Group Holdings shareholders | | $ | 1.18 | | | $ | 2.68 | | | $ | 2.61 | |
| | | | | | | | | | | | | |
| Dilutive effect of potentially issuable shares | | | (0.02 | ) | | | (0.02 | ) | | | (0.02 | ) |
| | | | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | | | |
| Continuing operations | | $ | 1.15 | | | $ | 2.66 | | | $ | 2.57 | |
| Discontinued operations | | | 0.01 | | | | — | | | | 0.02 | |
| | | | | | | | | | | | | |
| Net income attributable to Willis Group Holdings shareholders | | $ | 1.16 | | | $ | 2.66 | | | $ | 2.59 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions, except per share data) |
| Net income (loss) attributable to Willis Group Holdings | $ | 365 |
| | $ | (446 | ) | | $ | 204 |
|
| Basic average number of shares outstanding | 176 |
| | 173 |
| | 173 |
|
| Dilutive effect of potentially issuable shares | 3 |
| | — |
| | 3 |
|
| Diluted average number of shares outstanding | 179 |
| | 173 |
| | 176 |
|
| Basic earnings per share: | |
| | |
| | |
|
| Continuing operations | $ | 2.07 |
| | $ | (2.58 | ) | | $ | 1.17 |
|
| Discontinued operations | — |
| | — |
| | 0.01 |
|
| Net income (loss) attributable to Willis Group Holdings shareholders | $ | 2.07 |
| | $ | (2.58 | ) | | $ | 1.18 |
|
| Dilutive effect of potentially issuable shares | (0.03 | ) | | — |
| | (0.02 | ) |
| Diluted earnings per share: | |
| | |
| | |
|
| Continuing operations | $ | 2.04 |
| | $ | (2.58 | ) | | $ | 1.15 |
|
| Discontinued operations | — |
| | — |
| | 0.01 |
|
| Net income (loss) attributable to Willis Group Holdings shareholders | $ | 2.04 |
| | $ | (2.58 | ) | | $ | 1.16 |
|
Options to purchase 4.12.1 million shares and 1.3 million restricted stock units for the year ended December 31, 20112013 were not included in the computation of the dilutive effect of stock options because the effect was antidilutive (2010: 13.9(2012: 16.7 million shares; 2009: 16.1 shares and 2.5 million restricted stock units; 2011: 4.1 millionshares).
In first quarter 2013, the Company acquired 100 percent of CBC Broker Srl, an Italian broker, at a cost of $1 million.
In second quarter 2013, the Company acquired 100 percent of PPH Limited and its subsidiary Prime Professions Limited (together referred to as Prime Professions), a leading UK based professional indemnity insurance broker, for cash consideration of $29 million. Additional consideration of up to approximately $2 million is payable in 2015 based on the achievement of certain revenue targets.
In relation to the acquisition of Prime Professions, the Company recognized acquired intangible assets of $17 million of which $16 million was in respect of customer relationships, which are being amortized over an expected life of 15 years. The remaining intangible assets relate to non-compete agreements and the Prime trade name which are being amortized over 8 years and 3 years, respectively. Goodwill of $15 million was recognized on the transaction.
On December 31, 2012 the Company acquired Avalon Actuarial Inc., a Canadian actuarial consulting firm for cash consideration of $25 million. Additional consideration of up to approximately $5 million is payable in 2016 based on the achievement of certain revenue targets.
In relation to the acquisition of Avalon Actuarial, the Company recognized acquired intangible assets of $20 million of which $17 million was in respect of customer relationships, which are being amortized over an expected life of 14 years. The remaining intangible assets relate to non-compete agreements and the Avalon trade name which are being amortized over 5 years and 3 years, respectively. Goodwill of $9 million was recognized on the transaction.
The Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers which it then remits to insureds. Uncollected premiums
Willis Group Holdings plc
from insureds and uncollected claims or refunds from insurers (‘fiduciary receivables’) are recorded as fiduciary assets on the Company’s consolidated balance sheet. Unremitted insurance premiums, claims or refunds (‘fiduciary funds’) are also recorded within fiduciary assets.
Fiduciary assets therefore comprise both receivables and funds held in a fiduciary capacity.
Fiduciary funds, consisting primarily of time deposits with original maturities of less than or equal to three months, were $1,688$1,662 million as of December 31, 2011 (2010: $1,764 million)2013 (2012: $1,796 million). Accrued interest on funds is recorded as other assets.
94
Notes to the financial statements
An analysis of fixed asset activity for the years ended December 31, 20112013 and 20102012 are as follows:
| | | | | | | | | | | | | | | | | |
| | | Land and
| | | Leasehold
| | | Furniture and
| | | | |
| | | buildings(i) | | | improvements | | | equipment | | | Total | |
| | | (millions) | |
| |
| Cost: at January 1, 2010 | | $ | 51 | | | $ | 184 | | | $ | 473 | | | $ | 708 | |
| Additions | | | 24 | | | | 13 | | | | 69 | | | | 106 | |
| Disposals | | | — | | | | (4 | ) | | | (45 | ) | | | (49 | ) |
| Foreign exchange | | | (2 | ) | | | (1 | ) | | | (9 | ) | | | (12 | ) |
| | | | | | | | | | | | | | | | | |
| Cost: at December 31, 2010 | | | 73 | | | | 192 | | | | 488 | | | | 753 | |
| Additions | | | — | | | | 24 | | | | 87 | | | | 111 | |
| Disposals | | | — | | | | (13 | ) | | | (52 | ) | | | (65 | ) |
| Foreign exchange | | | — | | | | 7 | | | | (14 | ) | | | (7 | ) |
| | | | | | | | | | | | | | | | | |
| Cost: at December 31, 2011 | | $ | 73 | | | $ | 210 | | | $ | 509 | | | $ | 792 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Depreciation: at January 1, 2010 | | $ | (24 | ) | | $ | (46 | ) | | $ | (286 | ) | | $ | (356 | ) |
Depreciation expense provided(ii) | | | (2 | ) | | | (12 | ) | | | (49 | ) | | | (63 | ) |
| Disposals | | | — | | | | 2 | | | | 39 | | | | 41 | |
| Foreign exchange | | | 1 | | | | — | | | | 5 | | | | 6 | |
| | | | | | | | | | | | | | | | | |
| Depreciation: at December 31, 2010 | | | (25 | ) | | | (56 | ) | | | (291 | ) | | | (372 | ) |
Depreciation expense provided(ii) | | | (3 | ) | | | (15 | ) | | | (58 | ) | | | (76 | ) |
| Disposals | | | — | | | | 13 | | | | 45 | | | | 58 | |
| Foreign exchange | | | — | | | | (3 | ) | | | 7 | | | | 4 | |
| | | | | | | | | | | | | | | | | |
| Depreciation: at December 31, 2011 | | $ | (28 | ) | | $ | (61 | ) | | $ | (297 | ) | | $ | (386 | ) |
| | | | | | | | | | | | | | | | | |
| Net book value: | | | | | | | | | | | | | | | | |
| At December 31, 2010 | | $ | 48 | | | $ | 136 | | | $ | 197 | | | $ | 381 | |
| | | | | | | | | | | | | | | | | |
| At December 31, 2011 | | $ | 45 | | | $ | 149 | | | $ | 212 | | | $ | 406 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Land and buildings (i) | | Leasehold improvements | | Furniture and equipment | | Total |
| | (millions) |
| Cost: at January 1, 2012 | $ | 73 |
| | $ | 210 |
| | $ | 509 |
| | $ | 792 |
|
| Additions | 3 |
| | 16 |
| | 116 |
| | 135 |
|
| Disposals | — |
| | (4 | ) | | (59 | ) | | (63 | ) |
| Foreign exchange | 2 |
| | 5 |
| | 10 |
| | 17 |
|
| Cost: at December 31, 2012 | 78 |
| | 227 |
| | 576 |
| | 881 |
|
| Additions | 10 |
| | 22 |
| | 80 |
| | 112 |
|
| Disposals | — |
| | (7 | ) | | (43 | ) | | (50 | ) |
| Foreign exchange | 1 |
| | — |
| | 5 |
| | 6 |
|
| Cost: at December 31, 2013 | $ | 89 |
| | $ | 242 |
| | $ | 618 |
| | $ | 949 |
|
| | | | | | | | |
| Depreciation: at January 1, 2012 | $ | (28 | ) | | $ | (61 | ) | | $ | (297 | ) | | $ | (386 | ) |
| Depreciation expense provided | (3 | ) | | (17 | ) | | (59 | ) | | (79 | ) |
| Disposals | — |
| | 4 |
| | 56 |
| | 60 |
|
| Foreign exchange | (1 | ) | | (1 | ) | | (6 | ) | | (8 | ) |
| Depreciation: at December 31, 2012 | (32 | ) | | (75 | ) | | (306 | ) | | (413 | ) |
| Depreciation expense provided | (3 | ) | | (18 | ) | | (73 | ) | | (94 | ) |
| Disposals | — |
| | 6 |
| | 36 |
| | 42 |
|
| Foreign exchange | (1 | ) | | — |
| | (2 | ) | | (3 | ) |
| Depreciation: at December 31, 2013 | $ | (36 | ) | | $ | (87 | ) | | $ | (345 | ) | | $ | (468 | ) |
| Net book value: | |
| | |
| | |
| | |
|
| At December 31, 2012 | $ | 46 |
| | $ | 152 |
| | $ | 270 |
| | $ | 468 |
|
| | | | | | | | |
| At December 31, 2013 | $ | 53 |
| | $ | 155 |
| | $ | 273 |
| | $ | 481 |
|
| | |
(i) | | Included within land and buildings are assets held under capital leases.leases: At December 31, 2011,2013, cost and accumulated depreciation were $31 million and $6 million respectively (2012: $25 million and $4 million, respectively; 2011: $23 million and $2 million respectively (2010: $23 million and $1 million, respectively; 2009 $nil and $nil, respectively). Depreciation in the year ended December 31, 20112013 was $1$2 million (2010: $1 million; 2009: $nil) (2012: $1 million; 2011: $1 million). |
|
(ii) | | The depreciation charge for the year ended December 31, 2011 includes an element that is disclosed in salaries and benefits, separate to the depreciation charge line, of $2 million (2010: $nil). |
Notes to the financial statements
Goodwill represents the excess of the cost of businesses acquired over the fair market value of identifiable net assets at the dates of acquisition. Goodwill is not amortized but is subject to impairment testing annually and whenever facts or circumstances indicate that the carrying amounts may not be recoverable.
The Company’s annual goodwill impairment testCompany has determined that its reporting units are consistent with its operating segments: North America; International and Global. Goodwill is allocated to these reporting units based on the original purchase price allocation for 2011 has not resulted in an impairment charge (2010: $nil; 2009: $nil).
acquisitions within the reporting units. When a business entity is sold, goodwill is allocated to the disposed entity based on the fair value of that entity compared to the fair value of the reporting unit in which it is included.
95
Willis Group Holdings plc
The changes in the carrying amount of goodwill by operating segment for the years ended December 31, 20112013 and 20102012 are as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | North
| | | | | | | |
| | | Global | | | America | | | International | | | Total | |
| | | (millions) | |
| |
| Balance at January 1, 2010 | | $ | 1,065 | | | $ | 1,780 | | | $ | 432 | | | $ | 3,277 | |
| Purchase price allocation adjustments | | | — | | | | 6 | | | | — | | | | 6 | |
Other movements(i) | | | — | | | | (3 | ) | | | — | | | | (3 | ) |
| Foreign exchange | | | (2 | ) | | | — | | | | 16 | | | | 14 | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 1,063 | | | $ | 1,783 | | | $ | 448 | | | $ | 3,294 | |
| Purchase price allocation adjustments | | | — | | | | — | | | | 2 | | | | 2 | |
| Goodwill acquired during the period | | | — | | | | — | | | | 10 | | | | 10 | |
| Goodwill disposed of during the year | | | — | | | | (3 | ) | | | — | | | | (3 | ) |
Other movements(i) (ii) | | | 60 | | | | 2 | | | | (61 | ) | | | 1 | |
| Foreign exchange | | | (1 | ) | | | — | | | | (8 | ) | | | (9 | ) |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2011 | | $ | 1,122 | | | $ | 1,782 | | | $ | 391 | | | $ | 3,295 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Global | | North America | | International | | Total |
| | (millions) |
| Balance at January 1, 2012 | | | | | | | |
| Goodwill, gross | $ | 1,122 |
| | $ | 1,782 |
| | $ | 391 |
| | $ | 3,295 |
|
| Accumulated impairment losses | — |
| | — |
| | — |
| | — |
|
| Goodwill, net | 1,122 |
| | 1,782 |
| | 391 |
| | 3,295 |
|
| Purchase price allocation adjustments | — |
| | — |
| | 2 |
| | 2 |
|
| Goodwill acquired during the year | — |
| | 10 |
| | 2 |
| | 12 |
|
| Goodwill disposed of during the year | — |
| | — |
| | (1 | ) | | (1 | ) |
| Goodwill impairment charge | — |
| | (492 | ) | | — |
| | (492 | ) |
| Foreign exchange | 5 |
| | — |
| | 6 |
| | 11 |
|
| Balance at December 31, 2012 | | | | | | | |
| Goodwill, gross | 1,127 |
| | 1,792 |
| | 400 |
| | 3,319 |
|
| Accumulated impairment losses | — |
| | (492 | ) | | — |
| | (492 | ) |
| Goodwill, net | $ | 1,127 |
| | $ | 1,300 |
| | $ | 400 |
| | $ | 2,827 |
|
| Purchase price allocation adjustments | — |
| | (1 | ) | | — |
| | (1 | ) |
| Goodwill acquired during the year | 15 |
| | — |
| | 1 |
| | 16 |
|
| Goodwill disposed of during the year | — |
| | (14 | ) | | — |
| | (14 | ) |
Other movements (i) | — |
| | (1 | ) | | — |
| | (1 | ) |
| Foreign exchange | 3 |
| | — |
| | 8 |
| | 11 |
|
| Balance at December 31, 2013 | | | | | | | |
| Goodwill, gross | 1,145 |
| | 1,776 |
| | 409 |
| | 3,330 |
|
| Accumulated impairment losses | — |
| | (492 | ) | | — |
| | (492 | ) |
| Goodwill, net | $ | 1,145 |
| | $ | 1,284 |
| | $ | 409 |
| | $ | 2,838 |
|
| | |
(i) | | North America — $(1)$1 million (2010: $3 million) (2012: $nil) tax benefit arising on the exercise of fully vested HRH stock options which were issued as part of the acquisition of HRH in 2008. |
|
(ii) | | Effective January 1, 2011, the Company changed its internal reporting structure: Global Markets International, previously reported within the International segment, is now reported in the Global segment; and Mexico Retail, which was previously reported within the International segment, is now reported in the North America segment. As a result of these changes, goodwill of $60 million has been reallocated from the International segment into the Global segment for Global Markets International, and $1 million has been reallocated from the International segment into the North America segment for Mexico Retail. Goodwill has been reallocated between segments using the relative fair value allocation approach. |
Impairment Review
The Company reviews goodwill for impairment annually. In the first step of the impairment test, the fair value of each reporting unit is compared with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, the amount of an impairment loss, if any, is calculated in the second step of the impairment test by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.
The Company's goodwill impairment test for 2013 has not resulted in an impairment charge (2012: $492 million; 2011: $nil).
In 2012, the Company concluded that an impairment charge was required to reduce the carrying value of the goodwill associated with the Company's North America reporting unit. The goodwill impairment charge for the North America reporting
Willis Group Holdings plc
13. GOODWILL (Continued)
unit amounted to $492 million. There was no impairment for the Global and International reporting units, as the fair values of these units were significantly in excess of their carrying value.
The decline in the fair value of the North America reporting unit, as well as differences between fair values and carrying values for other assets and liabilities in the second step of the goodwill impairment test, resulted in an implied fair value of goodwill substantially below the carrying value of the goodwill for the reporting unit. As a result, the Company recorded a goodwill impairment charge of $492 million as of October 1, 2012.
As previously disclosed, the North America reporting unit had been hampered by the declining Loan Protector business results, the effect of the soft economy in the U.S., which had significantly impacted the Construction and Human Capital sectors, and declining retention rates primarily related to merger and acquisition activity and lost legacy HRH businesses.
The decline in the estimated fair value of the reporting unit resulted from lower projected revenue growth rates and profitability levels as well as an increase in the discount rate used to calculate the discounted cash flows. The increase in the discount rate was due to increases in the risk-free rate and small company premium offset by a reduction to the expected market rate of return. The lower projected profitability levels reflected changes in assumptions related to organic revenue growth and cost rates which could be attributed to the declines discussed above and also included consideration of the uncertainty related to the business's ability to execute on the projected cash flows.
|
| |
13. 14. | OTHER INTANGIBLE ASSETS, NET |
Other intangible assets are classified into the following categories:
'Customer and Marketing Related', including:
| |
• | ‘Customer and Marketing Related’, including |
client relationships
| | |
| • | client relationships, |
|
| • | client lists, |
|
| • | non-compete agreements, |
|
| • | trade names; and |
client lists
| |
• | non-compete agreements trade names ‘Contract based, Technology and Other’ includes all other purchased intangible assets. |
96
Notes to the financial statements
| |
13. | OTHER INTANGIBLE ASSETS, NET (Continued) |
The major classes of amortizable intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | |
| | | Gross carrying
| | | Accumulated
| | | | | | Gross carrying
| | | Accumulated
| | | | |
| | | amount | | | amortization | | | Net carrying amount | | | amount | | | amortization | | | Net carrying amount | |
| | | (millions) | |
| |
| Customer and Marketing Related: | | | | | | | | | | | | | | | | | | | | | | | | |
| Client Relationships | | $ | 686 | | | $ | (269 | ) | | $ | 417 | | | $ | 695 | | | $ | (207 | ) | | $ | 488 | |
| Client Lists | | | 8 | | | | (7 | ) | | | 1 | | | | 9 | | | | (7 | ) | | | 2 | |
| Non-compete Agreements | | | 36 | | | | (36 | ) | | | — | | | | 36 | | | | (36 | ) | | | — | |
| Trade Names | | | 11 | | | | (10 | ) | | | 1 | | | | 11 | | | | (10 | ) | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Customer and Marketing Related | | | 741 | | | | (322 | ) | | | 419 | | | | 751 | | | | (260 | ) | | | 491 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Contract based, Technology and Other | | | 4 | | | | (3 | ) | | | 1 | | | | 4 | | | | (3 | ) | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total amortizable intangible assets | | $ | 745 | | | $ | (325 | ) | | $ | 420 | | | $ | 755 | | | $ | (263 | ) | | $ | 492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | December 31, 2012 |
| | Gross carrying amount | | Accumulated amortization | | Net carrying amount | | Gross carrying amount | | Accumulated amortization | | Net carrying amount |
| | (millions) |
| Customer and Marketing Related: | |
| | |
| | |
| | |
| | |
| | |
|
| Client Relationships | $ | 671 |
| | $ | (326 | ) | | $ | 345 |
| | $ | 717 |
| | $ | (340 | ) | | $ | 377 |
|
| Client Lists | 3 |
| | (1 | ) | | 2 |
| | 3 |
| | (1 | ) | | 2 |
|
| Non-compete Agreements | 4 |
| | (1 | ) | | 3 |
| | 3 |
| | — |
| | 3 |
|
| Trade Names | 2 |
| | (1 | ) | | 1 |
| | 11 |
| | (10 | ) | | 1 |
|
| Total Customer and Marketing Related | 680 |
| | (329 | ) | | 351 |
| | 734 |
| | (351 | ) | | 383 |
|
| Contract based, Technology and Other | 5 |
| | (3 | ) | | 2 |
| | 4 |
| | (2 | ) | | 2 |
|
| Total amortizable intangible assets | $ | 685 |
| | $ | (332 | ) | | $ | 353 |
| | $ | 738 |
| | $ | (353 | ) | | $ | 385 |
|
Notes to the financial statements
14. OTHER INTANGIBLE ASSETS, NET (Continued)
The aggregate amortization of intangible assets for the year ended December 31, 20112013 was $68$55 million (2010: $82 million; 2009: $100 million) (2012: $59 million; 2011: $68 million). The estimated aggregate amortization of intangible assets for each of the next five years ended December 31 is as follows:
| | | | | |
| | | (millions) | |
| |
| 2012 | | $ | 61 | |
| 2013 | | | 53 | |
| 2014 | | | 45 | |
| 2015 | | | 38 | |
| 2016 | | | 33 | |
| Thereafter | | | 190 | |
| | | | | |
| Total | | $ | 420 | |
| | | | | |
|
| | | |
| | (millions) |
| 2014 | $ | 50 |
|
| 2015 | 43 |
|
| 2016 | 38 |
|
| 2017 | 33 |
|
| 2018 | 29 |
|
| Thereafter | 160 |
|
| Total | $ | 353 |
|
|
| |
14. 15. | INVESTMENTS IN ASSOCIATES |
The Company holds a number of investments which it accounts for using the equity method. The Company’s approximate interest in the outstanding stock of the more significant associates is as follows:
| | | | | | | | | | | | | |
| | | | | December 31, |
| | | Country | | 2011 | | 2010 |
| |
| Al-Futtaim Willis Co. L.L.C. | | | Dubai | | | | 49% | | | | 49% | |
| GS & Cie Groupe | | | France | | | | 30% | | | | 31% | |
|
| | | | | | | |
| | | | December 31, |
| | Country | | 2013 | | 2012 |
| Al-Futtaim Willis Co. L.L.C. | Dubai | | 49 | % | | 49 | % |
| GS & Cie Groupe | France | | 30 | % | | 30 | % |
The Company’s principal investment as of December 31, 20112013 and 20102012 is GS & Cie Groupe (‘Gras Savoye’), France’s leading insurance broker.
The Company’s original investment in Gras Savoye was made in 1997, when it acquired a 33 percent ownership interest. Between 1997 and December 2009 this interest was increased by a series of incremental investments to 49 percent.percent.
On December 17, 2009, the Company 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 (‘December 2009 leveraged
97
Willis Group Holdings plc
| |
14. | INVESTMENTS IN ASSOCIATES (Continued) |
transaction’). The Company, the original family shareholders and Astorg now own equal stakes of 30 percent in the capital structure of Gras Savoye and have equal representation of one third of the voting rights on its board. The remaining shareholding is held by a large pool of Gras Savoye managers and minority shareholders.
A put option that was in place prior to the December 2009 leveraged transaction, and which could have increased the Company’s interest to 90 percent, has been canceledamended and the Company now has a new call option to purchase 100 percent of the capital of Gras Savoye. If the Company does not waive the new call option before April 30, 2014,2015, then it must exercise the new call option in 20152016 or the other shareholders may initiate procedures to sell Gras Savoye. Except with the unanimous consent of the supervisory board and other customary exceptions, the parties are prohibited from transferring any shares of Gras Savoye until 2015.2016. At the end of this period, shareholders are entitled to pre-emptive and tag-along rights.
As a result of the December 2009 leveraged transaction the Company recognized a gain of $10 million in the consolidated statement of operations for the year ended December 31, 2009 from the reduction of its interest in Gras Savoye from 49 percent to 31 percent. The Company received total proceeds of $281 million, comprising cash and interest bearing vendor loans and convertible bonds issued by Gras Savoye. See Note 6 — Net Gain (Loss) on Disposal of Operations for an analysis of the proceeds and the calculation of the gain.
In 2011 the Company’s ownership of Gras Savoye reduced from 31 percent to 30 percent following issuance of additional share capital as part of an employee share incentive scheme.
The carrying amount of the Gras Savoye investment as of December 31, 20112013 includes goodwill of $82$84 million (2010: $88 million) (2012: $83 million) and interest bearing vendor loans and convertible bonds issued by Gras Savoye of $43$46 million and $85$110 million respectively (2010: $44(2012: $47 million and $78$96 million, respectively).
A gain of $4$4 million was recorded in 2011 following conclusion of the accounting for the December 2009 leveraged transaction.
As of December 31, 20112013 and 2010,2012, the Company’s other investments in associates, individually and in the aggregate, were not material to the Company’s operations.
Willis Group Holdings plc
Unaudited condensed15. INVESTMENTS IN ASSOCIATES (Continued)
Condensed financial information for associates, in the aggregate, as of and for the three years ended December 31, 2011,2013, is presented below. For convenience purposes: (i) balance sheet data has been translated to US dollars at the relevant year-end exchange rate, and (ii) condensed statements of operations data has been translated to US dollars at the relevant average exchange rate.
| | | | | | | | | | | | | |
| | | 2011 | | 2010 | | 2009 |
| | | (millions) |
| |
Condensed statements of operations data(i): | | | | | | | | | | | | |
| Total revenues | | $ | 527 | | | $ | 510 | | | $ | 534 | |
| Income before income taxes | | | 5 | | | | 61 | | | | 96 | |
| Net income | | | (2 | ) | | | 43 | | | | 64 | |
Condensed balance sheets data(i): | | | | | | | | | | | | |
| Total assets | | | 1,882 | | | | 2,043 | | | | 2,204 | |
| Total liabilities | | | (1,736 | ) | | | (1,825 | ) | | | (1,767 | ) |
| Stockholders’ equity | | | (146 | ) | | | (218 | ) | | | (437 | ) |
|
| | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
Condensed statements of operations data (i): | |
| | |
| | |
|
| Total revenues | $ | 502 |
| | $ | 497 |
| | $ | 527 |
|
| (Loss) income before income taxes | (48 | ) | | (17 | ) | | 5 |
|
| Net loss | (36 | ) | | (14 | ) | | (2 | ) |
Condensed balance sheets data (i): | |
| | |
| | |
|
| Total assets | 1,685 |
| | 1,670 |
| | 1,882 |
|
| Total liabilities | 1,611 |
| | 1,559 |
| | 1,736 |
|
| Stockholders’ equity | 74 |
| | 111 |
| | 146 |
|
| | |
(i) | | Disclosure is based on the Company’s best estimate of the results of its associates and is subject to change upon receipt of their financial statements for 2011.2013. |
For the year ended December 31, 2011,2013, the Company recognized $4$3 million (2010: $5 million; 2009: $12 million) (2012: $3 million; 2011: $4 million) in respect of dividends received from associates.
98
Notes to the financial statements
An analysis of other assets is as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
| Other current assets | | | | | | | | |
| Unamortized cash retention awards | | $ | 120 | | | $ | 125 | |
| Prepayments and accrued income | | | 45 | | | | 73 | |
| Income taxes receivable | | | 30 | | | | 69 | |
| Derivatives | | | 14 | | | | 17 | |
| Debt issuance costs | | | 3 | | | | 8 | |
| Other receivables | | | 47 | | | | 48 | |
| | | | | | | | | |
| Total other current assets | | $ | 259 | | | $ | 340 | |
| | | | | | | | | |
| Other non-current assets | | | | | | | | |
| Unamortized cash retention awards | | $ | 76 | | | $ | 48 | |
| Deferred compensation plan assets | | | 89 | | | | 114 | |
| Derivatives | | | 38 | | | | 30 | |
| Debt issuance costs | | | 15 | | | | 27 | |
| Other receivables | | | 65 | | | | 14 | |
| | | | | | | | | |
| Total other non-current assets | | $ | 283 | | | $ | 233 | |
| | | | | | | | | |
| Total other assets | | $ | 542 | | | $ | 573 | |
| | | | | | | | | |
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | (millions) |
| Other current assets | | | |
|
| Prepayments and accrued income | $ | 73 |
| | $ | 61 |
|
| Income taxes receivable | 32 |
| | 50 |
|
| Deferred compensation plan assets | 26 |
| | 12 |
|
| Other receivables | 66 |
| | 58 |
|
| Total other current assets | $ | 197 |
| | $ | 181 |
|
| Other non-current assets | |
| | |
|
| Prepayments and accrued income | 16 |
| | 24 |
|
| Deferred compensation plan assets | 88 |
| | 97 |
|
| Income taxes receivable | 21 |
| | 12 |
|
| Accounts receivable, net | 28 |
| | 25 |
|
| Other investments | 19 |
| | 12 |
|
| Other receivables | 34 |
| | 36 |
|
| Total other non-current assets | $ | 206 |
| | $ | 206 |
|
| Total other assets | $ | 403 |
| | $ | 387 |
|
Willis Group Holdings plc
An analysis of other liabilities is as follows:
| | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
| Other current liabilities | | | | | | | | |
| Accounts payable | | $ | 59 | | | $ | 39 | |
| Accrued dividends payable | | | 46 | | | | 46 | |
| Other taxes payable | | | 45 | | | | 41 | |
| Accrued interest payable | | | 37 | | | | 21 | |
| Derivatives | | | 7 | | | | 6 | |
| Other payables | | | 88 | | | | 113 | |
| | | | | | | | | |
| Total other current liabilities | | $ | 282 | | | $ | 266 | |
| | | | | | | | | |
| Other non-current liabilities | | | | | | | | |
| Incentives from lessors | | $ | 165 | | | $ | 150 | |
| Deferred compensation plan liability | | | 106 | | | | 120 | |
| Capital lease obligation | | | 26 | | | | 23 | |
| Other taxes payable | | | 5 | | | | — | |
| Other payables | | | 61 | | | | 54 | |
| | | | | | | | | |
| Total other non-current liabilities | | $ | 363 | | | $ | 347 | |
| | | | | | | | | |
| Total other liabilities | | $ | 645 | | | $ | 613 | |
| | | | | | | | | |
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | (millions) |
| Other current liabilities | |
| | |
|
| Accounts payable | $ | 123 |
| | $ | 88 |
|
| Accrued dividends payable | 51 |
| | 47 |
|
| Other taxes payable | 51 |
| | 44 |
|
| Deferred compensation plan liability | 26 |
| | 12 |
|
| Incentives from lessors | 12 |
| | 9 |
|
| Other payables | 152 |
| | 127 |
|
| Total other current liabilities | $ | 415 |
| | $ | 327 |
|
| Other non-current liabilities | |
| | |
|
| Incentives from lessors | $ | 183 |
| | $ | 173 |
|
| Deferred compensation plan liability | 89 |
| | 101 |
|
| Income taxes payable | 40 |
| | 33 |
|
| Other payables | 62 |
| | 68 |
|
| Total other non-current liabilities | $ | 374 |
| | $ | 375 |
|
| Total other liabilities | $ | 789 |
| | $ | 702 |
|
Willis Group Holdings plc
|
| |
17. 18. | ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Accounts receivable are stated at estimated net realizable values. The allowances shown below as at the end of each period, are recorded as the amounts considered by management to be sufficient to meet probable future losses related to uncollectible accounts.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Additions/
| | | | | | | | | | |
| | | | | | (releases)
| | | | | | | | | | |
| | | Balance at
| | | charged to
| | | Deductions
| | | Foreign
| | | Balance at
| |
| | | beginning
| | | costs and
| | | / Other
| | | exchange
| | | end
| |
| Description | | of year | | | expenses | | | movements | | | differences | | | of year | |
| | | (millions) | |
| |
| Year ended December 31, 2011 | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 12 | | | $ | 4 | | | $ | (3 | ) | | $ | — | | | $ | 13 | |
| Year ended December 31, 2010 | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 16 | | | $ | — | | | $ | (4 | ) | | $ | — | | | $ | 12 | |
| Year ended December 31, 2009 | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | $ | 20 | | | $ | (1 | ) | | $ | (4 | ) | | $ | 1 | | | $ | 16 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Balance at beginning of year | | Additions/ (releases) charged to costs and expenses | | Deductions / Other movements | | Foreign exchange differences | | Balance at end of year |
| Description | | | | | | | | | |
| | (millions) |
| Year Ended December 31, 2013 | |
| | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 14 |
| | $ | 3 |
| | $ | (4 | ) | | $ | — |
| | $ | 13 |
|
| Year Ended December 31, 2012 | |
| | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 13 |
| | $ | 16 |
| | $ | (15 | ) | | $ | — |
| | $ | 14 |
|
| Year Ended December 31, 2011 | |
| | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 12 |
| | $ | 4 |
| | $ | (3 | ) | | $ | — |
| | $ | 13 |
|
Notes to the financial statements
The Company maintains two principal defined benefit pension plans that cover the majorityapproximately half of our employees in the United States and United Kingdom. Both of these plans are now closed to new entrants.entrants and with effect from May 15, 2009, the Company closed the US defined benefit plan to future accrual. New entrantsemployees in the United Kingdom 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. In addition to the Company’s UK and US defined benefit pension plans, the Company
100
Notes to the financial statements
| |
18. | PENSION PLANS (Continued) |
has several smaller defined benefit pension plans in certain other countries in which it operates.operates including a US non-qualified plan and an unfunded plan in the UK. Elsewhere, pension benefits are typically provided through defined contribution plans. It is the Company’s policy to fund pension costs as required by applicable laws and regulations.
Effective May 15, 2009, the Company closed the US defined benefit plan to future accrual. Consequently, a curtailment gain of $12 million was recognized during the year ended At December 31, 2009.
At December 31, 2011,2013, the Company recorded, on the Consolidated Balance Sheets:
| |
• | a pension benefit asset of $145 million (2010: $182 million) representing: |
| | |
| • | $136 million (2010: $179 million) in respect of the UK defined benefit pension plan; and |
|
| • | $9 million (2010: $3 million) in respect of the international defined benefit pension plans. |
| |
• | a total liability for pension benefits of $270 million (2010: $167 million) representing: |
| | |
| • | $258 million (2010: $154 million) in respect of the US defined benefit pension plan; and |
|
| • | $12 million (2010: $13 million) in respect of the international defined benefit pension plans. |
a pension benefit asset of $278 million (2012: $136 million) representing:
$276 million (2012: $134 million) in respect of the UK defined benefit pension plan; and
$2 million (2012: $2 million) in respect of the international defined benefit pension plans.
a total liability for pension benefits of $136 million (2012: $282 million) representing:
$107 million (2012: $250 million) in respect of the US defined benefit pension plan; and
$29 million (2012: $32 million) in respect of the international, US non-qualified and UK unfunded defined benefit pension plans.
Willis Group Holdings plc
19. PENSION PLANS (Continued)
UK and US defined benefit plans
The following schedules provide information concerning the Company’s UK and US defined benefit pension plans as of and for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| | | UK Pension Benefits | | | US Pension Benefits | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| | | (millions) | |
| |
| Change in benefit obligation: | | | | | | | | | | | | | | | | |
| Benefit obligation, beginning of year | | $ | 1,906 | | | $ | 1,811 | | | $ | 756 | | | $ | 686 | |
| Service cost | | | 36 | | | | 37 | | | | — | | | | — | |
| Interest cost | | | 106 | | | | 100 | | | | 41 | | | | 40 | |
| Employee contributions | | | 2 | | | | 2 | | | | — | | | | — | |
| Actuarial loss | | | 272 | | | | 84 | | | | 127 | | | | 57 | |
| Benefits paid | | | (72 | ) | | | (72 | ) | | | (29 | ) | | | (27 | ) |
| Foreign currency changes | | | (23 | ) | | | (56 | ) | | | — | | | | — | |
| Plan amendments | | | (10 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Benefit obligations, end of year | | | 2,217 | | | | 1,906 | | | | 895 | | | | 756 | |
| | | | | | | | | | | | | | | | | |
| Change in plan assets: | | | | | | | | | | | | | | | | |
| Fair value of plan assets, beginning of year | | | 2,085 | | | | 1,880 | | | | 602 | | | | 529 | |
| Actual return on plan assets | | | 269 | | | | 245 | | | | 34 | | | | 70 | |
| Employee contributions | | | 2 | | | | 2 | | | | — | | | | — | |
| Employer contributions | | | 92 | | | | 88 | | | | 30 | | | | 30 | |
| Benefits paid | | | (72 | ) | | | (72 | ) | | | (29 | ) | | | (27 | ) |
| Foreign currency changes | | | (23 | ) | | | (58 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Fair value of plan assets, end of year | | | 2,353 | | | | 2,085 | | | | 637 | | | | 602 | |
| | | | | | | | | | | | | | | | | |
| Funded status at end of year | | $ | 136 | | | $ | 179 | | | $ | (258 | ) | | $ | (154 | ) |
| | | | | | | | | | | | | | | | | |
| Components on the Consolidated Balance Sheets: | | | | | | | | | | | | | | | | |
| Pension benefits asset | | $ | 136 | | | $ | 179 | | | $ | — | | | $ | — | |
| Liability for pension benefits | | | — | | | | — | | | | (258 | ) | | | (154 | ) |
101
Willis Group Holdings plc |
| | | | | | | | | | | | | | | |
| | UK Pension Benefits | | US Pension Benefits |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | (millions) |
| Change in benefit obligation: | |
| | |
| | |
| | |
|
| Benefit obligation, beginning of year | $ | 2,582 |
| | $ | 2,217 |
| | $ | 958 |
| | $ | 895 |
|
| Service cost | 37 |
| | 35 |
| | — |
| | — |
|
| Interest cost | 109 |
| | 108 |
| | 38 |
| | 41 |
|
| Employee contributions | 2 |
| | 2 |
| | — |
| | — |
|
| Actuarial loss (gain) | 79 |
| | 186 |
| | (81 | ) | | 71 |
|
| Benefits paid | (78 | ) | | (77 | ) | | (51 | ) | | (49 | ) |
| Foreign currency changes | 54 |
| | 111 |
| | — |
| | — |
|
| Benefit obligations, end of year | 2,785 |
| | 2,582 |
| | 864 |
| | 958 |
|
| Change in plan assets: | |
| | |
| | |
| | |
|
| Fair value of plan assets, beginning of year | 2,716 |
| | 2,353 |
| | 708 |
| | 637 |
|
| Actual return on plan assets | 255 |
| | 226 |
| | 60 |
| | 80 |
|
| Employee contributions | 2 |
| | 2 |
| | — |
| | — |
|
| Employer contributions | 100 |
| | 92 |
| | 40 |
| | 40 |
|
| Benefits paid | (78 | ) | | (77 | ) | | (51 | ) | | (49 | ) |
| Foreign currency changes | 66 |
| | 120 |
| | — |
| | — |
|
| Fair value of plan assets, end of year | 3,061 |
| | 2,716 |
| | 757 |
| | 708 |
|
| Funded status at end of year | $ | 276 |
| | $ | 134 |
| | $ | (107 | ) | | $ | (250 | ) |
| Components on the Consolidated Balance Sheets: | |
| | |
| | |
| | |
|
| Pension benefits asset | $ | 276 |
| | $ | 134 |
| | $ | — |
| | $ | — |
|
| Liability for pension benefits | — |
| | — |
| | (107 | ) | | (250 | ) |
| |
18. | PENSION PLANS (Continued) |
Amounts recognized in accumulated other comprehensive loss consist of:
| | | | | | | | | | | | | | | | | |
| | | UK Pension Benefits | | US Pension Benefits |
| | | 2011 | | 2010 | | 2011 | | 2010 |
| | | | | (millions) | | |
| |
| Net actuarial loss | | $ | 698 | | | $ | 571 | | | $ | 303 | | | $ | 169 | |
| Prior service gain | | | (35 | ) | | | (30 | ) | | | — | | | | — | |
|
| | | | | | | | | | | | | | | |
| | UK Pension Benefits | | US Pension Benefits |
| | 2013 | | 2012 | | 2013 | | 2012 |
| | | | (millions) | | |
| Net actuarial loss | $ | 815 |
| | $ | 831 |
| | $ | 233 |
| | $ | 332 |
|
| Prior service gain | (24 | ) | | (29 | ) | | — |
| | — |
|
The accumulated benefit obligations for the Company’s UK and US defined benefit pension plans were $2,217$2,701 million and $895$864 million, respectively (2010: $1,906(2012: $2,519 million and $756$958 million, respectively).
Notes to the financial statements
19. PENSION PLANS (Continued)
The components of the net periodic benefit (income) cost and other amounts recognized in other comprehensive loss for the UK and US defined benefit plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | UK Pension Benefits | | | US Pension Benefits | |
| | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | |
| | | | | | | | | (millions) | | | | | | | |
| |
| Components of net periodic benefit cost: | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 36 | | | $ | 37 | | | $ | 28 | | | $ | — | | | $ | — | | | $ | 7 | |
| Interest cost | | | 106 | | | | 100 | | | | 96 | | | | 41 | | | | 40 | | | | 40 | |
| Expected return on plan assets | | | (161 | ) | | | (141 | ) | | | (127 | ) | | | (44 | ) | | | (42 | ) | | | (36 | ) |
| Amortization of unrecognized prior service gain | | | (5 | ) | | | (5 | ) | | | (5 | ) | | | — | | | | — | | | | — | |
| Amortization of unrecognized actuarial loss | | | 30 | | | | 37 | | | | 33 | | | | 3 | | | | 3 | | | | 8 | |
| Curtailment gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | (12 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net periodic benefit cost (income) | | $ | 6 | | | $ | 28 | | | $ | 25 | | | $ | — | | | $ | 1 | | | $ | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
| Net actuarial (gain) loss | | $ | 164 | | | $ | (20 | ) | | $ | 102 | | | $ | 137 | | | $ | 29 | | | $ | (31 | ) |
Amortization of unrecognized actuarial loss(i) | | | (30 | ) | | | (37 | ) | | | (33 | ) | | | (3 | ) | | | (3 | ) | | | (12 | ) |
| Prior service gain | | | (10 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
| Amortization of unrecognized prior service gain | | | 5 | | | | 5 | | | | 5 | | | | — | | | | — | | | | — | |
| Curtailment gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total recognized in other comprehensive (loss) income | | $ | 129 | | | $ | (52 | ) | | $ | 74 | | | $ | 134 | | | $ | 26 | | | $ | (31 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total recognized in net periodic benefit cost and other comprehensive income | | $ | 135 | | | $ | (24 | ) | | $ | 99 | | | $ | 134 | | | $ | 27 | | | $ | (24 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | UK Pension Benefits | | US Pension Benefits |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | | | | | (millions) | | | | |
| Components of net periodic benefit (income) cost: | |
| | |
| | |
| | |
| | |
| | |
|
| Service cost | $ | 37 |
| | $ | 35 |
| | $ | 36 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Interest cost | 109 |
| | 108 |
| | 106 |
| | 38 |
| | 41 |
| | 41 |
|
| Expected return on plan assets | (191 | ) | | (181 | ) | | (161 | ) | | (51 | ) | | (46 | ) | | (44 | ) |
| Amortization of unrecognized prior service gain | (5 | ) | | (6 | ) | | (5 | ) | | — |
| | — |
| | — |
|
| Amortization of unrecognized actuarial loss | 45 |
| | 39 |
| | 30 |
| | 9 |
| | 8 |
| | 3 |
|
| Net periodic benefit (income) cost | $ | (5 | ) | | $ | (5 | ) | | $ | 6 |
| | $ | (4 | ) | | $ | 3 |
| | $ | — |
|
| Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | |
| | |
| | |
| | |
| | |
| | |
|
| Net actuarial loss (gain) | $ | 15 |
| | $ | 141 |
| | $ | 164 |
| | $ | (90 | ) | | $ | 37 |
| | $ | 137 |
|
| Amortization of unrecognized actuarial loss | (45 | ) | | (39 | ) | | (30 | ) | | (9 | ) | | (8 | ) | | (3 | ) |
| Prior service gain | — |
| | — |
| | (10 | ) | | — |
| | — |
| | — |
|
| Amortization of unrecognized prior service gain | 5 |
| | 6 |
| | 5 |
| | — |
| | — |
| | — |
|
| Total recognized in other comprehensive income (loss) | $ | (25 | ) | | $ | 108 |
| | $ | 129 |
| | $ | (99 | ) | | $ | 29 |
| | $ | 134 |
|
| Total recognized in net periodic benefit cost and other comprehensive income | $ | (30 | ) | | $ | 103 |
| | $ | 135 |
| | $ | (103 | ) | | $ | 32 |
| | $ | 134 |
|
| | |
(i) | | 2009 US Pension Benefits figure includes $4 million due to curtailment. |
The estimated net loss and prior service cost for the UK and US defined benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are:
| | | | | | | | | |
| | | UK Pension
| | US Pension
|
| | | Benefits | | Benefits |
| | | (millions) |
| |
| Estimated net loss | | $ | 40 | | | $ | 8 | |
| Prior service gain | | | 6 | | | | — | |
|
| | | | | | | |
| | UK Pension Benefits | | US Pension Benefits |
| | (millions) |
| Estimated net loss | $ | 42 |
| | $ | 6 |
|
| Prior service gain | (3 | ) | | — |
|
102
Notes to the financial statements
| |
18. | PENSION PLANS (Continued) |
Willis Group Holdings plc
19. PENSION PLANS (Continued)
The following schedule provides other information concerning the Company’s UK and US defined benefit pension plans:
| | | | | | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | UK Pension Benefits | | | US Pension Benefits | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| |
| Weighted-average assumptions to determine benefit obligations: | | | | | | | | | | | | | | | | |
| Discount rate | | | 4.8 | % | | | 5.5 | % | | | 4.6 | % | | | 5.6 | % |
| Rate of compensation increase | | | 2.1 | % | | | 2.6 | % | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | | |
| Weighted-average assumptions to determine net periodic benefit cost: | | | | | | | | | | | | | | | | |
| Discount rate | | | 5.5 | % | | | 5.8 | % | | | 5.6 | % | | | 6.1 | % |
| Expected return on plan assets | | | 7.5 | % | | | 7.8 | % | | | 7.5 | % | | | 8.0 | % |
| Rate of compensation increase | | | 2.6 | % | | | 2.5 | % | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | UK Pension Benefits | | US Pension Benefits |
| | 2013 | | 2012 | | 2013 | | 2012 |
| Weighted-average assumptions to determine benefit obligations: | |
| | |
| | |
| | |
|
| Discount rate | 4.4 | % | | 4.4 | % | | 4.8 | % | | 4.1 | % |
| Rate of compensation increase | 3.2 | % | | 2.3 | % | | N/A |
| | N/A |
|
| Weighted-average assumptions to determine net periodic benefit cost: | |
| | |
| | |
| | |
|
| Discount rate | 4.4 | % | | 4.8 | % | | 4.1 | % | | 4.6 | % |
| Expected return on plan assets | 7.3 | % | | 7.5 | % | | 7.3 | % | | 7.3 | % |
| Rate of compensation increase | 2.3 | % | | 2.1 | % | | N/A |
| | N/A |
|
The expected return on plan assets was determined on the basis of the weighted-average of the expected future returns of the various asset classes, using the target allocations shown below. The expected returns on UK plan assets are: UK and foreign equities 8.809.27 percent, debt securities 4.524.42 percent, hedge funds 7.86 percent and real estate 6.48 percent.6.53 percent. The expected returns on US plan assets are: US and foreign equities 9.2510.40 percent and debt securities 5.25 percent.
4.10 percent.
The Company’s pension plan asset allocations based on fair values were as follows:
| | | | | | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | UK Pension Benefits | | | US Pension Benefits | |
| Asset Category | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
| |
| Equity securities | | | 42 | % | | | 51 | % | | | 43 | % | | | 54 | % |
| Debt securities | | | 35 | % | | | 24 | % | | | 56 | % | | | 45 | % |
| Hedge funds | | | 18 | % | | | 20 | % | | | — | % | | | — | % |
| Real estate | | | 4 | % | | | 4 | % | | | — | % | | | — | % |
| Cash | | | 1 | % | | | 1 | % | | | 1 | % | | | 1 | % |
| | | | | | | | | | | | | | | | | |
| Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | |
| | | Years ended December 31, |
| | | UK Pension Benefits | | US Pension Benefits |
| Asset Category | | 2013 | | 2012 | | 2013 | | 2012 |
| Equity securities | | 36 | % | | 41 | % | | 52 | % | | 49 | % |
| Debt securities | | 38 | % | | 37 | % | | 46 | % | | 50 | % |
| Hedge funds | | 17 | % | | 17 | % | | — | % | | — | % |
| Real estate | | 3 | % | | 3 | % | | — | % | | — | % |
| Cash | | 6 | % | | 2 | % | | — | % | | — | % |
| Other | | — | % | | — | % | | 2 | % | | 1 | % |
| Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
In the UK the pension trustees in consultation with the Company maintain a diversified asset portfolio and this together with contributions made by the Company is expected to meet the pension scheme’s liabilities as they become due. The UK plan’s assets are divided into 1213 separate portfolios according to asset class and managed by 1110 investment managers. The broad target allocations are UK and foreign equities (51 percent)(31.5 percent), debt securities (22 percent)(45 percent), hedge funds (22 percent)(17.5 percent) and real estate (5 percent)(6 percent). In the US the Company’s investment policy is to maintain a diversified asset portfolio, which together with contributions made by the Company is expected to meet the pension scheme’s liabilities as they become due. The US plan’s assets are currently invested in 1117 funds representing most standard equity and debt security classes. The broad target allocations are US and foreign equities (55 percent)(50 percent) and debt securities (45 percent)(50 percent).
Fair Value Hierarchy
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value:
Level 1: refers to fair values determined based on quoted market prices in active markets for identical assets;
| |
• | Level 1: refers to fair values determined based on quoted market prices in active markets for identical assets; |
|
• | Level 2: refers to fair values estimated using observable market based inputs or unobservable inputs that are corroborated by market data; and |
|
• | Level 3: includes fair values estimated using unobservable inputs that are not corroborated by market data. |
Level 2: refers to fair values estimated using observable market based inputs or unobservable inputs that are corroborated by market data; and
Level 3: includes fair values estimated using unobservable inputs that are not corroborated by market data.
103
Willis Group Holdings plc
| |
18. | PENSION PLANS (Continued) |
Notes to the financial statements
19. PENSION PLANS (Continued)
The following tables present, at December 31, 20112013 and 2010,2012, for each of the fair value hierarchy levels, the Company’s UK pension plan assets that are measured at fair value on a recurring basis.
| | | | | | | | | | | | | | | | | |
| | | UK Pension Plan | |
| December 31, 2011 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Equity securities: | | | | | | | | | | | | | | | | |
| US equities | | $ | 422 | | | $ | 93 | | | $ | — | | | $ | 515 | |
| UK equities | | | 278 | | | | 41 | | | | — | | | | 319 | |
| Other equities | | | 15 | | | | 137 | | | | — | | | | 152 | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| US Government bonds | | | — | | | | — | | | | — | | | | — | |
| UK Government bonds | | | 599 | | | | — | | | | — | | | | 599 | |
| Other Government bonds | | | 1 | | | | — | | | | — | | | | 1 | |
| UK corporate bonds | | | 63 | | | | — | | | | — | | | | 63 | |
| Other corporate bonds | | | 23 | | | | — | | | | — | | | | 23 | |
| Derivatives | | | — | | | | 158 | | | | — | | | | 158 | |
| Real estate | | | — | | | | — | | | | 86 | | | | 86 | |
| Cash | | | 28 | | | | — | | | | — | | | | 28 | |
| Other investments: | | | | | | | | | | | | | | | | |
| Hedge funds | | | — | | | | — | | | | 414 | | | | 414 | |
| Other | | | — | | | | (7 | ) | | | 2 | | | | (5 | ) |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 1,429 | | | $ | 422 | | | $ | 502 | | | $ | 2,353 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | UK Pension Plan |
| December 31, 2013 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | (millions) | | |
| Equity securities: | | |
| | |
| | |
| | |
|
| US equities | | $ | 659 |
| | $ | 81 |
| | $ | — |
| | $ | 740 |
|
| UK equities | | 239 |
| | 17 |
| | — |
| | 256 |
|
| Other equities | | 40 |
| | 63 |
| | — |
| | 103 |
|
| Fixed income securities: | | |
| | |
| | |
| | |
|
| US Government bonds | | 31 |
| | — |
| | — |
| | 31 |
|
| UK Government bonds | | 656 |
| | — |
| | — |
| | 656 |
|
| Other Government bonds | | 7 |
| | — |
| | 100 |
| | 107 |
|
| UK corporate bonds | | 75 |
| | — |
| | — |
| | 75 |
|
| Other corporate bonds | | 151 |
| | — |
| | — |
| | 151 |
|
| Derivatives | | — |
| | 154 |
| | — |
| | 154 |
|
| Real estate | | — |
| | — |
| | 92 |
| | 92 |
|
| Cash | | 163 |
| | — |
| | — |
| | 163 |
|
| Other investments: | | |
| | |
| | |
| | |
|
| Hedge funds | | — |
| | 28 |
| | 477 |
| | 505 |
|
| Other | | — |
| | 28 |
| | — |
| | 28 |
|
| Total | | $ | 2,021 |
| | $ | 371 |
| | $ | 669 |
| | $ | 3,061 |
|
| | | | | | | | | | | | | | | | | |
| | | UK Pension Plan | |
| December 31, 2010 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Equity securities: | | | | | | | | | | | | | | | | |
| US equities | | $ | 421 | | | $ | 90 | | | $ | — | | | $ | 511 | |
| UK equities | | | 303 | | | | 97 | | | | — | | | | 400 | |
| Other equities | | | — | | | | 149 | | | | — | | | | 149 | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| US Government bonds | | | 49 | | | | — | | | | — | | | | 49 | |
| UK Government bonds | | | 348 | | | | — | | | | — | | | | 348 | |
| Other Government bonds | | | 17 | | | | — | | | | — | | | | 17 | |
| UK corporate bonds | | | 57 | | | | — | | | | — | | | | 57 | |
| Other corporate bonds | | | 14 | | | | — | | | | — | | | | 14 | |
| Derivatives | | | — | | | | 22 | | | | — | | | | 22 | |
| Real estate | | | — | | | | — | | | | 83 | | | | 83 | |
| Cash | | | 31 | | | | — | | | | — | | | | 31 | |
| Other investments: | | | | | | | | | | | | | | | | |
| Hedge funds | | | — | | | | — | | | | 415 | | | | 415 | |
| Other | | | — | | | | (13 | ) | | | 2 | | | | (11 | ) |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 1,240 | | | $ | 345 | | | $ | 500 | | | $ | 2,085 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | UK Pension Plan |
| December 31, 2012 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | (millions) | | |
| Equity securities: | | |
| | |
| | |
| | |
|
| US equities | | $ | 492 |
| | $ | 108 |
| | $ | — |
| | $ | 600 |
|
| UK equities | | 317 |
| | 59 |
| | — |
| | 376 |
|
| Other equities | | 28 |
| | 97 |
| | — |
| | 125 |
|
| Fixed income securities: | | |
| | |
| | |
| | |
|
| US Government bonds | | 11 |
| | — |
| | — |
| | 11 |
|
| UK Government bonds | | 625 |
| | — |
| | — |
| | 625 |
|
| Other Government bonds | | 13 |
| | — |
| | — |
| | 13 |
|
| UK corporate bonds | | 112 |
| | — |
| | — |
| | 112 |
|
| Other corporate bonds | | 29 |
| | — |
| | — |
| | 29 |
|
| Derivatives | | — |
| | 217 |
| | — |
| | 217 |
|
| Real estate | | — |
| | — |
| | 76 |
| | 76 |
|
| Cash | | 53 |
| | — |
| | — |
| | 53 |
|
| Other investments: | | |
| | |
| | |
| | |
|
| Hedge funds | | — |
| | 27 |
| | 431 |
| | 458 |
|
| Other | | 8 |
| | 13 |
| | — |
| | 21 |
|
| Total | | $ | 1,688 |
| | $ | 521 |
| | $ | 507 |
| | $ | 2,716 |
|
Willis Group Holdings plc
19. PENSION PLANS (Continued)
The UK plan’s real estate investment comprises UK property and infrastructure investments which are valued by the fund manager taking into account cost, independent appraisals and market based comparable data. The UK plan’s hedge fund
104
Notes to the financial statements
| |
18. | PENSION PLANS (Continued) |
investments are primarily invested in various ‘fund of funds’ and are valued based on net asset values calculated by the fund and are not publicly available. Liquidity is typically monthly and is subject to liquidity of the underlying funds.
The following tables present, at December 31, 20112013 and 2010,2012, for each of the fair value hierarchy levels, the Company’s US pension plan assets that are measured at fair value on a recurring basis.
| | | | | | | | | | | | | | | | | |
| | | US Pension Plan | |
| December 31, 2011 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Equity securities: | | | | | | | | | | | | | | | | |
| US equities | | $ | 172 | | | $ | — | | | $ | — | | | $ | 172 | |
| Non US equities | | | 106 | | | | — | | | | — | | | | 106 | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| US Government bonds | | | — | | | | 55 | | | | — | | | | 55 | |
| US corporate bonds | | | — | | | | 252 | | | | — | | | | 252 | |
| Non US Government bonds | | | 48 | | | | — | | | | — | | | | 48 | |
| Cash | | | — | | | | 4 | | | | — | | | | 4 | |
| Other investments: | | | | | | | | | | | | | | | | |
| Other | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 326 | | | $ | 311 | | | $ | — | | | $ | 637 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | US Pension Plan |
| December 31, 2013 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | (millions) | | |
| Equity securities: | | |
| | |
| | |
| | |
|
| US equities | | $ | 120 |
| | $ | 125 |
| | $ | — |
| | $ | 245 |
|
| Non US equities | | 116 |
| | 33 |
| | — |
| | 149 |
|
| Fixed income securities: | | |
| | |
| | |
| | |
|
| US Government bonds | | — |
| | 55 |
| | — |
| | 55 |
|
| US corporate bonds | | — |
| | 151 |
| | — |
| | 151 |
|
| International fixed income securities | | 58 |
| | 42 |
| | — |
| | 100 |
|
| Municipal & Non US government bonds | | — |
| | 30 |
| | — |
| | 30 |
|
| Other investments: | | |
| | |
| | |
| | |
|
| Mortgage backed securities | | — |
| | 12 |
| | — |
| | 12 |
|
| Other | | 9 |
| | 6 |
| | — |
| | 15 |
|
| Total | | $ | 303 |
| | $ | 454 |
| | $ | — |
| | $ | 757 |
|
| | | | | | | | | | | | | | | | | |
| | | US Pension Plan | |
| December 31, 2010 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Equity securities: | | | | | | | | | | | | | | | | |
| US equities | | $ | 201 | | | $ | — | | | $ | — | | | $ | 201 | |
| Non US equities | | | 127 | | | | — | | | | — | | | | 127 | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| US Government bonds | | | 112 | | | | — | | | | — | | | | 112 | |
| US corporate bonds | | | 111 | | | | — | | | | — | | | | 111 | |
| Non US Government bonds | | | 47 | | | | — | | | | — | | | | 47 | |
| Cash | | | — | | | | 5 | | | | — | | | | 5 | |
| Other investments: | | | | | | | | | | | | | | | | |
| Other | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 598 | | | $ | 4 | | | $ | — | | | $ | 602 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | US Pension Plan |
| December 31, 2012 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | (millions) | | |
| Equity securities: | | |
| | |
| | |
| | |
|
| US equities | | $ | 144 |
| | $ | 78 |
| | $ | — |
| | $ | 222 |
|
| Non US equities | | 98 |
| | 27 |
| | — |
| | 125 |
|
| Fixed income securities: | | |
| | |
| | |
| | |
|
| US Government bonds | | — |
| | 69 |
| | — |
| | 69 |
|
| US corporate bonds | | — |
| | 144 |
| | — |
| | 144 |
|
| International fixed income securities | | 52 |
| | 39 |
| | — |
| | 91 |
|
| Municipal & Non US government bonds | | — |
| | 35 |
| | — |
| | 35 |
|
| Other investments: | | |
| | |
| | |
| | |
|
| Mortgage backed securities | | — |
| | 13 |
| | — |
| | 13 |
|
| Other | | 3 |
| | 6 |
| | — |
| | 9 |
|
| Total | | $ | 297 |
| | $ | 411 |
| | $ | — |
| | $ | 708 |
|
Equity securities comprise:
common stock and preferred stock which are valued using quoted market prices; and
| |
• | common stock and preferred stock which are valued using quoted market prices; and |
|
• | pooled investment vehicles which are valued at their net asset values as calculated by the investment manager and typically have daily or weekly liquidity. |
Fixed income securities comprise US, UK and other Government Treasury Bills, loan stock, index linked loan stock and UK and other corporate bonds which are typically valued using quoted market prices.
Notes to the financial statements
19. PENSION PLANS (Continued)
As a result of the inherent limitations related to the valuations of the Level 3 investments, due to the unobservable inputs of the underlying funds, the estimated fair value may differ significantly from the values that would have been used had a market for those investments existed.
105
Willis Group Holdings plc
| |
18. | PENSION PLANS (Continued) |
The following table summarizes the changes in the UK pension plan’s Level 3 assets for the years ended December 31, 20112013 and 2010:2012:
| | | | | |
| | | UK Pension
| |
| | | Plan | |
| | | Level 3 | |
| | | (millions) | |
| |
| Balance at January 1, 2010 | | $ | 328 | |
| Purchases, sales, issuances and settlements, net | | | 156 | |
| Unrealized gains relating to instruments still held at end of year | | | 22 | |
| Foreign exchange | | | (6 | ) |
| | | | | |
| Balance at December 31, 2010 | | $ | 500 | |
| Purchases, sales, issuances and settlements, net | | | 2 | |
| Unrealized gains relating to instruments still held at end of year | | | 5 | |
| Foreign exchange | | | (5 | ) |
| | | | | |
| Balance at December 31, 2011 | | $ | 502 | |
| | | | | |
|
| | | |
| | UK Pension |
| | Plan |
| | Level 3 |
| | (millions) |
| Balance at January 1, 2012 | $ | 476 |
|
| Purchases, sales, issuances and settlements, net | (2 | ) |
| Unrealized and realized gains relating to instruments still held at end of year | 17 |
|
| Foreign exchange | 16 |
|
| Balance at December 31, 2012 | $ | 507 |
|
| Purchases, sales, issuances and settlements, net | 121 |
|
| Unrealized and realized gains relating to instruments still held at end of year | 29 |
|
| Foreign exchange | 12 |
|
| Balance at December 31, 2013 | $ | 669 |
|
In 2012,2014, the Company expects to make contributions to the UK plan of approximately equal to those made in 2011 of $92$83 million of which approximately $12 and $30 million is in respect of salary sacrifice contributions, and $40 million to the US plan.
In addition, approximately $12 million will be paid in 2014 into the UK defined benefit plan related to employee's salary sacrifice contributions.
The following benefit payments, which reflect expected future service, as appropriate, are estimated to be paid by the UK and US defined benefit pension plans:
| | | | | | | | | |
| | | UK Pension
| | | US Pension
| |
| Expected future benefit payments | | Benefits | | | Benefits | |
| | | (millions) | |
| |
| 2012 | | $ | 73 | | | $ | 33 | |
| 2013 | | | 76 | | | | 36 | |
| 2014 | | | 78 | | | | 39 | |
| 2015 | | | 81 | | | | 42 | |
| 2016 | | | 82 | | | | 44 | |
| 2017-2021 | | | 450 | | | | 256 | |
|
| | | | | | |
| Expected future benefit payments | | UK Pension Benefits | | US Pension Benefits |
| | | (millions) |
| 2014 | | 84 |
| | 38 |
|
| 2015 | | 88 |
| | 42 |
|
| 2016 | | 89 |
| | 44 |
|
| 2017 | | 93 |
| | 46 |
|
| 2018 | | 94 |
| | 49 |
|
| 2019-2023 | | 518 |
| | 271 |
|
Willis North America has a 401(k) plan covering all eligible employees of Willis North America and its subsidiaries. The plan allows participants to make pre-tax contributions which the Company, at its discretion may match. During 2009, the Company had decided not to make any matching contributions other than for former HRH employees whose contributions were matched up to 75 percent under the terms of the acquisition. In January 2011, 401(k) matching was reinstated for our US associates. All investment assets of the plan are held in a trust account administered by independent trustees. The Company’s 401(k) matching contributions for 20112013 were $10$15 million (2010: $nil; 2009: $5 million). (2012: $10 million; 2011: $10 million), matching contributions were increased 1 percent during 2013.
106
Notes to the financial statements
| |
18. | PENSION PLANS (Continued) |
Willis Group Holdings plc
International
19. PENSION PLANS (Continued)
Other defined benefit pension plans
In addition to the Company’s UK and US defined benefit pension plans, the Company has several smaller defined benefit pension plans in certain other countries in which it operates.operates together with a non-qualified defined benefit pension plan in the US and an unfunded defined benefit pension plan in the UK.
These smaller additional US and UK plans are incorporated with the Company's other defined benefit pension plans.
A $3In total, a $27 million net pension benefit liability (2010: $10 million)(2012: $30 million) has been recognized in respect of these other schemes.
The following schedules provide information concerning the Company’s international, US non-qualified and UK unfunded defined benefit pension plans:
| | | | | | | | | |
| | | International Pension
| |
| | | Benefits | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
| Change in benefit obligation: | | | | | | | | |
| Benefit obligation, beginning of year | | $ | 135 | | | $ | 150 | |
| Service cost | | | 4 | | | | 4 | |
| Interest cost | | | 7 | | | | 7 | |
| Actuarial (gain) loss | | | (4 | ) | | | (4 | ) |
| Benefits paid | | | (6 | ) | | | (15 | ) |
| Curtailment | | | (1 | ) | | | 1 | |
| Foreign currency changes | | | (4 | ) | | | (8 | ) |
| | | | | | | | | |
| Benefit obligations, end of year | | | 131 | | | | 135 | |
| | | | | | | | | |
| Change in plan assets: | | | | | | | | |
| Fair value of plan assets, beginning of year | | | 125 | | | | 120 | |
| Actual return on plan assets | | | 1 | | | | 15 | |
| Employer contributions | | | 13 | | | | 12 | |
| Benefits paid | | | (6 | ) | | | (15 | ) |
| Foreign currency changes | | | (5 | ) | | | (7 | ) |
| | | | | | | | | |
| Fair value of plan assets, end of year | | | 128 | | | | 125 | |
| | | | | | | | | |
| Funded status at end of year | | $ | (3 | ) | | $ | (10 | ) |
| | | | | | | | | |
| Components on the Consolidated Balance Sheets: | | | | | | | | |
| Pension benefits asset | | $ | 9 | | | $ | 3 | |
| Liability for pension benefits | | $ | (12 | ) | | $ | (13 | ) |
|
| | | | | | | |
| | Other defined benefit plans |
| | 2013 | | 2012 |
| | (millions) |
| Change in benefit obligation: | |
| | |
|
| Benefit obligation, beginning of year | $ | 180 |
| | $ | 131 |
|
| Service cost | 3 |
| | 3 |
|
| Interest cost | 7 |
| | 7 |
|
| Actuarial (gain) loss | (5 | ) | | 30 |
|
| Benefits paid | (6 | ) | | (6 | ) |
| Employee contributions | — |
| | 1 |
|
Reclassification from other non-current liabilities (i) | 10 |
| | 9 |
|
| Foreign currency changes | 6 |
| | 5 |
|
| Benefit obligations, end of year | 195 |
| | 180 |
|
| Change in plan assets: | |
| | |
|
| Fair value of plan assets, beginning of year | 150 |
| | 128 |
|
| Actual return on plan assets | 9 |
| | 11 |
|
| Employer contributions | 10 |
| | 11 |
|
| Employee contributions | — |
| | 1 |
|
| Benefits paid | (6 | ) | | (6 | ) |
| Foreign currency changes | 5 |
| | 5 |
|
| Fair value of plan assets, end of year | 168 |
| | 150 |
|
| Funded status at end of year | $ | (27 | ) | | $ | (30 | ) |
| Components on the Consolidated Balance Sheets: | |
| | |
|
| Pension benefits asset | $ | 2 |
| | $ | 2 |
|
| Liability for pension benefits | $ | (29 | ) | | $ | (32 | ) |
| |
(i) | Transfer in of benefit obligation for UK unfunded and US non-qualified plans from non-current other liabilities. |
Amounts recognized in accumulated other comprehensive loss consist of a net actuarial loss of $10$27 million (2010: $10 million) (2012: $35 million).
The accumulated benefit obligation for the Company’s internationalother defined benefit pension plans was $128$191 million (2010: $131 million) (2012: $177 million).
107
Willis Group Holdings plc
Notes to the financial statements
| |
18. | PENSION PLANS (Continued) |
19. PENSION PLANS (Continued)
The components of the net periodic benefit cost and other amounts recognized in other comprehensive loss for the internationalother defined benefit pension plans are as follows:
| | | | | | | | | | | | | |
| | | International Pension Benefits | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Components of net periodic benefit cost: | | | | | | | | | | | | |
| Service cost | | $ | 4 | | | $ | 4 | | | $ | 6 | |
| Interest cost | | | 7 | | | | 7 | | | | 8 | |
| Expected return on plan assets | | | (6 | ) | | | (6 | ) | | | (6 | ) |
| Amortization of unrecognized actuarial loss | | | 1 | | | | — | | | | 2 | |
| Curtailment (gain) loss | | | (1 | ) | | | 1 | | | | — | |
| Other | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | |
| Net periodic benefit cost | | $ | 5 | | | $ | 6 | | | $ | 10 | |
| | | | | | | | | | | | | |
| Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | | | | | | | | | | | | |
| Amortization of unrecognized actuarial loss | | $ | (1 | ) | | $ | — | | | $ | (2 | ) |
| Net actuarial gain | | | 2 | | | | (13 | ) | | | (2 | ) |
| | | | | | | | | | | | | |
| Total recognized in other comprehensive loss | | | 1 | | | | (13 | ) | | | (4 | ) |
| | | | | | | | | | | | | |
| Total recognized in net periodic benefit cost and other comprehensive (loss) income | | $ | 6 | | | $ | (7 | ) | | $ | 6 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Other defined benefit plans |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Components of net periodic benefit cost: | |
| | |
| | |
|
| Service cost | $ | 3 |
| | $ | 3 |
| | $ | 4 |
|
| Interest cost | 7 |
| | 7 |
| | 7 |
|
| Expected return on plan assets | (6 | ) | | (6 | ) | | (6 | ) |
| Amortization of unrecognized actuarial loss | 1 |
| | — |
| | 1 |
|
| Curtailment gain | — |
| | — |
| | (1 | ) |
| Net periodic benefit cost | $ | 5 |
| | $ | 4 |
| | $ | 5 |
|
| Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | |
| | |
| | |
|
| Amortization of unrecognized actuarial loss | $ | (1 | ) | | $ | — |
| | $ | (1 | ) |
| Net actuarial (gain) loss | (8 | ) | | 25 |
| | 2 |
|
| Total recognized in other comprehensive (income) loss | (9 | ) | | 25 |
| | 1 |
|
| Total recognized in net periodic benefit cost and other comprehensive (income) loss | $ | (4 | ) | | $ | 29 |
| | $ | 6 |
|
The estimated net loss for the internationalother defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $3 million.
$nil.
The following schedule provides other information concerning the Company’s internationalother defined benefit pension plans:
| | | | | | | | | |
| | | International
| |
| | | Pension Benefits | |
| | | 2011 | | | 2010 | |
| |
| Weighted-average assumptions to determine benefit obligations: | | | | | | | | |
| Discount rate | | | 3.30% – 5.30% | | | | 4.00% – 5.10% | |
| Rate of compensation increase | | | 2.50% – 3.00% | | | | 2.50% – 3.00% | |
| Weighted-average assumptions to determine net periodic benefit cost: | | | | | | | | |
| Discount rate | | | 4.00% – 5.10% | | | | 5.00% – 5.30% | |
| Expected return on plan assets | | | 4.80% – 5.73% | | | | 4.60% – 6.31% | |
| Rate of compensation increase | | | 2.50% – 3.00% | | | | 2.00% – 3.00% | |
|
| | | |
| | Other defined benefit plans |
| | 2013 | | 2012 |
| Weighted-average assumptions to determine benefit obligations: | | | |
| Discount rate | 3.30% - 4.40% | | 2.50% - 3.75% |
| Rate of compensation increase | 2.00% - 2.50% | | 2.00% |
| Weighted-average assumptions to determine net periodic benefit cost: | | | |
| Discount rate | 2.50% - 4.40% | | 3.30% - 5.30% |
| Expected return on plan assets | 2.00% - 4.66% | | 2.00% - 5.73% |
| Rate of compensation increase | 2.00% - 2.50% | | 2.50% - 3.00% |
The determination of the expected long-term rate of return on the internationalother defined benefit plan assets is dependent upon the specific circumstances of each individual plan. The assessment may include analyzing historical investment performance, investment community forecasts and current market conditions to develop expected returns for each asset class used by the plans.
108
Notes to the financial statements
| |
18. | PENSION PLANS (Continued) |
The Company’s internationalother defined benefit pension plan asset allocations at December 31, 20112013 based on fair values were as follows:
| | | | | | | | | |
| | | International
| |
| | | Pension Benefits | |
| Asset Category | | 2011 | | | 2010 | |
| |
| Equity securities | | | 35 | % | | | 44 | % |
| Debt securities | | | 58 | % | | | 42 | % |
| Real estate | | | 4 | % | | | 4 | % |
| Other | | | 3 | % | | | 10 | % |
| | | | | | | | | |
| Total | | | 100 | % | | | 100 | % |
| | | | | | | | | |
Willis Group Holdings plc
19. PENSION PLANS (Continued)
|
| | | | | | |
| | | Other defined benefit plans |
| Asset Category | | 2013 | | 2012 |
| Equity securities | | 35 | % | | 35 | % |
| Debt securities | | 39 | % | | 39 | % |
| Real estate | | 3 | % | | 3 | % |
| Derivatives | | 14 | % | | 16 | % |
| Other | | 9 | % | | 7 | % |
| Total | | 100 | % | | 100 | % |
The investment policies for the international plans vary by jurisdiction but are typically established by the local pension plan trustees, where applicable, and seek to maintain the plans’ ability to meet liabilities of the plans as they fall due and to comply with local minimum funding requirements.
Fair Value Hierarchy
The following tables present, at December 31, 20112013 and 2010,2012, for each of the fair value hierarchy levels, the Company’s internationalother defined benefit pension plan assets that are measured at fair value on a recurring basis.
| | | | | | | | | | | | | | | | | |
| | | International Pension Plans | |
| December 31, 2011 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Equity securities: | | | | | | | | | | | | | | | | |
| US equities | | $ | 20 | | | $ | — | | | $ | — | | | $ | 20 | |
| UK equities | | | 4 | | | | — | | | | — | | | | 4 | |
| Overseas equities | | | 18 | | | | — | | | | 1 | | | | 19 | |
| Unit linked funds | | | — | | | | — | | | | — | | | | — | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| Other Government bonds | | | 48 | | | | 1 | | | | — | | | | 49 | |
| Real estate | | | — | | | | — | | | | 5 | | | | 5 | |
| Cash | | | 4 | | | | — | | | | — | | | | 4 | |
| Other investments: | | | | | | | | | | | | | | | | |
| Derivative instruments | | | — | | | | 22 | | | | — | | | | 22 | |
| Other investments | | | — | | | | — | | | | 5 | | | | 5 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 94 | | | $ | 23 | | | $ | 11 | | | $ | 128 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | | Other defined benefit plans |
| December 31, 2013 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | (millions) | | |
| Equity securities: | | |
| | |
| | |
| | |
|
| US equities | | $ | 29 |
| | $ | — |
| | $ | — |
| | $ | 29 |
|
| UK equities | | 5 |
| | — |
| | — |
| | 5 |
|
| Overseas equities | | 26 |
| | — |
| | — |
| | 26 |
|
| Fixed income securities: | | |
| | |
| | |
| | |
|
| Other Government bonds | | 61 |
| | — |
| | — |
| | 61 |
|
| Corporate bonds | | 4 |
| | — |
| | — |
| | 4 |
|
| Derivative instruments | | — |
| | 23 |
| | — |
| | 23 |
|
| Real estate | | — |
| | — |
| | 5 |
| | 5 |
|
| Cash | | 8 |
| | — |
| | — |
| | 8 |
|
| Other investments: | | |
| | |
| | |
| | |
|
| Other investments | | — |
| | — |
| | 7 |
| | 7 |
|
| Total | | $ | 133 |
| | $ | 23 |
| | $ | 12 |
| | $ | 168 |
|
109
Willis Group Holdings plc
Notes to the financial statements
| |
18. | PENSION PLANS (Continued) |
| | | | | | | | | | | | | | | | | |
| | | International Pension Plans | |
| December 31, 2010 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Equity securities: | | | | | | | | | | | | | | | | |
| US equities | | $ | 21 | | | $ | — | | | $ | — | | | $ | 21 | |
| UK equities | | | 4 | | | | — | | | | — | | | | 4 | |
| Overseas equities | | | 20 | | | | — | | | | — | | | | 20 | |
| Unit linked funds | | | 7 | | | | — | | | | — | | | | 7 | |
| Fixed income securities: | | | | | | | | | | | | | | | | |
| Other Government bonds | | | 29 | | | | 2 | | | | — | | | | 31 | |
| Real estate | | | — | | | | — | | | | 5 | | | | 5 | |
| Cash | | | 11 | | | | — | | | | — | | | | 11 | |
| Other investments: | | | | | | | | | | | | | | | | |
| Derivative instruments | | | — | | | | 21 | | | | — | | | | 21 | |
| Other investments | | | — | | | | — | | | | 5 | | | | 5 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 92 | | | $ | 23 | | | $ | 10 | | | $ | 125 | |
| | | | | | | | | | | | | | | | | |
19. PENSION PLANS (Continued)
|
| | | | | | | | | | | | | | | | |
| | | Other defined benefit plans |
| December 31, 2012 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | (millions) | | |
| Equity securities: | | |
| | |
| | |
| | |
|
| US equities | | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | 24 |
|
| UK equities | | 5 |
| | — |
| | — |
| | 5 |
|
| Overseas equities | | 22 |
| | — |
| | 1 |
| | 23 |
|
| Fixed income securities: | | |
| | |
| | |
| | |
|
| Other Government bonds | | 49 |
| | — |
| | — |
| | 49 |
|
| Corporate bonds | | — |
| | 9 |
| | — |
| | 9 |
|
| Derivative instruments | | — |
| | 24 |
| | — |
| | 24 |
|
| Real estate | | — |
| | — |
| | 5 |
| | 5 |
|
| Cash | | 5 |
| | — |
| | — |
| | 5 |
|
| Other investments: | | |
| | |
| | |
| | |
|
| Other investments | | — |
| | 1 |
| | 5 |
| | 6 |
|
| Total | | $ | 105 |
| | $ | 34 |
| | $ | 11 |
| | $ | 150 |
|
Equity securities comprise:
common stock which are valued using quoted market prices; and
| |
• | common stock which are valued using quoted market prices; and |
|
• | unit linked funds which are valued at their net asset values as calculated by the investment manager and typically have daily liquidity. |
Fixed income securities comprise overseas Government loan stock which is typically valued using quoted market prices. Real estate investment comprises overseas property and infrastructure investments which are valued by the fund manager taking into account cost, independent appraisals and market based comparable data. Derivative instruments are valued using an income approach typically using swap curves as an input.
Assets classified as Level 3 investments did not materially change during the year ended December 31, 2011.2013.
In 2012,2014, the Company expects to contribute $12$9 million to the internationalother defined benefit pension plans.
The following benefit payments, which reflect expected future service, as appropriate, are estimated to be paid by the internationalother defined benefit pension plans:
| | | | | |
| | | International
| |
| | | Pension
| |
| Expected future benefit payments | | Benefits | |
| | | (millions) | |
| |
| 2012 | | $ | 3 | |
| 2013 | | | 4 | |
| 2014 | | | 4 | |
| 2015 | | | 4 | |
| 2016 | | | 4 | |
| 2017-2021 | | | 23 | |
110
Notes to the financial statements |
| | | | |
| | | Other defined benefit plans |
| | | Pension |
| Expected future benefit payments | | Benefits |
| | | (millions) |
| 2014 | | $ | 6 |
|
| 2015 | | 6 |
|
| 2016 | | 6 |
|
| 2017 | | 6 |
|
| 2018 | | 7 |
|
| 2019-2023 | | 35 |
|
Willis Group Holdings plc
Short-term debt and currentCurrent portion of the long-term debt consists of the following:
| | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
Current portion of5-year term loan facility expires 2016 | | $ | 11 | | | $ | — | |
Current portion of5-year term loan facility repaid 2011 | | | — | | | | 110 | |
| 6.000% loan notes due 2012 | | | 4 | | | | — | |
| | | | | | | | | |
| | | $ | 15 | | | $ | 110 | |
| | | | | | | | | |
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | (millions) |
| Current portion of 7-year term loan facility expires 2018 | $ | 15 |
| | $ | 15 |
|
Long-term debt consists of the following:
| | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
5-year term loan facility expires 2016 | | $ | 289 | | | $ | — | |
5-year term loan facility repaid 2011 | | | — | | | | 301 | |
| Revolving $300 million credit facility | | | — | | | | 90 | |
| 6.000% loan notes due 2012 | | | — | | | | 4 | |
| 5.625% senior notes due 2015 | | | 350 | | | | 350 | |
| Fair value adjustment on 5.625% senior notes due 2015 | | | 20 | | | | 12 | |
| 12.875% senior notes due 2016 | | | — | | | | 500 | |
| 4.125% senior notes due 2016 | | | 299 | | | | — | |
| 6.200% senior notes due 2017 | | | 600 | | | | 600 | |
| 7.000% senior notes due 2019 | | | 300 | | | | 300 | |
| 5.750% senior notes due 2021 | | | 496 | | | | — | |
| | | | | | | | | |
| | | $ | 2,354 | | | $ | 2,157 | |
| | | | | | | | | |
Until December 22, 2010, all |
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | (millions) |
| 7-year term loan facility expires 2018 | $ | 259 |
| | $ | 274 |
|
| 5.625% senior notes due 2015 | 148 |
| | 350 |
|
| Fair value adjustment on 5.625% senior notes due 2015 | 4 |
| | 18 |
|
| 4.125% senior notes due 2016 | 299 |
| | 299 |
|
| 6.200% senior notes due 2017 | 394 |
| | 600 |
|
| 7.000% senior notes due 2019 | 187 |
| | 300 |
|
| 5.750% senior notes due 2021 | 496 |
| | 496 |
|
| 4.625% senior notes due 2023 | 249 |
| | — |
|
| 6.125% senior notes due 2043 | 274 |
| | — |
|
| 3-year term loan facility expires 2015 | 1 |
| | 1 |
|
| | $ | 2,311 |
| | $ | 2,338 |
|
All direct obligations under the 5.625%, 6.200% and 7.000% senior notes wereare guaranteed by Willis Group Holdings, Willis Netherlands B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc and Willis Group Limited.
All direct obligations under the 4.625% and 6.125% senior notes are guaranteed by Willis Group Holdings, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA IVI Limited, Willis North America Inc. and Willis Group Limited.
All direct obligations under the 4.125% and 5.750% senior notes are guaranteed by Trinity Acquisition plc, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Willis North America Inc. and Willis Group Limited.
Debt issuance
On thatJuly 23, 2013 we entered into an amendment to our existing credit facilities to extend both the amount of financing and the maturity date of the facilities. As a result of this amendment, our revolving credit facility was increased from $500 million to $800 million. The maturity date on both the revolving credit facility and in connection with a group reorganization, TA II Limited, TA III Limited and TA IV Limited transferred their obligations as guarantors to the other Guarantor Companies. TA II Limited, TA III Limited and TA IV Limited entered member’s voluntary liquidation on December 31, 2010.
Debt issuance
In December 2011 we refinanced our bank facility, comprising a5-year $300 million term loan and a5-year $500was extended to July 23, 2018, from December 16, 2016. At the amendment date we owed $281 million revolving credit facility. The $300 millionon the term loan replaces the $328 million balance on our $700 million5-year term loan facility and the $500 million revolving facility replaces our $300 million and our $200 million revolving credit facilities. Unamortized debt issuance costs of $10 million relatingthere was no change to these facilities were written off in December 2011 following completionthis amount as a result of the refinancing. In 2011, we made $83 million of mandatory repayments against the5-year term loan before repaying the $328 million balance in December 2011.
The5-year 7-year term loan facility expiring 20162018 bears interest at LIBOR plus 1.50% and is repayable in quarterly installments and a final repayment of $225$186 million is due in the fourththird quarter of 2016.2018. In 2013, we made $15 million of mandatory repayments against this 7-year term loan. Drawings under the new$800 million revolving $500 million credit facility bear interest at LIBOR plus 1.50% and the facility expires on December 16, 2016. As of
111
Willis Group Holdings plc
December 31, 2011 $nil was outstanding under the revolving credit facility.. These margins apply while the Company’s debt rating remains BBB-/Baa3. As of December 31, 2013 $nil was outstanding under this revolving credit facility (December 31, 2012: $nil).
On August 15, 2013 the Company issued $250 million of 4.625% senior notes due 2023 and $275 million of 6.125% senior notes due 2043. The effective interest rates of these senior notes are 4.696% and 6.154%, respectively, which include the impact of the discount upon issuance.
Notes to the financial statements
20. DEBT (Continued)
On July 25, 2013 the Company commenced an offer to purchase for cash any and all of its 5.625% senior notes due 2015 and a portion of its 6.200% senior notes due 2017 and its 7.000% senior notes due 2019 for an aggregate purchase price of up to $525 million. On August 22, 2013 the proceeds from the issue of the senior notes due 2023 and 2043 were used to fund the purchase of $202 million of 5.625% senior notes due 2015, $206 million of 6.200% senior notes due 2017 and $113 million of 7.000% senior notes due 2019.
The Company incurred total losses on extinguishment of debt of $60 million during the year ended December 31, 2013. This was made up of a tender premium of $65 million, the write-off of unamortized debt issuance costs of $2 million and a credit for the reduction of the fair value adjustment on 5.625% senior notes due 2015 of $7 million.
The agreements relating to our5-year 7-year term loan facility expiring 20162018 and the revolving $500$800 million credit facility contain requirements to maintain maximum levels of consolidated funded indebtedness in relation to consolidated EBITDA and minimum level of consolidated EBITDA to consolidated cash interest expense, subject to certain adjustments. In addition, the agreements relating to our credit facilities and senior notes include, in the aggregate covenants relating to the delivery of financial statements, reports and notices, limitations on liens, limitations on sales and other disposals of assets, limitations on indebtedness and other liabilities, limitations on sale and leaseback transactions, limitations on mergers and other fundamental changes, maintenance of property, maintenance of insurance, nature of business, compliance with applicable laws, maintenance of corporate existence and rights, payment of taxes and access to information and properties. At December 31, 2011,2013, the Company was in compliance with all covenants.
In March 2011, the Company issued $300 million of 4.125% senior notes due 2016 and $500 million of 5.750% senior notes due 2021. The effective interest rates of these senior notes are 4.240% and 5.871% respectively, which include the impact of the discount upon issuance. The proceeds were used to repurchase and redeem $500 million of 12.875% senior notes due 2016 including a make-whole payment (representing a slight discount to the contractual make-whole amount) of $158 million. Following the repurchase the Company wrote off $13 million of unamortized debt issuance costs.
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350$350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015.2015. The Company hashad previously designated and accounts for these instruments as fair value hedges against its $350$350 million5.625% senior notes due 2015. The2015 and accounted for them accordingly until the first quarter of 2013 at which point these swaps, although remaining as economic hedges, no longer qualified for hedge accounting.
During the year ended December 31, 2013, the Company closed out the above interest rate swaps and received a cash settlement of $13 million on termination.
Following the partial extinguishment of the 5.625% senior notes due 2015 on August 15, 2013, the Company has recorded a credit of $7 million to remove a corresponding partial amount of the fair value adjustment to the carrying values of the notes originally recognized in connection with the interest rate swaps are included within other assets or other liabilities and theswaps. The remaining $5 million fair value ofadjustment as at that date will be amortized through interest expense over the hedged element of the senior notes is included within long-term debt.period to maturity.
On June 22, 2010,November 7, 2012, a further revolving credit facility of $20$20 million was put in place which bears interest at LIBOR plus 1.700% until 2012 and LIBOR plus 1.850% thereafter. The facility expires on December 22, 2012. As at December 31, 2011 no drawings had been made on the facility. This facility is, available solely for the use of our main UK regulated entity and would be available for use in certain exceptional circumstances.circumstances, was renewed. The facility bears interest at LIBOR plus 1.55% until 2014 and LIBOR plus 1.700% thereafter. The facility expires on November 6, 2015. As at December 31, 2013 no drawings had been made on the facility. The facility is secured against the freehold of the UK regulated entity’s freehold property in Ipswich.
On July 11, 2013, a revolving credit facility of 15 million Chinese Yuan Renminbi 'RMB' ($2 million) was renewed. This facility bears interest at 110 percent of the applicable short term interest rate an RMB loan having a term equal to the tenor of that drawing as published by the People's Bank of China 'PBOC' prevailing as at the drawdown date of that drawing. The facility expires on July 10, 2014. As at December 31, 2013 ¥nil ($nil) (2012: ¥nil ($nil)) had been drawn down on the facility. This facility was solely for the use of our Chinese subsidiary and is available for general working capital purposes.
Lines of credit
The Company also has available $3$4 million (2010: $2 million) (2012: $4 million) in lines of credit, of which $nil$nil was drawn as of December 31, 2011 (2010: $nil)2013 (2012: $nil).
112
Willis Group Holdings plc
Notes to the financial statements20. DEBT (Continued)
Analysis of interest expense
The following table shows an analysis of the interest expense for the years ended December 31:
| | | | | | | | | | | | | |
| | | Year ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
5-year term loan facility repaid 2011 | | $ | 14 | | | $ | 17 | | | $ | 26 | |
| Revolving $300 million credit facility | | | 4 | | | | 3 | | | | 3 | |
| 5.625% senior notes due 2015 | | | 12 | | | | 14 | | | | 20 | |
| 12.875% senior notes due 2016 | | | 15 | | | | 67 | | | | 55 | |
| 4.125% senior notes due 2016 | | | 10 | | | | — | | | | — | |
| 6.200% senior notes due 2017 | | | 38 | | | | 38 | | | | 38 | |
| 7.000% senior notes due 2019 | | | 21 | | | | 21 | | | | 5 | |
| 5.125% senior notes due 2010 | | | — | | | | 3 | | | | 16 | |
| 5.750% senior notes due 2021 | | | 23 | | | | — | | | | — | |
| Interim credit facility | | | — | | | | — | | | | 7 | |
Other(i) | | | 19 | | | | 3 | | | | 4 | |
| | | | | | | | | | | | | |
| Total interest expense | | $ | 156 | | | $ | 166 | | | $ | 174 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Year ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| 5.625% senior notes due 2015 | $ | 12 |
| | $ | 12 |
| | $ | 12 |
|
| 12.875% senior notes due 2016 | — |
| | — |
| | 15 |
|
| 4.125% senior notes due 2016 | 13 |
| | 13 |
| | 10 |
|
| 6.200% senior notes due 2017 | 33 |
| | 38 |
| | 38 |
|
| 7.000% senior notes due 2019 | 18 |
| | 21 |
| | 21 |
|
| 5.750% senior notes due 2021 | 29 |
| | 29 |
| | 23 |
|
| 4.625% senior notes due 2023 | 4 |
| | — |
| | — |
|
| 6.125% senior notes due 2043 | 6 |
| | — |
| | — |
|
| 7-year term loan facility expires 2018 | 6 |
| | 6 |
| | — |
|
| 5-year term loan facility repaid 2011 | — |
| | — |
| | 14 |
|
| Revolving $800 million credit facility | 2 |
| | 1 |
| | — |
|
| Revolving $300 million credit facility | — |
| | — |
| | 4 |
|
Other(i) | 3 |
| | 8 |
| | 19 |
|
| Total interest expense | $ | 126 |
| | $ | 128 |
| | $ | 156 |
|
| | |
(i) | | In 2013, Other includes $10$nil (2012: $nil; 2011:$10 million ) relating to the write offwrite-off of unamortized debt issuance fees. |
|
| |
20. 21. | PROVISIONS FOR LIABILITIES |
An analysis of movements on provisions for liabilities is as follows:
| | | | | | | | | | | | | |
| | | Claims,
| | | | | | | |
| | | lawsuits and
| | | | | | | |
| | | other
| | | Other
| | | | |
| | | proceedings(i) | | | provisions(ii) | | | Total | |
| | | | | | (millions) | | | | |
| |
| Balance at January 1, 2010 | | $ | 178 | | | $ | 48 | | | $ | 226 | |
| Net provisions made during the year | | | 19 | | | | (7 | ) | | | 12 | |
| Utilised in the year | | | (50 | ) | | | (7 | ) | | | (57 | ) |
| Foreign currency translation adjustment | | | (2 | ) | | | — | | | | (2 | ) |
| | | | | | | | | | | | | |
| Balance at December 31, 2010 | | $ | 145 | | | $ | 34 | | | $ | 179 | |
| Net provisions made during the year | | | 45 | | | | 11 | | | | 56 | |
| Utilised in the year | | | (31 | ) | | | (7 | ) | | | (38 | ) |
| Foreign currency translation adjustment | | | (1 | ) | | | — | | | | (1 | ) |
| | | | | | | | | | | | | |
| Balance at December 31, 2011 | | $ | 158 | | | $ | 38 | | | $ | 196 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Claims, lawsuits and other proceedings(i) | | Other provisions(ii) | | Total |
| | | (millions) | |
| Balance at January 1, 2012 | $ | 158 |
| | $ | 38 |
| | $ | 196 |
|
| Net provisions made during the year | 23 |
| | (2 | ) | | 21 |
|
| Utilized in the year | (31 | ) | | (10 | ) | | (41 | ) |
| Foreign currency translation adjustment | 2 |
| | 2 |
| | 4 |
|
| Balance at December 31, 2012 | $ | 152 |
| | $ | 28 |
| | $ | 180 |
|
| Net provisions made during the year | 28 |
| | 6 |
| | 34 |
|
Balances transferred in during the year (iii) | — |
| | 13 |
| | 13 |
|
| Utilized in the year | (17 | ) | | (6 | ) | | (23 | ) |
| Foreign currency translation adjustment | 1 |
| | 1 |
| | 2 |
|
| Balance at December 31, 2013 | $ | 164 |
| | $ | 42 |
| | $ | 206 |
|
| | |
(i) | | The claims, lawsuits and other proceedings provision includes E&O cases which represents management’s assessment of liabilities that may arise from asserted and unasserted claims for alleged errors and omissions that arise in the ordinary course of the Group’s business. Where some of the potential liability is recoverable under the Group’s external insurance arrangements, the full assessment of the liability is included in the provision with the associated insurance recovery shown separately as an asset. Insurance recoveries recognisedrecognized at December 31, 20112013 amounted to $6$nil (2012: $6 million (2010: $15 million)). |
.
| | |
(ii) | | The ‘Other’ category includes amounts relating to vacant property provisions of $20$10 million (2010: $14 million) (2012: $13 million). |
113
Willis Group Holdings plc
| |
21.(iii)
| Provisions held in the UK for ongoing post placement services, long term disability provisions and legal claim provisions all previously recognized within Deferred Revenue and Accrued Expenses were transferred to Provisions for Liabilities during 2013. |
Notes to the financial statements
|
| |
| 22. | COMMITMENTS AND CONTINGENCIES |
The Company’s contractual obligations as at December 31, 20112013 are presented below:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Payments due by
| | | | | | | |
| Obligations | | Total | | | 2012 | | | 2013-2014 | | | 2015-2016 | | | After 2016 | |
| | | (millions) | |
| |
5-year term loan facility expires 2016 | | $ | 300 | | | $ | 11 | | | $ | 30 | | | $ | 259 | | | $ | — | |
| Interest on term loan | | | 28 | | | | 6 | | | | 12 | | | | 10 | | | | — | |
| Revolving $500 million credit facility commitment fees | | | 6 | | | | 1 | | | | 3 | | | | 2 | | | | — | |
| 6.000% loan notes due 2012 | | | 4 | | | | 4 | | | | — | | | | — | | | | — | |
| 5.625% senior notes due 2015 | | | 350 | | | | — | | | | — | | | | 350 | | | | — | |
| Fair value adjustments on 5.625% senior notes due 2015 | | | 20 | | | | — | | | | — | | | | 20 | | | | — | |
| 4.125% senior notes due 2016 | | | 300 | | | | — | | | | — | | | | 300 | | | | — | |
| 6.200% senior notes due 2017 | | | 600 | | | | — | | | | — | | | | — | | | | 600 | |
| 7.000% senior notes due 2019 | | | 300 | | | | — | | | | — | | | | — | | | | 300 | |
| 5.750% senior notes due 2021 | | | 500 | | | | — | | | | — | | | | — | | | | 500 | |
| Interest on senior notes | | | 744 | | | | 119 | | | | 238 | | | | 200 | | | | 187 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total debt and related interest | | | 3,152 | | | | 141 | | | | 283 | | | | 1,141 | | | | 1,587 | |
Operating leases(i) | | | 1,307 | | | | 146 | | | | 203 | | | | 151 | | | | 807 | |
| Pensions | | | 386 | | | | 91 | | | | 181 | | | | 114 | | | | — | |
Other contractual obligations(ii) | | | 164 | | | | 72 | | | | 13 | | | | 37 | | | | 42 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total contractual obligations | | $ | 5,009 | | | $ | 450 | | | $ | 680 | | | $ | 1,443 | | | $ | 2,436 | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | Payments due by |
Obligations (iii) | Total | | 2014 | | 2015-2016 | | 2017-2018 | | After 2018 |
| | (millions) |
| 7-year term loan facility expires 2018 | $ | 274 |
| | $ | 15 |
| | $ | 39 |
| | $ | 220 |
| | $ | — |
|
| Interest on term loan | 19 |
| | 5 |
| | 9 |
| | 5 |
| | — |
|
| Revolving $800 million credit facility commitment fees | 9 |
| | 2 |
| | 4 |
| | 3 |
| | — |
|
| 5.625% senior notes due 2015 | 148 |
| | — |
| | 148 |
| | — |
| | — |
|
| Fair value adjustments on 5.625% senior notes due 2015 | 4 |
| | — |
| | 4 |
| | — |
| | — |
|
| 4.125% senior notes due 2016 | 300 |
| | — |
| | 300 |
| | — |
| | — |
|
| 6.200% senior notes due 2017 | 394 |
| | — |
| | — |
| | 394 |
| | — |
|
| 7.000% senior notes due 2019 | 187 |
| | — |
| | — |
| | — |
| | 187 |
|
| 5.750% senior notes due 2021 | 500 |
| | — |
| | — |
| | — |
| | 500 |
|
| 4.625% senior notes due 2023 | 250 |
| | — |
| | — |
| | — |
| | 250 |
|
| 6.125% senior notes due 2043 | 275 |
| | — |
| | — |
| | — |
| | 275 |
|
| Interest on senior notes | 1,011 |
| | 115 |
| | 209 |
| | 146 |
| | 541 |
|
| Total debt and related interest | 3,371 |
| | 137 |
| | 713 |
| | 768 |
| | 1,753 |
|
Operating leases(i) | 1,235 |
| | 131 |
| | 213 |
| | 167 |
| | 724 |
|
| Pensions | 566 |
| | 122 |
| | 244 |
| | 161 |
| | 39 |
|
Other contractual obligations(ii) | 91 |
| | 24 |
| | 16 |
| | 12 |
| | 39 |
|
| Total contractual obligations | $ | 5,263 |
| | $ | 414 |
| | $ | 1,186 |
| | $ | 1,108 |
| | $ | 2,555 |
|
| | |
(i) | | Presented gross of sublease income. |
.
| | |
(ii) | | Other contractual obligations include capital lease commitments, put option obligations and investment fund capital call obligations, the timing of which are included at the earliest point they may fall due. |
| |
(iii) | The above excludes $41 million of liabilities for unrecognized tax benefits as the Company is unable to reasonably predict the timing of settlement of these liabilities. |
Debt obligations and facilities
The Company’s debt and related interest obligations at December 31, 20112013 are shown in the above table.
During 2011, the CompanyOn July 23, 2013 we entered into an amendment to our existing credit facilities to extend the amount of financing of the facilities. As a newresult of this amendment, our revolving credit facility agreement under whichwas increased from $500 million is available.to $800 million. As at December 31, 2011 $nil2013 $nil was outstanding under the revolving credit facility.
This facility is in addition to the remaining availability of $20$22 million under the Company’s two other previously existing $20 million revolving credit facility.facilities.
The only mandatory repayments of debt over the next 12 months are the scheduled repayment of $11$15 million current portion of the Company’s5-year 7-year term loan and the final payment of the 6.000% loan notes.loan. We also have the right, at our option, to prepay indebtedness under the credit facility without further penalty and to redeem the senior notes at our option by paying a ‘make whole’‘make-whole’ premium as provided under the applicable debt instrument.
Willis Group Holdings plc
22. COMMITMENTS AND CONTINGENCIES (Continued)
Operating leases
The Company leases certain land, buildings and equipment under various operating lease arrangements. Original non-cancellable lease terms typically are between 10 and 20 years and may contain escalation clauses, along with options that
114
Notes to the financial statements
| |
21. | COMMITMENTS AND CONTINGENCIES (Continued) |
permit early withdrawal. The total amount of the minimum rent is expensed on a straight-line basis over the term of the lease.
As of December 31, 2011,2013, the aggregate future minimum rental commitments under all non-cancellable operating lease agreements are as follows:
| | | | | | | | | | | | | |
| | | Gross rental
| | | Rentals from
| | | Net rental
| |
| | | commitments | | | subleases | | | commitments | |
| | | | | | (millions) | | | | |
| |
| 2012 | | $ | 146 | | | $ | (14 | ) | | $ | 132 | |
| 2013 | | | 109 | | | | (14 | ) | | | 95 | |
| 2014 | | | 94 | | | | (13 | ) | | | 81 | |
| 2015 | | | 79 | | | | (12 | ) | | | 67 | |
| 2016 | | | 72 | | | | (11 | ) | | | 61 | |
| Thereafter | | | 807 | | | | (32 | ) | | | 775 | |
| | | | | | | | | | | | | |
| Total | | $ | 1,307 | | | $ | (96 | ) | | $ | 1,211 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Gross rental commitments | | Rentals from subleases | | Net rental commitments |
| | | | (millions) | | |
| 2014 | $ | 131 |
| | $ | (15 | ) | | $ | 116 |
|
| 2015 | 114 |
| | (14 | ) | | 100 |
|
| 2016 | 99 |
| | (13 | ) | | 86 |
|
| 2017 | 88 |
| | (12 | ) | | 76 |
|
| 2018 | 79 |
| | (8 | ) | | 71 |
|
| Thereafter | 724 |
| | (16 | ) | | 708 |
|
| Total | $ | 1,235 |
| | $ | (78 | ) | | $ | 1,157 |
|
The Company leases its main London building under a25-year25-year operating lease, which expires in 2032.2032. The Company’s contractual obligations in relation to this commitment included in the table above total $715$719 million (2010: $744 million) (2012: $730 million). Annual rentals are $30$36 million (2010: $31 million) (2012: $32 million) per year and the Company has subleased approximately 29 percent (2010: 25 percent) (2012: 29 percent) of the premises under leases up to 15 years.years. The amounts receivable from subleases, included in the table above, total $82$66 million (2010: $87 million; 2009: $100 million) (2012: $76 million; 2011: $82 million).
Rent expense amounted to $127$141 million for the year ended December 31, 2013 (2012: $135 million; 2011 (2010: $131 million; 2009: $154 million): $127 million). The Company’s rental income from subleases was $18$15 million for the year ended December 31, 2013 (2012: $17 million; 2011 (2010: $22 million; 2009: $21 million): $18 million).
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 plan’splan's trustees. In February 2009, weMarch 2012, the Company agreed to a revised schedule of contributions towards on-going accrual of benefits and deficit funding contributions the Company will make full year contributions to the UK plan over the six years ended December 31, 2017. Contributions in each of $39the next four years are expected to total approximately $83 million, of which approximately $23 million relates to on-going contributions calculated as 15.9 percent of active plan members' pensionable salary and approximately $60 million that relates to contributions towards the funding deficit.
In addition, further contributions will be payable based on a profit share calculation (equal to 20 percent of EBITDA in excess of $900 million per annum as defined by the revised schedule of contributions) and an exceptional return calculation (equal to 10 percent of any exceptional returns made to shareholders, for 2009 through 2012,example, share buybacks, and special dividends). Aggregate contributions under the deficit funding contribution and the profit share calculation are capped at £312 million ($517 million) over the six years ended December 31, 2017.
During 2014 we will be required to negotiate a new funding arrangement which may further change the contributions we are required to make during 2014 and beyond.
In addition, approximately $12 million will be paid annually into the UK defined benefit plan related to employee's salary sacrifice contributions.
The total contracted contributions for all plans in 2014 are expected to be approximately $122 million, excluding amountsapproximately $12 million in respect of the salary sacrifice scheme. In addition, if certain funding targets were not met at
Notes to the beginning of any of the following years, 2010 through 2012, a further contribution of $39 million would be required for that year. In 2010, the additional funding requirement was triggered and we expect to make a similar additional contribution in 2011. A similar, additional contribution may also be required for 2012, depending on actual performance against funding targets at the beginning of 2012.financial statements
Based on the current UK funding strategy and as shown in the table above, the total contracted contributions for all plans are currently estimated to be approximately $91 million in 2012, excluding amounts of approximately $12 million in respect of the salary sacrifice scheme. However, a revised UK funding strategy, and hence 2012 contribution, is expected to be finalized shortly and the final 2012 contribution for all plans is expected to be approximately $142 million, including salary sacrifice.22. COMMITMENTS AND CONTINGENCIES (Continued)
Guarantees
Guarantees issued by certain of Willis Group Holdings’ subsidiaries with respect to the senior notes and revolving credit facilities are discussed in Note 1920 — Debt in these consolidated financial statements.
115
Willis Group Holdings plc
| |
21. | COMMITMENTS AND CONTINGENCIES (Continued) |
Certain of Willis Group Holdings’ subsidiaries have given the landlords of some leasehold properties occupied by the Company in the United Kingdom and the United States guarantees in respect of the performance of the lease obligations of the subsidiary holding the lease. The operating lease obligations subject to such guarantees amounted to $828$828 million and $855$829 million at December 31, 2013 and 2012, respectively. The capital lease obligations subject to such guarantees amounted to $11 million as at December 31, 2011 and 2010, respectively.2013 (2012: $nil).
In addition, the Company has given guarantees to bankers and other third parties relating principally to letters of credit amounting to $7$11 million and $11$10 million at December 31, 20112013 and 2010,2012, respectively. Willis Group Holdings also guarantees certain of its UK and Irish subsidiaries’ obligations to fund the UK and Irish defined benefit plans.
Other contractual obligations
For certain subsidiaries and associates, the Company has the right to purchase shares (a call option) from co-shareholders at various dates in the future. In addition, the co-shareholders of certain subsidiaries and associates have the right to sell their shares (a put option) to the Company at various dates in the future. Generally, the exercise price of such put options and call options is formula-based (using revenues and earnings) and is designed to reflect fair value. Based on current projections of profitability and exchange rates and assuming the put options are exercised, the potential amount payable from these options is not expected to exceed $72$12 million (2010: $40 million) (2012: $19 million).
In July 2010, the Company made a capital commitment of $25$25 million to Trident V Parallel Fund, LP, an investment fund managed by Stone Point Capital. This replaced a capital commitment of $25$25 million that had been made to Trident V, LP in December 2009. As at December 31, 20112013 there have been approximately $6$15 million of capital contributions.
In May 2011, the Company made a capital commitment of $10$10 million to Dowling Capital Partners I, LP. As at December 31, 20112013 there had been noapproximately $4 million of capital contributions.
Other contractual obligations at December 31, 20112013, also include thecertain capital lease on the Company’s Nashville property ofobligations totaling $63 million payable from (2012 onwards.: $53 million), primarily in respect of the Company's Nashville property.
Claims, Lawsuits and Other Proceedings
In the ordinary course of business, the Company is subject to 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. Similar to other corporations, the Company is also subject to a variety of other claims, including those relating to the Company’s employment practices. Some of the claims, lawsuits and other proceedings seek damages in amounts which could, if assessed, be significant.
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. Regarding self-insured risks, the Company has established provisions which are believed to be adequate in the light of current information and legal advice, and the Company adjusts such provisions from time to time according to developments.
On the basis of current information, the Company does not expect that the actual claims, lawsuits and other proceedings to which the Company is subject, or potential claims, lawsuits, and other proceedings relating to matters of which it is aware, will ultimately have a material adverse effect on the Company’s financial condition, results of operations or liquidity. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation and disputes with insurance companies, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
116
Notes to the financial statements
| |
21. | COMMITMENTS AND CONTINGENCIES (Continued) |
The material actual or potential claims, lawsuits, and other proceedings, of which the Company is currently aware, are:
Assurance of Discontinuance
In connection with the investigation launched by the New York State Attorney General in April 2004 concerning, among other things, contingent commissions paid by insurers to insurance brokers, in April 2005, the Company entered into an Assurance of Discontinuance (‘Original AOD’) with the New York State Attorney General and the Superintendent of the New York Insurance Department and paid $50 million to eligible clients. As part of the Original AOD, the Company also agreed not to accept contingent compensation and to disclose to customers any compensation the Company will receive in connection with providing policy placement services to the customer. The Company also resolved similar investigations launched by the Minnesota Attorney General, the Florida Attorney General, the Florida Department of Financial Services, and the Florida Office of Insurance Regulation for amounts that were not material to the Company.
Similarly, in August 2005, HRH entered into an agreement with the Attorney General of the State of Connecticut and the Insurance Commissioner of the State of Connecticut to resolve all issues related to their investigations into certain insurance brokerage and insurance agency practices and to settle a lawsuit brought in August 2005 by the Connecticut Attorney General alleging violations of the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act. As part of this settlement, HRH agreed to take certain actions including establishing a $30 million national fund for distribution to certain clients; enhancing disclosure practices for agency and broker clients; and declining to accept contingent compensation on brokerage business.
On February 16, 2010, the Company 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 (the ‘Amended and Restated AOD’) on behalf of itself and its named subsidiaries. The Amended and Restated AOD was effective February 11, 2010 and supersedes and replaces the Original AOD.
The Amended and Restated AOD specifically recognizes that the Company has substantially met its obligations under the Original AOD and ends many of the requirements previously imposed. It relieves the Company of a number of technical compliance obligations that have imposed significant administrative and financial burdens on its operations. The Amended and Restated AOD no longer limits the types of compensation the Company can receive and has lowered the compensation disclosure requirements. The Amended and Restated AOD requires the Company, among other things to: (i) in New York, and each of the other 49 states of the United States, the District of Columbia and U.S. territories, provide compensation disclosure that will, at a minimum, comply with the terms of the applicable regulations, as may be amended from time to time, or the provisions of the AOD that existed prior to the adoption of the Amended and Restated AOD; and (ii) maintain its compliance programs and continue to provide appropriate training to relevant employees in business ethics, professional obligations, conflicts of interest, and antitrust and trade practices compliance.
European Commission Sector Inquiry
In 2006, the European Commission issued questionnaires pursuant to its Sector Inquiry or, in respect of Norway, the European Free Trade Association Surveillance Authority, related to insurance business practices, including compensation arrangements for brokers, to at least 150 European brokers including our operations in nine European countries. The Company filed responses to the European Commission and the European Free Trade Association Surveillance Authority questionnaires. The European Commission reported on September 25, 2007, expressing concerns over potential conflicts of interest in the industry relating to remuneration and binding authorities and also over the nature of the coinsurance market.
The Company cooperated with both the European Free Trade Association Surveillance Authority and the European Commission to resolve issues raised in its final report regarding coinsurance as required of the industry by the European Commission. The European Commission has appointed Ernst & Young to conduct a review of the coinsurance market and
117
Willis Group Holdings plc
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21. | 22. COMMITMENTS AND CONTINGENCIES (Continued) |
we anticipate that, along with our competitors and insurers, our European subsidiaries will receive further questionnaires on this matter this year.
Contingent Compensation Class Action
Since August 2004, the Company and HRH (along with various other brokers and insurers) have been named as defendants in purported class actions in various courts across the United States. All of these actions have been consolidated into a single action in the US District Court for the District of New Jersey (‘MDL’). These actions allege that the brokers breached their duties to their clients by entering into contingent compensation agreements with either no disclosure or limited disclosure to clients and participated in other improper activities. Plaintiffs seek monetary damages, including punitive damages, and certain equitable relief. In May 2011, the majority of defendants, including the Company and HRH, entered into a written settlement agreement with plaintiffs. On June 28, 2011, the Judge entered an Order granting preliminary approval to the settlement agreement. Notice of the settlement was sent to all members of the class and each member was given the opportunity to opt out of the settlement and pursue its own individual claim against any defendant. A total of 84 members of the class have opted out of the settlement. A Fairness Hearing to decide if the settlement should be given final approval took place on September 14, 2011, but the Judge has not yet issued his decision on approval of the settlement. The amount of the proposed settlement to be paid by the Company and HRH is immaterial and was previously reserved.
Additional actions could be brought in the future by individual policyholders. The Company disputes the allegations in all of these suits and has been and intends to continue to defend itself vigorously against these actions. The outcomes of these lawsuits, however, including any losses or other payments that may occur as a result, cannot be predicted at this time.
Gender Discrimination Class Action
In December 2006, a purported class action was filed against the Company in the United States District Court, Southern District of New York, alleging that the Company discriminated against female officers and officer equivalent employees on the basis of their gender and seeking injunctive relief, monetary damages and attorneys’ fees and costs. In January 2011, the Company reached a settlement with plaintiffs that resolves all individual and class claims. The amount of this settlement is not material. The Court has given preliminary approval to the settlement. Notice of that settlement has been provided to the class members and the Court held a Fairness Hearing on December 12, 2011 to decide if final approval should be given to the settlement. On December 19, 2011, the Court granted final approval of the settlement, and the settlement payments are being distributed to class members.
World Trade Center
The Company acted as the insurance broker, but not as an underwriter, for the placement of both property and casualty insurance for a number of entities which were directly impacted by the September 11, 2001 destruction of the World Trade Center complex, including Silverstein Properties LLC, which acquired a99-year leasehold interest in the twin towers and related facilities from the Port Authority of New York and New Jersey in July 2001. Although the World Trade Center complex insurance was bound at or before the July 2001 closing of the leasehold acquisition, consistent with standard industry practice, the final policy wording for the placements was still in the process of being finalized when the twin towers and other buildings in the complex were destroyed on September 11, 2001. There have been a number of lawsuits in the United States between the insured parties and the insurers for several placements. Other disputes may arise in respect of insurance placed by us which could affect the Company including claims by one or more of the insureds that the Company made culpable errors or omissions in connection with our brokerage activities. However, the Company does not believe that our role as broker will lead to liabilities which in the aggregate would have a material adverse effect on our results of operations, financial condition or liquidity.
118
Notes to the financial statements
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21. | COMMITMENTS AND CONTINGENCIES (Continued) |
Stanford Financial Group Litigation
The Company has been named as a defendant in six13 similar lawsuits relating to the collapse of The Stanford Financial Group (‘Stanford’), for which Willis of Colorado, Inc. acted as broker of record on certain lines of insurance. The complaints in these actions generally allege that the defendants actively and materially aided Stanford’s alleged fraud by providing Stanford with certain letters regarding coverage that they knew would be used to help retain or attract actual or prospective Stanford client investors. The complaints further allege that these letters, which contain statements about Stanford and the insurance policies that the defendants placed for Stanford, contained untruths and omitted material facts and were drafted in this manner to help Stanford promote and sell its allegedly fraudulent certificates of deposit.
The six13 actions are as follows:
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• | Troice, et al. v. Willis of Colorado, Inc., et al., C.A.No. 3:09-CV-01274-N,, C.A. No. 3:9-CV-1274-N, was filed on July 2, 2009 in the U.S. District Court for the Northern District of Texas against Willis Group Holdings plc, Willis of Colorado, Inc. and a Willis associate, among others. On April 1, 2011, plaintiffs filed the operative Third Amended Class Action Complaint individually and on behalf of a putative, worldwide class of Stanford investors, adding Willis Limited as a defendant and alleging claims under Texas statutory and common law and seeking damages in excess of $1 billion, punitive damages and costs. On May 2, 2011, the defendants filed motions to dismiss the Third Amended Class Action Complaint, arguing,inter alia, that the plaintiffs’ claims are precluded by the Securities Litigation Uniform Standards Act of 1998 (‘SLUSA’). |
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• | Ranni v. Willis of Colorado, Inc., et al., C.A.No. 09-22085, was filed on July 17, 2009 against Willis Group Holdings plc and Willis of Colorado, Inc. in the U.S. District Court for the Southern District of Florida. The complaint was filed on behalf of a putative class of Venezuelan and other South American Stanford investors and alleges claims under Section 10(b) of the Securities Exchange Act of 1934 (andRule 10b-5 thereunder) and Florida statutory and common law and seeks damages in an amount to be determined at trial. On October 6, 2009,Ranniwas transferred, for consolidation or coordination with other Stanford-related actions (includingTroice), to the Northern District of Texas by the U.S. Judicial Panel on Multidistrict Litigation (the ‘JPML’). The defendants have not yet responded to the complaint inRanni. |
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• | Canabal, et al. v. Willis of Colorado, Inc., et al., C.A.No. 3:09-CV-01474-D, was filed on August 6, 2009 against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate named as a defendant inTroice, among others, also in the Northern District of Texas. The complaint was filed individually and on behalf of a putative class of Venezuelan Stanford investors, alleged claims under Texas statutory and common law and sought damages in excess of $1 billion, punitive damages, attorneys’ fees and costs. On December 18, 2009, the parties inTroiceandCanabalstipulated to the consolidation of those actions (under theTroicecivil action number), and, on December 31, 2009, the plaintiffs inCanabalfiled a notice of dismissal, dismissing the action without prejudice. |
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• | Rupert, et al. v. Winter, et al., Case No. 2009C115137, was filed on September 14, 2009 on behalf of 97 Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under the Securities Act of 1933, Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $300 million, attorneys’ fees and costs. On October 20, 2009, certain defendants, including Willis of Colorado, Inc., (i) removedRupertto the U.S. District Court for the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On April 1, 2010, the JPML issued a final transfer order for the transfer ofRupertto the Northern District of Texas. On January 24, 2012, the Court remandedRupert to Texas State Court (Bexar County), but stayed these cases until further order of the court. The defendants have not yet responded to the complaint inRupert. |
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• | Casanova, et al. v. Willis of Colorado, Inc., et al., C.A.No. 3:10-CV-01862-O, was filed on September 16, 2010 on behalf of seven Stanford investors against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate, among others, also in the Northern District of Texas. The complaint alleges claims under Texas statutory and common law and seeks actual damages in excess of $5 million, punitive damages, attorneys’ fees and costs. The defendants have not yet responded to the complaint inCasanova. |
119
Willis Group Holdings plc, Willis of Colorado, Inc. and a Willis associate, among others. On April 1, 2011, plaintiffs filed the operative Third Amended Class Action Complaint individually and on behalf of a putative, worldwide class of Stanford investors, adding Willis Limited as a defendant and alleging claims under Texas statutory and common law and seeking damages in excess of $1 billion, punitive damages and costs. On May 2, 2011, the defendants filed motions to dismiss the Third Amended Class Action Complaint, arguing, inter alia, that the plaintiffs’ claims are precluded by the Securities Litigation Uniform Standards Act of 1998 (‘SLUSA’).
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21. | COMMITMENTS AND CONTINGENCIES (Continued) |
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• | Rishmague, et ano. v. Winter, et al., Case No. 2011CI02585, was filed on March 11, 2011 on behalf of two Stanford investors, individually and as representatives of certain trusts, against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $37 million and attorneys’ fees and costs. On April 11, 2011, certain defendants, including Willis of Colorado, Inc., (i) removedRishmagueto the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On August 8, 2011, the JPML issued a final transfer order for the transfer ofRishmagueto the Northern District of Texas, where it is currently pending. The defendants have not yet responded to the complaint inRishmague. |
On May 10, 2011, the court presiding over the Stanford-related actions in the Northern District of Texas entered an order providing that it would consider the applicability of SLUSA to the Stanford-related actions based on the decision in a separate Stanford action not involving a Willis entity,Roland v. Green, Civil ActionNo. 3:10-CV-0224-N. On August 31, 2011, the court issued its decision inRoland, dismissing that action with prejudice under SLUSASLUSA.
On October 27, 2011, the court inTroiceentered an order (i) dismissing with prejudice those claims asserted in the Third Amended Class Action Complaint on a class basis on the grounds set forth in theRolanddecision discussed above and (ii) dismissing without prejudice those claims asserted in the Third Amended Class Action Complaint on an individual basis. Also on October 27, 2011, the court entered a final judgment in the action.
On October 28, 2011, the plaintiffs inTroicefiled a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit. Subsequently,Troice, Rolandand a third action captionedTroice, et al. v. Proskauer Rose LLP, Civil ActionNo. 3:09-CV-01600-N, which also was dismissed on the grounds set forth in theRolanddecision discussed above and on appeal to the U.S. Court of Appeals for the Fifth Circuit, were consolidated for purposes of briefing and oral argument. The appeals have been fully briefedFollowing the completion of briefing and oral argument, on March 19, 2012, the Fifth Circuit reversed and remanded the actions. On April 2, 2012, the defendants-appellees filed petitions for rehearing en banc. On April 19, 2012, the petitions for rehearing en banc were denied. On July 18, 2012, defendants-appellees filed a petition for writ of certiorari with the United States Supreme Court regarding the Fifth Circuit's reversal in Troice. On January 18, 2013, the Supreme Court granted our petition. Opening briefs were filed on May 3, 2013 and the Fifth CircuitSupreme Court heard oral argument on October 7, 2013. On February 7, 2012. A ruling26, 2014, the Supreme Court affirmed the Fifth Circuit’s decision.
Ranni v. Willis of Colorado, Inc., et al., C.A. No. 9-22085, was filed on July 17, 2009 against Willis Group Holdings plc and Willis of Colorado, Inc. in the U.S. District Court for the Southern District of Florida. The complaint was filed on behalf of a putative class of Venezuelan and other South American Stanford investors and alleges claims under Section 10(b) of the Securities Exchange Act of 1934 (and Rule 10b-5 thereunder) and Florida statutory and common law and seeks damages in an amount to be determined at trial. On October 6, 2009, Ranni was transferred, for consolidation or coordination with other Stanford-related actions (including Troice), to the Northern District of Texas by the U.S. Judicial Panel on Multidistrict Litigation (the ‘JPML’). The defendants have not yet responded to the complaint in Ranni.
Canabal, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:9-CV-1474-D, was filed on August 6, 2009 against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate named as a defendant in Troice, among others, also in the Northern District of Texas. The complaint was filed individually and on behalf of a putative class of Venezuelan Stanford investors, alleged claims under Texas statutory and common law and sought damages in excess of $1 billion, punitive damages, attorneys’ fees and costs. On December 18, 2009, the parties in Troice and Canabal stipulated to the consolidation of those actions (under the Troice civil action number), and, on December 31, 2009, the plaintiffs in Canabal filed a notice of dismissal, dismissing the action without prejudice.
Notes to the financial statements
22. COMMITMENTS AND CONTINGENCIES (Continued)
Rupert, et al. v. Winter, et al., Case No. 2009C115137, was filed on September 14, 2009 on behalf of 97 Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under the Securities Act of 1933, Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $300 million, attorneys’ fees and costs. On October 20, 2009, certain defendants, including Willis of Colorado, Inc., (i) removed Rupert to the U.S. District Court for the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On April 1, 2010, the JPML issued a final transfer order for the transfer of Rupert to the Northern District of Texas. On January 24, 2012, the court remanded Rupert to Texas state court (Bexar County), but stayed the action until further order of the court. The defendants have not yet responded to the complaint in Rupert.
Casanova, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:10-CV-1862-O, was filed on September 16, 2010 on behalf of seven Stanford investors against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate, among others, also in the Northern District of Texas. The complaint alleges claims under Texas statutory and common law and seeks actual damages in excess of $5 million, punitive damages, attorneys’ fees and costs. The defendants have not yet responded to the complaint in Casanova.
Rishmague, et ano. v. Winter, et al., Case No. 2011CI2585, was filed on March 11, 2011 on behalf of two Stanford investors, individually and as representatives of certain trusts, against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $37 million and attorneys’ fees and costs. On April 11, 2011, certain defendants, including Willis of Colorado, Inc., (i) removed Rishmague to the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On August 8, 2011, the JPML issued a final transfer order for the transfer of Rishmague to the Northern District of Texas, where it is expected sometimecurrently pending. The defendants have not yet responded to the complaint in Rishmague.
MacArthur v. Winter, et al., Case No. 2013-07840, was filed on February 8, 2013 on behalf of two Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Harris County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks actual, special, consequential and treble damages of approximately $4 million and attorneys' fees and costs. On March 29, 2013, Willis of Colorado, Inc. and Willis of Texas, Inc. (i) removed MacArthur to the U.S. District Court for the Southern District of Texas and (ii) notified the JPML of the pendency of this year.related action. On April 2, 2013, Willis of Colorado, Inc. and Willis of Texas, Inc. filed a motion in the Southern District of Texas to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. Also on April 2, 2013, the court presiding over MacArthur in the Southern District of Texas transferred the action to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. The defendants have not yet responded to the complaint in MacArthur.
Florida suits: On February 14, 2013, five law suits were filed against Willis Group Holdings plc, Willis Limited and Willis of Colorado, Inc. in Florida state court (Miami-Dade County) alleging violations of Florida common law. The five suits are: (1) Barbar, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05666CA27, filed on behalf of 35 Stanford investors seeking compensatory damages in excess of $30 million; (2) deGadala-Maria, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05669CA30, filed on behalf of 64 Stanford investors seeking compensatory damages in excess of $83.5 million; (3) Ranni, et ano. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05673CA06, filed on behalf of two Stanford investors seeking compensatory damages in excess of $3 million; (4) Tisminesky, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05676CA09, filed on behalf of 11 Stanford investors seeking compensatory damages in excess of $6.5 million; and (5) Zacarias, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05678CA11, filed on behalf of 10 Stanford investors seeking compensatory damages in excess of $12.5 million. On June 3, 2013, Willis of Colorado, Inc. removed all five cases to the Southern District of Florida and, on June 4, 2013, notified the JPML of the pendency of these related actions. On June 10, 2013, the court in Tisminesky issued an order sua sponte staying and administratively closing that action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation and coordination with the other Stanford-related actions. On June 11, 2013, Willis of Colorado, Inc. moved to stay the other four actions pending the JPML's transfer decision. On June 20, 2013, the JPML issued a conditional transfer order for the
Willis Group Holdings plc
22. COMMITMENTS AND CONTINGENCIES (Continued)
transfer of the five actions to the Northern District of Texas, the transmittal of which was stayed for seven days to allow for any opposition to be filed. On June 28, 2013, with no opposition having been filed, the JPML lifted the stay, enabling the transfer to go forward. The defendants have not yet responded to the complaints in these actions.
Janvey, et al. v. Willis of Colorado, Inc., et al., Case No. 3:13-CV-03980-D, was filed on October 1, 2013 also in the Northern District of Texas against Willis Group Holdings plc, Willis Limited, Willis North America Inc., Willis of Colorado, Inc. and the same Willis associate. The complaint was filed (i) by Ralph S. Janvey, in his capacity as Court-Appointed Receiver for the Stanford Receivership Estate, and the Official Stanford Investors Committee (the ‘OSIC’) against all defendants and (ii) on behalf of a putative, worldwide class of Stanford investors against Willis North America Inc. Plaintiffs Janvey and the OSIC allege claims under Texas common law and the court’s Amended Order Appointing Receiver, and the putative class plaintiffs allege claims under Texas statutory and common law. Plaintiffs seek actual damages in excess of $1 billion, punitive damages and costs. On November 15, 2013, plaintiffs filed the operative First Amended Complaint, which added certain defendants unaffiliated with Willis. On February 28, 2014, the defendants will file motions to dismiss the First Amended Complaint.
Additional actions could be brought in the future by other investors in certificates of deposit issued by Stanford and its affiliates. The Company disputes these allegations and intends to defend itself vigorously against these actions. The outcomes of these actions, however, including any losses or other payments that may occur as a result, cannot be predicted at this time.
Regulatory Investigation
Given the increased interest expressed by US and UK 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 four years ago. This review includes analysis and advice from external experts on best practices, review of public regulatory decisions, and discussions with government regulators in the US and UK. In addition, during 2010 and 2011 the UK Financial Services Authority (the ‘FSA’) conducted an investigation of Willis Limited’s, our UK brokerage subsidiary, compliance systems and controls between 2005 and 2009. On July 21, 2011, we and the FSA announced a settlement under which the FSA concluded its investigation by assessing a £7 million ($11 million) fine on Willis Limited for lapses in its implementation and documentation of its controls to counter the risks of improper payments being made to non-FSA authorized overseas third parties engaged to help win business, particularly in high risk jurisdictions.
As a result of the FSA settlement, we are conducting a further internal review of all payments made between 2005 and 2009. We also continue to fully cooperate with our US regulators, however we are unable to predict at this time when our discussions with them will be concluded. We do not believe that this further internal review or our discussions with the US regulators will result in any material fines or sanctions, but there can be no assurance that any resolution will not have an adverse impact on our ability to conduct our business in certain jurisdictions. While we believe that our current
120
Notes to the financial statements
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21. 23. | COMMITMENTS AND CONTINGENCIES (Continued) |
systems and controls are adequate and in accordance with all applicable laws and regulations, we cannot assure that such systems and controls will prevent any violations of applicable laws and regulations.
| |
22. | ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX |
The components of other comprehensive income (loss) are as follows:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Net income | | $ | 220 | | | $ | 470 | | | $ | 459 | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | | | |
| Foreign currency translation adjustment (net of tax of $nil in 2011, 2010 and 2009) | | | (29 | ) | | | (8 | ) | | | 27 | |
| Unrealized holding gain (loss) (net of tax of $nil in 2011, 2010 and 2009) | | | — | | | | 2 | | | | (1 | ) |
| Pension funding adjustment (net of tax of $84 million in 2011, $(12) million in 2010 and $6 million in 2009) | | | (172 | ) | | | 51 | | | | (33 | ) |
| Net (loss) gain on derivative instruments (net of tax of $2 million in 2011, $(3) million in 2010 and $(16) million in 2009) | | | (3 | ) | | | 6 | | | | 43 | |
| | | | | | | | | | | | | |
| Other comprehensive (loss) income (net of tax of $86 million in 2011, $(15) million in 2010 and $(10) million in 2009) | | | (204 | ) | | | 51 | | | | 36 | |
| | | | | | | | | | | | | |
| Comprehensive income | | | 16 | | | | 521 | | | | 495 | |
| Noncontrolling interests | | | (15 | ) | | | (13 | ) | | | (21 | ) |
| | | | | | | | | | | | | |
| Comprehensive income attributable to Willis Group Holdings | | $ | 1 | | | $ | 508 | | | $ | 474 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | December 31, 2012 | | December 31, 2011 |
| | Before tax amount | | Tax | | Net of tax amount | | Before tax amount | | Tax | | Net of tax amount | | Before tax amount | | Tax | | Net of tax amount |
| | (millions) |
| Other comprehensive income: | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustments | $ | 20 |
| | $ | — |
| | $ | 20 |
| | $ | 46 |
| | $ | — |
| | $ | 46 |
| | $ | (29 | ) | | $ | — |
| | $ | (29 | ) |
| Pension funding adjustments: | | | | | | | | | | | | | | | | | |
| Foreign currency translation on pension funding adjustments | (15 | ) | | 5 |
| | (10 | ) | | (31 | ) | | 9 |
| | (22 | ) | | 8 |
| | — |
| | 8 |
|
| Net actuarial gain (loss) | 83 |
| | 2 |
| | 85 |
| | (203 | ) | | 36 |
| | (167 | ) | | (303 | ) | | 95 |
| | (208 | ) |
| Prior service gain | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10 |
| | (3 | ) | | 7 |
|
| Amortization of unrecognized actuarial loss | 55 |
| | (9 | ) | | 46 |
| | 47 |
| | (9 | ) | | 38 |
| | 34 |
| | (9 | ) | | 25 |
|
| Amortization of unrecognized prior service gain | (5 | ) | | 1 |
| | (4 | ) | | (6 | ) | | 1 |
| | (5 | ) | | (5 | ) | | 1 |
| | (4 | ) |
| | 118 |
| | (1 | ) | | 117 |
| | (193 | ) | | 37 |
| | (156 | ) | | (256 | ) | | 84 |
| | (172 | ) |
| Derivative instruments: | | | | | | | | | | | | | | | | | |
| Gain on interest rate swaps (effective element) | — |
| | — |
| | — |
| | 3 |
| | (1 | ) | | 2 |
| | 13 |
| | (3 | ) | | 10 |
|
| Interest rate reclassification adjustment | (5 | ) | | 1 |
| | (4 | ) | | (5 | ) | | 1 |
| | (4 | ) | | (14 | ) | | 4 |
| | (10 | ) |
| Gain on forward exchange contracts (effective element) | 10 |
| | (2 | ) | | 8 |
| | 11 |
| | (2 | ) | | 9 |
| | 3 |
| | (1 | ) | | 2 |
|
| Forward exchange contract reclassification adjustment | 1 |
| | — |
| | 1 |
| | (4 | ) | | 1 |
| | (3 | ) | | (7 | ) | | 2 |
| | (5 | ) |
| Gain on treasury lock (effective element) | 19 |
| | (4 | ) | | 15 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | 25 |
| | (5 | ) | | 20 |
| | 5 |
| | (1 | ) | | 4 |
| | (5 | ) | | 2 |
| | (3 | ) |
| Other comprehensive income (loss) | 163 |
| | (6 | ) | | 157 |
| | (142 | ) | | 36 |
| | (106 | ) | | (290 | ) | | 86 |
| | (204 | ) |
| Less: Other comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Other comprehensive income (loss) attributable to Willis Group Holdings | $ | 163 |
| | $ | (6 | ) | | $ | 157 |
| | $ | (142 | ) | | $ | 36 |
| | $ | (106 | ) | | $ | (289 | ) | | $ | 86 |
| | $ | (203 | ) |
Willis Group Holdings plc
23. ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (Continued)
The components of accumulated other comprehensive loss, net of tax, are as follows:
| | | | | | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Net foreign currency translation adjustment | | $ | (80 | ) | | $ | (52 | ) | | $ | (46 | ) |
| Net unrealized holding loss | | | — | | | | — | | | | (2 | ) |
| Pension funding adjustment | | | (675 | ) | | | (503 | ) | | | (554 | ) |
| Net unrealized gain on derivative instruments | | | 11 | | | | 14 | | | | 8 | |
| | | | | | | | | | | | | |
| Accumulated other comprehensive loss, attributable to Willis Group Holdings, net of tax | | $ | (744 | ) | | $ | (541 | ) | | $ | (594 | ) |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Net foreign currency translation adjustment | | Pension funding adjustment | | Net unrealized gain on derivative instruments | | Total |
| | (millions) |
| Balance, December 31, 2010 | $ | (52 | ) | | $ | (503 | ) | | $ | 14 |
| | $ | (541 | ) |
| Other comprehensive (loss) income before reclassifications | (28 | ) | | (193 | ) | | 12 |
| | (209 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| | 21 |
| | (15 | ) | | 6 |
|
| Net current year other comprehensive income (loss), net of tax and noncontrolling interests | (28 | ) | | (172 | ) | | (3 | ) | | (203 | ) |
| Balance, December 31, 2011 | $ | (80 | ) | | $ | (675 | ) | | $ | 11 |
| | $ | (744 | ) |
| Other comprehensive income (loss) before reclassifications | 46 |
| | (189 | ) | | 11 |
| | (132 | ) |
| Amounts reclassified from accumulated other comprehensive income | — |
| | 33 |
| | (7 | ) | | 26 |
|
| Net current year other comprehensive income (loss), net of tax and noncontrolling interests | 46 |
| | (156 | ) | | 4 |
| | (106 | ) |
| Balance, December 31, 2012 | $ | (34 | ) | | $ | (831 | ) | | $ | 15 |
| | $ | (850 | ) |
| Other comprehensive income (loss) before reclassifications | 20 |
| | 75 |
| | 23 |
| | 118 |
|
| Amounts reclassified from accumulated other comprehensive income | — |
| | 42 |
| | (3 | ) | | 39 |
|
| Net current year other comprehensive income (loss), net of tax and noncontrolling interests | 20 |
| | 117 |
| | 20 |
| | 157 |
|
| Balance, December 31, 2013 | $ | (14 | ) | | $ | (714 | ) | | $ | 35 |
| | $ | (693 | ) |
Notes to the financial statements
23. ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (Continued)
Amounts reclassified out of accumulated other comprehensive income into the statement of operations are as follows:
|
| | | | | | | | | | | | | | |
| Details about accumulated other comprehensive income components | | Amount reclassified from accumulated other comprehensive income | | Affected line item in the statement of operations |
| | | Years ended December 31, | | |
| | | 2013 | | 2012 | | 2011 | | |
| | | (millions) | | | | |
| Gains and losses on cash flow hedges (Note 26) | | | | | | | | |
| Interest rate swaps | | $ | (5 | ) | | $ | (5 | ) | | $ | (14 | ) | | Investment income |
| Foreign exchange contracts | | 1 |
| | (4 | ) | | (7 | ) | | Other operating expenses |
| | | (4 | ) | | (9 | ) | | (21 | ) | | Total before tax |
| Tax | | 1 |
| | 2 |
| | 6 |
| | |
| | | $ | (3 | ) | | $ | (7 | ) | | $ | (15 | ) | | Net of tax |
| Amortization of defined benefit pension items (Note 19) | | | | | | | | |
| Prior service gain | | $ | (5 | ) | | $ | (6 | ) | | $ | (5 | ) | | Salaries and benefits |
| Net actuarial loss | | 55 |
| | 47 |
| | 34 |
| | Salaries and benefits |
| | | 50 |
| | 41 |
| | 29 |
| | Total before tax |
| Tax | | (8 | ) | | (8 | ) | | (8 | ) | | |
| | | $ | 42 |
| | $ | 33 |
| | $ | 21 |
| | Net of tax |
| | | | | | | | | |
| Total reclassifications for the period | | $ | 39 |
| | $ | 26 |
| | $ | 6 |
| | |
121
Willis Group Holdings plc
|
| |
23. 24. | EQUITY AND NONCONTROLLING INTEREST |
The components of equity and noncontrolling interests are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | December 31, 2009 | |
| | | Willis
| | | | | | | | | Willis
| | | | | | | | | Willis
| | | | | | | |
| | | Group
| | | | | | | | | Group
| | | | | | | | | Group
| | | | | | | |
| | | Holdings’
| | | Noncontrolling
| | | Total
| | | Holdings’
| | | Noncontrolling
| | | Total
| | | Holdings’
| | | Noncontrolling
| | | Total
| |
| | | stockholders | | | interests | | | equity | | | stockholders | | | interests | | | equity | | | stockholders | | | interests | | | equity | |
| |
| Balance at January 1, | | $ | 2,577 | | | $ | 31 | | | $ | 2,608 | | | $ | 2,180 | | | $ | 49 | | | $ | 2,229 | | | $ | 1,845 | | | $ | 50 | | | $ | 1,895 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | 204 | | | | 16 | | | | 220 | | | | 455 | | | | 15 | | | | 470 | | | | 438 | | | | 21 | | | | 459 | |
| Other comprehensive income, net of tax | | | (203 | ) | | | (1 | ) | | | (204 | ) | | | 53 | | | | (2 | ) | | | 51 | | | | 36 | | | | — | | | | 36 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Comprehensive income | | | 1 | | | | 15 | | | | 16 | | | | 508 | | | | 13 | | | | 521 | | | | 474 | | | | 21 | | | | 495 | |
| Dividends | | | (180 | ) | | | (15 | ) | | | (195 | ) | | | (178 | ) | | | (26 | ) | | | (204 | ) | | | (172 | ) | | | (17 | ) | | | (189 | ) |
| Additional paid-in capital | | | 88 | | | | — | | | | 88 | | | | 67 | | | | — | | | | 67 | | | | 32 | | | | — | | | | 32 | |
| Shares reissued under stock compensation plans | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| Purchase of subsidiary shares from noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | (5 | ) | | | (5 | ) | | | — | | | | (10 | ) | | | (10 | ) |
| Additional noncontrolling interests | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, | | $ | 2,486 | | | $ | 31 | | | $ | 2,517 | | | $ | 2,577 | | | $ | 31 | | | $ | 2,608 | | | $ | 2,180 | | | $ | 49 | | | $ | 2,229 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2013 | | December 31, 2012 | | December 31, 2011 |
| | Willis Group Holdings’ stockholders | | Noncontrolling interests | | Total equity | | Willis Group Holdings’ stockholders | | Noncontrolling interests | | Total equity | | Willis Group Holdings’ stockholders | | Noncontrolling interests | | Total equity |
| | (millions) |
| Balance at January 1, | $ | 1,699 |
| | $ | 26 |
| | $ | 1,725 |
| | $ | 2,486 |
| | $ | 31 |
| | $ | 2,517 |
| | $ | 2,577 |
| | $ | 31 |
| | $ | 2,608 |
|
| Comprehensive income: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Net income (loss) | 365 |
| | 12 |
| | 377 |
| | (446 | ) | | 13 |
| | (433 | ) | | 204 |
| | 16 |
| | 220 |
|
| Other comprehensive income (loss), net of tax | 157 |
| | — |
| | 157 |
| | (106 | ) | | — |
| | (106 | ) | | (203 | ) | | (1 | ) | | (204 | ) |
| Comprehensive income (loss) | 522 |
| | 12 |
| | 534 |
| | (552 | ) | | 13 |
| | (539 | ) | | 1 |
| | 15 |
| | 16 |
|
| Dividends | (197 | ) | | (10 | ) | | (207 | ) | | (187 | ) | | (11 | ) | | (198 | ) | | (180 | ) | | (15 | ) | | (195 | ) |
| Additional paid-in capital | 195 |
| | — |
| | 195 |
| | 81 |
| | — |
| | 81 |
| | 88 |
| | — |
| | 88 |
|
Repurchase of shares (i) | — |
| | — |
| | — |
| | (100 | ) | | — |
| | (100 | ) | | — |
| | — |
| | — |
|
| Purchase of subsidiary shares from noncontrolling interests | (4 | ) | | — |
| | (4 | ) | | (31 | ) | | (8 | ) | | (39 | ) | | — |
| | — |
| | — |
|
| Additional noncontrolling interests | — |
| | — |
| | — |
| | 2 |
| | 1 |
| | 3 |
| | — |
| | — |
| | — |
|
| Balance at December 31, | $ | 2,215 |
| | $ | 28 |
| | $ | 2,243 |
| | $ | 1,699 |
| | $ | 26 |
| | $ | 1,725 |
| | $ | 2,486 |
| | $ | 31 |
| | $ | 2,517 |
|
| |
(i) | Based on settlement date the Company repurchased 2,796,546 shares at an average price of $35.87 in 2012. |
The effects on equity of changes in Willis Group Holdings, ownership interest in its subsidiaries are as follows:
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | | | | (millions) | | | | |
| |
| Net income attributable to Willis Group Holdings | | $ | 204 | | | $ | 455 | | | $ | 438 | |
| Transfers from noncontrolling interest: | | | | | | | | | | | | |
| Decrease in Willis Group Holdings’ paid-in capital for purchase of noncontrolling interest | | | — | | | | (19 | ) | | | (23 | ) |
| Increase in Willis Group Holdings’ paid-in capital for sale of noncontrolling interest | | | — | | | | — | | | | 1 | |
| | | | | | | | | | | | | |
| Net transfers from noncontrolling interest | | | — | | | | (19 | ) | | | (22 | ) |
| | | | | | | | | | | | | |
| Change from net income attributable to Willis Group Holdings and transfers from noncontrolling interests | | $ | 204 | | | $ | 436 | | | $ | 416 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | | | (millions) | | |
| Net income (loss) attributable to Willis Group Holdings | $ | 365 |
| | $ | (446 | ) | | $ | 204 |
|
| Transfers from noncontrolling interest: | |
| | |
| | |
|
| Decrease in Willis Group Holdings’ paid-in capital for purchase of noncontrolling interest | (4 | ) | | (31 | ) | | — |
|
| Increase in Willis Group Holdings’ paid-in capital for sale of noncontrolling interest | — |
| | 2 |
| | — |
|
| Net transfers from noncontrolling interest | (4 | ) | | (29 | ) | | — |
|
| Change from net income (loss) attributable to Willis Group Holdings and transfers from noncontrolling interests | $ | 361 |
| | $ | (475 | ) | | $ | 204 |
|
122
Notes to the financial statements
|
| |
24. 25. | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
Supplemental disclosures regarding cash flow information and non-cash flow investing and financing activities are as follows:
| | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
| Cash payments for income taxes, net | | $ | 15 | | | $ | 99 | | | $ | 80 | |
| Cash payments for interest | | | 128 | | | | 163 | | | | 179 | |
| | | | | | | | | | | | | |
| Supplemental disclosures of non-cash flow investing and financing activities: | | | | | | | | | | | | |
| Write-off of unamortized debt issuance costs | | $ | (23 | ) | | $ | — | | | $ | — | |
| Assets acquired under capital leases | | | — | | | | 23 | | | | — | |
| Non cash proceeds from reorganization of investments in associates (Note 6) | | | — | | | | — | | | | 126 | |
| Issue of stock on acquisitions of subsidiaries | | | — | | | | — | | | | 1 | |
| Issue of loan notes on acquisitions of noncontrolling interests | | | — | | | | — | | | | 13 | |
| Issue of stock on acquisitions of noncontrolling interests | | | — | | | | — | | | | 11 | |
| Deferred payments on acquisitions of subsidiaries | | | 3 | | | | — | | | | 1 | |
| Deferred payments on acquisitions of noncontrolling interests | | | 8 | | | | 13 | | | | 1 | |
| | | | | | | | | | | | | |
| Acquisitions: | | | | | | | | | | | | |
| Fair value of assets acquired | | $ | 6 | | | $ | 12 | | | $ | 28 | |
| Less: | | | | | | | | | | | | |
| Liabilities assumed | | | (3 | ) | | | (18 | ) | | | (55 | ) |
| Cash acquired | | | (3 | ) | | | — | �� | | | (12 | ) |
| | | | | | | | | | | | | |
| Net liabilities assumed, net of cash acquired | | $ | — | | | $ | (6 | ) | | $ | (39 | ) |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Supplemental disclosures of cash flow information: | |
| | |
| | |
|
| Cash payments for income taxes, net | $ | 61 |
| | $ | 63 |
| | $ | 15 |
|
| Cash payments for interest | 117 |
| | 118 |
| | 128 |
|
| Supplemental disclosures of non-cash investing and financing activities: | |
| | |
| | |
|
| Write-off of unamortized debt issuance costs | $ | (2 | ) | | $ | — |
| | $ | (23 | ) |
| Write-back of fair value adjustment on 5.625% senior notes due 2015 | 7 |
| | — |
| | — |
|
| Assets acquired under capital leases | 7 |
| | 2 |
| | — |
|
| Deferred payments on acquisitions of subsidiaries | 2 |
| | 4 |
| | 6 |
|
| Acquisitions: | |
| | |
| | |
|
| Fair value of assets acquired | $ | 47 |
| | $ | 23 |
| | $ | 6 |
|
| Less: | |
| | |
| | |
|
| Liabilities assumed | 30 |
| | 3 |
| | 3 |
|
| Cash acquired | 1 |
| | — |
| | 3 |
|
| Net assets acquired, net of cash acquired | $ | 16 |
| | $ | 20 |
| | $ | — |
|
|
| |
25. 26. | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES |
Fair value of derivative financial instruments
In addition to the note below, see Note 2627 - Fair Value Measurements for information about the fair value hierarchy of derivatives.
Primary risks managed by derivative financial instruments
The main risks managed by derivative financial instruments are interest rate risk and foreign currency risk. The Company’s boardBoard of directorsDirectors reviews and approves policies for managing each of these risks as summarized below.
The Company enters into derivative transactions (principally interest rate swaps and forward foreign currency contracts) in order to manage interest rate and foreign currency risks arising from the Company’s operations and its sources of finance. The Company does not hold financial or derivative instruments for trading purposes.
Interest Rate Risk — Investment Income
As a result of the Company’s operating activities, the Company receives cash for premiums and claims which it deposits in short-term investments denominated in US dollars and other currencies. The Company earns interest on these funds, which is included in the Company’s financial statements as investment income. These funds are regulated in terms of
123
Willis Group Holdings plc
| |
25. | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued) |
access and the instruments in which they may be invested, most of which are short-term in maturity.
In order to manage interest rate risk arising from these financial assets, the Company entersentered into interest rate swaps to receive a fixed rate of interest and pay a variable rate of interest fixeddenominated in the various currencies related to the short-term investments. The use of interest rate contracts essentially convertsconverted groups of short-term variable rate investments to fixed rates.
rate investments. The fair value of these contracts iswas recorded in other assets and other liabilities. For contracts that qualifyqualified as cash flow hedges for accounting purposes, the effective portions of changes in fair value arewere recorded as a component of other comprehensive income.income, to the extent that the hedge relationships were highly effective.
Willis Group Holdings plc
26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
From the fourth quarter of 2011, the Company stopped entering into any new hedging transactions relating to interest rate risk from investments, given the flat yield curve environment at that time. Further to this, during second quarter 2012, the Company closed out its legacy position for these interest rate swap contracts.
The fair value of these swaps at the close out date was $16 million, representing a cash settlement amount on termination. In connection with the terminated swaps, the Company retained a gain of $15 million in other comprehensive income as the forecasted short-term investment transactions in relation to which the swaps qualified as cash flow hedges are still considered probable. These amounts are reclassified into earnings consistent with when the forecasted swap transactions affect earnings. We expect approximately $5 million of the gain to be recognized in the consolidated statement of operations in 2014.
At December 31, 20112013 and 2010,2012, the Company had the followingno derivative financial instruments that were designated as cash flow hedges of interest rate risk:risk in investments.
| | | | | | | | | | | | | | | | | | | |
| | | | | December 31, | |
| | | | | | | | | | | Weighted Average
| |
| | | | | Notional
| | | Termination
| | | Interest Rates | |
| | | | | Amount(i) | | | Dates | | | Receive | | | Pay | |
| | | | | (millions) | | | | | | % | | | % | |
| |
2011 | | | | | | | | | | | | | | | | | | |
| US dollar | | Receive fixed-pay variable | | $ | 740 | | | | 2012-2015 | | | | 2.20 | | | | 0.88 | |
| Pounds sterling | | Receive fixed-pay variable | | | 241 | | | | 2012-2015 | | | | 3.00 | | | | 1.35 | |
| Euro | | Receive fixed-pay variable | | | 143 | | | | 2012-2015 | | | | 2.31 | | | | 1.33 | |
2010 | | | | | | | | | | | | | | | | | | |
| US dollar | | Receive fixed-pay variable | | $ | 725 | | | | 2011-2014 | | | | 2.44 | | | | 1.33 | |
| Pounds sterling | | Receive fixed-pay variable | | | 229 | | | | 2011-2014 | | | | 3.16 | | | | 1.88 | |
| Euro | | Receive fixed-pay variable | | | 155 | | | | 2011-2014 | | | | 2.18 | | | | 1.81 | |
| | |
(i) | | Notional amounts represent US dollar equivalents translated at the spot rate as of December 31. |
Interest Rate Risk — Interest Expense
The Company’sCompany's operations are financed principally by $2,050$2,054 million fixed rate senior notes and $300$274 million under a5-year 7-year term loan facility.
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. At the year end the weighted average fixed rate was 2.71% and variable rate was 0.44%. The Company has designated and accounts for these instruments as fair value hedges against its $350 million 5.625% senior notes due 2015. The fair values of the interest rate swaps are included within other assets or other liabilities and the fair value of the hedged element of the senior notes is included within long-term debt.
The Company also has access to $520$800 million under its main revolving credit facility expiring July 23, 2018, and $22 million under two further revolving credit facilities; asfacilities. As of December 31, 20112013 $nil was drawn on these facilities.
The5-year 7-year term loan facility bears interest at LIBOR plus 1.50%. Drawings and drawings under the revolving $500 million credit facility bear interest at LIBOR plus 1.50%. These margins apply while the Company’s debt rating remains BBB-/Baa3. Should the Company’s debt rating change, then the margin will change in accordance with the credit facilities agreements. The fixed rate senior notes bear interest at various rates as detailed in Note 20 — ‘Debt’.
AtDuring the year ended December 31, 2011 and 2010, the Company’sCompany entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. The Company had previously designated these instruments as fair value hedges against its $350 million5.625% senior notes due 2015 and had accounted for them accordingly until the first quarter of 2013 at which point these swaps, although remaining as economic hedges, no longer qualified for hedge accounting.
During the year ended December 31, 2013, the Company closed out the above interest rate swaps and received a cash settlement of $13 million on termination.
Following the partial extinguishment of the 5.625% senior notes due 2015 on August 15, 2013, we have recorded a credit of $7 million to remove a corresponding partial amount of the fair value adjustment to the carrying values of the notes originally recognized in connection with the interest rate swaps. The remaining $5 million fair value adjustment as at that date will be amortized through interest expense over the period to maturity.
To hedge against the potential variability in benchmark interest rates in advance of the anticipated debt issuance, the Company entered into two short-term treasury locks during the three months ended June 30, 2013. These were allclosed out during the three months ended September 30, 2013 following the issue of the new senior notes described in Note 20 - 'Debt'. The fair value of these treasury locks at the close out date was $21 million, received as a cash settlement on termination.
The Company had designated the Treasury locks as hedging instruments.effective hedges of the anticipated transaction and had recognized a gain of $19 million in other comprehensive income in relation to the effective element that qualified for hedge accounting. This amount will be reclassified into earnings consistent with the recognition of interest expense on the 4.625% senior notes due 2023 and the 6.125% senior notes due 2043. In addition, the Company recognized a $2 million gain in interest expense for the portion of the treasury locks determined as ineffective.
124
Notes to the financial statements
26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
| |
25. | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued) |
Foreign Currency Risk
The Company’s primary foreign exchange risks arise:
from changes in the exchange rate between US dollars and pounds sterling as its London market operations earn the majority of their revenues in US dollars and incur expenses predominantly in Pounds sterling, and may also hold a significant net sterling asset or liability position on the balance sheet. In addition, the London market operations earn significant revenues in Euros and Japanese yen; and
| |
• | from changes in the exchange rate between US dollars and pounds sterling as its London market operations earn the majority of their revenues in US dollars and incur expenses predominantly in pounds sterling, and may also hold a significant net sterling asset or liability position on the balance sheet. In addition, the London market operations earn significant revenues in Euros and Japanese yen; and |
|
• | from the translation into US dollars of the net income and net assets of its foreign subsidiaries, excluding the London market operations which are US dollar denominated. |
from the translation into US dollars of the net income and net assets of its foreign subsidiaries, excluding the London market operations which are US dollar denominated.
The foreign exchange risks in its London market operations are hedged as follows:
| |
• | to the extent that forecast pound sterling expenses exceed poundto the extent that forecast Pound sterling expenses exceed Pound sterling revenues, the Company limits its 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 the UK operations earn significant revenues in Euros and Japanese yen, the Company limits its 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. |
Theto the extent the UK operations earn significant revenues in Euros and Japanese yen, the Company does not hedgelimits its 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. In addition, we are also exposed to foreign exchange risk on any net income earned within foreign subsidiaries outside of the UK.
sterling asset or liability position in our London market operations.
The fair value of foreign currency contracts is recorded in other assets and other liabilities. For contracts that qualify as accounting hedges, changes in fair value resulting from movements in the spot exchange rate are recorded as a component of other comprehensive income whilst changes resulting from a movement in the time value are recorded in interest expense. For contracts that do not qualify for hedge accounting, the total change in fair value is recorded in interest expense. Amounts held in comprehensive income are reclassified into earnings when the hedged exposure affects earnings.
At December 31, 20112013 and 2010,2012, the Company’s foreign currency contracts were all designated as hedging instruments except for those relating to short-term cash flows in its London market operations.
and hedges of certain intercompany loans.
The table below summarizes by major currency the contractual amounts of the Company’s forward contracts to exchange foreign currencies for poundsPounds sterling in the case of US dollars and US dollars for Euroeuro and Japanese yen. Foreign currency notional amounts are reported in US dollars translated at contracted exchange rates.
| | | | | | | | | |
| | | December 31, | |
| | | Sell
| | | Sell
| |
| | | 2011(i) | | | 2010 | |
| | | (millions) | |
| |
| US dollar | | $ | 235 | | | $ | 315 | |
| Euro | | | 129 | | | | 157 | |
| Japanese yen | | | 50 | | | | 64 | |
|
| | | | | | | |
| | December 31, |
| | Sell 2013(i) | | Sell 2012 |
| | (millions) |
| US dollar | $ | 303 |
| | $ | 255 |
|
| Euro | 97 |
| | 55 |
|
| Japanese yen | 35 |
| | 32 |
|
| | |
(i) | | Forward exchange contracts range in maturity from 20122014 to 2014.2015. |
In addition to forward exchange contracts we undertake short-term foreign exchange swaps for liquidity purposes, thesepurposes. These are not designated as hedges and do not qualify for hedge accounting. Both theThe fair valuevalues at December 31, 2013 and2012 were immaterial.
During the year to date gain/loss atended December 31, 20112013, the Company entered into a number of foreign currency transactions in order to hedge certain intercompany loans. These derivatives were not designated as hedging instruments and 2010 were immaterial.for a total notional amount of $228 million (December 31, 2012: $63 million). In respect of these transactions, an immaterial amount has been recognized as an asset within other current assets and a nominal gain has been recognized in income within other operating expenses for the period.
125
Willis Group Holdings plc
| |
25. | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued) |
26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Derivative financial instruments
The table below presents the fair value of the Company’s derivative financial instruments and their balance sheet classification at December 31:
| | | | | | | | | | | |
| | | | | Fair value | |
| | | Balance sheet
| | December 31,
| | | December 31,
| |
| Derivative financial instruments designated as hedging instruments: | | classification | | 2011 | | | 2010 | |
| | | | | (millions) | |
| |
| Assets: | | | | | | | | | | |
| Interest rate swaps (cash flow hedges) | | Other assets | | $ | 15 | | | $ | 17 | |
| Interest rate swaps (fair value hedges) | | Other assets | | | 26 | | | | 14 | |
| Forward exchange contracts | | Other assets | | | 11 | | | | 16 | |
| | | | | | | | | | | |
| Total derivatives designated as hedging instruments | | | | $ | 52 | | | $ | 47 | |
| | | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Interest rate swaps (cash flow hedges) | | Other liabilities | | $ | — | | | $ | 2 | |
| Forward exchange contracts | | Other liabilities | | | 11 | | | | 10 | |
| | | | | | | | | | | |
| Total derivatives designated as hedging instruments | | | | $ | 11 | | | $ | 12 | |
| | | | | | | | | | | |
|
| | | | | | | | | |
| | | | Fair value |
| | Balance sheet | | December 31, | | December 31, |
| Derivative financial instruments designated as hedging instruments: | classification | | 2013 | | 2012 |
| | | | (millions) |
| Assets: | | | |
| | |
|
| Interest rate swaps (fair value hedges) | Other assets | | — |
| | 22 |
|
| Forward exchange contracts | Other assets | | 23 |
| | 9 |
|
| Total derivatives designated as hedging instruments | | | $ | 23 |
| | $ | 31 |
|
| Liabilities: | | | |
| | |
|
| Forward exchange contracts | Other liabilities | | 2 |
| | — |
|
| Total derivatives designated as hedging instruments | | | $ | 2 |
| | $ | — |
|
Cash Flow Hedges
The table below presents the effects of derivative financial instruments in cash flow hedging relationships on the consolidated statements of operations and the consolidated statements of equity for years ended December 31, 20112013, 2012 and 2010:2011:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Amount of
| |
| | | | | | | | | | | | | gain (loss)
| |
| | | | | | | | Amount of
| | | | | recognized
| |
| | | | | | | | gain (loss)
| | | | | in income
| |
| | | Amount of
| | | | | reclassified
| | | | | on derivative
| |
| | | gain (loss)
| | | | | from
| | | | | (ineffective
| |
| | | recognized
| | | | | accumulated
| | | Location of gain (loss)
| | hedges and
| |
| | | in OCI(i)
| | | Location of gain (loss)
| | OCI(i) into
| | | recognized in income
| | ineffective
| |
| | | on derivative
| | | reclassified from
| | income
| | | on derivative (ineffective
| | element of
| |
Derivatives in cash flow
| | (effective
| | | accumulated OCI(i) into
| | (effective
| | | hedges and ineffective
| | effective
| |
| hedging relationships | | element) | | | income (effective element) | | element) | | | element of effective hedges) | | hedges) | |
| | | (millions) | | | | | (millions) | | | | | (millions) | |
| |
Year ended December 31, 2011 | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | 13 | | | Investment income | | $ | (14 | ) | | Other operating expenses | | $ | — | |
| Forward exchange contracts | | | 3 | | | Other operating expenses | | | (7 | ) | | Interest expense | | | (2 | ) |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 16 | | | | | $ | (21 | ) | | | | $ | (2 | ) |
| | | | | | | | | | | | | | | | | |
Year ended December 31, 2010 | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | 15 | | | Investment income | | $ | (26 | ) | | Other operating expenses | | $ | — | |
| Forward exchange contracts | | | — | | | Other operating expenses | | | 20 | | | Interest expense | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 15 | | | | | $ | (6 | ) | | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Year ended December 31, 2009 | | | | | | | | | | | | | | | | |
| Interest rate swaps | | $ | 16 | | | Investment income | | $ | (27 | ) | | Other operating expenses | | $ | (1 | ) |
| Forward exchange contracts | | | 25 | | | Other operating expenses | | | 45 | | | Interest expense | | | — | |
| | | | | �� | | | | | | | | | | | | |
| Total | | $ | 41 | | | | | $ | 18 | | | | | $ | (1 | ) |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Derivatives in cash flow hedging relationships | Amount of
gain (loss)
recognized
in OCI(i)on derivative (effective element) | | Location of gain (loss)
reclassified from accumulated OCI(i) into income (effective element) | | Amount of
gain (loss)
reclassified
from
accumulated
OCI(i) into
income(effective element) | | Location of gain (loss)
recognized in income
on derivative (ineffective hedges and ineffective element of effective hedges) | | Amount of
gain (loss)
recognized
in income
on derivative
(ineffective
hedges and
ineffective
element of effective hedges) |
| | (millions) | | | | (millions) | | | | (millions) |
| Year Ended December 31, 2013 | |
| | | | |
| | | | |
|
| Interest rate swaps | $ | — |
| | Investment income | | $ | (5 | ) | | Other operating expenses | | $ | — |
|
| Treasury locks | 19 |
| | Interest expense | | — |
| | Interest expense | | 2 |
|
| Forward exchange contracts | 10 |
| | Other operating expenses | | 1 |
| | Interest expense | | 1 |
|
| Total | $ | 29 |
| | | | $ | (4 | ) | | | | $ | 3 |
|
| Year Ended December 31, 2012 | |
| | | | |
| | | | |
|
| Interest rate swaps | $ | 3 |
| | Investment income | | $ | (5 | ) | | Other operating expenses | | $ | — |
|
| Forward exchange contracts | 11 |
| | Other operating expenses | | (4 | ) | | Interest expense | | 1 |
|
| Total | $ | 14 |
| | | | $ | (9 | ) | | | | $ | 1 |
|
| Year Ended December 31, 2011 | |
| | | | |
| | | | |
|
| Interest rate swaps | $ | 13 |
| | Investment income | | $ | (14 | ) | | Other operating expenses | | $ | — |
|
| Forward exchange contracts | 3 |
| | Other operating expenses | | (7 | ) | | Interest expense | | (2 | ) |
| Total | $ | 16 |
| | | | $ | (21 | ) | | | | $ | (2 | ) |
Amounts above shown gross of tax.
| | |
(i) | | OCI means other comprehensive income. |
126
Notes to the financial statements
| |
25. | DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued) |
For interest rate swaps all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. For foreign exchange contracts, only the changes in fair value resulting from movements in the spot exchange rate are included in this assessment. In instances where the timing of expected cash flows can be matched exactly to the maturity of the foreign exchange contract, then changes in fair value attributable to movement in the forward points are also included.
Notes to the financial statements
26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
At December 31, 20112013 the Company estimates there will be $2$20 million of net derivative gains reclassified from accumulated comprehensive income into earnings within the next twelve months.months as the forecasted transactions affect earnings.
Fair Value Hedges
The Company had previously designated interest rate swaps as fair value hedges against its $350 million 5.625% senior notes due 2015 and accounted for them accordingly until the first quarter of 2013 at which point these swaps, although remaining as economic hedges, no longer qualified for hedge accounting.
The table below presents the effects of derivative financial instruments in fair value hedging relationships on the consolidated statements of operations for the yearyears ended December 31, 20112013, 2012 and 2010. The Company did not have any derivative financial instruments in fair value hedging relationships during 2009.2011.
| | | | | | | | | | | | | | | |
| | | | | | | | Loss
| | | Ineffectiveness
| |
| | | | | Gain
| | | recognized
| | | recognized in
| |
| | | Hedged item in fair value
| | recognized
| | | for hedged
| | | interest
| |
| Derivatives in fair value hedging relationships | | hedging relationship | | for derivative | | | item | | | expense | |
| | | | | (millions) | |
| |
Year ended December 31, 2011 | | | | | | | | | | | | | | |
| Interest rate swaps | | 5.625% senior notes due 2015 | | $ | 7 | | | $ | (8 | ) | | $ | 1 | |
| | | | | | | | | | | | | | | |
Year ended December 31, 2010 | | | | | | | | | | | | | | |
| Interest rate swaps | | 5.625% senior notes due 2015 | | $ | 14 | | | $ | (12 | ) | | $ | (2 | ) |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | |
| Derivatives in fair value hedging relationships | Hedged item in fair value hedging relationship | | (Loss) gain recognized for derivative | | Gain (loss) recognized for hedged item | | Ineffectiveness recognized in interest expense |
| | | | (millions) |
| Year Ended December 31, 2013 | | | |
| | |
| | |
|
| Interest rate swaps | 5.625% senior notes due 2015 | | $ | — |
| | $ | — |
| | $ | — |
|
| Year Ended December 31, 2012 | | | |
| | |
| | |
|
| Interest rate swaps | 5.625% senior notes due 2015 | | $ | (3 | ) | | $ | 2 |
| | $ | 1 |
|
| Year Ended December 31, 2011 | | | |
| | |
| | |
|
| Interest rate swaps | 5.625% senior notes due 2015 | | $ | 7 |
| | $ | (8 | ) | | $ | 1 |
|
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
127The table below presents the effects of derivative financial instruments no longer in fair value hedging relationships on the consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011.
|
| | | | | | | | | | | | | |
| Derivatives no longer in fair value hedging relationships | Hedged item in fair value hedging relationship | | Loss recognized for derivative | | Amortization or prior loss recognized on hedged item | | Net gain recognized (i) |
| | | | (millions) |
| Year Ended December 31, 2013 | | | |
| | |
| | |
|
| Interest rate swaps | 5.625% senior notes due 2015 | | $ | (5 | ) | | $ | 14 |
| | $ | 9 |
|
| Year Ended December 31, 2012 | | | |
| | |
| | |
|
| Interest rate swaps | 5.625% senior notes due 2015 | | $ | — |
| | $ | — |
| | $ | — |
|
| Year Ended December 31, 2011 | | | |
| | |
| | |
|
| Interest rate swaps | 5.625% senior notes due 2015 | | $ | — |
| | $ | — |
| | $ | — |
|
____________________
(i) The net gain was included entirely in interest expense, except for $7 million in the year ended December 31, 2013 which formed part of the loss on extinguishment of debt.
Credit Risk and Concentrations of Credit Risk
Credit risk represents the loss that would be recognized at the reporting date if counterparties failed to perform as contracted and from movements in interest rates and foreign exchange rates. The Company currently does not anticipate non-performance by its counterparties. The Company generally does not require collateral or other security to support financial instruments with credit risk.
Concentrations of credit risk that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments on the balance sheet that potentially subject the Company to
Willis Group Holdings plc
26. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivatives which are recorded at fair value.
The Company maintains a policy providing for the diversification of cash and cash equivalent investments and places such investments in an extensive number of financial institutions to limit the amount of credit risk exposure. These financial institutions are monitored on an ongoing basis for credit quality predominantly using information provided by credit agencies.
Concentrations of credit risk with respect to receivables are limited due to the large number of clients and markets in which the Company does business, as well as the dispersion across many geographic areas. Management does not believe significant risk exists in connection with the Company's concentrations of credit as of December 31, 2013.
Notes to the financial statements
|
| |
26. 27. | FAIR VALUE MEASUREMENTS |
The Company’s principal financial instruments, other than derivatives, comprise the fixed rate senior notes, the5-year term loan, a revolving credit facility, fiduciaryCompany has categorized its assets and liabilities that are measured at fair value on a recurring and cash deposits.non-recurring basis into a three-level fair value hierarchy, based on the reliability of the inputs used to determine fair value as follows:
Level 1: refers to fair values determined based on quoted market prices in active markets for identical assets;
Level 2: refers to fair values estimated using observable market based inputs or unobservable inputs that are corroborated by market data; and
Level 3: includes fair values estimated using unobservable inputs that are not corroborated by market data.
The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:
Long-term debt excluding the fair value hedge-Fair values are based on quoted market values and so classified as Level 1 measurements.
Derivative financial instruments-Market values have been used to determine the fair value of interest rate swaps and forward foreign exchange contracts based on estimated amounts the Company would receive or have to pay to terminate the agreements, taking into account the current interest rate environment or current foreign currency forward rates.
Recurring basis
The following table presents, for each of the fair-value hierarchy levels, the Company’sCompany's assets and liabilities that are measured at fair value on a recurring basis:basis.
| | | | | | | | | | | | | | | | | |
| | | December 31, 2011 | |
| | | Quoted
| | | | | | | | | | |
| | | prices in
| | | | | | | | | | |
| | | active
| | | | | | | | | | |
| | | markets
| | | Significant
| | | Significant
| | | | |
| | | for
| | | other
| | | other
| | | | |
| | | identical
| | | observable
| | | unobservable
| | | | |
| | | assets | | | inputs | | | inputs | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Assets at fair value: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 436 | | | $ | — | | | $ | — | | | $ | 436 | |
| Fiduciary funds (included within Fiduciary assets) | | | 1,688 | | | | — | | | | — | | | | 1,688 | |
| Derivative financial instruments | | | — | | | | 52 | | | | — | | | | 52 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 2,124 | | | $ | 52 | | | $ | — | | | $ | 2,176 | |
| | | | | | | | | | | | | | | | | |
| Liabilities at fair value: | | | | | | | | | | | | | | | | |
| Derivative financial instruments | | $ | — | | | $ | 11 | | | $ | — | | | $ | 11 | |
Changes in fair value of hedged debt(i) | | | — | | | | 20 | | | | — | | | | 20 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities | | $ | — | | | $ | 31 | | | $ | — | | | $ | 31 | |
| | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2013 |
| | Quoted prices in active markets for identical assets | | Significant other observable inputs | | Significant other unobservable inputs | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | (millions) | | |
| Assets at fair value: | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 796 |
| | $ | — |
| | $ | — |
| | $ | 796 |
|
| Fiduciary funds (included within Fiduciary assets) | 1,662 |
| | — |
| | — |
| | 1,662 |
|
| Derivative financial instruments | — |
| | 23 |
| | — |
| | 23 |
|
| Total assets | $ | 2,458 |
| | $ | 23 |
| | $ | — |
| | $ | 2,481 |
|
| Liabilities at fair value: | |
| | |
| | |
| | |
|
| Derivative financial instruments | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
|
| Total liabilities | $ | — |
| | $ | 2 |
| | $ | — |
| | $ | 2 |
|
Willis Group Holdings plc
27. FAIR VALUE MEASUREMENTS (Continued)
|
| | | | | | | | | | | | | | | |
| | December 31, 2012 |
| | Quoted prices in active markets for identical assets | | Significant other observable inputs | | Significant other unobservable inputs | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | (millions) | | |
| Assets at fair value: | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 500 |
| | $ | — |
| | $ | — |
| | $ | 500 |
|
| Fiduciary funds (included within Fiduciary assets) | 1,796 |
| | — |
| | — |
| | 1,796 |
|
| Derivative financial instruments | — |
| | 31 |
| | — |
| | 31 |
|
| Total assets | $ | 2,296 |
| | $ | 31 |
| | $ | — |
| | $ | 2,327 |
|
| Liabilities at fair value: | |
| | |
| | |
| | |
|
Changes in fair value of hedged debt(i) | — |
| | 18 |
| | — |
| | 18 |
|
| Total liabilities | $ | — |
| | $ | 18 |
| | $ | — |
| | $ | 18 |
|
| | |
(i) | | Changes in the fair value of the underlying hedged debt instrument since inception of the hedging relationship are included in long-term debt. |
| | | | | | | | | | | | | | | | | |
| | | December 31, 2010 | |
| | | Quoted
| | | | | | | | | | |
| | | prices in
| | | | | | | | | | |
| | | active
| | | | | | | | | | |
| | | markets
| | | Significant
| | | Significant
| | | | |
| | | for
| | | other
| | | other
| | | | |
| | | identical
| | | observable
| | | unobservable
| | | | |
| | | assets | | | inputs | | | inputs | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | (millions) | | | | |
| |
| Assets at fair value: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 316 | | | $ | — | | | $ | — | | | $ | 316 | |
| Fiduciary funds (included within Fiduciary assets) | | | 1,764 | | | | — | | | | — | | | | 1,764 | |
| Derivative financial instruments | | | — | | | | 47 | | | | — | | | | 47 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 2,080 | | | $ | 47 | | | $ | — | | | $ | 2,127 | |
| | | | | | | | | | | | | | | | | |
| Liabilities at fair value: | | | | | | | | | | | | | | | | |
| Derivative financial instruments | | $ | — | | | $ | 12 | | | $ | — | | | $ | 12 | |
Changes in fair value of hedged debt(i) | | | — | | | | 12 | | | | — | | | | 12 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities | | $ | — | | | $ | 24 | | | $ | — | | | $ | 24 | |
| | | | | | | | | | | | | | | | | |
| | |
(i) | | Changes in the fair value of the underlying hedged debt instrument since inception of the hedging relationship are included in long-term debt. |
128
Notes to the financial statements
| |
26. | FAIR VALUE MEASUREMENTS (Continued) |
The estimated fair value of the Company’s financial instruments held or issued to finance the Company’s operations is summarized below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition nor do they indicate the Company’s intent or ability to dispose of the financial instrument.
| | | | | | | | | | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | Carrying
| | | Fair
| | | Carrying
| | | Fair
| |
| | | amount | | | value | | | amount | | | value | |
| | | | | | (millions) | | | | |
| |
| Assets: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 436 | | | $ | 436 | | | $ | 316 | | | $ | 316 | |
| Fiduciary funds (included within Fiduciary assets) | | | 1,688 | | | | 1,688 | | | | 1,764 | | | | 1,764 | |
| Derivative financial instruments | | | 52 | | | | 52 | | | | 47 | | | | 47 | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Short-term debt | | $ | 15 | | | $ | 15 | | | $ | 110 | | | $ | 110 | |
| Long-term debt | | | 2,354 | | | | 2,499 | | | | 2,157 | | | | 2,450 | |
| Derivative financial instruments | | | 11 | | | | 11 | | | | 12 | | | | 12 | |
|
| | | | | | | | | | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | Carrying amount | | Fair value | | Carrying amount | | Fair value |
| | | | (millions) | | |
| Assets: | |
| | |
| | |
| | |
|
| Derivative financial instruments | $ | 23 |
| | $ | 23 |
| | $ | 31 |
| | $ | 31 |
|
| Liabilities: | |
| | |
| | |
| | |
|
| Short-term debt | $ | 15 |
| | $ | 15 |
| | $ | 15 |
| | $ | 15 |
|
| Long-term debt | 2,311 |
| | 2,444 |
| | 2,338 |
| | 2,576 |
|
| Derivative financial instruments | 2 |
| | 2 |
| | — |
| | — |
|
Non-recurring basis
The following methods and assumptions were used by the Company in estimating itsremeasurement of goodwill is classified as non-recurring level 3 fair value disclosure for financial instruments:
Cash and cash equivalents—assessment due to the significance of unobservable inputs developed using company-specific information. The estimatedCompany recognized an impairment charge in its North America reporting unit during 2012. The pre-tax impairment charge of $492 million was recognized as a result of the Company's annual goodwill impairment testing performed as of October 1, 2012, which reduced the carrying value of the North America reporting unit goodwill as of that date of $1,782 million to its implied fair value of these financial instruments approximates their carrying values due$1,290 million.
The Company used the income approach to their short maturities.
Fiduciary funds—Fair values are based on quoted market values.
Long-term debt excluding the fair value hedge—Fair values are based on quoted market values.
Derivative financial instruments—Market values have been used to determinemeasure the fair value of interest rate swaps and forward foreign exchange contractsthe North America reporting unit which involves calculating the fair value of a reporting unit based on the present value of the estimated amounts the Company would receive or have to pay to terminate the agreements,future cash flows. Cash flow projections were based on management's estimates of revenue growth rates and operating margins, taking into accountconsideration industry and market conditions and the current interestuncertainty related to the business's ability to execute on the projected cash flows. The discount rate environment or current foreign currency forward rates.used was based on the weighted-average cost of capital adjusted for the relevant risk associated with the market participant
Notes to the financial statements
27. FAIR VALUE MEASUREMENTS (Continued)
expectations of characteristics of the individual reporting units. The unobservable inputs used to fair value this reporting unit include projected revenue growth rates, profitability and the market participant assumptions within the discount rate.
The inputs used to measure the fair value of the intangibles assets of the North America reporting unit in step two of the impairment test were largely unobservable, and accordingly, are also classified as Level 3. The fair value was estimated using a multiple period excess earnings method, which is based on management's cash flow projections of revenue growth rates, operating margins and expected customer attrition, taking into consideration industry and market conditions. The discount rate used in the fair value calculations for the intangibles was based on a weighted average cost of capital adjusted for the relevant risk associated with those assets. The unobservable inputs used in these valuations include projected revenue growth rates, and the market participant assumptions within the discount rate. For more information on this impairment measured as a nonrecurring fair value adjustment, see Note 13 - Goodwill.
Willis Group Holdings plc
|
| |
27. 28. | SEGMENT INFORMATION |
During the periods presented, the Company operated through three reporting segments: Global, North America and International. Global provides specialist brokerage and consulting services to clients worldwide for specific industrial and commercial activities and is organized by specialism. North America and International predominantly comprise our retail operations which provide services to small, medium and large corporations, accessing Global’s specialist expertise when required.
The Company evaluates the performance of its operating segments based on organic commissions and fees growth and operating income. For internal reporting and segmental reporting, the following items for which segmental management are not held accountable are excluded from segmental expenses:
| | |
| (i) | costs of the holding company; |
|
| (ii) | foreign exchange loss from the devaluation of the Venezuelan currency; |
|
| (iii) | foreign exchange hedging activities, foreign exchange movements on the UK pension plan asset, and foreign exchange gains and losses from currency purchases and sales;sales, and foreign exchange movements on internal exposures; |
129
Willis Group Holdings plc
| |
27. | SEGMENT INFORMATION (Continued) |
| | |
| (iv) (ii) | amortization of intangible assets; |
| |
| (v) (iii) | gains and losses on the disposal of operations; |
| |
| (vi) (iv) | significant legal and regulatory settlements which are managed centrally; and |
| |
|
| (vii) (v) | costs associated with the 2011 Operational Review.Review; |
| |
| (vi) | write-off of uncollectible accounts receivable balance and associated legal fees and insurance recoveries arising in Chicago due to fraudulent overstatement of commissions and fees; |
| |
| (vii) | the additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which will not feature a repayment requirement; |
| |
| (viii) | write-off of unamortized cash retention awards following the decision to eliminate repayment requirement on past awards; |
| |
| (ix) | goodwill impairment charge; |
| |
| (x) | fees related to the extinguishment of debt; and |
| |
| (xi) | costs associated with the Expense Reduction Initiative. |
The accounting policies of the operating segments are consistent with those described in Note 2 — Basis'Basis of Presentation and Significant Accounting Policies.Policies'. There are no inter-segment revenues, with segments operating on a revenue-sharing basis equivalent to that used when sharing business with other third-party brokers.
Notes to the financial statements
28. SEGMENT INFORMATION (Continued)
Selected information regarding the Company’s operating segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Interest in
| |
| | | | | | | | | | | | | | | Depreciation
| | | | | | earnings of
| |
| | | Commissions
| | | Investment
| | | Other
| | | Total
| | | and
| | | Operating
| | | associates,
| |
| | | and fees | | | income | | | income | | | revenues | | | amortization | | | income | | | net of tax | |
| | | | | | | | | | | | (millions) | | | | | | | | | | |
| |
Year ended December 31, 2011 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Global | | $ | 1,073 | | | $ | 9 | | | $ | — | | | $ | 1,082 | | | $ | 23 | | | $ | 352 | | | $ | — | |
| North America | | | 1,314 | | | | 7 | | | | 2 | | | | 1,323 | | | | 28 | | | | 271 | | | | — | |
| International | | | 1,027 | | | | 15 | | | | — | | | | 1,042 | | | | 18 | | | | 221 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Retail | | | 2,341 | | | | 22 | | | | 2 | | | | 2,365 | | | | 46 | | | | 492 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Operating Segments | | | 3,414 | | | | 31 | | | | 2 | | | | 3,447 | | | | 69 | | | | 844 | | | | 12 | |
Corporate and Other(i) | | | — | | | | — | | | | — | | | | — | | | | 73 | | | | (278) | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Consolidated | | $ | 3,414 | | | $ | 31 | | | $ | 2 | | | $ | 3,447 | | | $ | 142 | | | $ | 566 | | | $ | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Global | | $ | 987 | | | $ | 9 | | | $ | — | | | $ | 996 | | | $ | 18 | | | $ | 320 | | | $ | — | |
| North America | | | 1,369 | | | | 15 | | | | 1 | | | | 1,385 | | | | 23 | | | | 320 | | | | — | |
| International | | | 937 | | | | 14 | | | | — | | | | 951 | | | | 22 | | | | 226 | | | | 23 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Retail | | | 2,306 | | | | 29 | | | | 1 | | | | 2,336 | | | | 45 | | | | 546 | | | | 23 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Operating Segments | | | 3,293 | | | | 38 | | | | 1 | | | | 3,332 | | | | 63 | | | | 866 | | | | 23 | |
Corporate and Other(i) | | | — | | | | — | | | | — | | | | — | | | | 82 | | | | (113) | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Consolidated | | $ | 3,293 | | | $ | 38 | | | $ | 1 | | | $ | 3,332 | | | $ | 145 | | | $ | 753 | | | $ | 23 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31, 2009 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Global | | $ | 921 | | | $ | 17 | | | $ | — | | | $ | 938 | | | $ | 15 | | | $ | 311 | | | $ | — | |
| North America | | | 1,381 | | | | 15 | | | | 3 | | | | 1,399 | | | | 23 | | | | 328 | | | | — | |
| International | | | 898 | | | | 18 | | | | — | | | | 916 | | | | 26 | | | | 216 | | | | 33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Retail | | | 2,279 | | | | 33 | | | | 3 | | | | 2,315 | | | | 49 | | | | 544 | | | | 33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Operating Segments | | | 3,200 | | | | 50 | | | | 3 | | | | 3,253 | | | | 64 | | | | 855 | | | | 33 | |
Corporate and Other(i) | | | — | | | | — | | | | — | | | | — | | | | 100 | | | | (165) | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Consolidated | | $ | 3,200 | | | $ | 50 | | | $ | 3 | | | $ | 3,253 | | | $ | 164 | | | $ | 690 | | | $ | 33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commissions and fees | | Investment income | | Other income | | Total revenues | | Depreciation and amortization | | Operating income (loss) | | Interest in earnings of associates, net of tax |
| | | | | | | | (millions) | | | | | | |
| Year Ended December 31, 2013 | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Global | $ | 1,188 |
| | $ | 3 |
| | $ | — |
| | $ | 1,191 |
| | $ | 31 |
| | $ | 334 |
| | $ | — |
|
| North America | 1,377 |
| | 2 |
| | 7 |
| | 1,386 |
| | 37 |
| | 269 |
| | — |
|
| International | 1,068 |
| | 10 |
| | — |
| | 1,078 |
| | 21 |
| | 181 |
| | — |
|
| Total Retail | 2,445 |
| | 12 |
| | 7 |
| | 2,464 |
| | 58 |
| | 450 |
| | — |
|
| Total Operating Segments | 3,633 |
| | 15 |
| | 7 |
| | 3,655 |
| | 89 |
| | 784 |
| | — |
|
Corporate and Other(i) | — |
| | — |
| | — |
| | — |
| | 60 |
| | (99 | ) | | — |
|
| Total Consolidated | $ | 3,633 |
| | $ | 15 |
| | $ | 7 |
| | $ | 3,655 |
| | $ | 149 |
| | $ | 685 |
| | $ | — |
|
| | | | | | | | | | | | | | |
| Year Ended December 31, 2012 | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Global | $ | 1,124 |
| | $ | 5 |
| | $ | — |
| | $ | 1,129 |
| | $ | 27 |
| | $ | 372 |
| | $ | — |
|
| North America | 1,306 |
| | 3 |
| | 4 |
| | 1,313 |
| | 31 |
| | 240 |
| | — |
|
| International | 1,028 |
| | 10 |
| | — |
| | 1,038 |
| | 21 |
| | 183 |
| | 5 |
|
| Total Retail | 2,334 |
| | 13 |
| | 4 |
| | 2,351 |
| | 52 |
| | 423 |
| | 5 |
|
| Total Operating Segments | 3,458 |
| | 18 |
| | 4 |
| | 3,480 |
| | 79 |
| | 795 |
| | 5 |
|
Corporate and Other(i) | — |
| | — |
| | — |
| | — |
| | 59 |
| | (1,004 | ) | | — |
|
| Total Consolidated | $ | 3,458 |
| | $ | 18 |
| | $ | 4 |
| | $ | 3,480 |
| | $ | 138 |
| | $ | (209 | ) | | $ | 5 |
|
| | | | | | | | | | | | | | |
| Year Ended December 31, 2011 | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Global | $ | 1,073 |
| | $ | 9 |
| | $ | — |
| | $ | 1,082 |
| | $ | 23 |
| | $ | 352 |
| | $ | — |
|
| North America | 1,314 |
| | 7 |
| | 2 |
| | 1,323 |
| | 28 |
| | 271 |
| | — |
|
| International | 1,027 |
| | 15 |
| | — |
| | 1,042 |
| | 18 |
| | 221 |
| | 12 |
|
| Total Retail | 2,341 |
| | 22 |
| | 2 |
| | 2,365 |
| | 46 |
| | 492 |
| | 12 |
|
| Total Operating Segments | 3,414 |
| | 31 |
| | 2 |
| | 3,447 |
| | 69 |
| | 844 |
| | 12 |
|
Corporate and Other(i) | — |
| | — |
| | — |
| | — |
| | 73 |
| | (278 | ) | | — |
|
| Total Consolidated | $ | 3,414 |
| | $ | 31 |
| | $ | 2 |
| | $ | 3,447 |
| | $ | 142 |
| | $ | 566 |
| | $ | 12 |
|
| | |
(i) | | See the following table for an analysis of the ‘Corporate and other’ line. |
130
Willis Group Holdings plc
Notes to the financial statements28. SEGMENT INFORMATION (Continued)
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Amortization of intangible assets | $ | (55 | ) | | $ | (59 | ) | | $ | (68 | ) |
Additional incentive accrual for change in remuneration policy (a) | — |
| | (252 | ) | | — |
|
Write-off of unamortized cash retention awards debtor (b) | — |
| | (200 | ) | | — |
|
Goodwill impairment charge (c) | — |
| | (492 | ) | | — |
|
India joint venture settlement (d) | — |
| | (11 | ) | | — |
|
Insurance recovery (e) | — |
| | 10 |
| | — |
|
Write-off of uncollectible accounts receivable balance in Chicago (f) | — |
| | (13 | ) | | (22 | ) |
Net gain (loss) on disposal of operations (d) | 2 |
| | (3 | ) | | 4 |
|
| Foreign exchange hedging | 3 |
| | 8 |
| | 5 |
|
| Foreign exchange gain (loss) on the UK pension plan asset | 8 |
| | (1 | ) | | — |
|
| 2011 Operational Review | — |
| | — |
| | (180 | ) |
| FSA regulatory settlement | — |
| | — |
| | (11 | ) |
| Expense Reduction Initiative | (46 | ) | | — |
| | — |
|
Fees related to the extinguishment of debt (h) | (1 | ) | | — |
| | — |
|
Other(g) | (10 | ) | | 9 |
| | (6 | ) |
| Total Corporate and Other | $ | (99 | ) | | $ | (1,004 | ) | | $ | (278 | ) |
| |
(a) | Additional incentive accrual recognized following the replacement of annual incentive awards with annual cash bonuses which will not feature a repayment requirement. |
| |
(b) | Write-off of unamortized cash retention award debtor following the decision to eliminate the repayment requirement on past awards. |
| |
(c) | Non-cash charge recognized related to the impairment of the carrying value of the North America reporting unit's goodwill. |
| |
27.(d)
| SEGMENT INFORMATION (Continued)$11 million settlement with former partners related to the termination of a joint venture arrangement in India. In addition, a $1 million loss on disposal of operations was recorded related to the termination.
|
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Amortization of intangible assets | | $ | (68 | ) | | $ | (82 | ) | | $ | (100 | ) |
| Foreign exchange hedging | | | 5 | | | | (16 | ) | | | (42 | ) |
| Foreign exchange gain (loss) on the UK pension plan asset | | | — | | | | 3 | | | | (6 | ) |
| HRH integration costs | | | — | | | | — | | | | (18 | ) |
| Net gain (loss) on disposal of operations | | | 4 | | | | (2 | ) | | | 13 | |
| 2011 Operational Review | | | (180 | ) | | | — | | | | — | |
| FSA regulatory settlement | | | (11 | ) | | | — | | | | — | |
| Venezuela currency devaluation | | | — | | | | (12 | ) | | | — | |
| Write-off of uncollectible accounts receivable balance in North America | | | (22 | ) | | | — | | | | — | |
| Redomicile of parent company costs | | | — | | | | — | | | | (6 | ) |
Other(a) | | | (6 | ) | | | (4 | ) | | | (6 | ) |
| | | | | | | | | | | | | |
| Total Corporate and Other | | $ | (278 | ) | | $ | (113 | ) | | $ | (165 | ) |
| | | | | | | | | | | | | |
| |
(e) | Insurance recovery, recorded in Other operating expenses, related to a previously disclosed fraudulent activity in Chicago, discussed above. |
| |
(a)(f)
| In early 2012 the Company identified an uncollectible accounts receivable balance of approximately $28 million in Chicago due to fraudulent overstatements of Commissions and fees. For the year ended December 31, 2011, the Company recorded an estimate of the misstatement of Commissions and fees from prior periods by recognizing in the fourth quarter of 2011 a $22 million charge to Other operating expenses to write off the uncollectible receivable at January 1, 2011. |
The Company concluded its internal investigation into these matters in the three months ended March 31, 2012 and identified an additional $12 million in fraudulent overstatement of Commissions and fees, and has corrected the additional misstatement by recognizing a $13 million charge (including legal expenses) to Other operating expenses in the first quarter of 2012. The above amount represents the additional charge taken.
| |
(g) | Other includes $12$7 million (2010: $7 (2012: $7 million 2009: $nil), 2011: $12 million) from the release of funds and reserves related to potential legal liabilities. |
| |
(h) | $1 million of fees associated with the extinguishment of debt completed on August 15, 2013. |
The following table reconciles total consolidated operating income, as disclosed in the operating segment tables above, to consolidated income from continuing operations before income taxes and interest in earnings of associates.
Notes to the financial statements
| | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
| Total consolidated operating income | | $ | 566 | | | $ | 753 | | | $ | 690 | |
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | | | (171 | ) | | | — | | | | — | |
| Interest expense | | | (156 | ) | | | (166 | ) | | | (174 | ) |
| | | | | | | | | | | | | |
| Income from continuing operations before income taxes and interest in earnings of associates | | $ | 239 | | | $ | 587 | | | $ | 516 | |
| | | | | | | | | | | | | |
28. SEGMENT INFORMATION (Continued)
|
| | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
| Total consolidated operating income | $ | 685 |
| | $ | (209 | ) | | $ | 566 |
|
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | — |
| | — |
| | (171 | ) |
| Loss on extinguishment of debt | (60 | ) | | — |
| | — |
|
| Interest expense | (126 | ) | | (128 | ) | | (156 | ) |
| Income (loss) from continuing operations before income taxes and interest in earnings of associates | $ | 499 |
| | $ | (337 | ) | | $ | 239 |
|
The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total asset position by segment, and as such, no segmental analysis of assets has been disclosed. Segments are evaluated on organic commissions and fees growth and operating margin.
Operating segmentSegment revenue by product is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | | | 2011 | | | 2010 | | | 2009 | |
| | | Global | | | North America | | | International | | | Total | |
| | | (millions) | |
| |
| Commissions and fees: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Retail insurance services | | $ | — | | | $ | — | | | $ | — | | | $ | 1,314 | | | $ | 1,369 | | | $ | 1,381 | | | $ | 1,027 | | | $ | 937 | | | $ | 898 | | | $ | 2,341 | | | $ | 2,306 | | | $ | 2,279 | |
| Specialty insurance services | | | 1,073 | | | | 987 | | | | 921 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,073 | | | | 987 | | | | 921 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total commissions and fees | | | 1,073 | | | | 987 | | | | 921 | | | | 1,314 | | | | 1,369 | | | | 1,381 | | | | 1,027 | | | | 937 | | | | 898 | | | | 3,414 | | | | 3,293 | | | | 3,200 | |
| Investment income | | | 9 | | | | 9 | | | | 17 | | | | 7 | | | | 15 | | | | 15 | | | | 15 | | | | 14 | | | | 18 | | | | 31 | | | | 38 | | | | 50 | |
| Other income | | | — | | | | — | | | | — | | | | 2 | | | | 1 | | | | 3 | | | | — | | | | — | | | | — | | | | 2 | | | | 1 | | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Revenues | | $ | 1,082 | | | $ | 996 | | | $ | 938 | | | $ | 1,323 | | | $ | 1,385 | | | $ | 1,399 | | | $ | 1,042 | | | $ | 951 | | | $ | 916 | | | $ | 3,447 | | | $ | 3,332 | | | $ | 3,253 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
| | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | Global | | North America | | International | | Total |
| | (millions) |
| Commissions and fees: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Retail insurance services | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,377 |
| | $ | 1,306 |
| | $ | 1,314 |
| | $ | 1,068 |
| | $ | 1,028 |
| | $ | 1,027 |
| | $ | 2,445 |
| | $ | 2,334 |
| | $ | 2,341 |
|
| Specialty insurance services | 1,188 |
| | 1,124 |
| | 1,073 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,188 |
| | 1,124 |
| | 1,073 |
|
| Total commissions and fees | 1,188 |
| | 1,124 |
| | 1,073 |
| | 1,377 |
| | 1,306 |
| | 1,314 |
| | 1,068 |
| | 1,028 |
| | 1,027 |
| | 3,633 |
| | 3,458 |
| | 3,414 |
|
| Investment income | 3 |
| | 5 |
| | 9 |
| | 2 |
| | 3 |
| | 7 |
| | 10 |
| | 10 |
| | 15 |
| | 15 |
| | 18 |
| | 31 |
|
| Other income | — |
| | — |
| | — |
| | 7 |
| | 4 |
| | 2 |
| | — |
| | — |
| | — |
| | 7 |
| | 4 |
| | 2 |
|
| Total Revenues | $ | 1,191 |
| | $ | 1,129 |
| | $ | 1,082 |
| | $ | 1,386 |
| | $ | 1,313 |
| | $ | 1,323 |
| | $ | 1,078 |
| | $ | 1,038 |
| | $ | 1,042 |
| | $ | 3,655 |
| | $ | 3,480 |
| | $ | 3,447 |
|
None of the Company’s customers represented more than 10 percent of the Company’s consolidated commissions and fees for the years ended December 31, 2011, 20102013, 2012 and 2009.
131
Willis Group Holdings plc
| |
27. 2011. | SEGMENT INFORMATION (Continued) |
Information regarding the Company’s geographic locations is as follows:
| | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | (millions) | |
| |
Commissions and fees(i) | | | | | | | | | | | | |
| UK | | $ | 963 | | | $ | 902 | | | $ | 859 | |
| US | | | 1,461 | | | | 1,503 | | | | 1,508 | |
Other(ii) | | | 990 | | | | 888 | | | | 833 | |
| | | | | | | | | | | | | |
| Total | | $ | 3,414 | | | $ | 3,293 | | | $ | 3,200 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (millions) |
Commissions and fees(i) | |
| | |
| | |
|
| UK | $ | 1,026 |
| | $ | 980 |
| | $ | 963 |
|
| US | 1,549 |
| | 1,484 |
| | 1,461 |
|
Other(ii) | 1,058 |
| | 994 |
| | 990 |
|
| Total | $ | 3,633 |
| | $ | 3,458 |
| | $ | 3,414 |
|
| | | | | | | | | |
| | | December 31, | |
| | | 2011 | | | 2010 | |
| | | (millions) | |
| |
| Fixed assets | | | | | | | | |
| UK | | $ | 171 | | | $ | 163 | |
| US | | | 194 | | | | 178 | |
Other(ii) | | | 41 | | | | 40 | |
| | | | | | | | | |
| Total | | $ | 406 | | | $ | 381 | |
| | | | | | | | | |
|
| | | | | | | |
| | December 31, |
| | 2013 | | 2012 |
| | (millions) |
| Fixed assets | |
| | |
|
| UK | $ | 233 |
| | $ | 218 |
|
| US | 203 |
| | 207 |
|
Other(ii) | 45 |
| | 43 |
|
| Total | $ | 481 |
| | $ | 468 |
|
| | |
(i) | | Commissions and fees are attributed to countries based upon the location of the subsidiary generating the revenue. |
.
| | |
(ii) | | Other than in the United Kingdom and the United States, the Company does not conduct business in any country in which its commissions and fees and/and or fixed assets exceed 10 percent of consolidated commissions and fees and/and or fixed assets, respectively. |
Willis Group Holdings plc
|
| |
28. 29. | SUBSIDIARY UNDERTAKINGS |
The Company has investments in the following subsidiary undertakings which principally affect the net income or net assets of the Group.
A full list of the Group’s subsidiary undertakings is included within the Company’s annual return.
| | | | | | | | |
| | Country of
| | | | | |
| Subsidiary name | | Country of registration | | Class of share | | Percentage ownership | |
|
| Holding companies | | | | | | | |
|
| TAI Limited | | England and Wales | | Ordinary shares | | | 100 | % |
| Trinity Acquisition plc | | England and Wales | | Ordinary shares | | | 100 | % |
| Willis Faber Limited | | England and Wales | | Ordinary shares | | | 100 | % |
| Willis Group Limited | | England and Wales | | Ordinary shares | | | 100 | % |
| Willis Investment UK Holdings Limited | | England and Wales | | Ordinary shares | | | 100 | % |
Willis Netherlands Holdings B.V | B.V. | Netherlands | | Ordinary shares | | | 100 | % |
Willis Europe B.V | B.V. | England and Wales | | Ordinary shares | | | 100 | % |
| Insurance broking companies | | | | | | | |
|
| Willis HRH, Inc. | | USA | | Common shares | | | 100 | % |
| Willis Limited | | England and Wales | | Ordinary shares | | | 100 | % |
| Willis North America, Inc. | | USA | | Common shares | | | 100 | % |
| Willis Re, Inc. | | USA | | Common shares | | | 100 | % |
132
Notes to the financial statements
|
| |
29. 30. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES |
Willis North America Inc. (‘Willis North America’) has $350$148 million senior notes outstanding that were issued on July 1, 2005. Willis North America issued a further $6002005, $394 million of senior notes issued on March 28, 2007 and another $300$187 million of senior notes issued on September 29, 2009.
Until December 22, 2010, allAll direct obligations under the senior notes wereare jointly and severally, irrevocably and fully and unconditionally guaranteed by Willis Group Holdings, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, Trinity Acquisition plc TA III Limited, TA IV Limited and Willis Group Limited. On that dateLimited, collectively the 'Other Guarantors', and in connection with an internal group reorganization, TA II Limited, TA III Limited and TA IV Limited transferred their obligations as guarantors toWillis Group Holdings, the other guarantor companies. TA II Limited, TA III Limited and TA IV Limited entered voluntary liquidation on December 31, 2010. The assets of these companies were distributed to the other guarantor companies described below (‘Other Guarantors’), either directly or indirectly, as a final distribution paid prior to their entering voluntary liquidation. As such, these transactions did not have a material impact on the guarantees of the senior notes and did not require the consent of the noteholders under the applicable indentures.
'Guarantor Companies'.
The debt securities that were issued by Willis North America and guaranteed by the entities described above, and for which the disclosures set forth below relate and are required under applicable SEC rules, were issued under a ‘shelf’an effective registration statement onForm S-3, including our current June 2009 registration statement (the ‘Willis Shelf’).
statement.
Presented below is condensed consolidating financial information for:
| | |
| (i) | Willis Group Holdings, which is a guarantor, on a parent company only basis; |
| |
| (ii) | (ii) | the Other Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent and are all direct or indirect parents of the issuer; |
| |
|
| (iii) | the Issuer, Willis North America; |
| |
| (iv) | Other, which are the non-guarantor subsidiaries, on a combined basis; |
| |
| (v) | Consolidating adjustments; and |
| |
| (vi) | the Consolidated Company. |
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets for the year ended December 31, 20112013 of Willis Group Holdings, the Other Guarantors and the Issuer. Investments in subsidiaries in
Restatement to 2011 and 2012 financial information
Regulation S-X, Article 3, Rule 3-10, allows for the presentation of condensed consolidating financial information. In accordance with these rules, the condensed consolidating financial information should be presented in accordance with U.S. GAAP, except that (i) the guarantor and non-guarantor information is presented on a combined rather than consolidated basis, which requires the elimination of intra-entity activity and (ii) investments in subsidiaries are required to be presented under the equity method of accounting. Subsequent to the issuance of our 2012 financial statements, management determined that certain balances were not presented in accordance with the above principles and have therefore restated our condensed consolidating financial information to reflect (i) gross, rather than net, presentation of intercompany balance sheet for Other, representspositions, (ii) dividends received from subsidiaries as reductions to the costequity method investment balances opposed to as component of investment in subsidiaries recordedincome from group undertakings, and (iii) appropriate push down accounting for goodwill.
