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Principles of Consolidation and Other Matters (Policies) | 9 Months Ended
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Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Accounting | The consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations for interim filings, the Company believes that the information and disclosures presented are adequate to make such information and disclosures not misleading.
Cash and Cash Equivalents | Cash and cash equivalents primarily consist of certificates of deposit and time deposits, with original maturities of three months or less, and money market funds. The estimated fair value of the Company's cash and cash equivalents approximates their carrying value.
Investments | The caption "Investment income (loss)" in the consolidated statements of income comprises realized and unrealized gains and losses from investments recognized in earnings. It includes, when applicable, other than temporary declines in the value of securities, mark-to-market increases or decreases in equity investments with readily determinable fair values and equity method gains or losses on the Company's investments in private equity funds. The Company holds certain equity investments, that under legacy GAAP, were previously accounted as available for sale securities, whereby the mark-to-market change was recorded to other comprehensive income in its consolidated balance sheet. As discussed in Note 18, effective January 1, 2018, the Company adopted new accounting guidance that requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The Company recorded a cumulative-effect adjustment that increased retained earnings as of the beginning of the period of adoption by $14 million, reflecting the reclassification of cumulative unrealized gains, net of tax as of December 31, 2017 from accumulated other comprehensive income to retained earnings. Prior periods have not been restated. The Company holds investments in certain private equity funds that are accounted for under the equity method of accounting using a consistently applied three-month lag period adjusted for any known significant changes from the lag period to the reporting date of the Company. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. Investment gains or losses for the Company's proportionate share of the change in fair value of the funds are recorded in earnings. Investments accounted for using the equity method of accounting are included in "other assets" in the consolidated balance sheets.
Income Taxes | The Company's effective tax rate in the third quarter of 2018 was 27.5% compared with 26.2% in the third quarter of 2017. The effective tax rates for the first nine months of 2018 and 2017 were 25.2% and 25.9%, respectively. The rate in the first nine months of 2018 reflects ongoing impacts of the Tax Cuts and Jobs Act (the "TCJA"), primarily the reduced 21% U.S. statutory rate and certain tax planning benefits, largely offset by higher estimated costs from a new method of taxing non-U.S. based operations, greater disallowance of compensation and entertainment deductions, as well as the effect of a charge related to the Company’s investment in Alexander Forbes as discussed in Note 10 and a reduction in excess tax benefits related to share compensation. The rate in the third quarter of 2017 reflects foreign operations taxed at rates below the 35% U.S. statutory tax rate, including the effect of repatriation. The tax rates in both periods reflect the impact of discrete tax matters, tax legislation and nontaxable adjustments to contingent acquisition consideration. As a result of TCJA, two discrete provisional charges were recorded in the fourth quarter of 2017. The transition to the new method of taxing non-U.S. based operations resulted in a transition tax payable over eight years on undistributed earnings of non-U.S. subsidiaries. This mandatory taxation of accumulated foreign earnings substantially changed the economic considerations of continued permanent investment of those accumulated earnings, a key component of the Company's global capital strategy. As a result of the transition tax, the Company anticipates repatriating the majority of the accumulated earnings that it previously intended to permanently invest. A charge of $240 million was recorded in the fourth quarter of 2017 as a provisional estimate of the transition tax and ancillary effects. The provisional estimate of transition tax includes state taxes and foreign withholding taxes related to the change in the Company's indefinite reinvestment assertion with respect to the Company's pre-2018 foreign earnings. The Company previously considered most unremitted earnings of its non-U.S. subsidiaries, except amounts repatriated in the year earned, to be permanently reinvested and, accordingly, recorded no deferred U.S. income taxes on such earnings. The Company has initially analyzed its global capital requirements and potential tax liabilities attributable to repatriation. The Company estimates that it will repatriate $3.4 billion of pre-2018 earnings that was previously considered indefinitely invested. Included in the $240 million charge is a $53 million provisional estimate for withholding and state income taxes. The Company has revised the provisional estimate in the third quarter of 2018 to $226 million based on the analysis of the available information and taking into consideration the subsequent guidance issued regarding the legislation. Further revisions to the transition tax provisional estimate, which includes estimated state and withholding tax, may occur as pending guidance regarding the legislation is finalized and the analysis of same is completed. In addition, reducing the U.S. corporate tax rate from 35% to 21% and the change in deductibility of certain compensation awards to certain executive officers of the Company effective on January 1, 2018, resulted in a net charge of $220 million in the fourth quarter of 2017 to reduce the value of the U.S. deferred tax assets and liabilities. Adjustments during the first nine months of 2018 to provisional estimates of transition taxes and to U.S. deferred tax assets and liabilities, have decreased income tax expense by $14 million and increased income tax expense by $3 million, respectively. In December of 2017, the SEC issued Staff Accounting Bulletin 118 ("SAB 118"), establishing a one-yea r measurement period to complete the accounting for the income tax effects of the TCJA. SAB 118 anticipates three alternative states of completion at the end of the reporting period of accounting for these effects: (1) the tax accounting work has been completed with respect to an item; (2) a provisional amount has been recognized because a reasonable estimate was possible, or (3) a reasonable estimate cannot be provided. The Company believes its analysis of the TCJA to date provides an appropriate basis to record a provisional estimate. The provisional estimates include the effects of the deemed repatriation tax and the Company's position with respect to permanently reinvested earnings and the remeasurement of U.S. deferred taxes based on estimated enactment-date deferred tax balances, which have been adjusted in 2018 as the 2017 tax returns are filed and may be further adjusted as additional guidance is issued. TCJA’s transition tax requires detailed calculations of current and accumulated taxable earnings at the level of each foreign subsidiary, computed in functional currency at the greater of two alternative measurement dates and converted into U.S. dollars. In preparing its 2017 U.S. federal return the Company performed these calculations for approximately seven hundred foreign subsidiaries. In the third quarter, management updated its estimate of the transition tax, its global permanent investment strategy, and finalized the impact on U.S. deferred tax assets from the change in tax rate. However, given the significant complexity of the TCJA and still-anticipated guidance from the U.S. Treasury and State and Local tax authorities on its implementation, estimates regarding the transition tax and the Company’s global permanent investment strategy may be further adjusted during the fourth quarter. The Company is routinely examined by tax authorities in the jurisdictions in which it has significant operations. The Company regularly considers the likelihood of assessments in each of the taxing jurisdictions resulting from examinations. When evaluating the potential imposition of penalties, the Company considers a number of relevant factors under penalty statutes, including appropriate disclosure of the tax return position, the existence of legal authority supporting the Company's position, and reliance on the opinion of professional tax advisors. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in tax returns.
Fair Value Measurement | Fair Value Hierarchy The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy as defined by the FASB. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, for disclosure purposes, is determined based on the lowest level input that is significant to the fair value measurement. Assets and liabilities recorded in the consolidated balance sheets at fair value are categorized based on the inputs in the valuation techniques as follows:
Level 1. | Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities and exchange-traded money market mutual funds).
Assets and liabilities measured using Level 1 inputs include exchange-traded equity securities, exchange-traded mutual funds and money market funds.
Level 2. | Assets and liabilities whose values are based on the following:
a) | Quoted prices for similar assets or liabilities in active markets;
b) | Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);
c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and
d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full asset or liability (for example, certain mortgage loans).
The Company does not have any assets or liabilities that are measured using Level 2 inputs.
Level 3. | Assets and liabilities whose values are based on prices, or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Liabilities measured using Level 3 inputs include liabilities for contingent purchase consideration and the deal contingent foreign exchange contract (the "FX Contract"). Valuation Techniques Equity Securities, Money Market Funds and Mutual Funds – Level 1 Investments for which market quotations are readily available are valued at the sale price on their principal exchange or, for certain markets, official closing bid price. Money market funds are valued using a valuation technique that results in price per share at $1.00. Contingent Purchase Consideration Liability – Level 3 Purchase consideration for some acquisitions made by the Company includes contingent consideration arrangements. These arrangements typically provide for the payment of additional consideration if earnings or revenue targets are met over periods from two to four years. The fair value of the contingent purchase consideration liability is estimated as the present value of future cash flows to be paid, based on projections of revenue and earnings and related targets of the acquired entities. Foreign Exchange Forward Contract Liabilities - Level 3 In connection with the JLT Transaction, the Company entered into the FX Contract, to hedge the risk of appreciation of the GBP-denominated purchase price. The Company will purchase £5.2 billion at a contracted exchange rate, which is discussed in Note 11. The fair value was determined using the probability distribution approach, comparing the all in forward rate to the foreign exchange rate for possible dates the JLT Transaction is expected to close, discounted to the valuation date and adjusted for the fair value of the deal contingency feature. The fair value related to the deal contingency feature will decrease (and any unrealized loss increase or any unrealized gain decrease) as conditions to the closing are met.
