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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2002

or

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

For transition period from__________________________to_____________________

Commission file number:     1-15168

CERIDIAN CORPORATION
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:     (952) 853-8100

Former name, former address and former fiscal year if changed from last report: Not Applicable

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

                           YES    x    NO    o

The number of shares of registrant’s Common Stock, par value $.01 per share, outstanding as of July 31, 2002, was 148,462,209.

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q

INDEX

In the opinion of Ceridian Corporation (“Ceridian” or the “Company”), the unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals, except as set forth in the notes to consolidated financial statements) necessary to present fairly the Company’s financial position as of June 30, 2002, and results of operations for the three and six month periods and cash flows for the six month periods ended June 30, 2002 and 2001.

	The results of operations for the six month period ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.

	The consolidated financial statements should be read in conjunction with the notes to consolidated financial statements.

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FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS

See notes to consolidated financial statements.

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See notes to consolidated financial statements.

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See notes to consolidated financial statements.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

STOCKHOLDERS’ EQUITY

COMPREHENSIVE INCOME (LOSS)

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

FINANCING

In June 2002, Comdata entered into a $150.0 receivables securitization facility with up to a three-year term involving certain of its trade receivables (the “Receivables”). The securitization facility is subject to financial covenants similar to those included in Ceridian’s revolving credit facility and consists of two steps: In the first step, Comdata Funding Corporation (“CFC”), a bankruptcy-remote special purpose subsidiary of Comdata, buys and accepts capital contributions of the Receivables in transactions intended to constitute true sales or other outright conveyances; in the second step, CFC “sells” undivided interests in those Receivables to a third-party multi-seller commercial paper conduit (the “Conduit”) or its liquidity banks (together with the Conduit, the “Purchasers”) in transactions reported as secured loans. Although title to the Receivables passes to CFC under the first step of the facility and the Receivables are no longer available to satisfy claims of Comdata’s creditors, Comdata has agreed to act as the servicing agent for the Receivables acquired by CFC in exchange for a servicing fee of 1% per annum on the average outstanding balance of the Receivables. Ceridian has guaranteed Comdata’s performance as both originator of and servicing agent for the Receivables.

CFC may increase or decrease its use of the securitization facility on a monthly basis provided sufficient qualified Receivables exist to support the Purchasers’ investment under the second step. CFC is obligated to pay interest on the invested amount outstanding either at the Conduit’s pooled A-1/P-1 commercial paper rate (which was 1.84% at June 30, 2002), or, in the event the Conduit is unable to issue commercial paper, at CFC’s choice of the prime rate or LIBOR plus 1.5% per annum. In addition, CFC must pay a monthly program fee of 0.125% per annum on the average invested amount outstanding during the preceding month and a monthly facility fee equal to 0.25% per annum on 102% of the average facility size (whether used or unused) during the preceding month. Both of these fees are included in interest expense in Ceridian’s consolidated income statement.

The invested amount outstanding under the securitization facility at June 30, 2002 was $100.0, and the aggregate amount of Receivables encumbered by the Purchasers at that date was $190.4. The invested amount outstanding under the second step of the facility is accounted for as long-term debt on Ceridian’s consolidated balance sheet, and even though the Receivables are not available to satisfy claims of creditors of any of the companies other than CFC, the Receivables remain on Ceridian’s consolidated balance sheet in accordance with GAAP.

The proceeds of $100.0 from the secured borrowing under the securitization facility, along with a payment of $20.0 earlier in second quarter 2002, reduced the amount outstanding under the Company’s $350.0 revolving credit facility dated January 31, 2001 to $100.0 at June 30, 2002, compared to $235.0 at December 31, 2001. In addition, at June 30, 2002, letters of credit totaling $2.0 remained outstanding under the revolving credit facility. Other debt outstanding at June 30, 2002 amounted to $3.0, compared to $2.9 at December 31, 2001.

As of June 30, 2002, unused borrowing capacity under the securitization facility, subject to the availability of qualified Comdata receivables, and the revolving credit facility amounted to $298.0 and the Company was in compliance with all covenants related to these facilities.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

ACCOUNTING CHANGES AND CHANGE IN PRESENTATION

Accounting for Goodwill

On January 1, 2002, new accounting rules for business combinations and accounting for goodwill and other intangibles (FAS 141 and 142) became effective for Ceridian. As a result and from that date forward, goodwill will no longer be amortized against earnings and goodwill balances will be subject to impairment review on at least an annual basis. Furthermore, classes of intangible assets have been further defined under these rules, which caused Ceridian to transfer the $1.3 unamortized balance of an intangible asset, representing the estimated value of an assembled workforce, to goodwill as of January 1, 2002. Certain minor amounts were reclassified between classes of intangibles under the new rules. The pro forma effect of cessation of goodwill amortization and reclassification of intangibles would have increased earnings from continuing operations for second quarter 2001 by $7.6, or $0.05 per diluted common share, and for the first half of 2001 by $15.3, or $0.10 per diluted common share.

Compliant with the transitional requirements of the new accounting rules, Ceridian, assisted by an independent business valuation firm, completed its assessment in June 2002 and determined that there was no impairment of the Company’s goodwill as of January 1, 2002, the measurement date prescribed by these rules. Furthermore, after consideration of the factors prescribed in these rules that might indicate a risk of impairment, the Company, through its own self assessment, finds no indication of goodwill impairment at June 30, 2002.

Change in Presentation of Freight Billings

During the second quarter of 2002, the Company made a change in its accounting for customer freight billings to ensure consistent treatment throughout the Company. Prior to the second quarter of 2002, certain freight billings, primarily in Canada, had been netted against the corresponding freight charges in cost of revenue. Effective for the second quarter 2002, all freight billings are now included in revenue and all freight charges are included in cost of revenue, in accordance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs.” Amounts for prior periods have been reclassified to conform to the current presentation. The effect of this change on each quarter of 2001 and the first quarter of 2002 was an increase to both revenue and cost of revenue of approximately $2.0.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

DERIVATIVE SECURITIES

During the reported periods Ceridian maintained interest rate collars and swaps to hedge interest rate risk in its client funds and corporate cash portfolios. These derivative securities provide that if one month LIBOR is below a floor, the counterparty makes a payment to Ceridian. Likewise, if one month LIBOR is above a cap, Ceridian makes a payment to the counterparty. These payments are reported in HRS revenue. Counterparties are all commercial banks with debt ratings of A or better. The maximum length of any derivative security is approximately 5.5 years.

The fair market value of the derivative securities is reported in the non-current asset section of the balance sheet. The fair market value increased from $24.3 at December 31, 2001 to $36.7 at June 30, 2002. This increase in value was primarily due to a decline in forward interest rates net of collections of cash payments from counterparties of $13.0 during the first half of 2002. Ceridian expects to collect an additional $22.0 during the next 12 months.

At June 30, 2002, the net unrealized gain related to these securities amounted to $22.2 net of deferred income taxes of $11.9 and is reported in other comprehensive income. This compares to a gain of $14.1 net of taxes of $7.6 at December 31, 2001.

OTHER EXPENSE (INCOME)

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

OTHER EXPENSE (INCOME) (Continued)

Unusual Losses (Gains)

During first quarter 2002, Ceridian announced a series of actions intended to consolidate certain operations in both of its business segments and recorded accrued exit costs of $9.0. A plan to consolidate certain HRS payroll and tax filing processing services, previously conducted in 25 district offices, into 4 regional processing centers resulted in the accrual of $7.5 for exit costs. Of the $7.5 accrual, $5.3 relates to severance costs for 317 employees, including 181 terminated by June 30, 2002, and $2.2 represents other exit costs, primarily related to lease termination costs. Consolidation of certain Comdata facilities resulted in accrued severance costs of $1.0 for 76 employees, including 44 terminated by June 30, 2002, and other exit costs of $0.5, primarily related to lease termination costs.

The Company also recorded a $4.9 asset write-down of internally developed software costs in the first quarter of 2002 as a result of the February 2002 acceptance of the software technology provided under a March 2001 agreement with Ultimate Software Group, Inc. (“Ultimate”). Also during first quarter 2002, a periodic reassessment of the Company’s environmental obligations revealed a reduced requirement for certain of these obligations that were previously established; and, as a result, $4.1 was credited to other expense (income) and removed from other noncurrent liabilities.

During second quarter 2001, the Company incurred litigation costs of $53.7 of which $52.4 related to the Comdata Flying J litigation. Also during the first half of 2001, the Company recognized a gain of $13.6 from the sale of a significant portion of its holding of HotJobs.com, Ltd. (“Hot Jobs”). In addition, during first quarter 2001, the Company accrued exit costs of $9.9, less recoveries of $3.2 from first quarter 2000 charges, and asset write-downs of $6.1. These accrued exit costs were paid in full by December 31, 2001.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

INVESTING ACTIVITY

At June 30, 2002 and December 31, 2001, short-term investments included U.S. government agency notes at amortized cost (which approximates fair value) and money market securities that represent funds set aside to support liabilities for deposits from benefits services customers.

At June 30, 2002 and December 31, 2001, investments — cost basis included investments that represent a less than 20% equity interest in affiliated companies, notably U.S.I. Holdings Corporation, acquired in December 2001 for $15.0 and SASH Management, L.L.C. d/b/a Gift Check Solutions, acquired in April 2002, for $0.6. At December 31, 2001, this amount also included $5.0 of the initial $10.0 payment to Ultimate related to the acceptance of the software, which was reclassified to software and development cost in February 2002 when acceptance occurred. Also at that time, Ceridian advanced $6.0 as a prepayment toward minimum monthly license fees for use of the software in 2003 and recorded this amount in other current assets.

During first half of 2002, net investing cash outflows included $15.5 for the March acquisition of the outstanding stock of SYLINQ Corporation (“SYLINQ”), a national employee benefits administration outsourcer specializing in automated enrollment and eligibility management. The acquisition resulted in the recording of $15.7 of goodwill and other intangible assets, subject to further evaluation of the intangible assets acquired. SYLINQ’s revenue for its most recent fiscal year was $3.3. During second quarter 2002, there were net investing cash outflows of $0.6 for a 19.9% interest in SASH Management, L.L.C. d/b/a Gift Check Solutions and $8.9 for certain assets of HR Comply, a provider of online human resource and payroll employment compliance services. The acquisition of HR Comply brought $9.9 of goodwill and other intangibles to the balance sheet. HR Comply’s revenue for its previous fiscal year was $6.2.

During the first quarter of 2001, Ceridian sold 1,020,000 shares of HotJobs common stock for aggregate proceeds and a gain of $12.3, which was included in other expense (income). During the second quarter of 2001, Ceridian sold an additional 400,564 shares of HotJobs common stock for aggregate proceeds of $1.3 also included in other expense (income).

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

CUSTOMER FUNDS

Payroll and Tax Filing Funds

Payroll and tax filing funds and the offsetting obligations amounted to $2,481.3 at June 30, 2002 and $2,126.4 at December 31, 2001. This amount varies significantly during the year and averaged $2,036.5 and $2,097.8, respectively, for the six-month periods ended June 30, 2002 and 2001. The following tables provide information on cost and market price for various classifications of fund investments and amounts by maturity date.

Investments of Payroll and Tax Filing Client Funds

Investments of Payroll and Tax Filing Funds by Maturity Date

Benefit Services Funds

In connection with its benefits services operations, Ceridian receives funds on behalf of its customers for remittance to employers, insurance providers and others. These funds are not held in trust. At June 30, 2002, the amount of customer funds held for this purpose was $57.9 of which $30.9 was included in cash and equivalents and $27.0 in short-term investments. At December 31, 2001, the amount of customer funds held for this purpose was $44.5 of which $22.5 was included in cash and equivalents and $22.0 in short-term investments. The liability related to these funds is equal to the asset amount and is reported in “Drafts and customer funds payable” in the Company’s balance sheet. Investment income earned on these funds constitutes fees under agreements with customers and is included in revenue.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)

CAPITAL ASSETS

Amortization for other intangible assets held at June 30, 2002 is estimated to be $15.3 for 2002, $14.6 for 2003, $14.4 for 2004, $12.1 for 2005 and $10.7 for 2006.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002
(Dollars in millions, except per share data)
(Unaudited)