The impacts of these changes on the previously reported 2012 and 2011 financial statements are shown in the parent companiestables below.
The entities included in the Other Guarantors column for the year ended December 31, 2011 are Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, Trinity Acquisition plc, TA I Limited and Willis Group Limited.
133
Willis Group Holdings plc
| |
29. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement |
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of operations for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Operating loss | $ | (6 | ) | | $ | — |
| | $ | (6 | ) |
| Net loss attributable to Willis Group Holdings | (446 | ) | | — |
| | (446 | ) |
| The Other Guarantors | | | | | |
| Operating loss | $ | (72 | ) | | $ | (11 | ) | | $ | (83 | ) |
| Net loss attributable to Willis Group Holdings | (389 | ) | | (8 | ) | | (397 | ) |
| The Issuer | | | | | |
| Operating loss | $ | (189 | ) | | $ | — |
| | $ | (189 | ) |
| Net loss attributable to Willis Group Holdings | (228 | ) | | — |
| | (228 | ) |
| Other | | | | | |
| Operating income (loss) | $ | 122 |
| | $ | (53 | ) | | $ | 69 |
|
| Net loss attributable to Willis Group Holdings | (118 | ) | | (306 | ) | | (424 | ) |
| Consolidating adjustments | | | | | |
| Operating (loss) income | $ | (64 | ) | | $ | 64 |
| | $ | — |
|
| Net income attributable to Willis Group Holdings | 735 |
| | 314 |
| | 1,049 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of operations for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings | | | | | |
| Operating loss | $ | (20 | ) | | $ | — |
| | $ | (20 | ) |
| Net income attributable to Willis Group Holdings | 204 |
| | — |
| | 204 |
|
| The Other Guarantors | | | | | |
| Operating income (loss) | $ | 43 |
| | $ | (11 | ) | | $ | 32 |
|
| Net income attributable to Willis Group Holdings | 174 |
| | 72 |
| | 246 |
|
| The Issuer | | | | | |
| Operating loss | $ | (179 | ) | | $ | — |
| | $ | (179 | ) |
| Net loss attributable to Willis Group Holdings | (36 | ) | | (31 | ) | | (67 | ) |
| Other | | | | | |
| Operating income (loss) | $ | 754 |
| | $ | (21 | ) | | $ | 733 |
|
| Net income attributable to Willis Group Holdings | 137 |
| | 164 |
| | 301 |
|
| Consolidating adjustments | | | | | |
| Operating (loss) income | $ | (32 | ) | | $ | 32 |
| | $ | — |
|
| Net loss attributable to Willis Group Holdings | (275 | ) | | (205 | ) | | (480 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2011 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| REVENUES | | | | | | | | | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | — | | | $ | — | | | $ | — | | | $ | 3,414 | | | $ | — | | | $ | 3,414 | |
| Investment income | | | — | | | | 11 | | | | 2 | | | | 29 | | | | (11 | ) | | | 31 | |
| Other income | | | — | | | | — | | | | — | | | | 24 | | | | (22 | ) | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 11 | | | | 2 | | | | 3,467 | | | | (33 | ) | | | 3,447 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and benefits | | | (3 | ) | | | — | | | | (69 | ) | | | (2,015 | ) | | | — | | | | (2,087 | ) |
| Other operating expenses | | | (17 | ) | | | 32 | | | | (98 | ) | | | (571 | ) | | | (2 | ) | | | (656 | ) |
| Depreciation expense | | | — | | | | — | | | | (14 | ) | | | (60 | ) | | | — | | | | (74 | ) |
| Amortization of intangible assets | | | — | | | | — | | | | — | | | | (74 | ) | | | 6 | | | | (68 | ) |
| Net gain on disposal of operations | | | — | | | | — | | | | — | | | | 7 | | | | (3 | ) | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total expenses | | | (20 | ) | | | 32 | | | | (181 | ) | | | (2,713 | ) | | | 1 | | | | (2,881 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| OPERATING (LOSS) INCOME | | | (20 | ) | | | 43 | | | | (179 | ) | | | 754 | | | | (32 | ) | | | 566 | |
| Investment income from Group undertakings | | | 35 | | | | 406 | | | | 341 | | | | (157 | ) | | | (625 | ) | | | — | |
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | | | — | | | | (171 | ) | | | — | | | | — | | | | — | | | | (171 | ) |
| Interest expense | | | (34 | ) | | | (251 | ) | | | (159 | ) | | | (332 | ) | | | 620 | | | | (156 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | (19 | ) | | | 27 | | | | 3 | | | | 265 | | | | (37 | ) | | | 239 | |
| Income taxes | | | — | | | | 56 | | | | 27 | | | | (117 | ) | | | 2 | | | | (32 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | (19 | ) | | | 83 | | | | 30 | | | | 148 | | | | (35 | ) | | | 207 | |
| Interest in earnings of associates, net of tax | | | — | | | | — | | | | — | | | | 4 | | | | 8 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS | | | (19 | ) | | | 83 | | | | 30 | | | | 152 | | | | (27 | ) | | | 219 | |
| Discontinued operations, net of tax | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET (LOSS) INCOME | | | (19 | ) | | | 83 | | | | 30 | | | | 153 | | | | (27 | ) | | | 220 | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | (16 | ) | | | — | | | | (16 | ) |
| EQUITY ACCOUNT FOR SUBSIDIARIES | | | 223 | | | | 91 | | | | (66 | ) | | | — | | | | (248 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | $ | 204 | | | $ | 174 | | | $ | (36 | ) | | $ | 137 | | | $ | (275 | ) | | $ | 204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
134
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
| |
29. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of comprehensive income for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (552 | ) | | $ | — |
| | $ | (552 | ) |
| The Other Guarantors | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (486 | ) | | $ | (8 | ) | | $ | (494 | ) |
| The Issuer | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (263 | ) | | $ | — |
| | $ | (263 | ) |
| Other | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (226 | ) | | $ | (306 | ) | | $ | (532 | ) |
| Consolidating adjustments | | | | | |
| Comprehensive income attributable to Willis Group Holdings | $ | 975 |
| | $ | 314 |
| | $ | 1,289 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of comprehensive income for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings | | | | | |
| Comprehensive income attributable to Willis Group Holdings | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| The Other Guarantors | | | | | |
| Comprehensive (loss) income attributable to Willis Group Holdings | $ | (24 | ) | | $ | 72 |
| | $ | 48 |
|
| The Issuer | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (117 | ) | | $ | (31 | ) | | $ | (148 | ) |
| Other | | | | | |
| Comprehensive (loss) income attributable to Willis Group Holdings | $ | (65 | ) | | $ | 164 |
| | $ | 99 |
|
| Consolidating adjustments | | | | | |
| Comprehensive income (loss) attributable to Willis Group Holdings | $ | 206 |
| | $ | (205 | ) | | $ | 1 |
|
Condensed Consolidating Statement
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2010 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| REVENUES | | | | | | | | | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | — | | | $ | — | | | $ | — | | | $ | 3,293 | | | $ | — | | | $ | 3,293 | |
| Investment income | | | — | | | | 10 | | | | 2 | | | | 36 | | | | (10 | ) | | | 38 | |
| Other income | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 10 | | | | 2 | | | | 3,330 | | | | (10 | ) | | | 3,332 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and benefits | | | — | | | | — | | | | (65 | ) | | | (1,818 | ) | | | 15 | | | | (1,868 | ) |
| Other operating expenses | | | 335 | | | | (10 | ) | | | (45 | ) | | | (825 | ) | | | (19 | ) | | | (564 | ) |
| Depreciation expense | | | — | | | | — | | | | (9 | ) | | | (54 | ) | | | — | | | | (63 | ) |
| Amortization of intangible assets | | | — | | | | — | | | | — | | | | (82 | ) | | | — | | | | (82 | ) |
| Net (loss) gain on disposal of operations | | | (347 | ) | | | — | | | | — | | | | 350 | | | | (5 | ) | | | (2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total expenses | | | (12 | ) | | | (10 | ) | | | (119 | ) | | | (2,429 | ) | | | (9 | ) | | | (2,579 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| OPERATING (LOSS) INCOME | | | (12 | ) | | | — | | | | (117 | ) | | | 901 | | | | (19 | ) | | | 753 | |
| Investment income from Group undertakings | | | — | | | | 1,683 | | | | 356 | | | | 952 | | | | (2,991 | ) | | | — | |
| Interest expense | | | — | | | | (423 | ) | | | (157 | ) | | | (374 | ) | | | 788 | | | | (166 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | (12 | ) | | | 1,260 | | | | 82 | | | | 1,479 | | | | (2,222 | ) | | | 587 | |
| Income taxes | | | — | | | | 16 | | | | 29 | | | | (186 | ) | | | 1 | | | | (140 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | (12 | ) | | | 1,276 | | | | 111 | | | | 1,293 | | | | (2,221 | ) | | | 447 | |
| Interest in earnings of associates, net of tax | | | — | | | | — | | | | — | | | | 16 | | | | 7 | | | | 23 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS | | | (12 | ) | | | 1,276 | | | | 111 | | | | 1,309 | | | | (2,214 | ) | | | 470 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET (LOSS) INCOME | | | (12 | ) | | | 1,276 | | | | 111 | | | | 1,309 | | | | (2,214 | ) | | | 470 | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | (15 | ) | | | — | | | | (15 | ) |
| EQUITY ACCOUNT FOR SUBSIDIARIES | | | 467 | | | | (823 | ) | | | (76 | ) | | | — | | | | 432 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | $ | 455 | | | $ | 453 | | | $ | 35 | | | $ | 1,294 | | | $ | (1,782 | ) | | $ | 455 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
135
Willis Group Holdings plc
| |
29. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement |
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating balance sheet at 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Total assets | $ | 2,557 |
| | $ | 1,541 |
| | $ | 4,098 |
|
| Total liabilities | 858 |
| | 1,541 |
| | 2,399 |
|
| Total equity | 1,699 |
| | — |
| | 1,699 |
|
| The Other Guarantors | | | | | |
| Total assets | $ | (1,256 | ) | | $ | 4,844 |
| | $ | 3,588 |
|
| Total liabilities | 319 |
| | 4,930 |
| | 5,249 |
|
| Total equity | (1,575 | ) | | (86 | ) | | (1,661 | ) |
| The Issuer | | | | | |
| Total assets | $ | 1,382 |
| | $ | 1,246 |
| | $ | 2,628 |
|
| Total liabilities | 1,348 |
| | 1,246 |
| | 2,594 |
|
| Total equity | 34 |
| | — |
| | 34 |
|
| Other | | | | | |
| Total assets | $ | 17,125 |
| | $ | (1,483 | ) | | $ | 15,642 |
|
| Total liabilities | 11,851 |
| | 720 |
| | 12,571 |
|
| Total equity | 5,274 |
| | (2,203 | ) | | 3,071 |
|
| Consolidating adjustments | | | | | |
| Total assets | $ | (4,696 | ) | | $ | (6,148 | ) | | $ | (10,844 | ) |
| Total liabilities | (989 | ) | | (8,437 | ) | | (9,426 | ) |
| Total equity | (3,707 | ) | | 2,289 |
| | (1,418 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2009 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| REVENUES | | | | | | | | | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | — | | | $ | — | | | $ | — | | | $ | 3,200 | | | $ | — | | | $ | 3,200 | |
| Investment income | | | — | | | | — | | | | 4 | | | | 46 | | | | — | | | | 50 | |
| Other income | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | — | | | | 4 | | | | 3,249 | | | | — | | | | 3,253 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | | | | | |
| Salaries and benefits | | | — | | | | — | | | | (28 | ) | | | (1,803 | ) | | | 9 | | | | (1,822 | ) |
| Other operating expenses | | | — | | | | 57 | | | | (34 | ) | | | (617 | ) | | | 4 | | | | (590 | ) |
| Depreciation expense | | | — | | | | — | | | | (8 | ) | | | (56 | ) | | | — | | | | (64 | ) |
| Amortization of intangible assets | | | — | | | | — | | | | — | | | | (100 | ) | | | — | | | | (100 | ) |
| Net gain on disposal of operations | | | — | | | | — | | | | — | | | | 13 | | | | — | | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total expenses | | | — | | | | 57 | | | | (70 | ) | | | (2,563 | ) | | | 13 | | | | (2,563 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| OPERATING INCOME (LOSS) | | | — | | | | 57 | | | | (66 | ) | | | 686 | | | | 13 | | | | 690 | |
| Investment income from Group undertakings | | | — | | | | 917 | | | | 492 | | | | 504 | | | | (1,913 | ) | | | — | |
| Interest expense | | | — | | | | (415 | ) | | | (173 | ) | | | (346 | ) | | | 760 | | | | (174 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | — | | | | 559 | | | | 253 | | | | 844 | | | | (1,140 | ) | | | 516 | |
| Income taxes | | | — | | | | (5 | ) | | | 20 | | | | (110 | ) | | | 1 | | | | (94 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | — | | | | 554 | | | | 273 | | | | 734 | | | | (1,139 | ) | | | 422 | |
| Interest in earnings of associates, net of tax | | | — | | | | — | | | | — | | | | 33 | | | | — | | | | 33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | | | — | | | | 554 | | | | 273 | | | | 767 | | | | (1,139 | ) | | | 455 | |
| Discontinued operations, net of tax | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | | — | | | | 554 | | | | 273 | | | | 771 | | | | (1,139 | ) | | | 459 | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | — | | | | — | | | | (4 | ) | | | (17 | ) | | | (21 | ) |
| EQUITY ACCOUNT FOR SUBSIDIARIES | | | 438 | | | | (156 | ) | | | (30 | ) | | | — | | | | (252 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | $ | 438 | | | $ | 398 | | | $ | 243 | | | $ | 767 | | | $ | (1,408 | ) | | $ | 438 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
136
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
| |
29. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of cash flows for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Net cash (used in) provided by operating activities | $ | (42 | ) | | $ | 19 |
| | $ | (23 | ) |
| Net cash provided by investing activities | — |
| | 256 |
| | 256 |
|
| Net cash provided by (used in) financing activities | 43 |
| | (275 | ) | | (232 | ) |
| The Other Guarantors | | | | | |
| Net cash provided by operating activities | $ | 780 |
| | $ | 724 |
| | $ | 1,504 |
|
| Net cash used in investing activities | (7 | ) | | (102 | ) | | (109 | ) |
| Net cash used in financing activities | (773 | ) | | (622 | ) | | (1,395 | ) |
| The Issuer | | | | | |
| Net cash provided by (used in) operating activities | $ | 69 |
| | $ | (113 | ) | | $ | (44 | ) |
| Net cash (used in) provided by investing activities | (19 | ) | | 34 |
| | 15 |
|
| Net cash (used in) provided by financing activities | (213 | ) | | 79 |
| | (134 | ) |
| Other | | | | | |
| Net cash provided by (used in) operating activities | $ | 431 |
| | $ | (528 | ) | | $ | (97 | ) |
| Net cash (used in) provided by investing activities | (146 | ) | | 1,149 |
| | 1,003 |
|
| Net cash used in financing activities | (61 | ) | | (621 | ) | | (682 | ) |
| Consolidating adjustments | | | | | |
| Net cash used in operating activities | $ | (713 | ) | | $ | (102 | ) | | $ | (815 | ) |
| Net cash used in investing activities | — |
| | (1,337 | ) | | (1,337 | ) |
| Net cash provided by financing activities | 713 |
| | 1,439 |
| | 2,152 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of cash flows for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings | | | | | |
| Net cash (used in) provided by operating activities | $ | (41 | ) | | $ | 85 |
| | $ | 44 |
|
| Net cash used in investing activities | — |
| | (711 | ) | | (711 | ) |
| Net cash provided by financing activities | 41 |
| | 626 |
| | 667 |
|
| The Other Guarantors | | | | | |
| Net cash provided by operating activities | $ | 184 |
| | $ | 132 |
| | $ | 316 |
|
| Net cash used in investing activities | (4 | ) | | (430 | ) | | (434 | ) |
| Net cash (used in) provided by financing activities | (180 | ) | | 298 |
| | 118 |
|
| The Issuer | | | | | |
| Net cash provided by operating activities | $ | 88 |
| | $ | 46 |
| | $ | 134 |
|
| Net cash (used in) provided by investing activities | (21 | ) | | 128 |
| | 107 |
|
| Net cash provided by (used in) financing activities | 20 |
| | (174 | ) | | (154 | ) |
| Other | | | | | |
| Net cash provided by (used in) operating activities | $ | 1,269 |
| | $ | (1,138 | ) | | $ | 131 |
|
| Net cash (used in) provided by investing activities | (76 | ) | | 123 |
| | 47 |
|
| Net cash (used in) provided by financing activities | (1,156 | ) | | 1,015 |
| | (141 | ) |
| Consolidating adjustments | | | | | |
| Net cash (used in) provided by operating activities | $ | (1,061 | ) | | $ | 875 |
| | $ | (186 | ) |
| Net cash provided by investing activities | — |
| | 890 |
| | 890 |
|
| Net cash provided by (used in) financing activities | 1,061 |
| | (1,765 | ) | | (704 | ) |
Condensed Consolidating Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As at December 31, 2011 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | | $ | — | | | $ | 163 | | | $ | 273 | | | $ | — | | | $ | 436 | |
| Accounts receivable, net | | | 2 | | | | — | | | | 3 | | | | 877 | | | | 28 | | | | 910 | |
| Fiduciary assets | | | — | | | | — | | | | — | | | | 9,941 | | | | (603 | ) | | | 9,338 | |
| Deferred tax assets | | | — | | | | 1 | | | | — | | | | 43 | | | | — | | | | 44 | |
| Other current assets | | | 1 | | | | 52 | | | | 21 | | | | 271 | | | | (86 | ) | | | 259 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 3 | | | | 53 | | | | 187 | | | | 11,405 | | | | (661 | ) | | | 10,987 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Investments in subsidiaries | | | (1,023 | ) | | | 3,778 | | | | 1,482 | | | | 3,848 | | | | (8,085 | ) | | | — | |
| Amounts owed by (to) Group undertakings | | | 4,354 | | | | (4,716 | ) | | | 476 | | | | (114 | ) | | | — | | | | — | |
| NON-CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed assets, net | | | — | | | | 4 | | | | 59 | | | | 345 | | | | (2 | ) | | | 406 | |
| Goodwill | | | — | | | | — | | | | — | | | | 1,704 | | | | 1,591 | | | | 3,295 | |
| Other intangible assets, net | | | — | | | | — | | | | — | | | | 435 | | | | (15 | ) | | | 420 | |
| Investments in associates | | | — | | | | — | | | | — | | | | (45 | ) | | | 215 | | | | 170 | |
| Deferred tax assets | | | — | | | | — | | | | — | | | | 22 | | | | — | | | | 22 | |
| Pension benefits asset | | | — | | | | — | | | | — | | | | 145 | | | | — | | | | 145 | |
| Other non-current assets | | | 5 | | | | 170 | | | | 43 | | | | 192 | | | | (127 | ) | | | 283 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total non-current assets | | | 5 | | | | 174 | | | | 102 | | | | 2,798 | | | | 1,662 | | | | 4,741 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 3,339 | | | $ | (711 | ) | | $ | 2,247 | | | $ | 17,937 | | | $ | (7,084 | ) | | $ | 15,728 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiduciary liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | 9,941 | | | $ | (603 | ) | | $ | 9,338 | |
| Deferred revenue and accrued expenses | | | 2 | | | | — | | | | — | | | | 318 | | | | — | | | | 320 | |
| Income taxes payable | | | — | | | | 40 | | | | — | | | | 30 | | | | (55 | ) | | | 15 | |
| Short-term debt and current portion of long-term debt | | | — | | | | 11 | | | | — | | | | 4 | | | | — | | | | 15 | |
| Deferred tax liabilities | | | — | | | | — | | | | 1 | | | | 25 | | | | — | | | | 26 | |
| Other current liabilities | | | 56 | | | | 11 | | | | 57 | | | | 185 | | | | (27 | ) | | | 282 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 58 | | | | 62 | | | | 58 | | | | 10,503 | | | | (685 | ) | | | 9,996 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 795 | | | | 289 | | | | 1,270 | | | | — | | | | — | | | | 2,354 | |
| Liabilities for pension benefits | | | — | | | | — | | | | — | | | | 270 | | | | — | | | | 270 | |
| Deferred tax liabilities | | | — | | | | 5 | | | | 35 | | | | (9 | ) | | | 1 | | | | 32 | |
| Provisions for liabilities | | | — | | | | — | | | | — | | | | 198 | | | | (2 | ) | | | 196 | |
| Other non-current liabilities | | | — | | | | 9 | | | | 9 | | | | 345 | | | | — | | | | 363 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total non-current liabilities | | | 795 | | | | 303 | | | | 1,314 | | | | 804 | | | | (1 | ) | | | 3,215 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES | | $ | 853 | | | $ | 365 | | | $ | 1,372 | | | $ | 11,307 | | | $ | (686 | ) | | $ | 13,211 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EQUITY | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Willis Group Holdings stockholders’ equity | | | 2,486 | | | | (1,076 | ) | | | 875 | | | | 6,599 | | | | (6,398 | ) | | | 2,486 | |
| Noncontrolling interests | | | — | | | | — | | | | — | | | | 31 | | | | — | | | | 31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total equity | | | 2,486 | | | | (1,076 | ) | | | 875 | | | | 6,630 | | | | (6,398 | ) | | | 2,517 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | | $ | 3,339 | | | $ | (711 | ) | | $ | 2,247 | | | $ | 17,937 | | | $ | (7,084 | ) | | $ | 15,728 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
137
Willis Group Holdings plc
| |
29. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance SheetStatement of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As at December 31, 2010 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| ASSETS |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | | $ | — | | | $ | 76 | | | $ | 240 | | | $ | — | | | $ | 316 | |
| Accounts receivable, net | | | 2 | | | | — | | | | — | | | | 809 | | | | 28 | | | | 839 | |
| Fiduciary assets | | | — | | | | — | | | | — | | | | 10,167 | | | | (598 | ) | | | 9,569 | |
| Deferred tax assets | | | — | | | | — | | | | 1 | | | | 35 | | | | — | | �� | | 36 | |
| Other current assets | | | — | | | | 23 | | | | 57 | | | | 293 | | | | (33 | ) | | | 340 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 2 | | | | 23 | | | | 134 | | | | 11,544 | | | | (603 | ) | | | 11,100 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Investments in subsidiaries | | | (1,039 | ) | | | 3,814 | | | | 1,455 | | | | 3,855 | | | | (8,085 | ) | | | — | |
| Amounts owed by (to) Group undertakings | | | 3,659 | | | | (4,590 | ) | | | 1,002 | | | | (71 | ) | | | — | | | | — | |
| NON-CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed assets, net | | | — | | | | — | | | | 52 | | | | 330 | | | | (1 | ) | | | 381 | |
| Goodwill | | | — | | | | — | | | | — | | | | 1,696 | | | | 1,598 | | | | 3,294 | |
| Other intangible assets, net | | | — | | | | — | | | | — | | | | 492 | | | | — | | | | 492 | |
| Investments in associates | | | — | | | | — | | | | — | | | | (51 | ) | | | 212 | | | | 161 | |
| Deferred tax assets | | | — | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | |
| Pension benefits asset | | | — | | | | — | | | | — | | | | 182 | | | | — | | | | 182 | |
| Other non-current assets | | | — | | | | 166 | | | | 41 | | | | 149 | | | | (123 | ) | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total non-current assets | | | — | | | | 166 | | | | 93 | | | | 2,805 | | | | 1,686 | | | | 4,750 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 2,622 | | | $ | (587 | ) | | $ | 2,684 | | | $ | 18,133 | | | $ | (7,002 | ) | | $ | 15,850 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiduciary liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | 10,167 | | | $ | (598 | ) | | $ | 9,569 | |
| Deferred revenue and accrued expenses | | | 1 | | | | — | | | | — | | | | 297 | | | | — | | | | 298 | |
| Income taxes payable | | | — | | | | — | | | | — | | | | 69 | | | | (12 | ) | | | 57 | |
| Short-term debt and current portion of long-term debt | | | — | | | | — | | | | 110 | | | | — | | | | — | | | | 110 | |
| Deferred tax liabilities | | | — | | | | 3 | | | | 1 | | | | 5 | | | | — | | | | 9 | |
| Other current liabilities | | | 44 | | | | 15 | | | | 38 | | | | 189 | | | | (20 | ) | | | 266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 45 | | | | 18 | | | | 149 | | | | 10,727 | | | | (630 | ) | | | 10,309 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | — | | | | 500 | | | | 1,653 | | | | 4 | | | | — | | | | 2,157 | |
| Liabilities for pension benefits | | | — | | | | — | | | | — | | | | 167 | | | | — | | | | 167 | |
| Deferred tax liabilities | | | — | | | | 3 | | | | 26 | | | | 54 | | | | — | | | | 83 | |
| Provisions for liabilities | | | — | | | | — | | | | — | | | | 183 | | | | (4 | ) | | | 179 | |
| Other non-current liabilities | | | — | | | | 10 | | | | 16 | | | | 321 | | | | — | | | | 347 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total non-current liabilities | | | — | | | | 513 | | | | 1,695 | | | | 729 | | | | (4 | ) | | | 2,933 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES | | $ | 45 | | | $ | 531 | | | $ | 1,844 | | | $ | 11,456 | | | $ | (634 | ) | | $ | 13,242 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| EQUITY | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Willis Group Holdings stockholders’ equity | | | 2,577 | | | | (1,118 | ) | | | 840 | | | | 6,646 | | | | (6,368 | ) | | | 2,577 | |
| Noncontrolling interests | | | — | | | | — | | | | — | | | | 31 | | | | — | | | | 31 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total equity | | | 2,577 | | | | (1,118 | ) | | | 840 | | | | 6,677 | | | | (6,368 | ) | | | 2,608 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | | $ | 2,622 | | | $ | (587 | ) | | $ | 2,684 | | | $ | 18,133 | | | $ | (7,002 | ) | | $ | 15,850 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| REVENUES | |
| | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | — |
| | $ | 8 |
| | $ | 3,625 |
| | $ | — |
| | $ | 3,633 |
|
| Investment income | — |
| | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
| Other income | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Total revenues | — |
| | — |
| | 8 |
| | 3,647 |
| | — |
| | 3,655 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (1 | ) | | — |
| | (103 | ) | | (2,103 | ) | | — |
| | (2,207 | ) |
| Other operating expenses | — |
| | (73 | ) | | (163 | ) | | (380 | ) | | — |
| | (616 | ) |
| Depreciation expense | — |
| | (3 | ) | | (20 | ) | | (71 | ) | | — |
| | (94 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | (55 | ) | | — |
| | (55 | ) |
| Net gain on disposal of operations | — |
| | — |
| | — |
| | 12 |
| | (10 | ) | | 2 |
|
| Total expenses | (1 | ) | | (76 | ) | | (286 | ) | | (2,597 | ) | | (10 | ) | | (2,970 | ) |
| OPERATING (LOSS) INCOME | (1 | ) | | (76 | ) | | (278 | ) | | 1,050 |
| | (10 | ) | | 685 |
|
| Income from Group undertakings | — |
| | 191 |
| | 364 |
| | 86 |
| | (641 | ) | | — |
|
| Expenses due to Group undertakings | (10 | ) | | (34 | ) | | (141 | ) | | (456 | ) | | 641 |
| | — |
|
| Loss on extinguishment of debt | — |
| | — |
| | (60 | ) | | — |
| | — |
| | (60 | ) |
| Interest expense | (42 | ) | | (16 | ) | | (63 | ) | | (5 | ) | | — |
| | (126 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (53 | ) | | 65 |
| | (178 | ) | | 675 |
| | (10 | ) | | 499 |
|
| Income taxes | — |
| | 23 |
| | — |
| | (145 | ) | | — |
| | (122 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (53 | ) | | 88 |
| | (178 | ) | | 530 |
| | (10 | ) | | 377 |
|
| Interest in earnings of associates, net of tax | — |
| | 9 |
| | — |
| | (9 | ) | | — |
| | — |
|
| Equity account for subsidiaries | 418 |
| | 320 |
| | 150 |
| | — |
| | (888 | ) | | — |
|
| INCOME (LOSS) FROM CONTINUING OPERATIONS | 365 |
| | 417 |
| | (28 | ) | | 521 |
| | (898 | ) | | 377 |
|
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| NET INCOME (LOSS) | 365 |
| | 417 |
| | (28 | ) | | 521 |
| | (898 | ) | | 377 |
|
| Less: Net loss attributable to noncontrolling interests | — |
| | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
| NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | 365 |
| | $ | 417 |
| | $ | (28 | ) | | $ | 509 |
| | $ | (898 | ) | | $ | 365 |
|
138
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
| |
29. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| Comprehensive income | $ | 522 |
| | $ | 565 |
| | $ | 74 |
| | $ | 636 |
| | $ | (1,263 | ) | | $ | 534 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
| Comprehensive income attributable to Willis Group Holdings | $ | 522 |
| | $ | 565 |
| | $ | 74 |
| | $ | 624 |
| | $ | (1,263 | ) | | $ | 522 |
|
Willis Group Holdings plc
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| REVENUES | |
| | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,458 |
| | $ | — |
| | $ | 3,458 |
|
| Investment income | — |
| | — |
| | 1 |
| | 17 |
| | — |
| | 18 |
|
| Other income | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Total revenues | — |
| | — |
| | 1 |
| | 3,479 |
| | — |
| | 3,480 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (2 | ) | | — |
| | (96 | ) | | (2,377 | ) | | — |
| | (2,475 | ) |
| Other operating expenses | (4 | ) | | (82 | ) | | (79 | ) | | (416 | ) | | — |
| | (581 | ) |
| Depreciation expense | — |
| | (1 | ) | | (15 | ) | | (63 | ) | | — |
| | (79 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | (59 | ) | | — |
| | (59 | ) |
| Goodwill impairment charge | — |
| | — |
| | — |
| | (492 | ) | | — |
| | (492 | ) |
| Net loss on disposal of operations | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
| Total expenses | (6 | ) | | (83 | ) | | (190 | ) | | (3,410 | ) | | — |
| | (3,689 | ) |
| OPERATING (LOSS) INCOME | (6 | ) | | (83 | ) | | (189 | ) | | 69 |
| | — |
| | (209 | ) |
| Income from Group undertakings | — |
| | 201 |
| | 316 |
| | 111 |
| | (628 | ) | | — |
|
| Expenses due to Group undertakings | — |
| | (67 | ) | | (147 | ) | | (414 | ) | | 628 |
| | — |
|
| Interest expense | (43 | ) | | (7 | ) | | (70 | ) | | (8 | ) | | — |
| | (128 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (49 | ) | | 44 |
| | (90 | ) | | (242 | ) | | — |
| | (337 | ) |
| Income taxes | — |
| | 31 |
| | 34 |
| | (166 | ) | | — |
| | (101 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (49 | ) | | 75 |
| | (56 | ) | | (408 | ) | | — |
| | (438 | ) |
| Interest in earnings of associates, net of tax | — |
| | 8 |
| | — |
| | (3 | ) | | — |
| | 5 |
|
| Equity account for subsidiaries | (397 | ) | | (480 | ) | | (172 | ) | | — |
| | 1,049 |
| | — |
|
| (LOSS) INCOME FROM CONTINUING OPERATIONS | (446 | ) | | (397 | ) | | (228 | ) | | (411 | ) | | 1,049 |
| | (433 | ) |
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| NET (LOSS) INCOME | (446 | ) | | (397 | ) | | (228 | ) | | (411 | ) | | 1,049 |
| | (433 | ) |
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| NET (LOSS) INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | (446 | ) | | $ | (397 | ) | | $ | (228 | ) | | $ | (424 | ) | | $ | 1,049 |
| | $ | (446 | ) |
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| Comprehensive loss | $ | (552 | ) | | $ | (494 | ) | | $ | (263 | ) | | $ | (519 | ) | | $ | 1,289 |
| | $ | (539 | ) |
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| Comprehensive loss attributable to Willis Group Holdings | $ | (552 | ) | | $ | (494 | ) | | $ | (263 | ) | | $ | (532 | ) | | $ | 1,289 |
| | $ | (552 | ) |
Willis Group Holdings plc
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| REVENUES | |
| | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,414 |
| | $ | — |
| | $ | 3,414 |
|
| Investment income | — |
| | — |
| | 2 |
| | 29 |
| | — |
| | 31 |
|
| Other income | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Total revenues | — |
| | — |
| | 2 |
| | 3,445 |
| | — |
| | 3,447 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (3 | ) | | — |
| | (69 | ) | | (2,015 | ) | | — |
| | (2,087 | ) |
| Other operating expenses | (17 | ) | | 32 |
| | (98 | ) | | (573 | ) | | — |
| | (656 | ) |
| Depreciation expense | — |
| | — |
| | (14 | ) | | (60 | ) | | — |
| | (74 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | (68 | ) | | — |
| | (68 | ) |
| Net gain on disposal of operations | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Total expenses | (20 | ) | | 32 |
| | (181 | ) | | (2,712 | ) | | — |
| | (2,881 | ) |
| OPERATING (LOSS) INCOME | (20 | ) | | 32 |
| | (179 | ) | | 733 |
| | — |
| | 566 |
|
| Income from Group undertakings | — |
| | 186 |
| | 324 |
| | 119 |
| | (629 | ) | | — |
|
| Expenses due to Group undertakings | — |
| | (80 | ) | | (134 | ) | | (415 | ) | | 629 |
| | — |
|
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | — |
| | (171 | ) | | — |
| | — |
| | — |
| | (171 | ) |
| Interest expense | (34 | ) | | (17 | ) | | (97 | ) | | (8 | ) | | — |
| | (156 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | | (50 | ) | | (86 | ) | | 429 |
| | — |
| | 239 |
|
| Income taxes | — |
| | 59 |
| | 27 |
| | (117 | ) | | (1 | ) | | (32 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | | 9 |
| | (59 | ) | | 312 |
| | (1 | ) | | 207 |
|
| Interest in earnings of associates, net of tax | — |
| | 8 |
| | — |
| | 4 |
| | — |
| | 12 |
|
| Equity account for subsidiaries | 258 |
| | 229 |
| | (8 | ) | | — |
| | (479 | ) | | — |
|
| INCOME (LOSS) FROM CONTINUING OPERATIONS | 204 |
| | 246 |
| | (67 | ) | | 316 |
| | (480 | ) | | 219 |
|
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| NET INCOME (LOSS) | 204 |
| | 246 |
| | (67 | ) | | 317 |
| | (480 | ) | | 220 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (16 | ) | | — |
| | (16 | ) |
| NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | 204 |
| | $ | 246 |
| | $ | (67 | ) | | $ | 301 |
| | $ | (480 | ) | | $ | 204 |
|
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| Comprehensive income (loss) | $ | 1 |
| | $ | 48 |
| | $ | (148 | ) | | $ | 114 |
| | $ | 1 |
| | $ | 16 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (15 | ) | | — |
| | (15 | ) |
| Comprehensive income (loss) attributable to Willis Group Holdings | $ | 1 |
| | $ | 48 |
| | $ | (148 | ) | | $ | 99 |
| | $ | 1 |
| | $ | 1 |
|
Willis Group Holdings plc
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2013 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| ASSETS | | | | | | | | | | | |
| CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | 790 |
| | $ | — |
| | $ | 796 |
|
| Accounts receivable, net | — |
| | — |
| | 4 |
| | 1,037 |
| | — |
| | 1,041 |
|
| Fiduciary assets | — |
| | — |
| | — |
| | 8,412 |
| | — |
| | 8,412 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 16 |
| | (1 | ) | | 15 |
|
| Other current assets | 1 |
| | 21 |
| | 10 |
| | 186 |
| | (21 | ) | | 197 |
|
| Amounts due from Group undertakings | 4,051 |
| | 903 |
| | 1,317 |
| | 1,484 |
| | (7,755 | ) | | — |
|
| Total current assets | 4,055 |
| | 927 |
| | 1,331 |
| | 11,925 |
| | (7,777 | ) | | 10,461 |
|
| NON-CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | — |
| | 2,838 |
| | 1,021 |
| | — |
| | (3,859 | ) | | — |
|
| Fixed assets, net | — |
| | 15 |
| | 51 |
| | 415 |
| | — |
| | 481 |
|
| Goodwill | — |
| | — |
| | — |
| | 2,838 |
| | — |
| | 2,838 |
|
| Other intangible assets, net | — |
| | — |
| | — |
| | 353 |
| | — |
| | 353 |
|
| Investments in associates | — |
| | 156 |
| | — |
| | 20 |
| | — |
| | 176 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Pension benefits asset | — |
| | — |
| | — |
| | 278 |
| | — |
| | 278 |
|
| Other non-current assets | 4 |
| | 9 |
| | 5 |
| | 188 |
| | — |
| | 206 |
|
| Non-current amounts due from Group undertakings | — |
| | 518 |
| | 690 |
| | — |
| | (1,208 | ) | | — |
|
| Total non-current assets | 4 |
| | 3,536 |
| | 1,767 |
| | 4,099 |
| | (5,067 | ) | | 4,339 |
|
| TOTAL ASSETS | $ | 4,059 |
| | $ | 4,463 |
| | $ | 3,098 |
| | $ | 16,024 |
| | $ | (12,844 | ) | | $ | 14,800 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
| CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Fiduciary liabilities | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,412 |
| | $ | — |
| | $ | 8,412 |
|
| Deferred revenue and accrued expenses | 2 |
| | 1 |
| | 28 |
| | 555 |
| | — |
| | 586 |
|
| Income taxes payable | — |
| | 3 |
| | — |
| | 39 |
| | (21 | ) | | 21 |
|
| Short-term debt and current portion of long-term debt | — |
| | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
| Deferred tax liabilities | — |
| | — |
| | — |
| | 25 |
| | — |
| | 25 |
|
| Other current liabilities | 62 |
| | 15 |
| | 38 |
| | 300 |
| | — |
| | 415 |
|
| Amounts due to Group undertakings | — |
| | 4,760 |
| | 1,662 |
| | 1,333 |
| | (7,755 | ) | | — |
|
| Total current liabilities | 64 |
| | 4,794 |
| | 1,728 |
| | 10,664 |
| | (7,776 | ) | | 9,474 |
|
| NON-CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | 985 |
| | — |
| | — |
| | — |
| | (985 | ) | | — |
|
| Long-term debt | 795 |
| | 782 |
| | 733 |
| | 1 |
| | — |
| | 2,311 |
|
| Liabilities for pension benefits | — |
| | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
| Deferred tax liabilities | — |
| | 1 |
| | — |
| | 55 |
| | — |
| | 56 |
|
| Provisions for liabilities | — |
| | — |
| | — |
| | 206 |
| | — |
| | 206 |
|
| Other non-current liabilities | — |
| | — |
| | 48 |
| | 326 |
| | — |
| | 374 |
|
| Non-current amounts due to Group undertakings | — |
| | — |
| | 518 |
| | 690 |
| | (1,208 | ) | | — |
|
| Total non-current liabilities | 1,780 |
| | 783 |
| | 1,299 |
| | 1,414 |
| | (2,193 | ) | | 3,083 |
|
| TOTAL LIABILITIES | $ | 1,844 |
| | $ | 5,577 |
| | $ | 3,027 |
| | $ | 12,078 |
| | $ | (9,969 | ) | | $ | 12,557 |
|
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2013 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| EQUITY | |
| | |
| | |
| | |
| | |
| | |
|
| Total Willis Group Holdings stockholders’ equity | 2,215 |
| | (1,114 | ) | | 71 |
| | 3,918 |
| | (2,875 | ) | | 2,215 |
|
| Noncontrolling interests | — |
| | — |
| | — |
| | 28 |
| | — |
| | 28 |
|
| Total equity | 2,215 |
| | (1,114 | ) | | 71 |
| | 3,946 |
| | (2,875 | ) | | 2,243 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 4,059 |
| | $ | 4,463 |
| | $ | 3,098 |
| | $ | 16,024 |
| | $ | (12,844 | ) | | $ | 14,800 |
|
Willis Group Holdings plc
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2012 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| ASSETS |
| CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 500 |
|
| Accounts receivable, net | — |
| | — |
| | — |
| | 933 |
| | — |
| | 933 |
|
| Fiduciary assets | — |
| | — |
| | — |
| | 9,271 |
| | — |
| | 9,271 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Other current assets | 1 |
| | 31 |
| | 38 |
| | 114 |
| | (3 | ) | | 181 |
|
| Amounts due by group undertakings | 4,091 |
| | 993 |
| | 1,292 |
| | 864 |
| | (7,240 | ) | | — |
|
| Total current assets | 4,093 |
| | 1,024 |
| | 1,330 |
| | 11,694 |
| | (7,243 | ) | | 10,898 |
|
| NON-CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | — |
| | 2,407 |
| | 553 |
| | — |
| | (2,960 | ) | | — |
|
| Fixed assets, net | — |
| | 11 |
| | 63 |
| | 394 |
| | — |
| | 468 |
|
| Goodwill | — |
| | — |
| | — |
| | 2,827 |
| | — |
| | 2,827 |
|
| Other intangible assets, net | — |
| | — |
| | — |
| | 385 |
| | — |
| | 385 |
|
| Investments in associates | — |
| | 143 |
| | — |
| | 31 |
| | — |
| | 174 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 18 |
| | — |
| | 18 |
|
| Pension benefits asset | — |
| | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
| Other non-current assets | 5 |
| | 3 |
| | 41 |
| | 157 |
| | — |
| | 206 |
|
| Non-current amounts due by group undertakings | — |
| | — |
| | 641 |
| | — |
| | (641 | ) | | — |
|
| Total non-current assets | 5 |
| | 2,564 |
| | 1,298 |
| | 3,948 |
| | (3,601 | ) | | 4,214 |
|
| TOTAL ASSETS | $ | 4,098 |
| | $ | 3,588 |
| | $ | 2,628 |
| | $ | 15,642 |
| | $ | (10,844 | ) | | $ | 15,112 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
| CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Fiduciary liabilities | $ | — |
| | $ | — |
| | $ | — |
| | $ | 9,271 |
| | $ | — |
| | $ | 9,271 |
|
| Deferred revenue and accrued expenses | 2 |
| | — |
| | — |
| | 539 |
| | — |
| | 541 |
|
| Income taxes payable | — |
| | 4 |
| | — |
| | 18 |
| | (3 | ) | | 19 |
|
| Short-term debt and current portion of long-term debt | — |
| | 15 |
| | — |
| | — |
| | — |
| | 15 |
|
| Deferred tax liabilities | — |
| | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
| Other current liabilities | 60 |
| | — |
| | 73 |
| | 194 |
| | — |
| | 327 |
|
| Amounts due to group undertakings | — |
| | 4,951 |
| | 1,246 |
| | 1,043 |
| | (7,240 | ) | | — |
|
| Total current liabilities | 62 |
| | 4,970 |
| | 1,319 |
| | 11,086 |
| | (7,243 | ) | | 10,194 |
|
| NON-CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | 1,542 |
| | — |
| | — |
| | — |
| | (1,542 | ) | | — |
|
| Long-term debt | 795 |
| | 274 |
| | 1,268 |
| | 1 |
| | — |
| | 2,338 |
|
| Liabilities for pension benefits | — |
| | — |
| | — |
| | 282 |
| | — |
| | 282 |
|
| Deferred tax liabilities | — |
| | — |
| | — |
| | 18 |
| | — |
| | 18 |
|
| Provisions for liabilities | — |
| | — |
| | — |
| | 180 |
| | — |
| | 180 |
|
| Other non-current liabilities | — |
| | 5 |
| | 7 |
| | 363 |
| | — |
| | 375 |
|
| Non-current amounts due to group undertakings | — |
| | — |
| | — |
| | 641 |
| | (641 | ) | | — |
|
| Total non-current liabilities | 2,337 |
| | 279 |
| | 1,275 |
| | 1,485 |
| | (2,183 | ) | | 3,193 |
|
| TOTAL LIABILITIES | $ | 2,399 |
| | $ | 5,249 |
| | $ | 2,594 |
| | $ | 12,571 |
| | $ | (9,426 | ) | | $ | 13,387 |
|
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2012 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| EQUITY | |
| | |
| | |
| | |
| | |
| | |
|
| Total Willis Group Holdings stockholders’ equity | 1,699 |
| | (1,661 | ) | | 34 |
| | 3,045 |
| | (1,418 | ) | | 1,699 |
|
| Noncontrolling interests | — |
| | — |
| | — |
| | 26 |
| | — |
| | 26 |
|
| Total equity | 1,699 |
| | (1,661 | ) | | 34 |
| | 3,071 |
| | (1,418 | ) | | 1,725 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 4,098 |
| | $ | 3,588 |
| | $ | 2,628 |
| | $ | 15,642 |
| | $ | (10,844 | ) | | $ | 15,112 |
|
Willis Group Holdings plc
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2011 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | | $ | (41 | ) | | $ | 184 | | | $ | 88 | | | $ | 1,269 | | | $ | (1,061 | ) | | $ | 439 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds on disposal of fixed and intangible assets | | | — | | | | — | | | | — | | | | 13 | | | | — | | | | 13 | |
| Purchases of fixed assets | | | — | | | | (4 | ) | | | (21 | ) | | | (86 | ) | | | — | | | | (111 | ) |
| Acquisitions of subsidiaries, net of cash acquired | | | — | | | | — | | | | — | | | | (10 | ) | | | — | | | | (10 | ) |
| Acquisitions of investments in associates | | | — | | | | — | | | | — | | | | (2 | ) | | | — | | | | (2 | ) |
| Investment in Trident V Parallel Fund, LP | | | — | | | | — | | | | — | | | | (5 | ) | | | — | | | | (5 | ) |
| Proceeds from sale of discontinued operations, net of cash disposed | | | — | | | | — | | | | — | | | | 14 | | | | — | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | — | | | | (4 | ) | | | (21 | ) | | | (76 | ) | | | — | | | | (101 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Repayments on revolving credit facility | | | — | | | | — | | | | (90 | ) | | | — | | | | — | | | | (90 | ) |
| Senior notes issued | | | 794 | | | | — | | | | — | | | | — | | | | — | | | | 794 | |
| Debt issuance costs | | | (7 | ) | | | (5 | ) | | | — | | | | — | | | | — | | | | (12 | ) |
| Proceeds from issue term loan | | | — | | | | 300 | | | | — | | | | — | | | | — | | | | 300 | |
| Repayments of debt | | | — | | | | (500 | ) | | | (411 | ) | | | — | | | | — | | | | (911 | ) |
| Make-whole on repurchase and redemption of senior notes | | | — | | | | (158 | ) | | | — | | | | — | | | | — | | | | (158 | ) |
| Proceeds from issue of shares | | | 60 | | | | — | | | | — | | | | — | | | | — | | | | 60 | |
| Excess tax benefits from share-based payment arrangement | | | — | | | | — | | | | — | | | | 5 | | | | — | | | | 5 | |
| Amounts owed (to) by Group undertakings | | | (626 | ) | | | 187 | | | | 521 | | | | (82 | ) | | | — | | | | — | |
| Dividends paid | | | (180 | ) | | | — | | | | — | | | | (1,061 | ) | | | 1,061 | | | | (180 | ) |
| Acquisition of noncontrolling interests | | | — | | | | (4 | ) | | | — | | | | (5 | ) | | | — | | | | (9 | ) |
| Dividends paid to noncontrolling interests | | | — | | | | — | | | | — | | | | (13 | ) | | | — | | | | (13 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 41 | | | | (180 | ) | | | 20 | | | | (1,156 | ) | | | 1,061 | | | | (214 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INCREASE IN CASH AND CASH EQUIVALENTS | | | — | | | | — | | | | 87 | | | | 37 | | | | — | | | | 124 | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | — | | | | — | | | | 76 | | | | 240 | | | | — | | | | 316 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | — | | | $ | — | | | $ | 163 | | | $ | 273 | | | $ | — | | | $ | 436 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | $ | 4 |
| | $ | 125 |
| | $ | 7 |
| | $ | 662 |
| | $ | (237 | ) | | $ | 561 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | — |
| | 3 |
| | 9 |
| | — |
| | 12 |
|
| Additions to fixed assets | — |
| | (7 | ) | | (11 | ) | | (94 | ) | | — |
| | (112 | ) |
| Additions to intangibles assets | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | (237 | ) | | (230 | ) | | (30 | ) | | 467 |
| | (30 | ) |
| Payments to acquire other investments | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Proceeds from sale of associates | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Proceeds from sale of operations, net of cash disposed | — |
| | — |
| | 230 |
| | 257 |
| | (467 | ) | | 20 |
|
| Proceeds from intercompany investing activities | 383 |
| | 211 |
| | 36 |
| | 60 |
| | (690 | ) | | — |
|
| Repayments of intercompany investing activities | (347 | ) | | (442 | ) | | (120 | ) | | (780 | ) | | 1,689 |
| | — |
|
| Net cash provided by (used in) investing activities | 36 |
| | (475 | ) | | (92 | ) | | (588 | ) | | 999 |
| | (120 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Senior notes issued | — |
| | 522 |
| | — |
| | — |
| | — |
| | 522 |
|
| Debt issuance costs | — |
| | (8 | ) | | — |
| | — |
| | — |
| | (8 | ) |
| Repayments of debt | — |
| | (15 | ) | | (521 | ) | | — |
| | — |
| | (536 | ) |
| Tender premium on extinguishment of senior notes | — |
| | — |
| | (65 | ) | | — |
| | — |
| | (65 | ) |
| Proceeds from issue of shares | 155 |
| | — |
| | — |
| | — |
| | — |
| | 155 |
|
| Excess tax benefits from share-based payment arrangements | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Dividends paid | (193 | ) | | — |
| | (230 | ) | | (7 | ) | | 237 |
| | (193 | ) |
| Acquisition of noncontrolling interests | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
| Proceeds from intercompany financing activities | — |
| | 321 |
| | 901 |
| | 467 |
| | (1,689 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (467 | ) | | — |
| | (223 | ) | | 690 |
| | — |
|
| Net cash (used in) provided by financing activities | (38 | ) | | 353 |
| | 85 |
| | 225 |
| | (762 | ) | | (137 | ) |
| INCREASE IN CASH AND CASH EQUIVALENTS | 2 |
| | 3 |
| | — |
| | 299 |
| | — |
| | 304 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (8 | ) | | — |
| | (8 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 1 |
| | — |
| | — |
| | 499 |
| | — |
| | 500 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | 790 |
| | $ | — |
| | $ | 796 |
|
139
Notes to the financial statements
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | $ | (23 | ) | | $ | 1,504 |
| | $ | (44 | ) | | $ | (97 | ) | | $ | (815 | ) | | $ | 525 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
| Additions to fixed assets | — |
| | (7 | ) | | (19 | ) | | (109 | ) | | — |
| | (135 | ) |
| Additions to intangible assets | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | — |
| | — |
| | (33 | ) | | — |
| | (33 | ) |
| Payments to acquire other investments | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Proceeds from sale of operations, net of cash disposed | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Proceeds from intercompany investing activities | 256 |
| | 216 |
| | 44 |
| | 1,230 |
| | (1,746 | ) | | — |
|
| Repayments of intercompany investing activities | — |
| | (318 | ) | | (10 | ) | | (81 | ) | | 409 |
| | — |
|
| Net cash provided by (used in) investing activities | 256 |
| | (109 | ) | | 15 |
| | 1,003 |
| | (1,337 | ) | | (172 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Repayments of debt | — |
| | (15 | ) | | — |
| | — |
| | — |
| | (15 | ) |
| Proceeds from issue of other debt | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Repurchase of shares | (100 | ) | | — |
| | — |
| | — |
| | — |
| | (100 | ) |
| Proceeds from issue of shares | 53 |
| | — |
| | — |
| | — |
| | — |
| | 53 |
|
| Excess tax benefits from share-based payment arrangements | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Dividends paid | (185 | ) | | — |
| | — |
| | (815 | ) | | 815 |
| | (185 | ) |
| Proceeds from sale of noncontrolling interest | — |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Acquisition of noncontrolling interests | — |
| | — |
| | — |
| | (39 | ) | | — |
| | (39 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) |
| Proceeds from intercompany financing activities | — |
| | 81 |
| | — |
| | 328 |
| | (409 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (1,462 | ) | | (134 | ) | | (150 | ) | | 1,746 |
| | — |
|
| Net cash (used in) provided by financing activities | (232 | ) | | (1,395 | ) | | (134 | ) | | (682 | ) | | 2,152 |
| | (291 | ) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1 |
| | — |
| | (163 | ) | | 224 |
| | — |
| | 62 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | — |
| | — |
| | 163 |
| | 273 |
| | — |
| | 436 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 500 |
|
Willis Group Holdings plc
| |
29. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2010 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | | $ | (9 | ) | | $ | 1,170 | | | $ | 83 | | | $ | 1,572 | | | $ | (2,327 | ) | | $ | 489 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds on disposal of fixed and intangible assets | | | — | | | | — | | | | — | | | | 10 | | | | — | | | | 10 | |
| Additions to fixed assets | | | — | | | | — | | | | (7 | ) | | | (76 | ) | | | — | | | | (83 | ) |
| Acquisitions of subsidiaries, net of cash acquired | | | — | | | | — | | | | — | | | | (21 | ) | | | — | | | | (21 | ) |
| Acquisitions of investments in associates | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| Investment in Trident V Parallel Fund, LP | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| Proceeds from sale of continuing operations, net of cash disposed | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | — | | | | — | | | | (7 | ) | | | (87 | ) | | | — | | | | (94 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from draw down of revolving credit facility | | | — | | | | — | | | | 90 | | | | — | | | | — | | | | 90 | |
| Repayments of debt | | | — | | | | — | | | | (200 | ) | | | (9 | ) | | | — | | | | (209 | ) |
| Proceeds from issue of shares | | | 36 | | | | — | | | | — | | | | — | | | | — | | | | 36 | |
| Excess tax benefits from share-based payment arrangement | | | — | | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| Amounts owed by (to) Group undertakings | | | 106 | | | | (317 | ) | | | 6 | | | | 205 | | | | — | | | | — | |
| Dividends paid | | | (133 | ) | | | (849 | ) | | | — | | | | (1,521 | ) | | | 2,327 | | | | (176 | ) |
| Acquisition of noncontrolling interests | | | — | | | | (4 | ) | | | — | | | | (6 | ) | | | — | | | | (10 | ) |
| Dividends paid to noncontrolling interests | | | — | | | | — | | | | — | | | | (26 | ) | | | — | | | | (26 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 9 | | | | (1,170 | ) | | | (104 | ) | | | (1,355 | ) | | | 2,327 | | | | (293 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | | — | | | | — | | | | (28 | ) | | | 130 | | | | — | | | | 102 | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | — | | | | (7 | ) | | | — | | | | (7 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | — | | | | — | | | | 104 | | | | 117 | | | | — | | | | 221 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | — | | | $ | — | | | $ | 76 | | | $ | 240 | | | $ | — | | | $ | 316 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | 44 |
| | $ | 316 |
| | $ | 134 |
| | $ | 131 |
| | $ | (186 | ) | | $ | 439 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Additions to fixed assets | — |
| | (4 | ) | | (21 | ) | | (86 | ) | | — |
| | (111 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
| Acquisitions of investments in associates | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Payments to acquire other investments | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
| Proceeds from sale of operations, net of cash disposed | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
| Proceeds from intercompany investing activities | — |
| | — |
| | 128 |
| | 224 |
| | (352 | ) | | — |
|
| Repayments of intercompany investing activities | (711 | ) | | (430 | ) | | — |
| | (101 | ) | | 1,242 |
| | — |
|
| Net cash (used in) provided by investing activities | (711 | ) | | (434 | ) | | 107 |
| | 47 |
| | 890 |
| | (101 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Repayments of revolving credit facility | — |
| | — |
| | (90 | ) | | — |
| | — |
| | (90 | ) |
| Senior notes issued | 794 |
| | — |
| | — |
| | — |
| | — |
| | 794 |
|
| Debt issuance costs | (7 | ) | | (5 | ) | | — |
| | — |
| | — |
| | (12 | ) |
| Repayments of debt | — |
| | (500 | ) | | (411 | ) | | — |
| | — |
| | (911 | ) |
| Proceeds from issue of term loan | — |
| | 300 |
| | — |
| | — |
| | — |
| | 300 |
|
| Make-whole on repurchase and redemption of senior notes | — |
| | (158 | ) | | — |
| | — |
| | — |
| | (158 | ) |
| Proceeds from issue of shares | 60 |
| | — |
| | — |
| | — |
| | — |
| | 60 |
|
| Excess tax benefits from share-based payment arrangements | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
| Dividends paid | (180 | ) | | — |
| | — |
| | (186 | ) | | 186 |
| | (180 | ) |
| Acquisition of noncontrolling interests | — |
| | (4 | ) | | — |
| | (5 | ) | | — |
| | (9 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| Cash received on intercompany financing activities | — |
| | 741 |
| | 347 |
| | 154 |
| | (1,242 | ) | | — |
|
| Cash paid on intercompany financing activities | — |
| | (256 | ) | | — |
| | (96 | ) | | 352 |
| | — |
|
| Net cash provided by (used in) financing activities | 667 |
| | 118 |
| | (154 | ) | | (141 | ) | | (704 | ) | | (214 | ) |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | — |
| | — |
| | 87 |
| | 37 |
| | — |
| | 124 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | — |
| | — |
| | 76 |
| | 240 |
| | — |
| | 316 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | — |
| | $ | — |
| | $ | 163 |
| | $ | 273 |
| | $ | — |
| | $ | 436 |
|
140
Notes to the financial statements
|
| |
29. 31. | FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 | |
| | | Willis
| | | | | | | | | | | | | | | | |
| | | Group
| | | The Other
| | | The
| | | | | | Consolidating
| | | | |
| | | Holdings | | | Guarantors | | | Issuer | | | Other | | | adjustments | | | Consolidated | |
| | | | | | | | | (millions) | | | | | | | |
| |
| NET CASH PROVIDED BY OPERATING ACTIVITIES | | $ | — | | | $ | 867 | | | $ | 390 | | | $ | 27 | | | $ | (865 | ) | | $ | 419 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds on disposal of fixed and intangible assets | | | — | | | | — | | | | — | | | | 20 | | | | — | | | | 20 | |
| Additions to fixed assets | | | — | | | | — | | | | (17 | ) | | | (79 | ) | | | — | | | | (96 | ) |
| Acquisitions of investments in associates | | | — | | | | — | | | | — | | | | (42 | ) | | | — | | | | (42 | ) |
| Proceeds from reorganization of investments in associates | | | — | | | | — | | | | — | | | | 155 | | | | — | | | | 155 | |
| Proceeds from sale of continuing operations, net of cash disposed | | | — | | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
| Proceeds from sale of discontinued operations, net of cash disposed | | | — | | | | — | | | | — | | | | 40 | | | | — | | | | 40 | |
| Proceeds on sale of short-term investments | | | — | | | | — | | | | — | | | | 21 | | | | — | | | | 21 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash (used in) provided by investing activities | | | — | | | | — | | | | (17 | ) | | | 119 | | | | — | | | | 102 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | | | | | |
| Repayments of debt | | | — | | | | — | | | | (1,090 | ) | | | 1 | | | | — | | | | (1,089 | ) |
| Senior notes issued | | | — | | | | 500 | | | | 300 | | | | — | | | | — | | | | 800 | |
| Debt issuance costs | | | — | | | | (18 | ) | | | (4 | ) | | | — | | | | — | | | | (22 | ) |
| Proceeds from issue of shares | | | — | | | | — | | | | — | | | | 18 | | | | — | | | | 18 | |
| Amounts owed by and to Group undertakings | | | — | | | | (646 | ) | | | 525 | | | | 121 | | | | — | | | | — | |
| Excess tax benefits from share-based payment arrangements | | | — | | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| Dividends paid | | | — | | | | (703 | ) | | | — | | | | (336 | ) | | | 865 | | | | (174 | ) |
| Acquisition of noncontrolling interests | | | — | | | | — | | | | — | | | | (33 | ) | | | — | | | | (33 | ) |
| Dividends paid to noncontrolling interests | | | — | | | | — | | | | — | | | | (17 | ) | | | — | | | | (17 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash used in financing activities | | | — | | | | (867 | ) | | | (269 | ) | | | (245 | ) | | | 865 | | | | (516 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | — | | | | — | | | | 104 | | | | (99 | ) | | | — | | | | 5 | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | — | | | | 11 | | | | — | | | | 11 | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | — | | | | — | | | | — | | | | 205 | | | | — | | | | 205 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | — | | | $ | — | | | $ | 104 | | | $ | 117 | | | $ | — | | | $ | 221 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
141
Willis Group Holdings plc
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES ANDNON-GUARANTOR SUBSIDIARIES |
The Company may offer debt securities, preferred stock, ordinary stock and other securities pursuant to the Willis Shelf. On March 17, 2011, the Company issued senior notes totaling $800$800 million under its existing registration statement. in a registered public offering. These debt securities arewere issued by Willis Group Holdings (‘Holdings Debt Securities’) and are guaranteed by certain of the Company’s subsidiaries. Therefore, the Company is providing the condensed consolidating financial information below. The following 100 percent directly or indirectly owned subsidiaries fully and unconditionally guarantee the Holdings Debt Securities on a joint and several basis: Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America (the ‘Guarantors’).
