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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC
20549
 FORM 10-K/A (Amendment No. 1)   Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2003 Commission File Number 1-15168 CERIDIAN CORPORATION (Exact name of Registrant as specified in its charter)
 Delaware
    
    41-1981625(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 3311 East Old Shakopee Road
Minneapolis, Minnesota 55425(Address of principal executive offices) Telephone No.: (952) 853-8100(Registrants telephone number, including area
code)  Securities Registered Pursuant to Section 12(b) of the Act: Title of each class:
    
    Name of each exchange on which registered:Common stock, par value $.01 per share
    
    The New York Stock ExchangeRights to Purchase Class A Junior Participating
    
    The New York Stock ExchangePreferred Stock
 Indicate by check mark whether the Registrant (1) has filed all reports required 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. þ Yes o 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 the Registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o 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 aggregate market value of the voting stock of Ceridian held by non-affiliates of Ceridian on
June 30, 2003 was $2,504,506,318, based on the closing sales price of Ceridian common stock as
reported on the New York Stock Exchange on June 30, 2003. The number of shares of Ceridian common stock outstanding as of March 1, 2004 was 149,430,661. DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Stockholders to be held on May 12, 2004: Part III




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CERIDIAN CORPORATION
EXPLANATORY NOTE As previously disclosed, Ceridian Corporation (the Company) has restated its consolidated
financial statements for the years 1999 through 2003 and for the first quarter of 2004 (the
Restatement). The determination to restate these
financial statements was made as a result of 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. During the review and investigation of these items, the Company determined
that certain other adjustments and reclassifications were required to the Companys consolidated
financial statements. Further information on these adjustments and reclassifications can be found
in Note B, Restatement of Financial Statements to the accompanying consolidated financial
statements. As previously disclosed, following consultation with KPMG LLP, the Companys independent
registered public accountants (KPMG), the Company determined that it was
also necessary to make certain additional
corrections to the Companys consolidated financial statements for the years ended December 31,
2003, 2002 and 2001. The changes related to a determination that the Companys interest rate and
fuel price derivative contracts did not satisfy the
requirements of Statement of Financial Accounting Standards
No. (FAS) 133,
Accounting for Derivative Instruments and Hedging Activities and as such, did not qualify for
hedge accounting treatment.
These changes have been reflected in the Companys accompanying
consolidated financial statements as part of the Restatement,
together with the other changes made as a result of the Audit
Committee Investigation.
Further information on the impact of these changes can be found in
Note B, Restatement of Financial Statements to the accompanying consolidated financial
statements. This Amendment No. 1 on Form 10-K/A (the Form 10-K/A) to the Companys Annual Report on Form
10-K for the year ended December 31, 2003, initially filed with the Securities and Exchange
Commission (the SEC) on March 15, 2004 (the Original Filing), is being filed to reflect
restatements of the Companys consolidated balance sheets as of December 31, 2003 and December 31,
2002 and the Companys consolidated statements of operations, cash flows and stockholders equity
for the years ended December 31, 2003, 2002 and 2001 and the notes related thereto. For a more
detailed description of these restatements, see Note B, Restatement of Financial Statements to
the accompanying audited consolidated financial statements and the section entitled Restatement
in Managements Discussion and Analysis of Financial Condition and Results of Operations contained
in this Form 10-K/A. For the convenience of the reader, this Form 10-K/A sets forth the Original Filing in its
entirety. However, this Form 10-K/A only amends and restates Item 1 of Part I and Items 6, 7, 7A,
8 and 9A of Part II of the Original Filing, in each case, solely as a result of, and to reflect,
the Restatement, and no other information in the Original Filing is amended hereby. The foregoing
items have not been updated to reflect other events occurring after the Original Filing or to
modify or update those disclosures affected by subsequent events. In addition, pursuant to the
rules of the SEC, Item 15 of Part IV of the Original Filing has been amended to contain the consent
of the Companys independent registered public accounting firm and currently dated certifications
from the Companys Chief Executive Officer and Chief Financial Officer, as i




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required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The consent of the Companys
independent registered public accounting firm and the certifications of the Companys Chief
Executive Officer and Chief Financial Officer are attached to this Form 10-K/A as Exhibits 23.01,
31.01, 31.02, 32.01 and 32.02. Except for the foregoing amended information, this Form 10-K/A continues to speak as of the
date of the Original Filing, and the Company has not updated the disclosure contained herein to
reflect events that occurred at a later date. Other events occurring after the filing of the
Original Filing or other disclosures necessary to reflect subsequent events have been or will be
addressed in the Companys amended Quarterly Report on Form 10-Q/A for the quarterly period ended
March 31, 2004 and/or the Companys Quarterly Reports on Form 10-Q for the quarterly periods ended
June 30, 2004 and September 30, 2004 which are being filed concurrently with the filing of this
Form 10-K/A, and any reports filed with the SEC subsequent to the date of this filing. The Company has not amended and does not intend to amend its previously filed Annual Reports
on Form 10-K or its Quarterly Reports on Form 10-Q for the periods affected by the Restatement that
ended prior to December 31, 2003. For this reason, the consolidated financial statements,
auditors reports and related financial information for the affected periods contained in such
reports should no longer be relied upon. ii




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CERIDIAN CORPORATION
Annual Report on Form 10-K/A
(Amendment No. 1)
For the fiscal year ended December 31, 2003  
 Table of Contents PagePART IItem 1. Business
    
    
    1Item 1A. Executive Officers of the Registrant
    
    
    18Item 2. Properties
    
    
    20Item 3. Legal Proceedings
    
    
    21Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21PART IIItem 5. Market for Registrants Common Equity and Related
Stockholder Matters
    
    
    22Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    24Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    65Item 8. Financial Statements and Supplementary Data
    
    
    68Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    127Item 9A. Controls and Procedures
    
    
    127PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    135Item 11. Executive Compensation
    
    
    135Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stock Matters
    
    
    135Item 13. Certain Relationships and Related Transactions
    
    
    136Item 14. Principal Accounting Fees and Services
    
    
    136PART IVItem 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
    
    
    137Consent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  iii




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CERIDIAN CORPORATION 
 PART I ThisForm 10-K/Acontains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The statements regarding Ceridian Corporation and its
subsidiaries 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 based
on current expectations and assumptions, and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed in such forward-looking statements.
Important factors known to us that could cause material differences are identified in
Managements Discussion and Analysis of Financial Condition and Results of Operations under the
caption Cautionary Factors That Could Affect Future Results, included in Part II, Item 7 of this
report. You should carefully consider each cautionary factor and all of the other information in
this report. 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 disclosures we make on related subjects in future reports to the Securities and
Exchange Commission. We own or have the rights to various trademarks, trade names or service marks, including the
following: BusinessLink, Ceridian Corporation and logo, CeridianÒ,
CobraServÒ, ComchekÒ, Comchek eCashÒ, Comdata
CorporationÒ and logo, ComdataÒ, HR/ComplyÒ,
LifeWorksÒ, PowerpayÒ, SignatureÒ,
SourceWebä, Stored Value SystemsÒ and logo, and
Trendarä. The trademarks American ExpressÒ,
DiscoverÒ, MaestroÒ, MasterCardÒ,
MicrosoftÒ, UltiProÒ,VisaÒ and
WindowsÒreferred to in this report are the registered trademarks of others. 
 Item 1. Business Certain financial information contained in this Item has been amended to reflect the
Restatement to our consolidated financial statements, as further discussed in Note B, Restatement
of Financial Statements to our consolidated financial statements included in Part II, Item 8,
Financial Statements and Supplementary Data of this Form 10-K/A. General Ceridian Corporation was formed on August 8, 2000 and is incorporated in Delaware. Our
principal executive office is located at 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425,
and our telephone number is (952) 853-8100. Ceridian Corporation is an information services company principally in the human resource,
transportation and retail markets. Our human resource solutions business enables customers to
outsource a broad range of employment processes, from recruitment and applicant screening, to
payroll, tax filing, human resource information systems, employee self-service, time and labor
management, benefits administration, employee assistance and work-life programs, to post-employment
COBRA, HIPAA, and retirement plan administration. We have human 1




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resource solutions operations in the United States, Canada and the United Kingdom. Our
Comdata business provides transaction processing, financial services and regulatory compliance
services primarily to the transportation and retail industries. Comdatas products and services
include payment processing and the issuance of credit, debit, and stored value cards. Ceridian Corporation was formed as a result of the spin-off of the human resource solutions
division and human resource solutions and Comdata subsidiaries of Arbitron Inc., formerly known as
Ceridian Corporation (which entity this report refers to as Ceridians predecessor). On March
30, 2001, we became an independent public company when Ceridians predecessor distributed all of
our outstanding common stock to its stockholders in a tax-free spin-off transaction (which
transaction this report refers to as the spin-off). Despite the legal form of the spin-off,
because of the relative significance of our businesses to Ceridians predecessor, we are considered
the divesting entity and treated as the accounting successor to Ceridians predecessor for
financial reporting purposes. As used in this report, references to Ceridian, the Company,
we, our or us mean Ceridian Corporation, formerly known as New Ceridian Corporation, together
with our consolidated subsidiaries, and include the historical operating results and activities of
the businesses and operations that constituted Ceridians predecessor prior to the spin-off, as
well as the continuing operations of the operations that were transferred to us by Ceridians
predecessor in the spin-off, unless the context otherwise indicates. We refer you to Part II, Item 7 and Item 7A of this report for additional descriptions of our
business. Financial Information About Segments Our business has two segments, Human Resource Solutions and Comdata. We refer you to Note E,
Segment Datato our consolidated financial statements for financial information about our business
segments. This information may be found in Part II, Item 8 of this report. Human Resource Solutions The businesses comprising our human resource solutions business (referred to in this report as
HRS) offer a broad range of managed human resource solutions designed to help companies maximize
the value of their people by more effectively managing their work forces and the information that
is integral to human resource processes. Our human resource management products and services are
provided principally in the United States, Canada and the United Kingdom. HRSs restated annual
revenue for the years ended December 31, 2003, 2002 and 2001 was as follows: Restated2003
    
    2002
    
    
    2001$894.2 million
    
    $847.3 million
    
    $862.7 million
 In 2003, about 71.8% of our HRS revenue came from payroll processing and tax filing services,
15.2% from benefits services and 13.0% from employee assistance programs. Further, 2




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about 76.9% of our 2003 HRS revenue was from operations located in the United States, about
14.2% from Canada, and about 8.9% from the United Kingdom. Because the volume of payroll items processed increases in the fourth quarter of each year in
connection with employers year-end reporting requirements, and because the amount of tax filing
deposits also tends to be greatest in the first quarter, our HRS revenue and profitability tend to
be greater in those quarters. Our HRS revenue includes investment income earned from customer deposits temporarily held in
the United States and Canada pending remittance to taxing authorities, customer employees or other
third parties. About $62.2 million of revenue in 2003 was attributable to this investment income.
All customer funds temporarily held by us are held in either a trust or in segregated accounts.
Funds from U.S. customers are invested primarily in money market mutual funds, short-term
repurchase agreements with high quality counterparties, U.S. Treasury and Agency securities, AAA
rated asset and mortgage backed securities, and corporate bonds 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.
Investment income is earned on these funds in lieu of charging additional fees to our customers.
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 deposits held. We
use derivative instruments such as interest rate collars and swaps to manage interest rate risk on
customer deposits as further described in Part II, Item 7A of this report. The effect of the use
of derivative instruments on our earnings is presented in the line item entitled (gain) loss on
derivative instruments in our consolidated statements of operations in Part II, Item 8 of this
report. Market The market for human resource solutions covers a comprehensive range of information
management, human resource administration and employee assistance services and software. These
products and services 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 software and services, primarily in areas such as human resource
administration, regulatory compliance, work-life effectiveness 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 to increase as organizations acquire managed human resource services from third parties
to obtain assistance in maintaining compliance with the increasing 3




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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 by employer size into
three categories, each of which represents a distinct market opportunity for us: Type of Employer
    
    Size of Employer
    
    Typical CharacteristicsSmall
    
    Fewer than 350 employees
    
    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 anotherCorporate
    
    350 to 5,000 employees
    
    Human resource
management needs tend
to be more complex,
and therefore often
require more
customization and
flexibility in
products and services,
greater integration
among data processing
systems and a greater
variety of products
and servicesEnterprise
    
    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has the
greatest reliance on
their integral legacy
systems which increase
integration complexity
and challenge
outsourcing and
migration decisions
 We believe, however, that with regard to any size employer, a provider of a
transaction-based service, such as payroll processing or tax filing services, is afforded
attractive opportunities to complement that core service with additional products and services that
are natural adjuncts to that core service, such as time and labor management, COBRA and HIPAA
compliance administration, flexible spending account administration, employee self-service,
benefits eligibility and enrollment, employee assistance and work-life services, and 401(k)
retirement plan administration. Our ability to wrap value-added services around a core service or
product in an integrated manner will, we believe, lead to revenue growth and our ability to command
higher margins. Further, we believe that customers are increasingly seeking providers that can
take responsibility for entire human resource management processes. These human resource
outsourcing (referred to in this report as HRO) relationships transfer responsibility for
managing each core process from the employer to the provider. In 2003, we began entering into HRO
arrangements with larger customers. We believe that our ability to continue to assume
responsibility for our clients HR processes in HRO relationships will over time further expand
long-term growth in revenue and margins for this business. 4




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Products and Services Our human resource management solutions include:  §
    payroll processing and integrated human resource and time and labor management
information systems solutions;§
    tax filing services;§
    benefits administration, qualified retirement and other plan administration and
regulatory compliance services; and§
    work-life effectiveness and employee assistance programs. Payroll Processing and Integrated Human Resource Information Systems Solutions.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
business customers, we may handle the transmission of customer payroll funds. We also supply
quarterly and annual social security, Medicare and federal, state and local income tax withholding
reports that are required to be filed by employers and employees. We provide human resource information systems (commonly referred to as HRIS) solutions that
run in Microsoft Windows environments and 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 on-line inquiry,
updating and reporting in payroll and other areas important to human resource administration and
management, such as employee data tracking, government compliance, compensation analysis and
benefits administration. We also provide HRIS solutions for Microsoft operating environments 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 eSource product is a web-enabled, fully hosted integrated payroll and human resource
administration solution, designed specifically for the corporate and enterprise customer markets.
eSource also includes integrated time management and Source self service features, as well as wage
attachments and disbursements, internet payroll management, and customization features within the
core product offering. Our Source 500 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 available in a hosted application service provider environment (Source
Assist) or 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. Additionally, we have a license agreement with The Ultimate Software Group, Inc. to allow us
to use that companys UltiPro software as part of an on-line payroll service offering. In 5




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2003, using the UltiPro software as modified by us, we introduced SourceWeb, an integrated
payroll, HRIS, self service solution that is completely hosted and supported by us. This product
is designed specifically for the small to smaller corporate customer market. We also provide Internet payroll processing, tax filing, unemployment compensation management
and related services for small employers located in the United States and Canada. Our Powerpay
product is a web-based solution that allows customers to complete payroll transactions via the
Internet. The Powerpay 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 Services.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 stand
alone tax services provided directly to employees. Payroll-related services are typically priced
on a fee-per-item-processed basis. Benefits Administration, Qualified Retirement and Other Plan Administration and Regulatory
Compliance Services.We provide employee health and welfare benefits administration and qualified
plan administration services to our customers. Employee health and welfare benefits administration
services include health insurance portability (i.e., the Consolidated Omnibus Budget Reconciliation
Act, or COBRA, and the Health Insurance Portability and Accountability Act of 1996, or HIPAA)
compliance services. We provide our portability services through the trade name CobraServ. 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 administration services for benefits
provided to retired and inactive employees, including retiree healthcare, disability, surviving
dependent, family leave and severance benefits. Our qualified plan administration services include 401(k) plan administration, profit sharing
plan administration, defined benefit plan administration, employee stock ownership plan
administration and Qualified Domestic Relations Order administration. Work-Life Effectiveness and Employee Assistance Programs.We provide customers and their
employees with a single source for fully integrated work-life and employee assistance programs to
clients of all sizes throughout the United States, Canada and the United Kingdom. Services are
delivered through on-line access and telephonically, and through face-to-face meetings provided by
referral resources. 6




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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 on-line 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, and to reduce absenteeism as well as
increase the customers 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 leading edge services and expertise to our customers. International Operations Our international HRS operations are primarily conducted in the United Kingdom, through
Ceridian Centrefile Limited, and Canada, through Ceridian Canada Ltd. Ceridian Centrefile Limited
provides human resource services, payroll processing services and HRIS software primarily in the
United Kingdom. Ceridian Centrefiles services generally do not involve the handling or
transmission of customer funds. In a very few instances, Ceridian Centrefile holds client funds
for a short period of time in non-interest bearing segregated accounts prior to disbursement
pursuant to Ceridian Centrefiles clients instructions. Ceridian Canadas operations handle payroll as well as tax filing funds for our Canadian
customers. These Canadian operations collect payroll and payroll tax amounts from customers and
remit tax amounts to applicable governmental authorities and make direct deposits of payroll
amounts to employees bank accounts. As a result, revenue from our payroll processing services in
Canada includes investment income received from temporarily holding these amounts in trust. We
also charge fees for services to our Canadian customers that are similar to those provided in the
United States. We are expanding our international payroll services into other countries, principally in
Europe, by engaging partners within a country to provide us with payroll administration and
processing services for 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. We refer you to our Managements
Discussion and Analysis of Financial Condition and Results of Operations contained in Part II,
Item 7 of this report, and specifically to the section of that discussion entitled Cautionary
Factors That Could Affect Future Results. 7




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Customers We target employers of all sizes in diverse industries. Our existing customer base covers a
wide range of industries and markets. Our products and services are generally provided under
written license or service 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. In providing some of our services, particularly payroll processing
and tax filing services, we incur installation and conversion costs in connection with new
customers that need to be recovered before the contractual relationship will provide incremental
profit. The length of time it takes for a contract to become profitable depends on a number of
factors such as 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 Payroll processing, tax filing and human resource management services are marketed 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 and other outsourcing firms. 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 telemarketing, direct mail and trade shows. Our operations in the United Kingdom
and Canada 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 utilize cooperative marketing relationships with other companies offering products or
services that complement our businesses as well as informal marketing alliances with human resource
consulting firms. We are exploring similar cooperative arrangements with other software, insurance
and human resource services providers. We are also seeking to further integrate and coordinate the
sales and marketing efforts of our businesses and 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, 8




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complete enterprise outsourcing 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 in-house, with the remainder supported by third party
providers. In the United States, Automatic Data Processing, Inc. 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. ADP serves all sizes of employers, while
Paychex generally focuses on small employers. Other third party payroll and tax filing providers
are generally regional and local competitors, although larger, national providers of benefits
administration, 401(k) processing services or financial institutions may expand further into
outsourced payroll processing. In the United Kingdom, we believe that our Ceridian Centrefile
subsidiary is the largest outsourced payroll processing provider in terms of revenue, competing
with several other national providers, including a subsidiary of ADP, and local providers. In
Canada, we believe that our Ceridian Canada subsidiary is the second largest outsourced payroll
processing provider in terms of revenue, facing a similar competitive environment as in the United
Kingdom. 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 market for
these products and services is evolving and is not dominated by a small number of competitors. Currently, we believe the principal competitive factors in the human resource solutions
industry are:  §
    customer service;§
    leadership in technology applications;§
    choice of services;§
    integrated platforms;§
    performance;§
    price;§
    functionality;§
    ease and flexibility of use; and§
    expertise in HR processes. We believe that the ability to integrate human resource management solutions with customers
other in-house applications and the ability to provide solutions delivered through the 9




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Internet are increasingly important competitive factors. While we believe our businesses will
be able to compete effectively in the overall human resource solutions market, our ability to
compete effectively will depend in large measure on our ability to timely develop and implement the
appropriate technology solutions, particularly that which incorporates industry standard
architecture and Internet-based solutions, and provide leading-edge customer service. Research and Development We intend to continue to invest substantial resources to extend the functionality of our
proprietary payroll processing systems and further develop a comprehensive and fully integrated
suite of employee administrative services. The table below reflects the restated amount of research and development expenses for our HRS
businesses for the periods indicated. RestatedYears Ended December 31,2003
    
    
    2002
    
    
    2001(dollars in millions)Research and development
    
    $
    16.3
    
    
    $
    12.6
    
    
    $
    13.5Percent of revenue
    
    
    1.8
    %
    
    
    1.5
    %
    
    
    1.6
    %
 Comdata Our Comdata subsidiary (which we refer to in this report as Comdata) provides transaction
processing, financial services and regulatory compliance services to the transportation, retail and
other industries. Comdatas restated annual revenue from products and services for the years ended
December 31, 2003, 2002 and 2001 was as follows: Restated2003
    
    2002
    
    
    2001$319.7 million
    
    $313.0 million
    
    $304.3 million
 Approximately 75.7% of Comdatas revenue for 2003 was attributable to Comdatas transportation
business and 24.3% was attributable to Comdatas retail services business. Principal Markets The trucking segment of the transportation industry is comprised of both long haul fleets and
local fleets. Private fleets predominate in the local fleet segment, but play a lesser role in the
long haul fleet segment. Common carriers, which provide trucking services to companies that do not
have fleets of trucks of their own, predominate in the long haul fleet segment, which is comprised
of less-than-truckload and truckload components. The less-than-truckload component, which involves
trucks that make multiple stops to load and unload, is characterized 10




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by large capital requirements. The truckload component involves the transportation of full
loads directly from shipper to final destination without going through any sorting terminals. The majority of Comdatas trucking company customers are common carriers serving the truckload
component of the long haul segment. Many of these carriers use a combination of company-employed
drivers and drivers contracted with individual owner-operators. These owner-operators usually
settle their expenses with the common carrier after the completion of each trip. Drivers for
truckload carriers often spend weeks on the road at a time, creating a number of unique conditions
and business opportunities. Truckload carriers are challenged to monitor and control fuel
purchases, provide driver services to aid in recruitment and improve retention, obtain necessary
licenses and permits, and effectively manage the routing and logistics of the long-distance trips. Stored Value Systems, Inc., a wholly owned subsidiary of Comdata and a part of Comdatas
retail services division (which we refer to in this report as SVS), provides electronic private
label cards that can be assigned a cash value. The market for these private label cards includes
merchants, such as retailers, who (1) use traditional paper gift certificates or gift cards, (2)
give store credits in connection with the return of products, and (3) make monetary or
stored-value-based loyalty promotions. SVS markets its private label cash card to these merchants,
namely major retailers, for use with their customers, both as gift cards and loyalty building
tools. Additionally, SVS markets ancillary support services including card inventory management
and assistance in designing and supervising the production of plastic cards. Comdatas retail
services division also provides a card-based funds transfer system for use by employers and others
for, among other things, expense reimbursements, payroll delivery and termination pay. SVS markets
this card-based funds transfer system to temporary staffing companies, professional employment
organizations, custodial companies, the restaurant and hospitality industries, and retailers,
including the customers of SVS. Services Comdata provides transaction processing, financial services, and regulatory compliance
services primarily to the transportation industry. Comdata also provides transaction processing
services to other industries, including the retail, temporary staffing, oil company, restaurant and
grocery store sectors. Comdata provides services to trucking companies, truck stops and truck
drivers in the long haul segment of the trucking industry, and to the local fleet segment. These
services primarily involve the use of a proprietary funds transfer card that facilitates truck
driver transactions and provides transaction control and trip information for trucking firms.
Additionally, Comdata markets co-branded transaction processing in association with MasterCard
networks. Comdata also provides assistance in obtaining regulatory permits, pilot car services,
and other compliance services, such as fuel tax reporting and driver log auditing, local fueling
services and discounted telecommunications services in its markets. Through Comdatas retail
services division (which includes SVS), Comdata provides its specialty card products and services
to customers outside of the transportation industry. Comdata operates primarily in the United
States and Canada, and is expanding its business into Mexico and Europe. 11




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BusinessLink.Comdatas BusinessLink product is a payment transaction services card with
credit and debit capabilities principally designed to provide businesses with control over payments
to and spending by employees. The BusinessLink card allows businesses to authenticate and
authorize individual employee purchases and provide payroll to employees. Through BusinessLink a
business can review reports of transactions made by its employees over the Internet, as well as
request the issuance of new employee cards. BusinessLink offers businesses the capability of
performing these services on a single, customizable employee card. The BusinessLink card may be
customized for each individual employee within a business. Comdata intends to expand the services
currently available under the BusinessLink card. BusinessLink has been initially introduced to
Comdatas principal markets, transportation and retail. Comdata believes that the BusinessLink
card has application to businesses in other industries. BusinessLink is being used by more than
350 customers. Trucking Company Services (The Comdata card).Comdatas funds transfer system, most commonly
initiated through the use of Comdatas proprietary Comdata card, is 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, lodging and other
approved items, obtain cash advances from ATM machines or through the use of Comchek drafts, make
long distance phone calls and make direct deposits of pay, settlements (for non-employee
owner-operators) or trip advances to personal bank accounts. In 2003, Comdata processed
approximately 82.9 million funds transfer transactions involving approximately $14.3 billion for
the transportation industry. 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, the frequency with which they may be used, phone numbers which may be called and
the 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 (usually within 24 hours
after the completion of a given trip). This information greatly enhances a customers ability to
track and plan fuel purchases and other trip expenses and settle with drivers. Comdata also
provides trucking companies with a Windows-based software application that provides trucking
companies with on-line access to Comdatas computer system for data on fuel purchases and other
trip information, and facilitates pre- and post-trip planning functions. Comdatas iConnectData
and MOTRS (Modular Over The Road System) web-based applications enable customers to go on-line for
local dial-up access, interactive reporting capabilities, the latest diesel fuel prices and related
information from their desktop. Use of a Comdata account, in many instances, generates a Comchek draft, which is payable
through a Comdata bank account. Comdata funds the underlying transaction when the truck stop (or
other payee) negotiates the draft by depositing it in its bank account. Comdata bills the trucking
company for the amount of the draft plus a portion of the service fee, and collects from the truck
stop the balance of the service fee. The trucking company remits payment to Comdata by wire
transfer or check, typically within six days, although Comdata may bill trucking companies in
advance for all funds transfers authorized for any purpose in connection with a 12




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particular trip. Risks associated with fraudulent or unauthorized transactions are allocated
between Comdata and its customers based upon which party may be at fault under a specific
circumstance and based upon which party is in the better position to control or eliminate these
types of transactions. Comdata believes that historically the number of fraudulent or unauthorized
transactions attributable to this aspect of its business has been minimal compared to the aggregate
dollar amount of funds Comdata has transferred annually. Comdata is licensed by 41 states as a
seller of checks or money transmitter and, pursuant to these licenses, undergoes annual
examinations by several states with respect to the integrity of its funds transfer methods and
procedures. When a truck driver makes a request at a truck stop for a funds transfer, Comdata verifies
that the drivers company has established sufficient credit. Upon presentation of valid
identification, the truck stop obtains an authorization number from Comdata and issues a Comchek
draft. Comdata also provides information gathering and processing services in connection with
fueling transactions that Comdata does not fund, but instead are billed directly by the truck stop
to the trucking company. Fees for these direct bill transactions are substantially lower.
Comdata also provides fuel price tracking reports and management within a network of truck stops,
including cost/plus fuel purchase programs. 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 by facsimile machine to a truck stop where they can be picked up by the driver. Comdata also
provides regulatory compliance services, such as processing and auditing of driver trip logs,
reporting of fuel taxes, annual licensing and motor vehicle registration verification. Vehicle
escort services for oversized loads are also provided. Truck Stop Services.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 act as Comdatas agents pursuant to a service center agreement, and typically also offer
the funds transfer services of other companies. Comdatas merchant services division provides fueling centers with PC-based, point of sale
systems that automate the various transactions that occur at a fuel purchase desk, systems which
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 services division
additionally offers point-of-sale systems for use at privately owned truck terminals and unattended
fuel sites. Local Fueling.Comdata is a provider of fuel management and payment systems for local
transportation 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. 13




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Financial Services.Comdata operates a factoring business known as Financial Services.
Generally, Financial Services 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 permits trucking companies to receive payment on shipping invoices
sooner than they may otherwise receive payment from shippers. While the majority of the Financial
Services portfolio relates to trucking company operations as described above, Comdata may, on
occasion, enter into a factoring arrangement with a business outside the trucking industry. Retail Services.Comdatas retail services division, which is comprised of SVS and Comdatas
payment services division, provides stored value cards and employer pay cards to customers
principally in the retail industry. SVS provides, among other services, debit card programs to
major retailers that are used as gift cards, gift certificates, credits for returned product,
loyalty promotions and retail promotions. 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. Comdatas payment services division provides pay cards used by its customers to pay their
employees. Comchek eCash is a card-based service allowing 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, point-of-sale purchases at stores or issuance of a Comdata negotiable draft.
Long distance telephone service is also available through the card. Sales and Marketing Comdata markets its card-based financial and data management services, delivered through both
proprietary and branded payment networks, to several industries, the largest of which is the
transportation industry. Comdata markets its services to the transportation industry through a
direct sales force located at its headquarters in Brentwood, Tennessee, and operating throughout
the United States and Canada. Comdata provides services to more than 20,000 over-the-road and
local trucking fleets with more than 750,000 active fuel cards. Comdata also provides services to
more than 8,000 truck stops, travel centers and repair facilities nationwide. Contracts generally
range from one to three years in duration. Through SVS, Comdata markets its private label cash cards, electronic payroll cards and
ancillary services through a direct sales force located in Louisville, Kentucky, operating
throughout the United States, Canada, and expanding to Europe, most notably in the United Kingdom.
SVS has contracts representing more than 200 retailers and oil companies to provide cash cards
and/or payroll services. These contracts are generally three years in duration. Competition The principal competitive factors relevant to funds transfers are marketing efforts, pricing,
reliability of computer and communications systems and time required to effect 14




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transactions. The major credit and debit card associations and companies, such as Visa,
MasterCard, American Express and Discover, are significant competitors of Comdata since 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 funds transfer services,
including First Data Corporation (as a result of First Datas merger with Concord EFS, Inc. on
February 26, 2004), T-Chek Systems, Inc., TransPlatinum Service Corp., and Wright Express LLC. 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 service centers, such as truck
stops, that offer similar products and services. Comdata also faces increasing competition in the
funds transfer area from ATMs that participate in national networks. While the majority of regulatory services continue to be performed in-house, at least one
other nationwide company, Xero-Fax, Inc., and 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, Comdata believes that technological advances, such as the Internet,
will impact the way regulatory services are delivered. These advances may give rise to new
competitors or change the way this service is offered. Comdata believes that its 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;§
    ability to offer a variety of services, frequently tailored to an individual
customers needs;§
    proprietary databases regarding funds transfers and fuel purchases;§
    long-term relationships in the transportation industry;§
    high quality of customer service; and§
    long-time reputation in the transportation industry. Comdatas retail services division (which principally includes SVS) competes with a number of
national companies in providing private label cards, including ValueLink, a subsidiary of First
Data Corporation. Comdatas retail services division competes on the bases of breadth of services
offered, systems, technology and price. Comdata believes that one of the competitive weaknesses of
its retail services division is that most of its competitors have established relationships with
many of the potential customers of Comdatas retail services division because these competitors
provide additional and unrelated products and services to these customers, such as credit card
processing and check authorization services. By providing these other services which Comdatas
retail services division does not provide, these competitors have an advantage of being able to
bundle their products and services together and present them to existing customers with whom they
have established relationships. Another competitive 15




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weakness of Comdatas retail services division is that its competitors have greater financial,
sales and marketing resources and better brand name recognition than Comdatas retail services
division. Comdata believes the competitive strengths of Comdatas retail services division are:  §
    leading edge information and communications systems which 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 cash card solutions. Network and Data Processing Operations Comdatas principal communications center for its funds transfer business is located at its
headquarters in Brentwood, Tennessee. The SVS facility in Louisville, Kentucky serves as a
secondary communications facility for the Brentwood, Tennessee operations, as well as serving as
the primary communications center for SVS. Comdata receives telecommunications services from
Sprint Corporation and MCI WORLDCOM Network Services, Inc. Substantially all of Comdatas internal
data processing functions for its transportation business, including its payment processing
systems, are conducted in its headquarters located in Brentwood, Tennessee, with SVS operating a
data processing facility for its business in Louisville, Kentucky. Regulation Many states require persons engaged in the business of selling or issuing payment instruments,
such as the Comchek draft, or in the business of transmitting funds to obtain a license from the
appropriate state agency. In some states, Comdata is required to post bonds or other collateral to
secure its obligations to its customers in those states. 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 harm
Comdatas business in that state. Research and Development Comdatas research and development activities principally include applications development to
enhance existing products and services, and the new product development around the BusinessLink
initiative. 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. 16




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##### Table of Contents



Years Ended December 31,2003
    
    
    2002
    
    
    2001(dollars in millions)Research and development
    
    $
    3.1
    
    
    $
    2.4
    
    
    $
    4.4Percent of revenue (restated)
    
    
    1.0
    %
    
    
    0.8
    %
    
    
    1.4
    %
 Other Investments and Divestitures In addition to the spin-off transaction described previously under the heading General, we
refer you to Note G, Investing Activity,to our consolidated financial statements for further
information on our investing and divesting activities. This information may be found in Part II,
Item 8 of this report. 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, including several
mentioned in this report. 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 is
materially dependent upon any particular trademark, tradename, copyright, service mark, license or
other intellectual property right. We believe, however, that the Ceridian and Comdata names,
marks and logos are of material importance to us. We have entered into confidentiality agreements with most of our 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. Employees As of March 1, 2004, we employed approximately 9,320 people on a full- or part-time basis,
including 7,289 full-time and 480 part-time employees of HRS and 1,402 full-time and 59 part-time
employees of Comdata. We are currently negotiating a collective bargaining agreement relating to approximately 125
employees at our Eagan, Minnesota, work-life effectiveness service center facility. None of our
other employees are covered by collective bargaining agreements. We have never experienced a work
stoppage and we believe our employee relations are good. 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 are terminable by our customers upon relatively short notice periods, 17




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including contracts that have been extended beyond their original terms. In addition, orders for
products and services are terminable by our customers, and no order for one of our products or
services is considered firm until it is delivered or installed and begins producing revenue. The
timing of the delivery or installation 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 dollar value 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 an indication of potential future revenue, 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. Available Information Our Internet website is http://www.ceridian.com and you may access, free of charge, through
the Investor Relations portion of our website, our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to such reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also post other documents containing a substantial amount of information about our
corporate governance on our website, including information relating to our corporate governance
policies and practices, charters of our committees of the Board of Directors, codes of conduct and
other corporate governance matters. These documents are located in the Corporate Governance
section of our website. Copies of all of our charters for each of our committees of the Board of
Directors, corporate governance policies and guidelines, code of conduct and other corporate
governance documents contained in the Corporate Governance section of our website may be obtained
without charge by our stockholders by writing Ceridian Corporation, Attention: Corporate
Secretary, 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425-1640. Our Internet website
and the information contained on or connected to the website are not intended to be incorporated by
reference into this report. 
 Item 1A. Executive Officers of the Registrant The following provides information on our executive officers as of March 1, 2004: Name (Age)
    
    Current PositionRonald L. Turner (57)
    
    Chairman, President and Chief Executive OfficerJohn R. Eickhoff (63)
    
    Executive Vice President and Chief Financial OfficerRobert H. Ewald (56)
    
    Executive Vice President and President, Ceridian
Human Resource SolutionsLoren D. Gross (58)
    
    Vice President and Corporate Controller
 18




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##### Table of Contents



Name (Age)
    
    Current PositionShirley J. Hughes (58)
    
    Senior Vice President of Human ResourcesGary A. Krow (49)
    
    Executive Vice President and President of ComdataGary M. Nelson (52)
    
    Executive Vice President, General Counsel and
Corporate Secretary
 Our executive officers are annually elected by our Board of Directors and serve at the
pleasure of the Board of Directors and the Chief Executive Officer. There are no immediate family
relationships between or among any of our executive officers . Upon the completion of our spin-off from Ceridians predecessor on March 31, 2001, with
the exception of Mr. Ewald, each of our executive officers resigned as an executive officer from
Ceridians predecessor and was thereafter reappointed to the equivalent position within Ceridian.
In connection with this spin-off, Messrs. Turner and Ewald resigned as directors of Ceridians
predecessor and became directors of Ceridian. Except as specifically noted, our executive officers
have held the following positions with Ceridian, Ceridians predecessor and certain other entities
for the past five years: Ronald L. Turner has served as a director since July 1998; Chairman since May 2000; Chief
Executive Officer since January 2000; and President since April 1998. Mr. Turner was Chief
Operating Officer from April 1998 to January 2000; and Executive Vice President of Operations from
March 1997 to April 1998. John R. Eickhoff has served as Executive Vice President and Chief Financial Officer since
January 25, 2000. Mr. Eickhoff was Executive Vice President of Strategic Development from January
3, 2000 to January 25, 2000; and Executive Vice President and Chief Financial Officer from May 1995
to January 2000. Robert H. Ewald has served as a director since February 1998 and Executive Vice President and
President, Ceridian Human Resource Solutions since July 2003. Mr. Ewald was President and Chief
Executive Officer of Scale Eight, a provider of file storage solutions, from October 2002 to July
2003; Executive Chairman of Learn2 Corporation, an e-learning company, from September 2001 to
October 2002; President and Chief Executive Officer at E-Stamp Corporation, an internet postage
company, from March 1999 to September 2001; and Executive Vice President and Chief Operating
Officer of Silicon Graphics, a provider of high performance workstations, from October 1997 to July
1998. Loren D. Gross has served as Vice President and Corporate Controller since July 1993. Shirley J. Hughes has served as Senior Vice President of Human Resources since June 1998. Ms.
Hughes was Vice President of Human Resources of Mercy Health Services, a non- 19




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profit integrated health care delivery system currently named Trinity Health Services, from
October 1994 to June 1998. Gary A. Krow has served as Executive Vice President and President of our Comdata subsidiary
since November 1999. Mr. Krow was Executive Vice President and Chief Operating Officer of Comdata
from January 1999 until November 1999; and Executive Vice President, Transportation Services, of
Comdata from January 1997 until December 1998. Gary M. Nelson has served as Executive Vice President since October 2001; General Counsel
since July 1997; and Corporate Secretary since October 1998. Mr. Nelson was Vice President from
July 1997 until October 2001. 
 Item 2. Properties Our principal executive offices are located at 3311 East Old Shakopee Road, Minneapolis,
Minnesota 55425. As of March 1, 2004, 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; East Hanover, New Jersey; Louisville, Kentucky; Nashville,
Tennessee; Dallas, Texas; Boston, Massachusetts; St. Petersburg, Florida; Philadelphia,
Pennsylvania; Manitoba, Ontario, and Quebec, Canada; and London, England. The following table summarizes the usage and location of our facilities as of March 1, 2004: Facilities
(in thousands of square feet) U.S.
    
    
    Non-U.S.
    
