10-K 1 willisgroup10-k2014.htm 10-K Willis Group 10-K 2014
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
(Mark One)
 
 
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-16503
_____________________
WILLIS GROUP HOLDINGS PUBLIC
LIMITED COMPANY
(Exact name of Registrant as specified in its charter)
Ireland
 (Jurisdiction of
incorporation or organization)
 
98-0352587
 (I.R.S. Employer
Identification No.) 
c/o Willis Group Limited
51 Lime Street, London EC3M 7DQ, England
(Address of principal executive offices)
(011) 44-20-3124-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
 Ordinary Shares, nominal value $0.000115 per share
 
Name of each exchange on which registered
 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
_____________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of ‘large accelerated filer’, ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
The aggregate market value of the voting common equity held by non-affiliates of the Registrant, computed by reference to the last reported price at which the Registrant’s common equity was sold on June 30, 2014 (the last day of the Registrant’s most recently completed second quarter) was $7,746,228,885.
As of February 20, 2015, there were outstanding 179,479,552 ordinary shares, nominal value $0.000115 per share, of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Part III will be incorporated by reference in accordance with Instruction G(3) to Form 10-K no later than April 30, 2015.
 
 
 
 
 



Certain Definitions
The following definitions apply throughout this annual report unless the context requires otherwise:
‘We’, ‘Us’, ‘Company’, ‘Group’, ‘Willis’, or ‘Our’
 
Willis Group Holdings and its subsidiaries.
‘Willis Group Holdings’ or ‘Willis Group Holdings plc’ or ‘WGH’
 
Willis Group Holdings Public Limited Company, a company organized under the laws of Ireland.
‘shares’
 
The ordinary shares of Willis Group Holdings Public Limited Company, nominal value $0.000115 per share.
‘HRH’
 
Hilb Rogal & Hobbs Company, a 100 percent owned subsidiary acquired in 2008.


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Table Of Contents
 
 
 
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Willis Group Holdings plc


FORWARD-LOOKING STATEMENTS

We have included in this document 'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our, outlook future capital expenditures, growth in commissions and fees, business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, are forward-looking statements. Also, when we use the words such as 'anticipate', 'believe', 'estimate', 'expect', 'intend', 'plan', 'probably', or similar expressions, we are making forward-looking statements.

There are important uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including the following:

•
the impact of any regional, national or global political, economic, business, competitive, market, environmental or regulatory conditions on our global business operations;
•
the impact of current global economic conditions on our results of operations and financial condition, including as a result of those associated with the Eurozone, any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;
•
our ability to implement and fully realize anticipated benefits of our growth strategy and revenue generating initiatives;
•
our ability to implement and realize anticipated benefits of any cost-savings initiative, including our ability to achieve expected savings from the multi-year operational improvement program as a result of unexpected costs or delays and demand on managerial, operational and administrative resources and/or macroeconomic factors affecting the program;
•
volatility or declines in insurance markets and premiums on which our commissions are based, but which we do not control;
•
our ability to compete in our industry;
•
material changes in commercial property and casualty markets generally or the availability of insurance products or changes in premiums resulting from a catastrophic event, such as a hurricane;
•
our ability to retain key employees and clients and attract new business;
•
our ability to develop new products and services;
•
our ability to develop and implement technology solutions and invest in innovative product offerings in an efficient and effective manner;
•
fluctuations in our earnings as a result of potential changes to our valuation allowance(s) on our deferred tax assets;
•
changes in the tax or accounting treatment of our operations and fluctuations in our tax rate;
•
our ability to achieve anticipated benefits of any acquisition or other transactions in which we may engage, including any revenue growth or operational efficiencies;
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our ability to effectively integrate any acquisition into our business;
•
our inability to exercise full management control over our associates;
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our ability to continue to manage our significant indebtedness;
•
the timing or ability to carry out share repurchases and redemptions;
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the timing or ability to carry out refinancing or take other steps to manage our capital and the limitations in our long-term debt agreements that may restrict our ability to take these actions;
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any material fluctuations in exchange and interest rates that could adversely affect expenses and revenue;
•
a significant decline in the value of investments that fund our pension plans or changes in our pension plan liabilities or funding obligations;
•
rating agency actions, including a downgrade to our credit rating, that could inhibit our ability to borrow funds or the pricing thereof and in certain circumstances cause us to offer to buy back some of our debt;
•
our ability to receive dividends or other distributions in needed amounts from our subsidiaries;
•
the practical challenges and costs of complying with a wide variety of foreign laws and regulations and any related changes, given the global scope of our operations and the associated risks of non-compliance and regulatory enforcement action;
•
our involvement in and the results of any regulatory investigations, legal proceedings and other contingencies;
•
our exposure to potential liabilities arising from errors and omissions and other potential claims against us;
•
underwriting, advisory or reputational risks associated with our business;

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Willis Group Holdings plc


•
the interruption or loss of our information processing systems, data security breaches or failure to maintain secure information systems; and
•
impairment of the goodwill in one of our reporting units, in which case we may be required to record significant charges to earnings.

The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion of this information is not a representation or guarantee by us that our objectives and plans will be achieved.

Our forward-looking statements speak only as of the date made and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document may not occur, and we caution you against unduly relying on these forward-looking statements.



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Willis Group Holdings plc


PART I
Item 1 — Business
History and Development of the Company
Willis Group Holdings is the ultimate holding company for the Group. We trace our history to 1828 and are one of the largest insurance brokers in the world.
Willis Group Holdings was incorporated in Ireland on September 24, 2009 to facilitate the change of the place of incorporation of the parent company of the Group from Bermuda to Ireland (the ‘Redomicile’). At December 31, 2009, the common shares of Willis-Bermuda were canceled, the Willis-Bermuda common shareholders received, on a one-for-one basis, new ordinary shares of Willis Group Holdings, and Willis Group Holdings became the ultimate parent company for the Group.
For administrative convenience, we utilize the offices of a subsidiary company as our principal executive offices. The address is:
Willis Group Holdings Public Limited Company
 
 
c/o Willis Group Limited
 
 
The Willis Group
 
 
51 Lime Street
 
 
London EC3M 7DQ
 
 
England
 
 
 
 
 
Tel: +44 20 3124 6000
 
 

Available Information
The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the ‘SEC’). You may read and copy any documents we file at the SEC’s Public Reference Room at 100 F Street, NE Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including Willis Group Holdings) file electronically with the SEC. The SEC’s website is www.sec.gov.
The Company makes available, free of charge through our website, www.willis.com, our annual report on Form 10-K, our quarterly reports on Form 10-Q, our proxy statement, current reports on Form 8-K and Forms 3, 4, and 5 filed on behalf of directors and executive officers, as well as any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934 (the ‘Exchange Act’) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Unless specifically incorporated by reference, information on our website is not a part of this Form 10-K.
The Company’s Corporate Governance Guidelines, Audit Committee Charter, Risk Committee Charter, Compensation Committee Charter and Corporate Governance and Nominating Committee Charter are available on our website, www.willis.com, in the Investor Relations-Corporate Governance section, or upon request. Requests for copies of these documents should be directed in writing to the Company Secretary c/o Office of General Counsel, Willis Group Holdings Public Limited Company, Brookfield Place, 200 Liberty Street, New York, NY 10281.

General
We provide a broad range of insurance brokerage, reinsurance and risk management consulting services to our clients worldwide. We have significant market positions in the United States, in the United Kingdom and, directly and through our associates, in many other countries. We are a recognized leader in providing specialized risk management advisory and other services on a global basis to clients in many industries including aerospace, marine, construction and energy.
In our capacity as an advisor and insurance broker, we act as an intermediary between our clients and insurance carriers by advising our clients on their risk management requirements, helping clients determine the best means of managing risk, and negotiating and placing insurance with insurance carriers through our global distribution network.

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About Willis

We assist clients in the assessment of their risks, advise on the best ways of transferring suitable risk to the global insurance and reinsurance markets and then execute the transactions at the most appropriate available price, terms and conditions for our clients. Our global distribution network enables us to place the risk in the most appropriate insurance or reinsurance market worldwide.
We also offer clients a broad range of services to help them to identify and control their risks. These services range from strategic risk consulting (including providing actuarial analysis), to a variety of due diligence services, to the provision of practical on-site risk control services (such as health and safety or property loss control consulting) as well as analytical and advisory services (such as hazard modeling and reinsurance optimization studies). We assist clients in planning how to manage incidents or crises when they occur. These services include contingency planning, security audits and product tampering plans. We are not an insurance company and therefore we do not underwrite insurable risks for our own account.
We derive most of our revenues from commissions and fees for brokerage and consulting services and do not determine the insurance premiums on which our commissions are generally based. Commission levels generally follow the same trend as premium levels as they are derived from a percentage of the premiums paid by the insureds. Fluctuations in these premiums charged by the insurance carriers can therefore have a direct and potentially material impact on our results of operations.
We and our associates serve a diverse base of clients including major multinational and middle-market companies in a variety of industries, as well as public institutions and individual clients. Many of our client relationships span decades. We have approximately 22,100 employees around the world (including approximately 3,700 at our associate companies) and a network of in excess of 400 offices in nearly 120 countries.
We believe we are one of only a few insurance brokers in the world possessing the global operating presence, broad product expertise and extensive distribution network necessary to meet effectively the global risk management needs of many of our clients.
Business Strategy
Today we operate in attractive growth markets with a diversified platform across geographies, industries, segments and lines of business. We aim to become the risk advisor, insurance and reinsurance broker of choice globally.
We believe we can achieve this by focusing on:
•
Growing our existing business organically. We help clients of all sizes and in every segment when we form teams of the right people from across our business that can provide every risk and human capital and benefits service the client needs. We call this team-based way of working ‘Connecting Willis’.
In the Connecting Willis model, client advocates ensure that our teams deliver a seamless service of tailored capabilities to every client including:
•
Regional and local market expertise
•
Industry and product specialist capabilities
•
Global placement knowledge and data
•
Cutting-edge analytics to address evolving risks
•
Strategic mergers and acquisitions that add geographic reach, industry expertise, new product offerings, and analytic capabilities. Every company in our portfolio is home to people who want to work at Willis.
•
Operational improvement that underpins our growth. We are modernizing the way we run our business in order to serve our clients better, enable the skills of our staff, and to lower our costs of doing business. Our Operational Improvement Program is making changes to our processes, our IT, our real estate and the location of our workforce. The Program is making us more effective and efficient, bringing us into line with other modern professional services firms.
•
Finally, we care as much about how we work as we do about the impact that we make. This means commitment to our values and behaviors, a framework that guides how we run our business and serve clients. Our values - integrity, advocacy, teamwork, respect, and development - help us to attract and retain the best and most diverse talent in our industry and beyond.

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Willis Group Holdings plc


Through these strategies we aim to grow revenue with positive operating leverage, grow cash flows and generate compelling returns for investors.

Our Business

Insurance and reinsurance is a global business, and its participants are affected by global trends in capacity and pricing. Accordingly, we operate as one global business which ensures all clients' interests are handled efficiently and comprehensively, whatever their initial point of contact. For information regarding revenues and operating income per segment, see Note 26 of the Consolidated Financial Statements contained herein.

Global

Our Global business provides specialist brokerage and consulting services to clients worldwide for the risks arising from specific industrial and commercial activities. In these operations, we have extensive specialized experience handling diverse lines of coverage, including complex insurance programs, and acting as an intermediary between retail brokers and insurers. We increasingly provide consulting services on risk management with the objective of assisting clients to reduce the overall cost of risk. Our Global business serves clients in over 150 countries, primarily from offices in the United Kingdom, although we also serve clients from offices in the United States, Continental Europe, Asia and Australia.

The Global business is divided into:

•
Willis Re;
•
Facultative;
•
UK Insurance;
•
Willis Capital Markets & Advisory; and
•
Risk & Analytics.

Willis Re
We operate this business on a global basis and provide a complete range of transactional capabilities, including, in conjunction with Willis Capital Markets & Advisory, a wide variety of capital markets based products to both insurance and reinsurance companies. Our services are underpinned by leading modeling, financial analysis and risk management advice. We bolster and enhance all of these services with knowledge derived from our Willis Research Network, the insurance industry's largest partnership with global academic research.

Facultative (formerly Faber Global)
Our Facultative unit provides facultative and wholesale solutions for property and casualty, health and specialty insurances to cedants and independent wholesaler brokers worldwide who want solutions provided via US, London, European and Bermudian markets.

UK Insurance (formerly Specialty)
Our UK-based insurance operations, combine our Global Specialty businesses with the Willis UK retail business to create a market leading client proposition.
This combined unit has strong global positions in Aerospace, Energy, Marine, Construction, Financial and Executive Risks as well as Financial Solutions, wholesale and facultative.

•
Aerospace
We are highly experienced in the provision of insurance and reinsurance brokerage and risk management services to Aerospace clients worldwide, including aircraft manufacturers, air cargo handlers and shippers, airport managers and other general aviation companies. Advisory services provided by Aerospace include claims recovery, contract and leasing risk management, safety services and market information. Aerospace's clients include approximately one third of the world's

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About Willis

airlines. The specialist Inspace division is also prominent in serving the space industry by providing insurance and risk management services to approximately thirty companies.

•
Energy
Our Energy practice provides insurance brokerage services including property damage, offshore construction, liability and control of well and pollution insurance to the energy industry. Our Energy practice clients are worldwide. We are highly experienced in providing insurance brokerage for all aspects of the energy industry including exploration and production, refining and marketing, offshore construction and pipelines.

•
Marine
Our Marine unit provides marine insurance and reinsurance brokerage services, including hull, cargo and general marine liabilities. Marine's clients include ship owners, ship builders, logistics operators, port authorities, traders and shippers, other insurance intermediaries and insurance companies. Marine insurance brokerage is our oldest line of business dating back to our establishment in 1828.

•
Financial and Executive Risks
Our Financial and Executive Risks unit specializes in broking directors' and officers' insurance as well as professional indemnity insurance for corporations, financial institutions and professional firms.

•
Construction, Property and Casualty
Our Construction practice provides risk management advice and brokerage services for a wide range of UK and international construction activities. The clients of the Construction practice include contractors, project owners, project managers, project financiers, professional consultants and insurers. We are a broker for a number of the leading global construction firms. The Construction practice is now tied to Willis' specialist internal unit providing our retail colleagues' clients with access to global insurance markets, providing structuring and placing services supported by specialist knowledge and expertise across a variety of industries on a global basis in large and complex property and casualty risk exposures.

•
Financial Solutions
Financial Solutions is a global business unit which incorporates our Political and Credit Risk businesses, as well as Structured Finance and Project Risk Consulting teams. It also comprises specialist Trade Credit, Contingent Aviation and Mortgage teams.

•
Fine Art, Jewelry and Specie
The Fine Art, Jewelry and Specie unit provides specialist risk management, insurance and reinsurance services to fine art, diamond and jewelry businesses and armored car operators.

•
Special Contingency Risks
Special Contingency Risks specializes in people risk solutions using a combination of risk management, kidnap and ransom and personal accident services and products to meet the needs of corporations and private clients.

•
Hughes-Gibb
The Hughes-Gibb unit principally services the insurance and reinsurance needs of thoroughbred horse racing and horse breeding industry and of the agri-business sector, covering livestock breeders, aquaculture & agriculture industries.

•
UK retail operations
Our UK retail operations provide risk management, insurance brokerage and related risks services to a wide array of industry and client segments.

Willis Capital Markets & Advisory

Willis Capital Markets & Advisory, with offices in New York, Hong Kong and London, provides advice to companies involved in the insurance and reinsurance industry on a broad array of merger and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work.


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Risk & Analytics
Risk & Analytics focuses on providing analytics and other risk-based solutions to our large clients and prospects to support their risk management strategy and decisions on a global scale.

Retail operations

Our North America and International retail operations provide services to small, medium and large corporate clients, accessing Global's specialist expertise when required.

North America

Our North America business provides risk management, insurance brokerage, related risk services, and employee benefits brokerage and consulting to a wide array of industry and client segments in the United States and Canada. With around 80 locations, organized into seven geographical regions including Canada, Willis North America locally delivers our global and national resources and specialist expertise through this retail distribution network.

In addition to being organized geographically and by specialty, our North America business focuses on four client segments: global, large national/middle-market, small commercial, and private client, with service, marketing and sales platform support for each segment.

•
Construction
The largest industry practice group in North America is Construction, which specializes in providing risk management, insurance brokerage, and surety bonding services to the construction industry. Willis Construction provided these services to nearly 10,000 clients including approximately 20 percent of the Engineering News Record Top 400 contractors (a listing of the largest 400 North American contractors based on reported revenue). In addition, this practice group has expertise in professional liability insurance, controlled insurance programs for large projects and insurance for national homebuilders.

•
Human Capital
Willis Human Capital, fully integrated into the North America platform, is the Group's largest product-based practice group and provides health, welfare and human resources consulting, and brokerage services to all of our commercial client segments. This practice group's value lies in helping clients control employee benefit plan costs, reducing the amount of time human resources professionals spend administering their companies' benefit plans and educating and training employees on benefit plan issues.

•
Executive Risks
Another industry-leading North America practice group is Willis Executive Risks, a national team of technical professionals who specialize in meeting the directors and officers, employment practices, fiduciary liability insurance risk management, and claims advocacy needs of public and private corporations and organizations. This practice group also has expertise in professional liability, especially cyber risks.

•
Other industry practice groups
Other industry practice groups include Healthcare, serving the professional liability and other insurance and risk management needs of private and not-for-profit health systems, hospitals and physicians groups; Financial Institutions, serving the needs of large banks, insurers and other financial services firms; and Mergers & Acquisitions, providing due diligence, and risk management and insurance brokerage services to private equity and merchant banking firms and their portfolio companies.

International
Our International business comprises our operations in Western Europe, Central and Eastern Europe, Asia, Australasia, the Middle East, South Africa and Latin America.
Our offices provide services to businesses locally in nearly 120 countries around the world, making use of local expertise as well as skills, industry knowledge and expertise available elsewhere in the Group.

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About Willis

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, specialist and reinsurance brokerage and employee benefits consulting.
As part of our ongoing strategy, we continue to look for opportunities to strengthen our International market share through acquisitions and strategic investments. A list of significant subsidiaries is included in Exhibit 21.1 to this document.

We have also invested in associate companies; our significant associates at December 31, 2014 were GS & Cie Groupe ('Gras Savoye'), a French organization (30 percent holding) and Al-Futtaim Willis Co. LLC, organized under the laws of Dubai (49 percent holding). In connection with many of our investments we retain the right to increase our ownership over time, typically to a majority or 100 percent ownership position.
We believe the combined total revenues of our International subsidiaries and associates provide an indication of the spread and capability of our International network.
Management structure
During the first quarter 2015 we have reorganized our business from three reporting units (formerly known as Global, North America and International) into four reporting units: Willis Capital, Wholesale and Reinsurance, Willis North America, Willis International, and Willis Great Britain "Willis GB".
Willis North America and Willis International remain largely unchanged except for certain specialty teams previously included within Global are now included within the geographic regions in which they are located.
Willis Capital, Wholesale and Reinsurance includes Willis Re, Willis Capital Markets and Advisory and our wholesale businesses as well as a new unit called Willis Portfolio and Underwriting Services.
Willis GB includes our UK retail, facultative and London specialty businesses.
Customers
Our clients operate on a global and local scale in a multitude of businesses and industries throughout the world and generally range in size from major multinational corporations to middle-market companies. Further, many of our client relationships span decades, for instance our relationship with The Tokio Marine and Fire Insurance Company Limited dates back over 100 years. No one client accounted for more than 10 percent of revenues for fiscal year 2014. Additionally, we place insurance with approximately 2,500 insurance carriers, none of which individually accounted for more than 10 percent of the total premiums we placed on behalf of our clients in 2014.
Competition
We face competition in all fields in which we operate, based on global capability, product breadth, innovation, quality of service and price. We compete with Marsh & McLennan and Aon, the two other major providers of global risk management services, as well as with numerous specialist, regional and local firms. Competition for business is intense in all of our business lines and in every insurance market, and Marsh & McLennan and Aon have substantially greater market share than we do. Competition on premium rates has also exacerbated the pressures caused by a continuing reduction in demand in some classes of business. For example, rather than purchase additional insurance through brokers, some insureds have been retaining a greater proportion of their risk portfolios than previously. Industrial and commercial companies increasingly rely upon their own subsidiary insurance companies, known as captive insurance companies, self-insurance pools, risk retention groups, mutual insurance companies and other mechanisms for funding their risks, rather than buy insurance. Additional competitive pressures arise from the entry of new market participants, such as banks, accounting firms and insurance carriers themselves, offering risk management or transfer services.


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Regulation
Our business activities are subject to legal requirements and governmental and quasi-governmental regulatory supervision in all countries in which we operate. Also, such regulations may require individual or company licensing to conduct our business activities. While these requirements may vary from location to location they are generally designed to protect our clients by establishing minimum standards of conduct and practice, particularly regarding the provision of advice and product information as well as financial criteria. Our three most significant regulatory regions are described below:
United States
Our activities in connection with insurance brokerage services within the United States are subject to regulation and supervision by state authorities. Although the scope of regulation and form of supervision may vary from state to state, insurance laws in the United States are often complex and generally grant broad discretion to supervisory authorities in adopting regulations and supervising regulated activities. That supervision generally includes the licensing of insurance brokers and agents and the regulation of the handling and investment of client funds held in a fiduciary capacity. Our continuing ability to provide insurance brokerage in the states in which we currently operate is dependent upon our compliance with the rules and regulations promulgated from time to time by the regulatory authorities in each of these states.
European Union
In 2005, the European Union Insurance Mediation Directive introduced rules to enable insurance and reinsurance intermediaries to operate and provide services within each member state of the European Union on a basis consistent with the EU single market and customer protection aims. Each EU member state in which we operate is required to ensure that the insurance and reinsurance intermediaries resident in their country are registered with a statutory body in that country and that each intermediary meets professional requirements in relation to their competence, good repute, professional indemnity cover and financial capacity.
United Kingdom
In the United Kingdom, our business is regulated by the Financial Conduct Auditory ('FCA'). The FCA has a wide range of rule-making, investigatory and enforcement powers, and conducts monitoring visits to assess our compliance with regulatory requirements.
The FCA has a sole strategic objective: to protect and enhance confidence in the UK financial system. Its operational objectives are to: secure an appropriate degree of protection for consumers; promote efficiency and choice in the market for financial services; and protect and enhance the integrity of the UK financial system. The FCA also has a duty to act in a way that promotes competition, and to minimize the extent to which regulated businesses may be used for a purpose connected with financial crime. Finally, the FCA has new powers in product intervention. For instance, it can instruct firms to withdraw or amend misleading financial promotions.
Other
Certain of our activities are governed by other regulatory bodies, such as investment and securities licensing authorities. In the United States, our Willis Capital Markets & Advisory business operates through our wholly-owned subsidiary Willis Securities, Inc., a US-registered broker-dealer and member FINRA/SIPC, primarily in connection with investment banking-related services and advising on alternative risk financing transactions. Willis Capital Markets provides advice on securities or investments in the European Union and Australia through our UK wholly-owned subsidiary Willis Capital Markets & Advisory Limited, which is authorized and regulated by the FCA. Willis Capital Markets, through our Hong Kong wholly-owned subsidiary Willis Capital Markets & Advisory (Hong Kong) Limited, is in the process of obtaining securities and advisory licenses through, and will be regulated by, the Hong Kong Securities and Futures Commission.
Our failure, or that of our employees, to satisfy the regulators that we comply with their requirements or the legal requirements governing our activities, can result in disciplinary action, fines, reputational damage and financial harm.
All companies carrying on similar activities in a given jurisdiction are subject to regulations which are not dissimilar to the requirements for our operations in the United States and United Kingdom. We do not consider that these regulatory requirements adversely affect our competitive position.
See Part I, Item 1A-Risk Factors ‘Legal and Regulatory Risks’ for discussion of how actions by regulatory authorities or changes in legislation and regulation in the jurisdictions in which we operate may have an adverse effect on our business.

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About Willis

Employees
As of December 31, 2014 we had approximately 18,400 employees worldwide of whom approximately 3,500 were employed in the United Kingdom and 5,900 in the United States, with the balance being employed across the rest of the world. In addition, our associates had approximately 3,700 employees, all of whom were located outside the United Kingdom and the United States.
Executive Officers of the Registrant
The executive officers of the Company as of February 20, 2015 were as follows:
Celia Brown - Ms. Brown, age 60, was appointed as an executive officer on January 23, 2012. Ms. Brown joined the Willis Group in 2010 and serves as the Willis Group Human Resources Director. Prior to joining the Willis Group, Ms. Brown spent over 20 years at XL Group plc where she held a number of senior roles. Ms. Brown served from 2006 to 2009 as the Executive Vice President, Head of Global HR and Corporate Relations at XL Group plc. Following XL Group plc, Ms. Brown formed an independent management consultancy, providing human resources services to not-for-profit, corporate and individual clients.
Dominic Casserley - Mr. Casserley, age 57, was appointed as Chief Executive Officer of Willis Group Holdings and as a member of the Board on January 7, 2013. Prior to joining Willis, Mr. Casserley, was a senior partner of McKinsey & Company, which he joined in New York in 1983. During his 29 years at McKinsey, Mr. Casserley led the firm's Greater China Practice and its UK and Ireland Practice. Mr. Casserley had been a member of the McKinsey Shareholders Council, the firm's global board, since 1999 and for four years served as the Chairman of the Finance Committee of that board.
John Greene - Mr. Greene, age 49, has served as Chief Financial Officer of Willis Group Holdings since June 2, 2014. Mr. Greene joined Willis Group Holdings after more than eight years with HSBC Holdings, where he served as Chief Financial Officer for their global Retail Bank and Wealth Management business. Previously, Mr. Greene served at HSBC Holdings as Chief Financial Officer for HSBC Insurance and Chief Financial Officer for the Consumer & Mortgage Lending business. Prior to HSBC, he was with GE for twelve years in various roles, including Chief Financial Officer for GE Global Business Finance.
Stephen Hearn - Mr. Hearn, age 48, was appointed as an executive officer on January 1, 2012. Mr. Hearn joined the Willis Group in 2008 and was named Chairman and CEO of Willis Global in 2011, CEO of Willis Limited in 2012 and Group Deputy CEO in 2013. Since joining the Willis Group, Mr. Hearn has served as Chairman of Special Contingency Risk, Chairman of Willis Facultative and Chairman and CEO of Glencairn Limited. From 2009 until 2011 he led Faber & Dumas, Global Markets International and Willis Facultative. Prior to joining the Willis Group, Mr. Hearn served as Chairman and CEO of the Glencairn Group Limited and as President and CEO of Marsh Affinity Europe.
Todd Jones - Mr. Jones, age 50, was appointed as an executive officer and Chief Executive Officer of Willis North America on July 1, 2013. Mr. Jones joined Willis in 2003 as the North American Practice Leader for Willis’s Executive Risks Practice and served as the President of Willis North America from 2010 to 2013. Mr. Jones also served as a National Partner for the Northeast Region. Prior to joining Willis, Mr. Jones held various leadership roles in the insurance brokerage industry. Before entering the brokerage industry, he was a financial analyst and corporate banker for a regional bank that is now part of Wells Fargo, focusing on the telecommunications industry.
David Shalders - Mr. Shalders, age 48, was appointed as an executive officer and Group Operations & Technology Director on November 4, 2013. Prior to joining Willis, Mr. Shalders spent over a decade in senior operations and IT roles at the Royal Bank of Scotland Group, most recently as Global COO for Global Banking and Markets. Mr. Shalders also held roles as Head of London & Asia Operations and Head of Derivative Operations for NatWest at RBS.
Timothy D. Wright - Mr. Wright, age 53, was appointed as an executive officer in 2008 and in 2011 was appointed as CEO of Willis International. Mr. Wright served as Group Chief Operating Officer from 2008 to 2011. Prior to joining the Willis Group, he was a Partner of Bain & Company where he led their Financial Services practice in London. Mr. Wright was previously UK Managing Partner of Booz Allen & Hamilton and led their insurance work globally. He has more than 20 years of experience in the insurance and financial service industries internationally.



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Willis Group Holdings plc


Item 1A - Risk Factors
Risks Relating to our Business and the Insurance Industry
This section describes material risks affecting the Group’s business. These risks could materially affect the Group’s business, reputation, revenues, operating income, net income, net assets, liquidity and capital resources and ability to achieve its financial targets and, accordingly should be read in conjunction with any forward-looking statements in this Annual Report on Form 10-K.
Competitive Risks
Worldwide economic conditions could have an adverse effect on our business, prospects, operating results, financial condition and cash flows.
Our business and operating results are materially affected by worldwide economic conditions. Current global economic conditions, including those associated with the Eurozone, coupled with low customer and business confidence may have a significant negative impact on the buying behavior of some of our clients as their businesses suffer from these conditions. Since 2008, many of our operations have been impacted by the weakened economic climate. A significant number of insolvencies associated with an economic downturn could adversely affect our brokerage business through the loss of clients or by hampering our ability to place insurance and reinsurance business. In addition, an increase in mergers and acquisitions can also result in the loss of clients. While it is difficult to predict the consequences of any further deterioration in global economic conditions on our business, any significant reduction or delay by our clients in purchasing insurance or making payment of premiums could have a material adverse impact on our financial condition and results of operations. In addition, the potential for a significant insurer to fail, be downgraded or withdraw from writing certain lines of insurance coverages that we offer our clients could negatively impact overall capacity in the industry, which could then reduce the placement of certain lines and types of insurance and reduce our revenues and profitability. The potential for an insurer to fail or be downgraded could also result in errors and omissions claims by clients.
The credit and economic conditions of certain European Union countries remain fragile and may contribute to instability in the global credit and financial markets. If credit conditions worsen or financial market volatility increases in the Eurozone, it is possible that it could have a negative effect on the global economy as a whole, and our business, operating results and financial condition. If the Eurozone continues to deteriorate, there will likely be a negative effect on our European business, as well as the businesses of our European clients. Further, were the Euro to be withdrawn entirely, or the Eurozone were to be dissolved as a common currency area, the legal and contractual consequences for holders of Euro-denominated obligations would be determined by laws in effect at such time. A significant devaluation of the Euro would cause the value of our financial assets that are denominated in Euros to be significantly reduced. Any of these conditions could ultimately harm our overall business, prospects, operating results, financial condition and cash flows.
We may not be able to fully realize the anticipated benefits of our growth strategy.
We have stated certain goals at our 2013 Investor Conference and our outlook for 2015. In order to achieve these goals, we are implementing certain revenue growth strategies and continue to strive to manage our cost base. For example, we announced a series of actions that include, among other things, our multi-year operational improvement program and initiatives to better connect Willis. In light of the potential operational risks associated with these new initiatives, we cannot be certain whether we will be able to realize benefits from current revenue-generating or cost-saving initiatives and ultimately realize our objectives. There can be no assurance that our actual results will meet these financial goals.
We do not control the premiums on which our commissions are based, and volatility or declines in premiums may seriously undermine our profitability.
We derive most of our revenues from commissions and fees for brokerage and consulting services and do not determine the insurance premiums on which our commissions are generally based. Commission levels generally follow the same trend as premium levels, as they are a percentage of the premiums paid by the insureds. Fluctuations in the premiums charged by the insurance carriers can therefore have a direct and potentially material impact on our results of operations. Due to the cyclical nature of the insurance market and the impact of other market conditions on insurance premiums, commission levels 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

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Risk factors

favorable impact on our commission revenues and operating margin. Rates, however, vary by geography, industry and client segment. We have been and continue to be negatively impacted by soft market conditions across certain sectors and geographic regions. In addition, insurance carriers may seek to reduce their expenses by reducing the commission rates payable to insurance agents or brokers such as ourselves. The reduction of these commission rates, along with general volatility and/or declines in premiums, may significantly undermine our profitability.
Competition in our industry is intense, and if we are unable to compete effectively, we may suffer lower revenue, reduced operating margins and lose market share which could materially and adversely affect our business.
We face competition in all fields in which we operate, based on global capability, product breadth, innovation, quality of service and price. We compete with Marsh & McLennan and Aon, the two major global providers of global risk management services, as well as with numerous specialist, regional and local firms. Competition for business is intense in all of our business lines and in every insurance market, and Marsh & McLennan and Aon have substantially greater market share than we do. Competition on premium rates has also exacerbated the pressures caused by a continuing reduction in demand in some classes of business. For example, rather than purchase additional insurance through brokers, some insureds have been retaining a greater proportion of their risk portfolios than previously. Industrial and commercial companies increasingly rely upon their own subsidiary insurance companies, known as captive insurance companies, self-insurance pools, risk retention groups, mutual insurance companies and other mechanisms for funding their risks, rather than buy insurance. Additional competitive pressures arise from the entry of non-traditional market participants, such as banks, accounting firms and insurance carriers themselves, offering risk management or transfer services. If we are unable to compete effectively, we may suffer lower revenue, reduced operating margins and lose market share which could materially and adversely affect our business.
The loss of our Chief Executive Officer or a number of our senior management or a significant number of our brokers could significantly impede our financial plans, growth, marketing and other objectives.
The loss of our Chief Executive Officer, a number of our senior management or a significant number of our brokers could significantly impede our financial plans, growth, marketing and other objectives. Our success depends to a substantial extent not only on the ability and experience of our Chief Executive Officer, Dominic Casserley, and other members of our senior management, but also on the individual brokers and teams that service our clients and maintain client relationships. The insurance and reinsurance brokerage industry has in the past experienced intense competition for the services of leading individual brokers and brokerage teams, and we have lost key individuals and teams to competitors. We believe that our future success will depend in part on our ability to attract and retain additional highly skilled and qualified personnel and to expand, train and manage our employee base. We may not continue to be successful in doing so because the competition for qualified personnel in our industry is intense.
We face certain risks associated with the acquisition or disposition of businesses and lack of control over investments in associates.
In pursuing our corporate strategy, we may acquire or dispose of or exit businesses or reorganize existing investments. For example, we have a call option to acquire 100 percent of the capital of our associate, Gras Savoye. The success of our overall acquisition and disposition strategy is dependent upon our ability to identify appropriate opportunities, negotiate transactions on favorable terms and ultimately complete such transactions. Once we complete acquisitions or reorganizations there can be no assurance that we will realize the anticipated benefits of any transaction, including revenue growth, operational efficiencies or expected synergies. For example, if we fail to recognize some or all of the strategic benefits and synergies expected from a transaction, goodwill and intangible assets may be impaired in future periods.
In addition, we may not be able to integrate acquisitions successfully into our existing business, and we could incur or assume unknown or unanticipated liabilities or contingencies, which may impact our results of operations. If we dispose of or otherwise exit certain businesses, there can be no assurance that we will not incur certain disposition related charges, or that we will be able to reduce the overheads related to the divested assets.
We also own an interest in a number of associates where we do not exercise management control and we are therefore limited in our ability to direct or manage the business to realize the anticipated benefits that we can achieve if we had full ownership.
Investment in innovative product offerings may fail to yield sufficient return to cover their investment.
From time to time, we may enter new lines of business or offer new products and services within existing lines of business. There can be substantial risks and uncertainties associated with these efforts, including the investment of significant time and resources, the possibility that these efforts will be unprofitable, and the risk of additional liabilities associated with these efforts. Failure to successfully manage these risks in the development and implementation of new lines of business and new products

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Willis Group Holdings plc


and services could have a material adverse effect on our business, financial condition or results for operations. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business. In addition, we can provide no assurance that the entry into new lines of business or development of new products and services will be successful.
We are continually developing and investing in new and innovative offerings that we believe will address needs that we identify in the market. Nevertheless, the ability of these efforts to produce meaningful value is dependent on a number of other factors, some of which are outside of our control. For example, we have invested substantial time and resources in launching The Willis Advantage under the belief that this exchange will serve a useful role to help corporations and individuals in the United States manage their growing health care expenses. But in order for The Willis Advantage to be successful, health care insurers and corporate and individual participants must deem it suitable to participate in, and such decisions are based on their own particular circumstances.
Our business performance and growth plans could be negatively affected if we are not able to effectively apply technology to drive value for our clients through technology-based solutions or gain internal efficiencies through the effective application of technology and related tools.
Our success depends, in part, on our ability to develop and implement technology solutions that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments in a timely and cost-effective manner, and our ideas may not be accepted in the marketplace. Additionally, the effort to gain technological expertise and develop new technologies in our business requires us to incur significant cost. Our competitors are seeking to develop competing technologies, and their success in this space may impact our ability to differentiate our services to our clients through the use of unique technological solutions. If we cannot offer new technologies as quickly as our competitors or if our competitors develop more cost-effective technologies, it could have a material adverse effect on our ability to obtain and complete client engagements.
Legal and Regulatory Risks
Our compliance systems and controls cannot guarantee that we comply with all applicable federal and state or foreign laws and regulations, and actions by regulatory authorities or changes in applicable laws and regulations in the jurisdictions in which we operate may have an adverse effect on our business.
Our activities are subject to extensive regulation under the laws of the United States, the United Kingdom, the European Union and its member states, and the other jurisdictions around the world in which we operate. In addition, we own an interest in a number of associates where we do not exercise management control. Over the last few years, regulators across the world are increasingly seeking to regulate brokers who operate in their jurisdictions. Compliance with laws and regulations that apply to our operations is complex and increases our cost of doing business. These laws and regulations include insurance and financial industry regulations, economic and trade sanctions and laws against financial crimes, including client money and anti-money laundering, bribery or other corruption, such as the US Foreign Corrupt Practices Act, the UK Bribery Act, anti-competition and data privacy legislation. In most jurisdictions, governmental and regulatory authorities have the ability to interpret and amend these laws and regulations and impose penalties for non-compliance, including sanctions, civil remedies, monetary fines, injunctions, revocation of licenses or approvals, suspension of individuals, limitations on business activities or redress to clients. While we believe that we have substantially increased our focus on the geographic breadth of regulations to which we are subject, maintain good relationships with our key regulators and our current systems and controls are adequate, we cannot assure that such systems and controls will prevent any violations of any applicable laws and regulations.
Our business, results of operations, financial condition or liquidity may be materially adversely affected by actual and potential claims, lawsuits, investigations and proceedings.
We are subject to various actual and potential claims, lawsuits, investigations and other proceedings relating principally to alleged errors and omissions in connection with the placement of insurance and reinsurance in the ordinary course of business. Because we often assist our clients with matters, including the placement of insurance coverage and the handling of related claims, involving substantial amounts of money, errors and omissions claims against us may arise which allege our potential liability for all or part of the amounts in question.
Claimants can seek large damage awards and these claims can involve potentially significant defense costs. Such claims, lawsuits and other proceedings could, for example, include allegations of damages for our employees or sub-agents improperly failing to place coverage or notify claims on behalf of clients, to provide insurance carriers with complete and accurate information relating to the risks being insured or to appropriately apply funds that we hold for our clients on a fiduciary basis.

16

Risk factors

Errors and omissions claims, lawsuits and other proceedings arising in the ordinary course of business are covered in part by professional indemnity or other appropriate insurance. The terms of this insurance vary by policy year and self-insured risks have increased significantly in recent years. In respect of self-insured risks, we have established provisions against these items which we believe to be adequate in the light of current information and legal advice, and we adjust such provisions from time to time according to developments. Our business, results of operations, financial condition and liquidity may be adversely affected if in the future our insurance coverage proves to be inadequate or unavailable or there is an increase in liabilities for which we self-insure. Our ability to obtain professional indemnity insurance in the amounts and with the deductibles we desire in the future may be adversely impacted by general developments in the market for such insurance or our own claims experience.
We are also subject to actual and potential claims, lawsuits, investigations and proceedings outside of errors and omissions claims. An example of material claims for which we are subject that are outside of the error and omissions claims context relate to those arising out of the collapse of The Stanford Financial Group, for which we acted as brokers of record on certain lines of insurance.
The ultimate outcome of these matters cannot be ascertained and liabilities in indeterminate amounts may be imposed on us. It is thus possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by an unfavorable resolution of these matters. In addition, these matters continue to divert management and personnel resources away from operating our business. Even if we do not experience significant monetary costs, there may also be adverse publicity associated with these matters that could result in reputational harm to the insurance brokerage industry in general or to us in particular that may adversely affect our business, client or employee relationships.
Accepting market derived income (MDI) may cause regulatory or other scrutiny, which may have a material and adverse effect on our business.
Insurance intermediaries have traditionally been remunerated by commission or fees paid by clients. Intermediaries also obtain revenue from insurance carriers. This is commonly known as market derived income or 'MDI'. MDI takes a variety of forms, including volume- or profit-based contingent commissions, facilities administration charges, business development agreements, and fees for providing certain data to carriers.
MDI creates various risks. Intermediaries have a duty to act in the best interests of their clients and payments from carriers can incentivize intermediaries to put carriers’ interests ahead of their clients. Accordingly, MDI may be subject to scrutiny by various regulators under conflict of interest, anti-trust, unfair competition, and anti-bribery laws and regulations. While accepting MDI is a lawful and acceptable business practice, and while we have established systems and controls to manage these risks, we cannot predict whether our position will result in regulatory or other scrutiny.
IT and Operational Risks
Data security breaches or improper disclosure of confidential company or personal data could result in material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.
Computer viruses, hackers and other external hazards, as well as improper or inadvertent staff behavior could expose confidential company and personal data systems to security breaches. Additionally, one of our significant responsibilities is to maintain the security and privacy of our clients’ confidential and proprietary information and the personal data of their employees. These increased risks, and expanding regulatory requirements regarding data security, could expose us to data loss, monetary and reputational damages and significant increases in compliance costs.
With respect to our commercial arrangements with third-party vendors, we have processes designed to require third-party IT outsourcing, offsite storage and other vendors to agree to maintain certain standards with respect to the storage, protection and transfer of confidential, personal and proprietary information. However, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a vendor’s employee or agent, the breakdown of a vendor’s data protection processes, or a cyber-attack on a vendor’s information systems.
We have experienced a number of data incidents, resulting from human error as well as attempts at unauthorized access to our systems, which to date have not had a material impact on our business, operations or clients.
We maintain policies, procedures and technological safeguards designed to protect the security and privacy of this information. However, we cannot entirely eliminate the risk of data security breaches, improper access to or disclosure of confidential company or personally identifiable information. Our technology may fail to adequately secure the private information we hold and protect it from theft, computer viruses, hackers or inadvertent loss. In such circumstances, we may be held liable to our clients, which could result in legal liability or impairment to our reputation resulting in increased costs or loss of revenue.

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Willis Group Holdings plc


Further, data privacy, information security, identity theft, and related computer and internet issues are matters of growing public concern and are subject to frequently changing rules and regulations. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements and customer expectations in this area could result in legal liability or impairment to our reputation.
Interruption to or loss of our information processing capabilities or failure to effectively maintain and upgrade our information processing hardware or systems could cause material financial loss, regulatory actions, reputational harm or legal liability.
Our business depends significantly on effective information systems. Our capacity to service our clients relies on effective storage, retrieval, processing and management of information. Our information systems also rely on the commitment of significant resources to maintain and enhance existing systems, develop and create new systems and products in order to keep pace with continuing changes in information processing technology or evolving industry and regulatory standards and to be at the forefront of a range of technology relevant to our business.
If the data we rely on to run our business were found to be inaccurate or unreliable or if we fail to maintain effective and efficient systems (including through a telecommunications failure, failure to replace or update redundant or obsolete computer hardware, applications or software systems or if we experience other disruptions), this could result in material financial loss, regulatory action, reputational harm or legal liability.
Our inability to successfully recover should we experience a natural disaster or other significant disruption to business continuity could have a material adverse effect on our operations.
Our ability to conduct business may be adversely affected, even in the short-term, by a disruption in the infrastructure that supports our business and the communities where we are located. This may include a disruption caused by restricted physical site access, terrorist activities, disease pandemics, or outages to electrical, communications or other services used by our company, our employees or third parties with whom we conduct business. Although we have business continuity and disaster recovery procedures in place and insurance to protect against such contingencies, such procedures may not be entirely effective and any insurance or recovery procedures may not continue to be available at reasonable prices and may not address all such losses or compensate us for the possible loss of clients occurring during any period that we are unable to provide services. Our inability to successfully recover should we experience a natural disaster or other significant disruption to business continuity could have a material adverse effect on our operations.
Certain of our businesses pose underwriting, advisory or reputational risks and can have a significant adverse impact on our financial results.
We provide a broad range of brokerage, reinsurance and risk management consulting services to our clients worldwide. In addition, our Willis Capital Markets & Advisory business provides advice to insurance and reinsurance companies on a broad array of merger and acquisition transactions as well as capital markets products, including acting as underwriter or agent for primary issuances, operating a secondary insurance-linked securities trading desk and engaging in general capital markets and strategic advisory work. These operations may pose certain underwriting, advisory or reputational risks to our business.
Financial Risks
Our outstanding debt could adversely affect our cash flows and financial flexibility.
We had total consolidated debt outstanding of approximately $2.3 billion as of December 31, 2014 and our 2014 interest expense was $135 million. Although management believes that our cash flows will be sufficient to service this debt, there may be circumstances in which required payments of principal and/or interest on this debt could adversely affect our cash flows and this level of indebtedness may:
require us to dedicate a significant portion of our cash flow from operations to payments on our debt, thereby reducing the availability of cash flow to fund capital expenditures, to pursue other acquisitions or investments, to pay dividends and for general corporate purposes;
•
increase our vulnerability to general adverse economic conditions, including if we borrow at variable interest rates, which makes us vulnerable to increases in interest rates generally;
•
limit our flexibility in planning for, or reacting to, changes or challenges relating to our business and industry; and
•
put us at a competitive disadvantage against competitors who have less indebtedness or are in a more favorable

18

Risk factors

•
position to access additional capital resources.
The terms of our current financings also include certain limitations. For example, the agreements relating to the debt arrangements and credit facilities contain numerous operating and financial covenants, including requirements to maintain minimum ratios of consolidated EBITDA to consolidated cash interest expense and maximum levels of consolidated funded indebtedness in relation to consolidated EBITDA, in each case subject to certain adjustments.
A failure to comply with the restrictions under our credit facilities and outstanding notes could result in a default under the financing obligations or could require us to obtain waivers from our lenders for failure to comply with these restrictions. The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could cause our obligations with respect to our debt to be accelerated and have a material adverse effect on our business, financial condition or results of operations.
Our pension liabilities may increase which could require us to make additional cash contributions to our pension plans reducing the cash available for other uses.
We have two principal defined benefit plans: one in the United Kingdom and the other in the United States, and in addition, we have several smaller defined benefit pension plans in certain other countries in which we operate.
In 2012, we agreed a revised funding strategy with the UK plan's trustee under which we are committed to make additional cash contributions in the event that our adjusted EBITDA exceeds certain thresholds, or we make exceptional returns for our shareholders, including share buybacks or special dividends. As a result, we may be committed to make additional contributions through to 2017 based on the prior year's performance. During 2015, we will be required to negotiate a new funding arrangement which may change the contributions we are required to make during 2015 and beyond.
Total cash contributions, excluding employees’ salary sacrifice contributions, to these defined benefit pension plans in 2014 were $112 million. In 2015, the Company currently expects to make cash contributions of approximately $116 million, including exceptional returns, to these pension plans, although we may elect to contribute more. Future estimates are based on certain assumptions, including discount rates, interest rates, mortality, fair value of assets and expected return on plan assets.
We have taken actions to manage our pension liabilities, including closing our UK and US plans to new participants and restricting final pensionable salaries. Future benefit accruals in the US pension plan were also stopped, or frozen, on May 15, 2009. Nevertheless, the determination of pension expense and pension funding is based on a variety of rules and regulations. Changes in these rules and regulations could impact the calculation of pension plan liabilities and the valuation of pension plan assets. They may also result in higher pension costs, additional financial statement disclosure, and accelerate and increase the need to fully fund our pension plans through increased cash contributions. Further, a significant decline in the value of investments that fund our pension plan, if not offset or mitigated by a decline in our liabilities, may significantly alter the values and actuarial assumptions used to calculate our future pension expense and we could be required to fund our plan with significant additional amounts of cash. In addition to the critical assumptions described above, our plans use certain assumptions about the life expectancy of plan participants and surviving spouses. Periodic revision of those assumptions can materially change the present value of future benefits and therefore the funded status of the plans and the resulting periodic pension expense. Changes in our pension benefit obligations, the related net periodic costs or credits, and the required level of future cash contributions, may occur in the future due to any variance of actual results from our assumptions and changes in the number of participating employees. The need to make additional cash contributions may reduce our financial flexibility and increase liquidity risk by reducing the cash available to meet our other obligations, including the payment obligations under our credit facilities and other long-term debt, or other needs of our business.
We could incur substantial losses, including with respect to our own cash and fiduciary cash held on behalf of insurance companies and clients, if one of the financial institutions we use in our operations failed.
We maintain significant cash balances at various US depository institutions that are significantly in excess of the US Federal Deposit Insurance Corporation insurance limits. We also maintain significant cash balances in foreign financial institutions. A significant portion of this cash is fiduciary cash held on behalf of insurance companies or clients. If one or more of the institutions in which we maintain significant cash balances were to fail, our ability to access these funds might be temporarily or permanently limited, and we could face a material liquidity problem and potentially material financial losses. We would also be liable to claims made by the insurance companies or our clients regarding the fiduciary cash held on their behalf.



