Retirement Benefits | 12 Months Ended |
Jun. 30, 2014 |
Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract] | ' |
Retirement Benefits | ' |
Retirement Benefits |
Defined Benefit Plans |
Towers Watson sponsors both qualified and non-qualified defined benefit pension plans and other post-retirement benefit plan (“OPEB”) plans in North America and Europe. As of June 30, 2014, these funded and unfunded plans represented 98 percent of Towers Watson’s pension and OPEB obligations and are disclosed herein. Towers Watson also sponsors funded and unfunded defined benefit pension plans in certain other countries, representing an additional $98.0 million in projected benefit obligations, $73.3 million in assets and a net liability of $24.8 million. |
North America |
United States – Beginning January 1, 2012, all associates, including named executive officers, accrue qualified and non-qualified benefits under a new stable value pension design. Prior to this date, associates hired prior to December 31, 2010 earned benefits under their legacy plan formulas, which were frozen on December 31, 2011. The non-qualified plan is unfunded. Retiree medical benefits provided under our U.S. postretirement benefit plans were closed to new hires effective January 1, 2011. Life insurance benefits under the same plans were frozen with respect to service, eligibility and amounts as of January 1, 2012 for active associates. |
Canada – Effective on January 1, 2011, associates hired on or after January 1, 2011 and effective on January 1, 2012 associates hired prior to January 1, 2011, accrue qualified and non-qualified benefits based on a career average benefit formula. Additionally, participants can choose to make voluntary contributions to purchase enhancements to their pension. Prior to the January 1, 2011, associates earned benefits under their legacy plan formulas. |
The non-qualified plans in North America provide for the additional pension benefits that would be covered under the qualified plan in the respective country were it not for statutory maximums. The non-qualified plans are unfunded. |
Europe |
United Kingdom – For associates previously participating under the legacy Watson Wyatt defined benefit plan, benefits accrue based on the number of years of service and the associate’s average compensation during the associate’s term of service since January 2008 (prior to this date, benefits accrued under a different formula). Benefit accruals earned under the legacy Towers Perrin defined benefit plan were frozen on March 31, 2008, and the plan predominantly provides lump sum benefits. All associates not earning benefits under the legacy Watson Wyatt defined benefit component of the plan accrue benefits under a defined contribution component. |
Germany – Effective January 1, 2011, all new associates participate in a defined contribution plan. Associates hired prior to this date continue to participate in various defined contribution and defined benefit arrangements according to legacy plan formulas. The legacy defined benefit plans are primarily account-based, with some long-service associates continuing to accrue benefits according to grandfathered final-average-pay formulas. |
Netherlands – Benefits under the Netherlands plan used to accrue on a final pay basis on earnings up to a maximum amount each year. The benefit accrual under the final pay plan stopped at December 31, 2010. The accrued benefits will receive conditional indexation each year. |
The determination of Towers Watson’s obligations and annual expense under the plans is based on a number of assumptions that, given the longevity of the plans, are long-term in focus. A change in one or a combination of these assumptions could have a material impact on Towers Watson’s pension benefit obligation and related cost. Any difference between actual and assumed results is amortized into Towers Watson’s pension cost over the average remaining service period of participating associates. Towers Watson considers several factors prior to the start of each fiscal year when determining the appropriate annual assumptions, including economic forecasts, relevant benchmarks, historical trends, portfolio composition and peer company comparisons. |
Funding is based on actuarially determined contributions and is limited to amounts that are currently deductible for tax purposes. Since funding calculations are based on different measurements than those used for accounting purposes, pension contributions are not equal to net periodic pension cost. |
Assumptions Used in the Valuations of the Defined Benefit Pension Plans |
The following assumptions were used in the valuations of Towers Watson’s defined benefit pension plans. The assumptions presented for the North American plans represent the weighted-average of rates for all U.S. and Canadian plans. The assumptions presented for Towers Watson’s European plans represent the weighted-average of rates for the U.K., Germany and Netherlands plans. |
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The assumptions used to determine net periodic benefit cost for the fiscal years ended June 30, 2014, 2013 and 2012 were as follows: |
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| Year Ended June 30, | | | | | | | | | | |
| 2014 | | 2013 | | 2012 | | | | | | | | | | |
| North | | Europe | | North | | Europe | | North | | Europe | | | | | | | | | | |
America | America | America | | | | | | | | | | |
Discount rate | 5.32 | % | | 4.41 | % | | 4.86 | % | | 4.8 | % | | 5.79 | % | | 5.59 | % | | | | | | | | | | |
Expected long-term rate of return on assets | 7.67 | % | | 5.77 | % | | 8.11 | % | | 6.07 | % | | 8.14 | % | | 6.78 | % | | | | | | | | | | |
Rate of increase in compensation levels | 4.36 | % | | 3.93 | % | | 4.35 | % | | 3.93 | % | | 3.82 | % | | 3.93 | % | | | | | | | | | | |
