Notes to Condensed Consolidated Financial Statements
(Unaudited, dollars in millions, except share and per share data)
1. Organization
Ceridian HCM Holding Inc. and its subsidiaries (also referred to in this report as “Ceridian,” “we,” “our,” and “us”) offer a broad range of services and software designed to help employers more effectively manage employment processes, such as payroll, payroll-related tax filing, human resource information systems, employee self-service, time and labor management, employee assistance programs, and recruitment and applicant screening. Our technology-based services are typically provided through long-term customer relationships that result in a high level of recurring revenue. Our operations are primarily located in the United States and Canada.
On April 30, 2018, we completed our initial public offering (“IPO”), in which we issued and sold 21,000,000 shares of common stock at a public offering price of $22.00 per share. We granted the underwriters a 30-day option to purchase an additional 3,150,000 shares of common stock at the offering price, which was exercised in full. A total of 24,150,000 shares of common stock were issued in our IPO. Concurrently with our IPO, we issued an additional 4,545,455 shares of our common stock in a private placement at $22.00 per share. We received gross proceeds of $631.3 from the IPO and concurrent private placement before deducting underwriting discounts, commissions, and other offering related expenses. The use of the proceeds from the IPO were as follows:
|
Gross proceeds
|
|
$
|
631.3
|
|
|
Less:
|
|
|
|
|
|
Underwriters’ discounts and commissions
|
|
|
29.2
|
|
|
IPO-related expenses
|
|
|
11.8
|
|
|
Redemption of 11% Senior Notes due 2021 (Note 8)
|
|
|
475.0
|
|
|
Call premium on redemption of 11% Senior Notes due 2021
|
|
|
13.1
|
|
|
Interest on redemption of 11% Senior Notes due 2021
|
|
|
10.9
|
|
|
Sponsor management termination fee
|
|
|
11.3
|
|
|
Debt refinancing expenses
|
|
|
11.4
|
|
|
Cash to balance sheet
|
|
$
|
68.6
|
|
|
|
|
|
|
|
Prior to our IPO, Ceridian HCM Holding Inc. was primarily owned by Ceridian LLC (the “Parent”) and Ceridian Holding II LLC (“Ceridian Holding II”). The Parent was 100% owned by Foundation Holding LLC, which in turn was 100% owned by Ceridian Holding LLC (“Ceridian Holding”). The owners of Ceridian Holding and Ceridian Holding II included (i) affiliates and co-investors of Thomas H. Lee Partners, L.P. (“THL Partners”) and Cannae Holdings, LLC (“Cannae”) (THL Partners and Cannae are together referred to as the “Sponsors”), who collectively owned approximately 96% of the outstanding interests of both Ceridian Holding and Ceridian Holding II, and (ii) other individuals, who collectively owned approximately 4% of the outstanding interests of each holding company.
Subsequent to the IPO and concurrent private placement, we completed an internal corporate reorganization, pursuant to which the limited liability companies that held shares in us were merged with and into Ceridian HCM Holding Inc. At the time of these transactions, these limited liability companies had no assets other than equity interests in us or the other limited liability companies. As a result of these transactions, our previous, pre-IPO stockholders now hold shares of our common stock directly, rather than through a series of limited liability companies. These transactions had no impact on our assets, liabilities, or operations.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. The accounting policies we follow are set forth in Note 2, “Summary of Significant Accounting Policies,” to Ceridian’s audited consolidated financial statements, included in our audited consolidated financial statements and notes thereto for the year ended December 31, 2017 (our “2017 Annual Report”), included within our prospectus dated April 25, 2018, as filed with the Securities and Exchange Commission (the “SEC”) on April 26, 2018, pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File No. 333-223905) (the “Prospectus”). The following notes should be read in conjunction with such policies and other disclosures in our 2017 Annual Report and Prospectus.
8
In the op
inion 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) nec
essary 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.
Reverse Stock Split
On April 10, 2018, we effected a 1-for-2 reverse stock split of our common stock. All of the common stock and per share information referenced throughout this report have been retroactively adjusted to reflect this reverse stock split.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that could significantly affect our results of operations or financial condition involve the assignment of fair values to goodwill and other intangible assets, the testing of impairment of long-lived assets, the determination of our liability for pensions and postretirement benefits, the determination of fair value of stock options granted, and the resolution of tax matters and legal contingencies. Please refer to our 2017 Annual Report for a further discussion of these estimates.
Internally Developed Software Costs
In accordance with Accounting Standards Codification (“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.
Foreign Currency Translation
We have international operations whereby the local currencies serve as functional currencies. We translate foreign currency denominated assets and liabilities at the end-of-period exchange rates and foreign currency denominated statements of operations at the weighted-average exchange rates for each period. We report the effect of changes in the U.S. dollar carrying values of assets and liabilities of our international operations that are due to changes in exchange rates between the U.S. dollar and their functional currency as foreign currency translation within accumulated other comprehensive income (loss) in the accompanying condensed consolidated statements of comprehensive income (loss). Gains and losses from transactions and translation of assets and liabilities denominated in currencies other than the functional currency of the international operation are recorded in the condensed consolidated statements of operations within other expense, net.
Recently Issued and 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 ASC Topic 606, including prescriptive industry-specific guidance. 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. Entities will need to apply more judgment and make more estimates than under the previous guidance. In July 2015, the FASB deferred the effective date for all entities by one year, making the guidance for non-public companies effective for annual reporting periods beginning after December 15, 2018. Early adoption was permitted to the original effective date of December 15, 2016 (including interim reporting periods within that reporting period). The standard permits the use of either the retrospective or cumulative effect transition method. Section 107 of the Jumpstart Our Business Startups Act of 2012 (the “Jobs Act”) provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. An emerging growth company can, therefore, delay adoption of certain accounting standards until those standards would otherwise apply to private companies. Management has chosen to take advantage of this extended transition period to adopt ASU No. 2014-09 beginning in the first quarter of 2019. Management anticipates using the retrospective method for adoption.
9
In preparation for this planned adoption, we have been evaluating the impact of the new s
tandard to our financial statements and accompanying disclosures in the notes to our consolidated financial statements. Our assessment of the impact includes an evaluation of the five-step process set forth in the new standard along with the enhancement of
disclosures that will be required. To date, we have developed our initial plan for implementing the standard, which includes identifying customer contracts within the scope of the new standard, identifying performance obligations within those customer con
tracts, and evaluating the impact of incremental variable consideration paid to obtain those customer contracts. We have also undertaken a comprehensive review of all contracts that fall under the scope of the new standard; and, as of the date of this repo
rt, we have substantially completed our review of in-scope contracts.
Based on analysis performed to date, we expect that adoption of the new standard will result in changes to the classification and timing of our revenue recognition. Specifically, we expect an increase in revenue classified as professional services and other revenue and a reduction in revenue classified as recurring services revenue under the new standard, as compared to current U.S. GAAP. Further, we expect that the new standard will result in changes to the timing of our revenue recognition compared to current U.S. GAAP. In compliance with the new standard, a contractual asset will be reflected on the consolidated balance sheets and will be amortized over the customers’ period of benefit, which is generally three years. We also expect changes to the timing of certain incremental selling, general, and administrative expenses, as the new standard will also require capitalizing and amortizing certain selling expenses, such as commissions and bonuses paid to the sales force. These sales expenses will be amortized over the customer’s period of benefit, generally five years.
In periods of revenue growth, the changes above are expected to result in higher overall earnings before income taxes and net income, on an annual basis, when compared to current U.S. GAAP. We have not yet determined the impact of the disclosure requirements.
The following table presents the anticipated impacts that the adoption of ASC 606 would have for the periods presented:
|
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
As Reported
|
|
|
Under ASC 606
|
|
|
Impact
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring services
|
|
$
|
157.2
|
|
|
$
|
149.4
|
|
|
$
|
(7.8
|
)
|
|
Professional services and other
|
|
|
22.4
|
|
|
|
28.8
|
|
|
|
6.4
|
|
|
Total revenue
|
|
$
|
179.6
|
|
|
$
|
178.2
|
|
|
$
|
(1.4
|
)
|
|
Operating profit
|
|
$
|
15.3
|
|
|
$
|
15.1
|
|
|
$
|
(0.2
|
)
|
|
|
|
Three Months Ended September 30, 2017
|
|
|
|
|
As Reported
|
|
|
Under ASC 606
|
|
|
Impact
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring services
|
|
$
|
145.6
|
|
|
$
|
139.7
|
|
|
$
|
(5.9
|
)
|
|
Professional services and other
|
|
|
17.9
|
|
|
|
26.4
|
|
|
|
8.5
|
|
|
Total revenue
|
|
$
|
163.5
|
|
|
$
|
166.1
|
|
|
$
|
2.6
|
|
|
Operating profit
|
|
$
|
5.1
|
|
|
$
|
9.0
|
|
|
$
|
3.9
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
As Reported
|
|
|
Under ASC 606
|
|
|
Impact
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring services
|
|
$
|
480.8
|
|
|
$
|
460.4
|
|
|
$
|
(20.4
|
)
|
|
Professional services and other
|
|
|
65.3
|
|
|
|
85.5
|
|
|
|
20.2
|
|
|
Total revenue
|
|
$
|
546.1
|
|
|
$
|
545.9
|
|
|
$
|
(0.2
|
)
|
|
Operating profit
|
|
$
|
31.3
|
|
|
$
|
36.9
|
|
|
$
|
5.6
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
As Reported
|
|
|
Under ASC 606
|
|
|
Impact
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring services
|
|
$
|
438.2
|
|
|
$
|
419.8
|
|
|
$
|
(18.4
|
)
|
|
Professional services and other
|
|
|
50.2
|
|
|
|
72.7
|
|
|
|
22.5
|
|
|
Total revenue
|
|
$
|
488.4
|
|
|
$
|
492.5
|
|
|
$
|
4.1
|
|
|
Operating profit
|
|
$
|
16.9
|
|
|
$
|
25.7
|
|
|
$
|
8.8
|
|
10
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 disclosing key information about leasin
g arrangements. This standard requires balance sheet recognition for both finance leases and operating leases. This guidance is effective for
public business entities for fiscal years beginning after December 15, 2018, including interim periods within thos
e fiscal years, and for
non-public companies for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The guidance is required to be adopted using a modified retrospective approach. An e
ntity will, in effect, continue to account for leases that commence before the effective date in accordance with previous U.S. GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for a
ll operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous U.S. GAAP.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments”, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice of certain cash receipts and cash payments. This guidance is effective for non-public companies for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. We have chosen to early adopt this guidance as of January 1, 2018, and have applied this guidance to the presentation of our debt refinancing transactions that occurred during 2018.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income,” which is in response to a narrow-scope financial reporting issue that arose because of the Tax Cuts and Jobs Act. The amendment in this update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This amendment is intended to improve the usefulness of information reported to financial statement users by requiring certain disclosures about stranded tax effects. The amendment in this update is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of this standard. Please refer to Note 13, “Income Taxes,” for further discussion of this new guidance.
In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” and 2018-11, “Leases (Topic 842): Targeted Improvements”. The amendments in ASU No. 2018-10 affect narrow aspects of the guidance issued in ASU No. 2016-02. For non-early adopters, this amendment is effective under the same timelines as ASU No. 2016-02. The amendments in ASU No. 2018-11 provide entities with an additional (and optional) transition method to adopt the new lease requirements. Under the additional transition method, entities may initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments in this update also provide lessors with a practical alternative to separate non-lease components from the associated lease component. Under this alternative, lessors may account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and certain other criteria are met. For entities that have not adopted Topic 842 before the issuance of this update, the effective date and transition requirements are the same as the effective date and transition requirements in ASU No. 2016-02. We are currently evaluating the impact of the adoption of this standard.
3. Discontinued Operations
Distribution of LifeWorks Business
On March 1, 2016, we entered into a strategic joint venture with WorkAngel Technology Limited (“WorkAngel”) in which we contributed our existing LifeWorks employee assistance program business to WorkAngel Organisation Limited, a newly formed English limited company. On January 20, 2017, WorkAngel Organisation Limited changed its name to LifeWorks Corporation Ltd (“LifeWorks”). We had a controlling interest in LifeWorks, including certain preferential distribution rights; therefore, LifeWorks was consolidated within our financial statements, and the other joint venture ownership interest component was presented as a noncontrolling interest. During the nine months ended September 30, 2018, there was loss attributable to the noncontrolling interest of $0.5. During the three and nine months ended September 30, 2017, there was loss attributable to the noncontrolling interest of $0.5 and $0.4, respectively.
In the second quarter of 2018, contemporaneously with our IPO and concurrent private placement, we distributed our controlling financial interest in LifeWorks to our stockholders of record prior to the IPO on a pro rata basis in accordance with their pro rata interests in us (the “LifeWorks Disposition”).
11
At this time, t
he LifeWorks Disposition represent
ed
a strategic shift in our overall business and had a significant impact on the financial statement results. Therefore, the Li
feWorks business has been presented as discontinued operations in the condensed consolidated financial statements and accompanying notes for all periods presented. Ceridian’s net book value related to LifeWorks of $95.7 was recorded as a distribution throu
gh additional paid in capital within our condensed consolidated balance sheet during the second quarter of 2018.
The amounts in the table below reflect the operating results of LifeWorks reported as discontinued operations, as well as supplemental disclosures of the discontinued operations:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Net revenues
|
|
$
|
—
|
|
|
$
|
21.1
|
|
|
$
|
28.3
|
|
|
$
|
59.9
|
|
|
Income (loss) from operations before income taxes
|
|
|
—
|
|
|
|
0.4
|
|
|
|
(0.9
|
)
|
|
|
1.9
|
|
|
Income tax expense
|
|
|
(3.0
|
)
|
|
|
(2.4
|
)
|
|
|
(13.9
|
)
|
|
|
(3.9
|
)
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(3.0
|
)
|
|
$
|
(2.0
|
)
|
|
$
|
(14.8
|
)
|
|
$
|
(2.0
|
)
|
|
Depreciation and amortization
|
|
$
|
—
|
|
|
$
|
1.0
|
|
|
$
|
1.4
|
|
|
$
|
3.0
|
|
|
Capital expenditures
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
The amounts in the table below reflect the assets and liabilities reported as discontinued operations for LifeWorks:
|
|
|
December 31,
2017
|
|
|
Assets:
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
5.3
|
|
|
Trade and other receivables, net
|
|
|
13.3
|
|
|
Prepaid expenses
|
|
|
1.5
|
|
|
Property, plant and equipment, net
|
|
|
1.8
|
|
|
Other intangible assets, net
|
|
|
5.9
|
|
|
Goodwill
|
|
|
126.3
|
|
|
Other assets
|
|
|
2.1
|
|
|
Assets of discontinued operations
|
|
$
|
156.2
|
|
|
Liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
4.4
|
|
|
Deferred revenue
|
|
|
2.8
|
|
|
Employee compensation and benefits
|
|
|
1.3
|
|
|
Other liabilities
|
|
|
10.8
|
|
|
Liabilities of discontinued operations
|
|
$
|
19.3
|
|
Sale of UK Business
On June 15, 2016, we completed the stock sale of our United Kingdom and Ireland businesses, along with the portion of our Mauritius operations that supported these businesses (the “UK Business”). Concurrent with this transaction, we entered into a strategic partnership with the acquirer, SD Worx, a leading European provider of payroll and human capital management (“HCM”) services, to deliver cloud HCM services across Europe.
This transaction in the second quarter of 2016 represented a strategic shift in our overall business and had a significant impact on our financial statement results. Therefore, the UK Business has been presented as discontinued operations in the condensed consolidated financial statements and accompanying notes for all periods presented.
12
The amounts in the table below reflect the operating results of the UK Business reported as discontinued operations, as well as supplemental disclosures of discontinued operations:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2017
|
|
|
2017
|
|
|
Net revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Loss from operations before income taxes
|
|
|
—
|
|
|
|
—
|
|
|
Loss on sale of businesses
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(0.7
|
)
|
|
$
|
(0.7
|
)
|
Sale of Divested Benefits Continuation Businesses
In the third quarter of 2013, we entered into an agreement for the sale of certain of our customer contracts for consumer-directed benefit services, including flexible spending accounts, health reimbursement accounts, health savings accounts, commuter (parking or transit) premium-only plans, and tuition reimbursement plans (collectively, the “Consumer-Directed Benefit Services”). During the third quarter of 2015, we completed two separate transactions that resulted in the sale of our benefits administration and post-employment health insurance portability compliance businesses (the “Divested Benefits Continuation Businesses”).
These three transactions, which were completed in the third quarter of 2015, represented a strategic shift in our overall business and had a significant impact on the financial statement results. Accordingly, the Divested Benefits Continuation Businesses, as well as the Consumer-Directed Benefit Services, have been presented as discontinued operations in the condensed consolidated financial statements and accompanying notes for all periods presented. The amounts in the table below reflect the operating results and gain on sale of the Divested Benefits Continuation Businesses reported as discontinued operations:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2017
|
|
|
2017
|
|
|
Net revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Income from operations before income taxes
|
|
|
0.1
|
|
|
|
—
|
|
|
(Loss) gain on sale of businesses
|
|
|
(0.4
|
)
|
|
|
0.5
|
|
|
Income tax benefit (expense)
|
|
|
0.2
|
|
|
|
(0.2
|
)
|
|
(Loss) income from discontinued operations, net of income taxes
|
|
$
|
(0.2
|
)
|
|
$
|
0.3
|
|
For both sales of the Divested Benefits Continuation Businesses, consideration received was contingent upon the number and dollar value of successful customer transitions and was recorded when earned. The proceeds received and earned during the nine months ended September 30, 2017, were for a final purchase price true-up related to one of the transactions.
The remaining liabilities related to discontinued operations for the Divested Benefits Continuation Businesses as of September 30, 2018, and December 31, 2017, were $0.2 and $0.3 of other accrued expenses.
4. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). U.S. GAAP outlines a valuation framework and creates a fair value hierarchy intended to increase the consistency and comparability of fair value measurements and the related disclosures. Certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.
We measure our financial instruments using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:
|
|
•
|
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
|
13
|
|
•
|
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that
are observable for the asset or liability (that is, interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
|
|
|
•
|
Level 3 inputs include unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including internal data.
|
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of September 30, 2018, our financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale customer trust funds assets
|
|
$
|
1,720.1
|
|
|
$
|
—
|
|
|
$
|
1,720.1
|
|
(a)
|
|
$
|
—
|
|
|
Total assets measured at fair value
|
|
$
|
1,720.1
|
|
|
$
|
—
|
|
|
$
|
1,720.1
|
|
|
|
$
|
—
|
|
As of December 31, 2017, our financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale customer trust funds assets
|
|
$
|
1,782.1
|
|
|
$
|
—
|
|
|
$
|
1,782.1
|
|
(a)
|
|
$
|
—
|
|
|
Total assets measured at fair value
|
|
$
|
1,782.1
|
|
|
$
|
—
|
|
|
$
|
1,782.1
|
|
|
|
$
|
—
|
|
|
(a)
|
Fair value is based on inputs that are observable for the asset or liability, other than quoted prices.
|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the nine months ended September 30, 2018, and the year ended December 31, 2017, we did not re-measure any financial assets or liabilities at fair value on a nonrecurring basis.
5. Customer Trust Funds
Overview
In connection with our U.S. and Canadian payroll and tax filing services, we collect funds for payment of payroll and taxes; temporarily hold such funds in trust until payment is due; remit the funds to the clients’ employees and appropriate taxing authority; file federal, state and local tax returns; and handle related regulatory correspondence and amendments. The assets held in trust are intended for the specific purpose of satisfying client fund obligations and, therefore, are not freely available for our general business use.
Our customer trust funds are held and invested with the primary objectives being to ensure adequate liquidity to meet cash flow requirements and to protect the principal balance. In accordance with these objectives, we maintain approximately 46% of customer trust funds in liquidity portfolios with maturities ranging from one to 120 days, consisting of high-quality bank deposits, money market mutual funds, commercial paper, or collateralized short-term investments; and we maintain approximately 54% of customer trust funds in fixed income portfolios with maturities ranging from 120 days to 10 years, consisting of U.S. Treasury and agency securities, Canada government and provincial securities, as well as highly rated asset-backed, mortgage-backed, municipal, corporate and bank securities. To maintain sufficient liquidity in the trust to meet payment obligations, we also have financing arrangements and may pledge fixed income securities for short-term financing.
14
Financial Statement Pres
entation
Investment income from invested customer trust funds is a component of our compensation for providing services under agreements with our customers. Investment income from invested customer trust funds included in revenue was $15.8 and $11.6 for the three months ended September 30, 2018, and 2017, respectively, and $49.6 and $34.2 for the nine months ended September 30, 2018, and 2017, respectively. Investment income includes interest income, realized gains and losses from sales of customer trust funds’ investments, and unrealized credit losses determined to be other-than-temporary.
The amortized cost of customer trust funds as of September 30, 2018, and December 31, 2017, is the original cost of assets acquired. The amortized cost and fair values of investments of customer trust funds available for sale as of September 30, 2018, and December 31, 2017, are as follows:
Investments of Customer Trust Funds at September 30, 2018
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Money market securities, investments carried at cost and
other cash equivalents
|
|
$
|
1,697.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,697.9
|
|
|
Available for sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
|
548.6
|
|
|
|
—
|
|
|
|
(19.1
|
)
|
|
|
529.5
|
|
|
Canadian and provincial government securities
|
|
|
414.6
|
|
|
|
2.1
|
|
|
|
(2.7
|
)
|
|
|
414.0
|
|
|
Corporate debt securities
|
|
|
513.1
|
|
|
|
0.2
|
|
|
|
(6.8
|
)
|
|
|
506.5
|
|
|
Asset-backed securities
|
|
|
249.6
|
|
|
|
—
|
|
|
|
(3.6
|
)
|
|
|
246.0
|
|
|
Mortgage-backed securities
|
|
|
9.7
|
|
|
|
—
|
|
|
|
(0.3
|
)
|
|
|
9.4
|
|
|
Other securities
|
|
|
14.9
|
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
14.7
|
|
|
Total available for sale investments
|
|
|
1,750.5
|
|
|
|
2.3
|
|
|
|
(32.7
|
)
|
|
|
1,720.1
|
|
|
Invested customer trust funds
|
|
|
3,448.4
|
|
|
$
|
2.3
|
|
|
$
|
(32.7
|
)
|
|
|
3,418.0
|
|
|
Trust receivables
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
8.6
|
|
|
Total customer trust funds
|
|
$
|
3,457.0
|
|
|
|
|
|
|
|
|
|
|
$
|
3,426.6
|
|
Investments of Customer Trust Funds at December 31, 2017
|
|
|
Amortized
|
|
|
Gross Unrealized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Money market securities, investments carried at cost and
other cash equivalents
|
|
$
|
2,309.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,309.3
|
|
|
Available for sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
|
584.6
|
|
|
|
0.1
|
|
|
|
(7.1
|
)
|
|
|
577.6
|
|
|
Canadian and provincial government securities
|
|
|
418.2
|
|
|
|
6.6
|
|
|
|
(1.5
|
)
|
|
|
423.3
|
|
|
Corporate debt securities
|
|
|
472.3
|
|
|
|
0.8
|
|
|
|
(2.5
|
)
|
|
|
470.6
|
|
|
Asset-backed securities
|
|
|
280.8
|
|
|
|
—
|
|
|
|
(1.8
|
)
|
|
|
279.0
|
|
|
Mortgage-backed securities
|
|
|
15.0
|
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
14.8
|
|
|
Other securities
|
|
|
17.0
|
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
16.8
|
|
|
Total available for sale investments
|
|
|
1,787.9
|
|
|
|
7.5
|
|
|
|
(13.3
|
)
|
|
|
1,782.1
|
|
|
Invested customer trust funds
|
|
|
4,097.2
|
|
|
$
|
7.5
|
|
|
$
|
(13.3
|
)
|
|
|
4,091.4
|
|
|
Trust receivables
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
|
Total customer trust funds
|
|
$
|
4,105.5
|
|
|
|
|
|
|
|
|
|
|
$
|
4,099.7
|
|
15
The following represents the gross unrealized losses and the related fair value of the investments of customer trust funds available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unreali
zed loss position at
September 30, 2018
.
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
U.S. government and agency securities
|
|
$
|
(8.0
|
)
|
|
$
|
257.9
|
|
|
$
|
(11.1
|
)
|
|
$
|
268.7
|
|
|
$
|
(19.1
|
)
|
|
$
|
526.6
|
|
|
Canadian and provincial government securities
|
|
|
(0.9
|
)
|
|
|
86.9
|
|
|
|
(1.8
|
)
|
|
|
100.8
|
|
|
|
(2.7
|
)
|
|
|
187.7
|
|
|
Corporate debt securities
|
|
|
(3.7
|
)
|
|
|
271.1
|
|
|
|
(3.1
|
)
|
|
|
145.9
|
|
|
|
(6.8
|
)
|
|
|
417.0
|
|
|
Asset-backed securities
|
|
|
(1.1
|
)
|
|
|
97.4
|
|
|
|
(2.5
|
)
|
|
|
129.8
|
|
|
|
(3.6
|
)
|
|
|
227.2
|
|
|
Mortgage-backed securities
|
|
(a)
|
|
|
|
1.2
|
|
|
|
(0.3
|
)
|
|
|
8.0
|
|
|
|
(0.3
|
)
|
|
|
9.2
|
|
|
Other securities
|
|
|
(0.1
|
)
|
|
|
4.0
|
|
|
|
(0.1
|
)
|
|
|
10.5
|
|
|
|
(0.2
|
)
|
|
|
14.5
|
|
|
Total available for sale investments
|
|
$
|
(13.8
|
)
|
|
$
|
718.5
|
|
|
$
|
(18.9
|
)
|
|
$
|
663.7
|
|
|
$
|
(32.7
|
)
|
|
$
|
1,382.2
|
|
|
(a)
|
These investments have been in an unrealized loss position; however, the amount of unrealized loss is less than $0.05.
|
Management does not believe that any individual unrealized loss as of September 30, 2018, represents an other-than-temporary impairment. The unrealized losses are primarily attributable to changes in interest rates and not to credit deterioration. We currently do not intend to sell or expect to be required to sell the securities before the time required to recover the amortized cost.
The amortized cost and fair value of investment securities available for sale at September 30, 2018, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or to prepay obligations with or without call or prepayment penalties.
|
|
|
September 30, 2018
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
2,024.4
|
|
|
$
|
2,023.9
|
|
|
Due in one to three years
|
|
|
565.6
|
|
|
|
556.5
|
|
|
Due in three to five years
|
|
|
565.5
|
|
|
|
557.6
|
|
|
Due after five years
|
|
|
292.9
|
|
|
|
280.0
|
|
|
Invested customer trust funds
|
|
$
|
3,448.4
|
|
|
$
|
3,418.0
|
|
6. Property, Plant, and Equipment
Property, plant, and equipment consisted of the following:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Land
|
|
$
|
7.5
|
|
|
$
|
7.5
|
|
|
Software
|
|
|
218.5
|
|
|
|
197.4
|
|
|
Machinery and equipment
|
|
|
118.8
|
|
|
|
120.3
|
|
|
Buildings and improvements
|
|
|
39.8
|
|
|
|
36.3
|
|
|
Total property, plant, and equipment
|
|
|
384.6
|
|
|
|
361.5
|
|
|
Accumulated depreciation
|
|
|
(284.0
|
)
|
|
|
(259.5
|
)
|
|
Property, plant, and equipment, net
|
|
$
|
100.6
|
|
|
$
|
102.0
|
|
Depreciation expense of property, plant, and equipment totaled $9.6 and $8.9 for the three months ended September 30, 2018, and 2017, respectively, and $28.4 and $25.8 for the nine months ended September 30, 2018, and 2017, respectively.
16
7. Goodwill and Intangible Assets
Goodwill
Goodwill and changes therein were as follows for the nine months ended September 30, 2018, and the year ended December 31, 2017:
|
Balance at December 31, 2016
|
|
$
|
1,933.1
|
|
|
Translation
|
|
|
27.9
|
|
|
Balance at December 31, 2017
|
|
|
1,961.0
|
|
|
Translation
|
|
|
(11.2
|
)
|
|
Balance at September 30, 2018
|
|
$
|
1,949.8
|
|
Intangible Assets
Other intangible assets consisted of the following as of September 30, 2018:
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Estimated Life
Range (Years)
|
|
|
Customer lists and relationships
|
|
$
|
208.6
|
|
|
$
|
(188.8
|
)
|
|
$
|
19.8
|
|
|
5-15
|
|
|
Trade name
|
|
|
173.9
|
|
|
|
(2.0
|
)
|
|
|
171.9
|
|
|
|
—
|
|
|
Technology
|
|
|
154.4
|
|
|
|
(153.8
|
)
|
|
|
0.6
|
|
|
2-7
|
|
|
Total other intangible assets
|
|
$
|
536.9
|
|
|
$
|
(344.6
|
)
|
|
$
|
192.3
|
|
|
|
|
|
The LifeWorks Disposition was considered a triggering event for testing of the trade name intangible asset for impairment. There was no impairment indicated as of April 30, 2018. Please refer to Note 3, “Discontinued Operations,” for further discussion of the LifeWorks Disposition.
Other intangible assets consisted of the following as of December 31, 2017:
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Estimated Life
Range (Years)
|
|
|
Customer lists and relationships
|
|
$
|
210.1
|
|
|
$
|
(177.0
|
)
|
|
$
|
33.1
|
|
|
5-15
|
|
|
Trade name
|
|
|
174.1
|
|
|
|
(2.1
|
)
|
|
|
172.0
|
|
|
|
—
|
|
|
Technology
|
|
|
155.6
|
|
|
|
(154.2
|
)
|
|
|
1.4
|
|
|
2-7
|
|
|
Total other intangible assets
|
|
$
|
539.8
|
|
|
$
|
(333.3
|
)
|
|
$
|
206.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to definite-lived intangible assets was $4.7 and $4.7 for the three months ended September 30, 2018, and 2017, respectively, and $14.0 and $13.9 for the nine months ended September 30, 2018, and 2017, respectively.
17
8. Debt
Overview
Our debt obligations consisted of the following as of the periods presented:
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Term Debt, interest rate of 5.5% and 5.1% as of September 30, 2018 and December
31, 2017, respectively
|
|
$
|
680.0
|
|
|
$
|
657.3
|
|
|
Senior Notes, interest rate of 11.0% as of December 31, 2017
|
|
|
—
|
|
|
|
475.0
|
|
|
Revolving Credit Facility ($300.0 and $130.0 available capacity less amounts
reserved for letters of credit, which were $2.7 and $2.9 as of September 30, 2018 and
December 31, 2017, respectively)
|
|
|
—
|
|
|
|
—
|
|
|
Total debt
|
|
|
680.0
|
|
|
|
1,132.3
|
|
|
Less unamortized discount on Term Debt
|
|
|
1.7
|
|
|
|
0.9
|
|
|
Less unamortized debt issuance costs on Senior Notes and Term Debt
|
|
|
6.5
|
|
|
|
11.6
|
|
|
Less current portion of long-term debt
|
|
|
6.8
|
|
|
|
—
|
|
|
Long-term debt, less current portion
|
|
$
|
665.0
|
|
|
$
|
1,119.8
|
|
Senior Secured Credit Facility
Ceridian entered into a credit agreement dated as of November 14, 2014, pursuant to the terms of which Ceridian became borrower of (i) a $702.0 term loan debt facility (the “2014 Term Debt”) and (ii) a $130.0 revolving credit facility (the “2014 Revolving Credit Facility”) (the 2014 Term Debt and the 2014 Revolving Credit Facility are together referred to as the “2014 Senior Secured Credit Facility”). The 2014 Senior Secured Credit Facility was secured by all assets of Ceridian and was senior to Ceridian’s other debt. The 2014 Term Debt had a maturity date of September 2020, and the 2014 Revolving Credit Facility had a maturity date of September 2019. During the three months ended March 31, 2018, Ceridian made a final mandatory pre-payment of $0.3 towards the principal balance of the Term Debt from the proceeds received from the 2016 sale of our United Kingdom and Ireland business.
On April 30, 2018, Ceridian completed the refinancing of the remaining debt under the 2014 Senior Secured Credit Facility by entering into a new credit agreement. Pursuant to the terms of the new credit agreement, Ceridian became borrower of (i) a $680.0 term loan debt facility (the “2018 Term Debt”) and (ii) a $300.0 revolving credit facility (the “2018 Revolving Credit Facility”) (the 2018 Term Debt and the 2018 Revolving Credit Facility are together referred to as the “2018 Senior Secured Credit Facility”). The 2018 Senior Secured Credit Facility is secured by all assets of Ceridian. The 2018 Term Debt has a maturity date of April 30, 2025, and the 2018 Revolving Credit Facility has a maturity date of April 30, 2023. The 2018 Term Debt is currently subject to an interest rate of LIBOR plus 3.25%. In the event our corporate rating from Moody’s Investors Service, Inc. is B2 or better, the interest rate is reduced to LIBOR plus 3.00%, so long as the rating is maintained.
In connection with the refinancing of the 2014 Senior Secured Credit Facility, we capitalized $3.6 of financing costs and recognized a loss on debt extinguishment of $7.1 within interest expense, net on our condensed consolidated statement of operations during the nine months ended September 30, 2018.
Senior Notes
Using the net proceeds received from the IPO and concurrent private placement, we satisfied and discharged the indenture governing our Senior Notes on April 30, 2018, and the Senior Notes were redeemed on May 30, 2018. In connection with the redemption of the Senior Notes, we recognized a loss on debt extinguishment of $18.6 within interest expense, net on our condensed consolidated statement of operations during the nine months ended September 30, 2018.
18
Future Payments and Maturities of Debt
The future principal payments and maturities of our debt are as follows:
|
Years Ending December 31,
|
|
Amount
|
|
|
2018
|
|
$
|
1.7
|
|
|
2019
|
|
|
6.8
|
|
|
2020
|
|
|
6.8
|
|
|
2021
|
|
|
6.8
|
|
|
2022
|
|
|
6.8
|
|
|
Thereafter
|
|
|
651.1
|
|
|
|
|
$
|
680.0
|
|
Fair Value of Debt
Our debt does not trade in active markets. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities and the limited trades of our debt, the fair value of our debt was estimated to be $680.9 and $1,154.1 as of September 30, 2018 and December 31, 2017, respectively.
9. Employee Benefit Plans
The components of net periodic cost for our defined benefit pension plan and for our postretirement benefit plan are included in the following tables:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
Net Periodic Pension Cost
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Interest cost
|
|
$
|
4.1
|
|
|
$
|
4.3
|
|
|
$
|
12.3
|
|
|
$
|
12.9
|
|
|
Actuarial loss amortization
|
|
|
3.6
|
|
|
|
3.2
|
|
|
|
10.8
|
|
|
|
9.6
|
|
|
Less: Expected return on plan assets
|
|
|
(6.5
|
)
|
|
|
(6.6
|
)
|
|
|
(19.5
|
)
|
|
|
(19.8
|
)
|
|
Net periodic pension cost
|
|
$
|
1.2
|
|
|
$
|
0.9
|
|
|
$
|
3.6
|
|
|
$
|
2.7
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
Net Periodic Postretirement Benefit
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Service benefit
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(0.3
|
)
|
|
Interest cost
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
Actuarial gain amortization
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
|
|
(1.8
|
)
|
|
|
(1.8
|
)
|
|
Net periodic postretirement benefit gain
|
|
$
|
(0.6
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
(1.8
|
)
|
|
$
|
(1.8
|
)
|
10. Share-Based Compensation
Prior to November 1, 2013, Ceridian employees participated in a share-based compensation plan of the former ultimate parent of Ceridian. The 2007 Stock Incentive Plan (“2007 SIP”) authorized the issuance of up to 10,540,540 shares of common stock of Parent to eligible participants through stock options and stock awards. Eligible participants in the 2007 SIP included the Parent’s directors, employees and consultants.
Effective November 1, 2013, although most participants who held stock options under the 2007 SIP converted their options to a newly created option plan, the 2013 Ceridian HCM Holding Inc. Stock Incentive Plan, as amended (“2013 SIP”), a small number of participants maintained their stock options in the 2007 SIP. Concurrent with the IPO and legal reorganization, all outstanding stock options under the 2007 SIP were converted into options to purchase common stock of Ceridian. As of September 30, 2018, there were 5,000 stock options outstanding under the 2007 SIP.
The 2013 SIP authorized the issuance of up to 12,500,000 shares of common stock of Ceridian to eligible participants through stock options and other stock awards, which was increased to 15,000,000 on March 20, 2017, by the Board of Directors. Eligible participants in the 2013 SIP include Ceridian’s directors, employees, and consultants.
19
As part of the 2013 SIP, the Board of Directors approved a stock appreciation rights program that authorized the issuance of up to 600,000 stock appreciation rights. The perfor
mance criteria for all stock appreciation rights was met on April 30, 2018, resulting in the vesting of all outstanding stock appreciation rights. We recognized $1.5 of share-based compensation expense related to the vesting of these stock appreciation rig
hts during the
nine months ended September 30, 2018
. As of
September 30, 2018
, there were no remaining outstanding stock appreciation rights.
Stock options awarded under the 2013 SIP vest either annually on a pro rata basis over a four- or five-year period or on a specific date if certain performance criteria are satisfied and certain equity values are attained. In addition, upon termination of service, all vested options must be exercised generally within 90 days after termination, or these awards will be forfeited. The stock option awards have a 10-year contractual term and have an exercise price that is not less than the fair market value of the underlying stock on the date of grant. As of September 30, 2018, there were 10,766,257 stock options and restricted stock units outstanding under the 2013 SIP. We do not intend to grant any awards under the 2007 SIP or the 2013 SIP following our IPO.
On April 24, 2018, in connection with the IPO, the Board of Directors approved the Ceridian HCM Holding Inc. 2018 Equity Incentive Plan (“2018 EIP”), which authorizes the issuance of up to 13,500,000 shares of common stock to eligible participants through equity awards. Equity awards under the 2018 EIP vest annually on a pro rata basis, generally over a four-year period. In addition, upon termination of service, all vested awards must be exercised within 90 days after termination, or these awards will be forfeited. The equity awards have a 10-year contractual term and have an exercise price that is not less than the fair market value of the underlying stock on the date of the grant. As of September 30, 2018, there were 5,125,110 stock options and restricted stock units outstanding and 8,374,890 shares available for future grants of equity awards under the 2018 EIP.
Total share-based compensation expense was $4.8 and $4.3 for three months ended September 30, 2018, and 2017, respectively, and $19.5 and $12.8 for the nine months ended September 30, 2018, and 2017.
Performance-Based Stock Options
Performance-based option activity under the 2007 SIP and the 2013 SIP for the period was as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
(per share)
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in millions)
|
|
|
Performance-based options outstanding at December 31, 2017
|
|
|
1,038,147
|
|
|
$
|
13.46
|
|
|
|
3.5
|
|
|
$
|
—
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(633,606
|
)
|
|
|
(13.46
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited or expired
|
|
|
(8,358
|
)
|
|
|
(13.46
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Performance-based options outstanding at September 30, 2018
|
|
|
396,183
|
|
|
$
|
13.50
|
|
|
|
3.4
|
|
|
$
|
11.3
|
|
|
Performance-based options exercisable at September 30, 2018
|
|
|
396,183
|
|
|
$
|
13.50
|
|
|
|
3.4
|
|
|
$
|
11.3
|
|
The performance criteria for all outstanding performance-based stock options was met on June 7, 2018, resulting in the vesting of all outstanding performance-based stock options on this date. We recognized $4.8 of share-based compensation expense related to the vesting of these performance-based stock options during the nine months ended September 30, 2018. As of September 30, 2018, there was no share-based compensation expense related to unvested performance-based stock options not yet recognized.
20
Term-Based Stock Options
Term-based option activity, including stock options under the 2007 SIP, the 2013 SIP and the 2018 EIP, for the period was as follows:
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
(per share)
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic Value
(in millions)
|
|
|
Term-based options outstanding at December 31, 2017
|
|
|
10,994,181
|
|
|
$
|
16.52
|
|
|
|
6.9
|
|
|
$
|
48.8
|
|
|
Granted
|
|
|
5,140,787
|
|
|
|
22.84
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(1,127,360
|
)
|
|
|
(13.73
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited or expired
|
|
|
(166,747
|
)
|
|
|
(17.09
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Term-based options outstanding at September 30, 2018
|
|
|
14,840,861
|
|
|
$
|
18.66
|
|
|
|
7.6
|
|
|
$
|
346.8
|
|
|
Term-based options exercisable at September 30, 2018
|
|
|
6,868,950
|
|
|
$
|
16.70
|
|
|
|
5.8
|
|
|
$
|
174.0
|
|
As of September 30, 2018, there was $49.7 of share-based compensation expense related to unvested term based awards not yet recognized, which is expected to be recognized over a weighted average period of 1.9 years.
Restricted Stock Units
Restricted stock units (“RSUs”) activity, including RSUs under the 2013 SIP and the 2018 EIP, for the period was as follows:
|
|
Shares
|
|
|
RSUs outstanding at December 31, 2017
|
|
605,990
|
|
|
Granted
|
|
159,323
|
|
|
Shares issued upon vesting of RSUs
|
|
(105,990
|
)
|
|
Forfeited or canceled
|
|
—
|
|
|
RSUs outstanding at September 30, 2018
|
|
659,323
|
|
|
RSUs releasable at September 30, 2018
|
|
125,000
|
|
During the nine months ended September 30, 2018, 159,323 RSUs were granted and 230,990 RSUs vested. Of the vested RSUs 105,990 shares of common stock were issued, and 125,000 RSUs remained vested and releasable. As of September 30, 2018, there were 534,323 unvested RSUs outstanding. RSUs generally vest annually over a three- or four-year period. There were 29,800 RSUs that vested upon completion of the IPO. As of September 30, 2018, there was $10.6 of share-based compensation expense related to unvested RSUs not yet recognized, which is expected to be recognized over a weighted average period of 2.8 years.
11. Supplementary Data to Statements of Operations
Other expense, net consisted of foreign currency translation expense of $0.3 and $3.8 for the three months ended September 30, 2018 and 2017, respectively. The foreign currency translation expense for the three months ended September 30, 2017, is primarily related to remeasurement losses from an intercompany payable of a U.S. subsidiary denominated in Canadian dollars. This intercompany payable was repaid in the second quarter of 2018.
Other (income) expense, net consisted of foreign currency translation income of $2.5, and foreign currency translation expense of $6.9 for the nine months ended September 30, 2018, and 2017, respectively. The foreign currency translation is primarily related to remeasurement gains and losses from an intercompany payable of a U.S. subsidiary denominated in Canadian dollars. This intercompany payable was repaid in the second quarter of 2018.
21
12. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) were as follows:
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unrealized Gain
(Loss) from
Invested
Customer Trust
Funds
|
|
|
Pension
Liability
Adjustment
|
|
|
Total
|
|
|
Balance as of December 31, 2017
|
|
$
|
(160.6
|
)
|
|
$
|
(9.0
|
)
|
|
$
|
(142.5
|
)
|
|
$
|
(312.1
|
)
|
|
Other comprehensive income (loss) before income taxes
and reclassifications
|
|
|
(16.2
|
)
|
|
|
(24.5
|
)
|
|
|
(0.3
|
)
|
|
|
(41.0
|
)
|
|
Income tax benefit
|
|
|
—
|
|
|
|
2.3
|
|
|
|
—
|
|
|
|
2.3
|
|
|
Reclassifications to earnings
|
|
|
—
|
|
|
|
—
|
|
|
|
9.0
|
|
|
|
9.0
|
|
|
Other comprehensive income (loss) attributable to Ceridian
|
|
|
(16.2
|
)
|
|
|
(22.2
|
)
|
|
|
8.7
|
|
|
|
(29.7
|
)
|
|
LifeWorks Disposition
|
|
|
0.7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.7
|
|
|
Balance as of September 30, 2018
|
|
$
|
(176.1
|
)
|
|
$
|
(31.2
|
)
|
|
$
|
(133.8
|
)
|
|
$
|
(341.1
|
)
|
13. Income Taxes
Our income tax provision represents federal, state, and international taxes on our income recognized for financial statement purposes, which includes the effect of temporary differences between financial statement income and income recognized for tax return purposes. Our income tax provision is negatively affected by the need for a valuation allowance against our deferred tax assets. We record a valuation allowance to reduce our deferred tax asset when it is more likely than not that all or a portion of the deferred tax asset will not be realized. In determining the requirement for a valuation allowance, we assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize our deferred tax assets not already identified as requiring a valuation allowance. As of September 30, 2018, and December 31, 2017, we continued to record a full valuation allowance against our domestic deferred tax assets that are not offset by the reversal of deferred tax liabilities. In the future, if it is determined that we no longer have a requirement to record a valuation allowance against all or a portion of our deferred tax assets, the release of the valuation allowance would have a positive impact on our income tax provision.
On December 22, 2017, the Tax Cut and Jobs Act legislation (the “Tax Act”) was signed into law. The Tax Act made broad and complex changes to the U.S. tax code including: (a) lower U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, (b) accelerated expensing of qualified capital investments for a specific period, and (c) a transition from a worldwide tax system to a territorial tax system. The reduction in the U.S. statutory tax rate from 35% to 21% results in the reduction of the overall U.S. statutory tax rate, including state and local taxes, from 39.0% to 25.9%.
ASC 740, Income Taxes, requires a company to record the effects of a tax law change in the period of enactment; however, shortly after enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118, which allows a company to record a provisional amount when it does not have the necessary information available to complete its accounting for the change in the tax law. The FASB subsequently issued ASU No. 2018-05 to codify SAB 118 by amending ASC 740. ASU No. 2018-05 continues to allow a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared, and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
We recorded income tax expense of $5.8 during the nine months ended September 30, 2018. Included in this amount are the estimated impacts of requiring a current inclusion in U.S. federal income of certain earnings of controlled foreign corporations, allowing a domestic corporation an immediate deduction in the U.S. taxable income for a portion of its foreign-derived intangible income, and the base erosion anti-abuse tax.
In January and April of 2018, the Internal Revenue Service (the “IRS”) issued guidance that provides additional clarification on certain aspects of the transition tax calculation. For the quarter ended September 30, 2018, the application of the additional IRS guidance resulted in a $16.2 million increase in includible untaxed foreign earnings, which resulted in a $5.7 million increase in tax expense. This increase was offset by the tax benefit of the utilization of $16.2 million of net operating loss carryover. The overall impact to tax expense in the quarter ended September 30, 2018, was zero.
22
The total amount of unrecognized tax
benefits as of
September 30, 2018
, and
December 31, 2017
, were $1.
3
, including $0.2 of accrued interest, and $1.5, including $0.4 of accrued interest, respectively. Of the total amount of unrecognized tax benefits as of
September 30, 2018
, $1.
3
represents the amount that, if recognized, would favorably impact our effective income tax rate. It is reasonable to expect that the amount of unrecognized tax benefits will change in the next twelve months; however, we do not expect the change to have a
significant impact on our results of operations or financial condition.
We file income tax returns in the U.S. federal jurisdiction, various states, and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014.
14. Commitments and Contingencies
Legal Matters
We are subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, disputes with our competitors, intellectual property disputes, government audits and proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part.
Our general terms and conditions in customer contracts frequently include a provision indicating that we will indemnify and hold our customers harmless from and against any and all claims alleging that the services and materials furnished by us violate any third party’s patent, trade secret, copyright or other intellectual property right. We are not aware of any material pending litigation concerning these indemnifications.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any.
There can be no certainty that we may not ultimately incur charges in excess of presently established or future financial accruals or insurance coverage. Although occasional adverse decisions or settlements may occur, it is management’s opinion that the final disposition of these proceedings will not, considering the merits of the claims and available resources or reserves and insurance, and based upon the facts and circumstances currently known, have a material adverse effect on our financial position or results of operations.
15. Related Party Transactions
Management Agreements
Prior to our IPO, Ceridian was party to management agreements with affiliates of our Sponsors, Fidelity National Financial, Inc. (“FNF”) and THL Managers VI, LLC (“THLM”). FNF assigned its management agreement to Cannae in November 2017. Pursuant to these management agreements, Cannae and THLM each, respectively, agreed to provide us with financial advisory, strategic, and general oversight services. These management agreements provided that we pay annual management fees to each of Cannae and THLM in an amount equal to the greater of (a) $0.9, or (b) 0.5 percent of Adjusted EBITDA. Adjusted EBITDA, for purposes of the management agreements, was EBITDA as defined in the 2014 Senior Secured Credit Facility, further adjusted to exclude the payments made pursuant to the management agreements and certain stock options or other equity compensation.
In April 2018, the management agreements terminated upon consummation of our IPO. Upon termination, the management agreements provided that we pay a termination fee equal to the net present value of the management fee for a seven-year period, which was $11.3.
We recorded a management fee expense in selling, general, and administrative expense of
$0.5 for the three months ended September 30, 2017, related to these management agreements. During the nine months ended September 30, 2018, and 2017, we recorded a management fee expense in selling, general, and administrative expense of $12.0 and $1.4, respectively, related to these management agreements.
23
Debt
Prior to its split-off from FNF, Cannae was an affiliate of FNF. FNF and its subsidiaries owned $24.0 of the Senior Notes as of December 31, 2017. Based on this ownership, $0.8 in interest payments were made for the three months ended September 30, 2017, and $1.3 and $2.4 during the nine months ended September 30, 2018, and 2017, respectively. FNF and its subsidiaries conducted the debt transactions through third parties in the ordinary course of their business and not directly with us. Following Cannae’s split-off from FNF, FNF retained ownership of the Senior Notes.
Service and Vendor Related Agreements
Ceridian is a party to a service agreement with CompuCom Systems, Inc. (“CompuCom”), an investment portfolio company of THL Partners. Pursuant to the service agreement, CompuCom agrees to provide us with service desk and desk side support services. Pursuant to this arrangement, we made payments to CompuCom totaling $0.6 and $0.9 during the three months ended September 30, 2018, and 2017, respectively, and $1.3 and $2.3 during the nine months ended September 30, 2018, and 2017, respectively.
Other Transactions
On July 23, 2018, Ronald F. Clarke was appointed to our Board of Directors. Mr. Clarke has been the chief executive officer of FleetCor Technologies Inc. (“FleetCor Technologies”) since August 2000 and its chairman of the board of directors since March 2003. We provide services to FleetCor Technologies or one of its wholly owned affiliates through certain commercial arrangements entered into in the ordinary course of business, which include provision of Dayforce HCM services, reseller or referral arrangements whereby we resell or refer FleetCor Technologies services to its customers, and other administrative services. For these services, we have recorded revenue of $0.1 and $0.1 for the three months ended September 30, 2018, and 2017, respectively, and $0.2 and $0.4 for the nine months ended September 30, 2018, and 2017, respectively. We are also a corporate charge card customer of FleetCor Technologies. FleetCor Technologies receives a fee from the merchants from whom purchases are made on the FleetCor Technologies corporate charge card by us. In connection with charge card purchases made by us, FleetCor Technologies has provided us with rebates of approximately $0.1 and $0.2 for the three and nine months ended September 30, 2017, respectively.
We provide Dayforce and related services to The Stronach Group, for which we recorded revenue
$0.2 for the nine months ended September 30, 2018. Alon Ossip, the brother of our chief executive officer, David Ossip, was the chief executive officer, and is currently a minority shareholder, of The Stronach Group.
We provide Dayforce and related services to FNF for which we recorded revenue of $0.1 for the three months ended September 30, 2018, and $0.3 and $0.4 for the nine months ended September 30, 2018, and 2017, respectively.
16. Financial Data by Segment and Geographic Area
Segments
After consideration of the LifeWorks Disposition, management has concluded that we have one operating and reportable segment. This conclusion aligns with how management monitors operating performance, allocates resources, and deploys capital. Please refer to Note 3, “Discontinued Operations,” for further discussion of the LifeWorks Disposition.
Our Solutions
We categorize our solutions into two categories, Cloud and Bureau.
|
|
•
|
Cloud revenue is generated from HCM solutions that are delivered via two cloud offerings, Dayforce and Powerpay. The Dayforce offering is differentiated from our market competition as being a single application with continuous calculation that offers a comprehensive range of functionality, including global HR, payroll, benefits, workforce management, and talent management on web and native iOS and Android platforms. Dayforce revenue is primarily generated from monthly recurring fees charged on a per-employee, per-month (“PEPM”) basis, generally one-month in advance of service. Also included within Dayforce revenue is implementation, staging, and other professional services revenue; revenues from the sale, rental, and maintenance of time clocks; and billable travel expenses. The Powerpay offering is our solution designed primarily for small market Canadian customers. The typical Powerpay customer has fewer than 20 employees, and the majority of the revenue is generated from recurring fees charged on a per-employee, per-process basis. Typical processes include the customer’s payroll runs, year-end tax packages, and delivery of customers’ remittance advices or checks. In addition to the direct revenue earned from the Dayforce and Powerpay offerings, Cloud revenue also includes investment income generated from holding Cloud customer funds in trust before funds are remitted to taxing authorities, Cloud customer employees, or other third parties; and revenue from the sale of third party services.
|
24
|
|
•
|
Bureau revenue is g
enerated primarily from HCM solutions delivered via a service-bureau model. These solutions are delivered via three primary service lines: payroll, payroll-related tax filing services, and outsourced human resource solutions. Revenue from payroll services
is generated from recurring fees charged on a per-process basis. Typical processes include the customer’s payroll runs, year-end tax packages, and delivery of customers’ remittance advices or checks. In addition to customers who use our payroll services, c
ertain customers use our tax filing services on a stand-alone basis. Our outsourced human resource solutions are tailored to meet the needs of individual customers, and entail our contracting to perform many of the duties of a customer’s human resources de
partment, including payroll processing, time and labor management, performance management, and recruiting. We also
perform
individual services for customers, such as check printing, wage attachment and disbursement, and
Affordable Care Act (“
ACA
”)
management. Additional items included in Bureau revenue are custom professional services revenue; investment income generated from holding Bureau customer funds in trust before funds are remitted to taxing authorities, Bureau customer employees, or other
third parties; consulting services related to Bureau offerings; and revenue from the sale of third party services.
|
Revenue by solution is as follows:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Cloud
|
|
$
|
133.0
|
|
|
$
|
103.0
|
|
|
$
|
386.0
|
|
|
$
|
288.0
|
|
|
Bureau
|
|
|
46.6
|
|
|
|
60.5
|
|
|
|
160.1
|
|
|
|
200.4
|
|
|
Total revenue
|
|
$
|
179.6
|
|
|
$
|
163.5
|
|
|
$
|
546.1
|
|
|
$
|
488.4
|
|
17. Net Income (Loss) per Share
We compute net income (loss) per share of common stock using the treasury stock method.
Basic net income (loss) per share is computed by dividing net income (loss) attributable to Ceridian available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.
For the calculation of diluted net income (loss) per share, net income (loss) per share is adjusted by the effect of dilutive securities, including awards under our share-based compensation plans. Diluted net income (loss) per share is computed by dividing the resulting net income (loss) attributable to Ceridian available to common stockholders by the weighted-average number of fully diluted common shares outstanding. During the three months ended September 30, 2017, and the nine months ended September 30, 2018, and 2017, our potential dilutive shares, such as stock options, RSUs, and shares of senior and junior convertible preferred stock were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive.
25
The numerators and denominators of the basic and diluted
net
income (
loss
)
per share computations are calculated as follows:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Ceridian
|
|
$
|
4.4
|
|
|
$
|
(20.1
|
)
|
|
$
|
(63.2
|
)
|
|
$
|
(54.2
|
)
|
|
Less: Loss from discontinued operations
|
|
|
(3.0
|
)
|
|
|
(2.9
|
)
|
|
|
(14.8
|
)
|
|
|
(2.4
|
)
|
|
Net income (loss) from continuing operations attributable to
Ceridian
|
|
|
7.4
|
|
|
|
(17.2
|
)
|
|
|
(48.4
|
)
|
|
|
(51.8
|
)
|
|
Less: Senior Preferred Stock dividends declared
|
|
|
—
|
|
|
|
5.3
|
|
|
|
7.7
|
|
|
|
15.3
|
|
|
Net income (loss) from continuing operations attributable to
Ceridian available to common stockholders
|
|
$
|
7.4
|
|
|
$
|
(22.5
|
)
|
|
$
|
(56.1
|
)
|
|
$
|
(67.1
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic
|
|
|
137,768,764
|
|
|
|
65,281,692
|
|
|
|
105,730,178
|
|
|
|
65,181,373
|
|
|
Effect of dilutive equity instruments
|
|
|
7,295,934
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Weighted-average shares outstanding - diluted
|
|
|
145,064,698
|
|
|
|
65,281,692
|
|
|
|
105,730,178
|
|
|
|
65,181,373
|
|
|
Net income (loss) per share from continuing operations
attributable to Ceridian - basic
|
|
$
|
0.05
|
|
|
$
|
(0.35
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(1.03
|
)
|
|
Net loss per share from discontinued operations - basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.04
|
)
|
|
Net income (loss) per share attributable to Ceridian - basic
|
|
$
|
0.03
|
|
|
$
|
(0.39
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(1.07
|
)
|
|
Net income (loss) per share from continuing operations
attributable to Ceridian - diluted
|
|
$
|
0.05
|
|
|
$
|
(0.35
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(1.03
|
)
|
|
Net loss per share from discontinued operations - diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.04
|
)
|
|
Net income (loss) per share attributable to Ceridian -
diluted
|
|
$
|
0.03
|
|
|
$
|
(0.39
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(1.07
|
)
|
The following potentially dilutive weighted-average shares were excluded from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive:
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Senior convertible preferred stock
|
|
|
—
|
|
|
|
16,802,144
|
|
|
|
7,358,603
|
|
|
|
16,802,144
|
|
|
Junior convertible preferred stock
|
|
|
—
|
|
|
|
58,244,308
|
|
|
|
25,508,456
|
|
|
|
58,244,308
|
|
|
Stock options
|
|
|
148,370
|
|
|
|
11,778,981
|
|
|
|
14,127,557
|
|
|
|
11,349,251
|
|
|
Restricted stock units
|
|
|
—
|
|
|
|
605,990
|
|
|
|
561,836
|
|
|
|
478,325
|
|
26