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Willis Group Holdings plc


A downgrade to our corporate credit rating and the credit ratings of our outstanding debt may adversely affect our borrowing costs and financial flexibility and, under certain circumstances, may require us to offer to buy back some of our outstanding debt.
A downgrade in our corporate credit rating or the credit ratings of our debt would increase our borrowing costs including those under our credit facilities, and reduce our financial flexibility. In addition, certain downgrades would trigger a step-up in interest rates under the indentures for our 6.200% senior notes due 2017 and our 7.000% senior notes due 2019, which would increase our interest expense. If we need to raise capital in the future, any credit rating downgrade could negatively affect our financing costs or access to financing sources. This may in turn impact the assumptions when performing our goodwill impairment testing which may reduce the excess of fair value over carrying value of the reporting units.
In addition, under the indenture for our 4.625% senior notes due 2023 and our 6.125% senior notes due 2043, if we experience a ratings decline together with a change of control event, we would be required to offer to purchase our 4.625% senior notes due 2023 and our 6.125% senior notes due 2043 from holders unless we had previously redeemed those notes. We may not have sufficient funds available or access to funding to repurchase tendered notes in that event, which could result in a default under the notes. Any future debt that we incur may contain covenants regarding repurchases in the event of a change of control triggering event.
We are a holding company and, therefore, may not be able to receive dividends or other distributions in needed amounts from our subsidiaries.
Willis Group Holdings is a holding company that conducts no business of its own. We are dependent upon dividends and other payments from our operating subsidiaries to meet our obligations for paying principal and interest on outstanding debt obligations, for paying dividends to shareholders and for corporate expenses. Legal and regulatory restrictions, foreign exchange controls, as well as operating requirements of our subsidiaries, may limit our ability to obtain cash from these subsidiaries. For example, Willis Limited, our UK brokerage subsidiary regulated by the FCA, is currently required to maintain $126 million in unencumbered and available funds, of which at least $79 million must be in cash, for regulatory purposes. In the event our operating subsidiaries are unable to pay dividends and make other payments to Willis Group Holdings, we may not be able to service debt, pay obligations or pay dividends on ordinary shares.
If our goodwill becomes impaired, we may be required to record significant charges to earnings, which could have a significant adverse impact on our reported earnings.
We have a substantial amount of goodwill on our balance sheet as a result of acquisitions we have completed. We review goodwill for impairment annually or whenever events or circumstances indicate impairment may have occurred. 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. Notwithstanding the fact that we recognized an impairment charge in fiscal year 2012 for our North American reporting unit, the risk remains that a significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of a part of a reporting unit could result in an impairment charge in the future, which could have a significant adverse impact on our reported earnings.
For further information on our testing for goodwill impairment, see ‘Critical Accounting Estimates’ under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
International Risks
Our significant non-US operations, particularly our London market operations, expose us to exchange rate fluctuations and various risks that could impact our business.
A significant portion of our operations is conducted outside the United States. Accordingly, we are subject to legal, economic and market risks associated with operating in foreign countries, including devaluations and fluctuations in currency exchange rates; imposition of limitations on conversion of foreign currencies into pounds sterling or dollars or remittance of dividends and other payments by foreign subsidiaries; hyperinflation in certain foreign countries; imposition or increase of investment and other restrictions by foreign governments; and the requirement of complying with a wide variety of foreign laws.
We report our operating results and financial condition in US dollars. Our US operations earn revenue and incur expenses primarily in US dollars. In our London market operations, however, we earn revenue in a number of different currencies, but expenses are almost entirely incurred in pounds sterling. Outside the United States and our London market operations, we

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Risk factors

predominantly generate revenue and expenses in the local currency. The table gives an approximate analysis of revenues and expenses by currency in 2014.
 
US
Dollars
 
Pounds
Sterling
 
Euros
 
Other
currencies
Revenues
58%
 
8%
 
13%
 
21%
Expenses
46%
 
25%
 
9%
 
20%

Because of devaluations and fluctuations in currency exchange rates or the imposition of limitations on conversion of foreign currencies into US dollars, we are subject to currency translation exposure on the profits of our operations, in addition to economic exposure. Furthermore, the mismatch between pounds sterling revenues and expenses, together with any net sterling balance sheet position we hold in our US dollar denominated London market operations, creates an exchange exposure.
For example, as the pound sterling strengthens, the US dollars required to be translated into pounds sterling to cover the net sterling expenses increase, which then causes our results to be negatively impacted. However, any net sterling asset we are holding will be more valuable when translated into US dollars. Given these facts, the strength of the pound sterling relative to the US dollar has in the past had a material negative impact on our reported results. This risk could have a material adverse effect on our financial condition, cash flow and results of operations in the future.
Additionally, as at December 31, 2014, we are using the SICAD I rate of approximately 12 Venezuelan Bolivars per US Dollar to report our Venezuelan financial position, following devaluation from the official rate of approximately six Bolivars per US dollar. We cannot predict whether there will be a further devaluation of the Venezuelan currency or whether the use of the SICAD I rate will continue to be supported. As at December 31, 2014 we have approximately $22 million of net monetary assets that are denominated in the Venezuela Bolivar.
Where needed, we deploy a hedging strategy to mitigate part of our operating exposure to exchange rate movements, but such mitigating attempts may not be successful. For more information on this strategy, see Part II Item 8 - 'Note 24 Derivative Financial Instruments and Hedging Activities'.
In conducting our businesses around the world, we are subject to political, economic, legal, market, nationalization, operational and other risks that are inherent in operating in many countries.
In conducting our businesses and maintaining and supporting our global operations, we are subject to political, economic, legal, market, nationalization, operational and other risks. Our businesses and operations continue to expand into new regions throughout the world, including emerging markets. The possible effects of economic and financial disruptions throughout the world could have an adverse impact on our businesses. These risks include:
•
the general economic and political conditions in foreign countries,
•
the imposition of controls or limitations on the conversion of foreign currencies or remittance of dividends and other payments by foreign subsidiaries;
•
the imposition of sanctions by both the United States and foreign governments;
•
imposition of withholding and other taxes on remittances and other payments from subsidiaries;
•
imposition or increase of investment and other restrictions by foreign governments;
•
the price of commodities, such as oil;
•
fluctuations in our tax rate;
•
difficulties in controlling operations and monitoring employees in geographically dispersed and culturally diverse locations;
•
the practical challenge and costs of complying, or monitoring compliance, with a wide variety of foreign laws (some of which may conflict with US or other sources of law), laws and regulations applicable to insurance brokers and US business operations abroad, including rules relating to the conduct of business, trade sanctions administered by the US Office of Foreign Assets Control, the EU, the UK and the UN, and the requirements of the US Foreign Corrupt Practices Act as well as other anti-bribery and corruption rules and requirements in the countries in which we operate; and

21

Willis Group Holdings plc


•
the practical challenge and costs of complying with local regulation for our operating subsidiaries across the globe.
Legislative and regulatory action could materially and adversely affect us and our effective tax rate may increase.
There is uncertainty regarding the tax policies of the jurisdictions where we operate (which include the potential legislative actions described below), and our tax rate may increase and any such increase may be material. Additionally, the tax laws of Ireland and other jurisdictions could change in the future, and such changes could cause a material change in our effective tax rate. For example, legislative action may be taken by the US Congress which, if ultimately enacted, could override tax treaties upon which we rely or could broaden the circumstances under which we would be considered a US resident, each of which could materially and adversely affect our effective tax rate and cash tax position. We cannot predict the outcome of any specific legislative proposals. However, if proposals were enacted that had the effect of limiting our ability to take advantage of tax treaties between Ireland and other jurisdictions (including the United States), we could be subjected to increased taxation. In addition, any future amendments to the current income tax treaties between Ireland and other jurisdictions could subject us to increased taxation.
Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities.
It may not be possible to enforce court judgments obtained in the United States against us in Ireland based on the civil liability provisions of the US federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of US courts obtained against us or our directors or officers based on the civil liabilities provisions of the US federal or state securities laws or hear actions against us or those persons based on those laws. We have been advised that the United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any US federal or state court based on civil liability, whether or not based solely on US federal or state securities laws, would not be directly enforceable in Ireland. While not directly enforceable, it is possible for a final judgment for the payment of money rendered by any US federal or state court based on civil liability to be enforced in Ireland through common law rules. However, this process is subject to numerous established principles and would involve the commencement of a new set of proceedings in Ireland to enforce the judgment.
As an Irish company, Willis Group Holdings is currently governed by the Irish Companies Acts 1963-2013. In late 2014, a new Companies Act (the “2014 Act”) was passed by both houses of the Irish parliament and is expected to apply to all companies including Willis Group Holdings from June 1, 2015. In addition to introducing new provisions, the 2014 Act carries over many of the existing rules applicable to Irish companies which differ in some material respects from laws generally applicable to US corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, under the current regime and the 2014 Act, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the Company only in limited circumstances. Accordingly, holders of Willis Group Holdings securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.


Item 1B — Unresolved Staff Comments
The Company had no unresolved comments from the SEC’s staff.

22

Properties

Item 2 — Properties
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 3.9 million square feet of space worldwide.

London
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.

North America
In North America, outside of New York, Chicago and Nashville, we lease approximately 1.3 million square feet around 100 locations.

New York
In New York, we occupy 205,000 square feet of office space at Brookfield Place under a 20-year lease, expiring September 2026.

Chicago
In Chicago, we occupy 140,000 square feet at the Willis Tower under a lease expiring February 2025. We sub-let approximately 17,000 square feet to a third party.

Nashville
In Nashville, we occupy 170,000 square feet under a lease expiring April 2026.

Rest of World
Outside of North America and London we lease approximately 1.4 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.
Item 3 — Legal Proceedings
In the ordinary course of business, the Company is subject to various actual and potential claims, lawsuits, and other proceedings relating principally to alleged errors and omissions in connection with the placement of insurance and reinsurance. Similar to other corporations, the Company is also subject to a variety of other claims, including those relating to the Company’s employment practices. Some of the claims, lawsuits and other proceedings seek damages in amounts which could, if assessed, be significant.
Errors and omissions claims, lawsuits, and other proceedings arising in the ordinary course of business are covered in part by professional indemnity or other appropriate insurance. The terms of this insurance vary by policy year and self-insured risks have increased significantly in recent years. Regarding self-insured risks, the Company has established provisions which are believed to be adequate in the light of current information and legal advice, and the Company adjusts such provisions from time to time according to developments.
On the basis of current information, the Company does not expect that the actual claims, lawsuits and other proceedings to which the Company is subject, or potential claims, lawsuits, and other proceedings relating to matters of which it is aware, will ultimately have a material adverse effect on the Company’s financial condition, results of operations or liquidity. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation and

23

Willis Group Holdings plc


disputes with insurance companies, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
The material actual or potential claims, lawsuits, and other proceedings, of which the Company is currently aware, are as follows:
Stanford Financial Group Litigation
The Company has been named as a defendant in 13 similar lawsuits relating to the collapse of The Stanford Financial Group (‘Stanford’), for which Willis of Colorado, Inc. acted as broker of record on certain lines of insurance. The complaints in these actions generally allege that the defendants actively and materially aided Stanford’s alleged fraud by providing Stanford with certain letters regarding coverage that they knew would be used to help retain or attract actual or prospective Stanford client investors. The complaints further allege that these letters, which contain statements about Stanford and the insurance policies that the defendants placed for Stanford, contained untruths and omitted material facts and were drafted in this manner to help Stanford promote and sell its allegedly fraudulent certificates of deposit.
The 13 actions are as follows:
•
Troice, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:9-CV-1274-N, was filed on July 2, 2009 in the U.S. District Court for the Northern District of Texas against Willis Group Holdings plc, Willis of Colorado, Inc. and a Willis associate, among others. On April 1, 2011, plaintiffs filed the operative Third Amended Class Action Complaint individually and on behalf of a putative, worldwide class of Stanford investors, adding Willis Limited as a defendant and alleging claims under Texas statutory and common law and seeking damages in excess of $1 billion, punitive damages and costs. On May 2, 2011, the defendants filed motions to dismiss the Third Amended Class Action Complaint, arguing, inter alia, that the plaintiffs’ claims are precluded by the Securities Litigation Uniform Standards Act of 1998 (‘SLUSA’).
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.
On October 27, 2011, the court in Troice entered an order (i) dismissing with prejudice those claims asserted in the Third Amended Class Action Complaint on a class basis on the grounds set forth in the Roland decision discussed above and (ii) dismissing without prejudice those claims asserted in the Third Amended Class Action Complaint on an individual basis. Also on October 27, 2011, the court entered a final judgment in the action.
On October 28, 2011, the plaintiffs in Troice filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit. Subsequently, Troice, Roland and a third action captioned Troice, et al. v. Proskauer Rose LLP, Civil Action No. 3:09-CV-01600-N, which also was dismissed on the grounds set forth in the Roland decision discussed above and on appeal to the U.S. Court of Appeals for the Fifth Circuit, were consolidated for purposes of briefing and oral argument. Following the completion of briefing and oral argument, on March 19, 2012, the Fifth Circuit reversed and remanded the actions. On April 2, 2012, the defendants-appellees filed petitions for rehearing en banc. On April 19, 2012, the petitions for rehearing en banc were denied. On July 18, 2012, defendants-appellees filed a petition for writ of certiorari with the United States Supreme Court regarding the Fifth Circuit's reversal in Troice. On January 18, 2013, the Supreme Court granted our petition. Opening briefs were filed on May 3, 2013 and the Supreme Court heard oral argument on October 7, 2013. On February 26, 2014, the Supreme Court affirmed the Fifth Circuit’s decision.
On March 19, 2014, the plaintiffs in Troice filed a Motion to Defer Resolution of Motions to Dismiss, to Compel Rule 26(f) Conference and For Entry of Scheduling Order. That motion has now been fully briefed by the parties and awaits disposition by the court.
On March 25, 2014, the parties in Troice and the Janvey, et al. v. Willis of Colorado, Inc., et al. action discussed below stipulated to the consolidation of the two actions for pre-trial purposes under Rule 42(a) of the Federal Rules of Civil Procedure. On March 28, 2014, the Court “so ordered” that stipulation and, thus, consolidated Troice and Janvey for pre-trial purposes under Rule 42(a).
On September 16, 2014, the court (a) denied the plaintiffs’ request to defer resolution of the defendants’ motions to dismiss, but granted the plaintiffs’ request to enter a scheduling order; (b) requested the submission of supplemental briefing by all parties on the defendants’ motions to dismiss, which the parties submitted on September 30, 2014; and (c) entered an order

24

Legal proceedings


setting a schedule for briefing and discovery regarding plaintiffs’ motion for class certification, which schedule, among other things, provides for the submission of the plaintiffs’ motion for class certification (following the completion of briefing and discovery) on April 20, 2015.
On December 15, 2014, the court granted in part and denied in part the defendants’ motions to dismiss. On January 30, 2015, the defendants answered the Third Amended Class Action Complaint.
•
Ranni v. Willis of Colorado, Inc., et al., C.A. No. 9-22085, was filed on July 17, 2009 against Willis Group Holdings plc and Willis of Colorado, Inc. in the U.S. District Court for the Southern District of Florida. The complaint was filed on behalf of a putative class of Venezuelan and other South American Stanford investors and alleges claims under Section 10(b) of the Securities Exchange Act of 1934 (and Rule 10b-5 thereunder) and Florida statutory and common law and seeks damages in an amount to be determined at trial. On October 6, 2009, Ranni was transferred, for consolidation or coordination with other Stanford-related actions (including Troice), to the Northern District of Texas by the U.S. Judicial Panel on Multidistrict Litigation (the ‘JPML’). The defendants have not yet responded to the complaint in Ranni. On August 26, 2014, the plaintiff filed a notice of voluntary dismissal of the action without prejudice.

•
Canabal, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:9-CV-1474-D, was filed on August 6, 2009 against Willis Group Holdings plc, Willis of Colorado, Inc. and the same Willis associate named as a defendant in Troice, among others, also in the Northern District of Texas. The complaint was filed individually and on behalf of a putative class of Venezuelan Stanford investors, alleged claims under Texas statutory and common law and sought damages in excess of $1 billion, punitive damages, attorneys’ fees and costs. On December 18, 2009, the parties in Troice and Canabal stipulated to the consolidation of those actions (under the Troice civil action number), and, on December 31, 2009, the plaintiffs in Canabal filed a notice of dismissal, dismissing the action without prejudice.
•
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. On August 13, 2012, the plaintiffs filed a motion to lift the stay, which motion was denied by the court on September 16, 2014. On October 10, 2014, the plaintiffs appealed the court’s denial of their motion to lift the stay to the U.S. Court of Appeals for the Fifth Circuit. On January 5, 2015, the Fifth Circuit consolidated the appeal with the appeal in the Rishmague, et ano. v. Winter, et al. action discussed below, and the consolidated appeal is currently pending. 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.
•
Rishmague, et ano. v. Winter, et al., Case No. 2011CI2585, was filed on March 11, 2011 on behalf of two Stanford investors, individually and as representatives of certain trusts, against Willis Group Holdings plc, Willis of Colorado, Inc., Willis of Texas, Inc. and the same Willis associate, among others, in Texas state court (Bexar County). The complaint alleges claims under Texas and Colorado statutory law and Texas common law and seeks special, consequential and treble damages of more than $37 million and attorneys’ fees and costs. On April 11, 2011, certain defendants, including Willis of Colorado, Inc., (i) removed Rishmague to 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 August 8, 2011, the JPML issued a final transfer order for the transfer of Rishmague to the Northern District of Texas, where it is currently pending. On August 13, 2012, the plaintiffs joined with the plaintiffs in the Rupert action in their motion to lift the court’s stay of the Rupert action. On September 9, 2014, the court remanded Rishmague to Texas state court (Bexar County), but stayed the action until further order of the court and denied the plaintiffs’ motion to lift the stay. On October 10, 2014, the plaintiffs appealed the court’s denial of their motion to lift the stay to the Fifth Circuit. On January 5, 2015,

25

Willis Group Holdings plc


the Fifth Circuit consolidated the appeal with the appeal in the Rupert action, and the consolidated appeal is currently pending. The defendants have not yet responded to the complaint in Rishmague.
•
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. On September 29, 2014, the parties stipulated to the remand (to Texas state court (Harris County)) and stay of MacArthur until further order of the court (in accordance with the court’s September 9, 2014 decision in Rishmague (discussed above)), which stipulation was “so ordered” by the court on October 14, 2014. The defendants have not yet responded to the complaint in MacArthur.
•
Florida suits: On February 14, 2013, five lawsuits 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 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. On September 30, 2014, the court denied the plaintiffs’ motion to remand in Zacarias, and, on October 3, 2014, the court denied the plaintiffs’ motions to remand in Tisminesky and de Gadala Maria. The defendants have not yet responded to the complaints in these actions.
•
Janvey, et al. v. Willis of Colorado, Inc., et al., Case No. 3:13-CV-03980-D, was filed on October 1, 2013 also in the Northern District of Texas against Willis Group Holdings plc, Willis Limited, Willis North America Inc., Willis of Colorado, Inc. and the same Willis associate. The complaint was filed (i) by Ralph S. Janvey, in his capacity as Court-Appointed Receiver for the Stanford Receivership Estate, and the Official Stanford Investors Committee (the ‘OSIC’) against all defendants and (ii) on behalf of a putative, worldwide class of Stanford investors against Willis North America Inc. Plaintiffs Janvey and the OSIC allege claims under Texas common law and the court’s Amended Order Appointing Receiver, and the putative class plaintiffs allege claims under Texas statutory and common law. Plaintiffs seek actual damages in excess of $1 billion, punitive damages and costs. On November 15, 2013, plaintiffs filed the operative First Amended Complaint, which added certain defendants unaffiliated with Willis. On February 28, 2014, the defendants filed motions to dismiss the First Amended Complaint, which motions were granted in part and denied in part by the court on December 5, 2014. On December 22, 2014, Willis filed a motion to amend the court’s December 5 order to certify an interlocutory appeal to the Fifth Circuit, and, on December 23, 2014, Willis filed a motion to amend and, to the extent necessary, reconsider the court’s December 5 order. On January 16, 2015, the defendants answered the First Amended Complaint. On January 28, 2015, the court denied Willis’s motion to amend the court’s December 5 order to certify an interlocutory appeal to the Fifth Circuit. Willis’s motion to amend and, to the extent necessary, reconsider the December 5 order remains pending.



26

Legal proceedings


As discussed above, on March 25, 2014, the parties in Troice and Janvey stipulated to the consolidation of the two actions for pre-trial purposes under Rule 42(a) of the Federal Rules of Civil Procedure. On March 28, 2014, the Court “so ordered” that stipulation and, thus, consolidated Troice and Janvey for pre-trial purposes under Rule 42(a).
Additional actions could be brought in the future by other investors in certificates of deposit issued by Stanford and its affiliates. The Company disputes these allegations and intends to defend itself vigorously against these actions. The outcomes of these actions, however, including any losses or other payments that may occur as a result, cannot be predicted at this time.


Item 4 — Mine Safety Disclosures
Not applicable.


27

Willis Group Holdings plc


Part II
Item 5 —
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Share Data
Our shares have been traded on the New York Stock Exchange (‘NYSE’) under the symbol ‘WSH’ since June 11, 2001. The high and low sale prices of our shares, as reported by the NYSE, are set forth below for the periods indicated.
 
Price Range
of Shares
 
High
 
Low
2013:
 

 
 

First Quarter
$
39.50

 
$
33.89

Second Quarter
$
43.02

 
$
37.86

Third Quarter
$
45.45

 
$
40.10

Fourth Quarter
$
47.22

 
$
42.15

2014:
 

 
 

First Quarter
$
45.38

 
$
40.72

Second Quarter
$
44.49

 
$
40.47

Third Quarter
$
44.59

 
$
39.81

Fourth Quarter
$
45.66

 
$
39.11

2015:
 
 
 
Through February 20, 2015
$
48.88

 
$
42.81

On February 20, 2015, the last reported sale price of our shares as reported by the NYSE was $47.75 per share. As of February 20, 2015 there were approximately 1,192 shareholders on record of our shares.
Dividends
We normally pay dividends on a quarterly basis to shareholders of record on March 31, June 30, September 30 and December 31. The dividend payment dates and amounts are as follows:
Payment Date
$ Per Share
 
 
January 15, 2013
$
0.270

April 15, 2013
$
0.280

July 15, 2013
$
0.280

October 15, 2013
$
0.280

January 15, 2014
$
0.280

April 15, 2014
$
0.300

July 15, 2014
$
0.300

October 15, 2014
$
0.300

January 15, 2015
$
0.300


There are no governmental laws, decrees or regulations in Ireland which will restrict the remittance of dividends or other payments to non-resident holders of the Company’s shares.

28

Share data and dividends

In circumstances where one of Ireland’s many exemptions from dividend withholding tax (‘DWT’) does not apply, dividends paid by the Company will be subject to Irish DWT (currently 20 percent). Residents of the United States should be exempt from Irish DWT provided relevant documentation supporting the exemption has been put in place. While the US-Ireland Double Tax Treaty contains provisions reducing the rate of Irish DWT in prescribed circumstances, it should generally be unnecessary for US residents to rely on the provisions of this treaty due to the wide scope of exemptions from Irish DWT available under Irish domestic law. Irish income tax may also arise in respect of dividends paid by the Company. However, US residents entitled to an exemption from Irish DWT generally have no Irish income tax liability on dividends.
With respect to non-corporate US shareholders, certain dividends from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares that are readily tradable on an established securities market in the United States, such as our shares. Non-corporate US shareholders that do not meet a minimum holding period requirement for our shares during which they are not protected from the risk of loss or that elect to treat the dividend income as ‘investment income’ pursuant to section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. US shareholders should consult their own tax advisors regarding the application of these rules given their particular circumstances.
Total Shareholder Return
The following graph demonstrates a five-year comparison of cumulative total returns for the Company, the S&P 500 and a peer group comprised of the Company, Aon plc, Arthur J. Gallagher & Co., Brown & Brown Inc., and Marsh & McLennan Companies, Inc. The comparison charts the performance of $100 invested in the Company, the S&P 500 and the peer group on December 31, 2009, assuming full dividend reinvestment.



29

Willis Group Holdings plc


Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended December 31, 2014, no shares were issued by the Company without registration under the Securities Act of 1933, as amended.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company is authorized to buy back its ordinary shares, by way of redemption, and will consider whether to do so from time to time based on many factors including market conditions. The Company is authorized to purchase up to one billion shares from time to time in the open market (such open market purchases would be effected as redemptions under Irish law) and it may also redeem its shares through negotiated trades with persons who are not affiliated with the Company as long as the cost of the acquisition of the Company's shares does not exceed $611 million.
In the fourth quarter 2014, the Company bought back 244,300 shares at an average price of $40.86 for a total cost of approximately $10 million, on a trade date basis. The Company intends to buy back approximately $175 million in shares in 2015 to offset the increase in shares outstanding resulting from the exercise of employee stock options. The buybacks will be made in the open market or through privately-negotiated transactions, from time to time, depending on market conditions. The share buy back program may be modified, extended or terminated at any time by the Board of Directors.
Period:
Total number of shares purchased
 
Average price paid per share
 
Total number of shares purchased as part of publicly announced plans or programs
 
Approximate dollar value of shares that may yet be purchased under the plans or programs
 
 
 
 
 
 
 
 
October 1, 2014 to October 31, 2014
244,300

 
$
40.86

 
244,300

 
$
611,289,766

November 1, 2014 to November 30, 2014
—

 
—

 
—

 
—

December 1, 2014 to December 31, 2014
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Total
244,300

 


 
244,300

 
 
The information under Part III, Item 12 regarding securities authorized for issuance under equity compensation plans is incorporated herein by reference.


 


30

Selected Financial Data

Item 6 —
Selected Financial Data
Selected Historical Consolidated Financial Data
The selected consolidated financial data presented below should be read in conjunction with the audited consolidated financial statements of the Company and the related notes and Item 7 — ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ included elsewhere in this report.
The selected historical consolidated financial data presented below as of and for each of the five years ended December 31, 2014 have been derived from the audited consolidated financial statements of the Company, which have been prepared in accordance with accounting principles generally accepted in the United States of America (‘US GAAP’).
 
Year ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(millions, except per share data)
Statement of Operations Data
 

 
 

 
 

 
 

 
 

Total revenues
$
3,802

 
$
3,655

 
$
3,480

 
$
3,447

 
$
3,332

Goodwill impairment charge
—

 
—

 
(492
)
 
—

 
—

Operating income (loss)
647

 
663

 
(225
)
 
571

 
789

Income (loss) from continuing operations before income taxes and interest in earnings of associates
518

 
499

 
(337
)
 
239

 
587

Income (loss) from continuing operations
373

 
377

 
(433
)
 
219

 
470

Discontinued operations, net of tax
—

 
—

 
—

 
1

 
—

Net income (loss) attributable to Willis Group Holdings
$
362

 
$
365

 
$
(446
)
 
$
204

 
$
455

Earnings per share on continuing operations — basic
2.03

 
2.07

 
(2.58
)
 
1.17

 
2.68

Earnings per share on continuing operations — diluted
2.00

 
2.04

 
(2.58
)
 
1.15

 
2.66

Average number of shares outstanding
 

 
 

 
 

 
 

 
 

— basic
178

 
176

 
173

 
173

 
170

— diluted
181

 
179


173

 
176

 
171

Balance Sheet Data (as of year end)
 

 
 

 
 

 
 

 
 

Goodwill
$
2,937

 
$
2,838

 
$
2,827

 
$
3,295

 
$
3,294

Other intangible assets, net
450

 
353

 
385

 
420

 
492

Total assets (i)
15,435

 
14,800

 
15,112

 
15,728

 
15,850

Total equity
2,007

 
2,243

 
1,725

 
2,517

 
2,608

Long-term debt
2,142

 
2,311

 
2,338

 
2,354

 
2,157

Shares and additional paid-in capital
1,524

 
1,316

 
1,125

 
1,073

 
985

Total Willis Group Holdings stockholders’ equity
1,985

 
2,215

 
1,699

 
2,486

 
2,577

Other Financial Data
 

 
 

 
 

 
 

 
 

Capital expenditures (excluding capital leases)
$
110

 
$
105

 
$
133

 
$
111

 
$
83

Cash dividends declared per share
1.20

 
1.12

 
1.08

 
1.04

 
1.04

_________________

(i) 
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.

31

Willis Group Holdings plc


Item 7 —
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 underlying and organic non-GAAP financial measures, 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, and these provide a measure against which our businesses may be assessed in the future.
Underlying total revenues, underlying total expenses, underlying salaries and benefits, underlying other operating expenses, underlying operating income, underlying operating margin, underlying EBITDA, underlying net income and underlying earnings per diluted share (hereinafter referred to collectively as the "underlying measures") are calculated by excluding the impact of certain items and period over period movements in foreign currency, from the most directly comparable GAAP measures.
Organic commissions and fees, total revenues, organic total expenses, organic salaries and benefits, organic other operating expenses, organic operating income, organic operating margin and organic EBITDA (hereinafter referred to collectively as the "organic measures") further adjust underlying measures to exclude the twelve month impact from acquisitions and disposals from 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, 2014.
This discussion includes forward-looking statements, including under the headings 'Executive Summary', 'Liquidity and Capital Resources', and 'Critical Accounting Estimates'. Please see 'Forward-Looking Statements' for certain cautionary information regarding forward-looking statements and a list of factors that could cause actual results to differ materially from those predicted in those statements.

EXECUTIVE SUMMARY
Business Overview
We provide a broad range of insurance broking, risk management, and consulting services to our clients worldwide and during the period organized our business into three segments: Global, North America, and International.
For additional information regarding our business, see the more detailed discussion under Part I, Item 1 - 'Business' of this Form 10-K.

Market Conditions
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 in the aggregate.

Market conditions in our industry are generally defined by factors such as the strength of the economies in the various geographic regions in which we serve around the world, insurance rate movements, and insurance and reinsurance buying patterns of our clients.
Early in 2013, the reinsurance market was generally flat; however, as the year progressed we saw changing market sentiment driven by changes in the sources of capital and increases in capital supply in the reinsurance market, most notably within the North American catastrophe-exposed property market. The influx of third-party capital coupled with changes to reinsurance buying patterns and regulatory complexity is leading to growing complexity in the reinsurance market and a softening of prices.

32

Business discussion

In 2014 we noted a continuation of this trend, and signs of acceleration, towards softening reinsurance rates across almost all classes of business and geographies as positive 2013 results for traditional reinsurers exacerbated the growing supply of capital from third-party investors. In addition, for primary insurance companies, the ability to recognize primary rate increases may be coming to an end and consequently, rate flattening and even rate reductions are seen in many territories on primary insurance classes.
In the face of this challenging environment, we have adopted a strategy to: (1) invest selectively in growth areas, defined by geography, industry sector, and client segment and (2) better coordinate our business so as to bring our clients greater access to the Company's specialty areas and analytical capabilities, among other things. Our growth strategy also involves increasing our investment in, and deployment of, our analytical capabilities.
Financial Performance
The following is a summary of our 2014 GAAP financial results:
•
Total revenues of $3,802 million increased by $147 million, or 4.0 percent over the prior year. This growth included $134 million increase in commissions and fees, led by our International segment which reported high single digit growth, and a net $26 million increase from the impact of acquisitions and disposals. Foreign exchange negatively impacted total revenues by $30 million.
•
Total operating expenses of $3,155 million increased by $163 million, or 5.4 percent over the prior year. This growth included $36 million of restructuring costs related to the Operational Improvement Program, a $34 million net increase in expenses from acquisitions and disposals, and $6 million adverse foreign currency movements. The remaining increase was primarily due to higher salaries and benefits expense driven by increased headcount, pay reviews, and higher incentive charges, along with increased travel, accommodation and entertainment expenses, and systems costs.
•
Operating margin decreased 110 basis points to 17.0 percent from 18.1 percent in the prior year.
•
Net income attributable to Willis Group Holdings was $362 million, or $2.00 per diluted share, a decrease of $3 million, or 0.8 percent, from $365 million, or $2.04 per diluted share, in 2013.
•
Cash flows from operating activities were $477 million in 2014, a decrease of $84 million, or 15.0 percent from $561 million in 2013.
Our non-GAAP financial measures were as follows:
•
Underlying total revenues of $3,802 million increased $177 million, or 4.9 percent, over the prior year. Excluding the net $26 million increase from acquisitions and disposals, organic total revenues increased $151 million, or 4.2 percent over the prior year. This growth was driven by high commissions and fees growth in our International segment, supported by growth in Willis North America and Global. In addition to this, Other income increased $12 million primarily due to a settlement related to a specialty book of business within Global.
•
Underlying total expenses of $3,119 million increased $168 million, or 5.7 percent, over the prior year. Excluding the net $34 million increase from acquisitions and disposals, organic total operating expenses of $3,066 million increased $134 million, or 4.6 percent, over the prior year. This was primarily due to higher salaries and benefits expense, driven by increased headcount, pay reviews, and higher incentive charges, along with increased travel, accommodation and entertainment expenses, and systems costs.
•
The resultant organic operating margin decreased by 20 basis points to 18.2 percent from 18.4 percent in the prior year.

Operational improvement program
In April 2014, the Company announced an operational improvement program that would allow the Company to continue to strengthen its client service, realize operational efficiencies, and invest in new capabilities for growth.

33

Willis Group Holdings plc


The main elements of the program include the following:
•
movement of more than 3,500 support roles from higher cost locations to Willis facilities in lower cost locations, bringing the ratio of employees in higher cost versus lower cost near-shore and off-shore centers from approximately 80:20 to approximately 60:40;
•
net workforce reductions in support positions;
•
lease consolidation in real estate and reductions in ratios of seats per employee and square footage of floor space per employee; and
•
information technology systems simplification and rationalization.
The program began in the second quarter of 2014 and is expected to be complete by the end of 2017. The program is expecting to deliver cumulative cost savings of at least $420 million through 2017 and annual cost savings of approximately $300 million starting in 2018.
Actual cost savings of approximately $11 million were achieved in 2014, the estimated phasing of future cost savings is as follows: at least $60 million in 2015, approximately $135 million in 2016, and approximately $235 million in 2017. The estimated cost savings are before any potential reinvestment for future growth.
To achieve these savings, the Company expects to incur cumulative spend, including capital expenditure, amounting to approximately $410 million through the end of 2017. Program spend in 2014 was $36 million, with approximately $130 million expected for 2015 and the balance of approximately $240 million expected to be incurred in 2016 and 2017.
Total spend, actual savings, and timing may vary positively or negatively from these estimates due to changes in the scope, underlying assumptions, or execution risk of the restructuring plan throughout its duration.
The Company expects that about 70 percent of the annualized 2018 savings would come from role relocation and reduction, and about 30 percent of the savings from real estate, information technology and other areas.
To assist with the analysis of the effectiveness of the program the Company will provide the following metrics annually:
•
ratio of full time employees (FTEs) in higher cost geographies to lower cost near-shore and off-shore centers as at December 31, 2014 was 78:22 (March 31, 2014 ratio was 80:20);
•
indexed ratio of square footage of real estate per FTE as at December 31, 2014 was 98 (March 31, 2014 ratio of square footage of real estate per FTE = 100); and
•
indexed ratio of desks per FTE as at December 31, 2014 was 99 (March 31, 2014 ratio of desks per FTE = 100).
The restructuring costs of $36 million related to the Operational Improvement Program incurred in 2014 included:
•
$3 million of termination benefits in the North America segment relating to the elimination of 51 positions across a number of North America retail locations;
•
$5 million in the International segment, of which approximately $3 million was termination benefits related to the elimination of 81 positions across the International network and approximately $2 million spent on professional services to support the program;
•
$11 million in the Global segment, including $10 million of termination benefits related to the elimination of approximately 181 positions from the Willis Insurance UK and UK Reinsurance divisions, in addition to approximately $1 million of professional fees related to a study on process improvement; and
•
$17 million in Corporate and other, including approximately $16 million of professional fees, primarily related to advisory services, and approximately $1 million related to system implementation and other core resources supporting the program.
Acquisitions and Disposals
In January, 2015 the Company reached an agreement to acquire a majority interest in Miller Insurance Services LLP, a leading London-based wholesale specialist. The transaction is subject to customary closing conditions and regulatory approval and is expected to close in the second quarter of 2015.
During the year ended December 31, 2014 we made the following material acquisitions in line with our strategy to invest in targeted acquisitions with a focus on earnings accretion, competitive position, and fit.

34

Business discussion

In the fourth quarter of 2014, the Company acquired 75.8 percent of Max Matthiessen Holding AB and subsidiaries (collectively referred to as Max Matthiessen), a leading employee benefits adviser in Sweden, for cash consideration of $204 million.
In the second quarter of 2014, the Company acquired 100 percent of Charles Monat Limited and its subsidiaries (collectively referred to as Charles Monat), a life insurance solutions adviser to high net worth clients based in Hong Kong, for cash consideration of $59 million. Additional consideration estimated at $29 million is payable in annual installments over the next five years, based on a multiple of EBITDA of the entities acquired, during the period from May 25, 2014 until September 2, 2019. This consideration has been assessed to have a fair value of $12 million at the date of acquisition.
During 2014 we have also disposed of a number of low growth offices and business from our North America reporting unit that no longer align strategically with the rest of the North America segment.

Non-GAAP financial measures
During 2014, we made changes to the non-GAAP financial measures that we use to provide additional meaningful methods of evaluating the Company’s operating performance replacing our adjusted measures with new underlying measures and introduced new organic non-GAAP financial measures.
Previously we excluded certain specified items from total expenses, salaries and benefits, other operating expenses, operating margin, operating income, net income (loss) and earnings per share to calculate adjusted total expenses, adjusted salaries and benefits, adjusted other operating expenses, adjusted operating margin, adjusted operating income, adjusted net income and adjusted earnings per share.
In addition to these certain specified items, we exclude the period-over-period foreign currency movements to calculate our underlying non-GAAP financial measures and further exclude the twelve month impact from acquisitions and disposals to calculate our organic non-GAAP financial measures.
We believe that the understanding of the Company's performance and comparative analysis of our results is enhanced by our disclosure of the following non-GAAP financial measures. We use these and other measures to establish Group performance targets and evaluate the performance of our operations.
Our method for calculating these measures may differ from those used by other companies and therefore comparability may be limited.
Underlying measures
Our underlying non-GAAP measures are calculated by excluding certain items (as detailed below) from total revenues, total expenses, salaries and benefits, other operating expenses, operating income, net income (loss), and earnings per diluted share, respectively, the most directly comparable GAAP measures.
Additionally, prior year total revenues, total expenses and net income (loss) and diluted earnings per share have been rebased to current period exchange rates to eliminate the impact of year over year foreign exchange movements.
The following items have been excluded from total revenues, total expenses, salaries and benefits, other operating expenses, operating income and net income (loss) as applicable:
(i)
restructuring charges relating the Operational Improvement Program;
(ii)
costs associated with the 2013 Expense Reduction Initiative;
(iii)
fees related to the extinguishment of debt;
(iv)
the additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which do not feature a repayment requirement;
(v)
write-off of unamortized cash retention awards following the decision to eliminate the repayment requirement on past awards;
(vi)
India joint venture settlement;
(vii)
goodwill impairment charge;

35

Willis Group Holdings plc


(viii)
valuation allowance against deferred tax assets;
(ix)
write-off of uncollectible accounts receivable balance and associated legal fees arising in Chicago due to fraudulent overstatement of commissions and fees;
(x)
insurance recoveries related to the fraudulent overstatement of commissions and fees;
(xi)
foreign exchange loss from the devaluation of the Venezuelan currency; and
(xii)
gains and losses on the disposal of operations.

Organic measures

Our organic non-GAAP measures are calculated by excluding the twelve month impact from acquisitions and disposals, together with the impact of certain items, including foreign currency, that are discussed above, from total revenues, total expenses, salaries and benefits, other operating expenses, operating income, respectively, the most directly comparable GAAP measures.

A reconciliation of reported total expenses, salaries and benefits and other operating expense, the most directly comparable GAAP measures, to underlying and organic total expenses, underlying and organic salaries and benefits and underlying and organic other operating expenses is as follows (in millions, except percentages):
2014 compared to 2013
 
Salaries and benefits
 
Other operating expenses
 
Total expenses
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Expenses, GAAP basis
$
2,314

 
$
2,207

 
$
659

 
$
636

 
$
3,155

 
$
2,992

Excluding:
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs
—

 
—

 
—

 
—

 
36

 
—

Expense Reduction Initiative
—

 
29

 
—

 
12

 
—

 
46

Fees related to the extinguishment of debt
—

 
—

 
—

 
1

 
—

 
1

Foreign currency movements (a)
—

 
(3
)
 
—

 
(2
)
 
—

 
(6
)
Underlying expenses
$
2,314

 
$
2,181

 
$
659

 
$
625

 
$
3,119

 
$
2,951

Less: net expenses from acquisitions and disposals
33

 
13

 
12

 
3

 
53

 
19

Organic expenses
$
2,281

 
$
2,168

 
$
647

 
$
622

 
$
3,066

 
$
2,932

_________________________________
(a) For prior periods, underlying measures have been rebased to current period exchange rates to remove the impact of foreign currency movements when comparing periods.


36

Business discussion

A reconciliation of reported total expenses, salaries and benefits and other operating expense, the most directly comparable GAAP measures, to underlying and organic total expenses, underlying and organic salaries and benefits and underlying and organic other operating expenses is as follows (in millions, except percentages):
2013 compared to 2012
 
Salaries and benefits
 
Other operating expenses
 
Total expenses
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Expenses, GAAP basis
$
2,207

 
$
2,475

 
$
636

 
$
600

 
$
2,992

 
$
3,705

Excluding:
 
 
 
 
 
 


 
 
 
 
Expense Reduction Initiative
29

 
—

 
12

 
—

 
46

 
—

Fees related to the extinguishment of debt
—

 
—

 
1

 
—

 
1

 
—

Additional incentive accrual for change in remuneration policy
—

 
252

 
—

 
—

 
—

 
252

Write-off of unamortized cash retention awards debtor
—

 
200

 
—

 
—

 
—

 
200

Goodwill impairment charge
—

 
—

 
—

 
—

 
—

 
492

India JV settlement
—

 
—

 
—

 
11

 
—

 
11

Insurance recovery
—

 
—

 
—

 
(10
)
 
—

 
(10
)
Write-off of uncollectible accounts receivable balance
—

 
—

 
—

 
13

 
—

 
13

Foreign currency movements (a)
—

 
9

 
—

 
—

 
—

 
9

Underlying expenses
$
2,178

 
$
2,014

 
$
623

 
$
586

 
$
2,945

 
$
2,738

Less: net expenses from acquisitions and disposals
12

 
1

 
1

 
—

 
14

 
1

Organic expenses
$
2,166

 
$
2,013

 
$
622

 
$
586

 
$
2,931

 
$
2,737

_________________________________
(a) For prior periods, underlying measures have been rebased to current period exchange rates to remove the impact of foreign currency movements when comparing periods.

37

Willis Group Holdings plc


A reconciliation of reported total revenues and operating income, the most directly comparable GAAP measure, to underlying and organic total revenues, and underlying and organic operating income, is as follows (in millions, except percentages):
2014 compared to 2013
 
2014
 
2013
Total revenues, GAAP basis
$
3,802

 
$
3,655

Excluding:
 
 
 
Foreign currency movements (a)
—

 
30

Underlying total revenue
$
3,802

 
$
3,625

Less: net revenue from acquisitions and disposals
56

 
30

Organic total revenue
$
3,746

 
$
3,595

 
 
 
 
Operating income, GAAP basis
$
647

 
$
663

Excluding:
 
 
 
Restructuring costs
36

 
—

Expense Reduction Initiative
—

 
46

Fees related to the extinguishment of debt
—

 
1

Foreign currency movements (a)
—

 
(36
)
Underlying operating income
$
683

 
$
674

Less: net operating income from acquisitions and disposals
3

 
11

Organic operating income
$
680

 
$
663

 
 
 
 
Operating margin, GAAP basis, or operating income as a percentage of total revenues
17.0
%
 
18.1
%
Underlying operating margin, or underlying operating income as a percentage of underlying total revenues
18.0
%
 
18.6
%
Organic operating margin, or organic operating income as a percentage of organic total revenues
18.2
%
 
18.4
%
_________________________________
(a) 
For prior periods, underlying measures have been rebased to current period exchange rates to remove the impact of foreign currency movements when comparing periods.


38

Business discussion

A reconciliation of reported total revenues and operating income, the most directly comparable GAAP measure, to underlying and organic revenues, and underlying and organic operating income, is as follows (in millions, except percentages):

2013 compared to 2012
 
2013
 
2012
Total revenues, GAAP basis
3,655

 
3,480

Excluding:
 
 
 
Foreign currency movements (a)
—

 
13

Underlying total revenue
$
3,655

 
$
3,467

Less: net revenue from acquisitions and disposals
56

 
2

Organic total revenue
$
3,599

 
$
3,465

 
 
 
 
Operating income (loss), GAAP basis
663

 
(225
)
Excluding:
 
 
 
Expense Reduction Initiative
46

 
—

Fees related to the extinguishment of debt
1

 
—

Additional incentive accrual for change in remuneration policy
—

 
252

Write-off of unamortized cash retention awards debtor
—

 
200

Goodwill impairment charge
—

 
492

India JV settlement
—

 
11

Insurance recovery
—

 
(10
)
Write-off of uncollectible accounts receivable balance
—

 
13

Foreign currency movements (a)
—

 
(4
)
Underlying operating income
$
710

 
$
729

Less: net operating income from acquisitions and disposals
42

 
1

Organic operating income
$
668

 
$
728

 
 
 
 
Operating margin, GAAP basis, or operating income as a percentage of total revenues
18.1
%
 
(6.5
)%
Underlying operating margin, or underlying operating income as a percentage of underlying total revenues
19.4
%
 
21.0
 %
Organic operating margin, or organic operating income as a percentage of organic total revenues
18.6
%
 
21.0
 %
_________________________________
(a) 
For prior periods, underlying measures have been rebased to current period exchange rates to remove the impact of foreign currency movements when comparing periods.



39

Willis Group Holdings plc


A reconciliation of reported net income attributable to Willis Group Holdings, the most directly comparable GAAP measures, to underlying and organic EBITDA, is as follows (in millions, except per share data):
2014 compared to 2013
 
2014
 
2013
Net income attributable to Willis Group Holdings, GAAP basis
$
362

 
$
365

Excluding:
 
 
 
Net income attributable to noncontrolling interest
11

 
12

Interest in earnings of associates, net of tax
(14
)
 
—

Income taxes
159

 
122

Interest expense
135

 
126

Loss on extinguishment of debt
—

 
60

Other (income) expense, net
(6
)
 
(22
)
Depreciation
92

 
94

Amortization
54

 
55

Restructuring costs
36

 
—

Expense reduction initiative
—

 
41

Fees relating to the extinguishment of debt
—

 
1

Foreign currency movements (a)
—

 
(35
)
Underlying EBITDA
$
829

 
$
819

Less: EBITDA from acquisitions and disposals
11

 
11

Organic EBITDA
$
818

 
$
808

_________________________________
(a) 
For prior periods, underlying measures have been rebased to current period exchange rates to remove the impact of foreign currency movements when comparing periods.


40

Business discussion

A reconciliation of reported net income (loss) attributable to Willis Group Holdings, the most directly comparable GAAP measures, to underlying and organic EBITDA, is as follows (in millions, except per share data):
2013 compared to 2012
 
2013
 
2012
Net income (loss) attributable to Willis Group Holdings, GAAP basis
$
365

 
(446
)
Excluding:
 
 
 
Net income attributable to noncontrolling interest
12

 
13

Interest in earnings of associates, net of tax
—

 
(5
)
Income taxes
122

 
101

Interest expense
126

 
128

Loss on extinguishment of debt
60

 
—

Other (income) expense, net
(22
)
 
(16
)
Depreciation
94

 
79

Amortization
55

 
59

Expense reduction initiative
41

 
—

Fees relating to the extinguishment of debt
1

 
—

Additional incentive accrual for change in remuneration policy
—

 
252

Write-off of unamortized cash retention awards debtor
—

 
200

Goodwill impairment charge
—

 
492

India JV settlement
—

 
11

Insurance recovery
—

 
(10
)
Write-off of uncollectible accounts receivable balance
—

 
13

Foreign currency movements (a)
—

 
(4
)
Underlying EBITDA
$
854

 
$
867

Less: EBITDA from acquisitions and disposals
43

 
1

Organic EBITDA
$
811

 
$
866


_________________________________
(a) 
For prior periods, underlying measures have been rebased to current period exchange rates to remove the impact of foreign currency movements when comparing periods.


