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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 March 31, 2003

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     YES x           NO o

The number of shares of registrant’s Common Stock, par value $.01 per share, outstanding as of April 30, 2003, was 148,099,691.

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q

INDEX

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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
March 31, 2003
(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
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

EMPLOYEE PLANS

Stock Plans

We account for our stock-based compensation plans under the intrinsic method of APB Opinion No. 25 and related Interpretations. Under FAS 148, we are required to disclose the pro forma effects on reported net earnings and earnings per share that would have resulted if we elected to use the fair value method of accounting for stock-based compensation on an interim basis. This disclosure is presented in the accompanying table. We employ the Black-Scholes option pricing model to determine the fair value of stock option grants and employee stock purchase plan purchases.

Pro Forma Effect of Fair Value Accounting

Retirement Plans

We maintain defined benefit pension plans for participating employees in the U.S. and in the UK. The U.S. plans include a principal plan that was offered to employees until it was closed on January 2, 1995. Inactive participants in this plan represent approximately 90% of the total participants. The other U.S. defined benefit plan is a supplemental plan that is not subject to ERISA. At December 31, 2002, the aggregate projected benefit obligation for these plans exceeded the aggregate fair value of plan assets by $239.2. The net periodic pension cost (credit) for these defined benefit pension plans for the first quarter of 2003 amounted to $2.6 compared to $(0.5) in the first quarter of 2002. We used assumptions of a 6.75% discount rate, a long-term rate of return on plan assets of 8.75% and a rate of compensation increase of 4.0% in determining the 2003 net periodic pension cost.

During the first quarter of 2003, we made a voluntary employer cash contribution to the principal plan of $4.1.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

OTHER EXPENSE (INCOME)

During the first quarter of 2002, we announced a series of actions intended to consolidate certain operations in both of our 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 related to severance costs for 317 employees, all of whom were terminated by December 31, 2002, and $2.2 represented other exit costs, primarily related to lease terminations. Consolidation of certain Comdata facilities resulted in accrued severance costs of $1.0 for 76 employees, including 67 terminated by March 31, 2003, and other exit costs of $0.5, primarily related to lease terminations.

HRS 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 The Ultimate Software Group, Inc. (which this report refers to as “Ultimate”). Also during the first quarter of 2002, we conducted a periodic reassessment of our environmental obligations, which revealed a reduced requirement for certain of these obligations that were previously established. As a result, we credited $4.1 to other expense (income) and removed that amount from other noncurrent liabilities.

In the fourth quarter of 2002, we reviewed the status of accrued exit costs and revised the estimated amounts to reduce the severance cost provisions made by HRS in the first quarter of 2002 by $0.8 and in the first quarter of 2000 by $0.3 and by Comdata in the first quarter of 2002 by $0.3. We also incurred additional expense in HRS for severance costs of $1.3, involving 81 employees (all terminated by December 31, 2002), and other exit costs of $2.9 and in Comdata for severance costs of $0.6, involving 41 employees (all of whom were terminated by March 31, 2003), and other exit costs of $1.1. We paid all of the additional HRS severance costs during the fourth quarter of 2002. The other exit costs largely represented lease commitments, net of expected recoveries.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

OTHER EXPENSE (INCOME) (Continued)

Accrued Exit Costs

INVESTING ACTIVITY

Derivative Securities

During the reported periods we maintained interest rate contracts to hedge interest rate risk in our customer funds and corporate cash portfolios. These derivative securities provide that if one-month LIBOR is below a floor, the counterparty makes a payment to us. Likewise, if one-month LIBOR is above a cap, we make a payment to the counterparty. These payments increase or decrease investment income from customer funds as 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 5.2 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 decreased from $71.4 at December 31, 2002 to $70.3 at March 31, 2003. This decrease in value was primarily due to a decline in forward interest rates net of collections of cash payments from counterparties of $7.3 during the first three months of 2003. Based upon future expected interest rates as determined from LIBOR futures prices in effect at the close of business on March 31, 2003, we expect to collect an additional $30.2 during the next 12 months.

