UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form 10-Q

 

 

Commission file number: 001-16503

 

 

 

 

WILLIS GROUP HOLDINGS LIMITED

(Exact name of registrant as specified in its charter)

 

 

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)

 

 

 

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

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

 

As of July 31, 2009, there were outstanding 168,113,625 shares of common stock, par value $0.000115 per share of the registrant.

 

 

WILLIS GROUP HOLDINGS LIMITED

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2009

Table of Contents

 

 

Certain Definitions

 

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

 

 

•	the impact of any regional, national or global political, economic, business, competitive, market and regulatory conditions on our global business operations;
•	the impact of current financial market conditions and the current credit crisis on our results of operations and financial condition, including as a result of any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;
•	our ability to achieve the expected cost savings, synergies and other strategic benefits as a result of the HRH acquisition and how the integration of HRH may affect the timing of such cost savings, synergies and benefits;
•	our ability to continue to manage our significant indebtedness;

•	our ability to implement and realize anticipated benefits of the Shaping our Future initiative and any other new initiatives;
•	material changes in the 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;
•	the volatility or declines in other insurance markets and premiums on which our commissions are based, but which we do not control;
•	our ability to compete effectively in our industry;
•	our ability to retain key employees and clients and attract new business;
•	the timing or ability to carry out share repurchases or take other steps to manage our capital and the limitations in our long-term debt agreements that may restrict our ability to take these actions;
•	any fluctuations in exchange and interest rates that could affect our expenses and revenue;
•	rating agency actions that could inhibit our ability to borrow funds or the pricing thereof;
•	a significant decline in the value of investments that fund our pension plans or changes in our pension plan funding obligations;
•	the timing of any exercise of put and call arrangements with associated companies;
•	changes in the tax or accounting treatment of our operations, such as the recent proposals made by the Obama administration regarding international tax reform;
•	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;
•	our involvement in and the results of any regulatory investigations, legal proceedings and other contingencies;
•	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 or failure to maintain secure information systems.

 

 

WILLIS GROUP HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

WILLIS GROUP HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

WILLIS GROUP HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Willis Group Holdings Limited (“Willis Group Holdings”) and its subsidiaries (collectively, the “Company”) provide a broad range of insurance brokerage, reinsurance and risk management consulting services to its worldwide clients, both directly and indirectly through its associates. The Company provides both specialized risk management advisory and consulting services on a global basis to clients worldwide in specific industrial and commercial activities, and services to small, medium and major corporates through its retail operations.

 

In its capacity as an advisor and insurance broker, the Company acts as an intermediary between clients and insurance carriers by advising clients on risk management requirements, helping clients determine the best means of managing risk, and negotiating and placing insurance risk with insurance carriers through the Company’s global distribution network.

 

 

The accompanying condensed consolidated financial statements (“Interim Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

The Interim Financial Statements are unaudited but include all adjustments (consisting of normal recurring adjustments) which the Company’s management considers necessary for a fair presentation of the financial position as of such dates and the operating results and cash flows for those periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The results of operations for the six month period ended June 30, 2009 may not necessarily be indicative of the operating results for the entire fiscal year.

 

These Interim Financial Statements should be read in conjunction with the Company’s consolidated balance sheets as of December 31, 2008 and 2007, and the related consolidated statements of operations, cash flows and changes in stockholders’ equity for each of the three years in the period ended December 31, 2008 included in the Company’s Current Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2009.

 

Recent Accounting Pronouncements

 

Business Combinations

 

The Company adopted FASB Financial Accounting Standard No. 141 (revised 2007) Business Combinations (“FAS 141R”) (ASC 805 Business Combinations), with effect from January 1, 2009. FAS 141R made substantial changes to how entities account for business combinations, establishing principles and requirements for how the acquirer:

 

 

Assets and liabilities that arose from business combinations with acquisition dates prior to the effective date (financial years beginning after December 15, 2008) are not adjusted upon adoption, with certain exceptions for acquired deferred tax assets and acquired income tax positions.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

The income tax provisions pertaining to changes in the valuation allowance of deferred tax assets and uncertain tax positions are applicable prospectively to business combinations occurring prior to the effective date. Reductions to the valuation allowance of acquired deferred tax assets and all changes to acquired uncertain tax positions occurring after the measurement period are now recorded in the statement of operations.