    
    TotalType of Property InterestOwned
    
    
    393
    
    
    
    0
    
    
    
    393Leased
    
    
    1,972
    
    
    
    413
    
    
    
    2,385Total
    
    
    2,365
    
    
    
    413
    
    
    
    2,778Property Interest by SegmentHRS
    
    
    1,699
    
    
    
    395
    
    
    
    2,094Comdata
    
    
    419
    
    
    
    18
    
    
    
    437Corporate
    
    
    247
    
    
    
    0
    
    
    
    247Total
    
    
    2,365
    
    
    
    413
    
    
    
    2,778Utilization of PropertyOffice, Computer Center & Other
    
    
    2,183
    
    
    
    413
    
    
    
    2,596Leased or Subleased to Others
    
    
    182
    
    
    
    0
    
    
    
    182Total
    
    
    2,365
    
    
    
    413
    
    
    
    2,778
 20




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We conduct a substantial portion of our operations in leased facilities, including our
211,000 square feet Minneapolis headquarters complex in Minneapolis, Minnesota. Most of these
leases contain renewal options and require payment for taxes, insurance and maintenance. None of our owned facilities is subject to any major 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 Ceridian and its subsidiaries are involved in a number of judicial and administrative
proceedings considered normal in the nature of our current and past operations, including
employment-related disputes, contract disputes, government proceedings, customer disputes, and tort
claims. In some proceedings, the claimant seeks damages as well as other relief, which, if
granted, would require substantial expenditures on our part. Some of these matters raise difficult and complex factual and legal issues, and are subject to
many uncertainties, including the facts and circumstances of each particular action, and the
jurisdiction, forum and law under which each action is proceeding. Because of this complexity,
final disposition of some of these proceedings may not occur for several years. As such, we are
not always able to estimate the amount of our possible future liabilities. There can be no
certainty that we may not ultimately incur charges in excess of presently or future established
financial accruals or insurance coverage. Although occasional adverse decisions (or settlements)
may occur, it is managements opinion that the final disposition of these proceedings will not,
considering the merits of the claims and available reserves and based upon the facts and
circumstances currently known, have a material adverse effect on our financial position or results
of operations. SEC Investigation On January 22, 2004, we filed a Current Report on Form 8-K, under Item 5, stating that we
announced that we are responding to a document request from the Securities and Exchange Commission,
and that we have been advised that the SEC has issued a formal order of investigation. The SEC has
informed us that this is a non-public fact finding inquiry and that the investigation and document
request does not mean that the SEC has concluded that we have violated any securities laws. We are
fully cooperating with the SEC. 
 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 2003. 21




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PART II 
 Item 5. Market For Registrants Common Equity and Related Stockholder Matters Our common stock is listed and trades on The New York Stock Exchange under the symbol CEN.
The number of holders of record of our common stock on March 1, 2004 was 11,141. We have not
declared or paid any cash dividends on our common stock since our inception, and our Board of
Directors presently intends to retain all earnings for use in the business for the foreseeable
future. The transfer agent and registrar for our common stock is the Bank of New York. The following table sets forth the high and low sale prices of our common stock as reported on
the NYSE Composite Tape for each quarterly period during the fiscal years ending December 31, 2003
and December 31, 2002. 2003
    
    1Q
    
    2Q
    
    3Q
    
    4QHigh
    
    $
    16.05
    
    
    $
    17.99
    
    
    $
    20.35
    
    
    $
    21.85Low
    
    
    12.58
    
    
    
    13.30
    
    
    
    16.71
    
    
    
    18.70
 2002
    
    1Q
    
    2Q
    
    3Q
    
    4QHigh
    
    $
    22.50
    
    
    $
    23.05
    
    
    $
    19.02
    
    
    $
    16.26Low
    
    
    17.00
    
    
    
    18.05
    
    
    
    13.10
    
    
    
    11.40
   22




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Item 6. Selected Financial Data The following information has been restated to reflect adjustments to the Original Filing that are
further discussed in Explanatory Note in the forepart of this Form 10-K/A and in Note B,
Restatement of Financial Statements to our consolidated financial statements included in Part
II, Item 8, Financial Statements and Supplementary Data of this Form 10-K/A. You should read
the selected consolidated historical financial information set forth below along with Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations and our
restated audited consolidated financial statements included in Item 8, Financial Statements and
Supplementary Data of this Form 10-K/A. (Dollars in millions, except per share data)
    
    RestatedYears Ended December 31,2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Revenue
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    $
    1,167.0
    
    
    $
    1,174.8
    
    
    $
    1,127.0Earnings from continuing operations (1)
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    55.3
    
    
    $
    71.0
    
    
    $
    102.9Discontinued operations
Arbitron (2)
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    20.7
    
    
    
    40.9Net earnings
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    60.5
    
    
    $
    91.7
    
    
    $
    143.8Earnings Per Common ShareBasicContinuing operations
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.38
    
    
    $
    0.49
    
    
    $
    0.71Net earnings
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41
    
    
    $
    0.63
    
    
    $
    1.00DilutedContinuing operations
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.37
    
    
    $
    0.49
    
    
    $
    0.70Net earnings
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41
    
    
    $
    0.63
    
    
    $
    0.98Shares used in calculations (in thousands)Basic
    
    
    148,634
    
    
    
    148,029
    
    
    
    146,069
    
    
    
    145,229
    
    
    
    144,524Diluted
    
    
    150,197
    
    
    
    149,633
    
    
    
    147,669
    
    
    
    146,182
    
    
    
    146,702Balance Sheet Data at end of yearWorking capital
    
    $
    303.3
    
    
    $
    246.3
    
    
    $
    188.9
    
    
    $
    237.2
    
    
    $
    173.3Total assets before customer funds
    
    $
    2,021.5
    
    
    $
    2,008.3
    
    
    $
    1,861.2
    
    
    $
    2,042.3
    
    
    $
    1,949.1Customer funds
    
    $
    3,141.3
    
    
    $
    2,446.6
    
    
    $
    2,177.6
    
    
    $
    2,984.1
    
    
    $
    2,320.3Total assets
    
    $
    5,162.8
    
    
    $
    4,454.9
    
    
    $
    4,038.8
    
    
    $
    5,026.4
    
    
    $
    4,269.4Debt obligations
    
    $
    163.5
    
    
    $
    193.5
    
    
    $
    237.9
    
    
    $
    500.6
    
    
    $
    611.3Stockholders equity (3)
    
    $
    1,244.0
    
    
    $
    1,108.4
    
    
    $
    1,055.0
    
    
    $
    938.8
    
    
    $
    823.3Equity Per Common Share
    
    $
    8.29
    
    
    $
    7.46
    
    
    $
    7.20
    
    
    $
    6.44
    
    
    $
    5.69Common shares outstanding at end of
year (in thousands)
    
    
    150,022
    
    
    
    148,541
    
    
    
    146,485
    
    
    
    145,754
    
    
    
    144,734Number of Employees at end of year (4)
    
    
    9,300
    
    
    
    9,400
    
    
    
    9,500
    
    
    
    9,700
    
    
    
    9,500
   (1)
    
    Earnings from continuing operations include unusual gains of $3.1 ($2.0 after-tax) in 2003 and unusual losses of $33.6
($21.4 after-tax) in 2002, $50.9 ($33.4 after-tax) in 2001 and $30.5 ($18.7 after-tax) in 2000. The unusual gains and
losses in 2003, 2002 and 2001 are further described in the section entitled Unusual Items in Part II, Item 7 of this
Form 10-K/A.(2)
    
    Includes earnings, net of costs related to the Arbitron spin-off, as further described in Note D, Supplementary Data to
Statements of Operations, to the consolidated financial statements contained in this Form 10-K/A.(3)
    
    The restated stockholders equity amounts include an increase in retained earnings as of January 1, 1999 of $12.6
million after income taxes resulting from certain adjustments made for periods prior to that date as further described in
Note B, Restatement of Financial Statements to the consolidated financial statements contained in this Form 10-K/A.(4)
    
    Continuing operations only. 23




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our consolidated financial
statements and the notes related to those consolidated financial statements contained in Part II,
Item 8, Financial Statements and Supplementary Data of this Form 10-K/A. All applicable
disclosures in the following discussion have been modified to reflect
the Restatement, as described
below. Restatement We have restated our consolidated financial statements for the years 1999 through 2003 and for
the first quarter of 2004. In addition, certain disclosures in the
notes to our consolidated financial
statements have been restated to reflect the Restatement adjustments. In the Restatement, we have:  
    corrected errors related to the recording of certain capitalized costs for internally
developed software, the commencement of the amortization of our capitalized software
development costs and the accrual of costs and expenses
    corrected the accounting for interest rate and fuel price
derivative instruments
    corrected revenue recognition errors and related costs
    identified and corrected other accounting errors and misclassifications
    reduced the number of dilutive shares determined by the treasury stock method for all
periods presented to reflect the tax benefit related to the assumed exercise of stock
options The determination to restate
these financial statements was made as a result of:  
    the determinations from 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, 2002 and 2001 in
light of our conclusion that our interest rate and fuel price
derivative contracts did not satisfy the requirements of FAS 133, Accounting for Derivative Instruments
and Hedging Activities and as such, did not qualify for hedge
accounting treatment. The Restatement reduced our earnings before income taxes for the years 1999 through 2003
by
$5.1 million consisting of $47.8 million related to capitalized internally developed software, $5.6
million related to accrual of costs and expenses and $4.4 million related to revenue recognition
(net of costs), substantially offset by a $52.7 million
increase in net unrealized gains on derivative instruments. Adjustments for periods prior to 1999 of $20.2 million before income taxes increased opening
retained earnings as of January 1, 1999 by $12.6 million after taxes. These adjustments included
the elimination of $23.5 million of excess liabilities principally related to earlier
restructurings. The Restatement increased beginning retained earnings
for the year 2001 presented on our consolidated statement of
stockholders equity from $78.9 million as previously reported to $84.4 million as
restated. This $5.5 million increase consisted of the $12.6 million increase for the
years prior to 1999 discussed above, offset by reductions of $1.5 million in
1999 and $5.6 million in 2000. The primary impact on the historical consolidated balance sheets and consolidated statements
of cash flows related to adjustments concerning the software capitalization and amortization costs.
Capitalized software development costs were reduced by $51.1 million and $33.1 million as of
December 31, 2003 and 2002, respectively. As a result of expensing software development costs
previously capitalized, capital expenditures and net cash flows provided by operating
activities were reduced by $23.0 million, $11.5 million and $10.2 million for the years ended
December 31, 2003, 2002 and 2001, respectively. The Restatement had no impact on historical cash
balances or net cash flows since the entire reduction in operating cash flows is offset in
investing cash flows. 24




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##### Table of Contents



In January 2005, we determined that our interest rate and fuel price derivative contracts did
not satisfy the requirements of FAS 133, Accounting for Derivative
Instruments and Hedging Activities and as such, did not qualify for hedge accounting treatment.
The correction of accounting for these derivative instruments impacted 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 of our consolidated balance sheets
are now reported in net earnings on our consolidated statements of operations. The
annual pre-tax earnings impact of the correction of unrealized gains and losses on derivative
instruments was a decrease of $15.4 million in 2003 and
increases of $48.3 million in 2002 and $19.8
million in 2001. The correction of accounting for realized gains and losses had no impact 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 on a line item titled (gain) loss on derivative
instruments. The correction of
accounting for derivative instruments had no impact on operating cash flows. 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
    reclassifications between cost and expense categories
    reclassification of Comdata assets and liabilities
    transfer of excess pre-1999 restructuring liabilities directly to retained earnings The impact of the Restatement on earnings for each of the five years from 1999 through 2003 is
shown in the table below. Further information on the nature and impact of these adjustments as to
the years 1999 through 2003 is provided in Note B, Restatement of Financial Statements, to our
consolidated financial statements contained elsewhere in this Form 10-K/A. 25




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##### Table of Contents



Earnings Adjustments Related to the Restatement
(Dollars in millions) 2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    Five
YearTotalRevenue recognition, net of costs
    
    $
    (2.0
    )
    
    $
    (1.9
    )
    
    $
    (0.5
    )
    
    $
    
    
    
    $
    
    

    $
    (4.4
    )Derivative
instruments
    
    
    (15.4
    )
    
    
    48.3
    
    
    
    19.8
    
    
    
    
    
    
    
    
    

    
    52.7Software capitalization
    
    
    (17.6
    )
    
    
    (10.7
    )
    
    
    (9.7
    )
    
    
    (8.6
    )
    
    
    (1.2
    )

    
    (47.8
    )Accrual of costs and expenses
    
    
    (5.7
    )
    
    
    (2.1
    )
    
    
    3.7
    
    
    
    (0.3
    )
    
    
    (1.2
    )

    
    (5.6
    )Total pre-tax earnings increase (decrease)
    
    $
    (40.7
    )
    
    $
    33.6
    
    
    $
    13.3
    
    
    $
    (8.9
    )
    
    $
    (2.4
    )

    
    (5.1
    )Tax effect of restatement
    
    
    14.6
    
    
    
    (12.5
    )
    
    
    (4.9
    )
    
    
    3.3
    
    
    
    0.9
    

    
    1.4Total net earnings increase (decrease)
    
    $
    (26.1
    )
    
    $
    21.1
    
    
    $
    8.4
    
    
    $
    (5.6
    )
    
    $
    (1.5
    )

    
    (3.7
    )
 Overview Ceridian Corporation provides human resource solutions to employers through our Human Resource
Solutions business segment operations located in the United States, Canada and the United Kingdom.
We also provide transaction processing and related services primarily to the transportation and
retail industries through our Comdata business segment operations located principally in the United
States. Our businesses are more fully described in Part I, Item 1, Business, and in Note E,
Segment Data, to our consolidated financial statements contained in this Form 10-K/A. This discussion presents our views on our earnings and cash flow performance over the most
recent three-year period and our financial condition at the end of the two most recent years in the
following manner:  
    We begin this discussion with a management summary in which we provide a context
for a review of our financial performance over the past three years and highlight
those factors that we believe are most meaningful in assessing that performance.
This includes highlights of our results of operations and cash flows for the past
three years.
    We then address our earnings performance in a section entitled Results of
Operations. There we compare our performance from 2003 to 2002 and 2002 to 2001 on
a consolidated basis for the whole company as well as for our Human Resource
Solutions and Comdata business segments. Transactions affecting earnings that we
consider unusual or nonrecurring are discussed in a subsection entitled Unusual
Items.
    We continue by discussing our financial condition and cash flow performance in
further detail in a section entitled Financial Condition. There we describe the
impact of particular developments that affected our cash balance through our
operating, investing and financing activities. In a subsection entitled Liquidity
and Capital Resources, we also discuss our plans for funding future major 26




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expenditures and any financial commitments, including those that are not reported on
our consolidated balance sheet under current accounting rules.
    We conclude our discussion by describing what we believe to be the most critical
accounting policies in determining our financial condition and results of operations
and the most significant risks and uncertainties facing our businesses. 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 expense
    HRS represents our human resource solutions business segment
    Comdata represents our transportation and retail services business segment
    Other relates to the results of our corporate center operations that were not
allocated to our HRS and Comdata business segments
    NM represents percentage relationships in the tables that are not meaningful
    U.S. represents the United States Managements Summary As described in more detail in Part I, Item 1 of this Form 10-K/A, we redefined our company in
2001 as an information services company that operates principally in the human resource,
transportation and retail markets. Our HRS business enables customers to outsource a broad range
of employment processes. HRS operations are located primarily in the U.S. with significant
subsidiary operations in Canada (Ceridian Canada) and the United Kingdom (Ceridian Centrefile).
Through Ceridian Centrefile we are expanding our payroll services by engaging partners in other
countries in Europe. Comdata is a payment processor and issuer of credit, debit and stored value
cards principally for the transportation and retail industries. Comdatas operations are located
substantially in the U.S. with some operations in Canada and prospects of expanding into Mexico and
Europe. The period covered by this discussion featured a number of events or arrangements that had or
will have a significant effect on our financial condition and performance. You will find the
following matters described in this discussion or through a reference to the notes to our
consolidated financial statements.  
    Restatement. We have restated our consolidated financial statements as
described above and in Note B, Restatement of Financial Statements to our
consolidated financial statements contained in this Form 10-K/A.
    New services offerings. New offerings have contributed significantly to
revenue growth in 2003 in our HRS segment (examples include eSource, Official
Ceridian Check/Ceridian Direct Deposit, Human Resource Outsourcing and SourceWeb)
and in our Comdata segment (examples include BusinessLink and eCash). These service
offerings are more fully described in Part I, Item 1 of this Form 10-K/A. 27




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##### Table of Contents




    Growth in orders and customers in 2002 and 2003. After experiencing
growth in the value of HRS orders of 15% from 2001 to 2002, HRS order values grew an
additional 7.5% in 2003. Major contributors to HRS order growth in 2003 included
customers for our Human Resource Outsourcing offering and a mid-year contract with
the U.S. Department of Defense for work-life effectiveness and employee assistance
for members of the military services. For Comdata, new customer and order growth
was particularly strong in our stored value card business in both 2002 and 2003
while transportation services also added new customers to a lesser degree in both
years. Our measurements of customer retention for both segments also showed
improvement over the prior year in both 2002 and 2003.
    Acceleration of W-2 information delivery. In 2003, we succeeded in
advancing the processing, delivery and billing of W-2 information for our customers.
This accomplishment resulted in the recognition of $9.2 million of revenue in
December 2003 that otherwise would have been recognized in January 2004. Because
the costs associated with W-2 activities are reported as incurred throughout the
year, essentially this entire amount was reflected in 2003 earnings before income
taxes. This means that 2003 revenue included two contributions for W-2 activities
and 2004 results will include W-2 revenue only in December.
    The effect of changing currency exchange rates. The strength of the
Canadian dollar and British pound sterling against the U.S. dollar in 2003
contributed significantly to the revenue increases for our Ceridian Canada and
Ceridian Centrefile subsidiaries.
    Our software development arrangement with Ultimate Software. We
contracted with The Ultimate Software Group, Inc. (Ultimate) in 2001 to obtain a
license to use their software as part of a Web-enabled integrated
payroll/HR/self-service offering to small business customers. This arrangement
involved up front payments of $10.0 million in 2001 and $6.5 million in 2002 and a
commitment for additional minimum monthly payments beginning with January 2004
totaling $26.7 million over the remaining noncancelable term of the contract
including March 2008. These payments included $10.5 million for a paid-up license
and a $6.0 million prepayment of the minimum royalty for 2003. We spent an
additional $16.9 million from 2001 through 2003 to incorporate the licensed software
into a new product offering we call SourceWeb. Of this total expenditure, $1.9
million, $5.3 million and $3.3 million were expensed in 2001, 2002 and 2003,
respectively. The remaining $6.4 million was capitalized as software development
costs. In conjunction with offering SourceWeb to our customers in the first quarter
of 2003, we began amortizing the $6.4 million capitalized software costs along with
the $10.5 million capitalized license cost. Also in the first quarter of 2003, we
entered into a services agreement with Ultimate for extended technical support that
required quarterly payments during 2003 totaling $2.3 million. We commenced monthly
charges to operations for the services agreement and the $6.0 million prepaid
royalty for 2003 as of January 2003. We estimate that our incremental costs in 2003
compared to 2002 in connection with the introduction of SourceWeb reduced 28




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##### Table of Contents



pre-tax earnings by $17.8 million. We discuss this arrangement and SourceWeb in the
Results of Operations and Liquidity and Capital Resources subsections of this
discussion.
    Our principal defined benefit pension plan. Declines in equity
securities market values and in interest rates resulted in our principal pension
plan, which had been over-funded for many years, becoming an under-funded plan.
This change in funded status required that we reclassify the amount reported as a
pension asset at the end of 2000 into a combined reduction of our equity and an
increase in our liabilities. As a further result of this change in funded status,
our earnings before income taxes was reduced by $12.3 million in 2003 compared to
2002. We made cash contributions to this plan during 2003 of $103.7 million. We do
not presently plan to make additional contributions to this plan in 2004 although
subsequent investment performance, interest rate changes or regulatory actions may
require a reconsideration of this position. We discuss our pension and
postretirement obligations in the Liquidity and Capital Resources section of this
discussion and in Note H, Retirement Plans, to our consolidated financial
statements contained in this Form 10-K/A. Comparison of Annual Periods Ended December 31, 2003, 2002 and 2001 Consolidated Statements of Operations Highlights (Restated)
(Dollars in millions, except per share data) Years ended December 31,2003
    
    
    2002
    
    
    2001Revenue
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    $
    1,167.0Net earnings
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    60.5Earnings from continuing operations
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    55.3Earnings and gain from disposition of discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    5.2Diluted shares used in calculations (in thousands)
    
    
    150,197
    
    
    
    149,633
    
    
    
    147,669Net earnings per diluted share
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41Earnings from continuing operations per diluted share
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.37
 Results of Operations Overview for the Three Years Ended December 31, 2003 Revenue of $1,213.9 million for 2003 increased by $53.6 million over 2002 revenue as both HRS
and Comdata contributed to the improved results. Revenue for 2002 of $1,160.3 million decreased by
$6.7 million from the comparable 2001 amount. Earnings from continuing operations for 2003
decreased by $14.5 million to $98.7 million (66¢ per
diluted share) from $113.2 million (76¢ per
diluted share) in 2002 after increasing by $57.9 million from
$55.3 million (37¢ per diluted share)
in 2001. If we eliminated goodwill amortization and related income taxes from the 2001 amounts to
compare with the 2002 treatment, earnings from continuing operations
for 2001 would have been $85.6
million (57¢ per diluted share). The gain from discontinued operations included in net earnings in
2001 related to the spin-off of Arbitron 29




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##### Table of Contents



Inc., discussed in the section entitled Discontinued
Operation of Note D, Supplementary Data
to Statement of Operations, to our consolidated financial statements contained in this Form
10-K/A. The
correction to the accounting for our interest rate derivative
instruments contributed
significantly to the variability of revenue and earnings during the reported periods as further
discussed in the section entitled, Cash and Investments, including Derivatives in Note A,
Accounting Policies, in Note B, Restatement of Financial Statements and in the section entitled
Derivative instruments in Note K, Commitments and Contingencies to the consolidated financial
statements in this Form 10-K/A. Further information on results of operations is presented in the
following section of this discussion entitled Results of Operations. Consolidated Statements of Cash Flows Highlights (Restated)
(Dollars in millions) Years ended December 31,2003
    
    
    2002
    
    
    2001Operating activities
    
    $
    56.6
    
    
    $
    137.4
    
    
    $
    163.7Investing activities
    
    
    (34.4
    )
    
    
    (104.4
    )
    
    
    (96.5
    )Financing activities
    
    
    (37.5
    )
    
    
    (15.1
    )
    
    
    (56.1
    )Effect of exchange rate on cash and equivalents
    
    
    5.2
    
    
    
    0.2
    
    
    
    Net cash flows provided (used)
    
    $
    (10.1
    )
    
    $
    18.1
    
    
    $
    11.1Cash and equivalents at end of year
    
    $
    124.2
    
    
    $
    134.3
    
    
    $
    116.2
 Cash Flows Overview for the Three Years Ended December 31, 2003 Our cash and equivalents decreased by $10.1 million to $124.2 million during 2003, increased
by $18.1 million to $134.3 million during 2002 and increased $11.1 million to $116.2 million during
2001. Cash flows from operating activities in 2003 reflected employer contributions to our
principal defined benefit pension plan trust of $103.7 million where there had been no such
contributions to that plan in the comparative prior years. Net cash outflows for investing activities amounted to $34.4 million in 2003, $104.4 million
in 2002 and $96.5 million in 2001. Investing cash outflows included capital expenditures of $57.5
million during 2003, $54.6 million in 2002 and $83.8 million in 2001. Cash outflows for
investments and businesses acquired amounted to $1.7 million in 2003, $50.3 million in 2002 and
$30.2 million in 2001. We received proceeds from sale of businesses and assets of $24.8 million in
2003, $0.5 million in 2002 and $18.7 million in 2001. Net cash outflows for financing activities amounted to $37.5 million in 2003, $15.1 million in
2002 and $56.1 million in 2001. In 2001, we completed the Arbitron spin-off, which required new
financing arrangements. We combined a $225.0 million contribution by Arbitron with net new
borrowings under revolving credit agreements and cash balances to pay off $456.6 million of
outstanding senior notes. Net new borrowings under revolving credit agreements in 30




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2001 amounted to
$166.4 million. We reduced the debt remaining at December 31, 2001 by $44.6 million in 2002 and
$49.6 million in 2003. We also made payments of capital lease
obligations of $1.4 million in 2003. Financing cash outflows for repurchases of Ceridian
common stock amounted to $28.8 million in 2003 and $5.4 million in 2002. Cash inflows from
financing activities included exercises of stock options and employee stock purchases of $42.3
million in 2003, $34.9 million in 2002 and $9.1 million in 2001. Significant changes in currency exchange rates resulted in adding $5.2 million to the carrying
value of cash and equivalents in 2003 compared to negligible impacts in 2002 and 2001. Further information on cash flows is presented in a following section of this discussion
entitled Financial Condition and in Note B, Restatement of Financial Statements to the
consolidated financial statements contained in this Form 10-K/A. 31




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Results of Operations 2003 Compared to 2002 Statements of Operations (Restated)
(Dollars in millions, except per share data) IncreaseAmount
    
    
    (Decrease)
    
    
    % of Revenue2003
    
    
    2002
    
    
    $
    
    
    %
    
    
    2003
    
    
    2002Revenue
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    
    53.6
    
    
    
    4.6
    
    
    
    100.0
    
    
    
    100.0Cost of revenue
    
    
    693.5
    
    
    
    654.2
    
    
    
    39.3
    
    
    
    6.0
    
    
    
    57.1
    
    
    
    56.4SG&A expense
    
    
    364.1
    
    
    
    351.1
    
    
    
    13.0
    
    
    
    3.7
    
    
    
    30.0
    
    
    
    30.3R&D expense
    
    
    19.4
    
    
    
    15.0
    
    
    
    4.4
    
    
    
    29.5
    
    
    
    1.6
    
    
    
    1.3(Gain) loss
on derivative instruments
    
    
    (14.7
    )
    
    
    (73.3
    )
    
    
    58.6
    
    
    
    (80.0
    )
    
    
    (1.2
    )
    
    
    (6.4
    )Other expense (income)
    
    
    (2.5
    )
    
    
    33.1
    
    
    
    (35.6
    )
    
    NM
    
    
    
    (0.2
    )
    
    
    2.9Interest (income)
    
    
    (2.0
    )
    
    
    (2.1
    )
    
    
    0.1
    
    
    
    (5.4
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Interest expense
    
    
    4.6
    
    
    
    6.3
    
    
    
    (1.7
    )
    
    
    (26.5
    )
    
    
    0.4
    
    
    
    0.5Total costs and expenses
    
    
    1,062.4
    
    
    
    984.3
    
    
    
    78.1
    
    
    
    7.9
    
    
    
    87.5
    
    
    
    84.8Earnings before income taxes
    
    
    151.5
    
    
    
    176.0
    
    
    
    (24.5
    )
    
    
    (14.0
    )
    
    
    12.5
    
    
    
    15.2Income taxes
    
    
    52.8
    
    
    
    62.8
    
    
    
    (10.0
    )
    
    
    (16.0
    )
    
    
    4.4
    
    
    
    5.4Earnings from continuing operations
    
    $
    98.7
    
    
    $
    113.2
    
    
    
    (14.5
    )
    
    
    (12.8
    )
    
    
    8.1
    
    
    
    9.8Diluted EPS from continuing operations
    
    $
    0.66
    
    
    $
    0.76
    
    
    
    (0.10
    )
    
    
    (13.2
    )
    
    NM
    
    
    NM
 Consolidated
Results - Overview The following factors, which significantly influenced the revenue and profitability
performances of our business segments in 2003, are discussed in the following section of this
discussion entitled Business Segment Results.  
    Lower yields on invested customer funds
    Gains and losses on interest rate derivative instruments
    Contributions from businesses acquired for HRS in 2002
    Impact of currency rate changes on HRS international results of operations
    Growth in Comdatas retail cards in use and processing
    New customers and service offerings in both business segments
    Higher levels of HRS invested customer funds
    Acceleration of W-2 processing, delivery and billing into 2003 from 2004
    Lower sales of equipment and permitting services by Comdata
    Increased expenses related to technology support (Gain) loss on derivative instruments included both realized gains or losses from cash
settlements and unrealized gains or losses from revaluation of the future expected cash flows
associated with these instruments over their remaining terms. The valuation of the interest rate
derivative instruments is based upon future expected interest rates as determined from LIBOR 32




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future
prices in effect at the end of the reporting year. The valuation of fuel price derivative
instruments is based on a national average of diesel fuel purchase transactions involving Comdata
customers correlated with the U.S. Department of Energy national
average price for diesel fuel. The gains and losses from derivative instruments are discussed in the following section
entitled Business Segment Results. Our 2003 interest income decreased by $0.1 million compared to 2002 as the benefit of a higher
average level of cash and equivalents was more than offset by lower interest rates. Our 2003 total financing cost for debt obligations declined by $1.8 million compared to 2002
as a result of a lower level of outstanding debt and lower interest rates. This decrease included
a $1.7 million decrease in interest expense and a $0.1 million decrease in capitalized interest.
Our average outstanding borrowings under U.S. credit facilities decreased from $207.3 million for
2002 to $174.5 million for 2003. Our average effective interest rate on these facilities declined
from 2.67% for 2002 to 2.25% for 2003. A further discussion of our financing arrangements can be
found in Note J, Financing, to the consolidated financial statements and in the Financial
Condition section of this discussion under the heading Financing. Income
taxes decreased by $10.0 million from 2002 to 2003 due largely to the decrease in
earnings before income taxes. The reported effective tax rate decreased to 34.8% for 2003 from
35.7% for 2002. Business Segment Results Segment Comparisons (Restated)
(Dollars in millions) IncreaseAmount
    
    
    (Decrease)
    
    
    % of Revenue2003
    
    
    2002
    
    
    $
    
    
    %
    
    
    2003
    
    
    2002RevenueHRS
    
    $
    894.2
    
    
    $
    847.3
    
    
    
    46.9
    
    
    
    5.5
    
    
    
    73.7
    
    
    
    73.0Comdata
    
    
    319.7
    
    
    
    313.0
    
    
    
    6.7
    
    
    
    2.1
    
    
    
    26.3
    
    
    
    27.0Total
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    
    53.6
    
    
    
    4.6
    
    
    
    100.0
    
    
    
    100.0Earnings before interest and taxesHRS
    
    $
    49.6
    
    
    $
    84.5
    
    
    
    (34.9
    )
    
    
    (41.4
    )
    
    
    5.5
    
    
    
    10.0Comdata
    
    
    104.5
    
    
    
    91.6
    
    
    
    12.9
    
    
    
    14.2
    
    
    
    32.7
    
    
    
    29.2Other
    
    
    
    
    
    
    4.1
    
    
    
    (4.1
    )
    
    NM
    
    
    NM
    
    
    NMTotal
    
    $
    154.1
    
    
    $
    180.2
    
    
    
    (26.1
    )
    
    
    (14.5
    )
    
    
    12.7
    
    
    
    15.5
 We measure the business performance of our business segments by reference to earnings before
interest and taxes since consolidated interest income and interest expense are not allocated to
those segments. HRS.The increase of $46.9 million in HRS revenue in 2003 compared to 2002 reflected
increases of $32.0 million from U.S. operations, $14.2 million from Ceridian Canada and $0.7 from
Ceridian Centrefile. Businesses acquired during 2002 contributed $18.2 million of post-acquisition
revenue growth to U.S. operations in 2003. The accelerated processing, delivery and 33




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billing of
2003 W-2 forms in December 2003, described in the section entitled Managements Summary earlier
in this discussion, contributed $9.2 million to the revenue increase from U.S. operations.
Strengthening of the Canadian dollar and British pound sterling against the U.S. dollar added $19.7
million to 2003 revenue for our international operations. Revenue
from the return on invested customer funds decreased by $2.4 million in 2003 with the
benefit of a higher average invested balance contributing $7.6 million while a lower average yield
reduced revenue by $10.0 million. The average balance of invested customer funds increased by
$215.1 million, or 11.1%, to $2,147.0 million in 2003 from
$1,931.9 million in 2002 largely due to
growth in a new direct deposit payroll service and the effect of the strengthening Canadian dollar
on Ceridian Canada invested customer funds. The average yield on invested customer funds declined
to 2.96% in 2003 from 3.43% in 2002. Revenue from U.S. operations benefited in 2003 from increases of $18.9 million in payroll and
tax filing services, $11.1 million in benefits services revenue and $2.0 million from our work life
effectiveness and employee assistance programs
(LifeWorks). In addition to a decrease of
$5.5 million in the
return on invested customer funds and $9.2 million of additional W-2 revenue, the 2003 increase
in payroll and tax filing revenue included an additional $17.2 million from net additions of
customers receiving repetitive services and growth in sales of add-on services. The net benefit to
payroll and tax filing revenue from price increases in 2003 amounted to $5.3 million. Employee
populations for our continuing customers declined about 1% from the 2002 level, reducing payroll
and tax filing revenue by $8.0 million in 2003. The $11.1 million increase in benefits services
revenue in 2003 substantially related to the contribution of Great Lakes Strategies, a business
that we acquired in December 2002. The $2.0 million increase in LifeWorks revenue reflected an
additional $6.1 million from the commencement of service deliveries during the last half of 2003
under a U.S. Department of Defense contract, which largely offset the revenue decrease from
customer losses. Ceridian Canada revenue increased by $14.2 million in U.S. dollar terms in 2003 and by $1.8
million without regard to changes in currency exchange rates. Increased revenue at Ceridian Canada
from small business customers, add-on services and employee assistance services more than offset
the decrease in revenue resulting from a reduced number of customer employees. Ceridian Centrefile
reported $0.7 million more revenue in 2003 in U.S. dollar terms. Without regard to currency
changes, Ceridian Centrefile revenue declined by $6.6 million in 2003. Major factors contributing
to Ceridian Centrefiles revenue decline included 2002 non-repetitive services for a major customer
that was not replaced, lower levels of customer employees, and slippage of installations from late
2003 to 2004. HRS
costs and expenses, excluding net interest, increased by $81.9 million in 2003 compared to
2002 including a $57.9 million reduction in the gains from our interest rate derivative instruments,
a net reduction in other expense (income) of $29.4 million and an increase in other costs and
expenses of $53.4 million. The
reduction of $57.9 million in gains from interest rate derivative instruments in 2003
compared to 2002 included an increase in realized gains of $4.9 million from cash settlements 34




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and a
decrease in unrealized gains of $62.8 million from revaluation of the future expected benefit from
these instruments over their remaining terms. Other expense (income) for HRS in 2002 included unusual items that resulted in a net expense
of $25.0 million that included write-downs of marketable securities and software, severance and
other exit costs. We discuss these items in a section of this discussion entitled Unusual Items.
In 2003, HRS other expense (income) reflects income of $4.4 million largely from a net gain from
the sale of marketable securities and land not used in our business. Factors generally affecting
the comparison of 2003 HRS costs and expenses to 2002 included costs associated with businesses
acquired in 2002, the effect of currency exchange rate changes in 2003, and higher 2003 employee
benefit costs and software development expense, including SourceWeb. Cost of revenue for HRS increased by $34.2 million in 2003. In U.S. operations, cost of
revenue increased by $26.1 million in 2003 compared to 2002. Cost of revenue for U.S. payroll and
tax filing operations increased by $24.5 million due largely to higher costs associated with the
introduction and continued development of internally developed software. Costs associated with the
development and implementation of the 2003 offering of SourceWeb added $16.0 million to cost of
revenue. Other technology support and implementation costs added $12.0 million to cost of revenue
in 2003 compared to 2002. Acquisitions completed in 2002 added $4.4 million. Lower production and
supplies costs and external contract and consulting costs reduced cost of revenue by $7.9 million.
The acceleration of 2003 W-2 revenue into December 2003 did not have a material effect on the cost
of revenue comparison, since the timing of incurrence of related costs was largely unaffected.
Cost of revenue for benefits services increased by $2.1 million. The additional cost of revenue
for Great Lakes Strategies, acquired in December 2002, and the impact of staff increases were
offset in part by a reduction of external consulting costs incurred in connection with the transfer
of certain benefits services operations begun in 2002 and completed in 2003. Cost of revenue for
LifeWorks decreased by $0.5 million in 2003 primarily due to staff reductions. Cost of revenue in Ceridian Canada operations increased by $4.1 million in 2003 as currency
rate changes added $6.4 million to the 2003 amount. Without regard to the currency effect,
Ceridian Canada cost of revenue declined by $2.3 million due to changes in services mix and cost
reduction efforts, particularly in the last half of 2003. Cost of revenue in Ceridian Centrefile
operations increased by $4.0 million as currency rate changes added $3.4 million and additional
costs, primarily associated with geographic market expansion and new customer implementations,
added $0.6 million. The 2003 increase in SG&A expense for HRS amounted to $15.4 million over the 2002 amount.
Selling expense in HRS grew by $7.0 million in 2003 of which $1.5 million occurred in U.S.
operations and $5.5 million in international operations. The increase of $1.5 million in U.S.
operations primarily related to incremental costs associated with businesses acquired in 2002. The
$5.5 million increase in selling expense for Ceridian Canada and Ceridian Centrefile operations
included a $1.7 million impact from currency rate changes and $3.8 million related in large part to
increased marketing efforts and small business development. 35




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General and administrative expense for HRS increased in 2003 over 2002 by $8.4 million
including increases of $3.0 million for U.S. operations and $5.4 million for Ceridian Canada and
Ceridian Centrefile operations. The $3.0 million increase for U.S. operations resulted
primarily from an increase in allocated expenses of $9.3 million for pensions and other employee benefit programs,
which more than offset the effects of staff reductions and reduced provisions for incentive payouts
in 2003. The $1.8 million increase for Ceridian Canada included $2.3 million related to currency
rate changes and the $3.6 million increase for Ceridian Centrefile included $2.4 million for
currency rate changes. R&D expense for HRS in 2003 increased by $3.8 million compared to 2002 due to a higher level
of software development efforts in U.S. operations. Comdata.Comdata revenue increased by $6.7 million in 2003 compared to 2002 as revenue from
retail card sales and processing grew significantly and improving general economic conditions began
to benefit transportation revenue performance. Revenue from retail card sales and transaction
processing increased by $14.8 million in 2003 over 2002 due to a higher level of cards in use and
transaction volume and the addition of new customers. Revenue in the over-the-road business in
2003 increased by $1.5 million compared to 2002 as additional revenue from card services more than
offset the effect of lower fuel prices. Revenue from sales of equipment to truck stops decreased
by $6.6 million in 2003 and truck stop service fees decreased by $0.7 million. Business fleet
revenue grew by $2.8 million in 2003 over 2002 as major local fueling customers increased their
utilization of Comdata products and services. Phone services revenue declined by $2.9 million in
2003. Regulatory compliance revenue, including permitting and pilot services, declined by $2.0
million compared to 2002 as cooperative efforts by permit issuers continued to reduce the volume of
transactions. Comdata costs and expenses, excluding net interest, decreased by $6.2 million in 2003 compared
to 2002. Cost of revenue increased by $5.1 million in 2003. Costs related to SVS card sales and
processing increased by $9.2 million. The change in cost of revenue included a $4.1 million
reduction for equipment sales to truck stops and an increase in bank fees of $1.7 million. Comdata SG&A expense decreased by $1.9 million in 2003 compared to 2002. The decrease related
primarily to a reduction of $2.1 million in the provision for doubtful accounts and $3.7 million
due to the conclusion of certain contracted services and amortization on certain intangible assets
in late 2002. The reduction in the provision for doubtful accounts reflected continued improvement
in the quality of receivables in 2003 and a bankruptcy filing by a major customer in 2002. These
decreases were offset in part by higher compensation and benefits expense including $3.9 million of
allocated corporate costs related to increased employee benefits costs. Other expense (income)
decreased by $11.0 million in 2003 due primarily to the 2002 factoring receivables loss of $9.8
million and a September 2003 payment of $1.9 million to settle a dispute with a vendor. These
costs are further described in the section below entitled Unusual Items. 36




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Other.The reported other income of $4.1 million for 2002 results from reduction of a
previously established accrual for environmental cleanup, based on a periodic review that took
place in the first quarter of 2002. Further detail on this other expense (income) item appears in
the section of this discussion entitled Unusual Items. 37




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2002 Compared to 2001 Statements of Operations Comparisons (Restated)
(Dollars in millions, except per share data) IncreaseAmount
    
    
    (Decrease)
    
    
    % of Revenue2002
    
    
    2001
    
    
    $
    
    
    %
    
    
    2002
    
    
    2001Revenue
    
    $
    1,160.3
    
    
    $
    1,167.0
    
    
    
    (6.7
    )
    
    
    (0.6
    )
    
    
    100.0
    
    
    
    100.0Cost of revenue
    
    
    654.2
    
    
    
    647.9
    
    
    
    6.3
    
    
    
    1.0
    
    
    
    56.4
    
    
    
    55.5SG&A expense*
    
    
    351.1
    
    
    
    344.0
    
    
    
    7.1
    
    
    
    2.1
    
    
    
    30.3
    
    
    
    29.5R&D expense
    
    
    15.0
    
    
    
    17.9
    
    
    
    (2.9
    )
    
    
    (16.1
    )
    
    
    1.3
    
    
    
    1.5(Gain) loss on derivative instruments
    
    
    (73.3
    )
    
    
    (32.7
    )
    
    
    (40.6
    )
    
    NM
    
    
    
    (6.4
    )
    
    
    (2.8
    )Other expense (income)
    
    
    33.1
    
    
    
    49.8
    
    
    
    (16.7
    )
    
    
    (33.6
    )
    
    
    2.9
    
    
    
    4.3Interest income
    
    
    (2.1
    )
    
    
    (6.5
    )
    
    
    (4.4
    )
    
    
    (67.7
    )
    
    
    (0.2
    )
    
    
    (0.6
    )Interest expense
    
    
    6.3
    
    
    
    18.2
    
    
    
    (11.9
    )
    
    
    (65.5
    )
    
    
    0.5
    
    
    
    1.6Total costs and expenses*
    
    
    984.3
    
    
    
    1,038.6
    
    
    
    (54.3
    )
    
    
    (5.2
    )
    
    
    84.8
    
    
    
    89.0Earnings before income taxes*
    
    
    176.0
    
    
    
    128.4
    
    
    
    47.6
    
    
    
    37.0
    
    
    
    15.2
    
    
    
    11.0Income taxes*
    
    
    62.8
    
    
    
    42.8
    
    
    
    20.0
    
    
    
    46.7
    
    
    
    5.4
    
    
    
    3.7Earnings from continuing operations*
    
    $
    113.2
    
    
    $
    85.6
    
    
    
    27.6
    
    
    
    32.2
    
    
    
    9.8
    
    
    
    7.3Diluted EPS from continuing operations*
    
    $
    0.76
    
    
    $
    0.58
    
    
    
    0.18
    
    
    
    31.0
    
    
    NM
    
    
    NM
    Consolidated
Results - Overview The following factors significantly influenced our revenue and profitability performances in
2002:  
    Lower yields on invested customer funds
    Gains and losses on interest rate derivative instruments
    Lower employment levels of our HRS customers
    Higher level of HRS payroll and tax filing installations
    Acquisitions and dispositions of businesses in HRS
    Increased expenses related to technology support
    Higher levels of Comdata retail cards in use and processing
    Lower revenue from the sale of equipment and permitting services by Comdata
    Changes in fuel prices and transaction volumes at Comdata As publicly reported employment levels in the private sector continued to fall during 2002, so
did employment levels for our HRS customers, although at a slower rate of decline than we
experienced in 2001. These lower employment levels translated into fewer fee-producing
transactions and lower balances of customer funds available for revenue-producing investment.
Interest rates continued to decline in 2002, though not as steeply as in 2001. While we continued 38




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to experience HRS customer deferrals of installations in 2002, the install rate increased
significantly during the last half of the year. We disposed of our Usertech business in the third
quarter of 2001; and in 2002, we acquired SYLINQ Corporation in March, HR Comply in June and
certain assets of Great Lakes Strategies in December. We further describe our business and asset
acquisitions in a note to our consolidated financial statements entitled Investing Activity and
in the Financial Condition section of this discussion under the heading Investing. Growth in Comdatas retail card sales and processing business in 2002 compared to 2001
contributed significantly to revenue. Sales of point of sale terminals by Comdata slowed in 2002
along with the economy. Over the course of 2002, the volume of Comdata transportation card
transactions increased modestly, while fuel prices rose over the prior year level in the fourth
quarter of 2002. Further details are provided in the following section of this discussion entitled
Business Segment Results. Our total costs and expenses (without goodwill amortization of $35.1 million in 2001) for 2002
decreased by $54.3 million from the 2001 amount. Included in the comparison were the effect of a
$40.6 million increase in gains from derivative instruments and a net decrease of $16.7 million in
other expense (income). In addition to these factors, costs and expenses increased by $10.5
million in 2002 over 2001. Cost of revenue increased by $6.3 million while SG&A expense increased
by $7.1 million in 2002 compared to 2001. R&D expense decreased by $2.9 million between the two
years. The
increase of $40.6 million in gains from interest rate derivative instruments in 2002 over
2001 included an increase in realized gains of $17.8 million from cash settlements and an increase
in unrealized gains of $22.8 million from revaluation of the future expected cash flows from these
instruments over their remaining terms. Other expense (income) amounted to $33.1 million in 2002 compared to $49.8 million in 2001,
down $16.7 million. The principal contributors to other expense (income) in 2002 included unusual
items consisting of asset write-downs of $23.4 million involving minority investments, software and
factoring receivables and net charges of $10.2 million largely related to business consolidation
efforts. Other expense (income) for 2001 included unusual items consisting of $53.7 million of
litigation costs and $12.8 million of asset write-downs and consolidation costs, offset by gains of
$15.6 million from marketable securities. Unusual items reported in other expense (income) are
described in the section of this discussion entitled Unusual Items. Further details on total
costs and expenses are provided in the following section entitled Business Segment Results. Our 2002 interest income decreased by $4.4 million compared to 2001 due largely to lower
rates. We also received interest income in 2001 related to a tax refund and from yields on an
accumulation of cash in the first quarter of 2001 in preparation for the Arbitron spin-off. Our 2002 total financing cost for debt obligations declined by $12.4 million compared to 2001
as a result of a lower level of outstanding debt and lower interest rates. Of this decrease, $11.9
million represented a decrease in interest expense and $0.5 million represented a decrease 39




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in capitalized interest. By the end of 2001, we had paid all amounts outstanding under our
Canadian revolving credit agreements. At the time of the Arbitron spin-off in March 2001, we
retired $430.0 million of 7.25% senior notes by using a $225.0 million payment by Arbitron, a
drawing of $235.0 million on our U.S. revolving credit facility and existing cash balances. The
Canadian facility and the senior notes contributed $8.3 million to 2001 interest expense. During
2002, we reduced our borrowings under U.S. credit facilities from $235.0 million to $190.0. The
average outstanding balance under these facilities decreased from $208.6 million in 2001 to $207.3
million in 2002. Our average effective interest rate on these facilities declined from 4.73% in
2001 to 2.67% in 2002. A further discussion of our financing arrangements can be found in a note
to the consolidated financial statements entitled Financing and in the Financial Condition
section of this discussion under the heading Financing. Income taxes,
excluding the effect of goodwill, increased by $20.0 million from 2001 to 2002
due largely to the increase in earnings before income taxes; and the effective tax rate increased
from 33.4% for 2001 to 35.7% for 2002. Business Segment Results Segment Comparisons (Restated)
(Dollars in millions) IncreaseAmount
    
    
    (Decrease)
    
    
    % of Revenue2002
    
    
    2001
    
    
    $
    
    
    %
    
    
    2002
    
    
    2001RevenueHRS
    
    $
    847.3
    
    
    $
    862.7
    
    
    
    (15.4
    )
    
    
    (1.8
    )
    
    
    73.0
    
    
    
    73.9Comdata
    
    
    313.0
    
    
    
    304.3
    
    
    
    8.7
    
    
    
    2.9
    
    
    
    27.0
    
    
    
    26.1Total
    
    $
    1,160.3
    
    
    $
    1,167.0
    
    
    
    (6.7
    )
    
    
    (0.6
    )
    
    
    100.0
    
    
    
    100.0Earnings before interest and taxes*HRS
    
    $
    84.5
    
    
    $
    88.1
    
    
    
    (3.6
    )
    
    
    (4.1
    )
    
    
    10.0
    
    
    
    10.2Comdata
    
    
    91.6
    
    
    
    37.7
    
    
    
    53.9
    
    
    
    143.1
    
    
    
    29.2
    
    
    
    12.4Other
    
    
    4.1
    
    
    
    14.3
    
    
    
    (10.2
    )
    
    
    (71.0
    )
    
    NM
    
    
    NMTotal
    
    $
    180.2
    
    
    $
    140.1
    
    
    
    40.1
    
    
    
    28.6
    
    
    
    15.6
    
    
    
    12.0
    (*) We eliminated goodwill amortization from reported 2001 amounts in order to compare with the
required treatment for 2002. Its elimination reduced SG&A expense and increased EBIT by $26.2
million for HRS and $8.9 million for Comdata. HRS.The decrease of $15.4 million in HRS revenue in 2002 compared to 2001 reflected a
decrease of $15.8 million from ongoing U.S. operations and increases of $0.1 million from HRS
operations at Ceridian Canada and $7.4 million at Ceridian Centrefile. The sale of our Usertech
employee training business in August 2001 adversely affected the comparison by $7.1 million.
Businesses acquired during 2002 provided $6.4 million of the U.S. operations revenue benefit to the
comparison, as well as post-acquisition revenue growth. 40




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Revenue from U.S. operations in 2002 benefited from increases of $8.3 million in benefits
services revenue and $4.4 million from LifeWorks, due primarily to acquisitions. Payroll and tax
filing services in the U.S. experienced a $28.5 million reduction in revenue compared to 2001. The
reduced revenue largely reflected lower customer employment levels and lower investment yields.
Interest income from investment of customer funds included in HRS
revenue decreased by $28.1 million as the average yield fell from 4.97% for the 2001 period to 3.43% for the 2002 period. The
revenue comparison benefited from a higher level of payroll and tax filing installations,
particularly in the last half of the year, and a targeted price increase effected in the first
quarter of 2002. The average balance of these investments for 2002 remained at the 2001 level as
the benefit from a pickup in installations offset the adverse effect of the decline in the number
of employees of existing customers and lower U.S. federal income tax withholding resulting from tax
rate reductions effective in July 2001 and January 2002. The decline in customer employment levels
was at approximately 1.5% at the end of 2002 compared to approximately 3% at the end of 2001. Revenue performance for Ceridian Canada changed little from the 2001 level in 2002 as the
adverse effects of lower employment levels at larger customers and lower investment yields were
largely offset by growth in the small business market and nonrecurring sales. Ceridian Centrefile
produced $7.4 million more revenue in 2002 than in 2001 due to growth in outsourcing revenue and
expansion of services offerings. Changes in foreign currency exchange rates had little effect on
the international operations revenue comparison in 2002. HRS
costs and expenses (without 2001 goodwill amortization of $26.2 million in SG&A expense)
decreased by $11.8 million from 2001 to 2002. The increase in gains from interest rate derivative
instruments reduced costs and expenses by $40.6 million in 2002 compared to 2001. An increase in
other expense (income) increased total costs and expenses by $19.7 million in 2002 compared to
2001. The sale of Usertech in August 2001 resulted in reductions of $5.4 million in the cost of
revenue comparison, $3.3 million in the SG&A comparison and $3.3 million in the other expense
(income) comparison. Cost
of revenue for HRS increased by $6.2 million in 2002 compared to 2001. The consolidation
of 25 district processing centers into four regional centers and other productivity efforts during
the past two years reduced U.S. payroll and tax filing cost of revenue by $15.6 million compared to
2001, primarily by staff reductions. Higher levels of technology support costs added $15.3 million
to payroll and tax filing cost of revenue in 2002. The sale of Usertech reduced the cost of
revenue by $5.4 million from 2001 to 2002. In 2002, we benefited from a full year of cost of revenue savings of $4.0 million from the
2001 LifeWorks consolidation of our Boston, Massachusetts operation into our Philadelphia,
Pennsylvania operation. We also incurred incremental costs in LifeWorks of $1.2 million in 2001
related to the 9/11 event. We reduced our LifeWorks costs in 2002 by another $4.4 million largely
by bringing research activities in-house that had been provided by outside consultants. Cost of
revenue of $3.8 million from the addition of HR Comply in 2002 offset these LifeWorks savings. 41




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Cost of revenue in benefits services operations increased by $17.5 million of which $3.3
million resulted from the added costs of SYLINQ and Great Lakes Strategies in 2002. Early in 2002,
we closed facilities in California and Virginia and transferred their retirement planning services
activities into other benefits services operations. In connection with this consolidation, we
incurred transitional and additional systems costs of approximately $6.8 million in the third and
fourth quarter of 2002 that were included in cost of revenue. Other increases in benefits services
operations cost of revenue of $7.4 million in 2002 related primarily to a higher volume of activity
and implementation costs. Cost of revenue in Ceridian Canada operations increased by $2.2 million in 2002 due primarily
to an increase in the proportion of revenue from nonrecurring sales and the introduction of new
service offerings. Cost of revenue in Ceridian Centrefile operations increased by $3.8 million
primarily as a result of revenue growth and geographic market expansion. The 2002 increase in SG&A expense (without goodwill amortization) for HRS amounted to $4.0
million over the 2001 amount. Selling expense in HRS grew by $11.3 million in comparison to 2001
reflecting increased marketing efforts in the U.S. operations and at Ceridian Centrefile, and
higher commissions arising from the continued growth in orders. The increased marketing effort in
U.S. operations related in large part to acquired businesses and small business development.
Usertech expenses, eliminated by its sale, reduced the increase in selling expense by $0.9 million.
General and administrative expense in 2002 decreased by $7.3 million, primarily in U.S.
operations, in addition to the elimination of 2001 goodwill
amortization. The elimination at Usertech expenses represented
$2.4 million of the decrease and cost savings from facility consolidations and reduced
provisions for incentive compensation contributed to the remaining reduction of these costs. R&D
expense decreased by $1.0 million compared to 2001, reflecting reduced product development efforts
by U.S. payroll and tax filing and LifeWorks operations, offset in part by Benefits Services
activities. The increase in other expense (income) from $5.3 million in 2001 to $25.0 million in
2002 is further discussed in the section of this discussion entitled Unusual Items. Comdata.Comdata revenue increased by $8.7 million in 2002 compared to 2001. Over-the-road
transportation revenue decreased by $1.0 million as a 1% increase in transaction volume was more
than offset by the impact of lower fuel prices. Revenue from retail card sales and processing for
2002 increased by $12.1 million. Revenue from sales of equipment to merchants decreased by $3.5
million in 2002 as we believe customers restricted their capital spending; while truck stop service
fees increased by $2.8 million. Business fleet revenue grew by $2.1 million in 2002 over 2001 as
major local fueling customers increased their utilization of Comdata products and services. Phone
services revenue declined by $2.0 million in 2002. Regulatory compliance revenue, including
permitting and pilot services, declined by $4.6 million compared to 2001 as cooperative efforts by
permit issuers continued to reduce the volume of transactions. Factoring operations contributed an
additional $3.9 million to 2002 revenue over 2001. 42




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Comdata reduced costs and expenses (without 2001 goodwill amortization of $8.9 million) by
$45.2 million in 2002 compared to 2001. Costs of revenue related to retail card sales and
transaction processing increased by $9.0 million in 2002 compared to 2001. Reductions in cost of
revenue included $1.5 million of lower phone services costs. The lower levels of sales of
equipment to merchants and regulatory compliance services and renegotiated telecommunications rates
also contributed $3.4 million to reducing cost of revenue. Cost savings in 2002 from operating
efficiency efforts in customer relations and technology functions produced a $3.6 million reduction
in cost of revenue and a $1.9 million reduction in R&D expense compared to 2001. Comdata increased
its provision for doubtful accounts in general expense by $1.3 million in 2002 over 2001 due
largely to a bankruptcy filing by a major customer. Other expense (income) included a $9.8 million
factoring receivables loss in the third quarter of 2002 and $52.4 million of litigation costs in
the second quarter of 2001. Costs related to the cancellation of the outsourced transaction
processing contract and facility consolidations, included in other expense (income), declined from
$6.6 million in 2001 to $3.0 million in 2002. These other expense (income) items are further
described in the section below entitled Unusual Items. Other.The reported other income of $4.1 million for 2002 results from reduction of a
previously established accrual for environmental cleanup, based on a periodic review that took
place in the first quarter of 2002. The reported other income for 2001 includes a gain of $15.6
million related to sales of marketable securities described in the note to consolidated financial
statements entitled Investing Activity. The 2001 gain was reduced by a provision for litigation
costs not allocated to the business segments. Further details on these unusual gains and losses
appear in the following section of this discussion entitled Unusual Items. 43




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Unusual Items The comparison of our earnings from continuing operations is significantly affected by a
number of unusual events and transactions. We also have presented information on this subject in a
note to our consolidated financial statements entitled Supplementary Data to Statements of
Operations. Unusual Losses (Gains or Recoveries)
(Dollars in millions) Years Ended December 312003
    
    
    2002
    
    
    2001(restated)
    
    (restated)Litigation and contract settlement costs
    
    $
    1.9
    
    
    $
    0.8
    
    
    $
    53.7Gain on sale of land
    
    
    (1.6
    )
    
    
    
    
    
    
    (Gain) loss on marketable securities
    
    
    (3.4
    )
    
    
    6.3
    
    
    
    (15.6
    )Accrued exit costs, net of recoveries
    
    
    
    
    
    
    13.5
    
    
    
    6.7Factoring receivables loss
    
    
    
    
    
    
    9.8
    
    
    
    Asset write-downs (restated)
    
    
    
    
    
    
    7.3
    
    
    
    6.1Reduction in environmental accrual
    
    
    
    
    
    
    (4.1
    )
    
    
    Total unusual losses reported in other expense (income)
    
    $
    (3.1
    )
    
    $
    33.6
    
    
    $
    50.9HRS
    
    $
    (5.0
    )
    
    $
    25.0
    
    
    $
    6.2Comdata
    
    
    1.9
    
    
    
    12.7
    
    
    
    59.0Other
    
    
    
    
    
    
    (4.1
    )
    
    
    (14.3
    )Total unusual losses reported in other expense (income)
    
    $
    (3.1
    )
    
    $
    33.6
    
    
    $
    50.9
 During September 2003, we sold 785,000 common shares of Ultimate for proceeds of $5.9
million and a net gain of $3.0 million. In addition we sold 137,158 common shares of U.S.I.
Holdings Corporation (USIH) for proceeds of $1.8 million and a net gain of $0.4 million. We
further describe these transactions in a note to our consolidated financial statements entitled
Investing Activity. During the fourth quarter of 2003, we sold parcels of land not used in
operations in St. Petersburg, Florida and New Albany, Indiana for a gain of $1.6 million. During
the third quarter of 2003, Comdata settled a contract dispute with a vendor by making a payment of
$1.9 million. 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 million. A plan to consolidate certain HRS payroll and tax filing processing services,
previously conducted in 25 district offices, into four regional processing centers resulted in the
accrual of $7.5 million for exit costs. We completed this effort before the end of 2002 and
estimate that we saved approximately $6.5 million during 2002, primarily from staff reductions, and
anticipate that we will reduce our costs by approximately $12 million annually going forward. Of
the $7.5 million accrual, $5.3 million related to severance costs for 317 employees all of whom
were terminated by December 31, 2002, and $2.2 million represented other exit costs, primarily
related to lease terminations. Consolidation of certain Comdata facilities resulted in accrued
severance 44




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costs of $1.0 million for 76 employees, including 67 terminated by December 31, 2002 with
the remainder in 2003, and other exit costs of $0.5 million, primarily related to lease
terminations. HRS recorded a $4.9 million 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. An additional software asset write-down
of $0.6 million was recorded in the second quarter of 2002. Also during the first quarter of
2002, we conducted a periodic reassessment of our environmental obligation. This obligation
relates to the 1989 sale by our predecessor (Control Data Corporation) of its disk drive
operations, which involved remediable environmental sites. The sale agreement provided terms
describing how remedial costs related to remediable environmental sites would be shared between the
buyer and us as the seller. The terms of the agreement included periodic joint reviews of the
obligation by the buyer and us. Our obligations covered only those sites identified prior to the
fifth anniversary of the sale. At the time of the sale, we established an accrual for our
estimated costs that might occur as a result of this agreement. During the first 10 years
following the sale, both parties incurred significant costs, which then began to reduce as these
sites entered a water extraction and monitoring stage. During the first quarter of 2002, we
participated in a periodic review of the status of this obligation with the environmental officer
of the buyer. A site visit was made by our environmental representative at that time, and it was
determined that our estimated liability was $4.1 million less than previously determined. The
excess accrual was then credited back to earnings as a component of other expense (income). During the third quarter of 2002, we examined purchases of receivables from certain trucking
companies by Comdatas factoring business that had grown rapidly during 2002 and found that the
debtors could not be verified. In the meantime, the parties that had sold us the receivables
declared bankruptcy. We also made certain modifications to our policies and procedures related to
the factoring business. We recorded the full amount of the loss of $9.8 million, including $0.3
million of investigative costs incurred. Due to the unusual and non-recurring nature of the loss,
we have reported the loss as other expense (income). 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 million and in the first quarter of 2000 by $0.3 million and by Comdata in the first
quarter of 2002 by $0.3 million. We also incurred additional expense in HRS for severance costs of
$1.3 million, involving 81 employees, and other exit costs of $2.9 million and in Comdata for
severance costs of $0.6 million, involving 41 employees, and other exit costs of $1.1 million. 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. Also in the fourth quarter of 2002, HRS recorded a $7.8 million write-down of the carrying
values of certain marketable equity and cost-based investments and wrote off the $0.3 million
carrying value of an abandoned software product. The investment write-down related primarily to
our December 2001 cost-based investment in USIH preferred stock in connection with a joint
marketing agreement, which was converted to common stock as a result of an initial 45




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public offering
in October 2002. We also recorded $0.8 million of other unusual costs in HRS for a litigation
settlement. The 2001 gain on sale of marketable securities of $15.6 million related to our sale of
HotJobs.com, Ltd. common stock and is further described in Note G, Investing Activity, to our
consolidated financial statements. The second quarter 2001 litigation costs include a settlement
of $49.0 million and associated costs of $3.4 million related to litigation involving Comdata and
a provision of $1.3 million for litigation costs not allocated to our business segments. The
litigation settlement and associated costs at Comdata related to an action brought by Flying J,
Inc. The nature and facts and circumstances of this litigation are fully disclosed in Note L,
Legal Matters, to our consolidated financial statements for the year ended December 31, 2000, and
the resulting settlement is fully disclosed in Part II, Item 1, Legal Proceedings, of our
Quarterly Report on Form 10-Q, for the quarterly period ended June 30, 2001. The additional
provision of $1.3 million for litigation costs not allocated to our business segments related to
disputes involving postretirement benefits. During the first quarter of 2001, we took certain actions in Comdata and HRS that were
expected to improve operational efficiency, take advantage of technological opportunities and
further focus our HRS businesses. These actions resulted in accrued exit costs of $9.9 million and
asset write-downs of $6.1 million. We paid these accrued exit costs in full by the end of 2001.
We also recovered $3.2 million of costs accrued during the first quarter of 2000, due to a revision
of the estimated cost related to those actions. In February 2001, Comdata terminated an outsourced contract for transaction processing and
software development and brought those activities in-house. This action was intended to improve
management control over these activities and reduce costs. The termination charge of $6.6 million
was recorded and paid during the first quarter of 2001. In order to implement the in-house
operation, Comdata hired a number of personnel from the outsourcing contractor and made incremental
investments in capitalized equipment and software of $7.4 million in the same quarter. During the
course of 2001, Comdata realized cost savings of approximately $10.8 million related to this
action. In March 2001, HRS transferred most of its LifeWorks employee effectiveness services operation
in Boston, Massachusetts into a related operation in Philadelphia, Pennsylvania; and we decided to
sell our Usertech employee training business. As a result of these actions, unrecoverable goodwill
of $1.9 million related to Usertech and $1.1 million of equipment related to the Boston operation
were recorded as asset write-downs. We sold Usertech in the third quarter of 2001. In addition,
HRS charged $2.3 million of severance costs for approximately 250 employees and $1.0 million of
excess facility costs to operations and recorded these costs as accrued exit costs. These charges
were offset in part by the recovery of $3.2 million of the estimated severance costs accrued in the
first quarter of 2000, due primarily to a reduction in the scale of the downsizing of the St.
Louis, Missouri customer services operations. Also in March 2001, HRS reassessed its strategy for
developing software to serve its middle market payroll and tax filing customers and conducted an
impairment review of internally developed software 46




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related to this effort. As a result, $3.1
million of unrecoverable cost related to this software development effort was recognized as an
asset write-down. Financial Condition We describe in the note to our consolidated financial statements entitled Customer Funds the
effect on the consolidated statements of cash flows of a reclassification of benefit
services customer funds effective in 2003. Prior periods have been conformed to the current
presentation. Consolidated Statements of Cash Flows Highlights (Restated)
(Dollars in millions) Years ended December 31,2003
    
    
    2002
    
    
    2001Operating activities
    
    $
    56.6
    
    
    $
    137.4
    
    
    $
    163.7Investing activities
    
    
    (34.4
    )
    
    
    (104.4
    )
    
    
    (96.5
    )Financing activities
    
    
    (37.5
    )
    
    
    (15.1
    )
    
    
    (56.1
    )Effect of exchange rate on cash and equivalents
    
    
    5.2
    
    
    
    0.2
    
    
    
    Net cash flows provided (used)
    
    $
    (10.1
    )
    
    $
    18.1
    
    
    $
    11.1Cash and equivalents at end of year
    
    $
    124.2
    
    
    $
    134.3
    
    
    $
    116.2
 Reconciliation of Earnings to Cash Inflows (Outflows) from
Operating Activities (Restated)
(Dollars in millions) Years ended December 31,2003
    
    
    2002
    
    
    2001Earnings from continuing operations
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    55.3Deferred income tax provision
    
    
    34.7
    
    
    
    25.7
    
    
    
    33.8Depreciation and amortization
    
    
    80.2
    
    
    
    74.4
    
    
    
    104.8Provision for doubtful accounts
    
    
    11.2
    
    
    
    17.0
    
    
    
    15.8Asset write-downs
    
    
    
    
    
    
    7.3
    
    
    
    6.1Unrealized (gain) loss on derivative instruments
    
    
    15.7
    
    
    
    (47.1
    )
    
    
    (24.3
    )(Gain) loss on marketable securities
    
    
    (3.4
    )
    
    
    6.3
    
    
    
    (15.6
    )Contribution to retirement plan trusts
    
    
    (105.5
    )
    
    
    (3.3
    )
    
    
    Retirement plan expense (credit) and other
    
    
    5.5
    
    
    
    (10.4
    )
    
    
    (8.9
    )From continuing operations earnings
    
    
    137.1
    
    
    
    183.1
    
    
    
    167.0From continuing operations working capital activities
    
    
    (80.5
    )
    
    
    (45.7
    )
    
    
    (2.5
    )Operating cash flows from continuing operations
    
    
    56.6
    
    
    
    137.4
    
    
    
    164.5From discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Cash flows provided by operating activities
    
    $
    56.6
    
    
    $
    137.4
    
    
    $
    163.7
 47




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Cash Flows Cash Balances and Operations Our cash and equivalents decreased by $10.1 million to $124.2 million during 2003 as we used
operating cash flows and cash balances to fund investing activities, repay debt and contribute to
our retirement plan trusts. The operating cash flows for 2003 included payments of $105.5 million
for employer contributions to our pension plans for employees in the U.S. and the United Kingdom.
In 2002, our cash and equivalents increased by $18.1 million to $134.3 million as operating cash
flows provided funds for investing and to reduce debt. During 2001, cash and equivalents increased
by $11.1 million to $116.2 million as strong operating cash flows fully funded investing activities
and provided funding for debt reduction. During 2003, our operating cash flows were $56.6 million compared to $137.4 million in 2002.
This decrease of $80.8 million was due mostly to an increase in pension contributions of $102.2
million. When comparing the working capital cash flows for 2003 and
2002, the $34.8 million
additional cash usage is largely due to decreases in accrued taxes and Comdata drafts and
settlements payable. Our operating cash flows from continuing operations decreased by $27.1 million during 2002 as
compared to 2001 primarily due to an increase in receivables at the end of 2002. Cash provided by
continuing operations earnings grew by $16.1 million in 2002 while cash outflows from continuing
operations working capital activities reduced operating cash flows by
$43.2 million. Our 2001
operating cash flows from earnings included the $34.1 million after-tax effect of the nonrecurring
Comdata litigation costs described in the previous section of this discussion entitled Unusual
Items. The decrease in the amount of depreciation and amortization largely reflects the
elimination from earnings of the charge for goodwill amortization effective for 2002. The
increased use of cash for working capital activities reflected a net cash outflow from a build-up
of receivables in 2002 of $43.2 million compared to a $36.9 million net cash inflow from
liquidation of receivables in 2001. When comparing the working capital cash flows for 2002 to
2001, the total $80.1 million increase in cash utilized by receivables related substantially to
Comdata receivables activity and was offset in part by an increase of $26.3 million in cash
provided by Comdata drafts payable in those periods. The build-up of Comdata receivables during
2002 reflected increases in factoring, business fleet and retail card receivables, offset in part
by a decrease in other transportation receivables. The relationship of the period-end date and the
timing of weekly draft clearing operations at Comdata at December 31, 2001 also affected the
comparison of net cash provided by or utilized for drafts payable and receivables outstanding in
2002 and 2001. 48




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Investing Our 2003 investing activity related to capital expenditures of $30.5 million for property and
equipment and $27.0 million for software and development costs. In March 2003, we spent $3.0
million to acquire 750,000 shares and a warrant to purchase an additional 75,000 shares of
Ultimate. During September 2003, we sold 785,000 Ultimate common shares purchased on the open
market in years prior to 2003 for $5.9 million and 137,158 common shares of USIH for $1.8 million.
Also during 2003, we received $1.4 million returned from an earn-out escrow related to the
acquisition of Great Lakes Strategies, $12.1 million for assets sold relative to two sale leaseback
transactions, and $4.3 million for sale of land not used in our businesses. During 2002, our investment in capital expenditures included $31.1 million for property and
equipment and $23.5 million for software and development costs. The software development costs
included $4.7 million for development of SourceWeb. During 2002, we also spent $15.6 million to
acquire SYLINQ, $8.9 million for HR Comply, $19.0 million for Great Lakes Strategies and a total of
$6.8 million for other acquisitions. We described these transactions further in the note to
consolidated financial statements entitled Investing Activity. During 2001, our investment in capital expenditures included $43.2 million for property and
equipment and $40.6 million for software and development costs, of which $21.3 million of software
and development spending took place during the first quarter. Investing expenditures also included
a payment of $10.0 million to Ultimate to acquire a non-exclusive software license to be used in
the development of a web-enabled payroll/HR/self-service offering for HRS called SourceWeb. Cash
expended for acquisitions during 2001 included $20.2 million for minority investments, including
$15.0 million for USIH, intended to expand product offerings in HRS as further discussed in the
note to the consolidated financial statements entitled Investing Activity. Proceeds from sales
of businesses and assets of $18.7 million for 2001 principally represented our sale of common stock
of HotJobs.com, Ltd., which provided proceeds of $15.6 million. Financing During 2003, we repurchased 1,844,100 shares of our common stock for $28.8 million on the open
market at an average net price of $15.60 per share. Proceeds from exercises of stock options and
employee stock plan purchases amounted to $42.3 million during 2003 compared to $34.9 million in
2002. Also during 2003, we entered into two capital lease arrangements resulting in an obligation
of $22.2 million to be paid over a 60-month period. We also reduced our borrowings under our
domestic revolving credit facility by $40.0 million and our receivable securitization facility by
$10.0 million. At December 31, 2003, under our $350.0 million domestic revolving credit facility,
we had $347.7 million of unused borrowing capacity. Of that amount, we have designated $140.0
million as backup for the amount outstanding under the receivables securitization facility, which
leaves $207.7 million available for other purposes. 49




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In June 2002, Comdata entered into a $150.0 million receivables securitization facility. The
facility has up to a three-year term and uses certain of Comdatas trade receivables as collateral
for borrowings. At December 31, 2002, $150.0 million had been drawn against and remained
outstanding under this facility. We used those proceeds and additional payments of $45.0 million
to reduce borrowings under our $350.0 million revolving credit facility to $40.0 million at the end
of 2002. These advances, along with a $2.3 million letter of credit, left us with unused borrowing
capacity of $307.7 million, of which we designated $150.0 million as backup to the Comdata
receivables securitization facility. Proceeds from exercises of stock options and employee stock
plan purchases during 2002 amounted to $34.9 million compared to $9.1 million in 2001. Higher
market prices for Ceridian stock, particularly in the second quarter of 2002, resulted in a higher
level of option exercises, which produced the increased proceeds. We purchased 393,000 shares of
our common stock on the open market during the last half of 2002 for $5.4 million at an average
price, including commissions, of $13.74 per share. When we disposed of the $182.5 million net
liabilities of Arbitron discontinued operations at the time of the Arbitron spin-off, our retained
earnings increased by that amount. During the third quarter of 2002, we reduced this amount and
our net deferred tax asset by $5.7 million based on the filing of 2001 tax returns for the entities
involved in the Arbitron spin-off. We discuss the Arbitron spin-off in the section entitled
Discontinued Operations of the note to our consolidated financial statements entitled
Supplementary Data to Statements of Operations. Our financing activities in 2001 largely involved transactions related to the Arbitron
spin-off. At the time of the Arbitron spin-off, advances of $235.0 million from the January 2001
credit facility, a $225.0 million Arbitron payment and existing cash balances funded the required
early retirement of the $430.0 million of senior notes outstanding and payment of the $50.0 million
balance outstanding under the $250.0 million domestic revolving credit facility dated July 1997.
The redemption of senior notes required a payment of $456.5 million. The establishment of the
January 2001 credit facility resulted in the payment of $1.0 million for origination costs to be
amortized over the term of the facility. During the second quarter of 2001, we drew an additional
$50.0 million of advances on the January 2001 credit facility in connection with the litigation
settlement described earlier in this discussion under the heading Unusual Items. During 2001, we
reduced outstanding advances by payments of $50.0 million to $235.0 million. Another $2.0 million
of the credit line was utilized for letters of credit at December 31, 2001. In addition, payments
of $18.8 million and currency translation adjustments of $0.3 million extinguished the balance of
$19.1 million outstanding on our Canadian revolving credit agreements at December 31, 2000 leaving
only a $0.9 million letter of credit outstanding at December 31, 2001. Financing cash flows in
2001 also included cash inflows of $9.1 million from exercises of stock options and employee stock
plan purchases. For further information on financing cash flows, see a note to our consolidated financial
statements entitled Financing, and the following section entitled Liquidity and Capital
Resources. 50




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Liquidity and Capital Resources We expect to meet our liquidity needs from existing cash balances, cash flows from operations
and borrowings under external credit facilities. Cash balances and cash flows are discussed under
the section of this discussion entitled Financial Condition. Cash flows from operations are
primarily influenced by the same factors that influence revenue as discussed in a preceding section
of this discussion entitled Results of Operations and in several of the items in the following
section entitled Cautionary Factors That Could Affect Future Results. Cautionary factors of
particular relevance include those that refer to the effects of government regulations on such
matters as the timing of tax payments, interest rates, employee benefits, and funds transfer
activities; our ability to attract new customers and retain our existing customers; and general
economic conditions. Our planned expenditures for capital assets and software (as restated) for 2004 ranged from
$60.0 million to $65.0 million with an estimated allocation of 88% to HRS and 12% to Comdata. We
also plan to continue to grow our businesses through strategic acquisitions. As described in the preceding discussion of financing activities in the Financial Condition
section of this discussion, we have been opportunistically repurchasing Ceridian common stock since
late 2002. We repurchased 393,000 shares in 2002 and 1,844,100 shares in 2003. In 2004, we plan
to utilize approximately half of our free cash flow (defined as operating cash flows minus capital
expenditures) to continue this opportunistic repurchase program. We presently estimate that free
cash flow for 2004 may be in the range of $140 million to $150 million. As of December 31, 2003,
we were authorized to purchase up to 10,362,900 additional shares of our common stock under an
existing authorization from our board of directors. We generally use our treasury stock to address
our obligations under our stock compensation and employee stock purchase plans. As of December 31, 2003, we have unused borrowing capacity under the $350.0 million revolving
credit facility amounting to $347.7 million of which we have designated $140.0 million as backup to
the Comdata receivables securitization facility. We are in compliance with all covenants related
to these facilities. We have entered into lease and other contractual commitments that are not reflected on our
consolidated balance sheet at December 31, 2003, under generally accepted accounting principles.
The table below describes the annual cash payments for which we are obligated under our financing
agreements, which are reported on our balance sheet, and our lease agreements and significant
contractual commitments, which are not on our balance sheet, at that date. 51




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Contractual Obligations at December 31, 2003
(Dollars in millions) Payment due by periodLess than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    one year
    
    
    Years
    
    
    Years
    
    
    5 yearsLong-term debt and capital leases
    
    $
    163.5
    
    
    $
    6.5
    
    
    $
    151.0
    
    
    $
    6.0
    
    
    $
    Operating leases
    
    
    287.2
    
    
    
    47.0
    
    
    
    73.2
    
    
    
    57.8
    
    
    
    109.2Purchase obligations
    
    
    31.1
    
    
    
    8.2
    
    
    
    14.5
    
    
    
    8.4
    
    
    
    Other long-term obligations
(restated)*
    
    
    198.0Total
    
    $
    679.8
    
    
    $
    61.7
    
    
    $
    238.7
    
    
    $
    72.2
    
    
    $
    109.2
    Our long-term debt and capital lease obligations are described in the preceding comments
on financing cash flows in the Financial Condition section of this discussion and in a note to
our consolidated financial statements entitled Financing. Since we have the capability and
intention of continuing our use of short-term borrowings under our Comdata receivables
securitization facility until it matures in June 2005 and our revolving credit facility until the
facility matures in 2006, the outstanding balances are treated as due on those maturity dates. We
expect that we will renew or replace these facilities when they mature. We conduct a substantial portion 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. In the table above, we include our on-balance-sheet capital
lease obligations with our debt payments and our off-balance-sheet operating lease commitments as
lease payments. In March 2001, we entered into an agreement with Ultimate that provided us with a
non-exclusive license to use Ultimates software as part of a Web-enabled integrated
payroll/HR/self-service offering to our small business customers. Our initial payment to Ultimate
amounted to $10.0 million, which provided us with a non-exclusive license to use its software
product in our product offerings. This payment was partially refundable pending successful
transfer of the technology. Amendments to the license agreement in August 2001 and February 2002
eliminated any refundable nature of the initial payment and deemed the technology transfer complete
as of February 2002. In February 2002, we additionally agreed to pay Ultimate $0.5 million if an
upgraded release were to be delivered prior to August 31, 2002, which did occur. The $10.5 million
is accounted for as purchased software under SOP 98-1 and amortized on a straight-line basis over a
seven-year period that began in March 2003 when our SourceWeb software product incorporating this
Ultimate software was placed in service. Pursuant to the February 2002 amendment, the license agreement also provided for a monthly
royalty commencing in January 2003, which is based on the number of our customers employees paid
by using the software and subject to minimum and maximum amounts. Pursuant to the February 2002
amendment, we made an advance payment of $6.0 million to Ultimate at that time representing the
minimum royalty commitment for 2003. We remain obligated to future 52




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minimum monthly payments of $0.5
million per month from January 2004 until January 1, 2006, when the per-employee monthly charge
will escalate at a rate of 5% per annum until the end of the noncancellable term in March 2008. We
recorded the $6.0 million payment as prepaid expense and amortized this amount to cost of revenue
on a straight line basis over the 12 months of 2003. Royalty costs under this agreement will be
charged monthly to cost of revenue and paid according to the terms of the agreement. In connection with the acquisition of certain call center assets in December 2002, we entered
into royalty and services arrangements that are noncancelable for the first 36 months. Under these
arrangements, we are obligated to make minimum payments of $2.2 million in each of 2004 and 2005. With regard to other long-term obligations, we report on our accompanying balance sheet as of
December 31, 2003 a liability for employee benefit plans of $198.0 million. This liability
includes a minimum pension benefit obligation of $144.7 million and employee benefit plan
obligations of $53.3 million. During 2003, we reduced the minimum pension benefit obligation for
our principal pension plan by making employer contributions of $103.7 million. We do not presently
plan to make additional contributions to the principal pension plan in 2004. Subsequent
developments in investment performance, interest rates or regulatory actions may require a
reconsideration of this position. Annual contributions to our supplemental U.S. pension plan and
the curtailed Ceridian Centrefile plan are not expected to exceed $4.0 million in 2004. Expected future payments toward our postretirement and post-employment benefit obligations of
$53.3 million at December 31, 2003 are more difficult to assess. We expect that employer
contributions toward these obligations for 2004 will be $7.0 million. With the prospective effects
of assumed increased health care costs and the offsetting benefit provided by the Medicare Act
(Medicare Prescription Drug, Improvement and Modernization Act of 2003) as described in a note to
the consolidated financial statement entitled Retirement Plans, we do not believe that we can
make a reliable estimate of future employer payments toward these obligations at this time. Critical Accounting Policies and Estimates The preparation of the financial statements in accordance with generally accepted accounting
principles requires us to make judgments, estimates, and assumptions regarding uncertainties that
affect the reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities, and the reported amounts of revenues and expenses. Areas that require significant
judgments, estimates, and assumptions include the assignment of fair values upon acquisition of
goodwill and other intangible assets and testing for impairment, the capitalization, amortization
and impairment testing of software and development costs, the determination of our liability for
pensions and other postretirement benefits, and 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 companys 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 53




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notes provide a meaningful
and fair perspective of our company. Further discussion of the judgments and uncertainties
associated with our business can be found in the section of this discussion entitled Cautionary
Factors That Could Affect Future Results and Part II, Item 7A of this report. A summary of our significant accounting policies is included in Note A, Accounting Policies,
to our consolidated financial statements. We believe that the application of these policies on a
consistent basis enables us to provide our shareholders with useful and reliable information about
our operating results and financial condition. Assignment of fair values upon acquisition of goodwill and other intangible assets and testing for
impairment In 2002, we adopted new standards of accounting for business combinations (FAS 141) and for
goodwill and intangible assets (FAS 142). We discuss the effect of the adoption of these standards
in the section entitled Goodwill and Other Intangibles in Note A. In the event of a business
combination where we are the acquiring party, 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.
Although goodwill is no longer subject to amortization after January 1, 2002, the carrying value is
subject to periodic review, at least annually, for impairment of that value. We reassess the carrying value of goodwill annually, or more frequently when certain
developments occur, using a discounted cash flow model (DCF model) to determine the current fair
value of the business. A number of significant assumptions and estimates are involved in the
application of the DCF model to forecast operating cash flows, including markets and market share,
sales volumes and prices, costs to produce, and working capital changes. We consider historical
experience and all available information at the time the fair values of our businesses 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 evaluation of impairment involves
comparing the current fair value of the business to the recorded value (including goodwill). We also test long-lived assets, including other intangible assets, under the guidance of FAS
144, Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes
in circumstances indicate that the carrying value of such an asset or group of assets may not be
recoverable. 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 54




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
    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
    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, 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. Capitalization, amortization and impairment testing of software and development costs Our software and development efforts are substantially for internal use and, as indicated in
Note A, Accounting Policies to our consolidated financial statements, in the section entitled
Software and Development Costs, we rely on 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 software 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 software product. With regard to the recoverability of capitalized software and development costs, we regularly
perform an assessment of our ability to recover the costs invested in these assets. The net amount
of these costs shown on our consolidated balance sheet at December 31, 2003 was $85.8 million. The
elements of software and development costs were purchased software of $36.2 million and internally
developed software of $49.6 million. These amounts represent the costs we have invested in these
assets, reduced by amortization expense charged against our earnings as the software was used in
our operations and by any write-downs as a result of our recoverability analysis. Our
recoverability analysis considers projected future cash flows from the utilization of the
underlying software in the respective components of the business. Our projections of future cash flows are affected by such factors as
technological change, competitive offerings, marketplace expectations and project development.
Changes in any of these factors may result in future write-downs of the carrying value of these
or other assets. The amount of the write-down, if any, is largely dependent on our estimates of future cash
flows and the selection of an appropriate discount rate. As a result
of our assessments during the past three years, we recorded no asset
write-down losses in 2003, and recorded $5.8 million
in 2002 and $3.1 million in 2001, respectively, for abandoned
software projects. 55




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Determination of our liability for pensions and other postretirement benefits We present information about our pension and postretirement benefit plans in Note H,
Retirement Plans to our consolidated financial statements. 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 the rates available at year-end on debt instruments that could be used to
settle the obligations of the plan. The impact on the liabilities of a change in the discount rate
of 1/4 of 1% is approximately $16.5 million and a change of $0.4 million 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 million for 2004. Tax matters As a company with operations in many states in the U.S. 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. An adjustment to the estimated liability would be recorded through income in the period
in which it becomes probable that the amount of the actual liability differs from the amount
recorded. Cautionary Factors That Could Affect Future Results In connection with the safe harbor provisions of the Private Securities Reform Act of 1995,
we present the cautionary statements set forth below, identifying important factors that could
cause our actual results to differ materially from those projected in forward-looking statements
made by us. You should carefully consider each of the following risks and all of the other
information in this report. The risks and uncertainties described below and in this report are not
the only ones we will face. Additional risks and uncertainties not presently known to us or that
we currently believe to be immaterial may also adversely affect our businesses. If any of the
risks and uncertainties develops into actual events, our business, financial condition or results
of operations could be materially affected. If that happens, the trading price of our common stock
could decline significantly. 56




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Our revenue depends in large part on our ability to retain customers. Customer retention is an important factor in the amount and predictability of revenue and
profits in each of our businesses. Our ability to retain our customers depends on a number of
factors, including:  
    customer satisfaction
    product and service offerings by competitors
    customer service levels
    price
    customer viability In providing some of our solutions and services, particularly at our HRS business, we incur
installation and conversion costs in connection with new customers that will need to be recovered
before the contractual relationship will provide incremental profit. Longer customer relationships
are likely to be more profitable. Changes in governmental regulations relating to employee benefits, taxes, funds transfer and other
matters may negatively impact our revenue and earnings. Changes in or the elimination of governmental regulations may adversely affect our revenue and
earnings and the way we conduct our businesses. Changes in governmental regulations are difficult
to predict and could be significant. For example, the extent and type of benefits that employers
are required to or may choose to provide employees and the amount and type of federal or state
taxes employers and employees are required to pay will affect the associated new products or
services that we may sell. As another 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, including, for example, posting of surety bonds to guarantee payment of funds in
transit. Changes in this regulatory environment, including the implementation of new or varying
measures by the U.S. federal government, may significantly affect or change the manner in which
Comdata currently conducts some of the aspects of its business. Our future revenue growth will depend on our ability to continue selling our products and services
to our existing customers, introducing new or enhanced products and services, attracting and
retaining new customers and selling additional products and services to existing customers. We expect that a portion of our anticipated future revenue growth in each of our business
segments will be derived from:  
    the continued selling of products and services to our existing customers
    the introduction of new or enhanced products and services in our businesses
    the selling of products and services to new customers 57




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
    the selling of additional products and services to our existing customers How successful we will be in these efforts will depend on a variety of factors, including:  
    the quality and perceived value of our product and service offerings
    effective sales and marketing efforts
    our ability to attract new and retain new and existing customers
    the level of market acceptance and the avoidance of difficulties or delays in
development or introduction of new products and services
    our ability to integrate technology and information systems into our products
and services
    our successful implementation of products and services for new and existing
customers There can be no assurance that we will achieve our revenue growth objectives from our
cross-selling efforts and selling of new products and services. The inability to cross-sell our
products and services, attract and retain new customers or successfully develop and implement new
and enhanced products and services could harm our businesses. Economic factors may harm our business and operating results. Trade, monetary and fiscal policies, and political and economic conditions may substantially
change, with corresponding impacts on the industries that we serve, particularly those more
economically sensitive industries such as trucking and retail. Approximately 75.6 percent of
Comdatas revenue for 2003 was attributable to its transportation business. Comdatas results of
operations are, therefore, dependent on the level of activity in the transportation industry,
which, in turn, is affected by general economic conditions. For example, a decrease in the number
of truck drivers would decrease the number of Comchek transactions and could adversely affect
Comdatas revenues. Similarly, since a significant portion of our fueling transactions are priced
by reference to the amount spent on the transaction, our revenue can be significantly affected by
changes in diesel fuel prices. Falling diesel fuel prices directly reduce the amounts of revenue
and earnings related to these transactions. Rising diesel fuel prices increase our revenue and
earnings but also increase the working capital requirements of Comdata and subject Comdata to
greater credit or bad debt risks with respect to its customers that purchase diesel fuel using a
Comdata payment method. Changes in trade, monetary and fiscal policies, and political and economic conditions could
also affect employment levels, with a corresponding impact on our payroll processing and tax filing
businesses. Decreased employment levels, as well as slowed economic conditions, could negatively
affect wage and bonus payments, orders and the timing of product installations, and negatively
impact the operating results of our HRS business. 58




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Litigation and governmental investigations may harm our financial results. Our future operating results may be harmed by adverse 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 administrative agencies. We are currently responding to a document request from the Securities and Exchange Commission,
and we have been advised that the SEC has issued a formal order of investigation. We are
cooperating with the SEC in its investigation. Although we believe that our accounting is in
accordance with generally accepted accounting principles, we cannot predict the outcome of the
SECs investigation or when the investigation will be resolved. An adverse outcome of this
investigation 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;
    the restatement of our financial results for the years under review;
    stockholder lawsuits; and
    increased review and scrutiny of us by regulatory authorities, the media and
others. In addition, we are restating our financial results for the fiscal years ended December 31,
2003, 2002, 2001 and 2000 to reflect a change in accounting relating to the revenue recognition
policy of Comdatas Stored Value Systems unit. The restatement could result in litigation and the
judgment, settlement and costs of such litigation could have an adverse effect on our financial
results. Any problems or delays we may experience in implementing system upgrades and conversions could harm
our business. We expect to continue our efforts to transition to new or enhanced data processing systems
and/or software in several of our business units, including systems that process customer data and
internal management information systems which provide enhanced data and information services. The
successful implementation of these new or enhanced systems will be critical to the effective
delivery of products and services and the efficient operation of our businesses. Problems or
delays with the installation or initial operation of new or enhanced systems could disrupt or
increase costs in connection with our delivery of services and with our operations planning,
financial reporting and management. From time to time, we have experienced these types of problems
or delays. Our ability to remain competitive depends on our ability to adapt to changing technology. As a provider of information management and data processing services, we will need to adapt
and respond to the technological advances offered by our competitors and the technological
requirements of our customers, including those related to the Internet, in order to maintain and
improve upon our competitive position. For example, management is implementing a strategy 59




