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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 of 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 1-1969
CERIDIAN CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 52-0278528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 34th Avenue South
Minneapolis, Minnesota 55425
(Address of principal executive offices)
Telephone No.: (612) 853-8100
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which
registered:
Common Stock, par value $.50 New York Stock Exchange,
Inc.; The Chicago Stock
Exchange; and Pacific Stock
Exchange
Depositary Shares, each representing
a One One-Hundredth Interest in a
Share of 5-1/2% Cumulative Convertible
Exchangeable Preferred Stock,
Par Value $100........................ New York Stock Exchange, Inc.
5-1/2% Cumulative Convertible
Exchangeable Preferred Stock,
Par Value $100........................ None
5-1/2% Convertible Subordinated
Debentures Due 2008................... None
Has the Registrant (1) filed all reports required by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months and (2)
been subject to such filing requirements for the past 90 days.
Yes (X) No ( ).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of February 29, 1996 was $2,844,268,970.
The shares of Common Stock outstanding as of February 29, 1996 were
67,912,402.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Stockholders of Registrant: Parts I & II
Portions of the Proxy Statement for Annual Meeting of Stockholders, May 8,
1996: Parts III and IV
CERIDIAN CORPORATION
PART I
The information contained in this Report includes forward-looking
statements, based on current expectations, that involve risks and
uncertainties which could cause actual results to differ materially from
those expressed in the forward-looking statements. Various important
factors known to Ceridian Corporation that could cause such material
differences are identified in the "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on page 28 of the Company's
1995 Annual Report to Stockholders, which is incorporated by reference into
Part II, Item 7 of this Report.
Item 1. Business.
Ceridian Corporation ("Ceridian" or the "Company"), known as Control
Data Corporation until June 1992, was founded in 1957 and is incorporated
in Delaware. The principal executive office of Ceridian is located at 8100
34th Avenue South, Minneapolis, Minnesota 55425, telephone (612) 853-8100.
Ceridian is comprised of two business segments: Information Services and
Defense Electronics.
Information Services Segment
The Information Services segment, which consists of the Human
Resources Group ("HRG"), Comdata Holdings Corporation and Arbitron,
provides products and services to customers in the human resources,
trucking, gaming and electronic media markets. The Information Services
businesses collect, manage and analyze data and process transactions on
behalf of customers, report information resulting from such activities to
customers, and provide customers with related software applications and
services. The products and services provided by the Information Services
businesses address specific information management and transaction
processing needs of other businesses to enable them to operate more
efficiently. The technology-based products and services of the Information
Services businesses are typically provided through long-term customer
relationships that result in a high level of recurring revenue.
Information regarding Information Services' revenue, operating profit or
loss and identifiable assets for the years 1993-1995 is in Note K, Segment
Data, on page 47 of the Company's 1995 Annual Report to Stockholders, which
is incorporated herein by reference.
Human Resources Group.
The businesses comprising the HRG offer a broad range of products and
services designed to help employers more effectively manage their work
forces and information that is integral to human resource processes. HRG's
revenue for the years 1993, 1994 and 1995 was $244.0 million, $321.5
million and $412.2 million, respectively. The products and services of the
HRG include payroll processing and payroll tax filing services, and human
resources management software and services provided through the Ceridian
Employer Services business (which includes Ceridian's Centre-file Limited
subsidiary ("Centre-file") in the United Kingdom); payroll processing,
benefits administration and human resources management software provided
through Ceridian's Tesseract Corporation subsidiary ("Tesseract"); skills
management software and services provided through Ceridian's Resumix, Inc.
subsidiary ("Resumix"); training services provided through Ceridian's
User Technology, Inc. subsidiary ("UserTech"); employee assistance
programs through the Employee Advisory Resource business; payroll
processing services to customers with fewer than 100 employees in the mid-
Atlantic states through Ceridian's Minidata Services, Inc. subsidiary
("Minidata"); and automated time and attendance software through
Ceridian's EAS Technologies, Inc. subsidiary ("EAS") acquired in February
1996.
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Markets. The human resource services market covers a comprehensive
range of information management services and software and employer/employee
assistance services. These products and services include transaction-
oriented information management services such as payroll, tax filing and
benefits administration services; management support software and services
such as human resource information, skills management, time and attendance
and applicant tracking systems; employee-focused services such as employee
assistance programs; and other services such as compensation and benefits
consulting and systems training. The market for these products and
services is expected to continue to grow as companies continue to outsource
administrative services, seek to further automate internal processes, and
avail themselves of external expertise to foster high performance
workplaces. The factors driving the movement toward outsourcing include
the increasing scope and complexity of legislation regulating businesses
and their employees, the rising costs of providing payroll and other human
resource services in-house and the introduction of new types of human
resource services.
Traditionally, the human resource services market consisted of payroll
processing, payroll tax filing and other services that were transaction-
based, generally routinized and technology-oriented. Although these types
of services continue to account for a significant portion of the human
resource services market and demand for them continues to grow, the human
resource services market is expanding into other value-added services that
address other aspects of the employment relationship, such as human
resource management, benefits administration, compensation, staffing,
training development and employee relations. HRG believes that the ability
to provide a number of these other services and to integrate payroll and
human resource information databases can be an important factor in customer
retention because it provides customers with a stronger connection to their
provider of transaction-based services, and offers that provider a means to
distinguish its services from others provided in the market. Accordingly,
it is increasingly important for companies in the human resource services
market, particularly for those targeting medium and large employers, to
offer a wide range of services that are designed to address a broad
spectrum of human resource services needs.
The Company segments the human resource services market by classifying
employers into three categories: small (fewer than 75 employees), medium
(75 to 5,000 employees) and large (over 5,000 employees). Small employers
in the payroll services market are relatively price sensitive, tend to
focus more narrowly on payroll services and payroll tax filing and have low
costs in switching from one provider to another. Medium and large
employers generally require more complex, customized payroll services, have
a greater need for additional services and integrated databases and have
higher costs in switching from one provider to another.
Services. During 1995, payroll processing and payroll tax filing
services provided by Employer Services accounted for 78% of HRG's total
revenue. Payroll processing consists primarily of preparing and furnishing
employee payroll checks, direct deposit advices and supporting journals,
summaries and other reports, but does not involve the handling or
transmission of customer payroll funds. Payroll tax filing consists
primarily of collecting funds for federal, state and local employment taxes
from customers based on payroll information provided, remitting funds
collected to the appropriate taxing authorities, filing applicable returns,
and handling regulatory correspondence and amendments. These payroll-
related services are typically priced on a fee-per-item-processed basis,
and quarterly revenue consequently fluctuates with the volume of items
processed.
Revenue from payroll tax filing services also includes investment
income Employer Services receives from tax filing deposits temporarily held
pending remittance on behalf of customers to taxing authorities. These
funds are held in a tax filing trust established by Ceridian to more
clearly evidence the fiduciary capacity in which such funds are held. The
trust invests primarily in high quality collateralized short-term
investments or top tier commercial paper. The trust also invests in U.S.
Treasury and Agency securities, AAA rated asset-backed securities and
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corporate securities rated A3/A- or better. The trust may not use leverage
for investment purposes or purchase highly structured securities of any
kind. The duration of investments is carefully managed to meet the
liquidity needs of the trust. About two-thirds of Employer Services' 1995
payroll tax filing revenue and about 15% of HRG's 1995 revenue was
attributable to such investment income. Because of the significance of
this investment income, Employer Services' quarterly revenue and
profitability vary as a result of changes in interest rates and in the
amount of tax filing deposits held.
Payroll processing is currently conducted by Employer Services at 31
district offices located throughout the United States, all of which are
linked in a nationwide network. Employer Services' payroll system allows
customers to input their own payroll data via personal computers, transmit
the data on-line to Employer Services for processing, retrieve reports and
data files from Employer Services and print reports and, in certain
instances, payroll checks or direct deposit advices on site. Customers can
also input payroll data by telephone or batch transmittal, with payroll
checks and related reports prepared by Employer Services at one of its
district processing centers. Employer Services' payroll system also
interfaces with both customer and third-party transaction processing
systems to facilitate services such as direct deposit of payroll checks.
Because Employer Services' existing payroll processing system
incorporates older technology, particularly the payroll processing software
utilized, the system requires a significant amount of manual intervention
by Employer Services and is relatively labor intensive to install, maintain
and customize. As a result, the Company is in the process of upgrading
that software in order to create an enhanced payroll processing system that
is more highly automated, easier and less costly to install and maintain
and provides greatly increased functionality and flexibility to customers
in terms of product and service features and options. The Company
anticipates that a substantial majority of the existing payroll processing
customers will elect to eventually upgrade to this software, referred to as
"CII." To achieve these goals, the Company acquired Tesseract in June
1994, and has been conducting an internal development effort to adapt
Tesseract's proprietary payroll processing software to run in Employer
Services' multi-customer data center environment.
In connection with the decision to upgrade its payroll processing
software, Employer Services also decided to phase out payroll data
processing in certain of its district offices and to consolidate processing
utilizing the upgraded software in centralized facilities operated by
Integrated Systems Solutions Corporation ("ISSC") pursuant to a ten-year
technology services agreement that commenced in January 1995. The time
when the consolidation of payroll processing can begin is principally a
function of the timing of the Company's introduction of its CII software
and the availability of resources required to transition the existing
customer base to that software. During the second half of 1996, the
Company expects that existing customers who participate in the testing of
the "production" version of the CII software will begin utilizing that
software exclusively, and that the installation of certain large new
customers on the enhanced payroll processing system using the CII software
will be in process. The installation of all new customers on the enhanced
system and the general transition of existing customers to that system are
expected to begin during 1997. Employer Services will continue, for the
foreseeable future, to make payroll processing utilizing its existing
software available to customers who do not wish to upgrade.
The transition of existing payroll customers to centralized processing
on the CII software in the ISSC center and the phased reduction of
processing capabilities in the district offices is expected to occur over a
30 to 36 month period, largely because of the system conversion and
customer training efforts required of Employer Services to assure a
satisfactory transition process for customers electing the software
upgrade. The Company expects that the transition process will entail
significant incremental costs that principally reflect the cost of systems
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and data conversion, maintaining duplicate processing systems during the
transition period, and providing necessary training. The impact of these
costs is discussed in Part II, Item 7 of this Report.
During 1995, Employer Services completed a project to consolidate most
aspects of telephonic customer support from its district offices into a
single national telephone customer support center. By creating such a
national center, Employer Services believes that it can improve customer
service by creating a single point of contact for most customer inquiries
involving payroll processing or tax filing. Employer Services has,
however, retained the capability in the district offices to address certain
customer support needs.