 

Noncontrolling Interests in Consolidated Financial Statements

 

The Company adopted FASB Financial Accounting Standard No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“FAS 160”) (ASC 810 Consolidation), with effect from January 1, 2009. FAS No. 160 established accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. It clarified that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity in the Consolidated Financial Statements.

 

The impact of this change on the Company’s balance sheet is outlined below:

 

 

Accordingly, certain reclassifications have been made in prior year amounts to conform to current year presentation.

 

Subsequent events

 

The Company has adopted FASB Financial Accounting Standard No. 165, Subsequent Events, (“FAS 165”) (ASC 855 Subsequent Events), which is effective for interim or annual financial periods ending after June 15, 2009. FAS 165 requires the Company to disclose the date through which subsequent events have been evaluated. For the purpose of this report, this date is the filing date August 7, 2009.

 

Amendments to FASB Interpretation No. 46(R)

 

In June 2009, the FASB issued Financial Accounting Standard No. 167, Amendments to FASB Interpretation No. 46(R), (“FAS 167”) (ASC 810 Consolidation). FAS 167 amends FASB Interpretation 46(R) (“FIN 46R”) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics:

 

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

FAS 167 also makes a number of other amendments to Interpretation FIN 46R. FAS 167 is effective for financial years beginning after November 15, 2009 and is effective for the Company from January 1, 2010.

 

The Company does not believe this will have a material effect on its financial position or results of operations.

 

 

Severance costs

 

The Company incurred severance costs of $18 million in the six months ended June 30, 2009 (2008: $25 million), relating to approximately 350 positions that have been, or are in the process of being, eliminated as part of the Company’s continuing focus on managing expense. Of these costs, $2 million were incurred in the three months ended June 30, 2009 (2008: $9 million). Severance costs for these employees were recognized pursuant to the terms of their existing benefit arrangements or employment agreements.

 

Share-based compensation

 

The Company incurred share-based compensation, reported within salaries and benefits, of $15 million in the six months ended June 30, 2009 (2008: $19 million), of which $10 million was incurred in the three months ended June 30, 2009 (2008: $10 million).

 

During the six months ended June 30, 2009, the Company recorded a $5 million credit relating to the accumulated compensation expense for certain 2008 awards which were dependent upon performance targets which the Company no longer expects to achieve (2008: $nil).

 

 

On April 15, 2009, the Company entered into a contract and disposed of Bliss & Glennon, a US-based wholesale insurance operation acquired as part of the HRH acquisition. Gross proceeds were $41 million, of which $3 million is held in escrow for potential indemnification claims until second quarter 2010.

 

Bliss & Glennon’s net assets at April 15, 2009 were $39 million, of which $35 million related to identifiable intangible assets and goodwill. In addition, there were costs and income taxes relating to the transaction of $2 million. No gain or loss was recognized on this disposal.

 

Amounts of revenue and pre-tax income reported in discontinued operations include the following:

 

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

Net assets and liabilities of discontinued operations consist of the following:

 

 

 

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. At June 30, 2009, time-based and performance-based options to purchase 15.3 million and 9.3 million (2008: 19.3 million and 0.2 million) shares of Willis common stock, respectively, and 1.2 million (2008: 1.5 million) restricted shares, were outstanding.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

Basic and diluted earnings per share are as follows:

 

 

Options to purchase 23.9 million shares were not included in the computation of the dilutive effect of stock options for the three and six month periods ended June 30, 2009 because the effect was antidilutive (three and six months periods ended June 30, 2008: 17.5 million).

