Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

EXECUTIVE SUMMARY OF 2014 FINANCIAL RESULTS

During 2014, we continued to face certain headwinds that have adversely impacted our business. In our Risk Solutions segment, these headwinds included an unfavorable impact from changes in foreign currency exchange rates, economic weakness in continental Europe and a negative market impact in our Reinsurance business. In our HR Solutions segment, these headwinds included price compression in our benefits administration business and economic weakness in continental Europe.

The following is a summary of our 2014 financial results:


•	Revenue increased $230 million, or 2%, compared to the prior year to $12.0 billion in 2014 due primarily to organic revenue growth of 2% in the Risk Solutions segment and 5% in the HR Solutions segment, partially offset by a 1% unfavorable impact from changes in foreign currency exchange rates. The increase in revenue was driven by strong new business generation and solid management of the renewal book portfolio across our Risk Solutions segment, as well as solid growth in both our consulting and outsourcing businesses within HR Solutions.

•

Revenue increased $230 million, or 2%, compared to the prior year to $12.0 billion in 2014 due primarily to organic revenue growth of 2% in the Risk Solutions segment and 5% in the HR Solutions segment, partially offset by a 1% unfavorable impact from changes in foreign currency exchange rates. The increase in revenue was driven by strong new business generation and solid management of the renewal book portfolio across our Risk Solutions segment, as well as solid growth in both our consulting and outsourcing businesses within HR Solutions.


•	Operating expenses decreased $65 million, or 1%, compared to the prior year to $10.1 billion in 2014 due primarily to a $174 million decrease in restructuring costs, a $66 million favorable impact from changes in foreign currency exchange rates, a decrease in intangible asset amortization of $43 million, and benefits achieved from the restructuring plans, partially offset by an increase in expense associated with 3% organic revenue growth and $35 million of expense related to legacy litigation.

•

Operating expenses decreased $65 million, or 1%, compared to the prior year to $10.1 billion in 2014 due primarily to a $174 million decrease in restructuring costs, a $66 million favorable impact from changes in foreign currency exchange rates, a decrease in intangible asset amortization of $43 million, and benefits achieved from the restructuring plans, partially offset by an increase in expense associated with 3% organic revenue growth and $35 million of expense related to legacy litigation.


•	Operating margin increased to 16.3% in 2014 from 14.1% in 2013. The increase in operating margin from the prior year is primarily related to organic revenue growth of 3%, decreased intangible asset amortization, return on investments, and benefits achieved from the restructuring plans. Risk Solutions operating margin increased to 21.0% in 2014 from 19.8% in 2013. HR Solutions operating margin increased to 11.4% in 2014 from 7.8% in 2013.

•

Operating margin increased to 16.3% in 2014 from 14.1% in 2013. The increase in operating margin from the prior year is primarily related to organic revenue growth of 3%, decreased intangible asset amortization, return on investments, and benefits achieved from the restructuring plans. Risk Solutions operating margin increased to 21.0% in 2014 from 19.8% in 2013. HR Solutions operating margin increased to 11.4% in 2014 from 7.8% in 2013.


•	Net income attributable to Aon shareholders was $1.4 billion, an increase of $284 million, or 26%, from $1.1 billion in 2013. Diluted earnings per share increased 32% to $4.66 in 2014 from $3.53 in 2013.


•	Cash flow provided by operating activities was $1.6 billion in 2014, an increase of $9 million, or 1%, from $1.6 billion in 2013, due primarily to growth in net income and a decrease in pension contributions, partially offset by unfavorable timing of receivable collections in the prior year. Cash flow from operations in 2013 was also favorably impacted by the $43.5 million settlement of a non-recurring, one-time legal matter.

•

Cash flow provided by operating activities was $1.6 billion in 2014, an increase of $9 million, or 1%, from $1.6 billion in 2013, due primarily to growth in net income and a decrease in pension contributions, partially offset by unfavorable timing of receivable collections in the prior year. Cash flow from operations in 2013 was also favorably impacted by the $43.5 million settlement of a non-recurring, one-time legal matter.

We focus on four key non-GAAP metrics that we communicate to shareholders: grow organically, expand adjusted operating margins, increase adjusted diluted earnings per share, and increase free cash flow. The following is our measure of performance against these four metrics for 2014:


•	Organic revenue growth, a non-GAAP metric as defined under the caption "Review of Consolidated Results — Organic Revenue," was 3% in 2014. Organic revenue growth was driven by growth across our businesses in both Risk Solutions and HR Solutions. In Risk Solutions, organic revenue growth was driven by strong new business generation and solid management of the renewal book portfolio across our Retail business. In HR Solutions, organic growth was primarily driven by health care exchanges and growth across consulting.

•

Organic revenue growth, a non-GAAP metric as defined under the caption "Review of Consolidated Results — Organic Revenue," was 3% in 2014. Organic revenue growth was driven by growth across our businesses in both Risk Solutions and HR Solutions. In Risk Solutions, organic revenue growth was driven by strong new business generation and solid management of the renewal book portfolio across our Retail business. In HR Solutions, organic growth was primarily driven by health care exchanges and growth across consulting.


•	Adjusted operating margin, a non-GAAP metric as defined under the caption "Review of Consolidated Results — Adjusted Operating Margin," was 19.5% for Aon overall, 22.9% for the Risk Solutions segment, and 17.1% for the HR Solutions segment in 2014. In 2013, adjusted operating margin was 19.0% for Aon overall, 22.5% for the Risk Solutions segment, and 16.7% for the HR Solutions segment. The increase in adjusted operating margin for the Risk Solutions segment reflects solid organic revenue growth and return on investments, partially offset by an unfavorable impact from changes in foreign currency exchange rates. The increase in adjusted operating margin for the HR Solutions segment reflects solid organic revenue growth and restructuring savings, partially offset by continued investment in long-term growth opportunities.

•

Adjusted operating margin, a non-GAAP metric as defined under the caption "Review of Consolidated Results — Adjusted Operating Margin," was 19.5% for Aon overall, 22.9% for the Risk Solutions segment, and 17.1% for the HR Solutions segment in 2014. In 2013, adjusted operating margin was 19.0% for Aon overall, 22.5% for the Risk Solutions segment, and 16.7% for the HR Solutions segment. The increase in adjusted operating margin for the Risk Solutions segment reflects solid organic revenue growth and return on investments, partially offset by an unfavorable impact from changes in foreign currency exchange rates. The increase in adjusted operating margin for the HR Solutions segment reflects solid organic revenue growth and restructuring savings, partially offset by continued investment in long-term growth opportunities.


•	Adjusted diluted earnings per share from net income attributable to Aon's shareholders, a non-GAAP metric as defined under the caption "Review of Consolidated Results — Adjusted Diluted Earnings per Share," was $5.71 per share in 2014, an increase of $0.82 per share, or 17%, from $4.89 per share in 2013. The increase

demonstrates solid operational performance, a lower effective tax rate, and effective capital management, highlighted by $2.3 billion of share repurchases during 2014.


•	Free cash flow, a non-GAAP metric as defined under the caption "Review of Consolidated Results — Free Cash Flow," was $1.4 billion in 2014, a decrease of $18 million, or 1%, from $1.4 billion in 2013. The decrease in free cash flow from the prior year was driven by record cash flow from operations of $1.6 billion in 2014, offset by a 12%, or $27 million, increase in capital expenditures.

During 2014, we continued to execute against the strategic goals of the Redomestication. We believe the Redomestication will continue to strengthen our long term strategy by:


•	Enabling Risk Solutions to deliver superior value to our clients by executing our Aon Broking strategy;


•	Expanding the HR Solutions portfolio penetration, especially within consulting, which already has a significant presence in the U.K. and EMEA;


•	Enhancing our Risk Solutions' relationship with, and integration into, London markets;


•	Increasing our connection to emerging markets, accelerating our ability to grow there, and further aligning our strategy with underwriters and carriers who are also targeting these high growth markets;


•	Strengthening our international brand awareness and positioning as a global firm;


•	Advancing our talent strategy through better development, retention and acquisition of professional talent, with a special focus on London's insurance talent; and


•	Optimizing our fiscal planning and capital allocation and reducing our global tax rate in a manner that provides us with the increased financial flexibility to properly invest in our growth.

REVIEW OF CONSOLIDATED RESULTS

General

In our discussion of operating results, we sometimes refer to certain non-GAAP supplemental information derived from consolidated financial information specifically related to organic revenue growth, adjusted operating margin, adjusted diluted earnings per share, free cash flow, and the impact of foreign exchange rate fluctuations on operating results.

Organic Revenue

We use supplemental information related to organic revenue to help us and our investors evaluate business growth from existing operations. Organic revenue is a non-GAAP measure and excludes the impact of foreign exchange rate changes, acquisitions, divestitures, transfers between business units, fiduciary investment income, reimbursable expenses, and certain unusual items. Supplemental information related to organic revenue growth represents a measure not in accordance with U.S. GAAP, and should be viewed in addition to, not instead of, our Consolidated Financial Statements and Notes thereto. Industry peers provide similar supplemental information about their revenue performance, although they may not make identical adjustments. Reconciliations of this non-GAAP measure, organic revenue growth percentages, to the reported Commissions, fees and other revenue growth percentages, have been provided under the "Review by Segment" caption below.

