WILLIS GROUP LIMITED
Annual Report on Form 20-F 1999
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-74483-02
Willis Group Limited
(Exact name of Registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
Ten Trinity Square, London EC3P 3AX
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each Name of each exchange
class on which registered
None None
- ----------
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
9% Senior Subordinated Notes due 2009
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
Ordinary Shares of par value 12.5p per share 476,130,054
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 _______x_______ No ______________
Indicate by check mark which financial statement item the Registrant has
elected to follow.
Item 17 ______________ Item 18 ________x______
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TABLE OF CONTENTS
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Page
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Certain Definitions 3
Currency Translation 3
The U.S. Securities Litigation Reform Act of 1995 3
PART I
Item 1 Description of Business
General 4
Segment Information 5
Insurance Brokering and Risk Management 5
Revenues 8
Employees 8
Competition 8
Regulation 8
Item 2 Description of Property 9
Item 3 Legal Proceedings 9
Item 4 Control of Registrant 10
Item 5 Nature of Trading Market 11
Item 6 Exchange Controls and Other Limitations Affecting Security
Holders 11
Item 7 Taxation 11
Item 8 Selected Financial Data
Summarized Financial Information 12
Exchange Rates 13
Item 9 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 9A Quantitative and Qualitative Disclosures about Market Risk 24
Item 10 Directors and Officers of Registrant 28
Item 11 Compensation of Directors and Officers 29
Item 12 Options to Purchase Securities from Registrant or
Subsidiaries 29
Item 13 Interest of Management in Certain Transactions 29
PART III
Item 15 Defaults Upon Senior Securities 30
Item 16 Changes in Securities and Changes in Security
for Registered Securities and Use of Proceeds 30
PART IV
Item 18 Financial Statements 30
Item 19 Financial Statements and Exhibits 30
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Note: Omitted Items are not applicable
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Certain Definitions
The following definitions apply throughout this annual report unless the
context requires otherwise:
"Company" Willis Group Limited.
"Willis North America" Willis North America Inc. (formerly Willis Corroon
Corporation)
"Companies Act" The Companies Act 1985, as amended, of Great
Britain.
"Group" The Company and its subsidiaries.
"Notes" $550m 9% Senior Subordinated Notes due 2009 issued
by Willis North America and guaranteed by the
Company and Willis Partners.
"Ordinary Shares" The issued fully paid Ordinary Shares of par value
12.5p per share in the Company.
"U.K. GAAP" Accounting principles generally accepted in the
United Kingdom.
"U.S. GAAP" United States generally accepted accounting
principles.
In this annual report, "Willis", "we", "us" and "our" refers to the Group.
Currency Translation
The Company publishes its financial statements expressed in pounds sterling. In
this annual report references to "U.S. dollars", "U.S.$" or "$" are to United
States ("U.S.") currency and references to "pounds sterling", "sterling" or "L"
and "pence" or "p" are to the lawful currency of the United Kingdom of Great
Britain and Northern Ireland.
Unless otherwise indicated, in this annual report, translations of pounds
sterling to U.S. dollars have been made at the rate of $1.62 = L1, the noon
buying rate in the City of New York for cable transfers in pounds sterling as
announced for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate") on December 31, 1999. These translations should not be
construed as representations that the pound sterling amounts actually represent
such U.S. dollar amounts or could be converted into U.S. dollars at the rate
indicated or at any other rate. On March 15, 2000 the Noon Buying Rate was
$1.57 = L1. For additional information on exchange rates between the pound
sterling and the U.S. dollar, see "Item 8 -- Selected Financial Data --
Exchange Rates".
The U.S. Securities Litigation Reform Act of 1995
Forward looking statements in this document are made pursuant to the safe-
harbor provisions of the U.S. Securities Litigation Reform Act of 1995. Such
statements should be taken as the informed perspective of senior management of
the Company on possible future earnings. Actual results could differ materially
from management's expectations because of many reasons, including continued
deterioration of the rating environment in the insurance markets, regulatory
and competitive conditions, unexpected liabilities, or fluctuation of exchange
rates and interest rates.
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PART I
Item 1 -- Description of Business
General
The Company is headquartered in London and is the holding company of a group
which is the third largest insurance broker in the world. We provide a broad
range of value-added risk management consulting and insurance brokering
services to some 50,000 clients worldwide. We trace our history to 1828 and we
are a leading insurance broker in the United Kingdom, the United States and,
directly and through our associates, in many countries.
We are a recognized leader in providing specialized risk management
advisory and other services on a global basis to clients in various industries,
including the construction, aerospace, marine and energy industries. In our
capacity as an advisor and insurance broker, we act as an intermediary between
our clients and insurance carriers by:
- -- advising our clients on their risk management requirements, many of which
are highly complex;
- -- helping clients determine the best means of managing their risks; and
- -- ultimately negotiating and placing insurance risks with insurance
carriers through our global distribution network.
We also provide other value-added services, including reinsurance,
employee benefits consulting, claims administration, management of subsidiaries
whose purpose is to provide insurance for a related entity or entities and
self-insurance consulting. We do not underwrite insurance risks for our own
account.
We and our associates serve a diverse base of clients located in more than
125 countries. Such clients include major multinational and middle-market
companies in a variety of industries, as well as public institutions. Many of
our client relationships span decades. With approximately 12,300 employees
around the world and a network of nearly 300 offices in 78 countries, in each
case including our associates, we believe we are one of only three insurance
brokers in the world possessing the global operating presence, broad product
expertise and extensive distribution network necessary to meet effectively the
global risk management needs of many of our clients.
In 1996, we developed and launched a series of initiatives referred to as
the "change program". The change program was designed to enhance revenues,
improve efficiency and aid our transition from a traditional commission-based
insurance broker to a more comprehensive professional advisory services firm.
It is anticipated that the change program will continue until 2001; however, it
is likely that the process of change will continue well beyond that time.
During 1999, as part of the change program, we created a single corporate
brand using the name "Willis" under which we market all our brokering and
consulting services. As a consequence, the Company changed its name to Willis
Group Limited and our subsidiaries are making similar changes to focus on the
name "Willis". In addition, as part of the brand creation, we have adopted the
descriptive strap line "The Risk Practice" to signify the difference between
our capabilities and those of other consultants.
We have continued, during 1999, the expansion of our global distribution
platform, strengthening our interests in Germany and making acquisitions in
Latin America. In Germany, we increased our investment in Jaspers Wuppesahl
Industrie Assekuranz GmbH & Co. KG ("Jaspers Wuppesahl") to 44.6% from 30%. We
acquired a 20% interest in Hertzfeld & Levy SA ("Hertzfeld"), the largest
independent insurance broker in Argentina, and established with Hertzfeld a
joint reinsurance brokering venture under the name Willis SA. We executed
agreements to acquire a 51% interest in the largest independent
Mexican insurance broker, Bourchier, Marquard, Zepeda, Agente de Seguros y de
Fianzas, S.A. de C.V. ("BMZ") and have acquired a 51% interest in four
Venezuelan companies, which included Ronto-Aralca y Asociados, C.A. Rontarca,
the largest insurance broker in that country, and C.A. Prima Corretaje de
Seguros, the third largest independent insurance broker in Venezuela.
In the early part of 2000, we announced an agreement in principle to
acquire a majority holding in Sev. Dahl's Assurancekontor AS, the largest
independent insurance broker in Norway.
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Segment Information
The following tables show total operating revenues of the Group by geographical
location for the three years ended December 31, 1999. The information has been
prepared in accordance with U.K. GAAP.
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Year ended December 31,
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Total Operating Revenues 1999 1998 1997
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(L million)
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By Geographical Area(1)
United Kingdom 306.4 305.4 305.2
North America 370.9 351.3 336.5
Rest of the World 89.1 61.5 52.3
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766.4 718.2 694.0
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(1) The geographical analysis is based on the location of the operating
subsidiaries which does not necessarily reflect the original source of the
business.
Insurance Brokering and Risk Management
We conduct our activities through five units, comprising North American
operations, U.K. Retail, Global Specialities, Reinsurance and International.
North American Operations: Our North American operations, which consist of
North American Retail and U.S. Wholesale, provide risk management, insurance
brokerage and related services to a wide variety of clients in the United
States and Canada. Headquartered in Nashville, Tennessee, North American
operations operate through a network of more than 100 offices located in 39
states in the United States and five offices in Canada. In addition, two other
U.K.-based units, Global Specialities and Reinsurance also have operations in
the United States.
North American Retail provides risk management, insurance brokerage and
related services directly to corporations through approximately 50 local
offices in the United States and five offices in Canada. North American
Retail's clients include both middle-market and major multinational companies.
Other consulting brokerage services are supplied to certain clients through
four divisions; construction, employee benefits, healthcare and advanced risk
management services.
North American Retail's construction division specializes in providing
risk management, insurance and surety bonding services to the construction
industry. The Group believes that it is the largest construction insurance and
surety broker (obtaining surety bonds, which guarantee the performance of a
contractor's obligations under construction and other contracts) in North
America. North American Retail's employee benefits division helps clients with
the design and implementation of benefits and compensation plans. Its
healthcare division provides insurance and consulting services to local
healthcare professionals. North American Retail's advanced risk management
services division provides actuarial consulting, captive management services
and a wide range of other risk consulting activities to large clients.
The second, and much smaller, component of our North American operations
is U.S. Wholesale. Wholesale brokering is typically transacted between two
brokers or agents and occurs when a broker has a client with a risk coverage
need that falls outside its area of expertise. In these cases, a broker may
call in a wholesale broker with such specific expertise to place the business
and then receive a fee.
U.S. Wholesale primarily serves its clients through three operating
entities. As a wholesale broker and program manager, Public Entities National
Company provides access to specialized coverage for governmental entities,
schools and other municipality and public entities. The Stewart Smith Group of
companies, which we believe is the third largest insurance wholesaler in the
United States, provides specialist advice and market expertise in property,
casualty, professional and excess and surplus lines insurance placements in a
variety of industries, including manufacturing, hospitality, real estate/
habitational, transportation, construction, technology, entertainment and
social services. Special Program
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Management, a unit of the Stewart Smith Group of companies, is an industry
leader for placing specialty directors and officers coverage and related
products to the high-technology industry.
U.K. Retail: Our U.K. Retail operation provides risk management and insurance
brokerage services to industrial and individual clients through 25 offices
located in the United Kingdom and Ireland. U.K. Retail arranges for its U.K.-
based clients similar risk management and insurance brokerage services outside
the United Kingdom through North American Retail, overseas subsidiaries and
associates.
In 1999, U.K. Retail consisted of three principal divisions (Corporate
Risks, Risk Solutions and Commercial Risks) providing differentiated services
according to client needs and buying preferences.
Corporate Risks provides a wide range of integrated risk transfer and risk
and loss management services to larger U.K.-based corporate clients. The
division assists clients in reducing the cost of managing their risks by
providing comprehensive risk management services, elements of which are
available on an "unbundled" basis if required.
Risk Solutions is a services business delivering expert solutions to
major, typically multinational and corporate, clients with complex risk
problems. Its service is tailored to individual client needs and ranges from
strategic risk assessment to transactional risk transfer and alternative risk
financing solutions. The service includes the development and management of
captive insurance companies, specialist insurance services, due diligence on
mergers and acquisitions and project finance, and evaluating risks associated
with new business ventures. This division is increasingly focused on providing
more advisory and consulting services. Through Risk Solutions, we are one of
the largest managers of captive insurance companies in Europe.
Commercial Risks provides traditional insurance brokerage services
primarily to smaller companies. From 1998, it has entered into franchise
partnerships with local U.K. insurance brokers to handle the insurance
requirements of small companies and individuals, utilizing specialized
electronic systems linking the franchised brokers directly to the commercial
panel of insurance carriers. These small companies and individuals represent a
very large market in the United Kingdom.
In addition to these services, U.K. Retail provides advice and services to
corporate and individual clients on personal finance matters such as pension
planning and investment products through Willis National Limited, a joint
venture with Abbey National in which we have a 51% interest. Willis National
Limited is one of the largest firms of independent financial advisors employing
over 300 staff in 20 locations throughout the United Kingdom.
U.K. Retail also has teams which provide services in numerous specialty
areas, such as construction, freight, credit insurance, transport and
professional indemnity through its other three divisions (Construction,
Transportation Risks and Scotland/Ireland).
Global Specialities: The Global Specialities unit provides specialist brokerage
and consulting services to clients throughout the world for the risks of
specific industrial and commercial activities. In these operations, we have
extensive specialized experience handling diverse lines of coverage, including
complex insurance and reinsurance programs, and acting as an intermediary
between retail brokers and insurers. Global Specialities increasingly provides
consulting services on risk management with the objective of assisting clients
to reduce the overall cost of risk. Global Specialities serves clients in more
than 100 countries, primarily from its U.K. offices, although the unit also
serves clients from offices in the United States.
The Global Specialities unit, in 1999, was organized into three distinct
business areas; Global Broking Services, Aerospace and Marine.
Global Broking Services provides solutions to problems in the industrial,
financial and professional sectors for large, complex, unusual and niche risks
around the world. Global Broking Services operates through five business sub-
units. The Global Property and Casualty unit designs and obtains innovative
property coverage solutions for large or unusual exposures in a variety of
industries, including mining and metals, chemicals and pharmaceuticals,
telecommunications, offshore energy, refining, power stations and other
utilities, transport authorities and motor manufacturers and also handles the
design, implementation
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and servicing of reinsurance protections for captive insurance companies. The
Global Property and Casualty unit also provides comprehensive liability
programs for coverage against environmental liability, libel and slander, and
medical malpractice. The Global Financial and Executive Risks unit obtains
directors and officers insurance, as well as errors and omissions insurance for
professional firms and other insurance brokers. The Global Financial and
Executive Risks unit is also a leader in designing and obtaining insurance
coverage for political risk, including confiscation and expropriation. Crime,
computer fraud and unauthorized trading risks are also covered on a worldwide
basis. The Fine Art, Jewelry, and Specie unit provides specialist risk
management and insurance services to fine art, diamond and jewelry businesses
and operators of armored cars. Coverage is also obtained for vault and bullion
risks. The Contingency Risks unit specializes in producing packages to protect
corporations, groups and individuals against special contingencies such as
kidnap and ransom, extortion, detention, political repatriation and product
contamination. The Bloodstock unit services the insurance needs of the
bloodstock and livestock industry and also arranges the reinsurance of
bloodstock and livestock related business of insurance companies worldwide.
Aerospace is a market leader in the provision of insurance brokerage and
risk management services to clients in the aerospace industry, including
aircraft manufacturers, air cargo handlers and shippers, airport managers and
other general aviation companies. Advisory services provided by Aerospace
include claims recovery and collections, contract and leasing risk management,
safety services and markets information. Aerospace is a leading provider of
risk transfer and advisory services for space vehicle launches and is also a
leading reinsurance broker of aerospace risks. Aerospace's clients are spread
throughout the world and include 250 airlines and more than 45% of the world's
30 leading non-American airports by passenger movement. Other clients include
those introduced from other intermediaries as well as aerospace insurers
seeking reinsurance.
Marine provides marine insurance brokerage services, including hull, cargo
and general marine liabilities. Marine's clients include direct buyers, other
insurance intermediaries and insurance and reinsurance companies. Marine
insurance brokerage is our oldest line of business. Other services of Marine
include claims collection and recoveries.
Reinsurance: The Reinsurance unit provides international reinsurance brokerage
services. These services are provided to insurance underwriters to reinsure all
or a portion of the risks insured by them and to reinsurance underwriters to
further reinsure their risks. We are one of the world's largest intermediaries
for international reinsurance and have a significant market share in a number
of major reinsurance markets. We are the largest reinsurance broker serving
Japan.
Reinsurance provides its clients, both insurance and reinsurance
companies, with transactional services as well as ancillary services such as
risk analysis, modeling and consulting. The unit also provides reinsurance
brokerage services to healthcare professionals and institutions. The U.K.
operation represents clients in more than 100 countries and has long-standing
relationships with leading insurers in Asia, principally Japan, Middle East,
Latin America and in Western Europe.
Reinsurance is developing new sources of revenue in addition to its
traditional reinsurance brokerage services, investing in new capabilities and
expanding its global reach. Cordis Consulting Limited markets its capabilities
in actuarial and catastrophe modeling, as consulting products rather than as a
part of its reinsurance package. In 1998, Mansfeld, Hubener & Partner GmbH was
acquired to provide a local presence in Germany. In 1997, Willis Corroon Asset
Management Limited, which manages funds invested in a new class of financial
instruments linked to insurance and reinsurance risks, was launched.
International: Our International unit consists of a network of subsidiaries and
associates other than those in the United States or the United Kingdom
controlled by other business units. These operations are located in 65
countries worldwide, consisting of 23 countries in Europe, 11 in the Asia/
Pacific region and 31 elsewhere in the world. The services provided are
generally focused according to the characteristics of each market and are not
identical in every office, but generally include direct risk management and
insurance brokerage, specialist and reinsurance brokerage and employee benefits
consulting.
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Revenues
Revenues generated from our insurance brokering and risk management services
consist of commissions, which are generally a percentage of the insurance
premiums paid and payable by its clients, and of fees. Contingent commissions
may also be earned, based upon the volume and profitability of insurance placed
with a given underwriter over a given period.
Commissions and fees are subject to periodic renegotiation and may vary
from year to year depending upon the volume and profitability of the business
or the demand for the services in question. Also, commissions received on the
placement of risks on behalf of clients in the worldwide insurance market,
including Lloyd's underwriters, are affected by fluctuations in premium levels.
We also earn investment income from a variety of sources, including
certificates of deposit, government securities and other fixed interest
securities. Funds held on behalf of our clients are subject to investment
guidelines established by various insurance and financial services supervisory
authorities, which generally emphasize capital preservation and liquidity.
No part of the Group's revenues is materially dependent on a single client
or group of clients.
Employees
At December 31, 1999 the Group and its associates had approximately 12,300
employees, including 3,916 in the United Kingdom and 4,518 in the United
States. The Group is not involved in any material dispute with employees and
management believes that relations with employees are good.
Competition
The Group faces competition in all fields in which it operates. Competition in
the insurance brokering and risk management businesses is based on global
capability, product breadth, innovation, quality of service and price. The
Group competes with the two other providers of global risk management services
as well as with numerous regional and local firms. Insurance companies also
compete with the Group's brokers by directly soliciting insureds without the
assistance of an independent broker or agent. Competition for premiums is
intense in all the Group's business lines and in every insurance market.
Competition on premium rates has also exacerbated the pressures caused by a
continuing reduction in demand in some classes of business. For example,
insurers are currently retaining a greater proportion of their risk portfolios
than previously. Industrial and commercial companies are increasingly relying
upon captive insurance companies, self-insurance pools, risk retention groups,
mutual insurance companies and other mechanisms for funding their risks, rather
than buying insurance. The Group provides management and similar services for
such alternative risk transfer programs. Additional competitive pressures arise
from the entry of new market participants, such as banks, accounting firms and
insurance carriers themselves, offering risk management or transfer services.
The Group believes that it is well-positioned to compete across the breadth of
the products and services it offers.
Regulation
Many of the Group's activities are subject to regulatory supervision in the
various countries and jurisdictions in which they are based or undertaken. In
the United Kingdom, many legal entities are subject to regulatory supervision.
For example, Lloyd's brokers are regulated by the Council of Lloyd's and,
together with the insurance brokering subsidiaries, are regulated pursuant to
the Insurance Brokers (Registration) Act 1977. In addition, Willis National
Limited and Willis Corroon Asset Management Limited are regulated by the
Financial Services Authority ("FSA") pursuant to the provisions of the
Financial Services Act 1986.
The Society of Lloyd's and FSA generally regulate the conduct of business
and financial position of their respective members through the establishment of
required levels of net worth and other financial criteria; Lloyd's by-laws and
FSA rules describe the methods by which Lloyd's brokers, independent financial
advisors and investment managers, respectively, shall conduct business. The
Insurance Brokers (Registration) Act 1977 requires, among other things, that
insurance brokers be enrolled with a central professional body and comply with
its rules in the conduct of their business. The Insurance Brokers
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(Registration) Act 1977 and Lloyd's generally requires that the Group maintains
amounts of fiduciary cash in regulated bank accounts subject to guidelines
which generally emphasize capital preservation and liquidity.
The Group's activities in connection with insurance brokering services and
third party administration within the United States are subject to regulation
and supervision by state authorities. Although the scope of regulation and form
of supervision may vary from jurisdiction to jurisdiction, insurance laws in
the United States are often complex and generally grant broad discretion to
supervisory authorities in adopting regulations and supervising regulated
activities. Such supervision generally includes the licensing of insurance
brokers and agents and third party administrators and the regulation of the
handling and investment of client funds held in a fiduciary capacity. The
Group's continuing ability to provide insurance brokering and third party
administration in the jurisdictions in which it currently operates is dependent
upon its compliance with the rules and regulations promulgated from time to
time by the regulatory authorities in each of these jurisdictions.
All companies carrying on similar activities in a given jurisdiction are
subject to such regulation, and the Group does not consider that such controls
adversely affect its competitive position.
Item 2 -- Description of Property
We own and lease a number of properties for use as offices throughout the world
and believe that our properties are generally suitable and adequate for the
purposes for which they are used. The principal properties are located in the
United Kingdom and the United States. The Group's headquarters at Ten Trinity
Square in London is a landmark building owned by the Company. Willis North
America's principal office in the United States is at 26 Century Boulevard,
Nashville, Tennessee, a leasehold property.
Item 3 -- Legal Proceedings
We have extensive operations and are subject to claims and litigation in the
ordinary course of business resulting principally from alleged errors and
omissions in connection with our businesses. Most of the errors and omissions
claims are covered by professional indemnity insurance. In respect of
self-insured deductibles applicable to such claims, we have established
provisions which are believed to be adequate in the light of current
information and legal advice. These provisions may be adjusted from time to
time according to developments. We do not expect the outcome of such claims,
either individually or in the aggregate, to have a material effect on our
operations or financial position.
Sovereign Marine & General Insurance Company Limited (in administration)
("Sovereign"), a wholly owned subsidiary of the Company, operated as an
insurance company in the United Kingdom and from 1972 Sovereign's underwriting
activities were managed by another wholly owned subsidiary of the Group, Willis
Faber (Underwriting Management) Limited ("WFUM"). WFUM also provided
underwriting agency and other services to the third party insurance companies
called the stamp companies, some of which are long-standing clients of the
Group. As an underwriting agent, WFUM did not retain any underwriting risks for
its own account. As part of its services as agent, WFUM arranged insurance and
reinsurance business on behalf of Sovereign and the stamp companies in the
following main classes of insurance: marine, non-marine, casualty and aviation.
WFUM also arranged for reinsurance for Sovereign and the stamp companies
through third party brokers, as well as through brokers within the Group. In
1991, Sovereign ceased underwriting new business and WFUM ceased arranging new
business on behalf of Sovereign and the stamp companies. Since that time, WFUM
has been administering the business it arranged on behalf of Sovereign and the
other stamp companies, referred to as handling the "run-off" of the business.