 

 

On October 1, 2008, the Company completed the acquisition of HRH, the eighth largest insurance and risk management intermediary in the United States. Total consideration paid by the Company was approximately $1.8 billion, which comprised approximately 24.4 million shares of common stock valued at $792 million and $982 million of cash. The total purchase price of approximately $2.1 billion included the assumption of approximately $340 million of HRH existing debt.

 

The Company recognized identifiable intangible assets of $0.6 billion and goodwill of $1.6 billion on the acquisition. However, the Company is still in the process of finalizing the valuation of certain assets and liabilities, thus the purchase price allocation remains subject to refinement.

 

Assuming the acquisition had occurred on January 1, 2007, pro forma combined revenues for the Company for fiscal year 2008 would have been $3,451 million (2007: $3,378 million), of which $1,546 million, or 45 percent (2007: $1,586 million, or 47 percent), would be attributable to the Company’s North America operations.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

The components of the net periodic benefit cost of the UK, US and International defined benefit plans are as follows:

 

 

 

As of June 30, 2009, the Company had made contributions of $26 million, $7 million and $3 million to the UK, US and International defined benefit pension plans (2008: $74 million, $8 million and $3 million), respectively. The Company expects to contribute approximately $36 million to the UK defined benefit pension plan, $18 million to the US plan and $5 million to the International plan for the fiscal year 2009.

 

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 three and six months ended June 30, 2009 (2008: $nil).

 

 

Claims, Lawsuits and Other Proceedings

 

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 in the ordinary course of business. 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.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

8.  COMMITMENTS AND CONTINGENCIES (Continued)

 

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, 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.

 

The most significant actual or potential claims, lawsuits and other proceedings, of which the Company is currently aware are:

 

Inquiries and Investigations

 

In connection with the investigation commenced 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 (“NY AOD”) with the New York State Attorney General and the Superintendent of the New York Insurance Department and paid $50 million to eligible customers. As part of the NY 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 commenced 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 (the “CT Attorney General”) 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 CT 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 contingent compensation on brokerage business. The Company has co-operated fully with other similar investigations by the regulators and/or attorneys general of other jurisdictions, some of which have been concluded with no indication of any finding of wrongdoing.

 

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 responded to the European Commission questionnaires and has filed responses with the European Free Trade Association Surveillance Authority for two of its Norwegian entities. The European Commission reported on a final basis on September 25, 2007, expressing concerns over potential conflicts of interest in the industry relating to remuneration and binding authorities when assuming a dual role for clients and insurers and also over the nature of the coinsurance market. The Company continues to co-operate with both the European Commission and the European Free Trade Association Surveillance Authority.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

8.  COMMITMENTS AND CONTINGENCIES (Continued)

 

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 U.S. District Court for the District of New Jersey (“MDL”). There are two amended complaints within the MDL, one that addresses employee benefits (“EB Complaint”) and one that addresses all other lines of insurance (“Commercial Complaint”). HRH was a named defendant in the EB Complaint, but has since been voluntarily dismissed. HRH is a named defendant in the Commercial Complaint. The Company is a named defendant in both MDL complaints. Each of the EB Complaint and the Commercial Complaint seeks monetary damages, including punitive damages, and equitable relief and makes allegations regarding the practices and conduct that have been the subject of the investigation of state attorneys general and insurance commissioners, including allegations that the brokers have 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. The complaints also allege the existence of a conspiracy among insurance carriers and brokers and allege violations of federal antitrust laws, the federal Racketeer Influenced and Corrupt Organizations (“RICO”) statute and the Employee Retirement Income Security Act of 1974 (“ERISA”). In separate decisions issued in August and September 2007, the antitrust and RICO Act claims were dismissed with prejudice and the state claims were dismissed without prejudice from the Commercial Complaint. In January 2008, the Judge dismissed the ERISA claims with prejudice from the EB Complaint and the state law claims without prejudice. Plaintiffs filed a notice of appeal regarding the dismissal of the antitrust and RICO claims and oral arguments on this appeal were heard in April 2009 but there is no indication when a ruling will be issued. 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.

