8-K/A

0001193125-17-030639.txt : 20170203 0001193125-17-030639.hdr.sgml : 20170203 20170203153902 ACCESSION NUMBER: 0001193125-17-030639 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20161128 ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20170203 DATE AS OF CHANGE: 20170203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAGEWORKS, INC. CENTRAL INDEX KEY: 0001158863 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 943351864 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-35232 FILM NUMBER: 17571954 BUSINESS ADDRESS: STREET 1: 1100 PARK PLACE STREET 2: 4TH FLOOR CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 650-557-5200 MAIL ADDRESS: STREET 1: 1100 PARK PLACE STREET 2: 4TH FLOOR CITY: SAN MATEO STATE: CA ZIP: 94403 FORMER COMPANY: FORMER CONFORMED NAME: WAGEWORKS INC DATE OF NAME CHANGE: 20010907 8-K/A 1 d341908d8ka.htm 8-K/A 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

November 28, 2016

WageWorks, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-35232

94-3351864

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

1100 Park Place, 4th Floor

San Mateo, California 94403

(Address of principal executive offices, including zip code)

(650) 577-5200

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

EXPLANATORY NOTE

This Amendment No. 1 on Form 8-K/A is being filed by WageWorks, Inc. (the “Company”) to amend the Current Report on Form 8-K filed on November 28, 2016 (the “Original Report”), solely to provide the disclosures required by Item 9.01 of the Form 8-K that were not previously filed with the Original Report. Except as provided herein, the disclosures made in the Original Report remain unchanged.

Item 2.01. Completion of Acquisition or Disposition of Assets.

Pursuant to the terms and conditions of that certain Asset Purchase Agreement, dated as of November 1, 2016 (the “APA”), by and the Company, on the one hand, and ADP, LLC, a Delaware limited liability company (“ADP LLC”), and ADP Benefit Services KY, Inc., a Kentucky corporation (“ADP Benefit Services” and, together with ADP LLC, “ADP”), on the other hand, the Company has purchased certain of ADP’s assets (excluding client contracts, among other assets), and has assumed certain of ADP’s liabilities, in each case, relating to ADP’s (i) Consumer Health & Spending Accounts (CHSA) business (consisting of the flexible spending accounts (FSA), health reimbursement arrangements (HRA), health spending accounts (HSA), tuition reimbursement, and commuter services businesses) (the “CHSA Business”), and (ii) COBRA business (consisting of the COBRA and direct bill businesses) (the “COBRA Business” and, the COBRA Business together with the CHSA Business, the “Business”), in each case, subject to the terms and conditions of the APA (including, but not limited to, certain exclusions in respect of specific assets and liabilities relating to the Business) (the “Transaction”).

In connection with the Transaction, the Company filed the Original Form 8-K describing the acquisition. The Company is now filing this amendment to include the historical financial statements and pro forma financial information required by Item 9.01of Form 8-K, to amend and supplement the disclosures in the Original Form 8-K. The historical financial statements and pro forma financial information relating to the Transaction described in Item 9.01 below should be read in conjunction with the Original Form 8-K and this amendment.

Item 9.01. Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

•

separate historical audited financial statements of the Company as of and for the year ended December 31, 2015 and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as incorporated by reference in the Company’s Form 10-K (file number 161456083);

•

separate historical unaudited financial statements of the Company as of and for the nine months ended September 30, 2016 and the related notes included in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2016 as incorporated by reference in the Company’s Form 10-Q (file number 1619984761);

•

separate historical audited abbreviated financial statements of the ADP COBRA/CHSA Business as of and for the three years ended June 30, 2016 and the related notes included in the ADP COBRA/CHSA Business audited abbreviated financial statements for the three years ended June 30, 2016 as Exhibit 99.1;

•

separate historical unaudited abbreviated financial statements of the ADP COBRA/CHSA Business as of and for the three months ended September 30, 2016 and the related notes included in the ADP COBRA/CHSA Business unaudited abbreviated financial statements for the period ended September 30, 2016 as Exhibit 99.2.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined financial statements of WageWorks, Inc. and the ADP COBRA/CHSA Business as of and for the nine months ended September 30, 2016, and for the year ended December 31, 2015, and the notes related thereto, that give effect to the Transaction required by this item are filed as Exhibit 99.3 to this Form 8-K/A.

(c) Not applicable.

(d) Exhibits:

The following exhibits are furnished with this report:


Exhibit Number		Description

23.1		Consent of Deloitte & Touche LLP, independent registered public accounting firm.

99.1		Audited abbreviated financial statements of the ADP COBRA/CHSA Business for the three years ended June 30, 2016.

99.2		Unaudited abbreviated financial statements of the ADP COBRA/CHSA Business for the three months ended September 30, 2016.

99.3		Unaudited pro forma condensed combined financial statements of WageWorks, Inc. and the ADP COBRA/CHSA Business as of and for the nine months ended September 30, 2016, and for the year ended December 31, 2015, and the notes related thereto, that give effect to the Transaction.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	WAGEWORKS, INC.

By:	/s/ Joseph L. Jackson
	Name:	Joseph L. Jackson
	Title:	Chief Executive Officer

Date: February 3, 2017

EXHIBIT INDEX


Exhibit No.		Description

23.1		Consent of Deloitte & Touche LLP, independent registered public accounting firm.

99.1		Audited abbreviated financial statements of the ADP COBRA/CHSA Business for the three years ended June 30, 2016.

99.2		Unaudited abbreviated financial statements of the ADP COBRA/CHSA Business for the three months ended September 30, 2016.

99.3		Unaudited pro forma condensed combined financial statements of WageWorks, Inc. and the ADP COBRA/CHSA Business as of and for the nine months ended September 30, 2016, and for the year ended December 31, 2015, and the notes related thereto, that give effect to the Transaction.

EX-23.1 2 d341908dex231.htm EX-23.1 EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statement Nos. 333-181300, 333-188658, 333-194863, 333-204219, and 333-211559 on Form S-8 and Registration No. 333-190567 on Form S-3 of WageWorks, Inc. of our report dated November 1, 2016, relating to the statements of assets to be acquired and liabilities to be assumed of the ADP COBRA/CHSA Business as of June 30, 2015 and 2016 and the related statements of revenues and direct expenses for each of the three years in the period ended June 30, 2016 (which report expresses an unmodified opinion and includes an emphasis-of-matter paragraph referring of the purpose of the statement) appearing in this Current Report on Form 8-K/A of WageWorks, Inc. dated February 3, 2017.

/s/ DELOITTE & TOUCHE LLP

New York, New York

February 3, 2017

EX-99.1 3 d341908dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)

Abbreviated Financial Statements

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)


Table of Contents

INDEPENDENT AUDITORS’ REPORT			2

FINANCIAL STATEMENTS
Statements of Assets Acquired and Liabilities Assumed as of June 30, 2016 and 2015			4
Statements of Revenue and Direct Expenses for the years ended June 30, 2016, 2015, and 2014			5
Notes to Abbreviated Financial Statements			6

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

Automatic Data Processing, Inc.

Roseland, NJ

We have audited the accompanying financial statements of the ADP COBRA/CHSA Business (the “Business”) (product lines of Automatic Data Processing, Inc), which comprise the statements of assets to be acquired and liabilities to be assumed as of June 30, 2015 and 2016 and the related statements of revenues and direct expenses for each of the three years in the period ended June 30, 2016, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the assets to be acquired and the liabilities to be assumed of the Business as of June 30, 2015 and 2016, and its revenues and direct expenses for each of the three years in the period ended June 30, 2016, in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note 1 to the financial statements, the accompanying financial statements were prepared to present the assets to be acquired, liabilities to be assumed and revenues and direct expenses of the Business and are not intended to be a complete presentation of the financial position or results of operations of the Business. Our opinion is not modified with respect to this matter.

/s/ Deloitte & Touche LLP

New York, New York

November 1, 2016

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)

Statements of Assets Acquired and Liabilities Assumed

(In thousands)


	June 30, 2016		June 30, 2015
Assets
Cash	$	1,492.0	$	1,565.4
Pension assets		237.9		219.7
Property, plant, and equipment		7.8		11.0
Intangible assets, net		2,875.0		3,625.0

Total assets acquired		4,612.7		5,421.1


Liabilities
Pension liability		237.9		219.7
Accrued compensation		1,492.0		1,565.4

Total liabilities assumed		1,729.9		1,785.1



Net assets acquired	$	2,882.8	$	3,636.0

See notes to the abbreviated financial statements

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)

Statements of Revenues and Direct Expenses

(In thousands)


	Twelve Months Ended
	June 30,
	2016		2015		2014
Revenues	$	130,575.5	$	130,352.9	$	130,894.6

Direct expenses:

Operating expenses		73,057.9		68,438.9		70,818.7
Selling, general, and administrative expenses		12,251.4		11,342.8		9,697.7
Systems development and programming costs		8,732.2		8,507.8		8,487.5
Depreciation and amortization		750.0		916.7		950.0

Total direct expenses		94,791.5		89,206.2		89,953.9



Revenues in excess of direct expenses	$	35,784.0	$	41,146.7	$	40,940.7

See notes to the abbreviated financial statements

ADP COBRA/CHSA Business

(a Carve Out of Automatic Data Processing, Inc.)

Notes to Abbreviated Financial Statements

(Unless otherwise noted, tabular dollars in thousands)

NOTE 1.

ORGANIZATION AND BASIS OF PRESENTATION

Organization: The ADP Consolidated Omnibus Budget Reconciliation Act (“COBRA”) and Consumer Health Spending Account (“CHSA”) Businesses (the “Business”) are product lines of Automatic Data Processing, Inc.’s (“ADP” or “the Seller”) benefits business. On November 1, 2016, ADP and WageWorks, Inc. (the “Buyer”) entered into an agreement (the “Purchase Agreement”) pursuant to which the Buyer will acquire certain assets and assume certain liabilities associated with the Business, including intellectual property owned by the Business. As part of the asset sale, certain third-party agreements related to the Business and all personnel specific to the Business will be transferred to the Buyer, including certain compensation-related liabilities accrued as of the date of the transaction which will be funded with cash from the Seller to the Buyer. The Seller will also maintain responsibility for any claims or litigation arising in the normal course of business prior to the consummation of the transaction. Contemporaneously with the Purchase Agreement, ADP and the Buyer entered into a subcontracting agreement and two service agreements requiring the Buyer to provide the services of the Business to ADP clients and to ADP as a client (individually, the “Subcontracting Agreement” and “Service Agreements” and collectively, the “Subcontracting and Service Agreements”). The Subcontracting Agreement transfers to the Buyer the right to future revenues of the Business under ADP client contracts; the Service Agreements set forth the terms of the arrangement for the Buyer to continue to service ADP as a client. For the clients under the Subcontracting Agreement, the Buyer will engage with such current ADP clients to continue the Business’ services under Buyer contracts over a period of time. See below for further information regarding the Business and its relationships with ADP and clients that purchase services from ADP.

B.	Description of Business: The Business is an administrator of CHSA products, including flexible spending accounts, health reimbursement arrangements, health spending accounts, tuition reimbursement, and commuter services, and COBRA administration products.

Basis of Presentation: The accompanying abbreviated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Historically, complete financial statements have not been prepared for the Business as ADP did not maintain the Business as a stand-alone business, division, or subsidiary. The Seller did not maintain separate books and records related to the Business. Further, the Business’ products were often components of bundled product offerings by ADP. As a result of the foregoing, it is impracticable to prepare full financial statements, and as such, the abbreviated financial statements have been prepared from historical accounting records maintained by ADP on the basis of accounting policies and procedures described in Note 2. These statements are not intended to be a complete presentation of the financials position or results of operations of the Business. The historical financial results may not be indicative of the results that would have been achieved had the Business operated as a separate, stand-alone entity, or as a business with a different parent company. The abbreviated financial statements include all adjustments necessary for a fair presentation of the Business.

The Statements of Assets Acquired and Liabilities Assumed reflect the carrying values on each of the dates indicated of assets and liabilities identified to be sold and assumed pursuant to the terms of the Purchase Agreement.

All cash flow requirements of the Business were funded by the Seller and cash management functions were not performed at the Business level. Therefore, it is impracticable to prepare a statement of cash flows.

Allocations

The accompanying Statements of Revenue and Direct Expenses include revenues and all costs that are directly attributable to the Business as it was operated within ADP. The financial statements also include costs for certain direct support functions and services performed by centralized ADP organizations, including, but not limited to, information technology (“IT”), sales, accounting and finance, and other shared costs of direct support functions which were allocated based on an approximation of the support provided to the Business in comparison to all of ADP. The Business was allocated $31,978.0 thousand, $31,226.0 thousand and $29,653.2 thousand of these direct costs related to ADP’s shared functions and costs for the years ended June 30, 2016 (“fiscal 2016”), 2015 (“fiscal 2015”), and 2014 (“fiscal 2014”), respectively. These allocations primarily relate to IT costs such as hosting charges, research and development expenses, and selling expenses which are included in operating expenses, systems development and programming costs, and selling, general, and administrative expenses, respectively, on the Statements of Revenues and Direct Expenses. Management believes that these allocations were either specifically identified or made on a reasonable basis (e.g., based on headcount, revenue, or other representative factors). These expenses do not include any Seller corporate level allocation of general costs incurred for administrative support functions (such as corporate accounting, treasury, tax, indirect legal support, or public relations costs) that are not directly attributable to the Business. There is also no allocation of income tax expense, interest income, or interest expense. In order to determine whether an expense was a direct support function or direct expense which was included in the abbreviated financial statements or an indirect corporate-level allocation which was excluded from the abbreviated financial statements, management considered whether the Business could continue to generate its revenue and function as a business without each of the different types of support. These expenses allocated to the Business for these services are not necessarily indicative of the expenses that would have been incurred if the Business had been a separate company or operated as a business within a different parent company.

Additionally, certain client-related services provided by the Business have been provided by ADP’s shared services facilities located in India. These facilities provide services to support the Business’ clients as well as to other ADP affiliates. The Business incurred costs of $5,321.8 thousand, $4,998.7 thousand, and $4,197.0 thousand for these services from these shared service centers in fiscal 2016, 2015, and 2014 respectively. These costs were charged based on the direct costs associated with the employees who supported the Business and other allocated direct costs related to the shared service facility.

Intercompany Transactions

All intercompany transactions between the Business and ADP are considered effectively settled in the financial statements at the time the intercompany transaction is recorded. ADP conducts transactions with the Business, and separately, the Business offers products to ADP’s clients as part of an overall suite of services. In certain scenarios, COBRA and/or CHSA products are sold in a bundled arrangement, along with other ADP offerings, and without product or service specific pricing in the client contract. See Note 3 for additional information.

NOTE 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS

Use of Estimates. The preparation of the abbreviated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets acquired and liabilities assumed at the date of the abbreviated financial statements and the reported amounts of revenues and direct expenses during the reporting periods. Actual results could differ from these estimates and the amounts could be material.

Long-Lived Assets. The Business’ software is included on the Statements of Assets Acquired and Liabilities Assumed at net book value. The Business acquired this software through a business acquisition. The software was included on the Statements of Assets Acquired and Liabilities Assumed based upon the estimated fair value at the date of the acquisition and amortized from the date of the acquisition through June 30, 2016. Refer to

Note 4 for further information on the software to be acquired by the Buyer. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Revenue Recognition. Revenues are primarily attributable to fees for providing services. Fees associated with services are recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. Service fees are determined based on written price quotations or service agreements having stipulated terms and conditions that do not require management to make any significant judgments or assumptions regarding any potential uncertainties. The Business defers revenues for implementation services and direct and incremental implementation costs and recognizes these deferred revenues and deferred expenses ratably in the Statements of Revenues and Direct Expenses over the expected life of the client relationship. See Note 3 for discussion of revenue related to services provided by the Seller and included as part of bundled arrangements where the price of COBRA and/or CHSA products are not known by the end ADP client.

The Business assesses the collectability of revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

Stock-Based Compensation. Certain of the Business’ employees participate in the Seller’s share based compensation plans and the costs related thereto have been included in these financial statements. The Business recognizes stock-based compensation expense on the Statements of Revenues and Direct Expenses based on the fair value of the award on the date of the grant. The Seller determines the fair value of stock options issued using a binomial option-pricing model. The binomial option-pricing model considers a range of assumptions related to volatility, dividend yield, risk-free interest rate, and employee exercise behavior. Expected volatilities utilized in the binomial option-pricing model are based on a combination of implied market volatilities, historical volatility of the Seller’s stock price, and other factors. Similarly, the dividend yield is based on historical experience and expected future changes of the Seller’s dividend patterns. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The binomial option-pricing model also incorporates exercise and forfeiture assumptions based on an analysis of historical data. The expected life of a stock option grant is derived from the output of the binomial model and represents the period of time that options granted are expected to be outstanding.

E.	New Accounting Pronouncements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance, and has since issued additional amendments to ASU 2014-09. These new standards require an entity to recognize revenue depicting the transfer of 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. The new standards will also result in enhanced revenue related disclosures. Entities have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the financial statements. The new standards are effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Business has not yet determined the impact of these new revenue recognition standards on its consolidated results of operations, financial condition, or cash flows.

NOTE 3.

RELATED PARTY TRANSACTIONS

ADP conducts transactions with the Business, and separately, the Business offers products to ADP’s clients as part of an overall suite of services. In certain scenarios, COBRA and/or CHSA products are sold in a bundled sale, along with other ADP offerings, and without product or service specific pricing in the client contract.

Revenues from bundled sales to ADP clients allocated to the Business totaled $13,931.4 thousand, $10,986.3 thousand, and $7,589.9 thousand during fiscal years 2016, 2015, and 2014 respectively. Revenues are allocated to the Business based on several factors, including, but not limited to, an internal price book, the overall contractual price with the client, the total services contracted within the arrangement, and agreements between the applicable ADP businesses providing services under the arrangement. Management believes the revenues allocated to the Business are a fair attribution of the bundled revenue based on the specific scenario in which the sale is made, however, due to the nature of ADP’s relationship with the Business, it is possible that the terms and internal allocations of revenue pertaining to these transactions are not the same as those that would result from transactions among unrelated parties. Additionally, the Subcontracting and Service Agreements contemplate that the Buyer receive the same revenue for providing services to ADP bundled clients as contemplated by the ADP internal allocation of revenues between the Business and other businesses of ADP that provide parts of the services included under the bundled arrangement.

ADP also utilizes the Business to provide certain services to its employees. Revenues from ADP related to services provided to its employees included on the Statements of Revenues and Direct Expenses totaled $1,325.3 thousand, $1,071.7 thousand, and $1,150.9 thousand during fiscal years 2016, 2015, and 2014, respectively.

The Business also receives certain direct support from ADP and purchases services from an ADP affiliate in India. See to Note 1 for further information.

NOTE 4.

INTANGIBLE ASSETS, NET

Components of intangible assets are as follows:


	June 30, 2016			June 30, 2015
Intangible assets:
Software	$	6,000.0		$	6,000.0

		6,000.0			6,000.0
Less: Accumulated Amortization		(3,125.0	)		(2,375.0	)

Intangible assets, net	$	2,875.0		$	3,625.0

All software assets have finite lives and, as such, are subject to amortization. As of June 30, 2016, the Business had one software platform subject to amortization. The remaining useful life of the software is 4 years. Amortization of intangibles is recorded to the Statements of Revenues and Direct Expenses using the straight-line method and totaled $750.0 thousand, $916.7 thousand, and $950.0 thousand for fiscal 2016, 2015, and 2014 respectively. Estimated amortization expenses of the Business’s existing software is as follows:


	Amount
Twelve months ended June 30, 2017	$	750.0
Twelve months ended June 30, 2018	$	750.0
Twelve months ended June 30, 2019	$	750.0
Twelve months ended June 30, 2020	$	625.0

NOTE 5.

CONTINGENCIES

ADP provides COBRA administration services to its clients via the Business. As part of its services, ADP is responsible for COBRA administration services including sending COBRA notices and election packages as well as related premium payment coupons and other information to qualified beneficiaries. ADP clients and ADP, as a COBRA service provider under contract with the client, are subject to an excise tax under Internal Revenue Code §4980B in the event there is a failure to comply with the requirements of COBRA. As a result of failures to comply with COBRA, including sending timely and/or accurate notices, which were identified during fiscal year 2014, 2015, and 2016, ADP filed Forms 8928 and paid excise taxes of $43.2 thousand, $2,000.0 thousand, and $2,000.0 thousand, respectively, pursuant to Internal Revenue Code §4890B. As part of its review of the identified issues, ADP management determined which ADP business should incur the cost of the penalty. As a result of these reviews, the Business incurred costs of $9.9 thousand in 2016, which is included on the Statements of Revenues and Direct Expenses in selling, general, and administrative expenses, while other ADP businesses incurred the costs that were determined to be allocated to them based on ADP management’s internal review and allocation process. Because these are intercompany allocations of cost, the allocation of these amounts is not necessarily reflective of the amount that would be incurred by the Business, by other ADP businesses, and/or by a client, if an unrelated third party were providing the COBRA administration services. The analysis of any future issues identified are subject to the terms of the Subcontract Agreement between ADP and the Buyer and the amounts included within these financials may be materially different from the expenses the Business may incur pursuant to that agreement in the future.

The Business is subject to various claims and litigation in the normal course of business. When a loss is considered probable and reasonably estimable, the Business records a liability in the amount of its best estimate for the ultimate loss. Management currently believes that the resolution of these claims and litigation against the Business, individually or in the aggregate, will not have a material adverse impact on the abbreviated financial statements. These matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

NOTE 6.

SUBSEQUENT EVENTS

Subsequent to June 30, 2016, the Business’ largest client discontinued their service with the Business. The Business recorded $20,402 thousand of revenue from this client in fiscal 2016.

Aside from the item mentioned above, there are no subsequent events for disclosure. Subsequent events have been evaluated through November 1, 2016.

EX-99.2 4 d341908dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)

Abbreviated Financial Statements

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)

Table of Contents


FINANCIAL STATEMENTS (unaudited)
Statements of Assets Acquired and Liabilities Assumed as of September 30, 2016			2
Statements of Revenue and Direct Expenses for the three months ended September 30, 2016 and 2015			3
Notes to Abbreviated Financial Statements			4

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)

Statements of Assets Acquired and Liabilities Assumed

(In thousands)

(unaudited)


	September 30, 2016 (unaudited)		June 30, 2016
Assets
Cash	$	853.5	$	1,492.0
Pension assets		240.0		237.9
Property, plant, and equipment		7.0		7.8
Intangible assets, net		2,687.5		2,875.0

Total assets acquired		3,788.0		4,612.7


Liabilities
Pension liability		240.0		237.9
Accrued compensation		853.5		1,492.0

Total liabilities assumed		1,093.5		1,729.9



Net assets acquired	$	2,694.5	$	2,882.8

See notes to the abbreviated financial statements

ADP COBRA/CHSA Business

(product lines of Automatic Data Processing, Inc.)

Statements of Revenues and Direct Expenses

(In thousands)

(unaudited)


	Three Months Ended
	September 30,
	2016 (unaudited)		2015 (unaudited)
Revenues	$	29,443.7	$	31,911.3

Direct expenses:

Operating expenses		16,180.7		16,576.0
Selling, general, and administrative expenses		2,892.8		2,240.1
Systems development and programming costs		2,425.4		2,158.3
Depreciation and amortization		187.5		187.5

Total direct expenses		21,686.4		21,161.9



Revenues in excess of direct expenses	$	7,757.3	$	10,749.4

See notes to the abbreviated financial statements

ADP COBRA/CHSA Business

(a Carve Out of Automatic Data Processing, Inc.)

Notes to Abbreviated Financial Statements

(Unless otherwise noted, tabular dollars in thousands)

(unaudited)

NOTE 1.

ORGANIZATION AND BASIS OF PRESENTATION

B.	Description of Business: The Business is an administrator of CHSA products, including flexible spending accounts, health reimbursement arrangements, health spending accounts, tuition reimbursement, and commuter services, and COBRA administration products.

Basis of Presentation: The accompanying abbreviated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Historically, complete financial statements have not been prepared for the Business as ADP did not maintain the Business as a stand-alone business, division, or subsidiary. The Seller did not maintain separate books and records related to the Business. Further, the Business’ products were often components of bundled product offerings by ADP. As a result of the foregoing, it is impracticable to prepare full financial statements, and as such, the abbreviated financial statements have been prepared from historical accounting records maintained by ADP on the basis of accounting policies and procedures described in Note 2. These statements are not intended to be a complete presentation of the financial position or results of operations of the Business. The historical interim financial results may not be indicative of the results that would have been achieved had the Business operated as a separate, stand-alone entity, or as a business with a different parent company. The interim financial results are also not indicative of financial results for a full year. The abbreviated financial statements include all adjustments necessary for a fair presentation of the Business.

The Statements of Assets Acquired and Liabilities Assumed reflect the carrying values on the date indicated of assets and liabilities identified to be sold and assumed pursuant to the terms of the Purchase Agreement.

Allocations

The accompanying Statements of Revenue and Direct Expenses include revenues and all costs that are directly attributable to the Business as it was operated within ADP. The financial statements also include costs for certain direct support functions and services performed by centralized ADP organizations, including, but not limited to, information technology (“IT”), sales, accounting and finance, and other shared costs of direct support functions which were allocated based on an approximation of the support provided to the Business in comparison to all of ADP. The Business was allocated $8,012.6 thousand and $7,454.9 thousand of these direct costs related to ADP’s shared functions and costs for the three months ended September 30, 2016 and September 30, 2015, respectively. These allocations primarily relate to IT costs such as hosting charges, research and development expenses, and selling expenses which are included in operating expenses, systems development and programming costs, and selling, general, and administrative expenses, respectively, on the Statements of Revenues and Direct Expenses. Management believes that these allocations were either specifically identified or made on a reasonable basis (e.g., based on headcount, revenue, or other representative factors). These expenses do not include any Seller corporate level allocation of general costs incurred for administrative support functions (such as corporate accounting, treasury, tax, indirect legal support, or public relations costs) that are not directly attributable to the Business. There is also no allocation of income tax expense, interest income, or interest expense. In order to determine whether an expense was a direct support function or direct expense which was included in the abbreviated financial statements or an indirect corporate-level allocation which was excluded from the abbreviated financial statements, management considered whether the Business could continue to generate its revenue and function as a business without each of the different types of support. These expenses allocated to the Business for these services are not necessarily indicative of the expenses that would have been incurred if the Business had been a separate company or operated as a business within a different parent company.

Additionally, certain client-related services provided by the Business have been provided by ADP’s shared services facilities located in India. These facilities provide services to support the Business’ clients as well as to other ADP affiliates. The Business incurred costs of $1,091.4 thousand and $1,028.5 thousand for these services from these shared service centers for the three months ended September 30, 2016 and September 30, 2015, respectively. These costs were charged based on the direct costs associated with the employees who supported the Business and other allocated direct costs related to the shared service facility.

Intercompany Transactions

NOTE 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS

B.	Long-Lived Assets. The Business’ software is included on the Statements of Assets Acquired and Liabilities Assumed at net book value. The Business acquired this software through a business acquisition. The software

was included on the Statements of Assets Acquired and Liabilities Assumed based upon the estimated fair value at the date of the acquisition and amortized from the date of the acquisition through September 30, 2016. Refer to Note 4 for further information on the software to be acquired by the Buyer. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

The Business assesses the collectability of revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.

E.	New Accounting Pronouncements.

NOTE 3.

RELATED PARTY TRANSACTIONS

Revenues from bundled sales to ADP clients allocated to the Business totaled $3,923.6 thousand and $3,277.1 thousand during the three months ended September 30, 2016 and September 30, 2015, respectively. Revenues are allocated to the Business based on several factors, including, but not limited to, an internal price book, the overall contractual price with the client, the total services contracted within the arrangement, and agreements between the applicable ADP businesses providing services under the arrangement. Management believes the revenues allocated to the Business are a fair attribution of the bundled revenue based on the specific scenario in which the sale is made, however, due to the nature of ADP’s relationship with the Business, it is possible that the terms and internal allocations of revenue pertaining to these transactions are not the same as those that would result from transactions among unrelated parties. Additionally, the Subcontracting and Service Agreements contemplate that the Buyer receive the same revenue for providing services to ADP bundled clients as contemplated by the ADP internal allocation of revenues between the Business and other businesses of ADP that provide parts of the services included under the bundled arrangement.

ADP also utilizes the Business to provide certain services to its employees. Revenues from ADP related to services provided to its employees included on the Statements of Revenues and Direct Expenses totaled $343.0 thousand and $322.6 thousand for the three months ended September 30, 2016 and September 30, 2015, respectively.

The Business also receives certain direct support from ADP and purchases services from an ADP affiliate in India. See to Note 1 for further information.

NOTE 4.

INTANGIBLE ASSETS, NET

Components of intangible assets are as follows:


	September 30,			June 30,
	2016			2016
Intangible assets:
Software	$	6,000.0		$	6,000.0

		6,000.0			6,000.0
Less: Accumulated Amortization		(3,312.5	)		(3,125.0	)

Intangible assets, net	$	2,687.5		$	2,875.0

All software assets have finite lives and, as such, are subject to amortization. As of September 30, 2016, the Business had one software platform subject to amortization. The remaining useful life of the software is 4 years. Amortization of intangibles is recorded to the Statements of Revenues and Direct Expenses using the straight-line method and totaled $187.5 thousand for the three months ended September 30, 2016 and September 30, 2015. Estimated amortization expenses of the Business’s existing software is as follows:


	Amount
Nine months ended June 30, 2017	$	562.5
Twelve months ended June 30, 2018	$	750.0
Twelve months ended June 30, 2019	$	750.0
Twelve months ended June 30, 2020	$	625.0

NOTE 5.

CONTINGENCIES

ADP provides COBRA administration services to its clients via the Business. As part of its services, ADP is responsible for COBRA administration services including sending COBRA notices and election packages as well as related premium payment coupons and other information to qualified beneficiaries. ADP clients and ADP, as a COBRA service provider under contract with the client, are subject to an excise tax under Internal Revenue Code §4980B in the event there is a failure to comply with the requirements of COBRA. During the period ended September 30, 2016, ADP incurred an additional $93.1 thousand of excise taxes as a result of failures to comply with requirements of COBRA, in which Forms 8928 will be filed pursuant to Internal Revenue Code §4890B. As part of its review of the identified issues, ADP management determined which ADP business should incur the cost of the penalty. As a result of these reviews, the Business incurred costs of $7.0 thousand and $0 in the three months ended September 30, 2016 and 2015, respectively, which is included on the Statements of Revenues and Direct Expenses in selling, general, and administrative expenses, while other ADP businesses incurred the costs that were determined to be allocated to them based on ADP management’s internal review and allocation process. Because these are intercompany allocations of cost, the allocation of these amounts is not necessarily reflective of the amount that would be incurred by the Business, by other ADP businesses, and/or by a client, if an unrelated third party were providing the COBRA administration services. The analysis of any future issues identified are subject to the terms of the Subcontract Agreement between ADP and the Buyer and the amounts included within these financials may be materially different from the expenses the Business may incur pursuant to that agreement in the future.

NOTE 6.

SUBSEQUENT EVENTS

On November 28, 2016, the Seller and Buyer completed the transaction referenced in Note 1. With the exception of this matter, the are no subsequent events for disclosure. Subsequent events have been evaluated by the Seller through the transaction close date of November 28, 2016.

EX-99.3 5 d341908dex993.htm EX-99.3 EX-99.3

Exhibit 99.3

Unaudited Pro Forma Condensed Combined Financial Statements of WageWorks, Inc. and the ADP COBRA/CHSA Business

Pursuant to the terms and conditions of that certain Asset Purchase Agreement, dated as of November 1, 2016 (the “APA”), by and among WageWorks, Inc., a Delaware corporation (the “Company”), on the one hand, and ADP, LLC, a Delaware limited liability company (“ADP LLC”), and ADP Benefit Services KY, Inc., a Kentucky corporation (“ADP Benefit Services” and, together with ADP LLC, “ADP”), on the other hand, the Company has purchased certain of ADP’s assets (excluding client contracts, among other assets), and has assumed certain of ADP’s liabilities, in each case, relating to ADP’s (i) Consumer Health & Spending Accounts (CHSA) business (consisting of the flexible spending accounts (FSA), health reimbursement arrangements (HRA), health spending accounts (HSA), tuition reimbursement, and commuter services businesses) (the “CHSA Business”), and (ii) COBRA business (consisting of the COBRA and direct bill businesses) (the “COBRA Business” and, the COBRA Business together with the CHSA Business, the “Business”), in each case, subject to the terms and conditions of the APA (including, but not limited to, certain exclusions in respect of specific assets and liabilities relating to the Business) (the “Transaction”).

As consideration for the Transaction, ADP received approximately $235 million in cash.

In connection with the closing of the Transaction on November 28, 2016, and as part of the transactions contemplated by the APA, the Company and ADP entered into a Subcontracting Agreement, a Referral Agreement, a Transition Services Agreement, an Intellectual Property Licensing Agreement, and certain other ancillary agreements. Under the Subcontracting Agreement, the Company will service the client contracts of the Business that are retained by ADP, in each case, generally on a pass-through basis. Under the Referral Agreement, the Company and ADP have entered into a strategic relationship under which ADP may introduce new clients to the Company and its services. Under the Transition Services Agreement, ADP will provide the Company with certain services during a transitional period to assist the Company in operating the Business. Under the Intellectual Property Licensing Agreement, the Company will receive licenses to certain intellectual property from ADP.

The unaudited pro forma condensed combined financial statements set forth below have been presented for informational purposes only. The pro forma data is not necessarily indicative of, or intended to represent, what the combined Company’s results of income actually would have been had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future operating results of the combined Company. These unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2015 and the Company’s historical unaudited financial statements included in its Quarterly Report on Form 10-Q for the nine month period ended September 30, 2016, filed with the Securities and Exchange Commission (“the SEC”) and ADP COBRA/CHSA Business’ historical abbreviated financial statements as attached thereto in Exhibit 99.1 and Exhibit 99.2.

WAGEWORKS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2016

(In thousands, except per share amounts)


						Note 5
	Historical									Pro Forma
	WageWorks			COBRA/CHSA Business		Pro Forma Adjustments				Combined

Assets
Current assets:
Cash and cash equivalents		666,634			854		(64,065	)	1, 2, 5		603,423
Restricted cash		332									332
Accounts receivable, net		85,135									85,135
Prepaid expenses and other current assets		21,258			240						21,498

Total current assets		773,359			1,094		(64,065	)			710,388
Property and equipment, net		55,451			7						55,458
Goodwill		157,109					140,300		3		297,409
Acquired intangible assets, net		86,426			2,687		92,013		4		181,126
Deferred tax assets		10,261									10,261
Other assets		4,497									4,497

Total assets		1,087,103			3,788		168,248				1,259,139

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		69,177			1,094		1,035		2		71,306
Customer obligations		549,316			—						549,316
Short-term contingent consideration		—			—						—
Other current liabilities		359			—						359

Total current liabilities		618,852			1,094		1,035				620,981
Long-term debt		78,907			—		169,900		5		248,807
Other non-current liabilities		9,626			—						9,626

Total liabilities		707,385			1,094		170,935				879,414

Stockholders’ Equity:
Common stock, $0.001 par value (authorized 1,000,000 shares; 36,055 shares issued and 36,636 shares outstanding at September 30, 2016)		38			—						38
Additional paid-in capital		380,741			—						380,741
Treasury stock at cost (345 shares at September 30, 2016)		(14,374	)		—						(14,374	)
Retained Earnings/Net Assets		13,313			2,694		(2,687	)	4		13,320

Total stockholders’ equity		379,718			2,694		(2,687	)			379,725

Total liabilities and stockholders’ equity		1,087,103			3,788		168,248				1,259,139

WAGEWORKS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

(in thousands, except per share amounts)


						Note 5
	WageWorks			ADP COBRA/CHSA Business		Pro Forma Adjustments				Pro Forma Combined
Revenues:
Healthcare		146,918			66,404		—				213,322
Commuter		52,339			—		—				52,339
COBRA		51,955			28,805		—				80,760
Other		12,439			—		—				12,439

Total revenues		263,651			95,209		—				358,860

Operating expenses:
Cost of revenues (excluding amortization of internal use software)		90,237			53,809		—				144,046
Technology and development		32,656			6,805		—				39,461
Sales, marketing, general and administrative		90,192			9,024		(114	)	B		99,102
Amortization and change in contingent consideration		26,084			563		6,780		A		33,427
Employee termination and other charges		475			—		—				475

Total operating expenses		239,644			70,201		6,666				316,511

Income from operations		24,007			25,008		(6,666	)			42,349
Other income (expense):
Interest income		300			—		—				300
Interest expense		(1,279	)		—		(2,300	)	C		(3,579	)
Other income (expense)		24			—		—				24

Income before income taxes		23,052			25,008		(8,966	)			39,094
Income tax provision		(8,509	)				(5,921	)	D		(14,430	)

Net income		14,543			25,008		(14,887	)			24,664


Net income per share:
Basic		0.40									0.68
Diluted		0.39									0.67
Shares used in computing net income per share:
Basic		36,312									36,312
Diluted		37,078									37,078

WAGEWORKS, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2015

(in thousands, except per share amounts)


						Note 5
	Wageworks			ADP COBRA/CHSA Business		Pro Forma Adjustments				Pro Forma Combined
Revenues:
Healthcare		176,573			92,093		—				268,666
Commuter		63,895			—		—				63,895
COBRA		51,299			39,869		—				91,168
Other		42,549			—		—				42,549

Total revenues		334,316			131,962		—				466,278

Operating expenses:
Cost of revenues (excluding amortization of internal use software)		117,170			70,235		—				187,405
Technology and development		43,041			8,706		—				51,747
Sales, marketing, general and administrative		104,633			12,580		—				117,213
Amortization and change in contingent consideration		27,618			833		8,957		A		37,408
Employee termination and other charges		1,913			—		—				1,913

Total operating expenses		294,375			92,354		8,957				395,686

Income from operations		39,941			39,608		(8,957	)			70,592
Other income (expense):							—
Interest income		153					—				153
Interest expense		(1,925	)				(3,075	)	C		(5,000	)
Other income (expense)		(182	)				—				(182	)

Income before income taxes		37,987			39,608		(12,032	)			65,563
Income tax provision		(15,037	)				(10,916	)	D		(25,953	)

Net income		22,950			39,608		(22,948	)			39,610


Net income per share:
Basic		0.64									1.11
Diluted		0.63									1.08
Shares used in computing net income per share:
Basic		35,784									35,784
Diluted		36,595									36,595

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF TRANSACTION

On November 28, 2016, the Company completed its acquisition of the Business with a consideration of approximately $235 million in cash. In connection with the Transaction, the Company borrowed $169.9 million against its $250.0 million revolving credit facility which had a maturity date of June 5, 2020.

NOTE 2 – BASIS OF PRESENTATION

The unaudited pro forma condensed combined statement of income of the Company and the ADP COBRA/CHSA Business for the year ended December 31, 2015 and for the nine months ended September 30, 2016 are presented as if the acquisition had closed on January 1, 2015. The unaudited pro forma condensed combined balance sheet as of September 30, 2016 is presented as if the acquisition had closed as of September 30, 2016. The unaudited pro forma combined statement of income for the year ended December 31, 2015 and the nine month period ended September 30, 2016 and the unaudited pro forma combined balance sheet as of September 30, 2016 were prepared utilizing historical audited abbreviated financial statements of the ADP COBRA/CHSA Business for the three years ended June 30, 2016, and unaudited abbreviated financial statements of the ADP COBRA/CHSA Business for the three months ended September 30, 2016 as well as additional unaudited quarterly information of the ADP COBRA/CHSA Business as discussed below.

The following unaudited pro forma condensed combined financial statements are presented to give effect to the acquisition of the ADP COBRA/CHSA Business by the Company. The pro forma information was prepared based on the historical financial statements and related notes of the Business and the Company, as adjusted for the pro forma impact of applying the acquisition method of accounting in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). The historical financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition (2) factually supportable, and (3) with respect to the statement of income, expected to have a continuing impact on the combined company.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting with the Company treated as the acquiring entity. Accordingly, the aggregate value of the consideration paid by the Company to complete the acquisition was allocated to the assets acquired and liabilities assumed from the ADP COBRA/CHSA Business based upon their estimated fair values on the closing date of the acquisition. The Company has completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from the ADP COBRA/CHSA Business, based on the actual net tangible and intangible assets and liabilities of the ADP COBRA/CHSA Business that existed as of the closing date, and the related allocations of purchase price.

The unaudited pro forma condensed combined financial statements have been presented for informational purposes only. The pro forma data does not purport to represent what the combined Company’s results of operations actually would have been had the acquisition been completed as of the dates indicated, nor is it indicative of future operating results of the combined Company.

The Company’s year-end is December 31, while the ADP COBRA/CHSA Business’ fiscal year end was June 30. Accordingly, the Company has aligned the ADP COBRA/CHSA Business’ reporting period to the Company’s reporting period. All unaudited pro forma condensed combined financial statements have been aligned to use the Company’s reporting period dates for the year ended December 31, 2015 and the nine months ended September 30, 2016 as follows:

For the Twelve month period ended December 31, 2015:


	ADP COBRA/CHSA BUSINESS ABBREVIATED FINANCIAL STATEMENTS
	(in thousands)
	Audited for the Fiscal Year Ended June 30, 2015		Plus : Three Months Ended September 30, 2015		Plus : Three Months Ended December 31, 2015		Less: Six Months Ended December 31, 2014		Twelve Months Ended December 31, 2015
Revenues:
Total revenues		130,353		31,911		32,899		63,201		131,962

Operating expenses:
Cost of revenues (excluding amortization of internal use software)		68,439		16,576		18,854		33,634		70,235
Technology and development		8,508		2,158		2,194		4,154		8,706
Sales, marketing, general and administrative		11,343		2,240		3,880		4,883		12,580
Amortization and change in contingent consideration		917		188		187		459		833
Employee termination and other charges		—		—		—		—		—

Total operating expenses		89,207		21,162		25,115		43,130		92,354

Income from operations		41,146		10,749		7,784		20,071		39,608
Other income (expense):		—		—		—		—		—
Interest income		—		—		—		—		—
Interest expense		—		—		—		—		—
Other income (expense)		—		—		—		—		—

Income before income taxes		41,146		10,749		7,784		20,071		39,608
Income tax provision		—		—		—		—		—

Net income		41,146		10,749		7,784		20,071		39,608

For the Nine month period ended September 30, 2016:


	ADP COBRA/CHSA ABBREVIATED FINANCIAL STATEMENTS
	(in thousands)
	Unaudited for the Three Months Ended September 30, 2016		Plus: Audited for the Fiscal Year Ended June 30, 2016		Less: Six Months Ended December 31, 2015		Nine Months Ended September 30, 2016
Revenues:
Total revenues		29,444		130,575		64,810		95,209

Operating expenses:
Cost of revenues (excluding amortization of internal use software)		16,181		73,058		35,430		53,809
Technology and development		2,425		8,732		4,352		6,805
Sales, marketing, general and administrative		2,893		12,251		6,120		9,024
Amortization and change in contingent consideration		188		750		375		563
Employee termination and other charges		—		—		—		—

Total operating expenses		21,687		94,791		46,277		70,201

Income from operations		7,757		35,784		18,533		25,008
Other income (expense):
Interest income		—		—		—		—
Interest expense		—		—		—		—
Other income (expense)		—		—		—		—

Income before income taxes		7,757		35,784		18,533		25,008
Income tax provision		—		—		—		—

Net income		7,757		35,784		18,533		25,008

NOTE 3 – PURCHASE PRICE CONSIDERATION AND ALLOCATION

In accordance with Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), the acquisition was accounted for under the acquisition method of accounting. Under the acquisition method of accounting, the total purchase consideration, assets acquired and the liabilities assumed are measured at fair value as of the date of acquisition when control is obtained. The fair value of the consideration transferred and the assets acquired and liabilities assumed was determined by the Company and in doing so relied in part upon a third-party valuation report to estimate the fair value of the identifiable intangible assets acquired. The following table summarizes the fair value of total consideration transferred for the acquisition, the total fair value of net identifiable assets acquired and the goodwill recorded (in thousands):


Cash consideration	$	235,000
Less: Fair value of net identifiable assets acquired		(94,700	)

Goodwill	$	140,300

Goodwill represents the excess of the purchase consideration over the fair value of the underlying net assets acquired and liabilities assumed.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the acquisition date. The estimated fair value of the identifiable assets acquired and liabilities assumed in the acquisition is based on management’s best estimates and valuation assumptions.

Estimate of the fair value of assets acquired and liabilities assumed as of November 28, 2016 (in thousands):


	Estimated Useful Life (in years)
Cash			$	1,035
Accounts payable and accrued expenses				(1,035	)
Intangible assets subject to amortization:
Customer relationships		10		93,900
Existing technology – CHSA		2		500
Existing technology – COBRA		2		300

Total estimated fair value of net identifiable assets acquired			$	94,700

NOTE 4 – RECLASSIFICATIONS TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 2016

The following reclassifications have been made in the presentation of the ADP COBRA/CHSA Business unaudited abbreviated balance sheet to conform to the condensed combined presentation of the Company:

•

$240 thousand from “Pension Assets” as of September 30, 2016 was reclassified to “Prepaid expenses and other current assets”.

•

$240 thousand from “Pension Liability” as of September 30, 2016 was reclassified to “Accounts payable and accrued expenses”.

NOTE 5 – PRO FORMA ADJUSTMENTS

The following is a description of the unaudited pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements (in thousands except per share amount):

Adjustments to the pro forma condensed combined balance sheet as of September 30, 2016:

(1)	Pro forma adjustments to reflect a reduction in cash and cash equivalents paid for the acquisition:


Cash consideration paid	$	235,000

(2)	Pro forma adjustments to Net tangible assets:


Cash acquired	$	1,035
Accounts payable and accrued expenses		(1,035	)

Net tangible assets	$	0

(3)	Pro forma adjustment to Goodwill:


Addition of acquired Goodwill	$	140,300

(4)	Pro forma adjustments to Intangible assets, net:


Elimination of historical Intangible assets amount	$	(2,687	)
Addition of estimated fair value of acquired Intangible assets (see Note 3)		94,700

Intangible assets, net	$	92,013

(5)	Pro forma adjustment to increase cash and cash equivalents and long-term debt:


Cash and cash equivalents and long-term debt	$	169,900

Adjustments to the pro forma condensed statements of income:

(A) Pro forma adjustments to adjust the amortization of acquired intangible assets:


	Nine Months Ended			Year Ended
	September 30, 2016			December 31, 2015

Elimination of historical amortization of intangible assets	$	(563	)	$	(833	)
Addition of the Company’s acquired amortization of intangible asset		7,343			9,790

Total pro forma adjustments for amortization of acquired intangible assets	$	6,780		$	8,957

(B) Pro forma adjustment to eliminate non-recurring acquisition-related expenses:


	Nine Months Ended		Year Ended
	September 30, 2016		December 31, 2015
Non-recurring acquisition-related expenses	$	114	$	—


	Nine Months Ended		Year Ended
	September 30, 2016		December 31, 2015
Interest expense	$	2,300	$	3,075

(D) Pro forma adjustments to record the income tax provision impact of the pro forma adjustments (A) to (C) which have been calculated based on the statutory rate in effect during the periods for which the pro forma statements of income were presented (in thousands):


	Nine Months Ended		Year Ended
	September 30, 2016		December 31, 2015
Total pro forma adjustments for income tax provision impact	$	5,921	$	10,916

(E) Pro forma net income per share for basic and diluted based on combined statements of income:


	Nine Months Ended		Year Ended
	September 30, 2016		December 31, 2015

Basic	$	0.68	$	1.11
Diluted	$	0.67	$	1.08

The pro forma condensed combined statements of income include revenues from a specific customer of ADP which exceed the level of revenues that the Company anticipates will be realized in the statement of income on a prospective basis.