Adjusted Operating Margin

We use adjusted operating margin as a non-GAAP measure of core operating performance of our Risk Solutions and HR Solutions segments. Adjusted operating margin excludes the impact of certain items, including restructuring charges, intangible asset amortization and headquarters relocation costs because management does not believe these expenses reflect our core operating performance. This supplemental information related to adjusted operating margin represents a measure not in accordance with U.S. GAAP, and should be viewed in addition to, not instead of, our Consolidated Financial Statements and Notes thereto.

A reconciliation of this non-GAAP measure to the reported operating margin is as follows (in millions):



Year Ended December 31, 2014	Total Aon (1)			Risk Solutions			HR Solutions
Revenue — U.S. GAAP	$	12,045		$	7,834		$	4,264
Operating income — U.S. GAAP	$	1,966		$	1,648		$	485
Intangible asset amortization	352			109			243
Legal settlement	35			35			—
Operating income — as adjusted	$	2,353		$	1,792		$	728
Operating margins — U.S. GAAP	16.3		%	21.0		%	11.4		%
Operating margins — as adjusted	19.5		%	22.9		%	17.1		%



Year Ended December 31, 2013	Total Aon (1)			Risk Solutions			HR Solutions
Revenue — U.S. GAAP	$	11,815		$	7,789		$	4,057
Operating income — U.S. GAAP	$	1,671		$	1,540		$	318
Restructuring Charges	174			94			80
Intangible asset amortization	395			115			280
Headquarters relocation costs	5			—			—
Operating income — as adjusted	$	2,245		$	1,749		$	678
Operating margins — U.S. GAAP	14.1		%	19.8		%	7.8		%
Operating margins — as adjusted	19.0		%	22.5		%	16.7		%



Year Ended December 31, 2012	Total Aon (1)			Risk Solutions			HR Solutions
Revenue — U.S. GAAP	$	11,514		$	7,632		$	3,925
Operating income — U.S. GAAP	$	1,596		$	1,493		$	289
Restructuring charges	101			35			66
Intangible asset amortization	423			126			297
Headquarters relocation costs	24			—			—
Operating income — as adjusted	$	2,144		$	1,654		$	652
Operating margins — U.S. GAAP	13.9		%	19.6		%	7.4		%
Operating margins — as adjusted	18.6		%	21.7		%	16.6		%


(1)	Includes unallocated expenses and the elimination of inter-segment revenue.

Adjusted Diluted Earnings per Share

We also use adjusted diluted earnings per share as a non-GAAP measure of our core operating performance. Adjusted diluted earnings per share excludes the impact of restructuring charges, intangible asset amortization and headquarters relocation costs, along with related income taxes because management does not believe these expenses are representative of our core earnings. This supplemental information related to adjusted diluted earnings per share represents a measure not in accordance with U.S. GAAP and should be viewed in addition to, not instead of, our Consolidated Financial Statements and Notes thereto.

Reconciliations of this non-GAAP measure to the reported diluted earnings per share are as follows (in millions except per share data):



Year Ended December 31, 2014	U.S. GAAP			Adjustments		As Adjusted
Operating income	$	1,966		$	387	$	2,353
Interest income	10			—		10
Interest expense	(255		)	—		(255		)
Other income	44			—		44
Income before income taxes	1,765			387		2,152
Income taxes	334			73		407
Net income	1,431			314		1,745
Less: Net income attributable to noncontrolling interests	34			—		34
Net income attributable to Aon shareholders	$	1,397		$	314	$	1,711
Diluted earnings per share	$	4.66		$	1.05	$	5.71
Weighted average ordinary shares outstanding — diluted	299.6			299.6		299.6



Year Ended December 31, 2013	U.S. GAAP			Adjustments		As Adjusted
Operating income	$	1,671		$	574	$	2,245
Interest income	9			—		9
Interest expense	(210		)	—		(210		)
Other income	68			—		68
Income before income taxes	1,538			574		2,112
Income taxes	390			146		536
Net income	1,148			428		1,576
Less: Net income attributable to noncontrolling interests	35			—		35
Net income attributable to Aon shareholders	$	1,113		$	428	$	1,541
Diluted earnings per share	$	3.53		$	1.36	$	4.89
Weighted average ordinary shares outstanding — diluted	315.4			315.4		315.4



Year Ended December 31, 2012	U.S. GAAP			Adjustments		As Adjusted
Operating income	$	1,596		$	548	$	2,144
Interest income	10			—		10
Interest expense	(228		)	—		(228		)
Other income	2			2		4
Income before income taxes	1,380			550		1,930
Income taxes	360			144		504
Net income	1,020			406		1,426
Less: Net income attributable to noncontrolling interests	27			—		27
Net income attributable to Aon shareholders	$	993		$	406	$	1,399
Diluted earnings per share	$	2.99		$	1.22	$	4.21
Weighted average ordinary shares outstanding — diluted	332.6			332.6		332.6

Free Cash Flow

We use free cash flow, defined as cash flow provided by operations minus capital expenditures, as a non-GAAP measure of our core operating performance. This supplemental information related to free cash flow represents a measure not in accordance with U.S. GAAP and should be viewed in addition to, not instead of, our Consolidated Financial Statements and Notes thereto. The use of this non-GAAP measure does not imply or represent the residual cash flow for discretionary expenditures.

A reconciliation of this non-GAAP measure to cash flow provided by operations is as follows (in millions):



Years Ended December 31,	2014			2013			2012
Cash flow provided by operations - U.S. GAAP	$	1,642		$	1,633		$	1,419
Less: Capital expenditures	(256		)	(229		)	(269		)
Free cash flow	$	1,386		$	1,404		$	1,150

Impact of Foreign Exchange Rate Fluctuations

Because we conduct business in more than 120 countries, foreign exchange rate fluctuations have a significant impact on our business. Foreign exchange rate movements may be significant and may distort true period-to-period comparisons of changes in revenue or pretax income. Therefore, to give financial statement users meaningful information about our operations, we have provided an illustration of the impact of foreign currency exchange rates on our financial results. The methodology used to calculate this impact isolates the impact of the change in currencies between periods by translating last year's revenue, expenses and net income, using current year's foreign exchange rates. Using this illustrative methodology, currency fluctuations had an unfavorable impact of $0.11, $0.03 and $0.06 during the years ended December 31, 2014, 2013, and 2012, respectively, on adjusted net income per diluted share, when we translate prior year results at current year end foreign exchange rates. These translations are performed for comparative and illustrative purposes only and do not impact the accounting policies or practices for amounts included in the Consolidated Financial Statements.

Summary of Results

Our consolidated results of operations follow (in millions):



Years ended December 31,	2014			2013			2012
Revenue:
Commissions, fees and other	$	12,019		$	11,787		$	11,476
Fiduciary investment income	26			28			38
Total revenue	12,045			11,815			11,514
Expenses:
Compensation and benefits	7,014			6,945			6,709
Other general expenses	3,065			3,199			3,209
Total operating expenses	10,079			10,144			9,918
Operating income	1,966			1,671			1,596
Interest income	10			9			10
Interest expense	(255		)	(210		)	(228		)
Other income	44			68			2
Income before income taxes	1,765			1,538			1,380
Income taxes	334			390			360
Net income	1,431			1,148			1,020
Less: Net income attributable to noncontrolling interests	34			35			27
Net income attributable to Aon shareholders	$	1,397		$	1,113		$	993

Consolidated Results for 2014 Compared to 2013

Revenue

Revenue increased by $230 million, or 2%, to $12.0 billion in 2014, compared to $11.8 billion in 2013. The increase was driven by organic revenue growth of 2% in the Risk Solutions segment and 5% in the HR Solutions segment. Organic revenue growth in the Risk Solutions segment was driven by solid growth across both the Americas and International businesses. Growth across all regions and product lines, including record new business generation in US Retail, drove organic revenue growth in the Americas. International organic revenue growth was driven by solid growth across Asia, the Pacific, and emerging markets, partially offset by a modest decline in continental Europe. Reinsurance was down modestly as a significant unfavorable market impact more than offset net new business growth in treaty placements globally and growth in capital markets transactions and advisory business, as well as facultative placements. Organic growth in the HR Solutions segment

was driven by solid growth in both Consulting and Outsourcing. Consulting organic revenue growth was driven by retirement consulting, project-related revenue, and businesses in Asia. Strong growth in health care exchanges and new client wins in HR BPO drove organic revenue growth in Outsourcing.

Compensation and Benefits

Compensation and benefits increased $69 million, or 1%, compared to 2013. The increase was driven by an increase in expense associated with 3% organic revenue growth, partially offset by a $79 million decrease in restructuring costs and a $46 million favorable impact from changes in foreign currency exchange rates.

Other General Expenses

Other general expenses decreased $134 million, or 4%, compared to 2013 due largely to a $95 million decrease in formal restructuring costs and a $43 million decrease in intangible amortization, partially offset by $35 million of expense related to legacy litigation.