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for our HRS business to provide services over the Internet. As another example, Comdatas
credit, debit and cash cards could be replaced by a next-generation payment method. There can be
no assurance that we will develop and release new products and services or product and service
enhancements within the required time frames and within targeted costs. Significant delays,
difficulties or added costs in introducing new products and services or enhancements, either
through internal development, acquisitions or cooperative relationships with other companies, could
adversely affect the market acceptance of our products and services and our operating results. Our strategy to make acquisitions of and investments in complementary businesses, products and
technologies involves risks that could harm our business and operating results. One of our growth strategies is to make acquisitions of and investments in complementary
businesses, products and technologies that will enable us to add products and services for our core
customer base and for adjacent markets, and to expand each of our businesses geographically. Our
ability to make these acquisitions and investments will depend on:  
    the availability of suitable acquisition candidates and investments at
acceptable costs
    our ability to compete effectively for these acquisition candidates and
investments
    the availability of capital to complete these acquisitions and investments These risks could be heightened if we complete several acquisitions or investments within a
relatively short period of time. The benefits of an acquisition or investment may often take
considerable time to develop, and we cannot guarantee that any acquisition or investment will in
fact produce the revenue, earnings or business synergies that we anticipated. In addition, implementation of this strategy entails a number of risks, including:  
    inaccurate assessment of undisclosed liabilities
    entry into markets in which we may have limited or no experience
    potential loss of key employees or customers of the acquired businesses
    difficulties in assimilating the operations and products of an acquired business
or in realizing projected efficiencies and cost savings
    reallocation of significant amounts of capital from operating initiatives to
acquisitions
    increase in our indebtedness and a limitation in our ability to access
additional capital when needed In addition, some acquisitions and investments may require the consent of the lenders under
our $350 million revolving credit facility, and we cannot predict whether approvals would be
forthcoming or the terms on which the lenders would approve these transactions. Also, from an
accounting perspective, acquisitions and investments may involve non-recurring charges and 60




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significant charges from periodic reassessments of the recoverable value of goodwill and other
intangible assets arising from acquisitions that could harm our operating results. Our $350 million revolving credit and Comdata Receivables Securitization facilities may restrict
our operating flexibility. The governing documents for our $350 million revolving credit and Comdata Receivables
Securitization facilities contain a number of significant provisions that, among other things,
restrict our ability to:  
    sell assets
    incur more indebtedness
    grant or incur liens on our assets
    make investments or acquisitions
    enter into leases or assume contingent obligations
    engage in mergers or consolidations
    engage in transactions with our affiliates These restrictions could hurt our ability to finance our future operations or capital needs or
make acquisitions that may be in our best interest. In addition, our credit facilities require
that we satisfy several financial covenants. Our ability to comply with these financial
requirements and other restrictions may be affected by events beyond our control, and our inability
to comply with them could result in a default under a credit facility. If a default occurs under
one of our credit facilities, the lenders under the other facility could elect to declare all of
the outstanding borrowings, as well as accrued interest and fees, to be due and payable and require
us to apply all of our available cash to repay those borrowings. In addition, a default may result
in higher rates of interest and the inability to obtain additional capital. The markets we serve may attract new competitors or cause current competitors to focus more on
these markets, which could harm our business. New competitors could decide to enter the markets we serve or current competitors could decide
to focus more on these markets, and thereby 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.
Any of these or similar developments could harm our business and results of operations. We will be subject to risks related to our international operations, which may harm our operating
results. Approximately 23 percent of HRS revenue was recorded by HRS operations outside of the United
States. Our Ceridian Centrefile subsidiary provides human resource services, payroll processing
services and human resource information systems software in the United Kingdom. 61




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Ceridian Centrefile is expanding its payroll services into numerous countries, primarily in
Europe, by engaging a partner within a country to provide us with payroll administration and
processing services for that country. Our Canadian operations handle and hold payroll as well as
tax filing funds for our Canadian customers. Comdata also operates primarily in the United States
and Canada, and is expanding its business into Mexico and Europe. Apart from the risks described
in this section of the report, international operations are subject to various additional risks
which 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 partners
    reduced protection for intellectual property rights in some countries
    longer sales and payment cycles
    the burdens of complying with a wide variety of foreign laws
    exposure to local economic conditions
    unfavorable currency exchange rates We expect to continue to implement our plans to improve the performance of our U.S. HRS business,
and we cannot assure you that our efforts and the amount we invest in these plans will improve the
financial performance of our U.S. HRS business. We have ongoing and continued initiatives to invest in and improve the performance of our U.S.
HRS business. These initiatives include:  
    transitioning small and medium size business customers to our Internet payroll
products
    improving our customer service model
    improving customer retention
    continuing product enhancements
    investing in our Six Sigma program, an effort that focuses on helping
organizations design and produce products and services better, faster and cheaper
    consolidating and improving efficiencies at our payroll processing centers and
benefits administration operations
    increasing the effectiveness of our sales efforts We cannot assure you that our efforts and the amount we invest in this process will improve
the financial performance of our U.S. HRS business, and if so, by how much. If these initiatives
are less successful than planned, or the level of investment needs to be increased, our business
could be harmed. Government regulation changes on timing or amount of remittances and changes in interest rates may
reduce our investment income from customer deposits. Our payroll and tax filing business in the United States and Canada has historically derived
significant revenue and earnings from the investment of customer deposits, and these 62




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revenue and earnings are an integral part of our payroll and tax filing business. Changes in
governmental regulations on the timing and amount of remittances may reduce the period of time we
are allowed to hold these remittances, as well as the amount of such remittances, and may decrease
our revenue and earnings from this source. If governmental regulations change in this fashion, we
would likely seek to require customers who permit us to retain earnings on their deposits to pay us
additional fees in lieu of a portion of this lost investment income. In addition, changes in interest rates will affect our revenue and earnings from this source.
Interest rate changes are difficult to predict and could be significant. We expect to continue to
lessen the impact of interest rate decreases by the use of derivative instruments such as interest
rate contract transactions that are described in more detail in a note to our consolidated
financial statements entitled Commitments and Contingencies and under Part II, Item 7A of this
report. There can be no assurance that we will be able to use derivative instruments such as
collars and swaps or obtain them on favorable terms, or to what extent any decrease in investment
income would be offset by the use of these derivative instruments. If we were unable to secure
derivative instruments on favorable terms and interest rates decrease, our financial results would
be harmed. Our ability to improve operating margins in our HRS business will depend on the degree to which and
the speed with which we will be able to increase operational efficiencies and reduce operating
costs. Our ability to improve profit margins in our HRS business will depend on factors that include
the degree to which and the speed with which we will be able to increase operational efficiencies
and reduce operating costs. Delays or difficulties in implementing and consolidating process
improvements, such as those designed to reduce printing, telecommunication and customer service
costs, or quickly and effectively installing new customers or new products and services, and in
consolidating various functions, including administrative functions, eliminating duplicate
operations and consolidating facilities could adversely affect the timing or effectiveness of cost
reduction and margin improvement efforts. The failure of our benefit services subsidiary to comply with applicable laws relating to employee
benefits administration could result in substantial taxes, penalties and liabilities that could
harm our business. 63




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As a result of the benefit services our benefit services subsidiary provides, it may be
subject to potential legal liability as a provider of portability compliance services. As a
provider of COBRA (Consolidated Omnibus Budget Reconciliation Act) compliance services, our benefit
services subsidiary is subject to excise taxes for noncompliance with provisions of COBRA. In
addition to the excise tax liability that may be imposed on our benefit services subsidiary,
substantial excise taxes may be imposed under COBRA on our customers. In addition, as a provider
of HIPAA (Health Insurance Portability and Accountability Act of 1996) compliance and
administration services, our benefit services subsidiary is subject to ERISA (Employee Retirement
Income Security Act of 1974) penalties for noncompliance with various provisions of HIPAA. Under various service agreements with its customers, our benefit services subsidiary assumes
financial responsibility for the payment of the taxes and/or penalties assessed against its
customers if a court of competent jurisdiction in a final nonappealable decision determines that
our benefit services subsidiary failed to comply with COBRA, failed to comply with HIPAA or
liabilities were incurred by its customers arising out of the failure of our benefit services
subsidiary to fulfill the obligations under its agreements with its customers, unless these taxes,
penalties or liabilities are attributable to the customers failure to comply with COBRA or HIPAA
or with the terms of the agreement the customer has with our benefit services subsidiary. These
taxes, penalties and liabilities could, in some cases, be substantial and could harm our business
and operating results. Additionally, the failure of our benefit services subsidiary to comply with
applicable provisions of COBRA or HIPAA or to fulfill its obligations under its customer agreements
could harm its reputation, its relationship with its customers and its ability to gain new
customers. The failure of our HRS business to comply with applicable laws relating to payroll tax and
retirement plan administration could result in substantial taxes, penalties and liabilities that
could harm our business. Our HRS customers transfer to our HRS division or its subsidiaries contributed employer and
employee tax funds. Our HRS division or its subsidiaries process the data received from its
customers and remit the funds along with a tax return to the appropriate taxing authorities when
due. Retirement plan assets are remitted directly by our customers to investment vehicles selected
by the plan administrator or plan sponsor. Tracking, processing and paying these tax liabilities
and administering retirement plans is complex. Mistakes may occur in connection with this service.
Our HRS division or its subsidiaries and its customers are subject to large cash penalties imposed
by tax authorities for late filings or underpayment of taxes or required plan contributions. Under
various service agreements with its customers, our HRS division or its subsidiaries assume
financial responsibility for the payment of the penalties assessed against its customers arising
out of the failure of our HRS division or its subsidiaries to fulfill its obligations under its
agreements with these customers, unless these penalties are attributable to the customers failure
to comply with the terms of the agreement the customer has with our HRS division or its
subsidiaries. These penalties could, in some cases, be substantial and could harm its business and
operating results. Additionally, the failure of our HRS division or its 64




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subsidiaries to fulfill its obligations under its customer agreements could harm our
reputation, its relationship with our customers and its ability to gain new customers. Our business and results of operations are dependent on several vendors and suppliers, the loss of
whom could adversely affect our consolidated results of operations. Our business is dependent on several significant vendors and suppliers, the loss of whom could
adversely affect our consolidated results of operations. In particular, Comdatas current business
relies upon its relationships with third party suppliers, such as MasterCard, to effect and support
transactions, including access to the 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 MasterCard or other similar card
associations. Any adverse change in Comdatas relationship with these vendors could likely
adversely affect Comdatas business and results of operations and could harm our consolidated
results of operations as well. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Our market risk exposure is primarily due to the variability of interest income earned on the
investment of customer funds in lieu of fees and reported as revenue. Due to the short-term nature
of customers obligations paid by funds in our possession, investments of these funds must have
very short maturities. This exposes the interest element of our revenue to changes in short-term
interest rates which are highly volatile. Our objective is to manage interest income on
investments of customer funds to provide a stable and predictable source of such revenue. To achieve our interest rate risk management objective we established a program of investing
in longer term instruments, issuing floating rate debt and purchasing interest rate derivative
instruments, based on the expectation that hedge accounting treatment would apply to the accounting
for the impact of derivative instruments. Under hedge accounting treatment, the derivative
instruments would have the effect of converting the short-term rate exposure to fixed rates,
allowing us to achieve a high degree of stability and predictability for net interest revenue. In
addition, issuing short-term debt would have the effect of offsetting interest income from
short-term investments, thereby locking in a predictable net interest spread. Hedge accounting treatment was determined to be inapplicable subsequent to establishing our
program of purchasing derivative instruments as part of our interest rate risk management program.
Accounting treatment for derivative instruments that do not qualify as hedges requires that both
the realized and unrealized gains and losses be recorded in (gain) loss on derivative instruments
in our consolidated statements of operations. Under hedge accounting treatment, the realized gains
and losses of the derivatives were recorded in revenue with other interest income from the
investment of customer funds and the unrealized gains and losses were reported in accumulated other
comprehensive income. 65




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The table below illustrates the estimated impact of changes in interest rates. The column
entitled Hypothetical Change in Net Interest Income includes the after tax impact on interest
income revenue, interest expense and the realized gains and losses of derivative instruments. The
column entitled Hypothetical Change in Unrealized Change in Fair Value of Derivative Instruments
shows the after tax impact of changes in the fair value of our derivative instruments. The contents
of the table show the expected changes over a one year period due to an immediate and sustained
change in interest rates from a base case of 1% Federal Funds rate at December 31, 2003. Hypothetical Change inUnrealized Fair Valueof DerivativePercent Change in Interest Rates
    
    Hypothetical Change in Net Interest
    
    Instruments from BaseExpressed in Basis Points
    
    Income from Base Scenario
    
    Scenario(in millions of dollars)
    
    (in millions of dollars)300 Rise
    
    $
    10.3
    
    
    $
    (23.9
    )200 Rise
    
    
    6.8
    
    
    
    (17.3
    )100 Rise
    
    
    3.4
    
    
    
    (9.8
    )50 Rise
    
    
    1.7
    
    
    
    (5.0
    )25 Rise
    
    
    0.8
    
    
    
    (2.6
    )Base Scenario25 Decline
    
    
    (0.8
    )
    
    
    2.650 Decline
    
    
    (1.7
    )
    
    
    5.2100 Decline
    
    
    (3.4
    )
    
    
    10.4
 Computations in the table above are based on assumed levels of customer funds, floating
rate debt, derivative instruments and U.S. and Canadian interest rates. The data in this table
should not be relied on as precise indicators of future expected results. We refer you to Note A,
Accounting Policies, and Note K, Commitment and Contingencies, in our consolidated financial
statements for additional information on derivative instruments. Other secondary market risk exposures we face include fuel price risk and foreign exchange
risk. Our Comdata transportation services business revenue and net income is exposed to
variability based on changes in the price of diesel fuel. For a large portion of its
transportation services customers, 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
diesel fuel increases or decreases the total dollar amount of fuel purchases and Comdata revenue,
accordingly. We estimate that for each $0.10 change in the average price of diesel fuel per year,
Comdata revenue and pretax profit are impacted by $1.8 million. To manage Comdatas diesel fuel price risk we established a program of purchasing diesel fuel
derivative instruments as a hedge against variability in the future revenue and cash flow due to
changes in fuel prices. This program was established under the expectation that such derivative
instruments would be afforded hedge accounting treatment. Subsequent to the purchase of diesel fuel
derivative instruments we determined that hedge accounting would not apply. During 2003, Comdata
entered into fuel price derivative contracts to swap the variable price of fuel for a fixed price.
These contracts covered the period from April to December 2003, and resulted in the payment of $0.8
million to the swap counterparty. The fair value of these derivative instruments 66




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was zero at December 31, 2003. We also entered into similar fuel price derivative contracts
in March 2004 for the period from June 30, 2004 to December 31, 2004. Our exposure to foreign exchange risk is related to our HRS operations at Ceridian Canada and
Ceridian Centrefile, and is considered not material to our consolidated financial condition or
results of operations. These foreign operations principally serve their respective domestic
markets with nearly all revenue and expenses denominated in local currency. Other intercompany
charges between U.S. and non-U.S. based operations are not material. Translation adjustments on
investments in foreign operations are reported in accumulated other comprehensive income in our
accompanying Statements of Stockholders Equity and are not hedged. 67




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Item 8. Financial Statements and Supplementary Data 1. Index to Consolidated Financial Statements. As described in Explanatory Note in the
forepart of this Form 10-K/A, we have restated the financial statements and related notes presented
in this index. The following financial statements and reports are filed as part of this report: PageReport of Independent Registered Public Accounting Firm
    
    
    69Consolidated Statements of Operations for the years ended December
31, 2003 and 2002 and 2001
    
    
    70Consolidated Balance Sheets as of December 31, 2003 and 2002
    
    
    71Consolidated Statements of Cash Flows for the years ended December
31, 2003 and 2002 and 2001
    
    
    72Consolidated Statements of Stockholders Equity for the years ended
December 31, 2003 and 2002 and 2001
    
    
    73Notes to Consolidated Financial Statements for the three years ended
December 31, 2003
    
    
    74
 2. Index to Financial Statement Schedules. The following financial statement schedule and report is filed as part of this report and
should be read in conjunction with the Consolidated Financial Statements: PageSchedule II. Valuation and Qualifying Accounts
    
    
    125Report of Independent Registered Public Accounting Firm on Financial
Statement Schedule
    
    
    126
 68




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of
Ceridian Corporation: We have audited the accompanying consolidated balance sheets of Ceridian Corporation and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of
operations, cash flows and stockholders equity for each of the years in the three-year period
ended December 31, 2003. 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 and subsidiaries as of December
31, 2003 and 2002, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles. As discussed in Note B to the consolidated financial statements, the Company has restated its
consolidated financial statements for the years ended December 31, 2003, 2002 and 2001. As discussed in Note A to the consolidated financial statements, the Company adopted the
provision of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, on January 1, 2002. Minneapolis, Minnesota
March 12, 2004
(except as to Note B which is as of February 17, 2005) 69




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CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in millions, except per share data)RestatedYears Ended December 31,2003
    
    
    2002
    
    
    2001Revenue
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    $
    1,167.0Costs and ExpensesCost of revenue
    
    
    693.5
    
    
    
    654.2
    
    
    
    647.9Selling, general and administrative
    
    
    364.1
    
    
    
    351.1
    
    
    
    379.1Research and development
    
    
    19.4
    
    
    
    15.0
    
    
    
    17.9(Gain) loss on derivative instruments
    
    
    (14.7
    )
    
    
    (73.3
    )
    
    
    (32.7
    )Other expense (income)
    
    
    (2.5
    )
    
    
    33.1
    
    
    
    49.8Interest income
    
    
    (2.0
    )
    
    
    (2.1
    )
    
    
    (6.5
    )Interest expense
    
    
    4.6
    
    
    
    6.3
    
    
    
    18.2Total costs and expenses
    
    
    1,062.4
    
    
    
    984.3
    
    
    
    1,073.7Earnings before income taxes
    
    
    151.5
    
    
    
    176.0
    
    
    
    93.3Income tax provision
    
    
    52.8
    
    
    
    62.8
    
    
    
    38.0Earnings from continuing operations
    
    
    98.7
    
    
    
    113.2
    
    
    
    55.3Discontinued operationsGain on disposition
    
    
    
    
    
    
    
    
    
    
    5.2Net earnings
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    60.5Basic earnings per shareContinuing operations
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.38Net earnings
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41Diluted earnings per shareContinuing operations
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.37Net earnings
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41Shares used in calculations (in thousands)Weighted average shares (basic)
    
    
    148,634
    
    
    
    148,029
    
    
    
    146,069Dilutive securities
    
    
    1,563
    
    
    
    1,604
    
    
    
    1,600Weighted average shares (diluted)
    
    
    150,197
    
    
    
    149,633
    
    
    
    147,669
 See notes to consolidated financial statements. 70




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CONSOLIDATED BALANCE SHEETS
    (Dollars in millions, except per share data)RestatedDecember 31,2003
    
    
    2002ASSETSCurrent assetsCash and equivalents
    
    $
    124.2
    
    
    $
    134.3Trade and other receivablesTrade, less allowance of $17.3 and $18.4
    
    
    436.4
    
    
    
    407.6Other
    
    
    30.9
    
    
    
    23.6Total
    
    
    467.3
    
    
    
    431.2Current portion of deferred income taxes
    
    
    28.5
    
    
    
    29.3Other current assets
    
    
    56.0
    
    
    
    44.8Total current assets
    
    
    676.0
    
    
    
    639.6Property, plant and equipment, net
    
    
    148.0
    
    
    
    150.1Goodwill
    
    
    904.8
    
    
    
    890.3Other intangible assets, net
    
    
    101.1
    
    
    
    114.5Software and development costs, net
    
    
    85.8
    
    
    
    80.4Prepaid pension cost
    
    
    12.2
    
    
    
    11.7Deferred income taxes, less current portion
    
    
    6.0
    
    
    
    22.5Investments
    
    
    23.2
    
    
    
    17.5Derivative instruments
    
    
    55.7
    
    
    
    71.4Other noncurrent assets
    
    
    8.7
    
    
    
    10.3Total assets before customer funds
    
    
    2,021.5
    
    
    
    2,008.3Customer funds
    
    
    3,141.3
    
    
    
    2,446.6Total assets
    
    $

    5,162.8
    
    
    $
    4,454.9LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesShort-term debt and current portion of long-term obligations
    
    $
    6.5
    
    
    $
    2.0Accounts payable
    
    
    39.1
    
    
    
    35.9Drafts and settlements payable
    
    
    113.7
    
    
    
    120.8Customer advances
    
    
    31.0
    
    
    
    27.7Deferred income
    
    
    66.9
    
    
    
    50.4Accrued taxes
    
    
    26.4
    
    
    
    58.9Employee compensation and benefits
    
    
    53.9
    
    
    
    58.0Other accrued expenses
    
    
    35.2
    
    
    
    39.6Total current liabilities
    
    
    372.7
    
    
    
    393.3Long-term obligations, less current portion
    
    
    157.0
    
    
    
    191.5Deferred income taxes
    
    
    37.8
    
    
    
    22.9Employee benefit plans
    
    
    198.0
    
    
    
    279.4Other noncurrent liabilities
    
    
    12.0
    
    
    
    12.8Total liabilities before customer funds obligations
    
    
    777.5
    
    
    
    899.9Customer funds obligations
    
    
    3,141.3
    
    
    
    2,446.6Total liabilities
    
    
    3,918.8
    
    
    
    3,346.5Stockholders equityCommon stock, $.01 par, authorized 500,000,000 shares,
issued 150,028,289 and 148,657,541
    
    
    1.5
    
    
    
    1.5Additional paid-in capital
    
    
    925.1
    
    
    
    906.3Retained earnings
    
    
    533.6
    
    
    
    434.9Treasury common stock at cost, 5,848 and 117,001 shares
    
    
    (0.1
    )
    
    
    (1.6
    )Accumulated other comprehensive income
    
    
    (216.1
    )
    
    
    (232.7
    )Total stockholders equity
    
    
    1,244.0
    
    
    
    1,108.4Total liabilities and stockholders equity
    
    $
    5,162.8
    
    
    $
    4,454.9
 See notes to consolidated financial statements. 71




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CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    
    
    
    (Dollars in millions)RestatedYears Ended December 31,2003
    
    
    2002
    
    
    2001Cash Flows from Operating ActivitiesNet earnings
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    60.5Adjustments to reconcile net earnings to net cash provided by
operating activities:Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (5.2
    )Deferred income tax provision
    
    
    34.7
    
    
    
    25.7
    
    
    
    33.8Depreciation and amortization
    
    
    80.2
    
    
    
    74.4
    
    
    
    104.8Provision for doubtful accounts
    
    
    11.2
    
    
    
    17.0
    
    
    
    15.8Asset write-downs
    
    
    
    
    
    
    7.3
    
    
    
    6.1Unrealized (gain) loss on derivative instruments
    
    
    15.7
    
    
    
    (47.1
    )
    
    
    (24.3
    )(Gain) loss on marketable securities
    
    
    (3.4
    )
    
    
    6.3
    
    
    
    (15.6
    )Reduction of environmental accrual
    
    
    
    
    
    
    (4.1
    )
    
    
    Contribution to retirement plan trusts
    
    
    (105.5
    )
    
    
    (3.3
    )
    
    
    Retirement plan expense (credit) and other
    
    
    5.5
    
    
    
    (6.3
    )
    
    
    (8.9
    )Decrease (increase) in trade and other receivables
    
    
    (48.1
    )
    
    
    (43.2
    )
    
    
    36.9Increase (decrease) in accounts payable
    
    
    2.5
    
    
    
    3.4
    
    
    
    (0.7
    )Increase (decrease) in drafts and settlements payable
    
    
    (7.1
    )
    
    
    5.2
    
    
    
    (21.1
    )Increase (decrease) in employee compensation and benefits
    
    
    (5.4
    )
    
    
    (8.7
    )
    
    
    (1.5
    )Increase (decrease) in accrued taxes
    
    
    (24.5
    )
    
    
    4.5
    
    
    
    (8.1
    )Increase (decrease) in other current assets and liabilities
    
    
    2.1
    
    
    
    (6.9
    )
    
    
    (8.0
    )Cash provided by (used for) operating activities of
discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.8
    )Net cash provided by operating activities
    
    
    56.6
    
    
    
    137.4
    
    
    
    163.7Cash Flows from Investing ActivitiesExpended for property, plant and equipment
    
    
    (30.5
    )
    
    
    (31.1
    )
    
    
    (43.2
    )Expended for software and development costs
    
    
    (27.0
    )
    
    
    (23.5
    )
    
    
    (40.6
    )Proceeds from sales of businesses and assets
    
    
    24.8
    
    
    
    0.5
    
    
    
    18.7Expended for investments and business acquisitions, less cash acquired
    
    
    (1.7
    )
    
    
    (50.3
    )
    
    
    (30.2
    )Cash used by investing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Net cash provided by (used for) investing activities
    
    
    (34.4
    )
    
    
    (104.4
    )
    
    
    (96.5
    )Cash Flows from Financing ActivitiesRevolving credit and overdrafts, net
    
    
    (49.6
    )
    
    
    (44.6
    )
    
    
    166.4Repayment of other debt
    
    
    (1.4
    )
    
    
    
    
    
    
    (456.6
    )Repurchase of common stock
    
    
    (28.8
    )
    
    
    (5.4
    )
    
    
    Proceeds from exercise of stock options and other
    
    
    42.3
    
    
    
    34.9
    
    
    
    9.1Cash provided by financing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    225.0Net cash provided by (used for) financing activities
    
    
    (37.5
    )
    
    
    (15.1
    )
    
    
    (56.1
    )Effect of Exchange Rate Changes on Cash
    
    
    5.2
    
    
    
    0.2
    
    
    
    Net Cash Flows Provided (Used)
    
    
    (10.1
    )
    
    
    18.1
    
    
    
    11.1Cash and equivalents at beginning of year
    
    
    134.3
    
    
    
    116.2
    
    
    
    105.1Cash and equivalents at end of year
    
    $
    124.2
    
    
    $
    134.3
    
    
    $
    116.2Years Ended December 31,Interest and Income Taxes Paid (Refunded)
    
    2003
    
    
    2002
    
    
    2001Interest paid
    
    $
    4.7
    
    
    $
    7.0
    
    
    $
    16.6Income taxes paid
    
    
    47.4
    
    
    $
    32.0
    
    
    $
    15.3Income taxes refunded
    
    
    (1.1
    )
    
    $
    (1.1
    )
    
    $
    (1.3
    )
 See notes to consolidated financial statements. 72




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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
    (Dollars in millions)Amount (Restated)
    
    
    Shares2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001Common Shares IssuedBeginning balance
    
    $
    1.5
    
    
    $
    1.5
    
    
    $
    80.8
    
    
    
    148,657,541
    
    
    
    146,487,624
    
    
    
    161,685,596Exercises of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,040,523
    
    
    
    2,008,932
    
    
    
    411,376Restricted stock awards, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,270
    
    
    
    27,184
    
    
    
    60,555Employee stock purchase plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,955
    
    
    
    133,801
    
    
    
    195,984Spin-off adjustments (Note D)
    
    
    
    
    
    
    
    
    
    
    (79.3
    )
    
    
    
    
    
    
    
    
    
    
    (15,865,887
    )Ending balance  issued
    
    $
    1.5
    
    
    $
    1.5
    
    
    $
    1.5
    
    
    
    150,028,289
    
    
    
    148,657,541
    
    
    
    146,487,624Treasury
Stock - Common SharesBeginning balance
    
    $
    (1.6
    )
    
    $
    
    
    
    $
    (342.9
    )
    
    
    (117,001
    )
    
    
    (2,662
    )
    
    
    (15,931,215
    )Repurchases
    
    
    (28.8
    )
    
    
    (5.4
    )
    
    
    
    
    
    
    (1,844,100
    )
    
    
    (393,000
    )
    
    
    Exercises of stock options
    
    
    26.3
    
    
    
    1.6
    
    
    
    1.1
    
    
    
    1,684,502
    
    
    
    113,206
    
    
    
    51,571Restricted stock awards, net
    
    
    
    
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    2,943
    
    
    
    (1,790
    )
    
    
    8,782Employee stock purchase plans
    
    
    4.0
    
    
    
    2.3
    
    
    
    0.1
    
    
    
    267,808
    
    
    
    167,245
    
    
    
    2,313Spin-off adjustments (Note D)
    
    
    
    
    
    
    
    
    
    
    341.5
    
    
    
    
    
    
    
    
    
    
    
    15,865,887Ending balance  treasury
    
    $
    (0.1
    )
    
    $
    (1.6
    )
    
    $
    
    
    
    
    (5,848
    )
    
    
    (117,001
    )
    
    
    (2,662
    )Common Shares Outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,022,441
    
    
    
    148,540,540
    
    
    
    146,484,962Additional Paid-In CapitalBeginning balance
    
    $
    906.3
    
    
    $
    870.0
    
    
    $
    1,122.7Exercises of stock options
    
    
    10.7
    
    
    
    28.8
    
    
    
    5.1Tax benefit from stock options
    
    
    5.6
    
    
    
    4.6
    
    
    
    0.9Restricted stock awards, net
    
    
    1.2
    
    
    
    0.7
    
    
    
    0.7Employee stock purchase plans
    
    
    1.3
    
    
    
    2.2
    
    
    
    2.9Spin-off adjustments (Note D)
    
    
    
    
    
    
    
    
    
    
    (262.2
    )
    
    
    
    
    
    (Restated)Ending balance
    
    $
    925.1
    
    
    $
    906.3
    
    
    $
    870.1
    
    
    Comprehensive Income (Loss)Retained Earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    

2003
    
    
2002
    
    

2001Beginning balance (Note B)
    
    $
    434.9
    
    
    $
    327.4
    
    
    $
    84.4Net earnings
    
    
    98.7
    
    
    
    113.2
    
    
    
    60.5
    
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    60.5Spin-off adjustments (Note D)
    
    
    
    
    
    
    (5.7
    )
    
    
    182.5Ending balance
    
    $
    533.6
    
    
    $
    434.9
    
    
    $
    327.4Accumulated Other Comprehensive Income (Loss)Foreign currency translationBeginning balance
    
    $
    (7.5
    )
    
    $
    (10.3
    )
    
    $
    (8.7
    )Rate changes, net
    
    
    22.6
    
    
    
    2.8
    
    
    
    (1.6
    )
    
    
    22.6
    
    
    
    2.8
    
    
    
    (1.6
    )Ending balance
    
    
    15.1
    
    
    
    (7.5
    )
    
    
    (10.3
    )Unrealized gain (loss) on marketable securitiesBeginning balance
    
    $
    1.0
    
    
    $
    (0.3
    )
    
    $
    11.7Change in unrealized gain (loss), net of
income
taxes of $3.2, $0.3 and $(1.0)
    
    
    4.9
    
    
    
    0.7
    
    
    
    (1.9
    )
    
    
    4.9
    
    
    
    0.7
    
    
    
    (1.9
    )Less realized net (gain) loss, net of income
taxes of $(1.4), $0.4 and $(5.5)
    
    
    (2.0
    )
    
    
    0.6
    
    
    
    (10.1
    )
    
    
    (2.0
    )
    
    
    0.6
    
    
    
    (10.1
    )Ending balance
    
    
    3.9
    
    
    
    1.0
    
    
    
    (0.3
    )Pension liability adjustmentBeginning balance
    
    $
    (226.2
    )
    
    $
    (133.4
    )
    
    $
    (9.2
    )Pension liability change, net of income taxes
of $5.0, $55.0 and $65.8 (Note H)
    
    
    (8.9
    )
    
    
    (92.8
    )
    
    
    (124.2
    )
    
    
    (8.9
    )
    
    
    (92.8
    )
    
    
    (124.2
    )Ending balance
    
    
    (235.1
    )
    
    
    (226.2
    )
    
    
    (133.4
    )Total ending balance
    
    $
    (216.1
    )
    
    $
    (232.7
    )
    
    $
    (144.0
    )Total Stockholders Equity
    
    $
    1,244.0
    
    
    $
    1,108.4
    
    
    $
    1,055.0Total Comprehensive Income (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    115.3
    
    
    $
    24.5
    
    
    $
    (77.3
    )
 See notes to consolidated financial statements. 73




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(Dollars in millions, except per share data) NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Restated)
(For the three years ended December 31, 2003) A. Accounting Policies Basis of Consolidation As presented in these consolidated financial statements, we are Ceridian Corporation, which
includes subsidiaries and investments in which we have a majority interest. We provide human
resource solutions to employers through our Human Resource Solutions (HRS) business segment
operations located in the United States, Canada and the United Kingdom. We also provide
transaction processing and related services primarily to the transportation and retail industries
through our Comdata business segment operations located primarily in the United States. Our
products and services and business segments are more fully described in Note E. We include in our consolidated financial statements grantor trusts that hold funds provided by
our payroll and tax filing customers pending remittance to employees of those customers or tax
authorities in the United States and Canada. The customer funds held in trust and customer
deposits related to our benefits services business are separately identified as customer funds in
our consolidated balance sheet. Further information on our accounting for these funds is provided
in the section entitled Revenue Recognition of Note A and in Note M. When we acquire between a 20% to 50% equity interest in another entity, we account for that
investment under the equity method and record our share of its earnings or losses. During the
reporting period, we held no investments representing an equity interest between 20% and 50%. Our
other investments may include debt or equity securities that may or may not be marketable
securities. We discuss these other investments in the section entitled Cash and Investments,
including Derivatives of Note A and in Note G. We review our less-than-20%-owned investments to
determine whether we exercise a degree of significant influence over their management that would
require the application of the equity method through one or more of the following factors: (a) our
representation on the investees board of directors; (b) our participation in the investees policy
making decisions; (c) material intercompany transactions with the investee; (d) interchange of
managerial personnel with the investee; or (e) technological dependency. All material intercompany transactions have been eliminated from our consolidated financial
statements. Recently Issued Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No.
(FIN) 46, Consolidation of Variable Interest Entities, which FASB further amended during 2003.
FIN 46 is intended to provide guidance on whether a beneficiary of a variable interest entity
should include that entity in its consolidated financial statements. FIN 46 becomes effective for
our quarterly report for the period ended March 31, 2004. We are currently evaluating whether our
payroll and tax filing trusts are variable interest entities. We currently believe that the trusts
would be considered variable interest entities that will continue to be included in our
consolidated financial statements. 74




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(Dollars in millions, except per share data) In
December 2003, FASB reissued Statement of Financial Accounting
Standards (FAS) No. 132, Employers
Disclosures about Pensions and Other Postretirement Benefits, in order to provide additional
disclosures on pension and postretirement benefits provided by employers to employees. FAS 132
does not change the accounting methods for these arrangements. These additional disclosures are
discussed in Note H. On January 12, 2004, the FASB issued Financial Staff Position No. (FSP) 106-1, Accounting
and disclosure requirement regarding the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (Medicare Act). FSP 106-1 allows companies to recognize or defer recognizing the
effect of the prescription-drug provisions of the new Medicare Act, signed into law on December 8,
2003, on their accumulated postretirement benefit obligation in 2003 financial statements.
Specific authoritative guidance regarding accounting for the federal subsidy feature of the
Medicare Act is pending and, when such guidance is issued, it could require a change to previously
reported information. Accordingly, we have elected to defer (1) recognizing the effects of the
Medicare Act on postretirement benefit expense and on the accumulated projected benefit obligation
pursuant to FAS 106, Employers Accounting for Postretirement Benefits Other Than Pensions, and
(2) providing the information related to the effect of the Medicare Act on these plans called for
in FAS 132. Therefore, the information on postretirement benefits included in Note H does not
reflect the effects of the Medicare Act. We adopted FAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure, on
its effective date of January 1, 2003. FAS 148 amended FAS 123, Accounting for Stock-Based
Compensation, and provided alternative methods of transition for the adoption of the fair value
method of accounting for stock-based employee compensation under FAS 123. FAS 148 also amended the
disclosure provisions of FAS 123 and Accounting Principles Board Opinion No. (APB) 28, Interim
Financial Reporting, to require disclosure in the summary of significant accounting policies of
the effects of an entitys accounting policy with respect to stock-based employee compensation on
reported net income and earnings per share in annual and interim financial statements. FAS 148 did
not amend FAS 123 to require accounting for employee stock options by the fair value method. As a
result of FAS 148, we provided in our 2003 quarterly reports on Form 10-Q information on the pro
forma effect of applying the fair value method to determine stock compensation expense that is
similar to what we provide in Note I. We adopted Emerging Issue Task Force (EITF) Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables, at its effective date of July 1, 2003. EITF 00-21 addresses certain
aspects of the accounting for arrangements under which there are multiple revenue-generating
activities. In some arrangements, the different revenue-generating activities (deliverables) are
sufficiently separable, and there exists sufficient evidence of their fair values to separately
account for some or all of the deliverables (that is, there are separate units of accounting). In
other arrangements, some or all of the deliverables are not independently functional, or there is
not sufficient evidence of their fair values to account for them separately. EITF 00-21 addresses
when and, if so, how an arrangement involving multiple deliverables should be divided into separate
units of accounting. EITF 00-21 does not change otherwise applicable revenue recognition criteria. Our current accounting for revenue recognition at Stored Value Systems (SVS) is provided in
the section entitled Revenue Recognition of Note A. 75




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(Dollars in millions, except per share data) Stock-Based Compensation We account for stock-based compensation under APB 25, Accounting for Stock Issued to
Employees, and related interpretations. Therefore, we do not record compensation expense with
respect to our fixed stock option plans, since the exercise price is set at the market price on the
date of grant, or for our employee stock purchase plan, which is noncompensatory. Compensation
expense for our outstanding restricted stock awards, none of which is performance-based, is
recognized by charging the fair value of the award at the time of grant to operations ratably over
the vesting period. Grants of stock options to consultants or independent contractors are
accounted for under the fair value method. We also report under the disclosure-only provisions of
FAS 123 and FAS 148. Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires us to make estimates and assumptions 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 reporting period. Actual results could differ from those estimates. Estimates that could
significantly affect our results of operations or financial condition involve accounting for
software and development costs, goodwill and other intangible assets, pensions and postretirement
benefits, hedging of interest rates on payroll and tax filing fund investments, actions to
restructure or discontinue operations, and the assessment of contingencies. Further discussion on
these estimates can be found in related disclosures elsewhere in our Notes. Changes in Presentation As further described in Note B, as a result of the Restatement, we have reclassified costs and
expenses and customer deposits and the related liabilities for the periods presented in these
financial statements. We have also added benefits services customer deposits to our payroll and
tax filing funds to present the combined amount as customer funds in our consolidated balance
sheet as discussed in Note M. The related obligations are similarly reported on a combined basis.
We also have reclassified the Comdata provision for doubtful accounts from cost of revenue to
general expense to conform to our classification for the HRS provision. Amounts for prior periods
have been reclassified to conform to the current presentation. We have reclassified certain other prior year amounts to conform to the current years
presentation. Cash and Investments, including Derivatives We classify investments that are readily convertible to cash within three months of purchase
as cash equivalents in our consolidated balance sheet and report those amounts at amortized cost
(which does not differ materially from fair market value). We account for our investments in
marketable securities under FAS 115, Accounting for Certain Investments in Debt and Equity
Securities, and investments other than marketable securities or derivative instruments under APB 18, The
Equity Method of Accounting for Investments in Common Stock. Our investments of customer funds in
marketable securities are classified as held-to-maturity, carried at amortized cost and separately
presented in our balance sheet as further described in Note M. Our other investments in marketable
equity or debt securities are considered available-for-sale and
reported in the balance sheet at fair value, with changes in fair
value reported in accumulated other comprehensive income. 76




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(Dollars in millions, except per share data) We
account for derivatives in accordance with FAS 133, Accounting for
Derivative Instruments and Hedging Activities, as amended and interpreted. FAS 133 requires
that all derivatives be measured at fair value on the balance sheet. The
treatment of changes in the fair value of a derivative depends on the character
of the transaction, including whether it has been designated and qualifies as
part of a hedging relationship as defined under FAS 133. Derivatives that do not
meet the FAS 133 criteria for hedge accounting are designated as economic hedges
and the change in the fair value associated with these instruments are included
in the consolidated statement of operations as (gain) loss on derivative
instruments. In those cases where the derivative meets the FAS 133 hedge
accounting criteria for a cash flow hedge, the change in fair value of the
derivative that is effective in offsetting changes in cash flows of the
designated risk being hedged is reported, net of related taxes, as accumulated
other comprehensive income in stockholders equity until realized. The change
in fair value of the derivative that is associated with ineffectiveness in the
hedging relationship is reported in current earnings. We enter into interest
rate and fuel price derivative instruments for the purpose of economically hedging revenue
risk and not for speculative activity. Our economic hedging activities may include the
use of contracts such as swaps, collars, caps and floors, as economic hedges of variable
income from investments of customer funds and corporate cash, in the case of
interest rate derivatives, and, in the case of fuel price derivatives, from
transportation revenue based on a percentage of the dollar value of the
transaction processed. We began using fuel price derivatives in 2003. We further
discuss derivative instruments in Notes B and K. Property, Plant and Equipment Our property, plant and equipment assets are carried at cost and depreciated for financial
statement purposes using straight-line and accelerated methods at rates based on the estimated
lives of the assets, which are generally as follows: Buildings
    
    40 yearsBuilding improvements
    
    5-15 yearsMachinery and equipment
    
    3-8 yearsComputer equipment
    
    3-6 years
 We charge repairs and maintenance to expense as the costs are incurred. We include gains or
losses on dispositions in other expense (income) when realized. We review the carrying value of long-lived assets whenever events or changes in circumstances
such as market value, asset utilization, physical change, legal factors or other matters indicate
that the carrying value may not be recoverable. When the review indicates that the carrying value
of the asset or group of assets representing the lowest level of identifiable cash flows exceeds
the sum of the expected future cash flows (undiscounted and without interest charges), we recognize
an asset write-down charge against operations. The amount of the impairment loss is the amount by
which the carrying value exceeds the fair value of the impaired asset or group of assets. Earnings Per Share Basic earnings per share represents earnings divided by the weighted average number of common
shares outstanding for the reporting period. Diluted earnings per share represents earnings
divided by the sum of the weighted average number of common shares outstanding plus shares derived
from other potentially dilutive securities. Our other potentially dilutive securities include in
the money fixed 77




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(Dollars in millions, except per share data) stock options outstanding. The numbers of shares added for stock options is determined by the
treasury stock method, which assumes exercise of these options and the use of any proceeds plus
related tax benefits to repurchase a portion of these shares at the average market price for the
period. The option shares excluded from the calculation of our other potentially dilutive
securities (because the exercise price exceeded the average market price for the year) at each
December 31 were 9,051,000 for 2003, 9,847,000 for 2002 and 5,691,000 for 2001. Goodwill and Other Intangibles Goodwill, which represents the excess purchase price over the fair value of net assets of
businesses acquired, is assigned to operating units based on the benefits derived from the
acquisition. On January 1, 2002, FAS 141, Business Combinations, and FAS 142, Goodwill and
Other Intangible Assets, became effective for us. Prior to that date, we amortized goodwill on a
straight-line basis over the expected periods to be benefited, ranging up to 40 years. As a result
and from that date forward, goodwill is no longer amortized against earnings and goodwill balances
are subject to impairment review on at least an annual basis. Furthermore, classes of other
intangible assets were further defined under these rules, which caused us 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 2001 by $30.3, or $.21 per diluted common share. Pursuant to the transitional
requirements of the new accounting rules, we, assisted by an independent business valuation firm,
completed an impairment review in June 2002. This impairment review determined that there was no
impairment of our goodwill as of January 1, 2002, the measurement date prescribed by these rules.
The operating units identified for this assessment included our U.S.-based HRS operations, the HRS
operations of Ceridian Centrefile and Ceridian Canada, and Comdata. Furthermore, after
consideration of the factors prescribed in these rules that might indicate a risk of impairment,
we, through our own self assessment, found no indication of goodwill impairment at December 31,
2003 and 2002. Our other intangible assets represent amounts assigned to specifically identifiable intangible
assets at the time of a purchase acquisition. These costs are amortized on a straight-line basis
over the following periods: Customer lists
    
    5-15 yearsTrademarks
    
    30 yearsTechnology
    
    7-8 yearsNon-compete covenants
    
    3-5 years
 We regularly review these recorded amounts and assess their recoverability. Our review
considers factors such as whether the amortization of other intangible assets for each operating
unit can be recovered through forecasted undiscounted cash flows over their remaining economic
life. Software and Development Costs Our software and development efforts are substantially for internal use. Under the provisions
of AICPA Statement of Position (SOP) 98-1, Accounting for Costs of Computer Software Developed
or 78




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(Dollars in millions, except per share data) Obtained for Internal Use, we capitalize costs associated with software developed or obtained
for internal use when both the preliminary project stage is completed and our management has
authorized further funding for the project which it deems probable of completion and use for the
function intended. Capitalized internal-use software costs include only (1) external direct costs
of materials and services consumed in developing or obtaining the software; (2) payroll and
payroll-related costs for employees who are directly associated with and who devote time to the
project; and (3) interest costs incurred, when material, while developing the software.
Capitalization of these costs ceases no later than the point at which the project is substantially
complete and ready for its intended purpose. We do not include general and administrative costs
and overhead costs in capitalizable costs. We charge research and development costs and other
computer software maintenance costs related to software development to operations as incurred. We amortize software development costs using the straight-line method over a range of three to
seven years, but not exceeding the expected life of the product. We
regularly review the carrying value of software and development costs
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. Income Taxes 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 file a consolidated U.S. federal income tax return for our
parent company and its eligible subsidiaries. Except for selective dividends from future earnings,
we intend to reinvest the unremitted earnings of our non-U.S. subsidiaries, approximately $56.0, in
their operations and postpone their remittance indefinitely. No such dividends have been declared
or paid during the three years ended December 31, 2003. Accordingly, we have not provided for U.S.
income taxes on our non-U.S. earnings during the three years ended December 31, 2003. Revenue Recognition We recognize revenue from 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 processing, tax filing services, benefit administration services, work-life effectiveness
and employee assistance services, and human resource outsourcing products. This revenue is
generated by 79




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(Dollars in millions, except per share data) service fees, income from investment of customer funds in lieu of fees, software licenses and
subscription fees. Payroll Processing.Generally, service fees for HRS payroll transaction 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 services revenue from
customer funds held temporarily pending remittance to the customers employees. These payroll
deposits are primarily invested through grantor trusts. We derive and recognize investment income in lieu of
fees as a component of revenue as earned. Tax Filing Services.Our payroll 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 fees as a component of
revenue as earned. Payroll processing and tax filing services are all sold separately, so we have standalone
value for each service. Separate sales also establish the fair value of each of the services sold
in the event a customer contracts with us for multiple services. Benefits Administration Services.We provide employee health and welfare benefits
administration and qualified 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) qualified plan administration
services which include 401(k) plan administration, profit sharing administration, defined benefit
plan administration, ESOP administration and Qualified Domestic Relations Order administration. Revenue for COBRA services is earned and recognized as the services are provided. Revenue
associated with other health and welfare benefits administration and retirement planning services
is recognized monthly based on the number of employees that receive or participate in the benefit. 80




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(Dollars in millions, except per share data) Benefits services are all sold separately, so we have standalone value for each service.
Separate sales also establish the fair value of each of the services sold in the event a customer
contracts with us for multiple services. Work-Life Effectiveness and Employee Assistance Services (LifeWorks).We provide work-life
effectiveness and employee assistance programs to our clients. LifeWorks are delivered through
on-line access and telephonically, and through face-to-face meetings provided by referral
resources. Contracted fees for these services are generally billed monthly. Revenue is earned and
recognized over the term of the contract based on the number of customer employees served and the
level of service. Human Resource Outsourcing.In 2003, we began marketing comprehensive human resource
outsourcing (HRO) solutions to our customers. HRO services can provide an entire suite of any of
the HRS services outlined above, but to date typically involve: (1) conversion and implementation
consulting services; (2) processing and hosting services related to payroll, tax filing services and
benefit needs; and (3) administration of payroll or benefits
functions. HRO services are all sold separately by us or by our competitors, so we have standalone value
for each service. In certain arrangements, a stated renewal rate in the contract provides the
fair value for the undelivered repetitive processing services. In those situations where a stated
renewal rate is included in the arrangement, the use of the residual method afforded by EITF 00-21
allows us to recognize revenue on the delivered element, generally
consisting of non-repetitive implementation services. Where fair
value cannot be established on the undelivered element, revenue (and the related costs of revenue)
for the delivered elements are deferred and recognized ratably over the repetitive processing period. Non-Repetitive Business Less than 5% of our consolidated revenue in 2003 was generated from the sale and installation
of software and data conversion services in our HRS businesses (including non-repetitive HRO
services discussed above). These services may also include training and other consulting. For our non-HRO business, the fees for these non-repetitive services are based upon
published hourly rates that are considered competitive with other providers and are consistent with
hourly rates billed for customization and consulting services performed by us on a standalone
basis. Revenue from consulting services is non-refundable; is primarily determined on a time and
materials basis; and is recognized over the installation and conversion period, generally two to
four months. Comdata Comdata revenue is primarily generated from funds transfer services and stored value card
sales and transaction services. Comdata also generates revenue from regulatory permit and
receivables factoring services as well as the sale of point of sale terminals and other equipment
to fueling centers. Transportation Comdatas funds transfer 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, lodging and other approved
items, obtain cash 81




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(Dollars in millions, except per share data) advances from ATM machines or through the use of Comchek drafts, make long distance phone
calls and make direct deposits of pay, settlements or trip advances to personal bank accounts.
Revenue from funds transfer transactions is based on a per transaction fee that is based on either
a fixed amount or a percentage of the face value of the transaction and is recognized when the
transaction takes place. In connection with its transportation services business, 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. The service that Comdata provides permits
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 we become entitled to collect the fee. Merchant Services Comdatas merchant services division primarily 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 at the time the equipment is received and accepted by the customer. Recurring
service revenues for the merchant services division are recognized as earned. Support and
maintenance contracts are generally for 12 month periods and are invoiced annually with the
revenues recognized on a straight-line basis over the maintenance period. Comdatas merchant services products and services are all sold separately, so 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. Retail Services SVS sells stored value cards and provides subsequent activation, reporting and transaction
processing services (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 services, revenue on both the card sales and services are deferred and
reported on the balance sheet as deferred income. Costs of the cards sold is deferred and reported
on the balance sheet as prepaid expense. Costs on the services are recognized as incurred. The
deferred income and prepaid expense on the card sale are recognized in earnings over the
transaction processing period (up to approximately 30 months), which begins upon activation of the
card. The deferred income on the services where we charge a fee for unlimited transactions
processed on a card is recognized in earnings over the same transaction processing period which
begins upon activation of the card. The deferred income on the services where we charge a fee each
time a transaction is processed on a card is 82




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(Dollars in millions, except per share data) recognized in earnings over the same transaction processing period which begins each time a
transaction is processed. Our history of providing services to our customers indicates that (1) we
can expect activation of a card within approximately 7 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. 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. Costs and Expenses Cost of Revenue We assign to cost of revenue those costs that directly benefit the delivery of our
revenue-producing products and services. Most of these costs are recognized as incurred, that is,
as we become obligated to pay for them. Some costs of revenue are recognized in the period that a
product is sold and delivered. Other costs of revenue are recognized over the period of use or in
proportion to the related revenue. For HRS, a substantial portion of the costs included in cost of revenue are recognized as
incurred and the remaining costs are recognized over the period of use. The costs recognized as
incurred consist primarily of customer service staff costs, customer technical support costs,
consulting and purchased services, delivery services and royalties. The costs of revenue
recognized over the period of use are depreciation and amortization of tangible and software
assets, rentals of facilities and equipment, and direct and incremental costs associated with
deferred HRO implementation service revenue. For Comdata, the principal types of costs included in cost of revenue that are recognized as
incurred include customer service staff costs, banking fees and telecommunications costs. The
principal Comdata cost of revenue that is recognized when the product is delivered is equipment
sold to customers. The principal Comdata costs of revenue that are recognized over the period of
use include depreciation and amortization of tangible and software assets, and rentals of
facilities and equipment. The purchase cost of retail card stock is deferred and recognized in
proportion to and over the same period as the related revenue. Selling, General and Administrative Expense We include in selling expense costs related to maintaining a direct marketing infrastructure
and sales force and other direct marketing efforts such as advertising, telemarketing, direct mail
and trade shows. General and administrative expense includes the cost of maintaining the infrastructure of the
company that is not directly related to delivery of products and services or selling efforts. Also
included 83




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(Dollars in millions, except per share data) in this category are the provision for doubtful accounts receivable, amortization of other
intangible assets and net periodic pension costs. Research and Development Expense We include in research and development expense those costs related to maintaining a technical
workforce to the extent that their activities principally involve the following software
development activities:  
    Conceptual formulation and design of possible product or process alternatives
    Testing in search for or evaluation of product or process alternatives
    Modification of the formulation or design of a product or process
    Engineering activity required to advance the design of a product to the point that it
meets specific functional and economic requirements and is ready for production (Gain) Loss on Derivative Instruments We include in (gain) loss on derivative instruments the change
in the fair value of derivative instruments designated as
economic hedges, which are derivatives that do not meet the
FAS 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
instruments that meets the FAS 133 hedge accounting requirements
is reported in accumulated other comprehensive income. We discuss
our policy on derivative instruments earlier in this Note A under the
caption Cash and Investments, including Derivatives. Other Expense (Income) We include in other expense (income) the results of transactions that are not appropriately
classified in another cost and expense 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). Translation of Foreign Currencies We have determined that local currencies serve as functional currencies for our international
operations. We translate foreign currency balance sheets at the end-of-period exchange rates and
earnings statements at the weighted average exchange rates for each period. We report the effect
of changes in the U.S. dollar carrying values of assets and liabilities of our international
operations that are due to changes in exchange rates between the U.S. dollar and their functional
currency as foreign currency translation in accumulated other comprehensive income (loss) in
the accompanying Statements of Stockholders Equity. Gains and losses from translation of assets
and liabilities denominated in other than the functional currency of the international operation
are recorded in results of operations as other expense (income). 84




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(Dollars in millions, except per share data) Receivables Securitization We maintain a credit facility under which we sell Comdata receivables to third parties
through a consolidated subsidiary of Comdata. The subsidiary is consolidated since Comdata owns
100% of the equity, the subsidiarys activities are virtually all on Comdatas behalf, and the
substantive risks and rewards of the assets rest directly with Comdata. Additionally, the
subsidiary has a unilateral right to reclaim all of the transferred assets. Therefore, we account
for the outstanding advances as secured borrowings under FAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and the sold receivables and
borrowings remain in our consolidated balance sheet. We further explain our policy and the
operation of this facility in Note J. 85




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(Dollars in millions, except per share data) B. Restatement of Financial Statements We have restated our consolidated financial statements for the years 1999 through 2003 and for
the first quarter of 2004. In addition, certain disclosures in other
notes to our consolidated
financial statements have been restated to reflect the Restatement adjustments. In the
Restatement, we have:  
    corrected errors related to the recording of certain capitalized costs for internally
developed software, the commencement of the amortization of our capitalized software
development costs and the accrual of costs and expenses
    corrected the accounting for interest rate and fuel price
derivative instruments
    corrected revenue recognition errors and related costs
    identified and corrected other accounting errors and misclassifications
    reduced the number of dilutive shares determined by the treasury stock method for all
periods presented to reflect the tax benefit related to the assumed exercise of stock
options The determination to restate
these financial statements was made as a result of:  
    the determination from 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, 2002 and 2001 in
light of our conclusion that our interest rate and fuel price
derivative contracts did not satisfy the requirements of FAS 133, Accounting for Derivative Instruments
and Hedging Activities and as such, did not qualify for hedge
accounting treatment. The Restatement reduced our earnings before income taxes for the years 1999 through 2003 by
$5.1 consisting of $47.8 related to capitalized internally developed software, $5.6 related to
accrual of costs and expenses and $4.4 related to revenue recognition (net of costs), substantially
offset by a $52.7 increase in net
unrealized gains on derivative instruments.
The impact of the Restatement on the
consolidated statements of operations for the years 1999 through 2003 is shown in an
accompanying table. Adjustments for periods prior to 1999 of $20.2 before income taxes increased opening retained
earnings as of January 1, 1999 by $12.6 after taxes. These adjustments included the elimination of
$23.5 of excess liabilities principally related to earlier restructurings. The Restatement
increased beginning retained earnings for the year 2001 presented on our consolidated statements of
stockholders equity from $78.9 as previously reported to $84.4 as restated. This $5.5 increase
consisted of the $12.6 increase for years prior to 1999 discussed above, offset by reductions of
$1.5 in 1999 and $5.6 in 2000 as presented in an accompanying table. The primary impact on the historical consolidated balance sheets and consolidated statements
of cash flows related to adjustments concerning the software capitalization and amortization costs.
Capitalized software development costs were reduced by $51.1 and $33.1 as of December 31, 2003 and
2002, respectively. As a result of expensing software development costs previously capitalized,
capital expenditures and net cash flows provided by operating activities were reduced
by $23.0, $11.5 and $10.2 for the fiscal years ended December 31, 2003, 2002 and 2001,
respectively. The Restatement had no impact on historical cash balances or net cash flows since
the entire reduction in operating cash flows is offset in investing cash flows. The impact of the
Restatement on our consolidated balance sheets and consolidated statements of cash flows is shown
in the accompanying tables. 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 86




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(Dollars in millions, except per share data)  
    reclassifications between cost and expense categories
    reclassification of Comdata assets and liabilities
    transfer of excess pre-1999 restructuring liabilities directly to retained earnings Adjustments concerning the capitalization and expensing of software development costs Our HRS business has been engaged in a number of projects in recent years involving the development
of software for internal use. When the Audit Committee Investigation revealed a number of control
deficiencies in accounting for these software development costs, the scope of the investigation was
extended to cover all significant HRS projects where adjustments could have a material effect
on our financial statements for 1999 and subsequent periods. Before applying the adjustments
related to software development costs, the gross value at December 31, 2003 of all capitalized
software was $221.3 and the carrying amount net of amortization was $136.9. After applying these
adjustments, the gross value at December 31, 2003 of all capitalized software was $161.9 and the
carrying amount net of amortization was $85.8. At December 31, 2002, the gross value decreased
from $173.7 to $137.5 and the carrying amount net of amortization decreased from $113.5 to $80.4.
The software development cost adjustments reduced pre-tax earnings for the years 1999 through 2003
by $47.8 and retained earnings at January 1, 1999 by $1.8 (net of income taxes of $1.0). The adjustments concerning the capitalization and expensing of software development costs included:  
    Costs for non-capitalizable software product fixes and maintenance were not properly
distinguished from capitalizable software product enhancements that improve functionality.
The non-capitalizable costs have now been charged to, and the related amortization charges
have been eliminated from, the appropriate expense classifications.
    Costs incurred before the appropriate internal approval was obtained were capitalized
instead of being charged to expense. These amounts have now been charged to the
appropriate expense classifications.
    Costs that should have been charged to expense as non-capitalizable overhead costs were
included in capitalized costs. These costs have now been charged to the appropriate
expense classifications.
    Adjustments to the timing of the commencement of amortization of properly capitalized
software development costs generally resulted in advancing the commencement of amortization
to the time when the software product was sufficiently tested to make it ready for its
intended use rather than when the software was actually placed in service. Amortization
charges have now been restated for the affected periods.
    A software asset whose value had been impaired by a change in project objectives in 2002
was written down by $0.6 in that year. Adjustments to the accrual of certain other costs and expenses The Restatement also addressed the accuracy and timeliness of cost and expense accruals for
accounts payable and other liabilities and reserves at the end of
each reporting 87




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(Dollars in millions, except per share data) period. These adjustments decreased pre-tax earnings for the years 1999 through 2003 by $5.6 and
retained earnings at January 1, 1999 by $0.3 (net of income taxes of $0.2) and consisted primarily
of:  
    Accounts payable month-end cut-off errors
    Accrual of employee compensation and benefits liabilities Adjustments to revenue and
related costs for timing of recognition and transactions involving third party vendors As we began implementation work for new HRO customers in 2003, we recognized revenue for
installation and implementation as those efforts progressed in the same manner that we had
determined to be appropriate for our standard payroll product. Upon further examination, we have
determined that we are generally not able to establish objective evidence of fair value for the
undelivered processing and administrative services element. We also identified instances where revenue was
recorded by HRS for up front fees or contractual performance before
substantive acceptance requirements were
met. Therefore, the revenue and related costs associated with these arrangements have been
deferred and will be recognized over the term of the contract. We found that revenue from certain sales arrangements involving our HRS customers and third party
vendors, where we recorded revenue on a gross basis and the vendors cost in cost of revenue, did
not meet the GAAP requirements for this treatment. As a result, we have corrected the recording of
these transactions to a net basis with an equal reduction of revenue and cost of revenue. We also identified instances at the end of 2001 and 2002 where Comdata merchant services equipment
shipments recorded at the end of those years had not been delivered and accepted by the customer
until shortly after year-end. Therefore, that revenue and related costs has been restated to
recognize it in the first quarter of the subsequent year. These adjustments reduced revenue by $14.8 and cost of revenue by $10.4 during the years 2001
through 2003. Changes in accounting for
interest rate and fuel price derivative instruments In the Restatement we corrected the accounting for our interest rate and fuel price derivative
contracts. These derivative instruments were designed to hedge a portion of the interest rate and
fuel price risks for our revenue and are further discussed in Notes A and K. The unrealized gains
and losses on these derivatives that were previously reported
under hedge accounting treatment
in accumulated other comprehensive
income
within stockholders equity on our consolidated balance sheets
are now reported in (gain) loss on derivative instruments
on our consolidated statement of operations since
 these derivatives did not qualify for hedge
accounting under FAS 133. Our Original Filing included a $2.6 gain on derivative instruments as part of other expense
 (income) in our 2001 consolidated statement of operations.  This $2.6 gain resulted from
recording the time value of our collars as required by FAS 133 as
interpreted in 2001.  $1.8 of
 this gain was reversed in 2002 in the Original Filing as part of other expense (income) in our
 2002 consolidated statement of operations.  The remaining 2001 gain of $0.8 was reversed in the
 Original Filing as a reduction of revenue in our consolidated statements of operations consisting
 of $0.7 in 2003 and $0.1 in the first quarter of 2004.
We also
discovered that we had recorded current receivables for gains on
derivative instruments at the end of our reporting periods that had
already been accounted for as part of our mark-to-market adjustments.
In our Original Filing, these balances were recorded as other
receivables on our consolidated balance sheets and were $2.9, $2.5,
and $1.9 at December 31, 2003, 2002 and 2001. The year-to-year
change in these balance sheet accounts were $0.4, $0.6 and $1.9 for
2003, 2002 and 2001, which overstated the net earnings by those
amounts. As part of the Restatement, the consolidated balance sheets
and consolidated statements of operations have been corrected to
reverse the impact of these errors. As
part of the Restatement, all of these items
 for 2001 through the first quarter 2004 have been reversed and replaced with the corrected FAS 133 amounts
 as shown in the table below. The annual pre-tax impact of the correction of unrealized gains and
losses on derivative instruments, net of the reversal of the gain
discussed above and the other receivables corrections, was a decrease of $15.4 in 2003 and increases of
$48.3 in 2002 and $19.8 in 2001. In addition, the realized gains and losses on these derivatives that
were previously reported in revenue have now been reclassified to costs and expenses under the line item entitled (gain) loss on derivative
instruments. The components of the annual (gain) loss on derivative instruments as shown on our
consolidated statements of operations including the effect of the Restatement are as follows: 88




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(Dollars in millions, except per share data) For the years ended December 31,
    
    
    ThreeDerivative instruments activity
    
    2003
    
    
    2002
    
    
    2001
    
    
    Year TotalRevenue impact:Interest rate derivatives realized gain
    
    $
    (31.6
    )
    
    $
    (26.8
    )
    
    $
    (10.3
    )
    
    $
    (68.7
    )Fuel price derivatives realized loss
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8FAS 133 AOCI
amortization
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Revenue Restatement amount
    
    $
    (30.1
    )
    
    $
    (26.8
    )
    
    $
    (10.3
    )
    
    $
    (67.2
    )(Gain) loss on derivative instruments:Interest rate derivatives (gain) loss:Realized gain as previously reported
    
    $
    (31.6
    )
    
    $
    (26.8
    )
    
    $
    (10.3
    )
    
    $
    (68.7
    )Receivables Restatement adjustment
    
    
    0.4
    
    
    
    0.6
    
    
    
    1.9
    
    
    
    2.9Realized (gain) after Restatement
    
    
    (31.2
    )
    
    
    (26.2
    )
    
    
    (8.4
    )
    
    
    (65.8
    )Unrealized (gain) loss as previously reported *
    
    
    15.0
    
    
    
    (48.9
    )
    
    
    (21.7
    )
    
    
    (55.6
    )FAS 133 AOCI Restatement adjustment
    
    
    0.7
    
    
    
    1.8
    
    
    
    (2.6
    )
    
    
    (0.1
    )Unrealized (gain) loss after Restatement
    
    
    15.7
    
    
    
    (47.1
    )
    
    
    (24.3
    )
    
    
    (55.7
    )Fuel price derivatives realized loss
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Total (Gain) loss on derivative instruments
    
    $
    (14.7
    )
    
    $
    (73.3
    )
    
    $
    (32.7
    )
    
    $
    (120.7
    )
  *
    Previously reported in accumulated other comprehensive income within stockholders equity on our
consolidated balance sheets. Reduction of the number of dilutive shares for calculation of earnings per share Dilutive securities include in the money fixed stock options outstanding. The number of
potential common shares
related to outstanding stock options is determined by the treasury stock method, which assumes exercise of these
options and the use of any proceeds, including tax benefits, to repurchase a portion of these
shares at the average market price for the period. The number of dilutive shares has been restated
to include the tax benefit related to the appreciation in value of the assumed exercised stock
options. The number of dilutive shares was reduced by 904,000 in 2003, 929,000 in 2002, and
927,000 in 2001. Reclassifications between
cost and expense categories In the course of reviewing
the propriety of cost and expense classifications
on the consolidated statement of operations, we noted that significant portions of the
expenditures previously classified by HRS as either selling, general and administrative expense or
research and development expense were largely related to product support and services sold to
customers and should have been classified as cost of revenue. Therefore, we have updated our
accounting policies for costs and expenses in Note A and restated cost and
expense classifications. These reclassifications had no effect on
total costs and expenses or net earnings and are presented for each line item of our consolidated
statements of operations in an accompanying table. Reclassification of Comdata assets and liabilities Comdata had followed a
practice of offsetting certain customer advances against its trade receivables and had offset certain
 customer deposits related to its eCash business against the related liability.  We have reclassified
 these assets and liabilities to present them separately in our restated consolidated balance sheets.
  We also made corrections at December 31, 2003 to reclassify certain receivables from current assets
 to other noncurrent assets and to reclassify certain vendor payable accounts that were in a net debit
 position to other current assets.  These reclassifications are presented for each line item of our
 consolidated balance sheets in an accompanying table. Transfer of excess pre-1999 restructuring liabilities directly to retained earnings Prior to 1999, we experienced a number of significant restructuring activities that required the
estimation of actual and contingent liabilities that could result from these actions. The
estimated liabilities established for these actions ultimately exceeded the actual liabilities. We
have concluded that as of January 1, 1999, $23.5 of the restructure reserves did not constitute a
liability and have restated it by transferring $14.7 (net of income taxes of $8.8) to retained
earnings. 89




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(Dollars in millions, except per share data) The following table presents the effect of the Restatement on the consolidated statements of
operations: For Years Ended December 31,2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999As Previously ReportedRevenue
    
    $
    1,253.2
    
    
    $
    1,191.0
    
    
    $
    1,179.0
    
    
    $
    1,174.8
    
    
    $
    1,127.0Costs and expenses
    
    
    1,061.0
    
    
    
    1,048.6
    
    
    
    1,099.0
    
    
    
    1,051.6
    
    
    
    959.7Earnings before income taxes
    
    
    192.2
    
    
    
    142.4
    
    
    
    80.0
    
    
    
    123.2
    
    
    
    167.3Income tax provision
    
    
    67.4
    
    
    
    50.3
    
    
    
    33.1
    
    
    
    46.6
    
    
    
    62.9Earnings from continuing operations
    
    
    124.8
    
    
    
    92.1
    
    
    
    46.9
    
    
    
    76.6
    
    
    
    104.4Discontinued operations
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    20.7
    
    
    
    40.9Net earnings
    
    $
    124.8
    
    
    $
    92.1
    
    
    $
    52.1
    
    
    $
    97.3
    
    
    $
    145.3Basic earnings per shareContinuing operations
    
    $
    0.84
    
    
    $
    0.62
    
    
    $
    0.32
    
    
    $
    0.53
    
    
    $
    0.72Net earnings
    
    $
    0.84
    
    
    $
    0.62
    
    
    $
    0.36
    
    
    $
    0.67
    
    
    $
    1.01Diluted earnings per shareContinuing operations
    
    $
    0.83
    
    
    $
    0.61
    
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    0.71Net earnings
    
    $
    0.83
    
    
    $
    0.61
    
    
    $
    0.35
    
    
    $
    0.66
    
    
    $
    0.98Restatement SummaryRevenue recognition
    
    $
    (9.2
    )
    
    $
    (3.9
    )
    
    $
    (1.7
    )
    
    $
    
    
    
    $
    Derivative
instruments
    
    
    (30.1
    )
    
    
    (26.8
    )
    
    
    (10.3
    )
    
    
    
    
    
    
    Revenue decrease
    
    
    (39.3
    )
    
    
    (30.7
    )
    
    
    (12.0
    )
    
    
    
    
    
    
    Revenue recognition costs
    
    
    (7.2
    )
    
    
    (2.0
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    Derivative instruments
    
    
    (14.7
    )
    
    
    (75.1
    )
    
    
    (30.1
    )
    
    
    
    
    
    
    Software capitalization
    
    
    17.6
    
    
    
    10.7
    
    
    
    9.7
    
    
    
    8.6
    
    
    
    1.2Accrual of costs and expenses
    
    
    5.7
    
    
    
    2.1
    
    
    
    (3.7
    )
    
    
    0.3
    
    
    
    1.2Costs and expenses increase (decrease)
    
    
    1.4
    
    
    
    (64.3
    )
    
    
    (25.3
    )
    
    
    8.9
    
    
    
    2.4Total pretax earnings increase (decrease)
    
    
    (40.7
    )
    
    
    33.6
    
    
    
    13.3
    
    
    
    (8.9
    )
    
    
    (2.4
    )Tax effect of restatement
    
    
    (14.6
    )
    
    
    12.5
    
    
    
    4.9
    
    
    
    (3.3
    )
    
    
    (0.9
    )Total net earnings increase (decrease)
    
    $
    (26.1
    )
    
    $
    21.1
    
    
    $
    8.4
    
    
    $
    (5.6
    )
    
    $
    (1.5
    )As RestatedRevenue
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    $
    1,167.0
    
    
    $
    1,174.8
    
    
    $
    1,127.0Costs and expenses
    
    
    1,062.4
    
    
    
    984.3
    
    
    
    1,073.7
    
    
    
    1,060.5
    
    
    
    962.1Earnings before income taxes
    
    
    151.5
    
    
    
    176.0
    
    
    
    93.3
    
    
    
    114.3
    
    
    
    164.9Income tax provision
    
    
    52.8
    
    
    
    62.8
    
    
    
    38.0
    
    
    
    43.3
    
    
    
    62.0Earnings from continuing operations
    
    
    98.7
    
    
    
    113.2
    
    
    
    55.3
    
    
    
    71.0
    
    
    
    102.9Discontinued operations
    
    
    
    
    
    
    
    
    
    
    5.2
    
    
    
    20.7
    
    
    
    40.9Net earnings
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    60.5
    
    
    $
    91.7
    
    
    $
    143.8Basic earnings per shareContinuing operations
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.38
    
    
    $
    0.49
    
    
    $
    0.71Net earnings
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41
    
    
    $
    0.63
    
    
    $
    1.00Diluted earnings per shareContinuing operations
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.37
    
    
    $
    0.49
    
    
    $
    0.70Net earnings
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41
    
    
    $
    0.63
    
    
    $
    0.98
 Please refer to Note N for
the impact of the Restatement on our 2003 and 2002 quarterly
information. 90




---



##### Table of Contents



(Dollars in millions, except per share data) The following table presents the effect of the Restatement on each line in the consolidated
statements of operations: Software
    
    
    
    
    
    
    OtherAs
    
    
    Capitaliza-
    
    
    Derivative
    
    
    Earnings
    
    
    Costs &
    
    
    TotalPreviously
    
    
    tion Adjust-
    
    
    Adjust-
    
    
    Adjust-
    
    
    Expenses
    
    
    Adjust-
    
    
    AsReported
    
    
    ments
    
    
    ments
    
    
    ments
    
    
    Reclass
    
    
    ments
    
    
    RestatedAnnual 2003Revenue
    
    $
    1,253.2
    
    
    $
    
    
    
    $
    (30.1
    )
    
    $
    (9.2
    )
    
    $
    
    
    
    $
    (39.3
    )

    
    $
    1,213.9Costs and expensesCost of revenue
    
    
    580.6
    
    
    
    9.2
    
    
    
    
    
    
    
    (4.9
    )
    
    
    108.6
    
    
    
    112.9
    
    
    
    693.5Selling, general and administrative
    
    
    415.4
    
    
    
    1.6
    
    
    
    
    
    
    
    3.3
    
    
    
    (56.2
    )
    
    
    (51.3
    )
    
    
    364.1Research and development
    
    
    64.7
    
    
    
    7.0
    
    
    
    
    
    
    
    0.1
    
    
    
    (52.4
    )
    
    
    (45.3
    )
    
    
    19.4(Gain) loss
on derivative instruments
    
    
    
    
    
    
    
    
    
    
    (14.7
    )
    
    
    
    
    
    
    
    
    
    
    (14.7
    )
    
    
    (14.7
    )Other expense (income)
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.5
    )Interest income
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.0
    )Interest expense
    
    
    4.8
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    4.6Total costs and expenses
    
    
    1,061.0
    
    
    
    17.6
    
    
    
    (14.7
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    1.4
    
    
    
    1,062.4Earnings before income taxes
    
    
    192.2
    
    
    
    (17.6
    )
    
    
    (15.4
    )
    
    
    (7.7
    )
    
    
    
    
    
    
    (40.7
    )
    
    
    151.5Income tax provision
    
    
    67.4
    
    
    
    (6.3
    )
    
    
    (5.6
    )
    
    
    (2.7
    )
    
    
    
    
    
    
    (14.6
    )
    
    
    52.8Net earnings
    
    $
    124.8
    
    
    $
    (11.3
    )
    
    $
    (9.8
    )
    
    $
    (5.0
    )
    
    $
    
    
    
    $
    (26.1
    )
    
    $
    98.7Annual 2002Revenue
    
    $
    1,191.0
    
    
    $
    
    
    
    $
    (26.8
    )
    
    $
    (3.9
    )
    
    $
    
    
    
    $
    (30.7
    )
    
    $
    1,160.3Costs and expensesCost of revenue
    
    
    561.1
    
    
    
    3.6
    
    
    
    
    
    
    
    (1.6
    )
    
    
    91.1
    
    
    
    93.1
    
    
    
    654.2Selling, general and administrative
    
    
    389.4
    
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    (39.7
    )
    
    
    (38.3
    )
    
    
    351.1Research and development
    
    
    59.3
    
    
    
    6.8
    
    
    
    
    
    
    
    0.3
    
    
    
    (51.4
    )
    
    
    (44.3
    )
    
    
    15.0(Gain) loss on derivative instruments
    
    
    
    
    
    
    
    
    
    
    (73.3
    )
    
    
    
    
    
    
    
    
    
    
    (73.3
    )
    
    
    (73.3
    )Other expense (income)
    
    
    34.3
    
    
    
    0.6
    
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    33.1Interest income
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Interest expense
    
    
    6.6
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    6.3Total costs and expenses
    
    
    1,048.6
    
    
    
    10.7
    
    
    
    (75.1
    )
    
    
    0.1
    
    
    
    
    
    
    
    (64.3
    )
    
    
    984.3Earnings before income taxes
    
    
    142.4
    
    
    
    (10.7
    )
    
    
    48.3
    
    
    
    (4.0
    )
    
    
    
    
    
    
    33.6
    
    
    
    176.0Income tax provision
    
    
    50.3
    
    
    
    (3.8
    )
    
    
    17.8
    
    
    
    (1.5
    )
    
    
    
    
    
    
    12.5
    
    
    
    62.8Net earnings
    
    $
    92.1
    
    
    $
    (6.9
    )
    

    $
    30.5
    
    
    $
    (2.5
    )
    
    $
    
    
    
    $
    21.1
    
    
    $
    113.2Annual 2001Revenue
    
    $
    1,179.0
    
    
    $
    
    
    
    $
    (10.3
    )
    
    $
    (1.7
    )
    
    $
    
    
    
    $
    (12.0
    )
    
    $
    1,167.0Costs and expensesCost of revenue
    
    
    561.8
    
    
    
    2.7
    
    
    
    
    
    
    
    (0.9
    )
    
    
    84.3
    
    
    
    86.1
    
    
    
    647.9Selling, general and administrative
    
    
    417.5
    
    
    
    1.7
    
    
    
    
    
    
    
    (3.0
    )
    
    
    (37.1
    )
    
    
    (38.4
    )
    
    
    379.1Research and development
    
    
    59.0
    
    
    
    6.1
    
    
    
    
    
    
    
    
    
    
    
    (47.2
    )
    
    
    (41.1
    )
    
    
    17.9(Gain) loss on derivative instruments
    
    
    
    
    
    
    
    
    
    
    (32.7
    )
    
    
    
    
    
    
    
    
    
    
    (32.7
    )
    
    
    (32.7
    )Other expense (income)
    
    
    48.2
    
    
    
    
    
    
    
    2.6
    
    
    
    (1.0
    )
    
    
    
    
    
    
    1.6
    
    
    
    49.8Interest income
    
    
    (6.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.5
    )Interest expense
    
    
    19.0
    
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    18.2Total costs and expenses
    
    
    1,099.0
    
    
    
    9.7
    
    
    
    (30.1
    )
    
    
    (4.9
    )
    
    
    
    
    
    
    (25.3
    )
    
    
    1,073.7Earnings before income taxes
    
    
    80.0
    
    
    
    (9.7
    )
    
    
    19.8
    
    
    
    3.2
    
    
    
    
    
    
    
    13.3
    
    
    
    93.3Income tax provision
    
    
    33.1
    
    
    
    (3.6
    )
    
    
    7.3
    
    
    
    1.2
    
    
    
    
    
    
    
    4.9
    
    
    
    38.0Earnings from continuing operations
    
    
    46.9
    
    
    
    (6.1
    )
    
    
    12.5
    
    
    
    2.0
    
    
    
    
    
    
    
    8.4
    
    
    
    55.3Discontinued operations gain
    
    
    5.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.2Net earnings
    
    $
    52.1
    
    
    $
    (6.1
    )
    
    $
    12.5
    
    
    $
    2.0
    
    
    $
    
    
    
    $
    8.4
    
    
    $
    60.5
 91




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##### Table of Contents



(Dollars in millions, except per share data) The following table presents the effect of the Restatement on the consolidated balance sheets: December 31, 2003
    
    
    December 31, 2002As
    
    
    
    
    
    
    
    
    
    
    AsPreviously
    
    
    
    
    
    
    As
    
    
    Previously
    
    
    
    
    
    
    AsReported
    
    
    Adjustments
    
    
    Restated
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedAssetsCash and equivalents
    
    $
    124.2
    
    
    $
    
    
    
    $
    124.2
    
    
    $
    134.3
    
    
    $
    
    
    
    $
    134.3Trade and other receivables, net
    
    
    461.2
    
    
    
    6.1
    
    
    
    467.3
    
    
    
    420.6
    
    
    
    10.6
    
    
    
    431.2Other current assets
    
    
    77.8
    
    
    
    6.7
    
    
    
    84.5
    
    
    
    74.3
    
    
    
    (0.2
    )
    
    
    74.1Total current assets
    
    
    663.2
    
    
    
    12.8
    
    
    
    676.0
    
    
    
    629.2
    
    
    
    10.4
    
    
    
    639.6Software and development costs, net
    
    
    136.9
    
    
    
    (51.1
    )
    
    
    85.8
    
    
    
    113.5
    
    
    
    (33.1
    )
    
    
    80.4Other noncurrent assets
    
    
    1,256.5
    
    
    
    3.2
    
    
    
    1,259.7
    
    
    
    1,287.3
    
    
    
    1.0
    
    
    
    1,288.3Total assets before customer funds
    
    
    2,056.6
    
    
    
    (35.1
    )
    
    
    2,021.5
    
    
    
    2,030.0
    
    
    
    (21.7
    )
    
    
    2,008.3Customer funds
    
    
    3,132.1
    
    
    
    9.2
    
    
    
    3,141.3
    
    
    
    2,440.9
    
    
    
    5.7
    
    
    
    2,446.6Total assets
    
    $
    5,188.7
    
    
    $
    (25.9
    )
    
    $
    5,162.8
    
    
    $
    4,470.9
    
    
    $
    (16.0
    )
    
    $
    4,454.9Liabilities and Stockholders EquityShort-term debt and current portion of
long-term obligations
    
    $
    6.5
    
    
    $
    
    
    
    $
    6.5
    
    
    $
    2.0
    
    
    $
    
    
    
    $
    2.0Accounts payable
    
    
    34.4
    
    
    
    4.7
    
    
    
    39.1
    
    
    
    35.3
    
    
    
    0.6
    
    
    
    35.9Drafts and settlements payable
    
    
    113.7
    
    
    
    
    
    
    
    113.7
    
    
    
    120.8
    
    
    
    
    
    
    
    120.8Customer advances
    
    
    14.4
    
    
    
    16.6
    
    
    
    31.0
    
    
    
    13.2
    
    
    
    14.5
    
    
    
    27.7Deferred income
    
    
    64.2
    
    
    
    2.7
    
    
    
    66.9
    
    
    
    48.8
    
    
    
    1.6
    
    
    
    50.4Accrued taxes
    
    
    28.8
    
    
    
    (2.4
    )
    
    
    26.4
    
    
    
    61.1
    
    
    
    (2.2
    )
    
    
    58.9Employee compensation and benefits
    
    
    51.9
    
    
    
    2.0
    
    
    
    53.9
    
    
    
    55.9
    
    
    
    2.1
    
    
    
    58.0Other accrued expenses
    
    
    35.1
    
    
    
    0.1
    
    
    
    35.2
    
    
    
    42.8
    
    
    
    (3.2
    )
    
    
    39.6Total current liabilities
    
    
    349.0
    
    
    
    23.7
    
    
    
    372.7
    
    
    
    379.9
    
    
    
    13.4
    
    
    
    393.3Long-term obligations, less current
portion
    
    
    157.0
    
    
    
    
    
    
    
    157.0
    
    
    
    191.5
    
    
    
    
    
    
    
    191.5Deferred income taxes
    
    
    48.0
    
    
    
    (10.2
    )
    
    
    37.8
    
    
    
    25.4
    
    
    
    (2.5
    )
    
    
    22.9Employee benefit plans
    
    
    196.4
    
    
    
    1.6
    
    
    
    198.0
    
    
    
    278.3
    
    
    
    1.1
    
    
    
    279.4Other noncurrent liabilities
    
    
    34.3
    
    
    
    (22.3
    )
    
    
    12.0
    
    
    
    35.2
    
    
    
    (22.4
    )
    
    
    12.8Total liabilities before customer funds
obligations
    
    
    784.7
    
    
    
    (7.2
    )
    
    
    777.5
    
    
    
    910.3
    
    
    
    (10.4
    )
    
    
    899.9Customer funds obligations
    
    
    3,132.1
    
    
    
    9.2
    
    
    
    3,141.3
    
    
    
    2,440.9
    
    
    
    5.7
    
    
    
    2,446.6Total liabilities
    
    
    3,916.8
    
    
    
    2.0
    
    
    
    3,918.8
    
    
    
    3,351.2
    
    
    
    (4.7
    )
    
    
    3,346.5Total stockholders equity
    
    
    1,271.9
    
    
    
    (27.9
    )
    
    
    1,244.0
    
    
    
    1,119.7
    
    
    
    (11.3
    )
    
    
    1,108.4Total liabilities and stockholders
equity
    
    $
    5,188.7
    
    
    $
    (25.9
    )
    
    $
    5,162.8
    
    
    $
    4,470.9
    
    
    $
    (16.0
    )
    
    $
    4,454.9
 92




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##### Table of Contents



The following table presents the Restatement effects by reason on the consolidated balance
sheets: December 31,2003
    
    
    2002Summary by Restatement Group by Balance Sheet Account

    
    Increase (decrease)Software development costs:Software and development costs, net (1999-2003 impact)
    
    $
    (48.3
    )
    
    $
    (30.3
    )Accrual of costs and expenses:Other current assets
    
    
    (1.1
    )
    
    
    (1.1
    )Other noncurrent assets
    
    
    1.2
    
    
    
    1.0Accounts payable
    
    
    2.1
    
    
    
    0.6Accrued taxes
    
    
    (1.9
    )
    
    
    (2.2
    )Employee compensation and benefits
    
    
    2.0
    
    
    
    2.1Other accrued expenses
    
    
    1.2
    
    
    
    (2.1
    )Employee benefit plans
    
    
    1.6
    
    
    
    1.1Other noncurrent liabilities
    
    
    0.1
    
    
    
    Net liability increase (decrease)
    
    $
    5.0
    
    
    $
    (0.4
    )Revenue recognition, net of costs:Trade and other receivables, net
    
    
    (5.1
    )
    
    
    (0.9
    )Other current assets
    
    
    3.1
    
    
    
    Deferred income (liability)
    
    
    2.7
    
    
    
    1.6Net asset decrease
    
    $
    (4.7
    )
    
    $
    (2.5
    )Derivative
instruments:Trade and
other receivables, net
    
    $
    (2.9
    )
    
    $
    (2.5
    )Pre-1999 adjustments:Trade and other receivables, net
    
    
    (0.5
    )
    
    
    (0.5
    )Software and development costs, net (1997-1998 impact)
    
    
    (2.8
    )
    
    
    (2.8
    )Other accrued expenses (restructuring)
    
    
    (1.1
    )
    
    
    (1.1
    )Other noncurrent liabilities (restructuring)
    
    
    (22.4
    )
    
    
    (22.4
    )Net liability decrease
    
    $
    (20.2
    )
    
    $
    (20.2
    )Income tax impact of adjustments:Other current assets (current portion of deferred income taxes)
    
    
    2.1
    
    
    
    0.9Accrued taxes (income taxes payable)
    
    
    (0.5
    )
    
    
    Deferred income taxes (long-term liability)
    
    
    (10.2
    )
    
    
    (2.5
    )Net liability decrease
    
    $
    (12.8
    )
    
    $
    (3.4
    )Comdata balance sheet reclassifications:Trade and other receivables, net
    
    
    16.6
    
    
    
    14.5Customer advances
    
    
    16.6
    
    
    
    14.5Trade and other receivables, net (reclass to long-term)
    
    
    (2.0
    )
    
    
    Other noncurrent assets (reclass receivable from current)
    
    
    2.0
    
    
    
    Other current assets (vendor prepayments)
    
    
    2.6
    
    
    
    Accounts payable (reclass net debit vendors)
    
    
    2.6
    
    
    
    Customer funds
    
    
    9.2
    
    
    
    5.7Customer funds obligations
    
    
    9.2
    
    
    
    5.7Net balance sheet impact
    
    $
    
    
    
    $
    
 The consolidated balance sheet impacts by reason differ slightly from the consolidated
statement of operations adjustments due to foreign currency translation impacts since balance sheet
adjustments are based on end of period exchange rates and statement of operations adjustments are
based on average exchange rates. The above adjustments are sorted by Restatement reason. A summary of the above items by
consolidated balance sheet line item would result in the Adjustments to asset and liability
amounts presented in the table on the previous page in this Form 10-K/A. 93




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##### Table of Contents



(Dollars in millions, except per share data) The following table presents the effect of the Restatement on the consolidated statements of cash
flows: Years Ended December 31,2003
    
    
    2002
    
    
    2001As
    
    
    
    
    
    
    As
    
    
    
    
    
    

    AsPreviously
    
    
    As
    
    
    Previously
    
    
    As
    
    
    Previously
    
    
    AsReported
    
    
    Restated
    
    
    Reported
    
    
    Restated
    
    
    Reported
    
    
    RestatedCash Flows from Operating ActivitiesNet earnings
    
    $
    124.8
    
    
    $
    98.7
    
    
    $
    92.1
    
    
    $
    113.2
    
    
    $
    52.1
    
    
    $
    60.5Adjustments to reconcile net earnings to
net cash provided by operating activities:Deferred income tax provision
    
    
    48.4
    
    
    
    34.7
    
    
    
    13.2
    
    
    
    25.7
    
    
    
    28.9
    
    
    
    33.8Depreciation and amortization
    
    
    85.1
    
    
    
    80.2
    
    
    
    75.9
    
    
    
    74.4
    
    
    
    105.4
    
    
    
    104.8Asset write-down
    
    
    
    
    
    
    
    
    
    
    6.7
    
    
    
    7.3
    
    
    
    6.1
    
    
    
    6.1Unrealized (gain) loss on derivative instruments
    
    
    
    
    
    
    15.7
    
    
    
    
    
    
    
    (47.1
    )
    
    
    
    
    
    
    (24.3
    )Decrease (increase) in trade and other receivables
    
    
    (51.4
    )
    
    
    (48.1
    )
    
    
    (37.9
    )
    
    
    (43.2
    )
    
    
    42.8
    
    
    
    36.9Increase (decrease) in accounts payable
    
    
    (1.5
    )
    
    
    2.5
    
    
    
    2.7
    
    
    
    3.4
    
    
    
    (0.7
    )
    
    
    (0.7
    )Increase (decrease) in accrued taxes
    
    
    (24.1
    )
    
    
    (24.5
    )
    
    
    6.0
    
    
    
    4.5
    
    
    
    (3.9
    )
    
    
    (8.1
    )Increase (decrease) in other current assets
and liabilities
    
    
    2.6
    
    
    
    2.1
    
    
    
    (17.0
    )
    
    
    (6.9
    )
    
    
    (15.7
    )
    
    
    (8.0
    )Other
    
    
    (104.3
    )
    
    
    (104.7
    )
    
    
    7.2
    
    
    
    6.1
    
    
    
    (41.1
    )
    
    
    (37.3
    )Net cash provided by operating activities
    
    
    79.6
    
    
    
    56.6
    
    
    
    148.9
    
    
    
    137.4
    
    
    
    173.9
    
    
    
    163.7Cash Flows from Investing ActivitiesExpended for
property, plant and equipment
    
    
    (30.3
    )
    
    
    (30.5
    )
    
    
    (31.1
    )
    
    
    (31.1
    )
    
    
    (43.2
    )
    
    
    (43.2
    )Expended for software and development costs
    
    
    (50.2
    )
    
    
    (27.0
    )
    
    
    (35.0
    )
    
    
    (23.5
    )
    
    
    (50.8
    )
    
    
    (40.6
    )Other
    
    
    23.1
    
    
    
    23.1
    
    
    
    (49.8
    )
    
    
    (49.8
    )
    
    
    (12.7
    )
    
    
    (12.7
    )Net cash provided by (used for) investing activities
    
    
    (57.4
    )
    
    
    (34.4
    )
    
    
    (115.9
    )
    
    
    (104.4
    )
    
    
    (106.7
    )
    
    
    (96.5
    )Cash Flows from Financing ActivitiesNet cash provided by (used for) financing activities
    
    
    (37.5
    )
    
    
    (37.5
    )
    
    
    (15.1
    )
    
    
    (15.1
    )
    
    
    (56.1
    )
    
    
    (56.1
    )Effect of Exchange Rate Changes on Cash
    
    
    5.2
    
    
    
    5.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    Net cash flows provided (used)
    
    
    (10.1
    )
    
    
    (10.1
    )
    
    
    18.1
    
    
    
    18.1
    
    
    
    11.1
    
    
    
    11.1Cash and equivalents at beginning of year
    
    
    134.3
    
    
    
    134.3
    
    
    
    116.2
    
    
    
    116.2
    
    
    
    105.1
    
    
    
    105.1Cash and equivalents at end of year
    
    $
    124.2
    
    
    $
    124.2
    
    
    $
    134.3
    
    
    $
    134.3
    
    
    $
    116.2
    
    
    $
    116.2
 94




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(Dollars in millions, except per share data) C. Income Taxes At December 31, 2003, we had U.S. net operating loss carryforwards of $5.5 from acquired
operations. The acquired net operating loss carryforwards expire through the year 2021. Our income tax returns remain subject to income tax audits in various jurisdictions for
1989 and subsequent years as a result of tax sharing agreements related to the disposition of
certain operations. We consider our tax accruals adequate to cover any U.S. and international tax
deficiencies not recoverable through deductions in future years. RestatedComponents of Earnings and Taxes from
    
    Years Ended December 31,Continuing Operations
    
    2003
    
    
    2002
    
    
    2001Earnings Before Income TaxesU.S
    
    $
    123.5
    
    
    $
    145.7
    
    
    $
    68.8International
    
    
    28.0
    
    
    
    30.3
    
    
    
    24.5Total
    
    $
    151.5
    
    
    $
    176.0
    
    
    $
    93.3Income Tax ProvisionCurrentU.S
    
    $
    5.7
    
    
    $
    21.6
    
    
    $
    0.6State and other
    
    
    (0.1
    )
    
    
    3.0
    
    
    
    0.4International
    
    
    12.5
    
    
    
    12.5
    
    
    
    3.218.1
    
    
    
    37.1
    
    
    
    4.2DeferredU.S
    
    
    36.5
    
    
    
    28.2
    
    
    
    25.6State and other
    
    
    2.1
    
    
    
    0.6
    
    
    
    0.3International
    
    
    (3.9
    )
    
    
    (3.1
    )
    
    
    7.934.7
    
    
    
    25.7
    
    
    
    33.8Total
    
    $
    52.8
    
    
    $
    62.8
    
    
    $
    38.0
 RestatedYears Ended December 31,Effective Rate Reconciliation
    
    2003
    
    
    2002
    
    
    2001U.S. statutory rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %Income tax provision at U.S. statutory rate
    
    $
    53.1
    
    
    $
    61.6
    
    
    $
    32.6State income taxes, net
    
    
    1.2
    
    
    
    2.8
    
    
    
    0.2Goodwill
    
    
    
    
    
    
    
    
    
    
    8.9Other
    
    
    (1.5
    )
    
    
    (1.6
    )
    
    
    (3.7
    )Income tax provision
    
    $
    52.8
    
    
    $
    62.8
    
    
    $
    38.0
 95




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(Dollars in millions, except per share data) RestatedDecember 31,2003
    
    
    2002Tax Effect of Items That Comprise a Significant Portion of theNet Deferred Tax Asset and Deferred Tax LiabilityDeferred Tax AssetEmployment related accruals
    
    $
    57.0
    
    
    $
    86.1Restructuring and other accruals
    
    
    28.6
    
    
    
    29.5Other
    
    
    11.4
    
    
    
    0.7Total
    
    
    97.0
    
    
    
    116.3Deferred Tax LiabilityIntangibles
    
    
    (67.9
    )
    
    
    (60.0
    )Other
    
    
    (32.4
    )
    
    
    (27.4
    )Total
    
    
    (100.3
    )
    
    
    (87.4
    )Net Deferred Tax Asset (Liability)
    
    $
    (3.3
    )
    
    $
    28.9Net Deferred Tax by GeographyUnited States
    
    $
    14.2
    
    
    $
    48.5International
    
    
    (17.5
    )
    
    
    (19.6
    )Total
    
    $
    (3.3
    )
    
    $
    28.9
 D. Supplementary Data to Statements of Operations Years Ended December 31,Other Expense (Income)
    
    2003
    
    
    2002
    
    
    2001(--------restated--------)Litigation and contract settlement costs
    
    $
    1.9
    
    
    $
    0.8
    
    
    $
    53.7Foreign currency translation expense (income)
    
    
    (0.2
    )
    
    
    (0.6
    )
    
    
    1.0Gain on sale of land
    
    
    (1.6
    )
    
    
    
    
    
    
    (Gain) loss on marketable securities
    
    
    (3.4
    )
    
    
    6.3
    
    
    
    (15.6
    )Accrued exit costs, net of recoveries
    
    
    
    
    
    
    13.5
    
    
    
    6.7Factoring receivables loss
    
    
    
    
    
    
    9.8
    
    
    
    Asset write-downs
    
    
    
    
    
    
    7.3
    
    
    
    6.1Reduction in environmental accrual
    
    
    
    
    
    
    (4.1
    )
    
    
    Other expense (income)
    
    
    0.8
    
    
    
    0.1
    
    
    
    (2.1
    )Total
    
    $
    (2.5
    )
    
    $
    33.1
    
    
    $
    49.8
 Unusual Losses (Gains) During September 2003, we sold 785,000 common shares of The Ultimate Software Group, Inc.
(Ultimate) for proceeds of $5.9 and a net gain of $3.0. In addition we sold 137,158 common
shares of U.S.I. Holdings Corporation (USIH) for proceeds of $1.8 and a net gain of $0.4. We
further describe these transactions in Note G. During the first quarter of 2002, we announced two separate series of actions intended to
consolidate certain operations in each 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, all of whom 96




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(Dollars in millions, except per share data) were terminated by December 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 further described in Note K. An additional software asset write-down
of $0.6 was recorded in the second quarter of 2002. Also during the first quarter of 2002, we
conducted a periodic reassessment of our environmental obligation. This obligation relates to the
1989 sale by our predecessor (Control Data Corporation) of its disk drive operations, which
involved remediable environmental sites. The sale agreement provided terms describing how remedial
costs related to remediable environmental sites would be shared between the buyer and us as the
seller. The terms of the agreement included periodic joint reviews of the obligation by the buyer
and us. Our obligations covered only those sites identified prior to the fifth anniversary of the
sale. At the time of the sale, we established an accrual for our estimated costs that might occur
as a result of this agreement. During the first 10 years following the sale, both parties incurred
significant costs, which then began to reduce as these sites entered a water extraction and
monitoring stage. During the first quarter of 2002, we participated in a periodic review of the
status of this obligation with the environmental officer of the buyer. A site visit was made by
our environmental representative at that time, and it was determined that our estimated liability
was $4.1 less than previously determined. The excess accrual was then credited back to earnings as
a component of other expense (income). During the third quarter of 2002, we examined purchases of receivables from a certain trucking
company by Comdatas factoring business that had grown rapidly during 2002 and found that the
debtors could not be verified. In the meantime, the parties that had sold us the receivables
declared bankruptcy. We also made certain modifications to our policies and procedures related to
the factoring business. We recorded the full amount of the loss of $9.8, including $0.3 of
investigative costs incurred. Due to the unusual and non-recurring nature of the loss, we have
reported the loss as other expense (income). 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, and other exit costs of $2.9 and in Comdata for severance costs of $0.6, involving 41
employees, 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. Also in the fourth quarter of 2002, HRS recorded a $7.8 write-down of the carrying values of
certain marketable equity securities and cost-based investments and wrote off the $0.3 carrying
value of an abandoned software product. The investment write-down related primarily to our
December 2001 cost-based investment in preferred stock of USIH, which was converted to common stock
as a result of an initial public offering in October 2002. We also recorded $0.8 of other unusual
costs in HRS for a litigation settlement. The 2001 gain on sale of marketable securities of $15.6 related to our sale of
HotJobs.com, Ltd. common stock and is further described in Note G. The second quarter 2001
litigation costs include a 97




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(Dollars in millions, except
per share data) settlement of $49.0 and associated costs of $3.4 related to litigation involving Comdata and a
provision of $1.3 for litigation costs not allocated to our business segments. The litigation
settlement and associated costs at Comdata related to an action brought by Flying J, Inc. The
nature and facts and circumstances of this litigation are fully disclosed in Note K to our
consolidated financial statements for the year ended December 31, 2000, and the resulting
settlement is fully disclosed in Part II, Item 1, Legal Proceedings, of our Quarterly Report on
Form 10-Q, for the quarterly period ended June 30, 2001. These disclosures have not been affected
by subsequent amendment of these reports. The additional provision of $1.3 for litigation costs
not allocated to our business segments related to disputes involving postretirement benefits. During the first quarter of 2001, we took certain actions, described below, that were expected
to improve operational efficiency, take advantage of technological opportunities and further focus
our human resource businesses. These actions resulted in accrued exit costs of $9.9 and asset
write-downs of $6.1. We paid these accrued exit costs in full by the end of 2001. We also
recovered $3.2 of costs accrued during the first quarter of 2000, due to a revision of the
estimated cost related to those actions. In February 2001, Comdata terminated an outsourced contract for transaction processing and
software development and brought those activities in-house. This action was intended to improve
management control over these activities and reduce costs. The termination charge of $6.6 was
recorded and paid during the first quarter of 2001. In order to implement the in-house operation,

Comdata hired a number of personnel from the outsourcing contractor and made incremental
investments in capitalized equipment and software of $7.4 in the same quarter. In March 2001, HRS transferred most of its LifeWorks employee effectiveness services operation
in Boston, Massachusetts into a related operation in Philadelphia, Pennsylvania and we decided to
sell our Usertech employee training business. As a result of these actions, unrecoverable goodwill
of $1.9 related to Usertech and $1.1 of equipment related to the Boston operation were recorded as
asset write-downs. We sold Usertech in the third quarter of 2001. In addition, HRS charged $2.3
of severance costs for approximately 250 employees and $1.0 of excess facility costs to operations
and recorded these as accrued exit costs. These charges were offset in part by the recovery of
$3.2 of the estimated severance costs accrued in the first quarter of 2000, due primarily to a
reduction in the scale of the downsizing of the St. Louis, Missouri customer services operations.
Also in March 2001, HRS reassessed its strategy for developing software to serve its middle market
payroll and tax filing customers and conducted an impairment review of internally developed
software related to this effort. As a result, $3.1 of unrecoverable cost related to this software
development effort was recognized as an asset write-down. Accrued Exit CostsOccupancySeverance
    
    
    Costs
    
    
    Total2002Total accrued costs
    
    $
    8.2
    
    
    $
    6.7
    
    
    $
    14.9Utilization:2002 cash payments
    
    
    (6.3
    )
    
    
    (2.5
    )
    
    
    (8.8
    )2002 recoveries
    
    
    (1.1
    )
    
    
    
    
    
    
    (1.1
    )2003 cash payments
    
    
    (0.8
    )
    
    
    (2.8
    )
    
    
    (3.6
    )Balance at December 31, 2003
    
    $
    
    
    
    $
    1.4
    
    
    $
    1.4
 98




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(Dollars in millions, except
per share data) Discontinued Operations On March 30, 2001, we separated our HRS division and subsidiaries and Comdata subsidiaries
from our former media information business, Arbitron Inc., to form two independent, publicly-traded
companies (spin-off). The spin-off required that we establish new financing arrangements further described in Note
J. Under the terms of agreements related to the spin-off, Arbitron furnished $225.0 from its own
borrowings toward the retirement of Ceridian debt outstanding immediately prior to the spin-off.
The $225.0 payment liability, combined with other assets and liabilities of Arbitron, resulted in
net liabilities of discontinued operations of $182.5 at the time of the spin-off, which increased
our retained earnings in that amount when the spin-off took place. The filing of 2001 income tax
returns during the third quarter of 2002 for the parties involved in the spin-off resulted in the
transfer of an additional deferred tax asset to Arbitron Inc., which reduced our deferred tax asset
and retained earnings by $5.7. Additionally, the par value of our common stock was established as 1¢ per share, compared to a
par value of 50¢ per share for the predecessors common stock, and none of the predecessors
treasury common stock was distributed to us, resulting in a reduction of $262.2 in our additional
paid-in capital. The effects of these transactions are also presented in the Statements of
Stockholders Equity. A summary of results for Arbitron for the year ended December 31, 2001 includes revenue of
$60.2, earnings before income taxes of $9.0 and net earnings of $5.2 (net of income taxes of $3.8).
Since the net earnings of $5.2 were derived from operations subsequent to the measurement date of
July 18, 2000, this amount was applied as an adjustment of the loss on disposition reported in
2000. E. Segment Data We operate in the information services industry principally in the U.S. and provide products
and services primarily to the human resource, transportation and retail information markets. Our
businesses collect, manage and analyze data and process transactions on behalf of customers, report
information resulting from such activities to customers, and provide customers with related
products, software applications and services. Our technology-based products and services of these
businesses are typically provided through long-term customer relationships that result in a high
level of recurring revenue. Our HRS and Comdata business segments are distinguished primarily by
reference to the markets served and the nature of the services provided. Selected business segment
information is provided in an accompanying table. HRS offers a broad range of services and software designed to help employers more effectively
manage their work forces and information that is integral to human resource processes. These
activities are conducted primarily in the U.S. and, to a lesser extent, through subsidiaries
located in Canada and the United Kingdom. Comdata provides transaction processing and decision support services to the transportation
industry, including assistance in obtaining regulatory permits and other services, in its markets.
Comdata sells 99




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(Dollars in millions, except
per share data) stored value cards and provides card-based services primarily to retailers in the form of gift
cards and certificates, credits for product returns and retail promotions. Further information about our business segments is presented in the section of Note A entitled
Revenue Recognition. The Other reporting element includes the unallocated amounts related to our corporate center
operations. The assets of corporate center operations include cash and equivalents as well as
deferred income tax and pension-related assets and liabilities. We measure business segment results by reference to earnings before interest and taxes
(EBIT) and exclude goodwill amortization in years prior to the adoption of FAS 142 in 2002.
Expenses incurred by corporate center operations are charged or allocated to the business segments
except for certain unusual gains and losses, which are reported as Other. Revenue from sales between business segments is not material. Our operations are conducted
primarily in the U.S. and revenue from sales between U.S. and non-U.S. entities is not material.
Operations in Canada and the United Kingdom relate largely to the HRS segment. Geographic data for
or at the end of each of the last three years, presented in an accompanying table, is determined by
reference to the location of operation. 100




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(Dollars in millions, except
per share data) RestatedYears Ended December 31,Geographic Segment Data
    
    2003
    
    
    2002
    
    
    2001U.S. OperationsHRS RevenuePayroll and tax filing
    
    $
    435.9
    
    
    $
    417.1
    
    
    $
    452.6Benefits services
    
    
    135.9
    
    
    
    124.8
    
    
    
    116.5LifeWorks
    
    
    115.9
    
    
    
    113.9
    
    
    
    109.5Total
    
    
    687.7
    
    
    
    655.8
    
    
    
    678.6Comdata RevenueTransportation
    
    
    242.0
    
    
    
    250.1
    
    
    
    253.4SVS
    
    
    77.7
    
    
    
    62.9
    
    
    
    50.9Total
    
    
    319.7
    
    
    
    313.0

    
    
    
    304.3Total Revenue
    
    $
    1,007.4
    
    
    $
    968.8
    
    
    $
    982.9Property, plant and equipment at December 31
    
    
    136.8
    
    
    
    139.0
    
    
    
    148.6Non-U.S. OperationsUnited Kingdom OperationsRevenue
    
    $
    79.3
    
    
    $
    78.6
    
    
    $
    71.2Property, plant and equipment at December 31
    
    
    3.5
    
    
    
    4.0
    
    
    
    3.4Canadian OperationsRevenue
    
    
    127.2
    
    
    
    112.9
    
    
    
    112.9Property, plant and equipment at December 31
    
    
    7.7
    
    
    
    7.1
    
    
    
    8.3Total Non-U.S. OperationsRevenue
    
    $
    206.5
    
    
    $
    191.5
    
    
    $
    184.1Property, plant and equipment at December 31
    
    
    11.2
    
    
    
    11.1
    
    
    
    11.7Total WorldwideRevenue
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    $
    1,167.0Property, plant and equipment at December 31
    
    
    148.0
    
    
    
    150.1
    
    
    
    160.3
 101




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(Dollars in millions, except
per share data) RestatedYears Ended December 31,Business Segments


    
    2003
    
    
    2002
    
    
    2001HRSRevenue
    
    $
    894.2
    
    
    $
    847.3
    
    
    $
    862.7EBIT before goodwill amortization
    
    $
    49.6
    
    
    $
    84.5
    
    
    $
    88.1Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    (26.2
    )EBIT
    
    $
    49.6
    
    
    $
    84.5
    
    
    $
    61.9Total assets before customer funds
    
    $
    1,381.7
    
    
    $
    1,348.4
    
    
    $
    1,243.3Customer funds
    
    
    3,132.1
    
    
    
    2,440.9
    
    
    
    2,170.9Total assets at December 31
    
    $
    4,513.8
    
    
    $
    3,789.3
    
    
    $
    3,405.2Goodwill
    
    $
    787.8
    
    
    $
    773.3
    
    
    $
    742.6Depreciation and amortization
    
    $
    66.1
    
    
    $
    60.7
    
    
    $
    82.1Expended for property, plant and equipment
    
    $
    25.1
    
    
    $
    25.2
    
    
    $
    34.1ComdataRevenue
    
    $
    319.7
    
    
    $
    313.0
    
    
    $
    304.3EBIT before goodwill amortization
    
    $
    104.5
    
    
    $
    91.6
    
    
    $
    37.7Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    (8.9
    )EBIT
    
    $
    104.5
    
    
    $
    91.6
    
    
    $
    28.8Total assets before customer funds
    
    $
    586.1
    
    
    $
    582.9
    
    
    $
    539.8Customer funds
    
    
    9.2
    
    
    
    5.7
    
    
    
    6.7Total assets at December 31
    
    $
    595.3
    
    
    $
    588.6
    
    
    $
    546.5Goodwill
    
    $
    117.0
    
    
    $
    117.0
    
    
    $
    117.0Depreciation and amortization
    
    $
    13.2
    
    
    $
    12.8
    
    
    $
    21.7Expended for property, plant and equipment
    
    $
    4.6
    
    
    $
    5.8
    
    
    $
    8.9OtherEBIT
    
    $
    
    
    
    $
    4.1
    
    
    $
    14.3Total assets at December 31
    
    $
    53.7
    
    
    $
    77.0
    
    
    $
    87.1Depreciation and amortization
    
    $
    0.9
    
    
    $
    0.9
    
    
    $
    1.0Expended for property, plant and equipment
    
    $
    0.8
    
    
    $
    0.1
    
    
    $
    0.2Total CeridianRevenue
    
    $
    1,213.9
    
    
    $
    1,160.3
    
    
    $
    1,167.0EBIT before goodwill amortization
    
    $
    154.1
    
    
    $
    180.2
    
    
    $
    140.1Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    (35.1
    )EBIT
    
    $
    154.1
    
    
    $
    180.2
    
    
    $
    105.0Interest income (expense), net
    
    
    (2.6
    )
    
    
    (4.2
    )
    
    
    (11.7
    )Earnings before income taxes
    
    $
    151.5
    
    
    $
    176.0
    
    
    $
    93.3Total assets before customer funds
    
    $
    2,021.5
    
    
    $
    2,008.3
    
    
    $
    1,861.2Customer funds
    
    
    3,141.3
    
    
    
    2,446.6
    
    
    
    2,177.6Total assets at December 31
    
    $
    5,162.8
    
    
    $
    4,454.9
    
    
    $
    4,038.8Goodwill
    
    $
    904.8
    
    
    $
    890.3
    
    
    $
    859.6Depreciation and amortization
    
    $
    80.2
    
    
    $
    74.4
    
    
    $
    104.8Expended for property, plant and equipment
    
    $
    30.5
    
    
    $
    31.1
    
    
    $
    43.2
 102




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(Dollars in millions, except
per share data) F. Capital Assets RestatedDecember 31,Capital Assets
    
    2003
    
    
    2002Property, Plant and EquipmentLand
    
    $
    10.4
    
    
    $
    12.4Machinery and equipment (accumulated depreciation of $201.7 and
$196.3)
    
    
    281.6
    
    
    
    276.0Buildings and improvements (accumulated depreciation of $39.0 and
$33.9)
    
    
    96.7
    
    
    
    91.9Total property, plant and equipment
    
    
    388.7
    
    
    
    380.3Accumulated depreciation
    
    
    (240.7
    )
    
    
    (230.2
    )Property, plant and equipment, net
    
    $
    148.0
    
    
    $
    150.1Goodwill, net of amortizationAt beginning of year
    
    $
    890.3
    
    
    $
    860.8Acquisitions in the current period (Note G)
    
    
    
    
    
    
    28.2Translation and other adjustments
    
    
    14.5
    
    
    
    1.3At end of year
    
    $
    904.8
    
    
    $
    890.3Tax-deductible goodwill at end of year
    
    $
    246.5
    
    
    $
    236.3Other Intangibles AssetsCustomer lists (accumulated amortization of $26.7 and $21.3)
    
    $
    49.4
    
    
    $
    45.5Trademarks (accumulated amortization of $20.7 and $16.1)
    
    
    74.7
    
    
    
    73.2Technology (accumulated amortization of $32.1 and $23.4)
    
    
    52.2
    
    
    
    51.8Non-compete agreements (accumulated amortization of $8.6 and $7.0)
    
    
    12.9
    
    
    
    11.8Total other intangible assets
    
    
    189.2
    
    
    
    182.3Accumulated amortization
    
    
    (88.1
    )
    
    
    (67.8
    )Other intangible assets, net
    
    $
    101.1
    
    
    $
    114.5Software and Development CostsPurchased software (accumulated amortization of $39.6 and $30.8)
    
    $
    75.8
    
    
    $
    64.5Software development costs (accumulated amortization of $36.5 and
$26.3)
    
    
    86.1
    
    
    
    73.0Total software and development costs
    
    
    161.9
    
    
    
    137.5Accumulated amortization
    
    
    (76.1
    )
    
    
    (57.1
    )Software and development costs, net
    
    $
    85.8
    
    
    $
    80.4
 RestatedYears Ended December 31,Depreciation and Amortization
    
    2003
    
    
    2002
    
    
    2001Depreciation and amortization of property,
plant and equipment
    
    $
    43.1
    
    
    $
    43.3
    
    
    $
    42.6Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    35.1Amortization of other intangible assets
    
    
    16.4
    
    
    
    15.7
    
    
    
    15.2Amortization of software and development costs
    
    
    20.7
    
    
    
    15.4
    
    
    
    11.9Total
    
    $
    80.2
    
    
    $
    74.4
    
    
    $
    104.8
 We estimate that amortization of other intangible assets held at December 31, 2003 will
be $16.2 for 2004, $15.8 for 2005, $13.1 for 2006, $10.9 for 2007 and $8.7 for 2008. 103




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(Dollars in millions, except
per share data) G. Investing Activity Investments At December 31, 2003 and 2002, we held the following publicly- or privately-held investments
that were accounted for under FAS 115 as available for sale for the publicly-held securities and
on a cost basis for the private holdings. At December 31,
2003 Investment
    
    % Owned
    
    
    Amount
    
    
    HoldingU.S.I. Holdings Corporation
    
    
    1.7
    %
    
    $
    10.2
    
    
    PublicUltimate Software Group, Inc.
    
    
    4.0
    %
    
    
    6.9
    
    
    PubliciSarla, Inc.
    
    
    19.9
    %
    
    
    1.9
    
    
    PrivateSASH Management, LLC
    
    
    19.9
    %
    
    
    0.6
    
    
    PrivateNotes receivable and other
    
    
    
    
    
    
    3.6
    
    
    PrivateTotal Investments
    
    
    
    
    
    $
    23.2
 At December 31,
2002 Investment
    
    % Owned
    
    
    Amount
    
    
    HoldingU.S.I. Holdings Corporation
    
    
    2.3
    %
    
    $
    10.8
    
    
    PublicUltimate Software Group, Inc.
    
    
    4.9
    %
    
    
    2.9
    
    
    PubliciSarla, Inc.
    
    
    19.9
    %
    
    
    1.9
    
    
    PrivateSASH Management, LLC
    
    
    19.9
    %
    
    
    0.6
    
    
    PrivateNotes receivable and other
    
    
    
    
    
    
    1.3
    
    
    PrivateTotal Investments
    
    
    
    
    
    $
    17.5
 During March 2003, we paid to 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). In addition, we held 919,227 common shares of
USIH at December 31, 2002 and 782,069 common shares at December 31, 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. At December 31,
2003, the net unrealized gain related to these securities amounted to $3.9, after reduction for
deferred income taxes of $2.4, 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. The unrealized gain for these securities during 2003 amounted to $8.1 ($4.9 net
of tax) and $1.0 ($0.7 net of tax) during 2002. During 2001 the unrealized loss for these
securities was $2.9 ($1.9 net of tax). The realized gain for these securities during 2003 amounted
to $3.4 ($2.0 net of tax). For 2002 the realized loss for these securities
was $1.0 ($0.6 net of tax). The realized gain of $15.6 ($10.1 net of tax) in 2001 was related
to our sale of the common stock of HotJobs.com, Ltd. 104




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(Dollars in millions, except
per share data) In March 2002, we acquired all of the outstanding stock of SYLINQ Corporation, a national
employee benefits administration outsourcer specializing in automated enrollment and eligibility
management (SYLINQ), for $15.6. As a result of the acquisition, we recorded net liabilities of
$2.4, $11.6 of goodwill and $6.4 of other intangible assets. During the first quarter of 2003, we
finalized the amount of purchase cost allocated to intangible assets, which increased intangible
assets and decreased goodwill by $0.8. In May 2002, we paid $8.9 for certain assets and assumed liabilities of HR Comply, a provider
of online human resource and payroll employment compliance services that is associated with our
LifeWorks business. The acquisition of HR Comply brought $1.0 of net liabilities, $7.9 of goodwill
and $2.0 of other intangibles to the balance sheet. In December 2002, we acquired selected assets of GLS Benefit Services LLC, a benefits
administration outsourcing firm (Great Lakes Strategies), for $19.0. Under the purchase
agreement, we paid $15.7 to the sellers and placed $3.3 in escrow. Of the total escrow amount,
$0.5 would apply to the representations and warranties provisions of the purchase agreement. The
$2.8 escrow deposit represented an estimate of an additional amount that could be paid to the
sellers in February 2004 under a revenue sharing arrangement that applied when revenue earned from
the acquired business during 2003 rose above a stated amount. We recorded the escrowed funds as
other noncurrent assets. The remaining $15.7 of recorded net assets included $8.8 of goodwill and
$4.0 of other intangible assets, subject to further evaluation of the intangibles acquired. During July 2003, we settled in advance the revenue sharing arrangement associated with the
acquisition of 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 to the sellers the $0.5 of
escrowed funds related to representations and warranties. 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. Also during 2003, we finalized the amount of purchase cost allocated to the
acquired intangible assets, which increased intangible assets and decreased goodwill by $2.2. During 2002, we also paid $6.8 to acquire certain call center assets and cost-based
investments. In 2001, we made minority investments in strategic alliance partners to expand our HRS product
offerings. The aggregate amount included in cost-based investments for these purchases was $20.2.
Of this amount, we paid $15.0 for preferred stock of USIH in connection with a marketing
arrangement. In October 2002, USIH made an initial public offering of its common stock, which
required the conversion of our preferred stock into common stock. The offering price of the common
stock was below our cost basis for the investment and, as a result, we recorded an asset write-down
of $5.8 in the fourth quarter of 2002. Proceeds from the sales of businesses and assets of $18.7 in 2001 principally represented our
sale of common stock of HotJobs.com, Ltd., which provided proceeds of $15.6. 105




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(Dollars in millions, except
per share data) Equipment Under Capital Lease 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 $6.5, net of a deferred gain, 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. H. Retirement Plans Pension Benefits We provide retirement income benefits to our employees through a combination of defined
benefit and defined contribution plans. Our principal pension plan is a contributory (salary
reduction) defined benefit plan for U.S. employees that closed to any new participants on January
2, 1995. Assets of this plan are held in an irrevocable trust, do not include any Ceridian
securities and consist principally of equity securities, U.S. government securities, and other
fixed income obligations. Benefits under this plan are generally calculated on final or career
average earnings and years of participation in the plan. Most participating employees are required
to contribute to the plan as a condition of active participation. Former employees are inactive
participants in this plan and constitute approximately 94% of the plan participants. This plan is
funded in accordance with funding requirements under the Employee Retirement Income Security Act of
1974, based on determinations of an independent consulting actuary. We also sponsor a nonqualified supplemental defined benefit plan for selected U.S. employees
and a pension benefit plan for our employees in the United Kingdom (the UK Plan). The UK plan
contains both defined benefit and defined contribution elements. Effective in October 2003, the UK
Plan was amended to freeze the defined benefit element and enhance the defined contribution element
of the plan. For U.S. reporting, this resulted in both a $1.8 reduction of the projected benefit
obligation and an equal reduction in the net unrecognized loss of the plan. The net loss will be
amortized over the average expected remaining service life of ex-defined benefit participants of 10
years. The accompanying tables reflect the combined funded status and net periodic pension cost
(credit) and blended supporting assumptions for the defined benefit elements of all three plans. 106




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(Dollars in millions, except
per share data) We account for our defined benefit pension plans using actuarial models required by present
accounting rules under FAS 87, Employers Accounting for Pensions. This model uses an
attribution approach that generally spreads the effect of individual events over the service lives
of the employees in the plan. These events include plan amendments and changes in actuarial
assumptions such as the expected long-term rate of return on plan assets, discount rate related to
the benefit obligation, rate of active participants compensation increases and mortality rates.
The principle underlying the required attribution approach is that employees render service over
their service lives on a relatively smooth basis and, therefore, the income statement effects of
pensions are earned in, and should follow, the same pattern. One of the principal components of the net periodic pension calculation is the expected
long-term rate of return on plan assets. The required use of expected long-term rate of return on
plan assets may result in recognized pension income that is greater or less than the actual returns
of those plan assets in any given year. Over time, however, the expected long-term returns are
designed to approximate the actual long-term returns and, therefore, result in a pattern of income
and expense recognition that more closely matches the pattern of the services provided by the
employees. Differences between actual and expected returns are recognized in the net periodic
pension calculation over five years. We use long-term historical actual return information, the
mix of investments that comprise plan assets, and future estimates of long-term investment returns
by reference to external sources to develop our expected return on plan assets. In the table below we present the allocation of the principal pension plan assets, which is by
far the largest of our defined benefit plans, as of the measurement date. September 30,2003

    
    2002

    
    Target %Domestic Equity
    
    $
    222.2
    
    
    
    53.2
    %
    
    $
    180.8
    
    
    
    48.0
    %
    
    
    50% +/-5
    %Domestic Fixed Income
    
    
    130.1
    
    
    
    31.2
    %
    
    
    146.1
    
    
    
    38.8
    %
    
    
    35% +/-3
    %International Equity
    
    
    65.3
    
    
    
    15.6
    %
    
    
    49.8
    
    
    
    13.2
    %
    
    
    15% +/-3
    %Total Invested Assets
    
    
    417.6
    
    
    
    100.0
    %
    
    
    376.7
    
    
    
    100.0
    %
    
    
    100
    %Cash and Other Assets
    
    
    17.1
    
    
    
    
    
    
    
    6.4Total Assets
    
    $
    434.7
    
    
    
    
    
    
    $
    383.1
 The investment policy for our principal pension plan specifies the objective is to earn the
highest possible total returns consistent with the preservation of capital and anticipated
liquidity requirements while minimizing the volatility of returns. Target asset allocation ranges
specified in the policy are designed to achieve policy objectives and are based upon actuarial and
capital market studies performed by experienced outside consultants. On a regular basis we
rebalance assets to maintain asset allocations within policy ranges. Within asset categories we
use a range of passive and active investment management styles to achieve our principal pension
plans investment objectives and hire outside managers to manage all assets. The principal pension
plan currently has no allocation to real estate, derivative
instruments or other alternative
investment strategies; however a small amount of real estate and venture capital investments from
prior investments is shown in Cash and Other Assets. Certain asset managers may use futures
contracts within limitations to achieve objectives under their assigned
investment mandate. Investment of the principal pension plan assets in securities of Ceridian
Corporation is prohibited by the investment policy. 107




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(Dollars in millions, except
per share data) In November 2003, upon completion of a trading cost optimization study conducted by a plan
consultant, the target ranges were changed to the following: Domestic Equity
    
    
    50% +/- 8
    %Domestic Fixed Income
    
    
    35% +/-5
    %International Equity
    
    
    15% +/-4
    %
 During December of 2003, we undertook rebalancing of plan assets to bring allocations within
the new target ranges. The discount rate assumptions used for pension plan accounting reflect the rates available on
high-quality fixed-income debt instruments on December 31 of each year. That rate is used to
determine the benefit obligation at that date and the interest portion of the net periodic pension
cost or credit for the following year. We determine the assumed rate of compensation increase
based upon our long-term plans for such increases. Due to the combined adverse effects of falling stock market values on the valuation of plan
assets and of falling interest rates on the benefit obligation, the accumulated benefit obligation
of our principal pension plan exceeded the fair value of plan assets by $104.6 at December 31, 2003
and $189.4 at December 31, 2002. Under pension accounting rules, this condition required that we
reclassify the prepaid pension cost related to this plan to recognize this unfunded liability and
record the remainder (net of deferred income taxes and a small intangible asset amount) as a loss
in accumulated other comprehensive income, which reduces stockholders equity. During 2003, we
made employer contributions to the principal plan amounting to $103.7 including $75.0 in the fourth
quarter of 2003. We do not presently plan to make additional contributions to the principal
pension plan in 2004. Subsequent developments in investment performance, interest rates or
regulatory actions may require reconsideration of this position. The amount included in other comprehensive income arising from the change in the additional
minimum pension liability for each of the past three years is presented in the accompanying
Statements of Stockholders Equity. In our 2004 financial statements, we will be required to also
provide the benefits expected to be paid by our defined benefit plans in each of the following 5
years and in the aggregate for the five years thereafter. At December 31, 2003 and 2002, our prepaid pension cost asset included $11.8 and $11.3 held in
benefit protection trusts for certain nonqualified plan participants and an intangible pension
asset of $0.3 and $0.4. We recognized expense of $12.7 in 2003, $13.4 in 2002 and $9.7 in 2001 with respect to
employer contributions to our defined contribution retirement plans. 108




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(Dollars in millions, except
per share data) Funded Status of Defined Benefit
    
    September 30,Retirement Plans at Measurement Date
    
    2003
    
    
    2002Accumulated Benefit Obligation
    
    $
    677.9
    
    
    $
    628.8Change in Projected Benefit Obligation During the PeriodAt beginning of period
    
    $
    639.4
    
    
    $
    588.8Service cost
    
    
    3.8
    
    
    
    3.0Interest cost
    
    
    42.9
    
    
    
    43.9Employee contributions
    
    
    0.1
    
    
    
    0.2Curtailment of the UK plan
    
    
    (1.8
    )
    
    
    Amendments and currency translation
    
    
    2.1
    
    
    
    2.2Actuarial (gain) loss
    
    
    60.4
    
    
    
    48.1Benefits paid
    
    
    (49.5
    )
    
    
    (46.8
    )At end of period
    
    $
    697.4
    
    
    $
    639.4Change in Fair Value of Plan Assets During the PeriodAt beginning of period
    
    $
    400.2
    
    
    $
    485.5Actual return on plan assets
    
    
    73.4
    
    
    
    (44.1
    )Currency translation
    
    
    1.1
    
    
    
    1.6Employee contributions
    
    
    0.1
    
    
    
    0.2Employer contributions
    
    
    32.5
    
    
    
    3.8Benefits paid
    
    
    (49.5
    )
    
    
    (46.8
    )At end of period
    
    $
    457.8
    
    
    $
    400.2Funded status of plan
    
    $
    (239.6
    )
    
    $
    (239.2
    )Accrued contribution
    
    
    75.0
    
    
    
    0.1Unrecognized net loss
    
    
    380.7
    
    
    
    358.2Total
    
    $
    216.1
    
    
    $
    119.1Balance Sheet PresentationPrepaid and intangible pension asset
    
    $
    0.3
    
    
    $
    0.4Accrued benefit liability
    
    
    (144.7
    )
    
    
    (228.3
    )Accumulated other comprehensive income, net of tax
    
    
    235.1
    
    
    
    226.2Deferred income tax
    
    
    125.4
    
    
    
