Edgar Filing: CERIDIAN CORP /DE/

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

Commission file number: 333-152649

CERIDIAN CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		41-1981625
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3311 East Old Shakopee Road

Minneapolis, Minnesota 55425

(Address of principal executive offices, including zip code)

(952) 853-8100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

þ Yes ¨ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

¨ Yes þ 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 of information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer þ	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes þ No

There is no public market for the registrant’s common stock. The registrant had 50,000 shares of common stock, $0.01 par value per share, outstanding as of June 30, 2008.

CERIDIAN CORPORATION

Table of Contents


		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 8.	Financial Statements and Supplementary Data	59
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	127
Item 9A(T).	Controls and Procedures	127
Item 9B.	Other Information	128
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	128
Item 11.	Executive Compensation	131
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	152
Item 13.	Certain Relationships and Related Transactions, and Director Independence	155
Item 14.	Principal Accounting Fees and Services	158
PART IV
Item 15.	Exhibits, Financial Statement Schedules	159

INTRODUCTION

General

Unless otherwise noted, references to “Ceridian,” “our company,” “we,” “us” and “our” refer to Ceridian Corporation and its direct and indirect subsidiaries. This report on Form 10-K contains references to years 2008, 2007, 2006, 2005 and 2004, which represent fiscal years ended December 31, 2008, December 31, 2007, December 31, 2006, December 31, 2005 and December 31, 2004, respectively. All of the discussion and analysis in this report should be read with, and is qualified in its entirety by, our consolidated financial statements and related notes.

On November 9, 2007, affiliates of Thomas H. Lee Partners, L.P. (“THL Partners”), Fidelity National Financial, Inc. (“FNF”) (together, the “Sponsors”) and their co-investors acquired all the outstanding equity of Ceridian Corporation. Under the terms of the agreement, the Sponsors and their co-investors, including certain members of management, acquired the equity of Ceridian for $36.00 per share or a total purchase price of approximately $5.3 billion. Prior to the acquisition, Ceridian’s common stock was listed on the New York Stock Exchange (NYSE: CEN). The acquisition, related financing and application of proceeds there from are referred to in this report as the “Transactions.” As a result of the Transactions, Ceridian is a wholly-owned subsidiary of Foundation Holdings, Inc., a company whose common stock is 100% owned by an intermediate holding company, Ceridian Intermediate Corp. Ceridian Intermediate issued common stock and cumulative preferred stock, representing approximately 81% and 19%, respectively, of its equity value. Ceridian Intermediate’s common stock is held by its parent, Ceridian Holding, Inc. and the preferred stock is held by the Sponsors and certain members of Ceridian’s management. The Sponsors and certain members of our management hold shares representing 100% of the equity values and 100% of the voting rights of Ceridian Intermediate and Ceridian Holding.

Forward Looking Statements

This report on Form 10-K, particularly under the headings “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation”, contains “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or similar expressions that concern our strategy, plans or intentions. All statements we make relating to expected cost savings, margins growth, cash flows, capital expenditures, market and industry growth rates and trends (including trends towards outsourcing), product line and market expansion, market share, operational improvements (including head count, technological, customer service and business improvement initiatives), retention rates, demand for our products, litigation results, redemption of money market funds and financial results are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performances and other developments. These forward-looking statements are subject to risks and uncertainties that may change at any time and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.

Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) are disclosed under Part I, Item 1A, “Risk Factors” and elsewhere in this report, including, without limitation, in conjunction with the forward-looking statements included in this report. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.

The matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, we caution you against relying on forward-looking statements. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

PART I

Information regarding the market share and market position of our businesses contained in this report consists of our estimates based on data and reports compiled by industry analysts and on our management’s knowledge of our business and markets. Although we believe that the third-party sources upon which we have relied are reliable, we have not independently verified market industry data provided by third parties. Similarly, while we believe our management’s estimates with respect to our industry are reliable, our estimates have not been verified by any independent sources. U.S. dollars are expressed in millions.

We own or have the rights to various trademarks, trade names or service marks, including the following: Ceridian^®, Comchek^®, Comdata^®, and LifeWorks^®, and various logos used in association with these terms. The trademarks American Express^®, Discover^®, MasterCard^®, Visa^®, Cirrus^® and Maestro^® referred to in this report are the registered trademarks of others. Also, the names of other third parties referenced in this report, including under descriptions of our business and competition, may be trademarks of such parties.

Item 1.

Business.

General

We are a provider of outsourced processing and employee benefits services to a diverse customer base in a wide range of industries. We have market positions in large markets and expect to benefit from the long-term trend towards outsourcing. We operate through three principal business segments, Human Resource Solutions (“HRS”), Stored Value Solutions (“SVS”) and Comdata. HRS offers a broad range of human resource (“HR”) outsourcing services built around a core capability of payroll processing. SVS sells stored value cards and provides card-based services primarily to retailers in the form of gift cards, credits for product returns and retail promotions, as well as card processing for certain other card types. Comdata is a provider and processor of proprietary, credit and debit cards, including fuel cards and employer pay cards for various industries in the United States, including the transportation industry. Comdata also provides regulatory compliance services to the transportation industry.

We refer you to Part II, Item 7 of this report for additional descriptions of our business.

Ceridian Corporation was formed on August 8, 2000 and is incorporated in Delaware. We were formed as a result of the spin-off of the human resource solutions division and human resource solutions and Comdata subsidiaries of Arbitron, Inc. On March 30, 2001, we became an independent public company when our predecessor distributed all of our outstanding common stock to its stockholders in a tax-free spin-off transaction. On November 9, 2007, we completed the Transactions. See the “Introduction” to this report for a discussion of the Transactions.

Our principal executive office is located at 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425, and our telephone number is (952) 853-8100.

Recent Developments

Senior Notes Exchange Offers and Securities Act Registration

In connection with the completion of the Transactions, on November 9, 2007, we completed a private offering of $1,300.0 aggregate principal amount of senior notes due 2015. At the time of the issuance, we entered into a registration rights agreement with the initial purchasers of the notes in which we agreed to, among other things, complete offers to exchange these restricted notes for newly issued notes having identical terms, except that the new notes will have been registered under the Securities Act of 1933, as amended (the “Securities Act”), and will not bear legends restricting their transfer. In connection with the requirements of the registration rights agreement, on December 22, 2008, our registration statement on Form S-4 registering the new notes was declared effective by the U.S. Securities and Exchange Commission (the “Commission”) and we commenced the exchange offers on December 23, 2008. The exchange offers expired on January 23, 2009 and on January 29, 2009 the exchange offers were completed. For further discussion of the exchange offers and our payment of additional interest on the notes with respect to the period from November 9, 2008 through the date of the completion of the exchange, see Note 10, “Financing” and Note 21, “Subsequent Events” to our consolidated financial statements and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” contained in this report. As the result of the effectiveness of the Form S-4, we became subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for the remainder of the 2008 calendar year, which serves as the basis for our filing of this report. Pursuant to the provisions of Rule 15d-6 promulgated under the Exchange Act, however, due to the number of record holders of our notes, effective January 1, 2009, our

periodic reporting requirements have been suspended. We filed Forms 15 with the Commission on January 30, 2009 reflecting this suspension and do not intend to file any additional periodic reports with the Commission until such time, if any, the Rule 15d-6 reporting suspension is no longer applicable to us.

U.S. Department of Defense Contract

As has been previously disclosed by us, we currently provide customized work-life and non-medical counseling services to U.S. Armed Services personnel under a contract with the U.S. Department of Defense (“USDOD”) that expires March 31, 2009. This existing contract may be extended by the USDOD, at its sole option, for an additional three month period ending June 30, 2009 and a second additional three month period ending September 30, 2009. This contract succeeds a replacement contract and series of renewals to our original contract with the USDOD that expired in early 2006. On February 23, 2009, we responded to the USDOD’s most recently modified request for proposals, or RFP, for a new contract for services which would commence following the expiration of the existing agreement. We cannot presently predict when the USDOD will issue an award with respect to the contract. There can be no assurance that we will be successful in obtaining the award of a new contract or, if successful, that the new contract would be awarded on economic and other terms as favorable as those under which we presently provide such services. Failure to retain this business upon substantially similar terms as presently exist could have a significant impact on the revenues of our HRS business segment.

Segments

Our business has three segments, HRS, SVS and Comdata. We refer you to Note 18, “Segment Data” to our consolidated financial statements for financial information about our business segments and geographic areas. This information may be found in Part II, Item 8 of this report.

Human Resource Solutions

HRS offers a broad range of HR outsourcing solutions built around a core capability of payroll processing. Our HR outsourcing solutions are designed to help companies more easily and effectively manage their workforce and the information integral to HR processes while reducing costs and enabling them to focus on their core businesses.

Our human resource management products and services are provided principally in the United States, Canada and the United Kingdom. Our international HRS operations are primarily conducted in Canada through Ceridian Canada, and in the United Kingdom through Ceridian U.K.

HRS’s and U.S. HRS’s operating unit revenues for the year ended December 31, 2008, the periods November 10 to December 31, 2007, and January 1, 2007 to November 9, 2007, and the year ended December 31, 2006 were as follows:


	Successor				Predecessor
	Year Ended December 31, 2008		Period from November 10 to December 31, 2007		Period from January 1 to November 9, 2007		Year Ended December 31, 2006
HRS Revenue
U.S. HRS	$	780.5	$	125.0	$	698.2	$	822.4
Ceridian Canada		216.9		36.5		174.5		182.6
Ceridian U.K.		92.9		14.1		84.2		94.8

Total HRS	$	1,090.3	$	175.6	$	956.9	$	1,099.8

U.S. HRS Revenue
U.S. Payroll	$	488.1	$	87.9	$	471.0	$	527.1
Benefits		129.6		20.9		119.5		154.0
LifeWorks		162.8		16.2		107.7		141.3

Total	$	780.5	$	125.0	$	698.2	$	822.4

Products and Services

Our human resource management solutions include:

•

payroll processing, tax filing and other HR services;

•

benefits administration services; and

•

work-life and employee assistance programs.

U.S. Payroll. Our payroll processing for customers in the United States consists primarily of preparing and furnishing employee payroll checks, direct deposit advices and supporting journals and summaries. For certain customers, we may remit customer payroll funds to the customer’s employees. We also supply quarterly and annual social security, Medicare and federal, state and local income tax withholding reports and forms that are required to be filed by employers and employees.

We provide human resource information systems (commonly referred to as “HRIS”) solutions that serve as a “front-end” to our payroll processing system, allowing our customers to utilize a common database for both payroll and other HRIS purposes. This enables the customer to create a single database of employee information for online inquiry, updating and reporting in payroll and other areas important to human resource administration and management, such as employee data tracking, time and labor management, government compliance, compensation analysis and benefits administration. We also provide HRIS solutions that incorporate open, industry standard technology, are scalable and can be utilized with an existing interface as a front-end for our payroll processing and tax filing services.

Our HR/payroll product suite provides an integrated HR/payroll and benefits solution with outsourced payroll and tax filing services to customers primarily in the corporate and enterprise customer markets. It is primarily available in a hosted “application service provider” environment but also can be managed in-house as an installed application. Our hosted solutions provide customers with secure 24/7 access to our solutions using a standard web browser.

Our HR/payroll web product is a web-enabled, fully hosted integrated payroll and human resource administration solution, designed specifically for the corporate and enterprise customer markets. Ceridian’s HR/ payroll web product also includes integrated time management and self-service features, as well as wage attachments and disbursements, Internet payroll management and customization features within the core product offering.

We also provide Internet and phone-in payroll processing, tax filing, unemployment compensation management and related services for small employers located in the United States and Canada. Our Small Business HR/payroll web-based solution allows customers to complete payroll transactions via the Internet. The Small Business HR/payroll product also provides small businesses with access to services such as new hire reporting, tax filing, direct deposit, optional benefits programs, unemployment filing and special reports services that were previously only available to larger companies.

Tax Filing. Our payroll tax filing services for customers in the United States consist primarily of collecting funds for federal, state and local employment taxes from customers based on payroll information provided by the customers, remitting funds collected to the appropriate taxing authorities, filing applicable returns and handling related regulatory correspondence and amendments. Our tax filing services are provided not only to employers who utilize our payroll processing service, but also to local and regional payroll processors and directly to employers as standalone tax services.

Other HR Services. We also provide customers with a number of other HR solutions. Such services include time and attendance, administration of payroll and benefit functions, recruiting, employee/manager self-service and human capital management services. These services are generally designed to automate, streamline and integrate certain traditional HR services to provide our customers with the ability to focus less on administration and more on their core business.

Benefits. We provide employee health and welfare benefits administration services to our customers. Employee health and welfare benefits administration services include health insurance portability (i.e., Consolidated Omnibus Budget Reconciliation Act (“COBRA”) and Health Insurance Portability and Accountability Act of 1996 (“HIPAA”)) compliance services. Health and welfare benefits administration services also encompass benefits provided to active employees, such as annual health plan enrollment, ongoing employee enrollment and eligibility services, tuition refund plans, transportation reimbursement under the Transportation Equity Act, and Internal Revenue Code Section 125 plans including fully-administered and self-administered flexible spending accounts and premium-only plans.

We also provide qualified domestic relations order and medical support order administration to our customers, and administration and benefits billing services for benefits provided to retired and inactive employees of our customers, including retiree healthcare, disability, surviving dependent, family leave and severance benefits.

LifeWorks. We provide customers of all sizes and their employees with a single source for fully integrated work-life and employee assistance programs. Our customers include employers in both the private and public sectors (including certain agencies of the U.S. government). Services are delivered through online access and telephonically, and through face-to-face counseling provided by referral resources.

The services and programs we provide may be customized to meet an individual customer’s particular needs. Our portfolio of products allows a customer to choose the mix, level and mode of access to services that best meet its needs. These products range from “high touch technology” capabilities allowing employees to access specific information online to comprehensive “person-to-person” consultation and referral services. Also included are specialized service options, such as assistance with college selection, elder care assessment and facility review services, and health and wellness services. These services address employee effectiveness issues and seek to improve employee retention and productivity, reduce absenteeism and increase recruitment success. Consultants provide confidential assistance 24 hours a day to customers’ employees to help them address issues ranging from everyday matters to crisis situations. Supporting these consultants are research and subject matter experts who provide specialized expertise or referrals in areas such as parenting/child care, elder care, disabilities, addiction disorders, mental health, health and wellness, financial, legal, managerial/supervisory and education/schooling issues. We have also entered into arrangements with some service and product providers to provide additional services and expertise to our customers.

HRO. Our HRO operating unit assumes responsibility for our customers’ entire human resources department. We focus on companies with 3,000 to 15,000 employees, providing them with a comprehensive suite of modular, fully managed HRS products.

International Operations. Ceridian Canada provides payroll processing services, HRIS solutions, tax filing services, work-life and employee assistance programs and recruitment services to its Canadian customers. Ceridian Canada collects payroll and payroll tax amounts from customers, remits tax amounts to applicable governmental authorities and makes direct deposits of payroll amounts to employees’ bank accounts. Ceridian U.K. provides payroll processing services, HRIS solutions, HRO services, other HR services, work-life and employee assistance programs and recruitment services primarily in the United Kingdom.

We have begun to expand our international payroll services into other countries, principally in Europe, by engaging partners within a country to provide the payroll administration and processing services that we provide in that country. We in turn have contracted with multinational customers for their international requirements and deliver a fully outsourced payroll service to these customers.

There are risks associated with operating internationally, including those described in Item IA of this report.

Market

The market for human resource solutions covers a comprehensive range of information management, human resource administration and employee assistance products, services and software. These products, services and software include:

•

transaction-oriented administrative services and software products, primarily in areas such as payroll processing, tax filing and benefits enrollment and administration; and

•

management support services and software, primarily in areas such as recruiting and human capital management, human resource administration, regulatory compliance, work-life and employee assistance programs.

We believe that the market for these solutions will continue to grow as organizations seek to reduce costs, improve productivity and add services for employees by outsourcing administrative services and further automating internal processes. We also believe the demand for human resource solutions will increase as organizations seek assistance in maintaining their compliance with the increasing scope and complexity of laws and regulations governing businesses and increasingly complicated work-life issues faced by employers and employees.

We generally classify customers in the human resource solutions market into three categories by employer size, each of which represents a distinct market opportunity for us:


Type of Employer	Size of Employer*	Typical Characteristics
Small	Fewer than 100 employees	Human resource management needs tend to be relatively more price sensitive, to require less customization or flexibility in product and service offerings and to switch more readily from one provider to another.

Corporate	100 to 5,000 employees	Human resource management needs tend to be more complex, and therefore requires more flexibility in products and services, greater integration among data processing systems and a greater variety of products and services.

Enterprise	Over 5,000 employees	Human resource management needs tend to be the most complex, and therefore often require the most customization and flexibility in products and services, the greatest integration among data processing systems and the greatest variety of products and services; also has the greatest reliance on their integral legacy systems that increases integration complexity and challenges outsourcing and migration decisions.

*	This column of the table reflects the employer size of U.S. customers. In Canada and the United Kingdom, the employer segment sizes are typically smaller, although the characteristics of such segments are similar in nature.

We believe, however, that with regard to any size employer, a provider of a core transaction-based service, such as payroll processing or tax filing, is afforded opportunities to complement that core service with additional products and services that are natural adjuncts to that service, such as time and labor management, health insurance portability compliance administration, flexible spending account administration, employee self-service, benefits eligibility and enrollment, and employee assistance and work-life services. We believe our ability to wrap value-added services around a core service or product in an integrated manner will lead to revenue growth and our ability to achieve higher margins.

Further, we believe that customers are increasingly seeking providers that can take responsibility for entire human resource management processes. These HRO relationships transfer responsibility for managing each core process from the employer to the provider. Through HRO, we are able to provide our customers with a comprehensive suite of modular, fully managed HRS products and services described above. By fully managing the products and services that we can otherwise provide on a standalone basis and presenting a single face to our customers’ employees, we are able to transfer responsibility for managing each core HR process from the employer to the provider. Our HRO services to date typically involve: (1) conversion and implementation consulting services; (2) processing and hosting services related to payroll, tax filing and benefits needs; and (3) administration of HR, payroll and benefits functions.

Customer Funds

HRS revenue in 2008 and 2007 includes approximately $97.2 and $143.7, respectively, of investment income earned in lieu of additional fees from customer funds temporarily held in the United States and Canada pending remittance to taxing authorities, customer employees or other third parties. In a very few instances, Ceridian U.K. holds customer funds for a short period of time in non-interest bearing segregated accounts prior to disbursement pursuant to the customer’s instructions.

Customer funds temporarily held by us are held primarily in trusts. Funds from U.S. customers are invested primarily in high quality collateralized short-term investments or money market mutual funds. We may also invest in U.S. Treasury and Agency securities, AAA rated asset-backed securities, and corporate securities rated A3/A- or better. Funds from Canadian customers are invested primarily in securities issued by the government and provinces of Canada, highly rated Canadian banks and corporations, asset-backed trusts and mortgages. The maturity of these investments is carefully managed to meet the related payment obligations. Due to the significance of this investment income, our quarterly revenue and profitability fluctuate as a result of changes in interest rates and in the amount of customer funds held.

Customers

Our existing customer base covers a wide range of industries and markets. Our products and services are generally provided under written agreements, with contracts for repetitive services generally terminable upon relatively short notice.

Customer retention is an important factor in the amount and predictability of revenue and profits in our HRS businesses. The length of time it takes for a contract to become profitable depends on a number of factors such as the pricing of the contract, the number of employees covered by the contract, the complexity of the services involved, the amount of customization of services required and the number of locations in which the customer’s employees are located. The longer we are able to retain a customer, the more profitable that contract will likely be.

Sales and Marketing

Our HRS services are sold in the United States through our direct sales force operating throughout the country. We currently utilize, and seek to develop other, cooperative marketing relationships with other companies offering products or services that complement our businesses as well as informal and formal marketing alliances with human resource consulting firms, other outsourcing firms and benefits brokers. The most significant source of customer leads for these transaction-based products and services are referrals from these marketing relationships and existing customers, and other direct marketing efforts such as web marketing, telemarketing, direct mail and trade shows. Our international HRS operations, principally located in Canada and the United Kingdom, 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, third-party resellers and direct sales efforts. We are exploring additional cooperative arrangements with other benefits brokers and human resource services providers. We are also seeking to sell a greater variety of our products and services to the customers of our various businesses.

Competition

The human resource solutions industry is highly competitive. Competition comes from national, regional and local third-party transaction processors, as well as from software companies, consulting firms, governments, enterprise wide providers of financial services, complete enterprise outsourcing providers, including information technology providers, and internally developed and operated systems and software.

We believe that the majority of all payroll processing and tax filing in the United States, Canada and the United Kingdom is supported by in-house systems, with the remainder supported by third-party providers. In the United States, we believe that ADP is the largest third-party provider of payroll processing in terms of revenue, with Paychex, Inc. and Ceridian comprising the other two large, national providers in terms of revenue. Other third-party payroll and tax filing providers are generally regional and local competitors, although larger, national providers of benefits administration and 401(k) processing services or financial institutions may expand further into outsourced payroll processing. In Canada, we believe that Ceridian Canada is among the top two largest outsourced payroll services providers in terms of revenue, facing competition from other national providers, including ADP, and local providers. In the United Kingdom, we believe that Ceridian U.K. is the second largest outsourced payroll processing provider in terms of revenue, competing with several other national providers, including a subsidiary of ADP and a division of Northgate Information Solutions, and local providers. Competition in both the payroll processing and HRIS areas also comes from a number of large, national software companies that provide both payroll processing software for in-house processing as well as HRIS software, often in conjunction with other enterprise management software applications.

Apart from payroll processing and tax filing, our other human resource solutions generally compete with a variety of national and regional application software companies, consulting firms, financial services companies and human resource services providers. Generally, the markets for these products and services are evolving. Currently, we believe the principal competitive factors for us in the human resource solutions industry are:

•

repeatable and reliable transaction processing with timely and accurate access to data;

•

servicing our customers;

•

choice of services;

•

performance;

•

price;

•

functionality;

•

ease and flexibility of use;

•

expertise in HR processes;

•

integrated platforms;

•

regulatory compliance in the delivery of products and services; and

•

data security and privacy.

We believe that the ability to integrate transaction processing and broader human resource management solutions with a customer’s other acquired services and in-house applications are increasingly important competitive factors. While we believe our businesses compete effectively in the overall human resource solutions market, our ability to continue to compete effectively will depend in large measure on providing reliable and repeatable transaction processing.

Regulation

The delivery of services by HRS is subject to various local, state, federal and international laws, statutes and regulations. For example, tax filing services must comply with the applicable regulatory requirements of the various taxing authorities. Additionally, through contract or directly applicable regulation, various data security and privacy interests of our customers must be protected.

Research and Development

We intend to continue to invest significant resources in our proprietary payroll processing systems and further develop a comprehensive and fully integrated suite of employee administrative services.

The table below reflects the amount of research and development expenses for our HRS businesses for the periods indicated.


	Successor						Predecessor
	Year Ended December 31, 2008			Period from November 10 to December 31, 2007			Period from January 1 to November 9, 2007			Year Ended December 31, 2006
Research and development	$	22.2		$	2.2		$	19.8		$	21.1
Percent of HRS revenue		2.0	%		1.3	%		2.1	%		1.9	%

SVS

SVS is a provider of stored value cards to customers principally in the retail, restaurant, airline, hospitality and entertainment, and service industries in the United States. SVS currently provides stored value card programs to more than 450 merchants, for use as gift cards, credits for returned products and retail promotions. In 2008, SVS delivered more than 500 million stored value cards and processed approximately 1.1 billion transactions, primarily in the United States. We have a small but growing international presence and process transactions originating from 35 countries outside the United States. SVS is based in Louisville, Kentucky. SVS’s revenue from products and services for the year ended December 31, 2008, the periods November 10 to December 31, 2007, and January 1, 2007 to November 9, 2007, and the year ended December 31, 2006 were as follows:


	Successor				Predecessor
	Year Ended December 31, 2008		Period from November 10 to December 31, 2007		Period from January 1 to November 9, 2007		Year Ended December 31, 2006
Revenue	$	104.7	$	15.4	$	154.9	$	153.8

Products and Services

SVS provides, among other services, stored value card programs to major retailers that are used as gift cards, gift certificates, credits for returned product and retail promotions. With respect to stored value cards, SVS provides transaction processing and reporting services. Customers may also choose to purchase cards alone. SVS also provides ancillary support services including card inventory management and assistance in designing and supervising the production of plastic cards. SVS believes that its cards, transaction reliability, card maintenance/inventory programs and reporting capability provide benefits to retailers and their customers, including ease of use and controls previously difficult to realize. In 2006, SVS expanded its product offering through the acquisition of the remaining interest in SASH Management, L.L.C. d/b/a Gift Card Solutions and Gift Check Solutions, a mid-market provider of gift certificates and gift cards, and substantially all of the assets of HQ Gift Cards, LLC, a provider of mall gift card program management services.