The following table presents the assumptions used in the valuation to determine the projected benefit obligation for the fiscal years ended June 30, 2014 and 2013: |
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| June 30, 2014 | | June 30, 2013 | | | | | | | | | | | | | | | | |
| North | | Europe | | North | | Europe | | | | | | | | | | | | | | | | |
America | America | | | | | | | | | | | | | | | | |
Discount rate | 4.86 | % | | 3.99 | % | | 5.32 | % | | 4.41 | % | | | | | | | | | | | | | | | | |
Rate of increase in compensation levels | 3.98 | % | | 3 | % | | 4.36 | % | | 3.93 | % | | | | | | | | | | | | | | | | |
Components of Net Periodic Benefit Cost for Defined Benefit Pension Plans |
The following tables set forth the components of net periodic benefit cost for our defined benefit pension plans for North America and Europe for the fiscal years ended June 30, 2014, 2013 and 2012: |
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| Year ended June 30, | | | | |
| 2014 | | 2013 | | 2012 | | | | |
| North | | Europe | | North | | Europe | | North | | Europe | | | | |
America | America | America | | | | |
Service cost | $ | 70,346 | | | $ | 12,321 | | | $ | 70,795 | | | $ | 10,262 | | | $ | 61,158 | | | $ | 10,199 | | | | | |
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Interest cost | 140,736 | | | 41,148 | | | 135,726 | | | 37,937 | | | 141,390 | | | 38,173 | | | | | |
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Expected return on plan assets | (188,391 | ) | | (46,352 | ) | | (185,435 | ) | | (42,244 | ) | | (172,827 | ) | | (44,922 | ) | | | | |
Amortization of net loss/(gain) | 22,088 | | | 9,019 | | | 45,372 | | | 5,905 | | | 18,240 | | | (3,717 | ) | | | | |
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Amortization of prior service (credit)/cost | (8,379 | ) | | 42 | | | (8,377 | ) | | 41 | | | (8,338 | ) | | 41 | | | | | |
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Settlement/curtailment loss | — | | | — | | | — | | | — | | | — | | | 4,258 | | | | | |
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Other adjustments (a) | — | | | 254 | | | — | | | 85 | | | 9,512 | | | 545 | | | | | |
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Net periodic benefit cost | $ | 36,400 | | | $ | 16,432 | | | $ | 58,081 | | | $ | 11,986 | | | $ | 49,135 | | | $ | 4,577 | | | | | |
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(a) | This adjustment for North America in fiscal year 2012 is primarily due to the cumulative effect of the change in the method of determining the market-related value of plan assets. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Changes to other comprehensive income for the Company’s defined benefit pension plans as follows: |
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| Year ended June 30, | | | | |
| 2014 | | 2013 | | 2012 | | | | |
| North | | Europe | | North | | Europe | | North | | Europe | | | | |
America | America | America | | | | |
Current year actuarial (gain)/loss | $ | (26,558 | ) | | $ | 60,022 | | | $ | (188,011 | ) | | $ | 51,384 | | | $ | 314,754 | | | $ | 110,377 | | | | | |
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Amortization of actuarial (gain)/loss | (22,088 | ) | | (9,019 | ) | | (45,372 | ) | | (5,905 | ) | | (18,240 | ) | | 3,717 | | | | | |
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Amortization of prior service credit/(cost) | 8,379 | | | (42 | ) | | 8,377 | | | (41 | ) | | 8,338 | | | (41 | ) | | | | |
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Recognition of actuarial loss due to settlement/curtailment | — | | | — | | | — | | | — | | | — | | | (4,258 | ) | | | | |
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Other | (909 | ) | | 12,992 | | | (1,699 | ) | | (1,418 | ) | | (13,477 | ) | | (1,512 | ) | | | | |
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Total recognized in other comprehensive (income)/loss | $ | (41,176 | ) | | $ | 63,953 | | | $ | (226,705 | ) | | $ | 44,020 | | | $ | 291,375 | | | $ | 108,283 | | | | | |
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The change in Other in the 2014 fiscal year is primarily due to the currency impact, specifically the increase in the British Pound. During fiscal year 2012, it includes the effect of the change in the method of determining the market-related value of plan assets. |
For North America, the actuarial gain recorded in the 2013 fiscal year was due to an increase in the discount rates used for our plans. For Europe, the actuarial loss recorded in the 2013 fiscal year is primarily due to a decrease in the discount rates used for our plans. Towers Watson’s discount rate assumptions were determined by matching expected future pension benefit payments with current AA corporate bond yields from the respective countries for the same periods. In the United States, specific bonds were selected to match plan cash flows. In Canada, yields were taken from a corporate bond yield curve. In Europe, the discount rate was set based on yields on European AA corporate bonds at the measurement date. The U.K. is based on the U.K. AA corporate bonds, while Germany and the Netherlands are based on European AA corporate bonds. |
The estimated amounts that will be amortized from other comprehensive income into net periodic benefit cost during fiscal 2015 for the Company’s defined benefit pension plans are shown below: |
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| Fiscal 2015 | | | | | | | | | | | | | | | | | | | | |
| North | | Europe | | | | | | | | | | | | | | | | | | | | |
America | | | | | | | | | | | | | | | | | | | | |
Actuarial loss | $ | 17,603 | | | $ | 13,571 | | | | | | | | | | | | | | | | | | | | | |
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Prior service (credit)/cost | (8,378 | ) | | 44 | | | | | | | | | | | | | | | | | | | | | |
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Total | $ | 9,225 | | | $ | 13,615 | | | | | | | | | | | | | | | | | | | | | |
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The following table provides a reconciliation of the changes in the projected benefit obligations and fair value of assets for the years ended June 30, 2014 and 2013, and the funded status as of June 30, 2014 and 2013. During the fiscal 2014 year, the German plan was funded and has therefore been combined with the reporting of the other European plans. For comparative purposes, the information previously presented for the European plans as of and for the year ended June 30, 2013 have been recast to combine the information for the German plan with the other European plans. |
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| 2014 | | | | 2013 | | | | |
| North | | North | | Europe | | North | | North America- Unqualified | | Europe | | | | |
America - Qualified | America - Unqualified | America- Qualified | | | | |
Change in Benefit Obligation | | | | | | | | | | | | | | | |
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Benefit obligation at beginning of year | $ | 2,324,353 | | | $ | 416,461 | | | $ | 887,047 | | | $ | 2,412,004 | | | $ | 466,809 | | | $ | 809,874 | | | | | |
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Service cost | 58,777 | | | 11,569 | | | 12,321 | | | 59,327 | | | 11,468 | | | 10,262 | | | | | |
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Interest cost | 121,548 | | | 19,187 | | | 41,148 | | | 115,418 | | | 20,307 | | | 37,938 | | | | | |
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Actuarial losses/(gains) | 149,163 | | | 21,416 | | | 61,836 | | | (160,794 | ) | | 11,023 | | | 62,461 | | | | | |
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Benefit payments | (102,495 | ) | | (71,576 | ) | | (20,566 | ) | | (91,546 | ) | | (90,035 | ) | | (16,907 | ) | | | | |
Participant contributions | — | | | — | | | 2,338 | | | — | | | — | | | 2,361 | | | | | |
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Other | 516 | | | — | | | 1,462 | | | — | | | — | | | 85 | | | | | |
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Foreign currency adjustment | (4,081 | ) | | (1,279 | ) | | 101,712 | | | (10,056 | ) | | (3,111 | ) | | (19,027 | ) | | | | |
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Benefit obligation at end of year | $ | 2,547,781 | | | $ | 395,778 | | | $ | 1,087,298 | | | $ | 2,324,353 | | | $ | 416,461 | | | $ | 887,047 | | | | | |
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Change in Plan Assets | | | | | | | | | | | | | | | |
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Fair value of plan assets at beginning of year | $ | 2,461,764 | | | $ | — | | | $ | 750,856 | | | $ | 2,269,318 | | | $ | — | | | $ | 688,983 | | | | | |
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Actual return on plan assets | 385,528 | | | — | | | 48,166 | | | 223,675 | | | — | | | 53,322 | | | | | |
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Company contributions | 71,663 | | | 71,576 | | | 41,941 | | | 69,305 | | | 90,035 | | | 46,182 | | | | | |
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Participant contributions | — | | | — | | | 2,338 | | | — | | | — | | | 2,361 | | | | | |
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Benefit payments | (102,495 | ) | | (71,576 | ) | | (20,566 | ) | | (91,546 | ) | | (90,035 | ) | | (16,907 | ) | | | | |
Other | 516 | | | — | | | 1,208 | | | — | | | — | | | — | | | | | |
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Foreign currency adjustment | (3,385 | ) | | — | | | 95,217 | | | (8,988 | ) | | — | | | (23,085 | ) | | | | |
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Fair value of plan assets at end of year | $ | 2,813,591 | | | $ | — | | | $ | 919,160 | | | $ | 2,461,764 | | | $ | — | | | $ | 750,856 | | | | | |
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Funded status at end of year | $ | 265,810 | | | $ | (395,778 | ) | | $ | (168,138 | ) | | $ | 137,411 | | | $ | (416,461 | ) | | $ | (136,191 | ) | | | | |
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Accumulated Benefit Obligation | $ | 2,517,911 | | | $ | 390,246 | | | $ | 1,077,939 | | | $ | 2,293,705 | | | $ | 411,011 | | | $ | 853,121 | | | | | |
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| 2014 | | 2013 | | | | |
| North America - Qualified | | North America- Unqualified | | Europe | | North America- Qualified | | North America- Unqualified | | Europe | | | | |
Amounts recognized in Consolidated Balance Sheets consist of: | | | | | | | | | | | | | | | |
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Noncurrent assets | $ | 273,940 | | | $ | — | | | $ | 9,593 | | | $ | 180,371 | | | $ | — | | | $ | 18,103 | | | | | |
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Current liabilities | — | | | (51,113 | ) | | — | | | — | | | (62,466 | ) | | (4,430 | ) | | | | |
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Noncurrent liabilities | (8,131 | ) | | (344,665 | ) | | (177,730 | ) | | (42,960 | ) | | (353,944 | ) | | (149,862 | ) | | | | |
Net amount recognized | $ | 265,809 | | | $ | (395,778 | ) | | $ | (168,137 | ) | | $ | 137,411 | | | $ | (416,410 | ) | | $ | (136,189 | ) | | | | |
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Amounts recognized in Accumulated Other Comprehensive Income consist of: | | | | | | | | | | | | | | | |
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Net actuarial loss | $ | 100,608 | | | $ | 68,224 | | | $ | 178,395 | | | $ | 165,719 | | | $ | 52,667 | | | $ | 114,455 | | | | | |
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Net prior service (credit)/cost | (41,757 | ) | | (10,965 | ) | | 477 | | | (48,242 | ) | | (12,858 | ) | | 464 | | | | | |
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Accumulated Other Comprehensive Loss | $ | 58,851 | | | $ | 57,259 | | | $ | 178,872 | | | $ | 117,477 | | | $ | 39,809 | | | $ | 114,919 | | | | | |