41

Willis Group Holdings plc



A reconciliation of reported net income (loss) attributable to Willis Group Holdings and reported earnings per diluted share, the most directly comparable GAAP measures, to underlying net income and underlying earnings per diluted share, is as follows (in millions, except per share data):
2014 compared to 2013
 
 
 
 
 
Per diluted share
 
2014
 
2013
 
2014
 
2013
Net income attributable to Willis Group Holdings, GAAP
$
362

 
$
365

 
$
2.00

 
$
2.04

Excluding:
 
 
 
 
 
 
 
Operational Improvement Program
27

 
—

 
0.15

 
—

Venezuela currency devaluation
13

 
—

 
0.07

 
—

Expense reduction initiative
—

 
38

 
—

 
0.21

Fees relating to the extinguishment of debt
—

 
1

 
—

 
0.01

Loss on extinguishment of debt
—

 
60

 
—

 
0.34

Gain on disposal of operations
(2
)
 
(1
)
 
(0.01
)
 
(0.01
)
Impact of US valuation allowance
21

 
9

 
0.12

 
0.05

Dilutive impact of potentially issuable shares
—

 
—

 
—

 
—

Foreign currency movements (a)
—

 
(34
)
 
—

 
(0.19
)
Underlying net income
$
421

 
$
438

 
$
2.33

 
$
2.45


2013 compared to 2012
 
 
 
 
 
Per diluted share
 
2013
 
2012
 
2013
 
2012
Net income (loss) attributable to Willis Group Holdings, GAAP
$
365

 
$
(446
)
 
$
2.04

 
$
(2.58
)
Excluding:
 
 
 
 
 
 
 
(Gain) loss on disposal of operations
(1
)
 
3

 
(0.01
)
 
0.02

Expense reduction initiative
38

 
—

 
0.21

 
—

Fees relating to the extinguishment of debt
1

 
—

 
0.01

 
—

Loss on extinguishment of debt
60

 
—

 
0.34

 
—

Additional incentive accrual for change in remuneration policy
—

 
175

 
—

 
0.99

Write-off of unamortized cash retention awards debtor
—

 
138

 
—

 
0.78

Goodwill impairment charge
—

 
458

 
—

 
2.60

India JV settlement
—

 
11

 
—

 
0.06

Insurance recovery
—

 
(6
)
 
—

 
(0.03
)
Write-off of uncollectible accounts receivable balance
—

 
8

 
—

 
0.05

Impact of US valuation allowance
9

 
113

 
0.05

 
0.64

Dilutive impact of potentially issuable shares
—

 
—

 
—

 
0.05

Foreign currency movements (a)
—

 
(4
)
 
—

 
(0.02
)
Underlying net income
$
472

 
$
450

 
$
2.64

 
$
2.56

_______________________________
(a) 
For prior periods, underlying measures have been rebased to current period exchange rates to remove the impact of foreign currency movements when comparing periods.


42

Business discussion

REVIEW OF CONSOLIDATED RESULTS
The following table is a summary of our revenues, operating income (loss), operating margin, net income (loss) and diluted earnings per share (in millions, except per share data and percentages):
 
Year Ended December 31,
 
2014
 
2013
 
2012
REVENUES
 

 
 

 
 

Commissions and fees
$
3,767

 
$
3,633

 
$
3,458

Investment income
16

 
15

 
18

Other income
19

 
7

 
4

Total revenues
3,802

 
3,655

 
3,480

EXPENSES
 

 
 

 
 

Salaries and benefits
(2,314
)
 
(2,207
)
 
(2,475
)
Other operating expenses
(659
)
 
(636
)
 
(600
)
Depreciation expense
(92
)
 
(94
)
 
(79
)
Amortization of intangible assets
(54
)
 
(55
)
 
(59
)
Goodwill impairment charge
—

 
—

 
(492
)
Restructuring costs
(36
)
 
—

 
—

Total expenses
(3,155
)
 
(2,992
)
 
(3,705
)
OPERATING INCOME (LOSS)
647

 
663

 
(225
)
Other income (expense), net
6

 
22

 
16

Loss on extinguishment of debt
—

 
(60
)
 
—

Interest expense
(135
)
 
(126
)
 
(128
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
518

 
499

 
(337
)
Income taxes
(159
)
 
(122
)
 
(101
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
359

 
377

 
(438
)
Interest in earnings of associates, net of tax
14

 
—

 
5

NET INCOME (LOSS)
373

 
377

 
(433
)
Less: net income attributable to noncontrolling interests
(11
)
 
(12
)
 
(13
)
NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
362

 
$
365

 
$
(446
)
 
 
 
 
 
 
Salaries and benefits as a percentage of total revenues
60.9
%
 
60.4
%
 
71.1
 %
Other operating expenses as a percentage of total revenues
17.3
%
 
17.4
%
 
17.2
 %
Operating margin (operating income (loss) as a percentage of total revenues)
17.0
%
 
18.1
%
 
(6.5
)%
Diluted earnings per share from continuing operations
$
2.00

 
$
2.04

 
$
(2.58
)
Average diluted number of shares outstanding
181

 
179

 
173



43

Willis Group Holdings plc


Consolidated Results for 2014 compared to 2013
Revenues
Total revenues by segment for 2014 and 2013 are shown below (millions, except percentages):
 
 
 
 
 
 
 
Change attributable to:
Year ended December 31,
2014
 
2013
 
% Change
 
Foreign
currency translation
 
Acquisitions
and disposals
 
Organic
commissions and fees growth(a)
 
 
 
 
 
 
 
 
 
 
Global
$
1,386

 
$
1,358

 
2.1
%
 
0.9
 %
 
(0.2
)%
 
1.4
%
North America
1,365

 
1,349

 
1.2
%
 
(0.1
)%
 
(1.5
)%
 
2.8
%
International
1,016

 
926

 
9.7
%
 
(5.1
)%
 
5.8
 %
 
9.0
%
Commissions and fees
$
3,767

 
$
3,633

 
3.7
%
 
(0.9
)%
 
0.8
 %
 
3.8
%
Investment income
16

 
15

 
6.7
%
 
 

 
 

 
 

Other income
19

 
7

 
171.4
%
 
 

 
 

 
 

Total revenues
$
3,802

 
$
3,655

 
4.0
%
 
 

 
 

 
 

_________________
(a) 
Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented. Our methods of calculating this measures may differ from those used by other companies and therefore comparability may be limited.

Total revenues of $3,802 million increased by $147 million, or 4.0 percent, in 2014 compared to 2013. This was primarily due to 3.7 percent growth in commissions and fees.
Total commissions and fees in 2014 were $3,767 million, up $134 million, or 3.7 percent, from $3,633 million in 2013. This increase was comprised of organic growth of $134 million, or 3.8 percent, and growth through acquisitions and disposals of $28 million, or 0.8 percent, partially offset by negative foreign currency movements of $30 million or 0.9 percent.
The foreign currency impact was as a result of the strengthening of the US dollar against a number of currencies that our commissions and fees are earned in, most significantly the Euro, Australian dollar and Brazilian real, partially offset by the year-on-year weakening of the US dollar against the Pound Sterling.
The Global segment reported 2.1 percent growth in commissions and fees, comprising 1.4 percent organic growth and a 0.9 percent positive impact from foreign currency translation. This growth was partially offset by a net 0.2 percent decline from acquisitions and disposals primarily due to a disposal in third quarter 2013.
Organic commissions and fees growth of 1.4 percent was driven by strong new business growth and higher client retention levels compared with the year ago period, partially offset by the negative impact from declining insurance and reinsurance rates and significant construction projects in 2013 that did not recur in 2014.
The North America segment reported 1.2 percent growth in commissions and fees compared to 2013 including organic growth of 2.8 percent partially offset by 1.5 percent negative impact from the disposal of non-strategic low growth offices, and a negative 0.1 percent impact from foreign currency translation.
The International segment reported 9.7 percent growth in commissions and fees compared with 2013, comprising 9.0 percent organic growth and 5.8 percent positive impact from the acquisitions of Max Matthiessen and Charles Monat. This was partially offset by a 5.1 percent negative impact from foreign currency translation.
Organic commissions and fees growth by segment is discussed further in 'Review of Segmental Results', below.
Other income reported an increase of $12 million compared to 2013. This increase was primarily due to a $12 million settlement related to a specialty book of business within the Global segment.
Salaries and Benefits
Salaries and benefits were $107 million, or 4.8 percent, higher in 2014 compared with 2013 and includes a net $20 million increase from acquisitions and disposals, $3 million of adverse foreign currency movements, and $29 million benefit from the

44

Business discussion

non-recurrence of 2013 expense reduction initiative costs. The remaining increase of $113 million was driven by increased headcount, pay reviews, and higher incentives.
Other Expenses
Other operating expenses were $23 million, or 3.6 percent, higher in 2014 compared with 2013. This growth included a net $9 million increase from acquisitions and disposals, $2 million of adverse foreign currency movements, $12 million benefit from the non-recurrence of 2013 expense reduction initiative costs and marketing costs. The remaining increase of $25 million was primarily due to higher travel, accommodation and entertainment expenses, along with increased systems costs.
Depreciation expense was $92 million in 2014, compared with $94 million in 2013. The decrease of $2 million included $5 million benefit from non-recurrence of 2013 expense reduction initiative costs offset by $1 million of adverse foreign currency movements.
Amortization of intangible assets was $54 million in 2014, a reduction of $1 million compared to 2013. The decrease primarily reflects the ongoing reduction in the HRH acquisition amortization partially offset by the increased charge relating to the acquisition of Charles Monat and Max Matthiessen.
Restructuring costs related to our operational improvement program were $36 million in 2014, compared with $nil in 2013. This is discussed in further detail in the 'Operational improvement program' section in the executive summary section above.

Income Taxes
The tax rate for 2014 was 31 percent, compared with 24 percent for 2013. Both years were impacted by certain items and the continuing requirement to retain a valuation allowance against our US deferred tax assets. The increase in tax rate over the prior year is partly attributable to the US returning to a tax paying position for the 2014 tax year.
After adjusting for certain items, as listed below, the tax rate for 2014 was 25 percent: 
•
a tax benefit of $1 million associated with the $14 million pre-tax expense arising in relation to the Venezuela currency devaluation;
•
a tax benefit of $9 million associated with charges incurred in relation to the Operational Improvement Program;
•
a tax expense of $10 million associated with pre-tax gains of $12 million related to business disposals;
•
an expense of $21 million relating to an increase in US valuation allowance. The increase is attributable to a change in the US deferred tax position following resolution of uncertain tax positions from prior periods.

Interest in Earnings of Associates, net of Tax

The majority of our interest in earnings of associates relates to our share of ownership of Gras Savoye, the leading broker in France. Interest in earnings of associates, net of tax, in 2014 was $14 million compared to $nil in 2013. The increase was primarily due to the non-recurrence of charges relating to the 2013 reorganization program and other non-recurring items, with improved underlying financial performance, in Gras Savoye.


45

Willis Group Holdings plc


Consolidated Results for 2013 compared to 2012
Revenues
Total revenues by segment for 2013 and 2012 are shown below (millions, except percentages):
 
 
 
 
 
 
 
Change attributable to:
Year ended December 31,
2013
 
2012
 
% Change
 
Foreign
currency translation
 
Acquisitions
and disposals
 
Organic
commissions and fees growth(a)
 
 
 
 
 
 
 
 
 
 
Global
$
1,358

 
$
1,303

 
4.2
 %
 
(0.9
)%
 
0.8
%
 
4.3
%
North America
1,349

 
1,281

 
5.3
 %
 
(0.1
)%
 
0.6
%
 
4.8
%
International
926

 
874

 
5.9
 %
 
0.1
 %
 
—
%
 
5.8
%
Commissions and fees
$
3,633

 
$
3,458

 
5.1
 %
 
(0.3
)%
 
0.5
%
 
4.9
%
Investment income
15

 
18

 
(16.7
)%
 
 

 
 

 
 

Other income
7

 
4

 
75.0
 %
 
 

 
 

 
 

Total revenues
$
3,655

 
$
3,480

 
5.0
 %
 
 

 
 

 
 

_________________
(a) 
Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented.

Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Total revenues increased by $175 million, or 5.0 percent, in 2013 compared to 2012. This was primarily due to 4.9 percent growth in organic commissions and fees, partially offset by a 0.3 percent negative impact from foreign exchange and a $3 million decrease in investment income due to continued falling yields on deposits.
Total commissions and fees in 2013 were $3,633 million, up $175 million, or 5.1 percent, from $3,458 million in 2012. This increase was due to organic growth of 4.9 percent and growth through acquisitions and disposals of 0.5 percent partially offset by negative foreign currency movements of $13 million or 0.3 percent.
Organic growth of 4.9 percent was driven by low double-digit new business growth tempered by lost business.
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 4.2 percent growth in commissions and fees, comprising 4.3 percent organic growth, a 0.8 percent positive impact from acquisitions and disposals, and a 0.9 percent negative impact from foreign currency translation. Organic commissions and fees growth of 4.3 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.
The North America segment reported a 5.3 percent growth in organic commissions and fees, compared to 2012, comprising 4.8 percent organic commissions and fees growth, a 0.6 percent positive impact from acquisition of Avalon Actuarial Inc., and a 0.1 percent negative impact from foreign currency translation. Organic growth in commissions and fees was positively impacted by a $5 million adjustment to align the recognition of revenue in the North America Personal Lines business with the rest of the Group.
The International segment reported 5.9 percent growth in commissions and fees compared with 2012, comprising 5.8 percent organic commissions and fees growth and a 0.1 percent positive impact from foreign currency translation. Organic growth in commissions and fees included the negative impact of a $15 million adjustment to align the recognition of revenue in China with the rest of the Group.
Investment income in 2013 at $15 million was $3 million lower than in 2012. Organic commissions and fees growth by segment is discussed further in 'Review of Segmental Results', below.
Salaries and Benefits

Salaries and benefits increased by $268 million, or 10.8 percent, in 2013 compared with 2012. Foreign currency movements lowered salaries and benefits by $9 million, or 0.4 percent.

46

Business discussion

In 2012 we recorded a $452 million charge as a result of the change in remuneration policy for future incentive awards and the elimination of the repayment requirement on past awards. Excluding the impact of this change and foreign currency movements, salaries and benefits were up by $193 million or 9.5 percent. This increase is primarily due to annual salary reviews, increased headcount from targeted investments, increased incentives from the change in remuneration policy and growth in commissions and fees, and an additional charge to increase the 401(k) match in North America. It also includes $29 million relating to the Expense Reduction Initiative that was undertaken in first quarter 2013.
Other Expenses
Other operating expenses were $36 million, or 6.0 percent, higher in 2013 compared with 2012. The $36 million increase includes $12 million of costs that were incurred in first quarter 2013 as part of our Expense Reduction Initiative.
The remaining $24 million increase was primarily due to higher business development costs, consulting and professional fees to assist us in our growth initiatives, and marketing costs.
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. 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
Amortization of intangible assets was $55 million in 2013, a reduction of $4 million compared to 2012. The decrease primarily reflects the ongoing reduction in the HRH acquisition amortization.
Goodwill impairment charge was $nil in 2013 (2012: $492 million). 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.

Loss on Extinguishment of Debt
The Company incurred total losses on extinguishment of debt of $60 million during the year ended December 31, 2013. This was made up of a tender premium of $65 million, the write-off of unamortized debt issuance costs of $2 million and a credit for the reduction of the fair value adjustment on 5.625% senior notes due 2015 of $7 million.
Income Taxes

The effective tax rate on ordinary income for 2013 was 20 percent, compared with 25 percent for 2012. The effective tax rate on ordinary income is calculated before the impact of certain discrete items. Discrete items occurring in 2013 with a significant impact on the tax rate were:
•
an incremental US tax expense of $9 million recorded after the taking into account the impact of adjustments to the valuation allowance placed against US deferred tax assets, US costs of $16 million associated with the Expense Reduction Initiative, and US costs of $61 million associated with the extinguishment of debt;

•
further non-US costs of $30 million associated with the Expense Reduction Initiative that are generally relieved at a rate higher than the underlying rate;

•
a net benefit of $4 million associated with a reduction in the corporation tax rate being applied to temporary tax differences in the UK;

•
a net benefit of $7 million associated with a change in the recognition of unrecognized tax benefits outside of the US; and

•
a net expense of $1 million associated with tax on profits of prior periods to bring in line the Company’s tax provision to filed tax positions.
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.

47

Willis Group Holdings plc


Interest in Earnings of Associates, net of Tax

The majority of our interest in earnings of associates relates to our share of ownership of Gras Savoye, the leading broker in France. Interest in earnings of associates, net of tax, in 2013 was $nil compared to $5 million in 2012. The decline was mainly driven by lower net income recorded in Gras Savoye due to the costs recognized in relation to a reorganization program undertaken in the year designed to drive growth in revenues and operational efficiencies.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity

We believe that our balance sheet and strong cash flow provide us with the platform and flexibility to remain committed to our cash allocation strategy of:

•investing in the business for growth;
•value-creating merger and acquisition activity;
•generating a steadily rising dividend; and
•the repurchase of shares.

Our principal sources of liquidity are cash from operations, available cash and cash equivalents and amounts available under our revolving credit facilities, excluding the UK facility which is solely for use by our main regulated UK entity in certain exceptional circumstances, and the Willis Securities facility, which is solely used for regulatory capital and securities underwriting purposes only.
Our principal short-term uses of liquidity and capital resources are operating expenses, capital expenditures, dividends and repurchase of shares, funding defined benefit pension plans, and servicing of debt.
Our long-term liquidity requirements consist of the repayment of the principal amount of outstanding notes; borrowings under our 7-year term loan; and funding defined benefit pension plans as discussed below.
As at December 31, 2014 cash and cash equivalents were $635 million, a decrease of $161 million compared to December 31, 2013. Included within cash and cash equivalents is $545 million available for corporate purposes and $90 million held within our regulated UK entities for regulatory capital adequacy requirements.
Cash flows from operating activities fell to $477 million in 2014 from $561 million in 2013. In addition, $6 million was provided from the disposal of fixed and intangible assets (2013: $12 million), $134 million proceeds from the issue of shares (2013: $155 million), and $86 million proceeds from the disposal of operations (2013: $20 million).
As at December 31, 2014 there was $nil drawn down on all four of our revolving credit facilities (2013: $nil). During the year ended December 31, 2014, we made five drawings totaling $1,175 million and five repayments of $1,175 million on the Willis Securities facility.
The primary uses of funds during 2014 included $401 million cash payments of 2013 incentive awards, $210 million related to payments of dividends, $122 million cash contributions, including employees' salary sacrifice contributions, to our defined benefit pension schemes, capital expenditures of $113 million related to leasehold improvements, information technology and transformation projects, $241 million related to acquisitions, primarily Max Matthiessen Holding AB and Charles Monat Limited, and a $4 million deferred cash payment related to the partial acquisition of the remaining noncontrolling interest in our China operation in a prior period.
The Company is authorized to buy back its ordinary shares by way of redemption, and will consider whether to do so from time
to time based on many factors including market conditions. During 2014, the Company bought back 5,050,000 shares for a total cost of $213 million. In February 2015, Willis announced that it intends to buy back approximately $175 million in shares in 2015 to offset the increase in shares outstanding resulting from the exercise of employee stock options.
Based on current market conditions and information available to us at this time, we believe that we have sufficient liquidity to meet our cash needs for the next twelve months.

48

Business discussion

The impact of movements in liquidity, debt and EBITDA in 2014 had a positive 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.

Debt
Total debt, total equity and the capitalization ratio at December 31, 2014 and 2013 were as follows (in millions, except percentages):
 
December 31, 2014
 
December 31, 2013
Long-term debt
$
2,142

 
$
2,311

Current portion of long-term debt
$
167

 
$
15

Total debt
$
2,309

 
$
2,326

Total Willis Group Holdings stockholders’ equity
$
1,985

 
$
2,215

Capitalization ratio
53.8
%
 
51.2
%
At December 31, 2014 the only mandatory debt repayments falling due over the next 12 months are $148 million outstanding on our 5.625% senior notes, scheduled repayments on our 7-year term loan totaling $17 million, and $1 million outstanding on our 3-year term loan.
Cash flow
Summary consolidated cash flow information (in millions):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Cash provided by operating activities
 

 
 

 
 

Total net cash provided by operating activities
$
477

 
$
561

 
$
525

Cash flows from investing activities
 

 
 

 
 

Total net cash used in continuing investing activities
(276
)
 
(120
)
 
(172
)
Cash flows from financing activities
 

 
 

 
 

Total net cash used in continuing financing activities
(323
)
 
(137
)
 
(291
)
(Decrease) increase in cash and cash equivalents
(122
)
 
304

 
62

Effect of exchange rate changes on cash and cash equivalents
(39
)
 
(8
)
 
2

Cash and cash equivalents, beginning of year
796

 
500

 
436

Cash and cash equivalents, end of year
$
635

 
$
796

 
$
500

This summary consolidated cash flow should be viewed in addition to, not in lieu of, the Company’s consolidated financial statements.
Consolidated Cash Flow for 2014 compared to 2013
Operating Activities
Net cash provided by operating activities in 2014 decreased by $84 million to $477 million compared with 2013.
The $477 million cash from operations comprises net income of $373 million, net $257 million of non-cash adjustments to reconcile net income to cash provided by operating activities and $150 million of negative working capital movements.
The non-cash adjustments included depreciation, amortization of intangible assets, share-based compensation and provisions for deferred income taxes.
Movements in working capital included $401 million of incentive payments and $122 million cash contributions (including $10 million for employees’ salary sacrifice) to our defined benefit pension schemes. Additionally, there was a $66 million increase in accounts receivable, as revenue recognized in 2014 was greater than cash collection, and $432 million positive movement in other liabilities which included incentives accrued during 2014 that will be paid in 2015.

49

Willis Group Holdings plc


The $84 million decrease in cash provided by operating activities in 2014 compared to 2013 was primarily driven by lower reported operating income, the non-recurrence of closed-out derivative contracts in the prior year, increased working capital and higher cash taxes paid.
Investing Activities
Net cash used in investing activities in 2014 was $276 million. This included capital expenditure of $113 million, cash used to purchase subsidiaries, intangible assets and other investments of $255 million partly offset by $6 million cash received from the sale of fixed and intangible assets and $86 million of proceeds from the disposal of operations.
Financing Activities
Net cash used in financing activities in 2014 was $323 million primarily due to dividends paid, including dividends paid to noncontrolling interests, of $227 million, $213 million to repurchase approximately five million shares and $15 million of mandatory repayments against the term loan offset by cash receipts of $134 million from the issue of shares.
Consolidated Cash Flow for 2013 compared to 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 non-cash adjustments included depreciation, amortization of intangible assets, share-based compensation, gain on derivative instruments, provision for deferred income taxes and the tender premium on early redemption of our debt, which is presented as a financing cash item.
Movements in working capital included $346 million of incentive payments and $150 million cash contributions (including $12 million for employees’ salary sacrifice) to our defined benefit pension schemes. Additionally, there was a $116 million increase in accounts receivable, as revenue recognized in 2013 was greater than cash collection, and $445 million positive movement in other liabilities which included incentives accrued during 2013 that will be paid in 2014.
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.
Investing Activities
Net cash used in investing activities in 2013 was $120 million including, capital expenditure of $112 million, cash used to purchase subsidiaries, intangible assets and other investments of $44 million partly offset by $6 million cash received from the sale of fixed and intangible assets and $24 million of proceeds from the disposal of operations and the sale of the Company’s holding in a Spanish associate company.
Financing Activities
Net cash used in financing activities in 2013 was $137 million primarily due to total dividends paid, including dividends paid to noncontrolling interests, of $203 million, a net $72 million outflow in relation to the refinancing in the third quarter 2013, discussed below, and $15 million of mandatory repayments against the term loan offset by cash receipts of $155 million from the issue of shares.
The refinancing during 2013 resulted in a net cash outflow of $72 million which included: $521 million cash paid to repurchase $202 million of 5.625% senior notes due 2015, $206 million of 6.200% senior notes due 2017 and $113 million of 7.000% senior notes due 2019, the tender premium of $65 million and debt issuance costs of $8 million; this was primarily funded by $522 million cash inflow from senior notes issued, discussed earlier, and free operating cash flows.
Own funds
As of December 31, 2014, we had cash and cash equivalents of $635 million, compared with $796 million at December 31, 2013. Additionally, $1,222 million was available to draw under our revolving credit facilities at December 31, 2014, compared with $822 million at December 31, 2013.

50

Business discussion

Fiduciary funds
As an intermediary, we hold funds generally in a fiduciary capacity for the account of third parties, typically as the result of premiums received from clients that are in transit to insurers and claims due to clients that are in transit from insurers. We report premiums, which are held on account of, or due from, clients as assets with a corresponding liability due to the insurers. Claims held by, or due to, us which are due to clients are also shown as both assets and liabilities.
Fiduciary funds are generally required to be kept in certain regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity; such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with clients and insurers, the Company is entitled to retain investment income earned on fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.
As of December 31, 2014, we had fiduciary funds of $1.9 billion, compared with $1.7 billion at December 31, 2013.
Share buybacks

The Company is authorized to buy back shares, by way of redemption, and will consider whether to do so from time to time, based on many factors, including market conditions. The Company is authorized to purchase up to one billion shares from time to time in the open market (such open market purchases would be effected as redemptions under Irish law) and it may also redeem its shares through negotiated trades with persons who are not affiliated with the Company as long as the cost of the acquisition of the Company's shares does not exceed a certain authorized limit.

In February 2015, the Company announced that, during the year, it intended to buyback approximately $175 million of shares under this authorization, from time to time, depending on many factors including market conditions to offset the increase in shares outstanding resulting from the exercise of employee stock options. The buybacks would be made in the open market or through privately-negotiated transactions, from time to time, depending on market conditions.

As of February 20, 2015 there remains approximately $611 million available to purchase ordinary shares under the current authorization.
The share buy back program may be modified, extended or terminated at any time by the Board of Directors.
Dividends
Cash dividends paid in 2014 were $210 million compared with $193 million in 2013 and $185 million in 2012. In February 2015, we declared a quarterly cash dividend of $0.31 per share, an annual rate of $1.24 per share, an increase of 3.3 percent over the prior 12 month period.



51

Willis Group Holdings plc


REVIEW OF SEGMENTAL RESULTS
During 2014, we organized our business into three segments: Global, North America and International. Our Global business provided specialist brokerage and consulting services to clients worldwide for risks arising from specific industries and activities. North America and International comprised our retail operations and provide services to small, medium and major corporations.
The following table is a summary of our operating results by segment for the three years ended December 31, 2014 (in millions except percentages):
 
2014
 
2013
 
2012
 
Revenues
 
Operating
Income (Loss)
 
Operating
Margin
 
Revenues
 
Operating
Income (Loss)
 
Operating
Margin
 
Revenues
 
Operating
Income (Loss)
 
Operating
Margin
Global
$
1,410

 
$
352

 
25.0
%
 
$
1,364

 
$
376

 
27.6
%
 
$
1,310

 
$
400

 
30.5
 %
North America
1,370

 
273

 
19.9
%
 
1,358

 
249

 
18.3
%
 
1,288

 
252

 
19.6
 %
International
1,022

 
197

 
19.3
%
 
933

 
178

 
19.1
%
 
882

 
167

 
18.9
 %
Total Segments
3,802

 
822

 
21.6
%
 
3,655

 
803

 
22.0
%
 
3,480

 
819

 
23.5
 %
Corporate & Other
—

 
(175
)
 
n/a

 
—

 
(140
)
 
n/a

 
—

 
(1,044
)
 
n/a

Total Consolidated
$
3,802

 
$
647

 
17.0
%
 
$
3,655

 
$
663

 
18.1
%
 
$
3,480

 
$
(225
)
 
(6.5
)%
Global
Our Global operations comprised Willis Re, Willis Insurance UK, Facultative, Risk, and Willis Capital Markets & Advisory (WCMA).
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 2014 (in millions, except percentages):
 
2014
 
2013
 
2012
Commissions and fees
$
1,386

 
$
1,358

 
$
1,303

Investment income
9

 
6

 
7

Other income (a)
15

 
—

 
—

Total revenues
$
1,410

 
$
1,364

 
$
1,310

Operating income
$
352

 
$
376

 
$
400

Revenue growth
3.4
%
 
4.1
%
 
3.0
%
Organic commissions and fees growth (b)
1.4
%
 
4.3
%
 
4.7
%
Operating margin
25.0
%
 
27.6
%
 
30.5
%
_________________
(a) 
Other income comprises gains on disposal of intangible assets, which primarily arise from settlements through enforcing non-compete agreements in the event of losing accounts through producer defection or the disposal of books of business.
(b)
Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented.
2014 compared to 2013
Revenues
Commissions and fees of $1,386 million were $28 million, or 2.1 percent, higher in 2014 compared with 2013. The increase includes organic growth of 1.4 percent, a positive 0.9 percent impact from foreign currency movements, partially offset by a net 0.2 percent decline due to acquisitions and disposals.
The 1.4 percent organic growth in commissions and fees was driven by strong new business growth and higher client retention levels compared with the year ago period, partially offset by the negative impact of rates and the non-recurrence of significant construction projects in 2013.
The 0.2 percent decline from acquisitions and disposals was related to the disposal of a small commercial business from the UK Retail division in fourth quarter 2013 partially offset by the acquisition of Prime Professions in second quarter 2013.

52

Business discussion

Willis Re reported mid single-digit organic commissions and fees growth, with its North America business leading the way with high single-digit results. New business was strong across all three divisions and we reported increased client retention levels compared to the prior year. Growth however was tempered by the negative impact of premium rate movements.
Willis Insurance UK reported a low single-digit decline, primarily due to poor performance in the Insolvency and Willis Commercial Network businesses, the non-recurrence of large construction projects in 2013 in the Construction, Property & Casualty business, and the negative impact from the acquisitions and disposals noted above.
Willis Capital Markets & Advisory performed solidly in the year and reported significant growth on last year as a result of significant new business wins.
Client retention levels improved to 92.6 percent for 2014, compared with 91.8 percent for 2013.
Other income of $15 million included a $12 million settlement related to a specialty book of business.
Expenses
Total operating expenses of $1,058 million were $70 million, or 7.1 percent, higher for 2014 compared with 2013. Excluding the $25 million, or 2.7 percent, impact of adverse foreign currency movements, total operating expenses increased $45 million or 4.4 percent.
The $45 million growth in expenses was due to higher salaries and benefits as a result of the increase in headcount relative to the prior year, annual salary reviews and higher incentives which were linked to commissions and fees performance. This increase was offset by the decline in Other operating expenses primarily due to lower allocation of corporate costs and an E&O provision release partially offset by a legal claim settlement and higher systems and premises costs.
In addition, the year-on-year growth included $11 million restructuring costs relating the Operational Improvement Program.
Operating margin

Full year operating margin was 25.0 percent in 2014 and 27.6 percent in 2013. The decline was driven by expense growth of 7.1 percent exceeding the 3.4 percent total revenue growth.
2013 compared to 2012
Revenues
Commissions and fees of $1,358 million were $55 million, or 4.2 percent, higher in 2013 compared with 2012. Foreign exchange movements had a net 0.9 percent negative impact on commissions and fees; organic growth was 4.3 percent.
The 4.3 percent organic growth in commissions and fees was driven by strong new business growth and higher client retention levels compared with the year ago period, partially offset by lost business. Rates had no material impact on commissions and fees.
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.
Willis Insurance UK 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.
Operating margin

Operating margin was 27.6 percent in 2013 and 30.5 percent in 2012. The decline was driven additional expenses due to higher salaries and benefits, as a result of increased incentives from the change in remuneration policy and growth in commissions and fees. In addition, this increase also included the impact of the increase in headcount relative to the prior year, annual salary reviews and higher charges for share-based compensation. This was partially offset by solid commissions and fees growth.

53

Willis Group Holdings plc


North America
Our North America business provides risk management, insurance brokerage, related risk services and employee benefits brokerage and consulting to a wide array of industry and client segments in the United States, Canada and Mexico.
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 2014 (in millions, except percentages):
 
2014
 
2013
 
2012
Commissions and fees (a)
$
1,365

 
$
1,349

 
$
1,281

Investment income
1

 
2

 
3

Other income (b)
4

 
7

 
4

Total revenues
$
1,370

 
$
1,358

 
$
1,288

Operating income
$
273

 
$
249

 
$
252

Revenue growth
0.9
%
 
5.4
%
 
(0.5
)%
Organic commissions and fees growth (c)
2.8
%
 
4.8
%
 
(0.4
)%
Operating margin
19.9
%
 
18.3
%
 
19.6
 %
_________________
(a) 
Commissions and fees in 2013 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.
(b) 
Other income comprises gains on disposal of intangible assets, which primarily arise from settlements through enforcing non-compete agreements in the event of losing accounts through producer defection or the disposal of books of business.
(c) 
Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented.

2014 compared to 2013
Revenues
Commissions and fees of $1,365 million were $16 million, or 1.2 percent, higher in 2014 compared with 2013.
This increase was primarily due to organic growth of 2.8 percent partially offset by a 1.5 percent negative impact from acquisitions and disposals and a 0.1 percent negative impact from foreign currency movements.
The acquisitions and disposals impact was primarily due to the disposal of non-strategic low growth offices in the second and fourth quarters of 2014 partially offset by the acquisition of the employee benefits consulting division of Capital Strategies in fourth quarter 2013.
The 2.8 percent organic growth in commissions and fees was driven by strong new business growth compared with the year ago period, partially offset by lost business and the non-recurrence of a positive $5 million adjustment in 2013 to align the recognition of revenue in the North America Personal Lines business with the rest of the Group. Rates had a small negative impact on the full year's commissions and fees.
Growth was achieved across most of our North America regions, led by the South, Atlantic and Northeast regions as a result of new business growth.
Similarly, most of the major practice groups recorded positive growth. Our two largest practices, Human Capital and Construction, recorded mid single and low single-digit growth respectively. In our other practices we recorded double-digit growth in Mergers & Acquisitions, Financial & Executive Risks and Service Industry.
Client retention levels were 92.0 percent in 2014 compared with 92.1 percent in 2013.


54

Business discussion

Expenses
Total operating expenses of $1,097 million were $12 million or 1.1 percent, lower for 2014 compared to 2013.
The $12 million reduction in expenses was due to lower incentives as a result of one-off adjustments, reduction to the amortization of intangible assets and the disposal of certain non-strategic low growth locations partially offset by higher salaries, due to annual salary reviews, and higher business development expenses.
In addition, full year 2014 operating expenses included $3 million restructuring costs relating to the Operational Improvement Program.
Operating margin

Operating margin in North America was 19.9 percent in 2014 compared with 18.3 percent in 2013 driven by solid commissions and fees growth.
2013 compared to 2012
Revenues
Commissions and fees of $1,349 million were $68 million, or 5.3 percent, higher in 2013 compared with 2012.
This increase was primarily due to organic growth of 4.8 percent in 2013 compared with 2012 and a 0.6 percent positive impact from the acquisition of Avalon Actuarial, Inc. in fourth quarter 2012, partially offset by a 0.1 percent negative impact from foreign currency movements.
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 4.8 percent organic growth in commissions and fees was driven by strong new business growth and higher client retention levels compared with the year ago period, partially offset by lost business. Rates had a small positive impact on the full year's commissions and fees.
Growth was achieved across all our North America regions, led by the Metro, Midwest, Canada and CAPPPS regions. This was attributed to new business growth as well as increased client retention rates in almost all regions.
Similarly, most of the major practice groups recorded positive growth. Our two largest practices, Human Capital and Construction, recorded mid single-digit growth and in our other practices we recorded high single-digit growth in Real Estate and low single-digit growth in Financial & Executive Risks, Healthcare and Manufacturing.
Operating margin

Operating margin in North America was 18.3 percent in 2013 compared with 19.6 percent in 2012. Solid commissions and fees growth was outpaced by increased expenses, driven by higher salaries and benefits most notably as a result of annual salary reviews. Salary and benefits were also impacted by a higher incentives charge as a result of higher commissions and fees and the change in remuneration policy, and additional 401(k) match and medical charges, partially offset by lower charges for share-based compensation and pensions.


55

Willis Group Holdings plc


International
Our International business comprised 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.
The following table sets out revenues, operating income, organic commissions and fees growth and operating margin for the three years ended December 31, 2014 (in millions, except percentages):
 
2014
 
2013
 
2012
Commissions and fees (a)
$
1,016

 
$
926

 
$
874

Investment income
6

 
7

 
8

Total revenues
$
1,022

 
$
933

 
$
882

Operating income
197

 
178

 
167

Revenue growth
9.5
%
 
5.8
%
 
0.1
%
Organic commissions and fees growth (b)
9.0
%
 
5.8
%
 
6.3
%
Operating margin
19.3
%
 
19.1
%
 
18.9
%
________________
(a) 
Commissions and fees in 2013 included a negative $15 million adjustment to align the recognition of revenue in China with the rest of the Group.
(b) 
Organic commissions and fees growth excludes: (i) the impact of foreign currency translation; (ii) the first twelve months of net commission and fee revenues generated from acquisitions; and (iii) the net commission and fee revenues related to operations disposed of in each period presented.

2014 compared to 2013
Revenues
Commissions and fees of $1,016 million were $90 million, or 9.7 percent, higher in 2014 compared with 2013.
Organic commissions and fees growth was 9.0 percent and there was a 5.8 percent positive impact from the acquisition of Charles Monat in second quarter 2014, and Max Matthiessen in fourth quarter 2014. This was partially offset by a 5.1 percent negative impact from foreign currency movements which was driven by the weakening of a basket of currencies versus the US dollar.
Organic growth included double-digit new business growth and a positive impact from rates, partly offset by lost business. Growth was positively impacted by the non-recurrence of an adjustment recorded in 2013 to align the recognition of revenue in China with the rest of the Group.
Western Europe reported mid single-digit growth driven by Iberia, Germany and Ireland.
Latin America reported double-digit growth arising primarily from Brazil and Venezuela which was partially offset by decline in Colombia.
Organic double digit growth in Asia was primarily due to the non-recurrence of an adjustment recorded in 2013 to align the recognition of revenue in China with the rest of the Group.
Eastern Europe reported low double digit growth arising primarily from Russia and Poland.
Client retention rates were largely flat at 93.7 percent for 2014 compared to 93.2 percent for 2013.
Expenses

Total expenses of $825 million were $70 million, or 9.3 percent, higher for 2014 compared with 2013. Foreign currency movements favorably impacted expenses by $22 million or 3.3 percent; excluding the impact of foreign currency movements total expenses increased $92 million or 12.6 percent.
The $92 million increase in total expenses included $44 million year-over-year net increase from acquisitions, increased growth in Salaries and benefits due to higher headcount numbers relative to the prior year, and pay reviews which included the mandated pay reviews in Latin America. The segment also reported an increase in travel, accommodation and entertaining,

56

Business discussion

professional fees and irrecoverable VAT. This was partially offset by the $3 million gain on disposal of fixed assets and an E&O provision release.
The amortization of intangible assets increased following the acquisition of Charles Monat and Max Matthiessen.
In addition, the year-on-year growth included $5 million restructuring costs relating the Operational Improvement Program.
Operating margin

Operating margin in International was 19.3 percent in 2014, compared with 19.1 percent in 2013. The increase was driven by the increase in expenses discussed above partially offset by solid commissions and fees growth.
2013 compared to 2012
Revenues
Commissions and fees of $926 million were $52 million, or 5.9 percent, higher in 2013 compared with 2012. This comprised organic commissions and fees growth of 5.8 percent and positive foreign exchange movements of 0.1 percent. Organic growth included double digit new business growth, partly offset by slight increases to lost business. Rates had no significant impact on commissions and fees in the year.
Commissions and fees included the negative impact of a $15 million adjustment to align the recognition of revenue in China with the rest of the Group.
Latin America reported double-digit growth arising primarily from Brazil and Venezuela which was partially offset by a double-digit decline in Colombia.
Asia reported low-single digit growth. We recorded good growth throughout the region especially in Hong Kong and Korea, however the negative $15 million revenue recognition adjustment partially offset these results.
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.
The UK reported a low single-digit decline amid a challenging economic environment.

Operating margin

Operating margin in International was 19.1 percent in 2013, compared with 18.9 percent in 2012. The increase was driven by solid commission and fees growth, partially offset by expense growth driven by 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.

57

Willis Group Holdings plc


Corporate and Other
The Company evaluates the performance of its segments based on organic commissions and fees growth and operating income. For internal reporting and segmental reporting, items for which segmental management are not held responsible for are held within ‘Corporate and Other’.
Corporate and Other comprises the following (in millions):
 
2014
 
2013
 
2012
 
 
 
 
 
 
Costs of the holding company
$
(13
)
 
$
(10
)
 
$
(4
)
Costs related to group functions, projects and leadership
(194
)
 
(118
)
 
(114
)
Non-servicing elements of defined benefit pension scheme
53

 
42

 
38

Significant legal and regulatory settlements managed centrally
(2
)
 
(6
)
 
(6
)
Operational Improvement Program
(17
)
 
—

 
—

Additional incentive accrual for change in remuneration policy (a)
—

 
—

 
(252
)
Write-off of unamortized cash retention awards (b)
—

 
—

 
(200
)
Goodwill impairment charge (c)
—

 
—

 
(492
)
India joint venture settlement (d)
—

 
—

 
(11
)
Insurance recovery (e)
—

 
—

 
10

Write-off of uncollectible accounts receivable balance in Chicago (f)
—

 
—

 
(13
)
Expense Reduction Initiative
—

 
(46
)
 
—

Fees related to the extinguishment of debt
—

 
(1
)
 
—

Other
(2
)
 
(1
)
 
—

Total Corporate and other
$
(175
)
 
$
(140
)
 
$
(1,044
)

________________
(a) 
Additional incentive accrual recognized following the replacement of annual cash retention awards with annual cash bonuses which do not feature a repayment requirement.
(b) 
Write-off of unamortized cash retention awards following the decision to eliminate the repayment requirement on past awards.
(c) 
Non-cash charge recognized related to the impairment of the carrying value of the North America reporting unit's goodwill.
(d) 
$11 million settlement with former partners related to the termination of a joint venture arrangement in India. In addition, a $1 million loss on disposal of operations was recorded related to the termination.
(e) 
Insurance recovery, recorded in Other operating expenses, related to a previously disclosed fraudulent activity in Chicago.
(f) 
Write-off of uncollectible accounts receivable balance relating to periods prior to January 1, 2011.

2014 compared to 2013

Expenses
Corporate and Other expenses of $175 million were $35 million higher in 2014 compared with 2013.
The $35 million growth included a $69 million increase due to higher costs of group functions including projects, leadership and increased professional fees and the adverse impact of changes to the methodology used to allocate Corporate function costs to Global, North America and International. In addition to this, Corporate recognized $17 million of restructuring costs related to the Operational Improvement Program.
These increases were partially offset by the 2013 Expense Reduction Initiative costs of $46 million, $1 million of fees related to the extinguishment of debt and $4 million of favorable foreign exchange movements.




58

Business discussion

CRITICAL ACCOUNTING ESTIMATES
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:
•
pension expense (discount rates, expected asset returns and mortality);
•
intangible assets and goodwill impairment (determination of reporting units, fair value of reporting units and annual goodwill impairment analysis);
•
income taxes; and
•
commitments, contingencies and accrued liabilities.
Management has discussed its critical accounting estimates and associated disclosures with our Audit Committee.
Pension expense
We maintain defined benefit pension plans for employees in the US and UK. Both of these plans are now closed to new entrants and, with effect from May 15, 2009 we closed our US defined benefit plan to future accrual. New employees in the UK are offered the opportunity to join a defined contribution plan and in the US are offered the opportunity to join a 401(k) plan. We also have smaller defined benefit plans in Ireland, Germany, Norway and the Netherlands, a non-qualified plan in the US and an unfunded plan in the UK. These smaller defined benefit plans have combined total assets of $171 million and a combined net liability for pension benefits of $39 million as of December 31, 2014. Elsewhere, pension benefits are typically provided through defined contribution plans.
We recorded a $13 million and an $8 million net periodic benefit income on our UK and US defined benefit pension schemes respectively in 2014, compared with a net periodic benefit income of $5 million on the UK scheme and a net periodic benefit income of $4 million on the US scheme in 2013. On our international defined benefit pension plans, US non-qualified plan and UK unfunded plan, we recorded a net periodic benefit cost of $4 million in 2014, compared with $5 million in 2013.
Based on December 31, 2014 assumptions, we expect the net pension credit in 2015 will increase $31 million for the UK plan. The net pension credit will decrease by $2 million for the US plan and the net pension charge will remain unchanged at $4 million for the other plans.
We make a number of assumptions when determining our pension liabilities and pension expense which are reviewed annually by senior management and changed where appropriate. The discount rate will be changed annually if underlying rates have moved whereas the expected long-term return on assets will be changed less frequently as longer term trends in asset returns emerge or long term target asset allocations are revised. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases and rates of employee termination. Our approach to determining appropriate assumptions for our UK and US pension plans is set out below.
UK plan
 
As disclosed
using
December 31,
2014
assumptions
 
Impact of a
0.50 percentage
point increase
in the expected
rate of return
on assets(a)
 
Impact of a
0.50 percentage
point increase
in the discount
rate(a)
 
One year
increase in
mortality
assumption(b)
 
(millions)
Estimated 2015 (income) / expense
$
(44
)
 
$
(17
)
 
$
(25
)
 
$
8

Projected benefit obligation at December 31, 2014
3,084

 
n/a

 
(282
)
 
62

_________________
(a) 
With all other assumptions held constant.
(b) 
Assumes all plan participants are one year younger.

59

Willis Group Holdings plc


Discount rate
During 2014 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 2014 was 3.60% a decrease of 80 basis points from the discount rate of 4.40% used at December 31, 2013. During 2014, sterling high-quality corporate bond yields fell significantly at all durations. Consequently, the rate consistent with the expected maturity of the plan's liabilities has also decreased.
Expected and actual asset returns
Expected long-term rates of return on plan assets are developed from the expected future returns of the various asset classes using the target asset allocations. The expected long-term rate of return used for determining the net UK pension expense in 2014 was 7.00% (2013: 7.25%), equivalent to an expected return in 2014 of $213 million (2013: $191 million). There have been no further changes to the strategic target asset allocation therefore, management considers that 7.00% continues to be an appropriate long-term rate of return assumption.
The expected and actual returns on UK plan assets for the three years ended December 31, 2014 were as follows:
 
Expected
return on
plan assets
 
Actual
return
on plan
assets
 
(millions)
2014
$
213

 
$
520

2013
191

 
255

2012
181

 
226

Mortality
The mortality assumption chosen should reflect the long term life expectancy of pension scheme members and represent the best estimate assumptions used as opposed to more prudent assumption used by pension scheme trustees for funding purposes.
At December 31, 2014 we have updated the mortality base tables to use the more recent 80%/98% S1NA tables for male and females however, we have adjusted the base tables to reflect our scheme experiences and consequently the liabilities are broadly unchanged.
As an indication of the longevity assumed, our calculations assume that a UK male retiree aged 65 at December 31, 2014 would have a life expectancy of 24 years.
US plan
 
As disclosed
using
December 31, 2013
assumptions
 
Impact of a
0.50 percentage
point increase
in the expected
rate of return
on assets(a)
 
Impact of a
0.50 percentage
point increase
in the discount
rate(a)
 
One year
increase in
mortality
assumption(b)
 
(millions)
Estimated 2015 (income) / expense
$
(6
)
 
$
(4
)
 
$
—

 
$
1

Projected benefit obligation at December 31, 2014
1,051

 
n/a

 
(69
)
 
14

_________________
(a) 
With all other assumptions held constant.
(b) 
Assumes all plan participants are one year younger.
Discount rate
The discount rate at December 31, 2014 was 3.90%, an decrease of 86 basis points from the discount rate of 4.76% at December 31, 2013. The decrease in the discount rate reflects the decrease in high-quality corporate bond yields during 2014.
The impact of the lower discount rate in 2014 increased the projected benefit obligation by approximately $103 million.

