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. Willis maintains over 4.1 million square feet of space worldwide.
In London we occupy a prime site comprising 491,000 square feet spread over a 28-story tower and adjoining 10-story building. We have a 25-year lease on this property which expires June 2032. We sub-let approximately 17,500 square feet of the 28-story tower to a third party. We also sub-let the 10-story adjoining building.
In New York, we occupy 205,000 square feet of office space at One World Financial Center under a 20-year lease, expiring September 2026.
This discussion includes references to non-GAAP financial measures as defined in Regulation G of the rules of the Securities and Exchange Commission ('SEC'). We present such non-GAAP financial measures, specifically, organic growth in commissions and fees, adjusted operating margin, adjusted operating income, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations, as we believe such information is of interest to the investment community because it provides additional meaningful methods of evaluating certain aspects of the Company's operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. Organic growth in commissions and fees excludes the impact of acquisitions and disposals, period over period movements in foreign currency , and investment and other income from growth in revenues. Adjusted operating income, adjusted operating margin, adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations are calculated by excluding the impact of certain specified items from operating income, net income or loss from continuing operations, and earnings per diluted share from continuing operations, respectively, the most directly comparable GAAP measures. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2013.
We provide a broad range of insurance broking, risk management and consulting services to our clients worldwide and organize our business into three segments: Global, North America and International.
Due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, commission revenues may vary widely between accounting periods. A period of low or declining premium rates, generally known as a 'soft' or 'softening' market, generally leads to downward pressure on commission revenues and can have a material adverse impact on our commission revenues and operating margin. A 'hard' or 'firming' market, during which premium rates rise, generally has a favorable impact on our commission revenues and operating margin. Rates, however, vary by geography, industry and client segment. As a result and due to the global and diverse nature of our business, we view rates holistically.
The industry and market in general throughout 2011 and early 2012 experienced modest increase in catastrophe-exposed property insurance and reinsurance pricing levels driven by significant catastrophe losses including the Japanese earthquake and tsunami, the New Zealand earthquake and, late in 2012, Super Storm Sandy. Also during that period, direct carriers in North America, facing persistent low investment returns, started to modestly raise rates in certain products. This firming rate environment, however, generally did not extend beyond North America to impact our International retail business.
This pattern of new capacity and market entrants coupled with strong underwriting performance in 2013, due to the absence of natural and man-made catastrophes, means that the trend of price softening is continuing as we enter 2014 and is extending to other lines of business, not just catastrophe exposed property.
The outlook for our business, operating results and financial condition continues to be challenging due to the global economic condition. There are signs of improving conditions both in the US, and within certain European Union countries, including a return to sustained GDP growth in certain countries. If conditions in the Global economy, including the US, the UK and the Eurozone deteriorate, there will likely be a negative effect on our business as well as the businesses of our clients.
In the face of this challenging economic environment we have adopted a strategy to invest selectively in growth areas, defined by geography, industry sector and client segment, and to better align our three segments so as to, among other things, bring our clients greater access to the Company's specialty areas and analytical capabilities. Our growth strategy also involves increasing our investment in, and deployment of, our analytical capabilities.
Total revenues in 2013 of $3,655 million increased by $175 million, or 5.0 percent, compared to 2012. This included organic growth in commissions and fees of 4.9 percent, and 0.5 percent growth from acquisitions and disposals. Organic growth was achieved in all three of our operating segments led by Global with 5.6 percent. Our North America operations reported organic growth of 4.9 percent, which included a $5 million positive revenue recognition adjustment. Our International operations achieved organic growth of 4.1 percent despite recognizing a $15 million negative revenue recognition adjustment. Foreign currency movements had a negative $12 million or 0.3 percent impact on commissions and fees in 2013.
Total expenses for 2013 of $2,970 million were $719 million or 19.5 percent lower compared to 2012.
Net income attributable to Willis shareholders from continuing operations was $365 million or $2.04 per diluted share in 2013 compared to a loss of $446 million or $2.58 per diluted share in 2012. The $811 million increase in net income compared to 2012 can be attributed primarily to the non-recurrence of the 2012 items discussed above and growth in commissions and fees partially offset by growth in expenses.
Total revenues in 2012 of $3,480 million increased by $33 million, or 1.0 percent, compared to 2011, including a $59 million or 1.7 percent negative impact from movements in foreign exchange. Organic growth in commissions and fees of 3.1 percent was driven by our International and Global operations. Our North America operations reported a decline of 0.6 percent in commissions and fees, due to lower revenues generated by Loan Protector, a specialty business acquired as part of the HRH business, and the continued adverse impact of difficult economic conditions in the US.
Excluding these expenses, total operating expenses declined $136 million, or 4.7 percent, principally due to $180 million expense recognized in 2011 related to the Operational Review and favorable movements in foreign exchange partially offset by increases in salary and benefits expenses linked to annual pay reviews, new hires and investments in targeted businesses and geographies.
The following items are excluded from operating income (loss) and net income (loss) from continuing operations as applicable:
make-whole amounts on repurchase and redemption of senior notes and write-off of unamortized debt issuance costs;
As set out in the tables below, adjusted operating margin at 20.0 percent in 2013, was down 160 basis points compared to 2012, while adjusted net income from continuing operations at $472 million was $18 million higher than in 2012. Adjusted earnings per diluted share from continuing operations was $2.64 in 2013, compared to $2.58 in 2012.
A reconciliation of reported operating income or loss, the most directly comparable GAAP measure, to adjusted operating income is as follows (in millions, except percentages):
Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011, see 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods', below.
A reconciliation of reported net income or loss from continuing operations and reported earnings per diluted share from continuing operations, the most directly comparable GAAP measures, to adjusted net income from continuing operations and adjusted earnings per diluted share from continuing operations is as follows (in millions, except per share data):
Write-off of unamortized cash retention awards debtor following the decision to eliminate the repayment requirement on past awards.
Potentially issuable shares were not included in the calculation of diluted earnings per share, GAAP basis, because the Company's net loss from continuing operations rendered their impact anti-dilutive.
