Note One — Basis of Presentation

The accompanying interim consolidated financial statements include Mattersight Corporation and its subsidiaries (collectively, Mattersight or the company). The accompanying interim consolidated financial statements have been prepared without audit. Certain notes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. In the opinion of management, the accompanying consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position of the company at June 30, 2018 and December 31, 2017 and the results of operations and cash flows for the periods indicated. Quarterly results are not necessarily indicative of results for any subsequent period.

On January 1, 2018, the company adopted ASU 2014-09: Revenue from Contracts with Customers (Topic 606). This update sets forth a new five-step revenue recognition model that replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. The underlying principle of the new standard is that an organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The company adopted using the modified retrospective transition method and there were no material adjustments to beginning retained deficits. Changes in the period as a result of adopting the ASU relate to billings for certain non-cancelable contracts. The following table reconciles the balances as presented to the adjustments made to implement the new revenue recognition standard:

(In millions)	As Presented at December 31, 2017		Impact of New Revenue Standard			Adjusted at January 1, 2018
Assets
Receivables, net of allowances	$	6.6	$	0.4		$	7.0
Liabilities
Unearned revenue		3.0		0.1			3.1
Long-term unearned revenue		0.9		0.3			1.2

	As of June 30, 2018
(In millions)	As reported under ASC 606		Impact of New Revenue Standard			Proforma under ASC 605
Assets
Receivables, net of allowances	$	7.3	$	(0.2	)	$	7.1
Liabilities
Unearned revenue		6.0		(0.2	)		5.8
Long-term unearned revenue		0.8		—			0.8

On January 1, 2018, the company adopted ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The standard was adopted with no impact to the financial statements.

On January 1, 2018, the company condensed the cost of revenue items to present cost of revenue as a single line item. Cost of other revenue was determined to be immaterial to the financial statements. There was no change to the expense classification and the current period is comparable to the prior period.

On April 25, 2018, the company entered into an Agreement and Plan of Merger with NICE Systems, Inc., a Delaware corporation (Parent), NICE Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (Acquisition Sub), and, solely for the purposes of Section 8.16 of the Merger Agreement, NICE Ltd., a company organized under the laws of the State of Israel (Guarantor) (the Merger Agreement) under which the company would be acquired by and merged with a wholly-owned subsidiary of Parent (the Merger) (See Note Fourteen — Merger Agreement and Related Matters).

The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in Mattersight’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission (SEC) on March 12, 2018.