Interest Income

Interest income represents income earned on operating cash balances and other income-producing investments. It does not include interest earned on funds held on behalf of clients. Interest income increased $1 million, or 11%, from 2013, due to marginally higher average interest rates globally.

Interest Expense

Interest expense, which represents the cost of our worldwide debt obligations, increased $45 million, or 21%, from 2013. The increase in interest expense primarily reflects an increase in total debt outstanding.

Other Income

Other income decreased $24 million from $68 million in 2013 to $44 million in 2014. Other income in 2014 includes $24 million in gains on disposal of businesses, foreign exchange gains of $18 million, equity earnings of $12 million, and $4 million in gains on investments, partially offset by a $19 million loss from derivatives. Other income in 2013 includes $28 million in gains on investments, equity earnings of $20 million, foreign exchange gains of $13 million, and $10 million in gains on disposal of businesses, partially offset by $10 million loss from derivatives.

Income before Income Taxes

Income before income taxes was $1.8 billion in 2014, an increase of $227 million, or 15%, from $1.5 billion in 2013.

Income Taxes

The effective tax rate on net income was 18.9% in 2014 and 25.4% in 2013. The 2014 and 2013 rates reflect certain discrete tax adjustments and changes in the geographic distribution of income, primarily the benefit from global funding structures and benefits from lower-taxed global operations.

Net Income

Net income increased to $1.4 billion ($4.66 diluted net income per share) in 2014, compared to $1.1 billion ($3.53 diluted net income per share) in 2013.

Consolidated Results for 2013 Compared to 2012

Revenue

Revenue increased by $301 million, or 3%, to $11.8 billion in 2013, compared to $11.5 billion in 2012. The increase was driven by organic revenue growth of 3% in the Risk Solutions segment and 3% in the HR Solutions segment. Organic growth in the Risk Solutions segment was driven by solid growth across both Retail and Reinsurance. Strong growth in Latin America, solid new business growth in U.S. Retail and strong management of the renewal book portfolio across the region drove organic revenue growth in the Americas. International organic revenue growth was driven by strong growth in Asia, emerging markets and New Zealand. Reinsurance organic growth was driven by growth in international treaty placements. Organic growth in the HR Solutions segment was driven by strong growth in health care exchanges, growth in investment and compensation consulting and strong growth in health care exchanges, modest growth in benefits administration and HR BPO, partially offset by a modest decline in actuarial services in retirement consulting.

Compensation and Benefits

Compensation and benefits increased $236 million, or 4%, compared to 2012. The increase was driven by an increase in expense associated with 3% organic revenue growth, partially offset by the impact of realization of benefits from restructuring initiatives.

Other General Expenses

Other general expenses remained flat in 2013 compared to 2012 due largely to a decrease in intangible amortization of $28 million, decreased costs related to the headquarters relocation of $19 million, a $43.5 million favorable impact from settlement of a non-recurring one-time legal matter and restructuring savings, partially offset by a $76 million increase in formal restructuring costs and $20 million of legacy, non-recurring claims handling charges.

Interest Income

Interest income represents income earned on operating cash balances and other income-producing investments. It does not include interest earned on funds held on behalf of clients. Interest income decreased $1 million, or 10%, from 2012, due to lower average interest rates globally and lower average cash balances.

Interest Expense

Interest expense, which represents the cost of our worldwide debt obligations, decreased $18 million, or 8%, from 2012. The decrease in interest expense reflects a decline in the average rate on total debt outstanding.

Other Income

Other income increased $66 million from $2 million in 2012 to $68 million in 2013. Other income in 2013 includes $28 million in gains on investments, equity earnings of $20 million, foreign exchange gains of $13 million, and $10 million in gains on disposal of businesses, partially offset by a $10 million loss from derivatives. Other income in 2012 includes equity earnings of $13 million and $7 million in gains on investments, partially offset by foreign exchange losses of $19 million.

Income before Income Taxes

Income before income taxes was $1.5 billion in 2013, an increase of $158 million, or 11%, from $1.4 billion in 2012.

Income Taxes

The effective tax rate on net income was 25.4% in 2013 and 26.1% in 2012. The 2013 rate reflects certain discrete tax adjustments and changes in the geographic distribution of income. The 2012 rate reflects the release of a valuation allowance relating to foreign tax credits and net operating losses, partially offset by the impact of a U.K. tax rate change.

Net Income

Net income increased to $1.1 billion ($3.53 diluted net income per share) in 2013, compared to $1.0 billion ($2.99 diluted net income per share) in 2012.

LIQUIDITY AND FINANCIAL CONDITION

Liquidity

Executive Summary

We believe that our balance sheet and strong cash flow provide us with adequate liquidity. Our primary sources of liquidity are cash flow from operations, available cash reserves and debt capacity available under various credit facilities. Our primary uses of liquidity are operating expenses, capital expenditures, acquisitions, share repurchases, restructuring initiatives, funding pension obligations and shareholder dividends. We believe that cash flows from operations and available credit facilities will be sufficient to meet our liquidity needs, including principal and interest payments on debt obligations, capital expenditures, pension contributions, cash restructuring costs, and anticipated working capital requirements, for the foreseeable future.

Cash on our balance sheet includes funds available for general corporate purposes, as well as amounts restricted as to their use. Funds held on behalf of clients in a fiduciary capacity are segregated and shown together with uncollected insurance premiums in Fiduciary assets in the Consolidated Statement of Financial Position, with a corresponding amount in Fiduciary liabilities. Fiduciary funds generally cannot be used for general corporate purposes, and are not a source of liquidity for us.

Cash and cash equivalents and Short-term investments decreased $232 million to $768 million in 2014. During 2014, cash flow from operating activities increased $9 million to $1.6 billion. Additional sources of funds in 2014 included net sales of short term investments of $110 million, $48 million of proceeds from the sale of businesses, and issuances of debt, net of repayments of $1.3 billion. The primary uses of funds in 2014 included share repurchases of $2.3 billion, cash contributions to our major defined benefit plans of $316 million, acquisition of businesses of $479 million, dividends paid to shareholders of $273 million, and capital expenditures of $256 million.

Our investment grade rating is important to us for a number of reasons, the most important of which is preserving our financial flexibility. If our credit ratings were downgraded to below investment grade, the interest expense on any outstanding balances on our credit facilities would increase and we could incur additional requests for pension contributions. To manage unforeseen situations, we have committed credit lines of approximately $1.2 billion and we endeavor to manage our obligations to ensure we maintain our current investment grade ratings. At December 31, 2014, we had no borrowings on these credit lines.

Operating Activities

Net cash provided by operating activities during 2014 increased $9 million, or 1%, to $1.6 billion. The increase from the prior year was primarily driven by higher net income, adjusted for non-cash items, of $170 million and a reduction in pension contributions of $162 million from the prior year, partially offset by organic growth and significant receivable collections in the prior year period, a larger decrease in accounts payables and accrued liabilities of $129 million, and a $98 million increase in payments for restructuring reserves.

The primary uses of the cash from operating activities in 2014 were pension contributions, net of expense, of $340 million, a decrease in restructuring reserves of $83 million, and a decrease in accounts payable and accrued liabilities of $81 million, partially offset by net income, adjusted for non-cash items, of $2.2 billion and a decrease in accounts receivable of $25 million. Pension contributions, net of expenses, were $340 million during 2014 compared to $502 million during 2013. In 2015, we expect to contribute approximately $220 million to our pension plans, with the majority attributable to non-U.S. pension plans, which are subject to changes in foreign exchange rates. In 2015, we also expect to have cash payments related to restructuring plans of $31 million.

We expect cash generated by operations for 2014 to be sufficient to service our debt and contractual obligations, fund the cash requirements of our restructuring programs, finance capital expenditures, continue purchases of shares under our share repurchase program, and continue to pay dividends to our shareholders. Although cash from operations is expected to be sufficient to service these activities, we have the ability to borrow under our credit facilities to accommodate any timing differences in cash flows. We have committed credit facilities of approximately $1.2 billion, of which all was available at December 31, 2014, and can access these facilities on a same day or next day basis. Additionally, under current market conditions, we believe that we could access capital markets to obtain debt financing for longer-term funding, if needed.

Investing Activities

Cash flow used for investing activities in 2014 was $545 million. The primary drivers of the cash flow used for investing activities were $479 million for acquisitions of businesses, net of cash acquired and $256 million for capital expenditures, partially offset by net sales of short-term investments of $110 million, sale of businesses of $48 million, and $32 million for net sales of long-term investments. The cash flows provided by the net sales of long-term investments represent the cash proceeds generated from net sales of long-term investments where the corresponding gains and losses are recognized in Other income in the Condensed Consolidated Statements of Income. In 2015, we expect to have cash payments of $270 million related to capital expenditures.

Cash flow used for investing activities in 2013 was $339 million. The primary drivers of the cash flow used for investing activities were capital expenditures of $229 million, net purchases of short term investments of $174 million, acquisitions of businesses, net of cash acquired, of $54 million, partially offset by sales of long term investments of $93 million.

Cash flow provided by investing activities in 2012 was $177 million. The primary drivers of the cash flow provided by investing activities were sales of long term investments for $178 million and net sales of short term investments for $440 million, partially offset by acquisitions of $160 million, and capital expenditures of $269 million.

Financing Activities

Cash flow used for financing activities during 2014 was $1.1 billion. The primary drivers of the cash flow used for financing activities were share repurchases of $2.3 billion and dividends paid to shareholders of $273 million, partially offset by issuances of debt, net of repayments, of $1.3 billion and proceeds from the exercise of share options and issuance of shares purchased through the employee stock purchase plan of $65 million.

Cash flow used for financing activities during 2013 was $1.0 billion. The primary drivers of the cash flow used for financing activities were share repurchases of $1.1 billion and dividends paid to shareholders of $212 million, partially offset by issuances of debt, net of repayments, of $227 million and proceeds from the exercise of share options and issuance of shares purchased through the employee stock purchase plan of $98 million.

Cash flow used for financing activities during 2012 was $1.6 billion. The primary drivers of the cash flow used for financing activities were share repurchases of $1.1 billion, dividends paid to shareholders of $204 million, and repayments of debt, net of issuances, of $344 million, partially offset by proceeds from the exercise of share options and issuance of shares purchased through the employee stock purchase plan of $118 million.

Cash and Investments

At December 31, 2014, our cash and cash equivalents and short-term investments were $768 million, a decrease of $232 million from December 31, 2013, primarily related to share repurchases of $2.3 billion and dividends of $273 million, partially offset by the net issuances of debt of $1.3 billion. Of the total balance as of December 31, 2014, $169 million was restricted as to its use, which was comprised of $63 million of operating funds in the U.K., as required by the FCA, and $106 million held as collateral for various business purposes. At December 31, 2014, $3.5 billion of cash and cash equivalents and short-term investments were held in the U.S. and overdrawn cash and cash equivalents and short-term investments of $2.7 billion were held in other countries. We maintain a multicurrency cash pool with a third party bank in which various Aon entities participate. Individual Aon entities are permitted to overdraw on their individual accounts provided the overall balance does not fall below zero. At December 31, 2014, non-U.S. cash balances of one or more entities were negative; however, the overall balance was positive.

Of the total balance of cash and cash equivalents and short-term investments as of December 31, 2013, $214 million was restricted as to its use, which was comprised of $126 million of operating funds in the U.K., as required by the FCA, and $88 million held as collateral for various business purposes. At December 31, 2013, $516 million of cash and cash equivalents and short-term investments were held in the U.S. and $484 million was held in other countries.

In our capacity as an insurance broker or agent, we collect premiums from insureds and, after deducting our commission, remit the premiums to the respective insurance underwriter. We also collect claims or refunds from underwriters on behalf of insureds, which are then returned to the insureds. Unremitted insurance premiums and claims are held by us in a fiduciary capacity. In addition, some of our outsourcing agreements require us to hold funds on behalf of clients to pay obligations on their behalf. The levels of fiduciary assets and liabilities can fluctuate significantly, depending on when we collect the premiums, claims and refunds, make payments to underwriters and insureds, collect funds from clients and make payments on their behalf, and foreign currency movements. Fiduciary assets, because of their nature, are generally invested in very liquid securities with highly-rated, credit-worthy financial institutions. In our Consolidated Statements of Financial Position, the amount we report for Fiduciary assets and Fiduciary liabilities are equal. Our Fiduciary assets included cash and investments of $4.0 billion and $3.8 billion and fiduciary receivables of $7.7 billion and $8.1 billion at December 31, 2014 and 2013, respectively. While we earn investment income on the fiduciary assets held in cash and investments, the cash and investments are not owned by us, and cannot be used for general corporate purposes.

As disclosed in Note 15 "Fair Value Measurements and Financial Instruments" of the Notes to Consolidated Financial Statements, the majority of our investments carried at fair value are money market funds. Money market funds are carried at cost as an approximation of fair value. Consistent with market convention, we consider cost a practical and expedient measure of fair value. These money market funds are held throughout the world with various financial institutions. We are not aware of any market liquidity issues that would materially impact the fair value of these investments.

As of December 31, 2014, our investments in money market funds and highly liquid debt instruments had a fair value of $1.9 billion and are reported as Short-term investments or Fiduciary assets in the Consolidated Statements of Financial Position depending on their nature and initial maturity.

The following table summarizes our Fiduciary assets and non-fiduciary Cash and cash equivalents and Short-term investments as of December 31, 2014 (in millions):



	Statement of Financial Position Classification
Asset Type	Cash and Cash Equivalents		Short-term Investments		Fiduciary Assets		Total
Certificates of deposit, bank deposits or time deposits	$	374	$	—	$	2,528	$	2,902
Money market funds	—		394		1,456		1,850
Highly liquid debt instruments	—		—		—		—
Other investments due within one year	—		—		—		—
Cash and investments	374		394		3,984		4,752
Fiduciary receivables	—		—		7,654		7,654
Total	$	374	$	394	$	11,638	$	12,406

Share Repurchase Program

In April 2012, our Board of Directors authorized a share repurchase program under which up to $5 billion of Class A Ordinary Shares may be repurchased ("2012 Share Repurchase Program"). In November 2014, our Board of Directors authorized a new $5.0 billion share repurchase program in addition to the existing program ("2014 Share Repurchase Program"). Under each program, shares may be repurchased through the open market or in privately negotiated transactions, from time to time, based on prevailing market conditions, and will be funded from available capital.

During 2014, we repurchased 25.8 million shares at an average price per share of $87.18 for a total cost of $2.3 billion. During 2013, we repurchased 16.8 million shares at an average price per share of $65.65 for a total cost of $1.1 billion. Since the inception of the 2012 Share Repurchase Program, we repurchased a total of 62.1 million shares for an aggregate cost of $4.4 billion. The remaining authorized amount for share repurchase under our Share Repurchase Programs is approximately $5.6 billion.

For information regarding share repurchases made during the fourth quarter of 2014, see Item 5 — "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" as previously described.

Dividends

During 2014, 2013, and 2012, we paid dividends on our Class A Ordinary Shares of $273 million, $212 million, and $204 million, respectively. Dividends paid per Class A Ordinary Share were $0.92, $0.68, and $0.62 for the years ended December 31, 2014, 2013, and 2012, respectively.

Distributable Reserves

As a U.K. incorporated company, we are required under U.K. law have available "distributable reserves" to make share repurchases or pay dividends to shareholders. Distributable reserves may be created through the earnings of the U.K. parent company. Distributable reserves are not linked to a U.S. GAAP reported amount (e.g., retained earnings). As of December 31, 2014 and 2013, we had distributable reserves in excess of $4.0 billion and $5.9 billion, respectively. We believe that we will have sufficient distributable reserves to fund shareholder dividends for the foreseeable future.

Borrowings

Total debt at December 31, 2014 was $5.6 billion, which represents an increase of $1.2 billion compared to December 31, 2013. This increase is primarily due to issuances of debt, net of repayments, of $1.3 billion, including an increase in commercial paper outstanding of $168 million compared to December 31, 2013. The proceeds of the commercial paper issuances were used primarily for short-term working capital needs.

During 2014, the $600 million of 3.5% Notes due September 2015 were classified as Short-term debt and current portion of long-term debt in the Consolidated Statements of Financial Position as the date of maturity is less than one year.

On August 12, 2014, we issued $350 million of 3.50% Notes due June 2024. The 3.50% Notes due June 2024 constitute a further issuance of, and were consolidated to form a single series of debt securities with, the $250 million of 3.50% Notes due June 2024 issued by Aon plc on May 20, 2014 (collectively, the "Original Notes"). The Original Notes were unconditionally guaranteed as to the payment of principal and interest by Aon Corporation.

On May 20, 2014, we issued $250 million of 3.50% Notes due June 2024 and $550 million of 4.60% Notes due June 2044. The 3.50% Notes due June 2024 and 4.60% Notes due June 2044 were issued by Aon plc and fully and unconditionally guaranteed by Aon Corporation. We used the proceeds of the issuance to repay commercial paper borrowings and for general corporate purposes.

On May 7, 2014, we issued €500 million ($609 million at December 31, 2014 exchange rates) of 2.875% Notes due May 2026. The 2.875% Notes due May 2026 were issued by Aon plc and fully and unconditionally guaranteed by Aon Corporation. We used the proceeds of the issuance for general corporate purposes, including the repayment at maturity of our outstanding 6.25% Notes due July 2014.

Our total debt as a percentage of total capital attributable to Aon shareholders was 45.9% and 35.0% at December 31, 2014 and December 31, 2013, respectively.

Credit Facilities

As of December 31, 2014, we had two primary committed credit facilities outstanding: our $400 million U.S. credit facility expiring in March 2017, which we refer to as our "2017 Facility," and our €650 million ($792 million based on exchange rates at December 31, 2014) European credit facility expiring in October 2015, which we refer to as our "2015 Facility." On February 2, 2015, we replaced our 2015 Facility with a new $900 million multi-currency U.S. credit facility expiring in February 2020, which we refer to as our "2020 Facility." Each of these facilities was intended to support our commercial paper obligations and our general working capital needs. In addition, each of these facilities included customary representations, warranties and covenants, including financial covenants that require us to maintain specified ratios of adjusted consolidated EBITDA to consolidated interest expense and consolidated debt to adjusted consolidated EBITDA, in each case, tested quarterly. At December 31, 2014, we had no borrowings under, and were in compliance with these financial covenants and all other covenants contained in, the 2015 Facility and 2017 Facility.