Our annual goodwill impairment analysis is performed each year at October 1. At October 1, 2013 our analysis showed the estimated fair value of each reporting unit was in excess of the carrying value, and therefore did not result in an impairment charge (2012: $492 million; 2011: $nil).
The Company recorded a pre-tax charge of $46 million in the first quarter of 2013 related to the previously announced assessment of the Company's organizational design. In connection with this assessment, we incurred the following pre-tax charges:
$17 million of Other operating expenses and Depreciation resulting from the rationalization of property and systems.
There were, however, a number of off-cycle awards with a fixed period guarantee attached, for which we have not waived the repayment requirement. The unamortized portion of these awards amounted to $15 million at December 31, 2013 (2012: $9 million; 2011: $196 million).
We recorded a net periodic benefit income on our UK defined benefit pension plan in 2013 of $5 million (2012: $5 million; 2011: cost of $6 million). On our US defined benefit pension plan, we recorded a net periodic benefit income of $4 million in 2013 (2012: cost of $3 million; 2011: $nil). On our other defined benefit pension plans, we recorded a net pension cost of $5 million in 2013 (2012: $4 million; 2011: $5 million).
The periodic benefit income on the UK plan in 2013 is flat compared to 2012 as higher asset returns were offset by higher amortization of unrecognized actuarial losses and increased service costs.
The 2012 US pension cost was $3 million higher compared with 2011 was primarily due to an increase in amortization of unrecognized actuarial losses partially offset by higher asset returns.
See 'Contractual Obligations' below for further information on our obligations relating to our pension plans.
In second quarter 2013, the Company acquired 100 percent of PPH Limited and its subsidiary Prime Professions Limited (together referred to as Prime Professions), a leading UK based professional indemnity insurance broker, at a cost of $29 million.
where we compete and that means the areas where we can succeed by:
Geography - we will re-balance our business mix towards faster growing geographies, with both developed and developing markets
Total revenues by segment for 2013 and 2012 are shown below (millions, except percentages):
Commissions and fees were reduced by a net $9 million impact of two revenue recognition adjustments in the North America and International segments discussed below.
The Global segment reported 5.7 percent growth in commissions and fees, comprising 5.6 percent organic growth and a net 1.0 percent growth from acquisitions and disposals mainly due to Prime Professions which was acquired in second quarter 2013. This growth was partially offset by a 0.9 percent negative impact from foreign currency translation.
Organic commissions and fees growth of 5.6 percent was led by high single-digit growth in Reinsurance, where all the divisions reported positive growth. Global Specialties reported mid single-digit growth primarily due to strong growth from Financial and Executive Risk, and P&C and Construction. Willis Capital Markets & Advisory performed solidly but was down compared to the very strong result it recorded in 2012 relating to meaningfully higher volumes of advisory fees and catastrophe bond deals.
Organic growth was led by double-digit growth in our Latin America region and high single-digit growth in Eastern Europe. We reported low single-digit growth in Western Europe, despite the generally weak economic conditions within the region. Despite the negative impact of the $15 million revenue adjustment, we recorded good growth in Asia, predominantly in Hong Kong and Singapore. We also reported low single-digit growth in Australasia.
Salaries and benefits were $268 million, or 10.8 percent, lower in 2013 compared with 2012. Foreign currency movements lowered salaries and benefits by $9 million, or 0.4 percent.
Depreciation expense was $94 million in 2013, compared with $79 million in 2012. The increase of $15 million includes $5 million which was incurred in first quarter 2013 relating to the rationalization of property and systems as part of our Expense Reduction Initiative (see 'Executive Summary - Expense Reduction Initiative' above for details). The remaining $10 million increase is primarily due to a number of significant information technology related projects becoming operational during the year and the write-off of replaced systems and other assets.
Net gain on disposal of operations of $2 million was related principally to the disposal of our share in an Iberian associate.
Including the impact of discrete items, the tax rate for 2013 was 24 percent. This compares to a tax charge of $101 million recorded on the net loss from continuing operations of $337 million in 2012.
Total revenues increased by $33 million, or 1.0 percent, in 2012 compared to 2011, including 3.1 percent growth in organic commissions and fees partially offset by a $59 million, or 1.8 percent, negative impact from foreign exchange and a $13 million decrease in investment income due to continued falling yields on deposits.
Total commissions and fees in 2012 were $3,458 million, up $44 million, or 1.3 percent, from $3,414 million in 2011. Foreign currency movements negatively impacted commissions and fees by 1.8 percent. Organic commissions and fees growth was 3.1 percent.
Salaries and benefits increased by $388 million, or 18.6 percent, in 2012 compared with 2011. Foreign currency movements lowered salaries and benefits by $34 million, or 1.6 percent. The year-on-year net favorable impact from foreign currency translation was driven primarily by the movement of the US dollar against the pound sterling (in which our London Market based operations incur the majority of their expenses).
Other operating expenses were $75 million, or 11.4 percent, lower in 2012 compared with 2011. Foreign currency movements positively impacted expenses by $35 million, or 5.3 percent.
Depreciation expense was $79 million in 2012, compared with $74 million in 2011. The increase is primarily due to a number of information technology related projects becoming operational at the end of 2011 and during first half 2012 partially offset by $5 million depreciation charge incurred in 2011 related to the Operational Review.
Goodwill impairment charge was $492 million in 2012. This was a non-cash charge recognized related to the impairment of the carrying value of the North America reporting unit's goodwill. For further information on our testing for goodwill impairment, see 'Critical Accounting Estimates', below.
a tax credit of $34 million on the $492 million charge related to the impairment of the carrying value of the North America reporting unit's goodwill. The tax credit arises in relation to that part of the charge that is attributable to tax deductible goodwill;
tax related to the $252 million charge for the additional incentive accrual arising from a change in remuneration policy which is generally relieved at a higher rate than the underlying rate;
a valuation allowance of $125 million made against US deferred tax assets recorded following cumulative losses being incurred in the US. The cumulative losses are primarily attributable to exceptional charges associated with the 2011 Operational review, the impairment of North America goodwill and the additional incentive costs associated with the change in remuneration policy. Of the total valuation allowance, $113 million was recorded in the income statement and $12 million in other comprehensive income;
a non-deductible charge of $11 million for a settlement with former partners related to the termination of a joint venture arrangement in India;
the net tax impact of the $3 million loss on disposal of operations.
In 2011 the Company disposed of Global Special Risks, LLC, Faber & Dumas Canada Ltd and the trade and assets of Maclean, Oddy & Associates, Inc. The gain (net of tax) on this disposal was $2 million.
Our principal short-term uses of liquidity and capital resources are operating expenses, capital expenditures, shareholder returns, funding defined benefit pension plans and the repurchase of shares.
Our long-term liquidity requirements consist of the principal amount of outstanding notes; borrowings under our 7-year term loan and revolving credit facilities; and our pension contributions as discussed below.
As at December 31, 2013 there was $nil drawn down on the revolving credit facilities (2012: $nil).
The primary uses of funds during 2013 included $346 million of cash incentive award payments relating to 2012, $193 million related to payments of dividends, $150 million cash contributions, including employees' salary sacrifice contributions, to our defined benefit schemes, capital expenditures of $112 million related to leasehold improvements, information technology and transformation projects, $30 million for the acquisition of Prime Professions and CBC Broker Srl, and a $4 million cash payment to acquire the remaining noncontrolling interest in our Colombia reinsurance operation.
The impact of movements in liquidity, debt and EBITDA in 2013 had a negative impact on the interest coverage ratio and a positive impact on the leverage ratio. Both ratios remain well within the requirements of the revolving credit facility covenants.
On July 23, 2013 we entered into an amendment to our existing credit facilities to extend both the amount of financing and the maturity date of the facilities. As a result of this amendment, our revolving credit facility was increased from $500 million to $800 million. The maturity date on both the revolving credit facility and the $300 million term loan was extended to July 23, 2018, from December 16, 2016. At the amendment date we owed $281 million on the term loan and there was no change to this amount as a result of the refinancing.
These refinancing actions have lengthened our debt maturity profile. At December 31, 2013, we had $nil outstanding under the $800 million facility (December 31, 2012: $nil), the UK $20 million facility (December 31, 2012: $nil) and the RMB facility
The Company made cash contributions of $88 million in 2013 (2012: $80 million) into the UK defined benefit pension plan, and $12 million (2012: $12 million) in respect of employees' salary sacrifice contributions.
In addition, further contributions may be payable based on a profit share calculation (equal to 20 percent of EBITDA in excess of $900 million per annum as defined by the revised schedule of contributions) and an exceptional return calculation (equal to 10 percent of any exceptional returns made to shareholders, for example, share buybacks and special dividends). Aggregate contributions under the deficit funding contribution and the profit share calculation are capped at £312 million ($517 million) over the six years ended December 31, 2017.
We made cash contributions to our US defined benefit plan of $40 million in 2013 and in 2012.
We will make cash contributions of approximately $30 million to the US plan in 2014.
We made cash contributions to our other defined benefit pension plans of $10 million in 2013 and $11 million 2012.
Net cash provided by operating activities in 2013 increased by $36 million to $561 million compared with 2012.
The $561 million cash from operations comprises net income of $377 million, net $313 million of non-cash adjustments to reconcile net income to cash provided by operating activities and working capital movements
The $36 million increase in cash provided by operating activities in 2013 compared to 2012 was primarily driven by favorable movements in working capital versus the prior year.
Total net cash used in continuing financing activities was $291 million in 2012 compared to $214 million in 2011. The $77 million increase in cash used was the result of the $100 million cash outflow relating to the repurchase of 2.8 million shares during 2012 and the $30 million year-on-year increase in payments made to acquire noncontrolling interests including, Gras Savoye Re, and our Columbian retail operation; partially offset by the reduction in repayments of debt, net of the refinancing during 2011.
As of December 31, 2013, we had cash and cash equivalents of $796 million, compared with $500 million at December 31, 2012. Additionally, $822 million was available to draw under our revolving credit facilities at December 31, 2013, compared with $520 million at December 31, 2012.
As of February 14, 2014 there remains approximately $824 million available to purchase common shares under the current authorization.
The share buy back program may be modified, extended or terminated at any time by the Board of Directors.
The following table is a summary of our operating results by segment for the three years ended December 31, 2013 (in millions except percentages):
Commissions and fees of $1,188 million were $64 million, or 5.7 percent, higher in 2013 compared with 2012. The increase includes organic growth of 5.6 percent and 1.0 percent growth from acquisitions and disposals, most notably from the acquisition of Prime Professions in second quarter 2013, partially offset by a 0.9 percent negative impact from foreign currency movements.
Willis Re reported high single-digit growth, with North America leading the way with double-digit results. New business was strong across all three divisions and we reported increased client retention levels compared to the prior year.
Specialty reported mid single-digit growth, with solid performance in our Financial and Executive Risk, and P&C and Construction. Growth from new business was solid and we saw increased client retention levels compared to 2012.
Willis Capital Markets & Advisory performed solidly but was down compared to the very strong result it recorded in 2012 relating to meaningfully higher volumes of advisory fees and catastrophe bond deals.
Full year operating margin was 28.0 percent in 2013 and 32.9 percent in 2012. The decline was driven by the additional expenses discussed above, partially offset by solid commissions and fees growth.
Commissions and fees of $1,124 million were $51 million, or 4.8 percent, higher in 2012 compared with 2011. Foreign exchange movements had a net 1.3 percent negative impact on commissions and fees; organic growth was 6.1 percent.
Organic growth in Global Specialties was led by strong performances from Energy, Marine, Financial Solutions and Construction Specialties reflecting single-digit net new business. This growth was partially offset by declines in Aerospace, which continued to be negatively impacted by competitive pricing and rate decreases.
Client retention levels declined to 90.3 percent for 2012, compared with 91.3 percent for 2011.
Commissions and fees of $1,377 million were $71 million, or 5.4 percent, higher in 2013 compared with 2012.
Client retention levels were 92.0 percent in 2013 compared with 90.7 percent in 2012.
Total operating expenses of $1,117 million were $44 million or 4.1 percent, higher for 2013 compared to 2012.
change in remuneration policy, and additional 401(k) match and medical charges, partially offset by lower charges for share-based compensation and pensions.
Organic commissions and fees growth declined 0.6 percent in 2012 compared with 2011, whilst new business levels were higher than in 2011, resulting in growth in certain regions and business segments. These were more than offset by lower Loan Protector revenues and the impact of the weakened economy.
Client retention levels were 90.7 percent in 2012 compared with 91.5 percent in 2011.
Operating margin in North America was 18.3 percent in 2012 compared with 20.5 percent in 2011, reflecting the adverse impact from the 0.6 percent decline in organic commissions and fees growth discussed above, a $4 million reduction in investment income due to declining yields, and increases to incentive expenses, production linked awards and share-based compensation. These were partly offset by a reduction to other expenses, including lower premises costs and a reduction in E&O provisions.
Our International business comprises our retail operations in Western Europe, Central and Eastern Europe, the United Kingdom, Asia, Australasia, the Middle East, South Africa and Latin America. The services provided are focused according to the characteristics of each market and vary across offices, but generally include direct risk management and insurance brokerage and employee benefits consulting.
Organic growth included double-digit new business growth partly offset by lost business. Rates had no significant impact on commissions and fees.
Eastern Europe reported high single-digit growth arising primarily from Russia tempered by a mid-single digit decline in Poland.
Western Europe reported low single-digit growth. Despite difficult economic conditions, Italy and Iberia produced mid-single digit growth partially offset by mid single-digit declines in Ireland and the Netherlands.
Total operating expenses of $897 million were $42 million, or 4.9 percent, higher for 2013 compared with 2012. Foreign currency movements favorably impacted operating expenses by $12 million or 1.4 percent; excluding the impact of foreign currency movements total operating expenses increased $54 million or 6.3 percent.
This increase was due primarily to higher salaries and benefits as a result of new hires, annual salary reviews, higher incentives due to the change in remuneration policy and an increased charge for share-based compensation.
Operating margin in International was 16.8 percent in 2013, compared with 17.6 percent in 2012. The decline was driven by the increase in expenses discussed above partially offset by solid commissions and fees growth.
Despite the ongoing economic difficulties faced by the Eurozone, our large retail operations in the region delivered low single-digit growth in 2012, driven by strong growth in Germany, Sweden and Denmark, although this growth was partially offset by declines in Ireland and Norway.
Our Latin American operation delivered high double-digit growth in 2012, the result of significant new business growth; principally in Brazil, Venezuela and Argentina.
Asia reported high single-digit growth in 2012 led by strong growth in Japan, China and Korea.
Organic growth in our UK retail operation was flat in 2012, compared with 2011, this reflects a stabilization of the business in the region following a 2.3 percent decline in 2011.
A significant part of International's revenues are earned in currencies other than the US dollar, most notably the euro and the Australian dollar. The net 4.8 percent negative impact from foreign currency translation in 2012 primarily reflected the weakening of the US dollar against these and other currencies in which we earn International revenues.
Client retention levels decreased to 93.3 percent for 2012, compared with 93.7 percent for 2011.
Insurance recovery, recorded in Other operating expenses, related to a previously disclosed fraudulent activity in Chicago. See 'Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods' discussed above.
Our accounting policies are described in Note 2 to the Consolidated Financial Statements. Management considers that the following accounting estimates or assumptions are the most important to the presentation of our financial condition or operating performance:
The discount rate at December 31, 2013 was 4.76%, an increase of 69 basis points from the discount rate of 4.07% at December 31, 2012. The increase in the discount rate reflects the increase in high-quality corporate bond yields during 2013.
The impact of the higher discount rate in 2013 decreased the projected benefit obligation by approximately $86 million.
As an indication of the longevity assumed, our calculations assume that a US male retiree aged 65 at December 31, 2013, would have a life expectancy of 19 years.
•‘Contract-based, Technology and Other’ which includes all other purchased intangible assets.
Application of the impairment test requires judgment, including the identification of reporting units, assignment of assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit.
We have determined our reporting units to be consistent with our operating segments: North America; International and Global. Goodwill is allocated to these reporting units based on the original purchase price allocation for acquisitions within the reporting units.
The fair value of each reporting unit is estimated using a discounted cash flow methodology and, in aggregate, validated against our market capitalization.
Our annual goodwill impairment analysis is performed each year at October 1. At October 1, 2013 our analysis showed the estimate fair value of each reporting unit was in excess of carrying value, and therefore did not result in an impairment charge.
Under the income approach, the fair value of the North America reporting unit was determined based on the present value of estimated future cash flows. The fair value measurements used unobservable inputs in a discounted cash flow model based on the Company's most recent forecasts. Such projections were based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions, and the uncertainty related to the reporting unit's ability to execute on the projected cash flows with consideration of market comparables where appropriate. The discount rate was based on the weighted-average cost of capital adjusted for the relevant risk associated with market participant expectations of characteristics of the individual reporting units.
The decline in the fair value of the North America reporting unit, as well as differences between fair values and carrying values for other assets and liabilities in the second step of the goodwill impairment test, resulted in an implied fair value of goodwill substantially below the carrying value of the goodwill for the reporting unit. As a result, the Company recorded a goodwill impairment charge of $492 million in 2012.
The decline in the estimated fair value of the reporting unit resulted from lower projected revenue growth rates and profitability levels as well as an increase in the discount rate used to calculate the discounted cash flows. The increase in the discount rate was due to increases in the risk-free rate and small company premium offset by a reduction to the expected market rate of
return. The lower projected profitability levels reflect changes in assumptions related to organic revenue growth and cost rates which can be attributed to the declines discussed above and also includes consideration of the uncertainty related to the business's ability to execute on the projected cash flows.
The only mandatory repayments of debt over the next 12 months are the scheduled repayment of $15 million current portion of the Company’s 7-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.
Rent expense amounted to $141 million for the year ended December 31, 2013 (2012: $135 million; 2011: $127 million). The Company’s rental income from subleases was $15 million for the year ended December 31, 2013 (2012: $17 million; 2011: $18 million).
During 2013, the Company made cash contributions to the UK defined benefit pension plan of $88 million (2012: $80 million; 2011: $81 million), additionally $12 million (2012: $12 million; 2011: $11 million) was paid into the plan in respect of employees' salary sacrifice contributions.
The schedule of contributions is automatically renegotiated after three years and at any earlier time jointly agreed by the Company and the Trustee. During 2014 we will be required to negotiate a new funding arrangement which may further change the contributions we are required to make in the future.
We made total cash contributions to our other defined benefit pension plans of $10 million in 2013, compared with $11 million in 2012 and 13 million in 2011.
In 2014, we expect to contribute approximately $9 million to our international plans.
The final 2014 contribution for all plans is expected to be approximately $122 million, excluding salary sacrifice which compares to an equivalent 2013 total contribution of $138 million.
Guarantees issued by certain of Willis Group Holdings’ subsidiaries with respect to the senior notes and revolving credit facilities are discussed in Note 20 - 'Debt' in these consolidated financial statements.
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 their shares (a put option) to the Company at various dates in the future. Generally, the exercise price of such put options and call options is formula-based (using revenues and earnings) and is designed to reflect fair value. Based on current projections of profitability and exchange rates and assuming the put options are exercised, the potential amount payable from these options is not expected to exceed $12 million (2012: $19 million).
The Company has decided to not adopt this guidance early. However, as an indication of the likely balance sheet reclassification based on the position at December 31, 2013, the Company had recognized $22 million of unrecognized tax benefits within Other non-current liabilities that would be reclassified to Non-current deferred tax assets. The Company has not yet determined whether it will apply the amendments to the prior reporting period for its first quarter 2014 reporting.
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2013
We have audited the accompanying consolidated balance sheets of Willis Group Holdings Public Limited Company and subsidiaries (the ‘Company’) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Willis Group Holdings Public Limited Company and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Notes 30 to 32 the the financial statements, the 2012 and 2011 financial statements have been restated to be in accordance with the principles for presentation of condensed consolidating financial information contained in the United States Code of Federation Regulations (17 CFR Part 210) Regulations S-X, Article 3-10.
should be applied to all unrecognized tax benefits that exist as of the effective date although entities may choose to apply the amendments retrospectively to each prior reporting period presented.
Transactions in currencies other than the functional currency of the entity are recorded at the rates of exchange prevailing at the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are translated at the rates of exchange prevailing at the balance sheet date and the related transaction gains and losses are reported in the statements of operations. Certain intercompany loans are determined to be of a long-term investment nature. The Company records transaction gains and losses from remeasuring such loans as a component of other comprehensive income.
The Company uses derivative financial instruments for other than trading purposes to alter the risk profile of an existing underlying exposure. Interest rate swaps are used to manage interest risk exposures. Forward foreign currency exchange contracts are used to manage currency exposures arising from future income and expenses. The fair values of derivative contracts are recorded in other assets and other liabilities. The effective portions of changes in the fair value of derivatives that qualify for hedge accounting as cash flow hedges are recorded in other comprehensive income. Amounts are reclassified from other comprehensive income into earnings when the hedged exposure affects earnings. If the derivative is designated as and qualifies as an effective fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are both recognized in earnings. The amount of hedge ineffectiveness recognized in earnings is based on the extent to which an offset between the fair value of the derivative and hedged item is not achieved. Changes in fair value of derivatives that do not qualify for hedge accounting, together with any hedge ineffectiveness on those that do qualify, are recorded in other operating expenses or interest expense as appropriate.
The Company recognizes deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating and capital loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and
The Company has two principal defined benefit pension plans which cover approximately half of employees in the United States and United Kingdom. Both these plans are now closed to new entrants. New employees in the United Kingdom are offered the opportunity to join a defined contribution plan and in the United States are offered the opportunity to join a 401(k) plan. In addition, there are smaller plans in certain other countries in which the Company operates, including a non-qualified plan in the United States. Elsewhere, pension benefits are typically provided through defined contribution plans.
Severance costs arise in the normal course of business and these charges amounted to $4 million in the year ended December 31, 2013 (2012: $6 million; 2011: $nil).
During the year ended December 31, 2013, the Company incurred additional salaries and benefits costs of $29 million of which $28 million related to severance costs, in relation to an Expense Reduction Initiative in the first quarter. These costs related to 207 positions that have been eliminated.
During 2011, the Company incurred additional severance costs of $89 million relating to the Company's 2011 Operational Review. These costs relate to approximately 1,200 positions that were eliminated.
This plan, which was established on April 25, 2012, provides for the granting of ISOs, time-based or performance-based non-statutory stock options, share appreciation rights ('SARs'), restricted shares, time-based or performance-based restricted share units ('RSUs'), performance-based awards and other share-based grants or any combination thereof (collectively referred to as 'Awards') to employees, officers, directors and consultants ('Eligible Individuals') of the Company and any of its subsidiaries (the 'Willis Group'). The Board of Directors also adopted a sub-plan under the 2012 plan to provide an employee sharesave scheme in the UK.
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock. The Company uses the simplified method set out in Accounting Standard Codification (‘ASC’) 718-10-S99 to derive the expected term of options granted as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free rate for periods within the expected life of the option is based on the US Treasury yield curve in effect at the time of grant.
Certain options are exercisable in pounds sterling and are converted to dollars using the exchange rate at December 31, 2013.
Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2013 was $155 million (2012: $53 million; 2011: $60 million). The actual tax benefit recognized for the tax deductions from option exercises of the share-based payment arrangements totaled $28 million for the year ended December 31, 2013 (2012: $8 million; 2011: $18 million).
A gain on disposal of $2 million is recorded in the consolidated statements of operations for the year ended December 31, 2013. This principally relates to the disposal of an associated undertaking based in Spain.
At December 31, 2013 the Company had valuation allowances of $196 million (2012: $221 million) to reduce its deferred tax assets to estimated realizable value. The valuation allowances at December 31, 2013 relate to deferred tax assets arising from UK capital loss carryforwards ($43 million) and other net operating losses ($4 million), which have no expiration date, and to the deferred tax assets in the US ($149 million). US Federal net operating losses will expire between 2028 and 2032 and US State net operating losses will expire by 2032. Capital loss carryforwards can only be offset against future UK capital gains.
The Company files tax returns in the various tax jurisdictions in which it operates. The 2009 US tax year closed in 2013 upon the expiration of the statute of limitations on assessment. Although tax years 2008 and 2009 are closed, the IRS could make adjustments (but not assess additional tax) up to the amount of the net operating losses carried forward from those years. US tax returns have been filed timely. The Company has not extended the federal statute of limitations for assessment in the US.
For the year ended December 31, 2013, time-based and performance-based options to purchase 8.0 million and 5.3 million shares (2012: 10.2 million and 6.5 million; 2011: 9.2 million and 7.3 million), respectively, and 2.9 million restricted stock units (2012: 2.5 million; 2011: 1.2 million) were outstanding.
In relation to the acquisition of Prime Professions, the Company recognized acquired intangible assets of $17 million of which $16 million was in respect of customer relationships, which are being amortized over an expected life of 15 years. The remaining intangible assets relate to non-compete agreements and the Prime trade name which are being amortized over 8 years and 3 years, respectively. Goodwill of $15 million was recognized on the transaction.
In relation to the acquisition of Avalon Actuarial, the Company recognized acquired intangible assets of $20 million of which $17 million was in respect of customer relationships, which are being amortized over an expected life of 14 years. The remaining intangible assets relate to non-compete agreements and the Avalon trade name which are being amortized over 5 years and 3 years, respectively. Goodwill of $9 million was recognized on the transaction.
The Company collects premiums from insureds and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers which it then remits to insureds. Uncollected premiums
from insureds and uncollected claims or refunds from insurers (‘fiduciary receivables’) are recorded as fiduciary assets on the Company’s consolidated balance sheet. Unremitted insurance premiums, claims or refunds (‘fiduciary funds’) are also recorded within fiduciary assets.
An analysis of fixed asset activity for the years ended December 31, 2013 and 2012 are as follows:
North America - $1 million (2012: $nil) tax benefit arising on the exercise of fully vested HRH stock options which were issued as part of the acquisition of HRH in 2008.
In 2012, the Company concluded that an impairment charge was required to reduce the carrying value of the goodwill associated with the Company's North America reporting unit. The goodwill impairment charge for the North America reporting
unit amounted to $492 million. There was no impairment for the Global and International reporting units, as the fair values of these units were significantly in excess of their carrying value.
The decline in the estimated fair value of the reporting unit resulted from lower projected revenue growth rates and profitability levels as well as an increase in the discount rate used to calculate the discounted cash flows. The increase in the discount rate was due to increases in the risk-free rate and small company premium offset by a reduction to the expected market rate of return. The lower projected profitability levels reflected changes in assumptions related to organic revenue growth and cost rates which could be attributed to the declines discussed above and also included consideration of the uncertainty related to the business's ability to execute on the projected cash flows.
‘Contract based, Technology and Other’ includes all other purchased intangible assets.
The Company holds a number of investments which it accounts for using the equity method. The Company’s approximate interest in the outstanding stock of the more significant associates is as follows:
The Company’s principal investment as of December 31, 2013 and 2012 is GS & Cie Groupe (‘Gras Savoye’), France’s leading insurance broker.
In 2011 the Company’s ownership of Gras Savoye reduced from 31 percent to 30 percent following issuance of additional share capital as part of an employee share incentive scheme.
As of December 31, 2013 and 2012, the Company’s other investments in associates, individually and in the aggregate, were not material to the Company’s operations.
$276 million (2012: $134 million) in respect of the UK defined benefit pension plan; and
$2 million (2012: $2 million) in respect of the international defined benefit pension plans.
a total liability for pension benefits of $136 million (2012: $282 million) representing:
$107 million (2012: $250 million) in respect of the US defined benefit pension plan; and
$29 million (2012: $32 million) in respect of the international, US non-qualified and UK unfunded defined benefit pension plans.
The components of the net periodic benefit (income) cost and other amounts recognized in other comprehensive loss for the UK and US defined benefit plans are as follows:
The estimated net loss and prior service cost for the UK and US defined benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are:
In the UK the pension trustees in consultation with the Company maintain a diversified asset portfolio and this together with contributions made by the Company is expected to meet the pension scheme’s liabilities as they become due. The UK plan’s assets are divided into 13 separate portfolios according to asset class and managed by 10 investment managers. The broad target allocations are UK and foreign equities (31.5 percent), debt securities (45 percent), hedge funds (17.5 percent) and real estate (6 percent). In the US the Company’s investment policy is to maintain a diversified asset portfolio, which together with contributions made by the Company is expected to meet the pension scheme’s liabilities as they become due. The US plan’s assets are currently invested in 17 funds representing most standard equity and debt security classes. The broad target allocations are US and foreign equities (50 percent) and debt securities (50 percent).
Fixed income securities comprise US, UK and other Government Treasury Bills, loan stock, index linked loan stock and UK and other corporate bonds which are typically valued using quoted market prices.
Willis North America has a 401(k) plan covering all eligible employees of Willis North America and its subsidiaries. The plan allows participants to make pre-tax contributions which the Company, at its discretion may match. During 2009, the Company had decided not to make any matching contributions other than for former HRH employees whose contributions were matched up to 75 percent under the terms of the acquisition. All investment assets of the plan are held in a trust account administered by independent trustees. The Company’s 401(k) matching contributions for 2013 were $15 million (2012: $10 million; 2011: $10 million), matching contributions were increased 1 percent during 2013.
