Revenue (Tables)

9 Months Ended

Sep. 30, 2018

Revenue From Contract With Customer [Abstract]

Schedule Of Effect Of ASC 606 On Financial Statements

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 were as follows:

Balance Sheet	Balance at December 31, 2017		Adjustments due to ASC 606				Balance at January 1, 2018
ASSETS
Accounts receivable, net	$	2,246	$	309		a	$	2,555
Prepaid and other current assets		430		89		b		519
Fixed assets, net		985		(83	)	c		902
Other non-current assets		447		39		c		486
LIABILITIES
Deferred revenue and accrued expenses		1,711		(74	)	d		1,637
Deferred tax liabilities		615		99		e		714
Provision for liabilities		558		12		f		570
EQUITY
Retained earnings		1,104		317		g		1,421

In accordance with the modified retrospective adoption requirements of ASC 606, the following disclosures represent the impact of adoption on our condensed consolidated statement of comprehensive income, balance sheet and statement of cash flows:

	Three Months Ended September 30, 2018
Statement of Comprehensive Income	As Reported		Balances Without Adoption of ASC 606		Effect of Change
Revenue	$	1,859	$	1,901	$	(42	)	h
Costs of providing services
Salaries and benefits		1,238		1,225		13		i
Depreciation		53		59		(6	)	i
Income from operations		17		66		(49	)
INCOME FROM OPERATIONS BEFORE INCOME TAXES		36		85		(49	)
Benefit from income taxes		10		—		10		j
NET INCOME		46		85		(39	)
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON		44		83		(39	)

EARNINGS PER SHARE
Basic earnings per share	$	0.34	$	0.63	$	(0.29	)
Diluted earnings per share	$	0.33	$	0.63	$	(0.30	)

	Nine Months Ended September 30, 2018
Statement of Comprehensive Income	As Reported			Balances Without Adoption of ASC 606			Effect of Change
Revenue	$	6,141		$	6,474		$	(333	)	h
Costs of providing services
Salaries and benefits		3,890			3,849			41		i
Depreciation		153			169			(16	)	i
Income from operations		339			697			(358	)
INCOME FROM OPERATIONS BEFORE INCOME TAXES		374			732			(358	)
Provision for income taxes		(42	)		(111	)		69		j
NET INCOME		332			621			(289	)
NET INCOME ATTRIBUTABLE TO WILLIS TOWERS WATSON		317			606			(289	)

EARNINGS PER SHARE
Basic earnings per share	$	2.40		$	4.59		$	(2.19	)
Diluted earnings per share	$	2.39		$	4.58		$	(2.19	)

	As of September 30, 2018
Balance Sheet	As Reported		Balances Without Adoption of ASC 606		Effect of Change
ASSETS
Accounts receivable, net	$	2,132	$	2,158	$	(26	)	a
Prepaid and other current assets		547		478		69		b
Fixed assets, net		944		1,050		(106	)	c
Other non-current assets		500		448		52		c
LIABILITIES
Deferred revenue and accrued expenses		1,465		1,546		(81	)	d
Other current liabilities		758		827		(69	)	e
Deferred tax liabilities		678		579		99		e
Provision for liabilities		585		574		11		f
EQUITY
Retained earnings		1,102		1,073		29		g

	Nine Months Ended September 30, 2018
Statement of Cash Flows	As Reported			Balances Without Adoption of ASC 606			Effect of Change
Net cash from operating activities	$	716		$	753		$	(37	)	k
Capitalized software costs		(41	)		(78	)		37		k

Explanation of Changes

The adoption of ASC 606 had the following impacts to our balance sheets at January 1, 2018 and September 30, 2018:

Accounts receivable, net, now includes receivables that have been billed, not yet billed and short-term contract assets. This adjustment is the result of the cumulative adjustments to revenue that have not yet been collected from our customers, but are expected to be collected within the next twelve months. The most significant increases to this balance result from revenue acceleration under ASC 606 for Medicare and proportional treaty broking commissions.

Prepaid and other current assets include the impact of costs deferred in connection with our broking pre-placement activities. These costs are being deferred while the related pre-placement work is performed, and amortized as the related revenue is recognized, typically upon policy inception. Since the amortization period associated with these fulfillment costs is less than one year, these deferred costs have been classified as a current asset.

Prior to the adoption of ASC 606, costs that we deferred related to certain system implementation activities had been included in fixed assets, net. These costs, adjusted based on the guidance in ASC 606, have now been included in other non-current assets. Additionally we have included less significant impacts of adjustments to deferred tax assets and have classified non-current contract assets within non-current assets.

Deferred revenue has been adjusted primarily to reflect revenue acceleration in our Medicare broking business. Additional adjustments were included to accelerate the license component of certain software arrangements and to net deferred revenue with contract assets.

Other current liabilities, which includes current taxes payable, and deferred tax liabilities, have been adjusted for the tax effects of the individual changes resulting from the adoption of ASC 606. The income tax expense was calculated based on the U.S. and foreign statutory rates applicable to adjustments made. Where applicable, a U.S. statutory rate of 21% was used.

Provision for liabilities has been adjusted for additional reserves for long-term post-placement obligations in our broking business.

Retained earnings has been adjusted for the net impact of the adoption of ASC 606. See the discussion of the significant pre-tax changes by revenue stream in the following section.

The following changes are now reflected in our condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2018. Each description also includes a discussion of the impact to retained earnings as of the adoption date.

	Retained Earnings Increase/(Decrease) at January 1, 2018			Increase/(Decrease) for the Three Months Ended September 30, 2018			Increase/(Decrease) for the Nine Months Ended September 30, 2018
Revenue adjustments
Medicare broking	$	311		$	(74	)	$	(225	)
Proportional treaty reinsurance broking		50			(11	)		18
Health and benefits broking		—			39			(116	)
Other adjustments		28			4			(10	)
Total adjustments related to revenue		389			(42	)		(333	)

Cost adjustments
System implementation activities		(46	)		6			10
Other cost adjustments		75			1			15
Total adjustments related to costs		29			7			25

Tax effect		(101	)		(10	)		(69	)
Total net adjustments	$	317		$	(39	)	$	(289	)

Revenue was adjusted for the following significant changes:

•

Medicare broking — The majority of revenue recognition for this offering, within our Individual Marketplace business, has moved from monthly ratable recognition over the policy period, to recognition upon placement of the policy. Consequently, the Company will now recognize approximately two-thirds of one calendar year of expected commissions during its fourth quarter of the preceding calendar year. The remainder of the revenue is recognized consistently with methods used prior to the adoption of ASC 606. Therefore, at the adoption date, we have reflected a $271 million pre-tax increase to retained earnings for the portion of the revenue that would otherwise have been recognized during our 2018 calendar year since our earnings process was largely completed during the fourth quarter of 2017. Additionally, we have reflected a $40 million pretax adjustment to increase retained earnings related to previously deferred contingent revenue from placements made prior to 2018 because the earnings process was complete under ASC 606. During the three and nine months ended September 30, 2018, the accounting for this revenue stream under ASC 606 represented a reduction of revenue from ASC 605, Revenue Recognition (‘ASC 605’) accounting methods of $74 million and $225 million, respectively.

•

Proportional treaty reinsurance broking — The revenue recognition for proportional treaty reinsurance broking commissions, within our Investment, Risk and Reinsurance segment, has moved from recognition upon the receipt of the monthly or quarterly treaty statements from the ceding insurance carriers, to the recognition of an estimate of expected commissions upon the policy effective date. Since the majority of revenue recognized historically based on these monthly or quarterly statements was received over a two-year period, we reflected a $50 million pretax increase to retained earnings at the adoption date for the portion of revenue that would otherwise have been recognized during our 2018 calendar year related to policies effective in 2017 or prior years. For the three and nine months ended September 30, 2018, this accounting change resulted in a revenue decrease of $11 million and a revenue increase of $18 million, respectively, related to this adjustment.