 

Reinsurance Market Dispute

 

Various legal proceedings are pending, have concluded or may commence between reinsurers, reinsureds and in some cases their intermediaries, including reinsurance brokers, relating to personal accident excess of loss reinsurance for the years 1993 to 1998. The proceedings principally concern allegations by reinsurers that they have sustained substantial losses due to an alleged abnormal “spiral” in the market in which the reinsurance contracts were placed, the existence and nature of which, as well as other information, was not disclosed to them by the reinsureds or their reinsurance broker. A “spiral” is a market term for a situation in which reinsureds and reinsurers reinsure each other with the effect that the same loss or portion of that loss moves through the market multiple times.

 

The reinsurers concerned have taken the position that, despite their decisions to underwrite risks or a group of risks, they are no longer bound by their reinsurance contracts. As a result, they have stopped settling claims and are seeking to recover claims already paid. The Company also understands that there have been at least two arbitration awards in relation to a spiral, among other things, in which the reinsurer successfully argued that it was no longer bound by parts of its reinsurance program. Willis Limited, the Company’s principal insurance brokerage subsidiary in the United Kingdom, acted as the reinsurance broker or otherwise as intermediary, but not as an underwriter, for numerous personal accident reinsurance contracts, including two contracts that were involved in one of the arbitrations. Due to the small number of reinsurance brokers generally, Willis Limited also utilized other brokers active in this market as sub-agents, including brokers who are parties to the legal proceedings described above, for certain contracts and may be responsible for any errors and omissions they may have made. In July 2003, one of the reinsurers received a judgment in the English High Court against certain parties, including a sub-broker Willis Limited used to place two of the contracts involved in this trial. Although neither the Company nor any of its subsidiaries were a party to this proceeding or any arbitration, Willis Limited entered into tolling agreements with certain of the principals to

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

8.  COMMITMENTS AND CONTINGENCIES (Continued)

 

the reinsurance contracts tolling the statute of limitations pending the outcome of proceedings between the reinsureds and reinsurers.

 

Two former clients of Willis Limited, American Reliable Insurance Company and one of its associated companies (collectively, “ARIC”), and CNA Insurance Company Limited and two of its associated companies (“CNA”) terminated their respective tolling agreements with Willis Limited and commenced litigation in September 2007 and January 2008, respectively, in the English Commercial Court against Willis Limited. ARIC alleged conspiracy between a former Willis Limited employee and the ARIC underwriter as well as negligence and CNA alleged deceit and negligence by the same Willis Limited employee both in connection with placements of personal accident reinsurance in the excess of loss market in London and elsewhere. ARIC asserted a claim of approximately $257 million (plus unspecified interest and costs). On June 9, 2009 (the “Settlement Date”), Willis Limited entered into a settlement agreement with American Reliable Insurance Company and Assurant General Insurance Limited pursuant to which Willis Limited agreed to pay a total of $139 million to ARIC in two installments. The first installment of $60 million was paid on July 9, 2009 and the second installment of $79 million will be paid within 90 days of the Settlement Date. Each party has also released and waived all claims it may have against any of the other parties arising out of or in connection with the subject matter of the litigation. The settlement includes no admission of wrongdoing by any party. The $139 million required to fund the settlement agreement will be covered by errors and omissions insurance. In the first quarter of 2009, Willis Group Holdings recorded a reserve of $125 million and a related insurance recoverable of $125 million in connection with the claim. The additional $14 million required reserve and corresponding insurance recoverable is reflected in the Company’s financial results for the fiscal quarter ended June 30, 2009.

