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Revenue from Contracts with Customers | 3 Months Ended
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Mar. 31, 2018
Revenue from Contract with Customer [Abstract] |
Revenue from Contracts with Customers | 3. Revenue from Contracts with Customers New Accounting Statement Impact on Consolidated Financial Statements As a result of adopting a new revenue recognition accounting statement, we restated our consolidated financial statements from amounts previously reported. The primary impacts of the adoption of the new revenue recognition guidance to our segments are detailed as follows. Brokerage segment Revenue - We previously recognized revenue for certain of our brokerage activities, such as installments on agency bill, direct bill and contingent revenue, over a period of time either due to the transfer of value to our clients or as the remuneration became determinable. Under the new guidance, these revenues are now substantially recognized at a point in time on the effective date of the associated policies when control of the policy transfers to the client. On the other hand, under the new guidance we are now required to defer certain revenues to reflect delivery of services over the contract period. As a result, revenue from certain arrangements are now recognized in earlier periods under the new guidance in comparison to our previous accounting policies, and other revenues are recognized in later periods. The net effect of all of these changes on the timing and amount of revenue recognized is a net increase in revenue recognized for our annual reporting periods with a shift in the timing of revenue recognized in the interim periods to the first quarter from the other three quarters. The primary reason for the increase in the amount of revenue recognized relates to our employee benefit brokerage business. Historically we recognized this revenue throughout the contract period as underlying client exposure units became certain. Under the new guidance, the full year revenue under each of these contracts is now estimated at the effective date of the underlying policies resulting in acceleration of revenue recognized, with a reassessment at each reporting date. This also causes a shift in the timing of revenue recognized in the interim periods as a majority of these annual contracts incept in the first quarter. Partially offsetting this interim impact is the recognition of contingent revenues related to our brokerage business as these revenues are now estimated and accrued throughout the year as the underlying business is placed with the underwriting enterprises rather than our historical practice of recognizing the majority of these revenues in the first quarter, because this is typically when we receive cash or the related policy detail or other carrier specific information from the underwriting enterprise. Expense - The assets recognized for the costs to obtain and/or fulfill a contract are amortized on a systematic basis that is consistent with the transfer of the services to which the asset relates. For the majority of our contracts, the renewal period is one year or less and renewal costs are commensurate with the initial contract. As a result, we have applied a practical expedient and recognize the costs of obtaining a contract as an expense when incurred. The net impact of deferring and amortizing the costs to fulfill a contract are not material on an annual basis, but have an impact on the timing of expenses recognized in the interim periods. Previously those costs were expensed as incurred. Risk management segment Revenue - Under the new guidance, when we have the obligation to adjust claims until closure and are compensated on a per claim basis, we record the full amount of the claim revenue upon notification