In July 1997, an unexpected adverse arbitration award was rendered against
Sovereign in respect of a dispute between Sovereign and one of its reinsurers
regarding the enforceability of certain reinsurance that WFUM had arranged. The
award is confidential and non-binding as to third parties. As a result of the
award, the directors of Sovereign determined that Sovereign could not continue
to trade unless the Group provided unlimited financial support. The directors
of the Company decided that, in the interests of the Company's shareholders,
such support for Sovereign could not be justified. Accordingly, Sovereign was
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placed into provisional liquidation on July 11, 1997. On January 5, 2000 a
scheme of arrangement proposed by Sovereign to its creditors became effective.
The stated purpose of the scheme of arrangement is to resolve Sovereign's
liabilities and provide that Sovereign's business is run off in as orderly a
manner as possible. Sovereign's provisional liquidators have been discharged
from office and have been appointed as scheme administrators.
Although the run-off of the business is expected to be conducted in an
orderly manner, it may ultimately prove to be a lengthy and expensive process.
The Group and the former provisional liquidators of Sovereign entered into
certain arrangements, including the new structure to replace WFUM for the
future run-off of the Sovereign business. The Group has similar agreements with
certain of the stamp companies regarding arrangements for, and funding the
costs of, the ongoing run-off of their business. As a consequence of these
arrangements, entered into in August 1998, a new subsidiary of the Group now
provides run-off services. Those services have in turn been sub-contracted to a
third party with experience in running off pools with an insolvent member. In
the case of the provisional liquidators, the services are provided directly by
such third party to Sovereign. The arrangement with the provisional liquidators
and the arrangements with certain of the stamp companies include the agreement
by the Group to fund, subject to certain agreed guidelines as to timing and
amount, certain costs of the ongoing run-off. The amounts to be funded under
the arrangements are currently within the aggregate of the provisions made.
However, there can be no assurance that the provisions will be adequate to
cover the actual run-off costs over time.
Following the publication of the adverse arbitration award, Sovereign and
certain of the stamp companies expressed concern about the enforceability of
other reinsurance put in place by WFUM on behalf of Sovereign and the stamp
companies. In addition, a reinsurer which participates on numerous reinsurance
contracts has advised Sovereign, the stamp companies and WFUM that it is
adopting a number of legal positions, similar to those taken in the Sovereign
arbitration, with the intended effect of having its contractual obligations
under the reinsurance contracts reassessed with respect to enforceability and
amount. Accordingly, there can be no assurance that there will be no further
arbitration or litigation with respect to reinsurance arranged by WFUM. The
former provisional liquidators of Sovereign and the stamp companies have
generally reserved their rights in respect of potential claims, and WFUM, the
Company and certain brokering subsidiaries of the Group have entered into
standstill agreements which preserve the rights of such potential claimants
with respect to their possible claims. Although the Sovereign arbitration award
is non-binding as to third parties, other arbitrations may arise in the future.
Further, if the scheme administrators or the stamp companies determine that
they have valid claims against the Company, they may seek to bring claims
directly against the Company and hold it responsible for the liabilities of its
subsidiaries. Although such claims are generally difficult to maintain
successfully under English law, there can be no assurance that claims will not
be made or, if made, that such claims could not succeed. Claims could also be
made against WFUM and the brokering subsidiaries of the Group that arranged
reinsurance on behalf of Sovereign and the stamp companies. Those Group
companies with insurance protection have notified their insurance providers of
certain potential claims. The Group has not made any financial provisions in
respect of possible future claims in respect of reinsurance placed by WFUM. The
Company does not know whether any such claims will be made; the validity and
amount of such claims and the extent, if any, to which they will be covered by
insurance, after giving effect to the applicable deductibles, exclusions and
limits, can be assessed only when and if such claims are made.
The Group plans to continue to deal with the foregoing matters in a manner
designed to assist an orderly run-off of the obligations of Sovereign and of
the other stamp companies while limiting the costs of resolution. It is
possible that the foregoing matters or other circumstances may lead the Company
to place WFUM in liquidation. The Company does not believe the resolution of
these matters, including any possible liquidation of WFUM, will have a material
adverse impact on its consolidated results of operation or financial condition,
although there can be no assurance that this will be the case.
Item 4 -- Control of Registrant
The Company is a wholly owned subsidiary of Trinity Acquisition Limited
("Trinity"), a company formed at the direction of Kohlberg Kravis Roberts & Co.
L.P. The Company's ultimate parent company is
10
<PAGE>
TA I Limited and its ultimate controlling party is KKR 1996 Overseas, Limited,
an organization formed in the Cayman Islands.
Item 5 -- Nature of Trading Market
The Company's ordinary shares are all held by Trinity and there is therefore no
trading market in such shares.
The Notes are listed for trading on the Luxembourg Stock Exchange.
However, no trades have been executed on the Luxembourg Stock Exchange since
the first listing date. Willis North America has not applied for and does not
intend to apply for listing of the Notes on any securities exchange (other than
listing on the Luxembourg Stock Exchange) or for the quotation of the Notes
through NASDAQ. The underwriter of the Notes issued acts as a market maker for
the Notes. However, the underwriter is not obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Notes or that an active
market for the Notes will develop. If an active public market for the Notes
does develop or fails to be maintained, the market price and liquidity of the
Notes may be adversely affected.
Kredietbank S.A. Luxembourgeoise is the listing agent for the Notes on the
Luxembourg Stock Exchange. The Notes have been accepted for clearance by
Euroclear Operator and Cedel Bank. The Notes have been assigned the following
CUSIP number: 970620AC4; a Euroclear common code number of 009610391; and an
ISIN number of US970620AC42.
Item 6 -- Exchange Controls and Other Limitations Affecting Security Holders
There are currently no U.K. foreign exchange control restrictions on the
conduct of the Group's operations. While there are certain foreign exchange
control restrictions which may affect the ability of certain of the Company's
subsidiaries to transfer funds to the Company, the amounts involved have not
been material to the Company in the past and the Company does not believe that
such restrictions will have a material adverse impact on the Company or its
ability to meet its cash flow requirements.
Item 7 -- Taxation
The statements set forth below in this Item are based on current law and
published practice at the date of this annual report and are subject to change.
Under current law if the Company, as guarantor, makes any payments in
respect of interest on the Notes (or other amounts due under the Notes other
than repayment of principal) such payments may be subject to U.K. withholding
tax at the basic rate (currently 23%). Relief from such withholding may be
available pursuant to the provisions of any applicable double taxation treaty.
In particular, under the terms of the U.S./U.K. double taxation treaty, holders
of the Notes entitled to the benefit of that treaty would be able to recover in
full any U.K. tax withheld by making a claim on the appropriate form.
Alternatively, a claim may be made by a holder of the Notes in advance of a
payment in respect of interest. If the claim is accepted by the U.K. Inland
Revenue, it will authorize subsequent payments to be made without deduction of
U.K. withholding tax. Claims for repayment must be made within six years of the
end of the U.K. year of assessment (generally April 5 in each year) to which
the interest relates and must be accompanied by the original statement provided
by the Company when the interest payment was made showing the amount of U.K.
income tax deducted. Because a claim is not considered until the U.K. Inland
Revenue receives the appropriate form from the Internal Revenue Service, forms
should be sent to the Internal Revenue Service, in the case of an advance claim
well before the relevant interest payment date or, in the case of a claim for
repayment of the tax, well before the end of the appropriate limitation period.
The Company has agreed, subject to specific exceptions and limitations, to
pay to the holders of the Notes such additional amounts in respect of any
applicable U.K. withholding tax in order that the interest (and other amounts
due under the Notes) they receive, net of any applicable U.K. withholding tax,
will equal the amounts which would have been receivable by them in the absence
of such U.K. withholding tax.
Under current law the sale or transfer in the United Kingdom of the Notes
will not be subject to stamp duty or stamp duty reserve tax or any other
transfer tax in the United Kingdom.
11
<PAGE>
Item 8 -- Selected Financial Data
Summarized Financial Information
The selected consolidated financial data presented below as of December 31,
1999 and 1998 and for each of the periods in the three-year period ended
December 31, 1999 have been derived from, and should be read in conjunction
with, the audited consolidated financial statements of the Group and the notes
thereto that are included elsewhere in this annual report. The selected
consolidated financial data presented below as of December 31, 1997, 1996 and
1995 and for years ended December 31, 1996 and 1995 have been derived from
audited consolidated financial statements of the Group and the notes thereto
that are not included in this annual report. The Group prepares its
consolidated financial statements in accordance with U.K. GAAP, which differ in
certain respects from U.S. GAAP. Reconciliations of net income and
shareholders' equity reflecting the significant differences between U.K. GAAP
and U.S. GAAP applicable to the Group are set forth in Note 31 of Notes to the
Financial Statements. Under U.K. GAAP, the acquisition of the Company by
Trinity has no impact on the historical amounts reported subsequently by the
Company and, accordingly, combined amounts for the year ended December 31, 1998
are presented. Under U.S. GAAP, the purchase of the Company by Trinity
established a new basis of accounting for the purchased assets and liabilities
from September 2, 1998. Accordingly, under U.S. GAAP, it is not appropriate to
present combined amounts for the year ended December 31, 1998.
<TABLE>
<CAPTION>
September 2 January 1
to to
Year ended December 31, December 31, September 1,
-------------------------------------- ---------- ----------
1999 1999 1998 1998 1998
$ (a) L L L L
------------------------------------------- ---------- ---------- ---------- ---------- ----------
(in millions, except per Ordinary Share amounts)
<S> <C> <C> <C> <C> <C>
Amounts in accordance with U.K. GAAP:
Statement of Income Data:
Operating revenues 1,241.6 766.4 718.2 249.4 468.8
Operating income before exceptional items(b) 83.6 51.6 82.8 26.0 56.8
Share of profit of associates 10.7 6.6 6.3 (1.4) 7.7
Net interest income/(expense) 4.2 2.6 (3.2) (1.2) (2.0)
Income / (loss) before tax 12.5 7.7 15.8 17.1 (1.3)
Net (loss) / income (10.4) (6.4) (41.3) (25.7) (15.6)
Net (loss) / income
Per Ordinary Share $(0.02) (1.4)p (9.7)p (6.0)p (3.7)p
Balance Sheet Data (at period end):
Total assets 7,638.0 4,714.8 4,589.0 4,589.0
Total long-term debt 979.6 604.7 276.4 276.4
Total shareholders' equity 164.9 101.8 89.0 89.0
Amounts in accordance with U.S. GAAP:
Statement of Income Data:
Operating revenues 1,241.6 766.4 249.4 468.8
Operating income/(loss) (18.8) (11.6) 9.1 7.6
Interest expense 4.2 2.6 (1.2) (2.0)
Income / (loss) before tax (1.5) (0.9) 5.2 (5.1)
Share of profit of associates, net of tax 7.6 4.7 (3.0) 7.6
Net (loss) / income (17.8) (11.0) (35.9) (19.0)
Net (loss) / income
Per Ordinary Share $(0.04) (2.3)p (8.4)p (4.5)p
Balance Sheet Data (at period end):
Total assets 8,947.9 5,523.4 5,369.9 5,369.9
Total long-term debt 979.6 604.7 276.4 276.4
Total shareholders' equity 1,456.5 899.1 875.4 875.4
=========================================== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1997 1996 1995
L L L
------------------------------------------- ---------- ---------- ----------
(in millions, except per Ordinary Share amounts)
<S> <C> <C> <C>
Amounts in accordance with U.K. GAAP:
Statement of Income Data:
Operating revenues 694.0 730.7 714.0
Operating income before exceptional items(b) 92.1 87.8 79.4
Share of profit of associates 1.9 3.5 6.8
Net interest income/(expense) (0.7) (2.2) (7.2)
Income / (loss) before tax 95.5 91.6 62.4
Net (loss) / income 56.9 54.2 29.0
Net (loss) / income
Per Ordinary Share 13.6p 13.0p 7.0p
Balance Sheet Data (at period end):
Total assets 3,304.3 3,377.2 3,703.7
Total long-term debt 34.0 17.9 61.9
Total shareholders' equity 124.6 151.9 120.6
Amounts in accordance with U.S. GAAP:
Statement of Income Data:
Operating revenues 694.0 730.7 714.0
Operating income/(loss) 61.2 68.7 1.9
Interest expense (0.7) (2.2) (7.2)
Income / (loss) before tax 66.5 74.7 1.5
Share of profit of associates, net of tax 1.6 2.9 6.0
Net (loss) / income 36.2 37.7 (18.0)
Net (loss) / income
Per Ordinary Share 8.7p 9.0p (4.3)p
Balance Sheet Data (at period end):
Total assets 3,763.4 3,953.5 4,376.0
Total long-term debt 34.0 17.9 61.9
Total shareholders' equity 583.6 560.2 587.3
=========================================== ========== ========== ==========
</TABLE>
(a) U.S. dollar amounts have been translated at the noon buying rate on
December 31, 1999 of $1.62 = L1.00 solely for your convenience.
(b) For a description of exceptional items charged against operating income,
see Note 4 of the Notes to the Consolidated Financial Statements.
12
<PAGE>
Exchange Rates
The following table sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rate for the pound sterling, expressed
in U.S. dollars per L1.
<TABLE>
<CAPTION>
Calendar year At year end Average (i) High Low
- --------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1995 $1.55 $1.58 $1.62 $1.53
1996 $1.71 $1.56 $1.71 $1.51
1997 $1.64 $1.64 $1.69 $1.60
1998 $1.66 $1.66 $1.70 $1.63
1999 $1.62 $1.61 $1.65 $1.58
===================== ============= ============= ============= =============
</TABLE>
(i) The average of the Noon Buying Rates at the last business day of each
month during the calendar year.
Fluctuations in the value of the pound sterling relative to the U.S. dollar and
other non-U.K. currencies may be significant to the Group because, among other
things, they affect the translation of the results of the non-sterling based
operations of its subsidiaries into pounds sterling for purposes of its
consolidated financial statements. Furthermore, significant portions of U.K.
revenues and earnings are subject to the effect of currency fluctuations. (See
"Item 9A -- Quantitative and Qualitative Disclosures about Market Risk").
13
<PAGE>
Item 9 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion generally relates to the historical consolidated
results of operations and financial condition of Willis and should be read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Annual Report. These financial statements have been prepared in accordance
with U.K. GAAP, which differ in significant respects from U.S. GAAP. The
principal differences between U.K. GAAP and U.S. GAAP as they relate to Willis
are discussed in Note 31 of the Notes to the Consolidated Financial Statements.
The consolidated statement of income of the Group included elsewhere in
this Annual Report has been presented separately for the period from January 1,
1998 to September 1, 1998, the effective date of the acquisition of the Company
by Trinity, and for the period from September 2, 1998 to December 31, 1998, in
accordance with the requirements of the U.S. Securities and Exchange
Commission. Management believes that it is more appropriate to present
financial data on a combined basis because, under U.K. GAAP, the acquisition
does not change the basis of accounting for the Company. The discussion set
forth below of the Company's performance is based on the combined period for
the year ended December 31, 1998 which management believes is more meaningful
for investors.
The following table summarizes the combined results for the year ended
December 31, 1998 and the results for the year ended December 31, 1999:
<TABLE>
<CAPTION>
January 1 to September 2 to Year ended Year ended
September 1, December 31, December 31, December 31,
1998 1998 1998 1999
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Commissions and fees 441.9 236.0 677.9 727.8
Interest and investment income 26.9 13.4 40.3 38.6
---------------- ---------------- ---------------- ----------------
Total operating revenues 468.8 249.4 718.2 766.4
Net operating expenses (412.0) (223.4) (635.4) (714.8)
---------------- ---------------- ---------------- ----------------
Operating income before exceptional items 56.8 26.0 82.8 51.6
Exceptional items (35.8) (5.0) (40.8) (54.6)
---------------- ---------------- ---------------- ----------------
Operating income 21.0 21.0 42.0 (3.0)
Share of profit of associates 7.7 (1.4) 6.3 6.6
Loss on closure/disposal of operations (i) (28.0) (1.3) (29.3) 1.5
Interest income --- 7.1 7.1 56.8
Interest expense (2.0) (8.3) (10.3) (54.2)
---------------- ---------------- ---------------- ----------------
(Loss)/income before taxation (1.3) 17.1 15.8 7.7
Taxation (13.5) (40.9) (54.4) (11.1)
---------------- ---------------- ---------------- ----------------
Loss after taxation (14.8) (23.8) (38.6) (3.4)
Minority interests (0.8) (1.9) (2.7) (3.0)
---------------- ---------------- ---------------- ----------------
Net loss (15.6) (25.7) (41.3) (6.4)
===================================================== ================ ================ ================ ================
</TABLE>
(i) The loss on closure/disposal of operations in 1998 was classified as a
nonoperating exceptional item.
Fiscal 1999 Compared with Fiscal 1998
Summary
Operating revenues increased by L48.2 million (6.7%) from L718.2 million in
fiscal 1998 to L766.4 million in fiscal 1999. In constant currency terms,
operating revenues increased by 6.4%. Excluding the favorable effect of foreign
currency exchange rate movements (L2.4 million), and the net gain in operating
revenues
14
<PAGE>
from acquisitions less disposals (L28.7 million), operating revenues were 2.7%
higher in fiscal 1999 than in fiscal 1998.
Income before taxation and exceptional items decreased by L23.6 million
(27%) from L85.9 million in fiscal 1998 to L62.3 million in fiscal 1999. In
constant currency terms, income before taxation and exceptional items decreased
by 22%. Excluding the adverse effect of foreign currency exchange rate
movements (L4.3 million), the net gain in income from acquisitions less
disposals (L5.2 million) and also excluding the adverse effect of higher non-
recurring expenses (L5.9 million), income before interest, taxation and
exceptional items decreased by 21%.
Three exceptional charges were made in fiscal 1999 totalling L54.6 million.
A further provision amounting to L40.0 million was made for costs expected to
be incurred in connection with the pensions review (see "-- Exceptional
Items"); a provision of L10.5 million was made for the costs to be incurred in
connection with the change program initiatives introduced in North America in
early 2000; and fees totalling L4.1 million were incurred in connection with
the issue of the Notes. Excluding these exceptional charges, income before
taxation decreased by L8.1 million (51%) from L15.8 million in fiscal 1998 to
L7.7 million in fiscal 1999.
Net income in fiscal 1999 was a loss of L6.4 million compared with a loss
of L41.3 million in fiscal 1998.
Commissions and Fees
Commissions and fees increased by L49.9 million (7.4%) from L677.9 million in
fiscal 1998 to L727.8 million in fiscal 1999. In constant currency terms,
commissions and fees increased by 7.0%. Excluding the net increase in
commission and fees arising from businesses acquired and businesses sold
(L28.1 million), commissions and fees increased by 3.1% in constant currency
terms predominantly from improved results in Global Specialities and
International.
North American Operations: Commissions and fees earned by North American Retail
increased by L17.8 million (6.8%) from L263.5 million in fiscal 1998 to
L281.3 million in fiscal 1999. In constant currency terms, commissions and fees
increased by 4.5% fueled mainly by premium increases in the employee benefits
sector and strong new business production offset in part by shrinkage in the
property and casualty sector and lost business. Commissions and fees earned by
the U.S. Wholesale operations fell by L0.4 million (1.4%) from L28.6 million in
fiscal 1998 to L28.2 million in fiscal 1999. In constant currency terms,
commission and fees fell by 3.2%.
U.K. Retail: Commission and fees earned by U.K. Retail decreased by L7.5 million
(6.3%) from L118.8 million in fiscal 1998 to L111.3 million in fiscal 1999. In
constant currency terms, commissions and fees decreased by 8.4%, mainly due to
revenue shortfalls in the Corporate business unit, where there have been
several management changes. Progress on the franchise network was slower than
expected and Willis National continued to be impacted by the U.K. Government's
delay in finalizing its "stakeholder" pension proposals.
Global Specialities: Commissions and fees earned by the business units of
Global Specialities increased by L11.1 million (7.9%) from L140.2 million in
fiscal 1998 to L151.3 million in fiscal 1999. In constant currency terms,
commissions and fees increased by 7.8%, principally due to strong performances
by Aerospace and Global Financial & Executive Risks.
Reinsurance: Commissions and fees earned by Reinsurance increased by
L2.6 million (4.0%) from L66.4 million in fiscal 1998 to L69.0 million in
fiscal 1999. In constant currency terms, commissions and fees increased by
4.2%, mainly from U.K. and rest of the world units. U.S. units had a more
difficult time in generally unsettled markets.
International: Commission and fees earned by International increased by
L26.6 million (44%) from L60.2 million in fiscal 1998 to L86.8 million in
fiscal 1999. In constant currency terms, commissions and
15
<PAGE>
fees increased by 56%. Excluding the effect of the acquisition of Gruppo Ital
Brokers, which was acquired in July 1998, and other acquisitions in 1999,
principally in Latin America, commissions and fees increased by 7.6% in
constant currency terms. Strong performances were delivered by the operations
in Spain, Sweden and Venezuela.
Interest and investment income
Interest and investment income was L40.3 million in fiscal 1998 and
L38.6 million in fiscal 1999. In constant currency terms, interest and
investment income decreased by 2.8%.
Operating Expenses
Operating expenses before exceptional items increased by L79.4 million (12%)
from L635.4 million in fiscal 1998 to L714.8 million in fiscal 1999. Excluding
unfavorable foreign exchange rate movements (L6.3 million), the effects of
acquisitions and disposals (L23.4 million), higher non-recurring costs
(L5.9 million, primarily consultancy and severance costs), and provisions
(L8.5 million) for a combination of errors and omissions claims, doubtful debts
and business compliance errors, operating expenses increased by 5.4% in
constant currency terms.
Exceptional Items
Pensions Review: In common with many companies involved in selling personal
pensions plans in the U.K., our independent financial advisory business, Willis
Corroon Financial Planning Limited, is required by the Financial Services
Authority and the Personal Investment Authority (the "Regulator") to review
certain categories of personal pension plans sold to individuals between 1988
and 1994. We are required to compensate those individuals who transferred from,
opted out of or did not join, their employer-sponsored pension plan if the
expected benefits from their personal pension plan did not equal the benefits
that would have been available from their employer-sponsored pension plan.
Whether compensation is due to a particular individual, and the amount thereof,
is dependent upon the subsequent performance of the personal pension plan sold
and the net present value of the benefits that would have been available from
the employer-sponsored pension plan calculated using financial and demographic
assumptions prescribed by the Regulator.
In March 1998, the Regulator issued proposals to extend the review from
the priority cases (individuals who were nearing retirement, had retired or
died) ("Phase 1") to all other cases ("Phase 2"). Based on guidance given by
the Regulator as to the cost of Phase 2 for which we have about 4,000 cases to
review, together with estimated additional costs of completing the Phase 1 case
reviews, a further provision of L25.0 million was established in the second
quarter of 1998 in addition to provisions of L5.0 million previously
established.