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The following table presents the projected benefit obligation and fair value of plan assets for our qualified plans that have a projected benefit obligation in excess of plan assets as of June 30, 2014 and 2013: |
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| 2014 | | 2013 | | | | | | | | | | | | |
| North | | Europe | | North | | Europe | | | | | | | | | | | | |
America | America | | | | | | | | | | | | |
Projected benefit obligation at end of year | $ | 105,278 | | | $ | 210,898 | | | $ | 293,657 | | | $ | 27,882 | | | | | | | | | | | | | |
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Fair value of plan assets at end of year | $ | 97,147 | | | $ | 33,168 | | | $ | 250,697 | | | $ | 20,281 | | | | | | | | | | | | | |
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The following table presents the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for our qualified plans that have an accumulated benefit obligation in excess of plan assets as of June 30, 2014 and 2013: |
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| 2014 | | 2013 | | | | | | | | | | | | |
| North | | Europe | | North | | Europe | | | | | | | | | | | | |
America | America | | | | | | | | | | | | |
Projected benefit obligation at end of year | $ | — | | | $ | 210,898 | | | $ | 101,176 | | | $ | 27,882 | | | | | | | | | | | | | |
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Accumulated benefit obligation at end of year | $ | — | | | $ | 201,540 | | | $ | 91,025 | | | $ | 27,882 | | | | | | | | | | | | | |
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Fair value of plan assets at end of year | $ | — | | | $ | 33,168 | | | $ | 78,356 | | | $ | 20,281 | | | | | | | | | | | | | |
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Our investment strategy is designed to generate returns that will reduce the interest rate risk inherent in each of the plans’ benefit obligations and enable the plans to meet their future obligations. The precise amount for which these obligations will be settled depends on future events, including the life expectancy of the plan participants and salary inflation. The obligations are estimated using actuarial assumptions, based on the current economic environment. |
Each pension plan seeks to achieve total returns sufficient to meet expected future obligations when considered in conjunction with expected future company contributions and prudent levels of investment risk and diversification. Each plan’s targeted asset allocation is determined through a plan-specific Asset-Liability Modeling study. These comprehensive studies provide an evaluation of the projected status of asset and benefit obligation measures for each plan under a range of both positive and negative environments. The studies include a number of different asset mixes, spanning a range of diversification and potential equity exposures. |
In evaluating the strategic asset allocation choices, an emphasis is placed on the long-term characteristics of each individual asset class, such as expected return, volatility of returns and correlations with other asset classes within the portfolios. Consideration is also given to the proper long-term level of risk for each plan, the impact on the volatility and magnitude of plan contributions and cost, and the impact certain actuarial techniques may have on the plan’s recognition of investment experience. |
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For the Towers Watson funded plans in the U.S., Canada and the U.K., the targeted equity allocation as of June 30, 2014 is 23%, 60% and 31.4%, respectively. In the U.S. and U.K. funded plans, besides the target equity allocation, an additional 44% and 9%, respectively, of the target allocation is directed to other investment vehicles including alternative credit, alternative beta and private equities. The remaining allocation for each of the funded plans is directed to fixed income securities. The duration of the fixed income assets is plan specific and each has been targeted to minimize fluctuations in plan funded status as a result of changes in interest rates. The Netherlands plan is invested in an insurance contract. Consequently, the asset allocation of the plan is managed by the insurer. |
We monitor investment performance and portfolio characteristics on a quarterly basis to ensure that managers are meeting expectations with respect to their investment approach. There are also various restrictions and controls placed on managers, including prohibition from investing in our stock. |
The expected rate of return on assets assumption is developed in conjunction with advisors and using our asset model that reflects a combination of rigorous historical analysis and the forward-looking views of the financial markets as revealed through the yield on long-term bonds, the price-earnings ratios of the major stock market indices and long-term inflation. |
We evaluate the need to transfer between levels based upon the nature of the financial instrument and size of the transfer relative to the total net assets of the plans. In accordance with the refinement of the policy made by the Company in fiscal year 2014, the Company transferred $161.0 million of pooled funds from Level 2 to Level 3. Pooled funds, which use net asset value as a practical expedient, are classified as Level 3 when the investment has redemption restrictions that prevent the plans from redeeming the majority of the investment within the near term. During fiscal year 2014, the Company refined its policy and defined a substantive restriction as a redemption restriction of 10% or greater of the investment value or a redemption restriction period of more than 90 days from the measurement date. |