In addition to the Company’s UK and US defined benefit pension plans, the Company has several smaller defined benefit pension plans in certain other countries in which it operates together with a non-qualified defined benefit pension plan in the US and an unfunded defined benefit pension plan in the UK.
The following schedules provide information concerning the Company’s international, US non-qualified and UK unfunded defined benefit pension plans:
Amounts recognized in accumulated other comprehensive loss consist of a net actuarial loss of $27 million (2012: $35 million).
The accumulated benefit obligation for the Company’s other defined benefit pension plans was $191 million (2012: $177 million).
The estimated net loss for the other defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $nil.
The following schedule provides other information concerning the Company’s other defined benefit pension plans:
The determination of the expected long-term rate of return on the other defined benefit plan assets is dependent upon the specific circumstances of each individual plan. The assessment may include analyzing historical investment performance, investment community forecasts and current market conditions to develop expected returns for each asset class used by the plans.
The Company’s other defined benefit pension plan asset allocations at December 31, 2013 based on fair values were as follows:
The following tables present, at December 31, 2013 and 2012, for each of the fair value hierarchy levels, the Company’s other defined benefit pension plan assets that are measured at fair value on a recurring basis.
Assets classified as Level 3 investments did not materially change during the year ended December 31, 2013.
In 2014, the Company expects to contribute $9 million to the other defined benefit pension plans.
All direct obligations under the 5.625%, 6.200% and 7.000% senior notes are guaranteed by Willis Group Holdings, Willis Netherlands B.V., Willis Investment UK Holdings Limited, TA I Limited, Trinity Acquisition plc and Willis Group Limited.
The 7-year term loan facility expiring 2018 bears interest at LIBOR plus 1.50% and is repayable in quarterly installments and a final repayment of $186 million is due in the third quarter of 2018. In 2013, we made $15 million of mandatory repayments against this 7-year term loan. Drawings under the $800 million revolving credit facility bear interest at LIBOR plus 1.50%. These margins apply while the Company’s debt rating remains BBB-/Baa3. As of December 31, 2013 $nil was outstanding under this revolving credit facility (December 31, 2012: $nil).
Following the partial extinguishment of the 5.625% senior notes due 2015 on August 15, 2013, the Company has recorded a credit of $7 million to remove a corresponding partial amount of the fair value adjustment to the carrying values of the notes originally recognized in connection with the interest rate swaps. The remaining $5 million fair value adjustment as at that date will be amortized through interest expense over the period to maturity.
On November 7, 2012, a further revolving credit facility of $20 million, available solely for the use of our main UK regulated entity and available for use in certain circumstances, was renewed. The facility bears interest at LIBOR plus 1.55% until 2014 and LIBOR plus 1.700% thereafter. The facility expires on November 6, 2015. As at December 31, 2013 no drawings had been made on the facility. The facility is secured against the freehold of the UK regulated entity’s freehold property in Ipswich.
On July 11, 2013, a revolving credit facility of 15 million Chinese Yuan Renminbi 'RMB' ($2 million) was renewed. This facility bears interest at 110 percent of the applicable short term interest rate an RMB loan having a term equal to the tenor of that drawing as published by the People's Bank of China 'PBOC' prevailing as at the drawdown date of that drawing. The facility expires on July 10, 2014. As at December 31, 2013 ¥nil ($nil) (2012: ¥nil ($nil)) had been drawn down on the facility. This facility was solely for the use of our Chinese subsidiary and is available for general working capital purposes.
The Company also has available $4 million (2012: $4 million) in lines of credit, of which $nil was drawn as of December 31, 2013 (2012: $nil).
The claims, lawsuits and other proceedings provision includes E&O cases which represents management’s assessment of liabilities that may arise from asserted and unasserted claims for alleged errors and omissions that arise in the ordinary course of the Group’s business. Where some of the potential liability is recoverable under the Group’s external insurance arrangements, the full assessment of the liability is included in the provision with the associated insurance recovery shown separately as an asset. Insurance recoveries recognized at December 31, 2013 amounted to $nil (2012: $6 million).
Provisions held in the UK for ongoing post placement services, long term disability provisions and legal claim provisions all previously recognized within Deferred Revenue and Accrued Expenses were transferred to Provisions for Liabilities during 2013.
The Company’s debt and related interest obligations at December 31, 2013 are shown in the above table.
The total contracted contributions for all plans in 2014 are expected to be approximately $122 million, excluding approximately $12 million in respect of the salary sacrifice scheme.
Certain of Willis Group Holdings’ subsidiaries have given the landlords of some leasehold properties occupied by the Company in the United Kingdom and the United States guarantees in respect of the performance of the lease obligations of the subsidiary holding the lease. The operating lease obligations subject to such guarantees amounted to $828 million and $829 million at December 31, 2013 and 2012, respectively. The capital lease obligations subject to such guarantees amounted to $11 million as at December 31, 2013 (2012: $nil).
Other contractual obligations at December 31, 2013, also include certain capital lease obligations totaling $63 million (2012: $53 million), primarily in respect of the Company's Nashville property.
On May 10, 2011, the court presiding over the Stanford-related actions in the Northern District of Texas entered an order providing that it would consider the applicability of SLUSA to the Stanford-related actions based on the decision in a separate Stanford action not involving a Willis entity, Roland v. Green, Civil Action No. 3:10-CV-0224-N. On August 31, 2011, the court issued its decision in Roland, dismissing that action with prejudice under SLUSA.
Rupert, et al. v. Winter, et al., Case No. 2009C115137, was filed on September 14, 2009 on behalf of 97 Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under the Securities Act of 1933, Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $300 million, attorneys’ fees and costs. On October 20, 2009, certain defendants, including Willis of Colorado, Inc., (i) removed Rupert to the U.S. District Court for the Western District of Texas, (ii) notified the JPML of the pendency of this related action and (iii) moved to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. On April 1, 2010, the JPML issued a final transfer order for the transfer of Rupert to the Northern District of Texas. On January 24, 2012, the court remanded Rupert to Texas state court (Bexar County), but stayed the action until further order of the court. The defendants have not yet responded to the complaint in Rupert.
