UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 001-16503
WILLIS TOWERS WATSON 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 $0.000304635 per share
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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
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
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
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.
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
definitions of ‘large accelerated filer’, ‘accelerated filer’ and ‘smaller reporting company’ in Rule 12b-2 of the Exchange Act.
No
No
No
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(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
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, 2016 (the last day of the Registrant’s most recently completed second quarter) was $17,200,762,240.
As of February 24, 2017, there were outstanding 135,527,821 ordinary shares, nominal value $0.000304635 per share, of the Registrant.
No
Portions of Part III will be incorporated by reference in accordance with Instruction G(3) to Form 10-K no later than 120 days after the end of the Company’s
fiscal year.
DOCUMENTS INCORPORATED BY REFERENCE
WILLIS TOWERS WATSON
INDEX TO FORM 10-K
For the year ended December 31, 2016
Certain Definitions
Disclaimer Regarding Forward-looking Statements
PART I.
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
PART II.
Item 5
Item 6
Item 7
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
PART III.
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV.
Item 15
Item 16
Signatures
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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Certain Definitions
The following definitions apply throughout this annual report unless the context requires otherwise:
‘We’, ‘Us’, ‘Company’, ‘Willis Towers
Watson’, ‘Our’, ‘Willis Towers Watson
plc’ or ‘WTW’
‘shares’
‘Legacy Willis’ or ‘Willis’
Willis Towers Watson Public Limited Company, a company
organized under the laws of Ireland, and its subsidiaries
The ordinary shares of Willis Towers Watson Public Limited
Company, nominal value $0.000304635 per share
Willis Group Holdings Public Limited Company and its
subsidiaries, predecessor to Willis Towers Watson, prior to the
Merger
‘Legacy Towers Watson’ or ‘Towers
Watson’
Towers Watson & Co. and its subsidiaries
‘Merger’
‘Gras Savoye’
‘Miller’
Merger of Willis Group Holdings Public Limited Company and
Towers Watson & Co. pursuant to the Agreement and Plan of
Merger, dated June 29, 2015, as amended on November 19, 2015,
and completed on January 4, 2016
GS & Cie Groupe SAS
Miller Insurance Services LLP and its subsidiaries
3
Disclaimer Regarding 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, future share repurchases,
growth in commissions and fees, business strategies and planned acquisitions, competitive strengths, goals, the benefits of new
initiatives, growth of our business and operations, plans and references to future successes, and the benefits of the Merger,
including future financial and operating results, plans, objectives, expectations and intentions are forward-looking statements.
Also, when we use words such as ‘may’, ‘will’, ‘would’, ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘intend’, ‘plan’,
‘probably’, or similar expressions, we are making forward-looking statements. Such statements are based upon the current
beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results
may differ from those set forth in the forward-looking statements. All forward-looking disclosure is speculative by its nature.
A number of risks and uncertainties that could cause actual results to differ materially from the results reflected in these
forward-looking statements are identified under Risk Factors in Item 1A of this Annual Report on Form 10-K. These statements
are based on assumptions that may not come true and are subject to significant risks and uncertainties.
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 Annual Report on Form 10-K, 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.
4
PART I.
ITEM 1. BUSINESS
The Company
Willis Towers Watson was formed upon completion of the Merger on January 4, 2016, pursuant to the Agreement and Plan of
Merger dated June 29, 2015, as amended on November 19, 2015 (the ‘Merger Agreement’), between Legacy Willis, Legacy
Towers Watson, and Citadel Merger Sub, Inc., a wholly-owned subsidiary of Willis formed for the purpose of facilitating this
transaction (‘Merger Sub’). Pursuant to the Merger Agreement, Merger Sub merged with and into Towers Watson with Towers
Watson continuing as the surviving corporation and a wholly-owned subsidiary of Willis.
Immediately following the Merger, Legacy Willis effected (i) a consolidation (i.e., a reverse stock split under Irish law) of
Willis ordinary shares whereby every 2.6490 Legacy Willis ordinary shares were consolidated into one Willis Towers Watson
ordinary share (the ‘Consolidation’) and (ii) 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.
We trace our history to 1828, and are a leading global advisory, broking and solutions company that helps clients around the
world turn risk into a path for growth.
We continue to integrate Willis and Towers Watson while creating a unified platform for global growth, including positioning
the Company to leverage our mutual distribution strength to enhance market penetration, expand our global footprint and create
a strong platform for further innovation. The fully integrated Company will have a more comprehensive offering of services
and solutions to provide to clients across four business segments: Human Capital and Benefits; Corporate Risk and Broking;
Investment, Risk and Reinsurance; and Exchange Solutions.
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 large, major multinational corporations to middle-market domestic and international companies. Our clients
include many of the world’s leading corporations, including approximately 88% of the Fortune Global 500 companies and 85%
of the Fortune 1000. We also advise more than three-quarters of the world’s leading insurance companies. We work with major
corporations, emerging growth companies, governmental agencies and not-for-profit institutions in a wide variety of industries,
with many of our client relationships spanning decades. No one client accounted for a significant concentration of revenues in
each of the years ended December 31, 2016, 2015 and 2014. We place insurance with approximately 2,500 insurance carriers,
none of which individually accounted for a significant concentration of the total premiums we placed on behalf of our clients in
2016, 2015 or 2014.
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. 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 Towers Watson) file electronically with the SEC. The SEC’s website is www.sec.gov.
The Company makes available, free of charge through our website, www.willistowerswatson.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 & Risk Committee Charter, Compensation Committee Charter, and
Nominating & Governance Committee Charter are available on our website, www.willistowerswatson.com, in the Investor
Relations 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 Towers Watson Public Limited Company, Brookfield Place, 200 Liberty Street,
New York, NY 10281.
General Information
Willis Towers Watson is a leading global advisory, broking and solutions company that helps clients around the world turn risk
into a path for growth. Willis Towers Watson has more than 41,000 employees and services clients in more than 140 countries
and territories. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of
5
capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections
between talent, assets and ideas - the dynamic formula that drives business performance.
We offer clients a broad range of services to help them to identify and control their risks, and to enhance business performance
by improving their ability to attract, retain and engage a talented workforce. Our risk control 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 help our clients
enhance their business performance by delivering consulting services, technology and solutions 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.
As an 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. We operate the largest private Medicare exchange in
the United States (‘U.S.’). Through this exchange and those for active employees, we help our clients move to a more
sustainable economic model by capping and controlling the costs associated with healthcare benefits.
We are not an insurance company, and therefore we do not underwrite insurable risks for our own account.
We derive the majority of our revenues from either commissions or fees for brokerage or consulting services. We 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. Our fees for consulting services are spread across a variety of complementary businesses that generally remain
steady during times of uncertainty. We have some businesses, such as our health and benefits and administration businesses,
which can be counter cyclical during the early period of a significant economic change.
We and our colleagues serve a diverse base of clients ranging in size from large, major multinational corporations to middle-
market companies in a variety of industries, public institutions, and individual clients. Many of our client relationships span
decades. We work with major corporations, emerging growth companies, governmental agencies and not-for-profit institutions
in a wide variety of industries.
We believe we are one of only a few global advisory, broking and solutions companies in the world possessing the global
operating presence, broad product expertise and extensive distribution network necessary to meet effectively the global needs
of many of our clients.
Below are our revenues and long-lived assets by legal entity for Ireland, our country of domicile, countries with significant
concentrations, and all other foreign countries for each of the years ended December 31, 2016, 2015 and 2014:
Ireland
$
92
$
64
$
51
$
114
$
124
$
121
2016
Revenues
2015
2014
2016
Long-Lived Assets (i)
2015
2014
United States
United Kingdom
Rest of World
Total Foreign Countries
3,395
2,236
2,164
7,795
1,597
1,055
1,113
3,765
1,600
1,057
1,094
3,751
11,400
2,431
2,466
16,297
1,759
2,426
1,951
6,136
$
7,887
$
3,829
$
3,802
$
16,411
$
6,260
$
1,800
1,666
976
4,442
4,563
____________________
(i) Long-Lived Assets does not include deferred tax assets.
Business Strategy
Willis Towers Watson sees that a unified approach to people and risk can be a path to growth for our clients. Our integrated
teams bring together our understanding of risk strategies and market analytics. This helps clients around the world to achieve
their objectives.
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We operate in attractive markets - both growing and mature - with a diversified platform across geographies, industries,
segments and lines of business. We aim to become the premier advisory, broking and solutions company of choice globally. We
design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and
strengthen institutions and individuals. We also help organizations improve performance through effective people, risk and
financial management by focusing on providing human capital and financial consulting services.
We believe we can achieve this by:
• Delivering a powerful client proposition with an integrated global platform. Our highly complementary offerings
provide comprehensive advice, analytics, specialty capabilities and solutions covering benefits, exchange solutions,
brokerage and advisory, risk and capital management; and talent and rewards;
• Leveraging our combined distribution strength and global footprint to enhance market penetration and provide a
platform for further innovation; and
• Underpinning this growth through continuous operational improvement initiatives that help make us more effective
and efficient and drive cost synergies. We do this by:
continuing to modernize the way we run our business to better serve our clients, enabling the skills of our
staff, and lowering our costs of doing business;
making the necessary changes to our processes, our IT, our real estate and our workforce locations; and
targeting and delivering identified, highly achievable cost savings as a direct consequence of the Merger.
We care as much about how we work as we do about the impact that we make. This means commitment to shared values, a
framework that guides how we run our business and serve clients.
Through these strategies we aim to accelerate revenue, cash flow, earnings before interest, taxes, depreciation and amortization
(‘EBITDA’), and earnings growth, and generate compelling returns for investors, by delivering tangible revenue growth and
capitalizing on the identified cost synergies.
Principal Services
In 2016, we began managing our business across four integrated reportable operating segments. As a result, the Company has
changed the way it manages and reports segment revenues and operating income, resulting in a change in the Company’s
reportable segments from eight reportable segments, formerly known as Willis International; Willis North America; Willis
Capital, Wholesale & Reinsurance; Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson
Risk and Financial Services; and Towers Watson Talent and Rewards, into four reportable segments: Human Capital and
Benefits; Corporate Risk and Broking; Investment, Risk and Reinsurance; and Exchange Solutions. Below are the percentages
of revenues generated by each segment for each of the years ended December 31, 2016, 2015 and 2014:
Year ended December 31,
2015 (i)
2014 (i)
2016
Human Capital and Benefits
Corporate Risk and Broking
Investment, Risk and Reinsurance
Exchange Solutions
____________________
41%
32%
19%
8%
18%
61%
21%
—%
17%
63%
20%
—%
(i) Figures have been recast into the new segment structure and do not include pro forma segment revenues from Legacy Towers Watson. For pro
forma segment information, see our Form 8-K filed with the SEC on July 14, 2016.
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The average number of employees by segment for the year ended December 31, 2016 are approximated below:
Human Capital and Benefits
Corporate Risk and Broking
Investment, Risk and Reinsurance
Exchange Solutions
Corporate & Other
Total Employees
Human Capital and Benefits
December 31,
2016
12,300
12,700
4,600
4,700
7,200
41,500
The Willis Towers Watson Human Capital & Benefits (‘HCB’) segment provides an array of advice, broking, solutions and
software for employee benefit plans, the human resources (‘HR’) organization and the management teams of our clients.
HCB is the largest segment of the Company, generating approximately 41% of our revenues for the year ended December 31,
2016. Organized into four primary offerings - Retirement; Health & Benefits; Talent & Rewards; and Technology and
Administration Solutions, the segment is focused on addressing our clients’ people and risk needs to help them take on the
challenges of operating in a global marketplace.
HCB is strengthened with teams of international consultants that provide support in each of these areas to the global
headquarters of multinational clients and their foreign subsidiaries.
Retirement — The Retirement business provides actuarial support, plan design, and administrative services for traditional
pension and retirement savings plans. Our colleagues help our clients assess the costs and risks of retirement plans on cash
flow, earnings and the balance sheet, the effects of changing workforce demographics on their retirement plans and retiree
benefit adequacy and security. We offer clients a full range of integrated retirement consulting services to meet the needs of all
types of employers - including those that continue to offer defined benefit plans and those that are reexamining their retirement
benefit strategies. We bring a particular in-depth data analysis and perspective to their decision process, because we have
tracked the retirement designs of the largest public companies around the world over many years.
For clients that want to outsource some or all of their pension plan management, we offer integrated solutions that combine
investment consulting, pension administration, core actuarial services, and communication and change management assistance.
Our retirement consulting relationships are generally long-term in nature, and client retention rates for this business are high. A
significant portion of the revenues in this business is from recurring work, with multi-year contracts that are driven by the
heavily regulated nature of employee benefit plans and our clients’ annual needs for these services. Revenues for the
Retirement business are somewhat seasonal, as much of our work pertains to calendar-year plan administration and reporting
and compliance related to the completion of pension plan valuations; thus, the first quarter of the fiscal year is typically HCB’s
strongest quarter. Major revenue growth drivers in this business include changes in regulations, capital market conditions,
increased global demand and increased market share.
Health and Benefits — The Health & Benefits (‘H&B’) business provides plan management consulting, broking and
administration across the full spectrum of health and group benefit programs, including medical, dental, disability, life and
other coverage. As a result of the Merger, our H&B reach extends from small/mid-market clients to large market clients, across
the full geographic footprint of the Company, and to most industries. We can address our clients’ insured needs in more than
160 countries.
Our consultants help clients make strategic decisions on topics such as optimizing program spend; evaluating emerging
coverage options (including publicly-subsidized health insurance exchanges and private exchanges in the U.S.); and dealing
with above-inflation-rate increases in healthcare costs. In addition to our consulting services, we manage a number of collective
purchasing initiatives, such as pharmacy and stop-loss, that allow employers to realize greater value from third-party service
providers than they can achieve on their own.
With Global Benefits Solutions, our suite of global services supporting medical, dental and risk (life, accident and disability)
programs, we have a tailored offering for multinationals. That offering includes a flexible set of ready-made offerings, proven
technology, efficient operational structure and an integrated approach to service delivery that translates to a globally consistent,
high-quality experience for our clients.
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Finally, H&B supports OneExchange Active, our private health insurance exchange for active employees. This offering is
integrated with other health insurance exchange offerings, OneExchange Retiree and OneExchange Access, which are offered
within the Exchange Solutions segment.
Talent & Rewards — Our Talent & Rewards (‘T&R’) business covers three areas of specialty: Executive Compensation (‘EC’);
Rewards, Talent & Communication (‘RTC’); and Data, Surveys and Technology (‘DST’). T&R provides advice, data, software
and products to address clients’ total rewards and talent issues. T&R has operations across the globe, including centralized
software development and analytics teams that support the efficient delivery of services to clients.
Within our EC practice, we advise our clients’ management and boards of directors on all aspects of executive pay programs,
including base pay, annual bonuses, long-term incentives, perquisites and other benefits. Our focus is on aligning pay plans
with the organization’s business strategy and driving desired performance.
RTC offers services focused on designing and implementing rewards and talent management programs and processes which
help companies attract and deploy talent, engage them over time, manage and reward their performance, develop their skills,
provide them with relevant career paths, communicate with them and manage organizational change initiatives.
Our DST offerings include market benchmarking data, employee insight and listening tools, talent assessment tools and
services, and HR software to help companies administer and manage their talent management and reward programs and
analyze talent trends.
Revenues for the T&R business are partly seasonal in nature, with a meaningful amount of heightened activity in the second
half of the calendar year during the annual compensation, benefits and survey cycles. While T&R enjoys long-term
relationships with many clients, work in several practices is often project-based and can be sensitive to economic changes. The
business benefits from regulatory changes affecting our clients that require strategic advice, program changes and
communication such as CEO pay ratio disclosure and Fair Labor Standards Act changes in the U.S., by which swaths of
employees will be newly-eligible for overtime pay. Additional areas of growth for T&R include evolving views on effective
individual performance measurement and management, focus on workforce productivity improvements and labor cost
reductions, globalization and digitization of the workforce, merger and acquisition (‘M&A’) activity, technology-enabled
approaches for measuring and understanding workforce engagement, and the opportunity to leverage HR software to improve
the design, management and implementation of HR processes and programs.
Technology and Administration Solutions — Our Technology and Administration Solutions (‘TAS’) business provides benefits
outsourcing services to hundreds of clients across multiple industries. Our TAS team focuses on clients outside of the U.S.
where our services are supported by high quality administration teams using robust technology platforms. We have high client
retention rates, and we are the leading administrator among the 200 largest pension plans in the United Kingdom (‘U.K.’), as
well as a leader in Germany.
For both our defined benefit and defined contribution administration services, we use highly-automated processes and web
technology to enable benefit plan members to access and manage their records, perform self-service functions and improve
their understanding of their benefits. Our technology also provides trustees and HR teams with timely management information
to monitor activity and service levels and reduce administration costs.
Corporate Risk and Broking
Our Corporate Risk & Broking (‘CRB’) segment provides a broad range of risk advice, insurance brokerage and consulting
services to clients worldwide ranging from small businesses to multinational corporations. We deliver integrated global
solutions tailored to client needs and underpinned by data and analytics.
CRB generated approximately 32% of Willis Towers Watson revenues for the year ended December 31, 2016, and places more
than $20 billion of premium into the insurance markets, annually.
CRB operates as an integrated global team comprising both functional and geographic leadership. In addition there are five
global offerings, which aim to leverage capabilities across geographies, including Property and Casualty, Financial Lines,
Transport, Affinity and Facultative. In these operations, we have extensive specialized experience handling diverse lines of
coverage, including complex insurance programs. A key objective is to assist clients in reducing their overall cost of risk.
Property and Casualty — Property and Casualty provides property and liability insurance brokerage services across a wide
range of industries including construction, real estate, healthcare and natural resources. Our construction practice provides risk
management advice and brokerage services for a wide range of international construction activities. Clients of the construction
practice include contractors, project owners, project managers, consultants and financiers. Our natural resources practice
9
encompasses the oil and gas, mining, power and utilities sectors; and provides services including property damage, offshore
construction liability and other services to global clients.
Financial Lines — Financial Lines specializes in brokerage services for financial, political and credit risks. Our clients include
financial institutions and professional services firms from around the globe that require coverage for areas ranging from
business risks, like trade credit, directors and officers and medical malpractice, to external threats, like cyberattacks and
terrorism.
Transport — Transport provides specialist expertise to the transportation industry and aerospace, marine and inspace practices.
Our aerospace business provides insurance brokerage and risk management services to aerospace clients worldwide, including
the world’s leading airlines, aircraft manufacturers, air cargo handlers and other airport and general aviation companies. Our
marine business provides insurance brokerage services, including hull, cargo, protection and indemnity and general marine
liabilities. Our marine clients include ship owners, ship builders, logistics operations, port authorities, traders and shippers. The
specialist inspace team is also prominent in providing insurance and risk management services to the space industry.
Affinity — Affinity arranges the insurance products and services for our client partners to offer to their customers, employees or
members alongside, or in addition to, their principal business activities. Products include: extended warranties, accidental
damage of personal mobile devices, creditor payment protection, accident and health and personal lines.
Facultative — Facultative serves as a broker or intermediary for insurance companies looking to arrange reinsurance solutions
across classes of risk, which enable them to deliver differentiated outcomes to their direct insureds, which in many situations
are also clients of the wider Willis Towers Watson business. The facultative business also works closely with our treaty
reinsurance business to structure reinsurance solutions that deliver capital and strategic benefits to insurance company clients.
Investment, Risk and Reinsurance
The Willis Towers Watson Investment, Risk and Reinsurance (‘IRR’) segment applies a sophisticated approach to risk which
helps clients free up capital and manage investment complexity. The segment works closely with investors, reinsurers and
insurers to manage the equation between risk and return. Blending advanced analytics with deep institutional knowledge, IRR
helps identify new opportunities to maximize performance. IRR provides investment consulting services and insurance specific
services and solutions through reserves opinions, software, ratemaking, usage-based insurance, risk underwriting, and
reinsurance broking.
This segment is our third largest segment and generated approximately 19% of revenues for the Company for the year ended
December 31, 2016. With approximately 80% of the revenues for this segment split between North America and the U.K., this
segment includes the following businesses and offerings: Willis Re; Risk Consulting and Software; Investment; Wholesale
Insurance Broking; Portfolio and Underwriting Services; and Capital Markets & Advisory.
Willis Re — Willis Re provides reinsurance industry clients with an understanding of how risk affects capital and financial
performance and advises on the best ways to manage related outcomes. We operate this business on a global basis and provide
a complete range of transactional capabilities, including, in conjunction with Capital Markets & Advisory, a wide variety of
capital markets-based products to both insurance and reinsurance companies. Our services are underpinned by modeling,
financial analysis and risk management advice.
Risk Consulting and Software — Risk Consulting and Software is a global business that provides advice and technology
solutions to the insurance industry, as well as to corporate clients with respect to their insurance programs. We leverage our
industry experience, strategic perspective and analytical skills to help clients measure and manage risk and capital, improve
business performance and create a sustainable competitive advantage. Our services include software and technology, risk and
capital management, products and pricing, financial and regulatory reporting, financial and capital modeling, M&A,
outsourcing and business management.
Investment — Investment provides advice to improve investment outcomes for asset owners using a broad and sophisticated
framework for managing risk. We provide coordinated investment advice and solutions to some of the world’s largest pension
funds and institutional investors based on our expertise in risk assessment, asset-liability modeling, strategic asset allocation
policy setting, manager selection and investment execution.
Wholesale Insurance Broking — Wholesale Insurance Broking provides wholesale and specialist broking services to retail
brokers worldwide, through Willis Towers Watson and London based specialist broker Miller Insurance Services LLP.
Portfolio and Underwriting Services — Portfolio and Underwriting Services, with operations in London and North America,
brings together our existing set of Managing General Agent underwriting activities for purposes of accelerating their future
development. Within Portfolio and Underwriting Services, we act on behalf of our insurance carrier partners and self-insured
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entities in product marketing and distribution, risk underwriting and selection, claims management and other general
administrative responsibilities.
Capital Markets & Advisory — Capital Markets & Advisory, with offices in New York, London, Hong Kong and Sydney,
provides investment banking services to companies involved in the insurance and reinsurance industries for a broad array of
merger and acquisition transactions as well as capital markets products, including acting as underwriter for primary issuances,
operating a secondary insurance-linked securities trading desk and engaging in strategic advisory work.
Exchange Solutions
The Willis Towers Watson Exchange Solutions (‘ES’) segment provides primary medical and ancillary benefit exchange and
outsourcing services to active employees and retirees across both the group and individual markets. ES services individual
populations via its ‘group to individual’ technology platform, which tightly integrates patented call routing technology, an
efficient quoting and enrollment engine, a Customer Relationship Management system and comprehensive insurance carrier
connectivity. This segment also delivers group benefit exchanges and full outsourcing solutions serving the active employees of
employers across the United States. ES uses Software as a Service (‘SaaS’)-based technology and related services to deliver
consumer-driven healthcare and reimbursement accounts, including health savings accounts, health reimbursement
arrangements, flexible spending accounts and other consumer-directed accounts.
A significant portion of the revenues in this segment is recurring in nature, driven by either the commissions from the policies
we sell, or from long-term service contracts with our clients that typically range from three to five years. Revenues across this
segment may be seasonal, driven by the magnitude and timing of client transition activities, and we typically increase our
membership levels significantly effective January 1, after calendar year-end benefits elections.
ES generated approximately 8% of our revenues for the year ended December 31, 2016. ES provides services across four
integrated or related offerings to customers primarily in the U.S., including Retiree & Access Exchanges; Active Exchanges;
Technology and Administration Solutions; and Consumer-Directed Accounts.
Retiree & Access Exchanges — This business provides solutions through a proprietary technology platform, OneExchange
Retiree, which enables our employer clients to transition their retirees to individual, defined contribution health plans that
provide individuals with a tax-free allowance or contribution to spend on healthcare services at an annual cost that the
employer controls, as opposed to group-based, defined benefit health plans that provide groups of individuals with healthcare
benefits at uncertain annual costs.
Active Exchanges — This business is focused on delivering group benefit exchanges, serving the active employees of
employers across the United States. Using our proprietary BenefitConnect or Bright Choices exchange platforms, combined
with our expertise in creating high-performing benefit plan designs, we believe we are well-positioned to help our clients
simplify their benefits delivery, while lowering the total costs of benefits and related administration. We have relationships
with more than 400 broker partners to access and service the small to mid-size group market and offer both fully-insured and
self-insured exchanges to meet the needs of our employer clients.
Technology and Administration Solutions — Through our proprietary BenefitConnect technology, this business provides a
broad suite of health and welfare outsourcing services as well as decision support and modeling tools for pension users. With
our disciplined approach to customer service, we offer cost-effective, high-touch service to hundreds of clients across many
industries.
Consumer-Directed Accounts — This business uses its SaaS-based technology and related services to deliver consumer-driven
healthcare and reimbursement accounts, including health savings accounts, health reimbursement arrangements and other
consumer-directed accounts.
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 Accenture plc, Aon plc, Arthur J. Gallagher & Co., Brown & Brown Inc., Cognizant
Technology Solutions Corporation, Marsh & McLennan Companies, Inc. and Robert Half International Inc., as well as with
numerous specialty, regional and local firms. Marsh & McLennan Companies and Aon plc are the two other major providers of
global risk management services. Competition for business is intense in all of our business lines and in every insurance market,
and in some business lines Marsh & McLennan Companies and Aon plc have 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
11
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.
The human capital and risk management consulting industries are highly competitive. We believe there are significant barriers
to entry, and we have developed competitive advantages in providing HR consulting and risk management consulting services.
We face strong competition from several sources.
Our principal competitors in the pension consulting industry are Mercer HR Consulting (a Marsh & McLennan company) and
Aon plc. Beyond these large players, the global HR consulting industry is highly fragmented.
Our major competitors in the insurance consulting and software industry include Milliman, Oliver Wyman (a Marsh &
McLennan company), the big four accounting firms and SunGard. Aon, Buck Consultants (a Xerox Company), Connextions (a
United Healthcare company), Mercer (a Marsh & McLennan company), Automatic Data Processing and Fidelity are our
primary competitors in the insurance exchange industry. With the implementation of the Patient Protection and Affordable Care
Act, we also compete with the public exchanges currently run by the U.S. federal and state governments. We now compete with
providers of account-based health plans and consumer-directed benefits such as WageWorks and HealthEquity.
The market for our services is subject to change as a result of economic, regulatory and legislative changes, technological
developments, and increased competition from established and new competitors. Regulatory and legislative actions, along with
continuously evolving technological developments, will likely have the greatest impact on the overall market for our exchange
products. We believe the primary factors in selecting an HR consulting or risk management services firm include reputation, the
ability to provide measurable increases to shareholder value and return on investment, global scale, quality of service and the
ability to tailor services to clients’ unique needs. With regard to the market for exchanges, we believe that clients base their
decisions on a variety of factors that include the ability of the provider to deliver measurable cost savings for clients, a strong
reputation for efficient execution, a provider’s capability in delivering a broad number of configurations to serve various
population segments and financing options, and an innovative service delivery model and platform. For our traditional
consulting and risk management services and the rapidly evolving exchange products, we believe we compete favorably with
respect to these factors.
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. We are also subject to data privacy regulations in many countries. Our 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 by the regulatory authorities in each of these states. Additionally, some of our private exchange
activities are overseen by the Centers for Medicare & Medicaid Services, which is part of the Department of Health and Human
Services.
Certain of our activities are governed by other regulatory bodies, such as investment and securities licensing authorities. Our
activities in connection with investment services within the United States are subject to regulation and supervision at both the
federal and state levels. At the federal level, certain of our operating subsidiaries are regulated by the SEC through the
Investment Company Act of 1940 and the Investment Advisers’ Act of 1940; and by the Department of Labor through the
Employee Retirement Income Security Act, or ERISA. In connection with the SEC regulations, we are required to file certain
reports, and are subject to various marketing restrictions, among other requirements. In connection with ERISA regulations, we
are restricted in actions we can take for plans for which we serve as fiduciaries, among other matters. Our U.S. investment
activities are also subject to certain state regulatory schemes.
12
Our Capital Markets & Advisory business operates through its wholly-owned subsidiary, Willis Securities, Inc., a U.S.-
registered broker-dealer and member of FINRA/SIPC, primarily in connection with investment banking services and advising
on alternative risk financing transactions.
Our activities in connection with Third Party Administrator (‘TPA’) services in the United States are also subject to regulation
and supervision by many state authorities. Licensing requirements and supervision vary from state to state. As with insurance
brokerage services, our continuing ability to provide these services in states that regulate our activities 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 (‘E.U.’) on a basis consistent
with the E.U. single market and customer protection aims. Each E.U. 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. The E.U. has been in the process of updating the Insurance Mediation Directive.
Various E.U. bodies are working on creating a replacement to the Insurance Mediation Directive called the Insurance
Distribution Directive. The current timetable would require all E.U. member states to make the Insurance Distribution
Directive national law by February 2018.
In addition, Capital Markets & Advisory provides advice on securities or investments in the European Union and Australia
through our U.K. wholly-owned subsidiary, Willis Capital Markets & Advisory Limited, which is authorized and regulated by
the FCA (as defined below).
Willis Towers Watson is also subject to the new E.U. General Data Protection Regulation (‘GDPR’), which goes into effect in
May 2018. The GDPR is a new, comprehensive regime covering data protection.
United Kingdom
In the United Kingdom, our business is regulated by the Financial Conduct Authority (‘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 ensure that the relevant markets function well. Its operational objectives are to:
secure an appropriate degree of protection for consumers; protect and enhance the integrity of the U.K. financial system; and to
promote effective competition in the interests of consumers. The FCA has powers in product intervention. For instance, it can
instruct firms to withdraw or amend misleading financial promotions. A U.K. exit from the E.U. may cause an increase in
regulations in the U.K.
Other
Capital Markets & Advisory, through its affiliate, Willis Capital Markets & Advisory (Hong Kong) Limited, is licensed to
conduct certain securities-related activities, and is subject to regulation by the Hong Kong Securities and Futures Commission.
Certain of our entities that undertake pension scheme management are subject to MiFID (Markets in Financial Instruments
Directive) and are authorized and regulated by certain financial services authorities in countries such as Sweden, Ireland, the
Netherlands and the U.K.
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 these regulatory requirements as
adversely affecting our competitive position.
Across all geographies we are subject to various data privacy regulations that apply to medical, financial and other types of
personal information belonging to our clients, their employees and third parties, as well as our own employees.
Our failure, or that of our employees, to satisfy the regulatory compliance requirements or the legal requirements governing our
activities, can result in disciplinary action, fines, reputational damage and financial harm.
See Part I, Item 1A-Risk Factors for an analysis 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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Executive Officers of the Registrant
The executive officers of the Company as of March 1, 2017 were as follows:
Nicolas Aubert (age 51) - Mr. Aubert has served as the Head of Great Britain at Willis Towers Watson since January 4, 2016,
and as the CEO of Willis Limited, the Company’s U.K. insurance and reinsurance broking subsidiary, since September 30,
2015. Prior to his appointment as the Head of Great Britain, Mr. Aubert served as CEO of Willis GB, the operating segment of
Willis Group Holdings that included Willis’ London specialty businesses and facultative business, and the retail insurance
business in Great Britain since January 2015. Since March 2016, Mr. Aubert has served as the Chairman of the London Market
Group (LMG), a professional body representing the common interests of the London Insurance Market operators, Lloyd’s of
London, IUA, LIIBA and LMA. Prior to joining Willis, Mr. Aubert served as the Chief Operating Officer of American
International Group (AIG) in Europe, the Middle East and Africa, and formerly as the Managing Director of AIG in the U.K.
After joining AIG in June 2002 to lead AIG France, Mr. Aubert served in various other senior management positions, including
Managing Director of Southern Europe, where he oversaw operations in 12 countries, including Israel. Prior to AIG, Mr. Aubert
worked in various leadership positions at ACE, CIGNA, GAN and started his career at GENERALI. He holds specialized
Masters Degrees in Insurance Law (DESS Assurances) from Pantheon-Sorbonne University of Paris and from Institut des
Assurances de Paris (Université Paris-Dauphine) and an M.B.A. from the French High Insurance Studies Center (CHEA).
Anne D. Bodnar (age 60) - Ms. Bodnar has served as the Chief Human Resources Officer at Willis Towers Watson since
January 4, 2016. Previously, Ms. Bodnar served on Towers Watson’s Management Committee since January 2015, and as
Towers Watson’s Chief Administrative Officer since January 1, 2010. Ms. Bodnar previously served as Managing Director of
HR at Towers Perrin beginning in 2001. From 1995 to 2000, Ms. Bodnar led Towers Perrin’s recruiting and learning and
development efforts. Prior to that, she was a strategy consultant in Towers Perrin’s Human Capital business. Earlier in her
career, Ms. Bodnar held several operational and strategic planning roles at what is now JPMorgan Chase. Additionally,
Ms. Bodnar published a chapter entitled “HR as a Strategic Partner” in Human Resources Leadership Strategies: Fifteen Ways
to Enhance HR Value in Your Company. She was elected to the YWCA’s Academy of Women Achievers in 1999. Ms. Bodnar
graduated cum laude and Phi Beta Kappa from Smith College and has an M.B.A. from Harvard Business School.
Matthew S. Furman (age 47) - Mr. Furman has served as General Counsel at Willis Towers Watson since January 4, 2016.
Previously, Mr. Furman served as Executive Vice President and Group General Counsel at Willis Group Holdings, where he
was a member of the Operating Committee since April 2015. From 2007 until March 2015, Mr. Furman was Senior Vice
President, Group General Counsel-Corporate and Governance, and Corporate Secretary for The Travelers Companies, Inc.
From 2000 until 2007, Mr. Furman was an attorney at Goldman, Sachs & Co. in New York, where he was Vice President and
Associate General Counsel in the finance and corporate legal group. Prior to that, he was in private practice, with almost six
years’ experience at Simpson Thacher & Bartlett in New York. Mr. Furman also serves as a Director of the Legal Aid Society
and a member of the U.S. Securities and Exchange Commission’s Investor Advisory Committee. He holds a bachelor’s degree
from Brown University and a law degree from Harvard Law School.
Adam L. Garrard (age 51) - Mr. Garrard has served as Head of International at Willis Towers Watson since January 4, 2016.
Previously, Mr. Garrard served as Chief Executive Officer for Willis Group Holdings in Asia since September 2012. Prior to
that, Mr. Garrard served as Chief Executive Officer for Willis in Europe since January 2009, Chief Executive Officer for Willis
in Australasia since May 2005 and Chief Executive Officer for Asia since January 2002. Mr. Garrard has resided in Singapore,
Shanghai, Sydney and London while undertaking his Chief Executive Officer roles. After graduating from De Montfort
University with a bachelor’s degree in Business Administration in 1992, Mr. Garrard joined SBJ Stephenson Insurance Brokers
before joining Willis in 1994.
Julie J. Gebauer (age 55) - Ms. Gebauer has served as Head of Human Capital & Benefits at Willis Towers Watson since
January 4, 2016. Previously, Ms. Gebauer served as Managing Director of Towers Watson’s Talent and Rewards business
segment since January 1, 2010. Beginning in 2002, Ms. Gebauer served as a Managing Director of Towers Perrin and led
Towers Perrin’s global Workforce Effectiveness Practice and the global Towers Perrin-International Survey Research
Corporation line of business. Ms. Gebauer was a member of Towers Perrin’s Board of Directors from 2003 through 2006. She
joined Towers Perrin in 1986 as a consultant and held several leadership positions at Towers Perrin, serving as the Managing
Principal for the New York office from 1999 to 2001 and the U.S. East Region Leader for the Human Capital Group from 2002
to 2006. Ms. Gebauer is a Fellow of the Society of Actuaries. Ms. Gebauer graduated Phi Beta Kappa and with high distinction
from the University of Nebraska-Lincoln with a bachelor’s degree in Mathematics, and was designated a Chancellor’s Scholar.
Joseph Gunn (age 46) - Mr. Gunn has served as the Head of North America at Willis Towers Watson since October 27, 2016.
Previously, Mr. Gunn served as the regional director for the Northeast region of Willis Towers Watson where he led the
business in both Metro New York and New England since January 4, 2016. Prior to that, Mr. Gunn served as the National
Partner for the Northeast Region at Willis North America since July 2009, and before that, as the Chief Growth Officer for
14
Willis North America and regional executive officer for the South Central region of Willis North America since August 2006.
Before joining Willis in 2004, Mr. Gunn led the Marsh Client Development team for the North Texas operations and served as a
senior relationship officer on several large accounts. Mr. Gunn serves as a member of the board of trustees of Big Brothers Big
Sisters of New York. He holds a bachelor’s degree in Political Science from Florida State University.
John J. Haley (age 67) - Mr. Haley has served as Chief Executive Officer and Director at Willis Towers Watson since January
4, 2016. Previously, Mr. Haley served as the Chief Executive Officer and Chairman of the Board of Directors of Towers
Watson since January 1, 2010, and as President since October 3, 2011. Prior to that, Mr. Haley served as President and Chief
Executive Officer of Watson Wyatt beginning on January 1, 1999, as Chairman of the Board of Watson Wyatt beginning in
1999 and as a director of Watson Wyatt beginning in 1992. Mr. Haley joined Watson Wyatt in 1977. Prior to becoming
President and Chief Executive Officer of Watson Wyatt, he was the Global Director of the Benefits Group at Watson Wyatt.
Mr. Haley is a Fellow of the Society of Actuaries, and a member of the American Academy of Actuaries and the Conference of
Consulting Actuaries. He is also a co-author of Fundamentals of Private Pensions (University of Pennsylvania Press).
Mr. Haley also serves on the board of MAXIMUS, Inc., a provider of health and human services program management,
consulting services and system solutions, and previously served on the board of Hudson Global, Inc., an executive search,
specialty staffing and related consulting services firm. He has an A.B. in Mathematics from Rutgers College and studied under
a Fellowship at the Graduate School of Mathematics at Yale University.
Carl A. Hess (age 55) - Mr. Hess has served as the Head of Investment, Risk and Reinsurance since October 27, 2016.
Previously, Mr. Hess served as the Co-Head of North America at Willis Towers Watson since January 4, 2016. Prior to that,
Mr. Hess served as Managing Director, The Americas of Towers Watson since February 1, 2014, and before that, he served as
the Managing Director of Towers Watson’s Investment business since January 1, 2010. Before his service at Towers Watson,
Mr. Hess worked in a variety of roles for over 20 years at Watson Wyatt, lastly as Global Practice Director of Watson Wyatt’s
Investment business. Mr. Hess is a Fellow of the Society of Actuaries and the Conference of Consulting Actuaries, and a
Chartered Enterprise Risk Analyst. He has a bachelor’s degree cum laude in Logic and Language from Yale University.
Todd Jones (age 52) - Mr. Jones has served as the Head of Corporate Risk and Broking since October 27, 2016. Previously,
Mr. Jones served as the Co-Head of North America at Willis Towers Watson since January 4, 2016. Prior to that, Mr. Jones
served as an executive officer and Chief Executive Officer of Willis North America since July 1, 2013. Mr. Jones joined Willis
in 2003 as the North American Practice Leader for Willis’ 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. He holds a bachelor’s degree in Business from Wake Forest University and an M.B.A. from the Stern School of
Business at New York University.
Roger F. Millay (age 59) - Mr. Millay has served as Chief Financial Officer at Willis Towers Watson since January 4, 2016.
Previously, Mr. Millay served as Vice President and Chief Financial Officer of Towers Watson since January 1, 2010, and he
previously held the same position at Watson Wyatt since August 2008. Prior to joining Watson Wyatt, Mr. Millay was with
Discovery Communications LLC, a global cable TV programmer and digital media provider, where he served as Senior
Executive Vice President and Chief Financial Officer beginning in 2006. At Discovery, he was responsible for the global
financial functions, including accounting, treasury, budgeting, audit and tax. From 1999 to 2006, Mr. Millay was Senior Vice
President and Chief Financial Officer with Airgas, Inc., an industrial gases and supplies distributor and producer. Mr. Millay
has over 25 years of experience in financial officer positions, including roles at Arthur Young & Company, Citigroup, and GE
Capital. He holds a bachelor’s degree from the University of Virginia and a master’s degree in Accounting from Georgetown
University’s Graduate School of Business, and he is a Certified Public Accountant.
Paul G. Morris (age 52) - Mr. Morris has served as Head of Western Europe at Willis Towers Watson since January 4, 2016.
Previously, Mr. Morris served as Managing Director for Towers Watson in Europe, the Middle East and Africa since
September 1, 2011. Prior to that, Mr. Morris served as Director, Consulting Services, for Towers Watson beginning January 1,
2010. Mr. Morris served as a Managing Consultant of Watson Wyatt from 2005 until the consummation of the merger of
Towers Perrin and Watson Wyatt. He joined The Wyatt Company in 1988. Following the establishment of the global Watson
Wyatt Worldwide alliance in 1995, Mr. Morris served as a Senior Consultant of Watson Wyatt Partners from 1995 through 1999
and became a partner in 1999. Mr. Morris is a Fellow of the Society of Actuaries, a Member of the Institute of Actuaries, and
has a bachelor’s degree in Applied Mathematics from Harvard College and an M.Sc. in Applied Mathematics from Harvard
Graduate School of Arts and Sciences.
Anne Pullum (age 34) - Ms. Pullum has served as the Chief Administrative Officer and Head of Strategy and Innovation at
Willis Towers Watson since October 27, 2016. Beginning on January 4, 2016, Ms. Pullum served as Willis Towers Watson’s
Head of Strategy, where she has played a key role in determining the Company’s strategy and worked across all business
15
segments and functional areas. Previously, Ms. Pullum served as the Head of Strategy for Willis Group since May 2014.
Before joining Willis, Ms. Pullum worked at McKinsey & Company, where she served financial services and natural resource
clients since October 2010. Prior to that, Ms. Pullum conducted economic research at Greenspan Associates in Washington,
D.C. and served as an analyst in the Goldman Sachs Equities Division in London. Ms. Pullum holds an M.B.A. from INSEAD
and a bachelor’s degree in International Economics from Georgetown University’s School of Foreign Service.
David Shalders (age 50) - Mr. Shalders has served as Operations and Technology Director at Willis Towers Watson since
January 4, 2016. Previously, Mr. Shalders served as an executive officer and Group Operations & Technology Director of
Willis Group Holdings since 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.
Prior to RBS, Mr. Shalders held various IT and Operations leadership roles at Accenture, JP Morgan and SG Warburg. He has
an M.A. in Geography from Cambridge University and an M.Sc. in Computer Science from The London School of Economics.
Gene H. Wickes (age 64) - Mr. Wickes has served as the Head of Exchange Solutions at Willis Towers Watson since April 1,
2016. Prior to that, Mr. Wickes served as an Executive Sponsor of the combined Willis Towers Watson Merger integration
team since January 4, 2016. Previously, he served as the Managing Director of the Benefits business segment of Towers Watson
from January 1, 2010 until the closing of the Willis Towers Watson merger. Prior to that, he served as the Global Director of
the Benefits Practice of Watson Wyatt beginning in 2005 and as a member of Watson Wyatt’s Board of Directors from 2002 to
2007. Mr. Wickes was Watson Wyatt’s Global Retirement Practice Director in 2004 and the U.S. West Division’s Retirement
Practice Leader from 1997 to 2004. Mr. Wickes joined Watson Wyatt in 1996 as a senior consultant and consulting actuary.
Prior to joining Watson Wyatt, he spent 18 years with Towers Perrin, where he assisted organizations with welfare, retirement,
and executive benefit issues. Mr. Wickes is a Fellow of the Society of Actuaries and a member of the Conference of Consulting
Actuaries, and has a B.S. in Mathematics and Economics, an M.S. in Mathematics and an M.S. in Economics, all from Brigham
Young University.
Board of Directors
A list of the Board of Directors of the Company and their principal occupations is provided below:
John J. Haley
Chief Executive Officer
Brendan R. O’Neill
Former CEO of Imperial Chemical
Industries PLC
Paul Thomas
Former CEO of Reynolds Packaging Group
Anna C. Catalano
Former Group Vice President, Marketing for
BP plc
James F. McCann
Non-Executive Chairman of Willis Towers
Watson, Executive Chairman of 1-800-
Flowers.com
Jeffrey W. Ubben
Founder, CEO and Chief Investment Officer
of ValueAct Capital
Victor F. Ganzi
Former President & CEO of The Hearst
Corporation
Wendy E. Lane
Chairman of Lane Holdings, Inc.
ITEM 1A. RISK FACTORS
Jaymin B. Patel
President and CEO of Brightstar Corp.
Wilhelm Zeller
Former CEO of Hannover Re Group
Linda D. Rabbitt
Founder, Chairman & CEO of rand*
construction corporation
In addition to the factors discussed elsewhere in this Annual Report on Form 10-K, the following are some of the important
factors that could cause our actual results to differ materially from those projected in any forward-looking statements. These
risk factors should be carefully considered in evaluating our business. The descriptions below are not the only risks and
uncertainties that we face. Additional risks and uncertainties that are presently unknown to us could also impair our business
operations, financial condition or results. If any of the risks and uncertainties below or other risks were to occur, our business
operations, financial condition or results of operations could be materially and adversely impacted. With respect to the tax-
related consequences of acquisition, ownership and disposal of ordinary shares, you should consult with your own tax
advisors.
16
Risks Relating to Integration Following the Merger and Related Actions
We may fail to realize some or all of the anticipated benefits of the Merger or related actions or those benefits may take
longer to realize than expected. We may also encounter significant difficulties in integrating the businesses.
Our ability to realize the anticipated benefits of the Merger and related actions occurring around the time of the Merger,
particularly the Gras Savoye acquisition, depends, to a large extent, on our ability to integrate the businesses. The combination
of independent businesses is a complex, costly and time-consuming process. As a result, we have been and will be required to
devote significant management attention and resources to integration activities. The integration process may disrupt the
businesses and, if implemented ineffectively, could restrict the realization of the full-expected benefits. The failure to meet the
challenges involved in integrating the businesses and to realize the anticipated benefits of the transactions could cause an
interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations.
In addition, the overall integration may result in material unanticipated problems, expenses, liabilities, competitive responses,
loss of client relationships, and diversion of management’s attention. The difficulties of combining the operations of the
companies include, among others:
•
•
•
•
•
•
•
•
•
•
the diversion of management’s attention to integration matters;
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the
combinations;
difficulties in the integration of operations and systems;
conforming standards, controls, procedures and accounting and other policies, business cultures and compensation
structures between the companies;
difficulties in the assimilation of employees;
difficulties in managing the expanded operations of a significantly larger and more complex company;
difficulties in establishing effective uniform controls, systems, procedures and policies for the combined company;
challenges in keeping existing clients and obtaining new clients;
challenges in attracting and retaining key personnel; and
challenges in coordinating a geographically dispersed organization.
Many of these factors have been and will continue to be outside of our control and any one of them could result in increased
costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially
impact our business, financial condition and results of operations. In addition, even if our operations are integrated successfully,
the full benefits of the transactions may not be realized, including the synergies, cost savings or sales or growth opportunities
that are expected. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional
unanticipated costs may be incurred in the integrations. All of these factors could cause dilution to our earnings per share,
decrease or delay the expected benefits of the Merger or the related actions, including the Gras Savoye acquisition, and
negatively impact the price of our ordinary shares. As a result, we cannot assure you that the Merger or the Gras Savoye
acquisition will result in the realization of the full benefits anticipated.
The loss of key colleagues as a result of the Merger or otherwise could damage or result in the loss of client relationships
and could result in such colleagues competing against us.
Our success depends on our ability to attract, retain and motivate qualified personnel, including key managers and colleagues.
In addition, our success largely depends upon our colleagues’ abilities to generate business and provide quality services. In
particular, our colleagues’ business relationships with our clients are a critical element of obtaining and maintaining client
engagements. The uncertainties about the effect of the Merger and the related actions may impair our ability to attract, retain
and motivate key personnel. Following the Merger, we have lost colleagues who manage substantial client relationships or
possess substantial experience or expertise; if we lose additional colleagues such as those or if we are unable to successfully
attract new talent, it could materially adversely affect our ability to secure and complete engagements, which would materially
adversely affect our results of operations and prospects. In addition, we have experienced intense competition for certain types
of colleagues in the past, including following the Merger, and if any of our key colleagues were to join a competitor or form a
competing company or we are unable to continue to recruit key colleagues, existing and potential clients could choose to use
the services of that competitor instead of Willis Towers Watson’s services.
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We have incurred and will incur direct and indirect costs as a result of the Merger and related actions, which could exceed
our estimates.
We have incurred substantial expenses in connection with completing the Merger and related actions, including the Gras
Savoye acquisition, and expect to incur substantial expenses in connection with coordinating and integrating the businesses,
operations, policies and procedures of the combined companies. While we have assumed that a certain level of transaction and
integration expenses will be incurred, there are a number of factors beyond our control that could affect the total amount or the
timing of these transaction and integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to
estimate accurately. These expenses may exceed the costs historically borne by us, which could exceed our estimates for these
expenses. These costs could adversely affect our financial condition and results of operations.
Our success largely depends on our ability to achieve our global business strategy arising out of the Merger, and our results
of operations and financial condition could suffer if the Company were unable to successfully establish and execute on its
strategy and generate anticipated revenue growth and cost savings and efficiencies.
Our future growth, profitability and cash flows largely depend upon our ability to successfully establish and execute our global
business strategy. As discussed under “Business - Business Strategy”, we seek to be an advisory, broking and solutions
provider of choice through an integrated global platform created as a result of the Merger. Although we believe that our
strategy will lead to long-term growth in revenue and profitability, we may not realize, in full or in part, the anticipated benefits
of our business strategy. While we have confidence that our strategic plan reflects opportunities that are appropriate and
achievable, there is a possibility that our strategy may not deliver the projected results due to inadequate execution, incorrect
assumptions, global or local economic conditions, competition, changes in the industries in which we operate, sub-optimal
resource allocation or any of the other risks described in this Risk Factors section. The failure to execute optimally on our
global business strategy could have a material adverse effect on our business, financial condition and results of operations.
Risks Relating to our Business
Demand for our services could decrease for various reasons, including a general economic downturn, increased
competition, a decline in a client’s or an industry’s financial condition or prospects, or a decline in defined benefit pension
plans or the purchasing of insurance, all of which could materially adversely affect us.
We can give no assurance that the demand for our services will grow or that we will compete successfully with our existing
competitors, new competitors or our clients’ internal capabilities. Client demand for our services may change based on the
clients’ needs and financial conditions.
Our results of operations are affected directly by the level of business activity of our clients, which in turn is affected by the
level of economic activity in the industries and markets that they serve. Global financial markets may continue to experience
disruptions, including increased volatility and credit availability, which could substantially impact our results. Economic
slowdowns in some markets have caused and may continue to cause reductions in discretionary spending by our clients, longer
client payment terms, an increase in late payments by clients and an increase in uncollectible accounts receivable, each of
which may reduce the demand for our services, increase price competition and/or adversely impact our growth, profit margins
and liquidity.
While it is difficult to predict the consequences of any deterioration in global economic conditions on our business, any
significant reduction or delay by our clients in purchasing our services or 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.
In addition, the markets for our principal services are highly competitive. Our competitors include other insurance brokerage,
human capital and risk management consulting and actuarial firms, and the human capital and risk management divisions of
diversified professional services, insurance, brokerage and accounting firms and specialty, regional and local firms.
Competition for business is intense in all of our business lines and in every insurance market, and some competitors have
greater market share in certain lines of business than we do. Some of our competitors have greater financial, technical and
marketing resources than us, which could enhance their ability to finance acquisitions, fund internal growth and respond more
quickly to professional and technological changes. New competitors or alliances among competitors could emerge, creating
additional competition and gaining significant market share, resulting in a loss of business for us and a corresponding decline in
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revenues and profit margin. In order to respond to increased competition and pricing pressure, we may have to lower our prices,
which would also have an adverse effect on our revenues and profit margin.
An example of a business that may be significantly impacted by changes in customer demand is our retirement consulting and
actuarial business, which comprises a substantial portion of our revenue and profit. We provide clients with actuarial and
consulting services relating to both defined benefit and defined contribution pension plans. Defined benefit pension plans
generally require more actuarial services than defined contribution plans because defined benefit plans typically involve large
asset pools, complex calculations to determine employer costs, funding requirements and sophisticated analysis to match
liabilities and assets over long periods of time. If organizations shift to defined contribution plans more rapidly than we
anticipate, or if we are unable to otherwise compensate for the decline in our business that results from employers moving away
from defined benefit plans, our business, financial condition and results of operations could be materially adversely affected.
In addition, the demand for many of our core benefit services, including compliance-related services, is affected by government
regulation and taxation of employee benefit plans. Significant changes in tax or social welfare policy or other regulations could
lead some employers to discontinue their employee benefit plans, including defined benefit pension plans, thereby reducing the
demand for our services. A simplification of regulations or tax policy also could reduce the need for our services.
We could be subject to claims and lawsuits arising from our work, as well as government inquiries and investigations, which
could materially adversely affect our reputation, business and financial condition.
We depend in large part on our relationships with clients and our reputation for high-quality services to secure future
engagements. Clients that become dissatisfied with our services may terminate their business relationships with us, and clients
and third parties that claim they suffered damages caused by our services may bring lawsuits against us. 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 provision of our services or the placement of insurance and reinsurance in the ordinary course
of business. We are also subject to actual and potential claims, lawsuits, investigations and proceedings outside of errors and
omissions claims. See Note 13 — Commitments and Contingencies in Item 8 in this Annual Report on Form 10-K for examples
of claims to which we are subject, including claims arising out of the Stanford insolvency.
Because we often assist our clients with matters involving substantial amounts of money, including actuarial services and the
placement of insurance coverage and the handling of related claims, errors and omissions claims against us may arise that
allege our potential liability for all or part of the substantial amounts in question. The nature of our work, particularly our
actuarial services, necessarily involves the use of assumptions and the preparation of estimates relating to future and contingent
events, the actual outcome of which we cannot know in advance. Our actuarial and brokerage services also rely on substantial
amounts of data provided by clients, the accuracy and quality of which we cannot ensure. In addition, we could make
computational, software programming or data management errors in connection with the services we provide to clients.