There were no other significant transfers between Levels 1, 2 or 3 in the year ended June 30, 2014. |
The fair value of our plan assets by asset category at June 30, 2014 and 2013 are as follows (see Note 1 for a description of the fair value levels and Note 6 for a summary of management’s procedures around prices received from third-parties): |
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| Fair Value Measurements at June 30, 2014 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| North | | Europe | | North | | Europe | | North | | Europe | | |
America | America | America |
Asset category: | | | | | | | | | | | | | |
Cash | $ | 1,845 | | | $ | 69,433 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 71,278 | |
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Short-term securities | 499 | | | — | | | 63,864 | | | — | | | — | | | — | | | 64,363 | |
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Equity securities: | | | | | | | | | | | | | |
U.S. large cap companies | 127,996 | | | 15,440 | | | — | | | — | | | — | | | — | | | 143,436 | |
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U.S. mid cap companies | 49,494 | | | 563 | | | — | | | — | | | — | | | — | | | 50,057 | |
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U.S. small cap companies | 40,691 | | | — | | | — | | | — | | | — | | | — | | | 40,691 | |
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International equities | 114,441 | | | 471 | | | — | | | — | | | — | | | — | | | 114,912 | |
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Fixed income: | | | | | | | | | | | | | |
Government issued securities | 206,517 | | | — | | | — | | | — | | | — | | | — | | | 206,517 | |
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Corporate bonds (S&P rating of A or higher) | — | | | — | | | 320,005 | | | — | | | — | | | — | | | 320,005 | |
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Corporate bonds (S&P rating of lower than A) | — | | | — | | | 216,983 | | | — | | | 450 | | | — | | | 217,433 | |
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Other fixed income | — | | | — | | | 56,519 | | (a) | 155,160 | | (a) | — | | | — | | | 211,679 | |
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Pooled / commingled funds | — | | | — | | | 908,119 | | (b) | 427,901 | | (b) | 470,649 | | | 115,810 | | | 1,922,479 | |
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Mutual funds | 96,129 | | | 44,917 | | | 47,968 | | | — | | | — | | | — | | | 189,014 | |
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Private equity | — | | | — | | | — | | | — | | | 88,851 | | | 66,605 | | | 155,456 | |
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Derivatives | — | | | — | | | 1,654 | | (c) | 4,758 | | (c) | — | | | — | | | 6,412 | |
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Insurance contracts | — | | | — | | | — | | | — | | | — | | | 18,091 | | | 18,091 | |
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Total assets | $ | 637,612 | | | $ | 130,824 | | | $ | 1,615,112 | | | $ | 587,819 | | | $ | 559,950 | | | $ | 200,506 | | | $ | 3,731,823 | |
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Liability category: | | | | | | | | | | | | | |
Derivatives | $ | — | | | $ | — | | | $ | (350 | ) | (c) | $ | — | | | $ | — | | | $ | — | | | $ | (350 | ) |
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Net assets | $ | 637,612 | | | $ | 130,824 | | | $ | 1,614,762 | | | $ | 587,819 | | | $ | 559,950 | | | $ | 200,506 | | | $ | 3,731,473 | |
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| Fair Value Measurements at June 30, 2013 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| North | | Europe | | North | | Europe | | North | | Europe | | |
America | America | America |
Asset category: | | | | | | | | | | | | | |
Cash | $ | 7,308 | | | $ | 13,337 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 20,645 | |
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Short-term securities | — | | | — | | | 107,992 | | | 38,164 | | | — | | | — | | | 146,156 | |
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Equity securities: | | | | | | | | | | | | | |
U.S. large cap companies | 109,837 | | | — | | | — | | | — | | | — | | | — | | | 109,837 | |
|
U.S. mid cap companies | 90,544 | | | — | | | — | | | — | | | — | | | — | | | 90,544 | |
|
U.S. small cap companies | 58,261 | | | — | | | — | | | — | | | — | | | — | | | 58,261 | |
|
International equities | 198,375 | | | 18,535 | | | — | | | — | | | — | | | — | | | 216,910 | |
|
Fixed income: | | | | | | | | | | | | | |
Government issued securities | 226,352 | | | 4,629 | | | 74,832 | | | — | | | — | | | — | | | 305,813 | |
|
Corporate bonds (S&P rating of A or higher) | — | | | — | | | 235,590 | | | — | | | — | | | — | | | 235,590 | |
|
Corporate bonds (S&P rating of lower than A) | — | | | — | | | 206,328 | | | — | | | 411 | | | — | | | 206,739 | |
|
Other fixed income | — | | | 104,554 | | | 33,045 | | (a) | 34,339 | | (a) | — | | | — | | | 171,938 | |
|
Pooled / commingled funds | — | | | — | | | 484,842 | | (b) | 431,676 | | (b) | — | | | 40,585 | | | 957,103 | |
|
Mutual funds | — | | | — | | | 588,152 | | | — | | | — | | | — | | | 588,152 | |
|
Private equity | — | | | — | | | — | | | — | | | 75,555 | | | 34,213 | | | 109,768 | |
|
Derivatives | — | | | — | | | 539 | | (c) | 15,785 | | (c) | — | | | — | | | 16,324 | |
|
Insurance contracts | — | | | — | | | — | | | — | | | — | | | 15,040 | | | 15,040 | |
|
Total assets | $ | 690,677 | | | $ | 141,055 | | | $ | 1,731,320 | | | $ | 519,964 | | | $ | 75,966 | | | $ | 89,838 | | | $ | 3,248,820 | |
|
Liability category: | | | | | | | | | | | | | |
Derivatives | $ | — | | | $ | — | | | $ | 659 | | (c) | $ | — | | | $ | — | | | $ | — | | | $ | 659 | |
|