SVS sells its stored value cards and ancillary services worldwide through a direct sales force primarily in the United States, Japan, Germany, the United Kingdom, France, Canada and Australia. All SVS transaction processing is conducted in Louisville, Kentucky, with a redundant data center in Brentwood, Tennessee, regardless of the location in the world where the sale occurs or the card is used.

Suppliers

SVS’s current business relies upon relationships with third-party suppliers, such as manufacturers of plastic gift cards. The ability of SVS to continue to provide some of its services in the manner in which it currently delivers them may be affected by actions taken by such third-party suppliers.

Competition

SVS competes with a number of national companies in providing private label cards, including First Data Corporation, Chase Paymentech Solutions LLC and Fifth Third Processing Solutions. SVS competes on the bases of breadth of services offered, systems, technology and price. We believe the competitive strengths of SVS are:

•

information and communications systems that provide real-time connectivity with retailers’ existing platforms;

•

breadth of solutions offered; and

•

experience in transaction processing and related services providing for high quality control and reduced time of implementation of stored value card solutions.

Notwithstanding SVS’s competitive strengths, many of SVS’s competitors have established relationships with potential customers of SVS and provide additional and unrelated products and services to these customers, such as check authorization services. By providing these and other services which SVS does not provide, these competitors may be able to successfully compete with SVS by bundling their products and services together and presenting them to existing customers with whom they have established relationships. Additionally, certain of SVS’s competitors may also have greater financial, sales and marketing resources and better brand name recognition than SVS which could serve as a competitive advantage for them.

Regulation

Stored value cards in general, and gift cards specifically, may be subject to various federal, state and foreign laws and regulations, which may include laws and regulations related to consumer and data protection, licensing, unclaimed property, anti-money laundering, and banking and trade practices. At this time and based on SVS’s existing operating model, we believe these laws and regulations as currently in effect have no material impact on SVS or its operations, except to the extent of their application to SVS’s customers and other third parties. SVS’s services may also be subject to various rules and regulations of the networks and associations in which SVS and its customers and other related third parties participate. Given the continued evolution of these laws, rules and regulations and sometimes inconsistent nature of their interpretation, the extent to which they may apply to or impact SVS or its business in the future is uncertain.

Research and Development

SVS’s research and development activities principally include applications development for existing products and services and new product development for private commerce solutions. SVS anticipates a continuing need to develop applications to enhance its products and services to meet the needs of its customers. Further, SVS expects to develop applications to bring additional features to its products and services, thus enhancing their use in new segments and industries. The table below reflects the amount of research and development expenses for SVS for the periods indicated.


	Successor						Predecessor
	Year Ended December 31, 2008			Period from November 10 to December 31, 2007			Period from January 1 to November 9, 2007			Year Ended December 31, 2006
Research and development	$	2.3		$	0.4		$	1.6		$	1.9
Percent of SVS revenue		2.2	%		2.6	%		1.0	%		1.2	%

Comdata

Comdata provides payment solutions, transaction processing and related services to its customers in a variety of industries such as trucking, government services, aviation, construction, retail, restaurants and hospitality. Payment solutions include credit and debit cards, fleet, fuel, payroll, purchasing and travel and entertainment cards. As a transaction processor, Comdata’s platforms support both its proprietary and branded card networks. Comdata also provides regulatory compliance services primarily to the transportation industry. Less than 2% of Comdata’s revenue for each of 2008, 2007 and 2006 was derived from customers outside of the United States. Comdata’s revenue from products and services for the year ended December 31, 2008, the periods November 10 to December 31, 2007, and January 1, 2007 to November 9, 2007, and the year ended December 31, 2006 were as follows:


	Successor				Predecessor
	Year Ended December 31, 2008		Period from November 10 to December 31, 2007		Period from January 1 to November 9, 2007		Year Ended December 31, 2006
Revenue	$	370.3	$	46.0	$	296.1	$	311.5

Products and Services; Customers

Comdata provides payment solutions, transaction processing, information management, regulatory compliance, financial and other related services to customers within the transportation industry, primarily to companies in the trucking industry. Comdata sells such services through a direct sales force managed out of its headquarters in Brentwood, Tennessee. Such services are provided to trucking companies, truck stops, and long haul (e.g., long-distance carriers) and local fleets (e.g., local delivery companies, home maintenance companies and local and state government agencies). Comdata’s services primarily involve the use of the Comdata Card to facilitate truck driver transactions and to provide transaction control and trip information for trucking firms. Comdata also markets credit cards and transaction processing in association with MasterCard networks.

The Comdata Card product is a payment card with credit and debit capabilities principally designed to provide businesses with control over payments to and spending by their employees. The Comdata Card allows businesses to authenticate and authorize individual employee purchases. A Comdata customer can review reports of transactions made by its employees over the Internet, as well as request the issuance of new cards. The Comdata Card offers businesses the capability of performing these services on a single, customizable employee card. The Comdata Card may be customized for each individual employee within a business. Although the Comdata Card is primarily used by Comdata’s trucking customers, Comdata believes that the Comdata Card has application to businesses in a variety of industries.

Comdata provides pay cards used by its customers to pay their employees. The pay card service allows employers to post or load payment of wages and other payments, such as expense reimbursements, to cards issued to employees and other recipients. Cardholders, in turn, may access these funds in a number of ways, including withdrawal of cash from ATMs, purchases at stores or use of a Comchek draft. Comdata markets this card-based funds distribution service to a variety of employers, such as temporary staffing companies, professional employment organizations, custodial companies, the restaurant and hospitality industries, and retailers.

Comdata also provides assistance in obtaining regulatory permits, pilot car services and other compliance services, such as fuel tax reporting and driver log auditing, and local fueling services to its trucking company customers.

Fleet Services. Comdata’s fleet services, most commonly initiated through the use of the Comdata Card, are designed to enable truck drivers to obtain funding for purchases and cash advances at truck stops and other locations en route to their destination. Drivers may use the Comdata Card to purchase fuel and other approved items, obtain cash advances from ATM machines or through the use of Comchek drafts (drafts that are drawn on Comdata and payable through a bank), and make direct deposits of pay, settlements (for non-employee owner-operators) or trip advances to personal bank accounts.

Use of the Comdata Card allows the trucking company customer greater control over its expenses by allowing it to set limits on the use of the cards, such as by designating locations where the cards may be used, and the frequency and amount of authorized use. Use of a Comdata Card also enables Comdata to capture and provide transaction and trip-related information to trucking company customers. This information greatly enhances a customer’s ability to track and plan fuel purchases and other trip expenses and to settle with drivers. Comdata also provides information gathering and processing services in connection with fueling transactions that Comdata does not fund, but that are billed instead directly by the truck stop to the trucking company. Fees for these “direct bill” transactions are substantially lower than fees for Comdata funded transactions. Comdata also provides fuel price tracking reports and fuel management programs within a network of truck stops, including cost/plus fuel purchase programs.

Comdata also provides trucking companies with online access to Comdata’s computer system for data on fuel purchases and other trip information, facilitating pre- and post-trip planning functions. Comdata’s web-based portal enables customers to go online from their computer for interactive reporting capabilities, the latest diesel fuel prices and related information.

In addition to the Comdata Card, Comdata provides Comchek drafts, or Comcheks. Comcheks are used by Comdata’s commercial customers to pay for business expenses and for their employees and agents to obtain cash. Comcheks may also be used by Comdata’s prepaid/debit cardholders to pay for personal expenses and to withdraw cash from their card balances. Comcheks have to be registered in Comdata’s system for specific dollar amounts before they can be used. Customers initiate the registration process by calling Comdata. Comdata will register Comcheks on a customer’s account based on the credit limit or prepaid balance and parameters established for that customer. The person cashing the Comchek is instructed on the face of the Comchek to call Comdata to obtain an authorization number before cashing. The Comchek is deposited into and clears through the banking system like a check.

Comdata’s regulatory compliance division assists in determining the permits needed for a designated trip, truck and load; purchases those permits on behalf of the customer; and delivers them to the carrier or a truck stop where they can be picked up by the driver. Comdata also provides other regulatory compliance services, such as processing and auditing of driver trip logs, reporting of fuel taxes, annual licensing and motor vehicle registration verification. Pilot services for oversized loads are also provided.

Merchant Solutions. Comdata maintains a nationwide electronic data network with 24-hour independent truck stop service centers that utilize point-of-sale devices and other computer equipment to facilitate communication with Comdata’s database and operations centers. The service centers accept Comdata’s payment instruments as a method of payment pursuant to a service center agreement with Comdata.

Comdata’s merchant solutions division provides fueling centers with PC-based, point-of-sale systems that automate the various transactions that occur at a fuel purchase desk and systems that enable customers to transact card-based fuel purchases at the fuel pump. These systems accept many types of fuel purchase cards currently used by drivers. The merchant solutions division additionally offers point-of-sale systems for use at attended and unattended fuel sites.

Local Fueling. Comdata is a provider of fuel management and payment systems for local transportation truck fleets. Comdata provides local fleet operators with Comdata MasterCard corporate fleet cards that offer the fleet operators transaction control and trip-related information gathering features similar to those of the Comdata Card.

Financial Solutions. Comdata’s financial solutions business purchases accounts receivable due to trucking companies from manufacturers and shippers at a discount and with recourse back to the trucking company in the event of non-payment. This allows trucking companies to receive payment on shipping invoices sooner than they may otherwise receive payment from shippers.

Comdata is also pursuing fixed based operators that service private airplanes and airplane fleets. Comdata expects to provide aviation customers with controlled spending solutions offered through the Comdata Card. Comdata will provide flight managers with flexibility, efficiency, service and control over operations. Benefits include consolidated billing for all trip-related expenses, with line- item detail, as well as the management of expenditures including fuel purchases, repairs, travel and entertainment, and fuel discount administration.

Suppliers

Comdata’s current business relies upon relationships with suppliers and other third-parties, such as MasterCard, to effect and support transactions, including access to the MasterCard network, Cirrus ATM network and the Maestro point-of-sale debit network. The ability of Comdata to continue to provide some of its services in the manner in which it currently delivers them may be affected by actions taken by suppliers and other third-parties, including MasterCard or other similar card associations.

Competition

The principal competitive factors relevant to transaction processing are marketing efforts, pricing, reliability of computer and communications systems and time required to effect transactions. The major credit and debit card associations and companies, such as Visa, MasterCard, American Express and Discover, are significant competitors of Comdata because they make cash available to, and facilitate purchases of fuel and other products by, holders of their cards on a nationwide basis. Several other companies also offer similar services, including First Data Corporation, T-Chek Systems, Inc., Fleet One, L.L.C., FleetCor and Wright Express Corp. In addition, truck stops often negotiate directly with trucking companies for a direct billing relationship. Some of Comdata’s competitors, such as Transportation Clearing House, LLC, an affiliate of Flying J, Inc., are under common ownership with entities that operate or franchise nationwide truck stop chains. In addition, Comdata competes with truck stops and other service centers that offer similar products and services.

While the majority of regulatory services continue to be performed by customers in-house, several regional companies, including The Permit Company, provide permit services similar to those provided by Comdata. Competition in this market is influenced by price, the expertise of personnel and the ease with which permits may be ordered and received. In addition, we believe that technological advances will impact the way regulatory services are delivered and may give rise to new competitors or change the way this service is offered.

We believe that Comdata’s competitive strengths include its:

•

ability to provide services to trucking companies and drivers at a large number of locations in the continental United States and Canada;

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ability to offer a variety of services, frequently tailored to an individual customer’s needs;

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proprietary databases regarding funds transfers and fuel purchases;

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high quality of customer service; and

•

long-term relationships and positive reputation in the industries it serves.

Regulation

Many states require persons engaged in the business of money transmission or the sale or issuance of payment instruments, such as the Comchek draft, to obtain a license from the appropriate state agency. Comdata is licensed in 41 states and is subject to the various state requirements to maintain these licenses, including posting bonds, periodic reporting and annual examinations. 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 significantly adversely affect our business in that state.

Research and Development

Comdata’s research and development activities principally include applications development for existing products and services, and the new product development for private commerce solutions. Comdata anticipates a continuing need to develop applications to enhance its products and services to meet the needs of its customers. Further, Comdata expects to develop applications to bring additional features to its products and services, thus enhancing their use in new segments and industries. The table below reflects the amount of research and development expenses for Comdata for the periods indicated.


	Successor						Predecessor
	Year Ended December 31, 2008			Period from November 10 to December 31, 2007			Period from January 1 to November 9, 2007			Year Ended December 31, 2006
Research and development	$	4.7		$	1.4		$	5.3		$	5.6
Percent of Comdata revenue		1.3	%		3.0	%		1.8	%		1.8	%

Network and Data Processing Operations

HRS has several production sites in the United States and Canada. All of these sites are managed by Ceridian, except for one that is managed by a third party provider. Each facility serves as a back-up facility for the others sites.

Comdata and SVS together operate two communications and data processing facilities, one located in Brentwood, Tennessee and the other in Louisville, Kentucky. All internal data processing functions for Comdata’s business, including its payment processing systems, and SVS are conducted in one of these two facilities, depending on the application, process or transaction being performed. These dual sites operate in tandem with one another to execute certain functions. Moreover, each facility serves as a back-up facility for the other in connection with various activities.

International Operations

Other Investments and Divestitures

We refer you to Note 5, “Investing Activity” and Note 13, “Supplementary Data to Statements of Operation” in our audited consolidated financial statements.

Intellectual Property

We own or license a number of trademarks, tradenames, copyrights, service marks, trade secrets and other intellectual property rights that relate to our products and services. Although we believe that these intellectual property rights are, in the aggregate, of material importance to our businesses, we believe that none of our businesses are materially dependent upon any particular trademark, tradename, copyright, service mark, license or other intellectual property right. We believe, however, that the “Ceridian,” “Comdata” and “SVS” names, marks and logos are of material importance to us. U.S. trademark and service mark registrations are generally for a term of 10 years, renewable every 10 years as long as the trademark or service mark is used in the regular course of trade.

We have confidentiality agreements with most of our key employees and consultants. In addition, we have entered into license agreements with customers of our businesses, which agreements impose restrictions on these customers’ use of our proprietary software and other intellectual property rights.

Seasonality

Because the volume of payroll items processed increases in the fourth quarter of each year in connection with employers’ year-end reporting requirements, our HRS revenue and profitability tend to be greater in that quarter. The gift card business of SVS is greatest generally from September through January, as merchants prepare for the holiday seasons and consumers purchase and use gift cards in greater volumes during these months. SVS’s billable fees are therefore greater during this period. In Comdata, trucking activity has traditionally diminished at the end of December of each year, which has led to declining accounts receivable and drafts payable balances and increased cash flow from operations at the end of the year.

Employees

As of February 27, 2009, we employed approximately 8,500 people on a full- or part-time basis. None of our employees are covered by a collective bargaining agreement.

Backlog

Although our businesses are typically characterized by long-term customer relationships that result in a high level of recurring revenue, a substantial portion of our customer contracts used by our businesses can be terminated by our customers upon relatively short notice periods, including contracts that have been extended beyond their original terms. In addition, orders for products and services can be terminated by our customers, and no order for one of our products or services is considered firm until the contract is executed. The timing of the delivery of our products and services is largely dependent upon the customer. As such, we do not have backlog information that can be provided for our businesses.

In our HRS business, we do, however, track the estimated dollar value of a year’s worth of product or service orders from our customers that have not yet been billed or installed. Although not a reported number, this metric is used by management as a planning tool relating to resources needed to install products and services, and a means of assessing our performance against installation timing expectations of us and our customers.

Executive Officers

See Item 10 of this report.

Availability of SEC Filings

Our website address is http://www.ceridian.com. We make available through this address, without charge, our annual report on Form 10-K and such other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Commission. Our website and the information contained on or linked from the website are not intended to be incorporated by reference into this report. See “Recent Developments – Senior Notes Exchange Offers and Securities Act Registration” in this Item 1 for a discussion of our periodic reporting requirements under the Exchange Act.

Item 1A.

Risk Factors

Our business faces risks. Any of the risks and uncertainties discussed below, or elsewhere in this report or our other filings with the Commission, could have a material impact on our business, financial condition or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the risks and uncertainties develops into actual events, our business, financial condition or results of operations could be materially affected.

General economic factors could adversely affect our financial performance and other aspects of our business.

General economic conditions and trade, monetary and fiscal polices impact our business and the industries we serve. Since at least as early as the third quarter of 2008, macroeconomic conditions have deteriorated. A further or prolonged slowdown in the economy or other economic conditions affecting overall unemployment levels, business and consumer spending and retail strength may adversely affect our operating results by, among other things: (i) decreasing revenue in our HRS business through decreased customer employee counts or amounts of employee wage and bonus payments, diminished or slowing customer orders and timing of product installations and reduced spending on outsourcing or pressure to renegotiate existing contacts; (ii) decreasing revenue at Comdata as the result of lower fuel prices and decreased activity in the transportation industries and increased credit or bad debt risk with respect to customers purchasing fuel using a Comdata payment method; and (iii) decreasing revenue at SVS due to decreased activity in the retail industry. Additionally, lower interest rates and risk associated with certain investment options have caused a decrease in our revenue from interest in customer funds held in trust. Current global economic conditions and uncertainties concerning the potential for failures or realignments of financial institutions and the related impact on available credit may also adversely affect us or our business partners and customers by reducing access to capital or credit, increasing cost of debt and limiting ability to manage interest rate risk, and increasing the risk of bankruptcy of parties with which we do business, including credit or debt related counterparties. Such economic conditions and uncertainties may also adversely affect us and our business partners and customers through increased investment related risks by decreasing liquidity and/or increasing investment losses. In addition, we are dependent upon various large banks to execute payment transactions as part of our client payroll and tax services.

Significant changes in, or noncompliance with, governmental regulations, procedures and requirements could have a material adverse effect on our business and financial performance.

Changes in or the elimination of governmental regulations may adversely affect our revenue and earnings and the way in which we conduct our business. Changes in governmental regulations are difficult to predict and could be significant. For example, the timing and amount of remittances associated with the investment of customer funds, a reduction in the period of time we are allowed to hold remittances as well as the amount of such remittances, may decrease our revenue and earnings. As another example, the extent and type of benefits that employers are required to or may choose to provide to employees and/or the amount and type of federal or state taxes employers and employees are required to pay will affect the revenue and earnings associated with the products or services that we may sell. As a third example, Comdata is currently licensed on the state level by the banking or financial institutions departments of numerous states. Continued licensing by these states is subject to ongoing satisfaction of compliance requirements regarding safety and soundness. Changes in this regulatory environment, including the implementation of new or varying measures by the government, may significantly affect or change the manner in which we currently conduct some of the aspects of our business. Regulatory changes may also restrict or eliminate present and future business opportunities available to us. If we are unable to timely and appropriately comply with existing or changed government regulations, there may be an adverse affect on our financial results and we may be subject to injunctions, other sanctions and the payment of fines and penalties.

Our ability to implement and execute our strategic plans or realize the anticipated cost savings related to our operating improvement plan may not be successful and, accordingly, we may not be successful in achieving our strategic goals, which may adversely affect our business.

We may not be successful in developing and implementing our strategic plans for our businesses or the operational plans that have been or need to be developed to implement the strategic plans, including our operational improvement plan intended to improve margins in our U.S. HRS business. See discussion of our operational improvement plan in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Operating Improvement Plan” contained in this report. If the development or implementation of such plans are not successful or, with respect to our operational improvement plan, we are unable to successfully realize cost savings in one or more elements of our business, we may not produce the revenue, margins, earnings or synergies that we need to be successful. We may also face delays or difficulties in implementing product, process and system

improvements which could adversely affect the timing or effectiveness and margin improvement efforts in our business and our ability to successfully compete in the markets we serve. In addition, the costs associated with implementing our plans, including one-time costs associated with our operating improvement plan, may exceed anticipated amounts and we may not have sufficient financial resources to fund all of the desired or necessary investments required in connection with our plans. The execution of our strategic and operating plans will, to some extent, also be dependent on external factors that we cannot control. In addition, these strategic and operational plans need to continue to be assessed and reassessed to meet the challenges and needs of our businesses in order for us to remain competitive. The failure to implement and execute our strategic and operating plans in a timely manner or at all, realize the cost savings or other benefits or improvements associated with such plans, have financial resources to fund the costs associated with such plans or incur costs in excess of anticipated amounts, or sufficiently assess and reassess these plans could adversely affect our business or financial results.

Our indebtedness could adversely affect our operations and restrict our ability to pursue our business strategies.

Our debt, including the related restrictive covenants that impose operating and financial restrictions on us, and our other financial obligations could have important consequences to us, such as:

•

increasing our vulnerability to general adverse economic, competitive and industry conditions;

•

limiting our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes on satisfactory terms or at all;

•

requiring us to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, thereby reducing the funds available to us for operations and any future business opportunities;

•

exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior secured credit facilities, which are at variable rates of interest;

•

restricting us from making strategic acquisitions, causing us to make non-strategic divestitures, or limiting our ability to engage in acts that may be in our long-term best interests (including merging or consolidating with another person, selling or otherwise disposing of all or substantially all of our assets, redeeming, repurchasing or retiring our capital stock, subordinated debt or certain other debt or incurring or guaranteeing additional debt);

•

limiting our planning flexibility for, or ability to react to, changes in our business and the industries in which we operate; and

•

limiting our ability to adjust to changing market conditions.

If we fail to make any required payment under our indebtedness or to comply with any of the financial and operating covenants related thereto, we will be in default. Our lenders could then vote to accelerate the maturity of the indebtedness and foreclose upon our and our subsidiaries’ assets securing such indebtedness. Other creditors might then accelerate other indebtedness. If any of our creditors accelerate the maturity of their indebtedness, we may not have sufficient assets to satisfy our obligations under our indebtedness. We and our subsidiaries may be able to incur additional indebtedness in the future. If we incur additional debt above the levels in effect, the risks associated with our leverage would increase.

Our results of operations could be adversely affected if we fail to retain our existing customers, sell additional products and services to our existing customers, introduce new or enhanced products and services and attract and retain new customers.

Our revenue and revenue growth are dependent on our ability to retain customers, sell them additional products and services, introduce new products and services and attract new customers in each of our businesses. Our ability to increase revenue will depend on a variety of factors, including:

•

customer willingness to accept any price increases;

•

the quality and perceived value of our product and service offerings by existing and new customers;

•

effective sales and marketing efforts;

•

our speed to market and avoidance of difficulties or delays in development of new products and services and the successful implementation of products and services for new and existing customers;

•

availability of capital to complete investments in new or complementary products and technologies;

•

our ability to integrate technology into our products and services to avoid obsolescence and provide scalability; and

•

the regulatory needs and requirements facing us and our customers and our ability to meet increased customary regulatory requirements.

Our inability to retain existing customers, sell additional products and services, or successfully develop and implement new and enhanced products and services and attract new customers and, accordingly, increase our revenues could adversely affect our future results of operations.

A breach of our IT security, loss of customer data or system disruption could adversely affect our business and reputation.

Our business is dependent on our payroll, transaction, financial, accounting and other data processing systems. We rely on these systems to process, on a daily basis, a large number of complicated transactions. Any security breach in our business processes and/or systems has the potential to impact our customer information and our financial reporting capabilities which could result in the potential loss of business and our ability to accurately report financial results. If any of these systems fail to operate properly or become disabled even for a brief period of time, we could potentially lose control of customer data and we could suffer financial loss, a disruption of our businesses, liability to clients, regulatory intervention or damage to our reputation. In addition, any issue of data privacy as it relates to unauthorized access to or loss of customer and/or employee information could result in the potential loss of business, damage to our market reputation, litigation and regulatory investigation and penalties. Our continued investment in the security of our IT systems, continued efforts to improve the controls within our IT systems, business processes improvements, and the enhancements to our culture of information security may not successfully prevent attempts to breach our security or unauthorized access to confidential, sensitive or proprietary information. In addition, in the event of a catastrophic occurrence, either natural or man-made, our ability to protect our infrastructure, including client data, and maintain ongoing operations could be significantly impaired. Our business continuity and disaster recovery plans and strategies may not be successful in mitigating the effects of a catastrophic occurrence. If our security is breached, confidential information accessed or we experience a catastrophic occurrence, our business and operating results could be significantly adversely affected.

Our success will depend on our ability to protect our intellectual property rights.

The success of our business will depend, in part, on preserving our trade secrets and maintaining the security of our know-how and data; and operating without infringing upon patents and proprietary rights held by third parties. Failure to protect, monitor and control the use of our intellectual property rights could cause us to lose a competitive advantage and incur significant expenses. We rely on a combination of contractual provisions, confidentiality procedures and copyright, trademark, service mark and trade secret laws to protect the proprietary aspects of our brands, technology, data and estimates. These legal measures afford only limited protection, and competitors or others may gain access to our intellectual property and proprietary information. Our trade secrets, data and know-how could be subject to unauthorized use, misappropriation, or disclosure, despite having required our employees, consultants, customers, and collaborators to enter into confidentiality agreements. Our trademarks could be challenged, forcing us to re-brand our products or services, resulting in loss of brand recognition and requiring us to devote resources to advertising and marketing new brands. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. The intellectual property laws and other statutory and contractual arrangements we currently depend upon may not provide sufficient protection in the future to prevent the infringement, use or misappropriation of our trademarks, data, technology and other products and services. In addition, the growing need for global data, along with increased competition and technological advances, puts increasing pressure on us to share our intellectual property for client applications. Policing unauthorized use of intellectual property rights can be difficult and expensive, and adequate remedies may not be available. Any future litigation, regardless of outcome, could result in substantial expense and diversion of resources with no assurance of success and could adversely affect our business, results of operation and financial condition.

The failure of our HRS business to comply with applicable laws could result in substantial taxes, penalties and liabilities that could adversely affect our business.

We are subject to various laws and regulations, and our failure to comply with such laws and regulations could adversely affect our business. For example, our HRS customers remit employer and employee tax funds to our HRS businesses. Our HRS business processes the data received from its customers and remits the funds along with a tax return to the appropriate taxing authorities when due. Under various service agreements with its customers, our HRS business assumes financial responsibility for the payment of the taxes, penalties and liabilities assessed against its customers arising out of the failure of our HRS business to fulfill its obligations under its agreements with these customers, unless these taxes, penalties or liabilities are attributable to the customer’s failure to comply with the terms of the agreement the customer has with our HRS business. These taxes, penalties and liabilities could, in some cases, be substantial and could adversely affect its business and operating results. Additionally, the failure of our HRS business to

fulfill its obligations under its customer agreements could adversely affect our reputation, its relationship with our customers and its ability to gain new customers. In addition, mistakes may occur in connection with this service. Our HRS business and its customers may be subject to penalties imposed by tax authorities for late filings or underpayment of taxes.

As a result of the services our Benefits operating unit provides, it may be subject to potential legal liability as a provider of portability compliance services. As a provider of COBRA compliance services, our Benefits operating unit is subject to excise taxes and penalties for noncompliance with provisions of COBRA. In addition to the excise tax and penalty liabilities that may be imposed on our Benefits operating unit, substantial excise taxes and penalties may be imposed under COBRA on our customers. In addition, as a provider of HIPAA compliance and administration services, our benefit services business may be subject to penalties under the Employee Retirement Income Security Act of 1974 (“ERISA”) for noncompliance with various provisions of HIPAA. As a result of work-life and employee assistance programs currently provided to the federal government, we are required to comply with applicable federal contracting regulations. Non-compliance with required reporting and performance activities subjects us to penalties and legal liabilities imposed by regulatory authorities.

Litigation and governmental inquiries, investigations and proceedings may adversely affect our financial results.

We may be adversely affected by judgments, settlements, unanticipated costs or other effects of legal and administrative proceedings now pending or that may be instituted in the future, or from investigations by regulatory bodies or administrative agencies, including the Commission. From time to time, we have had inquiries from regulatory bodies and administrative agencies relating to the operation of our business. It is our practice to cooperate with such inquiries. Such inquiries may result in various audits, reviews and investigations. An adverse outcome of any investigation by, or other inquiries from, such bodies or agencies could have a material adverse effect on us and result in the institution of administrative or civil proceedings, sanctions and the payment of fines and penalties, changes in personnel, and increased review and scrutiny of us by our customers, regulatory authorities, the media and others. We are also subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, intellectual property disputes, government audits and proceedings, customer disputes and tort claims. Responding to such claims may be difficult and expensive, and we may not prevail. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require expenditures on our part. There can be no certainty that we may not ultimately incur charges in excess of presently or established future financial accruals or insurance coverage, or that we would prevail. Whether we prevail or not, such litigation may have a material adverse effect on our business, operating results and financial condition. See Item 3, “Legal Proceedings” in this report and Note 17, “Legal Matters” to our consolidated financial statements contained in Part II, Item 8 of this report.

Our success is dependent on the retention and acquisition of talented people and the skills and abilities of our management team and key personnel.

Our business depends on the efforts, abilities and expertise of our senior executives. These individuals are important to our success because they have been instrumental in setting our strategic direction, operating our business, identifying, recruiting and training key personnel and identifying business opportunities. The loss of one or more of these key individuals could impair our business and development until qualified replacements are found. We cannot assure you that these individuals could quickly be replaced with persons of equal experience and capabilities. Although we have employment agreements with certain of these individuals, we cannot prevent them from terminating their employment with us. Our ability to grow and provide our customers with competitive services is partially dependent on our ability to attract and retain motivated people with the skills to serve our customers. If we are unable to attract and retain talented employees, it could have a material adverse effect on our business, operating results and financial condition.

The markets we serve are highly competitive and may attract new competitors or cause current competitors to focus more on these markets, which could adversely affect our business.

The markets for our businesses are highly competitive. We face a variety of competitors, and some of our competitors have greater financial resources than we have. In addition, new competitors could decide to enter the markets we serve or current competitors could decide to focus greater resources on these markets, which could intensify the highly competitive conditions that already exist. These new entrants and existing competitors could offer or introduce new technologies or a different service model, or could treat the services to be provided by one of our businesses as one component of a larger product or service offering. These developments could enable these new and existing competitors to offer similar products or services at reduced prices and/or increased service levels. Any of these or similar developments could adversely affect our business and results of operations.

Our U.S. HRS business is subject to the risks associated with contracting with the government.

Our U.S. HRS business provides certain services to various government agencies or parties, and, therefore, is exposed to risks associated with government contracting which could have a material adverse effect on our business.

Although we generally seek multi-year contracts from the government, funds are generally appropriated on a fiscal year basis even though the contract may continue for several years. Consequently, government contracts are often only partially funded initially and additional funds are committed only with further appropriations. The termination of funding for a particular government contract would result in a loss of anticipated future revenue attributable to that program which could have a negative impact on our operations. Generally, government contracts contain provisions permitting the government to terminate the contract at its convenience, in whole or in part, without prior notice, and to provide for payment of compensation only for work done and commitments made at the time of termination. Though terminations for convenience are rarely issued, we cannot guarantee that any of our government contracts will not be terminated under these circumstances.

As a result of contracting with the government, we may be subject to audits, cost reviews and investigations by contracting oversight agencies. During the course of an audit, the oversight agency may disallow costs. Such cost disallowances may result in adjustments to previously reported revenue. In addition, our failure to comply with the terms of one or more of our government contracts, other government agreements, or government regulations and statutes could result in our being suspended or barred from future government projects for a significant period of time and possible civil or criminal fines and penalties and the risk of public scrutiny of our performance which could have a material adverse effect on our business.

We generally obtain government contracts through a competitive bidding process. We cannot provide assurance that we will win competitively awarded contracts or that such contracts will be profitable. In addition, if we fail to obtain a renewal or follow-on contract as to a particular government contract, there could be an adverse effect on our business. Furthermore, government contracts may be subject to protest or challenge by unsuccessful bidders or to termination, reduction or modification in the event of changes in government requirements, reductions in federal spending or other factors beyond our control.

We are subject to risks related to our international operations, which may adversely affect our operating results.

Approximately 28% of HRS revenue in 2008 was obtained from our international operations. Our Ceridian Canada operations provide certain HRS services for our Canadian customers, and our Ceridian U.K. subsidiary primarily provides certain HRS services in the United Kingdom. We are continuing to expand our international HRS business into other countries by engaging a partner within a country to provide us with payroll administration and processing services for that country. Comdata also has operations in Canada. SVS is also expanding its business internationally. Approximately 7% of SVS’s and less than 2% of Comdata’s revenues in 2008 were derived from customers outside of the United States. As such, our international operations are subject to risks that could adversely affect those operations or our business as a whole, including costs of customizing products and services for foreign customers; difficulties in managing and staffing international operations; difficulties with or inability to engage global partners; absence of certain intellectual property and other legal rights in some countries; longer sales and payment cycles; the burdens of complying with a wide variety of foreign laws; exposure to legal jurisdictions that may not recognize or interpret customer contracts appropriately; exposure to local economic and political conditions; and changes in currency exchange rates.

In addition, we anticipate that customers and potential customers may increasingly require and demand that a single vendor provide HRS solutions and services for their employees in a number of countries. If we are unable to provide the required services on a multinational basis, there may be a negative impact on our new orders and customer retention, which would negatively impact revenue and earnings. Although we have a multinational strategy, additional investment and efforts may be necessary to implement such strategy.

Our business and results of operations are dependent on several vendors, suppliers and other third parties, the loss of any of whom could adversely affect our consolidated results of operations.

Our business is dependent on a number of vendors, suppliers and other third-parties, the loss of any of whom could adversely affect our consolidated results of operations. In particular, Comdata’s current business relies upon its relationships with suppliers and other third-parties such as MasterCard, to effect and support transactions, including access to the Cirrus ATM network, the Maestro point-of-sale debit network and MasterCard’s credit network. The ability of Comdata to continue to provide some of its services in the manner in which it currently delivers them may be affected by actions taken by suppliers and other third-parties, including MasterCard. Any adverse change in Comdata’s relationship with these parties or Comdata’s inability to timely and effectively establish alternatives to these relationships could likely adversely affect Comdata’s business and results of operations and could adversely affect our consolidated results of operations as well.

We are controlled by the Sponsors, whose interests may not be aligned with our other constituents.

We are controlled by the Sponsors, which have the power to control our affairs and policies, including entering into mergers, sales of substantially all of our assets and other extraordinary transactions as well as decisions to issue shares, declare dividends, pay advisory fees and make other decisions. The interests of the Sponsors as our equity holders could conflict with the interests of the holders of our indebtedness and other constituencies in material respects. Furthermore, the Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us, as well as businesses that represent major customers of our businesses. The Sponsors may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. So long as the Sponsors continue to own a significant amount of our outstanding capital stock, they will continue to be able to strongly influence or effectively control our decisions.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our principal executive offices are located at 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425. As of February 1, 2009, the principal computer and office facilities used in our businesses were located in the metropolitan areas of Minneapolis, Minnesota; Atlanta, Georgia; Los Angeles, California; Chicago, Illinois; St Louis, Missouri; Louisville, Kentucky; Raleigh, North Carolina; Nashville, Tennessee; Dallas, Texas; El Paso, Texas; St. Petersburg, Florida; Philadelphia, Pennsylvania; in London, Manchester and Rickmansworth, England; in Winnipeg, Manitoba and Markham, Ontario, Canada; and in Ebene, Mauritius.

The following table summarizes the usage and location of our facilities as of February 27, 2009:

Facilities

(in thousands of square feet)


	U.S.	Non-U.S.	Total
Type of Property Interest
Owned	388	—	388
Leased	1,498	436	1,934

Total	1,886	436	2,322
Property Interest by Segment
HRS	1,414	425	1,839
SVS	101	0	101
Comdata	301	11	312
Corporate	70	—	70

Total	1,886	436	2,322
Utilization of Property
Office, Computer Center & Other	1,818	436	2,254
Leased or Subleased to Others	68	—	68

Total	1,886	436	2,322

With the exception of our St. Petersburg, Florida facility, we conduct all of our operations in leased facilities, including our 193,214 square feet headquarters in Minneapolis, Minnesota. Most of these leases contain renewal options and require payment for taxes, insurance and maintenance.

Our St. Petersburg, Florida facility is not subject to any material encumbrances. We believe that our facilities are adequate for their intended purposes, are adequately maintained and are reasonably necessary for current and anticipated output levels of those businesses.

Item 3.

Legal Proceedings

Commission Investigation

On March 11, 2009, we were informed by the Commission staff that their investigation of Ceridian, which we first disclosed in January 2004, has been completed and that no enforcement action with respect to Ceridian was being recommended to the Commission.

Other Legal Proceedings

Information concerning our other legal proceedings is contained in Note 17, “Legal Matters” to our consolidated financial statements contained in Part II, Item 8 of this report and is incorporated herein by this reference.

Item 4.

Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our stockholders during the fourth quarter of 2008.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market and Dividend Information. Our outstanding common stock is privately held and there is no established public trading market for our common stock. There is one stockholder of record of our common stock as of February 27, 2009 and 58 stockholders of record of the common stock of Ceridian Holding as of February 27, 2009. Our Board of Directors, and that of Ceridian Holding, have not declared any dividends since the date of the Transactions, and prior to the Transactions, the board of Ceridian had not declared or paid any dividends on Ceridian’s common stock. See Item 13, “Certain Relationships and Related Transactions and Director Independence – Transactions with Related Persons” herein and Note 16, “Related Party Transactions” to our audited consolidated financial statements for a discussion regarding transactions and agreements we have with the Sponsors and Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” herein and Note 10, “Financing” to our audited consolidated financial statements for a discussion of restrictive covenants under the agreements governing our indebtedness.

Unregistered Sales of Equity Securities. The registrant sold no equity securities during the period covered by this report. On November 9, 2007, as part of the Transactions, the registrant issued 50,000 shares of its common stock to its immediate parent corporation, Foundation Holdings, Inc., and the Sponsors and their co-investors (other than members of our management) purchased a total of 129,748,125 shares of Ceridian Holding common stock and 29,941,875 shares of Ceridian Intermediate preferred stock, respectively, at a purchase price of $10.00 per share. In connection with the Transactions, on November 9, 2007, certain of our executive officers also purchased a total of 251,875 shares of Ceridian Holding common stock and 58,125 shares of Ceridian Intermediate preferred stock, respectively, at a purchase price of $10.00 per share. The companies subsequently offered certain other key employees a similar investment opportunity to participate in Ceridian Holding’s common equity and Ceridian Intermediate’s preferred equity. As a result, on December 21, 2007, and March 19, 2008, Ceridian Holding sold an aggregate of 247,003 shares of its common stock and Ceridian Intermediate sold an aggregate of 56,997 shares of its preferred stock, respectively, at a purchase price of $10.00 per share.

In connection with the Transactions, Ceridian Holding adopted a stock incentive plan pursuant to which certain of our officers and other key employees were granted non-qualified options to purchase shares of Ceridian Holding’s common stock at an exercise price of $10.00 per share which equaled or exceeded the estimated fair market value per share on the grant dates and the price paid for our equity in the Transactions. On November 9, 2007, and December 21, 2007, certain of our executive officers and other senior leaders were granted options to purchase an aggregate of 7,210,811 shares of Ceridian Holding common stock. Subsequently, on October 21, 2008 and December 10, 2008, certain other key employees were granted options to purchase an aggregate of 2,440,000 shares of Ceridian Holding common stock.

The share issuances and options described above were effected without registration in reliance on (1) the exemptions afforded by Section 4(2) of the Securities Act, because the sales did not involve any public offering, (2) Rule 701 promulgated under the Securities Act for shares that were sold under a written compensatory benefit plan or contract for the participation of our employees, directors, officers, consultants and advisors, and (3) Regulation S promulgated under the Securities Act relating to offerings of securities outside of the United States.

Item 6.

Selected Financial Data

The selected consolidated historical financial information set forth below should be read along with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and our audited consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this report, including Note 1, “Organization.”

(Dollars in millions)


							Successor			Predecessor
	Year Ended December 31,						Period from November 10 to December 31, 2007			Period from January 1 to November 9, 2007			Year Ended December 31,
	2008			2007 ⁽¹⁾			Period from November 10 to December 31, 2007			Period from January 1 to November 9, 2007			2006			2005			2004
Statement of Operations:
Revenue	$	1,565.3		$	1,644.9		$	237.0		$	1,407.9		$	1,565.1		$	1,459.0		$	1,320.4
Operating expenses		1,385.3			1,464.9			202.9			1,262.0			1,323.8			1,283.0			1,250.9

Operating income		180.0			180.0			34.1			145.9			241.3			176.0			69.5
Other (income) expense, net		24.6			(3.3	)		6.4			(9.7	)		(10.5	)		4.5			26.5
Interest income		(5.0	)		(21.4	)		(3.4	)		(18.0	)		(13.5	)		(7.8	)		(2.6	)
Interest expense		295.9			55.6			50.3			5.3			6.0			5.5			4.4

Earnings (loss) before income taxes		(135.5	)		149.1			(19.2	)		168.3			259.3			173.8			41.2
Income tax provision (benefit)		(43.1	)		66.0			(6.8	)		72.8			85.7			45.9			4.3

Net earnings (loss)	$	(92.4	)	$	83.1		$	(12.4	)	$	95.5		$	173.6		$	127.9		$	36.9

Balance Sheet Data (at period end):
Cash and cash equivalents	$	184.8		$	98.6		$	98.6					$	294.7		$	362.9		$	234.3
Total assets		10,645.2			9,941.5			9,941.5						6,933.3			6,642.9			6,182.9
Total debt		3,540.2			3,534.7			3,534.7						100.5			106.5			100.7
Total stockholders’ equity		1,185.4			1,487.4			1,487.4						1,371.2			1,291.8			1,295.7
Statement of Cash Flows data:
Net cash flows from
Operating activities	$	167.7		$	157.7		$	(50.7	)	$	208.4		$	161.7		$	299.3		$	240.8
Investing activities		(1,161.5	)		841.5			1,790.8			(949.3	)		(342.7	)		(271.2	)		(980.4	)
Financing activities		1,082.3			(1,195.5	)		(2,097.7	)		902.2			111.4			98.3			818.9
Other Financial Data:
Capital expenditures ⁽²⁾	$	52.7		$	62.1		$	8.1		$	54.0		$	53.0		$	64.2		$	65.8
Number of Employees at end of year		8,776			9,323			9,323						9,538			9,633			9,517

(1)	Year Ended December 31, 2007 amounts refer to the mathematical combination of the 2007 Successor period from November 10, 2007 to December 31, 2007, and the Predecessor period from January 1, 2007 to November 9, 2007; this is a Non-GAAP presentation.

(2)	Capital expenditures primarily consist of property and equipment and software and development costs.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the factors described in Part I, Item 1A - Risk Factors and elsewhere in this annual report on Form 10-K. You should read the following discussion in conjunction with our consolidated financial statements and the related notes thereto included in Part II, Item 8 of this report. Reference to the year ended December 31, 2007 includes the period from January 1, 2007 through November 9, 2007 combined with the period from November 10, 2007 through December 31, 2007. Dollars and pound sterling are expressed in millions, except per share data.

Overview

On November 9, 2007, Foundation Holdings, Inc. (“Foundation Holdings”) and Foundation Merger Sub Inc., affiliates of the Sponsors and their co-investors, completed the acquisition of all the outstanding equity of Ceridian Corporation (the “Merger”). Upon the consummation of the Merger, Ceridian Corporation merged with Foundation Merger Sub Inc. and became a wholly-owned subsidiary of Foundation Holdings, a company whose common stock is owned by Ceridian Intermediate Corp. (“Ceridian Intermediate”). Ceridian Intermediate common stock is owned by Ceridian Holding Corp. (“Ceridian Holding”). The Sponsors and their co-investors, including certain members of management, acquired 13% cumulative preferred stock of Ceridian Intermediate (approximately 19% of the combined equity value) and common stock of Ceridian Holding (approximately 81% of the combined equity value). The preferred stock of Ceridian Intermediate is senior to the common stock of Ceridian Intermediate owned by Ceridian Holding in terms of dividends and upon liquidation.

Although we continued as the same legal entity after the Merger, the application of push down accounting results in the termination of the old accounting entity and the creation of a new one. As a result, the accompanying consolidated statements of operations, cash flows, and stockholders’ equity and comprehensive income are presented for two periods: Predecessor and Successor, which related to the period preceding and the period succeeding the Merger date of November 9, 2007, respectively.

We are an information services company principally in the human resource, transportation and retail markets. We are comprised of three reportable business segments: Human Resource Solutions (“HRS”), Stored Value Solutions (“SVS”) and Comdata. The HRS segment enables customers to outsource a broad range of employment processes, such as payroll, payroll-related tax filing, human resource information systems, employee self-service, time and labor management, benefits administration, employee assistance and work-life programs, recruitment and applicant screening, and post-employment health insurance portability compliance. We have HRS operations primarily in the United States, Canada and the United Kingdom. The SVS business segment sells stored value cards and provides card-based services primarily to retailers in the form of gift cards, credits for product returns and retail promotions, as well as card processing for certain other card types. The Comdata business segment provides and processes proprietary, credit and debit cards in various industries, including the transportation industry. Comdata also provides regulatory compliance services to transportation industries. SVS and Comdata’s operations are located primarily in the United States. Our businesses are more fully described in Note 18, “Segment Data.”

Factors Affecting Our Results

Over the last several years, several factors have significantly affected our results of operations, including the Merger, accounting for the Merger, stock-based compensation expense, interest expense and general expenses. Other factors that have affected our results of operations over the last several years include the levels of customer funds we hold, transaction volumes, price increases, diesel fuel and gasoline prices, exchange rates, interest rates (including interest earned on customer funds and interest expense on our debt), customer employment levels and unusual items, such as the reorganization of our HRS business and acquisitions and dispositions.

Operating Improvement Plan

We launched a four-point cost reduction plan in early 2007 aimed at achieving cost savings through the following categorized initiatives:

•

workforce reduction;

•

technology simplification;

•

general expense rationalization; and

•

core operations productivity.

We substantially completed the workforce reduction by the end of 2008 which reduced the U.S. HRS and Ceridian Corporate operations workforce by 9%. This initiative was primarily focused on removing reporting layers and reducing back-office and middle-office positions and avoided customer facing activities. In January and February of 2009, we executed additional workforce reductions as a result of our on-going efforts to streamline, simplify, and offshore non-critical, non-customer facing processes. Technology simplification projects executed through the end of 2008 included renegotiation of vendor contracts, off-shoring development and support activities, and consolidating our IT infrastructure. Executed expense rationalization efforts include targeted cost reduction initiatives on various types of company spending sources, consolidation of facilities, improved sourcing capabilities, and additional buying power gained by partnering with the Sponsors. Core operations productivity improvements executed in 2008 included streamlining customer implementation and customer care processes. We expect additional savings will be generated over the next 18 months through additional process efficiencies and off-shoring efforts.

Current Economic Environment

We believe our financial results have been and will be negatively impacted by the continued global economic and credit turmoil, particularly as overall unemployment levels continue to increase, consumer spending remains depressed and retail weakness persists. While decreased interest rates lower interest expense, the decrease in interest rates has caused and will continue to result in lower revenue from interest on customer funds. As a result of market developments we have shifted a greater portion of our customer funds into more conservative and short-term investments and substantially all our U.S. customer funds and a significant portion of our Canadian customer funds are invested in short-term instruments which generally bear lower interest rates than a portfolio comprised of a mix of short-term and long-term investments. We will continue to evaluate our customer fund investment mix based on economic and market changes. See also “—Balance Sheets.” While we believe our customer trust fund is currently invested in quality assets, unanticipated events in the credit or investment markets could result in future liquidity issues and/or significant losses of business.

In our HRS business segment, while customer retention has remained stable, our customer employment levels have been negatively impacted due to economic weakness; we expect these trends to continue in 2009. At SVS, the slow retail sector performance in the last part of 2008 led to lower card deliveries and decreased transaction processing growth. We expect the lower transaction growth and card deliveries will negatively impact revenue in 2009. At Comdata, the current economic environment has negatively impacted transportation transactions. A continued decline in transportation transactions will have a negative impact on revenue in 2009. Lower fuel prices, however, have resulted in lower working capital requirements.

Description of Key Line Items

Revenues

HRS’s primary sources of revenue are service fees, interest earned on invested customer funds, software maintenance and subscription fees, fees for delivery of professional services and shipments of materials. Many of the service fees HRS collects are transaction based and increase with transaction volume. SVS’s primary sources of revenue are sales of and services for stored value cards and the processing of transactions related to such cards. Comdata’s primary sources of revenue are processing fees, services for its cards, funds transfer transactions, the discounted purchase of accounts receivables owed by manufacturers and shippers and the sale to fueling centers of products and services such as point-of-sale systems and pay at the pump systems. For more information concerning our revenue, see “—Revenue Recognition.”

Cost of Revenue

For HRS, cost of revenue consists primarily of customer service staff costs, customer service technical support costs, consulting and purchased services, delivery services, royalties, depreciation and amortization of tangible and software assets, rentals of facilities and equipment and direct and incremental costs associated with deferred implementation revenue. For SVS and Comdata, cost of revenue consists primarily of customer services staff costs, banking fees, telecommunications costs, amortization of tangible and software assets and rentals of facilities and equipment. For more information concerning our cost of revenue, see Note 2, “Accounting Policies” to our audited consolidated financial statements.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense relates primarily to the cost of maintaining a direct marketing infrastructure, sales force and other direct marketing, the cost of maintaining our infrastructure that is not directly related to delivery of products and services or selling efforts, provision for doubtful accounts receivable, amortization of other intangible assets and net periodic pension costs.

Research and Development Expense

Research and development (“R&D”) expense primarily relates to the costs of maintaining a technical workforce for software development purposes.

Loss (Gain) on Derivative Instruments

We include in loss (gain) on derivative instruments the change in the fair value of derivative instruments designated as economic hedges, which are derivatives that do not meet the Statement of Financial Accounting Standards (“SFAS”) 133 criteria for hedge accounting treatment. We do not enter into derivative instruments for speculative purposes. The effective portion of changes in the fair value of derivative contracts that meets the SFAS 133 hedge accounting requirements is reported in accumulated other comprehensive income.

