UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

FORM 8-K

 

 

 

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2010

Date of report (Date of earliest event reported): March 14, 2011

 

 

 

 

WILLIS GROUP HOLDINGS PUBLIC
LIMITED COMPANY
(Exact name of registrant as specified in its charter)

 

Ireland
(Jurisdiction of incorporation or organization)

 

 

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)

 

N/A
(Former Name or Former Address, if Changed Since Last Report)

 

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Item 1.01 — Entry into a Material Definitive Agreement

 

On March 14, 2011, Trinity Acquisition plc (“Trinity”), an indirect wholly owned subsidiary of Willis Group Holdings Public Limited Company (the “Company”), entered into an agreement (the “Repurchase Agreement”) with GSMP V Onshore International, Ltd., GSMP V Offshore International, Ltd., GSMP V Institutional International, Ltd., GSLP I Offshore Investment Fund A, L.P., GSLP I Offshore Investment Fund B, L.P., GSLP I Offshore Investment Fund C, L.P., GSLP I Onshore Investment Fund, L.L.C, Highbridge Mezzanine Partners Onshore Lux S.À R.L., Highbridge Mezzanine Partners Offshore Lux S.À R.L. and Highbridge Mezzanine Partners Institutional Lux S.À R.L. pursuant to which Trinity will repurchase $465.0 million principal amount of its 12.875% senior notes due 2016 (the “Notes”) for a purchase price equal to 100% of the principal amount of Notes, plus all accrued and unpaid interest on the Notes through the date of the repurchase plus a make-whole amount that represents a slight discount to the make-whole redemption amount provided in the indenture governing the Notes. Consummation of the repurchase is conditioned upon and subject to completion of an issuance of debt securities by Trinity or an affiliate in an aggregate amount sufficient to repurchase all of the notes to be purchased pursuant to the terms of the Repurchase Agreement. A copy of the Repurchase Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by reference.

 

Item 8.01 — Other Events

 

On March 14, 2011, the Company issued a press release announcing the commencement of an offering (the “Notes Offering”) of senior unsecured notes on the terms and conditions set forth in a preliminary prospectus supplement filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended.

 

A copy of the press release relating to such announcement, dated March 14, 2011, is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

 

In connection with the Notes Offering, the Company has filed an amended Registration Statement on Form S-3 under which, amongst other things, it may offer debt securities, preferred stock, ordinary stock and other securities (the “Willis Shelf”). Debt securities issued by the Company may be guaranteed by certain of its direct and indirect subsidiaries (“the Guarantor Subsidiaries”), including Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Trinity, Willis Group Limited and Willis North America Inc.

 

Rule 3-10 of Regulation S-X requires that the Company’s financial statements incorporated by reference into the registration statement include certain condensed consolidating financial information relating to the Company, the Guarantor Subsidiaries and the subsidiary companies that are not named in the Registration Statement as Guarantor Subsidiaries. Accordingly, the Company is filing this Current Report on Form 8-K to add Note 30 to the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the ‘‘2010 10-K’’) filed with the SEC on February 28, 2011. To reflect the addition of Note 30 to the Company’s audited consolidated financial statements included within the Company’s 2010 10-K, the Company has amended such financial statements in their entirety which are attached as Exhibit 99.2 and will be incorporated by reference in the amended Registration Statement at such time it becomes effective.

 

Other than the changes described above, this Form 8-K does not modify or update the disclosures in the Company’s 2010 10-K in any way. This report should be read in combination with the Company’s 2010 10-K.

Item 9.01 — Financial Statements and Exhibits

 

(d) Exhibits

 

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

Dated: March 14, 2011                   Willis Group Holdings Public Limited Company

 

Adam G. Ciongoli

Group General Counsel

 

INDEX TO EXHIBITS

 

 

 