Net assets | $ | 690,677 | | | $ | 141,055 | | | $ | 1,730,661 | | | $ | 519,964 | | | $ | 75,966 | | | $ | 89,838 | | | $ | 3,248,161 | |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | This category includes municipal and foreign bonds. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | This category includes pooled funds of both equity and fixed income securities. Fair value is based on the calculated net asset value of shares held by the plan as reported by the sponsor of the funds. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(c) | We use various derivatives such as interest rate swaps, futures and options to match the duration of the corporate bond portfolio with the duration of the plan liability. | | | | | | | | | | | | | | | | | | | | | | | | | | |
Following is a description of the valuation methodologies used for investments at fair value: |
Short-term securities: Valued at the net value of shares held by the Company at year end as reported by the sponsor of the funds. |
Common stocks and exchange-traded mutual funds: Valued at the closing price reported on the active market on which the individual securities are traded. |
Government issued securities: Valued at the closing price reported in the active market in which the individual security is traded. Government bonds are valued at the closing price reported in the active market in which the bond is traded. |
Corporate bonds: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. |
Fixed Income: Foreign and municipal bonds are valued at the closing price reported in the active market in which the bond is traded. Corporate bonds are valued based on yields currently available on comparable securities of issuers with similar credit ratings. |
Pooled / Commingled Funds and Mutual Funds: Valued at the net value of shares held by the Company at year end as reported by the manager of the funds. Pooled funds are classified as Level 3 when, in accordance with the policy refinement by the Company during fiscal year 2014, the investment has redemption restrictions that prevent the plans from redeeming greater than 90% of our investment in 90 days or less from the measurement date. |
Derivative investments: Valued at the closing level of the relevant index or security and interest accrual through the valuation date. |
Private equity funds: The fair value for these investments is estimated based on the net asset value derived from the latest audited financial statements or most recent capital account statements provided by the private equity fund’s investment manager or third-party administrator. |
Insurance contracts: The fair values are determined using model-based techniques that include option-pricing models, discounted cash flow models, and similar techniques. |
|
The following table reconciles the net plan investments to the total fair value of the plan assets: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, | | | | | | | | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | |
Net assets held in investments | $ | 3,731,473 | | | $ | 3,248,161 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net payable for investments purchased | (5,541 | ) | | (41,951 | ) | | | | | | | | | | | | | | | | | | | | |
Dividend and interest receivable | 8,856 | | | 8,847 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Other, net | (2,037 | ) | | (2,437 | ) | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets | $ | 3,732,751 | | | $ | 3,212,620 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The following table sets forth a summary of changes in the fair value of the plan’s Level 3 assets for the years ended June 30, 2014 and 2013: |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Private | | Insurance | | Pooled | | Corporate | | Total | | | | | | | | |
Equity | Contracts | Funds | Bonds | | | | | | | | |
Beginning balance at June 30, 2012 | $ | 91,574 | | | $ | 15,848 | | | $ | — | | | $ | — | | | $ | 107,422 | | | | | | | | | |
| | | | | | | |
Transfers to Level 3 | — | | | — | | | 21,832 | | | 411 | | | $ | 22,243 | | | | | | | | | |
| | | | | | | |
Net actual return on plan assets relating to assets still held at the end of the year | 16,725 | | | 622 | | | 3,853 | | | — | | | 21,200 | | | | | | | | | |
| | | | | | | |
Net purchases, sales and settlements | 1,493 | | | (1,882 | ) | | 14,900 | | | — | | | 14,511 | | | | | | | | | |
| | | | | | | |
Change in foreign currency exchange rates | (24 | ) | | 452 | | | — | | | — | | | 428 | | | | | | | | | |
| | | | | | | |
Ending balance at June 30, 2013 | $ | 109,768 | | | $ | 15,040 | | | $ | 40,585 | | | $ | 411 | | | $ | 165,804 | | | | | | | | | |
| | | | | | | |
Transfers to Level 3 | — | | | — | | | 160,985 | | | — | | | 160,985 | | | | | | | | | |
| | | | | | | |
Net actual return on plan assets relating to assets still held at the end of the year | 26,531 | | | 676 | | | 29,474 | | | 39 | | | 56,720 | | | | | | | | | |
| | | | | | | |
Net purchases, sales and settlements | 11,952 | | | 1,586 | | | 337,945 | | | — | | | 351,483 | | | | | | | | | |
| | | | | | | |
Change in foreign currency exchange rates | 7,205 | | | 789 | | | 17,470 | | | — | | | 25,464 | | | | | | | | | |
| | | | | | | |
Ending balance at June 30, 2014 | $ | 155,456 | | | $ | 18,091 | | | $ | 586,459 | | | $ | 450 | | | $ | 760,456 | | | | | | | | | |
| | | | | | | |
The following table sets forth our projected pension contributions to our qualified plans for fiscal year 2015, as well as the pension contributions to our qualified plans in fiscal years 2014 and 2013: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2015 | | 2014 | | 2013 | | | | | | | | | | | | | | | | |
(Projected) | (Actual) | (Actual) | | | | | | | | | | | | | | | | |
U.S | $ | 30,000 | | | $ | 50,000 | | | $ | 50,000 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Canada | 6,580 | | | 21,663 | | | 19,305 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