Clients may seek to hold us responsible for alleged errors or omissions related to any of the brokerage advice and services we
provide, including when claims they submit to their insurance carriers are disputed or denied. Given that many of our clients
have very high insurance policy limits to cover all of their risks, alleged errors and omissions claims against us arising from
disputed or denied claims are often significant. Moreover, in a number of markets and in various circumstances, our brokerage
and certain other terms of business may not limit the maximum liability to which we may be exposed for claims involving
alleged errors or omissions; and as such, we do not have limited liability for the work we provide to the associated clients.
Further, given that we frequently work with large pension funds and insurance companies as well as other large clients,
relatively small percentage errors or variances can create significant financial variances and result in significant claims for
unintended or unfunded liabilities. The risks from such variances or errors could be aggravated in an environment of declining
pension fund asset values and insurance company capital levels. In almost all cases, our exposure to liability with respect to a
particular engagement is substantially greater than the revenue opportunity that the engagement generates for us.
Clients may seek to hold us responsible for the financial consequences of variances between assumptions and estimates and
actual outcomes or for errors. For example, in the case of liability for pension plan actuarial errors, a client’s claims might
focus on the client’s alleged reliance that actuarial assumptions were reasonable and, based on such reliance, the client made
benefit commitments the client may later claim are not affordable or funding decisions that result in plan underfunding if and
when actual outcomes vary from actuarial assumptions.
We also provide advice on both asset allocation and selection of investment managers. Increasingly, for some clients, we are
responsible for making decisions on both of these matters, or we may serve in a fiduciary capacity, either of which may
increase liability exposure. In addition, for certain clients, we are responsible for some portions of cash and investment
management, including rebalancing of investment portfolios and guidance to third parties on the structure of derivatives and
securities transactions. Asset classes may experience poor absolute performance, and investment managers may underperform
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their benchmarks; in both cases the investment return shortfall can be significant. Clients experiencing this underperformance
may assert claims against us, and such claims may be for significant amounts. In addition, our failure to properly execute our
role can cause monetary damage to our clients or such third parties for which we might be found liable, and such claims may be
for significant amounts. Defending against these claims can involve potentially significant costs, including legal defense costs.
Our ability to limit our potential liability may be limited in certain jurisdictions or in connection with claims involving breaches
of fiduciary duties or other alleged errors or omissions.
The ultimate outcome of all of the above 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 industries
we operate in or to us in particular that may adversely affect our business, client or employee relationships.
Finally, we have been and may continue to be subject to inquiries and investigations by federal, state or other governmental
agencies regarding aspects of our clients’ businesses or our own businesses, especially regulated businesses such as our
insurance broker, securities broker-dealer and investment advisory services. Such inquiries or investigations may consume
significant management time and result in regulatory sanctions, fines or other actions as well as significant legal fees, which
could have a material adverse impact on our business, results of operations and liquidity.
Our ability to successfully manage ongoing organizational changes could impact our business results.
We have recently undergone several significant business and organizational changes, including the Merger, the acquisitions of
Gras Savoye and Miller Insurance Services, LLP, and our ongoing Business Restructuring Program and multi-year operational
improvement program. In connection with these changes, we are managing a number of large-scale and complex integration
projects. While we have concluded that each of these large, complex projects is necessary or desirable to the execution of the
Company’s business strategy, we cannot guarantee that the collective effect of all of these projects will not adversely impact
our business or results of operations. In addition, as we have experienced, competition to retain or recruit talent is heightened
in a challenging rate environment or during a time when we are experiencing significant change. Effectively managing these
organizational changes is critical to retaining talent, servicing clients and our business success overall. The failure to effectively
manage such risks could adversely impact our resources or business or financial results.
In conducting our businesses around the world, we are subject to political, economic, legal, cultural, 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:
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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 U.S. and foreign governments;
the imposition of withholding and other taxes on remittances and other payments from subsidiaries;
the 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; and
the practical challenge and costs of complying, or monitoring compliance, with a wide variety of foreign laws (some
of which are evolving or not as well-developed as the laws of the U.S. or U.K. or which may conflict with U.S. or
other sources of law), laws and regulations applicable to insurance brokers and other business operations abroad (in
more than 140 countries and territories including many countries in Africa), including laws, rules and regulations
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relating to the conduct of business, trade sanctions laws administered by the U.S. Office of Foreign Assets Control, the
E.U., the U.K. and the United Nations (‘U.N.’), and the requirements of the U.S. Foreign Corrupt Practices Act as well
as other anti-bribery and corruption rules and requirements in all of the countries in which we operate.
Our business will be negatively affected if we are not able to anticipate and keep pace with rapid changes in government
regulations, or if government regulations decrease the need for our services or increase our costs.
A material portion of our revenues are affected by statutory or regulatory changes. The recent U.S. election may result in
significant regulatory change and/or uncertainty. For example, the new administration and certain key members of Congress
have expressed a desire to replace or amend all or a portion of the Patient Protection and Affordable Care Act (‘PPACA’), and
the Healthcare and Education Reconciliation Act of 2010, (‘HCERA’), which we refer to collectively as ‘Healthcare Reform’.
If we are unable to adapt our services to applicable laws and regulations, our ability to provide effective services in these areas
may be substantially impacted.
Many areas in which we provide services are the subject of government regulation, which is constantly evolving. For example,
our activities in connection with insurance brokerage services are subject to regulation and supervision by national, state or
other authorities. Insurance laws in the markets in which we operate 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 markets 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
locations.
Changes in government and accounting regulations in the U.S. and the U.K., two of our principal geographic markets, affecting
the value, use or delivery of benefits and human capital programs may materially adversely affect the demand for, or the
profitability of, our services. In addition, more restrictive rules or interpretations of the Federal Centers for Medicare Services
marketing rules, or judicial decisions that restrict or otherwise change existing provisions of U.S. healthcare regulation, could
have a material adverse impact on our Exchange Solutions business. Further, changes to insurance regulatory schemes, or our
failure to keep pace with such changes, could negatively affect demand for services in our Investment, Risk and Reinsurance
business segment. For example, our continuing ability to provide investment advisory services depends on compliance with the
rules and regulations in each of these jurisdictions. Any failure to comply with these regulations could lead to disciplinary
action, including compensating clients for loss, the imposition of fines or the revocation of the authorization to operate, as well
as damage to our reputation.
In addition, we have significant operations throughout the world, which further subject us to applicable laws and regulations of
countries outside the U.S. and the U.K. Changes in legislation or regulations and actions by regulators in particular countries,
including changes in administration and enforcement policies, could require operational improvements or modifications, which
may result in higher costs or hinder our ability to operate our business in those countries.
Our growth strategy depends, in part, on our ability to make acquisitions and we face risks when we acquire or divest
businesses, and could have difficulty in acquiring, integrating or managing acquired businesses, or with effecting internal
reorganizations, which could harm our business, financial condition, results of operations or reputation.
Our growth depends in part on our ability to make acquisitions. We may not be successful in identifying appropriate acquisition
candidates or consummating acquisitions on terms acceptable or favorable to us. We also face additional risks related to
acquisitions, including that we could overpay for acquired businesses and that any acquired business could significantly
underperform relative to our expectations. If we are unable to identify and successfully make acquisitions, our business could
be materially adversely affected.
In addition, we cannot be certain that our acquisitions will be accretive to earnings or that our acquisitions or divestitures will
otherwise meet our operational or strategic expectations. Acquisitions involve special risks, including the potential assumption
of unanticipated liabilities and contingencies and difficulties in integrating acquired businesses, and acquired businesses may
not achieve the levels of revenue, profit or productivity we anticipate or otherwise perform as we expect. In addition, if the
operating performance of an acquired business deteriorates significantly, we may need to write down the value of the goodwill
and other acquisition-related intangible assets recorded on our balance sheet.
We may be unable to effectively integrate an acquired business into our organization, and may not succeed in managing such
acquired businesses or the larger company that results from such acquisitions. The process of integration of an acquired
business may subject us to a number of risks, including:
• Diversion of management attention;
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• Amortization of intangible assets, adversely affecting our reported results of operations;
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Inability to retain the management, key personnel and other employees of the acquired business;
Inability to establish uniform standards, controls, systems, procedures and policies;
Inability to retain the acquired company’s clients;
• Exposure to legal claims for activities of the acquired business prior to acquisition; and
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Incurrence of additional expenses in connection with the integration process.
We may also face similar challenges in effecting internal reorganizations. If acquisitions or internal reorganizations are not
successfully integrated, our business, financial condition and results of operations could be materially adversely affected, as
well as our professional reputation.
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 could achieve if we had full ownership.
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.
We depend on information technology networks and systems to process, transmit and store electronic information and to
communicate among our locations around the world and with our alliance partners and clients. 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 customers and/or employees. Our information systems, and those of our third-party service providers
and vendors, are vulnerable to an increasing threat of continually evolving cybersecurity risks. Computer viruses, hackers and
other external hazards, as well as improper or inadvertent staff behavior, could expose confidential company and personal data
systems and information to security breaches.
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.
Unauthorized parties may attempt to gain access to our information technology networks and systems or our information
through fraud or other means of deceiving our colleagues, third-party service providers or vendors. The methods used to obtain
unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving; continue to
become more advanced and complex; and may be difficult to anticipate or detect. For example, the Cyber Division of the U.S.
Federal Bureau of Investigation (‘FBI’) recently issued a notification that cyber criminals have targeted, and may increasingly
target, assets held in Health Savings Accounts and Reimbursement Accounts to fraudulently acquire the assets held in those
accounts. Assets held in Health Savings Accounts are expected to grow substantially over the next few years and given the
Company’s move toward managing more of these assets ourselves as a Non-Bank Custodian in connection with our Exchange
Solutions Businesses, our reputation could be harmed and our business and results of operations could be materially adversely
affected if we are the target of such fraud and it goes undetected for any period of time.
We have implemented and regularly review and update processes and procedures to protect against fraud or unauthorized
access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean we and our third-party
service providers and vendors must continually evaluate and adapt our respective systems and processes, and there is no
guarantee that they will be adequate to safeguard against all fraud, data security breaches or misuses of data. Any future
significant compromise or breach of our data security or fraud, whether external or internal, or misuse of client, colleague,
supplier or company data, could result in additional significant costs, lost revenue opportunities, fines, lawsuits, and damage to
our reputation.
We are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as the
European Union Directive on Data Protection and various U.S. federal and state laws governing the protection of health or
other individually identifiable information. Laws and regulations in this area are evolving and generally becoming more
stringent. Further, a U.K. exit from the E.U. will increase uncertainty regarding applicable laws and regulations pending more
clarity on the terms of that exit. If any person, including any of our colleagues, fails to comply with, disregards or intentionally
breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be
subject to monetary damages, fines or criminal prosecution. Unauthorized disclosure of sensitive or confidential client or
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employee data, whether through systems failure, accident, employee negligence, fraud or misappropriation, could damage our
reputation and cause us to lose clients. Similarly, unauthorized access to or through our information systems or those we
develop for our clients, whether by our colleagues or third parties, could result in significant additional expenses (including
expenses relating to notification of data security breaches and costs of credit monitoring services), negative publicity, legal
liability and damage to our reputation, as well as require substantial resources and effort of management, thereby diverting
management’s focus and resources from business operations.
We have experienced a number of data incidents, resulting from human error or malfeasance as well as attempts at
unauthorized access to our systems, none of which to our knowledge have been material to our business or our 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.
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 customer expectations and legal or regulatory requirements in this area, including changing
legal or regulatory requirements that may be developed or revised due to the vote in the U.K. to leave the E.U., could result in
legal liability or impairment to our reputation or business.
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 could have an adverse effect on our business.
Our activities are subject to extensive regulation under the laws of the U.S., the U.K., the E.U. 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. The foreign and U.S. laws and regulations applicable to our operations are complex,
continually evolving and may increase the costs of regulatory compliance, limit or restrict the products or services we sell or
subject our business to the possibility of regulatory actions or proceedings. These laws and regulations include insurance and
financial industry regulations, competition law regulations, economic and trade sanctions laws relating to countries in which
certain subsidiaries do business or may do business (“Sanctioned Jurisdictions”) such as Cuba, Iran, Russia, Sudan and Syria,
anti-corruption laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar local laws
prohibiting corrupt payments to governmental officials and the Foreign Account Tax Compliance provisions of the Hiring
Incentives to Restore Employment Act in the U.S., as well as laws and regulations related to data privacy and cyber security.
Because of changes in regulation and Company practice, our non-U.S. subsidiaries are providing more services with
connections to various countries, including some Sanctioned Jurisdictions, that our U.S. subsidiaries are unable to perform.
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. While we strive to remain fully-
compliant with all applicable laws and regulations, we cannot guarantee that we will fully comply at all times with all laws and
regulations, especially in countries with developing or evolving legal systems or with evolving or extra-territorial regulations.
In particular, given the challenges of integrating operations, many of which are de-centralized, we cannot assure that our newly-
acquired entities’ business systems and controls have prevented or will prevent any and all violations of applicable laws or
regulations.
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.
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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 disaster or other business continuity problem could cause
material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.
Should we experience a disaster or other business continuity problem, such as an earthquake, hurricane, terrorist attack,
pandemic, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success
will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer,
telecommunication and other related systems and operations. In such an event, we could experience near-term operational
challenges with regard to particular areas of our operations.
A disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to
successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our
business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged
client relationships or legal liability.
Damage to our reputation, including due to failure of third-parties on whom we rely to perform services, could damage our
businesses.
Maintaining a positive reputation is critical to our ability to attract and maintain relationships with clients and colleagues.
Damage to our reputation could therefore cause significant harm to our business and prospects. Harm to our reputation can
arise from numerous sources, including, among others, employee misconduct, litigation or regulatory action, failure to deliver
minimum standards of service and quality, compliance failures and unethical behavior. Negative publicity, whether or not true,
may also result in harm to our prospects. In addition, the failure to deliver satisfactory service and quality in one line of
business could cause clients to terminate the services we provide to that client in many other lines of business.
We could also suffer significant reputational harm if we fail to properly identify and manage potential conflicts of interest.
Identifying conflicts of interest may prove particularly difficult in the near-term while we bring together and integrate Legacy
Willis, Legacy Towers Watson and Gras Savoye. In addition, we may encounter more conflicts of interest than anticipated in
connection with the Merger or the Gras Savoye acquisition and we may not be able to adequately address such conflicts of
interest.
The failure or perceived failure to adequately address conflicts of interest could affect the willingness of clients to deal with us,
or give rise to litigation or enforcement actions. There can be no assurance that conflicts of interest will not arise in the future
that could cause material harm to us.
In addition, as part of providing services to clients and managing our business, we rely on a number of third-party service
providers. Our ability to perform effectively depends in part on the ability of these service providers to meet their obligations,
as well as on our effective oversight of their performance. The quality of our services could suffer or we could be required to
incur unanticipated costs if our third-party service providers do not perform as expected or their services are disrupted. This
could have a material adverse effect on our reputation as well as our business and results of operations.
The vote in the United Kingdom to leave the European Union, and the risk that other countries may follow, could adversely
affect us.
On an annual basis, approximately 23% of our revenues are generated in the U.K., although only about 14% of revenues are
denominated in Pounds sterling as much of the insurance business is transacted in U.S. dollars. Approximately 20% of our
expenses are denominated in Pounds sterling. In a referendum held in June 2016, a majority of voters in the U.K. voted in favor
of the U.K. leaving the E.U. At this time, we are not able to predict the impact that the result of this vote will have on the
economy; economic, regulatory and political stability; and market conditions in Europe, including in the U.K., or on Pound
sterling, Euro or other European currencies, but any such impacts and others we cannot currently anticipate could materially
adversely affect us and our operations. Among other things, we could experience: lower growth in the region due to indecision
as businesses hold off on generating new projects or due to adverse market conditions; and reduced reported revenues and
earnings because foreign currencies may translate into fewer U.S. dollars due to the fact that we translate revenue denominated
in non-U.S. currencies such as Pounds sterling into U.S. dollars for our financial statements. In addition, there can be no
assurance that our hedging strategies will be effective.
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It is expected that the British government will begin negotiating the terms of the U.K.'s future relationship with the E.U. this
year. Although it is unknown and we cannot anticipate what those terms will be, they may result in greater restrictions on
business between the U.K. and E.U. countries and increased regulatory complexities. There is also uncertainty regarding how
the U.K.'s access to the E.U. Single Market and the wider trading, legal, regulatory, tax and labor environments, especially in
the U.K. and E.U., will be impacted, including the resulting impact on our business and that of our clients. Any such changes
may adversely affect our operations and financial results. For example, any changes to the passporting or other regulations
relating to doing business in various E.U. countries by relying on a regulatory permission in the U.K. (or doing business in the
U.K. by relying on a regulatory permission in an E.U. country) could increase our costs of doing business, or our ability to do
so. As another example, changes in labor laws may impact the ability to hire and retain non-U.K. staff in the U.K. or U.K. staff
in the E.U. In addition, the outcome of the referendum has created uncertainty with regard to the regulation of data protection
in the U.K. Among other things, it is unclear whether the U.K. will enact legislation similar to the pending European General
Data Protection Regulation after the U.K.’s exit from the E.U. (‘Brexit’), and how data transfers to and from the U.K. will be
regulated. A change in such regulations, or other regulations, could increase our costs of doing business, or in some cases our
ability to do business, and adversely impact our operations and financial results.
There is also a risk that other countries may decide to leave the E.U. In particular, depending on the outcome of the upcoming
election in France, France could be the next country to decide whether to leave the E.U. We cannot predict the impact that any
additional countries leaving the E.U. will have on us, but any such impacts could materially adversely affect us.
Our Exchange Solutions business may be harmed if we lose our relationships with insurance carriers, fail to maintain good
relationships with insurance carriers, become dependent upon a limited number of insurance carriers or fail to develop new
carrier relationships.
Our Exchange Solutions business typically enters into contractual agency relationships with insurance carriers that are non-
exclusive and terminable on short notice by either party for any reason. In many cases, insurance carriers also have the ability
to amend the terms of our agreements unilaterally on short notice. Insurance carriers may be unwilling to allow us to sell their
existing or new health insurance plans or may amend our agreements with them, for a variety of reasons, including for
competitive or regulatory reasons or because of a reluctance to distribute their products through our exchange platform.
Insurance carriers may decide to rely on their own internal distribution channels, choose to exclude us from their most
profitable or popular plans, or decide not to distribute insurance plans in individual markets in certain geographies or
altogether. Additionally, if one of the insurance carriers with which we are associated violates the law or comes under scrutiny
by the Centers for Medicare & Medicaid Services (‘CMS’), CMS may impose sanctions on such carriers, resulting in a loss of
supply of insurance plans that we are able to sell. The termination or amendment of our relationship with an insurance carrier
could reduce the variety of health insurance plans we offer. We also could lose a source of, or be paid reduced commissions for,
future sales and could lose renewal commissions for past sales. Our business could also be harmed if we fail to develop new
carrier relationships or are unable to offer customers a wide variety of health insurance plans.
The private health insurance industry in the U.S. has experienced a substantial amount of consolidation over the past several
years, resulting in a decrease in the number of insurance carriers. In the future, it may become necessary for us to offer
insurance plans from a reduced number of insurance carriers or to derive a greater portion of our revenues from a more
concentrated number of carriers as our business and the health insurance industry evolve. Should our dependence on a smaller
number of insurance carriers increase, whether as a result of the termination of carrier relationships, further insurance carrier
consolidation or otherwise, we may become more vulnerable to adverse changes in our relationships with our carriers,
particularly in states where we offer health insurance plans from a relatively small number of carriers or where a small number
of insurance carriers dominate the market. The termination, amendment or consolidation of our relationship with our insurance
carriers could harm our business, results of operations and financial condition.
Changes and developments in the health insurance system in the United States could harm our Exchange Solutions
business or other businesses.
In 2010, the Federal government enacted significant reforms to healthcare legislation through Healthcare Reform. Our
Exchange Solutions business depends upon the private sector of the U.S. insurance system, its role in financing health care
delivery, and insurance carriers’ use of, and payment of commissions to, agents, brokers and other organizations to market and
sell individual and family health insurance plans. Healthcare Reform contains provisions that have changed and will continue
to change the industry in which we operate in substantial ways.
The recent U.S. election may result in significant regulatory change and/or uncertainty. The new administration, and certain key
members of Congress have expressed a desire to replace or amend all or a portion of Healthcare Reform. Any partial or
complete repeal or amendment or implementation difficulties, or uncertainty regarding such events, could increase our costs of
compliance, prevent or delay future adoption of our exchange platform, and adversely impact our results of operations and
25
financial condition. Given the uncertainty relating to the potential repeal and replacement of Healthcare Reform, the impact is
difficult to determine, but it could have negative effects on us, including:
•
Increasing our competition;
• Reducing or eliminating the need for health insurance agents and brokers or demand for the health insurance that we
sell;
• Decreasing the number of types of health insurance plans that we sell, as well as the number of insurance carriers
offering such plans;
• Causing insurance carriers to change the benefits and/or premiums for the plans they sell;
• Causing insurance carriers to reduce the amount they pay for our services or change our relationship with them in
other ways; or
• Materially restricting our call center operations.
Any of these effects could materially harm our business and results of operations. For example, the manner in which the
Federal government and the states implement health insurance exchanges and the process for receiving subsidies and cost-
sharing credits could substantially increase our competition and member turnover and substantially reduce the number of
individuals who purchase insurance through us. Various aspects of Healthcare Reform could cause insurance carriers to limit
the types of health insurance plans we are able to sell and the geographies in which we are able to sell them. In addition, the
U.S. Congress has been charged with finding spending cuts, and such cuts are expected to include Medicare. If cuts are made to
Medicare, there may be substantial changes in the types of health insurance plans we are able to sell. Changes in the law could
also cause insurance carriers to exit the business of selling insurance plans in a particular jurisdiction, to eliminate certain
categories of products or to attempt to move members into new plans for which we receive lower commissions. If insurance
carriers decide to limit our ability to sell their plans or determine not to sell individual health insurance plans altogether, our
business, results of operations and financial condition would be materially harmed.
Our Exchange Solutions business may not grow as quickly as expected or its growth may occur faster than expected and we
may not have the resources required to support it.
If clients do not select private healthcare exchanges, do not select our healthcare exchange business or if clients move to
exchanges more slowly than we have anticipated, then our Exchange Solutions business and operating results may be
materially adversely affected. If, conversely, revenues from our Exchange Solutions business do grow significantly, there is the
risk that we do not have the resources required to support such growth in revenues.
Our quarterly revenues could fluctuate, including as a result of factors outside of our control, while our expenses are
relatively fixed.
Quarterly variations in our revenues and results of operations have occurred in the past and could occur as a result of a number
of factors, such as: the significance of client engagements commenced and completed during a quarter; seasonality of certain
types of services; the number of business days in a quarter; colleague hiring and utilization rates; our clients’ ability to
terminate engagements without penalty; the size and scope of assignments; and general economic conditions.
A sizeable portion of our total operating expenses is relatively fixed, encompassing the majority of administrative, occupancy,
communications and other expenses, depreciation and amortization, and salaries and employee benefits excluding fiscal year-
end incentive bonuses. Therefore, a variation in the number of client assignments or in the timing of the initiation or the
completion of client assignments or our inability to forecast demand can cause significant variations in quarterly operating
results and could result in losses and volatility in our stock price.
We derive significant revenues from commissions for brokerage 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. 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
26
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.
Accepting market derived income (MDI) may cause regulatory or other scrutiny, which may have a material 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.
New product or service offerings may carry greater risk of liability and regulatory action than existing or historical product
or service offerings or may fail to yield sufficient return to cover their investment.
We continue to grow the business of providing products and services to institutional investors, financial services companies and
other clients. The risk of claims from these lines of business and related products and services may be greater than from our
core businesses, and such claims may be for significant amounts. In addition, with respect to some of these new ventures, we
may enter into arrangements that need to be examined to determine whether they fall under the variable interest entity
accounting guidance. The structure of such arrangements could require us to consolidate assets or liabilities on which we do not
have risk of loss.
We may also invest significant time and resources into new product or service offerings and there is the possibility that these
offerings may fail to yield sufficient return to cover their investment. Failure to successfully manage these risks in the
development and implementation of new lines of business and new products and services could have a material adverse effect
on our business, financial condition or results of 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.
Our business performance and growth plans could be negatively affected if we are not able to effectively apply technology
and analytics to drive value for our clients through technology-based solutions or gain internal efficiencies through the
effective application of technology, analytics and related tools.
Our success depends, in part, on our ability to develop and implement technology and analytic solutions that anticipate, lead or
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 or analytic
techniques 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 or analytic services or solutions as quickly or effectively as our
competitors, or if our competitors develop more cost-effective technologies or analytic tools, it could have a material adverse
effect on our ability to obtain and complete client engagements.
Limited protection of our intellectual property could harm our business, and we face the risk that our services or products
may infringe upon the intellectual property rights of others.
We cannot guarantee that trade secret, trademark and copyright law protections are adequate to deter misappropriation of our
intellectual property (including our software, which may become an increasingly important part of our business). Existing laws
of some countries in which we provide services or products may offer only limited protection of our intellectual property rights.
Also, we may be unable to detect the unauthorized use of our intellectual property and take the necessary steps to enforce our
rights, which may have a material adverse impact on our business, financial condition or results of operations. We cannot be
sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual
property rights of third parties, and we may have infringement claims asserted against us or our clients. These claims may harm
our reputation, result in financial liability, consume financial resources to pursue or defend, and prevent us from offering some
services or products.
27
Financial and Tax Risks
Our outstanding debt could adversely affect our cash flows and financial flexibility and we may not be able to obtain
financing on favorable terms or at all.
Willis Towers Watson had total consolidated debt outstanding of approximately $3.9 billion as of December 31, 2016, and our
interest expense was $184 million for the year ended December 31, 2016.
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
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. The operating restrictions and
financial covenants in our credit facilities do, and any future financing agreements may, limit our ability to finance future
operations or capital needs or to engage in other business activities.
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 is not cured 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.
The maintenance and growth of our business depends on our access to capital, which will depend in large part on cash flow
generated by our business and the availability of equity and debt financing. There can be no assurance that our operations will
generate sufficient positive cash flow to finance all of our capital needs or that we will be able to obtain equity or debt
financing on favorable terms or at all, which could have a material adverse effect on us.
Our significant non-U.S. operations, particularly our London market operations, expose us to exchange rate fluctuations
and various other risks that could impact our business.
A significant portion of our operations is conducted outside of the U.S. 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 U.S. 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 U.S. dollars. Our U.S. operations earn revenues and incur expenses
primarily in U.S. dollars. In our London market operations, however, we earn revenues in a number of different currencies, but
expenses are almost entirely incurred in Pounds sterling. Outside of the U.S. and our London market operations, we
predominantly generate revenues and expenses in local currencies.
Because of devaluations and fluctuations in currency exchange rates or the imposition of limitations on conversion of foreign
currencies into U.S. 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 Pound
sterling balance sheet position we hold in our U.S. dollar denominated London market operations, creates an exchange
exposure.
28
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 certain of our senior notes, 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.
In addition, under the indenture for our 4.625% senior notes due 2023, our 6.125% senior notes due 2043, our 3.500% senior
notes due 2021, our 4.400% senior notes due 2026, and our 2.125% senior notes due 2022, if we experience a ratings decline
together with a change of control event, we would be required to offer to purchase these notes 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 have material pension liabilities that can fluctuate significantly.
We have material pension liabilities, some of which represent unfunded and underfunded pension and postretirement liabilities.
Movements in the interest rate environment, inflation or changes in other assumptions that are used for the estimates of our
benefit obligations and other factors could have a material effect on the level of liabilities in these plans at any given time.
These pension plans have minimum funding requirements that may require material amounts of periodic additional funding.
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 are a holding company and, therefore, may not be able to receive dividends or other distributions in needed amounts
from our subsidiaries.
The Company is organized as a holding company, a legal entity separate and distinct from our operating subsidiaries. As a
holding company without significant operations of our 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, for repurchasing shares of common stock 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 U.K. brokerage subsidiary regulated by the FCA, is currently
required to maintain $140 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 other payments to the Company,
we may not be able to service debt, pay obligations or pay dividends on, or repurchase shares of, common stock.
In the event we are unable to generate cash from our operating subsidiaries for any of the reasons discussed above, our overall
liquidity could deteriorate.
Changes in our accounting estimates and assumptions could negatively affect our financial position and results of
operations.
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of
America (‘U.S. GAAP’). These accounting principles require us to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of our financial statements.
We are also required to make certain judgments that affect the reported amounts of revenues and expenses during each
reporting period. We periodically evaluate our estimates and assumptions, including those relating to revenue recognition,
valuation of billed and unbilled receivables from clients, discretionary compensation, incurred but not reported liabilities,
restructuring, pensions, goodwill and other intangible assets, contingencies, share-based payments and income taxes. We base
our estimates on historical experience and various assumptions that we believe to be reasonable based on specific
circumstances. Actual results could differ from these estimates, and changes in accounting standards could have an adverse
impact on our future financial position and results of operations.
In addition, we have a substantial amount of goodwill on our balance sheet as a result of acquisitions we have completed, and
we significantly increased goodwill as a result of the Merger. 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 the determination of the
fair value of each reporting unit. A significant deterioration in a key estimate or assumption or a less significant deterioration to
29
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.
Legislative or regulatory action in the U.S. or abroad could materially adversely affect our ability to maintain a competitive
worldwide effective corporate tax rate.
We cannot give any assurance as to what our effective tax rate will be in the future, because of, among other things, uncertainty
regarding the tax policies of the jurisdictions where we operate. Our actual effective tax rate may vary from expectations and
that variance 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.
Legislative action may be taken by the U.S. Congress which, if ultimately enacted, could limit the availability of tax benefits or
deductions that we currently claim, override tax treaties upon which we rely, or otherwise affect the taxes that the U.S. imposes
on our worldwide operations. Regulations or administrative guidance from the U.S. Treasury Department could have similar
consequences. Such changes could materially adversely affect our effective tax rate and/or require us to take further action, at
potentially significant additional expense, to seek to preserve our effective tax rate. In addition, if proposals were enacted that
have the effect of limiting our ability as an Irish company to take advantage of tax treaties with the U.S., we could incur
additional tax expense and/or otherwise incur business detriment.
In addition, the U.S. Congress, the Organisation for Economic Co-operation and Development and other government agencies
in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of
multinational corporations. One example is in the area of “base erosion and profit shifting”, where payments are made between
affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. In October 2015, the Organisation for
Economic Co-operation and Development released final reports addressing fifteen specific actions as part of a comprehensive
plan to create an agreed set of international rules for fighting base erosion and profit shifting. As a result, the tax laws in the
U.S., Ireland, and other countries in which we and our affiliates do business could change on a prospective or retroactive basis,
and any such changes could adversely affect us and our affiliates.
The laws of Ireland differ 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 U.S. against us in Ireland, based on the civil liability
provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland
would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities
provisions of the U.S. federal or state securities laws or hear actions against us or those persons based on those laws. We have
been advised that the U.S. 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 U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would
not automatically be enforceable in Ireland.
As an Irish company, we are governed by the Irish Companies Act, which differs in some material respects from laws generally
applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer
transactions and shareholder lawsuits. Likewise, 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 our 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
None.
ITEM 2. PROPERTIES
As of December 31, 2016, we operated offices in many countries and territories 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 States and the United Kingdom. Operations of each of our segments are carried out in owned or leased offices under
operating leases that typically do not exceed 10 years in length except for certain properties in key locations. We do not
anticipate difficulty in meeting our space needs at lease expiration.
The fixed assets owned by us represented approximately 3% of total assets as of December 31, 2016 and consisted primarily of
furniture and equipment, leasehold improvements, computer software, internally developed software and land and buildings.
30
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to various lawsuits, arbitrations or mediations that arise in the ordinary course of business. The
disclosure called for by Item 3 regarding our legal proceedings is incorporated by reference herein from Note 13 —
Commitments and Contingencies, within Item 8 in this Annual Report on Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Share Data
Legacy Willis’ shares were traded on the New York Stock Exchange (‘NYSE’) under the symbol ‘WSH’ from June 11, 2001
through January 4, 2016. On January 4, 2016, upon completion of the Merger, the Company effected a 1 to 2.6490 reverse
stock split to shareholders of record as of January 4, 2016. All share and per share information has been retroactively adjusted
to reflect the reverse stock split. Our shares began trading on the NASDAQ Global Select Market under the symbol ‘WLTW’
on January 5, 2016.
The high and low sale prices of our shares, as reported by the NYSE or the NASDAQ, are set forth below for the periods
indicated.
2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017:
Through February 24, 2017
High
Low
$
$
$
$
$
$
$
$
$
131.42
132.34
125.91
130.97
126.25
129.70
133.40
132.74
129.13
$
$
$
$
$
$
$
$
$
113.40
119.95
106.57
107.21
104.11
112.59
118.08
112.76
120.87
On February 24, 2017, our share price as reported by the NASDAQ was $128.09 per share. As of February 24, 2017, there
were approximately 1,415 shareholders of record of our shares.
31
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 paid on December 2, 2015 was to shareholders of record on November 18, 2015. The dividend
payment dates and amounts are as follows:
Payment Date
January 15, 2015
April 15, 2015
July 15, 2015
October 15, 2015
December 2, 2015
April 15, 2016
July 15, 2016
October 17, 2016
January 17, 2017
$ Per Share
$
$
$
$
$
$
$
$
$
0.795
0.821
0.821
0.821
0.821
0.480
0.480
0.480
0.480
On February 8, 2017, the Board of Directors approved a regular quarterly cash dividend of $0.53 per common share for the
quarter ended December 31, 2016. The dividend is payable on or about April 17, 2017 to shareholders of record at the close of
business on March 31, 2017.
There are no governmental laws, decrees or regulations in Ireland that restrict the remittance of dividends or other payments to
non-resident holders of the Company’s shares.
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 U.S.-Ireland
Double Tax Treaty contains provisions reducing the rate of Irish DWT in prescribed circumstances, it should generally be
unnecessary for U.S. 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, U.S.
residents entitled to an exemption from Irish DWT generally have no Irish income tax liability on dividends.
With respect to non-corporate U.S. 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 U.S. 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. U.S. shareholders should consult their own tax advisors regarding the application of these rules
given their particular circumstances.
Total Shareholder Return
The graphs below depict cumulative total shareholder returns for (i) Legacy Willis and Legacy Towers Watson for the period
from January 1, 2012 through January 4, 2016, the day prior to the commencement of trading of Willis Towers Watson’s
ordinary shares, and (ii) Willis Towers Watson for the period from January 5, 2016 through December 31, 2016.
Each graph also depicts the total return for the S&P 500 and for a peer group for Willis Towers Watson comprised of Accenture
plc, Aon plc, Arthur J. Gallagher & Co., Brown & Brown Inc., Cognizant Technology Solutions Corporation, Marsh &
McLennan Companies, Inc. and Robert Half International Inc. The comparisons chart the performance of $100 invested on the
initial dates indicated (January 1, 2012 and January 5, 2016, respectively), assuming full dividend reinvestment.
32
33
Unregistered Sales of Equity Securities and Use of Proceeds
During the year ended December 31, 2016, 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 repurchase shares, by way of redemption, and will consider whether to do so from time to time,
based on many factors, including market conditions.
On April 20, 2016, the Willis Towers Watson Board reconfirmed, reapproved and reauthorized the remaining portion of the
Legacy Willis program to repurchase the Company’s ordinary shares on the open market or by way of redemption or otherwise.
On November 10, 2016, the Company announced the Board of Directors approved an increase to the existing share repurchase
program of $1 billion. The $1 billion increase is in addition to the remaining authority on the Legacy Willis program discussed
in the preceding paragraph. We anticipate this authorization to be executed in 2017 and 2018.
There are no expiration dates for these repurchase plans or programs. The following table presents specified information about
the Company’s repurchases of ordinary shares in the fourth quarter and the Company’s repurchase authority.
Period
October 1, 2016 through October 31, 2016
November 1, 2016 through November 30, 2016
December 1, 2016 through December 31, 2016
Total number of
shares purchased
Average price
paid per share
Total number of shares
purchased as part of publicly
announced plans or programs
Maximum number of shares that
may yet be purchased under the
plans or programs
568,906
298,998
511,092
1,378,996
$
$
$
$
129.19
123.59
123.16
125.74
568,906
298,998
511,092
1,378,996
10,076,503
9,777,505
9,266,413
34
The maximum number of shares that may yet be purchased under the existing stock repurchase plan is 9,266,413. At
December 31, 2016, approximately $1.1 billion remained on the open-ended repurchase authorities granted by the Board. An
estimate of the maximum number of shares under the existing authority was determined using the closing price of our Ordinary
Shares on December 31, 2016 of $122.28.
35
ITEM 6. SELECTED 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 within this Annual Report on Form 10-K.
The selected historical consolidated financial data presented below for the years ended December 31, 2016, 2015, and 2014 and
as of December 31, 2016 and 2015 has been derived from the audited consolidated financial statements of Legacy Willis and
Willis Towers Watson, as applicable, which have been prepared in accordance with U.S. GAAP and included elsewhere in this
Annual Report. Financial data set forth below for the years ended December 31, 2013 and 2012 and at December 31, 2014,
2013, and 2012, has been derived from audited consolidated financial statements with adjustment for the reverse stock split on
January 4, 2016 and not included in this Annual Report. The Merger affects the comparability of this data. See Note 3 —
Merger and Acquisitions within Item 8 of this Annual Report on Form 10-K for additional information.
Statement of Operations Data
Total revenues
Goodwill impairment charge
Income/(loss) from operations
Income/(loss) from continuing operations before income taxes and
interest in earnings of associates
Net income/(loss)
Net income/(loss) attributable to Willis Towers Watson
Earnings/(loss) per share — basic (i)
Earnings/(loss) per share — diluted (i)
Average number of shares outstanding
— basic
— diluted
Balance Sheet Data (end of year)
Goodwill
Other intangible assets, net
Total assets (ii)
Total equity
Long-term debt
Short-term debt and current portion of long-term debt
Additional paid-in capital
Total Willis Towers Watson shareholders’ equity
Other Financial Data
Years ended December 31,
2016
2015
2014
2013
2012
(in millions of U.S. dollars, except per share data)
$
7,887
$
3,829
$
3,802
$
3,655
$
3,480
—
551
340
438
420
3.07
3.04
137
138
$
$
$
—
427
340
384
373
5.49
5.41
68
69
$
$
$
—
647
518
373
362
5.40
5.32
67
68
$
$
$
—
663
499
377
365
5.53
5.37
66
68
$
$
$
(492)
(225)
(337)
(433)
(446)
(6.86)
(6.86)
65
65
$
$
$
$
10,413
$
3,737
$
2,937
$
2,838
$
2,827
4,368
30,253
10,183
3,357
508
10,596
10,065
1,115
18,839
2,360
2,278
988
1,672
2,229
450
353
385
15,421
14,785
15,099
2,007
2,130
167
1,524
1,985
2,243
2,297
14
1,316
2,215
1,725
2,325
15
1,125
1,699
Capital expenditures (excluding capitalized software and capital
leases)
Cash dividends declared per share (i)
$
$
218
1.92
$
$
146
3.28
$
$
110
3.18
$
$
105
2.97
$
$
133
2.86
____________________
(i) Basic and diluted earnings/(loss) per share, and cash dividends declared per share, for 2015, 2014, 2013 and 2012 have been retroactively adjusted to
reflect the reverse stock split on January 4, 2016. See Note 3 — Merger and Acquisitions within Item 8 of this Annual Report on Form 10-K for further
details.
(ii) We collect premiums from insureds and, after deducting our commissions, remit 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.
36
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 the rules of the Securities and Exchange
Commission (‘SEC’). We present such non-GAAP financial measures, specifically, adjusted, constant currency 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 under U.S. GAAP, and these provide a measure against which our businesses may
be assessed in the future.
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, 2016.
See ‘Non-GAAP Financial Measures’ below for further discussion of our adjusted, constant currency and organic non-GAAP
financial measures.
This discussion includes forward-looking statements. See ‘Disclaimer Regarding Forward-looking Statements’ for certain
cautionary information regarding forward-looking statements and ‘Risk Factors’ in Item 1A for a list of factors that could
cause actual results to differ materially from those predicted in those statements.
Executive Overview
Business Overview
Willis Towers Watson is a global advisory, broking and solutions company that helps clients around the world turn risk into a
path for growth. With roots dating to 1828, Willis Towers Watson has more than 41,000 employees and services clients in more
than 140 countries and territories. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and
expand the power of capital to protect and strengthen institutions and individuals. We believe our unique perspective allows us
to see the critical intersections between talent, assets and ideas - the dynamic formula that drives business performance.
We offer clients a broad range of services to help them to identify and control their risks, and to enhance business performance
by improving their ability to attract, retain and engage a talented workforce. Our risk control 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 help our clients
enhance their business performance by delivering consulting services, technology and solutions 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.
As an 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. We operate the largest private Medicare exchange in
the U.S. Through this exchange and those for active employees, we help our clients move to a more sustainable economic
model by capping and controlling the costs associated with healthcare benefits.
We are not an insurance company, and therefore we do not underwrite insurable risks for our own account.
We derive the majority of our revenue from either commissions or fees for broking or consulting services. No single client
represented a significant concentration of our consolidated revenues for any of the periods presented.
Our shares are traded on the NASDAQ Global Select Market.
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,
37
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 broking 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.
Management has considered the U.K. referendum vote on June 23, 2016 to depart from the E.U. and the uncertainties about the
near-term and longer-term effects of Brexit on the Company. The terms of Brexit, and its impact, are highly uncertain. For a
further discussion of the risks of Brexit to the Company, see Part I, Item 1A. Risk Factors within this Annual Report on Form
10-K.
Typically, our business benefits from regulatory change, political risk or economic uncertainty. Insurance broking generally
tracks the economy, but demand for both insurance broking and consulting services usually remains steady during times of
uncertainty. We believe that the U.K. has good long-term growth opportunities and, given that, we believe the impact to Willis
Towers Watson will be neutral to slightly positive over the next couple of years, with some periods of increase and decrease in
that time frame. We have some businesses, such as our health and benefits and administration businesses, which can be counter
cyclical during the early period of a significant economic change.
Although approximately 23% of our revenues are generated in the U.K. on an annual basis, only about 14% of revenues are
denominated in Pounds sterling as much of the insurance business is transacted in U.S. dollars. Approximately 20% of our
expenses are denominated in Pounds sterling, thus we generally benefit from a weakening Pound in our income from
operations. However, we have a company hedging strategy for this aspect of our business, where revenues are generated in
currencies different from the currency of the related expenses, which is designed to mitigate significant fluctuations in
currency.
The market for our consulting, technology and solutions, and private exchange services is subject to change as a result of
economic, regulatory and legislative changes, technological developments, and increased competition from established and
new competitors. Regulatory and legislative actions, along with continuously evolving technological developments, will likely
have the greatest impact on the overall market for our exchange products. We believe the primary factors in selecting a human
resources or risk management consulting firm include reputation, the ability to provide measurable increases to shareholder
value and return on investment, global scale, quality of service and the ability to tailor services to clients’ unique needs. With
regard to the market for exchanges, we believe that clients base their decisions on a variety of factors that include the ability of
the provider to deliver measurable cost savings for clients, a strong reputation for efficient execution, a provider's capability in
delivering a broad number of configurations to serve various population segments and financing options, and an innovative
service delivery model and platform.
See Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K for discussions of risks that may affect our ability to
compete.
Business Strategy
Willis Towers Watson sees that a unified approach to people and risk can be a path to growth for our clients. Our integrated
teams bring together our understanding of risk strategies and market analytics. This helps clients around the world to achieve
their objectives.
We operate in attractive markets - both growing and mature - with a diversified platform across geographies, industries,
segments and lines of business. We aim to create and become the premier advisory, broking and solutions company of choice
globally. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital
to protect and strengthen institutions and individuals. We also help organizations improve performance through effective
people, risk and financial management, by focusing on providing human capital and financial consulting services.
We believe we can achieve this by:
• Delivering a powerful client proposition with an integrated global platform. Our highly complementary offerings
provide comprehensive advice, analytics, specialty capabilities and solutions covering benefits, exchange solutions,
brokerage and advisory, risk and capital management, and talent and rewards;
• Leveraging our combined distribution strength and global footprint to enhance market penetration and provide a
platform for further innovation; and
38
• Underpinning this growth through continuous operational improvement initiatives that help make us more effective
and efficient and drive cost synergies. We do this by:
continuing to modernize the way we run our business to better serve our clients, enable the skills of our staff,
and lower our costs of doing business;
making the necessary changes to our processes, our IT, our real estate and workforce locations; and
targeting and delivering identified, highly achievable cost savings as a direct consequence of the Merger.
We care as much about how we work as we do about the impact that we make. This means commitment to shared values, a
framework that guides how we run our business and serve clients.
Through these strategies we aim to accelerate revenue, cash flow, EBITDA and earnings growth, and generate compelling
returns for investors by delivering tangible growth in revenues and capitalizing on the identified cost synergies.
Merger with Towers Watson
On January 4, 2016, pursuant to the Agreement and Plan of Merger, dated June 29, 2015, as amended on November 19, 2015,
between Willis, Towers Watson, and Citadel Merger Sub, Inc., a wholly-owned subsidiary of Willis formed for the purpose of
facilitating this transaction (‘Merger Sub’), Merger Sub merged with and into Towers Watson, with Towers Watson continuing
as the surviving corporation and a wholly-owned subsidiary of Willis.
At the effective time of the Merger (the ‘Effective Time’), each issued and outstanding share of Towers Watson common stock
(the ‘Towers Watson shares’), was converted into the right to receive 2.6490 validly issued, fully paid and nonassessable
ordinary shares of Willis (the ‘Willis ordinary shares’), $0.000115 nominal value per share, other than any Towers Watson
shares owned by Towers Watson, Willis or Merger Sub at the Effective Time and the Towers Watson shares held by
stockholders who are entitled to and who properly exercised dissenter’s rights under Delaware law.
Immediately following the Merger, Willis effected (i) a consolidation (i.e., a reverse stock split under Irish law) of Willis
ordinary shares whereby every 2.6490 Willis ordinary shares were consolidated into one Willis ordinary share $0.000304635
nominal value per share and (ii) 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.
We are continuing our integration of Legacy Willis and Legacy Towers Watson, creating a unified platform for global growth,
including positioning the Company to leverage our mutual distribution strength to enhance market penetration, expand our
global footprint and create a strong platform for further innovation.
During the second quarter of 2016, we began managing our business and reporting our segmental results across four integrated
reportable operating segments: Human Capital and Benefits; Corporate Risk and Broking; Investment, Risk and Reinsurance;
and Exchange Solutions.
39
As Reported Consolidated Financial Information
The table below sets forth our consolidated statements of operations and data as a percentage of revenues for the years ended
December 31, 2016, 2015, and 2014.
Condensed Consolidated Statements of Operations
(in millions of U.S. dollars, except per share data)
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
Income from operations
Interest expense
Other expense/(income), net
(Benefit from)/provision for income taxes
Interest in earnings of associates, net of tax
Income attributable to noncontrolling interests
Years ended December 31,
2016
2015
2014
$ 7,887
100 % $ 3,829
100 % $ 3,802
100 %
4,646
1,551
59 %
20 %
178
591
193
177
7,336
551
184
2 %
7 %
2 %
2 %
7 %
2 %
27 — %
(96)
(1)%
2 — %
(18) — %
60 %
19 %
2 %
2 %
3 %
2 %
2,303
718
95
76
126
84
3,402
2,314
659
92
54
36
61 %
17 %
2 %
1 %
1 %
— — %
3,155
427
11 %
647
17 %
4 %
1 %
142
(55)
(33)
11 — %
(11) — %
1 %
135
4 %
(6) — %
4 %
159
14 — %
(11) — %
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS
WATSON
Diluted earnings per share
$
$
420
5 % $
373
10 % $
362
10 %
3.04
$
5.41
$
5.32
The Merger affects the comparability of this data between 2016 and other periods presented. See ‘Supplementary Pro Forma
Financial Information’ for additional analysis.
Revenues
We derive the majority of our revenues from commissions from our brokerage businesses and fees for consulting services.
Brokerage income and fees negotiated in lieu of commissions are recognized at the later of the policy inception date or when
the policy placement is complete or as the fees are otherwise determined. Commissions on additional premiums and
adjustments are recognized when approved by or agreed between the parties and collectability is reasonably assured.
Consulting revenue is generally recognized as services are performed. No single client represented a significant concentration
of our consolidated revenues for any of our three most recent fiscal years.
The following table details our top five markets based on percentage of consolidated revenues from the countries where work is
performed for the year ended December 31, 2016. These figures do not represent the currency of the related revenue, which is
presented in the succeeding table.
Geographic Region
United States
United Kingdom
France
Canada
Germany
40
% of
Revenues
48%
23%
4%
3%
3%
The table below details our revenues and expenses by transactional currency for the year ended December 31, 2016.
U.S. dollars
Pounds sterling
Euro
Other currencies
____________________
Revenues
56%
14%
14%
16%
Expenses (i)
48%
20%
13%
19%
(i) These percentages exclude certain expenses for significant items which will not be settled in cash, or which we believe to be items that are not core
to our current or future operations. These items include Merger-related amortization of intangible assets, restructuring costs, and transaction and
integration expenses.
The following table sets out the total revenues for the year ended December 31, 2016 and 2015 and the components of the
change in total revenues for the year ended December 31, 2016:
Years ended December 31,
2016
2015
(in millions)
Total revenues
$
7,887
$
3,829
Components of Change
As
Reported
Change
106%
Currency
Impact
(6)%
Constant
Currency
Change
112%
Acquisitions/
Divestitures
112%
Organic
Change
—%
Total revenues for the year ended December 31, 2016 were $7.9 billion, compared to $3.8 billion for the year ended
December 31, 2015, an increase of $4.1 billion or 106%. This growth in revenues was driven by our Merger with Towers
Watson and our acquisition of Gras Savoye.
Our revenues can be materially impacted by changes in currency conversions, which can fluctuate significantly over the course
of a calendar year. For the year ended December 31, 2016, currency translation decreased our consolidated revenues by $111
million. The primary currency driving the change was the Pound sterling, which weakened against the U.S. dollar during the
year ended December 31, 2016.
The following table sets out the total revenues for the year ended December 31, 2015 and 2014 and the components of the
change in total revenues for the year ended December 31, 2015:
Years ended December 31,
2015
2014
(in millions)
Total revenues
$
3,829
$
3,802
Components of Change
As
Reported
Change
1%
Currency
Impact
(6)%
Constant
Currency
Change
7%
Acquisitions/
Divestitures
Organic
Change
4%
3%
Total revenues for the year ended December 31, 2015 were $3.8 billion, compared to $3.8 billion for the year ended
December 31, 2014, an increase of $27 million, or 1%. This growth in revenues was driven primarily by a $115 million organic
growth in commissions and fees and a net $157 million increase through acquisitions, partially offset by a $15 million organic
decline in interest and other income and $230 million in adverse foreign currency movements.
In 2015, the foreign currency impact was as a result of the strengthening of the U.S. dollar against a number of currencies, most
significantly the Euro and the Pound sterling.
Definitions of Constant Currency Change and Organic Change are included in the section entitled ‘Non-GAAP Financial
Measures’ in this Form 10-K.
Salaries and Benefits
Total salaries and benefits for the years ended December 31, 2016 and December 31, 2015 were $4.6 billion and $2.3 billion,
respectively, an increase of $2.3 billion. The growth in expenses was primarily driven by the Merger and our acquisition of
Gras Savoye. Salaries and benefits for the years ended December 31, 2015 and December 31, 2014 were $2.3 billion and $2.3
billion, respectively, a decrease of $11 million. The decrease was primarily related to an additional $109 million related to
acquisitions and $31 million from increased headcount, pay reviews, and higher incentives, offset by $148 million of favorable
foreign currency movements. As a percentage of commissions and fees revenues, salaries and benefits expenses represented
60%, 60% and 61% for the years ended December 31, 2016, 2015 and 2014, respectively.
41
Other Operating Expenses
Other operating expenses include occupancy, legal, marketing, licenses, royalties, supplies, technology, printing and telephone
costs, as well as insurance, including premiums on excess insurance and losses on professional liability claims, non-client-
reimbursed travel by colleagues, publications, professional subscriptions and development, recruitment, other professional fees
and irrecoverable value added and sales taxes.
Other operating expenses for the years ended December 31, 2016 and December 31, 2015 were $1.6 billion and $718 million,
respectively, an increase of $833 million. The growth in expenses was primarily driven by the Merger and our acquisition of
Gras Savoye. Other operating expenses for the years ended December 31, 2015 and December 31, 2014 were $718 million and
$659 million, respectively, an increase of $59 million. This growth included a net $36 million increase from acquisitions and
disposals, and a $70 million increase relating to the provision for the Stanford litigation. Growth was partially offset primarily
by $42 million of favorable foreign currency movements.
Depreciation
Depreciation represents the expense incurred over the useful life of our tangible fixed assets and internally developed software.
Depreciation for the years ended December 31, 2016 and December 31, 2015 was $178 million and $95 million, respectively,
an increase of $83 million. The growth in expenses was primarily driven by the Merger and our acquisition of Gras Savoye.
Depreciation expense for the years ended December 31, 2015 and December 31, 2014 was $95 million and $92 million,
respectively, an increase of $3 million. The increase of $3 million included an organic increase of $4 million and a net $4
million increase from acquisitions and disposals, partially offset by $5 million of favorable foreign currency movements.
Amortization
Amortization includes amortization of acquired intangible assets, including acquired internally developed software.
Amortization for the years ended December 31, 2016 and December 31, 2015 was $591 million and $76 million, respectively,
an increase of $515 million. The primary driver of the increase in amortization was our acquisition of approximately $4.0
billion in intangible assets in our Merger with Towers Watson and our acquisition of $231 million and $440 million of
intangible assets related to our acquisitions of Miller and Gras Savoye, respectively. Amortization for the year ended
December 31, 2015 was $76 million, an increase of $22 million compared to December 31, 2014. The increase primarily
reflects the increased expense related to our acquisitions of Charles Monat and Max Matthiessen, partially offset by the
ongoing reduction in the Hilb Rogal Hobbs Company, a wholly owned subsidiary, acquisition amortization.
Restructuring Costs
Restructuring costs for the year ended December 31, 2016 were $193 million of which $145 million related to the Operational
Improvement Program (‘OIP’) and $48 million relating to the Business Restructure Program. Restructuring costs for the years
ended December 31, 2015 and December 31, 2014 were $126 million and $36 million, respectively, all of which was related to
the OIP. See our discussion in the Operational Improvement Program and Business Restructure Program section herein and
Note 5 — Restructuring Costs within Item 8 of this Annual Report on Form 10-K for additional details about these expenses.