    120.8Total
    
    $
    216.1
    
    
    $
    119.1
 Years Ended December 31,Assumptions Used in Calculations
    
    2003
    
    
    2002
    
    
    2001Discount rate used to determine net benefit cost (credit)
    
    
    6.70
    %
    
    
    7.42
    %
    
    
    7.43
    %Rate of compensation increase
    
    
    3.78
    %
    
    
    4.01
    %
    
    
    4.01
    %Expected return on plan assets
    
    
    8.70
    %
    
    
    9.43
    %
    
    
    9.44
    %Discount rate used to determine benefit obligations
    
    
    5.99
    %
    
    
    6.70
    %
    
    
    7.42
    %
 Years Ended December 31,Net Periodic Pension Cost (Credit)
    
    2003
    
    
    2002
    
    
    2001Service cost
    
    $
    3.8
    
    
    $
    3.0
    
    
    $
    2.8Interest cost
    
    
    42.9
    
    
    
    43.9
    
    
    
    44.3Expected return on plan assets
    
    
    (45.7
    )
    
    
    (54.9
    )
    
    
    (57.4
    )Net amortization and deferral
    
    
    9.0
    
    
    
    6.1
    
    
    
    4.6Total
    
    $
    10.0
    
    
    $
    (1.9
    )
    
    $
    (5.7
    )
 109




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(Dollars in millions, except
per share data) Postretirement Benefits We provide health care and life insurance benefits for eligible retired employees, including
individuals who retired from operations we subsequently sold or discontinued. We sponsor several
health care plans in the U.S. for both pre- and post-age 65 retirees. Our contributions to these
plans differ for various groups of retirees and future retirees. Most retirees outside the U.S.
are covered by governmental health care programs, and our cost is not significant. As reported in
the section of Note A entitled Recently Issued Accounting Pronouncements, we have elected to
defer recognizing the effect of the recently-passed Medicare Act on our postretirement benefit
obligation and expense and providing the information related to these plans called for in FAS 132. The accompanying tables present the amounts and changes in the aggregate benefit obligation at
the beginning and end of and for each of the last two measurement periods and the components of net
periodic postretirement benefit cost for the plans for the last three years. We do not prefund
these costs. Funded Status of Postretirement
    
    September 30,Health Care and Life Insurance Plans
    
    2003
    
    
    2002Change in Benefit ObligationAt beginning of period
    
    $
    54.2
    
    
    $
    42.4Service cost
    
    
    0.1
    
    
    
    0.1Interest cost
    
    
    3.5
    
    
    
    3.0Participant contributions
    
    
    0.8
    
    
    
    1.2Actuarial loss (gain)
    
    
    6.5
    
    
    
    11.9Benefits paid
    
    
    (3.8
    )
    
    
    (4.4
    )At end of period
    
    $
    61.3
    
    
    $
    54.2Change in Plan AssetsAt beginning of period
    
    $
    
    
    
    $
    Company contributions
    
    
    3.0
    
    
    
    3.2Participant contributions
    
    
    0.8
    
    
    
    1.2Benefits paid
    
    
    (3.8
    )
    
    
    (4.4
    )At end of period
    
    $
    
    
    
    $
    Funded Status of PlanBenefit obligation, net
    
    $
    61.3
    
    
    $
    54.2Unrecognized actuarial gain (loss)
    
    
    (12.5
    )
    
    
    (6.1
    )At end of period
    
    $
    48.8
    
    
    $
    48.1Current portion
    
    $
    6.0
    
    
    $
    6.0Noncurrent portion
    
    
    42.8
    
    
    
    42.1Total
    
    $
    48.8
    
    
    $
    48.1
 Years Ended December 31,Net Periodic Postretirement Benefit Cost
    
    2003
    
    
    2002
    
    
    2001Service cost
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    0.1Interest cost
    
    
    3.5
    
    
    
    3.0
    
    
    
    2.7Actuarial loss (gain) amortization
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    (0.9
    )Net periodic benefit cost
    
    $
    3.7
    
    
    $
    3.0
    
    
    $
    1.9
 110




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(Dollars in millions, except
per share data) The assumed health care cost trend rate used in measuring the benefit obligation is 11%
in 2003 with rates declining at a rate of 1% per year to an ultimate rate of 5% in 2010. A one
percent increase in this rate would increase the benefit obligation at September 30, 2003 by $3.8
and the aggregate service and interest cost for the 2003 measurement period by $0.2. A one percent
decrease in this rate would decrease the benefit obligation at September 30, 2003 by $3.6 and the
aggregate service and interest cost for the 2003 measurement period by $0.2. The weighted average
discount rates used in determining the net periodic postretirement benefit cost were 6.75% for
2003, 7.50% for 2002 and 7.75% for 2001. The weighted average discount rates used in determining
the benefit obligation at the measurement dates were 6.00% for 2003 and 6.75% for 2002. We expect
to make payments of $3.0 on behalf of participants in our postretirement plans in 2004. I. Stock Plans During the three-year period ended December 31, 2003, we maintained stock-based compensation
plans for directors, officers, other employees, consultants and independent contractors. Our Amended and Restated 2001 Director Performance Incentive Plan authorizes the issuance of
up to 350,000 shares in connection with awards of stock options, non-performance restricted stock
and deferred stock to non-employee directors. An annual grant of a non-qualified stock option to
purchase 4,000 shares is made to each eligible director with such grants becoming fully exercisable
six months after the date of grant. The exercise price of the options is the fair market value of
the underlying stock at the date of grant, and the options expire in ten years. A one-time award of non-performance restricted shares is made to each non-employee director
when the director first joins the Board with restrictions on transfer that will ordinarily lapse
annually over a five-year period. The number of shares awarded will have a fair market value equal
to two and one-half times the then current annual retainer paid to non-employee directors. Additionally, at least one-half of the annual Board retainer for each non-employee director is
also provided in the form of restricted stock, deferred stock or a combination of the two. The
restrictions on transfer of the retainer awards will lapse at the conclusion of the directors
service. Our 2002 Employee Stock Incentive Plan (2002 ESIP) authorizes the issuance until January 29,
2012 of up to 4,000,000 common shares in connection with awards of stock options, restricted stock
awards and performance unit awards. Eligible participants in the 2002 ESIP include employees who
are not executive officers or directors. Our Amended and Restated 2001 Long-Term Stock Incentive Plan (2001 LTSIP) authorizes the
issuance until November 27, 2010 of up to 27,000,000 common shares in connection with similar
awards. Eligible participants in the 2001 LTSIP include our employees and non-employee directors,
consultants and independent contractors. At the time of the spin-off, holders of 18,127,045 Ceridian stock options and 59,870 unvested
restricted stock awards had their awards adjusted in number, kind and exercise price to preserve
the intrinsic value of their holdings based upon their employment status, as indicated in the Stock
Plans table. Other terms of the options were not changed. 111




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(Dollars in millions, except
per share data) Stock options awarded under the 2002 ESIP and 2001 LTSIP generally vest annually either over a
three-year period or on a specific date if certain performance criteria were satisfied, have either
a 5-year or 10-year term and have an exercise price that may not be less than the fair market value
of the underlying stock at the date of grant. The Compensation and Human Resources Committee of our Board has the discretion to determine
the effect that a change of control of Ceridian will have upon awards made under these plans. In
most cases, the vesting of stock options and restricted stock awards granted under these plans will
accelerate upon a change of control of Ceridian. We have reserved 725,495 common shares for issuance under Save-As-You-Earn stock-based
compensation plans for our employees in the United Kingdom (the SAYE Plans). At December 31,
2003, there were 145,574 options outstanding under the SAYE Plans. Our Employee Stock Purchase Plan (ESPP) provides for the issuance of up to 1,000,000 shares
of newly issued or treasury common stock of Ceridian to eligible employees. The purchase price of
the stock to ESPP participants is 85% of the lesser of the fair market value on either the first
day or the last day of the applicable three-month offering period. In connection with the
spin-off, we suspended activity in the ESPP from December 16, 2000 until June 16, 2001. For holders of Ceridian common stock at November 9, 2001, we distributed one right for each
outstanding share entitling the holder to purchase from us one ten-thousandth of a share of an
unissued class of preferred stock for $75 dollars. In the event of a certain effort to acquire
Ceridian, the holder would have the right to exercise the right for cash, property or securities of
the issuer with a value of twice the exercise price. At December 31, 2003, no such event had
occurred. As reported in Note A, we adopted the disclosure-only provisions of FAS 123 and FAS 148
continue to account for stock-based compensation. Therefore, since all option exercise prices are
at or above fair market value on the date of grant and the ESPP is a non-compensatory plan, no
expense is recorded with respect to our stock option or employee stock purchase plans. We
recognized compensation expense of $1.2 in 2003, $0.4 in 2002 and $1.2 in 2001 related to
restricted stock awards. We provide the following disclosure, including referenced tables, with respect to the
provisions of FAS 123. We employ the Black-Scholes option pricing model for determining the fair
value of stock option grants and ESPP purchases as presented in an accompanying table. Weighted
average exercise prices for stock option activity and options outstanding at December 31, 2003,
2002 and 2001 are included in the Stock Plans table. 112




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(Dollars in millions, except
per share data) Stock Plans Weighted-AverageOption Price
    
    
    
    
    
    
    
    
    
    
    Available for
    
    
    ExercisePer Share
    
    Outstanding
    
    Exercisable
    
    Grant
    
    PriceAt December 31, 2000
    
    $
    3.76 - $42.64
    
    
    
    13,638,554
    
    
    
    8,168,277
    
    
    
    11,194,634
    
    
    $
    22.18Granted
    
    
    18.46 - 22.50
    
    
    
    4,814,250
    
    
    
    
    
    
    
    (4,814,250
    )
    
    
    18.52Became exercisable
    
    
    16.00 - 38.97
    
    
    
    
    
    
    
    896,345
    
    
    
    
    
    
    
    Exercised
    
    
    3.76 - 21.19
    
    
    
    (51,571
    )
    
    
    (51,571
    )
    
    
    
    
    
    
    17.51Canceled
    
    
    16.00 - 35.63
    
    
    
    (274,188
    )
    
    
    (83,008
    )
    
    
    163,210
    
    
    
    23.05ESPP purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,313
    )
    
    
    Restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,444
    )
    
    
    At March 30, 2001
    
    $
    3.76 - $42.64
    
    
    
    18,127,045
    
    
    
    8,930,043
    
    
    
    6,529,837
    
    
    $
    21.20Authorized under new plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,350,000
    
    
    
    Adjust 2001 option grants
    
    
    
    
    
    
    1,612,002
    
    
    
    
    
    
    
    (1,612,002
    )
    
    
    Adjust prior option grants
    
    
    
    
    
    
    19,925,736
    
    
    
    9,608,778
    
    
    
    (19,925,736
    )
    
    
    Adjust restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,583
    )
    
    
    At March 31, 2001, adjusted
    
    $
    2.79 - $31.66
    
    
    
    21,537,738
    
    
    
    9,608,778
    
    
    
    6,742,679
    
    
    $
    15.81Granted
    
    
    13.71 - 20.42
    
    
    
    530,541
    
    
    
    
    
    
    
    (530,541
    )
    
    
    17.55Became exercisable
    
    
    14.25 - 27.29
    
    
    
    
    
    
    
    2,338,476
    
    
    
    Exercised
    
    
    2.79 - 18.61
    
    
    
    (411,376
    )
    
    
    (411,376
    )
    
    
    
    
    
    
    12.94Canceled
    
    
    2.87 - 27.29
    
    
    
    (1,263,536
    )
    
    
    (361,801
    )
    
    
    1,263,536
    
    
    
    16.40Expired
    
    
    2.87
    
    
    
    (714
    )
    
    
    (714
    )
    
    
    714
    
    
    
    2.87ESPP purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (167,925
    )Restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,180
    )At December 31, 2001
    
    $
    3.71 - $31.66
    
    
    
    20,392,653
    
    
    
    11,173,363
    
    
    
    7,260,283
    
    
    $
    15.88Authorized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000,000Granted
    
    
    13.97 - 22.25
    
    
    
    4,978,925
    
    
    
    
    
    
    
    (4,978,925
    )
    
    
    18.11Became exercisable
    
    
    11.88 - 28.94
    
    
    
    
    
    
    
    4,419,513
    
    
    
    Exercised
    
    
    3.71 - 21.16
    
    
    
    (2,122,138
    )
    
    
    (2,122,138
    )
    
    
    
    
    
    
    14.34Canceled
    
    
    8.96 - 26.68
    
    
    
    (2,141,341
    )
    
    
    (734,811
    )
    
    
    2,141,341
    
    
    
    16.73ESPP purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (297,830
    )Restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,665
    )At December 31, 2002
    
    $
    4.80 - $31.66
    
    
    
    21,108,099
    
    
    
    12,735,927
    
    
    
    8,099,204
    
    
    $
    16.43Granted
    
    
    13.65  21.50
    
    
    
    3,906,790
    
    
    
    
    
    
    
    (3,906,790
    )
    
    
    15.03Became exercisable
    
    
    11.88  22.22
    
    
    
    
    
    
    
    3,545,499
    
    
    
    Exercised
    
    
    4.80  20.70
    
    
    
    (2,725,025
    )
    
    
    (2,725,025
    )
    
    
    
    
    
    
    13.57Canceled
    
    
    5.37  24.57
    
    
    
    (894,185
    )
    
    
    (300,901
    )
    
    
    894,185
    
    
    
    16.59Expired
    
    
    5.37  18.66
    
    
    
    (74,161
    )
    
    
    (74,161
    )
    
    
    74,161
    
    
    
    18.66ESPP purchases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (308,879
    )Restricted stock, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (213,007
    )At December 31, 2003
    
    $
    4.80 - $31.66
    
    
    
    21,321,518
    
    
    
    13,181,339
    
    
    
    4,638,874
    
    
    $
    16.57
 Common shares reserved for future issuance under all plans at December 31, 2003 were 26,517,385. 113




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(Dollars in millions, except
per share data) Further information on outstanding and exercisable stock options by exercise price range
as of the end of the current year is disclosed in an accompanying table. We are required to report
the pro forma
effect on net earnings and earnings per share that would have resulted if the fair value
method of accounting for stock-based compensation issued in those years had been adopted. This
compensation cost is allocated to the related periods of service. The results of this calculation
and the assumptions used appear in the accompanying pro forma table. Stock Option
Information as of December 31, 2003 Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices

    Outstanding


    Life


    Price


    Exercisable


    Price$4.80-$13.71
    
    
    3,699,245
    
    
    
    2.05
    
    
    $
    13.41
    
    
    
    2,184,937
    
    
    $
    13.21$13.74-$14.80
    
    
    5,565,927
    
    
    
    4.63
    
    
    $
    14.59
    
    
    
    2,291,109
    
    
    $
    14.67$14.81-$15.78
    
    
    2,225,578
    
    
    
    3.33
    
    
    $
    15.36
    
    
    
    2,136,121
    
    
    $
    15.36$15.82-$17.54
    
    
    1,008,108
    
    
    
    4.10
    
    
    $
    16.61
    
    
    
    837,199
    
    
    $
    16.53$17.63-$18.11
    
    
    3,693,977
    
    
    
    3.16
    
    
    $
    18.08
    
    
    
    1,350,099
    
    
    $
    18.06$18.19-$20.29
    
    
    1,808,878
    
    
    
    4.07
    
    
    $
    18.92
    
    
    
    1,327,206
    
    
    $
    18.90$20.35-$20.35
    
    
    2,150,552
    
    
    
    4.81
    
    
    $
    20.35
    
    
    
    2,150,552
    
    
    $
    20.35$20.42-$31.66
    
    
    1,169,253
    
    
    
    4.58
    
    
    $
    22.82
    
    
    
    904,116
    
    
    $
    23.1021,321,518
    
    
    
    
    
    
    
    
    
    
    
    13,181,339
 RestatedYears Ended December 31,2003
    
    
    2002
    
    
    2001Pro Forma Effect of Fair Value AccountingNet earnings as reported
    
    $
    98.7
    
    
    $
    113.2
    
    
    $
    60.5Deduct: Total stock-based employee compensation expense
determined under the fair value method for all awards,
net of related tax effects
    
    
    (14.6
    )
    
    
    (15.5
    )
    
    
    (18.8
    )Pro forma net earnings
    
    $
    84.1
    
    
    $
    97.7
    
    
    $
    41.7Basic earnings per share as reported
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41Pro forma basic earnings per share
    
    $
    0.57
    
    
    $
    0.66
    
    
    $
    0.29Diluted earnings per share as reported
    
    $
    0.66
    
    
    $
    0.76
    
    
    $
    0.41Pro forma diluted earnings per share
    
    $
    0.56
    
    
    $
    0.65
    
    
    $
    0.28Weighted-Average AssumptionsExpected lives in years
    
    
    3.93
    
    
    
    3.82
    
    
    
    4.57Expected volatility
    
    
    43.3
    %
    
    
    37.5
    %
    
    
    38.7
    %Expected dividend rate
    
    
    
    
    
    
    
    
    
    
    Risk-free interest rate
    
    
    2.3
    %
    
    
    4.5
    %
    
    
    4.0
    %
 Weighted Average Fair
Values of Grants, Awards and Purchases 2003
    
    
    2002
    
    
    2001Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair Value
    
    
    Shares
    
    
    Fair ValueStock options
    
    
    3,906,790
    
    
    $
    5.41
    
    
    
    4,978,925
    
    
    $
    6.26
    
    
    
    6,956,793
    
    
    $
    5.39ESPP
    
    
    308,879
    
    
    $
    3.48
    
    
    
    297,830
    
    
    $
    2.14
    
    
    
    167,925
    
    
    $
    4.10
 114




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(Dollars in millions, except
per share data) J. Financing Debt Instruments and Capital Lease Obligations We describe in Note G under the heading Equipment Under Capital Lease, two leasing
arrangements that became effective during the second quarter of 2003 that are accounted for as
capital leases. December 31,Debt Obligations
    
    2003
    
    
    2002U.S. revolving credit facility
    
    $
    
    
    
    $
    40.0Comdata receivable securitization
    
    
    140.0
    
    
    
    150.0Ceridian Centrefile overdraft facility
    
    
    2.7
    
    
    
    2.0Total revolving credit agreements and overdrafts
    
    
    142.7
    
    
    
    192.0Capital lease obligations
    
    
    20.8
    
    
    
    1.5Total debt obligations
    
    
    163.5
    
    
    
    193.5Less short-term debt and current portions of long-term debt
    
    
    6.5
    
    
    
    2.0Long-term obligations, less current portions
    
    $
    157.0
    
    
    $
    191.5
 Revolving Credit Facility Under an agreement with a syndicate of commercial banks dated January 31, 2001, we entered
into a $350.0 domestic revolving credit facility, of which $50.0 may be used for letters of credit,
that expires in March 2006. This January 2001 credit facility also permits us to request that the
bank syndicate use its best efforts to provide additional commitments so long as the total
commitment does not exceed $500.0. The January 2001 credit facility is unsecured and its pricing
for both loans and letters of credit is based on our senior unsecured debt ratings and LIBOR.
Under the terms of the January 2001 credit facility, our consolidated debt must not exceed our
stockholders equity, 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. This facility also contains covenants that, among other things, limit
liens, subsidiary debt, contingent obligations, operating leases, minority equity investments and
divestitures. We have remained in compliance with all of these covenants. The January 2001
credit facility replaced a $250.0 domestic revolving credit facility with similar terms that was
arranged with a commercial bank syndicate in July 1997. Under the January 2001 credit facility, in addition to the spin-off financing, we borrowed
$50.0 in June 2001 in connection with the settlement of litigation and repaid a total of $50.0
during 2001. At December 31, 2001, advances of $235.0 and a letter of credit in the amount of $2.0
were outstanding under the January 2001 credit facility. We used the $150.0 proceeds from the
receivables securitization facility and additional payments of $45.0 during 2002 to reduce the
advances outstanding under the
January 2001 credit facility to $40.0 at December 31, 2002. During 2003, we paid off the
$40.0 of advances outstanding since December 31, 2002 while $2.3 of letters of credit remain
outstanding. At December 31, 2003, we have unused borrowing capacity under the domestic revolving
credit facility of $347.7, of which we have designated $140.0 as backup to the Comdata receivables
securitization facility. 115




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##### Table of Contents



(Dollars in millions, except
per share data) Receivables Securitization Facility 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 our $350.0 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, 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. We have 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 up to four times a month
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 1.51% at December 31, 2003), 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. During September 2003, we made a payment of $10.0 on this facility. The amount outstanding
under this facility was $140.0 at December 31, 2003, and $150.0 at December 31, 2002. The
aggregate amount of receivables serving as collateral amounted to $187.0 at December 31, 2003 and
$173.3 at December 31, 2002. The invested amount outstanding is accounted for as long-term debt
and the receivables remain on our consolidated balance sheet, even though the Receivables are not
available to satisfy claims of creditors of any of the companies other than CFC. Senior Notes Senior notes with a face amount of $450.0 were sold in a Rule 144A offering in June 1999. The
senior notes had a five-year term with a coupon interest rate of 7.25% per annum payable
semiannually beginning December 1, 1999. The senior notes were sold at an original issue discount
of $4.4 that, along with $0.8 of issue costs, was amortized to interest expense based on the term
of the notes. We applied the net proceeds from the sale of the senior notes, along with cash
balances and an advance of $210.0 on the July 1997 credit facility, to fund the acquisition of ABR
Information Services, Inc. in June 116




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(Dollars in millions, except
per share data) 1999. During first quarter 2000, we repurchased on the open
market senior notes with a face amount of $20.0. In March 2001, at the time of the spin-off, advances of $235.0 from the January 2001 credit
facility, the $225.0 Arbitron payment and existing cash balances funded the required early
retirement of the $430.0 of senior notes outstanding and payment of the $50.0 balance outstanding
under the $250.0 domestic revolving credit facility dated July 1997 at the time of the spin-off.
The redemption of senior notes required a payment of $456.5. The establishment of the January 2001
credit facility also resulted in the payment of $1.0 for origination costs that are being amortized
over its term. Further information on the spin-off appears under the heading Discontinued
Operations in Note D. Other Financing During 2001, payments of $18.8 and translation adjustments of $0.3 extinguished the balance of
$19.1 outstanding at December 31, 2000 on revolving credit agreements of Ceridian Canada, leaving
only a letter of credit valued at $0.8 at December 31, 2003 and 2002 outstanding under those
agreements. Other indebtedness at December 31, 2003 and 2002 of $2.7 and $3.5 included an
overdraft facility for Ceridian Centrefile and acquisition indebtedness. Equity Instruments During 2003, we repurchased 1,844,100 shares of our common stock for $28.8 on the open market
at an average net price of $15.60 per share. We also repurchased 393,000 shares of our common
stock during 2002 for $5.4 on the open market at an average net price of $13.74. As of December
31, 2003, we may repurchase up to 10,362,900 additional shares of our common stock under an
existing authorization from our Board. We generally use our treasury stock to address our
obligations under our stock compensation and employee stock purchase plans. K. Commitments and Contingencies Derivative Instruments Interest Rate Contracts In accordance with our risk management policy, we attempt to mitigate a substantial portion of
our interest rate exposure related to our investment of customer funds, as further described in
Note M, viewed within the context of our expectation of the future economic environment. Due to
liquidity requirements for these obligations, we hold a large percentage of customer funds in
overnight-maturing investments that are subject to interest rate variability. We manage this
variability in part by investing a portion of these funds in longer-term instruments and by
offsetting the variable rate income with floating
rates on our debt obligations. We also utilize derivative instruments such as interest rate
contracts to manage interest rate risk. During the three-year period ended December 31, 2003, we maintained interest rate contracts
for the purpose of mitigating interest rate risk on customer funds. The counterparties to these
arrangements are commercial banks with debt ratings of A or better. These arrangements, which do
not require collateral, require the banks to pay us the amount by which a one-month LIBOR index of
short-term interest rates falls below a specified floor strike level. Alternatively, when this
index exceeds a specified cap strike 117




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(Dollars in millions, except
per share data) level, we pay out to the banks the excess above the cap strike
level. We believe that the risk of accounting loss through non-performance by the counterparties
under any of these arrangements is negligible. At December 31, 2003 and 2002, we had interest rate contracts in effect with an aggregate
notional amount of $800.0. The active contracts at the end of 2003 had remaining terms of 2 to 41
months, floor strike levels ranging from 4.50% to 6.07% (averaging 5.22%) and cap strike levels
ranging from 4.54% to 7.32% (averaging 6.04%). The
unrealized gains and losses from our derivative instruments were
previously reported under hedge accounting treatment in accumulated other comprehensive income
within stockholders equity of our consolidated balance sheets in the Original Filing but were transferred to (gain) loss
on derivative instruments as part of the Restatement. The unrealized
gains and losses resulted largely
from changes in forward interest rates. Based upon future expected interest rates as determined
from LIBOR future prices in effect at the close of business on December 31, 2003, we expect to
collect an additional $28.8 during 2004. Fuel Price Contracts The revenue and net income of Comdatas transportation services business is exposed to
variability based on changes in the prices of diesel fuel. For a large portion of its
transportation services customers, Comdata earns fee revenue for card transactions based on a
percentage of the total amount of each fuel purchase. An increase/decrease in the price of diesel
fuel increases/decreases the total dollar amount of fuel purchases and Comdata revenue,
accordingly. We estimate that for each 10¢ change in the average price of diesel fuel per year,
Comdata revenue and pretax profit are impacted by $1.8, before impact of any fuel price contracts. Our risk management objective of managing fuel price risk is to protect Comdata net income
from the effects of falling diesel fuel prices by entering into derivative contracts that convert
the floating price of fuel used in revenue calculations to a fixed price. During 2003, Comdata
entered into fuel price derivative contracts to swap the floating price of fuel for a fixed price.
These contracts had the effect of reducing the exposure to price variability of diesel fuel noted
above by approximately one half for the period April 1 to December 31, 2003. Since the floating
fuel price remained above the fixed price during the course of the
hedges, we paid instruments $0.8 to
counterparties over the term of the agreement and this unrealized
loss was reported in (gain) loss on derivative instruments in our
consolidated statement of operations for the year ended December 31,
2003. These payments had the
effect of offsetting a
portion of the
revenue benefit received during the term of the derivative contracts from the higher-than-expected floating
prices. Prior to the Restatement, we had recorded the payments in
revenue. These contracts matured in December 2003. We continuously monitor fuel price volatility
and the cost of derivative contracts and may enter into additional
fuel price derivative contracts solely for the purpose of managing fuel price risk when market
conditions are favorable to such transactions. Contracts In March 2001, we entered into an agreement with Ultimate that provided us with a
non-exclusive license to use Ultimates software as part of a Web-enabled integrated
payroll/HR/self-service offering to our small business customers. Our initial payment to Ultimate
amounted to $10.0, which provided us 118




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(Dollars in millions, except
per share data) with a non-exclusive license to use its software product in
our product offerings. This payment was partially refundable pending successful transfer of the
technology. Amendments to the license agreement in August 2001 and February 2002 eliminated any
refundable nature of the initial payment and deemed the technology transfer complete as of February
2002. In February 2002, we agreed to pay Ultimate an additional $0.5 if an upgraded release were
to be delivered prior to August 31, 2002, which did occur. The $10.5 is accounted for as purchased
software under SOP 98-1 and amortized on a straight-line basis over a seven-year period that began
in March 2003 when our SourceWeb software product incorporating this Ultimate software was placed
in service. Pursuant to the February 2002 amendment, the license agreement also provided for a monthly
royalty commencing in January 2003, which is based on the number of our customers employees paid
by using the software and subject to minimum and maximum amounts. Pursuant to the February 2002
amendment, we made an advance payment of $6.0 to Ultimate at that time representing the minimum
royalty commitment for 2003. We remain obligated to future minimum monthly payments of $0.5 per
month from January 2004 until January 1, 2006, when the per-employee monthly charge will escalate
at a rate of 5% per annum until the end of the noncancellable term in March 2008. We recorded the
$6.0 payment as prepaid expense and amortized this amount to cost of revenue on a straight line
basis over the 12 months of 2003. Royalty costs under this agreement will be charged monthly to
cost of revenue and paid according to the terms of the agreement. On February 10, 2003, we entered into a services agreement with Ultimate through December 31,
2003, under which we made quarterly payments totaling $2.25 during 2003 for technical support in
connection with the introduction of our SourceWeb payroll services offering that incorporates the
Ultimate software. We charged these services to operations as services were performed during 2003. In connection with the acquisition of certain call center assets in December 2002, we entered
into royalty and services arrangements that are noncancelable for the first 36 months. Under these
arrangements, we are obligated to make minimum payments of $2.2 in each of 2003, 2004 and 2005. Leasing We conduct a substantial portion of our operations in leased facilities. Most of our leases
contain renewal options and require payments for taxes, insurance and maintenance. Virtually all our leasing arrangements for equipment and facilities are operating leases and
the rental payments under these leases are charged to operations as incurred. The amounts in the
accompanying tables do not include obligations recorded as liabilities. Our rental expense and sublease income for each of the three years ended December 31, 2003
appear in the accompanying Rental Expense table. 119




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(Dollars in millions, except
per share data) Years Ended December 31,Rental Expense
    
    2003
    
    
    2002
    
    
    2001Rental expense
    
    $
    52.0
    
    
    $
    49.5
    
    
    $
    44.2Sublease rental income
    
    
    (0.4
    )
    
    
    (0.6
    )
    
    
    (0.5
    )Net rental expense
    
    $
    51.6
    
    
    $
    48.9
    
    
    $
    43.7
 Our future minimum
noncancelable lease
payments on existing
operating leases at
December 31, 2003, which
have an initial term of
more than one year, are
presented in the
accompanying Future Minimum Lease Payments table. Future Minimum Lease Payments2004
    
    
    47.42005
    
    
    40.42006
    
    
    33.32007
    
    
    30.32008
    
    
    27.5Thereafter
    
    
    109.2
 L. Legal Matters We are involved in a number of judicial and administrative proceedings considered normal in
the nature of their current and past operations, including employment-related disputes, contract
disputes, government proceedings, customer disputes, and tort claims. In some proceedings, the
claimant seeks damages as well as other relief, which, if granted, would require substantial
expenditures on our part. Some of these matters raise difficult and complex factual and legal issues, and are subject to
many uncertainties, including the facts and circumstances of each particular action, and the
jurisdiction, forum and law under which each action is proceeding. Because of this complexity,
final disposition of some of these proceedings may not occur for several years. As such, we are
not always able to estimate the amount of our possible future liabilities. There can be no
certainty that we may not ultimately incur charges in excess of presently or future established
accruals or insurance coverage. Although occasional adverse decisions (or settlements) may occur,
it is the opinion of our management that the final disposition of these proceedings will not,
considering the merits of the claims and available reserves and based upon the facts and
circumstances currently known, have a material adverse effect on our financial position or results
of operations. SEC Investigation On January 22, 2004, we filed a Current Report on Form 8-K, under Item 5, stating that we
announced that we are responding to a document request from the Securities and Exchange Commission,
and that we have been advised that the SEC has issued a formal order of investigation. The SEC has
informed us that this is a non-public fact finding inquiry and that the investigation and document
request does not mean that the SEC has concluded that we have violated any securities laws. We are
fully cooperating with the SEC. 120




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(Dollars in millions, except
per share data) M. Customer Funds In connection with our U.S. and Canadian payroll and tax filing services, we collect funds for
payment of payroll and taxes; temporarily hold such funds in trust until payment is due; remit the
funds to the clients employees and appropriate taxing authority; file federal, state and local tax
returns; and handle related regulatory correspondence and amendments. In connection with our HRS
benefits services operation, we receive funds on behalf of our customers for remittances to
employees, insurance providers and others. Comdata also holds funds for its eCash customers.
These funds are not held in a trust. As indicated in the section entitled Changes in Presentation of Note A, we have changed our
presentation of Comdata and benefits services customer deposits in order to include these amounts
with our payroll and tax filing customer funds in a combined amount described as customer funds
on our consolidated balance sheet. The related obligations are similarly reported on a combined
basis. The effect of this reclassification on our consolidated balance sheet moved benefits
services customer deposits amounts previously reported in cash and equivalents and short-term
investments into an asset entitled customer funds. The related obligations previously reported
in drafts and customer funds payable moved into a liability entitled customer funds
obligations. The reclassifications eliminated from our consolidated statements of cash flows the
reclassified cash and equivalents balances, the effect on operating cash flows of changes in the
reclassified customer funds payable, and the effect on investing cash flows from any changes in
the reclassified short-term investments. The Comdata customer funds and obligations, which
previously were netted, are now separately presented. The reclassifications did not affect our
consolidated statements of operations. We invest the U.S. customer funds primarily in high quality collateralized short-term
investments or money market mutual funds. We may also invest these funds in U.S. Treasury and
Agency securities, AAA rated asset-backed securities and corporate securities rated A3/A- or
better. Our Canadian trust funds are invested in securities issued by the government and provinces
of Canada, highly rated Canadian banks and corporations, asset-backed trusts and mortgages. Investment income from invested customer funds constitutes a component of our compensation for
providing services under agreements with our customers. Investment income from invested customer
funds included in revenue amounted to $62.2 in 2003, $64.6 in 2002 and $92.7 in 2001 and does not
include realized gains from our interest rate derivative instruments. These amounts include gross
realized gains from interest rate contracts as further discussed in Note K. We further discuss our
accounting for this investment income in the section of Note A entitled Revenue Recognition. Due to our positive intent and ability to hold the marketable debt securities until maturity
and supporting historical experience, we classify these securities as held-to-maturity and report
them at amortized cost. Any disposition of these securities before maturity is expected to be
limited to unusual circumstances such as significant deterioration of the issuers creditworthiness
or a major business combination or disposition. 121




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(Dollars in millions, except
per share data) Customer funds and the offsetting obligations amounted to $3,141.3 at December 31, 2003 and
$2,446.6 at December 31, 2002. This amount varies significantly during the year and averaged
$2,147.0 and $1,931.9, respectively, for the years ended December 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. Restated
    
    
    RestatedDecember 31, 2003
    
    
    December 31, 2002Investments of Customer Funds
    
    Cost
    
    
    Market
    
    
    Cost
    
    
    MarketMoney market
securities and other cash equivalents
    
    $
    2,202.0
    
    
    $
    2,202.0
    
    
    $
    1,618.2
    
    
    $
    1,618.2Held-to-maturity investments:U.S. government and agency securities
    
    
    311.1
    
    
    
    317.4
    
    
    
    197.6
    
    
    
    207.0Canadian and provincial government securities
    
    
    201.0
    
    
    
    208.1
    
    
    
    124.7
    
    
    
    130.5Corporate debt securities
    
    
    209.0
    
    
    
    216.0
    
    
    
    211.7
    
    
    
    217.8Asset-backed securities
    
    
    159.5
    
    
    
    163.0
    
    
    
    212.7
    
    
    
    223.0Mortgage-backed and other securities
    
    
    58.7
    
    
    
    59.6
    
    
    
    81.7
    
    
    
    84.3Total held-to-maturity investments
    
    
    939.3
    
    
    
    964.1
    
    
    
    828.4
    
    
    
    862.6Customer funds
    
    $
    3,141.3
    
    
    $
    3,166.1
    
    
    $
    2,446.6
    
    
    $
    2,480.8
 RestatedDecember 31, 2003Investments of Customer Funds by Maturity Date
    
    Cost
    
    
    MarketDue in one year or less
    
    $
    2,360.8
    
    
    $
    2,361.3Due in one to three years
    
    
    276.6
    
    
    
    285.6Due in three to five years
    
    
    325.0
    
    
    
    337.3Due after five years
    
    
    178.9
    
    
    
    181.9Total
    
    $
    3,141.3
    
    
    $
    3,166.1
 122




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(Dollars in millions, except
per share data) N. Supplementary Quarterly Data (Unaudited) 2003 (Restated) (4)
    
    2002 (Restated) (4)4th
    
    
    3rd
    
    
    2nd
    
    
    1st
    
    
    4th
    
    
    3rd
    
    
    2nd
    
    
    1stQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterRevenue
    
    $
    324.3
    
    
    $
    291.6
    
    
    $
    291.1
    
    
    $
    306.9
    
    
    $
    298.1
    
    
    $
    281.3
    
    
    $
    284.8
    
    
    $
    296.1Costs and ExpensesCost of revenue
    
    
    180.0
    
    
    
    169.7
    
    
    
    173.8
    
    
    
    170.0
    
    
    
    169.8
    
    
    
    159.7
    
    
    
    162.3
    
    
    
    162.4Selling, general and
administrative
    
    
    94.6
    
    
    
    86.1
    
    
    
    85.6
    
    
    
    97.8
    
    
    
    85.0
    
    
    
    82.5
    
    
    
    87.3
    
    
    
    96.3Research and development
    
    
    6.1
    
    
    
    5.0
    
    
    
    5.3
    
    
    
    3.0
    
    
    
    3.7
    
    
    
    3.8
    
    
    
    4.2
    
    
    
    3.3(Gain) loss on derivative instruments
    
    
    4.0
    
    
    
    0.5
    
    
    
    (12.9
    )
    
    
    (6.3
    )
    
    
    (7.7
    )
    
    
    (40.2
    )
    
    
    (31.6
    )
    
    
    6.2Other expense (income) (1)
    
    
    (1.2
    )
    
    
    (1.1
    )
    
    
    0.2
    
    
    
    (0.4
    )
    
    
    13.0
    
    
    
    9.7
    
    
    
    0.6
    
    
    
    9.8Interest income
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (0.3
    )Interest expense
    
    
    1.0
    
    
    
    1.3
    
    
    
    1.1
    
    
    
    1.2
    
    
    
    1.3
    
    
    
    1.4
    
    
    
    1.7
    
    
    
    1.9Total costs and expenses
    
    
    284.0
    
    
    
    261.0
    
    
    
    252.6
    
    
    
    264.8
    
    
    
    264.5
    
    
    
    216.3
    
    
    
    223.9
    
    
    
    279.6Earnings before income taxes
    
    
    40.3
    
    
    
    30.6
    
    
    
    38.5
    
    
    
    42.1
    
    
    
    33.6
    
    
    
    65.0
    
    
    
    60.9
    
    
    
    16.5Income tax provision
    
    
    13.4
    
    
    
    11.1
    
    
    

    13.5
    
    
    
    14.8
    
    
    
    11.3
    
    
    
    23.6
    
    
    
    22.1
    
    
    
    5.8Net earnings
    
    $
    26.9
    
    
    $
    19.5
    
    
    $
    25.0
    
    
    $
    27.3
    
    
    $
    22.3
    
    
    $
    41.4
    
    
    $
    38.8
    
    
    $
    10.7Earnings per share (2)Basic
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.28
    
    
    $
    0.26
    
    
    $
    0.07Diluted
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.28
    
    
    $
    0.26
    
    
    $
    0.07Shares used in calculations
(in thousands)Weighted average shares (basic)
    
    
    149,696
    
    
    
    148,426
    
    
    
    147,970
    
    
    
    148,451
    
    
    
    148,467
    
    
    
    148,526
    
    
    
    148,246
    
    
    
    146,875Dilutive securities (3)
    
    
    2,916
    
    
    
    2,156
    
    
    
    866
    
    
    
    275
    
    
    
    254
    
    
    
    900
    
    
    
    3,462
    
    
    
    2,570Weighted average
shares (diluted)
    
    
    152,612
    
    
    
    150,582
    
    
    
    148,836
    
    
    
    148,726
    
    
    
    148,721
    
    
    
    149,426
    
    
    
    151,708
    
    
    
    149,445
   (1)
    
    Includes 2003 gain from sale of stock of $3.4 in the third quarter and 2002 unusual losses of $9.8 for the first quarter,
$0.6 for the second quarter, $9.8 for the third quarter and $13.4 for the fourth quarter as described in Note D.(2)
    
    For information on the calculation of earnings per share, see the section entitled Earnings per Share in Note A.(3)
    
    We have restated the number of dilutive shares determined by the treasury stock method for all periods presented
to correctly reflect the tax benefit related to the assumed exercise of stock options.(4)
    
    As described in Note B of this Form 10-K/A, we have made corrections to our consolidated statements of operations
related to revenue recognition, derivative instruments, capitalization and amortization of software development costs, and
accrual and classification of costs and expenses. The effect of the Restatement on the quarterly results is presented in the
following table: 123




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##### Table of Contents



Summary Effect of the Restatement on Supplementary Quarterly Statement of Operations Data (Unaudited) 2003
    
    
    20024th
    
    
    3rd
    
    
    2nd
    
    
    1st
    
    
    4th
    
    
    3rd
    
    
    2nd
    
    
    1stQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterAs Previously ReportedRevenue
    
    $
    335.7
    
    
    $
    303.9
    
    
    $
    299.5
    
    
    $
    314.1
    
    
    $
    308.4
    
    
    $
    288.6
    
    
    $
    291.9
    
    
    $
    302.1Costs and expenses
    
    
    272.9
    
    
    
    258.4
    
    
    
    259.1
    
    
    
    270.6
    
    
    
    269.5
    
    
    
    254.5
    
    
    
    252.7
    
    
    
    271.9Earnings before income taxes
    
    
    62.8
    
    
    
    45.5
    
    
    
    40.4
    
    
    
    43.5
    
    
    
    38.9
    
    
    
    34.1
    
    
    
    39.2
    
    
    
    30.2Income tax provision
    
    
    21.4
    
    
    
    16.2
    
    
    
    14.4
    
    
    
    15.4
    
    
    
    13.1
    
    
    
    12.3
    
    
    
    14.1
    
    
    
    10.8Net earnings
    
    $
    41.4
    
    
    $
    29.3
    
    
    $
    26.0
    
    
    $
    28.1
    
    
    $
    25.8
    
    
    $
    21.8
    
    
    $
    25.1
    
    
    $
    19.4Earnings per shareBasic
    
    $
    0.28
    
    
    $
    0.20
    
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.15
    
    
    $
    0.17
    
    
    $
    0.13Diluted
    
    $
    0.27
    
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    0.15
    
    
    $
    0.16
    
    
    $
    0.13Restatement SummaryRevenue recognition
    
    
    (3.5
    )
    
    
    (4.6
    )
    
    
    (1.0
    )
    
    
    (0.1
    )
    
    
    (3.2
    )
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    0.5Derivative instruments
    
    
    (7.9
    )
    
    
    (7.7
    )
    
    
    (7.4
    )
    
    
    (7.1
    )
    
    
    (7.1
    )
    
    
    (6.7
    )
    
    
    (6.5
    )
    
    
    (6.5
    )Revenue decrease
    
    
    (11.4
    )
    
    
    (12.3
    )
    
    
    (8.4
    )
    
    
    (7.2
    )
    
    
    (10.3
    )
    
    
    (7.3
    )
    
    
    (7.1
    )
    
    
    (6.0
    )Revenue recognition costs
    
    
    (3.1
    )
    
    
    (2.4
    )
    
    
    (0.9
    )
    
    
    (0.8
    )
    
    
    (0.8
    )
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    Derivative instruments
    
    
    4.0
    
    
    
    0.5
    
    
    
    (12.9
    )
    
    
    (6.3
    )
    
    
    (9.5
    )
    
    
    (40.2
    )
    
    
    (31.6
    )
    
    
    6.2Software capitalization
    
    
    5.7
    
    
    
    5.0
    
    
    
    5.6
    
    
    
    1.3
    
    
    
    2.4
    
    
    
    2.3
    
    
    
    3.2
    
    
    
    2.8Accrual of costs and expenses.
    
