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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 September 30, 2003

or

[  ] 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

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         

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

               YES    X    NO         

The number of shares of registrant’s Common Stock, par value $.01 per share, outstanding as of October 31, 2003, was 149,394,907.

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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
September 30, 2003
(Dollars in millions, except per share data)
(Unaudited)

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 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 on an interim basis 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. 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.

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. Active participants in this plan represent approximately 6% 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 was $2.4 for the third quarter of 2003 compared to $(0.5) in the third quarter of 2002 and $7.4 for the first nine months of 2003 compared to $(1.4) for the first nine months 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 nine months of 2003, we made voluntary employer cash contributions of $28.7 to the principal U.S. plan and to the supplemental U.S. plan of $0.5 during the second quarter of 2003 and $3.3 during the second quarter of 2002.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003
(Dollars in millions, except per share data)
(Unaudited)

INVESTING ACTIVITY

Derivative Securities
During the reported periods we maintained interest rate contracts to hedge interest rate risk in our U.S. 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.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003
(Dollars in millions, except per share data)
(Unaudited)

INVESTING ACTIVITY (Continued)

The fair market value of these interest rate 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 $67.6 at September 30, 2003. This decrease in value was primarily due to a increase in forward interest rates net of collections of cash payments from counterparties of $23.2 during the first nine months of 2003. Based upon future expected interest rates as determined from LIBOR futures prices in effect at the close of business on September 30, 2003, we expect to collect an additional $30.3 during the next 12 months.

At September 30, 2003, the net unrealized gain related to these interest rate derivative securities amounted to $43.8, after reduction for deferred income taxes of $23.6, 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 priced hedge contracts that became effective on June 1, 2003 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. Under this program, we pay the counterparty when diesel fuel prices are above a certain strike price, and the counterparty pays us when those prices are lower that that price. These hedges, which are recorded as a liability of $0.4 at September 30, 2003, required payments that reduced Comdata revenue by $0.4 during the third quarter of 2003. The net unrealized loss associated with the fuel hedges at September 30, 2003 was $0.2.

Investments
During March 2003, we paid to The Ultimate Software Group, Inc. (which this report refers to as “Ultimate”) $3.0 to acquire 750,000 unregistered shares of Ultimate common stock and a warrant to purchase an additional 75,000 unregistered Ultimate common shares at a price of $4.00 per share. At December 31, 2002 we also held 785,000 Ultimate common shares purchased on the open market, which we sold in September 2003 for proceeds of $5.9 and a net gain of $3.0 reported in other expense (income). Our holdings of Ultimate as of September 30, 2003 represent an equity interest of approximately 4.0% of the outstanding shares of Ultimate. 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 782,069 common shares at September 30, 2003. During September 2003, we sold 137,158 common shares of USIH for proceeds of $1.8 and a gain of $0.4 which we reported in other expense (income).

The Ultimate and USIH securities are 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

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003
(Dollars in millions, except per share data)
(Unaudited)

INVESTING ACTIVITY (Continued)

Investments (continued)
amounted to $6.6 at September 30, 2003 and $2.9 at December 31, 2002. The carrying values of our holdings of USIH amounted to $10.2 at September 30, 2003 and $10.8 at December 31, 2002. At September 30, 2003, the net unrealized gain related to these securities amounted to $3.7, after reduction for deferred income taxes of $2.2, and is reported in accumulated 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.

During July 2003, we settled in advance a revenue sharing arrangement associated with our acquisition in December 2002 of GLS Benefit Services LLC (which this report refers to as “Great Lakes Strategies”) by paying the sellers $1.4 of the $2.8 escrowed for this purpose at the time of acquisition. At the same time, we released $0.5 in escrowed funds to the sellers related to the representations and warranties provisions of the purchase agreement. These transactions reduced other current assets by $0.5 and other noncurrent assets by $2.8 while increasing goodwill by $1.9 and cash and equivalents by $1.4.

Capital expenditures
During the second quarter of 2003, we entered into two leasing agreements with different lessors intended to provide us with greater flexibility to take advantage of future data storage technology at a lower cost. One arrangement involved the sale and leaseback of storage equipment recently acquired by us. We received $6.3 as cash proceeds from the sale of the equipment, which is reported as an investing cash inflow. We accounted for the leaseback of this equipment, which has a 3-year term commencing on May 1, 2003 and a negligible residual value, as a capital lease. We recorded the capital lease asset in machinery and equipment at $6.3, net of a deferred loss, and the related capital lease obligation in long term debt at $6.9 with no effect on cash flows. The carrying value of the capital lease asset will be amortized on a straight line basis over the term of the lease.

The other leasing arrangement involved the replacement with new data storage equipment of data storage equipment we owned or leased. Under this arrangement, we received $5.8 as cash proceeds from the sale of owned equipment at its carrying value, which is reported as an investing cash inflow. We accounted for the lease of new storage equipment, which has a 5-year term commencing on June 1, 2003 and negligible residual value, as a capital lease. We recorded the capital lease asset in machinery and equipment at $13.4, net of a deferred gain, and the capital lease obligation in long-term debt at $15.3 with no effect on cash flows. The lease allows us access to increased levels of data storage capacity at months 10 and 22 according to a contractual schedule that correlates additional capacity with the lease payment schedule. Amortization of the capital lease asset will be allocated to each period of the lease based on the storage capacity available during that period.

See the accompanying note entitled “Financing” for a description of the capital lease obligations.

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FORM 10-Q
CERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003
(Dollars in millions, except per share data)
(Unaudited)

FINANCING

Capital Lease Obligations
In an accompanying note entitled “Investing Activity” under the heading “Capital Expenditures,” we described two leasing arrangements that became effective during the second quarter of 2003 that are accounted for as capital leases. The following schedule presents the principal amounts to be paid by year over the terms of the leases as of September 30, 2003.

Debt Instruments
At September 30, 2003 and 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 $1.4 at September 30, 2003 and $2.0 at December 31, 2002.

In June 2002, Comdata entered into a $150.0 receivables securitization facility with up to a three-year term that uses selected Comdata trade receivables as collateral for borrowings. During September 2003, we made a payment of $10.0 on this facility. The amount outstanding under this facility was $150.0 at December 31, 2002, and $140.0 at September 30, 2003. The aggregate amount of receivables serving as collateral amounted to $166.7 at September 3