60

Business discussion

Expected and actual asset returns
The expected long-term rate of return used for determining the net US pension scheme expense in 2014 was 7.25% (2013: 7.25%)
The expected and actual returns on US plan assets for the three years ended December 31, 2014 were as follows:
 
Expected
return on
plan assets
 
Actual
return
on plan
assets
 
(millions)
2014
$
54

 
$
65

2013
51

 
60

2012
46

 
80

Mortality
During 2014, the US Society of Actuaries released updated mortality tables to reflect improvements in longevity reflecting the results of their multi-year mortality study of participants in uninsured pension plans in the US. They also published details of mortality improvements. In summary, these tables showed that people are living longer, especially at older ages.
Consequently, in line with market practice, we have adopted at December 31, 2014 the RP 2014 Mortality Table projected using MP-2014 improvements scale on a fully generational basis (December 31, 2013: RP-2000 Mortality Table (blended for annuitants and non-annuitants), projected by Scale AA to 2021 for annuitants and 2029 for non-annuitants).
The impact of this change increase the projected benefit obligation by approximately $80 million.
As an indication of the longevity assumed, our calculations assume that a US male retiree aged 65 at December 31, 2014, would have a life expectancy of 22 years.
Goodwill impairment review
We test goodwill for impairment annually or whenever events or circumstances indicate impairment may have occurred.
Application of the impairment test involves the use of discounted cash flow models and requires significant judgment, including:
•
the identification of reporting units;
•
projections of commission and fee and expense growth rates;
•
discount and terminal growth rates;
•
assignment of assets, liabilities and goodwill to reporting units; and
•
determination of fair value of each reporting unit.
We use comparable market earnings multiple data and our Company's market capitalization to corroborate our reporting unit valuations.
Our annual goodwill impairment analysis is performed each year at October 1. At October 1, 2014 our analysis showed the estimate fair value of each reporting unit was significantly in excess of carrying value, and therefore did not result in an impairment charge (2013: $nil; 2012: $492 million).
Income taxes
We recognize deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating and capital loss and tax credit carry-forwards. We estimate deferred tax assets and liabilities and assess the need for any valuation allowances using tax rates in effect for the year in which the differences are expected to be recovered or settled taking into account our business plans and tax planning strategies.

61

Willis Group Holdings plc


At December 31, 2014, we had gross deferred tax assets of $426 million (2013: $383 million) against which a valuation allowance of $280 million (2013: $196 million) had been recognized. To the extent that:
•
the actual future taxable income in the periods during which the temporary differences are expected to reverse differs from current projections;
•
assumed prudent and feasible tax planning strategies fail to materialize;
•
new tax planning strategies are developed; or
•
material changes occur in actual tax rates or loss carry-forward time limits,
we may adjust the deferred tax asset considered realizable in future periods. Such adjustments could result in a significant increase or decrease in the effective tax rate and have a material impact on our net income.
Considering our recent US earnings experience and projections of future income, a possibility exists that we may release a portion of the valuation allowance against our US deferred tax assets in the next twelve months. Release of the US valuation allowance would result in the recognition of deferred tax assets and a decrease to income tax expense for the period the release is recorded. Our US valuation allowance, excluding that related to state separate taxes, is $160 million as at December 31, 2014. The exact timing and amount of future valuation release is subject to change on the basis of the level of profitability we are able to achieve.
Positions taken in our tax returns may be subject to challenge by the taxing authorities upon examination. We recognize the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities. The benefit recognized is the largest amount of tax benefit that has a greater than 50% likelihood of being realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts.
The Company adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition or measurement of its uncertain tax positions. In 2014, there was a net decrease in uncertain tax positions of $22 million compared to a net increase of $4 million in 2013. The Company recognizes interest relating to unrecognized tax benefits and penalties within income taxes. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.
Commitments, contingencies and accrued liabilities
We have established provisions against various actual and potential claims, lawsuits and other proceedings relating principally to alleged errors and omissions in connection with the placement of insurance and reinsurance in the ordinary course of business. Such provisions cover claims that have been reported but not paid and also claims that have been incurred but not reported. These provisions are established based on actuarial estimates together with individual case reviews and are believed to be adequate in the light of current information and legal advice.

62

Business discussion

CONTRACTUAL OBLIGATIONS
The Company’s contractual obligations as at December 31, 2014 are presented below:
 
Payments due by
Obligations (c)
Total
 
2015
 
2016-2017
 
2018-2019
 
After 2019
 
(millions)
7-year term loan facility expires 2018
$
259

 
$
17

 
$
45

 
$
197

 
$
—

Interest on term loan
14

 
4

 
8

 
2

 
—

Revolving $800 million credit facility commitment fees
7

 
2

 
4

 
1

 
—

Revolving $400 million credit facility commitment fees
2

 
1

 
1

 
—

 
—

5.625% senior notes due 2015
148

 
148

 
—

 
—

 
—

4.125% senior notes due 2016
300

 
—

 
300

 
—

 
—

6.200% senior notes due 2017
394

 
—

 
394

 
—

 
—

7.000% senior notes due 2019
187

 
—

 
—

 
187

 
—

5.750% senior notes due 2021
500

 
—

 
—

 
—

 
500

4.625% senior notes due 2023
250

 
—

 
—

 
—

 
250

6.125% senior notes due 2043
275

 
—

 
—

 
—

 
275

Interest on senior notes
896

 
112

 
173

 
137

 
474

Total debt and related interest
3,232

 
284

 
925

 
524

 
1,499

Operating leases (a)
1,181

 
128

 
221

 
175

 
657

Pensions
346

 
116

 
190

 
40

 
—

Other contractual obligations (b)
143

 
10

 
40

 
43

 
50

Acquisition liabilities
50

 
8

 
26

 
16

 
—

Total contractual obligations
$
4,952

 
$
546

 
$
1,402

 
$
798

 
$
2,206

__________________
(a) 
Presented gross of sublease income.
(b) 
Other contractual obligations include capital lease commitments, put option obligations and investment fund capital call obligations, the timing of which are included at the earliest point they may fall due.
(c) 
The above excludes $19 million for liabilities for unrecognized tax benefits as we are unable to reasonably predict the timing of settlement of these liabilities.
Debt obligations and facilities
The Company’s debt and related interest obligations at December 31, 2014 are shown in the above table.
As at December 31, 2014 $nil was outstanding under our revolving credit facilities.
Mandatory repayments of debt over the next 12 months include expiration of the 3-year term loan facility expiring 2015, maturity of the 5.625% senior notes due 2015 and the scheduled repayment of the current portion of the Company’s 7-year term loan. The Company also has the right, at its option, to prepay indebtedness under the credit facility without further penalty and to redeem the senior notes by paying a ‘make-whole’ premium as provided under the applicable debt instrument.
Operating leases
The Company leases certain land, buildings and equipment under various operating lease arrangements. Original non-cancellable lease terms typically are between 10 and 20 years and may contain escalation clauses, along with options that permit early withdrawal. The total amount of the minimum rent is expensed on a straight-line basis over the term of the lease.
Information regarding these operating leases and their impact on the financial statements is set forth in Note 20 - ‘Commitments and Contingencies’ to the Consolidated Financial Statements appearing under Part II, Item 8 of this report and incorporated herein by reference.


63

Willis Group Holdings plc


Pensions
Contractual obligations for our pension plans reflect the contributions we expect to make over the next five years into our US, UK and Other defined benefit plans. These contributions are based on current funding positions and may increase or decrease dependent on the future performance of the plans.
Total contributions made in 2014 and 2013, and the contributions we expect to make in 2015, in respect of our UK, US and Other defined benefit pension schemes are as follows:
 
December 31, 2015
 
December 31, 2014
 
December 31, 2013
Defined benefit pension plans:
Expected
 
Actual
 
Actual
UK 
$
96

 
$
81

 
$
88

US
10

 
20

 
40

Other
10

 
11

 
10

Total
$
116

 
$
112

 
$
138

Additionally, during 2014 $10 million (2013: $12 million) was paid into the UK plan in respect of employees' salary sacrifice contributions.
UK plan
In March 2012, the Company agreed to a schedule of contributions towards on-going accrual of benefits and deficit funding contributions the Company will make to the UK plan over the six years ended December 31, 2017. Based on this agreement, contributions in each of the next three years would total approximately $75 million, of which approximately $19 million relates to on-going contributions calculated as 15.9 percent of active plan members' pensionable salary and approximately $56 million that relates to contributions towards the funding deficit.
In addition, based on this agreement, further contributions would 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). We expect to make an exceptional return contribution of $21 million during 2015 as a result of share buyback activity during 2014. Aggregate contributions under the deficit funding contribution and the profit share calculation are capped at £312 million ($486 million) over the six years ended December 31, 2017.
We are currently negotiating a new funding arrangement, which we are required to do every three years, which may further change the contributions we are required to make in the future.
Guarantees and Other Contractual Obligations
Information regarding guarantees and other contractual obligations and their impact on the financial statements is set forth in Note 20 - ‘Commitments and Contingencies’ to the Consolidated Financial Statements appearing under Part II, Item 8 of this report and incorporated herein by reference.


64

Business discussion

NEW ACCOUNTING STANDARDS
Information regarding new accounting standards and their impact on the financial statements is set forth in Note 2 - ‘Basis of Presentation and Significant Accounting Policies’ to the Consolidated Financial Statements appearing under Part II, Item 8 of this report and incorporated herein by reference.

OFF BALANCE SHEET TRANSACTIONS
Apart from commitments, guarantees and contingencies, as disclosed in Note 20 - ‘Commitments and Contingencies’ to the Consolidated Financial Statements appearing under Part II, Item 8 of this report and incorporated herein by reference, the Company has no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the Company’s financial condition, results of operations or liquidity.

Item 7A —
Quantitative and Qualitative Disclosures about Market Risk
Financial Risk Management
We are exposed to market risk from changes in foreign currency exchange rates and interest rates. In order to manage the risk arising from these exposures, we enter into a variety of interest rate and foreign currency derivatives. We do not hold financial or derivative instruments for trading purposes.
A discussion of our accounting policies for financial and derivative instruments is included in Note 2 — 'Basis of Presentation and Significant Accounting Policies' of Notes to the Consolidated Financial Statements, and further disclosure is provided in Note 24 — 'Derivative Financial Instruments and Hedging Activities'.
Foreign Exchange Risk Management
Because of the large number of countries and currencies we operate in, movements in currency exchange rates may affect our results.
We report our operating results and financial condition in US dollars. Our US operations earn revenue and incur expenses primarily in US dollars. Outside the United States, we predominantly generate revenues and expenses in the local currency with the exception of our London market operations which earns revenues in several currencies but incurs expenses predominantly in pounds sterling.
The table below gives an approximate analysis of revenues and expenses by currency in 2014.
 
US
Dollars
 
Pounds
Sterling
 
Euros
 
Other
currencies
Revenues
58
%
 
8
%
 
13
%
 
21
%
Expenses
46
%
 
25
%
 
9
%
 
20
%
Our principal exposures to foreign exchange risk arise from:
•
our London market operations; and
•
translation.
London market operations
In our London market operations, we earn revenue in a number of different currencies, principally US dollars, pounds sterling, Euros and Japanese yen, but incur expenses almost entirely in pounds sterling.
We hedge this risk as follows:
•
to the extent that forecast pounds sterling expenses exceed pound sterling revenues, we limit our exposure to this exchange rate risk by the use of forward contracts matched to specific, clearly identified cash outflows arising in the ordinary course of business; and

65

Willis Group Holdings plc


•
to the extent our UK operations earn significant revenues in Euros and Japanese yen, we limit our exposure to changes in the exchange rate between the US dollar and these currencies by the use of forward contracts matched to a percentage of forecast cash inflows in specific currencies and periods. In addition, we are also exposed to foreign exchange risk on any net sterling asset or liability position in our London market operations.
However, where the foreign exchange risk relates to any sterling pension assets benefit or liability for pensions benefit, we do not hedge the risk. Consequently, if our London market operations have a significant pension asset or liability, we may be exposed to accounting gains and losses if the US dollar and pounds sterling exchange rate changes. We do, however, hedge the pounds sterling contributions into the pension plan.
Translation risk
Outside our US and London market operations, we predominantly earn revenues and incur expenses in the local currency. When we translate the results and net assets of these operations into US dollars for reporting purposes, movements in exchange rates will affect reported results and net assets. For example, if the US dollar strengthens against the Euro, the reported results of our Eurozone operations in US dollar terms will be lower.
With the exception of foreign currency hedges for certain intercompany loans that are not designated as hedging instruments, we do not hedge translation risk.
The table below provides information about our foreign currency forward exchange contracts, which are sensitive to exchange rate risk. The table summarizes the US dollar equivalent amounts of each currency bought and sold forward and the weighted average contractual exchange rates. All forward exchange contracts mature within three years.
 
Settlement date before December 31,
 
2015
 
2016
 
2017
December 31, 2014
Contract amount
 
Average contractual exchange rate
 
Contract amount
 
Average contractual exchange rate
 
Contract amount
 
Average contractual exchange rate
 
(millions)
 
 
 
(millions)
 
 
 
(millions)
 
 
Foreign currency sold
 

 
 
 
 

 
 
 
 

 
 
US dollars sold for sterling
$
349

 
$1.60 = £1
 
$
245

 
$1.61 = £1
 
$
84

 
$1.58 = £1
Euro sold for US dollars
98

 
€1 = $1.36
 
62

 
€1 = $1.36
 
26

 
€1 = $1.32
Japanese yen sold for US dollars
28

 
¥ 100.84=$1
 
17

 
¥ 101.50 = $1
 
6

 
¥ 106.33 = $1
Total
$
475

 
 
 
$
324

 
 
 
$
116

 
 
Fair Value (i)
$
4

 
 
 
$
—

 
 
 
$
1

 
 
 
Settlement date before December 31,
 
2014
 
2015
 
2016
December 31, 2013
Contract amount
 
Average contractual exchange rate
 
Contract amount
 
Average contractual exchange rate
 
Contract amount
 
Average contractual exchange rate
 
(millions)
 
 
 
(millions)
 
 
 
(millions)
 
 
Foreign currency sold
 

 
 
 
 

 
 
 
 

 
 
US dollars sold for sterling
$
212

 
$1.57 = £1
 
$
91

 
$1.53 = £1
 
$
—

 
—
Euro sold for US dollars
60

 
€1 = $1.33
 
37

 
€1 = $1.36
 
—

 
—
Japanese yen sold for US dollars
23

 
¥ 88.08=$1
 
12

 
¥ 97.98=$1
 
—

 
—
Total
$
295

 
 
 
$
140

 
 
 
$
—

 
 
Fair Value (i)
$
13

 
 
 
$
8

 
 
 
$
—

 
 
_________________
(i) 
Represents the difference between the contract amount and the cash flow in US dollars which would have been receivable had the foreign currency forward exchange contracts been entered into on December 31, 2014 or 2013 at the forward exchange rates prevailing at that date.
Income earned within foreign subsidiaries outside of the United Kingdom is generally offset by expenses in the same local currency but the Company does have exposure to foreign exchange movements on the net income of these entities.

66

Interest rate risk management
Our operations are financed principally by $2,054 million fixed rate senior notes issued by the Group and $259 million under a 7-year term loan facility. Of the fixed rate senior notes, $148 million are due 2015, $300 million are due 2016, $394 million are due 2017, $187 million are due 2019, $500 million are due 2021, $250 million are due 2023, and $275 million are due 2043. The 7-year term loan facility is repayable in quarterly installments and a final repayment of $186 million is due in the second quarter of 2018. As of December 31, 2014 we had access to $1,122 million under four revolving credit facilities, of which $798 million is available for general corporate purposes, and, as at this date, no amount was outstanding under those facilities. The interest rate applicable to the bank borrowing is variable according to the period of each individual drawdown.
We are also subject to market risk from exposure to changes in interest rates based on our investing activities where our primary interest rate risk arises from changes in short-term interest rates in both US dollars and pounds sterling.
As a result of our operating activities, we receive cash for premiums and claims which we deposit in short-term investments denominated in US dollars and other currencies. We earn interest on these funds, which is included in our consolidated financial statements as investment income. These funds are regulated in terms of access and the instruments in which they may be invested, most of which are short-term in maturity. In order to manage interest rate risk arising from these financial assets, we entered into interest rate swaps to receive a fixed rate of interest and pay a variable rate of interest in the various currencies related to the short-term investments. The use of interest rate contracts essentially converted groups of short-term variable rate investments to fixed rates. However, in the fourth quarter of 2011, we stopped renewing hedged positions on their maturity given the flat yield curve environment. Further to this, during second quarter 2012, the Company closed out its legacy position for these interest rate swap contracts.
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. The Company had previously designated these instruments as fair value hedges against its $350 million 5.625% senior notes due 2015 and had 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. During the three months ended September 30, 2013 the Company closed out the above interest rate swaps and received a cash settlement of $13 million on termination.
The table below provides information about our derivative instruments and other financial instruments that are sensitive to changes in interest rates. For interest rate swaps, the table presents notional principal amounts and average interest rates analyzed by expected maturity dates. Notional principal amounts are used to calculate the contractual payments to be exchanged under the contracts. The duration of interest rate swaps varied between one and five years, with re-fixing periods of three to six months. Average fixed and variable rates are, respectively, the weighted-average actual and market rates for the interest rate hedges in place. Market rates are the rates prevailing at December 31, 2014 or 2013, as appropriate.

 
 
Expected to mature before December 31,
 
 
 
 
 
 
December 31, 2014
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
 
Fair Value(i)
 
 
($ millions, except percentages)
Fixed rate debt
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal ($)
 
148

 
300

 
394

 


 
187

 
1,025

 
2,054

 
2,237

Fixed rate payable
 
5.625
%
 
4.125
%
 
6.200
%
 


 
7.000
%
 
5.576
%
 
5.617
%
 
 

Floating rate debt
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal ($)
 
17

 
23

 
22

 
197

 


 
 

 
259

 
259

Variable rate payable
 
2.26
%
 
3.00
%
 
3.43
%
 
3.45
%
 


 
 

 
3.40
%
 
 


67

Willis Group Holdings plc


 
 
Expected to mature before December 31,
 
 
 
 
 
 
December 31, 2013
 
2014
 
2015
 
2016
 
2017
 
2018
 
Thereafter
 
Total
 
Fair Value (i)
 
 
($ millions, except percentages)
Fixed rate debt
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal ($)
 
 
 
148

 
300

 
394

 
 
 
1,212

 
2,054

 
2,185

Fixed rate payable
 
 
 
5.625
%
 
4.125%

 
6.200
%
 
 
 
5.796
%
 
5.617
%
 
 

Floating rate debt
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Principal ($)
 
15

 
17

 
23

 
23

 
196

 
 

 
274

 
274

Variable rate payable
 
1.84
%
 
2.45
%
 
3.51
%
 
4.36
%
 
4.73
%
 
 

 
4.51
%
 
 

_________________
(i) 
Represents the net present value of the expected cash flows discounted at current market rates of interest or quoted market rates as appropriate.
Liquidity Risk
Our objective is to ensure we have the ability to generate sufficient cash either from internal or external sources, in a timely and cost-effective manner, to meet our commitments as they fall due. Our management of liquidity risk is embedded within our overall risk management framework. Scenario analysis is continually undertaken to ensure that our resources can meet our liquidity requirements. These resources are supplemented by access to $1,122 million under four revolving credit facilities, of which $798 million is available for general corporate purposes. We undertake short-term foreign exchange swaps for liquidity purposes.
See ‘Liquidity and Capital Resources’ section under Item 7, 'Management’s Discussion and Analysis of Financial Condition and Results of Operations'.

Credit Risk and Concentrations of Credit Risk
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 that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments on the balance sheet that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, fiduciary funds, accounts receivable and derivatives which are recorded at fair value.
The Company maintains a policy providing for the diversification of cash and cash equivalent investments and places such investments in an extensive number of financial institutions to limit the amount of credit risk exposure. These financial institutions are monitored on an ongoing basis for credit quality predominantly using information provided by credit agencies.
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, 2014.


68

Financial statements

Item 8 — 
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Data


69

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Willis Group Holdings Public Limited Company
Dublin, Ireland
We have audited the accompanying consolidated balance sheets of Willis Group Holdings Public Limited Company and subsidiaries (the ‘Company’) as of December 31, 2014 and 2013, 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, 2014. 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.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
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, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ Deloitte LLP
London, United Kingdom
February 24, 2015


70

Financial statements

CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Years ended December 31,
 
Note
 
2014
 
2013
 
2012
 
 
 
(millions, except per share data)
REVENUES
 

 
 

 
 

 
 

Commissions and fees
 

 
$
3,767

 
$
3,633

 
$
3,458

Investment income
 

 
16

 
15

 
18

Other income
 

 
19

 
7

 
4

Total revenues
 

 
3,802

 
3,655

 
3,480

EXPENSES
 

 
 

 
 

 
 

Salaries and benefits
3

 
(2,314
)
 
(2,207
)
 
(2,475
)
Other operating expenses
 

 
(659
)
 
(636
)
 
(600
)
Depreciation expense
11

 
(92
)
 
(94
)
 
(79
)
Amortization of intangible assets
13

 
(54
)
 
(55
)
 
(59
)
Goodwill impairment charge
12

 
—

 
—

 
(492
)
Restructuring costs
5

 
(36
)
 
—

 
—

Total expenses
 

 
(3,155
)
 
(2,992
)
 
(3,705
)
OPERATING INCOME (LOSS)
 

 
647

 
663

 
(225
)
Other income (expense), net
7

 
6

 
22

 
16

Loss on extinguishment of debt
18

 
—

 
(60
)
 
—

Interest expense
18

 
(135
)
 
(126
)
 
(128
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
 

 
518

 
499

 
(337
)
Income taxes
8

 
(159
)
 
(122
)
 
(101
)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
 

 
359

 
377

 
(438
)
Interest in earnings of associates, net of tax
 
 
14

 
—

 
5

NET INCOME (LOSS)
 

 
373

 
377

 
(433
)
Less: net income attributable to noncontrolling interests
 

 
(11
)
 
(12
)
 
(13
)
NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
 

 
$
362

 
$
365

 
$
(446
)
BASIC EARNINGS PER SHARE
9

 
 

 
 

 
 

— Continuing operations
 

 
$
2.03

 
$
2.07

 
$
(2.58
)
DILUTED EARNINGS PER SHARE
9

 
 

 
 

 
 

— Continuing operations
 

 
$
2.00

 
$
2.04

 
$
(2.58
)
CASH DIVIDENDS DECLARED PER SHARE
 

 
$
1.20

 
$
1.12

 
$
1.08

The accompanying notes are an integral part of these consolidated financial statements.

71

Willis Group Holdings plc


CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 
 
 
Years ended December 31,
 
Note
 
2014
 
2013
 
2012
 
 
 
(millions)
 
 
 
 
 
 
 
 
Net income (loss)
 
 
$
373

 
$
377

 
$
(433
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
 
(183
)
 
20

 
46

Pension funding adjustment:
 
 
 
 
 
 
 
Foreign currency translation on pension funding adjustment
 
 
37

 
(10
)
 
(22
)
Net actuarial (loss) gain
 
 
(255
)
 
85

 
(167
)
Amortization of unrecognized actuarial loss
 
 
40

 
46

 
38

Amortization of unrecognized prior service gain and curtailment
 
 
(3
)
 
(4
)
 
(5
)
Curtailment gain
 
 
2

 
—

 
—

 
 
 
(179
)
 
117

 
(156
)
Derivative instruments:
 
 
 
 
 
 
 
Gain on interest rate swaps (effective element)
 
 
—

 
—

 
2

Interest rate swap reclassification adjustment
 
 
(4
)
 
(4
)
 
(4
)
(Loss) gain on forward exchange contracts (effective element)
 
 
(25
)
 
8

 
9

Forward exchange contracts reclassification adjustment
 
 
13

 
1

 
(3
)
Gain on treasury lock (effective element)
 
 
—

 
15

 
—

Treasury lock reclassification adjustment
 
 
(1
)
 
—

 
—

 
 
 
(17
)
 
20

 
4

Other comprehensive (loss) income, net of tax
21

 
(379
)
 
157

 
(106
)
Comprehensive (loss) income
 
 
(6
)
 
534

 
(539
)
Less: Comprehensive income attributable to noncontrolling interests
 
 
(5
)
 
(12
)
 
(13
)
Comprehensive (loss) income attributable to Willis Group Holdings
 
 
$
(11
)
 
$
522

 
$
(552
)

The accompanying notes are an integral part of these consolidated financial statements.


72

Financial statements

CONSOLIDATED BALANCE SHEETS
 
 
 
December 31,
 
Note
 
2014
 
2013
 
 
 
(millions, except share data)
ASSETS
 

 
 

 
 

CURRENT ASSETS
 

 
 

 
 

Cash and cash equivalents
 

 
$
635

 
$
796

Accounts receivable, net
 

 
1,044

 
1,041

Fiduciary assets
 
 
8,948

 
8,412

Deferred tax assets
8

 
12

 
15

Other current assets
14

 
214

 
197

Total current assets
 

 
10,853

 
10,461

NON-CURRENT ASSETS
 

 
 

 
 

Fixed assets, net
11

 
483

 
481

Goodwill
12

 
2,937

 
2,838

Other intangible assets, net
13

 
450

 
353

Investments in associates
 
 
169

 
176

Deferred tax assets
8

 
9

 
7

Pension benefits asset
17

 
314

 
278

Other non-current assets
14

 
220

 
206

Total non-current assets
 

 
4,582

 
4,339

TOTAL ASSETS
 

 
$
15,435

 
$
14,800

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
 

 
 

 
 

Fiduciary liabilities
 

 
$
8,948

 
$
8,412

Deferred revenue and accrued expenses
 

 
619

 
586

Income taxes payable
 

 
33

 
21

Current portion of long-term debt
18

 
167

 
15

Deferred tax liabilities
8

 
21

 
25

Other current liabilities
15

 
444

 
415

Total current liabilities
 

 
10,232

 
9,474

NON-CURRENT LIABILITIES
 

 
 

 
 

Long-term debt
18

 
2,142

 
2,311

Liability for pension benefits
17

 
284

 
136

Deferred tax liabilities
8

 
128

 
56

Provisions for liabilities
19

 
194

 
206

Other non-current liabilities
15

 
389

 
374

Total non-current liabilities
 

 
3,137

 
3,083

Total liabilities
 

 
13,369

 
12,557

(Continued on next page)


73

Willis Group Holdings plc


CONSOLIDATED BALANCE SHEETS (Continued)
 
 
 
December 31,
 
Note
 
2014
 
2013
 
 
 
(millions, except share data)
COMMITMENTS AND CONTINGENCIES
20

 
—

 
—

 
 
 
 
 
 
REDEEMABLE NONCONTROLLING INTEREST
 
 
59

 
—

 
 
 
 
 
 
EQUITY
 

 
 
 
 
Ordinary shares, $0.000115 nominal value; Authorized: 4,000,000,000; Issued 178,701,479 shares in 2014 and 178,861,250 shares in 2013
 

 
—

 
—

Ordinary shares, €1 nominal value; Authorized: 40,000; Issued 40,000 shares in 2014 and 2013
 

 
—

 
—

Preference shares, $0.000115 nominal value; Authorized: 1,000,000,000; Issued nil shares in 2014 and 2013
 

 
—

 
—

Additional paid-in capital
 

 
1,524

 
1,316

Retained earnings
 

 
1,530

 
1,595

Accumulated other comprehensive loss, net of tax
21

 
(1,066
)
 
(693
)
Treasury shares, at cost, 46,408 shares in 2014 and 2013, and 40,000 shares, €1 nominal value, in 2014 and 2013
 

 
(3
)
 
(3
)
Total Willis Group Holdings stockholders’ equity
 
 
1,985

 
2,215

Noncontrolling interests
 
 
22

 
28

Total equity
 
 
2,007

 
2,243

TOTAL LIABILITIES AND EQUITY
 

 
$
15,435

 
$
14,800


The accompanying notes are an integral part of these consolidated financial statements.


74

Financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Years ended December 31,
 
Note
 
2014
 
2013
 
2012
 
 
 
(millions)
CASH FLOWS FROM OPERATING ACTIVITIES
 

 
 

 
 

 
 

Net income (loss)
 

 
$
373

 
$
377

 
$
(433
)
Adjustments to reconcile net income (loss) to total net cash provided by operating activities:
 

 
 

 
 

 
 

Goodwill impairment
12

 
—

 
—

 
492

Net gain on disposal of operations, fixed and intangible assets
 

 
(17
)
 
(7
)
 
—

Depreciation expense
11

 
92

 
94

 
79

Amortization of intangible assets
13

 
54

 
55

 
59

Amortization and write-off of cash retention awards
 
 
10

 
6

 
416

Net periodic (benefit) cost of defined benefit pension plans
17

 
(17
)
 
(4
)
 
2

Provision for doubtful accounts
16

 
4

 
3

 
16

Provision for deferred income taxes
 

 
66

 
39

 
54

Gain on derivative instruments
 
 
(12
)
 
18

 
11

Excess tax benefits from share-based payment arrangements
 

 
(5
)
 
(2
)
 
(2
)
Share-based compensation
4

 
52

 
42

 
32

Tender premium included in loss on extinguishment of debt
18

 
—

 
65

 
—

Undistributed earnings of associates
 

 
(9
)
 
8

 
(2
)
Effect of exchange rate changes on net income
 

 
39

 
(4
)
 
(14
)
Changes in operating assets and liabilities, net of effects from purchase of subsidiaries:
 

 
 

 
 

 
 

Accounts receivable
 

 
(66
)
 
(116
)
 
(17
)
Fiduciary assets
 

 
(887
)
 
804

 
111

Fiduciary liabilities
 

 
887

 
(804
)
 
(111
)
Cash incentives paid
 
 
(401
)
 
(346
)
 
(323
)
Funding of defined benefit pension plans
17

 
(122
)
 
(150
)
 
(143
)
Other assets
 

 
16

 
14

 
(1
)
Other liabilities
 

 
432

 
445

 
319

Movement on provisions
 

 
(12
)
 
24

 
(20
)
Total net cash provided by operating activities
 

 
477

 
561

 
525

(Continued on next page)


75

Willis Group Holdings plc


CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
 
 
 
Years ended December 31,
 
Note
 
2014
 
2013
 
2012
 
 
 
(millions)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
 
 
6

 
12

 
5

Additions to fixed assets
 
 
(113
)
 
(112
)
 
(135
)
Additions to intangible assets
 
 
(4
)
 
(7
)
 
(2
)
Acquisitions of operations, net of cash acquired
 
 
(241
)
 
(30
)
 
(33
)
Payments to acquire other investments, net of distributions received
 
 
(10
)
 
(7
)
 
(7
)
Proceeds from sale of associates
 
 
—

 
4

 
—

Proceeds from sale of operations, net of cash disposed
 
 
86

 
20

 
—

Net cash used in investing activities
 
 
(276
)
 
(120
)
 
(172
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 

 
 

 
 

Senior notes issued
18
 
—

 
522

 
—

Debt issuance costs
 
 
(3
)
 
(8
)
 
—

Repayments of debt
18
 
(15
)
 
(536
)
 
(15
)
Tender premium on extinguishment of senior notes
18
 
—

 
(65
)
 
—

Proceeds from issue of other debt
 
 
—

 
—

 
1

Repurchase of shares
 
 
(213
)
 
—

 
(100
)
Proceeds from issue of shares
 
 
134

 
155

 
53

Excess tax benefits from share-based payment arrangements
 
 
5

 
2

 
2

Dividends paid
 
 
(210
)
 
(193
)
 
(185
)
Proceeds from sale of noncontrolling interests
 
 
—

 
—

 
3

Acquisition of noncontrolling interests
 
 
(4
)
 
(4
)
 
(39
)
Dividends paid to noncontrolling interests
 
 
(17
)
 
(10
)
 
(11
)
Net cash used in financing activities
 
 
(323
)
 
(137
)
 
(291
)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
 
 
(122
)
 
304

 
62

Effect of exchange rate changes on cash and cash equivalents
 
 
(39
)
 
(8
)
 
2

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
 
 
796

 
500

 
436

CASH AND CASH EQUIVALENTS, END OF YEAR
 
 
$
635

 
$
796

 
$
500


The accompanying notes are an integral part of these consolidated financial statements.


76

Willis Group Holdings plc


CONSOLIDATED STATEMENTS OF EQUITY
 
Shares outstanding
 
Ordinary shares and APIC (i)
 
Retained Earnings
 
Treasury Stock
 
AOCL (ii)
 
Total WGH shareholders' equity
 
Noncontrolling Interests
 
Total Equity
 
Redeemable Noncontrolling interests (iii)
 
Total
 
(thousands)
 
(millions)
Balance at January 1, 2012
173,830

 
$
1,073

 
$
2,160

 
$
(3
)
 
$
(744
)
 
$
2,486

 
$
31

 
$
2,517

 
$
—

 
 
Shares repurchased
(2,797
)
 
—

 
(100
)
 
—

 
—

 
(100
)
 
—

 
(100
)
 
—

 
 
Net (loss) income
—

 
—

 
(446
)
 
—

 
—

 
(446
)
 
13

 
(433
)
 
—

 
$
(433
)
Dividends
—

 
—

 
(187
)
 
—

 
—

 
(187
)
 
(11
)
 
(198
)
 
—

 
 
Other comprehensive loss
—

 
—

 
—

 
—

 
(106
)
 
(106
)
 
—

 
(106
)
 
—

 
$
(106
)
Issue of shares under employee stock compensation plans and related tax benefits
2,122

 
50

 
—

 
—

 
—

 
50

 
—

 
50

 
—

 
 
Issue of shares for acquisitions
24

 
1

 
—

 
—

 
—

 
1

 
—

 
1

 
—

 
 
Share-based compensation
—

 
32

 
—

 
—

 
—

 
32

 
—

 
32

 
—

 
 
Purchase of subsidiary shares from noncontrolling interests, net
—

 
(31
)
 
—

 
—

 
—

 
(31
)
 
(8
)
 
(39
)
 
—

 
 
Additional noncontrolling interests
—

 
2

 
—

 
—

 
—

 
2

 
1

 
3

 
—

 
 
Foreign currency translation
—

 
(2
)
 
—

 
—

 
—

 
(2
)
 
—

 
(2
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2012
173,179

 
1,125

 
1,427

 
(3
)
 
(850
)
 
1,699

 
26

 
1,725

 
—

 
 
Net income
—

 
—

 
365

 
—

 
—

 
365

 
12

 
377

 
—

 
$
377

Dividends
—

 
—

 
(197
)
 
—

 
—

 
(197
)
 
(10
)
 
(207
)
 
—

 
 
Other comprehensive income
—

 
—

 
—

 
—

 
157

 
157

 
—

 
157

 
—

 
$
157

Issue of shares under employee stock compensation plans and related tax benefits
5,682

 
153

 
—

 
—

 
—

 
153

 
—

 
153

 
—

 
 
Share-based compensation
—

 
42

 
—

 
—

 
—

 
42

 
—

 
42

 
—

 
 
Purchase of subsidiary shares from noncontrolling interests, net
—

 
(4
)
 
—

 
—

 
—

 
(4
)
 
—

 
(4
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
178,861

 
1,316

 
1,595

 
(3
)
 
(693
)
 
2,215

 
28

 
2,243

 
—

 
 
Shares repurchased
(5,050
)
 
—

 
(213
)
 
—

 
—

 
(213
)
 
—

 
(213
)
 
—

 
 
Net income
—

 
—

 
362

 
—

 
—

 
362

 
11

 
373

 
—

 
$
373

Dividends
—

 
—

 
(214
)
 
—

 
—

 
(214
)
 
(17
)
 
(231
)
 
—

 
 
Other comprehensive loss
—

 
—

 
—

 
—

 
(373
)
 
(373
)
 
(2
)
 
(375
)
 
(4
)
 
$
(379
)
Issue of shares under employee stock compensation plans and related tax benefits
4,854

 
146

 
—

 
—

 
—

 
146

 
—

 
146

 
—

 
 
Issue of shares for acquisitions
36

 
1

 
—

 
—

 
—

 
1

 
—

 
1

 
—

 
 
Share-based compensation
—

 
52

 
—

 
—

 
—

 
52

 
—

 
52

 
—

 
 
Additional noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
2

 
2

 
63

 
 
Foreign currency translation
—

 
9

 
—

 
—

 
—

 
9

 
—

 
9

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
178,701

 
$
1,524

 
$
1,530

 
$
(3
)
 
$
(1,066
)
 
$
1,985

 
$
22

 
$
2,007

 
$
59

 
 
_________________________________

(i) 
APIC means Additional Paid-In Capital
(ii) 
AOCL means Accumulated Other Comprehensive Loss, Net of Tax
(iii) 
In accordance with the requirements of Accounting Standards Codification 480-10-S99-3A we have determined that the noncontrolling interest in Max Matthiessen Holding AB should be disclosed as a redeemable noncontrolling interest and presented within mezzanine or temporary equity

77

Willis Group Holdings plc



1.
NATURE OF OPERATIONS
Willis provides a broad range of insurance and reinsurance broking and risk management consulting services to its clients worldwide, both directly and indirectly through its associates. The Company provides both specialized risk management advisory and consulting services on a global basis to clients engaged in specific industrial and commercial activities, and services to small, medium and large corporations through its retail operations.
In its capacity as an advisor, insurance and reinsurance broker, the Company acts as an intermediary between clients and insurance carriers by advising clients on risk management requirements, helping clients determine the best means of managing risk, and negotiating and placing insurance risk with insurance carriers through the Company’s global distribution network.

2.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements to be Adopted in Future Periods

In April 2014, the Financial Accounting Standards Board ('FASB') issued Accounting Standards Update ('ASU') No. 2014-08, 'Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity'. This guidance changes the criteria for reporting discontinued operations and enhances the related disclosures around discontinued operations. The new guidance requires a disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. This guidance is effective for interim and annual periods beginning after December 15, 2014.

In May 2014, the FASB issued ASU No. 2014-09, 'Revenue From Contracts With Customers'. The new standard supersedes most current revenue recognition guidance and eliminates industry-specific guidance. The ASU is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. The ASU becomes effective for the Company at the beginning of its 2017 fiscal year; early adoption is not permitted. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

In June 2014, the FASB issued guidance on the accounting for stock compensation where share-based payment awards granted to employees required specific performance targets to be achieved in order for employees to become eligible to vest in the awards and such performance targets could be achieved after an employee completes the requisite service period. The amendment in this update requires a performance target that affects vesting and that could be achieved after the requisite service period to be treated as a performance condition. The guidance is applicable to the Company for interim and annual reporting periods beginning after December 15, 2015, although earlier adoption is permitted. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.

Recent Accounting Pronouncements Adopted During the Period
In July 2013, the FASB issued ASU No. 2013-11, 'Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists', a consensus of the FASB Emerging Issues Task Force which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward ('NOL'), or similar tax loss, or a tax credit carryforward exists. Such unrecognized tax benefits are required to be presented as a reduction of a deferred tax asset for a NOL or other tax credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed.

The Company adopted this guidance prospectively from January 1, 2014 and has not applied the amendments to the prior years. Upon adoption in the first quarter of 2014, other non-current liabilities and deferred tax assets were reduced by $21 million.


78

Notes to the financial statements

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Significant Accounting Policies
These consolidated financial statements conform to accounting principles generally accepted in the United States of America (‘US GAAP’). Presented below are summaries of significant accounting policies followed in the preparation of the consolidated financial statements.
Certain reclassifications have been made to prior year amounts to conform to current year presentation. In particular, effective from January 1, 2014, the Company has made changes to the presentation of certain items within the Consolidated Statements of Operations. Foreign exchange gains and losses, primarily from balance sheet revaluation, and gains and losses from the disposal of operations, previously reported within 'Total operating expenses', are now reported in a new Statement of Operations line item, 'Other income (expense), net', which is reported below the 'Operating income (loss)' line item. Prior period amounts have been reclassified to conform to this presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Willis Group Holdings and its subsidiaries, which are controlled through the ownership of a majority voting interest. Intercompany balances and transactions have been eliminated on consolidation.
Foreign Currency Translation
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.
Upon consolidation, the results of operations of subsidiaries and associates whose functional currency is other than the US dollar are translated into US dollars at the average exchange rate and assets and liabilities are translated at year-end exchange rates. Translation adjustments are presented as a separate component of other comprehensive income in the financial statements and are included in net income only upon sale or liquidation of the underlying foreign subsidiary or associated company.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the year. In the preparation of these consolidated financial statements, estimates and assumptions have been made by management concerning: the valuation of intangible assets and goodwill (including those acquired through business combinations); the selection of useful lives of fixed and intangible assets; impairment testing; provisions necessary for accounts receivable, commitments and contingencies and accrued liabilities; long-term asset returns, discount rates and mortality rates in order to estimate pension liabilities and pension expense; income tax valuation allowances; and other similar evaluations. Actual results could differ from the estimates underlying these consolidated financial statements.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of time deposits with original maturities of three months or less.
Fiduciary Assets and Fiduciary Liabilities
In its capacity as an insurance agent or broker, 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.
Fiduciary Assets
Fiduciary assets comprise Fiduciary Receivables and Fiduciary Funds.


79

Willis Group Holdings plc

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fiduciary Receivables
Fiduciary receivables represent uncollected premiums from insureds and uncollected claims or refunds from insurers.
Fiduciary Funds
Fiduciary funds represent unremitted premiums received from insureds and unremitted claims or refunds received from insurers. Fiduciary funds are generally required to be kept in certain regulated bank accounts subject to guidelines which emphasize capital preservation and liquidity. Such funds are not available to service the Company’s debt or for other corporate purposes. Notwithstanding the legal relationships with insureds and insurers, the Company is entitled to retain investment income earned on fiduciary funds in accordance with industry custom and practice and, in some cases, as supported by agreements with insureds.
The period for which the Company holds such funds is dependent upon the date the insured remits the payment of the premium to the Company, or the date the Company receives refunds from the insurers, and the date the Company is required to forward such payment to the insurer, or insured, respectively.
In certain instances, the Company advances premiums, refunds or claims to insurance underwriters or insureds prior to collection. Such advances are made from fiduciary funds and are reflected in the accompanying consolidated balance sheets as fiduciary assets.
Fiduciary Liabilities
Fiduciary liabilities represent the obligations to remit fiduciary funds and fiduciary receivables to insurers or insureds.
Accounts Receivable
Accounts receivable are stated at estimated net realizable values. Allowances are recorded, when necessary, in an amount considered by management to be sufficient to meet probable future losses related to uncollectible accounts.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Expenditures for improvements are capitalized; repairs and maintenance are charged to expenses as incurred. Depreciation is computed using the straight-line method based on the estimated useful lives of assets.
Depreciation on buildings and long leaseholds is calculated over the lesser of 50 years or the lease term. Depreciation on leasehold improvements is calculated over the lesser of the useful life of the assets or the remaining lease term. Depreciation on furniture and equipment is calculated based on a range of 3 to 10 years. Freehold land is not depreciated.
Recoverability of Fixed Assets
Long-lived assets are tested for recoverability whenever events or changes in circumstance indicate that their carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. Recoverability is determined based on the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Operating Leases
Rentals payable on operating leases are charged straight line to expenses over the lease term as the rentals become payable.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of businesses acquired over the fair value of identifiable net assets at the dates of acquisition. The Company reviews goodwill for impairment annually and whenever facts or circumstances indicate that the carrying amounts may not be recoverable. In testing for impairment, the fair value of each reporting unit is compared with its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the amount of an

80

Notes to the financial statements

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

impairment loss, if any, is calculated by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.
Acquired intangible assets are amortized over the following periods:
 
 
Expected
 
Amortization basis
life (years)
Acquired client relationships
In line with underlying cashflows
5 to 20
Acquired management contracts
Straight line
18
Other intangible assets
Straight line
3 to 10
Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.
Investments in Associates
Investments are accounted for using the equity method of accounting if the Company has the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an equity ownership in the voting stock of the investee between 20 and 50 percent, although other factors, such as representation on the Board of Directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under the equity method of accounting the investment is carried at cost of acquisition, plus the Company’s equity in undistributed net income since acquisition, less any dividends received since acquisition.
The Company periodically reviews its investments in associates for which fair value is less than cost to determine if the decline in value is other than temporary. If the decline in value is judged to be other than temporary, the cost basis of the investment is written down to fair value. The amount of any write-down is included in the statements of operations as a realized loss.
All other equity investments where the Company does not have the ability to exercise significant influence are accounted for by the cost method. Such investments are not publicly traded.
GS & Cie Groupe ('Gras Savoye') is the principal associate of the Company. It is France's leading insurance broker. The Company has a call option to purchase 100 percent of the capital of Gras Savoye, a decision on whether to exercise this or not will be taken by April 30, 2015, for exercise during 2016.
The carrying amount of the Gras Savoye investment as of December 31, 2014 includes interest bearing vendor loans and convertible bonds issued by Gras Savoye of $41 million and $106 million respectively (2013: $46 million and $110 million, respectively).
Derivative Financial Instruments
The Company uses derivative financial instruments for other than trading purposes to alter the risk profile of an existing underlying exposure. Interest rate swaps have been 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 evaluates whether its contracts include clauses or conditions which would be required to be separately accounted for at fair value as embedded derivatives.

81

Willis Group Holdings plc

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes
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 liabilities of changes in tax rates is recognized in the statement of operations in the period in which the change is enacted. Deferred tax assets are reduced through the establishment of a valuation allowance at such time as, based on available evidence, it is more likely than not that the deferred tax assets will not be realized. The Company adjusts valuation allowances to measure deferred tax assets at the amount considered realizable in future periods if the Company’s facts and assumptions change. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon examination. The Company recognizes the benefit of uncertain tax positions in the financial statements when it is more likely than not that the position will be sustained on examination by the tax authorities upon lapse of the relevant statute of limitations, or when positions are effectively settled. The benefit recognized is the largest amount of tax benefit that is greater than 50 percent likely to be realized on settlement with the tax authority, assuming full knowledge of the position and all relevant facts. The Company adjusts its recognition of these uncertain tax benefits in the period in which new information is available impacting either the recognition or measurement of its uncertain tax positions. Such adjustments are reflected as increases or decreases to income taxes in the period in which they are determined.
The Company recognizes interest and penalties relating to unrecognized tax benefits within income taxes.
Provisions for Liabilities
The Company is subject to various actual and potential claims, lawsuits and other proceedings. The Company records liabilities for such contingencies including legal costs when it is probable that a liability has been incurred before the balance sheet date and the amount can be reasonably estimated. To the extent such losses can be recovered under the Company’s insurance programs, estimated recoveries are recorded when losses for insured events are realized. Significant management judgment is required to estimate the amounts of such contingent liabilities and the related insurance recoveries. The Company analyzes its litigation exposure based on available information, including consultation with outside counsel handling the defense of these matters, to assess its potential liability. Contingent liabilities are not discounted.
Pensions
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 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 including a US non-qualified plan and an unfunded plan in the UK.. Elsewhere, pension benefits are typically provided through defined contribution plans.
Defined benefit plans
The net periodic cost of the Company’s defined benefit plans are measured on an actuarial basis using the projected unit credit method and several actuarial assumptions the most significant of which are the discount rate and the expected long-term rate of return on plan assets. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases and rates of employee termination. Gains and losses occur when actual experience differs from actuarial assumptions. If such gains or losses exceed ten percent of the greater of plan assets or plan liabilities the Company amortizes those gains or losses over the average remaining service period or average remaining life expectancy as appropriate of the plan participants.
In accordance with US GAAP the Company records on the balance sheet the funded status of its pension plans based on the projected benefit obligation.

82

Notes to the financial statements

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Defined contribution plans
Contributions to the Company’s defined contribution plans are recognized as they fall due. Differences between contributions payable in the year and contributions actually paid are shown as either other assets or other liabilities in the consolidated balance sheets.
Share-Based Compensation

The Company has equity-based compensation plans that provide for grants of restricted stock units and stock options
to employees and non-employee directors of the Company who perform services for the Company.

The Company expenses all equity-based compensation on a straight-line basis over the requisite service period based upon the fair value of the award on the date of grant, the estimated achievement of any performance targets and anticipated staff retention. The awards under equity-based compensation are classified as equity and included as a component of equity on the Company’s consolidated balance sheets, as the ultimate payment of such awards will not be achieved through use of the Company’s cash or other assets.

Revenue Recognition
Revenue includes insurance commissions, fees for services rendered, certain commissions receivable from insurance carriers, investment income and other income.
Brokerage income and fees negotiated in lieu of brokerage are recognized at the later of the policy inception date or when the policy placement is complete. Commissions on additional premiums and adjustments are recognized when approved by or agreed between the parties and collectability is reasonably assured.
Fees for risk management and other services are recognized as the services are provided. Consideration for negotiated fee arrangements for an agreed period covering multiple insurance placements, the provision of risk management and/or other services are allocated to all deliverables on the basis of their relative selling prices. The Company establishes contract cancellation reserves where appropriate: at December 31, 2014, 2013 and 2012, such amounts were not material.
Investment income is recognized as earned.
Other income comprises gains on disposal of intangible assets, which primarily arise from settlements through enforcing non-compete agreements in the event of losing accounts through producer defection or the disposal of books of business.

