| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which replaced all existing revenue guidance created by Accounting Standards Codification (“ASC”) Topic 605, including prescriptive industry-specific guidance, and created ASC Topic 606 for revenue and ASC Subtopic 340-40 for incremental costs of obtaining a contract with customers. This standard’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We have adopted ASU No. 2014-09 as of January 1, 2019, using the full retrospective method for adoption. Please refer to the tables below for the retrospective impacts of the adoption of this guidance. Adoption of the new standard resulted in changes to our accounting policies for revenue recognition, as detailed below. The adoption of the new standard resulted in changes to the classification and timing of our revenue recognition. Specifically, revenue classified as professional services and other revenue was increased, and revenue classified as recurring services revenue was reduced under the new standard, compared to ASC Topic 605. Adoption of the new standard also resulted in changes to the timing of our revenue recognition compared to ASC Topic 605 because professional services and other revenue is generally recognized earlier in the contract period than recurring services revenue. In compliance with the new standard, a contract asset is reflected on the consolidated balance sheets when revenue recognized for professional service performance obligations exceed the billings and is amortized over the contract period, which is generally three years. We also have changed the timing of certain selling, general, and administrative expenses, as the new standard required capitalizing and amortizing certain selling expenses, such as commissions and bonuses paid to the sales force. These sales expenses are now amortized over the period of benefit, which we have determined to be five years. In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. This standard requires balance sheet recognition for both finance leases and operating leases. In July 2018, the FASB issued ASU No. 2018-11 “Leases (Topic 842): Targeted Improvement,” which allowed an additional (and optional) transition method to adopt the new lease requirements. We have adopted ASU No. 2016-02 and ASU No. 2018-11 as of January 1, 2019, by recording a cumulative-effect adjustment to the opening balance of accumulated deficit on this date. Please refer to Note 14, “Leases,” for additional discussion of the impacts of adoption of this guidance. In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash,” which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. We have adopted this guidance as of January 1, 2019, on a retrospective basis for all periods presented. Accordingly, the condensed consolidated statement of cash flows has been revised to include restricted cash and restricted cash equivalents held to satisfy customer trust funds obligations, as a component of cash, cash equivalents, restricted cash, and restricted cash equivalents. Please refer to the tables below for the retrospective impacts of the adoption of this guidance. In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits,” which aims to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this update require that an employer (a) report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and (b) report the other components of net benefit cost in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. We have adopted this guidance as of January 1, 2019, on a retrospective basis for all periods presented. Please refer to the tables below for the retrospective impacts of the adoption of this guidance. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income,” in response to a narrow-scope financial reporting issue that arose as a consequence of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The amendment in this update allows entities to reclassify from accumulated other comprehensive income to retained earnings, the impact of the reduced federal statutory tax rate for corporations included in the Tax Act. We have adopted this guidance as of January 1, 2019, resulting in an increase in accumulated other comprehensive loss of $27.1, and a decrease in accumulated deficit for the same amount on our consolidated balance sheets. As of January 1, 2019, we have changed our policy for releasing income tax effects from accumulated other comprehensive loss to comply with this guidance, which is considered a change in accounting principle. We have adjusted our condensed consolidated financial statements from amounts previously reported due to the adoption of ASC Topic 606, ASU No. 2017-07, and ASU No. 2016-18. Please refer to our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 21, 2019, for information on our adjusted consolidated balance sheet as of December 31, 2018. Selected condensed consolidated financial statement line items, which reflect the adoption of the new ASUs, are as follows:
Three Months Ended June 30, 2018
Condensed Consolidated Statement of Operations
As previously reported
ASC Topic 606 Adjustments
ASU 2017-07 Adjustments
As adjusted
Revenue:
Recurring services
$
156.6
$
(6.5
)
$
—
$
150.1
Professional services and other
22.7
6.2
—
28.9
Total revenue
$
179.3
$
(0.3
)
$
—
$
179.0
Selling, general, and administrative expense
84.1
(2.6
)
(0.6
)
80.9
Operating loss
(11.3
)
2.3
0.6
(8.4
)
Other expense, net
—
—
0.6
0.6
Income tax expense
1.1
0.1
—
1.2
Net loss
$
(65.5
)
$
2.2
$
—
$
(63.3
)
Net loss per share, basic and diluted
$
(0.60
)
$
0.02
$
—
$
(0.58
)
Six Months Ended June 30, 2018
Condensed Consolidated Statement of Operations
As previously reported
ASC Topic 606 Adjustments
ASU 2017-07 Adjustments
As adjusted
Revenue:
Recurring services
$
323.6
$
(12.6
)
$
—
$
311.0
Professional services and other
42.9
13.9
—
56.8
Total revenue
$
366.5
$
1.3
$
—
$
367.8
Selling, general, and administrative expense
140.9
(3.9
)
(1.2
)
135.8
Operating profit
13.2
5.2
1.2
19.6
Other income, net
(2.8
)
—
1.2
(1.6
)
Income tax expense
6.7
0.3
—
7.0
Net loss attributable to Ceridian
$
(67.6
)
$
4.9
$
—
$
(62.7
)
Net loss per share attributable to Ceridian, basic and diluted
$
(0.84
)
$
0.05
$
—
$
(0.79
)
Six Months Ended June 30, 2018
Condensed Consolidated Statement of Cash Flows
As previously reported
ASC Topic 606 Adjustments
ASU 2016-18 Adjustments
As adjusted
Net loss
$
(68.1
)
$
4.9
$
—
$
(63.2
)
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income tax benefit
(6.7
)
0.3
—
(6.4
)
Changes in operating assets and liabilities excluding effects of acquisitions and divestitures:
Trade and other receivables
0.8
0.3
—
1.1
Prepaid expenses and other current assets
(5.8
)
(3.1
)
—
(8.9
)
Deferred revenue
1.3
2.0
—
3.3
Other assets and liabilities
(1.4
)
(4.4
)
(5.8
)
Net cash used in operating activities- continuing operations
(34.1
)
—
—
(34.1
)
Cash Flows from Investing Activities
Net change in restricted cash and other restricted assets held to satisfy customer trust funds obligations
339.5
—
(339.5
)
—
Net cash provided by (used in) investing activities
320.1
—
(339.5
)
(19.4
)
Effect of Exchange Rate Changes on Cash, Restricted Cash, and Equivalents
(2.7
)
—
(1.6
)
(4.3
)
Net increase (decrease) in cash, restricted cash, and equivalents
77.1
—
(341.1
)
(264.0
)
Elimination of cash from discontinued operations
0.5
—
—
0.5
Cash, restricted cash, and equivalents at beginning of period
94.2
—
2,317.6
2,411.8
Cash, restricted cash, and equivalents at end of period
$
171.8
$
—
$
1,976.5
$
2,148.3
Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accounting policies we follow are set forth in Note 2, “Summary of Significant Accounting Policies,” to our audited consolidated financial statements in our 2018 Form 10-K. The following notes should be read in conjunction with these policies and other disclosures in our 2018 Form 10-K. In the opinion of management, the unaudited condensed consolidated financial statements contained herein reflect all adjustments (consisting only of normal recurring adjustments, except as set forth in these notes to condensed consolidated financial statements) necessary to present fairly in all material aspects the financial position, results of operations, comprehensive loss, and cash flows from all periods presented. Interim results are not necessarily indicative of results for a full year. Internally Developed Software Costs In accordance with ASC Topic 350, we capitalize costs associated with software developed or obtained for internal use when both the preliminary project stage is completed and our management has authorized further funding for the project, which it deems probable of completion. Capitalized software costs include only: (1) external direct costs of materials and services consumed in developing or obtaining the software; (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project; and (3) interest costs incurred while developing the software. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. We do not include general and administrative costs and overhead costs in capitalizable costs. We charge research and development costs and other software maintenance costs related to software development to earnings as incurred. Revenue Recognition The core principle of ASC Topic 606 is that revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. In accordance with ASC Topic 606, we perform the following steps to determine revenue to be recognized:
1)
Identify the contract(s) with a customer;
2)
Identify the performance obligations in the contract;
3)
Determine the transaction price;
4)
Allocate the transaction price to the performance obligations in the contract; and
5)
Recognize revenue when (or as) we satisfy a performance obligation. The significant majority of our two major revenue sources (recurring and professional services and other) are derived from contracts with customers. Recurring revenues are primarily related to our cloud subscription performance obligations. Professional services and other revenues are primarily related to professional services for our cloud customers (including implementation services to activate new accounts, as well as post-go live professional services typically billed on a time and materials basis) and, to a much lesser extent, fees for other non-recurring services, including sales of time clocks and certain client reimbursable out-of-pocket expenses. Fees charged to cloud subscription performance obligations are generally priced either on a per-employee-per-month (“PEPM”) basis for a given month or on a per-employee-per-process basis for a given process, both based on usage; and fees charged for professional services are typically priced on a fixed fee basis for activating new accounts and on a time and materials basis for post go-live professional services. Our recurring cloud subscription performance obligations are generally priced based on the number of active customer employees, as of the signing of the contract, at the contract PEPM rate over the initial contract term. Our professional services are generally based on a fixed fee charged to our customers for activating new accounts and on a time and materials basis for post go-live professional services. There is typically no variable consideration related to our recurring cloud subscriptions or our activation services, nor do they include a significant financing component, non-cash consideration, or consideration payable to a customer. Our recurring cloud subscriptions are typically billed one month in advance while our professional services are billed over the implementation period for activation of new accounts and as work is performed for post go-live professional services. Our cloud services arrangements include multiple performance obligations, and transaction price allocations are based on the stand-alone selling price ("SSP") for each performance obligation. Our contract renewal rates serve as an observable input to establish SSP for our recurring cloud subscription performance obligations. The SSP for professional services performance obligations is estimated based on market conditions and observable inputs, including rates charged by third parties to perform implementation services. For our performance obligations, the consideration allocated to cloud subscription revenues is recognized as recurring revenues, typically commencing with the date the customer processes their first live payroll using the solution (referred to as the "go-live" date). The consideration allocated to professional services to activate a new account is recognized as professional services revenues based on the proportion of total work performed, using reasonably dependable estimates (in relation to progression through the implementation phase), by solution. Deferred Costs Deferred costs primarily consist of deferred sales commissions. Sales commissions paid based on the annual contract value of a signed customer contract are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid based on the annual contract value are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be five years. Deferred costs included within Other assets on our condensed consolidated balance sheets were $88.2 and $83.5 as of June 30, 2019, and December 31, 2018, respectively. Amortization expense for the deferred costs was $7.7 and $6.4 for the three months ended June 30, 2019, and 2018, respectively, and $15.4 and $12.5 for the six months ended June 30, 2019, and 2018, respectively. Recently Issued Accounting Pronouncements In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This update removes disclosures that are no longer considered cost beneficial, adds disclosures identified as relevant, and clarifies certain specific requirements of disclosures to improve the effectiveness of disclosures in the notes to financial statements. The amendments in this update are effective for public business entities for fiscal years ending after December 15, 2020. Early adoption is permitted. The amendments in this update should be applied on a retrospective basis to all periods presented. We are currently evaluating the impact of the adoption of this standard. |