Employer Services' payroll tax filing services are provided by its
Systems Tax Service ("STS" ) division located in Fountain Valley,
California. STS was acquired by the Company in 1993, and payroll tax
filing processing for all of Employer Services' tax filing customers was
consolidated on STS' system beginning in 1994. The STS acquisition also
expanded Employer Services' tax filing customer base beyond employers who
utilize Employer Services' payroll processing service to include local and
regional payroll processors who utilize STS' tax filing service for their
customers.
Employer Services' human resource information service provides
application software to customers that enables them to combine their
payroll and human resource information databases and can serve as a
"front-end" to Employer Services' payroll processing system. This
enables the customer to create a single database of employee information
for on-line inquiry, updating and reporting in areas important to human
resource administration and management. Employer Services began offering
during 1995 an integrated human resource/payroll information management
software to run in a Windows* environment in conjunction with its existing
payroll processing software, and has developed comparable Windows-based
software to be used in conjunction with the CII software. Employer
Services is also developing a client/server version of this human
resource/payroll information management software for use in connection with
the CII software. Employer Services also provides related human resources
information management consulting services.
In addition to providing the Company with the payroll processing
software that will be the core of the CII software, the Tesseract
acquisition provided Ceridian with payroll processing, benefits
administration and human resources management software offerings for large
customers with complex information management needs that prefer to handle
such tasks in-house. Although Tesseract's product offerings have
historically been mainframe-based, it is developing client/server versions
of these offerings.
Resumix, which was acquired by the Company in August 1995, provides
skills management software (and related hardware) that employs image
processing, knowledge base and database technologies to improve an
organization's staffing and skills management processes. Organizations use
the Resumix software to manage large volumes of incoming resume data to
identify qualified candidates for hire and match them with available
staffing needs, and to manage the skills of an existing work force by
placing current employees in new jobs or projects. Resumix also offers its
software on a service bureau basis to support smaller and medium-sized
organizations.
In October 1995, the Company purchased the assets of the Personnel and
Payroll Services business conducted by NatWest Group's Centre-file subsidiary.
Centre-file provides payroll processing services and human resource management
software, and is the largest outsourced payroll processing business in the
United Kingdom in terms of revenue.
.
* "Windows" is a trademark of Microsoft Corporation
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HRG's Employee Advisory Resource ("EAR") provides confidential,
around-the-clock assessment and referral services to customers' employees
to help them address legal and financial problems, substance abuse, child
care, eldercare and other personal problems. EAR maintains a network of
professional counselors who are available to work with employees to solve
problems and to provide referrals to specialists if such referrals are
warranted by the circumstances.
UserTech, purchased by the Company in 1994, provides custom user
training, reference documentation and on-line employee communications
systems to facilitate customers' implementation and utilization of human
resources and other business information management systems. In January
1996, the Company purchased the business and assets of Information Learning
Inc., including the Information Learning Systems trademark, and made this
business part of UserTech. Information Learning, which had 1995 revenue of
$2.5 million, provides expert systems that enable employers to address
employee and retiree questions about benefits, payroll and other human
resources policies and programs.
In February 1996, the Company acquired EAS, which had 1995 revenue of
$3.5 million. EAS provides time and attendance software for medium to
large-sized companies.
Sales and Marketing. Employer Services markets its products and
services through a direct sales force operating through about three dozen
offices located throughout the U.S. Employer Services also has established
marketing relationships with banks, accounting firms and insurance
companies, pursuant to which Employer Services offers its services to the
business clients of these entities. Employer Services' most significant
source of customer leads are referrals from existing customers and from the
marketing relationships previously noted. Employer Services' large and
diverse customer base covers a wide range of industries and markets, with
no single customer currently representing more than 1% of HRG's 1995
revenue. In January 1996, Employer Services entered into a three year
contract with Kmart Corporation to provide payroll processing and tax
filing services. Under this contract, the annual revenue from which is
ultimately expected to exceed 1% of HRG's annual revenue, the Company
assumed operation of Kmart's payroll system and the employees of its
payroll department effective March 1, 1996, and will begin to install Kmart
on Employer Services' payroll and tax filing system during 1996.
The other HRG businesses also utilize their own direct sales forces.
Customer leads for the products and services of these businesses are
generally obtained through referrals, trade shows, product demonstration
seminars and direct sales efforts.
The HRG businesses have utilized cooperative marketing relationships
with other companies offering products or services that complement those of
the HRG businesses. The Company has entered into a marketing arrangement
with ISSC under which ISSC will remarket Employer Services' payroll and tax
filing services and Tesseract software where such services and software are
required as part of a larger information technology outsourcing project.
The Company has also agreed with PeopleSoft, Inc. to develop an interface
to link Employer Services' payroll processing system with PeopleSoft's
human resource management software to facilitate the use of such payroll
processing services by PeopleSoft customers. HRG businesses have also
utilized informal marketing alliances with human resource consulting firms,
and is exploring similar cooperative arrangements with other software and
human resource services providers.
HRG believes that increasing the integration of the sales and
marketing efforts of its businesses will be an important factor in
achieving its profitability and growth objectives. HRG is increasingly
orienting sales and marketing efforts toward medium and large employers,
which tend to purchase a greater variety of services, require more
flexibility and customization in service offerings and have higher costs
associated with changing providers. At the same time, efforts to upgrade
technology and expand and integrate product and service offerings should
also increase sales effectiveness by building greater variety and
flexibility into service offerings, differentiating Ceridian from other
6
service providers and providing customers with a stronger connection to
Ceridian. HRG's goal is to identify the overall human resource information
management needs arising out of the employment relationship, and address
those needs through a broad range of integrated customer-driven solutions,
such as outsourcing services, software applications and consulting
services.
Competition. The human resource services industry is characterized by
intense competition in the small, medium and large employer segments of the
market. Competition in this market comes from national, regional and local
third party transaction processors, including banks, as well as from
software companies, consulting firms and internally developed and operated
systems and software.
A substantial portion of the overall payroll processing and tax filing
market is supported in-house with the remainder supported by third party
providers. Automatic Data Processing, Inc. ("ADP") is the dominant third
party provider in this market, with Employer Services and Paychex, Inc.
("Paychex") comprising the other two large, national providers. ADP serves
all segments of this market, while Paychex focuses on the small employer
segment of the market. The remainder of the third party payroll market is
highly fragmented and is represented by smaller regional and local
competitors. Consolidation within this industry continues as the larger
national providers acquire smaller regional and local providers and as
banks sell their payroll service operations. In addition, software
companies, including Tesseract, market software products to companies that
allow these companies to support their payroll services in-house. The
market for the non-payroll portion of the human resource services industry
is evolving and is not dominated by a small number of competitors.
Currently, the principal competitive factors in the human resource
services market are performance, price, reliability, functionality, ease of
use, customer support and compatibility with industry standards. HRG
believes that its businesses are able to compete effectively in the overall
human resource services market with respect to all of these competitive
factors. In addition, HRG believes that offering a broad range of
information management products and services applicable to the employment
relationship will become an increasingly important competitive factor,
particularly with respect to medium and large employers. For example, by
being able to address large companies' payroll processing preferences with
both outsourcing (through Employer Services) and in-house processing
(through Tesseract) options, the Company believes it will be in a better
position to attract large employers for its payroll processing and related
products and services.
The ability of the HRG businesses to continue to compete effectively
in the human resource services market will depend in large measure on their
ability to implement and effectively use new technology, offer additional
products and services, such as software applications utilizing client
server architecture, and increase their market penetration. HRG intends to
seek additional strategic acquisition and partnering opportunities that
would better enable it to achieve these objectives.
Comdata.
Comdata Holdings Corporation ("Comdata Holdings ") is the parent
corporation of Comdata Network, Inc. ("Network"), and Comdata Holding's
investment in Network and Network's subsidiaries represents Comdata
Holding's only material asset. In this report, the term "Comdata" refers
to Comdata Holdings, Network and its subsidiaries. Comdata's revenue for
the years 1993, 1994 and 1995 was $212.3 million, $243.3 million and
$274.1 million, respectively.
Comdata is a leading provider of transaction processing services to
the trucking and gaming industries. For the trucking industry, Comdata
provides funds transfer and regulatory permit services, as well as
7
telephone services and backhaul information, all of which make use of the
information processing or telecommunications capabilities of Comdata's
proprietary computerized telecommunications network. Comdata also
provides cash advance services to the gaming industry using credit cards
and debit services employing automated teller machines and similar
devices. Comdata uses its network to provide a system by which
individuals may use MasterCard, Visa and Discover credit cards or their
bank automatic teller machine card to obtain cash in casinos, racetracks
and other gaming locations.
In addition to expanding its operations by using its network to
develop new services for its customer base, Comdata has, over a period of
years, acquired other companies engaged in similar activities. Since
September 1987, Comdata has acquired ten different businesses, ranging in
size from $0.8 million to $57.6 million in annual revenue at the time of
acquisition.
Markets. Trucking Industry. The trucking industry encompasses both
long haul fleets and local fleets. Private fleets, which are part of
larger companies that have significant shipping needs, predominate in the
local fleet segment, but play a lesser role in the long haul fleet
segment. Common carriers, which provide trucking services to companies
that do not have fleets of their own, predominate in the long haul fleet
segment, which is comprised of less-than-truckload and truckload
components. The less-than-truckload component, which involves trucks that
make multiple stops to load and unload, is characterized by large capital
requirements and a relatively high degree of consolidation. The truckload
component, which involves the transportation of full loads directly from
shipper to final destination without going through any sorting terminals,
is highly fragmented and, Comdata believes, is growing at the expense of
private fleets and the less-than-truckload component.
The majority of Comdata's trucking company customers are common
carriers serving the truckload component of the long haul segment. Many
of these carriers do not employ their drivers, but instead contract with
individual owner-operators. Such owner-operators usually settle their
expenses with the common carrier after the completion of each trip.
Drivers for truckload carriers often spend weeks on the road at a time,
creating a number of unique conditions and business opportunities.
Truckload carriers are challenged to monitor and control fuel purchases,
provide driver services to improve retention, obtain necessary licenses
and permits, and effectively manage the logistics of such long-distance
trips.
A variety of trends has affected the trucking industry in recent
years and is expected to have an ongoing impact. Outsourcing of fleets
has occurred and is expected to continue since the costs of common
carriers are generally less than the costs of operating a private fleet.
Demand for the services of truckload carriers is expected to increase at
the expense of the more capital intensive less-than-truckload carriers.