Casanova, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:10-CV-1862-O, was filed on September 16, 2010 on behalf of seven Stanford investors against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate, among others, also in the Northern District of Texas. The complaint alleges claims under Texas statutory and common law and seeks actual damages in excess of $5 million, punitive damages, attorneys’ fees and costs. The defendants have not yet responded to the complaint in Casanova.
MacArthur v. Winter, et al., Case No. 2013-07840, was filed on February 8, 2013 on behalf of two Stanford investors against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Harris County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks actual, special, consequential and treble damages of approximately $4 million and attorneys' fees and costs. On March 29, 2013, Willis of Colorado, Inc. and Willis of Texas, Inc. (i) removed MacArthur to the U.S. District Court for the Southern District of Texas and (ii) notified the JPML of the pendency of this related action. On April 2, 2013, Willis of Colorado, Inc. and Willis of Texas, Inc. filed a motion in the Southern District of Texas to stay the action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. Also on April 2, 2013, the court presiding over MacArthur in the Southern District of Texas transferred the action to the Northern District of Texas for consolidation or coordination with the other Stanford-related actions. The defendants have not yet responded to the complaint in MacArthur.
transfer of the five actions to the Northern District of Texas, the transmittal of which was stayed for seven days to allow for any opposition to be filed. On June 28, 2013, with no opposition having been filed, the JPML lifted the stay, enabling the transfer to go forward. The defendants have not yet responded to the complaints in these actions.
The fair value of these swaps at the close out date was $16 million, representing a cash settlement amount on termination. In connection with the terminated swaps, the Company retained a gain of $15 million in other comprehensive income as the forecasted short-term investment transactions in relation to which the swaps qualified as cash flow hedges are still considered probable. These amounts are reclassified into earnings consistent with when the forecasted swap transactions affect earnings. We expect approximately $5 million of the gain to be recognized in the consolidated statement of operations in 2014.
At December 31, 2013 and 2012, the Company had no derivative financial instruments that were designated as cash flow hedges of interest rate risk in investments.
The 7-year term loan facility bears interest at LIBOR plus 1.50% and drawings under the revolving credit facility bear interest at LIBOR plus 1.50%. These margins apply while the Company’s debt rating remains BBB-/Baa3. Should the Company’s debt rating change, then the margin will change in accordance with the credit facilities agreements. The fixed rate senior notes bear interest at various rates as detailed in Note 20 - ‘Debt’.
To hedge against the potential variability in benchmark interest rates in advance of the anticipated debt issuance, the Company entered into two short-term treasury locks during the three months ended June 30, 2013. These were closed out during the three months ended September 30, 2013 following the issue of the new senior notes described in Note 20 - 'Debt'. The fair value of these treasury locks at the close out date was $21 million, received as a cash settlement on termination.
from changes in the exchange rate between US dollars and pounds sterling as its London market operations earn the majority of their revenues in US dollars and incur expenses predominantly in Pounds sterling, and may also hold a significant net sterling asset or liability position on the balance sheet. In addition, the London market operations earn significant revenues in Euros and Japanese yen; and
In addition to forward exchange contracts we undertake short-term foreign exchange swaps for liquidity purposes. These are not designated as hedges and do not qualify for hedge accounting. The fair values at December 31, 2013 and 2012 were immaterial.
The table below presents the effects of derivative financial instruments in cash flow hedging relationships on the consolidated statements of operations and the consolidated statements of equity for years ended December 31, 2013, 2012 and 2011:
The table below presents the effects of derivative financial instruments in fair value hedging relationships on the consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011.
The table below presents the effects of derivative financial instruments no longer in fair value hedging relationships on the consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011.
Credit risk represents the loss that would be recognized at the reporting date if counterparties failed to perform as contracted and from movements in interest rates and foreign exchange rates. The Company currently does not anticipate non-performance by its counterparties. The Company generally does not require collateral or other security to support financial instruments with credit risk.
concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and derivatives which are recorded at fair value.
Concentrations of credit risk with respect to receivables are limited due to the large number of clients and markets in which the Company does business, as well as the dispersion across many geographic areas. Management does not believe significant risk exists in connection with the Company's concentrations of credit as of December 31, 2013.
expectations of characteristics of the individual reporting units. The unobservable inputs used to fair value this reporting unit include projected revenue growth rates, profitability and the market participant assumptions within the discount rate.
write-off of uncollectible accounts receivable balance and associated legal fees and insurance recoveries arising in Chicago due to fraudulent overstatement of commissions and fees;
the additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which will not feature a repayment requirement;
write-off of unamortized cash retention awards following the decision to eliminate repayment requirement on past awards;
Write-off of unamortized cash retention award debtor following the decision to eliminate the repayment requirement on past awards.
Other includes $7 million (2012: $7 million, 2011: $12 million) from the release of funds and reserves related to potential legal liabilities.
The following table reconciles total consolidated operating income, as disclosed in the operating segment tables above, to consolidated income from continuing operations before income taxes and interest in earnings of associates.
Willis North America Inc. (‘Willis North America’) has $148 million senior notes outstanding that were issued on July 1, 2005, $394 million of senior notes issued on March 28, 2007 and $187 million of senior notes issued on September 29, 2009.
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets for the year ended December 31, 2013 of Willis Group Holdings, the Other Guarantors and the Issuer.
The impacts of these changes on the previously reported 2012 and 2011 financial statements are shown in the tables below.
30. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)
The guarantor structure described above differs from the guarantor structure associated with the senior notes issued by Willis North America (the ‘Willis North America Debt Securities’) (and for which condensed consolidating financial information is presented in Note 30) in that Willis Group Holdings is the Parent Issuer and Willis North America is a subsidiary guarantor.
Trinity Acquisition plc, which is the issuer and is a 100 percent indirectly owned subsidiary of the parent;
32. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)