Consolidated operating income increased 11% to $2.3 billion in 2014 compared with $2.1 billion in 2013. This reflects the combined impact of a 6% increase in revenue and a 5% increase in expense.
Corporate expenses in 2015 were $195 million compared to $204 million in 2014. The lower expenses in 2015 were primarily due to the cost of non-recurring corporate initiatives which occurred in 2014, discussed in more detail below.
having greater influence over asset allocation and overall investment decisions, the Company has agreed to support annual deficit contributions by the U.K. operating companies under certain circumstances, up to GBP 450 million over a seven-year period ("contingent guarantee agreement").
The Company’s additions to fixed assets and capitalized software, which amounted to $325 million in 2015 and $368 million in 2014, primarily relate to computer equipment purchases, the refurbishing and modernizing of office facilities and software development costs.
The Company and its subsidiaries are subject to numerous claims, lawsuits and proceedings including claims for errors and omissions ("E&O"). GAAP requires that a liability be recorded when a loss is both probable and reasonably estimable. Significant management judgment is required to apply this guidance. The Company utilizes case level reviews by inside and outside counsel, an internal actuarial analysis and other analyses to estimate potential losses. The liability is reviewed quarterly and adjusted as developments warrant. In many cases, the Company has not recorded a liability, other than for legal fees to defend the claim, because we are unable, at the present time, to make a determination that a loss is both probable and reasonably estimable. Given the unpredictability of E&O claims and of litigation that could flow from them, it is possible that an adverse outcome in a particular matter could have a material adverse effect on the Company’s businesses, results of operations, financial condition or cash flow in a given quarterly or annual period.
Revenue: Risk and Insurance Services revenue includes insurance commissions, fees for services rendered and interest income on certain fiduciary funds. Insurance commissions and fees for risk transfer services generally are recorded as of the effective date of the applicable policies or, in certain cases (primarily in the Company's reinsurance broking operations), as of the effective date or billing date, whichever is later. A reserve for policy cancellation is provided based on historic and current data on cancellations. Consideration for fee arrangements 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. Fees for non-risk transfer services provided to clients are recognized over the period in which the services are provided, using a proportional performance model. Fees resulting from
In December 2015, Mercer sold its U.S. defined contribution recordkeeping business, recognizing a pre-tax gain of $37 million, which is included in revenue in the consolidated statements of income. The sale agreement includes contingent consideration based on retention and renewal of the client contracts by the acquirer. Additional consideration, if any, will be recognized when all conditions precedent to its receipt have been satisfied.
Goodwill allocable to the Company’s reportable segments is as follows: Risk and Insurance Services, $5.6 billion and Consulting, $2.3 billion.
Net of valuation allowances of $9 million in 2015 and $15 million in 2014.
Net of valuation allowances of $19 million in 2015 and $82 million in 2014.
Of the total unrecognized tax benefits at December 31, 2015, 2014 and 2013, $53 million, $51 million and $71 million, respectively, represent the amount that, if recognized, would favorably affect the effective tax rate in any future periods. The total gross amount of accrued interest and penalties at December 31, 2015, 2014 and 2013, before any applicable federal benefit, was $8 million, $7 million and $10 million, respectively.
The payout of shares in respect of PSUs awarded in 2012 that vested in 2015 on the PSU Scheduled Vesting Date was 200% of target. The payout of shares in respect of PSUs awarded in 2013 and 2014 that vested in 2015 (either in full or on a pro-rata basis due to certain types of termination) was 200% and 167% of target, respectively. In aggregate, 746,370 shares became distributable in respect to PSUs vested in 2015.