3.
EMPLOYEES
The average number of persons, including Executive Directors, employed by the Company is as follows:
 
Years ended December 31,
 
2014
 
2013
 
2012
Total average number of employees for the year
18,200

 
17,900

 
17,500





83

Willis Group Holdings plc

3. EMPLOYEES (Continued)

Salaries and benefits expense comprises the following:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Salaries and other compensation awards including amortization and write-off of cash retention awards of $10 million, $6 million and $416 million
$
2,069

 
$
1,953

 
$
2,258

Share-based compensation
52

 
42

 
32

Severance costs
8

 
32

 
6

Social security costs
147

 
135

 
133

Retirement benefits — defined benefit plan (income) expense
(17
)
 
(4
)
 
2

Retirement benefits — defined contribution plan expense
55

 
49

 
44

Total salaries and benefits expense
$
2,314

 
$
2,207

 
$
2,475


Severance Costs
Severance costs that have arisen in the normal course of business amounted to $8 million in the year ended December 31, 2014 (2013: $4 million; 2012: $6 million).
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 were eliminated.

4.
SHARE-BASED COMPENSATION
On December 31, 2014, the Company had a number of open share-based compensation plans, which provide for the grant of time-based options and performance-based options, time-based restricted stock units and performance-based restricted stock units, and various other share-based grants to employees. All of the Company’s share-based compensation plans under which any options, restricted stock units or other share-based grants are outstanding as at December 31, 2014 are described below. The compensation cost that has been recognized for those plans for the year ended December 31, 2014 was $52 million (2013: $42 million; 2012: $32 million). The total income tax benefit recognized in the statement of operations for share-based compensation arrangements for the year ended December 31, 2014 was $12 million (2013: $9 million; 2012: $9 million).

2012 Equity Incentive Plan

This plan, which was established on April 25, 2012, provides for the granting of incentive stock options, time-based or performance-based non-statutory stock options, share appreciation rights, 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. The Board of Directors also adopted a sub-plan under the 2012 plan to provide an employee sharesave scheme in the United Kingdom.
There are 13,776,935 shares available for grant under this plan. In addition, shares subject to awards that were granted under the Willis Group Holdings 2008 Share Purchase and Option Plan, that terminate, expire or lapse for any reason will be made available for future Awards under this Plan. Options are exercisable on a variety of dates, including from the second, third, fourth or fifth anniversary of grant. Unless terminated sooner by the Board of Directors, the 2012 Plan will expire 10 years after the date of its adoption. That termination will not affect the validity of any grants outstanding at that date.
2008 Share Purchase and Option Plan
This plan, which was established on April 23, 2008, provides for the granting of time and performance-based options, restricted stock units and various other share-based grants at fair market value to employees of the Company. The 2008 plan was

84

Notes to the financial statements

4. SHARE-BASED COMPENSATION (Continued)

terminated as at April 25, 2012 and no further grants will be made under this plan. Any shares available for grant under the 2008 plan were included in the 2012 Equity Incentive Plan availability.
Options are exercisable on a variety of dates, including from the third, fourth or fifth anniversary of grant.
Employee Stock Purchase Plans
The Company adopted the Willis Group Holdings 2001 North America Employee Share Purchase Plan, which expired on May 31, 2011 and the Willis Group Holdings 2010 North America Employee Stock Purchase Plan, which expires on May 31, 2020. These plans provide certain eligible employees in the United States and Canada the ability to contribute payroll deductions to the purchase of Willis Group Holdings plc shares at the end of each offering period.
Option Valuation Assumptions
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 the 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.
 
Years ended December 31,
 
2014
 
2013
 
2012
Expected volatility
18.7
%
 
24.7
%
 
32.1
%
Expected dividends
2.8
%
 
2.6
%
 
3.2
%
Expected life (years)
4

 
4

 
5

Risk-free interest rate
1.3
%
 
1.5
%
 
0.9
%


85

Willis Group Holdings plc

4. SHARE-BASED COMPENSATION (Continued)

A summary of option activity under the plans at December 31, 2014, and changes during the year then ended is presented below:
 
 
 
Weighted
Average
Exercise
 
Weighted
Average
Remaining
Contractual
 
Aggregate
Intrinsic
(Options in thousands)
Options
 
Price(i)
 
Term
 
Value
 
 
 
 
 
 
 
(millions)
Time-based stock options
 

 
 

 
 
 
 

Balance, beginning of year
7,983

 
$
35.95

 
 
 
 

Granted
1,069

 
$
41.00

 
 
 
 

Exercised
(2,795
)
 
$
34.65

 
 
 
 

Forfeited
(362
)
 
$
37.31

 
 
 
 

Expired
(212
)
 
$
36.05

 
 
 
 

Balance, end of year
5,683

 
$
37.45

 
5 years
 
$
42

Options vested or expected to vest at December 31, 2014
5,131

 
$
37.41

 
5 years
 
$
38

Options exercisable at December 31, 2014
2,712

 
$
35.84

 
4 years
 
$
24

Performance-based stock options
 

 
 

 
 
 
 

Balance, beginning of year
5,260

 
$
32.80

 
 
 
 

Exercised
(1,201
)
 
$
29.46

 
 
 
 

Forfeited
(392
)
 
$
33.86

 
 
 
 

Balance, end of year
3,667

 
$
33.78

 
3 years
 
$
40

Options vested or expected to vest at December 31, 2014
3,376

 
$
33.64

 
3 years
 
$
38

Options exercisable at December 31, 2014
2,829

 
$
32.81

 
3 years
 
$
34

_________________________________
(i) 
Certain options are exercisable in pounds sterling and are converted to dollars using the exchange rate at December 31, 2014.
The weighted average grant-date fair value of time-based options granted during the year ended December 31, 2014 was $5.33 (2013: $7.74; 2012: $6.98). The total intrinsic value of options exercised during the year ended December 31, 2014 was $22 million (2013: $32 million; 2012: $8 million). At December 31, 2014 there was $15 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under time-based stock option plans; that cost is expected to be recognized over a weighted average period of 2 years.
There were no performance-based options granted during the year ended December 31, 2014 or the year ended December 31, 2013. The weighted average grant-date fair value of performance-based options was $7.61 in the year ended December 31, 2012. The total intrinsic value of options exercised during the year ended December 31, 2014 was $15 million (2013: $14 million; 2012: $5 million). At December 31, 2014 there was $2 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under performance-based stock option plans; that cost is expected to be recognized over a weighted-average period of 1 year.

86

Notes to the financial statements

4. SHARE-BASED COMPENSATION (Continued)

A summary of restricted stock unit activity under the Plans at December 31, 2014, and changes during the year then ended is presented below:
 
 
 
Weighted
Average
Grant Date
(Units awarded in thousands)
Shares
 
Fair Value
Nonvested shares (restricted stock units)
 

 
 

Balance, beginning of year
2,929

 
$
38.71

Granted
1,750

 
$
43.03

Vested
(858
)
 
$
37.19

Forfeited
(327
)
 
$
37.62

Balance, end of year
3,494

 
$
41.35


The total number of restricted stock units vested during the year ended December 31, 2014 was 857,603 shares at an average share price of $44.09 (2013: 873,670 shares at an average share price of $41.10; 2012: 408,005 shares at an average price of $35.82). At December 31, 2014 there was $109 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements under the plan; that cost is expected to be recognized over a weighted average period of 2 years.
Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2014 was $134 million (2013: $155 million; 2012: $53 million). The actual tax benefit recognized for the tax deductions from option exercises of the share-based payment arrangements totaled $20 million for the year ended December 31, 2014 (2013: $28 million; 2012: $8 million).

5.
RESTRUCTURING COSTS

In April 2014, the Company announced a multi-year operational improvement program designed to strengthen the Company’s client service capabilities and to deliver future cost savings (hereinafter referred to as the Operational Improvement Program). The main elements of the program, which is expected to be completed by the end of 2017, include the following:

•
movement of more than 3,500 support roles from higher cost locations to Willis facilities in lower cost locations, bringing the ratio of employees in higher cost versus lower cost near-shore and off-shore centers from approximately 80:20 to approximately 60:40;
•
net workforce reductions in support positions;
•
lease consolidation in real estate and reductions in ratios of seats per employee and square footage of floor space per employee; and
•
information technology systems simplification and rationalization.

The program is expected to deliver cost savings of at least $420 million through 2017 and annual cost savings of $300 million starting 2018. To achieve these cost savings, the company is expecting to incur cumulative costs, including capital expenditure, of approximately $410 million through the end of 2017.

The Company recognized restructuring costs of $36 million in the year ended December 31, 2014, related to its Operational Improvement Program.








87

Willis Group Holdings plc
 
5. RESTRUCTURING COSTS (Continued)


An analysis of the cost for restructuring recognized in the statement of operations in the year ended December 31, 2014, is as follows:
 
Twelve months ended December 31, 2014
 
North America
 
International
 
Global
 
Corporate
 
Total
 
(millions)
Termination benefits
$
3

 
$
3

 
$
10

 
$
—

 
$
16

Professional services and other
—

 
2

 
1

 
17

 
20

Total
$
3

 
$
5

 
$
11

 
$
17

 
$
36



At December 31, 2014, the Company's liability under the Operational Improvement Program is as follows:

 
Termination Benefits
 
Professional Services and other
 
Total
 
(millions)
Balance at January 1, 2014
$
—

 
$
—

 
$
—

Charges incurred
16

 
20

 
36

Cash payments
(11
)
 
(14
)
 
(25
)
Balance at December 31, 2014
$
5

 
$
6

 
$
11




6.
AUDITORS’ REMUNERATION
An analysis of auditors’ remuneration is as follows:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Audit of group consolidated financial statements
$
5

 
$
4

 
$
4

Other assurance services
2

 
3

 
3

Other non-audit services
1

 
1

 
1

Total auditors’ remuneration
$
8

 
$
8

 
$
8



88

Notes to the financial statements

7.
OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following:

 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Gain (loss) on disposal of operations
$
12

 
$
2

 
$
(3
)
Impact of Venezuelan currency devaluation
(14
)
 
—

 
—

Foreign exchange gain
8

 
20

 
19

Other income (expense), net
$
6

 
$
22

 
$
16


8.
INCOME TAXES
An analysis of income from continuing operations before income taxes and interest in earnings of associates by location of the taxing jurisdiction is as follows:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Ireland
$
(65
)
 
$
(52
)
 
$
(47
)
United States
92

 
(11
)
 
(615
)
United Kingdom
154

 
282

 
25

Other jurisdictions
337

 
280

 
300

Income (loss) from continuing operations before income taxes and interest in earnings of associates
$
518

 
$
499

 
$
(337
)
The provision for income taxes by location of the taxing jurisdiction consisted of the following:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Current income taxes:
 

 
 

 
 

US federal tax
$
(16
)
 
$
7

 
$
3

US state and local taxes
7

 
3

 
1

UK corporation tax
29

 
28

 
2

Other jurisdictions
73

 
45

 
41

Total current taxes
93

 
83

 
47

Deferred taxes:
 

 
 

 
 

US federal tax
30

 
10

 
(44
)
US state and local taxes
10

 
1

 
(41
)
Effect of US valuation allowance
5

 
2

 
113

UK corporation tax
24

 
17

 
27

Other jurisdictions
(3
)
 
9

 
(1
)
Total deferred taxes
66

 
39

 
54

Total income taxes
$
159

 
$
122

 
$
101


89

Willis Group Holdings plc

8. INCOME TAXES (Continued)

The reconciliation between US federal income taxes at the statutory rate and the Company’s provision for income taxes on continuing operations is as follows:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions, except percentages)
Income (loss) from continuing operations before income taxes and interest in earnings of associates
$
518

 
$
499

 
$
(337
)
US federal statutory income tax rate
35
%
 
35
%
 
35
%
Income tax expense at US federal tax rate
181

 
175

 
(118
)
Adjustments to derive effective rate:
 

 
 

 
 

Non-deductible expenditure
21

 
19

 
15

Tax impact of internal restructurings
—

 
11

 
—

Movement in provision for unrecognized tax benefits
1

 
(1
)
 
6

Impairment of non-qualifying goodwill
—

 
—

 
137

Disposal of non-qualifying goodwill
11

 
—

 
—

Impact of change in tax rate on deferred tax balances
—

 
(4
)
 
(3
)
Adjustment in respect of prior periods
(2
)
 
1

 
6

Non-deductible Venezuelan foreign exchange loss
5

 
—

 
—

Effect of foreign exchange and other differences
(4
)
 
1

 
2

Changes in valuation allowances applied to deferred tax assets
7

 
—

 
114

Adjustments to eliminate the net tax effect of intra-group items
(30
)
 
(30
)
 
(31
)
Tax differentials of foreign earnings:
 

 
 

 
 

Foreign jurisdictions
(48
)
 
(54
)
 
(12
)
US state taxes and local taxes
17

 
4

 
(15
)
Provision for income taxes
$
159

 
$
122

 
$
101


Willis Group Holdings plc is a non-trading holding company tax resident in Ireland where it is taxed at the statutory rate of 25%. The provision for income tax on continuing operations has been reconciled above to the US federal statutory tax rate of 35% due to significant operations in the US.




















90

Notes to the financial statements

8. INCOME TAXES (Continued)

The significant components of deferred income tax assets and liabilities and their balance sheet classifications are as follows:
 
December 31,
 
2014
 
2013
 
(millions)
Deferred tax assets:
 

 
 

Accrued expenses not currently deductible
$
133

 
$
153

US state net operating losses
76

 
70

UK net operating losses
1

 
3

Other net operating losses
12

 
5

UK capital losses
39

 
43

Accrued retirement benefits
109

 
47

Deferred compensation
34

 
37

Stock options
22

 
25

Gross deferred tax assets
426

 
383

Less: valuation allowance
(280
)
 
(196
)
Net deferred tax assets
$
146

 
$
187

Deferred tax liabilities:
 

 
 

Cost of intangible assets, net of related amortization
$
149

 
$
120

Cost of tangible assets, net of related amortization
38

 
44

Prepaid retirement benefits
62

 
56

Accrued revenue not currently taxable
25

 
23

Financial derivative transactions
—

 
3

Deferred tax liabilities
274

 
246

Net deferred tax (liability) asset
$
(128
)
 
$
(59
)

 
December 31,
 
2014
 
2013
 
(millions)
Balance sheet classifications:
 

 
 

Current:
 

 
 

Deferred tax assets
$
12

 
$
15

Deferred tax liabilities
(21
)
 
(25
)
Net current deferred tax liabilities
(9
)
 
(10
)
Non-current:
 

 
 

Deferred tax assets
9

 
7

Deferred tax liabilities
(128
)
 
(56
)
Net non-current deferred tax liabilities
(119
)
 
(49
)
Net deferred tax liabilities
$
(128
)
 
$
(59
)
As a result of certain realization requirements of ASC 718 Compensation - Stock Compensation, the Company recognized $8 million of previously unrecognized deferred tax assets that arose directly from tax deductions related to equity compensation greater than compensation recognized for financial reporting. Equity was increased by this $8 million as of December 31, 2014.


91

Willis Group Holdings plc

8. INCOME TAXES (Continued)

At December 31, 2014, the Company had valuation allowances of $280 million (2013: $196 million) to reduce its deferred tax assets to estimated realizable value. The valuation allowances at December 31, 2014, relate to deferred tax assets arising from UK capital loss carryforwards ($39 million) and other net operating losses ($10 million), which have no expiration date, and to the deferred tax assets in the United States ($231 million). Included within US deferred tax assets are assets of $76 million in respect of US state net operating losses. These losses will expire as follows: $8 million from 2015 to 2018, $17 million from 2019 to 2023 and $51 million from 2024 to 2034. Capital loss carryforwards can only be offset against future UK capital gains.
 
Balance at
beginning of year
 
Additions/
(releases)
charged to
costs and expenses
 
Other movements
 
Foreign
exchange differences
 
Balance
at
end of year
Description
 
 
 
 
 
(millions)
Year Ended December 31, 2014
 

 
 

 
 

 
 

 
 

Deferred tax valuation allowance
$
196

 
$
17

 
$
67

 
$
—

 
$
280

Year Ended December 31, 2013
 

 
 

 
 

 
 

 
 

Deferred tax valuation allowance
221

 
15

 
(40
)
 
—

 
196

Year Ended December 31, 2012
 

 
 

 
 

 
 

 
 

Deferred tax valuation allowance
102

 
110

 
12

 
(3
)
 
221

The amount charged to tax expense in the table above differs from the effect of $7 million disclosed in the rate reconciliation primarily because the movement in this table includes effects of state taxes, which are disclosed separately in the rate reconciliation. The impact of Other movements is primarily recorded in other comprehensive income.
At December 31, 2014 the Company had deferred tax assets of $146 million (2013: $187 million), net of the valuation allowance. Management believes, based upon the level of historical taxable income and projections for future taxable income, it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are revised.
The Company recognizes deferred tax balances related to the undistributed earnings of subsidiaries when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. The Company does not, however, provide for income taxes on the unremitted earnings of certain other subsidiaries where, in management’s opinion, such earnings have been indefinitely reinvested in those operations, or will be remitted either in a tax free liquidation or as dividends with taxes substantially offset by foreign tax credits. It is not practical to determine the amount of unrecognized deferred tax liabilities for temporary differences related to these investments.
Unrecognized tax benefits
Total unrecognized tax benefits as at December 31, 2014, totaled $19 million. During the next 12 months it is reasonably possible that the Company will recognize approximately $1 million of tax benefits related to the release of provisions for potential inter company pricing adjustments no longer required due to either settlement through negotiation or closure of the statute of limitations on assessment.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
 
2014
 
2013
 
2012
 
(millions)
Balance at January 1
$
41

 
$
37

 
$
16

Reductions due to a lapse of the applicable statute of limitation
—

 
(5
)
 
(3
)
Increases for positions taken in current period
5

 
9

 
8

(Decreases) increases for positions taken in prior periods
(26
)
 
—

 
16

Other movements
(1
)
 
—

 
—

Balance at December 31
$
19

 
$
41

 
$
37



92

Notes to the financial statements

8. INCOME TAXES (Continued)

$19 million of the unrecognized tax benefits at December 31, 2014 would, if recognized, favorably affect the effective tax rate in future periods.
The Company files tax returns in the various tax jurisdictions in which it operates. US tax returns have been filed timely. 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. The Company extended the federal statute of limitations for assessment in the United States for the 2010 year until March 15, 2015.
All UK tax returns have been filed timely and are in the normal process of being reviewed, by HM Revenue & Customs. There are no material ongoing inquiries in relation to filed UK returns. In other tax jurisdictions the Company is currently not subject to any examinations for any year prior to 2004.


9.
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing net income (loss) attributable to Willis Group Holdings by the average number of shares outstanding during each period. The computation of diluted earnings per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue shares were exercised or converted into shares or resulted in the issue of shares that then shared in the net income of the Company.
In periods where losses are reported the weighted average shares outstanding excludes potentially issuable shares described above, because their inclusion would be anti-dilutive.
For the year ended December 31, 2014, time-based and performance-based options to purchase 5.7 million and 3.7 million shares (2013: 8.0 million and 5.3 million; 2012: 10.2 million and 6.5 million), respectively, and 3.5 million restricted stock units (2013: 2.9 million; 2012: 2.5 million) were outstanding.
Basic and diluted earnings per share are as follows:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions, except per share data)
Net income (loss) attributable to Willis Group Holdings
$
362

 
$
365

 
$
(446
)
Basic weighted average number of shares outstanding
178

 
176

 
173

Dilutive effect of potentially issuable shares
3

 
3

 
—

Diluted weighted average number of shares outstanding
181

 
179

 
173

Basic earnings per share:
 

 
 

 
 

Net income (loss) attributable to Willis Group Holdings shareholders
$
2.03

 
$
2.07

 
$
(2.58
)
Dilutive effect of potentially issuable shares
(0.03
)
 
(0.03
)
 
—

Diluted earnings per share:
 

 
 

 
 

Net income (loss) attributable to Willis Group Holdings shareholders
$
2.00

 
$
2.04

 
$
(2.58
)
Options to purchase 2.4 million shares and 1.5 million restricted stock units for the year ended December 31, 2014, were not included in the computation of the dilutive effect of stock options because the effect was antidilutive (2013: 2.1 million shares and 1.3 million restricted stock units; 2012: 16.7 million shares and 2.5 million restricted stock units).


93

Willis Group Holdings plc


10.
ACQUISITIONS
During the years ended December 31, 2014 and 2013 we made the following material acquisitions in line with our strategy to invest in targeted acquisitions with a focus on earnings accretion, competitive position, and fit.
Max Matthiessen Holding AB
In the fourth quarter of 2014, the Company acquired 75.8 percent of Max Matthiessen Holding AB and subsidiaries (collectively referred to as Max Matthiessen), a leading employee benefits adviser in Sweden, for cash consideration of $204 million.
On acquisition the Company recognized acquired intangible assets of $134 million of which $56 million was in relation to client relationships and $76 million was in relation to fund management contracts, which are being amortized over 12 years and 18 years respectively. The remaining $2 million of intangible assets relate to the Max Matthiessen trade name and is being amortized over 4 years.
Goodwill of $139 million was recognized on the transaction.
Charles Monat Limited
In the second quarter of 2014, the Company acquired 100 percent of Charles Monat Limited and its subsidiaries (collectively referred to as Charles Monat), a life insurance solutions adviser to high net worth clients based in Hong Kong, for cash consideration of $59 million.
Additional consideration estimated at $29 million is payable in annual installments over the next 5 years, based on a multiple of EBITDA of the entities acquired, during the period from May 25, 2014 until September 2, 2019. This consideration has been assessed to have a fair value of $12 million at the date of acquisition.
On acquisition the Company recognized acquired intangible assets of $35 million of which $27 million was in respect of client relationships, which are being amortized over an expected life of 11 years. The remaining $8 million of intangible assets relate to carrier relationships and trade names and are both being amortized over 5 years.
Goodwill of $31 million was recognized on the transaction.
Prime Professions Ltd
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, for cash consideration of $29 million. Additional consideration of up to approximately $2 million is payable in 2015 based on the achievement of certain revenue targets.
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 client 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.
The aggregate costs incurred related to the above acquisitions for the year ended December 31, 2014 was $3 million (2013: $1 million)
In addition to the above acquisitions, the Company completed a number of smaller acquisitions during 2014 for aggregated consideration of $27 million and consequently recognised intangible assets of $16 million and goodwill of $14 million.



94

Notes to the financial statements

11.
FIXED ASSETS, NET
An analysis of fixed asset activity for the years ended December 31, 2014 and 2013 are as follows:
 
Land and
buildings (i)
 
Leasehold
improvements
 
Furniture and
equipment
 
Total
 
(millions)
Cost: at January 1, 2013
$
78

 
$
227

 
$
576

 
$
881

Additions
10

 
22

 
80

 
112

Disposals
—

 
(7
)
 
(43
)
 
(50
)
Foreign exchange
1

 
—

 
5

 
6

Cost: at December 31, 2013
89

 
242

 
618

 
949

Additions
7

 
25

 
84

 
116

Disposals
—

 
(12
)
 
(29
)
 
(41
)
Foreign exchange
(3
)
 
(10
)
 
(31
)
 
(44
)
Cost: at December 31, 2014
$
93

 
$
245

 
$
642

 
$
980

 
 
 
 
 
 
 
 
Depreciation: at January 1, 2013
$
(32
)
 
$
(75
)
 
$
(306
)
 
$
(413
)
Depreciation expense provided
(3
)
 
(18
)
 
(73
)
 
(94
)
Disposals
—

 
6

 
36

 
42

Foreign exchange
(1
)
 
—

 
(2
)
 
(3
)
Depreciation: at December 31, 2013
(36
)
 
(87
)
 
(345
)
 
(468
)
Depreciation expense provided
(4
)
 
(20
)
 
(68
)
 
(92
)
Disposals
—

 
10

 
28

 
38

Foreign exchange
2

 
4

 
19

 
25

Depreciation: at December 31, 2014
$
(38
)
 
$
(93
)
 
$
(366
)
 
$
(497
)
Net book value:
 

 
 

 
 

 
 

At December 31, 2013
$
53

 
$
155

 
$
273

 
$
481

 
 
 
 
 
 
 
 
At December 31, 2014
$
55

 
$
152

 
$
276

 
$
483

_________________________________
(i) 
Included within land and buildings are assets held under capital leases: At December 31, 2014, cost and accumulated depreciation were $32 million and $8 million respectively (2013: $31 million and $6 million, respectively; 2012: $25 million and $4 million respectively). Depreciation in the year ended December 31, 2014 was $2 million (2013: $2 million; 2012: $1 million).



95

Notes to the financial statements

12.
GOODWILL
Goodwill represents the excess of the cost of businesses acquired over the fair value of identifiable net assets at the dates of acquisition. Goodwill is not amortized but is subject to impairment testing annually and whenever facts or circumstances indicate that the carrying amounts may not be recoverable.
The Company has determined that its reporting units are consistent with its 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. When a business entity is sold, goodwill is allocated to the disposed entity based on the fair value of that entity compared to the fair value of the reporting unit in which it is included.
The changes in the carrying amount of goodwill by reporting unit for the years ended December 31, 2014 and 2013, are as follows:
 
Global
 
North
America
 
International
 
Total
 
(millions)
Balance at January 1, 2013
 
 
 
 
 
 
 
Goodwill, gross
$
1,127

 
$
1,792

 
$
400

 
$
3,319

Accumulated impairment losses
—

 
(492
)
 
—

 
(492
)
Goodwill, net
1,127

 
1,300

 
400

 
2,827

Purchase price allocation adjustments
—

 
(1
)
 
—

 
(1
)
Goodwill acquired during the year
15

 
—

 
1

 
16

Goodwill disposed of during the year
—

 
(14
)
 
—

 
(14
)
Other movements
—

 
(1
)
 
—

 
(1
)
Foreign exchange
3

 
—

 
8

 
11

Balance at December 31, 2013
 
 
 
 
 
 
 
Goodwill, gross
1,145

 
1,776

 
409

 
3,330

Accumulated impairment losses
—

 
(492
)
 
—

 
(492
)
Goodwill, net
$
1,145

 
$
1,284

 
$
409

 
$
2,838

Purchase price allocation adjustments
3

 
3

 
7

 
13

Goodwill acquired during the year
5

 
—

 
179

 
184

Goodwill disposed of during the year
—

 
(48
)
 
—

 
(48
)
Other movements (i)
88

 
(45
)
 
(43
)
 
—

Foreign exchange
(7
)
 
—

 
(43
)
 
(50
)
Balance at December 31, 2014
 
 
 
 
 
 
 
Goodwill, gross
1,234

 
1,686

 
509

 
3,429

Accumulated impairment losses
—

 
(492
)
 
—

 
(492
)
Goodwill, net
$
1,234

 
$
1,194

 
$
509

 
$
2,937

_________________________________
(i) 
Effective January 1, 2014, the Company changed its internal reporting structure: UK Retail, previously reported within the International segment, is now reported within the Global segment; Mexico Retail, which was previously reported within the North America segment, is now reported in the International segment; and the US captive consulting and facultative reinsurance businesses, both previously reported within the North America segment, are now reported within the Global segment. As a consequence of these changes goodwill has been reallocated between reporting units using the relative fair value allocation approach.

Impairment Review
The Company reviews goodwill for impairment annually, or whenever events of circumstances indicate impairment may have occurred. In the first step of the impairment test, the fair value of each reporting unit is compared with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, the amount of an impairment loss, if any, is

96

Willis Group Holdings plc

12. GOODWILL (Continued)

calculated in the second step of the impairment test by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.
The Company's goodwill impairment test for 2014 has not resulted in an impairment charge (2013: $nil; 2012: $492 million).
In 2012, as a consequence of the Company's annual goodwill impairment test performed as of October 1, 2012, the Company concluded that a pre-tax impairment charge of $492 million was required to reduce the carrying value of the goodwill associated with the Company's North America reporting unit from $1,782 million to its implied fair value of $1,290 million. The Company used the income approach to measure the fair value of the North America reporting unit, which involved calculating the fair value of the reporting unit based on the present value of the estimated future cash flows. Cash flow 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 business's ability to execute on the projected cash flows. The discount rate used was based on the weighted-average cost of capital adjusted for the relevant risk associated with market participant expectations of characteristics of the reporting unit. The unobservable inputs included projected revenue growth rates, profitability and the market participant assumptions within the discount rate. 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 discounted cash flows. As a consequence of the significance of unobservable inputs developed using company-specific information, the re-measurement of goodwill for this reporting unit is classified as a non-recurring level 3 fair value assessment.

13.
OTHER INTANGIBLE ASSETS, NET
Other intangible assets are classified into the following categories:
•
Client Relationships
•
Management Contracts
•
Other, including:
•
non-compete agreements
•
trade names
•
contract based, technology and other
The major classes of amortizable intangible assets are as follows:
 
December 31, 2014
 
December 31, 2013
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying amount
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying amount
 
(millions)
Client relationships
$
689

 
$
(316
)
 
$
373

 
$
671

 
$
(326
)
 
$
345

Management contracts
71

 
(1
)
 
70

 
—

 
—

 
—

Other
11

 
(4
)
 
7

 
14

 
(6
)
 
8

Total amortizable intangible assets
$
771

 
$
(321
)
 
$
450

 
$
685

 
$
(332
)
 
$
353

The aggregate amortization of intangible assets for the year ended December 31, 2014 was $54 million (2013: $55 million; 2012: $59 million). The estimated aggregate amortization of intangible assets for each of the next five years ended December 31 is as follows:
 
(millions)
2015
$
57

2016
51

2017
46

2018
41

2019
37

Thereafter
218

Total
$
450




97

Willis Group Holdings plc


14.
OTHER ASSETS
An analysis of other assets is as follows:
 
December 31,
 
2014
 
2013
 
(millions)
Other current assets
 
 
 

Prepayments and accrued income
$
81

 
$
73

Income taxes receivable
30

 
32

Deferred compensation plan assets
17

 
26

Other receivables
86

 
66

Total other current assets
$
214

 
$
197

Other non-current assets
 

 
 

Deferred compensation plan assets
$
92

 
$
88

Income taxes receivable
—

 
21

Accounts receivable, net
29

 
28

Other investments
29

 
19

Other receivables
70

 
50

Total other non-current assets
$
220

 
$
206

Total other assets
$
434

 
$
403


15.
OTHER LIABILITIES
An analysis of other liabilities is as follows:
 
December 31,
 
2014
 
2013
 
(millions)
Other current liabilities
 

 
 

Accounts payable
$
131

 
$
123

Accrued dividends payable
55

 
51

Other taxes payable
44

 
51

Deferred compensation plan liability
17

 
26

Other payables
197

 
164

Total other current liabilities
$
444

 
$
415

Other non-current liabilities
 

 
 

Incentives from lessors
$
171

 
$
183

Deferred compensation plan liability
92

 
89

Contingent or deferred consideration on acquisition
26

 
13

Accounts payable
14

 
6

Income taxes payable
15

 
40

Other payables
71

 
43

Total other non-current liabilities
$
389

 
$
374

Total other liabilities
$
833

 
$
789



98

Notes to the financial statements

16.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at estimated net realizable values. The allowances shown below as at the end of each period, are recorded as the amounts considered by management to be sufficient to meet probable future losses related to uncollectible accounts.
 
Balance at
beginning of year
 
Additions/
(releases)
charged to
costs and expenses
 
Deductions
/ Other movements
 
Foreign
exchange differences
 
Balance at
end of year
Description
 
 
 
 
 
 
 
 
 
 
(millions)
Year Ended December 31, 2014
 

 
 

 
 

 
 

 
 

Allowance for doubtful accounts
$
13

 
$
4

 
$
(6
)
 
$
1

 
$
12

Year Ended December 31, 2013
 

 
 

 
 

 
 

 
 

Allowance for doubtful accounts
$
14

 
$
3

 
$
(4
)
 
$
—

 
$
13

Year Ended December 31, 2012
 

 
 

 
 

 
 

 
 

Allowance for doubtful accounts
$
13

 
$
16

 
$
(15
)
 
$
—

 
$
14


17.
PENSION PLANS
The Company maintains two principal defined benefit pension plans that cover approximately half of the Company's employees in the United States and United Kingdom. Both of these plans are now closed to new entrants and with effect from May 15, 2009, the Company closed the US defined benefit plan to future accrual. 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 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 including a US non-qualified plan and an unfunded plan in the UK. Elsewhere, pension benefits are typically provided through defined contribution plans. It is the Company’s policy to fund pension costs as required by applicable laws and regulations.
At December 31, 2014, the Company recorded, on the Consolidated Balance Sheets:

•
a pension benefit asset of $314 million (2013: $278 million) representing:

•
$314 million (2013: $276 million) in respect of the UK defined benefit pension plan; and

•
$nil (2013: $2 million) in respect of the international defined benefit pension plans.

•
a total liability for pension benefits of $284 million (2013: $136 million) representing:

•
$245 million (2013: $107 million) in respect of the US defined benefit pension plan; and

•
$39 million (2013: $29 million) in respect of the international, US non-qualified and UK unfunded defined benefit pension plans.

99

Willis Group Holdings plc

17. PENSION PLANS (Continued)

UK and US defined benefit plans
The following schedules provide information concerning the Company’s UK and US defined benefit pension plans as of and for the years ended December 31:
 
UK Pension Benefits
 
US Pension Benefits
 
2014
 
2013
 
2014
 
2013
 
(millions)
Change in benefit obligation:
 

 
 

 
 

 
 

Benefit obligation, beginning of year
$
2,785

 
$
2,582

 
$
864

 
$
958

Service cost
41

 
37

 
—

 
—

Interest cost
121

 
109

 
40

 
38

Employee contributions
2

 
2

 
—

 
—

Actuarial loss (gain)
390

 
79

 
183

 
(81
)
Curtailment gain
(2
)
 
—

 
—

 
—

Benefits paid
(85
)
 
(78
)
 
(36
)
 
(51
)
Foreign currency changes
(168
)
 
54

 
—

 
—

Benefit obligations, end of year
3,084

 
2,785

 
1,051

 
864

Change in plan assets:
 

 
 

 
 

 
 

Fair value of plan assets, beginning of year
3,061

 
2,716

 
757

 
708

Actual return on plan assets
520

 
255

 
65

 
60

Employee contributions
2

 
2

 
—

 
—

Employer contributions
91

 
100

 
20

 
40

Benefits paid
(85
)
 
(78
)
 
(36
)
 
(51
)
Foreign currency changes
(191
)
 
66

 
—

 
—

Fair value of plan assets, end of year
3,398

 
3,061

 
806

 
757

Funded status at end of year
$
314

 
$
276

 
$
(245
)
 
$
(107
)
Components on the Consolidated Balance Sheets:
 

 
 

 
 

 
 

Pension benefits asset
$
314

 
$
276

 
$
—

 
$
—

Liability for pension benefits
—

 
—

 
(245
)
 
(107
)

Amounts recognized in accumulated other comprehensive loss consist of:
 
UK Pension Benefits
 
US Pension Benefits
 
2014
 
2013
 
2014
 
2013
 
 
 
(millions)
 
 
Net actuarial loss
$
809

 
$
815

 
$
399

 
$
233

Prior service gain
(20
)
 
(24
)
 
—

 
—

The accumulated benefit obligations for the Company’s UK and US defined benefit pension plans were $3,017 million and $1,051 million, respectively (2013: $2,701 million and $864 million, respectively).

100

Notes to the financial statements

17. PENSION PLANS (Continued)

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:
 
Years ended December 31,
 
UK Pension Benefits
 
US Pension Benefits
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
 
 
 
 
(millions)
 
 
 
 
Components of net periodic benefit (income) cost:
 

 
 

 
 

 
 

 
 

 
 

Service cost
$
41

 
$
37

 
$
35

 
$
—

 
$
—

 
$
—

Interest cost
121

 
109

 
108

 
40

 
38

 
41

Expected return on plan assets
(213
)
 
(191
)
 
(181
)
 
(54
)
 
(51
)
 
(46
)
Amortization of unrecognized prior service gain and curtailment gain
(4
)
 
(5
)
 
(6
)
 
—

 
—

 
—

Amortization of unrecognized actuarial loss
42

 
45

 
39

 
6

 
9

 
8

Net periodic benefit (income) cost
$
(13
)
 
$
(5
)
 
$
(5
)
 
$
(8
)
 
$
(4
)
 
$
3

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
 

 
 

 
 

 
 

 
 

 
 

Net actuarial loss (gain)
$
83

 
$
15

 
$
141

 
$
172

 
$
(90
)
 
$
37

Amortization of unrecognized actuarial loss
(42
)
 
(45
)
 
(39
)
 
(6
)
 
(9
)
 
(8
)
Amortization of unrecognized prior service gain and curtailment gain
4

 
5

 
6

 
—

 
—

 
—

Curtailment gain
(2
)
 
—

 
—

 
—

 
—

 
—

Total recognized in other comprehensive income (loss)
$
43

 
$
(25
)
 
$
108

 
$
166

 
$
(99
)
 
$
29

Total recognized in net periodic benefit cost and other comprehensive income (loss)
$
30

 
$
(30
)
 
$
103

 
$
158

 
$
(103
)
 
$
32


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:
 
UK Pension
Benefits
 
US Pension
Benefits
 
(millions)
Estimated net loss
$
39

 
$
11

Prior service gain
(3
)
 
—



101

Willis Group Holdings plc

17. PENSION PLANS (Continued)

The following schedule provides other information concerning the Company’s UK and US defined benefit pension plans:
 
Years ended December 31,
 
UK Pension Benefits
 
US Pension Benefits
 
2014
 
2013
 
2014
 
2013
Weighted-average assumptions to determine benefit obligations:
 

 
 

 
 

 
 

Discount rate
3.6
%
 
4.4
%
 
3.9
%
 
4.8
%
Rate of compensation increase
2.9
%
 
3.2
%
 
N/A

 
N/A

Weighted-average assumptions to determine net periodic benefit cost:
 

 
 

 
 

 
 

Discount rate
4.4
%
 
4.4
%
 
4.8
%
 
4.1
%
Expected return on plan assets
7.0
%
 
7.3
%
 
7.3
%
 
7.3
%
Rate of compensation increase
3.2
%
 
2.3
%
 
N/A

 
N/A

The expected return on plan assets was determined on the basis of the weighted-average of the expected future returns of the various asset classes, using the target allocations shown below. The expected returns on UK plan assets are: UK and foreign equities 8.86 percent, debt securities 4.38 percent, hedge funds 8.38 percent and real estate 6.53 percent. The expected returns on US plan assets are: US and foreign equities 11.0 percent and debt securities 3.6 percent.
The Company’s pension plan asset allocations based on fair values were as follows:
 
 
Years ended December 31,
 
 
UK Pension Benefits
 
US Pension Benefits
Asset Category
 
2014
 
2013
 
2014
 
2013
Equity securities
 
34
%
 
36
%
 
48
%
 
52
%
Debt securities
 
45
%
 
38
%
 
49
%
 
46
%
Hedge funds
 
14
%
 
17
%
 
—
%
 
—
%
Real estate
 
3
%
 
3
%
 
—
%
 
—
%
Cash
 
4
%
 
6
%
 
—
%
 
—
%
Other
 
—
%
 
—
%
 
3
%
 
2
%
Total
 
100
%
 
100
%
 
100
%
 
100
%

In the United Kingdom, 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 (36.5 percent), debt securities (43.5 percent), hedge funds (15 percent) and real estate (5 percent). In the United States, 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 18 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).
Fair Value Hierarchy
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value:
•
Level 1: refers to fair values determined based on quoted market prices in active markets for identical assets;
•
Level 2: refers to fair values estimated using observable market based inputs or unobservable inputs that are corroborated by market data; and
•
Level 3: includes fair values estimated using unobservable inputs that are not corroborated by market data.

102

Notes to the financial statements

17. PENSION PLANS (Continued)

The following tables present, at December 31, 2014 and 2013, for each of the fair value hierarchy levels, the Company’s UK pension plan assets that are measured at fair value on a recurring basis.
 
 
UK Pension Plan
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
(millions)
 
 
Equity securities:
 
 

 
 

 
 

 
 

US equities
 
$
565

 
$
185

 
$
—

 
$
750

UK equities
 
234

 
15

 
—

 
249

Other equities
 
26

 
124

 
—

 
150

Fixed income securities:
 
 

 
 

 
 

 
 

US Government bonds
 
81

 
2

 
—

 
83

UK Government bonds
 
783

 
6

 
—

 
789

Other Government bonds
 
3

 
3

 
99

 
105

UK corporate bonds
 
—

 
103

 
—

 
103

Other corporate bonds
 
113

 
33

 
—

 
146

Derivatives
 
—

 
293

 
—

 
293

Real estate
 
—

 
—

 
124

 
124

Cash and cash equivalents
 
124

 
13

 
—

 
137

Other investments:
 
 

 
 

 
 

 
 

Hedge funds
 
—

 
—

 
487

 
487

Other
 
—

 
(18
)
 
—

 
(18
)
Total
 
$
1,929

 
$
759

 
$
710

 
$
3,398


 
 
UK Pension Plan
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
(millions)
 
 
Equity securities:
 
 

 
 

 
 

 
 

US equities
 
$
659

 
$
81

 
$
—

 
$
740

UK equities
 
239

 
17

 
—

 
256

Other equities
 
40

 
63

 
—

 
103

Fixed income securities:
 
 

 
 

 
 

 
 

US Government bonds
 
31

 
—

 
—

 
31

UK Government bonds
 
656

 
—

 
—

 
656

Other Government bonds
 
7

 
—

 
100

 
107

UK corporate bonds
 
75

 
—

 
—

 
75

Other corporate bonds
 
151

 
—

 
—

 
151

Derivatives
 
—

 
154

 
—

 
154

Real estate
 
—

 
—

 
92

 
92

Cash and cash equivalents
 
163

 
—

 
—

 
163

Other investments:
 
 

 
 

 
 

 
 

Hedge funds
 
—

 
28

 
477

 
505

Other
 
—

 
28

 
—

 
28

Total
 
$
2,021

 
$
371

 
$
669

 
$
3,061


103

Willis Group Holdings plc

17. PENSION PLANS (Continued)

The UK plan’s real estate investment comprises UK property and infrastructure investments which are valued by the fund manager taking into account cost, independent appraisals and market based comparable data. The UK plan’s hedge fund investments are primarily invested in various ‘fund of funds’ and are valued based on net asset values calculated by the fund and are not publicly available. Liquidity is typically monthly and is subject to liquidity of the underlying funds. The UK plan’s Other Government Bonds investments are primarily invested in investment-grade emerging and developed market government bonds. Funds are valued on a net asset value basis, with the underlying bond instruments being valued using bid-side, clean pricing from approved pricing vendors. Prices are not publicly available.
The following tables present, at December 31, 2014 and 2013, for each of the fair value hierarchy levels, the Company’s US pension plan assets that are measured at fair value on a recurring basis.
 
 
US Pension Plan
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
(millions)
 
 
Equity securities:
 
 

 
 

 
 

 
 

US equities
 
$
115

 
$
117

 
$
—

 
$
232

Non US equities
 
110

 
44

 
—

 
154

Fixed income securities:
 
 

 
 

 
 

 
 

US Government bonds
 
—

 
72

 
—

 
72

US corporate bonds
 
—

 
171

 
—

 
171

International fixed income securities
 
59

 
42

 
—

 
101

Municipal & Non US government bonds
 
—

 
32

 
—

 
32

Other investments:
 
 

 
 

 
 

 
 

Mortgage backed securities
 
—

 
16

 
—

 
16

Other
 
20

 
8

 
—

 
28

Total
 
$
304

 
$
502

 
$
—

 
$
806


 
 
US Pension Plan
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
(millions)
 
 
Equity securities:
 
 

 
 

 
 

 
 

US equities
 
$
120

 
$
125

 
$
—

 
$
245

Non US equities
 
116

 
33

 
—

 
149

Fixed income securities:
 
 

 
 

 
 

 
 

US Government bonds
 
—

 
55

 
—

 
55

US corporate bonds
 
—

 
151

 
—

 
151

International fixed income securities
 
58

 
42

 
—

 
100

Municipal & Non US government bonds
 
—

 
30

 
—

 
30

Other investments:
 
 

 
 

 
 

 
 

Mortgage backed securities
 
—

 
12

 
—

 
12

Other
 
9

 
6

 
—

 
15

Total
 
$
303

 
$
454

 
$
—

 
$
757





104

Notes to the financial statements

17. PENSION PLANS (Continued)

Equity securities comprise:
•
ordinary shares and preferred shares which are valued using quoted market prices; and
•
pooled investment vehicles which are valued at their net asset values as calculated by the investment manager and typically have daily or weekly liquidity.
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. Certain of these investments are classified as Level 2 investments on the basis that the assets are valued at their net asset values calculated by the investment manager and liquidity is not daily.

Level 3 investments
As a result of the inherent limitations related to the valuations of the Level 3 investments, due to the unobservable inputs of the underlying funds, the estimated fair value may differ significantly from the values that would have been used had a market for those investments existed.
The following table summarizes the changes in the UK pension plan’s Level 3 assets for the years ended December 31, 2014 and 2013:
 
UK Pension
 
Plan
 
Level 3
 
(millions)
Balance at January 1, 2013
$
507

Purchases, sales, issuances and settlements, net
121

Unrealized and realized gains relating to instruments still held at end of year
29

Foreign exchange
12

Balance at December 31, 2013
$
669

Purchases, sales, issuances and settlements, net
40

Unrealized and realized gains relating to instruments still held at end of year
24

Foreign exchange
(23
)
Balance at December 31, 2014
$
710


In 2015, the Company expects to make contributions to the UK plan of approximately $96 million and $10 million to the US plan. In addition, approximately $10 million will be paid in 2015 into the UK defined benefit plan related to employee's salary sacrifice contributions.
The following benefit payments, which reflect expected future service, as appropriate, are estimated to be paid by the UK and US defined benefit pension plans:
Expected future benefit payments
 
UK Pension Benefits
 
US Pension Benefits
 
 
(millions)
2015
 
83

 
41

2016
 
84

 
43

2017
 
87

 
46

2018
 
89

 
49

2019
 
92

 
51

2019-2023
 
505

 
284


105

Willis Group Holdings plc

17. PENSION PLANS (Continued)

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. The Company did not make any matching contributions in any year presented 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 2014 were $15 million (2013: $15 million; 2012: $10 million), matching contributions were increased 1 percent during 2013.

Other defined benefit pension plans
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 United States and an unfunded defined benefit pension plan in the United Kingdom.
For disclosure purposes these smaller additional US and UK plans are combined with the Company's other defined benefit pension plans in the tables below.
In total, a $39 million net pension benefit liability (2013: $27 million) has been recognized in respect of these other schemes.
The following schedules provide information concerning the Company’s international, US non-qualified and UK unfunded defined benefit pension plans:
 
Other defined benefit plans
 
2014
 
2013
 
(millions)
Change in benefit obligation:
 

 
 

Benefit obligation, beginning of year
$
195

 
$
180

Service cost
3

 
3

Interest cost
7

 
7

Actuarial loss (gain)
38

 
(5
)
Benefits paid
(9
)
 
(6
)
Reclassification from other non-current liabilities (i)
—

 
10

Foreign currency changes
(24
)
 
6

Benefit obligations, end of year
210

 
195

Change in plan assets:
 

 
 

Fair value of plan assets, beginning of year
168

 
150

Actual return on plan assets
25

 
9

Employer contributions
11

 
10

Benefits paid
(9
)
 
(6
)
Foreign currency changes
(24
)
 
5

Fair value of plan assets, end of year
171

 
168

Funded status at end of year
$
(39
)
 
$
(27
)
Components on the Consolidated Balance Sheets:
 

 
 

Pension benefits asset
$
—

 
$
2

Liability for pension benefits
$
(39
)
 
$
(29
)
_________________________________
(i)
Represents the transfer in of the benefit obligation for UK unfunded plan from non-current other liabilities.

Amounts recognized in accumulated other comprehensive loss consist of a net actuarial loss of $42 million (2013: $27 million).