The guarantor structure described above differs from the guarantor structure associated with the senior notes issued by Willis North America (the ‘Willis North America Debt Securities’) (and for which condensed consolidating financial information is presented in Note 29)30) in that Willis Group Holdings is the Parent Issuer and Willis North America is a subsidiary guarantor.
Presented below is condensed consolidating financial information for:
| | |
| (i) | Willis Group Holdings, which is the Parent Issuer; |
| |
| (ii) | (ii) | the Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent; |
| |
|
| (iii) | Other, which are the non-guarantor subsidiaries, on a combined basis; |
| |
| (iv) | Consolidating adjustments; and |
| |
| (v) | the Consolidated Company. |
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets for the year ended December 31, 20112013 of Willis Group Holdings and the Guarantors. Investments in subsidiaries in
Restatement to 2011 and 2012 financial information
Regulation S-X, Article 3, Rule 3-10, allows for the presentation of condensed consolidating financial information. In accordance with these rules, the condensed consolidating financial information should be presented in accordance with U.S. GAAP, except that (i) the guarantor and non-guarantor information is presented on a combined rather than consolidated basis, which requires the elimination of intra-entity activity and (ii) investments in subsidiaries are required to be presented under the equity method of accounting. Subsequent to the issuance of our 2012 financial statements, management determined that certain balances were not presented in accordance with the above principles and have therefore restated our condensed consolidating financial information to reflect (i) gross, rather than net, presentation of intercompany balance sheet for Other, representspositions, (ii) dividends received from subsidiaries as reductions to the costequity method investment balances opposed to as component of investment in subsidiaries recordedincome from group undertakings, and (iii) appropriate push down accounting for goodwill.
The impacts of these changes on the previously reported 2012 and 2011 financial statements are shown in the parent companiestables below.
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of operations for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings - the Parent Issuer | | | | | |
| Operating loss | $ | (6 | ) | | $ | — |
| | $ | (6 | ) |
| Net loss attributable to Willis Group Holdings | (446 | ) | | — |
| | (446 | ) |
| The Guarantors | | | | | |
| Operating loss | $ | (261 | ) | | $ | (11 | ) | | $ | (272 | ) |
| Net loss attributable to Willis Group Holdings | (389 | ) | | (8 | ) | | (397 | ) |
| Other | | | | | |
| Operating income (loss) | $ | 122 |
| | $ | (53 | ) | | $ | 69 |
|
| Net loss attributable to Willis Group Holdings | (118 | ) | | (306 | ) | | (424 | ) |
| Consolidating adjustments | | | | | |
| Operating (loss) income | $ | (64 | ) | | $ | 64 |
| | $ | — |
|
| Net income attributable to Willis Group Holdings | 507 |
| | 314 |
| | 821 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of operations for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings - the Parent Issuer | | | | | |
| Operating loss | $ | (20 | ) | | $ | — |
| | $ | (20 | ) |
| Net income attributable to Willis Group Holdings | 204 |
| | — |
| | 204 |
|
| The Guarantors | | | | | |
| Operating loss | $ | (136 | ) | | $ | (11 | ) | | $ | (147 | ) |
| Net income attributable to Willis Group Holdings | 174 |
| | 72 |
| | 246 |
|
| Other | | | | | |
| Operating income (loss) | $ | 754 |
| | $ | (21 | ) | | $ | 733 |
|
| Net income attributable to Willis Group Holdings | 137 |
| | 164 |
| | 301 |
|
| Consolidating adjustments | | | | | |
| Operating (loss) income | $ | (32 | ) | | $ | 32 |
| | $ | — |
|
| Net loss attributable to Willis Group Holdings | (311 | ) | | (236 | ) | | (547 | ) |
Notes to the non-guarantor subsidiaries.financial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of comprehensive income for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings - the Parent Issuer | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (552 | ) | | $ | — |
| | $ | (552 | ) |
| The Guarantors | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (486 | ) | | $ | (8 | ) | | $ | (494 | ) |
| Other | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (226 | ) | | $ | (306 | ) | | $ | (532 | ) |
| Consolidating adjustments | | | | | |
| Comprehensive income attributable to Willis Group Holdings | $ | 712 |
| | $ | 314 |
| | $ | 1,026 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of comprehensive income for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings - the Parent Issuer | | | | | |
| Comprehensive income attributable to Willis Group Holdings | $ | 1 |
| | $ | — |
| �� | $ | 1 |
|
| The Guarantors | | | | | |
| Comprehensive (loss) income attributable to Willis Group Holdings | $ | (24 | ) | | $ | 72 |
| | $ | 48 |
|
| Other | | | | | |
| Comprehensive (loss) income attributable to Willis Group Holdings | $ | (65 | ) | | $ | 164 |
| | $ | 99 |
|
| Consolidating adjustments | | | | | |
| Comprehensive income (loss) attributable to Willis Group Holdings | $ | 89 |
| | $ | (236 | ) | | $ | (147 | ) |
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating balance sheet at 31 December 2012 | | | | | |
| Willis Group Holdings - the Parent Issuer | | | | | |
| Total assets | $ | 2,557 |
| | $ | 1,541 |
| | $ | 4,098 |
|
| Total liabilities | 858 |
| | 1,541 |
| | 2,399 |
|
| Total equity | 1,699 |
| | — |
| | 1,699 |
|
| The Guarantors | | | | | |
| Total assets | $ | 92 |
| | $ | 4,832 |
| | $ | 4,924 |
|
| Total liabilities | 1,667 |
| | 4,918 |
| | 6,585 |
|
| Total equity | (1,575 | ) | | (86 | ) | | (1,661 | ) |
| Other | | | | | |
| Total assets | $ | 17,125 |
| | $ | (1,483 | ) | | $ | 15,642 |
|
| Total liabilities | 11,851 |
| | 720 |
| | 12,571 |
|
| Total equity | 5,274 |
| | (2,203 | ) | | 3,071 |
|
| Consolidating adjustments | | | | | |
| Total assets | $ | (4,662 | ) | | $ | (4,890 | ) | | $ | (9,552 | ) |
| Total liabilities | (989 | ) | | (7,179 | ) | | (8,168 | ) |
| Total equity | (3,673 | ) | | 2,289 |
| | (1,384 | ) |
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of cash flows for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings - the Parent Issuer | | | | | |
| Net cash (used in) provided by operating activities | $ | (42 | ) | | $ | 19 |
| | $ | (23 | ) |
| Net cash provided by investing activities | — |
| | 256 |
| | 256 |
|
| Net cash provided by (used in) financing activities | 43 |
| | (275 | ) | | (232 | ) |
| The Guarantors | | | | | |
| Net cash provided by operating activities | $ | 849 |
| | $ | 611 |
| | $ | 1,460 |
|
| Net cash used in investing activities | (26 | ) | | (178 | ) | | (204 | ) |
| Net cash used in financing activities | (986 | ) | | (433 | ) | | (1,419 | ) |
| Other | | | | | |
| Net cash provided by (used in) operating activities | $ | 431 |
| | $ | (528 | ) | | $ | (97 | ) |
| Net cash (used in) provided by investing activities | (146 | ) | | 1,149 |
| | 1,003 |
|
| Net cash used in financing activities | (61 | ) | | (621 | ) | | (682 | ) |
| Consolidating adjustments | | | | | |
| Net cash used in operating activities | $ | (713 | ) | | $ | (102 | ) | | $ | (815 | ) |
| Net cash used in investing activities | — |
| | (1,227 | ) | | (1,227 | ) |
| Net cash provided by financing activities | 713 |
| | 1,329 |
| | 2,042 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of cash flows for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings - the Parent Issuer | | | | | |
| Net cash (used in) provided by operating activities | $ | (41 | ) | | $ | 85 |
| | $ | 44 |
|
| Net cash used in investing activities | — |
| | (711 | ) | | (711 | ) |
| Net cash provided by financing activities | 41 |
| | 626 |
| | 667 |
|
| The Guarantors | | | | | |
| Net cash provided by operating activities | $ | 272 |
| | $ | 178 |
| | $ | 450 |
|
| Net cash used in investing activities | (25 | ) | | (42 | ) | | (67 | ) |
| Net cash used in financing activities | (160 | ) | | (136 | ) | | (296 | ) |
| Other | | | | | |
| Net cash provided by (used in) operating activities | $ | 1,269 |
| | $ | (1,138 | ) | | $ | 131 |
|
| Net cash (used in) provided by investing activities | (76 | ) | | 123 |
| | 47 |
|
| Net cash (used in) provided by financing activities | (1,156 | ) | | 1,015 |
| | (141 | ) |
| Consolidating adjustments | | | | | |
| Net cash (used in) provided by operating activities | $ | (1,061 | ) | | $ | 875 |
| | $ | (186 | ) |
| Net cash provided by investing activities | — |
| | 630 |
| | 630 |
|
| Net cash provided by (used in) financing activities | 1,061 |
| | (1,505 | ) | | (444 | ) |
Notes to the financial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| REVENUES | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | 8 |
| | $ | 3,625 |
| | $ | — |
| | $ | 3,633 |
|
| Investment income | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
| Other income | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Total revenues | — |
| | 8 |
| | 3,647 |
| | — |
| | 3,655 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (1 | ) | | (103 | ) | | (2,103 | ) | | — |
| | (2,207 | ) |
| Other operating expenses | — |
| | (236 | ) | | (380 | ) | | — |
| | (616 | ) |
| Depreciation expense | — |
| | (23 | ) | | (71 | ) | | — |
| | (94 | ) |
| Amortization of intangible assets | — |
| | — |
| | (55 | ) | | — |
| | (55 | ) |
| Net gain on disposal of operations | — |
| | — |
| | 12 |
| | (10 | ) | | 2 |
|
| Total expenses | (1 | ) | | (362 | ) | | (2,597 | ) | | (10 | ) | | (2,970 | ) |
| OPERATING (LOSS) INCOME | (1 | ) | | (354 | ) | | 1,050 |
| | (10 | ) | | 685 |
|
| Income from Group undertakings | — |
| | 466 |
| | 86 |
| | (552 | ) | | — |
|
| Expenses due to Group undertakings | (10 | ) | | (86 | ) | | (456 | ) | | 552 |
| | — |
|
| Loss on extinguishment of debt | — |
| | (60 | ) | | — |
| | — |
| | (60 | ) |
| Interest expense | (42 | ) | | (79 | ) | | (5 | ) | | — |
| | (126 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (53 | ) | | (113 | ) | | 675 |
| | (10 | ) | | 499 |
|
| Income taxes | — |
| | 23 |
| | (145 | ) | | — |
| | (122 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (53 | ) | | (90 | ) | | 530 |
| | (10 | ) | | 377 |
|
| Interest in earnings of associates, net of tax | — |
| | 9 |
| | (9 | ) | | — |
| | — |
|
| Equity account for subsidiaries | 418 |
| | 498 |
| | — |
| | (916 | ) | | — |
|
| INCOME FROM CONTINUING OPERATIONS | 365 |
| | 417 |
| | 521 |
| | (926 | ) | | 377 |
|
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
| | — |
|
| NET INCOME | 365 |
| | 417 |
| | 521 |
| | (926 | ) | | 377 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | 365 |
| | $ | 417 |
| | $ | 509 |
| | $ | (926 | ) | | $ | 365 |
|
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings—the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| Comprehensive income | $ | 522 |
| | $ | 565 |
| | $ | 636 |
| | $ | (1,189 | ) | | $ | 534 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
| Comprehensive income attributable to Willis Group Holdings | $ | 522 |
| | $ | 565 |
| | $ | 624 |
| | $ | (1,189 | ) | | $ | 522 |
|
Notes to the financial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| REVENUES | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | — |
| | $ | 3,458 |
| | $ | — |
| | $ | 3,458 |
|
| Investment income | — |
| | 1 |
| | 17 |
| | — |
| | 18 |
|
| Other income | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Total revenues | — |
| | 1 |
| | 3,479 |
| | — |
| | 3,480 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (2 | ) | | (96 | ) | | (2,377 | ) | | — |
| | (2,475 | ) |
| Other operating expenses | (4 | ) | | (161 | ) | | (416 | ) | | — |
| | (581 | ) |
| Depreciation expense | — |
| | (16 | ) | | (63 | ) | | — |
| | (79 | ) |
| Amortization of intangible assets | — |
| | — |
| | (59 | ) | | — |
| | (59 | ) |
| Goodwill impairment charge | — |
| | — |
| | (492 | ) | | — |
| | (492 | ) |
| Net loss on disposal of operations | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
| Total expenses | (6 | ) | | (273 | ) | | (3,410 | ) | | — |
| | (3,689 | ) |
| OPERATING (LOSS) INCOME | (6 | ) | | (272 | ) | | 69 |
| | — |
| | (209 | ) |
| Income from Group undertakings | — |
| | 409 |
| | 111 |
| | (520 | ) | | — |
|
| Expenses due to Group undertakings | — |
| | (106 | ) | | (414 | ) | | 520 |
| | — |
|
| Interest expense | (43 | ) | | (77 | ) | | (8 | ) | | — |
| | (128 | ) |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (49 | ) | | (46 | ) | | (242 | ) | | — |
| | (337 | ) |
| Income taxes | — |
| | 65 |
| | (166 | ) | | — |
| | (101 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (49 | ) | | 19 |
| | (408 | ) | | — |
| | (438 | ) |
| Interest in earnings of associates, net of tax | — |
| | 8 |
| | (3 | ) | | — |
| | 5 |
|
| Equity account for subsidiaries | (397 | ) | | (424 | ) | | — |
| | 821 |
| | — |
|
| LOSS FROM CONTINUING OPERATIONS | (446 | ) | | (397 | ) | | (411 | ) | | 821 |
| | (433 | ) |
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
| | — |
|
| NET LOSS | (446 | ) | | (397 | ) | | (411 | ) | | 821 |
| | (433 | ) |
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| NET LOSS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | (446 | ) | | $ | (397 | ) | | $ | (424 | ) | | $ | 821 |
| | $ | (446 | ) |
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis Group Holdings—the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| Comprehensive loss | $ | (552 | ) | | $ | (494 | ) | | $ | (519 | ) | | $ | 1,026 |
| | $ | (539 | ) |
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| Comprehensive loss attributable to Willis Group Holdings | $ | (552 | ) | | $ | (494 | ) | | $ | (532 | ) | | $ | 1,026 |
| | $ | (552 | ) |
Notes to the financial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| REVENUES | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | — |
| | $ | 3,414 |
| | $ | — |
| | $ | 3,414 |
|
| Investment income | — |
| | 2 |
| | 29 |
| | — |
| | 31 |
|
| Other income | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Total revenues | — |
| | 2 |
| | 3,445 |
| | — |
| | 3,447 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (3 | ) | | (69 | ) | | (2,015 | ) | | — |
| | (2,087 | ) |
| Other operating expenses | (17 | ) | | (66 | ) | | (573 | ) | | — |
| | (656 | ) |
| Depreciation expense | — |
| | (14 | ) | | (60 | ) | | — |
| | (74 | ) |
| Amortization of intangible assets | — |
| | — |
| | (68 | ) | | — |
| | (68 | ) |
| Net gain on disposal of operations | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Total expenses | (20 | ) | | (149 | ) | | (2,712 | ) | | — |
| | (2,881 | ) |
| OPERATING (LOSS) INCOME | (20 | ) | | (147 | ) | | 733 |
| | — |
| | 566 |
|
| Income from Group undertakings | — |
| | 412 |
| | 119 |
| | (531 | ) | | — |
|
| Expenses due to Group undertakings | — |
| | (116 | ) | | (415 | ) | | 531 |
| | — |
|
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | — |
| | (171 | ) | | — |
| | — |
| | (171 | ) |
| Interest expense | (34 | ) | | (114 | ) | | (8 | ) | | — |
| | (156 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | | (136 | ) | | 429 |
| | — |
| | 239 |
|
| Income taxes | — |
| | 86 |
| | (117 | ) | | (1 | ) | | (32 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | | (50 | ) | | 312 |
| | (1 | ) | | 207 |
|
| Interest in earnings of associates, net of tax | — |
| | 8 |
| | 4 |
| | — |
| | 12 |
|
| Equity account for subsidiaries | 258 |
| | 288 |
| | — |
| | (546 | ) | | — |
|
| INCOME FROM CONTINUING OPERATIONS | 204 |
| | 246 |
| | 316 |
| | (547 | ) | | 219 |
|
| Discontinued operations, net of tax | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| NET INCOME | 204 |
| | 246 |
| | 317 |
| | (547 | ) | | 220 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | (16 | ) | | — |
| | (16 | ) |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | 204 |
| | $ | 246 |
| | $ | 301 |
| | $ | (547 | ) | | $ | 204 |
|
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis Group Holdings—the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| Comprehensive income | $ | 1 |
| | $ | 48 |
| | $ | 114 |
| | $ | (147 | ) | | $ | 16 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | (15 | ) | | — |
| | (15 | ) |
| Comprehensive income attributable to Willis Group Holdings | $ | 1 |
| | $ | 48 |
| | $ | 99 |
| | $ | (147 | ) | | $ | 1 |
|
The entities included in
Notes to the Guarantors column forfinancial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet |
| | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2013 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| ASSETS | |
| | |
| | |
| | |
| | |
|
| CURRENT ASSETS | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 3 |
| | $ | 3 |
| | $ | 790 |
| | $ | — |
| | $ | 796 |
|
| Accounts receivable, net | — |
| | 4 |
| | 1,037 |
| | — |
| | 1,041 |
|
| Fiduciary assets | — |
| | — |
| | 8,412 |
| | — |
| | 8,412 |
|
| Deferred tax assets | — |
| | — |
| | 16 |
| | (1 | ) | | 15 |
|
| Other current assets | 1 |
| | 31 |
| | 186 |
| | (21 | ) | | 197 |
|
| Amounts due from group undertakings | 4,051 |
| | 975 |
| | 1,484 |
| | (6,510 | ) | | — |
|
| Total current assets | 4,055 |
| | 1,013 |
| | 11,925 |
| | (6,532 | ) | | 10,461 |
|
| NON-CURRENT ASSETS | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | — |
| | 3,788 |
| | — |
| | (3,788 | ) | | — |
|
| Fixed assets, net | — |
| | 66 |
| | 415 |
| | — |
| | 481 |
|
| Goodwill | — |
| | — |
| | 2,838 |
| | — |
| | 2,838 |
|
| Other intangible assets, net | — |
| | — |
| | 353 |
| | — |
| | 353 |
|
| Investments in associates | — |
| | 156 |
| | 20 |
| | — |
| | 176 |
|
| Deferred tax assets | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Pension benefits asset | — |
| | — |
| | 278 |
| | — |
| | 278 |
|
| Other non-current assets | 4 |
| | 14 |
| | 188 |
| | — |
| | 206 |
|
| Non-current amounts due from group undertakings | — |
| | 690 |
| | — |
| | (690 | ) | | — |
|
| Total non-current assets | 4 |
| | 4,714 |
| | 4,099 |
| | (4,478 | ) | | 4,339 |
|
| TOTAL ASSETS | $ | 4,059 |
| | $ | 5,727 |
| | $ | 16,024 |
| | $ | (11,010 | ) | | $ | 14,800 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| | |
| | |
| | |
|
| CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
|
| Fiduciary liabilities | $ | — |
| | $ | — |
| | $ | 8,412 |
| | $ | — |
| | $ | 8,412 |
|
| Deferred revenue and accrued expenses | 2 |
| | 29 |
| | 555 |
| | — |
| | 586 |
|
| Income taxes payable | — |
| | 3 |
| | 39 |
| | (21 | ) | | 21 |
|
| Short-term debt and current portion on long-term debt | — |
| | 15 |
| | — |
| | — |
| | 15 |
|
| Deferred tax liabilities | — |
| | — |
| | 25 |
| | — |
| | 25 |
|
| Other current liabilities | 62 |
| | 53 |
| | 300 |
| | — |
| | 415 |
|
| Amounts due to group undertakings | — |
| | 5,177 |
| | 1,333 |
| | (6,510 | ) | | — |
|
| Total current liabilities | 64 |
| | 5,277 |
| | 10,664 |
| | (6,531 | ) | | 9,474 |
|
| NON-CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | 985 |
| | — |
|
| — |
| | (985 | ) | | — |
|
| Long-term debt | 795 |
| | 1,515 |
| | 1 |
| | — |
| | 2,311 |
|
| Liabilities for pension benefits | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
| Deferred tax liabilities | — |
| | 1 |
| | 55 |
| | — |
| | 56 |
|
| Provisions for liabilities | — |
| | — |
| | 206 |
| | — |
| | 206 |
|
| Other non-current liabilities | — |
| | 48 |
| | 326 |
| | — |
| | 374 |
|
| Non-current amounts due to group undertakings | — |
| | — |
| | 690 |
| | (690 | ) | | — |
|
| Total non-current liabilities | 1,780 |
| | 1,564 |
| | 1,414 |
| | (1,675 | ) | | 3,083 |
|
| TOTAL LIABILITIES | $ | 1,844 |
| | $ | 6,841 |
| | $ | 12,078 |
| | $ | (8,206 | ) | | $ | 12,557 |
|
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2013 |
| | Willis
Group
Holdings —
the Parent
Issuer | | The
Guarantors | | Other | | Consolidating
adjustments | | Consolidated |
| | (millions) |
| EQUITY | |
| | |
| | |
| | |
| | |
|
| Total Willis Group Holdings stockholders’ equity | 2,215 |
| | (1,114 | ) | | 3,918 |
| | (2,804 | ) | | 2,215 |
|
| Noncontrolling interests | — |
| | — |
| | 28 |
| | — |
| | 28 |
|
| Total equity | 2,215 |
| | (1,114 | ) | | 3,946 |
| | (2,804 | ) | | 2,243 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 4,059 |
| | $ | 5,727 |
| | $ | 16,024 |
| | $ | (11,010 | ) | | $ | 14,800 |
|
Notes to the year ended December 31, 2011 arefinancial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2012 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| ASSETS | |
| | |
| | |
| | |
| | |
|
| CURRENT ASSETS | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 1 |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 500 |
|
| Accounts receivable, net | — |
| | — |
| | 933 |
| | — |
| | 933 |
|
| Fiduciary assets | — |
| | — |
| | 9,271 |
| | — |
| | 9,271 |
|
| Deferred tax assets | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Other current assets | 1 |
| | 69 |
| | 114 |
| | (3 | ) | | 181 |
|
| Amounts due from group undertakings | 4,091 |
| | 1,027 |
| | 864 |
| | (5,982 | ) | | — |
|
| Total current assets | 4,093 |
| | 1,096 |
| | 11,694 |
| | (5,985 | ) | | 10,898 |
|
| NON-CURRENT ASSETS | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | — |
| | 2,926 |
| | — |
| | (2,926 | ) | | — |
|
| Fixed assets, net | — |
| | 74 |
| | 394 |
| | — |
| | 468 |
|
| Goodwill | — |
| | — |
| | 2,827 |
| | — |
| | 2,827 |
|
| Other intangible assets, net | — |
| | — |
| | 385 |
| | — |
| | 385 |
|
| Investments in associates | — |
| | 143 |
| | 31 |
| | — |
| | 174 |
|
| Deferred tax assets | — |
| | — |
| | 18 |
| | — |
| | 18 |
|
| Pension benefits asset | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
| Other non-current assets | 5 |
| | 44 |
| | 157 |
| | — |
| | 206 |
|
| Non-current amounts due from group undertakings | — |
| | 641 |
| | — |
| | (641 | ) | | — |
|
| Total non-current assets | 5 |
| | 3,828 |
| | 3,948 |
| | (3,567 | ) | | 4,214 |
|
| TOTAL ASSETS | $ | 4,098 |
| | $ | 4,924 |
| | $ | 15,642 |
| | $ | (9,552 | ) | | $ | 15,112 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | |
| | |
| | |
| | |
| CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
|
| Fiduciary liabilities | $ | — |
| | $ | — |
| | $ | 9,271 |
| | $ | — |
| | $ | 9,271 |
|
| Deferred revenue and accrued expenses | 2 |
| | — |
| | 539 |
| | — |
| | 541 |
|
| Income taxes payable | — |
| | 4 |
| | 18 |
| | (3 | ) | | 19 |
|
| Short-term debt and current portion of long-term debt | — |
| | 15 |
| | — |
| | — |
| | 15 |
|
| Deferred tax liabilities | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
| Other current liabilities | 60 |
| | 73 |
| | 194 |
| | — |
| | 327 |
|
| Amounts due to group undertakings | — |
| | 4,939 |
| | 1,043 |
| | (5,982 | ) | | — |
|
| Total current liabilities | 62 |
| | 5,031 |
| | 11,086 |
| | (5,985 | ) | | 10,194 |
|
| NON-CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | 1,542 |
| | — |
| | — |
| | (1,542 | ) | | — |
|
| Long-term debt | 795 |
| | 1,542 |
| | 1 |
| | — |
| | 2,338 |
|
| Liabilities for pension benefits | — |
| | — |
| | 282 |
| | — |
| | 282 |
|
| Deferred tax liabilities | — |
| | — |
| | 18 |
| | — |
| | 18 |
|
| Provisions for liabilities | — |
| | — |
| | 180 |
| | — |
| | 180 |
|
| Other non-current liabilities | — |
| | 12 |
| | 363 |
| | — |
| | 375 |
|
| Non-current amounts due to group undertakings | — |
| | — |
| | 641 |
| | (641 | ) | | — |
|
| Total non-current liabilities | 2,337 |
| | 1,554 |
| | 1,485 |
| | (2,183 | ) | | 3,193 |
|
| TOTAL LIABILITIES | $ | 2,399 |
| | $ | 6,585 |
| | $ | 12,571 |
| | $ | (8,168 | ) | | $ | 13,387 |
|
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2012 |
| | Willis
Group
Holdings —
the Parent
Issuer | | The
Guarantors | | Other | | Consolidating
adjustments | | Consolidated |
| | (millions) |
| EQUITY | |
| | |
| | |
| | |
| | |
|
| Total Willis Group Holdings stockholders’ equity | 1,699 |
| | (1,661 | ) | | 3,045 |
| | (1,384 | ) | | 1,699 |
|
| Noncontrolling interests | — |
| | — |
| | 26 |
| | — |
| | 26 |
|
| Total equity | 1,699 |
| | (1,661 | ) | | 3,071 |
| | (1,384 | ) | | 1,725 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 4,098 |
| | $ | 4,924 |
| | $ | 15,642 |
| | $ | (9,552 | ) | | $ | 15,112 |
|
Notes to the financial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | 4 |
| | $ | (98 | ) | | $ | 662 |
| | $ | (7 | ) | | $ | 561 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | 3 |
| | 9 |
| | — |
| | 12 |
|
| Additions to fixed assets | — |
| | (18 | ) | | (94 | ) | | — |
| | (112 | ) |
| Additions to intangibles assets | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | (237 | ) | | (30 | ) | | 237 |
| | (30 | ) |
| Payments to acquire other investments | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Proceeds from sale of associates | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Proceeds from disposal of operations, net of cash disposed | — |
| | — |
| | 257 |
| | (237 | ) | | 20 |
|
| Proceeds from intercompany investing activities | 383 |
| | 223 |
| | 60 |
| | (666 | ) | | — |
|
| Repayments of intercompany investing activities | (347 | ) | | (120 | ) | | (780 | ) | | 1,247 |
| | — |
|
| Net cash provided by (used in) investing activities | 36 |
| | (149 | ) | | (588 | ) | | 581 |
| | (120 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
|
| Senior notes issued | — |
| | 522 |
| | — |
| | — |
| | 522 |
|
| Debt issuance costs | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) |
| Repayments of debt | — |
| | (536 | ) | | — |
| | — |
| | (536 | ) |
| Tender premium on extinguishment of senior notes | — |
| | (65 | ) | | — |
| | — |
| | (65 | ) |
| Proceeds from the issue of shares | 155 |
| | — |
| | — |
| | — |
| | 155 |
|
| Excess tax benefits from share-based payment arrangements | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Dividends paid | (193 | ) | | — |
| | (7 | ) | | 7 |
| | (193 | ) |
| Acquisition of noncontrolling interests | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
| Proceeds from intercompany financing activities | — |
| | 780 |
| | 467 |
| | (1,247 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (443 | ) | | (223 | ) | | 666 |
| | — |
|
| Net cash (used in) provided by financing activities | (38 | ) | | 250 |
| | 225 |
| | (574 | ) | | (137 | ) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2 |
| | 3 |
| | 299 |
| | — |
| | 304 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (8 | ) | | — |
| | (8 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 1 |
| | — |
| | 499 |
| | — |
| | 500 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 3 |
| | $ | 3 |
| | $ | 790 |
| | $ | — |
| | $ | 796 |
|
Willis Group Holdings plc
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | $ | (23 | ) | | $ | 1,460 |
| | $ | (97 | ) | | $ | (815 | ) | | $ | 525 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
| Additions to fixed assets | — |
| | (26 | ) | | (109 | ) | | — |
| | (135 | ) |
| Additions to intangible assets | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | — |
| | (33 | ) | | — |
| | (33 | ) |
| Payments to acquire other investments | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Proceeds from intercompany investing activities | 256 |
| | 150 |
| | 1,230 |
| | (1,636 | ) | | — |
|
| Repayments of intercompany investing activities | — |
| | (328 | ) | | (81 | ) | | 409 |
| | — |
|
| Net cash provided by (used in) investing activities | 256 |
| | (204 | ) | | 1,003 |
| | (1,227 | ) | | (172 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
|
| Repayments of debt | — |
| | (15 | ) | | — |
| | — |
| | (15 | ) |
| Proceeds from issue of other debt | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Repurchase of shares | (100 | ) | | — |
| | — |
| | — |
| | (100 | ) |
| Proceeds from the issue of shares | 53 |
| | — |
| | — |
| | — |
| | 53 |
|
| Excess tax benefits from share-based payment arrangements | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Dividends paid | (185 | ) | | — |
| | (815 | ) | | 815 |
| | (185 | ) |
| Proceeds from sale of noncontrolling interest | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Acquisition of noncontrolling interests | — |
| | — |
| | (39 | ) | | — |
| | (39 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) |
| Proceeds from intercompany financing activities | — |
| | 81 |
| | 328 |
| | (409 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (1,486 | ) | | (150 | ) | | 1,636 |
| | — |
|
| Net cash used in financing activities | (232 | ) | | (1,419 | ) | | (682 | ) | | 2,042 |
| | (291 | ) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1 |
| | (163 | ) | | 224 |
| | — |
| | 62 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | — |
| | 163 |
| | 273 |
| | — |
| | 436 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 1 |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 500 |
|
Notes to the financial statements
31. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis Group Holdings — the Parent Issuer | | The Guarantors | | Other | | Consolidating adjustments | | Consolidated |
| | (millions) |
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 44 |
| | $ | 450 |
| | $ | 131 |
| | $ | (186 | ) | | $ | 439 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Additions to fixed assets | — |
| | (25 | ) | | (86 | ) | | — |
| | (111 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
| Acquisitions of investments in associates | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Payments to acquire other investments | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
| Proceeds from sale of operations, net of cash disposed | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
| Proceeds from intercompany investing activities | — |
| | 96 |
| | 224 |
| | (320 | ) | | — |
|
| Repayments of intercompany investing activities | (711 | ) | | (138 | ) | | (101 | ) | | 950 |
| | — |
|
| Net cash used in investing activities | (711 | ) | | (67 | ) | | 47 |
| | 630 |
| | (101 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
|
| Repayments of revolving credit facility | — |
| | (90 | ) | | — |
| | — |
| | (90 | ) |
| Senior notes issued | 794 |
| | — |
| | — |
| | — |
| | 794 |
|
| Debt issuance costs | (7 | ) | | (5 | ) | | — |
| | — |
| | (12 | ) |
| Repayments of debt | — |
| | (911 | ) | | — |
| | — |
| | (911 | ) |
| Proceeds from the issue of term loan | — |
| | 300 |
| | — |
| | — |
| | 300 |
|
| Make-whole on repurchase and redemption of senior notes | — |
| | (158 | ) | | — |
| | — |
| | (158 | ) |
| Proceeds from issue of shares | 60 |
| | — |
| | — |
| | — |
| | 60 |
|
| Excess tax benefits from share-based payment arrangements | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
| Dividends paid | (180 | ) | | — |
| | (186 | ) | | 186 |
| | (180 | ) |
| Acquisition of noncontrolling interests | — |
| | (4 | ) | | (5 | ) | | — |
| | (9 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| Proceeds from intercompany financing activities | — |
| | 796 |
| | 154 |
| | (950 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (224 | ) | | (96 | ) | | 320 |
| | — |
|
| Net cash provided by (used in) financing activities | 667 |
| | (296 | ) | | (141 | ) | | (444 | ) | | (214 | ) |
| INCREASE IN CASH AND CASH EQUIVALENTS | — |
| | 87 |
| | 37 |
| | — |
| | 124 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | — |
| | 76 |
| | 240 |
| | — |
| | 316 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | — |
| | $ | 163 |
| | $ | 273 |
| | $ | — |
| | $ | 436 |
|
Willis Group Holdings plc
|
| |
| 32. | FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES |
Trinity Acquisition plc has $525 million senior notes outstanding that were issued on August 15, 2013.
All direct obligations under the senior notes were jointly and severally, irrevocably and fully and unconditionally guaranteed by Willis Netherlands Holdings B.V.,B.V, Willis Investment UK Holdings Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America.America, Inc, collectively the 'Other Guarantors', and with Willis Group Holdings, the 'Guarantor Companies'.
The guarantor structure described above differs from the guarantor structure associated with the senior notes issued by the Company and Willis North America (the ‘Willis North America Debt Securities’) in that Trinity Acquisition plc is the issuer and not a subsidiary guarantor, and Willis North America, Inc. is a subsidiary guarantor.
Presented below is condensed consolidating financial information for:
| |
| (i) | Willis Group Holdings, which is a guarantor, on a parent company only basis; |
| |
| (ii) | the Other Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent. Willis Netherlands Holdings B.V, Willis Investment UK Holdings Limited and TA I Limited are all direct or indirect parents of the issuer and Willis Group Limited and Willis North America Inc., are 100 percent directly or indirectly owned subsidiaries or the issuer; |
| |
| (iii) | Trinity Acquisition plc, which is the issuer and is a 100 percent indirectly owned subsidiary of the parent; |
| |
| (iv) | Other, which are the non-guarantor subsidiaries, on a combined basis; |
| |
| (v) | Consolidating adjustments; and |
| |
| (vi) | the Consolidated Company. |
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets of Willis Group Holdings, the Other Guarantors and the Issuer.
142
Restatement to 2011 and 2012 financial information
Regulation S-X, Article 3, Rule 3-10, allows for the presentation of condensed consolidating financial information. In accordance with these rules, the condensed consolidating financial information should be presented in accordance with U.S. GAAP, except that (i) the guarantor and non-guarantor information is presented on a combined rather than consolidated basis, which requires the elimination of intra-entity activity and (ii) investments in subsidiaries are required to be presented under the equity method of accounting. Subsequent to the issuance of our 2012 financial statements, management determined that certain balances were not presented in accordance with the above principles and have therefore restated our condensed consolidating financial information to reflect (i) gross, rather than net, presentation of intercompany balance sheet positions, (ii) dividends received from subsidiaries as reductions to the equity method investment balances opposed to as component of investment income from group undertakings, and (iii) appropriate push down accounting for goodwill.
The impacts of these changes on the previously reported 2012 and 2011 financial statements are shown in the tables below.