At March 31, 2003, the net unrealized gain related to these securities amounted to $45.3, after reduction for deferred income taxes of $24.4, and is reported in other comprehensive income. This compares to a net unrealized gain of $45.9, after reduction for deferred income taxes of $24.7, at December 31, 2002.

In April 2003, Comdata executed diesel fuel price hedge contracts to hedge the variability of Comdata revenue from customer contracts in which Comdata fees are determined as a percentage of pump fuel prices. These contracts hedge approximately half of the expected change in total Comdata revenue due to changes in diesel fuel prices for the period June 1 to December 31, 2003.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

INVESTING ACTIVITY (Continued)

Investments

During March 2003, we paid $3.0 to acquire from the issuer 750,000 unregistered shares of the common stock of Ultimate and a warrant to purchase an additional 75,000 unregistered common shares at a price of $4.00 per share. At December 31, 2002 and March 31, 2003, we also held 785,000 Ultimate common shares purchased on the open market. Our holdings of Ultimate represent an equity interest of approximately 9.2%. In addition, we held 919,227 common shares of U.S.I Holdings Corporation (which this report refers to as “USIH”) at December 31, 2002 and March 31, 2003. These securities are recorded at cost and treated as “available for sale” securities. The carrying value of these securities has been adjusted at each balance sheet date to reflect the market price reported by the stock exchange that lists those securities. The amount of this change is reported as unrealized gain or loss from marketable securities in comprehensive income. The carrying values of our holdings of Ultimate amounted to $6.0 at March 31, 2003 and $2.9 at December 31, 2002. The carrying values of our holdings of USIH amounted to $9.6 at March 31, 2003 and $10.8 at December 31, 2002. At March 31, 2003, the net unrealized gain related to these securities amounted to $0.3, after reduction for deferred income taxes of $0.2, and is reported in other comprehensive income. This compares to a net unrealized gain of $1.0, after reduction for deferred income taxes of $0.6, at December 31, 2002.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

FINANCING

Debt Instruments

At December 31, 2002, we maintained two major credit facilities described below. We also maintain an overdraft account in our UK subsidiary with outstanding balances of $2.2 at March 31, 2003 and $2.0 at December 31, 2002. A note payable for $1.5 due in January 2003 to a creditor that was also a customer was converted into a customer advance at the maturity date of the note in connection with a sales arrangement. Therefore, the non-cash settlement of the note does not appear in the statement of cash flows.

In June 2002, Comdata entered into a $150.0 receivables securitization facility with up to a three-year term that uses Comdata trade receivables as collateral for borrowings. The amount outstanding under this facility at December 31, 2002 was $150.0, and we have maintained that amount through March 31, 2003. The aggregate amount of receivables serving as collateral amounted to $182.6 at March 31, 2003 and $173.3 at December 31, 2002. The amounts outstanding as long-term debt and the collateralized receivables remain on our consolidated balance sheet.

The domestic revolving credit facility that we initiated in January 2001 provides up to $350.0 for a combination of advances and up to $50.0 of letters of credit until March 2006. We had no activity in this facility during the first quarter of 2003, so the balances outstanding remain at $40.0 for advances and $2.3 for letters of credit. Payments under this facility during the first quarter of 2002 amounted to $15.0. At March 31, 2003, we have unused borrowing capacity under the domestic revolving credit facility of $307.7, of which we have designated $150.0 as backup to the receivables securitization facility.

We remain in compliance with covenants under our credit facilities at March 31, 2003.

Equity Instruments

During the first quarter of 2003, we paid $9.1 to repurchase 675,800 shares of our common stock on the open market at an average net price of $13.48 per share. As of March 31, 2003, we may repurchase up to 11,531,200 additional shares of our common stock under an existing authorization from our board of directors.

CUSTOMER FUNDS

Effective in 2003, we report our benefits services funds together with our payroll and tax filing funds and present the combined amount as “customer funds” in our balance sheet. The related obligations are similarly reported on a combined basis. We believe that such a presentation better reflects our practice of utilizing benefits services customer deposits to meet the related customer obligation, even though the use of these funds is not restricted by law or regulation. Amounts for prior periods have been restated to conform to the current presentation.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

CUSTOMER FUNDS (Continued)

The balance sheet effect of the change reclassified benefit services assets previously reported in “cash and equivalents” and “short-term investments” ($33.4 and $27.0 at December 31, 2002) into “customer funds” and reclassified related liabilities previously presented in “drafts and customer funds payable” ($60.4 at December 31, 2002) into “customer funds obligations.” The effect on the statement of cash flows eliminated this “cash and equivalents” amount from the operations “cash and equivalents balance,” any changes in these “short-term investments” from investing cash flows, and any changes in these “customer funds payable” from working capital operating cash flows.

Customer funds and the offsetting obligations amounted to $2,906.2 at March 31, 2003 and $2,440.9 at December 31, 2002. This amount varies significantly during the year and averaged $2,414.4 and $2,218.1, respectively, for the three-month periods ended March 31, 2003 and 2002. The following tables provide information on cost and market price for various classifications of customer fund investments and amounts by maturity date.

Investments of Customer Funds

Investments of Customer Funds by Maturity Date

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

CAPITAL ASSETS

Depreciation and Amortization

Amortization for other intangible assets held at March 31, 2003 is estimated to be $16.2 for 2003, $15.8 for 2004, $13.8 for 2005, $11.1 for 2006 and $7.8 for 2007.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Dollars in millions, except per share data)
(Unaudited)

SEGMENT DATA

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2003

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements regarding Ceridian Corporation contained in this report that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “ likely,” “expects,” “anticipates,” “estimates,” “believes” or “plans,” or comparable terminology, are forward-looking statements. Forward-looking statements are based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in these forward-looking statements. Important factors known to us that could cause such material differences are identified and discussed from time to time in our filings with the Securities and Exchange Commission, including those factors discussed in this quarterly report on Form 10-Q and discussed in our Annual Report on Form 10-K for the year ended December 31, 2002, which factors are also incorporated herein by reference. Such important factors include:

•

Our ability to attract and retain customers

•

The effect of changes in governmental regulations relating to employee benefits, funds transfer and other matters

•

Success in introducing and selling new or enhanced products and services

•

Economic factors such as trade, monetary and fiscal policies and political and economic conditions

•

Risks associated with litigation and similar matters

•

Problems effecting system upgrades and conversions

•

Our ability to adapt to changing technology

•

Acquisition risks

•

Competitive conditions

•

International operations risks

•

Success of implementation of plans to improve performance of U.S. HRS business

•

Our ability to increase operating efficiencies and reduce costs

•

Liability as a portability and retirement plan administrator

•

Comdata’s relationships with key vendors and suppliers

We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any future disclosure we make on related subjects in future reports to the SEC.

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
March 31, 2003

RESULTS OF OPERATIONS

Consolidated Results — Overview

Our net earnings for the first quarter of 2003 amounted to $26.7 million, or 18¢ per diluted share, compared to net earnings of $18.6 million, or 12¢ per diluted share, in the same quarter of 2002. Our revenue for the first quarter of 2003 amounted to $314.6 million compared to $301.8 million in the same quarter of 2002. Net earnings for the first quarter of 2002 included net unusual losses before income taxes of $9.8 million that are further described later in this discussion under the heading “Unusual Items.”

In the following tables and text, we use certain abbreviations described below:

•

“SG&A expense” represents selling, general and administrative expense

•

“R&D expense” represents research and development costs

•

“EBIT” represents earnings before interest and taxes

•

“HRS” relates to our human resource solutions division and subsidiaries

•

“Comdata” relates to the consolidated results of our transportation and gift card subsidiary, Comdata Network, Inc., and its subsidiaries

•

“Other” relates to the results of our corporate center operations that were not allocated to these two business segments

•

“NM” represents percentage relationships in the tables that are not meaningful

Statements of Operations First Quarter Comparisons

(Dollars in millions, except per share data)