106

Notes to the financial statements

17. PENSION PLANS (Continued)

The accumulated benefit obligation for the Company’s other defined benefit pension plans was $203 million (2013: $191 million).
The components of the net periodic benefit cost and other amounts recognized in other comprehensive loss for the other defined benefit pension plans are as follows:
 
Other defined benefit plans
 
2014
 
2013
 
2012
 
(millions)
Components of net periodic benefit cost:
 

 
 

 
 

Service cost
$
3

 
$
3

 
$
3

Interest cost
7

 
7

 
7

Expected return on plan assets
(6
)
 
(6
)
 
(6
)
Amortization of unrecognized actuarial loss
—

 
1

 
—

Net periodic benefit cost
$
4

 
$
5

 
$
4

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
 

 
 

 
 

Amortization of unrecognized actuarial loss
$
—

 
$
(1
)
 
$
—

Net actuarial loss (gain)
19

 
(8
)
 
25

Total recognized in other comprehensive loss (income)
19

 
(9
)
 
25

Total recognized in net periodic benefit cost and other comprehensive loss (income)
$
23

 
$
(4
)
 
$
29


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 $1 million.
The following schedule provides other information concerning the Company’s other defined benefit pension plans:
 
Other defined benefit plans
 
2014
 
2013
Weighted-average assumptions to determine benefit obligations:
 
 
 
Discount rate
2.00% - 3.60%
 
3.30% - 4.40%
Rate of compensation increase
2.00% - 3.50%
 
2.00% - 2.50%
Weighted-average assumptions to determine net periodic benefit cost:
 
 
 
Discount rate
3.30% - 4.40%
 
2.50% - 4.40%
Expected return on plan assets
2.00% - 4.66%
 
 2.00% - 4.66%
Rate of compensation increase
2.00% - 2.50%
 
2.00% - 2.50%

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, 2014 based on fair values were as follows:

107

Willis Group Holdings plc

17. PENSION PLANS (Continued)

 
 
Other defined benefit plans
Asset Category
 
2014
 
2013
Equity securities
 
24
%
 
35
%
Debt securities
 
40
%
 
39
%
Real estate
 
3
%
 
3
%
Derivatives
 
13
%
 
14
%
Other
 
20
%
 
9
%
Total
 
100
%
 
100
%

The investment policies for the international plans vary by jurisdiction but are typically established by the local pension plan trustees, where applicable, and seek to maintain the plans’ ability to meet liabilities of the plans as they fall due and to comply with local minimum funding requirements.
Fair Value Hierarchy
The following tables present, at December 31, 2014 and 2013, 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.
 
 
Other defined benefit plans
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
(millions)
 
 
Equity securities:
 
 

 
 

 
 

 
 

US equities
 
$
18

 
$
—

 
$
—

 
$
18

UK equities
 
4

 
—

 
—

 
4

Overseas equities
 
18

 
—

 
—

 
18

Fixed income securities:
 
 

 
 

 
 

 
 

Other Government bonds
 
65

 
—

 
—

 
65

Corporate bonds
 
4

 
—

 
—

 
4

Derivative instruments
 
—

 
23

 
—

 
23

Real estate
 
—

 
—

 
6

 
6

Cash
 
11

 
—

 
—

 
11

Other investments:
 
 

 
 

 
 

 
 

Other investments
 
14

 
—

 
8

 
22

Total
 
$
134

 
$
23

 
$
14

 
$
171





108

Notes to the financial statements

17. PENSION PLANS (Continued)

 
 
Other defined benefit plans
December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
(millions)
 
 
Equity securities:
 
 

 
 

 
 

 
 

US equities
 
$
29

 
$
—

 
$
—

 
$
29

UK equities
 
5

 
—

 
—

 
5

Overseas equities
 
26

 
—

 
—

 
26

Fixed income securities:
 
 

 
 

 
 

 
 

Other Government bonds
 
61

 
—

 
—

 
61

Corporate bonds
 
4

 
—

 
—

 
4

Derivative instruments
 
—

 
23

 
—

 
23

Real estate
 
—

 
—

 
5

 
5

Cash
 
8

 
—

 
—

 
8

Other investments:
 
 

 
 

 
 

 
 

Other investments
 
—

 
—

 
7

 
7

Total
 
$
133

 
$
23

 
$
12

 
$
168



Equity securities comprise:
ordinary shares which are valued using quoted market prices; and
•
unit linked funds which are valued at their net asset values as calculated by the investment manager and typically have daily liquidity.
Fixed income securities include overseas Government bonds which are typically valued using quoted market prices and derivative instruments which are valued using an income approach typically using swap curves as an input.
Real estate investment comprises overseas property and infrastructure investments which are valued by fund managers taking into account cost, independent appraisals and market based comparable data.
Assets classified as Level 3 investments did not materially change during the year ended December 31, 2014.
In 2015, the Company expects to contribute $10 million to the other defined benefit pension plans.
The following benefit payments, which reflect expected future service, as appropriate, are estimated to be paid by the other defined benefit pension plans:
 
 
Other defined benefit plans
 
 
Pension
Expected future benefit payments
 
Benefits
 
 
(millions)
2015
 
$
5

2016
 
6

2017
 
6

2018
 
6

2019
 
6

2019-2023
 
32





109

Willis Group Holdings plc


18.
DEBT
Current portion of long-term debt consists of the following:
 
December 31,
 
2014
 
2013
 
(millions)
Current portion of 7-year term loan facility expires 2018
$
17

 
$
15

5.625% senior notes due 2015
148

 
—

Fair value adjustment on 5.625% senior notes due 2015
1

 
—

3-year term loan facility expires 2015
1

 
—

 
$
167

 
$
15

Long-term debt consists of the following:
 
December 31,
 
2014
 
2013
 
(millions)
7-year term loan facility expires 2018
$
242

 
$
259

5.625% senior notes due 2015
—

 
148

Fair value adjustment on 5.625% senior notes due 2015
—

 
4

4.125% senior notes due 2016
299

 
299

6.200% senior notes due 2017
394

 
394

7.000% senior notes due 2019
187

 
187

5.750% senior notes due 2021
497

 
496

4.625% senior notes due 2023
249

 
249

6.125% senior notes due 2043
274

 
274

3-year term loan facility expires 2015
—

 
1

 
$
2,142

 
$
2,311

Guarantees
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 Limited and Willis Group Limited.
All direct obligations under the 4.625% and 6.125% senior notes are guaranteed by Willis Group Holdings, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Willis North America Inc. and Willis Group Limited.
All direct obligations under the 4.125% and 5.750% senior notes are guaranteed by Trinity Acquisition Limited, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Willis North America Inc. and Willis Group Limited.
Term loans and revolving credit facilities
On July 23, 2013 the Company entered into an amendment to its existing credit facilities to extend both the amount of financing and the maturity date of the facilities. As a result of this amendment, the Company's 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, respectively. At the amendment date the Company owed $281 million on the term loan and there was no change to this amount as a result of the refinancing.
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 2014, the Company made $15 million of mandatory

110

Notes to the financial statements

18. DEBT (Continued)

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, 2014 $nil was outstanding under this revolving credit facility (December 31, 2013: $nil).

The agreements relating to the Company's 7-year term loan facility expiring 2018 and the revolving $800 million credit facility contain requirements to maintain maximum levels of consolidated funded indebtedness in relation to consolidated EBITDA and minimum level of consolidated EBITDA to consolidated cash interest expense, subject to certain adjustments. In addition, the agreements relating to the Company's credit facilities and senior notes include, in the aggregate covenants relating to the delivery of financial statements, reports and notices, limitations on liens, limitations on sales and other disposals of assets, limitations on indebtedness and other liabilities, limitations on sale and leaseback transactions, limitations on mergers and other fundamental changes, maintenance of property, maintenance of insurance, nature of business, compliance with applicable laws, maintenance of corporate existence and rights, payment of taxes and access to information and properties. At December 31, 2014, the Company was in compliance with all covenants.

On March 3, 2014, Willis Securities, Inc., a wholly-owned indirect subsidiary of Willis Group Holdings plc, entered into a $300 million revolving note and cash subordination agreement available for drawing from March 3, 2014 through March 3, 2015.
The aggregate unpaid principal amount of all advances is repayable on or before March 3, 2016.

On April 28, 2014, the Company entered into an amendment to the $300 million revolving note and cash subordination
agreement to increase the amount of financing and to extend both the end date of the original credit period and the original
repayment date. As a result of this amendment, the revolving credit facility was increased from $300 million to $400 million.
The end date of the credit period was extended to April 28, 2015 from March 3, 2015 and the repayment date was extended to
April 28, 2016 from March 3, 2016. As of December 31, 2014 $nil was outstanding under this revolving credit facility.

Proceeds under the credit facility will be used for regulatory capital purposes related to securities underwriting only, which will
allow Willis Securities to meet or exceed capital requirements of regulatory agencies, self-regulatory agencies and their clearing
houses, including the Financial Industry Regulatory Authority. Advances under the credit facility bear interest at a rate
equal to (a) for Eurocurrency Loans, LIBOR plus 1.50% to 2.25%, and (b) for base rates Loans, the highest of (i) the Federal
Funds rates plus 0.5%, (ii) the 'prime rate' as announced by SunTrust Bank, and (iii) LIBOR plus 1.00%, plus 0.5% to 1.25%, in
each case, based upon the Company’s guaranteed senior-unsecured long-term debt rating.
Senior Notes
On August 15, 2013 the Company issued $250 million of 4.625% senior notes due 2023 and $275 million of 6.125% senior notes due 2043. The effective interest rates of these senior notes are 4.696% and 6.154%, respectively, which include the impact of the discount upon issuance.

On July 25, 2013 the Company commenced an offer to purchase for cash any and all of its 5.625% senior notes due 2015 and a portion of its 6.200% senior notes due 2017 and its 7.000% senior notes due 2019 for an aggregate purchase price of up to $525 million. On August 22, 2013 the proceeds from the issue of the senior notes due 2023 and 2043 were used to fund the purchase of $202 million of 5.625% senior notes due 2015, $206 million of 6.200% senior notes due 2017 and $113 million of 7.000% senior notes due 2019.
The Company incurred total losses on extinguishment of debt of $60 million during the year ended December 31, 2013. This was made up of a tender premium of $65 million, the write-off of unamortized debt issuance costs of $2 million and a credit for the reduction of the fair value adjustment on 5.625% senior notes due 2015 of $7 million.
Lines of credit
The Company also has available $3 million (2013: $4 million) in lines of credit, of which $1 million was drawn as of December 31, 2014 (2013: $nil).


111

Willis Group Holdings plc
  
18. DEBT (Continued)

Analysis of interest expense
The following table shows an analysis of the interest expense for the years ended December 31:
 
Year ended December 31,
 
2014
 
2013
 
2012
 
(millions)
5.625% senior notes due 2015
$
8

 
$
12

 
$
12

4.125% senior notes due 2016
13

 
13

 
13

6.200% senior notes due 2017
25

 
33

 
38

7.000% senior notes due 2019
14

 
18

 
21

5.750% senior notes due 2021
30

 
29

 
29

4.625% senior notes due 2023
11

 
4

 
—

6.125% senior notes due 2043
16

 
6

 
—

7-year term loan facility expires 2018
5

 
6

 
6

Revolving $800 million credit facility
3

 
2

 
1

Revolving $400 million credit facility
4

 
—

 
—

Other
6

 
3

 
8

Total interest expense
$
135

 
$
126

 
$
128


19.
PROVISIONS FOR LIABILITIES
An analysis of movements on provisions for liabilities is as follows:
 
Claims,
lawsuits and
other
proceedings(i)
 
Other
provisions(ii)
 
Total
 
 
(millions)
 
Balance at January 1, 2013
$
152

 
$
28

 
$
180

Net provisions made during the year
28

 
6

 
34

Balances transferred in during the year (iii)
—

 
13

 
13

Utilized in the year
(17
)
 
(6
)
 
(23
)
Foreign currency translation adjustment
1

 
1

 
2

Balance at December 31, 2013
$
164

 
$
42

 
$
206

Net provisions made during the year
19

 
5

 
24

Balances transferred in during the year (iv)
—

 
5

 
5

Utilized in the year
(31
)
 
(3
)
 
(34
)
Foreign currency translation adjustment
(4
)
 
(3
)
 
(7
)
Balance at December 31, 2014
$
148

 
$
46

 
$
194

_________________________________
(i) 
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.

(ii) 
The ‘Other’ category includes amounts relating to vacant property provisions of $4 million (2013: $10 million).

(iii) 
Provisions held in the UK for ongoing post placement services, long term disability and legal claims all previously recognized within Deferred Revenue and Accrued Expenses were transferred to Provisions for Liabilities during 2013.

(iv) 
Provisions held in the UK for dilapidation on UK properties all previously recognized within Deferred Revenue and Accrued Expenses were transferred to Provisions for Liabilities during 2014.

112

Willis Group Holdings plc


20.
COMMITMENTS AND CONTINGENCIES
The Company’s contractual obligations as at December 31, 2014 are presented below:
 
Payments due by
Obligations (iii)
Total
 
2015
 
2016-2017
 
2018-2019
 
After 2019
 
(millions)
7-year term loan facility expires 2018
$
259

 
$
17

 
$
45

 
$
197

 
$
—

Interest on term loan
14

 
4

 
8

 
2

 
—

Revolving $800 million credit facility commitment fees
7

 
2

 
4

 
1

 
—

Revolving $400 million credit facility commitment fees
2

 
1

 
1

 
—

 
—

5.625% senior notes due 2015
148

 
148

 
—

 
—

 
—

4.125% senior notes due 2016
300

 
—

 
300

 
—

 
—

6.200% senior notes due 2017
394

 
—

 
394

 
—

 
—

7.000% senior notes due 2019
187

 
—

 
—

 
187

 
—

5.750% senior notes due 2021
500

 
—

 
—

 
—

 
500

4.625% senior notes due 2023
250

 
—

 
—

 
—

 
250

6.125% senior notes due 2043
275

 
—

 
—

 
—

 
275

Interest on senior notes
896

 
112

 
173

 
137

 
474

Total debt and related interest
3,232

 
284

 
925

 
524

 
1,499

Operating leases(i)
1,181

 
128

 
221

 
175

 
657

Pensions
346

 
116

 
190

 
40

 
—

Other contractual obligations(ii)
143

 
10

 
40

 
43

 
50

Acquisition liabilities
51

 
8

 
27

 
16

 
—

Total contractual obligations
$
4,953

 
$
546

 
$
1,403

 
$
798

 
$
2,206

_________________________________
(i) 
Presented gross of sublease income.
(ii) 
Other contractual obligations include capital lease commitments, put option obligations and investment fund capital call obligations, the timing of which are included at the earliest point they may fall due.
(iii) 
The above excludes $19 million of liabilities for unrecognized tax benefits as the Company is unable to reasonably predict the timing of settlement of these liabilities.

Debt obligations and facilities
The Company’s debt and related interest obligations at December 31, 2014 are shown in the above table.
Mandatory repayments of debt over the next 12 months include expiration of the 3-year term loan facility expiring 2015, maturity of the 5.625% senior notes due 2015 and the scheduled repayment of the current portion of the Company’s 7-year term loan. The Company also has the right, at its option, to prepay indebtedness under the credit facility without further penalty and to redeem the senior notes by paying a ‘make-whole’ premium as provided under the applicable debt instrument.

113

Willis Group Holdings plc
 
20. COMMITMENTS AND CONTINGENCIES (Continued)


Operating leases
The Company leases certain land, buildings and equipment under various operating lease arrangements. Original non-cancellable lease terms typically are between 10 and 20 years and may contain escalation clauses, along with options that permit early withdrawal. The total amount of the minimum rent is expensed on a straight-line basis over the term of the lease.
As of December 31, 2014, the aggregate future minimum rental commitments under all non-cancellable operating lease agreements are as follows:
 
Gross rental
commitments
 
Rentals from
subleases
 
Net rental
commitments
 
 
 
(millions)
 
 
2015
$
128

 
$
(13
)
 
$
115

2016
115

 
(13
)
 
102

2017
106

 
(12
)
 
94

2018
91

 
(7
)
 
84

2019
84

 
(5
)
 
79

Thereafter
657

 
(10
)
 
647

Total
$
1,181

 
$
(60
)
 
$
1,121

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 $645 million (2013: $719 million). Annual rentals are $36 million (2013: $36 million) per year and the Company has subleased approximately 29 percent (2013: 29 percent) of the premises under leases up to 15 years. The amounts receivable from subleases, included in the table above, total $51 million (2013: $66 million; 2012: $76 million).
Rent expense amounted to $134 million for the year ended December 31, 2014 (2013: $141 million; 2012: $135 million). The Company’s rental income from subleases was $13 million for the year ended December 31, 2014 (2013: $15 million; 2012: $17 million).
Pensions
Contractual obligations for the Company's pension plans reflect the contributions the Company expects to make over the next five years into the US, UK and Other defined benefit plans. These contributions are based on current funding positions and may increase or decrease dependent on the future performance of the plans.
In the United Kingdom, the Company is required to agree a funding strategy for the UK defined benefit plan with the plan's trustees. In March 2012, the Company agreed to a revised schedule of contributions towards on-going accrual of benefits and deficit funding contributions the Company will make to the UK plan over the six years ended December 31, 2017. Contributions in each of the next three years would total approximately $75 million, of which approximately $19 million relates to on-going contributions calculated as 15.9 percent of active plan members' pensionable salary and approximately $56 million that relates to contributions towards the funding deficit.
In addition, based on this agreement, further contributions would 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). The Company expects to make an exceptional return contribution of $21 million during 2015 as a result of share buyback activity during 2014. Aggregate contributions under the deficit funding contribution and the profit share calculation are capped at £312 million ($486 million) over the six years ended December 31, 2017.
We are currently negotiating a new funding arrangement which we are required to do every three years, which may further change the contributions we are required to make during 2015 and beyond.
An additional amount of approximately $10 million will be paid annually into the UK defined benefit plan related to employee's salary sacrifice contributions.
The total contracted contributions for all plans in 2015 are expected to be approximately $116 million, excluding approximately $10 million in respect of the salary sacrifice contributions.

114

Notes to the financial statements

20. COMMITMENTS AND CONTINGENCIES (Continued)

Guarantees
Guarantees issued by certain of Willis Group Holdings’ subsidiaries with respect to the senior notes and revolving credit facilities are discussed in Note 18 — Debt.
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 $756 million and $828 million at December 31, 2014 and 2013, respectively. The capital lease obligations subject to such guarantees amounted to $11 million as at December 31, 2014 (2013: $11 million).
In addition, the Company has given guarantees to bankers and other third parties relating principally to letters of credit amounting to $20 million and $11 million at December 31, 2014 and 2013, respectively. Willis Group Holdings also guarantees certain of its UK and Irish subsidiaries’ obligations to fund the UK and Irish defined benefit plans.
Other contractual obligations
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 $72 million (2013: $12 million).
In July 2010, the Company made a capital commitment of $25 million to Trident V Parallel Fund, LP, an investment fund managed by Stone Point Capital. This replaced a capital commitment of $25 million that had been made to Trident V, LP in December 2009. As at December 31, 2014 there have been approximately $22 million of capital contributions.
In May 2011, the Company made a capital commitment of $10 million to Dowling Capital Partners I, LP. As at December 31, 2014 there had been approximately $7 million of capital contributions.
Other contractual obligations at December 31, 2014, also include certain capital lease obligations totaling $64 million (2013: $63 million), primarily in respect of the Company's Nashville property.
Claims, Lawsuits and Other Proceedings

In the ordinary course of business, the Company is subject to various actual and potential claims, lawsuits, and other
proceedings relating principally to alleged errors and omissions in connection with the placement of insurance and reinsurance.
Similar to other corporations, the Company is also subject to a variety of other claims, including those relating to the
Company’s employment practices. Some of the claims, lawsuits and other proceedings seek damages in amounts which could,
if assessed, be significant.
The material actual or potential claims, lawsuits, and other proceedings, of which the Company is currently aware, are as follows:
Stanford Financial Group Litigation
The Company has been named as a defendant in 13 similar lawsuits relating to the collapse of The Stanford Financial Group (‘Stanford’), for which Willis of Colorado, Inc. acted as broker of record on certain lines of insurance. The complaints in these actions generally allege that the defendants actively and materially aided Stanford’s alleged fraud by providing Stanford with certain letters regarding coverage that they knew would be used to help retain or attract actual or prospective Stanford client investors. The complaints further allege that these letters, which contain statements about Stanford and the insurance policies that the defendants placed for Stanford, contained untruths and omitted material facts and were drafted in this manner to help Stanford promote and sell its allegedly fraudulent certificates of deposit.

Errors and omissions claims, lawsuits, and other proceedings arising in the ordinary course of business are covered in part by
professional indemnity or other appropriate insurance. The terms of this insurance vary by policy year and self-insured risks
have increased significantly in recent years. Regarding self-insured risks, the Company has established provisions which are

115

Willis Group Holdings plc
 
20. COMMITMENTS AND CONTINGENCIES (Continued)


believed to be adequate in the light of current information and legal advice, and the Company adjusts such provisions from time
to time according to developments. These provisions have been recognized in other operating expenses to the extent that losses are deemed probable and reasonably estimable. Matters that are not probable or reasonably estimable have not been provided for and the Company does not believe a reasonable possible range of losses, for these matters, can be estimated.

On the basis of current information, the Company does not expect that the actual claims, lawsuits and other proceedings to
which the Company is subject, or potential claims, lawsuits, and other proceedings relating to matters of which it is aware, will
ultimately have a material adverse effect on the Company’s financial condition, results of operations or liquidity. Nonetheless,
given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation and
disputes with insurance companies, it is possible that an adverse outcome in certain matters could, from time to time, have a
material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.


116

Willis Group Holdings plc


21.
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX
The components of other comprehensive (loss) income are as follows:
 
December 31, 2014
 
December 31, 2013
 
December 31, 2012
 
Before tax amount
 
Tax
 
Net of tax amount
 
Before tax amount
 
Tax
 
Net of tax amount
 
Before tax amount
 
Tax
 
Net of tax amount
 
(millions)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(183
)
 
$
—

 
$
(183
)
 
$
20

 
$
—

 
$
20

 
$
46

 
$
—

 
$
46

Pension funding adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation on pension funding adjustments
49

 
(12
)
 
37

 
(15
)
 
5

 
(10
)
 
(31
)
 
9

 
(22
)
Net actuarial (loss) gain
(274
)
 
19

 
(255
)
 
83

 
2

 
85

 
(203
)
 
36

 
(167
)
Amortization of unrecognized actuarial loss
48

 
(8
)
 
40

 
55

 
(9
)
 
46

 
47

 
(9
)
 
38

Amortization of unrecognized prior service gain and curtailment gain
(4
)
 
1

 
(3
)
 
(5
)
 
1

 
(4
)
 
(6
)
 
1

 
(5
)
Curtailment gain
2

 
—

 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
(179
)
 
—

 
(179
)
 
118

 
(1
)
 
117

 
(193
)
 
37

 
(156
)
Derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain on interest rate swaps (effective element)
—

 
—

 
—

 
—

 
—

 
—

 
3

 
(1
)
 
2

Interest rate reclassification adjustment
(5
)
 
1

 
(4
)
 
(5
)
 
1

 
(4
)
 
(5
)
 
1

 
(4
)
(Loss) gain on forward exchange contracts (effective element)
(31
)
 
6

 
(25
)
 
10

 
(2
)
 
8

 
11

 
(2
)
 
9

Forward exchange contract reclassification adjustment
16

 
(3
)
 
13

 
1

 
—

 
1

 
(4
)
 
1

 
(3
)
Gain on treasury lock (effective element)
—

 
—

 
—

 
19

 
(4
)
 
15

 
—

 
—

 
—

Treasury lock reclassification adjustment
(1
)
 
—

 
(1
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(21
)
 
4

 
(17
)
 
25

 
(5
)
 
20

 
5

 
(1
)
 
4

Other comprehensive (loss) income
(383
)
 
4

 
(379
)
 
163

 
(6
)
 
157

 
(142
)
 
36

 
(106
)
Less: Other comprehensive loss attributable to noncontrolling interests
6

 
—

 
6

 
—

 
—

 
—

 
—

 
—

 
—

Other comprehensive (loss) income attributable to Willis Group Holdings
$
(377
)
 
$
4

 
$
(373
)
 
$
163

 
$
(6
)
 
$
157

 
$
(142
)
 
$
36

 
$
(106
)

117

Willis Group Holdings plc
  
21. ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (Continued)

The components of accumulated other comprehensive loss, net of tax, are as follows:
 
Net foreign currency translation adjustment
 
Pension funding adjustment
 
Net unrealized gain on derivative instruments
 
Total
 
(millions)
Balance, December 31, 2011
$
(80
)
 
$
(675
)
 
$
11

 
$
(744
)
Other comprehensive income (loss) before reclassifications
46

 
(189
)
 
11

 
(132
)
Amounts reclassified from accumulated other comprehensive income
—

 
33

 
(7
)
 
26

Net current year other comprehensive income (loss), net of tax and noncontrolling interests
46

 
(156
)
 
4

 
(106
)
Balance, December 31, 2012
$
(34
)
 
$
(831
)
 
$
15

 
$
(850
)
Other comprehensive income before reclassifications
20

 
75

 
23

 
118

Amounts reclassified from accumulated other comprehensive income
—

 
42

 
(3
)
 
39

Net current year other comprehensive income, net of tax and noncontrolling interests
20

 
117

 
20

 
157

Balance, December 31, 2013
$
(14
)
 
$
(714
)
 
$
35

 
$
(693
)
Other comprehensive loss before reclassifications
(177
)
 
(216
)
 
(25
)
 
(418
)
Amounts reclassified from accumulated other comprehensive income
—

 
37

 
8

 
45

Net current year other comprehensive loss, net of tax and noncontrolling interests
(177
)
 
(179
)
 
(17
)
 
(373
)
Balance, December 31, 2014
$
(191
)
 
$
(893
)
 
$
18

 
$
(1,066
)




118

Notes to the financial statements

21. ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX (Continued)

Amounts reclassified out of accumulated other comprehensive income into the statement of operations are as follows:
Details about accumulated other comprehensive income components
 
Amount reclassified from accumulated other comprehensive income
 
Affected line item in the statement of operations
 
 
Years ended December 31,
 
 
 
 
2014
 
2013
 
2012
 
 
 
 
(millions)
 
 
 
 
Gains and losses on cash flow hedges (Note 24)
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
(5
)
 
$
(5
)
 
$
(5
)
 
Investment income
Foreign exchange contracts
 
16

 
1

 
(4
)
 
Other income (expense), net
Treasury lock
 
(1
)
 
—

 
—

 
Interest expense
 
 
10

 
(4
)
 
(9
)
 
Total before tax
Tax
 
(2
)
 
1

 
2

 
 
 
 
$
8

 
$
(3
)
 
$
(7
)
 
Net of tax
Amortization of defined benefit pension items (Note 17)
 
 
 
 
 
 
 
 
Prior service gain and curtailment gain
 
$
(4
)
 
$
(5
)
 
$
(6
)
 
Salaries and benefits
Net actuarial loss
 
48

 
55

 
47

 
Salaries and benefits
 
 
44

 
50

 
41

 
Total before tax
Tax
 
(7
)
 
(8
)
 
(8
)
 
 
 
 
$
37

 
$
42

 
$
33

 
Net of tax
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
45

 
$
39

 
$
26

 
 


22.
EQUITY AND NONCONTROLLING INTEREST
The effects on equity of changes in Willis Group Holdings, ownership interest in its subsidiaries are as follows:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
 
 
(millions)
 
 
Net income (loss) attributable to Willis Group Holdings
$
362

 
$
365

 
$
(446
)
Transfers from noncontrolling interest:
 

 
 

 
 

Decrease in Willis Group Holdings’ paid-in capital for purchase of noncontrolling interest
—

 
(4
)
 
(31
)
Increase in Willis Group Holdings’ paid-in capital for sale of noncontrolling interest
—

 
—

 
2

Net transfers from noncontrolling interest
—

 
(4
)
 
(29
)
Change from net income (loss) attributable to Willis Group Holdings and transfers from noncontrolling interests
$
362

 
$
361

 
$
(475
)


119

Willis Group Holdings plc


23.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures regarding cash flow information and non-cash flow investing and financing activities are as follows:
 
Years Ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Supplemental disclosures of cash flow information:
 

 
 

 
 

Cash payments for income taxes, net
$
88

 
$
61

 
$
63

Cash payments for interest
123

 
117

 
118

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

 
 

Write-off of unamortized debt issuance costs
$
—

 
$
(2
)
 
$
—

Write-back of fair value adjustment on 5.625% senior notes due 2015
—

 
7

 
—

Assets acquired under capital leases
3

 
7

 
2

Deferred payments on acquisitions of subsidiaries
10

 
2

 
4

Acquisitions:
 

 
 

 
 

Fair value of assets acquired
$
296

 
$
47

 
$
23

Less:
 

 
 

 
 

Liabilities assumed
107

 
30

 
3

Cash acquired
57

 
1

 
—

Net assets acquired, net of cash acquired
$
132

 
$
16

 
$
20


24.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Fair value of derivative financial instruments
In addition to the note below, see Note 25 - Fair Value Measurements for information about the fair value hierarchy of derivatives.
Primary risks managed by derivative financial instruments
The main risks managed by derivative financial instruments are interest rate risk and foreign currency risk. The Company’s Board of Directors reviews and approves policies for managing each of these risks as summarized below.
The Company enters into derivative transactions (principally interest rate swaps and forward foreign currency contracts) in order to manage interest rate and foreign currency risks arising from the Company’s operations and its sources of finance. The Company does not hold financial or derivative instruments for trading purposes.
Interest Rate Risk — Investment Income
As a result of the Company’s operating activities, the Company holds Fiduciary funds. The Company earns interest on these funds, which is included in the Company’s financial statements as investment income. These funds are regulated in terms of access and the instruments in which they may be invested, most of which are short-term in maturity.
Through the fourth quarter of 2011, in order to manage interest rate risk relating to Fiduciary funds, the Company entered into interest rate swaps to receive a fixed rate of interest and pay a variable rate of interest denominated in the various currencies related to the short-term investments. During the second quarter 2012, the Company closed out its legacy position relating to such instruments. 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 accumulated other comprehensive income. This gain is being reclassified into earnings in line with the forecasted swap transactions. The Company expects approximately $1 million of the gain to be recognized in the consolidated statement of operations in 2015.

120

Notes to the financial statements

24. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

At December 31, 2014 and 2013, the Company had no derivative financial instruments that were designated as cash flow hedges of interest rate risk in investments.
Interest Rate Risk — Interest Expense
The Company's operations are financed principally by $2,054 million fixed rate senior notes maturing through 2043 and $259 million under a 7-year term loan facility. The Company has access to (i) $800 million under a revolving credit facility expiring July 23, 2018, (ii) $400 million under a revolving credit facility expiring April 28, 2015, which will be available for regulatory capital purposes related to securities underwriting only, and (iii) $22 million under two further revolving credit facilities, of which $20 million is also only available for specific regulatory purposes. As of December 31, 2014 $nil (2013: $nil) was drawn on these facilities.
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 18 — ‘Debt’.
During the year ended December 31, 2010, the Company entered into a series of interest rate swaps for a total notional amount of $350 million to receive a fixed rate and pay a variable rate on a semi-annual basis, with a maturity date of July 15, 2015. The Company had previously designated these instruments as fair value hedges against its $350 million 5.625% senior notes due 2015 and had 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.
During the year ended December 31, 2013, the Company closed out the above interest rate swaps and received a cash settlement of $13 million on termination.
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 18 - 'Debt'. The fair value of these treasury locks at the close out date was $21 million, received as a cash settlement on termination.
The Company had designated the Treasury locks as effective hedges of the anticipated transaction and had recognized a gain of $19 million in other comprehensive income in relation to the effective element that qualified for hedge accounting at that date. This amount will be reclassified into earnings consistent with the recognition of interest expense on the 4.625% senior notes due 2023 and the 6.125% senior notes due 2043. In addition, the Company recognized a $2 million gain in interest expense in the year ended December 31, 2013 for the portion of the treasury locks determined as ineffective.
Foreign Currency Risk
The Company’s primary foreign exchange risks arise:
•
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
•
from the translation into US dollars of the net income and net assets of its foreign subsidiaries, excluding the London market operations which are US dollar denominated.

The foreign exchange risks in its London market operations are hedged as follows:
•
to the extent that forecast Pound sterling expenses exceed Pound sterling revenues, the Company limits its exposure to this exchange rate risk by the use of forward contracts matched to specific, clearly identified cash outflows arising in the ordinary course of business; and
•
to the extent the UK operations earn significant revenues in Euros and Japanese yen, the Company limits its exposure to changes in the exchange rate between the US dollar and these currencies by the use of forward contracts matched to a

121

Willis Group Holdings plc

24. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

percentage of forecast cash inflows in specific currencies and periods. In addition, we are also exposed to foreign exchange risk on any net sterling asset or liability position in our London market operations.
The fair value of foreign currency contracts is recorded in other assets and other liabilities. For contracts that qualify as accounting hedges, changes in fair value resulting from movements in the spot exchange rate are recorded as a component of other comprehensive income whilst changes resulting from a movement in the time value are recorded in interest expense. For contracts that do not qualify for hedge accounting, the total change in fair value is recorded in interest expense. Amounts held in comprehensive income are reclassified into earnings when the hedged exposure affects earnings.
At December 31, 2014 and 2013, 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 table below summarizes by major currency the contractual amounts of the Company’s forward contracts to exchange foreign currencies for Pounds sterling in the case of US dollars and US dollars for euro and Japanese yen. Foreign currency notional amounts are reported in US dollars translated at contracted exchange rates.
 
December 31,
 
Sell
2014(i)
 
Sell
2013
 
(millions)
US dollar
$
678

 
$
303

Euro
186

 
97

Japanese yen
51

 
35

_________________________________
(i) 
Forward exchange contracts range in maturity from 2015 to 2017.
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, 2014 and 2013 were immaterial.
During the year ended December 31, 2014, the Company entered into a number of foreign currency transactions in order to hedge certain intercompany loans. These derivatives were not designated as hedging instruments and were for a total notional amount of $352 million (December 31, 2013: $228 million). In respect of these transactions, an immaterial amount has been recognized as an asset within other current assets and an equivalent gain has been recognized in other income (expense), net, for the period.
In addition during the year ended December 31, 2014, in order to hedge the Company's exposure relating to the purchase price consideration for acquiring a 75.8 percent holding in Max Matthiessen AB, the Company entered into a series of forward exchange contracts. As a result of these transactions the Company recognized a $14 million expense in other income (expense), net, and an equivalent reduction to cash and cash equivalents in the year.


122

Notes to the financial statements

24. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Derivative financial instruments
The table below presents the fair value of the Company’s derivative financial instruments and their balance sheet classification at December 31:
 
 
 
Fair value
 
Balance sheet
 
December 31,
 
December 31,
Derivative financial instruments designated as hedging instruments:
classification
 
2014
 
2013
 
 
 
(millions)
Assets:
 
 
 

 
 

Forward exchange contracts
Other assets
 
26

 
23

Total derivatives designated as hedging instruments
 
 
$
26

 
$
23

Liabilities:
 
 
 

 
 

Forward exchange contracts
Other liabilities
 
21

 
2

Total derivatives designated as hedging instruments
 
 
$
21

 
$
2

Cash Flow Hedges
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, 2014, 2013 and 2012:
Derivatives in cash flow hedging relationships
Amount of
gain (loss)
recognized
in OCI(i)on derivative (effective element)
 
Location of gain (loss)
reclassified from accumulated OCI(i) into income (effective element)
 
Amount of
gain (loss)
reclassified
from
accumulated
OCI(i) into
income(effective element)
 
Location of gain (loss)
recognized in income
on derivative (ineffective hedges and ineffective element of effective hedges)
 
Amount of
gain (loss)
recognized
in income
on derivative
(ineffective
hedges and
ineffective
element of effective hedges)
 
(millions)
 
 
 
(millions)
 
 
 
(millions)
Year Ended December 31, 2014
 

 
 
 
 

 
 
 
 

Interest rate swaps
$
—

 
Investment income
 
$
(5
)
 
Other income (expense), net
 
$
—

Treasury locks
—

 
Interest expense
 
(1
)
 
Interest expense
 
—

Forward exchange contracts
(31
)
 
Other income (expense), net
 
16

 
Interest expense
 
(1
)
Total
$
(31
)
 
 
 
$
10

 
 
 
$
(1
)
Year Ended December 31, 2013
 

 
 
 
 

 
 
 
 

Interest rate swaps
$
—

 
Investment income
 
$
(5
)
 
Other income (expense), net

 
$
—

Treasury locks
19

 
Interest expense
 
—

 
Interest expense
 
2

Forward exchange contracts
10

 
Other income (expense), net

 
1

 
Interest expense
 
1

Total
$
29

 
 
 
$
(4
)
 
 
 
$
3

Year Ended December 31, 2012
 

 
 
 
 

 
 
 
 

Interest rate swaps
$
3

 
Investment income
 
$
(5
)
 
Other income (expense), net

 
$
—

Forward exchange contracts
11

 
Other income (expense), net

 
(4
)
 
Interest expense
 
1

Total
$
14

 
 
 
$
(9
)
 
 
 
$
1

_________________________________
Amounts above shown gross of tax.

(i) 
OCI means other comprehensive income.
For interest rate swaps all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. For foreign exchange contracts, only the changes in fair value resulting from movements in the spot exchange rate are included in this assessment. In instances where the timing of expected cash flows can be matched exactly to the maturity of the foreign exchange contract, then changes in fair value attributable to movement in the forward points are also included.

123

Willis Group Holdings plc

24. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

At December 31, 2014 the Company estimates there will be $7 million of net derivative gains reclassified from accumulated comprehensive income into earnings within the next twelve months as the forecasted transactions affect earnings.


Credit Risk and Concentrations of Credit Risk
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 that arise from financial instruments exist for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Financial instruments on the balance sheet that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, fiduciary funds, accounts receivable and derivatives which are recorded at fair value.
The Company maintains a policy providing for the diversification of cash and cash equivalent investments and places such investments in an extensive number of financial institutions to limit the amount of credit risk exposure. These financial institutions are monitored on an ongoing basis for credit quality predominantly using information provided by credit agencies.
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, 2014.

25.
FAIR VALUE MEASUREMENTS

The Company has categorized its assets and liabilities that are measured at fair value on a recurring and non-recurring basis into a three-level fair value hierarchy, based on the reliability of the inputs used to determine fair value as follows:

•
    Level 1: refers to fair values determined based on quoted market prices in active markets for identical assets;
•
    Level 2: refers to fair values estimated using observable market based inputs or unobservable inputs that are corroborated by market data; and
•
    Level 3: includes fair values estimated using unobservable inputs that are not corroborated by market data.

The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments:

Long-term debt (excluding related fair value hedges)-Fair values are based on quoted market values and so classified as Level 1 measurements.

Derivative financial instruments-Market values have been used to determine the fair value of interest rate swaps and forward foreign exchange contracts based on estimated amounts the Company would receive or have to pay to terminate the agreements, taking into account the current interest rate environment or current foreign currency forward rates. Such financial instruments are classified as Level 2 in the fair value hierarchy.


124

Notes to the financial statements
  
25. FAIR VALUE MEASUREMENTS (Continued)

Financial instruments measured at fair value on a recurring basis

The following table presents, for each of the fair-value hierarchy levels, the Company's assets and liabilities that are measured at fair value on a recurring basis.
 
December 31, 2014
 
Quoted
prices in
active
markets
for
identical
assets
 
Significant
other
observable
inputs
 
Significant
other
unobservable
inputs
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(millions)
 
 
Assets at fair value:
 

 
 

 
 

 
 

Derivative financial instruments
—

 
26

 
—

 
26

Total assets
$
—

 
$
26

 
$
—

 
$
26

Liabilities at fair value:
 

 
 

 
 

 
 

Derivative financial instruments
$
—

 
$
21

 
$
—

 
$
21

Total liabilities
$
—

 
$
21

 
$
—

 
$
21


 
December 31, 2013
 
Quoted
prices in
active
markets
for
identical
assets
 
Significant
other
observable
inputs
 
Significant
other
unobservable
inputs
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
(millions)
 
 
Assets at fair value:
 

 
 

 
 

 
 

Derivative financial instruments
—

 
23

 
—

 
23

Total assets
$
—

 
$
23

 
$
—

 
$
23

Liabilities at fair value:
 

 
 

 
 

 
 

Derivative financial instruments
$
—

 
$
2

 
$
—

 
$
2

Total liabilities
$
—

 
$
2

 
$
—

 
$
2


Fair value information about financial instruments not measured at fair value
The following table presents the carrying values and estimated fair values of the Company's financial instruments not measured at fair value. The fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition nor do they indicate the Company’s intent or ability to dispose of the financial instrument.

125

Willis Group Holdings plc
  
25. FAIR VALUE MEASUREMENTS (Continued)

 
December 31,
 
2014
 
2013
 
Carrying
amount
 
Fair
value
 
Carrying
amount
 
Fair
value
 
 
 
(millions)
 
 
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
635

 
$
635

 
$
796

 
$
796

Fiduciary funds (included within Fiduciary assets)
$
1,888

 
$
1,888

 
$
1,662

 
$
1,662

Liabilities:
 

 
 

 
 

 
 

Current portion of long-term debt
$
167

 
$
169

 
$
15

 
$
15

Long-term debt
2,142

 
2,327

 
2,311

 
2,444


Financial instruments measured at fair value on a non-recurring basis

The remeasurement of goodwill is classified as non-recurring level 3 fair value assessment due to the significance of unobservable inputs developed using company-specific information, see Note 12 - Goodwill.


126

Willis Group Holdings plc


26.
SEGMENT INFORMATION
During the periods presented, the Company operated through three reporting segments: Global, North America and International. Global provides specialist brokerage and consulting services to clients worldwide for specific industrial and commercial activities and is organized by specialism. North America and International predominantly comprise our retail operations which provide services to small, medium and large corporations, accessing Global’s specialist expertise when required.
The Company uses segment operating income (loss) to measure segment performance. The Company does not allocate all expenses that form part of total expenses in the consolidated statements of operations to its operating segments because management does not include this information in its measurement of the performance of those segments. Because of this unallocated expense, the operating income (loss) of each reporting segment does not reflect the operating income (loss) reporting segment would report as a stand-alone business.
The accounting policies of the segments are consistent with those described in Note 2 — 'Basis of Presentation and Significant Accounting Policies'.
There are no inter-segment revenues, with segments operating on a revenue-sharing basis equivalent to that used when sharing business with other third-party brokers.
Selected information regarding the Company’s segments is as follows:
 
Commissions
and fees
 
Investment
income
 
Other
income
 
Total
revenues
 
Depreciation
and
amortization
 
Operating
income (loss)
 
 
 
 
 
 
 
(millions)
 
 
 
 
Year Ended December 31, 2014
 

 
 

 
 

 
 

 
 

 
 

Global
$
1,386

 
$
9

 
$
15

 
$
1,410

 
$
36

 
$
352

North America
1,365

 
1

 
4

 
1,370

 
71

 
273

International
1,016

 
6

 
—

 
1,022

 
27

 
197

Total segments
3,767

 
16

 
19

 
3,802

 
134

 
822

Corporate and other(i)
—

 
—

 
—

 
—

 
12

 
(175
)
Total consolidated
$
3,767

 
$
16

 
$
19

 
$
3,802

 
$
146

 
$
647

 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2013
 

 
 

 
 

 
 

 
 

 
 

Global
$
1,358

 
$
6

 
$
—

 
$
1,364

 
$
36

 
$
376

North America
1,349

 
2

 
7

 
1,358

 
77

 
249

International
926

 
7

 
—

 
933

 
22

 
178

Total segments
3,633

 
15

 
7

 
3,655

 
135

 
803

Corporate and other(i)
—

 
—

 
—

 
—

 
14

 
(140
)
Total consolidated
$
3,633

 
$
15

 
$
7

 
$
3,655

 
$
149

 
$
663

 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2012
 

 
 

 
 

 
 

 
 

 
 

Global
$
1,303

 
$
7

 
$
—

 
$
1,310

 
$
33

 
$
400

North America
1,281

 
3

 
4

 
1,288

 
76

 
252

International
874

 
8

 
—

 
882

 
23

 
167

Total segments
3,458

 
18

 
4

 
3,480

 
132

 
819

Corporate and other(i)
—

 
—

 
—

 
—

 
6

 
(1,044
)
Total consolidated
$
3,458

 
$
18

 
$
4

 
$
3,480

 
$
138

 
$
(225
)
_________________________________
(i) 
See the following table for an analysis of the ‘Corporate and other’ line.


127

Willis Group Holdings plc
  
26. SEGMENT INFORMATION (Continued)

 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Costs of the holding company
$
(13
)
 
$
(10
)
 
$
(4
)
Costs related to Group functions, leadership and projects
(194
)
 
(118
)
 
(114
)
Non-servicing elements of defined benefit pension
53

 
42

 
38

Significant legal and regulatory settlements managed centrally
(2
)
 
(6
)
 
(6
)
Restructuring costs relating to the Operational Improvement Program
(17
)
 
—

 
—

Additional incentive accrual for change in remuneration policy
—

 
—

 
(252
)
Write-off of unamortized cash retention awards debtor
—

 
—

 
(200
)
Goodwill impairment charge
—

 
—

 
(492
)
India joint venture settlement
—

 
—

 
(11
)
Insurance recovery
—

 
—

 
10

Write-off of uncollectible accounts receivable balance in Chicago
—

 
—

 
(13
)
Expense Reduction Initiative
—

 
(46
)
 
—

Fees related to the extinguishment of debt
—

 
(1
)
 
—

Other
(2
)
 
(1
)
 
—

Total Corporate and Other
$
(175
)
 
$
(140
)
 
$
(1,044
)

The following table reconciles total consolidated operating income (loss), as disclosed in the operating segment tables above, to consolidated income from continuing operations before income taxes and interest in earnings of associates.
 
Years ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Total consolidated operating income (loss)
$
647

 
$
663

 
$
(225
)
Other (expense) income, net
6

 
22

 
16

Loss on extinguishment of debt
—

 
(60
)
 
—

Interest expense
(135
)
 
(126
)
 
(128
)
Income (loss) before income taxes and interest in earnings of associates
$
518

 
$
499

 
$
(337
)
The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total asset position by segment.

128

Notes to the financial statements
  
26. SEGMENT INFORMATION (Continued)

Segment revenue by product is as follows:
 
Years ended December 31,
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
Global
 
North America
 
International
 
Total
 
(millions)
Commissions and fees:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Retail insurance services
$
153

 
$
158

 
$
165

 
$
1,365

 
$
1,349

 
$
1,281

 
$
1,016

 
$
926

 
$
874

 
$
2,534

 
$
2,433

 
$
2,320

Specialty insurance services
1,233

 
1,200

 
1,138

 
—

 
—

 
—

 
—

 
—

 
—

 
1,233

 
1,200

 
1,138

Total commissions and fees
1,386

 
1,358

 
1,303

 
1,365

 
1,349

 
1,281

 
1,016

 
926

 
874

 
3,767

 
3,633

 
3,458

Investment income
9

 
6

 
7

 
1

 
2

 
3

 
6

 
7

 
8

 
16

 
15

 
18

Other income
15

 
—

 
—

 
4

 
7

 
4

 
—

 
—

 
—

 
19

 
7

 
4

Total Revenues
$
1,410

 
$
1,364

 
$
1,310

 
$
1,370

 
$
1,358

 
$
1,288

 
$
1,022

 
$
933

 
$
882

 
$
3,802

 
$
3,655

 
$
3,480


None of the Company’s customers represented more than 10 percent of the Company’s consolidated commissions and fees for the years ended December 31, 2014, 2013 and 2012.
Information regarding the Company’s geographic locations is as follows:
 
Years Ended December 31,
 
2014
 
2013
 
2012
 
(millions)
Commissions and fees(i)
 

 
 

 
 

UK
$
1,027

 
$
1,026

 
$
980

US
1,592

 
1,549

 
1,484

Other(ii)
1,148

 
1,058

 
994

Total
$
3,767

 
$
3,633

 
$
3,458

 
December 31,
 
2014
 
2013
 
(millions)
Fixed assets
 

 
 

UK
$
232

 
$
233

US
193

 
203

Other(ii)
58

 
45

Total
$
483

 
$
481

_________________________________
(i) 
Commissions and fees are attributed to countries based upon the location of the subsidiary generating the revenue.
(ii) 
Other than in the United Kingdom and the United States, the Company does not conduct business in any country in which its commissions and fees and or fixed assets exceed 10 percent of consolidated commissions and fees and or fixed assets, respectively.

129

Willis Group Holdings plc


27.
SUBSIDIARY UNDERTAKINGS
The Company has investments in the following subsidiary undertakings which principally affect the net income or net assets of the Group.
Subsidiary name
 
Country of registration
 
Class of share
 
Percentage ownership
Holding companies
 
 
 
 
 
 

TAI Limited
 
England and Wales
 
Ordinary shares
 
100
%
Trinity Acquisition Limited
 
England and Wales
 
Ordinary shares
 
100
%
Willis Faber Limited
 
England and Wales
 
Ordinary shares
 
100
%
Willis Group Limited
 
England and Wales
 
Ordinary shares
 
100
%
Willis Investment UK Holdings Limited
 
England and Wales
 
Ordinary shares
 
100
%
Willis Netherlands Holdings B.V.
 
Netherlands
 
Ordinary shares
 
100
%
Willis Europe B.V.
 
England and Wales
 
Ordinary shares
 
100
%
Insurance broking companies
 
 
 
 
 
 

Willis HRH, Inc. 
 
USA
 
Common shares
 
100
%
Willis Limited
 
England and Wales
 
Ordinary shares
 
100
%
Willis North America, Inc. 
 
USA
 
Common shares
 
100
%
Willis Re, Inc. 
 
USA
 
Common shares
 
100
%


130

Willis Group Holdings plc


28.
FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES
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.
All direct obligations under the senior notes are jointly and severally, irrevocably and fully and unconditionally guaranteed by Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Trinity Acquisition Limited (previously registered as Trinity Acquisition plc) and Willis Group Limited, collectively the 'Other Guarantors', and with Willis Group Holdings, the 'Guarantor Companies'.
The debt securities that were issued by Willis North America and guaranteed by the entities described above, and for which the disclosures set forth below relate and are required under applicable SEC rules, were issued under an effective registration statement.
Presented below is condensed consolidating financial information for:

(i)
Willis Group Holdings, which is a guarantor, on a parent company only basis;

(ii)
the Other Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent and are all direct or indirect parents of the issuer;

(iii)
the Issuer, Willis North America;

(iv)
Other, which are the non-guarantor subsidiaries, on a combined basis;

(v)
Consolidating adjustments; and

(vi)
the Consolidated Company.
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets for the year ended December 31, 2014 of Willis Group Holdings, the Other Guarantors and the Issuer.










131

Willis Group Holdings plc

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REVENUES
 

 
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
—

 
$
8

 
$
3,759

 
$
—

 
$
3,767

Investment income
—

 
—

 
—

 
16

 
—

 
16

Other income
—

 
—

 
—

 
19

 
—

 
19

Total revenues
—

 
—

 
8

 
3,794

 
—

 
3,802

EXPENSES
 

 
 

 
 

 
 

 
 

 
 

Salaries and benefits
(1
)
 
—

 
(81
)
 
(2,232
)
 
—

 
(2,314
)
Other operating expenses
(16
)
 
(95
)
 
(38
)
 
(510
)
 
—

 
(659
)
Depreciation expense
—

 
(4
)
 
(17
)
 
(71
)
 
—

 
(92
)
Amortization of intangible assets
—

 
—

 
—

 
(54
)
 
—

 
(54
)
Restructuring costs
—

 
(11
)
 
(3
)
 
(22
)
 
—

 
(36
)
Total expenses
(17
)
 
(110
)
 
(139
)
 
(2,889
)
 
—

 
(3,155
)
OPERATING (LOSS) INCOME
(17
)
 
(110
)
 
(131
)
 
905

 
—

 
647

Other (expense) income, net
(15
)
 
(220
)
 
—

 
11

 
230

 
6

Income from Group undertakings
—

 
221

 
313

 
102

 
(636
)
 
—

Expenses due to Group undertakings
—

 
(33
)
 
(179
)
 
(424
)
 
636

 
—

Interest expense
(43
)
 
(35
)
 
(45
)
 
(12
)
 
—

 
(135
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(75
)
 
(177
)
 
(42
)
 
582

 
230

 
518

Income taxes
—

 
25

 
24

 
(208
)
 
—

 
(159
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(75
)
 
(152
)
 
(18
)
 
374

 
230

 
359

Interest in earnings of associates, net of tax
—

 
10

 
—

 
4

 
—

 
14

Equity account for subsidiaries
437

 
570

 
76

 
—

 
(1,083
)
 
—

NET INCOME
362

 
428

 
58

 
378

 
(853
)
 
373

Less: Net loss attributable to noncontrolling interests
—

 
—

 
—

 
(11
)
 
—

 
(11
)
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
362

 
$
428

 
$
58

 
$
367

 
$
(853
)
 
$
362




132

Notes to the financial statements

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
Comprehensive (loss) income
$
(11
)
 
$
69

 
$
(110
)
 
$
49

 
$
(3
)
 
$
(6
)
Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Comprehensive (loss) income attributable to Willis Group Holdings
$
(11
)
 
$
69

 
$
(110
)
 
$
44

 
$
(3
)
 
$
(11
)


133

Willis Group Holdings plc

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REVENUES
 

 
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
—

 
$
8

 
$
3,625

 
$
—

 
$
3,633

Investment income
—

 
—

 
—

 
15

 
—

 
15

Other income
—

 
—

 
—

 
7

 
—

 
7

Total revenues
—

 
—

 
8

 
3,647

 
—

 
3,655

EXPENSES
 

 
 

 
 

 
 

 
 

 
 

Salaries and benefits
(1
)
 
—

 
(103
)
 
(2,103
)
 
—

 
(2,207
)
Other operating expenses
(5
)
 
(69
)
 
(163
)
 
(399
)
 
—

 
(636
)
Depreciation expense
—

 
(3
)
 
(20
)
 
(71
)
 
—

 
(94
)
Amortization of intangible assets
—

 
—

 
—

 
(55
)
 
—

 
(55
)
Total expenses
(6
)
 
(72
)
 
(286
)
 
(2,628
)
 
—

 
(2,992
)
OPERATING (LOSS) INCOME
(6
)
 
(72
)
 
(278
)
 
1,019

 
—

 
663

Other income (expense), net
5

 
(4
)
 
—

 
31

 
(10
)
 
22

Income from Group undertakings
—

 
191

 
364

 
86

 
(641
)
 
—

Expenses due to Group undertakings
(10
)
 
(34
)
 
(141
)
 
(456
)
 
641

 
—

Loss on extinguishment of debt
—

 
—

 
(60
)
 
—

 
—

 
(60
)
Interest expense
(42
)
 
(16
)
 
(63
)
 
(5
)
 
—

 
(126
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(53
)
 
65

 
(178
)
 
675

 
(10
)
 
499

Income taxes
—

 
23

 
—

 
(145
)
 
—

 
(122
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(53
)
 
88

 
(178
)
 
530

 
(10
)
 
377

Interest in earnings of associates, net of tax
—

 
9

 
—

 
(9
)
 
—

 
—

Equity account for subsidiaries
418

 
320

 
150

 
—

 
(888
)
 
—

NET INCOME (LOSS)
365

 
417

 
(28
)
 
521

 
(898
)
 
377

Less: Net income attributable to noncontrolling interests
—

 
—

 
—

 
(12
)
 
—

 
(12
)
NET INCOME (LOSS) ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
365

 
$
417

 
$
(28
)
 
$
509

 
$
(898
)
 
$
365


134

Notes to the financial statements

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
Comprehensive income
$
522

 
$
565

 
$
74

 
$
636

 
$
(1,263
)
 
$
534

Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(12
)
 
—

 
(12
)
Comprehensive income attributable to Willis Group Holdings
$
522

 
$
565

 
$
74

 
$
624

 
$
(1,263
)
 
$
522



135

Willis Group Holdings plc

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2012
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REVENUES
 

 
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
—

 
$
—

 
$
3,458

 
$
—

 
$
3,458

Investment income
—

 
—

 
1

 
17

 
—

 
18

Other income
—

 
—

 
—

 
4

 
—

 
4

Total revenues
—

 
—

 
1

 
3,479

 
—

 
3,480

EXPENSES
 

 
 

 
 

 
 

 
 

 
 

Salaries and benefits
(2
)
 
—

 
(96
)
 
(2,377
)
 
—

 
(2,475
)
Other operating expenses
(6
)
 
(80
)
 
(78
)
 
(436
)
 
—

 
(600
)
Depreciation expense
—

 
(1
)
 
(15
)
 
(63
)
 
—

 
(79
)
Amortization of intangible assets
—

 
—

 
—

 
(59
)
 
—

 
(59
)
Goodwill impairment charge
—

 
—

 
—

 
(492
)
 
—

 
(492
)
Total expenses
(8
)
 
(81
)
 
(189
)
 
(3,427
)
 
—

 
(3,705
)
OPERATING (LOSS) INCOME
(8
)
 
(81
)
 
(188
)
 
52

 
—

 
(225
)
Other income (expense), net
2

 
(2
)
 
(1
)
 
17

 
—

 
16

Income from Group undertakings
—

 
201

 
316

 
111

 
(628
)
 
—

Expenses due to Group undertakings
—

 
(67
)
 
(147
)
 
(414
)
 
628

 
—

Interest expense
(43
)
 
(7
)
 
(70
)
 
(8
)
 
—

 
(128
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(49
)
 
44

 
(90
)
 
(242
)
 
—

 
(337
)
Income taxes
—

 
31

 
34

 
(166
)
 
—

 
(101
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(49
)
 
75

 
(56
)
 
(408
)
 
—

 
(438
)
Interest in earnings of associates, net of tax
—

 
8

 
—

 
(3
)
 
—

 
5

Equity account for subsidiaries
(397
)
 
(480
)
 
(172
)
 
—

 
1,049

 
—

NET LOSS
(446
)
 
(397
)
 
(228
)
 
(411
)
 
1,049

 
(433
)
Less: Net income attributable to noncontrolling interests
—

 
—

 
—

 
(13
)
 
—

 
(13
)
NET LOSS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
(446
)
 
$
(397
)
 
$
(228
)
 
$
(424
)
 
$
1,049

 
$
(446
)













136

Notes to the financial statements

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2012
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
Comprehensive loss
$
(552
)
 
$
(494
)
 
$
(263
)
 
$
(519
)
 
$
1,289

 
$
(539
)
Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Comprehensive loss attributable to Willis Group Holdings
$
(552
)
 
$
(494
)
 
$
(263
)
 
$
(532
)
 
$
1,289

 
$
(552
)













137

Willis Group Holdings plc

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
9

 
$
2

 
$
—

 
$
624

 
$
—

 
$
635

Accounts receivable, net
—

 
—

 
4

 
1,040

 
—

 
1,044

Fiduciary assets
—

 
—

 
—

 
8,948

 
—

 
8,948

Deferred tax assets
—

 
—

 
—

 
12

 
—

 
12

Other current assets
1

 
27

 
10

 
205

 
(29
)
 
214

Amounts due from Group undertakings
3,674

 
924

 
1,057

 
1,114

 
(6,769
)
 
—

Total current assets
3,684

 
953

 
1,071

 
11,943

 
(6,798
)
 
10,853

NON-CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
—

 
2,536

 
721

 
—

 
(3,257
)
 
—

Fixed assets, net
—

 
20

 
42

 
421

 
—

 
483

Goodwill
—

 
—

 
—

 
2,937

 
—

 
2,937

Other intangible assets, net
—

 
—

 
—

 
450

 
—

 
450

Investments in associates
—

 
147

 
—

 
22

 
—

 
169

Deferred tax assets
—

 
—

 
—

 
9

 
—

 
9

Pension benefits asset
—

 
—

 
—

 
314

 
—

 
314

Other non-current assets
3

 
8

 
2

 
207

 
—

 
220

Non-current amounts due from Group undertakings
—

 
518

 
740

 
—

 
(1,258
)
 
—

Total non-current assets
3

 
3,229

 
1,505

 
4,360

 
(4,515
)
 
4,582

TOTAL ASSETS
$
3,687

 
$
4,182

 
$
2,576

 
$
16,303

 
$
(11,313
)
 
$
15,435

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Fiduciary liabilities
$
—

 
$
—

 
$
—

 
$
8,948

 
$
—

 
$
8,948

Deferred revenue and accrued expenses
1

 
4

 
30

 
584

 
—

 
619

Income taxes payable
—

 
—

 
7

 
55

 
(29
)
 
33

Short-term debt and current portion of long-term debt
—

 
17

 
149

 
1

 
—

 
167

Deferred tax liabilities
—

 
—

 
—

 
21

 
—

 
21

Other current liabilities
67

 
11

 
46

 
320

 
—

 
444

Amounts due to Group undertakings
—

 
4,374

 
1,499

 
896

 
(6,769
)
 
—

Total current liabilities
68

 
4,406

 
1,731

 
10,825

 
(6,798
)
 
10,232

NON-CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
838

 
—

 
—

 
—

 
(838
)
 
—

Long-term debt
796

 
765

 
581

 
—

 
—

 
2,142

Liabilities for pension benefits
—

 
—

 
—

 
284

 
—

 
284

Deferred tax liabilities
—

 
—

 
—

 
128

 
—

 
128

Provisions for liabilities
—

 
—

 
—

 
194

 
—

 
194

Other non-current liabilities
—

 
—

 
17

 
372

 
—

 
389

Non-current amounts due to Group undertakings
—

 
—

 
518

 
740

 
(1,258
)
 
—

Total non-current liabilities
1,634

 
765

 
1,116

 
1,718

 
(2,096
)
 
3,137

TOTAL LIABILITIES
$
1,702

 
$
5,171

 
$
2,847

 
$
12,543

 
$
(8,894
)
 
$
13,369


138

Notes to the financial statements

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REDEEMABLE NONCONTROLLING INTEREST
—

 
—

 
—

 
59

 
—

 
59

 
 
 
 
 
 
 
 
 
 
 
 
EQUITY
 

 
 

 
 

 
 

 
 

 
 

Total Willis Group Holdings stockholders’ equity
1,985

 
(989
)
 
(271
)
 
3,679

 
(2,419
)
 
1,985

Noncontrolling interests
—

 
—

 
—

 
22

 
—

 
22

Total equity
1,985

 
(989
)
 
(271
)
 
3,701

 
(2,419
)
 
2,007

TOTAL LIABILITIES AND EQUITY
$
3,687

 
$
4,182

 
$
2,576

 
$
16,303

 
$
(11,313
)
 
$
15,435



139

Willis Group Holdings plc

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
ASSETS
CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
3

 
$
3

 
$
—

 
$
790

 
$
—

 
$
796

Accounts receivable, net
—

 
—

 
4

 
1,037

 
—

 
1,041

Fiduciary assets
—

 
—

 
—

 
8,412

 
—

 
8,412

Deferred tax assets
—

 
—

 
—

 
16

 
(1
)
 
15

Other current assets
1

 
21

 
10

 
186

 
(21
)
 
197

Amounts due by group undertakings
4,051

 
903

 
1,317

 
1,484

 
(7,755
)
 
—

Total current assets
4,055

 
927

 
1,331

 
11,925

 
(7,777
)
 
10,461

NON-CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
—

 
2,838

 
1,021

 
—

 
(3,859
)
 
—

Fixed assets, net
—

 
15

 
51

 
415

 
—

 
481

Goodwill
—

 
—

 
—

 
2,838

 
—

 
2,838

Other intangible assets, net
—

 
—

 
—

 
353

 
—

 
353

Investments in associates
—

 
156

 
—

 
20

 
—

 
176

Deferred tax assets
—

 
—

 
—

 
7

 
—

 
7

Pension benefits asset
—

 
—

 
—

 
278

 
—

 
278

Other non-current assets
4

 
9

 
5

 
188

 
—

 
206

Non-current amounts due by group undertakings
—

 
518

 
690

 
—

 
(1,208
)
 
—

Total non-current assets
4

 
3,536

 
1,767

 
4,099

 
(5,067
)
 
4,339

TOTAL ASSETS
$
4,059

 
$
4,463

 
$
3,098

 
$
16,024

 
$
(12,844
)
 
$
14,800

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Fiduciary liabilities
$
—

 
$
—

 
$
—

 
$
8,412

 
$
—

 
$
8,412

Deferred revenue and accrued expenses
2

 
1

 
28

 
555

 
—

 
586

Income taxes payable
—

 
3

 
—

 
39

 
(21
)
 
21

Short-term debt and current portion of long-term debt
—

 
15

 
—

 
—

 
—

 
15

Deferred tax liabilities
—

 
—

 
—

 
25

 
—

 
25

Other current liabilities
62

 
15

 
38

 
300

 
—

 
415

Amounts due to group undertakings
—

 
4,760

 
1,662

 
1,333

 
(7,755
)
 
—

Total current liabilities
64

 
4,794

 
1,728

 
10,664

 
(7,776
)
 
9,474

NON-CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
985

 
—

 
—

 
—

 
(985
)
 
—

Long-term debt
795

 
782

 
733

 
1

 
—

 
2,311

Liabilities for pension benefits
—

 
—

 
—

 
136

 
—

 
136

Deferred tax liabilities
—

 
1

 
—

 
55

 
—

 
56

Provisions for liabilities
—

 
—

 
—

 
206

 
—

 
206

Other non-current liabilities
—

 
—

 
48

 
326

 
—

 
374

Non-current amounts due to group undertakings
—

 
—

 
518

 
690

 
(1,208
)
 
—

Total non-current liabilities
1,780

 
783

 
1,299

 
1,414

 
(2,193
)
 
3,083

TOTAL LIABILITIES
$
1,844

 
$
5,577

 
$
3,027

 
$
12,078

 
$
(9,969
)
 
$
12,557


140

Notes to the financial statements

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
EQUITY
 

 
 

 
 

 
 

 
 

 
 

Total Willis Group Holdings stockholders’ equity
2,215

 
(1,114
)
 
71

 
3,918

 
(2,875
)
 
2,215

Noncontrolling interests
—

 
—

 
—

 
28

 
—

 
28

Total equity
2,215

 
(1,114
)
 
71

 
3,946

 
(2,875
)
 
2,243

TOTAL LIABILITIES AND EQUITY
$
4,059

 
$
4,463

 
$
3,098

 
$
16,024

 
$
(12,844
)
 
$
14,800



141

Willis Group Holdings plc

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
(35
)
 
$
387

 
$
265

 
$
212

 
$
(352
)
 
$
477

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
—

 
1

 
6

 
(1
)
 
6

Additions to fixed assets
—

 
(9
)
 
(10
)
 
(95
)
 
1

 
(113
)
Additions to intangibles assets
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Acquisitions of subsidiaries, net of cash acquired
—

 
—

 
—

 
(241
)
 
—

 
(241
)
Payments to acquire other investments
—

 
—

 
—

 
(10
)
 
—

 
(10
)
Proceeds from sale of operations, net of cash disposed
—

 
—

 
—

 
86

 
—

 
86

Proceeds from intercompany investing activities
361

 
—

 
120

 
435

 
(916
)
 
—

Repayments of intercompany investing activities
—

 
(53
)
 
(131
)
 
(46
)
 
230

 
—

Additional investment in subsidiaries
(31
)
 
—

 
—

 
—

 
31

 
—

Net cash provided by (used in) investing activities
330

 
(62
)
 
(20
)
 
131

 
(655
)
 
(276
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Debt issuance costs
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Repayments of debt
—

 
(15
)
 
—

 
—

 
—

 
(15
)
Repurchase of shares
(213
)
 
—

 
—

 
—

 
—

 
(213
)
Proceeds from issue of shares
134

 
—

 
—

 
31

 
(31
)
 
134

Excess tax benefits from share-based payment arrangements
—

 
—

 
—

 
5

 
—

 
5

Dividends paid
(210
)
 
—

 
—

 
(352
)
 
352

 
(210
)
Acquisition of noncontrolling interests
—

 
(4
)
 
—

 
—

 
—

 
(4
)
Dividends paid to noncontrolling interests
—

 
—

 
—

 
(17
)
 
—

 
(17
)
Proceeds from intercompany financing activities
—

 
46

 
4

 
180

 
(230
)
 
—

Repayments of intercompany financing activities
—

 
(353
)
 
(249
)
 
(314
)
 
916

 
—

Net cash used in financing activities
(289
)
 
(326
)
 
(245
)
 
(470
)
 
1,007

 
(323
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
6

 
(1
)
 
—

 
(127
)
 
—

 
(122
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
—

 
(39
)
 
—

 
(39
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
3

 
3

 
—

 
790

 
—

 
796

CASH AND CASH EQUIVALENTS, END OF YEAR
$
9

 
$
2

 
$
—

 
$
624

 
$
—

 
$
635



142

Notes to the financial statements

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
4

 
$
125

 
$
7

 
$
662

 
$
(237
)
 
$
561

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
—

 
3

 
9

 
—

 
12

Additions to fixed assets
—

 
(7
)
 
(11
)
 
(94
)
 
—

 
(112
)
Additions to intangible assets
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Acquisitions of subsidiaries, net of cash acquired
—

 
(237
)
 
(230
)
 
(30
)
 
467

 
(30
)
Payments to acquire other investments
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Proceeds from sale of associates
—

 
—

 
—

 
4

 
—

 
4

Proceeds from sale of operations, net of cash disposed
—

 
—

 
230

 
257

 
(467
)
 
20

Proceeds from intercompany investing activities
383

 
211

 
36

 
60

 
(690
)
 
—

Repayments of intercompany investing activities
(347
)
 
(442
)
 
(120
)
 
(780
)
 
1,689

 
—

Net cash provided by (used in) investing activities
36

 
(475
)
 
(92
)
 
(588
)
 
999

 
(120
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Senior notes issued
—

 
522

 
—

 
—

 
—

 
522

Debt issuance costs
—

 
(8
)
 
—

 
—

 
—

 
(8
)
Repayments of debt
—

 
(15
)
 
(521
)
 
—

 
—

 
(536
)
Tender premium on extinguishment of senior notes
—

 
—

 
(65
)
 
—

 
—

 
(65
)
Proceeds from issue of shares
155

 
—

 
—

 
—

 
—

 
155

Excess tax benefits from share-based payment arrangements
—

 
—

 
—

 
2

 
—

 
2

Dividends paid
(193
)
 
—

 
(230
)
 
(7
)
 
237

 
(193
)
Acquisition of noncontrolling interests
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Dividends paid to noncontrolling interests
—

 
—

 
—

 
(10
)
 
—

 
(10
)
Proceeds from intercompany financing activities
—

 
321

 
901

 
467

 
(1,689
)
 
—

Repayments of intercompany financing activities
—

 
(467
)
 
—

 
(223
)
 
690

 
—

Net cash (used in) provided by financing activities
(38
)
 
353

 
85

 
225

 
(762
)
 
(137
)
INCREASE IN CASH AND CASH EQUIVALENTS
2

 
3

 
—

 
299

 
—

 
304

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
—

 
(8
)
 
—

 
(8
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
1

 
—

 
—

 
499

 
—

 
500

CASH AND CASH EQUIVALENTS, END OF YEAR
$
3

 
$
3

 
$
—

 
$
790

 
$
—

 
$
796



143

Willis Group Holdings plc

28. FINANCIAL INFORMATION FOR PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2012
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
(23
)
 
$
1,504

 
$
(44
)
 
$
(97
)
 
$
(815
)
 
$
525

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
—

 
—

 
5

 
—

 
5

Additions to fixed assets
—

 
(7
)
 
(19
)
 
(109
)
 
—

 
(135
)
Additions to intangible assets
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Acquisitions of subsidiaries, net of cash acquired
—

 
—

 
—

 
(33
)
 
—

 
(33
)
Payments to acquire other investments
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Proceeds from intercompany investing activities
256

 
216

 
44

 
1,230

 
(1,746
)
 
—

Repayments of intercompany investing activities
—

 
(318
)
 
(10
)
 
(81
)
 
409

 
—

Net cash provided by (used in) investing activities
256

 
(109
)
 
15

 
1,003

 
(1,337
)
 
(172
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Repayments of debt
—

 
(15
)
 
—

 
—

 
—

 
(15
)
Proceeds from issue of other debt
—

 
1

 
—

 
—

 
—

 
1

Repurchase of shares
(100
)
 
—

 
—

 
—

 
—

 
(100
)
Proceeds from issue of shares
53

 
—

 
—

 
—

 
—

 
53

Excess tax benefits from share-based payment arrangements
—

 
—

 
—

 
2

 
—

 
2

Dividends paid
(185
)
 
—

 
—

 
(815
)
 
815

 
(185
)
Proceeds from sale of noncontrolling interest
—

 
—

 
—

 
3

 
—

 
3

Acquisition of noncontrolling interests
—

 
—

 
—

 
(39
)
 
—

 
(39
)
Dividends paid to noncontrolling interests
—

 
—

 
—

 
(11
)
 
—

 
(11
)
Cash received on intercompany financing activities
—

 
81

 
—

 
328

 
(409
)
 
—

Cash paid on intercompany financing activities
—

 
(1,462
)
 
(134
)
 
(150
)
 
1,746

 
—

Net cash used in financing activities
(232
)
 
(1,395
)
 
(134
)
 
(682
)
 
2,152

 
(291
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1

 
—

 
(163
)
 
224

 
—

 
62

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
—

 
2

 
—

 
2

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
—

 
—

 
163

 
273

 
—

 
436

CASH AND CASH EQUIVALENTS, END OF YEAR
$
1

 
$
—

 
$
—

 
$
499

 
$
—

 
$
500



144

Willis Group Holdings plc


29.
FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES
On March 17, 2011, the Company issued senior notes totaling $800 million in a registered public offering. These debt securities were issued by Willis Group Holdings (‘Holdings Debt Securities’) and are guaranteed by certain of the Company’s subsidiaries. Therefore, the Company is providing the condensed consolidating financial information below. The following 100 percent directly or indirectly owned subsidiaries fully and unconditionally guarantee the Holdings Debt Securities on a joint and several basis: Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, Trinity Acquisition Limited (previously registered as Trinity Acquisition plc), Willis Group Limited and Willis North America (the ‘Guarantors’).
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.
Presented below is condensed consolidating financial information for:

(i)
Willis Group Holdings, which is the Parent Issuer;

(ii)
the Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent;

(iii)
Other, which are the non-guarantor subsidiaries, on a combined basis;

(iv)
Consolidating adjustments; and

(v)
the Consolidated Company.
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets for the year ended December 31, 2014 of Willis Group Holdings and the Guarantors.









145

Willis Group Holdings plc

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2014
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
REVENUES
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
8

 
$
3,759

 
$
—

 
$
3,767

Investment income
—

 
—

 
16

 
—

 
16

Other income
—

 
—

 
19

 
—

 
19

Total revenues
—

 
8

 
3,794

 
—

 
3,802

EXPENSES
 

 
 

 
 

 
 

 
 

Salaries and benefits
(1
)
 
(81
)
 
(2,232
)
 
—

 
(2,314
)
Other operating expenses
(16
)
 
(133
)
 
(510
)
 
—

 
(659
)
Depreciation expense
—

 
(21
)
 
(71
)
 
—

 
(92
)
Amortization of intangible assets
—

 
—

 
(54
)
 
—

 
(54
)
Restructuring expenses
—

 
(14
)
 
(22
)
 
—

 
(36
)
Total expenses
(17
)
 
(249
)
 
(2,889
)
 
—

 
(3,155
)
OPERATING (LOSS) INCOME
(17
)
 
(241
)
 
905

 
—

 
647

Other (expense) income, net
(15
)
 
(220
)
 
11

 
230

 
6

Income from Group undertakings
—

 
424

 
102

 
(526
)
 
—

Expenses due to Group undertakings
—

 
(102
)
 
(424
)
 
526

 
—

Interest expense
(43
)
 
(80
)
 
(12
)
 
—

 
(135
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(75
)
 
(219
)
 
582

 
230

 
518

Income taxes
—

 
49

 
(208
)
 
—

 
(159
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(75
)
 
(170
)
 
374

 
230

 
359

Interest in earnings of associates, net of tax
—

 
10

 
4

 
—

 
14

Equity account for subsidiaries
437

 
588

 
—

 
(1,025
)
 
—

NET INCOME
362

 
428

 
378

 
(795
)
 
373

Less: Net income attributable to noncontrolling interests
—

 
—

 
(11
)
 
—

 
(11
)
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
362

 
$
428

 
$
367

 
$
(795
)
 
$
362



146

Notes to the financial statements

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2014
 
Willis
Group
Holdings—the Parent Issuer
 
The Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
Comprehensive (loss) income
$
(11
)
 
$
69

 
$
49

 
$
(113
)
 
$
(6
)
Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
(5
)
 
—

 
(5
)
Comprehensive (loss) income attributable to Willis Group Holdings
$
(11
)
 
$
69

 
$
44

 
$
(113
)
 
$
(11
)


147

Willis Group Holdings plc

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2013
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
REVENUES
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
8

 
$
3,625

 
$
—

 
$
3,633

Investment income
—

 
—

 
15

 
—

 
15

Other income
—

 
—

 
7

 
—

 
7

Total revenues
—

 
8

 
3,647

 
—

 
3,655

EXPENSES
 

 
 

 
 

 
 

 
 

Salaries and benefits
(1
)
 
(103
)
 
(2,103
)
 
—

 
(2,207
)
Other operating expenses
(5
)
 
(232
)
 
(399
)
 
—

 
(636
)
Depreciation expense
—

 
(23
)
 
(71
)
 
—

 
(94
)
Amortization of intangible assets
—

 
—

 
(55
)
 
—

 
(55
)
Total expenses
(6
)
 
(358
)
 
(2,628
)
 
—

 
(2,992
)
OPERATING (LOSS) INCOME
(6
)
 
(350
)
 
1,019

 
—

 
663

Other income (expense), net
5

 
(4
)
 
31

 
(10
)
 
22

Income from Group undertakings
—

 
466

 
86

 
(552
)
 
—

Expenses due to Group undertakings
(10
)
 
(86
)
 
(456
)
 
552

 
—

Loss on extinguishment of debt
—

 
(60
)
 
—

 
—

 
(60
)
Interest expense
(42
)
 
(79
)
 
(5
)
 
—

 
(126
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(53
)
 
(113
)
 
675

 
(10
)
 
499

Income taxes
—

 
23

 
(145
)
 
—

 
(122
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(53
)
 
(90
)
 
530

 
(10
)
 
377

Interest in earnings of associates, net of tax
—

 
9

 
(9
)
 
—

 
—

Equity account for subsidiaries
418

 
498

 
—

 
(916
)
 
—

NET INCOME
365

 
417

 
521

 
(926
)
 
377

Less: Net income attributable to noncontrolling interests
—

 
—

 
(12
)
 
—

 
(12
)
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
365

 
$
417

 
$
509

 
$
(926
)
 
$
365



148

Notes to the financial statements

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2013
 
Willis
Group
Holdings—the Parent Issuer
 
The Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
Comprehensive income
$
522

 
$
565

 
$
636

 
$
(1,189
)
 
$
534

Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
(12
)
 
—

 
(12
)
Comprehensive income attributable to Willis Group Holdings
$
522

 
$
565

 
$
624

 
$
(1,189
)
 
$
522




149

Willis Group Holdings plc

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2012
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
REVENUES
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
—

 
$
3,458

 
$
—

 
$
3,458

Investment income
—

 
1

 
17

 
—

 
18

Other income
—

 
—

 
4

 
—

 
4

Total revenues
—

 
1

 
3,479

 
—

 
3,480

EXPENSES
 

 
 

 
 

 
 

 
 

Salaries and benefits
(2
)
 
(96
)
 
(2,377
)
 
—

 
(2,475
)
Other operating expenses
(6
)
 
(158
)
 
(436
)
 
—

 
(600
)
Depreciation expense
—

 
(16
)
 
(63
)
 
—

 
(79
)
Amortization of intangible assets
—

 
—

 
(59
)
 
—

 
(59
)
Goodwill impairment charge
—

 
—

 
(492
)
 
—

 
(492
)
Total expenses
(8
)
 
(270
)
 
(3,427
)
 
—

 
(3,705
)
OPERATING (LOSS) INCOME
(8
)
 
(269
)
 
52

 
—

 
(225
)
Other income (expense), net
2

 
(3
)
 
17

 
—

 
16

Income from Group undertakings
—

 
409

 
111

 
(520
)
 
—

Expenses due to Group undertakings
—

 
(106
)
 
(414
)
 
520

 
—

Interest expense
(43
)
 
(77
)
 
(8
)
 
—

 
(128
)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(49
)
 
(46
)
 
(242
)
 
—

 
(337
)
Income taxes
—

 
65

 
(166
)
 
—

 
(101
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(49
)
 
19

 
(408
)
 
—

 
(438
)
Interest in earnings of associates, net of tax
—

 
8

 
(3
)
 
—

 
5

Equity account for subsidiaries
(397
)
 
(424
)
 
—

 
821

 
—

NET LOSS
(446
)
 
(397
)
 
(411
)
 
821

 
(433
)
Less: Net income attributable to noncontrolling interests
—

 
—

 
(13
)
 
—

 
(13
)
NET LOSS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
(446
)
 
$
(397
)
 
$
(424
)
 
$
821

 
$
(446
)


150

Notes to the financial statements

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2012
 
Willis
Group
Holdings—the Parent Issuer
 
The Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
Comprehensive loss
$
(552
)
 
$
(494
)
 
$
(519
)
 
$
1,026

 
$
(539
)
Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
(13
)
 
—

 
(13
)
Comprehensive loss attributable to Willis Group Holdings
$
(552
)
 
$
(494
)
 
$
(532
)
 
$
1,026

 
$
(552
)

 








151

Willis Group Holdings plc

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2014
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
ASSETS
 

 
 

 
 

 
 

 
 

CURRENT ASSETS
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
9

 
$
2

 
$
624

 
$
—

 
$
635

Accounts receivable, net
—

 
4

 
1,040

 
—

 
1,044

Fiduciary assets
—

 
—

 
8,948

 
—

 
8,948

Deferred tax assets
—

 
—

 
12

 
—

 
12

Other current assets
1

 
37

 
205

 
(29
)
 
214

Amounts due from group undertakings
3,674

 
731

 
1,114

 
(5,519
)
 
—

Total current assets
3,684

 
774

 
11,943

 
(5,548
)
 
10,853

NON-CURRENT ASSETS
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
—

 
3,528

 
—

 
(3,528
)
 
—

Fixed assets, net
—

 
62

 
421

 
—

 
483

Goodwill
—

 
—

 
2,937

 
—

 
2,937

Other intangible assets, net
—

 
—

 
450

 
—

 
450

Investments in associates
—

 
147

 
22

 
—

 
169

Deferred tax assets
—

 
—

 
9

 
—

 
9

Pension benefits asset
—

 
—

 
314

 
—

 
314

Other non-current assets
3

 
10

 
207

 
—

 
220

Non-current amounts due from group undertakings
—

 
740

 
—

 
(740
)
 
—

Total non-current assets
3

 
4,487

 
4,360

 
(4,268
)
 
4,582

TOTAL ASSETS
$
3,687

 
$
5,261

 
$
16,303

 
$
(9,816
)
 
$
15,435

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 
 

 
 

 
 

CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

Fiduciary liabilities
$
—

 
$
—

 
$
8,948

 
$
—

 
$
8,948

Deferred revenue and accrued expenses
1

 
34

 
584

 
—

 
619

Income taxes payable
—

 
7

 
55

 
(29
)
 
33

Short-term debt and current portion on long-term debt
—

 
166

 
1

 
—

 
167

Deferred tax liabilities
—

 
—

 
21

 
—

 
21

Other current liabilities
67

 
57

 
320

 
—

 
444

Amounts due to group undertakings
—

 
4,623

 
896

 
(5,519
)
 
—

Total current liabilities
68

 
4,887

 
10,825

 
(5,548
)
 
10,232

NON-CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
838

 
—


—

 
(838
)
 
—

Long-term debt
796

 
1,346

 
—

 
—

 
2,142

Liabilities for pension benefits
—

 
—

 
284

 
—

 
284

Deferred tax liabilities
—

 
—

 
128

 
—

 
128

Provisions for liabilities
—

 
—

 
194

 
—

 
194

Other non-current liabilities
—

 
17

 
372

 
—

 
389

Non-current amounts due to group undertakings
—

 
—

 
740

 
(740
)
 
—

Total non-current liabilities
1,634

 
1,363

 
1,718

 
(1,578
)
 
3,137

TOTAL LIABILITIES
$
1,702

 
$
6,250

 
$
12,543

 
$
(7,126
)
 
$
13,369


152

Notes to the financial statements

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2014
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
REDEEMABLE NONCONTROLLING INTEREST
—

 
—

 
59

 
—

 
59

 
 
 
 
 
 
 
 
 
 
EQUITY
 

 
 

 
 

 
 

 
 

Total Willis Group Holdings stockholders’ equity
1,985

 
(989
)
 
3,679

 
(2,690
)
 
1,985

Noncontrolling interests
—

 
—

 
22

 
—

 
22

Total equity
1,985

 
(989
)
 
3,701

 
(2,690
)
 
2,007

TOTAL LIABILITIES AND EQUITY
$
3,687

 
$
5,261

 
$
16,303

 
$
(9,816
)
 
$
15,435


153

Willis Group Holdings plc

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2013
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
ASSETS
 

 
 

 
 

 
 

 
 

CURRENT ASSETS
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
3

 
$
3

 
$
790

 
$
—

 
$
796

Accounts receivable, net
—

 
4

 
1,037

 
—

 
1,041

Fiduciary assets
—

 
—

 
8,412

 
—

 
8,412

Deferred tax assets
—

 
—

 
16

 
(1
)
 
15

Other current assets
1

 
31

 
186

 
(21
)
 
197

Amounts due from group undertakings
4,051

 
975

 
1,484

 
(6,510
)
 
—

Total current assets
4,055

 
1,013

 
11,925

 
(6,532
)
 
10,461

NON-CURRENT ASSETS
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
—

 
3,788

 
—

 
(3,788
)
 
—

Fixed assets, net
—

 
66

 
415

 
—

 
481

Goodwill
—

 
—

 
2,838

 
—

 
2,838

Other intangible assets, net
—

 
—

 
353

 
—

 
353

Investments in associates
—

 
156

 
20

 
—

 
176

Deferred tax assets
—

 
—

 
7

 
—

 
7

Pension benefits asset
—

 
—

 
278

 
—

 
278

Other non-current assets
4

 
14

 
188

 
—

 
206

Non-current amounts due from group undertakings
—

 
690

 
—

 
(690
)
 
—

Total non-current assets
4

 
4,714

 
4,099

 
(4,478
)
 
4,339

TOTAL ASSETS
$
4,059

 
$
5,727

 
$
16,024

 
$
(11,010
)
 
$
14,800

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 
 

 
 

 
 
CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

Fiduciary liabilities
$
—

 
$
—

 
$
8,412

 
$
—

 
$
8,412

Deferred revenue and accrued expenses
2

 
29

 
555

 
—

 
586

Income taxes payable
—

 
3

 
39

 
(21
)
 
21

Short-term debt and current portion of long-term debt
—

 
15

 
—

 
—

 
15

Deferred tax liabilities
—

 
—

 
25

 
—

 
25

Other current liabilities
62

 
53

 
300

 
—

 
415

Amounts due to group undertakings
—

 
5,177

 
1,333

 
(6,510
)
 
—

Total current liabilities
64

 
5,277

 
10,664

 
(6,531
)
 
9,474

NON-CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
985

 
—

 
—

 
(985
)
 
—

Long-term debt
795

 
1,515

 
1

 
—

 
2,311

Liabilities for pension benefits
—

 
—

 
136

 
—

 
136

Deferred tax liabilities
—

 
1

 
55

 
—

 
56

Provisions for liabilities
—

 
—

 
206

 
—

 
206

Other non-current liabilities
—

 
48

 
326

 
—

 
374

Non-current amounts due to group undertakings
—

 
—

 
690

 
(690
)
 
—

Total non-current liabilities
1,780

 
1,564

 
1,414

 
(1,675
)
 
3,083

TOTAL LIABILITIES
$
1,844

 
$
6,841

 
$
12,078

 
$
(8,206
)
 
$
12,557





154

Notes to the financial statements

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Balance Sheet
 
As at December 31, 2013
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
EQUITY
 

 
 

 
 

 
 

 
 

Total Willis Group Holdings stockholders’ equity
2,215

 
(1,114
)
 
3,918

 
(2,804
)
 
2,215

Noncontrolling interests
—

 
—

 
28

 
—

 
28

Total equity
2,215

 
(1,114
)
 
3,946

 
(2,804
)
 
2,243

TOTAL LIABILITIES AND EQUITY
$
4,059

 
$
5,727

 
$
16,024

 
$
(11,010
)
 
$
14,800



155

Willis Group Holdings plc

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2014
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
(35
)
 
$
652

 
$
212

 
$
(352
)
 
$
477

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
1

 
6

 
(1
)
 
6

Additions to fixed assets
—

 
(19
)
 
(95
)
 
1

 
(113
)
Additions to intangibles assets
—

 
—

 
(4
)
 
—

 
(4
)
Acquisitions of subsidiaries, net of cash acquired
—

 
—

 
(241
)
 
—

 
(241
)
Payments to acquire other investments
—

 
—

 
(10
)
 
—

 
(10
)
Proceeds from disposal of operations, net of cash disposed
—

 
—

 
86

 
—

 
86

Proceeds from intercompany investing activities
361

 
120

 
435

 
(916
)
 
—

Repayments of intercompany investing activities
—

 
(180
)
 
(46
)
 
226

 
—

Additional investment in subsidiaries
(31
)
 
—

 
—

 
31

 
—

Net cash provided by (used in) investing activities
330

 
(78
)
 
131

 
(659
)
 
(276
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

Debt issuance costs
—

 
—

 
(3
)
 
—

 
(3
)
Repayments of debt
—

 
(15
)
 
—

 
—

 
(15
)
Repurchase of shares
(213
)
 
—

 
—

 
—

 
(213
)
Proceeds from the issue of shares
134

 
—

 
31

 
(31
)
 
134

Excess tax benefits from share-based payment arrangements
—

 
—

 
5

 
—

 
5

Dividends paid
(210
)
 
—

 
(352
)
 
352

 
(210
)
Acquisition of noncontrolling interests
—

 
(4
)
 
—

 
—

 
(4
)
Dividends paid to noncontrolling interests
—

 
—

 
(17
)
 
—

 
(17
)
Proceeds from intercompany financing activities
—

 
46

 
180

 
(226
)
 
—

Repayments of intercompany financing activities
—

 
(602
)
 
(314
)
 
916

 
—

Net cash used in financing activities
(289
)
 
(575
)
 
(470
)
 
1,011

 
(323
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
6

 
(1
)
 
(127
)
 
—

 
(122
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
(39
)
 
—

 
(39
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
3

 
3

 
790

 
—

 
796

CASH AND CASH EQUIVALENTS, END OF YEAR
$
9

 
$
2

 
$
624

 
$
—

 
$
635



156

Notes to the financial statements

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2013
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
$
4

 
$
(98
)
 
$
662

 
$
(7
)
 
$
561

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
3

 
9

 
—

 
12

Additions to fixed assets
—

 
(18
)
 
(94
)
 
—

 
(112
)
Additions to intangible assets
—

 
—

 
(7
)
 
—

 
(7
)
Acquisitions of subsidiaries, net of cash acquired
—

 
(237
)
 
(30
)
 
237

 
(30
)
Payments to acquire other investments
—

 
—

 
(7
)
 
—

 
(7
)
Proceeds from sale of associates
—

 
—

 
4

 
—

 
4

Proceeds from sale of operations, net of cash disposed
—

 
—

 
257

 
(237
)
 
20

Proceeds from intercompany investing activities
383

 
223

 
60

 
(666
)
 
—

Repayments of intercompany investing activities
(347
)
 
(120
)
 
(780
)
 
1,247

 
—

Net cash provided by (used in) investing activities
36

 
(149
)
 
(588
)
 
581

 
(120
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

Senior notes issued
—

 
522

 
—

 
—

 
522

Debt issuance costs
—

 
(8
)
 
—

 
—

 
(8
)
Repayments of debt
—

 
(536
)
 
—

 
—

 
(536
)
Tender premium on extinguishment of senior notes
—

 
(65
)
 
—

 
—

 
(65
)
Proceeds from the issue of shares
155

 
—

 
—

 
—

 
155

Excess tax benefits from share-based payment arrangements
—

 
—

 
2

 
—

 
2

Dividends paid
(193
)
 
—

 
(7
)
 
7

 
(193
)
Acquisition of noncontrolling interests
—

 
—

 
(4
)
 
—

 
(4
)
Dividends paid to noncontrolling interests
—

 
—

 
(10
)
 
—

 
(10
)
Proceeds from intercompany financing activities
—

 
780

 
467

 
(1,247
)
 
—

Repayments of intercompany financing activities
—

 
(443
)
 
(223
)
 
666

 
—

Net cash (used in) provided by financing activities
(38
)
 
250

 
225

 
(574
)
 
(137
)
INCREASE IN CASH AND CASH EQUIVALENTS
2

 
3

 
299

 
—

 
304

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
(8
)
 
—

 
(8
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
1

 
—

 
499

 
—

 
500

CASH AND CASH EQUIVALENTS, END OF YEAR
$
3

 
$
3

 
$
790

 
$
—

 
$
796



157

Willis Group Holdings plc

29. FINANCIAL INFORMATION FOR PARENT ISSUER, GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)

Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2012
 
Willis
Group
Holdings —
the Parent
Issuer
 
The
Guarantors
 
Other
 
Consolidating
adjustments
 
Consolidated
 
(millions)
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES
$
(23
)
 
$
1,460

 
$
(97
)
 
$
(815
)
 
$
525

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
—

 
5

 
—

 
5

Additions to fixed assets
—

 
(26
)
 
(109
)
 
—

 
(135
)
Additions to intangible assets
—

 
—

 
(2
)
 
—

 
(2
)
Acquisitions of subsidiaries, net of cash acquired
—

 
—

 
(33
)
 
—

 
(33
)
Payments to acquire other investments
—

 
—

 
(7
)
 
—

 
(7
)
Proceeds from intercompany investing activities
256

 
150

 
1,230

 
(1,636
)
 
—

Repayments of intercompany investing activities
—

 
(328
)
 
(81
)
 
409

 
—

Net cash provided by (used in) investing activities
256

 
(204
)
 
1,003

 
(1,227
)
 
(172
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

Repayments of debt
—

 
(15
)
 
—

 
—

 
(15
)
Proceeds from the issue of other debt
—

 
1

 
—

 
—

 
1

Repurchase of shares
(100
)
 
—

 
—

 
—

 
(100
)
Proceeds from issue of shares
53

 
—

 
—

 
—

 
53

Excess tax benefits from share-based payment arrangements
—

 
—

 
2

 
—

 
2

Dividends paid
(185
)
 
—

 
(815
)
 
815

 
(185
)
Proceeds from sale of noncontrolling interest
—

 
—

 
3

 
—

 
3

Acquisition of noncontrolling interests
—

 
—

 
(39
)
 
—

 
(39
)
Dividends paid to noncontrolling interests
—

 
—

 
(11
)
 
—

 
(11
)
Proceeds from intercompany financing activities
—

 
81

 
328

 
(409
)
 
—

Repayments of intercompany financing activities
—

 
(1,486
)
 
(150
)
 
1,636

 
—

Net cash used in financing activities
(232
)
 
(1,419
)
 
(682
)
 
2,042

 
(291
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1

 
(163
)
 
224

 
—

 
62

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
2

 
—

 
2

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
—

 
163

 
273

 
—

 
436

CASH AND CASH EQUIVALENTS, END OF YEAR
$
1

 
$
—

 
$
499

 
$
—

 
$
500



158

Willis Group Holdings plc


30.
FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES
Trinity Acquisition Limited (previously registered as Trinity Acquisition plc) has $525 million senior notes outstanding that were issued on August 15, 2013.
All direct obligations under the senior notes were jointly and severally, irrevocably and fully and unconditionally guaranteed by Willis Netherlands Holdings B.V, Willis Investment UK Holdings Limited, TA I Limited, Willis Group Limited and Willis North America, Inc, collectively the 'Other Guarantors', and with Willis Group Holdings, the 'Guarantor Companies'.
The guarantor structure described above differs from the guarantor structure associated with the senior notes issued by the Company and Willis North America (the ‘Willis North America Debt Securities’) in that Trinity Acquisition Limited is the issuer and not a subsidiary guarantor, and Willis North America, Inc. is a subsidiary guarantor.
Presented below is condensed consolidating financial information for:
(i)
Willis Group Holdings, which is a guarantor, on a parent company only basis;
(ii)
the Other Guarantors, which are all 100 percent directly or indirectly owned subsidiaries of the parent. Willis Netherlands Holdings B.V, Willis Investment UK Holdings Limited and TA I Limited are all direct or indirect parents of the issuer and Willis Group Limited and Willis North America Inc., are 100 percent directly or indirectly owned subsidiaries or the issuer;
(iii)
Trinity Acquisition Limited, which is the issuer and is a 100 percent indirectly owned subsidiary of the parent;
(iv)
Other, which are the non-guarantor subsidiaries, on a combined basis;
(v)
Consolidating adjustments; and
(vi)
the Consolidated Company.
The equity method has been used for investments in subsidiaries in the condensed consolidating balance sheets of Willis Group Holdings, the Other Guarantors and the Issuer.