New Accounting Pronouncements | New Accounting Guidance New Accounting Pronouncements Effective January 1, 2018: The following new accounting standards were adopted using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of January 1, 2018: New Revenue Recognition Standard In May 2014, the FASB issued new accounting guidance related to revenue from contracts with customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised 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 Company adopted the new guidance effective January 1, 2018, using the modified retrospective method, which applies the new guidance beginning with the year of adoption, with the cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings at January 1, 2018. The Company elected to apply the modified retrospective method to all contracts. The guidance includes requirements to estimate variable or contingent consideration to be received, which will result in revenue being recognized earlier than under legacy GAAP. In addition, the guidance requires the capitalization and amortization of certain costs which were expensed as incurred under legacy GAAP. As discussed in more detail below, the adoption of this new revenue recognition standard will shift revenue among quarters from historical patterns, but is not expected to have a significant year-over-year impact on annual revenue. Upon adoption of the new revenue standard, the Company recognized significant movement in the quarterly timing of revenue recognized in the Risk and Insurance Services segment. In particular, under the new standard the recognition of revenue for reinsurance broking was accelerated from historical patterns. Estimated revenue from these treaties is recognized largely at the policy effective date at which point control over the services provided by the Company transfers to the client and the client has accepted the services. This resulted in a significant increase in revenue in the first quarter of 2018 compared to the same period in 2017. Prior to the adoption of this standard, revenue related to most reinsurance placements was recognized on the later of billing or effective date as premiums are determined by the primary insurers and attached to the reinsurance treaties. Typically, this resulted in revenue being recognized over a 12 to 18 month period. The timing of revenue recognition for certain fee based brokerage arrangements will shift among quarters. However, since the vast majority of the Company's fee arrangements involve contracts that cover a single year of services, the Company does not expect there will be a significant change in the amount of revenue recognized in an annual period. In the Risk and Insurance Services segment, certain pre-placement costs are now deferred and amortized into earnings when revenue from the placement is recognized. These costs were previously expensed as incurred. As such, the Company expects the recognition of costs to shift among quarters. In the Consulting segment, the adoption of the new revenue standard will not have a significant impact on the timing of revenue recognition in quarterly or annual periods. In Consulting, the Company incurs implementation costs necessary to facilitate the delivery of the contracted services. The Company has concluded that certain additional implementation costs previously expensed under legacy GAAP will be deferred under the new guidance. In addition, the amortization period for these implementation costs will include the initial contract term plus expected renewals. The cumulative effect of adopting the standard, net of tax, on January 1, 2018 resulted in an increase to the opening balance of retained earnings of $364 million, with offsetting increases/decreases to other balance sheet accounts, e.g. accounts receivable, other assets and deferred income taxes. The comparative prior period information was not restated and will continue to be reported under the legacy accounting standards that were in effect for those periods. The impact of adoption of the new revenue standard on the Company's consolidated income statement was as follows (in millions):
|  | Three Months Ended Sept. 30, |  | Nine Months Ended Sept. 30,
|  | As Reported |  | Revenue Standard Impact |  | Legacy GAAP |  | As Reported |  | Revenue Standard Impact |  | Legacy GAAP
Revenue |  | $ | 3,504 |  |  | $ | 58 |  |  | $ | 3,562 |  |  | $ | 11,238 |  |  | $ | (127 | ) |  | $ | 11,111 |
Expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Compensation and benefits |  | 2,083 |  |  | 12 |  |  | 2,095 |  |  | 6,442 |  |  | (58 | ) |  | 6,384 |
Other operating expenses |  | 880 |  |  | — |  |  | 880 |  |  | 2,656 |  |  | — |  |  | 2,656 |
Operating expenses |  | 2,963 |  |  | 12 |  |  | 2,975 |  |  | 9,098 |  |  | (58 | ) |  | 9,040 |
Operating income |  | 541 |  |  | 46 |  |  | 587 |  |  | 2,140 |  |  | (69 | ) |  | 2,071 |
Other net benefit credits |  | 63 |  |  | — |  |  | 63 |  |  | 194 |  |  | — |  |  | 194 |
Interest income |  | 2 |  |  | — |  |  | 2 |  |  | 8 |  |  | — |  |  | 8 |
Interest expense |  | (69 | ) |  | — |  |  | (69 | ) |  | (198 | ) |  | — |  |  | (198 | )
Investment (loss) |  | (52 | ) |  | — |  |  | (52 | ) |  | (24 | ) |  | — |  |  | (24 | )
Change in fair value of acquisition related FX contract |  | (100 | ) |  | — |  |  | (100 | ) |  | (100 | ) |  | — |  |  | (100 | )
Income before income taxes |  | 385 |  |  | 46 |  |  | 431 |  |  | 2,020 |  |  | (69 | ) |  | 1,951 |
Income tax expense |  | 106 |  |  | 12 |  |  | 118 |  |  | 509 |  |  | (18 | ) |  | 491 |
Net income before non-controlling interests |  | 279 |  |  | 34 |  |  | 313 |  |  | 1,511 |  |  | (51 | ) |  | 1,460 |
Less: Net income attributable to non-controlling interests |  | 3 |  |  | — |  |  | 3 |  |  | 14 |  |  | — |  |  | 14 |
Net income attributable to the Company |  | $ | 276 |  |  | $ | 34 |  |  | $ | 310 |  |  | $ | 1,497 |  |  | $ | (51 | ) |  | $ | 1,446 |
The impact of adoption of the new revenue standard on the Company's consolidated balance sheet was as follows (in millions):
|  | September 30, 2018
|  | As Reported |  | Revenue Standard Impact |  | Legacy GAAP
ASSETS |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 951 |  |  | $ | — |  |  | $ | 951 |
Net receivables |  | 4,476 |  |  | (175 | ) |  | 4,301 |
Other current assets |  | 539 |  |  | (290 | ) |  | 249 |
Total current assets |  | 5,966 |  |  | (465 | ) |  | 5,501 |
Goodwill and intangible assets |  | 10,764 |  |  | — |  |  | 10,764 |
Fixed assets, net |  | 707 |  |  | — |  |  | 707 |
Pension related assets |  | 1,814 |  |  | — |  |  | 1,814 |
Deferred tax assets |  | 497 |  |  | 121 |  |  | 618 |
Other assets |  | 1,381 |  |  | (238 | ) |  | 1,143 |
TOTAL ASSETS |  | $ | 21,129 |  |  | $ | (582 | ) |  | $ | 20,547 |
LIABILITIES AND EQUITY |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |
Short-term debt |  | $ | 638 |  |  | $ | — |  |  | $ | 638 |
Accounts payable and accrued liabilities |  | 2,293 |  |  | (143 | ) |  | 2,150 |
Accrued compensation and employee benefits |  | 1,406 |  |  | — |  |  | 1,406 |
Accrued income taxes |  | 179 |  |  | — |  |  | 179 |
Dividends payable |  | 211 |  |  | — |  |  | 211 |
Total current liabilities |  | 4,727 |  |  | (143 | ) |  | 4,584 |
Fiduciary liabilities |  | 5,185 |  |  | — |  |  | 5,185 |
Less - cash and investments held in a fiduciary capacity |  | (5,185 | ) |  | — |  |  | (5,185 | )
|  | — |  |  | — |  |  | — |
Long-term debt |  | 5,512 |  |  | — |  |  | 5,512 |
Pension, post-retirement and post-employment benefits |  | 1,727 |  |  | — |  |  | 1,727 |
Liabilities for errors and omissions |  | 303 |  |  | — |  |  | 303 |
Other liabilities |  | 1,322 |  |  | (24 | ) |  | 1,298 |
Total equity |  | 7,538 |  |  | (415 | ) |  | 7,123 |
TOTAL LIABILITIES AND EQUITY |  | $ | 21,129 |  |  | $ | (582 | ) |  | $ | 20,547 |
The impact of adoption of the new revenue standard on the Company's consolidated statement of cash flow was as follows (in millions):
|  | Nine Months Ended September 30, 2018
|  | As Reported |  | Revenue Standard Impact |  | Legacy GAAP
Operating cash flows: |  |  |  |  |  |
Net income before non-controlling interests |  | $ | 1,511 |  |  | $ | (51 | ) |  | $ | 1,460 |
Adjustments to reconcile net income to cash provided by operations: |  |  |  |  |  |
Depreciation and amortization of fixed assets and capitalized software |  | 236 |  |  | — |  |  | 236 |
Amortization of intangible assets |  | 135 |  |  | — |  |  | 135 |
Adjustments and payments related to contingent consideration liability |  | (10 | ) |  | — |  |  | (10 | )
Provision for deferred income taxes |  | 66 |  |  | — |  |  | 66 |
Gain on investments |  | 24 |  |  | — |  |  | 24 |
Gain on disposition of assets |  | (53 | ) |  | — |  |  | (53 | )
Share-based compensation expense |  | 146 |  |  | — |  |  | 146 |
Change in fair value of acquisition related FX contract |  | 100 |  |  | — |  |  | 100 |
Changes in assets and liabilities: |  |  |  |  |  |
Net receivables |  | (210 | ) |  | 107 |  |  | (103 | )
Other current assets |  | 19 |  |  | (28 | ) |  | (9 | )
Other assets |  | (51 | ) |  | (6 | ) |  | (57 | )
Accounts payable and accrued liabilities |  | (3 | ) |  | (21 | ) |  | (24 | )
Accrued compensation and employee benefits |  | (312 | ) |  | — |  |  | (312 | )
Accrued income taxes |  | (13 | ) |  | — |  |  | (13 | )
Contributions to pension excess of expense/credit |  | (250 | ) |  | — |  |  | (250 | )
Other liabilities |  | 11 |  |  | (1 | ) |  | 10 |
Effect of exchange rate changes |  | (27 | ) |  | — |  |  | (27 | )
Net cash provided by operations |  | $ | 1,319 |  |  | $ | — |  |  | $ | 1,319 |
The adoption of the revenue recognition standard did not have an impact on the Company's financing or investing cash flows. Other Standards Adopted Effective January 1, 2018 using the modified retrospective approach In January 2016, the FASB issued new guidance intended to improve the recognition and measurement of financial instruments. The new guidance requires investments in equity securities (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requires a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The new guidance was effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company holds certain equity investments that under legacy GAAP were previously treated as available for sale securities, whereby the mark-to-market change was recorded to other comprehensive income in its consolidated balance sheet. The Company adopted the new accounting guidance, effective January 1, 2018, recording a cumulative-effect adjustment increase to retained earnings as of the beginning of the period of adoption of $14 million, reflecting the reclassification of cumulative unrealized gains, net of tax as of December 31, 2017 from accumulated other comprehensive income to retained earnings. Therefore, prior periods have not been restated. In October 2016, the FASB also issued new guidance which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance eliminates the exception for an intra-entity transfer of an asset other than inventory. The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company adopted the new guidance effective January 1, 2018, recording a cumulative-effect adjustment decrease to retained earnings of approximately $14 million as of the beginning of the period of adoption. The impact on the Company's balance sheet as of January 1, 2018 related to the adoption of the accounting standards using the modified retrospective approach as discussed above is as follows:
|  |  | Adjustments |  |
| Balance at December 31, 2017 |  | Revenue Recognition |  | Financial Instruments |  | Intra-Entity Transfer |  | Balance at January 1, 2018
Balance Sheet |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |
Net Receivables | $ | 4,133 |  |  | $ | 68 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,201 |
Other Current Assets | 224 |  |  | 318 |  |  | — |  |  | — |  |  | 542 |
Other Assets | 1,430 |  |  | 226 |  |  | — |  |  | — |  |  | 1,656 |
Deferred Tax Assets | 669 |  |  | (103 | ) |  | — |  |  | (14 | ) |  | 552 |
Liabilities |  |  |  |  |  |  |  |  |
Accounts Payable and Accrued Liabilities | 2,083 |  |  | 122 |  |  | — |  |  | — |  |  | 2,205 |
Other Liabilities | 1,311 |  |  | 23 |  |  | — |  |  | — |  |  | 1,334 |
Equity |  |  |  |  |  |  |  |  |
Other Accumulated Comprehensive Income | — |  |  | — |  |  | (14 | ) |  | — |  |  | (14 | )
Retained Earnings | $ | 13,140 |  |  | $ | 364 |  |  | $ | 14 |  |  | $ | (14 | ) |  | $ | 13,504 |
Cumulative effect adjustment related to the adoption of the revenue recognition standard The cumulative effect adjustment recorded to net receivables is primarily related to contingent brokerage revenue and reinsurance revenue placements. Under the new guidance, the Company is required to record an estimate of variable or contingent consideration earlier than under the previous rules. Also under the new guidance, revenue related to most reinsurance placements is accelerated versus previous patterns. The cumulative effect adjustments also includes the capitalization of costs to fulfill and costs to obtain that are included in other current assets and other assets, respectively. These costs were previously expensed as incurred. The adjustment to accounts payable and accrued liabilities includes deferred revenue related to the timing of fee revenue recognition for fee based arrangements and certain post placement servicing costs, primarily related to reinsurance brokerage costs that were previously expensed as incurred. Adoption of amended accounting standard using the retrospective application approach Effective January 1, 2018, the Company adopted new guidance that changes the presentation of net periodic pension cost and net periodic postretirement cost (''net periodic benefit costs"). The new guidance requires employers to report the service cost component of net periodic benefit costs in the same line item as other compensation costs in the income statement. The other components of net periodic benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The new guidance requires retrospective application for the presentation of the service cost component and the other components of net periodic benefit costs. Accordingly, we have reclassified prior period information in the consolidated results of operations, segment data and related disclosures contained in our management's discussion and analysis and notes to the consolidated financial statements to reflect the retrospective adoption of this standard. Other accounting standards adopted effective January 1, 2018 In November 2016, the FASB issued new guidance which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this guidance, which is required to be applied retrospectively to all periods presented, effective January 1, 2018. The adoption of this guidance did not impact the Company's consolidated balance sheets or consolidated statements of cash flows. In August 2016, the FASB issued new guidance which adds or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows, including cash payments for debt prepayments or debt extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees. The Company adopted this guidance effective January 1, 2018. The adoption of this guidance did not impact the Company's consolidated statements of cash flows. In January 2017, the FASB issued guidance which clarifies the definition of a business in order to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted this guidance effective January 1, 2018. The adoption of this standard did not have an impact on the Company's financial position or results of operations. New Accounting Pronouncements Not Yet Adopted In August 2018, the FASB issued new guidance that amends required fair value measurement disclosures. The guidance adds new requirements, eliminates some current disclosures and modifies other required disclosures. The new disclosure requirements, along with modifications made to disclosures as a result of the change in requirements for narrative descriptions of measurement uncertainty, must be applied on a prospective basis. The effects of all other amendments included in the guidance must be applied retrospectively for all periods presented. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted. Adoption of this guidance will impact disclosures only and will not have an impact on the Company's financial position or results of operations. In August 2018, the FASB issued new guidance that amends disclosures related to Defined Benefit Plans. The guidance removes disclosures that no longer are considered cost-beneficial, clarifies the specific requirements of certain disclosures, and adds disclosure requirements identified as relevant. The guidance must be applied on a retrospective basis. The guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Adoption of this guidance will impact disclosures only and will not have an impact on the Company's financial position or results of operations. In January 2017, the FASB issued new guidance to simplify the test for goodwill impairment. The new guidance eliminates the second step in the current two-step goodwill impairment process, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill for that reporting unit. The new guidance requires a one-step impairment test, in which the goodwill impairment charge is based on 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. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance should be applied on a prospective basis with the nature of and reason for the change in accounting principle disclosed upon transition. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial position or results of operations. In February 2016, the FASB issued new guidance intended to improve financial reporting for leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification, which for lessees, will be defined as either a financing or operating leases under the new guidance. However, unlike current GAAP, which only requires recognition of capital leases on the balance sheet, the new guidance requires that both types of leases be recognized on the balance sheet. The new guidance will require additional disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, and additional information about the amounts recorded in the financial statements. The new guidance on leases is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. The Company will adopt this new standard effective January 1, 2019, using the modified retrospective method, and apply the new guidance beginning in the year of adoption. Prior period information will not be restated. The cumulative effect of initially applying the guidance is recognized as an adjustment to retained earnings at January 1, 2019. The Company is expected to elect to apply the set of practical expedients at transition, which among other things, allows the Company to carry forward historical lease classifications. As a practical expedient, the Company will elect an accounting policy not to separate non-lease components from lease components and instead, account for these components as a single lease component. Substantially all of the Company’s leases are operating leases. The Company expects to recognize a lease liability ranging from approximately $1.7 billion to $2 billion and a corresponding right of use asset ("ROU asset") ranging from $1.5 billion to $1.7 billion, including the de-recognition of approximately $200 million to $300 million of unamortized lease incentives and restructuring liabilities, upon the adoption of this standard, with minimal impact on the consolidated statement of income.

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