<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, 1998
------------------
Commission file number 1-1969
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CERIDIAN CORPORATION
- -------------------------------------------------------------------------------
(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 October 31, 1998, was 71,532,003.
<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, 1998 and 1997. . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 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 September 30, 1998, and results of
operations for the three and nine month periods and cash flows for
the nine month periods ended September 30, 1998 and 1997.
The results of operations for the nine month period ended
September 30, 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 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . .17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . .18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
<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
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C>
Revenue $ 286.1 $ 266.6 $ 852.5 $ 792.3
Cost of revenue 137.2 132.4 401.1 388.7
------- -------- -------- --------
Gross profit 148.9 134.2 451.4 403.6
Operating expenses
Selling, general and administrative 77.7 79.8 237.5 234.5
Research and development 20.1 13.3 57.8 39.4
Other expense (income) 0.6 150.4 2.4 164.9
------- -------- -------- --------
Earnings (loss) before interest and taxes 50.5 (109.3) 153.7 (35.2)
Interest income 2.7 0.4 7.9 1.4
Interest expense (1.1) (2.0) (3.3) (6.1)
------- -------- -------- --------
Earnings (loss) before income taxes 52.1 (110.9) 158.3 (39.9)
Income tax provision (benefit) 18.9 (0.8) 58.0 0.8
------- -------- -------- --------
Earnings (loss) from continuing operations 33.2 (110.1) 100.3 (40.7)
Discontinued operations - 16.4 - 39.3
Net earnings (loss) $ 33.2 $ (93.7) $ 100.3 $ (1.4)
------- -------- -------- --------
------- -------- -------- --------
Basic earnings per share
Continuing operations $ 0.46 $ (1.39) $ 1.39 $ (0.51)
Net earnings (loss) $ 0.46 $ (1.18) $ 1.39 $ (0.02)
Diluted earnings per share
Continuing operations $ 0.45 $ (1.39) $ 1.36 $ (0.51)
Net earnings (loss) $ 0.45 $ (1.18) $ 1.36 $ (0.02)
Shares used in calculations
(in thousands)
Basic 72,010 79,189 72,177 79,660
Diluted 73,760 79,189 73,906 79,660
- ---------------------------------------------------------------------------------------------------------------
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 1998 1997
- -----------------------------------------------------------------------------------
(In millions)
<S> <C> <C>
Cash and equivalents $ 165.2 $ 268.0
Trade and other receivables, net 382.5 317.5
Current portion of deferred income taxes 140.7 117.6
Other current assets 17.3 17.0
---------- ---------
Total current assets 705.7 720.1
Investments and advances 2.6 8.7
Property, plant and equipment, net 82.9 79.6
Goodwill and other intangibles, net 313.3 244.3
Software and development costs, net 18.9 9.7
Prepaid pension cost 101.9 96.7
Deferred income taxes, less current portion 20.5 81.9
Other noncurrent assets 1.5 2.3
---------- ---------
Total assets $ 1,247.3 $ 1,243.3
---------- ---------
---------- ---------
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Short-term debt and current
portion of long-term obligations $ 0.7 $ 2.2
Accounts payable 66.7 57.8
Drafts and settlements payable 125.0 111.9
Customer advances 13.3 9.9
Deferred income 26.0 35.9
Accrued taxes 82.2 79.8
Employee compensation and benefits 64.8 66.1
Other accrued expenses 95.0 115.2
---------- ---------
Total current liabilities 473.7 478.8
Long-term obligations, less current portion 58.2 0.8
Restructure reserves, less current portion 30.7 30.8
Employee benefit plans 71.5 69.1
Other noncurrent liabilities 55.5 75.5
Stockholders' equity 557.7 588.3
---------- ---------
Total liabilities and
stockholders' equity $ 1,247.3 $ 1,243.3
---------- ---------
---------- ---------
- --------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FORM 10-Q
CONSOLIDATED Ceridian Corporation
STATEMENT OF CASH FLOWS (Unaudited) and Subsidiaries
- ---------------------------------------------------------------------------------------------------
For Periods Ended September 30,
Nine Months
1998 1997
- ---------------------------------------------------------------------------------------------------
(In millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 100.3 $ (1.4)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used for) operating activities:
Earnings from discontinued operations - (39.3)
Deferred income tax provision 48.4 -
Depreciation and amortization 38.2 45.8
Restructure reserves utilized (1.3) (20.6)
Impairment loss from asset write-offs - 116.9
Other (4.6) 2.3
Net change in working capital items:
Trade and other receivables (37.2) (43.6)
Accounts payable 1.2 1.0
Drafts and settlements payable 13.2 -
Employee compensation and benefits 1.5 0.6
Accrued taxes (9.8) (0.3)
Net assets of discontinued operations - 32.3
Other current assets and liabilities (19.3) 32.3
-------- -------
Net cash provided by (used for) operating activities 130.6 126.0
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expended for property, plant and equipment (31.3) (31.2)
Expended for software and development costs (14.8) (30.6)
Expended for investments in and advances
to businesses, less cash acquired (154.9) (25.5)
Proceeds from sales of businesses and assets 41.4 -
-------- -------
Net cash provided by (used for) investing activities (159.6) (87.3)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit and overdrafts, net 61.2 32.6
Repayment of other debt - (11.1)
Repurchase of stock (166.8) (126.9)
Exercise of stock options and other 31.8 43.0
-------- -------
Net cash provided by (used for) financing activities (73.8) (62.4)
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) (102.8) (23.7)
Cash and equivalents at beginning of period 268.0 71.1
Cash and equivalents at end of period $ 165.2 $ 47.4
-------- -------
-------- -------
- -----------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(Dollars in millions)
(Unaudited)
COMPREHENSIVE INCOME
FAS 130, "Reporting Comprehensive Income," requires that the sum of net
earnings (loss) and the change in certain other equity accounts, namely
foreign currency translation adjustment and pension liability adjustment, be
disclosed as "comprehensive income" in 1998 and for the corresponding 1997
period. This disclosure requirement has no effect on the accounting for the
elements which comprise comprehensive income (loss).
<TABLE>
<CAPTION>
Ending Beginning
Balance Balance Net
<S> <C> <C> <C>
Third Quarter 1998
Change in accumulated other comprehensive income:
Foreign currency translation $ (5.5) $ 0.4
Pension liability adjustment (9.5) (9.5)
-----------------------
Total $ (15.0) $ (9.1) $ (5.9)
Net earnings 33.2
--------
Comprehensive income $ 27.3
--------
--------
Third Quarter 1997
Change in accumulated other comprehensive income:
Foreign currency translation $ (0.5) $ (0.4)
Pension liability adjustment (6.3) (6.3)
-----------------------
Total $ (6.8) $ (6.7) $ (0.1)
Net loss (93.7)
--------
Comprehensive loss $ (93.8)
--------
--------
Year to Date 1998
Change in accumulated other comprehensive income:
Foreign currency translation $ (5.5) $ 2.0
Pension liability adjustment (9.5) (9.5)
-----------------------
Total $ (15.0) $ (7.5) $ (7.5)
Net earnings 100.3
--------
Comprehensive income $ 92.8
--------
--------
Year to Date 1997
Change in accumulated other comprehensive income:
Foreign currency translation $ (0.5) $ 0.4
Pension liability adjustment (6.3) (6.3)
-----------------------
Total $ (6.8) $ (5.9) $ (0.9)
Net loss (1.4)
--------
Comprehensive loss $ (2.3)
--------
--------
</TABLE>
6
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(Dollars in millions)
(Unaudited)
EARNINGS PER SHARE
(shares in thousands)
<TABLE>
<CAPTION>
For Periods Ended September 30,
Three Months Nine Months
-----------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Earnings (loss) from continuing operations
applicable to common stock $ 33.2 $ (110.1) $ 100.3 $ (40.7)
Weighted average shares 72,010 79,189 72,177 79,660
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) per share from continuing operations $ 0.46 $ (1.39) $ 1.39 $ (0.51)
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to
common stock $ 33.2 $ (93.7) $ 100.3 $ (1.4)
Weighted average shares 72,010 79,189 72,177 79,660
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ 0.46 $ (1.18) $ 1.39 $ (0.02)
- --------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Earnings (loss) from continuing operations $ 33.2 $ (110.1) $ 100.3 $ (40.7)
Weighted average shares 72,010 79,189 72,177 79,660
Stock options 1,750 - 1,729 -
------- -------- ------- --------
Total dilutive shares 73,760 79,189 73,906 79,660
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) per share from continuing operations $ 0.45 $ (1.39) $ 1.36 $ (0.51)
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 33.2 $ (93.7) $ 100.3 $ (1.4)
Weighted average shares 72,010 79,189 72,177 79,660
Stock options 1,750 - 1,729 -
------- -------- ------- --------
Total dilutive shares 73,760 79,189 73,906 79,660
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ 0.45 $ (1.18) $ 1.36 $ (0.02)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(Dollars in millions)
(Unaudited)
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
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 - 71,758,603 and 73,941,872
Additional paid-in capital 1,146.8 1,153.0
Accumulated deficit (226.3) (326.6)
Treasury stock, at cost (9,084,195 and
6,900,926 common shares) (388.2) (271.0)
Accumulated other comprehensive income (15.0) (7.5)
-------- --------
Total stockholders' equity $ 557.7 $ 588.3
-------- --------
-------- --------
</TABLE>
The increase in the cost of treasury stock reflects the 1998 repurchase of
3,076,975 shares for $149.5, or an average purchase price of $48.60 per share.
In addition, in January 1998 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 in first
quarter 1998 of the Canadian payroll services businesses was provided by
revolving credit facilities with Canadian banks with terms ending July 31,
2002 and current interest rates of approximately 5.5%. The initial
outstanding balance of $70.4 under these facilities has been reduced to $57.8
by a combination of $7.5 in net payments and $5.1 in translation adjustments.
Comdata also maintains a credit facility which represents the obligations to
a charge card issuing bank for the amount of card-based purchases made by
local fueling customers. During third quarter 1998, the outstanding balance
under this facility was reduced from $11.5 to $0.5.