    
    4.5
    
    
    
    (0.5
    )
    
    
    1.7
    
    
    
    
    
    
    
    2.9
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    (1.3
    )Costs and expenses increase
(decrease)
    
    
    11.1
    
    
    
    2.6
    
    
    
    (6.5
    )
    
    
    (5.8
    )
    
    
    (5.0
    )
    
    
    (38.2
    )
    
    
    (28.8
    )
    
    
    7.7Total pretax earnings increase
(decrease)
    
    
    (22.5
    )
    
    
    (14.9
    )
    
    
    (1.9
    )
    
    
    (1.4
    )
    
    
    (5.3
    )
    
    
    30.9
    
    
    
    21.7
    
    
    
    (13.7
    )Tax effect of restatement
    
    
    (8.0
    )
    
    
    (5.1
    )
    
    
    (0.9
    )
    
    
    (0.6
    )
    
    
    (1.8
    )
    
    
    11.3
    
    
    
    8.0
    
    
    
    (5.0
    )Total net earnings increase
(decrease)
    
    $
    (14.5
    )
    
    $
    (9.8
    )
    
    $
    (1.0
    )
    
    $
    (0.8
    )
    
    $
    (3.5
    )
    
    $
    19.6
    
    
    $
    13.7
    
    
    $
    (8.7
    )As RestatedRevenue
    
    $
    324.3
    
    
    $
    291.6
    
    
    $
    291.1
    
    
    $
    306.9
    
    
    $
    298.1
    
    
    $
    281.3
    
    
    $
    284.8
    
    
    $
    296.1Costs and expenses
    
    
    284.0
    
    
    
    261.0
    
    
    
    252.6
    
    
    
    264.8
    
    
    
    264.5
    
    
    
    216.3
    
    
    
    223.9
    
    
    
    279.6Earnings before income taxes
    
    
    40.3
    
    
    
    30.6
    
    
    
    38.5
    
    
    
    42.1
    
    
    
    33.6
    
    
    
    65.0
    
    
    
    60.9
    
    
    
    16.5Income tax provision
    
    
    13.4
    
    
    
    11.1
    
    
    
    13.5
    
    
    
    14.8
    
    
    
    11.3
    
    
    
    23.6
    
    
    
    22.1
    
    
    
    5.8Net earnings
    
    $
    26.9
    
    
    $
    19.5
    
    
    $
    25.0
    
    
    $
    27.3
    
    
    $
    22.3
    
    
    $
    41.4
    
    
    $
    38.8
    
    
    $
    10.7Earnings per shareBasic
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.28
    
    
    $
    0.26
    
    
    $
    0.07Diluted
    
    $
    0.18
    
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.28
    
    
    $
    0.26
    
    
    $
    0.07
 124




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SCHEDULE II CERIDIAN CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions) Years Ended December 31,Allowance for Doubtful Accounts Receivable

    
    2003
    
    
    2002
    
    
    2001Balance at beginning of year
    
    $
    18.4
    
    
    $
    16.2
    
    
    $
    17.4Additions charged to costs and expenses
    
    
    11.2
    
    
    
    17.0
    
    
    
    15.8Write-offs and other adjustments (1)
    
    
    (12.3
    )
    
    
    (14.8
    )
    
    
    (17.0
    )Balance at end of year
    
    $
    17.3
    
    
    $
    18.4
    
    
    $
    16.2
    125




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULE THE BOARD OF DIRECTORS AND STOCKHOLDERS
CERIDIAN CORPORATION: Under date of March 12, 2004, except
as to Note B which is as of February 17, 2005, we
reported on the consolidated balance sheets of Ceridian Corporation and subsidiaries as of December
31, 2003 and 2002, and the related consolidated statements of operations, cash flows and
stockholders equity for each of the years in the three-year period ended December 31, 2003, as
contained in Ceridians 2003 Annual Report on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related consolidated
financial statement schedule as listed in the accompanying index (see Item 15.(a)2.). This
financial statement schedule is the responsibility of Ceridians management. Our responsibility is
to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. /s/ KPMG LLP Minneapolis, Minnesota
March 12, 2004 126




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Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 Item 9A. Controls and Procedures At the end of June 2004, we became aware of an employees concerns regarding the
capitalization and expensing of certain costs in HRS. Upon becoming aware of these concerns, the
Audit Committee of our Board of Directors (the Audit Committee) commenced an investigation with
the assistance of independent legal counsel and Deloitte & Touche LLP. In October 2004, we
announced the initial determinations from the Audit Committee Investigation which had examined,
among other things, our 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. The preliminary conclusions of the Audit Committee
Investigation indicated that our capitalization guidelines and practices were, in certain respects,
deficient and not consistent with accounting principles generally accepted in the United States of
America (U.S. GAAP) and that this had led to errors in the recording of certain capitalized costs
for internally developed software during the period from 1997 through 2003 and in the first quarter
of 2004. The preliminary conclusions from the Audit Committee Investigation also indicated the
presence of deficiencies related to the commencement of amortization of capitalized software
development costs and the accuracy and timeliness of accruing for costs and expenses. As a result of the Audit Committee Investigation, we have restated our historical financial
statements for the period from 1999 through 2003 and for the first quarter of 2004. We have not
restated our historical financial statements for periods other than those covered by the
Restatement. The Restatement, as well as specific information regarding its impact on the years 1999 through 2003, is discussed in Note B, Restatement of Financial Statements included in
Part II, Item 8, Financial Statements and Supplementary Data of this Form 10-K/A. The Audit Committee Investigation identified the following deficiencies in our internal
control over financial reporting, and management has determined that each of these deficiencies
individually constitutes a material weakness (as defined under standards established by
the Public Company Accounting Oversight Board or PCAOB) in our internal control over financial
reporting:  Deficiencies related to our internally developed software capitalization
guidelines. Our internally developed software capitalization guidelines, in particular those
utilized by HRS, were inconsistent with U.S. GAAP and needed to be updated. In addition, we lacked
personnel with sufficient expertise in software capitalization rules under U.S. GAAP and did not
adequately train employees, such as financial analysts and project managers, who performed these
accounting functions. We also failed to document sufficient support
for the historical capitalization of certain software development 127




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costs and our system for tracking costs that qualify for capitalization needs improvement.
Finally, our deterrent controls and detective controls related to the capitalization of internally
developed software were insufficient.  Deficiencies pertaining to the commencement of amortization of our capitalized software
development costs. The Audit Committee Investigation also identified deficiencies in the
accounting for the amortization of our capitalized software development costs. Specifically, these
deficiencies included insufficient documentation relating to the commencement of such amortization.
In addition, as a result of our failure to train relevant personnel in U.S. GAAP rules applicable
to the amortization of internally developed software, such employees often misunderstood or
improperly applied such rules. Finally, our deterrent controls and detective controls related to
the amortization of our capitalized software development costs were insufficient.  Deficiencies related to the month-end close and cost and expense accrual process. The Audit
Committee Investigation identified deficiencies in our month-end close and cost and expense accrual
process. Specifically, in certain instances HRS had inappropriately deferred costs and expenses,
which resulted in costs and expenses being recognized later than required under U.S. GAAP. This
was due in part to errors in our accounts payable cut-off process and the failure to follow
policies, processes and procedures that were in place for the timely recognition of costs and
expenses. We also failed to segregate and define accounting duties at HRS relating to the
identification, calculation and recording of liabilities. Finally, our deterrent controls and
detective controls related to the month-end close and accrual process were insufficient. As a result of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules issued thereunder
(the Section 404 Requirements), we will be required to include in our Annual Report on Form 10-K
for the year ending December 31, 2004 (the 2004
Form 10-K) a report on managements assessment of the effectiveness of
our internal control over financial reporting. As part of the process of preparing for compliance
with the Section 404 Requirements, in 2003, we initiated a review of our internal control over
financial reporting, conducted under the direction of senior management. This review, which was
carried out with the involvement and assistance of various external consultants and advisers who
dedicated substantial resources to the process, entailed a detailed review and documentation of the
processes that impact the preparation of our financial statements, an assessment of the risks that
could adversely affect the accurate and timely preparation of those financial statements and the
identification of the controls in place to mitigate the risks of untimely or inaccurate preparation
of those financial statements. As a result of our efforts to ensure compliance with the Section 404 Requirements, since July
2004, management has become aware of additional deficiencies in our internal control over financial
reporting. In the opinion of management, each of the following deficiencies identified as a result
of our effort to comply with the Section 404 Requirements also
individually constitutes a material weakness in our internal control over financial reporting: 128




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 Deficiencies related to entity-level controls at Ceridian.The PCAOB in its Auditing
Standard No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction
with an Audit of Financial Statements sets forth indicators of conditions that may be indicative
of a material weakness in internal control over financial reporting. Two such indicators are the
restatement of previously issued financial statements to correct errors and an ineffective control
environment. We have restated our financial statements to correct errors as announced in February
and October 2004 and January 2005, and a number of events provide indications of an ineffective
control environment at Ceridian, including the results of the Audit Committee Investigation and our
compliance efforts with the Section 404 Requirements and the delayed filing of our Quarterly
Reports on Form 10-Q for the quarterly periods ended June 30, 2004 and September 30, 2004.
Management believes that such events are the result of (i) accounting policies, procedures and
practices that were inconsistent with U.S. GAAP and needed to be updated, (ii) personnel lacking
sufficient expertise in areas of U.S. GAAP, (iii) inadequately trained employees, such as financial
analysts and project managers, who perform accounting functions, (iv) failure to document with
sufficient support the prior application of our accounting policies, practices and procedures, and
(v) lack of effective deterrent controls and detective controls to properly apply U.S. GAAP to our
financial reporting process. As a result, management has concluded that there are deficiencies in
the design and execution of our entity-level controls that constitute a material weakness in our
internal control over financial reporting.  Deficiencies related to inadequate or ineffective policies and practices relating to revenue
recognition at HRS.Our revenue recognition guidelines at HRS were inconsistent with U.S. GAAP and
needed to be updated, particularly with respect to the adoption of Emerging Issues Task Force Issue
No. 00-21, Revenue Arrangements with Multiple Deliverables. Additionally, we lacked personnel
with adequate expertise in the revenue recognition rules, and failed to consistently include
finance personnel in the analysis of the impact that new customer contracts would have on our
financial reporting. Finally, our deterrent controls and detective controls related to revenue
recognition were insufficient.  Deficiencies related to inadequate or ineffective policies and practices relating to the
classification of costs and expenses in our Statement of Operations.Our cost and expense
classification guidelines were inconsistent with U.S. GAAP and needed to be updated. Also, our
deterrent controls and detective controls related to the classification of costs and expenses were
insufficient. We had not performed an adequate review of whether our costs and expenses were being
classified appropriately in our Statement of Operations.  Deficiencies related to the untimely reconciliation of certain balance sheet accounts at
HRS.Although our stated account reconciliation policies require timely reconciliations of
accounts, we failed to timely reconcile certain balance sheet accounts at HRS for the third quarter
of 2004.  Deficiencies related to the application of FAS 133 Accounting for Derivative Instruments
and Hedging Activities.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.  Deficiencies related to the internal control over financial reporting of our HRS operations
in the United Kingdom.Such deficiencies relate primarily to the aggregation of issues pertaining
to revenue recognition, basic internal controls, and controls surrounding the use of certain
information technology applications. 129




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As demonstrated by the material weaknesses identified above, there are deficiencies
related to the process of closing our accounting records for the periods reflected in this Form
10-K/A. As a result of the material weaknesses identified through the Audit Committee
Investigation and our compliance efforts with the Section 404 Requirements, in July 2004, we began
performing periodic internal accounting reviews of HRS. These reviews are performed at least once
per quarter and evaluate compliance with our policies and U.S. GAAP related to the capitalization
and amortization of internally developed software costs, and the month-end close and cost and
expense accrual process. These reviews are performed by HRS personnel, as well as by our Internal
Audit Department, and have been completed through the end of the third quarter of 2004. Furthermore, in order to remediate the material weaknesses in internal control
over financial reporting and ensure the integrity of our financial reporting processes stated
above, we have implemented in the third and fourth quarters of 2004 or are in the process of
implementing the following actions:  a comprehensive review of internal control over financial reporting through our ongoing
review being carried out in connection with our efforts to comply with the Section 404
Requirements, including additional remediation as necessary;  additional training for finance, accounting and certain other personnel at HRS in (i)
appropriate accounting for the capitalization and amortization of internally developed software,
(ii) month-end expense cut-off and cost and expense accrual processes, (iii) revenue recognition,
(iv) procedures for identifying unusual events or transactions and obtaining appropriate accounting
guidance prior to recording such transactions, (v) the importance of a robust internal control
environment and (vi) the application of technical accounting pronouncements;  implementation of detailed, new internally developed software capitalization and
amortization policy and formal procedures that are consistent with U.S. GAAP;  implementation of detailed, new revenue recognition policies at HRS that are consistent with
U.S. GAAP;  establishment of new documentation requirements and monitoring procedures for HRS finance
and accounting employees to ensure, among other things, that (i) accounting conclusions involving
the interpretation of complex accounting standards are thoroughly documented and identify the
critical factors that support the basis for such conclusions, and (ii) the factors upon which such
employees rely are validated and adequately evidenced;  implementation of detective controls in the form of (i) random internal audits by our
Internal Audit Department of selected HRS software development projects for compliance with our new
capitalization policy, (ii) monthly testing processes at HRS to analyze whether 130




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costs and expenses have been accrued properly, and (iii) quarterly monitoring procedures at HRS to
analyze costs and expenses incurred during such period and determine whether such costs and
expenses were classified correctly on our Statement of Operations;  modification of systems and procedures to (i) ensure that appropriate cut-off dates for the
monthly accounts payable cycle are strictly observed, thereby preventing improper deferral of costs
and expenses, (ii) ensure that purchases in an amount of over $1,000 be evidenced by a written
purchase order form and that appropriate purchase order reports are
generated and analyzed monthly and (iii) establish appropriate deterrent controls, including clear and regular communication of
operating policies and procedures by management to HRS employees emphasizing that noncompliance
with such policies and procedures may result in corrective action, including termination;  creation of a new position, Director of Financial Accounting and Compliance, and retention
of such person to review and coordinate the implementation of new revenue-related pronouncements
and regulations under U.S. GAAP at Ceridian;  review of all new HRS contracts containing certain quantitative and qualitative
characteristics in order to determine appropriate accounting treatment under U.S. GAAP;  creation of a revenue recognition steering committee comprised of financial and accounting
personnel to discuss and review revenue recognition issues at HRS for policy amendments and
interpretations;  periodic review of details supporting the Statement of Operations to determine whether
significant costs and expenses are being classified appropriately on a historical and recurring
basis and to reclassify where appropriate; and  reconciled balance sheet accounts for HRS that were unreconciled for the third quarter of
2004. We have reviewed our account reconciliation process at HRS to ensure that, among other
things, such accounts are being reconciled on a timely basis, the reconciliation is being
independently reviewed, any reconciling items are cleared on a timely basis, and the
accuracy of the underlying supporting detail, or subledger, has been substantiated and
independently reviewed. In addition, in an effort to improve internal control over financial reporting, we continue to
emphasize the importance of establishing the appropriate environment in relation to accounting,
financial reporting and internal control over financial reporting and the importance of identifying
areas of improvement and to create and implement new policies and procedures where material
weaknesses or significant deficiencies exist. Furthermore, in an effort to improve internal
control over financial reporting, we have hired additional accounting expertise, continued our use
of external resources, taken certain disciplinary actions, terminated certain individuals, and
selected a new chief financial officer to join the Company following the retirement of Mr.
Eickhoff. 131




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Since
July 2004, management has identified a number of deficiencies in our internal control over
financial reporting that individually or in the aggregate constitute significant deficiencies (as defined under standards
established by the PCAOB) in our internal control over financial
reporting. In the opinion of management, these significant deficiencies do not, either
individually or in the aggregate, constitute a material weakness in our internal control over
financial reporting. The identified significant deficiencies involve:  Deficiencies related to revenue recognition at SVS.In February 2004 we announced the
restatement of our financial statements for the years ended December 31, 2002, 2001 and 2000
and the first three quarterly periods in 2003 to correct the application of U.S. GAAP as it relates
to multiple-element arrangements that include the sale of retail cards and related services such as
activation, processing and reporting at our Stored Value Systems unit, a wholly owned subsidiary of
our Comdata business unit. The change resulted from a reassessment of the accounting for revenue
related to stored value card sales and transaction processing. The revised policy superseded the
revenue recognition methodology previously applied by us for periods prior to July 1, 2003 which
had been made with the concurrence of our outside auditors.  Deficiencies related to controls surrounding the use of certain information technology
applications.Such deficiencies include inadequate system security, inappropriate access to
systems and segregation of duties within systems, lack of appropriate system documentation,
ineffective change management processes and insufficient disaster recovery plans pertaining to such
applications.  Deficiencies related to certain basic internal controls.Such deficiencies include
instances of failure to segregate conflicting duties, lack of documented policies and procedures,
failure to receive or document appropriate approvals, incomplete or untimely account
reconciliations and failure to appropriately assess and monitor the effectiveness of controls
executed by third-party service providers. We are
actively remediating each of the significant deficiencies described
above, and have taken or are in the process of
taking appropriate remediation actions. The remediation efforts for the significant deficiencies
generally involve the clarification of existing accounting policies, training of personnel, changes
to segregation of duties, enhanced documentation support for accounting transactions, and policy
changes where appropriate. We have communicated to the Audit Committee and KPMG the material weaknesses and significant deficiencies identified
to date in our internal control over financial reporting. Management, with the 132




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oversight of the Audit Committee, is committed to effectively remediating known material weaknesses
and significant deficiencies as expeditiously as possible. As part of our efforts to comply with the Section 404 Requirements by December 31, 2004, we
initiated (i) an internal review, or walk-through, by management to evaluate the design
effectiveness of our internal control over financial reporting (with a focus on the newly-developed
controls described above) to mitigate, among other things, the risk of material misstatements
occurring in our financial statements and (ii) a detailed process to evaluate the overall operating
effectiveness of our internal control over financial reporting. This process involved testing the
controls for effectiveness in the fourth quarter of 2004 and continuing into the first quarter of
2005. As we continue our compliance efforts with the Section 404 Requirements, including the
testing of the effectiveness of our internal controls, we may continue to identify additional
deficiencies in our system of internal control over financial reporting that either individually or
in the aggregate may represent a material weakness requiring additional remediation efforts. While, as described above, we have taken and are continuing to take immediate steps to correct
our material weaknesses and significant deficiencies in internal control, such material weaknesses
and significant deficiencies will not be considered remediated until the new internal controls
operate for a period of time, are tested, and management and KPMG conclude that these controls are
operating effectively. Although, as described above, these controls are currently being
implemented and evaluated for effectiveness, based upon our current action plans, we do not expect
these tests to be completed until March 2005. Pursuant to the Section 404 Requirements, KPMG must audit both the design and operating
effectiveness of our internal controls and managements assessment of the design and the
effectiveness of such internal controls. KPMG will perform its own evaluation and testing of the
effectiveness of our internal control over financial reporting as soon as we complete the
implementation of the remediation action plans currently in process. In the event that our
material weaknesses described above are not remediated in a timely manner, KPMG could be required
to issue an adverse opinion or to disclaim an opinion on our internal
controls. Due
to the nature of and the time necessary to effectively remediate each
of the material weaknesses identified to date, we expect to conclude
that some of the material weaknesses identified to date will not have
been effectively remediated by the filing deadline for the 2004
Form 10-K. As a result, we believe that KPMG will
not be able to issue a positive opinion on our internal control over
financial reporting in the 2004 Form 10-K. However, we do
expect that KPMG will issue an unqualified opinion on our
consolidated financial statements contained in the 2004 Form 10-K. If we fail to remediate any material weaknesses, we could
be unable to provide timely and reliable financial information, which
could have a material adverse effect on our business, results of operations
or financial condition. Furthermore, it is uncertain what impact an adverse
opinion or a disclaimed opinion would have upon our stock price or business. We carried out a separate evaluation, under the supervision and with the participation of our
management, including our President and Chief Executive Officer and our Executive Vice President
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (Exchange Act)), as of December 31, 2003. As a result of the material weaknesses
identified above, we concluded that as of December 31, 2003, our disclosure controls and procedures
were ineffective to ensure that information required to be disclosed in reports that we file or
submit under the Exchange Act are recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the 133




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Securities and Exchange Commission. However, to address the material weaknesses described above,
we have significantly expanded our disclosure controls and procedures to include additional
analysis and other post-closing procedures to ensure that our disclosure controls and procedures
were effective over the preparation of the financial statements included in this Form 10-K/A.
Accordingly, management believes that the financial statements included in this Form 10-K/A fairly
present in all material respects our financial condition, results of operations and cash flows for
the periods presented. We did not make any changes to our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2003 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. However, as discussed above, since December 31, 2003, we have made
significant changes to our internal control over financial reporting. 134




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PART III 
 Item 10. Directors and Executive Officers of the Registrant We refer you to our Proxy Statement for our 2004 Annual Meeting of Stockholders and the
heading Election of Directors for information regarding our directors and nominees for director.
This information is incorporated by reference into this item of the report. Information regarding our executive officers is found in Item 1A of this report under the
heading Executive Officers of the Registrant. We refer to you to our Proxy Statement for our 2004 Annual Meeting of Stockholders and the
heading Meetings of the Board of Directors and Committees of the Board for information regarding
our audit committee financial expert and our Audit Committee. This information is incorporated
by reference into this item of the report. We refer you to our Proxy Statement for our 2004 Annual Meeting of Stockholders and the
heading Other MattersSection 16(a) Beneficial Ownership Reporting Compliance for information
regarding compliance with Section 16(a) of the Securities Exchange Act of 1934. This information
is incorporated by reference into this item of the report. We have a Code of Conduct for all of our employees, including our principal executive,
financial and accounting officers, and each of the non-employee directors on our Board of
Directors. The Ceridian Corporation Code of Conduct may be found on our web site at
www.ceridian.com in the Corporate Governance section. We intend to satisfy the disclosure
requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of the
Code of Conduct by our executive officers or directors by posting such information on our website,
at the address and location specified above. 
 Item 11. Executive Compensation We refer you to our Proxy Statement for our 2004 Annual Meeting of Stockholders and the
headings Director Compensation, Report of Compensation and Human Resources Committee, Stock
Price Performance Graph, Executive Compensation, and Employment Agreements and Change of
Control Arrangements. This information is incorporated by reference into this item of the report. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters We refer you to our Proxy Statement for our 2004 Annual Meeting of Stockholders and the
heading Share Ownership Information and Equity Compensation Plan Information. This information
is incorporated by reference into this item of the report. 135




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Item 13. Certain Relationships and Related Transactions None. 
 Item 14. Principal Accounting Fees and Services We refer you to our Proxy Statement for our 2004 Annual Meeting of Stockholders and the
heading Independent Auditor Fees. This information is incorporated by reference into this item
of the report. 136




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PART IV 
 Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements of Registrant We refer you to the Index to Consolidated Financial Statements included in Part II, Item 8
of this report. (a) 2. Financial Statement Schedules of Registrant We refer you to the Index to Financial Statement Schedules included in Part II, Item 8 of
this report. (a) 3. Exhibits The following is a complete list of exhibits filed or incorporated by reference as part of
this report. Exhibit
    
    Description3.01
    
    Amended and Restated Certificate of Incorporation of Ceridian Corporation (formerly known as
New Ceridian Corporation) (incorporated by reference to Exhibit 3.1 to Ceridians Registration
Statement on Form 10 (File No. 001-16149)).3.02
    
    Amendment to Amended and Restated Certificate of Incorporation of Ceridian Corporation
(formerly known as New Ceridian Corporation) (incorporated by reference to Exhibit 3.02 to
Ceridians Annual Report on Form 10-K for the year ended December 31, 2000 (File No.
001-16149)).3.03
    
    Amended and Restated Bylaws of Ceridian Corporation (formerly known as New Ceridian
Corporation) (incorporated by reference to Exhibit 3.2 to Ceridians Registration Statement on
Form 10 (File No. 001-16149)).4.01
    
    Rights Agreement, dated as of November 6, 2001, between Ceridian Corporation and The Bank of
New York, as Rights Agent, including the form of Certificate of Resignation, Preferences and
Rights of Series A Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Stock as Exhibit C (incorporated by reference
to Exhibit 4.1 to Ceridians Current Report on Form 8-K filed by Ceridian on November 6, 2001
(File No. 001-15168)).10.01
    
    Distribution Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001
(exhibits and schedules omitted) (incorporated by reference to Exhibit 10.1 to Ceridians
Registration Statement on Form 10 (File No. 001-16149)).
 137




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##### Table of Contents



Exhibit
    
    Description10.02
    
    Amendment No. 1 to Distribution Agreement between Arbitron Inc., formerly known as Ceridian
Corporation, and Ceridian Corporation, formerly known as New Ceridian Corporation, dated March
30, 2001 (exhibits and schedules omitted) (incorporated by reference to Exhibit 10.02 to
Ceridians Annual Report on Form 10-K for the year ended December 31, 2000 (File No.
001-16149)).10.03
    
    Personnel Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001
(incorporated by reference to Exhibit 10.2 to Ceridians Registration Statement on Form 10
(File No. 001-16149)).10.04
    
    Amendment No. 1 to Personnel Agreement between Arbitron Inc., formerly known as Ceridian
Corporation, and Ceridian Corporation, formerly known as New Ceridian Corporation, dated as of
April 3, 2001 (incorporated by reference to Exhibit 10.02 to Ceridians Quarterly Report on
Form 10-Q, for the quarterly period ended March 31, 2001 (File No. 001-15168)).10.05
    
    Tax Matters Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001
(incorporated by reference to Exhibit 10.3 to Ceridians Registration Statement on Form 10
(File No. 001-16149)).10.06
    
    Transition Services Agreement between Arbitron Inc., formerly known as Ceridian Corporation,
and Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001
(incorporated by reference to Exhibit 10.4 to Ceridians Registration Statement on Form 10
(File No. 001-16149)).10.07
    
    Sublease Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001
(incorporated by reference to Exhibit 10.5 to Ceridians Registration Statement on Form 10
(File No. 001-16149)).10.08*
    
    Executive Employment Agreement between Ceridian Corporation and Ronald L. Turner, dated
January 29, 2002 (incorporated by reference to Exhibit 10.08 to Ceridians Annual Report on
Form 10-K for the year ended December 31, 2001 (File No. 001-15168)).10.09*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and
Ronald L. Turner, dated November 21, 2002 (incorporated by reference to Exhibit 10.09 to
Ceridians Annual Report on Form 10-K for the year ended December 31, 2002 (File No.
001-15168)).10.10*
    
    Executive Employment Agreement between Ceridian Corporation and John R. Eickhoff, dated
April 22, 2002 (incorporated by reference to Exhibit 10.01 to
 138




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##### Table of Contents



Exhibit
    
    DescriptionCeridians Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002
(File No. 001-15168)).10.11*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and John
R. Eickhoff, dated November 21, 2002 (incorporated by reference to Exhibit 10.11 to Ceridians
Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-15168)).10.12*
    
    Executive Employment Agreement between Ceridian Corporation and Robert H. Ewald, dated July
21, 2003 (incorporated by reference to Exhibit 10.02 to Ceridians Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2003 (File No. 001-15168)).10.13*
    
    Executive Employment Agreement between Ceridian Corporation and Gary A. Krow, dated January
29, 2002 (incorporated by reference to Exhibit 10.11 to Ceridians Annual Report on Form 10-K
for the year ended December 31, 2001 (File No. 001-15168)).10.14*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and Gary
A. Krow, dated November 21, 2002 (incorporated by reference to Exhibit 10.13 to Ceridians
Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-15168)).10.15*
    
    Executive Employment Agreement between Ceridian Corporation and Gary M. Nelson, dated
January 29, 2002 (incorporated by reference to Exhibit 10.12 to Ceridians Annual Report on
Form 10-K for the year ended December 31, 2001 (File No. 001-15168)).10.16*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and Gary
M. Nelson, dated November 21, 2002 (incorporated by reference to Exhibit 10.15 to Ceridians
Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 001-15168)).10.17*
    
    Ceridian Corporation Amended and Restated 2001 Long-Term Stock Incentive Plan (incorporated
by reference to Exhibit 10.13 to Ceridians Annual Report on Form 10-K for the year ended
December 31, 2001 (File No. 001-15168)).10.18*
    
    Ceridian Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.7
to Ceridians Registration Statement on Form 10 (File No. 001-16149)).10.19*
    
    Ceridian Corporation Amended and Restated 2001 Director Performance Incentive Plan
(incorporated by reference to Exhibit 10.17 to Ceridians Annual Report on Form 10-K or the
year ended December 31, 2001 (File No. 001-15168)).
 139




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Exhibit
    
    Description10.20*
    
    Ceridian Corporation 2002 Employee Stock Incentive Plan (incorporated by reference to
Exhibit 10.20 to Ceridians Annual Report on Form 10-K for the year ended December 31, 2001
(File No. 001-15168)).10.21*
    
    Ceridian Corporation Benefit Equalization Plan, as amended (incorporated by reference to
Exhibit 10.14 to Arbitron Inc.s (formerly known as Ceridian Corporation) Annual Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-1969)).10.22*
    
    Ceridian Corporation Benefit Equalization Plan, First Declaration of Amendment (incorporated
by reference to Exhibit 10.18 to Ceridians Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 001-16149)).10.23*
    
    Ceridian Corporation Benefit Equalization Plan, Second Declaration of Amendment
(incorporated by reference to Exhibit 10.19 to Ceridians Annual Report on Form 10-K for the
year ended December 31, 2000 (File No. 001-16149)).10.24*
    
    Ceridian Corporation Benefit Equalization Plan, Third Declaration of Amendment (incorporated
by reference to Exhibit 10.20 to Ceridians Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 001-16149)).10.25*
    
    Ceridian Corporation Employees Benefit Protection Trust Agreement, dated as of December 1,
1994, between Ceridian Corporation and First Trust National Association (incorporated by
reference to Exhibit 10.15 to Arbitron Inc.s (formerly known as Ceridian Corporation) Annual
Report on Form 10-K for the year ended December 31, 1994 (File No. 1-1969)).10.26*
    
    First Declaration of Amendment to Ceridian Corporation Employees Benefit Protection Trust
Agreement, effective as of January 1, 1999, between Ceridian Corporation and US Bank National
Association (incorporated by reference to Exhibit 10.22 to Ceridians Annual Report on Form
10-K for the year ended December 31, 2000 (File No. 001-16149)).10.27*
    
    Second Declaration of Amendment to Ceridian Corporation Employees Benefit Protection Trust
Agreement, dated as of March 26, 2001, between Ceridian Corporation and US Bank National
Association (incorporated by reference to Exhibit 10.23 to Ceridians Annual Report on Form
10-K for the year ended December 31, 2000 (File No. 001-16149)).10.28*
    
    Third Declaration of Amendment to Ceridian Corporation Employees Benefit Protection Trust
Agreement, dated as of August 1, 2001, between Ceridian Corporation and US Bank National
Association (incorporated by reference to Exhibit 10.02 to Ceridians Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2001 (File No. 001-15168)).
 140




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Exhibit
    
    Description10.29*
    
    Ceridian Corporation Deferred Compensation Plan (2002 Revision) (incorporated by reference
to Exhibit 10.01 to Ceridians Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2002 (File No. 001-15168)).10.30*
    
    Split Dollar Agreement between Ronald L. Turner and Ceridian Corporation (incorporated by
reference to Exhibit 10.06 to Ceridians Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2002 (File No. 001-15168)).10.31*
    
    Form of Indemnification Agreement between Ceridian Corporation and its Directors
(incorporated by reference to Exhibit 10.01 to Ceridians Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2003 (File No. 001-15168)).10.32*
    
    Ceridian Corporation 2001 Savings-Related Share Option Plan (incorporated by reference to
Exhibit 10.38 to Ceridians Annual Report on Form 10-K for the year ended December 31, 2002
(File No. 001-15168)).10.33*
    
    Ceridian Corporation UK Compensation Share Option Plan (incorporated by reference to Exhibit
10.39 to Ceridians Annual Report on Form 10-K for the year ended December 31, 2002 (File No.
001-15168)).10.34*
    
    Ceridian Corporation Amended Savings-Related Share Option Plan (incorporated by reference to
Exhibit 10.40 to Ceridians Annual Report on Form 10-K for the year ended December 31, 2002
(File No. 001-15168)).10.35
    
    Credit Agreement dated as of January 31, 2001 among Ceridian Corporation (formerly known as
New Ceridian Corporation), as the borrower, Bank of America, N.A., as the Administrative Agent
and L/C issuer, Other Lenders thereto (exhibits and schedules omitted) (incorporated by
reference to Exhibit 10.28 to Ceridians Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 001-16149)).10.36
    
    First Amendment to Credit Agreement, dated as of April 19, 2002 among Ceridian Corporation,
as the borrower, the several financial institutions party to the Credit Agreement, dated as of
January 31, 2001, and Bank of America, N.A., as the Administrative Agent for itself and the
other Lenders (incorporated by reference to Exhibit 10.02 to Ceridians Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002 (File No. 001-15168)).10.37
    
    Receivable Sales Agreement, dated as of June 24, 2002, between Comdata Network, Inc. and
Comdata Funding Corporation (incorporated by reference to Exhibit 10.01 to Ceridians
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File No.
001-15168)).10.38
    
    Receivable Purchase Agreement, dated as of June 24, 2002, among Comdata Funding Corporation,
Comdata Network, Inc., Jupiter Securitization Corporation, the Financial Institutions party
thereto and Bank One, N.A. (incorporated by reference to Exhibit
 141




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Exhibit
    
    Description10.02 to Ceridians Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2002 (File No. 001-15168)).10.39
    
    Performance Undertaking, dated as of June 24, 2002, executed by Ceridian Corporation in
favor of Comdata Funding Corporation (incorporated by reference to Exhibit 10.03 to Ceridians
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File No.
001-15168)).21.01**
    
    Subsidiaries of Ceridian.23.01***
    
    Consent of Independent Registered Public Accounting Firm - KPMG LLP.24.01**
    
    Power of Attorney.31.01***
    
    Certification of our Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.02***
    
    Certification of our Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.01***
    
    Certification of our Chief Executive Officer required pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.02***
    
    Certification of our Chief Financial Officer required pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    *
    
    Management contract or compensatory plan or arrangement required to be filed as an exhibit to this
report.**
    
    Previously filed with the Original Filing.***
    
    Filed herewith. We will provide our stockholders with copies of any of the exhibits listed above, upon request
and payment of its reasonable expenses in furnishing such exhibits. We will also provide to the
Securities and Exchange Commission, upon request, any exhibit or schedule to any of the foregoing
exhibits which has not been filed. (b) Reports on Form 8-K The following Reports on Form 8-K were filed or furnished during the fourth quarter of 2003
and through the date of the Original Filing. The contents of Items 7 and 12 of the following Forms
8-K are not incorporated by reference herein or deemed filed within the meaning of Section 18 or
the Securities Act: 142




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On October 15, 2003, we filed a Current Report on Form 8-K, furnishing under Items 7
and 12, a press release reporting our third quarter 2003 results. On January 22, 2004, we filed a Current Report on Form 8-K filing under Item 5,
announcing that Ceridian is responding to a document request from the SEC and has been
advised that the SEC has issued a formal order of investigation, and furnishing under Items
7 and 12, a press release reporting our fourth quarter and full year 2003 results. On February 19, 2004, we filed a Current Report on Form 8-K filing under Items 5 and 7
a press release announcing a change in revenue recognition at our Stored Value Systems unit,
the intention to restate our financial statements for the fiscal years ended December 31,
2003, 2002, 2001 and 2000 and revised guidance for 2004. 143




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this amended report to be signed on its behalf by the undersigned,
thereunto duly authorized, as of February 18, 2005. CERIDIAN CORPORATIONBy
    
    /s/ Ronald L. TurnerRonald L. TurnerChairman, President and Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this amended report has
been signed below by the following persons on behalf of the Registrant and in the capacities
indicated as of February 18, 2005. /s/ Ronald L. Turner
    
    /s/ John R. EickhoffRonald L. Turner
    
    John R. EickhoffChairman, President and Chief Executive
Officer (Principal Executive Officer)
    
    Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)/s/ Loren D. GrossLoren D. GrossVice President and Corporate Controller(Principal Accounting Officer)/s/ William J. Cadogan
    
    /s/ Nicholas D. ChabrajaWilliam J. Cadogan, Director
    
    Nicholas D. Chabraja, Director/s/ Ronald T. LeMay
    
    /s/ George R. LewisRonald T. LeMay, Director
    
    George R. Lewis, Director/s/ Carole J. Uhrich Shapazian
    
    /s/ Alan F. WhiteCarole J. Uhrich Shapazian, Director
    
    Alan F. White, Director
 144




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##### Table of Contents



CERIDIAN CORPORATION
ANNUAL REPORT ON FORM 10-K 
 Exhibit Index Exhibit No.
    
    Description of Exhibit3.01*
    
    Amended and Restated Certificate of Incorporation of Ceridian Corporation (formerly known as
New Ceridian Corporation).3.02*
    
    Amendment to Amended and Restated Certificate of Incorporation of Ceridian Corporation
(formerly known as New Ceridian Corporation).3.03*
    
    Amended and Restated Bylaws of Ceridian Corporation (formerly known as New Ceridian
Corporation).4.01*
    
    Rights Agreement, dated as of November 6, 2001, between Ceridian Corporation and The Bank of
New York, as Rights Agent, including the form of Certificate of Resignation, Preferences and
Rights of Series A Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B
and the Summary of Rights to Purchase Preferred Stock as Exhibit C.10.01*
    
    Distribution Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001.10.02*
    
    Amendment No. 1 to Distribution Agreement between Arbitron Inc., formerly known as Ceridian
Corporation, and Ceridian Corporation, formerly known as New Ceridian Corporation, dated March
30, 2001.10.03*
    
    Personnel Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001.10.04*
    
    Amendment No. 1 to Personnel Agreement between Arbitron Inc., formerly known as Ceridian
Corporation, and Ceridian Corporation, formerly known as New Ceridian Corporation, dated as of
April 3, 2001.10.05*
    
    Tax Matters Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001.10.06*
    
    Transition Services Agreement between Arbitron Inc., formerly known as Ceridian Corporation,
and Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001.
 1




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.07*
    
    Sublease Agreement between Arbitron Inc., formerly known as Ceridian Corporation, and
Ceridian Corporation, formerly known as New Ceridian Corporation, dated February 14, 2001.10.08*
    
    Executive Employment Agreement between Ceridian Corporation and Ronald L. Turner, dated
January 29, 2002.10.09*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and
Ronald L. Turner, dated November 21, 2002.10.10*
    
    Executive Employment Agreement between Ceridian Corporation and John R. Eickhoff, dated
April 22, 2002.10.11*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and John
R. Eickhoff, dated November 21, 2002.10.12*
    
    Executive Employment Agreement between Ceridian Corporation and Robert H. Ewald, dated July
21, 2003.10.13*
    
    Executive Employment Agreement between Ceridian Corporation and Gary A. Krow, dated January
29, 2002.10.14*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and Gary
A. Krow, dated November 21, 2002.10.15*
    
    Executive Employment Agreement between Ceridian Corporation and Gary M. Nelson, dated
January 29, 2002.10.16*
    
    Amendment No. 1 to the Executive Employment Agreement between Ceridian Corporation and Gary
M. Nelson, dated November 21, 2002.10.17*
    
    Ceridian Corporation Amended and Restated 2001 Long-Term Stock Incentive Plan.10.18*
    
    Ceridian Corporation Employee Stock Purchase Plan.10.19*
    
    Ceridian Corporation Amended and Restated 2001 Director Performance Incentive Plan.10.20*
    
    Ceridian Corporation 2002 Employee Stock Incentive Plan.10.21*
    
    Ceridian Corporation Benefit Equalization Plan, as amended.10.22*
    
    Ceridian Corporation Benefit Equalization Plan, First Declaration of Amendment.
 2




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.23*
    
    Ceridian Corporation Benefit Equalization Plan, Second Declaration of Amendment.10.24*
    
    Ceridian Corporation Benefit Equalization Plan, Third Declaration of Amendment.10.25*
    
    Ceridian Corporation Employees Benefit Protection Trust Agreement, dated as of December 1,
1994, between Ceridian Corporation and First Trust National Association.10.26*
    
    First Declaration of Amendment to Ceridian Corporation Employees Benefit Protection Trust
Agreement, effective as of January 1, 1999, between Ceridian Corporation and US Bank National
Association.10.27*
    
    Second Declaration of Amendment to Ceridian Corporation Employees Benefit Protection Trust
Agreement, dated as of March 26, 2001, between Ceridian Corporation and US Bank National
Association.10.28*
    
    Third Declaration of Amendment to Ceridian Corporation Employees Benefit Protection Trust
Agreement, dated as of August 1, 2001, between Ceridian Corporation and US Bank National
Association.10.29*
    
    Ceridian Corporation Deferred Compensation Plan (2002 Revision).10.30*
    
    Split Dollar Agreement between Ronald L. Turner and Ceridian Corporation.10.31*
    
    Form of Indemnification Agreement between Ceridian Corporation and its Directors.10.32*
    
    Ceridian Corporation 2001 Savings-Related Share Option Plan.10.33*
    
    Ceridian Corporation UK Compensation Share Option Plan.10.34*
    
    Ceridian Corporation Amended Savings-Related Share Option Plan.10.35*
    
    Credit Agreement, dated as of January 31, 2001 among Ceridian Corporation (formerly known as
New Ceridian Corporation), as the borrower, Bank of America, N.A., as the Administrative Agent
and L/C issuer, Other Lenders thereto.10.36*
    
    First Amendment to Credit Agreement, dated as of April 19, 2002, among Ceridian Corporation,
as the borrower, the several financial institutions party to the Credit Agreement, dated as of
January 31, 2001, and Bank of America, N.A., as the Administrative Agent for itself and the
other Lenders.10.37*
    
    Receivable Sales Agreement, dated as of June 24, 2002, between Comdata Network, Inc. and
Comdata Funding Corporation.
 3




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##### Table of Contents



Exhibit No.
    
    Description of Exhibit10.38*
    
    Receivable Purchase Agreement, dated as of June 24, 2002, among Comdata Funding Corporation,
Comdata Network, Inc., Jupiter Securitization Corporation, the Financial Institutions party
thereto and Bank One, N.A.10.39*
    
    Performance Undertaking, dated as of June 24, 2002, executed by Ceridian Corporation in
favor of Comdata Funding Corporation.21.01**
    
    Subsidiaries of Ceridian.23.01***
    
    Consent of Independent Registered Public Accounting Firm  KPMG LLP.24.01**
    
    Power of Attorney.31.01***
    
    Certification of our Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.02***
    
    Certification of our Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.01***
    
    Certification of our Chief Executive Officer required pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.02***
    
    Certification of our Chief Financial Officer required pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   *
    
    Incorporated by Reference**
    
    Previously filed with the Original Filing.***
    
    Filed herewith. 4