Other (Income) Expense, net

We include in other (income) expense, net the results of transactions that are not appropriately classified in another category and that generally are not recurring. Those transactions might relate to litigation and contract settlements, currency exchange, asset sales, exit activities and impairment of asset values (asset write-downs).

Earnings Before Interest and Taxes

We measure business segment results by reference to earnings before interest and taxes (“EBIT”) because interest income and interest expense are not allocated to our segments. Revenue between business segments is not material and is eliminated upon consolidation. Expenses incurred by corporate center operations are directly charged or otherwise allocated to the business segments. Corporate center costs include medical, workers compensation, casualty and property insurance, retirement plan expenses, treasury services, tax services, audit services, accounting services and general management services. Certain of these costs are charged to the business segment based on usage or direct costs and the remainder are allocated on a consistent basis based on a percentage of revenue.

Income Tax Provision (Benefit)

We base our provision for income taxes on income recognized for financial statement purposes, which includes the effects of temporary differences between financial statement income and income recognized for tax return purposes. We record a valuation allowance to reduce our deferred tax assets when it is more likely than not the deferred tax asset will not be realized.

Results of Operations

Our accounting for the Merger follows the requirements of SFAS No. 141, “Business Combinations,” and Staff Accounting Bulletin (“SAB”) No. 54, “Application of “Pushdown” Basis of Accounting in Financial Statements of Subsidiaries Acquired by Purchase”, which require that purchase accounting treatment of the merger be “pushed down,” resulting in the adjustment of all of our net assets to their respective fair values as of the Merger date. Although we continued as the same legal entity after the Merger, the application of push down accounting represents the termination of the old accounting entity and the creation of a new entity. As a result, our consolidated financial statements for 2007 are presented for two periods: Successor and Predecessor, which relate to the period succeeding the Merger and period preceding the Merger, respectively. We have prepared our discussion of the results of operations by comparing the twelve month periods in 2008 and 2006 with the mathematical combination of the 2007 Successor period from November 10, 2007 to December 31, 2007, and the Predecessor period from January 1, 2007 to November 9, 2007. We refer to the twelve months ended December 31, 2007 as the 2007 Combined Period. Although this presentation does not comply with generally accepted accounting principles (“GAAP”), we believe the combination of the 2007 periods provides a meaningful comparison to the 2008 and 2006 periods. The combined operating results have not been prepared as pro forma results under applicable regulations and may not reflect the actual results we would have achieved absent the Merger.

The following table sets forth the amounts from our consolidated statements of operations for both the 2007 Predecessor and Successor periods and arrives at the combined results for the twelve months ended December 31, 2007.


	2007 Combined Period			Successor Period from November 10 to December 31, 2007			Predecessor Period from January 1 to November 9, 2007
Revenue	$	1,644.9		$	237.0		$	1,407.9

Cost of revenue		910.2			128.2			782.0
SG&A expense		522.1			70.8			451.3
R&D expense		30.7			4.0			26.7
Loss (gain) on derivative instruments		1.9			(0.1	)		2.0
Other (income) expense, net		(3.3	)		6.4			(9.7	)
Interest income		(21.4	)		(3.4	)		(18.0	)
Interest expense		55.6			50.3			5.3

Total costs and expenses		1,495.8			256.2			1,239.6

Earnings (loss) before income taxes		149.1			(19.2	)		168.3
Income tax provision (benefit)		66.0			(6.8	)		72.8

Net earnings (loss)	$	83.1		$	(12.4	)	$	95.5

The following table sets forth the amounts from our HRS operations for both the 2007 Predecessor and Successor periods and arrives at the combined results of operations for the twelve months ended December 31, 2007.


	2007 Combined Period			Successor Period from November 10 to December 31, 2007		Predecessor Period from January 1 to November 9, 2007
Revenue	$	1,132.5		$	175.6	$	956.9
Cost of revenue		633.5			89.1		544.4
SG&A expense		411.9			50.0		361.9
R&D expense		22.0			2.2		19.8
Other income, net		(2.1	)		6.4		(8.5	)
EBIT	$	67.2		$	27.9	$	39.3

The following table sets forth the amounts from our SVS operations for both the 2007 Predecessor and Successor periods and arrives at the combined results for the twelve months ended December 31, 2007.


	2007 Combined Period			Successor Period from November 10 to December 31, 2007			Predecessor Period from January 1 to November 9, 2007
Revenue	$	170.3		$	15.4		$	154.9
Cost of revenue		149.3			13.7			135.6
SG&A expense		15.9			5.9			10.0
R&D expense		2.0			0.4			1.6
Other income, net		(1.0	)		—			(1.0	)
EBIT	$	4.1		$	(4.6	)	$	8.7

The following table sets forth the amounts from our Comdata operations for both the 2007 Predecessor and Successor periods and arrives at the combined results for the twelve months ended December 31, 2007.


	2007 Combined Period			Successor Period from November 10 to December 31, 2007			Predecessor Period from January 1 to November 9, 2007
Revenue	$	342.1		$	46.0		$	296.1
Cost of revenue		127.4			25.4			102.0
SG&A expense		94.3			14.9			79.4
R&D expense		6.7			1.4			5.3
Loss (gain) on derivative instruments		1.9			(0.1	)		2.0
Other income, net		(0.2	)		0.0			(0.2	)
EBIT	$	112.0		$	4.4		$	107.6

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Overview

A number of events or transactions occurred during the periods covered by this discussion that had a significant effect on the comparisons of our financial condition and performance, including:

•

Accounting for Merger. Beginning on November 10, 2007, we accounted for the Merger as a purchase in accordance with the provisions of SFAS No. 141 and SAB No. 54 which resulted in a new valuation for our assets and liabilities based upon the fair values as of the date of the Merger.

•

Revenue. We had a net revenue reduction of $90.4 in 2008 as compared to 2007, related to the Merger as a result of the application of Emerging Issue Task Force Issue (“EITF”) No. 01-3, “Accounting in a Business Combination for Deferred Revenue of an Acquiree,” which requires companies with deferred revenue to retain only those deferred amounts that the company has a continuing legal performance obligation. As such, the majority of the Company’s existing deferred revenue balances prior to the Merger were eliminated which resulted in a reduction in the Successor period revenue (“Deferred Revenue Adjustment”).

•

Cost of Revenue. We had a cost of revenue reduction post Merger as a result of the impact of applying SFAS No. 141 to the deferred costs that were recorded on our consolidated balance sheet. As such, the majority of the Company’s existing deferred cost balances prior to the Merger were reversed which resulted in a reduction in the Successor period cost of revenue (“Deferred Cost Adjustment”). Cost of revenue was $884.5 in 2008 compared to $910.2 in 2007.

•

Depreciation and Amortization Expense. We recognized an increase in depreciation and amortization expense post Merger as a result of the revaluation of assets through the application of purchase accounting. Depreciation and amortization expense was $177.4 for 2008 and was $99.4 for 2007.

•

Pension Expense. We had a reduction in net periodic pension and postretirement plan expense of $13.5 in 2008 as compared to 2007 as a result of the elimination of the net unrecognized pension and postretirement costs through the application of purchase accounting.

•

Stock-Based Compensation Expense. We had a reduction of stock-based compensation expense in 2008 as a result of all stock options, restricted stock units and restricted stock awards outstanding before the Merger fully vesting at the Merger date. Stock-based compensation expense was $3.0 in 2008 versus stock compensation expense of $45.3 in 2007.

•

Interest Expense. We recognized an increase in interest expense post Merger as a result of the issuance of debt in connection with the Merger. Interest expense was $295.9 in 2008 versus interest expense of $55.6 in 2007.

•

Investment Impairment. In 2008, we incurred $17.4 other-than-temporary impairment on investments held in our customer funds trust portfolio and our cash equivalents. These investments are in the Reserve Primary Fund (the “Reserve Fund”) and in Canadian third-party- or non-bank-sponsored asset backed commercial paper (“ABCP”). Our assessment of fair value at December 31, 2008 is subject to significant uncertainty and the ultimate fair value of these investments may vary significantly from management’s current best estimate. We also have reclassed at December 31, 2008 $19.7 of our cash equivalents invested in the Reserve Fund to a short-term investment as this investment is no longer readily convertible to cash.

•

General Expenses. In 2007, we incurred one-time expenses of $66.7 related to our evaluation of strategic alternatives for the Company prior to the Merger, our 2007 proxy statement and related items, lease termination costs and severance expense related to our operating improvement plan and executive separations.

Consolidated Results


	Amount						Increase (Decrease)				% of Revenue
	2008			2007 (1)			$		%		2008		2007 (1)
Revenue	$	1,565.3		$	1,644.9		(79.6	)	(4.8	)	100.0		100.0

Cost of revenue		884.5			910.2		(25.7	)	(2.8	)	56.5		55.3
SG&A expense		471.6			522.1		(50.5	)	(9.7	)	30.1		31.7
R&D expense		29.2			30.7		(1.5	)	(4.9	)	1.9		1.9
Loss on derivative instruments		—			1.9		(1.9	)	NM		—		0.1
Other (income) expense, net		24.6			(3.3	)	27.9		NM		1.6		(0.2	)
Interest income		(5.0	)		(21.4	)	16.4		(76.6	)	(0.3	)	(1.3	)
Interest expense		295.9			55.6		240.3		NM		18.9		3.4

Total costs and expenses		1,700.8			1,495.8		205.0		13.7		108.7		90.9

Earnings before income taxes		(135.5	)		149.1		(284.6	)	NM		(8.6	)	9.1
Income tax provision (benefit)		(43.1	)		66.0		(109.1	)	NM		(2.7	)	4.0

Net earnings	$	(92.4	)	$	83.1		(175.5	)	NM		(5.9	)	5.1

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

NM represents comparisons that are not meaningful to this analysis.

Consolidated revenue decreased $79.6, or 4.8%, to $1,565.3 in 2008 from $1,644.9 in 2007. Revenue in HRS decreased $42.2, SVS decreased $65.6, and Comdata increased $28.2 in 2008. There was a negative revenue impact of $90.4 in 2008 in comparison to 2007 as a result of the net impact of the Deferred Revenue Adjustment.

The HRS revenue decrease was primarily due a decrease in interest income earned on invested customer funds, the net effect of the Deferred Revenue Adjustment and write-downs on customer fund investments, partially offset by increased revenue in our government LifeWorks business. Our SVS revenue decrease was driven by the effects of the Deferred Revenue Adjustment partially offset by increased revenue due to greater transaction volume and the addition of new customers through internal growth. Our Comdata revenue increase was driven by higher cost of fuel in our local and long haul fleet businesses and increased use of the Comdata Card in our local fleet business, partially offset by a decrease in transactions in our long haul business due to fuel reduction measures taken by our customers and a reduction in shipments by our customers. Results for our HRS, SVS and Comdata segments are discussed below under “Business Segment Results.”

Cost of revenue as a percent of revenue increased to 56.5% in 2008 from 55.3% in 2007. This was driven by increased amortization expense as a result of the Merger, increased promotion expense within HRS, lower investment income on invested customer funds, and the net negative impact at SVS of the Deferred Revenue Adjustment and the Deferred Cost Adjustment. Partially offsetting those increases in cost of revenue as a percent of revenue was cost containment efforts within our businesses and card margin improvement at SVS.

SG&A expense decreased $50.5, or 9.7%, to $471.6 in 2008 compared to $522.1 in 2007. This was driven by one-time costs of $66.7 related to our evaluation of strategic alternatives for the Company prior to the Merger, proxy costs, lease terminations, executive separations and severance in 2007, lower stock-based compensation expense, lower pension expenses, lower commission costs and lower payroll expense largely the result of cost reduction efforts. Partially offsetting these decreases was increased amortization expense related to the Merger.

R&D expense decreased $1.5, or 4.9%, to $29.2 in 2008. This was driven by better investment allocation, business case development and management accountability.

In 2007, the loss on derivative instruments amounted to $1.9. The loss resulted from an increase in diesel fuel prices in relation to the derivative instrument commodity price. If diesel fuel prices are higher than the derivative instrument, a loss results. If diesel fuel prices are lower than the derivative instrument, a gain results.

Other expense, net for 2008 of $24.6 related primarily to a foreign currency remeasurement loss on U.S. dollar denominated debt at Ceridian Canada, which will be repaid through payments from a legal entity with a functional currency in Canadian dollars, as well as a write-down on our Reserve Fund investment. Other income, net for 2007 of $3.3 primarily relates to the gain on the sale of marketable securities, a sale of a business and sales of other assets, partially offset by a foreign currency remeasurement loss due to U.S. dollar denominated debt in Ceridian Canada.

Interest income decreased $16.4 in 2008 in comparison to 2007 driven by lower interest rates. Interest expense increased $240.3 to $295.9 in 2008 compared to $55.6 in 2007 as a result of the debt issued in connection with the Merger.

Income tax provision (benefit) decreased by $109.1 to a benefit of $43.1 compared to provision of $66.0 in 2007. Our effective tax rate for 2008 was 31.8% compared to 44.3% for 2007. The effective tax rate for 2008 was impacted by a valuation allowance related to international capital loss and net operating loss carryforwards reducing the rate by 4.6%. The effective tax rate for 2007 was unfavorably impacted by $5.5 for expenses related to the Merger that were not deductible for tax purposes and additional tax expense of $4.8 related to foreign earnings repatriation. In addition, the 2007 effective tax rate was favorably impacted by $3.2 as a result of tax rate changes enacted in Canada, which reduced our deferred net income tax liability.

Business Segment Results

HRS


	Amount					Increase (Decrease)				% of Revenue
	2008		2007 (1)			$		%		2008	2007 (1)
Revenue	$	1,090.3	$	1,132.5		(42.2	)	(3.7	)	100.0	100.0
Cost of revenue		625.6		633.5		(7.9	)	(1.3	)	57.4	55.9
SG&A expense		353.5		411.9		(58.4	)	(14.2	)	32.4	36.3
R&D expense		22.2		22.0		0.2		(0.5	)	2.0	1.9
Other (income) expense, net		24.7		(2.1	)	26.8		NM		2.3	(0.2	)
EBIT	$	64.3	$	67.2		(2.9	)	(4.3	)	5.9	5.9

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

NM represents comparisons that are not meaningful to this analysis.

HRS revenue decreased $42.2, or 3.7%, to $1,090.3 in 2008 compared to $1,132.5 in 2007. Revenue from U.S. operations decreased $42.7, or 5.2%, from $823.2 to $780.5, revenue from Canadian operations increased $5.9, or 2.8%, from $211.0 to $216.9, and revenue from the U.K. operations decreased $5.4, or 5.6%, from $98.3 to $92.9.

The decrease in revenue from U.S. operations in 2008 was due to a $70.8 decrease in payroll processing, tax filing and other human resource services (“Payroll and Tax Services”) and a $10.8 decrease from benefits administration services (“Benefit Services”), partially offset by a $38.9 increase in work-life and employee assistance programs (“LifeWorks”). The decrease in Payroll and Tax Services U.S. operations revenue in 2008 was mainly driven by a decrease in interest income earned on invested customer funds of $40.9 primarily due to lower average yields, a write-down in a customer fund investment of $10.0 and a reduction in revenue due to the effects of the Deferred Revenue Adjustment of $10.2. The decrease in Benefit Services revenue was primarily driven by a decrease in the customer base and a decrease in interest income earned on invested customer funds. LifeWorks revenue increased primarily due to an increase in our governmental business as a result of a promotional campaign and increased service offerings.

The Canadian revenue increase of $5.9 resulted mainly from growth in the payroll base and price increases, partially offset by a decrease in interest income earned on invested customer funds, a write-down in a customer fund investment and the net effect of the Deferred Revenue Adjustment. The U.K. revenue decrease of $5.4 was due to the effects of the Deferred Revenue Adjustment and the strengthening of the U.S. dollar against the British pound sterling in the last six months of the comparison periods, partially offset by increased revenue from existing customers.

HRS cost of revenue as a percent of revenue increased to 57.4% in 2008 from 55.9% in 2007 mainly due to increased promotion expense on a government contract in LifeWorks, increased amortization expense as a result of the Merger, lower investment income on invested customer funds. Partially offsetting these increases were cost reduction efforts, lower stock-based compensation expense and lower severance expense.

SG&A expense for HRS decreased $58.4, or 14.2%, to $353.5 in 2008 compared to $411.9 in 2007 driven by a decrease in selling expense of $15.7 and a decrease of $42.7 in general and administrative expense. Selling expense primarily decreased due to lower commission costs, one-time charges for lease terminations relating to sales offices that occurred in the first quarter of 2007 and lower stock-based compensation expense. The decrease in general and administrative expense was due to the decrease of allocated one-time costs related to our evaluation of strategic alternatives for the Company prior to the Merger, proxy costs, and executive separations in 2007, lower stock-based compensation expense, cost reduction efforts, lower severance expense and lower pension expense, partially offset by increased amortization expense related to the Merger.

Other expense, net for 2008 of $24.7 related primarily to $21.2 foreign currency remeasurement loss on U.S. dollar denominated debt at Ceridian Canada, which will be repaid through payments from a legal entity with a functional currency in Canadian dollars, and a $1.5 write-down on our Reserve Fund investment. Other income, net for 2007 was $2.1 and relates primarily to gains on the sale of marketable securities of $6.2 and gains on the sale of businesses of $2.0 partially offset by a $6.6 foreign currency remeasurement loss on U.S. dollar denominated debt at Ceridian Canada.

HRS EBIT decreased $2.9, or 4.3%, to $64.3, or 5.9% of revenue, in 2008 compared to $67.2, or 5.9% of revenue, in 2007. This increase was primarily due to the decrease of allocated one-time costs related to our evaluation of strategic alternatives for the Company prior to the Merger, proxy costs, and executive separations in 2007, lower stock-based compensation expense, and lower expenses due to cost reduction efforts

SVS


	Amount						Increase (Decrease)				% of Revenue
	2008			2007 (1)			$		%		2008		2007 (1)
Revenue	$	104.7		$	170.3		(65.6	)	(38.5	)	100.0		100.0
Cost of revenue		92.0			149.3		(57.3	)	(38.4	)	87.9		87.7
SG&A expense		19.8			15.9		3.9		24.5		18.9		9.3
R&D expense		2.3			2.0		0.3		15.0		2.2		1.2
Other income, net		(0.1	)		(1.0	)	0.9		NM		(0.1	)	(0.6	)
EBIT	$	(9.3	)	$	4.1		(13.4	)	NM		(8.9	)	2.4

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

NM represents comparisons that are not meaningful to this analysis.

SVS revenue decreased $65.6, or 38.5%, to $104.7 in 2008 from $170.3 in 2007. The decrease was due to the increased impact of the Deferred Revenue Adjustment of $70.4, partially offset by increased revenue due to greater transaction volume and

the addition of new customers through internal growth. Revenue from retail services is generally deferred and recognized largely over a six-month period following the activation of a card, which typically takes place about eight months after the shipment of the card to the retailer. Cards delivered decreased by approximately 13.9% in comparison of 2008 over 2007 and increased 6.1% in comparison of 2007 over 2006. Transactions processed increased approximately 10.3% in comparison of 2008 over 2007.

SVS cost of revenue as a percent of revenue for 2008 increased to 87.9% compared to 87.7% in 2007. This increase was due to the net negative impact of the Deferred Revenue Adjustment and the Deferred Cost Adjustment, partially offset by margin improvement on card shipments and cost reduction efforts.

SG&A expense increased $3.9 to $19.8 in 2008 compared to $15.9 in 2007. This increase was primarily due to general spending increases, higher professional service fees and increased selling cost partially offset by lower amortization expense.

Other income, net in 2007 reflects a $1.0 gain from the sale of a customer portfolio.

SVS EBIT decreased $13.4 to a loss of $9.3 in 2008 compared to earnings of $4.1 in 2007. This was primarily due to the impact of the Deferred Revenue Adjustment and the Deferred Cost Adjustment partially offset by improved card margins and cost reduction efforts.

Comdata


	Amount					Increase (Decrease)				% of Revenue
	2008		2007 (1)			$		%		2008	2007 (1)
Revenue	$	370.3	$	342.1		28.2		8.2		100.0	100.0
Cost of revenue		166.9		127.4		39.5		31.0		45.1	37.2
SG&A expense		98.3		94.3		4.0		4.2		26.5	27.6
R&D expense		4.7		6.7		(2.0	)	(29.9	)	1.3	2.0
Loss on derivative instruments		—		1.9		(1.9	)	NM		—	0.6
Other income, net		—		(0.2	)	0.2		—		—	(0.1	)
EBIT	$	100.4	$	112.0		(11.6	)	(10.4	)	27.1	32.7

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

NM represents comparisons that are not meaningful to this analysis.

Comdata revenue increased $28.2, or 8.2%, to $370.3 in 2008 from $342.1 in 2007. This increase was due primarily to a $6.8 increase in the long haul business, a $17.0 increase in the local fleet business and a $4.4 increase in other services. The long haul business increase resulted from the $11.4 impact from higher average cost of fuel, partially offset by a decrease in transactions on the Comdata Card driven by fuel consumption reduction measures taken by our customers and decreases in long haul shipments by our customers in the fourth quarter of 2008. The increase in the local fleet business was largely due to increased utilization by local fleet customers of the Comdata Card and other products and services as well as from the higher average cost of fuel. The increase in other services largely came from increased sales of PC-based point of sale equipment and pay at the pump equipment to fueling centers and an increase in our regulatory compliance business.

Comdata cost of revenue as a percent of revenue for 2008 increased to 45.1% compared to 37.2% in 2007. This increase was due primarily to increased amortization expense related to the Merger, as well as growth in revenue coming from a lower margin market segment and increased payroll related costs due to an increased support of product lines, increased technology costs and merit increases.

SG&A expense increased $4.0, or 4.2%, to $98.3 in 2008 compared to $94.3 in 2007. This was primarily due to increased amortization expense related to the Merger, higher bad debt expense related to the difficult economic climate and effect of higher price of fuel on our customers, and increased selling expense as a result of higher revenue, partially offset by reduced allocated one-time charges related to our evaluation of strategic alternatives for the Company prior to the Merger, proxy costs and executive separations in 2007 and lower stock-based compensation expense.

R&D expense decreased $2.0 to $4.7 in 2008 compared to $6.7 in 2007. That was primarily due to planned reductions in project spending.

The net loss on the diesel fuel price derivative instruments in 2007 was $1.9. The net loss for the respective period was the result of the increase in diesel fuel prices in relation to the derivative instrument commodity price. In early 2007, we acquired diesel fuel price derivative instruments covering approximately 30% of our anticipated 2007 diesel fuel price related earnings exposure.

Comdata EBIT decreased $11.6 to $100.4, or 27.1% of revenue in 2008 compared to $112.0, or 32.7% of revenue in 2007. The decrease in EBIT was primarily due to higher cost of sales and increased amortization expense related to the Merger, partially offset by the increase in revenue, reduced allocated one-time charges related to our evaluation of strategic alternatives for the Company prior to the Merger, proxy costs and executive separations in 2007 and lower stock-based compensation expense.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Overview

A number of events or transactions occurred during the periods covered by this discussion that had a significant effect on the comparisons of our financial condition and performance, including:

•

Merger. Under the terms of the Merger, Predecessor Ceridian Corporation stockholders received $36.00 in cash, without interest, for each share of Predecessor Ceridian Corporation common stock that they held for a total of $5,305.3. Ceridian Corporation common stock ceased trading on the New York Stock Exchange (“NYSE”) and has been delisted from the NYSE. The sources and uses of funds in connection with the Merger are summarized below:


Sources:
Equity investment	$	1,600.0
Senior secured credit facilities		2,250.0
Senior notes		1,300.0
Cash from Predecessor Ceridian Corporation		346.7

Total sources	$	5,496.7

Uses:
Payment consideration to predecessor stockholders	$	5,305.3
Transaction costs		191.4

Total uses	$	5,496.7

•

The following summarizes the preliminary allocation of the purchase price of the Merger based on estimated fair values of the assets acquired and liabilities assumed as of November 10, 2007. We engaged outside appraisal firms to assist in determining the fair value of certain long-lived, tangible and identifiable intangible assets and used these appraisals for the purchase price allocation. This allocation was subject to further refinement until all pertinent information was obtained for the restructuring reserve and the final valuation of identifiable intangible assets.


Purchase Price:
Fair market value of Ceridian Corporation common stock	$	5,305.3
Direct costs related to the Merger		4.5

Aggregate Purchase Price	$	5,309.8

Purchase Price assigned:
Net working capital	$	650.0
Property, plant and equipment		90.6
Goodwill		3,537.9
Identifiable intangible assets		1,470.3
Other non-current assets		40.1
Deferred income taxes		(353.8	)
Non-current liabilities and other		(125.3	)

Total Purchase Price Assigned	$	5,309.8

•

Stock-Based Compensation Expense. All stock options, restricted stock units and restricted stock awards outstanding before the Merger became fully vested. Stock-based compensation expense for the period January 1 to November 9, 2007 was $45.0.

