Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Description of Business: CBIZ, Inc. is a diversified services company which, acting through its subsidiaries, has been providing professional business services since 1996, primarily to small and medium-sized businesses, as well as individuals, governmental entities, and not-for-profit enterprises throughout the United States and parts of Canada. CBIZ, Inc. manages and reports its operations along three practice groups; Financial Services, Benefits and Insurance Services and National Practices. A further description of products and services offered by each of the practice groups is provided in Note 16, Segment Disclosures, to the accompanying consolidated financial statements.

Basis of Consolidation

Basis of Consolidation: The accompanying unaudited condensed consolidated financial statements include the operations of CBIZ, Inc. and all of its wholly-owned subsidiaries (“CBIZ”, the “Company”, “we”, “us”, or “our”), after elimination of all intercompany balances and transactions. These condensed consolidated financial statements do not reflect the operations or accounts of variable interest entities as the impact is not material to the financial condition, results of operations or cash flows of CBIZ.

Unaudited Interim Financial Statements

Unaudited Interim Financial Statements: The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

In the opinion of CBIZ management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows for the interim periods presented, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2018.

Use Of Estimates

Use of Estimates: The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Changes in circumstances could cause actual results to differ materially from these estimates.

Changes in Accounting Policies

Changes in Accounting Policies: We have consistently applied the accounting policies for the periods presented as described in Note 1, Basis of Presentation and Significant Accounting Policies, to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2015-14, “Revenue from Contracts with Customers” (“Topic 606”). As a result, we have changed our accounting policy for revenue recognition as described below in Note 2, New Accounting Pronouncements.

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.