Consolidation of carriers is expected to continue, reflecting economies of
scale and competitive pressures. Increased driver retention is expected
to continue to be a significant industry focus. The challenges and
expense of complying with environmental regulations governing fuel storage
tanks is expected to result in a shift from private terminal fueling to
truck stop fueling. Demand for legalization services is expected to
decline as a result of industry deregulation and increased permit and
license reciprocity among states.
Gaming Industry. In recent years, the gaming industry has
experienced a high rate of growth, particularly with an increasing number
of states having acted to permit casino gaming and other forms of
wagering, often on Native American reservations and in non-traditional
locations such as riverboats. It is estimated that some form of legalized
gaming is now available within a one-half day drive of most Americans.
Gaming facilities are tending to become more integrated with the rest of
the entertainment industry as they expand geographically and are included
in larger entertainment complexes. Demand for cash advance services in
gaming locations, which can be provided in a variety of ways, has grown
commensurately with growth in overall wagering.
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Services. Trucking Industry. Revenue from Comdata's services to the
trucking industry represented 57.0% of total revenue in 1995. Comdata's
results of operations are, therefore, highly dependent on competitive
conditions in the trucking industry and upon the level of activity in that
industry, which is itself affected to a large degree by general economic
conditions. Comdata's services to the trucking industry include fuel
purchase services, driver services, legalization services and logistics
services.
Fuel Purchase Services. Comdata uses its proprietary network to
provide a service that allows customers to purchase fuel through the use
of an instrument known as a ComchekR draft, which is a draft payable
through a Comdata bank account. Comdata funds the fueling transaction
when the truck stop negotiates the draft by depositing it in its bank
account. Comdata then bills the trucking company for the amount of the
draft plus the service fee, and the trucking company remits payment of
this amount to Comdata by wire transfer or check, typically within six
days. The vast majority of these fuel purchase transactions are initiated
through the use of Comdata's proprietary Comchek card in a manner similar
to an ordinary credit card transaction. Use of the Comchek card allows
the trucking company customer greater control over its expenses by setting
limits on the use of the cards such as by designating locations where the
cards may be used and the frequency with which they may be used. Use of a
Comchek card also enables Comdata to capture and provide to trucking
company customers transaction and trip-related information that greatly
enhances a customer's ability to track and plan fuel purchases and settle
with drivers. Comdata provides similar information gathering and
processing services in connection with fueling transactions which Comdata
does not fund, but instead are billed directly by the truck stop to the
trucking company. Fees for these "direct bill" transactions are
substantially lower. Some trucking companies also have access to such
information on Comdata's computer system and may therefore promptly obtain
information on recent transactions by their independent owner-operators or
employees. Comdata also provides fuel price tracking reports and
management within a network of truck stops, including cost/plus fuel
purchase programs.
Driver Services. Comdata provides a variety of services designed to
address the specific needs of long haul drivers who spend significant
periods of time on the road, including cash advance and funds transfer
services, direct deposit of paychecks or settlements (for non-employee
owner-operators), ATM and point of sale debit card services using the
Comchek card, long distance telephone services using the Comchek card and
driver relations services such as a monthly audio magazine for drivers.
Comdata's funds transfer system is designed to enable truck drivers
to obtain funding for purchases (in addition to fuel) at truck stops and
other locations en route to their destination, and to enable trucking
companies to maintain control over expenditures made by either their
independent owner-operators or their employees. In connection with these
services, Comdata is typically able to provide an accounting to the
trucking company of trip expenses (including fuel purchases) within 24
hours after the completion of a given trip. In 1995, Comdata processed
approximately 40 million funds transfer transactions for the trucking
industry (including fuel purchase programs), and as part of such
transactions transferred approximately $6.1 billion over its network.
Comdata maintains a national network of 24-hour independent truck
stop service centers which have point-of-sale devices and other computer
equipment to facilitate communication with Comdata's database and
operations centers. The service centers act as Comdata's agents pursuant
to a service center agreement, and typically also offer the funds transfer
services of other companies. When a truck driver makes a request at a
service center for a funds transfer, Comdata verifies that the driver's
company has established sufficient credit. Upon presentation of valid
identification, the service center obtains an authorization number from
Comdata and issues a Comchek draft, which is handled in the manner
described earlier in connection with fuel purchase transactions.
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Approximately 90% of the basic funds transfer system (including funded
fuel purchases) has been automated to utilize the Comchek card, which has
significantly enhanced efficiency by eliminating the need for operator
involvement and by reducing the amount of time necessary to complete
transactions. In addition, Comdata maintains a 24-hour call center in its
Brentwood, Tennessee offices to handle transactions that require operator
assistance. Redundancy for the functions performed by the Brentwood call
center are provided by alternate sites in LaVergne, Tennessee, Newberry,
South Carolina and, beginning in 1996, Birmingham, Alabama.
The long distance telephone services available to drivers through the
Comchek card enable Comdata's trucking company customers to maintain
greater control over the billable telephone use by their drivers by
allowing the trucking company to determine which locations the driver may
call and to preprogram those numbers into Comdata's voice response unit.
The trucking company can also limit the availability of the service to an
independent driver by dollar amount or number of calls.
Legalization Services. Comdata, through its TransceiverR division,
can determine the permits needed for a designated trip, truck, and load,
purchase those permits on behalf of the customer and deliver them by
facsimile machine to a truck stop where they can be picked up by the
driver. In many instances, a trucking company customer will order permits
directly from the issuing authority and Comdata will deliver these permits
by facsimile machine to their designated location. In addition to
charging its customers for the costs imposed by the state authority,
Comdata receives a fee for each permit delivered. In addition to
providing permits to trucking companies, Comdata also provides certain
regulatory compliance services, such as processing and auditing of driver
trip logs, reporting of fuel taxes, annual licensing and motor vehicle
registration verification.
Logistics and Other Services. Comdata designed and operates a
computerized shipment interchange system to help trucking companies find
loads for their return trips, thereby reducing empty backhauls. By making
specific shipment information available to customers on a subscription
basis, available shipments can be matched with available cargo space on a
nationwide basis. As a result of the 1994 purchase of the assets of
RoTec, Comdata also develops and markets software designed to assist in
routing, scheduling and other services for companies with private and for-
hire delivery fleets. Comdata offers to its trucking company customers
long distance telecommunications services provided by Worldcom, Inc.
("Worldcom") and by AT&T. As a result of agreements with these
providers, Comdata is able to make available volume discounts to its
customers who would not otherwise qualify for such rates. As a result of
the March 1995 purchase of Trendar Corporation, Comdata provides fueling
service centers with fuel purchase desk systems which automate the various
transactions that occur at a fuel purchase desk and accept all fuel
purchase cards currently used by drivers.
Comdata is also developing for trucking customers a Windows-based
software application for fuel purchase and other management services.
This application will enable trucking companies to access real-time data
on fuel purchases and facilitate pre- and post-trip planning functions.
Future modules of this application are expected to provide ready access to
other Comdata product and service offerings such as legalization services.
Comdata is developing a service to expedite the transfer of bills of
lading and freight bills utilizing its imaging storage and retrieval
capabilities.
Gaming Industry. Comdata processed approximately 8 million funds
transfer transactions aggregating approximately $3.0 billion for the
gaming industry during 1995. These services accounted for 42.7% of
Comdata's total 1995 revenue.
10
Comdata's network enables individuals to use MasterCard, Visa or
Discover credit cards to obtain cash through Comchek terminals primarily
located in gaming locations. These cash advances differ from standard
credit card cash advances in that no personal identification number is
required, and differ from ATM withdrawals in that there is no pre-set
daily withdrawal limit. Instead, after a gaming patron runs his or her
credit card through a Comchek terminal and the transaction is authorized,
a Comchek draft drawn on a Comdata bank in the amount requested by the
patron at the terminal is generated at the gaming establishment's cashier
cage. The gaming patron immediately negotiates the draft for cash or
chips, and the gaming establishment presents the draft for payment.
Concurrently, the amount of the Comchek draft, along with Comdata's
service fee, is charged to the individual's MasterCard, Visa or Discover
account. Comdata pays an agent commission to the gaming establishment in
connection with cash advance transactions. Comdata's cash advance
services are currently available in a majority of casinos in Las Vegas,
Reno and Lake Tahoe, Nevada; and Atlantic City, New Jersey, and many other
gaming locations, including riverboat casinos and casinos on Native
American reservations and in Canada and the Caribbean.
Comdata's cash advance services are subject to policies and
regulations adopted from time to time by the major credit card
associations, including policies which currently preclude Comdata from
expanding its cash advance services to nongaming locations and prescribe
the applicable merchant discount to which such transactions are subject.
These policies are subject to change from time to time, and Comdata must
comply with changes to these policies and regulations, some of which could
have an adverse effect on Comdata.
In addition to credit card cash advances, Comdata also provides check
acceptance services and electronic funds transfers through Comdata's
automatic teller machines and other point of sale devices located in
gaming establishments. Because of the lower risk associated with these
transactions, the fees are much lower than fees for credit card cash
advances. In April 1994, Comdata acquired the casino cash advance
business of Western Union Financial Services, Inc. and became the
exclusive agent for Western Union's money transfer service to the gaming
industry in the United States. Comdata also provides market information
to gaming establishments to assist in marketing and promotional
activities. Comdata is developing a cashier operations and information
system for gaming establishments that is expected to integrate various
funds transfer and information gathering devices into a common platform.
Sales and Marketing. Trucking Industry. Comdata markets its
services to the trucking industry through a direct sales force operating
in various cities throughout the U.S., and through a tele-sales operation
in Comdata's Brentwood, Tennessee headquarters. Comdata has contracts
with approximately 16,000 long haul trucking companies, ranging in size
from those with several thousand trucks to those with fewer than five
trucks. Approximately 11,000 of these trucking companies use Comdata's
funds transfer services. Comdata also has relationships with
approximately 8,000 fueling locations. Contracts with trucking companies
generally range up to three years in duration, while contracts with
service centers are typically one or two years in duration. No single
customer represented more than 2% of Comdata's 1995 revenue from services
to the trucking industry.
Gaming Industry. Comdata markets its services to the gaming industry
through a direct sales force operating in Reno and Las Vegas, Nevada,
Atlantic City, New Jersey, Brentwood, Tennessee and in certain other
cities in the U.S. Comdata has relationships with approximately 1,000
gaming establishments.
Competition. The principal competitive factors relevant to funds
transfers in both the trucking and gaming industries are marketing
efforts, pricing, sophistication and reliability of computer and
communications systems, the provision of new techniques in basic funds
transfer services, reduction of the time required to effect transactions
11
and payment and security terms of customer agreements. The major credit
card companies and vendors of traveler's checks are competitors of Comdata
in that they make cash available to holders of their cards and checks on a
nationwide basis. Comdata also faces increasing competition from lower
fee automated teller machines that participate in national networks.
In the trucking industry, at least six other companies offer similar
funds transfer services. These competitors are smaller than Comdata,
although at least two are owned by companies significantly larger than
Comdata. One of Comdata's competitors, EDS Fleet Services, was acquired
by Electronic Data Systems, Inc. in 1992. In addition,
truckstops may negotiate directly with trucking companies for a direct
billing relationship. Comdata also competes with several credit and debit
card services with respect to its fuel purchase program, some of which are
larger and have greater resources than Comdata. Certain of Comdata's
competitors also operate or franchise nationwide truckstop chains. In
addition, Comdata competes with some of its service centers (such as
truckstops) that offer similar products and services. In the business of
transmitting special regulatory permits, there is at least one other
nationwide company and several regional companies providing permit
services similar to those provided by Comdata. Moreover, the majority of
permitting and legalization services continue to be performed in-house.
Competition in this market is influenced by price, the expertise of
personnel and the ease with which permits may be ordered and received.
In the gaming industry, Comdata competes with numerous sources and
potential sources of cash, including at least three providers of credit
card cash advance services, certain smaller regional competitors and the
large gaming establishments themselves. Competition in this market is
also influenced by the pricing of agent commissions and the increasing
sophistication of ATM networks and other funds delivery mechanisms.
Comdata believes that it is a leading provider of funds transfer
services and outsourced permitting services to the trucking industry, and
of credit card cash advances to the gaming industry. Comdata believes
that its competitive strengths include (i) its ability to provide services
at a large number of locations in the continental United States and
Canada, (ii) its ability to offer a variety of services, frequently
tailored to an individual customer's needs, (iii) its large proprietary
databases regarding funds transfers and fuel purchases, and (iv) its long-
term experience and concomitant relationships in the trucking and gaming
industries.
Network and Data Processing Operations. Comdata's principal
communications center for its funds transfer business is located in its
corporate headquarters in Brentwood, Tennessee with secondary centers
located in Dallas, Texas and Newberry, South Carolina. Worldcom is the
primary supplier of telecommunications services to Comdata pursuant to an
agreement whose term expires in January 2003. Under this agreement,
Comdata is to purchase at least 80% of its internal and external resale
telecommunications requirements from Worldcom. Substantially all of
Comdata's internal data processing functions, including its payment
processing systems, are provided by ISSC pursuant to an agreement for
systems operations services whose term expires in April 2005. The
processing center is connected to Comdata-owned and customer-owned
computers installed in customer locations and to terminals and computers
located in Comdata's headquarters.
Customer Credit Comdata's general policy is that trucking companies
and other money transfer customers must establish credit before they may
use Comdata's services. Comdata may require letters of credit, surety
bonds or prepayment for funds transfer services, and generally will not
authorize services if the aggregate service cost exceeds the amount of the
security or internally established credit limits.
Regulation. Many of the states in which Comdata operates require
persons engaged in the business of selling or issuing payment instruments
12
(such as the Comchek draft) or in the business of transmitting funds to
obtain a license from the appropriate state agency. In certain states,
Comdata is required to post bonds or other collateral to secure its
obligations to its customers in those states. Some state agencies have
the authority to deny licenses to, or revoke the license of, financially
weak companies. For its cash advance services in Atlantic City, New
Jersey casinos, Comdata is required to hold a Casino Service Industry
License issued by the State of New Jersey Casino Control Commission.
Comdata believes that it is currently in compliance in all material
respects with the regulatory requirements applicable to its business. The
failure to comply with the requirements of any particular state could have
a material adverse effect on Comdata's business in that state.
Arbitron.
Arbitron is the leading provider of radio audience measurement
information in terms of revenue, and also provides electronic media and
marketing information to radio and television broadcasters, cable
operators, advertising agencies and advertisers. Arbitron's proprietary
data regarding radio audience size and demographics is provided to
customers through multi-year license agreements. In addition, through
acquisitions, joint ventures and the introduction of new products, Arbitron
has obtained access to or developed services that provide data regarding
product purchasing decisions. Arbitron's revenue for the years 1993, 1994
and 1995 was $172.2 million, $121.3 million and $137.2 million,
respectively. The greatest portion of the revenue decrease from 1993 to
1994 was due to the discontinuance of Arbitron's syndicated television
ratings service, effective at the end of 1993.
Markets. Consolidation of radio station ownership has been a
continuing trend in recent years, due largely to industry economics and the
relaxation of governmental restrictions on station ownership. With federal
telecommunications legislation enacted in late 1995 permitting greater
concentration of ownership, this trend is expected to continue. This
consolidation has tended to intensify competition within the radio
industry, and to intensify competition between radio and other forms of
media for advertising dollars. Because of the significant amounts spent by
advertisers, radio broadcasters, advertising agencies and advertisers all
have a strong interest in information regarding the size and composition of
audiences for radio broadcasts. However, as advertisers increasingly seek
to tailor advertising strategies to target specific demographic groups
through specific media, and as audiences become more fragmented with
increased programming choices, the audience information needs of radio
broadcasters, advertising agencies and advertisers become more complex.
Increasingly, more detailed information regarding the demographics and
buying behavior of audiences is required, as well as more sophisticated
means to analyze such information.
These trends are not confined to the radio broadcast industry, but
also affect other media. As the importance of reaching niche audiences
with targeted marketing strategies increases, broadcasters, publishers,
advertising agencies and advertisers increasingly require that information
regarding exposure to advertising be provided on an individualized rather
than a household basis and that such information be coupled with
information regarding shopping patterns and purchaser behavior. The need
for such qualitative information may create opportunities for innovative
approaches to satisfy these information needs, particularly as
technological advances increase the alternatives available to advertisers
for reaching potential customers, including the possibilities of
interactive communication.
Services. Arbitron estimates audience size and demographics in the
U.S. for local radio stations, and reports this and related data to its
customers. This information is used by radio stations to price and sell
advertising time and by advertising agencies and large corporate
advertisers in purchasing advertising time. Arbitron uses listener diaries
to gather radio listener data from sample households in the 263 local
markets for which it currently provides radio ratings. Respondents mail
13
the diaries to Arbitron's processing center in Columbia, Maryland, where
Arbitron compiles periodic audience measurement estimates. Arbitron also
provides software applications that give customers flexible and unlimited
access to Arbitron's database, and enable them to more effectively analyze
and understand that information and develop sales strategies for maximum
effectiveness. Arbitron is also developing applications that will enable
customers to link information provided by Arbitron's database with
information from other databases (such as product purchasing behavior) so
as to enable customers to further refine sales strategies and compete more
effectively for advertising dollars. The radio audience measurement
service represented about 85% of Arbitron's revenue during 1995.
Arbitron is also exploring opportunities to expand its information
service offerings to the radio industry in the areas of marketing and
promotion systems and systems to provide perceptual data for programmers.
In that regard, Arbitron acquired Media Marketing Technologies to obtain a
proprietary marketing analysis system that creates block group-coded data
bases of radio listeners and provides segmentation analyses and map
displays of key listener segments.
Arbitron believes it will become increasingly important to address the
more comprehensive information needs of the broadcast and cable industries
by providing customers with services and technology that link audience
measurement data with product purchasing data to enable customers to make
more productive marketing decisions. Through the Scarborough Research
Partnership, Arbitron has the exclusive right to market the Scarborough
Report to radio broadcasters and cable systems. The Scarborough Report
provides qualitative information regarding product/service usage and media
usage in 59 major U.S. markets, and measures products purchased based on a
sample of consumers in the relevant markets. Arbitron has also developed
and introduced in smaller markets its RetailDirect service, which is a
locally oriented, qualitative audience research service. The service,
which utilizes diaries and telephone surveys, provides a profile of the
broadcast audience in terms of local media, retail and consumer preferences
so that local radio and television broadcasters and cable systems will have
information that helps them develop targeted sales and programming
strategies.
Arbitron intends to further develop its capabilities and technologies
through acquisitions, alliances and licensing arrangements that will enable
it to provide the comprehensive information management services that
broadcasters, cable systems, telecommunications companies, advertising
agencies and advertisers will require to market their products and services
more effectively. Arbitron holds a minority equity interest in ADcom
Information Services, Inc., which has developed hardware and software
technology to provide cost-effective, electronic audience measurement
systems to the cable industry. Arbitron is also involved in cooperative
efforts to develop a passive, personalized electronic measurement device to
record broadcast listening or viewing, and to develop measurement products
for the Internet and interactive television.
Sales and Marketing. Arbitron provides its radio audience measurement
and related services to approximately 2,300 radio stations and about 2,400
advertising agencies nationwide. Contracts with customers vary in length
from one to seven years, and no single customer represented more than 3% of
Arbitron's 1995 revenue. Arbitron markets its products and services
through a direct sales force operating through offices in six cities around
the U.S.
Competition. Arbitron competes with other providers of applications
software, qualitative data and proprietary qualitative studies used by
broadcasters, cable systems, advertising agencies and advertisers,
including one other national provider of radio audience measurement
services.
14
Defense Electronics Segment - Computing Devices International
The Defense Electronics segment, consisting of Computing Devices
International ("Computing Devices"), develops, manufactures and markets
electronic systems, subsystems and components, and provides systems
integration and other services, primarily to government defense agencies.
In addition, its Business Information Services division runs custom data
processing applications for customers (primarily the U.S. government) and
delivers them via a timesharing network. Computing Devices' revenue for
the years 1993, 1994 and 1995 was $461.3 million, $486.3 million and $509.5
million, respectively. Information regarding Computing Devices' operating
profit and identifiable assets for the years 1993-1995 is in Note K,
Segment Data, on page 47 of the Company's 1995 Annual Report to
Stockholders, which is incorporated herein by reference.
Markets. The defense contracting market has undergone dramatic change
in recent years. With changing geo-political conditions and government
budgetary constraints, defense spending has declined and the number of
companies serving the defense industry has decreased. At the same time,
the defense market focus has shifted from strategic defense (nuclear) to
tactical defense (non-nuclear), as the threat of military conflicts shifts
toward regional and ethnic conflicts.
The reduction in overall defense spending and the shift in focus
toward tactical defense needs, coupled with advances in commercially-
available technologies, is also shifting the focus of defense spending.
Computing Devices believes that customers will increasingly emphasize, and
that therefore the most attractive business opportunities in the defense
contracting market will exist in, areas such as (i) weapons sophistication,
electronics, surveillance and intelligence; (ii) extending the service life
of existing military equipment by upgrading, enhancing and retrofitting
such equipment, including the insertion of new technology, in order to
reduce the costs (including substantial training costs) associated with the
development and production of new equipment; and (iii) incorporating lower
cost commercial off-the-shelf technology and components into military
equipment.
Products and Services. Computing Devices' products and services
feature its capabilities in signal processing, digital image manipulation,
"ruggedized" subsystems for harsh environments and real-time software
systems. These products and services are produced primarily through its
operations in the U.S. and Canada, with only a small portion produced in
the United Kingdom ("U.K."). A majority of Computing Devices' revenue is
attributable to products and services relating to avionics systems,
including the AN/AYK-14 standard Navy airborne mission computer systems;
communications systems, including the Iris contract described below; and
intelligence and surveillance systems, including advanced parallel
processing, reconnaissance systems and imaging software. The remainder of
Computing Devices' revenue is primarily attributable to products and
services relating to shipboard subsystems, anti-submarine warfare
subsystems, ground subsystems, space processing, display subsystems and
tactical reconnaissance systems. Computing Devices employs technology
developed through internal research and development, contract research and
development and customer funded development programs.
During 1991, Computing Devices secured, through its Canadian
subsidiary, a contract to modernize the tactical command, control and
communications system used by the Canadian Department of National Defence.
This system, called Iris, incorporates a broad range of technologies,
including satellite, fiber optic and microwave communication. During 1994
and 1995, Computing Devices recorded revenue from this contract of $153.8
million and $163.9 million, respectively, representing 31.6% and 32.2%,
respectively, of Computing Devices' revenue in those years. This contract
has a remaining term of approximately five years and estimated total
remaining revenue of $557 million over the life of the contract. Although
Computing Devices' Canadian subsidiary is the prime contractor under this
contract, a significant portion of the contract has been subcontracted to
other communications technology companies.
15
Computing Devices is also seeking to expand the scope of its product
offerings and the markets its serves, including the application of existing
products and technologies to business opportunities in other worldwide
defense markets and in civilian and civil government markets. In so doing,
Computing Devices may, from time to time, establish cooperative
arrangements with other entities where their expertise or familiarity with
other markets, products or technologies would prove beneficial. For
example, in January 1995, the Company obtained a minority equity investment
in Key Idea Development, LLC, which has developed a lightweight, voice-
activated wearable computer. In connection therewith, the Company obtained
an exclusive license to sell and develop applications for this computer in
the military and airline maintenance markets. In August 1995, the Company
entered into the DigitalXpress partnership formed to operate a satellite-
based data distribution system to provide point to multi-point distribution
of multimedia data for military and large commercial customers.
Sales and Marketing. Computing Devices markets its products and
services through a direct sales force operating in the U.S., Canada, the
U.K., France and Malaysia. Sales of products and services are made
principally through competitive proposals in response to requests for bids
from government agencies and prime contractors. In addition, Computing
Devices has independent sales agents who represent Computing Devices'
products and services in a number of European and Asian markets.
Competition. Computing Devices faces intense competition with respect
to all of its products and services. Competition has increased in recent
years, largely reflecting factors such as reduced defense spending,
consolidation among defense contractors, increasing vertical integration
(and a corresponding decrease in subcontracting) on the part of larger
defense contractors, and procurement reform efforts (such as an increasing
emphasis on the use of commercial off-the-shelf technology). Although many
of Computing Devices' competitors are companies (or divisions or
subsidiaries of companies) that are larger and have substantially greater
financial resources, Computing Devices believes that smaller companies
within the defense contracting industry may at times be able to adjust more
quickly to changes in the defense contracting environment.
The principal competitive factors include price, compliance with
technical specifications, service and ability to perform in accordance with
the established schedule. Due to the diversity and specialized nature of
the products and services provided and the governmental security
restrictions applicable to certain of Computing Devices' activities, it is
difficult to generalize as to Computing Devices' market position in certain
segments of its business. Computing Devices does believe, however, that it
is able to compete effectively in each of its market segments with respect
to these competitive factors. In particular, Computing Devices believes
that its high rate of schedule adherence is one of its principal
competitive advantages. The demonstrated ability to complete a project
within the required time schedule is an important factor to governments and
prime contractors in selecting companies for new projects. Computing
Devices currently has preferred supplier status with two prime contractors.
In light of market conditions such as decreases in defense spending,
increasing price sensitivity from government customers, and over-capacity
and consolidation among defense contractors, Computing Devices believes
that the ability to become a low cost provider of products and services
will be an increasingly important competitive factor.
Government Contracts. Approximately 96% and 94% of Computing Devices'
revenue for 1994 and 1995, respectively, was derived from contracts with
governmental entities or with prime contractors to governmental entities
which typically pass through government contracting requirements to their
subcontractors. Companies which do business with governments are subject
to certain unique business risks. Among these are dependence on annual
16
government appropriations, changing procurement policies and regulations,
complexity of design and possible cost overruns. In addition, government
efforts to detect and eliminate irregularities in defense procurement
programs have increased the complexity and cost of doing business for
government contractors. Moreover, any government contractor determined to
be in noncompliance with applicable laws and regulations may be subject to
penalties and debarment or suspension from receiving additional U.S.
Government contracts. Any government contract may also be terminated by
the government at any time it believes that such termination would be in
its best interests. In such event, Computing Devices would generally be
entitled to receive payments for its allowable costs and, in general, a
proportionate share of its fee or profit for the work actually performed.
Approximately 90% of Computing Devices' 1995 revenue came from
government contracts that were fixed price contracts, including the Iris
contract. Under this type of contract, the price paid to Computing Devices
is not subject to adjustment by reason of the costs incurred by the Company
in the performance of the contract, except for costs incurred due to
contract changes ordered by the government. Thus, under fixed price
contracts, the Company bears the risk of cost overruns, which may result
from factors such as the need to bid on programs in advance of design
completion, unforeseen technological difficulties, design complexity and
uncertain cost factors, particularly in connection with multi-year
contracts. Multi-year fixed price contracts in Canada and the U.K. do,
however, normally allow for price revision based on government price
indices.
Computing Devices is usually entitled to invoice governments monthly
on fixed price and cost reimbursable contracts. Computing Devices does not
normally acquire inventory in advance of contract award, and does not
maintain significant stocks of finished products for sale. Moreover,
Computing Devices obtains advance funding from customers in connection with
certain of its contracts. The amount of progress payments and customer
advances and the amount of the holdback from such payments and advances
affect the amount of working capital necessary for Computing Devices to
finance work-in-process costs in the performance of these contracts.
Governments typically do not recognize interest or other costs associated
with the use of capital and, therefore, the timing of payments may affect
Computing Devices' profitability either positively or negatively.
Computing Devices also performs work under cost reimbursable and
incentive type contracts. Cost reimbursable contracts provide for
reimbursement of costs incurred, to the extent such costs are allowable
under applicable government regulations, plus a fee. Under incentive type
contracts, the amount of profit or fee realized varies with the attainment
of incentive goals such as costs incurred, delivery schedule, quality and
other criteria. Fixed price contracts normally carry a higher profit rate
than cost reimbursable and incentive type contracts to compensate for
higher business risk. In addition, laws and regulations applicable to
government contracting provide that certain types of costs may not be
included in either the directly-billed cost or the indirect overheads for
which the government is responsible. Many of these so-called "unallowable"
costs include ordinary costs of doing business in a commercial context.
These costs must be borne out of the pretax profit of the Company and,
thus, tend to reduce margins on government work.
Recognition of profits is based upon estimates of final performance,
which may change as contracts progress. Work may be performed prior to
formal authorization or adjustment of contract price for increased work
scope, change orders and other funding adjustments. Because of the
complexity of government contracts and applicable regulations, contract
disputes may occur. The resolution of such disputes may affect the
profitability of Computing Devices in performing these contracts. The
Company believes that adequate provision has been made in its financial
statements for these and other normal uncertainties incident to its
Computing Devices business.
17
International Sales. International sales of Computing Devices'
products and services totaled approximately $258 million and $287 million,
respectively, or 53% and 56%, respectively, of Computing Devices' total
revenue in 1994 and in 1995. About 81% of these products and services were
produced by the Company's Canadian or U.K. subsidiaries for customers in
those countries. Because most of Computing Devices' sales involve
technologically advanced products, services and expertise, export control
regulations can limit the type of products and services that may be offered
and the countries and governments to which sales may be made. Computing
Devices' international sales are subject to risks inherent in foreign
commerce, including currency fluctuations and devaluations, changes in
foreign governments and their policies, differences in foreign laws and
difficulties in negotiating and litigating with foreign governments.
Computing Devices believes that the location of its international
operations tends to minimize certain of these risks, and that it has
mitigated other of these risks by obtaining letters of credit and advance
payments, by contractual protections on currency fluctuations and by
denominating contracts in U.S. dollars where possible.
Divestitures
In February 1995, Comdata sold the net assets of its retail services
division, which had provided check authorization, guarantee and collection
services primarily to supermarkets and other multi-lane retailers in the
metropolitan areas of Atlanta, Georgia, St. Louis, Missouri, throughout
California, and to a limited degree, in other parts of the United States.
Additional Information
Patents and Trademarks. The Company owns or is licensed under a
number of patents which relate to its products and are of importance to its
business. Certain of the Company's products and services are marketed
under federally registered trademarks which are helpful in creating
recognition in the marketplace. However, the Company believes that none of
its businesses is materially dependent upon any particular patent, license
or trademark, or any particular group of patents, licenses or trademarks.
Instead, the Company believes that its success and growth are far more
dependent, among other things, on the quality of its services and products
and its reputation with its customers.
Backlog. The Company's backlog is attributable to the Defense
Electronics segment, since no backlog amount is determinable for revenue
from the Company's Information Services businesses. Backlog does not
include those portions of government contracts for which funding has not
yet been approved, but does include the remaining value of the Iris
contract.
As of December 31, 1995, the backlog of the Company's orders was
$1,004 million, of which $557 million relates to the Iris contract and $447
million relates to other contracts and programs. At December 31, 1994, the
comparable total backlog was $1,209 million, of which Iris represented $751
million and other contracts and programs represented $458 million. The
portion of the backlog at the end of 1995 expected to be reflected in 1996
revenue is $394 million (39%), of which Iris represents $166 million and
other contracts and programs represent $228 million.
The portion of the total backlog under government prime contracts and
subcontracts was 88% at December 31, 1995 and 95% at December 31, 1994,
while the portion of government contract backlog under fixed-price
contracts was 97% and 95% at December 31, 1995 and 1994, respectively. In
each case, these percentages include the Iris contract, which is a fixed-
price contract with the Canadian government.
18
Research and Development. The table below sets forth the amount of
the Company's research and development expenses for the periods indicated.
Year ended December 31,
1995 1994 1993
(Dollars in millions)
Research and development $54.5 $40.5 $37.1
Percent of revenues 4.1% 3.4% 3.3%
Customer sponsored research $71.7 $78.2 $77.4
and development
The Company's research and development efforts, including those
sponsored cooperatively by the Company and other participants, are
generally described earlier in this Item in the descriptions of the
Company's business segments, and in Part II, Item 7 of this report. The
amounts shown above as customer sponsored research and development
primarily represent government funded product development efforts.
Geographic Segment Data. For financial information regarding the
Company's U.S. and international operations, see Note K, Segment Data, on
page 47 of the Company's 1995 Annual Report to Stockholders, which is
incorporated herein by reference.
Employees. As of December 31, 1995, the Company and its subsidiaries
employed approximately 10,200 people on a full- or part-time basis. None
of the Company's U.S. employees are covered by a collective bargaining
agreement, but certain employees in Canadian and United Kingdom
subsidiaries are unionized.
19
Item 2. Properties.
At December 31, 1995, the Company's principal production and office
facilities were located in the metropolitan areas of Minneapolis,
Minnesota; Brentwood, Tennessee; Atlanta, Georgia; Columbia, Maryland; New
York, New York; Fountain Valley and San Francisco, California; St. Louis,
Missouri; Ottawa and Calgary, Canada; and London and Hastings, England.
The following table summarizes the usage and location of the Company's
facilities as of February 29, 1996.
FACILITIES
(In thousands of square feet)
Type of Property
Interest U.S. Non-U.S. Worldwide
Owned 306 405 711
Leased 3,337 235 3,572
Total Square Feet 3,643 640 4,283
Utilization
Manufacturing & 294 449 743
Warehousing
Office, Computer Center 2,128 191 2,319
& Other
Vacant/Idle 419 -- 419
Leased or Subleased to 802 -- 802
Others
Total Square Feet 3,643 640 4,283
The 4.3 million square feet of aggregate space is essentially
unchanged from February 28, 1995, reflecting an increase in office and
computer center space as a result of acquisitions during 1995 that was
offset by a decrease in space leased or subleased to others. Space subject
to assigned leases is not included in the table above, and the Company
remains secondarily liable under all such leases. As of December 31, 1995,
these assigned leases involve 1.5 million square feet of space and future
rental obligations totaling $31.2 million. The principal elements of these
amounts are 0.4 million square feet and $5.5 million related to the spin-
off of Control Data Systems, Inc. and 1.1 million square feet and $25.7
million related to the 1989 sale of Imprimis Technology Incorporated to
Seagate Technology, Inc. The Company does not anticipate any material
nonperformance by the assignees of these leases.
Except for one building utilized by Computing Devices' Canadian
subsidiary (which is subject to a mortgage securing $6.0 million in debt
obligations), no facilities owned by the Company or its subsidiaries are
subject to any major encumbrances.
The Company believes that all of the facilities it currently utilizes
in its continuing operations are adequate for their intended purposes and
are adequately maintained. Utilization of those facilities varies among
the Company's operations. Generally, most of the facilities relating to
the Company's Information Services segment are reasonably necessary for
current and anticipated output levels of those businesses, although some
excess space is expected to develop in Employer Services' district offices
as payroll data processing is consolidated. Employer Services has
established restructuring reserves for the expected cost of such facilities
in excess of continuing requirements. There is also excess production
capacity in the Defense Electronics segment. Efforts are ongoing to
identify operations and facilities that can be consolidated and to dispose
of excess or idle space.
20
Item 3. Legal Proceedings.
Information regarding legal proceedings involving the Company and its
subsidiaries is contained in Note N, Legal Matters, on page 50 of the
Company's 1995 Annual Report to Stockholders, which is incorporated herein
by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
A special meeting of the Company's stockholders was held on December
12, 1995 to approve the issuance of shares of Ceridian common stock to
effect the acquisition of Comdata Holdings pursuant to the Agreement and
Plan of Merger dated as of August 23, 1995 by and among Ceridian, Comdata
Holdings and a newly formed subsidiary of Ceridian. The Company's
stockholders voted to approve the issuance of shares, with 33,699,834
shares voted for the issuance, 1,300,386 shares voted against the issuance
and 110,853 shares specifically abstained from voting on the matter.
In addition, 44,102 shares present at the meeting were the subject of
broker non-votes on the matter.
21
Executive Officers of the Registrant
The executive officers of Ceridian as of March 1, 1996, are as
follows:
Executive
Name (Age) Position Officer Since
Lawrence Perlman Chairman, President and 1980
(57) Chief Executive Officer
John R. Eickhoff Executive Vice President 1989
(55) and Chief Financial Officer
Loren D. Gross (50) Vice President and 1993
Corporate Controller
Linda J. Jadwin (52) Vice President, Corporate 1990
Relations and Communications
Ronald James (45) Executive Vice President, 1996
and President and Chief Executive
Officer of the Human Resources Group
George J. Klauser Vice President, and 1995
(41) President of Ceridian Employer Services
Michael E. Kotten Vice President, 1995
(48) Organization Resources
George L. McTavish Executive Vice President, 1995
(54) and Chairman and Chief Executive
Officer of Comdata Holdings
James D. Miller (47) Vice President, Strategic 1993
Initiatives
Stephen B. Morris Executive Vice President, 1992
(52) and President and Chief Executive
Officer of Arbitron
Steven J. Olson (55) Vice President and General 1994
Counsel
Ronald L. Turner Executive Vice President, 1993
(49) and President and Chief Executive
Officer of Computing Devices
International
Linda Hall Whitman Vice President, Business 1995
(47) Integration
The executive officers of the Company are elected by the Board of
Directors and serve at the pleasure of the Board of Directors and the Chief
Executive Officer. They are customarily elected each year at the meeting
of the Board of Directors held in conjunction with the annual meeting of
stockholders.
Lawrence Perlman has been President and Chief Executive Officer of the
Company since January 1990, and was appointed Chairman in November 1992.
He is a director of Seagate Technology, Inc.; The Valspar Corporation;
Computer Network Technology; Kmart Corporation and Bio-Vascular, Inc.
Mr. Perlman has been a director of the Company since 1985.
22
John R. Eickhoff has been Executive Vice President and Chief Financial
Officer of the Company since May 1995, and was Vice President and Chief
Financial Officer of the Company from June 1993 to May 1995. Mr. Eickhoff
was Vice President and Corporate Controller of the Company from July 1989
to June 1993.
Loren D. Gross has been Vice President and Corporate Controller of the
Company since July 1993. Mr. Gross was Assistant Corporate Controller of
the Company from March 1987 to July 1993.
Linda J. Jadwin has been Vice President, Corporate Relations and
Communications of the Company since May 1994, and was Vice President,
Corporate Communications of the Company from March 1990 to May 1994.
Ronald James has been Executive Vice President of the Company and
President and Chief Executive Officer of its Human Resources Group since
January 1996. He was Vice President-Minnesota of US WEST Communications,
Inc. from January 1990 to December 1995. Mr. James was a director of the
Company from May 1991 through December 1995, and is a director of St. Paul
Companies, Inc. and Great Hall Investment Funds, Inc.
George J. Klauser has been Vice President of the Company and President
of its Ceridian Employer Services division since October 1995. Mr. Klauser
was Vice President of Sales for Ceridian Employer Services from January
1993 to October 1995, and Regional Vice President of Sales for Ceridian
Employer Services from October 1990 to December 1992.
Michael E. Kotten has been Vice President, Organization Resources of
the Company since July 1995. Mr. Kotten was Vice President, Human Resource
Services of the Company from September 1994 to July 1995, and Vice
President, Compensation and Benefits of the Company from August 1991 to
August 1994.
George L. McTavish has been Executive Vice President of the Company
and Chairman and Chief Executive Officer of its Comdata Holdings subsidiary
since it was acquired by the Company in December 1995. Mr. McTavish was
Chairman and Chief Executive Officer of Comdata Holdings from March 1992 to
December 1995, and was President and Chief Executive Officer of Comdata
Holdings from November 1987 to March 1992. Mr. McTavish is a director of
Broadway & Seymour, Inc. and Seer Technology Corporation.
James D. Miller has been Vice President, Strategic Initiatives of the
Company since January 1993. From February 1989 to January 1993, Mr. Miller
was Vice President and Associate General Counsel for the Company.
Stephen B. Morris has been Executive Vice President of the Company and
President and Chief Executive Officer of its Arbitron division since
January 1996. Mr. Morris was Vice President of the Company and President
of Arbitron from December 1992 to January 1996. He was President and Chief
Executive Officer of Vidcode, Inc., which electronically monitors, verifies
and reports the broadcast of television commercials, from August 1990 to
December 1992; and Director and co-founder of Spectra Marketing Systems, a
micro-marketing firm, from March 1987 to March 1992. Prior to that time,
he spent seventeen years at General Foods Corporation, the last three as
General Manager/President of the Maxwell House Division.
Steven J. Olson has been Vice President and General Counsel of the
Company since October 1994. From October 1984 to October 1994, Mr. Olson
was Vice President and Associate General Counsel for the Company.
23
Ronald L. Turner has been Executive Vice President of the Company and
President and Chief Executive Officer of its Computing Devices
International division since January 1996. Mr. Turner was Vice President
of the Company and President of Computing Devices International from
January 1993 to January 1996. Mr. Turner was President and Chief Executive
Officer, GEC-Marconi Electronics Systems Corporation, a defense electronics
company, from March 1987 to January 1993. Mr. Turner is a director of
Advanced Technology Services, Inc., FLIR Systems, Inc. and BTG, Inc.
Linda Hall Whitman has been Vice President, Business Integration of
the Company since October 1995. Ms. Whitman was Vice President, Consumer
Business Group of Honeywell, Inc. from September 1993 to September 1995,
and Director, Home Systems of Honeywell, Inc. from January 1991 to
September 1993. Ms. Whitman is a director of MTS Systems Corporation.
