Outside of North America and London we lease approximately 1.5 million square feet of office space in over 200 locations. Two of our properties in Ipswich, United Kingdom have liens on the land and buildings in connection with a revolving credit facility.
Correction of Commissions and Fees Overstatement Relating to 2011 and Prior Periods
The Company did not incur any further charges related to this review.
Through these strategies we aim to grow revenue with positive operating leverage, grow cash flows and generate compelling returns for investors.
Investment income in 2012 at $18 million was $13 million lower than in 2011, primarily due to declining net yields on cash and cash equivalents. Organic commissions and fees growth by segment is discussed further in 'Review of Segmental Results', below.
The effective tax rate on ordinary income for 2012 was 25 per cent, compared with 24 per cent for 2011, with the increase driven primarily by higher than anticipated US state income tax expense, the benefit from the higher tax rates at which costs associated with the 2011 Operational Review are relieved and from a different geographic mix of earnings. The effective tax rate on ordinary income is calculated before the impact of certain discrete items. Discrete items occurring in 2012 with a significant impact on the tax rate are:
Including the impact of discrete items, a tax charge of $101 million was recorded on a net loss from continuing operations before interest in earnings of associates of $337 million. This compares to a tax rate of 13 percent in 2011.
Commissions and fees included a positive $5 million adjustment to align the recognition of revenue in the North America Personal Lines business with the rest of the Group.
The year-on-year growth is primarily due to higher salaries and benefits most notably as a result of annual salary reviews. Salaries and benefits were also impacted by a higher incentives charge as a result of higher commissions and fees and the
Other includes $7 million in 2013 (2012: $7 million, 2011: $12 million) from the release of funds and reserves related to potential legal liabilities.
During 2013 we continued to use a duration-based approach, which more closely matches the actual timing of expected cash flows to the applicable discount rate. The selected rate used to discount UK plan liabilities in 2013 was 4.40% consistent with the 4.40% used at December 31, 2012. During 2013, sterling high-quality corporate bond yields had risen slightly at shorter to median durations but fallen at longer durations however, the rate consistent with expected maturity of the plan's liabilities was unchanged.
As a result of certain realization requirements of ASC 718 Compensation - Stock Compensation, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets of $8 million (2012: $nil), that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. Equity will be increased by $8 million if and when such deferred tax assets are ultimately realized. The Company uses a 'with and without' basis when determining when excess tax benefits have been realized.
Options to purchase 2.1 million shares and 1.3 million restricted stock units for the year ended December 31, 2013 were not included in the computation of the dilutive effect of stock options because the effect was antidilutive (2012: 16.7 million shares and 2.5 million restricted stock units; 2011: 4.1 million shares).
Included within land and buildings are assets held under capital leases: At December 31, 2013, cost and accumulated depreciation were $31 million and $6 million respectively (2012: $25 million and $4 million, respectively; 2011: $23 million and $2 million respectively). Depreciation in the year ended December 31, 2013 was $2 million (2012: $1 million; 2011: $1 million).
The changes in the carrying amount of goodwill by segment for the years ended December 31, 2013 and 2012 are as follows:
Disclosure is based on the Company’s best estimate of the results of its associates and is subject to change upon receipt of their financial statements for 2013.
For the year ended December 31, 2013, the Company recognized $3 million (2012: $3 million; 2011: $4 million) in respect of dividends received from associates.
In 2014, the Company expects to make contributions to the UK plan of approximately $83 million and $30 million to the US plan. In addition, approximately $12 million will be paid in 2014 into the UK defined benefit plan related to employee's salary sacrifice contributions.
Transfer in of benefit obligation for UK unfunded and US non-qualified plans from non-current other liabilities.
The Company leases its main London building under a 25-year operating lease, which expires in 2032. The Company’s contractual obligations in relation to this commitment included in the table above total $719 million (2012: $730 million). Annual rentals are $36 million (2012: $32 million) per year and the Company has subleased approximately 29 percent (2012: 29 percent) of the premises under leases up to 15 years. The amounts receivable from subleases, included in the table above, total $66 million (2012: $76 million; 2011: $82 million).
Florida suits: On February 14, 2013, five law suits were filed against Willis Group Holdings plc, Willis Limited and Willis of Colorado, Inc. in Florida state court (Miami-Dade County) alleging violations of Florida common law. The five suits are: (1) Barbar, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05666CA27, filed on behalf of 35 Stanford investors seeking compensatory damages in excess of $30 million; (2) de Gadala-Maria, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05669CA30, filed on behalf of 64 Stanford investors seeking compensatory damages in excess of $83.5 million; (3) Ranni, et ano. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05673CA06, filed on behalf of two Stanford investors seeking compensatory damages in excess of $3 million; (4) Tisminesky, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05676CA09, filed on behalf of 11 Stanford investors seeking compensatory damages in excess of $6.5 million; and (5) Zacarias, et al. v. Willis Group Holdings Public Limited Company, et al., Case No. 13-05678CA11, filed on behalf of 10 Stanford investors seeking compensatory damages in excess of $12.5 million. On June 3, 2013, Willis of Colorado, Inc. removed all five cases to the Southern District of Florida and, on June 4, 2013, notified the JPML of the pendency of these related actions. On June 10, 2013, the court in Tisminesky issued an order sua sponte staying and administratively closing that action pending a determination by the JPML as to whether it should be transferred to the Northern District of Texas for consolidation and coordination with the other Stanford-related actions. On June 11, 2013, Willis of Colorado, Inc. moved to stay the other four actions pending the JPML's transfer decision. On June 20, 2013, the JPML issued a conditional transfer order for the
The Company's operations are financed principally by $2,054 million fixed rate senior notes and $274 million under a 7-year term loan facility. The Company has access to $800 million under its main revolving credit facility expiring July 23, 2018, and $22 million under two further revolving credit facilities. As of December 31, 2013 $nil was drawn on these facilities.
At December 31, 2013 and 2012, the Company’s foreign currency contracts were all designated as hedging instruments except for those relating to short-term cash flows and hedges of certain intercompany loans.
The Company had previously designated interest rate swaps as fair value hedges against its $350 million 5.625% senior notes due 2015 and accounted for them accordingly until the first quarter of 2013 at which point these swaps, although remaining as economic hedges, no longer qualified for hedge accounting.
Trinity Acquisition plc has $525 million senior notes outstanding that were issued on August 15, 2013.