RECEIVABLES
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Trade and Other Receivables, Net:
Trade, less allowances of $17.2 and $10.5 $ 348.4 $ 277.1
Other 34.1 40.4
-------- --------
Total $ 382.5 $ 317.5
-------- --------
-------- --------
</TABLE>
8
<PAGE>
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
CAPITAL ASSETS
- ---------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Property, Plant and Equipment
Land $ 1.4 $ 1.5
Machinery and equipment 181.7 190.0
Buildings and improvements 43.5 42.9
------- -------
226.6 234.4
Accumulated depreciation (143.7) (154.8)
------- -------
Property, plant and equipment, net $ 82.9 $ 79.6
------- -------
------- -------
- ---------------------------------------------------------------------------------------------
Goodwill and Other Intangibles
Goodwill $ 291.2 $ 228.7
Accumulated amortization (31.4) (38.7)
------- -------
Goodwill, net 259.8 190.0
------- -------
Other intangible assets 68.0 64.5
Accumulated amortization (14.5) (10.2)
------- -------
Other intangibles, net 53.5 54.3
------- -------
Goodwill and other intangibles, net $ 313.3 $ 244.3
------- -------
------- -------
- ---------------------------------------------------------------------------------------------
Software and Development Costs
Purchased software $ 30.6 $ 31.1
Other software development cost 23.7 15.5
------- -------
54.3 46.6
Accumulated amortization (35.4) (36.9)
------- -------
Software and development costs, net $ 18.9 $ 9.7
------- -------
------- -------
- ---------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
For Periods Ended September 30,
Nine Months
-------------------------------
Depreciation and Amortization 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization of property, plant and
equipment $ 24.4 $ 24.8
Amortization of goodwill 11.2 9.8
Amortization of other intangibles 4.7 5.8
Amortization of software and development costs 3.8 7.8
Pension credit (5.9) (2.4)
------- -------
Total $ 38.2 $ 45.8
------- -------
------- -------
</TABLE>
9
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1998
(Dollars in millions)
(Unaudited)
OTHER EXPENSE (INCOME)
<TABLE>
<CAPTION>
For Periods Ended September 30,
Three Months Nine Months
1998 1997 1998 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
Foreign currency translation expense $ - $ 0.1 $ 0.1 $ 1.1
Loss on sale of assets - - - 0.1
Age discrimination settlement - - - 13.0
Termination of software development project - 150.0 - 150.0
Minority interest and equity in
operations of affiliates 0.9 1.6 2.7 3.2
Other expense (income) (0.3) (1.3) (0.4) (2.5)
------ ------ ------ -------
Total $ 0.6 $ 150.4 $ 2.4 $ 164.9
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
INVESTING ACTIVITY
During first quarter 1998, Ceridian, through a Canadian subsidiary, acquired
two payroll services businesses. 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.
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.
In August 1998, Ceridian sold Resumix Inc. to a company owned principally by
a group of investors, including Resumix senior management. Ceridian received
a 15 percent equity interest in the company, which has been renamed Resumix,
Inc. in the form of 1,499,900 shares of preferred stock with a liquidation
preference of $4.10 per share. In addition, Ceridian received $5.5 in cash
and an interest bearing note for $22.8. The note calls for annual principal
payments of $4.5 beginning in August 2002 with the balance payable in August
2005. The cash portion of the transaction has been recognized and,
considering the net asset value and related transaction costs, the resulting
gain was not material. The Company will recognize gain on the note
receivable as principal payments are funded and on the preferred shares when
a ready market develops.
NEW ACCOUNTING PRONOUNCEMENTS
The Company is currently reviewing the potential impact of the recently
released FAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is effective for Ceridian in January 2000.
10
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS FORM 10-Q CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FOR THIS PURPOSE,
ANY STATEMENTS CONTAINED IN THIS FORM 10-Q THAT ARE NOT STATEMENTS OF
HISTORICAL FACT ARE DEEMED TO BE FORWARD LOOKING STATEMENTS. WITHOUT LIMITING
THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "SHOULD," "EXPECTS,"
"ANTICIPATES," "ESTIMATES," "BELIEVES" OR "PLANS," OR COMPARABLE TERMINOLOGY,
ARE INTENDED TO INDICATE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY
THEIR NATURE ARE 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 INCLUDE CHANGES IN INTEREST RATES AND INVESTMENT INCOME FROM TAX
FILING DEPOSITS, EFFORTS TO ENTER LOCAL FUELING MARKETS, ABILITY TO INCREASE
REVENUE FROM CROSS-SELLING EFFORTS AND NEW PRODUCTS, ABILITY TO IMPROVE
OPERATING MARGINS IN HUMAN RESOURCE SERVICES, ABILITY TO ACHIEVE ADEQUATE
CUSTOMER RETENTION RATES, SUCCESSFUL IMPLEMENTATION OF SYSTEM UPGRADES AND
CONVERSIONS, SUCCESSFUL IMPLEMENTATION OF YEAR 2000 REMEDIATION, REPLACEMENT
AND TESTING EFFORTS, PRICING PRESSURES DUE TO CONSOLIDATION IN RADIO
BROADCASTING INDUSTRY, ABILITY TO ADAPT TO CHANGING TECHNOLOGY, ABILITY TO
MANAGE RISKS ASSOCIATED WITH ACQUISITIONS, ABILITY TO ADDRESS CHANGING
COMPETITIVE CONDITIONS, AND THE IMPACT OF CHANGES IN OTHER POLITICAL AND
ECONOMIC CONDITIONS. FOR A MORE DETAILED DISCUSSION OF THESE FACTORS, SEE
THE DISCUSSION 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, AND THE DISCUSSION
UNDER THE CAPTION "YEAR 2000 MATTERS" INCLUDED IN THIS FORM 10-Q.
RESULTS OF OPERATIONS
For the third quarter 1998, Ceridian reported net earnings of $33.2 million,
or $0.45 per diluted share of common stock, on revenue of $286.1 million,
compared to a net loss in the third quarter 1997 of $93.7 million, or $1.18
per diluted share, on revenue of $266.6 million. For the first nine months
of 1998, Ceridian reported net earnings of $100.3 million, or $1.36 per
diluted share, on revenue of $852.5 million, compared to a net loss in the
first nine months of 1997 of $1.4 million, or $0.02 per diluted share, on
revenue of $792.3 million. Included in results for the 1997 periods were
earnings from discontinued operations of $16.4 million in the third quarter
and $39.3 million in the first nine months, representing the net earnings of
Computing Devices International (CDI), which was sold at the end of 1997.
Ceridian's losses from continuing operations in the 1997 periods were $110.1
million, or $1.39 per diluted share, in the third quarter and $40.7 million,
or $0.51 per diluted share, in the first nine months. 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 1998 and 1997 periods is
significantly affected by a third quarter 1997 charge of $150.0 million
related to the termination of a payroll software development project, a first
quarter 1997 charge of $13.0 million related to the settlement of certain
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
1998 periods are reported on a fully taxed basis, in contrast to its 1997
results.
11
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
In an effort to facilitate comparisons between 1998 and 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 (i) tax effecting
1997 earnings at an assumed rate of 37%, (ii) removing the 1997 payroll
software development project termination and litigation settlement charges
discussed above, (iii) assuming that CDI was sold at the beginning of 1997
for its sale price of $600 million, and (iv) investing at 5.5% per annum the
$500 million difference between the CDI sale price and the amount of cash
retained by a Canadian subsidiary included in the CDI sale. On this pro
forma adjusted basis, Ceridian estimates that its earnings from continuing
operations would have been $29.0 million, or $0.36 per diluted share, for the
third quarter 1997, and $90.5 million, or $1.12 per diluted share, for the
first nine months of 1997.
REVENUE. The following table sets forth revenue for Ceridian's principal
businesses for the periods shown.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 1998 1997
(DOLLARS IN MILLIONS) % change % change
<S> <C> <C> <C> <C> <C> <C>
Human Resource Services $165.9 20.2% $138.0 $508.9 20.1% $423.7
Comdata Transportation Services 67.6 32.7% 50.8 194.9 32.8% 146.7
Comdata Gaming Services (1) -- NC 35.6 5.8 NC 101.3
Arbitron 52.6 24.9% 42.2 142.9 18.6% 120.6
Total Revenue $286.1 7.3% $266.6 $852.5 7.6% $792.3
</TABLE>
(1) Sold to First Data Corporation in exchange for its NTS transportation
services unit (NTS) and cash in January 1998.
Two-thirds of the revenue growth in Human Resource Services (HRS) in the
quarterly comparison and almost one-half of the revenue growth in the
year-to-date comparison was due to the first quarter 1998 acquisitions of the
Canadian payroll services businesses. This growth was offset somewhat by the
net effect of acquisitions and dispositions, primarily the sale of Resumix
Inc. in August 1998. Apart from the effect of these acquisitions and
dispositions, HRS' revenue grew 12% for the quarter and year-to-date. This
growth largely reflected a revised pricing structure for payroll services,
employment growth experienced by Ceridian's payroll and tax filing customers,
and the sale of add-on services to existing customers. 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. As a result, Ceridian's
average investment balances were down slightly in the 1998 periods, but with
slightly higher yields investment income was essentially unchanged from the
1997 periods.
Nearly one-half of the revenue growth in Comdata transportation services in
the quarterly and year-to-date comparisons was due to acquisitions, primarily
the January 1998 acquisition of NTS. Apart from acquisitions, revenue growth
in transportation services primarily reflected a year-to-date increase in
funds transfer transactions and increased sales of fuel desk automation
systems, long-distance telecommunications services and newer products such as
prepaid telephone debit cards.
12
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
About 40% of Arbitron's revenue growth in the quarterly and year-to-date
comparisons was due to the November 1997 acquisition of Continental Research
and the May 1998 acquisition of the radio station, advertiser/agency and
international assets of Tapscan, Inc. In addition, the timing of the signing
of certain large contract renewals accounted for about one quarter of the
revenue increase in the quarterly comparison and a much smaller portion of
the year-to-date increase. Apart from acquisitions and the timing of
contract renewals, Arbitron's revenue growth reflected price escalators in
multi-year customer contracts, increased sales of analytical software and
product and media usage reports, and an increased number of subscribers for
ratings services.
COSTS AND EXPENSES. Ceridian's gross margin increased in the quarterly
comparison from 50.3% to 52.1%, and in the year-to-date comparison from 50.9%
to 52.9%. The increase resulted from improved year-to-date performance in
HRS, quarter and year-to-date improvement in Comdata, and a change in overall
revenue mix as a result of revenue growth in HRS and Arbitron and the sale of
Comdata gaming services. The gross margin improvement in HRS largely
reflected the revenue growth attributable to the revised pricing structure
for payroll services, cost reduction and productivity initiatives in the
payroll business and generally increased economies of scale. These favorable
results were offset in part by Resumix's performance during 1998,
particularly in the quarterly comparison. The increase in Comdata's gross
margin in the quarterly comparison was due to sale of gaming services in
January 1988, whose gross margin had begun to decline significantly in the
second quarter 1997, and to revenue growth, lower telecommunications costs
and staff reductions in transportation services.