Transaction and integration expenses
Transaction and integration expenses include fees and charges associated with our mergers and acquisitions and principally
consist of integration consultants and contract termination fees, as well as legal, accounting, marketing, and information
technology transaction and integration expenses. These costs also include retention and severance costs and the write-off of
software development as a direct consequence of the Merger. Transaction and integration expenses for the year ended
December 31, 2016 were $177 million. Approximately $162 million of these expenses were related to the Merger and $15
million were related to the acquisition of Gras Savoye. Transaction and integration expenses for the year ended December 31,
2015 were $84 million. Approximately $58 million of these expenses were related to the Merger, $15 million were related to
the acquisition of Gras Savoye and $11 million were related to our acquisition of Miller. Transaction and integration expenses
for 2014 were included in other operating costs and are immaterial for reclassification.
Income from Operations
Income from operations for the year ended December 31, 2016 was $551 million compared to $427 million for the year ended
December 31, 2015, an increase of $124 million, or 29%. This growth in income from operations compared to that of 2015 was
primarily driven by the Merger and our acquisition of Gras Savoye. Income from operations for the year ended December 31,
2015 was $427 million compared to $647 million for the year ended December 31, 2014, a decrease of $220 million. This was
primarily due to the $90 million increase in restructuring costs related to the Operational Improvement Program, the $70
million increase in the litigation provision relating to the Stanford litigation and an increase in expenses as the mid-year
42
acquisition of Miller resulted in its expenses initially exceeding the increase in revenues generated by the acquisition, due to the
seasonal profile of the business.
Interest expense
Interest expense for the years ended December 31, 2016, 2015 and 2014 was $184 million, $142 million and $135 million,
respectively. Interest expense is primarily related to interest on our senior notes and term loans. Interest expense increased by
$42 million for the year ended December 31, 2016, which was primarily related to additional debt acquired in the Merger and
as part of the acquisition of Gras Savoye. Interest expense increased by $7 million for the year ended December 31, 2015 as
compared to the year ended December 31, 2014, which was primarily related to the $8 million increase in the unwind of the
discount on contingent and deferred considerations.
Other expense/(income), net
Other expense/(income), net, includes other gains and losses, including gains and losses on foreign currency transactions.
Other expense/(income), net for the year ended December 31, 2016 was an expense of $27 million, which was primarily
foreign currency transaction losses. Other expense/(income), net for the year ended December 31, 2015 was income of $55
million, which included gains on disposal of operations of $25 million, gain on remeasurement of equity interests related to the
Gras Savoye acquisition of $59 million, partially offset by the $30 million impact of the Venezuelan currency devaluation.
Other expense/(income), net for the year ended December 31, 2014 was income of $6 million which included gains on
disposals of operations of $12 million and gains related to foreign currency transactions of $8 million, partially offset by the
$14 million impact of the Venezuelan currency devaluation.
(Benefit from)/Provision for Income Taxes
(Benefit from)/provision for income taxes for the years ended December 31, 2016, 2015 and 2014 were $(96) million, $(33)
million and $159 million, respectively. The benefit from income taxes in 2016 was primarily due to the release of a portion of
U.S. valuation allowances and shifts in the global mix of income as a result of the Merger. This shift creates additional
deductions in jurisdictions with high statutory income tax rates, which reduces the global effective tax rate. The benefit from
income taxes in 2015 was primarily due to an income tax benefit from the release of a portion of U.S. valuation allowances.
Net income attributable to Willis Towers Watson
Net income attributable to Willis Towers Watson for the year ended December 31, 2016 was $420 million, an increase of $47
million compared to $373 million for the year ended December 31, 2015. The growth was primarily driven by an improvement
of $124 million in income from operations and an increase of $63 million in the benefit from income taxes, partially offset by a
$42 million increase in interest expense and an $82 million increase to expense in other expense/(income), net. Net income
attributable to Willis Towers Watson for the year ended December 31, 2015 was $373 million, an increase of $11 million
compared to $362 million for the year ended December 31, 2014. This increase was primarily driven by a decrease of $192
million in the provision for income taxes and an increase of $49 million income from other expense/(income), net, partially
offset by a decrease of $220 million in income from operations and a $7 million increase in interest expense.
As Reported Segment Revenues Analysis
During the second quarter of 2016, we began managing our business across four integrated reportable operating segments. As a
result, the Company has changed the way it manages and reports segment revenues and operating income, resulting in a change
in the Company’s reportable segments from eight reportable segments, formerly known as Willis International; Willis North
America; Willis Capital, Wholesale & Reinsurance; Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions;
Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards, into four reportable segments: Human
Capital and Benefits; Corporate Risk and Broking; Investment, Risk and Reinsurance; and Exchange Solutions.
All prior period segment revenues information has been recast from our historically reported filings to conform to the current
reportable segment structure.
Segment revenues exclude amounts that were directly incurred on behalf of our clients and reimbursed by them (reimbursed
expenses); however, these amounts are included in consolidated revenues.
The Merger affects the comparability of this data between 2016 and other periods presented. See ‘Supplementary Pro Forma
Segment Revenues Analysis’ for additional analysis.
43
Beginning with 2017, we are realigning teams within some segments and will update our corporate expense allocation
methodology to move additional costs which were formerly identified as corporate costs into the segments. We may continue
to refine teams, business units and the cost allocation methodology as we continue the integration phase of the Merger.
Human Capital and Benefits
The Willis Towers Watson Human Capital & Benefits (‘HCB’) segment provides an array of advice, broking, solutions and
software for employee benefit plans, the HR organization and the management teams of our clients.
HCB is the largest segment of the Company, generating approximately 41% of our revenues for the year ended December 31,
2016. HCB is focused on addressing our clients’ people and risk needs to help them take on the challenges of operating in a
global marketplace. HCB is further strengthened with teams of international consultants that provide support through each of
our business units to the global headquarters of multinational clients and their foreign subsidiaries.
The HCB segment provides services through four business units:
• Retirement — The Retirement business provides actuarial support, plan design, and administrative services for
traditional pension and retirement savings plans. Our colleagues help our clients assess the costs and risks of
retirement plans on cash flow, earnings and the balance sheet, the effects of changing workforce demographics on their
retirement plans and retiree benefit adequacy and security.
• Health and Benefits — The Health & Benefits (‘H&B’) business provides plan management consulting, broking and
administration across the full spectrum of health and group benefit programs, including medical, dental, disability, life
and other coverage.
•
•
Talent & Rewards — Our Talent & Rewards (‘T&R’) business covers three areas of specialty: Executive
Compensation (‘EC’); Rewards, Talent & Communication (‘RTC’); and Data, Surveys and Technology (‘DST’). T&R
provides advice, data, software and products to address clients’ total rewards and talent issues.
Technology and Administration Solutions — Our Technology and Administration Solutions (‘TAS’) business provides
benefits outsourcing services to clients outside of the U.S.
The table below presents segment commissions and fees and segment interest and other income for HCB for the years ended
December 31, 2016, 2015, and 2014.
Commissions and fees
Interest and other income
Total segment revenues
December 31,
2016
2015
As reported
change
December 31,
2015
2014
As reported
change
(in millions)
3,210
16
3,226
$
$
697
1
698
$
$
361% $
1,500%
362% $
(in millions)
697
1
698
$
$
653
2
655
7 %
(50)%
7 %
HCB total segment revenues for the year ended December 31, 2016 were $3.2 billion, compared to $698 million for the year
ended December 31, 2015, an increase of $2.5 billion or 362%. This growth in revenues was driven by our Merger and our
acquisition of Gras Savoye. See the ‘Supplementary Pro Forma Segment Revenues Analysis’ section below for additional
discussion of our 2016 results.
HCB total segment revenues for the year ended December 31, 2015 were $698 million, compared to $655 million for the year
ended December 31, 2014, an increase of $43 million or 7%. HCB recorded mid-single-digit growth driven by organic growth
and our strategic acquisition of Evolution Benefits Consulting in 2015.
Corporate Risk and Broking
Our Corporate Risk & Broking (‘CRB’) segment provides a broad range of risk advice, insurance brokerage and consulting
services to clients worldwide ranging from small businesses to multinational corporations. We deliver integrated global
solutions tailored to client needs and underpinned by data and analytics.
CRB generated 32% of Willis Towers Watson revenues for the year ended December 31, 2016, and places more than $20
billion of premiums into the insurance markets, annually.
44
CRB operates as an integrated global team comprising both functional and geographic leadership with five global offerings:
• Property and Casualty — Property and Casualty provides property and liability insurance brokerage services across a
wide range of industries including construction, real estate, healthcare, and natural resources.
• Financial Lines — Financial Lines specializes in brokerage services for financial, political and credit risks.
•
Transport — Transport provides specialist expertise to the transportation, aerospace, marine and space industries.
• Affinity — Affinity arranges the insurance products and services for our client partners to offer to their customers,
employees or members alongside, or in addition to, their principal business activities.
• Facultative — Facultative serves as a broker or intermediary for insurance companies looking to arrange reinsurance
solutions across classes of risk, which enable them to deliver differentiated outcomes to their direct insureds.
The table below presents segment commissions and fees, and segment interest and other income for CRB for the years ended
December 31, 2016, 2015, and 2014.
Commissions and fees
Interest and other income
Total segment revenues
December 31,
2016
2015
(in millions)
$
$
2,502
29
2,531
$
$
2,301
17
2,318
As reported
change
December 31,
2015
2014
(in millions)
As reported
change
9% $
2,301
71%
17
9% $
2,318
$
$
2,365
16
2,381
(3)%
6 %
(3)%
CRB total segment revenues for the year ended December 31, 2016 were $2.5 billion, compared to $2.3 billion for the year
ended December 31, 2015, an increase of $213 million or 9%. The growth for the year ended December 31, 2016 was primarily
due to the acquisition of Gras Savoye, which occurred on December 29, 2015. Great Britain led organic growth with solid
revenue increases across all lines of business. Western Europe contributed to organic growth with strong growth in Iberia,
partially offset by softness in Italy. North America was flat with strong retention offset by lower new business. International
organic revenue declined as a result of lower revenues in Asia and Australasia, partially offset by better performance in Latin
America and Central and Eastern Europe, Middle East and Africa (‘CEEMEA’).
CRB total segment revenues for the year ended December 31, 2015 were $2.3 billion, compared to $2.4 billion for the year
ended December 31, 2014, a decrease of $63 million or 3%. This decrease in revenues was driven by negative currency
movements, partially offset by growth in the construction practice in North America, as well as growth in financial lines,
property & casualty and aerospace in Great Britain.
Investment, Risk and Reinsurance
The Willis Towers Watson Investment, Risk and Reinsurance (‘IRR’) segment applies a sophisticated approach to risk which
helps clients free up capital and manage investment complexity. The segment works closely with investors, reinsurers and
insurers to manage the equation between risk and return. IRR provides investment consulting services and insurance specific
services and solutions through reserves opinions, software, ratemaking, usage-based insurance, risk underwriting, and
reinsurance broking.
This segment is our third largest segment and generated approximately 19% of revenues for the Company for the year ended
December 31, 2016. With approximately 80% of the revenues for this segment split between North America and the U.K., this
segment includes the following businesses and offerings:
• Willis Re — Willis Re provides reinsurance industry clients with an understanding of how risk affects capital and
financial performance and advises on the best ways to manage related outcomes.
• Risk Consulting and Software — Risk Consulting and Software is a global business that provides advice and
technology solutions to the insurance industry, as well as to corporate clients with respect to their insurance programs.
Services include software and technology, risk and capital management, products and pricing, financial and regulatory
reporting, financial and capital modeling, M&A, outsourcing and business management.
•
Investment — Investment provides advice to improve investment outcomes for asset owners using a broad and
sophisticated framework for managing risk.
45
• Wholesale Insurance Broking — Wholesale provides wholesale and specialist broking services to retail brokers.
• Portfolio and Underwriting Services — Portfolio and Underwriting Services acts on behalf of our insurance carrier
partners and self-insured entities in product marketing and distribution, risk underwriting and selection, claims
management and other general administrative responsibilities.
• Capital Markets & Advisory — Capital Markets & Advisory provides investment banking services to companies
involved in the insurance and reinsurance industries for a broad array of merger and acquisition transactions as well as
capital markets products.
The table below presents segment commissions and fees, and segment interest and other income for IRR for the years ended
December 31, 2016, 2015, and 2014.
December 31,
2016
2015
(in millions)
As reported
change
December 31,
2015
2014
As reported
change
Commissions and fees
Interest and other income
Total segment revenues
$
$
1,382
59
1,441
$
$
812
1
813
70% $
5,800%
77% $
(in millions)
812
1
813
$
$
749
17
766
8 %
(94)%
6 %
IRR total segment revenues for the year ended December 31, 2016 were $1.4 billion, compared to $813 million for the year
ended December 31, 2015, an increase of $628 million or 77%. This growth in revenues was driven by the Merger and a full
year of revenues from Miller, following our acquisition in May 2015. See the ‘Supplementary Pro Forma Segment Revenues
Analysis’ section below for additional discussion of our 2016 results.
IRR total segment revenues for the year ended December 31, 2015 were $813 million, compared to $766 million for the year
ended December 31, 2014, an increase of $47 million or 6%. The growth was driven by our acquisition of Miller Insurance
Services, with additional organic growth in Reinsurance and Capital Markets & Advisory, partially offset by the negative
impact from foreign currency translation and a $12 million settlement received in 2014.
Exchange Solutions
The Willis Towers Watson Exchange Solutions (‘ES’) segment provides primary medical and ancillary benefit exchange and
outsourcing services to active employees and retirees across both the group and individual markets. A significant portion of the
revenues in this segment is recurring in nature, driven by either the commissions from the policies we sell, or from long-term
service contracts with our clients that typically range from three to five years. Revenues across this segment may be seasonal,
driven by the magnitude and timing of client transition activities, and we typically increase our membership levels significantly
effective January 1, after calendar year-end benefits elections.
ES generated approximately 8% of our revenues for the year ended December 31, 2016. ES provides services across four
integrated or related offerings to customers primarily in the U.S. through four business units:
• Retiree & Access Exchanges — This business provides solutions through a proprietary technology platform,
OneExchange Retiree, which enables our employer clients to transition their retirees to individual, defined
contribution health plans that provide individuals with a tax-free allowance or contribution to spend on healthcare
services at an annual cost that the employer controls, as opposed to group-based, defined benefit health plans that
provide groups of individuals with healthcare benefits at uncertain annual costs.
• Active Exchanges — This business is focused on delivering group benefit exchanges, serving the active employees of
employers across the United States through our proprietary BenefitConnect or Bright Choices exchange platforms.
•
Technology and Administration Solutions — Through our proprietary BenefitConnect technology, this business
provides a broad suite of health and welfare outsourcing services as well as decision support and modeling tools for
pension users within the U.S.
• Consumer-Directed Accounts — This business uses its SaaS-based technology and related services to deliver
consumer-driven healthcare and reimbursement accounts, including health savings accounts, health reimbursement
arrangements and other consumer-directed accounts.
46
The table below presents segment commissions and fees, and segment interest and other income for ES for the year ended
December 31, 2016.
Commissions and fees
Interest and other income
Total segment revenues
December 31,
2016
(in millions)
$
$
652
2
654
ES total segment revenues for the year ended December 31, 2016 were $654 million. ES was not part of our business
operations prior to the Merger. See the ‘Supplementary Pro Forma Segment Revenues Analysis’ section below for additional
discussion of our 2016 results.
Supplementary Pro Forma Financial Information
To assist the reader in understanding our comparative analysis, we have included discussion and analysis of pro forma financial
information for Willis Towers Watson as if the Towers Watson Merger had occurred on January 1, 2015.
The pro forma financial information for the year ended December 31, 2015 combines: (i) the historical consolidated statement
of operations of Willis Towers Watson for the year ended December 31, 2015 and (ii) the historical consolidated statement of
operations of Towers Watson for the fiscal year ended June 30, 2015 less the historical consolidated statement of operations of
Towers Watson for the six months ended December 31, 2014, plus the historical consolidated statement of operations of Towers
Watson for the six months ended December 31, 2015.
The pro forma financial information is only for Willis and Towers Watson and does not include Gras Savoye or other merger or
acquisition activity on a pro forma basis.
Pro forma financial information is for illustrative purposes only, and is based on adjustments that are estimates based upon
available information and certain assumptions that Willis Towers Watson management believes are reasonable under the
circumstances, as described in ‘Pro Forma Adjustments’ below. The pro forma financial information has not been adjusted to
give effect to certain expected financial benefits of the Merger, such as revenue synergies, tax savings and cost synergies, or the
anticipated costs to achieve these benefits, including the cost of integration activities. The pro forma financial information does
not purport to represent what the actual consolidated results of operations of Willis Towers Watson would have been had the
Merger occurred on the date indicated, nor is it necessarily indicative of future consolidated results of operations. The actual
results of operations will differ, potentially significantly, from the pro forma amounts reflected herein due to a variety of
factors, including access to additional information, changes in value not currently identified and changes in operating results
following the date of the unaudited pro forma financial information.
47
Pro Forma Condensed Consolidated Statements of Operations
(in millions of U.S. dollars, except per share data)
Total costs of providing services
7,336
93%
3,402
3,164
2016
Years ended December 31,
2015
Willis Towers Watson
Legacy
Willis
Legacy
Towers
Watson
Pro Forma
Adjustments
Pro Forma Willis
Towers Watson
$
7,887
100% $ 3,829
$ 3,664 b $
(1) a
$
7,492
100%
4,646
1,551
59%
20%
178
591
193
177
2%
7%
2%
2%
2,303
718
95
76
126
84
2,161
725 b
110
71
—
97
551
184
7%
2%
27 —%
(96)
(1)%
2 —%
438
6%
(18) —%
427
142
(55)
(33)
11
384
(11)
500
9
(57)
217
(2)
329
(1)
(33) c
3 a, d
(46) e
388 f
—
(151) k
161
(162)
13 g
—
(114) h
—
(61)
4,431
1,446
159
535
126
59%
19%
2%
7%
2%
30 —%
6,727
765
164
(112)
70
90%
10%
2%
(1)%
1%
9 —%
652
9%
—
(12) —%
$
$
$
420
5% $
373
3.07
3.04
$
$
5.49
5.41
$
$
$
328
$
(61)
4.75
4.75
$
$
$
640
9%
4.67
4.64
i, j
i, j
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Income from operations
Interest expense
Other expense/(income), net
(Benefit from)/provision for income taxes
Interest in earnings of associates, net of tax
Net income
Income attributable to noncontrolling
interests
NET INCOME ATTRIBUTABLE TO
WILLIS TOWERS WATSON
Basic earnings per share
Diluted earnings per share
Pro Forma Adjustments
The unaudited pro forma financial information reflects the following adjustments:
a.
Intercompany trading. Adjustments to eliminate trading between Legacy Willis and Legacy Towers Watson of $1
million for the year ended December 31, 2015.
b. Conforming reclassifications and adjustments. Certain reclassifications have been made to amounts in the Towers
Watson historical statement of operations to conform to Willis’ presentation, including reclassifying certain contra
revenue accounts and Towers Watson’s professional and subcontracted services, occupancy and general and
administrative expenses within the relevant Willis captions.
c. Pension and post-retirement benefit amortization. Adjustments to remove the net periodic benefit costs of $33 million
for the year ended December 31, 2015 associated with the amortization of net actuarial losses and prior service credits/
costs for Towers Watson’s pension and other post-retirement benefit plans.
d. Rent. Adjustment to eliminate $5 million of historical rent expense for the year ended December 31, 2015 offset by $1
million amortization of our favorable and unfavorable lease agreements.
e. Depreciation. Adjustment related to depreciation on internally developed software of $57 million partially offset by an
increase of $11 million for the year ended December 31, 2015 due to an increase in the estimated fair value for
leasehold improvements, furniture and fixtures and computer hardware and software.
f. Amortization. Historical amortization expense of $71 million was removed and amortization expense of $459 million
has been recorded to reflect the estimated fair values of Towers Watson’s identifiable intangible assets and related
48
g.
h.
amortization. See Item 8, Note 3 — Merger and Acquisitions and Note 8 — Goodwill and Other Intangible Assets.
Interest Expense. Net adjustments to interest expense include additional interest and amortization of related deferred
debt issuance costs. Approximately $13 million incremental interest expense was recorded for the year ended
December 31, 2015 related to a borrowing under a $340 million term loan as part of the funding for the pre-Merger
special dividend on December 29, 2015 and the portion of the senior notes issuance used to repay Towers Watson’s
existing debt at the time of the Merger.
Income taxes. Adjustments to record the income tax impact of the pro forma adjustments, including the removal of the
tax consequences of the repatriation of foreign earnings to partially fund the pre-Merger special dividend. The income
tax expense was calculated based on the U.S. and foreign statutory rates applicable to adjustments made. Where
applicable, a U.S. statutory rate of 40% was used. Pro forma adjustments for income tax purposes have been
determined without regard to potential tax planning strategies that may result from the Merger of Towers Watson with
Willis. Tax benefits from the Merger have not been considered in our pro forma adjustments.
i. Willis ordinary shares issuance. Approximately 184 million Willis ordinary shares (prior to the reverse stock split) were
issued to Towers Watson stockholders as the Merger Consideration in connection with the Merger, based on Towers
Watson shares of common stock outstanding as of January 4, 2016, at a per share price of $47.18, which was the
closing share price on that date, for a total value of approximately $8.7 billion.
j. Earnings per share. The pro forma consolidated basic and diluted earnings per share for the year ended December 31,
2015 are calculated as follows:
Willis historic average basic shares in issue (i)
Shares issued for Towers Watson (ii)
Willis historic average basic shares in issue
Dilutive effect of securities
Diluted weighted average shares outstanding
Pro forma net income attributable to Willis Towers Watson
Basic earnings per share
Diluted earnings per share
____________________
(i) After taking into account the impact of the reverse stock split on January 4, 2016.
Year Ended
December 31, 2015
(in millions, except
per share data)
68
69
137
1
138
640
4.67
4.64
$
$
$
(ii) Shares issued for Towers Watson based on approximately 69 million Towers Watson shares outstanding at January 4, 2016.
k. Transaction and integration expenses. Transaction and integration costs related to the Merger and have been
eliminated.
Consolidated Revenues
The following table sets out the total revenues generated for the year ended December 31, 2016, pro forma revenues generated
for the year ended December 31, 2015, and the components of the change for the year ended December 31, 2016.
Years ended December 31,
Components of Change
2016
Pro Forma
2015
Pro Forma
Change
Currency
Impact
Constant
Currency
Change
Acquisitions/
Divestitures
Organic
Change
(in millions)
Total revenues
$
7,887
$
7,492
5%
(3)%
8%
7%
1%
Total revenues for the year ended December 31, 2016 were $7.9 billion, compared to $7.5 billion pro forma revenues for the
year ended December 31, 2015, an increase of $395 million, or 5%. This growth was driven by a 7% increase due to our
acquisitions of Gras Savoye and Miller and 1% organic revenue growth, partially offset by adverse foreign currency exchange
movements of 3%. The primary drivers of our growth were within our Corporate Risk and Broking and Exchange Solutions
segments. See our segment revenues analysis for a further discussion of our segment results.
49
Our results can be materially impacted by changes in currency conversions, which can fluctuate significantly over the course of
a calendar year. For the year ended December 31, 2016, currency translation decreased our consolidated revenues by $202
million on a constant currency basis from the pro forma year ended December 31, 2015. The primary currency driving the
change was the Pound sterling which weakened against the U.S. dollar during 2016.
The organic change presented above includes the reduction to revenues for the year ended December 31, 2016 related to the
fair value adjustment for deferred revenue made during purchase accounting for the Merger. If this revenue had not been
reduced, the constant currency change would have been an increase of 9% and the organic change would have been an increase
of 2%, respectively, for the year ended December 31, 2016.
Definitions of Constant Currency Change and Organic Change are included in the section entitled ‘Non-GAAP Financial
Measures’ in this Form 10-K.
Salaries and Benefits
Salaries and benefits were $4.6 billion for the year ended December 31, 2016, an increase of $215 million, or 5%, compared to
$4.4 billion for the pro forma year ended December 31, 2015. The increase was primarily related to our acquisitions of Gras
Savoye and Miller which contributed approximately $291 million of the increase, partially offset by increased net periodic
benefit credits from the adoption of the granular approach to calculating service and interest costs of $51 million.
Other Operating Expenses
Other operating expenses include occupancy, legal, marketing, licenses, royalties, supplies, technology, printing and telephone
costs, as well as insurance, including premiums on excess insurance and losses on professional liability claims, non-client-
reimbursed travel by colleagues, publications, professional subscriptions and development, recruitment, other professional fees
and irrecoverable value added and sales taxes.
Other operating expenses for the year ended December 31, 2016 were $1.6 billion, compared to $1.4 billion for the pro forma
year ended December 31, 2015, an increase of $105 million or 7%. The increase was primarily related to our acquisitions of
Gras Savoye and Miller, which contributed approximately $135 million of the increase. In 2016, we accrued $50 million for
the Stanford litigation, which was $20 million less than the $70 million accrued in 2015.
Depreciation
Depreciation represents the expense incurred over the useful life of our tangible fixed assets and internally developed software.
Depreciation was $178 million for the year ended December 31, 2016, an increase of $19 million, or 12%, compared to $159
million for the pro forma year ended December 31, 2015. The increase was primarily related to our acquisitions of Gras Savoye
and Miller and our normal capital expenditures.
Amortization
Amortization includes amortization of acquired intangible assets, including acquired internally developed software.
Amortization was $591 million for the year ended December 31, 2016, an increase of $56 million, or 10%, compared to $535
million for the pro forma year ended December 31, 2015. The increase in amortization in 2016 is primarily due to amortization
of the intangible assets acquired in our acquisitions of Gras Savoye and Miller. We acquired approximately $231 million and
$440 million in intangible assets in our acquisitions of Miller and Gras Savoye, respectively. These intangible assets are
amortized over their expected lives which range from 4 to 25 years. See Note 3 — Merger and Acquisitions and Note 8 —
Goodwill and Other Intangible Assets within Item 8 of this Annual Report on Form 10-K for additional information about our
intangible assets.
Transaction and integration expenses
Transaction and integration expenses were $177 million for the year ended December 31, 2016, an increase of $147 million
compared to $30 million for the pro forma year ended December 31, 2015. The increase in 2016 is primarily due to integration
expenses incurred subsequent to the Merger. For the year ended December 31, 2016, approximately $162 million of these
expenses were related to the Merger and $15 million were related to the integration of Gras Savoye. For the pro forma year
ended December 31, 2015, transaction expenses related to the Merger of $151 million have been eliminated as part of the pro
forma adjustments. Of the remaining $30 million of transaction and integration expenses, approximately $15 million were
related to Gras Savoye, $11 million were related to Miller, and $4 million were related to other miscellaneous M&A activity.
50
Restructuring costs and Interest expense
Please see the discussion in the ‘As Reported Consolidated Financial Information’ section above.
Income from Operations
Income from operations for the year ended December 31, 2016 was $551 million, compared to $765 million for the pro forma
year ended December 31, 2015, a decrease of $214 million. The decrease was primarily due to increases in transaction and
integration expenses of $147 million and restructuring costs of $67 million.
Other Expense/(Income), Net
Other expense/(income), net, includes other gains and losses, including gains and losses on foreign currency transactions.
Other expense/(income), net, for the year ended December 31, 2016 was $27 million of net expense, which was primarily
foreign currency transaction losses. Other expense/(income), net for the pro forma year ended December 31, 2015 was $112
million of net income, which was primarily due to $80 million of gains on disposals of operations and $59 million in the gain
on the remeasurement of equity interests, partially offset by $30 million in foreign currency transaction losses in 2015.
(Benefit from)/Provision for Income Taxes
For the year ended December 31, 2016, there was a $96 million benefit from income taxes, due primarily to a benefit from the
release of a portion of our U.S. valuation allowances and shifts in the global mix of income as a result of the Merger. This shift
creates additional deductions in jurisdictions with high statutory income tax rates, which reduces the global effective tax rate.
For the pro forma year ended December 31, 2015, there was a provision for income taxes of $70 million. Legacy Willis had a
benefit from income taxes due to the release of a portion of U.S. valuation allowances in 2015 which was more than offset by
the provision for income taxes for Legacy Towers Watson.
Net Income Attributable to Willis Towers Watson
Net income attributable to Willis Towers Watson for the year ended December 31, 2016 was $420 million, a decrease of $220
million compared to $640 million for the pro forma year ended December 31, 2015. The decrease was primarily driven by
increased transaction and integration expenses of $147 million and restructuring costs of $67 million in 2016 and gains on
disposals of $80 million and remeasurement of equity interests of $59 million in 2015, partially offset by a decrease in income
tax expense of $166 million.
Supplementary Pro Forma Segment Revenues Analysis
Human Capital and Benefits
The following table sets out the components of HCB revenues for the year ended December 31, 2016 and pro forma revenues
for the year ended December 31, 2015, and the components of the change in commissions and fees for the year ended
December 31, 2016.
Years ended December 31,
Components of Change
2016
Pro Forma
2015
Pro Forma
Change
Currency
Impact
Constant
Currency
Change
Acquisitions/
Divestitures
Organic
Change
Commissions and fees
Interest and other income
Total segment revenues
$
$
(in millions)
3,210
16
3,226
$
$
3,151
16
3,167
2%
(3)%
5%
5%
—%
HCB total segment revenues for the year ended December 31, 2016 and pro forma for the year ended December 31, 2015 were
$3.2 billion; and commissions and fees for the year ended December 31, 2016 and pro forma for the year ended December 31,
2015 were $3.2 billion, representing an increase of $59 million. Pro forma and constant currency revenue growth were driven
by the acquisition of Gras Savoye, which occurred on December 29, 2015. In an effort to align resources and market demand, a
significant restructuring across all lines of business took place during the second half of 2016, which caused disruption in our
billable hours. Across the segment, performance was mixed, resulting in flat organic growth. Retirement revenues declined
slightly as a result of reduced actuarial consulting, primarily in the fourth quarter. The Health and Benefits North America
consulting business continued to see demand for plan design projects and increased product revenue. The Talent and Rewards
advisory business was down period-over-period as the M&A market softened. The Technology and Administration Solutions
51
Great Britain business had strong performance, led by increased project and administration activity along with new
clients. Internationally, Global Wealth Solutions has been negatively impacted by adverse conditions in the Greater China
market.
Corporate Risk and Broking
The following table sets out the components of CRB revenues for the year ended December 31, 2016 and pro forma revenues
for the year ended December 31, 2015, and the components of the change in commissions and fees for the year ended
December 31, 2016.
Years ended December 31,
Components of Change
2016
Pro Forma
2015
Pro Forma
Change
Currency
Impact
Constant
Currency
Change
Acquisitions/
Divestitures
Organic
Change
Commissions and fees
Interest and other income
Total segment revenues
$
$
(in millions)
2,502
29
2,531
$
$
2,301
17
2,318
9%
(3)%
12%
12%
—%
CRB total segment and commissions and fees revenues for the year ended December 31, 2016 were $2.5 billion, compared to
pro forma $2.3 billion for the year ended December 31, 2015. The growth for the year ended December 31, 2016 was due to the
acquisition of Gras Savoye, which occurred on December 29, 2015. Great Britain led organic growth with solid revenue
increases across all lines of business. Western Europe contributed to organic growth with strong revenue gains in Iberia,
partially offset by softness in Italy. North America was flat with strong retention offset by lower new business. Offsetting the
growth in Great Britain and Western Europe, International organic revenue declined as a result of lower revenues in Asia and
Australasia, partially offset by better performance in Latin America and CEEMEA.
Investment, Risk and Reinsurance
The following table sets out the components of IRR revenues for the year ended December 31, 2016 and pro forma revenues
for the year ended December 31, 2015, and the components of the change in commissions and fees for the year ended
December 31, 2016.
Years ended December 31,
Components of Change
2016
Pro Forma
2015
Pro Forma
Change
Currency
Impact
Constant
Currency
Change
Acquisitions/
Divestitures
Organic
Change
Commissions and fees
Interest and other income
Total segment revenues
$
$
(in millions)
1,382
59
1,441
$
$
1,399
(1)%
(3)%
2%
6%
(4)%
12
1,411
IRR total segment revenues for the year ended December 31, 2016 and pro forma for the year ended December 31, 2015 were
$1.4 billion. Included in total segment revenues for the year ended December 31, 2016 is a previously disclosed settlement with
JLT of £28 million ($41 million) related to the Fine Art, Jewellery and Specie team. Commissions and fees for the year ended
December 31, 2016 and pro forma for the year ended December 31, 2015 were $1.4 billion, representing a decrease of $17
million. The organic decline was primarily related to the following factors: soft market conditions and renewal factors
impacting our Reinsurance and Portfolio and Underwriting Services businesses, particularly in North America; a decline in
overall insurance industry M&A activity impacting our Capital Markets & Advisory business after a record year in 2015; and a
decline arising from lower demand in risk consulting projects.
52
Exchange Solutions
The following table sets out the components of ES revenues for the year ended December 31, 2016 and pro forma revenues for
the year ended December 31, 2015, and the components of the change in commissions and fees for the year ended
December 31, 2016.
Years ended December 31,
Components of Change
2016
Pro Forma
2015
Pro Forma
Change
Currency
Impact
Constant
Currency
Change
Acquisitions/
Divestitures
Organic
Change
Commissions and fees
Interest and other income
Total segment revenues
$
$
(in millions)
652
2
654
$
$
484
3
487
35%
—%
35%
2%
33%
ES total segment revenues for the year ended December 31, 2016 were $654 million, compared to pro forma $487 million for
the year ended December 31, 2015; and commissions and fees for the year ended December 31, 2016 were $652 million,
compared to pro forma $484 million for the year ended December 31, 2015. Retiree and Access Exchanges commissions and
fees increased by 41%, primarily as a result of the record 2016 annual enrollment season. The rest of the segment commissions
and fees increased by 27%, primarily due to Technology and Administration Solutions adding new clients and experiencing
higher project activity.
ES revenue growth is expected to slow to around 10% in 2017 due to the stabilization of the retiree enrollments. We continue
to expect the active exchange growth to be strong.
Restructuring Programs
Operational Improvement Program
In April 2014, Legacy Willis announced an operational improvement program that would allow it to continue to strengthen its
client service, realize operational efficiencies, and invest in new capabilities for growth.
The primary elements of the program include: moving more than 3,500 support roles from higher cost locations to facilities in
lower cost locations; net workforce reductions in support positions; lease consolidation in real estate; and information
technology systems simplification and rationalization.
The program began in the second quarter of 2014 and will be completed by the end of 2017. We are expecting to deliver $325
million of annual cost savings beginning in 2018. To achieve these savings, the Company expects to incur $130 million in
restructuring charges in 2017, bringing the cumulative restructuring charges to approximately $440 million through the end of
2017.
53
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. Restructuring costs related to the
OIP for the years ended December 31, 2016 and 2015 by segment are as follows:
HCB
CRB
IRR
ES
Corporate
Total
2016
Termination benefits
Professional services and other (i)
Total
2015
Termination benefits
Professional services and other (i)
Total
2014
Termination benefits
Professional services and other (i)
Total
____________________
$
$
$
$
$
$
1
1
2
2
1
3
$
$
$
$
— $
—
— $
18
81
99
24
57
81
15
3
18
$
$
$
$
$
$
(in millions)
3
4
7
7
2
9
1
—
1
$
$
$
$
$
$
— $
—
— $
— $
—
— $
— $
—
— $
1
36
37
3
30
33
$
$
$
$
— $
17
17
$
23
122
145
36
90
126
16
20
36
(i) Other includes salary and benefits, premises, and other expenses incurred to support the ongoing management and facilitation of the programs.
Business Restructuring Program
In the second quarter of 2016, we began planning targeted staffing reductions in certain portions of the business due to a
reduction in business demand or change in business focus (hereinafter referred to as the Business Restructure Program, or the
‘BRP’). The main element of the program is the workforce reduction of approximately 450 positions across all segments,
resulting in annualized savings of approximately $80 million. The program was complete as of December 31, 2016.
Restructuring costs related to the BRP for the year ended December 31, 2016 by segment are as follows:
HCB
CRB
IRR
ES
Corporate
Total
Termination benefits
Professional services and other
Total
$
$
32
3
35
$
$
8
—
8
$
$
(in millions)
3
—
3
$
$
1
—
1
$
$
1
—
1
$
$
45
3
48
Liquidity and Capital Resources
Executive Summary
Our principal sources of liquidity are funds generated by operating activities, available cash and cash equivalents and amounts
available under revolving credit facilities.
Based on our balance sheets, combined cash flows, current market conditions and information available to us at this time, we
believe that Willis Towers Watson has sufficient liquidity, which includes our undrawn revolving credit facilities, to meet our
cash needs for the next twelve months, including investing in the business for growth, creating value through the integration of
Willis, Towers Watson and Gras Savoye, scheduled debt repayments, dividend payments, and contemplated share repurchases,
subject to market conditions and other factors.
Historically, we have not provided deferred taxes on cumulative earnings of our subsidiaries that have been reinvested
indefinitely. As a result of the Merger and our plan to restructure certain foreign operations or distribute accumulated earnings
of certain acquired Towers Watson subsidiaries, we recorded a deferred tax liability through goodwill. We continue to assert
that the cumulative earnings of our other subsidiaries are reinvested indefinitely and we do not provide deferred tax liabilities
on these amounts. The Company has no current plans and does not anticipate repatriating cash other than for certain foreign
subsidiaries. If future events, including material changes in estimates of cash, working capital, long-term investment
requirements or U.S. tax reform necessitate that these earnings be distributed, an additional provision for income and foreign
54
withholding taxes, net of credits, may be necessary. One of the potential sources of cash may be through settlement of
intercompany loans or return of capital distributions in a tax efficient manner.
Events that could change the historical cash flow dynamics discussed above include significant changes in operating results,
potential future acquisitions or divestitures, material changes in geographic sources of cash, unexpected adverse impacts from
litigation or future pension funding during periods of severe downturn in the capital markets.
During the year ended December 31, 2016, the Company restructured some of its debt financing in March and May 2016. We
issued (i) $1.0 billion of senior notes ($450 million due 2021 and $550 million due 2026) to: refinance the $300 million senior
notes due 2016; refinance $400 million of debt assumed as part of the Merger; and make further repayment on the revolving
credit facility, and (ii) €540 million ($609 million) of senior notes to repay Tranche A of the 1-year term loan that was used to
finance the acquisition of Gras Savoye.
Cash and Short-term Investments
Our cash and cash equivalents at December 31, 2016 totaled $870 million, compared to $532 million at December 31, 2015.
The increase in cash from December 31, 2015 to December 31, 2016 was primarily due to cash acquired in the Merger with
Towers Watson.
Additionally, $557 million was available to draw under our $800 million revolving credit facility, compared with $333 million
at December 31, 2015, and $420 million was available to draw for regulatory capital purposes related to securities
underwriting.
Included within cash and cash equivalents at December 31, 2016 are amounts held for regulatory capital adequacy
requirements, including $87 million held within our regulated U.K. entities for regulatory capital adequacy requirements.
Summarized Consolidated Cash Flows
The following table presents the summarized consolidated cash flow information for the years ended:
Years ended December 31,
2016
2015
2014
(in millions)
Net cash from/(used in):
Operating activities
Investing activities
Financing activities
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
Effect of exchange rate changes on cash and cash equivalents
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
920
$
195
(762)
353
(15)
532
$
243
(943)
641
(59)
(44)
635
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
870
$
532
$
477
(276)
(323)
(122)
(39)
796
635
Cash Flows from Operating Activities
Cash flows from operating activities were $920 million for 2016, compared to cash flows from operating activities of $243
million for 2015. The $920 million net cash from operating activities for 2016 included net income of $438 million, adjusted
for $590 million of non-cash adjustments, partially offset by changes in operating assets and liabilities of $108 million. The
$590 million non-cash adjustments primarily include depreciation, amortization, net defined benefit pension credits, share-
based compensation, and the benefit from deferred income taxes. The $677 million increase in cash from operations in 2016
compared to 2015 was primarily due to cash from operations from Legacy Towers Watson and Gras Savoye.
Cash flows from operating activities for 2015 was $243 million, which included net income of $384 million, adjusted for $38
million of non-cash adjustments to reconcile net income to cash used in operating activities, offset by changes in operating
assets and liabilities of $179 million.
Cash flows from operating activities for 2014 was $477 million, which included net income of $373 million, adjusted for $257
million of non-cash adjustments to reconcile net income to cash used in operating activities, offset by changes in operating
assets and liabilities of $153 million.
55
Cash Flows From/(Used In) Investing Activities
Cash flows from investing activities for 2016 were $195 million, largely driven by $476 million of cash acquired as a result of
our Merger with Towers Watson, which was a non-cash transaction as it was consummated through the issuance of shares.
Cash inflows were partially offset by $303 million of fixed assets and software for internal use and capitalized costs of
developing software.
Cash flows used in investing activities of $943 million for the year ended December 31, 2015 were primarily driven by $857
million used in the acquisitions of operations and $146 million for capital expenditures.
Cash flows used in investing activities of $276 million for the year ended December 31, 2014 were primarily driven by $245
million used in the acquisitions of operations and $113 million for capital expenditures, partially offset by $86 million of
proceeds from the disposal of operations.
Cash Flows (Used In)/From Financing Activities
Cash flows used in financing activities for 2016 were $762 million. The primary drivers during the period were debt issuance
of $2.0 billion, debt repayments of $1.9 billion, net payments on the revolving credit facility of $237 million, dividend
payments of $199 million, and share repurchases of $396 million.
The debt issuance of $2.0 billion was primarily the issuance of $450 million of senior notes due 2021, $550 million of senior
notes due 2026, €540 million ($609 million) of senior notes due 2022 and a $400 million drawdown on the 1-year term loan
facility.
The debt repayments of $1.9 billion were primarily $300 million repayment of senior notes due 2016, $400 million repayment
of Legacy Towers Watson debt and repayments of $592 million and $400 million on the 1-year term loan facility.
Net cash provided by financing activities in 2015 was $641 million, primarily due to $469 million net drawings on the
revolving credit facility, a $592 million term loan draw down to fund the acquisition of Gras Savoye, the issuance of shares and
excess tax benefit of $131 million, partially offset by dividends paid of $277 million and repurchase of shares of $82 million.
Net cash used in financing activities in 2014 was $323 million, primarily due to dividends paid of $210 million and repurchase
of shares of $213 million, partially offset by proceeds from the issuance of shares and excess tax benefit of $139 million.
Indebtedness
Total debt, total equity, and the capitalization ratio at December 31, 2016 and December 31, 2015 were as follows:
Long-term debt
Short-term debt and current portion of long-term debt
Total debt
December 31,
2016
2015
(in millions)
$
3,357
508
3,865
2,278
988
3,266
$
Total Willis Towers Watson shareholders’ equity
$
10,065
$
2,229
Capitalization ratio
27.7%
59.4%
At December 31, 2016, our material mandatory debt repayments over the next twelve months include $394 million senior notes
due 2017, scheduled repayments of $85 million on our term loan maturing in 2019 and scheduled repayments of $22 million on
our 7-year term loan.
On March 22, 2016, we issued $450 million of 3.500% senior notes due 2021 and $550 million of 4.400% senior notes due 2026.
We used the net proceeds from this offering to: repay $300 million under our $800 million revolving credit facility (which was
drawn to repay our 4.125% senior notes on March 15, 2016); repay the $400 million Tranche B under our 1-year term loan facility;
pay down further amounts outstanding under our $800 million revolving credit facility; and pay related accrued interest.
On May 26, 2016, we issued €540 million ($609 million) of 2.125% senior notes due 2022. These 2022 senior notes will
mature on May 26, 2022. We used the net proceeds of this offering to repay Tranche A of the 1-year term loan and related
accrued interest.
56
At December 31, 2016 and December 31, 2015, we were in compliance with all financial covenants.
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 Fiduciary assets and Fiduciary liabilities on our
balance sheets.
Fiduciary funds are generally required to be kept in 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.
At December 31, 2016 and 2015, we had fiduciary funds of $2.5 billion and $2.3 billion, respectively.
Share Repurchase Program
The Company is authorized to repurchase shares, by way of redemption, and will consider whether to do so from time to time,
based on many factors, including market conditions.
On April 20, 2016, the Willis Towers Watson Board reconfirmed, reapproved and reauthorized the remaining portion of the
Legacy Willis program to repurchase the Company’s ordinary shares on the open market or by way of redemption or otherwise.
On November 10, 2016, the Company announced the Board of Directors approved an increase to the existing share repurchase
program of $1 billion. The $1 billion increase is in addition to the remaining authority on the Legacy Willis program discussed
in the preceding paragraph. We anticipate this authorization to be executed in 2017 and 2018. At December 31, 2016,
approximately $1.1 billion remained on the open-ended repurchase authorities granted by the Board.
There are no expiration dates for these repurchase plans or programs. The following table presents specified information about
the Company’s repurchases of ordinary shares for the year ended December 31, 2016.
During 2016, the Company had the following share repurchase activity:
Shares repurchased
Average price per share
Aggregate repurchase cost
Capital Commitments
Year Ended
December 31, 2016
3,170,330
$124.87
$396 million
The Company has no material commitments for capital expenditures. Our capital expenditures for fixed assets and software for
internal use and capitalized software costs were $303 million for the year ended December 31, 2016. Expected capital
expenditures for fixed assets and software for internal use are approximately $250 million for the year ended December 31,
2017. We expect cash from operations to adequately provide for these cash needs.
Dividends
Total cash dividends of $199 million were paid during 2016. In February 2017, the board of directors approved a quarterly cash
dividend of $0.53 per share, which will be paid on or about April 17, 2017, for an annual rate of $2.12 per share.
Off-Balance Sheet Arrangements and Contractual Obligations
Off-Balance Sheet Transactions
Apart from commitments, guarantees and contingencies, as disclosed herein and Note 13 — Commitments and Contingencies
located within Item 8 in this Annual Report on Form 10-K and incorporated herein by reference, as of December 31, 2016, the
Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect
on the Company’s financial condition, results of operations or liquidity.
57
Contractual Obligations
The Company’s material contractual obligations as of December 31, 2016 are as follows:
Debt and related interest obligations
Senior notes
Term loans
Revolving $800 million credit facility
Other debt
Interest on senior notes
Total debt and related interest obligations
Operating leases
U.K. pension contractual obligations
Acquisition liabilities
Other contractual obligations (i)
____________________
Total
2017
Payments due by
2018-2019
(in millions)
2020-2021
After 2021
$
3,176
$
473
238
7
1,049
4,943
1,482
277
142
142
$
394
107
—
7
128
636
238
55
59
47
187
366
238
—
241
1,032
365
103
83
44
$
950
$
1,645
—
—
—
191
1,141
268
70
—
13
—
—
—
489
2,134
611
49
—
38
$
6,986
$
1,035
$
1,627
$
1,492
$
2,832
(i) 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.
Debt obligations and facilities — The Company’s material debt and related interest obligations at December 31, 2016 are
shown in the above table. Mandatory repayments of debt over the next 12 months include maturity of the 6.200% senior notes
due 2017 and the scheduled repayment of the current portion of the Company’s 7-year and 2019 term loans. 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 — We lease office space and furniture under operating lease agreements with terms typically ranging from
three to twenty years. We have determined that there is not a large concentration of leases that will expire in any one fiscal year.
Consequently, management anticipates that any increase in future rent expense on leases will be mainly market-driven. We also
lease cars and selected computer equipment under operating lease agreements. For acquired operating leases, intangible assets
or liabilities have been recognized for the difference between the contractual cash obligations and the estimated market rates at
the time of acquisition. These intangibles are amortized to rent expense but do not affect our contractual cash obligations. See
further discussion in Item 8, Note 13 — Commitments and Contingencies to the Consolidated Financial Statements in this
Annual Report on Form 10-K.
Pension Contributions — The Company has agreed with Trustees of certain plans in the U.K. to contribute deficit funding and
minimum ongoing accrual of benefits funding and presented those obligations in the table above. These obligations exclude any
potential funding level contributions, which are dependent on future funding level assessments. There are no contractual
obligations for our U.S. pension plans. Our total expected contributions to all qualified pension plans, including amounts
presented above, for the year ending December 31, 2017 are projected to be $128 million. Additionally, the Company expects
to pay $60 million in benefits directly to participants for the year ended 2017.
Uncertain Tax Positions — The table above does not include liabilities for uncertain tax positions under ASC 740, Income
Taxes. The settlement period for the $56 million liability, which excludes interest and penalties, cannot be reasonably estimated
since it depends on the timing and possible outcomes of tax examinations with various tax authorities.
Guarantees, Acquisition Liabilities and Other Contractual Obligations — Information regarding guarantees and other
contractual obligations and their impact on the financial statements is set forth in Item 8, Note 13 — Commitments and
Contingencies to the Consolidated Financial Statements in this Annual Report on Form 10-K and is incorporated herein by
reference.
Claims, Lawsuits and Other Proceedings, including Stanford Financial Group Litigation — Information regarding claims,
lawsuits and other proceedings, including the Stanford Financial Group litigation, and their impact on the consolidated
financial statements is set forth in Item 8, Note 13 — Commitments and Contingencies to the Consolidated Financial
Statements in this Annual Report on Form 10-K and is incorporated herein by reference.
58
Non-GAAP Financial Measures
Effective from January 1, 2016, we have made changes to the non-GAAP financial measures that we use to provide additional
meaningful methods of evaluating the Company’s financial performance and have replaced our underlying and organic
measures with those described below.
These changes have been made both as a direct consequence of the Merger and to simplify and better align these measures with
how we internally assess core performance and benchmark our operating results versus competitors.
In order to assist readers of our consolidated financial statements in understanding the core operating results that Willis Towers
Watson’s management uses to evaluate the business and for financial planning, we present non-GAAP measures: (1) Adjusted
Revenues, (2) Constant Currency Change, (3) Organic Change, (4) Adjusted Operating Income, (5) Adjusted EBITDA, (6)
Adjusted Net Income, (7) Adjusted Diluted Earnings Per Share, (8) Adjusted Income Before Taxes, (9) Adjusted Income Taxes/
Tax Rate and (10) Free Cash Flow. The Company believes that these measures are relevant and provide useful information
widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and
comparing our operating and liquidity results.
Within these measures, we have adjusted for significant items which will not be settled in cash, or which we believe to be items
that are not core to our current or future operations. These items include the following:
• Restructuring and Transaction and integration expenses - Management believes it is appropriate to adjust for
restructuring and transaction and integration expenses when they relate to a specific significant program with a defined
set of activities and costs that are not expected to continue beyond a defined period of time. We believe the adjustment
is necessary to present how the Company is performing, both now and in the future when these programs will have
concluded.
• Fair value adjustment to deferred revenue - Adjustment to normalize for the deferred revenue written down as part of
the purchase accounting for the Merger.
• Gains and losses on disposals of operations - Adjustment to remove the results of disposed operations.
• Provision for Stanford litigation - The provision for the Stanford litigation matter, which we consider to be a non-
ordinary course litigation matter.
• Venezuelan currency devaluation - Foreign exchange losses incurred as a consequence of the Venezuelan
government’s enforced changes to exchange rate mechanisms.
• Deferred tax valuation allowance - Adjustment to remove the effects of a release of the valuation allowance against
certain U.S. deferred tax assets.
• Gain on remeasurement of equity interests - The Company recognized a gain as a result of remeasuring its prior equity
interest in Gras Savoye held before the business combination.
These measures are different than those reported in our Form 10-K for the year ended December 31, 2015 and filed with the
SEC on February 29, 2016. Historical non-GAAP measures have been recalculated using management’s new metrics for 2016.
These non-GAAP measures are not defined in the same manner by all companies and may not be comparable to other similarly
titled measures of other companies. Non-GAAP measures should be considered in addition to, and not as a substitute for, the
information contained within our consolidated financial statements.
The pro forma financial information is only for Willis and Towers Watson and does not include Gras Savoye or other M&A
activity on a pro forma basis.
Adjusted Revenues
We consider Adjusted Revenues to be an important financial measure, which is used to internally evaluate and assess our core
operations and to benchmark our operating results against our competitors. Adjusted Revenues presents relevant period-over-
period comparisons of revenues by excluding the impact of purchase accounting rules.
Adjusted Revenues is defined as Total revenues adjusted for the fair value adjustment for deferred revenues that would
otherwise have been recognized but for the purchase accounting treatment of these transactions. GAAP accounting requires the
elimination of this revenue.
59
We have included the reconciliation of Total revenues to Adjusted Revenues in the table below, together with our reconciliation
of the pro forma revenues change to the constant currency and organic changes.
Constant Currency Change and Organic Change
We evaluate our revenues on an as reported (U.S. GAAP), constant currency and organic basis. We believe providing constant
currency and organic information provides valuable supplemental information regarding our comparable results, consistent
with how we evaluate our performance internally.
• Constant Currency Change - Represents the year over year change in revenues excluding the impact of foreign
currency fluctuations. To calculate this impact, the prior year local currency results are first translated using the current
year monthly average exchange rates. The change is calculated by comparing the prior year revenues, translated at the
current year monthly average exchange rates, to the current year as reported revenues, for the same period. We believe
constant currency measures provide useful information to investors because they provide transparency to performance
by excluding the effect that foreign currency exchange rate fluctuations have on period-over-period comparability
given volatility in foreign currency exchange markets.
• Organic Change - The organic presentation excludes both the impact of fluctuations in foreign currency exchange
rates, as described above, as well as the period-over-period impact of acquisitions and divestitures. We believe that
excluding transaction-related items from our GAAP financial measures provides useful supplemental information to
our investors, and it is important in illustrating what our core operating results would have been had we not incurred
these transaction-related items, since the nature, size and number of these transaction-related items can vary from
period to period.
The constant currency and organic change results, and a reconciliation from the as reported results for consolidated revenues
are included in the As Reported Consolidated Financial Information section within this Form 10-K. These measures are also
reported by segment in the As Reported Segment Revenues Analysis tables in that discussion and analysis.
A reconciliation of Total revenues to Adjusted Revenues for the year ended December 31, 2016 and pro forma 2015, and a
reconciliation of the pro forma change to the constant currency and organic change for the year ended December 31, 2016 is as
follows:
Year Ended
December 31,
Pro Forma
2016
2015
(in millions)
Pro Forma
Change
Currency
Impact
Components of Change
Constant
Currency
Change
Acquisitions/
Divestitures
Organic
Change
7,887
$
7,492
5%
(3)%
8%
58
—
7,945
$
7,492
6%
(3)%
9%
7%
7%
1%
2%
Total revenues
Fair value adjustment for
deferred revenue
Adjusted Revenues
$
$
Adjusted Operating Income
We consider Adjusted Operating Income to be an important financial measure, which is used to internally evaluate and assess
our core operations and to benchmark our operating results against our competitors.
Adjusted Operating Income is defined as Income from Operations adjusted for amortization, restructuring costs, transaction and
integration expenses, the fair value adjustment for deferred revenue and non-recurring items that, in management’s judgment,
significantly affect the period-over-period assessment of operating results.
60
A reconciliation of Income from Operations to Adjusted Operating Income for the year ended December 31, 2016 and pro
forma year ended December 31, 2015 is as follows:
Year Ended
December 31, 2016
Willis Towers
Watson
$
551
$
591
193
177
50
58
Year Ended
December 31, 2015
Legacy Willis
Pro Forma Towers
Watson (i)
Pro Forma Willis
Towers Watson
(in millions)
427
76
126
73
70
—
338
$
459
—
(58)
—
—
765
535
126
15
70
—
$
1,620
$
772
$
739
$
1,511
Income from operations
Adjusted for certain items:
Amortization
Restructuring costs
Transaction and integration expenses
Provision for the Stanford litigation
Fair value adjustment for deferred revenue
Adjusted Operating Income
____________________
(i)
Includes pro forma adjustments made in the Supplementary Pro Forma Financial Information section in this Form 10-K.
Adjusted Operating Income for the year ended December 31, 2016 was $1.6 billion, compared to pro forma $1.5 billion for the
year ended December 31, 2015, an increase of $109 million. The increase in Adjusted Operating Income for the year ended
December 31, 2016 was primarily driven by our acquisition of Gras Savoye, the settlement with JLT of £28 million ($41
million) related to the Fine Art, Jewellery and Specie team, and the performance of our Exchange Solutions segment.
Adjusted EBITDA
We consider Adjusted EBITDA to be an important financial measure, which is used to internally evaluate and assess our core
operations, to benchmark our operating results against our competitors, and to evaluate and measure our performance-based
compensation plans.
Adjusted EBITDA is defined as Net Income adjusted for provision for income taxes, interest expense, depreciation and
amortization, restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, gain on
disposal of operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period
assessment of operating results.
61
A reconciliation of net income to Adjusted EBITDA for the year ended December 31, 2016 and pro forma year ended
December 31, 2015 is as follows:
Year Ended
December 31, 2016
Willis Towers
Watson
Year Ended
December 31, 2015
Legacy Willis
Pro Forma Towers
Watson (i)
Pro Forma Willis
Towers Watson
(in millions)
NET INCOME
$
(Benefit from)/provision for income taxes
Interest expense
Depreciation
Amortization
EBITDA
Restructuring costs
Transaction and integration expenses
Provision for the Stanford litigation
Fair value adjustment for deferred revenue
Gain on disposal of operations
Venezuela currency devaluation
Gain on remeasurement of equity interests
$
438
(96)
184
178
591
1,295
193
177
50
58
(2)
—
—
Adjusted EBITDA
____________________
$
1,771
$
384
(33)
142
95
76
664
126
73
70
—
(25)
30
(59)
879
$
$
268
103
22
64
459
916
—
(58)
—
—
(55)
—
—
$
803
$
652
70
164
159
535
1,580
126
15
70
—
(80)
30
(59)
1,682
(i)
Includes pro forma adjustments made in the Supplementary Pro Forma Financial Information section in this Form 10-K.
Adjusted EBITDA for the year ended December 31, 2016 was $1.8 billion, compared to pro forma $1.7 billion for the year
ended December 31, 2015, an increase of $89 million. The increase in Adjusted EBITDA for the year ended December 31,
2016 was primarily driven by our acquisition of Gras Savoye, the settlement with JLT of £28 million ($41 million) related to
the Fine Art, Jewellery and Specie team, and the performance of our Exchange Solutions segment.
Adjusted Net Income and Adjusted Diluted Earnings Per Share
Adjusted Net Income is defined as Net Income Attributable to Willis Towers Watson adjusted for amortization, restructuring
costs, transaction and integration expenses, the fair value adjustment of deferred revenue, gain on disposal of operations and
non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of operating results
and the related tax effect of those adjustments. This measure is used solely for the purpose of calculating adjusted diluted
earnings per share.
Adjusted Diluted Earnings Per Share is used to internally evaluate and assess our core operations and to benchmark our
operating results against our competitors. Adjusted Diluted Earnings Per Share is defined as Adjusted Net Income divided by
the weighted average number of shares of common stock, diluted.
62
A reconciliation of net income attributable to Willis Towers Watson to adjusted diluted earnings per share for the year ended
December 31, 2016 and 2015 is as follows:
Year Ended December 31,
2016
Willis Towers
Watson
2015 (ii)
Legacy Willis
(in millions, except per share amounts)
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON
$
420
$
Adjusted for certain items:
Amortization
Restructuring costs
Transaction and integration expenses
Provision for the Stanford litigation
Fair value adjustment for deferred revenue
Gain on disposal of operations
Venezuela currency devaluation
Gain on remeasurement of equity interests
Tax effect on certain items listed above (i)
Deferred tax valuation allowance
Adjusted Net Income
Weighted average shares of common stock — diluted (millions of shares)
Diluted earnings per share, as reported from continuing operations
Adjusted for certain acquisition related items:
Amortization
Restructuring costs
Transaction and integration expenses
Provision for the Stanford litigation
Fair value adjustment for deferred revenue
Gain on disposal of operations
Venezuela currency devaluation
Gain on remeasurement of equity interests
Tax effect on certain items listed above (i)
Deferred tax valuation allowance
Adjusted Diluted Earnings Per Share
____________________
591
193
177
50
58
(2)
—
—
(320)
(69)
1,098
$
138
3.04
$
4.28
1.40
1.28
0.36
0.42
(0.01)
—
—
(2.31)
(0.50)
7.96
$
$
$
$
373
76
126
73
70
—
(25)
30
(59)
(83)
(96)
485
69
5.41
1.10
1.83
1.06
1.01
—
(0.36)
0.43
(0.86)
(1.20)
(1.39)
7.03
(i) The tax effect was calculated using the statutory tax rate applicable to the item being adjusted for in the jurisdiction from which each adjustment
arises.
(ii) We have not presented this measure on a comparative pro forma basis because it is not practical to present the 2015 adjusted income tax effects on a
pro forma basis, as making tax-effected non-GAAP adjustments on a proforma basis would be highly speculative in nature.
Adjusted Income Before Taxes and Adjusted Income Taxes/Tax Rate
Adjusted Income Before Taxes is defined as Income from continuing operations before income taxes and interest in earnings of
associates adjusted for amortization, restructuring costs, transaction and integration expenses, the fair value adjustment of
deferred revenue, gain on disposal of operations and non-recurring items that, in management’s judgment, significantly affect
the period-over-period assessment of operating results. Adjusted income before taxes is used solely for the purpose of
calculating the adjusted income tax rate.
Adjusted Income Tax Rate is defined as Provision for income taxes adjusted for taxes on certain items of amortization,
restructuring costs, transaction and integration expenses, the fair value adjustment for deferred revenue, gain on disposal of
63
operations and non-recurring items that, in management’s judgment, significantly affect the period-over-period assessment of
operating results, divided by Adjusted Income Before Taxes. Adjusted income taxes is used solely for the purpose of calculating
the Adjusted Income Tax Rate.
Management believes the Adjusted Income Tax Rate presents a rate that is more closely aligned to the rate we would incur if
not for the reduction of pre-tax income of the adjusted items, which are not core to our current and future operations.
A reconciliation of income from continuing operations before income taxes and interest in earnings of associates to adjusted
income and provision for income taxes to adjusted income taxes for the year ended December 31, 2016 is as follows:
Year Ended
December 31, 2016 (iii)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND INTEREST IN
EARNINGS OF ASSOCIATES
Adjusted for certain items:
Amortization
Restructuring costs
Transaction and integration expenses
Provision for the Stanford litigation
Fair value adjustment for deferred revenue
Gain on disposal of operations
Adjusted income before taxes
Provision for income taxes
Deferred tax valuation allowance
Tax effect on certain items listed above (i)
Adjusted income taxes
Tax
GAAP tax rate (ii)
Adjusted income tax rate (ii)
____________________
$
$
$
$
340
591
193
177
50
58
(2)
1,407
(96)
69
320
293
(28.1)%
20.8 %
(i) The tax effect and effective tax rate were calculated using the statutory tax rate applicable to the item being adjusted for in the jurisdiction from
which each adjustment arises.
(ii) These effective tax rates are calculated using extended values from our consolidated statement of operations for this reconciliation, and are therefore
more precise tax rates than can be calculated from rounded values.
(iii) We have not presented this measure on a comparative basis because it is not practical to present the 2015 adjusted income tax rate on a pro forma
basis, as making tax-effected non-GAAP adjustments on a proforma basis would be highly speculative in nature.
64
Free Cash Flow
Free Cash Flow is used to evaluate our liquidity, and is defined as cash flows from operating activities less cash used to
purchase fixed assets and software for internal use.
A summary of our cash flows from operating, investing and financing activities, along with a reconciliation of cash flows from
operating activities to Free Cash Flow is as follows:
Net cash from operating activities
Net cash from/(used in) investing activities
Net cash (used in)/from financing activities
Net cash from operating activities
Less: Additions to fixed assets and software for internal use
Free Cash Flow
Years ended December 31,
2016
2015
2014
(in millions)
$
$
$
$
920
$
195
(762) $
920
(218)
702
$
$
243
(943)
641
243
(146)
97
$
$
$
$
477
(276)
(323)
477
(113)
364
Free cash flow for the year ended December 31, 2016 was $702 million, compared to free cash flow of $97 million for the year
ended December 31, 2015. The $677 million increase in cash from operations in the year ended December 31, 2016 compared
to the year ended December 31, 2015 was the primary driver for the increase in free cash flow period-over-period, and was
primarily due to cash from operations from Legacy Towers Watson and Gras Savoye.
Critical Accounting Policies and Estimates
These consolidated financial statements conform to U.S. GAAP, which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates,
judgments and assumptions are continually evaluated based on available information and experience. Because of the use of
estimates inherent in the financial reporting process, actual results could differ from those estimates. The areas that we believe
are critical accounting policies include valuation of billed and unbilled receivables from clients, discretionary compensation,
income taxes, commitments, contingencies and accrued liabilities, pension assumptions, and goodwill and intangible assets.
The critical accounting policies discussed below involve making difficult, subjective or complex accounting estimates that
could have a material effect on our financial condition and results of operations. These critical accounting policies require us to
make assumptions about matters that are highly uncertain at the time of the estimate or assumption. Different estimates that we
could have used, or changes in estimates that are reasonably likely to occur, may have a material effect on our financial
condition and results of operations.
Valuation of Billed and Unbilled Receivables from Clients
We maintain allowances for doubtful accounts to reflect estimated losses resulting from the clients’ failure to pay for the
services after the services have been rendered, including allowances when client disputes may exist. The related provision is
recorded as a reduction to revenue. Our allowance policy is based on the aging of the billed and unbilled client receivables and
has been developed based on the write-off history. Facts and circumstances such as the average length of time the receivables
are past due, general market conditions, current economic trends and our clients’ ability to pay may cause fluctuations in our
valuation of billed and unbilled receivables.
Discretionary Compensation
Our compensation program includes a discretionary bonus that is determined by management and has historically been paid
once per fiscal year in the form of cash and/or deferred stock units after our annual operating results are finalized.
An estimated annual bonus amount is initially developed at the beginning of each fiscal year in conjunction with our budgeting
process. Estimated annual operating performance is reviewed quarterly and the discretionary annual bonus amount is then
adjusted, if necessary, by management to reflect changes in the forecast of pre-bonus profitability for the year.
65
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 the results of
recent financial operations. We place more reliance on evidence that is objectively verifiable.
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 and consulting services 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. In certain cases, where a range of loss
exists, we accrue the minimum amount in the range if no amount within the range is a better estimate than any other amount.
See Note 13 — Commitments and Contingencies in Item 8 within this Annual Report on Form 10-K.
Pension Assumptions
We maintain defined benefit pension plans for employees in several countries, with the most significant defined benefit plans
offered in the U.S. and U.K. Our disclosures in Note 12 — Retirement Benefits contain additional information about our other
less significant but material retirement plans. Within our critical accounting policy discussion, we have excluded analysis for
plans outside of those noted in the description below, as any variance of recorded information based on management’s
estimates would be immaterial.
Descriptions of our U.S. and U.K. plans, which comprise 91% of our projected benefit obligations and 94% of our plan assets,
are below:
United States
Legacy Willis – This plan covers approximately one third of the Legacy Willis employees in the United States and is
now frozen with no new entrants nor future accruals.
Legacy Towers Watson – This plan covers substantially all Legacy Towers Watson U.S. employees, with the exception
of certain employees of our Exchange Solutions segment. Prior to December 31, 2010, employees earned benefits
under their original plan formulas, which were frozen on December 31, 2011. Beginning January 1, 2012, all Legacy
Towers Watson employees, including named executive officers, accrue qualified and non-qualified benefits under a
stable value pension design.
2017 Changes – The Legacy Towers Watson plan’s current non-contributory stable value formula is not available to
employees hired or rehired on or after January 1, 2017. Beginning July 1, 2017, Legacy Towers Watson employees
participating in the Plan will accrue benefits under a new non-contributory stable value pension formula. Also
beginning July 1, 2017, the Plan will cover newly eligible employees, including employees hired on or after January 1,
2017, and employees from Legacy Willis and the Exchange Solutions segment, who elect to participate (who do not
‘opt out’) under a new contributory stable value pension formula.
66
United Kingdom
Legacy Willis – This plan covers approximately one third of the Legacy Willis employees in the United Kingdom. The
plan is now closed to new entrants. New employees in the United Kingdom are offered the opportunity to join a
defined contribution plan.
Legacy Towers Watson – Benefit accruals earned under the Legacy Watson Wyatt defined benefit plan (predominantly
pension benefits) ceased on February 28, 2015, although benefits earned prior to January 1, 2008 retain a link to salary
until the employee leaves the Company. Benefit accruals earned under the legacy Towers Perrin defined benefit plan
(predominantly lump sum benefits) were frozen on March 31, 2008. All participants now accrue defined contribution
benefits.
Legacy Miller – The plan provides retirement benefits based on members’ salaries at the point at which they ceased to
accrue benefits under the scheme.
The determination of the Company’s obligations and annual expense under the plans is based on a number of assumptions that,
given the longevity of the plans, are long-term in focus. A change in one or a combination of these assumptions could have a
material impact on our projected benefit obligation. However, certain of these changes, such as changes in the discount rates
and other actuarial assumptions, are not recognized immediately in net income, but are instead recorded in other comprehensive
income. The accumulated gains and losses not yet recognized in net income are amortized into net income as a component of
the net periodic benefit cost/(credit) based on the average working life expectancy of each of the plan’s active participants to
the extent that the net gains or losses as of the beginning of the year exceed 10% of the greater of the market-related value of
plan assets or the projected benefit obligation.
Willis Towers Watson considers several factors prior to the start of each fiscal year when determining the appropriate annual
assumptions, including economic forecasts, relevant benchmarks, historical trends, portfolio composition and peer company
comparisons. These assumptions, used to determine our pension liabilities and pension expense are reviewed annually by senior
management and changed when appropriate. A 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. To calculate the discount rate, we use the granular approach to determining service cost
and interest cost. We began using this method to calculate the discount rate in 2016. This was treated as a change in accounting
estimate, and resulted in a credit of $51 million included in our total net periodic benefit income. The expected rate of return
assumptions for all plans are supported by an analysis of the weighted-average yield expected to be achieved with the
anticipated makeup of investments. Other material assumptions include rates of participant mortality, and the expected long-
term rate of compensation and pension increases.
Funding is based on actuarially determined contributions and is limited to amounts that are currently deductible for tax
purposes, or as agreed to with the plan trustees for the U.K. plans. Since funding calculations are based on different
measurements than those used for accounting purposes, pension contributions are not equal to net periodic benefit cost.
We recorded a combined $124 million net periodic benefit income for our U.S. and U.K. plans for the year ended December 31,
2016. For the U.S. and U.K. funded plans, the following table presents our estimated net periodic benefit income for 2017 and
the impact to both plans of a 0.25% increase and decrease to both the expected return on assets (‘EROA’) and the discount rate
assumptions, and the projected benefit obligations as of December 31, 2016 and the impact of a 0.25% increase and decrease to
the discount rates:
Totals -
current
estimates
Impact of 0.25% change to
EROA
Impact of 0.25% change to
discount rate
Increase
Decrease
Increase
Decrease
Estimated 2017 (income):
U.S. Plans
U.K. Plans
Projected benefit obligation at December 31, 2016:
U.S. Plans
U.K. Plans
$
$
$
$
(27) $
(119) $
(8) $
(11) $
8
11
$
$
$
2
(11) $
4,169
3,899
N/A
N/A
N/A $
N/A $
(125) $
(190) $
(2)
12
132
205
Economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key
assumptions are not necessarily linear.
67
Goodwill and Intangible Assets — Impairment Review
In applying the acquisition method of accounting for business combinations, amounts assigned to identifiable assets and
liabilities acquired were based on estimated fair values as of the date of acquisition, with the remainder recorded as goodwill.
Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of
intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for
impairment if indicators of impairment arise. Intangible assets with indefinite lives are tested for impairment annually as of
October 1, and whenever indicators of impairment arise. The fair value of the intangible assets is compared with their carrying
value and an impairment loss would be recognized for the amount by which the carrying amount exceeds the fair value.
Goodwill is tested for impairment annually as of October 1, and whenever indicators of impairment arise.
Goodwill is tested at the reporting unit level, and the Company had eight reporting units as of October 1, 2016.
During fiscal year 2016, the Company performed Step 1 of the two-step impairment test for all reporting units. Each of the
reporting units' estimated fair values were in excess of their carrying values. To perform the test, we used valuation techniques
to estimate the fair value of a reporting unit that fall under income or market approaches. Under the discounted cash flow
method, an income approach, the business enterprise value is determined by discounting to present value the terminal value
which is calculated using debt-free after-tax cash flows for a finite period of years. Key estimates in this approach were internal
financial projection estimates prepared by management, business risk, and expected rates of return on capital. The guideline
company method, a market approach, develops valuation multiples by comparing our reporting units to similar publicly traded
companies. Key estimates and selection of valuation multiples rely on the selection of similar companies, obtaining estimates
of forecast revenues and EBITDA estimates for the similar companies and selection of valuation multiples as they apply to the
reporting unit characteristics. Under the similar transactions method, a market approach, actual transaction prices and operating
data from companies deemed reasonably similar to the reporting units is used to develop valuation multiples as an indication of
how much a knowledgeable investor in the marketplace would be willing to pay for the business units.
If the Company was required to perform Step 2, we would determine the implied fair value of the reporting unit used in Step 1
to all of the assets and liabilities of that reporting unit (including any recognized or unrecognized intangible assets) as if the
reporting unit had been acquired in a business combination. Then the implied fair value of goodwill would be compared to the
carrying amount of goodwill to determine if goodwill is impaired. For the year ended December 31, 2016, we did not record
any impairment losses of goodwill or intangibles.
Recent Accounting Pronouncements
While we are still in the process of analyzing the various Accounting Standards Updates (‘ASU’) issued by the Financial
Accounting Standards Board (‘FASB’), those which we believe will have a material impact to our financial statements are
listed below. See Note 2 — Basis of Presentation and Significant Accounting Policies within Item 8 of this Form 10-K for
additional information.
• ASU No. 2014-09 ‘Revenue From Contracts With Customers’
The Company will adopt the standard using the modified retrospective approach on January 1, 2018.
We expect certain revenue streams to have accelerated revenue recognition timing. In particular, the revenue
recognition for our Retiree Medicare Exchange is expected to move from monthly ratable recognition over
the policy period, to the recognition upon placement of the policy during the Company’s fourth quarter of the
preceding calendar year in the amount of one year of expected commissions. Therefore, upon adoption, we
will reflect an adjustment to retained earnings for the revenue that would otherwise have been recognized
during our 2018 calendar year since our earnings process will have been completed during the fourth quarter
of 2017.
We expect our accounting for deferred costs will change. First, for those portions of the business that
currently defer costs (related to system implementation activities), the length of time over which we amortize
those costs is expected to extend to a longer estimated contract term. Currently these costs are amortized over
a typical period of 3-5 years in accordance with the initial stated terms of the customer agreement. Second,
we believe there may be other types of arrangements with associated costs that do not meet the rules for cost
deferral under current U.S. GAAP but do meet the rules under the new standard. We are still evaluating the
types of arrangements that might now have cost deferral impacts.
68
• ASU No. 2016-02 ‘Leases’
The majority of our leases are currently considered operating leases and will be capitalized as a lease asset on
our balance sheets with a related lease liability for the obligated lease payments when the ASU is adopted.
The ASU becomes effective for the Company at the beginning of the 2019 fiscal year; early adoption is
permitted.
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 and Note 9 — Derivative Financial Instruments of the Notes to the Consolidated Financial
Statements in this Annual Report on Form 10-K.
Foreign Exchange Risk
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 U.S. dollars. Our U.S. operations earn revenues and incur expenses
primarily in U.S. dollars. Outside the United States, we predominantly generate revenues and expenses in the local currency
with the exception of our London market operations which earn revenues in several currencies but incur expenses
predominantly in Pounds sterling.
The table below gives an approximate analysis of revenues and expenses by currency in 2016.
Revenues
Expenses (i)
____________________
U.S.
dollars
56%
48%
Pounds
sterling
14%
20%
Euro
14%
13%
Other
currencies
16%
19%
(i) These percentages exclude certain expenses for significant items which will not be settled in cash, or which we believe to be items that are not core
to our current or future operations. These items include Merger-related amortization of intangible assets, restructuring costs, and transaction and
integration expenses.
Our principal exposures to foreign exchange risk arise from:
•
•
our London market operations; and
translation.
London market operations
The Company’s primary foreign exchange risks in its London market operations arise from changes in the exchange rate
between U.S. dollars and Pounds sterling as its London market operations earn the majority of their revenues in U.S. 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 Euro and Japanese yen.
The foreign exchange risks in our London market operations are hedged to the extent that:
•
•
forecast Pounds sterling expenses exceed Pounds sterling revenues, in which case 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;
the U.K. operations earn significant revenues in Euro and Japanese yen, in which case the Company limits its exposure to
changes in the exchange rate between the U.S. 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 Pounds sterling asset or liability position in our London market operations; and
69
• Miller Insurance Services LLP, which is a Pounds sterling functional entity, earns significant non-functional currency
revenues, in which case the Company limits its exposure to exchange rate changes by the use of forward contracts
matched to a percentage of forecast cash inflows in specific currencies and periods.
However, where the foreign exchange risk relates to any Pounds sterling pension benefits assets or liability for pension
benefits, 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, recognized in other comprehensive income or loss, if the U.S. dollar and
Pounds sterling exchange rates change. We do, however, hedge the Pounds sterling contributions into the pension plan.
Translation risk
Outside our U.S. 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 U.S. dollars for reporting purposes, movements in
exchange rates will affect reported results and net assets. For example, if the U.S. dollar strengthens against the Euro, the
reported results of our Eurozone operations in U.S. 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 U.S. 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.
December 31, 2016
Foreign currency sold
U.S. dollars sold for Pounds
sterling
Euro sold for U.S. dollars
Japanese yen sold for U.S.
dollars
Euro sold for Pounds sterling
Total
Fair value (i)
Contract
amount
(millions)
$
$
$
390
74
21
22
507
(65)
2017
Average contractual
exchange rate
Settlement date before December 31,
Contract
amount
(millions)
2018
Average contractual
exchange rate
Contract
amount
(millions)
2019
Average contractual
exchange rate
$1.51 = £1
$
€1 = $1.20
¥110.85 = $1
€1 = £1.21
$
$
268
48
13
9
338
(40)
$1.46 = £1
$
€1 = $1.19
¥110.90 - $1
1 = £1.33
77
14
5
4
$1.39 = £1
€1 = $1.17
¥98.63 = $1
€1 = £1.24
$
$
100
(5)
____________________
(i) Represents the difference between the contract amount and the cash flow in U.S. dollars which would have been receivable had the foreign currency
forward exchange contracts been entered into on December 31, 2016 at the forward exchange rates prevailing at that date.
70
December 31, 2015
Foreign currency sold
U.S. dollars sold for Pounds
sterling
Euro sold for U.S. dollars
Japanese yen sold for U.S.
dollars
Euro sold for Pounds sterling
Total
Fair value (i)
Contract
amount
(millions)
$
$
$
485
87
26
15
613
(13)
Settlement date before December 31,
2016
Average contractual
exchange rate
Contract
amount
(millions)
2017
Average contractual
exchange rate
Contract
amount
(millions)
2018
Average contractual
exchange rate
$1.57 = £1
$
€1 = $1.26
¥111.41= $1
€1 = £1.22
$
$
363
63
18
5
449
(11)
$1.54 = £1
$
€1 = $1.30
¥113.49 = $1
€1 = £1.24
175
29
7
3
$1.55 = £1
€1 = $1.15
¥116.17 = $1
€1 = £1.38
$
$
214
(7)
____________________
(i) Represents the difference between the contract amount and the cash flow in U.S. dollars which would have been receivable had the foreign currency
forward exchange contracts been entered into on December 31, 2015 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.
Interest Rate Risk
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, 2017, with a repayment date of April 28, 2018, which will be available for regulatory
capital purposes related to securities underwriting only, and (iii) $20 million available under another revolving credit facility
which is only available for specific regulatory purposes. As of December 31, 2016, $238 million was drawn on these facilities.
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 U.S. 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 U.S. dollars and other currencies. We earn interest on these funds, which is included in our consolidated
financial statements as interest 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.
During the year ended December 31, 2015, the Company, in order to manage interest rate risk arising from these financial
assets, entered into interest rate swaps to receive a fixed rate of interest and pay a variable rate of interest. The use of interest
rate contracts essentially converted groups of short-term variable rate investments to fixed rates. These derivatives were
designated as hedging instruments and were for a total notional amount of $300 million.
The table below provides information about our derivative instruments and other financial instruments that are sensitive to
changes in interest rates. For interest rate swaps, the table presents notional principal amounts and average interest rates
analyzed by expected maturity dates. Notional principal amounts are used to calculate the contractual payments to be
exchanged under the contracts. The duration of the interest rate swaps was three years, with re-fixing periods of three months.
Average fixed and variable rates are, respectively, the weighted-average actual and market rates for the interest rate hedges in
place. Market rates are the rates prevailing at December 31, 2016 or 2015, as appropriate. We have evaluated the need for a
sensitivity analysis, and based on the Company's debt, we believe this to be immaterial.
71
December 31, 2016
2017
2018
2019
2020
2021
Thereafter
Total
Fair value
(i)
($ millions, except percentages)
Expected to mature before December 31,
$
$
Fixed rate debt
Principal
Fixed rate payable
Floating rate debt
Principal
Variable rate payable (ii)
Derivatives - interest rate swaps
Notional principal
Fixed rate receivable
Variable rate payable
394
6.200%
— $
—
187
7.000%
— $
—
950
4.684%
$ 1,645
$ 3,176
$
3,306
3.934%
4.620%
$
107
2.046%
$
519
2.047%
85
2.020%
— $
—
—
300
1.167%
0.567%
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
711
2.043%
$
711
— $
—
—
300
1.167%
0.567%
—
December 31, 2015
2016
2017
2018
2019
2020
Thereafter
Total
Fair Value
(i)
($ millions, except percentages)
Expected to mature before December 31,
Fixed rate debt
Principal
Fixed rate payable
Floating rate debt
Principal
Variable rate payable (ii)
Derivatives - interest rate swaps
Notional principal
Fixed rate receivable
Variable rate payable
$
$
$
$
300
4.125%
694
1.647%
394
6.200%
— $
—
187
7.000%
— $ 1,025
—
5.576%
$ 1,906
$
2,012
5.616%
$
22
2.323%
664
2.451%
—
—
—
— $
—
—
300
1.167%
0.900%
—
—
—
—
—
—
—
—
—
—
— $ 1,380
$
1,380
2.045%
— $
—
—
300
1.167%
0.900%
—
____________________
(i)
Represents the net present value of the expected cash flows discounted at current market rates of interest or quoted market rates as appropriate.
(ii)
Represents the estimated interest rate payable.
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.
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, 2016.
72
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WILLIS TOWERS WATSON
INDEX TO FORM 10-K
For the year ended December 31, 2016
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2016
Consolidated Statements of Comprehensive Income/(Loss) for each of the three years in the period ended December 31, 2016
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016
Consolidated Statements of Changes in Equity for each of the three years in the period ended December 31, 2016
Notes to the Consolidated Financial Statements
Page
74
75
76
77
78
79
80
73
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Willis Towers Watson Public Limited Company
Dublin, Ireland
We have audited the accompanying consolidated balance sheets of Willis Towers Watson Public Limited Company and
subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations,
comprehensive income/(loss), changes in equity, and cash flows for each of the three years in the period ended December 31,
2016. 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
Towers Watson Public Limited Company and subsidiaries as of December 31, 2016 and 2015, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016, 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, 2016, based on the criteria established in Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 1, 2017 expressed an unqualified opinion on the Company’s internal control over financial
reporting.
/s/ Deloitte LLP
London, United Kingdom
March 1, 2017
74
WILLIS TOWERS WATSON
Consolidated Statements of Operations
(in millions of U.S. dollars, except per share data)
Years ended December 31,
Note
2016
2015
2014
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
Income from operations
Interest expense
Other expense/(income), net
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND INTEREST IN EARNINGS OF ASSOCIATES
(Benefit from)/provision for income taxes
INCOME FROM CONTINUING OPERATIONS BEFORE INTEREST
IN EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON
EARNINGS PER SHARE (i)
Basic earnings per share
Diluted earnings per share
Cash dividends declared per share (i)
____________________
$
7,778
$
3,809
$
109
7,887
4,646
1,551
178
591
193
177
20
3,829
2,303
718
95
76
126
84
3,767
35
3,802
2,314
659
92
54
36
—
7,336
3,402
3,155
551
184
27
340
(96)
436
2
438
(18)
420
3.07
3.04
1.92
$
$
$
$
427
142
(55)
340
(33)
373
11
384
(11)
373
5.49
5.41
3.28
$
$
$
$
647
135
(6)
518
159
359
14
373
(11)
362
5.40
5.32
3.18
7
8
5
15
6
18
18
$
$
$
$
(i) Basic and diluted earnings per share and cash dividends declared per share, for the years ended December 31, 2015 and 2014 have been
retroactively adjusted to reflect the reverse stock split on January 4, 2016. See Note 3 — Merger and Acquisitions for further details.
See accompanying notes to the consolidated financial statements
75
WILLIS TOWERS WATSON
Consolidated Statements of Comprehensive Income/(Loss)
(in millions of U.S. dollars)
NET INCOME
Other comprehensive (loss)/income, net of tax:
Foreign currency translation
Defined pension and post-retirement benefits
Derivative instruments
Other comprehensive (loss)/income, net of tax, before noncontrolling
interests
Comprehensive (loss)/income before noncontrolling interests
Comprehensive loss/(income) attributable to noncontrolling interests
Comprehensive (loss)/income attributable to Willis Towers Watson
$
Note
Years ended December 31,
2016
2015
2014
$
438
$
384
$
373
16
16
16
(353)
(439)
(75)
(867)
(429)
2
(427) $
(133)
180
(28)
19
403
(1)
402
$
(183)
(179)
(17)
(379)
(6)
(5)
(11)
See accompanying notes to the consolidated financial statements
76
WILLIS TOWERS WATSON
Consolidated Balance Sheets
(in millions of U.S. dollars, except share data)
Note
December 31,
2016
December 31,
2015
$
870
$
ASSETS
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Prepaid and other current assets
Total current assets
Fixed assets, net
Goodwill
Other intangible assets, net
Pension benefits assets
Other non-current assets
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Fiduciary liabilities
Deferred revenue and accrued expenses
Short-term debt and current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Liability for pension benefits
Deferred tax liabilities
Provision for liabilities
Other non-current liabilities
Total non-current liabilities
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTEREST
EQUITY
Ordinary shares, $0.000304635 nominal value; Authorized: 1,510,003,775;
Issued: 137,075,068 and 68,624,892; Outstanding: 136,296,771 and
68,624,892
Ordinary shares, €1 nominal value; Authorized: 40,000; Issued 40,000 shares
in 2016 and 2015
Preference shares, $0.000115 nominal value; Authorized: 1,000,000,000;
Issued nil shares in 2016 and 2015
Additional paid-in capital
Retained earnings
$
$
14
14
7
8
8
12
14
10
14
10
12
6
14
14
13
$
$
10,505
2,080
337
13,792
839
10,413
4,368
488
353
16,461
30,253
10,505
1,481
508
876
13,370
3,357
1,321
864
575
532
6,649
20,019
51
—
—
—
10,596
1,452
(1,884)
(99)
10,065
118
10,183
532
10,458
1,258
255
12,503
563
3,737
1,115
623
298
6,336
18,839
10,458
752
988
603
12,801
2,278
279
240
295
533
3,625
16,426
53
—
—
—
1,672
1,597
(1,037)
(3)
2,229
131
2,360
Accumulated other comprehensive loss, net of tax
16
Treasury shares, at cost, 795,816 in 2016 and 17,519 in 2015; 40,000 shares, €1
nominal value, in 2016 and 2015
Total Willis Towers Watson shareholders’ equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
$
30,253
$
18,839
See accompanying notes to the consolidated financial statements
77
WILLIS TOWERS WATSON
Consolidated Statements of Cash Flows
(in millions of U.S. dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME
Adjustments to reconcile net income to total net cash from operating
activities:
Depreciation
Amortization
Net periodic benefit of defined benefit pension plans
Provision for doubtful receivables from clients
(Benefit from)/provision for deferred income taxes
Share-based compensation
Non-cash foreign exchange (gain)/loss
Net gain on disposal of operations and fixed and intangible assets and
gain on remeasurement of equity interests
Other, net
Changes in operating assets and liabilities, net of effects from purchase of
Note
7
8
14
6
17
subsidiaries:
Accounts receivable
Fiduciary assets
Fiduciary liabilities
Other assets
Other liabilities
Movement on provisions
Net cash from operating activities
CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES
Additions to fixed assets and software for internal use
Capitalized software costs
Acquisitions of operations, net of cash acquired
Net (cash paid)/proceeds from sale of operations
Other, net
Net cash from/(used in) investing activities
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES
Net (payments)/borrowings on revolving credit facility
Senior notes issued
Proceeds from issuance of other debt
Debt issuance costs
Repayments of debt
Repurchase of shares
Proceeds from issuance of shares and excess tax benefit
Payments of deferred and contingent consideration related to
acquisitions
Dividends paid
Acquisitions of and dividends paid to noncontrolling interests
Net cash (used in)/from financing activities
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
Effect of exchange rate changes on cash and cash equivalents
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
Years ended December 31,
2015
2014
2016
$
438
$
384
$
373
178
591
(93)
36
(244)
123
(28)
—
27
(101)
(249)
249
(233)
161
65
920
(218)
(85)
476
(1)
23
195
(237)
1,606
404
(14)
(1,901)
(396)
63
(67)
(199)
(21)
(762)
353
(15)
532
870
$
13
$
95
76
(78)
5
(99)
64
73
(90)
(8)
(155)
(508)
508
(5)
(62)
43
243
(146)
—
(857)
44
16
(943)
469
—
592
(5)
(166)
(82)
131
—
(277)
(21)
641
(59)
(44)
635
532
$
92
54
(17)
4
66
52
39
(17)
(16)
(66)
(887)
887
16
(91)
(12)
477
(113)
—
(245)
86
(4)
(276)
—
—
—
(3)
(15)
(213)
139
—
(210)
(21)
(323)
(122)
(39)
796
635
See accompanying notes to the consolidated financial statements
78
WILLIS TOWERS WATSON
Consolidated Statements of Changes in Equity
(in millions of U.S. dollars and numbers of shares in thousands)
Shares
outstanding
Ordinary
shares
and
APIC
(i)
(ii)
Retained
Earnings
Treasury
Shares
AOCL
(iii)
Total WTW
shareholders’
equity
Noncontrolling
Interests
Redeemable
Noncontrolling
interests
Total Equity
(iv)
Total
Balance as of January 1, 2014
67,520
$
1,316
$
1,595
$
(3) $ (693) $
2,215
$
Shares repurchased
(1,906)
Net income
Dividends
Other comprehensive income/
(loss)
Issue of shares under employee
stock compensation plans and
related tax benefits of $12
Issue of shares for acquisitions
Share-based compensation
Additional noncontrolling interests
Foreign currency translation
—
—
—
1,832
14
—
—
—
—
—
—
—
146
1
52
—
9
(213)
362
(214)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(373)
—
—
—
—
—
(213)
362
(214)
(373)
146
1
52
—
9
Balance as of December 31, 2014
67,460
$
1,524
$
1,530
$
(3) $(1,066) $
1,985
$
Shares repurchased
Net income
Dividends
Other comprehensive income/
(loss)
Issue of shares under employee
stock compensation plans and
related tax benefits of $4
Share-based compensation
Additional noncontrolling interest
Foreign currency translation
(646)
—
—
—
1,811
—
—
—
—
—
—
—
128
64
(53)
9
(82)
373
(224)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
29
—
—
—
—
(82)
373
(224)
29
128
64
(53)
9
28
—
11
(17)
(2)
—
—
—
2
—
22
—
8
(11)
(6)
—
—
118
—
$
2,243
$
(213)
373
(231)
(375)
146
1
52
2
9
$
2,007
$
(82)
381
(235)
23
128
64
65
9
Balance as of December 31, 2015
68,625
$
1,672
$
1,597
$
(3) $(1,037) $
2,229
$
131
$
2,360
$
Shares repurchased
(3,170)
Net income
Dividends
Other comprehensive (loss)/
income
Issue of shares under employee
stock compensation plans and
related tax benefits of $3
Issue of shares for acquisitions
Replacement share-based
compensation awards issued on
acquisition
Share-based compensation
Additional noncontrolling interests
Foreign currency translation
—
—
—
1,342
69,500
—
—
—
—
—
—
—
—
66
8,686
37
123
7
5
(300)
420
(265)
—
—
—
—
—
—
—
(96)
—
—
—
—
—
—
—
—
—
—
—
—
(847)
—
—
—
—
—
—
(396)
420
(265)
(847)
66
8,686
37
123
7
5
—
11
(9)
(16)
—
—
—
—
1
—
(396)
431
(274)
(863)
66
8,686
37
123
8
5
Balance as of December 31, 2016
136,297
$ 10,596
$
1,452
$
(99) $(1,884) $
10,065
$
118
$
10,183
$
____________________
—
—
— $
373
—
(4) $
(379)
—
—
—
63
—
59
—
3
(5)
$
384
(4) $
19
—
—
—
—
53
—
7
(5)
$
438
(4) $
(867)
—
—
—
—
—
—
51
(i) The nominal value of the ordinary shares and the number of ordinary shares issued in the years ended December 31, 2015 and 2014 have been retroactively adjusted
to reflect the reverse stock split on January 4, 2016. See Note 3 — Merger and Acquisitions for further details.
(ii) Additional paid-in capital (‘APIC’).
(iii) Additional other comprehensive loss, net of tax (‘AOCL’).
(iv) The noncontrolling interest is related to Max Matthiessen Holding AB.
See accompanying notes to the consolidated financial statements
79
WILLIS TOWERS WATSON
Notes to the Consolidated Financial Statements
(Tabular amounts are in millions of U.S. dollars, except per share data)
Note 1 — Nature of Operations
Willis Towers Watson is a leading global advisory, broking and solutions company that helps clients around the world turn risk
into a path for growth. Willis Towers Watson has more than 41,000 employees and services clients in more than 140 countries
and territories. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of
capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections
between talent, assets and ideas - the dynamic formula that drives business performance.
We offer clients a broad range of services to help them to identify and control their risks, and to enhance business performance
by improving their ability to attract, retain and engage a talented workforce. Our risk control 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 help our clients
enhance their business performance by delivering consulting services, technology and solutions 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.
As an 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. We operate the largest private Medicare exchange in
the United States (‘U.S.’). Through this exchange and those for active employees, we help our clients move to a more
sustainable economic model by capping and controlling the costs associated with healthcare benefits.
We are not an insurance company, and therefore we do not underwrite insurable risks for our own account.
We believe our broad perspective allows us to see the critical intersections between talent, assets and ideas - the dynamic
formula that drives business performance.
The Merger with Towers Watson that closed on January 4, 2016 affects the comparability between 2016 and other periods
presented. See Note 3 — Merger and Acquisitions for additional information.
Note 2 — Basis of Presentation and Significant Accounting Policies
Significant Accounting Policies
Conforming reclassifications — Certain reclassifications have been made to prior period amounts to conform to the current
year presentation. A material reclassification within the 2015 Consolidated Statement of Operations was made to reclassify $84
million of Transaction and integration expenses from Salary and benefits and Other operating expenses of $3 million and $81
million, respectively. This reclassification was made to present information on a comparable basis.
Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Willis Towers
Watson and those of our majority-owned and controlled subsidiaries. Intercompany accounts and transactions have been
eliminated.
We determine whether we have a controlling financial interest in an entity by first evaluating whether the entity is a voting
interest entity or a variable interest entity (‘VIE’). Variable interest entities are entities that lack one or more of the
characteristics of a voting interest entity and therefore require a different approach in determining which party involved with
the VIE should consolidate the entity. With a VIE, either the entity does not have sufficient equity at risk to finance its activities
without additional subordinated financial support from other parties, or the equity holders, as a group, do not have the power to
direct the activities that most significantly impact its financial performance, the obligation to absorb expected losses of the
entity, or the right to receive the expected residual returns of the entity. The entity that has a controlling financial interest in a
VIE is referred to as the primary beneficiary and is required to consolidate the VIE.
Voting interest entities are entities that have sufficient equity and provide equity investors voting rights that give them the
power to make significant decisions related to the entity’s operations. The usual condition for a controlling financial interest in
a voting interest entity is ownership of a majority voting interest. Accordingly, we consolidate our voting interest entity
investments in which we hold, directly or indirectly, more than 50% of the voting rights.
80
Use of Estimates — These consolidated financial statements conform to accounting principles generally accepted in the United
States of America (‘U.S. GAAP’), which require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Our estimates, judgments and assumptions are
continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates. Estimates are used when accounting for revenue recognition,
the selection of useful lives of fixed and intangible assets, impairment testing, valuation of billed and unbilled receivables from
clients, discretionary compensation, income taxes, pension assumptions, incurred but not reported claims, legal reserves and
goodwill and intangible assets.
Going Concern — Management evaluates at each annual and interim period whether there are conditions or events, considered
in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that
the consolidated financial statements are issued. Management’s evaluation is based on relevant conditions and events that are
known and reasonably knowable at the date that the consolidated financial statements are issued. Management has concluded
that there are no conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a
going concern within one year after the date of these financial statements.
Fair Value of Financial Instruments — The carrying values of our cash and cash equivalents, accounts receivable, accrued
expenses, revolving lines of credit and term loans approximate their fair values because of the short maturity and liquidity of
those instruments. We consider the difference between carrying value and fair value to be immaterial for our senior notes. The
fair value of our senior notes are considered Level 2 financial instruments as they are corroborated by observable market data.
See Note 11 — Fair Value Measurements for additional information about our measurements of fair value.
Investments in Associates — Investments are accounted for using the equity method of accounting, included within other non-
current assets in the consolidated balance sheets, 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 the 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 consolidated statements of operations.
Common Shares Split — On January 4, 2016, the Company effected a 1 to 2.6490 reverse share split to shareholders of record
as of January 4, 2016. All share and per share information has been retroactively adjusted to reflect the reverse share split and
show the new number of shares. See Note 3 — Merger and Acquisitions for additional information about our Merger and
reverse share split.
Cash and Cash Equivalents — Cash and cash equivalents primarily consist of time deposits with original maturities of 90 days
or less. Willis Limited, our U.K. brokerage subsidiary regulated by the Financial Conduct Authority, is currently required to
maintain $140 million in unencumbered and available funds, of which at least $79 million must be in cash, for regulatory
purposes. Term deposits and certificates of deposits with original maturities greater than 90 days are considered to be short-
term investments. There is no restricted cash included in our cash and cash equivalents balance, as these amounts are included
in fiduciary assets.
Fiduciary Assets and Liabilities — 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 consolidated balance sheets as fiduciary assets. Fiduciary
liabilities represent the obligations to remit fiduciary funds and fiduciary receivables to insurers or insureds. Certain of our
health and welfare benefits administration outsourcing agreements require us to hold funds on behalf of clients to pay
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obligations on their behalf. These amounts are included in fiduciary assets and fiduciary liabilities on the consolidated balance
sheets.
Accounts Receivable — Accounts receivable includes both billed and unbilled receivables and is stated at estimated net
realizable values. Provision for billed receivables is recorded, when necessary, in an amount considered by management to be
sufficient to meet probable future losses related to uncollectible accounts. Accrued and unbilled receivables are stated at net
realizable value which includes an allowance for accrued and unbillable amounts. See Note 14 — Supplementary Information
for Certain Balance Sheet Accounts for additional information about our accounts receivable.
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 consolidated 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 amounts 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 the results of recent financial operations. We place more reliance on evidence that is objectively verifiable.
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 the basis of the technical merits of the position assuming the tax authorities have full knowledge
of the position and all relevant facts. Recognition also occurs upon either the 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. The Company adjusts its recognition of 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. See Note 6 —
Income Taxes for additional information about our income taxes.
Foreign Currency — 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 consolidated 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 in the consolidated
statements of comprehensive income/(loss).
Upon consolidation, the results of operations of subsidiaries and associates whose functional currency is other than the U.S.
dollar are translated into U.S. dollars at the average exchange rates 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.
Derivatives — 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. See Note 9 — Derivative Financial Instruments for additional information about our
derivatives.
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Commitments, Contingencies and Provisions for Liabilities — The Company establishes provisions against various actual and
potential claims, lawsuits and other proceedings relating principally to alleged errors and omissions in the ordinary course of
business. Such provisions cover claims that have been reported but not paid and also unasserted claims and related legal fees.
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. In certain cases, where a range of loss exists, we accrue the
minimum amount in the range if no amount within the range is a better estimate than any other amount. To the extent such
losses can be recovered under the Company’s insurance programs, estimated recoveries are recorded when losses for insured
events are recognized and the recoveries are likely to be realized. Significant management judgment is required to estimate the
amounts of such unasserted claims 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. These contingent liabilities are not discounted. See Note 13 — Commitments and Contingencies and Note 14 —
Supplementary Information for Certain Balance Sheet Accounts for additional information about our commitments,
contingencies and provisions for liabilities.
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 equity-based compensation, which is included in Salaries and benefits in the consolidated statements of
operations, primarily 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. See Note 17 —
Share-based Compensation for additional information about our share-based compensation.
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 primarily using the straight-line method
based on the estimated useful lives of assets.
Depreciation on internally developed software is amortized over the estimated useful life of the asset ranging from 3 to 10
years. Buildings include assets held under capital leases and are depreciated over the lesser of 50 years, the asset lives or the
lease terms. Depreciation on leasehold improvements is calculated over the lesser of the useful lives of the assets or the
remaining lease terms. Depreciation on furniture and equipment is calculated based on a range of 3 to 10 years. Land is not
depreciated.
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. See Note 7 — Fixed Assets for additional information
about our fixed assets.
Operating Leases —Rentals payable on operating leases are charged straight line to Other operating expenses in the
consolidated statements of operations over the lease term. See Note 13 — Commitments and Contingencies for additional
information about our operating leases.
Goodwill and Other Intangible Assets — In applying the acquisition method of accounting for business combinations, amounts
assigned to identifiable assets and liabilities acquired were based on estimated fair values as of the date of acquisition, with the
remainder recorded as goodwill. Intangible assets are initially valued at fair value using generally accepted valuation methods
appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives
and are reviewed for impairment if indicators of impairment arise. Intangible assets with indefinite lives (currently only
acquired software that is in the in-process research and development stage) are tested for impairment annually as of October 1,
and whenever indicators of impairment exist. The fair values of intangible assets are compared with their carrying values, and
an impairment loss would be recognized for the amount by which a carrying amount exceeds its fair value.
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Acquired intangible assets are amortized over the following periods:
Client relationships
In line with underlying cash flows
Amortization basis
Software
Product
Trademark and trade name
Favorable agreements
Management contracts
In line with underlying cash flows or straight line basis
In line with underlying cash flows
Straight line basis
Straight line basis
Straight line basis
Expected life
(years)
5 to 20
4 to 7
17.5
14 to 25
7
18
Goodwill is tested for impairment annually as of October 1, and whenever indicators of impairment exist. Goodwill is tested at
the reporting unit level, and the Company had eight reporting units as of October 1, 2016. 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 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 tests for the years ended December 31, 2016 and 2015 have not resulted in any impairment charges. See
Note 8 — Goodwill and Other Intangible Assets for additional information about our goodwill and other intangible assets.
Pensions — The Company has multiple defined benefit pension and defined contribution plans. The net periodic cost of the
Company’s defined benefit plans are measured on an actuarial basis using various methods and actuarial assumptions. The
most significant assumptions are the discount rates (calculated from the 2016 fiscal year and forward using the granular
approach to calculating service and interest cost) and the expected long-term rates of return on plan assets. Other material
assumptions include rates of participant mortality, the expected long-term rates 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 U.S. GAAP, the Company records on its consolidated balance sheets the funded status of its pension plans
based on the projected benefit obligation.
Contributions to the Company’s defined contribution plans are recognized as incurred. 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. See Note 12 — Retirement Benefits for additional information about our pensions.
Revenue Recognition — Revenues include insurance commissions, fees in lieu of commission, fees for consulting services
rendered, hosted and delivered software, survey sales, interest and other income.
Revenue recognized in excess of billings is recorded as unbilled accounts receivable. Cash collections in excess of revenue
recognized are recorded as deferred revenue until the revenue recognition criteria are met. Client reimbursable expenses,
including those relating to travel, other out-of-pocket expenses and any third-party costs, are included in revenue, and an
equivalent amount of reimbursable expenses is included in other operating expenses as a cost of revenue.
Commissions and fees
Commissions revenue. Brokerage commissions and fees negotiated in lieu of commissions are recognized at the later of the
policy inception date or when the policy placement is complete. In situations in which our fees are not fixed and
determinable due to the uncertainty of the commission fee per policy, we recognize revenue as the fees are determined.
Commissions on additional premiums and adjustments are recognized when approved by or agreed between the parties and
collectability is reasonably assured.
Consulting revenue. The majority of our consulting revenues consists of fees earned from providing consulting services.
We recognize revenues from these consulting engagements when hours are worked, either on a time-and-expense basis or
on a fixed-fee basis, depending on the terms and conditions defined at the inception of an engagement with a client. We
have engagement letters with our clients that specify the terms and conditions upon which the engagements are based.
These terms and conditions can only be changed upon agreement by both parties. Individual billing rates are principally
based on a multiple of salary and compensation costs.
Revenues for fixed-fee arrangements are based upon the proportional performance method to the extent estimates can be
made of the remaining work required under the arrangement. If we do not have sufficient information to estimate
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proportional performance, we recognize the fees straight-line over the contract period. We typically have four types of
fixed-fee arrangements: annual recurring projects, projects of a short duration, stand-ready obligations and non-recurring
system projects.
• Annual recurring projects and projects of short duration. These projects are typically straightforward and highly
predictable in nature. As a result, the project manager and financial staff are able to identify, as the project status is
reviewed and bills are prepared monthly, the occasions when cost overruns could lead to the recording of a loss
accrual.
•
Stand-ready obligations. Where we are entitled to fees (whether fixed or variable based on assets under management
or a per-participant per-month basis) regardless of the hours, we generally recognize this revenue on either a straight-
line basis or as the variable fees are calculated.
• Non-recurring system projects. These projects are longer in duration and subject to more changes in scope as the
project progresses. Certain software or outsourced administration contracts generally provide that if the client
terminates a contract, we are entitled to payment for services performed through termination.
Revenue recognition for fixed-fee engagements is affected by a number of factors that change the estimated amount of
work required to complete the project such as changes in scope, the staffing on the engagement and/or the level of client
participation. The periodic engagement evaluations require us to make judgments and estimates regarding the overall
profitability and stage of project completion that, in turn, affect how we recognize revenue. We recognize a loss on an
engagement when estimated revenues to be received for that engagement are less than the total estimated costs associated
with the engagement. Losses are recognized in the period in which the loss becomes probable and the amount of the loss is
reasonably estimable.
Hosted software. We have developed various software programs and technologies that we provide to clients in connection
with consulting services. In most instances, such software is hosted and maintained by us and ownership of the technology
and rights to the related code remain with us. We defer costs for software developed to be utilized in providing services to
a client, but for which the client does not have the contractual right to take possession, during the implementation stage.
We recognize these deferred costs from the go live date, signaling the end of the implementation stage, until the end of the
initial term of the contract with the client. We determined that the system implementation and customized ongoing
administrative services are one combined service. Revenue is recognized over the service period, after the go live date, in
proportion to the services performed. As a result, we do not recognize revenue during the implementation phase of an
engagement.
Delivered software. We deliver software under arrangements with clients who take possession of our software. The
maintenance associated with the initial software fees is a fixed percentage which enables us to determine the stand-alone
value of the delivered software separate from the maintenance. We recognize the initial software fees as software is
delivered to the client and we recognize the maintenance ratably over the contract period based on each element’s relative
fair value. For software arrangements in which initial fees are received in connection with mandatory maintenance for the
initial software license to remain active, we determined that the initial maintenance period is substantive. Therefore, we
recognize the fees for the initial license and maintenance bundle ratably over the initial contract term, which is generally
one year. Each subsequent renewal fee is recognized ratably over the contractually stated renewal period.
Surveys. We collect, analyze and compile data in the form of surveys for our clients who have the option of participating in
the survey. The surveys are published online via a web tool that provides simplistic functionality. We have determined that
the web tool is inconsequential to the overall arrangement. We record the survey revenues when the results are delivered
online and made available to our clients who have a contractual right to the data. If the data is updated more frequently
than annually, we recognize the survey revenues ratably over the contractually stated period.
Interest and other income
Interest income. Interest income is recognized as earned.
Other Income. Other income includes 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.
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Recent Accounting Pronouncements
Not yet adopted
In May 2014, the Financial Accounting Standards Board (‘FASB’) issued Accounting Standard Update (‘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. Entities have the option of using either a full
retrospective or a modified retrospective approach for the adoption of the new standard. Additional ASUs have since been
issued, all of which provide additional guidance, examples and technical corrections for the implementation of ASU No.
2014-09. The guidance is effective for the Company at the beginning of its 2018 fiscal year, with early adoption permitted.
While we are still in the process of analyzing our various revenue streams to determine the full impact this standard will have
on our revenue recognition, cost deferral, systems and processes, the Company has determined the following:
• The Company will adopt the standard using the modified retrospective approach on January 1, 2018.
• We expect certain revenue streams to have accelerated revenue recognition timing. In particular, the revenue
recognition for our Retiree Medicare Exchange is expected to move from monthly ratable recognition over the policy
period, to the recognition upon placement of the policy during the Company’s fourth quarter of the preceding calendar
year in the amount of one year of expected commissions. Therefore, upon adoption, we will reflect an adjustment to
retained earnings for the revenue that would otherwise have been recognized during our 2018 calendar year since our
earnings process will have been completed during the fourth quarter of 2017.
• We expect our accounting for deferred costs will change. First, for those portions of the business that currently defer
costs (related to system implementation activities), the length of time over which we amortize those costs is expected
to extend to a longer estimated contract term. Currently these costs are amortized over a typical period of 3-5 years in
accordance with the initial stated terms of the customer agreement. Second, we believe there may be other types of
arrangements with associated costs that do not meet the rules for cost deferral under current U.S. GAAP but do meet
the rules under the new standard. We are still evaluating the types of arrangements that might now have cost deferral
impacts.
The Company continues to update its assessment of the impacts of the accounting standard, and related updates, to the
consolidated financial statements, and will note material impacts when known.
In February 2016, the FASB issued ASU No. 2016-02 ‘Leases’, which requires a lessee to recognize in the statement of
financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the
underlying asset for the lease term. The ASU becomes effective for the Company at the beginning of the 2019 fiscal year and
early adoption is permitted. In transition, the Company is required to recognize and measure leases at the beginning of the
earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients.
While the Company continues to assess the impact of the ASU to the consolidated financial statements, the majority of our
leases are currently considered operating leases and will be capitalized as a lease asset on our balance sheet with a related lease
liability for the obligated lease payments.
In March 2016, the FASB issued ASU No. 2016-09 ‘Compensation - Stock Compensation’, which simplifies several aspects of
the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liabilities, and classification on the statement of cash flows. The ASU becomes effective for the Company at the
beginning of the 2017 fiscal year and early adoption is permitted. Certain applications of the ASU are to be applied
prospectively or retrospectively with a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year
of adoption. The Company is currently assessing the impact that this standard will have on its consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15 ‘Statement of Cash Flows - Classification of Certain Cash Receipts and
Cash Payments’, which amends guidance on presentation and classification of eight specific cash flow issues with the objective
of reducing diversity in practice. The ASU becomes effective for the Company at the beginning of 2018. Early adoption is
permitted and any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An
entity that elects early adoption must adopt all of the amendments in the same period. The Company is still assessing the impact
of this ASU, but we believe the impact on our financial statements will be immaterial as we are largely in compliance with its
requirements.
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In October 2016, the FASB issued ASU No. 2016-16 ‘Income Taxes’, which amends guidance regarding the recognition of
current and deferred income taxes for intra-entity asset transfers. Current U.S. GAAP prohibits the recognition of current and
deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The ASU states that an
entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the
transfer occurs. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect
adjustment directly to retained earnings as of the beginning of the period of adoption. The Company intends to early adopt this
standard on January 1, 2017. The cumulative-effect adjustment will be immaterial to the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01 ‘Business Combinations - Clarifying the Definition of a Business’, which
clarifies the definition of a business, to assist with the evaluation of whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The amendments in this ASU include the provision of a screen to determine
when an integrated set of assets and activities is not a business; that is, when substantially all of the fair value of the gross
assets acquired (or disposed of) is concentrated in a single identifiable asset (or a group of similar identifiable assets), the set is
not a business. This screen reduces the number of transactions that need to be further evaluated. The ASU becomes effective for
the Company at the beginning of 2018. The amendments in this ASU should be applied prospectively. Early adoption is
permitted for acquisitions (or disposals) that have not already been reported in the financial statements. The Company is
currently assessing the impact that this ASU will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04 ‘Simplifying the Test for Goodwill Impairment’, which simplifies the
subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair
value of goodwill under Step 2, current U.S. GAAP requires the performance of procedures to determine the fair value at the
impairment testing date of assets and liabilities (including unrecognized assets and liabilities) following the procedure that
would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead,
the amendments under this ASU require the goodwill impairment test to be performed by comparing the fair value of a
reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill
allocated to that reporting unit. The ASU becomes effective for the Company at the beginning of 2020. The amendments in this
ASU should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests
performed on testing dates after January 1, 2017. The Company does not expect an immediate impact to its consolidated
financial statements upon adopting this ASU since the most recent Step 1 goodwill impairment test resulted in fair values
exceeding carrying values for all reporting units at October 1, 2016.
Adopted
In May 2015, the FASB issued ASU No. 2015-07, ‘Fair Value Measurement - Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent)’, which simplifies reporting requirements and modifies those
investments required to be classified within the fair value hierarchy. Certain investments measured at fair value using the Net
Asset Value (‘NAV’) practical expedient are no longer required to be classified as a Level within the fair value hierarchy table.
Entities will be required to include in their disclosure, the fair value of the investments using the NAV practical expedient so
that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the
balance sheet. The ASU is to be applied retrospectively in all periods presented in an entity’s financial statements. The
Company adopted this standard on January 1, 2016. The adoption has been reflected in the fair value tables in Note 12 —
Retirement Benefits to these financial statements.
In September 2015, the FASB issued ASU No. 2015-16 ‘Simplifying the Accounting for Measurement-Period Adjustments’ in
relation to business combinations, which requires that an acquirer recognize adjustments to provisional amounts that are
identified in the measurement period in the reporting period in which the adjustment amounts are determined. The Company
adopted this standard on January 1, 2016. Adjustments made to provisional amounts related to business combinations are
reflected in the consolidated financial statements and disclosed in Note 8 — Goodwill and Other Intangible Assets and Note 3
— Merger and Acquisitions to these consolidated financial statements.
Note 3 — Merger and Acquisitions
Merger
On January 4, 2016, pursuant to the Agreement and Plan of Merger, dated June 29, 2015, as amended on November 19, 2015,
between Willis, Towers Watson, and Citadel Merger Sub, Inc., a wholly-owned subsidiary of Willis formed for the purpose of
facilitating this transaction (‘Merger Sub’), Merger Sub merged with and into Towers Watson, with Towers Watson continuing
as the surviving corporation and a wholly-owned subsidiary of Willis.
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Towers Watson was a leading global professional services firm operating throughout the world, dating back more than 100
years. The Merger will allow the combined firm to go to market with complementary strategic product and services offerings.
At the effective time of the Merger (the ‘Effective Time’), each issued and outstanding share of Towers Watson common stock
(the ‘Towers Watson shares’), was converted into the right to receive 2.6490 validly issued, fully paid and nonassessable
ordinary shares of Willis (the ‘Willis ordinary shares’), $0.000115 nominal value per share, other than any Towers Watson
shares owned by Towers Watson, Willis or Merger Sub at the Effective Time and the Towers Watson shares held by
stockholders who are entitled to and who properly exercised dissenter’s rights under Delaware law.
Immediately following the Merger, Willis effected (i) a consolidation (i.e., a reverse stock split under Irish law) of Willis
ordinary shares whereby every 2.6490 Willis ordinary shares were consolidated into one Willis ordinary share $0.000304635
nominal value per share and (ii) 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.
On December 29, 2015, the third business day immediately prior to the closing date of the Merger, Towers Watson declared and
paid the Towers Watson pre-merger special dividend, in an amount of $10.00 per share of Towers Watson common stock,
approximately $694 million in the aggregate based on approximately 69 million Towers Watson shares issued and outstanding
at December 29, 2015.
On December 30, 2015, all Towers Watson treasury stock was canceled.
The Merger was accounted for using the acquisition method of accounting with Willis considered the accounting acquirer of
Towers Watson.
The table below presents the calculation of aggregate Merger Consideration.
Number of shares of Towers Watson common stock outstanding as of January 4, 2016
Exchange ratio
Number of Willis Group Holdings shares issued (prior to reverse stock split)
Willis Group Holdings price per share on January 4, 2016
Fair value of 184 million Willis ordinary shares
Value of equity awards assumed
Aggregate Merger Consideration
January 4, 2016
69 million
2.6490
184 million
$
$
$
47.18
8,686
37
8,723
88
A summary of the fair values of the identifiable assets acquired, and liabilities assumed, of Towers Watson at January 4, 2016
are summarized in the following table.
Cash and cash equivalents
Accounts receivable, net
Other current assets
Fixed assets, net
Goodwill
Intangible assets
Pension benefits assets
Other non-current assets
Deferred tax liabilities
Liability for pension benefits
Other current liabilities (i)
Other non-current liabilities (ii)
Long term debt, including current portion (iii)
Net assets acquired
Noncontrolling interests acquired
Allocated Aggregate Merger Consideration
____________________
January 4, 2016
$
$
476
825
82
204
6,783
3,991
67
115
(1,151)
(923)
(667)
(331)
(740)
8,731
(8)
8,723
(i)
(ii)
Includes $348 million in accounts payable, accrued liabilities and deferred revenue, $308 million in employee-related liabilities and $11 million in
other current liabilities.
Includes acquired contingent liabilities of $242 million. See Note 13 — Commitments and Contingencies for a discussion of our material acquired
contingencies related to Legacy Towers Watson.
(iii) Represents both debt due upon change of control of $400 million borrowed under Towers Watson’s term loan ($188 million) and revolving credit
facility ($212 million) and a draw down under a new term loan of $340 million. The $400 million debt was repaid by Willis’ borrowings under the
1-year term loan facility on January 4, 2016. The $340 million new term loan partially funded the $694 million Towers Watson pre-merger special
dividend.
The assessment outlined above was updated to reflect changes in the initial estimates of the fair values of assets and liabilities
acquired as presented in the subsequent event disclosure of the fiscal year 2015 Form 10-K, including the following material
changes: intangible assets decreased by $119 million; deferred tax liabilities increased by $135 million; and goodwill increased
by $237 million for the residual amount of the changes. Goodwill is calculated as the difference between the aggregate merger
consideration and the acquisition date fair value of the net assets acquired, and represents the value of the Legacy Towers
Watson assembled workforce and the future economic benefits that we expect to achieve as a result of the Merger. None of the
goodwill recognized on the transaction is tax deductible.
89
The acquired intangible assets are attributable to the following categories:
Customer relationships
Multiple period excess earnings
In line with underlying cash flows
$
2,221
15.0
Valuation Methodology
Amortization basis
Fair
Value
Weighted
Average
Useful Life
Software - income approach
Multiple period excess earnings
straight line basis
Software - cost approach
Cost of reproduction
Straight line basis
In line with underlying cash flows or
Product
IPR&D (i)
Trade name
Relief from royalty
Favorable lease agreements
Market approach
____________________
Multiple period excess earnings
In line with underlying cash flows
Multiple period excess earnings or
cost of reproduction
n/a
Straight line basis
Straight line basis
567
108
42
39
1,003
11
$
3,991
6.4
4.9
17.5
n/a
25.0
6.5
(i) Represents software not yet placed in service. As of the date of the Merger, $39 million was not yet placed in service. Once placed into service,
each in-process research and development (‘IPR&D’) software component will be reclassified into finite-lived software intangible assets and
amortized in line with underlying cash flows or on a straight line basis.
The purchase price allocation as of the date of acquisition was based on a valuation of the assets acquired and liabilities
assumed in the acquisition. All revisions to the purchase price allocation during the year ended December 31, 2016 are reflected
in our current consolidated financial statements, and the purchase price allocation is final.
The following pro forma financial information is unaudited and is intended to reflect the impact of the Merger on Willis Towers
Watson’s consolidated financial statements as if the Merger had taken place on January 1, 2015 and presents the results of
operations of Willis Towers Watson based on the historical financial statements of Willis and Towers Watson after giving effect
to the Merger and pro forma adjustments. Pro forma adjustments are included only to the extent they are (i) directly attributable
to the Merger, (ii) factually supportable and (iii) with respect to the consolidated statement of operations, expected to have a
continuing impact on the combined results. The accompanying unaudited pro forma financial information is presented for
illustrative purposes only and has not been adjusted to give effect to certain expected financial benefits of the Merger, such as
revenue synergies, tax savings and cost synergies, or the anticipated costs to achieve these benefits, including the cost of
integration activities. The unaudited pro forma results are not indicative of what would have occurred had the Merger taken
place on the indicated date.
Total revenues
Net income attributable to Willis Towers Watson
Diluted earnings per share
Years ended December 31,
Pro Forma
As reported
(Unaudited)
2016
2015
$
$
$
7,887
420
3.04
$
$
$
7,492
640
4.64
The above pro forma financial information for the year ended December 31, 2015 does not include pro forma adjustments for
the Gras Savoye or other acquisitions as their revenues and results of operations were immaterial to the consolidated financial
statements.
Revenues attributable to Towers Watson for the year ended December 31, 2016 were $3.6 billion. Net income attributable to
Towers Watson for the year ended December 31, 2016 was $111 million.
Acquired Share-Based Compensation Plans
In connection with our Merger with Towers Watson on January 4, 2016, we assumed certain stock options and restricted stock
units (‘RSU’) issued under the Towers Watson & Co. 2009 Long Term Incentive Plan (‘LTIP’), the Liazon Corporation 2011
Equity Incentive Plan, and the Extend Health, Inc. 2007 Equity Incentive Plan.
Stock Options. The outstanding unvested employee stock options were converted into 592,486 Willis Towers Watson stock
options using the conversion ratios stated in the Merger agreement for the number of options. The fair value of the stock
options was calculated using the Black-Scholes model with a volatility and risk-free interest rate over the expected term of each
90
group of options and the Willis Towers Watson’s closing share price on the date of acquisition. We determined the fair value of
the portion of the outstanding options related to pre-acquisition employee service using the straight-line expense methodology
from the date of grant to the acquisition date to be $7 million, which was added to the transaction consideration. The fair value
of the remaining portion of options related to the post-acquisition employee services was $13 million, and will be recorded over
the future vesting periods.
Restricted Stock Units. The outstanding unvested restricted stock units were converted into 597,307 Willis Towers Watson
restricted stock units using the conversion ratios stated in the Merger agreement. The fair value of these restricted stock units
was calculated using Willis Towers Watson’s closing share price on the date of acquisition. We determined the fair value of the
portion of the outstanding RSUs related to pre-acquisition employee service using the straight-line expense methodology from
the date of grant to the acquisition date to be $30 million which was added to the transaction consideration. The fair value of
the remaining portion of RSUs related to the post-acquisition employee services was $32 million, and will be recorded over the
future vesting periods.
Gras Savoye Acquisition
On December 29, 2015, Legacy Willis completed the transaction to acquire substantially all of the remaining 70% of the
outstanding share capital of Gras Savoye, the leading insurance broker in France, for total consideration of €544 million ($592
million) of which $582 million in cash was paid at closing. Additionally, the previously held equity interest in Gras Savoye
was remeasured to a fair value of €221 million ($241 million) giving a total fair value on a 100% basis of €765 million ($833
million).
The union combines the Company’s global insurance broking footprint with Gras Savoye’s particularly strong presence in
France, Central and Eastern Europe, and across Africa. Gras Savoye’s expertise in high-growth markets and industry sectors
complements the Company’s global strengths, creating value for clients.
The Company funded the cash consideration with a 1-year term loan. The term loan was repaid in its entirety on May 26, 2016,
from the proceeds from the issuance of new senior notes discussed in Note 10 — Debt to these consolidated financial
statements.
Deferred consideration is payable on the first and second anniversary of the acquisition. The discounted fair value of the
deferred consideration at December 31, 2016 and 2015 was $4 million and $10 million, respectively. None of the goodwill
recognized on the transaction is tax deductible.
The following table presents the Company’s allocation of the purchase price to the assets acquired and liabilities assumed based
on their fair values:
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Goodwill
Intangible assets
Other assets
Fiduciary liabilities
Deferred revenue and accrued expenses
Short and long-term debt
Net deferred tax liabilities
Other liabilities
Net assets acquired
Decrease in paid in capital for purchase of noncontrolling interest
Noncontrolling interest acquired
Purchase price allocation
91
December 29, 2015
$
$
87
625
89
584
440
56
(625)
(80)
(80)
(87)
(179)
830
43
(40)
833
The purchase price allocation as of the date of acquisition was based on a valuation and was subject to revision within the
purchase price allocation period as more detailed analysis was completed and additional information about the value of assets
acquired and liabilities assumed became available. During the year ended December 31, 2016, the assessment outlined above
was updated to reflect the final estimates of the fair value of assets and liabilities acquired. The purchase price allocation is
final.
The acquired intangible assets are attributable to the following categories:
Valuation methodology
Amortization basis
Fair Value
Customer relationships
Multiple period excess earnings
In line with underlying cash flows
$
Software and other intangibles Cost of reproduction
Trade name
Relief from royalty
Straight line basis
Straight line basis
$
339
66
35
440
Weighted
Average
Useful Life
20
5
14
Miller Insurance Services LLP Acquisition
On May 31, 2015, Legacy Willis completed the transaction to acquire an 85 percent interest in Miller, a leading London
wholesale specialist insurance broking firm, for total consideration of $401 million including cash consideration of $232
million.
Deferred consideration is payable at the first, second and third anniversaries of the acquisition. Contingent consideration is
payable at the third anniversary of the acquisition and is contingent on meeting certain earnings before interest, taxes,
depreciation and amortization (‘EBITDA’) performance targets. At December 31, 2015, the discounted fair value of the
deferred and contingent considerations, based on best estimates, at acquisition were $124 million and $29 million, respectively.
At December 31, 2016, the discounted fair values of the deferred consideration, related to the second and third anniversaries,
and contingent consideration were $69 million and $26 million, respectively.
The Company recognized assets and liabilities acquired of $1.1 billion and $844 million, respectively. Included within the
acquired assets are identifiable intangible assets of $231 million and goodwill of $184 million.
The purchase price allocation as of the date of acquisition was based on a valuation of the assets acquired, liabilities assumed,
and contingent consideration associated with the acquisition. There have been no material revisions to the purchase price
allocation during the year ended December 31, 2016 and the purchase price allocation is final.
Note 4 — Segment Information
During the second quarter of 2016, we began managing our business across four integrated reportable operating segments. As a
result, the Company has changed the way it manages and reports segment revenues and segment operating income, resulting in
a change in the Company’s reportable segments from eight reportable segments, formerly known as Willis International; Willis
North America; Willis Capital, Wholesale & Reinsurance; Willis GB; Towers Watson Benefits; Towers Watson Exchange
Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards, into four reportable segments:
Human Capital and Benefits; Corporate Risk and Broking; Investment, Risk and Reinsurance; and Exchange Solutions.
The prior period comparatives have been retroactively reclassified for our segment reorganization.
Willis Towers Watson’s chief operating decision maker is the chief executive officer. We determined that the operational data
used by the chief operating decision maker is at the segment level. Management bases strategic goals and decisions on these
segments and the data presented below is used to assess the adequacy of strategic decisions, the method of achieving these
strategies and related financial results.
Management evaluates the performance of its segments and allocates resources to them based on net operating income on a
pre-bonus, pre-tax basis. Consolidated U.S. GAAP revenues include amounts that were directly incurred on behalf of our
clients and reimbursed by them (reimbursable expenses).
See Item 1 within this Annual Report on Form 10-K for complete descriptions of our segments. A brief description of our new
segments are as follows:
92
Human Capital and Benefits
The Human Capital & Benefits (‘HCB’) segment provides an array of advice, broking, solutions and software for our
clients. HCB is the largest segment of the Company. The segment is focused on addressing our clients’ employee and risk
needs so that they can deliver sustainable employee experiences. This segment also delivers full outsourcing solutions to
employers outside of the United States.
Corporate Risk and Broking
The Corporate Risk and Broking (‘CRB’) segment provides a broad range of risk advice, insurance broking and consulting
services to clients worldwide ranging from small businesses to multinational corporations. The segment delivers
innovative, integrated global solutions tailored to client needs and underpinned by data and analytics. CRB operates as an
integrated global team comprising both functional and geographic leadership. In these operations, we have extensive
specialized experience handling diverse lines of coverage, including complex insurance programs. A key objective is to
assist clients in reducing their overall cost of risk.
Investment, Risk and Reinsurance
The Investment, Risk and Reinsurance (‘IRR’) segment uses a sophisticated approach to risk which helps clients free up
capital and manage investment complexity. The segment works closely with investors, reinsurers and insurers to manage
the equation between risk and return. Blending advanced analytics with deep institutional knowledge, IRR identifies new
opportunities to maximize performance. IRR provides investment consulting services and insurance specific services and
solutions through reserves opinions, software, ratemaking, usage-based insurance, risk underwriting, and reinsurance
broking.
Exchange Solutions
The Exchange Solutions (‘ES’) segment provides primary medical and ancillary benefit exchange and outsourcing services
to active employees and retirees across both the group and individual markets. ES services individual populations via its
‘group to individual’ technology platform, which tightly integrates patented call routing technology, an efficient quoting
and enrollment engine, a custom-developed Customer Relationship Management system and comprehensive insurance
carrier connectivity. This segment also delivers group benefit exchanges and full outsourcing solutions serving the active
employees of employers across the United States. ES uses Software as a Service (‘SaaS’)-based technology and related
services to deliver consumer-driven healthcare and reimbursement accounts, including health savings accounts, health
reimbursement arrangements, flexible spending accounts and other consumer-directed accounts.
Under the new segment structure and for internal and segment reporting, Willis Towers Watson segment revenues include
commissions and fees, interest and other income. U.S. GAAP revenues include amounts that were directly incurred on behalf of
our clients and reimbursed by them (reimbursable expenses), which are removed from segment revenues. Segment
commissions and fees excludes interest and other income. Segment operating income excludes certain costs, including (i)
amortization of intangibles; (ii) restructuring costs; (iii) certain transaction and integration expenses; (iv) certain litigation
provisions; and (v) to the extent that the actual expense based upon which allocations are made differs from the forecast/budget
amount, a reconciling item will be created between internally allocated expenses and the actual expense that we report for U.S.
GAAP purposes.
Segment revenues and operating income both include revenue that was deferred by Towers Watson at the time of the Merger,
and eliminated due to purchase accounting. The impact of the elimination from purchase accounting (which is the reduction to
2016 consolidated revenues and operating income) has been included in the reconciliation to our consolidated results in order
to provide the actual revenues that the segments would have recognized on an unadjusted basis.
93
The table below presents segment commissions and fees, segment interest and other income, segment revenues, and segment
operating income for our reportable segments for the years ended December 31, 2016, 2015, and 2014, respectively:
Years ended December 31,
HCB
2016
2015
2014
2016
CRB
2015
2014
2016
IRR
2015
ES
Total
2014
2016
2015
2014
2016
2015
2014
Segment commissions
and fees
$3,210 $ 697 $ 653
$2,502 $2,301 $2,365
$1,382 $ 812 $ 749
$ 652 $ — $ — $7,746 $3,810 $3,767
Segment interest and
other income
16
1
2
29
17
16
59
1
17
2
—
—
106
19
35
Segment revenues
$3,226 $ 698 $ 655
$2,531 $2,318 $2,381
$1,441 $ 813 $ 766
$ 654 $ — $ — $7,852 $3,829 $3,802
Segment operating
income
$ 680 $ 157 $ 144
$ 520 $ 491 $ 500
$ 306 $ 188 $ 228
$ 102 $ — $ — $1,608 $ 836 $ 872
The table below presents a reconciliation of the information reported by segment to the consolidated amounts reported for the
years ended December 31, 2016, 2015, and 2014, respectively:
Years ended December 31,
2016
2015
2014
Revenues:
Total segment revenues
Fair value adjustment to deferred revenue
Reimbursable expenses and other
Total revenues
Total segment operating income
Differences in allocation methods (i)
Fair value adjustment for deferred revenue
Amortization
Restructuring costs
Transaction and integration expenses (ii)
Provision for the Stanford litigation
Other, net
Income from operations
Interest expense
Other expense/(income), net
$
$
$
7,852
(58)
93
7,887
1,608
$
$
$
18
(58)
(591)
(193)
(177)
(50)
(6)
551
184
27
3,829
$
3,802
$
$
—
—
3,829
836
(65)
—
(76)
(126)
(73)
(70)
1
427
142
(55)
—
—
3,802
872
(131)
—
(54)
(36)
—
—
(4)
647
135
(6)
518
Income from continuing operations before income taxes and interest in
earnings of associates
$
340
$
340
$
____________________
(i)
Includes certain costs, primarily those related to corporate functions, leadership, projects, and certain differences between budgeted expenses
determined at the beginning of the fiscal year and actual expenses that we report for U.S. GAAP purposes.
(ii)
Includes transaction and integration expenses related to the Merger and the acquisition of Gras Savoye.
The Company does not currently provide asset information by reportable segment as it does not routinely evaluate the total
asset position by segment.
None of the Company’s customers represented a significant amount of the Company’s consolidated commissions and fees for
the years ended December 31, 2016, 2015 and 2014.
Below are our revenues and long-lived assets by legal entity for Ireland, our country of domicile, countries with significant
concentrations, and all other foreign countries for each of the years ended December 31, 2016, 2015 and 2014:
94
Ireland
$
92
$
64
$
51
$
114
$
124
$
121
2016
Revenues
2015
2014
2016
Long-Lived Assets (i)
2015
2014
United States
United Kingdom
Rest of World
Total Foreign Countries
____________________
3,395
2,236
2,164
7,795
1,597
1,055
1,113
3,765
1,600
1,057
1,094
3,751
11,400
2,431
2,466
16,297
1,759
2,426
1,951
6,136
$
7,887
$
3,829
$
3,802
$
16,411
$
6,260
$
1,800
1,666
976
4,442
4,563
(i) Long-Lived Assets does not include deferred tax assets.
Note 5 — Restructuring Costs
The Company had two restructuring programs during the year ended December 31, 2016. The Legacy Willis Operational
Improvement Program (‘OIP’) and the Willis Towers Watson Business Restructuring Program (‘BRP’). Expenses related to
these plans are recorded in restructuring costs on the consolidated statements of operations.
An analysis of our total restructuring costs recorded in the statements of operations, and the costs by segment, and costs
attributable to corporate functions, for the years ended December 31, 2016, 2015, and 2014 are as follows:
HCB
CRB
IRR
ES
Corporate
Total
Year ended December 31, 2016
Termination benefits
Professional services and other (ii)
Total
Year ended December 31, 2015 (i)
Termination benefits
Professional services and other (ii)
Total
Year ended December 31, 2014 (i)
Termination benefits
Professional services and other (ii)
Total
___________________
$
$
$
$
$
$
33
4
37
2
1
3
$
$
$
$
— $
—
— $
26
81
107
24
57
81
15
3
18
$
$
$
$
$
$
6
4
10
7
2
9
1
—
1
$
$
$
$
$
$
1
—
1
$
$
— $
—
— $
— $
—
— $
2
36
38
3
30
33
$
$
$
$
— $
17
17
$
68
125
193
36
90
126
16
20
36
(i) The prior period comparatives have been retroactively reclassified for our segment reorganization. See Note 4 — Segment Information for further
details.
(ii) Other includes salary and benefits, premises, and other expenses incurred to support the ongoing management and facilitation of the programs.
Operational Improvement Program - In April 2014, Legacy Willis announced a multi-year operational improvement program
designed to strengthen its client service capabilities and to deliver future cost savings. The main elements of the program,
which will be completed by the end of 2017, include: moving more than 3,500 support roles from higher cost locations to
facilities in lower cost locations; net workforce reductions in support positions; lease consolidation in real estate; and
information technology systems simplification and rationalization.
The Company recognized restructuring costs of $145 million, $126 million, and $36 million for the years ended December 31,
2016, 2015 and 2014, related to its OIP. The Company expects to incur an additional $130 million of restructuring costs
through the end of 2017, bringing the cumulative restructuring charges to approximately $440 million.
95
An analysis of the total cumulative restructuring costs recognized for the OIP from commencement to December 31, 2016 by
segment, and costs attributable to corporate functions, are as follows:
HCB
CRB
IRR
ES
Corporate
Total
2014 (i)
Termination benefits
Professional services and other (ii)
2015 (i)
Termination benefits
Professional services and other (ii)
2016
Termination benefits
Professional services and other (ii)
Total
Termination benefits
Professional services and other (ii)
Total
____________________
$
$
$
$
$
— $
—
2
1
1
1
3
2
5
$
$
$
$
15
3
24
57
18
81
57
141
198
$
$
$
$
$
1
—
7
2
3
4
11
6
17
$
$
$
$
$
— $
—
— $
—
— $
—
— $
—
— $
— $
17
3
30
1
36
4
83
87
$
$
$
$
16
20
36
90
23
122
75
232
307
(i) The prior period comparatives have been retroactively reclassified for our segment reorganization. See Note 4 — Segment Information for further
details.
(ii) Other includes salary and benefits, premises, and other expenses incurred to support the ongoing management and facilitation of the program.
At December 31, 2016, the Company’s liability under the OIP is as follows:
Balance at January 1, 2014
Charges incurred
Cash payments
Balance at December 31, 2014
Charges incurred
Cash payments
Balance at December 31, 2015
Charges incurred
Cash payments
Balance at December 31, 2016
Termination
Benefits
Professional
Services and
Other
Total
$
— $
— $
16
(11)
5
36
(26)
15
23
(31)
7
20
(14)
6
90
(85)
11
122
(115)
18
$
$
$
—
36
(25)
11
126
(111)
26
145
(146)
25
Business Restructure Program - In the second quarter of 2016, we began planning targeted staffing reductions in certain
portions of the business due to a reduction in business demand or change in business focus. The main element of the program
was workforce reductions, and was completed as of December 31, 2016. The Company recognized restructuring costs of $48
million for the year ended December 31, 2016.
An analysis of the total cumulative restructuring costs recognized for the BRP from commencement to December 31, 2016 by
segment, and those costs attributable to corporate functions, are as follows:
HCB
CRB
IRR
ES
Corporate
Total
2016
Termination benefits
Professional services and other (i)
Total
$
$
32
3
35
$
$
8
—
8
$
$
3
—
3
$
$
1
—
1
$
$
1
$
— $
1
$
45
3
48
____________________
(i) Other includes salary and benefits, premises, and other expenses incurred to support the ongoing management and facilitation of the program.
96
At December 31, 2016, the Company’s liability under the BRP is as follows:
Balance at December 31, 2015
Charges incurred
Cash payments
Balance at December 31, 2016
Note 6 — Income Taxes
Provision for income taxes
Termination
Benefits
Professional
Services and
Other
Total
$
$
— $
45
(19)
26
$
— $
3
(3)
— $
—
48
(22)
26
An analysis of income/(loss) before income taxes by taxing jurisdiction is shown below:
Ireland
U.S.
U.K.
Other jurisdictions
Total
The components of the income tax provision for continuing operations include:
Current tax expense/(benefit):
U.S. federal taxes
U.S. state and local taxes
U.K. corporation tax
Other jurisdictions
Total current tax expense
Deferred tax expense/(benefit):
U.S. federal taxes
U.S. state and local taxes
U.K. corporation tax
Other jurisdictions
Total deferred tax (benefit)/expense
Total (benefit from)/provision for income taxes
Years ended December 31,
2016
2015
2014
(27) $
(311)
123
555
340
$
(61) $
(67)
65
403
340
$
Years ended December 31,
2016
2015
2014
$
35
14
28
71
148
(214)
(5)
10
(35)
(244)
(96) $
$
14
1
—
51
66
(113)
(3)
14
3
(99)
(33) $
(65)
92
154
337
518
(16)
7
29
73
93
35
10
24
(3)
66
159
$
$
$
$
97
Effective tax rate reconciliation
The reported income tax provision for continuing operations differs from the amounts that would have resulted had the reported
income before income taxes been taxed at the U.S. federal statutory rate. The principal reasons for the differences between the
amounts provided and those that would have resulted from the application of the U.S. federal statutory tax rate are as follows:
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND INTEREST IN EARNINGS OF ASSOCIATES
$
U.S. federal statutory income tax rate
Income tax expense at U.S. federal tax rate
Adjustments to derive effective rate:
Non-deductible expenses and dividends
Non-deductible acquisition costs
Disposal of non-deductible goodwill
Gain on remeasurement of equity interests
Impact of change in rate on deferred tax balances
Effect of foreign exchange and other differences
Non-deductible Venezuelan foreign exchange loss
Changes in valuation allowances
Net tax effect of intra-group items
Tax differentials of non-U.S. jurisdictions
Tax differentials of U.S. state taxes and local taxes
Other items, net
(Benefit from)/provision for income taxes
$
Years ended December 31,
2016
2015
2014
$
340
35%
119
$
340
35%
119
518
35%
181
15
1
2
—
(15)
6
4
(74)
(98)
(80)
14
10
(96)
$
32
9
3
(20)
(5)
(1)
11
(104)
(30)
(42)
(2)
(3)
(33)
$
21
—
11
—
—
(4)
5
7
(30)
(48)
17
(1)
159
Willis Towers Watson 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 U.S. federal statutory tax rate of 35%
due to significant operations in the U.S.
Deferred income taxes
Deferred income tax assets and liabilities reflect the effect of temporary differences between the assets and liabilities
recognized for financial reporting purposes and the amounts recognized for income tax purposes. We recognize deferred tax
assets if it is more likely than not that a benefit will be realized.
98
Deferred income tax assets and liabilities included in the consolidated balance sheets at December 31, 2016 and 2015 are
comprised of the following:
Deferred tax assets:
Accrued expenses not currently deductible
Net operating losses
Capital loss carryforwards
Accrued retirement benefits
Deferred compensation
Stock options
Financial derivative transactions
Gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Cost of intangible assets, net of related amortization
Cost of tangible assets, net of related depreciation
Prepaid retirement benefits
Accrued revenue not currently taxable
Deferred tax liabilities
Net deferred tax liabilities
December 31,
2016
2015
$
$
$
$
$
286
116
28
467
83
36
12
1,028
(134)
894
1,431
73
85
119
1,708
814
$
$
$
$
$
175
115
33
109
34
16
4
486
(187)
299
289
32
111
31
463
164
The net deferred income tax assets are included in other non-current assets and the net deferred tax liabilities are included in
deferred tax liabilities in our balance sheets.
Balance sheet classifications:
Other non-current assets
Deferred tax liabilities
Net deferred tax liability
December 31,
2016
2015
$
$
50
864
814
$
$
76
240
164
At December 31, 2016, the Company had deferred tax assets of $894 million, net of the valuation allowance. Management
believes, based on the evaluation of positive and negative evidence, including the future reversal of existing taxable temporary
differences, it is more likely than not that the Company will realize the benefits of these deductible differences, net of the
valuation allowance. During calendar year 2016 the Company released a valuation allowance of $69 million relating to accrued
interest not deductible as a result of deferred tax liabilities recorded for the Merger. The future reversal of the deferred tax
liabilities serve as a source of income to recognize the deferred tax asset for accrued interest not deductible.
At December 31, 2016, we had U.S. federal and non-U.S. tax loss carryforwards amounting to $246 million of which $197
million can be indefinitely carried forward under local statutes. The remaining $49 million of net operating loss carryforwards
will expire, if unused, in varying amounts from 2017 through 2036. In addition, we had U.S. state net operating loss
carryforwards of $1.2 billion, which will expire in varying amounts from 2017 to 2036.
At December 31, 2016 and 2015, the Company had valuation allowances of $134 million and $187 million, respectively, to
reduce its deferred tax assets to estimated realizable value. The valuation allowance at December 31, 2016 relates to deferred
tax assets for U.K. capital loss carryforwards of $28 million, which have an unlimited carryforward period. The valuation
allowances on U.S. and non-U.S. net operating losses are $78 million and $28 million, respectively. The valuation allowance at
December 31, 2015 relates to deferred tax assets for U.K. capital loss carryforwards of $33 million and accrued interest not
currently deductible of $69 million, which have an unlimited carryforward period. The valuation allowances on U.S. and non-
U.S. net operating losses are $79 million and $6 million, respectively.
99
An analysis of our valuation allowance is shown below.
Balance at beginning of year
Additions charged against/(credited to) to costs and expenses
Additions charged against/(credited to) to other accounts
Deductions
Balance at end of year
Years ended December 31,
2016
2015
2014
$
$
187
—
21
(74)
134
$
$
280
—
2
(95)
187
$
$
196
—
84
—
280
The amount charged to tax expense in the table above for 2016 differs from the effect of $74 million disclosed in the rate
reconciliation primarily because the movement in this table includes the effects of acquisition accounting, which does not
impact tax expense.
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. Historically, we have not provided deferred taxes on the cumulative earnings of our subsidiaries that have been
reinvested indefinitely.
As a result of the Merger, and our plan to restructure certain foreign operations or distribute accumulated earnings of certain
acquired Towers Watson subsidiaries’, we recorded a deferred tax liability of $77 million on outside basis differences and
cumulative earnings through goodwill. We continue to assert that the historical cumulative earnings of our other subsidiaries
are reinvested indefinitely and we do not provide deferred tax liabilities on these amounts. The cumulative earnings related to
amounts reinvested indefinitely as of December 31, 2016 were approximately $5.9 billion. It is not practicable to estimate the
tax liability that might be payable if such earnings are not reinvested indefinitely. If future events, including material changes in
estimates of cash, working capital, long-term investment requirements or U.S. tax reform necessitate that these earnings be
distributed, an additional provision for income and foreign withholding taxes, net of credits, may be necessary.
Uncertain tax positions
At December 31, 2016, the amount of unrecognized tax benefits associated with uncertain tax positions, determined in
accordance with ASC 740-10, excluding interest and penalties, was $56 million. This liability can be reduced by $4 million of
offsetting deferred tax benefits associated with timing differences, foreign tax credits and the federal tax benefit of state income
taxes. If recognized, $52 million of this difference would impact our effective tax rate.
A reconciliation of the beginning and ending balances of the liability for unrecognized tax benefits is as follows:
Balance at beginning of year
Increases related to acquisitions
Increases related to tax positions in prior years
Decreases related to tax positions in prior years
Decreases related to settlements
Decreases related to lapse in statute of limitations
Increases related to current year tax positions
Cumulative translation adjustment
Balance at end of year
2016
2015
2014
22
33
1
(9)
(1)
(1)
11
—
56
$
$
19
8
1
(6)
—
—
2
(2)
22
$
$
41
—
3
(32)
—
—
8
(1)
19
$
$
The liability for the years ended December 31, 2015 and 2014, respectively, had nil and $2 million of deferred tax benefits that,
if recognized, would have a favorable impact on our effective tax rate. In addition, there are no material balances that would
result in adjustments to other tax accounts.
Interest and penalties related to unrecognized tax benefits are included as a component of income tax expense. At December
31, 2016, we had cumulative accrued interest of $4 million. At December 31, 2015, the cumulative accrued interest was
immaterial. Penalties accrued in 2016 and 2015, respectively, were immaterial.
Tax expense for the years ended December 31, 2016 and 2015 include interest benefits of $1 million, and nil, respectively.
100
The Company believes that the outcomes which are reasonably possible within the next 12 months may result in a reduction in
the liability for uncertain tax positions in the range of $3 million to $6 million, excluding interest and penalties.
The Company and its subsidiaries file income tax returns in various tax jurisdictions in which it operates. During calendar year
2016 the Company recognized approximately $3 million of income tax benefits, including interest and penalties due to U.S.
Federal lapses in statutes of limitations and effective settlements related to fiscal year 2015.
Willis North America Inc. is not currently under examination by the U.S. Internal Revenue Service (‘IRS’). Although tax years
2008 through 2012 are closed, the IRS could make adjustments (but not assess additional tax) up to the amount of net operating
losses carried forward from those years and utilized in open years. Towers Watson & Co. is currently being audited by the IRS
under the Compliance Assurance Process (‘CAP’) for the short tax period July 1, 2015 to January 4, 2016. Under CAP, the IRS
works with large business taxpayers to identify and resolve issues prior to the filing of a tax return. This is Towers Watson &
Co.’s last year in the CAP program. As of December 31, 2016, the Company has not been advised of any significant
adjustments. We also have ongoing state income tax examinations in certain states for tax years ranging from fiscal year ended
June 30, 2012 through fiscal year ended June 30, 2014. The statute of limitations in certain states extends back to 2002 as a
result of changes to taxable income resulting from prior year federal tax examinations.
All U.K. tax returns have been filed timely and are in the normal process of being reviewed by HM Revenue & Customs. The
Company is not currently subject to any material examinations in other jurisdictions. A summary of the tax years that remain
open to tax examination in our major tax jurisdictions are as follows:
U.S. — federal
U.S. — various states
U.K.
Ireland
France
Germany
Canada - federal
Open Tax Years
(fiscal year ending in)
2013 and forward
2002 and forward
2010 and forward
2013 and forward
2010 and forward
2002 and forward
2009 and forward
101
Note 7 — Fixed Assets
The following table reflects changes in the net carrying amount of the components of fixed assets for the year ended
December 31, 2016 and 2015:
Cost: at January 1, 2015
Additions
Acquisitions
Disposals
Foreign exchange
Cost: at December 31, 2015
Additions
Acquisitions
Disposals
Foreign exchange
Cost: at December 31, 2016
Depreciation: at January 1, 2015
Depreciation expense
Disposals
Foreign exchange
Depreciation: at December 31, 2015
Depreciation expense
Disposals
Foreign exchange
Depreciation: at December 31, 2016
Net book value:
At December 31, 2015
At December 31, 2016
$
$
$
$
$
$
Furniture,
equipment and
software
Leasehold
improvements
245
$
27
26
(16)
(10)
272
44
95
(8)
(21)
382
$
$
$
642
119
26
(31)
(32)
724
265
109
(28)
(61)
1,009
(366) $
(72)
28
17
(393)
(119)
17
31
(464) $
331
545
$
$
(93) $
(19)
14
4
(94)
(55)
5
7
(137) $
178
245
$
$
Land and
buildings
Total
$
93
—
5
—
(3)
95
2
—
—
(7)
90
(38) $
(4)
—
1
(41)
(4)
—
4
(41) $
54
49
$
$
980
146
57
(47)
(45)
1,091
311
204
(36)
(89)
1,481
(497)
(95)
42
22
(528)
(178)
22
42
(642)
563
839
Included within land and buildings are the following assets held under capital leases:
Capital leases
Accumulated depreciation
December 31,
2016
2015
$
$
32
(12)
20
$
$
32
(10)
22
Depreciation related to capital leases was $2 million for each of the years ended December 31, 2016, 2015 and 2014.
Note 8 — Goodwill and Other Intangible Assets
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair market 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. Goodwill is allocated to our reporting units primarily
based on the original purchase price allocation for acquisitions within the reporting units, or relative fair value when an
acquisition covers multiple reporting units. When a business entity is sold, goodwill is allocated to the entity disposed of based
on the relative fair value of that entity compared with the fair value of the reporting unit in which it is included.
During the second quarter of 2016, the Company changed the way it manages and reports operating results, resulting in a
change in the Company’s operating and reportable segments from the Legacy Company platforms into four integrated
102
reportable operating segments: Human Capital and Benefits; Corporate Risk and Broking; Investment, Risk and Reinsurance;
and Exchange Solutions. See Note 4 — Segment Information for a description of our segments.
The components of goodwill are outlined below for the years ended December 31, 2016 and 2015:
Balance at December 31, 2014 (i)
Goodwill, gross
Accumulated impairment losses
Goodwill, net
Purchase price allocation adjustments
Goodwill acquired during the period
Goodwill disposed of during the period
Foreign exchange
Balance at December 31, 2015 (i)
Goodwill, gross
Accumulated impairment losses
Goodwill, net
Purchase price allocation adjustments
Goodwill acquired during the period (ii)
Goodwill disposed of during the period
Foreign exchange
Balance at December 31, 2016
Goodwill, gross
Accumulated impairment losses
Goodwill, net
____________________
HCB
CRB
IRR
ES
Total
$
$
$
$
$
677
(130)
547
1
330
(3)
(19)
986
(130)
856
8
3,458
—
(40)
$
$
1,897
(362)
1,535
—
348
(9)
(24)
2,212
(362)
1,850
5
—
(5)
(34)
$
$
855
—
855
—
187
(1)
(10)
1,031
—
1,031
(7)
770
—
(36)
4,412
(130)
4,282
$
2,178
(362)
1,816
$
1,758
—
1,758
$
— $
—
—
—
—
—
—
— $
—
—
—
2,557
—
—
2,557
—
2,557
$
3,429
(492)
2,937
1
865
(13)
(53)
4,229
(492)
3,737
6
6,785
(5)
(110)
10,905
(492)
10,413
(i) The prior period comparatives have been retroactively reclassified for our segment reorganization. See Note 4 — Segment Information for further
details.
(ii) Goodwill acquired consists primarily of goodwill recognized from the Merger.
Other Intangible Assets
The following table reflects changes in the net carrying amount of the components of finite-lived intangible assets for the year
ended December 31, 2016:
Balance as of
December 31,
2015
Purchase price
allocation
adjustments
Intangible
assets acquired
Intangible
assets disposed
Amortization
(ii)
Foreign
Exchange
Balance as of
December 31,
2016
Client relationships
$
920
$
62
77
50
—
2
4
2
—
(13)
1
—
—
—
$
2,222
$
—
675
1,003
42
11
—
(5) $
—
—
—
—
—
—
(395) $
(4)
(142)
(45)
(3)
(2)
(2)
(89) $
(4)
(27)
(3)
(6)
—
1
2,655
54
570
1,006
33
11
3
Management contracts
Software (i)
Trademark and trade
name
Product
Favorable agreements
Other
Total amortizable
intangible assets
$
1,115
$
(10) $
3,953
$
(5) $
(593) $
(128) $
4,332
____________________
(i)
In-process research and development intangible assets acquired as part of the Merger on January 4, 2016 of $39 million ($36 million at December
31, 2016) have not yet been placed in service and are not included in this presentation.
(ii) Amortization associated with favorable agreements is recorded in other Operating expenses in the consolidated statements of operations.
103
The following table reflects changes in the net carrying amount of the components of finite-lived intangible assets for the year
ended December 31, 2015:
Balance as of
December 31,
2014
Intangible
assets acquired
Intangible
assets disposed
Amortization
Foreign
Exchange
Balance as of
December 31,
2015
Client relationships
Management contracts
Software
Trademark and trade name
Favorable agreements
Other
$
373
$
642
$
70
—
3
—
4
—
77
50
2
2
Total amortizable intangible assets
$
450
$
773
$
(5) $
—
—
—
—
—
(5) $
(69) $
(4)
—
(2)
—
(1)
(76) $
(21) $
(4)
—
(1)
—
(1)
(27) $
920
62
77
50
2
4
1,115
We recorded amortization related to our finite-lived intangible assets, exclusive of the amortization of our favorable lease
agreements, of $591 million, $76 million, and $54 million for the years ended December 31, 2016, 2015 and 2014,
respectively.
Our acquired unfavorable lease liabilities were $29 million and $23 million as of December 31, 2016 and December 31, 2015,
respectively, and are recorded in the other non-current liabilities in the consolidated balance sheet.
The following table reflects the carrying value of finite-lived intangible assets and liabilities as of December 31, 2016 and
December 31, 2015:
Client relationships
Management contracts
Software
Trademark and trade name
Product
Favorable agreements
Other
Total finite-lived assets
Unfavorable agreements
Total finite-lived intangible liabilities
December 31, 2016
December 31, 2015
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
3,396
$
62
711
1,051
36
13
6
5,275
34
34
$
$
$
$
$
$
(741) $
(8)
(141)
(45)
(3)
(2)
(3)
(943) $
(5) $
(5) $
1,293
$
67
77
52
—
2
8
1,499
23
23
$
$
$
(373)
(5)
—
(2)
—
—
(4)
(384)
—
—
The weighted average remaining life of amortizable intangible assets and liabilities at December 31, 2016 was 14.8 years.
The table below reflects the future estimated amortization expense for amortizable intangible assets and the rent offset resulting
from amortization of the net lease intangible assets and liabilities for the next five years are as follows:
Year ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
Amortization
Rent offset
$
$
563
514
458
406
333
2,047
$
4,321
$
(4)
(3)
(2)
(2)
(3)
(4)
(18)
104
Note 9 — Derivative Financial Instruments
We are exposed to certain interest rate and foreign currency risks. Where possible, we identify exposures in our business that
can be offset internally. Where no natural offset is identified, we may choose to enter into various derivative transactions. For
the years ended December 31, 2016 and 2015, all of our derivative instruments qualifying for hedge accounting are considered
cash flow hedges. These instruments have the effect of reducing our exposure to unfavorable changes in interest and foreign
currency rates. The Company’s Board of Directors reviews and approves policies for managing each of these risks as
summarized below.
Interest Rate Risk - Interest 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 consolidated financial statements as interest and other income. These funds are
regulated in terms of access as are the instruments in which they may be invested, most of which are short-term in nature.
During 2015, in order to manage interest rate risk arising from these financial assets, the Company entered into interest rate
swaps to receive a fixed rate of interest and pay a variable rate of interest. These derivatives were designated as hedging
instruments at December 31, 2016 and December 31, 2015 and had total notional amounts of $300 million and fair values of nil
for each period, respectively.
Foreign Currency Risk
Some of our non-U.S. subsidiaries receive revenues and incur expenses in currencies other than their functional currency and as
a result, the foreign subsidiary’s functional currency revenues will fluctuate as the currency rates change. Additionally, the
forecast Pounds sterling expenses of our London brokerage market operations may exceed their Pounds sterling revenues, and
they may also hold a significant net Pounds sterling asset or liability position in the balance sheet. To reduce the variability, we
use foreign exchange forward contracts to hedge this foreign exchange risk.
These derivatives were designated as hedging instruments and as of December 31, 2016 and December 31, 2015 had a total
notional amount of $945 million and $1.2 billion, respectively, and net fair value liabilities of $110 million and $28 million,
respectively.
At December 31, 2016, the Company estimates, based on current interest and exchange rates, there will be $64 million of net
derivative losses on forward exchange rates, interest rate swaps, and treasury locks reclassified from accumulated
comprehensive income into earnings within the next 12 months as the forecast transactions affect earnings. At December 31,
2016, our longest outstanding maturity was 2.5 years.
The material effects of derivative instruments that are designated as hedging instruments on the consolidated statements of
operations for the years ended December 31, 2016, 2015 and 2014 are as follows:
Location
of (loss)/gain
reclassified
from OCI into
income
(effective portion)
(Loss)/gain reclassified
from OCI into income
(effective portion)
2016
2015
2014
Loss recognized in OCI
(effective portion)
2016
2015
2014
Location of (loss)/
gain recognized in
income
(ineffective portion
and amount
excluded from
effectiveness
testing)
(Loss)/gain recognized
in income (ineffective
portion and
amount excluded from
effectiveness testing)
2016
2015
2014
Foreign exchange
forwards
$ (127) $ (38) $ (31)
Other expense/
(income), net
$ (42) $
4
$
16
Interest expense
$
(1) $
1
$
(1)
We also enter into foreign currency transactions, primarily to hedge certain intercompany loans. These derivatives are not
generally designated as hedging instruments and at December 31, 2016 and December 31, 2015 we had notional amounts of
$630 million and $574 million, and net fair value liabilities of $8 million, and $3 million, respectively, for each of the years
then ended. The effects of derivatives that have not been designated as hedging instruments on the consolidated statements of
operations for the three years ended December 31, 2016 are immaterial.
105
Note 10 — Debt
Short-term debt and current portion of long-term debt consists of the following:
1-year term loan facility matures 2016
4.125% senior notes due 2016
6.200% senior notes due 2017
Current portion of 7-year term loan facility expires 2018
Current portion of term loan expires 2019
Short-term borrowing under bank overdraft arrangement
Other debt
Long-term debt consists of the following:
Revolving $800 million credit facility
6.200% senior notes due 2017
7-year term loan facility expires 2018
Term loan expires 2019
7.000% senior notes due 2019
5.750% senior notes due 2021
3.500% senior notes due 2021
2.125% senior notes due 2022
4.625% senior notes due 2023
4.400% senior notes due 2026
6.125% senior notes due 2043
Guarantees
December 31,
2016
2015
— $
—
394
22
85
5
2
508
$
587
300
—
22
—
79
—
988
December 31,
2016
2015
238
—
196
169
186
496
446
565
247
543
271
3,357
$
$
467
394
218
—
186
495
—
—
247
—
271
2,278
$
$
$
$
All direct obligations under the 6.200% and 7.000% senior notes are issued by Willis North America Inc. and guaranteed by
Willis Towers Watson, Willis Netherlands Holdings B.V., Willis Investment U.K. Holdings Limited, TA I Limited, Trinity
Acquisition plc, Willis Group Limited, Willis Towers Watson Sub Holdings Unlimited Company and WTW Bermuda Holdings
Ltd. See Note 21 — Financial Information for Parent Guarantor, Other Guarantor Subsidiaries and Non-Guarantor
Subsidiaries .
All direct obligations under the 4.125% (repaid during 2016) and 5.750% senior notes are issued by the Company and
guaranteed by Trinity Acquisition plc, Willis Netherlands Holdings B.V., Willis Investment U.K. Holdings Limited, TA I
Limited, Willis North America Inc., Willis Group Limited, Willis Towers Watson Sub Holdings Unlimited Company and WTW
Bermuda Holdings Ltd. See Note 22 — Financial Information for Parent Issuer, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries.
All direct obligations under the 4.625%, 6.125%, 3.500%, 4.400%, and 2.125% senior notes are issued by Trinity Acquisition
plc guaranteed by Willis Towers Watson, Willis Netherlands Holdings B.V., Willis Investment U.K. Holdings Limited, TA I
Limited, Willis North America Inc., Willis Group Limited, Willis Towers Watson Sub Holdings Unlimited Company and WTW
Bermuda Holdings, Ltd. See Note 23 — Financial Information for Issuer, Parent Guarantor, Other Guarantor Subsidiaries and
Non-Guarantor Subsidiaries.
Senior Notes
On May 26, 2016, Trinity Acquisition plc issued €540 million ($609 million) of 2.125% senior notes due 2022 (‘2022 senior
notes’). The 2022 senior notes are fully and unconditionally guaranteed by Willis Towers Watson. The effective interest rate of
these senior notes is 2.154%, which includes the impact of the discount upon issuance. The 2022 senior notes will mature on
106
May 26, 2022. Interest accrues on the notes from May 26, 2016 and will be paid in cash on May 26 of each year. The net
proceeds from this offering, after deducting underwriter discounts and commissions and estimated offering expenses, were
€535 million ($600 million). We used the net proceeds of this offering to repay Tranche A of the 1-year term loan and related
accrued interest.
On March 22, 2016, Trinity Acquisition plc issued $450 million of 3.500% senior notes due 2021 (‘2021 senior notes’) and
$550 million of 4.400% senior notes due 2026 (‘2026 senior notes’). The 2021 senior notes and the 2026 senior notes are fully
and unconditionally guaranteed by the Company. The effective interest rates of these senior notes are 3.707% and 4.572%,
respectively, which includes the impact of the discount upon issuance. The 2021 senior notes and the 2026 senior notes will
mature on September 15, 2021 and March 15, 2026, respectively. Interest accrues on the notes from March 22, 2016 and will be
paid in cash on March 15 and September 15 of each year. The net proceeds from this offering, after deducting underwriter
discounts and commissions and estimated offering expenses, were $988 million. We used the net proceeds of this offering as
follows: to repay $300 million principal under our $800 million revolving credit facility and related accrued interest, which was
drawn to repay our 4.125% senior notes on March 15, 2016; to repay $400 million principal on Tranche B under our 1-year
term loan facility and related accrued interest; and to pay down a portion of the remaining principal amount outstanding under
our $800 million revolving credit facility and related accrued interest.
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. The proceeds were used to repurchase other previously issued senior notes.
In March 2011, the Company issued $300 million of 4.125% senior notes due 2016 and $500 million of 5.750% senior notes due
2021. The effective interest rates of these senior notes are 4.240% and 5.871%, respectively, which include the impact of the
discount upon issuance. The proceeds were used to repurchase and redeem other previously issued senior notes. As noted above,
the 4.125% senior notes were repaid in March 2016.
In September 2009, Willis North America Inc. issued $300 million of 7.000% senior notes due 2019. The effective interest rates
of these senior notes are 7.081%, which include the impact of the discount upon issuance. A portion of the proceeds were used to
repurchase and redeem other previously issued senior notes. In August 2013, $113 million of the 7.000% senior notes due 2019
were repurchased.
On March 28, 2007, we issued $600 million of 10 year senior notes at 6.200%. We used the proceeds of the notes to fund share
buybacks and to repay the then outstanding borrowings of $200 million under our revolving credit facility. The effective
interest rate of these senior notes is 6.253%. In August 2013, $206 million of the 6.200% senior notes were repurchased.
$800 million revolving credit facility
Drawings under the $800 million revolving credit facility (‘RCF’) bear interest at LIBOR plus a margin of 1.25% to 2.00%, or
alternatively the base rate plus a margin of 0.25% to 1.00% based upon the Company’s guaranteed senior unsecured long-term
debt rating; a 1.375% margin applies while the Company’s debt rating remains BBB/Baa3. As of December 31, 2016 and
December 31, 2015, $238 million and $467 million was outstanding under this revolving credit facility, respectively.
7-year term loan facility
The 7-year term loan facility expiring 2018 bears interest at the same rate applicable to the $800 million revolving credit
facility and is repayable in quarterly installments of $6 million with a final repayment of $186 million due in the third quarter
of 2018.
1-year term loan facility
On November 20, 2015, Legacy Willis entered into a 1-year term loan facility. The 1-year term loan had two tranches: Tranche
A was for €550 million , of which €544 million ($592 million) was drawn on December 19, 2015 and used to finance the
acquisition of Gras Savoye. Tranche B was for $400 million and was drawn on January 4, 2016 and used to re-finance debt
held by Legacy Towers Watson which became due on acquisition. Tranche A was repaid in its entirety on May 26, 2016 from
the proceeds from the issuance of our 2022 senior notes discussed above. Tranche B was repaid in its entirety on March 22,
2016 from a portion of the proceeds from the issuance of our senior notes discussed above. The amount outstanding as of
December 31, 2015 was $592 million, gross of $5 million in debt fees related to the 1-year term loan facility.
107
WSI revolving credit facility
Willis Securities Inc. (‘WSI’) is permitted to incur up to $400 million in indebtedness under the $800 million revolving credit
facility held by Trinity Acquisition plc and has the ability to borrow in Euro, Japanese yen and other approved currencies
subject to a reserve for foreign currency fluctuation.
Proceeds under the credit facility may be used for regulatory capital purposes related to securities underwriting only, which
allows WSI 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 WSI revolving credit facility bear interest at a rate
equal to LIBOR plus a margin of 1.25% to 2.00%, or alternatively the base rate plus a margin of 0.25% to 1.00%, based upon
the Company’s guaranteed senior-unsecured long-term debt rating. A margin of 1.50% applies while the Company’s debt rating
remains BBB/Baa3.
As of December 31, 2016 and 2015, there were no borrowings outstanding under the WSI revolving credit facility. On April 27,
2016, the end date of the credit period was extended to April 28, 2017 and the repayment date was extended to April 28, 2018.
There were no other significant changes in the terms of this credit facility.
The agreements relating to the $800 million revolving credit facility, the 7-year term loan facility, and the 1-year term loan
contain requirements that we are not to exceed certain levels of consolidated funded indebtedness in relation to consolidated
EBITDA and we are to maintain at least a minimum level of consolidated EBITDA to consolidated cash interest expense,
subject to certain adjustments. In addition, the agreements relating to our 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, 2016 and December 31, 2015, we were in compliance with all financial covenants.
Term Loan Due December 2019
On January 4, 2016, we acquired a $340 million term loan in connection with the Merger. On November 20, 2015, Towers
Watson Delaware Inc. entered into a four-year amortizing term loan agreement for up to $340 million with a consortium of
banks to help fund the pre-Merger special dividend. On December 28, 2015, Towers Watson Delaware Inc. borrowed the full
$340 million.
The interest rate on the term loan is based on the Company’s choice of one, two, three or six-month LIBOR plus a spread of
1.25% to 1.75%, or alternatively the bank base rate plus 0.25% to 0.75%. The spread to each index is dependent on the
Company’s consolidated leverage ratio. The weighted-average interest rate on this term loan for the year ended December 31,
2016 was 1.83%. The term loan amortizes at a rate of $21 million per quarter, beginning in March 2016, with a final maturity
date of December 2019. The Company has the right to prepay a portion or all of the outstanding term loan balance on any
interest payment date without penalty. At December 31, 2016, the balance outstanding on the term loan was $255 million,
before reduction of $1 million in debt issuance fees.
Covenants
The terms of our current financings also include certain limitations. For example, the agreements relating to the debt
arrangements and credit facilities generally 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. The operating
restrictions and financial covenants in our credit facilities do, and any future financing agreements may, limit our ability to
finance future operations or capital needs or to engage in other business activities.
108
Debt Maturity
The following table summarizes the maturity of our debt, interest on senior notes and excludes any reduction for debt issuance
costs:
2017
2018
2019
2020
2021
Thereafter
Total
394
128
107
—
7
$
— $
122
281
238
—
187
119
85
—
—
$
— $
950
$
1,645
$
109
—
—
—
82
—
—
—
489
—
—
—
3,176
1,049
473
238
7
$
636
$
641
$
391
$
109
$
1,032
$
2,134
$
4,943
Senior notes
$
Interest on senior notes
Term loans
RCF
Other debt
Total
Interest Expense
The following table shows an analysis of the interest expense for the years ended December 31:
Senior notes
Term loans
RCF
WSI revolving credit facility
Other
Total interest expense
Note 11 — Fair Value Measurements
Years ended December 31,
2015
2014
2016
139
17
10
2
16
184
$
$
114
5
6
2
15
142
$
$
117
5
3
4
6
135
$
$
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:
Market values for our derivative instruments 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.
Available-for-sale securities are classified as Level 1 because we use quoted market prices in determining the fair value of these
securities.
Contingent consideration payable is classified as Level 3 and we estimate fair value based on the likelihood and timing of
achieving the relevant milestones of each arrangement, applying a probability assessment to each of the potential outcomes,
and discounting the probability-weighted payout. Typically, milestones are based on revenue or EBITDA growth for the
acquired business.
109
The following presents our assets and liabilities measured at fair value on a recurring basis at December 31, 2016 and
December 31, 2015:
Balance Sheet Location
Level 1
Level 2
Level 3
Total
Fair Value Measurements on a Recurring Basis at December 31, 2016
Assets:
Available-for-sale securities:
Mutual funds / exchange traded
funds
Derivatives:
Prepaid and other current assets and
other non-current assets
Derivative financial instruments (i)
Prepaid and other current assets and
other non-current assets
Liabilities:
Contingent Consideration:
Contingent consideration (ii)
Derivatives:
Other current liabilities and
other non-current liabilities
Derivative financial instruments (i)
Other current liabilities and
other non-current liabilities
$
$
$
$
37
$
— $
— $
— $
15
$
— $
37
15
— $
— $
55
$
55
— $
133
$
— $
133
Balance Sheet Location
Level 1
Level 2
Level 3
Total
Fair Value Measurements on a Recurring Basis at December 31, 2015
Assets:
Derivatives:
Derivative financial instruments (i)
Prepaid and other current assets and
other non-current assets
Liabilities:
Contingent Consideration:
Contingent consideration
Derivatives:
Derivative financial instruments (i)
____________________
Other current liabilities and
other non-current liabilities
Other current liabilities and
other non-current liabilities
$
$
$
— $
26
$
— $
26
— $
— $
74
$
— $
57
$
— $
74
57
(i) See Note 9 — Derivative Financial Instruments for further information on our derivative instruments.
(ii) Probability weightings are based on our knowledge of the past and planned performance of the acquired entity to which the contingent consideration
applies. The weighted average discount rate used on our material contingent consideration calculations was 10.76%. Using different probability
weightings and discount rates could result in an increase or decrease of the contingent consideration payable.
The following table summarizes the change in fair value of the Level 3 liabilities:
Fair Value Measurements using significant unobservable inputs (Level 3)
Balance at December 31, 2015
Obligations assumed
Payments
Realized and unrealized losses
Foreign exchange
Balance at December 31, 2016
December 31, 2016
$
$
74
3
(11)
(5)
(6)
55
There were no significant transfers between Levels 1, 2 or 3 in the fiscal years ended December 31, 2016 and 2015.
110
Fair value information about financial instruments not measured at fair value
The following presents our liabilities not measured at fair value on a recurring basis at December 31, 2016 and 2015:
Liabilities:
Current portion of long term debt
Long-term debt
$
$
508
3,357
$
$
513
3,504
$
$
988
2,278
$
$
998
2,394
December 31, 2016
December 31, 2015
Carrying Value
Fair Value
Carrying Value
Fair Value
The carrying values of our revolving lines of credit and term loans approximate their fair values. The fair values above 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. The fair value of our senior notes are considered level 2 financial
instruments as they are corroborated by observable market data.
Note 12 — Retirement Benefits
Defined Benefit Plans and Post-retirement Welfare Plans
Willis Towers Watson sponsors both qualified and non-qualified defined benefit pension plans and other post-retirement
welfare plans (‘PRW’) plans throughout the world. The majority of our plan assets and obligations are in the United States and
the United Kingdom. We have also included disclosures related to defined benefit plans in certain other countries, which
includes Canada, Germany, Ireland and the Netherlands. Together, these disclosed funded and unfunded plans represented 99%
of Willis Towers Watson’s pension and PRW obligations and plan assets and are disclosed herein for the 2016 disclosures.
On January 4, 2016, in connection with the Merger, we acquired additional defined benefit pension, PRW, and defined
contribution plans. Total plan assets of approximately $3.7 billion and projected benefit obligations of approximately $4.6
billion were acquired. The funded status for each of the acquired plans has been included in the values of identifiable assets
acquired, and liabilities assumed in Note 3 — Merger and Acquisitions and are recorded as $67 million in pension benefits
assets and $923 million in liability for pension benefits.
As part of these obligations, in the United States, the United Kingdom and Canada, we have non-qualified plans that provide
for the additional pension benefits that would be covered under the qualified plan in the respective country were it not for
statutory maximums. The non-qualified plans are unfunded.
Certain prior year amounts have been reclassified between the presentation groupings of ‘U.S.’, ‘U.K.’ and ‘Other’ to conform
to current year presentation. The significant plans within each grouping are described below:
United States
Legacy Willis – This plan covers approximately one third of the Legacy Willis employees in the United States and is
now frozen with no new entrants nor future accruals.
Legacy Towers Watson – This plan covers substantially all Legacy Towers Watson U.S. employees, with the exception
of certain employees of our Exchange Solutions segment. Prior to December 31, 2010, employees earned benefits
under their original plan formulas, which were frozen on December 31, 2011. Beginning January 1, 2012, all Legacy
Towers Watson employees, including named executive officers, accrue qualified and non-qualified benefits under a
stable value pension design.
2017 Changes – The Legacy Towers Watson plan’s current non-contributory stable value formula is not available
to employees hired or rehired on or after January 1, 2017. Beginning July 1, 2017, Legacy Towers Watson
employees participating in the Plan will accrue benefits under a new non-contributory stable value pension
formula. Also beginning July 1, 2017, the Plan will cover newly eligible employees, including employees hired on
or after January 1, 2017, and employees from Legacy Willis and the Exchange Solutions segment, who elect to
participate (who do not ‘opt out’) under a new contributory stable value pension formula.
111
United Kingdom
Legacy Willis – This plan covers approximately one third of the Legacy Willis employees in the United Kingdom. The
plan is now closed to new entrants. New employees in the United Kingdom are offered the opportunity to join a
defined contribution plan.
Legacy Towers Watson – Benefit accruals earned under the Legacy Watson Wyatt defined benefit plan (predominantly
pension benefits) ceased on February 28, 2015, although benefits earned prior to January 1, 2008 retain a link to salary
until the employee leaves the Company. Benefit accruals earned under the legacy Towers Perrin defined benefit plan
(predominantly lump sum benefits) were frozen on March 31, 2008. All participants now accrue defined contribution
benefits.
Legacy Miller – The plan provides retirement benefits based on members’ salaries at the point at which they ceased to
accrue benefits under the scheme.
Other
Canada (Legacy Towers Watson) – Participants accrue qualified and non-qualified benefits based on a career average
benefit formula. Additionally, participants can choose to make voluntary contributions to purchase enhancements to
their pension.
2017 Canada Changes – Effective January 1, 2017, the Legacy Towers Watson Canada plan was amended with
respect to future benefit accruals. The ancillary benefits were reduced for all members and the benefit formula
was reduced for members joining on or after January 1, 2017. Additionally on January 1, 2017, the Legacy Willis
employees in Canada joined the plan and will accrue qualified and non-qualified benefits based on a career
average benefit formula.
France (Legacy Gras Savoye) – The mandatory retirement indemnity plan is a termination benefit which provides
lump sum benefits at retirement. There is no vesting before the retirement date and the benefit formula is determined
through the collective bargaining agreement and the labor code. All employees with permanent employment contracts
are eligible.
Germany (Legacy Willis) –The defined benefit plan population consists of retirees receiving annuities and two
participants with deferred vested benefits. Other employees and former employees participate in defined contribution
arrangements.
Germany (Legacy Towers Watson) – Effective January 1, 2011, all new participants participate in a defined
contribution plan. Participants hired prior to this date continue to participate in various defined contribution and
defined benefit arrangements according to legacy plan formulas. The legacy defined benefit plans are primarily
account-based, with some long-service participants continuing to accrue benefits according to grandfathered final-
average-pay formulas.
Ireland (Legacy Willis) – The defined benefit plans provide pension benefits for approximately one third of legacy
Willis employees in Ireland. The defined benefit plans are now closed to new entrants.
Ireland (Legacy Towers Watson) – Benefit accruals earned under the scheme’s defined benefit plan ceased on May 1,
2015. Benefits earned prior to this date retain a link to salary until the employee leaves the Company.
Netherlands (Legacy Towers Watson) – Benefits under the plan used to accrue on a final pay basis on earnings up to a
maximum amount each year. The benefit accrual under the final pay plan stopped at December 31, 2010. The accrued
benefits will receive conditional indexation each year.
Post-retirement Welfare Plan
We provide certain healthcare and life insurance benefits for retired participants. The principal plans cover participants
in the U.S. who have met certain eligibility requirements. Our principal post-retirement benefit plans are primarily
unfunded. Retiree medical benefits provided under our U.S. post-retirement benefit plans were closed to new hires
effective January 1, 2011. Life insurance benefits under the plans were frozen with respect to service, eligibility and
amounts as of January 1, 2012 for active participants.
112
Amounts Recognized in our Consolidated Financial Statements
The following schedules provide information concerning the defined benefit pension plans and PRW plan as of and for the
years ended December 31 2016 and 2015:
2016
2015
U.S.
U.K.
Other
PRW
U.S.
U.K.
Other
PRW
Change in Benefit Obligation
Benefit obligation, beginning of year
$
976
$
2,881
$
184
$
— $
1,066
$
3,093
$
186
$
Service cost
Interest cost
Employee contributions
Actuarial losses/(gains)
Curtailment loss
Settlements
Benefits paid
Business combinations
Transfers in
Foreign currency changes
Plan amendments
Benefit obligation, end of year
Change in Plan Assets
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Settlements
Benefits paid
Business combinations
Transfers in
Foreign currency adjustment
Fair value of plan assets, end of year
Funded status at end of year
Accumulated Benefit Obligation
Components on the Consolidated Balance
Sheet
Pension benefits assets
Current liability for pension benefits
Non-current liability for pension benefits
$
$
$
$
$
$
$
$
$
59
137
—
151
—
—
(166)
3,012
—
—
—
4,169
749
153
91
—
—
(166)
2,453
—
—
$
$
24
114
1
852
—
(12)
(130)
842
—
(673)
—
3,899
3,478
782
106
1
(12)
(130)
906
—
(771)
$
$
3,280
$
4,360
(889) $
461
4,169
$
3,899
$
$
$
19
18
—
61
—
(61)
(24)
530
1
4
—
732
158
26
39
—
(58)
(24)
321
1
4
$
$
467
$
1
3
7
4
—
—
(14)
112
—
—
—
—
41
—
(92)
—
—
(39)
—
—
—
—
113
$
976
— $
806
(19)
1
—
—
33
107
1
(97)
13
—
(102)
224
—
(176)
(215)
2,881
3,398
73
107
1
—
$
$
(39)
(102)
—
—
—
202
—
(201)
$
749
$
3,478
—
7
7
—
(14)
4
—
—
4
(265) $
(109) $
(227) $
597
696
$
113
$
975
$
2,881
$
$
$
$
$
— $
478
$
(47) $
— $
10
$
(7) $
— $
(3) $
— $
— $
617
$
— $
(842) $
(17) $
(268) $
(106) $
(227) $
(20) $
(889) $
461
$
(265) $
(109) $
(227) $
597
$
3
3
—
(5)
—
(1)
(7)
24
—
(19)
—
184
171
4
10
—
—
(7)
—
—
(20)
$
$
158
$
(26) $
173
$
6
$
— $
(32) $
(26) $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Amounts recognized in accumulated other comprehensive loss as of December 31, 2016 and 2015 consist of:
Net actuarial loss
Net prior service gain
Accumulated other comprehensive loss
2016
2015
U.S.
U.K.
Other
PRW
U.S.
U.K.
Other
PRW
$
$
603
—
603
$
$
918
(147)
771
$
$
80
—
80
$
$
4
—
4
$
$
378
—
378
$
$
790
(196)
594
$
$
25
—
25
$
$
—
—
—
113
The following table presents the projected benefit obligation and fair value of plan assets for our plans that have a projected
benefit obligation in excess of plan assets as of December 31, 2016 and 2015:
Projected benefit obligation at end of year
Fair value of plan assets at end of year
$
$
4,169
3,280
$
$
843
825
$
$
686
411
$
$
976
749
$
$
204
184
$
$
52
19
U.S.
2016
U.K.
Other
U.S.
2015
U.K.
Other
The following table presents the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for
our plans that have an accumulated benefit obligation in excess of plan assets as of December 31, 2016 and 2015.
Projected benefit obligation at end of year
Accumulated benefit obligation at end of year
Fair value of plan assets at end of year
U.S.
$
$
$
4,169
4,169
3,280
$
$
$
2016
U.K.
Other
U.S.
2015
U.K.
Other
843
843
825
$
$
$
686
650
411
$
$
$
976
975
749
$
$
$
204
204
184
$
$
$
33
26
4
The components of the net periodic benefit income and other amounts recognized in other comprehensive (income)/loss for the
years ended December 31, 2016, 2015 and 2014 for the defined benefit plans and PRW plan are as follows:
2016
2015
2014
U.S.
U.K. Other PRW U.S.
U.K. Other PRW U.S.
U.K. Other PRW
Components of net periodic benefit (income)/cost:
Service cost
Interest cost
$
59 $
24 $
19 $
137
114
18
Expected return on plan assets
(240)
(253)
(27)
Amortization of unrecognized prior service
credit
Amortization of unrecognized actuarial loss
Settlement
Curtailment gain
—
12
—
—
(19)
42
—
—
—
—
5
—
1
3
—
—
—
—
—
$ — $
33 $
3 $ — $ — $
41 $
3 $ —
41
107
(57)
(230)
—
11
—
—
(18)
36
—
(5)
3
(3)
—
1
—
—
—
—
—
—
—
—
41
121
(54)
(213)
—
6
—
—
(4)
42
—
—
6
(6)
—
—
—
—
—
—
—
—
—
—
Net periodic benefit (income)/cost
$ (32) $ (92) $
15 $
4
$
(5) $ (77) $
4 $ — $
(7) $ (13) $
3 $ —
Other changes in plan assets and benefit
obligations recognized in other
comprehensive loss/(income):
Net actuarial loss/(gain)
$ 238 $ 323 $
62 $
4
$ (16) $
59 $
(5) $ — $ 174 $
83 $
17 $ —
Amortization of unrecognized actuarial loss
(12)
(42)
Prior service gain
Amortization of unrecognized prior service
credit
Settlement
Curtailment loss/(gain)
—
—
—
—
—
19
—
—
Total recognized in other comprehensive loss/
(income)
226
300
—
—
—
(8)
—
54
Total recognized in net periodic benefit (income)/
cost and other comprehensive loss/(income)
$ 194 $ 208 $
69 $
—
—
—
—
—
4
8
(11)
(36)
(1)
— (215)
—
—
—
18
—
18
—
—
—
—
(27)
(156)
(6)
—
—
—
—
—
—
(6)
(42)
—
—
—
—
—
4
—
(2)
168
43
—
—
—
—
—
17
—
—
—
—
—
—
$ (32) $ (233) $
(2) $ — $ 161 $
30 $
20 $ —
During fiscal year 2016, WTW adopted the granular approach to calculating service and interest cost. This was treated as a
change in accounting estimate, and resulted in a credit of $51 million included in our total net periodic benefit income reflected
above.
On March 6, 2015, Legacy Willis announced to members of the U.K. defined benefit pension plan that with effect from June
30, 2015, future salary increases would not be pensionable (the ‘salary freeze’). Legacy Willis recognized the salary freeze as a
plan amendment at the announcement date. The impact of the salary freeze reduced the plan’s projected benefit obligation by
approximately $215 million and created a prior service credit which is recognized in other comprehensive income and then
amortized to the consolidated statement of operations over the remaining expected service life of active employees.
114
The estimated net actuarial loss and prior service cost for the defined benefit plans that will be amortized from accumulated
other comprehensive loss into net periodic benefit cost over the next fiscal year are:
Estimated net actuarial loss
Prior service gain
For the Year Ended December 31, 2017
U.S.
U.K
Other
PRW
$
$
13
$
— $
51
$
(17) $
2
$
— $
—
—
Assumptions Used in the Valuations of the Defined Benefit Pension Plans and PRW Plan
The determination of the Company’s obligations and annual expense under the plans is based on a number of assumptions that,
given the longevity of the plans, are long-term in focus. A change in one or a combination of these assumptions could have a
material impact on our projected benefit obligation. However, certain of these changes, such as changes in the discount rate and
actuarial assumptions, are not recognized immediately in net income, but are instead recorded in other comprehensive income.
The accumulated gains and losses not yet recognized in net income are amortized into net income as a component of the net
periodic benefit cost/(credit) generally based on the average working life expectancy of the plan’s active participants to the
extent that the net gains or losses as of the beginning of the year exceed 10% of the greater of the market-related value of plan
assets or the projected benefit obligation. The average remaining service period of participants for the PRW plan is
approximately 9.5 years.
The Company considers several factors prior to the start of each fiscal year when determining the appropriate annual
assumptions, including economic forecasts, relevant benchmarks, historical trends, portfolio composition and peer company
comparisons. These assumptions, used to determine our pension liabilities and pension expense, are reviewed annually by
senior management and changed when 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. To calculate the discount rate, we use the granular approach to determining
service and interest costs. The expected rate of return assumptions for all plans are supported by an analysis of the weighted-
average yield expected to be achieved based upon the anticipated makeup of the plans’ investments. Other material assumptions
include rates of participant mortality, and the expected long-term rate of compensation and pension increases.
The following assumptions were used in the valuations of Willis Towers Watson’s defined benefit pension plans and PRW plan.
The assumptions presented for the U.S. plans represent the weighted-average of rates for all U.S. plans. The assumptions
presented for the U.K. plans represent the weighted-average of rates for the U.K. plans. The assumptions presented for the
Other plans represent the weighted-average of rates for the Canada, France, Germany, Ireland, and Netherlands plans.
The assumptions used to determine net periodic benefit cost for the fiscal years ended December 31, 2016, 2015 and 2014 were
as follows:
Discount rate i
Discount rate - PBO
Discount rate - service cost
Discount rate - interest cost on service cost
Discount rate - interest cost on PBO
Expected long-term rate of return on assets ii
Years ended December 31,
2016
2015
2014
U.S.
U.K. Other PRW U.S.
U.K. Other PRW U.S.
U.K. Other PRW
N/A
N/A
N/A
N/A
3.9% 3.6% 2.3% —%
4.8% 4.4% 3.7% —%
4.2% 3.8% 3.2% 4.2%
3.9% 3.8% 3.4% 4.1%
3.2% 3.8% 3.1% 3.5%
3.4% 3.4% 2.8% 3.3%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A —%
N/A —%
N/A —%
N/A —%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A —%
N/A —%
N/A —%
N/A —%
7.6% 6.2% 6.1% 2.0%
7.3% 6.5% 3.3% —%
7.3% 7.0% 3.7% —%
Rate of increase in compensation levels
4.3% 3.2% 2.3% N/A
N/A
2.9% 2.2% —%
N/A
3.2% 2.1% —%
Healthcare cost trend
Initial rate
Ultimate rate
Year reaching ultimate rate
7.0%
5.0%
2022
N/A
N/A
N/A
N/A
N/A
N/A
____________________
(i) This discount rate represents the assumption to determine net periodic benefit cost prior to the Company’s use of the granular approach to calculating
service and interest cost which began for the 2016 fiscal year.
(ii) As part of the salary freeze negotiations with the Scheme Trustee, Legacy Willis agreed to the U.K. plan Trustee’s de-risking strategy which will lead to a
strategic target asset allocation with a greater weighting to fixed income assets. Consequently, with effect from March 6, 2015, the expected return on
assets assumption was reduced by 50 basis points from 7.00% to 6.50%.
115
The following table presents the assumptions used in the valuation to determine the projected benefit obligation for the fiscal
years ended December 31, 2016 and 2015:
Discount rate
Rate of increase in compensation levels
December 31, 2016
Other
U.K.
PRW
U.S.
December 31, 2015
Other
U.K.
2.6%
3.2%
2.7%
2.3%
4.0%
N/A
4.2%
N/A
3.8%
3.3%
2.4%
2.2%
U.S.
4.0%
4.3%
PRW
—%
—%
A one percentage point change in the assumed healthcare cost trend rates would have an immaterial effect on the post-
retirement benefit cost and obligation as of December 31, 2016.
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 Company’s pension plan asset target allocations as of
December 31, 2016 were as follows:
Asset Category
Willis
U.S.
Towers
Watson
Willis
50%
50%
—%
—%
23%
43%
6%
28%
32%
50%
—%
18%
U.K.
Towers
Watson
13%
60%
—%
27%
Canada
Germany
Ireland
Miller
Towers
Watson
Towers
Watson
Willis
Towers
Watson
27%
57%
—%
16%
60%
40%
—%
—%
36%
60%
—%
4%
38%
28%
3%
31%
73%
27%
—%
—%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Equity securities
Debt securities
Real estate
Other
Total
The Legacy Willis plan in Germany and the Legacy Towers Watson plan in the Netherlands are invested in insurance contracts.
Consequently, the asset allocations of the plans are managed by the insurer. The Legacy Gras Savoye plan in France is
unfunded.
Our investment strategy is designed to generate returns that will reduce the interest rate risk inherent in each of the plan’s
benefit obligations and enable the plans to meet their future obligations. The precise amount for which these obligations will be
settled depends on future events, including the life expectancy of the plan participants and salary inflation. The obligations are
estimated using actuarial assumptions, based on the current economic environment.
Each pension plan seeks to achieve total returns sufficient to meet expected future obligations when considered in conjunction
with expected future contributions and prudent levels of investment risk and diversification. Each plan’s targeted asset
allocation is generally determined through a plan-specific Asset-Liability Modeling study. These comprehensive studies
provide an evaluation of the projected status of asset and benefit obligation measures for each plan under a range of both
positive and negative environments. The studies include a number of different asset mixes, spanning a range of diversification
and potential equity exposures.
In evaluating the strategic asset allocation choices, an emphasis is placed on the long-term characteristics of each individual
asset class, such as expected return, volatility of returns and correlations with other asset classes within the portfolios.
Consideration is also given to the proper long-term level of risk for each plan, the impact of the volatility and magnitude of
plan contributions and costs, and the impact that certain actuarial techniques may have on the plan’s recognition of investment
experience.
We monitor investment performance and portfolio characteristics on a quarterly basis to ensure that managers are meeting
expectations with respect to their investment approach. There are also various restrictions and controls placed on managers,
including prohibition from investing in our stock.
Fair Value of Plan Assets
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.
116
The fair values of our U.S. plan assets by asset category at December 31, 2016 and 2015 are as follows:
December 31, 2016
December 31, 2015
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Asset category:
Cash
Short-term securities
Equity securities
Government bonds
Corporate bonds
Other fixed income
Pooled / commingled funds
Mutual funds
Private equity
Hedge funds
Total assets
$
$
3
—
253
10
—
—
—
183
—
—
449
$
$
— $
33
8
—
169
19
—
—
—
—
229
$
— $
—
—
—
—
—
—
—
—
—
— $
3
33
260
10
170
19
1,665
183
234
692
3,269
$
$
— $
—
86
—
—
—
—
180
—
—
266
$
— $
—
7
—
—
—
—
—
—
—
7
$
— $
—
—
—
—
—
—
—
—
— $
—
—
93
—
—
—
476
180
—
—
749
The fair values of our U.K. plan assets by asset category at December 31, 2016 and 2015 are as follows:
December 31, 2016
December 31, 2015
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Asset category:
Cash
Equity securities
Government bonds
Corporate bonds
Other fixed income
Pooled / commingled funds
Mutual funds
Private equity
Derivatives
Real estate
Hedge funds
Total assets
Liability category:
Derivatives
Net Assets
$
$
$
49
374
1,184
—
—
—
—
—
—
—
—
1,607
—
1,607
$
$
$
— $
8
—
118
216
—
—
—
73
—
—
415
14
401
$
$
— $
—
—
—
—
—
—
—
—
—
—
— $
49
382
1,184
118
216
1,677
11
40
73
197
426
4,373
—
— $
14
4,359
$
$
$
149
737
836
—
—
—
—
—
—
—
—
1,722
—
1,722
$
$
$
2
17
1
138
—
—
—
—
195
—
—
353
20
333
$
$
$
— $
—
—
—
—
—
—
—
—
—
—
— $
151
754
837
138
—
820
—
—
195
146
457
3,498
—
— $
20
3,478
The fair values of our Other plan assets by asset category at December 31, 2016 and 2015 are as follows:
December 31, 2016
December 31, 2015
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Asset category:
Cash
Equity securities
Government bonds
Corporate bonds
Pooled / commingled funds
Mutual funds
Derivatives
Insurance contracts
Real estate
Total assets
$
$
17
—
—
—
—
—
—
—
—
17
$
$
— $
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
17
—
17
$
17
—
—
—
214
224
—
17
—
472
$
$
— $
1
29
— $
—
—
— $
—
—
4
—
—
—
—
—
34
$
—
—
—
19
—
—
19
$
—
—
—
—
1
—
1
$
—
1
29
4
—
102
19
1
2
158
Our PRW plan invests only in short-term investments and mutual funds and is not included within this fair value hierarchy
table.
117
We evaluate the need to transfer between levels based upon the nature of the financial instrument and size of the transfer
relative to the total net assets of the plans. There were no significant transfers between Levels 1, 2 or 3 in the fiscal years ended
December 31, 2016 and 2015.
In accordance with Subtopic 820-10, Fair Value Measurement and Disclosures, certain investments that are measured at fair
value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value
amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in
the statements of net assets. See the description of ASU 2015-07 in Note 2 - Basis of Presentation and Significant Accounting
Policies, which notes the adoption of this practical expedient for the presentation of our pension plan investments in the fair
value hierarchy tables included above, and the retrospective application to comparative periods.
Following is a description of the valuation methodologies used for investments at fair value:
Short-term securities: Valued at the net value of shares held by the Company at year end as reported by the sponsor of the
funds.
Equity securities and Mutual Funds: Valued at the closing price reported on the active market on which the individual
securities are traded. Exchange traded mutual funds are included as level 1 above.
Government bonds: Valued at the closing price reported in the active market in which the bond is traded.
Corporate bonds: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes
basing value on yields currently available on comparable securities of issuers with similar credit ratings.
Other Fixed Income: Foreign and municipal bonds are valued at the closing price reported in the active market in which the
bond is traded.
Pooled / Commingled Funds and Mutual Funds: Valued at the net value of shares held by the Company at year end as reported
by the manager of the funds. These funds are not exchange traded and are not reported by level in the tables above.
Derivative investments: Valued at the closing level of the relevant index or security and interest accrual through the valuation
date.
Private equity funds, Real estate funds, Hedge funds: The fair value for these investments is estimated based on the net asset
value derived from the latest audited financial statements or most recent capital account statements provided by the private
equity fund’s investment manager or third-party administrator.
Insurance contracts: The fair values are determined using model-based techniques that include option-pricing models,
discounted cash flow models and similar techniques.
The following table reconciles the net plan investments to the total fair value of the plan assets:
Net assets held in investments
PRW plan assets
Net receivable for investments purchased
Dividend and interest receivable
Fair value of plan assets
Level 3 investments
December 31,
2016
2015
8,100
$
4,385
3
3
3
—
—
—
8,109
$
4,385
$
$
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.
118
The following table sets forth a summary of changes in the fair value of the plans’ Level 3 assets for the fiscal year ended
December 31, 2016:
Beginning balance at December 31, 2015
Insurance contracts acquired in the Merger
Foreign exchange
Ending balance at December 31, 2016
Contributions and Benefit Payments
Level 3
Roll Forward
$
$
1
16
—
17
Funding is based on actuarially determined contributions and is limited to amounts that are currently deductible for tax
purposes. Since funding calculations are based on different measurements than those used for accounting purposes, pension
contributions are not equal to net periodic pension costs.
The following table sets forth our projected pension contributions to our qualified plans for fiscal year 2017, as well as the
pension contributions to our qualified plans in fiscal years 2016 and 2015:
U.S.
U.K.
Other
2017
(Projected)
50
60
13
$
$
$
$
$
$
2016
(Actual)
2015
(Actual)
50
105
29
$
$
$
—
102
6
Expected benefit payments from our defined benefit pension plans to current plan participants, including the effect of their
expected future service, as appropriate, are as follows:
Fiscal Year
2017
2018
2019
2020
2021
Years 2022 – 2026
Defined Contribution Plan
U.S.
U.K.
Benefit Payments
Other
PRW
Total
226
223
231
239
244
1,329
91
97
101
105
111
649
$
2,492
$
1,154
$
27
22
24
25
26
162
286
$
15
16
16
16
16
84
163
$
359
358
372
385
397
2,224
4,095
We have defined contribution plans covering eligible employees in many countries. The most significant plans are in the U.S.
and U.K. and are described here.
Legacy Willis has a 401(k) plan covering all eligible employees of Legacy Willis U.S. and its subsidiaries. The plan allows
participants to make pre-tax contributions which the Company, at its discretion, may match. All investment assets of the plan
are held in a trust account administered by independent trustees.
The Legacy Towers Watson U.S. Defined Contribution Plan allows eligible Towers Watson U.S. employees to participate in a
savings plan design that provides for 100% match on the first 2% of employee contributions and 50% match on the next 4% of
employee contributions. Employees vest in the employer match upon two years of service.
The Legacy Towers Watson U.K. pension plan has a money purchase feature to which we make core contributions plus
additional contributions matching those of the participants up to a maximum rate. Contribution rates depend on the age of the
participant and whether or not they arise from salary sacrifice arrangements through which the participant has elected to receive
a pension contribution in lieu of additional salary.
The Company’s expenses related to its defined contribution plans for the years ended December 31, 2016, 2015 and 2014
amounted to $152 million, $77 million and $70 million.
119
Note 13 — Commitments and Contingencies
Operating Leases
The Company leases certain land, building and equipment under various operating lease commitments. The total amount of the
minimum rent is expensed on a straight-line basis over the term of the lease. Rental expenses and sub-lease rental income for
operating leases are recorded as part of other operating expenses in the consolidated statements of operations. Rental expense,
exclusive of sublease income, was $302 million, $142 million, and $134 million for the years ended December 31, 2016, 2015
and 2014, respectively. We have entered into sublease agreements for some of our excess leased space. Sublease income was
$17 million, $17 million, and $13 million for the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016, the aggregate future minimum rental commitments under all non-cancellable operating lease
agreements are as follows:
2017
2018
2019
2020
2021
Thereafter
Total
Guarantees
Gross rental
commitments
238
$
194
171
146
122
611
1,482
$
$
$
Rentals from
subleases
Net rental
commitments
222
178
157
132
111
600
1,400
(16) $
(16)
(14)
(14)
(11)
(11)
(82) $
Guarantees issued by certain of Willis Towers Watson’s subsidiaries with respect to the senior notes and revolving credit
facilities are discussed in Note 10 — Debt.
Certain of Willis Towers Watson’s 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 $558 million and $676 million at
December 31, 2016 and 2015, respectively. The capital lease obligations subject to such guarantees amounted to $9 million and
$10 million as of December 31, 2016 and 2015, respectively.
Acquisition liabilities
The Company has deferred and contingent consideration due to be paid on existing acquisitions until 2019 totaling $142
million at December 31, 2016. Most notably, our liability for the acquisition of Miller Insurance Services LLP in May 2015, for
which deferred and contingent consideration, including interest, was $95 million at December 31, 2016. Total deferred and
contingent consideration paid during the year ended December 31, 2016 was $67 million.
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 $73 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 of December 31, 2016 there have been approximately $23 million of capital contributions.
In May 2011, the Company made a capital commitment of $10 million to Dowling Capital Partners I, LP. As of December 31,
2016 there had been approximately $8 million of capital contributions.
Other contractual obligations at December 31, 2016 and 2015, include certain capital lease obligations totaling $54 million and
$59 million, respectively, primarily in respect of the Company’s Nashville property.
120
On October 1, 2015, Legacy Towers Watson made a capital commitment of $40 million to Longitude Holdings Limited in
exchange for 48,322 common shares outstanding representing 24.2% of outstanding equity ownership. As of December 31,
2016, approximately $5 million of capital contributions had been made towards this commitment.
Indemnification Agreements
Willis Towers Watson has various agreements which provide that it may be obligated to indemnify the other party to the
agreement with respect to certain matters. Generally, these indemnification provisions are included in contracts arising in the
normal course of business and in connection with the purchase and sale of certain businesses. Although it is not possible to
predict the maximum potential amount of future payments that may become due under these indemnification agreements
because of the conditional nature of Willis Towers Watson’s obligations and the unique facts of each particular agreement,
Willis Towers Watson does not believe any potential liability that might arise from such indemnity provisions is probable or
material. There are no provisions for recourse to third parties, nor are any assets held by any third parties that any guarantor can
liquidate to recover amounts paid under such indemnities.
Legal Proceedings
In the ordinary course of business, the Company is subject to various actual and potential claims, lawsuits, and other
proceedings. Some of the claims, lawsuits and other proceedings seek damages in amounts which could, if assessed, be
significant. We do not expect the impact of claims or demands not described below to be material to the Company’s
consolidated financial statements. The Company also receives subpoenas in the ordinary course of business and, from time to
time, receives requests for information in connection with governmental investigations.
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. See Note 14 for the amounts accrued at December 31, 2016 and 2015 in
the consolidated balance sheets. The terms of this insurance vary by policy year. Regarding self-insured risks, the Company has
established provisions which are believed to be adequate in the light of current information and legal advice, or, in certain
cases, where a range of loss exists, the Company accrues the minimum amount in the range if no amount within the range is a
better estimate than any other amount. 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
disputes with insurance companies, it is possible that an adverse outcome or settlement in certain matters could, from time to
time, have a material adverse effect on the Company’s results of operations or cash flows in any particular quarterly or annual
periods.
The Company provides for contingent liabilities based on ASC 450, Contingencies, when it is determined that a liability,
inclusive of defense costs, is probable and reasonably estimable. Unasserted claims reserves are primarily developed
actuarially. Litigation is subject to many factors which are difficult to predict so there can be no assurance that in the event of a
material unfavorable result in one or more claims, we will not incur material costs.
In re Towers Watson & Co. Stockholders Litigation
Five putative class action complaints challenging the Merger were filed in the Court of Chancery for the State of Delaware,
captioned New Jersey Building Laborers’ Statewide Annuity Fund v. Towers Watson & Co., et al., C.A. No. 11270-CB (filed on
July 9, 2015), Stein v. Towers Watson & Co., et al., C.A. No. 11271-CB (filed on July 9, 2015), City of Atlanta Firefighters’
Pension Fund v. Ganzi, et al., C.A. No. 11275-CB (filed on July 10, 2015), Cordell v. Haley, et al., C.A. No. 11358-CB (filed
on July 31, 2015), and Mills v. Towers Watson & Co., et al., C.A. No. 11423-CB (filed on August 24, 2015). The Stein action
was voluntarily dismissed on July 28, 2015. These complaints were filed by purported stockholders of Towers Watson on
behalf of a putative class comprised of all Towers Watson stockholders. The complaints sought, among other things, to enjoin
the Merger, and generally alleged that Towers Watson’s directors breached their fiduciary duties to Towers Watson stockholders
by agreeing to merge Towers Watson with Willis through an inadequate and unfair process, which led to inadequate and unfair
consideration, and by agreeing to unfair deal protection devices. The complaints also alleged that Willis and the Merger Sub
formed for purposes of consummating the Merger aided and abetted the alleged breaches of fiduciary duties by Towers Watson
directors. On August 17, 2015, the court consolidated the New Jersey Building Laborers’ Statewide Annuity Fund, City of
Atlanta Firefighters’ Pension Fund, and Cordell actions (the Mills action had not yet been filed) and any other actions then
pending or thereafter filed arising out of the same issues of fact under the caption In re Towers Watson & Co. Stockholders
Litigation, Consolidated C.A. No. 11270-CB. On September 9, 2015, the plaintiffs in the consolidated action and in Mills filed
a consolidated amended complaint, which, among other things, added claims for alleged misstatements and omissions from a
121
preliminary proxy statement and prospectus for the Merger dated August 27, 2015. On September 17, 2015, plaintiffs filed a
motion for expedited proceedings and a motion for a preliminary injunction, which motions plaintiffs voluntarily withdrew on
October 19, 2015. On December 14, 2015, the defendants filed motions to dismiss the consolidated amended complaint. On
April 1, 2016, the court consolidated the Mills action into the consolidated action. On April 18, 2016, the court dismissed the
consolidated action as moot, set a briefing schedule for plaintiffs’ application for an award of attorneys’ fees and reimbursement
of expenses, and scheduled a hearing on plaintiffs’ fee and expense application for June 28, 2016. On April 27, 2016, plaintiffs
filed a petition for an award of attorneys’ fees and expenses, requesting an aggregate fee and expense award of at least $1.7
million. On June 8, 2016, defendants filed their opposition to the petition. After negotiations, the parties agreed in principle to
resolve the petition for a payment of $250,000 to plaintiffs’ counsel by the Company. On July 29, 2016, the court entered a
proposed order submitted by the parties closing the consolidated action for all purposes.
Merger-related Appraisal demands
Between November 12, 2015 and December 10, 2015, in connection with the then-proposed Merger, Towers Watson received
demands for appraisal under Section 262 of the Delaware General Corporation Law on behalf of ten purported beneficial
owners of an aggregate of approximately 2.4% of the shares of Towers Watson common stock outstanding at the time of the
Merger. Between March 3, 2016 and March 23, 2016, three appraisal petitions were filed in the Court of Chancery for the State
of Delaware on behalf of three purported beneficial owners of an aggregate of 1,354,338 shares of Towers Watson common
stock, captioned Rangeley Capital LLC v. Towers Watson & Co., C.A. No. 12063-CB, Merion Capital L.P. v. Towers Watson &
Co., C.A. No. 12064-CB, and College Retirement Equities Fund v. Towers Watson & Co., C.A. No. 12126-CB. The appraisal
petitions seek, among other things, a determination of the fair value of the appraisal petitioners’ shares at the time of the
Merger; an order that Towers Watson pay that value to the appraisal petitioners, together with interest at the statutory rate; and
an award of costs, attorneys’ fees, and other expenses. Towers Watson answered the appraisal petitions between March 24,
2016 and April 18, 2016. On May 9, 2016, the court consolidated the three pending appraisal proceedings under the caption In
re Appraisal of Towers Watson & Co., Consolidated C.A. No. 12064-CB. Based on all of the information to date, the Company
is currently unable to estimate what the court would determine, following trial, to be the fair value of the appraisal petitioners;
shares. It is possible that the court could determine that fair value was the same as, less than or greater than the value received
by shareholders in the Merger. Therefore we are unable to provide an estimate of the reasonably possible loss or range of loss
as to such value. The Company intends to vigorously defend against the appraisal proceedings.
Stanford Financial Group
The Company has been named as a defendant in 15 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 15 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
(‘Roland’). 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.
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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.
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 setting a schedule for briefing and discovery regarding plaintiffs’ motion for class certification,
which schedule, among other things, provided 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 except Willis Group Holdings plc answered the Third Amended Class Action Complaint.
On April 20, 2015, the plaintiffs filed their motion for class certification, the defendants filed their opposition to
plaintiffs’ motion, and the plaintiffs filed their reply in further support of the motion. Pursuant to an agreed stipulation
also filed with the court on April 20, 2015, the defendants on June 4, 2015 filed sur-replies in further opposition to the
motion. The Court has not yet scheduled a hearing on the motion.
On June 19, 2015, Willis Group Holdings plc filed a motion to dismiss the complaint for lack of personal jurisdiction.
On November 17, 2015, Willis Group Holdings plc withdrew the motion.
On March 31, 2016, the parties in the Troice and Janvey actions entered into a settlement in principle that is described
in more detail below.
• 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
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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, was
fully briefed as of March 24, 2015. Oral argument on the consolidated appeal was held on September 2, 2015. On
September 16, 2015, the Fifth Circuit affirmed. 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. On February 13, 2015, the parties filed an Agreed Motion for Partial Dismissal pursuant to which they agreed to
the dismissal of certain claims pursuant to the motion to dismiss decisions in the Troice action discussed above and the
Janvey action discussed below. Also on February 13, 2015, the defendants except Willis Group Holdings plc answered
the complaint in the Casanova action. On June 19, 2015, Willis Group Holdings plc filed a motion to dismiss the
complaint for lack of personal jurisdiction. Plaintiffs have not opposed the motion.
• 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, the Fifth Circuit consolidated the appeal
with the appeal in the Rupert action, and the consolidated appeal was fully briefed as of March 24, 2015. Oral
argument on the consolidated appeal was held on September 2, 2015. On September 16, 2015, the Fifth Circuit
affirmed. 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
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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. On December 3, 2014 and March
3, 2015, the court granted the plaintiffs’ motions to remand in Barbar and Ranni, respectively, remanded both actions
to Florida state court (Miami-Dade County) and stayed both actions until further order of the court. On January 2,
2015 and April 1, 2015, the plaintiffs in Barbar and Ranni, respectively, appealed the court’s December 3, 2014 and
March 3, 2015 decisions to the Fifth Circuit. On April 22, 2015 and July 22, 2015, respectively, the Fifth Circuit
dismissed the Barbar and Ranni appeals sua sponte for lack of jurisdiction. The defendants have not yet responded to
the complaints in Ranni or Barbar.
On April 1, 2015, the defendants except Willis Group Holdings plc filed motions to dismiss the complaints in
Zacarias, Tisminesky and de Gadala-Maria. On June 19, 2015, Willis Group Holdings plc filed motions to dismiss the
complaints in Zacarias, Tisminesky and de Gadala-Maria for lack of personal jurisdiction. On July 15, 2015, the court
dismissed the complaint in Zacarias in its entirety with leave to replead within 21 days. On July 21, 2015, the court
dismissed the complaints in Tisminesky and de Gadala-Maria in their entirety with leave to replead within 21 days. On
August 6, 2015, the plaintiffs in Zacarias, Tisminesky and de Gadala-Maria filed amended complaints (in which,
among other things, Willis Group Holdings plc was no longer named as a defendant). On September 11, 2015, the
defendants filed motions to dismiss the amended complaints. The motions await disposition by the court.
•
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. As alleged by the Stanford Receiver, the total
amount of collective losses allegedly sustained by all investors in Stanford certificates of deposit is approximately
$4.6 billion.
On November 15, 2013, plaintiffs in Janvey 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, other than with respect to Willis Group Holding plc’s motion to dismiss for lack of
personal jurisdiction, 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. On February 4, 2015, the court granted Willis’s motion to amend and, to the extent necessary, reconsider the
December 5 order.
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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).
On January 26, 2015, the court entered an order setting a schedule for briefing and discovery regarding the plaintiffs’
motion for class certification, which schedule, among other things, provided for the submission of the plaintiffs’
motion for class certification (following the completion of briefing and discovery) on July 20, 2015. By letter dated
March 4, 2015, the parties requested that the court consolidate the scheduling orders entered in Troice and Janvey to
provide for a class certification submission date of April 20, 2015 in both cases. On March 6, 2015, the court entered
an order consolidating the scheduling orders in Troice and Janvey, providing for a class certification submission date
of April 20, 2015 in both cases, and vacating the July 20, 2015 class certification submission date in the original
Janvey scheduling order.
On November 17, 2015, Willis Group Holdings plc withdrew its motion to dismiss for lack of personal jurisdiction.
• Martin v. Willis of Colorado, Inc., et al., Case No. 201652115, was filed on August 5, 2016, on behalf of one Stanford
investor against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the same Willis associate in
Texas state court (Harris County). The complaint alleges claims under Texas statutory and common law and seeks
actual damages of less than $100,000, exemplary damages, attorneys’ fees and costs. On September 12, 2016, the
plaintiff filed an amended complaint, which added five more Stanford investors as plaintiffs and seeks damages in
excess of $1 million. The defendants have not yet responded to the amended complaint in Martin.
• Abel, et al. v. Willis of Colorado, Inc., et al., C.A. No. 3:16-cv-2601, was filed on September 12, 2016, on behalf of
more than 300 Stanford investors against Willis Group Holdings plc, Willis Limited, Willis of Colorado, Inc. and the
same Willis associate, also in the Northern District of Texas. The complaint alleges claims under Texas statutory and
common law and seeks actual damages in excess of $135 million, exemplary damages, attorneys’ fees and costs. On
November 10, 2016, the plaintiffs filed an amended complaint, which, among other things, added several more
Stanford investors as plaintiffs. The defendants have not yet responded to the complaint in Abel.
The plaintiffs in Janvey and Troice and the other actions above seek overlapping damages, representing either the entirety or a
portion of the total alleged collective losses incurred by investors in Stanford certificates of deposit, notwithstanding the fact
that Legacy Willis acted as broker of record for only a portion of time that Stanford issued certificates of deposit. In the fourth
quarter of 2015, the Company recognized a $70 million litigation provision for loss contingencies relating to the Stanford
matters based on its ongoing review of a variety of factors as required by accounting standards.
On March 31, 2016, the Company entered into a settlement in principle for $120 million relating to this litigation, and we have
therefore increased our provisions by $50 million. Further details on this settlement in principle are given below.
The settlement is contingent on a number of conditions, including court approval of the settlement and a bar order prohibiting
any continued or future litigation against Willis related to Stanford, which may not be given. Therefore, the ultimate resolution
of these matters may differ from the amount provided for. The Company continues to dispute the allegations and, to the extent
litigation proceeds, to defend the lawsuits vigorously.
Settlement. On March 31, 2016, the Company entered into a settlement in principle, as reflected in a Settlement Term Sheet,
relating to the Stanford litigation matter. The Company agreed to the Settlement Term Sheet to eliminate the distraction,
burden, expense and uncertainty of further litigation. In particular, if the settlement and the related bar orders described below
are approved by the Court and become effective, the Company (a newly-combined firm) would be able to conduct itself with
the bar orders’ protection from the continued overhang of matters alleged to have occurred approximately a decade ago.
Further, the Settlement Term Sheet provided that the parties understood and agreed that there is no admission of liability or
wrongdoing by the Company. The Company expressly denies any liability or wrongdoing with respect to the matters alleged in
the Stanford litigation. Specifically, the parties to the Settlement Term Sheet are Ralph S. Janvey (in his capacity as the Court-
appointed receiver (the ‘Receiver’) for The Stanford Financial Group and its affiliated entities in receivership (collectively,
‘Stanford’)), the Official Stanford Investors Committee, Samuel Troice, Martha Diaz, Paula Gilly-Flores, Punga Punga
Financial, Ltd., Manuel Canabal, Daniel Gomez Ferreiro and Promotora Villa Marina, C.A. (collectively, ‘Plaintiffs’), on the
one hand, and Willis Towers Watson Public Limited Company (formerly Willis Group Holdings Public Limited Company),
Willis Limited, Willis North America Inc. and Willis of Colorado, Inc. (collectively, ‘Defendants’), on the other hand.
Under the terms of the Settlement Term Sheet, the parties agreed in principle to settle and dismiss the Janvey and Troice actions
(collectively, the ‘Actions’) and all current or future claims arising from or related to Stanford. If the settlement, including the
bar orders described below, is approved by the Court and is not subject to further appeal, Willis North America Inc. will make a
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one-time cash payment of $120 million to the Receiver to be distributed to all Stanford investors who have claims recognized
by the Receiver pursuant to the distribution plan in place at the time the payment is made.
The Settlement Term Sheet also provided the parties’ agreement to seek the Court’s entry of bar orders prohibiting any
continued or future litigation against the Defendants and their related parties of claims relating to Stanford, whether asserted to
date or not. The terms of the bar orders therefore would prohibit all Stanford-related litigation described above, and not just the
Actions, including any pending matters and any actions that may be brought in the future. Final Court approval of these bar
orders is a condition of the settlement.
On or about August 31, 2016, the parties to the settlement signed a formal Settlement Agreement memorializing the terms of
the settlement as originally set forth in the Settlement Term Sheet. On September 7, 2016, the plaintiffs in the Troice and
Janvey actions filed with the Court a motion to approve the settlement. On October 19, 2016, the Court preliminarily approved
the settlement. Several of the plaintiffs in the other actions above have objected to the settlement. A hearing to consider final
approval of the settlement was held on January 20, 2017 and the Court reserved decision. The Actions are stayed pending final
approval of the settlement. The timing of any final decision is subject to the discretion of the Court and any appeal, and the
Court may decide not to approve the settlement.
City of Houston
On August 1, 2014, the City of Houston (‘plaintiff’) filed suit against Legacy Towers Watson in the United States District Court
for the Southern District of Texas, Houston Division. On March 8, 2016, plaintiff filed its First Amended Complaint.
In the amended complaint, plaintiff alleges various deficiencies in pension actuarial work-product and advice stated to have
been provided by Legacy Towers Watson’s predecessor firm, Towers Perrin, in its capacity as principal actuary to the Houston
Firefighters’ Relief and Retirement Fund (the ‘Fund’). Towers Perrin is stated to have acted in this capacity between “the early
1980s until 2003”.
In particular, the amended complaint alleges “misrepresentations and miscalculations” in valuation reports allegedly issued by
Towers Perrin from 2000 through 2002 upon which plaintiff claims to have relied. Plaintiff asserts that Towers Perrin assigned
a new team of actuaries to the Fund in 2002 “to correct Towers’ own earlier mistakes” and that the new team “altered” certain
calculations which “increased the actuarial accrued liability by $163 million.” Plaintiff claims that the reports indicated that the
City’s minimum contribution percentages to the Fund would remain in place through at least 2019; and that existing benefits
under the Fund could be increased, and new benefits could be added, without increasing plaintiff’s financial burden, and
without increasing plaintiff’s rate of annual contributions to the Fund. The amended complaint alleges that plaintiff relied on
these reports when supporting a new benefit package for the Fund. These reports, and other advice, are alleged, among other
things, to have been negligent, to have misrepresented the present and future financial condition of the Fund and the
contributions required to be made by plaintiff to support those benefits. Plaintiff asserts that, but for Towers Perrin’s alleged
negligence and misrepresentations, plaintiff would not have supported the benefit increase, and that such increased benefits
would not and could not have been approved or enacted. It is further asserted that Towers Perrin’s alleged “negligence and
misrepresentations damaged the City to the tune of tens of millions of dollars in annual contributions.”
Plaintiff seeks the award of punitive damages, actual damages, exemplary damages, special damages, attorney’s fees and
expenses, costs of suit, pre- and post- judgment interest at the maximum legal rate, and other unspecified legal and equitable
relief. Plaintiff has not yet quantified fully its asserted damages.
On October 10, 2014, Legacy Towers Watson filed a motion to dismiss plaintiff’s entire complaint on the basis that the
complaint fails to state a claim upon which relief can be granted. On November 21, 2014, the City filed its response in
opposition to Legacy Towers Watson’s motion to dismiss. On September 23, 2015, Legacy Towers Watson’s motion to dismiss
was denied by the United States District Court for the Southern District of Texas, Houston Division. The court entered a
scheduling order setting trial for May 30, 2017. On June 20, 2016, the Court entered an amended scheduling order setting trial
for October 31, 2017.
Given the stage of the proceedings, the Company is currently unable to provide an estimate of the reasonably possible loss or
range of loss. The Company disputes the allegations, and intends to defend the lawsuit vigorously.
British Coal Staff Superannuation Scheme
On September 4, 2014, Towers Watson Limited (‘TWL’), a wholly-owned subsidiary of Legacy Towers Watson, received a
Letter of Claim (the ‘Demand Letter’) on behalf of Coal Staff Superannuation Scheme Trustees Limited (the ‘Trustee’), trustee
of the British Coal Staff Superannuation Scheme (the ‘Scheme’). The Demand Letter was sent under the Professional
Negligence Pre-Action Protocol, a pre-action dispute resolution procedure which applies in England and Wales.
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In the Demand Letter, it is asserted that the Trustee has a claim against TWL in respect of allegedly negligent investment
consulting advice provided to it by Watson Wyatt Limited, in the United Kingdom, in particular with regard to a currency hedge
that was implemented in connection with the Scheme’s investment of £250 million in a Bluebay local currency emerging
market debt fund in August 2008 (the ‘Investment’). It is alleged that the currency hedge has caused a substantial loss to the
Scheme, compensatory damages for which losses are quantified at £47.5 million, for the period August 2008 to October 2012.
TWL sent a Letter of Response on December 23, 2014.
On November 11, 2015, the Trustee issued a claim form in the English High Court of Justice, Queen’s Bench Division,
Commercial Court, in which TWL is named defendant. The Trustee asserts that, in breach of retainer, or of a duty of care
alleged to have been owed under contract or at common law, TWL acted negligently and/or provided negligent advice in
connection with the Investment and/or in relation to the monitoring of the performance of the Investment. The Trustee asserts
that, but for the alleged breaches, the Scheme would have achieved a return on the Investment that was approximately £47.5
million greater than the return on the Investment which it ultimately achieved, in the period between August 2008 and 28
September 2012. The claim form was not served on TWL within the validity period.
Based on current information, the Company does not anticipate any further developments, and considers the matter to be
closed.
Meriter Health Services
On January 6, 2015, Meriter Health Services, Inc. (‘Meriter’), plan sponsor of the Meriter Health Services Employee
Retirement Plan (the ‘Plan’) filed a complaint in Wisconsin state court against Towers Watson Delaware Inc. (‘TWDE’), a
wholly-owned subsidiary of the Company, and against its former lawyers, individual actuaries, and insurers.
In the Third Amended Complaint, served on April 12, 2016, Meriter alleges that Towers, Perrin, Forster & Crosby, Inc.
(‘TPFC’) and Davis, Conder, Enderle & Sloan, Inc. (‘DCES’), and other entities and individuals, including Meriter’s former
lawyers, acted negligently concerning the benefits consulting advice provided to Meriter, including TPFC and the lawyers’
involvement in the Plan design and drafting of the Plan document in 1987 by TPFC, and DCES and the lawyers’ Plan review,
Plan redesign, Plan amendment, and drafting of ERISA section 204(h) notices in the early 2000s. Additionally, Meriter asserts
that TPFC, DCES, and the individual actuary defendants breached alleged fiduciary duties to advise Meriter regarding the
competency of Meriter’s then ERISA counsel. Meriter also has asserted causes of action for contribution, indemnity, and
equitable subrogation related to amounts paid to settle a class action lawsuit related to the Plan that was filed by Plan
participants against Meriter in 2010, alleging a number of ERISA violations and related claims. Meriter settled that lawsuit in
2015 for $82 million. Meriter seeks damages in the amount of approximately $190 million, which includes amounts it claims to
have paid to settle and defend the class action litigation, and amounts it claims to have incurred as a result of improper plan
design. Meriter seeks to recover these alleged damages from TWDE and the other defendants.
On January 12, 2016, TWDE and the other defendants filed a motion for partial summary judgment seeking dismissal of
Meriter’s negligence and breach of fiduciary duty claims. On April 18, 2016, TWDE and the other defendants filed a motion to
dismiss the contribution, indemnification, and equitable subrogation claims. On May 4, 2016, the parties appeared for oral
argument on the motion for partial summary judgment, which the court granted in part and denied in part. The court dismissed
the fiduciary duty claims, but not the negligence claims. Meriter subsequently moved for reconsideration of the dismissal of its
breach of fiduciary duty claims, which motion was denied as to TWDE on August 16, 2016. On June 22, 2016, the court
granted in part TWDE’s motion to dismiss, and dismissed the contribution and equitable subrogation claims, but denied the
motion as to Meriter’s indemnification claim without prejudice to the right of any defendant to raise the issue again by later
motion. On December 1, 2016, TWDE and other defendants filed a motion for summary judgment, which will be heard on
March 9, 2017. Based on all of the information to date, and given the stage of the matter, TWDE is currently unable to provide
an estimate of the reasonably possible loss or range of loss. TWDE disputes the allegations, and intends to defend the matter
vigorously.
Elma Sanchez, et. al
On August 6, 2013, three individual plaintiffs filed a putative class action suit against the California Public Employees’
Retirement System (‘CalPERS’) in Los Angeles County Superior Court. On January 10, 2014, plaintiffs filed an amended
complaint, which added as defendants several members of CalPERS’ Board of Administration and three Legacy Towers Watson
entities, Towers Watson & Co., Towers Perrin, and Tillinghast-Towers Perrin (‘Towers Perrin’).
Plaintiffs’ claims all relate to a self-funded, non-profit Long Term Care Program that CalPERS established in 1995 (the ‘LTC
Program’). Plaintiffs’ claims seek unspecified damages allegedly resulting from CalPERS’ 2012 decision to implement in 2015
128
and 2016 an 85 percent increase in the premium rates of certain of the long term care policies it issued between 1995 and 2004
(the ‘85% Increase’).
The amended complaint alleges claims against CalPERS for breach of contract and breach of fiduciary duty. It also includes a
single cause of action against Towers Perrin for professional negligence relating to actuarial services Towers Perrin provided to
CalPERS relating to the LTC Program between 1995 and 2004.
Plaintiffs principally allege that CalPERS mismanaged the LTC Program and its investment assets in multiple respects and
breached its contractual and fiduciary duties to plaintiffs and other class members by impermissibly imposing the 85% Increase
to make up for investment losses. Plaintiffs also allege that Towers Perrin recommended inadequate initial premium rates at the
outset of the LTC Program and used unspecified inappropriate assumptions in its annual valuations for CalPERS. Plaintiffs
claim that Towers Perrin’s allegedly negligent acts and omissions, prior to the end of its retainer in 2004, contributed to the
need for the 85% Increase.
In May 2014, the court denied the motions to dismiss filed by CalPERS and Towers Perrin addressed to the sufficiency of the
complaint. On January 28, 2016, the court granted plaintiffs’ motion for class certification. The certified class as currently
defined includes those long term care policy holders whose policies were “subject to” the 85% Increase. The court thereafter set
an October 2, 2017 trial date.
In May 2016, the case was reassigned to a different judge. The court agreed that Towers Perrin may file a motion for summary
judgment which was initially scheduled to be heard on February 3, 2017. The hearing date was thereafter moved to March 8,
2017, and the motion at this time has been fully briefed. In the event summary judgment is denied, the court has also agreed to
consider potential motions by Towers Perrin and CalPERS to decertify or modify the class.
Based on all of the information to date, and given the stage of the matter, the Company is currently unable to provide an
estimate of the reasonably possible loss or range of loss. The Company disputes the allegations and intends to continue to
defend the lawsuit vigorously.
Note 14 — Supplementary Information for Certain Balance Sheet Accounts
Additional details of specific balance sheet accounts are detailed below:
Accounts receivable, net consists of the following:
Billed, net of provision for doubtful accounts of $40 million and $22 million
Accrued and unbilled, at estimated net realizable value
Accounts receivable, net
December 31,
2016
December 31,
2015
$
$
1,789
291
2,080
$
$
1,051
207
1,258
Accounts receivable are stated at estimated net realizable values. The provisions shown below as of 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 charged to costs and expenses
Charges to other accounts - acquisitions
Deductions / other movements
Foreign exchange differences
Balance at end of year
December 31,
2016
December 31,
2015
December 31,
2014
$
$
22
36
8
(27)
1
40
$
$
12
5
11
(7)
1
22
$
$
13
4
—
(6)
1
12
129
Prepaid and other current assets consist of the following:
Prepayments and accrued income
Derivatives and investments
Deferred compensation plan assets
Retention incentives
Corporate income and other taxes
Other current assets
Total prepaid and other current assets
Other non-current assets consist of the following:
Prepayments and accrued income
Deferred compensation plan assets
Deferred tax assets
Accounts receivable, net
Other investments
Other non-current assets
Total other non-current assets
Other current liabilities consist of the following:
Accounts payable
Income and other taxes payable
Contingent and deferred consideration on acquisition
Payroll related liabilities
Derivatives
Third party commissions
Other current liabilities
Total other current liabilities
Provision for liabilities consists of the following:
Claims, lawsuits and other proceedings
Other provisions
Total provision for liabilities
Other non-current liabilities consist of the following:
Incentives from lessors
Deferred compensation plan liability
Contingent and deferred consideration on acquisitions
Derivatives
Other non-current liabilities
Total other non-current liabilities
130
December 31,
2016
December 31,
2015
$
$
131
32
15
7
97
55
337
$
$
86
29
20
14
66
40
255
December 31,
2016
December 31,
2015
$
$
15
111
50
27
30
120
353
$
$
23
102
76
30
42
25
298
December 31,
2016
December 31,
2015
$
$
117
91
53
200
80
184
151
876
$
$
75
45
68
82
31
177
125
603
December 31,
2016
December 31,
2015
$
$
456
119
575
$
$
205
90
295
December 31,
2016
December 31,
2015
$
$
133
111
89
51
148
532
$
$
175
102
156
27
73
533
Note 15 — Other Expense/(Income), Net
Other expense/(income), net consists of the following:
Gain on disposal of operations
Gain on remeasurement of equity interests (i)
Impact of Venezuelan currency devaluation (ii)
Foreign exchange loss/(gain)
Other expense/(income), net
____________________
Years ended December 31,
2016
2015
2014
$
$
(2) $
—
—
29
27
$
(25) $
(59)
30
(1)
(55) $
(12)
—
14
(8)
(6)
(i) Prior to the acquisition date, the Company accounted for its 30% interest in Gras Savoye as an equity-method investment. The acquisition-date fair
value of the previously held equity interest was $158 million and is included in the measurement of the consideration transferred. The Company
recognized a gain of $59 million as a result of remeasuring its prior equity interest in Gras Savoye held before the business combination.
(ii) On December 31, 2015 the Company began using the SIMADI rate for the Venezuelan Bolivar (approximately Venezuelan bolivars 198.7 = U.S.
dollar 1) instead of the SICAD I auction rate (approximately Venezuelan bolivars 13.5 = U.S. dollar 1) to translate on Venezuelan retail operations. In
March 2016, the DICOM mechanism replaced the SIMADI mechanism. At December 31, 2016, the DICOM rate was approximately Venezuelan
bolivars 673 = U.S. dollar 1.
Note 16 — Accumulated Other Comprehensive Loss
The components of other comprehensive income/(loss) are as follows:
December 31, 2016
December 31, 2015
December 31, 2014
Before
tax
amount
Net of
tax
amount
Before
tax
amount
Net of
tax
amount
Before
tax
amount
Net of
tax
amount
Tax
Tax
Tax
Other comprehensive income/(loss):
Foreign currency translation
$ (353) $ — $ (353) $ (133) $ — $ (133) $ (183) $ — $ (183)
Defined pension and post-retirement benefits
Derivative instruments
Other comprehensive income/(loss)
Less: Other comprehensive loss attributable to
noncontrolling interests
Other comprehensive income/(loss) attributable
to Willis Towers Watson
(553)
(87)
(993)
20
114
12
126
—
(439)
(75)
(867)
20
233
(35)
65
10
(53)
7
(46)
—
180
(28)
19
10
(179)
(21)
(383)
6
—
4
4
—
(179)
(17)
(379)
6
$ (973) $
126
$ (847) $
75
$
(46) $
29
$ (377) $
4
$ (373)
131
The components of accumulated other comprehensive loss, net of tax, are as follows:
Foreign currency
translation (i)
Derivative
instruments (i)
Defined pension
and post-
retirement
benefits (ii)
(14) $
35
$
(714) $
Balance, January 1, 2014
Other comprehensive income/(loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income
Net current year other comprehensive income/(loss), net of tax and
noncontrolling interests
Balance, December 31, 2014
Other comprehensive income/(loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income
Net current year other comprehensive income/(loss), net of tax and
noncontrolling interests
Balance, December 31, 2015
Other comprehensive income/(loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income
Net current year other comprehensive income/(loss), net of tax and
noncontrolling interests
Balance, December 31, 2016
____________________
$
$
$
$
Total
(693)
(418)
45
(216)
37
(179)
(893) $
(373)
(1,066)
158
22
180
4
25
29
(25)
8
(17)
18
$
(31)
3
(28)
(10) $
(713) $
(1,037)
(110)
38
(72)
(483)
44
(439)
(82) $
(1,152) $
(929)
82
(847)
(1,884)
(177)
—
(177)
(191) $
(123)
—
(123)
(314) $
(336)
—
(336)
(650) $
(i) Reclassification adjustments from accumulated other comprehensive income are included in Other expense/(income), net of foreign currency
translation and gains and losses on cash flow hedges. See Note 9 — Derivative Financial Instruments for additional details regarding the
reclassification adjustments for the hedge settlements.
(ii) Reclassification adjustments from accumulated other comprehensive income are included in the computation of net periodic pension cost (see Note
12 — Retirement Benefits) which is included in Salaries and benefits in the accompanying consolidated statements of operations.
Note 17 — Share-based Compensation
Plan Summaries
On December 31, 2016, the Company had a number of open share-based compensation plans, which provide for the grant of
time-based and performance-based options, time-based 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 of December 31, 2016 are described below. The compensation cost that has
been recognized for those plans for the years ended December 31, 2016, 2015 and 2014 was $123 million, $64 million and $52
million, respectively. The total income tax benefit recognized in the consolidated statement of operations for share-based
compensation arrangements for the years ended December 31, 2016, 2015, and 2014 was $35 million, $15 million and $12
million, respectively.
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, non-employee 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 were approximately 9 million shares remaining available for grant under this plan as of December 31, 2016. 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.
Towers Watson Share Plans
In January 2016, in connection with the Merger, we assumed the Towers Watson & Co. 2009 Long-Term Incentive Plan
(‘LTIP’) and converted the outstanding unvested restricted stock units and options into Willis Towers Watson restricted stock
units (‘RSUs’) and options using a conversion ratio stated in the Merger Agreement. We determined the fair value of the
portion of the outstanding RSUs and options related to pre-acquisition employee service using the straight-line methodology
132
from date of grant to the acquisition date to be $37 million, which was added to the transaction consideration. The fair value of
the remaining portion of RSUs and options related to the post-acquisition employee services was $45 million, and will be
recorded over the future vesting periods. For the year ended December 31, 2016, we recorded $31 million of non-cash stock
based compensation.
The acquired awards include performance-vested restricted stock units. Under the RSU agreement, participants become vested
in a number of RSUs based on the achievement of specified levels of financial performance during the performance period set
forth in the Merger Agreement, provided that the participant remains in continuous service with us through the end of the
performance period. Dividend equivalents will accrue on these RSUs and vest to the same extent as the underlying shares. The
Compensation Committee of the Board of Directors may provide for continuation of vesting of restricted stock units upon an
employee’s termination under certain circumstances such as qualified retirement. The definition of qualified retirement is age
55 with 15 years of service with the Company and a minimum of one year of service in the performance period. Due to the
terms of the RSU agreement, the achievement of the level of financial performance is determined at the higher of 100% or the
level attained at the time of the Merger.
The Company does not intend to grant future awards under the 2009 LTIP plan.
Employee Stock Purchase Plans
The Company adopted 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 with the ability to contribute
payroll deductions to the purchase of Willis Towers Watson ordinary shares at the end of each offering period.
Share-based Compensation Valuation Assumptions
Options
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 shares. The
Company uses the simplified method set out in ASC 718 – Compensation – Stock Compensation 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 U.S. Treasury yield curve in
effect at the time of grant. The assumptions noted in the table below represent the weighted-average of each assumption for
each grant during the year.
Expected volatility
Expected dividends
Expected life (years)
Risk-free interest rate
Years ended December 31,
2016
2015
2014
21.0%
1.5%
3
0.7%
17.4%
2.7%
4
1.5%
18.7%
2.8%
4
1.3%
133
Share-based Compensation Award Activity
Options
Classification of options as time-based or performance-based is dependent on the original terms of the award. Performance
conditions on the majority of options have been met. A summary of option activity under the plans at December 31, 2016, and
changes during the year then ended is presented below:
Time-based stock options
Balance as of December 31, 2015
Acquired
Granted
Exercised
Forfeited
Expired
Balance as of December 31, 2016
Options vested or expected to vest at December 31, 2016
Options exercisable at December 31, 2016
Performance-based stock options
Balance as of December 31, 2015
Acquired
Exercised
Forfeited
Balance as of December 31, 2016
Options vested or expected to vest at December 31, 2016
Options exercisable at December 31, 2016
____________________
Weighted
Average
Exercise
Price(i)
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Options (ii)
1,598
72
71
$
$
$
(459) $
(49) $
(32) $
1,201
1,197
851
617
520
$
$
$
$
$
(236) $
(18) $
883
883
432
$
$
$
100.99
18.26
111.88
90.65
100.38
83.40
101.11
101.13
100.46
88.65
110.69
85.97
109.43
101.95
102.03
92.79
4 years
4 years
5 years
4 years
4 years
2 years
$
$
$
$
$
$
25
10
8
19
6
1
(i) Certain options are exercisable in Pounds sterling and are converted to dollars using the exchange rate at December 31, 2016.
(ii) The number of options outstanding and other per share data have been retroactively adjusted to reflect the reverse stock split on January 4, 2016. See
Note 3 — Merger and Acquisitions for further details.
The weighted average grant-date fair value of time-based options granted during the years ended December 31, 2016, 2015,
and 2014 were $16.88, $14.77, and $14.12, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2016, 2015, and 2014 was $25 million, $17 million, and $22 million, respectively. At December 31, 2016 there
was $4 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 three years ended December 31, 2016, 2015 or 2014. However,
520,295 performance-based options were acquired during the year ended December 31, 2016, at which time the performance
conditions were met. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014
was $9 million, $25 million, and $15 million, respectively. At December 31, 2016 there was $1 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.
134
Restricted Stock Units
The fair value of each time-based restricted stock unit is based on the grant date fair value, or the fair value on the acquisition
date in the case of acquired awards. The fair value of each performance-based restricted stock unit is estimated on the grant
date using a Monte-Carlo simulation that uses the assumptions noted in the following table. Expected volatility is based on the
historical volatility of the Company’s shares. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of
the grant. The assumptions noted in the table below represent the weighted-average of each assumption for each grant during
the year.
Expected volatility
Expected dividend yield
Risk-free interest rate
Term of award (years)
2016
20.3%
—%
0.8%
2.6
A summary of time-based and performance-based restricted stock unit activity under the Plans at December 31, 2016, and
changes during the year then ended, is presented below:
Nonvested shares (time-based restricted stock units)
Balance, beginning of year
Acquired
Granted
Vested
Forfeited
Balance, end of year
Nonvested shares (performance-based restricted stock units)
Balance, beginning of year
Acquired
Granted
Vested
Forfeited
Balance, end of year
____________________
Shares (i)
(thousands)
Weighted
Average
Grant Date
Fair Value
666
220
44
$
$
$
(460) $
(33) $
437
$
662
235
592
$
$
$
(259) $
(30) $
1,200
$
116.58
124.98
121.97
118.85
116.33
118.98
116.06
124.98
124.66
118.39
106.61
121.78
(i) The number of nonvested shares outstanding and other per share data have been retroactively adjusted to reflect the reverse stock split on January 4,
2016. See Note 3 — Merger and Acquisitions for further details.
The total number of time-based restricted stock units vested during the year ended December 31, 2016 was 459,838 shares at
an average share price of $120.42. The total number of time-based restricted stock units vested during the year ended
December 31, 2015 was 408,032 shares at an average share price of $117.72.The total number of restricted stock units vested
during the year ended December 31, 2014 was 261,530 shares at an average share price of $116.97. At December 31, 2016
there was $43 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 1 year.
The total number of performance-based restricted stock units vested during the year ended December 31, 2016 was
258,536 shares at an average share price of $119.75. The total number of performance-based restricted stock units vested
during the year ended December 31, 2015 was 63,180 shares at an average share price of $117.88. The total number of
performance-based restricted stock units vested during the year ended December 31, 2014 was 62,216 shares at an average
share price of $116.00. At December 31, 2016 there was $54 million of total unrecognized compensation cost related to
nonvested performance-based share-based compensation arrangements under the plan; that cost is expected to be recognized
over a weighted average period of 2 years.
135
Cash received from option exercises under all share-based payment arrangements for the years ended December 31, 2016,
2015, and 2014 was $63 million, $124 million, and $134 million, respectively. The actual tax benefit recognized for the tax
deductions from option exercises of the share-based payment arrangements totaled $30 million for the year ended
December 31, 2016. The actual tax benefit recognized for the tax deductions from option exercises of the share-based payment
arrangements totaled $25 million and $20 million for the years ended December 31, 2015 and December 31, 2014, respectively.
Note 18 — Earnings Per Share
Basic and diluted earnings per share are calculated by dividing net income attributable to Willis Towers Watson by the average
number of ordinary 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 issuance of shares that then shared in the net income of the Company.
At December 31, 2016 and 2015, there were 1.2 million and 1.6 million time-based share options; 0.9 million and 0.6 million
performance based options; 0.4 million and 0.7 million restricted time-based share units; and 1.2 million and 0.7 million
restricted performance-based share units outstanding, respectively.
Basic and diluted earnings per share are as follows:
Net income attributable to Willis Towers Watson
$
420
$
373
$
362
Years ended December 31,
2015(i)
2014(i)
2016
Basic weighted average number of shares outstanding
Dilutive effect of potentially issuable shares
Diluted weighted average number of shares outstanding
Basic earnings per share
Dilutive effect of potentially issuable shares
Diluted earnings per share
____________________
137
1
138
68
1
69
$
$
3.07
(0.03)
3.04
$
$
5.49
(0.08)
5.41
$
$
67
1
68
5.40
(0.08)
5.32
(i) Shares outstanding, potentially issuable shares, basic and diluted earnings per share, and the dilutive effect of potentially issuable shares, for the year
ended December 31, 2014 and 2015 have been retroactively adjusted to reflect the reverse stock split effected on January 4, 2016. See Note 3 —
Merger and Acquisitions for further details.
Options to purchase 0.5 million, 0.6 million and 0.9 million shares were not included in the computation of the dilutive effect
of share options for the years ended December 31, 2016, 2015 and 2014, respectively, because their effect was anti-dilutive.
Options to purchase nil, 0.5 million, and 0.6 million restricted stock units were not included in the computation of the dilutive
effect of share options for the years ended December 31, 2016, 2015 and 2014, respectively, because their effect was anti-
dilutive. The number of options for 2015 and 2014 has been retroactively adjusted to reflect the reverse stock split on January
4, 2016. See Note 3 — Merger and Acquisitions for further details.
Note 19 — Supplemental Disclosures of Cash Flow Information
Supplemental disclosures regarding cash flow information and non-cash investing and financing activities are as follows:
Supplemental disclosures of cash flow information:
Cash payments for income taxes, net
Cash payments for interest
Cash acquired
Supplemental disclosures of non-cash investing and financing activities:
Issuance of shares and assumed awards in connection with the Merger
Fair value of deferred and contingent consideration related to acquisitions
Years Ended December 31,
2016
2015
2014
$
$
$
$
$
158
143
476
8,723
$
$
$
$
— $
91
126
148
$
$
$
— $
204
$
88
123
57
—
12
136
Note 20 — Quarterly Financial Data (Unaudited)
Quarterly financial data for 2016 and 2015 were as follows:
2016
Total revenues
Total costs of providing services
Income from operations
Net income/(loss)
Net income/(loss) attributable to Willis Towers Watson
Earnings/(loss) per share
— Basic
— Diluted
2015
Total revenues
Total costs of providing services
Income from operations
Net income/(loss)
Net income/(loss) attributable to Willis Towers Watson
Earnings/(loss) per share
— Basic
— Diluted
March 31,
June 30,
September 30, December 31,
Three Months Ended
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,234
1,908
326
245
238
1.76
1.75
1,087
794
293
214
210
3.09
3.04
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,949
1,813
136
76
72
0.52
0.51
922
817
105
72
70
1.03
1.01
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,777
1,776
1
$
$
$
(31) $
(32) $
(0.23) $
(0.23) $
846
819
27
116
117
1.72
1.70
$
$
$
$
$
$
$
1,927
1,839
88
148
142
1.04
1.03
974
972
2
(18)
(24)
(0.35)
(0.35)
The Merger affects the comparability of this data between 2016 and other periods presented. See Note 3 — Merger and
Acquisitions for additional information.
During the fourth quarter of 2016, management corrected an error by recording a $103 million benefit from income taxes
related to the release of a portion of our U.S. deferred tax valuation allowance. A portion of the correction should have been
recorded in each of the three fiscal year 2016 Quarterly Reports on Forms 10-Q. Management has determined that the error is
immaterial to the previously filed 2016 quarterly financial statements and has no impact on prior year financial statements.
137
Note 21 — Financial Information for Parent Guarantor, Other Guarantor Subsidiaries and Non-Guarantor
Subsidiaries
Willis North America Inc. (‘Willis North America’) had $148 million senior notes outstanding that were issued on July 1, 2005
that were subsequently repaid on July 1, 2015 and has $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 U.K. Holdings Limited, TA I Limited, Trinity Acquisition plc, Willis
Group Limited, Willis Towers Watson Sub Holdings Unlimited Company and WTW Bermuda Holdings Ltd., collectively the
‘Other Guarantors’, and with Willis Towers Watson, 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 Towers Watson, 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 of Willis
Towers Watson, the Other Guarantors and the Issuer.
138
Condensed Consolidated Statement of Operations
Year ended December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other (income)/expense, net
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND INTEREST IN EARNINGS OF
ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INTEREST IN
EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS
TOWERS WATSON
$
— $
— $
—
—
2
3
—
—
—
1
6
(6)
(3)
3
32
—
(38)
—
(38)
—
458
420
—
2
2
1
112
5
—
29
16
163
(161)
(500)
74
89
(2)
178
(36)
214
—
234
448
—
19
—
19
15
88
14
—
39
26
182
(163)
(287)
178
39
—
(93)
(86)
(7)
—
157
150
—
$
7,759
$
— $
7,778
107
7,866
4,628
1,348
159
591
125
134
6,985
881
(136)
671
24
29
293
26
267
2
—
269
(18)
—
—
—
—
—
—
—
—
—
—
926
(926)
—
—
—
—
—
—
(849)
(849)
—
109
7,887
4,646
1,551
178
591
193
177
7,336
551
—
—
184
27
340
(96)
436
2
—
438
(18)
$
420
$
448
$
150
$
251
$
(849) $
420
139
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Comprehensive (loss)/income before
noncontrolling interests
Less: Comprehensive loss attributable to
noncontrolling interests
Comprehensive (loss)/income attributable to
Willis Towers Watson
$
(427) $
(380) $
(266) $
(550) $
1,194
$
(429)
—
—
—
2
—
2
$
(427) $
(380) $
(266) $
(548) $
1,194
$
(427)
140
Condensed Consolidated Statement of Operations
Year ended December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other expense/(income), net
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND INTEREST IN EARNINGS OF
ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INTEREST IN
EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS
TOWERS WATSON
$
— $
— $
—
—
1
8
—
—
—
4
13
(13)
—
—
43
10
(66)
—
(66)
—
439
373
—
1
1
—
100
6
—
28
14
148
(147)
(225)
31
39
(42)
50
(29)
79
9
347
435
—
11
—
11
77
1
16
—
13
—
107
(96)
(236)
189
42
—
(91)
(17)
(74)
—
106
32
—
$
3,798
$
— $
3,809
19
3,817
2,225
609
73
76
85
66
3,134
683
(110)
351
18
(23)
447
13
434
2
—
436
(11)
—
—
—
—
—
—
—
—
—
—
571
(571)
—
—
—
—
—
—
(892)
(892)
—
20
3,829
2,303
718
95
76
126
84
3,402
427
—
—
142
(55)
340
(33)
373
11
—
384
(11)
$
373
$
435
$
32
$
425
$
(892) $
373
141
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Comprehensive income/(loss) before
noncontrolling interests
Less: Comprehensive income attributable to
noncontrolling interests
Comprehensive income/(loss) attributable to
Willis Towers Watson
$
$
402
$
462
$
49
$
455
$
(965) $
403
—
—
—
(1)
—
(1)
402
$
462
$
49
$
454
$
(965) $
402
142
Condensed Consolidated Statement of Operations
Year ended December 31, 2014
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other expense/(income), net
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND INTEREST IN EARNINGS OF
ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INTEREST IN
EARNINGS OF ASSOCIATES
Interest in earnings/(loss) of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS
TOWERS WATSON
$
— $
— $
—
—
1
16
—
—
—
17
(17)
—
—
43
15
(75)
—
(75)
—
437
362
—
—
—
—
95
4
—
11
110
(110)
(221)
33
35
220
(177)
(25)
(152)
10
570
428
—
8
—
8
81
38
17
—
3
139
(131)
(313)
179
45
—
(42)
(24)
(18)
—
76
58
—
$
3,759
$
— $
3,767
35
3,794
2,232
510
71
54
22
2,889
905
(102)
424
12
(11)
582
208
374
4
—
378
—
—
—
—
—
—
—
—
—
636
(636)
—
(230)
230
—
230
—
(1,083)
(853)
35
3,802
2,314
659
92
54
36
3,155
647
—
—
135
(6)
518
159
359
14
—
373
(11)
—
(11)
$
362
$
428
$
58
$
367
$
(853) $
362
143
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2014
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Comprehensive (loss)/income before
noncontrolling interests
Less: Comprehensive income attributable to
noncontrolling interests
Comprehensive (loss)/income attributable to
Willis Towers Watson
$
$
(11) $
69
$
(110) $
49
$
(3) $
—
—
—
(5)
—
(6)
(5)
(11) $
69
$
(110) $
44
$
(3) $
(11)
144
Total non-current assets
3,409
$ 10,638
$ 14,251
$
7,616
$ 32,526
16,461
$ (34,778) $ 30,253
ASSETS
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Prepaid and other current assets
Amounts due from group undertakings
Total current assets
Investments in subsidiaries
Fixed assets, net
Goodwill
Other intangible assets, net
Pension benefits assets
Other non-current assets
Non-current amounts due from group
undertakings
TOTAL ASSETS
LIABILITIES AND EQUITY
Fiduciary liabilities
Deferred revenue and accrued expenses
Short-term debt and current portion of long-
term debt
Other current liabilities
Amounts due to group undertakings
Total current liabilities
Long-term debt
Liability for pension benefits
Deferred tax liabilities
Provision for liabilities
Other non-current liabilities
Non-current amounts due to group
undertakings
Total non-current liabilities
TOTAL LIABILITIES
REDEEMABLE NONCONTROLLING
INTEREST
EQUITY
Total Willis Towers Watson shareholders’
equity
Noncontrolling interests
Total equity
Condensed Consolidated Balance Sheet
As of December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
— $
— $
— $
870
$
— $
870
$
— $
— $
— $ 10,505
$
—
—
—
7,229
7,229
3,409
—
—
—
—
—
—
—
—
77
—
77
496
—
—
—
—
—
496
573
—
—
—
49
1,706
1,755
7,733
34
—
64
—
10
—
7
23
1,190
1,220
5,480
—
—
—
—
80
4,655
12,496
836
6,396
10,505
2,073
324
2,370
16,142
—
805
10,413
4,368
488
310
—
16,384
—
—
(59)
(12,495)
(12,554)
(16,622)
—
—
(64)
—
(47)
(5,491)
(22,224)
10,505
2,080
337
—
13,792
—
839
10,413
4,368
488
353
—
15
22
94
8,323
8,454
2,506
—
—
—
48
—
2,554
11,008
27
394
23
2,075
2,519
186
—
—
120
15
518
839
1,488
92
684
2,097
14,866
169
1,321
1,013
455
483
4,973
8,414
3,358
23,280
— $ 10,505
(49)
1,481
—
(2)
(12,495)
(12,546)
—
—
(149)
—
(14)
(5,491)
(5,654)
(18,200)
508
876
—
13,370
3,357
1,321
864
575
532
—
6,649
20,019
—
—
51
—
51
10,065
—
10,065
3,243
—
3,243
4,258
—
4,258
9,077
118
9,195
(16,578)
—
(16,578)
10,065
118
10,183
$ (34,778) $ 30,253
TOTAL LIABILITIES AND EQUITY
$ 10,638
$ 14,251
$
7,616
$ 32,526
145
Condensed Consolidated Balance Sheet
As of December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
ASSETS
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Prepaid and other current assets
Amounts due from group undertakings
Total current assets
Investments in subsidiaries
Fixed assets, net
Goodwill
Other intangible assets, net
Pension benefits assets
Other non-current assets
Non-current amounts due from group
undertakings
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Fiduciary liabilities
Deferred revenue and accrued expenses
Short-term debt and current portion of long-
term debt
Other current liabilities
Amounts due to group undertakings
$
$
$
Total current liabilities
Long-term debt
Liability for pension benefits
Deferred tax liabilities
Provision for liabilities
Investments in subsidiaries
Other non-current liabilities
Non-current amounts due to group
undertakings
Total non-current liabilities
REDEEMABLE NONCONTROLLING
INTEREST
EQUITY
Total Willis Towers Watson shareholders’
equity
Noncontrolling interests
Total equity
2
—
—
49
1,684
1,735
3,208
23
—
—
—
8
$
3
—
—
1
3,423
3,427
—
—
—
—
—
—
—
—
$
— $
527
$
— $
532
—
7
18
822
847
832
35
—
—
—
2
10,458
1,251
194
1,259
13,689
—
505
3,737
1,115
623
288
—
6,268
—
—
(7)
(7,188)
(7,195)
(4,040)
—
—
—
—
—
(1,303)
(5,343)
10,458
1,258
255
—
12,503
—
563
3,737
1,115
623
298
—
518
3,757
785
1,654
3,427
$
5,492
$
2,501
$ 19,957
6,336
$ (12,538) $ 18,839
— $
— $
— $ 10,458
$
— $ 10,458
1
300
15
—
316
495
—
—
—
387
—
—
882
13
609
38
4,141
4,801
1,203
—
1
—
—
21
—
1,225
6,026
55
—
23
1,545
1,623
580
—
—
—
—
15
683
79
534
1,502
13,256
—
279
239
295
—
497
518
1,113
2,736
785
2,095
15,351
—
—
(7)
(7,188)
(7,195)
—
—
—
—
(387)
—
(1,303)
(1,690)
(8,885)
752
988
603
—
12,801
2,278
279
240
295
—
533
—
3,625
16,426
—
—
—
53
—
53
2,229
—
2,229
(534)
—
(534)
5,492
$
(235)
—
(235)
2,501
4,422
131
4,553
$ 19,957
(3,653)
—
(3,653)
2,229
131
2,360
$ (12,538) $ 18,839
TOTAL LIABILITIES
1,198
TOTAL LIABILITIES AND EQUITY
$
3,427
$
146
Condensed Consolidated Statement of Cash Flows
NET CASH (USED IN)/FROM OPERATING
ACTIVITIES
CASH FLOWS FROM/(USED IN)
INVESTING ACTIVITIES
Additions to fixed assets and software for
internal use
Capitalized software costs
Acquisitions of operations, net of cash
acquired
Net (cash paid)/proceeds from sale of
operations
Other, net
Proceeds from intercompany investing
activities
Repayments of intercompany investing
activities
Reduction in investment in subsidiaries
Additional investment in subsidiaries
Net cash from/(used in) investing
activities
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES
Net (payments)/borrowings on revolving
credit facility
Senior notes issued
Proceeds from issuance of other debt
Debt issuance costs
Repayments of debt
Repurchase of shares
Proceeds from issuance of shares and excess
tax benefit
Payments of deferred and contingent
consideration related to acquisitions
Dividends paid
Acquisitions of and dividends paid to
noncontrolling interests
Proceeds from intercompany financing
activities
Repayments of intercompany financing
activities
Net cash (used in)/from financing
activities
(DECREASE)/INCREASE IN CASH AND
CASH EQUIVALENTS
Effect of exchange rate changes on cash and cash
equivalents
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF
PERIOD
Year ended December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
(20) $
128
$
(83) $
1,101
$
(206) $
920
—
—
—
—
—
—
(79)
—
—
—
—
163
(3,751)
4,600
—
(4,114)
3,600
(4,600)
(12)
—
—
—
33
—
—
—
—
(221)
(85)
476
(4)
20
30
(769)
—
(3,600)
94
—
—
3
(30)
(193)
8,634
(8,200)
8,200
(218)
(85)
476
(1)
23
—
—
—
—
$
849
$
(5,030) $
21
$
(4,153) $
8,508
$
195
—
—
—
—
(300)
(396)
63
—
(199)
—
—
—
(237)
1,606
400
(14)
(1,037)
—
—
—
—
—
4,204
—
—
—
—
—
—
—
—
(49)
—
164
—
—
4
—
(564)
—
—
(67)
(90)
(21)
—
—
—
—
—
—
—
—
139
—
4,266
(8,634)
(22)
(53)
(118)
193
(237)
1,606
404
(14)
(1,901)
(396)
63
(67)
(199)
(21)
—
—
$
(832) $
4,900
$
62
$
3,410
$
(8,302) $
(762)
(3)
—
3
(2)
—
2
—
—
—
358
(15)
527
—
—
—
$
— $
— $
— $
870
$
— $
353
(15)
532
870
147
Condensed Consolidated Statement of Cash Flows
NET CASH (USED IN)/FROM OPERATING
ACTIVITIES
CASH FLOWS FROM/(USED IN)
INVESTING ACTIVITIES
Additions to fixed assets and software for
internal use
Acquisitions of operations, net of cash
acquired
Proceeds from sale of operations, net of cash
disposed
Other, net
Proceeds from intercompany investing
activities
Repayments of intercompany investing
activities
Additional investment in subsidiaries
Net cash from/(used in) investing
activities
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES
Net (payments)/borrowings on revolving
credit facility
Debt issuance costs
Repayments of debt
Proceeds from issue of other debt
Repurchase of shares
Proceeds from issuance of shares and excess
tax benefit
Dividends paid
Acquisitions of and dividends paid to
noncontrolling interests
Proceeds from intercompany financing
activities
Repayments of intercompany financing
activities
Net cash (used in)/from financing
activities
Year ended December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
(10) $
583
$
43
$
(223) $
(150) $
243
(10)
(8)
(128)
—
—
—
—
321
(82)
—
—
—
—
49
(746)
(598)
—
—
—
87
—
—
—
—
—
—
(857)
44
16
151
(608)
(181)
—
1,009
598
(146)
(857)
44
16
—
—
—
$
239
$
(1,305) $
79
$
(955) $
999
$
(943)
—
—
—
—
(82)
124
(277)
—
—
—
469
(5)
(16)
592
—
—
—
—
154
(472)
—
—
(149)
—
—
—
—
—
27
—
—
—
(1)
—
—
605
(150)
(21)
—
—
—
—
—
(598)
150
—
828
(1,009)
(136)
608
469
(5)
(166)
592
(82)
131
(277)
(21)
—
—
$
(235) $
722
$
(122) $
1,125
$
(849) $
641
DECREASE IN CASH AND CASH
EQUIVALENTS
Effect of exchange rate changes on cash and cash
equivalents
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF
PERIOD
$
(6)
—
9
3
$
148
—
—
2
2
—
—
—
(53)
(44)
624
—
—
—
(59)
(44)
635
$
— $
527
$
— $
532
Condensed Consolidated Statement of Cash Flows
NET CASH (USED IN)/FROM OPERATING
ACTIVITIES
CASH FLOWS FROM/(USED IN)
INVESTING ACTIVITIES
Additions to fixed assets and software for
internal use
Acquisitions of operations, net of cash
acquired
Other, net
Proceeds from intercompany investing
activities
Repayments of intercompany investing
activities
Proceeds from sale of operations net of cash
disposed
Additional investment in subsidiaries
Net cash from/(used in) investing
activities
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES
Net (payments on)/draw down of revolving
credit facility
Debt issuance costs
Repayments of debt
Proceeds from issue of other debt
Repurchase of shares
Proceeds from issuance of shares and excess
tax benefit
Dividends paid
Acquisitions of and dividends paid to
noncontrolling interests
Proceeds from intercompany financing
activities
Repayments of intercompany financing
activities
Net cash (used in)/from financing
activities
Year ended December 31, 2014
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
(35) $
387
$
265
$
212
$
(352) $
477
—
—
—
361
—
—
(31)
(9)
(10)
(95)
—
—
—
—
1
120
(53)
(131)
—
—
—
—
(245)
(4)
435
(46)
86
—
1
—
(1)
(916)
230
—
31
(113)
(245)
(4)
—
—
86
—
$
330
$
(62) $
(20) $
131
$
(655) $
(276)
—
—
—
—
(213)
134
(210)
—
—
—
—
—
(15)
—
—
—
—
(4)
46
—
—
—
—
—
—
—
—
4
—
(3)
—
—
—
36
(352)
(17)
180
—
—
—
—
—
(31)
352
—
(230)
(353)
(249)
(314)
916
—
(3)
(15)
—
(213)
139
(210)
(21)
—
—
$
(289) $
(326) $
(245) $
(470) $
1,007
$
(323)
INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS
Effect of exchange rate changes on cash and cash
equivalents
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF
PERIOD
$
6
—
3
9
$
149
(1)
—
3
2
—
—
—
(127)
(39)
790
—
—
—
(122)
(39)
796
$
— $
624
$
— $
635
Note 22 — 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. On March 15, 2016,
$300 million of these senior notes was repaid leaving $500 million outstanding. These debt securities were issued by Willis
Towers Watson (‘WTW 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 wholly owned subsidiaries
(directly or indirectly) fully and unconditionally guarantee the WTW Debt Securities on a joint and several basis: Willis
Netherlands Holdings B.V., Willis Investment U.K. Holdings Limited, TA I Limited, Trinity Acquisition plc, Willis Group
Limited, Willis North America Inc., Willis Towers Watson Sub Holdings Unlimited Company and WTW Bermuda Holdings
Ltd. (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 21) in that Willis Towers Watson is the Parent Issuer and Willis North America is a subsidiary guarantor.
Presented below is condensed consolidating financial information for:
(i) Willis Towers Watson, 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 of Willis
Towers Watson and the Guarantors.
150
Condensed Consolidated Statement of Operations
Year ended December 31, 2016
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other (income)/expense, net
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND INTEREST IN
EARNINGS OF ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST IN EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS
WATSON
$
— $
—
—
2
3
—
—
—
1
6
(6)
(3)
3
32
—
(38)
—
(38)
—
458
420
—
19
2
21
16
200
19
—
68
42
345
(324)
(672)
137
128
(2)
85
(122)
207
—
241
448
—
$
7,759
$
— $
7,778
107
7,866
4,628
1,348
159
591
125
134
6,985
881
(136)
671
24
29
293
26
267
2
—
269
(18)
—
—
—
—
—
—
—
—
—
—
811
(811)
—
—
—
—
—
—
(699)
(699)
—
109
7,887
4,646
1,551
178
591
193
177
7,336
551
—
—
184
27
340
(96)
436
2
—
438
(18)
$
420
$
448
$
251
$
(699) $
420
151
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Comprehensive (loss)/income before noncontrolling interests
$
(427) $
(380) $
(550) $
928
Year ended December 31, 2016
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
(429)
$
Less: Comprehensive loss attributable to noncontrolling
interests
Comprehensive (loss)/income attributable to Willis Towers
Watson
—
—
2
—
2
$
(427) $
(380) $
(548) $
928
$
(427)
152
Condensed Consolidated Statement of Operations
Year ended December 31, 2015
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other expense/(income), net
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND INTEREST IN
EARNINGS OF ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST IN EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS
WATSON
$
— $
—
—
1
8
—
—
—
4
13
(13)
—
—
43
10
(66)
—
(66)
—
439
373
—
11
1
12
77
101
22
—
41
14
255
(243)
(350)
109
81
(42)
(41)
(46)
5
9
421
435
—
$
3,798
$
— $
3,809
19
3,817
2,225
609
73
76
85
66
3,134
683
(110)
351
18
(23)
447
13
434
2
—
436
(11)
—
—
—
—
—
—
—
—
—
—
460
(460)
—
—
—
—
—
—
(860)
(860)
—
20
3,829
2,303
718
95
76
126
84
3,402
427
—
—
142
(55)
340
(33)
373
11
—
384
(11)
$
373
$
435
$
425
$
(860) $
373
153
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2015
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
Comprehensive income/(loss) before noncontrolling interests
$
402
$
462
$
455
$
(916) $
403
Less: Comprehensive income attributable to noncontrolling
interests
Comprehensive income/(loss) attributable to Willis Towers
Watson
—
—
(1)
—
(1)
$
402
$
462
$
454
$
(916) $
402
154
Condensed Consolidated Statement of Operations
Year ended December 31, 2014
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other expense/(income), net
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND INTEREST IN
EARNINGS OF ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST IN EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS
WATSON
$
— $
—
—
1
16
—
—
—
17
(17)
—
—
43
15
(75)
—
(75)
—
437
362
—
8
—
8
81
133
21
—
14
249
(241)
(424)
102
80
220
(219)
(49)
(170)
10
588
428
—
$
3,759
$
— $
3,767
35
3,794
2,232
510
71
54
22
2,889
905
(102)
424
12
(11)
582
208
374
4
—
378
(11)
—
—
—
—
—
—
—
—
—
526
(526)
—
(230)
230
—
230
—
(1,025)
(795)
—
35
3,802
2,314
659
92
54
36
3,155
647
—
—
135
(6)
518
159
359
14
—
373
(11)
$
362
$
428
$
367
$
(795) $
362
155
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2014
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
(6)
Comprehensive (loss)/income before noncontrolling interests
$
(11) $
69
$
49
$
(113) $
Less: Comprehensive income attributable to noncontrolling
interests
Comprehensive (loss)/income attributable to Willis Towers
Watson
—
—
(5)
—
(5)
$
(11) $
69
$
44
$
(113) $
(11)
156
Condensed Consolidated Balance Sheet
As of December 31, 2016
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
$
— $
— $
870
$
— $
870
ASSETS
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Prepaid and other current assets
Amounts due from group undertakings
Total current assets
Investments in subsidiaries
Fixed assets, net
Goodwill
Other intangible assets, net
Pension benefits assets
Other non-current assets
Non-current amounts due from group undertakings
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Fiduciary liabilities
Deferred revenue and accrued expenses
Short-term debt and current portion of long-term debt
Other current liabilities
Amounts due to group undertakings
Total current liabilities
Long-term debt
Liability for pension benefits
Deferred tax liabilities
Provision for liabilities
Other non-current liabilities
Non-current amounts due to group undertakings
Total non-current liabilities
TOTAL LIABILITIES
REDEEMABLE NONCONTROLLING INTEREST
EQUITY
Total Willis Towers Watson shareholders’ equity
Noncontrolling interests
Total equity
—
—
—
7,229
7,229
3,409
—
—
—
—
—
—
3,409
—
7
72
1,648
1,727
8,955
34
—
64
—
90
4,973
14,116
10,505
2,073
324
2,370
16,142
—
805
10,413
4,368
488
310
—
16,384
$ 10,638
$ 15,843
$ 32,526
$
— $
— $ 10,505
$
—
—
77
—
77
496
—
—
—
—
—
496
573
—
10,065
—
10,065
42
416
117
9,150
9,725
2,692
—
—
120
63
—
2,875
12,600
—
3,243
—
3,243
1,488
92
684
2,097
14,866
169
1,321
1,013
455
483
4,973
8,414
23,280
51
9,077
118
9,195
—
—
(59)
(11,247)
(11,306)
(12,364)
—
—
(64)
—
(47)
(4,973)
(17,448)
10,505
2,080
337
—
13,792
—
839
10,413
4,368
488
353
—
16,461
$ (28,754) $ 30,253
508
1,481
— $ 10,505
(49)
—
(2)
(11,247)
(11,298)
—
13,370
3,357
876
—
—
(149)
—
(14)
(4,973)
(5,136)
(16,434)
—
(12,320)
—
(12,320)
1,321
864
575
532
—
6,649
20,019
51
10,065
118
10,183
$ (28,754) $ 30,253
TOTAL LIABILITIES AND EQUITY
$ 10,638
$ 15,843
$ 32,526
157
Condensed Consolidated Balance Sheet
As of December 31, 2015
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
$
527
$
— $
532
$
$
$
ASSETS
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Prepaid and other current assets
Amounts due from group undertakings
Total current assets
Investments in subsidiaries
Fixed assets, net
Goodwill
Other intangible assets, net
Pension benefits assets
Other non-current assets
Non-current amounts due from group undertakings
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Fiduciary liabilities
Deferred revenue and accrued expenses
Short-term debt and current portion of long-term debt
Other current liabilities
Amounts due to group undertakings
Total current liabilities
Investments in subsidiaries
Long-term debt
Liability for pension benefits
Deferred tax liabilities
Provision for liabilities
Other non-current liabilities
Non-current amounts due to group undertakings
Total non-current liabilities
TOTAL LIABILITIES
REDEEMABLE NONCONTROLLING INTEREST
EQUITY
Total Willis Towers Watson shareholders’ equity
Noncontrolling interests
Total equity
TOTAL LIABILITIES AND EQUITY
$
158
3,427
$
6,461
$ 19,957
6,336
$ (11,006) $ 18,839
— $
— $ 10,458
$
— $ 10,458
$
3
—
—
1
3,423
3,427
—
—
—
—
—
—
—
—
2
—
7
67
1,257
1,333
4,275
58
—
—
—
10
785
5,128
10,458
1,251
194
1,259
13,689
—
505
3,737
1,115
623
288
—
6,268
1
300
15
—
316
387
495
—
—
—
—
—
882
1,198
—
2,229
—
2,229
3,427
$
68
609
61
4,437
5,175
—
1,783
—
1
—
36
—
1,820
6,995
—
(534)
—
(534)
6,461
683
79
534
1,502
13,256
—
—
279
239
295
497
785
2,095
15,351
53
4,422
131
4,553
$ 19,957
—
—
(7)
(5,939)
(5,946)
(4,275)
—
—
—
—
—
(785)
(5,060)
—
—
(7)
(5,939)
(5,946)
(387)
—
—
—
—
—
(785)
(1,172)
(7,118)
—
(3,888)
—
(3,888)
10,458
1,258
255
—
12,503
—
563
3,737
1,115
623
298
—
752
988
603
—
12,801
—
2,278
279
240
295
533
—
3,625
16,426
53
2,229
131
2,360
$ (11,006) $ 18,839
Condensed Consolidated Statement of Cash Flows
Year ended December 31, 2016
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
NET CASH (USED IN)/FROM OPERATING ACTIVITIES
$
(20) $
(4) $
1,101
$
(157) $
920
CASH FLOWS FROM/(USED IN) INVESTING
ACTIVITIES
Additions to fixed assets and software for internal use
Capitalized software costs
Acquisitions of operations, net of cash acquired
Net (cash paid)/proceeds from sale of operations
Other, net
Proceeds from intercompany investing activities
Repayments of intercompany investing activities
Reduction in investment in subsidiaries
Additional investment in subsidiaries
—
—
—
—
—
—
(3,751)
4,600
—
Net cash from/(used in) investing activities
$
849
$
CASH FLOWS (USED IN)/FROM FINANCING
ACTIVITIES
(91)
—
—
—
33
(221)
(85)
476
(4)
20
118
(4,114)
3,600
(4,600)
(5,054) $
30
(769)
—
(3,600)
(4,153) $
94
—
—
3
(30)
(148)
8,634
(8,200)
8,200
(218)
(85)
476
(1)
23
—
—
—
—
8,553
$
195
Net (payments)/borrowings on revolving credit facility
Senior notes issued
Proceeds from issuance of other debt
Debt issuance costs
Repayments of debt
Repurchase of shares
Proceeds from issuance of shares and excess tax benefit
Payments of deferred and contingent consideration
related to acquisitions
Dividends paid
Acquisitions of and dividends paid to noncontrolling
interests
Proceeds from intercompany financing activities
Repayments of intercompany financing activities
Net cash (used in)/from financing activities
—
—
—
—
(300)
(396)
63
—
(199)
—
—
—
(832) $
$
(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS
Effect of exchange rate changes on cash and cash equivalents
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD
(3)
—
3
(237)
1,606
400
(14)
(1,037)
—
—
—
—
—
4,368
(30)
5,056
$
(2)
—
2
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
— $
— $
—
—
4
—
(564)
—
—
(67)
(90)
—
—
—
—
—
—
—
—
90
(21)
4,266
(118)
3,410
$
—
(8,634)
148
(8,396) $
358
(15)
527
870
—
—
—
$
— $
(237)
1,606
404
(14)
(1,901)
(396)
63
(67)
(199)
(21)
—
—
(762)
353
(15)
532
870
159
Condensed Consolidated Statement of Cash Flows
Year ended December 31, 2015
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
NET CASH (USED IN)/FROM OPERATING ACTIVITIES
$
(10) $
626
$
(223) $
(150) $
243
CASH FLOWS FROM/(USED IN) INVESTING
ACTIVITIES
Additions to fixed assets and software for internal use
Acquisitions of operations, net of cash acquired
Proceeds from sale of operations, net of cash disposed
Other, net
Proceeds from intercompany investing activities
Repayments of intercompany investing activities
Additional investment in subsidiaries
—
—
—
—
321
(82)
—
Net cash from/(used in) investing activities
$
239
$
CASH FLOWS (USED IN)/FROM FINANCING
ACTIVITIES
(18)
—
—
—
136
(746)
(598)
(1,226) $
(128)
(857)
44
16
151
(181)
—
(955) $
—
—
—
—
(608)
1,009
(146)
(857)
44
16
—
—
598
999
$
—
(943)
Net (payments)/borrowings on revolving credit facility
Debt issuance costs
Repayments of debt
Proceeds from issue of other debt
Repurchase of shares
Proceeds from issuance of shares and excess tax benefit
Dividends paid
Acquisitions of and dividends paid to noncontrolling
interests
Proceeds from intercompany financing activities
Repayments of intercompany financing activities
Net cash (used in)/from financing activities
$
DECREASE IN CASH AND CASH EQUIVALENTS
Effect of exchange rate changes on cash and cash equivalents
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
—
—
—
—
(82)
124
(277)
—
—
—
(235) $
(6)
—
9
3
$
469
(5)
(165)
592
—
—
—
—
181
(472)
600
—
—
2
2
$
$
—
—
(1)
—
—
605
(150)
(21)
828
(136)
1,125
(53)
(44)
624
527
—
—
—
—
—
(598)
150
—
(1,009)
608
(849) $
—
$
—
—
$
— $
469
(5)
(166)
592
(82)
131
(277)
(21)
—
—
641
(59)
(44)
635
532
160
Condensed Consolidated Statement of Cash Flows
Year ended December 31, 2014
Willis
Towers
Watson —
the Parent
Issuer
The
Guarantors
Other
Consolidating
adjustments
Consolidated
NET CASH (USED IN)/FROM OPERATING ACTIVITIES $
(35) $
652
$
212
$
(352) $
477
(113)
(245)
86
(4)
—
—
—
(276)
(3)
(15)
(213)
139
(210)
(21)
—
—
(323)
(122)
(39)
796
635
1
—
—
(1)
(916)
226
31
(659) $
—
—
—
(31)
352
—
(226)
916
1,011
$
—
—
—
$
— $
CASH FLOWS FROM/(USED IN) INVESTING
ACTIVITIES
Additions to fixed assets and software for internal use
Acquisitions of operations, net of cash acquired
Proceeds from sale of operations, net of cash disposed
Other, net
Proceeds from intercompany investing activities
Repayments of intercompany investing activities
Additional investment in subsidiaries
Net cash from/(used in) investing activities
$
CASH FLOWS (USED IN)/FROM FINANCING
ACTIVITIES
Debt issuance costs
Repayments of debt
Repurchase of shares
Proceeds from issuance of shares and excess tax benefit
Dividends paid
Acquisitions of and dividends paid to noncontrolling
interests
Proceeds from intercompany financing activities
Repayments of intercompany financing activities
Net cash (used in)/from financing activities
$
—
—
—
—
361
—
(31)
330
—
—
(213)
134
(210)
—
—
—
(289) $
$
(19)
—
—
1
120
(180)
—
(78) $
—
(15)
—
—
—
(95)
(245)
86
(4)
435
(46)
—
131
$
(3)
—
—
36
(352)
(4)
46
(602)
(575) $
(17)
180
(314)
(470) $
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS
Effect of exchange rate changes on cash and cash equivalents
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
6
—
3
9
$
(1)
—
3
2
$
(127)
(39)
790
624
161
Note 23 — Financial Information for Issuer, Parent Guarantor, Other Guarantor Subsidiaries and Non-Guarantor
Subsidiaries
Trinity Acquisition plc has $2.1 billion of senior notes outstanding, of which $525 million were issued on August 15, 2013, $1.0
billion were issued on March 22, 2016 and €540 million ($609 million) were issued on May 26, 2016.
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 U.K. Holdings Limited, TA I Limited, Willis Group Limited, Willis North
America Inc., Willis Towers Watson Sub Holdings Unlimited Company and WTW Bermuda Holdings Ltd., collectively the ‘Other
Guarantors’, and with Willis Towers Watson, 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 plc 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 Towers Watson, which is a guarantor, on a parent company only basis;
(ii) the Other Guarantors, which are all wholly owned subsidiaries (directly or indirectly) of the parent. Willis Towers
Watson Sub Holdings Unlimited Company, Willis Netherlands Holdings B.V, Willis Investment U.K. Holdings Limited,
TA I Limited and WTW Bermuda Holdings Ltd. are all direct or indirect parents of the issuer and Willis Group Limited
and Willis North America Inc., are direct or indirect wholly owned subsidiaries of the issuer;
(iii) Trinity Acquisition plc, 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
Towers Watson, the Other Guarantors and the Issuer.
162
Condensed Consolidated Statement of Operations
Year ended December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other (income)/expense, net
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND INTEREST IN EARNINGS OF
ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INTEREST IN
EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME (LOSS) ATTRIBUTABLE TO
WILLIS TOWERS WATSON
$
— $
—
—
2
3
—
—
—
1
6
(6)
(3)
3
32
—
(38)
—
(38)
—
458
420
—
19
2
21
16
200
19
—
68
42
345
(324)
(657)
228
38
(2)
69
(125)
194
—
254
448
—
$
— $
7,759
$
— $
7,778
—
—
—
—
—
—
—
—
—
—
(132)
26
90
—
16
3
13
—
151
164
—
107
7,866
4,628
1,348
159
591
125
134
6,985
881
(136)
671
24
29
293
26
267
2
—
269
(18)
—
—
—
—
—
—
—
—
—
—
928
(928)
—
—
—
—
—
—
(863)
(863)
—
109
7,887
4,646
1,551
178
591
193
177
7,336
551
—
—
184
27
340
(96)
436
2
—
438
(18)
$
420
$
448
$
164
$
251
$
(863) $
420
163
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Comprehensive (loss)/income before
noncontrolling interests
Less: Comprehensive loss attributable to
noncontrolling interests
Comprehensive (loss)/income attributable to
Willis Towers Watson
$
(427) $
(379) $
(656) $
(550) $
1,583
$
(429)
—
—
—
2
—
2
$
(427) $
(379) $
(656) $
(548) $
1,583
$
(427)
164
Condensed Consolidated Statement of Operations
Year ended December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Transaction and integration expenses
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other expense/(income), net
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND INTEREST IN EARNINGS OF
ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INTEREST IN
EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS
TOWERS WATSON
$
— $
—
—
1
8
—
—
—
4
13
(13)
—
—
43
10
(66)
—
(66)
—
439
373
—
11
1
12
77
101
22
—
41
14
255
(243)
(374)
200
41
(42)
(68)
(51)
(17)
9
443
435
—
$
— $
3,798
$
— $
3,809
—
—
—
—
—
—
—
—
—
—
(93)
26
40
—
27
5
22
—
337
359
—
19
3,817
2,225
609
73
76
85
66
3,134
683
(110)
351
18
(23)
447
13
434
2
—
436
(11)
—
—
—
—
—
—
—
—
—
—
577
(577)
—
—
—
—
—
—
(1,219)
(1,219)
—
20
3,829
2,303
718
95
76
126
84
3,402
427
—
—
142
(55)
340
(33)
373
11
—
384
(11)
$
373
$
435
$
359
$
425
$
(1,219) $
373
165
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Comprehensive income/(loss) before
noncontrolling interests
Less: Comprehensive income attributable to
noncontrolling interests
Comprehensive income/(loss) attributable to
Willis Towers Watson
$
$
402
$
462
$
400
$
455
$
(1,316) $
403
—
—
—
(1)
—
(1)
402
$
462
$
400
$
454
$
(1,316) $
402
166
Condensed Consolidated Statement of Operations
Year ended December 31, 2014
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Revenues
Commissions and fees
Interest and other income
Total revenues
Costs of providing services
Salaries and benefits
Other operating expenses
Depreciation
Amortization
Restructuring costs
Total costs of providing services
(Loss) Income from operations
Income from Group undertakings
Expenses due to Group undertakings
Interest expense
Other expense/(income), net
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND INTEREST IN EARNINGS OF
ASSOCIATES
(Benefit from)/provision for income taxes
(LOSS) INCOME FROM CONTINUING
OPERATIONS BEFORE INTEREST IN
EARNINGS OF ASSOCIATES
Interest in earnings of associates, net of tax
Equity account for subsidiaries
NET INCOME
Income attributable to noncontrolling interests
NET INCOME ATTRIBUTABLE TO WILLIS
TOWERS WATSON
$
— $
—
—
1
16
—
—
—
17
(17)
—
—
43
15
(75)
—
(75)
—
437
362
—
8
—
8
81
133
21
—
14
249
(241)
(450)
190
44
220
(245)
(54)
(191)
10
609
428
—
$
— $
3,759
$
— $
3,767
—
—
—
—
—
—
—
—
—
(91)
29
36
—
26
5
21
—
314
335
—
35
3,794
2,232
510
71
54
22
2,889
905
(102)
424
12
(11)
582
208
374
4
—
378
(11)
—
—
—
—
—
—
—
—
—
643
(643)
—
(230)
230
—
230
—
(1,360)
(1,130)
—
35
3,802
2,314
659
92
54
36
3,155
647
—
—
135
(6)
518
159
359
14
—
373
(11)
$
362
$
428
$
335
$
367
$
(1,130) $
362
167
Condensed Consolidated Statement of Comprehensive Income/(Loss)
Year ended December 31, 2014
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
Comprehensive (loss)/income before
noncontrolling interests
Less: Comprehensive income attributable to
noncontrolling interests
Comprehensive (loss)/income attributable to
Willis Towers Watson
$
$
(11) $
69
$
(5) $
49
$
(108) $
—
—
—
(5)
—
(6)
(5)
(11) $
69
$
(5) $
44
$
(108) $
(11)
168
Total non-current assets
3,409
$ 10,638
$ 14,598
$
9,960
$ 32,526
16,461
$ (37,469) $ 30,253
ASSETS
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Prepaid and other current assets
Amounts due from group undertakings
Total current assets
Investments in subsidiaries
Fixed assets, net
Goodwill
Other intangible assets, net
Pension benefits assets
Other non-current assets
Non-current amounts due from group
undertakings
TOTAL ASSETS
LIABILITIES AND EQUITY
Fiduciary liabilities
Deferred revenue and accrued expenses
Short-term debt and current portion of long-
term debt
Other current liabilities
Amounts due to group undertakings
Total current liabilities
Long-term debt
Liability for pension benefits
Deferred tax liabilities
Provision for liabilities
Other non-current liabilities
Non-current amounts due to group
undertakings
Total non-current liabilities
TOTAL LIABILITIES
REDEEMABLE NONCONTROLLING
INTEREST
EQUITY
Total Willis Towers Watson shareholders’
equity
Noncontrolling interests
Total equity
Condensed Consolidated Balance Sheet
As of December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
— $
— $
— $
870
$
— $
870
$
— $
— $
— $ 10,505
$
—
—
—
7,229
7,229
3,409
—
—
—
—
—
—
—
—
77
—
77
496
—
—
—
—
—
496
573
—
—
7
74
849
930
8,621
34
—
64
—
90
—
—
1
1,595
1,596
7,309
—
—
—
—
—
4,859
13,668
1,055
8,364
10,505
2,073
324
2,370
16,142
—
805
10,413
4,368
488
310
—
16,384
—
—
(62)
(12,043)
(12,105)
(19,339)
—
—
(64)
—
(47)
(5,914)
(25,364)
10,505
2,080
337
—
13,792
—
839
10,413
4,368
488
353
—
41
394
87
9,946
10,468
186
—
—
120
63
518
887
11,355
1
22
33
—
56
2,506
—
—
—
—
423
2,929
2,985
1,488
92
684
2,097
14,866
169
1,321
1,013
455
483
4,973
8,414
23,280
— $ 10,505
(49)
1,481
—
(5)
(12,043)
(12,097)
—
—
(149)
—
(14)
(5,914)
(6,077)
(18,174)
508
876
—
13,370
3,357
1,321
864
575
532
—
6,649
20,019
—
—
51
—
51
10,065
—
10,065
3,243
—
3,243
6,975
—
6,975
9,077
118
9,195
(19,295)
—
(19,295)
10,065
118
10,183
$ (37,469) $ 30,253
TOTAL LIABILITIES AND EQUITY
$ 10,638
$ 14,598
$
9,960
$ 32,526
169
Condensed Consolidated Balance Sheet
As of December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
$
$
ASSETS
Cash and cash equivalents
Fiduciary assets
Accounts receivable, net
Prepaid and other current assets
Amounts due from group undertakings
Total current assets
Investments in subsidiaries
Fixed assets, net
Goodwill
Other intangible assets, net
Pension benefits assets
Other non-current assets
Non-current amounts due from group
undertakings
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Fiduciary liabilities
Deferred revenue and accrued expenses
Short-term debt and current portion of long-
term debt
Other current liabilities
Amounts due to group undertakings
Total current liabilities
Investment in subsidiaries
Long-term debt
Liability for pension benefits
Deferred tax liabilities
Provision for liabilities
Other non-current liabilities
Non-current amounts due to group
undertakings
Total non-current liabilities
TOTAL LIABILITIES
REDEEMABLE NONCONTROLLING
INTEREST
EQUITY
Total Willis Towers Watson shareholders’
equity
Noncontrolling interests
Total equity
2
—
7
72
951
1,032
4,069
58
—
—
—
9
$
3
—
—
1
3,423
3,427
—
—
—
—
—
—
—
—
$
— $
527
$
— $
532
—
—
—
1,538
1,538
3,092
—
—
—
—
1
10,458
1,251
194
1,259
13,689
—
505
3,737
1,115
623
288
—
6,268
—
—
(12)
(7,171)
(7,183)
(7,161)
—
—
—
—
—
(1,303)
(8,464)
10,458
1,258
255
—
12,503
—
563
3,737
1,115
623
298
—
785
4,921
518
3,611
3,427
$
5,953
$
5,149
$ 19,957
6,336
$ (15,647) $ 18,839
— $
— $
— $ 10,458
$
— $ 10,458
1
300
15
—
316
387
495
—
—
—
—
—
882
1,198
68
—
50
5,234
5,352
—
580
—
1
—
36
518
1,135
6,487
—
609
16
435
1,060
—
1,203
—
—
—
—
—
1,203
2,263
683
79
534
1,502
13,256
—
—
279
239
295
497
—
—
(12)
(7,171)
(7,183)
(387)
—
—
—
—
—
785
2,095
15,351
(1,303)
(1,690)
(8,873)
752
988
603
—
12,801
—
2,278
279
240
295
533
—
3,625
16,426
—
—
—
53
—
53
2,229
—
2,229
(534)
—
(534)
5,953
2,886
—
2,886
4,422
131
4,553
$
5,149
$ 19,957
(6,774)
—
(6,774)
2,229
131
2,360
$ (15,647) $ 18,839
TOTAL LIABILITIES AND EQUITY
$
3,427
$
170
Condensed Consolidated Statement of Cash Flows
NET CASH (USED IN)/FROM OPERATING
ACTIVITIES
CASH FLOWS FROM/(USED IN)
INVESTING ACTIVITIES
Additions to fixed assets and software for
internal use
Capitalized software costs
Acquisitions of operations, net of cash
acquired
Net (cash paid)/proceeds from sale of
operations
Other, net
Proceeds from intercompany investing
activities
Repayments of intercompany investing
activities
Reduction in investment in subsidiaries
Additional investment in subsidiaries
Net cash from/(used in) investing
activities
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES
Net (payments)/borrowings on revolving
credit facility
Senior notes issued
Proceeds from issuance of other debt
Debt issuance costs
Repayments of debt
Repurchase of shares
Proceeds from issuance of shares and excess
tax benefit
Payments of deferred and contingent
consideration related to acquisitions
Dividends paid
Acquisitions of and dividends paid to
noncontrolling interests
Proceeds from intercompany financing
activities
Repayments of intercompany financing
activities
Net cash (used in)/from financing
activities
(DECREASE)/INCREASE IN CASH AND
CASH EQUIVALENTS
Effect of exchange rate changes on cash and cash
equivalents
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF
PERIOD
Year ended December 31, 2016
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
(20) $
308
$
152
$
1,101
$
(621) $
920
—
—
—
—
—
—
(91)
—
—
—
33
108
—
—
—
—
—
55
(221)
(85)
476
(4)
20
30
(3,751)
4,600
—
(3,513)
3,600
(4,600)
(602)
—
—
(769)
—
(3,600)
94
—
—
3
(30)
(193)
8,635
(8,200)
8,200
(218)
(85)
476
(1)
23
—
—
—
—
$
849
$
(4,463) $
(547) $
(4,153) $
8,509
$
195
—
—
—
—
(300)
(396)
63
—
(199)
—
—
—
—
—
—
—
—
—
—
—
(162)
—
4,368
(237)
1,606
400
(14)
(1,037)
—
—
—
(302)
—
1
—
—
4
—
(564)
—
—
(67)
(90)
(21)
—
—
—
—
—
—
—
—
554
—
4,266
(8,635)
(53)
(22)
(118)
193
(237)
1,606
404
(14)
(1,901)
(396)
63
(67)
(199)
(21)
—
—
$
(832) $
4,153
$
395
$
3,410
$
(7,888) $
(762)
(3)
—
3
(2)
—
2
—
—
—
358
(15)
527
—
—
—
$
— $
— $
— $
870
$
— $
353
(15)
532
870
171
Condensed Consolidated Statement of Cash Flows
NET CASH (USED IN)/FROM OPERATING
ACTIVITIES
CASH FLOWS FROM/(USED IN)
INVESTING ACTIVITIES
Additions to fixed assets and software for
internal use
Acquisitions of operations, net of cash
acquired
Proceeds from sale of operations, net of cash
disposed
Other, net
Proceeds from intercompany investing
activities
Repayments of intercompany investing
activities
Additional investment in subsidiaries
Net cash from/(used in) investing
activities
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES
Net (payments on)/draw down of revolving
credit facility
Debt issuance costs
Repayments of debt
Proceeds from issue of other debt
Repurchase of shares
Proceeds from issuance of shares and excess
tax benefit
Dividends paid
Acquisitions of and dividends paid to
noncontrolling interests
Proceeds from intercompany financing
activities
Repayments of intercompany financing
activities
Net cash (used in)/from financing
activities
Year ended December 31, 2015
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
(10) $
593
$
33
$
(223) $
(150) $
243
—
—
—
—
321
(82)
—
(18)
—
—
—
136
—
(420)
—
—
—
—
—
(128)
(857)
44
16
—
—
—
—
151
(608)
(746)
(178)
(181)
—
1,009
598
(146)
(857)
44
16
—
—
—
$
239
$
(302) $
(924) $
(955) $
999
$
(943)
—
—
—
—
(82)
124
(277)
—
—
—
—
—
(149)
—
—
—
—
—
181
469
(5)
(16)
592
—
—
—
—
—
—
—
(1)
—
—
605
(150)
(21)
—
—
—
—
—
(598)
150
—
828
(1,009)
(323)
(149)
(136)
608
469
(5)
(166)
592
(82)
131
(277)
(21)
—
—
$
(235) $
(291) $
891
$
1,125
$
(849) $
641
DECREASE IN CASH AND CASH
EQUIVALENTS
Effect of exchange rate changes on cash and cash
equivalents
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF
PERIOD
$
(6)
—
9
3
$
172
—
—
2
2
—
—
—
(53)
(44)
624
—
—
—
(59)
(44)
635
$
— $
527
$
— $
532
Condensed Consolidated Statement of Cash Flows
NET CASH (USED IN)/FROM OPERATING
ACTIVITIES
CASH FLOWS FROM/(USED IN)
INVESTING ACTIVITIES
Additions to fixed assets and software for
internal use
Acquisitions of operations, net of cash
acquired
Proceeds from sale of operations, net of
cash disposed
Other, net
Proceeds from intercompany investing
activities
Repayments of intercompany investing
activities
Additional investment in subsidiaries
Year ended December 31, 2014
Willis
Towers
Watson
The Other
Guarantors
The
Issuer
Other
Consolidating
adjustments
Consolidated
$
(35) $
781
$
181
$
212
$
(662) $
477
—
—
—
—
361
—
(31)
(19)
—
—
1
120
(180)
—
—
—
—
—
—
(4)
—
(95)
(245)
86
(4)
1
—
—
(1)
435
(916)
(46)
—
230
31
(113)
(245)
86
(4)
—
—
—
Net cash from/(used in) investing activities
$
330
$
(78) $
(4) $
131
$
(655) $
(276)
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES
Debt issuance costs
Repayments of debt
Repurchase of shares
Proceeds from issuance of shares and excess
tax benefit
Dividends paid
Acquisitions of and dividends paid to
noncontrolling interests
Proceeds from intercompany financing
activities
Repayments of intercompany financing activities
—
—
(213)
134
(210)
—
—
—
—
—
—
—
(155)
(4)
50
(595)
—
(15)
—
—
(155)
—
—
(7)
(3)
—
—
36
(352)
(17)
180
(314)
—
—
—
(31)
662
—
(230)
916
(3)
(15)
(213)
139
(210)
(21)
—
—
Net cash (used in)/from financing activities
$
(289) $
(704) $
(177) $
(470) $
1,317
$
(323)
INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS
Effect of exchange rate changes on cash and
cash equivalents
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS, END OF
PERIOD
$
6
—
3
9
$
(1)
—
3
2
—
—
—
(127)
(39)
790
—
—
—
(122)
(39)
796
$
— $
624
$
— $
635
173
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
An evaluation was performed under the supervision and with the participation of the chief executive officer (‘CEO’) and chief
financial officer (‘CFO’), of the effectiveness of the design and operation of our disclosure controls and procedures as of the
end of the period covered by this report. Based upon that evaluation, our management, including the CEO and CFO, concluded
that our disclosure controls and procedures were effective as of December 31, 2016 in providing reasonable assurance that the
information required to be disclosed in our periodic reports we file or submit under the Exchange Act is (1) recorded,
processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) accumulated and
communicated to our management to allow for timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting in the quarter ended December 31, 2016 that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our CEO and CFO, and
overseen by our 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, and 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.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because
of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance
and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can
also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material
misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these
inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Management has used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(‘COSO’) in the report entitled Internal Control — Integrated Framework (2013) to evaluate the effectiveness of the
Company’s internal control over financial reporting. Based on this evaluation, management has concluded that the Company
maintained effective internal control over financial reporting as of December 31, 2016.
The effectiveness of our internal controls over financial reporting has been audited by Deloitte LLP, an independent registered
public accounting firm, as stated in their report, which is included herein.
174
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Willis Towers Watson Public Limited Company
Dublin, Ireland
We have audited the internal control over financial reporting of Willis Towers Watson Public Limited Company and
subsidiaries (the “Company”) as of December 31, 2016, based on criteria established in Internal Control — Integrated
Framework (2013) 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, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) 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, 2016 of the Company and our report dated
March 1, 2017 expressed an unqualified opinion on those financial statements.
/s/ Deloitte LLP
London, United Kingdom
March 1, 2017
175
ITEM 9B. OTHER INFORMATION
Earnings Release
On February 9, 2017, the Company issued an earnings release announcing its financial results for the quarter and year ended
December 31, 2016, and furnished a copy of the release as Exhibit 99.1 to the Company’s current report on Form 8-K filed on
the same date (which was further revised in an 8-K amendment filed on February 14, 2017). Subsequent to the release of its
earnings, management corrected an error by recording a $103 million benefit from income taxes related to the release of a
portion of our U.S. deferred tax valuation allowance. This had no impact to the Company’s previously reported adjusted diluted
earnings per share. However, a portion of the correction should have been recorded in each of the preceding three fiscal year
2016 Quarterly Reports on Forms 10-Q. Management has determined that the error is immaterial to the previously filed 2016
quarterly financial statements and has no impact to prior year financial statements.
The Company has made certain adjustments to its consolidated statements of operations and consolidated balance sheets for the
quarter and year ended December 31, 2016, to reflect the benefit from income taxes. As a result, as compared to what the
Company previously reported in its earnings release, diluted earnings per share increased from $0.25 to $1.03 and from $2.26
to $3.04 for the fourth quarter and year ended December 31, 2016, respectively, and net income attributable to Willis Towers
Watson increased from $34 million to $142 million and $312 million to $420 million for the quarter and year ended December
31, 2016, respectively. These adjustments are reflected in the financial statements filed as part of this Form 10-K. The adjusted
(non-GAAP) results contained in the Company’s earnings release remain unchanged. Revised reconciliations of these non-
GAAP financial measures for the year ended December 31, 2016 to the nearest comparable GAAP financial measures are
included herein. The revised results have no impact on the 2017 financial outlook released by the Company in its earnings
release.
Iran Disclosure
Set forth below is a description of a matter reported pursuant to Section 219 of the Iran Threat Reduction and Syria Human
Rights Act of 2012 (‘ITRA’) and Section 13(r) of the Exchange Act. Concurrently with this annual report, we are filing a
notice pursuant to Section 13(r) of the Exchange Act that the matter has been disclosed in this annual report.
Since January 1, 2015, Gras Savoye, a non-U.S. affiliate of Willis Towers Watson, has acted as the broker for the Iranian
Embassy in Paris, placing health insurance for the diplomatic staff and handling the related claims administration. The policy
was renewed, and placed with the European insurance company, GBG Insurance Limited, on December 27, 2016 for the 2017
policy year. Premium payments are made quarterly, and a premium payment of €57,345 was received by Gras Savoye on
December 15, 2016 for the policy. Gras Savoye will retain a commission of €9,749 from this payment. Health benefits of
approximately €63,185 were paid to beneficiaries during the fourth quarter of 2016. It is anticipated that Gras Savoye will
continue these activities to the extent consistent with applicable law, including U.S. Federal law, U.S. state divestment statutes,
and E.U. law.
176
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 120 days after the end of the Company’s fiscal year.
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 120
days after the end of the Company’s fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K no later than 120
days after the end of the Company’s fiscal year.
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 120
days after the end of the Company’s fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT 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 120
days after the end of the Company’s fiscal year.
177
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) The following documents have been included in Part II, Item 8
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements of Willis Towers Watson
Financial Statements:
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2016
Consolidated Statements of Comprehensive Income/(Loss) for each of the three years in the period ended
December 31, 2016
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016
Consolidated Statements of Changes in Equity for each of the three years in the period ended December 31,
2016
Notes to the Consolidated Financial Statements
b) Exhibits:
In reviewing the agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K, it
is important to note that they are included to provide investors with information regarding their terms, and are not
intended to provide any other factual or disclosure information about Willis Towers Watson or the other parties to the
agreements. The agreements contain representations and warranties made by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the benefit of the other parties to the
applicable agreement, and: should not be treated as categorical statements of fact, but rather as a way of allocating risk
between the parties; have in some cases been qualified by disclosures that were made to the other party in connection
with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; may
apply standards of materiality in a way that is different from what may be material to investors; and were made only as
of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject
to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were
made or at any other time. Additional information about Willis Towers Watson may be found elsewhere in this Annual
Report on Form 10-K and our other public filings, which are available without charge through the SEC’s website at
http://www.sec.gov.
2.1
2.2
3.1
3.2
4.1
Agreement and Plan of Merger, dated as of June 29, 2015, by and among Willis Group Holdings plc,
Citadel Merger Sub, Inc. and Towers Watson & Co (incorporated by reference to Exhibit 2.1 to the
Form 8-K filed by the Company on June 30, 2015)
Amendment No. 1 to Agreement and Plan of Merger, dated November 19, 2015, by and among Willis,
Merger Sub and Towers Watson (incorporated by reference to Exhibit 2.1 to the Form 8-K filed by the
Company on November 20, 2015)
Memorandum and Articles of Association of Willis Towers Watson Public Limited Company
(incorporated herein by reference to Exhibit 3.1 to the Form 8-A Registration Statement filed by the
Company on January 5, 2016)
Certificate of Incorporation of Willis Group Holdings Public Limited Company (incorporated by
reference to Exhibit 3.2 to the Form 8-K filed by the Company on January 4, 2010)
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 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the
Company on July 1, 2005)
178
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
Second Supplemental Indenture, dated as of March 28, 2007, supplemental to the Indenture dated as of
July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on March
30, 2007)
Third Supplemental Indenture, dated as of October 1, 2008, supplemental to the Indenture dated as of
July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Form 10-Q filed by the Company on
November 10, 2008)
Fourth Supplemental Indenture, dated as of September 29, 2009, supplemental to the Indenture dated
as of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on
September 29, 2009)
Fifth Supplemental Indenture, dated as of December 31, 2009, supplemental to the Indenture dated as
of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on
January 4, 2010)
Sixth Supplemental Indenture, dated as of December 22, 2010, supplemental to the Indenture dated as
of July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Form 10-K filed by the Company on
February 28, 2011)
Seventh Supplemental Indenture, dated as of March 9, 2016, supplemental to the Indenture, dated as of
July 1, 2005 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on March
10, 2016)
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 U.K. 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 Form 8-K filed by the Company on March 17, 2011)
First Supplemental Indenture, dated as of March 17, 2011, supplemental to the Indenture dated March
17, 2011 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed by the Company on March
17, 2011)
Second Supplemental Indenture, dated as of March 9, 2016, supplemental to the Indenture, dated as of
March 17, 2011 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed by the Company on
March 10, 2016)
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 U.K. 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
Form 8-K filed by the Company on August 15, 2013)
First Supplemental Indenture, dated as of August 15, 2013, supplemental to the Indenture dated August
15, 2013 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed by the Company on August
15, 2013)
Second Supplemental Indenture, dated as of March 9, 2016, supplemental to the Indenture, dated as of
August 15, 2013 (incorporated by reference to Exhibit 4.3 to the Form 8-K filed by the Company on
March 10, 2016)
Third Supplemental Indenture, dated as of March 22, 2016, supplemental to the Indenture, dated as of
August 15, 2013 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on
March 22, 2016)
Fourth Supplemental Indenture, dated as of May 26, 2016, supplemental to the Indenture, dated as of
August 15, 2013 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed by the Company on
May 26, 2016)
Form of Indenture among Willis Towers Watson Public Limited Company, as issuer, Willis Towers
Watson Sub Holdings Unlimited Company, Willis Netherlands Holdings B.V., Willis Investment UK
Holdings Limited, TA I Limited, WTW Bermuda Holdings Ltd., Trinity Acquisition plc, Willis Group
Limited and Willis North America Inc., as guarantors, and Wells Fargo Bank, National Association, as
Trustee (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-3 filed by
the Company on March 11, 2016)
Form of Indenture among Willis North America Inc., as issuer, Willis Towers Watson Public Limited
Company, Willis Towers Watson Sub Holdings Unlimited Company, Willis Netherlands Holdings
B.V., Willis Investment UK Holdings Limited, TA I Limited, WTW Bermuda Holdings Ltd., Trinity
Acquisition plc and Willis Group Limited, as guarantors, and Wells Fargo Bank, National Association,
as Trustee (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-3 filed by
the Company on March 11, 2016)
179
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
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 Form 8-K filed by the Company on December 20, 2011)
First Amendment to Credit Agreement, dated as of July 23, 2013, to the Credit Agreement, dated as of
December 16, 2011 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company
on July 25, 2013)
Second Amendment to Credit Agreement, dated as of February 27, 2015, to the Credit Agreement,
dated as of December 16, 2011 (incorporated by reference to Exhibit 10.2 to the Form 8-K filed by the
Company on March 2, 2015)
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 Form 8-K filed by the Company on December 20,
2011)
Consent and Waiver to Credit Agreement, dated as of November 20, 2015, among Trinity Acquisition
Limited, Willis Group Holdings Public Limited Company, Willis North America Inc., the lenders party
thereto and Barclays Bank PLC, as administrative agent (incorporated by reference to Exhibit 10.2 to
the Form 8-K filed by the Company on November 27, 2015)
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 Form 8-K filed by the Company on March 4, 2014)
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 by reference to Exhibit 10.1 to the
Form 8-K filed by the Company on May 1, 2014)
First Amendment to Revolving Note and Cash Subordination Agreement, dated as of April 28, 2014
(incorporated by reference to Exhibit 10.2 to the Form 8-K filed by the Company on May 1, 2014)
Second Amendment to Revolving Note and Cash Subordination Agreement, dated as of February 27,
2015 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the
Company on March 2, 2015)
Third Amendment to Revolving Note and Cash Subordination Agreement, dated as of April 27, 2016
(incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the Company on April 28, 2016)
Consent to Guaranty Agreement, dated as of November 20, 2015, among Trinity Acquisition Limited,
Willis Group Holdings Public Limited Company, SunTrust Bank, as administrative agent, and the
lenders party thereto (incorporated by reference to Exhibit 10.3 to the Form 8-K filed by the Company
on November 27, 2015)
Term Loan Agreement, dated as of November 20, 2015, 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 Form 8-K filed by the Company
on November 27, 2015)
Term Loan Credit Agreement, dated as of November 20, 2015, among Towers Watson Delaware Inc.,
as borrower, each lender from time to time party thereto, and Bank of America, N.A., as administrative
agent (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by Towers Watson on
November 24, 2015)
Amendment No. 1, dated as of December 23, 2015, to the Term Loan Credit Agreement (incorporated
by reference to Exhibit 10.1 to the Form 8-K filed by Towers Watson on December 29, 2015)
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 Form 8-K filed by the Company on January 4, 2010)†
Willis Group Senior Management Incentive Plan (incorporated by reference to Exhibit 10.7 to the
Form 8-K filed by the Company on January 4, 2010)†
Willis Towers Watson Public Limited Company Amended and Restated 2010 North American
Employee Stock Purchase Plan (incorporated by reference to Exhibit B to the Definitive Proxy
Statement on Schedule 14A filed by the Company on April 27, 2016)†
Willis Group Holdings 2001 Share Purchase and Option Plan (incorporated by reference to Exhibit
10.9 to the Form 8-K filed by the Company on January 4, 2010)†
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 Form 10-Q filed by the Company on
May 10, 2010)†
180
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
Form of Time-Based Option Agreement under the Willis Group Holdings 2001 Share Purchase and
Option Plan (incorporated by reference to Exhibit 10.16 to the Form 10-K filed by the Company on
February 28, 2011)†
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 Form 10-Q filed by the Company on August 9, 2011)†
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 Form
10-K filed by the Company on February 29, 2012)†
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 Form 8-K filed by the Company on May 3, 2011)†
Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other
Obligations (for U.S. employees) (incorporated by reference to Exhibit 10.2 to the Form 8-K filed by
the Company on May 3, 2011)†
Form of 2011 Long Term Incentive Program Agreement of Restrictive Covenants and Other
Obligations (for U.K. employees) (incorporated by reference to Exhibit 10.3 to the Form 8-K filed by
the Company on May 3, 2011)†
Rules of the Willis Group Holdings Sharesave Plan 2001 for the United Kingdom (incorporated by
reference to Exhibit 10.13 to the Form 8-K filed by the Company on January 4, 2010)†
The Willis Group Holdings Irish Sharesave Plan (incorporated by reference to Exhibit 10.1 to the
Form 10-Q filed by the Company on May 5, 2010)†
Willis Group Holdings 2008 Share Purchase and Option Plan (incorporated by reference to Exhibit
10.16 to the Form 8-K filed by the Company on January 4, 2010)†
Hilb Rogal & Hobbs Company 2007 Share Incentive Plan (incorporated by reference to Exhibit 10.19
to the Form 8-K filed by the Company on January 4, 2010)†
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 Form 10-Q filed
by the Company on August 6, 2010)†
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 Form
10-Q filed by the Company on August 9, 2011)†
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 Form 10-Q filed by the Company on
August 6, 2010)†
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 Form 10-Q filed by the
Company on August 9, 2011)†
Willis Towers Watson Public Limited Company 2012 Equity Incentive Plan (incorporated by reference
to Exhibit A to the Definitive Proxy Statement on Schedule 14A filed by the Company on April 27,
2016)†
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 Form 10-Q
filed by the Company on August 9, 2012)†
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 Form
10-Q filed by the Company on August 9, 2012)†
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 Form
10-Q filed by the Company on August 9, 2012)†
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
Form 10-Q filed by the Company on August 9, 2012)†
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 Form 10-Q filed by the Company on August 9, 2012)†
181
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
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 Form 10-K filed by the Company on February 27,
2014)†
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 Form 10-K filed by the Company on February 28,
2013)†
Form of 2012 Long Term Incentive Program Agreement of Restrictive Covenants and Other
Obligations (for U.S. employees) Plan (incorporated by reference to Exhibit 10.36 to the Form 10-K
filed by the Company on February 28, 2013)†
Form of 2012 Long Term Incentive Program Agreement of Restrictive Covenants and Other
Obligations (for U.K. employees) Plan (incorporated by reference to Exhibit 10.37 to the Form 10-K
filed by the Company on February 28, 2013)†
Amended and Restated Willis U.S. 2005 Deferred Compensation Plan (incorporated by reference to
Exhibit 10.21 to the Form 10-Q filed by the Company on November 20, 2009)†
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 Form 10-Q filed by the
Company on August 9, 2011)†
Second Amendment to the Amended and Restated Willis U.S. 2005 Deferred Compensation Plan
(incorporated by reference to Exhibit 10. 6 to the Form 10-Q filed by the Company on November 5,
2013)†
Form of Deed of Indemnity of Willis Towers Watson Public Limited Company (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed by the Company on January 5, 2016)†
Form of Indemnification Agreement of Willis North America Inc. (incorporated by reference to
Exhibit 10.2 to the Form 8-K filed by the Company on January 5, 2016)†
Willis Towers Watson Public Limited Company Compensation Policy and Share Ownership
Guidelines for Non-Employee Directors (as amended) (incorporated by reference to Exhibit 10.15 to
the Form 10-Q filed by the Company on May 10, 2016)†
Employment Agreement, dated as of March 1, 2016, by and between Willis Towers Watson Public
Limited Company and John J. Haley (incorporated by reference to Exhibit 10.1 to the Form 8-K filed
by the Company on March 1, 2016)†
Restricted Share Unit Award Agreement, dated as of February 26, 2016, by and between Willis Towers
Watson Public Limited Company and John J. Haley (incorporated by reference to Exhibit 10.2 to the
Form 8-K filed by the Company on March 1, 2016)†
Supplemental Restricted Share Unit Award Agreement, by and between Willis Towers Watson Public
Limited Company and John J. Haley, dated as of June 14, 2016 (incorporated by reference to Exhibit
10.1 to the Form 8-K filed by the Company on June 16, 2016)†
Amended and Restated Employment Agreement, dated as of June 29, 2015, by and between Willis
Group Holdings Public Limited Company and Dominic Casserley (incorporated by reference to
Exhibit 10.1 to the Form 8-K filed by the Company on June 30, 2015)†
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 Form 10-K filed by the Company on
February 27, 2014)†
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 Form 10-Q filed by the Company on November 5, 2013)†
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 Form 10-Q filed by the Company on November 5, 2013)†
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
Form 10-Q filed by the Company on November 5, 2013)†
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 (incorporated by reference to Exhibit 10.52 to the
Form 10-K filed by the Company on February 24, 2015)†
182
10.59
10.60
10.61
10.62
10.63
10.64
10.65
10.66
10.67
10.68
10.69
10.70
10.71
10.72
10.73
10.74
10.75
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 (incorporated by reference to Exhibit
10.53 to the Form 10-K filed by the Company on February 24, 2015)†
Offer Letter, dated July 23, 2013, and Contract of Employment, dated as of September 3, 2013, by and
between Willis Limited, a subsidiary of Willis Towers Watson Public Limited Company, and David
Shalders (incorporated by reference to Exhibit 10.3 to the Form 10-Q filed by the Company on May
10, 2016)†
Amendment, dated April 30, 2014, to the Contract of Employment, dated as of September 3, 2013, by
and between Willis Limited, a subsidiary of Willis Towers Watson Public Limited Company, and
David Shalders (incorporated by reference to Exhibit 10.4 to the Form 10-Q filed by the Company on
May 10, 2016)†
Amendment, dated as of June 29, 2015, to Contract of Employment, dated as of September 3, 2013, by
and between Willis Limited, a subsidiary of Willis Towers Watson Public Limited Company, and
David Shalders (incorporated by reference to Exhibit 10.5 to the Form 10-Q filed by the Company on
May 10, 2016)†
Offer Letter, dated November 9, 2014, and Contract of Employment, dated as of November 9, 2014,
by and between Willis Limited, a subsidiary of Willis Towers Watson Public Limited Company, and
Nicolas Aubert (incorporated by reference to Exhibit 10.6 to the Form 10-Q filed by the Company on
May 10, 2016)†
Amendment, dated as of June 29, 2015, to Contract of Employment, dated as of November 9, 2014, by
and between Willis Limited, a subsidiary of Willis Towers Watson Public Limited Company, and
Nicolas Aubert (incorporated by reference to Exhibit 10.7 to the Form 10-Q filed by the Company on
May 10, 2016)†
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 Form 10-K filed by the Company on February 28, 2013)†
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 Form 10-K filed by the Company on
February 28, 2013)†
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 Form 10-K filed by the Company on February 28, 2013)†
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 Form 10-Q filed by the Company on May 9,
2014)†
Employment Agreement, dated as of September 15, 2003, by and between Willis Americas
Administration, Inc. and Todd J. Jones (incorporated by reference to Exhibit 10.63 to the Form 10-K
filed by the Company on February 27, 2014)†
Letter Agreement, dated August 1, 2013, by and between Willis North America Inc. and Todd J. Jones
(incorporated by reference to Exhibit 10.64 to the Form 10-K filed by the Company on February 27,
2014)†
Amendment, dated April 30, 2014, to the Employment Agreement, dated August 1, 2013, by and
between Willis North America Inc. and Todd J. Jones (incorporated by reference to Exhibit 10.6 to the
Form 10-Q filed by the Company on May 9, 2014)†
Amendment to Employment Agreement, dated as of June 29, 2015, by and between Willis North
America Inc. and Todd Jones (incorporated by reference to Exhibit 10.4 to the Form 8-K filed by the
Company on June 30, 2015)†
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 Form 8-K filed
by the Company on March 23, 2014)†
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 (incorporated by reference to Exhibit
10.69 to the Form 10-K filed by the Company on February 24, 2015)†
Amendment to Employment Agreement, dated as of June 29, 2015, by and between Willis Group
Holdings Public Limited Company and John Greene (incorporated by reference to Exhibit 10.2 to the
Form 8-K filed by the Company on June 30, 2015)†
183
10.76
10.77
10.78
10.79
10.80
10.81
10.82
10.83
10.84
10.85
10.86
10.87
10.88
10.89
10.90
10.91
10.92
10.93
10.94
10.95
Amendment to Employment Agreement, dated as of June 29, 2015, by and between Willis Limited and
Timothy Wright (incorporated by reference to Exhibit 10.3 to the Form 8-K filed by the Company on
June 30, 2015)†
Transition Letter Agreement, dated as of January 4, 2016, by and between Willis Group Holdings
Public Limited Company and John Greene (incorporated by reference to Exhibit 10.73 to the Form 10-
K filed by the Company on February 29, 2016)†
Form of Time-Based Restricted Share Unit Award Agreement under the Willis Group Holdings Public
Limited Company 2012 Equity Incentive Plan, dated as of November 9, 2015, by and between John
Greene / Timothy Wright / Todd Jones / Nicolas Aubert / David Shalders and Willis Group Holdings
Public Limited Company (incorporated by reference to Exhibit 10.74 to the Form 10-K filed by the
Company on February 29, 2016)†
Form of Performance-Based Restricted Share Unit Award Agreement under the Willis Group Holdings
Public Limited Company 2012 Equity Incentive Plan, dated as of November 9, 2015, by and between
Timothy Wright / Todd Jones / Nicolas Aubert / David Shalders and Willis Group Holdings Public
Limited Company (incorporated by reference to Exhibit 10.75 to the Form 10-K filed by the Company
on February 29, 2016)†
Form of Time-Based Share Option Agreement under the Willis Group Holdings Public Limited
Company 2012 Equity Incentive Plan, dated as of November 9, 2015, by and between John Greene /
Timothy Wright / Todd Jones / Nicolas Aubert / David Shalders and Willis Group Holdings Public
Limited Company (incorporated by reference to Exhibit 10.76 to the Form 10-K filed by the Company
on February 29, 2016)†
Form of Performance-Based Restricted Share Unit Award Agreement for Operating Committee
Members under the Willis Towers Watson Public Limited Company Amended and Restated 2012
Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 10-Q filed by the
Company on November 7, 2016)†
Towers Watson Amended and Restated 2009 Long Term Incentive Plan (incorporated by reference to
Exhibit 99.1 to the Registration Statement on Form S-8 filed by the Company on January 5, 2016)†
Trust Deed and Rules of the Towers Watson Limited Share Incentive Plan 2005 (U.K) (incorporated by
reference to Exhibit 10.21 to the Form 10-K filed by Watson Wyatt Worldwide Inc on September 1,
2006)†
Towers Watson Limited Share Incentive Plan 2005 Deed of Amendment (U.K.) (incorporated by
reference to Exhibit 10.22 to the Form 10-K filed by Watson Wyatt Worldwide Inc on September 1,
2006)†
Towers Watson Limited Share Incentive Plan 2005 Deed to Change the Trust Deed and Rules (U.K.)
(incorporated by reference to Exhibit 10.10 to the Form 10-K filed by Towers Watson on August 29,
2012)†
Share Purchase Plan 2005 (Spain) (incorporated by reference to Exhibit 10.24 to the Form 10-K filed
by Watson Wyatt Worldwide Inc. on September 1, 2006)†
Trust Deed and Rules of the Watson Wyatt Ireland Share Participation Scheme (incorporated by
reference to Exhibit 10.23 to the Form 10-K filed by Watson Wyatt Worldwide Inc on September 1,
2006)†
Form of Non-Qualified Stock Option Award Agreement for use under the Towers Watson & Co. 2009
Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by Towers
Watson on March 8, 2010)†
Amended Towers Watson & Co. Compensation Plan for Non-Employee Directors (incorporated by
reference to Exhibit 10.1 to the Form 10-Q filed by Towers Watson on November 5, 2014)†
Voluntary Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to
Exhibit 10.1 to the Form 8-K filed by Towers Watson on May 18, 2010)†
Watson Wyatt Amended and Restated 2000 Long-Term Incentive Plan (incorporated by reference to
Exhibit 99.2 to the Registration Statement on Form S-8 filed by the Company on January 5, 2016)†
Amended Form of Restricted Stock Unit Award Agreement FY11 (Performance-Based Vesting)
(incorporated by reference to Exhibit 10.18 to the Form 10-Q filed by Towers Watson on February 7,
2012)†
Extend Health Amended and Restated 2007 Equity Incentive Plan (incorporated by reference to
Exhibit 99.3 to the Registration Statement on Form S-8 filed by the Company on January 5, 2016)†
Form of Restricted Stock Unit Award Agreement FY12 (Performance-Based Vesting) (incorporated by
reference to Exhibit 10.18 to the Form 10-K filed by Towers Watson on August 29, 2012)†
Form of Restricted Stock Unit Award Agreement (Time-Based Vesting) (incorporated by reference to
Exhibit 10.19 to the Form 10-K filed by Towers Watson on August 29, 2012)†
184
10.96
10.97
10.98
12.1
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
Towers Watson & Co. Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to the
Form 10-Q filed by Towers Watson on November 12, 2013)†
Liazon Amended and Restated 2011 Equity Incentive Plan (incorporated by reference to Exhibit 99.4
to the Registration Statement on Form S-8 filed by the Company on January 5, 2016)†
Willis Towers Watson Non-Qualified Deferred Savings Plan for U.S. Employees (as amended and
restated effective January 1, 2017) (incorporated by reference to Exhibit 10.1 to the Form 10-Q filed
by the Company on November 7, 2016)†
Statement regarding Computation of Ratio of Earnings to Fixed Charges*
List of subsidiaries*
Consent of Deloitte LLP*
Certification Pursuant to Rule 13a-14(a)*
Certification Pursuant to Rule 13a-14(a)*
Certification Pursuant to 18 USC. Section 1350*
Certification Pursuant to 18 USC. Section 1350*
XBRL Instance Document*
XBRL Taxonomy Extension Schema Document*
XBRL Taxonomy Extension Calculation Linkbase Document*
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.
All exhibits that are incorporated by reference herein to a filing with the SEC made more than five years ago are filed under:
SEC File No. 001-16503, for any filings that were made by Willis Group Holdings or the Company; SEC File No. 001-34594,
for any filings that were made by Towers Watson; and SEC File No. 001-16159, for any filings that were made by Watson
Wyatt Worldwide.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
185
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.
SIGNATURES
WILLIS TOWERS WATSON PLC
(REGISTRANT)
By:
/s/ John J. Haley
John J. Haley
Chief Executive Officer
Date: March 1, 2017
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.
/s/ John J. Haley
John J. Haley
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Susan D. Davies
Susan D. Davies
Controller and Principal Accounting Officer
/s/ Anna C. Catalano
Anna C. Catalano
Director
/s/ Wendy E. Lane
Wendy E. Lane
Director
/s/ Brendan R. O’Neill
Brendan R. O’Neill
Director
/s/ Linda D. Rabbitt
Linda D. Rabbitt
Director
/s/ Jeffrey W. Ubben
Jeffrey W. Ubben
Director
/s/ Roger Millay
Roger Millay
Chief Financial Officer
/s/ Victor F. Ganzi
Victor F. Ganzi
Director
/s/ James F. McCann
James F. McCann
Director
/s/ Jaymin B. Patel
Jaymin B. Patel
Director
/s/ Paul Thomas
Paul Thomas
Director
/s/ Wilhelm Zeller
Wilhelm Zeller
Director
186