In 2014 we noted a continuation of the trend of growing complexity in the reinsurance market and a softening of prices, 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.
(a) As a result of excluding merger and acquisition transaction-related costs from underlying expenses, underlying non-GAAP measures for 2014 have been restated.
As a result of excluding merger and acquisition transaction-related costs from underlying expenses, underlying non-GAAP measures for 2014 have been restated.
The tax rate for 2015 was (10) percent, compared with 31 percent for 2014. The decrease in tax rate over the prior year is mainly attributable to the partial release of the valuation allowance in the US.
The Merger with Towers Watson did not have any impact on Legacy Willis’ liquidity (ability to generate adequate amounts of cash to meet needs for cash), due to the share-for-share nature of the Merger, except for: the acceleration of the dividend paid in December 2015, which would otherwise have been paid in January 2016; and the $400 million tranche drawn on January 4, 2016 under the Legacy Willis 1-year term loan facility, which was used to re-finance debt held by Legacy Towers Watson which became due on acquisition.
Legacy Willis’ principal short-term uses of liquidity and capital resources are operating expenses, capital expenditures, dividends, funding defined benefit pension plans, and servicing of debt, including redemption of senior notes and repayment of borrowings under our 1-year term loan facility.
2014; $277 million dividend payments; $166 million repayments of debt; $146 million capital expenditure related to leasehold improvements and furniture and equipment, including in relation to information technology projects; and $118 million cash contributions, including employees’ salary sacrifice contributions, to our defined benefit pension schemes.
At December 31, 2015 the only mandatory Legacy Willis debt repayments of principal falling due over the next 12 months are $300 million outstanding on our 4.125% senior notes, $592 million outstanding on the 1-year term loan taken out in the fourth quarter of 2015 to fund the acquisition of Gras Savoye, $23 million outstanding under the term loan expiring in 2018, and $79 million outstanding under a bank overdraft arrangement (repaid on January 11, 2016).
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.
Legacy Willis suspended its previously authorized share buyback program on June 30, 2015, pending the completion of the Merger. During 2015, the Company bought back approximately 1,710,000 shares for a total cost of $82 million, of its intended $175 million 2015 buyback program, to offset the increase in shares outstanding resulting from the exercise of employee stock options.
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.
Organic commissions and fees growth was 8.8 percent and there was a 5.6 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 4.9 percent negative impact from foreign currency movements which was driven by the weakening of a basket of currencies versus the US dollar.
The $103 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, 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.
In our capacity as a consultant, technology and solutions and private exchange company we help our clients enhance business performance by improving their ability to attract, retain and motivate qualified employees. We focus on delivering consulting services that help organizations anticipate, identify and capitalize on emerging opportunities in human capital management as well as investment advice to help our clients develop disciplined and efficient strategies to meet their investment goals. We operate the largest private Medicare exchange in the United States. Through this exchange, we help our clients move to a more sustainable economic model by capping and controlling the costs associated with retiree healthcare benefits.
The Merger was consummated on January 4, 2016, pursuant to the previously announced Agreement and Plan of Merger. Immediately following the Merger, the Company effected an amendment to its Constitution and other organizational documents to change its name from Willis Group Holdings Public Limited Company to Willis Towers Watson Public Limited Company.
Fiduciary liabilities represent the obligations to remit fiduciary funds and fiduciary receivables to insurers or insureds.
Basic and diluted earnings per share are calculated by dividing net income attributable to Willis Towers Watson 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.
$6 million (2014: $nil) in respect of international defined benefit pension plans.
The following schedule provides other information concerning Legacy Willis’ other defined benefit pension plans:
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 during 2014.
As of December 31, 2015, Legacy Willis had investments in the following subsidiary undertakings which principally affect the net income or net assets of the Group.
The above pro forma financial information does not reflect the impact of the Gras Savoye acquisition, which was completed on December 29, 2015 because the effects were not material to Willis’ consolidated financial statements had the Gras Savoye transaction, in addition to the Merger, completed on January 1, 2014. Including Gras Savoye in the above financial information