As set out in the tables below, adjusted operating margin at 21.6 percent in 2012, was down 90 basis points compared to 2011, while adjusted net income from continuing operations at $454 million was $28 million lower than in 2011. Adjusted earnings per diluted share from continuing operations was $2.58 in 2012, compared to $2.74 in 2011.
In fourth quarter 2012, we acquired 100 percent of Avalon Actuarial, Inc, a Canadian actuarial consulting firm for cash consideration of $25 million. Additional consideration of up to approximately $5 million is payable in 2016 based on achievement of certain revenue targets.
North America reported a 4 percent decline in organic commissions and fees, primarily driven by the revenue decline in Loan Protector (a small specialty business acquired as part of the HRH business that works with financial institutions to confirm their loans are properly insured and interests are adequately protected). Excluding Loan Protector, the North America segment recorded a 2 percent decline in organic commissions and fees as the benefit of new business generation was more than offset by a 1 percent decline in client retention levels, the continued negative impact of the soft market and ongoing weakened economic conditions in the US.
Other operating expenses were $92 million, or 16 percent, higher in 2011 compared with 2010, primarily reflecting $40 million of additional expense associated with the 2011 Operational Review, a $22 million write-off of an uncollectible accounts receivable balance relating to periods prior to January 1, 2011, and the $11 million second quarter UK FSA regulatory settlement and increased expense in support of revenue growth initiatives. These were partly offset by cost savings arising from implementation of the 2011 Operational Review, the year-over-year favorable comparison due to the $12 million 2010 charge relating to the devaluation of the Venezuelan currency, the $8 million year-over-year benefit from the release of funds and reserves related to potential legal liabilities and positive year-over-year foreign currency translation, driven primarily by gains in 2011 on our forward rate hedging program, compared to losses in 2010.
the impact of the change in rate of UK corporate income tax being applied to the Company's opening temporary differences; and
The following table is a summary of our operating results by segment for the three years ended December 31, 2012 (in millions except percentages):
Included in North America reported commissions and fees were legacy HRH contingent commissions of $2 million in 2012, $5 million in 2011 and $11 million in 2010.
Reported commissions and fees include a $6 million first quarter 2011 benefit from a change in accounting within a Global Specialty business to conform to current Group accounting policy.
Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; (iii) the net commission and fee revenues related to operations disposed of in each period presented; and (iv) investment income and other income from reported revenues.
Client retention levels improved to 91 percent for 2011, compared with 90 percent for 2010.
Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; (iii) the net commission and fee revenues related to operations disposed of in each period presented; (iv) in North
America, legacy contingent commissions assumed as part of the HRH acquisition and that had not been converted into higher standard commissions; and (v) investment income and other income from reported revenues.
Other includes $7 million in 2012 (2011: $12 million , 2010: $7 million) from the release of funds and reserves related to potential legal liabilities.
The expected long-term rate of return used for determining the net US pension scheme expense in 2012 was 7.25%, a reduction of 0.25% from 2011.
Fees for risk management and other services are recognized as the services are provided. Consideration for negotiated fee arrangements for an agreed period covering multiple insurance placements, the provision of risk management and/or other services are allocated to all deliverables on the basis of their relative selling prices. The Company establishes contract cancellation reserves where appropriate: at December 31, 2012, 2011 and 2010, such amounts were not material.
At December 31, 2012, the Company’s severance liability under the 2011 Operational Review was:
In December 2012, the Company decided to eliminate the repayment requirement from the past annual cash retention awards and, as a result, recognized a one-time, non-cash, pre-tax charge of $200 million which represents the write-off of the unamortized balance of past awards.
A put option that was in place prior to the December 2009 leveraged transaction, and which could have increased the Company’s interest to 90 percent, has been canceled and the Company now has a new call option to purchase 100 percent of the capital of Gras Savoye. If the Company does not waive the new call option before April 30, 2014, then it must exercise the new
The following tables present, at December 31, 2012 and 2011, for each of the fair value hierarchy levels, the Company’s US pension plan assets that are measured at fair value on a recurring basis.
The components of the net periodic benefit cost and other amounts recognized in other comprehensive loss for the international and US non-qualified defined benefit plans are as follows:
Assets classified as Level 3 investments did not materially change during the year ended December 31, 2012.
The only mandatory repayments of debt over the next 12 months are the scheduled repayment of $15 million current portion of the Company’s 5-year term loan. We also have the right, at our option, to prepay indebtedness under the credit facility without further penalty and to redeem the senior notes at our option by paying a ‘make-whole’ premium as provided under the applicable debt instrument.
In 2011, we and the UK Financial Services Authority (the 'FSA') announced a settlement for lapses by Willis Limited, our UK brokerage subsidiary, in its implementation and documentation of its controls to counter the risks of improper payments being made to non-FSA authorized overseas third parties engaged to help win business, particularly in high risk jurisdictions.
In addition to the note below, see Note 27 - Fair Value Measurements for information about the fair value hierarchy of derivatives.
The Company’s operations are financed principally by $2,050 million fixed rate senior notes and $289 million under a 5-year term loan facility.
At December 31, 2012 and 2011, the Company’s interest rate swaps were all designated as hedging instruments.
The Company concluded its internal investigation into these matters in the three months ended March 31, 2012 and identified an additional $12 million in fraudulent overstatement of Commissions and fees, and has corrected the additional misstatement by recognizing a $13 million charge (including legal expenses) to Other operating expenses in the first quarter of 2012. The above amount represents the additional charge taken.