•

Amortization Expense. We will recognize an increase in amortization expense post Merger as a result of the revaluation of assets through the application of purchase accounting. Amortization expense for the period November 10 to December 31, 2007 was $18.3.

•

Interest Expense. We will recognize an increase in interest expense post Merger as a result of the issuance of debt in connection with the Merger. Interest expense for the period November 10 to December 31, 2007 was $50.3.

•

General Expenses. Prior to the Merger, we incurred the following expenses which were significant to the comparison of the periods:

•

Expenses of $46.3 were incurred related to the evaluation of strategic alternatives for the Company, the 2007 proxy and fees associated with pre-Merger costs incurred;

•

Expenses for severance and lease terminations of $15.9 due to the execution of our operating improvement plan; and

•

Expenses for executive separations of $4.5.

•

Income tax matters. In the 2007 period after the Merger, we increased our income tax benefit by $3.2 as a result of a favorable tax rate change enacted in Canada. In the 2007 period before the Merger, we increased our income tax provision by $5.5 for the expenses related to the Merger that were not deductible for tax purposes and by $4.8 for additional tax expense related to foreign earnings repatriation. In 2006, the expiration of the statute of limitations on an international tax contingency and a Canadian tax rate reduction resulted in a reduction in our income tax expense of $8.6 and $2.8, respectively.

Consolidated Results


	Amount						Increase (Decrease)				% of Revenue
	2007 (1)			2006			$		%		2007 (1)		2006
Revenue	$	1,644.9		$	1,565.1		79.8		5.1		100.0		100.0

Cost of revenue		910.2			852.4		57.8		6.8		55.3		54.5
SG&A expense		522.1			440.1		82.0		18.6		31.7		28.1
R&D expense		30.7			28.6		2.1		7.4		1.9		1.8
Loss on derivative instruments		1.9			2.7		(0.8	)	(31.9	)	0.1		0.2
Other income, net		(3.3	)		(10.5	)	7.2		68.7		(0.2	)	(0.7	)
Interest income		(21.4	)		(13.5	)	(7.9	)	58.7		(1.3	)	(0.9	)
Interest expense		55.6			6.0		49.6		832.8		3.4		0.4

Total costs and expenses		1,495.8			1,305.8		190.0		14.5		90.9		83.4

Earnings before income taxes		149.1			259.3		(110.2	)	(42.5	)	9.1		16.6
Income tax provision		66.0			85.7		(19.7	)	(22.9	)	4.0		5.5

Net earnings	$	83.1		$	173.6		(90.5	)	(52.2	)	5.1		11.1

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

Consolidated revenue increased $79.8, or 5.1%, to $1,644.9 in 2007 from $1,565.1 in 2006. Revenue in HRS increased $32.7, SVS increased $16.5, and Comdata increased $30.6 in 2007. Within those increases, revenue was negatively affected by $24.0 due to the Deferred Revenue Adjustment.

The HRS revenue increase was primarily due to higher interest income on invested customer funds resulting from both higher interest rates and an increased customer float balance, and growth in our core payroll business. These increases were partially offset by the loss of revenue associated with the sale of a major portion of our 401(k) recordkeeping and administration business in the third quarter of 2006, a write-down on an investment within our customer funds, lower revenue in our government LifeWorks business, the strengthening of the British pound sterling and Canadian dollar against the U.S. dollar and the effects of the Deferred Revenue Adjustment. Our SVS revenue increase was driven by higher levels of retail cards in use offset by the effects of the Deferred Revenue Adjustment. Our Comdata revenue increase was driven by higher volume of transactions in our local and long haul fleet businesses and increased volume within regulatory compliance services, partially offset by the effects of the Deferred Revenue Adjustment. Results for our HRS, SVS and Comdata segments are discussed below under “Business Segment Results.”

Cost of revenue as a percent of revenue increased to 55.3% in 2007 from 54.5% in 2006. This was driven by an increase in SVS’s cost of revenue due to increased vendor card costs, increased transaction based bank fees in Comdata and increased payroll related costs due to acquisitions, as well as higher severance and stock-based compensation expenses primarily in HRS and increased amortization expense related to the Merger. Partially offsetting those increases in cost of revenue as a percent of revenue were higher investment income without significant incremental costs on our invested customer funds, cost containment efforts in HRS and the impact of the Deferred Cost Adjustment.

SG&A expense increased $82.0, or 18.6%, to $522.1 in 2007 from $440.1 in 2006. This was primarily due to charges totaling $46.3 for our evaluation of strategic alternatives, proxy-related costs, and fees associated with pre-Merger costs incurred, $19.5 in increased stock-based compensation expense, $9.9 in increased severance charges and lease termination charges prior to the Merger due to execution of our operating improvement plan, $7.0 in increased amortization expense related to the purchase price allocated to intangible assets as a result of the Merger, $4.5 in expenses for executive separations and the strengthening of the British pound sterling and Canadian dollar against the U.S. dollar and higher payroll costs as a result of merit increases. Partially offsetting these increases were reduced litigation expenses and general spending reductions in HRS.

R&D expense increased $2.1 or 7.4% to $30.7 in 2007. This was driven by new project costs and increased stock-based compensation expense.

In 2007, the loss on derivative instruments amounted to $1.9 compared to a loss of $2.7 in 2006. The loss in both periods resulted from an increase in diesel fuel prices in relation to the derivative instrument commodity price. If diesel fuel prices are higher than the derivative instrument, a loss results. If diesel fuel prices are lower than the derivative instrument, a gain results.

Other income, net for 2007 primarily relates to the gain on the sale of marketable securities, a sale of a business and sales of other assets, partially offset by a foreign currency remeasurement loss due to debt in Ceridian Canada which will be repaid through payments from a legal entity with a functional currency in Canadian dollars. Other income, net in 2006 primarily relates to the gain on the sale of marketable securities, sale of other assets, and gain from the settlement of a lawsuit.

Interest income in 2007 increased $7.9 to $21.4 compared to $13.5 in 2006. The increase was driven by a higher average level of cash and equivalents and higher interest rates. Interest expense increased $49.6 to $55.6 in 2007 compared to 2006 as a result of the debt issued in connection with the Merger.

Income tax provision decreased $19.7 to $66.0 in 2007 compared to $85.7 in 2006. Our effective tax rate for 2007 was 44.3% compared to 33.1% for 2006. The effective tax rate for 2007 was unfavorably impacted by $5.5 for expenses related to the Merger that are not deductible for tax purposes and additional tax expense of $4.8 related to foreign earnings repatriation. In addition, the 2007 effective tax rate was favorably impacted by $3.2 of tax rate changes enacted in Canada which reduced our net deferred income tax liability.

The effective tax rate for 2006 was favorably impacted by the expiration of the statute of limitations on an international tax contingency and a Canadian tax rate reduction. The statute expiration resulted in an $8.6 decrease in income tax expense. The Canadian tax rate change impacted our deferred income tax balance and reduced income tax expense by $2.8.

HRS


	Amount						Increase (Decrease)				% of Revenue
	2007 (1)			2006			$		%		2007 (1)		2006
Revenue	$	1,132.5		$	1,099.8		32.7		3.0		100.0		100.0
Cost of revenue		633.5			630.0		3.5		0.6		55.9		57.3
SG&A expense		411.9			360.1		51.8		14.3		36.3		32.7
R&D expense		22.0			21.1		0.9		4.6		1.9		1.9
Other income, net		(2.1	)		(9.6	)	(7.5	)	(78.4	)	(2.1	)	(0.9	)
EBIT	$	67.2		$	98.2		(31.0	)	(31.5	)	5.9		8.9

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

HRS revenue increased $32.7, or 3.0%, to $1,132.5 in 2007 compared to $1,099.8 in 2006. Revenue from U.S. operations increased $0.8, or 0.1%, from $822.4 to $823.2, revenue from Canadian operations increased $28.4, or 15.5%, from $182.6 to $211.0, and revenue from the U.K. operations increased $3.5, or 3.7%, from $94.8 to $98.3.

The increase in revenue from U.S. operations in 2007 was due to a $27.7 increase in Payroll and Tax Services, partially offset by a $13.6 decrease from Benefit Services and a $13.1 decrease in LifeWorks. The increase in Payroll and Tax Services U.S. operations revenue in 2007 was mainly driven by growth in the business due to increased sales to existing customers and addition of new customers, and increases in interest income earned on invested customer funds of $8.7, of which $5.6 was from a higher average yield and $3.1 was from a higher average invested balance, partially offset by a decrease of $3.0 from the effects of the Deferred Revenue Adjustment. The decrease in Benefit Services revenue of $13.6 was primarily driven by the reduction of revenue of $12.1 due to the sale of major portion of the 401(k) recordkeeping and administration business in the third quarter of 2006 and a decrease of $0.6 from the effects of the Deferred Revenue Adjustment. The LifeWorks revenue decrease of $13.1 was primarily due to price reductions in our governmental business and a decrease of $2.6 from the effects of the Deferred Revenue Adjustment.

The Canadian revenue increase of $28.4 included $12.3 due to the strengthening of the Canadian dollar against the U.S. dollar, $7.2 from additional interest income primarily resulting from a higher average invested balance, with the remainder of the increase attributed to growth in the payroll base and price increases, partially offset by a decrease due to a $5.1 write-down in a customer fund investment and related interest receivable and $0.7 from the effects of the Deferred Revenue Adjustment. The U.K. revenue increase of $3.5 was due to the strengthening of the British pound sterling against the U.S. dollar partially offset by lower pricing on customer renewals and $0.6 from the effects of the Deferred Revenue Adjustment.

HRS cost of revenue as a percent of revenue decreased to 55.9% in 2007 from 57.3% in 2006 mainly due to increased interest income on invested customer funds without significant incremental costs and cost reduction efforts in Payroll and Tax Services, partially offset by increased service delivery costs in Benefits Services to improve service levels, increased stock-based compensation expense and higher severance costs.

SG&A expense for HRS increased $51.8, or 14.3%, to $411.9 in 2007 compared to $360.1 in 2006 resulting from an increase of $52.8 in general and administrative expense and a decrease of $1.0 in selling expense. The increase in general and administrative expense was due to allocated charges of $31.6 for our evaluation of strategic alternatives, proxy-related costs, fees associated with pre-Merger costs incurred, $7.8 of increased stock-based compensation expense, $4.9 of increased severance expenses, $3.1 in expenses for executive separations incurred prior to the Merger, the impact of the strengthening of the British pound sterling and the Canadian dollar against the U.S. dollar and increased intangible amortization expense related to the Merger, partially offset by general spending decreases. Selling expense primarily decreased due to reduced sales incentive expenses partially offset by a charge for lease terminations relating to sales offices incurred prior to the Merger and the impact of the strengthening of the British pound sterling and the Canadian dollar against the U.S. dollar.

R&D expense for HRS increased $0.9, or 4.6%, to $22.0 in 2007 compared to $21.1 in 2006. This increase was due to new project costs and higher stock-based compensation expense.

Other income, net for 2007 was $2.1 and relates primarily to gains on the sale of marketable securities of $6.2 and gains on the sale of businesses of $2.0 partially offset by a $6.6 foreign currency remeasurement loss on debt at Ceridian Canada which will be repaid through payments from a legal entity with a functional currency in Canadian dollars. Other income, net in 2006 of $9.6 primarily resulted from a gain of $5.8 on the sale of a major portion of our 401(k) recording keeping and administration business and gains on sales of marketable securities and other assets of $3.4.

HRS EBIT decreased $31.0, or 31.5%, to $67.2 or 5.9% of revenue in 2007 compared to $98.2 or 8.9% of revenue in 2006. This decrease was primarily due to one-time charges related to our evaluation of strategic alternatives and proxy-related costs, severance charges and executive separations incurred prior to the Merger, fees associated with pre-Merger costs incurred, as well as higher stock-based compensation expense, partially offset by an improvement in operating performance in the U.S. operations and Ceridian Canada.

SVS


	Amount					Increase (Decrease)				% of Revenue
	2007 (1)			2006		$		%		2007 (1)		2006
Revenue	$	170.3		$	153.8	16.5		10.7		100.0		100.0
Cost of revenue		149.3			122.6	26.7		21.8		87.7		79.7
SG&A expense		15.9			13.5	2.4		17.8		9.3		8.8
R&D expense		2.0			1.9	0.1		5.2		1.2		1.2
Other income, net		(1.0	)		—	(1.0	)	NM		(0.5	)	0.0
EBIT	$	4.1		$	15.8	(11.7	)	(74.1	)	2.4		10.3

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

NM represents comparisons that are not meaningful to this analysis.

SVS revenue increased $16.5, or 10.7%, to $170.3 in 2007 from $153.8 in 2006. This increase was primarily due to higher levels of retail cards in use, greater transaction volume and the addition of new customers through internal growth and an acquisition, partially offset by a decrease of $15.3 from the effects of the Deferred Revenue Adjustment. Revenue from retail services is generally deferred and recognized largely over a six-month period following the activation of a card, which typically takes place about eight months after the shipment of the card to the retailer. Cards delivered increased by approximately 6.1% and transactions processed increased approximately 9.9% in comparison of 2007 over 2006.

SVS cost of revenue as a percent of revenue for 2007 increased to 87.7% compared to 79.7% in 2006. The increase was due to increased vendor card costs, the entry into a lower margin market segment through a fourth quarter 2006 acquisition, higher payroll costs related to the fourth quarter 2006 acquisition, and the loss of a relatively high margin contract in the legacy “smart card” electronic benefits business, which were offset by the effects of the Deferred Cost Adjustment.

SG&A expense increased $2.4 to $15.9 in 2007 compared to $13.5 in 2006. This increase was primarily due to increased stock-based compensation expense, increased intangible amortization expense related to the Merger and a fourth quarter 2006 acquisition, partially offset by reduced administration expenses.

R&D expense increased $0.1, or 5.2%, to $2.0 in 2007 compared to $1.9 in 2006 primarily due to higher spending on projects.

Other income, net in 2007 reflects a $1.0 gain from the sale of a customer portfolio.

SVS EBIT decreased $11.7 to $4.1, or 2.4% of revenue, in 2007 compared to $15.8, or 10.3% of revenue, in 2006. This was primarily due to the higher cost of sales and the impact of the Deferred Revenue Adjustment and the Deferred Cost Adjustment.

Comdata


	Amount						Increase (Decrease)				% of Revenue
	2007 (1)			2006			$		%		2007 (1)		2006
Revenue	$	342.1		$	311.5		30.6		9.8		100.0		100.0
Cost of revenue		127.4			99.8		27.6		27.7		37.2		32.0
SG&A expense		94.3			66.5		27.8		41.8		27.6		21.3
R&D expense		6.7			5.6		1.1		19.6		2.0		1.8
Loss on derivative instruments		1.9			2.7		(0.8	)	(29.6	)	0.6		0.9
Other income, net		(0.2	)		(0.9	)	0.7		(77.8	)	(0.1	)	(0.3	)
EBIT	$	112.0		$	137.8		(25.8	)	(18.7	)	32.7		44.2

(1)	2007 amounts refer to the 2007 Combined Period; this is a Non-GAAP presentation.

Comdata revenue increased $30.6, or 9.8%, to $342.1 in 2007 from $311.5 in 2006. This increase was due to a $7.8 increase in the long haul business due to higher volume primarily driven by increased transactions on the Comdata Card and a higher average cost of fuel, a $8.4 increase in the local fleet business due largely to increased utilization by local fleet customers of the Comdata Card and private label products and services, and a $7.3 increase in regulatory compliance services due to the addition of new business through an acquisition that was completed in the first quarter of 2007 and an $8.4 increase in other services. Offsetting these increases was a reduction in revenue of $1.3 due to the effects of the Deferred Revenue Adjustment.

Comdata cost of revenue as a percent of revenue for 2007 increased to 37.2% compared to 32.0% in 2006. The increase was due to significant growth in revenue coming from a lower margin market segment, increased transaction based bank fees and customer rebates, increased payroll related costs due to an acquisition completed in the first quarter of 2007, increased intangible asset amortization expense related to the Merger as well as the negative impact of the net result of the Deferred Revenue Adjustment and the Deferred Cost Adjustment.

SG&A expense increased $27.8, or 41.8%, to $94.3 in 2007 compared to $66.5 in 2006. This increase was due to allocated charges primarily for our evaluation of strategic alternatives, proxy-related and fees associated with pre-Merger costs incurred of $14.7, increased stock-based compensation expense of $7.9, increased intangible asset amortization expense of $5.8 related to acquisitions in the first quarter of 2007 and to the Merger, higher payroll costs as a result of merit increases, increased severance expenses incurred prior to the Merger and increased bad debt expense, partially offset by reduced legal fees and litigation expense of $7.8.

R&D expense increased $1.1, or 19.6%, to $6.7 in 2007 compared to $5.6 in 2006 primarily due to new project spending.

The net loss on the diesel fuel price derivative instruments in 2007 was $1.9 compared to $2.7 in 2006. The net losses for the respective periods are the result of the increase in diesel fuel prices in relation to the derivative instrument commodity price. During early 2007, we acquired diesel fuel price derivative instruments covering approximately 30% of our anticipated 2007 diesel fuel price related earnings exposure. During early 2006, we acquired diesel fuel price derivative instruments covering approximately 80% of our anticipated 2006 diesel fuel price related earnings exposure.

Other income, net in 2007 primarily reflects a $0.3 gain from the settlement of lawsuits. Other income, net in 2006 primarily reflects a $1.0 gain from the settlement of a lawsuit.

Comdata EBIT decreased $25.8 to $112.0, or 32.7% of revenue, in 2007 compared to $137.8, or 44.2% of revenue, in 2006. This was primarily due to higher cost of sales; increased allocated one-time charges related to evaluation of strategic alternatives, proxy-related costs, and the Merger; increased stock-based compensation expense; and increased payroll related costs and amortization related to acquisitions and the Merger; partially offset by reduced legal fees and litigation expense.

Balance Sheets at December 31, 2008 and 2007

For the year ended December 31, 2007, we reclassified customer funds and customer funds obligations that had been previously presented outside of current assets and current liabilities, respectively, within the consolidated balance sheets, to current assets and current liabilities, respectively, for all periods presented. Previously presented amounts reclassified were customer funds of $3,851.8 and customer fund obligations of $3,834.8 at December 31, 2007. This reclassification had no impact on total assets or liabilities for any period presented.

Our consolidated balance sheets reflect operating assets and liabilities, as well as assets and liabilities related to customer funds. Customer funds assets primarily arise from amounts that our customers have advanced to us to pay their employees, remit to taxing authorities, or pay for benefits services to other third parties. Customer funds obligations primarily represent our liability to pay the amounts due to these third parties on behalf of our customers. Substantially all our U.S. customer funds and a significant portion of our Canadian customer funds are held in trust accounts and are invested almost exclusively in high-quality collateralized short-term investments or money market mutual funds and are not utilized in our operations except that earnings from those investments that are included in our revenue.

As a result of the fourth quarter 2008 and the February 20, 2009 distributions discussed below, we had as of February 27, 2009, $97.3 of customer funds and $14.5 of corporate funds invested in the Reserve Fund money market fund. In September 2008, we had $670.0 of customer funds and $100.0 of corporate funds invested in the Reserve Fund, which at the time of our investment was a AAA rated money market fund and as of September 15, 2008 had over $62,000.0 in assets. On the morning of September 16, 2008 and at a time when the Reserve Fund’s announced net asset value was $1.00 per share, we requested redemption of all of our shares in the fund. Subsequent to our request, the Reserve Fund announced that its net asset value had fallen below $1.00 per share (as a result of the Reserve Fund valuing at zero $785.0 face value of debt issued by Lehman Brothers Holdings Inc. which filed for bankruptcy protection on September 15, 2008). The Reserve Fund initially suspended redemptions and then delayed distributions pending its liquidation. On December 3, 2008, the Board of Trustees of the Reserve Fund adopted a formal Plan of Liquidation and Distribution of Assets.

As a result of distributions made by the Reserve Fund in the fourth quarter 2008 and on February 20, 2009, we have received an aggregate of $572.7 of customer funds and $85.5 of corporate funds, or approximately 85.5% of our total Reserve Fund investment balance as of February 27, 2009. In connection with these distributions, the Reserve Fund stated all investors were treated the same regardless of the timing of their original redemption request. In its Plan of Liquidation and Distribution of Assets, the Reserve Fund stated that additional distributions will be made as the Reserve Fund accumulates cash either through the maturing of the Reserve Fund’s assets or their sale, subject to a retention of 8.3 cents per share for a special reserve which will be used to satisfy disputed claims against the Reserve Fund and related expenses. Any excess is to be distributed to fund shareholders. Based upon the Reserve Fund’s disclosed holdings, the underlying investments in the Reserve Fund are scheduled to mature through fiscal 2009. We cannot assure you when we will recover the remaining portion of our invested funds or the exact amount we will ultimately recover. We will, however, continue to pursue our collection of these funds and consider any and all available remedies to recover the full amount of our invested funds.

We have taken an aggregate asset write-down of $11.5 in connection with our investments in the Reserve Fund as of December 31, 2008. In addition, we reclassified cash and cash equivalents of $19.7 as short term investments with respect to our corporate funds at December 31, 2008. We do not expect the suspended or delayed distributions by the Reserve Fund to affect our liquidity. Additional information on customer funds assets and liabilities can be found in Note 7, “Customer Funds.”

Total assets excluding customer funds decreased $235.1 during 2008 as current assets before customer funds increased $11.0 and noncurrent assets decreased $246.1. Our current assets before customer funds increase was due to an increase of $86.2 in cash and equivalents, an increase in short term investments of $19.7 due to our reclass of our corporate Reserve Fund investments from cash equivalents and an increase of $55.8 in prepaid assets primarily due to an increase in deferred costs, partially offset by a decrease of $146.4 in trade and other receivables, net, due primarily to lower fuel prices at the end of 2008 as compared to the end of 2007 and a decrease in transactions on the Comdata Card in the fourth quarter of 2008. We discuss changes in cash and equivalents in a following section of this discussion entitled “Cash Flows.” The noncurrent asset decrease was largely due to the amortization of other intangible assets and adjustments to goodwill as a result of the finalizing of the purchase price allocation related to the Merger.

Current liabilities before customer fund obligations increased $21.7 during 2008, due mainly to an increase in deferred revenue of $111.2 partially offset by a decrease in drafts and settlements payable of $42.8. The increase in deferred revenue was largely due to the customer billings subsequent to the Merger that require deferral treatment due to our revenue recognition accounting policy. The decrease in drafts and settlements payable occurred primarily at our Comdata business due to lower fuel prices at the end of 2008 as compared to the end of 2007 and a decrease in transactions on the Comdata Card in the fourth quarter of 2008. Noncurrent liabilities increased $52.9 primarily due to an increase in our employee benefit plan liability due to a decline in the value of our pension plan assets, partially offset by a decline in deferred income taxes.

Cash Flows

We have changed the presentation of our statements of consolidated cash flows. We have included the purchases of customer fund marketable securities, proceeds from the sale or maturity of customer fund marketable securities and the net increase (decrease) of restricted cash held to satisfy customer fund obligations within the statements of consolidated cash flows in investing activities for all periods presented. Additionally, we have included the net increase (decrease) in customer funds obligations within the statements of consolidated cash flows in financing activities for all periods presented. This change in presentation had no impact on the net change in cash and cash equivalents or cash flows from operating activities for any period presented.

Consolidated Statements of Cash Flows Highlights


	Successor						Successor			Predecessor
	Year Ended December 31, 2008			2007 Combined Period			November 10 to December 31, 2007			January 1 to November 9, 2007			Year Ended December 31, 2006
Operating activities	$	167.7		$	157.7		$	(50.7	)	$	208.4		$	161.7
Investing activities		(1,161.5	)		841.5			1,790.8			(949.3	)		(342.7	)
Financing activities		1,082.3			(1,195.5	)		(2,097.7	)		902.2			111.4
Effect of exchange rate on cash		(2.3	)		0.2			(1.0	)		1.2			1.4

Net cash flows provided (used)	$	86.2		$	(196.1	)	$	(358.6	)	$	162.5		$	(68.2	)

Cash and equivalents at end of period	$	184.8		$	98.6		$	98.6		$	457.2		$	294.7

Operating Activities

Cash flows from operating activities in 2008 provided cash of $167.7. This was primarily driven by earnings adjusted for depreciation and amortization of $85.0 and a decrease in working capital of $91.5. The decrease in working capital was largely due to the increase in our deferred revenue balances as discussed in “—Balance Sheets.” Cash flows from operating activities in 2007 provided cash of $157.7 was primarily driven by earnings adjusted for depreciation and amortization of $182.5. Cash flows from operating activities in 2006 provided cash of $161.7 was driven by earnings adjusted for depreciation and amortization of $260.5 partially offset by a pension contribution of $75.0.