 

CNA’s asserted claim is approximately $251 million (plus various unspecified claims for exemplary damages, interest and costs). Pleadings have been exchanged and the parties have been and continue to be engaged in extensive discovery prior to the trial which the Court has fixed on a preliminary basis for ten weeks commencing October 7, 2009. The Company continues to dispute these allegations and is vigorously defending itself in these actions. However, the parties have also engaged in discussions to settle the matter. In second quarter 2009, the Company recorded a reserve of $125 million and a related insurance recoverable of $125 million in connection with the claim. The $125 million reserve relates to the Company’s current estimate of potential settlement amounts and associated CNA costs. However, given the inherent uncertainties in litigation, there can be no assurance as to the final outcome of the matter. The Company continues to keep its errors and omissions insurance carriers fully informed of developments in the claims. The Company believes that any settlement amounts required to resolve the CNA claim will be covered by errors and omissions insurance.

 

Various arbitrations relating to reinsurance continue to be active and from time to time the principals request co-operation from the Company and suggest that claims may be asserted against the Company. Such claims may be made against the Company if reinsurers do not pay claims on policies issued by them. The Company cannot predict at this time whether any such claims will be made or the damages that may be alleged.

 

Gender Discrimination Class Action

 

In March 2008, the Company settled an action in the United States District Court for the Southern District of New York commenced against the Company in 2001 on behalf of an alleged nationwide class of present and former female officer and officer equivalent employees alleging that the Company discriminated against them on the basis of their gender and seeking injunctive relief, money damages, attorneys’ fees and costs. Although the Court had denied plaintiffs’ motions to certify a nationwide class or to grant nationwide discovery, it did certify a class of approximately 200 female officers and officer equivalent employees based in the Company’s offices in New York, New Jersey and Massachusetts. The settlement agreement provides for injunctive relief and a monetary payment, including the amount of attorney fees plaintiffs’ counsel are entitled to receive, which was not material to the Company. In December 2006, a former female employee, whose motion to

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

8.  COMMITMENTS AND CONTINGENCIES (Continued)

 

intervene in the class action was denied, filed a purported class action in the United States District Court, Southern District of New York, with almost identical allegations as those contained in the suit that was settled in 2008, except seeking a class period of 1998 to the time of trial (the class period in the settled suit was 1998 to the end of 2001). The Company’s motion to dismiss this suit was denied and the Court did not grant the Company permission to immediately file an appeal from the denial of its motion to dismiss. The parties are in the discovery phase of the litigation. The suit was amended to include one additional plaintiff and another has filed an arbitration demand that includes a class allegation. The Company cannot predict at this time what, if any, damages might result from this action.

 

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 a 99-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 and 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.

 

Stanford Financial Group

 

On July 2, 2009, a putative class action complaint, captioned Troice v. Willis of Colorado, Inc., et al., Case No. 09-CV-01274, was filed in the United States District Court for the Northern District of Texas against Willis Group Holdings Limited, Willis of Colorado, Inc. and a Willis associate, relating to the collapse of The Stanford Financial Group (“Stanford”), for which the Company acted as brokers of record on certain lines of insurance. The complaint generally alleges that the Company actively and materially aided the fraud alleged by the Securities and Exchange Commission (the “SEC”) by providing Stanford with certain letters regarding coverage that it knew would be used to help retain or attract actual or prospective Stanford client investors. The suit alleges that these letters, which contain statements about Stanford and the insurance policies Willis placed for Stanford, contain untruths and omit material facts and were drafted in this manner to help Stanford promote and sell its alleged fraudulent certificates of deposit. The putative class consists of investors in Mexico and the complaint asserts various claims under Texas statutory and common law and seeks actual damages in excess of $1 billion, punitive damages and costs.

 

In addition, on or about July 10, 2009, certain of our subsidiaries and a Willis associate received a letter from a Texas law firm, which, based on substantially the same allegations as the Troice complaint, and on behalf of 53 predominantly Mexican Stanford investors, threatens claims under the Texas Insurance Code (permitting damages of up to three times actual loss) and various unspecified Mexican, Venezuelan and “other Latin American” laws. According to the letter, these clients intend to take “appropriate action” against the recipients 61 days after receipt, unless payment is made beforehand in the amount of approximately $63.4 million (plus an additional $21 million in attorneys’ fees).