Ceridian's selling, general and administrative expenses decreased from 29.9%
to 27.1% of revenue in the quarterly comparison, and from 29.6% to 27.8% of
revenue in the year-to-date comparison. Decreases in total general and
administrative expenses as a percentage of revenue in both the quarterly and
year-to-date comparisons were partially offset by increases in selling
expense as a percentage of revenue. The decrease in general and
administrative expenses was primarily attributable to the sale of gaming
services and the treatment of proceeds from the temporary provision of
processing services to the purchaser of that business as a reduction of
administrative expense and to staff reductions in HRS. Selling expense as a
percentage of revenue increased in all major businesses in the quarterly
comparison. The year-to-date percentage increase in selling expense was
largely due to an increase in Comdata, reflecting customer acquisition
expense during the first half of 1998 in connection with its local fueling
services, and the relatively greater revenue growth in HRS, whose selling
expenses are higher as a percentage of revenue than those of Comdata or
Arbitron.
Ceridian's research and development expenses increased from 5.0% to 7.0% of
revenue in the quarterly comparison, and from 5.0% to 6.8% of revenue in the
year-to-date comparison, reflecting development efforts directed toward both
new applications and enhancements to existing applications, quality assurance
programs in HRS, and year 2000 compliance efforts.
EARNINGS BEFORE INTEREST AND TAXES. Without regard to the unusual 1997
charges of $13 million for litigation in first quarter and $150 million for
the termination of a payroll software development project in the third
quarter, Ceridian's earnings before interest and taxes (EBIT) increased $9.8
million, or 24.2%, in the quarterly comparison, and increased $25.9 million,
or 20.3%, in the year-to-date comparison. As a percentage of revenue,
Ceridian's EBIT, similarly adjusted, increased from 15.3% to 17.7% in the
quarterly comparison, and from 16.1% to 18.0% in the year-to-date comparison.
13
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
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 was used to reduce
debt and repurchase stock and the balance of which was used to increase cash
and equivalents. The recognition in the fourth quarter 1997 of the benefit
of Ceridian's NOLs has resulted in an effective tax rate of approximately 37%
for 1998 tax provisions in contrast to 1997 tax provisions 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 payments, as noted below.
FINANCIAL CONDITION
During the first nine months of 1998, operating activities provided $130.6
million of cash, compared to $126.0 million in the first nine months of 1997.
Cash flows from operations during the 1998 period were increased by the $48.4
million portion of the $58.0 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 1998 year-to-date period by
$50.4 million, as payments of income taxes and costs related to the CDI sale
and accruals for 1997 unusual charges, along with an increase in Comdata
receivables, more than offset an increase in transportation drafts and
settlements payable. Comdata's receivables include trade accounts receivable
purchased at a discount from selected trucking companies, primarily with
recourse, and credit obligations of trucking companies generated in
connection with local fueling. The amount of these types of receivables has
grown with the acquisition of NTS and the expansion of the local fueling
service, and is expected to continue to increase. The average number of days
outstanding for these types of receivables is significantly greater than for
receivables generated by Comdata's other funds transfer activities,
increasing Comdata's working capital needs.
Ceridian's cash utilized for major investing activities during the first nine
months of 1998 are described in the financial statement note entitled
"Investing Activity." Cash utilized for financing activities during the
first nine months of 1998 involved Ceridian's repurchase of shares of its
common stock, as described in the financial statement note entitled
"Stockholders' Equity." At September 30, 1998, Ceridian had corporate
authorizations remaining to purchase up to an additional 2.7 million shares
of its stock. This utilization of cash was partially offset by a net
increase in outstanding debt of $61.2 million, primarily to finance a portion
of the purchase price of the Canadian payroll services businesses, and the
proceeds of stock option exercises.
At September 30, 1998, there were no revolving loans and $2.9 million in
letters of credit outstanding under Ceridian's $250 million U.S. revolving
credit facility. Ceridian and its subsidiaries were in compliance with all
covenants contained in applicable credit facilities on that date. In the
opinion of the Company, current cash balances and borrowing facilities
provide sufficient funds for future operations and investments.
YEAR 2000 MATTERS
BACKGROUND. Because many computer programs and embedded logic devices
utilize two rather than four digits to define the applicable year, these
programs and devices may fail to properly recognize date sensitive
information relating to dates after the beginning of the year 2000. If not
corrected, many computer applications could fail or create erroneous results.
Year 2000 issues potentially impacting the Company relate not only to the
Company's own internal systems, software and products, but also to the
compliance efforts of third parties.
14
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
THE COMPANY'S STATE OF READINESS. Because each of the Company's businesses
generally has separate systems, software and products, the year 2000 issues
are different for each business. The Company has identified the information
technology ("IT") and non-IT systems, software and products in each of its
businesses which could be affected by the year 2000 issue, and has assessed
the efforts required to remediate or replace them. The Company has also
identified versions of its products that will not be made compliant and is
assisting customers in upgrading or migrating to year 2000 compliant
versions. By the end of 1998, most of the Company's major or key systems,
software and products will be remediated or replaced and significant testing
will have commenced; any remaining systems, software and products are
scheduled to be remediated or replaced in the first half of 1999. The
Company anticipates using 1999 for continued testing, implementing changes
and making necessary refinements. Management expects that the systems,
software and products for which the Company has responsibility currently are
year 2000 compliant or will be compliant on a timely basis.
The Company has contacted many customers, vendors, governmental agencies and
other third parties with whom it deals to identify potential issues the
Company might encounter if those third parties are not year 2000 compliant.
These communications are also used to elicit the status of such third
parties' year 2000 readiness, and to clarify which year 2000 issues are the
responsibility of the Company and which are the responsibility of the third
party. Because of the complexity of the year 2000 issue and the differing
states of readiness of these third parties, the Company expects these
discussions to continue throughout 1999. The Company does not anticipate that
the year 2000 issues it will encounter with third parties will be different
than those encountered by other providers of information services, including
the Company's competitors. Key vendors to the Company and its customers
which support the ability of the Company to provide its services include
telecommunications and electrical companies.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. A significant portion of
the Company's year 2000 compliance efforts have occurred or are occurring in
connection with system upgrades or replacements that were otherwise planned
(but perhaps accelerated due to the year 2000 issue) or which have
significant improvements and benefits unrelated to year 2000 issues.
Examples include various internal hardware systems and financial software and
aspects of various processing systems. These costs are being capitalized as
appropriate.
Year 2000 costs for the Company's systems, software and products to be
expensed as incurred are estimated to be approximately $20 million in 1998,
about half of which was spent by the end of the third quarter. Such expenses
are estimated to be between $15 million and $18 million in 1999. In
addition, capitalized costs for year 2000 efforts are estimated to be between
$5 million and $8 million in 1998, most of which will be incurred in the
fourth quarter. Such capitalized costs are estimated to be between $4
million and $6 million in 1999. Due to the nature of remediation and
replacement efforts, the timing of these costs could shift between periods.
The Company has not yet estimated year 2000 costs for periods after 1999.
Some post-1999 costs might be anticipated due to extra customer service
efforts created by the failure of third parties to be year 2000 compliant.
The Company has also developed a plan to assist with the remediation of
customers' customized software which facilitates the use of the Company's
services. Remediation of such customized software is the customers'
responsibility, but as part of the Company's customer service efforts it is
providing a solution to assist the customer in this remediation. The Company
anticipates it will recover most of its costs in providing this customer
assistance. The Company's costs and related recoveries for these efforts
will be highly dependent on customers' usage of these services.
15
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
Neither the costs incurred for year 2000 compliance efforts, nor the delay or
deferral of certain development projects that might have otherwise been
undertaken in the absence of year 2000 compliance efforts, are expected to
have a material effect on Ceridian's financial position or results of
operation. Such costs generally have been funded by the re-deployment of both
IT and non-IT financial and personnel resources. In addition, the Company
has attempted to address many year 2000 issues as part of re-engineering or
replacement efforts. As a result, the Company anticipates non-year 2000
benefits such as improved efficiencies, operations and services as part of
those efforts.
THE COMPANY'S CONTINGENCY PLANS. Detailed contingency plans for each of the
Company's businesses are being prepared and will be refined as appropriate.
Those plans will focus on matters which appear to be the Company's most
likely year 2000 risks, such as possible additional customer support efforts
by the Company that would be necessary if customers or vendors are not year
2000 compliant, or if a year 2000 issue should not be timely detected in the
Company's own compliance efforts.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company does not anticipate
that the year 2000 issues and risks, including the most reasonably likely
worst case year 2000 scenario, it will encounter will be significantly
different than those encountered by other providers of information services,
including the Company's competitors. Although the Company believes its
remediation, replacement and testing efforts will address all of the year
2000 issues for which the Company is responsible, to the extent these efforts
are not successful, additional compliance efforts would be necessary together
with additional customer service efforts and expenditures. If third parties
fail in their compliance efforts, the Company could also be impacted and
required to provide additional customer service efforts. In such an event,
the Company could incur additional costs and experience a negative impact on
revenues.
The Company's cost and timetable estimates for its year 2000 efforts are
subject to potentially significant estimation uncertainties that could cause
actual results to differ materially. These estimates are based on
management's current best estimates and reflect certain assumptions.
Factors which could impact these estimates include: the availability of
appropriate technology personnel; the rate and magnitude of related labor
costs; the successful identification of all aspects of the Company's systems,
software and products that require remediation or replacement; the extent of
testing required; the costs of the Company's efforts to assist certain
customers in the remediation of their customized code; the amount of cost
recoveries from those efforts; and the success of third parties in their year
2000 compliance efforts. Due to the complexity and pervasiveness of the year
2000 issue, and in particular the uncertainty regarding the compliance
efforts of third parties, no assurance can be given that these estimates will
be achieved, and actual results could differ materially.
16
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
Part II. Other Information
ITEM 5. OTHER INFORMATION
In connection with recent amendments to the proxy rules by the Securities and
Exchange Commission ("SEC"), the Company has amended its Bylaw provisions
relating to advance notice requirements for stockholder proposed business or
nominations for director at annual meetings of stockholders. As permitted by
the proxy rules, these advance notice requirements of the Bylaws supersede
the notice requirements contained in these recent amendments to the proxy
rules.
As amended, the Bylaws provide that business may be brought before an annual
meeting by a stockholder only if the stockholder provides written notice to
the Secretary of the Company not less than 90 or more than 120 days prior to
the meeting, unless notice of the date of the meeting is given to
stockholders or is publicly announced less than 100 days prior to the
meeting. In that case, a stockholder's notice of proposed business must be
provided no later than 10 days following the date notice of the annual
meeting was mailed or the public announcement of the date was made, whichever
is earlier. A stockholder's notice must set forth (i) a description of the
proposed business and the reasons for it, (ii) the name and address of the
stockholder making the proposal, (iii) the class and number of shares of
Company stock owned by the stockholder, and (iv) a description of any
material interest of the stockholder in the proposed business.
The Bylaws also provide that a stockholder may nominate a director at an
annual meeting only after providing advance written notice to the Secretary
of the Company within the time limits described above. The stockholder's
notice must set forth all information about each nominee that would be
required under SEC rules in a proxy statement soliciting proxies for the
election of such nominee, as well as the nominee's business and residence
address. The notice must also set forth the name and record address of the
stockholder making the nomination and the class and number of shares of the
Company stock owned by that stockholder.
The Company hereby publicly announces that the date of the 1999 Annual
Meeting of Stockholders is May 20, 1999. Any stockholder business, or
nomination, which the presiding officer determines has not been brought
before the meeting in accordance with the Company's Bylaw provisions, will
not be voted upon at the meeting. A copy of the Company's Bylaws may be
obtained by contacting the Company's Secretary, Ceridian Corporation, 8100
34th Avenue South, Minneapolis, Minnesota 55425.
17
<PAGE>
FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
September 30, 1998
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Description Code
<S> <C> <C>
10.01 Form of Amendment to Executive Employment Agreement E
27.01 Financial Data Schedule - September 30, 1998 E
27.02 Financial Data Schedule (Restated) - June 30, 1997 and September 30, 1997 E
27.03 Financial Data Schedule (Restated) - June 30, 1996 and September 30, 1996 E
</TABLE>
Legend: (E) Electronic Filing
(b) Reports on Form 8-K.
None.
18
<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, 1998, to be signed on its behalf by the undersigned
thereunto duly authorized.
CERIDIAN CORPORATION
Registrant
Date: November 10, 1998 /s/ L. D. Gross
------------------------------
L. D. Gross
Vice President and
Corporate Controller
(Principal Accounting Officer)
19
<PAGE>
EXHIBIT 10.01 PAGE 1
AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment, dated as of August ___, 1998, amends certain provisions of
the Executive Employment Agreement ("Agreement"), dated as of ___________, 1997,
between Ceridian Corporation and you, _______________. Unless otherwise defined
herein, capitalized terms used in this Amendment have the meanings given to them
in the Agreement. In consideration of you continuing in your employment with
Ceridian for the remaining term of the Agreement, and the mutual promises and
obligations contained in the Agreement as modified by this Amendment, you and
Ceridian agree to amend the Agreement as follows:
1. Section 7.03 of the Agreement is hereby amended in its entirety to read as
follows:
"7.03 CHANGE OF CONTROL TERMINATION PAYMENT. In the event of a Change
of Control Termination, then, and without further action by the
Board, Compensation Committee or otherwise, Ceridian shall,
within five days of such termination, make a lump sum payment to
Executive in an amount equal to one dollar ($1.00) less than
three times the average annualized compensation, as defined by
Section 280G of the Code, received by Executive from Ceridian and
includible in Executive's gross income for federal income tax
purposes for the five most recent taxable years of the Executive
ending before the date upon which the Change in Control occurred
(or such portion of such period during which Executive was an
employee of Ceridian). Neither this payment nor any other
compensation to be provided to Executive by Ceridian pursuant to
this Agreement or any other agreement or Benefit Plan which may
be considered Change of Control Compensation shall be subject to
any limitation on Change of Control Compensation which may
otherwise be expressed in any such agreement or Benefit Plan."
2. Section 7.04 of the Agreement is hereby amended in its entirety to read as
follows:
"7.04 TAX REIMBURSEMENT.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payments or
distributions by Ceridian to or for the benefit of the
Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any payments
required under this Section 7.04) (collectively, the
"Payments") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an
amount such that, after payment by the Executive of all
taxes (and any interest or penalties imposed with respect to
such taxes), including any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
<PAGE>
EXHIBIT 10.01 PAGE 2
(b) Subject to the provisions of Section 7.04(d), all
determinations required to be made under this Section 7.04,
including whether and when a Gross-Up Payment is required
and the amount such Gross-Up Payment and the assumptions to
be utilized in arriving at such determination, shall be made
by KPMG Peat Marwick LLP (the "Accounting Firm"), which
shall provide detailed supporting calculations both to
Ceridian and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by Ceridian.
In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm
shall then be referred to as the "Accounting Firm"
hereunder). All fees and expenses of the Accounting Firm
shall be borne solely by Ceridian. Any Gross-Up Payment, as
determined pursuant to this Section 7.04, shall be paid by
Ceridian to the Executive within five days of the receipt of
the Accounting Firm's determination. Any determination by
the Accounting Firm shall be binding upon Ceridian and the
Executive.
(c) As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination by
the Accounting Firm hereunder, it is possible that Gross-Up
Payments which should have been made by Ceridian will not
have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event
that Ceridian exhausts its remedies pursuant to Section
7.04(d) and the Executive thereafter is required to make a
payment of any additional Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by
Ceridian to or for the benefit of the Executive.
(d) The Executive shall notify Ceridian in writing of any claim
by the Internal Revenue Service that, if successful, would
require the payment by Ceridian of any Gross-Up Payment.
Such notification shall be given as soon as practicable but
no later than ten business days after the Executive knows of
such claim and shall apprise Ceridian of the nature of such
claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the
expiration of the thirty-day period following the date on
which it gives such notice to Ceridian (or such shorter
period ending on the date that any payment of taxes with
respect to such claim is due). If Ceridian notifies the
Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give Ceridian any information reasonably requested by
Ceridian relating to such claim;
(ii) take such action in connection with contesting such
claim as Ceridian shall reasonably request in writing
from time to time, including accepting legal
representation with respect to such claim by an
attorney reasonably selected by Ceridian;
<PAGE>
EXHIBIT 10.01 PAGE 3
(iii) cooperate with Ceridian in good faith in order to
effectively contest such claim; and
(iv) permit Ceridian to participate in any proceedings
relating to such claim;
provided, however, that Ceridian shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 7.04(d), Ceridian shall
control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as Ceridian shall determine; provided further, however,
that if Ceridian directs the Executive to pay such claim and sue
for a refund, Ceridian shall advance the amount of such payment
to the Executive on an interest-free basis and shall indemnify
and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
provided further that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount.
Furthermore, Ceridian's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(e) If, after the receipt by the Executive of an amount advanced by
Ceridian pursuant to Section 7.04(d), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to Ceridian's complying with the
requirements of Section 7.04(d)) promptly pay to Ceridian the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by Ceridian
pursuant to Section 7.04(d), a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and Ceridian does not notify the Executive in writing
of its intent to contest such denial of refund prior to the
expiration of thirty days after such determination, then such
advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid."
<PAGE>
EXHIBIT 10.01 PAGE 4
Ceridian and you have caused this Amendment to be duly executed and
delivered, and this Amendment shall be effective, as of the date first
written above. Following the effectiveness of this Amendment, each
reference in the Agreement to "this Agreement," "hereunder," "herein,"
"hereof," or words of like import shall mean and be a reference to the
Agreement as amended by this Amendment.
EXECUTIVE CERIDIAN CORPORATION
____________________________ By:___________________________
[Name] Title:__________________________
Address:
____________________________
____________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 165,200
<SECURITIES> 0
<RECEIVABLES> 399,700
<ALLOWANCES> 17,200
<INVENTORY> 0
<CURRENT-ASSETS> 705,700
<PP&E> 226,600
<DEPRECIATION> 143,700
<TOTAL-ASSETS> 1,247,300
<CURRENT-LIABILITIES> 473,700
<BONDS> 58,200
0
0
<COMMON> 40,400
<OTHER-SE> 517,300
<TOTAL-LIABILITY-AND-EQUITY> 1,247,300
<SALES> 0
<TOTAL-REVENUES> 852,500
<CGS> 0
<TOTAL-COSTS> 401,100
<OTHER-EXPENSES> 2,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,300
<INCOME-PRETAX> 158,300
<INCOME-TAX> 58,000
<INCOME-CONTINUING> 100,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,300
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.36
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 SEP-30-1997
<CASH> 27,100 47,400
<SECURITIES> 0 0
<RECEIVABLES> 315,900 308,800
<ALLOWANCES> 13,000 13,200
<INVENTORY> 0 0
<CURRENT-ASSETS> 472,000 483,800
<PP&E> 226,500 232,100
<DEPRECIATION> 148,900 148,700
<TOTAL-ASSETS> 1,079,500 999,100
<CURRENT-LIABILITIES> 397,700 469,300
<BONDS> 111,000 165,900
0 0
0 0
<COMMON> 40,400 40,400
<OTHER-SE> 413,600 209,100
<TOTAL-LIABILITY-AND-EQUITY> 1,079,500 999,100
<SALES> 0 0
<TOTAL-REVENUES> 525,700 792,300
<CGS> 0 0
<TOTAL-COSTS> 256,300 388,700
<OTHER-EXPENSES> 14,500 164,900
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,100 6,100
<INCOME-PRETAX> 71,000 (39,900)
<INCOME-TAX> 1,600 800
<INCOME-CONTINUING> 69,400 (40,700)
<DISCONTINUED> 22,900 39,300
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 92,300 (1,400)
<EPS-PRIMARY> 1.16 (0.02)
<EPS-DILUTED> 1.14 (0.02)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 32,100 29,800
<SECURITIES> 0 0
<RECEIVABLES> 299,000 286,900
<ALLOWANCES> 11,300 10,900
<INVENTORY> 0 0
<CURRENT-ASSETS> 432,300 427,900
<PP&E> 197,300 203,300
<DEPRECIATION> 121,900 127,800
<TOTAL-ASSETS> 944,500 975,100
<CURRENT-LIABILITIES> 423,700 405,100
<BONDS> 136,800 146,800
0 0
4,700 4,700
<COMMON> 34,400 34,400
<OTHER-SE> 211,600 254,200
<TOTAL-LIABILITY-AND-EQUITY> 944,500 975,100
<SALES> 0 0
<TOTAL-REVENUES> 460,400 691,300
<CGS> 0 0
<TOTAL-COSTS> 222,900 337,300
<OTHER-EXPENSES> 1,600 900
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,200 7,500
<INCOME-PRETAX> 70,000 102,000
<INCOME-TAX> 2,700 3,200
<INCOME-CONTINUING> 67,300 98,800
<DISCONTINUED> 20,900 33,800
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 88,200 132,600
<EPS-PRIMARY> 1.21 1.82
<EPS-DILUTED> 1.09 1.64
</TABLE>