Investing Activities


	Successor						Successor			Predecessor
	Year Ended December 31, 2008			2007 Combined Period			November 10 to December 31, 2007			January 1 to November 9, 2007			Year Ended December 31, 2006
Purchase of customer funds marketable securities	$	(196.0	)	$	(277.3	)	$	(36.7	)	$	(240.6	)	$	(238.2	)
Proceeds from sale and maturity of customer funds marketable securities		1,049.0			288.3			26.9			261.4			198.5
Net change in restricted cash and other restricted assets held to satisfy customer funds		(1,938.0	)		885.4			1,805.4			(920.0	)		(228.9	)
Capital expenditures		(52.7	)		(62.1	)		(8.1	)		(54.0	)		(53.0	)
Acquisitions of investments and businesses		(4.7	)		(10.4	)		—			(10.4	)		(41.1	)
Short-term investments		(19.7	)		—			—			—			—
Proceeds from sales of businesses and assets		0.6			17.6			3.3			14.3			20.0

Net cash flows provided (used)	$	(1,161.5	)	$	841.5		$	1,790.8		$	(949.3	)	$	(342.7	)

During 2008, cash used for investing activities was $1,161.5. Activity within our customer funds included purchase of marketable securities of $196.0, proceeds from sale and maturity of marketable securities of $1,049.0 and a net decrease in restricted cash and other restricted assets of $1,938.0. Our capital expenditures included $28.5 for property and equipment and $24.2 for technology costs. Our expenditure for short-term investments of $19.7 was due to our reclass of our corporate Reserve Fund investments from cash equivalents.

During 2007, cash provided by investing activities was $841.5. Activity within our customer funds included purchase of marketable securities of $277.3, proceeds from sale and maturity of marketable securities of $288.3 and a net increase in restricted cash and other restricted assets of $885.4. Our capital expenditures included $37.1 for property and equipment and $25.0 for technology costs. Our expenditures for acquisitions of investments and businesses (net of cash acquired) were $10.4 primarily for one acquisition in Comdata for $9.9. Cash inflows from sales of businesses and assets amounted to $17.6 primarily from sales of our marketable securities, a sale of payroll platform in our HRS business segment and receipt of a contingent payment on a prior period sale.

During 2006, cash used for investing activities was $342.7. Activity within our customer funds included purchase of marketable securities of $238.2, proceeds from sale and maturity of marketable securities of $198.5 and a net decrease in restricted cash and other restricted assets of $228.9. Our capital expenditures included $30.3 for property and equipment and $22.7 for technology costs. Our expenditures for acquisitions of investments and businesses (net of cash acquired) were $41.1 for two acquisitions in the fourth quarter of 2006. Cash inflows from sales of businesses and assets amounted to $20.0 primarily from $11.1 related to the sale of the major portion of our 401(k) recordkeeping and administration business in our HRS business segment in the third quarter of 2006 as well as the sale of marketable securities.

Financing Activities


	Successor						Successor			Predecessor
	Year Ended December 31, 2008			2007 Combined Period			November 10 to December 31, 2007			January 1 to November 9, 2007			Year Ended December 31, 2006
Increase (decrease) in customer funds obligations, net	$	1,085.0		$	(896.4	)	$	(1,795.6	)	$	899.2		$	268.6
Revolving credit facilities and overdrafts, net		4.4			(94.0	)		—			(94.0	)		(7.5	)
Repayment of other long-term obligations		(3.8	)		(10.8	)		(1.7	)		(9.1	)		(5.8	)
Tax benefits from stock-based compensation		—			30.7			—			30.7			22.1
Proceeds from stock option exercises		—			75.4			—			75.4			150.8
Acquisition of Ceridian Corporation		—			(5,305.3	)		(5,305.3	)		—			—
Repurchase of common stock		—			—			—			—			(316.8	)
Proceeds from debt issuance		—			3,550.0			3,550.0			—			—
Payment of debt issuance costs		(4.8	)		(84.8	)		(84.8	)		—			—
Payment of equity issuance costs		—			(60.3	)		(60.3	)		—			—
Stock issuance		1.5			1,600.0			1,600.0			—			—

Net cash flows provided (used)	$	1,082.3		$	(1,195.5	)	$	(2,097.7	)	$	902.2		$	111.4

Net cash provided by financing activities totaled $1,082.3 in 2008 driven by our increase in the customer funds obligations, net. In addition, we borrowed $4.4 related to our overdraft facility in the United Kingdom, paid debt issuance costs of $4.8 and made principle payments of $2.1 on capital leases and $1.7 on a royalty obligation in 2008.

Net cash used for financing activities totaled $1,195.5 in 2007. We issued long-term debt of $3,550.0 and issued stock for $1,600.0 related to the Merger. We paid $5,305.3 for the acquisition of Ceridian Corporation common stock. We repaid our pre-existing outstanding long-term obligations before the Merger; paid $84.8 for debt issuance costs associated with the Merger, paid $60.3 for equity issuance costs, including a payment of $55.8 to the Sponsors, and made principal payments of $4.4 on capital leases and $6.4 on a royalty obligation during 2007. The customer funds obligations, net, decreased of $896.4. The benefit of tax deductions in excess of that recognized on share-based compensation expense is classified as a financing cash flow and, accordingly, $30.7 was reclassified from operating activities in accordance with the requirements of SFAS 123R, “Share-Based Payment.” SFAS 123R is a revision of SFAS 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS 95, “Statement of Cash Flows,” and its related implementation guidance. Proceeds from exercises of stock options and sales of stock to employees amounted to $75.4.

Net cash provided by financing activities amounted to $111.4 in 2006. The customer fund obligations, net, increased by $268.6. Included in revolving credit facilities and overdrafts, net were payments of $29.6 on our $250.0 revolving credit facility offset by borrowings of $27.0 on our Comdata receivables securitization facility to fund the acquisition of HQ Giftcards. We made principal payments of $4.9 on capital leases and $5.8 on a guaranteed minimum royalty obligation during 2006. We repurchased 13,046,500 shares of our common stock for $316.8 on the open market at an average net price of $24.27 per share. The benefit of tax deductions in excess of that recognized on share-based compensation expense is classified as a financing cash flow and, accordingly, $22.1 was reclassified from operating activities in accordance with the requirements of SFAS 123R. Proceeds from exercises of stock options and sales of stock to employees amounted to $150.8.

For further information on financing cash flows, see Note 10, “Financing” and the following section of this discussion entitled “Liquidity and Capital Resources.”

Liquidity and Capital Resources

We expect to meet our liquidity needs, including during the next 12 months, from existing cash balances, cash flows from operations and borrowings under our senior secured credit facilities. We expect to use our cash flows for interest payments, capital expenditures, investments in technology, potential acquisitions of complementary businesses to our existing operations, repayment or repurchase of debt, and payment of dividends on preferred stock. Cash balances and cash flows are discussed under the section of this discussion entitled “Cash Flows.” Cash flows from operations are primarily influenced by the same factors that influence revenue and expense as discussed above in “—Results of Operations.”

As of December 31, 2008, 30,056,997 shares of preferred stock of Ceridian Intermediate were issued and outstanding at $10 par value. This preferred stock has a 13% cumulative dividend rate and we expect to fund the payment in future periods at the request of Ceridian Intermediate. As of December 31, 2008, Ceridian Intermediate had accumulated unpaid dividends of $47.4.

At December 31, 2008, we were in compliance with the covenants under our senior secured credit facilities and the indenture governing our senior notes.

At December 31, 2008, we had no amounts outstanding on our revolving credit facility.

We or any of our affiliates may also, from time to time depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to repurchase our senior notes or our term loans under our senior secured credit facilities in open market purchases, privately negotiated purchases or otherwise. The amounts involved in any such transactions, individually or in the aggregate, may be material and may be funded from available cash or from additional borrowings.

We have elected to pay interest on our $475.0 12¹/4%/13% senior toggle notes due 2015 in cash for the interest period ending May 14, 2009.

In order to mitigate a portion of the variable rate interest exposure under our senior secured credit facilities, effective January 20, 2009, we entered into a three-year interest rate swap with a highly rated counterparty. Pursuant to the contract, we will receive one month LIBOR and pay a fixed interest rate, resulting in an all-in effective fixed rate of 4.75% on $250.0 of our senior secured credit facilities. Effective March 19, 2009, we entered into another three-year interest rate swap with a highly rated counterparty. Pursuant to the contract, we will receive one month LIBOR and pay a fixed interest rate, resulting in an all-in effective fixed rate of 4.91% on $250.0 of our senior secured credit facilities. At December 31, 2008 and 2007, we held no interest rate derivative instruments.

Merger

In connection with the Merger, we executed the following financing arrangements: the senior secured credit facilities, the 11¹/4% senior notes due 2015 and the 12¹/4%/13% senior toggle notes due 2015. These financial arrangements are summarized below. In addition, prior to the consummation of the Merger, we terminated our previous financing arrangements: the $250.0 revolving five year credit facility dated November 18, 2005 and the $150.0 Comdata Receivables Securitization Facility. In connection with the debt issuance, we paid $84.8, of which $66.9 was recorded as deferred financing fees and $17.9 as a debt discount. The deferred financing fees and debt discount will be amortized using the effective interest method over the term of the related debt. As of December 31, 2008, the remaining unamortized balance of the deferred financing fees and debt discount are $61.4 and $16.2, respectively.

Successor

Senior Secured Credit Facilities

As part of our Merger financing we entered into senior secured credit facilities with Deutsche Bank AG New York Branch, as administrative agent and collateral agent, Deutsche Bank AG Canada Branch, as Canadian sub-agent, and with a syndicate of lenders. The terms of the senior secured credit facilities are set forth below.

Borrowings

The senior secured credit facilities provide for a $2,250.0 term loan facility and a $300.0 revolving credit facility. The term loan facility consists of a $2,140.0 term loan to Ceridian Corporation (“U.S. Term Loan”) and a $110.0 term loan to Ceridian Canada Holdings ULC (“Canada Term Loan”). The revolving credit facility is composed of a $225.0 revolving loan facility available to Ceridian Corporation (“U.S. Revolver”) and $75.0 multi-currency revolving loan facility available to Ceridian Corporation or Ceridian Canada LTD (“Multi-Currency Revolver”). The U.S. Revolver includes a $75.0 letter of credit sub-facility and a $75.0 swingline sub-facility. The Multi-Currency Revolver includes a $25.0 multi-currency letter of credit and a $25.0 multi-currency swingline sub-facility. At our option and subject to certain conditions, we may increase the credit facilities in an aggregate amount not to exceed $300.0 without the consent of any person other than the institutions agreeing to provide all or any portion of such increase.

The U.S. Term Loan and Canada Term Loan were fully borrowed on the closing date of the Transactions. The term loans will amortize in quarterly installments of .25% of the original principal amount of the term loans beginning on the last day of the first full fiscal quarter ended after the first anniversary of the closing date. In the fifth year after the closing date, the term loans will amortize in quarterly installments of .50% of the original principal amount of the term loans and quarterly amortization will be .25% of the original principle thereafter. Any unpaid balance outstanding on the term loans will be payable on November 9, 2014. Repayments and prepayments of the term loans may not be re-borrowed.

Revolving loans may be borrowed, repaid and re-borrowed after the closing date until May 9, 2014, when all outstanding revolving loans are due and payable. On December 31, 2008, $293.0 was available under the revolving facility. Approximately $296.8 of the revolving facility was available on December 31, 2007. The amount available under the revolving facility was reduced by letters of credit outstanding of $7.0 at December 31, 2008.

Term loans may be prepaid and revolving loan commitments may be reduced, in whole or in part without premium or penalty, subject to minimum prepayment requirements, at our option, at any time upon one to three days prior notice. We are required to prepay the loans with the net proceeds of certain incurrences of indebtedness, certain asset sales, and a certain percentage of excess cash flow.

Loan commitments may be withdrawn only if an event of default has occurred. Events of default are described later in this note.

Interest

The interest rates under the senior secured credit facilities for term loans and revolving loans are based, at our option, in the case of U.S. dollar-denominated loans, on LIBOR plus 3.00% or the alternative base rate plus 2.00%, and in the case of alternate currency denominated loans, on the Canadian prime rate plus 2.00% or EURIBOR or Sterling LIBOR plus 3.00%. Swingline loans are based on the alternative base rate plus 2.00%. The applicable margins are in the case of revolving loans and swingline loans subject to reduction based upon the attainment of certain leverage ratios. The interest rate on the senior secured credit facilities at December 31, 2008 was 3.96%. Overdue principal and interest bears interest at 2.00% above the rate then applicable to such loans under the term facility. With respect to LIBOR loans, each interest period will have a duration of, at our option, either one, two, three, six, or, if available to all relevant lenders, nine or twelve months, and interest is payable on the last day of each relevant interest period, and, in any event, at least every three months. With respect to alternate base rate loans, interest is payable quarterly in arrears and at the maturity of the facilities. Calculations of interest are based on a 360 day year (or 365/366 days in the case of alternate base rate loans or Canadian prime rate loans and 365 days in the case of the sterling LIBOR rate loans) for the actual days elapsed.

The senior secured credit facilities had associated deferred financing costs that are being amortized at the effective interest rate of 8.21% for U.S. Revolver and Multi-Currency Revolver, 8.14% for the U.S. Term Loan and 8.28% for the Canada Term Loan.

Fees

The senior secured credit facilities provide for the payment to the lenders of a commitment fee equal to .50% per annum on the average daily unused portion of the revolving loan commitments, subject to reduction based on the attainment of a certain leverage ratio, payable in arrears. For the purposes of this calculation swingline loans are not considered to be a utilization of the revolving credit facility. The total fees accrued for the year ended December 31, 2008 were $1.3. The total fees accrued for the period November 10, 2007 to December 31, 2007 were $0.2.

The senior secured credit facilities also provide for the payment to the lenders of a letter of credit fee at a per annum rate equal to the applicable margin then in effect with respect to Eurodollar loans under the revolving facility on the aggregate face amount of all outstanding letters of credit, less the amount of the fronting fee, payable quarterly in arrears. A fronting fee in an amount to be agreed (but not to exceed 0.125% per annum) on the face amount of each letter of credit shall be payable quarterly in arrears to the relevant issuing lender.

Collateral and Guarantees

The loans under the senior secured credit facilities, any incremental facility and under any swap agreement are unconditionally guaranteed by each of our domestic, wholly-owned restricted subsidiaries, excluding customer funds, immaterial subsidiaries and special purpose entities. The loans and guarantees under the senior secured credit facilities are secured by a perfected first priority security interest, subject to certain exceptions, in substantially all of our and the subsidiary guarantors’ tangible and intangible assets, including a pledge of the capital stock of each of our direct and indirect material subsidiaries, limited in the case of foreign subsidiaries with respect to the term loans, to 65% of the voting capital stock and 100% of the non-voting capital stock of material first-tier foreign subsidiaries, and a non-recourse pledge of the capital stock of Ceridian Corporation by Foundation Holdings, Inc.

Representations, Warranties and Covenants

The senior secured credit facilities contain certain customary representations and warranties. In addition, the senior secured credit facilities contain customary covenants restricting our ability and certain of our subsidiaries ability to, among other things: incur additional indebtedness, issue disqualified stock and preferred stock; create liens; declare dividends; redeem capital stock; make investments; engage in a materially different line of business; engage in mergers, consolidations, acquisitions, asset sales or other fundamental changes; engage in certain transactions with affiliates; enter into certain restrictive agreements; make prepayments on any senior notes or subordinated indebtedness; modify junior financing documentation; and make changes to our fiscal year. In addition, beginning with the fiscal quarter ended December 31, 2008, the senior secured credit facilities require us to maintain the ratio of adjusted consolidated total debt to EBITDA below specified levels on a quarterly basis, which levels reduce over time. As of December 31, 2008, we were in compliance with all covenants under the credit agreement governing the senior secured credit facilities.

Events of Default

Events of default under the senior secured credit facilities include, but are not limited to: failure to pay interest, principal and fees or other amounts when due; material breach of any representation or warranty; covenant defaults; cross defaults to other material indebtedness; events of bankruptcy, invalidity of security interests; a change of control, material judgments for payment of money; involuntary acceleration of any debt; and other customary events of default. There were no events of default as of December 31, 2008.

11¹/4% Senior Notes due 2015 and 12¹/4%/13% Senior Toggle Notes due 2015

Also in connection with the Merger we sold $825.0 11¹/4% senior notes due 2015 (the “Senior Notes”) and $475.0 12¹/4%/13% senior toggle notes due 2015 (the “Senior Toggle Notes,” and together with the Senior Notes, the “Notes”) pursuant to private offerings. The Notes were registered with the Commission on December 22, 2008. See discussion below under “—Registration Rights.”

Interest

Interest on the Notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2008, and the Notes mature on November 15, 2015. Interest on the Senior Notes accrues at a rate of 11¹/4% per annum and is payable in cash only. The initial interest payment on the Senior Toggle Notes was payable entirely in cash. For any subsequent interest payment prior to November 15, 2011, we may elect to pay interest on the Senior Toggle Notes, at our option, (i) entirely in cash (“cash interest”), (ii) entirely by increasing the principal amount of the Senior Toggle Notes (“PIK interest”) or (iii) by paying half the interest on the principal amount of Senior Toggle Notes in cash interest and half in PIK interest. Cash interest on the Senior Toggle Notes will accrue at a rate of 12¹/4% per annum, and PIK interest on the Senior Toggle Notes will accrue at a rate of 13% per annum. After November 15, 2011, all interest payable on the Senior Toggle Notes will be cash interest.

The Senior Notes were issued at a discount of 1.4% thus the carrying value of the Notes as of December 31, 2008 was $1,283.8. The effective interest rate used to amortize the discount was 11.7% for the Senior Notes and 12.8% for the Senior Toggle Notes.

Optional Redemption

At any time prior to November 15, 2011, we may redeem the Notes, in whole or in part, at a price equal to 100% of the principal amount of such Notes plus accrued and unpaid interest and an applicable make-whole premium. On or after November 15, 2011, the Senior Notes may be redeemed, in whole or in part, at redemption prices decreasing from 105.625% of the principal amount thereof plus accrued and unpaid interest to par on November 15, 2013 and thereafter. On or after November 15, 2011, the Senior Toggle Notes may be redeemed, in whole or in part, at redemption prices decreasing from 106.125% of the principal amount thereof plus accrued and unpaid interest to par on November 15, 2013 and thereafter.

Prior to November 15, 2010, we may, at our option, redeem up to 35% of the outstanding Notes of either series with net cash proceeds from one or more equity offerings, so long as (i) we pay 111.25% of the principal amount of the Senior Notes redeemed or 112.25% of the principal amount of the Senior Toggle Notes redeemed, as applicable, plus accrued and unpaid interest, (ii) at least 50% of the aggregate principal amount of the applicable series of Notes remain outstanding after such redemption and (iii) we redeem the Notes within 180 days of completing such equity offering.

Change of Control Offer

Upon a change of control, we are required to offer to repurchase the Notes at a purchase price equal to 101% of the principal amount outstanding plus accrued and unpaid interest.

Covenants

The indenture governing the Notes limits our and our restricted subsidiaries’ ability to, among other things: pay dividends; redeem equity interests or make restricted payments or investments; restrict our subsidiaries from paying dividends or making distributions; incur additional debt or issue disqualified stock and preferred stock; sell assets; engage in transactions with affiliates; create liens on assets; and permit restricted subsidiaries to guarantee indebtedness. As of December 31, 2008, we were in compliance with all covenants in the indenture governing the Notes.

Events of Default

The indenture governing the Notes also contains customary events of default, including but not limited to: failure to pay any principal or interest when due; failure to comply with obligations, covenants or agreements contained in the indenture or Notes; cross defaults with other material indebtedness of payment of principal or acceleration of principal payments; material unsatisfied judgments; events of bankruptcy; and invalidity of any guarantee. There were no events of default as of December 31, 2008.

On April 28, 2008, we delivered our 2007 audited financial statements and related management’s discussion and analysis of financial condition and results of operations to the trustee, thus curing a default arising as of March 31, 2008 from our failure to deliver such information within 90 days of the end of the fiscal year as required by the terms of the indenture. We also received a waiver from our lenders under our senior secured credit facilities with respect to this delay.

Guarantees

The Notes are unconditionally guaranteed on an unsecured senior basis by the subsidiaries of Ceridian Corporation that guaranteed the senior secured credit facilities.

Registration Rights

The registration rights agreement requires us to use our best efforts to register the Notes with the Securities and Exchange Commission (the “Commission”) as part of offers to exchange freely tradeable notes for the Notes. In connection with our obligations under the registration rights agreement entered into at the time of the issuance of the Notes, we filed a registration statement on Form S-4 with the Commission that was declared effective on December 22, 2008. Pursuant to the registration rights agreement, commencing on November 9, 2008 and through the date of the completion of the exchange offers, we will pay additional interest on our Notes at a rate of 0.25% per annum. The exchange offers related to this registration were completed on January 29, 2009. We accrued additional interest of $0.5 in the year ended December 31, 2008 and $0.2 in the first quarter of 2009.

Maturities of Debt

The expected minimum mandatory maturities of the long-term debt are shown below:


Year	Amount
2009	$	22.5
2010		22.5
2011		27.9
2012		39.6
2013		22.5
Thereafter		3,415.0

We may be required to make additional payments on the term loans under our senior secured credit facilities with the proceeds of certain incurrences of indebtedness, certain asset sales and a certain percentage of cash flow. No other mandatory redemption of the Notes is required prior to maturity except in the event of a change in control.

Fair Value of Debt

Our debt does not trade in active markets as defined by FSP No. FAS 157-3. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities and the limited trades of our debt, the fair value of long-term debt was estimated to be $2,222.1 at December 31, 2008 and the carrying value was $3,533.8.

Priority of Debt

In the event of liquidation, the senior secured credit facilities have priority over the Notes with respect to the proceeds of Collateral.

Other Debt Financing

At December 31, 2008, Ceridian U.K. maintained one overdraft facility totaling £6.5. There was £2.7 ($4.3) outstanding at December 31, 2008 and no amounts outstanding at December 31, 2007. The £6.5 overdraft facility has been extended to March 2009. Our practice has been to renew this facility on an annual basis.

In addition to the facilities described in this section above, Ceridian Canada had available at December 31, 2008 a committed bank credit facility that provided up to CDN $5.0 for issuance of letters of credit and it is renewed annually at the option of the bank. The amounts of letters of credit outstanding under this facility were CDN $3.5 (USD $2.9) at December 31, 2008.

Capital Lease Obligations

Our capital lease obligations were $2.1 at December 31, 2008.

Predecessor

Revolving Credit Facility

The domestic revolving credit facility that we entered into on November 18, 2005 (“2005 Revolving Credit Facility”) provided up to $250.0 (subject to possible increase, at our request as authorized by our Board of Directors and upon bank approval, up to $400.0) in a combination of advances and letters of credit until November 18, 2010. This facility included a sublimit for $25.0 for swingline loans, a $100.0 U.S. dollar equivalent sublimit for loans made in Canadian dollars to Ceridian Canada (“Canadian subfacility”), and a $50.0 U.S. dollar equivalent sublimit for multicurrency borrowings in certain currencies. The Canadian subfacility was used to meet the ongoing working capital, capital expenditures and general corporate needs of Ceridian Canada. The interest rate on the Canadian subfacility was the Eurocurrency Rate plus 115.0 basis points. Advances under the 2005 Revolving Credit Facility were unsecured. The terms of the 2005 Revolving Credit Facility required that our consolidated debt must not exceed 50% of our consolidated net worth, as defined in the agreement, as of the end of any fiscal quarter and the ratio of earnings before interest and taxes to interest expense on a rolling four quarter basis must be at least 2.75 to 1. The 2005 Revolving Credit Facility also contained covenants that, among other things, limit liens, subsidiary debt, contingent obligations, operating leases, minority equity investments and divestitures. The 2005 Revolving Credit Facility was terminated prior to the Merger.

Ceridian Canada’s net borrowing under the Canadian subfacility was repaid as of September 30, 2007.

Comdata Receivables Securitization Facility

Amounts outstanding under this facility were repaid and the facility was terminated prior to the Merger. Prior to the Merger, under this facility, Comdata sold receivables to a special purpose subsidiary, Comdata Funding Corporation, which resold the receivables to a third party commercial paper conduit (“Conduit”). The interest rate paid by Comdata was typically equal to the Conduit’s pooled A-1/P-1 commercial paper rate (5.9% at September 30, 2007) plus program fees. However, in the event the Conduit was unable to sell commercial paper, the rate would have become the Prime rate or LIBOR plus 1.5% at Comdata’s option. The aggregate amount of receivables serving as collateral amounted to $307.1 at December 31, 2006. The amount outstanding was accounted for as long-term debt and the receivables remained on our consolidated balance sheet even though the receivables, up to the amount outstanding, were not available to satisfy claims of creditors. This facility was subject to financial covenants similar to those included in the 2005 Revolving Credit Facility. Amounts outstanding under this facility were repaid and the facility was terminated prior to the Merger.

Equity Activities

In the period from January 1 to November 9, 2007, we did not repurchase any of our common stock on the open market. During 2006, we repurchased 13,046,500 shares of our common stock for $316.7 on the open market at an average net price of $24.27 per share.

We issued 3,998,858 shares in the period from January 1 to November 9, 2007, in connection with the exercise of stock options and granting of restricted stock awards from treasury stock at a cost of $94.3 and a weighted average price of $23.58 per common share.