of the claim and defer certain revenues to reflect delivery of services over the claim handling period. When our obligation is to provide claims services throughout a contract period, we recognize revenue ratably across that contract period. As such, the net impact of the new guidance requires greater initial revenue deferral and recognition over a longer period of time than under our previous accounting policies. Expense - The assets recognized for the costs to obtain and/or to fulfill a contract are amortized on a systematic basis that is consistent with the transfer of the services to which the asset relates. We do not have material costs to obtain or fulfill. The net impact of deferring and amortizing these costs to obtain or to fulfill are not material on our annual or interim reporting periods. Corporate segment The timing related to recognition of revenue in our corporate segment remains substantially unchanged. While there is no material impact on our annual after tax earnings, there is a material change to our after tax earnings in the interim quarterly periods, as income tax credits are recognized based on our quarterly consolidated pretax earnings patterns. Impact on 2017 Consolidated Financial Statements The consolidated statement of earnings line items, which reflect the adoption of the new revenue recognition guidance, are as follows (in millions, except per share data):
|  | Three-month period ended March 31, 2017 |
|  | As Previously Reported |  |  | Impact of Adoption of ASC 606 |  |  | As Restated for Adoption of ASC 606 |
Commissions |  | $ | 590.5 |  |  | $ | 170.2 |  |  | $ | 760.7 |
Fees |  |  | 370.5 |  |  |  | 34.5 |  |  |  | 405.0 |
Supplemental revenues |  |  | 34.5 |  |  |  | 12.8 |  |  |  | 47.3 |
Contingent revenues |  |  | 53.4 |  |  |  | (18.4 | ) |  |  | 35.0 |
Investment income |  |  | 10.8 |  |  |  | 1.5 |  |  |  | 12.3 |
Gains on books of business sales |  |  | 1.4 |  |  |  | — |  |  |  | 1.4 |
Revenues from clean coal activities |  |  | 351.8 |  |  |  | — |  |  |  | 351.8 |
Other net losses |  |  | (0.2 | ) |  |  | — |  |  |  | (0.2 | )
Revenues before reimbursements |  |  | 1,412.7 |  |  |  | 200.6 |  |  |  | 1,613.3 |
Reimbursements |  |  | — |  |  |  | 33.1 |  |  |  | 33.1 |
Total revenues |  |  | 1,412.7 |  |  |  | 233.7 |  |  |  | 1,646.4 |
Compensation |  |  | 657.6 |  |  |  | 54.2 |  |  |  | 711.8 |
Operating |  |  | 200.4 |  |  |  | (0.9 | ) |  |  | 199.5 |
Reimbursements |  |  | — |  |  |  | 33.1 |  |  |  | 33.1 |
Cost of revenues from clean coal activities |  |  | 366.9 |  |  |  | — |  |  |  | 366.9 |
Interest |  |  | 29.9 |  |  |  | — |  |  |  | 29.9 |
Depreciation |  |  | 29.5 |  |  |  | — |  |  |  | 29.5 |
Amortization |  |  | 64.3 |  |  |  | — |  |  |  | 64.3 |
Change in estimated acquisition earnout payables |  |  | 11.8 |  |  |  | — |  |  |  | 11.8 |
Total expenses |  |  | 1,360.4 |  |  |  | 86.4 |  |  |  | 1,446.8 |
Earnings before income taxes |  |  | 52.3 |  |  |  | 147.3 |  |  |  | 199.6 |
Benefit for income taxes |  |  | (15.5 | ) |  |  | (26.9 | ) |  |  | (42.4 | )
Net earnings |  |  | 67.8 |  |  |  | 174.2 |  |  |  | 242.0 |
Net earnings attributable to noncontrolling interests |  |  | 12.1 |  |  |  | 1.1 |  |  |  | 13.2 |
Net earnings attributable to controlling interests |  | $ | 55.7 |  |  | $ | 173.1 |  |  | $ | 228.8 |
Basic net earnings per share |  | $ | 0.31 |  |  | $ | 0.97 |  |  | $ | 1.28 |
Diluted net earnings per share |  |  | 0.31 |  |  |  | 0.96 |  |  |  | 1.27 |
Dividends declared per common share |  |  | 0.39 |  |  |  | — |  |  |  | 0.39 |
Select consolidated statement of comprehensive earnings line items, which reflect the adoption of the new revenue recognition guidance, are as follows (in millions):
|  | Three-month period ended March 31, 2017 |