159

Willis Group Holdings plc

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REVENUES
 

 
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
8

 
$
—

 
$
3,759

 
$
—

 
$
3,767

Investment income
—

 
—

 
—

 
16

 
—

 
16

Other income
—

 
—

 
—

 
19

 
—

 
19

Total revenues
—

 
8

 
—

 
3,794

 
—

 
3,802

EXPENSES
 

 
 

 
 

 
 

 
 

 
 

Salaries and benefits
(1
)
 
(81
)
 
—

 
(2,232
)
 
—

 
(2,314
)
Other operating expenses
(16
)
 
(133
)
 
—

 
(510
)
 
—

 
(659
)
Depreciation expense
—

 
(21
)
 
—

 
(71
)
 
—

 
(92
)
Amortization of intangible assets
—

 
—

 
—

 
(54
)
 
—

 
(54
)
Restructuring expenses
—

 
(14
)
 
—

 
(22
)
 
—

 
(36
)
Total expenses
(17
)
 
(249
)
 
—

 
(2,889
)
 
—

 
(3,155
)
OPERATING (LOSS) INCOME
(17
)
 
(241
)
 
—

 
905

 
—

 
647

Other (expense) income, net
(15
)
 
(220
)
 
—

 
11

 
230

 
6

Income from Group undertakings
—

 
450

 
91

 
102

 
(643
)
 
—

Expenses due to Group undertakings
—

 
(190
)
 
(29
)
 
(424
)
 
643

 
—

Interest expense
(43
)
 
(44
)
 
(36
)
 
(12
)
 
—

 
(135
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(75
)
 
(245
)
 
26

 
582

 
230

 
518

Income taxes
—

 
54

 
(5
)
 
(208
)
 
—

 
(159
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(75
)
 
(191
)
 
21

 
374

 
230

 
359

Interest in earnings of associates, net of tax
—

 
10

 
—

 
4

 
—

 
14

Equity account for subsidiaries
437

 
609

 
314

 
—

 
(1,360
)
 
—

NET INCOME
362

 
428

 
335

 
378

 
(1,130
)
 
373

Less: Net income attributable to noncontrolling interests
—

 
—

 
—

 
(11
)
 
—

 
(11
)
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
362

 
$
428

 
$
335

 
$
367

 
$
(1,130
)
 
$
362




160

Notes to the financial statements

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
Comprehensive (loss) income
$
(11
)
 
$
69

 
$
(5
)
 
$
49

 
$
(108
)
 
$
(6
)
Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Comprehensive (loss) income attributable to Willis Group Holdings
$
(11
)
 
$
69

 
$
(5
)
 
$
44

 
$
(108
)
 
$
(11
)


161

Willis Group Holdings plc

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REVENUES
 

 
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
8

 
$
—

 
$
3,625

 
$
—

 
$
3,633

Investment income
—

 
—

 
—

 
15

 
—

 
15

Other income
—

 
—

 
—

 
7

 
—

 
7

Total revenues
—

 
8

 
—

 
3,647

 
—

 
3,655

EXPENSES
 

 
 

 
 

 
 

 
 

 
 
Salaries and benefits
(1
)
 
(103
)
 
—

 
(2,103
)
 
—

 
(2,207
)
Other operating expenses
(5
)
 
(231
)
 
(1
)
 
(399
)
 
—

 
(636
)
Depreciation expense
—

 
(23
)
 
—

 
(71
)
 
—

 
(94
)
Amortization of intangible assets
—

 
—

 
—

 
(55
)
 
—

 
(55
)
Total expenses
(6
)
 
(357
)
 
(1
)
 
(2,628
)
 
—

 
(2,992
)
OPERATING (LOSS) INCOME
(6
)
 
(349
)
 
(1
)
 
1,019

 
—

 
663

Other income (expense), net
5

 
(4
)
 
—

 
31

 
(10
)
 
22

Income from Group undertakings
—

 
491

 
68

 
86

 
(645
)
 
—

Expenses due to Group undertakings
(10
)
 
(153
)
 
(26
)
 
(456
)
 
645

 
—

Loss on extinguishment of debt
—

 
(60
)
 
—

 
—

 
—

 
(60
)
Interest expense
(42
)
 
(61
)
 
(18
)
 
(5
)
 
—

 
(126
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(53
)
 
(136
)
 
23

 
675

 
(10
)
 
499

Income taxes
—

 
29

 
(6
)
 
(145
)
 
—

 
(122
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(53
)
 
(107
)
 
17

 
530

 
(10
)
 
377

Interest in earnings of associates, net of tax
—

 
9

 
—

 
(9
)
 
—

 
—

Equity account for subsidiaries
418

 
515

 
344

 
—

 
(1,277
)
 
—

NET INCOME
365

 
417

 
361

 
521

 
(1,287
)
 
377

Less: Net income attributable to noncontrolling interests
—

 
—

 
—

 
(12
)
 
—

 
(12
)
NET INCOME ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
365

 
$
417

 
$
361

 
$
509

 
$
(1,287
)
 
$
365


162

Notes to the financial statements

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
Comprehensive income
$
522

 
$
565

 
$
504

 
$
636

 
$
(1,693
)
 
$
534

Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(12
)
 
—

 
(12
)
Comprehensive income attributable to Willis Group Holdings
$
522

 
$
565

 
$
504

 
$
624

 
$
(1,693
)
 
$
522



163

Willis Group Holdings plc

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Operations
 
Year Ended December 31, 2012
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REVENUES
 

 
 

 
 

 
 

 
 

 
 

Commissions and fees
$
—

 
$
—

 
$
—

 
$
3,458

 
$
—

 
$
3,458

Investment income
—

 
1

 
—

 
17

 
—

 
18

Other income
—

 
—

 
—

 
4

 
—

 
4

Total revenues
—

 
1

 
—

 
3,479

 
—

 
3,480

EXPENSES
 

 
 

 
 

 
 

 
 

 
 

Salaries and benefits
(2
)
 
(96
)
 
—

 
(2,377
)
 
—

 
(2,475
)
Other operating expenses
(6
)
 
(158
)
 
—

 
(436
)
 
—

 
(600
)
Depreciation expense
—

 
(16
)
 
—

 
(63
)
 
—

 
(79
)
Amortization of intangible assets
—

 
—

 
—

 
(59
)
 
—

 
(59
)
Goodwill impairment
—

 
—

 
—

 
(492
)
 
—

 
(492
)
Total expenses
(8
)
 
(270
)
 
—

 
(3,427
)
 
—

 
(3,705
)
OPERATING (LOSS) INCOME
(8
)
 
(269
)
 
—

 
52

 
—

 
(225
)
Other income (expense), net
2

 
(4
)
 
1

 
17

 
—

 
16

Income from Group undertakings
—

 
436

 
79

 
111

 
(626
)
 
—

Expenses due to Group undertakings
—

 
(185
)
 
(27
)
 
(414
)
 
626

 
—

Interest expense
(43
)
 
(69
)
 
(8
)
 
(8
)
 
—

 
(128
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(49
)
 
(91
)
 
45

 
(242
)
 
—

 
(337
)
Income taxes
—

 
76

 
(11
)
 
(166
)
 
—

 
(101
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST IN EARNINGS OF ASSOCIATES
(49
)
 
(15
)
 
34

 
(408
)
 
—

 
(438
)
Interest in earnings of associates, net of tax
—

 
8

 
—

 
(3
)
 
—

 
5

Equity account for subsidiaries
(397
)
 
(390
)
 
(461
)
 
—

 
1,248

 
—

NET LOSS
(446
)
 
(397
)
 
(427
)
 
(411
)
 
1,248

 
(433
)
Less: Net income attributable to noncontrolling interests
—

 
—

 
—

 
(13
)
 
—

 
(13
)
NET LOSS ATTRIBUTABLE TO WILLIS GROUP HOLDINGS
$
(446
)
 
$
(397
)
 
$
(427
)
 
$
(424
)
 
$
1,248

 
$
(446
)













164

Notes to the financial statements

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Comprehensive Income
 
Year Ended December 31, 2012
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
Comprehensive loss
$
(552
)
 
$
(494
)
 
$
(528
)
 
$
(519
)
 
$
1,554

 
$
(539
)
Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Comprehensive loss attributable to Willis Group Holdings
$
(552
)
 
$
(494
)
 
$
(528
)
 
$
(532
)
 
$
1,554

 
$
(552
)













165

Willis Group Holdings plc

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Balance Sheet
 
As at December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
ASSETS
 

 
 

 
 

 
 

 
 

 
 

CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
9

 
$
2

 
$
—

 
$
624

 
$
—

 
$
635

Accounts receivable, net
—

 
4

 
—

 
1,040

 
—

 
1,044

Fiduciary assets
—

 
—

 
—

 
8,948

 
—

 
8,948

Deferred tax assets
—

 
—

 
—

 
12

 
—

 
12

Other current assets
1

 
41

 
1

 
205

 
(34
)
 
214

Amounts due from group undertakings
3,674

 
1,154

 
797

 
1,114

 
(6,739
)
 
—

Total current assets
3,684

 
1,201

 
798

 
11,943

 
(6,773
)
 
10,853

NON-CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
—

 
3,478

 
2,578

 
—

 
(6,056
)
 
—

Fixed assets, net
—

 
62

 
—

 
421

 
—

 
483

Goodwill
—

 
—

 
—

 
2,937

 
—

 
2,937

Other intangible assets, net
—

 
—

 
—

 
450

 
—

 
450

Investments in associates
—

 
147

 
—

 
22

 
—

 
169

Deferred tax assets
—

 
—

 
—

 
9

 
—

 
9

Pension benefits asset
—

 
—

 
—

 
314

 
—

 
314

Other non-current assets
3

 
2

 
8

 
207

 
—

 
220

Non-current amounts due from group undertakings
—

 
740

 
518

 
—

 
(1,258
)
 
—

Total non-current assets
3

 
4,429

 
3,104

 
4,360

 
(7,314
)
 
4,582

TOTAL ASSETS
$
3,687

 
$
5,630

 
$
3,902

 
$
16,303

 
$
(14,087
)
 
$
15,435

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Fiduciary liabilities
$
—

 
$
—

 
$
—

 
$
8,948

 
$
—

 
$
8,948

Deferred revenue and accrued expenses
1

 
34

 
—

 
584

 
—

 
619

Income taxes payable
—

 
7

 
5

 
55

 
(34
)
 
33

Short-term debt and current portion of long-term debt
—

 
149

 
17

 
1

 
—

 
167

Deferred tax liabilities
—

 
—

 
—

 
21

 
—

 
21

Other current liabilities
67

 
46

 
11

 
320

 
—

 
444

Amounts due to group undertakings
—

 
5,267

 
576

 
896

 
(6,739
)
 
—

Total current liabilities
68

 
5,503

 
609

 
10,825

 
(6,773
)
 
10,232

NON-CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
838

 
—

 
—

 
—

 
(838
)
 
—

Long-term debt
796

 
581

 
765

 
—

 
—

 
2,142

Liabilities for pension benefits
—

 
—

 
—

 
284

 
—

 
284

Deferred tax liabilities
—

 
—

 
—

 
128

 
—

 
128

Provisions for liabilities
—

 
—

 
—

 
194

 
—

 
194

Other non-current liabilities
—

 
17

 
—

 
372

 
—

 
389

Non-current amounts due to group undertakings
—

 
518

 
—

 
740

 
(1,258
)
 
—

Total non-current liabilities
1,634

 
1,116

 
765

 
1,718

 
(2,096
)
 
3,137

TOTAL LIABILITIES
$
1,702

 
$
6,619

 
$
1,374

 
$
12,543

 
$
(8,869
)
 
$
13,369


166

Notes to the financial statements

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Balance Sheet
 
As at December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
REDEEMABLE NONCONTROLLING INTEREST
—

 
—

 
—

 
59

 
—

 
59

 
 
 
 
 
 
 
 
 
 
 
 
EQUITY
 

 
 

 
 

 
 

 
 

 
 

Total Willis Group Holdings stockholders’ equity
1,985

 
(989
)
 
2,528

 
3,679

 
(5,218
)
 
1,985

Noncontrolling interests
—

 
—

 
—

 
22

 
—

 
22

Total equity
1,985

 
(989
)
 
2,528

 
3,701

 
(5,218
)
 
2,007

TOTAL LIABILITIES AND EQUITY
$
3,687

 
$
5,630

 
$
3,902

 
$
16,303

 
$
(14,087
)
 
$
15,435



167

Willis Group Holdings plc

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Balance Sheet
 
As at December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
ASSETS
CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
3

 
$
3

 
$
—

 
$
790

 
$
—

 
$
796

Accounts receivable, net
—

 
4

 
—

 
1,037

 
—

 
1,041

Fiduciary assets
—

 
—

 
—

 
8,412

 
—

 
8,412

Deferred tax assets
—

 
—

 
—

 
16

 
(1
)
 
15

Other current assets
1

 
36

 
1

 
186

 
(27
)
 
197

Amounts due from group undertakings
4,051

 
975

 
793

 
1,484

 
(7,303
)
 
—

Total current assets
4,055

 
1,018

 
794

 
11,925

 
(7,331
)
 
10,461

NON-CURRENT ASSETS
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
—

 
3,716

 
2,705

 
—

 
(6,421
)
 
—

Fixed assets, net
—

 
66

 
—

 
415

 
—

 
481

Goodwill
—

 
—

 
—

 
2,838

 
—

 
2,838

Other intangible assets, net
—

 
—

 
—

 
353

 
—

 
353

Investments in associates
—

 
156

 
—

 
20

 
—

 
176

Deferred tax assets
—

 
—

 
—

 
7

 
—

 
7

Pension benefits asset
—

 
—

 
—

 
278

 
—

 
278

Other non-current assets
4

 
5

 
9

 
188

 
—

 
206

Non-current amounts due from group undertakings
—

 
1,113

 
518

 
—

 
(1,631
)
 
—

Total non-current assets
4

 
5,056

 
3,232

 
4,099

 
(8,052
)
 
4,339

TOTAL ASSETS
$
4,059

 
$
6,074

 
$
4,026

 
$
16,024

 
$
(15,383
)
 
$
14,800

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Fiduciary liabilities
$
—

 
$
—

 
$
—

 
$
8,412

 
$
—

 
$
8,412

Deferred revenue and accrued expenses
2

 
29

 
—

 
555

 
—

 
586

Income taxes payable
—

 
4

 
5

 
39

 
(27
)
 
21

Short-term debt and current portion of long-term debt
—

 
—

 
15

 
—

 
—

 
15

Deferred tax liabilities
—

 
—

 
—

 
25

 
—

 
25

Other current liabilities
62

 
42

 
11

 
300

 
—

 
415

Amounts due to group undertakings
—

 
5,813

 
157

 
1,333

 
(7,303
)
 
—

Total current liabilities
64

 
5,888

 
188

 
10,664

 
(7,330
)
 
9,474

NON-CURRENT LIABILITIES
 

 
 

 
 

 
 

 
 

 
 

Investments in subsidiaries
985

 
—

 
—

 
—

 
(985
)
 
—

Long-term debt
795

 
733

 
782

 
1

 
—

 
2,311

Liabilities for pension benefits
—

 
—

 
—

 
136

 
—

 
136

Deferred tax liabilities
—

 
1

 
—

 
55

 
—

 
56

Provisions for liabilities
—

 
—

 
—

 
206

 
—

 
206

Other non-current liabilities
—

 
48

 
—

 
326

 
—

 
374

Non-current amounts due to group undertakings
—

 
518

 
423

 
690

 
(1,631
)
 
—

Total non-current liabilities
1,780

 
1,300

 
1,205

 
1,414

 
(2,616
)
 
3,083

TOTAL LIABILITIES
$
1,844

 
$
7,188

 
$
1,393

 
$
12,078

 
$
(9,946
)
 
$
12,557


168

Notes to the financial statements

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Balance Sheet
 
As at December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
EQUITY
 

 
 

 
 

 
 

 
 

 
 

Total Willis Group Holdings stockholders’ equity
2,215

 
(1,114
)
 
2,633

 
3,918

 
(5,437
)
 
2,215

Noncontrolling interests
—

 
—

 
—

 
28

 
—

 
28

Total equity
2,215

 
(1,114
)
 
2,633

 
3,946

 
(5,437
)
 
2,243

TOTAL LIABILITIES AND EQUITY
$
4,059

 
$
6,074

 
$
4,026

 
$
16,024

 
$
(15,383
)
 
$
14,800



169

Willis Group Holdings plc

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2014
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
(35
)
 
$
781

 
$
181

 
$
212

 
$
(662
)
 
$
477

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
1

 
—

 
6

 
(1
)
 
6

Additions to fixed assets
—

 
(19
)
 
—

 
(95
)
 
1

 
(113
)
Additions to intangible assets
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Acquisitions of subsidiaries, net of cash acquired
—

 
—

 
—

 
(241
)
 
—

 
(241
)
Payments to acquire other investments
—

 
—

 
—

 
(10
)
 
—

 
(10
)
Proceeds from sale of operations, net of cash disposed
—

 
—

 
—

 
86

 
—

 
86

Proceeds from intercompany investing activities
361

 
120

 
—

 
435

 
(916
)
 
—

Repayments of intercompany investing activities
—

 
(180
)
 
(4
)
 
(46
)
 
230

 
—

Additional investment in subsidiaries
(31
)
 
—

 
—

 
—

 
31

 
—

Net cash provided by (used in) investing activities
330

 
(78
)
 
(4
)
 
131

 
(655
)
 
(276
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Debt issuance costs
—

 
—

 
—

 
(3
)
 
—

 
(3
)
Repayments of debt
—

 
—

 
(15
)
 
—

 
—

 
(15
)
Repurchase of shares
(213
)
 
—

 
—

 
—

 
—

 
(213
)
Proceeds from issue of shares
134

 
—

 
—

 
31

 
(31
)
 
134

Excess tax benefits from share-based payment arrangement
—

 
—

 
—

 
5

 
—

 
5

Dividends paid
(210
)
 
(155
)
 
(155
)
 
(352
)
 
662

 
(210
)
Acquisition of noncontrolling interests
—

 
(4
)
 
—

 
—

 
—

 
(4
)
Dividends paid to noncontrolling interests
—

 
—

 
—

 
(17
)
 
—

 
(17
)
Proceeds from intercompany financing activities
—

 
50

 
—

 
180

 
(230
)
 
—

Repayments of intercompany financing activities
—

 
(595
)
 
(7
)
 
(314
)
 
916

 
—

Net cash used in financing activities
(289
)
 
(704
)
 
(177
)
 
(470
)
 
1,317

 
(323
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
6

 
(1
)
 
—

 
(127
)
 
—

 
(122
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
—

 
(39
)
 
—

 
(39
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
3

 
3

 
—

 
790

 
—

 
796

CASH AND CASH EQUIVALENTS, END OF YEAR
$
9

 
$
2

 
$
—

 
$
624

 
$
—

 
$
635



170

Notes to the financial statements

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2013
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
4

 
$
399

 
$
63

 
$
662

 
$
(567
)
 
$
561

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
3

 
—

 
9

 
—

 
12

Additions to fixed assets
—

 
(18
)
 
—

 
(94
)
 
—

 
(112
)
Additions to intangible assets
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Acquisitions of subsidiaries, net of cash acquired
—

 
(237
)
 
—

 
(30
)
 
237

 
(30
)
Payments to acquire other investments
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Proceeds from sale of associates
—

 
—

 
—

 
4

 
—

 
4

Proceeds from sale of operations, net of cash disposed
—

 
—

 
—

 
257

 
(237
)
 
20

Proceeds from intercompany investing activities
383

 
160

 
132

 
60

 
(735
)
 
—

Repayments of intercompany investing activities
(347
)
 
(120
)
 
(442
)
 
(780
)
 
1,689

 
—

Net cash provided by (used in) investing activities
36

 
(212
)
 
(310
)
 
(588
)
 
954

 
(120
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Senior notes issued
—

 
—

 
522

 
—

 
—

 
522

Debt issuance costs
—

 
—

 
(8
)
 
—

 
—

 
(8
)
Repayments of debt
—

 
(521
)
 
(15
)
 
—

 
—

 
(536
)
Tender premium on extinguishment of senior notes
—

 
(65
)
 
—

 
—

 
—

 
(65
)
Proceeds from issue of shares
155

 
—

 
—

 
—

 
—

 
155

Excess tax benefits from share-based payment arrangement
—

 
—

 
—

 
2

 
—

 
2

Dividends paid
(193
)
 
(230
)
 
(330
)
 
(7
)
 
567

 
(193
)
Acquisition of noncontrolling interests
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Dividends paid to noncontrolling interests
—

 
—

 
—

 
(10
)
 
—

 
(10
)
Proceeds from intercompany financing activities
—

 
1,075

 
147

 
467

 
(1,689
)
 
—

Repayments of intercompany financing activities
—

 
(443
)
 
(69
)
 
(223
)
 
735

 
—

Net cash (used in) provided by financing activities
(38
)
 
(184
)
 
247

 
225

 
(387
)
 
(137
)
INCREASE IN CASH AND CASH EQUIVALENTS
2

 
3

 
—

 
299

 
—

 
304

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
—

 
(8
)
 
—

 
(8
)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
1

 
—

 
—

 
499

 
—

 
500

CASH AND CASH EQUIVALENTS, END OF YEAR
$
3

 
$
3

 
$
—

 
$
790

 
$
—

 
$
796



171

Willis Group Holdings plc

30. FINANCIAL INFORMATION FOR ISSUER, PARENT GUARANTOR, OTHER GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES (Continued)


Condensed Consolidating Statement of Cash Flows
 
Year Ended December 31, 2012
 
Willis
Group
Holdings
 
The Other
Guarantors
 
The
Issuer
 
Other
 
Consolidating
adjustments
 
Consolidated
 
 
 
 
 
(millions)
 
 
 
 
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
(23
)
 
$
2,393

 
$
1,356

 
$
(97
)
 
$
(3,104
)
 
$
525

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Proceeds on disposal of fixed and intangible assets
—

 
—

 
—

 
5

 
—

 
5

Additions to fixed assets
—

 
(26
)
 
—

 
(109
)
 
—

 
(135
)
Additions to intangible assets
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Acquisitions of subsidiaries, net of cash acquired
—

 
—

 
—

 
(33
)
 
—

 
(33
)
Payments to acquire other investments
—

 
—

 
—

 
(7
)
 
—

 
(7
)
Proceeds from intercompany investing activities
256

 
176

 
78

 
1,230

 
(1,740
)
 
—

Repayments of intercompany investing activities
—

 
(197
)
 
(131
)
 
(81
)
 
409

 
—

Net cash provided by (used in) investing activities
256

 
(47
)
 
(53
)
 
1,003

 
(1,331
)
 
(172
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

 
 

 
 

 
 

 
 

Repayments of debt
—

 
(4
)
 
(11
)
 
—

 
—

 
(15
)
Proceeds from issue of other debt
—

 
—

 
1

 
—

 
—

 
1

Repurchase of shares
(100
)
 
—

 
—

 
—

 
—

 
(100
)
Proceeds from issue of shares
53

 
—

 
—

 
—

 
—

 
53

Excess tax benefits from share-based payment arrangements
—

 
—

 
—

 
2

 
—

 
2

Dividends paid
(185
)
 
(1,220
)
 
(1,069
)
 
(815
)
 
3,104

 
(185
)
Proceeds from sale of noncontrolling interests
—

 
—

 
—

 
3

 
—

 
3

Acquisition of noncontrolling interests
—

 
—

 
—

 
(39
)
 
—

 
(39
)
Dividends paid to noncontrolling interests
—

 
—

 
—

 
(11
)
 
—

 
(11
)
Proceeds from intercompany financing activities
—

 
81

 
—

 
328

 
(409
)
 
—

Repayments of intercompany financing activities
—

 
(1,366
)
 
(224
)
 
(150
)
 
1,740

 
—

Net cash used in financing activities
(232
)
 
(2,509
)
 
(1,303
)
 
(682
)
 
4,435

 
(291
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1

 
(163
)
 
—

 
224

 
—

 
62

Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
—

 
2

 
—

 
2

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
—

 
163

 
—

 
273

 
—

 
436

CASH AND CASH EQUIVALENTS, END OF YEAR
$
1

 
$
—

 
$
—

 
$
499

 
$
—

 
$
500



172

Notes to the financial statements

31.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 2014 and 2013 were as follows:
 
Three Months Ended
 
March 31,
 
June 30,
 
September 30,
 
December 31,
 
(millions, except per share data)
2014
 

 
 

 
 

 
 

Total revenues
$
1,097

 
$
935

 
$
812

 
$
958

Total expenses
(771
)
 
(787
)
 
(778
)
 
(819
)
Net income (loss)
250

 
48

 
(8
)
 
83

Net income (loss) attributable to Willis Group Holdings
246

 
47

 
(7
)
 
76

Earnings per share
 

 
 

 
 

 
 

— Basic
$
1.37

 
$
0.26

 
$
(0.04
)
 
$
0.43

— Diluted
$
1.35

 
$
0.26

 
$
(0.04
)
 
$
0.42

2013
 

 
 

 
 

 
 

Total revenues
$
1,051

 
$
890

 
$
795

 
$
919

Total expenses
(770
)
 
(723
)
 
(725
)
 
(774
)
Net income (loss)
223

 
107

 
(27
)
 
74

Net income (loss) attributable to Willis Group Holdings
219

 
105

 
(27
)
 
68

Earnings per share
 

 
 

 
 

 
 

— Basic
$
1.27

 
$
0.60

 
$
(0.15
)
 
$
0.38

— Diluted
$
1.24

 
$
0.59

 
$
(0.15
)
 
$
0.37


32.
SUBSEQUENT EVENTS

In January, 2015 the Company reached an agreement to acquire a majority interest in Miller Insurance Services LLP, a leading London-based wholesale specialist. The transaction is subject to customary closing conditions and regulatory approval and is expected to close in the second quarter of 2015.


173

Willis Group Holdings plc


Item 9 — Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A — Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2014, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Group Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and the Group Chief Financial Officer concluded that, as of that date, the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) are effective.

Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014, based on the criteria related to internal control over financial reporting described in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2014.
Our independent registered public accountants, Deloitte LLP, who have audited and reported on our financial statements, have undertaken an assessment of the Company’s internal control over financial reporting. Deloitte’s report is presented below.
February 24, 2015

174

Controls and procedures

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Willis Group Holdings Public Limited Company,
Dublin, Ireland
We have audited the internal control over financial reporting of Willis Group Holdings Public Limited Company and subsidiaries (the 'Company') as of December 31, 2014, based on criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our report dated February 24, 2015 expressed an unqualified opinion on those financial statements.

/s/ Deloitte LLP
London, United Kingdom
February 24, 2015

175

Willis Group Holdings plc


Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal controls over financial reporting during the three months ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B — Other Information
None.

PART III
Item 10 — Directors, Executive Officers and Corporate Governance
Information with respect to the executive officers of the Company is provided in Part I, Item 1 above under the heading “Executive Officers of the Registrant”. All other information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2015.
Item 11 — Executive Compensation
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2015.

Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Except for the information below regarding securities authorized for issuance under equity compensation plans required by Item 201(d) of Regulation S-K, the information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2015.

Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information, as of December 31, 2014, about the securities authorized for issuance under our equity compensation plans, and is categorized according to whether or not the equity plan was previously approved by shareholders:
Plan Category
 
Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
 
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(i)
 
Number of Shares Remaining Available for Future Issuance
 
 
 
 
 
 
 
 
 
Equity Compensation Plans Approved by Security Holders
 
12,499,128

(ii) 
$
35.99

 
6,397,310

(iii) 
Equity Compensation Plans Not Approved by Security Holders
 
240,040

(iv) 
$
23.59

 
126,231

(v) 
Total
 
12,739,168

 
$
35.96

 
6,523,541

 
_________________________________

(i)
The weighted-average exercise price set forth in this column is calculated excluding RSUs or other awards for which recipients are not required to pay an exercise price to receive the shares subject to the awards.

(ii)
Includes options and RSUs outstanding under the 2001 Share Purchase and Option Plan, 2008 Plan and 2012 Plan.

(iii)
Represents shares available for issuance pursuant to awards that may be granted under the 2012 Plan (6,037,908 shares) and the 2010 North American Employee Stock Purchase Plan (359,402 shares).


176

Directors and Officers

(iv)
Includes options and RSUs outstanding under the following plans that were assumed by Willis in connection with the acquisition by Willis of Hilb, Rogal & Hobbs: the 2000 HRH Plan and the 2007 HRH Plan. No future awards will be granted under the 2000 HRH Plan. The above amounts do not include an aggregate of 45,000 options held by certain non-employee directors pursuant to which they receive the intrinsic value in cash rather than shares upon exercise of the options. These options were subsequently exercised.

(v)
Represents shares that remain available for issuance under the 2007 HRH Plan. Willis is authorized to grant awards under the 2007 HRH Plan until 2017 to employees who were formerly employed by Hilb, Rogal & Hobbs and to new employees who have joined Willis or one of its subsidiaries since October 1, 2008, the date that the acquisition of Hilb, Rogal & Hobbs was completed.


177

Willis Group Holdings plc


Item 13 — Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2015.

Item 14 — Principal Accounting Fees and Services
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than April 30, 2015.


PART IV
Item 15 — Exhibits, Financial Statement Schedules
The following documents are filed as a part of this report:
(1) Consolidated Financial Statements of the Company consisting of:
(a) Report of Independent Registered Public Accounting Firm.
(b) Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.
(c) Consolidated Statements of Operations for each of the three years in the period ended December 31, 2014.
(d) Consolidated Statements of Comprehensive (Loss) Income for each of the three years in the period ended December 31, 2014.
(e) Consolidated Balance Sheets as of December 31, 2014 and 2013.
(f) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2014.
(g) Consolidated Statements of Equity for each of the three years in the period ended December 31, 2014.
(h) Notes to the Consolidated Financial Statements.
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or the Notes thereto.
(2) Exhibits:
1.1
Underwriting Agreement, dated August 8, 2013, by and among Trinity Acquisition Limited, as issuer, the guarantors named therein and Barclays Capital Inc. and Morgan Stanley & Co. LLC, as representatives of the several underwriters named therein (incorporated herein by reference to Exhibit No. 1.1 to the Company's Form 8-K filed on August 12, 2013 (SEC File No. 001-16503))
 
 
2.1
Scheme of Arrangement by and between Willis Group Holdings Limited and the Scheme Shareholders (incorporated by reference to Annex A to Willis Group Holdings Limited's Definitive Proxy Statement on Schedule 14A filed on November 2, 2009 (SEC File No. 001-16503))
 
 
3.1
Memorandum and Articles of Association of Willis Group Holdings Public Limited Company (incorporated herein by reference to Exhibit No. 3.1 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))
 
 
3.2
Certificate of Incorporation of Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit No. 3.2 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))
 
 
4.1
Senior Indenture, dated as of July 1, 2005, and First Supplemental Indenture, dated as of July 1, 2005, by and among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition Limited, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York (f/k/a JPMorgan Chase Bank, N.A.), as the Trustee, for the issuance of the 5.625% senior notes due 2015 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 8-K filed on July 1, 2005 (SEC File No. 001-16503))
 
 

178

4.2
Second Supplemental Indenture, dated as of March 28, 2007, by and among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition Limited, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 6.200% senior notes due 2017 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 8-K filed on March 30, 2007 (SEC File No. 001-16503))
 
 
4.3
Third Supplemental Indenture, dated as of October 1, 2008, by and among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition Limited, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 10-Q filed on November 10, 2008 (SEC File No. 001-16503))
 
 
4.4
Fourth Supplemental Indenture, dated as of September 29, 2009, by and among Willis North America Inc., as the Issuer, Willis Group Holdings Limited, Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition Limited, TA IV Limited and Willis Group Public Limited Company, as the Guarantors, and The Bank of New York, as the Trustee, to the Indenture dated as of July 1, 2005, for the issuance of the 7.000% senior notes due 2019 (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Limited's Form 8-K filed on September 29, 2009 (SEC File No. 001-16503))
 
 
4.5
Fifth Supplemental Indenture, dated as of December 31, 2009, by and among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Group Holdings Limited, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition Limited, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))
 
 
4.6
Sixth Supplemental Indenture, dated as of December 22, 2010, by and among Willis North America Inc., as the Issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis Investment UK Holdings Limited, TA I Limited, TA II Limited, TA III Limited, Trinity Acquisition Limited, TA IV Limited and Willis Group Limited, as the Guarantors, and The Bank of New York Mellon, as the Trustee, to the Indenture dated as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Company's Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))
 
 
4.7
Indenture, dated as of March 17, 2011, by and among Willis Group Holdings Public Limited Company, as issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition Limited, Willis Group Limited and Willis North America Inc., as Guarantors, and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on March 17, 2011 (SEC File No. 001-16503))
 
 
4.8
First Supplemental Indenture, dated as of March 17, 2011, by and among Willis Group Holdings Public Limited Company, as Issuer, Willis Netherlands Holdings B.V., Willis Investment Holdings UK Limited, TA I Limited, Trinity Acquisition Limited, Willis Group Limited and Willis North America Inc., as guarantors, and The Bank of New York Mellon, as trustee, to the Indenture dated March 17, 2011, for the issuance of the 4.125% senior notes due 2016 and the 5.750% senior notes due 2021 (incorporated by reference to Exhibit 4.2 to the Company's Form 8-K filed on March 17, 2011 (SEC File No. 001-16503))
 
 
4.9
Indenture, dated as of August 15, 2013, by and among Trinity Acquisition Limited, as issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis North America Inc., Willis Investment Holdings UK Limited, TA I Limited and Willis Group Limited, as guarantors, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on August 15, 2013 (SEC File No. 001-16503))
 
 
4.10
First Supplemental Indenture, dated as of August 15, 2013, by and among Trinity Acquisition Limited, as issuer, Willis Group Holdings Public Limited Company, Willis Netherlands Holdings B.V., Willis North America Inc., Willis Investment Holdings UK Limited, TA I Limited and Willis Group Limited, as guarantors, and Wells Fargo Bank, National Association, as trustee, to the Indenture dated August 15, 2013, for the issuance of 4.625% senior notes due 2023 and 6.125% senior notes due 2043 (incorporated by reference to Exhibit 4.2 to the Company's Form 8-K filed on August 15, 2013 (SEC File No. 001-16503)).
 
 
10.1
Credit Agreement, dated as of December 16, 2011, by and among Trinity Acquisition Limited, Willis Group Holdings Public Limited Company, the Lenders party thereto, Barclays Bank PLC, as Administrative Agent, Swing Line Lender and as an L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))
 
 

179

Willis Group Holdings plc


10.2
First Amendment to Credit Agreement, dated as of July 23, 2013, to the Credit Agreement, dated as of December 12, 2011, by and among Trinity Acquisition Limited, Willis Group Holdings Public Limited Company, the lenders party thereto and Barclays Bank PLC, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on July 25, 2013 (SEC File No. 001-16503))
 
 
10.3
Guaranty Agreement, dated as of December 16, 2011, by and among Trinity Acquisition Limited, Willis Group Holdings Public Limited Company, Barclays Bank PLC, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))
 
 
10.4
Revolving Note and Cash Subordination Agreement, dated as of March 3, 2014, by and among Willis Securities, Inc., as borrower, SunTrust Bank, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on March 4, 2014 (SEC File No. 001-16503))
 
 
10.5
Joinder Agreement, dated as of April 28, 2014, by and among Willis Securities, Inc., SunTrust Bank, as administrative agent, and the lenders party thereto (incorporated herein by reference to Exhibit No. 10.1 to the Company's Form 8-K filed on May 1, 2014 (SEC File No. 001-16503))
 
 
10.6
First Amendment to Revolving Note and Cash Subordination Agreement, dated as of April 28, 2014, by and among Willis Securities, Inc., SunTrust Bank, as administrative agent, and the lenders party thereto (incorporated herein by reference to Exhibit No. 10.2 to the Company's Form 8-K filed on May 1, 2014 (SEC File No. 001-16503))
 
 
10.7
Deed Poll of Assumption, dated as of December 31, 2009, by and between Willis Group Holdings Limited and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 
10.8
Willis Group Senior Management Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 
10.9
Willis Group Holdings 2010 North America Employee Share Purchase Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on April 27, 2010 (SEC File No. 001-16503))†
 
 
10.10
Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.9 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 
10.11
Form of Performance-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on May 10, 2010 (SEC File No. 001-16503))†
 
 
10.12
Form of Time-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 the Company's Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))†
 
 
10.13
Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings 2001 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
 
 
10.14
Form of Restricted Share Unit Award Agreement for Non-Employee Directors under the Willis Group Holdings 2001 Share Purchase Option Plan (incorporated by reference to Exhibit 10.14 to the Company's Form 10-K filed February 29, 2012 (SEC File No. 001-16503))†
 
 
10.15
Form of Performance-Based Option Agreement for the 2011 Long Term Incentive Program under the Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))†
 
 
10.16
Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for US employees) (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))†
 
 
10.17
Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for UK employees) (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on May 3, 2011 (SEC File No. 001-16503))†
 
 
10.18
Form of 2011 Long Term Incentive Program Cash Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on December 20, 2011 (SEC File No. 001-16503))†
 
 
10.19
Rules of the Willis Group Holdings Sharesave Plan 2001 for the United Kingdom (incorporated by reference to Exhibit 10.13 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 

180

10.20
The Willis Group Holdings Irish Sharesave Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on May 5, 2010 (SEC File No. 001-16503))†
 
 
10.21
Willis Group Holdings 2008 Share Purchase and Option Plan (incorporated by reference to Exhibit 10.16 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 
10.22
Form of Performance-Based Restricted Share Units Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
 
 
10.23
Form of Performance-Based Option Award Agreement under the Willis Group Holdings 2008 Share Purchase and Option Plan (for executive officers) (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
 
 
 
 
10.24
Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.19 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 
10.25
Form of Time-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 6, 2010 (SEC File No. 001-16503))†
 
 
10.26
Form of Performance-Based Restricted Share Unit Award Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
 
 
10.27
Form of Time-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on August 6, 2010 (SEC File No. 001-16503))†
 
 
10.28
Form of Performance-Based Option Agreement granted under the Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
 
 
10.29
Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's 8-K filed on April 30, 2012 (SEC File No. 001-16503))†
 
 
10.30
Form of Time-Based Share Option Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))†
 
 
10.31
Form of Performance-Based Share Option Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))†
 
 
10.32
Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))†
 
 
10.33
Form of Performance-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))†
 
 
10.34
Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (for Non-Employee Directors) (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q filed on August 9, 2012 (SEC File No. 001-16503))†
 
 
10.35
Form of Performance-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan for the 2013 Long-Term Incentive Program (incorporated by reference to Exhibit 10.33 to the Company’s Form 10-K filed on February 27, 2014 (SEC File No. 001-16503))†
 
 
10.36
Rules of the Willis Group Holdings Public Limited Company 2012 Sharesave Sub-Plan for the United Kingdom to the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.32 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 
10.37
Form of 2012 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for US employees) Plan (incorporated by reference to Exhibit 10.36 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 

181

Willis Group Holdings plc


10.38
Form of 2012 Long Term Incentive Program Agreement of Restrictive Covenants and Other Obligations (for UK employees) Plan (incorporated by reference to Exhibit 10.37 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 
10.39
Amended and Restated Willis US 2005 Deferred Compensation Plan (incorporated by reference to Exhibit 10.21 to the Company's Form 8-K filed on November 20, 2009 (SEC File No. 001-16503))†
 
 
10.40
First Amendment to the Amended and Restated Willis U.S. 2005 Deferred Compensation Plan, effective June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 9, 2011 (SEC File No. 001-16503))†
 
 
10.41
Second Amendment to the Amended and Restated Willis US 2005 Deferred Compensation Plan (incorporated by reference to Exhibit 10. 6 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))†
 
 
10.42
Instrument Comprising A Guarantee In Favor of Willis Pension Trustees Limited in Respect of the Willis Pension Scheme (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on April 5 2012 (SEC File No. 001-16503))†
 
 
10.43
Schedule of Contributions for the Willis Pension Scheme (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on April 5, 2012 (SEC File No. 001-16503))†
 
 
10.44
Form of Deed of Indemnity of Willis Group Holdings Public Limited Company with directors and officers (incorporated by reference to Exhibit 10.20 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 
10.45
Form of Indemnification Agreement of Willis North America Inc. with directors and officers (incorporated by reference to Exhibit 10.21 to the Company's Form 8-K filed on January 4, 2010 (SEC File No. 001-16503))†
 
 
10.46
Willis Group Holdings Public Limited Company Compensation Policy for Non-Employee Directors (incorporated by reference to Exhibit 10. 1 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))†
 
 
10.47
Employment Agreement, dated as of October 16, 2012, by and between Willis Group Holdings Public Limited Company and Dominic Casserley (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on October 19, 2012 (SEC File No. 001-16503))†
 
 
10.48
Letter agreement, dated January 31, 2014, by and between Willis Group Holdings plc and Dominic Casserley (incorporated by reference to Exhibit 10.48 to the Company’s Form 10-K filed on February 27, 2014 (SEC File No. 001-16503))†
 
 
10.49
Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated May 10, 2013, by and between Dominic Casserley and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))†
 
 
10.50
Form of Performance-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated May 10, 2013, by and between Dominic Casserley and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))†
 
 
10.51
Form of Time-Based Share Option Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated May 10, 2013, by and between Dominic Casserley and Willis Group Holdings Public Limited Company (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q filed on November 5, 2013 (SEC File No. 001-16503))†
 
 
10.52
Form of Time-Based Share Option Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated as of March 31, 2014, by and between Dominic Casserley and Willis Group Holdings Public Limited Company†* 
 
 
10.53
Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated as of March 31, 2014, by and between Dominic Casserley and Willis Group Holdings Public Limited Company†* 
 
 
10.54
Offer Letter, dated June 22, 2010, and Form of Employment Agreement between Willis North America, Inc. and Michael K. Neborak (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on June 23, 2010 (SEC File No. 001-16503))†
 
 

182

10.55
Agreement of Restrictive Covenants and Other Obligations, dated as of August 2, 2010, between the Company and Michael K. Neborak (incorporated by reference to Exhibit 4.1 to Willis Group Holdings Public Limited Company's Form 10-K filed on February 28, 2011 (SEC File No. 001-16503))†
 
 
10.56
Contract of Employment, dated as of February 28, 2011, by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Stephen P. Hearn (incorporated by reference to Exhibit 10.52 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 
10.57
Amendment, dated July 19, 2012, to the Contract of Employment, dated as of February 28, 2011 by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Stephen P. Hearn (incorporated by reference to Exhibit 10.53 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 
10.58
Contract of Employment, dated as of October 16, 2012, by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Stephen P. Hearn (incorporated by reference to Exhibit 10.6 to the Company's Form 8-K filed on October 19, 2012 (SEC File No. 001-16503))†
 
 
10.59
Amendment, dated April 30, 2014, to the Contract of Employment, dated as of October 16, 2012, by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Stephen Hearn (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on May 9, 2014 (SEC File No. 001-16503))†
 
 
10.60
Contract of Employment, dated as of December 17, 2007, by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Tim Wright (incorporated by reference to Exhibit 10.55 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 
10.61
Amendment, dated July 19, 2012, to the Contract of Employment, dated as of December 17, 2007, by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Tim Wright (incorporated by reference to Exhibit 10.56 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 
10.62
Confidentiality Agreement, dated as of January 17, 2008, by and between the Willis Group Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Tim Wright (incorporated by reference to Exhibit 10.57 to the Company's Form 10-K filed on February 28, 2013 (SEC File No. 001-16503))†
 
 
10.63
Amendment, dated April 30, 2014, to the Employment Agreement dated December 17, 2007 by and between Willis Limited, a subsidiary of Willis Group Holdings Public Limited Company, and Tim Wright (incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q filed on May 9, 2014 (SEC File No. 001-16503))†
 
 
10.64
Employment Agreement, dated September 15, 2003 by and between Willis Americas Administration, Inc. and Todd J. Jones (incorporated by reference to Exhibit 10.63 to the Company’s Form 10-K filed on February 27, 2014 (SEC File No. 001-16503))†

 
 
10.65
Letter Agreement, dated August 1, 2013, by and between Willis North America Inc., a subsidiary of Willis Group Holdings Public Limited Company, and Todd J. Jones (incorporated by reference to Exhibit 10.64 to the Company’s Form 10-K filed on February 27, 2014 (SEC File No. 001-16503))†
 
 
10.66
Amendment, dated April 30, 2014, to the Employment Agreement, dated August 1, 2013, by and between Willis North America, Inc., a subsidiary of Willis Group Holdings Public Limited Company, and Todd J. Jones (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on May 9, 2014 (SEC File No. 001-16503))†
 
 
10.67
Separation Letter Agreement, dated as of May 8, 2014, by and between Michael Neborak and Willis North America, Inc. (incorporated herein by reference to Exhibit No. 10.1 to the Company's Form 8-K filed on May 9, 2014 (SEC File No. 001-16503)) † 
 
 
10.68
Employment Agreement, dated as of March 19, 2014, by and between Willis Group Holdings Public Limited Company and John Greene (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on March 23, 2014 (SEC File No. 001-16503)) † 
 
 
10.69
Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public Limited Company 2012 Equity Incentive Plan, dated as of August 11, 2014, by and between John Greene and Willis Group Holdings Public Limited Company†* 
 
 

183

Willis Group Holdings plc


10.70
Nominating Agreement, dated April 25, 2013, by and among Willis Group Holdings Public Limited Company, ValueAct Capital Master Fund, L.P., VA Partners I, LLC, ValueAct Capital Management, L.P., ValueAct Capital Management, LLC, ValueAct Holdings, L.P., ValueAct Holdings GP, LLC and their respective affiliates (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 26, 2013 ((SEC File No. 001-16503))
 
 
10.71
Investment and Share Purchase Agreement, dated as of November 18, 2009, by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.37 to the Company's Form 10-K filed on March 1, 2010 (SEC File No. 001-16503))
 
 
10.72
Shareholders Agreement, dated as of December 17, 2009, by and among Willis Europe BV, Astorg Partners, Soleil, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.38 to the Company's Form 10-K filed on March 1, 2010 (SEC File No. 001-16503))
 
 
10.73
Amended and Restated Shareholders' Agreement, dated as of April 15, 2013, by and among Willis Europe BV, Willis Netherlands Holdings BV, Astorg Partners, GS & Cie Group, Alcee, the Lucas family shareholders, the Gras family shareholders, key managers of Gras Savoye & Cie and other minority shareholders of Gras Savoye (incorporated by reference to Exhibit 10.60 to the Company's Form 10-Q filed on May 8, 2013 (SEC File No. 001-16503))
 
 
12.1
Statement regarding Computation of Ratio of Earnings to Fixed Charges*
21.1
List of subsidiaries*
23.1
Consent of Deloitte LLP*
31.1
Certification Pursuant to Rule 13a-14(a)*
31.2
Certification Pursuant to Rule 13a-14(a)*
32.1
Certification Pursuant to 18 USC. Section 1350*
32.2
Certification Pursuant to 18 USC. Section 1350*
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
_________________________________
* 
Filed herewith.
 
 
† 
Management contract or compensatory plan or arrangement.
 
 


184

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
WILLIS GROUP HOLDINGS PLC
(REGISTRANT)
 
 
 
 
By: 
/s/ JOHN GREENE
 
 
John Greene
 
 
Group Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 24, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated this 24th day of February 2015.

/s/ DOMINIC CASSERLEY
 
/s/ ANNA C. CATALANO
Dominic Casserley
Chief Executive Officer and Director
(Principal Executive Officer)
 

Anna C. Catalano
Director
 
 
 
/s/ ROY GARDNER
 
/s/ THE RT. HON. SIR JEREMY HANLEY, KCMG
Sir Roy Gardner
Director
 
The Rt. Hon. Sir Jeremy Hanley, KCMG
Director
 
 
 
/s/ ROBYN S. KRAVIT
 
/s/ WENDY E. LANE
Robyn S. Kravit
Director
 
Wendy E. Lane
Director
 
 
 
/s/ FRANCISCO LUZON
 
/s/ JAMES F. McCANN
Francisco Luzón
Director
 
James F. McCann
Director
 
 
 
/s/ JAYMIN B. PATEL
 
/s/ DOUGLAS B. ROBERTS
Jaymin B. Patel
Director
 
Douglas B. Roberts
Director
 
 
 
/s/ MICHAEL J. SOMERS
 
/s/ JEFFREY W. UBBEN
Michael J. Somers
Director
 
Jeffrey W. Ubben
Director


185