UK | 29,812 | | | 28,706 | | | 43,640 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Germany | 22,054 | | | 10,178 | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Expected benefit payments from our defined benefit pension plans to current plan participants, including the effect of their expected future service, as appropriate, are as follows: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefit Payments | | | | | | | | | | | | | | | | |
Fiscal Year | North America | | Europe | | Total | | | | | | | | | | | | | | | | |
2015 | $ | 172,691 | | | $ | 26,844 | | | $ | 199,535 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2016 | 175,802 | | | 27,894 | | | 203,696 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2017 | 178,527 | | | 30,954 | | | 209,481 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2018 | 183,317 | | | 32,320 | | | 215,637 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
2019 | 187,247 | | | 35,258 | | | 222,505 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Years 2020 - 2024 | 1,050,077 | | | 230,643 | | | 1,280,720 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| $ | 1,947,661 | | | $ | 383,913 | | | $ | 2,331,574 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
Defined Contribution Plan |
Eligible Towers Watson U.S. associates participate in a savings plan design which provides for 100%match on the first 2% of pay and 50%match on the next 4% of pay; associates vest in the employer match upon two years of service. The cost of the Company’s contributions to the plans for the fiscal years ended June 30, 2014, 2013 and 2012 amounted to $30.0 million, $30.2 million and $28.7 million, respectively. |
The Towers Watson U.K. pension plan has a money purchase feature to which we make core contributions plus additional contributions matching those of the participating associates up to a maximum rate. Contribution rates depend on the age of the participant and whether or not they arise from salary sacrifice arrangements through which the associate has elected to receive a pension contribution in lieu of additional salary. The cost of the Company’s contributions to the plan for the fiscal years ended June 30, 2014, 2013 and 2012 amounted to $20.2 million, $22.2 million, and $21.4 million respectively. |
Health Care Benefits |
We sponsor a contributory health care plan that provides hospitalization, medical and dental benefits to substantially all U.S. associates. We accrue a liability for estimated incurred but unreported claims. The liability totaled $6.0 million and $5.3 million at June 30, 2014 and 2013, respectively. This liability is included in accounts payable and accrued liabilities in the consolidated balance sheets. |
Postretirement Benefits |
We provide certain health care and life insurance benefits for retired associates. The principal plans cover associates in the U.S. and Canada who have met certain eligibility requirements. Our principal post-retirement benefit plans are primarily unfunded. Retiree medical benefits provided under our U.S. postretirement benefit plans were closed to new hires effective January 1, 2011. Life insurance benefits under the plans were frozen with respect to service, eligibility and amounts as of January 1, 2012 for active associates. |
The assumptions used in the valuation of the postretirement benefit cost and obligation were as follows: |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, | | | | | | | | | | | | | | | | | | | |
| 2014 | | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | |
Discount rate | 5.3 | % | | 4.8 | % | | 5.65 | % | | | | | | | | | | | | | | | | | | | |
Expected long-term rate of return on assets | 2 | % | | 2 | % | | 2 | % | | | | | | | | | | | | | | | | | | | |
Rate of increase in compensation levels | — | % | | 4.5 | % | | 4.06 | % | | | | | | | | | | | | | | | | | | | |
Health care cost trend | | | | | | | | | | | | | | | | | | | | | | | | |
Initial rate | 7.08 | % | | 7.16 | % | | 7.61 | % | | | | | | | | | | | | | | | | | | | |
Ultimate rate | 5 | % | | 5 | % | | 5 | % | | | | | | | | | | | | | | | | | | | |
Year reaching ultimate rate | 2019 | | | 2019 | | | 2016 | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, | | | | | | | | | | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | | | |
Discount rate, accumulated postretirement benefit obligation | 4.68 | % | | 5.3 | % | | | | | | | | | | | | | | | | | | | | | | |
Rate of compensation increase | — | % | | 4.5 | % | | | | | | | | | | | | | | | | | | | | | | |
Health care cost trend | | | | | | | | | | | | | | | | | | | | | | | | | |
Initial rate | 7 | % | | 7.08 | % | | | | | | | | | | | | | | | | | | | | | | |
Ultimate rate | 5 | % | | 5 | % | | | | | | | | | | | | | | | | | | | | | | |
Year reaching ultimate rate | 2019 | | | 2019 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Actuarial gains and losses associated with changing any of the assumptions are accumulated as part of the unrecognized net gain or loss and amortized into the net periodic postretirement costs over the average remaining service period of participating associates, which is approximately 9.5 years. |
|
A one percentage point change in the assumed health care cost trend rates would have the following effect: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 1% Increase | | 1% Decrease | | | | | | | | | | | | | | | | | | | | |
Effect on net periodic postretirement benefit cost in fiscal year 2014 | $ | 222 | | | $ | (189 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Effect on accumulated postretirement benefit obligation as of June 30, 2014 | 2,962 | | | (2,497 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net periodic postretirement benefit cost consists of the following: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended June 30, | | | | | | | | | | | | | | | | |
| 2014 | | 2013 | | 2012 | | | | | | | | | | | | | | | | |