The cost of compensation of individual cases rose rapidly as the
differential between the assumptions for U.K. interest rates and inflation
rates, as prescribed by the Regulator, narrowed. A further L15.0 million was
provided in the second quarter of 1999. Subsequently, the Regulator announced
adverse changes in the demographic assumptions to be used and, in December
1999, announced a halt to certain categories of reviews following the discovery
of errors in the prescribed method of calculation. Given the prospect of having
to rework a substantial number of previously agreed claims as a result of the
discovery of these errors, the prospect of further changes to demographic
assumptions being required and the delay in reflecting the recent rises in U.K.
interest rates in the financial assumptions issued by the Regulator, a further
provision of L25.0 million was made in the fourth quarter of 1999, bringing the
total provision to L70.0 million. For these reasons, there is still uncertainty
as to the ultimate exposure, although management believes that, based on
current circumstances, the provisions are prudent.
Change Program Initiatives: Restructuring charges totalling L10.5 million were
made in fiscal 1999 to cover the costs of implementing changes to business
processes in the North American operations during
16
<PAGE>
2000. The charge comprised L4.0 million for severance payments covering 265
employees and L6.5 million for property leases that will become surplus to
Group requirements as a result of the restructuring.
Financing Costs: In connection with the issue of the Notes in February 1999,
fees totalling L4.1 million, which under applicable accounting standards could
not be amortized over the period to maturity of the Notes, were written off.
Associates
Willis' share of income before taxation from associates increased by
L0.3 million (5%) from L6.3 million in fiscal 1998 to L6.6 million in fiscal
1999.
Interest Income
Interest income of L56.8 million in fiscal 1999 includes interest receivable of
L56.1 million (1998: L7.1 million) from Trinity in respect of loans advanced by
the Group. These arrangements were put in place in November 1998.
Interest Expense
Interest expense of L54.2 million in fiscal 1999 increased significantly over
that payable in fiscal 1998 as a consequence of the senior debt and Notes
issued in connection with the acquisition of the Company by Trinity in November
1998.
Disposals
There were no significant disposals in fiscal 1999. During fiscal 1998, the
loss on disposal of operations amounted to L29.3 million, consisting mainly of
goodwill written off on the closure of Professional Liability Underwriting
Management ("PLUM"), the Group's professional liability wholesale operation in
the U.S.
Taxation
The tax charge for fiscal 1999 amounted to L11.1 million compared with
L54.4 million in fiscal 1998. The tax charge for 1999 exceeds income before tax
for the year largely as a result of provisions, principally those relating to
the pensions review, not being recognized for tax relief in the current year.
The tax charge for 1998 included the write off of U.K. advance corporation tax
of L9.7 million and deferred tax asset balances of L23.4 million.
Differences between U.K. GAAP and U.S. GAAP
The net loss for 1999 of L6.4 million and net loss for 1998 of L41.3 million,
under U.K. GAAP, compare with a net loss of L11.0 million and net loss of
L54.9 million, respectively, under U.S. GAAP.
The differences arise principally from the differing accounting treatment
for goodwill, forward foreign exchange contracts in respect of future income,
pensions and related deferred taxation. Details of the reconciling differences
are given in Note 31 of Notes to the Financial Statements.
Inflation
Inflation has not had a significant impact on our business in recent years.
Year 2000
The Company experienced no significant disruption to its systems as a result of
Year 2000 issues.
17
<PAGE>
Fiscal 1998 compared with Fiscal 1997
Summary
Operating revenues increased by L24.2 million (3.5%) from L694.0 million in
fiscal 1997 to L718.2 million in fiscal 1998. In constant currency terms,
operating revenues increased by 6%. Excluding the adverse effects of foreign
currency exchange rate movements (L12.8 million), the loss of operating
revenues from businesses sold (L8.5 million) and the operating revenues gained
from acquisitions (L23.8 million), operating revenues were 3.2% higher in
fiscal 1998 than in fiscal 1997.
Income before taxation and exceptional items decreased by L7.4 million
(8%) from L93.3 million in fiscal 1997 to L85.9 million in fiscal 1998. In
constant currency terms, income before taxation and exceptional items decreased
by 4%. Excluding the adverse effects of foreign currency exchange rate
movements (L4.1 million), the loss of income from businesses sold
(L4.7 million), the income gained from acquisitions (L13.8 million) and also
excluding the adverse effects of higher non-recurring expenses (L8.2 million),
income before interest, taxation and exceptional items decreased by 1%. Three
exceptional charges were made in fiscal 1998. A further provision amounting to
L25.0 million was made as an exceptional item for costs expected to be incurred
in connection with the pensions review; L15.8 million was incurred in
connection with the offer by Trinity for all of the issued share capital of the
Company; and a L29.3 million loss on disposal (which included a goodwill write-
off of L29.6 million) was incurred almost entirely upon the closure of PLUM.
After these exceptional charges, income before taxation decreased by
L79.7 million (83%) from L95.5 million in fiscal 1997 to L15.8 million in
fiscal 1998.
Net income decreased by L98.2 million (173%) from L56.9 million in fiscal
1997 to a loss of L41.3 million in fiscal 1998, partly as the result of the
exceptional charges referred to above. In addition, the tax charge for fiscal
1998 included L33.1 million written off in respect of U.K. advance corporation
tax and deferred tax balances (see "--Taxation.")
Commissions and Fees
Commissions and fees increased by L25.6 million (3.9%) from L652.3 million in
fiscal 1997 to L677.9 million in fiscal 1998. In constant currency terms,
commissions and fees increased by 5.9%. Excluding the effects of businesses
sold (L8.0 million) and businesses acquired (L24.3 million), commissions and
fees increased by 3.4% in constant currency terms predominantly from improved
results in North American Retail and Global Broking Services.
North American Operations: Commissions and fees earned by North American Retail
increased by L13.8 million (5.5%) from L249.7 million in fiscal 1997 to
L263.5 million in fiscal 1998. In constant currency terms, commissions and fees
increased by 7.2%, due in part to various initiatives implemented as part of
the change program, which significantly enhanced new business gains and
improved performance in obtaining renewed business. Commissions and fees earned
by the U.S. Wholesale operations decreased by L2.0 million (6.5%) from
L30.6 million in fiscal 1997 to L28.6 million in fiscal 1998. In constant
currency terms, such commissions and fees decreased by 5.3%. Of this reduction,
L1.2 million was attributable to PLUM, which was closed in the second quarter
of 1998. Excluding the effect of this closure, commissions and fees of North
American Wholesale decreased by 1.4% in constant currency terms, primarily due
to a continuing decline in the public entity and schools businesses.
U.K. Retail: Commission and fees earned by U.K. Retail increased by L5.0 million
(4.4%) from L113.8 million in fiscal 1997 to L118.8 million in fiscal 1998. In
constant currency terms, commissions and fees increased by 4.5%. Of this
increase, L7.4 million was attributable to the Willis National joint venture,
which was formed in August 1997. Excluding the effects of the formation of
Willis National, commissions and fees decreased by 1.9% in constant currency
terms due to competition in soft markets and delay or cancellation of
construction contracts.
Global Specialities: Commissions and fees earned by the business units of
Global Specialities increased by L5.7 million (4.2%) from L134.5 million in
fiscal 1997 to L140.2 million in fiscal 1998. In constant
18
<PAGE>
currency terms, commissions and fees increased by 4.9%. Premium rate reductions
continued to affect most business areas. Global Broking Services, however,
reported a 15.7% increase in constant currency terms in commissions and fees as
a result of strong new business gains and improved focus on renewals.
Reinsurance: Commissions and fees earned by Reinsurance decreased by
L2.3 million (3.3%) from L68.7 million in fiscal 1997 to L66.4 million in
fiscal 1998. In constant currency terms, commissions and fees decreased by
0.7%. Expansion in the U.S. and Europe was offset by a disposal of part of the
French portfolio to Gras Savoye & Cie ("Gras Savoye") following the Group's
investment in Gras Savoye.
International: Commission and fees earned by International increased by
L12.4 million (25.9%) from L47.8 million in fiscal 1997 to L60.2 million in
fiscal 1998. In constant currency terms, commissions and fees increased by
39.4%. Excluding the effect of the acquisition of Gruppo Ital Brokers, which
was acquired in July 1998 and other acquisitions, commissions and fees
increased by 0.3% in constant currency terms.
Willis Faber & Dumas (Agencies) Limited: Willis Faber & Dumas Agencies was sold
in October 1997 to a company owned by its management. Commissions and fees
earned during fiscal 1997 totalled L6.7 million.
Operating Expenses
Operating expenses before exceptional items increased by L33.5 million (5.6%)
from L601.9 million in fiscal 1997 to L635.4 million in fiscal 1998, due to the
increase in expenses from businesses acquired (L18.3 million) exceeding the
reduction in expenses from businesses sold (L3.7 million). Excluding favorable
foreign exchange rate movements (L8.9 million), the effects of acquisitions and
dispositions and higher non-recurring costs (L8.2 million, primarily severance
costs incurred as part of the change program), operating expenses increased by
3.9% in constant currency terms.
In common with most other U.K. independent financial advisors, Willis
Corroon Financial Planning Limited has been carrying out a review, in
accordance with guidelines issued by its Regulator, of pension advice
previously given. In this connection, a further provision of L25.0 million was
made as an exceptional item during fiscal 1998.
Associates
The Group's share of income before taxation from associates increased by
L4.4 million (232%) from L1.9 million in fiscal 1997 to L6.3 million in fiscal
1998. Adjusting for the increase (L5.1 million) due to investments in Gras
Savoye and Jaspers Wuppesahl, which were acquired in December 1997 and January
1998, respectively, and for increased investments in certain associates which
thereby became subsidiaries, the Group's share of income from associates was in
line with 1997.
Interest Expense
Net interest expense increased by L2.5 million from L0.7 million in fiscal 1997
to L3.2 million in fiscal 1998 as a consequence of new debt incurred to finance
investments made in December 1997 in Gras Savoye and in January 1998 in Jaspers
Wuppesahl.
Disposals
During fiscal 1998, the loss on disposals amounted to L29.3 million, comprising
mainly goodwill written off on the closure of PLUM.
Discontinued Operations--Underwriting
The U.K. underwriting operations, which consisted of Sovereign, an insurance
company, and WFUM, an underwriting agent, were discontinued in 1991. Sovereign
was placed into provisional liquidation in July 1997. Following the provisional
liquidation of Sovereign, the net assets of Sovereign and its subsidiaries,
19
<PAGE>
amounting to L5.9 million and attributable goodwill of L4.1 million, were
written off in fiscal 1997 against provisions previously established for that
purpose.
Taxation
The tax charge for fiscal 1998 amounted to L54.4 million after writing off U.K.
advance corporation tax of L9.7 million and deferred tax asset balances of
L23.4 million. The timing of the recoverability of these assets was uncertain
and, accordingly, it was judged appropriate under U.K. GAAP to write off the
amounts. Excluding these write-offs and the PLUM goodwill write-off of L29.6
million and costs of L15.8 million incurred in connection with the offer by
Trinity for the Group, for which no tax relief was available and, the further
provisions amounting to L25.0 million in respect of costs expected to be
incurred in connection with the pension review, the effective tax rate for
fiscal 1998 was 36.0% compared with an effective tax rate of 39.9% in fiscal
1997.
Differences between U.K. GAAP and U.S. GAAP
The net loss for 1998 of L41.3 million and net income for 1997 of L56.9
million, under U.K. GAAP, compared with a net loss of L54.9 million and net
income of L36.2 million, respectively, under U.S. GAAP.
The differences arose principally from the differing accounting treatment
for goodwill, forward foreign exchange contracts in respect of future income,
pensions and related deferred taxation. Details of the reconciling differences
are given in Note 31 of Notes to the Financial Statements.
Liquidity and capital resources
The Group's Statement of Consolidated Cash Flows is presented on the basis of
total funds as opposed to "own funds." The Group holds funds for the account of
third parties, typically premiums received from clients and claims received
from insurance carriers that are in transit to insurance carriers or clients.
These amounts of fiduciary cash must be kept in certain regulated bank accounts
and are not generally available to service the Group's debt or for other
corporate purposes. Insurance brokering transactions typically generate large
cash flows and the timing of such cash flows can affect significantly the net
cash balances held at the year-end.
The Group's net cash inflow on a total funds basis before management of
liquid resources and financing was a net cash outflow of L6.2 million in fiscal
1997, net cash outflow of L95.4 million in fiscal 1998 and a net cash inflow of
L39.2 million in fiscal 1999. See "Consolidated Financial
Statements--Consolidated Statements of Cash Flows."
Cash and liquid resources, net of overdrafts, decreased from L616.7
million at December 31, 1997 to L596.4 million at December 31, 1998 and
increased to L622.2 million at December 31, 1999.
20
<PAGE>
In assessing the Group's "own funds", as opposed to total funds, and
working capital, the Group takes into account differing regulations in
different countries and states. The following table shows net working capital
of L6.2 million at December 31, 1998 and a negative L(9.2) million at December
31, 1999, in each case on the assumption that uncollected brokerage is treated
as an element of "own funds" working capital. Uncollected brokerage is defined
for these purposes as commissions and fees included within premiums due from
clients which we are unable to withdraw from regulated bank accounts
until collected. Previously, all uncollected brokerage had been classified as
"own funds" and the 1998 figures have been adjusted accordingly.
<TABLE>
<CAPTION>
Consolidated "Own Funds"(a)
----------------------------- -----------------------------
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
- ------------------------------------------------------------------ ------------- ------------- ------------- -------------
(L million)
<S> <C> <C> <C> <C>
Fixed assets 212.4 195.7 212.4 195.7
Trade receivables (excluding uncollected brokerage) 2,566.2 2,506.0 125.4 138.2
Uncollected brokerage 69.2 53.2 69.2 53.2
Investments, deposits and cash (b) 623.8 598.7 69.6 97.8
------------- ------------- ------------- -------------
Total assets 3,471.6 3,353.6 476.6 484.9
Trade payables (3,198.8) (3,053.9) (203.8) (185.2)
Net debt (35.4) (107.8) (35.4) (107.8)
Provisions (c) (124.5) (94.8) (124.5) (94.8)
------------- ------------- ------------- -------------
Net assets 112.9 97.1 112.9 97.1
============= ============= ============= =============
Net working capital (d) (563.4) (494.7) (9.2) 6.2
================================================================= ============= ============= ============= =============
</TABLE>
(a) "Own Funds" are based on management's estimates and assumes that
uncollected brokerage is treated as an element of "Own Funds" working
capital.
(b) Investments, deposits and cash in "own funds" is to a large extent matched
by liabilities within the Group's captive insurance companies. The
remainder was used to service local working capital requirements and
therefore the Group had limited excess cash in each of the periods
reflected above.
(c) For an analysis of provisions, see Note 22 of the Notes to the
Consolidated Financial Statements of the Group included elsewhere herein.
(d) Trade receivables and uncollected brokerage, less trade payables.
During fiscal 1997, the net cash outflow for acquisitions and disposals
amounted to L63.0 million and consisted of:
- -- L48.3 million for the Group's 33% interest in Gras Savoye, of which L15.2
million was deferred until July 1998;
- -- L8.2 million, L4.3 million and L2.1 million for the increased investment
in Richard Oliver, Scheuer and York Willis Group respectively;
- -- L4.9 million inflow in respect of further consideration from the sale in
fiscal 1996 of WF Corroon, net of L1.0 million in respect of other
businesses acquired and sold;
- -- less L5.0 million of cash held within businesses sold.
During fiscal 1998, the net cash outflow for acquisitions less proceeds
from disposals amounted to L32.3 million and consisted of L13.9 million for the
30% interest in Jaspers Wuppesahl, L5.0 million for the 30% interest in
Assurandorgruppen, L12.4 million for the 50% interest in Gruppo Ital Brokers
and L1.0 million for other acquisitions, net of disposal proceeds.
During fiscal 1999, the net cash outflow for acquisitions less proceeds
from disposals amounted to L10.5 million which included a payment of L10.3
million for a further 14.6% interest in Jaspers Wuppesahl increasing the
Group's ownership to 44.6%. The Group has additional call rights whereby it may
increase its ownership in Jaspers Wuppesahl to over 50% in 2012.
21
<PAGE>
In connection with many of its investments in associates, the Group
retains rights to increase its ownership percentage of such associates over
time, typically to a majority or 100% ownership position. In certain instances,
the other owners of the associates also have rights, typically at a price
calculated pursuant to a formula based on revenues or earnings, to put some or
all of their shares in the associates to the Group.
The Group is under a put obligation in connection with its stake in Gras
Savoye in which it has a 33% interest. As part of the Gras Savoye transaction,
the Group entered into a put arrangement, whereby the other shareholders in
Gras Savoye (primarily two families, two insurance companies and Gras Savoye's
executive management team) could put their shares to Willis. From 2001 to 2012,
to the extent that such shareholders exercise their put rights, the Group would
be obligated to buy such shares at a price determined by a contractual formula
based on earnings and revenue, potentially increasing its ownership from 33% to
90% if all shareholders put their shares. Management shareholders of Gras
Savoye (owning approximately 10% thereof) do not have general put rights
between 2001 and 2012, but have certain put rights on their death, disability
or retirement, pursuant to which payments are not expected to exceed L20
million. From 2001 to 2005, the incremental 57% of Gras Savoye may be put to
Willis at a price equal to the greater of approximately 800 million French
francs (L75.8 million at December 31, 1999 exchange rates) for the full 57% or
a price based on the formula. After 2005, the put price is determined solely by
the formula. The shareholders may put their shares individually at any time
during the put period.
While the management of neither Willis nor Gras Savoye expect significant
exercises of the puts, on a separate or aggregate basis, in the near to medium
term, nevertheless, management of Willis believes that, should the aggregate
amount of shares be put to it, sufficient funds would be available to satisfy
this obligation. In addition, the Company has a call option to move to majority
ownership under certain circumstances and in any event by 2009. Upon exercising
this call option, the remaining Gras Savoye shareholders have a put.
Cash payments in connection with the renegotiated arrangements for
administering the Sovereign run-off amounted to L12.0 million during fiscal
1998. This included pre-funding of estimated administrative costs for the first
three years. Accordingly, no significant cash payments were made in fiscal 1999
although annual payments of about L2.0 million, also on a pre-funded basis, are
expected to commence in fiscal 2000.
Cash payments in connection with the Group's on-going pensions review
amounted to L8.0 million in fiscal 1998 and L13.0 million in fiscal 1999 with
further cash payments expected to total approximately L47.0 million over the
next three fiscal years.
There are also a number of legal proceedings against the Group, which
together are not expected to have a material adverse effect on the Group's
financial position. See "Business--Legal Proceedings."
Capital expenditures for fiscal years 1997, 1998 and 1999, less the
proceeds from disposals of fixed assets, were L21.8 million, L26.5 million,
and L18.7 million, respectively. The Group has funded its requirements for
capital expenditures by cash generated internally from operations and from
external financing and expects to continue to do so in the future.
The Group entered into a credit agreement on July 22, 1998. The credit
agreement, as amended, is comprised of a term loan facility of $450 million
under which portions of the loan mature on four different dates between 2005
and 2008 and a revolving credit facility of $150 million.
Borrowings under the term loan portions of the credit agreement were
borrowed in full on November 19, 1998 to refinance certain existing
indebtedness of the Group, to make an intercompany loan to Trinity, and to
finance the payment of fees and expenses incurred in connection with the tender
offer by Trinity for the outstanding shares of the Company.
The revolving credit portion is available for working capital requirements
and general corporate purposes, subject to certain limitations. The revolving
credit facility will be available on a revolving basis for loans denominated in
U.S. dollars, pounds sterling and certain other currencies and for letters of
credit, including to support loan note guarantees. At December 31, 1999 the
revolving credit facility was undrawn.
22
<PAGE>
On February 2, 1999, Willis North America issued $550 million 9% Senior
Subordinated Notes, the proceeds from which were used to repay short-term
facilities. The Notes will mature on February 1, 2009 and interest will be
payable thereon semi-annually on February 1 and August 1 of each year,
commencing August 1, 1999.
Willis North America has entered into an interest rate swap agreement
pursuant to which its LIBOR-based floating rate interest payment obligations on
the full amount of the term loans have been swapped for fixed rate interest
payment obligations, resulting in an effective base rate of 5.099% per annum,
plus the applicable margin, until the final maturity of such term loans. The
swap agreement provides for a reduction of the notional amount of the swap
obligation on a semi-annual basis and, to the extent the actual amount
outstanding under the term loans exceeds the notional amount at any time,
Willis North America would be exposed to the risk of increased interest rates
on such excess.
Willis North America has made loans to Trinity of the net proceeds from
the term loans and the Notes. These loans to Trinity generally mirror the terms
and maturity dates of the applicable underlying loans. The intercompany
subordinated note currently bears interest at a rate equal to the interest rate
on the Notes, plus 70 basis points, and the intercompany bank note bears
interest at a rate equal to the interest rate for the term loans, plus 25 basis
points. In addition, the indenture for the Notes permits Willis and its
subsidiaries to make loans to Trinity so long as the proceeds of such loans are
immediately used to make loans to the Company or its subsidiaries.
The Company and its subsidiaries may pay interest on any intercompany note
issued in favor of Trinity, and may make loans or pay dividends to Trinity in
an amount sufficient to enable Trinity to pay interest and principal then due
on any intercompany note issued by Trinity, intercompany subordinated note or
intercompany bank note, in each case so long as such amounts are immediately
repaid to the Company or its subsidiaries. The aggregate amount of intercompany
notes issued in favor of Trinity outstanding at December 31, 1999 was $1,012.5
million, the aggregate amount of intercompany notes issued by Trinity
outstanding was L614 million ($995 million).
TA II Limited, of which the Company is an indirect wholly owned
subsidiary, is relying wholly on the Group to provide funds sufficient for TA
II Limited to pay dividends on its preference shares. The preference shares
(with an aggregate liquidation preference of approximately $270 million) carry
the right to a cumulative dividend of 8.5% per annum, excluding the amount of
any associated tax credits. TA II Limited has the option to satisfy 1% per
annum of this cumulative dividend by the issue of additional preference shares.
23
<PAGE>
Item 9A -- Quantitative and Qualitative Disclosures about Market Risk
Foreign exchange risk management
The Group's objective is to maximise its cash flow in U.S. dollars. Within the
U.K., approximately 50% of operating revenues arise in currencies other than
sterling resulting in a significant mismatch between sterling revenues and
sterling expenses. The Group's policy is to convert into sterling all revenues
arising in currencies other than U.S. dollars together with sufficient U.S.
dollar revenues to fund the remaining sterling expenses. Outside the U.K., only
those cash flows necessary to fund mismatches between revenues and expenses are
converted into local currency; amounts remitted to the U.K. are generally
converted into sterling. These transactional currency exposures are managed by
entering into forward exchange contracts. It is Group policy to hedge at least
25% of the next 12 months' exposures in significant currencies.