Shelf Registration Statement

On August 31, 2012, we filed a shelf registration statement with the SEC, registering the offer and sale from time to time of an indeterminate amount of, among other securities, debt, securities, preference shares, Class A Ordinary Shares and convertible securities. Our ability to access the market as a source of liquidity is dependent on investor demand, market conditions and other factors.

Rating Agency Ratings

The major rating agencies' ratings of our debt at February 24, 2015 appear in the table below.



	Ratings
	Senior Long-term Debt	Commercial Paper	Outlook
Standard & Poor's	A-	A-2	Stable
Moody's Investor Services	Baa2	P-2	Stable
Fitch, Inc.	BBB+	F-2	Stable

In April 2014, Moody's Investor Services changed their outlook from positive to stable. A downgrade in the credit ratings of our senior debt and commercial paper could increase our borrowing costs, reduce or eliminate our access to capital, reduce our financial flexibility, increase our commercial paper interest rates or possibly restrict our access to the commercial paper market altogether, and/or impact future pension contribution requirements.

Letters of Credit and Other Guarantees

We had total letters of credit ("LOCs") outstanding for approximately $95 million at December 31, 2014, compared to $71 million at December 31, 2013. These letters of credit cover the beneficiaries related to certain of our U.S. and Canadian non-qualified pension plan schemes and secure deductible retentions for our own workers compensation program. We also have issued LOCs to cover contingent payments for taxes and other business obligations to third parties, and other guarantees for miscellaneous purposes at our international subsidiaries.

We have certain contractual contingent guarantees for premium payments owed by clients to certain insurance companies. The maximum exposure with respect to such contractual contingent guarantees was approximately $112 million at December 31, 2014 compared to $98 million at December 31, 2013.

We have provided commitments to fund certain limited partnerships in which we have an interest in the event that the general partners request funding. Some of these commitments have specific expiration dates and the maximum potential funding under these commitments was $14 million at December 31, 2014 compared to $34 million at December 31, 2013. During 2014, the Company funded $20 million of these commitments.

Other Liquidity Matters

We do not have exposure related to off balance sheet arrangements. Our cash flows from operations, borrowing availability and overall liquidity are subject to risks and uncertainties. See Item 1, "Information Concerning Forward-Looking Statements" and Item 1A, "Risk Factors."

Contractual Obligations

Summarized in the table below are our contractual obligations and commitments as of December 31, 2014 (in millions):



	Payments due in
	2015		2016 – 2017		2018 – 2019		2020 and beyond		Total
Short- and long-term borrowings	$	783	$	514	$	323	$	3,962	$	5,582
Interest expense on debt	244		421		390		2,149		3,204
Operating leases	362		630		510		876		2,378
Pension and other postretirement benefit plan (1) (2)	210		365		309		685		1,569
Purchase obligations (3) (4) (5)	316		339		196		243		1,094
Insurance premiums payable	11,638		—		—		—		11,638
	$	13,553	$	2,269	$	1,728	$	7,915	$	25,465


(1)	Pension and other postretirement benefit plan obligations include estimates of our minimum funding requirements, pursuant to ERISA and other regulations and minimum funding requirements agreed with the trustees of our U.K. pension plans. Additional amounts may be agreed to with, or required by, the U.K. pension plan trustees. Nonqualified pension and other postretirement benefit obligations are based on estimated future benefit payments. We may make additional discretionary contributions.

(1)

Pension and other postretirement benefit plan obligations include estimates of our minimum funding requirements, pursuant to ERISA and other regulations and minimum funding requirements agreed with the trustees of our U.K. pension plans. Additional amounts may be agreed to with, or required by, the U.K. pension plan trustees. Nonqualified pension and other postretirement benefit obligations are based on estimated future benefit payments. We may make additional discretionary contributions.


(2)	In 2013, our principal U.K subsidiary agreed with the trustees of one of the U.K. plans to contribute an average of$11 million per year to that pension plan for the next three years. The trustees of the plan have certain rights to request that our U.K. subsidiary advance an amount equal to an actuarially determined winding-up deficit. As of December 31, 2014, the estimated winding-up deficit was £225 million ($350 million). The trustees of the plan have accepted in practice the agreed-upon schedule of contributions detailed above and have not requested the winding-up deficit be paid.

(2)

In 2013, our principal U.K subsidiary agreed with the trustees of one of the U.K. plans to contribute an average of$11 million per year to that pension plan for the next three years. The trustees of the plan have certain rights to request that our U.K. subsidiary advance an amount equal to an actuarially determined winding-up deficit. As of December 31, 2014, the estimated winding-up deficit was £225 million ($350 million). The trustees of the plan have accepted in practice the agreed-upon schedule of contributions detailed above and have not requested the winding-up deficit be paid.


(3)	Purchase obligations are defined as agreements to purchase goods and services that are enforceable and legally binding on us, and that specifies all significant terms, including what is to be purchased, at what price and the approximate timing of the transaction. Most of our purchase obligations are related to purchases of information technology services or other service contracts.


(4)	Excludes $14 million of unfunded commitments related to an investment in a limited partnership due to our inability to reasonably estimate the period(s) when the limited partnership will request funding.


(5)	Excludes $191 million of liabilities for uncertain tax positions due to our inability to reasonably estimate the period(s) when cash settlements will be made.

Financial Condition

At December 31, 2014, our net assets were $6.6 billion, representing total assets minus total liabilities, a decrease from $8.2 billion at December 31, 2013. The decrease was due primarily to share repurchases of $2.3 billion, dividends of $273 million, and an increase in Accumulated other comprehensive loss of $760 million related primarily to an increase in the post-retirement benefit obligation, partially offset by Net income of $1.4 billion for the year ended December 31, 2014. Working capital decreased by $110 million from $919 million at December 31, 2013 to $809 million at December 31, 2014.

Equity

Equity at December 31, 2014 was $6.6 billion, a decrease of $1.6 billion from December 31, 2013. The decrease resulted primarily due to share repurchases of $2.3 billion, $273 million of dividends to shareholders, and an increase in Accumulated other comprehensive loss of $760 million, partially offset by Net income of $1.4 billion.

The $760 million increase in Accumulated other comprehensive loss from December 31, 2013, primarily reflects the following:


•	negative net foreign currency translation adjustments of $504 million, which are attributable to the strengthening of the U.S. dollar against certain foreign currencies,


•	an increase of $260 million in net post-retirement benefit obligations,


•	net derivative gains of $5 million, and


•	net investment losses of $1 million.

REVIEW BY SEGMENT

General

We serve clients through the following segments:


•	Risk Solutions acts as an advisor and insurance and reinsurance broker, helping clients manage their risks, via consultation, as well as negotiation and placement of insurance risk with insurance carriers through our global distribution network.


•	HR Solutions partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance by designing, implementing, communicating and administering a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies.

Risk Solutions



Years ended December 31 (millions, except percentage data)	2014	2013	2012
Revenue	$7,834	$7,789	$7,632
Operating income	1,648	1,540	1,493
Operating margin	21.0%	19.8%	19.6%

The demand for property and casualty insurance generally rises as the overall level of economic activity increases and generally falls as such activity decreases, affecting both the commissions and fees generated by our brokerage business. The economic activity that impacts property and casualty insurance is described as exposure units, and is most closely correlated with employment levels, corporate revenue and asset values. During 2014, pricing was flat on average globally, and we would still consider this to be a "soft market." In a soft market, premium rates flatten or decrease, along with commission revenues, due to increased competition for market share among insurance carriers or increased underwriting capacity. Changes in premiums have a direct and potentially material impact on the insurance brokerage industry, as commission revenues are generally based on a percentage of the premiums paid by insureds.

Additionally, continuing through 2014, we faced difficult conditions as a result of continued weakness in the global economy, the repricing of credit risk and the deterioration of the financial markets. Weak economic conditions in many markets around the globe have reduced our customers' demand for our retail brokerage and reinsurance brokerage products, which have had a negative impact on our operational results.

Risk Solutions generated approximately 65% of our consolidated total revenues in 2014. Revenues are generated primarily through fees paid by clients, commissions and fees paid by insurance and reinsurance companies, and investment income on funds held on behalf of clients. Our revenues vary from quarter to quarter throughout the year as a result of the timing of our clients' policy renewals, the net effect of new and lost business, the timing of services provided to our clients, and the income we earn on investments, which is heavily influenced by short-term interest rates.

We operate in a highly competitive industry and compete with many retail insurance brokerage and agency firms, as well as with individual brokers, agents, and direct writers of insurance coverage. Specifically, we address the highly specialized

product development and risk management needs of commercial enterprises, professional groups, insurance companies, governments, health care providers, and non-profit groups, among others; provide affinity products for professional liability, life, disability income, and personal lines for individuals, associations, and businesses; provide products and services via GRIP Solutions; provide reinsurance services to insurance and reinsurance companies and other risk assumption entities by acting as brokers or intermediaries on all classes of reinsurance; provide capital management transaction and advisory products and services, including mergers and acquisitions and other financial advisory services, capital raising, contingent capital financing, insurance-linked securitizations and derivative applications; provide managing underwriting to independent agents and brokers as well as corporate clients; provide risk consulting, actuarial, loss prevention, and administrative services to businesses and consumers; and manage captive insurance companies.