Service cost | $ | 1,460 | | | $ | 1,770 | | | $ | 2,987 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Interest cost | 8,856 | | | 8,807 | | | 10,966 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Expected return on assets | (112 | ) | | (130 | ) | | (132 | ) | | | | | | | | | | | | | | | | |
Amortization of net unrecognized (gains)/losses | (1,752 | ) | | 369 | | | 2,206 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Amortization of prior service credit | (7,004 | ) | | (8,228 | ) | | (8,705 | ) | | | | | | | | | | | | | | | | |
Net periodic postretirement benefit cost | $ | 1,448 | | | $ | 2,588 | | | $ | 7,322 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Changes in other comprehensive income for the Company’s postretirement benefit plans as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | |
Current year actuarial loss/(gain) | $ | 7,131 | | | $ | (16,764 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Amortization of actuarial gain/(loss) | 1,752 | | | (369 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Amortization of prior service credit | 7,004 | | | 8,228 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Other | (29 | ) | | (20 | ) | | | | | | | | | | | | | | | | | | | | |
Total recognized in other comprehensive income | $ | 15,858 | | | $ | (8,925 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The estimated amounts that will be amortized from other comprehensive income into net periodic benefit cost during fiscal 2015 for the Company’s other postretirement benefit plans are shown below: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2015 | | | | | | | | | | | | | | | | | | | | | | | | |
Actuarial gain | $ | (6,905 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service credit | (1,759 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
Total | $ | (8,664 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
|
The following table provides a reconciliation of the changes in the accumulated postretirement benefit obligation and fair value of assets for the years ended June 30, 2014 and 2013 and a statement of funded status as of June 30, 2014 and 2013: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, | | | | | | | | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | | | | | | | | |
Change in Benefit Obligation | | | | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at beginning of year | $ | 172,729 | | | $ | 188,863 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Service cost | 1,460 | | | 1,770 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Interest cost | 8,856 | | | 8,807 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Actuarial losses/(gains) | 6,972 | | | (16,979 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Benefit payments | (14,443 | ) | | (15,568 | ) | | | | | | | | | | | | | | | | | | | | |
Medicare Part D | 68 | | | 863 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Participant contributions | 6,035 | | | 5,859 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Foreign currency adjustment | (371 | ) | | (886 | ) | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at end of year | $ | 181,306 | | | $ | 172,729 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Change in Plan Assets | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | $ | 5,958 | | | $ | 6,525 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Actual return on plan assets | (47 | ) | | (85 | ) | | | | | | | | | | | | | | | | | | | | |
Company contributions | 7,665 | | | 9,227 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Participant contributions | 6,035 | | | 5,859 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Benefit payments | (14,443 | ) | | (15,568 | ) | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at end of year | $ | 5,168 | | | $ | 5,958 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Funded status at end of year | $ | (176,138 | ) | | $ | (166,771 | ) | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in Consolidated Balance Sheets consist of: | | | | | | | | | | | | | | | | | | | | | | | |
Noncurrent assets | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Current liabilities | (4,678 | ) | | (3,889 | ) | | | | | | | | | | | | | | | | | | | | |
Noncurrent liabilities | (171,459 | ) | | (162,882 | ) | | | | | | | | | | | | | | | | | | | | |
Net amount recognized | $ | (176,137 | ) | | $ | (166,771 | ) | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in Accumulated Other Comprehensive Income consist of: | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial gain | $ | (17,769 | ) | | $ | (26,622 | ) | | | | | | | | | | | | | | | | | | | | |
Net prior service credit | (33,835 | ) | | (40,840 | ) | | | | | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Income | $ | (51,604 | ) | | $ | (67,462 | ) | | | | | | | | | | | | | | | | | | | | |
Expected benefit payments to current plan participants, including the effect of their future service, as appropriate, and the related retiree drug subsidy expected to be received, are as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fiscal Year | Expected | | Retiree drug | | | | | | | | | | | | | | | | | | | | |
benefit | subsidy | | | | | | | | | | | | | | | | | | | | |
payments | | | | | | | | | | | | | | | | | | | | | |
2015 | $ | 17,024 | | | 110 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
2016 | 18,568 | | | 107 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
2017 | 20,028 | | | 103 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
2018 | 21,458 | | | 98 | | | | | | | | | | | | | | | | | | | | | |
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2019 | 22,966 | | | 92 | | | | | | | | | | | | | | | | | | | | | |
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Years 2020-2024 | 131,771 | | | 363 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| $ | 231,815 | | | $ | 873 | | | | | | | | | | | | | | | | | | | | | |
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