UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

or

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 o NO þ

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

YES þ NO o

The number of shares of registrant’s Common Stock, par value $.01 per share, outstanding as of July 31, 2004, was 149,047,195.

CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2004

INDEX

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2004

STOCKHOLDERS’ EQUITY

COMPREHENSIVE INCOME (LOSS)

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2004
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)
(Unaudited)

INTRODUCTION

In the opinion of Ceridian Corporation, the unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments, except as set forth in the notes to consolidated financial statements) necessary to present fairly our financial position as of June 30, 2004, and results of operations for the three and six month periods and cash flows for the six month periods ended June 30, 2004 and 2003. Results of operations and cash flows for the 2003 periods have been restated as described in the accompanying note entitled “Restatement of Prior Period Financial Statements.” The results of operations for the six month period ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year.

RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS

As described in Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 Form 10-K/A”), we have restated our consolidated financial statements for the years 1999 through 2003 and for the first quarter of 2004 (the “Restatement”). This Note should be read in conjunction with Note B, “Restatement of Financial Statements” in the notes to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2003 Form 10-K/A, which we are filing concurrently with this Form 10-Q and which provides further information on the nature and impact of the Restatement.

The determination to restate prior period financial statements was made as a result of:

	•	The determinations from an investigation directed by the Audit Committee of the Company’s Board of Directors (the “Audit Committee Investigation”), which examined, among other things, the Company’s policies and practices for the capitalization of software development costs, the timing of amortization of capitalized software development costs and the accuracy and timeliness of accruing for costs and expenses;
	•	Our determination, during the Audit Committee Investigation of the above-referenced items, that certain other adjustments and reclassifications were required to our consolidated financial statements; and
	•	Our subsequent determination, following consultation with our independent registered public accountants, that it was also necessary to make certain additional corrections to our consolidated financial statements for the quarter ended March 31, 2004 and the years ended December 31, 2003,

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2004
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)
(Unaudited)

2002 and 2001 in light of our conclusion that our interest rate and fuel price derivative contracts did not satisfy the requirements of Statement of Financial and Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) and as such, did not qualify for hedge accounting treatment.

The Restatement included the following classes of adjustments:

	•	adjustments concerning the capitalization and expensing of software development costs
	•	adjustments to the accrual of certain other costs and expenses
	•	adjustments to revenue and related costs for timing of recognition and transactions involving third party vendors
	•	changes in accounting for interest rate and fuel price derivative instruments
	•	reduction of the number of dilutive shares for calculation of earnings per share
	•	reclassification between cost and expense categories
	•	reclassification of Comdata assets and liabilities
	•	transfer of excess pre-1999 restructuring liabilities directly to retained earnings

In addition, certain amounts in other notes to our consolidated financial statements within this Form 10-Q have been restated to reflect the Restatement adjustments.

The adjustments that had the most significant effect on our consolidated statements of operations related to the capitalization and expensing of software development costs (net of amortization effects) and the recent change in accounting for interest rate and fuel price derivative instruments.

The adjustments for capitalization and expensing of software development costs (net of amortization effects) largely resulted in the charging to expense of previously capitalized software costs, including the reversal of related amortization expense. The adjustments resulted in a decrease in pre-tax earnings of $5.6 in the second quarter of 2003 and $6.9 for the six months ended June 30, 2003.

In January 2005, we determined that our interest rate and fuel price derivative contracts did not satisfy the requirements of FAS 133, and as such, did not qualify for hedge accounting treatment. The correction of accounting for these derivative instruments affected the timing of gain or loss recognition on our consolidated statements of operations. The unrealized gains and losses previously reported under hedge accounting treatment in accumulated other comprehensive income within stockholders’ equity on our consolidated balance sheets are now reported in net earnings on our consolidated statements of operations. The pre-tax earnings impact of the correction of unrealized gains and losses on derivative instruments was an increase of $5.5 for the second quarter of 2003 and $4.7 for the six months ended June 30, 2003. The correction of accounting for realized gains and losses had no effect on pre-tax earnings but did require us to reclassify the realized gains and losses from revenue to costs and expenses. As a result of the Restatement, both realized and unrealized gains or losses on interest rate and fuel price derivative instruments now appear on our consolidated statements of operations in a line item entitled “(gain) loss on derivative instruments.”

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2004
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)
(Unaudited)

The effect of the Restatement on the consolidated statements of operations for the three and six months ended June 30, 2003 is shown in an accompanying table. The primary impact of the Restatement on the historical consolidated balance sheets and consolidated statements of cash flows related to the adjustments concerning software capitalization and amortization changes. We restated the consolidated balance sheet as of December 31, 2003 in the 2003 Form 10-K/A. As a result of expensing software development costs previously capitalized, net cash provided by operating activities was reduced by $8.0 for the six months ended June 30, 2003. The change had no impact on historical cash balances or net cash flows since the entire reduction in operating cash flows is offset by the reduction in capital expenditures included in investing cash flows. The effect of the Restatement on the consolidated statement of cash flows for the six months ended June 30, 2003 is shown in an accompanying table. The correction of the number of dilutive shares used for earnings per share calculations reduced weighted average diluted shares by 501,000 for the three months ended June 30, 2003 and 296,000 for the six months ended June 30, 2003 due to the addition of the tax benefit from appreciation in value to the proceeds from the assumed exercised stock options.

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CERIDIAN CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2004
Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)
(Unaudited)

The following table presents the effect of the Restatement on the consolidated statements of operations: