EX-99.1 11 exhibt991ceridianhcmho.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
 


1



Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Ceridian HCM Holding Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ceridian HCM Holding Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of FASB Accounting Standard Codification (Topic 842) Leases.

Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

2




company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the realizability of deferred tax assets
As discussed in Note 16 to the consolidated financial statements, as of December 31, 2019, the Company had gross deferred tax assets of $124.6 million. The Company records a valuation allowance for the portion of the deferred tax assets that are not expected to be realized. Based on an analysis of future taxable income, the Company reduced the valuation allowance and an income tax benefit of $62.6 million was recognized in the consolidated statement of operations for the year ended December 31, 2019.
We identified the evaluation of the realizability of the deferred tax assets as a critical audit matter. Subjective and complex auditor judgment was required in assessing forecasted future taxable income, including the impact of changes in the Company’s debt and equity structure.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s evaluation of the recoverability of gross deferred tax assets, including controls related to management’s analysis of forecasted future taxable income, including management’s evaluation of the impact of changes in the Company’s debt and equity structure. We compared the Company’s projected taxable income to actual historical results, evaluated management’s consideration of changes in the Company’s debt and equity structure, and evaluated the sensitivity of projected taxable income to the recoverability of the gross deferred tax assets. We involved income tax professionals with specialized skills and knowledge, who assisted in assessing the Company’s evaluation of the realizability of deferred tax assets.
 
Assessment of the stand-alone selling price of the cloud professional services
As discussed in Notes 2 and 13 to the consolidated financial statements, the Company recognized $142 million of cloud professional services revenue for the year ended December 31, 2019. The related contract assets were $43.2 million as of December 31, 2019. The Company’s cloud service arrangements include professional services revenue for the implementation of new customers or customer migrations, followed by access to the Company’s hosted payroll processing solution. Revenue recognized for the professional services and payroll processing performance obligations is based on an allocation of the total transaction price to each performance obligation using their respective stand-alone selling prices. This results in revenue being recognized in an amount that exceeds the amount the Company is contractually allowed to bill their customer, which results in the recognition of a contract asset. The determination of the stand-alone selling price for the performance obligations requires the Company to make assumptions based on market conditions and observable inputs, as well as an estimate of the total professional service hours expected to be incurred in connection with the implementation.
We identified the assessment of the Company’s estimation of the total hours expected to be incurred when determining the stand-alone selling price of the cloud professional services performance obligation for implementation as a critical audit matter. The testing of the professional services hours assumption required a higher degree of auditor subjectivity as the assumption is internally-developed and there is no observable market information.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process for estimating the total expected hours to be incurred in determining the

3




estimated selling price of the cloud professional services performance obligation, as well as internal controls related to the ongoing monitoring and accounting for changes to the total estimated professional services hours during the implementation phase. We evaluated the Company’s ability to accurately estimate the total hours expected to be incurred for the professional services performance obligation by comparing the estimated hours to the actual hours incurred for a sample of contracts. We performed inquiries with the project managers regarding the estimation of the total hours to be incurred for a sample of contracts, and compared the project managers’ estimates to the Company’s revenue model used to determine the estimated selling price of the cloud professional services performance obligation for implementation.

/s/ KPMG LLP
We have served as the Company’s auditor since 1958.
Minneapolis, Minnesota
February 28, 2020


4



Ceridian HCM Holding Inc.
Consolidated Balance Sheets
(Dollars in millions, except share data)

 
 
December 31,
 
 
 
2019
 
 
2018
 
ASSETS
 
 
 

 
 
 
 
 
Current assets:
 
 
 

 
 
 
 

 
     Cash and equivalents
 
$
281.3

 
 
$
217.8

 
     Trade and other receivables, net
 
 
80.4

 
 
 
63.9

 
     Prepaid expenses and other current assets
 
 
57.9

 
 
 
48.9

 
          Total current assets before customer trust funds
 
 
419.6

 
 
 
330.6

 
     Customer trust funds
 
 
3,204.1

 
 
 
2,603.5

 
          Total current assets
 
 
3,623.7

 
 
 
2,934.1

 
Right of use lease asset
 
 
32.0

 
 
 

 
Property, plant, and equipment, net
 
 
128.3

 
 
 
104.4

 
Goodwill
 
 
1,973.5

 
 
 
1,927.4

 
Other intangible assets, net
 
 
177.9

 
 
 
187.5

 
Other assets
 
 
150.3

 
 
 
94.4

 
          Total assets
 
$
6,085.7

 
 
$
5,247.8

 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
     Current portion of long-term debt
 
$
10.8

 
 
$
6.8

 
     Current portion of long-term lease liabilities
 
 
8.8

 
 
 

 
     Accounts payable
 
 
43.2

 
 
 
41.5

 
     Deferred revenue
 
 
25.5

 
 
 
23.2

 
     Employee compensation and benefits
 
 
75.9

 
 
 
54.5

 
     Other accrued expenses
 
 
13.9

 
 
 
23.9

 
          Total current liabilities before customer trust funds obligations
 
 
178.1

 
 
 
149.9

 
     Customer trust funds obligations
 
 
3,193.6

 
 
 
2,619.7

 
          Total current liabilities
 
 
3,371.7

 
 
 
2,769.6

 
Long-term debt, less current portion
 
 
666.3

 
 
 
663.5

 
Employee benefit plans
 
 
117.2

 
 
 
153.3

 
Long-term lease liabilities, less current portion
 
 
30.1

 
 
 

 
Other liabilities
 
 
18.1

 
 
 
45.9

 
          Total liabilities
 
 
4,203.4

 
 
 
3,632.3

 
Commitments and contingencies (Note 18)
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
Common stock, $0.01 par, 500,000,000 shares authorized, 144,386,618 and 139,453,710
   shares issued and outstanding as of December 31, 2019, and 2018, respectively
 
 
1.4

 
 
 
1.4

 
     Additional paid in capital
 
 
2,449.1

 
 
 
2,325.6

 
     Accumulated deficit
 
 
(229.8
)
 
 
 
(335.6
)
 
     Accumulated other comprehensive loss
 
 
(338.4
)
 
 
 
(375.9
)
 
          Total stockholders’ equity
 
 
1,882.3

 
 
 
1,615.5

 
          Total liabilities and equity
 
$
6,085.7

 
 
$
5,247.8

 

See accompanying notes to consolidated financial statements.


5



Ceridian HCM Holding Inc.
Consolidated Statements of Operations
(Dollars in millions, except share and per share data)
 
 
 
Year Ended December 31,
 
 
 
2019
 
 
2018
 
 
2017
 
Revenue:
 
 
 
 
 
 
 

 
 
 
 
 
     Recurring services
 
$
680.1

 
 
$
625.0

 
 
$
573.9

 
     Professional services and other
 
 
144.0

 
 
 
115.7

 
 
 
102.3

 
          Total revenue
 
 
824.1

 
 
 
740.7

 
 
 
676.2

 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
     Recurring services
 
 
201.8

 
 
 
200.3

 
 
 
196.8

 
     Professional services and other
 
 
149.8

 
 
 
132.2

 
 
 
135.0

 
     Product development and management
 
 
67.9

 
 
 
59.0

 
 
 
43.6

 
     Depreciation and amortization
 
 
36.4

 
 
 
34.3

 
 
 
31.3

 
Total cost of revenue
 
 
455.9

 
 
 
425.8

 
 
 
406.7

 
Gross profit
 
 
368.2

 
 
 
314.9

 
 
 
269.5

 
Selling, general and administrative
 
 
295.9

 
 
 
258.8

 
 
 
214.1

 
Operating profit
 
 
72.3

 
 
 
56.1

 
 
 
55.4

 
     Interest expense, net
 
 
32.4

 
 
 
83.2

 
 
 
87.1

 
     Other expense (income), net
 
 
5.6

 
 
 
(0.2
)
 
 
 
8.8

 
Income (loss) from continuing operations before income taxes
 
 
34.3

 
 
 
(26.9
)
 
 
 
(40.5
)
 
Income tax (benefit) expense
 
 
(44.4
)
 
 
 
8.4

 
 
 
(48.5
)
 
Income (loss) from continuing operations
 
 
78.7

 
 
 
(35.3
)
 
 
 
8.0

 
Loss from discontinued operations
 
 

 
 
 
(25.8
)
 
 
 
(6.0
)
 
Net income (loss)
 
 
78.7

 
 
 
(61.1
)
 
 
 
2.0

 
Net loss attributable to noncontrolling interest
 
 

 
 
 
(0.5
)
 
 
 
(1.3
)
 
Net income (loss) attributable to Ceridian
 
$
78.7

 
 
$
(60.6
)
 
 
$
3.3

 
Net income (loss) per share attributable to Ceridian:
 
 
 
 
 
 
 
 
 
 
 
 
     Basic
 
$
0.55

 
 
$
(0.60
)
 
 
$
(0.26
)
 
     Diluted
 
$
0.53

 
 
$
(0.60
)
 
 
$
(0.26
)
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
     Basic
 
 
142,049,112

 
 
 
114,049,682

 
 
 
65,204,960

 
     Diluted
 
 
148,756,592

 
 
 
114,049,682

 
 
 
65,204,960

 

See accompanying notes to consolidated financial statements.


6



Ceridian HCM Holding Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions)

 
 
Year Ended December 31,
 
 
 
2019
 
 
2018
 
 
2017
 
Net income (loss)
 
$
78.7

 
 
$
(61.1
)
 
 
$
2.0

 
Items of other comprehensive income (loss) before income taxes:
 
 
 
 
 
 
 
 
 
 
 
 
     Change in foreign currency translation adjustment
 
 
29.1

 
 
 
(48.7
)
 
 
 
40.6

 
     Change in unrealized gain from invested customer trust funds
 
 
37.7

 
 
 
(10.5
)
 
 
 
(17.3
)
 
     Change in pension liability adjustment (1)
 
 
9.8

 
 
 
(7.6
)
 
 
 
13.8

 
Other comprehensive income (loss) before income taxes
 
 
76.6

 
 
 
(66.8
)
 
 
 
37.1

 
Income tax expense (benefit), net
 
 
12.0

 
 
 
(1.2
)
 
 
 
(3.6
)
 
Other comprehensive income (loss) after income taxes
 
 
64.6

 
 
 
(65.6
)
 
 
 
40.7

 
Comprehensive income (loss)
 
 
143.3

 
 
 
(126.7
)
 
 
 
42.7

 
Comprehensive loss attributable to noncontrolling interest
 
 

 
 
 
(0.5
)
 
 
 
(0.9
)
 
Comprehensive income (loss) attributable to Ceridian
 
$
143.3

 
 
$
(126.2
)
 
 
$
43.6

 

(1)
The amount of the pension liability adjustment recognized in the Consolidated Statements of Operations within other expense (income), net was $10.1 million, $11.7 million, and $10.1 million during the years ended December 31, 2019, 2018, and 2017, respectively.
See accompanying notes to consolidated financial statements.


7






Ceridian HCM Holding Inc.
Consolidated Statements of Stockholders’ Equity
(Dollars in millions, except share data)
 
Senior Preferred
Stock

 
Junior Preferred
Stock

 
Common Stock

 
Additional Paid In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Receivable from Stockholder
 
Total Stockholders Equity
 
Non-controlling Interest
 
Total Equity
 
Shares

 
$
 
Shares

 
$
 
Shares
 
$
 
 
 
 
 
 
 
Balance as of December 31, 2016
16,802,144

 
$
164.3

 
58,244,308

 
$
0.6

 
65,001,037

 
$
0.7

 
$
1,546.8

 
$
(250.1
)
 
$
(351.5
)
 
$
(75.2
)
 
$
1,035.8

 
$
38.7

 
$
1,074.5

Net loss

 

 

 

 

 

 

 
3.3

 

 

 
3.3

 
(1.3
)
 
2.0

Issuance of common stock

 

 

 

 
183,425

 

 
3.2

 

 

 

 
3.2

 

 
3.2

Issuance of common stock under share-based compensation plans

 

 

 

 
729,404

 

 

 

 

 

 

 

 

Share repurchase

 

 

 

 
(627,904
)
 

 
(1.8
)
 

 

 

 
(1.8
)
 

 
(1.8
)
Payment for Issuance of Senior Preferred
Stock

 

 

 

 

 

 

 

 

 
75.2

 
75.2

 

 
75.2

Senior preferred dividends declared

 
20.5

 

 

 

 

 

 
(20.5
)
 

 

 

 

 

Share-based compensation

 

 

 

 

 

 
17.2

 

 

 

 
17.2

 

 
17.2

Foreign currency translation

 

 

 

 

 

 

 

 
40.2

 

 
40.2

 
0.4

 
40.6

Change in unrealized loss, net of tax ($3.6)

 

 

 

 

 

 

 

 
(13.7
)
 

 
(13.7
)
 

 
(13.7
)
Change in minimum pension &
postretirement liability, net of tax of $0.0

 

 

 

 

 

 

 

 
13.8

 

 
13.8

 

 
13.8

Balance as of December 31, 2017
16,802,144

 
$
184.8

 
58,244,308

 
$
0.6

 
65,285,962

 
$
0.7

 
$
1,565.4

 
$
(267.3
)
 
$
(311.0
)
 
$

 
$
1,173.2

 
$
37.8

 
$
1,211.0

Net loss

 

 

 

 

 

 

 
(60.6
)
 

 

 
(60.6
)
 
(0.5
)
 
(61.1
)
Issuance of common stock

 

 

 

 
28,695,455

 
0.3

 
594.7

 

 

 

 
595.0

 

 
595.0

Issuance of common stock under share-based compensation plans

 

 

 

 
3,225,643

 

 
45.0

 

 

 

 
45.0

 

 
45.0

Senior preferred dividends declared

 
7.7

 

 

 

 

 

 
(7.7
)
 

 

 

 

 

Conversion of senior and junior preferred shares
(16,802,144
)
 
(192.5
)
 
(58,244,308
)
 
(0.6
)
 
42,246,650

 
0.4

 
192.7

 

 

 

 

 

 

LifeWorks Disposition

 

 

 

 

 

 
(95.7
)
 

 
0.7

 

 
(95.0
)
 
(37.3
)
 
(132.3
)
Share-based compensation

 

 

 

 

 

 
23.5

 

 

 

 
23.5

 

 
23.5

Foreign currency translation

 

 

 

 

 

 

 

 
(48.7
)
 

 
(48.7
)
 

 
(48.7
)
Change in unrealized loss, net of tax ($1.2)

 

 

 

 

 

 

 

 
(9.3
)
 

 
(9.3
)
 

 
(9.3
)
Change in minimum pension &
postretirement liability, net of tax of $0.0

 

 

 

 

 

 

 

 
(7.6
)
 

 
(7.6
)
 

 
(7.6
)
Balance as of December 31, 2018

 
$

 

 
$

 
139,453,710

 
$
1.4

 
$
2,325.6

 
$
(335.6
)
 
$
(375.9
)
 
$

 
$
1,615.5

 
$

 
$
1,615.5

Cumulative-effect adjustments to accumulated deficit related to the adoptions of ASU 2018-02 (Please refer to Note 2)


 

 

 

 

 

 

 
27.1

 
(27.1
)
 

 

 

 

Net income

 

 

 

 

 

 

 
78.7

 

 

 
78.7

 

 
78.7

Issuance of common stock under share-based compensation plans

 

 

 

 
4,932,908

 

 
87.0

 

 

 

 
87.0

 

 
87.0

Share-based compensation

 

 

 

 

 

 
36.5

 

 

 

 
36.5

 

 
36.5

Foreign currency translation

 

 

 

 

 

 

 

 
29.1

 

 
29.1

 

 
29.1

Change in unrealized loss, net of tax $9.6

 

 

 

 

 

 

 

 
28.1

 

 
28.1

 

 
28.1

Change in minimum pension & postretirement liability, net of tax of $2.4

 

 

 

 

 

 

 

 
7.4

 

 
7.4

 

 
7.4

Balance as of December 31, 2019

 
$

 

 
$

 
144,386,618

 
$
1.4

 
$
2,449.1

 
$
(229.8
)
 
$
(338.4
)
 
$

 
$
1,882.3

 
$

 
$
1,882.3

See accompanying notes to consolidated financial statements.

8



Ceridian HCM Holding Inc.
Consolidated Statements of Cash Flows
(Dollars in millions)
 
 
Year Ended December 31,
 
 
 
2019
 
 
2018
 
 
2017
 
Net income (loss)
 
$
78.7

 
 
$
(61.1
)
 
 
$
2.0

 
Loss from discontinued operations
 
 

 
 
 
25.8

 
 
 
6.0

 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
   activities:
 
 
 
 
 
 
 
 
 
 
 
 
Deferred income tax benefit
 
 
(69.4
)
 
 
 
(16.1
)
 
 
 
(61.2
)
 
Depreciation and amortization
 
 
57.1

 
 
 
56.6

 
 
 
53.8

 
Amortization of debt issuance costs and debt discount
 
 
1.2

 
 
 
2.1

 
 
 
3.7

 
Loss on debt extinguishment
 
 

 
 
 
25.7

 
 
 

 
Net periodic pension and postretirement cost
 
 
5.2

 
 
 
2.7

 
 
 
1.5

 
Provision for doubtful accounts
 
 
3.2

 
 
 
0.7

 
 
 
0.2

 
Share-based compensation
 
 
36.5

 
 
 
23.2

 
 
 
16.1

 
Other
 
 
(0.4
)
 
 
 
(0.4
)
 
 
 
(0.7
)
 
Changes in operating assets and liabilities excluding effects of acquisitions and divestitures:
 
 
 
 
 
 
 
 
 
 
 
 
Trade and other receivables
 
 
(16.4
)
 
 
 
(3.6
)
 
 
 
5.7

 
Prepaid expenses and other current assets
 
 
(8.0
)
 
 
 
0.6

 
 
 
(6.3
)
 
Accounts payable and other accrued expenses
 
 
3.8

 
 
 
(6.4
)
 
 
 
0.1

 
Deferred revenue
 
 
0.8

 
 
 
7.0

 
 
 
4.5

 
Employee compensation and benefits
 
 
(11.1
)
 
 
 
(22.1
)
 
 
 
(26.1
)
 
Accrued interest
 
 

 
 
 
(15.7
)
 
 
 
(4.8
)
 
Accrued taxes
 
 
(11.1
)
 
 
 
8.4

 
 
 
(6.7
)
 
Other assets and liabilities
 
 
(19.5
)
 
 
 
(16.7
)
 
 
 
(17.2
)
 
Net cash provided by (used in) operating activities-continuing operations
 
 
50.6

 
 
 
10.7

 
 
 
(29.4
)
 
Net cash used in operating activities-discontinued operations
 
 

 
 
 
(1.2
)
 
 
 
(10.4
)
 
Net cash provided by (used in) operating activities
 
 
50.6

 
 
 
9.5

 
 
 
(39.8
)
 
Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Purchase of customer trust funds marketable securities
 
 
(408.4
)
 
 
 
(855.2
)
 
 
 
(598.5
)
 
Proceeds from sale and maturity of customer trust funds marketable securities
 
 
374.5

 
 
 
844.3

 
 
 
610.2

 
Expenditures for property, plant, and equipment
 
 
(16.3
)
 
 
 
(8.0
)
 
 
 
(17.5
)
 
Expenditures for software and technology
 
 
(38.9
)
 
 
 
(32.2
)
 
 
 
(33.1
)
 
Acquisition costs, net of cash acquired
 
 
(30.2
)
 
 
 

 
 
 

 
Net proceeds from divestitures
 
 

 
 
 

 
 
 
(0.5
)
 
Net cash used in investing activities-continuing operations
 
 
(119.3
)
 
 
 
(51.1
)
 
 
 
(39.4
)
 
Net cash used in investing activities-discontinued operations
 
 

 
 
 

 
 
 
(0.2
)
 
Net cash used in investing activities
 
 
(119.3
)
 
 
 
(51.1
)
 
 
 
(39.6
)
 
Cash Flows from Financing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Increase (decrease) in customer trust funds obligations, net
 
 
529.9

 
 
 
(1,415.1
)
 
 
 
356.1

 
Net proceeds from issuance of stock
 
 

 
 
 
595.0

 
 
 
78.4

 
Repayment of long-term debt obligations
 
 
(7.2
)
 
 
 
(1,134.0
)
 
 
 
(25.9
)
 
Proceeds from issuance of common stock under share-based compensation plans
 
 
87.0

 
 
 
45.8

 
 
 

 
Repurchase of stock
 
 

 
 
 

 
 
 
(1.8
)
 
Proceeds from debt issuance
 
 

 
 
 
680.0

 
 
 

 
Payment of debt refinancing costs
 
 

 
 
 
(23.3
)
 
 
 

 
Net cash provided by (used in) financing activities
 
 
609.7

 
 
 
(1,251.6
)
 
 
 
406.8

 
Effect of Exchange Rate Changes on Cash
 
 
11.3

 
 
 
(12.8
)
 
 
 
11.0

 
Net increase (decrease) in cash and equivalents
 
 
552.3

 
 
 
(1,306.0
)
 
 
 
338.4

 
Elimination of cash from discontinued operations
 
 

 
 
 
0.5

 
 
 
5.2

 
Cash, restricted cash, and equivalents at beginning of year
 
 
1,106.3

 
 
 
2,411.8

 
 
 
2,068.2

 
Cash, restricted cash, and equivalents at end of year
 
$
1,658.6

 
 
$
1,106.3

 
 
$
2,411.8

 
Reconciliation of cash, restricted cash, and equivalents to the consolidated balance sheets
 
 
 
 
 
 
 
 
 
 
 
 
Cash and equivalents
 
$
281.3

 
 
$
217.8

 
 
$
94.2

 
Restricted cash and equivalents included in customer trust funds
 
$
1,377.3

 
 
$
888.5

 
 
$
2,317.6

 
Total cash, restricted cash, and equivalents
 
$
1,658.6

 
 
$
1,106.3

 
 
$
2,411.8

 
Supplemental Cash Flow Information:
 
 
 
 
 
 
 
 
 
 
 
 
Cash paid for interest
 
$
37.4

 
 
$
74.5

 
 
$
89.7

 
Cash paid for income taxes
 
$
36.2

 
 
$
21.1

 
 
$
21.3

 
Cash received from income tax refunds
 
$
0.3

 
 
$
4.4

 
 
$
1.9

 
See accompanying notes to consolidated financial statements.


9



Ceridian HCM Holding Inc.
Notes to Consolidated Financial Statements

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, 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 million 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 (Dollars in millions):

Gross proceeds
$
631.3

 
Less:
 
 
 
     Underwriters' discount and commissions
 
29.2

 
     IPO-related expenses
 
11.8

 
     Redemption of 11% Senior Notes due 2021 (Note 10)
 
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 fee
 
11.3

 
     Debt refinancing expenses
 
11.4

 
Cash to balance sheet
$
68.6

 

Since our IPO, we have completed multiple secondary offerings, in which certain of our stockholders (the “Selling Stockholders”) have sold common stock in underwritten public offerings. All proceeds from the sale of this common stock went to the Selling Stockholders. Our secondary offerings were as follows:

12,650,000 shares of common stock sold at a public offering price of $36.00 per share on November 16, 2018
14,222,142 shares of common stock sold at a public offering price of $50.50 per share on March 22, 2019 (including 1,222,142 shares purchased pursuant to the underwriters’ option to purchase additional shares on April 3, 2019)
8,000,000 shares of common stock sold at a public offering price of $50.50 per share on May 23, 2019
10,000,000 shares of common stock sold at a public offering price of $49.75 per share on August 8, 2019
9,000,000 shares of common stock sold at a public offering price of $56.30 per share on September 6, 2019
10,000,000 shares of common stock sold at a public offering price of $53.08 per share on November 15, 2019
We incurred $2.9 million and $1.3 million of expenses related to our secondary offerings during the years ended December 31, 2019, and 2018, respectively. Expenses associated with our secondary offerings are recorded within selling, general, and administrative expense in our consolidated statements of operations.


2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The accompanying consolidated financial statements include the operations

10



and accounts of Ceridian and all subsidiaries, as well as any variable interest entity (“VIE”) in which we have controlling financial interest. All intercompany balances and transactions have been eliminated from our consolidated financial statements.
We consolidate the grantor trusts that hold funds provided by our payroll and tax filing customers pending remittance to employees of those customers or tax authorities in the United States and Canada, although Ceridian does not own the grantor trusts. Under consolidation accounting, the enterprise with a controlling financial interest consolidates a VIE. A controlling financial interest in an entity is determined through analysis that identifies the primary beneficiary which has (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. In addition, ongoing reassessments must be performed to confirm whether an enterprise is the primary beneficiary of a VIE. The grantor trusts are VIEs, and we are deemed to have a controlling financial interest as the primary beneficiary. Please refer to Note 6, “Customer Trust Funds,” for further information on our accounting for these funds.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and our 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 include the assignment of fair values to goodwill and other intangible assets and testing for impairment; 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. Further discussion on these estimates can be found in related disclosures elsewhere in our notes to the consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Cash and Equivalents
As of December 31, 2019, and 2018, cash and equivalents were comprised of cash held in bank accounts and investments with an original maturity of three months or less.
Concentrations
Cash deposits of client and corporate funds are maintained primarily in large credit-worthy financial institutions in the countries in which we operate. These deposits may exceed the amount of any deposit insurance that may be available through government agencies. All deliverable securities are held in custody with large credit-worthy financial institutions, which bear the risk of custodial loss. Non-deliverable securities, primarily money market securities, are held in custody by large, credit-worthy broker-dealers and financial institutions.
Trade and Other Receivables, Net
Trade and other receivables balances are presented on the consolidated balance sheets net of the allowance for doubtful accounts of $2.4 million and $1.3 million and the reserve for sales adjustments of $3.7 million and $3.8 million as of December 31, 2019, and 2018, respectively. We experience credit losses on accounts receivable and, accordingly, must make estimates related to the ultimate collection of the receivables. Specifically, management analyzes accounts receivable, historical bad debt experience, customer concentrations, customer creditworthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. We estimate the reserve for sales adjustment based on historical sales adjustment experience. We write off accounts receivable when we determine that the accounts are uncollectible, generally upon customer bankruptcy or the customer’s nonresponse to continued collection efforts.

11



Property, Plant, and Equipment, Net
Our property, plant, and equipment assets are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the shorter of the remaining lease term or estimated useful life of the related assets, which are generally as follows:
 
Buildings
 
40 years
Building improvements
 
5 years
Machinery and equipment
 
4-6 years
Computer equipment
 
3-4 years

Repairs and maintenance costs are expensed as incurred. We capitalized interest of $0.8 million and $0.5 million in property, plant, and equipment, net during the years ended December 31, 2019, and 2018, respectively. Property, plant, and equipment assets are assessed for impairment as described under the heading “Impairment of Long-Lived Assets” below.
Assignment of Fair Values Upon Acquisition of Goodwill and Other Intangible Assets
In the event of a business combination where we are the acquiring party, we are required to assign fair values to all identifiable assets and liabilities acquired, including intangible assets, such as customer lists, identifiable intangible trade names, technology, and non-compete agreements. We are also required to determine the useful life for definite-lived identifiable intangible assets acquired. These determinations require significant judgments, estimates, and assumptions; and, when appropriate, we utilize the assistance of third-party valuation consultants. The remainder of the purchase price of the acquired business not assigned to identifiable assets or liabilities is then recorded as goodwill.
Goodwill and Intangible Assets
Goodwill, which represents the excess purchase price over the fair value of net assets of businesses acquired, is assigned to reporting units based on the benefits derived from the acquisition. Goodwill and indefinite-lived intangibles are not amortized against earnings, but instead are subject to impairment review on at least an annual basis. We perform our annual assessment of goodwill and indefinite-lived intangible balances as of October 1 of each year. There was no indication of impairment at October 1, 2019.
We assess goodwill impairment risk by first performing a qualitative review of entity-specific, industry, market, and general economic factors for each reporting unit. If the qualitative assessment indicates it is more likely than not the fair value of a reporting unit is less than the carrying amount, we apply a quantitative test. The quantitative test compares the reporting unit’s estimated fair value with its carrying amount. In estimating fair value of our reporting units, we use a combination of the income approach and the market-based approach. A number of significant assumptions and estimates are involved in determining the current fair value of the reporting units, including operating cash flows, markets and market share, sales volumes and prices, and working capital changes. We consider historical experience and all available information at the time the fair values of our reporting units are estimated. However, fair values that could be realized in an actual transaction may differ from those used to evaluate the goodwill for impairment. The evaluation of impairment involves comparing the current fair value of the reporting unit to the carrying amount. To the extent that the carrying amount of goodwill of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recognized.
Intangible assets represent amounts assigned to specifically identifiable intangible assets at the time of an acquisition. Definite-lived assets are amortized on a straight-line basis generally over the following periods:
 
Customer lists and relationships
 
5-15 years
Trade name
 
3 years
Technology
 
3-4 years

Indefinite-lived intangible assets, which consist of trade names, are tested for impairment on an annual basis, or more frequently if certain events or circumstances occur that could indicate impairment. When evaluating whether the indefinite-lived intangible assets are impaired, we first perform a qualitative review. If the qualitative assessment indicates it is more likely than not the fair value of an indefinite-lived intangible asset is less than the carrying amount, a quantitative test is applied and, the carrying amount is compared to its estimated fair value. The estimate of fair value is based on a relief from royalty

12



method which calculates the cost savings associated with owning rather than licensing the trade name. An estimated royalty rate is applied to forecasted revenue and the resulting cash flows are discounted. Definite-lived assets are assessed for impairment as described under the heading “Impairment of Long-Lived Assets” below.
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. Research and development costs, product management, and other software maintenance costs related to software development are expensed as incurred.
We had capitalized software costs, net of accumulated amortization, of $70.4 million and $61.9 million as of December 31, 2019, and 2018, respectively, included in property, plant, and equipment, net in the accompanying consolidated balance sheets. We amortize software costs on a straight-line basis over the expected life of the software, generally a range of two to seven years. Amortization of software costs totaled $28.3 million, $26.2 million, and $23.6 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, net, capitalized software, net, and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds the fair value of the asset group.
Deferred Costs
Deferred costs primarily consist of deferred sales commissions. Sales commissions paid based on the annual contract value of a signed customer contract are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commission paid based on the annual contract value are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be five years.
Deferred costs included within Other assets on our consolidated balance sheets were $106.4 million and $83.5 million as of December 31, 2019, and 2018, respectively. Amortization expense for the deferred costs was $32.2 million, $26.2 million, and $21.2 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Revenue Recognition
The core principle of ASC Topic 606 is that revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. In accordance with ASC Topic 606, we perform the following steps to determine revenue to be recognized:
1)
Identify the contract(s) with a customer;
2)
Identify the performance obligations in the contract;
3)
Determine the transaction price;
4)
Allocate the transaction price to the performance obligations in the contract; and
5)
Recognize revenue when (or as) we satisfy a performance obligation.
The significant majority of our two major revenue sources (recurring and professional services and other) are derived from contracts with customers. Recurring revenues are primarily related to our cloud subscription performance obligations. Professional services and other revenues are primarily related to professional services for our cloud customers (including implementation services to activate new accounts, as well as post-go live professional services typically billed on a time and materials basis) and, to a much lesser extent, fees for other non-recurring services, including sales of time clocks and certain client reimbursable out-of-pocket expenses. Fees charged to cloud subscription performance obligations are generally priced

13



either on a per-employee, per-month (“PEPM”) basis for a given month or on a per-employee, per-process basis for a given process, both based on usage; and fees charged for professional services are typically priced on a fixed fee basis for activating new accounts and on a time and materials basis for post go-live professional services.
Our recurring cloud subscription performance obligations are generally priced based on the number of active customer employees, as of the signing of the contract, at the contract PEPM rate over the initial contract term. Our professional services are generally based on a fixed fee charged to our customers for activating new accounts and on a time and materials basis for post go-live professional services. There is typically no variable consideration related to our recurring cloud subscriptions or our activation services, nor do they include a significant financing component, non-cash consideration, or consideration payable to a customer. Our recurring cloud subscriptions are typically billed one month in advance while our professional services are billed over the implementation period for activation of new accounts and as work is performed for post go-live professional services.
Our cloud services arrangements include multiple performance obligations, and transaction price allocations are based on the stand-alone selling price ("SSP") for each performance obligation. Our contract renewal rates serve as an observable input to establish SSP for our recurring cloud subscription performance obligations. The SSP for professional services performance obligations is estimated based on market conditions and observable inputs, including rates charged by third parties to perform implementation services.
For our performance obligations, the consideration allocated to cloud subscription revenues is recognized as recurring revenues, typically commencing with the date the customer processes their first live payroll using the solution (referred to as the "go-live" date). The consideration allocated to professional services to activate a new account is recognized as professional services revenues based on the proportion of total work performed, using reasonably dependable estimates (in relation to progression through the implementation phase), by solution
Recurring Services Revenues
Revenues are presented within the consolidated statements of operations in two categories: recurring services and professional services and other. Recurring services revenues consist of monthly fees that we charge for our Cloud and Bureau solutions. For our Dayforce solutions, we primarily charge monthly recurring fees on a per employee, per month (“PEPM”) basis, generally one-month in advance of service, based on the number and type of solutions provided to the customer and the number of employees at the customer. We charge Powerpay customers monthly recurring fees on a per-employee, per-process basis. For our Bureau solutions, we typically charge monthly recurring fees on a per-process basis. The typical recurring services customer contract has an initial term of three years. The initial recurring services contracts have general acceptance criteria that consist of the completion of user acceptance testing. Any credits related to service level commitments are recognized as incurred, as service level failures are not anticipated at contract signing. Should a customer cancel the initial contract, an early termination fee may be applicable, and revenue is recognized upon collection. We also generate recurring services revenue from investment income on our Cloud and Bureau customer funds held in trust before such funds are remitted to taxing authorities, customer employees, or other third parties. We refer to this investment income as float revenue. Please refer to Note 13, “Revenue,” for a full description of our sources of revenue.
Professional Services and Other Revenues
Professional services and other revenues consist primarily of charges relating to the work performed to assist customers with the planning, design, and implementation of their solutions. Also included in professional services are any related training services, post-implementation professional services, and purchased time clocks. We also generate professional services and other revenues from custom professional services and consulting services that we provide and for certain third-party services that we arrange for our Bureau customers. Professional services revenue is primarily recognized as hours are incurred.
Costs and Expenses
Cost of Revenue
Cost of revenue consists of costs to deliver our revenue-producing services. Most of these costs are recognized as incurred, that is, as we become obligated to pay for them. Some costs of revenue are recognized in the period that a service is sold and delivered. Other costs of revenue are recognized over the period of use or in proportion to the related revenue.
The costs recognized as incurred consist primarily of customer service staff costs, customer technical support costs, implementation personnel costs, costs of hosting applications, consulting and purchased services, delivery services, and

14



royalties. The costs of revenue recognized over the period of use are depreciation and amortization, rentals of facilities and equipment, and direct and incremental costs associated with deferred implementation service revenue.
Cost of recurring services revenues primarily consists of costs to provide maintenance and technical support to our customers, and the costs of hosting our applications. The cost of recurring services revenues includes compensation and other employee-related expenses for data center staff, payments to outside service providers, data center, and networking expenses.
Cost of professional services and other revenues primarily consists of costs to provide implementation consulting services and training to our customers, as well as the cost of time clocks. Costs to provide implementation consulting services include compensation and other employee-related expenses for professional services staff, costs of subcontractors, and travel.
Product development and management expense includes costs related to software development activities that do not qualify for capitalization, such as development, quality assurance, testing of new technologies, and enhancements to our existing solutions that do not result in additional functionality. Product development and management expense also includes costs related to the management of our service offerings. Research and development expense, which is included within product development and management expense, was $34.1 million, $29.6 million, and $19.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Depreciation and amortization related to cost of revenue primarily consists of amortization of capitalized software.
Selling, General, and Administrative Expense
Selling expense includes costs related to maintaining a direct marketing infrastructure and sales force and other direct marketing efforts, such as marketing events, advertising, telemarketing, direct mail, and trade shows. Advertising costs are expensed as incurred. Advertising expense was $5.4 million, $5.8 million, and $5.6 million for the years ended December 31, 2019, 2018, and 2017, respectively.
General and administrative expense includes costs that are not directly related to delivery of services, selling efforts, or product development, primarily consisting of corporate-level costs, such as administration, finance, legal, and human resources. Also included in this category are depreciation, and amortization of other intangible assets not reflected in cost of revenue, and the provision for doubtful accounts receivable.
Other Expense (Income), Net
Other expense (income), net includes the results of transactions that are not appropriately classified in another category. These items are primarily foreign currency translation gains and losses resulting mainly from intercompany receivables and payables denominated in currencies other than the subsidiary’s functional currency, net periodic pension costs, environmental reserve charges, and charges related to the impairment of asset values.
Income Taxes
Income taxes have been provided for using the asset and liability method. The asset and liability method requires an asset and liability based approach in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the financial reporting basis and the tax basis of assets and liabilities as adjusted for the expected benefits of utilizing net operating loss carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, is reflected in the consolidated financial statements in the period of enactment.
We classify interest and penalties related to income taxes as a component of income tax expense (benefit).
Fair Value of Financial Instruments
The carrying amounts of cash and equivalents, trade and other receivables, net, customer trust funds obligations, customer advance payments, and accounts payable approximate fair value because of the short-term nature of these items.

15



Share-Based Compensation
Our employees participate in share-based compensation plans. Under the fair value recognition provisions of share-based compensation accounting, we measure share-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the period during which an employee is required to provide services in exchange for the award.
We use the Black-Scholes standard option pricing model (“Black-Scholes model”) to determine the fair value of stock awards with term-based vesting conditions. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by the value of our common stock as well as other inputs and assumptions described below. Prior to our IPO, the value of our common stock was determined by the Board of Directors with assistance from a third-party valuation expert.
If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we adopt a different valuation model, future periods may differ significantly from what we have recorded in the current period and could materially affect our operating results.
To determine the fair value of both term- and performance-based stock awards, the risk-free interest rate used was based on the implied yield currently available on U.S. Treasury zero coupon issues with remaining term equal to the contractual term of the performance-based options and the expected term of the term-based awards. Given our limited history as a public company, the estimated volatility of our common stock is based on volatility data for selected comparable public companies over the expected term of our stock awards. Because we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of zero. The amount of share-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest.
We estimate option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We analyze historical data to estimate pre-vesting forfeitures and record share-based compensation expense for those awards expected to vest. We recognize term-based stock compensation expense using the straight-line method.
Pension and Other Postretirement Benefits Liability
We present information about our pension and postretirement benefit plans in Note 11 to our consolidated financial statements, “Employee Benefit Plans.” Liabilities and expenses for pensions and other postretirement benefits are determined with the assistance of third-party actuaries, using actuarial methodologies and incorporating significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions relating to the employee workforce (medical costs, retirement age, and mortality). The discount rate assumption utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The impact of a change in the discount rate of 25 basis points would be approximately $13 million on the liabilities and $0.1 million on pre-tax earnings in the following year. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations and is generally applied to a five-year average market value of assets. A change in the assumption for the long-term rate of return on plan assets of 25 basis points would impact pre-tax earnings by approximately $1 million. At December 31, 2018, we updated our mortality assumptions utilizing an improvement scale issued by the Society of Actuaries in October 2018, which resulted in a $1.5 million reduction in the projected benefit obligation. At December 31, 2019, we updated our mortality assumptions utilizing a new base mortality table and improvement scale issued by the Society of Actuaries in October 2019, which resulted in a $8.5 million reduction in the projected benefit obligation.
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 subsidiaries that are due to changes in exchange rates between the U.S. dollar and the subsidiaries’ functional currency as foreign currency translation within accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders’ equity and comprehensive income (loss). Gains and losses from transactions and translation of assets and liabilities denominated in currencies other than the functional currency of the subsidiaries are recorded in the consolidated statements of operations within other expense (income), net.

16



Recently Issued and Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which was intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. This standard requires balance sheet recognition for both financing leases and operating leases. In July 2018, the FASB issued ASU No. 2018-11 “Leases (Topic 842): Targeted Improvement,” which allowed an additional (and optional) transition method to adopt the new lease requirements. We have adopted ASU No. 2016-02 and ASU No. 2018-11 as of January 1, 2019. Please refer to Note 17, “Leases,” for additional information about our leasing arrangements.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income,” in response to a narrow-scope financial reporting issue that arose as a consequence of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The amendment in this update allows entities to reclassify from accumulated other comprehensive income to retained earnings, the impact of the reduced federal statutory tax rate for corporations included in the Tax Act. We have adopted this guidance as of January 1, 2019, resulting in an increase in accumulated other comprehensive loss of $27.1 million, and a decrease in accumulated deficit for the same amount on our consolidated balance sheets. As of January 1, 2019, we have changed our policy for releasing income tax effects from accumulated other comprehensive loss to comply with this guidance, which is considered a change in accounting principle.
In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans,” which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This update removes disclosures that are no longer considered cost beneficial, adds disclosures identified as relevant, and clarifies certain specific requirements of disclosures to improve the effectiveness of disclosures in the notes to financial statements. The amendments in this update are effective for public business entities for fiscal years ending after December 15, 2020. Early adoption is permitted. The amendments in this update should be applied on a retrospective basis to all periods presented. We are currently evaluating the impact of the adoption of this standard.
3. Discontinued Operations
The following dispositions represented strategic shifts in our overall business and had a significant impact on the consolidated financial statement results. Therefore, they have been presented as discontinued operations in our consolidated financial statements and accompanying notes for all periods presented.
Life Works Disposition  
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 interest in us (the “LifeWorks Disposition”). Ceridian’s net book value related to LifeWorks of $95.7 million was recorded as a distribution through additional paid in capital within our consolidated balance sheet during the second quarter of 2018. During the year ended December 31, 2018, there was a loss attributable to the noncontrolling interest of $0.5 million. 
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

 
 
Year Ended December 31,
 
 
 
2018
 
 
2017
 
 
 
(Dollars in millions)
 
Net revenues
 
$
28.3

 
 
$
79.9

 
Loss from operations before income taxes
 
 
(0.9
)
 
 
 
(0.4
)
 
Income tax expense
 
 
(24.9
)
 
 
 
(4.9
)
 
Loss from discontinued operations, net of
   income taxes
 
$
(25.8
)
 
 
$
(5.3
)
 
Depreciation and amortization
 
$
1.4

 
 
$
4.1

 

17




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”). For the year ended December 31, 2017, the UK Business had a loss from discontinued operations of $1.0 million.

Sale of Divested Benefits Continuation Businesses
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”). For the year ended December 31, 2017, the Divested Benefits Continuation Businesses had income from discontinued operations, net of income taxes of $0.3 million.
4. Business Combinations
On September 6, 2019, we entered into a purchase agreement with the shareholders of Lusworth Holding Pty Ltd. (“RITEQ”), an Australian-based corporation, to acquire 100% of the issued and outstanding shares of RITEQ for approximately $20.1 million, subject to certain purchase price adjustments. RITEQ is a provider of workforce management solutions and operates within Australia, New Zealand, and the United Kingdom. The share purchase transaction was completed on September 13, 2019.
The financial results of RITEQ have been included within our consolidated financial statements as of the acquisition date. The acquisition of RITEQ was recorded using the acquisition method of accounting and recognized the assets and liabilities assumed at their fair value. As of September 30, 2019, we conducted a preliminary assessment of acquired assets and liabilities related to the acquisition of RITEQ. The allocation of the purchase price to goodwill was completed as of December 31, 2019. The major classes of assets and liabilities to which we allocated the purchase price were as follows:

 
(Dollars in millions)
 
Cash and equivalents
$
0.7

 
Trade and other receivables, net
 
1.3

 
Goodwill
 
16.7

 
Other intangible assets, net
 
4.8

 
Other assets
 
1.0

 
Accounts payable
 
(0.6
)
 
Deferred revenue
 
(1.3
)
 
Employee compensation and benefits
 
(1.1
)
 
Other liabilities
 
(1.4
)
 
     Total purchase price
$
20.1

 

5. 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). 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.
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

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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 December 31, 2019, our financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:

 
 
Total
 
 
Level 1
 
 
Level 2
 
 
 
Level 3
 
 
 
(Dollars in millions)
 
Assets
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 
 

 
Available for sale customer trust funds assets
 
$
1,826.8

 
 
$

 
 
$
1,826.8

 
(a)
 
$

 
Total assets measured at fair value
 
$
1,826.8

 
 
$

 
 
$
1,826.8

 
 
 
$

 

As of December 31, 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
 
 
 
(Dollars in millions)
 
Assets
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 
 

 
Available for sale customer trust funds assets
 
$
1,715.0

 
 
$

 
 
$
1,715.0

 
(a)
 
$

 
Total assets measured at fair value
 
$
1,715.0

 
 
$

 
 
$
1,715.0

 
 
 
$

 

(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 years ended December 31, 2019, and 2018, we did not re-measure any financial assets or liabilities at fair value on a nonrecurring basis. Assets acquired and liabilities assumed as part of a business combination are measured at fair value. Please refer to Note 4, “Business Combinations,” for additional information on our business combinations and the related non-recurring fair value measurement of the assets acquired and liabilities assumed.
6. 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 authorities; 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.

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Our customer trust funds are held and invested with the primary objectives being to protect the principal balance and to ensure adequate liquidity to meet cash flow requirements. Accordingly, we maintain on average approximately 47% 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 on average approximately 53% 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.
Financial Statement Presentation
Investment income from invested customer trust funds constitutes a component of our compensation for providing services under agreements with our customers. Investment income from invested customer trust funds included in revenue amounted to $80.2 million, $67.0 million, and $46.5 million for the years ended December 31, 2019, 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 December 31, 2019, and 2018, is comprised of the original cost of assets acquired. The amortized cost and fair values of investments of customer trust funds available for sale at December 31, 2019, and 2018, were as follows:
Investments of Customer Trust Funds at December 31, 2019

 
 
Amortized
 
 
Gross Unrealized
 
 
Fair
 
 
 
Cost
 
 
Gain
 
 
Loss
 
 
Value
 
 
 
(Dollars in millions)
 
Money market securities, investments carried at cost
   and other cash equivalents
 
$
1,348.1

 
 
$

 
 
$

 
 
$
1,348.1

 
Available for sale investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     U.S. government and agency securities
 
 
542.4

 
 
 
7.1

 
 
 
(0.3
)
 
 
 
549.2

 
     Canadian and provincial government securities
 
 
406.7

 
 
 
5.4

 
 
 
(0.7
)
 
 
 
411.4

 
     Corporate debt securities
 
 
562.2

 
 
 
9.0

 
 
 
(0.3
)
 
 
 
570.9

 
     Asset-backed securities
 
 
270.0

 
 
 
1.7

 
 
 
(0.3
)
 
 
 
271.4

 
     Mortgage-backed securities
 
 
19.8

 
 
 
0.2

 
 
 
(0.1
)
 
 
 
19.9

 
     Other securities
 
 
4.0

 
 
 

 
 
 

 
 
 
4.0

 
          Total available for sale investments
 
 
1,805.1

 
 
 
23.4

 
 
 
(1.7
)
 
 
 
1,826.8

 
          Invested customer trust funds
 
 
3,153.2

 
 
$
23.4

 
 
$
(1.7
)
 
 
 
3,174.9

 
Trust receivables (a)
 
 
40.4

 
 
 
 

 
 
 
 

 
 
 
29.2

 
Total customer trust funds
 
$
3,193.6

 
 
 
 

 
 
 
 

 
 
$
3,204.1

 
 
(a)
The fair value of trust receivable as of December 31, 2019, includes a loss of $11.2 million related to unrecovered duplicate payments resulting from the September 26, 2019, isolated service incident. Ceridian is liable for these unrecovered duplicate payments and will reimburse the customer trust for the resulting losses. Please refer to Note 18, “Commitments and Contingencies,” for further discussion of the September 26, 2019, isolated service incident.

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Investments of Customer Trust Funds at December 31, 2018

 
 
Amortized
 
 
Gross Unrealized
 
 
Fair
 
 
 
Cost
 
 
Gain
 
 
Loss
 
 
Value
 
 
 
(Dollars in millions)
 
Money market securities, investments carried at cost
   and other cash equivalents
 
$
876.9

 
 
$

 
 
$

 
 
$
876.9

 
Available for sale investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
 
 
573.4

 
 
 
0.2

 
 
 
(11.4
)
 
 
 
562.2

 
Canadian and provincial government securities
 
 
392.5

 
 
 
3.4

 
 
 
(1.4
)
 
 
 
394.5

 
Corporate debt securities
 
 
495.0

 
 
 
0.5

 
 
 
(4.7
)
 
 
 
490.8

 
Asset-backed securities
 
 
247.1

 
 
 
0.2

 
 
 
(2.7
)
 
 
 
244.6