 

On July 17, 2009, a putative class action complaint, captioned Ranni v. Willis of Colorado, Inc., et al., Case No. 09-CV-22085, was filed against Willis Group Holdings and Willis of Colorado, Inc. in the United States District Court for the Southern District of Florida, relating to the same alleged course of conduct as the Troice

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

8.  COMMITMENTS AND CONTINGENCIES (Continued)

 

complaint described above. Based on substantially the same allegations as the Troice complaint, but on behalf of a putative class of Venezuelan and other South American Stanford investors, the Ranni complaint asserts a claim under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as various claims under Florida statutory and common law, and seeks damages in an amount to be determined at trial and costs.

 

On August 6, 2009, another putative class-action complaint, captioned Canabal v. Willis of Colorado, Inc., et al., Case No. 09-CV-01474, was filed against Willis Group Holdings, Willis of Colorado, Inc., and a Willis associate in the Northern District of Texas, relating to the same alleged conduct as the Troice complaint described above. Based on similar allegations as in Troice, but on behalf of a putative class of Venezuelan investors, the complaint asserts various claims under Texas statutory and common law and seeks actual damages in excess of $1 billion, punitive damages, attorneys’ fees, and costs.

 

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.

 

 

The following table presents, for each of the fair-value hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis:

 

 

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

9.  FAIR VALUE MEASUREMENT (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.

 

 

The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:

 

Cash and Cash Equivalents — The estimated fair value of these financial instruments approximates their carrying values due to their short maturities.

 

Fiduciary Funds — Restricted and Short-Term Investments — Comprised mainly of cash and time deposits. Fair values are based on quoted market values.

 

Short-Term Debt and Long-Term Debt — Fair values are based on quoted market values.

 

Derivative Financial Instruments — The fair value of the Company’s derivative financial instruments is computed based on a market approach using information generated by market transactions involving comparable instruments. Derivative financial instruments are included within “other assets” and “other liabilities” on the balance sheet.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

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. As part of the evaluation the estimated future discounted cash flows associated with the underlying business operation are compared to the carrying amount of goodwill to determine if a write-down is required. If such an assessment indicates that the discounted future cash flows are not sufficient, the carrying amount is reduced to the estimated fair value.

 

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.

 

The changes in the carrying amount of goodwill by operating segment for the six months ended June 30, 2009 and the year ended December 31, 2008 are as follows:

 

 

 

Other intangible assets are classified into two categories:

 

 

The major classes of amortizable intangible assets are as follows:

 

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

11.  OTHER INTANGIBLE ASSETS (Continued)

 

The aggregate amortization of intangible assets for the six months ended June 30, 2009 was $47 million (2008: $6 million), of which $23 million was recognized in the three months ending June 30, 2009 (2008: $3 million). The estimated aggregate amortization of intangible assets for each of the next five years ended December 31 is as follows:

 

 

 

Short-term debt consists of the following:

 

 

Long-term debt consists of the following:

 

 

The revolving credit facility bears interest at LIBOR plus 2.250% and expires on October 1, 2013. The 5-year term loan facility also bears interest at LIBOR plus 2.250% and is repayable $35 million per quarter commencing December 31, 2009, with a final payment of $140 million due in the fourth quarter of 2013.

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

 

 

Supplemental disclosures regarding cash flow information and non-cash flow investing and financing activities are as follows:

 

 

 

a) The components of comprehensive income are as follows:

 

 

WILLIS GROUP HOLDINGS LIMITED

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

14.  COMPREHENSIVE INCOME (Continued)

 

b) The components of accumulated other comprehensive loss, net of tax, are as follows:

 

 

 

The components of stockholders’ equity and noncontrolling interests are as follows: