<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 March 31, 1998
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Commission file number 1-1969
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CERIDIAN CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 52-0278528
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8100 34th Avenue South, Minneapolis, Minnesota 55425
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612)853-8100
-----------------------------
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(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 March 31, 1998, was 72,633,947.
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Pages
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<S> <C>
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations
for the three month periods ended
March 31, 1998 and 1997 ................................. 3
Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 .................... 4
Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1998 and 1997 ............. 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 March 31, 1998, and results of
operations and cash flows for the three month periods ended
March 31, 1998 and 1997.
The results of operations for the three month period ended
March 31, 1998, 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 6. EXHIBITS AND REPORTS ON FORM 8-K .................... 15
Signature ......................................................... 16
</TABLE>
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<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS Ceridian Corporation
(Unaudited) and Subsidiaries
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For Periods Ended
March 31,
(Dollars in millions, except per share data) Three Months
- --------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
Revenue $ 282.3 $ 263.9
Cost of revenue 128.9 126.1
------- -------
Gross profit 153.4 137.8
Operating expenses
Selling, general and
administrative 80.5 75.5
Research and development 17.4 14.2
Other expense (income) 0.6 13.5
------- -------
Earnings before interest and taxes 54.9 34.6
Interest income 2.7 0.5
Interest expense (0.7) (2.1)
------- -------
Earnings before income taxes 56.9 33.0
Income tax provision 21.1 0.6
------- -------
Earnings from continuing operations 35.8 32.4
Discontinued operations 0.0 11.4
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Net earnings $ 35.8 $ 43.8
------- -------
------- -------
Basic earnings per share
Continuing operations $ 0.50 $ 0.41
Net earnings $ 0.50 $ 0.55
Diluted earnings per share
Continuing operations $ 0.49 $ 0.40
Net earnings $ 0.49 $ 0.54
Shares used in calculations (in 000's)
Basic 72,055 79,599
Diluted 73,597 81,015
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
CONSOLIDATED Ceridian Corporation
BALANCE SHEETS (Unaudited) and Subsidiaries
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March 31, December 31,
Assets 1998 1997
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(In Millions)
<S> <C> <C>
Cash and equivalents $ 183.5 $ 268.0
Trade and other receivables, net 373.7 317.5
Current portion of deferred income taxes 123.3 117.6
Other current assets 16.9 17.0
---------- ----------
Total current assets 697.4 720.1
Investments and advances 3.0 8.7
Property, plant and equipment, net 81.2 79.6
Goodwill and other intangibles, net 304.1 244.3
Software and development costs, net 23.3 9.7
Prepaid pension cost 97.9 96.7
Deferred income taxes, less current portion 67.8 81.9
Other noncurrent assets 3.1 2.3
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Total assets $ 1,277.8 $ 1,243.3
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Liabilities And Stockholders' Equity
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Short-term debt and current
portion of long-term obligations $ 11.6 $ 2.2
Accounts payable 51.1 57.8
Drafts and settlements payable 143.1 111.9
Customer advances 13.3 9.9
Deferred income 34.2 35.9
Accrued taxes 81.2 79.8
Employee compensation and benefits 53.1 66.1
Other accrued expenses 94.6 115.2
---------- ----------
Total current liabilities 482.2 478.8
Long-term obligations, less current portion 71.1 0.8
Restructure reserves, less current portion 32.6 30.8
Employee benefit plans 71.6 69.1
Other noncurrent liabilities 67.7 75.5
Stockholders' equity 552.6 588.3
---------- ----------
Total liabilities and
stockholders' equity $ 1,277.8 $ 1,243.3
---------- ----------
---------- ----------
- --------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
CONSOLIDATED Ceridian Corporation
STATEMENTS OF CASH FLOWS (Unaudited) and Subsidiaries
- --------------------------------------------------------------------------------
For Periods Ended March 31,
Three Months
1998 1997
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(In Millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 35.8 $ 43.8
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Earnings from discontinued operations - (11.4)
Deferred income tax provision 17.9 -
Depreciation and amortization 11.9 15.3
Other 6.0 10.8
Net change in working capital items:
Trade and other receivables (21.8) (38.0)
Accounts payable (12.3) 10.7
Drafts and settlements payable 31.3 (8.1)
Employee compensation and benefits (12.9) (13.8)
Accrued taxes (8.2) 8.1
Other current assets and liabilities (10.9) 13.6
-------- -------
Net cash provided by (used for)
operating activities 36.8 31.0
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CASH FLOWS FROM INVESTING ACTIVITIES
Expended for property, plant
and equipment (9.6) (7.5)
Expended for software and development costs (4.6) (7.8)
Expended for business acquisitions, less
cash acquired (140.4) (3.3)
Proceeds from sales of businesses and assets 37.9 -
-------- -------
Net cash provided by (used for)
investing activities (116.7) (18.6)
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CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit and overdrafts, net 79.8 (19.2)
Repayment of other debt (0.1) (1.5)
Repurchase of stock (100.6) -
Exercise of stock options and other 16.3 1.6
-------- -------
Net cash provided by (used for)
financing activities (4.6) (19.1)
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NET CASH PROVIDED (USED) (84.5) (6.7)
Cash and equivalents at beginning of period 268.0 71.1
-------- -------
Cash and equivalents at end of period $ 183.5 $ 64.4
-------- -------
-------- -------
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(Dollars in millions)
(Unaudited)
COMPREHENSIVE INCOME
FAS 130, "Reporting Comprehensive Income," is first effective for Ceridian in
this quarterly report and requires that the sum of net earnings and the change
in certain other equity accounts, namely foreign currency translation adjustment
and pension liability adjustment, be reported as "comprehensive income." A
similar calculation is presented for the corresponding 1997 period. The new
standard has no effect on the accounting for the elements which comprise
comprehensive income.
<TABLE>
<CAPTION>
Ending Beginning
Balance Balance Net
<S> <C> <C> <C>
First Quarter 1998
Change in accumulated other
comprehensive income:
Foreign currency translation $ 0.6 $ 2.0
Pension liability adjustment (9.5) (9.5)
---------------------------
Total $ (8.9) $ (7.5) $ (1.4)
Net earnings 35.8
-------
Comprehensive income $ 34.4
-------
-------
First Quarter 1997
Change in accumulated other
comprehensive income:
Foreign currency translation $ (0.4) $ 0.4
Pension liability adjustment (6.3) (6.3)
---------------------------
Total $ (6.7) $ (5.9) $ (0.8)
Net earnings 43.8
-------
Comprehensive income $ 43.0
-------
-------
</TABLE>
OTHER EXPENSE (INCOME)
<TABLE>
<CAPTION>
For Periods Ended
March 31,
Three Months
1998 1997
------- -------
<S> <C> <C>
Foreign currency translation expense (income) $ 0.1 $ 1.0
Age discrimination settlement - 13.0
Minority interest and equity in operations of
affiliates 0.5 0.6
Other expense (income) - (1.1)
------ -------
Total $ 0.6 $ 13.5
------ -------
------ -------
</TABLE>
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<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(Dollars in millions)
(Unaudited)
EARNINGS PER SHARE
<TABLE>
<CAPTION>
For Periods Ended
March 31,
Three Months
---------------------
1998 1997
---------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE (Shares in thousands)
Earnings from continuing operations
applicable to common stock $ 35.8 $ 32.4
Weighted average shares 72,055 79,599
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EARNINGS PER SHARE FROM CONTINUING
OPERATIONS $ 0.50 $ 0.41
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Net earnings applicable to common stock $ 35.8 $ 43.8
Weighted average shares 72,055 79,599
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NET EARNINGS PER SHARE $ 0.50 $ 0.55
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DILUTED EARNINGS PER SHARE
Earnings from continuing operations $ 35.8 $ 32.4
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Weighted average shares 72,055 79,599
Stock options 1,542 1,416
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Total dilutive shares 73,597 81,015
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EARNINGS PER SHARE FROM CONTINUING OPERATIONS $ 0.49 $ 0.40
- --------------------------------------------------------------------------------
Net earnings $ 35.8 $ 43.8
Weighted average shares 72,055 79,599
Stock options 1,542 1,416
------- -------
Total dilutive shares 73,597 81,015
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- --------------------------------------------------------------------------------
NET EARNINGS PER SHARE $ 0.49 $ 0.54
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</TABLE>
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<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
STOCKHOLDERS' EQUITY 1998 1997
----------- ------------
<S> <C> <C>
Common Stock
Par value - $.50
Shares authorized - 200,000,000
Shares issued - 80,842,798 and 80,842,798 $ 40.4 $ 40.4
Shares outstanding - 72,633,947 and 73,941,872
Additional paid-in capital 1,146.1 1,156.8
Accumulated deficit (290.8) (326.6)
Treasury stock, at cost (8,208,851 and
6,900,926 common shares) (332.5) (271.0)
Restricted stock awards (1.7) (3.8)
Accumulated other comprehensive income (8.9) (7.5)
-------- --------
Total stockholders' equity $ 552.6 $ 588.3
-------- --------
-------- --------
</TABLE>
The increase in the cost of treasury stock during the quarter reflects the
purchase of 1,839,100 Ceridian common shares for $83.3, or an average purchase
price of $45.30 per share. In addition, Ceridian settled liabilities of $17.2
for shares purchased before December 31, 1997.
FINANCING
Financing for a portion of the purchase price for the acquisitions of the
Canadian payroll services businesses was provided by revolving credit facilities
with Canadian banks with terms ending July 31, 2002, current interest rates of
approximately 5.5% and an aggregate outstanding principal amount of $70.4 at
March 31, 1998. Comdata also maintains a credit facility with a term ending in
May 1998, under which $11.3 was outstanding at March 31, 1998, which represents
the obligations to a charge card issuing bank for the amount of card-based
purchases made by local transportation fleet customers.
RECEIVABLES
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Trade and Other Receivables, Net:
Trade, less allowance of $13.1 and $10.5 $ 334.5 $ 277.1
Other 39.2 40.4
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Total $ 373.7 $ 317.5
-------- --------
-------- --------
</TABLE>
-8-
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Capital Assets
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March 31, December 31,
1998 1997
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<S> <C> <C>
Property, Plant and Equipment
Land $ 1.4 $ 1.5
Machinery and equipment 176.2 185.7
Buildings and improvements 42.8 42.9
Construction in progress 1.9 4.3
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222.3 234.4
Accumulated depreciation (141.1) (154.8)
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Property, plant and equipment, net $ 81.2 $ 79.6
-------- --------
-------- --------
- --------------------------------------------------------------------------------
Goodwill and Other Intangibles
Goodwill $ 286.1 $ 228.7
Accumulated amortization (24.5) (38.7)
-------- --------
Goodwill, net 261.6 190.0
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Other intangible assets 52.2 64.5
Accumulated amortization (9.7) (10.2)
-------- --------
Other intangibles, net 42.5 54.3
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Goodwill and other intangibles, net $ 304.1 $ 244.3
-------- --------
-------- --------
- --------------------------------------------------------------------------------
Software and Development Costs
Purchased software $ 42.2 $ 31.1
Other software development cost 14.9 15.5
-------- --------
57.1 46.6
Accumulated amortization (33.8) (36.9)
-------- --------
Software and development costs, net $ 23.3 $ 9.7
-------- --------
-------- --------
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For Periods Ended March 31,
Three Months
---------------------------
Depreciation and Amortization 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization of
property, plant and equipment $ 8.3 $ 8.6
Amortization of goodwill 2.9 3.1
Amortization of other intangibles 1.2 1.7
Amortization of software and development costs 1.5 2.7
Other amortization (2.0) (0.8)
------- -------
Total $ 11.9 $ 15.3
------- -------
------- -------
- --------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1998
(Dollars in millions)
(Unaudited)
INVESTING ACTIVITY
During first quarter 1998, Ceridian, through its Canadian subsidiary, acquired
two payroll services businesses from Canadian banks. The acquisition of the
payroll business of Toronto Dominion Bank in January resulted in the payment of
$35.0, of which $28.2 was borrowed from the seller. The acquisition of the
payroll business of Canadian Imperial Bank of Commerce in March resulted in the
payment of $105.4, of which $42.2 was borrowed from the seller. Combined annual
revenue of the acquired businesses was approximately $79.0 in 1997, and the
aggregate goodwill and other intangibles of $136.8 will be amortized over their
respective useful lives.
In January 1998, Ceridian's Comdata subsidiary sold its gaming services business
to First Data Corporation in exchange for First Data's NTS transportation
services business and $50.0 in cash. The net cash inflow from the exchange was
$29.8 and the net reduction in goodwill was $22.1. No material gain or loss was
recorded in the current quarter as a result of this exchange.
-10-
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1998
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
"MAY," "WILL," "SHOULD," "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 "CAUTIONARY FACTORS THAT COULD AFFECT FUTURE
RESULTS" BEGINNING ON PAGE 11 OF CERIDIAN'S 1997 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, 1997, WHICH DISCUSSION IS
ALSO INCORPORATED HEREIN BY REFERENCE.
RESULTS OF OPERATIONS
For the first quarter 1998, Ceridian reported net earnings of $35.8 million, or
$0.49 per diluted share of common stock, on revenue of $282.3 million, compared
to net earnings in the first quarter 1997 of $43.8 million, or $0.54 per diluted
share, on revenue of $263.9 million. Included in the first quarter 1997 net
earnings were earnings of $11.4 million from discontinued operations,
representing the net earnings of Computing Devices International (CDI), which
was sold at the end of 1997. Ceridian's earnings from continuing operations in
the first quarter 1997 were $32.4 million, or $0.40 per diluted share. In the
discussion that follows, the term "Ceridian" refers only to Ceridian's
continuing operations unless the context clearly indicates otherwise.
The comparison of Ceridian's earnings in the first quarters of 1998 and 1997 is
significantly affected by a first quarter 1997 charge of $13.0 million related
to the settlement of age discrimination litigation, and Ceridian's fourth
quarter 1997 recognition under FAS 109 of the future tax benefits of its net
operating loss carryforwards (NOLs). As a result of the recognition of the
NOLs, Ceridian's operating results in the first quarter 1998 are reported on a
fully taxed basis, in contrast to its first quarter 1997 results.
In an effort to facilitate comparisons between its 1998 results and its 1997
results from continuing operations, Ceridian has utilized certain pro forma
adjustments to calculate revised earnings figures for its continuing operations
for 1997 that it believes may assist in making comparisons with its 1998
results. The most significant of these pro forma adjustments include tax
effecting 1997 earnings at an assumed rate of 37%, removing the 1997 litigation
settlement charge discussed above, and assuming that CDI was sold at the
beginning of 1997 for an amount equal to the difference between the $600 million
sales price and the approximately $100 million of CDI cash in Canada, and that
this amount was invested at 5.5% per annum. On this pro forma adjusted basis,
Ceridian estimates that its earnings from continuing operations for the first
quarter 1997 would have been $33.3 million, or $0.41 per diluted share.
-11-
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
REVENUE. The following table sets forth revenue for Ceridian's principal
businesses for the periods shown.
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
(DOLLARS IN MILLIONS) 1998 1997
- --------------------------------------------------------------------------------
change
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<S> <C> <C> <C>
Arbitron $ 41.3 12.7 % $ 36.6
- --------------------------------------------------------------------------------
Human Resource Services 173.4 16.1 % 149.3
- --------------------------------------------------------------------------------
Comdata Transportation Services 61.8 34.0 % 46.2
- --------------------------------------------------------------------------------
Comdata Gaming Services (1) 5.8 (81.8)% 31.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Revenue $282.3 7.0 % $263.9
- --------------------------------------------------------------------------------
</TABLE>
(1) Sold to First Data Corporation in exchange for the assets of NTS, Inc. and
cash in January 1998.
About one-third of the revenue growth in Human Resource Services (HRS) was due
to acquisitions, primarily the first quarter 1998 acquisitions of the payroll
processing businesses of Toronto-Dominion Bank and the Canadian Imperial Bank of
Commerce. Apart from acquisitions, HRS' revenue growth largely reflected
increases in sales of payroll processing, tax filing and employee assistance
services. Revenue growth was restrained somewhat by Ceridian's January 1, 1998
implementation of IRS electronic funds transfer regulations that reduce by one
day the period of time certain tax filing deposits may be held. About
two-thirds of the revenue growth in Comdata's transportation services business
was due to acquisitions, primarily the January 1998 acquisition of the NTS
transportation services business. Apart from acquisitions, revenue growth in
transportation services primarily reflected increased sales of fuel desk
automation systems, long-distance telecommunications services and newer products
such as prepaid telephone debit cards. About one-third of Arbitron's revenue
growth was due to the November 1997 acquisition of Continental Research, a
United Kingdom market research company. Revenue growth from sales of radio
ratings and related analytical software included billings in connection with a
significant contract the renewal of which had been delayed.
-12-
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COSTS AND EXPENSES. Ceridian's gross margin increased in the quarterly
comparison from 52.2% to 54.3%, reflecting an increase in HRS that was partially
offset by decreases in Comdata and Arbitron. The increase in HRS' gross margin
largely reflected revenue growth and corresponding economies of scale, cost
reduction and productivity initiatives in the payroll processing business and
certain planned spending delayed into future quarters. The decrease in
Comdata's gross margin was due to the gaming business, which had a gross margin
in the first quarter 1997 that was higher than that of the transportation
business, but which declined significantly during the course of 1997. Apart
from the gaming business, the gross margin for Comdata's transportation business
increased in the quarterly comparison, reflecting revenue growth, lower
telecommunications costs and staff reductions. Arbitron's gross margin decline
reflected the acquisition of Continental Research and somewhat higher data
collection costs.
Ceridian's selling, general and administrative (SG&A) expenses declined from
28.6% of revenue in the first quarter 1997 to 28.5% of revenue in the first
quarter 1998. A decrease in such expenses, particularly selling expense, as a
percentage of revenue in HRS was largely offset by the relatively greater
revenue growth in HRS, whose SG&A expenses are higher as a percentage of revenue
than those of Comdata or Arbitron, and by increased general expense in Arbitron.
Ceridian's research and development expenses increased from 5.4% to 6.2% of
revenue in the quarterly comparison, reflecting increased applications
development efforts and year 2000 compliance efforts in each of Ceridian's
principal business units. Ceridian's other expense in the first quarters of 1997
and 1998 is described in the financial statement note entitled "Other Expense
(Income)."
EARNINGS BEFORE INTEREST AND TAXES. Ceridian's earnings before interest and
taxes ("EBIT") increased $20.4 million, or 59.0%, from the first quarter 1997 to
the first quarter 1998. As a percentage of revenue, Ceridian's EBIT increased
from 13.1% to 19.5%. Apart from the impact of the litigation settlement,
Ceridian's EBIT increased $7.4 million, or 15.5%, from 18.0% of revenue to
19.5%.
INTEREST INCOME AND EXPENSE AND TAXES. The decrease in interest expense and the
increase in interest income in the quarterly comparison reflects the proceeds of
Ceridian's sale of CDI, a portion of which were used to pay down debt and
repurchase stock and the balance of which has increased cash and equivalents.
As previously noted, the recognition of Ceridian's NOLs has resulted in a tax
provision of 37% being applied to Ceridian's operating results in the first
quarter 1998, in contrast to a first quarter 1997 tax provision that reflected
only a minor amount of state and foreign taxes. Despite the NOL recognition for
financial statement purposes, Ceridian's remaining NOLs continue to reduce
Ceridian's actual federal income tax liability, as noted below.
-13-
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
During the first quarter 1998, operating cash flows provided $36.8 million of
cash, compared to $31.0 million in the first quarter 1997. Cash flows from
operations during the first quarter 1998 were increased by the $17.4 million
portion of the current quarter's $21.2 million income tax provision which is not
currently payable due to the benefit of the NOLs. Net changes in working
capital items reduced operating cash flows in the current quarter by $34.8
million, as payments of year-end accruals for compensation expense, income taxes
and CDI sales expense, along with a modest increase in Comdata receivables, more
than offset a seasonal increase in transportation drafts and settlements
payable.
Ceridian's cash utilized for investing activities during the first quarter 1998
is described in the financial statement note entitled "Investing Activity."
Cash utilized for financing activities during the first quarter 1998 involved
Ceridian's repurchase of shares of its common stock, as described in the
financial statement note entitled "Stockholders' Equity." At March 31, 1998,
Ceridian had authorizations remaining to purchase an additional 3.9 million
shares of its stock. This utilization of cash was substantially offset during
the quarter by an increase in outstanding debt of $79.8 million and the proceeds
of stock option exercises. Of the increased borrowings, $70.4 million was
obtained by Ceridian's Canadian subsidiary to finance a portion of the purchase
price of the Canadian payroll businesses. These borrowings are guaranteed by
Ceridian and effectively incorporate the terms and conditions of Ceridian's U.S.
revolving credit facility. The balance of the increased debt relates to
Comdata's IAES business, as described in the financial statement note entitled
"Financing."
At March 31, 1998, there were no revolving loans and $2.9 million in letters of
credit outstanding under Ceridian's U.S. revolving credit facility. Ceridian
and its subsidiaries were in compliance with all covenants contained in
applicable credit facilities on that date.
-14-
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 1998
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit Description
------- -----------
27.1 Financial Data Schedule (1998)
27.2 Financial Data Schedule (1997 Restated)
(b) Reports on Form 8-K.
On January 15, 1998, Ceridian filed a report on Form 8-K dated
December 31, 1997, which reported in "Item 2: Acquisition or
Disposition of Assets" the closing of the sale by Ceridian of its
defense electronics business, Computing Devices International ("CDI"),
to General Dynamics Corporation. Included in Item 7 of that report
was a pro forma condensed consolidated balance sheet of Ceridian as of
September 30, 1997 (assuming the sale of CDI took place on that date),
and pro forma condensed consolidated statements of operations for
Ceridian for the nine months ended September 30, 1997 and for the
years 1996 and 1995 (assuming in each case the sale of CDI took place
on January 1, 1995).
On January 20, 1998, Ceridian filed a report on Form 8-K dated January
19, 1998, reporting under Item 5 important factors known to Ceridian
that could cause Ceridian's actual results in 1998 to differ
materially from any forward-looking statements made by Ceridian. This
filing was made for purposes of the safe harbor provided for
forward-looking statements by Section 21E of the Securities Exchange
Act of 1934, as amended.
On January 29, 1998, Ceridian filed a report on Form 8-K dated January
27, 1998, reporting under Item 5 thereof that Ceridian had announced
its results of operations for the quarter and year ended December 31,
1997, and attached as an exhibit to that report a copy of the press
release by which those results had been announced.
On March 25, 1998, Ceridian filed a report on Form 8-K dated March 10,
1998, reporting under Item 2 thereof that Ceridian had acquired the
payroll processing and payroll management business conducted by the
Comcheq Services Limited subsidiary of the Canadian Imperial Bank of
Commerce.
-15-
<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 March 31, 1998, to be signed on its behalf by the undersigned thereunto
duly authorized.
CERIDIAN CORPORATION
Registrant
Date: May 5, 1998
------------------------------
L. D. Gross
Vice President and
Corporate Controller
(Principal Accounting Officer)
-16-
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