|  | As Previously Reported |  |  | Impact of Adoption of ASC 606 |  |  | As Restated for Adoption of ASC 606 |
Net earnings |  | $ | 67.8 |  |  | $ | 174.2 |  |  | $ | 242.0 |
Change in pension liability, net of taxes |  |  | 1.2 |  |  |  | — |  |  |  | 1.2 |
Foreign currency translation |  |  | 58.4 |  |  |  | (2.5 | ) |  |  | 55.9 |
Change in fair value of derivative instruments, net of taxes |  |  | 6.5 |  |  |  | — |  |  |  | 6.5 |
Comprehensive earnings |  |  | 133.9 |  |  |  | 171.7 |  |  |  | 305.6 |
Comprehensive earnings attributable to noncontrolling interests |  |  | 13.7 |  |  |  | 1.1 |  |  |  | 14.8 |
Comprehensive earnings attributable to controlling interests |  | $ | 120.2 |  |  | $ | 170.6 |  |  | $ | 290.8 |
Select balance sheet line items, which reflect the adoption of the new revenue recognition guidance are as follows (in millions):
|  | December 31, 2017 |
|  | As Previously Reported |  |  | Impact of Adoption of ASC 606 |  |  | As Restated for Adoption of ASC 606 |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Premium and fees receivables |  | $ | 2,157.2 |  |  | $ | 1,925.6 |  |  | $ | 4,082.8 |
Other current assets |  |  | 708.4 |  |  |  | 173.2 |  |  |  | 881.6 |
Deferred income taxes |  |  | 905.1 |  |  |  | (53.5 | ) |  |  | 851.6 |
Other noncurrent assets |  |  | 567.0 |  |  |  | 0.1 |  |  |  | 567.1 |
Goodwill |  |  | 4,197.9 |  |  |  | (33.1 | ) |  |  | 4,164.8 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Premiums payable to underwriting enterprises |  |  | 3,475.9 |  |  |  | 1,510.1 |  |  |  | 4,986.0 |
Accrued compensation and other current liabilities |  |  | 864.1 |  |  |  | 83.7 |  |  |  | 947.8 |
Deferred revenue - current/unearned fees |  |  | 74.8 |  |  |  | 280.5 |  |  |  | 355.3 |
Other current liabilities |  |  | 56.4 |  |  |  | (56.4 | ) |  |  | — |
Deferred revenue - noncurrent |  |  | — |  |  |  | 75.3 |  |  |  | 75.3 |
Other noncurrent liabilities |  |  | 1,128.3 |  |  |  | (15.7 | ) |  |  | 1,112.6 |
Stockholders’ equity |  |  |  |  |  |  |  |  |  |  |  |
Retained earnings |  |  | 1,095.9 |  |  |  | 125.9 |  |  |  | 1,221.8 |
Accumulated other comprehensive loss |  |  | (559.9 | ) |  |  | 4.5 |  |  |  | (555.4 | )
Stockholders’ equity attributable to controlling interests |  |  | 4,105.2 |  |  |  | 130.4 |  |  |  | 4,235.6 |
Stockholders’ equity attributable to noncontrolling interests |  |  | 59.7 |  |  |  | 4.4 |  |  |  | 64.1 |
Select consolidated statement of cash flows line items, which reflect the adoption of the new revenue recognition guidance are as follows (in millions):
|  | Three-month period ended March 31, 2017 |
|  | As Previously Reported |  |  | Impact of Adoption of ASC 606 |  |  | As Restated for Adoption of ASC 606 |
Cash flows from operating activities |  |  |  |  |  |  |  |  |  |  |  |
Net earnings |  | $ | 67.8 |  |  | $ | 174.2 |  |  | $ | 242.0 |
Adjustments to reconcile net earnings to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net change in premiums receivable |  |  | (206.3 | ) |  |  | (1,353.1 | ) |  |  | (1,559.4 | )
Net change in deferred revenue |  |  | — |  |  |  | 22.3 |  |  |  | 22.3 |
Net change in premiums payable to underwriting enterprises |  |  | (30.1 | ) |  |  | 1,149.1 |  |  |  | 1,119.0 |
Net change in other current assets |  |  | 56.2 |  |  |  | 42.0 |  |  |  | 98.2 |
Net change in accrued compensation and other current liabilities |  |  | 43.1 |  |  |  | 22.3 |  |  |  | 65.4 |
Net change in deferred income taxes |  |  | (17.2 | ) |  |  | (26.8 | ) |  |  | (44.0 | )
Net change in other noncurrent assets and liabilities |  |  | (28.0 | ) |  |  | (1.0 | ) |  |  | (29.0 | )
Select statement of stockholders’ equity items, which reflect the adoption of the new revenue recognition guidance are as follows (in millions):
|  | Retained Earnings |  |  | Accumulated Other Comprehensive Earnings (Loss) |  |  | Stockholders’ Equity Attributable to Noncontrolling Interests |  |  | Total Stockholders’ Equity |
