The selected historical consolidated financial data presented below as of and for each of the five years ended December 31, 2009 have been derived from the audited consolidated financial statements of the Company, which have been prepared in accordance with accounting principles generally accepted in the United States of America (‘US GAAP’).
As an intermediary, we hold funds in a fiduciary capacity for the account of third parties, typically as a result of premiums received from clients that are in transit to insurance carriers and claims due to clients that are in transit from insurance carriers. We report premiums, which are held on account of, or due from policyholders, as assets with a corresponding liability due to the insurance carriers. Claims held by, or due to, us which are due to clients are also shown as both assets and liabilities of ours. All those balances due or payable are included in accounts receivable and payable on the balance sheet. Investment income is earned on those funds during the time between the receipt of the cash and the time the cash is paid out. Fiduciary cash must be kept in certain regulated bank accounts subject to guidelines, which vary according to legal jurisdiction. These guidelines generally emphasize capital protection and liquidity. Fiduciary cash is not available to service our debt or for other corporate purposes.
follow the same trend as premium levels as they are derived from a percentage of the premiums paid by the insureds. Due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, they may vary widely between accounting periods. Reductions in premium rates, leading to downward pressure on commission revenues (a ‘soft’ market), can have a potentially material impact on our commission revenues and operating margin.
In March 2009, we issued 12.875% senior notes due 2016 in an aggregate principal amount of $500 million to Goldman Sachs Mezzanine Partners which generated net proceeds of $482 million. These proceeds, together with $208 million of cash generated from operating activities and cash in hand, were used to pay down the $750 million outstanding on our interim credit facility as of December 31, 2008.
Revenues for 2009 at $3,263 million were $436 million, or 15 percent higher than in 2008, reflecting a 19 percent benefit from net acquisitions and disposals, principally attributable to HRH, and organic growth in commissions and fees of 2 percent, offset by a 4 percent adverse year over year impact from foreign currency translation and lower investment income.
a $34 million foreign exchange loss related to the revaluation of our UK pension benefits asset. This asset is a sterling denominated asset but a portion of the asset is held within our UK London market operations, which are US dollar denominated for accounting purposes. As the US dollar strengthened significantly against sterling in 2008, the revaluation of the sterling pension benefit asset gave rise to a foreign exchange loss.
Interest expense in 2008 of $105 million was $39 million higher than in 2007. This increase primarily reflects higher average debt levels, and in particular: $18 million additional interest expense relating to the term loan and interim credit facilities connected with the HRH acquisition; a $9 million charge for amortization of debt fees associated with these facilities; and a $9 million additional interest expense in 2008 due to fixed term $600 million senior notes issued in March 2007.
an $11 million release relating to uncertain tax positions due to the closure of the statute of limitations on assessments for previously unrecognized tax benefits. There was a similar $5 million release of uncertain tax positions in 2008.
a decrease in the statutory rate of corporation tax in the UK from 30 percent in 2007 to an effective rate of 28.5 percent in 2008;
changes to the plan that cap the impact of future salary rises on pension benefits.
‘Customer and Marketing Related’ includes client lists, client relationships, trade names and non-compete agreements; and
We review all our intangible assets for impairment periodically (at least annually) or whenever events or circumstances indicate impairment may have
As of December 31, 2009, there were no amounts outstanding under our $300 million revolving credit facility (2008: $nil; 2007: $50 million).
Once the remaining $83 million of July 2010 bonds are repaid, the only mandatory repayments over the next 5 years are the scheduled repayments on our $700 million 5-year term loan and $4 million due on a fixed rate loan note due 2012.
Fiduciary funds - restricted 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.
Performance-based options became exercisable, subject to the fulfillment of vesting requirements with effect from January 1, 2003, upon the achievement of cash flow and EBITDA (as defined in the plan agreements) targets of the Group. Options are generally exercisable in equal installments of 25 percent per year over a four-year period commencing on or after December 18, 2001.
This plan, which was established on July 13, 2000, provides for the granting of time-based options to selected employees who have been identified as superior performers. There are 5,000,000 shares available for grant under this plan provided, however, that in no event may the total number of shares subject to options and other equity for current and future participants exceed 25 percent of the equity of Willis Group Holdings on a fully diluted basis.
The weighted average grant-date fair value of performance-based options granted during the year ended December 31, 2009 was $5.89 (2008: $9.37; 2007: $nil). The total intrinsic value of options exercised during the year ended December 31, 2009 was $1 million (2008: $3 million; 2007: $7 million). At December 31, 2009 there was $24 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.
At December 31, 2009, the Company had deferred tax assets of $298 million (2008: $277 million), net of the valuation allowance. Management believes, based upon the level of historical taxable income and projections for future taxable income, it is more likely than not that the Company will realize the benefits of these
The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved as of that time, nor is it intended to be indicative of future results.
The financial statements for the years ended December 31, 2009 and 2008 reflect the consolidation of one Variable Interest Entity (‘VIE’), a UK non-statutory trust that was established in January 2005 following the introduction of statutory regulation of insurance in the UK by the Financial Services Authority. The regulation requires that all fiduciary funds collected by an insurance broker such as the Company be paid into a non-statutory trust designed to give additional credit protection to the clients and insurance carriers of the Company. This trust restricts the financial instruments in which such funds may be invested and affects the timing of transferring commission from fiduciary funds to own funds.
The aggregate amortization of intangible assets for the year ended December 31, 2009 was $100 million (2008: $36 million; 2007: $14 million). The estimated aggregate amortization of intangible assets for each of the next five years ended December 31 is as follows:
On December 17, 2009, the Company completed a leveraged transaction with the original family shareholders of Gras Savoye and Astorg Partners, a private equity fund, to reorganize the capital of Gras Savoye (‘December 2009 leveraged transaction’). The Company, the original family shareholders and Astorg now own equal stakes of 31 percent in Gras Savoye and have equal representation of one third of the voting rights on its board. The remaining shareholding is held by a large pool of Gras Savoye managers and minority shareholders.
The Company’s principal financial instruments, other than derivatives, comprise the fixed rate senior notes, the 5-year term loan, a revolving credit facility and cash deposits. The Company also enters into derivative transactions (principally interest rate swaps and forward foreign currency contracts) in order to manage interest rate and currency risks arising from the Company’s operations and its sources of finance. The Company does not hold financial or derivative instruments for trading purposes.
The foreign exchange risks in its London market operations are hedged as follows:
anticipate non-performance by counterparties. The Company generally does not require collateral or other security to support financial instruments with credit risk; however, it is the Company’s policy to enter into master netting arrangements with counterparties as practical.
Other than in the United Kingdom and the United States, the Company does not conduct business in any country in which its commissions and fees and/or long-lived assets exceed 10 percent of consolidated commissions and fees and/or long-lived assets, respectively.
Willis Group Holdings was incorporated on September 24, 2009 and as discussed in Note 2 replaced Willis-Bermuda as the ultimate parent company on December 31, 2009. Willis Netherlands Holdings B.V. was incorporated on November 27, 2009.