•

Health and benefits broking — Revenue for certain Health and Benefits broking arrangements, in our Human Capital and Benefits segment, will now be recognized evenly over the year to reflect the nature of the ongoing obligations to our customers as well as receipt of the monthly commissions. These contracts are monthly or annual in nature, and are considered complete as of the transition date. Therefore, no retained earnings adjustment is required. The total changes to revenue as a result of this accounting change for the three and nine months ended September 30, 2018 was an increase of $39 million and a decrease of $116 million, respectively.

•

Other adjustments — Certain other revenue changes with individually less significant adjustments were made to retained earnings as of the adoption date totaling a net $28 million. The cumulative changes to revenue for the three and nine months ended September 30, 2018 for other revenue streams not discussed above resulting from the ASC 606 adoption was an increase of $4 million and a decrease of $10 million, respectively.

Salaries and benefits and depreciation expense have been impacted by the guidance for deferred costs. Our accounting for these deferred costs has changed for certain revenue streams with system implementation activities, and other types of arrangements with associated costs, that now meet the criteria for cost deferral under ASC 606:

•

System implementation activities — For those portions of the business that previously deferred costs, the length of time over which we amortize those costs will extend to a longer estimated contract term. For 2017 and prior years, these costs were amortized over a typical period of 3-5 years in accordance with the initial stated terms of the customer agreements. Additionally, the composition of deferred costs has been adjusted to reflect the guidance in ASC 606. A reduction adjustment to retained earnings of $46 million was recorded on the adoption date to reflect these changes. Further, the amortization of the costs are no longer classified as depreciation expense, but rather included in salaries and benefits. These adjustments resulted in increases in expenses of $6 million and $10 million for the three and nine months ended September 30, 2018, respectively.

•

Other cost adjustments — This guidance now applies to our broking arrangements and certain consulting engagements. While the costs deferred for our broking arrangements will typically be amortized within one year, costs now deferred related to certain consulting arrangements will be amortized over a longer term. We have increased pre-tax retained earnings by $75 million primarily to reflect the total changes to contract costs as of the adoption date. For the three and nine months ended September 30, 2018, these changes resulted in expenses increasing by $1 million and $15 million, respectively.

The provision for income taxes for the three and nine months ended September 30, 2018 was $10 million and $69 million, respectively, lower than our provision on an ASC 605 basis. The income tax expense was calculated based on the U.S. and foreign statutory rates applicable to adjustments made. Where applicable, a U.S. statutory rate of 21% was used. There was a $101 million net tax reduction to retained earnings upon adoption of ASC 606.

The following changes are now reflected in our condensed consolidated statement of cash flows for the nine months ended September 30, 2018.

As part of the changes in accounting for deferred costs, amounts capitalized relating to system implementation activities are now classified as operating cash outflows. Prior to 2018, those costs capitalized under previous guidance were included in the Capitalized software costs as an investing cash outflow.

Disaggregation of Revenue

The following tables present revenue by service offering and segment, as well as a reconciliation to total revenue for the three and nine months ended September 30, 2018. Along with reimbursable expenses and other, total revenue by service offering represents our revenue from customer contracts. See Note 4 — Segment Information for further information.

	Three months ended September 30, 2018
	HCB		CRB		IRR		BDA		Corporate ⁽ⁱ⁾			Total
Broking	$	54	$	554	$	166	$	4	$	—		$	778
Consulting		576		37		102		—		3			718
Outsourced administration		70		14		—		123		—			207
Other		73		1		38		—		1			113
Total revenues by service offering		773		606		306		127		4			1,816
Reimbursable expenses and other ⁽ⁱ⁾		14		—		2		1		(7	)		10
Total revenue from customer contracts	$	787	$	606	$	308	$	128	$	(3	)	$	1,826
Interest and other income ⁽ⁱⁱ⁾		5		16		11		—		1			33
Total revenue	$	792	$	622	$	319	$	128	$	(2	)	$	1,859

	Nine months ended September 30, 2018
	HCB		CRB		IRR		BDA		Corporate ⁽ⁱ⁾			Total
Broking	$	191	$	1,828	$	781	$	12	$	—		$	2,812
Consulting		1,809		120		326		—		9			2,264
Outsourced administration		212		53		—		356		—			621
Other		164		6		142		—		4			316
Total revenues by service offering		2,376		2,007		1,249		368		13			6,013
Reimbursable expenses and other⁽ⁱ⁾		45		—		5		5		(2	)		53
Total revenue from customer contracts	$	2,421	$	2,007	$	1,254	$	373	$	11		$	6,066
Interest and other income ⁽ⁱⁱ⁾		14		29		27		—		5			75
Total revenue	$	2,435	$	2,036	$	1,281	$	373	$	16		$	6,141

(i)	Reimbursable expenses and other, as well as Corporate revenue, are excluded from segment revenue, but included in total revenue on the condensed consolidated statements of comprehensive income.

(ii)	Interest and other income is included in segment revenue and total revenue, however it has been presented separately in the above tables because it does not arise directly from contracts with customers.

Individual revenue streams aggregating to less than 6% and 5% of total revenue for the three and nine months ended September 30, 2018, respectively, have been included within the Other line in the tables above.

The following tables present revenue by the geography where our work is performed for the three and nine months ended September 30, 2018. The reconciliation to total revenue on our condensed consolidated statements of comprehensive income and to segment revenue is shown in the tables above.

	Three months ended September 30, 2018
	HCB		CRB		IRR		BDA		Corporate		Total
North America	$	466	$	266	$	83	$	127	$	4	$	946
Great Britain		113		137		139		—		—		389
Western Europe		121		96		47		—		—		264
International		73		107		37		—		—		217
Total revenue by geography	$	773	$	606	$	306	$	127	$	4	$	1,816

	Nine months ended September 30, 2018
	HCB		CRB		IRR		BDA		Corporate		Total
North America	$	1,395	$	740	$	341	$	368	$	13	$	2,857
Great Britain		362		455		616		—		—		1,433
Western Europe		399		456		169		—		—		1,024
International		220		356		123		—		—		699
Total revenue by geography	$	2,376	$	2,007	$	1,249	$	368	$	13	$	6,013

Contract with Customer, Asset and Liability

The Company reports accounts receivable, net on the condensed consolidated balance sheet, which includes billed and unbilled receivables and current contract assets. In addition to accounts receivable, net, the Company had the following non-current contract assets and deferred revenue balances at September 30, 2018 and January 1, 2018:

	September 30, 2018		January 1, 2018
Billed receivables, net of allowance for doubtful debts of $46 million and $45 million	$	1,614	$	1,933
Unbilled receivables		386		276
Current contract assets		132		346
Accounts receivable, net	$	2,132	$	2,555
Non-current contract assets	$	4	$	5
Deferred revenue	$	483	$	463

Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction

In addition, the Company has elected not to disclose the remaining performance obligations when one or both of the following circumstances apply:

•

Performance obligations which are part of a contract that has an original expected duration of less than one year, and

•

Performance obligations satisfied in accordance with ASC 606-10-55-18 (‘right to invoice’).

		Remainder of 2018				2019				2020 onward				Total
Revenue expected to be recognized on contracts as of September 30, 2018		$	124			$	392			$	669			$	1,185

Capitalized Contract Cost

The following table shows the categories of costs that are capitalized and deferred over the expected life of a contract.

	Costs to fulfill
Balance at January 1, 2018	$	126
New capitalized costs		321
Amortization		(327	)
Impairments		—
Foreign currency translation		(1	)
Balance at September 30, 2018	$	119