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New Accounting Pronouncements | 6 Months Ended
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Jun. 30, 2018
Accounting Changes And Error Corrections [Abstract] |
New Accounting Pronouncements | NOTE 2. New Accounting Pronouncements The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the sole source of authoritative GAAP other than the SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an accounting standard to communicate changes to the FASB codification. We assess and review the impact of all accounting standards. Any accounting standards not listed below were reviewed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements of the Company. Accounting Standards Adopted in 2018 Modification Accounting for Share-Based Payment Awards: Effective January 1, 2018, we adopted ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting.” The new standard clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. Modification accounting is required if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. We typically do not change either the terms or conditions of share-based payment awards once they are granted; therefore, the adoption of this new guidance had no impact on our consolidated financial statements. Restricted Cash - Statement of Cash Flows: Effective January 1, 2018, we adopted ASU No. 2016-18, “Statement of Cash Flows (Topic 230).” The new standard 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. Therefore, restricted cash 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. When restricted cash is presented separately from cash and cash equivalents on the balance sheet, a reconciliation is required between the amounts presented on the statement of cash flows and the balance sheet, as well as a disclosure of information about the nature of the restrictions. The adoption of this new standard resulted in a decrease of $6.6 million and $7.0 million in cash used in operating activities for the six months ended June 30, 2018 and 2017, respectively. Restricted cash consists of funds held by us in relation to our capital and investment advisory services as those funds are restricted in accordance with applicable Financial Industry Regulatory Authority regulations. Restricted cash also consists of funds on deposit from clients in connection with the pass-through of insurance premiums to the carrier with the related liability for these funds recorded in “Accounts payable” in the accompanying Consolidated Balance Sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported in the accompanying Consolidated Balance Sheets that sum to the total of the same such amount shown in the accompanying Consolidated Statements of Cash Flows (in thousands):
|  | June 30 |  |  | June 30 |
|  | 2018 |  |  | 2017 |
Cash and cash equivalents |  | $ | 1,921 |  |  | $ | 1,161 |
Restricted cash |  |  | 39,535 |  |  |  | 34,924 |
Total cash, cash equivalents and restricted cash |  | $ | 41,456 |  |  | $ | 36,085 |
Statement of Cash Flows: Effective January 1, 2018, we adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” The new standard provides guidance on eight specific cash flow issues. The application of this guidance did not have a material effect on the presentation of our Statement of Cash Flows. Revenue from Contracts with Customers: Effective January 1, 2018, we adopted Topic 606 using the modified retrospective transition method. We recognized the cumulative effect of initially applying the new standard as an adjustment directly to the opening balance of “Retained earnings” at January 1, 2018. The comparative information has not been restated and continues to be reported under the legacy standard. We evaluate our revenue contracts with customers based on the five-step model under Topic 606, pursuant to which we: (i) identify the contract with the customer; (ii) identify the performance obligation in the contract; (iii) determine the contract price; (iv) allocate the transaction price; and (v) recognize revenue when as each performance obligation is satisfied. If we determine that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable contract are met. Revenue recognition is consistent under both the legacy standard and Topic 606 for the majority of our revenue streams, with the exception of two business units within our Benefits and Insurance Services practice group. The revenue recognition policies in our Benefits and Insurance Services practice group have been modified under the new standard as follows.
| • | In our Property and Casualty business unit, commission revenue under agency billing arrangements (pursuant to which we bill the insured, collect the funds and remit the premium to the insurance carrier less our commissions) was previously recognized as of the later of the effective date of the insurance policy or the date billed to the customer. We now recognize the commission revenue on the effective date of the insurance policy.
Also in our Property and Casualty business unit, commission revenue under direct billing arrangements (pursuant to which the insurance carrier bills the insured directly and remits the commissions to us) was previously recognized when the data necessary from the carriers was available, whereas now we recognize the commission revenue on the effective date of the insurance policy.
| • | In our Retirement Plan Services business unit, certain defined benefit administration arrangements charge new clients an initial, non-refundable, set-up fee as part of a multi-year service agreement. Previously, these fees were recognized over the initial set up period, whereas now we defer the set-up fees and associated costs and recognize them over the life of the contract or the expected customer relationship, whichever is longer.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet was as follows (in thousands):
|  | Balance at |  |  | Adjustments |  |  | Balance at |
|  | December 31, |  |  | due to |  |  | January 1, |
Balance Sheet |  | 2017 |  |  | Topic 606 |  |  | 2018 |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable, net |  | $ | 188,300 |  |  | $ | 9,446 |  |  | $ | 197,746 |
Other current assets |  |  | 259,873 |  |  |  | 80 |  |  |  | 259,953 |
Other non-current assets |  |  | 728,058 |  |  |  | 728 |  |  |  | 728,786 |
Total assets |  | $ | 1,176,231 |  |  | $ | 10,254 |  |  | $ | 1,186,485 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  |  | 51,375 |  |  |  | 6,281 |  |  |  | 57,656 |
Accrued personnel costs |  |  | 45,264 |  |  |  | 595 |  |  |  | 45,859 |
Other current liabilities |  |  | 237,607 |  |  |  | 113 |  |  |  | 237,720 |
Deferred income taxes, net |  |  | 3,339 |  |  |  | 631 |  |  |  | 3,970 |
Other non-current liabilities |  |  | 307,767 |  |  |  | 1,012 |  |  |  | 308,779 |
Total liabilities |  |  | 645,352 |  |  |  | 8,632 |  |  |  | 653,984 |
STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Retained earnings |  |  | 345,302 |  |  |  | 1,622 |  |  |  | 346,924 |
Other stockholders' equity |  |  | 185,577 |  |  |  | — |  |  |  | 185,577 |
Total stockholders' equity |  |  | 530,879 |  |  |  | 1,622 |  |  |  | 532,501 |
Total liabilities and stockholders' equity |  | $ | 1,176,231 |  |  | $ | 10,254 |  |  | $ | 1,186,485 |
The following tables summarize the impact of adopting Topic 606 on our consolidated financial statements for the periods indicated below (in thousands):
|  |  |  |  |  |  |  |  |  | Balances without |
Second Quarter 2018 Balance Sheet |  | As reported |  |  | Adjustments |  |  | adoption of Topic 606 |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable, net |  | $ | 245,639 |  |  | $ | (11,886 | ) |  | $ | 233,753 |
Other current assets |  |  | 200,633 |  |  |  | (80 | ) |  |  | 200,553 |
Other non-current assets |  |  | 763,852 |  |  |  | (687 | ) |  |  | 763,165 |
Total assets |  | $ | 1,210,124 |  |  | $ | (12,653 | ) |  | $ | 1,197,471 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  | $ | 80,823 |  |  | $ | (7,799 | ) |  | $ | 73,024 |
Accrued personnel costs |  |  | 42,750 |  |  |  | (582 | ) |  |  | 42,168 |
Other current liabilities |  |  | 181,839 |  |  |  | (114 | ) |  |  | 181,725 |
Deferred income taxes, net |  |  | 4,000 |  |  |  | (870 | ) |  |  | 3,130 |
Other non-current liabilities |  |  | 311,886 |  |  |  | (953 | ) |  |  | 310,933 |
Total liabilities |  |  | 621,298 |  |  |  | (10,318 | ) |  |  | 610,980 |
STOCKHOLDERS' EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Retained earnings |  |  | 395,881 |  |  |  | (2,335 | ) |  |  | 393,546 |
Other stockholders' equity |  |  | 192,945 |  |  |  | — |  |  |  | 192,945 |
Total shareholders' equity |  |  | 588,826 |  |  |  | (2,335 | ) |  |  | 586,491 |
Total liabilities and stockholders' equity |  | $ | 1,210,124 |  |  | $ | (12,653 | ) |  | $ | 1,197,471 |
|  |  |  |  |  |  |  |  |  | Balances without |
Three Months Ended June 30, 2018 Income Statement |  | As reported |  |  | Adjustments |  |  | adoption of Topic 606 |
Revenue |  | $ | 232,641 |  |  | $ | (483 | ) |  | $ | 232,158 |
Operating expenses |  |  | 205,102 |  |  |  | 44 |  |  |  | 205,146 |
Gross margin |  |  | 27,539 |  |  |  | (527 | ) |  |  | 27,012 |
Corporate general and administrative expenses |  |  | 9,993 |  |  |  | — |  |  |  | 9,993 |
Operating income |  |  | 17,546 |  |  |  | (527 | ) |  |  | 17,019 |
Other (expense) income: |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (1,817 | ) |  |  | — |  |  |  | (1,817 | )
Gain on sale of operations, net |  |  | — |  |  |  | — |  |  |  | — |
Other income, net |  |  | 630 |  |  |  | — |  |  |  | 630 |
Total other expense, net |  |  | (1,187 | ) |  |  | — |  |  |  | (1,187 | )
Income from continuing operations before income tax expense |  |  | 16,359 |  |  |  | (527 | ) |  |  | 15,832 |
Income tax expense |  |  | 3,238 |  |  |  | (125 | ) |  |  | 3,113 |
Income from continuing operations |  |  | 13,121 |  |  |  | (402 | ) |  |  | 12,719 |
Loss from discontinued operations, net of tax |  |  | (15 | ) |  |  | — |  |  |  | (15 | )
Net income |  | $ | 13,106 |  |  | $ | (402 | ) |  | $ | 12,704 |
|  |  |  |  |  |  |  |  |  | Balances without |
Six Months Ended June 30, 2018 Income Statement |  | As reported |  |  | Adjustments |  |  | adoption of Topic 606 |
Revenue |  | $ | 498,731 |  |  | $ | (981 | ) |  | $ | 497,750 |
Operating expenses |  |  | 409,852 |  |  |  | (29 | ) |  |  | 409,823 |
Gross margin |  |  | 88,879 |  |  |  | (952 | ) |  |  | 87,927 |
Corporate general and administrative expenses |  |  | 20,021 |  |  |  | — |  |  |  | 20,021 |
Operating income |  |  | 68,858 |  |  |  | (952 | ) |  |  | 67,906 |
Other (expense) income: |  |  |  |  |  |  |  |  |  |  |  |
Interest expense |  |  | (3,597 | ) |  |  | — |  |  |  | (3,597 | )
Gain on sale of operations, net |  |  | 663 |  |  |  | — |  |  |  | 663 |
Other expense, net |  |  | (599 | ) |  |  | — |  |  |  | (599 | )
Total other expense, net |  |  | (3,533 | ) |  |  | — |  |  |  | (3,533 | )
Income from continuing operations before income tax expense |  |  | 65,325 |  |  |  | (952 | ) |  |  | 64,373 |
Income tax expense |  |  | 16,394 |  |  |  | (239 | ) |  |  | 16,155 |
Income from continuing operations |  |  | 48,931 |  |  |  | (713 | ) |  |  | 48,218 |
Gain from discontinued operations, net of tax |  |  | 26 |  |  |  | — |  |  |  | 26 |
Net income |  | $ | 48,957 |  |  | $ | (713 | ) |  | $ | 48,244 |
|  |  |  |  |  |  |  |  |  | Balances without |
Six Months Ended June 30, 2018 Cash Flow Statement |  | As reported |  |  | Adjustments |  |  | adoption of Topic 606 |
Cash flows from operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 48,957 |  |  | $ | (713 | ) |  | $ | 48,244 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  | 18,908 |  |  |  | — |  |  |  | 18,908 |
Changes in assets and liabilities, net of acquisitions and divestitures: |  |  |  |  |  |  |  |  |  |  | — |
Accounts receivable, net |  |  | (44,774 | ) |  |  | 2,440 |  |  |  | (42,334 | )
Other assets |  |  | (4,955 | ) |  |  | (41 | ) |  |  | (4,996 | )
Accounts payable |  |  | 18,796 |  |  |  | (1,518 | ) |  |  | 17,278 |
Accrued personnel costs |  |  | (3,302 | ) |  |  | 13 |  |  |  | (3,289 | )
Other liabilities |  |  | (2,617 | ) |  |  | (181 | ) |  |  | (2,798 | )
Other |  |  | 10,245 |  |  |  | — |  |  |  | 10,245 |
Operating cash flows provide by continuing operations |  |  | 41,258 |  |  |  | — |  |  |  | 41,258 |
Operating cash flows used in discontinued operations |  |  | (152 | ) |  |  | — |  |  |  | (152 | )
Net cash provided by operating activities |  |  | 41,106 |  |  |  | — |  |  |  | 41,106 |
Net provided by investing activities |  |  | 42,471 |  |  |  | — |  |  |  | 42,471 |
Net cash used in financing activities |  |  | (75,530 | ) |  |  | — |  |  |  | (75,530 | )
Net increase in cash, cash equivalents and restricted cash |  |  | 8,047 |  |  |  | — |  |  |  | 8,047 |
Cash, cash equivalents and restricted cash at beginning of year |  |  | 33,409 |  |  |  | — |  |  |  | 33,409 |
Cash, cash equivalents and restricted cash at end of period |  | $ | 41,456 |  |  |  | — |  |  | $ | 41,456 |
Accounting Standards Not Yet Adopted Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income: In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220)” which allows the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. We do not expect this guidance to have a material impact on our consolidated financial position or results of operations. Derivatives and Hedging: In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” The new standard improves and simplifies accounting rules for hedge accounting to better present the economic results of an entity’s risk management activities in its financial statements and improves the disclosures of hedging arrangements. Additionally, it simplifies the hedge documentation and effectiveness assessment requirements. The updated guidance is effective for us beginning January 1, 2019. We do not expect this guidance to have a material impact on our consolidated financial position or results of operations. Leases: In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which supersedes ASC Topic 840, “Leases.” The new standard requires lessees to recognize a right-of-use asset and a lease on the balance sheet for all leases except for leases with a term of 12 months or less. For lessees, leases will continue to be classified as either operating or finance leases. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. We plan to adopt the standard on its effective date of January 1, 2019 and apply the package of practical expedients available to us upon adoption. The new standard requires a “modified retrospective” adoption, meaning the standard is applied to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating and compiling a list of our real estate leases and other leases and analyzing the key lease agreement terms. Based on our analysis to date, we expect the new standard to have a material effect on our consolidated balance sheet. Based on the future minimum payments under non-cancellable operating leases as of June 30, 2018, we would expect to record approximately $200 million of lease related assets, discounted to fair value, on our consolidated balance sheet to both our assets and liabilities, with no impact on our equity. The new standard is not expected to have a material impact on our results of operations, our liquidity or our debt covenant compliance under our current credit agreements.

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- Definition The entire disclosure of changes in accounting principles, including adoption of new accounting pronouncements, that describes the new methods, amount and effects on financial statement line items. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 250 -URI http://asc.fasb.org/topic&trid=2122394 + Details
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