Exhibit 10.1

REPURCHASE AGREEMENT

REPURCHASE AGREEMENT, dated as of March 14, 2011 (this “Agreement”), among TRINITY ACQUISITION PLC, a company organized and operated under the laws of England and Wales (the “Issuer”) and GSMP V ONSHORE INTERNATIONAL, LTD., an exempted company incorporated in the Cayman Islands with limited liability (“GSMP V Onshore”), GSMP V OFFSHORE INTERNATIONAL, LTD., an exempted company incorporated in the Cayman Islands with limited liability (“GSMP V Offshore”), GSMP V INSTITUTIONAL INTERNATIONAL, LTD., an exempted company incorporated in the Cayman Islands with limited liability (“GSMP V Institutional”), GSLP I OFFSHORE INVESTMENT FUND A, L.P., a Cayman Islands exempted limited partnership (“GSLP I Offshore A”), GSLP I OFFSHORE INVESTMENT FUND B, L.P., a Cayman Islands exempted limited partnership (“GSLP I Offshore B”), GSLP I OFFSHORE INVESTMENT FUND C, L.P., a Cayman Islands exempted limited partnership (“GSLP I Offshore C”), GSLP I ONSHORE INVESTMENT FUND, L.L.C., a Delaware limited liability company (“GSLP I Onshore”), HIGHBRIDGE MEZZANINE PARTNERS ONSHORE LUX S.À R.L., a limited liability company organized under the laws of the Grand-Duchy of Luxembourg (“HB Onshore”), HIGHBRIDGE MEZZANINE PARTNERS OFFSHORE LUX S.À R.L., a limited liability company organized under the laws of the Grand-Duchy of Luxembourg (“HB Offshore”) and HIGHBRIDGE MEZZANINE PARTNERS INSTITUTIONAL LUX S.À R.L., a limited liability company organized under the laws of the Grand-Duchy of Luxembourg (“HB Institutional” and, together with GSMP V Onshore, GSMP V Offshore, GSMP V Institutional, GSLP I Offshore A, GSLP I Offshore B, GSLP I Offshore C, GSLP I Onshore, HB Onshore and HB Offshore, the “Sellers”).

RECITALS

WHEREAS, on March 6, 2009, pursuant to that certain Note Purchase Agreement, dated as of February 10, 2009, the Issuer issued (the “Placement”) an aggregate of $500,000,000 principal amount of its 12.875% senior notes due December 31, 2016 (the “Notes”) under that certain Indenture, dated as of March 6, 2009 (as amended, supplemented or modified from time to time, the “Indenture”);

WHEREAS, in connection with the Placement, the Sellers purchased Notes in an aggregate of principal amount of $465,000,000, with each Seller having purchased the principal amount of Notes set forth opposite its name on Schedule A hereto; and

WHEREAS, subject to the terms and conditions hereof, the Issuer desires to repurchase from the Sellers (the “Repurchase”), and the Sellers desire to sell to the Issuer, all of the Notes held by them, with each Seller agreeing to sell to the Issuer the principal amount of Notes owned by the Seller on the date hereof, as set forth opposite its name on Schedule A hereto.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and intending to be legally bound, the parties to this Agreement hereby agree as follows:

Section 1.
Closing; Repurchase Price

1. The closing of the Repurchase (the “Closing”) shall take place on the Business Day on which the conditions to the Repurchase set forth in Section 3 are satisfied. The Issuer agrees to give notice of its intention to satisfy such conditions one Business Day prior to such satisfaction and to confirm that such conditions have been satisfied immediately prior to the Closing.

2. At Closing, the Issuer shall repurchase all Notes held by the Sellers as set forth on Schedule A hereto, at a price (the “Repurchase Price”), payable by wire transfer in immediately available funds to such account or accounts for the Sellers as set forth in Schedule A hereto opposite the name of such Sellers, equal to the sum of (i) 100% of the principal amount of Notes repurchased in the Repurchase, plus (ii) all accrued and unpaid interest on the Notes to the Closing of the Repurchase, plus (iii) an amount equal to the Applicable Premium that would be payable upon a redemption as of the Closing of the Notes being repurchased (but computed using an annual discount rate equal to 2.25%, in lieu of the discount rate specified in the definition of Applicable Premium in the Indenture). Solely for illustrative purposes, assuming the Closing were to take place on March 17, 2011, the Repurchase Price would be 131.407% of the principal amount of the Notes repurchased, plus all accrued and unpaid interest on the Notes through the Closing.

Section 2.
Representations

1. Representations of the Sellers. Each Seller, severally and not jointly, represents and warrants to the Issuer, as follows:

     (a) Such Seller has all requisite authority and capacity to enter into this Agreement and to sell the Notes to be sold by such Seller pursuant hereto, and this Agreement is the valid and binding agreement of such Seller, enforceable against such Seller in accordance with its terms.

     (b) The execution, delivery and performance of this Agreement by such Seller and the consummation by such Seller of the Repurchase of its Notes and the other transactions contemplated hereby, will not (i) violate any provision of any law, statute, rule or regulation applicable to such Seller, or (ii) violate any agreement or judgment, order, writ or decree of any court applicable to such Seller.

2. Representations of the Issuer. The Issuer represents to the Sellers as follows:

     (a) The Issuer has all requisite authority and capacity to enter into this Agreement and to repurchase the Notes to be purchased by it hereunder, and this Agreement is the valid and binding agreement of the Issuer, enforceable against the Issuer in accordance with its terms.

     (b) The execution, delivery and performance of this Agreement by the Issuer and the consummation by the Issuer of the Repurchase and the other transactions contemplated hereby,

will not (i) violate any provision of any law, statute, rule or regulation applicable to the Issuer, or (ii) violate any agreement or judgment, order, writ or decree of any court applicable to the Issuer.

Section 3.
Condition and Covenant

The obligation of the Issuer to consummate the Repurchase shall be subject to the condition that the Issuer shall have received net proceeds from the issuance of its debt securities or the debt securities of its parent company (the “Financing”) in an aggregate amount sufficient to Repurchase all of the Notes to be purchased by it hereunder. The Issuer commits to use commercially reasonable efforts to obtain the proceeds of the Financing on or prior to March 31, 2011. In the event that the Closing of the Repurchase shall not have occurred on or prior to March 31, 2011, this Agreement shall terminate and be of no further force and effect.

Section 4.
Expenses

Whether or not the transactions contemplated by this Agreement are consummated, the Issuer agrees to pay all reasonable out-of-pocket expenses of the Sellers and their counsel incurred in connection therewith.

Section 5.
Miscellaneous

1. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. This Agreement may be signed in various counterparts, which together will constitute one and the same instrument. Each signed copy shall be an original, but all of them together represent the same agreement.

3. In case any one or more of the provisions in this Agreement shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law.

4. The Sellers (i) agree to cooperate with the Issuer to facilitate the transfer of record ownership of the Notes to be repurchased by the Issuer hereunder with DTC and the Trustee, and (ii) understand and acknowledge that the Issuer may seek to repurchase and/or redeem any Notes that remain outstanding after consummation of the transactions contemplated by this Agreement; provided that from the date hereof until thirty days after the Closing the Issuer will not repurchase and/or redeem any such Notes at prices that exceed the Repurchase Price.

5. THE INTERNAL LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF THAT WOULD REQUIRE THE APPLICATION OF LAWS OF ANY OTHER STATE) SHALL GOVERN AND BE USED TO CONSTRUE THIS AGREEMENT.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

		TRINITY ACQUISITION PLC
		By:      /s/ Adam G. Ciongoli   Name: Adam. G. Ciongoli
		Title:   Group General Counsel

		GSMP V ONSHORE INTERNATIONAL, LTD.
		By:      /s/ John E. Bower   Name: John E. Bower
		Title:   Vice President
		GSMP V OFFSHORE INTERNATIONAL, LTD.
		By:      /s/ John E. Bower
		Name: John E. Bower
		Title:   Vice President
		GSMP V INSTITUTIONAL INTERNATIONAL, LTD.
		By:      /s/ John E. Bower
		Name: John E. Bower
		Title:   Vice President

		GSLP I OFFSHORE INVESTMENT FUND A, L.P.
		By: Goldman, Sachs & Co., Duly Authorized
		By:      /s/ John E. Bower   Name: John E. Bower
		Title:   Managing Director
		GSLP I OFFSHORE INVESTMENT FUND B, L.P.
		By: Goldman, Sachs & Co., Duly Authorized
		By:      /s/ John E. Bower
		Name: John E. Bower
		Title:   Managing Director
		GSLP I OFFSHORE INVESTMENT FUND C, L.P.
		By: Goldman, Sachs & Co., Duly Authorized
		By:      /s/ John E. Bower
		Name: John E. Bower
		Title:   Managing Director
		GSLP I ONSHORE INVESTMENT FUND, L.L.C.
		By: Goldman, Sachs & Co., as Attorney-in-Fact
		By:      /s/ John E. Bower
		Name: John E. Bower
		Title:   Attorney-in-Fact

