SECTIONS
Financial Statements 3
Notes to Financial Statements 6
Management's Discussion 10
Other Information 20
Signature 21
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
Commission file number 1-1969
CERIDIAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-0278528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 34th Avenue South, Minneapolis, Minnesota 55425
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612)853-8100
(Former name, former address and former fiscal year if changed from last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
The number of shares of registrant's Common Stock, par value $.50 per
share, outstanding as of September 30, 1994, was 44,952,595.
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Pages
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations
for the three and nine month periods ended
September 30, 1994 and 1993 ............................. 3
Consolidated Balance Sheets as of
September 30, 1994 and December 31, 1993 ................ 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1994 and 1993 ......... 5
Notes to Consolidated Financial Statements .............. 6-9
In the opinion of the Company, the unaudited consolidated
financial statements reflect all adjustments (consisting only of
normal recurring accruals, except as set forth in the notes to
consolidated financial statements) necessary to present fairly
the financial position as of September 30, 1994, and results of
operations for the three and nine month periods and cash flows
for the nine month periods ended September 30, 1994 and 1993.
The results of operations for the nine month period ended
September 30, 1994, are not necessarily indicative of the
results to be expected for the full year.
The consolidated financial statements should be read in
conjunction with the notes to consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 10-18
Part II. Other Information
Item 1. Legal Proceedings.................................... 19
Item 6. Exhibits and Reports on Form 8-K .................... 20
Signature ......................................................... 21
- 2 -
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS Ceridian Corporation
(Unaudited) and Subsidiaries
For Periods Ended September 30,
Three Months Nine Months
1994 1993 1994 1993
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Revenue
Product sales $ 148.1 $ 97.4 $ 384.9 $ 322.9
Services 94.3 111.5 297.3 336.3
Total 242.4 208.9 682.2 659.2
Cost of revenue
Product sales 115.2 75.1 304.5 258.5
Services 44.9 63.6 137.7 192.4
Total 160.1 138.7 442.2 450.9
Gross profit 82.3 70.2 240.0 208.3
Operating expenses
Selling, general and
administrative 51.3 44.4 148.3 130.2
Technical expense 13.6 12.6 36.2 37.2
Other expense (income) (1.2) (0.6) (0.7) (1.2)
Earnings before interest
and taxes 18.6 13.8 56.2 42.1
Interest income 2.7 2.0 7.8 5.7
Interest expense (0.4) (4.1) (1.2) (12.2)
Earnings before income taxes 20.9 11.7 62.8 35.6
Income tax provision 1.7 1.0 5.0 3.6
Net earnings $ 19.2 $ 10.7 $ 57.8 $ 32.0
Preferred stock dividends 3.2 -- 9.7 --
Net earnings available to
common stockholders $ 16.0 $ 10.7 $ 48.1 $ 32.0
Primary earnings per share $ 0.35 $ 0.25 $ 1.05 $ 0.75
Fully diluted earnings per
share $ 0.34 $ 0.25 $ 1.03 $ 0.75
Weighted average common
shares and equivalents
outstanding (000's)
Primary 46,191 42,957 45,873 42,891
Fully diluted 56,575 42,957 56,257 42,891
See notes to consolidated financial statements.
</TABLE>
- 3 -
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
CONSOLIDATED Ceridian Corporation
BALANCE SHEETS (Unaudited) and Subsidiaries
September 30, December 31,
Assets 1994 1993
(In Millions)
<S> <C> <C>
Cash and equivalents $ 146.4 $ 112.4
Short-term investments 50.5 103.4
Trade and other receivables, net 131.2 133.0
Inventories 21.3 30.9
Other current assets 6.3 7.5
Total current assets 355.7 387.2
Investments and advances 30.8 28.2
Property, plant and equipment, net 95.9 88.7
Other noncurrent assets 204.5 111.6
Total assets $ 686.9 $ 615.7
Liabilities And Stockholders' Equity
Short-term debt and current
portion of long-term obligations $ 3.6 $ 3.1
Accounts payable 26.5 40.0
Customer advances and deferred income 90.0 70.5
Accrued taxes 54.9 54.2
Employee compensation and benefits 49.0 44.4
Restructure reserves, current portion 26.9 44.8
Other accrued expenses 73.6 59.4
Total current liabilities 324.5 316.4
Long-term obligations, less current portion 15.5 16.3
Deferred income taxes 8.8 6.4
Restructure reserves, less current portion 68.9 63.2
Other noncurrent liabilities 100.8 102.1
Stockholders' equity 168.4 111.3
Total liabilities and
stockholders' equity $ 686.9 $ 615.7
See notes to consolidated financial statements.
- 4 -
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
FORM 10-Q
CONSOLIDATED STATEMENTS OF Ceridian Corporation
CASH FLOWS (Unaudited) and Subsidiaries
For Periods Ended September 30,
Nine Months
1994 1993
(In Millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 57.8 $ 32.0
Adjustments to reconcile earnings
to net cash provided by (used for)
operating activities:
Depreciation 19.3 19.1
Amortization of deferred assets 4.1 2.3
Restructure reserves:
Reserves utilized (44.1) (49.2)
Net change in working capital items:
Trade and other receivables (9.6) 14.3
Inventories 9.4 10.3
Other current assets 2.0 (2.3)
Accounts payable (14.2) 4.2
Customer advances and
deferred income 3.5 (10.4)
Other current liabilities 12.6 (4.9)
Other (9.7) (1.0)
Net cash provided by (used for)
operating activities 31.1 14.4
CASH FLOWS FROM INVESTING ACTIVITIES
Expended for capital assets and software (36.8) (24.1)
Expended for business acquisitions (56.3) --
Short-term investments 52.9 9.6
Proceeds from sales of businesses,
investments and capital assets 33.5 4.1
Other 0.4 0.1
Net cash provided by (used for)
investing activities (6.3) (10.3)
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term debt, net 2.6 1.7
Retirement of long-term debt (2.8) (1.2)
Proceeds from sale of 5-1/2% Preferred Stock 15.5 --
Preferred stock dividends (9.7) --
Exercise of stock options and other 3.9 1.8
Net cash provided by (used for)
financing activities 9.5 2.3
Effect of exchange rate changes on cash (0.3) (0.9)
NET CASH PROVIDED (USED) 34.0 5.5
Cash and equivalents at beginning of period 112.4 88.4
Cash and equivalents at end of period $ 146.4 $ 93.9
See notes to consolidated financial statements.
</TABLE>
- 5 -
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994
(Dollars in millions)
(Unaudited)
CASH AND SHORT-TERM INVESTMENTS
The Company has an arrangement with an independent investment manager
to invest its cash in excess of estimated current requirements in
investment-grade fixed income securities which may have final maturities of
up to two years. Investments which are readily convertible to cash within
three months of purchase are classified in the balance sheet as cash
equivalents. Investments with longer maturities are considered available-
for-sale under FAS 115, adopted January 1994, and reported in the balance
sheet as short-term investments. The fair value of short-term investments
is not materially different from their amortized cost, and the amount of
investments expected to be held more than one year beyond the balance sheet
date is not considered material. Net changes in short-term investments,
which are shown as investing cash flows in the Statements of Cash Flows,
relate to investment decisions by the independent investment manager as
well as to changes in the cash needs of the Company.
COMMITMENTS AND CONTINGENCIES
With the addition of $25.0 in each of the second and third quarters of
1994, Ceridian raised the notional amount of its outstanding intermediate-
term interest rate swap agreements from $150.0 at the beginning of the year
to $200.0 at September 30, 1994. In second quarter the Company also
obtained a release from the requirement to collateralize certain of these
arrangements. The purpose of these agreements is to effectively convert a
portion of the interest which the Company earns from deposits held by
Employer Services on behalf of payroll tax filing customers from a floating
to a fixed rate basis. Year to date performance of the agreements has been
nominally favorable. The Company considers the risk of accounting loss
through nonperformance under the agreements to be negligible.
RESTRUCTURE LOSS (GAIN)
During second quarter 1994, the Company recorded restructure gains of
$7.8 from the sale of its TeleMoney Services and related data services
operations and $7.2 from the final settlement of a tax-sharing arrangement
with a former subsidiary. These gains were offset by a provision for costs
related to age discrimination litigation arising out of downsizing actions
taken by the Company in past years.
- 6 -
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
RECEIVABLES
September 30, December 31,
1994 1993
<S> <C> <C>
Trade and Other Receivables, Net:
Trade, less allowance of $6.1 and $5.4 $ 67.5 $ 69.2
Unbilled 60.1 45.5
Other 3.6 18.3
Total $ 131.2 $ 133.0
</TABLE>
INVESTING ACTIVITY
In May 1994 Ceridian sold its TeleMoney Services and related network
and computer center operations to First Data Resources Inc. and received
$24.3 of net cash proceeds. Under the sale agreement, the Company
committed to use certain data services to be provided by the sold
operations on a take-or-pay basis over a period ending April 30, 1995, to
provide temporary facilities space for certain of the sold operations, and
certain other obligations, which were recorded as restructure reserves.
After consideration of these obligations and the carrying value of net
assets sold, the Company recognized a restructuring gain from the sale of
$7.8.
Also in May 1994, Ceridian received the final cash payment of $7.2
under a tax-sharing arrangement with Commercial Credit Company, a former
subsidiary of the Company which was sold in 1986, and its successor, which
was recorded as a restructuring gain.
As described in a Form 8-K filed on July 11, 1994, Ceridian acquired
on June 24, 1994, Tesseract Corporation ("Tesseract") by means of a reverse
triangular merger. Tesseract, as the surviving corporation, became a
wholly-owned subsidiary of the Company as a result of the merger. The
merger transaction, which was accounted for as a purchase, resulted in the
recording of $75.6 of goodwill determined by reference to the payments of
$60.0 to the sellers and $1.5 in direct acquisition costs and the net
liabilities of Tesseract, after acquisition adjustments, of $14.1.
Included in the net liabilities of Tesseract were $7.2 of cash balances,
which reduced the net cash outflow for the acquisition, $5.3 of
receivables, $1.6 of capital assets, $l6.6 of deferred income, $7.0 of
accrued employee compensation and benefits and $4.8 of other accrued
expenses. The goodwill is being amortized over a 15-year period.
- 7 -
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994
(Dollars in millions)
(Unaudited)
OTHER NONCURRENT ASSETS
September 30, December 31,
1994 1993
Other noncurrent assets
Goodwill $ 107.5 $ 35.4
Software 16.9 8.2
Prepaid pension cost 78.3 64.0
Intangibles and other 1.8 4.0
Total $ 204.5 $ 111.6
CHANGE IN PRESENTATION
In third quarter 1994, the Company reclassified certain 1994 costs,
totalling $3.7 for the first half of the year, from technical to general
expense. Prior 1994 quarterly results have been conformed to the current
presentation.
EARNINGS PER SHARE
For 1994, primary earnings per share is calculated by dividing the net
earnings available to common stockholders by the weighted average of
outstanding common stock and common stock equivalents. Common stock
equivalents represent the outstanding dilutive stock options less the
number of shares assumed repurchased, at the average market price of the
Company's stock during the reporting period, with the proceeds from an
assumed exercise of those options. Fully diluted earnings per share
assumes that the Company's 5 1/2% Preferred Stock was converted to common
shares at the beginning of the reporting period. Therefore, the
calculation uses net earnings without reduction for preferred stock
dividends divided by weighted average common shares and common share
equivalents plus the additional common shares which would have resulted
from the assumed conversion. The detailed calculation of these amounts
appears in Exhibit 11 elsewhere in this report.
RESTRICTED STOCK AWARDS
During the third quarter 1994, 365,000 restricted common shares were
awarded to senior executives as part of a performance restricted stock
program under the Company's 1993 Long-Term Incentive Plan ("1993 LTIP"). A
total of 910,000 shares has been authorized for issuance from the 1993 LTIP
pursuant to this program, and an additional 458,000 shares have been
awarded during fourth quarter 1994. Under the terms of these awards, a
portion of the shares subject to each award will vest and restrictions on
transferability will correspondingly lapse in May of 1996, 1997 and 1998,
but only to the extent that the total return to holders of Ceridian common
stock over two, three and four year periods beginning May 1, 1994, places
the Company at or above the 60th percentile of all companies in the S&P 500
Stock Index (as it existed on May 1, 1994) for total returns to
shareholders over these periods. Shares which have not yet vested as of
the end of the final performance period will be forfeited.
- 8 -
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994
(Dollars in millions)
(Unaudited)
RESTRICTED STOCK AWARDS (cont.)
Transactions related to these awards do not affect total stockholders'
equity. Awards, valued at the market price of that stock on the date of
the award, result in an increase in issued common stock and additional
paid-in capital which is offset by an increase in the restricted stock
awards account. The restricted stock award account, representing unearned
compensation to be charged to future operations, will be reduced as the
compensation expense is charged to operations. Compensation expense is
estimated based on the number of awarded shares expected to become
unrestricted at each vesting date and the estimated market price of
Ceridian common stock at those dates. The amounts of compensation expense
charged to general expense in connection with these awards amounted to $2.5
in second quarter and $2.2 in third quarter 1994, respectively. For
earnings per share calculations, the restricted shares will be added to
common stock equivalents as the restricted stock award account is reduced.
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
September 30, December 31,
1994 1993
<S> <C> <C>
5-1/2% Cumulative Convertible Exchangeable
Preferred Stock, $100 par value
(liquidation preference of $236.0)
Shares issued and outstanding 47,200 $ 4.7 $ 4.7
Common Stock
Par value - $.50
Shares authorized - 100,000,000
Shares issued - 45,056,833 and
44,263,369 22.5 22.1
Shares outstanding - 44,952,595 and
44,181,631
Additional paid-in capital 838.3 824.2
Accumulated deficit (681.7) (729.8)
Foreign currency translation adjustments (2.2) (2.0)
Restricted stock awards (6.9) (2.2)
Pension liability adjustment (4.1) (4.1)
Treasury stock, at cost (104,238 and
81,738 common shares) (2.2) (1.6)
Total stockholders' equity $ 168.4 $ 111.3
</TABLE>
- 9 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the quarter ended September 30, 1994, Ceridian Corporation (the
"Company") reported net earnings after preferred stock dividends of $16.0
million, or $.34 per fully diluted share of common stock, on revenue of
$242.4 million, compared to net earnings of $10.7 million, or $.25 per
common share, on revenue of $208.9 million for the third quarter 1993. For
the nine months ended September 30, 1994, the Company reported net earnings
after preferred stock dividends of $48.1 million, or $1.03 per fully
diluted share of common stock, on revenue of $682.2 million, compared to
net earnings of $32.0 million, or $.75 per common share, on revenue of
$659.2 million.
The following table sets forth revenue for the Company, its two
industry segments and the businesses that comprise those segments for the
three and nine month periods ended September 30, 1994 and 1993,
respectively:
Periods Ended September 30,
Three Months Nine Months
1994 1993 1994 1993
(Dollars in millions)
Information Services Segment
Arbitron Company $ 29.8 $ 45.3 $ 89.4 $ 134.4
Ceridian Employer Services 75.0 56.7 218.0 170.1
Other Services(1) 1.1 4.9 6.9 15.2
Total Information Services 105.9 106.9 314.3 319.7
Defense Electronics Segment
Computing Devices International(2) 136.5 102.0 367.9 339.5
Total Revenue $242.4 $ 208.9 $682.2 $ 659.2
_____________________
(1) Primarily consists of revenue from TeleMoney Services and the
Company's related network and computer center operations, which were sold
in May 1994.
(2) Responsibility for the Company's Business Information Services
operation ("BIS") was transferred to Computing Devices effective January 1,
1994. BIS' results for the 1993 and 1994 periods are included in Computing
Devices' results.
- 10 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (cont.)
The following table sets forth the percentage of the Company's total
revenue by industry segment, the gross profit of each of the Company's
industry segments as a percentage of that segment's revenue, and certain
items in the consolidated statements of operations as a percentage of total
revenue, for the periods indicated.
Periods Ended September 30,
Three Months Nine Months
1994 1993 1994 1993
Revenue:
Information Services 43.7% 51.2% 46.1% 48.5%
Defense Electronics 56.3% 48.8% 53.9% 51.5%
Total revenue 100.0% 100.0% 100.0% 100.0%
Gross profit:
Information Services 54.8% 45.9% 54.2% 45.7%
Defense Electronics 17.8% 20.8% 18.9% 18.3%
Total gross profit 34.0% 33.6% 35.2% 31.6%
Operating expenses
Selling, general &
administrative 21.2% 21.2% 21.7% 19.7%
Technical 5.6% 6.0% 5.3% 5.6%
Other expense (income) (0.4%) (0.2%) -- (0.1%)
Total operating expenses 26.4% 27.0% 27.0% 25.2%
Earnings before interest
& taxes 7.6% 6.6% 8.2% 6.4%
Interest income (expense) 0.9% (1.0%) 1.0% (1.0%)
Income tax provision 0.7% 0.6% 0.8% 0.6%
Preferred stock dividends 1.3% -- 1.2% --
Net earnings available to
common stockholders 6.6% 5.1% 7.3% 4.9%
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<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (cont.)
Revenue. The small decrease in Information Services' revenue in both
the three and nine month comparisons was a function of revenue growth in
Employer Services that was more than offset by decreased revenue from
Arbitron and from the sale of the Company's TeleMoney Services business in
May 1994. Employer Services revenue increased 32.4% and 28.2% in the
quarterly and year-to-date comparisons, respectively, despite an extra week
of payroll processing revenue in the third quarter 1993 and an extra half
week of such revenue in the first nine months of 1993 due to processing
cut-off dates. The largest single factor in Employer Services' revenue
growth in the quarterly comparison was the June 1994 acquisition of
Tesseract Corporation ("Tesseract"), which designs, develops and supports
integrated payroll, human resource management and benefits administration
software systems. Somewhat more than a third of the revenue growth in
Employer Services in the quarterly comparison and almost half in the nine
month comparison involved its payroll tax filing operations, reflecting
both increased fees and increased interest income primarily as a result of
the October 1993 acquisition of the Systems Tax Service ("STS") tax filing
business and a higher percentage of Employer Services' payroll processing
customers electing to also utilize its tax filing service. The interest
income component of the revenue increase reflected both larger average
balances of payroll tax filing deposits in the 1994 periods and somewhat
higher interest rates in the second and third quarters of 1994. Revenue
from Employer Services' payroll processing operations increased
approximately 11% in the nine month comparison, despite the previously
mentioned additional processing revenue in the 1993 period, reflecting new
customer installations and an increased retention rate for existing
customers. The annualized revenue value of orders received by Employer
Services in the first nine months of 1994 is approximately 20% greater than
in the comparable 1993 period. On October 31, 1994, the Company acquired
User Technology Services, Inc. ("UserTech"), which provides training and
other services to facilitate the effective utilization of information
management systems. UserTech's revenue for its fiscal year ended October
31, 1994 was approximately $5.4 million.
The Arbitron revenue decrease was primarily attributable to the
discontinuance of its television ratings service, which had provided $13.4
million and $40.4 million of revenue in the three and nine month periods of
1993, respectively. Also contributing to the decrease was the year-end
1993 transfer from Arbitron to the Competitive Media Reporting ("CMR")
joint venture with VNU Business Information Services, Inc. ("VNU") of
contracts with certain advertising agencies for commercial monitoring
services, which decreased Arbitron's revenue in the nine month comparison
by about $13.0 million. Partially offsetting this decrease was a revenue
increase of approximately 6% in the nine month comparison in the other
aspects of Arbitron's business, principally its radio ratings service. On
October 31, 1994, the Company signed a letter of intent with VNU to
exchange the
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<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (cont.)
Company's interest in the CMR joint venture for an interest in the business
of VNU's Scarborough Research Corporation subsidiary, which produces the
"Scarborough Report" that provides information regarding product/service
usage and media usage in 55 major U.S. markets. The proposed transaction,
which is expected to be concluded at the end of 1994, would result in the
consolidation of the financial results of the partnership into which the
Scarborough business is to be placed with the Company's financial results
and an expected modest increase in Arbitron's annual revenue.
Computing Devices' revenue increased 33.8% in the quarterly comparison
and 8.4% in the year-to-date comparison. The revenue increase was
primarily due to increased revenue, particularly in the third quarter 1994,
from the Iris contract to provide a communications system to the Canadian
defense department. Revenue from the Iris contract in the fourth quarter
1994 is not expected to match the unusually high level of the third
quarter. Computing Devices' ongoing U.S. operations also reported modestly
increased revenue in the quarterly and year to date comparisons.
Offsetting a sizeable portion of these revenue increases in the nine month
comparison were the near completion at year-end 1993 of a contract to
manufacture equipment for Control Data Systems, Inc. and the July 1993 sale
of the Company's Barrios Technology subsidiary, activities which together
had provided approximately $29 million of revenue in the first nine months
of 1993. The dollar value of Computing Devices' 1994 year to date orders
are approximately 20% greater than in the comparable period in 1993, with
the greatest increase in its Canadian operations. Orders received by
Computing Devices U.S. operations in 1994 have tended to be add-ons to
existing programs, reflecting the cancellation or deferral of various
procurement programs due to government budgetary constraints and increasing
competition for the remaining new procurement programs. In addition, a
relatively smaller percentage of the 1994 orders is expected to be
reflected in revenue during the next fiscal year as compared to orders
received in 1993.
Gross Margin. The Company's 1994 gross margin improvement was
restrained somewhat, particularly in the quarterly comparison, by the
relative revenue contribution of the Defense Electronics segment, which has
historically had a lower gross margin (but also lower operating expenses as
a percentage of revenue) than the Information Services segment.
The most significant factor in the gross margin improvement in
Information Services in the three and nine month comparisons was the
discontinuance of Arbitron's unprofitable television ratings service at the
end of 1993. Employer Services' gross margin decreased in the quarterly
comparison and was little changed in the year to date comparison. Gross
margin improvement in Employer Services' tax filing operations as a result
of the acquisition of STS and the consolidation of Ceridian's tax filing
activity on STS' more highly automated system was offset by decreased gross
margins in payroll processing operations. This decrease in payroll
- 13 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (cont.)
processing was due largely to the previously mentioned additional
processing revenue in the 1993 periods, costs to establish, equip and
transition to a national customer service center in connection with the
consolidation of significant portions of Employer Services' customer
service operations, related actions to upgrade communications systems and
costs associated with the establishment of a human resources information
software consulting service.
The decrease in Computing Devices' gross margin in the quarterly
comparison was primarily due to provisions established by Computing
Devices' U.K. operations for costs to complete certain contracts, including
a development contract for an avionics system for the European fighter
aircraft, revenue attributable to the settlement of a claim by the Company
on which there was essentially no gross profit, and a sizeable increase in
the relative revenue contribution from the Iris contract. Although the
gross margin on the Iris contract improved in the three and nine month
comparisons, it has lower gross margins than most other aspects of
Computing Devices' business. Computing Devices' gross margin did, however,
improve in the nine month comparison, due largely to a reduction in low
margin revenue from the manufacture of equipment for Control Data Systems,
Inc., actions taken in 1993 to reduce employment levels in Computing
Devices' U.S. operations, and the previously mentioned margin improvement
on the Iris contract.
Operating Expenses. The Company's selling, general and administrative
("SG&A") expenses increased in both the three and nine month comparisons,
due largely to additional compensation expense associated with a
performance restricted stock plan being implemented by the Company (see the
financial statement note entitled "Restricted Stock Awards"), additional
SG&A expenses resulting from the acquisitions of STS and Tesseract,
including amortization of the goodwill associated with those acquisitions,
increased selling expense in other aspects of Employer Services' operations
and the reclassification of $3.7 million of certain first half 1994 costs
from technical to general expense. As a percentage of revenue, SG&A
expenses in Information Services increased from 31.4% and 31.2% of revenue
in the third quarter and first nine months of 1993, respectively, to 36.8%
and 34.6% of revenue in the comparable 1994 periods. The primary factor in
these percentage increases was the sizeable decrease in Arbitron's revenue
as a result of the discontinuance of its television ratings service, and
the proportionately smaller decrease in its SG&A expenses. In large
measure this reflects the time required to effect reductions in such
expenses given the past dependence of Arbitron's radio and television
services on a common support structure, and provisions established for
certain claims and litigation involving Arbitron. SG&A expenses as a
percentage of revenue did, however, decrease in Employer Services in the
three and nine month comparisons. Although Computing Devices' SG&A
expenses increased modestly in both the quarterly and year-to-date
comparisons, they decreased as a percentage of revenue in both comparative
periods.
- 14 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations (cont.)
Technical expense, which includes research and development, product
improvement and bid and proposal costs, decreased in the Information
Services segment in dollars and as a percentage of revenue in the quarterly
(from 6.8% to 6.5%) and year to date (from 6.6% to 5.3%) comparisons. The
decrease was principally due to the discontinuance of Arbitron's television
ratings service. Technical expense did, however, increase in Employer
Services in dollars and as a percentage of revenue in the quarterly
comparison, primarily reflecting the acquisition of Tesseract. Technical
expense increased in Computing Devices in the quarterly and year to date
comparisons, primarily attributable to concept development efforts intended
to attract additional government funding for product development efforts.
Although technical expense increased from 4.8% to 5.3% of Computing
Devices' revenue in year to date comparison, it declined from 5.3% to 4.9%
of revenue in the quarterly comparison due to the sizeable revenue increase
reported by Computing Devices.
Earnings Before Interest and Taxes. The increase in the Company's
earnings before interest and taxes ("EBIT") from the third quarter and
first nine months of 1993 to the comparable periods in 1994 was primarily
due to increased EBIT in the Information Services segment, reflecting
increases in Arbitron in the quarterly and year to date comparisons and in
Employer Services in the year to date comparison. Information Services'
EBIT increased from 8.0% to 12.7% of revenue in the three month comparison
and from 8.1% to 14.6% of revenue in the nine month comparison. Computing
Devices' EBIT decreased from 6.9% to 5.8% of revenue in the quarterly
comparison, but increased from 6.0% to 6.2% of revenue in the year-to-date
comparison.
Interest Income and Expense and Taxes. The decrease in interest
expense from the first nine months of 1993 to the first nine months of 1994
reflected the redemption at the end of 1993 of $163.5 million in principal
amount of the Company's 8 1/2% Convertible Subordinated Debentures with the
majority of the proceeds of the sale of the Company's 5 1/2% Cumulative
Convertible Exchangeable Preferred Stock ("5 1/2% Preferred Stock"). The
increase in interest income in the quarterly and year-to-date comparisons
reflected the higher balances of cash and short-term investments in the
first nine months of 1994, primarily as a result of the 5 1/2% Preferred
Stock offering, and generally increasing interest rates during the first
nine months of 1994. The provisions for income taxes for the first nine
months of 1993 and 1994 primarily represent tax charges related to the
Company's international operations.
- 15 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
The Company's cash and short-term investments decreased from $215.8
million at December 31, 1993 to $196.9 million at September 30, 1994. The
portion of the December 31 balance that represented amounts subject to
restrictions was $22.7 million, the majority of which represented the
remaining portion of a customer advance received in connection with
Computing Devices' Iris contract. None of the September 30 cash and short-
term investments balance was subject to any restrictions.
During the first nine months of 1994, operating cash flows provided
$31.1 million of cash, after having provided $14.4 million of cash in the
first nine months of 1993. Net earnings adjusted to a cash basis provided
cash of $71.5 million in the first nine months of 1994 and $52.4 million in
the first nine months of 1993. Reducing these cash flows in the 1994
period were $10 million in voluntary contributions to the Company's primary
U.S. defined benefit retirement plan, intended to improve the funded status
of that plan. Reductions in working capital provided $3.7 million and
$11.2 million of cash in the 1994 and 1993 periods, respectively. The 1994
working capital reduction included the third quarter receipt of a $15
million customer advance as a result of Computing Devices achieving a
significant milestone under the Iris contract. Although, as previously
disclosed, the Company will no longer receive regular, semiannual customer
advances under that contract, additional customer advances tied to the
achievement of significant contractual milestones may be received from time
to time in the future. Payments of restructure reserves were $44.1 million
and $49.2 million in the first nine months of 1994 and 1993, respectively.
Restructure payments in the first nine months of 1994 included amounts paid
in connection with the discontinuance of Arbitron's television ratings
service, in connection with excess facilities, in connection with the
Company's disposition of its remaining interests in Business and Technology
Centers and related partnerships and in connection with the establishment
of Employer Services' national customer service center.
At September 30, 1994, the Company reported restructure reserves of
$95.8 million, reflecting the payments noted above as well as a net
increase of $18.5 million in such reserves during the second quarter 1994.
The portion of the total reserves estimated to require cash outlays during
the remainder of 1994 is approximately $10 million and during 1995 is
approximately $25 million. The second quarter 1994 net increase in
restructure reserves primarily reflected provisions related to the sale of
the TeleMoney business and to age discrimination litigation arising out of
downsizing actions taken by the Company in past years.
- 16 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition (cont.)
Investing activities utilized $6.3 million of cash during the first
nine months of 1994 and $10.3 million in the first nine months of 1993.
Cash received from the liquidation of short-term investments totalled $52.9
million in the first nine months of 1994, compared to 9.6 million in the
comparable 1993 period as investment managers moved into shorter term
investments to take advantage of rising rates. Cash of $33.5 million
received during the first nine months of 1994 from the sale of businesses
and investments was primarily attributable to the sale of the Company's
TeleMoney Services business and from the final settlement of obligations
under a tax matters agreement relating to the 1986 sale of Commercial
Credit Company. Cash utilized to acquire Tesseract during June 1994, net
of Tesseract's cash balances at acquisition, represented $54.3 million of
the $56.3 million expended during the first nine months of 1994 for
acquisitions. Amounts expended for capital assets and software in the
first nine months of 1994 and 1993 totalled $36.8 million and $24.1
million, respectively. The 1994 expenditures include equipment to upgrade
Employer Services' communications and service delivery capabilities, to
further automate Computing Devices production facilities and to implement
an electronic diary processing and retrieval system in Arbitron, as well as
software development costs in Employer Services.
Cash flows from financing activities provided $9.5 million in cash
during the first nine months of 1994, primarily due to the receipt of an
additional $15.0 million in net cash proceeds from the closing of the sale
by the Company of additional shares of 5 1/2% Preferred Stock, as a result
of the underwriters' exercise of their over allotment option.
During May 1994, the Company concluded a one year extension of its $35
million domestic revolving credit facility. Under the terms of the
extension, the Company has credit availability equal to the lesser of $35
million or 75% of the amount of its eligible accounts receivable until May
30, 1995, all of which may be used to obtain revolving loans or standby
letters of credit which may not have a final expiration date later than May
30, 1996. The credit facility as extended is unsecured. At September 30,
1994, there were $3.6 million in letters of credit and no revolving loans
outstanding under the facility. The Company continues to be in compliance
with all covenants associated with this credit facility.
During August 1994, Standard and Poor's Ratings Group raised its
rating on the Company's 5 1/2% Preferred Stock to "BB-" from "B", with an
implied senior debt rating of "BB+". Also during August, Moody's Investors
Service upgraded its rating on the 5 1/2% Preferred Stock from "b3" to "b2"
and its outlook on the Company from neutral to positive.
- 17 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition (cont.)
During July 1994, the Company's Board of Directors authorized the
Company to repurchase up to 2,000,000 shares of its common stock in open
market or privately negotiated transactions. Purchases may be made from
time to time at the discretion of Company management, depending on share
price and market conditions. The principal reason for adopting the
repurchase program is to provide shares to be issued under the Company's
employee stock plans, thereby reducing dilution from such plans. As of
September 30, 1994, the Company had repurchased 20,000 shares in the open
market at an average purchase price of $25 5/8. The Company's domestic
revolving credit agreement limits the amount of cash the Company may expend
in connection with this program to 25% of the amount of the Company's net
income in profitable quarters after the first quarter of 1993. As of
September 30, 1994, the additional amount the Company could expend in
connection with this program totalled $18.7 million. The Company believes
that this limitation, which expires when the credit agreement expires on
May 30, 1995, could be modified if desired prior to that time.
The Company expects to meet its operating cash needs (including
accrued restructure liabilities), expenditures for capital assets and
software, dividend obligations with respect to the 5 1/2% Preferred Stock,
expenditures for strategic acquisitions of moderate size and expenditures
to repurchase common stock from its existing cash balances, cash flow from
operations and proceeds from the exercise of stock options. In addition,
in early November 1994, the Company filed with the Securities and Exchange
Commission a registration statement on Form S-4 to register 5,000,000
shares of the Company's common stock that may be offered and issued from
time to time to effect acquisitions by the Company or its subsidiaries.
- 18 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
As previously reported in Note O in the financial statements contained
in the Company's 1993 Annual Report to Stockholders, which was incorporated
by reference into Part I, Item 3 of the Company's 1993 Annual Report on
Form 10-K, and in Part II, Item 1 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994, the Company is a defendant in
eight lawsuits filed in U.S. District Court in Minnesota currently
involving approximately 320 former employees of the Company as plaintiffs
alleging violations of the Age Discrimination in Employment Act. The
parties had previously agreed to the establishment of a "test case" process
in which a series of three six-week test trials, each involving twelve
randomly selected plaintiffs, was to be conducted. These trials were to be
determinative as to issues of liability, but not damage amounts, if any,
with respect to the plaintiffs involved, and were intended to provide the
parties with further information as to the potential resolution of all
remaining cases. The agreement establishing the test case process provided
that such test cases must either begin by September 1994, or the parties
would no longer be obligated to proceed with the test case process. The
first test case did not begin by the agreed upon time, and counsel for the
plaintiffs has taken the position that he does not wish to reinstitute the
test case process, at least in the form established by the earlier
agreement. As a result, the parties are again proceeding with discovery
pursuant to a schedule established by an order of the court entered prior
to the test case agreement. This schedule contemplates discovery
continuing into 1997. In addition, the federal district judge to whom
these cases had originally been assigned has been appointed to the Eighth
U.S. Circuit Court of Appeals, so these cases have been reassigned to
another district judge.
- 19 -
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Part II. Other Information (cont.)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Description
11 Statement re computation of per share
earnings
(b) Reports on Form 8-K
Report Date
Item Reported
Financial Statements Filed
June 24, 1994 Item 2: Acquisition Item 7: Audited Financial
of Tesseract Statement of Tesseract
Corporation Corporation for the Years
Ended December 31, 1993
and 1992.
Unaudited Financial
Statements of Tesseract
Corporation for the Three
Months Ended March 31, 1994.
Pro forma financial
information reflecting the
combined operations of the
Company and Tesseract
Corporation.
- 20 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Quarterly Report on Form 10-Q for the
period ended September 30, 1994, to be signed on its behalf by the
undersigned thereunto duly authorized.
CERIDIAN CORPORATION
Registrant
Date: November 7, 1994 /s/L. D. Gross
L. D. Gross
Vice President and
Corporate Controller
(Principal Accounting Officer)
- 21 -
<PAGE>
<PAGE>
Exhibit 11
CERIDIAN CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Amounts in millions, except per share data) Three Months
For the periods ended September 30, 1994 1993
Net earnings available to common
stockholders - primary $ 16.0 $ 10.7
Restore dividends on convertible
preferred stock (a) 3.2 --
Net earnings 19.2 10.7
Restore interest expense on convertible
debentures (a) (b) -- 3.5
Net earnings for fully diluted earnings
per share $ 19.2 $ 14.2
Weighted average common shares
outstanding 44.7 43.0
Common share equivalents from stock
options (c) 1.5 0.8
Weighted average common shares and
equivalents outstanding - primary 46.2 43.8
Shares issuable assuming conversion of
preferred stock (a) 10.4 --
Shares issuable assuming conversion of
debentures (a) -- 6.8
Weighted average common shares and
equivalents outstanding - adjusted for
full dilution 56.6 50.6
Net earnings available to common
stockholders - primary $ 16.0 $ 10.7
Weighted average common shares and
equivalents outstanding - primary (c) 46.2 43.8
Primary earnings per share $ 0.35 $ 0.25
Net earnings for fully diluted earnings
per share $ 19.2 $ 14.2
Weighted average common shares and
equivalents outstanding - adjusted for
full dilution 56.6 50.6
Fully diluted earnings per share (c) $ 0.34 $ 0.28
(a) Convertible preferred stock issued and convertible
debentures redeemed in December 1993.
(b) Net of income tax effect which is nil.
(c) Common stock equivalents and shares issuable assuming
conversion of convertible debentures not reported in 1993
because the result is anti-dilutive or additional dilution
is less than 3% as prescribed by APBO No. 15. This
calculation is submitted in accordance with Regulation S-X
item 601(b)(11).
<PAGE>
Exhibit 11 cont.
CERIDIAN CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(Amounts in millions, except per share data) Nine Months
For the periods ended September 30, 1994 1993
Net earnings available to common
stockholders - primary $ 48.1 $ 32.0
Restore dividends on convertible
preferred stock (a) 9.7 --
Net earnings 57.8 32.0
Restore interest expense on convertible
debentures (a) (b) -- 10.5
Net earnings for fully diluted earnings
per share $ 57.8 $ 42.5
Weighted average common shares
outstanding 44.5 42.9
Common share equivalents from stock
options (c) 1.4 0.7
Weighted average common shares and
equivalents outstanding - primary 45.9 43.6
Shares issuable assuming conversion of
preferred stock (a) 10.4 --
Shares issuable assuming conversion of
debentures (a) -- 6.8
Weighted average common shares and
equivalents outstanding - adjusted for
full dilution 56.3 50.4
Net earnings available to common
stockholders - primary $ 48.1 $ 32.0
Weighted average common shares and
equivalents outstanding - primary (c) 45.9 43.6
Primary earnings per share $ 1.05 $ 0.75
Net earnings for fully diluted earnings
per share $ 57.8 $ 42.5
Weighted average common shares and
equivalents outstanding - adjusted for
full dilution 56.3 50.4
Fully diluted earnings per share (c) $ 1.03 $ 0.84
(a) Convertible preferred stock issued and convertible
debentures redeemed in December 1993.
(b) Net of income tax effect which is nil.
(c) Common stock equivalents and shares issuable assuming
conversion of convertible debentures not reported in 1993
because the result is anti-dilutive or additional dilution
is less than 3% as prescribed by APBO No. 15. This
calculation is submitted in accordance with Regulation S-X
item 601(b)(11).
<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1994
<PERIOD-END> Sep-30-1994
<CASH> 146,400
<SECURITIES> 50,500
<RECEIVABLES> 137,300
<ALLOWANCES> 6,100
<INVENTORY> 21,300
<CURRENT-ASSETS> 355,700
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0
4,700
<OTHER-SE> 141,200
<TOTAL-LIABILITY-AND-EQUITY> 686,900
<SALES> 384,900
<TOTAL-REVENUES> 682,200
<CGS> 304,500
<TOTAL-COSTS> 442,200
<OTHER-EXPENSES> (700)
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<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 62,800
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