Revenue

Commissions, fees and other revenue for Risk Solutions were as follows (in millions):



Years ended December 31	2014		2013		2012
Retail brokerage:
Americas	$	3,288	$	3,191	$	3,071
International (1)	3,046		3,065		3,018
Total retail brokerage	6,334		6,256		6,089
Reinsurance brokerage	1,474		1,505		1,505
Total	$	7,808	$	7,761	$	7,594

(1) Includes the U.K., Europe, Middle East, Africa and Asia Pacific.

In 2014, commissions, fees and other revenue increased $47 million, or 1%, compared to 2013 due to 2% organic revenue growth, partially offset by a 1% unfavorable impact from foreign currency exchange rates.

Reconciliation of organic revenue growth to reported commissions, fees and other revenue growth for 2014 versus 2013 is as follows:



	Percent Change	Less: Currency Impact	Less: Acquisitions, Divestitures & Other	Organic Revenue
Retail brokerage:
Americas	3%	(2)%	1%	4%
International (1)	(1)	(1)	(2)	2
Total retail brokerage	1	(2)	—	3
Reinsurance brokerage	(2)	(1)	—	(1)
Total	1%	(1)%	—%	2%

(1) Includes the U.K., Europe, Middle East, Africa and Asia Pacific.

Retail brokerage Commissions, fees and other revenue increased 1% in 2014 driven by 3% organic revenue growth, reflecting revenue growth in both the Americas and International businesses, partially offset by a 2% impact from unfavorable foreign currency exchange rates.

Americas Commissions, fees and other revenue increased 3% in 2014 reflecting 4% organic revenue growth driven by strong growth across all regions and product lines, including record new business generation in US Retail, and a 1% increase in commissions and fees resulting from acquisitions, net of divestitures, partially offset by a 2% impact from unfavorable foreign currency exchange rates.

International Commissions, fees and other revenue decreased 1% in 2014 reflecting 2% organic revenue growth driven by solid growth across Asia, the Pacific, and emerging markets, partially offset by a modest decline in continental Europe, a 2% decrease in commissions and fees resulting from acquisitions, net of divestitures, and a 1% impact from unfavorable foreign currency exchange rates.

Reinsurance Commissions, fees and other revenue decreased 2% in 2014 reflecting a 1% unfavorable impact from foreign currency exchange rates and 1% decline in organic revenue growth due primarily to a significant unfavorable market impact in treaty, partially offset by net new business growth in treaty placements globally and growth in capital markets transactions and advisory business, as well as facultative placements.

Operating Income

Operating income increased $108 million, or 7%, from 2013 to $1.6 billion in 2014. In 2014, operating income margins in this segment were 21.0%, an increase of 120 basis points from 19.8% in 2013. Operating margin improvement was driven by solid organic revenue growth, return on investments, expense discipline and savings related to the restructuring programs, partially offset by a $61 million unfavorable impact from foreign currency exchange rates.

HR Solutions



Years ended December 31	2014	2013	2012
Revenue	$4,264	$4,057	$3,925
Operating income	485	318	289
Operating margin	11.4%	7.8%	7.4%

Our HR Solutions segment generated approximately 35% of our consolidated total revenues in 2014 and provides a broad range of human capital services, as follows:


•	Retirement specializes in global actuarial services, defined contribution consulting, tax and ERISA consulting, and pension administration.


•	Compensation focuses on compensatory advisory/counsel including: compensation planning design, executive reward strategies, salary survey and benchmarking, market share studies and sales force effectiveness, with special expertise in the financial services and technology industries.


•	Strategic Human Capital delivers advice to complex global organizations on talent, change and organizational effectiveness issues, including talent strategy and acquisition, executive on-boarding, performance management, leadership assessment and development, communication strategy, workforce training and change management.


•	Investment consulting advises public and private companies, other institutions and trustees on developing and maintaining investment programs across a broad range of plan types, including defined benefit plans, defined contribution plans, endowments and foundations.


•	Benefits Administration applies our human resource expertise primarily through defined benefit (pension), defined contribution (401(k)), and health and welfare administrative services. Our model replaces the resource-intensive processes once required to administer benefit plans with more efficient, effective, and less costly solutions.


•	Exchanges is building and operating healthcare exchanges that provide employers with a cost effective alternative to traditional employee and retiree healthcare, while helping individuals select the insurance that best meets their needs.


•	Human Resource Business Processing Outsourcing provides market-leading solutions to manage employee data; administer benefits, payroll and other human resources processes; and record and manage talent, workforce and other core human resource process transactions as well as other complementary services such as flexible spending, dependent audit and participant advocacy.

Disruption in the global credit markets and the deterioration of the financial markets created significant uncertainty in the marketplace. Weak economic conditions in many markets around the globe continued throughout 2014 and have adversely impacted our clients' financial condition and therefore the levels of business activities in the industries and geographies where we operate. While we believe that the majority of our practices are well positioned to manage through this time, these challenges are reducing demand for some of our services and putting continued pressure on the pricing of those services, which is having an adverse effect on our new business and results of operations.

Revenue

Commissions, fees and other revenue were as follows (in millions):



Years ended December 31	2014			2013			2012
Consulting services	$	1,700		$	1,626		$	1,585
Outsourcing	2,607			2,469			2,372
Intersegment	(43		)	(38		)	(32		)
Total	$	4,264		$	4,057		$	3,925

Commissions, fees and other revenue for HR Solutions increased $207 million, or 5%, in 2014 compared to 2013 due to 5% organic growth in commissions and fees in 2014.

Reconciliation of organic revenue growth to reported commissions, fees and other revenue growth for 2014 versus 2013 is as follows:



Year ended December 31	Percent Change	Less: Currency Impact	Less: Acquisitions, Divestitures & Other	Organic Revenue
Consulting services	5%	—%	—%	5%
Outsourcing	6	—	—	6
Total	5%	—%	—%	5%

Consulting services revenue increased $74 million, or 5%, due to organic revenue growth of 5%, driven by strong growth in investment consulting and for project work in retirement consulting, as well as growth across businesses in Asia, partially offset by a modest decline in continental Europe.

Outsourcing revenue increased $138 million, or 6%, due to 6% organic revenue growth driven by strong growth in health care exchanges, new client wins in HR BPO and project related revenue in benefits administration.

Operating Income

Operating income was $485 million, an increase of $167 million, or 53%, from 2013. Margins in this segment for 2014 were 11.4%, an increase of 360 basis points from 7.8% in 2013. Operating margin improvement was driven by solid organic revenue growth and savings related to the global restructuring plan associated with our acquisition of Hewitt, partially offset by investments in long-term growth opportunities.

Unallocated Income and Expense

A reconciliation of our operating income to income before income taxes is as follows (in millions):



Years ended December 31	2014			2013			2012
Operating income (loss):
Risk Solutions	$	1,648		$	1,540		$	1,493
HR Solutions	485			318			289
Unallocated	(167		)	(187		)	(186		)
Operating income	1,966			1,671			1,596
Interest income	10			9			10
Interest expense	(255		)	(210		)	(228		)
Other income	44			68			2
Income before income taxes	$	1,765		$	1,538		$	1,380

Unallocated operating expense includes corporate governance costs not allocated to the operating segments. Net unallocated expenses decreased $20 million in 2014 compared to 2013. The decrease in unallocated expenses is due primarily to decrease in expenses related to the Company's redomicile to the U.K. compared to such expenses in 2013 and expense discipline.

Interest expense, which represents the cost of our worldwide debt obligations, increased $45 million, or 21%, from 2013, which is primarily reflects an increase in the total debt outstanding.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements and Notes thereto have been prepared in accordance with U.S. GAAP. To prepare these financial statements, we made estimates, assumptions and judgments that affect what we report as our assets and liabilities, what we disclose as contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented.

In accordance with our policies, we regularly evaluate our estimates, assumptions and judgments, including, but not limited to, those concerning revenue recognition, restructuring, pensions, goodwill and other intangible assets, contingencies, share-based payments, and income taxes, and base our estimates, assumptions, and judgments on our historical experience and on factors we believe reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. If our assumptions or conditions change, the actual results we report may differ from these estimates. We believe the following critical accounting policies affect the more significant estimates, assumptions, and judgments we used to prepare these Consolidated Financial Statements.

Revenue Recognition

Risk Solutions segment revenues primarily include insurance commissions and fees for services rendered and investment income on funds held on behalf of clients. Revenues are recognized when they are earned and realized or realizable. We consider revenues to be earned and realized or realizable when all of the following four conditions are met: (1) persuasive evidence of an arrangement exists, (2) the arrangement fee is fixed or determinable, (3) delivery or performance has occurred, and (4) collectability is reasonably assured. For brokerage commissions, revenue is typically recognized at the completion of the placement process, assuming all four criteria required to recognize revenue have been met. The placement process is typically considered complete on the effective date of the related policy. Commission revenues are recorded net of allowances for estimated policy cancellations, which are determined based on an evaluation of historical and current cancellation data.

HR Solutions segment revenues consist primarily of fees paid by clients for consulting advice and outsourcing contracts. Fees paid by clients for consulting services are typically charged on an hourly, project or fixed-fee basis. Revenues from time-and-materials or cost-plus arrangements are recognized as services are performed, assuming all four criteria to recognize revenue have been met. Revenues from fixed-fee contracts are recognized as services are provided using a proportional-performance model or at the completion of a project based on facts and circumstances of the client arrangement. Revenues from health care exchange arrangements are typically recognized upon successful enrollment of participants, net of a reserve for estimated cancellations, assuming all four criteria to recognize revenue have been met. Reimbursements received for out-of-pocket expenses are recorded as a component of revenues. Our outsourcing contracts typically have three-to-five year terms for benefits services and five-to-ten year terms for human resources business process outsourcing ("HR BPO") services. We recognize revenues as services are performed, assuming all four criteria to recognize revenue have been met. We may also receive implementation fees from clients either up-front or over the ongoing services period as a component of the fee per participant. Lump sum implementation fees received from a client are typically deferred and recognized ratably over the ongoing contract services period. If a client terminates an outsourcing services arrangement prior to the end of the contract, a loss on the contract may be recorded, if necessary, and any remaining deferred implementation revenues would typically be recognized over the remaining service period through the termination date.

In connection with our long-term outsourcing service agreements, highly customized implementation efforts are often necessary to set up clients and their human resource or benefit programs on our systems and operating processes. For outsourcing services sold separately or accounted for as a separate unit of accounting, specific, incremental and direct costs of implementation incurred prior to the services commencing are generally deferred and amortized over the period that the related ongoing services revenue is recognized. Deferred costs are assessed for recoverability on a periodic basis to the extent the deferred cost exceeds related deferred revenue.

Restructuring

Workforce reduction costs

The method used to recognize workforce reduction costs depends on whether the benefits are provided under a one-time benefit arrangement or under an ongoing benefit arrangement. We account for relevant expenses as an ongoing benefit arrangement when we have an established termination benefit policy, statutory requirements dictate the termination benefit amounts, or we have an established pattern of providing similar termination benefits. The method to estimate the amount of termination benefits is based on the benefits available to the employees being terminated.

In most cases, workforce reductions are made pursuant to an ongoing arrangement. We recognize the workforce reduction costs related to restructuring activities resulting from an ongoing benefit arrangement when we identify the specific classification (or functions) and locations of the employees being terminated and notify the employees.

Although it occurs less frequently, when a workforce reduction is made pursuant to a one-time benefit arrangement, we recognize the workforce reduction costs related to restructuring activities resulting from a one-time benefit arrangement when we identify the specific classification (or functions) and locations of the employee(s) being terminated, notify the employee(s), and expect to terminate the employee(s) within the legally required notification period. When employees receive incentives to stay beyond the legally required notification period, we recognize the cost of their termination benefits over the remaining service period.

Lease termination costs

Where we have provided notice of cancellation pursuant to a lease agreement or vacated space and have no intention of reoccupying it, we recognize a loss and corresponding liability. The liability reflects our best estimate of the fair value of the future cash flows associated with the lease at the date we vacate the property or sign a sublease arrangement. To determine the loss and corresponding liability, we estimate sublease income based on all information that is reasonably available, which typically includes current market quotes for similar properties.

Useful lives on leasehold improvements or other assets associated with lease abandonments may be revised to reflect a shorter useful life than originally estimated, which results in accelerated depreciation.

Fair value concepts of severance arrangements and lease losses

Accounting guidance requires that the liabilities recorded related to our restructuring activities be measured at fair value.

Where material, we discount the lease loss calculations to arrive at their present value. Most workforce reductions happen over a short span of time and therefore no discounting is necessary. However, we may discount the termination benefit arrangement when we terminate employees who will provide no future service and we pay their severance over an extended period. The discount reflects our incremental borrowing rate, which matches the lifetime of the liability. Significant changes in the discount rate selected or the estimations of sublease income in the case of leases could impact the amounts recorded.

Other associated costs with restructuring activities

We recognize other costs associated with restructuring activities as they are incurred, including moving costs and consulting and legal fees.

Pensions

We sponsor defined benefit pension plans throughout the world. Our most significant plans are located in the U.S., the U.K., the Netherlands and Canada. Our significant U.S., U.K., Netherlands and Canadian pension plans are closed to new entrants. We have ceased crediting future benefits relating to salary and service for our U.S., U.K. and Canadian plans. In 2014, the Netherlands ceased crediting future benefits relating to service, but will continue to apply future salary increases to past service.

Recognition of gains and losses and prior service

Certain changes in the value of the obligation and in the value of plan assets, which may occur due to various factors such as changes in the discount rate and actuarial assumptions, actual demographic experience and/or plan asset performance are not immediately recognized in net income. Such changes are recognized in Other comprehensive income and are amortized into net income as part of the net periodic benefit cost.

Unrecognized gains and losses that have been deferred in Other comprehensive income, as previously described, are amortized into Compensation and benefits expense as a component of periodic pension expense based on the average life

expectancy of the U.S., the Netherlands, Canada, and U.K. plan members. We amortize any prior service expense or credits that arise as a result of plan changes over a period consistent with the amortization of gains and losses.

As of December 31, 2014, our pension plans have deferred losses that have not yet been recognized through income in the Consolidated Financial Statements. We amortize unrecognized actuarial losses outside of a corridor, which is defined as 10% of the greater of market-related value of plan assets or projected benefit obligation. To the extent not offset by future gains, incremental amortization as calculated above will continue to affect future pension expense similarly until fully amortized.

The following table discloses our unrecognized actuarial gains and losses, the number of years over which we are amortizing the experience loss, and the estimated 2015 amortization of loss by country (amounts in millions):



	U.K.		U.S.		Other
Unrecognized actuarial gains and losses	$	1,687	$	1,737	$	456
Amortization period (in years)	8 - 30		7 - 26		15 - 42
Estimated 2015 amortization of loss	$	42	$	54	$	12

The unrecognized prior service cost at December 31, 2014 was $11 million, $22 million, and $3 million in the U.S., U.K. and Other plans.

For the U.S. pension plans we use a market-related valuation of assets approach to determine the expected return on assets, which is a component of net periodic benefit cost recognized in the Consolidated Statements of Income. This approach recognizes 20% of any gains or losses in the current year's value of market-related assets, with the remaining 80% spread over the next four years. As this approach recognizes gains or losses over a five-year period, the future value of assets and therefore, our net periodic benefit cost will be impacted as previously deferred gains or losses are recorded. As of December 31, 2014, the market-related value of assets was $2.0 billion. We do not use the market-related valuation approach to determine the funded status of the U.S. plans recorded in the Consolidated Statements of Financial Position. Instead, we record and present the funded status in the Consolidated Statements of Financial Position based on the fair value of the plan assets. As of December 31, 2014, the fair value of plan assets was $2.0 billion.

Our non-U.S. plans use fair value to determine expected return on assets.

Rate of return on plan assets and asset allocation

The following table summarizes the expected long-term rate of return on plan assets for future pension expense and the related target asset mix as of December 31, 2014:



	U.K.	U.S.	Other
Expected return (in total)	5.2%	8.8%	4.7 - 5.6%
Expected return on equities (1)	7.7%	9.7%	6.3 - 7.8%
Expected return on fixed income	4.6%	6.5%	4.0 - 4.2%
Asset mix:
Target equity (1)	18.1%	70.0%	32.3 - 40%
Target fixed income	81.9%	30.0%	60 - 67.7%


(1)	Includes investments in infrastructure, real estate, limited partnerships and hedge funds.

In determining the expected rate of return for the plan assets, we analyzed investment community forecasts and current market conditions to develop expected returns for each of the asset classes used by the plans. In particular, we surveyed multiple third party financial institutions and consultants to obtain long-term expected returns on each asset class, considered historical performance data by asset class over long periods, and weighted the expected returns for each asset class by target asset allocations of the plans.

The U.S. pension plan asset allocation is based on approved allocations following adopted investment guidelines. The actual asset allocation at December 31, 2014 was 61% equity and 39% fixed income securities for the qualified plan.

The investment policy for each U.K. and non-U.S. pension plans is generally determined by the plans' trustees. Because there are several pension plans maintained in the U.K. and non-U.S. category, our target allocation presents a range of the target allocation of each plan. Further, target allocations are subject to change. As of December 31, 2014, the U.K. and non-U.S. plans were invested between 22% and 34% in equity and between 78% and 66% in fixed income securities.

Impact of changing economic assumptions

Changes in the discount rate and expected return on assets can have a material impact on pension obligations and pension expense.

Holding all other assumptions constant, the following table reflects what a twenty five basis point increase and decrease in our estimated liability discount rate would have on our projected benefit obligation at December 31, 2014 (in millions):



Estimated liability discount rate Increase (decrease) in projected benefit obligation of December 31, 2014 (1)	25 Basis Point Change in Discount Rate
Increase				Decrease
U.K. plans	$	(238	)		$	260
U.S. plans	(111		)		117
Other plans	(63		)		67


(1)	Increases to the projected benefit obligation reflect increases to our pension obligations, while decreases in the projected benefit obligation are recoveries toward fully funded status. A change in the discount rate has an inverse relationship to the projected benefit obligation.



	25 Basis Point Change in Discount Rate
Increase (decrease) in expense	Increase			Decrease
U.K. plans	$	(5	)	$	4
U.S. plans	—			—
Other plans	—			—

Holding other assumptions constant, the following table reflects what a twenty five basis point increase and decrease in our estimated long-term rate of return on plan assets would have on our estimated 2015 pension expense (in millions):



	25 Basis Point Change in Long-Term Rate of Return on Plan Assets
Increase (decrease) in expense	Increase			Decrease
U.K. plans	$	(15	)	$	15
U.S. plans	(5		)	5
Other plans	(3		)	3

Estimated future contributions

We estimate contributions of approximately $220 million in 2015 as compared with $316 million in 2014.

Goodwill and Other Intangible Assets

Goodwill represents the excess of cost over the fair market value of the net assets acquired. We classify our intangible assets acquired as either tradenames, customer relationships, technology, non-compete agreements, or other purchased intangibles.

Goodwill is not amortized, but rather tested for impairment at least annually in the fourth quarter. In the fourth quarter, we also test the acquired tradenames (which also are not amortized) for impairment. We test more frequently if there are indicators of impairment or whenever business circumstances suggest that the carrying value of goodwill or trademarks may not be recoverable. These indicators may include a sustained significant decline in our share price and market capitalization, a decline in our expected future cash flows, or a significant adverse change in legal factors or in the business climate, among others. No events occurred during 2014 that indicate the existence of an impairment with respect to our reported goodwill or tradenames.

We perform impairment reviews at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a "component"). A component of an operating segment is a reporting unit if the component

constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. An operating segment shall be deemed to be a reporting unit if all of its components are similar, if none of its components is a reporting unit, or if the segment comprises only a single component.

The goodwill impairment test is initially a qualitative analysis to determine if it is "more likely than not" that the fair value of each reporting unit exceeds the carrying value, including goodwill, of the corresponding reporting unit. If the "more likely than not" threshold is not met, then the goodwill impairment test becomes a two step analysis. Step One requires the fair value of each reporting unit to be compared to its book value. Management must apply judgment in determining the estimated fair value of the reporting units. If the fair value of a reporting unit is determined to be greater than the carrying value of the reporting unit, goodwill and trademarks are deemed not to be impaired and no further testing is necessary. If the fair value of a reporting unit is less than the carrying value, we perform Step Two. Step Two uses the calculated fair value of the reporting unit to perform a hypothetical purchase price allocation to the fair value of the assets and liabilities of the reporting unit. The difference between the fair value of the reporting unit calculated in Step One and the fair value of the underlying assets and liabilities of the reporting unit is the implied fair value of the reporting unit's goodwill. A charge is recorded in the financial statements if the carrying value of the reporting unit's goodwill is greater than its implied fair value.

In determining the fair value of our reporting units, we use a discounted cash flow ("DCF") model based on our most current forecasts. We discount the related cash flow forecasts using the weighted-average cost of capital method at the date of evaluation. Preparation of forecasts and selection of the discount rate for use in the DCF model involve significant judgments, and changes in these estimates could affect the estimated fair value of one or more of our reporting units and could result in a goodwill impairment charge in a future period. We also use market multiples which are obtained from quoted prices of comparable companies to corroborate our DCF model results. The combined estimated fair value of our reporting units from our DCF model often results in a premium over our market capitalization, commonly referred to as a control premium. We believe the implied control premium determined by our impairment analysis is reasonable based upon historic data of premiums paid on actual transactions within our industry. Based on tests performed in both 2014 and 2013, there was no indication of goodwill impairment, and no further testing was required.

We review intangible assets that are being amortized for impairment whenever events or changes in circumstance indicate that their carrying amount may not be recoverable. There were no indications that the carrying values of amortizable intangible assets were impaired as of December 31, 2014. If we are required to record impairment charges in the future, they could materially impact our results of operations.

Contingencies

We define a contingency as an existing condition that involves a degree of uncertainty as to a possible gain or loss that will ultimately be resolved when one or more future events occur or fail to occur. Under U.S. GAAP, we are required to establish reserves for loss contingencies when the loss is probable and we can reasonably estimate its financial impact. We are required to assess the likelihood of material adverse judgments or outcomes, as well as potential ranges or probability of losses. We determine the amount of reserves required, if any, for contingencies after carefully analyzing each individual item. The required reserves may change due to new developments in each issue. We do not recognize gain contingencies until the contingency is resolved and amounts due are probable of collection.

Share-based Payments

Share-based compensation expense is measured based on the estimated grant date fair value and recognized over the requisite service period for awards that we ultimately expect to vest. We estimate forfeitures at the time of grant based on our actual experience to date and revise our estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Restricted Share Units

Restricted share units ("RSUs") are service-based awards for which we recognize the associated compensation cost on a straight-line basis over the requisite service period. We estimate the fair value of the awards based on the market price of the underlying share on the date of grant, reduced by the present value of estimated dividends foregone during the vesting period where applicable.

Performance Share Awards

Performance share awards ("PSAs") are performance-based awards for which vesting is dependent on the achievement of certain objectives. Such objectives may be made on a personal, group or company level. We estimate the fair value of the awards based on the market price of the underlying stock on the date of grant, reduced by the present value of estimated dividends foregone during the vesting period.

Compensation cost is recognized over the performance period. The number of shares issued on the vesting date will vary depending on the actual performance objectives achieved. We make assessments of future performance using subjective estimates, such as long-term plans. As a result, changes in the underlying assumptions could have a material impact on the compensation expense recognized.

The largest performance-based share-based payment award plan is the Leadership Performance Plan ("LPP"), which has a three-year performance period. The 2012 to 2014 performance period ended on December 31, 2014, the 2011 to 2013 performance period ended on December 31, 2013, the 2010 to 2012 performance period ended on December 31, 2012, and the 2009 to 2011 performance period ended on December 31, 2011. The LPP currently has two open performance periods: 2013 to 2015 and 2014 to 2016. A 10% upward adjustment in our estimated performance achievement percentage for both LPP plans would have increased our 2014 expense by approximately $1.9 million, while a 10% downward adjustment would have decreased our expense by approximately $6.0 million. As the percent of expected performance increases or decreases, the potential change in expense can go from 0% to 200% of the targeted total expense.

Income Taxes

We earn income in numerous countries and this income is subject to the laws of taxing jurisdictions within those countries. The estimated effective tax rate for the year is applied to our quarterly operating results. In the event that there is a significant unusual or discrete item recognized, or expected to be recognized, in our quarterly operating results, the tax attributable to that item would be separately calculated and recorded at the same time as the unusual or discrete item, such as the resolution of prior-year tax matters.

The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies, and are based on management's assumptions and estimates about future operating results and levels of taxable income, and judgments regarding the interpretation of the provisions of current accounting principles.

Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In this assessment, significant weight is given to evidence that can be objectively verified.

We assess carryforwards and tax credits for realization as a reduction of future taxable income by using a "more likely than not" determination. We have not recognized a U.S. deferred tax liability for permanently reinvested earnings of certain non-U.S. subsidiaries. Additional U.S. income taxes could be recorded (or incurred) if we change our investment strategy relating to these subsidiaries, which could materially affect our future effective tax rate.

We base the carrying values of liabilities for income taxes currently payable on management's interpretation of applicable tax laws, and incorporate management's assumptions and judgments about using tax planning strategies in various taxing jurisdictions. Using different estimates, assumptions and judgments in accounting for income taxes, especially those that deploy tax planning strategies, may result in materially different carrying values of income tax assets and liabilities and changes in our results of operations.

We operate in many jurisdictions where tax laws relating to our businesses are not well developed. In such jurisdictions, we typically obtain professional guidance, when available, and consider existing industry practices before using tax planning strategies and meeting our tax obligations. Tax returns are routinely subject to audit in most jurisdictions, and tax liabilities are frequently finalized through negotiations. In addition, several factors could increase the future level of uncertainty over our tax liabilities, including the following:


•	the portion of our overall operations conducted in non-U.S. tax jurisdictions has been increasing, and we anticipate this trend will continue,


•	to deploy tax planning strategies and conduct global operations efficiently, our subsidiaries frequently enter into transactions with affiliates, which are generally subject to complex tax regulations and are frequently reviewed by tax authorities,


•	tax laws, regulations, agreements and treaties change frequently, requiring us to modify existing tax strategies to conform to such changes, and


•	the move of the corporate headquarters to London.

NEW ACCOUNTING PRONOUNCEMENTS

Note 2 "Summary of Significant Accounting Principles and Practices" of the Notes to Consolidated Financial Statements contains a summary of our significant accounting policies, including a discussion of recently issued accounting pronouncements and their impact or future potential impact on our financial results, if determinable.

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