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Basis of Financial Reporting | 9 Months Ended
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Sep. 30, 2017
Condensed Financial Information of Parent Company Only Disclosure [Abstract] |
Basis of Financial Reporting | Basis of Financial Reporting The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes thereto set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures of contingent assets and liabilities, at the date of the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Recently Issued Accounting Pronouncements In November 2016, the Financial Accountings Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, “Statement of Cash Flows (Topic 230)”: Restricted Cash (“ASU 2016-18”), which requires that the Statement of Cash Flows explain the changes during the period of cash and cash equivalents inclusive of amounts categorized as restricted cash. ASU 2016-18 is effective for periods beginning after December 15, 2017. However, the Company elected to early adopt for the reporting period ended March 31, 2017 under the full retrospective approach for all periods presented. With the adoption of ASU 2016-18, the change in restricted cash is no longer reflected as a change in operating assets and liabilities, and the Statement of Cash Flows details the changes in the balance of cash and cash equivalents inclusive of restricted cash. Net cash provided by operating activities for the nine months ended September 30, 2016 were previously reported as $270.6 million. With the retrospective adoption, the net cash provided by operating activities for the nine months ended September 30, 2016 is now reported as $319.1 million. The Company reflects cash collected from customers that is payable to insurance companies as restricted cash if segregation of this cash is required by the state of domicile for the office conducting this transaction or if required by contract with the relevant insurance company providing coverage. Cash collected from customers that is payable to insurance companies is reported in cash and cash equivalents if no such restriction is required. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”: Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified and applies to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. ASU 2016-15 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 and early adoption is permitted. The Company has evaluated the impact of ASU 2016-15 and has determined there is no impact on the Company's Statement of Cash Flows. The Company already presents cash paid on contingent consideration in business combination as prescribed by ASU 2016-15 and does not, at this time, engage in the other activities being addressed. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share Based Payment Accounting” (“ASU 2016-09”), which amends guidance issued in Accounting Standards Codification (“ASC”) Topic 718, Compensation - Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The Company adopted the guidance on January 1, 2017, as required. Prior periods have not been adjusted, as the guidance was adopted prospectively. The principal impact is that the tax benefit or expense from stock compensation is now presented in the income tax line of the Statement of Income, whereas the prior treatment was to present this amount as a component of equity on the Balance Sheet. Also the tax benefit or expense is now presented as activity in Cash Flow from Operating Activity, rather than the prior presentation as Cash Flow from Financing Activity in the Statement of Cash Flows. The Company also continues to estimate forfeitures of stock grants as allowed by ASU 2016-09. In March 2016, the FASB issued ASU 2016-08, “Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)” (“ASU 2016-08”) to clarify certain aspects of the principal-versus-agent guidance included in the new revenue standard ASU 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. ASU 2016-08 is effective contemporaneous with ASU 2014-09 beginning January 1, 2018. The impact of ASU 2016-08 is currently being evaluated along with ASU 2014-09. At this point in our evaluation the potential impact would primarily be limited to the claims administering activities within our Services Segment and therefore not material to the Company. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company continues to evaluate the impact of this pronouncement with the principal impact being that the present value of the remaining lease payments be presented as a liability on the Balance Sheet as well as an asset of similar value representing the “Right of Use” for those leased properties. As detailed in Note 13 of the 2016 10-K, the undiscounted contractual cash payments remaining on leased properties was $213.2 million as of December 31, 2016 and is $200.3 million as of September 30, 2017 as detailed in the Liquidity and Capital Resources section of this Quarterly Report on Form 10-Q. In November 2015, FASB issued ASU No. 2015-17, “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as a single non-current item on the balance sheet. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted as of the beginning of any interim or annual reporting period. The Company adopted the guidance on January 1, 2017, as required. As a result, the Company retrospectively applied the guidance to the 2016 balance sheet by reclassifying $24.6 million from deferred income taxes (asset) to deferred income taxes, net (liability) on the Condensed Consolidated Balance Sheet. In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), which provides guidance for revenue recognition. Topic 606 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. It supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard’s core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. Specifically, in situations where multiple performance obligations exist within a contract, the use of estimates is required to allocate the transaction price to each separate performance obligation. Historically, approximately 70% of the Company’s commissions and fees revenue is in the form of commissions paid by insurance carriers. These commissions are earned upon the effective date of bound coverage as no significant performance obligation remains after coverage is bound. Approximately 20% of the Company's commissions and fees revenue is in the form of fees, which are predominantly in our National Programs and Services Segments, and to a lesser extent in the large accounts business within our Retail Segment. At the conclusion of our evaluation, it may be determined that fee revenue from certain agreements will be recognized in earlier or later periods under the new guidance as compared to our current accounting. Based upon the work completed to date, the