Costs relating to designing value processes, severance costs and recruitment of specialist analytics and advisory skills
International: International revenues were 4 percent higher than in 2004 as net new business growth and improved client retention in most regions more than offset the impact of a further softening of rates in many areas. South Africa, Russia, Latin America and Asia all performed well.
Net headcount on a full-time equivalent basis at December 31, 2006 was approximately 13,000 compared with 12,800 at December 31, 2005. For the year ended December 31, 2006 average revenues per employee were approximately $186,000 compared with $174,000 per employee for fiscal 2005.
Interest expense in 2006 was $38 million, compared with $30 million in 2005 and $22 million in 2004, with the increases mainly due to higher average levels of debt at higher interest rates following the replacement of the $450 million term loan with $600 million of senior notes in July 2005, as part of our long term capital structure planning, and the $200 million drawdown on the revolving credit facility in the latter part of 2006.
As an intermediary, we hold funds generally in a fiduciary capacity for the account of third parties, typically as the result of premiums received from clients that are in transit to insurers and claims due to clients that are in transit from insurers. We report premiums, which are held on account of, or due from, clients as assets with a corresponding liability due to the insurers. Claims held by, or due to, us which are due to clients are also shown as both assets and liabilities. All these balances due or payable are included in accounts receivable and accounts payable on the balance sheet. We earn interest on these funds during the time between the receipt of the cash and the time the cash is paid out. Fiduciary cash must be kept in certain regulated bank accounts subject to guidelines, which generally emphasize capital preservation and liquidity, and is not generally available to service our debt or for other corporate purposes.
In connection with many of our investments in less than wholly-owned subsidiaries and associates, we retain rights to increase our ownership percentage over time, typically to a majority or 100 percent ownership position. In addition, in certain instances, the other owners have a right, typically at a
Effective January 1, 2006, the Company adopted the fair value recognition provisions of FAS 123R, using the modified-retrospective transition method. Under that transition method, compensation cost recognized from January 1, 2006 includes:
· the current year effect on line items in the consolidated financial statements that the changes in the method used to determine market-related value of UK pension plan assets had, together with any affected per-share amounts; and
impairment loss is recognized if the carrying amount of a long-lived asset exceeds its fair value. Fair value is determined based on the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
For the year ended December 31, 2006 the Company incurred severance costs of $41 million (2005: $30 million, including severance costs of $28 million in relation to the first quarter 2005 headcount reduction program where 500 positions were terminated; 2004: $10 million). This expenditure included $35 million of severance benefits relating to employees whose employment has been, or is in the process of being, terminated pursuant to our “Shaping our Future’’ strategic initiatives. Such severance costs are payable under the terms of existing employee benefit arrangements or employment agreements.
For certain subsidiaries and associates, the Company has the right to purchase shares (a call option) from co-shareholders at various dates in the future. In addition, the co-shareholders of certain subsidiaries and associates have the right to sell (a put option) their shares to the Company at various dates in the future. Generally, the exercise price of such puts and calls is formula-based (using revenues and earnings) and is designed to reflect fair value. Based on current projections of profitability and exchange rates, the potential amount payable in 2007 from these options is not expected to exceed $382 million. Of this balance, $337 million relates to Gras Savoye, as disclosed in Note 12.
All obligations of Willis North America Inc. (“Willis North America”) (the borrower) under the credit agreement and under the Senior Notes offering are guaranteed by Willis Group Holdings Limited, Trinity Acquisition Limited, Willis Group Limited, TA I Limited, TA II Limited, TA III Limited and TA IV Limited.