3.	Revenue from Contracts with Customers

New Accounting Statement Impact on Consolidated Financial Statements

As a result of adopting Topic 606, we restated our consolidated financial statements and related information in these notes thereto from amounts previously reported for 2017 and 2016. The primary impacts of the adoption of the new revenue recognition guidance to our segments were 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 decrease in revenue recognized for our 2017 and 2016 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 are effective 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 is not material on our annual or interim reporting period results.

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 and 2016 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):


	Year ended December 31, 2017
	As Previously Reported			Impact of Adoption of Topic 606			As Restated for Adoption of Topic 606
Commissions	$	2,627.1		$	13.9		$	2,641.0
Fees		1,636.8			(44.9	)		1,591.9
Supplemental revenues		163.7			(5.7	)		158.0
Contingent revenues		111.8			(12.3	)		99.5
Investment income		56.3			2.4			58.7
Gains on books of business sales		3.4			—			3.4
Revenues from clean coal activities		1,560.5			—			1,560.5

Revenues before reimbursements		6,159.6			(46.6	)		6,113.0
Reimbursements		—			136.0			136.0

Total revenues		6,159.6			89.4			6,249.0

Compensation		2,752.3			(4.9	)		2,747.4
Operating		852.5			(23.4	)		829.1
Reimbursements		—			136.0			136.0
Cost of revenues from clean coal activities		1,635.9			—			1,635.9
Interest		124.1			—			124.1
Depreciation		121.1			—			121.1
Amortization		264.7			—			264.7
Change in estimated acquisition earnout payables		30.9			—			30.9

Total expenses		5,781.5			107.7			5,889.2

Earnings before income taxes		378.1			(18.3	)		359.8
Benefit for income taxes		(121.1	)		(36.0	)		(157.1	)

Net earnings		499.2			17.7			516.9
Net earnings attributable to noncontrolling interests		36.1			(0.5	)		35.6

Net earnings attributable to controlling interests	$	463.1		$	18.2		$	481.3

Basic net earnings per share	$	2.57		$	0.10		$	2.67
Diluted net earnings per share		2.54			0.10			2.64
Dividends declared per common share		1.56			—			1.56


	Year ended December 31, 2016
	As Previously Reported			Impact of Adoption of Topic 606			As Restated for Adoption of Topic 606
Commissions	$	2,439.1		$	(29.2	)	$	2,409.9
Fees		1,492.8			(1.1	)		1,491.7
Supplemental revenues		147.0			(7.1	)		139.9
Contingent revenues		107.2			(9.3	)		97.9
Investment income		53.3			0.3			53.6
Gains on books of business sales		6.6			—			6.6
Revenues from clean coal activities		1,350.1			—			1,350.1
Other net losses		(1.3	)		—			(1.3	)

Revenues before reimbursements		5,594.8			(46.4	)		5,548.4
Reimbursements		—			132.1			132.1

Total revenues		5,594.8			85.7			5,680.5

Compensation		2,538.9			(1.7	)		2,537.2
Operating		797.7			(21.4	)		776.3
Reimbursements		—			132.1			132.1
Cost of revenues from clean coal activities		1,408.6			—			1,408.6
Interest		109.8			—			109.8
Depreciation		103.6			—			103.6
Amortization		247.2			—			247.2
Change in estimated acquisition earnout payables		32.1			—			32.1

Total expenses		5,237.9			109.0			5,346.9

Earnings before income taxes		356.9			(23.3	)		333.6
Benefit for income taxes		(88.1	)		(8.6	)		(96.7	)

Net earnings		445.0			(14.7	)		430.3
Net earnings attributable to noncontrolling interests		30.6			2.9			33.5

Net earnings attributable to controlling interests	$	414.4		$	(17.6	)	$	396.8

Basic net earnings per share	$	2.33		$	(0.10	)	$	2.23
Diluted net earnings per share		2.32			(0.10	)		2.22
Dividends declared per common share		1.52			—			1.52

Select consolidated statement of comprehensive earnings line items, which reflect the adoption of the new revenue recognition guidance, are as follows (in millions):


	Year ended December 31, 2017
	As Previously Reported		Impact of Adoption of Topic 606			As Restated for Adoption of Topic 606
Net earnings	$	499.2	$	17.7		$	516.9
Change in pension liability, net of taxes		4.3		—			4.3
Foreign currency translation		183.4		(2.5	)		180.9
Change in fair value of derivative instruments, net of taxes		16.0		—			16.0

Comprehensive earnings		702.9		15.2			718.1
Comprehensive earnings attributable to noncontrolling interests		37.0		(0.6	)		36.4

Comprehensive earnings attributable to controlling interests	$	665.9	$	15.8		$	681.7


	Year ended December 31, 2016
	As Previously Reported			Impact of Adoption of Topic 606			As Restated for Adoption of Topic 606
Net earnings	$	445.0		$	(14.7	)	$	430.3
Change in pension liability, net of taxes		(4.4	)		—			(4.4	)
Foreign currency translation		(231.8	)		7.0			(224.8	)
Change in fair value of derivative instruments, net of taxes		(4.9	)		—			(4.9	)

Comprehensive earnings		203.9			(7.7	)		196.2
Comprehensive earnings attributable to noncontrolling interests		35.1			2.8			37.9

Comprehensive earnings attributable to controlling interests	$	168.8		$	(10.5	)	$	158.3

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 Topic 606			As Restated for Adoption of Topic 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):


	Year ended December 31, 2017
	As Previously Reported			Impact of Adoption of Topic 606			As Restated for Adoption of Topic 606
Cash flows from operating activities
Net earnings	$	499.2		$	17.7		$	516.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net change in premiums and fees receivable		(220.3	)		172.6			(47.7	)
Net change in deferred revenue		—			0.9			0.9
Net change in premiums payable to underwriting enterprises		334.3			(167.4	)		166.9
Net change in other current assets		(48.5	)		13.2			(35.3	)
Net change in accrued compensation and other current liabilities		69.3			0.3			69.6
Net change in deferred income taxes		(183.4	)		(35.9	)		(219.3	)
Net change in other noncurrent assets and liabilities		(11.1	)		(2.1	)		(13.2	)


	Year ended December 31, 2016
	As Previously Reported			Impact of Adoption of Topic 606			As Restated for Adoption of Topic 606
Cash flows from operating activities
Net earnings	$	445.0		$	(14.7	)	$	430.3
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net change in premiums and fees receivable		(242.8	)		(534.4	)		(777.2	)
Net change in deferred revenue		—			15.1			15.1
Net change in premiums payable to underwriting enterprises		240.2			529.8			770.0
Net change in other current assets		(55.2	)		9.7			(45.5	)
Net change in accrued compensation and other current liabilities		69.1			0.7			69.8
Net change in deferred income taxes		(158.0	)		(8.1	)		(166.1	)
Net change in other noncurrent assets and liabilities		(34.5	)		7.0			(27.5	)

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, 2015, as reported	$	774.5	$	(522.5	)	$	49.9	$	3,688.2
Adoption of Topic 606		125.3		—			2.2		127.5

Balance at December 31, 2015, as restated	$	899.8	$	(522.5	)	$	52.1	$	3,815.7

Balance at December 31, 2016, as reported	$	916.4	$	(763.6	)	$	59.2	$	3,655.8
Adoption of Topic 606		107.7		7.0			5.0		119.7

Balance at December 31, 2016, as restated	$	1,024.1	$	(756.6	)	$	64.2	$	3,775.5

Balance at December 31, 2017, as reported	$	1,095.9	$	(559.9	)	$	59.7	$	4,164.9
Adoption of Topic 606		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):


	December 31, 2018		December 31, 2017, As Restated
Unbilled receivables	$	496.2	$	415.2
Deferred contract costs		91.6		83.3
Deferred revenue		457.7		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, which include foreign currency translation adjustments, during the period are as follows (in millions):


	Brokerage			Risk Management			Total

Deferred revenue at December 31, 2016	$	233.8		$	170.8		$	404.6
Incremental deferred revenue		247.2			135.7			382.9
Revenue recognized during the year ended December 31, 2017 included in deferred revenue at December 31, 2016		(227.8	)		(135.0	)		(362.8	)
Deferred revenue recognized from business acquisitions		5.5			0.4			5.9

Deferred revenue at December 31, 2017		258.7			171.9			430.6
Incremental deferred revenue		244.0			138.1			382.1
Revenue recognized during the year ended December 31, 2018 included in deferred revenue at December 31, 2017		(236.5	)		(137.0	)		(373.5	)
Deferred revenue recognized from business acquisitions		18.5			—			18.5

Deferred revenue at December 31, 2018	$	284.7		$	173.0		$	457.7

Remaining Performance Obligations

Remaining performance obligations represent the portion of the contract price for which work has not been performed. As of December 31, 2018, the aggregate amount of the contract price allocated to remaining performance obligations was $457.7 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
2019	$	253.2	$	96.4	$	349.6
2020		17.7		28.5		46.2
2021		12.1		15.4		27.5
2022		0.8		9.0		9.8
2023		0.5		5.4		5.9
Thereafter		0.4		18.3		18.7

Total	$	284.7	$	173.0	$	457.7

Deferred Contract Costs

We capitalize costs incurred to fulfill contracts as “deferred contract costs” which are included in other current assets in our consolidated balance sheet. Deferred contract costs were $91.6 million and $83.3 million as of December 31, 2018 and 2017, respectively. Capitalized fulfillment costs are amortized on the contract effective date. The amount of amortization of the deferred contract costs was $309.7 million and $283.7 million for the year ended December 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.