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Basis of Presentation and Significant Accounting Policies (Policies)

3 Months Ended

Jan. 31, 2020

The accompanying unaudited consolidated financial statements have been prepared in accordance with (i) United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and (ii) the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of our management, our unaudited consolidated financial statements and accompanying notes (the “Financial Statements”) include all normal recurring adjustments that are necessary for the fair statement of the interim periods presented. Interim results of operations are not necessarily indicative of results for the full year. The Financial Statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) in our Annual Report on Form 10-K for the year ended October 31, 2019 (“Annual Report”). Unless otherwise indicated, all references to years are to our fiscal years, which end on October 31.

Prior Year Reclassifications

During the third quarter of 2019, we made changes to our operating structure to better align the services and expertise of our Healthcare business with our other industry groups, allowing us to leverage our existing branch network to support the long-term growth of this business. As a result, our former Healthcare portfolio is now included primarily in our Business & Industry segment. Our prior period segment data in Note 12, “Segment Information,” has been reclassified to conform with our current period presentation. This change had no impact on our previously reported consolidated financial statements.

Discontinued Operations

Following the sale of our Security business in 2015, we record all costs associated with this former business in discontinued operations. Such costs generally relate to litigation we retained and insurance reserves.

Management Reimbursement Revenue by Segment and Contracts with Customers

We operate certain parking facilities under management reimbursement arrangements. Under these arrangements, we manage the parking facilities for management fees and pass through the revenues and expenses associated with the facilities to the owners.

Recently Adopted Accounting Standards

Our significant accounting policies are described in Note 2, “Basis of Presentation and Significant Accounting Policies,” in our Annual Report. There have been no material changes to our significant accounting policies during the three months ended January 31, 2020, other than as described below.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842). Since the release of ASU 2016-02, the FASB issued the following additional ASUs further updating Topic 842:

•In January 2018, ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842

•In July 2018, ASU 2018-10, Codification Improvements to Topic 842

•In July 2018, ASU 2018-11, Leases (Topic 842): Targeted Improvements

•In March 2019, ASU 2019-01, Leases (Topic 842): Codification Improvements

Topic 842 replaces existing lease accounting guidance and is intended to provide enhanced transparency and comparability by requiring lessees to record most leases on the balance sheet. Under Topic 842, lessees are required to record on the balance sheet right-of-use (“ROU”) assets (the right to use an underlying asset for the lease term) and the corresponding lease liabilities (the obligation to make lease payments arising from the lease). The new guidance requires us to continue classifying leases as either operating or financing, with classification affecting the pattern of expense recognition in the statements of comprehensive income. In addition, the new standard requires enhanced disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

We adopted Topic 842 on November 1, 2019 on a modified retrospective basis using the optional transition method permitted under ASU 2018-11 and have used this effective date as the initial application date. Comparative prior period financial statements have not been restated and continue to be reported under the accounting standards in effect for those prior periods presented.

Upon adoption, we elected the package of transition practical expedients that allowed us to carry forward prior conclusions related to: (i) whether any expired or existing contracts are or contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for existing leases. Additionally, we elected the practical expedient of not separating lease components from non-lease components for all asset classes. We also made an accounting policy election to not record ROU assets or lease liabilities for leases with an initial term of 12 months or less and will recognize payments for such leases in the consolidated statements of comprehensive income on a straight-line basis over the lease term. We did not elect the use of hindsight for determining the reasonably certain lease term.

The adoption of Topic 842 had a significant impact on our unaudited Consolidated Balance Sheet, but did not have a significant impact on our unaudited Consolidated Statement of Comprehensive Income, our unaudited Consolidated Statement of Stockholders' Equity, our unaudited Consolidated Statement of Cash Flows, our liquidity, or our compliance with the various covenants contained within our credit facility, as further described in Note 9, “Credit Facility.” The most significant impact was the recognition of ROU assets and lease liabilities for operating

leases, while our accounting for finance leases remained substantially unchanged. See Note 4, “Leases,” for additional information on our lease arrangements.

The impact of adoption of Topic 842 on our unaudited Consolidated Balance Sheet was as follows:


(in millions)	Balance at October 31, 2019		Adjustments Due to Adoption of Topic 842		Balance at November 1, 2019
ASSETS

Right-of-use assets⁽¹⁾	$	—	$	167.5	$	167.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of lease liabilities⁽²⁾	$	—	$	36.3	$	36.3
Other accrued liabilities⁽³⁾	158.2		(3.0)		155.2
Long-term lease liabilities⁽⁴⁾	—		154.2		154.2
Other noncurrent liabilities⁽⁵⁾	78.8		(20.0)		58.8

⁽¹⁾ Represents capitalization of operating lease assets and reclassification of prepaid rent, deferred rent, lease exit impairment liabilities, and lease incentives and tenant improvements on operating leases.

⁽²⁾ Represents the recognition of short-term operating lease liabilities.

⁽³⁾ Represents short-term deferred rent reclassified to ROU assets.

⁽⁴⁾ Represents the recognition of long-term operating lease liabilities.

⁽⁵⁾Represents long-term deferred rent, lease incentives and tenant improvements, and lease exit impairment liabilities reclassified to ROU assets.

No recently issued accounting pronouncements that we have not yet adopted are expected to have a significant impact on our fiscal 2021 consolidated financial statements.

Revenues

We have arrangements under various contract types, as described in Note 2, “Basis of Presentation and Significant Accounting Policies,” in our Annual Report.

Certain arrangements involve variable consideration (primarily per transaction fees, reimbursable expenses, and sales-based royalties). We do not estimate the variable consideration for these arrangements; rather, we recognize these variable fees as they are earned.

The majority of our contracts include performance obligations that are primarily satisfied over time as we provide the related services; these contract types include: monthly fixed-price; square-foot; cost-plus; tag services; transaction-price; hourly; management reimbursement; leased location; allowance; energy savings contracts; and fixed-price repair and refurbishment contracts, as well as our franchise and royalty fee arrangements. We recognize revenue as the services are performed using a measure of progress that is determined by the contract type. Generally, most of our contracts are cancelable by either party without a substantive penalty, and the majority have a notification period of 30 to 60 days.

We primarily account for our performance obligations under the series guidance, using the as-invoiced practical expedient when applicable. We apply the as-invoiced practical expedient to record revenue as the services are provided, given the nature of the services provided and the frequency of billing under the customer contracts. Under this practical expedient, we recognize revenue in an amount that corresponds directly with the value to the customer of our performance completed to date and for which we have the right to invoice the customer.