The table below provides information about the Group's foreign currency
forward exchange contracts that are sensitive to exchange rate risk. The table
summarizes the sterling equivalent amounts of each currency bought and sold
forward and the weighted average contractual exchange rates. All forward
exchange contracts mature within two years.
<TABLE>
<CAPTION>
Settlement date before December 31,
------------------------------------------------------------------------------
2000 2001
---------------- ---------------- ---------------- ----------------
Average Average
contractual contractual
December 31, 1999 Contract amount exchange rate Contract amount exchange rate
----------------- ---------------- ---------------- ---------------- ----------------
(denomination (denomination
(L million) per L) (L million) per L)
<S> <C> <C> <C> <C>
Foreign currency
sold
US Dollars 34.0 1.59 12.6 1.59
Japanese Yen 6.7 182.13 4.6 165.99
Euros 6.6 1.43 3.4 1.47
---------------- ---------------- ---------------- ----------------
Total 47.3 20.6
================= ================ ================
Fair Value(1) 0.7 --
================= ================ ================
</TABLE>
<TABLE>
<CAPTION>
Settlement date before December 31,
------------------------------------------------------------------------------
1999 2000
---------------- ---------------- ---------------- ----------------
Average Average
contractual contractual
December 31, 1998 Contract amount exchange rate Contract amount exchange rate
----------------- ---------------- ---------------- ---------------- ----------------
(denomination (denomination
(L million) per L) (L million) per L)
<S> <C> <C> <C> <C>
Foreign currency
sold
US Dollars 41.5 1.58 21.4 1.59
Japanese Yen 5.6 191.51 4.3 84.37
Deutschemarks 2.3 2.75 5.1 2.70
French Francs 1.6 8.33 -- --
Italian Lire 1.4 2,537.25 -- --
Foreign currency
bought
Deutschemarks (10.4) 2.80 -- --
---------------- ----------------
Total 42.0 30.8
================= ================ ================
Fair Value(1) 2.2 0.5
================= ================ ================
</TABLE>
(1) Represents the difference between the contract amount and the cash flow in
sterling which would have been receivable had the foreign currency forward
exchange contracts been entered into on December 31, 1999 or 1998 at the
forward exchange rates prevailing at that date.
24
<PAGE>
Interest rate risk management
The Group's operations are financed principally by bank borrowings and Notes.
Interest rate swaps are used to generate the desired interest rate profile and
to manage the Group's exposure to interest rate fluctuations. The Group's
policy is to minimise its exposure to increases in interest rates on its
borrowings. Accordingly, the majority of the Group's floating rate borrowings
is currently hedged through the use of interest rate swaps.
As a consequence of the Group's trading activities, there is a delay
between the time the Group receives cash for premiums and claims and the time
the cash needs to be paid. The Group earns interest on this `float', which is
included in the Group's financial statements as investment income. This `float'
is regulated in terms of access and the instruments in which it may be
invested, most of which are short-term in maturity. The Group manages the
interest rate risk arising from this exposure though the use of interest rate
swaps, forward rate agreements and other option based financial instruments.
It is Group policy that, for currencies with significant balances, a
minimum of 25% of forecast income arising is hedged for each of the next three
years.
25
<PAGE>
The table below provides information about the Group's derivative
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and forward rate agreements. For
interest rate swaps, the table presents notional principal amounts and average
interest rates analyzed by expected maturity dates. Notional principal amounts
are used to calculate the contractual payments to be exchanged under the
contracts. The duration of interest rate swaps varies between one and five
years, with an average re-fixing period of three months. Average variable rates
are based on interest rates set at December 31, 1999 or, in the case of
interest rate swaps not yet started, at the rates prevailing at December 31,
1999. The information is presented in sterling, which is the Group's reporting
currency; the actual currencies of the instruments are indicated in
parentheses.
<TABLE>
<CAPTION>
Expected to mature before December 31,
--------------------------------------------------------------- Fair
December 31, 1999 2000 2001 2002 2003 2004 Thereafter Total Value(1)
- ------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(L million, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
Principal ($) 340 283
Fixed rate payable 9.0%
Principal ($) 1 6 8 9 246 270
Variable rate payable 8.10% 8.25% 8.22% 8.20% 8.47%
Interest rate swaps
Principal ($) 99 125 190 27 441
Fixed rate receivable 6.46% 5.44% 5.98% 6.62% 5.97% (4.63)
Variable rate payable 6.51% 6.81% 6.92% 6.98% 6.80%
Principal ($) 262 262
Fixed rate payable 5.10% 5.10% 15.81
Variable rate receivable 7.12% 7.12%
Principal (L) 45 70 63 14 192
Fixed rate receivable 7.19% 6.30% 6.52% 7.21% 6.65% (0.57)
Variable rate payable 6.71% 6.94% 7.03% 6.97% 6.92%
Principal (Euro) 6 8 16 30
Fixed rate receivable 4.65% 4.38% 3.97% 4.22% (0.17)
Variable rate payable 3.93% 4.46% 4.77% 4.52%
Principal (Euro) 3 3
Fixed rate payable 4.61% 4.61% (0.03)
Variable rate receivable 3.85% 3.85%
Principal (Japanese Yen) 5 5
Fixed rate receivable 1.70% 1.70% 0.06
Variable rate payable 0.47% 0.47%
Forward rate agreements
Principal (L) 28 28
Fixed rate receivable 6.63% 6.63% 0.01
Variable rate payable 6.71% 6.71%
======================== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) Represents the net present value of the expected cash flows discounted at
current market rates of interest.
26
<PAGE>
<TABLE>
<CAPTION>
Expected to mature before December 31,
--------------------------------------------------------------- Fair
December 31, 1998 1999 2000 2001 2002 2006 Total Value(1)
- ------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(L million, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate swaps
Principal ($) 97 170 119 16 402 5.1
Fixed rate receivable 6.45% 6.43% 5.73% 5.78% 6.20%
Variable rate payable 5.28% 5.20% 5.06% 5.06% 5.17%
Principal ($) 273 273 0.8
Fixed rate payable 5.10% 5.10%
Variable rate receivable 5.06% 5.06%
Principal (L) 55 62 35 14 166 4.4
Fixed rate receivable 7.92% 7.22% 6.52% 6.88% 7.27%
Variable rate payable 6.75% 6.55% 6.13% 6.13% 6.49%
Principal (Deutschemarks) 4 7 7 18 0.3
Fixed rate receivable 4.55% 4.65% 4.23% 4.48%
Variable rate payable 3.65% 3.48% 3.36% 3.48%
Principal (Deutschemarks) 4 4 (0.1)
Fixed rate payable 4.61% 4.61%
Variable rate receivable 3.56% 3.56%
Principal (Italian Lire) 2 3 5 0.1
Fixed rate receivable 7.11% 4.69% 5.77%
Variable rate payable 4.59% 3.25% 3.85%
Principal (Japanese Yen) 7 4 11 0.1
Fixed rate receivable 1.45% 1.70 1.54%
Variable rate payable 0.40% 0.22% 0.33%
Forward rate agreements
Principal (L) 56 56 0.2
Fixed rate receivable 7.02% 7.02%
Variable rate payable 6.13% 6.13%
===================================== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) Represents the net present value of the expected cash flows discounted at
current market rates of interest.
For further discussion about the Group's financial instruments, see Note
25 of Notes to the Financial Statements.
27
<PAGE>
Item 10 -- Directors and Officers of Registrant
The business of the Company and the strategic direction of the Group are
managed by a Board of 8 directors, comprising executive and non-executive
directors. Day to day management is delegated to the Group Executive Committee
of the Board of the Company consisting of the Executive Chairman, the executive
directors, and one senior Group executive who is not an executive director. The
directors and officers of the Company at December 31, 1999 were:
Executive Directors
John Reeve, aged 55, joined the board of directors on September 19, 1995 and
became Executive Chairman on December 1, 1995. He was managing director of Sun
Life Corporation plc between April 1989 and October 1995. He is also a non-
executive director of Temple Bar Investment Trust plc and a member of the
executive committee and board of directors of the International Insurance
Society, Inc.
Richard J.S. Bucknall, aged 51, joined the board of directors on November
1, 1998. He is chief executive of the Group's Global Specialities unit and,
from October 1999, of U.K. Retail. He also has executive responsibilities for
the discontinued U.K. underwriting operations. Mr. Bucknall has 33 years of
experience in the insurance brokerage industry, of which 14 years have been at
the Company.
Thomas Colraine, aged 41, has been the Group Finance Director since
September 1997 and joined the board of directors of the Company on August 31,
1997. From January 1995 to October 1996, he was chief financial officer of the
Group's North American operations and was change program director from October
1996 to September 1997. Mr. Colraine has 11 years of experience in the
insurance brokerage industry, all 11 years of which have been at the Company.
Brian D. Johnson, aged 57, joined the board of directors on January 1,
1993. He is an actuary and he is chief executive of the Group's North American
Retail and U.S. Wholesale operations. Mr. Johnson has 36 years of experience in
the insurance brokerage industry, of which 34 years have been at the Company.
Patrick Lucas, aged 60, joined the board of directors on April 15, 1998 as
a non-executive director. He is the Managing Partner of Gras Savoye, and
Chairman and Chief Executive Officer of Gras Savoye S.A. and Gras Savoye
Reassurance. Mr. Lucas has 34 years of experience in the insurance brokerage
industry.
George F. Nixon, aged 59, joined the board of directors on January 1,
1993. He was the executive responsible for the Group's U.K. retail activities
until October 1999. He is chairman of the Company's European Retail Advisory
Board and of the Knowledge Management Steering Group. Mr. Nixon has 43 years of
experience in the insurance brokerage industry, of which 35 years have been at
the Company.
John M. Pelly, aged 46, joined the board of directors on November 1, 1998.
He is chairman and chief executive of Reinsurance. Mr. Pelly has 27 years of
experience in the insurance brokerage industry, all 27 years of which have been
at the Company.
Kenneth H. Pinkston, aged 57, joined the board of directors on January 1,
1993. He was until October 1999 the executive responsible for North American
Retail, U.S. Wholesale, Asia-Pacific and the rest of the world. From October
1999 he is the executive responsible for developing strategic carrier
relationships in North America and undertaking specific global assignments for
the Board. Mr. Pinkston has 36 years of experience in the insurance brokerage
industry, of which 28 years have been at the Company.
Officers
Michael P. Chitty, aged 48, has been Company Secretary since January 1, 1995.
From April 1983 to October 1990 he was Secretary and from October 1990 to
December 1994 he was Joint Secretary. Mr. Chitty has 23 years of experience in
the insurance brokerage industry, all 23 years of which have been at the
Company.
General
There are no family relationships among the directors and officers of the
Company.
28
<PAGE>
Item 11 -- Compensation of Directors and Officers
In the fiscal year ended December 31, 1999, the aggregate compensation
(including directors' fees, pension plan contributions and bonuses) paid to or
accrued for all the directors and officers of the Company as a group (9
persons) was L4,383,369. The aggregate amount of compensation (including
pension contributions) of the highest paid director in the fiscal year was
L1,000,611.
The aggregate amount set aside or accrued to provide pension, retirement
and similar benefits for the directors and officers of the Company during the
year ended December 31, 1999 was L933,271.
Executive Directors
The remuneration of each director is reviewed annually to ensure that the
directors are rewarded for their contribution as well as motivating them to
improve the Group's performance against agreed targets.
The directors' remuneration is made up of basic salary, performance-
related incentives and benefits. The Annual Incentive Plan provides a cash
bonus to middle and senior management as well as the directors based on
performance by reference to the Group's results and agreed qualitative
objectives.
Pensions for the U.K. directors, other than J. Reeve, are provided for
through an Inland Revenue approved final salary plan funded by the Group under
which they are entitled to a pension on retirement at age 60. Similar
arrangements exist for the U.S. executive directors except that a significant
proportion of the benefit is provided through non-qualified unfunded plans. An
unfunded pension plan has been established for J. Reeve under which he is
entitled to receive a pension from November 1, 2000.
Non-executive Directors
The Board determines the non-executive directors' fees which relate to their
services in connection with Board and Committee meetings, or for services to
the Group outside normal Board duties. Until September 30, 1999 the non-
executive director received an annual fee of L21,000 and a daily travel
allowance of L650 for attending meetings outside his country of residence. From
October 1, 1999, he receives a daily attendance allowance of L1,500.
Item 12 -- Options to Purchase Securities from Registrant or Subsidiaries
There are no options existing for the purchase of Securities from the Company
or its subsidiaries.
Item 13 -- Interest of Management in Certain Transactions
See Note 29 of Notes to the Financial Statements.
29
<PAGE>
PART III
Item 15 -- Defaults Upon Senior Securities
None.
Item 16 -- Changes in Securities and Changes in Security for Registered
Securities and Use of Proceeds.
None.
PART IV
Item 18 -- Financial Statements
See pages F-1 through F-50 and S-1.
Item 19 -- Financial Statements and Exhibits
(a) Financial Statements
The following financial statements and schedule, together with the reports of
Deloitte & Touche and Ernst & Young thereon, are filed as part of this annual
report:
Reports of Independent Auditors F-1
Consolidated Financial Statements
Consolidated Statement of Income F-3
Consolidated Balance Sheet F-4
Consolidated Statement of Movements in Shareholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Consolidated Statement of Total Recognized Gains and Losses F-7
Notes to the Financial Statements F-8
Schedule
Schedule II -- Valuation and Qualifying Accounts S-1
(b) Exhibits
None
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all the requirements for filing on
Form 20-F and has duly caused this annual report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WILLIS GROUP LIMITED
(Registrant)
By: T COLRAINE
----------------------------------------------
Name: T Colraine
Title: Group Finance Director
Dated: London, March 20, 2000
31
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
Willis Group Limited
We have audited the consolidated financial statements of Willis Group Limited
and its subsidiary undertakings for the year ended December 31, 1999 on pages
F-3 to F-50 inclusive. Our audit also included the financial statement schedule
as of and for the year ended December 31, 1999 listed in the Index at Item
19(a). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United Kingdom, which do not differ in any material respects
from auditing standards generally accepted in the United States. Those
standards require that we plan and perform an 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 accounts. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall account presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Willis Group
Limited and its subsidiary undertakings at December 31, 1999 and the results of
their operations and their cash flows for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United Kingdom
(which differ in certain material respects from generally accepted accounting
principles in the United States -- See Note 31). Also, in our opinion, the
related financial statement schedule for the year ended December 31, 1999 when
considered in relation to the financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
Deloitte & Touche
Chartered Accountants and Registered Auditors
London, England.
March 20, 2000
F-1
<PAGE>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
Willis Group Limited
We have audited the accompanying consolidated balance sheet of Willis Group
Limited as of December 31, 1998 and the related consolidated statements of
income, movements in shareholders' equity, cash flows and total recognized
gains and losses for the year ended December 31, 1997 and the periods January 1
to September 1, 1998 and September 2 to December 31, 1998. We also audited the
financial statement schedule listed in the Index at Item 19(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with United Kingdom auditing
standards which do not differ in any significant respect from United States
generally accepted auditing standards. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Willis Group Limited at December 31, 1998 and the consolidated results of
its operations and its consolidated cash flows for the year ended
December 31, 1997 and the periods January 1 to September 1, 1998 and September
2 to December 31, 1998, in conformity with accounting principles generally
accepted in the United Kingdom, which differ in certain respects from those
followed in the United States (see Note 31 of Notes to the Financial
Statements). Also, in our opinion, the related financial statement schedule,
for the year ended December 31, 1997 and the period January 1 to September 1,
1998 and September 2 to December 31, 1998, when considered in relation to the
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Ernst & Young
London, England
March 20, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Note 1999 1998 1998 1997
- -------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(L million)
<S> <C> <C> <C> <C> <C>
Commissions and fees 3 727.8 236.0 441.9 652.3
Interest and
investment income 5 38.6 13.4 26.9 41.7
------------------ ------------------ ------------------ ------------------
Total operating
revenues 766.4 249.4 468.8 694.0
Operating expenses
before exceptional
items (714.8) (223.4) (412.0) (601.9)
Exceptional items (54.6) (5.0) (35.8) --
Operating expenses (769.4) (228.4) (447.8) (601.9)
------------------ ------------------ ------------------ ------------------
Total operating
(loss)/income 5 (3.0) 21.0 21.0 92.1
Gain/(loss) on
disposal/closure of
operations 1.5 (1.3) (28.0) 2.2
Share of profit/
(loss) of associates 6.6 (1.4) 7.7 1.9
Interest income 7 56.8 7.1 -- --
Interest expense 8 (54.2) (8.3) (2.0) (0.7)
------------------ ------------------ ------------------ ------------------
Income/(loss) before
taxation 9 7.7 17.1 (1.3) 95.5
Taxation 10 (11.1) (40.9) (13.5) (38.1)
------------------ ------------------ ------------------ ------------------
(Loss)/income after
taxation (3.4) (23.8) (14.8) 57.4
Equity minority
interests (3.0) (1.9) (0.8) (0.5)
------------------ ------------------ ------------------ ------------------
Net (loss)/income (i) (6.4) (25.7) (15.6) 56.9
Dividends 11 (74.8) -- (22.2) (27.6)
------------------ ------------------ ------------------ ------------------
Retained (loss)/
income (81.2) (25.7) (37.8) 29.3
================== ================== ================== ==================
Per ordinary share (i)
Net (loss)/income 12 (1.4)p (6.0)p (3.7)p 13.6p
================== ================== ================== ==================
Average number of
ordinary shares
outstanding (in
millions) 470.8 427.1 424.6 421.5
========================================== ================== ================== ================== ==================
</TABLE>
(i) A summary of the significant adjustments to net income that would be
required if United States generally accepted accounting principles were to
be applied instead of those generally accepted in the United Kingdom is
set forth in Note 31.
The Notes to the Financial Statements are an integral part of these Financial
Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
December 31,
-------------------------------------------------------------------
Note 1999 1998
----------------------------------------- -------------- -------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS (L million)
Current assets
Cash and short-term deposits 329.3 317.1
Investments 13 294.5 281.6
Receivables 14 3,878.6 3,794.6
-------------- --------------
Total current assets 4,502.4 4,393.3
Fixed assets
Intangible assets 15 30.1 19.7
Tangible assets 16 135.7 141.6
Investments 17 46.6 34.4
-------------- --------------
Total fixed assets 212.4 195.7
-------------- --------------
Total assets 4,714.8 4,589.0
========================================= ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade payables 2,985.6 2,860.3
Corporate tax 29.8 17.7
Accruals and deferred income 72.8 67.6
Bank loans and overdrafts 19 1.6 352.7
Other 18 746.3 817.4
-------------- --------------
Total current liabilities 3,836.1 4,115.7
Noncurrent liabilities
Bank loans 19 270.1 276.4
Loan notes 19 334.6 --
Other 20 36.6 5.0
-------------- --------------
Total noncurrent liabilities 641.3 281.4
Provisions for liabilities and charges 22 124.5 94.8
Equity minority interests 11.1 8.1
-------------- --------------
Total liabilities and minority interests 4,613.0 4,500.0
Shareholders' equity (i)
Share capital 59.5 53.6
Share premium 118.0 28.5
Revaluation reserve 14.9 14.9
Retained earnings/(deficit) (90.6) (8.0)
-------------- --------------
Total shareholders' equity 101.8 89.0
-------------- --------------
Total liabilities and shareholders'
equity 4,714.8 4,589.0
========================================= ============== ==============
</TABLE>
(i) A summary of the significant adjustments to shareholders' equity that
would be required if United States generally accepted accounting
principles were to be applied instead of those generally accepted in the
United Kingdom is set forth in Note 31.
The Notes to the Financial Statements are an integral part of these Financial
Statements.
F-4
<PAGE>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Authorized Share Capital Ordinary Shares
--------------------------------------------------------------------------------------------------- ----------------------------
Number (000) (L million)
At January 1, 1997, and December 31, 1997, 1998 and 1999 528,000 66.0
=================================================================================================== ============ ============
Issued Share Capital
----------------------------- Share Revaluation Retained
Issued Share Capital and Reserves Ordinary Shares premium(i) reserve(i) earnings(ii)
--------------------------------------------------- ----------------------------- ------------ ------------ ------------
Number (000) (L million)
<S> <C> <C> <C> <C> <C>
At January 1, 1997 420,077 52.5 18.0 14.9 66.5
Retained income -- -- -- -- 29.3
Issued for acquisitions 1,545 0.2 1.8 -- --
Issued under employee share plans 1,352 0.2 1.6 -- --
Goodwill on acquisitions eliminated (iii) -- -- -- -- (68.9)
Goodwill reinstated on disposals -- -- -- -- 6.6
Exchange adjustments -- -- -- -- 1.9
------------ ------------ ------------ ------------ ------------
At December 31, 1997 422,974 52.9 21.4 14.9 35.4
Retained income -- -- -- -- (63.5)
Scrip dividends 1,758 0.2 2.2 -- --
Issued under employee share plans 3,683 0.5 4.9 -- --
Goodwill on acquisitions eliminated (iv) -- -- -- -- 0.2
Goodwill reinstated on disposals -- -- -- -- 30.4
Exchange adjustments -- -- -- -- (10.5)
------------ ------------ ------------ ------------ ------------
At December 31, 1998 428,415 53.6 28.5 14.9 (8.0)
Retained income -- -- -- -- (81.2)
Convertible loan conversion 46,465 5.7 87.2 -- --
Issued for cash 1,250 0.2 2.3 -- --
Goodwill reinstated on disposals -- -- -- -- 4.8
Exchange adjustments -- -- -- -- (6.2)
------------ ------------ ------------ ------------ ------------
At December 31, 1999 476,130 59.5 118.0 14.9 (90.6)
==================================================== ============ ============ ============ ============ ============
</TABLE>
(i) The share premium and revaluation reserve are not distributable.
(ii) Retained earnings at December 31, 1999 included L8.5 million (1998: L4.1
million, 1997: L2.9 million) in respect of associates.
(iii)Goodwill eliminated in 1997 comprised subsidiaries (L20.8 million) and
associates (L48.1 million).
(iv) Goodwill eliminated in 1998 comprised adjustments relating to subsidiaries
acquired before December 31, 1997.
(v) The cumulative amount of goodwill eliminated before December 31, 1997, net
of goodwill relating to subsidiaries sold, amounts to L537.3 million.
(vi) Trinity Acquisition Limited ("Trinity") has the right to convert the
preferred shares it holds in a non-U.K. subsidiary into 563,580 ordinary
shares of Willis Group Limited ("ordinary shares") at any time up to
December 31, 2002.
The Notes to the Financial Statements are an integral part of these Financial
Statements.