Balance at December 31, 2017, as reported |  | $ | 1,095.9 |  |  | $ | (559.9 | ) |  | $ | 59.7 |  |  | $ | 4,164.9 |
Cumulative-effect adjustment due to ASC |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Topic 606 as of December 31, 2017 |  |  | 125.9 |  |  |  | 4.5 |  |  |  | 4.4 |  |  |  | 134.8 |
Balance at December 31, 2017, as restated |  | $ | 1,221.8 |  |  | $ | (555.4 | ) |  | $ | 64.1 |  |  | $ | 4,299.7 |
Contract Assets and Liabilities/Contract Balances Information about unbilled receivables, contract assets and contract liabilities from contracts with customers is as follows (in millions):
|  | March 31, 2018 |  |  | December 31, 2017, As Restated |
Unbilled receivables |  | $ | 682.1 |  |  | $ | 415.2 |
Deferred contract costs |  |  | 48.9 |  |  |  | 83.3 |
Deferred revenue |  |  | 465.2 |  |  |  | 430.6 |
The unbilled receivables primarily relate to our rights to consideration for work completed but not billed at the reporting date. These are transferred to the receivables when the client is billed. The deferred contract costs represent the costs we incur to fulfill a new or renewal contract with our clients prior to the effective date of the contract. These costs are expensed on the contract effective date. The deferred revenue represents the remaining performance obligations under our contracts. Significant changes in the deferred revenue balances during the period are as follows (in millions):
|  | Brokerage |  |  | Risk Management |  |  | Total |
Deferred revenue at December 31, 2017 |  | $ | 258.7 |  |  | $ | 171.9 |  |  | $ | 430.6 |
Incremental deferred revenue |  |  | 144.6 |  |  |  | 37.9 |  |  |  | 182.5 |
Revenue recognized during the three-month period ended March 31, 2018 included in deferred revenue at December 31, 2017 |  |  | (115.9 | ) |  |  | (32.7 | ) |  |  | (148.6 | )
Deferred revenue recognized from business acquisitions |  |  | 0.7 |  |  |  | — |  |  |  | 0.7 |
Deferred revenue at March 31, 2018 |  | $ | 288.1 |  |  | $ | 177.1 |  |  | $ | 465.2 |
Remaining Performance Obligations Remaining performance obligations represent the portion of the contract price for which work has not been performed. As of March 31, 2018, the aggregate amount of the contract price allocated to remaining performance obligations was $465.2 million. The estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period is as follows (in millions):
|  | Brokerage |  |  | Risk Management |  |  | Total |
2018 (remaining nine months) |  | $ | 244.0 |  |  | $ | 85.3 |  |  | $ | 329.3 |
2019 |  |  | 31.7 |  |  |  | 49.1 |  |  |  | 80.8 |
2020 |  |  | 9.0 |  |  |  | 21.3 |  |  |  | 30.3 |
2021 |  |  | 2.8 |  |  |  | 8.9 |  |  |  | 11.7 |
2022 |  |  | 0.4 |  |  |  | 4.7 |  |  |  | 5.1 |
Thereafter |  |  | 0.2 |  |  |  | 7.8 |  |  |  | 8.0 |
Total |  | $ | 288.1 |  |  | $ | 177.1 |  |  | $ | 465.2 |
Deferred Contract Costs We capitalize costs incurred to fulfill contracts as “deferred contract costs” on our consolidated balance sheets. Deferred contract costs were $48.9 million and $83.3 million as of March 31, 2018 and December 31, 2017, respectively. Capitalized fulfillment costs are amortized on the contract effective date. The amount of amortization of the deferred contract costs was $100.4 million and $91.2 million for the three-month periods ended March 31, 2018, and 2017, respectively. As part of our adoption of the new revenue recognition guidance, we have elected to apply the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less for our brokerage segment. These costs are included in compensation and operating expenses in our consolidated statement of earnings.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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