Other Debt Financing

At November 9, 2007, Ceridian U.K. maintained two overdraft facilities totaling £7.5. There were no amounts outstanding as of November 9, 2007.

In addition to the facilities described in this section above, Ceridian Canada had available at November 9, 2007, a committed bank credit facility that provided up to CDN $5.0 for issuance of letters of credit and it is renewed annually at the option of the bank.

Financial Covenant Compliance

Our senior secured credit facilities contain a covenant that requires Ceridian, the U.S. Borrower, and its restricted subsidiaries to maintain a maximum ratio of adjusted consolidated secured debt to EBITDA (as defined in and calculated under the senior secured credit facilities (“Credit Facility EBITDA”)) of 6.5 to 1.0, calculated for the trailing four quarters (as determined under our senior secured credit facilities), commencing with the three months ended December 31, 2008. For the test periods commencing:

(1)

between January 1, 2008 and September 30, 2009, the maximum ratio is 6.50 to 1.0;

(2)

between October 1, 2009 and September 30, 2010, the maximum ratio is 6.25 to 1.0;

(3)

between October 1, 2010 and September 30, 2011, the maximum ratio is 6.00 to 1.0;

(4)

between October 1, 2011 and September 30, 2012, the maximum ratio is 5.75 to 1.0;

(5)

between October 1, 2012 and September 30, 2013, the maximum ratio is 5.50 to 1.0;

(6)

between October 1, 2013 and September 30, 2014, the maximum ratio is 5.25 to 1.0;

(7)

after October 1, 2014, the maximum ratio is 5.00 to 1.0.

Failure to comply with this covenant would result in an event of default under our senior secured credit facilities unless waived by our senior secured lenders. An event of default under our senior secured credit facilities can result in the acceleration of our indebtedness under the facilities, which in turn would result in an event of default and possible acceleration of our indebtedness under the indenture governing the Notes and our other debt. As our failure to comply with the covenant described above can cause us to go into default under the agreements governing our debt, management believes that our senior secured credit facilities and this covenant are material to us. As of December 31, 2008, we were in compliance with the covenant described above.

We also measure the ratio of adjusted consolidated total debt to Credit Facility EBITDA because the agreement governing our senior secured credit facilities contains a provision which will result in a decrease of the applicable interest rate of 0.25% on the revolving credit facility if the ratio is lower than 6.25.

For the purposes of calculating Credit Facility EBITDA, the agreement governing our senior secured credit facilities permits us to give pro forma effect to among other things operating expense reductions projected in good faith to result from operational changes occurring within 27 months of the Acquisition. Based on projected expense reductions relating to our four point cost reduction plan, for the quarter ended December 31, 2008, we included a $98.0 pro forma adjustment in determining Credit Facility EBITDA.

EBITDA as presented in the table below is defined as net income plus interest, income taxes, depreciation and amortization. EBITDA is a measure used by management to measure operating performance. EBITDA is also used by investors to measure a company’s ability to service its debt and meet its other cash needs. Management believes EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that are outside the control of operating management. In addition, EBITDA provides more comparability between the historical results of Ceridian and operating results that reflect purchase accounting and the new capital structure.

Credit Facility EBITDA further adjusts EBITDA to exclude unusual items and other adjustments required or permitted in calculating covenant compliance under the indenture governing the notes and our senior secured credit facilities. Credit Facility EBITDA is also used by management to measure operating performance and by investors to measure a company’s ability to service its debt and meet its other cash needs. Management believes that the inclusion of the adjustments to EBITDA applied in presenting Credit Facility EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future.

EBITDA and Credit Facility EBITDA are not recognized terms under GAAP. Accordingly, they should not be used as indicators of, or alternatives to, operating income and net income as measures of operating performance or cash flow from operating activities as a measure of liquidity. Additionally, EBITDA and Credit Facility EBITDA are not intended to be measures of free cash flow available for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Our presentation of EBITDA and Credit Facility EBITDA have limitations as analytical tools, and people who use the financial statements should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Because the definitions of EBITDA and Credit Facility EBITDA (or similar measures) may vary among companies and industries, they may not be comparable to other similarly-titled measures used by other companies. Management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone.

The senior secured credit facilities agreement requires a calculation of Credit Facility EBITDA for the trailing four quarters on a quarterly basis. The following is a reconciliation of our net loss, for the trailing four quarters ending December 31, 2008, to Credit Facility EBITDA as defined above per our senior secured credit facilities and includes pro forma effects of any operating expense reduction or other operating improvements for purposes of determining the ratio of adjusted consolidated secured debt to Credit Facility EBITDA and ratio of adjusted consolidated total debt to Credit Facility EBITDA:


	Trailing Four Quarters Ended December 31, 2008
Net Income	$	(92.4	)
Interest income		(5.0	)
Interest expense		295.9
Income tax benefit		(43.1	)
Depreciation and amortization		177.4

EBITDA		332.8
Purchase accounting impacts (a)		30.7
Severance (b)		6.2
Foreign currency remeasurement loss (c)		21.2
Customer fund/cash equivalent investment write-downs (d)		17.4
Litigation costs (e)		5.8
Restructuring		15.4
Pro forma adjustments for operational changes (f)		98.0
Sponsors’ management fee		4.3
Other (g)		6.8

Credit Facility EBITDA	$	538.6

(a)	Purchase accounting impacts primarily relate to the impacts of the Deferred Revenue Adjustment and Deferred Cost Adjustment.

(b)	Primarily consists of expenses associated with the termination of senior executives or other workforce reductions.

(c)	To facilitate the Merger, we placed $110.0 of U.S. dollar denominated debt in Ceridian Canada which will be repaid through payments from a legal entity with a functional currency in Canadian dollars. This amount represents the foreign currency remeasurement.

(d)	Represents the permanent write-downs of our customer fund investment in Canada and our customer fund and corporate investments in the Reserve Fund.

(e)	Represents charges for legal settlements and litigation costs.

(f)

Represents the amount of annualized expense reductions anticipated as a result of operational changes made as part of our operating improvement plan projected by us in good faith as permitted to be added by the credit agreement governing our senior secured credit facilities. See also “—Overview, Operating Improvement Plan” for discussion regarding our four point cost reduction plan.

(g)	This amount includes charges for costs related to our operating improvement plan and stock-based compensation.

Contractual Obligations

The table below describes the future cash payments for which we are obligated under our financing agreements, capital and operating lease agreements, guaranteed purchase obligations and retirement plans as of December 31, 2008, whether or not they appear on our consolidated balance sheet. Variable interest payments are projected based on interest rates in effect at the end of 2008.


	Payments due by period
	Less than one year		1-3 Years		3-5 Years		More than 5 years		Total
Long-term debt	$	26.8	$	50.4	$	62.1	$	3,415.0	$	3,554.3
Interest payable on long-term debt		319.8		635.4		629.6		468.8		2,053.6
Purchase obligations		5.1		4.0		0.3		—		9.4
Capital leases		1.7		0.3		0.1		—		2.1
Operating leases		37.1		54.5		27.3		47.8		166.7
Postretirement plan obligations		4.1		8.4		8.3		27.5		48.3
Retirement plan obligations		2.4		57.5		90.7		68.5		219.1

Total	$	397.0	$	810.5	$	818.4	$	4,027.6	$	6,053.5

Our long-term debt and capital lease obligations are described in “—Cash Flows” and in Note 10, “Financing.”

The capital lease payments represent scheduled payments under the terms of the lease agreements and include implicit interest. We conduct substantially all of our operations in leased facilities. Most of these leases contain renewal options and require payments for taxes, insurance and maintenance. We also lease equipment for use in our businesses.

Purchase obligations include minimum royalty payments and guaranteed purchase commitments with several vendors.

Payments of retirement plan obligations include employer commitments to fund our defined benefit and postretirement plans and do not include estimated future benefit payments to participants expected to be made from liquidation of the assets in our defined benefit plan trusts. At December 31, 2008, our defined benefit pension plans had a projected benefit obligation that exceeded the fair value of the plans’ assets by $219.1 and our postretirement benefit plan had an accumulated benefit obligation that exceeded the fair value of the plans’ assets by $48.3. This represents a $187.5 decline in the funded status of our plans from December 31, 2007, due primarily to a decrease in the fair value of pension plan assets. We expect to satisfy these remaining obligations through investment income from and appreciation in the fair value of plan assets held in trust as well as by future employer contributions. During 2008, we made contributions of $5.3 to our defined benefit pension plans. As reflected in the above contractual obligations table, we anticipate having to make additional contributions in future years, which is partially the result of the decline in the value of pension plan assets in 2008.

Our planned expenditures for capital assets in 2009 are expected to be $70.0 with an estimated allocation of 77% to HRS, 9% to SVS and 14% to Comdata. The amount of our obligation to vendors for these expenditures at December 31, 2008 was not material and no such amount is included in the table above.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make judgments, estimates, and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and our reported amounts of revenues and expenses during the reported periods. Additionally, management’s judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. Areas that require significant judgments, estimates and assumptions include revenue recognition; the determination of our liability for pensions and other postretirement benefits; the assignment of fair values upon acquisition of goodwill and other intangible assets and testing for impairment; the capitalization, amortization and impairment testing of technology; the valuation of certain customer fund investments

and noncurrent assets, the determination of fair value and estimated expected life related to stock options granted; the determination of the allowance for doubtful accounts and reserve for sales adjustment; and the resolution of tax matters. We use historical experience, qualified independent consultants and all available information to make these judgments and estimates, and actual results will inevitably differ from those estimates and assumptions that are used to prepare the our financial statements at any given time. Despite these inherent limitations, we believe that our Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements and related notes provide a meaningful and fair perspective of our company.

Revenue Recognition

We recognize revenue from the sale of our products and services when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured. Generally, we rely on a signed contract between us and the customer as the persuasive evidence of a sales arrangement. We address these and the other criteria for revenue recognition in the following discussion of types of revenue within our business.

HRS—Repetitive Business

The majority of our HRS revenue is generated by recurring monthly or quarterly fees from our Payroll and Tax Services business, Benefit Services business and LifeWorks business. This revenue is generated by service fees, income from investment of customer funds in lieu of additional fees, software maintenance and subscription fees.

Payroll and Tax Services. Generally, service fees for HRS payroll processing are contracted on a per transaction basis and recognized as revenue when transaction services are provided and the amount is billable. We also recognize payroll revenue from customer funds held temporarily pending remittance to the customers’ employees. These payroll deposits are primarily invested through grantor trusts. We derive and recognize investment income in lieu of additional fees as a component of revenue as earned.

Our tax filing services consist primarily of: (1) collecting funds for federal, state and local employment taxes from customers based on payroll information provided by the customers; (2) remitting funds collected to the appropriate taxing authorities; (3) filing applicable returns; and (4) handling related regulatory correspondence and amendments for customers. Revenue from these tax filing services is billed and recognized as the services are provided, generally on a monthly basis. We hold our customers’ tax filing deposits for the period between collection and remittance of the funds to the applicable taxing authority. These tax filing deposits are invested through a grantor trust. We derive and recognize this investment income in lieu of additional fees as a component of revenue as earned.

Payroll processing and tax filing services are sold separately; accordingly, we have objective evidence of standalone value for most services. Where fair value cannot be established on the undelivered element, revenue (and the related direct costs of revenue) for the delivered elements are deferred and recognized ratably over the remaining repetitive processing period commencing upon completion of implementation consulting services.

Benefit Services. We provide employee health and welfare benefits administration services to our customers. Employee health and welfare benefits administration services include health insurance portability compliance services related primarily to COBRA (Consolidated Omnibus Budget Reconciliation Act). Health and welfare benefits administration services also encompass benefits provided to active employees, such as (1) annual health plan enrollment, (2) ongoing employee enrollment and eligibility services, (3) tuition refund plans, (4) transportation reimbursement under the Transportation Equity Act, and (5) Internal Revenue Code Section 125 plans (Flexible Spending), which include fully administered and self-administered flexible spending accounts and premium-only plans.

We also provide retirement planning services that include: (1) administration services for benefits provided to retired and inactive employees, which include retiree healthcare, disability, surviving dependent, family leave and severance benefits; and (2) defined benefit plan administration, ESOP administration and Qualified Domestic Relations Order administration.

Revenue for COBRA services is generally earned and recognized as the services are provided. Revenue associated with other health and welfare benefits administration and retirement planning services is generally recognized monthly based on the number of employees that receive or participate in the benefit.

Benefit Services are sold separately; accordingly, we have objective evidence of standalone value for most services. Where fair value cannot be established on the undelivered element, revenue (and the related direct costs of revenue) for the delivered elements are deferred and recognized ratably over the remaining repetitive processing period commencing when all elements are delivered.

LifeWorks. We provide work-life, employee assistance, health and productivity, and FMLA administration solutions to our clients. LifeWorks services are delivered through on-line access and telephonically, and through face-to-face counseling provided by referral resources. Contracted fees for these services are generally billed monthly or quarterly. Revenue is generally earned and recognized ratably over the term of the contract based on the number of customer employees served and the level of service.

HRS—Non-Repetitive Business

We generate revenue from delivery of professional services (i.e., data conversion, implementation and training) and shipment of materials.

Revenue from professional services is non-refundable and is determined either on a time and materials basis or firm fixed fee. If these services or materials are sold on a standalone basis revenue is recognized as the professional services or materials are delivered. When professional services or materials are sold as part of a multiple element arrangement, we allocate revenue first to the fair value of the undelivered element(s) and allocate the residual revenue to the delivered element(s) which revenue is typically recognized over the implementation and conversion period of one to four months. In the absence of fair value for an undelivered element(s), the arrangement is accounted for as a single unit of accounting, resulting in a deferral of revenue recognition for the delivered elements until all undelivered elements have been fulfilled, at which time previously deferred revenue is recognized ratably over the remaining expected life of the customer relationship.

SVS

SVS sells stored value cards and provides subsequent activation, reporting and transaction processing services. Customers may also choose to purchase cards alone, without a continuing obligation for services from SVS. SVS recognizes revenue for card sales without services upon shipment.

For card sales with future processing services, revenue on both the card sales and services are deferred and reported on the consolidated balance sheets as deferred income. Costs of the cards sold are deferred and reported on the consolidated balance sheets in other current assets. Costs associated with the services are recognized as incurred. The deferred income and deferred cost on the card sale are both recognized in earnings over the estimated life of the card, which includes the transaction processing period. The recognition period is 30 months, beginning upon activation of the card. The deferred income on the services where we charge a fee upon card activation for unlimited transactions is recognized in earnings over the same 30-month period, beginning when the fee is assessed. The deferred income on the services where we charge a fee each time a transaction is processed is recognized in earnings over the same 30-month period, beginning when the fee is assessed. Our history of providing services to our customers indicates that (1) we can expect activation of a card within approximately eight months following card shipment, and (2) during the six months following the activation of a card, approximately 90% of the services have been performed.

Sales of cards under either arrangement do not include a right of return of the cards shipped.

Comdata

Comdata’s payments system is designed to enable truck drivers to obtain funding for purchases and cash advances at truck stops and other locations en route to their destinations. Drivers may use Comdata’s proprietary Comdata Card to purchase fuel and other approved items, obtain cash advances from automated teller machines or through the use of Comchek drafts and make direct deposits of pay, settlements or trip advances to personal bank accounts. Revenue from payments transactions is based on a per transaction fee that is either a fixed amount or a percentage of the face value of the transaction and is recognized when the transaction is processed.

Comdata purchases accounts receivable due to trucking companies from manufacturers and shippers at a discount and with recourse back to the trucking company in the event of non-payment. This service allows trucking companies to receive payment on shipping invoices sooner. The non-refundable discount represents adequate compensation charged for servicing the receivables over a 30-day period. If the collection period extends beyond 30 days, a non-refundable additional fee is charged for each month of servicing. After 90 days, an uncollected receivable can be returned to the seller for its face value. Comdata recognizes revenue from the discounted fee in the month of the purchase and the additional fees for servicing as it becomes entitled to collect the fee.

Comdata also provides fueling centers with: (1) PC-based, point of sale systems that automate the various transactions that occur at a fuel purchase desk; and (2) “pay at the pump” systems which enable customers to transact card-based fuel purchases at the pump. Revenue from the sale of PC-based point of sale equipment and pay at the pump equipment is recognized based on shipping and installation terms. Recurring service revenue for these activities is recognized as earned. Support and maintenance contracts are invoiced periodically with the revenue recognized on a straight-line basis over the maintenance period. These products and services are all sold separately; accordingly, we have standalone value for each product and service. Separate sales also establish the fair value of each of the products and services sold in the event a customer contracts with us for multiple products and/or services. Sales of equipment under these arrangements do not include a right of return.

Gross Versus Net Revenue

We include in revenue amounts that we bill for and remit to third-party vendors for associated products and services as required on a gross basis as a principal rather than net as an agent when the following conditions are met: (1) we are the primary obligor in the arrangement with the customer; (2) we have credit risk and inventory risk; (3) we have latitude in the establishment of pricing, subject to general economic restraints; and (4) we have full discretion in vendor selection.

Determination of our Allowance for Doubtful Accounts and Reserve for Sales Adjustment

We assess the collectibility of our accounts receivable based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history. The amount established for the allowance for doubtful accounts is dependent on various matters including changes in the customer’s financial condition and general economic factors such as the price of diesel fuel.

We assess the reserve for sales adjustment based on an analysis of historical trends. The amount established for the reserve for sales adjustment is dependent on various matters including customer negotiations and the notification of disputes by the customer.

Assignment of Fair Values Upon Acquisition of Goodwill and Other Intangible Assets and Testing for Impairment

In the event of a business combination, we are required to assign fair values to all identifiable assets and liabilities acquired, including intangible assets such as customer lists, trademarks, technology and covenants not to compete. We are also required to determine the useful life for amortizable assets acquired. These determinations require significant judgments, estimates and assumptions and, when material amounts are involved, we generally utilize the assistance of independent valuation consultants. The remainder of the purchase cost of the acquired business not assigned to identifiable assets or liabilities is then recorded as goodwill. This goodwill amount is further allocated to our reporting units in relation to their respective forecasted cash flows and other relevant assumptions. Although goodwill is no longer subject to amortization, we reassess the carrying value of goodwill at the reporting unit level annually, or more frequently when certain developments occur, for impairment of that value. We perform the annual assessment as of October 1 of each year. As a result of the Merger, each of our reporting units has recorded a significant amount of goodwill.

We completed our annual goodwill impairment assessment and concluded that the estimated fair value of each of our reporting units exceeded its respective carrying value as of October 1, 2008, indicating the underlying goodwill of each reporting unit was not impaired. This was our first goodwill impairment assessment subsequent to the November 9, 2007 Merger. However, based on a combination of factors, including the current economic environment and significant market volatility experienced in the equity and debt markets, we concluded that there were sufficient indicators to require us to perform an interim goodwill impairment analysis as of December 31, 2008 (the interim testing date). Based on our analysis, we concluded that the estimated fair value of each of our reporting units exceeded its respective carrying value as of the interim testing date, indicating the underlying goodwill of each reporting unit was not impaired. However, if difficult market and economic conditions continue over a sustained period, we may experience a decline in the fair value of one or more of our reporting units as compared to the interim testing date levels. Such declines in fair value may require us to record an impairment charge related to goodwill in future periods.

Goodwill is reviewed for impairment based on a two-step test. In the first step, we compare the fair value of each reporting unit with its carrying value. If the recorded value (including goodwill) of a reporting unit exceeds its current fair value, then to the extent that the recorded value of goodwill of the reporting unit exceeds the implied fair value of the reporting unit’s goodwill, an impairment loss is recognized. In the second step, the implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination is determined. That is, the fair value of a reporting unit is allocated to all of the assets and liabilities of that reporting unit including any unrecognized intangible assets and the excess is the implied fair value of goodwill.

In estimating the fair values of the reporting units, we use a combination of the income approach and market-based approach.

•

Income approach – The income approach is a valuation technique which involves discounting estimated future cash flows of each reporting unit to their present value in order to calculate fair value. The discount rate used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in our operations and cash flows and thus the rate of return required by a prospective investor. To estimate cash flows beyond the final year of our model, we apply a terminal value multiple to the final year EBITDA.

•

Market-based approach – We use the guideline public company method, which focuses on comparing our risk profile and growth prospects to select reasonably similar/guideline publicly traded companies.

We estimated the fair value of each reporting unit using a 75% weighting on the income approach and 25% weighting on the market approach. We determined this weighting based upon the following factors (a) we participate in a service industry that has experienced growth due to a general trend toward increased outsourcing, (b) our actual EBITDA results have improved since the Merger even with consideration of the current economic environment, and (c) our forecasted cash flow projections reflect improving margins consistent with our recent trends and strategic initiatives.

A number of significant assumptions and estimates are involved in determining the current fair value of the reporting unit including operating cash flows, markets and market share, sales volumes and prices and working capital changes. We consider historical experience and all available information at the time the fair values of our reporting units are estimated. However, actual fair values that could be realized in an actual transaction may differ from those used to evaluate the impairment of goodwill. The following table summarizes key assumptions for each of our goodwill impairment tests in 2008 and the goodwill balance as of December 31, 2008.


	WACC (1)				EBITDA Multiple (2)		Goodwill Balance as of Dec. 31, 2008
Reporting Unit	October 2008		December 2008		October 2008	December 2008	Goodwill Balance as of Dec. 31, 2008
U.S. Payroll	13.5	%	15.0	%	9.0x	8.5x	$	1,080.8
LifeWorks	13.0	%	15.0	%	8.0x	7.5x		297.8
Benefits	15.0	%	17.0	%	8.0x	7.5x		171.7
Ceridian Canada	13.0	%	15.0	%	8.0x	7.5x		424.4
Ceridian U.K.	14.0	%	16.0	%	8.0x	7.5x		18.9
SVS	14.0	%	16.0	%	8.0x	7.5x		380.2
Comdata	13.5	%	15.0	%	9.0x	8.5x		1,029.0

							$	3,402.8

(1)	WACC is the Weighted Average Cost of Capital used in the Income Approach

(2)	EBITDA Multiple is applied to our final year cash flow projection in the Income Approach

We also test long-lived assets, including amortizing intangible assets, whenever events or changes in circumstances indicate that the carrying value of such an asset or group of assets may not be recoverable. For indefinite-lived intangible assets, we test for impairment on an annual basis, or more frequently if certain events or circumstances occur that could indicate impairment. Events or circumstances that might indicate an impairment of carrying value include:

•

a significant decrease in the market value of the asset or asset group;

•

a significant adverse change in the extent or manner in which the asset or asset group is used or in its physical condition;

•

a significant adverse change in legal factors or in the business climate that could affect the value of the asset or asset group, including an adverse action or assessment by a regulator;

•

an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset or asset group; and

•

a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of the asset or asset group.

When the need for such a test is indicated for long-lived assets and amortizing intangible assets, we consider such factors as whether the amortization of the carrying values for these assets for each operating unit can be recovered through forecasted undiscounted cash flows over their remaining economic life. When evaluating whether our indefinite-lived trade name is impaired, we compare the carrying value to its estimated fair value. The estimate of fair value is based on a relief from royalty method which calculates the cost savings associated with owning rather than licensing the trade name. An estimated royalty rate is applied to forecasted revenue and the resulting cash flows are discounted.

We completed the impairment analysis of our indefinite-lived intangible asset as of the annual assessment date, which consisted of the Ceridian trade name, and concluded that the fair value of the trade name exceeded its carrying value. However, based on the same factors described above for goodwill, we performed an interim impairment analysis of our trade name as of December 31, 2008

(the interim testing date). Based on our analysis, we concluded that the fair value of the Ceridian trade name exceeded its carrying value, indicating that the asset was not impaired. However, if difficult market and economic conditions continue over a sustained period, we may experience a decline in the fair value of our trade name as compared to the interim testing date level. A decline in fair value may require us to record an impairment charge related to our trade name in future periods.

Capitalization, Amortization and Impairment Analysis of Technology

Our technology efforts are substantially for internal use and, as indicated in Note 2, Accounting Policies—Technology, we rely on AICPA Statement of Position 98-1 (“SOP 98-1”) for accounting guidance. Therefore, for our modification or development efforts, we need to identify by nature and by stage of development those costs which are to be capitalized rather than charged to operations as incurred. We also need to identify the point at which the modified or developed technology is ready for use, capitalization of cost will cease and amortization of that cost will begin. Costs incurred subsequent to the ready for use date will generally be charged to operations and only capitalized if justified as a material improvement in the functionality of the capitalized technology product.

We regularly review the carrying value of technology in connection with our impairment analysis of other long-lived assets and recognize a loss when the value of estimated undiscounted net cash flow benefit related to the asset group falls below the unamortized cost, or when abandoned.

Determination of our Liability for Pensions and Other Postretirement Benefits

We present information about our pension and postretirement benefit plans in Note 11, “Retirement Plans.” The determination of the liabilities and expenses for pensions and other postretirement benefits are accomplished with the assistance of independent actuaries using actuarial methodologies and incorporating significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age and mortality). The rate used to discount future estimated liabilities is determined considering three independently prepared yield curves, taking into consideration the timing of the estimated defined benefit payments. The impact on the liabilities of a change in the discount rate of ¹/4 of 1% would be approximately $15.3 and approximately $0.2 to pre-tax earnings in the following year. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations and is generally applied to a five-year average market value of assets. A change in the assumption for the long-term rate of return on plan assets of ¹/4 of 1% would impact pre-tax earnings by approximately $1.3.

Determination of Fair Value and Estimated Expected Life Related to Stock Options Granted

Effective January 1, 2006, we adopted the provisions of, and account for stock-based compensation in accordance with, SFAS 123R. Under the fair value recognition provisions of SFAS 123R, we measure stock-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is usually the vesting period. We elected the modified-prospective method of adopting SFAS 123R under which prior periods are not retroactively restated. The valuation provisions of SFAS 123R apply to awards granted after the effective date. Estimated stock-based compensation expense for awards granted prior to the effective date but that remain unvested on the effective date was recognized over the remaining service period using the compensation cost estimated for the SFAS 123 pro forma disclosures.

The adoption of SFAS 123R had a material impact on our consolidated results of operations and the statement of cash flows. However, we believe that stock-based compensation aligns the interests of employees with the interests of shareholders. See Note 12, “Stock-Based Compensation Plans,” of this report for further information regarding our stock-based compensation plans.

We use the Black-Scholes standard option pricing model (“Black-Scholes model”) to determine the fair value of stock options with term-based vesting conditions. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions of other variables, including the risk-free interest rate and expected volatility of our stock price in future periods.

We use an integrated Monte Carlo simulation model and a trinomial lattice model to determine fair value of the performance-based options. The Monte Carlo model calculates probability of satisfying the market conditions stipulated in the award. This probability is an input into the trinomial lattice model used to fair value the options as well as assumptions of other variables, including the risk-free interest rate and expected volatility of our stock price in future periods.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we adopt a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our net earnings.

The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in our option grants. Existing valuation models, including the Black-Scholes and lattice binomial models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise or forfeiture of those stock-based awards in the future. Some employee stock options may expire worthless, or only realize minimal intrinsic value, as compared to the fair values originally estimated on the grant date and recognized in our financial statements. Alternatively, some employee stock options may realize significantly more value than the fair values originally estimated on the grant date and recognized in our financial statements. Currently, there is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values.

Successor

To determine fair value of both term and performance based stock options, the risk-free interest rate used was based on the implied yield currently available on U.S. Treasury zero coupon issues with remaining term equal to the contractual term of the option. The estimated volatility of our common stock is based on the historical 120-month volatility data for selected comparable public companies and our actual volatility for a six year period before the Merger. Because we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of zero. The amount of stock-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We analyze historical data to estimate pre-vesting forfeitures and record stock-based compensation expense for those awards expected to vest. We recognize term-based stock compensation expense using the straight-line method.

To estimate the expected life of term-based options, we have used the simplified method allowed by Staff Accounting Bulletin No. 110, “Share-Based Payment.” Our historical experience (subsequent to the Merger) is too limited to be able to reasonably estimate expected life and historical experience of options granted by Ceridian Holding subsequent to the Merger.

Predecessor

To determine fair value, we analyzed historical employee exercise and termination data to estimate the expected life assumption. We believed that historical data represented the best estimate of the expected life of a new employee option. We also stratified our employee population based upon distinctive exercise behavior patterns. The risk-free interest rate used was based on the implied yield available on U.S. Treasury zero coupon issues. The estimated volatility of our common stock was based on historical daily volatility levels of our common shares. We believed the historical data represented the best estimate of the volatility. Because we did not anticipate paying any cash dividends, we used an expected dividend yield of zero. The amount of stock-based compensation expense we recognized during a period was based on the portion of the awards that were ultimately expected to vest. We estimated option forfeitures at the time of grant and revised those estimates in subsequent periods if actual forfeitures differed from those estimates. We analyzed historical data to estimate pre-vesting forfeitures and recorded stock-based compensation expense for those awards expected to vest.

Tax Matters

As a company with operations in many states in the United States, as well as in the United Kingdom and Canada, we record an estimated liability and expense for income and other taxes based on what we determine will likely be paid in the various tax jurisdictions in which we operate. The liabilities ultimately realized and paid are dependent on various matters including the resolution of the tax audits in the various affected tax jurisdictions and may differ from the amounts recorded. We record a valuation allowance to reduce our deferred tax assets when it is more likely than not the deferred tax asset will not be realized.

In July 2006, the FASB issued Interpretation 48, “Accounting for Uncertainty in Income Taxes – an amendment of FASB Statement 109” (“FIN 48”). FIN 48 clarifies the application of SFAS 109, “Accounting for Income Taxes,” by establishing a threshold condition that a tax position must meet for any part of the benefit of that position to be recognized in the financial statements. In addition to recognition, FIN 48 provides guidance concerning measurement, derecognition, classification, and disclosure of income tax positions. We adopted the new standard January 1, 2007. As a result of the implementation of FIN 48, we recognized no adjustment in the liability for unrecognized income tax benefits. We are continuing to follow our practice of classifying our interest and penalties related to income taxes as a component of our income tax provision.

Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. On February 2, 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2 which delays the effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 and FSP No. FAS 157-2 are effective for fiscal years beginning after November 15, 2007. We have has elected a partial deferral of SFAS No. 157 under the provisions of FSP No. FAS 157-2 related to its application when evaluating goodwill, other intangible assets and other long-lived assets for impairment and valuing asset retirement obligations and liabilities for exit or disposal activities. The impact of partially adopting SFAS No. 157 did not have a material effect on the results of our operations or financial position. The portion of SFAS No. 157 that will become effective January 1, 2009 is not expected to have an effect on our results of operations or financial position.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of SFAS No. 115, ‘Accounting for Certain Investments in Debt and Equity Securities.’” SFAS No. 159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value in situations in which they are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current period earnings. SFAS No. 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option for any of its existing financial assets and liabilities.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 amends Accounting Research Bulletin (ARB) No. 51 and establishes standards of accounting and reporting on noncontrolling interests in consolidated statements, provides guidance on accounting for changes in the parent’s ownership interest in a subsidiary, and establishes standards of accounting of the deconsolidation of a subsidiary due to the loss of control. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and is not expected to have an effect on our results of operations or financial position.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” The objective of this statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, this statement establishes principles and requirements for how the acquirer: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 and we are currently evaluating the impact of this new standard on our results of operations or financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to provide an enhanced understanding of an entity’s use of derivative instruments, how they are accounted for under SFAS No. 133 and their effect on the entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for fiscal years beginning after December 15, 2008 and in the first quarter of 2009, we will include the required financial statement disclosures commencing with the first quarter of 2009.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets.” FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” and requires enhanced related disclosures. FSP No. 142-3 must be applied prospectively to all intangible assets acquired as of and subsequent to fiscal years beginning after December 15, 2008 and is not expected to have an effect on our results of operations or financial position.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. SFAS No. 162 became effective on November 13, 2008. We adopted SFAS No. 162 during our fiscal quarter ended December 31, 2008 and it did not have any effect on our consolidated financial position and results of operations.

In October 2008, the FASB issued and we adopted FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.” FSP No. 157-3 became effective upon issuance. FSP No. 157-3 clarifies the application of Statement 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The adoption of FSP No. 157-3 did not have a material impact on our condensed consolidated financial statements.

Item 7A.

Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Market Risk

Our primary market risk exposure is interest rate risk. We invest funds held temporarily for our clients in interest bearing instruments, earning interest income in lieu of additional service fees. Interest income from customer funds is recorded as revenue net of any interest credits due clients. In addition, we hold short-term investments for our own account for liquidity purposes and issue debt instruments, with related interest income and interest expense recorded as such in the statement of operations. All interest rate sensitive instruments are held in portfolios for investment purposes, and no such instruments are held in trading portfolios. Our interest rate risk exposures are summarized in the table below.


	Invested Customer Funds			Ceridian Short-term Investments			Variable Rate Debt Instruments			Net Position
*Average balances*
2008	$	3,339.2		$	249.3		$	(2,288.0	)	$	1,300.5
2007	$	3,293.5		$	358.0		$	(405.0	)	$	3,246.5
2006	$	2,998.1		$	296.3		$	(89.8	)	$	3,204.6
*Average interest rate*
2008		2.91	%		2.0	%		5.86	%		(2.44	%)
2007		4.36	%		5.98	%		7.73	%		4.15	%
2006		4.40	%		4.56	%		5.46	%		4.39	%
*Interest income (expense)*
2008	$	97.2		$	5.0		$	(134.0	)	$	(31.8	)
2007	$	143.7		$	21.4		$	(29.3	)	$	135.8
2006	$	132.0		$	13.5		$	(4.9	)	$	140.6

At December 31, 2008, our invested customer funds were $4,739.9, Ceridian short-term investments were $177.2 and variable rate debt instruments were $2,250. In 2008, our interest revenue decreased $46.5 compared to 2007 due to lower interest rates which subtracted $48.7 offset by increased invested balances which added $2.2. In 2007, our interest revenue increased $11.7 compared to 2006, with $13.0 due to higher investment balances offset by a $1.3 decline due to lower interest rates.

We further discuss interest rate derivative contracts in Note 2, “Accounting Policies—Cash and Investments, including Derivatives” and Note 5, “Investing Activity” to our audited consolidated financial statements contained in Part II, Item 8, “Financial Statements and Supplementary Data” of this report.

We manage our interest rate risk by modeling the impact of changes in interest rates on interest income and interest expense. In modeling our overall interest rate market risk, we make assumptions about levels of customer funds, short-term investments, variable rate debt instruments, interest rate derivative instruments and the levels and shapes of the interest rate curves in the United States and Canada. At December 31, 2008, the U.S. Client Funds portfolio held only $50.0 of longer-term securities, we held no interest rate derivative instruments, and we assume no interest rate derivative instruments are purchased for purposes of calculations presented here. The amount of prepayment risk in the investment portfolios is negligible and therefore excluded from this analysis. Also at that date, we had issued $2,250.0 term loans that pay interest based on variable interest rates, an amount that approximately offsets our expected U.S. floating rate assets. Based on these assumptions, we estimate that for rising interest rate scenarios, net interest income will increase $2.7 annually for each 100 basis points increase in interest rates for the full year of 2009. For falling interest rate scenarios, net interest expense will decline by a like amount. In order to mitigate a portion of the variable rate interest exposure under our senior secured credit facilities, effective January 20, 2009, we entered into a three year interest rate swap, pursuant to which we will receive a one month LIBOR and pay a fixed interest rate, resulting in an all-in fixed rate of 4.75% on $250.0 of our senior secured credit facilities. Effective March 19, 2009, we entered into another three-year interest rate swap with a highly rated counterparty. Pursuant to the contract, we will receive one month LIBOR and pay a fixed interest rate, resulting in an all-in effective fixed rate of 4.91% on $250.0 of our senior secured credit facilities. At December 31, 2008 and 2007, we held no interest rate derivative instruments.

Fuel Price Market Risk

Our Comdata business revenue and net earnings is exposed to variability based on changes in the price of diesel fuel and gasoline. In certain cases, Comdata earns fee revenue for card transactions based on a percentage of the total amount of each fuel purchase. An increase or decrease in the price of fuel increases or decreases the total dollar amount of fuel purchases and Comdata revenue, accordingly.

We manage our fuel price risk by modeling the impact of changes in fuel prices on transaction fee revenue and net income. Diesel fuel and gasoline price derivative instruments or similar instruments may be purchased as part of our risk management program and the effects of these instruments are modeled as part of our overall fuel risk sensitivity position. No fuel price derivative instruments were held at December 31, 2008.

As reported by the U.S. Department of Energy, the average price per gallon of highway diesel fuel number 2 was $3.80 in 2008, $2.88 in 2007, and $2.70 in 2006. These rising diesel fuel prices increased Comdata revenue approximately $12.0 in 2008, $3.4 in 2007, and $5.7 in 2006 but were offset by realized losses on diesel fuel price derivative contracts of $1.5 in 2007 and $2.9 in 2006.

In February 2007, we entered into diesel fuel price derivative instruments that had the effect of hedging approximately 30% of our anticipated fuel exposure for 2007 with an average strike price of $2.65 per gallon. We estimate that for diesel fuel number 2, a 10 cent change in the annual average price impacts Comdata revenue and pretax income by $2.0.

Similar to diesel fuel price risk, our Comdata business revenue and net income are subject to variability based on changes in gasoline prices. We estimate that for each 10 cent change in the annual average price of gasoline, Comdata’s revenue and pretax income are impacted $0.5. Due to increases in the average price of gasoline during 2008, 2007 and 2006, Comdata’s revenue was $3.9 higher in 2008, $0.4 higher in 2007 and $0.7 higher in 2006 from what it would have been had gasoline prices remained stable during those years.

Item 8.

Financial Statements and Supplementary Data

Index to Consolidated Financial Statements.

The following financial statements and reports are filed as part of this report:


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Report of Independent Registered Public Accounting Firm		60

Consolidated Statements of Operations for the year ended December 31, 2008, periods November 10, 2007 through December 31, 2007, January 1, 2007 though November 9, 2007, and year ended December 31, 2006		61

Consolidated Balance Sheets as of December 31, 2008 and 2007		62

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the year ended December 31, 2008, periods November 10, 2007 through December 31, 2007, January 1, 2007 though November 9, 2007, and year ended December 31, 2006		63

Consolidated Statements of Cash Flows for the year ended December 31, 2008, periods November 10, 2007 through December 31, 2007, January 1, 2007 though November 9, 2007, and year ended December 31, 2006		67

Notes to Consolidated Financial Statements for the year ended December 31, 2008, periods November 10, 2007 through December 31, 2007, January 1, 2007 though November 9, 2007, and year ended December 31, 2006		68

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Ceridian Corporation:

We have audited the accompanying consolidated balance sheets of Ceridian Corporation (a wholly owned subsidiary of Ceridian Holding Corp.) and subsidiaries as of December 31, 2008 and 2007 (successor), and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for the year ended December 31, 2008 (successor), the periods from November 10, 2007 to December 31, 2007 (successor) and January 1, 2007 to November 9, 2007 (predecessor), and for the year ended December 31, 2006 (predecessor). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ceridian Corporation (a wholly owned subsidiary of Ceridian Holding Corp.) and subsidiaries as of December 31, 2008 and 2007 (successor), and the results of their operations and their cash flows for the year ended December 31, 2008 (successor), the periods from November 10, 2007 to December 31, 2007 (successor) and January 1, 2007 to November 9, 2007 (predecessor), and for the year ended December 31, 2006 (predecessor) in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurements, on January 1, 2008.

/s/ KPMG LLP

Minneapolis, Minnesota

March 30, 2009

CERIDIAN CORPORATION

(A wholly owned subsidiary of Ceridian Holding Corp.)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)


	Successor						Predecessor
	Year Ended December 31, 2008			Period from November 10 to December 31, 2007			Period from January 1 to November 9, 2007			Year Ended December 31, 2006
Revenue	$	1,565.3		$	237.0		$	1,407.9		$	1,565.1
Costs and expenses
Cost of revenue		884.5			128.2			782.0			852.4
Selling, general & administrative		471.6			70.8			451.3			440.1
Research & development		29.2			4.0			26.7			28.6
(Gain) loss on derivative instruments		—			(0.1	)		2.0			2.7
Other (income) expense, net		24.6			6.4			(9.7	)		(10.5	)
Interest income		(5.0	)		(3.4	)		(18.0	)		(13.5	)
Interest expense		295.9			50.3			5.3			6.0

Earnings (loss) before income taxes		(135.5	)		(19.2	)		168.3			259.3
Income tax provision (benefit)		(43.1	)		(6.8	)		72.8			85.7

Net earnings (loss)	$	(92.4	)	$	(12.4	)	$	95.5		$	173.6

See notes to consolidated financial statements.

CERIDIAN CORPORATION

(A wholly owned subsidiary of Ceridian Holding Corp.)

CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share amounts)


	December 31,
	2008			2007
ASSETS
Current assets
Cash and equivalents	$	184.8		$	98.6
Short-term investments		19.7			—
Trade and other receivables, net		657.4			803.8
Prepaids		115.9			60.1
Other current assets		7.7			12.0

Total current assets before customer funds		985.5			974.5
Customer funds		4,765.3			3,826.5

Total current assets		5,750.8			4,801.0
Property, plant and equipment, net		76.1			84.5
Goodwill		3,402.8			3,504.7
Other intangible assets, net		1,304.8			1,444.8
Deferred financing fees		61.4			65.3
Other noncurrent assets		49.3			41.2

Total assets	$	10,645.2		$	9,941.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term debt and current portion of long-term obligations	$	28.7		$	2.6
Accounts payable		89.6			98.5
Drafts and settlements payable		190.9			233.7
Customer advances		39.9			37.8
Accrued interest		23.5			32.8
Deferred revenue		164.5			53.3
Deferred income taxes		—			14.4
Accrued taxes		3.6			11.1
Employee compensation and benefits		70.7			77.0
Other accrued expenses		55.6			84.1

Total current liabilities before customer funds obligations		667.0			645.3
Customer funds obligations		4,740.6			3,809.5

Total current liabilities		5,407.6			4,454.8
Long-term obligations, less current portion		3,511.5			3,532.1
Deferred income taxes		223.8			327.7
Employee benefit plans		272.4			84.0
Other noncurrent liabilities		44.5			55.5

Total liabilities		9,459.8			8,454.1
Stockholders’ equity
Common stock, $.01 par, authorized 10,540,540 shares, issued 50,000 shares		—			—
Paid-in capital		1,550.0			1,544.5
Retained earnings (accumulated deficit)		(104.8	)		(12.4	)
Accumulated other comprehensive loss		(259.8	)		(44.7	)

Total stockholders’ equity		1,185.4			1,487.4

Total liabilities and stockholders’ equity	$	10,645.2		$	9,941.5

See notes to consolidated financial statements.

CERIDIAN CORPORATION

(A wholly owned subsidiary of Ceridian Holding Corp.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Dollars in millions)


														Accumulated Other Comprehensive Income (Loss)
	Common Shares Issued			Treasury Common Stock					Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)		Foreign Currency Translation		Unrealized (loss) gain on Customer Funds			Unrealized gain on Marketable Securities			Pension & Postretirement Liability Adjustment			Total Stockholders’ Equity
	Shares	Amount		Shares		Amount			Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)		Foreign Currency Translation		Unrealized (loss) gain on Customer Funds			Unrealized gain on Marketable Securities			Pension & Postretirement Liability Adjustment			Total Stockholders’ Equity
Balance on January 1, 2006	151,567,406	$	1.5	(6,848,402	)	$	(144.1	)	$	931.0		$	693.4	$	48.9	$	(0.9	)	$	3.2		$	(241.2	)	$	1,291.8
Net earnings	—		—	—			—			—			173.6				—			—			—			173.6
Foreign currency translation	—		—	—			—			—			—		3.6		—			—			—			3.6
Change in unrealized gain (loss), net of tax of $(0.9) and $0.6	—		—	—			—			—			—		—		(1.1	)		1.5			—			0.4
Realized net (gain), net of income tax of $(0.0) and $(0.9)	—		—	—			—			—			—		—		0.1			(1.4	)		—			(1.3	)
Pension & postretirement liability adjustment, net of tax of $119.8	—		—	—			—			—			—		—		—			—			223.4			223.4

Total comprehensive income																										399.7
Pension & other postretirement adjustment for adoption of SFAS 158, net of tax of $(103.9)	—		—	—			—			—			—		—		—			—			(196.6	)		(196.6	)
Exercises of stock options	—		—	8,724,312			197.7			(28.0	)		—		—		—			—			—			169.7
Restricted stock awards, net	—		—	93,495			2.4			(1.2	)		—		—		—			—			—			1.2
Employee stock purchase plans	—		—	1,095			—			0.1			—		—		—			—			—			0.1
Repurchases	—		—	(13,052,441	)		(316.8	)		—			—		—		—			—			—			(316.8	)
Tax benefit from stock options	—		—	—			—			22.1			—		—		—			—			—			22.1

Balance on December 31, 2006	151,567,406	$	1.5	(11,081,941	)	$	(260.8	)	$	924.0		$	867.0	$	52.5	$	(1.9	)	$	3.3		$	(214.4	)	$	1,371.2

See notes to consolidated financial statements.

CERIDIAN CORPORATION

(A wholly owned subsidiary of Ceridian Holding Corp.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Dollars in millions)


														Accumulated Other Comprehensive Income (Loss)
	Common Shares Issued			Treasury Common Stock					Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)		Foreign Currency Translation		Unrealized (loss) gain on Customer Funds			Unrealized gain on Marketable Securities			Pension & Postretirement Liability Adjustment			Total Stockholders’ Equity
	Shares	Amount		Shares		Amount			Additional Paid-In Capital			Retained Earnings (Accumulated Deficit)		Foreign Currency Translation		Unrealized (loss) gain on Customer Funds			Unrealized gain on Marketable Securities			Pension & Postretirement Liability Adjustment			Total Stockholders’ Equity
Balance on January 1, 2007	151,567,406	$	1.5	(11,081,941	)	$	(260.8	)	$	924.0		$	867.0	$	52.5	$	(1.9	)	$	3.3		$	(214.4	)	$	1,371.2
Net earnings	—		—	—			—			—			95.5		—		—			—			—			95.5
Foreign currency translation	—		—	—			—			—			—		41.2		—			—			—			41.2
Change in unrealized gain (loss), net of tax of $4.6 and $0.0	—		—	—			—			—			—		—		7.0			0.1			—			7.1
Realized net (gain), net of tax of $(0.0) and $(0.9)	—		—	—			—			—			—		—		0.1			(2.8	)		—			(2.7	)
Pension & postretirement liability adjustment, net of tax of $6.2	—		—	—			—			—			—		—		—			—			21.1			21.1

Total comprehensive income																										162.2
Exercises of stock options	—		—	3,845,959			90.0			(16.8	)		—		—		—			—			—			73.2
Restricted stock awards, net	—		—	(76,874	)		1.7			4.9			—		—		—			—			—			6.6
Employee stock purchase plans	—		—	51,192			0.1			36.9			—		—		—			—			—			37.0
Repurchases	—		—	—			—			—			—		—		—			—			—			—
Tax benefit from stock options	—		—	—			—			37.0			—		—		—			—			—			37.0

Balance on November 9, 2007	151,567,406	$	1.5	(7,261,664	)	$	(169.0	)	$	986.0		$	962.5	$	93.7	$	5.2		$	0.6		$	(193.3	)	$	1,687.2

See notes to consolidated financial statements.

CERIDIAN CORPORATION

(A wholly owned subsidiary of Ceridian Holding Corp.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (continued)

(Dollars in millions)


												Accumulated Other Comprehensive Income (Loss)
	Common Shares Issued			Treasury Common Stock			Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Foreign Currency Translation			Unrealized (loss) gain on Customer Funds		Unrealized gain on Marketable Securities			Pension & Postretirement Liability Adjustment			Total Stockholders’ Equity
	Shares	Amount		Shares	Amount		Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)			Foreign Currency Translation			Unrealized (loss) gain on Customer Funds		Unrealized gain on Marketable Securities			Pension & Postretirement Liability Adjustment			Total Stockholders’ Equity
Balance on November 10, 2007	—		—	—		—		—		—			—			—		—			—			—
Net loss	—		—	—		—		—		(12.4	)					—		—			—			(12.4	)
Foreign currency translation	—		—	—		—		—		—			(42.7	)		—		—			—			(42.7	)
Change in unrealized gain (loss), net of tax of $3.4 and $(0.2)	—		—	—		—		—		—			—			5.8		(0.3	)		—			5.5
Pension & postretirement liability adjustment, net of tax of $(4.9)	—		—	—		—		—		—			—			—		—			(7.5	)		(7.5	)

Total comprehensive loss																								(57.1	)
Equity contributions, net of $55.8 of equity issuance costs	50,000		—	—		—		1,544.2		—			—			—		—			—			1,544.2
Stock-based compensation	—		—	—		—		0.3		—			—			—		—			—			0.3

Balance on December 31, 2007	50,000	$	—	—	$	—	$	1,544.5	$	(12.4	)	$	(42.7	)	$	5.8	$	(0.3	)	$	(7.5	)	$	1,487.4

See notes to consolidated financial statements.

CERIDIAN CORPORATION

(A wholly owned subsidiary of Ceridian Holding Corp.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (continued)

(Dollars in millions)

Accumulated Other Comprehensive Income (Loss)

Common Shares Issued

Treasury Common Stock

Additional
Paid-In
Capital

Retained
Earnings
(Accumulated
Deficit)

Foreign
Currency
Translation

Unrealized
(loss) gain on
Customer
Funds

Unrealized
gain on
Marketable
Securities

Pension &
Postretirement
Liability
Adjustment

Total
Stockholders’
Equity

Shares

Amount

Shares

Amount

Balance on January 1, 2008

50,000

—

1,544.5

(12.4

)