24
PART II
All information incorporated by reference into Items 5 through 8 below
is contained in the financial portion of the Company's 1995 Annual Report
to Stockholders, which is filed with this Report as Exhibit 13.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock, par value $.50 per share ("Common Stock"),
is listed and trades on the New York Stock Exchange as well as on the
Chicago and Pacific Stock Exchanges. The following table sets forth the
high and low sales prices for a share of Common Stock on the New York Stock
Exchange.
____________1995___________ ______________1994____________
High Low High Low
1st Quarter 34 1/2 26 1/8 24 3/4 18 1/2
2nd Quarter 37 5/8 31 5/8 25 5/8 21 1/2
3rd Quarter 46 7/8 36 3/4 27 1/2 24
4th Quarter 47 1/2 36 5/8 27 1/8 23 1/2
The number of holders of record of Common Stock on March 19, 1995 was
17,382. No dividends have been declared or paid on the Common Stock since
1985. Although the Company is not contractually precluded from paying
dividends on its Common Stock, it has no present intention of paying such
dividends.
Item 6. Selected Financial Data.
See "Selected Five-Year Data" on page 1, which is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 16 through 29, which is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data.
The financial statements described in Item 14(a)1 of this Report are
incorporated herein by reference. See "Supplementary Quarterly Data
(Unaudited)" on page 52, which is incorporated herein by reference.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
25
Item 10. Directors and Executive Officers of the Registrant.
See information regarding the directors and nominees for director of
Ceridian under the heading "Nominees for Director" on pages 4 and 5 of the
Proxy Statement for the Annual Meeting of Stockholders, May 8, 1996 (the
"Proxy Statement"), which is incorporated herein by reference.
See the information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 under the heading "Compliance With Section
16(a) of the Securities Exchange Act" on page 32 of the Proxy Statement,
which is incorporated herein by reference.
Information regarding the executive officers of Ceridian is on pages
22 through 24 of this Report, and is incorporated herein by reference.
Item 11. Executive Compensation.
See information under the headings "Directors' Compensation" on pages
6 and 7 of the Proxy Statement and "Executive Compensation" on pages 24
through 29 of the Proxy Statement, all of which is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See information under the heading "Share Ownership Information" on
pages 30 and 31 of the Proxy Statement, which is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
See information under the heading "Compensation Committee Interlocks
and Insider Participation" on page 8 of the Proxy Statement, which is
incorporated herein by reference.
26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements of Registrant
Incorporated by reference from the
pages indicated in the Company's
1995 Annual Report to Stockholders
into Part II, Item 8, of this Report: Page
Report of Management...........................................30
Independent Auditors' Report...................................31
Consolidated Statements of
Operations for the years ended
December 31, 1995, 1994 and 1993...............................32
Consolidated Balance Sheets as of
December 31, 1995 and 1994.....................................33
Consolidated Statements of Cash Flows
for the years ended
December 31, 1995, 1994 and 1993...............................34
Notes to Consolidated Financial Statements for
the three years ended December 31, 1995.......................35-51
(a) 2. Financial Statement Schedules of Registrant
Included in Part IV of this Report: Page
Independent Auditors' Report on financial
statement schedule.............................................32
Schedule II - Valuation and qualifying accounts...............33-34
All other financial statement schedules are omitted as the required
information is inapplicable or the information is presented in the
consolidated financial statements or related notes.
27
(a) 3. Exhibits
The following is a complete list of Exhibits filed or
incorporated by reference as part of this report.
Exhibit Description
2.01 Agreement and Plan of Merger dated as of August 23, 1995
by and among Ceridian Corporation, Convoy Acquisition
Corp. and Comdata Holdings Corporation (incorporated by
reference to Appendix A to the Prospectus contained in the
Company's Registration Statement on Form S-4 (File No. 33-
64089))
2.02 Agreement and Plan of Reorganization, dated as of May 25,
1994, among Tesseract Corporation, Braemar Acquisition
Corp. and Ceridian Corporation (incorporated by reference
to Exhibit 2 to the Company's Current Report on Form 8-K
dated June 24, 1994, as amended (File No. 1-1969))
3.01 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 4.01 to the
Company's Registration Statement on Form S-8 (File No. 33-
54379))
3.02 Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.01 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1993 (File No. 1-1969))
4.01 Form of Deposit Agreement, dated as of December 23, 1993,
between The Bank of New York and Ceridian Corporation
(incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-3 (File No. 33-50959))
4.02 Form of Indenture, with respect to the 5 1/2% Convertible
Subordinated Debentures Due 2008, dated as of December 23,
1993, between The Bank of New York and Ceridian
Corporation (incorporated by reference to Exhibit 4.7 to
the Company's Registration Statement on Form S-3 (File No.
33-50959))
10.01* Executive Employment Agreement between
Ceridian Corporation and Lawrence Perlman, dated February
1, 1994 (incorporated by reference to Exhibit 10.01 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-1969))
10.02* Executive Employment Agreement between Ceridian
Corporation and Ronald L. Turner, dated February 3, 1995
(incorporated by reference to Exhibit 10.02 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
10.03* Executive Employment Agreement between Ceridian
Corporation and Stephen B. Morris, dated February 3, 1995
(incorporated by reference to Exhibit 10.02 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
*Management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Report.
28
10.04* Executive Employment Agreement between Ceridian
Corporation and John R. Eickhoff, dated February 3, 1995
(incorporated by reference to Exhibit 10.02 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1069))
10.05* Severance Compensation Agreement, dated as of November 29,
1994, between Comdata Holdings Corporation and George L.
McTavish
10.06* Amendment No. 1 to Severance Compensation Agreement, dated
as of January 31, 1996, among Ceridian Corporation,
Comdata Holdings Corporation and George L. McTavish
10.07* Ceridian Corporation Directors Deferred Compensation Plan
- 1993 Restatement (as amended through December 13, 1993)
(incorporated by reference to Exhibit 10.05 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-1969))
10.08* Ceridian Corporation Directors' Benefit Protection Trust
Agreement, dated as of December 1, 1994, between Ceridian
Corporation and First Trust National Association
(incorporated by reference to Exhibit 10.09 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
10.09* Ceridian Corporation 1993 Non-Employee Director Stock Plan
(incorporated by reference to Exhibit 2 to the Company's
Proxy Statement for Annual Meeting of Stockholders, May
12, 1993 (File No. 1-1969))
10.10* Ceridian Corporation Amended and Restated 1993 Long-Term
Incentive Plan (as amended through July 26, 1995)
10.11* Ceridian Corporation 1990 Long-Term Incentive Plan (1992
Restatement) (as amended through October 21, 1994)
(incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
10.12* Description of the Ceridian Corporation Annual Executive
Incentive Plan
10.13* Ceridian Corporation Benefit Equalization Plan, as amended
(effective generally as of January 1, 1994) (incorporated
by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
(File No. 1-1969))
10.14* Ceridian Corporation Employees' Benefit Protection Trust
Agreement, dated as of December 1, 1994, between Ceridian
Corporation and First Trust National Association
(incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
10.15* Ceridian Corporation Deferred Compensation Plan
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
*Management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Report.
29
10.16* Comdata Holdings Corporation Stock Option and Restricted
Stock Purchase Plan, as amended October 25, 1993
(incorporated by reference to Exhibit 10.36 to Comdata
Holdings Corporation's Annual Report on Form 10-K for the
year ended December 31, 1993 (File No. 0-16151))
10.17* Comdata Holdings Corporation Unfunded Deferred Compensation Plan,
as amended
10.18* Form of Indemnification Agreement between Ceridian
Corporation and its Directors (incorporated by reference
to Exhibit 10.11 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991 (File No. 1-
1969))
10.19 Agreement for Information Technology Services, dated as of
January 10, 1995, between Ceridian Corporation and
Integrated Systems Solutions Corporation (incorporated by
reference to Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 (File
No. 1-1969))
10.20 Amended and Restated Agreement for Systems Operations Services,
dated May 1, 1995, between Comdata Network, Inc. and Integrated
Systems Solutions Corporation
10.21 Telecommunications Service Agreement, dated as of
December 1, 1994, among Worldcom, Inc., Comdata Network,
Inc. and Comdata Telecommunications Services, Inc.
10.22 Credit Agreement, dated as of December 12, 1995, among
Ceridian Corporation, Bank of America National Trust and
Savings Association as Agent, and the Financial
Institutions Parties Thereto
11. Statement regarding computation of earnings (loss) per
share
12. Statements regarding computation of ratio of earnings to
fixed charges
13. 1995 Annual Report to Stockholders of the Company
21. Subsidiaries of the Company
23.01 Consent of Independent Auditors - KPMG Peat Marwick LLP
23.02 Consent of Independent Public Accountants - Arthur
Andersen LLP
24. Power of Attorney
27. Financial Data Schedule
*Management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Report.
If requested, the Company will provide copies of any of the exhibits
listed above upon payment of its reasonable expenses in furnishing such
exhibits. The Company will provide to the Securities and Exchange
Commission, upon request, any schedule to any of the foregoing exhibits
which has not been filed. Securities authorized pursuant to long-term debt
instruments of the Company and its consolidated subsidiaries do not exceed
1% of the total assets of the Company and its consolidated subsidiaries.
The Company will furnish copies of instruments under which such securities
are authorized to the Securities and Exchange Commission upon request.
30
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the quarter ended
December 31, 1995. That report, dated December 12, 1995, reported in
"Item 2: Acquisition or Disposition of Assets" the approval by the
stockholders of Ceridian Corporation and Comdata Holdings Corporation of
the acquisition of Comdata by Ceridian and the consummation of that
acquisition. Also reported in "Item 5: Other Events" was the Company's
establishment of a $325 million revolving credit facility with a commercial
bank syndicate, with Bank of America as agent.
Incorporated by reference in Item 7 of that report were (1) Comdata's
consolidated balance sheets as of December 31, 1994 and 1993, the related
consolidated statements of operations, cash flows and stockholders' equity
for years ended December 31, 1994, 1993 and 1992, and the related notes to
such consolidated financial statements as contained in Comdata's Annual
Report on Form 10-K for the year ended December 31, 1994; (2) Comdata's
consolidated balance sheets as of September 30, 1995 and December 31, 1994,
the related consolidated statements of operations and cash flows for the
nine months ended September 30, 1995 and September 30, 1994, respectively,
and the related notes to such unaudited consolidated financial statements
as contained in Comdata's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995; and (3) the unaudited pro forma condensed
combined balance sheet of Ceridian at September 30, 1995, unaudited
condensed combined statements of operations of Ceridian for the years ended
December 31, 1994, 1993 and 1992 and for the nine month periods ended
September 30, 1995 and 1994, and the related notes to unaudited pro forma
condensed combined financial statements as contained in Ceridian's
Registration Statement on Form S-4 (File No. 33-64089).
The Company also filed a Form 8-K/A on January 11, 1996 to amend the
Form 8-K dated December 12, 1995 for the purpose of furnishing an
Independent Auditor's Consent to the incorporation by reference in that
Form 8-K of the Report of Independent Public Accountants related to the
audited financial statements of Comdata described therein.
31
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CERIDIAN CORPORATION:
Under date of January 23, 1996, we reported on the consolidated
balance sheets of Ceridian Corporation and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations and
cash flows for each of the years in the three-year period ended December
31, 1995, as contained in the 1995 Annual Report to Stockholders. These
consolidated financial statements and our report thereon are incorporated
by reference in the Annual Report on Form 10-K for the year 1995. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule as listed in the accompanying index (see Item 14.(a)2.). This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, based on our audits and the report of other auditors,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/KPMG Peat Marwick
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 23, 1996
32
SCHEDULE II
CERIDIAN CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
Restructure and Discontinued Operations Reserves
Employer Computing
Arbitron Arbitron Services Devices
TV ScanAm Consolidation Severance Other Total
Reserve Balance 12/31/92 $ - $ 0.6 $ 6.0 $ 1.1 $ 133.0 $ 140.7
1993 Restructure Loss (1) 57.0 18.9 5.5 0.3 81.7
Cash Payments (4.1) (0.6) (4.0) (6.1) (44.9) (59.7)
Asset Write-Off (26.8) (15.0) (41.8)
Adoption of FAS 112 (2) (12.0) (12.0)
Other Non-cash Items (0.9) (0.9)
Reserve Balance 12/31/93 $ 26.1 $ - $ 20.9 $ 0.5 $ 60.5 $ 108.0
1994 Restructure Loss (1) 15.0 15.0
Sale of TeleMoney (3) 14.1 14.1
Cash Payments (17.4) (8.5) (0.5) (27.3) (53.7)
Other Non-cash Items 2.4 2.5 4.9
Reserve Balance 12/31/94 $ 11.1 $ - $ 12.4 $ - $ 64.8 $ 88.3
Cash Payments (3.9) (0.7) (13.6) (18.2)
Other Non-cash Items 0.3 0.3
Reserve Balance 12/31/95 $ 7.5 $ - $ 11.7 $ - $ 51.2 $ 70.4
(1) Does not include restructure gains of $14.7 in 1993 and $15.0 in 1994.
(2) Represents the reclassification to other liabilities of FAS 112 obligations.
(3) Represents obligations undertaken in connection with the sale of TeleMoney.
33
SCHEDULE II (CONT.)
CERIDIAN CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
Allowance for Doubtful Accounts Receivable Year Ended December 31
1995 1994 1993
Balance at beginning of year $ 12.2 $ 11.8 $ 10.3
Additions charged to costs and
expenses 6.1 6.3 6.7
Write-offs and other adjustments* (5.9) (5.9) (5.2)
Balance at end of year $ 12.4 $ 12.2 $ 11.8
(*)Other adjustments include balances removed as a result of sales of
businesses.
Investments and Advances Year Ended December 31,
1995 1994 1993
Balance of Seagate note
at beginning of year $ 10.0 $ 10.0 $ 10.0
Principal payment received (10.0)
Balance of Seagate note
at end of year $ --- $ 10.0 $ 10.0
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, as of
March 25, 1996.
CERIDIAN CORPORATION
By /s/Lawrence Perlman
Lawrence Perlman
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of March 25, 1996.
/s/Lawrence Perlman /s/J. R. Eickhoff
Lawrence Perlman J. R. Eickhoff
Chairman, President and Chief Executive Vice President and Chief
Executive Officer (Principal Financial Officer
Executive Officer) and Director (Principal Financial Officer)
/s/Loren Gross
Loren D. Gross
Vice President and Corporate
Controller (Principal Accounting
Officer) */s/Charles Marshall*
Charles Marshall, Director
*/s/Ruth M. Davis */s/Carole J. Uhrich
Ruth M. Davis, Director Carole J. Uhrich, Director
*/s/Allen W. Dawson */s/Richard W. Vieser*
Allen W. Dawson, Director Richard W. Vieser, Director
*/s/Richard G. Lareau */s/Paul S. Walsh*
Richard G. Lareau, Director Paul S. Walsh, Director
*/s/George R. Lewis /s/John A. Haveman
George R. Lewis, Director *By: John A. Haveman
Attorney-in-fact
35
EXHIBIT INDEX
Exhibit Description
2.01 Agreement and Plan of Merger dated as of IBR
August 23, 1995 by and among Ceridian Corporation,
Convoy Acquisition Corp. and Comdata Holdings
Corporation (incorporated by reference to Appendix A to the
Prospectus contained in the Company's Registration Statement
on Form S-4 (File No. 33-64089))
2.02 Agreement and Plan of Reorganization, dated as of IBR
May 25, 1994, among Tesseract Corporation, Braemar
Acquisition Corp. and Ceridian Corporation
(incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated June 24, 1994,
as amended (File No. 1-1969))
3.01 Restated Certificate of Incorporation of the Company IBR
(incorporated by reference to Exhibit 4.01 to the
Company's Registration Statement on Form S-8
(File No. 33-54379))
3.02 Bylaws of the Company, as amended (incorporated IBR
by reference to Exhibit 3.01 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 (File No. 1-1969))
IBR
4.01 Form of Deposit Agreement, dated as of
December 23, 1993, between The Bank of New York
and Ceridian Corporation (incorporated by
reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-3
(File No. 33-50959))
4.02 Form of Indenture, with respect to the 5 1/2% IBR
Convertible Subordinated Debentures Due 2008,
dated as of December 23, 1993, between The Bank
of New York and Ceridian Corporation (incorporated
by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-3 (File No. 33-50959))
10.01* Executive Employment Agreement between Ceridian IBR
Corporation and Lawrence Perlman, dated
February 1, 1994 (incorporated by reference to
Exhibit 10.01 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993
(File No. 1-1969))
10.02* Executive Employment Agreement between Ceridian IBR
Corporation and Ronald L. Turner, dated
February 3, 1995 (incorporated by reference
to Exhibit 10.02 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
10.03* Executive Employment Agreement between Ceridian IBR
Corporation and Stephen B. Morris, dated
February 3, 1995 (incorporated by reference
to Exhibit 10.02 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-1969))
10.04* Executive Employment Agreement between Ceridian IBR
Corporation and John R. Eickhoff, dated
February 3, 1995 (incorporated by reference to
Exhibit 10.02 to the Company's Annual Report
on Form 10-K for the year ended
December 31, 1994 (File No. 1-1069))
10.05* Severance Compensation Agreement, dated as E
of November 29, 1994, between Comdata Holdings
Corporation and George L. McTavish
10.06* Amendment No. 1 to Severance Compensation E
Agreement, dated as of January 31, 1996,
among Ceridian Corporation, Comdata Holdings
Corporation and George L. McTavish
10.07* Ceridian Corporation Directors Deferred IBR
Compensation Plan - 1993 Restatement
(as amended through December 13, 1993)
(incorporated by reference to Exhibit 10.05
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993
(File No. 1-1969))
10.08* Ceridian Corporation Directors' Benefit IBR
Protection Trust Agreement, dated as of
December 1, 1994, between Ceridian Corporation
and First Trust National Association
(incorporated by reference to Exhibit
10.09 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994
(File No. 1-1969))
10.09* Ceridian Corporation 1993 Non-Employee Director IBR
Stock Plan (incorporated by reference to
Exhibit 2 to the Company's Proxy Statement
for Annual Meeting of Stockholders,
May 12, 1993 (File No. 1-1969))
10.10* Ceridian Corporation Amended and Restated 1993 E
Long-Term Incentive Plan (as amended
through July 26, 1995)
10.11* Ceridian Corporation 1990 Long-Term Incentive IBR
Plan (1992 Restatement) (as amended through
October 21, 1994) (incorporated by reference
to Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994
(File No. 1-1969))
10.12* Description of the Ceridian Corporation Annual E
Executive Incentive Plan
10.13* Ceridian Corporation Benefit Equalization Plan, IBR
as amended (effective generally as of
January 1, 1994) (incorporated by reference
to Exhibit 10.14 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994
(File No. 1-1969))
10.14* Ceridian Corporation Employees' Benefit Protection IBR
Trust Agreement, dated as of December 1, 1994,
between Ceridian Corporation and First Trust
National Association (incorporated by reference
to Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994
(File No. 1-1969))
10.15* Ceridian Corporation Deferred Compensation Plan IBR
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-1969))
IBR
10.16* Comdata Holdings Corporation Stock Option and
Restricted Stock Purchase Plan, as amended
October 25, 1993 (incorporated by reference
to Exhibit 10.36 to Comdata Holdings
Corporation's Annual Report on Form 10-K for
the year ended December 31, 1993 (File No. 0-16151))
10.17* Comdata Holdings Corporation Unfunded Deferred E
Compensation Plan, as amended
10.18* Form of Indemnification Agreement between Ceridian IBR
Corporation and its Directors (incorporated by
reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1991 (File No. 1-1969))
10.19 Agreement for Information Technology Services, dated IBR
as of January 10, 1995, between Ceridian Corporation
and Integrated Systems Solutions Corporation
(incorporated by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 1-1969))
10.20 Amended and Restated Agreement for Systems Operations E
Services, dated May 1, 1995, between Comdata Network, Inc.
and Integrated Systems Solutions Corporation
10.21 Telecommunications Service Agreement, dated E
as of December 1, 1994, among Worldcom, Inc.,
Comdata Network, Inc. and Comdata Telecommunications
Services, Inc.
10.22 Credit Agreement, dated as of December 12, 1995, E
among Ceridian Corporation, Bank of America
National Trust and Savings Association as Agent,
and the Financial Institutions Parties Thereto
11. Statement regarding computation of earnings E
(loss) per share
12. Statements regarding computation of ratio of E
earnings to fixed charges
13. 1995 Annual Report to Stockholders of the Company E
21. Subsidiaries of the Company E
23.01 Consent of Independent Auditors - E
KPMG Peat Marwick LLP
23.02 Consent of Independent Public Accountants - E
Arthur Andersen LLP
24. Power of Attorney E
27. Financial Data Schedule E
IBR - Incorporated by reference
E - Electronically filed