		HIGHBRIDGE MEZZANINE PARTNERS ONSHORE LUX S.À R.L.
		By:      /s/ Faith Rosenfeld   Name: Faith Rosenfeld
		Title:   Chief Administrative Officer
		By:      /s/ Sophie Simoens
		Name: Sophie Simoens
		Title:   Manager B
		HIGHBRIDGE MEZZANINE PARTNERS OFFSHORE LUX S.À R.L.
		By:      /s/ Faith Rosenfeld
		Name: Faith Rosenfeld
		Title:   Chief Administrative Officer
		By:      /s/ Sophie Simoens
		Name: Sophie Simoens
		Title:   Manager B
		HIGHBRIDGE MEZZANINE PARTNERS INSTITUTIONAL LUX S.À R.L.
		By:      /s/ Faith Rosenfeld
		Name: Faith Rosenfeld
		Title:   Chief Administrative Officer
		By:      /s/ Sophie Simoens
		Name: Sophie Simoens
		Title:   Manager B

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in Registration Statements No. 333-153769 and 333-160129 on Form S-3 and in Registration Statements No. 333-62780, No. 333-63186, No. 333-130605, No. 333-153202, No. 333-153770 and No. 333-169961 on Form S-8 of our report dated February 25, 2011 (March 14, 2011 as to Note 30) relating to the consolidated financial statements of Willis Group Holdings Public Limited Company for the year ended December 31, 2010 appearing in this Current Report on Form 8-K of Willis Group Holdings Public Limited Company.

 

London, United Kingdom

March 14, 2011

Exhibit 99.1

 

 

WILLIS GROUP HOLDINGS ANNOUNCES SENIOR NOTES OFFERING

 

NEW YORK, March 14, 2011 — Willis Group Holdings plc (NYSE:WSH), the global insurance broker, today announced that it has commenced a registered offering of senior unsecured notes. Payment of principal and interest on the notes will be fully and unconditionally guaranteed by Willis North America Inc. (WNA) and all the intermediate holding companies between Willis Group Holdings plc and WNA.

 

The Company intends to use the net proceeds of the offering to repurchase or redeem any and all of the $500 million in aggregate principal amount of 12.875% senior notes due 2016, and for general corporate purposes.

 

The joint book-running managers for the offering are Barclays Capital Inc., Goldman, Sachs & Co., and Morgan Stanley & Co. Incorporated. Willis Capital Markets & Advisory is serving as joint lead manager for the offering and Transaction Advisor to the Company.

 

The public offering is being made pursuant to an effective shelf registration statement on file with the Securities and Exchange Commission. Interested parties may obtain copies of the preliminary prospectus and preliminary prospectus supplement by contacting:

 

 

This announcement does not constitute an offer to sell or the solicitation of an offer to buy the notes, nor shall there be any sale of the notes in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. The offering of senior notes may be made only be means of a prospectus and prospectus supplement.

 

ABOUT WILLIS

 

Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries, with a global team of approximately 17,000 Associates serving clients in virtually every part of the world. Additional information on Willis may be found at www.willis.com.

FORWARD-LOOKING STATEMENTS

 

This press release may contain certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors such as the impact of any regional, national or global political, economic, business, competitive, market, environmental and regulatory conditions on our global business operations; the impact of current financial market conditions on our results of operations and financial condition, including as a result of any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions; our ability to continue to manage our significant indebtedness; our ability to compete effectively in our industry; our ability to implement and realize anticipated benefits of the 2011 operational review, the Willis Cause or any other initiative we pursue; 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 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 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; our ability to achieve the expected strategic benefits of transactions; our ability to receive dividends or other distributions in needed amounts from our subsidiaries; changes in the tax or accounting treatment of our operations; any potential impact from the U.S. healthcare reform legislation; 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 involvements in and the results of any regulatory investigations, legal proceedings and other contingencies; risks associated with non-core operations including underwriting, advisory or reputational; 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. Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, are contained in the Company’s filings with the Securities and Exchange Commission.

 

 

# # #

Willis Group Holdings plc

 

Exhibit 99.2

 

Index to Consolidated Financial Statements and Supplementary Data

 

 

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, 2010 and 2009, and the related consolidated statements of operations, changes in equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the 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, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

 

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, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

London, United Kingdom

February 25, 2011 (March 14, 2011 as to Note 30)

 

Willis Group Holdings plc

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

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

 

Financial statements

 

CONSOLIDATED BALANCE SHEETS

 

 

 

(Continued on next page)

 

Willis Group Holdings plc

 

CONSOLIDATED BALANCE SHEETS (Continued)

 

 

 

 

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

 

Financial statements

 

 

 

 

 

(continued on next page)

 

Willis Group Holdings plc

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

 

 

 

 

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

 

Financial statements

 

 

 

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

 

Willis Group Holdings plc

 

 

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

 

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

 

 

Redomicile to Ireland

 

On September 24, 2009, Willis Group Holdings was incorporated in Ireland, in order to effectuate the change of the place of incorporation of the parent company of the Group. Willis Group Holdings operated as a wholly-owned subsidiary of Willis-Bermuda until December 31, 2009, when the outstanding common shares of Willis-Bermuda were canceled and Willis Group Holdings issued ordinary shares with substantially the same rights and preferences on a one-for-one basis to the holders of the Willis-Bermuda common shares that were canceled. Upon completion of this transaction, Willis Group Holdings replaced Willis-Bermuda as the ultimate parent company and Willis-Bermuda became a wholly-owned subsidiary of Willis Group Holdings. 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 has provided a guarantee of amounts due under certain borrowing arrangements of one of its subsidiaries as described in Note 28.

 

Balance sheet presentation

 

Further to the Company’s redomiciliation to Ireland at the end of 2009, the Group is required to file consolidated financial statements for fiscal year 2010 with the Irish regulator. These consolidated financial statements are prepared under US GAAP and also incorporate additional Irish Companies Act disclosures. To facilitate this process, the Group has decided to incorporate these requirements within its US filings and consequently has recast the presentation of its 2010 and 2009 consolidated balance sheets. In addition, the company has taken the opportunity to provide additional disclosure within the consolidated balance sheet of the Group’s non-fiduciary balances and the further distinction between those assets and liabilities that are expected to be realized within or later than twelve months of the balance sheet date. The Company believes this amended presentation better reflects the Company’s liquidity position and exposures to credit risk.

 

The 2009 and 2008 consolidated statements of cash flows have been recast to conform with the new balance sheet presentation.

 

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.

 

Notes to the financial statements

 

 

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.

 

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.

 

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 on behalf of insureds.

 

Fiduciary Assets

 

Effective December 31, 2010, the Company changed the presentation of its fiduciary balances. Uncollected premiums from insureds and uncollected claims or refunds from insurers, previously held within accounts receivable, are now recorded as fiduciary assets on the Company’s consolidated balance sheets. Unremitted insurance premiums and claims (‘fiduciary funds’) are also recorded within fiduciary assets.

 

Willis Group Holdings plc

 

 

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.

 

Fiduciary Funds

 

Fiduciary funds represent unremitted premiums received from insureds and unremitted claims 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 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.

 

Included in fiduciary funds are cash and cash equivalents consisting primarily of time deposits. The debt securities are classified as available-for-sale. Accordingly, they are recorded at fair market value with unrealized holding gains and losses reported, net of tax, as a component of other comprehensive income.

 

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.

 

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.

 

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.

 

Notes to the financial statements

 

 

Operating Leases

 

Rentals payable on operating leases are charged straight line to expenses over the lease term as the rentals become payable.

 

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:

 

 

Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

 

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

 

Willis Group Holdings plc

 

 

effective fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. 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 liabilities of changes in tax rates is recognized in the statement of operations in the period in which the enactment date changes. 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 authorities, 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. 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 the majority of employees in the United States and United Kingdom. Both these plans are now closed to new entrants. New entrants in the

 

Notes to the financial statements

 

 

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. 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 of the employees.

 

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.

 

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.

 

Share-Based Compensation

 

The Company accounts for share-based compensation as follows:

 

 

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 instead 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 as and when advised.