F-5
<PAGE>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Note 1999 1998 1998 1997
- -------------------- ------------------ ------------------ ------------------ ------------------ ------------------
(L million)
<S> <C> <C> <C> <C> <C>
Net cash inflow/
(outflow) from
operating activities 24 130.4 (97.7) 127.5 113.4
------------------ ------------------ ------------------ ------------------
Dividends from
associates 2.2 0.5 1.9 0.9
------------------ ------------------ ------------------ ------------------
Returns on
investments and
servicing of finance
Interest paid (44.8) (1.1) (1.8) (0.6)
Interest received 47.8 -- -- --
Bank fees on
borrowings (4.7) (9.6) -- --
Minority dividend
paid (1.1) -- -- --
Interest element of
finance lease rental
payments -- -- (0.1) (0.1)
------------------ ------------------ ------------------ ------------------
Net cash outflow for
returns on
investment and
servicing of finance (2.8) (10.7) (1.9) (0.7)
------------------ ------------------ ------------------ ------------------
Taxation (12.8) (18.5) (8.4) (23.7)
------------------ ------------------ ------------------ ------------------
Capital expenditure
and financial
investment
Purchase of tangible
fixed assets (25.1) (9.8) (20.1) (26.5)
Sale of tangible
fixed assets 6.4 1.0 2.4 4.7
Purchase of fixed
asset investments (0.2) -- (1.9) (5.0)
Sale of fixed asset
investments 0.8 -- -- --
------------------ ------------------ ------------------ ------------------
Net cash outflow for
capital expenditure
and financial
investment (18.1) (8.8) (19.6) (26.8)
------------------ ------------------ ------------------ ------------------
Acquisitions and
disposals
Purchase of
subsidiaries (10.2) (16.7) (1.5) (17.1)
Purchase of
associates (10.6) (5.7) (14.9) (35.6)
Sale of subsidiaries 9.0 1.6 5.0 10.5
Net cash transferred
on purchase/sale of
subsidiaries 1.3 (2.3) 2.2 (0.5)
------------------ ------------------ ------------------ ------------------
Net cash outflow for
acquisitions and
disposals (10.5) (23.1) (9.2) (42.7)
------------------ ------------------ ------------------ ------------------
Equity dividends
paid (49.2) (7.6) (19.8) (26.6)
------------------ ------------------ ------------------ ------------------
Cash flow before
management of liquid
resources and
financing 39.2 (165.9) 70.5 (6.2)
------------------ ------------------ ------------------ ------------------
Management of liquid
resources (35.2) 122.2 (66.8) 2.8
------------------ ------------------ ------------------ ------------------
Financing
Issue of ordinary
shares 2.5 4.0 0.7 0.3
Amounts due from
parent company 23.0 (858.3) -- --
Amounts due to
parent company (7.8) 332.6 -- --
Convertible
debentures -- (0.2) -- --
Debt due within a
year:
Increase in short-
term borrowings -- 349.4 -- --
Decrease in short-
term borrowings (351.0) -- -- --
Debt due beyond a
year:
Increase in long-
term borrowings -- 307.9 32.6 15.7
Decrease in long-
term borrowings (11.4) (99.2) -- --
Issue of Senior
Subordinated Notes 333.3 -- -- --
Capital element of
finance lease rental
payments -- -- (0.6) (1.0)
------------------ ------------------ ------------------ ------------------
Net cash inflow/
(outflow) from
financing (11.4) 36.2 32.7 15.0
------------------ ------------------ ------------------ ------------------
Increase/(decrease)
in cash (7.4) (7.5) 36.4 11.6
========================================== ================== ================== ================== ==================
</TABLE>
(i) Acquisitions and disposals and financing activities not involving cash
consideration: The fair value of ordinary shares issued in connection with
acquisitions in 1997 amounted to L2.0 million.
(ii) The significant differences between the consolidated statement of cash
flows presented above and that required under U.S. GAAP are described in
Note 31.
The Notes to the Financial Statements are an integral part of these Financial
Statements.
F-6
<PAGE>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Net (loss)/income
Parent and subsidiaries (11.1) (22.6) (23.1) 55.4
Associates 4.7 (3.1) 7.5 1.5
---------------- ---------------- ---------------- ----------------
(6.4) (25.7) (15.6) 56.9
Currency translation differences
Subsidiaries (4.9) (7.8) (2.2) 1.4
Associates (1.3) (0.5) -- 0.5
---------------- ---------------- ---------------- ----------------
Total recognized gains and losses for the financial
year (12.6) (34.0) (17.8) 58.8
===================================================== ================ ================ ================ ================
</TABLE>
(i) A statement of Comprehensive Income under U.S. GAAP is set forth in Note
31 of Notes to the Financial Statements.
The Notes to the Financial Statements are an integral part of these Financial
Statements.
F-7
<PAGE>
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
NOTES TO THE FINANCIAL STATEMENTS
Note 1 -- Accounting policies
Basis of preparation
The consolidated financial statements of Willis Group Limited (the "Company")
and its subsidiaries (together, the "Group") have been prepared on the going
concern basis under the historical cost convention as modified by the
revaluation of certain land and buildings. The Group's consolidated financial
statements comply with accounting standards applicable in the United Kingdom.
The Company was acquired by Trinity effective September 2, 1998. While
this acquisition has no impact on the basis of accounting for the Company, in
accordance with the requirements of the U.S. Securities and Exchange
Commission, financial information for the periods January 1 to September 1,
1998, and September 2 to December 31, 1998 is presented separately. Under U.S.
GAAP, the acquisition establishes a new basis of accounting for the Company
from September 2, 1998 as described in Note 31.
Basis of consolidation
The Group's consolidated financial statements incorporate those of the Company
and its subsidiaries based on financial statements drawn up to December 31.
Significant inter-company transactions and balances are eliminated on
consolidation. Interests of outside shareholders in non-wholly owned
subsidiaries are shown as minority interests. Associates, being those entities
in which the Group has a long-term equity interest and over which it exercises
significant influence, are included on the basis of the Group's proportion of
the operating profit and loss, interest expense, taxation and net assets (the
equity method). The results of subsidiaries and associates acquired or disposed
of during the year are included from or to the relevant dates of acquisition or
disposal.
Goodwill
Goodwill arising on acquisitions occurring after January 1, 1998 is capitalized
and amortized on a straight-line basis over its estimated useful economic life,
determined on the individual circumstances of each business acquired but
limited to a maximum period of 20 years. Goodwill on acquisitions completed
before January 1, 1998 was eliminated against retained earnings and, as
permitted by Financial Reporting Standard ("FRS") 10, has not been reinstated.
On disposal of a business acquired before January 1, 1998, any goodwill which
was previously eliminated against retained earnings is reinstated and charged
to the income statement.
Revenue recognition
The Group takes credit for commission (or fees negotiated instead of
commission) at the date when the insured is debited or at the inception date of
the policy, whichever is the later. Commissions on return and additional
premiums and adjustments are brought into account as and when these occur;
other fees and commissions are accounted for on a receivable basis.
Insurance brokering receivables and payables
Insurance brokers usually act as agents in placing the insurable risks of their
clients with insurers and, as such, generally are not liable as principals for
amounts arising from such transactions. Notwithstanding the legal relationships
with clients and insurers, insurance brokers are entitled to retain investment
income on any cashflows arising from insurance brokering transactions;
accounting standards require receivables and payables arising from such
transactions to be shown as assets and liabilities.
Debit and credit balances arising from insurance brokering transactions
are reported as separate assets or liabilities unless such balances are due to
or from the same party and the offset would survive the insolvency of that
party, in which case they are aggregated into a single net balance.
Funds held in connection with insurance brokering transactions are
generally required to be held in regulated bank accounts subject to local
operating guidelines and are not generally available for purposes other than
settling insurance brokering transactions.
F-8
<PAGE>
Note 1 -- Accounting policies (continued)
Currency translation
Transactions in currencies other than sterling are recorded at the rate of
exchange at the date of the transaction, or, in the case of forward contracts
in respect of the current year's income, at the contracted rate. Assets and
liabilities in foreign currencies are translated into sterling at the rates of
exchange ruling at the balance sheet date. Exchange differences arising on the
translation of the net assets of non-U.K. subsidiaries and associates, and the
exchange differences arising on foreign currency borrowings taken out to
provide a hedge against the exchange risk associated with those investments,
are taken to retained earnings.
The results of overseas subsidiaries and associates are translated into
sterling at average rates of exchange and the difference between average rates
and year end rates is taken to retained earnings. Other exchange differences
are taken to income.
Depreciation
Depreciation is calculated on a straight line basis at rates estimated to write
down the value of assets over their expected useful lives. Depreciation on
freehold buildings and long leaseholds is provided at 2% per annum. Other
leaseholds are written off over the remaining period of the lease. Depreciation
on fixed plant, furniture, equipment and vehicles is provided at rates between
4% and 33 1/3% per annum. No depreciation is provided on freehold land.
Deferred tax
Deferred tax assets and liabilities are accounted for using the liability
method for all timing differences to the extent that it is probable that an
asset or liability will crystallize. No provision is made for tax that would be
payable on the disposal of revalued properties until it is decided in principle
to dispose of the asset.
Pensions
The regular cost of providing benefits is charged to operating income over the
employees' service lives on the basis of a constant percentage of pensionable
earnings. Variations from regular cost, arising from periodic actuarial
valuations, are allocated to operating income on a systematic basis over the
expected remaining service lives of current employees.
Financial derivatives
The Group uses derivative instruments for hedging purposes to alter the risk
profile of an existing underlying exposure. Interest rate swaps are used to
manage interest risk exposures and interest differentials are recognised over
the period of the contract. Forward foreign currency exchange contracts are
used to manage currency exposures arising from future income and gains or
losses based on the contracted rate are recognised on maturity of the contract.
F-9
<PAGE>
Note 2 -- Major acquisitions and disposals
Year ended December 31, 1997
There were no material acquisitions of subsidiaries in 1997.
Willis Faber & Dumas (Agencies) Limited ("WF&D Agencies")
WF&D Agencies, a Lloyd's members' agent, was disposed of in October 1997.
Gras Savoye & Cie ("Gras Savoye")
On December 30, 1997, the Group acquired a 33% interest in Gras Savoye for a
cash consideration of L47.8 million, of which L15.2 million was paid in July
1998. Goodwill eliminated against retained earnings amounted to L46.0 million.
Year ended December 31, 1998
Gruppo Ital Brokers
The Group acquired a 50% interest in Gruppo Ital Brokers in July 1998 for a
consideration of L13.0 million. Following this acquisition, a merger was
effected with the Group's existing Italian associate to form Willis Italia SpA.
S&C Willis Corroon Correduria de Seguros y Reaseguros SA
The Group increased its investment from 48% to 60% in July 1998 and reorganized
its existing Spanish and Portuguese operations.
Professional Liability Underwriting Management ("PLUM")
The Group's professional liability wholesale operation in the United States was
closed in May 1998. The loss on closure amounted to L30.3 million including
attributable goodwill which had previously been eliminated against retained
earnings.
Year ended December 31, 1999
There were no material acquisitions or disposals of subsidiaries in 1999.
F-10
<PAGE>
Note 2 -- Major acquisitions and disposals (continued)
The effect of acquiring subsidiaries (including major acquisitions), all of
which were accounted for under the purchase method of accounting, was as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Net assets acquired
Tangible assets 0.9 4.3 3.9
Fixed asset investments -- 0.6 0.3
Receivables 10.3 33.3 21.0
Cash and investments 1.2 3.2 4.7
Payables (11.8) (34.9) (19.3)
Provisions for liabilities and charges -- -- (3.9)
Minority interest (1.2) (2.7) (3.5)
Goodwill 11.9 19.7 20.8
Net assets previously reported as associates -- (2.0) (2.6)
-------------- -------------- --------------
11.3 21.5 21.4
============================================================================= ============== ============== ==============
Cost of Acquisitions
Cash 9.2 17.5 17.1
Deferred consideration 2.1 4.0 2.3
Shares issued -- -- 2.0
-------------- -------------- --------------
11.3 21.5 21.4
============================================================================= ============== ============== ==============
</TABLE>
The cash outflow of L10.2 million shown as "purchase of subsidiaries" in the
Consolidated Statement of Cash Flows includes L1.0 million relating to deferred
consideration paid during 1999 in respect of acquisitions completed in prior
years.
These acquisitions would have had no material impact on the results for
1997, 1998 and 1999 had they been consummated at the beginning both of the
respective years of acquisition and of the immediate preceding years.
F-11
<PAGE>
Note 2 -- Major acquisitions and disposals (continued)
The effect of the above, and other, disposals (including provisional
liquidation) was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Net assets disposed of
Tangible assets -- 0.6 0.6
Receivables 0.9 2.8 8.1
Deposits and cash (0.1) 3.3 5.2
Payables (0.8) (5.2) (11.0)
-------------- -------------- --------------
-- 1.5 2.9
Minority interest -- (0.3) --
Goodwill written off 3.0 30.1 2.5
Gain/(loss) on disposal 1.5 (27.5) 2.2
-------------- -------------- --------------
Total Proceeds 4.5 3.8 7.6
============================================================================= ============== ============== ==============
Satisfied by
Cash 4.5 3.0 4.5
Deferred consideration -- 0.8 3.1
-------------- -------------- --------------
4.5 3.8 7.6
============================================================================= ============== ============== ==============
</TABLE>
Operations sold during 1997 comprised WF&D Agencies which was sold on October
20, 1997 and Willis Corroon France SA on December 30, 1997. The contribution to
Group income up to their respective dates of disposal was L5.1 million and
L(0.5) million.
The subsidiaries disposed of during the year did not have a material
effect on the Group's operating cash flow.
The L9.0 million shown as "Sale of subsidiaries" in the Consolidated
Statement of Cash Flows includes L4.5 million relating to deferred
consideration received during 1999 in respect of disposals completed in prior
years.
F-12
<PAGE>
Note 3 -- Segmental analysis
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
Geographical analysis by December 31, December 31, September 1, December 31,
location of client 1999 1998 1998 1997
- --------------------------------------------------------- --------------- --------------- --------------- ---------------
(L million)
<S> <C> <C> <C> <C>
Commissions and fees
United Kingdom 163.2 55.1 110.2 165.0
North America 391.0 125.5 242.5 355.8
Rest of the World 173.6 55.4 89.2 131.5
--------------- --------------- --------------- ---------------
727.8 236.0 441.9 652.3
========================================================= =============== =============== =============== ===============
</TABLE>
The above table analyzes commissions and fees by the address of the client from
whom the business is derived. This does not necessarily reflect the original
source or location of the business.
F-13
<PAGE>
Note 3 -- Segmental analysis (continued)
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Geographical analysis by
location of company 1999 1998 1998 1997
--------------------------- --------------- --------------- --------------- ---------------
(L million)
<S> <C> <C> <C> <C>
Commissions and fees
United Kingdom 280.6 87.8 190.9 276.9
North America 359.7 115.9 223.6 325.2
Rest of the World 87.5 32.3 27.4 50.2
--------------- --------------- --------------- ---------------
727.8 236.0 441.9 652.3
--------------- --------------- --------------- ---------------
Total operating revenues
United Kingdom 306.4 96.4 209.0 305.2
North America 370.9 119.8 231.5 336.5
Rest of the World 89.1 33.2 28.3 52.3
--------------- --------------- --------------- ---------------
766.4 249.4 468.8 694.0
--------------- --------------- --------------- ---------------
Operating income
United Kingdom (25.2) 8.6 (4.5) 56.5
North America 5.4 3.6 22.1 27.7
Rest of the World 16.8 8.8 3.4 7.9
--------------- --------------- --------------- ---------------
(3.0) 21.0 21.0 92.1
--------------- --------------- --------------- ---------------
Depreciation and
amortization 26.8 8.9 15.5 22.7
--------------- --------------- --------------- ---------------
Capital expenditure 26.6 9.8 20.1 26.5
=========================== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
------------------------------------------ --------------- ---------------
(L million)
<S> <C> <C>
Net assets
United Kingdom (29.1) (27.9)
North America 73.9 84.8
Rest of the World 68.1 40.2
--------------- ---------------
112.9 97.1
--------------- ---------------
Total assets
United Kingdom 2,598.5 2,577.8
North America 1,922.4 1,843.3
Rest of the World 193.9 167.9
--------------- ---------------
4,714.8 4,589.0
========================================== =============== ===============
</TABLE>
F-14
<PAGE>
Note 4 -- Exceptional items
(i) Pensions Review
In common with many companies involved in selling personal pension plans, a
Group subsidiary is required by the Financial Services Authority and the
Personal Investment Authority ("the Regulator") to review certain categories of
personal pension plans sold to individuals between 1988 and 1994 and to
compensate those individuals who had suffered loss as a result of advice given.
Further provisions totalling L40.0 million were established during 1999
(1998: L25.0 million) as the estimated cost of compensation and administration
increased as a consequence of falling U.K. interest rates, changes in financial
and demographic assumptions prescribed by the Regulator and the prospect of
having to rework a substantial number of previously agreed claims as a result
of the Regulator's announcement in December 1999 of the discovery of errors in
the prescribed method of calculating compensation. For these reasons, there is
still uncertainty as to the ultimate exposure although, based on current
circumstances, the provisions are considered prudent.
(ii) Restructuring Charges
A charge of L10.5 million was made in 1999 to cover the costs of implementing
changes to business processes in the North American operations during 2000. The
charge comprised L4.0 million for severance payments covering 265 employees and
L6.5 million for property leases in excess of Group requirements.
(iii) Financing Costs
In connection with the issue of the 9% Senior Subordinated Notes, fees
amounting to L4.1 million were written off during 1999.
(iv) Costs in connection with the offer by Trinity
Legal and professional costs and debt issuance costs written off by the Group
in 1998 in connection with the acquisition by Trinity of the whole of the
issued share capital of the Company amounted to L15.8 million.
(v) Loss on closure/disposal of operations
The loss on closure of PLUM in May 1998 amounted to L0.7 million before writing
off attributable goodwill. In accordance with FRS 10, goodwill attributable to
PLUM of L29.6 million, which had been previously eliminated directly against
retained earnings, has been reinstated and written off as a component of the
loss on closure. This accounting requirement does not affect the Group's net
assets; the net impact after tax of the closure of PLUM was to reduce net
assets by L0.4 million. The profit on disposal of other operations during 1998
amounted to L1.0 million.
F-15
<PAGE>
Note 5 -- Operating income
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ------------------------ ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Operating (loss)/income
was arrived at after
(crediting)/charging:
Interest receivable (28.1) (8.7) (18.4) (30.0)
Investment income (10.5) (4.7) (8.5) (11.7)
---------------- ---------------- ---------------- ----------------
Interest and investment
income (38.6) (13.4) (26.9) (41.7)
---------------- ---------------- ---------------- ----------------
Auditors' remuneration
Audit fees 0.9 0.4 0.7 1.1
Other services provided
by auditors
(United Kingdom only) 0.7 0.2 0.2 0.4
Depreciation and
amortization on
Owned assets 26.8 8.9 15.4 22.2
Finance leased assets -- -- 0.1 0.5
Operating lease rentals
Land and buildings 30.4 9.3 19.2 28.1
Equipment 4.1 1.1 1.9 2.7
======================== ================ ================ ================ ================
</TABLE>
Note 6 -- Employees
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Salaries and associated expenses 1999 1998 1998 1997
-------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Salaries 396.2 131.5 240.4 345.7
Social security costs 27.4 7.7 16.7 23.7
Other pension costs 20.1 6.2 14.2 20.2
---------------- ---------------- ---------------- ----------------
443.7 145.4 271.3 389.6
================================================== ================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
Average for
----------------------------------------------------------------------------
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Number of Group employees 1999 1998 1998 1997
-------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(number)
<S> <C> <C> <C> <C>
United Kingdom 3,695 3,777 3,910 3,938
North America 4,324 4,348 4,363 4,531
Rest of the World 1,427 1,179 942 893
---------------- ---------------- ---------------- ----------------
9,446 9,304 9,215 9,362
================================================== ================ ================ ================ ================
</TABLE>
F-16
<PAGE>
Note 7 -- Interest income
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Interest receivable from parent company 56.1 7.1 -- --
Other interest receivable 0.7 -- -- --
---------------- ---------------- ---------------- ----------------
56.8 7.1 -- --
===================================================== ================ ================ ================ ================
</TABLE>
Note 8 -- Interest expense
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Bank loans and overdrafts 53.1 8.2 1.8 0.6
Amortization of bank fees 1.1 -- -- --
Interest payable by associates -- 0.1 0.1 --
Finance charges payable under finance leases -- -- 0.1 0.1
---------------- ---------------- ---------------- ----------------
54.2 8.3 2.0 0.7
===================================================== ================ ================ ================ ================
</TABLE>
Note 9 -- Income before taxation
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
United Kingdom (24.1) 6.4 (4.9) 53.7
Other countries 31.8 10.7 3.6 41.8
---------------- ---------------- ---------------- ----------------
7.7 17.1 (1.3) 95.5
===================================================== ================ ================ ================ ================
</TABLE>
F-17
<PAGE>
Note 10 -- Taxation
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Charge for the year 1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
U.K. corporation tax at 30.25%
(1998: 31.0% 1997: 31.5%) 12.0 (0.4) 11.9 16.2
U.S. 1.6 -- 4.7 5.1
Rest of World 10.3 6.1 0.2 6.0
Deferred tax (14.2) 23.9 (3.4) 10.5
Advance corporation tax written off -- 9.7 -- --
Overprovision in prior years (0.5) -- -- --
---------------- ---------------- ---------------- ----------------
9.2 39.3 13.4 37.8
Associates 1.9 1.6 0.1 0.3
---------------- ---------------- ---------------- ----------------
Charge for the year 11.1 40.9 13.5 38.1
===================================================== ================ ================ ================ ================
</TABLE>
The deferred tax credit for 1999 includes L6.0 million utilization of U.K.
deferred tax liabilities relating to depreciable assets and overseas
distributed profits, and the creation of a L4.6 million U.S. deferred tax asset
with respect to the North American restructuring charges. The deferred tax
charge for 1998 included the write-off of U.K. deferred tax assets amounting to
L23.4 million. The timing of the recovery of these assets is uncertain. The
deferred tax charge for 1997 included L1.1 million resulting from a reduction
in U.K. corporation tax rate from 33% to 31% and L2.7 million in respect of
discontinued operations which was no longer considered recoverable following
the provisional liquidation of Sovereign.
The total tax charge for 1999 includes a tax credit of L7.4 million (1998:
L3.8 million) relating to exceptional items.
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
Reconciliation of U.K. statutory rate to effective December 31, December 31, September 1, December 31,
rate 1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
% % % %
<S> <C> <C> <C> <C>
U.K. statutory rate 30.3 31.0 31.0 31.0
Adjusted for:
Rate change during the course of the year -- -- -- 0.5
Profits taxed at other than U.K. statutory rate:
U.S (11.9) 0.6 (92.3) 2.0
Rest of World 31.3 18.2 45.1 (1.5)
Capital gains not currently taxable or reduced by
other reliefs (1.4) (0.6) 50.1 (0.8)
Permanent differences and other items 99.2 2.1 (111.6) 8.5
Prior year adjustments (4.4) (5.7) -- 0.2
Disallowable costs incurred by the company on the
acquisition 1.5 -- (257.5) --
Disallowable consolidated goodwill eliminated on
disposal -- -- (703.5) --
---------------- ---------------- ---------------- ----------------
Effective rate 144.6 45.6 (1,038.7) 39.9
===================================================== ================ ================ ================ ================
</TABLE>
The effective rate excludes the write-off of advance corporation tax and
deferred taxes. Permanent differences and other items for 1999 largely relates
to provisions, principally those relating to the pensions review, not being
recognized as a tax deduction in 1999.