Company does not expect the overall impact of these potential changes to be significant on a full-year basis, but they may impact the timing of recognizing revenue among quarters. The Company is continuing to evaluate approximately 10% of the Company's commissions and fees revenues and anticipates completion of this evaluation by December 31, 2017. Additionally, the Company is continuing to evaluate the requirement under ASC Topic 340 - Other Assets and Deferred Cost ("ASC 340") to capitalize costs to obtain, and costs to fulfill, customer contracts, and recognize these costs over the associated life of the contract as the performance obligations are fulfilled. This evaluation includes assessing the costs that would qualify for capitalization as well as the timing to recognize these costs in future periods in accordance with ASC 340. Presently all costs to obtain, and costs to fulfill, customer contracts are expensed by the Company as incurred. The primary areas the Company has identified thus far that will be impacted by the adoption of the new revenue recognition standards are summarized below. Contingent commissions - Under current accounting standards, revenue that is not fixed and determinable because a contingency exists is not recognized until the contingency is resolved. Under Topic 606 the Company must use judgment to estimate the amount of consideration that will be received such that a significant reversal of revenue is not probable. Contingent commissions represent a form of variable consideration associated with the same performance obligation, which is in the form of placement of coverage, for which we earn core commissions. In connection with the new standard, contingent commissions will be estimated with an appropriate constraint applied and accrued relative to the core commissions as they are recognized. The resulting effect on the timing of recognition of contingent commissions will more closely follow a similar pattern as our core commissions with true-ups recognized when payments are received or as additional information that affects the estimate becomes available. As disclosed in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, contingent commissions have averaged approximately 3.6% of the previous year’s total commissions and fees revenue over the last three years and have primarily been received in the first and second quarters of the year. Cost deferrals - ASC 340 requires an entity to defer the incremental costs to obtain a customer contract and recognize these costs over the anticipated life of the customer relationship, inclusive of anticipated renewals. This requirement will primarily affect the Company as it relates to certain commission-based compensation plans in the Retail Segment whereby the Company pays an incremental amount of compensation on new business in the first year. As has been disclosed in Note 4 to the Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, the weighted average life of purchased customer accounts is 15 years. ASC 340 also requires a company to defer costs to fulfill a contract and recognize these costs as the associated performance obligations are fulfilled. In order for contract fulfillment costs to be deferred under ASC 340, the costs must (1) relate directly to a specific contract or anticipated contract, (2) generate or enhance resources that the Company will use in satisfying its obligations under the contract, and (3) be expected to be recovered through sufficient net cashflows from the contract. We are evaluating and believe the impact of ASC 340 related to contract fulfillment costs will primarily affect businesses that recognize revenue based upon on fees. Based upon the work completed to date, the Company does not expect the overall impact of the potential change to be significant on a full-year basis, but may impact the timing of recognizing expense among quarters. Installment billing - As disclosed in Note 1 to the Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016, commission revenues related to installment billings are recognized on the latter of the policy effective date (as indicated in the policy) or the date that the premium was billed to the client (as indicated in the premium invoice), with the exception of our Arrowhead businesses, which follows a policy of recognizing these revenues on the latter of the policy effective date or processed date into our systems, regardless of the billing arrangement. We are still determining the impact of recognizing installment revenue upon delivery of the contract fulfillment obligation. Topic 606 is effective for the Company beginning January 1, 2018. Entities are permitted to adopt the guidance under one of the following methods: the "full retrospective" method, which applies the guidance to each period presented (prior years restated), or the "modified retrospective" method, in which the guidance is only applied to the year of adoption, with the cumulative effect of initially applying the guidance recognized as an adjustment to retained earnings. The Company is evaluating the adoption method it will use, but currently expects to use the modified retrospective method. In connection with the implementation of the above standards, we will augment our current procedures and controls, as necessary to support the new standards.

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- Definition The entire disclosure for condensed financial information, including the financial position, cash flows, and the results of operations of the registrant (parent company) as of the same dates or for the same periods for which audited consolidated financial statements are being presented. Alternatively, the details of this disclosure can be reported by the specific parent company taxonomy elements, indicating the appropriate date and period contexts in an instance document. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 10 -Section S99 -Paragraph 3 -Subparagraph (SX 210.7-05(c)(Schedule II)) -URI http://asc.fasb.org/extlink&oid=6879921&loc=d3e569147-122900 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -SubTopic 10 -Section 45 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=68079674&loc=d3e5283-111683 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 235 -Section S99 -Paragraph 2 -Subparagraph (SX 210.9-06) -URI http://asc.fasb.org/extlink&oid=6882215&loc=d3e537971-122884 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 10 -Section S99 -Paragraph 6 -Subparagraph (SX 210.5-04(c)(Schedule I)) -URI http://asc.fasb.org/extlink&oid=27047687&loc=d3e5864-122674 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 3 -Subparagraph (SX 210.12-04) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e24072-122690 + Details
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