 

Fees for risk management and other services are recognized as the services are provided. Negotiated fee arrangements for an agreed period covering multiple insurance placements, the provision of risk management and/or other services are determined, contract by contract, on the basis of the relative fair value of the services completed and the services yet to be rendered. The Company establishes contract cancellation reserves where appropriate: at December 31, 2010, 2009 and 2008, such amounts were not material.

 

Investment income is recognized as earned.

 

Willis Group Holdings plc

 

 

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 (mainly books of business), 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:

 

 

Salaries and benefits expense comprises the following:

 

 

Severance Costs

 

The Company incurred severance costs of $15 million in the year ended December 31, 2010 (2009: $24 million; 2008: $26 million) relating to approximately 550 positions (2009: 450 positions; 2008: 100 positions) that have been, or are in the process of being, eliminated as part of the Company’s continuing focus on managing expense. Severance costs for these employees were recognized pursuant to the terms of their existing benefit arrangements or employment agreements.

 

Cash Retention Awards

 

The Company makes annual cash retention awards to its employees. Employees must repay a proportionate amount of these awards if they voluntarily leave the Company’s employ (other than in the event of retirement or permanent disability) before a certain time period, currently up to three years. The Company makes cash payments to its employees in the year it grants these retention awards and recognizes these payments ratably over the period they are subject to repayment, beginning in the quarter in which the award is made. The unamortized portion of cash retention awards is recorded within other assets.

 

Notes to the financial statements

 

 

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, 2010, 2009 and 2008:

 

 

Unamortized cash retention awards totaled $173 million as of December 31, 2010 (2009: $98 million; 2008: $41 million).

 

 

On December 31, 2010, the Company had a number of open share-based compensation plans, which provide for the grant of time-based and performance-based options, 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, 2010 are described below. The compensation cost that has been charged against income for those plans for the year ended December 31, 2010 was $47 million (2009: $39 million; 2008: $40 million). The total income tax benefit recognized in the statement of operations for share-based compensation arrangements for the year ended December 31, 2010 was $14 million (2009: $12 million; 2008: $12 million).

 

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. There are 25,000,000 shares available for grant under this 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. The Board of Directors has adopted several sub-plans under the 2001 plan to provide employee sharesave schemes in the UK, Ireland and internationally. Unless terminated sooner by the Board of Directors, the 2001 Plan (and all sub-plans) will expire 10 years after the date of its adoption. That termination will not affect the validity of any grant 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 8,000,000 shares available for grant under this plan. 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.

 

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.

 

Willis Group Holdings plc

 

 

Employee Stock Purchase Plans

 

The Company has adopted the Willis Group Holdings 2001 North America Employee Share Purchase Plan, expiring May 31, 2011 and the Willis Group Holdings 2010 North America Employee Stock Purchase Plan. 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.

 

The Company may also issue 245,000 Shares to directors upon exercise of options.

 

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, the Company uses the simplified method set out in Accounting Standard Codification (‘ASC’) 718-10-S99 to derive the expected term of options granted. 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.

 

 

Notes to the financial statements

 

 

A summary of option activity under the plans at December 31, 2010, and changes during the year then ended is presented below:

 

 

 

 

The weighted average grant-date fair value of time-based options granted during the year ended December 31, 2010 was $5.25 (2009: $5.87; 2008: $6.20). The total intrinsic value of options exercised during the year ended December 31, 2010 was $8 million (2009: $3 million; 2008: $7 million). At December 31, 2010 there was $17 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 1 year.

 

The weighted average grant-date fair value of performance-based options granted during the year ended December 31, 2010 was $7.11 (2009: $5.89; 2008: $9.37). The total intrinsic value of options exercised during the year ended December 31, 2010 was $nil (2009: $1 million; 2008: $3 million). At December 31, 2010 there was $37 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 2 years.

 

Willis Group Holdings plc

 

 

A summary of restricted stock unit activity under the Plans at December 31, 2010, and changes during the year then ended is presented below:

 

 

The total number of restricted stock units vested during the year ended December 31, 2010, was 744,633 shares at an average share price of $32.17 (2009: 550,224 shares at an average share price of $24.53). At December 31, 2010 there was $15 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 1 year.

 

Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2010 was $37 million (2009: $19 million; 2008: $11 million). The actual tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements totaled $10 million for the year ended December 31, 2010 (2009: $5 million; 2008: $7 million).

 

 

An analysis of auditors’ remuneration is as follows: