<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 1-1969
CERIDIAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 52-0278528
(State or other jurisdiction of (IRS 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 October 31, 1997, was 76,368,082.
1
<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, 1997 and 1996 .............................. 3
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 ................. 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1997 and 1996 .......... 5
Notes to Consolidated Financial Statements ............... 6
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, 1997, and results of
operations for the three and nine month periods and cash flows
for the nine month periods ended September 30, 1997 and 1996.
The results of operations for the nine month period ended
September 30, 1997, 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 ................ 11
Part II. Other Information
Item 1. Legal Proceedings .................................. 16
Item 6. Exhibits and Reports on Form 8-K ................... 17
Signature ........................................................ 18
2
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS Ceridian Corporation
(Unaudited) and Subsidiaries
For Periods Ended September 30,
Three Months Nine Months
1997 1996 1997 1996
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Revenue
Product sales $ 169.3 $ 147.5 $ 500.1 $ 448.2
Services 242.4 213.5 730.3 643.3
Total 411.7 361.0 1,230.4 1,091.5
Cost of revenue
Product sales 114.4 101.2 352.2 317.4
Services 124.4 110.8 371.5 328.0
Total 238.8 212.0 723.7 645.4
Gross profit 172.9 149.0 506.7 446.1
Operating expenses
Selling, general and
administrative 91.7 81.9 272.3 246.4
Research and development 19.2 18.7 55.7 51.6
Other expense (income) 151.5 (0.1) 167.6 1.8
Earnings (Loss) before
interest and taxes (89.5) 48.5 11.1 146.3
Interest income 1.1 1.6 3.8 5.4
Interest expense (2.2) (2.4) (6.8) (8.1)
Earnings (Loss) before
income taxes (90.6) 47.7 8.1 143.6
Income tax provision 3.1 3.3 9.5 11.0
Net earnings (loss) $ (93.7) $ 44.4 $ (1.4) $ 132.6
Earnings (Loss) per share
Primary $ (1.18) $ 0.59 $ (0.02) $ 1.74
Fully diluted $ (1.18) $ 0.55 $ (0.02) $ 1.64
Weighted average common shares
and equivalents (000's)
Primary 79,189 70,393 79,660 70,446
Fully diluted 79,189 80,777 79,660 80,830
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 1997 1996
(In Millions)
<S> <C> <C>
Cash and equivalents $ 124.1 $ 169.2
Trade and other receivables, net 446.5 382.0
Inventories 43.4 47.6
Other current assets 16.9 14.8
Total current assets 630.9 613.6
Investments and advances 11.3 13.7
Property, plant and equipment, net 138.1 129.0
Goodwill and other intangibles, net 307.4 282.6
Software and development costs, net 27.8 110.4
Prepaid pension cost 106.3 99.5
Other noncurrent assets 2.4 2.3
Total assets $1,224.2 $1,251.1
Liabilities And Stockholders' Equity
Short-term debt and current
portion of long-term obligations $ 4.1 $ 2.0
Accounts payable 58.6 52.8
Drafts and settlements payable 138.3 138.4
Customer advances 106.4 99.4
Deferred income 72.8 74.3
Accrued taxes 70.6 75.8
Employee compensation and benefits 71.6 73.5
Restructure reserves, current portion 8.0 14.9
Other current liabilities 148.7 93.7
Total current liabilities 679.1 624.8
Long-term obligations, less current portion 171.6 142.1
Deferred income taxes 8.1 7.7
Restructure reserves, less current portion 28.2 42.0
Employee benefit plans 73.4 73.3
Deferred income and other
noncurrent liabilities 15.9 14.9
Stockholders' equity 247.9 346.3
Total liabilities and
stockholders' equity $1,224.2 $1,251.1
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
CONSOLIDATED STATEMENTS OF Ceridian Corporation
CASH FLOWS (Unaudited) and Subsidiaries
For Periods Ended September 30,
Nine Months
1997 1996
(In Millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (1.4) $ 132.6
Adjustments to reconcile net earnings (loss)
to net cash provided by (used for)
operating activities:
Impairment loss 116.9 -
Depreciation and amortization 59.0 52.7
Restructure reserves utilized (20.7) (11.7)
Other 1.4 (10.0)
Net change in working capital items:
Trade and other receivables (62.7) (26.0)
Other current assets 2.1 (15.1)
Drafts and settlements payable - (4.3)
Customer advances and deferred income 4.0 8.6
Other current liabilities 22.4 (12.9)
Net cash provided by (used for)
operating activities 121.0 113.9
CASH FLOWS FROM INVESTING ACTIVITIES
Expended for property, plant
and equipment (45.3) (36.4)
Expended for software and development costs (31.1) (35.1)
Expended for investments in and advances
to businesses, less cash acquired (28.9) (35.9)
Proceeds from sales of businesses and assets - 9.3
Collection of notes from asset sales 0.5 0.5
Net cash provided by (used for)
investing activities (104.8) (97.6)
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit and overdrafts, net 33.7 (49.2)
Repayment of other debt (11.1) (6.2)
Preferred stock dividends - (9.7)
Repurchase of stock (98.5) (18.2)
Exercise of stock options and other 14.6 26.8
Net cash provided by (used for)
financing activities (61.3) (56.5)
Effect of exchange rate changes on cash - -
NET CASH PROVIDED (USED) (45.1) (40.2)
Cash and equivalents at beginning of period 169.2 151.7
Cash and equivalents at end of period $ 124.1 $ 111.5
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Capital Assets
September 30, December 31,
1997 1996
<S> <C> <C>
Property, Plant and Equipment
Land $ 2.8 $ 2.6
Machinery and equipment 300.0 271.2
Buildings and improvements 81.3 77.7
Construction in progress 1.1 0.5
385.2 352.0
Accumulated depreciation (247.1) (223.0)
Property, plant and equipment, net $ 138.1 $ 129.0
Goodwill and Other Intangibles
Goodwill $ 284.2 $ 250.0
Accumulated amortization (50.2) (40.1)
Goodwill, net 234.0 209.9
Other intangible assets 85.3 85.0
Accumulated amortization (11.9) (12.3)
Other intangibles, net 73.4 72.7
Goodwill and other intangibles, net $ 307.4 $ 282.6
Software and Development Costs
Purchased software $ 54.5 $ 40.8
CII development cost - 83.6
Other software development cost 23.6 22.1
78.1 146.5
Accumulated amortization (50.3) (36.1)
Software and development costs, net $ 27.8 $ 110.4
For Periods Ended
September 30,
Nine Months
Depreciation and Amortization 1997 1996
Property, plant and equipment $ 35.4 $ 33.2
Goodwill 10.7 9.2
Other intangibles 5.8 4.1
Software and development costs 9.5 8.0
Other (2.4) (1.8)
Total $ 59.0 $ 52.7
</TABLE>
6
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Dollars in millions)
(Unaudited)
NON-RECURRING CHARGES
In August 1997, Ceridian announced it was terminating the development of
the CII payroll processing software system because beta tests of the CII
system had revealed that the costs associated with installing and
processing payrolls for large numbers of customers with the system would be
higher than previously anticipated, and that significant further investment
would be required. As a result, Ceridian determined that the CII system
would not provide an adequate return on its investment and, in light of
continuing customer satisfaction with Ceridian's existing payroll
processing system, elected to terminate the CII development.
As a result of this action, the information services segment of the Company
recorded non-recurring charges to other expense (income) of $150.0 in third
quarter 1997. The tax benefit related to the charges is $0.8. These
charges include an impairment loss of $116.9 for the write-off of assets
and related costs of $33.1. The costs largely relate to severance,
contract termination penalties, unused facilities and incremental costs to
convert beta customers from the CII system. The impairment loss consists
of $104.6 of CII development costs and $12.3 for the carrying value of an
intangible asset related to the CII development project and acquired as
part of the acquisition of Tesseract Corporation. Amortization of these
assets for the current three and nine month periods were $0.5 and $1.4,
respectively.
In March 1997 Ceridian settled certain age discrimination litigation and
recorded a charge to other expense (income) of $13.0, the tax benefit of
which is $0.9.
<TABLE>
<CAPTION>
OTHER EXPENSE (INCOME)
For Periods Ended September 30,
Three Months Nine Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Foreign currency translation
expense (income) $ 0.2 $ 0.2 $ 1.3 $ (0.1)
Loss (Gain) on sale of assets - (0.5) 0.3 (0.4)
Other expense (income) (1.1) (0.2) (2.4) (0.3)
Age discrimination settlement - - 13.0 -
CII termination 150.0 - 150.0 -
Minority interest and equity in
operations of affiliates 2.4 0.4 5.4 2.6
Total $151.5 $ (0.1) $167.6 $ 1.8
</TABLE>
7
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
<S> <C> <C>
Common Stock
Par value - $.50
Shares authorized - 200,000,000
Shares issued - 80,842,798 and 79,789,627 $ 40.4 $ 39.9
Shares outstanding - 77,822,029 and 79,768,431
Additional paid-in capital 1,128.1 1,123.4
Accumulated deficit (800.4) (798.7)
Foreign currency translation adjustments (0.5) 0.4
Restricted stock awards (6.0) (12.0)
Pension liability adjustment (6.3) (6.3)
Treasury stock, at cost (3,020,769 and
21,196 common shares) (107.4) (0.4)
Total stockholders' equity $ 247.9 $ 346.3
</TABLE>
During third quarter 1997, the Company purchased 3,202,100 shares of its
common stock, bringing the 1997 total to 3,539,133 and the total under a
program initiated in July 1994 to 4,192,647. The number of shares
authorized by the Company's Board of Directors for such purchases has been
raised during 1997 from 2,000,000 to 11,000,000 shares.
Other current liabilities at September 30, 1997 includes $28.4 for
settlement of purchases made near the end of that month, and this accrual,
along with the related equity cash flow, have been eliminated as a noncash
transaction from the statement of cash flows.
8
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
RECEIVABLES
September 30, December 31,
1997 1996
<S> <C> <C>
Trade and Other Receivables, Net:
Trade, less allowance of $13.4 and $11.4 $ 301.7 $ 259.5
Unbilled 127.3 111.5
Other 17.5 11.0
Total $ 446.5 $ 382.0
</TABLE>
<TABLE>
<CAPTION>
RESTRUCTURE RESERVES
Bal Bal
Dec 31, Sept 30,
1996 Adds Paid Other 1997
<S> <C> <C> <C> <C> <C>
Severance and Related
Costs $ 4.7 $ -- $ 3.2 $ -- $ 1.5
Vacant Space 10.8 -- 3.5 (0.1) 7.4
Costs to Dispose of
Businesses 1.8 -- 1.4 -- 0.4
Legal Costs 10.9 -- 10.9 -- --
Environmental Costs 11.3 -- 0.5 -- 10.8
Duplicate
Processing/Support 0.3 -- -- -- 0.3
Other 17.1 -- 1.2 0.1 15.8
Total $56.9 $ -- $20.7 $ -- $36.2
</TABLE>
The legal cost payments relate to age discrimination litigation which was
settled on March 5, 1997 for $28.5 million. Ceridian's obligation was $24
million, of which $11 million was paid out of restructuring reserves
established in June 1994 and $13 million was paid out of accruals
established during first quarter 1997.
9
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Dollars in millions)
(Unaudited)
INVESTING ACTIVITY
In February 1997, Ceridian acquired FLX Corporation, Inc., a developer of
human resources management and benefits software that had revenue of $3.7
in 1996 and has become part of Ceridian's U.S. payroll processing and tax
filing services business. The acquisition was accounted for by the
pooling-of-interests method. In April, the Company purchased the stock of
Archco, Inc., which is a part of the Company's Comdata subsidiary. Archco
is a provider of fuel management services and had revenue of $2.4 during
1996. In May, Ceridian purchased the assets of Premier CashLink, a
provider of cash advance services to the gaming industry. Premier CashLink
had $15.6 of revenue in 1996 and is associated with Comdata. Also in May,
Ceridian acquired Innovative Business and Training Solutions, Inc., a
developer of self-service workflow solutions and related consulting
services that had revenue of nearly $2.0 in 1996 and has become part of
Ceridian's U.S. payroll processing and tax filing services business.
During third quarter, Ceridian acquired in a purchase transaction the
remaining ownership interest in International Automated Energy Systems
("IAES"), in which the Company had acquired a 19.9% interest in first
quarter 1996. As a result of step acquisition accounting requirements, the
Company recorded in third quarter 1997 a direct charge of $0.9 to
accumulated deficit, representing its share of post-acquisition 1996 losses
of IAES, and eliminated from its balance sheet investments in and advances
to IAES of $10.4.
These acquisitions resulted in the payment of $22.1 in cash, the assumption
of $8.6 in debt, the delivery of 942,670 Ceridian common shares valued at
$32.7 and the recognition of $36.7 of goodwill.
SUBSEQUENT EVENT: SALE OF COMPUTING DEVICES
On November 3, 1997, General Dynamics Corporation and Ceridian Corporation
announced that they have entered into a definitive agreement under which
General Dynamics will acquire Ceridian's Computing Devices International
unit for $600.0 in cash. The transaction has been approved by the boards
of directors of both companies and is subject to normal regulatory
approvals. The sale is expected to close by the end of the year, and
Ceridian expects to report both the operating results of Computing Devices
and the gain from the sale of this business segment as discontinued
operations.
10
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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The statements regarding Ceridian Corporation contained in this report
that are not historical in nature, particularly those that utilize
terminology such as "will," "expects," "anticipates," "believes" or
"plans," are forward-looking statements based on current expectations and
assumptions, and entail various risks and uncertainties that could cause
actual results to differ materially from those expressed in such forward-
looking statements. Important factors known to Ceridian that could cause
such material differences are discussed under the caption "1997 Financial
Outlook" on pages 24 and 25 of Ceridian's 1996 Annual Report to
Stockholders, which is incorporated by reference into Part II, Item 7 of
Ceridian's Annual Report on Form 10-K for the year ended December 31, 1996,
and in Ceridian's Current Report on Form 8-K dated August 26, 1997, which
discussions are incorporated herein by reference.
Results of Operations
Included in Ceridian's 1997 results is a third quarter charge of
$150.0 million ($149.2 million after tax) recorded in connection with the
August 1997 decision to terminate the development of Ceridian's CII payroll
processing software, and a first quarter charge of $13.0 million ($12.1
million after tax) recorded as the result of the March 1997 settlement of
certain age discrimination litigation. Absent these charges, Ceridian
would have reported third quarter 1997 net earnings of $55.5 million, or
$0.69 per fully diluted common share, and net earnings for the first nine
months of 1997 of $160.0 million, or $1.98 per fully diluted common share.
Additional information regarding the CII-related charge is contained in the
financial statement note entitled "Non-recurring Charges."
Revenue. The following table sets forth revenue for Ceridian, its two
industry segments, and the businesses that comprise those segments for the
periods shown:
<TABLE>
For Periods Ended September 30,
Three Months Nine Months
(Dollars in millions) 1997 1996 1997 1996
change change
<S> <C> <C> <C> <C> <C> <C>
Information Services Segment
Arbitron $ 42.2 13.4% $ 37.2 $ 120.6 7.0% $ 112.6
Human Resources Group 137.9 19.2% 115.8 423.6 18.8% 356.9
Comdata 86.4 10.9% 77.9 248.0 11.8% 221.9
Total 266.5 15.5% 230.9 792.2 14.6% 691.4
Defense Electronics Segment
Computing Devices Int'l 145.2 11.6% 130.1 438.2 9.5% 400.1
Total Revenue $411.7 14.1% $361.0 $1,230.4 12.7% $1,091.5
</TABLE>
After adjusting for revenue growth attributable to acquisitions and to
a first quarter 1996 change in the revenue recognition policy of Arbitron's
Scarborough Research Partnership ("SRP"), Information Services' revenue
increased about 10% in both the quarterly and year-to-date comparisons.
After adjusting for acquisitions, revenue growth in the Human Resources
Group ("HRG") was 14.2% in the quarterly comparison and 13.6% in the nine
month comparison, with the greatest rates of internal growth involving
payroll tax filing services, employee assistance services and software
offerings. Interest income from tax filing deposits increased somewhat more
than 20% in the three and nine month comparisons, primarily reflecting
11
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
Results of Operations (continued)
increased business volume and an increase in the average number of days
deposits were held. The increase in the average holding period for these
deposits was due in large measure to the earlier collection by Ceridian of
such deposits in anticipation of the implementation of IRS electronic funds
transfer regulations that reduce by one day the period of time certain tax
filing deposits may be held. The general implementation of these
regulations was delayed, but began in October 1997. Order values for HRG
increased about 10% in the quarterly and year-to-date comparisons (after
adjusting for the impact of the Kmart contract received in the first
quarter 1996), driven primarily by increases in orders for software and
non-repetitive services.
Comdata's revenue growth after adjusting for acquisitions was 2.4% and
4.3% in the three and nine month comparisons, respectively. These figures
reflect internal revenue growth in the transportation business of 10.1% and
5.7% in the respective periods, while in the gaming business, a revenue
decrease of 6.9% in the quarterly comparison and a 2.4% revenue increase in
the nine month comparison. The revenue growth in transportation,
particularly in the third quarter 1997, was primarily due to an increased
level of funds transfer transactions and increased sales of prepaid phone
cards and Trendar fuel desk automation systems, reflecting favorable
conditions in the trucking industry generally and increased success on
Comdata's part in winning new accounts. The revenue performance in gaming
was primarily due to an accelerating decline in the number of credit card
cash advance transactions over year earlier levels, largely reflecting
increased use of lower fee sources of cash such as ATM machines and
increasing competitive pressures that have resulted in reduced pricing for
new and renewal business and the loss of certain customers. Also
contributing to the revenue decrease from credit card cash advance
transactions is the increase in the 1997 periods in the average merchant
discount fee on such transactions (which is netted against revenue).
Partially offsetting these decreases was increased revenue from ATM
transactions, reflecting both transaction growth and price increases.
Adjusting for the impact of the SRP revenue recognition change, which
increased Arbitron's first quarter 1996 revenue by $3.4 million, Arbitron's
revenue increased 10.3% in the year to date comparison. Arbitron's revenue
growth in the quarterly comparison included $1.6 million of third quarter
1997 billings attributable to services provided to customers during the
first half of 1997 while renewal of the relevant contracts was being
negotiated. In both the three and nine month comparisons, Arbitron's
revenue growth reflected an increased number of ratings subscribers, price
escalators in multi-year contracts, generally favorable pricing in
connection with renewal contracts and increased sales of the Scarborough
Report.
Computing Devices' revenue increase in the quarterly and year to date
comparisons was due primarily to closing out certain contracts in its U.S.
operations for the production of avionics, intelligence and data storage
systems, revenue in the U.S. from developmental contracts awarded in 1996
pertaining to battlefield awareness and data dissemination, increased sales
of avionics products from its United Kingdom operations, and increased
sales of communications and anti-submarine warfare systems in its Canadian
operations. Order activity for Computing Devices during the first nine
months of 1997 was about 10% greater than in the comparable 1996 period,
with order strength in the Canadian and United Kingdom operations more than
offsetting relative order weakness in the U.S. operations. Ceridian
announced on November 3, 1997 that it had agreed to sell Computing Devices
to General Dynamics Corporation for $600 million, and that the transaction
is expected to close by the end of 1997, subject to normal regulatory
approvals.
Costs and Expenses. Ceridian's gross margin increases in both the
quarterly and nine month comparisons reflected the relatively greater
revenue growth in the Information Services segment. Ceridian's gross
margin improvement in the quarterly comparison also reflected an increase
in Computing Devices' gross margin from 25.0% to 26.8%. This increase was
primarily attributable to Computing Devices' Canadian operations,
reflecting improved margins on the Iris contract as it moves further into
the production phase and on a light armored vehicle reconnaissance contract
that is nearing completion, and Computing Devices' United Kingdom
12
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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
Results of Operations (continued)
operations, reflecting improved margins on avionics contracts and
adjustments based on changing estimates of costs required to complete
the Eurofighter 2000 aircraft program. Computing Devices' gross margin
increased from 23.0% to 23.6% in the nine month comparison, as these
favorable factors were partially offset by first quarter 1997 inventory
write-downs in the U.S. operations.
Information Services' gross margin declined slightly in both the
quarterly and year-to-date comparisons as a gross margin decrease in
Comdata was largely offset by increases in Arbitron and in HRG.
The gross margin decrease in Comdata was primarily due to agent
commissions paid to gaming locations, reflecting increased competitive
pressures. The gross margin increase in Arbitron largely reflected
revenue growth from radio ratings and software applications and,
in the nine month comparison, additional costs in the first quarter 1996
resulting from the change in SRP's revenue recognition policy.
Ceridian's selling, general and administrative ("SG&A") expenses
expressed as a percentage of revenue decreased from 22.6% to 22.3% in the
quarterly comparison and from 22.6% to 22.1% in the year-to-date
comparison. This primarily reflected decreased compensation expense
associated with Ceridian's performance restricted stock plan, reflecting
Ceridian's more favorable 1996 stock price performance. SG&A expenses in
Computing Devices decreased from 11.6 to 10.0 percent of revenue in the
quarterly comparison and from 11.7 to 9.9 percent of revenue in the year-
to-date comparison primarily due to the compensation expense decrease noted
and decreased selling expense in its U.S. operations. SG&A expenses in
Information Services were essentially unchanged as a percentage of revenue
in both the three and nine month comparisons, reflecting an increase in
such expenses as a percentage of revenue in Comdata that was largely offset
by a decrease in HRG's selling expense as a percentage of revenue. The
increase in Comdata largely reflected increased amortization of goodwill
and other intangibles and increased administrative expenses
related to recent acquisitions.
Ceridian's research and development ("R&D") expenses expressed as a
percentage of revenue decreased from 5.2% to 4.7% in the quarterly
comparison and from 4.7% to 4.5% in the year-to-date comparison. R&D
expenses in Information Services decreased from 6.2 to 5.0 percent of
revenue in the quarterly comparison and from 5.7 to 5.0 percent of revenue
in the year-to-date comparison, reflecting the consolidation of Tesseract
with the U.S. payroll processing business and the resulting discontinuance
of certain R&D efforts. R&D expenses in Computing Devices increased from
3.4 to 4.1 percent of revenue in the quarterly comparison and from 3.1 to
3.7 percent of revenue in the year-to-date comparison, with the largest
portion of the increase involving efforts by its Canadian operations to
upgrade and expand communications technology originally developed in
connection with the Iris contract.
Ceridian's other expense in 1997 includes the third quarter charge of
$150 million to terminate the CII project and the $13 million first quarter
charge to settle age discrimination litigation. Also included in other
expense in the 1997 and 1996 periods is Computing Devices' share of the
losses of a partnership developing a satellite-based data distribution
system.
Earnings (Loss) Before Interest and Taxes. Apart from the impact
of the 1997 charges to terminate the CII project and settle the age
discrimination litigation, Ceridian's earnings before interest and taxes
("EBIT") increased $11.8 million, or 24.3%, in the quarterly comparison,
from 13.5% to 14.7% of revenue. Computed on the same basis, Information
Services' EBIT increased $6.9 million, or 19.0%, in the three month
comparison, from 15.6% to 16.1% of revenue. Computing Devices EBIT
increased $4.9 million, or 39.6%, in the three month comparison, from 9.6%
of revenue to 12.0%. In the nine month comparison, and without regard to
13
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
Results of Operations (continued)
the CII and litigation charges, Ceridian's EBIT increased $27.8
million, or 19.0%, from 13.4% to 14.2% of revenue. Computed on the
same basis, Information Services' EBIT increased $19.0 million,
or 16.6%, in the nine month comparison, from 16.6% to 16.8% of
revenue. Computing Devices EBIT increased $8.7 million, or 27.4%, in
the nine month comparison, from 8.0% of revenue to 9.3%.
Interest Income and Expense and Taxes. The decrease in interest
expense in the three and nine month comparisons reflected generally lower
levels of debt, while the decrease in interest income reflected lower
levels of cash in the 1997 periods. The provisions for income taxes for
the 1996 and 1997 periods primarily relate to state and foreign taxes.
Ceridian will be able to utilize a portion of its net operating loss
carryforwards ("NOLs") to eliminate U.S. federal income taxes on the
expected gain from the sale of Computing Devices. In accordance with
FAS 109, Ceridian expects to reduce the valuation allowance related to
its deferred tax asset and recognize a corresponding tax benefit in the
fourth quarter 1997. Thereafter, Ceridian's operating results will be
reported on a fully taxed basis.
Financial Condition
Ceridian's cash and equivalents at September 30, 1997 were $124.1
million, a decrease of $45.1 million from December 31, 1996. Of the
September 30, 1997 balance, $78.3 million was the U.S. dollar equivalent of
unhedged Canadian dollar cash and equivalents held by Computing Devices'
Canadian subsidiary, primarily as a result of customer advances. Cash from
this source held by this subsidiary is expected to remain with the
subsidiary in connection with the sale of Computing Devices. An additional
$18.8 million of Ceridian's cash at September 30, 1997 was required to
service Comdata's ATM machines.
The most significant factor influencing the amount of cash utilized in
the first nine months of 1997 in connection with working capital items was
a $62.7 million increase in trade and other receivables, primarily
reflecting increases in Comdata and Computing Devices. Comdata's increase
in receivables largely reflects a seasonal low in trucking receivables at
year end, while the increase in Computing Devices reflects increased
business volume in its United Kingdom operations and increased unbilled
receivables in connection with long-term contracts in its U.S. and Canadian
operations. Also affecting cash flow from operations in 1997 was the
second quarter payment of $24 million to settle an age discrimination
lawsuit, $11.0 million of which represented the use of restructure
reserves.
The largest amount of cash used for investing activities during the
first nine months of 1997 was expenditures for capital equipment, primarily
in HRG, Computing Devices and Comdata, the latter in connection with the
introduction of a new transaction processing system. Cash utilized for
acquisitions primarily involved the purchase of a provider of cash advance
services to the gaming industry (see the financial statement note entitled
"Investing Activity"). Amounts expended for software and development costs
in the first nine months of 1997 included expenditures for the CII
project prior to the termination decision and for Comdata's transaction
processing system.
Cash used for financing activities during the first nine months of
1997 reflected the payment of $98.5 million to repurchase shares of
Ceridian's common stock. In addition, at September 30, 1997, Ceridian was
obligated to pay an additional $28.4 million in connection with stock
repurchases for which the settlement date had not yet occurred (see the
financial statement note entitled "Stockholders Equity"). Over the same
nine month period, Ceridian's outstanding debt increased by $31.6 million,
including $55 million in additional borrowings during the third quarter
under its domestic revolving credit facility in connection with its stock
repurchases.
14
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
Financial Condition (continued)
At September 30, 1997, $165 million in revolving loans and $2.9
million in standby letters of credit were outstanding under this facility.
In early October, Ceridian borrowed an additional $75 million under this
facility to settle stock repurchase transactions and for general corporate
purposes, bringing total usage of the facility as of October 31, 1997 to
$242.9 million of the $250 million available. On October 23, 1997,
Ceridian obtained an additional $150 million of revolving credit
availability for a period of six months by providing a $50 million
promissory note to each of three banks that are parties to Ceridian's $250
million revolving credit facility. As of November 3, 1997, $60 million of
this additional credit availability had been utilized to repurchase
Ceridian stock, and the balance is expected to be used for acquisitions,
additional stock repurchases and general corporate purposes. As of the
same date, Ceridian had completed the stock repurchases authorized in July
1994 and June 1997 totaling 5 million shares, and had also purchased
707,547 of the 6 million shares authorized to be repurchased in August
1997. On November 3, 1997, the Ceridian Board authorized the repurchase by
Ceridian of an additional 3 million shares of its common stock.
The three $50 million promissory notes essentially incorporate the
terms of Ceridian's $250 million revolving credit facility. The principal
financial covenants in that facility specify that Ceridian's consolidated
debt must not exceed its stockholders' equity as of the end of any fiscal
quarter, and that the ratio of Ceridian's EBIT to interest expense on a
rolling four quarter basis must be at least 2.75 to 1. Ceridian remains in
compliance with these financial covenants as of the date of this report,
and the closing of the sale of Computing Devices will cause Ceridian to
remain in compliance with the debt/equity covenant by increasing
stockholders' equity and providing proceeds with which debt can be repaid.
If the closing of the sale of Computing Devices were delayed beyond the end
of 1997, Ceridian expects that it would be able to obtain any necessary
waiver of the debt/equity covenant until the closing occurs.
15
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
Part II. Other Information
Item 1. Legal Proceedings
Securities Litigation. Ceridian and certain of its executive
officers have been named as defendants in five lawsuits filed by Ceridian
shareholders in U.S. District Court in Minnesota during September 1997.
The lawsuits arise out of Ceridian's announcement, on August 26, 1997, that
it had decided to terminate further development of its CII payroll
processing software system. The complaints allege that the defendants
violated federal securities laws by publicly disseminating false and
misleading statements regarding Ceridian, and by concealing adverse
information about Ceridian, with the effect of artificially inflating the
market price of Ceridian's common stock. The complaints specifically
allege that the defendants provided false and misleading information
regarding the development of the CII system and the positive impact that
system would have on Ceridian's future operations, concealed problems with
the development of the CII system, and improperly capitalized the costs of
the CII development effort, thereby overstating Ceridian's financial
results during the development period. Each plaintiff purports to act on
behalf of a class of purchasers of Ceridian common stock during a specified
period, with the longest such period extending from January 23, 1996 to
August 27, 1997. None of the complaints specify an amount of claimed
damages. Ceridian anticipates that the complaints eventually will be
consolidated into a single action. Ceridian believes that the complaints
filed against it and its executive officers are without merit.
Retirement Plan Litigation. The proposed settlement of the class
action litigation involving Ceridian and its U.S. defined benefit
retirement plans which was reported in Part II, Item 1 of Ceridian's
quarterly report on Form 10-Q for the quarter ended June 30, 1997 was
approved by the U.S. District Court for the District of Minnesota on
October 24, 1997. Payment of the $51 million settlement amount, together
with accrued interest thereon of $0.8 million, was made by the retirement
plans on October 29, 1997.
16
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit Description Code
11 Statement re computation of per share
earnings E
Legend: (E) Electronic Filing
(b) Reports on Form 8-K.
The Company filed a Form 8-K on August 27, 1997,
reporting under Item 5 thereof current developments
related to the Company's plan to terminate the CII
project and its decision to sell Computing Devices
International.
17
<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, 1997, to be signed on its behalf by the
undersigned thereunto duly authorized.
CERIDIAN CORPORATION
Registrant
Date: November 7, 1997 /s/L. D. Gross
L. D. Gross
Vice President and
Corporate Controller
(Principal Accounting Officer)
18
<PAGE>
<PAGE>
Exhibit 11
CERIDIAN CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
(Amounts in millions, except per share data)
For Periods Ended September 30,
<S> <C> <C> <C> <C>
Three Months Nine Months
1997 1996 1997 1996
Net earnings (loss) for common
stockholders - primary $ (93.7) $ 41.2 $ (1.4) $ 122.9
Restore dividends on
convertible preferred
stock 0.0 3.2 0.0 9.7
Net earnings (loss) for fully
diluted earnings
per share $ (93.7) $ 44.4 $ (1.4) $ 132.6
Weighted average common
shares outstanding 79,189 68,033 79,660 67,700
Common share equivalents
from stock options and
restricted stock awards 0 2,360 0 2,746
Weighted average common
shares and equivalents
outstanding - primary 79,189 70,393 79,660 70,446
Shares issuable assuming
conversion of preferred
stock 0 10,384 0 10,384
Weighted average common
shares and equivalents
outstanding - adjusted
for full dilution 79,189 80,777 79,660 80,830
Net earnings (loss) for common
stockholders - primary $ (93.7) $ 41.2 $ (1.4) $ 122.9
Weighted average common
shares and equivalents
outstanding - primary 79,189 70,393 79,660 70,446
Primary earnings (loss)
per share $ (1.18) $ 0.59 $ (0.02) $ 1.74
Net earnings (loss) for fully
diluted earnings
per share $ (93.7) $ 44.4 $ (1.4) $ 132.6
Weighted average common
shares and equivalents
outstanding - adjusted
for full dilution 79,189 80,777 79,660 80,830
Fully diluted earnings (loss)
per share $ (1.18) $ 0.55 $ (0.02) $ 1.64
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<PERIOD-TYPE> 9-MOS
<CASH> 124,100
<SECURITIES> 0
<RECEIVABLES> 446,500
<ALLOWANCES> 13,400
<INVENTORY> 43,400
<CURRENT-ASSETS> 630,900
<PP&E> 385,200
<DEPRECIATION> 247,100
<TOTAL-ASSETS> 1,224,200
<CURRENT-LIABILITIES> 679,100
<BONDS> 171,600
<COMMON> 40,400
0
0
<OTHER-SE> 207,500
<TOTAL-LIABILITY-AND-EQUITY> 1,224,200
<SALES> 500,100
<TOTAL-REVENUES> 1,230,400
<CGS> 352,200
<TOTAL-COSTS> 723,700
<OTHER-EXPENSES> 167,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,800
<INCOME-PRETAX> 8,100
<INCOME-TAX> 9,500
<INCOME-CONTINUING> (1,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,400)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