Notes to the financial statements
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
Condensed Consolidating Statement |
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of operations for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Operating loss | $ | (6 | ) | | $ | — |
| | $ | (6 | ) |
| Net loss attributable to Willis Group Holdings | (446 | ) | | — |
| | (446 | ) |
| The Other Guarantors | | | | | |
| Operating loss | $ | (262 | ) | | $ | (11 | ) | | $ | (273 | ) |
| Net loss attributable to Willis Group Holdings | (389 | ) | | (8 | ) | | (397 | ) |
| The Issuer | | | | | |
| Operating income | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| Net loss attributable to Willis Group Holdings | (427 | ) | | — |
| | (427 | ) |
| Other | | | | | |
| Operating income (loss) | $ | 122 |
| | $ | (53 | ) | | $ | 69 |
|
| Net loss attributable to Willis Group Holdings | (118 | ) | | (306 | ) | | (424 | ) |
| Consolidating adjustments | | | | | |
| Operating (loss) income | $ | (64 | ) | | $ | 64 |
| | $ | — |
|
| Net income attributable to Willis Group Holdings | 934 |
| | 314 |
| | 1,248 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of operations for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings | | | | | |
| Operating loss | $ | (20 | ) | | $ | — |
| | $ | (20 | ) |
| Net income attributable to Willis Group Holdings | 204 |
| | — |
| | 204 |
|
| The Other Guarantors | | | | | |
| Operating loss | $ | (140 | ) | | $ | (11 | ) | | $ | (151 | ) |
| Net income attributable to Willis Group Holdings | 174 |
| | 72 |
| | 246 |
|
| The Issuer | | | | | |
| Operating income | $ | 4 |
| | $ | — |
| | $ | 4 |
|
| Net income (loss) attributable to Willis Group Holdings | 218 |
| | (1 | ) | | 217 |
|
| Other | | | | | |
| Operating income (loss) | $ | 754 |
| | $ | (21 | ) | | $ | 733 |
|
| Net income attributable to Willis Group Holdings | 137 |
| | 164 |
| | 301 |
|
| Consolidating adjustments | | | | | |
| Operating (loss) income | $ | (32 | ) | | $ | 32 |
| | $ | — |
|
| Net loss attributable to Willis Group Holdings | (529 | ) | | (235 | ) | | (764 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2011 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
| REVENUES | | | | | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | — | | | $ | — | | | $ | 3,414 | | | $ | — | | | $ | 3,414 | |
| Investment income | | | — | | | | 13 | | | | 29 | | | | (11 | ) | | | 31 | |
| Other income | | | — | | | | — | | | | 24 | | | | (22 | ) | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 13 | | | | 3,467 | | | | (33 | ) | | | 3,447 | |
| | | | | | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Salaries and benefits | | | (3 | ) | | | (69 | ) | | | (2,015 | ) | | | — | | | | (2,087 | ) |
| Other operating expenses | | | (17 | ) | | | (66 | ) | | | (571 | ) | | | (2 | ) | | | (656 | ) |
| Depreciation expense | | | — | | | | (14 | ) | | | (60 | ) | | | — | | | | (74 | ) |
| Amortization of intangible assets | | | — | | | | — | | | | (74 | ) | | | 6 | | | | (68 | ) |
| Net gain on disposal of operations | | | — | | | | — | | | | 7 | | | | (3 | ) | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total expenses | | | (20 | ) | | | (149 | ) | | | (2,713 | ) | | | 1 | | | | (2,881 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATING (LOSS) INCOME | | | (20 | ) | | | (136 | ) | | | 754 | | | | (32 | ) | | | 566 | |
| Investment income from Group undertakings | | | 35 | | | | 747 | | | | (157 | ) | | | (625 | ) | | | — | |
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | | | — | | | | (171 | ) | | | — | | | | — | | | | (171 | ) |
| Interest expense | | | (34 | ) | | | (410 | ) | | | (332 | ) | | | 620 | | | | (156 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | (19 | ) | | | 30 | | | | 265 | | | | (37 | ) | | | 239 | |
| Income taxes | | | — | | | | 83 | | | | (117 | ) | | | 2 | | | | (32 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | (19 | ) | | | 113 | | | | 148 | | | | (35 | ) | | | 207 | |
| Interest in earnings of associates, net of tax | | | — | | | | — | | | | 4 | | | | 8 | | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS | | | (19 | ) | | | 113 | | | | 152 | | | | (27 | ) | | | 219 | |
| Discontinued operations, net of tax | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
| NET (LOSS) INCOME | | | (19 | ) | | | 113 | | | | 153 | | | | (27 | ) | | | 220 | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | — | | | | (16 | ) | | | — | | | | (16 | ) |
| EQUITY ACCOUNT FOR SUBSIDIARIES | | | 223 | | | | 61 | | | | — | | | | (284 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | $ | 204 | | | $ | 174 | | | $ | 137 | | | $ | (311 | ) | | $ | 204 | |
| | | | | | | | | | | | | | | | | | | | | |
143
Willis Group Holdings plc
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES ANDNON-GUARANTOR SUBSIDIARIES (Continued) |
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of comprehensive income for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (552 | ) | | $ | — |
| | $ | (552 | ) |
| The Other Guarantors | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (486 | ) | | $ | (8 | ) | | $ | (494 | ) |
| The Issuer | | | | | |
| Comprehensive (loss) income attributable to Willis Group Holdings | $ | (528 | ) | | $ | — |
| | $ | (528 | ) |
| Other | | | | | |
| Comprehensive loss attributable to Willis Group Holdings | $ | (226 | ) | | $ | (306 | ) | | $ | (532 | ) |
| Consolidating adjustments | | | | | |
| Comprehensive income attributable to Willis Group Holdings | $ | 1,240 |
| | $ | 314 |
| | $ | 1,554 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of comprehensive income for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings | | | | | |
| Comprehensive income attributable to Willis Group Holdings | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| The Other Guarantors | | | | | |
| Comprehensive (loss) income attributable to Willis Group Holdings | $ | (24 | ) | | $ | 72 |
| | $ | 48 |
|
| The Issuer | | | | | |
| Comprehensive income attributable to Willis Group Holdings | $ | 21 |
| | $ | (1 | ) | | $ | 20 |
|
| Other | | | | | |
| Comprehensive (loss) income attributable to Willis Group Holdings | $ | (65 | ) | | $ | 164 |
| | $ | 99 |
|
| Consolidating adjustments | | | | | |
| Comprehensive income (loss) attributable to Willis Group Holdings | $ | 68 |
| | $ | (235 | ) | | $ | (167 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2010 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
| REVENUES | | | | | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | — | | | $ | — | | | $ | 3,293 | | | $ | — | | | $ | 3,293 | |
| Investment income | | | — | | | | 12 | | | | 36 | | | | (10 | ) | | | 38 | |
| Other income | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 12 | | | | 3,330 | | | | (10 | ) | | | 3,332 | |
| | | | | | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Salaries and benefits | | | — | | | | (65 | ) | | | (1,818 | ) | | | 15 | | | | (1,868 | ) |
| Other operating expenses | | | 335 | | | | (55 | ) | | | (825 | ) | | | (19 | ) | | | (564 | ) |
| Depreciation expense | | | — | | | | (9 | ) | | | (54 | ) | | | — | | | | (63 | ) |
| Amortization of intangible assets | | | — | | | | — | | | | (82 | ) | | | — | | | | (82 | ) |
| Net (loss) gain on disposal of operations | | | (347 | ) | | | — | | | | 350 | | | | (5 | ) | | | (2 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total expenses | | | (12 | ) | | | (129 | ) | | | (2,429 | ) | | | (9 | ) | | | (2,579 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATING (LOSS) INCOME | | | (12 | ) | | | (117 | ) | | | 901 | | | | (19 | ) | | | 753 | |
| Investment income from Group undertakings | | | — | | | | 2,039 | | | | 952 | | | | (2,991 | ) | | | — | |
| Interest expense | | | — | | | | (580 | ) | | | (374 | ) | | | 788 | | | | (166 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | (12 | ) | | | 1,342 | | | | 1,479 | | | | (2,222 | ) | | | 587 | |
| Income taxes | | | — | | | | 45 | | | | (186 | ) | | | 1 | | | | (140 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | (12 | ) | | | 1,387 | | | | 1,293 | | | | (2,221 | ) | | | 447 | |
| Interest in earnings of associates, net of tax | | | — | | | | — | | | | 16 | | | | 7 | | | | 23 | |
| | | | | | | | | | | | | | | | | | | | | |
| (LOSS) INCOME FROM CONTINUING OPERATIONS | | | (12 | ) | | | 1,387 | | | | 1,309 | | | | (2,214 | ) | | | 470 | |
| | | | | | | | | | | | | | | | | | | | | |
| NET (LOSS) INCOME | | | (12 | ) | | | 1,387 | | | | 1,309 | | | | (2,214 | ) | | | 470 | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | — | | | | (15 | ) | | | — | | | | (15 | ) |
| EQUITY ACCOUNT FOR SUBSIDIARIES | | | 467 | | | | (934 | ) | | | — | | | | 467 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | $ | 455 | | | $ | 453 | | | $ | 1,294 | | | $ | (1,747 | ) | | $ | 455 | |
| | | | | | | | | | | | | | | | | | | | | |
144
Notes to the financial statements
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
Condensed Consolidating Statement |
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating balance sheet at 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Total assets | $ | 2,557 |
| | $ | 1,541 |
| | $ | 4,098 |
|
| Total liabilities | 858 |
| | 1,541 |
| | 2,399 |
|
| Total equity | 1,699 |
| | — |
| | 1,699 |
|
| The Other Guarantors | | | | | |
| Total assets | $ | (208 | ) | | $ | 5,618 |
| | $ | 5,410 |
|
| Total liabilities | 1,367 |
| | 5,704 |
| | 7,071 |
|
| Total equity | (1,575 | ) | | (86 | ) | | (1,661 | ) |
| The Issuer | | | | | |
| Total assets | $ | 2,861 |
| | $ | 408 |
| | $ | 3,269 |
|
| Total liabilities | 300 |
| | 492 |
| | 792 |
|
| Total equity | 2,561 |
| | (84 | ) | | 2,477 |
|
| Other | | | | | |
| Total assets | $ | 17,125 |
| | $ | (1,483 | ) | | $ | 15,642 |
|
| Total liabilities | 11,851 |
| | 720 |
| | 12,571 |
|
| Total equity | 5,274 |
| | (2,203 | ) | | 3,071 |
|
| Consolidating adjustments | | | | | |
| Total assets | $ | (7,223 | ) | | $ | (6,084 | ) | | $ | (13,307 | ) |
| Total liabilities | (989 | ) | | (8,457 | ) | | (9,446 | ) |
| Total equity | (6,234 | ) | | 2,373 |
| | (3,861 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
| REVENUES | | | | | | | | | | | | | | | | | | | | |
| Commissions and fees | | $ | — | | | $ | — | | | $ | 3,200 | | | $ | — | | | $ | 3,200 | |
| Investment income | | | — | | | | 4 | | | | 46 | | | | — | | | | 50 | |
| Other income | | | — | | | | — | | | | 3 | | | | — | | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total revenues | | | — | | | | 4 | | | | 3,249 | | | | — | | | | 3,253 | |
| | | | | | | | | | | | | | | | | | | | | |
| EXPENSES | | | | | | | | | | | | | | | | | | | | |
| Salaries and benefits | | | — | | | | (28 | ) | | | (1,803 | ) | | | 9 | | | | (1,822 | ) |
| Other operating expenses | | | — | | | | 23 | | | | (617 | ) | | | 4 | | | | (590 | ) |
| Depreciation expense | | | — | | | | (8 | ) | | | (56 | ) | | | — | | | | (64 | ) |
| Amortization of intangible assets | | | — | | | | — | | | | (100 | ) | | | — | | | | (100 | ) |
| Net gain on disposal of operations | | | — | | | | — | | | | 13 | | | | — | | | | 13 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total expenses | | | — | | | | (13 | ) | | | (2,563 | ) | | | 13 | | | | (2,563 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| OPERATING (LOSS) INCOME | | | — | | | | (9 | ) | | | 686 | | | | 13 | | | | 690 | |
| Investment income from Group undertakings | | | — | | | | 1,409 | | | | 504 | | | | (1,913 | ) | | | — | |
| Interest expense | | | — | | | | (588 | ) | | | (346 | ) | | | 760 | | | | (174 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | | | — | | | | 812 | | | | 844 | | | | (1,140 | ) | | | 516 | |
| Income taxes | | | — | | | | 15 | | | | (110 | ) | | | 1 | | | | (94 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | | | — | | | | 827 | | | | 734 | | | | (1,139 | ) | | | 422 | |
| Interest in earnings of associates, net of tax | | | — | | | | — | | | | 33 | | | | — | | | | 33 | |
| | | | | | | | | | | | | | | | | | | | | |
| INCOME FROM CONTINUING OPERATIONS | | | — | | | | 827 | | | | 767 | | | | (1,139 | ) | | | 455 | |
| Discontinued operations, net of tax | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME | | | — | | | | 827 | | | | 771 | | | | (1,139 | ) | | | 459 | |
| Less: Net income attributable to noncontrolling interests | | | — | | | | — | | | | (4 | ) | | | (17 | ) | | | (21 | ) |
| EQUITY ACCOUNT FOR SUBSIDIARIES | | | 438 | | | | (429 | ) | | | — | | | | (9 | ) | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | | $ | 438 | | | $ | 398 | | | $ | 767 | | | $ | (1,165 | ) | | $ | 438 | |
| | | | | | | | | | | | | | | | | | | | | |
145
Willis Group Holdings plc
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES ANDNON-GUARANTOR SUBSIDIARIES (Continued) |
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of cash flows for the year ended 31 December 2012 | | | | | |
| Willis Group Holdings | | | | | |
| Net cash (used in) provided by operating activities | $ | (42 | ) | | $ | 19 |
| | $ | (23 | ) |
| Net cash provided by investing activities | — |
| | 256 |
| | 256 |
|
| Net cash provided by (used in) financing activities | 43 |
| | (275 | ) | | (232 | ) |
| The Other Guarantors | | | | | |
| Net cash provided by operating activities | $ | 1,869 |
| | $ | 524 |
| | $ | 2,393 |
|
| Net cash used in investing activities | (26 | ) | | (21 | ) | | (47 | ) |
| Net cash used in financing activities | (2,006 | ) | | (503 | ) | | (2,509 | ) |
| The Issuer | | | | | |
| Net cash provided by operating activities | $ | 1,269 |
| | $ | 87 |
| | $ | 1,356 |
|
| Net cash used in investing activities | — |
| | (53 | ) | | (53 | ) |
| Net cash (used in) provided by financing activities | (1,269 | ) | | (34 | ) | | (1,303 | ) |
| Other | | | | | |
| Net cash provided by (used in) operating activities | $ | 431 |
| | $ | (528 | ) | | $ | (97 | ) |
| Net cash (used in) provided by investing activities | (146 | ) | | 1,149 |
| | 1,003 |
|
| Net cash used in financing activities | (61 | ) | | (621 | ) | | (682 | ) |
| Consolidating adjustments | | | | | |
| Net cash used in operating activities | $ | (3,002 | ) | | $ | (102 | ) | | $ | (3,104 | ) |
| Net cash used in investing activities | — |
| | (1,331 | ) | | (1,331 | ) |
| Net cash provided by financing activities | 3,002 |
| | 1,433 |
| | 4,435 |
|
| | | | | | |
| | As previously reported | | Reclassifications | | As Reclassified |
| | (millions) |
| Condensed consolidating statement of cash flows for the year ended 31 December 2011 | | | | | |
| Willis Group Holdings | | | | | |
| Net cash (used in) provided by operating activities | $ | (41 | ) | | $ | 85 |
| | $ | 44 |
|
| Net cash used in investing activities | — |
| | (711 | ) | | (711 | ) |
| Net cash provided by financing activities | 41 |
| | 626 |
| | 667 |
|
| The Other Guarantors | | | | | |
| Net cash provided by (used in) operating activities | $ | 209 |
| | $ | (568 | ) | | $ | (359 | ) |
| Net cash used in investing activities | (25 | ) | | (33 | ) | | (58 | ) |
| Net cash (used in) provided by financing activities | (97 | ) | | 601 |
| | 504 |
|
| The Issuer | | | | | |
| Net cash provided by operating activities | $ | 110 |
| | $ | 746 |
| | $ | 856 |
|
| Net cash used in investing activities | — |
| | (292 | ) | | (292 | ) |
| Net cash used in financing activities | (110 | ) | | (454 | ) | | (564 | ) |
| Other | | | | | |
| Net cash provided by (used in) operating activities | $ | 1,269 |
| | $ | (1,138 | ) | | $ | 131 |
|
| Net cash (used in) provided by investing activities | (76 | ) | | 123 |
| | 47 |
|
| Net cash (used in) provided by financing activities | (1,156 | ) | | 1,015 |
| | (141 | ) |
| Consolidating adjustments | | | | | |
| Net cash (used in) provided by operating activities | $ | (1,108 | ) | | $ | 875 |
| | $ | (233 | ) |
| Net cash provided by investing activities | — |
| | 913 |
| | 913 |
|
| Net cash provided by (used in) financing activities | 1,108 |
| | (1,788 | ) | | (680 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | As at December 31, 2011 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
| ASSETS | | | | | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | | $ | 163 | | | $ | 273 | | | $ | — | | | $ | 436 | |
| Accounts receivable, net | | | 2 | | | | 3 | | | | 877 | | | | 28 | | | | 910 | |
| Fiduciary assets | | | — | | | | — | | | | 9,941 | | | | (603 | ) | | | 9,338 | |
| Deferred tax assets | | | — | | | | 1 | | | | 43 | | | | — | | | | 44 | |
| Other current assets | | | 1 | | | | 73 | | | | 271 | | | | (86 | ) | | | 259 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 3 | | | | 240 | | | | 11,405 | | | | (661 | ) | | | 10,987 | |
| | | | | | | | | | | | | | | | | | | | | |
| Investments in subsidiaries | | | (1,023 | ) | | | 4,385 | | | | 3,848 | | | | (7,210 | ) | | | — | |
| Amounts owed by (to) Group undertakings | | | 4,354 | | | | (4,240 | ) | | | (114 | ) | | | — | | | | — | |
| NON-CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | |
| Fixed assets, net | | | — | | | | 63 | | | | 345 | | | | (2 | ) | | | 406 | |
| Goodwill | | | — | | | | — | | | | 1,704 | | | | 1,591 | | | | 3,295 | |
| Other intangible assets, net | | | — | | | | — | | | | 435 | | | | (15 | ) | | | 420 | |
| Investments in associates | | | — | | | | — | | | | (45 | ) | | | 215 | | | | 170 | |
| Deferred tax assets | | | — | | | | — | | | | 22 | | | | — | | | | 22 | |
| Pension benefits asset | | | — | | | | — | | | | 145 | | | | — | | | | 145 | |
| Other non-current assets | | | 5 | | | | 213 | | | | 192 | | | | (127 | ) | | | 283 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total non-current assets | | | 5 | | | | 276 | | | | 2,798 | | | | 1,662 | | | | 4,741 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 3,339 | | | $ | 661 | | | $ | 17,937 | | | $ | (6,209 | ) | | $ | 15,728 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Fiduciary liabilities | | $ | — | | | $ | — | | | $ | 9,941 | | | $ | (603 | ) | | $ | 9,338 | |
| Deferred revenue and accrued expenses | | | 2 | | | | — | | | | 318 | | | | — | | | | 320 | |
| Income taxes payable | | | — | | | | 40 | | | | 30 | | | | (55 | ) | | | 15 | |
| Short-term debt and current portion on long-term debt | | | — | | | | 11 | | | | 4 | | | | — | | | | 15 | |
| Deferred tax liabilities | | | — | | | | 1 | | | | 25 | | | | — | | | | 26 | |
| Other current liabilities | | | 56 | | | | 68 | | | | 185 | | | | (27 | ) | | | 282 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 58 | | | | 120 | | | | 10,503 | | | | (685 | ) | | | 9,996 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | 795 | | | | 1,559 | | | | — | | | | — | | | | 2,354 | |
| Liabilities for pension benefits | | | — | | | | — | | | | 270 | | | | — | | | | 270 | |
| Deferred tax liabilities | | | — | | | | 40 | | | | (9 | ) | | | 1 | | | | 32 | |
| Provisions for liabilities | | | — | | | | — | | | | 198 | | | | (2 | ) | | | 196 | |
| Other non-current liabilities | | | — | | | | 18 | | | | 345 | | | | — | | | | 363 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total non-current liabilities | | | 795 | | | | 1,617 | | | | 804 | | | | (1 | ) | | | 3,215 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES | | $ | 853 | | | $ | 1,737 | | | $ | 11,307 | | | $ | (686 | ) | | $ | 13,211 | |
| | | | | | | | | | | | | | | | | | | | | |
| EQUITY | | | | | | | | | | | | | | | | | | | | |
| Total Willis Group Holdings stockholders’ equity | | | 2,486 | | | | (1,076 | ) | | | 6,599 | | | | (5,523 | ) | | | 2,486 | |
| Noncontrolling interests | | | — | | | | — | | | | 31 | | | | — | | | | 31 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total equity | | | 2,486 | | | | (1,076 | ) | | | 6,630 | | | | (5,523 | ) | | | 2,517 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | | $ | 3,339 | | | $ | 661 | | | $ | 17,937 | | | $ | (6,209 | ) | | $ | 15,728 | |
| | | | | | | | | | | | | | | | | | | | | |
146
Notes to the financial statements
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
Condensed Consolidating Balance SheetStatement of Operations
| | | | | | | | | | | | | | | | | | | | | |
| | | As at December 31, 2010 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
| ASSETS | | | | | | | | | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | — | | | $ | 76 | | | $ | 240 | | | $ | — | | | $ | 316 | |
| Accounts receivable, net | | | 2 | | | | — | | | | 809 | | | | 28 | | | | 839 | |
| Fiduciary assets | | | — | | | | — | | | | 10,167 | | | | (598 | ) | | | 9,569 | |
| Deferred tax assets | | | — | | | | 1 | | | | 35 | | | | — | | | | 36 | |
| Other current assets | | | — | | | | 80 | | | | 293 | | | | (33 | ) | | | 340 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current assets | | | 2 | | | | 157 | | | | 11,544 | | | | (603 | ) | | | 11,100 | |
| | | | | | | | | | | | | | | | | | | | | |
| Investments in subsidiaries | | | (1,039 | ) | | | 4,429 | | | | 3,855 | | | | (7,245 | ) | | | — | |
| Amounts owed by (to) Group undertakings | | | 3,659 | | | | (3,588 | ) | | | (71 | ) | | | — | | | | — | |
| NON-CURRENT ASSETS | | | | | | | | | | | | | | | | | | | | |
| Fixed assets, net | | | — | | | | 52 | | | | 330 | | | | (1 | ) | | | 381 | |
| Goodwill | | | — | | | | — | | | | 1,696 | | | | 1,598 | | | | 3,294 | |
| Other intangible assets, net | | | — | | | | — | | | | 492 | | | | — | | | | 492 | |
| Investments in associates | | | — | | | | — | | | | (51 | ) | | | 212 | | | | 161 | |
| Deferred tax assets | | | — | | | | — | | | | 7 | | | | — | | | | 7 | |
| Pension benefits asset | | | — | | | | — | | | | 182 | | | | — | | | | 182 | |
| Other non-current assets | | | — | | | | 207 | | | | 149 | | | | (123 | ) | | | 233 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total non-current assets | | | — | | | | 259 | | | | 2,805 | | | | 1,686 | | | | 4,750 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 2,622 | | | $ | 1,257 | | | $ | 18,133 | | | $ | (6,162 | ) | | $ | 15,850 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Fiduciary liabilities | | $ | — | | | $ | — | | | $ | 10,167 | | | $ | (598 | ) | | $ | 9,569 | |
| Deferred revenue and accrued expenses | | | 1 | | | | — | | | | 297 | | | | — | | | | 298 | |
| Income taxes payable | | | — | | | | — | | | | 69 | | | | (12 | ) | | | 57 | |
| Short-term debt and current portion of long-term debt | | | — | | | | 110 | | | | — | | | | — | | | | 110 | |
| Deferred tax liabilities | | | — | | | | 4 | | | | 5 | | | | — | | | | 9 | |
| Other current liabilities | | | 44 | | | | 53 | | | | 189 | | | | (20 | ) | | | 266 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 45 | | | | 167 | | | | 10,727 | | | | (630 | ) | | | 10,309 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| NON-CURRENT LIABILITIES | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | | — | | | | 2,153 | | | | 4 | | | | — | | | | 2,157 | |
| Liabilities for pension benefits | | | — | | | | — | | | | 167 | | | | — | | | | 167 | |
| Deferred tax liabilities | | | — | | | | 29 | | | | 54 | | | | — | | | | 83 | |
| Provisions for liabilities | | | — | | | | — | | | | 183 | | | | (4 | ) | | | 179 | |
| Other non-current liabilities | | | — | | | | 26 | | | | 321 | | | | — | | | | 347 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total non-current liabilities | | | — | | | | 2,208 | | | | 729 | | | | (4 | ) | | | 2,933 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES | | $ | 45 | | | $ | 2,375 | | | $ | 11,456 | | | $ | (634 | ) | | $ | 13,242 | |
| | | | | | | | | | | | | | | | | | | | | |
| EQUITY | | | | | | | | | | | | | | | | | | | | |
| Total Willis Group Holdings stockholders’ equity | | | 2,577 | | | | (1,118 | ) | | | 6,646 | | | | (5,528 | ) | | | 2,577 | |
| Noncontrolling interests | | | — | | | | — | | | | 31 | | | | — | | | | 31 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total equity | | | 2,577 | | | | (1,118 | ) | | | 6,677 | | | | (5,528 | ) | | | 2,608 | |
| | | | | | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES AND EQUITY | | $ | 2,622 | | | $ | 1,257 | | | $ | 18,133 | | | $ | (6,162 | ) | | $ | 15,850 | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| REVENUES | |
| | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | 8 |
| | $ | — |
| | $ | 3,625 |
| | $ | — |
| | $ | 3,633 |
|
| Investment income | — |
| | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
| Other income | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Total revenues | — |
| | 8 |
| | — |
| | 3,647 |
| | — |
| | 3,655 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (1 | ) | | (103 | ) | | — |
| | (2,103 | ) | | — |
| | (2,207 | ) |
| Other operating expenses | — |
| | (235 | ) | | (1 | ) | | (380 | ) | | — |
| | (616 | ) |
| Depreciation expense | — |
| | (23 | ) | | — |
| | (71 | ) | | — |
| | (94 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | (55 | ) | | — |
| | (55 | ) |
| Net gain on disposal of operations | — |
| | — |
| | — |
| | 12 |
| | (10 | ) | | 2 |
|
| Total expenses | (1 | ) | | (361 | ) | | (1 | ) | | (2,597 | ) | | (10 | ) | | (2,970 | ) |
| OPERATING (LOSS) INCOME | (1 | ) | | (353 | ) | | (1 | ) | | 1,050 |
| | (10 | ) | | 685 |
|
| Income from Group undertakings | — |
| | 491 |
| | 68 |
| | 86 |
| | (645 | ) | | — |
|
| Expenses due to Group undertakings | (10 | ) | | (153 | ) | | (26 | ) | | (456 | ) | | 645 |
| | — |
|
| Loss from extinguishment of debt | — |
| | (60 | ) | | — |
| | — |
| | — |
| | (60 | ) |
| Interest expense | (42 | ) | | (61 | ) | | (18 | ) | | (5 | ) | | — |
| | (126 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (53 | ) | | (136 | ) | | 23 |
| | 675 |
| | (10 | ) | | 499 |
|
| Income taxes | — |
| | 29 |
| | (6 | ) | | (145 | ) | | — |
| | (122 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (53 | ) | | (107 | ) | | 17 |
| | 530 |
| | (10 | ) | | 377 |
|
| Interest in earnings of associates, net of tax | — |
| | 9 |
| | — |
| | (9 | ) | | — |
| | — |
|
| Equity account for subsidiaries | 418 |
| | 515 |
| | 344 |
| | — |
| | (1,277 | ) | | — |
|
| INCOME FROM CONTINUING OPERATIONS | 365 |
| | 417 |
| | 361 |
| | 521 |
| | (1,287 | ) | | 377 |
|
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| NET INCOME | 365 |
| | 417 |
| | 361 |
| | 521 |
| | (1,287 | ) | | 377 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | 365 |
| | $ | 417 |
| | $ | 361 |
| | $ | 509 |
| | $ | (1,287 | ) | | $ | 365 |
|
147
Willis Group Holdings plc
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES ANDNON-GUARANTOR SUBSIDIARIES (Continued) |
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| Comprehensive income | $ | 522 |
| | $ | 565 |
| | $ | 504 |
| | $ | 636 |
| | $ | (1,693 | ) | | $ | 534 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (12 | ) | | — |
| | (12 | ) |
| Comprehensive income attributable to Willis Group Holdings | $ | 522 |
| | $ | 565 |
| | $ | 504 |
| | $ | 624 |
| | $ | (1,693 | ) | | $ | 522 |
|
Notes to the financial statements
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| REVENUES | |
| | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,458 |
| | $ | — |
| | $ | 3,458 |
|
| Investment income | — |
| | 1 |
| | — |
| | 17 |
| | — |
| | 18 |
|
| Other income | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Total revenues | — |
| | 1 |
| | — |
| | 3,479 |
| | — |
| | 3,480 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
| | |
| Salaries and benefits | (2 | ) | | (96 | ) | | — |
| | (2,377 | ) | | — |
| | (2,475 | ) |
| Other operating expenses | (4 | ) | | (162 | ) | | 1 |
| | (416 | ) | | — |
| | (581 | ) |
| Depreciation expense | — |
| | (16 | ) | | — |
| | (63 | ) | | — |
| | (79 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | (59 | ) | | — |
| | (59 | ) |
| Goodwill impairment | — |
| | — |
| | — |
| | (492 | ) | | — |
| | (492 | ) |
| Net loss on disposal of operations | — |
| �� | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
| Total expenses | (6 | ) | | (274 | ) | | 1 |
| | (3,410 | ) | | — |
| | (3,689 | ) |
| OPERATING (LOSS) INCOME | (6 | ) | | (273 | ) | | 1 |
| | 69 |
| | — |
| | (209 | ) |
| Income from Group undertakings | — |
| | 436 |
| | 79 |
| | 111 |
| | (626 | ) | | — |
|
| Expenses due to Group undertakings | — |
| | (185 | ) | | (27 | ) | | (414 | ) | | 626 |
| | — |
|
| Interest expense | (43 | ) | | (69 | ) | | (8 | ) | | (8 | ) | | — |
| | (128 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (49 | ) | | (91 | ) | | 45 |
| | (242 | ) | | — |
| | (337 | ) |
| Income taxes | — |
| | 76 |
| | (11 | ) | | (166 | ) | | — |
| | (101 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (49 | ) | | (15 | ) | | 34 |
| | (408 | ) | | — |
| | (438 | ) |
| Interest in earnings of associates, net of tax | — |
| | 8 |
| | — |
| | (3 | ) | | — |
| | 5 |
|
| Equity account for subsidiaries | (397 | ) | | (390 | ) | | (461 | ) | | — |
| | 1,248 |
| | — |
|
| LOSS FROM CONTINUING OPERATIONS | (446 | ) | | (397 | ) | | (427 | ) | | (411 | ) | | 1,248 |
| | (433 | ) |
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| NET LOSS | (446 | ) | | (397 | ) | | (427 | ) | | (411 | ) | | 1,248 |
| | (433 | ) |
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| NET LOSS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | (446 | ) | | $ | (397 | ) | | $ | (427 | ) | | $ | (424 | ) | | $ | 1,248 |
| | $ | (446 | ) |
Willis Group Holdings plc
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| Comprehensive loss | $ | (552 | ) | | $ | (494 | ) | | $ | (528 | ) | | $ | (519 | ) | | $ | 1,554 |
| | $ | (539 | ) |
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| Comprehensive loss attributable to Willis Group Holdings | $ | (552 | ) | | $ | (494 | ) | | $ | (528 | ) | | $ | (532 | ) | | $ | 1,554 |
| | $ | (552 | ) |
Notes to the financial statements
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| REVENUES | |
| | |
| | |
| | |
| | |
| | |
|
| Commissions and fees | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,414 |
| | $ | — |
| | $ | 3,414 |
|
| Investment income | — |
| | 2 |
| | — |
| | 29 |
| | — |
| | 31 |
|
| Other income | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Total revenues | — |
| | 2 |
| | — |
| | 3,445 |
| | — |
| | 3,447 |
|
| EXPENSES | |
| | |
| | |
| | |
| | |
| | |
|
| Salaries and benefits | (3 | ) | | (69 | ) | | — |
| | (2,015 | ) | | — |
| | (2,087 | ) |
| Other operating expenses | (17 | ) | | (70 | ) | | 4 |
| | (573 | ) | | — |
| | (656 | ) |
| Depreciation expense | — |
| | (14 | ) | | — |
| | (60 | ) | | — |
| | (74 | ) |
| Amortization of intangible assets | — |
| | — |
| | — |
| | (68 | ) | | — |
| | (68 | ) |
| Net gain on disposal of operations | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Total expenses | (20 | ) | | (153 | ) | | 4 |
| | (2,712 | ) | | — |
| | (2,881 | ) |
| OPERATING (LOSS) INCOME | (20 | ) | | (151 | ) | | 4 |
| | 733 |
| | — |
| | 566 |
|
| Income from Group undertakings | — |
| | 438 |
| | 64 |
| | 119 |
| | (621 | ) | | — |
|
| Expenses due to Group undertakings | — |
| | (180 | ) | | (26 | ) | | (415 | ) | | 621 |
| | — |
|
| Make-whole on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs | — |
| | — |
| | (171 | ) | | — |
| | — |
| | (171 | ) |
| Interest expense | (34 | ) | | (99 | ) | | (15 | ) | | (8 | ) | | — |
| | (156 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | | 8 |
| | (144 | ) | | 429 |
| | — |
| | 239 |
|
| Income taxes | — |
| | 47 |
| | 39 |
| | (117 | ) | | (1 | ) | | (32 | ) |
| (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES | (54 | ) | | 55 |
| | (105 | ) | | 312 |
| | (1 | ) | | 207 |
|
| Interest in earnings of associates, net of tax | — |
| | 8 |
| | — |
| | 4 |
| | — |
| | 12 |
|
| Equity account for subsidiaries | 258 |
| | 183 |
| | 322 |
| | — |
| | (763 | ) | | — |
|
| INCOME FROM CONTINUING OPERATIONS | 204 |
| | 246 |
| | 217 |
| | 316 |
| | (764 | ) | | 219 |
|
| Discontinued operations, net of tax | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| NET INCOME | 204 |
| | 246 |
| | 217 |
| | 317 |
| | (764 | ) | | 220 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (16 | ) | | — |
| | (16 | ) |
| NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS | $ | 204 |
| | $ | 246 |
| | $ | 217 |
| | $ | 301 |
| | $ | (764 | ) | | $ | 204 |
|
Willis Group Holdings plc
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis Group Holdings | | The Other Guarantors | | The Issuer | | Other | | Consolidating adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| Comprehensive income | $ | 1 |
| | $ | 48 |
| | $ | 20 |
| | $ | 114 |
| | $ | (167 | ) | | $ | 16 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | (15 | ) | | — |
| | (15 | ) |
| Comprehensive income attributable to Willis Group Holdings | $ | 1 |
| | $ | 48 |
| | $ | 20 |
| | $ | 99 |
| | $ | (167 | ) | | $ | 1 |
|
Notes to the financial statements
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2013 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | 790 |
| | $ | — |
| | $ | 796 |
|
| Accounts receivable, net | — |
| | 4 |
| | — |
| | 1,037 |
| | — |
| | 1,041 |
|
| Fiduciary assets | — |
| | — |
| | — |
| | 8,412 |
| | — |
| | 8,412 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 16 |
| | (1 | ) | | 15 |
|
| Other current assets | 1 |
| | 36 |
| | 1 |
| | 186 |
| | (27 | ) | | 197 |
|
| Amounts due from group undertakings | 4,051 |
| | 975 |
| | 793 |
| | 1,484 |
| | (7,303 | ) | | — |
|
| Total current assets | 4,055 |
| | 1,018 |
| | 794 |
| | 11,925 |
| | (7,331 | ) | | 10,461 |
|
| NON-CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | — |
| | 3,716 |
| | 2,705 |
| | — |
| | (6,421 | ) | | — |
|
| Fixed assets, net | — |
| | 66 |
| | — |
| | 415 |
| | — |
| | 481 |
|
| Goodwill | — |
| | — |
| | — |
| | 2,838 |
| | — |
| | 2,838 |
|
| Other intangible assets, net | — |
| | — |
| | — |
| | 353 |
| | — |
| | 353 |
|
| Investments in associates | — |
| | 156 |
| | — |
| | 20 |
| | — |
| | 176 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Pension benefits asset | — |
| | — |
| | — |
| | 278 |
| | — |
| | 278 |
|
| Other non-current assets | 4 |
| | 5 |
| | 9 |
| | 188 |
| | — |
| | 206 |
|
| Non-current amounts due from group undertakings | — |
| | 1,113 |
| | 518 |
| | — |
| | (1,631 | ) | | — |
|
| Total non-current assets | 4 |
| | 5,056 |
| | 3,232 |
| | 4,099 |
| | (8,052 | ) | | 4,339 |
|
| TOTAL ASSETS | $ | 4,059 |
| | $ | 6,074 |
| | $ | 4,026 |
| | $ | 16,024 |
| | $ | (15,383 | ) | | $ | 14,800 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
| CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Fiduciary liabilities | $ | — |
| | $ | — |
| | $ | — |
| | $ | 8,412 |
| | $ | — |
| | $ | 8,412 |
|
| Deferred revenue and accrued expenses | 2 |
| | 29 |
| | — |
| | 555 |
| | — |
| | 586 |
|
| Income taxes payable | — |
| | 4 |
| | 5 |
| | 39 |
| | (27 | ) | | 21 |
|
| Short-term debt and current portion of long-term debt | — |
| | — |
| | 15 |
| | — |
| | — |
| | 15 |
|
| Deferred tax liabilities | — |
| | — |
| | — |
| | 25 |
| | — |
| | 25 |
|
| Other current liabilities | 62 |
| | 42 |
| | 11 |
| | 300 |
| | — |
| | 415 |
|
| Amounts due to group undertakings | — |
| | 5,813 |
| | 157 |
| | 1,333 |
| | (7,303 | ) | | — |
|
| Total current liabilities | 64 |
| | 5,888 |
| | 188 |
| | 10,664 |
| | (7,330 | ) | | 9,474 |
|
| NON-CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | 985 |
| | — |
| | — |
| | — |
| | (985 | ) | | — |
|
| Long-term debt | 795 |
| | 733 |
| | 782 |
| | 1 |
| | — |
| | 2,311 |
|
| Liabilities for pension benefits | — |
| | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
| Deferred tax liabilities | — |
| | 1 |
| | — |
| | 55 |
| | — |
| | 56 |
|
| Provisions for liabilities | — |
| | — |
| | — |
| | 206 |
| | — |
| | 206 |
|
| Other non-current liabilities | — |
| | 48 |
| | — |
| | 326 |
| | — |
| | 374 |
|
| Non-current amounts due to group undertakings | — |
| | 518 |
| | 423 |
| | 690 |
| | (1,631 | ) | | — |
|
| Total non-current liabilities | 1,780 |
| | 1,300 |
| | 1,205 |
| | 1,414 |
| | (2,616 | ) | | 3,083 |
|
| TOTAL LIABILITIES | $ | 1,844 |
| | $ | 7,188 |
| | $ | 1,393 |
| | $ | 12,078 |
| | $ | (9,946 | ) | | $ | 12,557 |
|
Willis Group Holdings plc
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2013 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| EQUITY | |
| | |
| | |
| | |
| | |
| | |
|
| Total Willis Group Holdings stockholders’ equity | 2,215 |
| | (1,114 | ) | | 2,633 |
| | 3,918 |
| | (5,437 | ) | | 2,215 |
|
| Noncontrolling interests | — |
| | — |
| | — |
| | 28 |
| | — |
| | 28 |
|
| Total equity | 2,215 |
| | (1,114 | ) | | 2,633 |
| | 3,946 |
| | (5,437 | ) | | 2,243 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 4,059 |
| | $ | 6,074 |
| | $ | 4,026 |
| | $ | 16,024 |
| | $ | (15,383 | ) | | $ | 14,800 |
|
Notes to the financial statements
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2012 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| ASSETS |
| CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 500 |
|
| Accounts receivable, net | — |
| | — |
| | — |
| | 933 |
| | — |
| | 933 |
|
| Fiduciary assets | — |
| | — |
| | — |
| | 9,271 |
| | — |
| | 9,271 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Other current assets | 1 |
| | 79 |
| | 1 |
| | 114 |
| | (14 | ) | | 181 |
|
| Amounts due from group undertakings | 4,091 |
| | 1,070 |
| | 801 |
| | 864 |
| | (6,826 | ) | | — |
|
| Total current assets | 4,093 |
| | 1,149 |
| | 802 |
| | 11,694 |
| | (6,840 | ) | | 10,898 |
|
| NON-CURRENT ASSETS | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | — |
| | 2,939 |
| | 2,464 |
| | — |
| | (5,403 | ) | | — |
|
| Fixed assets, net | — |
| | 74 |
| | — |
| | 394 |
| | — |
| | 468 |
|
| Goodwill | — |
| | — |
| | — |
| | 2,827 |
| | — |
| | 2,827 |
|
| Other intangible assets, net | — |
| | — |
| | — |
| | 385 |
| | — |
| | 385 |
|
| Investments in associates | — |
| | 143 |
| | — |
| | 31 |
| | — |
| | 174 |
|
| Deferred tax assets | — |
| | — |
| | — |
| | 18 |
| | — |
| | 18 |
|
| Pension benefits asset | — |
| | — |
| | — |
| | 136 |
| | — |
| | 136 |
|
| Other non-current assets | 5 |
| | 41 |
| | 3 |
| | 157 |
| | — |
| | 206 |
|
| Non-current amounts due from group undertakings | — |
| | 1,064 |
| | — |
| | — |
| | (1,064 | ) | | — |
|
| Total non-current assets | 5 |
| | 4,261 |
| | 2,467 |
| | 3,948 |
| | (6,467 | ) | | 4,214 |
|
| TOTAL ASSETS | $ | 4,098 |
| | $ | 5,410 |
| | $ | 3,269 |
| | $ | 15,642 |
| | $ | (13,307 | ) | | $ | 15,112 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | | | |
| CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Fiduciary liabilities | $ | — |
| | $ | — |
| | $ | — |
| | $ | 9,271 |
| | $ | — |
| | $ | 9,271 |
|
| Deferred revenue and accrued expenses | 2 |
| | — |
| | — |
| | 539 |
| | — |
| | 541 |
|
| Income taxes payable | — |
| | 4 |
| | 11 |
| | 18 |
| | (14 | ) | | 19 |
|
| Short-term debt and current portion of long-term debt | — |
| | — |
| | 15 |
| | — |
| | — |
| | 15 |
|
| Deferred tax liabilities | — |
| | — |
| | — |
| | 21 |
| | — |
| | 21 |
|
| Other current liabilities | 60 |
| | 73 |
| | — |
| | 194 |
| | — |
| | 327 |
|
| Amounts due to group undertakings | — |
| | 5,714 |
| | 69 |
| | 1,043 |
| | (6,826 | ) | | — |
|
| Total current liabilities | 62 |
| | 5,791 |
| | 95 |
| | 11,086 |
| | (6,840 | ) | | 10,194 |
|
| NON-CURRENT LIABILITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Investments in subsidiaries | 1,542 |
| | — |
| | — |
| | — |
| | (1,542 | ) | | — |
|
| Long-term debt | 795 |
| | 1,268 |
| | 274 |
| | 1 |
| | — |
| | 2,338 |
|
| Liabilities for pension benefits | — |
| | — |
| | — |
| | 282 |
| | — |
| | 282 |
|
| Deferred tax liabilities | — |
| | — |
| | — |
| | 18 |
| | — |
| | 18 |
|
| Provisions for liabilities | — |
| | — |
| | — |
| | 180 |
| | — |
| | 180 |
|
| Other non-current liabilities | — |
| | 12 |
| | — |
| | 363 |
| | — |
| | 375 |
|
| Non-current amounts due to group undertakings | — |
| | — |
| | 423 |
| | 641 |
| | (1,064 | ) | | — |
|
| Total non-current liabilities | 2,337 |
| | 1,280 |
| | 697 |
| | 1,485 |
| | (2,606 | ) | | 3,193 |
|
| TOTAL LIABILITIES | $ | 2,399 |
| | $ | 7,071 |
| | $ | 792 |
| | $ | 12,571 |
| | $ | (9,446 | ) | | $ | 13,387 |
|
Willis Group Holdings plc
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | As at December 31, 2012 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| EQUITY | |
| | |
| | |
| | |
| | |
| | |
|
| Total Willis Group Holdings stockholders’ equity | 1,699 |
| | (1,661 | ) | | 2,477 |
| | 3,045 |
| | (3,861 | ) | | 1,699 |
|
| Noncontrolling interests | — |
| | — |
| | — |
| | 26 |
| | — |
| | 26 |
|
| Total equity | 1,699 |
| | (1,661 | ) | | 2,477 |
| | 3,071 |
| | (3,861 | ) | | 1,725 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 4,098 |
| | $ | 5,410 |
| | $ | 3,269 |
| | $ | 15,642 |
| | $ | (13,307 | ) | | $ | 15,112 |
|
Notes to the financial statements
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2011 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | | $ | (41 | ) | | $ | 272 | | | $ | 1,269 | | | $ | (1,061 | ) | | $ | 439 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Proceeds on disposal of fixed and intangible assets | | | — | | | | — | | | | 13 | | | | — | | | | 13 | |
| Purchases of fixed assets | | | — | | | | (25 | ) | | | (86 | ) | | | — | | | | (111 | ) |
| Acquisitions of subsidiaries, net of cash acquired | | | — | | | | — | | | | (10 | ) | | | — | | | | (10 | ) |
| Acquisitions of investments in associates | | | — | | | | — | | | | (2 | ) | | | — | | | | (2 | ) |
| Investment in Trident V Parallel Fund, LP | | | — | | | | — | | | | (5 | ) | | | — | | | | (5 | ) |
| Proceeds from sale of discontinued operations, net of cash disposed | | | — | | | | — | | | | 14 | | | | — | | | | 14 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | — | | | | (25 | ) | | | (76 | ) | | | — | | | | (101 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Repayments on revolving credit facility | | | — | | | | (90 | ) | | | — | | | | — | | | | (90 | ) |
| Senior notes issued | | | 794 | | | | — | | | | — | | | | — | | | | 794 | |
| Debt issuance costs | | | (7 | ) | | | (5 | ) | | | — | | | | — | | | | (12 | ) |
| Proceeds from issue term loan | | | — | | | | 300 | | | | — | | | | — | | | | 300 | |
| Repayments of debt | | | — | | | | (911 | ) | | | — | | | | — | | | | (911 | ) |
| Make-whole on repurchase and redemption of senior notes | | | — | | | | (158 | ) | | | — | | | | — | | | | (158 | ) |
| Proceeds from issue of shares | | | 60 | | | | — | | | | — | | | | — | | | | 60 | |
| Excess tax benefits from share-based payment arrangement | | | — | | | | — | | | | 5 | | | | — | | | | 5 | |
| Amounts owed (to) by Group undertakings | | | (626 | ) | | | 708 | | | | (82 | ) | �� | | — | | | | — | |
| Dividends paid | | | (180 | ) | | | — | | | | (1,061 | ) | | | 1,061 | | | | (180 | ) |
| Acquisition of noncontrolling interests | | | — | | | | (4 | ) | | | (5 | ) | | | — | | | | (9 | ) |
| Dividends paid to noncontrolling interests | | | — | | | | — | | | | (13 | ) | | | — | | | | (13 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 41 | | | | (160 | ) | | | (1,156 | ) | | | 1,061 | | | | (214 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCREASE IN CASH AND CASH EQUIVALENTS | | | — | | | | 87 | | | | 37 | | | | — | | | | 124 | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (4 | ) | | | — | | | | (4 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | — | | | | 76 | | | | 240 | | | | — | | | | 316 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | — | | | $ | 163 | | | $ | 273 | | | $ | — | | | $ | 436 | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | 4 |
| | $ | 399 |
| | $ | 63 |
| | $ | 662 |
| | $ | (567 | ) | | $ | 561 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | 3 |
| | — |
| | 9 |
| | — |
| | 12 |
|
| Additions to fixed assets | — |
| | (18 | ) | | — |
| | (94 | ) | | — |
| | (112 | ) |
| Additions to intangible assets | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | (237 | ) | | — |
| | (30 | ) | | 237 |
| | (30 | ) |
| Payments to acquire other investments | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Proceeds from sale of associates | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
| Proceeds from sale of operations, net of cash disposed | — |
| | — |
| | — |
| | 257 |
| | (237 | ) | | 20 |
|
| Proceeds from intercompany investing activities | 383 |
| | 160 |
| | 132 |
| | 60 |
| | (735 | ) | | — |
|
| Repayments of intercompany investing activities | (347 | ) | | (120 | ) | | (442 | ) | | (780 | ) | | 1,689 |
| | — |
|
| Net cash provided by (used in) investing activities | 36 |
| | (212 | ) | | (310 | ) | | (588 | ) | | 954 |
| | (120 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Senior notes issued | — |
| | — |
| | 522 |
| | — |
| | — |
| | 522 |
|
| Debt issuance costs | — |
| | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) |
| Repayments of debt | — |
| | (521 | ) | | (15 | ) | | — |
| | — |
| | (536 | ) |
| Tender premium on extinguishment of senior notes | — |
| | (65 | ) | | — |
| | — |
| | — |
| | (65 | ) |
| Proceeds from issue of shares | 155 |
| | — |
| | — |
| | — |
| | — |
| | 155 |
|
| Excess tax benefits from share-based payment arrangement | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Dividends paid | (193 | ) | | (230 | ) | | (330 | ) | | (7 | ) | | 567 |
| | (193 | ) |
| Acquisition of noncontrolling interests | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
| Proceeds from intercompany financing activities | — |
| | 1,075 |
| | 147 |
| | 467 |
| | (1,689 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (443 | ) | | (69 | ) | | (223 | ) | | 735 |
| | — |
|
| Net cash (used in) provided by financing activities | (38 | ) | | (184 | ) | | 247 |
| | 225 |
| | (387 | ) | | (137 | ) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 2 |
| | 3 |
| | — |
| | 299 |
| | — |
| | 304 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (8 | ) | | — |
| | (8 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 1 |
| | — |
| | — |
| | 499 |
| | — |
| | 500 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 3 |
| | $ | 3 |
| | $ | — |
| | $ | 790 |
| | $ | — |
| | $ | 796 |
|
148
Willis Group Holdings plc
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2012 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | $ | (23 | ) | | $ | 2,393 |
| | $ | 1,356 |
| | $ | (97 | ) | | $ | (3,104 | ) | | $ | 525 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
| Additions to fixed assets | — |
| | (26 | ) | | — |
| | (109 | ) | | — |
| | (135 | ) |
| Additions to intangible assets | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | — |
| | — |
| | (33 | ) | | — |
| | (33 | ) |
| Payments to acquire other investments | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) |
| Proceeds from sale of operations, net of cash disposed | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Proceeds from intercompany investing activities | 256 |
| | 176 |
| | 78 |
| | 1,230 |
| | (1,740 | ) | | — |
|
| Repayments of intercompany investing activities | — |
| | (197 | ) | | (131 | ) | | (81 | ) | | 409 |
| | — |
|
| Net cash provided by (used in) investing activities | 256 |
| | (47 | ) | | (53 | ) | | 1,003 |
| | (1,331 | ) | | (172 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Repayments of debt | — |
| | (4 | ) | | (11 | ) | | — |
| | — |
| | (15 | ) |
| Proceeds from issue of other debt | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
| Repurchase of shares | (100 | ) | | — |
| | — |
| | — |
| | — |
| | (100 | ) |
| Proceeds from issue of shares | 53 |
| | — |
| | — |
| | — |
| | — |
| | 53 |
|
| Excess tax benefits from share-based payment arrangement | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Dividends paid | (185 | ) | | (1,220 | ) | | (1,069 | ) | | (815 | ) | | 3,104 |
| | (185 | ) |
| Proceeds from sale of noncontrolling interests | — |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Acquisition of noncontrolling interests | — |
| | — |
| | — |
| | (39 | ) | | — |
| | (39 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) |
| Proceeds from intercompany financing activities | — |
| | 81 |
| | — |
| | 328 |
| | (409 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (1,366 | ) | | (224 | ) | | (150 | ) | | 1,740 |
| | — |
|
| Net cash used in financing activities | (232 | ) | | (2,509 | ) | | (1,303 | ) | | (682 | ) | | 4,435 |
| | (291 | ) |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1 |
| | (163 | ) | | — |
| | 224 |
| | — |
| | 62 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | — |
| | 163 |
| | — |
| | 273 |
| | — |
| | 436 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 1 |
| | $ | — |
| | $ | — |
| | $ | 499 |
| | $ | — |
| | $ | 500 |
|
Notes to the financial statements
| |
30. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued) |
Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2010 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
| NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | | $ | (9 | ) | | $ | 1,253 | | | $ | 1,572 | | | $ | (2,327 | ) | | $ | 489 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Proceeds on disposal of fixed and intangible assets | | | — | | | | — | | | | 10 | | | | — | | | | 10 | |
| Additions to fixed assets | | | — | | | | (7 | ) | | | (76 | ) | | | — | | | | (83 | ) |
| Acquisitions of subsidiaries, net of cash acquired | | | — | | | | — | | | | (21 | ) | | | — | | | | (21 | ) |
| Acquisitions of investments in associates | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| Investment in Trident V Parallel Fund, LP | | | — | | | | — | | | | (1 | ) | | | — | | | | (1 | ) |
| Proceeds from sale of continuing operations, net of cash disposed | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in investing activities | | | — | | | | (7 | ) | | | (87 | ) | | | — | | | | (94 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Proceeds from draw down of revolving credit facility | | | — | | | | 90 | | | | — | | | | — | | | | 90 | |
| Repayments of debt | | | — | | | | (200 | ) | | | (9 | ) | | | — | | | | (209 | ) |
| Proceeds from issue of shares | | | 36 | | | | — | | | | — | | | | — | | | | 36 | |
| Excess tax benefits from share-based payment arrangement | | | — | | | | — | | | | 2 | | | | — | | | | 2 | |
| Amounts owed by (to) Group undertakings | | | 106 | | | | (311 | ) | | | 205 | | | | — | | | | — | |
| Dividends paid | | | (133 | ) | | | (849 | ) | | | (1,521 | ) | | | 2,327 | | | | (176 | ) |
| Acquisition of noncontrolling interests | | | — | | | | (4 | ) | | | (6 | ) | | | — | | | | (10 | ) |
| Dividends paid to noncontrolling interests | | | — | | | | — | | | | (26 | ) | | | — | | | | (26 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 9 | | | | (1,274 | ) | | | (1,355 | ) | | | 2,327 | | | | (293 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | | | — | | | | (28 | ) | | | 130 | | | | — | | | | 102 | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (7 | ) | | | — | | | | (7 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | — | | | | 104 | | | | 117 | | | | — | | | | 221 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | — | | | $ | 76 | | | $ | 240 | | | $ | — | | | $ | 316 | |
| | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2011 |
| | Willis
Group
Holdings | | The Other
Guarantors | | The
Issuer | | Other | | Consolidating
adjustments | | Consolidated |
| | | | | | (millions) | | | | |
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | 44 |
| | $ | (359 | ) | | $ | 856 |
| | $ | 131 |
| | $ | (233 | ) | | $ | 439 |
|
| CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Proceeds on disposal of fixed and intangible assets | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Additions to fixed assets | — |
| | (25 | ) | | — |
| | (86 | ) | | — |
| | (111 | ) |
| Acquisitions of subsidiaries, net of cash acquired | — |
| | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
| Acquisitions of investments in associates | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Payments to acquire other investments | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
| Proceeds from sale of operations, net of cash disposed | — |
| | — |
| | — |
| | 14 |
| | — |
| | 14 |
|
| Proceeds from intercompany investing activities | — |
| | 105 |
| | — |
| | 224 |
| | (329 | ) | | — |
|
| Repayments of intercompany investing activities | (711 | ) | | (138 | ) | | (292 | ) | | (101 | ) | | 1,242 |
| | — |
|
| Net cash (used in) investing activities | (711 | ) | | (58 | ) | | (292 | ) | | 47 |
| | 913 |
| | (101 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
| | |
| | |
| | |
|
| Repayments of revolving credit facility | — |
| | (90 | ) | | — |
| | — |
| | — |
| | (90 | ) |
| Senior notes issued | 794 |
| | — |
| | — |
| | — |
| | — |
| | 794 |
|
| Debt issuance costs | (7 | ) | | — |
| | (5 | ) | | — |
| | — |
| | (12 | ) |
| Repayments of debt | — |
| | (411 | ) | | (500 | ) | | — |
| | — |
| | (911 | ) |
| Proceeds from issue of term loan | — |
| | — |
| | 300 |
| | — |
| | — |
| | 300 |
|
| Make-whole on repurchase and redemption of senior notes | — |
| | — |
| | (158 | ) | | — |
| | — |
| | (158 | ) |
| Proceeds from issue of shares | 60 |
| | — |
| | — |
| | — |
| | — |
| | 60 |
|
| Excess tax benefits from share-based payment arrangements | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
| Dividends paid | (180 | ) | | (47 | ) | | — |
| | (186 | ) | | 233 |
| | (180 | ) |
| Acquisition of noncontrolling interests | — |
| | (4 | ) | | — |
| | (5 | ) | | — |
| | (9 | ) |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (13 | ) |
| Proceeds from intercompany financing activities | — |
| | 1,088 |
| | — |
| | 154 |
| | (1,242 | ) | | — |
|
| Repayments of intercompany financing activities | — |
| | (32 | ) | | (201 | ) | | (96 | ) | | 329 |
| | — |
|
| Net cash provided by (used in) financing activities | 667 |
| | 504 |
| | (564 | ) | | (141 | ) | | (680 | ) | | (214 | ) |
| INCREASE IN CASH AND CASH EQUIVALENTS | — |
| | 87 |
| | — |
| | 37 |
| | — |
| | 124 |
|
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | — |
| | 76 |
| | — |
| | 240 |
| | — |
| | 316 |
|
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | — |
| | $ | 163 |
| | $ | — |
| | $ | 273 |
| | $ | — |
| | $ | 436 |
|
149
Willis Group Holdings plc
|
| |
30. 33. | FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES ANDNON-GUARANTOR SUBSIDIARIES (Continued) |
Condensed Consolidating Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2009 | |
| | | Willis
| | | | | | | | | | | | | |
| | | Group
| | | | | | | | | | | | | |
| | | Holdings —
| | | | | | | | | | | | | |
| | | the Parent
| | | The
| | | | | | Consolidating
| | | | |
| | | Issuer | | | Guarantors | | | Other | | | adjustments | | | Consolidated | |
| | | (millions) | |
| |
NET CASH PROVIDED BY OPERATING
ACTIVITIES | | $ | — | | | $ | 1,257 | | | $ | 27 | | | $ | (865 | ) | | $ | 419 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Proceeds on disposal of fixed and intangible assets | | | — | | | | — | | | | 20 | | | | — | | | | 20 | |
| Additions to fixed assets | | | — | | | | (17 | ) | | | (79 | ) | | | — | | | | (96 | ) |
| Acquisitions of investments in associates | | | — | | | | — | | | | (42 | ) | | | — | | | | (42 | ) |
| Proceeds from reorganization of investments in associates | | | — | | | | — | | | | 155 | | | | — | | | | 155 | |
| Proceeds from sale of continuing operations, net of cash disposed | | | — | | | | — | | | | 4 | | | | — | | | | 4 | |
| Proceeds from sale of discontinued operations, net of cash disposed | | | — | | | | — | | | | 40 | | | | — | | | | 40 | |
| Proceeds on sale of short-term investments | | | — | | | | — | | | | 21 | | | | — | | | | 21 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash (used in) provided by investing activities | | | — | | | | (17 | ) | | | 119 | | | | — | | | | 102 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | | | | | | | | | |
| Repayments of debt | | | — | | | | (1,090 | ) | | | 1 | | | | — | | | | (1,089 | ) |
| Senior notes issued | | | — | | | | 800 | | | | — | | | | — | | | | 800 | |
| Debt issuance costs | | | — | | | | (22 | ) | | | — | | | | — | | | | (22 | ) |
| Proceeds from issue of shares | | | — | | | | — | | | | 18 | | | | — | | | | 18 | |
| Amounts owed by (to) Group undertakings | | | — | | | | (121 | ) | | | 121 | | | | — | | | | — | |
| Excess tax benefits from share-based payment arrangements | | | — | | | | — | | | | 1 | | | | — | | | | 1 | |
| Dividends paid | | | — | | | | (703 | ) | | | (336 | ) | | | 865 | | | | (174 | ) |
| Acquisition of noncontrolling interests | | | — | | | | — | | | | (33 | ) | | | — | | | | (33 | ) |
| Dividends paid to noncontrolling interests | | | — | | | | — | | | | (17 | ) | | | — | | | | (17 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net cash used in financing activities | | | — | | | | (1,136 | ) | | | (245 | ) | | | 865 | | | | (516 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | — | | | | 104 | | | | (99 | ) | | | — | | | | 5 | |
| Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 11 | | | | — | | | | 11 | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | | | — | | | | — | | | | 205 | | | | — | | | | 205 | |
| | | | | | | | | | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS, END OF YEAR | | $ | — | | | $ | 104 | | | $ | 117 | | | $ | — | | | $ | 221 | |
| | | | | | | | | | | | | | | | | | | | | |
150
Notes to the financial statements
| |
31. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
Quarterly financial data for 20112013 and 20102012 were as follows:
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | |
| | | March 31, | | | June 30, | | | September 30, | | | December 31, | |
| | | (millions, except per share data) | |
| |
2011 | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 1,007 | | | $ | 861 | | | $ | 760 | | | $ | 819 | |
| Total expenses | | | (768 | ) | | | (705 | ) | | | (670 | ) | | | (738 | ) |
| Net income | | | 42 | | | | 89 | | | | 60 | | | | 29 | |
| Net income attributable to Willis Group Holdings | | | 34 | | | | 85 | | | | 60 | | | | 25 | |
| Earnings per share — continuing operations | | | | | | | | | | | | | | | | |
| — Basic | | $ | 0.20 | | | $ | 0.49 | | | $ | 0.35 | | | $ | 0.14 | |
| — Diluted | | $ | 0.20 | | | $ | 0.48 | | | $ | 0.34 | | | $ | 0.14 | |
| Earnings per share — discontinued operations | | | | | | | | | | | | | | | | |
| — Basic | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| — Diluted | | $ | — | | | $ | — | | | $ | — | | | $ | — | �� |
| | | | | | | | | | | | | | | | | |
2010 | | | | | | | | | | | | | | | | |
| Total revenues | | $ | 971 | | | $ | 797 | | | $ | 731 | | | $ | 833 | |
| Total expenses | | | (669 | ) | | | (629 | ) | | | (625 | ) | | | (656 | ) |
| Net income | | | 211 | | | | 91 | | | | 65 | | | | 103 | |
| Net income attributable to Willis Group Holdings | | | 204 | | | | 89 | | | | 64 | | | | 98 | |
| Earnings per share — continuing operations | | | | | | | | | | | | | | | | |
| — Basic | | $ | 1.21 | | | $ | 0.52 | | | $ | 0.38 | | | $ | 0.57 | |
| — Diluted | | $ | 1.21 | | | $ | 0.51 | | | $ | 0.37 | | | $ | 0.57 | |
| Earnings per share — discontinued operations | | | | | | | | | | | | | | | | |
| — Basic | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| — Diluted | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, | | June 30, | | September 30, | | December 31, |
| | (millions, except per share data) |
| 2013 | |
| | |
| | |
| | |
|
| Total revenues | $ | 1,051 |
| | $ | 890 |
| | $ | 795 |
| | $ | 919 |
|
| Total expenses | (764 | ) | | (719 | ) | | (720 | ) | | (767 | ) |
| Net income (loss) | 223 |
| | 107 |
| | (27 | ) | | 74 |
|
| Net income (loss) attributable to Willis Group Holdings | 219 |
| | 105 |
| | (27 | ) | | 68 |
|
| Earnings per share — continuing operations | |
| | |
| | |
| | |
|
| — Basic | $ | 1.27 |
| | $ | 0.60 |
| | $ | (0.15 | ) | | $ | 0.38 |
|
| — Diluted | $ | 1.24 |
| | $ | 0.59 |
| | $ | (0.15 | ) | | $ | 0.37 |
|
| 2012 | |
| | |
| | |
| | |
|
| Total revenues | $ | 1,013 |
| | $ | 842 |
| | $ | 754 |
| | $ | 871 |
|
| Total expenses | (696 | ) | | (663 | ) | | (684 | ) | | (1,646 | ) |
| Net income (loss) | 232 |
| | 110 |
| | 26 |
| | (801 | ) |
| Net income (loss) attributable to Willis Group Holdings | 225 |
| | 108 |
| | 26 |
| | (805 | ) |
| Earnings per share — continuing operations | |
| | |
| | |
| | |
|
| — Basic | $ | 1.29 |
| | $ | 0.62 |
| | $ | 0.15 |
| | $ | (4.65 | ) |
| — Diluted | $ | 1.28 |
| | $ | 0.61 |
| | $ | 0.15 |
| | $ | (4.65 | ) |
151
196
Willis Group Holdings plc
Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A — Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2011,2013, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chairman and Chief Executive Officer and the Group Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange ActRule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and the Group Chief Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures as defined inRule 13a-15(e) are effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) under the Securities Exchange Act of 1934.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011,2013, based on the criteria related to internal control over financial reporting described inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2011.
2013.
Our independent registered public accountants, Deloitte LLP, who have audited and reported on our financial statements, have undertaken an assessment of the Company’s internal control over financial reporting. Deloitte’s report is presented below.
February 27, 2014.
February 29, 2012.
Willis Group Holdings plc
152
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 internal control over financial reporting of Willis Group Holdings Public Limited Company and subsidiaries (the “Company”'Company') as of December 31, 2011,2013, based on criteria established inInternal Control — Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,2013, based on the criteria established inInternal Control — Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 20112013 of the Company and our report dated February 29, 201227, 2014 expressed an unqualified opinion on those financial statements.
/s/ Deloitte LLP
London, United Kingdom
February 29, 201227, 2014
153
Wills Group Holdings plc198
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal controls over financial reporting during the three months ended December 31, 20112013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B — Other Information
None.
The
Willis Group Holdings plc
PART III
Item 10—Directors, Executive Officers and Corporate Governance
Except for the information regarding executive officers required by Item 401 of Regulation S-K which is set forth below as of February 14, 2014, the information required by this item with respect to our directors and executive officers, code of ethics, procedures for recommending nominees, audit committee, audit committee financial experts and compliance with Section 16(a) of the Exchange Act will be provided in Itemaccordance with Instruction G(3) to Form 10-K no later than April 30, 2014.
Celia Brown - Ms. Brown, age 59, was appointed an executive officer on January 23, 2012. Ms. Brown joined the Willis Group in 2010 and serves as the Willis Group Human Resources Director. Prior to joining the Willis Group, Ms. Brown spent over 20 years at XL Group plc where she held a number of senior roles. Ms. Brown served from 2006 to 2009 as the Executive Vice President, Head of Global HR and Corporate Relations at XL Group plc. Following XL Group plc, Ms. Brown formed an independent management consultancy, providing human resources services to not-for-profit, corporate and individual clients.
Dominic Casserley - Mr. Casserley, age 56, was appointed as Chief Executive Officer of Willis Group Holdings plc and as a member of the Board on January 7, “Management’s Discussion2013. Prior to joining Willis, Mr. Casserley, was a senior partner of McKinsey & Company, which he joined in New York in 1983. During his 29 years at McKinsey, Mr. Casserley led the firm's Greater China Practice and Analysisits UK and Ireland Practice. Mr. Casserley had been a member of the McKinsey Shareholders Council, the firm's global board, since 1999 and for four years served as the Chairman of the Finance Committee of that board. Mr. Casserley is a graduate of Cambridge University.
Stephen Hearn - Mr. Hearn, age 47, was appointed an executive officer on January 1, 2012. Mr. Hearn joined the Willis Group in 2008 and was named Chairman and CEO of Willis Global in 2011, CEO of Willis Limited in 2012 and Group Deputy CEO in 2013. Since joining the Willis Group, Mr. Hearn has served as Chairman of Special Contingency Risk, Chairman of Willis Facultative and Chairman and CEO of Glencairn Limited. From 2009 until 2011 he led Faber & Dumas, Global Markets International and Willis Facultative. Prior to joining the Willis Group, Mr. Hearn served as Chairman and CEO of the Glencairn Group Limited and as President and CEO of Marsh Affinity Europe.
Todd Jones - Mr. Jones, age 49, was appointed an executive officer and CEO of Willis North America on July 1, 2013. Mr. Jones joined Willis in 2003 as the North American Practice Leader for Willis’s Executive Risks Practice and served as the President of Willis North America from 2010 to 2013. Mr. Jones also served as a National Partner for the Northeast Region. Prior to joining Willis, Mr. Jones held various leadership roles in the insurance brokerage industry. Before entering the brokerage industry, he was a financial analyst and corporate banker for a regional bank that is now part of Wells Fargo, focusing on the telecommunications industry.
Michael K. Neborak - Mr. Neborak, age 57, was appointed an executive officer and Group Chief Financial ConditionOfficer on July 6, 2010. Mr. Neborak joined Willis from MSCI Inc., a NYSE listed company, where he was Chief Financial Officer. With more than 30 years of experience in finance and Resultsaccounting, Mr. Neborak also held senior positions with Citigroup, including divisional CFO and co-head of Corporate Strategy & Business Development, from 2000 to 2006, and prior to that, in the investment banking group at Salomon Smith Barney from 1982 to 2000. He began his career as an accountant with Arthur Andersen & Co.
Adam L. Rosman -Mr. Rosman, age 48, was appointed Group General Counsel on May 7, 2012 and is responsible for legal, corporate secretary, compliance, audit and risk management. He joined Willis in 2009 and served for three years as the company's Deputy Group General Counsel, responsible for Willis' worldwide legal operations. Before joining Willis, Adam was Senior Vice President and Associate General Counsel at Cablevision Systems Corporation in Bethpage, NY, and before that he was a partner at the Washington D.C.-based law firm of Zuckerman Spaeder LLP, where he advised public companies and senior executives on a range of topics, including Sarbanes-Oxley. Between 1997 and 2003, Adam was an Assistant United States Attorney in Washington, D.C., where he prosecuted a wide range of matters. He also worked in 2000 and 2001 as Deputy Assistant to the President and Deputy Staff Secretary for President Clinton.
David Shalders - Mr. Shalders, age 47, was appointed an executive officer and Group Operations — Executive Summary — 2011 Operational Review” is incorporated herein by reference.& Technology Director on November 4, 2013. Prior to joining Willis, Mr. Shalders spent over a decade in senior operations and IT roles at the Royal Bank of Scotland Group, most recently as Global COO for Global Banking and Markets. Mr. Shalders also held roles as Head of London & Asia Operations and Head of Derivative Operations for NatWest at RBS.
154
PART III
Item 10—Directors, Executive Officers and Corporate Governance
Except for the information regarding executive officers (other than Joseph J. Plumeri) required by Item 401 ofRegulation S-K which is set forth below, as of February 17, 2012, we incorporate the information required by this item by reference to the headings ‘Election of Directors’, ‘Corporate Governance’, ‘Section 16 Beneficial Ownership Reporting Compliance’ and ‘Ethical Code’ in our 2012 Proxy Statement.
Celia Brown — Ms. Brown, age 57, was appointed an executive officer on January 23, 2012. Ms. Brown joined the Willis Group in 2010 and serves as the Willis Group Human Resources Director. Prior to joining the Willis Group, Ms. Brown spent over 20 years at XL Group plc where she held a number of senior roles. Ms. Brown served from 2006 to 2009 as the Executive Vice President, Head of Global HR and Corporate Relations at XL Group plc. Following XL Group plc, Ms. Brown formed an independent management consultancy, providing human resources services tonot-for-profit, corporate and individual clients.
Adam G. Ciongoli —Timothy D. Wright - Mr. Ciongoli, age 43, was appointed an executive officer and Group General Counsel on March 26, 2007. He was appointed Group Secretary on August 1, 2009. Prior to joining the Willis Group, he served as a counselor and law clerk to US Supreme Court Justice Samuel A. Alito, Jr. during the Justice’s first Term on the Court. Previously, Mr. Ciongoli was Senior Vice President and General Counsel for TimeWarner Europe, and the Counselor to United States Attorney General John Ashcroft. Mr. Ciongoli also serves as a special consultant to the New York City Police Department, and as an adjunct professor of law at Columbia University Law School.
Peter Hearn — Mr. Hearn, age 56, was appointed an executive officer on April 10, 2007. Mr. Hearn joined the Willis Group in January 1994 as a Senior Vice President to open and manage the Philadelphia office and was appointed Eastern Region Manager in October 1994 and Executive Vice President in 1997. In 2006, Mr. Hearn was appointed Chief Executive Officer of Willis Re and in 2011 he was appointed Chairman of Willis Re. Prior to joining Willis, Mr. Hearn served as Vice President and Principal of Towers Perrin Reinsurance. Mr. Hearn has 32 years of experience in the insurance brokerage industry.
Stephen Hearn — Mr. Hearn, age 45, was appointed an executive officer on January 1, 2012. Mr. Hearn joined the Willis Group in 2008 and was named Chairman and CEO of Willis Global in 2011. Since joining the Willis Group, Mr. Hearn has served as Chairman of Special Contingency Risk, Chairman of Willis Facultative and Chairman and CEO of Glencairn Limited. From 2009 until 2011 he led Faber & Dumas, Global Markets International and Willis Facultative. Prior to joining the Willis Group, Mr. Hearn served as Chairman and CEO of the Glencairn Group Limited and as President and CEO of Marsh Affinity Europe.
Victor P. Krauze — Mr. Krauze,Wright, age 52, was appointed an executive officer on December 3, 2010in 2008 and named Chairman and Chief Executive Officer of Willis North America. Previously, Mr. Krauzein 2012 was President and Chief Operating Officer for Willis North America, a position in which he had served since 2009. Mr. Krauze has also served as President/CEO for Willis’ Minnesota operations, National Partner of the Great Lakes region and Regional Executive Officer (National Partner) of Willis’ Central Region. Prior to joining Willis in 1997, Mr. Krauze gained experience as a casualty marketing specialist with another major global broker where his early roles included Producer and Account Executive. Mr. Krauze has over 20 years of experience in the insurance industry.
Michael K. Neborak — Mr. Neborak, age 55, was appointed an executive officer and Group Chief Financial Officer on July 6, 2010. Mr. Neborak joined Willis from MSCI Inc., a NYSE listed company, where he was Chief Financial Officer. With more than 30 years of experience in finance and accounting, Mr. Neborak also held senior positions with Citigroup, including divisional CFO and co-head of Corporate Strategy & Business Development, from 2000 — 2006, and prior to that, in the investment banking group at Salomon Smith Barney from 1982 — 2000. He began his career as an accountant with Arthur Andersen & Co.
155
Willis Group Holdings plc
Martin J. Sullivan — Mr. Sullivan, age 57, was appointed an executive officer on September 7, 2010. Mr. Sullivan joined Willis as Deputy Chairman, Willis Group Holdings plc, and Chairman and CEO of Willis Global Solutions, which oversees the brokerage and risk management advisory services for Willis’ multinational and global accounts. Mr. Sullivan previously served as President and Chief Executive Officer of American International Group, Inc. (“AIG”), from2005-2008 and was Vice Chairman and Co-Chief Operating Officer from May 2002 until March 2005. He first joined AIG in the UK in 1971 and in the intervening years served in a number of positions of increasing responsibility, culminating in his election as Senior Vice President, Foreign General Insurance in 1996 and Executive Vice President, Foreign General Insurance in 1998. In 1996, he was appointed Chief Operating Officer of AIU in New York and named President in 1997.
Sarah J. Turvill — Ms. Turvill, age 58, was appointed an executive officer on July 1, 2001. Ms. Turvill joined the Willis Group in May 1978 and has held a number of senior management roles in our international business, particularly in Europe where she was Managing Director from 1995 to 2001. Ms. Turvill is currently Chief Executive Officer of Willis International, a position she has held since July 2001, and was additionally appointed Chairman in November 2006. She has 31 years of experience in the insurance brokerage industry, all of which have been with the Willis Group.
Timothy D. Wright —International. Mr. Wright age 50, was appointed an executive officer andserved as Group Chief Operating Officer on September 1, 2008.from 2008 to 2012. Prior to joining the Willis Group, he was a Partner of Bain & Company where he led their Financial Services practice in London. Mr. Wright was previously UK Managing Partner of Booz Allen & Hamilton and led their insurance work globally. He has more than 20 years of experience in the insurance and financial service industries internationally.
156
Directors’ and auditors’ remuneration
Item 11 — Executive Compensation
The information under the heading ‘Executive Compensation’required by this Item with respect to executive officer and director compensation will be provided in the 2012 Proxy Statement is incorporated herein by reference. Nothing in this report shall be construedaccordance with Instruction G(3) to incorporate by reference the Board Compensation Committee Report on Executive Compensation which is contained in the 2012 Proxy Statement.Form 10-K no later than April 30, 2014.
Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item with respect to security ownership of certain beneficial owners and management equity and securities authorized for issuance under the heading ‘Security Ownership-Security Ownership of Certain Beneficial Owners and Management’ and ‘Securities Authorized for Issuance Under Equity Compensation Plans’equity compensation plans will be provided in the 2012 Proxy Statement is incorporated herein by reference.accordance with Instruction G(3) to Form 10-K no later than April 30, 2014.
Item 13 — Certain Relationships and Related Transactions, and Director Independence
The information underrequired by this Item with respect to transactions with related persons, the heading ‘Corporate Governance’review, approval or ratification of such transactions and director independence will be provided in the 2012 Proxy Statement is incorporated herein by reference.accordance with Instruction G(3) to Form 10-K no later than April 30, 2014.
Item 14 — Principal Accounting Fees and Services
The information under the headings ‘Fees Paidrequired by this Item with respect to Independent Auditors’auditors' services and fees will be provided in the 2012 Proxy Statement is incorporated herein by reference and as disclosed in Note 5accordance with Instruction G(3) to the consolidated financial statements.Form 10-K no later than April 30, 2014.
157
Willis Group Holdings plc
PART IV
PART IV
Item 15 — Exhibits, Financial Statement Schedules
The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company consisting of:
(a) Report of Independent Registered Public Accounting Firm.
(b) Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
(c) Consolidated Statements of Operations for each of the three years in the period ended December 31, 2011.2013.
(d) Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2013.
(d)(e) Consolidated Balance Sheets as of December 31, 20112013 and 2010.2012.
(e)(f) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2011.2013.
| | |
| (f) | Consolidated Statements of Changes in Equity and Comprehensive Income for each of the three years in the period ended December 31, 2011. |
(g) Consolidated Statements of Changes in Equity for each of the three years in the period ended December 31, 2013.
(g)(h) Notes to the Consolidated Financial Statements.
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or the Notes thereto.
(2) Exhibits:
| | | | | |
| | | | | |
| | 2 | .1 | | Scheme of Arrangement between Willis Group Holdings Limited and the Scheme Shareholders (incorporated by reference to Annex A to Willis Group Holdings Limited’s Definitive Proxy Statement on Schedule 14A filed on November 2, 2009 (SEC File No. 001-16503)) |
| | | | | |
| | 3 | .1 | | Memorandum and Articles of Association of Willis Group Holdings Public Limited Company (incorporated herein by reference to Exhibit No. 3.1 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503)) |
| | | | | |
| | 3 | .2 | | Certificate of Incorporation of Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit No. 3.2 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503)) |
| | | | | |
| | 4 | .1 | | Senior Indenture dated as of July 1, 2005, and First Supplemental Indenture, dated as of July 1, 2005, among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York (f/k/a JPMorgan Chase Bank, N.A.), as the Trustee, for the issuance of the 5.625% senior notes due 2015 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 8-K filed on July 1, 2005 (SEC File No. 001-16503)) |
| | | | | |
| | 4 | .2 | | Second Supplemental Indenture dated as of March 28, 2007 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 6.200% senior notes due 2017 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 8-K filed on March 30, 2007 (SEC File No. 001-16503)) |
| | | | | |
| | 4 | .3 | | Third Supplemental Indenture dated as of October 1, 2008 among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 10-Q filed on November 10, 2008 (SEC File No. 001-16503)) |
|
| |
| 1.1 | Underwriting Agreement, dated August 8, 2013, among Trinity Acquisition plc, as issuer, the guarantors named therein and Barclays Capital Inc. and Morgan Stanley & Co. LLC, as representatives of the several underwriters named therein (incorporated herein by reference to Exhibit No. 1.1 to the Company's Form 8-K filed on August 12, 2013 (SEC File No. 001-16503)) |
| |
| 2.1 | Scheme of Arrangement between Willis Group Holdings Limited and the Scheme Shareholders (incorporated by reference to Annex A to Willis Group Holdings Limited's Definitive Proxy Statement on Schedule 14A filed on November 2, 2009 (SEC File No. 001-16503)) |
| |
| 3.1 | Memorandum and Articles of Association of Willis Group Holdings Public Limited Company (incorporated herein by reference to Exhibit No. 3.1 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503)) |
| |
| 3.2 | Certificate of Incorporation of Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit No. 3.2 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503)) |
| |
| 4.1 | Senior Indenture dated as of July 1, 2005, and First Supplemental Indenture, dated as of July 1, 2005, among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York (f/k/a JPMorgan Chase Bank, N.A.), as the Trustee, for the issuance of the 5.625% senior notes due 2015 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 8-K filed on July 1, 2005 (SEC File No. 001-16503)) |
| |
| 4.2 | Second Supplemental Indenture dated as of March 28, 2007 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 6.200% senior notes due 2017 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 8-K filed on March 30, 2007 (SEC File No. 001-16503)) |
| |
| 4.3 | Third Supplemental Indenture dated as of October 1, 2008 among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 10-Q filed on November 10, 2008 (SEC File No. 001-16503)) |
| |
158
(2) Exhibits (continued): |
| |
| 4.4 | Fourth Supplemental Indenture dated as of September 29, 2009 among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Public Limited Company, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 7.000% senior notes due 2019 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 8-K filed on September 29, 2009 (SEC File No. 001-16503)) |
| |
| 4.5 | Fifth Supplemental Indenture dated as of December 31, 2009 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Group Holdings Limited, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503)) |
| |
| 4.6 | Sixth Supplemental Indenture dated as of December 22, 2010 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company's Form 10-K filed on February 28, 2011 (SEC File No. 001-16503)) |
| |
| 4.7 | Indenture, dated as of March 17, 2011, among Willis Group Holdings Public Limited Company, as issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America Inc., as Guarantors, and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on March 17, 2011 (SEC File No. 001-16503)) |
| |
| 4.8 | First Supplemental Indenture, dated as of March 17, 2011, among Willis Group Holdings Public Limited Company, as Issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America Inc., as guarantors, and The Bank of New York Mellon, as trustee, to the Indenture dated March 17, 2011, for the issuance of the 4.125% senior notes due 2016 and the 5.750% senior notes due 2021 (incorporated by reference to Exhibit 4.2 to the Company's Form 8-K filed on March 17, 2011 (SEC File No. 001-16503)) |
| |
| 4.9 | Indenture, dated as of August 15, 2013, among Trinity Acquisition plc, as issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis North America Inc., Willis Investment Holdings UK Limited, TA I Limited and Willis Group Limited, as guarantors, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on August 15, 2013 (SEC File No. 001-16503)) |
| |
| 4.10 | First Supplemental Indenture, dated as of August 15, 2013, among Trinity Acquisition plc, as issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis North America Inc., Willis Investment Holdings UK Limited, TA I Limited and Willis Group Limited, as guarantors, and Wells Fargo Bank, National Association, as trustee, to the Indenture dated August 15, 2013, for the issuance of 4.625% senior notes due 2023 and 6.125% senior notes due 2043 (incorporated by reference to Exhibit 4.2 to the Company's Form 8-K filed on August 15, 2013 (SEC File No. 001-16503)). |
| |
| 10.1 | Credit Agreement, dated as of December 16, 2011, among Trinity Acquisition plc, Willis Group Holdings Public Limited Company, the Lenders party thereto, Barclays Bank PLC, as Administrative Agent, Swing Line Lender and as an L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on December 20, 2011 (SEC File No. 001-16503)) |
| |
| 10.2 | First Amendment to Credit Agreement, dated as of July 23, 2013, to the Credit Agreement, dated as of December 12, 2011, among Trinity Acquisition PLC, Willis Group Holdings Public Limited Company, the lenders party thereto and Barclays Bank PLC, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on July 25, 2013 (SEC File No. 001-16503)) |
| |
| 10.3 | Guaranty Agreement, dated as of December 16, 2011, among Trinity Acquisition plc, Willis Group Holdings Public Limited Company, Barclays Bank PLC, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on December 20, 2011 (SEC File No. 001-16503)) |
| |
| 10.4 | Deed Poll of Assumption dated as of December 31, 2009 between Willis Group Holdings Limited and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| 10.5 | Willis Group Senior Management Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| | | | | |
| | | | | |
| | 4 | .4 | | Fourth Supplemental Indenture dated as of September 29, 2009 among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Public Limited Company, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 7.000% senior notes due 2019 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited’s Form 8-K filed on September 29, 2009 (SEC File No. 001-16503)) |
| | | | | |
| | 4 | .5 | | Fifth Supplemental Indenture dated as of December 31, 2009 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Group Holdings Limited, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503)) |
| | | | | |
| | 4 | .6 | | Sixth Supplemental Indenture dated as of December 22, 2010 among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition plc, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K filed on February 28, 2011 (SEC File No. 001-16503)) |
| | | | | |
| | 4 | .7 | | Indenture, dated as of March 17, 2011, among Willis Group Holdings Public Limited Company, as issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America Inc., as Guarantors, and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on March 17, 2011 (SEC File No. 001-16503)) |
| | | | | |
| | 4 | .8 | | First Supplemental Indenture, dated as of March 17, 2011, among Willis Group Holdings Public Limited Company, as Issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition plc, Willis Group Limited and Willis North America Inc., as guarantors, and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on March 17, 2011 (SEC File No. 001-16503)) |
| | | | | |
| | 10 | .1 | | Credit Agreement, dated as of December 16, 2011, among Trinity Acquisition plc, Willis Group Holdings Public Limited Company, the Lenders party thereto, Barclays Bank PLC, as Administrative Agent, Swing Line Lender and as an L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 20, 2011 (SEC File No. 001-16503)) |
| | | | | |
| | 10 | .2 | | Guaranty Agreement, dated as of December 16, 2011, among Trinity Acquisition plc, Willis Group Holdings Public Limited Company, Barclays Bank PLC, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 20, 2011 (SEC File No. 001-16503)) |
| | | | | |
| | 10 | .3 | | Deed Poll of Assumption dated as of December 31, 2009 between Willis Group Holdings Limited and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .4 | | Willis Group Senior Management Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .5 | | Willis Group Holdings 2010 North America Employee Share Purchase Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on April 27, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .6 | | Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.9 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .7 | | Form of Performance-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on May 10, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .8 | | Form of Performance-Based Option Agreement — 2011 Long Term Incentive Program under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))† |
159
Willis Group Holdings plc
(2) Exhibits (continued): |
| |
| 10.6 | Willis Group Holdings 2010 North America Employee Share Purchase Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on April 27, 2010 (SEC File No. 001-16503))† |
| |
| 10.7 | Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.9 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| 10.8 | Form of Performance-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on May 10, 2010 (SEC File No. 001-16503))† |
| |
| 10.9 | Form of Time-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 the Company's Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))† |
| |
| 10.10 | Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| |
| 10.11 | Form of Restricted Share Unit Award Agreement for Non-employee Directors under the Willis Group Holdings 2001 Share Purchase Option Plan (incorporated by reference to Exhibit 10.14 to the Company's Form 10-K filed February 29, 2012 (SEC File No. 001-16503))† |
| |
| 10.12 | Form of Performance-Based Option Agreement - 2011 Long Term Incentive Program under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))† |
| |
| 10.13 | Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for US employees) (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))† |
| |
| 10.14 | Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for UK employees) (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))† |
| |
| 10.15 | Form of 2011 Long Term Incentive Program Cash Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))† |
| |
| 10.16 | Rules of the Willis Group Holdings Sharesave Plan 2001 for the United Kingdom (incorporated by reference to Exhibit 10.13 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| 10.17 | The Willis Group Holdings Irish Sharesave Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on May 5, 2010 (SEC File No. 001-16503))† |
| |
| 10.18 | Willis Group Holdings 2008 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| 10.19 | Form of Performance-Based Restricted Share Units Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| |
| 10.20 | Form of Performance-Based Option Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| |
| 10.21 | Hilb Rogal and Hamilton Company 2000 Share Incentive Plan (incorporated by reference to Exhibit 10.18 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| 10.22 | Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.19 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| 10.23 | Form of Time-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 6, 2010 (SEC File No. 001-16503))† |
| |
| 10.24 | Form of Performance-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| |
| 10.25 | Form of Time-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on August 6, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | | | | |
| | 10 | .9 | | Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for US employees) (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .10 | | Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for UK employees) (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .11 | | Form of 2011 Long Term Incentive Program Cash Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .12 | | Form of Time-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 the Company’s Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .13 | | Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .14 | | Form of Restricted Share Unit Award Agreement for Non-employee Directors under the Willis Group Holdings 2001 Share Purchase Option Plan*† |
| | | | | |
| | 10 | .15 | | The Willis Group Holdings 2004 Bonus and Share Plan (incorporated by reference to Exhibit 10.12 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .16 | | Rules of the Willis Group Holdings Sharesave Plan 2001 for the United Kingdom (incorporated by reference to Exhibit 10.13 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .17 | | The Willis Group Holdings Irish Sharesave Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on May 5, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .18 | | The Willis Group Holdings International Sharesave Plan (incorporated by reference to Exhibit 10.15 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .19 | | Willis Group Holdings 2008 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .20 | | Form of Performance-Based Restricted Share Units Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .21 | | Form of Performance-Based Restricted Share Unit Award Agreement granted under the Willis Group Holdings 2008 Share Purchase and Option Plan, dated May 2, 2011, between Joseph J. Plumeri and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .22 | | Form of Performance-Based Option Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .23 | | Hilb Rogal and Hamilton Company 2000 Share Incentive Plan (incorporated by reference to Exhibit 10.18 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .24 | | Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.19 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .25 | | Form of Time-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’sForm 10-Q filed on August 6, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .26 | | Form of Performance-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
160
(2) Exhibits (continued): |
| |
| |
| 10.26 | Form of Performance-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| |
| 10.27 | Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's 8-K filed on April 30, 2012 (SEC File No. 001-16503))† |
| |
| 10.28 | Form of Time Based Share Option Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))† |
| |
| 10.29 | Form of Performance Based Share Option Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))† |
| |
| 10.30 | Form of Time Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))† |
| |
| 10.31 | Form of Performance Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))† |
| |
| 10.32 | Form of Time Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (for Non-Employee Directors) (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))† |
| |
| 10.33 | Form of Performance-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan for the 2013 Long-Term Incentive Program*† |
| |
| 10.34 | Rules of the Willis Group Holdings Public Limited Company 2012 Sharesave Sub-Plan for the United Kingdom to the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.32 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.35 | Form of 2012 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for US employees) Plan (incorporated by reference to Exhibit 10.36 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.36 | Form of 2012 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for UK employees) Plan (incorporated by reference to Exhibit 10.37 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.37 | Amended and Restated Willis US 2005 Deferred Compensation Plan (incorporated by reference to Exhibit 10.21 to the Company's Form 8-K filed on November 20, 2009 (SEC File No. 001-16503))† |
| |
| 10.38 | First Amendment to the Amended and Restated Willis U.S. 2005 Deferred Compensation Plan, effective June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| |
| 10.39 | Second Amendment to the Amended and Restated Willis US 2005 Deferred Compensation Plan (incorporated by reference to Exhibit 10. 6 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))† |
| |
| 10.40 | Instrument Comprising A Guarantee In Favour of Willis Pension Trustees Limited in Respect of the Willis Pension Scheme (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on April 5 2012 (SEC File No. 001-16503))† |
| |
| 10.41 | Schedule of Contributions for the Willis Pension Scheme (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on April 5, 2012 (SEC File No. 001-16503))† |
| |
| 10.42 | Form of Deed of Indemnity of Willis Group Holdings Public Limited Company with directors and officers (incorporated by reference to Exhibit 10.20 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| 10.43 | Form of Indemnification Agreement of Willis North America Inc. with directors and officers (incorporated by reference to Exhibit 10.21 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| |
| | | | | |
| | | | | |
| | 10 | .27 | | Form of Performance-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan, dated May 2, 2011, between Martin Sullivan and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .28 | | Form of Time-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on August 6, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .29 | | Form of Performance-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .30 | | Amended and Restated Willis US 2005 Deferred Compensation Plan (incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K filed on November 20, 2009 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .31 | | First Amendment to the Amended and Restated Willis U.S. 2005 Deferred Compensation Plan, effective June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .32 | | Form of Deed of Indemnity of Willis Group Holdings Public Limited Company with directors and officers (incorporated by reference to Exhibit 10.20 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .33 | | Form of Indemnification Agreement of Willis North America Inc. with directors and officers (incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .34 | | 2010 Amended and Restated Employment Agreement, dated as of January 1, 2010, by and between Willis North America, Inc. and Joseph J. Plumeri (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 22, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .35 | | Form of Employment Agreement dated March 13, 2007 between Willis Limited and Grahame J. Millwater (incorporated by reference to Exhibit No. 10.2 to Willis Group Holdings Limited’s Quarterly Report on Form 10-Q filed on May 10, 2007 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .36 | | Comprise Agreement, dated as of 2012 by and among Willis Limited, Willis Group Holdings Public Limited Company and Grahame J. Millwater (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on December 21, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .37 | | Second Compromise Agreement dated as of 2012 by and among Willis Limited, Willis Group Holdings Public Limited Company and Grahame J. Millwater (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on December 21, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .38 | | Consultancy Agreement as of 2012 by and among Willis Limited and Grahame J. Millwater (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on December 21, 2011 ((SEC File No. 001-16503))† |
| | | | | |
| | 10 | .39 | | Offer Letter dated June 22, 2010 and Form of Employment Agreement between Willis North America, Inc. and Michael K. Neborak (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 23, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .40 | | Agreement of Restrictive Covenants and Other Obligations dated as of August 2, 2010 between the Company and Michael K. Neborak (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Public Limited Company’s Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .41 | | Form of Employment Agreement dated January 24, 1994, between Willis Faber North America, Inc. and Peter C. Hearn (incorporated by reference to Exhibit No. 10.28 to Willis Group Holdings Limited’s Annual Report on Form 10-K filed on February 27, 2008 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .42 | | First Amendment to Employment Agreement, effective as of January 1, 2011, between Willis Re Inc. and Peter Hearn (incorporated by reference to Exhibit No. 10.1 to Willis Group Holdings Public Limited Company’s Form 8-K filed on June 10, 2011 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .43 | | Agreement of Restrictive Covenants and Other Obligations dated as of May 6, 2008 between the Company and Peter C. Hearn (incorporated by reference to Exhibit 10.2 to Willis Group Holdings Limited’sForm 8-K filed on June 26, 2008 (SEC File No. 001-16503))† |
161
Willis Group Holdings plc
(2) Exhibits (continued):
| | | | | |
| | | | | |
| | 10 | .44 | | Employment Agreement, dated September 7, 2010, between Willis North America, Inc. and Martin J. Sullivan (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed November 5, 2010 (SEC File No. 001-16503))† |
| | | | | |
| | 10 | .45 | | Second Restated Employment Agreement, effective as of December 3, 2010, between Willis North America Inc. and Victor Krauze*† |
| | | | | |
| | 10 | .46 | | Form of Willis Retention Award Letter*† |
| | | | | |
| | 10 | .47 | | Investment and Share Purchase Agreement dated as of November 18, 2009 by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.37 to the Company’s Form 10-K filed on March 1, 2010 (SEC File No. 001-16503)) |
| | | | | |
| | 10 | .48 | | Shareholders Agreement dated as of December 17, 2009 by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K filed on March 1, 2010 (SEC File No. 001-16503)) |
| | | | | |
| | 10 | .49 | | Amended and Restated Assurance of Discontinuance between the Attorney General of the State of New York and the Company on behalf of itself and its subsidiaries named therein and the Amended and Restated Stipulation between the Superintendent of Insurance of the State of New York and the Company on behalf of itself and the subsidiaries named therein, effective as of February 11, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 17, 2010 (SEC File No. 001-16503)) |
| | | | | |
| | 21 | .1 | | List of subsidiaries* |
| | | | | |
| | 23 | .1 | | Consent of Deloitte LLP* |
| | | | | |
| | 31 | .1 | | Certification Pursuant to Rule 13a-14(a)* |
| | | | | |
| | 31 | .2 | | Certification Pursuant to Rule 13a-14(a)* |
| | | | | |
| | 32 | .1 | | Certification Pursuant to 18 USC. Section 1350* |
| | | | | |
| | 32 | .2 | | Certification Pursuant to 18 USC. Section 1350* |
| | | | | |
| | 101 | . INS** | | XBRL Instance Document |
| | | | | |
| | 101 | . SCH** | | XBRL Taxonomy Extension Schema Document |
| | | | | |
| | 101 | .CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | | | | |
| | 101 | .DEF** | | XBRL Taxonomy Extension Definition Linkbase Document |
| | | | | |
| | 101 | .LAB** | | XBRL Taxonomy Extension Label Linkbase Document |
| | | | | |
| | 101 | .PRE** | | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
| 10.44 | Willis Group Holdings Public Limited Company Compensation Policy for Non-Employee Directors (incorporated by reference to Exhibit 10. 1 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))† |
| |
| 10.45 | 2010 Amended and Restated Employment Agreement, dated as of January 1, 2010, by and between Willis North America, Inc. and Joseph J. Plumeri (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on January 22, 2010 (SEC File No. 001-16503))† |
| |
| 10.46 | First Amendment to Employment Agreement, dated as of October 16, 2012, by and between Willis North America Inc., a subsidiary of Willis Group Holdings Public Limited Company, and Joseph J. Plumeri (incorporated by reference to Exhibit 10.5 to the Company's Form 8-K filed on October 19, 2012 (SEC File No. 001-16503))† |
| |
| 10.47 | Employment Agreement, dated as of October 16, 2012, by and between Willis Group Holdings Public Limited Company and Dominic Casserley (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on October 19, 2012 (SEC File No. 001-16503))† |
| |
| 10.48 | Letter agreement, dated January 31, 2014, by and between Willis Group Holdings plc and Dominic Casserley.*† |
| |
| 10.49 | Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated May 10, 2013 between Dominic Casserley and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))† |
| |
| 10.50 | Form of Performance-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated May 10, 2013 between Dominic Casserley and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))† |
| |
| 10.51 | Form of Time-Based Share Option Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated May 10, 2013 between Dominic Casserley and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))† |
| |
| 10.52 | Offer Letter dated June 22, 2010 and Form of Employment Agreement between Willis North America, Inc. and Michael K. Neborak (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on June 23, 2010 (SEC File No. 001-16503))† |
| |
| 10.53 | Agreement of Restrictive Covenants and Other Obligations dated as of August 2, 2010 between the Company and Michael K. Neborak (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Public Limited Company's Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))† |
| |
| 10.54 | Second Restated Employment Agreement, effective as of December 3, 2010, between Willis North America Inc. and Victor Krauze (incorporated by reference to Exhibit 10.45 to the Company's Form 10-K filed on February 29, 2012 (SEC File No. 001-16503))† |
| |
| 10.55 | First Amendment to Offer of Promotion dated as of October 16, 2012, by and between Willis North America Inc., a subsidiary of Willis Group Holdings Public Limited Company, and Victor P. Krauze. (incorporated by reference to Exhibit 10.7 to the Company's Form 8-K filed on October 19, 2012 (SEC File No. 001-16503))† |
| |
| 10.56 | Agreement by and between Victor P. Krauze and Willis North America, Inc., a subsidiary of Willis Group Holdings Public Limited Company, dated July 1, 2013 (incorporated by reference to Exhibit 10.7 to the Company's Form 8-K filed on July 1, 2013 (SEC File No. 001-16503))† |
| |
| 10.57 | Contract of Employment, dated as of February 28, 2011 by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Stephen P. Hearn (incorporated by reference to Exhibit 10.52 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.58 | Amendment, dated July 19, 2012, to the Contract of Employment, dated as of February 28, 2011 by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Stephen P. Hearn (incorporated by reference to Exhibit 10.53 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.59 | Contract of Employment, dated as of October 16, 2012 by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Stephen P. Hearn (incorporated by reference to Exhibit 10.6 to the Company's Form 8-K filed on October 19, 2012 (SEC File No. 001-16503))† |
| |
|
| |
| 10.60 | Contract of Employment, dated as of December 17, 2007 by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Tim Wright (incorporated by reference to Exhibit 10.55 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.61 | Amendment, dated July 19, 2012, to the Contract of Employment, dated as of December 17, 2007 by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Tim Wright (incorporated by reference to Exhibit 10.56 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.62 | Confidentiality Agreement dated as of January 17, 2008 between the Willis Group Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Tim Wright (incorporated by reference to Exhibit 10.57 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))† |
| |
| 10.63 | Employment Agreement, dated September 15, 2003 between Willis Americas Administration, Inc. and Todd J. Jones*† |
| |
| 10.64 | Letter Agreement, dated August 1, 2013, between Willis North America Inc., a subsidiary of Willis Group Holdings Public Limited Company, and Todd J. Jones*† |
| |
| 10.65 | Nominating Agreement, dated April 25, 2013, by and among Willis Group Holdings Public Limited Company, ValueAct Capital Master Fund, L.P., VA Partners I, LLC, ValueAct Capital Management, L.P., ValueAct Capital Management, LLC, ValueAct Holdings, L.P., ValueAct Holdings GP, LLC and their respective affiliates (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 26, 2013 ((SEC File No. 001-16503)) |
| |
| 10.66 | Investment and Share Purchase Agreement dated as of November 18, 2009 by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.37 to the Company's Form 10-K filed on March 1, 2010 (SEC File No. 001-16503)) |
| |
| 10.67 | Shareholders Agreement dated as of December 17, 2009 by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.38 to the Company's Form 10-K filed on March 1, 2010 (SEC File No. 001-16503)) |
| |
| 10.68 | Amended and Restated Shareholders' Agreement, dated as of April 15, 2013, by and among Willis Europe BV, Willis Netherlands Holdings BV, Astorg Partners, GS & Cie Group, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.60 to the Company's Form 10-Q filed on May 8, 2013 (SEC File No. 001-16503)) |
| |
| 12.1 | Statement regarding Computation of Ratio of Earnings to Fixed Charges.* |
| |
| 21.1 | List of subsidiaries* |
| 23.1 | Consent of Deloitte LLP* |
| 31.1 | Certification Pursuant to Rule 13a-14(a)* |
| 31.2 | Certification Pursuant to Rule 13a-14(a)* |
| 32.1 | Certification Pursuant to 18 USC. Section 1350* |
| 32.2 | Certification Pursuant to 18 USC. Section 1350* |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
|
| |
| * | | Filed herewith. |
| | |
| † | | Management contract or compensatory plan or arrangement. |
| |
** | | Pursuant to Rule 406T ofRegulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
162
SIGNATURES
Willis Group Holdings plc
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Willis Group Holdings PLC(Registrant) |
| | |
| | WILLIS GROUP HOLDINGS PLC (REGISTRANT) |
| | |
| By: | /s/ MICHAEL K. NEBORAK |
| | Michael K. Neborak |
| | Group Chief Financial Officer
(Principal Financial and Accounting Officer) |
Michael K. Neborak
Group Chief Financial Officer and
(Principal Financial and Accounting Officer)
Date: February 29, 2012
27, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated this 29th27th day of February 2012.2014.
|
| | |
| /s/ DOMINIC CASSERLEY | | /s/ ANNA C. CATALANO |
Dominic Casserley Chief Executive Officer and Director (Principal Executive Officer) | |
Anna C. Catalano Director |
| | | |
/s/ Joseph J. PlumeriSIR ROY GARDNER | | /s/ THE RT. HON. SIR JEREMY HANLEY, KCMG |
Sir Roy Gardner
Director
Joseph J. Plumeri
Chairman and Chief Executive Officer
(Principal Executive Officer) | | The Rt. Hon. Sir Jeremy Hanley, KCMG Director
|
| | |
| /s/ ROBYN S. KRAVIT | | /s/ WENDY E. LANE |
Robyn S. Kravit
William W. Bradley
Director | | Wendy E. Lane Director |
| | | |
/s/ FRANCISCO Joseph A. Califano, Jr.LUZÓN
| | /s/ JAMES F. McCANN |
Francisco Luzón
Joseph A. Califano, Jr.
Director | | James F. McCann
Anna C. Catalano
Director |
| | | |
/s/ Sir Roy GardnerJAYMIN B. PATEL | | /s/ DOUGLAS B. ROBERTS |
Jaymin B. Patel
Director
Sir Roy Gardner
Director | | Douglas B. Roberts /s/ The Rt. Hon. Sir Jeremy Hanley, KCMG
The Rt. Hon. Sir Jeremy Hanley, KCMG
Director |
| | | |
/s/ Robyn S. KravitMICHAEL J. SOMERS | | /s/ JEFFREY W. UBBEN |
Michael J. Somers
Director
Robyn S. Kravit
Director | | /s/ Jeffrey B. LaneW. Ubben
Jeffrey B. LaneDirector |
| | |
/s/ Wendy E. Lane
Wendy E. Lane
Director | | /s/ James F. McCann
James F. McCannDirector |
| | |
/s/ Douglas B. Roberts
Douglas B. Roberts
Director | | /s/ Michael J. Somers
Michael J. SomersDirector |
163