F-18
<PAGE>
Note 11 -- Dividends
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
-------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
First interim 61.1 -- 7.4 6.9
Second interim 13.7 -- 7.4 6.9
Third interim -- -- 7.4 6.9
Fourth interim -- -- -- 6.9
---------------- ---------------- ---------------- ----------------
74.8 -- 22.2 27.6
================================================== ================ ================ ================ ================
</TABLE>
Note 12 -- Earnings per ordinary share
Earnings per ordinary share have been calculated using net income and the
weighted average number of ordinary shares in issue during the year ended
December 31, 1999 of 470.8 million (1998: January 1 to September 1, 424.6
million and September 2 to December 31, 427.1 million, 1997: 418.4 million
after excluding those ordinary shares on which dividends were waived).
The dilution arising from the issue of ordinary shares in accordance with
the Group's employee share plans and Willis North America Inc.'s 7 1/2%
convertible subordinated debentures would not have been material.
Note 13 -- Current asset investments
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
--------------------------------------- ---------------- ----------------
(L million)
<S> <C> <C>
Listed investments (market value L44.3
million (1998: L49.8 million)) 45.0 48.7
Unlisted investments 249.5 232.9
---------------- ----------------
294.5 281.6
======================================= ================ ================
</TABLE>
Listed investments mainly comprise investments that were purchased with the
intention of holding to maturity. Unlisted investments comprise commercial
paper and certificates of deposit.
F-19
<PAGE>
Note 14 -- Receivables
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Due within one year
Trade receivables 2,522.5 2,447.6
Less: provision for bad and doubtful debts 15.3 11.8
-------------- --------------
2,507.2 2,435.8
Amounts owed by parent company 614.1 965.1
Amounts owed by associates 0.6 0.8
Corporate tax 1.0 2.0
Prepayments and accrued revenue 67.9 54.1
Other receivables 29.6 35.0
-------------- --------------
3,220.4 3,492.8
Due after more than one year
Trade receivables 12.7 6.2
Amounts owed by parent company 609.6 270.3
Deferred tax (see Note 23) 8.2 --
Other receivables 27.7 25.3
-------------- --------------
3,878.6 3,794.6
============================================ ============== ==============
</TABLE>
The level of insurance brokering receivables is no indication of credit risk,
since the status of the insurance broker as agent means that generally the
credit risk is borne by the principals; nor is it an indication of future cash
flows as it is normal practice for insurance brokers to settle accounts with
clients, insurers, other intermediaries and market settlement bureaux on a net
basis. The simultaneous recording of an insurance brokering transaction between
client and insurer results in a high level of correlation between insurance
brokering receivables and payables.
Note 15 -- Intangible assets
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Cost or valuation
January 1, 20.0 --
Exchange adjustments 0.1 --
Arising from acquisitions 11.9 20.0
-------------- --------------
December 31, 32.0 20.0
-------------- --------------
Amortization
January 1, (0.3) --
Provided in the year (1.6) (0.3)
-------------- --------------
December 31, (1.9) (0.3)
-------------- --------------
Net book value
December 31, 30.1 19.7
============================================ ============== ==============
</TABLE>
F-20
<PAGE>
Note 16 -- Tangible assets
<TABLE>
<CAPTION>
Furniture
Land and equipment and
buildings vehicles Total
----------------------------------------------------------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Year ended December 31, 1999
Cost or valuation
January 1, 1999 96.1 150.7 246.8
Exchange adjustments -- 0.2 0.2
Additions 3.2 23.4 26.6
Disposals (6.6) (47.9) (54.5)
Arising from acquisitions -- 1.4 1.4
-------------- -------------- --------------
December 31, 1999 92.7 127.8 220.5
-------------- -------------- --------------
Depreciation
January 1, 1999 (12.7) (92.5) (105.2)
Provided in the year (5.4) (19.8) (25.2)
Disposals 2.5 43.6 46.1
Arising from acquisitions -- (0.5) (0.5)
-------------- -------------- --------------
December 31, 1999 (15.6) (69.2) (84.8)
-------------- -------------- --------------
Net book value
December 31, 1999 77.1 58.6 135.7
============================================================================= ============== ============== ==============
January 1 to December 31, 1998
Cost or valuation
January 1, 1998 91.7 141.4 233.1
Exchange adjustments (0.3) (1.7) (2.0)
Additions 3.4 16.7 20.1
Disposals (1.8) (10.6) (12.4)
Arising from acquisitions 1.3 4.7 6.0
-------------- -------------- --------------
September 1, 1998 94.3 150.5 244.8
Exchange and other adjustments 0.1 1.7 1.8
Additions 3.5 6.3 9.8
Disposals (1.8) (7.9) (9.7)
Arising from acquisitions -- 0.1 0.1
-------------- -------------- --------------
December 31, 1998 96.1 150.7 246.8
-------------- -------------- --------------
Depreciation
January 1, 1998 (11.0) (87.3) (98.3)
Exchange adjustments 0.1 0.9 1.0
Provided in the period (3.0) (12.0) (15.0)
Disposals 1.5 8.1 9.6
Arising from acquisitions -- (1.7) (1.7)
-------------- -------------- --------------
September 1, 1998 (12.4) (92.0) (104.4)
Exchange adjustments (0.1) (0.8) (0.9)
Provided in the period (1.7) (6.7) (8.4)
Disposals 1.5 7.0 8.5
-------------- -------------- --------------
December 31, 1998 (12.7) (92.5) (105.2)
-------------- -------------- --------------
Net book value
December 31, 1998 83.4 58.2 141.6
============================================================================= ============== ============== ==============
</TABLE>
F-21
<PAGE>
Note 16 -- Tangible assets (continued)
<TABLE>
<CAPTION>
Furniture
Land and equipment and
buildings vehicles Total
----------------------------------------------------------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Year ended December 31, 1997
Cost or valuation
January 1, 1997 85.7 142.7 228.4
Exchange adjustments (0.5) 0.8 0.3
Additions 7.3 19.2 26.5
Disposals (1.5) (30.4) (31.9)
Arising from acquisitions 0.7 9.1 9.8
-------------- -------------- --------------
December 31, 1997 91.7 141.4 233.1
-------------- -------------- --------------
Depreciation
January 1, 1997 (7.5) (88.8) (96.3)
Exchange adjustments 0.4 (0.4) --
Provided in the year (4.3) (18.4) (22.7)
Disposals 0.9 25.7 26.6
Arising from acquisitions (0.5) (5.4) (5.9)
-------------- -------------- --------------
December 31, 1997 (11.0) (87.3) (98.3)
-------------- -------------- --------------
Net book value
December 31, 1997 80.7 54.1 134.8
============================================================================= ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
Net book value of land and buildings 1999 1998 1997
----------------------------------------------------------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Freehold: Land 18.1 18.4 17.3
Freehold: Buildings 44.8 49.6 49.3
Leasehold: Long -- 0.1 0.2
Leasehold: Short 14.2 15.3 13.9
-------------- -------------- --------------
77.1 83.4 80.7
============================================================================= ============== ============== ==============
</TABLE>
The Group's principal freehold properties were valued at December 31, 1995 on
the basis of open market value for existing use. The carrying value of these
revalued properties, at December 31, 1999, was L57.7 million (1998: L60.5
million, 1997: L60.5 million), and the accumulated depreciation was L7.7 million
(1998: L6.1 million, 1997: L4.0 million). The historical cost was L57.1 million
(1998: L61.6 million, 1997: L61.6 million) and the accumulated depreciation was
L21.8 million (1998: L21.0 million, 1997: L18.6 million).
No tax would be payable on the realization of revalued properties at their
net book value by virtue of available capital losses.
F-22
<PAGE>
Note 17 -- Investments
<TABLE>
<CAPTION>
Own Other
Associates shares TA I investments Total
-------------------------------------------- ------------- ------------- ------------- ------------- -------------
(L million)
<S> <C> <C> <C> <C> <C>
January 1 to December 31, 1999
Cost
January 1, 1999 29.0 -- 3.6 3.3 35.9
Exchange adjustments (1.3) -- 0.1 -- (1.2)
Additions 11.5 -- -- 1.3 12.8
Capital repayment (0.9) -- -- -- (0.9)
Disposals -- -- (0.1) (0.4) (0.5)
Share of retained earnings of associates 3.7 -- -- -- 3.7
------------- ------------- ------------- ------------- -------------
December 31, 1999 42.0 -- 3.6 4.2 49.8
------------- ------------- ------------- ------------- -------------
Provisions
January 1, 1999 (0.7) -- (0.8) -- (1.5)
Amortization (1.4) -- (0.4) -- (1.8)
Disposals -- -- 0.1 -- 0.1
------------- ------------- ------------- ------------- -------------
December 31, 1999 (2.1) -- (1.1) -- (3.2)
------------- ------------- ------------- ------------- -------------
Net book value
December 31, 1999 39.9 -- 2.5 4.2 46.6
============================================ ============= ============= ============= ============= =============
January 1 to December 31, 1998
Cost
January 1, 1998 9.8 13.4 -- 1.1 24.3
Exchange adjustments (1.8) (0.2) -- (0.2) (2.2)
Additions 14.7 0.2 -- 2.2 17.1
Transfer to subsidiary (2.0) -- -- -- (2.0)
Disposals -- (4.0) -- -- (4.0)
Share of retained earnings of associates 5.6 -- -- -- 5.6
------------- ------------- ------------- ------------- -------------
September 1, 1998 26.3 9.4 -- 3.1 38.8
Exchange adjustments 0.5 0.1 -- 0.2 0.8
Additions 5.9 -- 3.6 -- 9.5
Disposals -- (1.3) -- -- (1.3)
Shares exchanged for cash -- (8.2) -- -- (8.2)
Share of retained earnings of associates (3.7) -- -- -- (3.7)
------------- ------------- ------------- ------------- -------------
December 31, 1998 29.0 -- 3.6 3.3 35.9
------------- ------------- ------------- ------------- -------------
Provisions
January 1, 1998 -- (5.1) -- -- (5.1)
Amortization (0.4) (1.0) -- -- (1.4)
Disposals -- 4.0 -- -- 4.0
------------- ------------- ------------- ------------- -------------
September 1, 1998 (0.4) (2.1) -- -- (2.5)
Amortization (0.3) (0.9) -- -- (1.2)
Disposals -- 1.3 -- -- 1.3
Other adjustments -- 1.7 (0.8) -- 0.9
------------- ------------- ------------- ------------- -------------
December 31, 1998 (0.7) -- (0.8) -- (1.5)
------------- ------------- ------------- ------------- -------------
Net book value
December 31, 1998 28.3 -- 2.8 3.3 34.4
============================================ ============= ============= ============= ============= =============
</TABLE>
F-23
<PAGE>
Note 17 -- Investments (continued)
<TABLE>
<CAPTION>
Own Other
Associates shares TA I investments Total
-------------------------------------------- ------------- ------------- ------------- ------------- -------------
(L million)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Cost
January 1, 1997 6.2 8.9 -- 2.3 17.4
Exchange adjustments (0.4) 0.2 -- -- (0.2)
Additions 3.5 4.9 -- 1.4 9.8
Net assets reclassified on becoming a
subsidiary (2.6) -- -- -- (2.6)
Investment reclassified on becoming an
associate 2.6 -- -- (2.6) --
Disposals -- (0.6) -- -- (0.6)
Share of retained earnings of associates 0.5 -- -- -- 0.5
------------- ------------- ------------- ------------- -------------
December 31, 1997 9.8 13.4 -- 1.1 24.3
------------- ------------- ------------- ------------- -------------
Provisions
January 1, 1997 -- (4.3) -- (0.5) (4.8)
Exchange adjustments -- (0.1) -- -- (0.1)
Amortization -- (1.3) -- -- (1.3)
Disposals -- 0.6 -- -- 0.6
Other adjustments -- -- -- 0.5 0.5
------------- ------------- ------------- ------------- -------------
December 31, 1997 -- (5.1) -- -- (5.1)
------------- ------------- ------------- ------------- -------------
Net book value
December 31, 1997 9.8 8.3 -- 1.1 19.2
============================================ ============= ============= ============= ============= =============
</TABLE>
At December 31, 1999, the Group's employee share ownership plans held 1,780,906
management ordinary shares in TA I Limited (1998: 1,815,593 shares). These
shares are not listed on any stock exchange.
A summarized statement of income and assets and liabilities based on the
latest information available, with respect to the Group's equity accounted
associates, is set out below:
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Total operating revenues 183.0 52.9 123.0 35.2
Operating income 21.7 (5.4) 21.9 4.0
Net income 20.2 (10.1) 21.6 3.7
===================================================== ================ ================ ================ ================
</TABLE>
F-24
<PAGE>
Note 17 -- Investments (continued)
<TABLE>
<CAPTION>
At December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Current assets 498.9 430.2
Fixed assets 70.7 80.9
-------------- --------------
569.6 511.1
============== ==============
Current liabilities 394.5 424.9
Noncurrent liabilities 126.7 44.9
Shareholders' equity 48.4 41.3
-------------- --------------
569.6 511.1
============================================ ============== ==============
</TABLE>
Associates at December 31, 1999, which principally affected the Group's
financial position and results of operations, all of which are insurance
brokers and were accounted for under the equity accounting method, were:
<TABLE>
<CAPTION>
Percentage ownership of
Name of associate Country common stock
- ------------------------------------ ----------- ------------------------
<S> <C> <C>
Gras Savoye & Cie France 33.0
Jaspers Wuppesahl
Industrie Assekuranz GmbH & Co. KG Germany 44.6
==================================== =========== ========================
</TABLE>
Note 18 -- Other current liabilities
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Amounts owed to parent company 652.5 714.1
Income tax and social security 2.3 2.6
Other payables 91.5 100.7
-------------- --------------
746.3 817.4
============================================ ============== ==============
</TABLE>
Included within amounts owed to parent company at December 31, 1998 was an
interest free convertible loan of L92.9 million, which was converted into
46,464,949 ordinary shares in the Company on February 3, 1999.
F-25
<PAGE>
Note 19 -- Bank loans and overdrafts
Bank loans and overdrafts due in less than one year at December 31, 1998
included a loan of $575 million (L348.5 million) under a fully drawn
Subordinated Bridge Facility. This short-term loan was repaid on February 2,
1999 and refinanced by the issue of $550 million of unsecured Senior
Subordinated Notes which mature in 2009 and accrue interest at a rate of 9%.
The weighted average interest rate payable on short-term bank loans and
overdrafts outstanding at December 31, 1998, amounting to L350.3 million was
9.9%. At December 31, 1999, short-term bank loans and overdrafts of L1.6
million was represented by unpresented checks.
At December 31, 1998, bank loans and overdrafts included L4.4 million of
debt issuance costs which were refunded in 1999.
<TABLE>
<CAPTION>
December 31,
--------------------------------
Bank loans repayable in more than one year 1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
between one and two years 1.4 2.4
between two and three years 6.3 5.4
between three and four years 8.2 6.7
between four and five years 9.4 8.5
Thereafter 244.8 253.4
-------------- --------------
270.1 276.4
============================================ ============== ==============
</TABLE>
In 1998, the Group entered into a Senior Credit Facility agreement comprising
Term Loans of $450 million and a Revolving Credit Facility of $150 million.
During 1999, the Group repaid $12.5 million of term loans. See Note 28.
The Term Loans were fully drawn down on November 19, 1998 and are arranged
in four tranches that are repayable between 2005 and 2008. The loans accrue
interest at LIBOR plus a variable margin. With effect from February 19, 1999
the Group entered into a swap transaction to exchange the applicable LIBOR rate
for a fixed rate. At that date the weighted average interest rate was 7.7%.
The Revolving Credit Facility is available until 2005. At December 31,
1999, the balance drawn on this facility was Lnil (1998: L6.1 million ($10.0
million)).
Note 20 -- Other noncurrent liabilities
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Trade payables 11.7 4.3
Accruals and deferred income 1.5 0.7
Other creditors 23.4 --
-------------- --------------
36.6 5.0
============================================ ============== ==============
</TABLE>
F-26
<PAGE>
Note 21 -- Operating lease commitments
<TABLE>
<CAPTION>
Land and Buildings Other
------------------------------- --------------------------------
December 31,
-------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------- -------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C> <C>
Payments committed to be made within one year for leases
expiring:
in less than one year 1.2 2.5 0.4 0.6
between one and five years 7.7 8.7 2.3 1.3
after five years 15.7 13.1 -- --
-------------- -------------- -------------- --------------
24.6 24.3 2.7 1.9
-------------- -------------- -------------- --------------
Payments committed to be made after one year:
within two years 24.6 22.4 2.3 1.2
between two and three years 22.8 21.5 1.2 0.8
between three and four years 19.4 20.7 0.3 0.2
between four and five years 17.0 16.9 0.1 0.1
Thereafter 100.0 109.0 -- --
-------------- -------------- -------------- --------------
183.8 190.5 3.9 2.3
-------------- -------------- -------------- --------------
208.4 214.8 6.6 4.2
=========================================================== ============== ============== ============== ==============
</TABLE>
F-27
<PAGE>
Note 22 -- Provisions for liabilities and charges
<TABLE>
<CAPTION>
Pension Surplus Discontinued
Claims review property operations Deferred
provisions(i) provision(ii) provisions(iii) provisions(iv) tax Total
- ------------------------ -------------- -------------- -------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C> <C> <C> <C>
January 1, 1997 29.5 -- 24.8 41.6 -- 95.9
Charged to income (6.0) 8.3 (1.6) (3.1) -- (2.4)
Utilized in the year (3.5) (1.5) (3.0) (2.9) -- (10.9)
Arising on acquisition 3.9 -- -- -- -- 3.9
Exchange and other
adjustments 3.4 -- -- 0.1 -- 3.5
-------------- -------------- -------------- -------------- -------------- --------------
December 31, 1997 27.3 6.8 20.2 35.7 -- 90.0
Charged to income 9.5 25.0 -- -- (3.4) 31.1
Transferred to payables -- -- -- (5.5) -- (5.5)
Transferred from
receivables -- -- -- -- (14.4) (14.4)
Utilized in the period (4.2) (6.7) (1.9) (6.7) -- (19.5)
Exchange and other
adjustments (0.4) -- -- -- -- (0.4)
-------------- -------------- -------------- -------------- -------------- --------------
September 1, 1998 32.2 25.1 18.3 23.5 (17.8) 81.3
Charged to income (2.8) -- (0.3) -- 23.9 20.8
Utilized in the period (2.5) (4.4) (1.1) 0.2 -- (7.8)
Exchange and other
adjustments 0.6 -- -- -- (0.1) 0.5
-------------- -------------- -------------- -------------- -------------- --------------
December 31, 1998 27.5 20.7 16.9 23.7 6.0 94.8
Charged to income 10.9 40.0 6.7 -- (14.2) 43.4
Utilized in the year (4.5) (13.0) (4.4) (0.6) -- (22.5)
Transferred to
receivables -- -- -- -- 8.2 8.2
Exchange and other
adjustments 0.6 -- -- -- -- 0.6
-------------- -------------- -------------- -------------- -------------- --------------
December 31, 1999 34.5 47.7 19.2 23.1 -- 124.5
======================== ============== ============== ============== ============== ============== ==============
</TABLE>
(i) The claims provisions include estimates for liabilities that may arise
from potential claims for errors and omissions, which may not be covered
by insurance arrangements.
(ii) See "Note 4 -- Exceptional Items".
(iii)Provisions for properties surplus to operational requirements.
(iv) Provisions for discontinued operations include estimates for future costs
of administering the run-off of the former U.K. underwriting operations.
These operations, which ceased underwriting new business in 1991,
comprised Willis Faber (Underwriting Management) Limited, an underwriting
agency, and Sovereign Marine & General Insurance Company Limited
("Sovereign"), an insurance company. Sovereign was placed into provisional
liquidation in July 1997 and in January 2000 a scheme of arrangement
became effective.
F-28
<PAGE>
Note 23 -- Deferred tax
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Opening balance 6.0 (14.4)
Transfer to/(from) income (14.2) 20.5
Other adjustments -- (0.1)
-------------- --------------
Closing balance (8.2) 6.0
============== ==============
The deferred tax (assets)/liabilities arise
from:
Capital allowances 9.3 11.5
Timing differences (17.5) (5.5)
-------------- --------------
(8.2) 6.0
============================================ ============== ==============
</TABLE>
Note 24 -- Notes to consolidated statement of cash flows
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
Reconciliation of operating income to net December 31, December 31, September 1, December 31,
cash flow from operating activities 1999 1998 1998 1997
-------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Operating income from total operations (3.0) 21.0 21.0 92.1
Exceptional items 54.6 -- 25.0 --
Cash outflow on exceptional items (13.0) (4.0) (0.4) --
Depreciation charges and loss on sale of tangible
fixed assets 28.6 8.7 15.0 22.7
Amortization of goodwill 1.6 0.5 0.5 --
Decrease/(increase) in receivables (60.6) (24.5) 2.0 34.4
Increase/(decrease) in payables 120.1 (93.3) 78.4 (26.5)
Net movement on provisions 2.1 (6.1) (14.0) (9.3)
---------------- ---------------- ---------------- ----------------
Net cash inflow from operating activities 130.4 (97.7) 127.5 113.4
================================================== ================ ================ ================ ================
</TABLE>
F-29
<PAGE>
Note 24 -- Notes to consolidated statement of cash flows (continued)
<TABLE>
<CAPTION>
Cash and overdrafts Borrowings
--------------------------------------- -------------------------
Due after
Reconciliation of net cash flow Liquid Due within more than
to movement in net funds Cash Overdrafts Total Resources one year one year Net funds
-------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(L million)
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1997 78.1 (0.7) 77.4 585.6 (0.8) (19.0) 643.2
Cash flow before management of
liquid resources and financing (6.5) 0.3 (6.2) -- -- -- (6.2)
Management of liquid resources 2.8 -- 2.8 (2.8) -- -- --
Financing 14.7 -- 14.7 -- 0.1 (14.8) --
Issue of share capital 0.3 -- 0.3 -- -- -- 0.3
Provisional liquidation -- -- -- (58.3) -- -- (58.3)
Foreign exchange (0.8) -- (0.8) 4.0 -- (0.4) 2.8
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1997 88.6 (0.4) 88.2 528.5 (0.7) (34.2) 581.8
Cash flow before management of
liquid resources and financing 77.0 (6.5) 70.5 -- -- -- 70.5
Management of liquid resources (66.8) -- (66.8) 66.8 -- -- --
Financing 32.0 -- 32.0 -- 0.6 (32.6) --
Issue of share capital 0.7 -- 0.7 -- -- -- 0.7
Foreign exchange (1.0) -- (1.0) (6.9) -- -- (7.9)
----------- ----------- ----------- ----------- ----------- ----------- -----------
September 1, 1998 130.5 (6.9) 123.6 588.4 (0.1) (66.8) 645.1
Cash flow before management of
liquid resources and financing (166.8) 0.9 (165.9) -- -- -- (165.9)
Management of liquid resources 122.2 -- 122.2 (122.2) -- -- --
Financing 32.2 -- 32.2 -- (92.9) 60.7 --
Issue of share capital 4.0 -- 4.0 -- -- -- 4.0
Foreign exchange 1.3 (0.2) 1.1 9.1 (6.9) -- 3.3
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1998 123.4 (6.2) 117.2 475.3 (99.9) (6.1) 486.5
Cash flow before management of
liquid resources and financing 34.9 4.3 39.2 -- -- -- 39.2
Management of liquid resources (35.2) -- (35.2) 35.2 -- -- --
Financing (13.9) -- (13.9) -- 2.5 11.4 --
Issue of share capital 2.5 -- 2.5 -- -- -- 2.5
Non-cash movements -- -- -- -- 65.6 -- 65.6
Foreign exchange (1.2) 0.3 (0.9) 2.8 (6.6) (5.3) (10.0)
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1999 110.5 (1.6) 108.9 513.3 (38.4) -- 583.8
================================ =========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-30
<PAGE>
Note 24 -- Notes to consolidated statement of cash flows (continued)
<TABLE>
<CAPTION>
Analysis of cash and short-term deposits and liquid resources as Year ended December 31,
shown in the balance sheet --------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Cash
Cash and short-term deposits 329.3 317.1 359.4
less short-term deposits classified as liquid resources (218.8) (193.7) (270.8)
-------------- -------------- --------------
110.5 123.4 88.6
============== ============== ==============
Liquid resources
Current asset investments 294.5 281.6 257.7
Short-term deposits 218.8 193.7 270.8
-------------- -------------- --------------
513.3 475.3 528.5
============================================================================= ============== ============== ==============
</TABLE>
As described in Note 28, deposits and cash totalling L68.6 million are subject
to a floating charge.
Note 25 -- Financial instruments
The Group's principal financial instruments, other than derivatives, comprise
bank loans and overdrafts, amounts owed to or from parent company, Senior
Subordinated Notes, cash, deposits and investments. The main purpose of these
financial instruments is to raise finance for the Group's operations. The Group
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 Group's operations and its sources of finance.
The Group does not trade in financial instruments.
The main risks arising from the Group's financial instruments are interest
rate risk, liquidity risk and foreign currency risk. The Board reviews and
agrees policies for managing each of these risks as summarised below. These
policies have remained unchanged since the beginning of 1999.
As permitted by FRS 13, short term trade debtors and creditors have been
omitted from the following analysis and comparative figures for 1998 have not
been presented.
Interest rate risk
The Group's operations are financed principally by bank borrowings and Senior
Subordinated Notes. Interest rate swaps are used to generate the desired
interest rate profile and to manage the Group's exposure to interest rate
fluctuations. The Group's policy is to minimise its exposure to increases in
interest rates on its borrowings. Accordingly, the majority of the Group's
floating rate borrowings is currently hedged through the use of interest rate
swaps.
As a consequence of the Group's trading activities, there is a delay
between the time the Group receives cash for premiums and claims and the time
the cash needs to be paid. The Group earns interest on this `float', which is
included in the Group's financial statements as investment income. This `float'
is regulated in terms of access and the instruments in which it may be
invested, most of which are short-term in maturity. The Group manages the
interest rate risk arising from this exposure through the use of interest rate
swaps, forward rate agreements and other option based financial instruments.
It is Group policy that, for currencies with significant balances, a
minimum of 25% of forecast income arising is hedged for each of the next three
years.
F-31
<PAGE>
Note 25 -- Financial instruments (continued)
Liquidity risk
The Group's objective is to ensure that it has the ability to generate
sufficient cash, either from internal or external sources, in a timely and
cost-effective manner, to meet its commitments as they fall due. The Group's
management of liquidity risk is embedded within its overall risk management
framework. Scenario analysis is continually undertaken to ensure that its
resources can comfortably meet the Group's liquidity requirements. These
resources are supplemented by a $150m revolving credit facility which expires on
November 19, 2005, but which is currently undrawn.
Foreign currency risk
The Group's objective is to maximise its cash held in U.S. dollars. Within the
U.K., approximately 50% of operating revenues arise in currencies other than
sterling resulting in a significant mismatch between sterling revenues and
sterling expenses. The Group's policy is to convert into sterling all revenues
arising in currencies other than U.S. dollars together with sufficient U.S.
dollar revenues to fund the remaining sterling expenses. Outside the U.K., only
those cash flows necessary to fund mismatches between revenues and expenses are
converted into local currency; amounts remitted to the U.K. are generally
converted into sterling. These transactional currency exposures are managed by
entering into forward exchange contracts and option products. It is Group
policy to hedge at least 25% of the next 12 months' exposures in significant
currencies.
Translational exposures are not hedged.
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the Group, after
taking account of interest rate swaps, at December 31, 1999 is summarised
below:
<TABLE>
<CAPTION>
Floating rate
financial Financial liabilities on which
Fixed rate financial liabilities liabilities no interest is paid Total
------------------------------------------------ ------------- ------------------------------ -------------
Weighted
average Weighted
Weighted period for average
average which rate is period until
Currency Amount interest rate fixed Amount Amount maturity
---------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(L million) % (years) (L million) (L million) (years) (L million)
<S> <C> <C> <C> <C> <C> <C> <C>
Sterling -- -- -- 1.6 6.4 -- 8.0
U.S. dollar 597.0 8.3 6.8 7.7 657.8 -- 1,262.5
------------- ------------- ------------- -------------
597.0 9.3 664.2 1,270.5
========== ============= ============= ============= =============
</TABLE>
F-32
<PAGE>
Note 25 -- Financial instruments (continued)
Interest rate risk profile of financial assets
The interest rate profile of the financial assets of the Group, after taking
account of interest rate swaps, at December 31, 1999 is summarised below:
<TABLE>
<CAPTION>
Floating rate
financial Financial assets on which no
Fixed rate financial assets assets interest is paid Total
------------------------------------------------ ------------- ------------------------------ -------------
Weighted
average Weighted
Weighted period for average
average which rate is period until
Currency Amount interest rate fixed Amount Amount maturity
----------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(L million) % (years) (L million) (L million) (years) (L million)
<S> <C> <C> <C> <C> <C> <C> <C>
Sterling 79.0 7.2 0.9 40.0 620.5 -- 739.5
U.S. dollar 867.5 7.8 4.9 144.9 6.3 -- 1,018.7
Japanese yen -- -- -- 18.8 -- -- 18.8
Euro 16.1 4.2 1.2 19.7 -- -- 35.8
Other -- -- -- 47.4 -- -- 47.4
------------- ------------- ------------- -------------
962.6 270.8 626.8 1,860.2
=========== ============= ============= ============= =============
</TABLE>
Currency exposures
The table below shows the Group's currency exposures at December 31, 1999 after
the effects of forward contracts and other derivatives used to manage that
exposure. The amounts shown represents the net monetary assets and liabilities
of the Group that are not denominated in the functional currency of the
operating unit involved and so give rise to net currency gains and losses
recognised in the profit and loss account.
<TABLE>
<CAPTION>
Net foreign currency monetary assets/(liabilities)
-------------------------------------------------------------------
Functional currency of Group operation Sterling U.S. dollar Other Total
----------------------------------------------------------- -------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C> <C>
Sterling -- 131.8 0.5 132.3
U.S. dollar (23.7) -- 3.4 (20.3)
-------------- -------------- -------------- --------------
(23.7) 131.8 3.9 112.0
=========================================================== ============== ============== ============== ==============
</TABLE>
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at December 31, 1999
is summarised below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------- --------------
(L million)
<S> <C>
On demand or within one year or less 654.1
More than one year but not more than two years 13.1
More than two years but not more than five years 23.9
More than five years 579.4
--------------
1,270.5
============================================================== ==============
</TABLE>
F-33
<PAGE>
Note 25 -- Financial instruments (continued)
Borrowing facilities
The Group had undrawn committed facilities of L92.6 million, which expire in
more than five years, available at December 31, 1999.
Fair Value
The estimated fair value of the Group's financial instruments at December 31,
1999 is summarised below:
<TABLE>
<CAPTION>
Estimated fair
Book value value
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Primary financial instruments held or issued
to finance the Group's operations
Cash and short term deposits 329.3 329.3
Current asset investments 294.5 296.3
Amounts due from parent company 1,223.7 1,223.7
Short term bank loans and overdrafts (1.6) (1.6)
Amounts owed to parent company (652.5) (652.5)
Long term bank loans (270.1) (270.1)
Senior Subordinated Loan Notes (334.6) (277.7)
-------------- --------------
588.7 647.4
-------------- --------------
Derivative financial instruments held to
manage interest rate and currency exposure
Interest rate swaps -- assets -- (6.3)
-- liabilities -- 16.7
Forward foreign exchange contracts -- 0.7
============================================ ============== ==============
</TABLE>
Market values have been used to determine the fair value of interest rate
swaps, forward foreign exchange contracts and listed investments. The fair
value of amounts due to and from parent company approximates book value. The
fair values of all other items have been calculated by discounting expected
future cash flows at prevailing interest rates.
Hedges
Gains and losses on instruments used for hedging are not recognised until the
exposure that is being hedged is itself recognised. Unrecognised gains and
losses on instruments used for hedging are as follows:
<TABLE>
<CAPTION>
Total net
gains/
Gains Losses (losses)
----------------------------------------------------------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Unrecognised gains and losses on hedges at January 1, 1999 14.4 (0.8) 13.6
Gains and losses arising in previous years that were recognised in 1999 (4.0) 0.4 (3.6)
-------------- -------------- --------------
Gains and losses arising before January 1, 1999 that were not recognised in
1999 10.4 (0.4) 10.0
Gains and losses arising in 1999 that were not recognised in 1999 8.4 (7.3) 1.1
-------------- -------------- --------------
Unrecognised gains and losses on hedges at December 31, 1999 18.8 (7.7) 11.1
============== ============== ==============
Of which:
Gains and losses expected to be recognised in 2000 2.3 (1.1) 1.2
Gains and losses expected to be recognised in 2001 or later 16.5 (6.6) 9.9
============================================================================= ============== ============== ==============
</TABLE>
F-34
<PAGE>
Note 26 -- Pensions
The Group operates two principal pension schemes, one in the United Kingdom and
the other in the United States. Both schemes are of the defined benefit type
and are funded externally. The pension cost of both schemes is assessed in
accordance with the advice of professionally qualified actuaries, using the
projected unit credit method.
The most recent valuation of the U.K. scheme was at December 31, 1998 and
of the U.S. scheme at January 1, 1999. The major assumption is that the rate of
return on investments would exceed salary inflation by between 2.0% and 4.5%
per annum. The market value of the investments at the respective dates of the
latest actuarial valuations was L902 million and the actuarial value of the
investments was sufficient to cover approximately 114% of the benefits that had
accrued to members after allowing for expected future salary increases.
Note 27 -- Employee share plans
The Executive Option Scheme (1984) (the "1984 Plan") and the International
Executive Option Scheme (the "International Plan") expired in November 1994
from which date no further options have been granted.
The Savings-Related Share Option Scheme 1995 (the "1995 Plan") replaced
the Savings-Related Share Option Scheme (the "1981 Plan") which expired in
November 1994 in respect of new grants. The 1995 Plan was open to any U.K.
employee with at least 6 months' continuous service with participating Group
companies (an "eligible employee").
Options under the 1984 Plan, International Plan, 1981 Plan and 1995 Plan
lapsed on November 6, 1998.
The following tables show movements under the Company's employee share
plans since January 1997.
<TABLE>
<CAPTION>
Executive Share Option Plans
------------------------------------------- -------------------------------------------
1984 Plan International Plan
------------------------------------------- -------------------------------------------
No. of Weighted No. of Weighted
ordinary average Price ordinary average Price
shares option price range shares option price range
------------------------------------ ------------ ------------ ----------- ------------ ------------ ------------
(000) (p) (p) (000) (p) (p)
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1, 1997 8,872 223 149-473 3,213 207 149-296
Exercised -- -- -- -- -- --
Cancelled (1,715) 257 149-378 (66) 244 152-296
------------ ------------
Outstanding December 31, 1997 7,157 215 149-296 3,147 206 149-296
Exercised (1,374) 165 149-198 (13) 149 149
Cancelled (5,783) 226 149-296 (3,134) 206 149-296
------------ ------------ ------------ ------------ ------------ ------------
Outstanding December 31, 1998 and
December 31, 1999 -- -- -- -- -- --
==================================== ============ ============ ============ ============ ============ ============
</TABLE>
F-35
<PAGE>
Note 27 -- Employee share plans (continued)
<TABLE>
<CAPTION>
Savings-Related Option Plans
------------------------------------------------------------------------------------------
1981 Plan 1995 Plan
------------------------------------------- -------------------------------------------
No. of Weighted No. of Weighted
ordinary average Price ordinary average Price
shares option price range shares option price range
- ------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
(000) (p) (p) (000) (p) (p)
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1, 1997 5,657 145 116-246 2,725 112 112
Granted -- -- -- 1,999 100 100
Exercised (207) 117 116-119 (23) 112 112
Cancelled (1,053) 181 116-246 (363) 109 100-112
------------ ------------
Outstanding December 31, 1997 4,397 138 116-246 4,338 106 100-112
Exercised (1,676) 130 116-186 (228) 111 100-112
Cancelled (2,721) 143 116-246 (4,110) 106 100-112
------------ ------------ ------------ ------------ ------------ ------------
Outstanding December 31, 1998
and December 31, 1999 -- -- -- -- -- --
===================================== ============ ============ ============ ============ ============ ============
</TABLE>
The fair value of options granted during the year ended December 31, 1997 under
the 1995 Plan was 30p.
The weighted average fair value of options granted during the year ended
December 31, 1997 was estimated using the Black-Scholes option pricing model
with the following assumptions: dividend yield of 7%, expected volatility of
30%, risk-free interest rate of 7%, and expected life of 5 years. There were no
grants of options in the years ended December 31, 1998 and 1999.
<TABLE>
<CAPTION>
1986 Long-Term Incentive Plan
--------------------------------------------------------
Weighted average
No. of ADSs option price Price range
---------------------------------------------------------------------- ---------------- ---------------- ----------------
(000) ($) ($)
<S> <C> <C> <C>
Outstanding January 1, 1997 673 20.32 18.07--23.28
Exercised -- -- --
Cancelled (150) 19.04 18.59--22.52
----------------
Outstanding December 31, 1997 523 20.65 18.07--23.28
Exercised -- -- --
Cancelled (523) 20.65 18.07--23.28
---------------- ---------------- ----------------
Outstanding December 31, 1998 and December 31, 1999 -- -- --
====================================================================== ================ ================ ================
</TABLE>
On May 1, 1997, options over 2,217 American Depositary Shares ("ADSs") were
exercised at 62.5p per ADS under the Herget Scheme and the balance of 2,233
ADSs were cancelled. An ADS represented 5 ordinary shares.
F-36
<PAGE>
Note 28 -- Capital commitments and contingent liabilities
<TABLE>
<CAPTION>
Capital commitments to acquire fixed assets: December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Expenditure contracted for 2.3 3.5
============================================ ============== ==============
</TABLE>
The Company and certain of its subsidiaries have call options over shares not
already owned in a number of subsidiary and associated companies which are
exercisable at various dates in the future at prices related to the then
current and historical profits before tax at the date of exercise. There also
exist put options which are exercisable at various dates in the future on a
similar basis. The exact amounts payable depend on the future level of
profitability of the companies concerned and exchange rates at the date of
exercise. Based on current projections of profitability and exchange rates, the
potential amounts payable arising from these options are not expected to exceed
L152.6 million (1998: L160.1 million). Most of this relates to amounts which
may be payable under put options, exercisable between 2001 and 2012, entered
into with the shareholders of Gras Savoye. If, by 2012, the Group has not
reached a majority shareholding in Gras Savoye, it has call options to increase
its interest to over 50%.
Financial commitments
The Company has undertaken to provide certain subsidiaries with financial
support to enable them to meet their future operational obligations as they
fall due. This financial support does not extend to providing finance for
liabilities arising from negligence, breach of contract, breach of trust or any
other breach of duty.
Assets subject to charge
The Company has entered into a debenture in favor of The Chase Manhattan Bank
in which it has charged by way of a first fixed charge its interests in the
shares of Willis Faber Limited and, by way of a floating charge, all its assets
not otherwise effectively mortgaged, charged or assigned by the first fixed
charge.
The Company has also entered into a Pledge Agreement in favor of The Chase
Manhattan Bank whereby it has assigned and pledged its interest in the shares
of Willis North America Inc.
Those subsidiaries which are Lloyd's brokers have each entered into a deed
as required by the Lloyd's brokers' bye-law under which all insurance brokering
assets are subject to a floating charge held on trust by the Society of Lloyd's
for the benefit of those companies' insurance brokering payables. The charge
only becomes enforceable under certain circumstances as defined in the deed.
The assets (including deposits and cash of L68.6 million) subject to this
charge at December 31, 1999 amounted to L1,877 million (1998: L1,834 million)
and the insurance brokering payables at that date amounted to L1,860 million
(1998: L1,821 million).
Financing obligations
The Company has guaranteed, on a joint and several basis with other companies
in the Group, the prompt and complete performance of Willis North America Inc.
in respect of credit facilities ("facilities") made available to that company.
On February 2, 1999, $575 million of the facilities were repaid and Willis
North America Inc. issued $550 million 9% Senior Subordinated Notes due 2009
(the "Notes"). The Company together with its affiliate Willis Partners, has
guaranteed Willis North America Inc.'s obligations in respect of the Notes. At
December 31, 1999 these facilities amounted to $1,137.5 million.
F-37
<PAGE>
Note 28 -- Capital commitments and contingent liabilities (continued)
Other
The Company has given guarantees to bankers and other third parties amounting
to L4.4 million (1998: L4.4 million). The Company has also given guarantees to
bankers in respect of commitments entered into by them to provide security for
membership of Lloyd's of certain Group employees who are not directors of the
Company amounting to L0.3 million (1998: L0.3 million).
The Company and certain of its U.K. subsidiaries have given the landlords
of some of the leasehold properties occupied by the Group in the United Kingdom
and the United States guarantees in respect of the performance of the lease
obligations of the Group companies holding the leases. The operating lease
obligations amounted to L111.7 million at December 31, 1999 (1998: L113.8
million).
The Group has extensive international operations and the Company or its
subsidiaries are subject to claims and litigation in the ordinary course of
business resulting principally from alleged errors and omissions in connection
with their businesses. Most of the errors and omissions claims are covered by
professional indemnity insurance. In respect of self-insured deductibles
applicable to such claims, the Group has established provisions which are
believed to be adequate in the light of current information and legal advice.
These provisions may be adjusted from time to time according to developments.
The Company does not expect the outcome of such claims, either individually or
in the aggregate, to have a material effect on the Group's operations, cash
flows or financial position.
Note 29 -- Directors' interests in contracts
The undermentioned directors who held office during each of the three years in
the period ended December 31, 1999 (except as otherwise indicated) and, where
applicable, connected persons (as defined in section 346 of the Companies Act)
were Underwriting Members of Lloyd's:
<TABLE>
<CAPTION>
<S> <C>
R. J. S. Bucknall (1998 and 1999 only) Mrs E. H. Rendle (1997 and 1998 only)
G. F. Nixon J. M. P. Taylor (1997 only)
J. M. Pelly (1998 and 1999 only)
</TABLE>
Insurance brokering subsidiaries of the Company place risks with the syndicates
in which the directors or connected persons (as defined above) participate in
the normal course of their brokering activities on the same basis as such
subsidiaries do with other Lloyd's syndicates.
The Company has given J. Reeve a guarantee in respect of the performance
obligations of Willis Limited, his employing company, in respect of an unfunded
pension scheme established for him. The Company has also guaranteed the
performance obligations of Willis North America Inc. in respect of the pension
benefits for B. D. Johnson and K. H. Pinkston under the Willis Corroon
Executive Supplemental Plan, an unfunded pension plan.
Save as disclosed above, no director or connected person (as defined
above) had any interest either during or at the end of the financial years
1997, 1998 and 1999 in any contract which was significant in relation to the
Company's business, or in a contract, transaction or arrangement which required
disclosure under section 232 of the Companies Act.
F-38
<PAGE>
Note 30 -- Related party transactions
The Group had the following balances with Trinity at December 31:
<TABLE>
<CAPTION>
1999 1998 Terms
----------------------- --------- --------- -----=---------------------------------------------------------------------
(million)
<S> <C> <C> <C>
Amounts due from Trinity L614.1 L614.1 Repayable on demand, non interest bearing
$550.0 $575.0 Repayable in line with repayment of Notes, interest of 70 basis points over
interest on Notes
$437.5 $450.0 Repayable in line with repayment of term loans, interest of 25 basis points
over interest on term loans
Amounts due to Trinity $(1,012.5) $(1,025.0) Repayable on demand, non interest bearing
L(27.5) L(92.9) Repayable on demand, non interest bearing
======================= ========= ========= ===========================================================================
</TABLE>
During the year the following material transactions occurred:
1. On February 3, 1999 an interest free convertible loan from Trinity of
L92.9 million was converted into 46,464,949 ordinary shares in the
Company.
2. Dividends declared amounted to L74.8 million, of which L49.2 million was
paid before December 31, 1999.
3. Interest income for 1999 amounted to L56.1 million (1998: L7.1 million).
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States
The Group's financial statements are prepared in accordance with U.K. GAAP
which differ in certain respects from U.S. GAAP. Those differences which have a
significant effect on the Group are described below.
Pushdown Accounting
Under U.S. GAAP, Trinity's cost of acquiring the Company should be "pushed
down," i.e., used to establish a new accounting basis in the Company's separate
financial statements. Under U.K. GAAP, there is no such requirement.
Goodwill
Goodwill (which includes expirations) arising on acquisitions occurring after
January 1, 1998 is capitalized and amortized on a straight-line basis over its
estimated useful economic life, not exceeding 20 years. Goodwill arising on
acquisitions completed before January 1, 1998 was eliminated against retained
earnings and other reserves. Under U.S. GAAP, goodwill and expirations are
capitalized and amortized over their respective useful economic lives. For the
purposes of the reconciliation below, for periods prior to September 2, 1998,
estimated useful lives of 17 1/2 to 40 years have been utilized, giving a
weighted average of 31 years.
The goodwill arising in the financial statements of Trinity following its
acquisition of the Company on September 2, 1998 is required to be pushed down
into the Company's financial statements. This goodwill is being amortized over
a period of 40 years for the purposes of the reconciliation below.
Under U.K. GAAP, on the disposition of a business acquired before January
1, 1998, goodwill previously eliminated against retained earnings is reinstated
and charged to income in arriving at the gain or loss on disposal of an entity;
under U.S. GAAP, only unamortized goodwill is charged.
F-39
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Impairment of long-lived assets
For the purposes of U.S. GAAP, the Group reviews the carrying amount of its
long-lived assets including goodwill relating thereto (grouped at business unit
level) using undiscounted cash flows, if indicators of impairment are present.
If such values indicate an actual impairment, the asset would be written down
to its fair value. No such impairments have been accounted for in the three
years in the period ended December 31, 1999.
Revaluation of freehold land and buildings
Certain of the Group's freehold land and buildings are included in the
financial statements at revalued amounts on which depreciation is calculated.
Under U.S. GAAP such assets must be recorded at their historical cost less
depreciation thereon. The depreciation charged on the revaluation increase is
not significant.
Pension costs
For the purposes of the reconciliation below, the Group has adopted the
provisions of U.S. Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions", ("FAS 87") in respect of the Group's
principal U.K. pension plan. This standard requires that the projected benefit
obligation be matched against the market value of the underlying plan assets
and other unrecognized actuarial gains and losses in determining the pension
expense for the year. As a result, pension expense can be significantly
different from that computed under U.K. GAAP which requires the cost of
providing pension benefits to be expensed over the periods benefiting from the
employees' service on the basis of a constant percentage of current and
estimated future earnings.
The additional information required by FAS 87 in respect of the principal
U.K. and U.S. pension plans is given below.
Forward exchange contracts and other financial instruments
The Group enters into forward exchange contracts and other financial
instruments which, under U.K. GAAP, are treated as hedges of future income.
Under U.S. GAAP such instruments would not be regarded as hedges and,
accordingly, would be revalued at each balance sheet date and the gain or loss
arising would be dealt with in income for the period then ended.
Exceptional items
Under U.S. GAAP, the amounts reported as exceptional items in 1999 and 1998
under U.K. GAAP would not be so reported and the gain/(loss) on closure/
disposal of operations would have been included in the determination of
operating income.
Investments
Certain of the Group's investments, purchased with the intention of holding to
maturity, have been valued at amortized cost. For U.S. GAAP purposes, all the
Group's investments have been classified as available for sale as they do not
qualify for "held-to-maturity" accounting and are reported at fair value with
unrealized gains and losses reported as a separate component of shareholders'
equity (net of tax effects).
Deferred tax
Under U.K. GAAP, deferred taxes are accounted for using the liability method to
the extent that is is considered probable that a liability or asset will
crystallize in the foreseeable future. Under U.S. GAAP, deferred taxes are
accounted for using the liability method on all temporary differences and
deferred tax assets are recognized where it is more likely than not that they
will be realized.
F-40
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Restructuring Costs
Under U.S. GAAP, surplus property must be physically segregated from property
to be retained for ongoing use within the business in order to be accrued as a
restructuring cost. At December 31, 1999, the process of segregating surplus
properties arising from the changes to business processes in the North American
operations had not been completed and, accordingly, costs accrued under U.K.
GAAP for surplus properties have not been so accrued under U.S. GAAP.
The effect on net income, comprehensive income and shareholders' equity of
applying the significant differences between U.K. GAAP and U.S. GAAP described
above is summarized as follows:
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Net income 1999 1998 1998 1997
- -------------------- ------------------ ------------------ ------------------ ------------------
(L million, except per ordinary share)
<S> <C> <C> <C> <C>
Net (loss)/income as
reported in the
consolidated
statement of income (6.4) (25.7) (15.6) 56.9
Adjustments
Operating expenses
- -- pensions review 15.0 -- -- --
Operating expenses
- -- restructuring
costs 6.5 -- -- --
Amortization of
goodwill and
expirations (20.3) (6.5) (12.0) (17.7)
Gain on disposal of
operations 4.8 -- 9.6 5.9
Revaluation of
forward exchange
contracts and other
financial
instruments (2.0) (3.7) 0.2 (5.6)
Pension costs (12.6) (1.7) (1.6) (7.6)
Deferred taxes --
effect of above
adjustments 4.0 1.7 0.4 4.3
------------------ ------------------ ------------------ ------------------
Net (loss)/income as
adjusted to accord
with U.S. GAAP (11.0) (35.9) (19.0) 36.2
------------------ ------------------ ------------------ ------------------
Per ordinary share
(basic and diluted)
as so adjusted
Net (loss)/income (2.3)p (8.4)p (4.5)p 8.7p
==================== ================== ================== ================== ==================
</TABLE>
F-41
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Comprehensive Income 1999 1998 1998 1997
----------------------------------------------------------- -------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C> <C>
Net (loss)/income as adjusted to accord with U.S. GAAP (11.0) (35.9) (19.0) 36.2
Other comprehensive income, net of tax:
Foreign currency translation adjustments 8.6 6.5 (6.5) 11.4
Unrealized holding gains (1.7) 0.8 (0.1) (0.4)
-------------- -------------- -------------- --------------
Comprehensive income (4.1) (28.6) (25.6) 47.2
============== ============== ============== ==============
Foreign currency translation adjustments
Beginning of period 6.5 (6.5) 11.4 (35.5)
Arising during the period 2.1 13.0 (17.9) 46.9
-------------- -------------- -------------- --------------
End of period 8.6 6.5 (6.5) 11.4
============== ============== ============== ==============
Unrealized holding gains
Beginning of period 0.8 -- 0.1 0.5
Arising during the period (1.7) 0.8 (0.1) (0.4)
-------------- -------------- -------------- --------------
End of period (0.9) 0.8 -- 0.1
=========================================================== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------
Shareholders' equity 1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Shareholders' equity as reported in the
consolidated balance sheet 101.8 89.0
Adjustments
Fixed Assets
Intangible assets
Goodwill -- cost 836.2 800.6
-- amortization (27.4) (6.9)
Current assets
Investments (0.9) 0.8
Receivables -- unrealized gain on forward
exchange contracts 0.7 2.7
Noncurrent liabilities
Pension costs liability (27.5) (16.3)
Provisions for liabilities and charges
Surplus property provisions 6.5 --
Deferred taxes -- effect of above
adjustments 9.7 5.5
-------------- --------------
Shareholders' equity as adjusted to accord
with U.S. GAAP 899.1 875.4
============================================ ============== ==============
</TABLE>
F-42
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Additional information required by FAS 87
The pension cost for the Group's two principal pension plans computed in
accordance with the requirements of FAS 87 comprises:
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
Net pension expense 1999 1998 1998 1997
-------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Service cost 31.0 9.6 19.3 29.7
Interest cost 48.7 14.4 34.5 51.2
Expected return on plan assets (65.0) (17.8) (76.0) (123.0)
Net amortization and deferral (1.0) -- 32.9 66.4
Curtailments/settlements/termination benefits 12.8 -- -- --
---------------- ---------------- ---------------- ----------------
Net pension expense 26.5 6.2 10.7 24.3
================================================== ================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to
December 31, 1999 December 31, 1998 September 1, 1998
------------------------------------------------------------------------ ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation -- beginning of period 852.9 811.9 810.7
Foreign currency exchange rate changes 3.6 -- --
Service cost 31.0 9.6 19.3
Interest cost 48.7 14.4 34.5
Benefits paid (41.6) (9.8) (20.6)
Actuarial gains and losses (99.0) 26.8 (32.0)
Curtailments/settlements/termination benefits 13.8 -- --
---------------- ---------------- ----------------
Benefit obligation -- end of period 809.4 852.9 811.9
======================================================================== ================ ================ ================
</TABLE>
F-43
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to
December 31, 1999 December 31, 1998 September 1, 1998
------------------------------------------------------------------------ ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C>
Change in plan assets
Plan assets -- beginning of period 905.1 799.9 798.4
Foreign currency exchange rate changes 3.7 -- --
Actual return on plan assets 188.7 111.2 11.0
Employer contributions 11.2 3.8 11.1
Benefits paid (41.6) (9.8) (20.6)
---------------- ---------------- ----------------
Plan assets -- end of period 1,067.1 905.1 799.9
======================================================================== ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
- ----------------------------------------- ---------------- ----------------
(L million)
<S> <C> <C>
Funded status
Plan assets at fair value 1,067.1 905.1
Projected benefit obligation (809.4) (852.9)
---------------- ----------------
Plan assets in excess of projected
benefit obligation 257.7 52.2
Unrecognized net gain (287.7) (68.5)
Unamortized prior service cost (0.2) --
---------------- ----------------
Accrued pension cost (30.2) (16.3)
========================================= ================ ================
</TABLE>
The U.K. plan assets are invested mainly in U.K. fixed interest and equity
securities and non-U.K. equity securities. The U.S. plan assets are invested
mainly in U.S. fixed interest and equity securities.
The major assumptions used in computing the funded status were:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
- ----------------------------------------- ---------------- ----------------
% %
<S> <C> <C>
U.K. plan
Expected long-term rate of return on plan
assets 7.5 7.5
Discount rate 6.0 5.5
Expected long-term rate of earnings
increases 4.0 4.5
U.S. plan
Expected long-term rate of return on plan
assets 8.5 8.5
Discount rate 7.25 6.0
Expected long-term rate of earnings
increases 5.0 5.0
========================================= ================ ================
</TABLE>
Consolidated statement of cash flows
The Consolidated Statement of Cash Flows prepared under U.K. GAAP presents
substantially the same information as that required under U.S. GAAP but may
differ with regard to classification of items within the statements and as
regards the definition of cash under U.K. GAAP and cash and cash equivalents
under U.S. GAAP.
F-44
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Under U.K. GAAP, cash flows are presented separately for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditure and financial investments, acquisitions and disposals, equity
dividends paid, management of liquid resources and financing activities. U.S.
GAAP requires only three categories of cash flow activity to be reported:
operating, investing and financing. Cash flows from taxation and returns on
investments and servicing of finance shown under U.K. GAAP would be included as
operating activities under U.S. GAAP. Cash flows from capital expenditure and
financial investment, acquisitions and disposals, shown separately under U.K.
GAAP, would be included as part of the investing activities under U.S. GAAP.
The payment of dividends would be included as a financing activity under U.S.
GAAP. Cash, as defined by U.S. GAAP, would include cash equivalents with
initial maturities of less than three months and would exclude bank overdrafts.
The categories of cash flow activity under U.S. GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
Year ended September 2 to January 1 to Year ended
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
Cash inflow from operating activities 118.1 (126.4) 119.1 89.9
Cash (outflow)/inflow on investing activities (10.2) (27.4) 36.5 (60.4)
Cash (outflow)/inflow on financing activities (66.3) 27.9 19.4 (12.0)
---------------- ---------------- ---------------- ----------------
Increase/(decrease) in cash and cash equivalents 41.6 (125.9) 175.0 17.5
Effect of foreign exchange rate changes (0.6) 11.2 (9.0) (0.7)
Cash and cash equivalents at start of period 499.9 614.6 448.6 431.8
---------------- ---------------- ---------------- ----------------
Cash and cash equivalents at end of period 540.9 499.9 614.6 448.6
===================================================== ================ ================ ================ ================
</TABLE>
Cash and cash equivalents comprise:
<TABLE>
<CAPTION>
December 31, December 31, September 1, December 31,
1999 1998 1998 1997
- ----------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(L million)
<S> <C> <C> <C> <C>
As shown on balance sheet:
Cash and short-term deposits 329.3 317.1 335.8 359.4
Current asset investments 294.5 281.6 383.1 257.7
---------------- ---------------- ---------------- ----------------
623.8 598.7 718.9 617.1
Less: deposits and investments with initial maturity
of more than three months (82.9) (98.8) (104.3) (168.5)
---------------- ---------------- ---------------- ----------------
Cash and cash equivalents at end of period 540.9 499.9 614.6 448.6
===================================================== ================ ================ ================ ================
</TABLE>
F-45
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Financial instruments with off-balance-sheet risk
Forward foreign exchange contracts and currency options
Because the Group transacts business in many different currencies, it is
exposed to the risks of foreign currency exchange rate movements. To hedge this
exposure, the Group enters into forward foreign exchange contracts and currency
options. At December 31, 1999 the Group had contracted to exchange foreign
currency, principally U.S. dollars, equivalent to approximately L68.0 million
(1998: L72.7 million).
Interest rate agreements
In order to manage interest rate risk, the Group enters into interest rate swap
agreements and forward rate agreements effectively to change the interest
receivable or payable on parts of its underlying investments and borrowings from
variable to fixed rates and from fixed to variable rates. Swap agreements and
forward rate agreements are only entered into with high quality financial
institutions with a minimum long-term credit rating of AA-. Accordingly, while
the Group is exposed to market risk to the extent that receipts and payments
under interest rate agreements are affected by market interest rates, any such
fluctuations will be offset by changes to interest receipts or payments made on
variable rate investments and borrowings. The Group accounts for interest rate
agreements as hedges and the net effect is recognized as interest income or
expense.
Outstanding interest swap agreements and forward rate agreements are summarized
as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------------------------------------------
Interest rates
----------------------------------------------------------------------
Notional
principal Termination Fixed Variable Fixed Variable
balance dates receivable payable payable receivable
- ------------ --------------- --------------- --------------- --------------- --------------- ---------------
(millions) % % % %
<S> <C> <C> <C> <C> <C> <C>
U.S. dollars 714 2000--2003 5.15--7.16 6.03--6.98 -- --
U.S. dollars 425 2006 -- -- 5.10 6.03--7.12
Sterling 220 2000--2003 5.47--7.83 6.03--7.03 -- --
Euros 48 2000-2002 3.05--5.16 3.30--4.77 -- --
Euros 5 2000 -- -- 4.61 3.30--3.85
Japanese Yen 827 2001 1.70 0.25--0.47 -- --
============ =============== =============== =============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------------------------------------
Interest rates
----------------------------------------------------------------------
Notional
principal Termination Fixed Variable Fixed Variable
balance dates receivable payable payable receivable
- ------------ --------------- --------------- --------------- --------------- --------------- ---------------
(millions) % % % %
<S> <C> <C> <C> <C> <C> <C>
U.S. dollars 664 1999--2002 5.15--7.16 5.06--5.41 -- --
U.S. dollars 450 2006 -- -- 5.10 5.06
Sterling 166 1999--2002 6.43--8.27 6.12--7.31 -- --
Deutschemark 49 1999--2001 3.70--5.07 3.70--5.07 -- --
Deutschemark 10 2000 -- -- 4.61 3.56
Japanese Yen 2,060 1999--2001 1.45--1.70 0.22--0.40 -- --
Italian Lire 14,600 2000--2001 4.54--7.10 3.25--4.59 -- --
============ =============== =============== =============== =============== =============== ===============
</TABLE>
F-46
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Concentration of credit risk
Potential concentrations of credit risk to the Group comprise principally cash
and short-term deposits, current asset investments, trade receivables and
foreign exchange contracts.
The Group places cash and short-term deposits and undertakes foreign
exchange contracts with a range of banks and financial institutions and
controls its exposure to any one bank or financial institution. The Group's
current asset investments comprise a broad range of financial instruments
issued principally in the United Kingdom and the United States.
Trade receivables include significant amounts due from clients and
underwriters. The Group's insurance brokering client base is widely dispersed
throughout the world, principally in the United Kingdom and the United States.
The credit risk arising from amounts due from clients and underwriters in
respect of insurance premiums and claims is minimized as such premiums and
claims are not generally paid to the beneficiary until collected.
Fair values of financial instruments
The following information is presented in compliance with the requirements of
FAS 107, "Disclosure about Fair Value of Financial Instruments". The carrying
amounts and fair values of the material financial instruments of the Group are
as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1999 1998
------------------------------- --------------------------------
Carrying Fair Carrying Fair
amount value amount value
----------------------------------------------------------- -------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C> <C>
Assets
Cash and short-term deposits 329.3 329.3 317.1 317.1
Current asset investments:
Listed investments 45.0 44.3 48.7 49.8
Unlisted investments 249.5 252.0 232.9 236.9
Liabilities
Bank loans and overdrafts (271.7) (271.7) (629.1) (629.1)
Senior Subordinated Notes (334.6) (277.7) -- --
Off-balance sheet instruments
Interest rate swaps and forward rate agreements -- 10.4 -- 10.9
Forward foreign exchange contracts -- 0.7 -- 2.7
=========================================================== ============== ============== ============== ==============
</TABLE>
The following methods and assumptions were used by the Group in establishing
its fair value disclosures for financial instruments:
Cash and short-term deposits: the carrying amount approximates fair value.
Current asset investments and Senior Subordinated Notes: the fair value is
based on market prices.
Bank loans and overdrafts: the carrying amount approximates fair value.
Off-balance sheet instruments: fair values of interest rate swap agreements are
based on discounted cash flow analyses. Fair values of forward foreign exchange
contracts are based on contractual and market rates and represent net
unrealized gains and losses.
F-47
<PAGE>
Note 31 -- Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Accounting and disclosure of stock-based compensation
FAS 123, Accounting for Stock-Based Compensation, established accounting
disclosure standards for stock-based employee compensation plans. The statement
gives companies the option of continuing to account for such costs under APB
25, Accounting for Stock Issued to Employees, and related interpretations. The
Group has chosen to continue to account for its employee share option plans
under APB 25 and, accordingly, there is no compensation cost to the Group
arising from these plans. Had the Group chosen to account for the costs of its
employee share option plans under FAS 123, which requires such costs to be
determined on the basis of the fair value of the options at the date of grant,
the Group's net income for the year ended December 31, 1997 would have been
L36.1 million, and net income per Ordinary Share would have been 8.6 pence.
Details of the fair value of stock awards are given in Note 26. No options were
granted in 1998 or 1999.
Debt and equity securities
U.S. GAAP requires debt and equity investments to be classified into three
categories: held-to-maturity, trading and available-for-sale. All the Group's
investments have been classified as available-for-sale.
The debt securities held at December 31, 1999 comprise:
<TABLE>
<CAPTION>
Unrealized Unrealized Fair
Amortized cost gains losses value
----------------------------------------------------------- -------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C> <C>
U.S. Government securities 26.9 -- (0.1) 26.8
U.K. Government securities 6.9 -- (0.2) 6.7
Other foreign government securities 4.9 -- (0.2) 4.7
Corporate debt securities 6.3 -- (0.2) 6.1
-------------- -------------- -------------- --------------
45.0 -- (0.7) 44.3
=========================================================== ============== ============== ============== ==============
</TABLE>
During 1999 sales of debt securities totaled L28.2 million (1998: L31.1
million), on which gross realized gains and gross realized losses were L0.4
million and L0.6 million (1998: L0.3 million and Lnil) respectively.
Maturities of debt securities held at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------- --------------
(L million)
<S> <C>
within one year 23.7
after one year through five years 21.3
--------------
45.0
============================================================== ==============
</TABLE>
Note 32 -- New accounting standards
The following U.K. accounting standards have been recently issued:
FRS 15, "Tangible Fixed Assets", was issued in February 1999 and is
effective for accounting periods ending on or after March 23, 2000 though
earlier adoption is permitted. This standard sets out the principles of
accounting for the initial measurement, valuation and depreciation of tangible
fixed assets. Adoption of this standard by the Company would have no impact on
its financial statements.
FRS 16, "Current Taxation", was issued in December 1999 and is effective
for accounting periods ending on or after March 23, 2000 though earlier
adoption is permitted. This standard specifies how current tax, in particular
withholding tax and tax credits, should be reflected in financial statements.
Adoption of this standard by the Company would have no impact on its financial
statements.
F-48
<PAGE>
Note 32 -- New accounting standards (continued)
The following U.S. accounting standards have been recently issued:
The FASB issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" in June 1998, which has to be adopted for fiscal years
beginning after June 15, 2000. This standard requires all derivatives to be
recognized as either assets or liabilities on the balance sheet at their fair
values. It also prescribes the accounting to be followed for the changes in the
fair values of derivatives depending upon their intended use and resulting
designation. It supersedes or amends the existing standards which deal with
hedge accounting and derivatives. The Company has not yet evaluated the effect
that adopting this standard will have on the U.S. GAAP amounts reported in its
financial statements because the impact is dependent upon the derivative
instruments in existence at the time of adoption and the market rates of
interest and foreign currency exchange rates prevailing at that time.
Note 33 -- Willis North America Inc. and Willis Partners
Willis North America Inc. is a wholly-owned subsidiary of Willis Partners, of
which Willis Group Limited is the 99.9% general partner and Willis Faber U.K.
Group Limited, a wholly-owned subsidiary of Willis Group Limited, is the 0.1%
general partner. Willis Group Limited and Willis Partners have jointly and
severally, fully and unconditionally, guaranteed the Notes.
Willis North America Inc. prepares its financial information in accordance
with U.K. GAAP. Summarized financial information under U.K. GAAP relating to
Willis North America Inc. is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1999 1998 1997
-------------------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C>
Total operating revenues 358.6 340.0 321.4
Operating income 21.4 29.0 28.4
Net income 7.1 8.4 11.4
========================== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------
1999 1998
- -------------------------------------------- -------------- --------------
(L million)
<S> <C> <C>
Current assets 1,880.9 1,806.5
Fixed assets 70.8 59.9
-------------- --------------
1,951.7 1,866.4
-------------- --------------
Current liabilities 1,816.4 1,756.5
Noncurrent liabilities 48.6 35.8
Shareholders' equity 86.7 74.1
-------------- --------------
1,951.7 1,866.4
============================================ ============== ==============
</TABLE>
The Group has not presented separate financial statements for Willis North
America Inc. because management has determined that such information is not
material to holders of the Notes.
Willis Partners, formed on November 11, 1998, has no assets other than the
capital stock of Willis North America Inc. and conducts no business other than
the holding of such capital stock.
The Group has not presented separate financial statements or summarized
financial information for Willis Partners because management has determined
that such information is not material to holders of the Notes.
F-49
<PAGE>
Note 34 -- Companies Act
These financial statements do not comprise the Company's statutory accounts
within the meaning of section 240 of the Companies Act. Statutory accounts for
the years ended December 31, 1997 and 1998 have been, and statutory accounts
for the year ended December 31, 1999 will be, delivered to the Registrar of
Companies for England and Wales. The auditors' reports on such accounts were
unqualified.
F-50
<PAGE>
SCHEDULE II
WILLIS GROUP LIMITED AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at charged to Additions
beginning of costs and charged to Balance at end
Description period expenses other accounts Deductions of period
----------------------------------------- -------------- -------------- -------------- -------------- --------------
(L million)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Provision for bad and doubtful debts 11.8 6.3 -- (2.8) 15.3
-------------- -------------- -------------- -------------- --------------
September 2, 1998 to December 31, 1998
Provision for bad and doubtful debts 12.6 (0.3) -- (0.5) 11.8
-------------- -------------- -------------- -------------- --------------
January 1, 1998 to September 1, 1998
Provision for bad and doubtful debts 11.6 1.5 -- (0.5) 12.6
-------------- -------------- -------------- -------------- --------------
Year ended December 31, 1997
Provision for bad and doubtful debts 18.6 (4.0) -- (3.0) 11.6
========================================= ============== ============== ============== ============== ==============
</TABLE>
S-1
